By Dan Minutillo, Esq.
Toward the end of this week, take a minute to add up and total the amount of US tariffs imposed on Chinese goods imported into the US. You can glean this data from online aggregated digital news, television news, or from US Government pronouncements about Trump tariffs.
I would be very surprised if the number does not exceed hundreds of billions of US dollars encompassing about half of all Chinese manufactured goods entering the US. The public comment period for most US-China tariffs to be imposed to date ended this past Friday so that such tariffs can be imposed by the US Government and will either be at 25% or 10% depending on the Chinese manufactured product.
China and the US, up to this point, have enjoyed a robust trading partner experience. China is the most active trading partner with the US at about $500 billion of Chinese goods sold to the US last year. These US-China tariffs to be imposed on our most active trading partner are meant to hurt the Chinese economy for alleged unfair trade practices, misappropriating US intellectual property, and generally misbehaving in the world of international trade to the detriment of the US. China has threatened to match and retaliate against the US with equal trade sanctions on US products.
US companies have four (4) primary options to avoid these Trump lead tariffs on imported Chinese goods:
- Find a supplier and manufacturer other than China for the goods;
- Pay the tariff as the importer of record;
- File for a US Customs classification arguing that these tariffs do not apply to its goods imported from China; or
- Apply for exclusion from these tariffs.
For context, the exporter of record is the company or individual who is listed on export documentation as the person or entity moving product from country “A” to country “B”. The country of export is the place which the product moved from.
A product could be subject to a US-China tariff even though the product was not exported from China. Products manufactured in China (made in China) are subject to the Trump tariffs even if those products took a circuitous route to reach the shores of the US.
The importer of record is responsible for paying these Trump tariffs on Chinese goods. The importer of record is usually the buyer or distributor of the imported goods, so, 1 through 4 noted above are options for the importer of Chinese goods, that is for the US company importing Chinese goods into the US.
If the US importer decides on option 2, that is to pay the tariff as the importer of record; then it has two primary options:
- To absorb the cost of the tariff thereby cutting into profits; or
- To increase the price of the product subject to the tariff and pass this increase, either in full or in part, onto its customers thereby risking market share.
How do you determine if a product is subject to Trump’s US-China tariff?
This is where it gets a bit tricky. The “Lists” of products subject to US tariffs on China’s products are categorized by the United States Harmonized Tariff Schedule (USHTS) code system. This system categorizes products by product type and then provides multiple subcategories with further particular specified descriptions. The object is first to find the general product category on the USHTS code schedule and then continue to drill down to subcategories on this schedule until a full description of the subject product is found.
A clear, simple and definite example of a USHTS code is for laptop computers which fit into USHTS 8471.30.01.00 as automatic data processing machines that are portable, with certain weight restrictions. This USHTS code categorization is easy.
However many of the USHTS categories are confusing, to understate. For example, run a web search for “Clocks and Watches US HTS Code” and then compare the HTS data and codes that appear relating to a watch which you own then try to determine the exact US HTS code for that watch. This exercise will give you an idea about how difficult it could be to determine USHTS code and then to determine if a product is covered on one of the US-China tariff lists with high US tariff ramifications based on the USHTS code.
Requesting a Customs Classification
If a company is not sure where their product fits in the USHTS Code classification system, it can submit a description of the subject product with backup data requesting that US Customs provide an HTS classification for that product. US Customs will evaluate the information provided and assign a USHTS Code for that product. The company then merely looks at the USHTS Code table and the applicable US-China tariff lists to determine the applicable tariff amount, if any, for that product.
Requesting an Exclusion
If it appears that the product is subject to the Trump US-China tariff, the US Government has established certain procedures in the event a company believes that its product should be excluded from the US-China tariff. In order to qualify for such exclusion, in addition to following the procedures outlined in the Government’s pronouncements about exclusions, the company must prove that:
- The product is only available in China; or
- The duties imposed would cause “severe economic harm;” to the company; or
- The product is not strategically important to China or related to Chinese industrial programs including, in particular, the Chinese program “Made in China 2025.”
As noted, the US Government has instituted an avenue for clarification of the HTS code for a product and an avenue to request exclusion if a product appears on one of the US-China import tariff lists. Neither avenue might satisfy the company struggling to pay or “pass on” a high US-China tariff to its customers, but at least these avenues provide an opportunity for relief.
Dan has practiced law in Silicon Valley since 1977. The Firm’s practice is limited to regulatory law, government contract law, and international trade law matters. Dan has received the prestigious “Silicon Valley Service Provider of the Year” award as voted by influential attorneys in Silicon Valley.He has represented many very large global companies and he has worked on the massive US Government SETI (Search for Extra Terrestrial Intelligence) project as well as FOEKE (worldwide nuclear plant design certification), the Olympic Games, the first Obama town hall worldwide webinar, among other leading worldwide projects.
Dan has lectured to the World Trade Association, has taught law for UCLA, Santa Clara University Law School and their MBA program, lectured to the NPMA at Stanford University, and for the University of Texas School of Law.
Dan has lectured to various National and regional attorney associations about Government contract and international trade law matters. He has provided input to the US Government regarding the structure of regulations relating to encryption (cybersecurity). He has been interviewed about international law by the Washington Post, Reuters and other newspapers.
He is the author of four books unrelated to law, one of which was a best seller for the publisher, and of dozens of legal articles published in periodicals, technical and university journals distributed throughout the world. He serves as an expert witness in United States Federal Court regarding his area of expertise.
MINUTILLO’s e-newsletter and all of its content is provided for information and very general purposes only. It is not intended to provide or offer any specific or general legal advice, or to create an attorney-client relationship. Before acting or relying on any information provided in this e-newsletter, consult an attorney who is an expert in the appropriate field of law.
Copyright © 2018 Minutillo, APLC, All rights reserved.