Over the past week, the United States Trade Representative (USTR) and Department of Commerce Bureau of Industry and Security (BIS) took three separate actions that will impact imports of goods from China, as well as steel and aluminum products from China and other trading partners. Notably:

• USTR announced an exclusion request process for products included on what is commonly called "List 2" – a list of 818 eight-digit Harmonized Tariff Schedule of the United States (HTSUS) subheadings that cover approximately $34 billion worth of Chinese imports issued on August 23, 2018. The request process is similar to the analogous exclusion request process under "List 1" of HTSUS subheadings subject to additional tariffs from China, announced in July. Notably, parties seeking an exclusion must provide a physical description of the covered product – focused on the product itself, rather than brand name or actual use – as well as an analysis of (i) the product's availability from non-Chinese sources, (ii) the product's strategic importance to Chinese industrial policy, and (iii) any "severe economic harm" additional tariffs on the product will cause to U.S. interests. 
• USTR announced a finalized version of "List 3" – a list of another 5,745 eight-digit HTSUS tariff subheadings that will be subject to additional tariffs and cover approximately $200 billion worth of Chinese imports. List 3 products are subject to an additional 10 percent tariff as of September 17, 2018, which will increase to 25 percent as of January 1, 2019. In terms of trade value, List 3 covers more trade than List 2 and List 1 combined. Furthermore, in contrast to the previous two lists, List 3 includes HSTUS subheadings that cover primarily consumer goods.
• BIS announced revisions to the ongoing exclusion request process for imports of steel and aluminum products, which are subject to additional 25 percent and 10 percent tariffs, respectively, under Section 232 of the Trade Expansion Act of 1962. The revisions are intended to make the exclusion request process more transparent, fair, and efficient, although it remains to be seen whether they will help BIS reduce the significant backlog of exclusion requests that have accumulated since the process was put in place in March 2018.

We discuss each of these actions in greater detail below.

USTR Announces Exclusion Request Process for "List 2" Imports from China

On September 18, 2018, USTR published a notice detailing a process that parties must follow to receive an exclusion from the 25 percent tariff imposed on "List 2" imports from China, in effect as of August 23, 2018. Parties seeking to file exclusion requests must do so before December 18, 2018. Interested parties may submit responses to an exclusion request – either indicating support or opposition – within 14 days of the request's publication, as well as replies to responses within 7 days of the response's publication. If an exclusion is granted, relief from the additional tariffs will be made retroactive as of August 23, 2018.

Products Covered by List 2 – List 2 includes 818 eight-digit HTSUS tariff subheadings that cover approximately $34 billion worth of Chinese imports. Examples of tariff headings covered by List 2 include:

• Plastics and articles thereof;
• Machinery and mechanical apparatuses;
• Electrical machinery and equipment;
• Vehicles, aircraft, and vessels;
• Vehicles other than railway rolling stock (e.g., tractors); and
• Optical, photographic, cinematographic, measuring, checking, precision, medical, or surgical instruments.

List 2 Exclusion Request Process – Like the currently ongoing List 1 exclusion process, the List 2 exclusion process requires interested parties to provide a description of the product itself, which should be identifiable based on physical characteristics. The USTR notice strongly suggests that exclusion requests based on the producer, importer, ultimate consumer, actual use or chief use, trademarks, or tradenames of the product will not be successful. USTR also indicates that it will consider three factors in determining whether to approve an exclusion request, namely:

• Whether the particular product is available only from China. In addressing this factor, requesters should address specifically whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries;
• Whether the imposition of additional duties on the particular product would cause severe economic harm to the requester or other U.S. interests; and
• Whether the particular product is strategically important or related to "Made in China 2025" or other Chinese industrial programs.

USTR Announces New Tariffs on "List 3" Imports from China

On September 17, 2018, USTR announced that it had finalized "List 3," the third tranche of imports from China subject to additional tariffs. As of September 17, 2018, List 3 imports from China are subject to an additional 10 percent tariff. On January 1, 2019, the additional tariff rate will increase to 25 percent. 

Products Covered by List 3 –  List 3 includes 5,745 eight-digit HTSUS tariff subheadings that cover approximately $200 billion worth of Chinse imports. In terms of value, List 3 covers more U.S.-China trade than the previous two lists combined, such that a larger number of companies are likely to be affected by the tariff increase. In addition, List 3 is the first list to includes HTSUS subheadings that cover primarily consumer goods, as well as the first list to include two parts, i.e., Part 1, which covers full eight-digit HTSUS subheadings; and Part 2, which includes several eight-digit HTSUS subheadings but excludes certain ten-digit HTSUS subheadings contained within the eight-digit subheadings from the additional tariffs. Examples of tariff headings covered by List 3 include:

• Meat;
• Fish and seafood;
• Vegetables;
• Fruits;
• Prepared foodstuffs;
• Salt, sulfur, earths, and stones;
• Pres, slag, and ash;
• Mineral fuels;
• Inorganic chemicals;
• Organic chemicals;
• Fertilizers;
• Miscellaneous chemical products;
• Rubber and rubber articles;
• Animal hides and skins;
• Leather and leather articles;
• Wood and wood articles;
• Paper and paper products;
• Wool and wool products;
• Cotton and cotton products;
• Knitted or crocheted fabrics;
• Articles of stone, plaster, cement, asbestos, mica, or similar materials;
• Ceramic products;
• Glassware;
• Articles of iron or steel;
• Tools, implements, and cutlery;
• Nuclear reactors, boilers, and machinery;
• Electrical machinery and equipment;
• Vehicles other than railway rolling stock (e.g., tractors); and
• Furniture.

List 3 Exclusion Request Process – USTR's announcement does not indicate whether there will be an exclusion request process for List 3. However, if USTR's past practice serves as any guide, we expect that an exclusion request process for List 3 will be announced within a few weeks. We will continue to follow USTR's announcements related to an exclusion request process for List 3 closely.

China Retaliatory Tariffs – Finally, USTR's announcement prompted the Chinse government to announce its own retaliatory tariffs on approximately $60 billion worth of U.S. products. The Chinese retaliatory tariffs, announced on September 17, 2018, cover U.S. products such as meat, wheat, and textiles, and will go into effect on September 24, 2018.

BIS Announces Revised Exclusion Process for Steel and Aluminum Imports

On September 11, 2018, BIS published an official notice in the Federal Register revising its interim regulations that govern the process for requesting an exclusion from the 25 percent tariff on steel products and the 10 percent tariff on aluminum products imposed as a result of the agency's investigation into the national security implications of such imports under Section 232 of the Trade Expansion Act. 

Description of Revised Exclusion Request Process – The steel and aluminum exclusion request process has been in place since March 19, 2018. However, according to the Federal Register notice, BIS is now revising the process somewhat to make it "as fair, transparent and efficient a process as possible." BIS also took care to note that it had incorporated feedback from numerous comments submitted by interested parties, as well as BIS's own experience managing the exclusion and objection process thus far. 

As a result, the revised process includes the following changes:

• Rebuttals and surrebuttals – Under the exclusion request process originally put in place, interested parties could submit objections to exclusion requests, for example by countering the requestor's assertions that certain products were not available within the United States. Now, interested parties will also be able to submit rebuttals to exclusion request objections as well as surrebuttals to rebuttals. Notably, however, BIS has imposed tight, seven-day timelines for submitting rebuttals and surrebuttals. Interested parties should carefully consult BIS's drafting guidelines and rebuttal and surrebuttal finder tool to ensure that their exclusions, objections, rebuttals, and surrebuttals are successful.
• Streamlined procedure for non-controversial requests – The new interim regulations also establish a streamlined review process for requests with no objections and no national security concerns. More than half of exclusion requests fall into this category.
• Exclusions for products subject to steel and aluminum quotas – Before the revisions to the interim rules, steel or aluminum products subject to quantitative restrictions, or quotas, could not be imported once the quota was filled. Now, U.S. parties may request an exclusion to import covered products after a quota is filled, which may be granted on grounds similar to those upon which other exclusion requests may be granted. Steel and aluminum products from Argentina, Brazil, and South Korea are currently subject to quotas; other countries' products could be added in the future.
• Clarification of key terms used in exclusion request process – The new interim regulations clarify several key terms used in the exclusion request process – including clarifications of who can request an exclusion; what constitutes a national security concern; how broad a product category a single exclusion request can cover; whether a product is produced in the United States "in a sufficient and reasonably available amount" and "in a satisfactory quality." 

Impact of Revised Exclusion Request Process – Whether the changes will make the current Section 232 exclusion request process more efficient remains to be seen. On the one hand, a more streamlined process should allow for more efficient adjudication of exclusion requests, hopefully allowing BIS to tackle the extensive backlog of requests that have accumulated since March 2018. In addition, the clarified definitions should allow for more targeted – and thus more successful – exclusion requests, and many of the clarified definitions are importer-friendly, such as the clarification that interested parties who may file a request include U.S. distributors and U.S contractors. On the other hand, the new rebuttals and surrebuttals may potentially complicate and lengthen the process for some exclusion requests. 

For more information, please contact:

Richard Mojica, rmojica@milchev.com, 202-626-1571

Daniel Patrick Wendt, dwendt@milchev.com, 202-626-5898

Collmann Griffin*

Claire Rickard Palmer**

P. Welles Orr***

*Former Miller & Chevalier attorney
**Former Miller & Chevalier consultant
***Former Miller & Chevalier advisor

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