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As a response to China’s “unfair” trade practices related to the transfer of American intellectual property and technology, a 25% tariff went into effect on July 6, 2018. The tariff covers 818 product types, as defined by their corresponding Harmonized Tariff Schedule (“HTS”) codes, manufactured in China and imported into the United States.
This article aims to clarify how the tariff is assessed and applied by US Customs and Border Patrol (CBP) and provides sample scenarios and additional information in a question and answer format.
The tariffs are determined using three criteria: country of origin, classification, and valuation.
Criterion 1 – Country of Origin: This is probably the most important determining criterion. The COO is determined by which country the item is entirely grown in, produced or manufactured.iWhen taking individual components into consideration, if the part is marked with a COO of China, the part would meet this criterion. If the item is produced from multiple components from multiple countries including parts manufactured in China, the COO is determined by where the last “substantial transformation” took place. For products that have been assembled in China, even though some of the components may have been sourced from other countries, the product would be considered to have a Chinese origin.
Note: If the COO is marked as Taiwan or Hong Kong, the tariff is not applicable even if the part is being sourced from a supplier in China.
Criterion 2 – Classification: If the part is determined to be a product type on the first list of 818 HTS codes or the second list of 279 codes, the part would meet this criterion as well. Therefore, if the product type is on one of the below lists of harmonized tariff schedule codes, the part would be subject to the tariffs if it also has met the COO criterion.
List 1
List 2
Criterion 3 – Valuation: CBP will likely value the item by looking at the transactional value (the price that the importer is paying for the item excluding shipping and/or insurance)ii or what is commonly referred to in the industry as the declared cost of the good.
Regardless of where the parts are shipping from, if the COO of the part is China and the product’s HTS code is on the list provided by the United States Trade Representative, then it will be subject to a 25% tariff (based off of cost of applicable goods) when the product is being imported into the US.
Payment of Tariff: Tariffs are being collected by CBP upon the product entering the United States on top of any other tariffs that the goods might be subjected to. The importer of record will be the party responsible for payment of the tariff.
It is anticipated that most organizations will pass through additional costs to end users either in the form of increased cost of goods for items subject to the tariff or by including additional line items outlining incurred tariffs.
Expansion of tariffs: On August 7, the USTR released the next list of an estimated $16 billion worth of items imported from China to also be subjected to a 25% tariff. This second round of Section 301 tariffs is in addition to the list released on July 6. The list contains 279 out of the original proposed 284 product types that were proposed on June 15. CBP will begin collecting the duties on these items on August 23, 2018. The list can be viewed: HERE
Product exclusion process: The USTR has published a notice establishing a process by which US organizations can request that a particular product classified within a covered tariff be excluded from additional duties. The procedures can be viewed at: HERE
The USTR will accept requests to exclude a particular product on docket number USTR-2018-0025 until October 9, 2018. Approved exclusions will be effective for one year from the publication date of the exclusion determination in the Federal Register and will be retroactive through July 18, 2018. Submissions can be made electronically and must include: identification of the product; 10 digit subheading of the HTSUS most applicable to the product in question; information on the ability of CBP to administer the exclusion; annual quantity and value of the product that the requestor purchased in each of the last 3 years and must address whether the product is only available from China, whether the imposition of duties would cause severe economic harm to the requestor or other US interests, and whether the product is strategically important or related to “Made in China 2025”; and any other information that may be considered relevant.
Scenarios, questions and answers:
Q. | If my US-based organization’s overseas office has purchased Chinese parts, will the parts be subject to the tariff when I transfer the part from my overseas office to my US office? |
A. | Yes, as the parts were manufactured in China. |
Q. | An organization purchases a part with COO Philippines from a Chinese supplier, will the part be subject to the tariff? |
A. | No. The part does not meet the requirement that the part must be manufactured in China. Section 301 duties currently only apply to products of China, and are based on country of origin, not country of export.iii |
Q. | If my foreign-based organization purchases Chinese parts abroad and the parts transit through the United States during shipping to my company, are the parts subject to this tariff? |
A. | No. As the parts are not being imported to an end-user in the United States, the tariff will not be applicable. |
Q. | If my US-based organization purchases Chinese parts for an overseas customer and the parts transit through the United States, are the parts subject to this tariff? |
A. | As long as the parts are not being imported to an end-user in the United States and are only transiting through the country and depending on the circumstances, the tariff will not be applicable. |
Q. | If my US-based organization purchases products/assemblies containing Chinese parts from an overseas supplier, is the product subject to this tariff? |
A. | The product (made from Chinese components) may be subject to the 301 tariff once the product is imported into the US depending on if the product is assembled in China and/or if the product was substantially transformed. |
Q. | If my US-based organization purchases Chinese parts abroad but the parts are shipped to my assembler/integrator outside of the United States, is the product subject to this tariff? |
A. | As the individual parts are not being imported into the United States, the parts would not be subject to this tariff. However, the organization’s subsequent product (made from Chinese components) may be subject to the 301 tariff once the product is imported into the US depending on the product’s “substantial transformation”. |
Q. | Are products that are in inventory and were manufactured before July 6, 2018 subject to the tariff once they are imported into the United States? |
A. | Yes, products that have been in an organization’s inventory that are manufactured in China are included in the tariff. The date of manufacture of the product is irrelevant in the determination. |
Q. | My US-based organization placed an order for Chinese parts from an overseas supplier before July 6, 2018 but the product has not yet shipped to my facility, will the parts be subject to this tariff once they are imported into the US? |
A. | Yes, if the Chinese product is being imported into the United States after July 6, 2018 and is on the list, it will be subject to the tariff. |
As always, please be sure to direct questions for specific scenarios to your attorney or a trade compliance specialist.
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