Note: On October 11th, 2019, the US and China reached an agreement not to increase tariffs further on October 15th as previously planned. As of October 14th, 2019, tariffs from September are still in effect and tariffs scheduled for December have not yet been canceled.
Although the ongoing trade war has reshaped the paradigm of international business, requiring almost everyone to rethink approaches to markets and sourcing, there are some cases in which enterprises can seek exclusions from both China tariffs and US duties on China, by submitting applications to the PRC Customs Tariff Commission and US Trade Representative. Exemptions are granted in rounds, several of which have already gone through, with more expected to follow.
Exemptions from tariffs on US imports in China
In May 2019, the PRC Customs Tariff Commission of the State Council published the Trial Measures on the Exclusion Work for US Products Subject to Additional Tariffs. The document allows for temporary exemptions from additional tariffs through two rounds of applications, with the second round open from September 2nd, 2019.
Successful applications during the first round, which ended in July, 2019, have resulted in two exemption lists covering 16 product categories, valid for one year starting from September 17th, 2019. Businesses importing any of these 16 items from the US, which are mostly agricultural supplies and industrial chemicals, will not face tariffs in China until September 16th, 2020.
The categories are as follows:
The deadline to submit applications for tariff exemptions during the second round is October 18th, 2019. Mainland China based firms and industrial associations can apply either individually or collectively, with a limit of one application per entity, per product.
Applications should be filed with complete documentation, including the applicant’s business license, import declarations, and reports on the company’s market share for the relevant item, along with product information and import ledgers. Successful applications will be reflected by the products’ inclusion in upcoming China tariff exclusion lists.
The decision process for approving or denying tariff exemptions will be based on demonstrable difficulty in finding alternative sourcing, financial harm to the company and the likelihood of disadvantage to domestic industries and the national economy in terms of competitiveness, growth, employment and sustainability. Products for which tariffs have already been suspended are ineligible for exemption. Any claims will have to be extensively substantiated with data and a compellingly constructed argument in favor of tariff exclusion in order to be seriously considered by the government.
The exemption validity period will be for one year after the date of approval (date of list publication) by the Customs Tariff Commission. Tariffs paid on subsequently exempted items are eligible for refunds within 6 months.
Exemptions from tariffs on China imports in the US
The US Trade Representative has published four lists of products eligible for tariff exemption applications. Applications for the first three lists have closed, while the claims process for the fourth US China tariff list is yet to be announced.
Applications are open to individuals, companies, brokers and groups, and separate applications must be made for each product after registering online at the USTR website. The three main forms to be submitted are the Exclusion Request Form, Exclusion Response Form and Exclusion Reply Form. The Exclusion Request Form is for the applicant, while the Exclusion Response Form is for other parties to express support or opposition to the request during a two week period after it is posted online. The Exclusion Reply Form is for applicants to reply to any responses seven days after it is posted.
Applicants should provide documentation for their company or association’s information, their use of the product, details about the product’s US market and details surrounding its sourcing, as well as the value of previous purchases of the item from China and other countries, if any, during the past three years. Any previous tariff exclusion requests should also be documented while
Government approval is based on product availability, the product’s relevance to China’s state backed industrial initiatives, satisfactory documentation of attempts at alternative sourcing, and demonstration of financial harm to the applicant and the US economy if additional duties are imposed. All claims should be backed with data and a sound legal basis in the context of trade war legislation. Each request is addressed on a case by case basis. Although the next phase of the US tariff exclusion application process is yet to begin, the form submission procedure is likely to be the same.
Under both the US and China tax regimes, submitting requests for exemptions is a worthwhile endeavor that could pay dividends in terms of tariff refunds for those that have already been subject to them, and gain a degree of flexibility in an increasingly tense global marketplace. The process itself is a comprehensive assessment of company operations, which has its own inherent value to any enterprise.
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