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China Poises to Exclude Extra Tariffs for US Goods
2020-02-21Dr. Deming Zhao | Ju Chen | Lixin Jin

Tariff Classification Service Center

Customs & Trade Compliance

By Dr. Deming Zhao | Ju Chen | Lixin Jin

Mingming Dai, director of Tariff Classification Service Center, also contributed to this article.

 

Remarks

The transaction-oriented exclusion of extra tariffs, if approved, will be valid for one year. Regarding applications for exclusion of extra tariffs based on import transactional plans, we suggest that companies conduct trade compliance review of the 10-digit Chinese tariff codes (to be declared upon import) of proposed imports from U.S. before March 2, 2020 to ensure the tariff exclusion benefits in the future. If the tariff codes used in the exclusion applications are incorrect, the imported goods cannot be eligible for extra tariff exclusion even if the company’s application has been approved. If the tariff exclusion benefits are illegally obtained, the company will be investigated by Chinese customs for false declaration liabilities. We recommend that companies plan for imports from the U.S. and apply for the exclusion as soon as possible. In case that the import volume targeted by China for a certain product under the trade agreement between China and U.S. has completely allocated to other applicants, the Tariff Schedule Commission of the State Council (“TSC”) may no longer approve such exclusion applications for the same year.

Please note that this new exclusion does not apply to China extra tariffs imposed in retaliation against U.S. Section 232 investigations.


Recently new opportunities emerge for export of U.S. products to China markets. On February 18, 2020, TSC released Announcement [2020] No.2 (“Announcement”), which allows some instances of automatic extra tariff exclusion without applications, including (1) imports from U.S. under tariff reduction or relief programs; (2) imports through channels of express delivery; (3) imports that fall under approved lists of exclusion lists if still within the valid time.

 

More importantly, the Announcement opens the door for exclusion based on the importer’s transactional plan for imports from the U.S., rather than on the hardship with which the particular importers are afflicted. This transaction-oriented exclusion is limited to tariff codes and reference descriptions of commodities on the appendix list attached to the Announcement. These commodities can be excluded from extra tariffs with application by the importers in China based on their transactional plan to import from the U.S. For tariff codes of commodities not covered by the appendix list and yet burdened with the extra tariffs, importers in China may petition expansion of the appendix list to pave the way for exclusion applications. Such petition, however, must state the hardship as caused by the extra tariffs.

 

The transaction-oriented exclusion of extra tariffs, if approved, will be valid for one year after the approval, and will stimulate the trading volume of U.S products imported to China in one year, which will open up the way for the implementation of the Economic and Trade Agreement between the Government of the People's Republic of China and the Government of the United States of America ("China-U.S. Trade Agreement"). For U.S. exporters, it is a new opportunity for their export to China.

 

I. The eligible applicants

 

The applicants for the exclusion must be “companies in China that plan to sign a contract to purchase and import relevant commodities from the United States". For a multinational company, the applicant can be its subsidiary in China responsible for purchase and import of U.S. products.

 

II. Application channel and timeframe

 

The applicant is to enter and submit its import purchase exclusion application in line with the requirements through the on-line application system for exclusion via the website of the Tariff Policy Research Center of the Ministry of Finance: https://gszx.mof.gov.cn.

 

The system will start accepting applications from March 2, 2020. The specific instructions and operation guidelines for exclusion will be publicized by the application system soon.

 

III. Products eligible for exclusions

 

The products or commodities that can be excluded from extra tariffs are illustrated by way of 8-digit tariff codes. The applicant must ensure such 8-digit tariff codes in line with the actual products to be imported. In other words, it must ensure the legality of such 8-digit tariff code classifications under Chinese law. Otherwise, it will not benefit from the exclusion, and may trigger risks of liabilities to China customs.

 

(a) Products on the appendix list

 

The appendix list attached to the Announcement includes 696 8-digit tariff codes, covering U.S. agricultural commodities, energy products and manufactured products, and companies can directly submit an exclusion application for these commodities. The applicant needs to understand that the appendix list is a short form of China Tariff Schedule and the commodities in the exclusion applications must be properly described in accordance with China Tariff Schedule (2020), and the import declarations must be made with the correct declaration elements as required by China customs regulations.

 

(b) Products off the appendix list

 

For such products, companies may petition to TSC to expand the list to include the same, with descriptions and 8-digit tariff codes, so that applications can be made subsequently to exclude extra tariffs. However, such petition must state as the reason the hardship with which the importer is afflicted due to the extra tariffs.

     

Ⅳ. Direct Import and China-U.S. Trade Agreement

 

Import shipments eligible for exclusion must be imported directly from the United States. Firstly, the commodities for the import transactions must be those located in the States and literally even the overseas seller may be required to be a company in the States; secondly, the commodities must be shipped and imported directly from U.S. to China. Therefore, the transit trade through third regions or countries such as Hong Kong or Singapore does not satisfy the conditions for applying for extra tariff exclusions.

 

The requirement for direct import is apparently necessitated by China-U.S. Trade Agreement. Chapter VI of China-U.S. Trade Agreement, signed by China and U.S. in Washington on January 15, 20:20 EST provides that China promises to ensure procuring and importing manufactured goods, agricultural goods and energy products, with additional values above the corresponding 2017 baseline amount. Such additional values for these different categories of commodities must be no less than 32.9 billion USD, 12.5 billion USD, and 18.5 billion USD respectively in calendar year 2020, which is "to purchase and import from the U.S.".

 

The appendix list of the Announcement substantially reflects the commitments taken by China under China-U.S. Trade Agreement. The following table reflects some of the commodities eligible for extra tariff exclusion and covered by China-U.S. Trade Agreement, with added current extra tariffs for reference only:

 

Contents

Product Category

Description

HS code

Extra duties for US origin

Manufactured Goods

Industrial machinery

Other loading and unloading machinery

84289039

25%

Engine supercharger

84148030

25%

Electrical equipment and machinery

Industrial electrostatic precipitator

84213921

20%

Thermal print head

84439921

25%

Pharmaceutical products

Other insulin and its salts

29371290

25%

Cefaclor and its salts

29419058

2.5%

Optical and medical instruments

Other camera lenses

90021139

25%

Anesthesia equipment

90189070

5%

Iron and steel

Steel sheet pile

73011000

25%

Rail

73021000

25%

Agriculture Goods

Oilseeds

Virgin soybean oil and its fractions

15071000

25%

Yellow soybean

12019010

27.5%

Meat

Fresh or cold boned beef

02012000

30%

Other fresh or cold pork

02031900

30%

Cereals

Other durum wheat

10011900

25%

Other corn

10059000

25%

Cotton

Uncombed cotton

52010000

25%

Seafood

Live, fresh and cold lobster

03063290

30%

Live, fresh and cold other crabs

03063399

30%

Energy Products

Liquefied natural gas

Liquified natural gas

27111100

25%

Liquefied propane

27111200

25%

Crude oil

Crude oil

27090000

2.5%

Aviation kerosene

27101911

25%

Refined products

Ethylene

29012100

25%

Acrylonitrile

29261000

25%

Coal

Carbon

28030000

12.5%

Unformed coking bituminous coal

27011210

27.5%



V. Application process

 

The applicant must state the tariff codes and planned purchase amounts in its online application for the commodities to be imported from the States. If approved, the applicant must timely upload the transactional information. Prior to import clearance, the applicant is to submit a self-statement and then receive the exclusion number for import clearance purposes. Upon import clearance, the applicant must fill in the exclusion number on the declaration forms and conduct declarations in accordance with customs regulations.

 

The planned purchase amounts must be stated on the monthly basis. If approved, the application needs to upload the monthly transactional information. If the actual transaction amount of a given month is lower than the planned one, the unused portion of the approved amount will automatically expire at the end of the same month, and only the actual traded goods will be excluded from the scope of extra tariffs. In case the actual transaction amount exceeds the purchase plan, the applicant must make further exclusion application within the prescribed time to obtain the approval for exclusion.

 

Ⅵ. Benefits of approval

If the exclusion application is approved, the imports and import amounts from the States covered by the approval will no longer be subject to China's extra tariffs against U.S. 301 measures within one year from the date of the approval. For excessive amount of imports, the importer will bear the same extra tariffs apart from normal import taxes. The extra tariffs levied before the approval will not be refunded.

 

Ⅶ. Conclusion

This new transaction-oriented exclusion of extra duties is different from the previous rounds of exclusions in the following aspects:

 

(a) Confidential nature

The new exclusions will be confidential and will not be disclosed to third parties without the consent of the applicant, except maybe otherwise required by laws and regulations and the state. However, the previous exclusions publicize the specific tariff codes and special descriptions.

 

(b) Non-refundable tariffs

Extra tariffs levied before the new exclusion approval will not be refundable, whereas the previous exclusions may allow refund of extra duties if paid after a certain date.

 

(c) Exclusiveness of benefits

The benefits of the new exclusions are confined to the applicant only. Other companies cannot possibly benefit from such exclusions simply because the exclusion depends on declaration of the unique exclusion serial number in the clearance process with the customs. The previous exclusion is available to all eligible goods no matter who is the importer.

 

(d) Transaction-driven consideration

The new exclusion is driven by the need to implement the China-U.S. Trade Agreement and does not need explanation of agony the importer has suffered due to the extra tariffs which was required in the previous exclusion applications.

 

In summary, the later the application, the more likely other importers have used up China target import amount for a given category of the commodities and TSC may probably not grant more approval for the same category of commodities for the same year.


Import companies are advised to arrange for the import plan from U.S. and apply for the exclusion as soon as possible.

 

At the same time, the companies as importers need to conduct legal compliance review on the China tariff code classification of proposed imports from U.S. before March 2, 2020 to ensure that they will have the statutory benefits of extra tariff exclusions in the future. If the tariff codes used in the exclusion applications are incorrect, the imported goods cannot be eligible for the extra tariff exclusion even if the company's application has been approved. If the tariff exclusion benefits are illegally obtained, the company will be investigated by Chinese customs for false declaration liabilities.