Section 301 Tariff Eligibility
Under Section 301 of the Trade Act of 1974, the US Trade Representative’s Office, under the direction of the Trump Administration, initiated an investigation to determine whether China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation are unreasonable, unjustifiable, or discriminatory and burden or restrict U.S. commerce. The resulting Section 301 action places a 25% punitive duty on approximately $50 billion of imported industrial goods from China.
The first list that covers 818 harmonized tariff lines became effective on July 6th, 2018. The second proposed list consists of 284 HTS lines and is currently in the public comment phase. The third list covers over 6,000 tariff lines that, if implemented fully, would place an additional 10% duty on approximately $200 billion on US imports from China.
The imposition of the duty will be a significant burden and the first priority is to see if there are not ways to avoid the payment, such as to assign another tariff classification, one that is not subject to the duty, or to source from a country other than China.
If there is no way to avoid that additional duty, then you may want to look at recouping the duties on re-exports. Unlike tariffs on Steel and Aluminum promulgated under the provisions of Section 232, the Administration declared the Section 301 duties drawback eligible in its implementing rules.
Companies claiming drawback must decide whether to submit claims on Section 301 duties under the provisions of the legacy drawback law referred by the Trade Community as the “core” drawback law or whether to file under the amended drawback law passed as part of the Trade Facilitation and Enforcement Act of 2016 known by its acronym as “TFTEA” drawback.
Operationally, filing drawback on duties levied under Section 301 is no different than filing drawback on the regular rate of duty. The same legal and regulatory structure applies. A company should first assess its drawback recovery potential on both Section 301 as well as regular duties. The first step in the assessment process is to establish a Customs ACE (Automated Commercial Environment) account in order to access automated import data and generate reporting.
A “look up” function can then be used to assign a 25% rate of duty to the HTS numbers on list 1 and 2 and 10% for HTS numbers on proposed list 3 in order to estimate the increase in Customs duties due to Section 310 tariffs. Next, pull export data for the same time period (the Core drawback law allows for three years of retroactive export history while the TFTEA allows for 5 years from the date of importation) from your Enterprise Resources Planning software
The last step in the process requires drawback specific software to run preliminary “test” drawback claims to ascertain total potential recovery for “internal” drawback based on a company’s own import and export activity. However, more potential recovery could exist beyond one’s own export activity by partnering with exporters of US origin merchandise who export product with the same HTS.
The latter scenario is accomplished through the use of a special purpose company referred to as a drawback trading company. This unique drawback strategy was legally vetted in the early 2000’s by the petrochemical industry that pushed its own drawback provision through Congress as part of the Customs Modernization Act. This “p” provision of section 1313 of the Tariff Act allows for HTS level matching of imports and exports for chemicals derived primarily from petroleum. Alliance maintains an exclusive relationship with a drawback trading company that uses data mining to identify potential export partners.
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