USTR Will Not Give Exemptions to Largest Section 301 List Unless Rate Rises to 25%
U.S. Trade Representative Robert Lighthizer told Sen. Tim Kaine, D-Va., and nine other Democratic senators who wrote to him in October (see 1810230020) that there are no plans to allow for exemptions on the third round of Section 301 tariffs at the current rate. Those tariffs, now set at 10 percent on about 5,700 tariff lines that accounted for about $200 billion in Chinese imports in 2017, will jump to 25 percent March 2 if no deal is reached with China. Lighthizer said in his response, sent Jan. 11, that an exemption process will be implemented if the tariffs increase to 25 percent. A White House official had previously said there would be no exemptions for the 10 percent list (see 1812030042).
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Lighthizer also addressed how foreign-trade zones are affected by Section 301 tariffs, an issue that the FTZ trade association has been fighting for nearly a year (see 1808210005). Lighthizer said that long-standing practices continue to apply, and that importers who use FTZs want a special exemption.
Erik Autor, president of the National Association of Foreign-Trade Zones, said his group has repeatedly explained that FTZs are not trying to avoid paying tariffs on content subject to Section 301 tariffs, but that because of the way the zones report the imported content to Commerce, far more than the 301-targeted tariff lines is being hit. Usually, goods made in an FTZ pay a duty equal to the tariff on the finished good for the proportion of the product that was imported. In the case of trade remedies, the imported items that are subject to higher-than-typical tariffs do get taxed at the input duty level, at the time the good enters into commerce.
But USTR has not followed that long-standing practice, Autor said. Instead, companies are paying duties on inputs that aren't Chinese when the single highest-value imported component is Chinese. They're also paying duties on Chinese inputs that are not subject to Section 301 duties, just because the finished product is classified in a tariff provision on the Section 301 list. The finished product is an American product, not a Chinese product, and so should not be taxed at all, Autor noted.
Despite repeated letters and meetings, and entreaties from Congress members, Autor said, "officials at USTR do not understand or appreciate the nature of this problem. They continue to express the mistaken view that FTZs are asking for some special exemption from the China duties that are not available to other U.S. importers." Autor said the group is considering asking Congress to pass legislation clarifying the treatment of FTZs so that it is not more expensive to assemble products in an FTZ when the largest proportion of inputs by value come from China.