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Section 301 Tariff Exemption for U.S. Goods Returned Narrowed Significantly

Effective 23 August, the use of a provision allowing goods assembled abroad from U.S. components to avoid the additional 25 percent tariff imposed on imports from mainland China will be narrowed significantly. This action will affect the US$34 billion worth of mainland Chinese products already subject to the tariff (possibly retroactive to 6 July) and the US$16 billion worth of such goods that will be subject to the tariff as of 23 August. However, there are still ways affected companies can reduce or avoid this tariff.

HTSUS 9802.00.80 provides duty-free treatment for imports of goods assembled abroad in whole or in part of U.S. components that (i) are exported in condition ready for assembly without further fabrication, (ii) have not lost their physical identity, and (iii) have not been subject to operations other than those considered incidental to assembly. Until now goods imported from mainland China and meeting the terms of this provision have been fully exempt from the tariffs referenced above, which were announced after a Section 301 investigation determined that mainland China’s acts, policies and practices related to technology transfer, intellectual property and innovation are unreasonable and discriminatory.

However, the Office of the U.S. Trade Representative has now issued a notice amending the HTSUS provisions implementing the Section 301 tariff (HTSUS 9903.88.01 and 9903.88.02) to specify that for goods imported under HTSUS 9802.00.80 the tariff will apply to the value of the article less the value of any U.S. components incorporated into the article. Similarly, for goods imported from mainland China under HTSUS 9802.00.40, 9802.00.50 and 9802.60, the additional tariff will be assessed on the value of repairs, alterations or processing performed abroad but not the underlying U.S. good or material.

Despite USTR’s action, there are still ways companies can lower their exposure to the Section 301 tariff. For example, USTR plans to soon announce a process for requesting the exclusion of products on the US$16 billion list from the tariff, and a similar process is already in place for goods on the US$34 billion list. Other options include tariff engineering to permit reclassification and supply chain modification.

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