While many of us anxiously await putting 2020 behind us, the start of the new year may have significant import duty implications for many U.S. companies.
On December 31, two significant U.S. import duty relief programs are set to expire: the Section 301 exclusions and the Generalized Systems of Preference (“GSP”). That will cause U.S. customs duties to rise on certain products. Importers should be prepared for these changes.
Section 301 Tariffs on Chinese Goods
TL;DR: Section 301 exclusions are probably going away December 31. Plan accordingly.
Since July 2018, the U.S. government has imposed billions of dollars in tariffs on Chinese-origin goods pursuant to Section 301 of the Trade Act of 1974. The Section 301 tariffs were levied under four separate actions known as Lists 1, 2, 3 and 4.
In order to provide targeted relief from the Section 301 tariffs, the office of the United States Trade Representative (“USTR”) implemented an exclusion process. That process allowed interested parties to petition for exemptions from the Section 301 tariffs. Although many importers have been able to avail themselves to these exclusions for many months, all Section 301 exclusions are set to expire on December 31, 2020.
To date, the USTR has not given any indication of plans to extend “active” exclusions (i.e., those that have been extended and are currently in force), despite pressure from members of Congress and the private sector to do so.
What Happens when the Exclusions Expire?
If the exclusions are allowed to expire, then Chinese-origin products falling under Lists 1, 2, 3, or 4 will be subject to additional Section 301 duties, which range from 7.5% to 25%, as shown in table below. For additional background and context on the various Section 301 lists, see our prior blog post here.
|Section 301 List||Duty Rate||Import Volume|
|List 1||25%||$34 billion|
|List 2||25%||$16 billion|
|List 3||25%||$200 billion|
|List 4A||7.5%||$120 billion|
|List 4B||15%||$180 billion|
Will the Trump Administration Extend the Deadline?
Given the Administration’s silence on how it plans to address the expiration of the Section 301 exclusions, we believe that the exclusions will expire at the end of December 2020.
Will an Incoming Biden Administration Repeal the Section 301 Duties?
In the near term, we think it is unlikely that the Biden Administration will make any significant changes to the current Section 301 regime. As noted in our previous post here, President-Elect Biden has not affirmatively committed to discontinuing the use of Section 301 tariffs on goods imported from China. Over time, however, the Biden Administration might seek to modify these tariffs as well as explore broader reforms to deal with U.S.-China trade more generally.
What should I do to prepare?
For the reasons outlined above, it advisable for importers to operate under the assumption that the Section 301 tariffs are here to stay until the Biden administration affirmatively indicates otherwise.
To the extent that your company is currently claiming applicability of any Section 301 exclusion, we strongly encourage you to review those imports and prepare to pay the relevant duties on Chinese-origin imports starting January 1.
You may also wish to explore any lawful strategies to mitigate the financial impact of the duties, such as making use of the first sale rule.
Generalized Systems of Preferences (“GSP”)
TL;DR: GSP expires December 31. Plan accordingly.
The GSP program provides preferential duty-free treatment for over 3,000 products from a wide range of designated beneficiary developing countries (“BDC”). To be eligible for GSP duty-free treatment, an import must the following requirements:
- The imported item must be included in the list of GSP-eligible articles;
- It must be imported directly from a listed, eligible BDC;
- The article must be the growth, product, or manufacture of a BDC and must meet specific requirements for value added in the BDC; and
- The importer must request duty-free treatment under GSP by placing the appropriate GSP Special Program Indicator (SPI) (A, A+, or A*) before the HTSUS number that identified the imported article on the appropriate shipping documents (CBP Form 7501).
Authorization of the GSP is set to expire on December 31, 2020, unless legislation is passed to renew it. The recently passed Consolidated Appropriations Act of 2021 did not renew the GSP.
GSP renewal is currently at an impasse in Congress. On the one hand, Congressional Democrats have been seeking reform of the GSP to include considerations such as human rights, rule of law, good governance, and anti-corruption. Congressional Republicans, on the other hand, have proposed to pass the GSP as-is for a 16-month interim period in order to allow time for debate of various reform proposals. In our view, an agreement on these issues before the December 31 expiration of the program is unlikely.
What Happens if GSP Expires?
If GSP expires, goods receiving duty-free treatment under the program will be subject to standard duties (i.e., rates under column 1 of the HTSUS). If you currently claim GSP eligibility, we encourage you to review the HTS classification of all your GSP products and determine applicable duty rates.
Even though we expect GSP will expire December 31 (and importers must begin paying standard duties on those products on January 1), there may be reason to hope that any reauthorization of the program in future months will enable importers to recover duties paid during the lapse in the program. In the past, the GSP program has had several similar lapses. In those instances, Congressional practice has been to reauthorize the program retroactively to its expiration date. If the current program is reauthorized by the next Congress, and if past practice of reauthorizing back to the expiration date (in this case, December 31, 2020) occurs, that would allow importers to obtain retroactive refunds on standard duties they pay from January 1 onward. We recommend keeping an eye out for the details of any GSP reauthorization for this purpose.