The Office of the United States Trade Representative (USTR) released a report on an investigation of China’s acts, policies, and practices related to technology transfer, intellectual property (“IP”), and innovation. The report noted several stakeholders’ concerns, such as trade secret theft, bad faith trademarking, patent infringement by Chinese government-owned entities, inadequate IP enforcement mechanisms, substantial obstacles to civil enforcement, inconsistent criminal and administrative enforcement, and widespread counterfeiting, and the distribution of counterfeit products over the internet. Specifically, the report noted that counterfeiting occurs in a wide range of product categories, including clothing, footwear, and formalwear.

Following the conclusion of the investigation, on June 20, 2018 the USTR provided notice of an initial action (83 FR 28710), effective July 6, 2018, imposing an additional 25% ad valorem duty on certain products of China (set out in Annex A) with an annual trade value of approximately $34 billion. This notice also sought public comment on another proposed action, in the form of an additional 25% ad valorem duty on additional products of China (set out in Annex C), with an annual trade value of approximately $16 billion.

Although Annex A and Annex C do not contain any fashion or beauty products, USTR is currently seeking public comment on a supplemental 10% ad valorem duty on products with an annual trade value of approximately $200 billion (USTR-2018-0026). August 17, 2018 is the last day for submission of written comments and August 20-23, 2018 is the public hearing with the Section 301 Committee. This proposed additional tariff schedule identifies many fashion and beauty products, some of which are shown in the table below.

There is a 90-day period, ending on October 9, 2018, for interested parties and trade associations to file exclusion requests from the 25% tariffs on a product listed in Annex A of the June 20 notice. A Federal Register notice outlines the criteria and process for a product exclusion request. Procedures to request the exclusion of additional particular products recommends submitting information on the China 301 Product Exclusion Form. The exclusion, if granted, would last a year and would be applied retroactively to July 6, 2018, when the 25% tariff became effective. The following is a short summary of the submission and formatting instructions identified by the USTR procedures. If the supplemental 10% tariff is imposed, it is likely there will be a similar exclusion process.

Procedurally, USTR has identified that to submit a request via www.regulations.gov, a requestor can enter document ID number USTR-2018-0025-0001 on the home page and click “search.” The requestor can then click on the link titled “comment now!” and submit files or comments in support of this request. The USTR has noted that file names for exclusion requests should include the ten digit subheading of the HTSUS most applicable to the particular product and the name of the person or entity submitting the comments (e.g., 1234567890 Initech). All submissions must include a statement that the submitter certifies that the information provided is complete and correct to the best of his or her knowledge.

Substantively, USTR has specified that each request must specifically identify a particular product, and provide supporting data and rationale for the requested exclusion. The following information must be included: 1) identification of the particular product in terms of the physical characteristics, such as dimension, material composition, or other characteristics, that distinguish it from other products within the covered eight digit subheading; 2) the ten digit subheading of the HTSUS most applicable to the particular product requested for exclusion; and 3) the annual quantity and value of the Chinese-origin product that the requestor purchased in each of the last three years.

Each request for exclusion should address the following three factors: 1) whether the particular product is available only from China, specifically, whether the particular product and/or a comparable product is available from sources in the United States and/or other countries; 2) whether the additional duties on the particular product would cause severe economic harm to the requestor or other U.S. interests; and 3) whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs. The USTR has also identified that the requestor may provide any other information or data that the requester considers relevant to an evaluation of the request.

After a request for exclusion of a particular product is posted on docket number USTR 2018-0025, interested persons will have 14 days to respond to the request, indicating support or opposition and providing reasons for their view. Then, interested persons will have the opportunity to reply to the response and any reply must be posted within 7 days after the close of the 14 day response period.

Written by: Shuchen Gong and Loni Morrow