Tariff updates respond to phase one deal

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Tariff

Amid the trade tensions with the US, China’s Tariff Commission of the State Council in the past two years announced three batches of retaliatory tariff measures on US goods to counter a flurry of section 301 tariffs imposed by the US on Chinese goods.

In a bid to de-escalate the trade conflict, the two countries entered into a much-anticipated trade agreement on 15 January 2020 (the phase one deal). In connection with this deal, the following measures, among others, were agreed upon or given effect:

  • Reduction of US section 301 tariffs on list 4A goods, from 15% to 7.5%;
  • Suspension of US section 301 tariffs to be imposed on list 4B goods; and
  • Purchase by China in 2020-21 of an additional US$200 billion in US goods and services (above the 2017 baseline amount).

In response to these commitments, the central government has recently announced important developments affecting its retaliatory tariff measures on US goods.

On 6 February 2020, the tariff commission announced, through circular [2020] No. 1, that effective from 14 February retaliatory tariffs imposed on goods listed in the first tariff list attached to tariff commission circular [2019] No. 4 will be reduced as follows:

  • Tariff rate applicable to products in parts 1 and 2 is reduced from 10% to 5%; and
  • Tariff rate applicable to products in parts 3 and 4 is reduced from 5% to 2.5%.

This reduction only applies to the third batch of retaliatory tariffs and does not affect the earlier measures.

On 17 February 2020, the tariff commission announced, in circular [2020] No. 2, a new product exclusion process to help China fulfill its purchase commitments under the phase one deal (the purchase commitment exclusion). This unique process differs from the previous product exclusion processes and is targeted to exempt successful applicants from retaliatory tariffs imposed on specific goods, based on the approved purchase amount.

Eligible applicants: Any Chinese domestic enterprise seeking to purchase and import the eligible products (as described below) from the US may submit a product exclusion application, as long as the products have not been excluded from retaliatory tariffs in earlier lists. It does not matter whether previous applications were made.

Eligible products: The tariff commission has published a list of 696 Chinese tariff codes at the eight-digit level that are eligible for the exclusion process. Enterprises may request to additionally include products that are not currently on the list.

Scope of the purchase commitment exclusion: Subject to the discretion of the tariff commission, an exclusion may be granted to the applicant for a specified purchase amount (based on value), which will be determined in part based on the applicant’s purchase plan. Once granted, any importation by the applicant within the approved purchase amount will be exempted from retaliatory tariffs within one year from the date of approval. Any imports exceeding the approved purchase amount will still be subject to retaliatory tariffs unless an increase in the approved purchase amount is obtained.

Exclusions under this process are only granted to successful applicants, and other importers of the same products cannot benefit from this process. Also, any retaliatory tariffs paid prior to the issuance of the approval will not be refunded.

Subsequent to the approval, applicants must negotiate the purchase agreement according to the approved purchase amount and provide the transaction information, including the actual purchase amount, to the authorities. If an applicant has entered into a transaction that exceeds the approved purchase amount, then it may timely file a supplemental application to increase its approved purchase amount. That said, unused approved purchase amounts cannot be carried forward after expiration.

Application process: Interested parties may file their applications through the Ministry of Finance website. The application process is open from 2 March 2020, and there is currently no published deadline.

An applicant may submit one application per month, with one purchase plan pertaining to each tariff code. The relevant supporting information to be submitted during the application process includes the planned purchase quantity and value. For requests to add a new product onto the eligible list, an applicant is required to explain and show how the applicable retaliatory tariffs adversely impact its business.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at danian.zhang@bakermckenzie.com.