Tariff Classification Service Center

Customs & Trade Compliance

By Dr. Deming Zhao | Ju Chen | Lixin Jin

Mingming Dai, director of Tariff Classification Service Center, also contributed to this article.

 

Remarks

The transaction-oriented exclusion of extra tariffs, if approved, will be valid for one year. Regarding applications for exclusion of extra tariffs based on import transactional plans, we suggest that companies conduct trade compliance review of the 10-digit Chinese tariff codes (to be declared upon import) of proposed imports from U.S. before March 2, 2020 to ensure the tariff exclusion benefits in the future. If the tariff codes used in the exclusion applications are incorrect, the imported goods cannot be eligible for extra tariff exclusion even if the company’s application has been approved. If the tariff exclusion benefits are illegally obtained, the company will be investigated by Chinese customs for false declaration liabilities. We recommend that companies plan for imports from the U.S. and apply for the exclusion as soon as possible. In case that the import volume targeted by China for a certain product under the trade agreement between China and U.S. has completely allocated to other applicants, the Tariff Schedule Commission of the State Council (“TSC”) may no longer approve such exclusion applications for the same year.

Please note that this new exclusion does not apply to China extra tariffs imposed in retaliation against U.S. Section 232 investigations.

Recently new opportunities emerge for export of U.S. products to China markets. On February 18, 2020, TSC released Announcement [2020] No.2 (“Announcement”), which allows some instances of automatic extra tariff exclusion without applications, including (1) imports from U.S. under tariff reduction or relief programs; (2) imports through channels of express delivery; (3) imports that fall under approved lists of exclusion lists if still within the valid time.

 

More importantly, the Announcement opens the door for exclusion based on the importer’s transactional plan for imports from the U.S., rather than on the hardship with which the particular importers are afflicted. This transaction-oriented exclusion is limited to tariff codes and reference descriptions of commodities on the appendix list attached to the Announcement. These commodities can be excluded from extra tariffs with application by the importers in China based on their transactional plan to import from the U.S. For tariff codes of commodities not covered by the appendix list and yet burdened with the extra tariffs, importers in China may petition expansion of the appendix list to pave the way for exclusion applications. Such petition, however, must state the hardship as caused by the extra tariffs.

 

The transaction-oriented exclusion of extra tariffs, if approved, will be valid for one year after the approval, and will stimulate the trading volume of U.S products imported to China in one year, which will open up the way for the implementation of the Economic and Trade Agreement between the Government of the People's Republic of China and the Government of the United States of America ("China-U.S. Trade Agreement"). For U.S. exporters, it is a new opportunity for their export to China.

 

I. The eligible applicants

 

The applicants for the exclusion must be “companies in China that plan to sign a contract to purchase and import relevant commodities from the United States". For a multinational company, the applicant can be its subsidiary in China responsible for purchase and import of U.S. products.

 

II. Application channel and timeframe

 

The applicant is to enter and submit its import purchase exclusion application in line with the requirements through the on-line application system for exclusion via the website of the Tariff Policy Research Center of the Ministry of Finance: https://gszx.mof.gov.cn.

 

The system will start accepting applications from March 2, 2020. The specific instructions and operation guidelines for exclusion will be publicized by the application system soon.

 

III. Products eligible for exclusions

 

The products or commodities that can be excluded from extra tariffs are illustrated by way of 8-digit tariff codes. The applicant must ensure such 8-digit tariff codes in line with the actual products to be imported. In other words, it must ensure the legality of such 8-digit tariff code classifications under Chinese law. Otherwise, it will not benefit from the exclusion, and may trigger risks of liabilities to China customs.

 

(a) Products on the appendix list

 

The appendix list attached to the Announcement includes 696 8-digit tariff codes, covering U.S. agricultural commodities, energy products and manufactured products, and companies can directly submit an exclusion application for these commodities. The applicant needs to understand that the appendix list is a short form of China Tariff Schedule and the commodities in the exclusion applications must be properly described in accordance with China Tariff Schedule (2020), and the import declarations must be made with the correct declaration elements as required by China customs regulations.

 

(b) Products off the appendix list

 

For such products, companies may petition to TSC to expand the list to include the same, with descriptions and 8-digit tariff codes, so that applications can be made subsequently to exclude extra tariffs. However, such petition must state as the reason the hardship with which the importer is afflicted due to the extra tariffs.

     

Ⅳ. Direct Import and China-U.S. Trade Agreement

 

Import shipments eligible for exclusion must be imported directly from the United States. Firstly, the commodities for the import transactions must be those located in the States and literally even the overseas seller may be required to be a company in the States; secondly, the commodities must be shipped and imported directly from U.S. to China. Therefore, the transit trade through third regions or countries such as Hong Kong or Singapore does not satisfy the conditions for applying for extra tariff exclusions.

 

The requirement for direct import is apparently necessitated by China-U.S. Trade Agreement. Chapter VI of China-U.S. Trade Agreement, signed by China and U.S. in Washington on January 15, 20:20 EST provides that China promises to ensure procuring and importing manufactured goods, agricultural goods and energy products, with additional values above the corresponding 2017 baseline amount. Such additional values for these different categories of commodities must be no less than 32.9 billion USD, 12.5 billion USD, and 18.5 billion USD respectively in calendar year 2020, which is "to purchase and import from the U.S.".

 

The appendix list of the Announcement substantially reflects the commitments taken by China under China-U.S. Trade Agreement. The following table reflects some of the commodities eligible for extra tariff exclusion and covered by China-U.S. Trade Agreement, with added current extra tariffs for reference only:

 

Contents	Product Category	Description	HS code	Extra duties for US origin
Manufactured Goods	Industrial machinery	Other loading and unloading machinery	84289039	25%
		Engine supercharger	84148030	25%
	Electrical equipment and machinery	Industrial electrostatic precipitator	84213921	20%
		Thermal print head	84439921	25%
	Pharmaceutical products	Other insulin and its salts	29371290	25%
		Cefaclor and its salts	29419058	2.5%
	Optical and medical instruments	Other camera lenses	90021139	25%
		Anesthesia equipment	90189070	5%
	Iron and steel	Steel sheet pile	73011000	25%
		Rail	73021000	25%
Agriculture Goods	Oilseeds	Virgin soybean oil and its fractions	15071000	25%
		Yellow soybean	12019010	27.5%
	Meat	Fresh or cold boned beef	02012000	30%
		Other fresh or cold pork	02031900	30%
	Cereals	Other durum wheat	10011900	25%
		Other corn	10059000	25%
	Cotton	Uncombed cotton	52010000	25%
	Seafood	Live, fresh and cold lobster	03063290	30%
		Live, fresh and cold other crabs	03063399	30%
Energy Products	Liquefied natural gas	Liquified natural gas	27111100	25%
		Liquefied propane	27111200	25%
	Crude oil	Crude oil	27090000	2.5%
		Aviation kerosene	27101911	25%
	Refined products	Ethylene	29012100	25%
		Acrylonitrile	29261000	25%
	Coal	Carbon	28030000	12.5%
		Unformed coking bituminous coal	27011210	27.5%