Section 301 Case Offers Importers a Chance at Refunds as Administration Contemplates Further Tariff Action
After a summer of wrangling, Plaintiffs in the ongoing Court of International Trade (‘CIT’) case challenging List 3 and 4A Section 301 duties on imports from China got a big win: in September the Government conceded that it is not able to administer a repository system that would require each importer to continually submit entry-specific information to preserve its rights to actual 301 duty refunds. The arguably unnecessary and burdensome repository system was the Court’s solution to the fact that the Government refused to stipulate that Plaintiffs would have the right to duty refunds on liquidated entries in the event their claims are ultimately successful. Usually, imports are “liquidated”—think “finalized”—on a rolling basis about a year after entry, so the Government’s position meant that Plaintiffs could potentially lose their rights to duty refunds on more and more entries each day as the CIT litigation continues to play out.
In the end though, after months of intransigence, the Government changed its position and agreed to stipulate that refunds on liquidated entries would be available post-judgment for all Plaintiffs’ entries that were unliquidated as of July 6, 2021. This about-face brings an end to this particular squabble, guarantees Plaintiffs will have access to duty refunds on this set of entries if they win, and allows the case to proceed to the merits. It also suggests that going forward, the Government intends to put forth any possible argument, however tenuous or impractical, to deny refunds to as many importers as possible even if the Plaintiffs prevail on the merits.
While the fact that the Government is vigorously defending its position may not be surprising, it does underscore the benefits of joining the litigation: if List 3 and 4A duties are ultimately declared unlawful, the next debate will center around the extent and form of relief that will be granted to importers who paid these unlawful duties, including which companies will actually get refunds. Actual Plaintiffs in the case will be in the best position to obtain these duty refunds, while the Government will likely make every effort to prevent the ruling from applying more broadly to all importers.
Door Still Open to Join Section 301 Litigation
The CIT case challenging List 3 and 4A duties, which began over a year ago, could very well reach the oral argument stage by early 2022 (barring any further tangential matters brought on by the Government’s efforts to limit potential duty refunds). This would set the stage for a CIT ruling in 2022. Yet the door is still open for other US importers that continue to pay List 3 or 4A duties on China-origin products to join the ongoing litigation and benefit from a potential Plaintiff win once the case and any related appeals are decided.
This opportunity is still available due to multiple arguments that extend the statute of limitations each time duties are assessed on an entry subject to List 3 or 4A. To boot, the burden associated with participating as a new Plaintiff will likely remain quite low in light of the fact that the day-to-day proceedings are led by a Plaintiffs’ Steering Committee that has already been established. So while the extent to which Section 301 duty refunds will be available to Plaintiffs and other importers is still up in the air, importers can still file a complaint to join the CIT litigation and improve their chances of benefiting from a favorable outcome.
More Tariffs May Be Coming
Meanwhile, hopes and predictions that the various unconventional tariff increases implemented under the Trump administration would cease and even be rolled back under President Biden have failed to materialize. So far, the Biden administration has left the additional Section 301 tariffs on many products from China untouched. And now, as a result of its ongoing months-long review of the United States’ policy regarding trade with China, the Biden administration is reportedly contemplating further action under Section 301 aimed at leveling the playing field with China.
Specifically, the Biden administration may launch a fresh Section 301 investigation into government subsidies the Chinese central government provides to the county’s manufacturers, thereby giving its manufacturers an advantage over their American counterparts. Understanding the extent of these subsidies and holding China to account for practices that violate US or World Trade Organization laws has been a longstanding US goal. However, the fact that the Biden administration is contemplating initiating its own investigation under Section 301 to address the concern suggests the use of tariffs as a tool to sway America’s trading partners is no longer considered out of bounds by either Republican or Democratic leaders.
For US companies that import goods from China—and are therefore legally liable for paying all duties owed to US Customs and Border Protection (‘CBP’) on those products— this new normal suggests that existing Section 301 duties will not be revoked by the Biden administration anytime soon. Quite the opposite in fact: it looks like more Section 301 tariffs on more China-origin goods could be on the horizon.
Navigating this new normal in a way that keeps companies’ tariff costs down while ensuring compliance with these ever-changing CBP requirements has prompted business leaders to take a more active approach to Customs law issues including classification and country of origin determinations—both of which have the potential to affect how much duty an importer pays to US Customs.
Other Ways to Mitigate Tariff Liability
Beyond joining the CIT litigation challenging List 3 and 4A Section 301 duties companies can identify opportunities to save on both general tariffs and additional Section 301 duties by reviewing and confirming the accuracy of the information they submit to CBP. One example of this is conducting a product-specific classification analysis to determine the correct Harmonized Tariff Schedule of the United States Code (or HTSUS code) applicable to a given product based on the product’s characteristics and the (often gray) body of rules and guidance governing classification. Each 10-digit HTSUS code has a corresponding general duty rate, so if a review of a product’s classification results in an HTSUS code correction, it could also result in a lower general duty rate for that product.
Similarly, conducting a supply chain-specific country of origin analysis to determine the correct country of origin of a given product based on where each manufacturing step is conducted and the applicable (and often gray) rules and guidance governing country of origin can result in duty savings. If a company can establish and document that its product’s country of origin is a country other than China, then Section 301 duties will no longer apply to that product.
While both classification and country of origin reviews present an opportunity to mitigate tariff costs, they also help ensure companies are not inadvertently providing incorrect information to US Customs and exposing themselves to potential penalties for such violations—another must for US importers in light of the fact that tariff issues remain front and center in the minds of regulators and requirements continue to evolve in response to the ever-changing geopolitical landscape.
Andrew Bisbas is Counsel at Lowenstein Sandler. His practice centers on US Customs and Border Protection import requirements and tariffs. He helps clients navigate CBP requirements including classification and country of origin determinations as well as USMCA and other trade agreement implications. Andrew also assists clients in setting up and maintaining corporate import compliance programs, conducting import audits and supply chain due diligence, preparing and submitting prior disclosures to US Customs, and advising on tariff engineering and supply chain structuring efforts geared towards mitigating tariff costs.