Originally published by the Journal of Commerce in July 2019

Much to the surprise of many American companies, my cost is going to go through the roof with a 25% tariff and price my products out of the market is not enough of a justification for an exclusion request to be granted. It was not sufficient for the goods on the China 301 Lists 1 or 2, and the same is true for List 3 goods. The process to file an exclusion request for List 3 goods was published in the June 24, 2019 Federal Register, which can be found here: USTR Notice re List 3 Exclusion Process.

Before summarizing the process, there are some important facts to keep in mind. First, the period in which to seek an exclusion opened on June 30, 2019 and closes on September 30, 2019.  Mirroring the process for Lists 1 and 2, once an exclusion request is posted in the portal, replies or objections must be filed within 14 days. Filers are then permitted to respond by the later of 7 days after the close of the 14 day response period, or 7 days after the posting of the response.

There is also a new portal – http://exclusions.USTR.gov – through which all exclusion requests must be filed.  New is the requirement that filers must register before submitting any exclusion requests.  Further, as before, the submission itself is accomplished by completing and uploading a form, but this time, that form includes the option for some data to be submitted confidentially, while still permitting attachments.  This is a marked improvement from earlier options since it eliminates the need to file two versions of a request – one public and one confidential.

Much of the same information is required for List 3 goods, as was required for goods on Lists 1 and 2, such as the name of the submitter (although the related contact information is now treated as confidential). Companies must state whether they qualify under the Small Business Administration small business standard.  If a third party, in what capacity is that third party acting (again the entity name is public but not the contact details). The importer must be identified as well as the primary point of contact, both of which are treated as confidential.

The 10-digit classification must be submitted along with a “complete and detailed” description of the product. This description is to include physical characteristics, any relevant functionality, unique physical features that distinguish it from other products at the 8 digit level, along with the product’s principal use. All of this information is treated as public, including any attachments used to identify the product, such as specification sheets.

The submitter’s relationship to the product, and whether or not this product and any comparable products are available from sources in the U.S. and third countries are considered public information, but one must also be prepared to explain why the product is not available from those other sources.  What attempts were made to source the product in the U.S. must also be reported. All of this information is treated as public.

When it comes to data about the value and quantity of Chinese-origin product purchased by the submitter in 2017, 2018 and QI 2019, along with similar data for purchases from third countries and domestic sources during the same period, this is all treated as confidential, along with the company’s gross revenue for the same period.

A submitter must publicly identify whether the imported product is used as a final product or an input, while the percentage that product represents of the company’s gross sales in 2018 is treated as confidential.

Next, one is expected to address whether the additional duties will cause “severe” economic harm to the submitter or other U.S. interests, which may be submitted as public or confidential.  Submitters must also state the total value of any imports on which exclusion was sought for goods on Lists 1 and/or 2.  This data is also treated as confidential information.  Any additional information may be submitted and may be public or confidential at the option of the submitter, but, at the same time, treated as public is whether the product for which exclusion is sought is strategically important to Made in China 2025 or any other Chinese industrial program.

Finally, submitters may include attachments which may be public or confidential, but should not contain written argument.

One other point to keep in mind is the flow of the process itself. When a submitter files an exclusion request, it is first vetted. A sort of checklist approach is used, meaning the application is checked to insure there is meaningful data inserted in each box in the form. Assuming yes, the exclusion request is posted on the portal. Once the objection and response periods close, all exclusions will be reviewed. Past history indicates that many are rejected at this Step 2 substantive review stage because, while information was submitted, it is inadequate in some way. It also appears that if a substantive objection is filed, the application is doomed.  Assuming the application gets through, Stage 3 consists of USTR and CBP consulting about how CBP would go about administering the exclusion. If the administration is too complex or convoluted, the application will fail, even thought otherwise meritorious.

In addition to the obvious challenge of pulling together the needed information in a convincing fashion is the fact that anyone is permitted to object. What this means is domestic industry is able to object and claim the ability to make the product in the U.S. and there is no means for USTR to test that assertion or validate the increased cost impact. So, one tip for submitters is make to sure to anticipate the likely objections and rebut them in your original filing if at all possible. Certainly, one should do so if an objection is filed.

An on-going source of frustration is the need to frame the submission in a way that outlines for Customs and Border Protection (CBP) how it would administer the exclusion. This can be a particular challenge since it is not altogether clear what criteria CBP is using, although reviewing the approved exclusion requests can be helpful on this topic.

So, as you think about seeking an exclusion request for any of your products on the Chain 301 List 3, as yourself: A) What information do I already have that responds to any of the topics required? B) What more do I need to get? C) How many of my products are key to our future business so it is worth my time (and the cost of our advisors) to prepare an exclusion request for each? D) Reading through what you have as objectively as possible, how convincing is the data I have? Can I make it more convincing? Can I make our exclusion request stand out>

There is a popular misconception that so long as any product is excluded under a specific classification, all products falling under that classification are excluded. That is not the case. Once an exclusion is granted for a specific product, it applies to all comparable products even if imported by another company. Even so, the importer is left to convince CBP his product is comparable. As such, submitters would be prudent to define their products as clearly and narrowly as possible.  Doing so enhances the likelihood of the approval of an exclusion request and also limits those competitors who are able to rely on that exclusion grant.