Importer attorneys have welcomed the Biden administration's restart of a process to secure exclusions from tariffs on Chinese goods, but questions about the scope of the effort and lingering concerns over its transparency have put the trade bar on alert.

As part of a broader reset of U.S.-China trade policy, U.S. Trade Representative Katherine Tai announced on Oct. 4 that she would reinstate the tariff exclusion process that allows importers to avoid paying levies on Chinese goods that are not sufficiently available from other sources.

The announcement gave a lift to importers, who have been pressing the government to reinstate the exclusion process for months. But a subsequent notice from Tai's office signaled that the agency is considering exclusions only for the 549 products that were previously granted extensions, rather than fielding exclusion requests for all Chinese goods subject to tariffs.

"The fact that they are only considering comments on this small subgroup is, I would say, a real disappointment to large sectors of the trading community," said Grunfeld Desiderio Lebowitz Silverman & Klestadt LLP partner Arthur Bodek, whose practice focuses on helping importers reduce their tariff burden under various government agreements and programs.

After the Trump administration began imposing tariffs to pressure Beijing into trade reforms in 2018, it received more than 48,000 requests for exclusions on a wide array of products. The exclusions were hard to obtain, with only 2,200 being granted by the government. Of those granted, only 549 saw their exclusions extended and are eligible for a new exclusion now.

Venable LLP attorney Ashley W. Craig described the limited exclusion revival as "a bit more bespoke" than the import community was expecting, but said Tai's office had taken a step in the right direction.

In her speech, Tai added that her office would "keep open the potential for additional exclusion processes" as warranted. Her office declined to offer comment on whether and to what extent the newly announced process might be expanded.

Some importers are fearful that the agency considers most of the exclusion request denials to be the final word on a given product, failing to take into account the drastic changes in the global economy since the requests were first adjudicated. For instance, many companies denied relief from tariffs ranging between 7.5% and 25% began looking for other sources, but efforts there were severely disrupted by the onset of the COVID-19 pandemic, according to Sandler Travis & Rosenberg PA trade adviser Nicole Bivens Collinson.

"Nobody has been able to travel to other countries to try to secure alternative sourcing," she told Law360. "You can't just do this over the internet, that's not how you identify a whole new sourcing chain. I think [USTR needs] to reopen the entire process."

Venable's Craig noted that in its request for comments on reviving the exclusions for 549 products, USTR asked importers to detail what efforts they have made over the past three years to shift production.

While that is largely seen as simple information-gathering, Craig said he hoped the answers wouldn't be used against importers who may have found some degree of alternate sourcing but would still welcome the ease of importing tariff-free from Beijing.

"If you say, 'I continue to source, but I have shifted to some degree,' is that going to be used against you in terms of requesting a renewal, just because you looked elsewhere?" he said. "I would hope not, but this is very much part of the administration's trade policy with China, which is pretty awful right now in terms of the relationship."

Even when the exclusion process was fully up and running, importer attorneys regularly complained about a lack of transparency in the process and what they perceived as a bias in favor of domestic producers. With USTR getting back into the exclusion game, those attorneys would like to see their concerns addressed.

At bottom, importers have expressed frustration with a lack of explanation when their exclusion requests were denied. More often than not, importers would receive a stock one-page letter from USTR informing them that their request had been denied because it "failed to show that the imposition of additional duties on the particular product would cause severe economic harm" to their business interests.

But Miller & Chevalier Chtd. attorney Richard Mojica, who formerly worked in U.S. Customs and Border Protection's trade office, said USTR's metrics determining the existence of that harm were never clear.

"USTR never truly articulated what a requestor had to demonstrate in order to cross that threshold," Mojica told Law360. "I never knew exactly what it was you had to hit in order for you to demonstrate that it was a significant economic harm. The definition of that was always up in the air."

For companies looking to take advantage of the new opportunity for tariff exclusions, Mojica homed in on Tai's consistent call for a "worker-centric" trade policy, advising importers to focus their exclusion requests on how the tariffs may affect their labor force.

"When I talk to companies about this process, I know I am going to be prioritizing the effects of the tariffs on labor and their ability to quantify what that effect can be," he said. "The better case you can make on that, the more likely I think you're going to be able to demonstrate the economic harm argument."

Importers are not the only ones who have publicly fretted about the opacity of the tariff exclusions process. A U.S. Government Accountability Office report from July rapped USTR for failing to document the internal processes that led to a decision on exclusion requests.

There is also the tricky matter of exactly how the exclusion requests will be fielded. USTR's notice is framed as a "request for comment" on the potential for 549 goods to have their exclusions revived. But it's not clear if USTR will consider those comments themselves to be an exclusion request, or if a more formal process will be initiated later through a formal request portal.

Bodek said any importers submitting comments should do so in great detail, effectively treating their comments as requests for exclusions.

"Although couched as a comment request, our counsel is that this should be treated as an exclusion request and that a statement submitted that simply says, 'I request reinstatement of item X' will get pretty much no traction," he said.

In general, importers and their attorneys are hoping that the agency will pull back the curtain that has shrouded past iterations of the exclusion process, however expansive it ends up being.

"The more guidance that USTR can provide, the better it will be for all of us working these requests," said Mojica.

Source: Law360