UPDATE: Increase in List Three Tariffs Postponed for 90 Days
by Derek Flint and Brett W. Johnson
In a statement issued on December 1, 2018, the White House announced that it reached a deal with China to postpone the scheduled increase of List Three tariffs on Chinese imports for 90 days. The announcement came after a meeting between President Trump and Chinese President Xi Xinping on the sidelines of the G20 Summit in Buenos Aires, Argentina. Prior to the December 1, 2018 agreement between President Trump and President Xi, the tariff rates on List Three products were scheduled to increase from 10 percent to 25 percent on January 1, 2019.
In exchange for the United States’ postponement of tariff increases, China has agreed to take three actions. First, it agreed to designate Fentanyl, an opioid, as a controlled substance. Second, China agreed to begin purchasing agricultural goods from American farmers immediately. Third, China agreed to “immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.”1 This last issue was the major concern that triggered the tariff increases.
However, not mentioned in the White House’s statement were the United States’ List 1 and List 2 tariffs on approximately $50 billion worth of Chinese imports. Until further notice, those tariffs remain in effect. The statement also did not address a proposed fourth list of tariffs on an additional $200 billion worth of Chinese imports, which President Trump threatened to impose in September 2018. Consequently, the fourth list of tariffs appears, for now, to be off the table. This last issue is the main concern underlying the trade dispute between the two countries.
From a trade compliance standpoint, the December 1, 2018 agreement largely maintains the status quo, at least for the next 90 days. It allows U.S. companies conducting business in China and U.S. companies that are required to address China’s retaliatory trade measures to have a brief reprieve to regroup.
However, the situation remains fluid. Therefore, companies should remain vigilant regarding steps they can take to mitigate exposure to future tariff increases. Specifically, companies should consider capturing the country of origin of all parts and services that make up an item in an effort to spread out the tariff risk. Further, companies should consider a review of existing and proposed agreements to ensure a full understanding of the shipping costs, tariff duty application, and other compliance issues. A company should understand not only the applicable costs and impact on supply chain management, but which party is actually responsible for such costs. An automatic price increase for existing contracts is not necessarily the default. As companies evaluate tariffs and shifting of risk, it is important to determine whether the U.S. government has issued any relevant tariff exemptions. Finally, as companies look to shift or save on costs, they should consider having foreign transaction policies that address compliance with trade controls and anti-corruption.