Trump Tariffs Aftermarket Consumables

For more than a year, the news about an end to the Sino-U.S. “trade war” has fluctuated weekly, often daily, between optimism and pessimism, with a resolution one day imminent and the next remote.

While tariffs are typically imposed to achieve trade-related policy objectives, President Trump’s administration has been unusual in its aggressive use of tariffs to attempt to obtain concessions from the United States’ trading partners on non-trade-related policy issues.

A. Section 301 Tariffs on China
The U.S.’s most aggressive use of tariffs to achieve non-trade objectives are the tariffs levied on goods from China in 2018 under Section 301 of the Trade Act of 1974 (“Section 301 tariffs”). In 2017, the USTR conducted an investigation of Chinese trade practices and concluded that China:

1. Steals U.S. intellectual property,
2. Forces the transfer of U.S. intellectual property to Chinese enterprises, and
3. Evades U.S. export controls to order to invest in strategic U.S. technology.

To compel China to change these practices, the United States opened a trade war by imposing successive rounds of tariffs on goods imported to the U.S. from China.

The following statistics help to put the magnitude of Sino-U.S. trade war in context.

China is the largest export economy in the world, and the U.S. is China’s largest export market.

In 2016, China’s exports to the U.S. represented 19% of all Chinese exports. In other words, U.S. tariffs that reduce the flow of Chinese exports have the potential to inflict significant economic harm on the Chinese manufacturers and exporters.

From a U.S. perspective, China is the U.S.’s largest supplier of goods imports, representing 21% of all U.S. imports. In addition, it is the U.S.’s third largest export market (after Canada and Mexico). In 2016, U.S. exports to China represented 9.2% of all U.S. exports. Thus, the Section 301 tariffs impose a significant economic penalty on U.S. consumers and industrial customers who purchase imported Chinese goods and an additional penalty on U.S. producers and exporters whose sales to China have been curtailed by the retaliatory tariffs that China has imposed.

The U.S. believes that it can win a trade war of attrition because its economy is stronger than China’s. China believes it must defend its trade policies and its increasing stature in the international trade economy and in geopolitics. While the trade war plays out, consumers and producers in both countries are suffering.

On March 22, 2018, the U.S. announced plans under Section 301 of the Trade Act of 1974 to:

1. impose additional 25% tariffs on $50 billion of Chinese imports,
2. initiate a WTO dispute against China challenging its allegedly discriminatory regulations in the licensing of technology from non-Chinese to Chinese firms, and
3. limit Chinese investments into the US.

The new tariffs pertain only to imports from China to the United States. However, they apply in addition to any normal duties, antidumping and countervailing duties, or other import charges on these Chinese products.
The first round of U.S. tariffs, which became effective July 6, 2018, targets $34 billion in Chinese imports. It imposes a 25% tariff on goods covered by 818 Harmonized Tariff Schedule (“HTS”) subheadings. China immediately announced 25% tariffs on a comparable amount of U.S. imports.

The second round of Section 301 tariffs, which became effective August 23, 2018, targets an additional $16 billion in Chinese imports. It too imposes a 25% tariff rate and covers goods imported under an additional 279 HTS subheadings. China immediately announced 25% tariffs on a comparable amount of U.S. imports.

The third round of Section 301 tariffs, which became effective September 24, 2018, targets an additional $200 billion in Chinese imports at an initial tariff rate of 10 percent. On May 9, 2019, the duty rate was increased to 25 percent. The third round of tariffs cover goods imported under an additional 5,745 HTS subheadings.

B. How the Section 301 Tariffs affect the importation of ink and toner cartridges and components into the United States

Imaging consumables were covered by Section 301 tariffs imposed on all three rounds. In the Harmonized Tariff Schedule, imaging consumables are covered by HTS 8443.99, which is divided into four main sections. Each of these sections covers both finished cartridges and cartridge components:

• Parts and accessories of printers (8443.99.20)
• Parts and accessories of facsimile machines (8443.99.30)
• Parts and accessories of copying machines (8443.99.40)
• Other (i.e., parts and accessories of “universal,” multi-function, or three-in-one machines) (8443.99.50).

Cartridges and cartridge components for 3-in-1 machines (8443.99.50)

Section 301 tariffs do not apply to HTS 8443.99.50. Thus, if the same cartridge can be used in a machine that performs at least two functions from among printing, faxing, and copying (or if it can be used in at least two of a printer, fax machine, and copier), it is not subject to the Section 301 tariffs. Components for such cartridges are also exempt from the Section 301 tariffs.

Printer-only cartridges and components (8443.99.20)

If an ink or toner cartridge can only be used in a printer, it falls under HTS 8443.99.20 and is subject to the Section 301 tariffs. In addition, components for a printer-only cartridge are subject to Section 301 tariffs if they fall within one of the following:
(c) Laser imaging assemblies, incorporating more than one of the following: photoreceptor belt or cylinder, toner receptacle unit, toner developing unit, charge/discharge units, cleaning unit;
(e) Inkjet marking assemblies, incorporating more than one of the following: thermal print head, ink dispensing unit, nozzle and reservoir unit, ink heater.

In other words, for a component of a printer-only cartridge to be subject to the Section 301 tariffs, it must constitute an “assembly” as described above. An individual component of a printer-only cartridge is not subject to Section 301 tariffs because it is not an “assembly.” For example, a toner receptacle unit imported separately would not be subject to Section 301 tariffs. If imported as part of a larger laser imaging assembly, on the other hand, it would be subject to the Section 301 tariffs (8443.99.20 and Additional Note 2).

3. Fax machine-only cartridges

If a cartridge can only be used in a fax machine, it is subject to Section 301 tariffs. Components of a cartridge that can only be used in a fax machine are also subject to Section 301 tariffs (8443.99.30 & 35).

4. Copying machine-only cartridges
If a cartridge can only be used in a copying machine, it is subject to Section 301 tariffs. Components of a cartridge that can only be used in a copying machine are also subject to Section 301 tariffs (8443.99.40 & 45).

5. Exception: circuit boards for ink and toner cartridges
There is an important exception to the statement above that components for printer-only and three-in-one cartridges are not subject to Section 301 tariffs. Circuit boards used in ink and toner cartridges are properly classified under HTS 8542.31.00.01 (“Electronic integrated circuits: Processors and controllers, whether or not combined with memories. . . .”), which is an HTS line item that is subject to the Section 301 tariffs. Even though these circuit boards are also covered by a non-301 HTS number (HTS 8443.99.25 & 50), the HTS is clear that where an item could be classified under 8542 and another HTS item, “heading . . . 8542 shall take precedence over any other heading in the [the HTS]” (HTS Ch. 85, Note 9).

6. Recap of 301 Tariffs on Ink and Toner Cartridges

To summarize, the only imaging consumables that are not subject to the Section 301 tariffs are:
• Individual components for printer-only cartridges (not including circuit boards) and
• Cartridges and cartridge components (not including circuit boards) for 3-in-1 machines.

C. Exclusion requests

1. Deadlines
   A company whose imports fall under the section 301 tariffs can request that a product it imports be “excluded” from the tariffs. If its exclusion request is granted, the excluded product, and all products like it, no matter who the producer or importer is, will be exempted from the 301 tariff on that product. The exclusion runs for a period of one year from the date on which it is granted. USTR has set no deadline for finishing ruling on the exclusion requests that have been submitted, but any granted request will be retroactive to the date on which that tariff was imposed.
   The deadline for filing exclusion requests for Round 1 was October 9, 2018. Round 1 tariffs cover printer-only cartridges but not individual components (8443.99.20 and Add. Note 2), and copying machine-only components (8443.99.45).
   The deadline for filing exclusion requests for Round 2 was December 18, 2018. Round 2 tariffs cover copying machine-only cartridges (8443.99.40 and Add. Note 4).
   Exclusion requests for Round 3 may be filed beginning on June 30, 2019. The deadline for filing Round 3 exclusion requests is September 30, 2019. Round 3 tariffs cover fax machine-only cartridges and components (8443.99.30 and 35).
2. Exclusion requests filed by the OEMs
   USTR has provisionally approved the exclusion requests of four large OEMs covering printer-only cartridges and/or assemblies. These requests are presently being evaluated by Customs & Border Protection for “administrability.” If approved by CBP, they will be formally granted. The applicants include Canon U.S.A., Inc. (five requests), Epson America, Inc. (six requests), Konica Minolta Business Solutions U.S.A., Inc. (three requests), and Kyocera Document Solutions America Inc. (five requests). These submissions can be viewed on the https://www.regulations.gov website by entering docket number USTR-2018-0025 in the search field on the home page.

If granted, these exclusion requests apply not just to the applicant’s products but to any product that fits the product description in the exclusion notice, regardless of the identity of the producer or importer. Because exclusion requests are granted on a product-specific basis, a third party that does not obtain its own exclusion may, according to USTR, “still benefit from a product exclusion if a similar product is granted an exclusion.” In other words, it is possible that the importer of, for example, a remanufactured – or possibly even of a new-built compatible – Canon toner cartridge could benefit from any exclusion order that Canon eventually obtains.

Three companies that filed exclusion requests covering printer-only cartridges and/or components had those requests denied: HP Inc. (seventeen requests), Xante Corporation (four requests), and Xerox Corporation (four requests). Two companies that filed exclusion requests covering fax machine-only cartridges and/or components, Canon and Konica Minolta (one each), had those requests denied.

D. Mexican Tariffs

In late May, President Trump announced that the U.S. would impose broad tariffs on goods from Mexico unless Mexico agrees to do more to stop the flow of illegal immigrants into the United States. This was another dramatic use of tariffs to achieve a non-trade-related policy objective. The tariffs were to begin at 5% and to climb eventually to 25%. Within a matter of days, it was announced that the U.S. and Mexico had reached an agreement that eliminated the need for tariffs, at least for the time being. If tariffs on Mexico were to be imposed, that would seriously disrupt the business of U.S.-based cartridge producers and resellers who import cartridge components and finished cartridges from Mexico.

Disclaimer: This article is not intended to provide, and should not be relied on for, legal advice on any particular set of facts. Anyone with a specific question about compliance with the Section 301 tariffs should consult a customs attorney or a customs broker.