Recently, U.S. Customs and Border Protection (CBP) has been taking additional measures to increase tariff and duty enforcement measures against China, particularly when it comes to the import of textiles under Section 301.
Let’s take a look at the details about Section 301, how it has affected Chinese imports, and why CBP is taking additional enforcement action to ensure manufacturers are paying the appropriate tariffs and customs duties under these import regulations.
Understanding Section 301 Customs Duties Levied Against China
Section 301 is not a new law. It was first introduced in the Trade Act of 1974. This part of the law allows the President to take “take all appropriate action,” including both tariff-based and non-tariff-based action” to penalize countries that have engaged in practices that “burden or restrict U.S. commerce.”
However, section 301 duties against China are relatively new. They were introduced under the Trump administration in 2018, due to an investigation that showed China was engaging in “unreasonable and discriminatory” practices related to “technology transfer, intellectual property, and innovation.”
Over the following months, U.S. tariffs on Chinese imports continued to grow, with additional import duties ranging from 10% to 25% being levied against different categories of Chinese imports, from electronics to textiles, consumer goods, and more.
Tensions eased slightly in late 2019, as the “Phase One” deal was signed to address some US-China trade and investment issues – this also committed China to buying $200 billion of U.S. imports. However, this has not removed the majority of existing tariffs under Section 301.
The Effects Of Section 301 Duties On Chinese Imports
Since Section 301 customs duties were first applied to Chinese imports in late 2018, they have had a significant effect on the overall import of Chinese goods into the United States of America.
The top import categories for Chinese goods in 2019 were electrical machinery, machinery, furniture and bedding, and toys and sports equipment. Despite high tariffs being levied on most of these products, Chinese and US companies alike must continue to absorb the cost of these additional import duties, given how essential Chinese goods are to American consumers.
There still has been an overall decrease in volume, though. In 2019, for example, the value of U.S. goods imported from China totaled a value of $451.7 billion, down 16.2% from 2018, when they reached a record of $539.3 billion.
In 2020, the value of Chinese imports fell even further to $435.4 billion – which can probably be attributed to both the United States’ additional tariffs and duties on Chinese goods, as well as the global disruption of the COVID-19 coronavirus pandemic.
However, China still remains the largest supplier of goods to the United States of America by a large margin. Canada and Mexico still lag behind China when it comes to the overall volume of imported goods.
Textiles Have Recently Become A Focus Of Section Customs Enforcement
In 2019, Section 301 duties for textiles and apparel began to take effect under the administration of Donald Trump – and according to the American Apparel and Footwear Association (AAFA), about 92% of all apparel imports from China were affected by the new hikes, which raised by 15% for most categories of apparel.
In addition to this, 25% tariffs have been levied on some categories of non-apparel textiles, making the overall apparel and textile industry one of the hardest hit by Section 301. Because of this, some opportunistic Chinese companies are looking for ways to import their goods fraudulently to the United States.
Partly, this is because textiles are easier to import fraudulently compared to other goods like electronics or heavy machinery, using schemes such as:
- False invoicing
- False marking and labeling of textile goods
- Undervaluations
- False declarations of right to make entry
- False trade preference claims
- Outright smuggling
Due to their light weight, ability to be disguised or shipped alongside other items, and other unique aspects of textiles, fraud is rampant when importing apparel and non-apparel textiles – and this has not gone unnoticed by US Customs and Border Patrol.
By The Numbers – The CBP Takes Aim At Fraudulent Textile Importers
Due to the rise in fraud and false imports of textiles, U.S. Customs and Border Protection has taken increased steps to enforce trade protection measures and ensure that importers are paying the required duties and tariffs on textiles.
US CBP has made it a “Priority Trade Issue” (PTI), and have stepped up enforcement actions accordingly – with some striking results.
In the first quarter of 2021 alone, cargo examinations from CBP increased to 2,857, up from just 2,672 in the fourth quarter of 2020. Of these examinations, about 5.85% of imports were found to be discrepant, and in violation of customs regulations in some way or another. More than $759 million in Section 301 duties were collected in Q1 2021 alone.
In addition to this, 131 shipments of textiles were seized in Q1 of 2021, totaling a value of $1.1 million USD, and 1,195 shipments worth $8.9 million were seized for violating intellectual property rights of other textile manufacturers.
By way of comparison, Q1 of 2020 had 185 shipments of textiles seized, totaling $2 million in value, and 1,442 shipments worth $5.6 million seized for violating intellectual property rights.
The total value of seized assets was much higher in Q1 2021 compared to Q1 2020 – and if this trend continues due to increased enforcement actions, 2021 may be a record year when it comes to textile import duty enforcement.
Section 301 Enforcement Of Textiles Will Continue Until Trade Tensions Ease
Under the Biden administration, talks have already begun with China to attempt to ease trade tensions. However, progress has been slow, and it’s unlikely that Section 301 penalties and other tariffs will be eased in the near future.
Until then, U.S. CBP will continue its rigorous enforcement of the law, particularly in the apparel and textile markets, and ensure that Chinese importers continue to pay the duties and tariffs required by law when importing their goods.
