Despite continuance, the Biden administration still considering relief on China Section 301 Tariffs

On 8 September 2022, the Office of the United States Trade Representative (“USTR”) announced that representatives of U.S. domestic industries benefiting from the tariff actions in the Section 301 investigation of “China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation” have requested continuation of the tariffs. Accordingly, as required by statute, the China Section 301 tariffs did not expire on their four-year anniversary dates (6 July 2022 and 22 August  2022).1 However, as part of its four year review, USTR has the ability to reinstate a tariff exclusion process to make good on some administration officials’ calls to be more strategic in the products tariffed.

Background

In August 2017 USTR initiated an investigation pursuant to Section 301 of the Trade Act of 1974 into alleged unfair trade practices by the Chinese government that are alleged to have harmed U.S. interests. USTR, after determining in April 2018 that China's acts, policies, and practices are "unreasonable or discriminatory," imposed tariffs on four lists of Chinese products that together cover approximately $370 billion in annual trade. The USTR has imposed duties on selected Chinese import goods in four tranches (or “Lists”):

• 25 percent ad valorem rate of duties on US$34 billion of Chinese goods listed in List 1.
• 25 percent ad valorem rate of duties on US$16 billion of Chinese goods listed in List 2.
• 25 percent ad valorem duties on nearly US$200 billion of Chinese goods listed in List 3.
• 7.5 percent ad valorem duties on nearly US$300 billion of Chinese goods listed in List 4A. 2

For each list, USTR established a process by which U.S. stakeholders could request the exclusion of particular products subject to the action.

Four Year Review

In May 2022, USTR published a Federal Register notice commencing its quadrennial review of the tariffs imposed on China-origin goods pursuant to Section 301 of the Trade Act of 1974. 3 Section 307(c) of the Trade Act requires USTR to review the "necessity" of Section 301 actions four years after their implementation.  Without a formal request to continue the tariffs, over $300 billion of duty would have expired this year. During the first phase of USTR's review, domestic industries that benefit from the Section 301 tariffs on Lists 1, 2, 3, and 4A had the opportunity to request the continuation of these actions and, over the summer, more than 400 stakeholders requested the tariffs remain in place.

With respect to List 1, 3 and 4A, requests were submitted by a range of domestic industries, including 244 requests from domestic producers and 44 requests from trade associations. For List 2, specifically, USTR received 114 requests from domestic producers and 32 requests from trade associations. Some of the requests were submitted confidentially, so it is unclear how many requests were received. 

Representatives of domestic industries that filed publicly reported that they benefit from the trade action in a number of ways, including in their ability to compete against Chinese imports, invest in new technologies, expand domestic production, and hire additional workers.  Other supporters cited tariffs as leverage against China to induce the elimination of policies and practices subject of the Section 301 action and argued that the tariffs have helped to address unfair competition resulting from China's technology transfer policies and practices and encourage better policies and practices.

USTR-Looking forward

In light of the requests for continuation of the China Section 301 tariffs, USTR will now conduct a review of the List 1, 2, 3 and 4A in accordance with Section 307(c)(3) of the Trade Act.  While USTR has not done so yet, the agency will publish separate notice(s) describing the review process. The process will include opening a docket for interested persons to submit comments on:

1. the effectiveness of the actions in achieving the objectives of the investigation;
2. other actions that could be taken; and
3. the effects of such actions on the United States economy, including consumers.

The administration remains under political pressure to reinstate an exclusion process from U.S. stakeholders and Capitol Hill.  

During the Trump administration, U.S. interested parties filed 53,000 requests for exclusions with USTR.    The Trump administration granted approximately 2,100 exclusions, but most were allowed to expire on 31 December 2020, with the exception of 81 covering products used to treat COVID-19.4   The Biden administration held a limited review of whether to reinstate certain expired exclusions for roughly 500 products, culminating in a March 2022 decision to reinstate many of them.  

There has been a lengthy inter-agency debate about what to do with the tariffs, which went up to the President and remains unresolved.   Treasury Secretary Yellen has publicly criticized the tariffs as inflationary, and former Deputy National Security Advisor Deepak Singh has argued that many of the List 3 and 4 tariffs lacked a strategic purpose.  On the other hand U.S. Trade Representative Katherine Tai has pushed back, contending that the tariffs provide vital negotiating leverage for the administration’s efforts to induce China to address key systemic barriers, e.g., industrial subsidies, state planning, etc.  Stakeholders have barraged Members of Congress with complaints about the tariffs, and the U.S. Court of International Trade sided with more than 3,500 U.S. importers in the HMTX Industries LLC et al. v. United States (Court No. 20-00177) litigation that USTR’s imposition of the List 3 and 4a tariffs is unlawful under the Administrative Procedures Act for failure to provide adequate review and consideration of public comments.

Given political sensitivities surrounding any action related to U.S.-China relations and unilateral tariff relief, in particular, we expect USTR not to take any immediate action or to announce an administrative process that will run past the November 2022 elections.  Following the election and depending on U.S. economic developments, USTR could announce a significant recalibration of the products subject to the tariffs – such as removing consumer goods, which are subject to inflationary pressures and are at the heart of the HMTX Industries litigation, or adding other products to the list – or USTR could undertake a more limited exclusion process designed, for example, to support U.S. manufacturing.  As with other Biden administration trade policy decisions, labor and/or environment considerations likely will weigh more heavily in the decision-making than during the Trump administration. While exclusion requests for Lists 1 and 2 may face an uphill battle since they cover products targeted in China’s “Made in China 2025” industrial policy, non-controversial industrial parts and components, raw materials, consumer, health care, agricultural, and fisheries products on Lists 3 and 4a are potential candidates for exclusions, depending on their facts and circumstances and whether there is domestic opposition.   Because the administration is likely to want to keep the exclusions within a limited range, e.g. $10 billion, in order to minimize domestic criticism and maintain Tai’s negotiating leverage, there is likely to be intense competition to get on the list of exclusions. 

Next steps

If you have questions regarding this alert or would like assistance in preparing and submitting your comments to USTR, please contact any of the lawyers listed above who would be pleased to help you navigate this process.

Authored by Kelly Ann Shaw, Warren H. Maruyama, Jonathan T. Stoel, Craig A. Lewis, Chandri Navarro, Jared Wessel and Kelly Zhang.

References 

1 See 87 FR 55073 (September 8, 2022).

2 See 83 FR 28719 (June 20, 2018); 83 FR 40823 (August 16, 2018); 83 FR 47974 (September 21, 2018), as modified by 83 FR 49153 (September 28, 2018); and 84 FR 43304 (August 20, 2019), as modified by 84 FR 69447 (December 18, 2019); and 85 FR 3741 (January 22, 2020).