USTR Initiates Four-Year Review of Section 301 Tariffs on Products of China

USTR Initiates Four-Year Review of Section 301 Tariffs on Products of China

Client Alert

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On May 5, the Office of the US Trade Representative (USTR) published a Federal Register notice initiating a statutorily-mandated “four-year review” of the Section 301 tariffs that USTR has imposed on a wide range of China-origin products pursuant to Section 301 of the Trade Act of 1974. USTR initiated the review in accordance with Section 307(c) of the Trade Act, which requires USTR to terminate a Section 301 action after four years if neither the petitioner nor any representative of the domestic industry that benefits from the action submits a written request for its continuation. If USTR receives such a request here, as is likely, then it will announce the continuation of the action(s) and undertake a second phase: a review of the effectiveness of the tariffs in achieving the objectives of Section 301, other actions that could be taken, and the effects of the tariffs on the US economy, including consumers. Interested parties will have an opportunity to submit comments on these issues. As part of this second phase of the process, USTR may consider requests to eliminate Section 301 tariffs on particular products.

Background

On August 18, 2017, USTR initiated an investigation into certain acts, policies and practices of the Government of the People’s Republic of China relating to technology transfer, intellectual property, and innovation. On April 6, 2018, USTR announced a determination that the acts, policies and practices are unreasonable and discriminatory and burden or restrict US commerce, and thus are actionable under Section 301. As a result of this determination, USTR imposed tariffs on four lists of Chinese products that collectively cover approximately $370 billion in annual trade.

As discussed in our prior alerts, products on the first three lists of Chinese products are subject to an additional 25% ad valorem duty, and products on the fourth list are subject to an additional 7.5% ad valorem duty. List 1 covers approximately $34 billion in imports and came into effect on July 6, 2018. List 2 covers approximately $16 billion in imports and took effect on August 23, 2018. List 3 covers approximately $200 billion in imports and came into effect on September 24, 2018. List 4A covers approximately $126 billion in imports and took effect on September 1, 2019.1

Section 307(c) of the Trade Act provides that a Section 301 action “shall” terminate after four years if neither the petitioner nor any representative of the domestic industry that benefits from the action submits a written request for its continuation.  Section 307(c) also requires USTR to notify such entities at least 60 days before the date of such termination.3   By means of the May 5 Federal Register notice – and individual letters mailed to interested parties that previously submitted comments expressing support for the “actions” – USTR asserts that it is providing the required notice.

USTR has characterized the “actions” subject to the four-year review as the “July 6, 2018 action, as modified” (i.e., the action that resulted in the imposition of the List 1 tariffs), and the “August 23, 2018 action, as modified” (i.e., the action that resulted in the List 2 tariffs). In addition, “[t]o ensure comprehensive coverage,” USTR will also consider the List 3 and List 4A tariffs “as applicable” to both actions.

USTR is opening dockets at the following portal that representatives of industries that benefit from the actions can use to request continuation: https://comments.ustr.gov/s/. The applicable dates for submitting requests are as follows:

  • For the July 6, 2018 (List 1) action, representatives may submit a continuation request at any time between May 7, 2022, and July 5, 2022.
  • For the August 23, 2018 (List 2) action, representatives may submit a request to continue the action between June 24, 2022, and August 22, 2022.

According to FAQs released by USTR, representatives that benefit from both List 1 and List 2 tariffs should submit two separate requests for continuation. In addition, representatives that benefit from List 3 and/or List 4A tariffs should submit two separate requests for continuation in the respective windows reserved for the List 1 and List 2 tariffs.

Notably, the May 5 notice indicates that representatives may express support for continuation of the action(s) as a whole, not just the continuation of tariffs on a particular product or tariff line.

If USTR receives one or more requests for continuation of the actions (as is likely), it will announce their continuation and proceed with the next phase of the review under Section 307(c)(3) of the Trade Act.4   In this second phase, USTR will provide opportunities for public comments from all interested parties. According to the May 5 notice, USTR intends to invite comments on, “among other matters, the effectiveness of the action in achieving the objectives of Section 301, other actions that could be taken, and the effects of such actions on the United States economy, including consumers.”5   Although the notice does not address this point, comments presumably could also address the possibility of USTR eliminating Section 301 tariffs on particular products or tariff lines, as well as the disposition of existing exclusions. USTR is likely to address these details in subsequent notices.

Outlook

USTR’s four-year review of the China 301 tariffs comes at a time of significant economic uncertainty resulting from inflationary pressure, continuing supply chain challenges, and geopolitical tensions. It is possible that these considerations will influence USTR’s four-year review. For example, US Treasury Secretary Janet Yellen stated on April 22 that it was “worth considering” easing tariffs on some goods in order to help address inflation, and Deputy National Security Adviser Daleep Singh has gone so far as to question the logic of maintaining tariffs on the largely consumer-focused products on Lists 3 and 4A. Ambassador Katherine Tai, the US Trade Representative, has been more cautious, however. While she has stated that “all tools are on the table” to address inflation, including removal of tariffs, she has also stressed the need to ensure that whatever steps the United States takes will not undermine the long-term US strategy toward China. Given these differing messages, the review will provide an important opportunity for interested parties to make their voices heard.

WilmerHale continues to monitor these developments closely and is prepared to advise clients on how to respond to these latest developments.

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