On October 5, 2021, the Office of the U.S. Trade Representative (“USTR”) announced that it is inviting comments between October 12 and December 1, 2021 on whether to reinstate certain previously granted exclusions from tariffs imposed on Chinese imports under Section 301 of the Trade Act of 1974 (“Section 301 Tariffs”). The present comment process covers only a limited set of 549 exclusions whose duration was previously extended, and it remains unclear if and when a broader exclusion process might be forthcoming.
Background
The Section 301 Tariffs are based on the U.S. Administration’s determination in March 2018 that China’s technology transfer and intellectual property (“IP”) policies are harming U.S. companies. Between July 2018 and September 2019, the United States imposed four tranches of escalating tariffs on imports from China. U.S. tariffs on over $360 billion in Chinese imports remain in place despite the “Phase One” agreement that the parties reached in January 2020.
For each of the four tranches or “lists,” USTR provided a process for requesting product-specific exclusions from the Section 301 Tariffs. In total, USTR granted over 2,200 exclusions. USTR also opened a process for submitting comments on whether to extend the duration of particular exclusions. Based on that process, the USTR extended 549 exclusions spanning products covered by Lists 1–4, but most of these exclusions expired by December 31, 2020, with the remainder expiring on March 25 and April 18, 2021.
New Comment Process on Reinstating Limited Section 301 Tariff Exclusions
On October 5, 2021, one day after USTR Katherine Tai announced that her office would open a “targeted” tariff exclusion process, USTR issued a Federal Register notice inviting public comment on whether and how long USTR should reinstate 549 product exclusions that were granted and subsequently extended. USTR published on its website a list of all 549 exclusions. The notice provides that USTR will focus on evaluating “whether, despite the imposition of additional duties beginning in September 2018, the particular product remains available only from China.” Comments should specifically address:
- whether the product and/or a comparable product can be sourced from the United States or a third country, and efforts, if any, made to source from these locations since September 2018;
- changes to the global supply chain or industry since September 2018; and
- capacity for producing the product in the United States.
USTR noted that it will consider whether reinstating the exclusion would “impact or result in severe economic harm to the commenter or other U.S. interests,” or affect the goal of obtaining the elimination of China’s problematic IP policies.
USTR also posted to its website a facsimile of the Exclusion Reinstatement Comment Form containing the questions to be addressed on the comment docket once it opens on October 12, 2021. Similar to earlier exclusion request processes, the form requests value and quantity data for the relevant product over the last three years and other information about the requesting party, and permits the submission of confidential information. A notable new question asks whether Chinese suppliers have lowered their prices for the relevant product following imposition of Section 301 Tariffs; this question appears designed to assess the extent to which Chinese companies have taken action to offset the impact of the tariffs on U.S. companies, which would be relevant to the need for a reinstated exclusion.
According to the notice, any reinstated exclusion would be retroactive to import entries made on or after October 12, 2021, that remain unliquidated at the time “the claim to apply the reinstated exclusion is made to U.S. Customs and Border Protection in accordance with their procedures.”
Implications
Any company with an interest in obtaining relief from Section 301 Tariffs for a product covered by one of the 549 previously extended exclusions should consider submitting a comment in support of reinstating the exclusions by the December 1, 2021 deadline. Section 301 exclusions are available for use by all parties whose products meet the terms of the exclusion; a party need not have requested the exclusion in order to benefit from it.
Any company that could stand to benefit from a reinstated exclusion (whether or not it opts to submit a comment) should consider seeking to extend liquidation of relevant entries made after October 12, 2021, citing the new comment process and the possibility of obtaining an exclusion that covers the entered product. If USTR takes an extended period of time to make its determinations after the window for comments closes in December 2021, the failure to extend liquidation could prevent a company from reaping the full benefit of any reinstated exclusion, given prior guidance provided by U.S. Customs and Border Protection regarding the retroactive application of Section 301 Tariff exclusions.
Companies should continue to monitor closely developments related to Section 301 Tariffs:
- Although USTR is not presently accepting requests for new product exclusions or considering reinstating the vast majority of previously granted product exclusions that were not extended (more than 75% of 2,200+ exclusions), it is possible that USTR could adopt a broader approach in the future, especially if there is pressure from Capitol Hill and the business community to expand eligibility for relief.
- The United States Innovation and Competition Act of 2021 (“USICA”), which has been passed by the Senate, would reinstate all previously granted Section 301 product exclusions through December 31, 2022, beginning on the date of enactment. For an extremely narrow subset of approximately 150 previously granted exclusions, the bill would provide retroactive relief back to January 1, 2021.2 Moreover, the bill would mandate that USTR open a new process for requesting exclusions from Section 301 Tariffs. The House is now considering counterpart legislation to the bill.
- Litigation currently pending before the U.S. Court of International Trade could also provide relief from the List 3 and List 4A tariffs, though the litigation and any subsequent appeals may not be resolved for some time.
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Covington’s diverse Trade Policy teams in Washington and Beijing, which include former senior government officials, are uniquely positioned to provide thoughtful strategic advice to clients seeking to monitor, prepare for, and react to the evolving Section 301 developments. We count among our ranks:
- Christopher Adams, former Senior Coordinator for China Affairs at the U.S. Department of Treasury and Minister Counselor for Trade Affairs at the U.S. Embassy, Beijing;
- Marney Cheek, former Associate General Counsel in the Office of the USTR;
- Alan Larson, former Under Secretary of State for Economic, Business and Agricultural Affairs;
- Tim Stratford, former Assistant USTR for China Affairs; and
- John Veroneau, former Deputy USTR and former USTR General Counsel.
If you have any questions concerning the material discussed in this client alert, please contact the members of our International Trade practice.
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