On March 23, 2022, the Office of the U.S. Trade Representative (“USTR”) announced its decision to reinstate through December 31, 2022, 352 previously granted exclusions from tariffs imposed on Chinese imports under Section 301 of the Trade Act of 1974 (“Section 301 Tariffs”). The reinstated exclusions are a subset of a limited group of 549 exclusions that were previously extended and thus were eligible for possible reinstatement, 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 escalating tranches of 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 established 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, 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.
On October 8, 2021, days after USTR Katherine Tai announced that her office would open a “targeted” tariff exclusion process, USTR published 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 indicated that USTR would focus on evaluating whether, despite imposition of the Section 301 Tariffs, “the particular product remains available only from China.” Additionally, USTR would consider whether reinstating an 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.
Reinstated Section 301 Tariff Exclusions
On March 23, 2022, USTR announced its decision to reinstate 352 product exclusions among those identified in its October 8, 2021 notice. USTR stated that its determination was based on public comments received as well as input from advisory committees and other U.S. agencies.
All reinstated exclusions are retroactive to import entries made on or after October 12, 2021, that are unliquidated or that are liquidated but remain protestable. The reinstated exclusions expire on December 31, 2022, though the notice provides that USTR “may consider further extensions as appropriate.”
USTR’s notice also provides that U.S. Customs and Border Protection (“CBP”) will “issue instructions on entry guidance and implementation.” CBP previously issued guidance regarding the retroactive application of Section 301 Tariff exclusions using post-summary corrections and protests.
Implications
Any company with an interest in obtaining relief from Section 301 Tariffs should review the list of reinstated exclusions and determine whether any exclusions cover its imports. 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.
To apply exclusions retroactively to past entries made on or after October 12, 2021, pursuant to CBP’s prior guidance, importers may submit post-summary corrections on unliquidated entries and protest any liquidated entries within 180 days of liquidation. Importers should review CBP’s forthcoming instructions once available and determine whether to take further or different action.
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 for a specified period, 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.[1] Moreover, the bill would mandate that USTR open a new process for requesting exclusions from Section 301 Tariffs. It remains uncertain, however, whether these USICA provisions will be enacted into law. The House’s counterpart legislation, the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength (“COMPETES”) Act of 2022, lacks comparable provisions regarding Section 301 product exclusions, and the House and Senate must resolve differences between their bills in order for the legislation to advance. (See our prior client alert comparing the two bills.)
- 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.
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.
[1] Only exclusions that were in effect on December 31, 2020 (i.e., were extended), and that were “not granted by the United States Trade Representative within 180 days of the date of liquidation of an entry containing such an article” (i.e., were granted by USTR only after very substantial delays) would be eligible for this retroactive relief.
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