USTR Initiates Four-Year Review of Necessity for Section 301 Tariffs on Chinese Imports

On May 3, 2022, the Office of the U.S. Trade Representative (“USTR”) announced that it is initiating a statutory four-year review of necessity for the tariffs imposed on Chinese imports under Section 301 of the Trade Act of 1974 (“Section 301 Tariffs”). USTR’s review will examine whether to extend the tariffs currently in place on over $360 billion in Chinese imports.

The Section 301 Tariffs were imposed based on the U.S. Administration’s determination in March 2018 that China’s technology transfer and intellectual property 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.

• USTR imposed additional tariffs of 25 percent ad valorem on $34 billion of Chinese imports, effective July 6, 2018 (“List 1”).
• USTR imposed duties of 25 percent ad valorem on an additional $16 billion of Chinese imports, effective August 23, 2018 (“List 2”).
• USTR subsequently “modified” these tariff actions by imposing additional duties on supplemental lists of products in September 2018 (“List 3”) and September 2019 (“List 4A”).

By statute, the Section 301 Tariffs are set to expire four years after the tariffs were imposed, absent a written request for continuation submitted during the final sixty days of the four-year period by a representative of the domestic industry that has benefited from the tariffs.[1] The List 1 tariffs are set to expire July 6, 2022, and the List 2 tariffs are set to expire August 23, 2022. If a request is filed, the statute directs USTR to conduct a “review of necessity” regarding any extension of the tariffs.

First Phase of the Four-Year Review

USTR’s four-year review will proceed in two phases. In this first phase of the review process, USTR is notifying representatives of domestic industries that have benefited from the Section 301 Tariffs of the possible termination of the tariffs and of the opportunity to request a continuation of the tariffs.

The notice provides that requests for the continuation of the Section 301 Tariffs must be received according to the following deadlines:

• Requests for continuation of List 1 Section 301 Tariffs, as modified: May 7, 2022 - July 5, 2022 at 11:59 pm
• Requests for continuation of List 2 Section 301 Tariffs, as modified: June 24, 2022 - August 22, 2022 at 11:59 pm

The notice also makes clear that the review encompasses the List 3 and List 4A tariffs, explaining that “[t]o ensure comprehensive coverage of the review, USTR will consider the List 3 and List 4A modifications as applicable to both” the List 1 and List 2 tariffs. Accordingly, requests for continuation of the List 3 and List 4A tariffs can be submitted as part of either the List 1 or List 2 review process, or both.

Requests for continuation must identify the specific domestic industry concerned and explain how the industry benefits from the tariff actions at issue. Requests may also contain business confidential information.

Second Phase of the Four-Year Review

In the second phase of its review, USTR will announce whether it has received a request for continuation of the List 1 or List 2 tariff actions, as modified. If USTR receives such a request, the tariffs will be extended while USTR undertakes a review of the tariff action, which will include an opportunity for public comment. Given that the statute provides no binding deadline for conclusion of the second phase, it is unclear when a final decision will be issued. The notice indicates that USTR will solicit comments that address:

• the effectiveness of the tariff action in achieving the objectives of Section 301;
• possible other actions that could be taken; and
• the effects of such actions on the United States economy, including consumers.

Implications

Companies should continue to monitor closely developments related to the Section 301 Tariffs:

• Because domestic beneficiary industries are likely to request a continuation of the Section 301 Tariffs, USTR’s review will likely proceed to the second phase, opening an opportunity for public comment on the merits of maintaining the tariffs.
• Although USTR is not presently accepting requests for new product-specific Section 301 Tariff exclusions, it is possible that USTR could adopt a broader approach in the future, especially if the tariffs are continued, and there is pressure from Capitol Hill and the business community to expand eligibility for relief. (See our prior alert regarding USTR’s reinstatement in March 2022 of a limited number of previously granted product exclusions.)
• The List 3 and List 4A tariffs are currently being challenged in litigation before the U.S. Court of International Trade. On April 1, 2022, the court remanded those lists to USTR for further explanation or reconsideration, and USTR’s remand submission is due on June 30, 2022. Given that an appeal in the litigation is almost certain, it is unlikely that any final court decision would be issued before the conclusion of at least the first phase of the four-year review.
• Policy debates over continuing the Section 301 Tariffs may intensify in the coming months. USTR Katherine Tai has stated publicly that reducing Section 301 Tariffs would diminish leverage that the U.S. wields in trade talks with Beijing and could impede longer term efforts to reduce some dependencies on China; others, including Treasury Secretary Janet Yellen, have suggested that reducing the tariffs could help curb the effects of inflation.

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] 19 U.S.C. § 2417(c)(1).