USTR Seeks Public Comment in Second Phase of Four-Year Review of Necessity for Section 301 Tariffs on Chinese Imports

On November 1, 2022, the Office of the U.S. Trade Representative (“USTR”) published a questionnaire for interested parties to use in commenting on the effects of the tariffs imposed on Chinese imports under Section 301 of the Trade Act of 1974 (“Section 301 Tariffs”). USTR issued the questionnaire pursuant to its October 17, 2022 notice initiating the second phase of its statutory four-year review of the Section 301 Tariffs. Questionnaire responses may address the tariffs’ impact on the whole economy, specific sectors and industries, or individual tariff headings. Responses may be submitted between November 15, 2022, and January 17, 2023. This process offers a new opportunity for companies to make a record with the Biden Administration regarding the future of the Section 301 actions, including as to specific product categories that should not be subject to duties if the tariffs remain in force.

The United States imposed the Section 301 Tariffs after determining in March 2018 that China’s technology transfer and intellectual property policies and practices harmed U.S. companies. Between July 2018 and September 2019, the United States applied four tranches of tariffs on over $360 billion in Chinese imports.

The administration is defending the List 3 and List 4A tariffs against legal challenges pending 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 filed its remand determination responding to significant comments on the List 3 and List 4A tariffs on August 1, 2022. The court is now evaluating the sufficiency of that remand determination.

Under the statute, Section 301 Tariffs expire after four years unless a representative of a domestic industry that benefited from the tariffs submits a written request for continuation.[1] Accordingly, on May 3, 2022, USTR initiated its statutory four-year review of the Section 301 Tariffs in advance of their expiration beginning on July 6, 2022. (See our prior alert.) Prior to launching the statutorily mandated review, the Biden Administration’s principal action with respect to the Section 301 Tariffs was to reinstate a limited set of previously expired product exclusions. Those 352 reinstated exclusions are now set to expire on December 31, 2022.

USTR launched its four-year review in two phases. In the first phase, which concluded in September, USTR notified representatives of domestic industries that benefited from the Section 301 Tariffs of the possible termination of the tariffs and provided them an opportunity to request continuation of the tariffs. After receiving numerous requests for continuation, USTR extended the Section 301 Tariffs on September 8, 2022, and announced that it would conduct a full review.[2] USTR’s notice on October 17, 2022, initiated the second phase of its four-year review of the Section 301 Tariffs, which focuses on the merits of maintaining the tariffs versus taking alternative actions.

As part of the second phase, USTR is soliciting public comments that address the following issues:

• the effectiveness of the actions in counteracting and obtaining the elimination of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation, and whether other actions or modifications may be more effective;
• the effects of the actions on the U.S. economy, domestic manufacturing, U.S. workers, U.S. consumers, U.S. small businesses, U.S. technology, U.S. supply chain resiliency, and the goals of U.S. critical supply chains described in E.O. 14017 and subsequent reports and findings; and
• whether the actions have resulted in additional duties on inputs used for additional manufacturing in the United States that are higher than the additional duties on particular downstream product(s) or finished good(s) incorporating those inputs.

In order to facilitate the public comment process, USTR published a detailed questionnaire covering these issues on November 1, 2022. The questionnaire is divided into three sections that invite comments at different levels of specificity. Section A invites comments on the effectiveness of the tariffs generally and their impact at an economy-wide level. Section B invites comments on the effects of the tariff actions at a sector- or industry-specific level. Finally, Section C invites comments on the effects of the tariff actions at a specific tariff heading level, with separate subsections for products currently covered or not covered by the Section 301 Tariffs. Commenters may respond to as many or as few sections of the questionnaire as they prefer. Comments that contain Business Confidential Information must be submitted in both public and non-public versions.

USTR will begin accepting comments on November 15, 2022, and the window will remain open until January 17, 2023. USTR’s notice also indicates that, during the review process, USTR will evaluate whether it will provide additional opportunities for public comment through written submission or public hearings. Given that neither the statute nor USTR’s notice specifies a deadline for the review, it remains unclear when a final decision will be issued.

Implications

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

• With USTR not presently accepting requests for new product-specific Section 301 Tariff exclusions, this new comment period—which provides an opportunity for companies to comment on the effects of the actions at the specific tariff heading level—represents an important opportunity for companies to explain why tariffs on certain product categories should be reduced or removed.
• Interested parties can provide comments to USTR explaining how the Section 301 Tariffs have adversely impacted U.S. manufacturing operations; for example, where tariffs on finished goods are lower than on the inputs needed to produce those goods in the United States, as well as other sector-specific impacts.
• Interested parties can also suggest to USTR alternative courses of action that may prove more effective than the Section 301 Tariffs in addressing the Chinese actions identified in the initial investigation.
• Policy debates over the Section 301 Tariffs are likely to continue, with press reports suggesting that the Biden Administration remains internally divided over whether to keep the Section 301 Tariffs in place. USTR Katherine Tai, National Security Adviser Jake Sullivan, and Agriculture Secretary Tom Vilsack are reportedly supportive of maintaining the tariffs, while Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo are reported to have supported removing or reducing the tariffs, given their inflationary effect and the limited strategic value of some products subject to tariffs.

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.