China Section 301 List 3 Developments: An Increase to 25 Percent and Possibly an Exclusion Process – And Then a List 4?

Meanwhile, US Trade Representative Robert Lighthizer has stated that the USTR has “begun preparations to launch a process” for interested parties to seek an exclusion from the List 3 tariffs.

As we’ve explained in previous alerts, Section 301 of the Trade Act of 1974 authorizes the President to impose tariffs on imports to counter trade practices that the US Trade Representative finds either to conflict with a trade agreement or to burden US commerce unjustifiably. President Trump has used this authority to impose such tariffs on three lists of imports from China, citing its practices related to technology transfer, intellectual property, and innovation. List 1 and List 2 imposed a 25 percent additional duty rate on $50 billion worth of Chinese-origin high-tech goods, with a process by which importers could request a one-year exclusion of their products based upon product availability, harm to the requestor or other US interests, and importance to certain Chinese industrial programs.

List 3 increased the duty rate on another $200 billion worth of Chinese goods by 10 percent. Although this rate was slated to be increased to 25 percent initially on January 1, 2019 and subsequently on March 1, 2019, the President, citing progress in trade negotiations with China, has since delayed the increase “until further notice.” On Sunday, however, the President, lamenting that negotiations had now slowed, announced on Twitter that the List 3 increase will finally take effect this Friday, May 10, which Ambassador Lighthizer confirmed yesterday. In addition to the List 3 increase, the President’s tweet announced an intention “shortly” to create a List 4 covering the remaining $325 billion of Chinese imports, which will be taxed at 25 percent.

The threatened increase and additional tariffs might be a negotiating tactic designed to extract more concessions from the Chinese, as the date coincides with when reports have stated the parties are expected to announce a nearly 150-page agreement to end the escalating trade war. Following what was described by US Treasury Secretary Steven Mnuchin as a “productive” meeting between the US and Chinese delegations in Beijing last week, the delegations are slated to meet in Washington, DC on Wednesday, May 8 to finalize the agreement. Secretary Mnuchin has said that the US will reconsider the increase and additional duties if scheduled talks this week with Chinese Vice Premier Liu He are fruitful.

To date, the USTR had declined to create an exclusion process for List 3, despite Congressional directive to do so by March 17. Though Ambassador Lighthizer noted that an exclusion process would be announced by the end of April, he has also remarked on past occasions that that a List 3 exclusion process will only be created if the duty is raised from 10 percent to 25 percent ... Perhaps in anticipation of the President’s announcement, Ambassador Lighthizer told Rep. Suzan DelBene (D-WA) of the House Ways and Means Committee in April that the USTR was preparing to launch the List 3 exclusion process.