Section 301 Update: The Trade War Continues, But End May Be In Sight

Under Section 301 of the Trade Act of 1974, the President has the authority to impose tariffs on imports to counter trade practices that the US Trade Representative finds either to violate or conflict with a trade agreement or to burden or restrict US commerce unjustifiably.

As detailed in our previous alerts, since entering office, President Donald Trump has used this authority to impose such tariffs on imports from China based upon practices related to technology transfer, intellectual property, and innovation.

These tariffs have been administered in three separate lists, each covering certain goods based on product lines defined at the eight-digit level of the Harmonized Tariff Schedule of the United States. List 1 and List 2 respectively impose a 25% additional duty rate on $34 billion and $16 billion worth of Chinese-origin goods under 818 and 279 product lines. List 3 increased the duty rate on $200 billion worth of Chinese goods and 5,745 product lines by 10%.

List 3 Tariffs Remain at 10% While Progress in US-China Negotiations Continues

This List 3 rate was set to increase to 25% on January 1, 2019, and again on March 1, 2019; however, each time the President postponed the increase, citing progress in trade negotiations with China. On April 4, following a meeting with Chinese Vice Premier Liu He, the President announced plans for an “epic” trade deal with China, but noted that any agreement will take over one month to finalize. To date, President Trump has declined to set a date for a signing summit with President Xi Jinping to hammer out a final trade agreement, for which the Section 301 tariffs have emerged as a sticking point. China has demanded that the tariffs be removed as part of any final deal, while the White House hopes to use the tariffs as leverage to ensure compliance. At the moment the 10% List 3 duty rate remains “until further notice", but the duties could be removed, or increased, depending upon the President’s impression of these talks.

Progress on Lists 1 and 2 Exclusions, But Still No List 3 Exclusion Process

For List 1 and 2, the US Trade Representative provided a process by which importers could request a one-year exclusion of their products from the additional tariffs. These requests are based upon whether the particular product only is available from China, whether the imposition of additional duties on the particular product would cause severe economic harm to the requestor or other US interests, and whether the particular product is strategically important or related to certain Chinese industrial programs. 10,836 exclusion requests were received for List 1, and 2,927 for List 2.

Properly submitted requests are reviewed in four stages:

  1. Public comment period
  2. Substantive review by USTR
  3. Administrability review by US Customs and Border Protection
  4. Publication of Exclusion Grant

On March 25, the USTR announced a round of 87 product exclusions for List 1, in addition to the 984 previously announced. The exclusions from this round covered 33 product categories, including linear acting telescoping hydraulic power engines and motors (8412.21.0045), self-propelled rock breaking machines (8430.31.0040), and air brakes and air brake parts for rail coaches and freight cars (8607.21.1000). Meanwhile, 3,299 List 1 requests have passed substantive review (Stage 2) and are being reviewed by CBP for administrability (Stage 3). Although no exclusions have yet been granted for List 2, none have been denied, and 1,134 requests have moved on to Stage 3. The USTR will continue to announce decisions on product exclusion requests periodically, but Arent Fox understands that CBP, still in the wake of the recent federal government shutdown, continues to be backlogged by several thousand requests.

However, the USTR has still announced no List 3 exclusion process. The USTR has stated that it intends to create such a process if and when the List 3 tariff rate increases to 25%, but as noted above that increase has been postponed indefinitely. In an explanatory statement to a spending package signed by the President on February 15, Congress directed USTR to create the process within thirty days, but the USTR has failed to meet that deadline. Other legislation has been introduced in the House and Senate that would require exclusion processes for all Section 301 actions.


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