Hot Topics in International Trade - October 2022 - Section 301 Update: Four-Year Review, Exclusions, Litigation, and the Future of China Tariffs

China Tariffs are here to stay – for now. The Biden Administration continues to defend the Trump-era tariffs on goods from China with little guidance as domestic inflation climbs steadily. Meanwhile, 2022 has been a busy year for the Office of the U.S. Trade Representative (“USTR”). The agency was instructed by the Court of International Trade to provide further written justification for the Section 301 Actions for Lists 3 and 4a in the wake of the agency’s obligatory four-year review of each tariff action. Even with the justification and legitimacy of the Section 301 tariffs in question, the duties are expected to remain in effect.

Four-Year Review – Lists 1 and 2 continued and under review

Section 301 Tariff Actions List 1 and List 2 have been continued and are under review by the USTR, with Lists 3 and 4a likely to follow. Under the review process, the USTR is required to notify representatives of domestic industries to request continuation of the actions. If the USTR receives continuation requests, it must undertake a review of the tariff action and allow interested persons to comment as to whether the actions should be maintained. The tariffs are to remain in place during this review.

On September 8, the USTR published a notice in the Federal Register notifying the public that the Lists 1 and 2 actions would be continued based on 434 requests from the domestic industries. In favor of List 1, there were 244 continuation requests from domestic industries and 44 requests from trade associations. In favor of List 2, there were 114 continuation requests from domestic industries and 32 from trade associations. As provided in the notice, the USTR will provide the public with a review process that will include “opening a docket for interested persons to submit comments on, among other matters, the effectiveness of the actions in achieving the objectives of the investigation, other actions that could be taken, and the effects of such actions on the United States economy, including consumers.” This review process will be the avenue for domestic industries to provide comments arguing against the continuation of Lists 1 and 2. A similar notice regarding Lists 3 and 4a is expected soon.

301 Exclusions

The remaining Section 301 Exclusions are nearing their expiration as 2022 comes to an end. The current 352 exclusions are set to expire after December 31, 2022, and the 81 medical-related exclusions are set to expire after November 30, 2022. The USTR has provided no notice or notion of whether and how these exclusions will be extended, and the USTR’s exclusion review process remains largely a mystery. Some cabinet members of the Biden Administration, such as U.S. Treasury Secretary Janet Yellen, have expressed a desire to provide tariff exclusions and other relief. However, despite evidence that the administration is considering some form of tariff relief in light of the growing need to combat inflation, a decision has not been made.

Further, Congress is not expected to address Section 301 tariffs and exclusions in this session. The CHIPS and Science Act of 2022 (signed August 9, 2022), which was the result of the contentious reconciliation between the Senate’s U.S. Innovation and Competes Act (S. 2160) and the House’s America COMPETES Act (H.R. 4521), scrapped the Senate bill’s proposed revisions to the Section 301 exclusion process. The Senate’s bill would have reinstated all 301 exclusions through December 31, 2022 and imposed a transparent and strict statutory review process on the USTR when making 301 exclusion decisions – including Congressional notification in some instances.

Section 301 Litigation – USTR Remand Determination

The legality of Lists 3 and 4a continues to be in dispute before the Court of International Trade (In re Section 301 Cases, No. 21-00052). The litigation is currently focused on whether the USTR’s Remand Determination provides sufficient rationale for Lists 3 and 4a. On August 1, the USTR published a Remand Determination that attempted to address its initial failure to adequately respond to the comments submitted in advance of the tariffs and otherwise explain the rationale behind Lists 3 and 4a. In Comments filed on September 14, the Plaintiffs argued that the USTR’s Remand Determination failed to further justify the tariffs, was non-responsive, immaterial, and used information that was “post hoc” (i.e., not known until after the tariffs were published). A final judgment is not anticipated from the Court until mid-2023 or later – with an appeal likely to follow.

Future of Section 301 Duties

With the set-back of tariff relief in Congress and the lack of guidance from the Biden Administration on the future of the tariffs, the Section 301 Duties are expected to remain in effect in the foreseeable future. As the primary agency overseeing the tariffs, the USTR continues to defend the original Lists 3 and 4a in court, has not provided further information on 301 Exclusions, and has continued the tariffs during the statutory review process. With the lack of direction and action from President Biden regarding the tariffs and exclusions, future developments to the China Tariffs have become more and more difficult to predict. However, one thing is clear – the tariffs are here to stay.

Importers and members of the trade should closely monitor notices released by the USTR, the President, and U.S. Customs and Border Protection for updates regarding Section 301 Duties. The USTR maintains a database of published information regarding the Section 301 Actions on its website here: https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions. If you have further questions, such as whether your merchandise is subject to Section 301 Duties or qualifies for duty-free treatment under a 301 Exclusion, assistance from Outside trade counsel should be considered.

Continuation of Actions: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 87 FR 55073 (Sept. 8, 2022).

Notice of Reinstatement of Certain Exclusions: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 87 FR 17380 (Mar. 28, 2022).

Notice of Product Exclusion Extensions: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 87 FR 33871 (June 3, 2022).

Yellen Says Lowering U.S. Tariffs on Chinese Goods ‘Worth Considering’ by Andrea Shalal, Reuters (April 22, 2022).

Press Briefing by Press Secretary Karine Jean-Pierre, White House Briefing Room (July 5, 2022).