Summary

The U.S. Trade Representative (USTR) is now accepting comments from the public on whether to continue the current Section 301 tariffs on imported goods of Chinese origin. Commenters are guided by a questionnaire that the USTR issued on November 1. Meanwhile, litigation over the lawfulness of a portion of the tariffs continues.

Background

Section 301 of the Trade Act of 1974, 19 U.S.C. § 2411, authorizes the USTR to take retaliatory trade measures against a foreign country to eliminate any act, policy, or practice that it determines is unreasonable or discriminatory and burdens or restricts U.S. commerce. As readers will recall from our most recent alert on the topic, pursuant to Section 307(c) any action taken under Section 301 terminates at the end of four years unless the relevant domestic industry requests that it continue, in which case the action would continue pending a required “review of necessity” thereof.

In March 2018, a USTR investigation initiated August 24, 2017 into certain trade policies and practices of the People’s Republic of China related to technology transfer, intellectual property, and innovation concluded that (1) forced technology transfer requirements, (2) state-funded strategic acquisition of U.S. assets, and (3) cyber-enabled theft of U.S. intellectual property and trade secrets justified action under Section 301. After receiving public testimony, the USTR imposed additional tariffs on certain Chinese-origin goods organized into two tranches, effective July 6, 2018 (List 1) and August 23, 2018 (List 2); after China took similar measures, the USTR imposed tariffs on two more tranches of goods, effective September 24, 2018 (List 3) and September 1, 2019 (List 4A), which the USTR now characterizes as “modifications” to Lists 1 and 2. Ultimately, Section 301 tariffs of up to 25 percent were levied on Chinese goods valued annually at nearly $370 billion and covered by over 10,000 full or partial eight-digit subheadings of the Harmonized Tariff Schedule of the United States (HTSUS). The USTR would also upon request exclude from the tariffs for one year at a time more than 2200 full ten-digit subheadings or more specific product “carve-outs” thereto.

In a September 8, 2022, Federal Register notice, the USTR announced that it received requests to continue the tariffs on items on List 1 (which includes List 3 and 4) from 244 domestic producers and 44 trade associations, and on items on List 2 (which also includes List 3 and 4) from 114 domestic producers and 32 trade associations. Domestic industry asserted that the actions incentivized and created leverage against the Chinese government to stop these policies and practices, but also allowed it to compete fairly against Chinese imports, invest in new technologies, expand domestic production, and hire additional workers. Thus, given these requests, the tariffs will continue pending a forthcoming statutory review of necessity, which the USTR announced via a Federal Register notice on October 17, 2022.

Public Comment Period

As part of the review of necessity, the USTR is soliciting comment on all four lists from any “interested persons” through January 17, 2023. As the USTR explains, comments should focus on the statutory considerations of the effectiveness of the actions in achieving the objectives of Section 301, other actions that the USTR could take, and the effects of such actions on the U.S. economy, including consumers. More specifically, the October 17 notice asks commenters to address:

• The effectiveness of the actions in obtaining the elimination of or in counteracting China's acts, policies, and practices related to technology transfer, intellectual property, and innovation.
• Other actions or modifications that would be more effective in obtaining the elimination of or in counteracting China's acts, policies, and practices related to technology transfer, intellectual property, and innovation.
• The effects of the actions on the U.S. economy, including U.S. consumers.
• The effects of the actions on domestic manufacturing, including in terms of capital investments, domestic capacity and production levels, industry concentrations, and profits.
• The effects of the actions on U.S. technology, including in terms of U.S. technological leadership and U.S. technological development.
• The effects of the actions on U.S. workers, including with respect to employment and wages.
• The effects of the actions on U.S. small businesses.
• The effects of the actions on U.S. supply chain resilience.
• The effects of the actions on the goals of U.S. critical supply chains outlined in Executive Order 14017 and in subsequent reports and findings.
• Whether the actions have resulted in higher additional duties on inputs used for additional manufacturing in the United States than the additional duties on particular downstream product(s) or finished good(s) incorporating those inputs.

To further guide the public, on November 1 the USTR issued a questionnaire setting forth the structure for comments. The questionnaire is divided into sections for comments on the above at three increasingly-specific levels: (A) the economy at large, (B) sectors and industries, and (C) tariff schedule headings. For the last category, the questionnaire asks for comment on whether to remove or add specific headings, much as it did in comment requests for the initial action. A party does not need to address each category to submit a comment.

Any companies that have been affected by the tariffs, whether they have benefitted or been harmed, or have ever participated in a USTR comment period before, are encouraged to submit comments to the USTR before the January 17 deadline explaining their position on whether the tariffs should continue in light of the above considerations. Comments are still being accepted online via the USTR web portal at comments.ustr.gov through docket number USTR-2022-0014. Although the comments are public by default, parties may include business confidential information (BCI) that will be hidden from public view. As it did before the initial actions, USTR is likely to convene a Section 301 Committee panel to accept further testimony as it considers the merits of the tariffs. 

Court Challenge to Lists 3 and 4

Accompanying the USTR review process is the continuing litigation over the lawfulness of Lists 3 and 4. Beginning September 2020, over 3500 importers of goods covered by these lists filed cases in the U.S. Court of International Trade (CIT) alleging that the USTR (1) did not have the statutory authority to impose Lists 3 and 4 more than one year after the initiation of the investigation into the subject Chinese Government trade practices, and (2) failed sufficiently to justify the actions to the public during its notice and comment periods. As we reported, while in its April 2022 ruling the CIT rejected the first claim, on the second claim it remanded the case to the USTR to justify the actions further. The USTR submitted and the parties briefed the remand results, with oral argument scheduled for February 7, 2023. A decision against the tariffs could entitle importers to any Section 301 duties paid on subject products and render a portion of the USTR review process moot.