China Tariffs: USTR Announces Opportunity to Comment

WilmerHale
Contact

On October 17, the Office of the US Trade Representative (USTR) published a notice requesting public comments on Section 301 tariffs on products from China.1 This request is part of USTR’s statutory four-year review of the tariffs. USTR identified a series of factors that it will consider in the review, including several that are related to the Biden Administration’s domestic economic policy priorities, such as strengthening domestic manufacturing, combating excessive industry concentration, supporting employment and wages, advancing US technological leadership, promoting small businesses, and ensuring supply chain resilience.

Companies that have equities with respect to the tariffs—either because they favor maintaining the status quo or because they favor reductions or exemptions—should consider participating in the public comment process, which will unfold between now and January 2023. In addition, such companies should continue to monitor broader developments related to the Section 301 tariffs, including ongoing deliberations by the Administration and Congress.

Background on USTR’s Statutory Four-Year Review of Section 301 Tariffs

Section 307(c) of the Trade Act of 1974 provides that an action taken pursuant to Section 301 shall terminate after four years if neither the petitioner for the original action, nor any representative of the domestic industry that benefits from the action, submits a written request for its continuation.2 However, if such a request is submitted, then USTR must conduct a review of the action. This review must address the effectiveness of the action in achieving the objectives of Section 301 (i.e., the elimination of the foreign country’s act, policy or practice that gave rise to the Section 301 action); the effectiveness of other actions that could be taken (including actions against other products or services); and the effects of such actions on the US economy, including consumers. The statute does not prescribe a particular course of action for USTR based on the outcome of the review—seemingly affording USTR a degree of discretion.

In this case, in 2018 and 2019, USTR imposed tariffs pursuant to Section 301 on approximately $370 billion of products imported from China. This action was based on USTR’s determination that acts, policies and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict US commerce.

As discussed in a prior alert, in May 2022, USTR gave representatives of domestic industries which benefit from the tariffs an opportunity to request continuation of the actions.3 In response, USTR received hundreds of requests from domestic producers and trade associations to continue the tariffs.4 Accordingly, in September 2022, USTR announced that it would not terminate the tariffs and that it would proceed to conduct the statutory four-year review.5

Criteria for USTR’s Review

As noted above, the statute requires USTR to review the effectiveness of the tariff action in achieving the objectives of Section 301, the effectiveness of other actions that could be taken (including actions against other products or services), and the effects of such actions on the US economy, including consumers.

USTR’s October 17 notice invites the public to comment on these factors with regard to the China Section 301 tariffs. In addition, the October 17 notice lists the following additional, non-statutory factors for the public to comment on:

  • The effects of the actions on the US economy, including US consumers.
  • The effects of the actions on domestic manufacturing, including in terms of capital investments, domestic capacity and production levels, industry concentrations, and profits. (This criterion appears to reflect an interest on the part of certain Administration officials in a more proactive and prescriptive industrial and competition policy, which in their view trade should promote.)6
  • The effects of the actions on US technology, including in terms of US technological leadership and US technological development.
  • The effects of the actions on US workers, including with respect to employment and wages.
  • The effects of the actions on US small businesses.
  • The effects of the actions on US supply chain resilience.
  • The effects of the actions on the goals of US critical supply chains outlined in Executive Order 14017 on America’s supply chains (issued February 2021) 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. (This is a phenomenon known as “tariff inversion,” which can have the unintended consequence of encouraging the substitution of higher-value imports for lower-value imports and discouraging value-add in the United States.)

These factors reflect various strands of the Administration’s domestic economic policy priorities and appear to be related to the statutory requirement that USTR review “the effects of [Section 301] actions on the United States economy, including consumers.”

Timeline for USTR’s Four-Year Review

On November 1, 2022, USTR intends to post a copy of questions for the public to address in comments to USTR. At present, it is unclear whether the questions will differ significantly from the factors listed above.

On November 15, 2022, USTR will open a docket for interested persons to submit comments. The docket will remain open for the submission of comments until January 17, 2023.

In the October 17 notice, USTR stated that it will evaluate during the course of the review whether to provide additional opportunities for public comment through additional written comments or through public hearings. However, USTR has not said when it will make a decision regarding such opportunities, nor did USTR specify a deadline for the completion of the review.

As noted above, the statute does not prescribe a particular course of action for USTR based on the outcome of its review. However, it is possible that USTR will decide to modify the tariffs based on the information received—e.g., by eliminating or changing the applicable rate of duty for particular products or by creating a new exclusion process for Section 301 tariffs (as USTR has already done in several instances).

Political Context

Both the executive and legislative branches have been actively considering possible ways to modify the Section 301 tariffs. USTR’s four-year review provides one possible avenue for the Administration to effectuate a modification.

The Administration has been considering modifying the Section 301 tariffs since President Biden took office and throughout 2022. According to press reports, the White House debated a possible tariff cut for several months during 2022, with the Secretaries of Commerce and the Treasury arguing that a limited tariff reduction would benefit US businesses and consumers who buy Chinese products and help address inflation. However, the President has declined to take action thus far, reportedly due in part to concerns about the effect on organized labor.7

Meanwhile, some members of Congress have been advocating for a new, robust Section 301 tariff exclusion process. In June 2021, the Senate passed the United States Innovation and Competition Act (USICA), which contained provisions requiring the Administration to restart such an exclusion process. In May 2022, the Senate passed a nonbinding motion on a 53-43 vote, calling for these provisions to be included in a House–Senate conference bill. However, they were omitted from the final conference bill passed by Congress. Certain senators are now seeking to include similar provisions requiring a Section 301 exclusion process in the National Defense Authorization Act for fiscal year 2023.

Conclusion

Companies that stand to gain from either the continuation or the modification of Section 301 tariffs should continue to monitor US government action in this space—including with respect to USTR’s four-year review and possible new legislation. Such companies should also consider developing an advocacy strategy to ensure that policymakers take their interests into account.

Footnotes -

  1. “Section 301” refers to section 301 of the Trade Act of 1974, 19 USC § 2411.
  2. 19 U.S.C. § 2417(c)(1).
  3. Initiation of Four-Year Review Process: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 87 Fed. Reg. 26,797 (USTR May 5, 2022).
  4. Specifically, for the July 6, 2018 tariff action, USTR received 244 requests from domestic producers and 44 requests from trade associations. For the August 23, 2018 action, USTR received 114 requests from domestic producers and 32 requests from trade associations. Continuation of Actions: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 87 Fed. Reg. 55,073 (USTR Sept. 8, 2022).
  5. Id.
  6. With respect to competition in particular, see Executive Order 14036 of July 9, 2021, “Promoting Competition in the American Economy” (declaring that “excessive market concentration threatens basic economic liberties, democratic accountability, and the welfare of workers, farmers, small businesses, startups, and consumers.”).
  7. See Wall St. J., “Biden Still Undecided on Chinese Tariffs, Commerce Secretary Says” (Aug. 30, 2022).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© WilmerHale | Attorney Advertising

Written by:

WilmerHale
Contact
more
less

WilmerHale on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide