GAO Finds Section 301 Exclusion Process Lacked Transparency

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A U.S. government watchdog published a report on July 28, 2021, concluding that a process for requesting exclusions from Section 301 tariffs developed by the United States Trade Representative (“USTR”) lacked transparency.

Beginning in July 2018, USTR imposed tariffs on certain Chinese-origin products in response to an investigation which determined that certain Chinese policies and practices were unreasonable or discriminatory and burdened or restricted U.S. commerce. The U.S. has imposed tariffs on roughly $460 billion worth of Chinese-origin imports pursuant to Section 301 of the Trade Act of 1974. These Section 301 tariffs have been a challenge to importers that have worked to adjust their supply chains in order to reduce or eliminate Chinese-origin merchandise or seek an exclusion from the tariffs from USTR.

USTR developed a process for seeking an exclusion, but almost since its inception, U.S. industry – and later, members of Congress – raised questions about the transparency and equity of the USTR’s administration of the exclusion program. The process for requesting an exclusion involved submission, a public notice and comment period, internal review, interagency assessment, and publication of the decision. USTR denied 87 percent of the approximately 53,000 exclusion requests submitted from 2018 to 2020. Often, USTR provided one-page letters in response to an exclusion request using rote language to indicate whether a request was granted or denied, with little to no explanation offered beyond a conclusory sentence. Importers had no method to contest or appeal a determination, and there was resistance within USTR to provide any information outside the four corners of its standard letter response.

Formalizing what many in the trade community suspected, the Government Accountability Office (“GAO”) found inconsistencies in the USTR’s exclusion review process and faulted the agency for insufficiently documenting its internal procedures for reviewing and ruling on exclusion requests. “USTR provided a broad description of its four-stage exclusion process on its website, and documented certain internal procedures for its Stage 2 initial substantive review, but it did not fully document all internal procedures, including its procedural steps, a timeline, and roles and responsibilities for all the stages in the process.” For instance, although USTR indicated that it conducted an internal consistency check for importers that submitted multiple exclusion requests, the training materials did not describe that check, including who was responsible, when it was to occur and how it was to be performed. Documentation reflecting the general counsel’s review of recommendations to deny or grant a request as well as USTR’s ultimate determination for each request were also lacking. “Without fully documenting its procedures as called for by federal internal control standards, USTR lacks reasonable assurance that it conducted the exclusion and extension processes consistently to effectively mitigate any potential harm from the tariffs.”

GAO’s review of specific case files also revealed a lack of transparency within the agency. For instance, there was no documentation for consideration of multiple exclusion requests from the same company and no documentation explaining the justification for ultimately approving an exclusion request.

The exclusion process has been concluded for now, making GAO’s report mostly academic. However, the tariffs are still in effect, and there is a push within Congress to formalize the process for excluding imports from Section 301 tariffs.

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.

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