Senate Gives Hope to U.S. Importers Affected by Section 301 Tariffs

Faegre Drinker Biddle & Reath LLP

On May 27, 2021, the Senate voted to amend the United States Innovation and Competition Act (the Act), formerly the Endless Frontier Act, a bill that started as an effort to increase the United States’ competitive advantage in the world through investments in research and technology, but that has morphed into a broad China-centered legislative package including trade components. Included in the package is an amendment, entitled the Trade Act of 2021, which would allow substantial opportunities for importers to obtain relief from the Section 301 tariffs currently imposed on certain Chinese-origin products.

The amendment, a bipartisan compromise between Senate Finance Committee Ranking Member Mike Crapo (R-ID) and Senate Finance Committee Chairman Ron Wyden (D-OR), would renew and extend expired exclusions to tariffs on Chinese goods resulting from the Section 301 Investigation on China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation (Section 301), and would also provide an opportunity for retroactive duty refunds on some products.

If the bill becomes law, the amendment also includes the potential to restart and reform the Section 301 exclusion process, opening the door for additional duty savings on products not previously subject to an exclusion from the Section 301 tariffs.

The larger bill has run into some delays and will be considered when the Senate returns on June 8. If it passes the Senate, the House of Representatives will need to pass its version of the bill, and the two chambers will need to work out any differences before anything is final.

Our team has broken down the key benefits of the amendment as originally filed related to Section 301 and what it may mean for U.S. importers and companies affected by the Section 301 tariffs.

Prospective Reauthorization of Section 301 Exclusions

The proposed legislation would reinstate all Section 301 exclusions previously granted and published by the United States Trade Representative (USTR), covering products across Lists 1, 2, 3 and 4A. The reauthorization of Section 301 exclusions would apply from the date of the enactment of the Act and extend all previously granted Section 301 exclusions through December 31, 2022. The extension of the Section 301 exclusions will provide substantial prospective duty relief to importers.

Retroactive Duty Recovery of Certain Expired Section 301 Exclusions

The original Section 301 exclusions had a limited life span, and importers or affected parties had to apply to USTR to extend their exclusions prior to their expiration. USTR granted limited extensions, and as a result, most exclusions were available for less than a year from the date they were granted. Nonetheless, there were a limited number of exclusions extended by USTR until December 31, 2020.

For those Section 301 exclusions that expired on December 31, 2020, the proposed legislation would allow importers to recover all Section 301 duties paid on entries made after December 31, 2020, through the date of enactment for the legislation.

Notably, the legislation allows for Section 301 duty refunds regardless of the liquidation status of the underlying entry but would not include interest in repayment of previously tendered duties. Any claim for duty recovery must be filed within 180 days after the Act is passed, and U.S. Customs and Border Protection (CBP) will have 90 days to liquidate or reliquidate the entry and process the duty refunds.

At present, only a handful of exclusions deemed to be medical care products and personal protective equipment (PPE) needed to address the COVID-19 outbreak remain active with a potential expiration on September 30, 2021. The status of these COVID-19 exclusions would not be affected by the proposed legislation beyond the prospect of extending the future September 30, 2021, expiration date to December 31, 2022.

Prospective or Retroactive – How Are Your Imports Affected?

If the bill is enacted as the amendment currently stands, the majority of previously granted exclusions are not eligible for retroactive relief because they expired prior to December 31, 2020. For example, the List 3 exclusion for “magnetic security tags and labels (described in statistical reporting number 8531.90.9001)” was not extended and expired on August 7, 2020. Thus, any entries of “magnetic security tags and labels” will remain subject to Section 301 duties until the proposed legislation is signed into law, which will then reinstate the exclusion. However, as the exclusion was not active on December 31, 2020, there will be no opportunity for retroactive recovery of duties.

Conversely, the List 3 exclusion for “covers, of leather, designed for use with telecommunication devices (described in statistical reporting number 4205.00.8000)” was extended and eventually expired on December 31, 2020. While any entries of “covers, of leather, designed for use with telecommunication devices” will remain subject to Section 301 duties until the proposed legislation is signed into law, at that point not only will the exclusion be reinstated, there will be the opportunity for retroactive duty relief as the exclusion was in effect on December 31, 2020.

The limitations of retroactive relief in the current version of the proposed legislation is an area ripe for expansion as the bill passes to the House. As with the original exclusion process itself, the extension process received criticism for its opacity, so it is not necessarily evident why some exclusions were extended until December 31, 2020, and others were not. Even further, the December 31, 2020, cutoff itself may be somewhat arbitrary. Of the extended exclusions, some missed the December 31, 2020, cutoff. Perhaps the starkest examples are the six List 1 exclusion extensions which expired on December 27, 2020. Thus, U.S. importers and affected parties have a path to push their members of Congress for full retroactive application on all previously granted exclusions or at least all extended exclusions in the final version of the law.

Reformed Exclusion Process

The proposed legislation also applies pressure to USTR to reinstate a reformed Section 301 exclusion process. While there is no explicit timeline to reinstate the exclusion process, the amendment is a clear signal from Congress to USTR that more exclusions are needed by their constituents. As such, affected parties who were previously denied exclusions or missed the opportunity to request an exclusion may receive a second bite at the apple with this renewed chance to convince USTR to exclude their imports from these duties.

In her recent testimony before the Senate Finance and House Ways and Means Committees, USTR Ambassador Katherine Tai noted her “keen awareness” of congressional support for not only a renewed exclusion process but a more transparent process. The new legislation does just that, adding new criteria for considering an exclusion designed to contextualize the potential effects of these duties on U.S. citizens, such as:

  • Whether the imposition of the duty with respect to the article would unreasonably increase consumer prices for day-to-day items consumed by low- or middle-income families in the United States.
  • Whether the imposition of the duty would have an unreasonable impact on manufacturing output of the United States.
  • Whether the imposition of the duty would have an unreasonable impact on the ability of an entity to fulfill contracts or to build critical infrastructure.
  • Whether the failure to grant the exclusion is likely to result in a particular entity or entities having the ability to abuse a dominant market position.

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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