GAO Says Section 301 Exclusion Process Needed Better Documentation, Especially at Final Review

At the height of the Section 301 exclusions, 10% of imports covered by the China tariffs were excluded, according to a new Government Accountability Office report, though that fell from 10% to 7% across 2020, as exclusions expired and were not extended. Overall, about $71 billion of imports avoided the tariffs, GAO estimated.

The GAO report, requested by Senate Finance Committee Chairman Ron Wyden, D-Ore., Trade Subcommittee Chairman Sen. Tom Carper, D-Del., and Sen. Tim Kaine, D-Va., criticized the Office of the U.S. Trade Representative for reviewing multiple requests from the same company inconsistently, and for lack of documentation on why the Office of General Counsel overruled some analysts' recommendations. The report was published July 28.

USTR officials said they did consistency checks when one company made multiple requests, by having a second level 2 reviewer look at the file. But the GAO analysts said that in two of the 16 cases they randomly selected, the consistency check happened after the General Counsel decision.

In its defense, USTR noted that the 16 case files GAO examined, out of 31,664 requests and "extension public comments," are not generalizable to the overall process. They also agreed that if they do an exclusion or exclusion extension process in the future, they will be sure to fully document their internal procedures.

Less than half the products covered by the tariffs were the subject of an exclusion request, USTR said; but for those with requests, there was an average of 12 requests. That average was skewed by a large number of requests for some Harmonized Tariff Schedule codes, because the majority of products that had exclusion requests had fewer than three requests.

The exclusions lasted between a year and 27 months, depending on which list and when they were granted. The denial rate for lists 1 and 2 was 66%; for lists 3 and 4a, it was 95%. But the top reason an exclusion was granted was for economic harm, and list 4a had a much lower additional rate, of 7.5%.

USTR’s denial rate increased from 66 percent for lists 1 and 2 combined to 95 percent for lists 3 and 4A combined. USTR said 87% of its denials were for failure to show the tariffs would cause severe economic harm to the requesters. It also denied 75% of extensions, after examining the argument for severe economic harm; whether Chinese suppliers had lowered their prices after the Section 301 tariffs went into effect; the commenter's gross revenue; and whether the product was a finished good or a manufacturing input.

The report said "the General Counsel’s comment box was empty for each case file we reviewed, including one case file in which the General Counsel’s recommendation to grant the request changed the prior reviewer’s recommendation for denial. USTR did not have any documented procedures for the General Counsel’s review that stated whether the General Counsel was required to record anything in the portal. USTR officials told us that the General Counsel was not required to record a comment or reason for the recommendation. As a result, the prior recommendation and associated analysis in the case file differed from the agency’s final decision."