The Office of the U.S. Trade Representative is publishing its latest list of product exclusions from the first tranche of $34 billion in Section 301 tariffs on China (see 1905090067). This fifth list of exclusions includes one full tariff schedule subheading, as well as 88 subsets of tariff numbers in chapters 84, 85 and 90. The new exclusions take effect retroactively from July 6, 2018, when the $34 billion in tariffs originally entered into force, and will remain for one year following publication of USTR’s notice. USTR is creating Harmonized Tariff Schedule subheading 9903.88.10 for the new set of exclusions.
Section 301 Tariffs
Section 301 Tariffs are levied under the Trade Act of 1974 which grants the Office of the United States Trade Representative (USTR) authority to investigate and take action to protect U.S. rights from trade agreements and respond to foreign trade practices. Section 301 of the Trade Act of 1974 provides statutory means allowing the United States to impose sanctions on foreign countries violating U.S. trade agreements or engaging in acts that are “unjustifiable” or “unreasonable” and burdensome to U.S. commerce. Prior to 1995, the U.S. frequently used Section 301 to eliminate trade barriers and pressure other countries to open markets to U.S. goods.
The founding of the World Trade Organization in 1995 created an enforceable dispute settlement mechanism, reducing U.S. use of Section 301. The Trump Administration began using Section 301 in 2018 to unilaterally enforce tariffs on countries and industries it deemed unfair to U.S. industries. The Trump Administration adopted the policy shift to close what it deemed a persistent "trade gap" between the U.S. and foreign governments that it said disadvantaged U.S. firms. Additionally, it pointed to alleged weaknesses in the WTO trade dispute settlement process to justify many of its tariff actions—particularly against China. The administration also cited failures in previous trade agreements to enhance foreign market access for U.S. firms and workers.
The Trump Administration launched a Section 301 investigation into Chinese trade policies in August 2017. Following the investigation, President Trump ordered the USTR to take five tariff actions between 2018 and 2019. Almost three quarters of U.S. imports from China were subject to Section 301 tariffs, which ranged from 15% to 25%. The U.S. and China engaged in negotiations resulting in the “U.S.-China Phase One Trade Agreement”, signed in January 2020.
The Biden Administration took steps in 2021 to eliminate foreign policies subject to Section 301 investigations. The administration has extended and reinstated many of the tariffs enacted during the Trump administration but is conducting a review of all Section 301 actions against China.
Chinese imports subject to the third tranche of Section 301 tariffs that were on the water as of May 10 will stay at the 10 percent tariff rate through June 15. Originally, the tariffs were set to rise to 25 percent for entries on or after June 1. There will be a notice in the Federal Register next week, USTR said after hours May 31. "This limited extension will further account for customs enforcement factors and the transit time between China and the United States by sea," the press release said.
Six weeks ago, the senior vice president of the U.S.-China Business Council believed the Trump administration's pressure was successfully empowering Chinese officials who believe in reforming China's capitalist/state-controlled hybrid economy. "I was pretty optimistic that we were, as a consequence, going to be able to say that the administration had achieved things that probably no previous administration had genuinely been able to achieve," Erin Ennis told an audience member at the Washington International Trade Association China trade panel May 29.
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Many U.S. importers "tend to just assume things are on the up and up" with their vendors, said Pete Mento, vice president for global trade and managed services at Crane Worldwide Logistics. Mento, who conducted a webinar on free trade deals May 24, said that's a mistake. Mento said often "people are claiming free trade agreements simply because it was flown to the U.S." from a free-trade partner country. "You gotta be able to prove your stuff qualifies. Because if you can’t prove it, the government’s going to come down on you like the hammer of the gods," he said.
HP’s forecast for its fiscal year 2019 ending Oct. 31 only factors in the expected financial impact to the company from the List 3 Section 301 tariffs currently in place, including the increase to 25 percent from 10 percent that took effect May 10, Chief Financial Officer Steve Fieler said on a fiscal Q2 earnings call May 23. “We have not included the impact from any future tariffs,” he said, referencing the List 4 duties proposed May 17 on the $300 billion in Chinese imports not previously tariffed. HP continues to operate “in a dynamic environment that includes ongoing industry component constraints as well as macroeconomic, geopolitical and tariff uncertainties,” CEO Dion Weisler said. “But we have a highly experienced team and know how to navigate through complex market conditions.”
Treasury Secretary Steven Mnuchin, who faced many critical questions from House Democrats on the China trade war, told them that consumer goods were left until last for a reason, and that a decision on levying tariffs on the remaining imports from China -- including toys, apparel, cellphones and computers -- has not yet been made. “There won’t be any decision probably for another 30 to 45 days," Mnuchin testified at the Financial Services Committee May 22. He said that he had recently spoken to the chief financial officer at Walmart about the increase in tariffs on the third tranche of Section 301 tariffs and the possibility of tariffs on nearly all remaining imports.
The top Democrat on the Senate Finance Committee told U.S. Trade Representative Robert Lighthizer in a May 22 letter that panel blocking is a mistake, and that trying to use Section 301 tariffs to enforce trade commitments of Canada or Mexico won't work. Sen. Ron Wyden, D-Ore., wrote: "So far, the Administration’s justification for this mechanism has only increased my worry that the new Agreement will not be enforced." He acknowledged "certain improvements" in the labor and environment chapters, but said, "all of the obligations become meaningless if the United States cannot effectively and swiftly enforce them."
The Trump administration remains “on track to hit the industry” with 25 percent Section 301 tariffs on $300 billion in Chinese goods not previously dutied because trade talks with China “have deteriorated” in the past two weeks, emailed the Sports & Fitness Industry Association to members May 22. “Both sides have retreated to their corners and dug in, with no clear pathway for resolution in the immediate future,” it said. The next possible breakthrough in the talks could come at the G-20 summit June 28-29 in Osaka, Japan, where presidents Donald Trump and Xi Jinping are scheduled to meet, SFIA said. SFIA is organizing a petition drive for members to urge the removal of apparel, footwear, smartwatches and fitness trackers from List 4.
The Office of the U.S. Trade Representative plans to open the product exclusion process for the third tranche of Section 301 goods "on or around June 30," the agency said in a notice. The notice is a request to the Office of Management and Budget asking for expedited approval for an information collection for the exclusion process that was announced as part of the tariff increase for the third tranche of goods from China (see 1905080035). "USTR is establishing a process by which U.S. stakeholders can request the exclusion of particular products classified within a covered tariff subheading from the additional duties that went into effect on September 21, 2018, and May 10, 2019," the agency said. "USTR anticipates that the window for submitting exclusion requests will open on or around June 30, 2019. Requests for exclusion will have to identify a particular product and provide supporting data and the rationale for the requested exclusion. Within 14 days after USTR posts a request for exclusion, interested persons can provide a response with the reasons they support or oppose the request. Interested persons can reply to the response within 7 days after it is posted."