The Office of the U.S. Trade Representative is considering sanctions against Vietnam for importing illegal lumber to use in wood furniture and for currency manipulation that it suspects is hurting U.S. industry. The Section 301 investigations, announced the evening of Oct. 2, invite public comment on the extent of the violations, the scope of its impact on U.S. commerce, and suggestions for how to respond. Comments are due by Nov. 12.
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.
President Donald Trump’s “many tweets” and statements from his administration are strong evidence the White House unlawfully imposed the lists 3 and 4A tariffs to boost the U.S. Treasury and not curb the allegedly bad Chinese trade behavior documented in the Office of the U.S. Trade Representative’s March 2018 Section 301 investigative report. So said the lawyer for two automotive components importers making the case that the tariffs are unconstitutional because only Congress has the power of taxation.
The U.S.-Japan mini-deal is not consistent with World Trade Organization rules, a former White House trade negotiator said, so the two sides mentioned a future phase two deal to cover substantially all trade to convince Japan's parliament to pass the accord. Because of the way the deal was structured, with small tariff reductions for Japanese exporters, it did not require a vote in Congress, Clete Willems, speaking recently on a webinar for University of Nebraska students, said. In calling the mini-deal phase one, “I think both sides were playing it cute, to be honest,” Willems, now at Akin Gump, said. He said Japan was not interested in a comprehensive bilateral trade deal, because it still wants the U.S. to rejoin the Trans-Pacific Partnership.
The thousands of complaints seeking to vacate the lists 3 and 4A Section 301 tariffs on Chinese goods and have the duties refunded warrant the Court of International Trade assigning the litigation to a three-judge panel instead of a single judge, Akin Gump said Sept. 30 on behalf of importers HMTX Industries and Jasco Products, in a court filing. The Department of Justice told Akin Gump it opposes the motion and will file a response, it said.
Over 150 exclusions from lists 1 and 2 of Section 301 China tariffs are set to end Oct. 2, after the Office of the U.S. Trade Representative did not include them in two recently released notices of exclusion extensions. In its notice on List 1 exclusions, USTR granted extensions to nine out of the 96 exclusions listed in U.S. Note 20(x) and filed under tariff schedule subheading 9903.88.19. USTR's notice on List 2 exclusions announced extensions to 28 out of the 113 currently listed in U.S. Note 20(y) and filed under subheading 9903.88.20.
More than 150 exclusions from lists 1 and 2 Section 301 China tariffs are set to expire Oct. 2, after the Office of the U.S. Trade Representative declined to extend them in the days prior to their expiration.
The Department of Justice motion for case management procedures to navigate the thousands of Section 301 tariff complaints before the Court of International Trade (see 2009240026) was “procedurally defective” because it wasn’t served on any other plaintiffs who filed cases involving the original HMTX Industries lawsuit, said an opposition Sept. 28 from Paulsen Vandevert, lawyer for importers GHSP and Brose North America. The more than 3,400 complaints seek to have the lists 3 and 4A tariff rulemakings vacated and the paid duties refunded. GHSP, a supplier of electromechanical systems to the automotive industry, and Brose, a distributor of mechatronic parts for motorized car seats, are in “full agreement” with DOJ that the many complaints will require case management procedures, Vandevert said. But his clients “strongly object” to designating the three “first-filed” complaints as test cases, he said.
The Coalition for a Prosperous America, a domestic industry group that supports the Section 301 tariffs on China, complained about the “cadre of legal firms” suing the Trump administration over the tariffs on goods from lists 3 and 4 (see 2009210025). “The equivalent of tariff ambulance chasers” recruited the companies to file the lawsuits, Kenneth Rapoza, CPA industry analyst, said in a blog post Sept. 29. Rapoza specifically mentions Sandler Travis, which said in a recent client notice that there was still time to file similar challenges, and notes the role of Sandler Travis lawyer Lenny Feldman as the co-chair of CBP's Commercial Customs Operations Advisory Committee. The blog post also highlights Akin Gump, which filed the first lawsuit, for being the largest lobbying operation in Washington and representing Chinese telecom company ZTE Corporation. Sandler Travis didn't respond to a request for comment. Akin Gump declined to comment.
While some individual companies in the medical and protective equipment sector testified that advantaging U.S. production will prevent shortages in the next pandemic, trade groups generally emphasized that stockpiling is the best solution, and that production needs to be globalized for the lowest risk. All were testifying across two days this week to the International Trade Commission, which was tasked with investigating the U.S. production and trade in goods needed for COVID-19 pandemic response, and supply chain challenges revealed in the crisis.
The Court of International Trade should use a case management approach for the numerous Section 301 tariff lawsuits similar to the one used for litigation over the harbor maintenance tax (HMT), the Department of Justice said in a Sept. 23 filing. That should include the selection of a “test case” and a stay of all other cases involved, DOJ said. The filing marks DOJ's first since HMTX Industries filed suit to force refunds of Section 301 tariffs paid on lists 3 and 4 goods from China (see 2009110005).