Overview
Since the beginning of the Biden Administration, and particularly since earlier in 2021, U.S. companies and importers have been looking forward to the prospect of a reduction in the tariffs originally imposed in 2018 and 2019 following the Section 301 investigation against China or, at a minimum, a resumption of the exclusion process that was largely suspended in 2020 aside from extensions in limited circumstances. While several avenues for the elimination or reduction of Section 301 duties have presented themselves, to date, none have been adopted. Nevertheless, the coming months may offer several opportunities for U.S. companies interested in reducing their Section 301 duty liability to advocate for relief.
USTR Review of Section 301 Tariffs
The Office of the United States Trade Representative (“USTR”) is currently conducting a review of the two actions taken under Section 301, specifically, the imposition of additional tariffs on products on List 1 (covering $34 billion in imports as of 2018) and List 2 ($16 million in imports as of 2019), which were subsequently modified by the imposition of List 3 and List 4A (covering $200 and $400 billion in imports, respectively, as of 2019).
This “review of necessity” is being conducted pursuant to 19 U.S.C. § 2417(c), which obligates USTR to revoke any action taken under Section 301 after four years unless parties that benefit from that action request its continuation. If continuation is requested, USTR is then required to evaluate the “effectiveness in achieving the objectives of Section 301” and the “effects of such actions on the United States economy, including consumers” for any action taken under Section 301.
This review began in June 2022, and, in early September 2022, USTR announced that it had received requests from 358 companies and 76 trade associations in support of the continuation of the Section 301 tariffs. As a result, USTR announced that these tariffs would not be revoked.
This review must now move to the next phase in which USTR is required to conduct a broader review of the effectiveness of these tariffs and their impact on the U.S. economy. To date, USTR has not announced the timing or process for this second phase. Furthermore, it is unclear whether, how or when – or even if – USTR will adjust Section 301 tariffs as a part of this review process. Nevertheless, businesses that have been negatively impacted by these tariffs should consider submitting comments for the USTR’s consideration once the process for this phase of the review is announced.
Options for Legislative Action on Section 301 Duties
On August 9, 2022, President Biden signed the CHIPS and Science Act of 2022, focused on the promotion of U.S. semiconductor manufacturing and STEM research. This final legislative package was derived largely from a lengthy, contentious, and ultimately unsuccessful conference committee reconciliation between the House-passed America COMPETES Act (H.R. 4521) and Senate-passed U.S. Innovation and Competition Act (USICA) (S. 2160).
In order to reach the compromise that resulted in the CHIPS and Science Act of 2022, Members ditched many of the more controversial provisions from the predecessor bills. Among the jettisoned provisions was the trade-focused section specifically addressing Section 301 tariffs on imports from China. As proposed in the Senate-passed USICA, this provision would have:
- Reinstated all previously granted exclusions to Section 301 tariffs on imports from China through December 31, 2022, including a limited retroactivity provision for the subset of exclusions that were in place as of December 31, 2020.
- Mandated that the USTR implement a more robust exclusion process that would take into account, inter alia, (1) whether the failure to grant the exclusion would result in severe economic harm to the requester; (2) whether the imposition of the duty would unreasonably increase consumer prices for day-to-day items consumed by low- or middle-income families in the United States; and (3) 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.
This provision had initially been approved by the Senate with a 91-4 vote, but support for this title waned dramatically once the reconciliation process began. Negotiators on both sides of the aisle felt significant pressure to eliminate the exclusion language from the final package – Republicans from former Trump officials (including especially former USTR Robert Lighthizer) and anti-China hardliners and Democrats from labor activists. When the Senate voted again in May on a motion to instruct its conferees regarding the Section 301 exclusion process, support had diminished to a much lower margin of 53-43.
Given the impasse surrounding Section 301 and other divisive trade provisions, and eager to pass a broad package before the August recess, Senate Majority Leader Chuck Schumer (D-NY) moved forward with a separate semiconductor manufacturing bill focused on those incentives and science research funding and omitted the Section 301 exclusion language from USICA.
Some members have expressed hope that a package of the trade provisions abandoned in the USICA and America COMPETES conference could be combined into a separate, stand-alone bill or attached to other legislation to be considered after the U.S. mid-term elections in November 2022. Prospects for either of these steps are highly uncertain, and no specific legislative proposals have yet surfaced.
Presidential Action to Reduce Section 301 Tariffs and/or Reinstate the Exclusion Process
Like Congress, the White House has also faced significant pressure to lower Section 301 tariffs, as various industry groups have pressed for removal of the Section 301 tariffs or a reinstatement of the exclusion process, particularly as a tool to reduce inflationary pressures.
The Biden Administration has been publicly divided on the appropriate course of action, with Treasury Secretary Janet Yellen previously arguing that many of these duties are “non-strategic” and raise costs for American consumers and businesses, and U.S. Trade Representative Katherine Tai defending tariffs as “a significant piece of leverage” in the U.S.-China trade relationship.
After months of deliberation, it was reported in July that President Biden would announce a small Section 301 tariff relief package that would include two elements: (1) tariff suspension on a very narrow subset of consumer goods, estimated to be around $10 billion worth of imports (out of roughly $370 billion) and (2) and the reopening of the exclusion process. The Administration was rumored to be announcing a new Section 301 investigation parallel to this package, targeting sectors of the Chinese economy that are heavily subsidized by the Chinese Communist Party, in order to offset any criticism that these tariff relief actions would be viewed as overly favorable to China.
However, to date, none of these anticipated actions have been taken, and, according to Commerce Secretary Gina Raimondo in an interview in late August, President Biden is still undecided about easing tariffs on Chinese imports. The Administration remains concerned about a negative reaction from organized labor to a unilateral reduction in these tariffs, and China’s reaction to Speaker Pelosi’s visit to Taiwan has now made it more politically difficult to announce relief. Given the political implications of this decision, the probability of a decision by the White House in the near future on tariff relief is diminishing as midterm elections approach in November.
Continuing Litigation Before the U.S. Court of International Trade
On August 1, 2022, USTR filed remand results in the ongoing litigation before the U.S. Court of International Trade (CIT) concerning the lawfulness of the Section 301 duties imposed on certain imports.
This CIT action had been brought as a challenge to USTR’s authority to impose third and fourth rounds of Section 301 duties without first satisfying the statutory requirements for modifying the first and second tariff actions. The court ruled in April 2022 that the USTR violated the Administrative Procedure Act by failing to explain its evaluation of comments filed in response to USTR’s initial proposals. It remanded the decision to the USTR to provide the missing explanations.
In its remand, USTR filed a lengthy and detailed justification of its original decision. Notably, USTR did not adjust its approach to the imposition of Section 301 tariffs or back away from any of the positions taken by the previous administration. Rather, in its remand determination, USTR provided a fulsome response addressing in significant additional detail its decision process in compiling the tariff lists and assessment of comments filed on the imposition of Section 301 tariffs. This suggests that the current administration has no immediate plans to shift from the strategy adopted under the previous administration. Comments on the remand determination were filed by plaintiffs on September 14, 2022, and comments from defendants are due by October 28, 2022.
