Section 301 Investigation

In his second State of the Union address to Congress, President Donald Trump noted that he campaigned on several core promises, including “to defend American jobs and demand fair trade for American workers.” He argued that his administration has “moved with urgency and historic speed to confront problems neglected by leaders of both parties over many decades” and indicated that “one priority is paramount – reversing decades of calamitous trade policies.”

His prepared speech included comments on the ongoing trade dispute with China and the Section 301 tariffs imposed on $250 billion worth of imported Chinese products. He noted that his administration continues to work on a new trade deal with China, but that any final agreement “must include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs.” On the other major trade issue of 2018, the president called NAFTA an “historic trade blunder” and “catastrophe” that has now been addressed by the new United States-Mexico-Canada Agreement (USMCA). Trump called on Congress to pass the agreement in order to “bring … back our manufacturing jobs, [expand] American agriculture, [protect] intellectual property, and ensur[e] that more cars are proudly stamped with four beautiful words: made in the USA.”

In his only other significant remarks on trade, the president asked Congress to pass the United State Reciprocal Trade Act, arguing that the United States should be able to issue “the exact same tariff on the same product that they sell to us” if another country places an unfair tariff on a U.S. product. See also Trump and Trade Update of January 25 for more details on this act and other recently introduced trade- and tariff-related legislation.

Concerning economic sanctions and relations with certain “rogue” countries, the president announced that he will meet again with Kim Jong-un, Supreme Leader of North Korea, on February 26-27, 2019, in Vietnam, acknowledging that “much work remains to be done.” Trump highlighted his administration’s recent decision to officially recognized the legitimate government of Venezuela and its new interim president, Juan Guaidó. President Trump noted that he has “acted decisively to confront the world’s leading state sponsor of terror: the radical regime in Iran” and “put in place the toughest sanctions ever imposed on a country” after withdrawing from the “disastrous Iran nuclear deal.”

Shortly after the president’s address, the White House released a series of fact sheets on the various topics covered in his message, including “President Donald J. Trump Has Forged New Trade Agreements to Revitalize American Industry and Agriculture.”

The Congressional Research Service (CRS), a nonpartisan staff to congressional committees and Members of Congress, has released an overview report, International Trade and Finance: Overview and Issues for the 116th Congress, in which it offers a brief review of President Donald Trump’s first two years in office and policy issues that the new 116th Congress may address. The policy issues include: the impact of trade and trade agreements on the U.S. economy; the causes and consequences of the U.S. trade deficit; the implications of technological developments for U.S. trade policy; and the intersection of economics and national security.

The report acknowledges that the president has focused his trade policy on “reevaluating many U.S. international trade and economic policies and relationships.” The report also notes that members of Congress “exert significant influence over U.S. economic and trade policy and its implementation through their legislative, appropriations, and oversight roles” and that “[g]iven current debates, fundamental questions about the future direction of trade and international economic issues may be key areas of interest for the 116th Congress.” Some of the trade issues discussed in the report are:

  • Tariff Actions Undertaken by the Trump Administration – summarizing imposed and/or increased tariffs under: (1) Section 201 of the Trade Act of 1974 on U.S. imports of washing machines and solar products; (2) Section 232 of the Trade Expansion Act of 1962 on U.S. imports of steel and aluminum, and potentially autos, auto parts and uranium; and (3) Section 301 of the Trade Act of 1974 on U.S. imports from China; and retaliatory tariffs implemented by other countries.
  • U.S.-China Trade and Key Issues – summarizing China’s economic rise and increasing U.S. tensions over various economic and trade issues “stemming largely from China’s incomplete transition to an open-market economy,” including: (1) China’s industrial policies and Made in China 2025 initiative; (2) China’s policies on technology, innovation, and intellectual property and its economic espionage; and (3) China’s Belt and Road Initiative.
  • U.S. Bilateral and Regional Trade Agreements and Negotiations – summarizing a number of trade actions and negotiations the Trump administration has undertaken concerning free trade agreements, including: (1) the U.S.-Mexico-Canada Agreement (USMCA); (2) modifications to the U.S.-South Korea (KORUS) free trade agreement; (3) ongoing U.S.-European Union trade negotiations; (4) U.S.-Japan trade negotiations; and (5) the call for launching U.S.-United Kingdom free trade agreement negotiations.
  • The World Trade Organization – summarizing the state of affairs and growing challenges facing the World Trade Organization (WTO) and calls for reforms of its functions, including: (1) the lack of any modernization of its rules since 1995 despite numerous multilateral and plurilateral negotiations; (2) the entrenched differences in priorities among leading emerging market economies, developing countries and advanced economies; and (3) skepticism over the WTO’s dispute settlement system.

In addition to these high-profile trade matters, the CRS report also provides details on more general trade issues such as intellectual property rights, labor and environmental conditions in trade agreements, and select U.S. import policies. It concludes with an overview of foreign direct investment in the United States and a review of international financial institutions and markets relied upon to discuss and coordinate economic policies.

International trade matters, at times, dominated the 2018 political landscape. Those of us at Trump and Trade expect 2019 to be no different. While the CRS report offers a broad overview of the policy debates that remain, we recommend a quick review of it. The report itself concludes that these issues “provide the backdrop for a potential robust and complex debate in the 116th Congress over a range of trade and finance issues.”

With the 35-day partial federal government shutdown ending on January 26, 2019, the U.S. government’s trade-oriented agencies have reopened and are beginning to work through massive backlogs of work as personnel resume full-time operations. What follows is a listing of the current operational status of many of these agencies:

U.S. Customs and Border Protection (CBP)

While CBP staffed ports “as normal” during the shutdown to ensure that the “flow of trade {is} as close to normal as possible,” other functions were curtailed. Due to the lapse in federal funding, however, the CBP website and certain databases were not actively managed. While no formal announcement has been made by CBP, these resources are once again fully operational, including the Customs Rulings Online Search System (CROSS) and the AD/CVD search database.

U.S. Department of Commerce – Bureau of Industry and Security (BIS)

No official statement has been issued by BIS officials, but the Department of Commerce is once again fully operational. While export enforcement continued during the shutdown, other functions of BIS were severely curtailed, including the filing of export license applications. SNAP-R (BIS’s electronic filing system) is back up and accepting licensing applications; however, it is expected that the review-and-approval process for applications will be delayed due to the expected high volume of filings BIS expects to receive.

U.S. Department of Commerce – International Trade Administration (ITA)

ITA is once again fully operational and has issued a memorandum stating that “any delay and confusion caused by the closure of the Federal Government will best be minimized by uniformly tolling all Enforcement and Compliance deadlines for the effective duration of the recent closure (i.e., 40 days), with the exception of requests for administrative reviews of suspension agreements and antidumping duty (AD) and countervailing duty (CVD) orders.” ITA has indicated that this determination applies to every proceeding, with the exception of court-ordered redeterminations. For AD and CVD orders and suspension agreements with December and January anniversary months, all requests for administrative reviews are now due by February 28, 2019.

U.S. Department of State – Directorate of Defense Trade Controls (DDTC)

DDTC has posted a notice on its website stating that it “has returned to full operational status with all electronic application systems placed in normal operational mode and the 3pm daily pick-up and drop-off service restored.” In resuming full operations, the agency notes that “Priority will be placed on issuance of licenses in the system at the time of implementation of lapse of funding operations on December 22, 2018. New licenses will be accepted; however, industry is advised of the likelihood of longer than normal processing times due to the high volume of licenses DDTC expects to receive.”

U.S. Department of the Treasury – Office of Foreign Assets Control (OFAC)

As previously reported, Treasury continued to have critical staff reporting to work to maintain core operations, even though OFAC’s operations were significantly curtailed. OFAC is again fully functional, and its sanctions web pages and licensing portal are operating.

U.S. International Trade Commission (ITC)

The ITC has publicly stated that all investigations that were active and ongoing when the shutdown began will be tolled by 35 days; a formal notice soon to be published in the Federal Register will provide more detailed information. The ITC website notes that “specific schedules for each investigative proceeding, including those pending before an Administrative Law Judge, will be revised and new schedules posted. We hope in a week or more for revised schedules to be finalized.” The ITC website is once again fully operational, and EDIS (the ITC’s electronic filing system) was live and accepting filings as of January 30. The HTS Search Tool and Dataweb are once again fully operating.

Office of the U.S. Trade Representative (USTR)

USTR has announced that it has returned to “full operating status.” Bilateral trade negotiations continued during the shutdown, particularly those between the United States and China, which face a March 1 deadline before U.S. retaliatory tariffs increase on certain imports of certain Chinese products on March 2 from 10 percent to 25 percent; however, no notice has been provided regarding how the lengthy shutdown will affect the processing of Section 301 product exclusion requests.

International trade and international trade disputes were a predominant focus of President Trump and his trade officials throughout 2018. Thompson Hine’s Trump and Trade team has prepared a slide presentation to provide our readers with a broad overview of the most significant trade actions taken by the Trump administration last year. From the renegotiation of the North America Free Trade Agreement (NAFTA), which is now the U.S.-Mexico-Canada Agreement (USMCA), to the many ongoing trade actions involving imports of steel, aluminum and products from China, it was a busy year. This overview concisely presents details and the current status of the president’s primary trade activities.

The presentation includes information on the current status of President Trump’s major trade actions, including NAFTA/USMCA negotiations, the U.S.-Korea Free Trade Agreement, and other bilateral trade negotiations with Japan, the European Union and the United Kingdom. It also provides details on major trade and tariff actions occurring in 2018, such as the Section 232 steel/aluminum tariffs, the Section 232 automobile and automobile parts investigation, and the Section 301 China-related tariffs.

We invite you to stay abreast of continuing developments in 2019 via our blog, TrumpandTrade.com. To receive an email notification whenever a new post is published, please subscribe to the blog.

Happy new year!

On December 21, 2018, the Office of the U.S. Trade Representative (USTR) announced its first round of product exclusions for U.S. imports from China receiving a 25 percent tariff increase on July 6, 2018, as part of the Section 301 process. In a December 28, 2018 Federal Register notice, the USTR announced that it will modify the Harmonized Tariff Schedule (HTS) to grant nearly 1,000 product exclusion requests. As set out in the annex to the notice, the exclusions are established in two different formats: (1) as an exclusion of an existing 10-digit subheading from within an 8-digit subheading included in the scope of the initial Section 301 action, which covered $34 billion worth of U.S. imports of Chinese products, or (2) as an exclusion reflected in specially prepared product descriptions. The USTR notes that the exclusions take the form of seven 10-digit HTSUS subheadings and 24 specially prepared product descriptions. The exclusions are available for any product satisfying the description in the annex, regardless of whether the importer filed an exclusion request. These exclusions will be applied retroactively to July 6, 2018 and will be effective for one year from December 28, 2018.

These HTS subheadings will be fully exempt from the 25 percent tariff applied on imports from China under Section 301: 8412.21.0075, 8418.69.0120, 8480.71.8045, 8482.10.5044, 8482.10.5048, 8482.10.5052 and 8525.60.1010. These subheadings cover certain hydraulic power engines, drinking water coolers, injection molds, radial bearings and CB radio transceivers. The USTR also created partial exemptions for certain products under other HTS subheadings satisfying the additional requirements of the specific product descriptions included in the annex to the notice.

While U.S. Customs and Border Protection (CBP) must issue instructions on entry guidance and implementation, CBP posted a message on December 31, 2018, noting that such instructions will be issued once the partial government shutdown is over. Any updates to the Automated Customs Environment (ACE) will be implemented 10 business days after the shutdown has concluded. Until these updates are completed, entry and entry summaries must be submitted without the Chapter 99 product exclusion number referenced in the USTR notice granting the exclusions for certain products. Entry and entry summaries will be rejected by ACE if the Chapter 99 product exclusion number the USTR referenced is currently transmitted. Once CBP issues guidance and implements ACE enhancements, a Post Summary Correction (PSC) or a Protest may be submitted for a refund.

Following a dinner meeting between the two leaders at the G-20 summit in early December, President Donald Trump announced that he and Chinese President Xi Jinping agreed to begin and complete negotiations on certain trade issues between the countries within 90 days. As part of that process, Trump agreed to postpone for 90 days in the ongoing Section 301 trade action involving China the import tariff increase on the third tranche of Chinese products from 10 percent to 25 percent scheduled for January 1, 2019 (see Trump and Trade Update of December 3, 2018).

The announcement immediately triggered questions regarding when the 90-day postponement would begin – from the day of the president’s announcement or from the original January 1, 2019 deadline. Last Friday, the Office of the U.S. Trade Representative (USTR) confirmed in a Notice of Modification of Action that the 90-day period will end March 1, 2019. It announced that the rate of additional duties on the third tranche of Chinese products will increase to 25 percent as of March 2, 2019 at 12:01 a.m. (EST) if China and the United States do not successfully negotiate an outcome to address the unfair trade acts, policies and practices covered in the Section 301 investigation. In brief remarks to the press, USTR Robert Lighthizer stated that this was a “hard deadline.”

At a dinner meeting on December 1, 2018, at the G-20 summit in Buenos Aires, U.S. President Donald Trump and Chinese President Xi Jinping agreed to begin negotiations on changes regarding forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Both agreed to seek completion of such discussions over the next 90 days. As part of the deal, Trump agreed to postpone the import tariff increase on the third tranche of Chinese products from 10 percent to 25 percent scheduled for January 1, 2019. Xi agreed to purchase a not yet agreed upon, but “very substantial,” amount of agricultural, energy, industrial and other products from the United States to reduce the trade imbalance between the United States and China. If the talks do not result in a deal, the Trump administration will implement the 25 percent tariff on the third tranche of Chinese products.

In a brief press statement, Trump stated: “This was an amazing and productive meeting with unlimited possibilities for both the United States and China. It is my great honor to be working with President Xi.”

On September 18, 2018, the U.S. Trade Representative (USTR) announced the exclusion request process for the Trump administration’s second tranche of products covered under the Section 301 trade action against China for its unfair policies and practices involving forced technology transfers and intellectual property rights. On August 16, 2018, the United States implemented retaliatory tariffs of 25 percent on U.S. imports of 279 Chinese products covering an estimated trade value of $16 billion in 2018. Parties interested in this Section 301 product exclusion process should be aware that the deadline for requesting an exclusion from the applicable tariffs for any of these products is December 18, 2018.

Exclusion requests must be filed via www.regulations.gov on Docket USTR-2018-0032. While not mandatory, the USTR has encouraged interested parties to use its exclusion request form to submit exclusion requests, which may be accompanied by supporting documentation. Each request must specifically identify a particular product and provide supporting data and the rationale for the proposed exclusion. Each request will be evaluated on a case-by-case basis.

The USTR has specified that the following information must be provided:

  • Identification of the particular product in terms of the physical characteristics (e.g., dimensions, material composition or other characteristics) that distinguish it from other products within the covered 8-digit subheading. The USTR will not consider requests that identify the product at issue in terms of the identity of the producer, importer or ultimate consumer, actual use or chief use, trademarks or tradenames, nor requests that identify the product using criteria that cannot be made available to the public.
  • The 10-digit subheading of the HTSUS applicable to the particular product requested for exclusion.
  • The annual quantity and value of the Chinese-origin product that the applicant purchased in each of the last three years.

Each exclusion request should address (1) whether the particular product is available only from China or whether a comparable product is available from other sources, (2) whether the imposition of the tariff will cause “severe economic harm to the requestor,” and (3) whether the product is strategically important to the “Made in China 2025” program or other Chinese industrial programs. There is a process for filing requests containing business confidential information; however, such submissions must also be accompanied by a public version of the request.

The Office of the U.S. Trade Representative (USTR) has released an updated Section 301 report concerning China’s forced technology transfers and infringement of intellectual property rights. This report updates the original March 22, 2018 investigation findings and follows the U.S. government’s imposition of import tariffs on July 6, 2018, August 23, 2018 and September 24, 2018 on approximately $250 billion of Chinese products as part of the Trump administration’s response to China’s unfair trade practices. “We completed this update as part of this Administration’s strengthened monitoring and enforcement effort,” USTR Robert Lighthizer said. The report concludes that “China fundamentally has not altered its acts, policies, and practices related to technology transfer, intellectual property, and innovation, and indeed appears to have taken further unreasonable actions in recent months.” The updated report highlights these continuing trade practices by China:

  • Cyber-enabled Theft – The report states that China continues to conduct and support cyber-enabled theft and intrusions into the commercial networks of U.S. companies, as well as other means, in attempts to illegally to obtain information. This conduct provides the Chinese government with unauthorized access to intellectual property, including trade secrets or confidential business information, as well as technical data, negotiating positions and sensitive and proprietary internal business communications.
  • Foreign Ownership Restrictions – While China relaxed some of its foreign ownership restrictions and made certain other incremental changes in 2018, the report indicates that the Chinese government persists in using foreign investment restrictions to require or force the transfer of technology from U.S. companies to Chinese entities.
  • Discriminatory Licensing Restrictions – The report notes that (1) China continues to maintain discriminatory licensing restrictions by denying foreign patent holders basic patent rights to stop a Chinese entity from using the technology after a licensing agreement ends and (2) the United States has requested consultations and is pursuing dispute settlement under the provisions of the World Trade Organization.
  • Foreign Direct Investment in the United States – Despite a decline in Chinese investment in the United States in 2018, the report concludes that the Chinese government continues to direct and unfairly facilitate the systematic investment in, and acquisition of, U.S. companies and assets by Chinese entities, to obtain cutting-edge technologies and intellectual property and to generate large-scale technology transfer in industries deemed important by state industrial plans.
  • “Made in China 2025” – Since the initial Section 301 investigation findings, the report states that China has intentionally downplayed and limited attention to its technology-related industrial policies, even though it still targets the same high-technology industries. Instead, China continues to set explicit market share and other targets to be filled by Chinese producers both domestically and globally.

The USTR has indicated that it intends to continue its efforts to monitor any new developments and actions regarding China’s acts, policies and practices related to technology transfer, intellectual property and innovation.

U.S. Customs and Border Protection (CBP) issued a significant ruling in September that distinguished between North American Free Trade Agreement (NAFTA) country-of-origin marking rules and the country-of-origin rules applying to products subject to Section 301 tariffs and trade remedy duties. In its ruling, CBP determined that Chinese-origin components imported into Mexico for assembly into an electric motor satisfied the requirements for marking the assembled product as a product of Mexico in accordance with the NAFTA Marking Rules; however, it ruled that the Chinese-origin components were not “substantially transformed” in Mexico and that the assembled final product remained a product of China subject to the U.S. government’s Section 301 retaliatory tariffs on imports of Chinese electric motors and to any potential trade remedy duty. CBP’s determination requires importers to understand thoroughly their supply chains, including the manufacturing processes of their suppliers and the origin of components used in those manufacturing processes.

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