Section 301 Investigation

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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The Office of the U.S. Trade Representative (USTR) has announced that President Trump is moving forward with additional tariffs in its Section 301 investigation involving China’s acts, policies and practices related to forced technology transfers and intellectual property rights. The USTR has finalized a third list of Harmonized Tariff Schedule (HTS) subheadings resulting in additional tariffs of $200 billion on imports of Chinese products. The additional tariffs will go into effect September 24, 2018, and will be 10 percent at the start. The USTR has stated that these tariffs will increase to 25 percent on January 1, 2019. Continue Reading United States to Implement Additional Import Tariffs on $200 Billion of Chinese Products

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. This was in addition to the $34 billion in tariffs implemented in June 2018.

With these tariffs in place, the U.S. Trade Representative (USTR) has announced procedures to request the exclusion of products subject to this additional duty. In a notice published today in the Federal Register, the USTR has provided the criteria and detailed guidance for any product exclusion request application. Each request must specifically identify a particular product and provide supporting data and the rationale for the proposed exclusion. The USTR will not consider exclusion requests using criteria that cannot be made available to the public. Each request will be evaluated on a case-by-case basis. The USTR has specified, however, 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, ultimate consumer, actual use or chief use, or trademarks or tradenames. The USTR will not consider 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.

Continue Reading U.S. Trade Representative Announces Section 301 Product Exclusion Process for Second List of Chinese Products Subject to 25 Percent Tariff

The U.S. Trade Representative (USTR) has closed the public comment period on whether to take further action in the form of an additional 10 or 25 percent tariff on certain products imported into the United States from China with an annual trade value of approximately $200 billion. Nearly 6,000 comments were received during the comment period, which focused on the third list (or tranche) of over 6,000 Harmonized Tariff Schedule (HTS) subheadings proposed by the USTR on July 17, 2018 (see annex to 83 Federal Register 33608). This followed a marathon six-day public hearing featuring a parade of witnesses who mostly complained of the injury their U.S. companies would face if these tariffs were implemented. Highlighting this concern, more than 150 U.S. trade groups filed a joint letter opposing the proposed tariffs and arguing that, if implemented, such tariffs and the continuing “tit-for-tat tariff escalation with China only serves to expand the harm to more U.S. economic interests, including farmers, families, businesses, and workers.” The letter states that any tariffs will serve to only invite additional Chinese retaliation and “cause significant supply chain disruptions” since the assumptions that U.S. companies “can simply move their production out of China are incorrect.”

Despite the outcry that U.S. companies, manufacturers, service providers and consumers will bear the brunt of any new proposed tariffs, President Trump on Friday, September 7, 2018, in remarks to reporters, stated that “the $200 billion we are talking about could take place very soon” and that his administration is prepared to seek tariffs on another $267 billion on Chinese goods “if I want.”

The Office of the United States Trade Representative (USTR) has finalized and released its second list of Harmonized Tariff Schedule (HTS) subheadings totaling approximately $16 billion worth of imports from China that will be subject to a 25 percent retaliatory tariff as part of the U.S. government’s ongoing Section 301 investigation and response to China’s intellectual property and forced technology transfer practices. This second list supplements the first list that went into effect on July 6, 2018, which totaled approximately $34 billion of imports from China. Combined, the two lists now cover approximately $50 billion worth of Chinese imports.

The second list contains 279 of the original 284 HTS tariff lines that were on a proposed HTS subheading list released on June 15, 2018. U.S. Customs and Border Protection will begin to collect the additional duties on these imports on August 23.