Section 301 Investigation

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.

What a week for U.S.-China trade relations! On July 6, the United States began imposing 25 percent tariffs on approximately $34 billion worth of Chinese products imported into the United States. China then retaliated by imposing tariffs of its own on $34 billion worth of U.S. exports to China, which the United States called “inappropriate” and prompted the United States to announce plans to impose a 25 percent tariff on another $16 billion of Chinese goods. Next, the Office of the U.S. Trade Representative (USTR) indicated that it did not like China’s reaction and was considering imposing a 10 percent tariff on an additional $200 billion of imports from China.

To recap:

  1. U.S. Customs and Border Protection is now imposing a 25 percent tariff on numerous goods from China;
  2. the USTR is reviewing a supplemental list of Harmonized Tariff Schedule categories to possibly implement a 25 percent tariff on $16 billion worth of Chinese goods – a hearing on these categories will be held July 24-25; and
  3. the process for submitting comments and participating in another public hearing in late August regarding the proposed 10 percent tariff on the $200 billion worth of Chinese goods has just been announced.

If that weren’t enough, in testimony before the House Financial Services Committee on Thursday, July 12, Treasury Secretary Stephen Mnuchin was harshly questioned on the administration’s wisdom and strategy concerning these tariffs. Mnuchin denied that the United States is in a trade war with anyone, despite the views of other key trading partners. China’s Ministry of Commerce, for example, in its strongest statement yet, stated that the United States is “not only launching a trade war with China, but also with the whole world, dragging the world economy into danger” and becoming “an enemy to all.”

As reported in a prior post, the United States on July 6, 2018 began imposing 25 percent tariffs on approximately $34 billion worth of Chinese products imported into the United States. This was the result of the Office of the U.S. Trade Representative (USTR) undertaking a Section 301 investigation into “China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.” Shortly after these tariffs were implemented, China retaliated by imposing tariffs on $34 billion worth of U.S. exports to China. In response, U.S. Trade Representative Robert Lighthizer announced yesterday, July 10, 2018, “As a result of China’s retaliation and failure to change its practices, the President has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion of Chinese imports.” He added, “For over a year, the Trump Administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition. We have been very clear and detailed regarding the specific changes China should undertake. Unfortunately, China has not changed its behavior – behavior that puts the future of the U.S. economy at risk. Rather than address our legitimate concerns, China has begun to retaliate against U.S. products. There is no justification for such action.” Continue Reading USTR Proposes Additional 10 Percent Tariff Against Wider Range of Chinese Products Subject to USTR Review and Public Comment

On July 6, 2018, the United States implemented retaliatory tariffs of 25 percent on U.S. imports of approximately 800 Chinese products covering an estimated trade value of $34 billion in 2018. Pursuant to its Section 301 investigation into “China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation,” the Office of the U.S. Trade Representative (USTR) announced its determination to implement the tariffs in a June 20, 2018 Federal Register notice (see Annex B of the notice for the full list of covered HTSUS Codes). The USTR indicated that products under these HTSUS codes “contain products identified as benefitting from China’s industrial policies, including the ‘Made in China 2025’ program.” Continue Reading U.S. Trade Representative Announces Product Exclusion Process for China Section 301 Tariffs

As part of the Trump administration’s continuing efforts under Section 301 to pressure the People’s Republic of China (PRC) to change its intellectual property and forced technology transfer practices, the Office of the U.S. Trade Representative announced in the Federal Register today (1) which PRC products will be subject to a Section 301 25 percent tariff starting July 6 (Annex B), (2) which additional PRC products will undergo review to determine if they should be subject to the 25 percent tariff (Annex C) and (3) the review process for the additional PRC products.

The product lists in Annexes B and C were released last week. Today’s notice revealed for the first time the review process for the products listed in Annex C. Interested parties have until June 29 to file requests to appear at the July 24 public hearing; requests must include a summary of the expected testimony and may be accompanied by a pre-hearing submission. Parties filing written comments on the U.S. government’s proposed action must submit them by July 23, and post-hearing rebuttal comments are due by July 31. The hearing, which will start at 9:30 a.m. in the U.S. International Trade Commission’s main hearing room, will be limited to issues involving products listed in Annex C only. The notice did not address a product exclusion request process for the products listed in Annex B that will be subject to the 25 percent tariff on July 6, but indicated that a separate notice will be issued concerning that process.

Last Friday, the Trump administration released the list of imported products from the People’s Republic of China (PRC) that will be subject to an additional 25 percent tariff. The retaliatory tariffs are the result of (1) the U.S. government’s Section 301 investigation and report that assessed the PRC government’s intellectual property and technology transfer practices affecting U.S. companies and (2) the PRC government’s reluctance to address these U.S. government concerns so far. Tariffs on these products are scheduled to go into effect July 6.

The Section 301 investigation process, which included a public notice and comment period and hearing, reduced the first set of product lines under consideration from 1,333 U.S. Harmonized Tariff Schedule (HTS) line items to 818, worth approximately $34 billion in U.S. imports from China. In its Friday announcement, the Office of the U.S. Trade Representative also announced that an additional 284 HTS line items worth $16 billion in U.S. imports from China may be subject to the 25 percent tariff and would undergo further scrutiny as part of a public notice and comment process, including a public hearing. The second set of HTS line items includes, among others, products benefiting from PRC industrial policies, including the “Made in China 2025” program, which is an industrial strategy aimed to shift China’s economy into higher value-added manufacturing sectors, such as robotics, aerospace and energy-saving vehicles.

President Trump has released a statement setting forth the steps that his administration will undertake in an effort to protect domestic technology and intellectual property from China’s unfair and discriminatory trade practices. These actions are the result of the findings of the U.S. Trade Representative investigation pursuant to Section 301 of the Trade Act of 1974. On March 22, 2018, the president issued a Presidential Memorandum announcing the findings of that investigation, but in recent weeks there had been indications that any “trade war” and tariffs against China would be put on hold pending further discussions and negotiations. With today’s announcement, the United States will:

  • implement “specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology.” These restrictions and controls will be announced by June 30, 2018.
  • continue to pursue dispute settlement proceedings before the World Trade Organization for violations of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) based on China’s discriminatory practices for licensing intellectual property. The United States filed the case regarding these violations on March 23, 2018.
  • continue with its Section 301 trade action and impose a 25 percent tariff on $50 billion of goods imported from China. The final list of covered imports will be announced by June 15, 2018.

The statement notes that the United States “will request that China remove all of its many trade barriers, including non-monetary trade barriers, which make it both difficult and unfair to do business there” and that “tariffs and taxes between the two countries be reciprocal in nature and value.”

Over the weekend, China and the United States continued bilateral trade consultations and announced they had reached a consensus on “taking effective measures to substantially reduce the United States trade deficit in goods with China.” In a Joint Statement, both countries agreed (1) to increases in U.S. agriculture and energy exports, (2) on the need for more favorable conditions for trade in manufactured goods and services, and (3) that China would address intellectual property protections. According to Treasury Secretary Steven Mnuchin, the two countries are “putting the trade war on hold.”

Despite these announcements, Thompson Hine has confirmed with the Office of the U.S. Trade Representative that the China Section 301 investigation and determination continues. The previously published deadline of May 22, 2018, remains in effect for submitting rebuttal comments to last week’s multi-day Section 301 committee hearing on the investigation and the proposed list of products that would receive an additional duty of 25 percent. Upon receiving all final rebuttal comments, the committee will continue its review and analysis of what categories of the Harmonized Tariff Schedule of the United States (HTSUS) will remain on the list, which may be removed, and whether any new categories may be added.

On April 12, 2018, the House of Representatives’ Committee on Ways and Means held a hearing to explore the effects on the U.S. economy and jobs of the tariff increases related to Section 232 and Section 301 investigations. Before the hearing, Chairman Kevin Brady stated, “In enforcing our trade laws, we should always take a targeted approach to address unfair practices while avoiding harm to U.S. workers and job creators. Our private sector witnesses will discuss the impact of recently announced U.S. tariff increases on their businesses, including product and country coverage of the tariffs, the process to comment on and apply for exclusions from the tariffs, and the effects of possible retaliation on U.S. exporters.” In his opening comments, Brady highlighted China’s questionable trade policies and practices, but also asked, “How do you avoid punishing Americans for China’s misbehavior?” Continue Reading House Committee Holds Hearing on Effects of Tariff Increases on U.S. Economy and Jobs

Announcing that China’s unfair trade practices in the areas of technology transfers and intellectual property result in harm to the U.S. economy of at least $50 billion per year, President Trump issued a Presidential Memorandum announcing the findings of his administration’s Section 301 investigation into these practices by the People’s Republic of China. This trade action is the result of a Section 301 investigation initiated on August 18, 2017 pursuant to the Trade Act of 1974 to determine whether acts, policies and practices of the Government of China related to technology transfer, intellectual property, and innovation are actionable under that statute. The Office of the U.S. Trade Representative (USTR) has prepared a report on the findings of its investigation detailing the acts, policies and practices undertaken by China that are harmful to the United States. According to the report:

  • China uses joint venture requirements, foreign ownership/investment restrictions, equity limitations, and administrative review and licensing processes to force or pressure technology transfers from American companies.
  • China uses discriminatory technology licensing processes and restrictions to transfer technologies from U.S. companies to Chinese companies.
  • China directs and facilitates systematic investments and acquisitions in U.S. companies and assets that result in large-scale technology transfers in industries deemed important to China’s industrial plans.
  • China conducts and supports cyber intrusions into U.S. computer networks to gain access to valuable business information, such as intellectual property, trade secrets or other confidential business information.

According to the USTR, these unfair technology transfers and intellectual property policies are part of China’s intentional efforts to seize economic leadership in advanced technology as described in its industrial plans, such as “Made in China 2025.” In making the announcement, USTR Robert Lighthizer stated, “President Trump has made it clear we must insist on fair and reciprocal trade with China and strictly enforce our laws against unfair trade. This requires taking effective action to confront China over its state-led efforts to force, strong-arm, and even steal U.S. technology and intellectual property. Years of talking about these problems with China has not worked. The United States is committed to using all available tools to respond to China’s unfair, market-distorting behavior. China’s unprecedented and unfair trade practices are a serious challenge not just to the United States, but to our allies and partners around the world.”

In the Presidential Memorandum, President Trump directed his administration to take the following actions to respond to China’s acts, policies and practices involving the unfair and harmful acquisition of U.S. technology:

  • WTO Case: At the direction of the president, the USTR will file a complaint regarding China’s discriminatory technology licensing practices through a World Trade Organization (WTO) dispute settlement proceeding.
  • 25 Percent Ad Valorem Duties: The USTR will propose additional tariffs on certain products of China, with an annual trade value commensurate with the harm caused to the U.S. economy resulting from China’s unfair policies. The proposed product list subject to the tariffs will include aerospace, information and communication technology, and machinery.
  • Investment Restrictions: The president also has directed his administration to respond to Chinese investment aimed at obtaining key U.S. technologies. Relevant departments and agencies will work with the Treasury Department to propose measures addressing China’s investment practices involving the acquisition of sensitive technologies.

Regarding the 25 percent duties, the USTR will publish a proposed list of products subject to these additional tariffs within the next 15 days. Once published in the Federal Register, the public will have 30 days to comment on the proposed tariff action. Further, the USTR will hold a public hearing at a date yet to be determined. Once the USTR has conducted its review and analysis, a final determination on the products to be covered under any additional tariffs will be published and go into effect.

For more details on the initiation of the investigation, see Thompson Hine LLP’s International Trade & Intellectual Property Update.