Alerts and Updates

Section 301 Matter Against China; USTR Grants New Product Exclusions and Opens Comment Period for Previously Granted Exclusions

February 13, 2020

Clearly, the stakes will be very high for entities that want the USTR to extend the specified product exclusions.

On February 5, 2020, the United States Trade Representative (USTR) published two notices in the Federal Register “as part of the action in the Section 301 investigation of China’s acts, policies, and practices related to technology transfer, intellectual property and innovation.” As discussed below, in one of the notices, the USTR published certain new product exclusions (see 85 Fed. Reg. 6674–6687), and in the other notice, the USTR announced that it would accept comments from February 16 to March 16 on whether certain previously granted product exclusions should be extended (see 85 Fed. Reg. 6687–6694).

Background

Pursuant to Section 301 of the Trade Act of 1974, as amended (Section 301), the USTR initiated an investigation relating to certain acts, policies and practices of the government of China related to technology transfer, intellectual property and innovation that were alleged to harm U.S. companies in August 2017 (Section 301 Investigation). Following the issuance of the findings in this Section 301 investigation, and in accordance with instructions given by President Trump, the USTR has taken actions to impose special tariffs on a wide range of Chinese products that are imported into the United States (Section 301 tariffs). To date, the USTR has issued four lists of products that are subject to Section 301 tariffs. The Section 301 tariff rate that currently applies to products covered by List 1, List 2 and List 3 is 25 percent, whereas the Section 301 tariff rate that applies to List 4A products currently is 7.5 percent as a result of the Phase 1 Trade Agreement between the United States and China that was signed on January 15, 2020.

The USTR previously permitted entities to submit exclusion requests relating to products covered by the Section 301 tariffs. When submitting such exclusion requests, interested parties were required to address specific factors in support of their claim for exclusion. Those factors were as follows.

  • Whether the particular product is available only from China and specifically whether the particular product and/or a comparable product is available from sources in the United States and/or third countries.
  • Whether the imposition of additional duties on the particular product would cause severe economic harm to the requestor or other U.S. interests.
  • Whether the particular product is strategically important or related to “Made in China 2025” or other Chines industrial programs.

In addition to the foregoing, the USTR stated that it would take into account whether an exclusion would undermine the objective of the Section 301 investigation.

The deadlines for the submission of initial product exclusions have passed, and the vast majority of submitted exclusion requests were denied. However, as discussed below, the USTR has granted a number of exclusions, and in some instances, the USTR has stated it will accept comments regarding whether certain previously granted exclusions should be extended.

Publication of New Product Exclusions

In one of the notices, the USTR identified a number of products that have been subject to Section 301 tariffs for which it has decided to grant product exclusions. These new product exclusions are identified in the Annex to the new product exclusions notice and pertain to 117 specially prepared product descriptions.

The exclusions are available for any product that meets the description in the Annex regardless of whether the importer filed an exclusion request. The scope of each exclusion is controlled by the scope of the product descriptions in the Annex, and not by the product descriptions found in any request for exclusion.

The exclusions will apply from September 24, 2018, to August 7, 2020. If prior practice is followed, parties granted exclusions will be required to submit applications to the USTR in support of the continuation of an exclusion beyond the expiration date of August 7, 2020.

Finally, Paragraph B of the Annex contains technical amendments/corrections in certain notes to the Harmonized Tariff Schedules. The USTR has also announced that it will continue to issue determinations on pending requests on a periodic basis.

Announcement of Comment Period for Certain Previously Granted Product Exclusions

The other USTR notice announced that it would be accepting comments on whether to extend exclusions for certain products that the USTR had previously granted product exclusions for in April 2019. As stated in the comment period notice, the comment period will open on February 16, 2020, and the deadline for submission of comments is March 16, 2020.

The specific product exclusions for which the USTR is now seeking comments are set forth in a notice that the USTR published in the Federal Register on April 18, 2019. The exclusions are reflected in 21 specially prepared product descriptions and relate to a wide range of products, including (among other things): certain pumps, roller machines, water oxidizers and chlorinators, ratchet winches, elevators and conveyors, goods used on forklifts and other work trucks, parts of drill sharpening machines, outer shells, parts of mechanical awnings and shades, parts of shredders, steering wheels for watercrafts, pressure regulators, pipe brackets for air brake control valves, push pins and C-poles for solenoid valves, ball bearings, inductor baseplates, parts of soldering irons and soldering machines, motor vehicle gear shift switch assemblies, pressure switches for heat pumps and air-conditioning condensers, and instruments to measure or check voltage or electrical connections. 

In the comment period notice, the USTR urges all interested parties to complete and submit Form A, which will relate to general information about the submitting party and its support for or opposition to extension of the products exclusion. In addition, the USTR states that importers and purchasers of the excluded products also should complete Form B, which will pertain to quantity and value data relating to imports and/or purchases of the excluded products or comparable merchandise. The USTR has stated that Form A and Form B will be posted on the USTR’s website by the date on which the docket will open (i.e., on or by February 16, 2020). 

Clearly, the stakes will be very high for entities that want the USTR to extend the specified product exclusions. As such, entities that may wish to file comments with the USTR should consider reaching out to counsel with experience on such matters.

About Duane Morris

Attorneys in the firm’s International Practice Group have considerable experience in assisting clients in developing duty-saving strategies. Toward this end, Duane Morris attorneys have prepared numerous Section 301 product exclusion requests that have been granted by the USTR and are currently assisting clients in preparing submissions to seek to have such exclusions be extended.

For More Information

If you would like further information about this Alert and the process for seeking to have Section 301 product exclusions be extended, please contact Brian S. Goldstein, Geoffrey M. Goodale, Michael E. Barnicle, any member of the International Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.