Critical Updates from the U.S. Trade Representative – The U.S.-China Trade Relationship

U.S.-China Trade Relationship

Since taking office as the U.S. Trade Representative (“USTR”), Katherine Tai has prioritized trade policies focused on protecting American workers’ rights and promoting sustainable environmental practices through trade agreements. On top of that, the USTR is now taking on the task of re-aligning the U.S.-China Trade Relationship. Earlier this year, the USTR released its policy agenda and four-year strategic plan (linked below), testified to Congress regarding its trade agenda, and extended 352 tariff exclusions to goods subject to Section 301 duties. Later this year, the USTR is tasked with responding to the Court of International Trade’s remand of Lists 3 and 4a of the China Tariffs, as well as reviewing Lists 1 and 2 before they expire.

 I. The U.S.-China Relationship – USTR urges legislators to pass the U.S. Innovation and Competition Act

In her testimony earlier this year before the House Ways & Means Committee on March 30[1], and before the Senate Finance Committee on March 31[2], Katherine Tai urged Congress to pass the Bipartisan Innovation Bill, also known as the U.S. Innovation and Competition Act. When addressing the U.S.-China relationship, Tai said:

“[A] major component of our trade agenda is the realignment of the U.S. – China trade relationship . . .  over time it became clear that the PRC would only comply with those trade obligations that fit its own interests.  This is a familiar pattern with the PRC – from their actions at the WTO and in various bilateral high-level dialogues.  The United States has repeatedly sought and obtained commitments from China, only to find that follow-through or real change remains elusive . . . to truly boost America’s competitiveness, we urge Congress to quickly pass the Bipartisan Innovation Act.”

Tai’s testimony follows the USTR’s publications of the 2022 President’s Trade Policy Agenda and 2021 Annual Report and its Fiscal Year 2022-2026 Strategic Plan on March 1, 2022. These publications reinforce the idea that the U.S. is “clear-eyed” when it comes to China’s unfair trade practices targeting certain industries (such as the semiconductor industry), that the USTR will continue to administer trade remedies in the form of tariffs (such as Section 301 of the Trade Act of 1974), and that the USTR will appeal China’s market behavior to the World Trade Organization.

But what is the Innovation Bill in the context of trade relations with China? The U.S. Innovation and Competition Act (“USICA”), passed by the Senate in May of 2021, would reinstate all Section 301 tariff exclusions that would apply from the date of the enactment of the bill through December 31, 2022. For any exclusions that expired on December 31, 2020, importers would be able to recover 301 duties on entries made after December 31, 2020, up until the date of enactment of the bill. Additionally, the USICA would impose a statutory 301 Exclusion process, additional oversight, and additional requirements on the USTR specifically regarding Section 301 Duties on goods made in China. The USICA provides guidance for how the USTR would maintain an exclusion process for future Section 301 Investigations, such as timeframes of decisions on exclusion requests and audits of the exclusion process.

However, Congress must reconcile the USICA with the America COMPETES Act, which is a bill passed by the House earlier this year that also addresses a swath of trade, technology, farming, and workers’ rights issues. Before either bill is passed, the House and Senate must compromise and reconcile the bills into one for the President’s signature. USICA cosponsor Senator Todd Young of Indiana stated in a bipartisan video conference with Department of Commerce Secretary Gina Raimondo, that a compromise will be reached sometime this year.

Katherine Tai’s support for the USICA, which includes a statutory overhaul of the Section 301 tariff exclusion process, shows a desire from the current Administration for a clear and transparent 301 exclusion notice-and-comment process and congressional guidance regarding the criteria used to make exclusion determinations. A more effective 301 exclusion process would translate into relief focused on bolstering the American middle-class consumers and industries affected by COVID-19, a trade policy that is advocated by the Biden Administration in the 2022 President’s Trade Policy Agenda.

II. USTR extended 352 Tariff Exclusions for goods from China

On March 23, 2022, the USTR extended 352 of the 549 previously extended Section 301 tariff exclusions. Importers can claim these exclusions to avoid paying Section 301 duties as long as their merchandise conforms to the product-specific descriptions in the exclusions and is classified under the exclusion’s 10-digit Harmonized Tariff Schedule (“HTS”) Code. Some exclusions apply broadly to any product classified in the 10-digit HTS Code, while others require that the merchandise meet narrow descriptions or certain specifications, such as dimensions, output capacity, value, or weight. For example, all products classified under HTSUS 9030.90.4600 are excluded from Section 301 duties while products classified under HTSUS 8412.39.0080 are only excluded from tariffs if they are “direct acting and spring return pneumatic actuators, each rated at a maximum pressure of 10 bar and valued over $68 but not over $72 per unit.” The Federal Register Notice that contains a list of the reinstated exclusions can be viewed from the USTR’s website here. The exclusions can be applied to merchandise entered on or after October 12, 2021, through December 21, 2022, and can be claimed upon entry, by post-summary correction, or by protest.

III. Section 301 Litigation – USTR ordered by Court of International Trade to reconsider and explain Lists 3 and 4a

On April 1, 2022, the U.S. Court of International Trade held that the U.S. Trade Representative (“USTR”) had the authority to impose Section 301 duties on List 3 and 4a products, but that the USTR needed to reconsider and provide further explanation for its rationale. In its opinion, which can be found on the Court’s website here, the Court remanded the USTR’s decisions to implement Section 301 tariffs, holding that the USTR failed to adequately respond to the comments submitted in advance of the tariffs. The Court stated that Lists 3 and 4a “require reconsideration or further explanation regarding the USTR’s rationale for imposing the tariffs and, as necessary, the USTR’s reasons for placing products on the lists or removing products therefrom.”  The USTR has until June 30, 2022, to respond to the Court’s remand, and the Court ruled that the tariffs will remain in place while the USTR reconsiders its action pertaining to these comments.

IV. Lists 1 and 2 set to expire in Summer 2022 – USTR to request comments

The USTR is scheduled to review Lists 1 and 2 of the Section 301 duties implemented under the Trump Administration in July and August of 2018. List 1 is due to expire July 6, and List 2 is due to expire on August 23. Under the 1974 Trade Act, Section 301 actions terminate after four years unless the USTR receives a request for continuation from the domestic industry within 60 days before the action expires. If the USTR receives comments from the domestic industry to extend the tariffs, it must conduct a review of the tariffs implemented over the four year-period. This review must include an analysis of the effectiveness in achieving the objectives of the Section 301 action and the effects of such actions on the U.S. economy, including consumers. (See Section 2417 of Title 19 of the U.S. Code). The USTR may decide to continue implementing the China tariffs or let them expire.

Conclusion

The trade industry is going to see a number of developments from the USTR this year, especially regarding China Tariffs and the U.S.-China trade relationship; the Lists 3 and 4a remand and a decision on the expiration of Lists 1 and 2. With promises to combat China’s unfair economic practices, partially through the use of retaliatory trade remedies and agreements with U.S. allies, we are expecting a new regime from the USTR that is intended to adjust the U.S.-China trade relationship. The USTR has made clear that it is willing to enter into trade agreements with the Chinese government to limit the superpower’s anticompetitive trade practices, but the USTR is also willing to defend the current Section 301 actions and implement new actions, including tariffs, if necessary. 

Stay tuned to the USTR’s latest actions via the office’s website at www.ustr.gov.

[1] The transcript of the USTR’s testimony to the House can be found on the USTR’s website here.

[2] The transcript of the USTR’s testimony to the Senate can be found on the USTR’s website here.

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Contributing Advisors