USTR Extends COVID-Related Section 301 Product Exclusions

On May 17, the United States Trade Representative (USTR) once again extended the Section 301 tariff exclusions of certain medical-care products needed to address the COVID-19 pandemic.

In prior notices, the U.S. Trade Representative modified the actions in the Section 301 investigation of China's acts, policies, and practices related to technology transfer and intellectual property. The current COVID exclusions, covering 81 medical-care products, are scheduled to expire on May 15, 2023. This notice announces the USTR’s determination to provide a 16-day transition period for all COVID exclusions, extending them through May 31, 2023, and to extend 77 of the COVID exclusions through September 30, 2023.

Section 301 Tariffs: In 2018, the U.S. Trade Representative (USTR) determined, pursuant to an investigation under “Section 301” of the Trade Act of 1974, that China’s acts, policies, and practices related to technology transfer, intellectual property (IP), and innovation were discriminatory and restricted U.S. commerce. To counter these Chinese practices, the Trump Administration used Section 301 authorities to impose increased tariffs on about two-thirds of U.S. imports from China.

To avoid harm to U.S. interests, the USTR subsequently introduced a policy allowing stakeholders to request “tariff exclusions” for U.S. imports that would otherwise have been subject to tariffs. However, some policymakers and stakeholders have raised concerns about the relevancy of certain Section 301 tariffs to the original goal of protecting U.S. intellectual property.

Section 301 Exclusion Process: The tariff exclusion process enabled interested parties to petition for an exemption from the Section 301 tariff increases for specific imports. The time window to submit requests is closed, but the USTR is reviewing all actions related to the investigation, including decisions on whether and how to accept new exclusion requests (under USTR Ambassador Tai’s “Four-Year Review Process”).

While the USTR approved, on average, 35% of new requests under the first two actions, the approval rates under the third and fourth actions were 5% and 7%, respectively. According to the USTR, all requests were evaluated on a case-by-case basis. The agency indicated that, in determining which requests to grant, it considered the following:

• Availability of the product in question from non-Chinese sources

• Attempts by the importer to source the product from the United States or third countries

• The extent to which the imposition of Section 301 tariffs on a particular product will cause severe economic harm to the importer or other U.S. interests

• The strategic importance of the product to “Made in China 2025” or other Chinese industrial programs.

Past exclusions were also granted for reasons that are thought to include, among others, U.S. national security interests and demonstrable economic hardship from the tariffs for small businesses.

Ways and Means Committee Field Hearing: On May 9, the House Ways and Means Committee held a field hearing in Staten Island, NY titled “Securing Supply Chains and Protecting the American Worker.” Committee Chair Jason Smith (R-MO) welcomed testimony from the following individuals:

• John Atkins, President, Global Containers Terminal

• Dale Hemminger, Owner/Operator, Hemdale Farms Dairy and Greenhouses

• Nury Turkel, Chair, United States International Religious Freedom

• John Romano, CEO, Tronox

• Thomas O’Shei, President, United Steel Workers Local 135

During the hearing, some witnesses said that existing Section 301 tariffs on imports from China should be increased. Thomas O’Shei, in particular, also urged Congress to “do more to ensure a level playing field” by further toughening trade remedy laws. Changes could include making it easier to address third-country subsidies (like those provided under China’s Belt and Road Initiative) and recognizing that global companies “can quickly shift dumping from one country to another.”

Additionally, he and other witnesses expressed support for legislation now before Congress that would tackle evasion of antidumping and countervailing duties by increasing financial penalties for violating customs laws, allowing action against individuals committing customs fraud, and excluding individuals who have committed fraud from participating in the importer of record program.

Dale Hemminger also pointed out that better enforcement of existing rules is also needed closer to home. Hemminger chastised Canada for keeping its market “mostly closed” to U.S. dairy products for 30 years despite commitments under NAFTA and now USMCA. He added that Canadian subsidies, “including a trucking-for-export subsidy, investment grants and government-controlled low-cost inputs like energy,” give vegetable producers in that country an unfair advantage.

Capitol Insights: Constitution Partners had a productive week speaking with USTR staff and policymakers on the House and Senate Ways and Means Committees and Finance Committees. In our meetings, we discussed USTR's legally mandated four-year review of actions taken under Section 301 of the Trade Act of 1974 in the investigation of China's acts, policies, and practices related to technology transfer, intellectual property, and innovation. We also highlighted a recent International Trade Commission report on the economic impact of Section 232 and 301 tariffs on U.S. industries, which may inform USTR's decision-making.

USTR's next steps will be to revise the imported products and tariff percentages on the Section 301 lists. Any modifications would require a Federal Register notice of proposed rulemaking followed by a 60-day comment period and agency review.

All policymakers we met with agreed that extensions or additions to the Section 301 tariff exclusions lists would be a lengthy process. However, it is important to note that many of the current Section 301 tariff exclusions are set to expire in September of this year.

Additionally, both Republicans and Democrats seemed open to passing the Miscellaneous Tariff Bill (MTB) during the 118th Congress. After budget negotiations cease, we will have to wait and see what major legislative package an MTB could be attached to.