International Trade & Compliance Alert
On April 3, the Office of the United States Trade Representative ("USTR") identified hundreds of Chinese products against which it proposes to impose 25 percent import duties under Sections 301 and 304 of the Trade Act of 1974. The tariff action was the result of a seven-month investigation by USTR. According to USTR, the investigation revealed extensive allegedly unfair and harmful Chinese practices regarding technology transfer, U.S. intellectual property, and innovation.
Among the products covered by the recommended tariffs are certain engines, turbines, agricultural and textile machinery, batteries, tires, industrial electronics, medical products, and aeronautical and space navigation equipment. A full list of the 1,300 Harmonized Tariff Schedule of the United States subchapters covered by the proposed tariffs is available at: https://ustr.gov/sites/default/files/files/Press/Releases/301FRN.pdf.
No new U.S. import duties attend this announcement. Rather, USTR has described Chinese products that the U.S. government proposes to make dutiable. USTR is to complete a notice and comment proceeding before any tariffs are imposed. Comments submitted to and other engagement with the U.S. government could lead to changes in the proposed list of products potentially subject to tariffs. If imposed, the 25 percent tariffs would be in addition to any other tariffs on products as a result of antidumping or countervailing duty orders or the recently announced Section 232 action against imports of steel and aluminum products. (Solar cells and solar panels covered by the recently announced Section 201 tariff rate quota and tariffs are not among the products proposed to be covered by the Section 301 tariffs.)
USTR intends to hold a public hearing on May 15, 2018 to discuss both the Section 301 tariffs and the Chinese government policies and practices related to technology transfer, intellectual property and innovation. Interested parties may submit requests to appear at the hearing by April 23. Parties may also submit written comments by May 11 on either products proposed to be covered by the Section 301 tariffs or the identified Chinese government policies and practices that are reportedly leading the U.S. government to impose tariffs.
In determining the list of products proposed to be covered by Section 301 tariffs, the U.S. government reportedly intended to omit products if (i) import tariffs on them would likely cause disruption to the U.S. economy, (ii) imports of them are subject to legal or administrative constraints, (iii) they are unavailable from other country sources or (iv) tariffs on them would have a strong impact on consumers. Accordingly, written comments requesting modification of products proposed to be covered by the tariff action are likely to be most successful if they can be shown to meet one or more of these criteria.
The Section 301 tariffs are intended to generate leverage over China by inflicting economic pain on the country. The U.S. government's stated intent is to encourage or force China to alter or abolish policies and practices related to technology transfer, intellectual property and innovation that UTSR found to be unreasonable or discriminatory. At the same time, China is poised to retaliate in reaction to the proposed U.S. tariffs and has signaled that it will challenge the tariffs via the World Trade Organization dispute settlement process. The stage is set for negotiations.
It remains unclear whether the Section 301 tariffs will ever come into force, or whether, instead, the United States and China will reach a negotiated resolution. Realistic proposals to move China's intellectual property protection policies in a direction that the U.S. government views as being more favorable would reduce the chances of the tariffs ever coming into force.