Insights

If you have not noticed, 2020 is a U.S. presidential election year. If you missed that fact, you may also not realize that the United States is in the midst of a years-long trade war with China. The convergence of these two circumstances has caught the attention of the business community, particularly as relates to trade policy.

The Trump Administration has made extensive use of Section 301 of the Trade Act of 1974 (“Section 301”) to further its trade goals with respect to China, leading to the imposition of some form of tariff on approximately $370 billion in Chinese-origin goods. The rhetoric from the Administration remains strongly against Chinese trade, despite some tariff relaxation in late 2019. (Please see our previous article discussing those developments: U.S.-China Trade Dispute Easing: “Phase One” Deal and Other Tariff Updates.)

Some in the business community hope that a defeat of President Trump in the November election will lead to a relaxation or removal of the Section 301 tariffs against Chinese goods. Former Vice President Joe Biden leads President Trump in many polls; however, it is important to recognize that, even if there is a new occupant of the Oval Office in January, there will not necessarily be a reversal with respect to China tariffs or China trade policy generally. Biden seemed to state in August that he would remove the tariffs on Chinese goods if he gained office, but that statement was quickly walked back by the Biden campaign. Instead, a Biden campaign aide stated that Biden would “re-evaluate” the tariffs. As the election looms closer, the general sentiment from press reports is that a potential Biden Administration’s China policy will maintain many of the restrictions and tariffs currently in place in order to curb China’s growing and more aggressive position on the world’s stage.¹

Whether President Trump or Biden wins in November, the United States is unlikely to return to its previous status quo with regards to trade with China. Though nothing is certain at this point, it may not be a viable strategy to “wait out” the tariffs. To the extent possible, from tariff engineering and supply chain movement, companies should have contingency plans for China operations regardless of what happens in November.

Section 301 China Tariff Updates

Throughout 2020, the United States Trade Representative (“USTR”) has continued to grant exclusions from the Section 301 China tariffs for products on the four lists of Chinese products subject to the tariffs (“Lists 1, 2, 3, and 4A”). Many products from Lists 1 through 3 received initial one-year exclusions in 2019 and have subsequently been granted further extensions of the exclusions.

Interestingly, more recent grants of extension, since May 14, 2020, have not been one-year extensions, as was previous USTR practice, but instead only extend the exclusion to December 31, 2020. It is not clear at this point if the USTR intends to provide a further opportunity to extend such exclusions. Parties affected by the Section 301 China tariffs, or those relying on granted exclusions, should continue to monitor USTR publications for opportunities to request extensions of available exclusions.

In September 2020, the USTR received two challenges to the legality of at least some of the Section 301 Chinese tariffs. First, on September 10, three importers collectively filed a lawsuit in the Court of International Trade (“CIT”) challenging the authority of the USTR to implement additional duties on the products in List 3 of the Section 301 China tariffs.² While acknowledging the potential authority for implementing additional duties under Lists 1 and 2, the lawsuit argues that the USTR exceeded its authority under Section 301 and failed to comply with the Administrative Procedures Act when it imposed additional duties under subsequent rounds of tariffs, beginning with tariffs on List 3 products. The lawsuit requests that the USTR vacate its rule establishing the List 3 tariffs and refund duties paid by the three importers under List 3. This case is still pending before the CIT.

Similarly, on September 15, the World Trade Organization (“WTO”) issued a report in a dispute brought by China against the United States’ imposition of additional duties on Chinese-origin goods.³ The dispute covers the imposition of tariffs under Lists 1 and 3. The initiation of the challenge process dates back to April 2018 when China requested consultations with the United States as required by the WTO’s Understanding on Rules and Procedures Governing the Settlement of Disputes.

The consultations failed to resolve the dispute, leading to the creation of a panel to make findings and recommendations in the dispute. The WTO panel found that the trade measures implemented by the United States against China were inconsistent with the General Agreement on Tariffs and Trade 1994, the relevant agreement governing the dispute under international trade law.

U.S. Trade Representative Robert Lighthizer responded to the panel report by saying, “The WTO is completely inadequate to stop China’s harmful technology practices.”⁴ The United States’ next step is likely an appeal of the panel report. However, the WTO’s Appellate Body is not currently able to meet because the United States has blocked the appointment of WTO appellate judges, preventing the minimum number of judges required to hear appeals. As a result, an appeal could effectively end the legal nature of the dispute by preventing a final ruling authorizing retaliation by China.

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Because of the outsized effect of the Chinese tariffs, “Section 301 tariffs” have sometimes become synonymous with only the tariffs on Chinese-origin goods discussed above. It is important to recognize that there have also been Section 301 tariffs placed on goods from other countries for various reasons. We provide an update of such tariffs and possible forthcoming tariffs below.

Section 301 Tariffs in Response to Civil Aircraft Dispute

On October 18, 2019, the USTR imposed tariffs of 10% on large civil aircraft and 25% on certain non-aircraft products from the European Union in response to an ongoing WTO dispute related to civil aircraft subsidies.⁵ For more information, see our previous article on the subject: Tariffs on Wine, Whisky, and Cheese Provide Extra Fright This Halloween.

On February 21, 2020, the USTR published another notice of modification increasing the additional duties on large civil aircraft to 15% and modifying the list of non-aircraft products subject to the 25% tariffs.⁶ The tariff increase on large civil aircraft became effective on March 18, and the modifications to the list of non-aircraft EU products became effective on March 5. The tariffs on non-aircraft products continue to primarily affect various food items, but some non-food items from certain EU member states are also subject to the 25% tariff.

On June 18, 2020, the USTR announced that, pursuant to a review of the tariff action and previously requested public comments, it has decided to again modify the list of products subject to the additional duties.⁷ The USTR found that the EU continues to fail to adhere to the WTO’s recommendations. The list of products subject to 25% tariffs was modified to also include multiple types of jams. Additional duties on large commercial aircrafts remain at 15%. The modification was minor, but the major effect is the determination to continue the tariffs.

Section 301 Tariffs in Response to France Digital Services Tax

On July 16, 2020, the USTR published a notice of action pursuant to a Section 301 investigation determining that France’s digital services tax is unreasonable or discriminatory and burdens U.S. commerce.⁸ The notice of action provides for the imposition of a 25% tariff on certain goods from France, namely make-up, skincare products, and handbags. USTR has suspended the implementation of the additional duties for 180 days, or until January 6, 2021, but may determine that the suspension should be for less than 180 days. If USTR makes such a determination, it will publish another notice of action in the Federal Register.

Section 301 Investigation of Digital Services Taxes

On June 5, 2020, the USTR published a notice of the commencement of a Section 301 investigation of digital services taxes adopted or under consideration by Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom.⁹ If the USTR determines that the digital services taxes in these countries are unreasonable or discriminatory to U.S. commerce, it may implement tariffs on one or more of these countries, similar to the tariffs on French products.

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If you have any questions about the various ongoing Section 301 tariff actions, or if you need assistance developing a plan of action to prepare for possible ongoing China tariffs, please contact the attorneys at Torres Law, PLLC.