Further to our prior blog post, on May 13, 2019, at the direction of President Trump, the Office of U.S. Trade Representative (USTR) published a proposed tariff list covering approximately $300 billion worth of Chinese imports to be subject to higher duties pursuant to the determinations previously made under Section 301. USTR explained that the United States and China have been engaged in negotiations on a range of issues, including, among others, forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. According to USTR, shortly in advance of the last scheduled round of negotiations, , China “retreated from specific commitments made in previous rounds”, prompting the United States to propose a fourth list of products subject to additional duties (see here and here for a discussion regarding Lists 1, 2, and 3).
On May 9, 2019, the Office of the United States Trade Representative (USTR) issued a Federal Notice indicating that tariffs on $200 billion worth of Chinese imports would be increased from 10% to 25%. These products are included in the third set of tariff categories (the first two sets are discussed here) announced by USTR in connection with the investigation under Section 301 of the Trade Act of 1974 into China’s acts, policies, and practices related to intellectual property (discussed here). The increase will go into effect on May 10, 2019 at 12:01 am eastern daylight time. Over the weekend, President Trump also threatened a 25% tariff will “shortly” be imposed on the remaining $325 billion worth of imports not currently subject to tariffs. For the prior three sets of Section 301 duties, there were proposed regulations with opportunity for public comment, and it seems likely that USTR would follow the same approach if there will be a fourth set.
These actions follow a setback in the negotiations for a U.S.-China trade deal. Since December 2018, the U.S. has been engaged in negotiations aimed at reforming China’s intellectual property and technology transfer rules, as well as other issues such as cybertheft, agriculture, services, nontariff barriers and currency manipulation. Last week, before a trip to China with USTR Robert Lighthizer, Treasury Secretary Mnuchin stated that the talks were in the “final laps”. However, on Monday, the U.S. officials claimed that China had walked back on some of its commitments. The Chinese delegation, which will include Chinese Vice Premier Liu He, is expected to be in Washington, D.C. today to continue negotiations.
USTR Lighthizer has indicated that at the end of this month, USTR expects to launch a product exclusion process for products on List 3. A separate notice will be published describing the process, procedures for submitting exclusion requests, and an opportunity for interested persons to submit oppositions to a request. Under the product-exclusion procedures for Lists 1 and 2, USTR considered the following factors in evaluating exclusion requests:
- Whether the particular product is available only from China, i.e. whether the product or a comparable product is available from sources in the U.S. or other 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 Chinese industrial programs.
The products at issue on List 3 include food products, fabrics, paper products, yarn, metals, electronics, furniture, wood products, among a variety of other products. The list of products is available here.
As of May 3, over 1,400 product exclusion requests (out of almost 11,000 submitted) had been granted for products included in List 1. None have so far been granted for List 2.
Following President Trump’s direction in connection with the Section 301 investigation into China’s acts, policies and practices related to intellectual property (discussed here), on June 15, 2018, the Office of U.S. Trade Representative (USTR) announced a 25% tariff increase on Chinese products valued at approximately $34 billion in 2018 trade values, with more tariff increases to come. Below, we describe USTR’s action and China’s response.
Yesterday, President Trump issued a memorandum (“Memorandum”) directing his Administration to take several actions related to the investigation by the Office of U.S. Trade Representative (“USTR”) into China’s acts, policies, and practices (“APPs”) related to technology transfer, intellectual property, and innovation under Section 301 of the Trade Act of 1974 (“Section 301”). The actions include restrictions on Chinese investment in the United States and the imposition of higher customs duties on imports from China. At the signing ceremony, President Trump called this action “the first of many” against Chinese practices. USTR Ambassador Lighthizer echoed the President at a hearing before the Senate Finance Committee today, noting that the Administration “expects to bring additional [actions] in other areas where the [United States does not] have reciprocal response.”
Below we describe these actions and USTR’s findings in the Section 301 investigation.
Further to our alert published on November 13, 2017 regarding whether acts, policies, and practices (APPs) of China related to transfer of technology, intellectual property, and innovation are actionable under Section 301(b)(1) of the Trade Act of 1974 (Section 301), it is anticipated that the U.S. Trade Representative (USTR) will make affirmative findings and remedy recommendations well ahead of the August 2018 statutory deadline, potentially as early as January 2018. USTR is authorized to take specified actions (noted below), “subject to the specific direction, if any, of the President regarding such action[s]” and is authorized to take “all other appropriate and feasible action within the power of the President that the President may direct USTR to take.”
According to USTR officials, if the United States makes an affirmative determination, the next steps will likely proceed in two tracks: (1) the United States may elect to initiate a World Trade Organization (WTO) dispute regarding the APPs, if they are considered to be in violation of WTO commitments, and/or (2) the United States may take unilateral retaliatory action. Below, we comment briefly on both tracks.