David R. Hamill Teresa M. Polino Antonio J. Rivera Leah Scarpelli May 31 2019 Section 301 update: List 3 increases to 25%, a possible exclusion process and a new List 4? Arent Fox LLP | International Trade - USA David R. Hamill, Teresa M. Polino, Antonio J. Rivera, Leah Scarpelli International Trade IntroductionBackgroundList 3IntroductionOn 5 May 2019 President Donald Trump announced that the Section 301 tariffs on List 3 products would be increased from 10% to 25%, effective from 10 May 2019. He also stated that a fourth list of $325 billion in Chinese imports would be taxed at 25%.Meanwhile, US Trade Representative (USTR) Robert Lighthizer has stated that his office has "begun preparations to launch a process" for interested parties to seek an exclusion from the List 3 tariffs.BackgroundSection 301 of the Trade Act 1974 authorises the president to impose tariffs on imports to counter trade practices that the USTR finds to either conflict with a trade agreement or burden US commerce unjustifiably (for further details please see "Section 301 update: trade war continues, but end may be in sight"). Trump has used this authority to impose such tariffs on three lists of imports from China, citing its practices relating to technology transfer, intellectual property and innovation. List 1 and List 2 imposed a 25% additional duty rate on $50 billion-worth of Chinese-origin high-tech goods, with a process by which importers could request a one-year exclusion of their products based on:product availability;harm to the requestor or other US interests; andthe importance to certain Chinese industrial programmes.List 3List 3 increased the duty rate on another $200 billion-worth of Chinese goods by 10%. Although this rate was set to be increased to 25% initially on 1 January 2019 and subsequently on 1 March 2019, the president, citing progress in trade negotiations with China, has since delayed the increase "until further notice". However, on 5 May 2019 the president, lamenting that negotiations had now slowed, announced on Twitter that the List 3 increase will finally take effect on 10 May 2019, which Lighthizer confirmed on 6 May 2019. In addition to the List 3 increase, the president's tweet announced an intention to "shortly" create a List 4 covering the remaining $325 billion of Chinese imports, which will be taxed at 25%.The threatened increase and additional tariffs might be a negotiating tactic designed to extract more concessions from the Chinese, as the date coincides with when reports have stated that the parties are expected to announce a nearly 150-page agreement to end the escalating trade war. Following what was described by US Treasury Secretary Steven Mnuchin as a "productive" meeting between the US and Chinese delegations in Beijing, the delegations were expected to meet in Washington DC on 8 May 2019 to finalise the agreement. Mnuchin has said that the United States will reconsider the increase and additional duties if the talks with Chinese Vice Premier Liu He are fruitful.To date, the USTR had declined to create an exclusion process for List 3, despite a Congressional directive to do so by 17 March 2019. Though Lighthizer noted that an exclusion process would be announced by the end of April, he has also remarked on past occasions that that a List 3 exclusion process will be created only if the duty is raised from 10% to 25%. Perhaps in anticipation of the president's announcement, Lighthizer told Representative Suzan DelBene (D-WA) of the House Ways and Means Committee in April that the USTR was preparing to launch the List 3 exclusion process.For further information on this topic please contact David R Hamill, Teresa Polino, Antonio J Rivera or Leah Scarpelli at Arent Fox LLP by telephone (+1 202 857 6000) or email ([email protected], t[email protected], [email protected] or [email protected]). The Arent Fox LLP website can be accessed at www.arentfox.com.Russell Semmel, attorney, assisted in the preparation of this article.