David R. Hamill Teresa M. Polino Leah Scarpelli Russell A. Semmel* April 26 2019 Section 301 update: trade war continues, but end may be in sight Arent Fox LLP | International Trade - USA David R. Hamill, Teresa M. Polino, Leah Scarpelli, Russell A. Semmel* International Trade IntroductionList 3 tariffs remain at 10% while progress in US-China negotiations continuesProgress on Lists 1 and 2 exclusions, but still no List 3 exclusion processIntroductionUnder Section 301 of the Trade Act 1974, the president has the authority to impose tariffs on imports to counter trade practices that the Office of the United States Trade Representative (USTR) finds either to:violate or conflict with a trade agreement; orburden or restrict US commerce unjustifiably.Since entering office, President Donald Trump has used this authority to impose such tariffs on imports from China based on practices relating to technology transfers, intellectual property and innovation (for further details please see "USTR publishes list of products subject to Section 301 tariffs" and "President Trump announces tariffs on $50 billion of Chinese imports").These tariffs have been administered in three separate lists, each covering certain goods based on product lines defined at the eight-digit level of the US Harmonised Tariff Schedule. Lists 1 and 2 respectively impose a 25% additional duty rate on $34 billion and $16 billion worth of Chinese origin goods under 818 and 279 product lines. List 3 increased the duty rate on $200 billion worth of Chinese goods and 5,745 product lines by 10%.List 3 tariffs remain at 10% while progress in US-China negotiations continues The List 3 rate was set to increase to 25% on 1 January 2019 and again on 1 March 2019; however, the president postponed the increase both times, citing progress in trade negotiations with China. On 4 April 2019, following a meeting with Chinese Vice Premier Liu He, the president announced plans for an "epic" trade deal with China, but noted that any agreement would take over one month to finalise. To date, Trump has declined to set a date for a signing summit with President Xi Jinping to hammer out a final trade agreement, for which the Section 301 tariffs have emerged as a sticking point. China has demanded that the tariffs be removed as part of any final deal, while the White House hopes to use the tariffs as leverage to ensure compliance. At the moment, the 10% List 3 duty rate remains "until further notice", but the duties could be removed – or increased – depending on the president's impression of these talks.Progress on Lists 1 and 2 exclusions, but still no List 3 exclusion process For Lists 1 and 2, the USTR has provided a process by which importers can request a one-year exclusion of their products from the additional tariffs. These requests are based on whether:the particular product is available only from China;the imposition of additional duties on the particular product would cause severe economic harm to the requestor or other US interests; andthe particular product is strategically important or relates to certain Chinese industrial programmes.In total, 10,836 exclusion requests were received for List 1 and 2,927 requests were received for List 2.Properly submitted requests are reviewed in four stages:a public comment period;a substantive review by the USTR;an administrability review by US Customs and Border Protection (CBP); andthe publication of the exclusion grant.On 25 March 2019 the USTR announced a round of 87 product exclusions for List 1, in addition to the 984 previously announced. The exclusions from this round covered 33 product categories, including:linear acting telescoping hydraulic power engines and motors (8412.21.0045);self-propelled rock-breaking machines (8430.31.0040); andair brakes and air brake parts for rail coaches and freight cars (8607.21.1000).Meanwhile, 3,299 List 1 requests have passed substantive review (Stage 2) and are being reviewed by CBP for administrability (Stage 3). Although no exclusions have yet been granted for List 2, none have been denied, and 1,134 requests have moved on to Stage 3. The USTR will continue to announce decisions on product exclusion requests periodically, but it is understood that the CBP, still in the wake of the recent federal government shutdown, continues to be backlogged by several thousand requests.However, the USTR has provided no List 3 exclusion process. The USTR has stated that it intends to create such a process if and when the List 3 tariff rate increases to 25%, but as noted above, that increase has been postponed indefinitely. In an explanatory statement to a spending package signed by the president on 15 February 2019, Congress directed the USTR to create such process within 30 days, but the USTR has failed to meet that deadline. Other legislation has been introduced in the House and Senate that would require exclusion processes for all Section 301 actions.For further information on this topic please contact David R Hamill, Teresa Polino, Leah Scarpelli or Russell A Semmel at Arent Fox LLP by telephone (+1 202 857 6000) or email ([email protected], t[email protected], [email protected] or r[email protected]). The Arent Fox LLP website can be accessed at www.arentfox.com.