On May 3, 2022, the Office of the US Trade Representative (USTR) published a Federal Register notice commencing its quadrennial review of the tariffs imposed on China-origin goods pursuant to Section 301 of the Trade Act of 1974. USTR initiated the review pursuant to Section 307(c) of the Trade Act, which requires USTR to review the "necessity" of Section 301 actions four years after their implementation. During the first phase of USTR's review, domestic industries that benefit from the Section 301 tariffs on Lists 1, 2, 3, and 4A will have the opportunity to request the continuation of these actions. If USTR receives such requests, it will announce the continuation of the relevant actions and proceed to the second phase, during which interested persons will have an opportunity to comment on the effectiveness of the tariffs and their impact on the US economy. This second phase will provide an opportunity for interested persons to request the elimination of Section 301 tariffs on particular products, among other changes. This alert provides an overview of USTR's notice.
Section 307(c) of the Trade Act provides that Section 301 actions are to expire four years after they take effect, unless the petitioner or a representative of the domestic industry that benefits from the action submits to USTR a request for continuation of the action.1 The petitioner or domestic industry representative must submit the request for continuation during the 60-day period preceding the four-year anniversary of the Section 301 action.2
If USTR receives a request for continuation of a Section 301 action (either from the petitioner or a representative of a domestic industry that benefits from the action), USTR must then conduct a "review" of the action and other actions that could be taken against the investigated country (including actions against other products or services).3 In its review, USTR must assess the effectiveness of such actions in achieving the objectives of the Section 301 statute, as well as "the effects of such actions on the United States economy, including consumers."4
USTR has imposed four rounds of tariffs on China-origin goods based on its Section 301 investigation of China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation. Following its investigation, USTR initially determined to impose Section 301 tariffs on approximately $50 billion worth of annual imports from China, divided into two stages: tariffs on "List 1" goods ($34 billion) became effective on July 6, 2018, and tariffs on "List 2" goods ($16 billion) became effective on August 23, 2018. USTR subsequently imposed two additional rounds of tariffs: tariffs on "List 3" goods ($200 billion) became effective on September 24, 2018, and tariffs on List 4A goods ($126 billion) became effective on September 1, 2019.
Quadrennial Review of Section 301 Tariffs on China-Origin Goods
USTR's Federal Register notice commences the quadrennial review of the Section 301 tariffs on Chinese goods, as required by Section 307(c) of the Trade Act. Importantly, USTR's notice clarifies that the review will cover all four of the tariff lists that USTR has imposed in connection with the Section 301 investigation of China. Instead of treating the List 3 and 4A tariffs as Section 301 "actions" warranting their own quadrennial reviews, USTR's notice describes Lists 3 and 4A as "modifications" to the initial List 1 and 2 "actions." The notice then specifies that, "[i]n the four-year review, USTR will examine the [List 1] action, as modified, and [List 2], action, as modified," and that "[t]o ensure comprehensive coverage of the review, USTR will consider the List 3 and List 4A modifications as applicable to both the [List 1] action and [List 2] action" (emphasis added). As explained in more detail below, this means that parties will have the opportunity to comment on the continuation and possible modification of Lists 3 and 4A, in addition to Lists 1 and 2.
USTR's notice identifies two other "modifications" to the List 1 and 2 actions: (1) product exclusions granted in response to COVID-19, set forth in 86 Fed. Reg. 63438 (November 16, 2021), as amended; and (2) reinstated product exclusions set forth in 87 Fed. Reg. 17380 (March 28, 2022). USTR's notice indicates that its quadrennial review will cover the List 1 and 2 actions "as modified" by these exclusions.
First Phase of the Four-Year Review
During the first phase of the four-year review, USTR will allow representatives of domestic industries that benefit from the List 1 and 2 actions ("as modified" by Lists 3 and 4A and the above-mentioned product exclusions) to request the continuation of the actions, according to the following schedule:
- For the List 1 action, any representative of a domestic industry which benefits from the action, as modified, may submit a request to continue the action between May 7, 2022, and July 5, 2022.
- For the List 2 action, any representative of domestic industries benefitting from the action, as modified, may submit a request to continue the action between June 24, 2022, and August 22, 2022.
As noted above, USTR's notice specifies that it will consider the List 3 and List 4A "modifications" as "applicable to both the [List 1] action and [List 2] action[.]" This means that domestic industries benefiting from the List 1, 3, or 4A actions will be able to submit requests for continuation of those actions beginning on May 7, 2022. Domestic industries benefiting from the List 2 action will be able to submit requests for continuation of that action beginning on June 24, 2022. USTR will open comment portals corresponding to these actions at https://comments.ustr.gov/s/.
USTR's notice acknowledges that "the [List 1] action, as modified, and the [List 2] action under Section 301, as modified, will terminate on their respective four-year anniversary dates (i.e., July 6, 2022 and August 23, 2022, respectively) unless a representative of a domestic industry which benefits from the respective action submits in the 60-day period prior to the four-year anniversary of the respective action a request that the action continue." However, USTR's notice leaves important questions about this process unaddressed. For example, the notice does not clarify how USTR will determine whether an entity is a "representative of a domestic industry that benefits from the action" and therefore has standing to submit a request for continuation. Moreover, according to USTR's notice, "[r]equests to continue the action will not be posted immediately, but will be summarized in the notices announcing whether the two trade actions under Section 301 will be continued[.]" This could make it difficult for other parties to evaluate the requests, including the extent to which the requesters are beneficiaries of the Section 301 action.
USTR's notice also does not address the scope of requests for continuation, including whether such requests must be limited to specific products or can cover the relevant tariff list in its entirety. Similarly, the notice does not explain whether USTR would extend the Section 301 actions only in part, if it receives requests to continue certain tariffs but not others. USTR's notice refers only to the possible continuation of the List 1 and 2 "actions," as modified, and does not mention the possibility of extending only a subset of the current tariffs.
Second Phase of the Four-Year Review
USTR's notice states that the agency "will announce in subsequent notices whether it has received a request for continuation from a representative of a domestic industry which benefits from an action." If USTR receives such a request, it will "announce the continuation of the action[.]" USTR's notice does not specify the date by which this will occur.
If USTR continues an action, it will then "undertake a review of the action[.]" As part of this review, USTR intends to open a separate portal for "interested persons" to submit comments on, among other matters, the effectiveness of the action in achieving the objectives of Section 301, other actions that could be taken, and the effects of such actions on the United States economy, including consumers. This proceeding presumably would afford interested persons (including importers) the opportunity to request the elimination of Section 301 tariffs on particular products, among other changes. USTR has not indicated when it expects to initiate or conclude this comment proceeding, or when it might implement any resulting changes to the tariffs.
In recent weeks, senior Biden Administration officials have expressed interest in easing the Section 301 tariffs on certain products in order to mitigate inflation and better align the tariffs with the United States' strategic objectives. Among other possible changes, these officials have suggested reducing or eliminating Section 301 tariffs on some List 3 and 4A products (particularly consumer goods such as clothing and sports equipment), while maintaining and possibly increasing duties on products related to critical supply chains, national security, or emerging technologies. Importantly, USTR has designed its quadrennial review process to cover not only Lists 1 and 2, which are scheduled to expire in the near future, but also Lists 3 and 4A, which are not scheduled to expire until September 2022 and September 2023, respectively. USTR's review represents a rare and important opportunity for companies to request modifications to these tariff lists.