U.S. Plans to Reduce Tariffs
On December 18, 2019, the United States Trade Representative ("USTR") officially signaled the first real respite in the ongoing trade war with China by publishing a Notice of Modification of Action1 to suspend a planned 15% duty on certain products from China that was originally scheduled to take effect on December 15, 2019. This early Christmas present came after nearly two years of the USTR extending and increasing tariffs on Chinese goods pursuant to Section 301 of the Trade Act of 1974 ("Section 301").
The USTR suspended the additional Section 301 duties at the direction of President Trump following a December 13, 2019, agreement with China on "Phase One" of a "historic and enforceable" trade deal. President Trump and Chinese Vice Premiere Liu He signed Phase One of the trade deal on January 15, 2020.
As part of the Phase One deal, China has agreed to change policies and impose additional measures to prevent intellectual property theft and unfair technology transfer practices as identified in the USTR's Section 301 Investigation Report from March 22, 2018.2
Additionally, China will commit to import U.S. goods and services over the next two years in an amount exceeding by at least $200 billion the annual level of imports of those U.S. goods and services in 2017. The sectors that will benefit from this increase include manufacturing, agriculture and seafood, energy, and services.
Phase One of the deal will be enforceable through the inclusion of a chapter on Dispute Resolution. In exchange for these assurances, the U.S. has agreed to reduce or repeal some of the tariffs from the previous Section 301 tariff actions.
The agreement suspended implementation of the December 15 tariff increase and will halve the 15% tariff on approximately $120 billion in Chinese goods that was recently implemented on September 1, 2019. On January 15, the USTR published a notice regarding this reduction, which will occur on February 14, 2020.3 All other tariffs are still in place. As a quick refresher, the tariffs in place at the time of publication include:
- 25% Tariff on $34 Billion in Chinese Goods ("List 1");
- 25% Tariff on $16 Billion in Chinese Goods ("List 2");
- 25% Tariff on $200 Billion in Chinese Goods ("List 3"); and
- 15% Tariff on $120 Billion in Chinese Goods ("List 4A") (to be reduced to 7.5% on February 14, 2020).4
Period for Requesting Exclusion on List 4A Products Ending Soon
The limited timeframe allowed for requesting an exclusion for products under Lists 1, 2, and 3 has passed, but interested parties can still request an exclusion for products covered under List 4A until January 31, 2020. In October, the USTR published procedures to request exclusions for these List 4A products. The request must include:
- The 10- or 8-digit harmonized tariff schedule subheading of the product;
- The name and description of the product;
- The product's function;
- Whether the product is currently subject to anti-dumping or countervailing duty order;
- Whether the product is available only from China;
- Whether the requester has attempted to source the product from the United States or third countries;
- Whether the imposition of duties will cause severe economic harm to the requester or U.S. interests; and
- Whether the product to be imported is "strategically important" for Chinese industrial programs.5
Remember, the exclusions apply retroactively, so interested parties should consider applying for an exclusion to obtain refunds for duties that have been paid on List 4A products since September 1, 2019, even if the expected reduction of those tariffs to 7.5% means a smaller refund.
Exclusions for Products on List 1, List 2, and List 3 Must Be Renewed
Parties that have already received exclusions for products covered under Lists 1, 2, and 3 must remember that the exclusions are only effective for one year from the date the exclusion was granted. Those exclusions can, however, be extended: pursuant to an October 31, 2019, Federal Register Notice requesting comments on the potential extension, for up to 12 months, of the exclusions granted on December 28, 2018,6 the USTR granted such an extension on December 23, 2019.7 Subsequently, on December 30, 2019, the USTR published a second Federal Register notice requesting comments on the extension of the second round of exclusions (those granted in March 2019).8 Parties wishing to seek extensions must submit comments between January 15 and February 15, 2020, and address multiple factors including:
(1) Whether the product is available in countries other than China,
(2) Any changes in global supply of the product since July 2018, and
(3) The efforts the U.S. purchaser or importer have undertaken to source the product from countries other than China.
The USTR will likely publish additional requests for comments with respect to product exclusion extensions on a rolling basis. Companies that have already received exclusions should prepare to submit comments starting a couple of months before the initial exclusion is set to expire.* * *
 Notice of Modification of Section 301 Action: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 84 Fed. Reg. 69,447 (Dec. 18, 2019), available at https://ustr.gov/sites/default/files/enforcement/301Investigations/Notice_of_Modification%E2%80%93December_2019.pdf.
 Findings of the Investigation into China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation under Section 301 of the Trade Act of 1974, Office of the United States Trade Representative (Mar. 22, 2018), available at https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF.
 Notice of Modification of Section 301 Action: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, Office of the United States Trade Representative (Jan. 15, 2020), available at https://ustr.gov/sites/default/files/enforcement/301Investigations/Notice_of_Modification-January_2020.pdf.
 A List 4B was created, but it consists of products covered by the 15% tariffs that were suspended under the Notice of Modification published on December 18, 2019.
 Procedures for Requests to Exclude Particular Products from the August 2019 Action Pursuant to Section 301; China's Acts, Policies, and Practices Related to Technology, Transfer, Intellectual Property, and Innovation, USTR, 84 Fed. Reg. 57,144 – 57, 146 (Oct. 24, 2019), https://ustr.gov/sites/default/files/enforcement/301Investigations/Procedures_for_Requests_to_Exclude_Particular_Products_from_the_August_2019_Action.pdf.
 Request for Comments Concerning the Extension of Particular Exclusions Granted Under the December 2018 Product Exclusion Notice From the $34 Billion Action Pursuant to Section 301: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 84 Fed. Reg. 58,427 (Oct. 31, 2019), available at https://www.govinfo.gov/content/pkg/FR-2019-10-31/pdf/2019-23751.pdf.
 Notice of Product Exclusion Extensions: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 84 Fed. Reg. 70,616 (Dec. 23, 2019), available at https://www.govinfo.gov/content/pkg/FR-2019-12-23/pdf/2019-27611.pdf.
 Request for Comments Concerning the Extension of Particular Exclusions Granted Under the March 2019 Product Exclusion Notice From the $34 Billion Action Pursuant to Section 301: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 84 Fed. Reg. 72,102 (Dec. 30, 2019), available at https://www.govinfo.gov/content/pkg/FR-2019-12-30/pdf/2019-28088.pdf.
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