Section 301 Duties explained
The tête-à-tête regarding trade between China and the US, the world’s two largest economies, has reached a new level in 2018. On Tuesday, April 3rd 2018, the US Trade Representative (USTR) issued a list of over 1,300 products that when imported from China, would carry an additional 25 per cent duty. The action didn't come as a surprise as both nations have been at odds over President Trump’s open position on the trade imbalance.
What is this Import Tax All About?
This new import tax is intended to harshly penalize Chinese manufacturers for alleged intellectual property (IP) theft, following a US investigation based on Section 301 of the Trade Act of 1974.
The results determined that US companies operating in China are at a disadvantage since they are forced to enter joint ventures with Chinese companies and/or share their technology. This leads to Chinese firms using proprietary patents and software from US companies.
What was on the initial target list?
The targeted list of products includes industries such as aerospace, machinery, robotics, and information and communication technology. The USTR explained that the list of products determined from the Section 301 investigation is based “on extensive interagency economic analysis and would target products that benefit from China’s industrial plans while minimizing the impact on the U.S. economy.”
China responded with retaliatory tariffs on US exports, including soybeans, automobiles, and chemicals. The counter-move imposes a 25 percent tariff on 106 categories of US products, including machinery, car and aircraft parts, televisions, steel, and more.
Over the years 2018 and 2019, more products were added to the list. They were announced in several "tranches".
Today, almost weekly, new notices announcing certain actions, like additional measures or exclusions are published,
This can become quite confusing.
Time to get clarity on what measures have been undertaken so that reading the U.S. Federal Register Notices becomes a little easier.
What is a Section 301 Investigation?
Section 301 of the U.S. Trade Act of 1974 authorizes the US President to take all appropriate action, including tariff-based and non-tariff-based retaliation, to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S. commerce.
Please note that there are other Section 301 investigations:
Section 301-EU Beef
Section 301-Large Civil Aircraft
Section 301- France's Digital Services Tax
How can it be initiated?
Section 301 cases can be self-initiated by the United States Trade Representative (USTR) or as the result of a petition filed by a firm or industry group.
How did the US-China Trade Dispute start?
The timetable of escalation:
On August 14, 2017, the US President instructed the U.S. Trade Representative to determine under Section 301 of the Trade Act of 19741 whether to investigate China’s laws, policies, practices, or actions that may be unreasonable or discriminatory and that may be harming American intellectual property rights, innovation, or technology development.
On March 22, 2018, USTR issued the 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 (the “Section 301 Report”)..
Executive Summary of Report – March 22, 2018
Notice of Determination and Proposed Action - April 6, 2018
Update to March 22, 2018 Report – November 20, 2018
Unilateral trade sanctions under section 301 were imposed on China by President Trump in March 2018, setting off the 2018 China–United States trade dispute. This has escalated into an ongoing economic conflict, and some say, a trade war (Chinese: 中美贸易战, between the world's two largest national economies, China and the United States.
What did the report find?
Based on this report, USTR determined the following Chinese actions are unreasonable or discriminatory and burden or restrict U.S. commerce:
China uses foreign ownership restrictions, such as joint venture (JV) requirements and foreign equity limitations, and various administrative review and licensing processes, to require or pressure technology transfer from U.S. companies.
China’s regime of technology regulations forces U.S. companies seeking to license technologies to Chinese entities to do so on non-market based terms that favor Chinese recipients
China directs and unfairly facilitates the systematic investment in, and acquisition of U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate the transfer of technology to Chinese companies.
China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies to access their sensitive commercial information and trade secrets.
What happened next as regards additional duty?
President Donald Trump in 2018 began setting tariffs and other trade barriers on China with the goal of forcing it to make changes to what the U.S. says are "unfair trade practices". Among those trade practices and their effects are the growing trade deficit, the theft of intellectual property, and the forced transfer of American technology to China.
25% Additional Duty - Amount $50Billion - Total: $ 50Billion
May 29, 2018: 25% additional tariff on $50 billion of Chinese goods with "industrially significant technology;"
June 15: 25% tariff on $50 billion of Chinese exports would be split into two phases: $34 billion (this has come to be known as $34 Billion Trade Action (List 1)) would start July 6, 2018, with a further $16 billion to begin at a later date. Known as the $16 Billion Trade Action (List 2)
July 6: American tariffs on $34 billion of Chinese goods came into effect.
August 8: US TR published its finalized list of 279 Chinese goods, worth $16 Billion, to be subject to a 25% tariff from August 23.
10% Additional Duty - Amount: $ 200 Billion - Total: 250 Billion
(known as the $200 Billion Trade Action (List 3))
June 18: An additional 10% tariffs on another $200 billion worth of Chinese imports if China retaliated against these U.S. tariffs.
On July 10, 2018, U.S. released an initial list of the additional $200 billion of Chinese goods that would be subject to a 10% tariff to be implemented within 60 days.
September 17: The US announced its 10% tariff on $200 billion worth of Chinese goods would begin on September 24, 2018, increasing to 25% by the end of the year.
From 10% to 25%?
December 1: The planned increases in tariffs were postponed. US stated that both parties will "immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft."
US: "If at the end of [90 days], the parties are unable to reach an agreement, the 10 percent tariffs will be raised to 25 percent." The U.S. trade representative's office confirmed the hard deadline for China's structural changes is March 1, 2019."
May 5, 2019: The US said that the 10% levied in $200 billion worth of Chinese goods would be raised to 25% on May 10. With notification by USTR, the Federal Register on May 9 published the modification of duty on or after 12:01 a.m. Eastern Time Zone May 10 to 25% for the products of China covered by the September 2018 action.
"The remaining $300 Billion" ($300 Billion Trade Action (List 4))
August 1: President Trump announced on Twitter that an additional 10% tariff will be levied on the "remaining $300 billion of goods"
August 23: Tariffs are to be raised from 25% to 30% on the existing $250 billion worth of Chinese goods beginning on October 1, 2019, and from 10% to 15% on the remaining $300 billion worth of goods beginning on December 15, 2019. See Announcement
September 1: New USA tariffs previously announced went into effect at 12:01 pm EST. The United States imposed new 15% tariffs on about $112 billion of Chinese imports, such that more than two-thirds of consumer goods imported from China were then subject to tariffs.
October 11: US and China have reached a tentative agreement for the "first phase" of a trade deal, with China agreeing to buy up to $50 billion in American farm products, and to accept more American financial services in their market, with the United States agreeing to suspend new tariffs scheduled for October 15. The deal was expected to be finalized in the coming weeks.
US-China Phase One Trade Deal
January 15: China's Vice Premier Liu He and U.S. President Donald Trump signed the US–China Phase One trade deal in Washington DC. The "Economic and Trade Agreement between the United States of America and the People’s Republic of China" took effect from 14 February 2020 and focusses on intellectual property rights (Chapter 1), technology transfer (Chapter 2), food and agricultural products (Chapter 3), financial services (Chapter 4), exchange rate matters and transparency (Chapter 5), and expanding trade (Chapter 6), with reference also being made to bilateral evaluation and dispute resolution procedures in Chapter 7.
On January 15, 2020, USTR issued a Federal Register notice reducing the rate of additional tariffs on List 4A products to 7.5%, effective February 14, 2020. Goods on List 4A were previously subject to a 15% additional tariff effective Sept. 1, 201
The 15% tariffs on List 4B are suspended, per a Federal Register notice issued 12/13/19.
The US announced on October 31, 2019, that it will begin accepting tariff exclusion requests for Chinese imports subject to an additional 15 percent tariff (List 4 tariffs) that went into effect on September 1, 2019. Exclusion requests will be received via USTR’s online exclusion request processing portal at exclusions.ustr.gov;
About the Product Lists
List 1 products, with a total import value of $34 billion, were subject to an additional 25% tariff as of July 19, 2018.
The additional tariff on List 1 products is not affected by the Phase 1 deal and will remain at 25%.
There are around 730 HTS exclusions
Granted ranted exclusions can be product-specific or cover entire subheadings.
Exclusions granted are retroactive to July 6, 2018, and remain in place for one year after the exclusion determination is published in the Federal Register.
List 2 products have a total mport value of $16 billion, are subject to an additional 25% tariff from 23, 2018.
The additional tariff on List 2 products is not affected by the Phase 1 deal and will remain at 25%.
More than 265 HTS exclusions were granted,
All granted exclusions are product specific and retroactive to Aug. 23, 2018.
They will remain in place for one year after the exclusion determination is published in the Federal Register.
List 3 products have a total import value of $200 billion, THis is the list which saw an increase fro, 10% tariff to 25%
The additional tariff on List 3 products is not affected by the Phase 1 deal and will remain at 25%.
On February 14th, the USTR dropped the rate of additional tariffs on List 4A products to 7.5%. Goods on List 4A were previously subject to a 15%
The 15% tariffs on List 4B are suspended, per a Federal Register notice issued 12/13/19.
In order to assist the trade community with compliance with trade remedies under Section 201, 232, and 301, CBP provides sources of information to assist with questions on trade remedy issues.
The U.S. Customs and Border Protection (CBP) Trade Remedy Branch mailbox, firstname.lastname@example.org, can answer emails specifically related to:
Entry filing requirements on imports of goods subject to Section 301 import duties;
Entry filing requirements on imports of goods subject to Section 301 exclusions approved by the Office of the U.S. Trade Representative
For questions regarding Section 301, please see CBP’s list of Frequently Asked Questions at www.cbp.gov/trade/programs-administration/entry-summary/section-301-trade-remedies/faqs
PHASE ONE US-China Analysis: https://www.customsmanager.info/post/us-china-phase-one-trade-agreement
Trade remedy website on CBP.gov at https://www.cbp.gov/trade/programs-administration/trade-remedies
About Customs Manager
Our mission is to create the world's largest community of empowered Customs managers and Global Trade Professionals. We achieve this through professional legislative monitoring, ongoing training & education, and providing first-class support. In this way, we strengthen the overall customs & global trade (C>) profession by creating up-to-date, well-trained and supported customs managers ready to grow global trade effectively, efficiently and compliantly.
Always up to date. Always learning. Always supported.