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Holiday Rush: Section 301 Tariff Developments Impact US Importers

Not to be outdone by the recent USMCA breakthrough, there have been significant end-of-the-year developments on the Section 301 tariff front. US importers should take stock as they wrap up activities for 2019 and continue planning for 2020.

Section 301 of the Trade Act of 1974, 19 U.S.C. § 2411, authorizes the president to take retaliatory action if it is determined that a trade act, policy, or practice of a foreign government is unreasonable or discriminatory and that it burdens or restricts US commerce. President Trump has exercised his authority since taking office to propose such retaliatory tariffs on China, the European Union, and France.

Each case has seen significant developments so far this month. Only days before the List 4B tariffs on Chinese goods valued at nearly $180 billion annually were to become effective, the Trump Administration suspended that action and halved tariffs on List 4A, which covers another $120 billion of goods. Both amendments were the result of a temporary truce in the US-China trade war and indicate progress in the ongoing negotiations of a trade deal with China. Meanwhile, USTR is inviting public input on revisiting current tariffs on $7.5 billion of European goods and on imposing new tariffs on $2.4 billion of French goods.

'Phase One' China deal staves off new tariffs, reduces current ones

On December 13, 2019, USTR announced that it would “suspend indefinitely” the planned tariffs on List 4B goods subject to Section 301 duties. A 15 percent tariff on these Chinese imports was expected to take effect on December 15. Although not published until December 18, the Federal Register notice (84 FR 69447) makes clear that these List 4B tariffs are suspended retroactively to the December 15 effective date.

The suspension came as a week of intense negotiations culminated in a “historic and enforceable” Phase One agreement with China that will address many of the areas that spurred the trade standoff, such as intellectual property, technology transfer, agriculture, financial services, currency, trade expansion, and dispute resolution.

In addition to suspending the List 4B tariffs, the Administration agreed to cut List 4A tariffs, which took effect on September 1, 2019, in half in the “near future.” However, the USTR has given no indication as to when this reduction from 15 to 7.5 percent will take place. The product exclusion request process for List 4A, detailed in a previous alert, is unchanged and remains open through January 31, 2020.

The 25 percent tariff on products of Lists 1 through List 3 is unaffected by the recent actions, and the USTR has indicated that there has been no offer to reduce or eliminate those tariffs as part of the ongoing negotiations with China. However, on December 17, 2019, USTR published a new round of exclusions from List 3 (84 FR 69012) for nine full 10-digit HTS codes and thirty-five product categories, including certain fish meat, auto parts, bicycles, freeze-dried fruit, calculators, chairs, and lighting products. All List 3 exclusions are effective from September 24, 2018, the date the tariff took effect, through August 7, 2020, yet of those exclusion requests decided, only 3.62 percent have been granted. In addition, USTR has extended six List 1 exclusions through December 28, 2020, and issued technical amendments to certain previously granted exclusions from List 1 (84 FR 69016) and List 2 (84 FR 69011).

USTR reviewing current EU tariffs in aircraft dispute, declining beef tariffs

US importers could be facing more and steeper tariffs as a result of the US–European Union large civil aircraft dispute. After a World Trade Organization panel ruled that the EU has failed to withdraw subsidies to its large civil aircraft industry that the WTO had already held to violate US rights, USTR announced on December 12, 2019, that it would be reviewing the action taken imposing retaliatory duties on EU goods (84 FR 67992).

In July 2019, USTR released a broad list of products on which it proposed to impose a 100 percent tariff. In October 2019, after public comment and hearing and a WTO finding that EU subsidies totaled $7.5 billion annually, USTR reduced the number of subject products accordingly and imposed a rate of 10 or 25 percent on various imports from EU members.

USTR is now reconsidering and seeking comment again on whether and at what duty rate products from the full July 2019 list should be included. Comments should address whether including a specific product would (i) be appropriate to enforce US WTO rights or to obtain the elimination of the EU’s WTO-inconsistent measures, or be likely to result in the EU implementing the WTO recommendations or in achieving a mutually satisfactory solution, and (ii) cause disproportionate economic harm to U.S. interests, including small or medium-sized businesses and consumers.

Comments are due by January 13, 2020. There is no indication that the interagency Section 301 Committee intends to hold public hearings again. Additionally, because USTR has thus far declined to offer an exclusion process for the EU tariffs, this comment period might be an interested party’s only chance to request removal from the current tariffs.

In related news, USTR explained separately on December 13, 2019 (84 FR 68286) that, after successful negotiations, it will spare the EU from tariffs related to trade in American beef first considered during the Obama Administration.

USTR to hold hearings on retaliation against French digital tax

As we explained in a previous alert, earlier this month, USTR issued a report on its investigation into the new French Digital Services Tax (DST), which found that the tax discriminates against and burdens US companies that engage in online activities such as data collection and web advertising. USTR published (84 FR 66956) an initial list of $2.4 billion of goods in 63 tariff subheadings — covering yogurt, whey protein concentrates, butter, several varieties of cheese and cheese substitutes, sparkling wine, various beauty products, handbags, and porcelain products, among other things — on which it is proposing additional duties of up to 100 percent.

The interagency Section 301 Committee is scheduled to hold a public hearing on January 7, 2020, and is seeking comment and testimony as to whether the action is appropriate. A request to appear at the hearing is due by December 30, 2019. Parties may submit comments by January 6, 2020.

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