Under the statute, unless USTR receives a request for continuation and conducts a review of the case, Section 301 actions will automatically terminate after four years. The agency’s review must examine the effectiveness of the actions in achieving the objectives of the program as well as “the effects of such actions on the United States economy, including consumers.” USTR’s announcement serves as notice to domestic industries that benefit from the tariffs of their possible termination, as well as the opportunity to request their continuation.

USTR is considering all four tranches of Section 301 China tariffs at the same time. Section 301 tariffs were imposed on approximately $34 billion worth of Chinese imports on July 7, 2018 (List 1) and on another $16 billion on August 23, 2018 (List 2). Further modifications were made in September 2018 ($200 billion; List 3) and September 2019 ($110 billion; List 4A).

Deadline for Request for Continuation: Requests for continuation of the tariffs must be submitted prior to the four-year anniversary of the action, which is July 6, 2022, for the first action in the investigation and August 22, 2022 for the second action.

If one or more requests for continuation are submitted, which appears to be almost a certainty, USTR will publish a subsequent notice announcing the continuation of the tariff action and will proceed with a review of the tariffs. If USTR does not receive any requests for continuation (an outcome that appears highly unlikely), the tariffs would automatically terminate at the end of the four year period.

Submitting Comments: For the July 2018 trade action, the web portal at https://comments.ustr.gov/s/ will open for requests to continue the action on May 7, 2022, and close at 11:59 pm on July 5, 2022.

For the August 2018 trade action, the web portal at https://comments.ustr.gov/s/ will open for requests to continue the action on June 24, 2022, and close at 11:59 pm on August 22, 2022.

Requests should “identify the specific industry concerned and should address how the domestic industry benefits from the July 6, 2018 action or August 23, 2018 action, as modified.”

The USTR notice says that entities who wish for the continuation of tariffs under List 3 or List 4A may submit requests through either portal. We recommend, however, that interested parties that support continuation of Section 301 tariffs on List 3 or List 4A items submit a letter expressing support for continuation of the tariffs to both portals.

Review Timeline: Assuming USTR receives requests for continuation, a formal announcement (i.e., Federal Register Notice) will be published and the tariffs will remain in place while USTR conducts the review. The review will include separate public comment opportunities for interested parties, during which USTR will accept comments on “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.”

There is no timeline for the review and no deadline for USTR to report its results.

We previously reported on the investigations here and here, which concluded that these countries’ DST measures (plus measures announced in India and Turkey) burden or restrict U.S. commerce, and are discriminatory and inconsistent with prevailing principles of international taxation.[1] With the affirmative investigation findings, in March 2021, USTR proposed lists of products from Austria, India, Italy, Spain, Turkey, and the United Kingdom that would be subject to an additional 25 percent import tariff, subject to public comment and hearing. In June 2021, USTR announced that it would be suspending the proposed tariff measures for each of the six countries for 180 days to “to allow additional time for multilateral and bilateral discussions that could lead to a satisfactory resolution of this matter.” USTR had previously and separately investigated France’s DST measures, determining in June 2020 to impose an additional 25 percent tariff on certain French imports and, in January 2021, deciding to indefinitely suspend that action pending further negotiations.

The agreement reached today terminates the United States’ proposed Section 301 tariffs with respect to Austria, France, Italy, Spain, and the United Kingdom. India and Turkey did not join in the agreement. The “political compromise” reached does not require the five countries involved to withdraw their existing DST measures. Instead, those countries have agreed that to the extent U.S. companies accrue any DST liability before implementation of Pillar 1 of the Organization for Economic Co-operation and Development (OECD) global tax agreement, such liability will be creditable against future income taxes as determined under Pillar 1. The OECD global tax agreement is a historic, multilateral tax reform project aimed at addressing the challenges of the digital economy and earning the high-level political support of the G7, G20, and 136 members of the OECD. Pillar 1 of the OECD agreement relates to a global framework allocation of firms’ digital services profits by introducing new profit allocation mechanisms and nexus rules to expand the taxing authority of market jurisdictions. According to today’s Section 301 deal, once OECD Pillar 1 is in effect (2023), the United States will work with the five countries to roll back their existing, individual digital services taxes.

The suspended 25 percent tariffs on certain imports from India and Turkey are set to go into effect on November 30, 2021, barring satisfactory resolution of the dispute before that time or USTR’s decision to further suspend the tariff actions.

[1] USTR also investigated DST measures by Brazil, the Czech Republic, the European Union, and Indonesia. In March 2021, USTR announced the termination of these investigations, without further action, because none of the four investigated jurisdictions had adopted or implemented the DST policies at issue.

Among the announcements made were that (1) a Section 301 product exclusion process would be “restarted” with respect to the tariffs currently in effect, and (2) additional enforcement actions against China could be initiated, potentially to include another Section 301 investigation. Recall that the existing tariffs were imposed beginning in March 2018 under Section 301 of the Trade Act of 1974, pursuant to an investigation concerning “China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.”

On Tuesday, October 5, the USTR announced as a first step toward (1) that it would open a proceeding to consider whether to renew any Section 301 product exclusions that had previously been granted and that had previously been extended. The USTR granted about 2,200 product exclusions between 2019 and 2020, and 549 of those were subsequently extended. Those 549 exclusions are now up for renewal. Comments are being invited on whether this particular universe of previously granted exclusions should be reinstated. USTR will be looking for information on (1) whether the product remains available only from China, (2) changes in the product’s global supply chain/relevant industry developments since September 2018, (3) efforts importers have taken since September 2018 to source the product from the U.S. or third countries, and (4) domestic capacity for producing the product. Any reinstated exclusions will be retroactive to October 12, 2021 and run for a time period yet to be determined.

It is possible that this exclusion renewal process is only a first step preceding a more extensive reopening of the product exclusion process, although no concrete indications of that have been made by the Administration. We will continue to make announcements as opportunities arise.

The Federal Register notice announcing the exclusion renewal process is available here. The USTR’s official list of 549 previously extended exclusions is available here. We have also prepared a fully sortable Excel based version of USTR’s list, available here. The comment period will be open between October 12, 2021 and December 1, 2021. We are available to assist with the preparation of comments either supporting or opposing renewal of exclusions on any of the listed products. Please let us know if you have any questions.

The initial Section 301 action was brought against 10 countries, however, USTR also announced it was formally terminating cases against Brazil, the Czech Republic, the European Union and Indonesia because these countries had not implemented or adopted any digital service taxes. USTR’s announcement did not address a separate Section 301 digital services action brought against France, covering $1.3 billion worth of French goods that was suspended by the previous administration.

For the cases going forward, each of USTR’s notices requests comments and information from parties on whether action is appropriate, and if so, the appropriate action to be taken. In particular, USTR seeks comments on:

• The level of the burden or restriction on U.S. commerce resulting from the country at issue’s DST.
• The appropriate aggregate level of trade to be covered by additional duties.
• The specific products to be subject to increased duties, including whether USTR’s proposed lists should be retained or removed, or whether tariff subheadings not currently on the list should be added.
• The level of the increase, if any, in the rate of duty on items covered.

USTR’s federal register notices, and prior relevant documents concerning the agency’s investigations, are available at the agency’s website. Among the products identified on USTR’s six lists are seafood, children’s clothing, jewelry, and certain furniture items. If you require assistance responding to USTR’s request, please don’t hesitate to contact Kelley Drye’s international trade team.

[1] Digital service taxes apply to revenues that certain companies generate overseas from the provision of digital services to, or aimed at, users in those jurisdictions. Taxable digital services might include providing digital interface, targeted advertising, and the transmission of data collected about users for advertising purposes. The goods identified on USTRs list are not specifically linked to services subject to the relevant DSTs.

These investigations were conducted under Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411). Under the law, the president may direct USTR to remedy violations of bilateral or multilateral trade agreements, or unreasonable, unjustifiable, or discriminatory foreign government practices that burden or restrict U.S. commerce. While the law expressly allows the use of Section 301 action to address violations of agreements, prior U.S. policy has been to address trade agreement violations under the applicable dispute settlement procedures, including through the World Trade Organization (WTO). There have been over 125 cases under Section 301 since the law’s enactment, of which only about 25 percent have been initiated since the WTO’s establishment in 1995. Most investigations have involved government measures affecting trade in goods – especially agricultural goods – such as export restraints, subsidies, or other discriminatory policies.

The completed investigations regarding Indian, Italian, and Turkish DSTs stem from a set of investigations initiated in June 2020 on DST measures or proposals in these three countries, plus Austria, Brazil, the Czech Republic, the European Union, Indonesia, Spain, and the United Kingdom. The subject DSTs apply to revenues that certain companies generate from providing digital services to, or aimed at, users in those jurisdictions. UST has stated that it “USTR expects to announce the progress or completion” of these additional DST investigations “in the near future.”

The president must typically make a determination within 12-18 months of investigation initiation (depending on the practice investigated) if dispute settlement procedures are not invoked. Remedies may include tariffs or other import restrictions, suspension of concessions under a trade agreement, an agreement to end the practice at issue or compensate the United States, or the imposition of fees on or restriction or denial of services. Section 301 also includes a general authorization that permits USTR to take any actions that are “within the President’s power with respect to trade in goods or services, or with respect to any other area of pertinent relations with the foreign country.”

The most well-known and impactful example of recent use of Section 301 has been the Trump Administration’s imposition of tariffs on nearly all imports from China due to Chinese laws and practices related to intellectual property rights and forced technology transfer (we have written on this a number of times). At the end of 2019, USTR concluded another Section 301 investigation into France’s DST, finding the measure discriminates against (large) U.S. digital companies and is inconsistent with prevailing tax principles. Imposition of tariffs on $2.4 billion in luxury French imports such as wine, handbags, makeup, and cheese was delayed and has most recently been suspended for purposes of promoting a coordinated response across all DST cases according to USTR. In October 2020, UST also initiated Section 301 investigations into Vietnam’s importation of illegally harvested timber and currency undervaluation.

The complaint alleges that the President’s imposition of tariffs to products on these lists, which covers approximately $320 billion in trade, exceeded authority granted by the Trade Act of 1974 and that the agency’s implementation of the tariffs violated provisions of the Administrative Procedures Act. In addition to striking down the tariffs, the legal action seeks the refund of duties paid by the plaintiffs, with interest, for imported products on List 3.

We are alerting clients with interest in List 3-covered products of the potential litigation opportunity for filing a similar claim at the CIT to preserve the ability to obtain duty refunds. A two-year statute of limitations applies to the Administration’s action, which runs from the date of publication of the notice (September 21, 2018). As such, the time to act is short. Interested parties who wish to file their own claims must do so no later than September 21, 2020.

Precedent suggests, if List 3 is found to be unlawfully promulgated, there may be an opportunity for all importers – including non-litigants – to obtain duty refunds through refund requests filed with Customs and Border Protection (CBP) or through an administrative refund process established by CBP. There is no guarantee, however, that such precedent would be followed. Filing a court claim would be a conservative approach and would likely result in an earlier refund.

We are available to prepare complaints for interested clients to preserve the ability for duty refunds at the earliest opportunity. While the litigation route might not make sense for every importer, there are instances where such an approach may be advisable. Factors that may weigh in favor of filing suit may include the amount of total duties paid under Lists 3 and/or 4A, the public nature of the lawsuit, and the cost of participating in such an action.

If you have List 3 Section 301 China tariffs and interested in pursuing such an action, please contact us immediately for an assessment of your company’s specific situation and no later than Thursday, September 17, 2020. Given the short filing deadline, please have prepared:

• The Harmonized Tariff Schedule number(s) under which you imported merchandise on Lists 3 and/or 4;
• An estimated date range of the import shipments;
• An estimate of the total value of Section 301 duties paid; and
• The identity of the importer of record/party responsible for duty payment.

A comprehensive list of the 21-covered product tariff subheadings is included in Annex A of the Federal Register Notice announcing the action. Examples of products subject to the additional tariff include cosmetics, beauty products, soaps and handbags.

The imposition of tariffs follow USTR’s July 2019 investigation and December 2019 finding that France’s digital services tax is unreasonable or discriminatory and burdens or restricts U.S. commerce. USTR held hearings in January 2020 to seek comment and input on the proposed application of 100 percent duties on a proposed list of 63 products from France. The final list of products subject to an additional 25 percent tariff is a subset of the proposed list. Notably, the final retaliatory list excludes Champagne, cheese and fine dinnerware, which were among the proposed products.

According to the announcement, USTR issued the 180-day suspension to allow additional time for bilateral discussions and multilateral negotiations that could potentially lead to a satisfactory resolution of the dispute. USTR further advises it could decide to impose tariffs at an earlier date and would issue a subsequent notice amending the effective date if it makes that determination.

USTR had initially determined to withhold taking action under this investigation in exchange for France’s agreement to delay collection of its digital services tax pending multilateral negotiations through the OECD to determine consensus on how to tax the activities of digital companies offering services outside a taxing jurisdiction. Those negotiations, however, have experienced setbacks as some OECD members have proceeded to enact and implement digital services taxes notwithstanding ongoing discussions, and it remains unclear whether calls for continued global talks will result in an outcome where the U.S. proceeds with or drops its proposed 301 tariffs.

For additional information about the investigation or proposed tariff implementation procedures please contact Jennifer McCadney.

The comment period will remain open until at least June 25, 2020, however, USTR indicated the deadline may be extended. Interested parties are encouraged to submit comments as promptly as possible. Responses to comments should be submitted within three business days after a comment is posted on the docket. USTR will review requests and comments on a rolling basis.

The announcement further indicates that comments may be submitted regarding any product covered by Section 301 duties, even if the product is subject to a pending or denied exclusion request. Commenters must identify the product of concern and explain how it relates to the COVID-19 outbreak, including whether a product is directly used to treat COVID-19 or limit the outbreak, or whether the product is used in the production of needed medical-care products.

For additional information, please contact Jennifer McCadney.

The Agreement

The agreement has eight chapters, including chapters on (1) intellectual property, (2) technology transfer, (3) agriculture, (4) financial services, (5) macroeconomic policies and exchange rate matters and transparency, (6) expanding trade, and (7) bilateral evaluation and dispute resolution.

As part of the agreement, the United States has already postponed a 15 percent tariff that was scheduled to be imposed December 15th on $160 billion of Chinese imports. The United States has also agreed to reduce tariffs on an additional $120 billion of Chinese imports from 15 percent to 7.5 percent. The reduction is set to take place February 14, 2020, according to a draft Federal Register notice from the United States Trade Representative. The agreement commits China to increase purchases of U.S. goods and services by $200 billion over 2017 levels. This includes $77 billion in manufactured goods, $32 billion in agricultural goods, $52 billion in energy, and $37 billion in services over the next two years. All purchases will be at market prices, and market conditions will dictate the timing of purchases.

The intellectual property chapter covers trade secrets, pharmaceuticals, patents, trademarks, geographical indications, and the enforcement of pirated and counterfeit goods. Specifically, it expands the scope of trade secret misappropriation liability, shifts the burden of proof requirements in civil cases, and adds criminal penalties for willful misappropriation. It also creates a mechanism to resolve pharmaceutical patent disputes early in the process and extends the effective patent term of patents experiencing delays in the Chinese approval process. The agreement requires that China increase its civil and criminal penalties to levels sufficient to deter intellectual property violations.

The technology transfer chapter covers various practices the United States determined to be unreasonable or discriminatory. China has agreed to end the practice of forcing foreign companies to transfer their technologies to Chinese firms as a condition for obtaining market access and administrative approvals. The chapter requires China to enforce its technology transfer laws in an impartial, fair, transparent, and non-discriminatory manner. China must publish the rules of procedure, provide parties adequate notice, allow parties to review evidence and respond, and allow parties to have legal counsel for the proceedings.

The agriculture chapter covers structural barriers to trade separate from China’s increased purchase obligations. The provisions should increase U.S. food, agriculture, and seafood exports and market access. The provisions aim to increase American farm and fishery income and promote job growth nationwide. The deal removes barriers for U.S. beef, pork, poultry, processed meat, rice, seafood, and pet food, among others.

The financial services chapter allows U.S. financial service providers to compete fairly and expand in the Chinese market. The chapter covers a broad range of financial services including banking, insurance, securities, and credit rating services, easing restrictions U.S. firms currently face in China. The provisions of this chapter also require China to eliminate foreign equity limits for securities companies, fund management companies, and U.S. life, health, and pension insurance providers.

The macroeconomic policies and exchange rate matters and transparency (currency) chapter requires both parties to refrain from competitive devaluations and targeting exchange rates for competitive reasons. The chapter also reaffirms the parties’ commitments to disclose relevant data publicly and refers conflicts on these issues to the dispute resolution system. The United States removed China’s currency manipulator designation earlier this week.

The agreement also includes a chapter on dispute resolution. Enforcement has always been problematic in agreements between the United States and China. The chapter creates a Trade Framework Group to discuss high-level implementation issues and a Bilateral Evaluation and Dispute Resolution Office in each country to deal with low-level implementation issues and settle disputes. The dispute resolution process begins with the complaining party launching an appeal. Designated officials from the opposing party’s Bilateral Evaluation and Dispute Resolution Office then assess the appeal. If those officials cannot resolve the issue, the appeal escalates to the Deputy United States Trade Representative and the designated Vice Minister, and then to the United States Trade Representative and the designated Chinese Vice Premier. If they cannot resolve the dispute, the complaining party can suspend obligations under the agreement or adopt a proportionate remedial measure. If the suspension or remedial measure was made in good faith, retaliation is not allowed. The parties may withdraw from the agreement if they believe the action is taken in bad faith.

Next Steps

While the agreement is a step in the right direction, the trade war is far from over. According to President Trump, the “phase one” agreement only covers about half of the relevant issues both sides wish to see addressed. Many of the “phase two” issues are more complex and controversial. These issues include Chinese government subsidies, intellectual property theft, state control of the Chinese market, and discrimination against foreign firms. In the meantime, U.S. tariffs will remain in place on approximately $370 billion of Chinese goods. Both sides will be extremely reluctant to give ground on many of these issues without gaining significant benefits.

“Phase two” negotiations are set to begin shortly now that “phase one” has concluded. The President noted, however, that the United States and China would not complete the agreement before the upcoming November election.

The success of “phase two” will depend in part on how the United States and China implement the “phase one” agreement. If both countries keep up their end of the bargain and the enforcement provisions effectively resolve any disputes, negotiations will likely continue in earnest. If the parties ignore their commitments and the dispute resolution process proves toothless, the chances of concluding a comprehensive “phase two” agreement will diminish significantly.

There are also concerns that some of China’s commitments are infeasible. The commitment to purchase an additional $32 billion in agricultural products, for example, represents a massive increase over the highest level of trade between the United States and China. China’s ability to purchase such a large amount of agricultural products is uncertain. To do so, China would likely have to divert imports from current sources, distorting trade worldwide. The language of the agreement seems to contemplate this. It notes that Chinese purchases are subject to market conditions and WTO rules. It also notes that the United States must ensure that it will make available enough goods and services to allow China to meet its purchase obligations. This suggests that parties may view these amounts as ambitious targets, not ironclad purchase commitments.

The other purchase requirements also raise questions about implementation including questions such as how much, to whom and when? Many details need to be addressed before progress on “phase two” can be expected.

With the “phase one” agreement complete, tensions should ease for now. This first step towards ending the trade war is an important one, but implementation will be the true judge of its success.

Importers of products on List 4A must file exclusion requests with the agency by January 31, 2020. Once USTR posts a request, there is a 14-day comment period for interested stakeholders to oppose or support, followed by a 7-day rebuttal period for the requestor to respond. USTR will grant approvals and denials on a rolling basis.

If granted, any importer of a product may utilize an exclusion, which would apply retroactively to the September 1, 2019 effective date. Importers may use an exclusion going forward, and also may seek duty refunds through U.S. Customs and Border Protection. USTR has set a uniform expiration date of September 1, 2020 for List 4A exclusions, regardless of the date they are granted.

Pursuant to the U.S.-China Phase One trade deal signed January 15, tariffs on List 4A products will be reduced to 7.5 percent from 15 percent. According to a draft Federal Register Notice made available this week, the effective date of the roll back is February 14, 2020. The rate reduction is not retroactive from September 1, 2019.

The exclusion process does not cover products on List 4B, which were scheduled to be assessed an additional 15 percent duty effective December 15, 2019. As a result of the Phase One negotiations and agreement, the President suspended indefinitely the application of additional 301 tariffs on List 4B products.

This news follows comments made last week by Chinese Ministry of Commerce spokesperson Gao Feng, who told the press that China and the United States have agreed to reduce tariffs over time if they are able to finalize a “phase one” agreement. “In the past two weeks, the lead negotiators from both sides have had serious and constructive discussions on resolving various core concerns appropriately. Both sides have agreed to cancel additional tariffs in different phases, as both sides make progress in their negotiations,” said Feng, according to Reuters.

The two countries would reduce tariffs over time, although the extent of the reductions will depend on what is included in the ultimate agreement. The United States could potentially cancel the tariffs scheduled to be imposed on December 15 as part of the agreement. Given the Administration’s willingness to use tariffs as leverage to achieve its broader trade goals, which tariffs would be reduced and by how much is largely uncertain. President Trump also noted in his remarks that he would substantially increase tariffs if the two countries were unable to reach a deal.

Both comments suggest that China and the United States are still in the process of “papering” the handshake deal reached last month between President Trump and President Xi Jinping. The agreement, originally blogged here, centers on a commitment by China to purchase up to $50 billion of U.S. agricultural products in return for the suspension of planned U.S. tariff increases on $250 billion in Chinese goods.

Both sides had hoped to finalize the agreement at the Asia-Pacific Economic Cooperation summit in Chile this month, but Chile called off the event due to ongoing protests in the country. A new venue has proven elusive. President Trump suggested Iowa, but China is unlikely to agree to a location in the heartland of the United States. An administration official said that London is a possibility, after the NATO summit in December.

First Set of Exclusions Set to Expire December 28, 2019

The relevant product exclusions were granted December 28, 2018 in USTR’s initial set of exclusions from Section 301 duties on Chinese imports that took effect July 6, 2018. The 25 percent tariff covered more than 800 tariff lines, representing approximately $34 billion in annual trade value. In its December 28 action, USTR granted exclusions for more than 1,000 specific products classified within a tariff-covered 8-digit HTSUS subheading.

USTR subsequently issued seven more rounds of product exclusions from its July 6, 2018 tariff action (all expiring one year from the date of publication in the Federal Register) and continues considering exclusion requests for subsequent tariff actions. While additional extension request opportunities are anticipated going forward, the current opportunity only covers exclusions granted on December 28, 2018.

As detailed in a draft Federal Register Notice, USTR will evaluate the possible extension of each exclusion on a case-by-case basis. USTR has indicated it will focus its evaluation on whether the product under consideration remains only available from China. USTR will also consider whether additional duties would result in severe economic harm to U.S. interests. Additionally, USTR has asked commenters to address:

• Whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries.
• Any changes in the global supply chain since July 2018 with respect to the particular product, or any other relevant industry developments.
• The efforts, if any, the importers or U.S. purchasers have undertaken since July 2018 to source the product from the United States or third countries.
• USTR is also interested in whether the product or products are subject to an antidumping or countervailing duty order issued by the U.S. Department of Commerce.

Further, USTR is requiring commenters who are importers and / or purchasers of the products in question to submit additional “business confidential” information via a separate “Form B.” Among other things, Form B requests detailed financial information as well as specific details regarding entities’ attempts to source the product(s) in question from the United States or other third countries. Form B, a sample of which is also included in the Federal Register Notice, will not be published on the public portal.

Importers of products on List 4A may file exclusion requests with the agency beginning October 31, 2019 through January 31, 2020. Once USTR posts a request, there is a 14-day comment period for interested stakeholders to oppose or support, followed by a 7-day rebuttal period for the requestor to respond. USTR will grant approvals and denials on a rolling basis.

If granted, any importer of a product may utilize an exclusion, which would apply retroactively to the September 1, 2019 effective date. Importers may use an exclusion going forward, and also may seek duty refunds through U.S. Customs and Border Protection. USTR has set a uniform expiration date of September 1, 2020 for List 4A exclusions, regardless of the date they are granted.

The exclusion process does not cover products on List 4B, which are scheduled to be assessed an additional 15 percent duty effective December 15, 2019. Cabinet officials have suggested the President may forgo increasing tariffs on List 4B products pending the outcome of ongoing negotiations with China to address IP violations, forced technology transfer and cyber intrusions.

The deal is agreed to in principle, but subject to “getting everything papered.” Other aspects of the deal include technology transfer, financial services, and intellectual property. Without any documentation or draft text it remains unclear what exactly these additional provision will entail.

The agreement has had the effect of reducing tensions between the two countries. With President Trump facing an election in 2020 and China under scrutiny for its slowing economy, traction on the trade front, limited as it may be, may be seen as politically necessary by President Trump and Chinese President Xi Jinping. That said, there are virtually no details available on what is in the agreement, and how or whether the Chinese would implement any changes in their domestic law. Indeed, it was the unwillingness of hard line officials in China to commit to certain changes in law that derailed a draft agreement a few months ago. Skeptics on the U.S. side are wondering as well whether the written agreement will be much more than a commitment to purchase more farm goods, leaving the hardest issues to be resolved at a later point.

Absent from the agreement is any change regarding the Trump Administration’s treatment of Huawei, which USTR Lighthizer stated was a “separate process,” or a decision to rescind the tariff increases currently scheduled for mid-December. Treasury Secretary Steven Mnuchin said Monday that he expects the tariffs to be imposed if there is no agreement at that point.

President Trump estimates this “phase one” agreement will be papered in the next four or five weeks.

On August 1, 2019, the president announced that a 10 percent tariff will go into effect on the remaining $300 billion worth of imports from China, which we previously blogged about here. The president previously delayed imposing tariffs on “List 4” goods after a conversation with the Chinese president at the G20 leaders summit back in June. This new announcement comes on the heels of talks regarding a trade deal between U.S. and Chinese government officials last week in Shanghai. Previous reports indicated that a deal was close to being finalized several months ago, however, the president has stated that the Chinese decided to re-negotiate the deal prior to signing. Following last week’s dialogue, the two governments agreed to meet again in September to continue discussing a potential trade deal. This means, of course, that absent a change to that timeline there is not another opportunity for the two governments to negotiate prior to the imposition of new duties on September 1.

In response, China announced on Friday that it would impose counter-measures if and when the additional tariffs go into effect on September 1. While no details about the nature of counter-measures was mentioned, a statement released by the Chinese Ministery of Commerce indicates that the Chinese believe that additional tariffs is a violation of the agreement between the two countries’ presidents at the G20 summit in June. Then today, China devalued the yuan to a significantly low point (letting it fall below its 7-to-1 ratio with the U.S. dollar) in what is certainly a response to last week’s announcement regarding the new tariffs. The Chinese government has also reportedly asked Chinese state-owned companies to discontinue purchasing U.S. agricultural products, an issue that is wrapped up in the ongoing U.S.-Chinese trade deal negotiations. Given that the administration has only announced but not yet imposed the new wave of tariffs, this may not be the end of China’s retaliatory measures.

Section 301 tariffs on List 3 originally went into effect in September 2018 at a level of 10%. On March 10, 2019, the List 3 tariffs increased to 25%. That increase triggered an exclusion process, which opened June 30, 2019. The exclusion process, administered by the Office of the U.S. Trade Representative (“USTR”), will be similar to the exclusion request procedures implemented with respect to tariffs on List 1 and List 2 imports. Requests for a Section 301 tariff exclusion for a particular imported good from China may be submitted any time through September 30, 2019. Interested parties may object to the request within 14 days. The original requesting party may then submit a reply 7 days thereafter. USTR will evaluate each exclusion request based on several considerations, including whether the product is only available from China; whether a comparable product is available in the United States or from a third country; whether the party requesting the exclusion has tried to source the product from the United States or a third country; whether the imposition of the Section 301 tariff will cause “severe economic harm” to the party requesting the exclusion; and whether the product is strategically important to China.

On May 13, 2019, the Administration announced plans to impose Section 301 tariffs on the remaining Chinese imports, valued at $300 billion (“List 4”). USTR held public hearings on the proposed list of covered goods in mid-June. On June 29, 2019, however, President Trump announced that, as the result of negotiations with President Xi Jinping of China, the imposition of tariffs on List 4 goods will be halted for now.

The Office of the United States Trade Representative (USTR) released a draft notice and proposed tariff list (subsequently published in the Federal Register on May 17) outlining a process for public comment on its latest tariff proposal. The proposed list covers a wide range of products, from food and agriculture to books and electronics to clothing and footwear – but excludes pharmaceuticals and certain related inputs, select medical goods, rare earth materials, and critical minerals. Additionally, USTR indicated that product exclusions granted on prior tranches will not be affected

As with previous tranches, USTR is soliciting written comments and is planning a public hearing for those wishing to provide feedback on any of the potential covered products. The hearing is scheduled for June 17, 2019.

Key dates include:

• June 10, 2019: Due date for filing requests to appear and a summary of expected testimony at the public hearing
• June 17, 2019: Due date for submission of written comments
• June 17, 2019: The Section 301 Committee will convene a public hearing; as with previous tranches, the hearing could span several days
• Seven days after the last day of the public hearing: Due date for submission of post-hearing rebuttal comments

The proposed tariffs are part of the Trump administration’s response to USTR’s investigation under Section 301(b)(1) of the Trade Act of 1974 regarding China’s acts, policies and practices related to intellectual property and forced technology transfers and come more than five months after Presidents Trump and Xi announced a trade “truce” to work toward a comprehensive agreement. The administration has cited China’s backtracking from previously agreed-upon commitments for its latest tariff actions. As mentioned, the most recent announcement follows prior USTR action last year on a combined $250 billion worth of Chinese imports.

All merchandise entered after June 1^st will be subject to the 25% rate.

The U.S. Trade Representative also issued a Notice modifying the implementing instructions regarding merchandise in foreign trade zones. According to the May 10^th Notice, merchandise subject to the Section 301 third tranche and admitted into a foreign trade zone in “privileged foreign” status will retain that status and will be subject, at the time of entry for consumption (i.e. entered into the commerce of the U.S.) to the additional duty rate that was in effect at the time of FTZ admission of the goods. Therefore, merchandise entered into a foreign trade zone as privileged foreign status prior to May 10^th will be locked into the 10% rate.

Additionally, President Trump tweeted on Sunday that the remaining $325 billion in Chinese imports not currently subject to Section 301 tariffs would be hit with a 25% tariff “shortly.” Combined, the two actions would subject virtually all Chinese imports to the United States to a 25% tariff.

The President’s weekend announcement followed last week’s visit to Beijing by Treasury Secretary Steven Mnuchin and Ambassador Lighthizer. A Chinese delegation led by Vice Premier Liu He was scheduled to travel to Washington this week, for what many thought would be a final round of negotiations ahead of a U.S.-China trade deal. Currently, meetings remain scheduled for Thursday and Friday, although there has been speculation about their status following the President’s tweets (e.g., it is uncertain whether Liu He will still lead the delegation).

U.S. officials have indicated that the two nations have made substantial progress since the trade truce and tariff freeze announced by President Trump and Chinese President Xi Jinping on December 1, 2018. In recent days, however, the Administration has been frustrated by China’s apparent back-pedaling on previously agreed-upon commitments as negotiations get more specific ahead of a final agreement.

Already, $50 billion in Chinese imports are subject to a 25% tariff under the administration’s actions pursuant to its Section 301 Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation. President Trump has twice delayed previously-scheduled increases to 25% for the $200 billion in imports now subject to a 10% tariff.

Whether enough progress can be made this week to hold off the President’s threatened tariff increase remains to be seen.

Countries that are identified as falling short with respect to protection, enforcement, and market access for IP-intensive industries are listed in the Special 301 Report in one of three ways. Countries with the most egregious acts, policies, or practices that have the greatest adverse impact on U.S. companies and products are listed Priority Foreign Countries (“PFC”). PFCs are subject to investigation and potential trade sanctions such as tariffs, quotas, or other measures. A country may not be listed as a PFC under the law if it is entering into good faith negotiations or making significant progress toward providing and enforcing IP rights. Notably, USTR may designate a country as a PFC even if that country is in compliance with the World Trade Organization’s IP agreement – the Agreement on Trade-Related Aspects of Intellectual Property Rights, or the TRIPS Agreement.

Countries whose conduct does not warrant PFC designation may instead be placed on USTR’s Priority Watch List or Watch List. USTR develops action plans and engages in bilateral discussions with countries on the Priority Watch List to resolve the problems identified (with the threat of designation as a PFC if the issues are not resolved). Watch List countries, with significant but less serious IP protection and enforcement problems, also face the risk of being elevated to the Priority Watch List if improvements are not made over time. USTR may also conduct Special 301 “out-of-cycle” reviews that allow for heightened engagement to address positive or negative developments in the bilateral negotiation process with a country.

USTR included 36 trading partners in its 2019 Special 301 Report, but did not identify any Priority Foreign Country. Countries listed on the Priority Watch List are Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Saudi Arabia, Ukraine, and Venezuela. The Watch List countries and a link to the full report can be found here.

There were several notable developments in this year’s report. On a positive note, Canada and Colombia moved from the Priority Watch List to the Watch List. USTR recognized the important steps taken by Canada toward improved IP protections as part of the U.S.-Mexico-Canada Agreement (“USMCA”), the terms of which address enforcement against counterfeits, inspection of goods in transit, transparency with respect to new geographical indications, national treatment, and copyright term (we previously addressed the IP provisions of the USMCA here). USTR, however, remains concerned about Canada’s IP regime with respect to innovative pharmaceuticals and exceptions added to its copyright law. Colombia has also made significant progress toward copyright reform, including the passage of legislation that included an extended protection term and stronger enforcement measures. Colombia’s efforts were recognized in a 2018 out-of-cycle review that focused on Colombia’s implementation of certain provisions of the United States-Colombia Trade Promotion Agreement.

This year’s Special 301 Report also added Saudi Arabia to the Priority Watch List and Paraguay to the Watch List. According to USTR, Saudi Arabia has failed to address long-standing and deteriorating IP concerns regarding the lack of IP and unfair commercial use protection for innovative pharmaceutical products and online piracy. After a four-year break from being specifically identified in the report pursuant to a Memorandum of Understanding with the United States, Paraguay has returned to the Watch List. USTR found that Paraguay has failed to meet key commitments made in the MOU, does not provide adequate or effective border enforcement against counterfeit and pirated goods, and, in fact, remains a “major transshipment point” for such goods.

The deadline for public comments for consideration in the next Special 301 Report and public hearing date are typically announced at the end of each year, with the report usually released the following April.