A Current Look into Section 301 Tariffs, Product Exclusions
The shifty economic and trade tensions have been high as the U.S. and China, the world’s largest trading partners, are in an ongoing tariff conflict.
President Trump has initiated three trade wars on China, including a global tariff on steel, tariff on European autos, and tariffs on Chinese imports.
In January 2020, the Phase One trade deal was signed by President Trump and Xi Jinping to de-escalate the ongoing trade war by calling for structural reform.
The agreement addresses concerns, barriers, and unfair practices of seven chapters, including intellectual property rights, technology transfer, food and agricultural products, financial services, transparent currency matters, expanding trade, and dispute resolution.These modifications are further outlined in USTR’s Fact Sheet.1
The U.S. Trade Representative launched an investigation under Section 301 of the Trade Act of 1974, P.L. 93-618, to examine China’s controversial policies on intellectual property, technology, and innovation in August 2017.
Based on the USTR’s investigation, the USTR determined the following of China’s trade policies as “unreasonable or discriminatory” under Section 301.
• Uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to force or pressure technology transfers from U.S. companies to a Chinese entity;
• Maintains unfair licensing practices that prevent U.S. companies from getting market-based returns for their intellectual property;
• Directs and facilitates investments and acquisitions that generate large-scale technology and IP transfer to support China’s industrial policy goals, such as the Made in China 2025 initiative; and;
• Conducts and supports cyber intrusions into U.S. computer networks to gain access to valuable business information.
To counteract China’s unfair trade practices, the USTR increased tariffs on Chinese products at $370 billion.
Under Section 301, companies may request “product-specific exclusions” from the tariffs. With an approval ratio of 33.8% and 37.4%, the USTR granted 10,814 and 2,869 exclusions from List 1 (machinery, manufacturing inputs, elevators, aircraft parts) and List 2 (soybeans, automobiles, chemicals).
List 3 (food, beverages, chemicals, wood, fabrics) and 4 (electronics, sports equipment, clothes, and more) have 30,285 and 8,782 pending exclusions.3
Companies affected by Section 301 China tariffs may not be aware that their imported products have been excluded but can utilize mitigation strategies.
These include to review granted exclusions for imported products and identify duty refund (Chapter 99), review product descriptions and tariff codes (HTSUS Chapters 1-97), review the country-of-origin of imported goods for compliance with customs rules, and explore valuation strategies to reduce the declared value of impacted products.
Section 301 Exclusion Request Process Instructions4
Section 301 Exclusion Request Form5