On October 4, 2021, United States Trade Representative (USTR) Katherine Tai unveiled the contours of the Biden administration’s long-awaited trade policy with respect to China.
As hoped for among many in the U.S. business community (and members of both parties on Capitol Hill), Ambassador Tai announced that USTR will initiate a new, targeted process to exclude certain Chinese-origin goods from existing Section 301 tariffs. Ambassador Tai provided no details concerning the timing of the exclusion process. Nevertheless, she did indicate that it could cover new product exclusion requests. No mention was made in her speech, however, on whether the exclusions would be retroactive.
At the same time, Ambassador Tai laid the groundwork for the continued — and possibly heightened — use of U.S. and international trade tools as a means of “chart[ing] a new course” in the U.S.-China trade relationship and implementing a trade policy that, “above all else,” prioritizes U.S. economic interests. To that end, she noted the Biden administration’s intention to use the “full range” of its existing trade tools (including, possibly, the initiation of a new Section 301 investigation against China) and to develop “new tools” as warranted.
Our team has broken down these developments and what they mean for U.S. importers and companies.
Renewal of Targeted Section 301 Exclusion Process
As noted in our previous client alert, the original Section 301 exclusions had a limited life span, and importers or affected parties had to apply to USTR to extend their exclusions prior to their expiration. USTR granted limited extensions and, as a result, most exclusions were available for less than a year from the date they were granted. At present, only a handful of exclusions deemed to be medical care products and personal protective equipment (PPE) needed to address the COVID-19 outbreak remain active.
As a nod to the broad support on Capitol Hill and within the U.S. business community for a renewal of Section 301 tariff relief, Ambassador Tai announced that USTR will initiate a new “targeted” process for excluding certain Chinese-origin imports from the existing Section 301 tariffs. According to a Fact Sheet, the renewed exclusion process is intended to “to mitigate the effects of certain Section 301 tariffs that raised costs on Americans.”
Notably, Ambassador Tai offered no details as to the potential scope and timing of the new exclusion process. Instead, she noted that the Biden administration is “open to the potential for additional exclusion processes, as warranted.” Moreover, uncertainty still exists as to whether the Biden administration supports (a) the reinstatement of all Section 301 exclusions previously granted and published by USTR covering products across Lists 1, 2, 3 and 4A; and/or (b) a retroactive duty recovery for U.S. importers and companies that paid Section 301 tariffs on goods that were previously subject to Section 301 exclusions that expired on or before December 31, 2020. Both measures were included in the United States Innovation and Competition Act, a bill passed by the U.S. Senate in June. Additional details surrounding a renewed exclusion process is expected in the coming weeks.
Utilizing New and Existing Tools To Challenge China
Despite USTR’s plan to provide tariff relief through a renewed Section 301 exclusion process, Ambassador Tai made clear that the Biden administration’s long-term vision is to “realign” U.S. trade policy toward China — a realignment that likely requires a continuation (or even an escalation) of trade policies initiated under the Trump administration.
As a starting point, Ambassador Tai noted her intent to engage in “frank conversations” with her Chinese counterpart regarding China’s performance under the so-called “Phase One deal,” a bilateral U.S.-China trade agreement negotiated under the Trump administration and set to expire at the end of 2021. Specifically, the Phase One deal includes mutual and wide-ranging commitments, including, on the part of China, heightened protection for intellectual property and technology transfer; increased purchases of U.S. products; and improved market access for the agriculture and financial services sectors. Although Ambassador Tai stopped short of specifying the commitments to which China has failed to meet, it is expected that purchasing obligations (particularly those for U.S. agricultural goods) and improved market access for U.S. imports are at the top of the list.
But more broadly, Ambassador Tai warned that with or without Chinese satisfaction of its commitments under the Phase One deal, that agreement did not “meaningfully address the fundamental concerns” the U.S. has with China’s trade practices — including what she described as China’s “state-centered and non-market trade practices.” As such, Ambassador Tai said she intends to raise these “broader policy concerns” in conjunction with her Phase One discussions; while suggesting that any failure on the part of China to meet its commitments under the Phase One deal or meaningfully address the U.S.’s broader policy concerns will be met with a decisive response.
In addition to confirming the Biden administration’s intent to use the “full range” of existing trade tools against China, Ambassador Tai noted that the administration stands ready to develop “new tools” in conjunction with Congress to defend U.S. economic interests. When asked to state whether the Biden administration intends to launch a new Section 301 investigation on Chinese-origin goods — as is currently being reported — Ambassador Tai did not rule it out, noting that “it depends” on many factors, including the efficacy of existing trade tools and China’s actions in the coming months. Finally, Ambassador Tai emphasized the Biden administration’s commitment to working with allies to “shape the rules for fair trade in the 21st century” and “facilitate a race to the top for market economies and democracies.”
Through USTR’s latest statements, the Biden administration’s trade policy toward China is continuing to crystallize.
In the near-term, it is increasingly evident that U.S. importers and companies could soon (again) benefit from “targeted” Section 301 relief, whether in the form of new exclusion opportunities or the renewal of prior exclusions. Importers should be prepared to identify those Chinese-origin products for which new tariff exclusions may be requested, along with demonstrable support as to why continued sourcing in China is necessary and why such products are unavailable domestically or from other countries.
While some tariff relief for selected products may be on the horizon, it also appears clear that the Biden administration has no plans to meaningfully dispense with the Section 301 tariffs altogether. Indeed, recent reporting indicates that Biden administration officials have already signaled their unwillingness to negotiate a “Phase Two” deal with China that was originally intended by the Trump administration to address more structural issues with the Chinese economy. These reports, coupled with the latest statements from USTR, arguably suggest that the White House is anticipating an escalation in U.S. trade measures against China in the days ahead, including, potentially, a new Section 301 investigation and a resulting expansion of Chinese-origin goods subject to U.S. tariffs.
For More Information
In the months ahead, the bilateral and multilateral trade discussions in relation to U.S. trade policy with China will continue to garner significant national and global attention. Faegre Drinker will continue to closely monitor these developments and provide timely updates as warranted. If you have any questions about these matters, please contact any member of Faegre Drinker’s customs and international trade team.