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  • March 06, 2019

    How a Forgotten Statute Came to Dominate U.S. International Trade Policy in 2018

    In 2018, the Trump Administration resurrected a 40-year-old statutory provision, resulting in increased tariffs on a diverse array of products – from machinery to garlic. Andrew T. Schutz discusses the past and present use of Section 301 of the Tariff Act of 1974.

    Andrew T. Schutz

    With the longest government shutdown in U.S. history thankfully behind us in 2019, attention once again turns to the Trump Administration’s blitzkrieg on international trade.

    For international trade law practitioners, 2018 was a banner year, and the year trade lawyers will remember as the year that the rest of the Bar (and the public) suddenly understood what they do for a living.

    The year was punctuated by the Trump Administration’s resurrection of long dormant and unused statutes as a manner in which to effectuate trade policy – Section 301 of the Tariff Act of 1974 and Section 232 of the Trade Expansion Act of 1962.

    Andrew T. Schutz Andrew T. Schutz, American University 2005, is a partner with Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP in Milwaukee, where he represents clients in customs and international trade matters.

    These trade actions ignited the trade war on China. The resulting increased tariffs on imported goods from China and elsewhere have wreaked financial havoc on both U.S. importers and U.S. manufacturers alike.

    This article focuses on one of these statutes: Section 301. However, the Section 232 duties put in place last year on steel and aluminum products have been similarly disruptive.

    Affected parties can seek exclusions from Section 232 duties, which the U.S. Department of Commerce has been granting with some frequency. See the website for the U.S. Department of Commerce Bureau of Industry and Security for information on steel and aluminum issues.

    Section 301 of the Tariff Act of 1974

    Section 301 of the Tariff Act of 19741 authorizes the U.S. Trade Representative (USTR) to investigate foreign government policies or practices that:

    • deny rights of U.S. persons and interests under international agreements; or

    • for unreasonable, unjustifiable, or discriminatory foreign government practices that burden or restrict U.S. commerce.2

    The authorization is very broad, and extends to any “unreasonable” practice that “burdens” U.S. commerce. The USTR must first seek consultations with the foreign government whose acts, policies, or practices are the subject of the investigation. If there is no resolution, the USTR is authorized to, among other things, “impose duties.”3

    The law does not require authorization from the World Trade Organization (WTO) to impose tariffs and, thus, the president can act unilaterally. This is precisely why the Trump Administration has chosen this tool.

    Historically, however, it had been U.S. practice to invoke the WTO dispute settlement procedures, and obtain WTO authorization before imposing tariff measures against specific countries.

    Indeed, the WTO has already ruled that taking any such actions against other WTO member countries without first securing approval under the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes is, itself, a violation of the WTO Agreement.4 The Section 301 duties put in place against China last year are currently being challenged by China at the WTO. A panel was established at the Dispute Settlement Body in January 2019.5

    Section 301 in History

    Between 1974 and today, the U.S. conducted 122 Section 301 investigations. The law was used most frequently in the 1980s during the Reagan Administration, when 49 investigations took place. The current U.S. Trade Representative, Robert Lighthizer, served in the Reagan Administration, and it is no coincidence that Ambassador Lighthizer has been the architect of Section 301’s recent resurgence.

    Section 301 continued to be used frequently in the 1990s, though that changed when the WTO was created. Once the WTO was created, an effective dispute mechanism was put in place to cover not only agreements on the trade in goods6 but also other priority areas. This made the use of Section 301 investigations unnecessary. Indeed, many of the Section 301 investigations initiated in the 1990s ultimately resulted in WTO-based resolutions.

    Other than the recent Section 301 investigation against China last year, entitled Concerning China’s Acts, Policies and Practices Related to Technology Transfer, Intellectual Property, and Innovation, there has been only one new Section 301 investigation since 2001.

    Products Subject to Retaliatory Duties: Lists 1, 2, and 3

    In 2017, the Trump Administration requested that the USTR initiate a Section 301 investigation on China’s intellectual property practices.7

    In March 2018, the USTR issued a report, finding that China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation are unreasonable and discriminatory, and that they burden or restrict U.S. commerce.

    In response to this report and at the direction of the president, the USTR created three lists (or “tranches”) of products that would be subject to retaliatory duties, known commonly as List 1, List 2 and List 3.8 The punitive Section 301 duties were put in place on products contained on each of these lists, after a public comment period and a hearing.

    List 1

    List 1 covers $34 billion in products and 818 tariff lines, largely involving machinery, parts, and components of Chapters 84 and 85 of the U.S. Harmonized Tariff Schedule (HTSUS), as well as a wide range of vehicles and vehicle parts and miscellaneous other industrial products.

    Duty: 25 percent
    Effective Date: July 6, 2018
    Exclusion Process: The USTR established an exclusion process whereby companies could receive exclusions from the Section 301 duty on their products if they could demonstrate:

    • that the product was only available in China;

    • that the imposition of additional duties would cause severe economic harm to the requester or other U.S. interests; and

    • that the product was not strategically important or related to “Made in China 2025” or other Chinese industrial programs.

    The exclusion requests were due by Oct. 9, 2018. More than 8,000 exclusion requests were filed, and, thus, far 3,660 have been denied and 985 granted.

    List 2

    List 2 covers $16 billion in products and 284 tariff lines, including certain chemicals, plastics, and metal articles, as well as additional articles of machinery and transportation (and other miscellany).

    Duty: 25 percent
    Effective Date: Aug. 23, 2018
    Exclusion Process: A similar exclusion process was established as with List 1, with requests due on Dec. 18, 2018. More than 3,000 exclusion requests were submitted, and USTR has not acted on any of them.

    List 3

    List 3 covers $200 billion in products and 6,000 tariff lines that include meat, fish and foods; tobacco; chemicals; rubber goods; leather (but not footwear); luggage and bags; certain apparel items; articles of wood (including paper); textiles; carpets; cutlery; metals; machinery; motor vehicle parts; and many other items.

    Duty: 10 percent / 25 percent
    Effective Date: 10 percent until March 1, 2019, and then 25 percent.
    Exclusion Process: No exclusion process established.

    What’s Next?

    • The Trump Administration is currently in high-level trade talks with China in an attempt to resolve some of the issues outlined in the USTR’s Section 301 report. The talks seem to be productive and moving in the right direction. The president recently announced that the March 1, 2019, deadline, and the 25 percent tariff increase on List 3 products, has been delayed indefinitely. China, however, has indicated in the press that no deal will be possible unless all Section 301 duties are removed.

    • In a Joint Explanatory Statement that accompanied legislation signed on Feb. 15, 2019, Congress directed the USTR to establish an exclusion process for List 3 by March 17, 2019. This Joint Explanatory Statement does not constitute a binding requirement on the USTR, as it is not formally part of the bill that was signed by the president. The exclusion process for List 3 would similar to that of List 1 and 2.

    • While there are no additional Section 301 investigations rumored, Ambassador Lighthizer recently stated that the provision could be used to enforce certain aspects of the U.S.-Mexico-Canada Agreement.

    • Commerce recently concluded its Section 232 investigation on automobiles and automobile parts and whether the imports of these products threaten national security. The confidential report was delivered to the president on Feb. 17, 2019, along with recommendations. The contents of the report are unknown, although it is believed to recommend that a 25-percent duty be put in place on these products. The president has 90 days to make a decision, though this can be extended further.

    • Interested parties have challenged the president’s imposition of Section 232 duties on steel at the U.S. Court of International Trade in American Institute for International Steel, Inc. v. United States.9 The case seeks

      a declaratory judgment that section 232 of the Trade Expansion Act of 1962, as amended, 19 U.S.C. § 1862 (“section 232”), is unconstitutional as an improper delegation of legislative power to the president, in violation of Article I, section 1 of the Constitution and the doctrine of separation of powers and the system of checks and balances that the Constitution protects.

      Oral argument was held before a three judge panel on Dec. 19, 2018, and decision is expected soon.

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    1 19 U.S.C. § 2411, et. seq.

    2 19 U.S.C. § 2411 (a) & (b)

    3 Id.

    4 See United States - Sections 301-310 of the Trade Act of 1974, WTO Panel Report, WT/DS152/R, adopted Jan. 27, 2000, paras. 7.38-7.39.

    5 DS435 United States — Tariff Measures on Certain Goods from China.

    6 Until 1995, the General Agreement on Tariffs and Trade (GATT), the precursor to the WTO, only covered trade in goods. Internationally-accepted norms for trade in services, government procurement, international investment, intellectual property rights (IPR) protection, or anti-competitiveness practices mostly did not yet exist

    7 Initiation of Section 301 Investigation; Hearing; and Request for Public Comments: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 82 Fed. Reg. 40,213 (Aug. 24, 2017).

    8 See Presidential Memorandum on the Actions by the United States Related to the Section 201 Investigation.

    9 Ct. No. 18-152.


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