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1 1 (June 19, 2020)

handle is hein.crs/govdhyw0001 and id is 1 raw text is: June 19, 2020 Section 301: Tariff Exclusions on U.S. Imports from China In 2018, the U.S. Trade Representative (USTR) determined, pursuant to an investigation under Section 301 (Title III of the Trade Actof 1974, 19 U.S.C. § §2411-2420), that China's acts, policies, andpractices related to technology transfer, intellectual property (lIP), and innovation are unreasonable ordiscriminatory and burden orrestrict U.S. commerce. To counter themand obtain their elimination, the Trump Administration imposed, under Section 301, four rounds ofincreased tariffs on approximately two-thirds of U.S. imports from China. However, to avoid harmto U.S. interests, the USTRinstituted tariff exclusions for certain U.S. imports that would otherwise be subject to tariffs. This is the first time that the agencyhas established an exclusion requestprocess, and several Members of Congress have raised concerns about its implementation. In particular, some Members have questioned USTR's ability to pickwinners and los ers through granting or denying requests or have pushed for broad tariffrelief amid concerns about the negativeimpact of tariffs on the U.S. economy. Others, however, not wanting to undermine the use of Section 301 to address China's unfair tradepractices, have discouraged the USTRfromgranting tariff exclusions at all. To date, the agencyhas established an exclusion process for each of the four stages oftariffincreases under Section 301-allof which have now closed. The USTR's latest actionin response to the COVID-19 pandemic seems to indicate thatnew exclusions might be limited in scopeto medical supplies related to COVID-19, and not be aimed at providing broader tariff relief. In August 2017, longstanding concerns overChina's policies on iP, subsidies, technology, andinnovation led the USTR to launch an investigation-under Section 301 into those policies and their impact on U.S. stakeholders. The investigation concludedthat fourbroad policies orpractices justified U.S. action: (1) China's forced technology transfer requirements, (2) cyber-enabled theft of U.S. IP and trade secrets, (3) discriminatory andnon-market-based licensing practices, and (4) state-funded strategic acquisition ofU.S. assets. Subsequently, as part of its efforts to pressure China to change these practices, theUnitedStates imposed additional tariffs, of up to 25%, on certain U.S. imports from China under four separate actions (perLists 1,2, 3, and 4). During the Section 301 notice, hearing, and comment period on proposed tariff increases, theUSTRheard numerous U.S. stakeholders who expressed concerns about how additional tariffs could affect their businesses, as well as U.S. consumers. In response, for each Section 301 action regarding anew list of covered products, the USTR created a process wherebyinterestedparties could request that a particular product be excluded fromthe tariffs, subject to certain criteria. Title I of the Trade Actof 1974 does not outline a formal process for exclusions or require the USTR to establish one. The determination to do so appears to be solely atthe USTR's discretion. With the COVID-19 pandemic, the agency has recently prioritized the review ofexclusion requests concerning medical products, resulting in new exclusions for some personalprotective equipment (PPE) in short supply. Separately, the USTRrecently requested public comments on whether to remove additional products covered by any list that are relevant to the U.S. response to COVID-19. Figure I. Section 301 Exclusions Exclusion Requests :, Granted & Denied ::::Pending List N List 2 List3 L ist 3 iiiiiiiiiiiiiiiiiiiiiii ................================ Exclusions Granted HTSUS Sjxc , 17 714 0 270 42 949 18 63 0 8000 16000 24000 32OOO Source: CRS with information from the Office of the USTR. Notes: Figures may not reflect amendments to product specific exclusions. Sect' ion301 Tariff xhmonNocss The tariff exclusion process enabled interested parties- including law firms, trade associations, and customes brokers-to petition for an exemption fromthe Section 301 tariff increases for specific imports classified within a ten- digit Harmonized Tariff Schedule of the United States (HTSUS) subheading. The time window to submit new exclusion requests is now closed, but the USTR continues to review requests fromList 4 and is considering extensions of exclusions granted fromLists l and 2. While the USTR approved, on average, 36% ofrequests under the first two actions, the approvalrate under the third action was 5%. According to the USTR, all requests are evaluated on a case-by-case basis. Although it is not entirely clear to CRS how the process works internally, the agencyhas indicated that, in determining which requests to grant, it considers the following: (1) availability of the product in question from non-Chinese sources, (2) attempts by the importer to source the product fromthe United States or third countries, (3) the extent to which the imposition of Section 301 tariffs on the particular productwill cause severe economic harmto the importer or other U.S. interests, and (4) the strategic importance ofthe product to Made in China 2025 or other Chinese industrial pro grans. Past exclusions also have been granted for reasons that are thought to include, among others, U.S. national security interests and demonstrable economic hardship fromthe tariffs for small businesses. A A '2 xa S 1,k pgpg\\\ \\

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