This is an update to our March 27 Client Alert regarding the March 22 executive memorandum that directed the United States Trade Representative (USTR) to identify products to be subject to increased tariffs following the USTR section 301 investigation into China’s trade practices.
Further to the president’s directive, USTR released on April 3 a notice (which will be published in the Federal Register) in which it proposes an additional 25% ad valorem duty on an extensive list of Chinese-origin products. The proposed duties seek to eliminate several of China’s policies and practices that USTR determined are “unreasonable or discriminatory and burden or restrict U.S. commerce,” including forced technology transfers, investment in and acquisition of assets to obtain US intellectual property and technology, and theft of US intellectual property.
According to the notice, USTR utilized the following methodology to identify products subject to the proposed tariff:
Trade analysts from several U.S. Government agencies identified products that benefit from Chinese industrial policies, including Made in China 2025. The list was refined by removing specific products identified by analysts as likely to cause disruptions to the U.S. economy, and tariff lines that are subject to legal or administrative constraints. The remaining products were ranked according to the likely impact on U.S. consumers, based on available trade data involving alternative country sources for each product. The proposed list was then compiled by selecting products from the ranked list with lowest consumer impact.
The list of products to be subject to the additional 25% duty is extensive and covers goods in a number of different industries. Products are identified by eight-digit tariff items, many of which fall in Chapters 84, 85 and 90 of the Harmonized Tariff Schedule of the United States. Some of the covered products include:
- Organic chemicals, many of which appear to be active pharmaceutical ingredients
- Pharmaceutical products
- Iron, steel, and aluminum
- Turbines, engines, motors, and aerospace products
- Pumps, compressors, and various types of production machinery and equipment
- Construction and agricultural equipment
- Printing machinery
- Textile-related machinery
- Various types of machine and hand tools
- Computer-related equipment and accessories
- Electrical equipment, including transformers
- Measuring and checking instruments
USTR estimates that the 2018 trade value of the listed items amounts to approximately $50 billion, which it believes is an appropriate level given the harm to the US economy and to eliminate China’s harmful trade practices.
Public Comments and Hearing
Given the high rate of the proposed duty and the wide range of products that will be subject to the additional duty, affected companies may want to consider filing comments. USTR is accepting written comments on any aspect of its proposal, including the amount of the duty, the specific products subject to increased duties, and whether the aggregate level of trade to be covered by the duties is appropriate. Written comments must be submitted to USTR no later than May 11, 2018. USTR has included detailed guidance for written submissions in its notice. Post-hearing rebuttal comments may be submitted through May 22, 2018.
The Section 301 Committee will hold a public hearing at the US International Trade Commission in Washington, DC on May 15, 2018. Parties wishing to participate in the hearing must submit an electronic request to appear at the hearing no later than April 23, 2018 via http://www.regulations.gov/. Requests must include a summary of testimony and may include a pre-hearing submission. Remarks at the hearing will be limited to five minutes. Additional requirements for requests are indicated in USTR’s notice.
What Happens Next?
China has already announced that it will respond proportionately by imposing an additional 25% duty on 106 US products, to include soybeans, whiskey, and automobiles. A complete list (in Chinese and English, with tariff numbers, prepared by the US-China Business Council and used with their permission) of the US products subject to the additional 25% duty is available here. These duties will be in addition to China’s recently implemented retaliatory tariffs on over $600 million in imports of a number of US-origin products, including pork, nuts and ethanol, in response to the section 232 tariffs on imports of steel and aluminum.
Given the timeline for public comments and the public hearing, it is possible that the proposed section 301 tariffs will be implemented as early as this summer. Though the US is proceeding with the section 301 tariffs, negotiation with China may still be possible. Treasury Secretary Mnuchin has made statements to suggest that discussions with Chinese officials are on-going and it is being reported that Secretary Mnuchin and Trade Representative Lighthizer are in negotiations to reduce Chinese tariffs on US automobile imports and open China’s financial markets to US companies.
We will continue to monitor this matter and provide updates on related developments. In the meantime, if you would like to discuss these issues further, Baker McKenzie has a deeply experienced multi-jurisdictional international trade team advising clients on this matter. Please contact Ted Murphy, Rod Hunter, Miguel Noyola or Meredith DeMent. The above was authored by Ted Murphy and Meredith DeMent.