On May 22, 2024, the U.S. Trade Representative released a draft Federal Register notice containing the list of imported goods for which it proposes to increase Section 301 duty rates.  USTR also announced that it was considering an exclusion process by which U.S. manufacturers may request that “particular machinery used in domestic manufacturing be temporarily excluded from Section 301 tariffs.”  Finally, USTR has proposed 19 temporary exclusions for solar manufacturing equipment.

The announcement was silent with respect to existing Section 301 exclusions, which are currently set to expire on May 31, 2024. 

USTR has invited interested parties to comment on the proposed modification to the Section 301 measures by June 28, 2024, and intends to issue a list of specific questions commenters are invited to address by May 24, 2024. 

Proposed Duty Increases

As the Biden Administration previewed on May 14, 2024, USTR’s announcement affirms that the proposed Section 301 duty increases are intended to affect “targeted, strategic products” that align with the Administration’s efforts to shore up U.S. manufacturing and shift supply chains away from reliance on China.  Consistent with the Administration’s May 14 announcement, USTR has proposed to increase Section 301 tariffs for the following categories of products. 

The specific products are identified by the U.S. Harmonized Tariff schedule code in Annex A to USTR’s Federal Register notice released on May 22.  For goods subject to increase in 2024, USTR proposes an effective date of August 1, 2024.  Proposed increases for 2025 and 2026 would go into effect on January 1 of the corresponding year.

As noted above, USTR’s proposal claims to target “certain products from China in strategic sectors,” including lithium-ion batteries, electronic vehicles, solar power, steel, and aluminum, semiconductors, medical equipment and shipping.  These industries have long been at the heart of the Biden Administration’s efforts at supply chain diversification and bolstering U.S. manufacturing.  USTR confirmed in the Federal Register notice that the proposed tariff increases in these sectors include “products targeted by China for dominance, or are products in sectors where the United States has recently made significant investments.” 

USTR’s proposed tariff increases come in the wake of USTR’s long-awaited release on May 14 of a report detailing the results of its four-year review of the existing Section 301 measures.  As expected, the report finds that the Section 301 tariffs, which were imposed during the Trump Administration, have had some positive effect in shifting U.S. supply chains away from China.  However, the report also found ample opportunity to incentivize China to make further reforms in order to remedy the acts, policies, and practices related to technology transfer, intellectual property, and innovation found to have provided the basis for USTR to impose the Section 301 measures.  To that end, USTR states in the Federal Register notice that the proposed increases are intended to “enchanc[e] the effectiveness of the tariff actions[.]”

The timing of the release of USTR’s four-year review, and the announcement of proposed duty increases come as the 2024 Presidential election season heats up.  Both Presidential candidates, are beginning to put forth dueling visions for trade policy, particularly as it relates to China.  We expect to see additional trade-related announcements from the Biden Administration as the campaign season progresses.  

Exclusions

As mentioned above, USTR has proposed limited exclusions solely for imported equipment dedicated to U.S. manufacturing activity.  Unlike prior rounds of Section 301 exclusions, where the question of domestic availability was at issue, the most recent round of proposed exclusions are clearly aimed at incentivizing U.S. manufacturing and shifting supply chains away from China through alternative import sourcing. 

Notably, USTR has remained silent with respect to the fate of existing Section 301 exclusions, which currently are set to expire on May 31, 2024.  While these exclusions previously have been extended, the shift towards contemplating new exclusions only for domestic manufacturing equipment may signal that USTR is not considering further extension of the existing 301 exclusions.  To this end we note USTR’s statement from the last extension of the existing exclusions that the goal of the previous extensions were to “enable the orderly review of the exclusions consistent with statutory factors and objectives to identify in which cases additional time would enable shifts in sourcing to the United States or third countries.” 

The four-year review report largely leaves this question unanswered, and otherwise provides no further indication of the Administration’s position on further extending the existing exclusions. 

Opportunity for Comment

USTR will open a docket for public comment on May 29, 2024.  USTR has invited comments specifically on a broad range of topics, including the effectiveness of the proposed modifications to the Section 301 duties and their potential effect on the U.S. economy. 

Notably, the notice does not request comment on whether any goods should be removed from the proposed list.  However, USTR does request comments on whether each targeted product and sector is adequately covered by the proposed list.  This could mean that additional products may be added to the list just announced in response to public comments.  While it would be unusual for USTR to add specific products to the final list without issuing another proposed comment period, we cannot rule out the possibility of USTR doing so here.  It is also possible that public comments may lead to additional proposed increases in a future Federal Register notice. 

Regarding the proposed exclusions for domestic manufacturing machinery listed in Annex B to the Federal Register notice, USTR has requested comments on “whether Annex B omits certain subheadings” that should be included.  As such, USTR appears to have opened the door for requesting exclusions for additional machinery used in domestic manufacturing not specifically listed in the Federal Register notice.

In order to facilitate preparation of comments, USTR stated that it intends to post a copy of questions for the docket by May 24, 2024.  The questions will be available at this link to the USTR’s website.

The Husch Blackwell trade team is following this closely and will follow up with further information as we get it.  Please do not hesitate to contact us should you have any questions about the foregoing.