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First Set of Exclusions Set to Expire December 28, 2019

On October 28, 2019, the Office of the United States Trade Representative (USTR) announced plans to begin considering extensions of up to one year for certain previously-granted product exclusions from Section 301 tariffs on Chinese imports. From November 1 – November 30, USTR will accept comments for or against product exclusions that are set to expire December 28, 2019.

The relevant product exclusions were granted December 28, 2018 in USTR’s initial set of exclusions from Section 301 duties on Chinese imports that took effect July 6, 2018. The 25 percent tariff covered more than 800 tariff lines, representing approximately $34 billion in annual trade value. In its December 28 action, USTR granted exclusions for more than 1,000 specific products classified within a tariff-covered 8-digit HTSUS subheading.

USTR subsequently issued seven more rounds of product exclusions from its July 6, 2018 tariff action (all expiring one year from the date of publication in the Federal Register) and continues considering exclusion requests for subsequent tariff actions. While additional extension request opportunities are anticipated going forward, the current opportunity only covers exclusions granted on December 28, 2018.

As detailed in a draft Federal Register Notice, USTR will evaluate the possible extension of each exclusion on a case-by-case basis. USTR has indicated it will focus its evaluation on whether the product under consideration remains only available from China. USTR will also consider whether additional duties would result in severe economic harm to U.S. interests. Additionally, USTR has asked commenters to address:
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On January 29, USTR Ambassador Lighthizer delivered to Congress a list describing changes to U.S. laws that would be required to fulfill obligations agreed to under the United States Mexico Canada Agreement (USMCA).  This action, taken in accordance with procedures set forth in the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (also known as Trade Promotion Authority or TPA), brings the agreement one step closer to Congressional consideration by identifying the legal changes that must be included in an implementing bill to be voted on by legislators to approve the underlying agreement.

The changes in existing law are largely customs related, the bulk of which involve implementing market access commitments, including lowering tariffs and creating new tariff rate quotas, as well as updating provisions related to duty drawback, merchandise processing fees and customs enforcement.  For example, while USMCA preserves duty free treatment for industrial goods and textiles under NAFTA, the United States and Canada negotiated additional access on certain agricultural products.  Accordingly, modifications must be made to eliminate U.S. tariffs on such products from Canada, including dairy, sugar, sugar-containing products, peanuts and peanut products and cotton.

Changes are also required to implement rules of origin, origin procedures and customs measures to provide preferential tariff treatment for eligible goods.  The most significant and notable changes involve automotive goods.  Necessary legal revisions will end NAFTA’s tracing and “deemed originating” requirements and increase the required regional value content for vehicles and vehicle parts.  Changes are also needed to implement a new “Labor Value Content” rule, which for the first time requires that a minimum amount of car content
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Background:
On Friday, July 6, 2018, the United States Trade Representative (USTR) announced a process for U.S. interests to obtain product-specific exclusions from tariffs on Chinese imports as a result of the U.S. investigation into, and response to, China’s IP practices (see attached Federal Register notice).  The duties, applied under Section 301 of the Trade Act of 1974, took effect on July 6 and cover an annual trade value of approximately $34 billion.  In imposing the new tariffs, USTR focused on “products identified as benefiting from China’s industrial policies, including the ‘Made in China 2025’ program.”

A complete list of products – covering 818 tariff lines – currently subject to the new tariffs (at a rate of 25%) is available here.  USTR will consider excluding a particular product within a subheading (but not the tariff subheading as a whole) from the tariffs.  Note that USTR is currently considering / accepting public comment on an additional 284 proposed tariff lines.  Once finalized, the additional tariffs will likely be accompanied by a similar exclusion process.

In announcing the exclusion process, USTR indicated it received comments that specific products “were only available from China, that imposition of additional duties on the specific products would cause severe economic harm to a U.S. interest, and that the specific products were not strategically important or related to the ‘Made in China 2025’ program.”  The new exclusion process was designed to address those concerns.

Criteria:
USTR will accept requests from all interested persons, including trade associations.  Each request must specifically identify a particular product and provide supporting data as well as the rationale for the exclusion request.  Entities wishing to exclude more than one product must submit a separate request for each product.
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The New York Times reported on March 20 that the United States was seeking to table a proposal in the NAFTA negotiations to limit the placement of consumer warnings on food packaging with respect to foods that are high in sugar, salt, or fat.  According to a copy of the negotiating document obtained by the Times, the U.S. proposal would prevent the use of any warning symbol, shape or color that “inappropriately denotes that a hazard exists from consumption of the food or nonalcoholic beverages.”

USTR Lighthizer confirmed the United States has concerns with warning and consumption labels used by trading partners at a March 21 hearing before the U.S. Ways and Means Committee on U.S. trade policy, including and the status of NAFTA negotiations.   During a line of questioning pursued by Rep. Lloyd Doggett (D-TX) inquiring specifically about the NYT article, Ambassador Lighthizer stated that while the United States was against obesity, it did not support the use of food label warning requirements “to create a protectionist environment.”  Separately, a USTR spokesperson emphasized that “the United States supports science-based labeling that is truthful and not misleading.”
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On February 14, Senators Gary Peters (D-MI) and Richard Burr (R-NC) jointly introduced the S. 2427, the Self-Initiations Trade Enforcement Act.  If enacted, the legislation would give the Department of Commerce greater leniency to self-initiate investigations of unfair trade practices that harm U.S.  producers by creating a permanent taskforce at the International Trade

The House of Representatives passed on January 16, 2018 a bill providing temporary duty relief on about 1,800 imported products that are not available or produced in the United States.  The Miscellaneous Tariff Bill Act of 2017 sailed through the chamber with a 402-0 vote, signaling overwhelmingly strong bipartisan support and proving there are still some things politicians can agree on.

The bill is the first product of a new process established through the American Manufacturing Competitiveness Act of 2016, which codified elements of the previous Congressional-led process. Among other things, the Act also tasked the non-partisan U.S. International Trade Commission with reviewing petitions for consistency against statutory criteria, coordinating an inter-agency
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The U.S., EU and Japan issued a joint statement at the 11th Ministerial of the World Trade Organization in Buenos Aires, pledging trilateral cooperation to combat a number of unfair market distorting and protectionist practices by third countries, including severe excess capacity, government-financed support, market-distorting subsidies, state owned enterprises, forced technology transfer, and local content requirements and preferences.

Though not mentioned by name, China was the widely-interpreted intended target of the message. All three countries are bearing the brunt of flooded steel and aluminum fueled by overcapacity in Chinese markets, and the U.S. and EU are denying China’s demand for market economy treatment based on numerous existing market distortion of the kind described in the joint statement.  Many of these practices were also the focus of negotiations under the Trans-Pacific Partnership, which the U.S. exited earlier in the year, and which also was aimed at shaping Chinese trade behavior. 
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The U.S. Department of Commerce self-initiated antidumping and countervailing investigations of common alloy aluminum sheet from China on November 28.  An accompanying fact sheet estimates dumping margins on the subject merchandise to be between 56.54 and 59.72 percent, and estimates a subsidy rate above de minimis.  Trade cases are typically initiated in response to petitions filed by a domestic industry alleging that dumped or unfairly subsidized goods are being exported to the U.S. market.  Self-initiation authority, however, can be exercised whenever the Secretary determines that a formal trade remedy investigation is warranted based on available information.

The Department’s use of self-initiation authority has been judicious and rare.  In an agency-issued press release Secretary Wilbur Ross stated, “{w}e are self-initiating the first trade case in over a quarter century, showing once again that we stand in constant vigilance in support of free, fair, and reciprocal trade.”  The Department further noted that it last self-initiated a countervailing duty investigation in 1991 on softwood lumber from Canada, and last self-initiated an antidumping duty investigation in 1985 on semiconductors from Japan. 
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