By Susan Kohn Ross and Kevin Rosenbaum

The U.S. Trade Representative (“USTR”) has prepared for publication a Federal Register Notice (“Notice”) that identifies a list of approximately 1,300 tariff lines on which it proposes to levy additional duties of up to 25% on goods made in China. The pre-published copy of the Notice was released yesterday, April 3, 2018, and includes an Annex identifying the products on which USTR proposes to assess the additional duties. The notice can be found here.  According to an accompanying press release, the sectors targeted for the proposed tariffs “include industries such as aerospace, information and communication technology, robotics, and machinery.” The press release further indicates these tariffs are intended to combat China’s “industrial plans, such as ‘Made in China 2025.’” The tariffs, therefore, are intended to “target products that benefit from China’s industrial plans while minimizing the impact on the U.S. economy.”

The Notice announces a public hearing and an opportunity for interested parties to submit written comments. The public hearing will take place on May 15th; interested members of the public must file requests to appear at that hearing, and a summary of expected testimony as well as any other pre-hearing submissions are due by April 23rd. Written comments must be filed by May 11th, and any post-hearing rebuttal comments are due May 22nd.

This action stems from the Trump Administration’s Section 301 investigation into China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. In particular, USTR investigated China’s actions regarding forcing U.S. firms to transfer their technology and intellectual property to Chinese companies, engaging in discriminatory practices regarding licensing and technology contracts, acquiring U.S. companies to obtain sensitive technologies, and supporting or participating in cyber intrusion into U.S. commercial networks to access sensitive U.S. intellectual property and confidential business information.

Section 301 of the Trade Act of 1974 was enacted at 19 U.S.C. 2411 and provides for mandatory action under § 2411(a)

(1) If the United States Trade Representative determines … that—

…

(B) an act, policy, or practice of a foreign country—

…

(ii) is unjustifiable and burdens or restricts United States commerce;

In light of affirmative findings, pursuant to 19 U.S.C. 2411(c)(1)(B), USTR is empowered to: “… impose duties or other import restrictions on the goods of, and, notwithstanding any other provision of law, fees or restrictions on the services of, such foreign country for such time as the Trade Representative determines appropriate;…”

The result of that investigation has been well-publicized in the general press. USTR found that China’s acts, policies, and practices regarding each of the mentioned activities was unreasonable or discriminatory and burdened or restricted U.S. commerce. USTR’s findings, published on March 22nd, can be found here. Accompanying those findings, the President issued a Memorandum directing USTR to take certain measures, including increasing tariffs on goods from China, to address China’s violations of Section 301. On March 23rd, USTR also initiated a dispute against China at the World Trade Organization to address China’s discriminatory practices regarding licensing and technology contracts.

The Notice provides some insight into how the USTR determined the product list:

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 value of the list is approximately $50 billion in terms of estimated annual trade value for calendar year 2018. This level is appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China’s harmful acts, policies, and practices.

While the Notice requests comments regarding “any aspect of the proposed action,” it identifies the following issues:

• The specific products to be subject to increased duties, including whether products listed in the Annex should be retained or removed, or whether products not currently on the list should be added.
• The level of the increase, if any, in the rate of duty.
• The appropriate aggregate level of trade to be covered by additional duties.

Wasting no time, China has already announced the list of products against which it will retaliate that is said to involve $50 billion of U.S. products, including cars, airplanes and soybeans, characterizing its actions as securing a “truce.” See here for that list. Unlike the list of 1,300 products identified by USTR, reports indicate that China is targeting a narrower range of goods, purportedly chosen because they are high profile valuable U.S. exports, and also to negatively impact U.S. states that supported President Trump. China has indicated the timing of the implementation of these proposed additional tariffs will depend on negotiations between the United States and China. In addition, on April 4th, China initiated a World Trade Organization dispute over the proposed tariffs, stating the “Section 301 investigation is an intentional and gross violation of the WTO’s fundamental principles of non-discrimination and bound tariffs.”  Stay tuned for more developments!