U.S. Trade Representative Proposes to Increase Section 301 Duties on China-Origin Products

The Office of the United States Trade Representative (USTR) is proposing to increase the Section 301 duties on specific products in industries the Biden administration has determined to be strategic to the United States. The increased duties are scheduled to be phased in, with the first set of increases scheduled to go into effect August 1, 2024.  

USTR is also proposing to establish a new Section 301 product exclusion process for manufacturing equipment classified in certain subheadings of the Harmonized Tariff Schedule of the United States (HTS). Interested parties have the opportunity to submit comments on these proposals. The comment docket is open May 29 through June 28, 2024. In addition, USTR announced that the existing Section 301 product exclusions that were scheduled to expire May 31, 2024, will now expire on June 14, 2024, and a limited number of those exclusions are further extended through May 31, 2025.

I. Background

These developments stem from USTR’s four-year review of the Section 301 duties imposed by the previous administration. As we have discussed in this prior Sidley Update, the Trump administration imposed duties ranging from 7.5% to 25% on approximately $370 billion of China-origin products. In May 2022, the Biden administration initiated the statutorily required review of the effectiveness of those duties. On May 14, 2024, the administration published the results of its review in a 194-page report.¹  The high-level takeaways from the report are that while the initial Section 301 actions were effective in certain respects, increased duties are needed to (i) persuade China to change its behavior regarding forced technology transfer and intellectual-property-related issues (i.e., the behavior determined to be actionable in the original Section 301 investigation); and (ii) protect domestic investments made in U.S. industries determined to be strategic.

Accordingly, the President directed USTR to increase duties on certain strategic sectors and establish a new Section 301 product exclusion process for certain manufacturing equipment.²  On May 28, 2024, USTR published a Federal Register notice proposing these changes and requesting comments on the proposals.³ 

II. Additional Section 301 Duties on Products Strategic to The United States; Opportunity to Submit Comments

USTR is proposing to increase the Section 301 duties on $18 billion worth of China-origin imports into the United States. The duty increases proposed are as follows:

Whether a specific product is covered depends on the HTS subheading in which it is classified. The specific tariff subheadings covered by the proposed duty increases are listed in Annex A of USTR’s May 28th Federal Register notice, which is available here.

Certain of the subheadings identified in Annex A are broad. For example, Annex A includes subheading 8507.60.0020, HTS, which covers “Lithium ion batteries: Other.” This is the subheading in which companies may classify spare-part/replacement lithium-ion batteries used in various industries (e.g., consumer electronics). As a result, companies that import products that are even tangentially related to the sectors identified should review Annex A to determine whether any of their products are covered.

As for timing, the proposed increases for 2024 will be effective August 1, 2024, and the increases proposed for 2025 and 2026 will be effective January 1st of the corresponding year.

Companies that stand to be impacted should be evaluating how to mitigate the impact (e.g., finding non-China sources of supply) and/or submitting comments (discussed below).

USTR is soliciting comments regarding the proposed duty increases. Interested persons are invited to comment on various topics, including the effectiveness of the proposed modification in obtaining the elimination of China’s, acts, policies, and practices of concern; the effects of the proposed modification on the U.S. economy, including consumers; and whether the subheadings identified for each product and sector adequately cover the products and sectors included in the President’s direction to USTR. The deadline to file comments is June 28, 2024.

III. New Section 301 Product Exclusion Process for Certain Manufacturing Equipment; Opportunity to Submit Comments

Various types of manufacturing equipment and machinery from China are currently subject to the Section 301 duties imposed by the prior administration. USTR is proposing to establish a new Section 301 exclusion process, whereby companies can apply for product exclusions for manufacturing equipment classified in certain subheadings in Chapters 84 and 85 of the HTS. USTR refers to this as “the machinery exclusion process.” The HTS subheadings proposed to be eligible to participate in the exclusion process are listed in Annex B of the May 28th Federal Register notice (available here).

In addition, USTR is proposing to exclude certain solar manufacturing equipment from the Section 301 duties. Annex C of the May 28th Federal Register notice contains the list of product descriptions and HTS subheadings for the equipment covered by this proposal.

USTR is soliciting comments on these exclusion-related proposals. Commenters may address, among other things, whether the subheadings listed in Annex B should or should not be eligible for consideration in the machinery exclusion process and whether Annex B omits certain subheadings under Chapters 84 and 85 that cover machinery used in domestic manufacturing and should be included. As a result, companies that import manufacturing equipment from China should review Annex B to see whether they will have the opportunity to apply for an exclusion and, if not, consider participating in the comment process to advocate for the inclusion of additional subheadings. The deadline to file comments is June 28, 2024.

IV. Majority of Existing Section 301 Product Exclusions Now Scheduled to Expire June 14, 2024

As we reported previously, USTR conducted a process earlier this year for interested persons to comment on whether the 429 Section 301 product exclusions (initially approved by the Trump administration and extended by the Biden administration) should be extended further beyond their scheduled May 31, 2024, expiration date.

Last week, USTR announced that all of the existing 429 exclusions will be extended through June 14, 2024 (i.e., for two weeks), and that 164 of those exclusions are extended from June 15, 2024 through May 31, 2025. Thus, the majority of the existing exclusions will expire on June 14, 2024. USTR published its decision in a Federal Register notice dated May 30, 2024.⁴ 

The product exclusions being extended beyond June 14th are listed in Annex C of the May 30th Federal Register notice (available here). Annex D is a list of the product exclusions that are not being extended beyond June 14th.

USTR provided some explanation for its decision to allow the 265 product exclusions to expire. For example, no comments were submitted on 102 of the exclusions requesting they be extended. On the exclusions for which commenters did request an extension, USTR declined to extend those for a variety of reasons, including where commenters indicated they had no plans to shift sourcing out of China, reported they had taken few or no steps to shift sourcing out of China, and/or asserted that non-China sources were unavailable because China remained the lowest-cost source. USTR also declined to extend exclusions for which domestic producers submitted comments opposing further extensions.

Accordingly, companies that are using the existing exclusions should review Annexes C and D of the Federal Register notice and plan accordingly.

V. Conclusion

In summary, companies that operate in the sectors that the Biden administration has determined to be strategic and/or that have supply chains that touch China should review the list of HTS subheadings proposed to be covered by the additional Section 301 duties to determine whether they stand to be impacted, and, if so, take steps to mitigate the potential impact (including considering submitting comments to USTR).  

In addition, companies that import manufacturing equipment from China should review the list of subheadings proposed to be eligible for product exclusions to determine whether they will have the opportunity to participate in the product exclusion process and, if not, consider submitting comments in support of adding subheadings to the final list.  

Finally, companies that are using one or more of the Section 301 product exclusions scheduled to expire on May 31, 2024, should determine whether the exclusions are extended through May 31, 2025, and, if not, take steps to mitigate the impact of the Section 301 duties that will apply starting June 15, 2024. 

¹ See Four-Year Review of Actions Taken in the Section 301 Investigation: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, USTR (May 14, 2024).
² See Actions by the United States Related to the Statutory 4-Year Review of the Section 301 Investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, Presidential Memorandum, 89 Fed. Reg. 44,541 (May 20, 2024).
³ See Request for Comments on Proposed Modifications and Machinery Exclusion Process in Four-Year Review of Actions Taken in the Section 301 Investigation: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 89 Fed. Reg. 46,252 (May 28, 2024).
⁴ See Notice of Extension of Certain Exclusions: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 89 Fed. Reg. 46,948 (May 30, 2024).