Background

U.S. lawmakers have launched a broad bipartisan effort to reinstate a process to exclude products from the Section 301 tariffs on imports from China.

In a Jan. 20 letter, more than 100 members of the House of Representatives from both sides of the aisle called on U.S. Trade Representative Katherine Tai to establish “a comprehensive, fair, and transparent” process that would allow U.S. importers, manufacturers, and producers to request exclusions from the China Section 301 tariffs on a case-by-case basis. They said that while “China must be held accountable” for its “state-centered and non-market trade policies that have harmed American workers and the rules-based international trading system,” the continued absence of exclusions has “deepened the challenges for businesses and their workers, hindering efforts to relocate supply chains in sectors ranging from new-energy vehicles to semiconductors by raising the costs of critical inputs, components, and machinery.” These impacts have been the most significant for small and medium-sized companies, they said, which are less able to absorb the increased cost of tariffs.

In this environment, the letter asserted, reinstating and expanding the exclusion process “is a critical component of the worker-centric trade agenda” that the Biden administration has advanced and should therefore be done “as quickly as possible.” While USTR’s October 2021 announcement that it would consider reinstating a limited number of expired exclusions “is an important first step,” USTR should instead “broaden the scope of the exclusion process to include all products covered under Section 301 tariffs.” Further, this process must (1) be transparent and inclusive for all stakeholders, (2) be streamlined, including expedited procedures for those who had been granted exclusions in the past, (3) operate consistently across applications and follow defined processes, and (4) base decisions on evidence and consistent criteria.

Both the House letter and a similar Feb. 7 letter from a bipartisan group of more than 40 senators added that tariff exclusions granted under a new process should include “meaningful retroactivity.” The Senate letter explained that after exclusions are granted under the current process importers are only eligible for a tariff refund back to Oct. 12, 2021, despite their prior exclusions expiring at the beginning of 2021, which “imposes an unnecessary cash crunch on businesses and forces them to pay tariffs for about ten months without reason.”

The Senate letter added that tariff exclusions should be renewable to give U.S. businesses time and resources to move supply chains out of China and return manufacturing to the U.S. At the same time, where imports of specific products from China represent nearly all U.S. imports of those products, exclusions should be granted because “moving these supply chains out of China is uniquely unlikely and … our efforts to diversify production locales and reshore manufacturing would be better spent on other products.”

However, Congress is not leaving the fate of the exclusion process solely up to USTR. A retroactive extension process like that advocated in the House and Senate letters is included in a bill the Senate approved last June that is aimed at improving U.S. competitiveness vis-à-vis China. A competing bill recently passed by the House is silent on the matter, and a conference to resolve these and other differences between the two bills is anticipated shortly in an effort to get a final measure to President Biden before his March 1 State of the Union address.

ST&R is leading a coalition of companies in the campaign to support keeping the Senate language in the final bill, and a concerted effort will be needed to achieve this goal. For more information on becoming involved in this coalition, please contact Ned Steiner at (202) 730-4970 or via email.

Copyright © 2022 Sandler, Travis & Rosenberg, P.A.; WorldTrade Interactive, Inc. All rights reserved.

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