Two sets of exclusions from the Section 301 tariff actions against China are currently set to expire on September 30, 2023, leaving companies uncertain about future import costs. USTR has not yet indicated whether it intends to extend the exclusions, allow them to lapse, or change their coverage. Updates from USTR on the status of the exclusions may come at the last minute.
The United States first imposed additional tariffs on imports from China in 2018, following an investigation pursuant to Section 301 of the Trade Act of 1974 that determined Chinese government technology transfer, intellectual property, and innovation policies were harming US commerce. Since then, USTR has maintained certain general exclusions and in 2020 added additional COVID-related exclusions to the tariffs. These exemptions must be periodically extended and have lapsed at times.
Product exclusions will expire in September
The current list of 352 Section 301 tariff exclusions will expire on September 30, 2023, unless extended again. USTR has not yet announced what will happen next. Past extensions, including the latest extension in December and the extension of the separate COVID exclusions list in May, have occurred within a few days of the expiration. This lack of advance warning has reportedly created challenges for companies planning future shipments. Should the exclusions expire, the covered products would be subject to additional tariffs ranging from 7.5% to 25%.
The exclusions have been extended in the recent past but have also previously been allowed to lapse. The exclusions process was originally introduced alongside the four tranches of Section 301 tariffs in 2018 and 2019, allowing companies to apply for certain products to be excluded from the tariffs if certain conditions, such as whether the product is only available from China and if the tariffs would result in severe economic harm, were met. These exclusions, 549 in total, gradually expired by 2021 after several extensions (except for some related to COVID, which were moved to a new exclusion list that is discussed below). 352 of the 549 expired exclusions were then retroactively reinstated, effective October 12, 2021, in a March 28, 2022, Federal Register Notice. This new list of exclusions was scheduled to expire on December 31, 2022 but has been extended for another nine months to September 30, 2023.1
The current 352 product-specific exclusions are described in the annex to the Federal Register Notice that reinstated the exclusions.2 The products represent a wide variety of manufacturing components and consumer products like safety glass sheets, small split capacitor electric motors, hydraulic control valve push pins, hand sanitizer dispensers, and certain clothing items.
COVID-related exclusions also now expire in September
A separate list of COVID-related healthcare product Section 301 exclusions is also scheduled to expire on September 30, following several short extensions earlier in 2023. Most recently, USTR announced on May 123 that it would extend the exclusions for 77 of the 81 previously listed products from May 15 to September 30, 2023.4 The other four products saw their exclusions expire on May 31, following a brief transition period. These changes to the list followed a call for public comments that lasted from February 6, 2023, to March 7, 2023.5 USTR said it will use the extra time created by the extension to "consider stakeholder and public feedback" on the policy, suggesting that there could be more changes to the list in September. Moving their expiration date to September 30 aligns their status with the main list of exclusions, simplifying USTR's decision-making process. The current list of COVID exclusions is described in the annex to the May 17, 2023, Federal Register Notice.
In deciding whether or not to further extend the exclusions, USTR will consider "whether, despite the imposition of additional duties beginning in September 2018, the excluded products remain available only from China and whether or not reinstating the exclusions would impact or result in severe economic harm to the commenter or other US interests."6
The four-year review is ongoing
While importers await USTR's decision on extending the exclusions, there is also a mandatory four-year review of the Section 301 actions underway. Section 307(c) of the Trade Act of 1974 requires USTR to review the effectiveness and economic impact of Section 301 actions every four years to keep the action in force.7
This review, which USTR announced in May 2022, is currently in its second phase. USTR collected public comments for phase two between November 2022 and January 2023, receiving 1,497 submissions from the public.8 Since the comment docket closed six months ago, there have been no further updates from USTR on the review. USTR told Congress in March 2023 that the review would be completed sometime in the fall. The latest extension notices for the product exclusions also said that moving their expirations to September 2023 would allow USTR to align the extension decisions with the results of the four-year review, implying that the review would be completed around that time.
The review is another opportunity for the Biden administration to alter the tariffs, with some observers and government officials suggesting USTR could reduce them or better align them with the administration’s domestic manufacturing objectives. The administration's recent public comments suggest however that no major changes to the tariffs are coming, though there may still be smaller modifications to the tariffs’ coverage or the exclusion process. Treasury Secretary Janet Yellen, who has been more skeptical of the tariffs compared to other members of the administration, recently said that removing the tariffs would be premature because the concerns that motivated imposing them remain.9
1 Notice of Extensions for Reinstated Product Exclusions: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation (87 FR 78187), December 21, 2022, https://www.federalregister.gov/documents/2022/12/21/2022-27637/notice-of-extensions-for-reinstated-product-exclusions-chinas-acts-policies-and-practices-related-to
2 Notice of Reinstatement of Certain Exclusions: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation (87 FR 17380), March 28, 2022, https://www.federalregister.gov/documents/2022/03/28/2022-06397/notice-of-reinstatement-of-certain-exclusions-chinas-acts-policies-and-practices-related-to
3 USTR Extends Certain COVID-Related Exclusions from China Section 301 Tariffs, May 12, 2023, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2023/may/ustr-extends-certain-covid-related-exclusions-china-section-301-tariffs
4 Notice of Product Exclusion Extensions: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation (88 FR 31580), May 17, 2023, https://www.federalregister.gov/documents/2023/05/17/2023-10460/notice-of-product-exclusion-extensions-chinas-acts-policies-and-practices-related-to-technology
5 Interim Extension and Request for Comments on COVID-Related Product Exclusions: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation (88 FR 8027), February 7, 2023, https://www.federalregister.gov/documents/2023/02/07/2023-02570/interim-extension-and-request-for-comments-on-covid-related-product-exclusions-chinas-acts-policies
6 December 21, 2022 Extension Notice, 87 FR at 78188.
7 19 USC 2417(c)(3)(A) and (B), https://www.govinfo.gov/content/pkg/USCODE-2021-title19/pdf/USCODE-2021-title19-chap12-subchapIII-sec2417.pdf
8 Request for Comments 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 (87 FR 62914), October 17, 2022, https://www.federalregister.gov/documents/2022/10/17/2022-22469/request-for-comments-in-four-year-review-of-actions-taken-in-the-section-301-investigation-chinas
9 Yellen Says China Slowdown Risks Spillovers But No US Recession, July 17, 2023, https://www.bloomberg.com/news/articles/2023-07-17/yellen-says-china-failed-to-address-concerns-that-caused-tariffs#xj4y7vzkg
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