USTR Extends China Section 301 Tariff Exclusions While the Four-Year Review Continues into 2024
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On December 26, 2023, the Office of the United States Trade Representative ("USTR") announced it would extend the current exclusions from the China Section 301 investigation tariffs to May 31, 2024.1 The exclusions were previously set to expire on December 31, 2023. The extension notice also suggests that the ongoing four-year review of the Section 301 investigation will continue into 2024.
The exclusions extension
The new extension applies to both sets of Section 301 exclusions: the 352 reinstated general exclusions and the 77 COVID-related exclusions. The products covered by the exclusions include manufacturing components and consumer products like safety glass sheets, small split capacitor electric motors, hydraulic control valve push pins, hand sanitizer dispensers and wipes, and clothing items. USTR made no changes to the two lists' coverage, only changing the expiration dates from December 31, 2023, to May 31, 2024, in the relevant Chapter 99 tariff codes. These changes, and the corresponding tariff codes, are described in Annex A and Annex B of the Federal Register notice. US Customs and Border Protection ("CBP") will soon issue guidance to importers for implementing this change on import declarations.
The extension also includes a new call for public comments on whether USTR should further extend the exclusions beyond May 2024. USTR will open a public docket to gather this input from January 22 until February 21, 2024.2 Part of USTR's goal is to identify how the United States can diversify sourcing of key imports away from China, part of the Biden administration's de-risking agenda. USTR's press statement suggests the administration believes that more time may be necessary for US importers of some of the excluded goods to find alternative sources, indicating that USTR is considering extending some exclusions past May 2024, while allowing others to expire sooner. If the exclusions expire, the covered products would be subject to tariffs ranging from 7.5% to 25%.
History of the exclusions
Most recently, USTR extended the exclusions to December 30, 2023.3 Before that, all the exclusions had been scheduled to expire on September 30, 2023. Before that extension, USTR had extended the COVID-related exclusions to match the general reinstated exclusions in May 2023, aligning the processes for all the exclusions.4 This extension and alignment, as well as the removal of a few items from the COVID-related list, followed a call for public comments that lasted from February 6, 2023, to March 7, 2023.5
USTR originally introduced the Section 301 exclusion process alongside the four tranches of Section 301 tariffs in 2018 and 2019. The process allowed 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 USTR moved to the separate exclusion list). Of the 549 expired exclusions, 352 were then retroactively reinstated, effective October 12, 2021, in a March 28, 2022, Federal Register notice. This new list of exclusions was originally scheduled to expire on December 31, 2022, but was extended for another nine months to September 30, 2023.6
The lack of advance warning for these exclusion extensions has reportedly created challenges for companies planning future shipments. On December 10, 2023, a coalition of industry associations, Americans for Free Trade, called on USTR to issue a decision on the Section 301 exclusions as quickly as possible so companies can plan orders.7 As USTR has continued to extend the four-year review and issue last-minute exclusion extensions, US importers have also begun lobbying Congress to act on the matter. In a letter dated December 20, 2023, and signed by dozens of US industry associations and led by Americans for Free Trade, US businesses called on Congress to take more control of trade policy and "urge USTR to immediately conclude and release the results of its four-year statutory review of the Section 301 tariffs."8
The Section 301 investigation four-year review
Alongside the repeated extensions and modifications to the exclusions, a mandatory four-year review of the Section 301 actions is 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 tariffs in force.9 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.10 Since the comment docket closed, there have been no further updates from USTR on the review. USTR told Congress in March 2023 that it would complete the review sometime in the fall but failed to do so. In announcing the exclusion extensions on December 26, 2023, USTR said the extension "will also facilitate the alignment of further decisions on these exclusions with the ongoing four-year review." The statement suggests that the result of the four-year review will be delayed at least until May 2024.
The four-year review is an opportunity for the Biden administration to alter the tariffs, with some observers and government officials suggesting USTR could reduce the tariffs or align them with the administration's domestic manufacturing and de-risking objectives. To that end, USTR may be considering raising tariffs on strategically important technology products and lowering tariffs on consumer goods and industrial inputs. It is also possible that USTR will either decline to change the tariffs or simply continue extending the review until after the 2024 elections to avoid political controversy. As the 2024 elections approach, trade policy deliberations will become more politically challenging.
The Federal Register notice announcing the extension and request for public comment is accessible here.
1 "USTR Extends Exclusions from China Section 301 Tariffs to Allow for Comments on a Review of the Exclusions and Alignment with Four-Year Review," USTR, December 26, 2023.
2 USTR will post the docket to its web portal.
3 USTR Extends Reinstated and Covid-Related Exclusions from China Section 301 Tariffs, September 6, 2023.
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).
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).
6 "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).
7 Letter to USTR regarding the extension of section 301 China tariffs exclusions and four-year review, Americans for Free Trade, December 11, 2023.
8 Letter to Congress regarding the China section 301 tariffs four-year review and expiring product exclusions, Americans for Free Trade, December 20, 2023.
9 19 USC 2417(c)(3)(A) and (B).
10 "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).
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