What US Importers Need To Know About Section 301

UPDATE as of Sep 12, 2022: The Office of the United States Trade Representative (USTR) confirmed on September 02, 2022, that Section 301 duties on lists one and two for goods from China will continue.

The process for reviewing the four year expiry date for Section 301 Duties associated with lists one and two began in May of this year. The USTR sent out a formal notice to domestic industries that benefited from the increased duties advising that the tariffs were set to expire unless requests for continuation were received. The USTR said that they received numerous requests for continuation and therefore the provisional duties for these lists, set forth under Section 301, will continue.

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Section 301 of the Trade Act has been the topic of many discussions in international trade over the past few years. It can have a large impact on importers into the US, causing questions and concerns. To address some of these questions, we offer you the following details on Section 301, including a historical look at it and our recommendations for you moving forward.

What Is Section 301 Anyway?

Section 301 of the Trade Act of 1974 (19 USC §2411) grants the Office of the United States Trade Representative (USTR) a range of responsibilities and authorities to investigate and take action to enforce US rights under trade agreements and respond to certain foreign trade practices. 

Understandably, the use of Section 301 is resented by many US importing companies, which claim that their industries have suffered from costs that cannot be passed on to consumers. In fact, the Section 301 tariffs are not paid by a foreign government, manufacturers, or exporters because US law requires that these tariffs be paid by the US importers.

Many observers cite Section 301 as being a reason why many small-and medium-sized US companies have folded and are no more. Moreover, a substantial number of Americans who have lost gainful employment by way of these companies are hurting, financially and emotionally, as are their family members. Section 301 has failed to give rise to new US manufacturing plants or increased production of any significance. 

A Short History Of Section 301 

The USTR began an investigation in 2018 that ultimately concluded that acts, policies, and practices of the People’s Republic of China (PRC) having to do with technology transfer, intellectual property, and innovation were unreasonable or discriminatory and burdened or restricted US commerce.

Almost immediately following this finding, the US Administration used it as justification for US tariffs on List 1 and List 2 related to Chinese-origin goods worth a combined $50 billion in value. Lists 1 and 2 covered products are from industrial sectors that contribute to or help the PRC’s “Made in China 2025” industrial policy, which is an initiative that seeks to secure China’s position as a powerhouse in high-tech industries. 

The aim is to lessen China’s reliance on foreign technology imports and invest heavily in its own innovations. The idea is to create, maintain and improve Chinese companies that can compete both globally and domestically. List 1 and List 2 products include those related to the aerospace, automobile, information and communications technology industries. However, the products do not include goods commonly purchased by US consumers, such as cellular telephones and televisions.

After the PRC declared that it was retaliating with tariffs on US goods, the administration ratcheted up Section 301 tariffs on Chinese goods. The US Government also expanded coverage to include an additional $320 billion of Chinese products, which can be found on Lists 3 and 4a.

The products on these lists include foods, beverages, clothing, and footwear. Planned duties on List 4b products like electronics and toys were canceled. This happened under a US-China deal, one that was reached in 2019.

According to US Customs and Border Protection (CBP) on March 24, 2021, the agency has collected almost $83 billion in Section 301 duties since July 2018 related to Chinese-made products imported into the US. 

CBP has also collected more than $1 billion in Section 301 duties since October 2019 related to European Union (EU) – made products imported into the US.

US importers are responsible for putting a lot of money into the coffers of the US Department of the Treasury because of Section 301. They are not happy.

Trying To Undo Section 301

As one may imagine, Section 301 has been the subject of US congressional debate and broader international debate. In addition, there have been numerous lawsuits filed against the US government by some notable and large US corporations. In fact, more than 3,500 corporations have filed lawsuits in the United States Court of International Trade (CIT), asserting that the President’s Section 301 tariffs on List 3 and 4A Chinese products were not properly promulgated and are void. 

To help manage the tsunami of lawsuits that followed, the CIT created a “master case” to streamline proceedings. Based upon all that the CIT is dealing with, the importer-plaintiffs should not expect any sort of relief for years. Unfortunately, other possible avenues of tariff relief have failed for the plaintiffs and other fellow importers. Among them are significant tariff relief measures that expired on December 31, 2020.

The first was the expiration of most exclusions to Section 301’s 25% and 7.5% tariffs on imports from China, which are based upon thousands of Harmonized Tariff Schedule of the US (HTSUS) codes. The tariffs were broad-based. 

Since late 2018, the USTR has provided some random and haphazard relief by granting exceptions (technically called “exclusions”) for many products. The exclusions provided important relief for many US importers who could not shift their supply chains to places outside China. The USTR has not extended the exclusions, causing them to expire. This has resulted in re-imposing the higher tariff rates on thousands of products.

The second expiration on December 31, 2020, was the end of the most recent three-year Miscellaneous Tariff Bill (MTB) that grants tariff reduction or removal on thousands of specific products based on petitions filed by US importers. A new MTB was to be passed for the next 2021-2024 period, one covering many of the same but some new products. Blame for this delay falls on Congress. The US International Trade Commission completed its extensive work reviewing petitions and issued a final report in August 2020. However, the new MTB relief cannot go into effect until Congress approves it.

Other Sector-Specific Tariff Developments

There are many other sector-specific tariff developments for US importers to monitor. Among those are potential Section 301 tariffs on Vietnam, multiple ongoing US investigations to protect domestic food producers, and whether Section 232 steel and aluminum tariffs (and related exclusions) will be retained or replaced. 

Other than the MTB noted above, US importers should expect no instant relief. It appears that the Biden Administration is going to continue the US trade war with China for quite some time yet.

How To Stay Out Of Trouble

Importers should consider the following: 

Q. Are our Country of Origin declarations to CBP correct?

An incorrect Country of Origin can result in an under-or over-payment of 301 duties.

Q. Is our HTSUS code accurate with regard to our item(s)?

Incorrect HTSUS codes can result in CBP thinking that your items are subject to 301 duties.

Q. Are our Value declarations to CBP correct?

An incorrect value can result in an under-or over-payment of 301 duties.

Q. Are there any duty savings strategies that we can implement?

Yes. Consider moving merchandise in-bond into a customs bonded warehouse or into a Foreign Trade Zone.

Q. Are goods subject to Section 301 duties eligible for duty entry as a de minimis shipment (Section 321) if the shipment is valued under $800 USD? 

Yes, currently goods subject to Section 301 duties that qualify are eligible for duty-free entry under the de minimis (Section 321) provision. It is important to note that this could change.

We are here to help you. If you have any questions about importing or exporting requirements, contact us.