New Section 301 Tariffs Target Numerous Automotive-Sector Imports: Coping Strategies And Prospects For Product-Specific Relief

Introduction

The automotive sector is getting a quick primer on the various ways in which the international trade laws can target automotive imports. In addition to the announcement of a potential Section 232 tariffs or other trade measures on imported automobiles and automotive parts (an investigation that is still ongoing), the Trump Administration now has announced a list of $200 billion in special Section 301 tariffs on over 6000 types of products imported from China. Although automotive parts are not specifically targeted, numerous products found in Chapters 39, 84, 85, and 90 - such as various polyvinyl chlorides, DC motors, antennas and antenna reflectors, electronic integrated circuits, and electric synchros - are commonly used by the automotive sector. Under the proposal, these and other identified products that fall within the $200 billion in identified tariff lines are being targeted for additional duties equal to 25 percent (adjusted upwards from the initial announcement of 10 percent) of the value of each import that falls within the listed HTS tariff lines.

At the same time, the U.S. Trade Representative has announced an exemptions process that allows companies to petition for product-specific exemptions from an earlier round of tariffs on an additional $34 billion of products that were targeted for 25 percent tariffs. It is highly likely that a similar process will be put in place for the second round of announced tariffs (totaling $16 billion in annual trade, at a 25 percent rate), as well as the third list targeting the additional $200 billion in annual trade.

This Client Alert describes the current state of play for the Section 301 tariffs and outlines strategies that importers and consumers of Chinese goods, parts, and components can take to help deal with both the newly announced Section 301 tariffs (10 or 25 percent for the new $200 billion in trade, depending on the final decision of the USTR after receiving comments) and the initial and second target list (25 percent).

Background

The Trump Administration has imposed duties under Section 301 of the Trade Act of 1974 to counter what the Administration claims is China's forced technology transfer rules and other industrial policies that are designed to give Chinese companies access to the R&D and business know-how of U.S. companies that operate in China.1 The duties have been imposed to date on $34 billion of Chinese imports at the rate of 25% of the ad valorem value of the imported merchandise (with the U.S. Trade Representative being in the middle of choosing the goods for an additional $16 billion in goods).

On July 6, 2018 China responded by imposing increased duties on goods of the United States. In light of what Mr. Lighthizer has called China's "retaliation and failure to change its practices,"2 on July 10, 2018 the U.S. Trade Representative proposed a modification to maintain the original $34 billion and the proposed $16 billion actions while also taking further action on an additional $200 billion of Chinese imports (initially at a 10% ad valorem duty rate, later adjusted to 25%), including potentially the Chapter 39, 84, 85, and 90 HTS tariff lines that are often used by the automotive sector.3

Under the Section 301 process, these special tariffs are imposed on entire categories of merchandise, as defined by the 10-digit harmonized tariff system code. Whereas the initial $34 billion action and the proposed $16 billion action together would account for products classified under 1102 tariff lines (10-digit HTS sub-headings), the new additional tariffs announced account for a significantly larger number of products classified under 6031 tariff lines.4

Many U.S. companies, however, have argued that their particular imports are not available from U.S. producers - or even from sources other than China - and thus should be exempted. Others have argued that their own products are not appropriate targets for retaliation as they have not been the subject of the complained about Chinese IP practices or because of the importance of their products to the U.S. economy. To handle these complaints, the U.S. Trade Representative has established two recourses for U.S. importers and consumers. The first - related to the initial set of duties - is to give importers and consumers the right to seek an exclusion on a product-by-product and product-specific basis. The second - related to the newly announced set of 6031 tariff lines - allows companies to comment on the selected tariff lines regarding whether they are appropriate for inclusion in the newly announced round of Section 301 tariffs. (A similar comment period on the second set of tariff lines recently ended and resulted in changes to just five tariff lines.) Each action is discussed in turn below.

Newly Announced Exclusions Process

The U.S. Trade Representative has announced a Section 301 tariff exclusion process, which allows U.S. companies to petition the government for specific products to be exempted from the duties. According to the U.S. Trade Representative, the government is "providing an opportunity for the public to request exclusion of a particular product from the additional duties to address situations that warrant excluding a particular product within a subheading, but not the tariff subheading as a whole."5

The U.S. Trade Representative has indicated that in determining which requests to grant it will consider a number of factors, including whether the product in question is available from non-Chinese sources and whether the new 25 percent Section 301 tariff would cause "severe economic harm" to the importer or other U.S. interests.

Like the section 232 exclusions process, the process is envisioned as requiring exclusions requests on a product-specific basis for specific products (although trade associations also can file). Unlike the section 232 process, however, the process here will be open only for a limited time. Companies seeking exclusions must file the request within ninety days (i.e., by October 9, 2018).6 Following a public posting of the request on Regulations.gov (under docket number USTR-2018-0025), the public will have fourteen days to file a response to the request. After the close of that...