Section 301 Tariff Exclusions on U.S. Imports from China

Section 301 Tariff Exclusions on U.S. Imports from China

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Updated May 13, 2024
Section 301 Tariff Exclusions on U.S. Imports from China
In 2018, the U.S. Trade Representative (USTR) determined,
During the Section 301 notice, hearing, and comment
pursuant to an investigation under “Section 301” (Title III
period on proposed tariff increases, the USTR heard from
of the Trade Act of 1974, 19 U.S.C. §§2411-2420), that
numerous stakeholders who expressed concerns about how
China’s acts, policies, and practices related to technology
additional tariffs could affect U.S. firms and consumers. In
transfer, intellectual property (IP), and innovation were
response, for each new list of covered products, the USTR
unreasonable or discriminatory and burdened or restricted
created a process whereby interested parties could request
U.S. commerce. To counter them and obtain their
that a particular product be excluded from the tariffs,
elimination, the Trump Administration used Section 301
subject to certain criteria. Title III of the Trade Act of 1974
authorities to impose four rounds of increased tariffs on
does not outline a formal process for exclusions or require
about two-thirds of U.S. imports from China. To avoid
the USTR to establish one. The determination to do so
harm to U.S. interests, the USTR introduced a new policy
appears to be solely at the USTR’s discretion.
allowing stakeholders to request “tariff exclusions” for U.S.
With the COVID-19 pandemic, the agency began to
imports that would otherwise have been subject to tariffs.
prioritize the review of exclusion requests concerning
Some policymakers and stakeholders have raised concerns
medical products in short supply. Separately, the USTR
about the implementation of the exclusion request process.
also requested public comments on whether to remove
In particular, some Members of Congress have questioned
additional products covered by any list that were relevant to
USTR’s ability to “pick winners and losers” through
the U.S. response to the pandemic. As a result, it granted
granting or denying requests or have pushed for broad tariff
new exclusions or extensions for certain of these products.
relief amid concerns about the negative impact of tariffs on
Section 301 Tariff Exclusion Process
the U.S. economy. This was the case particularly in the
The tariff exclusion process enabled interested parties to
aftermath of the COVID-19 pandemic, which affected the
United States’ ability to obtain certain products
petition for an exemption from the Section 301 tariff
increases for specific imports classified within a 10-digit
domestically or from countries other than China. Other
Harmonized Tariff Schedule of the United States (HTSUS)
Members oppose granting any exclusions on the ground
subheading. The time window to submit requests is closed,
that doing so may undermine Section 301’s effectiveness at
addressing China’s unfair trade practices or hinder U.S.
but the USTR is reviewing all actions related to the
investigation, including decisions on whether and how to
efforts to incentivize domestic manufacturing of certain
accept new exclusion requests (see “Four-Year Review
critical goods. The agency established an exclusion process
Process” discussion below). While the USTR approved, on
for each of the four stages of tariff increases under Section
average, 35% of new requests under the first two actions,
301, as well as opportunities for interested parties to submit
the approval rates under the third and fourth actions were
comments on whether to extend or reinstate exclusions.
5% and 7%, respectively.
The Biden Administration continues to review its trade
According to the USTR, all requests were evaluated on a
strategy for China. Actions by the USTR so far have not
case-by-case basis. The agency indicated that, in
been aimed at providing broader tariff relief. They have
determining which requests to grant, it considered the
been limited to extending unexpired exclusions on medical
following: (1) availability of the product in question from
supplies relevant to combatting the COVID-19 pandemic
non-Chinese sources, (2) attempts by the importer to source
and reinstating certain exclusions that were previously
the product from the United States or third countries, (3) the
extended. In May 2022, the agency announced a review—
extent to which the imposition of Section 301 tariffs on the
currently ongoing—of all Section 301 tariff actions.
particular product would cause severe economic harm to the
Background
importer or other U.S. interests, and (4) the strategic
In August 2017, long-standing concerns over China’s
importance of the product to “Made in China 2025” or other
policies on IP, subsidies, technology, and innovation led the
Chinese industrial programs. Past exclusions were also
USTR to launch an investigation—under Section 301—into
granted for reasons that are thought to include, among
those policies and their impact on U.S. stakeholders. The
others, U.S. national security interests and demonstrable
investigation concluded that four broad policies or practices
economic hardship from the tariffs for small businesses.
justified U.S. action: (1) China’s forced technology transfer
Through January 2020, the USTR received a total of 52,746
requirements, (2) cyber-enabled theft of U.S. IP and trade
new exclusion requests, pertinent to all actions. Of these,
secrets, (3) discriminatory and non-market-based licensing
6,804 (13%) were granted and 45,942 (87%) were denied.
practices, and (4) state-funded strategic acquisition of U.S.
(CRS could not determine the total number of specific
assets. Subsequently, as part of its efforts to pressure China
requests submitted between March and June 2020 or how
to change these practices, the United States imposed
many were granted or denied.) Specifically, the exclusions
additional tariffs, of up to 25%, on certain U.S. imports
were reflected in 99 ten-digit HTSUS tariff subheadings
from China in four separate lists (Lists 1-4A).
and 2,129 specially prepared product descriptions—all of
which cover at least 6,804 separate requests (Figure 1).
https://crsreports.congress.gov

Section 301 Tariff Exclusions on U.S. Imports from China
Because most exclusions applied to specific products within
Four-Year Review Process
a relevant subheading, not to entire subheadings, CRS could
In May 2022, the USTR began the statutory four-year
not determine the exact amount of trade covered by the
review of the Section 301 actions taken against China. The
exclusions. Separately, the USTR also issued extensions to
agency determined that two separate actions had been taken
certain exclusions. They applied to about 52 (of the 99)
as part of the investigation (Lists 1 and 2) and that they had
HTSUS subheadings and 516 (of the 2,129) specially
been subsequently modified by imposing additional duties
prepared product descriptions. These extensions expired or
on supplemental lists of products (Lists 3 and 4A), as well
are set to expire in May 2024.
as by temporarily removing or suspending duties on some
Figure 1. Section 301 Exclusions (Through Jan. 2020)
of them through exclusions. It announced that the first step
of this review process would be to notify representatives of
domestic industries that benefit from the trade actions (as
modified) of their possible termination and to offer them
the opportunity to request their continuation. The agency
announced in September 2022 that it had received several
such requests and that as a result, it would keep the actions
in place—subject to possible further modifications—and
proceed with the second phase of the review process.
To aid in this review, the USTR opened a separate portal
(public docket) for interested parties to submit comments
on, among other matters, (1) the effectiveness of the action
in achieving its objectives; (2) the effects of such actions on
the U.S. economy, including on consumers; and (3) other
potential actions that could be taken. Parties could submit
Source: CRS with information from the Office of the USTR.
comments between November 2022 and January 2023. The
Note: Figures may not reflect amendments to product-specific exclusions and
agency received 1,498 separate submissions.
do not include requests submitted on or after March 25, 2020, in response to
85 Federal Register 16987. However, exclusions granted through December
In January 2024, in a letter to the Select Committee on the
2020 and noted here may have been informed by those requests.
Chinese Communist Party, Ambassador Katherine Tai
COVID-19 and Medical-Care Products
stated that the four-year review is expected to be
“conclude[d] in the next few months.” (The USTR had
In light of the spread of the Delta variant in 2021 and
previously expected to complete it “in the fall of 2023.”)
developments in the production capacity of U.S.-based
manufacturers to satisfy various national needs, the USTR
Issues for Congress
sought and reviewed public comments on whether 99
In recent years, some Members have introduced legislation
exclusions on COVID-19 response products—originally
to amend Title III of the Trade Act of 1974, while also
announced in December 2020—needed to be extended. In
raising the issue of establishing or streamlining an
response to comments and the advice from advisory
exclusion process during hearings and in letters to the
committees, the USTR has extended these exclusions on
USTR (e.g., §73001 in S. 1260). Some policymakers and
several occasions, most recently through May 2024. The
analysts contend that the tariffs should be “recalibrated” so
agency sought public comments to determine if these
they are better aligned with U.S. economic and strategic
exclusions should be extended beyond May 2024.
priorities or that they be partly lifted to ease the financial
Reinstating Previous Tariff Exclusions
burden on certain U.S. firms and consumers. Others have
emphasized the importance of maintaining the tariffs, which
In October 2021, the USTR requested comments on
in their view provide “leverage” for future U.S.-China trade
whether to reinstate 549 exclusions that had expired or were
negotiations or pressure China to reform its unfair trade
set to expire soon. Parties were not able to petition the
practices. Some have also touted them as an effective tool
USTR for new exclusions or extensions to expired
for promoting supply chain “resiliency” or incentivizing
exclusions that were not previously extended. In response
domestic manufacturing.
to these comments and the advice from advisory
committees, the agency announced in March 2022 that it
As the Biden Administration reviews the actions against
would reinstate or further extend 352 of the 549 eligible
China and possibly makes use of Section 301 authorities
exclusions. The exclusions—retroactive to October 2021
(e.g., to counter or obtain the elimination of other Chinese
and originally set to expire at the end of 2022—have been
practices that may disadvantage or discriminate against
extended three times, most recently through May 2024. The
U.S. firms and workers), Congress could also engage with
USTR sought public comments to determine if these
the Administration to develop and implement guidelines for
reinstated exclusions should be extended beyond May 2024.
when and how to grant and extend exclusions. This could
potentially promote transparency, consistency, and proper
Exclusions apply generally to specified products, so any
application of standards in reviewing requests, thereby
party importing a product covered by an exclusion may file
helping to ensure that the USTR carries out Section 301
a claim. Importers whose goods entered or were withdrawn
objectives as prescribed by Congress.
from a warehouse for consumption on or after October 12,
2021, could request tariff refunds from U.S. Customs and
Andres B. Schwarzenberg, Specialist in International
Border Protection (CBP), provided that CBP had not
Trade and Finance
already calculated the final duties owed by the time the
importers filed the refund claim.
IF11582
https://crsreports.congress.gov

Section 301 Tariff Exclusions on U.S. Imports from China

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https://crsreports.congress.gov | IF11582 · VERSION 21 · UPDATED