Yesterday the United States Trade Representative (USTR) released the report of its Four-Year Review of Actions Taken in the Section 301 Investigation to counteract acts and policies of the People's Republic of China (China) concerning intellectual property.
USTR's report summarizes its findings concerning:
- the effectiveness of the Section 301 tariffs first imposed by former President Trump in curtailing China's technology transfer-related activities, policies, and practices;
- the impacts of these measures on the American economy; and
- USTR's recommendations for modifications, including proposed upward tariff adjustments and specific product exclusions.
In short, the Biden Administration concluded that the Section 301 tariffs should remain in place and be substantially increased for certain strategic sectors including steel, solar, batteries, electric vehicles (EVs), and medical equipment. The report also recommends the creation of a limited exclusion process for certain manufacturing equipment, but does not recommend re-opening a broad exclusion process or continuing existing exclusions.
EXISTING SECTION 301 TARIFFS WILL REMAIN IN PLACE
To assess the effectiveness of Section 301 tariffs in achieving the objectives of the original investigation, USTR examined their impact on eliminating China's technology transfer-related actions, policies, and practices; their potential negative effects on the Chinese economy; and their role in reducing American companies' exposure to such practices.
According to USTR's findings, Section 301 tariffs have compelled China to take steps to address certain technology-related practices. USTR cited the January 2020 signing of the U.S.-China Economic and Trade Agreement (ETA, also referred to as "Phase 1"). This agreement covered various unfair trade practices and contained significant commitments to end the longstanding coercion of U.S. firms by conditioning market access or government approvals upon the transfer of technology to Chinese counterparts. According to USTR, the Chinese government has also implemented legal measures prohibiting state entities and personnel from engaging in forced technology transfers, along with penalties for revealing foreign companies' trade secrets, including technology-related information. Additionally, Section 301 tariffs were credited with playing a role in eliminating joint venture requirements, particularly in the automotive sector, thus easing foreign ownership restrictions.
Despite these positive outcomes, USTR cited evidence suggesting that the Government of China persists in unfair technology transfer practices. USTR cited China's intensifying efforts to acquire foreign technology notwithstanding the Section 301 duties in place. USTR reasoned that technology transfer is central to China's economic ambitions, as seen in initiatives like "Made in China 2025" and the "National Innovation-Driven Development Strategy" by which China aggressively seeks dominance in key sectors. To maintain leverage and curb cyber intrusions and intellectual property theft, USTR concluded that existing Section 301 duties should be continued.
TARIFF INCREASES PLANNED FOR CERTAIN SECTORS
USTR's report also identified certain sectors in which the Chinese Government has intensified its drive to global dominance and/or in which the United States has adopted industrial investment policies. USTR is recommending tariff increases across the following strategic sectors:
- Steel and aluminum: 7.5% to 25%;
- Semiconductors: 25% to 50%, effective in 2025;
- EVs: 25% to 100%;
- EV lithium-ion batteries: 7.5% to 25%;
- Non-EV lithium-ion batteries: 7.5% to 25%, effective in 2026;
- Battery parts: 7.5% to 25%;
- Graphite and permanent magnets: 0% to 25%, effective in 2026;
- Solar cells whether or not assembled into modules: 25% to 50%;
- Ship to shore cranes: 0% to 25%; and
- Certain personal protective equipment (PPE) and medical equipment: 0%/7.5% to 25%, effective in 2024 or 2026, depending on the product.
Many of these are symbolic due to the relatively low volume of direct imports from China. Such lower volumes are because of other existing trade measures, most notably antidumping and countervailing duty orders that impose high duties on imports found to have injured the domestic industry. The sectoral focus of USTR's findings could provide latitude for the future targeting of imported downstream products incorporating inputs noted above.
EXCLUSION PROCESS PLANNED FOR MANUFACTURING EQUIPMENT ONLY
USTR recommends a limited exclusion process targeting machinery used for domestic manufacturing classified in Chapters 84 and 85 of the HTSUS. Specific subheadings expected to be eligible for this process are listed in Appendix K of USTR's report. Details concerning the process are expected to be included in USTR's forthcoming Federal Register notice. Appendix L of the report includes a recommendation to eliminate the tariffs on imported equipment used for solar manufacturing. Of note, USTR is not recommending a renewed exclusion process beyond this listed machinery. And it appears that USTR is going to let existing exclusions sunset without any renewal or further extensions.
GREATER ENFORCEMENT FOR SECTION 301 DUTIES AND PROMOTION OF PRIVATE SECTOR COOPERATION
In the report's recommendations, USTR emphasizes the necessity of ensuring that all Chinese goods subject to Section 301 duties are appropriately evaluated. Customs and Border Protection (CBP), tasked with collecting Section 301 duties and enforcing customs laws and regulations at U.S. ports, is encountering a growing array of challenges. As imports rise and additional trade remedies come into play, CBP's enforcement responsibilities expand. USTR explained that CBP's existing budget fails to adequately reflect this broadening scope of work. USTR therefore recommends that Congress allocate additional funds to enhance CBP's capacity for effective enforcement and implementation of Section 301 duties.
Given China's targeted efforts to acquire U.S. companies' technology, intellectual property, trade secrets, and confidential business information, USTR underscores the imperative for greater collaboration between the private sector and government entities to protect American companies. USTR states that enhanced collaboration is deemed essential, particularly in the realm of cybersecurity, where law enforcement and intelligence agencies must collaborate with U.S. companies, educational institutions, and others to identify and address cyber risks and vulnerabilities.
Simultaneous with the release of USTR's report, the White House issued a fact sheet embracing USTR's tariff recommendations. Additional specifics such as the full listing of HTSUS subheadings affected by the tariff increases have not yet been provided, but will be provided next week with a Federal Register publication by USTR. Interested parties will then have a further opportunity for comment.
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