Congress Calls for “List 3” Exclusion Process to Exempt Section 301 Tariffs

On Friday, February 15, President Trump signed the 2019 Consolidated Appropriations Act (H.J. Res. 31) into law, funding the federal government and preventing a second shutdown this year. While most of the media attention focused on the President’s simultaneous declaration of a national emergency with respect to the southern border, those of us in the international trade world focused on a far less public development revealed in the legislation.
Included with the spending bill itself is an “Explanatory Statement” from Rep. Nita Lowey (D-NY), chairwoman of the House Appropriations Committee. This statement serves as a legislative explanation of the funding provisions in the bill, which is over 460 pages. With respect to funding for the U.S. Trade Representative’s (“USTR’s”) office, the statement expressed the committee’s concern that the USTR has provided no opportunity for those companies affected by “Round 3” of the Section 301 tariffs on Chinese-origin goods—which are currently set at 10 percent but set to rise to 25 percent on March 2—to seek an exclusion from these tariffs. The USTR’s position on this matter had been that it would establish an exclusion process for the Round 3 tariffs only when those tariffs increase from 10 to 25 percent.
The Explanatory Statement provides that the “USTR shall establish an exclusion process for tariffs imposed on goods subject to Section 301 tariffs in round 3. This process should be initiated no later than 30 days after the enactment of this Act [which is Sunday, March 17], following the same procedures as those in rounds 1 and 2, allowing stakeholders to request that particular products classified within a tariff subheading subject to new round 3 tariffs be excluded from those Section 301 tariffs.
The USTR is also obligated to report to the House Ways and Means Committee and the Senate Finance Committee by this date on the “status of the exclusion process,” although it is unclear whether this refers to the status of the process specific to the Round 3 tariffs or the overall status on all rounds. Those of you who have submitted product exclusion requests for the Round 1 and Round 2 tariffs are familiar with the slow process by which those requests are being resolved. As of February 15, the USTR has yet to act on over 6,000 exclusion requests from Round 1 (out of over 10,000 submissions), and none of the nearly 3,000 requests from Round 2 have been determined.
While the Explanatory Statement puts the USTR’s office “on the clock” with developing an exclusion process for the Round 3 Section 301 tariffs, it leaves those of us monitoring the situation with more questions than answers. It is not clear from the statement, for example, whether the exclusion process must be actually opened or published in the Federal Register by March 17, or whether the process will allow retroactive relief to the date when duties were first imposed (which is the case for the Round 1 and Round 2 exclusions). It is also not clear—given its use of the term “new round 3 tariffs”—whether the statement obligates the USTR’s office to create an exclusion process regardless of whether the Round 3 tariffs increase to 25 percent. In short, while the Explanatory Statement offers promise to those companies affected by the Section 301 Round 3 tariffs, it leaves many uncertainties as to how this promise will be fulfilled. We will continue to monitor and report on this development, just as we will continue to monitor ongoing trade talks between the U.S. and China and how they affect the timing and status of the Section 301 duties. The date everyone is currently watching is March 2, which is when the Round 3 tariffs are currently slated to increase to 25 percent.
Finally, while most of the trade industry’s attention focused on the Section 301 development above, we should also note that the Explanatory Statement addresses frustrations many have had with the Section 232 steel and aluminum tariffs and its exclusion process. The Explanatory Statement provides that part of the $118 million appropriation to the Department of Commerce, Bureau of Industry and Security must be devoted to “an effective Section 232 exclusion process,” including regular reporting on the status of the exclusion process and efforts to assist small- and medium-size businesses in the process. Those of you who are familiar with the chaotic roll out of the Section 232 exclusion requests may take some comfort in seeing that Congress expects to see agency improvements in resolving exclusion requests from companies who have found themselves in the middle of U.S. trade wars.

Should you have any questions concerning these Section 301 developments, please contact one of the trade professionals listed here