As the 301 Investigation Hearings Conclude, What Comes Next?

News & Insights
May 18, 2018

The three-day hearings on proposed Section 301 tariffs on Chinese-origin goods have drawn to a close, and the witness testimony presented to the 301 Committee has provided a useful perspective on the potential benefits—and costs—such tariffs could pose to U.S. businesses and consumers. The hearings followed the Office of the U.S. Trade Representative’s (“USTR”) April 6, 2018 publication in the Federal Register of a proposed list of Chinese-origin products that could be subject to an additional 25 percent tariff as part of the Section 301 investigation into China. The list was developed by the interagency 301 Committee1 with the intention of targeting products benefitting from Chinese industrial policies, particularly the Made in China 2025 initiative, while minimizing disruption to the U.S. economy by avoiding those products most likely to impact U.S. consumers. The USTR has recommended that the tariff be applied to $50 billion worth of Chinese goods.

USTR Robert E. Lighthizer launched the investigation into China’s unfair practices, including technology transfers and intellectual property (“IP”) theft, on August 18, 2017. The investigation specifically focuses on “whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.”

The witnesses included representatives from the steel, automotive parts, and electronics industries, as well as representatives from agricultural, chemical, and manufacturing associations. Almost all witnesses expressed concerns about China’s unfair trade practices and supported USTR’s initiative to provide U.S. businesses with relief and a more level playing field. Some businesses, such as U. S. Steel Corporation, noted that they have been direct victims of cyber-attacks and IP theft, while several others, such as Skyline Steel, recounted how their businesses suffer by China’s practice of reverse-engineering products. Chinese competitors, who are unburdened by the research and development and IP costs borne by U.S. manufacturers, are then able to undercut U.S. businesses by selling at lower prices in the U.S. market, as well as all other markets where U.S. and Chinese manufacturers compete. Other witnesses expressed frustration that their efforts to operate businesses in China are hampered by China’s opaque and restrictive laws that prohibit U.S. companies from forming companies in China outside of a joint venture with a Chinese business.

While all witnesses agree something must be done to address trade problems with China, there were a variety of opinions as to which industries should bear the cost of tariffs, and in some cases, whether tariffs are an appropriate response at all. Among the most common views expressed:

While the 301 Committee will have much to consider following the hearing and following the submission of written rebuttal comments due on May 22, 2018, U.S. businesses and consumers are left with uncertainty regarding the outcome of the 301 investigation. It is likely that the final list of products subject to tariffs will change substantially as a result of concerns raised at the hearing and in public comments. Further, it is also possible that USTR will recommend increasing (or lowering) the value of Chinese goods to be covered by 301 tariffs. It is also possible that ongoing discussions between the Administration and China regarding the 301 investigation will yield favorable results and an additional tariff remedy may not come to fruition.

In the meantime, U.S. businesses and manufacturers must continue to operate their businesses, manage their supply chains, and plan for the future. U.S. businesses and importers should be alert to additional Federal Register notices on the 301 investigation, as it is possible that USTR will seek additional comments in the event the list of products subject to 301 tariffs is revised substantially. They should also confirm HTSUS classifications for the goods that they import so they can reliably determine whether they are in fact subject to any 301 tariffs that might take effect. Finally, in cases in which Chinese goods are shipped to a third country for further manufacturing, importers should expect guidance from USTR on the rules of origin to be applied to goods subject to 301 tariffs and should be prepared to evaluate origin.

1 The 301 Committee was comprised of representatives from the USTR, the Department of Commerce, the Department of Labor, the Small Business Administration, Customs and Border Protection, and the Executive Office of the President’s Council of Economic Advisors.