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October 6, 2021
2021-6025

US: Update on trade actions

US-China trade relations

On 5 October 2021, the United States (US) Trade Representative (USTR) Katherine Tai’s office announced its intention to reinstate the targeted tariff exclusion process for products of China origin that remain subject to Section 301 punitive tariffs. This announcement followed 4 October 2021 remarks delivered by USTR Tai regarding the Biden-Harris Administration’s approach to the US-China bilateral trade relationship.1 The remarks serve as the first commentary from the Administration on the lengthy review process of the broader US-China economic relationship.

Together, the two actions signal the USTR’s initial step towards developing a long-term vision for US-China relations that work with other Administration actions and economic priorities.

First, the USTR will conduct an assessment of China’s performance under the Phase One Agreement.2 As the Phase One Agreement will continue to serve as the central basis of engagement with China on trade, it is important to both assess how China has met specified obligations under the Agreement, such as purchases of US-origin goods, as well as how to best enforce commitments on a go-forward basis.

The USTR also noted its intention to restart the tariff exclusion process for certain exclusions previously granted, which had expired at the end of 2020. The USTR granted more than 2,200 product specific exclusions, with 549 of the exclusions subsequently extended. In the announcement, the USTR detailed that the 549 extended exclusions would be evaluated on a case-by-case basis to determine the potential reinstatement of the exclusion. As a part of the review, the USTR requested comments on whether to reinstate particular product exclusions. The comment period will open on 12 October 2021 and close 1 December 2021.

Further, USTR Tai’s remarks noted unresolved concerns over China’s practices and policies not addressed in Phase One, such as China’s state-centered and non-market trade practices and the subsequent impacts of the policies and practices on both trade and technology. The USTR noted that to address these concerns, they are prepared to use “the full range of tools we have and by developing new tools as needed.”

Lastly, USTR Tai emphasized the importance of continued coordination with allies to improve international trade and technology as the world continues to evolve in the 21st century.

USTR Tai is expected to engage directly with China in the coming months in discussions regarding the US-Chinese bilateral trade relations.

Other trade actions of interest

The Biden-Harris Administration and USTR are taking a new approach to other trading relationships aside from China. On 29 September 2021, the US-European Union (EU) Trade and Technology Council (TTC) held their inaugural meeting, noting the objectives of the TCC are to, “coordinate approaches to key global technology, economic, and trade issues; and to deepen transatlantic trade and economic relations, basing policies on shared democratic values.”3

During the TTC meeting, the US and EU identified critical economic and technology matters to resolve over the coming months, such as export controls, semiconductor supply chains, and strategies to mitigate the impact of non-market practices. However, other key areas of contention between the trading partners were not addressed, such as the ongoing dispute between the US and EU on steel and aluminum, and associated retaliatory tariffs.

Actions for businesses

Companies importing goods from China that have utilized and benefited from product exclusions are encouraged to review the Federal Register Notice and submit comments where applicable. Companies should continue to monitor the evolving exclusion review for further developments.

Additionally, companies should consider other mitigation strategies such as:

  • Mapping their complete, end-to-end supply chain to fully understand the extent of products impacted, potential costs, alternative sourcing options, and to assess any opportunities to mitigate impact such as tariff engineering to address potential 301 or countervailing duties.
  • Identifying strategies to defer, eliminate, or recover the excess duties paid under Section 301 or countervailing duty orders such as bonded warehouses, Free Trade Zones, substitution drawback, Chapter 98, and equivalent programs under Vietnam customs regulations.
  • Exploring strategies to minimize the customs value of imported products subject to the additional duties under either 301 tariffs and countervailing duties, re-evaluating current transfer pricing approaches, and for US imports, considering US customs strategies, such as First Sale for Export.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), Global Trade

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Endnotes

  1. See USTR press release, “Remarks As Prepared for Delivery of Ambassador Katherine Tai Outlining the Biden-Harris Administration’s “New Approach to the U.S.-China Trade Relationship.”
  2. The Phase One Agreement was signed 15 January 2020. See, Economic And Trade Agreement Between The United States and China Text.pdf (ustr.gov) for full text.
  3. See, “US-EU Trade and Technology Council Inaugural Joint Statement.”
 
 

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