The complaint alleges that the President’s imposition of tariffs to products on these lists, which covers approximately $320 billion in trade, exceeded authority granted by the Trade Act of 1974 and that the agency’s implementation of the tariffs violated provisions of the Administrative Procedures Act. In addition to striking down the tariffs, the legal action seeks the refund of duties paid by the plaintiffs, with interest, for imported products on List 3.

We are alerting clients with interest in List 3-covered products of the potential litigation opportunity for filing a similar claim at the CIT to preserve the ability to obtain duty refunds. A two-year statute of limitations applies to the Administration’s action, which runs from the date of publication of the notice (September 21, 2018). As such, the time to act is short. Interested parties who wish to file their own claims must do so no later than September 21, 2020.

Precedent suggests, if List 3 is found to be unlawfully promulgated, there may be an opportunity for all importers – including non-litigants – to obtain duty refunds through refund requests filed with Customs and Border Protection (CBP) or through an administrative refund process established by CBP. There is no guarantee, however, that such precedent would be followed. Filing a court claim would be a conservative approach and would likely result in an earlier refund.

We are available to prepare complaints for interested clients to preserve the ability for duty refunds at the earliest opportunity. While the litigation route might not make sense for every importer, there are instances where such an approach may be advisable. Factors that may weigh in favor of filing suit may include the amount of total duties paid under Lists 3 and/or 4A, the public nature of the lawsuit, and the cost of participating in such an action.

If you have List 3 Section 301 China tariffs and interested in pursuing such an action, please contact us immediately for an assessment of your company’s specific situation and no later than Thursday, September 17, 2020. Given the short filing deadline, please have prepared:

• The Harmonized Tariff Schedule number(s) under which you imported merchandise on Lists 3 and/or 4;
• An estimated date range of the import shipments;
• An estimate of the total value of Section 301 duties paid; and
• The identity of the importer of record/party responsible for duty payment.

The Agreement

The agreement has eight chapters, including chapters on (1) intellectual property, (2) technology transfer, (3) agriculture, (4) financial services, (5) macroeconomic policies and exchange rate matters and transparency, (6) expanding trade, and (7) bilateral evaluation and dispute resolution.

As part of the agreement, the United States has already postponed a 15 percent tariff that was scheduled to be imposed December 15th on $160 billion of Chinese imports. The United States has also agreed to reduce tariffs on an additional $120 billion of Chinese imports from 15 percent to 7.5 percent. The reduction is set to take place February 14, 2020, according to a draft Federal Register notice from the United States Trade Representative. The agreement commits China to increase purchases of U.S. goods and services by $200 billion over 2017 levels. This includes $77 billion in manufactured goods, $32 billion in agricultural goods, $52 billion in energy, and $37 billion in services over the next two years. All purchases will be at market prices, and market conditions will dictate the timing of purchases.

The intellectual property chapter covers trade secrets, pharmaceuticals, patents, trademarks, geographical indications, and the enforcement of pirated and counterfeit goods. Specifically, it expands the scope of trade secret misappropriation liability, shifts the burden of proof requirements in civil cases, and adds criminal penalties for willful misappropriation. It also creates a mechanism to resolve pharmaceutical patent disputes early in the process and extends the effective patent term of patents experiencing delays in the Chinese approval process. The agreement requires that China increase its civil and criminal penalties to levels sufficient to deter intellectual property violations.

The technology transfer chapter covers various practices the United States determined to be unreasonable or discriminatory. China has agreed to end the practice of forcing foreign companies to transfer their technologies to Chinese firms as a condition for obtaining market access and administrative approvals. The chapter requires China to enforce its technology transfer laws in an impartial, fair, transparent, and non-discriminatory manner. China must publish the rules of procedure, provide parties adequate notice, allow parties to review evidence and respond, and allow parties to have legal counsel for the proceedings.

The agriculture chapter covers structural barriers to trade separate from China’s increased purchase obligations. The provisions should increase U.S. food, agriculture, and seafood exports and market access. The provisions aim to increase American farm and fishery income and promote job growth nationwide. The deal removes barriers for U.S. beef, pork, poultry, processed meat, rice, seafood, and pet food, among others.

The financial services chapter allows U.S. financial service providers to compete fairly and expand in the Chinese market. The chapter covers a broad range of financial services including banking, insurance, securities, and credit rating services, easing restrictions U.S. firms currently face in China. The provisions of this chapter also require China to eliminate foreign equity limits for securities companies, fund management companies, and U.S. life, health, and pension insurance providers.

The macroeconomic policies and exchange rate matters and transparency (currency) chapter requires both parties to refrain from competitive devaluations and targeting exchange rates for competitive reasons. The chapter also reaffirms the parties’ commitments to disclose relevant data publicly and refers conflicts on these issues to the dispute resolution system. The United States removed China’s currency manipulator designation earlier this week.

The agreement also includes a chapter on dispute resolution. Enforcement has always been problematic in agreements between the United States and China. The chapter creates a Trade Framework Group to discuss high-level implementation issues and a Bilateral Evaluation and Dispute Resolution Office in each country to deal with low-level implementation issues and settle disputes. The dispute resolution process begins with the complaining party launching an appeal. Designated officials from the opposing party’s Bilateral Evaluation and Dispute Resolution Office then assess the appeal. If those officials cannot resolve the issue, the appeal escalates to the Deputy United States Trade Representative and the designated Vice Minister, and then to the United States Trade Representative and the designated Chinese Vice Premier. If they cannot resolve the dispute, the complaining party can suspend obligations under the agreement or adopt a proportionate remedial measure. If the suspension or remedial measure was made in good faith, retaliation is not allowed. The parties may withdraw from the agreement if they believe the action is taken in bad faith.

Next Steps

While the agreement is a step in the right direction, the trade war is far from over. According to President Trump, the “phase one” agreement only covers about half of the relevant issues both sides wish to see addressed. Many of the “phase two” issues are more complex and controversial. These issues include Chinese government subsidies, intellectual property theft, state control of the Chinese market, and discrimination against foreign firms. In the meantime, U.S. tariffs will remain in place on approximately $370 billion of Chinese goods. Both sides will be extremely reluctant to give ground on many of these issues without gaining significant benefits.

“Phase two” negotiations are set to begin shortly now that “phase one” has concluded. The President noted, however, that the United States and China would not complete the agreement before the upcoming November election.

The success of “phase two” will depend in part on how the United States and China implement the “phase one” agreement. If both countries keep up their end of the bargain and the enforcement provisions effectively resolve any disputes, negotiations will likely continue in earnest. If the parties ignore their commitments and the dispute resolution process proves toothless, the chances of concluding a comprehensive “phase two” agreement will diminish significantly.

There are also concerns that some of China’s commitments are infeasible. The commitment to purchase an additional $32 billion in agricultural products, for example, represents a massive increase over the highest level of trade between the United States and China. China’s ability to purchase such a large amount of agricultural products is uncertain. To do so, China would likely have to divert imports from current sources, distorting trade worldwide. The language of the agreement seems to contemplate this. It notes that Chinese purchases are subject to market conditions and WTO rules. It also notes that the United States must ensure that it will make available enough goods and services to allow China to meet its purchase obligations. This suggests that parties may view these amounts as ambitious targets, not ironclad purchase commitments.

The other purchase requirements also raise questions about implementation including questions such as how much, to whom and when? Many details need to be addressed before progress on “phase two” can be expected.

With the “phase one” agreement complete, tensions should ease for now. This first step towards ending the trade war is an important one, but implementation will be the true judge of its success.

Importers of products on List 4A must file exclusion requests with the agency by January 31, 2020. Once USTR posts a request, there is a 14-day comment period for interested stakeholders to oppose or support, followed by a 7-day rebuttal period for the requestor to respond. USTR will grant approvals and denials on a rolling basis.

If granted, any importer of a product may utilize an exclusion, which would apply retroactively to the September 1, 2019 effective date. Importers may use an exclusion going forward, and also may seek duty refunds through U.S. Customs and Border Protection. USTR has set a uniform expiration date of September 1, 2020 for List 4A exclusions, regardless of the date they are granted.

Pursuant to the U.S.-China Phase One trade deal signed January 15, tariffs on List 4A products will be reduced to 7.5 percent from 15 percent. According to a draft Federal Register Notice made available this week, the effective date of the roll back is February 14, 2020. The rate reduction is not retroactive from September 1, 2019.

The exclusion process does not cover products on List 4B, which were scheduled to be assessed an additional 15 percent duty effective December 15, 2019. As a result of the Phase One negotiations and agreement, the President suspended indefinitely the application of additional 301 tariffs on List 4B products.

This news follows comments made last week by Chinese Ministry of Commerce spokesperson Gao Feng, who told the press that China and the United States have agreed to reduce tariffs over time if they are able to finalize a “phase one” agreement. “In the past two weeks, the lead negotiators from both sides have had serious and constructive discussions on resolving various core concerns appropriately. Both sides have agreed to cancel additional tariffs in different phases, as both sides make progress in their negotiations,” said Feng, according to Reuters.

The two countries would reduce tariffs over time, although the extent of the reductions will depend on what is included in the ultimate agreement. The United States could potentially cancel the tariffs scheduled to be imposed on December 15 as part of the agreement. Given the Administration’s willingness to use tariffs as leverage to achieve its broader trade goals, which tariffs would be reduced and by how much is largely uncertain. President Trump also noted in his remarks that he would substantially increase tariffs if the two countries were unable to reach a deal.

Both comments suggest that China and the United States are still in the process of “papering” the handshake deal reached last month between President Trump and President Xi Jinping. The agreement, originally blogged here, centers on a commitment by China to purchase up to $50 billion of U.S. agricultural products in return for the suspension of planned U.S. tariff increases on $250 billion in Chinese goods.

Both sides had hoped to finalize the agreement at the Asia-Pacific Economic Cooperation summit in Chile this month, but Chile called off the event due to ongoing protests in the country. A new venue has proven elusive. President Trump suggested Iowa, but China is unlikely to agree to a location in the heartland of the United States. An administration official said that London is a possibility, after the NATO summit in December.

On August 1, 2019, the president announced that a 10 percent tariff will go into effect on the remaining $300 billion worth of imports from China, which we previously blogged about here. The president previously delayed imposing tariffs on “List 4” goods after a conversation with the Chinese president at the G20 leaders summit back in June. This new announcement comes on the heels of talks regarding a trade deal between U.S. and Chinese government officials last week in Shanghai. Previous reports indicated that a deal was close to being finalized several months ago, however, the president has stated that the Chinese decided to re-negotiate the deal prior to signing. Following last week’s dialogue, the two governments agreed to meet again in September to continue discussing a potential trade deal. This means, of course, that absent a change to that timeline there is not another opportunity for the two governments to negotiate prior to the imposition of new duties on September 1.

In response, China announced on Friday that it would impose counter-measures if and when the additional tariffs go into effect on September 1. While no details about the nature of counter-measures was mentioned, a statement released by the Chinese Ministery of Commerce indicates that the Chinese believe that additional tariffs is a violation of the agreement between the two countries’ presidents at the G20 summit in June. Then today, China devalued the yuan to a significantly low point (letting it fall below its 7-to-1 ratio with the U.S. dollar) in what is certainly a response to last week’s announcement regarding the new tariffs. The Chinese government has also reportedly asked Chinese state-owned companies to discontinue purchasing U.S. agricultural products, an issue that is wrapped up in the ongoing U.S.-Chinese trade deal negotiations. Given that the administration has only announced but not yet imposed the new wave of tariffs, this may not be the end of China’s retaliatory measures.

Section 301 tariffs on List 3 originally went into effect in September 2018 at a level of 10%. On March 10, 2019, the List 3 tariffs increased to 25%. That increase triggered an exclusion process, which opened June 30, 2019. The exclusion process, administered by the Office of the U.S. Trade Representative (“USTR”), will be similar to the exclusion request procedures implemented with respect to tariffs on List 1 and List 2 imports. Requests for a Section 301 tariff exclusion for a particular imported good from China may be submitted any time through September 30, 2019. Interested parties may object to the request within 14 days. The original requesting party may then submit a reply 7 days thereafter. USTR will evaluate each exclusion request based on several considerations, including whether the product is only available from China; whether a comparable product is available in the United States or from a third country; whether the party requesting the exclusion has tried to source the product from the United States or a third country; whether the imposition of the Section 301 tariff will cause “severe economic harm” to the party requesting the exclusion; and whether the product is strategically important to China.

On May 13, 2019, the Administration announced plans to impose Section 301 tariffs on the remaining Chinese imports, valued at $300 billion (“List 4”). USTR held public hearings on the proposed list of covered goods in mid-June. On June 29, 2019, however, President Trump announced that, as the result of negotiations with President Xi Jinping of China, the imposition of tariffs on List 4 goods will be halted for now.

All merchandise entered after June 1^st will be subject to the 25% rate.

The U.S. Trade Representative also issued a Notice modifying the implementing instructions regarding merchandise in foreign trade zones. According to the May 10^th Notice, merchandise subject to the Section 301 third tranche and admitted into a foreign trade zone in “privileged foreign” status will retain that status and will be subject, at the time of entry for consumption (i.e. entered into the commerce of the U.S.) to the additional duty rate that was in effect at the time of FTZ admission of the goods. Therefore, merchandise entered into a foreign trade zone as privileged foreign status prior to May 10^th will be locked into the 10% rate.