USTR Tai Takes Control of Trump Tariffs: Some Section 301 Tariffs Suspended and Others May Be Implemented on Six Countries With DST

When President Biden tapped Katherine Tai as US Trade Representative (USTR), she inherited ongoing tariffs and half-finished investigations undertaken by her predecessor under the Trump Administration. Now that Ambassador Tai has been confirmed and officially assumed office, there have been some early developments to take ownership of both the ongoing investigations regarding Digital Services Taxes (DSTs) and the EU-Airbus Dispute. As emphasized in her “Day-One” Message to USTR staff, these developments are consistent with Ambassador Tai’s goal of rebuilding US alliances, while continuing to address the challenges posed by China and other countries.

One Step Closer to Tariffs in DST Investigations

Under President Trump, the USTR initiated a number of investigations into Digital Services Taxes (DST) that have been adopted or are being considered by eleven US trading partners based on a concern that DSTs discriminate against large, US-based technology companies. In December 2019, a USTR investigation determined that the French DST was actionable under Section 301 because it intended to discriminate against and burdened US technology companies, operated retroactively and contravened prevailing tax principles. In July 2020, the USTR announced 25% retaliatory duties on certain French cosmetics and handbags with an annual trade value of $1.3 billion but has continued to suspend implementation.

Shortly before leaving office in January 2021, the Trump Administration determined that similar DSTs in six additional countries—Austria, Spain, the United Kingdom, India, Italy, and Turkey were likewise discriminatory, unreasonable, and burdensome or restrictive to US commerce, but declined to consider action. For four other jurisdictions subject to DST investigations – Brazil, the Czech Republic, the European Union, and Indonesia – the USTR also released a “status update” detailing the continuing investigations and engagement on DST issues.

These vague announcements confirmed that the US response to the imposition of DSTs would be an issue for the Biden Administration. Sure enough, shortly after assuming office, Ambassador Tai announced the USTR’s “next steps” in the DST investigations. Couched as a move to preserve procedural options, the USTR is proceeding with a “notice and comment” process in the investigations against six countries – Austria, India, Italy, Spain, Turkey, and the United Kingdom. The investigations against the remaining four jurisdictions – Brazil, the Czech Republic, the European Union, and Indonesia – which have not implemented DSTs, have officially been terminated.

Though Ambassador Tai notes that the US “remains committed to reaching an international consensus through the OECD process,” the six ongoing investigations will move forward in the meantime to ensure the possibility of action, including the imposition of tariffs, if necessary. To this end, the USTR has released a preliminary list of products for each country that may be subject to additional tariffs of up to 25% if no consensus is reached, including, but not limited to:

• Austrian apparel and textiles, ceramics, electronics, kitchenware, and pianos;
• Indian jewelry, wood products, textiles, and seafood;
• Italian apparel, accessories, footwear, handbags, perfumes, optical products, and seafood;
• Spanish apparel, accessories and footwear, handbags, glassware, and seafood;
• Turkish carpets, linens, tiles, jewelry; and
• UK apparel, footwear, cosmetics, and furniture.

The USTR is accepting written comments on the investigations and will hold virtual hearings on the proposed action.

The timeline for the virtual hearings and for the submission of written comments is below. In addition to country-specific comments and hearings, the USTR has created a docket for “multi-jurisdictional submissions” and a separate “multi-jurisdictional virtual hearing” for parties that wish to address issues common to two or more countries.

The USTR is soliciting comments and testimony on the following issues:

• The level of the burden or restriction on US commerce resulting from the DST, including the amount of DST payments owed by US companies, the annual growth rate of such payments, and other effects, such as compliance costs.
• The appropriate aggregate level of trade to be covered by additional duties.
• The level of the increase, if any, in the rate of duty.
• The specific products to be subject to increased duties, including whether the tariff subheadings listed in the Annex should be retained or removed, or whether tariff subheadings not.
• Whether imposing increased duties on a particular product would be practicable or effective to obtain the elimination of the acts, policies, and practices, and whether imposing additional duties on a particular product would cause disproportionate economic harm to US interests, including small- or medium-sized businesses and consumers.

Pause for EU Tariffs

Additional tariffs were imposed under former President Trump to enforce the rights of the United States in the World Trade Organization dispute involving subsidies provided to the large civil aircraft industry by the European Union (EU). This is a seventeen years old WTO litigation in search of a negotiated settlement. Over the course of this litigation, both sides have imposed tariffs on aircraft, as well as on a range of unrelated agricultural and industrial products. In the last round of retaliation, tariffs with an annual trade value of approximately $7.5 billion have been in effect since October 19, 2019, on imports from the EU and the United Kingdom (UK). Though EU representatives have been vocal regarding their desire for a negotiated settlement, an agreement failed to materialize under President Trump and the
tariffs were modified to increase product coverage on December 30, 2020, shortly before he left office.

However, at least initially, things have progressed more positively under the Biden Administration, first with a Joint US-UK Statement suspending the additional tariffs on imports from the UK for four months beginning March 4, 2021, then with a Joint US-EU Statement similarly suspending the tariffs on imports from the EU the following day. The four-month pause for the additional EU tariffs was formalized in a Federal Register notice and took effect on March 11, 2021. In turn, the EU also suspended its own tariffs on approximately $4 billion of US goods, which have affected prominent US exports such as alcohol, agricultural products, and aircraft.

In the Joint Statements with the UK and the EU, the USTR emphasized a desire to “de-escalate the issue,” “create space for a negotiated settlement,” and “ease the burden on their industries and workers.” In the Joint Statement with the EU, the USTR delineated “key elements” of the comprehensive negotiated settlement it is seeking in this dispute, including “disciplines on future support in this sector, outstanding support measures, monitoring and enforcement, and addressing the trade distortive practices of and challenges posed by new entrants to the sector from non-market economies, such as China.”

As noted above, tariffs on both UK and EU imports will remain suspended for four months to allow such an agreement to be negotiated between the jurisdictions. Please note that there are special timing rules governing withdrawals from Foreign Trade Zones (FTZ), depending on the status of the goods being admitted to the FTZ prior to the effective date of the exemptions.

What Should Companies That Import or Sell Products That May Be Subject To Section 301 Duties Do?

Due to the significant potential impact these additional tariffs of up to 25% may have on a wide range of products from Austria, Spain, the United Kingdom, India, Italy, and Turkey, importers should consider filing written comments and appearing at the virtual hearing if they are importing any of the listed products in the Annex for each country. This testimony can be instrumental in the USTR’s determination of whether to implement the Section 301 duties or whether to assess the duties on specific products.

Arent Fox’s International Trade and Investment team is experienced both in representing companies before the Section 301 Committee and in counseling companies in mitigating the effects of Section 301 tariffs. If you import or sell goods from the six named countries, particularly the products on which Section 301 tariffs are proposed, Arent Fox can counsel you regarding your options. Our team can assist in reviewing product lines to confirm the extent to which you may be affected and assist in preparing comments and testimony.

The use of Section 301 tariffs as a negotiation tool creates substantial risks for companies that import products from implicated countries. While the large civil aircraft dispute Section 301 tariffs have been temporarily suspended, they may be re-instated if the negotiations are not successful. It is also uncertain whether Section 301 tariffs will be assessed on products in connection with DST. Our team can help identify strategies and duty savings avenues to mitigate the effects of the proposed tariffs.

If you would like more information, please contact any Arent Fox trade group member listed below.