Section 301 Tariffs: Not Going Away Any Time Soon

In August 2017, the Office of the US Trade Representative (USTR) initiated a trade investigation under Section 301 of the Trade Act of 1974. Its purpose was to address unreasonable or discriminatory practices from Beijing adversely affecting US economic interests. That investigation led to double-digit tariffs on a wide swath of imports into the United States from China, many of which that are important to US production of electric vehicle (EV) and internal combustion engine (ICE) products.

The tariffs continue today. Since 2018, the Section 301 “China” tariffs ranging between 7.5% and 25% have been levied against critical components of the EV supply chain sourced from China.

Latest Developments

At the time of this writing, with the results from the Section 301 Four-Year Review still looming, it remains uncertain how the USTR will apply the Section 301 tariffs through 2024, and whether the list of products will remain the same or will be expanded. In addition, the USTR has not given any indication of whether (or how) they plan to provide US importers with a tariff exclusion opportunity.

In December 2023, for the second time during the last year, the USTR announced that the tariff exclusions for 429 product categories that were originally set to expire on December 30, 2023, would be extended until May 31, 2024.

Unlike previous extension requests, this recent extension announced a request for comment on the continued extension of the 429 product exclusions after the expiration on May 31. This comment process will start on January 22, 2024, and end on February 21, 2024.

What’s Next?

The most recent extension of the 429 product exclusions appears to have been decoupled from the Section 301 Four-Year Review. Specifically, the underlying reason for the previous extensions that were granted on these 429 product exclusions had been associated with the ongoing Section 301 Four-Year Review.

Instead of relying on the Section 301 Four-Year Review to continue the extensions indefinitely, this most recent extension is seeking comments to determine if the exclusions on these 429 product categories should continue after May 31.

This decoupling of the extension on the 429 product exclusions and the Section 301 Four-Year Review appears to indicate that the Section 301 Four-Year Review process is unlikely to be completed by May 31. Given the political environment this year, it would be surprising if the Section 301 Four-Year Review process were completed before the elections. [Editorial Note: Since issuing this alert, USTR issued a letter to a Congressional Committee, indicating the review should be done “in the next few months.” While we are hopeful that this new deadline will be met, similar previously announced deadlines by USTR were not met, and therefor companies should remain nimble when planning and implementing their Section 301 tariffs strategies. It is important to remember that the history of these Section 301 tariffs has been made up of multiple “tranches” where corresponding decisions have been made through extensive processes over different time periods. What will be decided soon and what will be decided later, will continue to face political pressures.]

In addition to the ongoing review and extension processes with the USTR, the five-year statute of limitation (SOL) period for the initial imports subject to Section 301 tariffs has already expired. As the SOL expires for other imports, US Customs and Border Protection (CBP) may increasingly target Section 301 tariffs during audits and enforcement mechanisms to capture imports before their corresponding SOL period expires.

How We Can Help

“Companies need to really understand where their products are coming from, and they need to do thorough analyses of what manufacturing’s done, how much value’s added and come to an assessment that’s based on reasonable care to determine that origin.”

— Partner Antonio Rivera, as quoted by Auto News Canada

The key factors for determining whether Section 301 tariffs apply consist of the imported product’s tariff classification and its country of origin. When the product’s origin is China under the “substantial transformation” test, the list of classifications subject to Section 301 tariffs include the following products:

• Battery cells, battery modules, battery packs, electrical control boards and inputs for the battery management system (BMS), charging stations and components (e.g., converters and transformers), most automotive parts (e.g., electric motors, transmission, body, axle, suspension, steering assemblies), critical minerals (e.g., lithium, cadmium, cobalt, lead, mercury, zirconium, magnesium), pitch coke, and artificial graphite.

From these products, only a few remain excluded through May 31 (e.g., certain electric motors, printed circuit assemblies, static converters, and artificial graphite).

Whether it is evaluating an import’s origin or classification to mitigate the risk of CBP scrutiny on Section 301 tariffs or advocating USTR for product exclusions, our Electric Mobility team at ArentFox Schiff works closely with EV executives to provide strategic advice on the applicable rules beyond the transactional calculation.