United States-China Trade Updates to Ring in the New Year

Stay tuned, 2024 is sure to be a bumpy ride!

Developments in United States-China Trade Relations

• Section 301 Exclusions – Just in the nick of time, the US Trade Representative (USTR) Katherine Tai announced the extension of 352 previously reinstated exclusions and 77 COVID-19-related exclusions through May 31, 2024. These exclusions were due to expire on December 31, 2023. The USTR also announced that it will open a docket for public comments regarding these exclusions beginning January 22, 2024, through February 21, 2024. Importers should review the list to take advantage of any existing exclusions and consider participation in the comment process.
• House Select Committee Report – In a 53-page report issued in December 2023, the US House Select Committee on the Strategic Competition between the United States and the Chinese Communist Party (House Select Committee) outlined its policy framework vis-à-vis China. The House Select Committee’s recommendations can be broadly grouped into three categories, each which impact trade with China: (1) reset the terms of the United States’ economic relationship with China; (2) end the flow of United States’ technology and capital that support China’s military and human rights abuses; and (3) invest in becoming a global leader in technology and reduce reliance on certain Chinese industries and products.
• Customs Modernization Act of 2023 – This bill proposes to amend the Tariff Act of 1930 to strengthen and modernize the authority of US Customs and Border Protection (CBP) to enforce the customs and trade laws of the United States. Significantly, the Act would authorize additional information to be collected regarding Section 321 de minimis shipments (under $800), in response to allegations that the program is used by Chinese companies to bypass import requirements.

No News on Section 301 Four-Year Mandatory Review, but Certain Section 301 Exclusions Extended and Process Announced to Request Public Comments

As most importers are painfully aware, Section 301 tariffs on imports from China were implemented in 2018 after a USTR investigation determined that China’s acts, policies, and practices were harmful to the US economy (see our alert here). Importers and the trade community have been waiting for nearly a year for the USTR to complete its mandatory four-year review, which will determine whether Section 301 tariffs remain or increase on some or all China origin goods. To date, no determination has been made, despite USTR Tai’s comments that the USTR review would be concluded by the fall of 2023.

Importers that relied on the few active Section 301 exclusions also eagerly awaited the USTR’s determination regarding whether the exclusions would be extended. The USTR granted those importers a “holiday gift,” and on December 26, 2023, the agency announced that it would extend the 429 active exclusions, including 352 previously reinstated exclusions and 77 COVID-19 exclusions another five months, through May 31, 2024. Despite the ongoing Section 301 four-year review, as part of its notice, the USTR also requested public comments regarding whether the active Section 301 exclusions should be further extended. The docket will open on January 22, 2024, through February 21, 2024. The USTR’s evaluation will focus on several factors, including:

• the availability of products covered by the exclusion from sources outside of China;
• the efforts undertaken to source products covered by the exclusion from the United States or third countries;
• the reasons why an extension on the specific Section 301 exclusion is needed;
• whether there is a timeline to shift sourcing of the subject product(s) from outside of China; and
• whether or not extending the exclusion(s) will impact US interests.

Companies with products subject to Section 301 tariffs should evaluate whether their products are impacted by the USTR’s recent notice and consider submitting a public comment.

The House Select Committee’s Report

The House Select Committee recently issued a 53-page report outlining its proposal for future economic relations with China. The House Select Committee is a bipartisan group of representatives tasked with examining the United States’ relationship with China and developing a plan of action to stem threats posed by China and to protect the United States’ values, national security, and economy. The House Select Committee’s has no legislative authority and other committees must act before any of these recommendations could become law. However, these bipartisan recommendations may signal how the United States intends to handle relations with China in the future.

The report’s findings and recommendations aim to “reset” the United States’ trade relationship with China and prevent the flow of capital and technology supporting China’s military and human rights abuses. The report also outlines a plan for the United States to emerge as a global technological leader and to reduce its reliance on Chinese industry and products.

We highlight below a few significant trade policy elements from the Report’s recommendations:

• The United States should strip China of its most favored nation status (MFN) under the Harmonized Tariff Schedule of the United States (HTSUS) and move imports from China to a separate HTSUS column. Under this recommendation, imports from China covered by this new column would likely be subject to higher duty rates than the standard “column 1” duty rates. Additionally, products deemed to fall under the sectors important “for national and economic security” will likely be tariffed at higher rates.
• Congress should reduce the de minimis value threshold for duty-free shipments into the United States, with particular focus on imports from China. According to the report, the de minimis rules must be strengthened because shipments cannot be properly scrutinized for concerns about forced labor.
• The report also calls for the renewal of Section 421 of the Trade Act of 1974, a provision that allows the US International Trade Commission to restrict or impose additional tariffs on Chinese goods that threaten to cause market disruptions to domestic producers. Significantly, Section 421 does not include the same proof of unfair trade practices requirement as Section 301 for the government to impose additional duties.
• Among these recommendations, the House Select Committee calls for further legislation to prevent investment in Chinese companies subject to US government sanctions or implicated as using Uyghur forced labor. The report also recommends that certain actions be taken to strengthen enforcement of the Uyghur Forced Labor Prevention Act (UFLPA).
• Congress should direct the US Department of Commerce to impose import duties on foundational (legacy) semiconductors from China.

Introduction of The Customs Modernization Act of 2023

In mid-December, US Senators Bill Cassidy (R-LA) and Sheldon Whitehouse (D-RI) introduced the Customs Modernization Act of 2023 (Mod Act of 2023), which would make significant changes to current laws enforced by CBP and give the agency expanded authority to access data from parties throughout the supply chain and require the public disclosure of manifest information for aircraft, truck, and rail shipments.

The introduced bill also seeks to address evolving technologies and trade practices, including e-commerce. Similar to the recommendations highlighted by the House Select Committee Report discussed above, the Mod Act of 2023 proposes to impose more significant penalties for violations of the Section 321 de minimis provisions to guard against unlawful avoidance of US tariffs or trade compliance obligations. While the Bill’s proposed changes on Section 321 shipments would impact goods from all countries, it is likely that the driving force behind these changes was aimed to curb Chinese goods from accessing de minimis benefits. These changes come on the heels of broader efforts by members of Congress, including Cassidy, to reform the US’ de minimis rules as it relates to China. Indeed, during the summer, Cassidy introduced a bill that, among other things, proposed to bar Chinese goods from being granted de minimis treatment.

How Can We Help?

The USTR’s review of Section 301 tariffs and exclusions, the introduction of the Mod Act of 2023, and the House Select Committee’s Report signal that trade facilitation and enforcement with China will rank at the top of US Congressional agendas in 2024 and moving forward. Our team will continue to monitor developments.

ArentFox Schiff’s International Trade and Investment team is experienced both in counseling companies trading with China and in navigating the effects of Section 301 tariffs. If you would like more information, please contact any ArentFox Schiff Customs & Import Compliance group member listed below.