‘Flexibility’ Ran Dry When List 4 Tariffs Arrived, According to USTR Remand Report Justifying Section 301 Action

The court’s three-judge panel's April 1 decision found that USTR had violated the Administrative Procedure Act, and remanded the lists 3 and 4A tariffs for “reconsideration or further explanation” of the agency’s rationale for imposing the duties, plus the thinking behind its decisions to remove some tariff subheadings from the lists while keeping others intact (see 2204010061). The determination purports to provide the further explanation the court had ordered, while also responding to “significant comments” received during the lists 3 and 4A rulemakings. The document was signed by Juan Millan, assistant USTR for monitoring and enforcement.

USTR said it prepared the document “under respectful protest,” without stating the grounds for that protest. The agency didn’t respond to an emailed request for comment. The court granted USTR a 30-day deadline extension to file its remand results. USTR in June had asked for a 60-day delay due to the volume of work involved, the agency’s limited staff resources and other projects that were compounding its workload (see 2206170041).

Striking a balance between protecting against consumer harms from the duties imposed, while pressuring Beijing to curb its bad behavior, especially came into play when USTR proposed lists 3 and 4A tariffs on a broad assortment of goods, the remand results said. When making List 3, USTR received over 6,000 comments asking for the removal of various tariff subheadings. Most of them didn't rise "to the level of comments the Trade Representative determined to act on by removing products," the remand results said.

The denied comments specifically requesting the removal of the tariffs on inputs and component parts failed to show how imposing more duties on the input "would not be practicable or effective to eliminate China's acts, policies, and practices," USTR said. The comments also "failed to show how imposing the additional duties would cause disproportionate economic harm to U.S. interests," the remand explained.

USTR then broke down its rationale for dropping 297 tariff lines from the List 3 tariffs. The excluded goods included rare earth materials and critical minerals, seafood products shipped to China for processing, Chinese antiques and works of art imported from third countries, certain consumer electronics, certain health and safety products, and various chemicals.

The category of consumer goods dropped from the list included modems, routers and network gateways, plus smart speakers, smartwatches, Bluetooth headphones and fitness trackers.

“With respect to consumer impact, comments asserted generally that the proposed tariff would make internet enabled technologies less affordable, while other comments asserted that national security and privacy risks could arise if U.S. consumers switched to cheaper Chinese devices that store user information in China,” the determination said. USTR “subject matter experts” determined that the 8517.62.00 subheading also included “certain industrially significant technology” related to the Made in China 2025 industrial program, specifically next-generation information technology and mobile communications systems, it said.

The 8517.62.00 subheading had a 2018 estimated annual trade value of $22 billion, accounting for more than 10% of the “aggregate trade value” of all the proposed List 3 tariff lines and was by far the largest subheading “by trade value for which additional duties had been proposed,” the determination said. “Given the value of imports under the subheading, and the inclusion of Made in China 2025 products, it was not feasible to remove the entire subheading,” it said.

For the fourth list of goods to be subject to the tariffs, USTR sought to add "essentially all products not currently covered" by the duties -- around $300 billion worth of items. The agency got almost 3,000 comments, later splitting the list into two parts, with List 4A including 3,243 tariff lines.

In the remand results, USTR walked the court through its decision to drop various items from the list, including goods for national security or health and safety reasons, items for U.S. port operations, U.S.-caught seafood shipped to China for processing and religious texts. Defending its move to spare cranes, lifts and shipping containers from the duties, USTR said serious concerns were raised over the unavailability of these products outside of China. For shipping containers, the numbers were stark, with 97% of all steel shipping containers made in China, meaning that the duties "would exacerbate the economic challenges of the domestic transportation industry."

As for the goods the agency decided to keep on the final List 4 -- 25 tariff subheadings in total out of a proposed 3,805 -- USTR said it had "limited flexibility in removing additional tariff subheadings," given the scope and the direction from the president.

For consumer electronics, USTR worked with the International Trade Commission, CBP and the Census Bureau to create a new 10-digit statistical code, 8517.62.00.90, that “separated routing and switching apparatus from other, more consumer electronics,” the determination said. “This allowed USTR to include on Final List 3 the Made in China 2025 products, while excluding consumer products.”

But the decision later came back to haunt consumer tech interests when USTR restored that 10-digit consumer-product subheading to List 4A tariff exposure, the determination said. To meet then-President Donald Trump’s direction that USTR identify $300 billion in Chinese goods for additional duties on List 4A, USTR included 194 of the 297 tariff lines it had removed from the final List 3, it said. The final List 4, including the List 4A tariffs imposed in September 2019 and the List 4B duties postponed to December 2019 but never imposed, included 180 of the 194, it said.

Though comments were submitted “requesting that certain subheadings be removed again ... it was not possible to do so in all cases,” the determination said. Amid USTR’s “lack of flexibility to remove entire tariff subheadings” from List 4A, the agency “determined to establish an exclusion process to allow interested persons to request that particular products” be exempted, it said.

Matt Nicely, the lead Akin Gump attorney for Section 301 test-case plaintiffs HMTX Industries and Jasco Products, didn’t respond to an email request for comment on USTR’s remand determination. Under two previous orders from the court, the plaintiffs and the government are to file by Aug. 15 a joint status report and proposed procedural schedule for the “further disposition of this litigation.”