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Filed Under 'Respectful Protest’

‘Flexibility’ Ran Dry When List 4 Tariffs Arrived: USTR Remand Report

The Office of the U.S. Trade Representative often found itself weighing the possible harm to U.S. consumers from the Lists 3 and 4A Section 301 tariffs against the need to give the duties enough teeth to curb China’s allegedly unfair trade practices, said the agency in its 90-page “remand determination,” filed Monday in docket 1:21-cv-52 at the U.S. Court of International Trade.

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The court’s three-judge panel's April 1 decision said USTR 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 2204010059). The determination purports to provide the further explanation the court 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, and didn’t respond to a request for comment. The court granted USTR a 30-day deadline extension to file its remand results. USTR asked for a 60-day delay in June due to the volume of work involved, the agency’s limited staff resources and other projects that were compounding its workload (see 2206170034).

Striking a balance between protecting against consumer harm from the duties imposed, while pressuring Beijing to curb its bad behavior especially came into play when USTR proposed List 3 tariffs in 2019 on the broad assortment of consumer tech goods imported from China under the 8517.62.00 subheading, said the determination. The category 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,” said the determination. 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.

Imports in the 8517.62.00 subheading had a 2018 estimated annual trade value of $22 billion, or 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,” said the determination. “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.

USTR worked with the International Trade Commission, Customs and Border Protection 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-targeted electronics, said the determination. “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 (see 1905140025), said the determination. To meet then-President Donald Trump’s direction that USTR identify $300 billion in Chinese goods for additional duties on List 4A, USTR had no choice but to include 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,” including CTA’s request to remove all 8517.62.00.90 goods from List 4, “it was not possible to do so in all cases,” said the determination. 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.

The determination noted the National Retail Federation and the Retail Industry Leaders Association issued warnings during the List 3 rulemaking and again for List 4 that the tariffs would raise consumer prices -- arguments both groups continue to make today amid historically high inflation. "As reflected in USTR’s notices and press statements," said the document, "USTR shared the view that mitigating harm to U.S. consumers was an important consideration in developing and finalizing lists of products that would be subject to additional duties."

While the List 4 rulemaking notice "proposed raising duties on essentially all remaining imports from China, thus necessitating the need for USTR to include consumer products, USTR requested interested parties to address whether imposing additional duties on a particular product would cause disproportionate economic harm to U.S. interests, including consumers," said the determination. USTR concerns about consumer harm prompted the decision to defer the List 4B tariffs for three months, covering products for which China accounted for 75% or more of U.S. imports, it said.

Matt Nicely, the lead Akin Gump attorney for Section 301 test-case plaintiffs HMTX Industries and Jasco Products, didn’t respond to a 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.”