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Spending Bill Requires USTR to Launch List 3 Tariff Exclusions by March 17

U.S. Trade Representative Robert Lighthizer has less than 30 days to launch an exclusion process for the third tranche of Trade Act Section 301 tariffs on $200 billion in Chinese imports that took effect Sept. 24 under the spending bill President Donald Trump signed Friday averting a second government shutdown.

The measure marks the first congressional oversight mandate on Trump's Section 301 Chinese tariffs, and is buried deep in an “explanatory statement” accompanying the spending bill and referenced throughout the legislation. House Appropriations Committee Chairwoman Nita Lowey, D-N.Y., submitted the statement with the bill after two weeks of bipartisan negotiations resulted in the compromise budget resolution.

Lighthizer has resisted creating an exclusion process for the third round of tariffs for as long as the duties remain at 10 percent, despite congressional pressure on him to act. Dozens of House Democrats and Republicans signed a letter Oct. 15 urging Lighthizer to initiate an exclusion process on the third tranche, modeled after those in the first two rounds, to "afford U.S. companies the opportunity to seek relief if tariffs harm their global competitiveness” (see 1810160072). An exclusion process "has been an integral part" of the first two tariff lists, and "must be a part" of the third as well, said the lawmakers.

The explanatory statement binds Lighthizer to begin initiating the exclusion process on the third tranche by March 17, plus report his progress within a month to the House Appropriations and Ways and Means Committees and the Senate Finance Committee. Trade experts have criticized the exemption process in the first two rounds for lack of transparency and for the rarity of exclusion-request approvals (see 1810110045). Critics applauded when Lighthizer’s office issued its first batch of exemptions days before Christmas, but well after hundreds of requests submitted months earlier were denied, often with little or no explanation (see 1812260010).

The exclusion process for the third round of tariffs should follow “the same procedures as those in rounds 1 and 2,” said the explanatory statement. “It is concerning that there is no exclusion process for goods subject to tariffs in round 3." The process should allow “stakeholders to request that particular products classified within a tariff subheading subject to new round 3 tariffs be excluded,” said the statement.

It bears watching how Lighthizer interprets his “instruction” to initiate the exclusion process, including whether he will apply it retroactively to Sept. 24, blogged customs lawyer Ted Murphy of Baker McKenzie. Though “the expectation that USTR will create an exclusion process within 30 days is clear,” less so is “exactly what it will cover and how it will be implemented,” he said Friday.

Lighthizer arguably might read the language on "new round 3 tariffs" to support his “existing plan of creating an exclusion process for List 3 only if the duties increase to 25%,” Murphy wrote. The increase is scheduled in less than two weeks, unless Trump extends the deadline again (see 1902130040). Murphy asked: “Does ‘new round 3 tariffs’ mean when the List 3 duties increase to 25%, any List 3 duties paid after the date of enactment of the spending bill, or something else?” Lighthizer’s office didn’t comment Tuesday, but a House Appropriations Committee spokesperson said the law requires USTR to initiate a List 3 exclusion process now and abandon its policy that it won’t start a process for List 3 unless the duties rise to 25 percent.

Though the new mandates on Lighthizer are "the first example of increased Congressional oversight of the Section 301 process," Congress has been "increasingly involved in the Section 232 process" on steel and aluminum import tariffs imposed last year on national security grounds, Murphy emailed us Sunday. He views the new Section 301 mandates as a "further extension" of congressional attempts to "re-calibrate the relationship with the White House on trade," he said. Whether "this is the first," or only, step toward more Section 301 oversight "largely depends on President Trump," said Murphy.

Venable Partner Lindsay Meyer worries that when the exclusion process starts for List 3, it will likely make things worse for companies still waiting for decisions on requests from the first two lists, she told us. "It has been a slow roll for List 1 and List 2," she said. She suggested that Lighthizer may argue that evaluating exclusion requests for List 3 should be given a lower priority than those already in the queue for List 1 and List 2, given that the first two lists have had 25 percent tariffs in place since the summer. Congress might agree that these requests go "at the back of the line behind List 1 and List 2," she said. The House Appropriations spokesperson said it's difficult to speculate on a hypothetical like Meyer described, but he stressed that no language in the law gives USTR discretion to prioritize exclusion requests.

Importers “have expressed due process concerns over the fact that the third round of tariffs went into effect without an ability to contest their implementation,” said trade lawyer David Cohen with Sandler Travis. Cohen is among those who have called for more transparency in the exemption program. Requiring USTR to consult with and report progress to the various committees in the House and the Senate “is encouraging as it provides a forum through which importers may voice concerns over the process in place for List 1 and List 2 tariffs,” he said.

USTR's exclusion denials by and large have been “terse," and many "appeared unsupported by any details justifying the denial,” said Cohen. “The hope is that the consultation requirement will encourage the USTR to improve the process to include a right to appeal denials and a more iterative process through which importers may provide additional information." Importers also would support an "open-ended opportunity to seek exclusions rather than the USTR setting forth an arbitrary date by which submissions be filed," he said. He noted that under the exclusion process for Section 232 duties, "there is no deadline for submissions.”

CTA and the National Retail Federation generally hailed the exclusion-process language in the spending bill. “Ensuring that we have a fair, workable exclusion process in place is essential to reducing the damage any new China tariffs will inflict on American workers, businesses and consumers,” said Tiffany Moore, CTA senior vice president-political and industry affairs.

U.S. businesses “deserve access to an efficient and timely tariff exemption process, especially when there is no alternate supplier for the products impacted,” said Jonathan Gold, NRF vice president-supply chain and customs policy. “It makes no sense that a process was provided for the first two tariff lists but not for the larger third list that targeted $200 billion worth of imported goods, many of which are consumer products. We encourage the administration to move swiftly to provide an exemption process as requested by Congress, and we hope the U.S. and China will reach a positive resolution to put an end to tit-for-tat-tariffs that are hurting communities across the country.”