2018-17709. Notice of Action Pursuant to Section 301: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation

AGENCY:

Office of the United States Trade Representative.

ACTION:

Notice.

SUMMARY:

The U.S. Trade Representative (Trade Representative) has determined that appropriate action in this investigation includes the imposition of an additional ad valorem duty of 25 percent on products from China classified in the subheadings of the Harmonized Tariff Schedule of the United States (HTSUS) set out in Annex A of this notice. The Trade Representative has further determined to establish a process by which U.S. stakeholders may request that particular products classified within a covered tariff subheading in Annex A be excluded from these additional duties.

DATES:

The additional duties set out in Annex A to this notice are effective with respect to products that are entered for consumption, or withdrawn from warehouse for consumption, on or after August 23, 2018.

FOR FURTHER INFORMATION CONTACT:

For questions about this action, contact Assistant General Counsel Arthur Tsao or Director of Industrial Goods Justin Hoffmann at [phone]. For questions on customs classification or implementation of additional duties on products identified in Annex A to this Notice, contact [e-mail].

SUPPLEMENTARY INFORMATION:

A. Proceedings in the Investigation

On August 18, 2017, the Office of the U.S. Trade Representative (USTR) initiated an investigation into certain acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation (82 FR 40213).

In a notice published on April 6, 2018 (83 FR 14906), the Trade Representative announced a determination that the acts, policies, and practices of the Government of China covered in the investigation are unreasonable or discriminatory and burden or restrict U.S. commerce. The April 6 notice also invited public comment on a proposed action in the investigation, in the form of an additional 25 percent ad valorem duty on products from China classified in a list of 1,333 tariff subheadings, with an annual trade value of approximately $50 billion. As explained in that notice, the level was appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China's harmful acts, policies, and practices.

The public comment process included two opportunities for the submission of written comments, and the opportunity to participate in a public hearing. USTR received thousands of submissions, and held a 3-day public hearing with more than 100 witnesses. The public versions of submissions and a transcript of the hearing are available on www.regulations.gov in docket number USTR-2018-0005.

USTR and the interagency Section 301 Committee carefully reviewed the public comments and the testimony from the public hearing. USTR and the Section 301 Committee also carefully reviewed the extent to which the tariff subheadings in the April 6 notice include products containing industrially significant technology, including technologies and products related to China's “Made in China 2025” industrial policy program.

Based on this review process, the Trade Representative determined to take an initial action in the investigation, and to consider an additional proposed action. The Trade Representative announced the determination on June 15, 2018, and published a notice on June 20, 2018 (83 FR 28710). The Trade Representative narrowed the proposed list in the April 6 notice to 818 tariff subheadings, with an approximate annual trade value of $34 billion. This initial action became effective on July 6, 2018. The additional proposed action was an additional ad valorem duty of 25 percent on products of China classified in 284 tariff subheadings, with an annual trade value of approximately $16 billion, as set forth in Annex C to the June 20 notice. The June 20 notice further explained that including these tariff subheadings in the Section 301 action would maintain the effectiveness of a $50 billion trade action.

The June 20 notice invited public comment on the additional proposed action. USTR requested that commenters address specifically whether imposing increased duties on a particular listed subheading would be practicable or effective to obtain the elimination of China's acts, policies, and practices, and whether maintaining or imposing additional duties on a particular listed product would cause disproportionate economic harm to U.S. interests, including small or medium-sized businesses and consumers.

In response to the notice of additional proposed action, interested persons filed over 700 written submissions. USTR and the Section 301 Committee held a 2-day public hearing on July 24-25, 2018. During the hearing, 82 witnesses provided testimony and responded to questions. Interested parties also had the opportunity to provide rebuttal submissions. The public submissions and a transcript of the hearing are available on www.regulations.gov in docket number USTR-2018-0018.

B. Determination on Appropriate Action

USTR and the Section 301 Committee have carefully reviewed the public comments and the testimony from the two-day public hearing. In addition, USTR and the interagency Section 301 Committee have carefully reviewed the extent to which the tariff subheadings in Annex C to the June 20 notice include products containing industrially significant technology, including technologies and products related to the “Made in China 2025” program. Based on this review process, the Trade Representative has determined to narrow the proposed tariff subheadings in Annex C to the June 20 notice to 279 tariff subheadings. The annual trade value of the final list remains approximately $16 billion.

Pursuant to sections 301(b), 301(c), and 304(a) of the Trade Act of 1974 (19 U.S.C. 2411(b), 2411(c), and 2414(a)), the Trade Representative determines that appropriate and feasible action in this investigation includes the imposition of an additional ad valorem duty of 25 percent on products of China covered in the tariff subheadings listed in Annex A to this notice. Annex B to this notice contains the same list of tariff subheadings, with unofficial descriptions of the types of products covered in each subheading.

In order to implement this determination, effective August 23, 2018, subchapter III of chapter 99 of the HTSUS is modified by Annex A of this notice. Products of China that are provided for in new HTSUS heading 9903.88.02, as established by Annex A of this notice that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. Eastern daylight time on August 23, 2018, will be subject to an additional ad valorem duty of 25 percent. The rates of duty applicable to products of China that are provided for in new HTSUS heading 9903.88.02 apply in addition to all other applicable duties, fees, exactions, and charges.

The HTSUS note in Annex A, as compared to the HTSUS note in Annex A to the June 20 notice, includes clarifications on the application of the additional duties to goods entered under certain provisions of Chapter 98 and 99 of the HTSUS. Annex C to this notice modifies the HTSUS note in Annex A to the June 20 notice in order to reflect these clarifications. In addition, Annex C makes a conforming amendment to the HTSUS heading in Annex A to the June 20 notice, and makes a technical correction to the HTSUS note in Annex A to the June 20 notice.

Any product listed in Annex A to this notice, except any product that is eligible for admission under `domestic status' as defined in 19 CFR 146.43, which is subject to the additional duty imposed by this determination, and is admitted into a U.S. foreign trade zone on or after 12:01 a.m. Eastern daylight time on August 23, 2018, only may be admitted as `privileged foreign status' as defined in 19 CFR 146.41. Such products will be subject upon entry for consumption to any ad valorem rates of duty or quantitative limitations related to the classification under the applicable HTSUS subheading.

During the notice and comment process, a number of interested persons asserted that specific products within a particular tariff subheading only were available from China, that imposition of additional duties on the specific products would cause severe economic harm to a U.S. interest, and that the specific products were not strategically important or related to the “Made in China 2025” program. In light of such concerns, and pursuant to sections 301(b), 301(c), 304(a), and 307(a) of the Trade Act of 1974 (19 U.S.C. 2411(b), 2411(c), 2414(a), and 2417(a)), the Trade Representative has determined that USTR will establish a process by which U.S. stakeholders may request that particular products classified within an HTSUS subheading listed in Annex A be excluded from these additional duties. The process will be comparable to the exclusion process established in connection with the initial, $34 billion trade action. USTR will publish a separate notice describing the product exclusion process, including the procedures for submitting exclusion requests, and an opportunity for interested persons to submit oppositions to a request.

Robert Lighthizer,

United States Trade Representative.