2019-17865. Notice of Modification of Section 301 Action: China's Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation

AGENCY:

Office of the United States Trade Representative.

ACTION:

Notice of modification of action.

SUMMARY:

In accordance with the specific direction of the President, the U.S. Trade Representative (Trade Representative) has determined to modify the action being taken in this Section 301 investigation by imposing additional duties of 10 percent ad valorem on products of China classified in the tariff subheadings set out in the Annexes to this notice.

DATES:

Additional duties at a rate of 10 percent ad valorem on the tariff subheadings set out in Annex A to this notice are applicable with respect to products that are entered for consumption, or withdrawn from warehouse for consumption, on or after September 1, 2019. Additional duties at a rate of 10 percent ad valorem on the tariff subheadings set out in Annex C to this notice are applicable with respect to products that are entered for consumption, or withdrawn from warehouse for consumption, on or after December 15, 2019.

FOR FURTHER INFORMATION CONTACT:

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

SUPPLEMENTARY INFORMATION:

A. Prior Determinations in the Investigation

On August 18, 2017, the Trade Representative 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 April 2018, the Trade Representative published a notice of a determination that the acts, policies, and practices of China under investigation are unreasonable or discriminatory and burden or restrict U.S. commerce, and are thus actionable under Section 301(b) of the Trade Act of 1974, as amended (Trade Act). 83 FR 14906.

At the direction of the President, the Trade Representative determined to take actions resulting in the imposition of an additional 25 percent ad valorem duty on products of China with an annual aggregate trade value of approximately $250 billion. The additional duties were imposed in three tranches. Tranche 1 covered 818 tariff subheadings, with an approximate annual trade value of $34 billion. See 83 FR 28710 (June 20, 2018). Tranche 2 covered 279 tariff subheadings, with an approximate annual trade value of $16 billion. See 83 FR 40823 (August 16, 2018). Tranche 3 covered 5,733 tariff subheadings, with an approximate annual trade value of $200 billion. See 83 FR 47974 (September 21, 2018); 83 FR 49153 (September 28, 2018); and 84 FR 20459 (May 9, 2019).

As set out in the above-referenced notices, the Trade Representative decided that one of the four categories of acts, policies, and practices covered in the investigation—in particular, relating to China's technology licensing regulations—should be addressed through recourse to WTO dispute settlement. Accordingly, the United States initiated a WTO dispute by requesting consultations with the Government of China regarding certain aspects of China's technology regulations. China—Certain Measures Concerning the Protection of Intellectual Property Rights (DS542). Neither the prior actions under Section 301, nor the action announced in this notice, relate to or take into account harm caused by this category of acts, policies, and practices of China.

B. Proposed Modification of Action and Public Comment

As of May 2019. China's statements and conduct indicated that action at a $250 billion level was insufficient to obtain the elimination of China's unfair and harmful policies. Thus, on May 17, 2019, the Trade Representative, at the direction of the President, invited public comment on modifying the action taken in the investigation by adopting an action to impose up to an additional 25 percent duty on products from China classified in 3,805 full and partial tariff subheadings, with an annual trade value of approximately $300 billion. 84 FR 22564 (May 17 notice).

In response to the May 17 notice inviting comments on a possible action, interested persons filed nearly 3,000 written submissions. In addition, USTR and the Section 301 Committee held a seven-day public hearing from June 17 to June 25, 2019, at which over 300 witnesses provided testimony and responded to questions. The public submissions and a transcript of the hearing are available on www.regulations.gov in docket number USTR-2019-0004.

C. Modification of Action

The Section 301 statute (set out in Sections 301 to 308 of the Trade Act) (19 U.S.C. 2411-2418) includes authority for the Trade Representative to modify the action being taken in an investigation. In particular, Section 307(a)(1) authorizes the Trade Representative to modify or terminate any action taken under Section 301, subject to the specific direction, if any, of the President if: The burden or restriction on United States commerce of the acts, policies, and practices, that are the subject of the action has increased or decreased, or the action is being taken under Section 301(b) and is no longer appropriate.

The burden or restriction on United States commerce of the acts, policies, and practices that are the subject of the Section 301 action continues to increase. China's unfair acts, policies, and practices include not just its technology transfer and IP polices referenced in the notice of initiation in the investigation, but also China's subsequent defensive actions taken to maintain those unfair acts, policies, and practices as determined in that investigation. China has decided to impose tariffs on approximately $110 billion worth of U.S. goods, with the goal of pressuring the United States to cease its efforts to obtain the elimination of China's unfair policies. China has further taken or threatened to take additional countermeasures, including non-tariff measures, against commerce of the United States. In short, instead of addressing the underlying problems, China has increased tariffs and adopted or threatened additional retaliation to further protect the unreasonable acts, policies, and practices identified in the investigation, resulting in increased harm to the U.S. economy.

China's response has shown that the current action no longer is appropriate. The United States is engaging with China with the goal of obtaining the elimination of the acts, policies, and practices covered in the investigation. The leaders of the United States and China met on December 1, 2018, and agreed to hold negotiations on a range of issues, including those covered in this Section 301 investigation. See https://www.whitehouse.gov/​briefings-statements/​statement-press-secretary-regarding-presidents-working-dinner-china/​. Since the meeting on December 1, the United States and China have engaged in additional rounds of negotiation on these issues, including meetings in March, April, and May of 2019. Shortly before the May 2019 meetings, China retreated from specific commitments made in previous rounds. China also has imposed further retaliatory action against U.S. commerce. The United States and China held another round of meetings from July 29 to July 31, 2019. At the conclusion of that round, China remained unwilling to return to the specific commitments it had offered in prior rounds of negotiations. Furthermore, as found by the Department of the Treasury, China has taken concrete steps to devalue its currency. See https://home.treasury.gov/​news/​press-releases/​sm751.

For these reasons, and in accordance with the specific direction of the President, the Trade Representative has determined to modify the action being taken in the investigation by adopting additional tariffs of 10 percent ad valorem on goods of China with an annual trade value of approximately $300 billion, as set out in the Annexes to this notice. The Trade Representative's determination takes account of the public comments and the testimony from the seven-day public hearing, as well as the advice of the interagency Section 301 committee and appropriate advisory committees.

Certain tariff subheadings proposed in the May 17 notice have been removed from the final list of tariff subheadings subject to additional duties, based on health, safety, national security, and other factors. In addition, the tariff subheadings subject to the 10 percent additional duties are separated into two lists with different effective dates—Annex A contains the formal Harmonized Tariff Schedule of the United States (HTSUS) language for list 1, and Annex B contains an informal description of the products in list 1. Annex C contains the formal HTSUS language for list 2, and Annex D contains an informal description of the products in list 2.

List 1 includes tariff subheadings where China's share of U.S. imports from the world is less than 75 percent for each subheading. For list 1, the additional duty of 10 percent ad valorem is effective September 1, 2019.

List 2 includes products where China's share of U.S. imports from the world is 75 percent or greater for each subheading. To provide a longer adjustment period for U.S. interested persons, the additional duty of 10 percent ad valorem for list 2 is delayed until December 15, 2019.

In order to implement this determination, effective September 1, 2019, subchapter III of chapter 99 of the HTSUS is modified by Annexes A and C of this notice. Products of China that are provided for in the HTSUS headings established by Annex A to this notice that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on September 1, 2019, shall be subject to an additional duty of 10 percent ad valorem. Products of China that are provided for in the HTSUS headings established by Annex C to this notice that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on December 15, 2019, shall be subject to an additional duty of 10 percent ad valorem.

Any product listed in Annex A, 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 that is admitted into a U.S. foreign trade zone on or after 12:01 a.m. eastern daylight time on September 1, 2019, 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.

Any product listed in Annex C, 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 that is admitted into a U.S. foreign trade zone on or after 12:01 a.m. eastern daylight time on December 15, 2019, 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.

The Trade Representative also has decided that USTR will establish a process by which interested persons may request that particular products classified within an HTSUS subheading covered by Annex A and Annex C be excluded from the additional duties. 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.

The Trade Representative will continue to consider the actions taken in this investigation. In the event that further modifications are appropriate, the Trade Representative intends to take into account the extensive public comments and testimony previously provided in response to the May 17 notice.

Joseph Barloon,

General Counsel, Office of the U.S. Trade Representative.