2018-20610. 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 prior action in this investigation by imposing additional duties on products of China classified in the subheadings of the Harmonized Tariff Schedule of the United States (HTSUS) set out in Annex A to this notice. The rate of additional duty is initially 10 percent ad valorem. On January 1, 2019, the rate of additional duty will increase to 25 percent ad valorem.

DATES:

September 24, 2018: Additional duties at a rate of 10 percent ad valorem on the tariff subheadings set out in the Annexes to this notice are applicable with respect to products that are entered for consumption, or withdrawn from warehouse for consumption, on or after September 24, 2018.

January 1, 2019: The rate of additional duty will increase to 25 percent ad valorem with respect to products that are entered for consumption, or withdrawn from warehouse for consumption, on or after January 1, 2019.

FOR FURTHER INFORMATION CONTACT:

For questions about this action, contact Assistant General Counsels Arthur Tsao or 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 Annex A to this Notice, contact [e-mail].

SUPPLEMENTARY INFORMATION:

A. Prior Determinations 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). During the investigation, the Trade Representative determined 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). See 83 FR 14906 (April 6, 2018). The Trade Representative further determined that it was appropriate and feasible to take the action of imposing an additional 25 percent duty on products of China with an annual trade value of approximately $50 billion. The additional duties were imposed in two tranches. Tranche 1 covered 818 tariff subheadings, with an approximate annual trade value of $34 billion. See 83 FR 28710. Tranche 2 covered 279 tariff subheadings, with an approximate annual trade value of $16 billion. See 83 FR 40823.

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, 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 action under Section 301, nor the supplemental 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 Supplemental Action and Public Comment

Near the end of the one-year period of investigation, China's statements and conduct indicated that action at a $50 billion level might not be sufficient to obtain the elimination of China's unfair and harmful policies. To address this eventuality, the Trade Representative, at the direction of the President, invited public comment on modifying the action taken in the investigation by adopting a supplemental action to impose an additional 10 percent duty on products from China classified in 6,031 tariff lines, with an annual trade value of approximately $200 billion. 83 FR 33608 (July 17 notice). The Trade Representative subsequently announced that a supplemental action might involve an additional duty of 25 percent, and extended the public comment periods. 83 FR 38760 (August 7 notice).

In response to the notices inviting comments on a possible supplemental action, interested persons filed over 6,000 written submissions. In addition, USTR and the Section 301 Committee held a 6-day public hearing from August 20-27, 2018, at which approximately 350 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-2018-0026.

C. Determination To Take Supplemental Action

The Section 301 statute (set out in sections 301 to 308 of the Trade) includes authority for the Trade Representative to modify the action being taken under Section 301. In particular, Section 307(a)(1) provides in relevant part that the Trade Representative may modify or terminate any action, subject to the specific direction, if any, of the President with respect to such action, that is being taken under [Section 301] if the burden or restriction on United States commerce of the denial [of] rights, or of the acts, policies, and practices, that are the subject of such action has increased or decreased (paragraph B), or such action is being taken under section [301(b)] of this title and is no longer appropriate (paragraph C).

Under paragraph B, 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, including following the one-year investigation period. Furthermore, China's unfair acts, policies, and practices include not just its specific 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 policies. China has decided to impose approximately $50 billion in tariffs on U.S. goods, with the goal of encouraging the United States to drop its efforts to obtain the elimination of China's unfair policies. Thus, instead of addressing the underlying problems, China has increased tariffs to further protect the unreasonable acts, policies, and practices identified in the investigation, resulting in increased harm to the U.S. economy.

Under paragraph C, “action is being taken under section [301(b)] of this title and is no longer appropriate.” The term “appropriate” refers to Section 301(b), which requires the Trade Representative to “take all appropriate and feasible action authorized under [section 301(c)] to obtain the elimination of [the] act, policy, or practice.” The specific action that will obtain the elimination of an act, policy, or practice is a matter of predictive judgment, to be exercised by the Trade Representative, subject to any specific direction of the President. The judgment during the period of investigation, based on then-available information, was that a $50 billion action would be effective in obtaining the elimination of China's policies.

China's response, however, has shown that the current action no longer is appropriate. China has made clear—both in public statements and in government-to-government communications—that it will not change its policies in response to the current Section 301 action. Indeed, China denies that it has any problems with respect to its policies involving technology transfer and intellectual property. The United States has raised U.S. concerns repeatedly with China, including in Ministerial level discussions, but China has been unwilling to offer meaningful modifications to its unfair practices. Furthermore, China openly has responded to the current action by choosing to cause further harm to the U.S. economy, by increasing duties on U.S. exports to China.

The President has exercised his authority under Section 307 to direct the Trade Representative to modify the prior action in the investigation by adopting the supplemental action set out in this notice. This direction is referenced in a Statement from the President issued on September 17, 2018.

Today, following seven weeks of public notice, hearings, and extensive opportunities for comment, I directed the United States Trade Representative (USTR) to proceed with placing additional tariffs on roughly $200 billion of imports from China. The tariffs will take effect on September 24, 2018, and be set at a level of 10 percent until the end of the year. On January 1, the tariffs will rise to 25 percent.” https://www.whitehouse.gov/​briefings-statements/​statement-from-the-president-4/​.

USTR and the Section 301 Committee have carefully reviewed the public comments and the testimony from the six-day public hearing. Based on this review process, the Trade Representative, at the direction of the President, has determined not to include certain tariff subheadings listed in the Annex to the July 17 notice, resulting in 5,745 full and partial tariff subheadings with an approximate annual trade value of $200 billion.

Pursuant to Section 307(a)(1) of the Trade Act, the Trade Representative, in accordance with the direction of the President, has determined to modify the prior action in this investigation by imposing additional duties on products of China classified in the full and partial subheadings of the HTSUS set out in Annex A to this notice, while maintaining the prior action. As set out in Annex A to this notice, the rate of additional duty is initially 10 percent ad valorem, effective September 24, 2018. As set out in Annex B to this notice, the rate of additional duty will increase to 25 percent ad valorem on January 1, 2019. Annex C 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 September 24, 2018, subchapter III of chapter 99 of the HTSUS is modified by Annex A and Annex B of this notice. Products of China that are provided for in new HTSUS headings as 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 24, 2018, shall be subject to an additional duty of 10 percent ad valorem. As provided in Annex B, the rate of additional duty shall increase to 25 percent for goods that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern standard time on January 1, 2019.

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 24, 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.

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 July 17 and August 7 notices.

Robert E. Lighthizer,

United States Trade Representative.