By Daniel Pickard and Karima Tawfik, Buchanan, Ingersoll & Rooney
This update highlights two key trade issues between the United States and China: (1) the Biden Administration’s maintaining (for now) of the Section 301 tariffs; and (2) new U.S. Government guidance on enforcement of the Uyghur Forced Labor Prevention Act (UFLPA).
Maintaining Section 301 Tariffs
The Biden Administration announced on September 2, 2022, that it is maintaining the Section 301 tariffs on hundreds of billions of dollars’ worth of Chinese imports that were originally imposed by the former Trump Administration. The U.S. Trade Representative (“USTR”) issued a federal notice stating that it will maintain the tariffs initially imposed in 2018, rather than allowing them to expire on their four-year anniversary dates. USTR also indicated that it will, consistent with the law, conduct a second-phase review of the necessity of the tariffs.
Between 2018 and 2019, the Trump Administration invoked Section 301 of the Trade Act of 1974 to impose tariffs on imports from China following an investigation by USTR that determined that China was engaging in discriminatory practices in violation of its international trade obligations. When the United States imposed its first tranche of tariffs on China, it unleashed a series of alternating bilateral actions from China and the U.S. – ultimately creating tariffs on over $250 billion worth of imports from China.
The notice from USTR states that it received requests to continue the tariffs from a range of domestic industries citing favorable effects in investing in new technologies and expanding domestic production. Under the Trade Act of 1974, USTR is required to conduct a review of tariffs if it receives petitions from industry in advance of their expiration requesting that the tariffs continue. USTR will now move on to a formal review of whether to keep the tariffs in place.
Recent statements by certain high ranking Administration officials had seemed to indicate that the White House was considering removing the tariffs, especially in light of inflation-related concerns. For now though, domestic industry support continues to have influence in regard to maintaining the tariffs on Chinese products.
Uyghur Forced Labor Prevention Act Enforcement
The Department of Homeland Security (DHS) and U.S. Customs and Border Protection (CBP) released two key guidance documents in June 2022 to prepare businesses for the implementation of the Uyghur Forced Labor Prevention Act (UFLPA). The UFLPA, signed into law in December 2021, addresses systemic human rights violations against the Uyghur minority and other ethnic and religious minorities who have been forced into “re-education camps” in China’s Xinjiang Uyghur Autonomous Region.
The UFLPA requires CBP to apply a rebuttable presumption that any imported goods from Xinjiang violates Section 307 of the Tariff Act, which prohibits imports produced by forced labor.
DHS’s strategy states the rebuttable presumption will apply to downstream products, regardless of where the products are produced, i.e., to goods produced in the China outside Xinjiang, and goods produced in third countries or shipped through third countries, if they contain inputs mined, produced or manufactured in Xinjiang or by a company on the UFLPA Entity List. DHS has encouraged companies to map their entire supply chain up to and including the suppliers of raw materials used in the production of the imported good.
The CBP Operational Guidance for Importers outlines the processes for detention notices. When the CBP detains goods or merchandise, it will issue a notice stating the reason for detention and importers will have to overcome the presumption that the good was made by forced labor by clear and convincing evidence. Imports determined to be in violation may be subject to seizure and forfeiture.
In the face of broad implications of the UFLPA, DHS has also indicated it will initially adopt a relatively narrow enforcement focus, targeting four high-risk sectors – apparel, cotton, tomatoes and polysilicon. Other goods are not exempt from the UFLPA – but rather the DHS will respond to credible reports of a violation for enforcement.
For U.S. importers, this will have notable impact on supply chains. Given that roughly half of the world’s polysilicon, which is used in solar panels, and one-fifth of the world’s cotton is produced in Xinjiang, distributors across the manufacturing, apparel, energy, chemical and other sectors will need to exercise due diligence in tracking and mapping their supply chains. It is reasonable to expect that U.S. producers in other industries will be working with CBP if they expect that competitors are sourcing inputs from the Xinjiang region.
Energy Workforce Member Buchanan, Ingersoll & Rooney provides insights on international trade issues specific to energy services and technology companies. Daniel Pickard is Chair, International Trade & National Security Practice Group, and Karima Tawfik is Associate.