USTR Proposes Section 301 Tariffs on 60 Economies for Failure to Prohibit Forced Labor Imports

As we predicted, the USTR has proposed the implementation of new tariffs (10-12.5%) that will likely be effective when, or shortly after, Section 122 tariffs expire in July.

We summarize the USTR’s determinations and proposed actions, highlight exemptions from the proposed actions, and outline important dates and deadlines.

Background

On March 12, the USTR initiated 60 investigations under Section 301 of the Trade Act of 1974 concerning the failure of various economies to impose and effectively enforce a prohibition on the importation of goods produced with forced labor. For more background on this investigation, please see our alert here. These investigations examined whether foreign economies’ failure to maintain and enforce forced labor import prohibitions is unreasonable and burdens or restricts US commerce. It was widely expected that the investigations would result in new tariffs that would replace the invalidated International Emergency Economic Powers Act (IEEPA) tariff regime that was later replaced by the stopgap 10% Section 122 tariffs. On June 2, the USTR published a Federal Register Notice announcing its determinations and proposed actions.

Summary of the USTR’s Findings

The USTR determined that all 60 investigated economies have failed to impose or effectively enforce a forced labor import prohibition, and that these failures are unreasonable and burden or restrict US commerce. The USTR found that 54 economies have no forced labor import prohibition at all, including major trading partners such as China, Japan, the United Kingdom, India, South Korea, Brazil, Australia, and Vietnam. Six additional economies — Canada, Ecuador, the European Union, Indonesia, Mexico, and Pakistan — have a forced labor import prohibition but have failed to effectively enforce it.

Proposed Action and Tariff Rates

As a result of these determinations, the USTR proposes to impose additional ad valorem duties on all products of the 60 investigated economies, subject to certain exclusions set forth in Annex A to the Notice. The proposed duty rates are tiered based on whether an economy has taken any steps toward addressing forced labor imports.

Stacking

At this time, it is unclear whether the Forced Labor Section 301 tariffs will stack on top of any Section 301 tariffs implemented in connection with the parallel Structural Excess Capacity and Production in Manufacturing Sectors Section 301 investigation. It is also unclear whether these tariffs will stack with the existing China Section 301 tariffs. However, the tariffs will not stack with the Section 232 tariffs. No specific effective date has been announced for the imposition of these tariffs. The duties remain at the proposed stage, and a final determination will follow the conclusion of the public comment and hearing process. However, we expect that the implementation will align with the July 24 expiration of the Section 122 tariffs.

Exclusions From the Proposed Action

The proposed action includes exclusions from the proposed Section 301 tariffs, including:

• A wide range of products classified in HTS codes listed in Annex A of the Federal Register notice.
• According to the Federal Register notice, the exempted products in Annex A include products that could cause economy-wide disruptions if subject to the proposed Section 301 tariffs; certain products that cannot be grown or produced in sufficient quantities in the United States or obtained from other sources; and articles for which additional tariffs may not contribute substantially to the elimination of the investigated forced labor import prohibitions. 
• Informational materials (e.g., books), donations, and accompanied baggage.
• All articles and parts currently subject to Section 232 tariffs.
• United States-Mexico-Canada Agreement-compliant goods of Canada or Mexico.
• Textiles and apparel articles that enter duty-free as a good of Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, or Nicaragua under the Dominican Republic-Central America Free Trade Agreement.
• The USTR also proposes a “textile mechanism” that would allow a certain volume of apparel and textile imports from certain economies to enter the United States at a reduced Section 301 tariff rate. The volume of reduced-duty imports from a trading partner would be equivalent to the quantity of US textile exports to that partner, as well as the volume of US cotton and cotton products that trading partner imports from the United States. 

Next Steps in the Section 301 Process

The USTR is currently soliciting public comments and testimony regarding the proposed actions. The key deadlines are as follows:

• June 22: Deadline to submit requests to appear at the public hearings, along with a summary of testimony.
• July 6: Deadline to submit written public comments on the proposed actions. 
• July 7: The Section 301 Committee will convene public hearings. 

The USTR has invited comments on the specific products to be subject to increased duties, whether products should be added to or removed from the exclusion list (Annex A), the level of duty increase, whether different tariff rates should apply based on an economy’s commitments, and the features of the textile mechanism. 

What Importers Should Do Now

Importers should take the following steps in preparation for potential implementation of these duties.

• Importers should review their supply chains to assess exposure to goods from the 60 economies subject to these investigations and identify which tier (10% or 12.5%) would apply to their imports. 
• Review the proposed exclusion list in Annex A to determine whether any of their products may fall within an excluded Harmonized Tariff Schedule of the United States provision or are otherwise eligible for an exclusion set forth in Annex A.
• Consider submitting public comments by the July 6 deadline or requesting to appear at the public hearing.

This is a proposed action, and additional guidance regarding the final scope, tariff rates, effective dates, and implementation details is expected following the conclusion of the public comment and hearing process. If you have any questions, please contact the authors or the ArentFox Schiff attorney you regularly work with.