The Office of the U.S. Trade Representative granted iRobot an exclusion to the List 3 Section 301 tariffs on the robotic vacuum cleaners it imports from China under Harmonized Tariff Schedule subheading 8508.11.00.00. iRobot applied for the exemption July 1 and based its argument partly on plans to shift production to Malaysia from China. It began producing entry-level vacuums in Malaysia in November, and said it will source additional models there later in 2020. The exclusion is retroactive to Sept. 24, 2018, when the List 3 tariffs took effect at 10%, and is valid through Aug. 7, 2020. The Trump administration hiked List 3 tariffs to 25% on March 2, 2019. iRobot’s was one of 107 exemptions granted for “specially prepared product descriptions” covering 157 “separate exclusion requests,” USTR said (see 2004230010). iRobot is “pleased that the USTR determined that our rationale for an exclusion was appropriate, particularly in light of the tangible steps we have taken to establish our manufacturing activities in Malaysia,” CEO Colin Angle said in an email. “As the largest American pure-play robotics company, with over 800 U.S.-based employees and roughly half of our revenue generated domestically, we believe that an exclusion not only further supports iRobot's ability to maintain its technological and category leadership but it also helps ensure that robotics is an industry in which the U.S. continues to lead the world.”
Section 301 Tariffs
Section 301 Tariffs are levied under the Trade Act of 1974 which grants the Office of the United States Trade Representative (USTR) authority to investigate and take action to protect U.S. rights from trade agreements and respond to foreign trade practices. Section 301 of the Trade Act of 1974 provides statutory means allowing the United States to impose sanctions on foreign countries violating U.S. trade agreements or engaging in acts that are “unjustifiable” or “unreasonable” and burdensome to U.S. commerce. Prior to 1995, the U.S. frequently used Section 301 to eliminate trade barriers and pressure other countries to open markets to U.S. goods.
The founding of the World Trade Organization in 1995 created an enforceable dispute settlement mechanism, reducing U.S. use of Section 301. The Trump Administration began using Section 301 in 2018 to unilaterally enforce tariffs on countries and industries it deemed unfair to U.S. industries. The Trump Administration adopted the policy shift to close what it deemed a persistent "trade gap" between the U.S. and foreign governments that it said disadvantaged U.S. firms. Additionally, it pointed to alleged weaknesses in the WTO trade dispute settlement process to justify many of its tariff actions—particularly against China. The administration also cited failures in previous trade agreements to enhance foreign market access for U.S. firms and workers.
The Trump Administration launched a Section 301 investigation into Chinese trade policies in August 2017. Following the investigation, President Trump ordered the USTR to take five tariff actions between 2018 and 2019. Almost three quarters of U.S. imports from China were subject to Section 301 tariffs, which ranged from 15% to 25%. The U.S. and China engaged in negotiations resulting in the “U.S.-China Phase One Trade Agreement”, signed in January 2020.
The Biden Administration took steps in 2021 to eliminate foreign policies subject to Section 301 investigations. The administration has extended and reinstated many of the tariffs enacted during the Trump administration but is conducting a review of all Section 301 actions against China.
The Office of the U.S. Trade Representative issued a new group of product exclusions from the third group of Section 301 tariffs on goods from China. The new exclusions from the tariffs include "one 10-digit HTSUS subheading, which covers 20 separate exclusion requests, and 107 specially prepared product descriptions, which cover 157 separate exclusion requests," according to the notice. The product exclusions apply retroactively to Sept. 24, 2018, the date the third set of tariffs took effect. The exclusions will remain in effect until Aug. 7, 2020.
The National Association of Manufacturers is arguing that Section 301 tariffs should be lowered or at least suspended “to spur economic growth and job creation,” and, where Section 301 refunds were already due, accelerate the process. Speeding up tariff refunds and duty drawback payments would allow companies “to rehire and reinvest as soon as possible,” the trade group said.
Industry is finding it can move components out of China, and it's still affordable to produce those components closer to final assembly plants, especially with more automation, said Peter Anderson, vice president of global supply chain at Cummins, an Indiana-based Fortune 500 company that makes engines for heavy equipment and heavy-duty trucks. The sections 301 and 232 tariffs made Cummins start “to think about what we could do differently,” and he said many Cummins suppliers have “started to take things out of China to mitigate those tariffs.” Anderson was one of several voices on a webinar on how manufacturing will change after the COVID-19 pandemic response, hosted by the Hudson Institute on April 22.
The Office of the U.S Trade Representative plans to issue some new product exclusions from Section 301 tariffs on the third list of products from China (see 2004230003), it said in a notice. The product exclusions apply retroactively to Sept. 24, 2018, the date the tariffs on the third list took effect, and will remain in effect until Aug. 7, 2020. New subheading 9903.88.45 will be used for these excluded products.
The International Trade Commission recently issued two revisions to the Harmonized Tariff Schedule, largely to implement changes that had been previously announced to exclusions from Section 301 tariffs on goods from China and changes to tariffs on goods from the European Union imposed as part of the large civil aircraft dispute. Both revisions were issued by the ITC in March.
The Council on Foreign Relations said that U.S., European and Japanese pushback over Made in China 2025, at least the part on high performance medical devices, may ebb after the coronavirus pandemic has passed -- because other countries will want to implement their own versions. “If any country knows a little bit about reducing industrial dependence on the rest of the world through conscious industrial choices, that would be China,” said Brad Stetser, a CFR senior fellow for international economics, during a webinar April 16. He said China is displacing imported semiconductors, but has been less successful in displacing imported aircraft.
Bolt cutter blades and joints forged in South Korea specifically for bolt cutters assembled in China are not recognizable enough for the finished good to be a product of South Korea, CBP said in an April 9 ruling. Harris Bricken lawyer Adams Lee asked for a prospective ruling from CBP on behalf of Weihai Maxpower Tools Co, on the country of origin and marking requirements for the bolt cutters. The bolt cutters would be subject to the Section 301 tariffs on goods from China, the agency said.
Cato Institute, a libertarian think tank that advocates for free trade, acknowledged that nationalist impulses are understandable in this COVID-19 pandemic, but said that countries should be careful not to make things worse with their reactions. Simon Lester, associate director of trade policy studies at Cato, said on an April 15 webinar that protectionists usually talk about wanting to increase exports while raising barriers to import competition. But now, 79 countries have lowered their tariffs on medical goods, and many of the major economies are restricting exports of personal protective equipment and ventilators.
A recent Congressional Research Service report suggests that the U.S. may want to use safeguards deal with China's export-dominated strategy to rebuild its economy after the shutdowns needed to fight the coronavirus disease COVID-19. “Congress may want to carefully monitor or consider whether to impose requirements about potential predatory commercial activity in the United States,” the report said. “The potential for China to overwhelm global markets as it leans on exports for economic recovery,” the authors said, may mean that safeguards would be better than “waiting until market injury has already occurred to seek damages.”