Omnibus Spending Bill Requires USTR to Set Up Section 301 Exclusion Procedure for “Tranche 3” Goods from China

The mini-omnibus spending bill which President Trump signed on February 15 contains a provision requiring the United States Trade Representative to create an exclusion process for the third tranche of retaliatory China tariffs imposed under Section 301 of the Trade Act of 1974. The Act requires the exclusion process to be in place by March 17, 2019.

USTR had previously established exclusion processes for the first two tranches of China tariffs, which were assessed at the rate of 25 percent ad valorem. However, USTR declined to establish an exclusion process for Tranche 3 tariffs, currently set at 10 percent ad valorem, until such time as they increase to 25 percent. The new bill countermands that position and requires establishment of an exclusion process.

Whether this will be an impactful measure remains to be seen. The President has indicated that progress is being made in trade talks with the Chinese, currently scheduled for a March 1 conclusion. The President has also indicated that if an acceptable agreement is not reached by March 1, 2019, or within a reasonable time thereafter, the Tranche 3 tariffs – affecting $200 billion of annual imports from China -- will increase to 25 percent ad valorem.

Also to be determined is how many resources USTR Robert Lighthizer will devote to processing exclusion requests. The USTR’s office has moved slowly on considering exemption requests to date.

Given the volume of requests which USTR received for the first two groups of China tariffs, we expect that importers will want to submit exclusion requests as soon as the new procedure is effective.

We stand ready to discuss this matter with interested companies.