Summer of Section 301: USTR Imposes New Tariffs on 60 Trading Partners

The U.S. Trade Representative's (USTR) office is overseeing an unprecedented number of new tariffs, investigations, and reviews under Section 301 of the Trade Act of 1974, 19 U.S.C. § 2411, some of which were intended to replace the invalidated levies imposed last year under the International Emergency Economic Powers Act of 1977 (IEEPA) before the stopgap global surcharge imposed under Section 122 of the Trade Act lapsed. As we advised back in March, Section 301(b) provides conditions under which the USTR, at the direction of the president, is authorized to take "appropriate" action—including by imposing tariffs—to eliminate "an act, policy, or practice of a foreign country" that the USTR has determined "is unreasonable or discriminatory and burdens or restricts United States commerce," and the Trump Administration has left no doubt about using this authority. The ever-changing tariff landscape creates equally unprecedented and challenging compliance requirements for U.S. importers, and makes duty mitigation through sourcing changes difficult.

New Tariffs: FLIP and Brazil, with Excess Supply to Follow

This month, in keeping with USTR Jamieson Greer's stated commitment to recreating the IEEPA tariffs through Section 301, the USTR unsurprisingly imposed new tariffs in two separate investigations after announcing its findings in June that certain trade practices were unfair and actionable. First, and more significantly, late Thursday the USTR announced at the president's direction tariffs on the 60 largest U.S. trading partners for failing to impose or effectively enforce a prohibition on the importation of goods produced with forced labor—or "forced labor importation prohibition" (FLIP). The investigation, which began March 12, took place on the promised accelerated timeline with the aim of maintaining continuous tariff action at the expiration of the Section 122 tariff, and as predicted, the FLIP tariffs became effective Friday, July 24, at 12:01am ET, with an in-transit period through July 28.

On June 5, the USTR published its determination and report, which found that 54 of the studied customs jurisdictions fail to impose FLIPs, while the other six (Canada, Ecuador, the European Union, Indonesia, Mexico, and Pakistan) fail to enforce existing bans effectively. To eliminate the impact that the USTR found these failures to have on U.S. commerce, the USTR recommended a 12.5% tariff on goods of those partners unless they have a ban in place, have committed to a ban in their respective IEEPA-era "agreements on reciprocal trade" (ARTs) with the United States, or have a partial regime preventing the importation of certain goods made with forced labor, in which case the tariff would be 10%. Following public input and further developments toward mitigating the investigated conduct, including in a new ART reached with Jordan, the final duty rates are as follows:

• 12.5%: Algeria, Angola, Argentina, Australia, Bahamas, Bahrain, Brazil, Chile, China, Colombia, Costa Rica, Dominican Republic, Egypt, Guyana, Hong Kong, Iraq, Israel, Kazakhstan, Kuwait, Libya, Morocco, New Zealand, Nicaragua, Nigeria, Norway, Oman, Peru, Philippines, Qatar, Russia, Saudi Arabia, Singapore, South Africa, Thailand, Türkiye, United Arab Emirates, Uruguay, Venezuela, and Vietnam
• 10%: Argentina, Bangladesh, Cambodia, Canada, Ecuador, El Salvador, Guatemala, Honduras, India, Indonesia, Jordan, Malaysia, Mexico, Pakistan, Sri Lanka, Trinidad and Tobago, and United Kingdom
• Net 12.5%[1]: Japan, South Korea, and Switzerland
• Net 10%: EU and Taiwan

While these tariffs would cover 99.4% of U.S. imports, when considering the exemptions listed, which differ somewhat from those proposed in June but still only slightly from the IEEPA and Section 122 regimes, their breadth shrinks significantly. The notice states that specific necessary "raw materials" and products "that could cause economy-wide disruptions if subject to these tariffs," "that cannot be grown or produced in sufficient quantities in the United States or obtained from other sources," or "for which these tariffs may not be effective," of any origin, are not covered. Under Annexes I and II-A, generally exempt are:

• goods that qualify for preferential treatment under the United States–Mexico–Canada Agreement (USMCA),
• certain textile or apparel goods that qualify under the Dominican Republic–Central America–United States Free Trade Agreement (CAFTA-DR),
• goods subject to a tariff under Section 232 of the Trade Expansion Act of 1962,
• certain agricultural goods and foodstuffs,
• civil aircraft and parts,
• chemicals with pharmaceutical applications, and
• informational materials, humanitarian donations, and personal baggage.

Several of the jurisdictions that are already subject to lower rates have their own unique additional carveouts later in Annex II (including Scotch whisky, thanks to King Charles III). This action also borrows from recent ARTs a "textile mechanism" that, once established at a future date, will instead impose a three-year tariff-rate quota (TRQ) on textile imports from Bangladesh, Cambodia, Indonesia, and Malaysia based upon U.S. textile or cotton exports to that country.

Additionally, on the statutory deadline of July 15, and again at the president's direction, the USTR announced a Section 301 tariff of 25% on many Brazilian goods, pursuant to its determination of actionable unfair conduct in the areas of digital trade and electronic payment services, unfair lower preferential tariff treatment for certain large trading partners, anti-corruption enforcement, intellectual property protection, ethanol market access, and illegal deforestation. While the duty rate is less than the additional 40% IEEPA tariff that had been imposed on Brazil for other reasons, and although this study began before the IEEPA tariffs were found unlawful, many of these "acts, policies, and practices" are ones that Ambassador Greer identified as problematic in the wake of that decision. The tariff took effect July 22 with an in-transit period through July 29 and includes exemptions of the same character as the FLIP tariffs—here specifically including civil aircraft and components, orange juice, coffee, and beef, among others—which were broadened from the June proposal after public input and likewise appear to swallow the rule. The full report has not been made available.

Both tariff actions operate similarly to others recently under Section 301. Any subject product that is admitted into a U.S. foreign trade zone (FTZ) and ineligible for admission under "domestic status" must be admitted as "privileged foreign status," effective as of the date that the additional duty is imposed. There is no restriction on drawback. Goods are eligible for HTS Chapter 98 claims, including those deducting domestic value. And Section 301 tariffs are cumulative, meaning doubly subject Brazilian goods will be taxed at 37.5%. On that last note, still outstanding is the Section 301 excess supply probe into 16 jurisdictions now subject to the FLIP tariffs, which according to Ambassador Greer, will be completed "soon," as the Section 301 Committee considers public input received back in April. Adding that action should, as Treasury Secretary Scott Bessent said, return rates "to exactly where they were" under the IEEPA tariffs, or as the president put it, do "the same thing" as before. In that regard, and in further déjà vu, plaintiffs from the IEEPA and Section 122 cases have already filed separate lawsuits in the U.S. Court of International Trade (CIT), including a putative class action, challenging the FLIP tariffs as unlawfully pretextual. Brazil has already lodged a complaint with the World Trade Organization (WTO).

New Investigations: Vietnam and Germany, With Europe in the Crosshairs

Next, two new investigations into previously identified problematic trade practices were launched. First, on May 29 the USTR initiated a probe into "Vietnam's denial of adequate and effective protection of intellectual property (IP) rights and its denial of fair and equitable market access to persons that rely on IP protection." Vietnam had been identified in an April special report as a lone "priority foreign country" because of "a persistent failure to resolve long-standing concerns about IP protection and enforcement," leading not only to the Section 301 investigation, but also to the unusual step of proposing that the practices be found actionable before the investigation is even conducted. The report cited failures in combatting online piracy, widespread counterfeiting, border insecurity, unlicensed software use, and signal theft. No hearing is yet scheduled although comments closed on July 2.

Second, on June 18 the USTR initiated a study into "Germany's persistent underpayment for innovative pharmaceutical products." Specifically, the notice states that following a 2025 executive order regarding most-favored-nation prescription drug pricing, the USTR learned through public comment that the United States pays a disproportionate share of global pharmaceutical research and development costs, in part because investment by German companies is underfunded due to government conditions on confidentiality. These conditions include compulsory rebates and discounts, which diminish the financial returns needed to sustain long-term pharmaceutical innovation. Written comments and requests to appear at the scheduled September 22 hearing with summaries of testimony are due August 10.

Even more investigations could be coming as the Administration's rhetoric against Europe intensifies despite the EU's June implementation of its 2025 "Turnberry" ART. Last week, the president said the United States would open a Section 301 investigation into the EU's recent fines under its Digital Markets Act on various U.S. technology companies, while Ambassador Greer also raised "de facto forced technology transfer and intellectual property theft" and the largest ever state-backed loan to Airbus. In June, the president had warned that any European country implementing a new proposed digital services tax would "immediately" be hit with a 100% tariff, presumably pursuant to dormant Section 301 cases that began in his first term, and continued under President Biden. Note that this is all separate from the president's threat earlier this month to embargo Spain due to tensions over NATO spending and the Iran war.

China Reviews: 2018 Tariffs, Board of Trade, and Pending Phase One Study

Finally, no tariff update would be complete without news regarding China. Section 301 actions are scheduled to terminate after every four years unless a domestic industry beneficiary requests continuation. Readers will recall that the first Trump Administration imposed Section 301 tariffs of between 7.5% and 25%on most Chinese goods in the USTR's investigation of the Chinese government's technology transfer, intellectual property, and innovation practices. These tariffs came in two actions on July 6, 2018 (List 1), and August 23, 2018 (List 2), and were later modified with the addition of Lists 3 and 4A to cover $550 billion in annual trade value. After conducting the first mandatory four-year review, the Biden Administration continued (and for some products even increased) these Section 301 tariffs.

Now, with the actions expiring or scheduled to expire for a second time, eight years after they were first taken, the USTR on May 6 solicited the public for requests for continuation, after which a second four-year review would occur. No requests appear on the public docket for List 1 after the comment period closed on July 5, but USTR also has not announced the action's termination, leaving the tariffs in place for the moment. Requests regarding List 2 are due August 22.

Relatedly, the USTR and China's Ministry of Commerce have proposed a "U.S.–China Board of Trade," which among other things would manage potential reductions in the Section 301 tariffs for up to $30 billion in "non-sensitive" Chinese goods—meaning those that "give rise to few, if any, issues related to economic and national security and supply chain resilience risks"—currently subject to tariffs. A June 5 Federal Register notice invited detailed comment by July 10, on both the design of the new bilateral board and which goods should be subject to lower rates. In a way, this reincarnates the bygone product exclusion process carried out by both the first Trump and Biden Administrations, and under which all 178 remaining exclusions will lapse in November.

It is unclear how any of this will affect the ongoing Section 301 investigation into China's "apparent failure to comply" with the 2020 "Phase One Agreement," scheduled to conclude no later than October. Coincidentally, on June 15, the U.S. Supreme Court vindicated the Executive Branch's authority to modify Section 301 actions when it declined a cert petition to review a longstanding, unsuccessful challenge to Lists 3 and 4A in the Federal Circuit that would have directly benefited thousands of importers with copycat cases.

Considerations for Importers

Needless to say, the Section 301 cases are making customs compliance difficult for importers and leaving little outlet to avoid additional tariffs. Importers should assess the impact the new or potential tariffs will have on their landed costs, which may affect bond sufficiency, among other things, considering exemptions that may be available. Enhanced scrutiny from U.S. Customs and Border Protection (CBP) should be expected as well, meaning importers must take care that their classification, value, and origin declarations are reasonable, even as they may be designed to minimize duty exposure, and keep records readily available for CBP inspection.

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DWT's international trade, investment & national security team can assist domestic and foreign stakeholders in developing strategies to respond to these trade actions and in preparing comments or testimony to present to the Section 301 Committee. Please contact the authors if you have any questions or need assistance. For more insights, sign up for our alerts.