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Section 301

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The Section 301 Process

Information Courtesy Congressional Research Service, IF11346

Overview of Section 301

The Trade Act of 1974 is a legislation enacted by the 93rd Congress. The act aimed to “promote the development of an open, nondiscriminatory, and fair world economic system, to stimulate fair and free competition between the United States and foreign nations, to foster and economic growth of, and full employment in, the United States.” (Congress, 1974) The “Relief from Unfair Trade Practices” section (Sections 301 through 310, 19 U.S.C. §§2411-2420) under Title III of the Trade Act of 1974 is often collectively referred to as Section 301. The section permits the Office of the United States Trade Representative (USTR) to impose trade sanctions on foreign countries that violate US trade agreements or engage in acts that are “unjustifiable” or “unreasonable” and burden US commerce. (CRS, 2022)

Since the enactment of the Trade Act of 1974, the United States had actively employed Section 301 to expand market access and reduce trade barriers in foreign nations. However, the creation of the World Trade Organization (WTO) in 1995 provided alternative means for the United States to liberalize trade; this led the United States to subsequently forgo using Section 301 and rely upon WTO’s dispute settlement mechanism instead.

In 2017, the Trump Administration revitalized Section 301 and imposed tariffs on China in the hope of correcting China’s alleged unfair trade practices. This eventually spiraled into a trade war, where the United States imposed a total of $550 billion worth of tariffs against China; the latter retaliated with $185 billion worth of tariffs. (USTR, 2019; South China Morning Post, 2022) In 2020, the two sides reached a truce by signing the Phase One Trade Deal. China agreed to correct its trade practices and purchase $200 billion worth of US goods and services. In return, the United States agreed to maintain current levels and postpone imposing additional tariffs. (USTR, 2020) It is worth noting that despite the Phase One Trade Deal, subsequent research had found that China failed to reach its purchase commitments while trade deficits with China had conversely increased since the agreement. (PIIE, 2022, The New York Times, 2022)

USTR Four-Year Review of Section 301 Tariffs

On 5/5/2022, USTR published a Federal Register notice commencing the statutory four-year review of the Section 301 tariffs imposed by the Trump Administration. The first phase of the four-year review will allow 60 days for domestic industries that benefited from Section 301 tariffs to submit requests for continuation. If USTR receives one or more requests, it will proceed to the second phase of the four-year review where it permits public comments from all interested parties, including those who urge the removal of the Section 301 tariffs (Federal Register, 2022) 

 

 

Key Takeaways

  • Section 301 of the Trade Act of 1974 permits USTR to impose tariffs to address unfair trade barriers and punish countries that violate US trade agreements.
  • Section 301 was used rarely after 1995 since WTO’s dispute settlement mechanism provided alternative means to resolve trade disputes. 
  • The Trump administration attempted to address China’s alleged unfair trade practices by imposing tariffs under Section 301 eventually led to a trade war. 
  • Research has shown imposing Section 301 tariffs achieved little in addressing trade deficits with China. China failed to meet its purchasing target while trade deficits with China conversely increased since the Phase One Trade Deal.
  • In April 2022, the Biden administration reached deals to replace steel and aluminum tariffs with tariff rate quotas for the European Union and United Kingdom and steel tariffs with tariff-rate quotas for Japan. The deals also eliminated tariffs on derivative goods from the same jurisdictions and ended related retaliatory tariffs. 
  • As of July 2023, Tariffs on washing machines expired after an initial three-year period and a two-year extension. Additionally, The Biden administration provided a two-year suspension of solar panel tariffs for four Southeast Asian nations beginning in 2022. The update adjusts the revenue and economic results for imposed tariffs.

Discussion Questions

  • Will removing Section 301 tariffs boost approval ratings for the Biden-Harris Administration? How would it impact the midterm election?
  • Besides Section 301 tariffs, what other actions can the United States take to address China’s alleged unfair trade practices?
  • How would inflation and the supply chain crisis impact the likeness of the Biden-Harris Administration to lift the Section 301 tariffs?

Section 301 Cases

There have been 130 cases under Section 301 since the law’s enactment in 1974, of which 35 have been initiated since the WTO’s establishment in 1995. These cases have primarily targeted the European Union (EU), concerning mostly agricultural trade. The EU is followed by Canada, Japan, and South Korea. Prior to 2017, the last Section 301 investigation took place in 2013 and involved Ukraine’s practices regarding IPR. Given the political situation in Ukraine, the USTR determined that no action was appropriate at the time. The last investigation prior to the Trump Administration resulting in retaliation (i.e., tariffs) took place in 2009 and involved Canada’s compliance with the 2006 U.S.-Canada Softwood Lumber Agreement. Per a U.S.-Canadian understanding, the USTR suspended the tariffs in 2010.

During the Trump Administration, the USTR initiated six new investigations (see text box). Two investigations have resulted in the imposition of tariffs to date, on U.S. imports from China and the EU. The U.S. action against the EU— unlike that against China—was based on a WTO dispute in which the USTR anticipated being allowed to retaliate.

Recent Section 301 Proceedings

China

Date of Initiation: August 2017.
Issue: China’s technology transfer, IP, and innovation policies/practices.
Finding: Four Chinese IPR-related practices are unreasonable (or discriminatory) and burden (or restrict) U.S. commerce and justified U.S. action: (1) forced technology transfer requirements, (2) cyber-enabled theft of U.S. IP and trade secrets, (3) discriminatory licensing practices, and (4) state-funded strategic acquisition of U.S. assets.
Action Taken: Additional tariffs, ranging from 7. 5% to approximately $370 billion worth of U.S. imports from China.
WTO Procedures. WTO case DS542. (See also DS543 / DS565 / DS587.)
Updates: 

European Union

Date of Initiation: April 2019.
Issue: EU (including the UK) subsidies on large civil aircraft; violation of U.S. rights under the WTO Agreement; and EU’s failure to implement WTO Dispute Settlement (DS) panel recommendations concerning certain subsidies to the EU large civil aircraft industry.
Finding: EU and certain member states have denied U.S. rights under the WTO Agreement and have failed to bring WTO-inconsistent subsidies into compliance with WTO rules.
Action Taken: Suspended (until July 2021). Additional tariffs of 15% or 25% on $7.5 billion worth of U.S. imports from the EU.
WTO Procedures. WTO case DS316. (See also DS353.)

France

Date of Initiation: July 2019.
Issue: France’s digital services tax (DST).
Finding: The DST discriminates against major U.S. digital companies and is inconsistent with prevailing international tax policy principles.
Action Taken: Suspended (indefinitely, as of January 2021). Additional tariffs of 25% on $1.3 billion worth of U.S. imports from France.

Foreign Digital Services Taxes

Date of Initiation: July 2020.
Issue: The DSTs adopted or under consideration by Austria, Brazil, the Czech Republic, the EU, India, Indonesia, Italy, Spain, Turkey, and the UK.
Findings: The DSTs of Austria, India, Italy, Spain, Turkey, and the UK discriminate against major U.S. digital companies and are inconsistent with prevailing international tax policy principles. Investigations with respect to Brazil, the Czech Republic, the EU, and Indonesia were terminated.
Action Taken: Suspended (until November 2021). Additional tariffs of 25% on approximately $2.1 billion worth of U.S. imports from six countries: Austria ($65 million), India ($119 million), Italy ($386 million), Spain ($324 million), Turkey ($310 million), and the UK ($887 million).

Vietnam

Date of Initiation: October 2020.
Issue: Vietnam’s policies/practices related to the valuation of its currency.
Finding: On January 15, 2021, in consultation with Treasury, based on the information obtained during the investigation, and taking account of public comments and the advice of the Section 301 Committee and Advisory Committees, the U.S. Trade Representative determined that Vietnam’s acts, policies, and practices related to currency valuation, including excessive foreign exchange market interventions and other related actions, taken in their totality, are actionable under Sections 301(b)(1)(A) and 304(a) of the Trade Act (USTR Determination on Action and Ongoing Monitoring: Vietnam’s Acts, Policies, and Practices Related to Currency Valuation)
Action Taken: Treasury and SBV have ensure that “Vietnam confirms that it is bound under the Articles of Agreement of the IMF to avoid manipulating its exchange rate in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage and will refrain from any competitive devaluation of the Vietnamese dong. The SBV is also making ongoing efforts to further modernize and make more transparent its monetary policy and exchange rate framework. In support of these efforts, the SBV will continue to improve exchange rate flexibility over time, allowing the Vietnamese dong to move in line with the stage of development of the financial and foreign exchange markets and with economic fundamentals, while maintaining macroeconomic and financial market stability.” Additionally, “The U.S. Trade Representative has found that that the Treasury-SBV agreement and the measures of Vietnam called for in the agreement provide a satisfactory resolution of the matter subject to investigation.” 

Vietnam

Date of Initiation: October 2020.
Issue: Vietnam’s policies/practices related to the import and use of timber that is illegally harvested or traded.
Investigation: Virtual public hearing held in December 2020.
Action Taken: An agreement was secured in October 2021 that will help keep illegally harvested or traded timber out of the supply chain and protect the environment and natural resources. Ambassador Tai determined that the Agreement provides a “satisfactory resolution of the matter subject to investigation and that no trade action is warranted at this time.”  Going forward, the Office of the U.S. Trade Representative (USTR) will monitor Vietnam’s implementation of the Agreement.  

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