Facing Fentanyl, a national coalition of fentanyl awareness organizations working to combat the illicit fentanyl epidemic, filed a petition with the Office of the United States Trade Representative (USTR) under Title III of the Trade Act of 1974, as amended, otherwise known as Section 301. The petition alleges that the acts, policies, and practices of the People’s Republic of China with respect to fentanyl exports unjustifiably and unreasonably burden and restrict U.S. commerce as they violate China’s international obligations to prosecute the production and export of illicit fentanyl and fentanyl precursors, combat the trafficking of fentanyl and fentanyl precursors, and cooperate with the United States in eliminating the production and export of illicit fentanyl and fentanyl precursors. The petitioners request that USTR respond to these unfair trade practices with an initial countermeasure level of US$50 billion in annual trade value, that is US$50 billion of retaliatory tariffs against China.
The illicit fentanyl that the petition refers to is engineered to be more concentrated, and therefore more dangerous, than the medical fentanyl prescribed by medical professionals for pain relief. Facing Fentanyl reports that illicit fentanyl is present in approximately 75 percent of annual drug-related deaths in the U.S., with some states reporting rates of up to 90 percent. It estimates that 97 percent of the illicit fentanyl present in the U.S. originated in China.
Beyond import measures targeting fentanyl and its precursors, could this petition drive more aggressive trade policy concerning non-fentanyl shipments from China? In short, yes.
The Section 301 Process: Initiation, Consultation, Investigation, Decision
Sections 301-310 of the Trade Act of 1974 as amended, entitled “Relief from Unfair Trade Practices,” gives the United States statutory means to impose trade sanctions on foreign countries which either violate U.S. trade agreements or engage in “unjustifiable” or “unreasonable” acts that burden U.S. commerce, which the statute defines as covering goods, services, and investment. USTR can initiate a Section 301 investigation either in response to a petition filed by an interested person — in this case, Facing Fentanyl — or it can self-initiate. In this case where a petition was filed, USTR has 45 days to review the allegations and determine whether to initiate an investigation.
Should USTR choose to initiate an investigation, the United States will then be required to request consultations with the Chinese government to discuss the issues raised by Facing Fentanyl’s petition and will likely solicit advice and comments from trade advisory committees, which are comprised of private sector interlocutors that are regularly contacted by USTR for advice concerning trade issues. After these consultations, USTR will begin its investigation to determine whether the alleged conduct is unfair or violates U.S. rights under trade agreements.
Section 301 investigations are conducted by a “Section 301 Committee” led by USTR and comprised of staff-level representatives from the departments and agencies which participate in the Trade Policy Staff Committee (TPSC). The Section 301 Committee will solicit comments from the general public via regulations.gov, conduct a public hearing, and provide recommendations to the TPSC which will in turn provide recommendations to inform USTR’s final recommendation to the President.
Prior to the Trump Administration’s use of Section 301 to apply tariffs to counteract Chinese acts, policies, and practices related to technology transfer, intellectual property, and innovation, the United States generally has used the findings of Section 301 investigations to pursue relief through the dispute settlement system of the World Trade Organization (WTO). A prior Section 301 measure that applied retaliatory tariffs did so pursuant to a finding involving Canada’s non-compliance with the 2006 U.S.-Canada Softwood Lumber Agreement. Section 301 has been invoked in recent matters concerning the U.S.-E.U. Large Civil Aircraft Dispute, digital services taxes with respect to 11 jurisdictions, Mexican seasonal and perishable agricultural products, practices with regard to Vietnam’s valuation of its currency and importation of illegally harvested timber into Vietnam, and China’s maritime, logistics, and shipbuilding sectors.
Section 301’s Remedial Powers Are Broad
To remedy a foreign trade practice found to unjustifiably or unreasonably burden U.S. commerce, Section 301 authorizes the USTR to (1) impose duties or other import restrictions, (2) withdraw or suspend trade agreement concessions, or (3) enter into a binding agreement with the foreign government to either eliminate the conduct in question or compensate the United States with satisfactory trade benefits. The level of mandatory action under Section 301 should “affect goods or services of the foreign country in an amount equivalent in value to the burden or restriction being imposed by that country on” U.S. commerce.
What Does This Mean for Trade?
De Minimis. Section 321 of the Tariff Act of 1930 allows for U.S. imports under a de minimis threshold to enter free of tariffs and taxes and with minimal inspection. In 2016, Congress raised the threshold from $200 to $800. Reporting indicates that shippers regularly use the de minimis shipment path to enter fentanyl into the United States. Both the Biden Administration and Congress have indicated support for decreasing the de minimis threshold. In such circumstances, more packages will need to be entered into the United States using Customs forms, which will increase compliance risks to shippers, especially those who have historically benefitted from the cost savings of informal entry requirements.
USMCA Review and Mexico. Mexico is a primary source of and transit country for the traffic of illegal drugs like fentanyl into the United States. Reporting shows that in 2019 Mexico surpassed China as the primary source of U.S.-bound illicit fentanyl and fentanyl analogues. Similarly, in 2023, U.S. Census Bureau data showed that Mexico surpassed China as the top source of official U.S. imports, reaching US$475.6 billion compared to US$427.2 billion from China. Around the same time, China ramped up its foreign direct investment (FDI) into Mexico following the renegotiation of the North American Free Trade Agreement (NAFTA), now called the United States Mexico Canada Agreement (USMCA), such that the Mexican government reported US$235 million of FDI from China in the first half of 2024 alone. Given the breadth of remedial power granted to USTR under Section 301 and the links between China and Mexico with Chinese precursor material being manipulated in Mexico, there is a reasonable risk to supply chain disruption in trade between the U.S. and Mexico because of this petition.
Don’t Forget the Election
The upcoming presidential election will fall within the 45 days USTR is allotted before it must determine whether to initiate the investigation into China’s acts, policies, and practices related to fentanyl exports. A decision not to investigate seems unlikely considering the Biden Administration has made combatting illicit fentanyl a high priority with the White House announcement of new actions to “detect and defeat” fentanyl. But even with an initiated investigation, it remains unclear the trajectory of the investigation in a new administration. Both former President Trump and Vice President Harris have employed strong rhetoric against illicit fentanyl while on the campaign trail.
Cassidy Levy Kent has firsthand experience working on Section 301 investigations. Contact us for trade policy advice and assistance participating in the investigation, or any questions about these developments.