Today the Office of the U.S. Trade Representative (USTR) self-initiated an investigation under Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411) concerning the People’s Republic of China’s (PRC) semiconductor industry. In the past, Section 301 investigations have led to the impositions of tariffs of up to 100 percent on billions of dollars’ worth of imported goods from China. Businesses should be aware of the scope and likely course of USTR’s investigation, as well as opportunities for participating in the process.
Substance of the Investigation and Potential Outcomes
USTR’s initiation notice characterizes this investigation as assessing “PRC manufacturing of foundational semiconductors (also known as legacy or mature node semiconductors), including to the extent that they are incorporated as components into downstream products for critical industries like defense, automotive, medical devices, aerospace, telecommunications, and power generation and the electrical grid.” Other areas of focus include the PRC’s “production of silicon carbide substrates (or other wafers used as inputs into semiconductor fabrication)” and the relationship between the PRC’s “existing or threatened non-market excess capacity or overconcentration of semiconductor production in the PRC, and resulting dependencies and vulnerabilities that create risks for certain critical downstream industries, as well as harm to U.S. semiconductor producers and foundries.”
In general, there are two types of circumstances for which Section 301 authorizes a response. The first category comprises, for example, the denial of U.S. rights under a trade agreement; or acts, policies, or practices that are “unjustifiable” and burden or restrict U.S. commerce. Should USTR find such a circumstance, subject to limited exceptions, the statute requires USTR to take action to enforce U.S. rights or to obtain the elimination of the offending act, policy, or practice. The second category comprises, for example, acts, policies, or practices that are “unreasonable” or “discriminatory” and burden or restrict U.S. commerce. Action in response to the second category of circumstances is discretionary. Here, USTR’s initiation notice refers solely to “unreasonable” or “discriminatory” acts, indicative of a preliminary conclusion that this investigation will fall within the second category of circumstances. Either result is, however, ultimately possible.
Were USTR to ultimately conclude that China has violated Section 301 standards (whether the first or second category), the statute provides USTR significant leeway in devising its response. This could include, for example, additional tariffs (as with the existing Section 301 tariffs on the PRC) or import restrictions (with or without a corresponding exclusion process).
Procedure and Public Participation
Section 301 permits USTR to initiate investigations either in response to a petition (such as the since-withdrawn petition concerning fentanyl and precursor chemicals from the PRC) or on USTR’s own initiative. Once initiated, however, procedural requirements are largely the same. The statute requires that USTR complete its investigation and determine a response, if any, within 12 months, but it could be completed faster.
Here, USTR has provided for public input in the form of written comments and a public hearing. Broadly, such comments may cover acts, policies, and practices within the scope of the investigation; whether such acts, policies, or practices are unreasonable or discriminatory; the nature and level of any resulting burden or restriction upon U.S. commerce; and the response, if any, that USTR should adopt. The current deadlines (which are subject to change under the next Administration) include:
- A public docket for written comments on between January 6, 2025, and February 5, 2025 (Docket No. USTR-2024-0024);
- A public hearing on March 11-12, 2025, with remarks limited to five minutes apiece. Requests to participate in that hearing are due by February 24, 2025 (Docket No. USTR-2024-0025), and interested parties may file post-hearing comments to rebut or supplement hearing testimony within seven days after the hearing.
Conclusion
Cassidy Levy Kent has experience at all stages of Section 301 proceedings and is available to assist clients interested in participating in USTR’s investigation, or simply understanding the Section 301 process and procedures. Businesses should be aware of the possible outcomes when planning or reviewing their supply chains.