The White House announced today that it has reached a "Phase One" agreement with China to suspend tariffs on goods included in List 4B, which were expected to come into effect on December 15, 2019. In addition to suspending tariffs on List 4B, the U.S. has reportedly agreed to reduce tariffs from 15% to 7.5% on goods from China that are currently listed on List 4A, which became effective on September 1, 2019. Meanwhile, China has among other things agreed to significantly increase purchases of certain U.S. agricultural products, enhance intellectual property protection, and increase transparency in areas of currency and foreign exchange.
Background Regarding Section 301 Tariffs
Beginning on July 6, 2018, the U.S. has imposed tariffs on certain goods imported from China pursuant to Section 301 of the Trade Act of 1974 (Section 301). These tariffs have been periodically expanded to include additional goods, with the U.S. Trade Representative (USTR) imposing tariffs on a second list of goods (List 2) on August 23, 2018, a third list of goods (List 3) on September 24, 2018, and the first part of a fourth list of goods (List 4A) on September 1, 2019. Currently, goods listed on Lists 1, 2, and 3, which collectively cover around $250 billion worth of goods, are subject to tariffs of 25%, while goods listed on List 4A, which covers $120 billion worth of goods, are subject to tariffs of 15%. Furthermore, it was expected that on December 15, 2019, tariffs of 15% would come into effect for goods listed on List 4B, which included an additional $160 billion worth of goods.
"Phase One" Agreement between China and the U.S.
After months of negotiation, it was first reported on December 11, 2019 that the U.S. and China had reached a "Phase One" agreement in principle to suspend the planned tariffs on List 4B. Today's announcements from both the White House and Chinese officials appear to confirm the following key details regarding the "Phase One" agreement:
- List 4B tariffs are suspended and thus will not come into effect on December 15, 2019 as originally planned;
- List 4A tariffs are to be reduced from 15% to 7.5%; and
- Lists 1, 2, and 3 will continue to be subject to 25% tariffs.
What to Expect Next
USTR Robert Lighthizer has stated that the "Phase One" agreement could be signed as early as the first week of January and would become effective 30 days thereafter. Although announcements from the U.S. and China confirm certain key terms of the "Phase One" agreement, the legal text of the agreement has not been finalized. Therefore, until the "Phase One" agreement is finalized and becomes effective, there is a possibility that circumstances could change and impact the final terms of the agreement. Furthermore, many important details regarding the agreement remain unconfirmed, including when tariffs on List 4A will be reduced and whether the reductions will apply retroactively (thus allowing some importers to seek refunds). Assuming the agreement is signed in the first week of January (as envisioned by USTR Lighthizer) and the tariffs are reduced at the time the agreement becomes effective, then it would seem that the List 4A tariffs could be reduced to 7.5% by early February 2020. It is also unclear whether the U.S. intends to temporarily suspend tariffs on List 4B pending negotiation of the "Phase Two" agreement or if the List 4B tariffs are suspended indefinitely. Finally, statements made by Chinese Vice Commerce Minister Wang Shouwen seemed to confirm reports that the U.S. planned to remove all other existing Section 301 tariffs in stages. However, the USTR has stated that the U.S. is not planning a staged reduction of the remaining Section 301 tariffs. Thus, there are conflicting signals with respect to whether the U.S. plans to remove all remaining Section 301 tariffs in the near future.
We anticipate that further details regarding the terms of the "Phase One" agreement will be revealed over the coming days and weeks. We will continue to monitor any developments and provide regular updates. In the interim, please feel free to speak to Venable's International Trade Group attorneys if you have any questions regarding how these recent developments may impact your business.