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Federal Government Funding Bill Mandates Expanded Section 301 Product Exclusion Process

The Consolidated Appropriations Act (H.J.Res. 31) was signed into law on 15 February to keep the U.S. federal government fully funded and open through 30 September. The legislation contains a number of trade-related provisions, including some of particular interest to Hong Kong and mainland Chinese exporters. Most notably, the legislation’s joint explanatory statement directs the Office of the U.S. Trade Representative to establish an exclusion process for mainland Chinese products currently subject to additional duties of ten percent under Section 301 of the Trade Act of 1974.

Following a Section 301 determination that mainland China’s acts, policies and practices related to technology transfer, intellectual property and innovation are unreasonable and discriminatory, the Trump administration has levied higher tariffs on mainland Chinese goods in stages. The first phase imposed a 25 percent additional tariff on US$34 billion worth of imports as of 6 July 2018 and product exclusion requests were due by 9 October 2018. The administration extended that tariff to another US$16 billion worth of goods as of 23 August 2018 and accepted product exclusion requests through 18 December 2018.

A ten percent additional tariff was imposed on so-called List 3 goods (valued at about US$200 billion) as of 24 September 2018 and is currently scheduled to increase to 25 percent on 2 March. While administration officials had vowed not to provide an exclusion request process for these goods unless and until that tariff increase occurred, the Consolidated Appropriations Act’s joint explanatory statement instructs USTR to initiate such a process by 17 March following the same procedures as those in place for List 1 and List 2 products. USTR has also been instructed to report to Congress on the nature and timing of this process by that same date.

While media coverage of the U.S. government shutdown focused on funding for a barrier on the U.S. border with Mexico (for which President Trump is now seeking additional funding under a national emergency declaration), all funding of the U.S. Department of Homeland Security – including U.S. Customs and Border Protection – was held up during the shutdown along with other important U.S. government functions. Information released by House Appropriations Chairwoman Nita Lowey (Democrat-New York) highlights some of the most significant provisions included in this legislation.

  • CBP has received a total of US$14.9 billion for fiscal year 2019, US$734 million above the president’s initial budget request and US$942 million above the fiscal year 2018 enacted level.
  • US$59 million is being provided for 600 new CBP officers and the agency is being encouraged to use fee funding to hire up to 600 additional officers, for a total of 1,200 new officers.
  • US$77 million is being furnished for opioid equipment and staffing for use at international mail and express consignment facilities.
  • An additional US$111 million above the request for the Cybersecurity and Infrastructure Security Agency is being provided to address high-priority cybersecurity and infrastructure protection vulnerabilities.
  • The U.S. Department of Commerce has received US$11.4 billion in overall discretionary funding for FY 2019, an increase of US$276.6 million from the FY 2018 enacted level and US$1.6 billion from the president’s budget request.
  • The International Trade Administration has been allotted US$495 million in funds, equal to the FY 2018 enacted level and US$43.9 million above the president’s budget request. The ITA appropriation specifies that an amount of US$16.4 million “shall be for China antidumping and countervailing duty enforcement and compliance activities.”
  • The Bureau of Industry and Security has been granted US$118.1 million in funding for FY 2019, up by US$4.6 million from FY 2018 levels. The increased BIS funding is to be “devoted to an effective Section 232 exclusion process.” The DOC will be required to report to the relevant congressional committees no later than 15 days after the end of each quarter on the implementation of the exclusion process, including (i) the number of exclusion requests received, (ii) the number of exclusion requests approved and denied, (iii) the status of efforts to assist small- and medium-sized businesses in navigating the exclusion process, (iv) department-wide staffing levels for the exclusion process, and (v) department-wide funding by source appropriation and object class for costs undertaken to process the exclusions.
  • The U.S. International Trade Commission has received US$95 million in funding for FY 2019, up by US$1.3 million from FY 2018 levels and US$7.4 million from the president’s budget request.
  • US$159 million is being provided for the U.S. Treasury Department’s Office of Terrorism and Financial Intelligence to investigate the illicit trade of synthetic opioids, particularly fentanyl, which the legislation references as primarily originating from mainland China. The legislation also directs the State Department to focus on opioid exports from the mainland. 
  • The U.S. Department of Agriculture’s Animal and Plant Health Inspection Service has been allotted US$1.014 billion in funding, an increase of US$29 million from FY 2018 levels and US$272 million from the president’s budget request. On the other hand, the Food Safety and Inspection Service’s budget is being decreased by US$7.5 million to US$1.049 billion, although that amount is still US$17 million above the president’s budget request.
  • Total funding for the Food and Drug Administration will grow by US$468 million from FY 2018 to US$5.67 billion.
  • The legislation also prohibits the use of funds by the National Aeronautics and Space Administration, the Office of Science and Technology Policy or the National Space Council to engage in bi-lateral activities with mainland China or a mainland Chinese-owned company or effectuate the hosting of official mainland Chinese visitors at certain facilities unless the activities are authorised by subsequent legislation or NASA, OSTP or NSC have made a certification in accordance with specific procedures.
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