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Section 301 Case Offers Importers a Chance at Refunds as Administration Contemplates Further Tariff Action

section 301

Section 301 Case Offers Importers a Chance at Refunds as Administration Contemplates Further Tariff Action

After a summer of wrangling, Plaintiffs in the ongoing Court of International Trade (‘CIT’) case challenging List 3 and 4A Section 301 duties on imports from China got a big win: in September the Government conceded that it is not able to administer a repository system that would require each importer to continually submit entry-specific information to preserve its rights to actual 301 duty refunds. The arguably unnecessary and burdensome repository system was the Court’s solution to the fact that the Government refused to stipulate that Plaintiffs would have the right to duty refunds on liquidated entries in the event their claims are ultimately successful. Usually, imports are “liquidated”think “finalized”on a rolling basis about a year after entry, so the Government’s position meant that Plaintiffs could potentially lose their rights to duty refunds on more and more entries each day as the CIT litigation continues to play out.

In the end though, after months of intransigence, the Government changed its position and agreed to stipulate that refunds on liquidated entries would be available post-judgment for all Plaintiffs’ entries that were unliquidated as of July 6, 2021. This about-face brings an end to this particular squabble, guarantees Plaintiffs will have access to duty refunds on this set of entries if they win, and allows the case to proceed to the merits. It also suggests that going forward, the Government intends to put forth any possible argument, however tenuous or impractical, to deny refunds to as many importers as possible even if the Plaintiffs prevail on the merits.

While the fact that the Government is vigorously defending its position may not be surprising, it does underscore the benefits of joining the litigation: if List 3 and 4A duties are ultimately declared unlawful, the next debate will center around the extent and form of relief that will be granted to importers who paid these unlawful duties, including which companies will actually get refunds. Actual Plaintiffs in the case will be in the best position to obtain these duty refunds, while the Government will likely make every effort to prevent the ruling from applying more broadly to all importers.

Door Still Open to Join Section 301 Litigation

The CIT case challenging List 3 and 4A duties, which began over a year ago, could very well reach the oral argument stage by early 2022 (barring any further tangential matters brought on by the Government’s efforts to limit potential duty refunds). This would set the stage for a CIT ruling in 2022. Yet the door is still open for other US importers that continue to pay List 3 or 4A duties on China-origin products to join the ongoing litigation and benefit from a potential Plaintiff win once the case and any related appeals are decided.

This opportunity is still available due to multiple arguments that extend the statute of limitations each time duties are assessed on an entry subject to List 3 or 4A. To boot, the burden associated with participating as a new Plaintiff will likely remain quite low in light of the fact that the day-to-day proceedings are led by a Plaintiffs’ Steering Committee that has already been established. So while the extent to which Section 301 duty refunds will be available to Plaintiffs and other importers is still up in the air, importers can still file a complaint to join the CIT litigation and improve their chances of benefiting from a favorable outcome.

More Tariffs May Be Coming

Meanwhile, hopes and predictions that the various unconventional tariff increases implemented under the Trump administration would cease and even be rolled back under President Biden have failed to materialize. So far, the Biden administration has left the additional Section 301 tariffs on many products from China untouched. And now, as a result of its ongoing months-long review of the United States’ policy regarding trade with China, the Biden administration is reportedly contemplating further action under Section 301 aimed at leveling the playing field with China.

Specifically, the Biden administration may launch a fresh Section 301 investigation into government subsidies the Chinese central government provides to the county’s manufacturers, thereby giving its manufacturers an advantage over their American counterparts. Understanding the extent of these subsidies and holding China to account for practices that violate US or World Trade Organization laws has been a longstanding US goal. However, the fact that the Biden administration is contemplating initiating its own investigation under Section 301 to address the concern suggests the use of tariffs as a tool to sway America’s trading partners is no longer considered out of bounds by either Republican or Democratic leaders.

For US companies that import goods from Chinaand are therefore legally liable for paying all duties owed to US Customs and Border Protection (‘CBP’) on those products this new normal suggests that existing Section 301 duties will not be revoked by the Biden administration anytime soon. Quite the opposite in fact: it looks like more Section 301 tariffs on more China-origin goods could be on the horizon.

Navigating this new normal in a way that keeps companies’ tariff costs down while ensuring compliance with these ever-changing CBP requirements has prompted business leaders to take a more active approach to Customs law issues including classification and country of origin determinationsboth of which have the potential to affect how much duty an importer pays to US Customs.

Other Ways to Mitigate Tariff Liability

Beyond joining the CIT litigation challenging List 3 and 4A Section 301 duties companies can identify opportunities to save on both general tariffs and additional Section 301 duties by reviewing and confirming the accuracy of the information they submit to CBP. One example of this is conducting a product-specific classification analysis to determine the correct Harmonized Tariff Schedule of the United States Code (or HTSUS code) applicable to a given product based on the product’s characteristics and the (often gray) body of rules and guidance governing classification. Each 10-digit HTSUS code has a corresponding general duty rate, so if a review of a product’s classification results in an HTSUS code correction, it could also result in a lower general duty rate for that product.

Similarly, conducting a supply chain-specific country of origin analysis to determine the correct country of origin of a given product based on where each manufacturing step is conducted and the applicable (and often gray) rules and guidance governing country of origin can result in duty savings. If a company can establish and document that its product’s country of origin is a country other than China, then Section 301 duties will no longer apply to that product.

While both classification and country of origin reviews present an opportunity to mitigate tariff costs, they also help ensure companies are not inadvertently providing incorrect information to US Customs and exposing themselves to potential penalties for such violationsanother must for US importers in light of the fact that tariff issues remain front and center in the minds of regulators and requirements continue to evolve in response to the ever-changing geopolitical landscape.


Andrew Bisbas is Counsel at Lowenstein Sandler. His practice centers on US Customs and Border Protection import requirements and tariffs. He helps clients navigate CBP requirements including classification and country of origin determinations as well as USMCA and other trade agreement implications. Andrew also assists clients in setting up and maintaining corporate import compliance programs, conducting import audits and supply chain due diligence, preparing and submitting prior disclosures to US Customs, and advising on tariff engineering and supply chain structuring efforts geared towards mitigating tariff costs.


How Will the Biden Administration Enforce Tariffs?

It was no secret that the Trump administration had an aggressive trade policy with higher tariffs on China, tariffs on steel and aluminum products, new trade agreements, and pulling out of others. Customs duty revenue increased drastically under the Trump administration from $34.6 billion in 2017 to $74.4 billion in 2020. This major increase in revenue for the federal government has left many asking what the priorities will be for the Biden administration when it comes to U.S. trade deals.

Most experts do not expect any drastic changes in the early months of the Biden administration. Biden himself has stated that he will not make any immediate moves on tariffs with China. Some think he will stay tough on trade with China but may ease tariffs with allied countries. It is also presumed that he will make certain exceptions to the Section 232 tariffs on steel and aluminum for imports from certain allies.

These duties and tariffs have not been popular among many importers and foreign exporters. Some of these companies have resorted to fraud to avoid paying what they owe. As a result, the federal government has renewed a commitment to take enforcement action against companies who evade duties owed on imported goods.

Customs duties are implemented in order to level the playing field for U.S. manufacturers. In addition, the money the government collects from these duties goes directly to paying for programs such as veterans’ benefits, education, and infrastructure. When companies scheme to avoid paying the proper duties, they obtain an unfair advantage in the U.S. markets and cheat the federal government and taxpayers. Many companies have found schemes to avoid duties that are easy to pull off and give them a significant advantage over competing manufacturers and importers.

U.S. Customs and Border Protection is responsible for enforcing trade laws, including import compliance and revenue collection. However, CBP has limited resources and can’t possibly check every shipment for compliance. With millions of containers entering the U.S. each day, CBP tries to best allocate its resources to detect the imports at the highest risk of violation, making it easy for many fraudulent schemes to slip through the cracks. Some companies see the low risk of detection as an opportunity to save money by lying on import declarations to avoid paying higher duties.

Importers must declare the value of goods, country of origin, classification of goods, and amount of duties owed. Essentially, the process works on an honor system in which the importer is responsible for making sure the information declared is accurate. However, foreign exporters and U.S. importers have found ways to cheat the system by not accurately reporting information on their customs import declarations. Below are some of the common schemes used to avoid customs duties:

1, Undervaluing goods – Import duties are based on the value of goods as declared by the importer. By undervaluing the price of goods on declarations, importers wrongfully avoid paying the appropriate duties.

2. Misrepresenting country of origin – Shipments imported into the U.S. must be marked with the country of origin. Tariff rates vary by country of origin and certain countries are subject to anti-dumping tariffs and countervailing duties. By disguising the country of origin, importers avoid paying certain tariffs and duties. Most commonly, transshipping is a scheme used to misrepresent the country of origin. Transshipping involves shipping goods to another destination prior to reaching the final point of entry and relabeling to conceal the true country of origin.

3. Misclassifying goods – Import duties are also determined by the classification or category of goods being imported. Importers avoid paying the full amount of customs duties by falsely declaring goods under a different category that is subject to a lower duty.

Since these acts are so easily committed and concealed, customs fraud is often difficult to detect. The federal government relies heavily on whistleblowers to come forward and aid in the undercovering and prosecuting of customs violations. Insiders and competitors are typically in the best position to uncover and report customs fraud.

The False Claims Act (FCA) authorizes individuals to bring a lawsuit on behalf of the federal government and share in the monetary recovery from that lawsuit. Whistleblowers who have evidence of customs fraud may bring a lawsuit under the FCA.

Many people are concerned about reporting their employers or others for committing fraud because they fear retaliation. The FCA ensures whistleblowers are protected from retaliation, such as being fired, demoted, or denied benefits. A whistleblower attorney can help ensure these protections.

Maintaining the integrity of U.S. trade policies is critical to the nation’s economic stability and security. The revenue collected from customs duties belongs to the American people. The federal government, taxpayers, and other U.S. businesses get cheated when dishonest companies scam their way out of paying tariffs and duties. Rooting out these fraudsters is made easier when brave and honest individuals come forward to do what’s right.


About Andrew Miller

Andrew Miller is a shareholder at Baron & Budd where he represents whistleblowers in qui tam cases. To learn more about whistleblower protections, go to


The Top Five International Trade Issues Under the New U.S. Administration

After a tumultuous stretch of international trade wars and a global economic crisis courtesy of the pandemic, the U.S. has a new president directing trade policy. What can business leaders expect from a Biden presidency as far as strategies, relations with major trading partners, and the role of the U.S. in global trade for the next few years? Early indications are that the U.S. – China relationship will remain tense, but the Biden team approach in other areas will differ greatly from the previous administration. Global partners can expect a change in tone from Washington, and there are five issues which will stand out as major differences under Biden’s leadership:

Number Five: The U.S. will reengage with the World Trade Organization (WTO), which should lead to a substantial reduction in unilateral ‘trade wars’ and tit-for-tat tariff exchanges. Under Trump, the WTO was marginalized and hamstrung by U.S. policies, as the appellate body did not have enough judges to take any action on trade disputes. Under Biden, the U.S. will be an active participant in the WTO and will use the organization to bring pressure against China and other nations on issues such as illegal support to state-owned enterprises. There is still an urgent need to reform the WTO, but the new administration seems poised to jump in and push for improvements.

Number Four: Russia is in the crosshairs. The on-again, off-again political relations between the U.S. and Russia should switch firmly to ‘off’ for the foreseeable future, as Biden’s foreign policy team has already indicated grave concerns over Russia’s meddling in Belarus as well as its treatment of protestors and dissidents such as Alexei Navalny in Russia. Biden ordered an extensive intelligence review of Russia’s actions over the last few years and will likely use the results of that report to tighten sanctions on Putin’s inner circle through the Magnitsky Act or dramatically limit trade and transactions with Russian state-owned enterprises, such as the Trump administration did with Huawei and other Chinese companies.

Number Three: The UK faces an uphill climb on their eventual U.S. trade deal. PM Boris Johnson lost an ally when President Trump left office, and the relationship with President Biden will be cordial but arm’s length. Johnson is in a tough spot, as he would like to secure a trade deal quickly to bolster his post-Brexit polling numbers, but Biden’s team is focused on the domestic agenda and probably will not see a need to negotiate this before 2022. The only way to move this deal to the front burner is to offer the U.S. one or more of the concessions it has long desired – increased access to the NHS for the U.S. pharmaceutical industry, lowered trade barriers for food imports, or improved entry into the services industry in the UK.  None of these would be popular for British voters, but Biden’s trade representative will be well-positioned to insist on key concessions.

Number Two: Biden’s team has committed early in the presidency to implement a “worker-centered trade policy” and that will color all of the legislation and trade deals that his administration will touch.  The intent of the policy is to ensure that future trade deals (including any potential participation in the CPTPP) do not harm American workers by giving the U.S. market access to foreign goods that were produced by underpaid and under-protected workers.  The flip side of this approach should be easier U.S. market entry from countries with decent labor (and environmental) standards, as the administration formulates a way to preference the ‘right’ type of imports.

The number one issue that will differ under the Biden administration is a desire to improve ties and trade opportunities with reliable partners. The tension with China will remain and potentially even deepen, but the Biden administration – stocked with committed ‘globalists’ – is going proactively tie other partners (especially fellow democracies) closer to the U.S. through increased trade and investment opportunities. Outside of North America, this will benefit Japan, South Korea, Australia, New Zealand, Israel and the European Union most of all. Rather than adjustments to existing trade deals (some of which, like the USJTA and USMCA, were just recently completed), the Biden administration will look to use bilateral investment deals to promote greater trade ties with trusted partners, especially in areas such as renewable energy and defense technology.

On the outside looking in will be Saudi Arabia, Turkey, Russia and other countries that will find in the Biden administration a trade team that is willing to substantively weigh human rights abuses and the dangers of populist leaders when assessing trade deals, money-laundering regulations, sanctions and access to the U.S. market and technology. While this shift in approach and tone will not immediately push international trade traffic into new patterns, it will lay the groundwork for a transition to more benign trade policies and less regulation for businesses working with preferred partners.  The foundations of global trade will shift just enough to push some companies, already weakened and weary by the pandemic recession, into a difficult scramble to quickly move operations and find new partners.


Kirk Samson is the owner of Samson Atlantic LLC, a Chicago-based international business consulting company which offers market entry research, political risk assessment, and international negotiations assistance.  Mr. Samson is a former U.S. diplomat and international law advisor.


Cuba Policy Under Biden: Change on the Horizon?

After four years of Trump Administration efforts to increase sanctions on Cuba and reverse Obama-era efforts to normalize bilateral ties, the Biden White House last week announced its own plans to review Cuba policy and signaled that changes may soon be forthcoming.

“Our Cuba policy is governed by two principles. First, support for democracy and human rights – that will be at the core of our efforts. Second is Americans, especially Cuban Americans, are the best ambassadors for freedom in Cuba. So we’ll review the Trump administration policies,” said White House press secretary Jen Psaki during her January 28, 2021 daily news briefing.

While the full scope and timing of potential Cuba policy changes remain unknown, there are indications that the administration could move quickly to address issues affecting the Cuban American community, such as a de facto Trump-era ban on formal remittance flows to the Cuban people. Other steps may include removing some restrictions on U.S. travel to Cuba, as well as revisiting the Trump Administration’s final-hour January 11, 2021 decision to re-designate Cuba a State Sponsor of Terrorism.

The political landscape surrounding Cuba policy has shifted dramatically in recent years. Since 2017, the Trump Administration and its allies in South Florida sought to engage conservative Cuban American voters through aggressive measures to crack down on the Cuban government and strong anti-Castro messaging. Public polling in 2020, as well as Miami-Dade County vote tallies in the November presidential elections, indicate that the strategy was at least somewhat successful. Mr. Trump increased his share of Cuban American votes from 54 percent in 2016 to 56 percent four years later—amidst considerably higher turnout—and helped flip two key South Florida congressional seats in Republicans’ favor. These trends may impact Cuba policy outcomes under Mr. Biden if they heighten the perceived political costs of a return to engagement-oriented policies.

On the other hand, many of President Joe Biden’s senior White House foreign policy advisors and cabinet secretaries at the Departments of State, Homeland Security, Defense, and elsewhere, have tended to favor engagement-oriented approaches, premised on the belief that such policies better serve U.S. interests and promote positive changes in Cuba. First Lady Dr. Jill Biden’s October 2016 travel to Cuba—during which she met with diverse members of Cuban civil society—means that a member of the first family also has first-hand impressions of Cuba policy.

Historically, new presidential administrations have moved swiftly—typically within the first six months—to put their stamp on Cuba policy through executive actions. In April 2009, the Obama Administration issued its first actions by removing restrictions on family remittances and Cuban American travel to Cuba, and by expanding authorizations for U.S. telecommunications projects. In June 2017, the Trump Administration published National Security Presidential Memorandum 5 (”NSPM-5“), “Strengthening the Policy of the United States Toward Cuba,” which laid the foundation for its future Cuba policy actions.

While it seems likely that President Biden will take his own first Cuba policy steps sometime in the next few months by replacing NSPM-5 with a statement of his own administration’s priorities, how far he will go in reversing specific Trump-era restrictions is difficult to predict. However, U.S. companies with Cuba-related interests should get a better sense of the likely future contours of U.S.–Cuba relations soon and initial indications are that Cuba sanctions will become less restrictive under Biden than his predecessor.

Akerman will continue to provide updates on significant Cuba policy developments—as well as any changes to federal regulations—in the coming months.


By Matthew D. Aho, Pedro A. Freyre, and Augusto E. Maxwell at Akerman.  This Akerman Practice Update is intended to inform firm clients and friends about legal developments, including recent decisions of various courts and administrative bodies. Nothing in this Practice Update should be construed as legal advice or a legal opinion, and readers should not act upon the information contained in this Practice Update without seeking the advice of legal counsel. Prior results do not guarantee a similar outcome.



This is the fifth in a series of articles by Eversheds Sutherland partners Jeff Bialos and Ginger Faulk explaining the legal and regulatory impacts of certain recent US sanctions and export control actions targeting various Chinese entities. Each article explains the regulatory context of the recent rules and intends to be explanatory in nature.

During a seemingly interminable and challenging transition period, the Trump administration has layered on an array of additional China sanctions. What are the impacts of these actions? What approach is the Biden administration likely to adopt and what changes can we expect? These are the topics that are addressed in this article, the last in this five-part series.

China-related Sanctions since November 6, 2020

Specifically, since November 6, 2020, the Trump administration has:

1. issued an Executive Order banning US persons from trading in the publicly traded securities of more than 35 “Communist Chinese Military Companies;”

2. named no less than 60 Chinese entities to the US Commerce Department Entity List, which establishes a license requirement for nearly all exports to such firms and general presumption of denial for such exports;

3. designated 58 entities as China “Military End Users” under the Export Administration Regulations (EAR), which also results in restrictions on a wide range of high-tech exports; and

4. removed Hong Kong as a separate destination from China under the Export Administration Regulations, which removes its preferential treatment for export licensing.

Moreover, during the same period, President Trump signed an executive order blocking transactions with companies that “develop or control” certain Chinese connected mobile and desktop applications and related software – namely Alipay, CamScanner, QQ Wallet, SHAREit, Tencent QQ, VMate, WeChat Pay, and WPS Office. At the same time, earlier executive orders banning transactions with the owners of TikTok and WeChat were halted by federal courts and the effective date of these orders has been suspended pending the outcome of ongoing litigation.

In particular, compliance with the recent securities trading ban has proven challenging for the financial community, forcing banks and investment companies to divest or restructure hundreds of products containing publicly traded securities of the named “Communist Chinese Military Companies” and other companies whose names “closely match” the names of the listed companies. The term “securities” is broadly defined under US law, and OFAC has interpreted the ban to apply to any security that “designed to provide investment exposure” to the securities of a named entity. Thus, the ban includes, for example, a mutual fund which includes in its portfolio one or more of the subject securities or an insurance policy that has a mutual fund option for insureds holding the securities of such named entities. The ban also applies to securities held on a US or foreign exchange if the investor is a US person. The NYSE has announced the delisting of these companies, and both the NASDAQ and MCSI have announced they will remove the listed companies from their indices.

In short, while other lame duck presidents have taken actions that make things easier for their successors, the Trump administration has taken the opposite tack in an apparent effort to lock in a hard-line China policy. It will be more challenging for the Biden administration to easily unwind. In response, China has adopted its own regulations prohibiting Chinese companies and individuals from complying with “punitive measures mandated by foreign governments.”

Outlook under President Biden 

Whether and to what degree the Biden administration will implement, unwind or limit the scope or applicability of these and other pre-existing Trump administration restrictions against China remain to be seen. As a threshold matter, we expect an initial waiting period as the Biden administration gets its new team in place, evaluates its overall strategic approach toward China, and considers these particular restrictive measures in the context of its overall strategy.

Generally, based on public statements to date, we believe that the Biden administration will in all probability share the basic view that China is a strategic competitor and potential adversary. However, how to deal with China, a major power whose cooperation the United States needs on some important issues, is another matter – there are a range of possible approaches. In this regard, at this early juncture, we believe that US policy toward China under President Biden is likely to reflect a number of elements:

-selective disengagement with China in certain areas viewed as more central to national security and cooperative in other areas where national security risks are considered less significant;

-more cooperation with allies to shape shared approaches to addressing areas of concern with respect to China;

-stronger views on human rights violations by China; and

-more direct engagement with China on areas of concern with a view toward seeking sensible solutions.

It is within this overall policy framework that the Biden administration will evaluate and approach the new and existing China restrictions imposed by the Trump administration. Certainly, the Biden administration has the legal authority to undo or roll back nearly all of the Trump Administration’s actions.

At the same time, the new administration undoubtedly will recognize that any major actions to roll back China sanctions will be controversial and raise questions among policy hard-liners who believe stringent dual-use export control sanctions are strongly justified in light of China’s “military-civil fusion” strategy (i.e., whereby any dual-use exports to commercial firms could wind up in China’s military sector).  Indeed, even small actions to curtail or limit China sanctions (e.g., removing companies from lists, creating new licenses or issuing new interpretations) will send political signals both at home and abroad. Meanwhile, the business community will monitor and interpret such measures in Talmudic fashion to divine if there is a new wind blowing in this area.

For these and other reasons, we do not foresee an imminent reversal of most of the Trump administration’s actions. Rather, we expect a more balanced and incremental approach than we have seen in the last four years, with more careful sculpting of existing sanctions to ameliorate the effects (with FAQs, licenses and the like) while taking a strong line against China in other areas in coordination with close allies.

Previous installments can be found here.


Jeffrey P.  Bialos, partner at Eversheds Sutherland, assists clients in making multi-faceted business decisions, structuring transactions and complying with complex regulatory requirements. A former Deputy Under Secretary of Defense for Industrial Affairs, he brings deep experience in defense, homeland security and national security matters, including antitrust, export controls, foreign investment, industrial security, the Foreign Corrupt Practices Act, and mergers and acquisitions, and procurement.

Ginger T. Faulk, partner at Eversheds Sutherland, represents multinational companies in matters involving US government regulation of foreign trade and investment. She has extensive experience advising and representing global companies, counseling clients in matters arising under US sanctions, export controls, import and other national security and foreign policy trade-related regulations.


2021 Logistics & Transportation Forecast: Here’s What to Prepare for in the New Year

The US-China trade war, COVID-19, regulations and compliance, economic disruptions, and more all contributed to a hectic year for players in the global logistics and transportation arenas. It’s safe to say that 2021 will inevitably require a new level of innovation and predictions compared to how operations used to be. Sophisticated forecasting and agility take on a new meaning for proactive measures to prove successful in the new normal. With the hope of 2021 on the horizon, Deepak Chhugani, founder and CEO of Nuvocargo, the first digital freight forwarder and customs broker for US/Mexico trade, lists what he considers to be some of the most significant events to prepare for in 2021 and how shippers, manufacturers, and other industry players can prepare.

-Mexico is now the USA’s #1 trade partner, according to the US Census Bureau’s 2019 report. The China-US trade war, as well as the COVID-19 pandemic, are driving more US companies to establish new supply chains and we anticipate explosive growth as Mexico becomes the new China. Companies are nearshoring and moving their US supply chains closer to home in favor of Latin America and more specifically Mexico. The automakers especially should continue to see a big boom and reliance on Mexico as it favors homegrown manufacturing. The auto industry will continue to see a shift, in particular the Bajio region of Mexico, which is flush with trucking capacity.

-Digitization, software, and giving shippers and carriers efficient tech tools are critical as technology continues to disrupt this industry. COVID-19 has forced the traditional and analog logistics industry to adopt technology as its primary way of doing business. Everyone is working from home, switching in-person and paper processes with digital transactions and signatures. Digital freight forwarding technology can help businesses ease this transition from offline to online and empower them with tools to smoothly transition towards more digital and modern ways of managing their cargo and supply chains.

-Changes to the global logistics industry (trucking, maritime, and others) that inherently impact the cross-border world is mainly the result of the United States-Mexico-Canada Agreement (USMCA) and tariff schedules. The expectation was that the USMCA would increase annual US exports to Canada and Mexico significantly.  As exports increase, that results in more cross-border truckloads between the US and Mexico which will lead to more capacity crunches as several trucking players have exited the marketplace in recent years and volumes will only increase. This should also increase reliance on cross-docking shipments to leverage trucking capacity on both sides of the US/Mexico borders.

-Politics will also play a role in 2021 as we can anticipate a Biden administration will bring more stability and predictability to trade relationships, especially after the recent signing of the new North American Free Trade Agreement USMCA. An expected increase in US government spending and a policy refocus on middle and lower classes could also prove beneficial to Mexico’s production capabilities, as additional consumption incentives are created. Finally, with the tight grip on China not likely to loosen in the near future, both countries (US/Mexico) could benefit from embracing the shift of global supply chains to bring more manufacturing to North America.

-Transportation of COVID-19 vaccinations will create more demand and we’ll see an increase in shipping, especially refrigerated cargoes and cold-chain solutions. The U.S. Department of Transportation just announced that “all of its necessary regulatory measures have been taken for the safe, rapid transportation of the coronavirus disease (COVID-19) vaccine by land and air.” As a result, there will be additional safeguards and support in place for the trucking industry. Also, the importance of freight forwarders is likely to increase as the complexity of vaccine distribution reaches never-before-seen levels. Freight forwarders’ role as the “connective tissue” of logistics will be key and will take the pressure of managing the logistics of pharmaceutical companies. On the flip side, prioritizing vaccines means that some non-essential cargo will get bumped, increasing rates and affecting businesses that are not properly prepared for this unprecedented time.

-COVID-19 and border restrictions continue to impact customer’s exporting needs as they move their freight into the US. Since most of the available equipment is retained at the border and looking to move southbound from Laredo, the export/import ratio of 8:1 continues to impact the overall capacity into specific areas such as Guadalajara, Bajio, and Mexico City which creates challenges. Companies will have to be nimble and diligent as they navigate and comply with their customer’s requirements.

trade war


Unconventional Trade Warfare

Since taking office, the Trump administration has been building its case against Chinese practices they view as unfair to American businesses, including subsidization of industrial production and requirements to transfer proprietary U.S. technologies. The Trump administration has also taken aim at the opaque connections between state-directed and strategic private enterprises, seeking to tighten oversight of Chinese investments in the United States and make examples of Chinese companies like ZTE Corporation that might be working around U.S. sanctions against Iran and North Korea.

It has been an unconventional and rapid-fire series of steps as the Trump administration deploys a variety of executive powers, U.S. trade laws, WTO proceedings, and threats. American companies and the average consumer can hardly keep track of proposed tariffs, real actions, and market reactions. Some of these measures our manufacturers and innovators have been seeking for years, but other measures they aren’t sure they want at all, or worry about the consequences of Chinese retaliation. America’s farmers are especially worried about getting caught in the crosshairs.

On January 15, the United States and China signed an unprecedented type of trade deal. If you’ve lost track of how we got here, below is a handy quick guide to recent events in this unfolding U.S.-China trade war. Download and share the graphic, updated as of October 14, 2020.


Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.



Do As I Say?

Trade rarely ranks high for voters in the election booth – so why do we seem to see an uptick in anti-trade sentiment around election time? And does protectionist rhetoric during the campaign season influence politicians’ actual voting behavior on trade?

Evidence, both anecdotal and academic, suggests yes – term length and the electoral calendar play a key role in determining the outcome of votes on trade policy. Members of Congress tend to believe that supporting more protectionist trade policy will increase their chances of re-election. Conversely, without that fear of repercussions at the ballot box, politicians vote in favor of more liberal trade policy.

In the words of economist Dani Rodrik, “no other area of economics displays such a gap between what policymakers practice and what economists preach as does international trade.” There are many examples of normally pro-trade politicians shifting their views around election time.

For example, in the run-up to the 2008 presidential election, Barack Obama attacked NAFTA despite going on to go all-in on free-trade in his presidency. Similarly, in the 2016 Toomey vs. McGinty Pennsylvania Senate race, both formerly free-trade politicians changed their tune to try to appeal to more voters. Beyond the anecdotes, a group of economists has sought to study the pattern over years of trade votes in the United States.

A Study into Economic Policy and Elections

In their 2011 paper “Policymakers’ Horizon and Trade Reforms,” Paola Conconi, Giovanni Facchini, and Maurizio Zanardi attempted to empirically answer the question: Do imminent elections impact the decision-making and voting behavior of elected officials on issues related to trade?

Conconi, Facchini, and Zanardi compared the voting behavior of candidates facing an upcoming re-election contest with those who had a long term ahead of them. Senators are up for election every six years (meaning that every two years, one-third of all seats are up) whereas U.S. House members face election every two years. This vote log provides many data points that show changes in behavior of individuals over time, at different points in the election cycle.

The authors analyzed the individual roll call votes on the final passage of every trade liberalization bill introduced in the U.S. Congress between 1973 and 2005. They considered 29 votes in total, covering 15 trade reform bills. All but one of the bills was approved but with varying margins.

Closer to Re-Election, Free Trade Voting Tendency Drops 10 Percent Points

First, the authors compared House and Senate members. Other studies have shown that House members are generally less likely to support trade liberalization than senators, and the authors’ results align with this. However, the authors found that there is no significant difference in the voting behavior between House members and senators during their last two years before re-election. This suggests that the intercameral difference between the two groups could be explained by their term length, rather than other factors such as constituency size.

Next, they compared different generations of senators, finding that they become more protectionist the closer they get to a re-election campaign. Senators in the last two years of their term are around 10 percentage points less likely to vote in favor of trade liberalization policies than those in their first four years, a significant difference. Interestingly, Banri Ito, in his 2015 paper, used data from the Japanese House of Representatives election in 2012 to find similar results, indicating this is not purely an American phenomenon.

Probability of Vote for Trade Reform

Safe Seat, Retirement or Election Defeat Associated with Free Trade Vote

Their results hold when studying the behavior of the same senator over time or comparing a whole host of controls including campaign contributions, age, gender, and party affiliation. Even those representing constituencies where a majority of their voters should benefit significantly from trade liberalization, such as heavy exporting constituencies, exhibit the same late-term protectionist tendencies.

In contrast, senators who are retiring or who hold very safe seats do not change their behavior as an election nears. Interestingly, two of the votes they tracked occurred in a “lame duck” session (after November elections but before the new senators had taken their seats). In those votes, no defeated senators voted against trade liberalization.

Overall, the Conconi, Facchini, and Zanardi study showed:

-Members of the U.S. House are more anti-trade liberalization than U.S. Senators, but that difference disappears during the last two years of a senator’s term.

-Election proximity reduces representatives’ support for trade.

-The protectionist effect applies both to senators who generally oppose liberalization (Democrats and import-competing constituencies) but also to senators who are generally more pro-trade (Republicans and export-competing constituencies).

-The inter-generational differences disappear for representatives holding safe seats or who are retiring (meaning a return to votes in favor of trade liberalization).

10 point drop

Anecdotal Evidence – Trade and Elections Today

Although far from sufficient to draw any concrete conclusions, anecdotal evidence does appear to corroborate findings from the Conconi, Facchini, and Zanardi study. We can find numerous examples of U.S. politicians changing their views on trade when the re-election stakes are high.

When votes on significant trade deals are on the table, trade has featured in congressional races, but in presidential races, trade is often a footnote or subsumed by debates over the state of the economy broadly. However, Donald Trump’s presidential campaign signified a marked change as he made trade a central part of his platform. In 2016, both Donald Trump and Hilary Clinton took a negative stance on the Trans-Pacific Partnership (TPP), and Trump against NAFTA. Notably, as Secretary of State, Clinton had defended TPP as the “gold standard” of trade agreements, but expressed a different view during election season.

In the 2016 Pennsylvania Senate Race, support of the TPP became an extremely important issue between two politicians with records of trade-liberalization support. Republican Senator Pat Toomey and Democrat rival Katie McGinty both came out against the TPP, despite the former’s career-spanning support of free-trade deals, and the latter’s support of the then newly-signed NAFTA while she served in Bill Clinton’s administration.

Similarly, Republican Ohio Senator Robert Portman, who voted in support of NAFTA in 1993, a series of subsequent trade deals, and served as George W. Bush’s chief trade negotiator, came out against the TPP. Democratic rivals called the announcement an election-year conversion.

Some politicians even admit to changing their views due to the political climate. Rep. Luke Messer (R-IN) who went from supporting various free trade deals with China to opposing them, called his own reversal on the issue a reaction to changing political pressure.

As for the 2020 election, Biden and Trump both cite trade as a critical issue, saying that U.S. trade policy has not been benefiting Americans as it should. Biden seems to have moved away from his past pro-free trade stance, and both candidates are advocating for Buy American policies.

DNC & RNC Platforms

Both the Republican and Democratic parties have taken on a protectionist bent ahead of the 2020 election, and in fact the platforms seem remarkably similar. Both the Democratic and Republican platforms emphasize the need to protect American workers from a competitive international system, with free trade and trade agreements taking a back seat. The Republican party is doubling down on its 2016 goals to punish China and bring outsourced jobs back to the United States, while the Democratic party touts the same goals, but proposes a new solution.

Democratic Party

In the 2020 Democratic Party Platform, any talk of free trade is notably absent, apart from a brief mention of support for the African Continental Free Trade Agreement and promoting free trade in that region. Instead, when trade is mentioned the focus is on China’s unfair trade practices and on the need to protect American workers from the global trading system.

The platform states that “Democrats will pursue a trade policy that puts workers first,” negotiating for labor, human rights, and environmental standards in trade agreements. They cite the COVID-19 pandemic as evidence that the United States has over-relied on global supply chains, but criticize the Trump Administration’s U.S.-China trade war as un-winnable. On the issue of China, the Democratic party plans to take aggressive action against them, and any other country that takes unfair trade action such as dumping, currency manipulation, and unfair subsidizing, as well as theft of U.S. intellectual property. The platform states that tax and trade policies that have encouraged corporations to move manufacturing jobs overseas and avoid taxes will be eliminated. They will “claw back” any public investments or benefits received by a company that shuts down U.S. operations to move abroad.

The DNC’s discussion of “Global Economy and Trade” and “Advancing American Interests” focuses yet again on putting American workers first. They claim that no new trade agreement will be negotiated before first investing in American competitiveness, and existing trade laws and agreements will be aggressively enforced. They plan to work with allies to stand up to China, and negotiate from the strongest possible position. An outline is also given of their stance to fight foreign corruption, and to reign in “misused and overused” sanctions.

trade platforms

Republican Party

The Republican party decided to forgo a traditional platform this year, instead opting to “to enthusiastically support the president’s America-first agenda”. However, the party also agreed to adopt the same platform as in 2016. President Trump has released a list of core priorities for his second-term agenda, two of which – “Jobs” and “End Our Reliance on China” – contain goals directly applicable to issues of trade. Echoing the growing protectionist rhetoric, Trump’s priorities appear to double down and expand on the 2016 platform.

Under the core priority of “Jobs,” Trump vowed to “Enact Fair Trade Deals that Protect American Jobs” and implement “’Made in America’ Tax Credits”, sentiments that match up with Trump’s various executive orders focused on Buy American policiesThe 2016 Republican platform recognized the importance of free trade deals: “We envision a worldwide multilateral agreement among nations committed to the principles of open markets, what has been called a ‘Reagan Economic Zone,’ in which free trade will truly be fair trade for all concerned.” The 2020 priorities seem to expand on this policy, stating that free trade is good, but with much more focus on the American worker and American power in the equation.

Another of Trump’s core priorities is to “End Our Reliance on China,” including goals such as “Bring Back 1 Million Manufacturing Jobs from China,” “Tax Credits for Companies that Bring Back Jobs from China,” and “No Federal Contracts for Companies who Outsource to China”. China was mentioned in the 2016 platform too, with the party vowing to take a firm stance that involved retaliation when necessary in order to punish Chinese “currency manipulation, exclusion of U.S. products from government purchases, and subsidization of Chinese companies to thwart American imports.” Perhaps unsurprisingly given global politics, this again appears to be an area of increased focus for the Trump administration looking ahead to a second term.

Protectionist Rhetoric on the Rise

Past studies have found evidence to support the assertion that when faced with an election, politicians are more likely to take a protectionist stance. That trend has continued, or perhaps escalated, over the last 15 years – and if the rhetoric we’re seeing on the 2020 campaign trail is any indication, it seems unlikely to slow down anytime soon.


Alice Calder

Alice Calder received her MA in Applied Economics at GMU. Originally from the UK, where she received her BA in Philosophy and Political Economy from the University of Exeter, living and working internationally sparked her interest in trade issues as well as the intersection of economics and culture.

conventional arms

U.S. Moves to Block Conventional Arms Sales to Iran

President Trump issued an Executive Order on September 21, 2020, which is effective immediately, imposes secondary sanctions on the transfer and sale of certain conventional arms shipments and the supply of related services to Iran by non-U.S. persons. This Executive Order follows the current administration’s failed effort to reinstate sanctions and a conventional arms embargo by the U.N. Security Council. The Executive Order, titled “Blocking Property of Certain Persons with Respect to the Conventional Arms Activities of Iran”, attempts to enforce such sanctions unilaterally by authorizing the U.S. Secretary of State to impose blocking sanctions on any non-U.S. person who transfers conventional arms to Iran or otherwise performs activities to support such transfers.

If the U.S. Secretary of State, in consultation with the U.S. Secretary of the Treasury, determines that a non-U.S. person has engaged in any of the following activities, then all of that non-U.S. person’s U.S. property (including property in the U.S., which transits through the U.S. financial system or which is otherwise in the possession of a U.S. person) will become blocked. U.S. persons and the U.S. financial system will be prohibited from transacting with those:

-Engaging in any activity that materially contributes to the supply, sale, or transfer, directly or indirectly, to or from Iran, or for the use in or benefit of Iran, of arms or related materiel, including spare parts;

-Providing Iran any technical training, financial resources or services, advice, other services, or assistance related to the supply, sale, transfer, manufacture, maintenance, or use of arms and related materiel;

-Engaging, or attempting to engage, in any activity that materially contributes to, or poses a risk of materially contributing to, the proliferation of arms or related materiel or items intended for military end-uses or military end-users, including any efforts to manufacture, acquire, possess, develop, transport, transfer, or use such items, by the Government of Iran or paramilitary organizations supported by Iran;

-Materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to the Executive Order;

-Being owned or controlled by, or to having acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to this Executive Order.

The Executive Order clarifies that it does not apply to persons “facilitating a transaction for the provision (including any sale) of agricultural commodities, food, medicine, or medical devices to Iran.”

Following the issuance of the Executive Order, the U.S. Department of Treasury’s Office of Foreign Asset Controls (OFAC) added several individuals and two (2) entities to the Specially Designated Nationals (SDN) list, thereby subjecting the designated entities to the above-described blocking sanctions. The Iranian entities are Mammut Diesel and Mammut Industrial Group P.J.S. (aka Mammut Industrial Group, Mammut Tehran Industrial Group, or Mammut Industries).

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) added five (5) individuals to the Entity List who BIS says “played a critical role in Iran’s nuclear weapons development program and continue to work for the Iranian regime.” By adding these individuals to the Entity List, they are now prohibited from receiving any items or technology that are “subject to the EAR”, which will essentially prohibit any exports or re-exports of U.S. origin items or technology to these individuals.


Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

trading partners

US Trade Representative Launches Investigations of DSTs of Numerous Trading Partners

On June 2, 2020, the Office of the United States Trade Representative (USTR) announced that it is beginning investigations under Section 301 of the Trade Act of 1974 (Trade Act) into digital services taxes (DSTs) that have been adopted or are under consideration by ten of the United States’ closest trading partners – Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom (DSTs Investigations).

According to USTR Robert Lighthizer, “President Trump is concerned that many of our trading partners are adopting tax schemes designed to unfairly target our companies,” and that “[the United States] are prepared to take all appropriate action to defend our businesses and workers against any such discrimination.”

The initial focus of USTR’s investigations is to determine whether the existing or proposed DSTs discriminate against U.S. companies, apply retroactively, and/or constitute unreasonable tax policy by diverging from norms reflected in the U.S. tax system and the international tax system. The USTR identified examples of such divergent approaches, including extraterritoriality; taxing revenue not income; and intentionally penalizing particular technology companies for their commercial success.

As a next step, the USTR is seeking public comments on any issue covered by the investigations, in particular, the following:

-Concerns with one or more of the DSTs adopted or under consideration by the jurisdictions covered in the investigation.

-Whether one or more of the covered DSTs is unreasonable or discriminatory.

-The extent to which one or more of the covered DSTs burdens or restricts U.S. commerce.

-Whether one or more of the covered DSTs is inconsistent with obligations under the WTO Agreement or any other international agreement.

-The determinations required under section 304 of the Trade Act, including what action, if any, should be taken.

Written comments should be submitted through the Federal eRulemaking Portal and are due by July 15, 2020. Because of the COVID-19 restrictions, the USTR has not scheduled a public hearing at this time but may indicate in a subsequent notice if a hearing is to be held in the DSTs investigations.

Eversheds Sutherland Observation: The timing of the investigations is noteworthy, as many jurisdictions, including the EU, have been highlighting the need for DSTs to address COVID-19 tax shortfalls. It also comes as the OECD continues efforts to find a consensus solution to taxation of the digital economy. The OECD remains committed to a proposal in 2020, although there is some recognition that this timing may slip due to issues around the pandemic. Nonetheless, the reaction of the U.S. is consistent with the response to the French DST, and is noteworthy in that the administration continues to respond to unilateral digital tax efforts through trade, rather than tax, channels. The U.S. has continued to participate in the OECD’s inclusive framework efforts.

The Previous Section 301 Investigations into the French DST

In July 2019, the USTR had already initiated an investigation under Section 301 of the Trade Act with respect to France’s DST Act (LOI n° 2019-759 du 24 Juliet 2019), which French President Emmanuel Macron had signed into law on July 24, 2019.  After requesting public comments and conducting a public hearing in August 2019 (for a hearing transcript, see here), the USTR in a report published in December 2019 determined that France’s DST is unreasonable or discriminatory and burdens or restricts U.S. commerce. Specifically, the USTR’s investigation concluded that the French DST discriminates against U.S. (digital) companies, is unusually burdensome for affected U.S. companies, and is inconsistent with prevailing principles of international tax policy on account of its retroactivity, its application to revenue rather than income, its extraterritorial application, and its purpose of penalizing particular U.S. technology companies.

At the time, USTR Lighthizer said that the “decision today sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on U.S. companies” and that the USTR is “exploring whether to open Section 301 investigations into the digital services taxes of Austria, Italy, and Turkey.”

Consequently, the USTR proposed action in the form of additional duties of up to 100 percent on certain products of France and considered imposing fees or restrictions on French services as a further option. The list of French products subject to the potential duties included 63 tariff subheadings with an approximate trade value of $2.4 billion. Another public hearing was conducted on the proposed action in January 2020 (for hearing transcripts, see here and here).

However, as reported in late January 2020, U.S. President Donald Trump and French President Macron agreed to a truce on the dispute over the French DST, under which both countries are extending negotiations, while the U.S. is postponing retaliatory action and France is suspending DST collections until the end of 2020. Furthermore, it was reported that under the deal France will (i) withdraw the DST as soon as the OECD’s Inclusive Framework reaches a multilateral agreement on how to reform the international tax rules in light of the digitalization of the economy, and (ii) repay companies the difference between the DST and whatever tax comes from a planned mechanism being drawn up by the OECD.

Eversheds Sutherland Observation: The reported U.S.-French deal did not address many concerns raised by affected companies at the Section 301 hearing regarding compliance with and the administrability of the DST. Initially, it left many affected companies struggling with obtaining information retroactively and preparing DST returns. At the same time, it has created significant pressure to agree on a multilateral solution as part of the OECD Inclusive Framework. In fact, France may be incentivized not to support a multilateral solution resulting in tax revenues that are less than what France can collect under its DST. Moreover, as subsequently observed, the deal did not appear to discourage other jurisdictions to enact their own digital taxes, subject only to an agreement to adjust to reflect any future multilateral solution agreed by the OECD.

The New Section 301 Investigations

An advance Federal Register Notice (Notice) issued by the Office of the USTR on the same day as the announcement provides additional details on the DSTs Investigations, including summaries of the DSTs that have been adopted or are being considered by the ten trading partners and the schedule for submission of written public comments.

DSTs under Investigation

As stated in the Notice, over the past two years, various jurisdictions—not limited to the ones under investigation—have taken under consideration or adopted taxes on revenues that companies generate from providing certain digital services to, or aimed at, users in those jurisdictions. Moreover, the Notice asserts that available evidence suggests these DST are targeting U.S.-based tech companies.

The DSTs Investigations target the following DST regimes:

Austria: In October 2019, Austria enacted effective January 1, 2020, a DST that applies a 5 percent tax to revenues from online advertising services with two revenue thresholds (at least €750 million in annual global revenues for all services and €25 million in in-country revenues for covered services).

Brazil: In May 2020, a draft bill was submitted in Brazil’s parliament entitled “contribution for intervention in the economic domain on gross revenue of digital services provided by large technology companies (CIDE-Digital),” which, if adopted, would apply an up to 5 percent tax on revenue from advertising and services in connection with digital platforms located in Brazil.

Czech Republic: The Parliament of the Czech Republic has accepted for consideration a bill that would impose a 7 percent tax on selected digital services provided in the country by companies with global sales exceeding €750 million and a turnover in the Czech Republic in excess of CZK 100 million.

European Union (EU): In its proposal for a COVID-19 recovery plan, the European Commission (EC) said that to raise the necessary funds, it will propose a number of new resources, which “could also include a new digital tax, building on the work done by the Organization for Economic Co-operation and Development (OECD).” The EC proposed a DST (COM(2018) 148 final) that would impose a 3 percent tax on gross revenues from digital online advertisement, digital platform activities, and sales of user data generated via digital platforms from companies with global sales exceeding €750 million and EU taxable revenues exceeding €50 million.

India: In March 2020, India expanded its equalization levy that has been in place since 2016 and will now impose a 2 percent levy on consideration receivable by a non-resident “e-commerce operator” (with annual revenues in excess of approximately ₹20 million) for “e-commerce supply or services” provided or facilitated by it on or after April 1, 2020.

Indonesia: In March 2020, the Indonesian government enacted a government regulation that adopts (but not yet implements) a new tax on Trade Through Electronic Systems (Perdagangan Melalui Sistem Elektronik or “PMSE”), imposing an electronic transaction tax on PMSE activities carried out by foreign tax subjects that meet certain criteria.

Italy: Italy enacted a DST effective January 1, 2020, which imposes a 3 percent tax on revenues from targeted advertising and digital interface services by companies generating at least €750 million in overall worldwide revenues and at least €5.5 million in revenues from qualifying digital services provided to users located in Italy.

Spain: In February 2020, the Spanish government published a draft bill concerning the implementation of a unilateral DST, which would impose a 3 percent tax on revenues from online advertising services targeted at users, online intermediary services, and data transmission services of companies generating at least €750 million in global net turnover and at least €3 million in revenues from taxable provisions of digital services in Spain.

Turkey: Having imposed a 15 percent withholding tax on online advertising since the beginning of 2019, Turkey has now enacted a DST effective March 1, 2020, which currently imposes a 7.5 percent tax (though the Turkish president is authorized to reduce the DST rate to 1 percent or double it) on gross revenues from certain services, including advertisement services provided through digital platforms, sales of auditory, visual or digital contents on digital platforms, and services related to the provision and operation of digital platforms enabling users to interact with each other, provided by companies with worldwide revenue exceeding €750 million and with Turkey-sourced revenue exceeding ₺20 million, in each case from covered digital services.

United Kingdom (UK): The UK government announced the introduction of a DST from April 1, 2020, which would impose a 2 percent tax on the revenues of search engines, social media services and online marketplaces that derive value from UK users of companies when the group’s worldwide revenues from these digital activities are more than £500 million and more than £25 million of these revenues are derived from UK users.

Section 301 Investigations in General

As described in the Notice, the Trade Act of 1974 authorizes the USTR to investigate whether an act, policy, or practice of a foreign country is actionable under Section 301 of the Trade Act. Actionable matters under Section 301 include acts, polices, and practices of a foreign country that are unreasonable or discriminatory and burden or restrict U.S. commerce. An act, policy, or practice is unreasonable if the act, policy, or practice, while not necessarily in violation of, or inconsistent with, the international legal rights of the United States, is otherwise unfair and inequitable.

As a first step in a Section 301 investigation, the USTR consults with appropriate advisory committees, including the Section 301 Committee, and requests consultations with the governments of the affected jurisdiction(s). The Notice confirms with respect to the DSTs Investigations that the USTR has already consulted with the relevant advisory committees in the U.S., as well as reached out to the governments of the ten affected jurisdictions.

After the USTR determines whether an act, policy, or practice under investigation is actionable under Section 301, the USTR must determine what action to take. Notably, Section 301 authorizes the President to take unilateral retaliatory action in order to force the offending country to end the practices that have been found to be unreasonable or discriminatory against the United States. In past Section 301 investigations, such retaliation has typically involved the imposition of significant additional U.S. tariffs on selected products from the targeted country.

Eversheds Sutherland Observation: Initial reactions to the USTR announcement from the targeted jurisdictions suggest that they are unfazed by the threat of a U.S. trade investigation, as they openly reaffirm their commitment to enact and/or enforce these DSTs as planned. This was true of the French response to the Section 301 investigation into its DST. Perhaps the U.S. is anticipating that, as in the case of France, the Section 301 investigations will lead to agreements to refrain from enforcement of unilateral taxes until the OECD Inclusive Framework is able to reach a consensus solution. However, if countries do in fact continue with unilateral DSTs, the situation may well trigger another potential trade war, at a time when the global economy is struggling to respond to the COVID-19 pandemic. It deserves emphasis that Section 301 is the legal basis for the significant tariffs that the U.S. has imposed on Chinese imports, which has in turn triggered tariff retaliation by China against U.S. imports.

Potentially complicating the U.S. position are digital advertising tax proposals appearing at the U.S. subnational level. The Maryland legislature recently passed a digital advertising tax bill that the state governor vetoed on May 7, and a “copycat bill” was introduced in New York. There are serious questions regarding the constitutionality of the proposals that have been introduced, but their existence may undermine the USTR position that foreign DSTs are unreasonable or discriminatory. Maryland’s proposed digital advertising tax has drawn scrutiny as violating federal law, including the Permanent Internet Tax Freedom Act and the dormant Commerce Clause. For Eversheds Sutherland’s critique of the tax, please see our recent article, If Md.’s Digital Ad Tax Is Passed, Court Challenges Will Follow.”