Most of you already know Section 301 of the Trade Act of 1974 because of the Trump Administration’s massive China tariffs under Section 301.[1] Now it’s time to get acquainted with a separate process that may result in tariffs on Vietnamese products too. Section 301 authorizes the Office of the United States Trade Representative (“USTR”) to investigate certain foreign trade practices.[2] USTR has initiated a probe into Vietnam’s currency practices, which could lead to tariffs on Vietnamese products, similar to the China tariffs. The Biden transition team has not indicated whether it will follow through with the investigation.
Background: Investigation of Vietnam’s Currency Valuation Practices
The USTR announced in October 2020 that it was initiating a Section 301 investigation on Vietnam’s “acts, policies, and practices related to the valuation of its currency.”[3] The investigation focused on whether Vietnam’s intervention in exchange markets and other related actions are unreasonable and discriminatory and burden or restrict U.S. commerce. The investigation followed a February 2020 rule promulgated by the Commerce Department in which it amended its regulations to allow for the imposition of duties for countries that undervalue their currencies.
Although the statute does not limit the scope of investigations, the probe into Vietnam’s currency practices is novel, because currency valuation has never before been the basis of a Section 301 investigation. The USTR took public input on certain issues with respect to the investigation, including:
- Whether Vietnam’s currency is undervalued, and the level of the undervaluation;
- Vietnam’s acts, policies or practices that contribute to undervaluation of its currency;
- The extent to which Vietnam’s acts, policies or practices contribute to the undervaluation;
- Whether Vietnam’s acts, policies and practices are unreasonable or discriminatory;
- The nature and level of burden or restriction on U.S. commerce caused by the undervaluation of Vietnam’s currency; and
- The determinations required under section 304 of the Trade Act, including what action, if any, should be taken.
The period for submission of comments closed in November 2020. On December 29, 2020, the USTR held a public virtual hearing on Vietnam’s currency practices.[4] Post-hearing rebuttal comments were due by January 7, 2021. Comments were also permitted to address a separate but possibly related report on currency manipulation, as discussed below.[5]
The U.S. Treasury Report on Currency Manipulation
Following the initiation of the Section 301 investigation, in December 2020, the Treasury Department issued its semiannual report on foreign exchange policies. That report concluded that Vietnam is a “currency manipulator.”[6] Although Treasury’s Report is conducted under a different statutory authority than Section 301, it could provide important support for the USTR to find that Vietnam’s currency practices are unreasonable or discriminatory and therefore actionable under Section 301.
Potential for Section 301 Tariffs on Vietnamese-Origin Products
Now that the Section 301 proceedings have largely concluded (i.e., comments, hearings, and post-hearing comments), the USTR is next expected to make a determination regarding whether Vietnam’s currency practices are actionable under Section 301. If that determination is affirmative, then the USTR must decide what action to take, which could include the imposition of tariffs, similar to those of Chinese-origin products (see our posts regarding Section 301 tariffs on Chinese products here and here). A large number of companies and trade associations have participated in the proceedings and have urged USTR not to impose Section 301 tariffs.
There is some doubt whether USTR will conclude its investigation before January 20, when President-elect Biden assumes office. Under normal circumstances, we might expect the investigation to take somewhat longer, particularly given the novel foreign exchange angle. But the Trump Administration USTR has been aggressive in its use of authority under Section 301, so it remains a possibility that it may decide to conclude its investigation before January 20. The Treasury Report could provide additional momentum for USTR to act swiftly. Section 301 authorizes a range of remedies, including tariffs, quotas, and other trade restrictions.
Any Section 301 action—whether taken under the Trump or Biden Administration—has the potential to impact a large swath of products from Vietnam. We typically expect another comment period before any such remedies are actually imposed. Therefore, we advise that importers remain abreast of the investigation, pay particular attention to any proposed remedies, and be prepared to provide public comment on such proposals as appropriate.
FOOTNOTES
[1] For a list of Section 301 investigations, see here.
[2] 19 U.S.C. § 2411.
[3] In addition to the Section 301 Investigation on Vietnam’s currency valuation, the USTR initiated a probe into Vietnam’s trade practices related to the import and use of timber that is illegally harvested or traded. See Initiation of Section 301 Investigation: Vietnam’s Acts, Policies, and Practices Related to the Import and Use of Illegal Timber, 85 Fed. Reg. 63639 (Oct. 8, 2020), available at https://ustr.gov/sites/default/files/enforcement/301Investigations/Vietnam_Timber_Initiation_Notice_October_2020.pdf.
[4] The transcript of the hearing is available here.
[5] Because the Treasury Report was issued after the USTR comment period closed on the Section 301 investigation, the USTR allowed interested parties to comment on the Treasury Report in their post-hearing rebuttal comments.
[6] Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of
the United States (Dep’t Treasury Dec. 16, 2020) (Treasury Report), available at https://home.treasury.gov/system/files/206/December-2020-FX-Report-FINAL.pdf