USTR Opens New Section 301 Investigation Regarding China

Trade Tensions Intensify as Announcement Follows Exchange of Further Restrictive Measures

It’s been a busy month for U.S.-China trade relations.

On December 23, 2024, the Office of the U.S. Trade Representative (USTR) announced the launch of a new Section 301 investigation¹ into Chinese policies and practices allegedly targeting the global semiconductor industry “for dominance” by use of “extensive anticompetitive and nonmarket means.” USTR said China’s approach “is leading to significant capacity expansion, artificially and unsustainably lower domestic and global prices, a protected domestic market, and emerging overconcentration of production capacity”² in China.

That announcement follows the December 2, 2024 announcement by the Department of Commerce’s Bureau of Industry & Security (BIS) of an Interim Final Rule (IFR).³ The IFR further restricts the export to an array of specified Chinese companies, persons, and related agents and entities of 24 types of semiconductor manufacturing equipment used in the making of advanced node integrated circuits and high capacity semiconductors and related technology.⁴ The IFR, together with another accompanying BIS Final Rule issued concurrently,⁵ also added 140 specified companies and entities involving Chinese military development, including companies located in China, Korea, Singapore and Japan, to the “Entities list” at Part 744 of the Export Administration Regulations. The IFR also set out new controls for high-bandwidth memory technology and expanded the scope of the Foreign-Direct Product (FDP) Rule for certain advanced computing technologies and specific end-users.⁶

These restrictions build upon the BIS export (to China) restrictions on chip manufacturing technology issued on 10/7/2022⁷ and 10/25/2023.⁸

In an apparent response on December 3, 2024, China’s Commerce Ministry declared an imposition of increased controls on exports to the U.S. of dual-use materials, including a ban on exports of certain critical minerals (gallium, germanium, antimony and others).⁹ The announcement was followed by coordinated denunciations of U.S. restrictive trade policies by a number of Chinese authorities and industry groups.

This latest USTR action potentially sets the stage for the imposition of new tariffs on Chinese imports (a Section 301 investigation during the prior Trump administration resulted in tariffs on imports from China ― of up to 25% — that are still in place). The investigation will focus on “legacy” or “foundational” semiconductors and their incorporation as components into final products used in critical U.S. industries, such as:

• Aerospace
• Medical devices
• Defense items
• Power generation/electrical grid
• Telecommunications

The stated purpose is to determine the impact of China’s allegedly unfair practices (targeted pricing, price subsidies, forced labor, IP extortion and theft, and the like) that create or contribute to any “unreasonableness,” discrimination, restriction or other burden on U.S. commerce. The announcement states that USTR has already formally requested “consultations” with China on these matters.¹⁰

New tariffs ― a likely recourse/remedy under Section 301 ― would, of course, raise direct costs to importers and intermediaries and affect supply chain viability for industries using (or marketing) products containing or relying on components from the tariffed sources. Businesses (and their counsel) in affected industries would be well advised to actively monitor this investigation and consider commenting to help ensure full consideration of any specific supply concerns.

While a final determination on what action, if any, to pursue is not likely until much later in the new year, written comments to USTR open on January 6, 2025, and are due no later than February 5, 2025; requests to testify at the scheduled March 11-12, 2025 public hearing must be submitted by February 24, 2025.¹¹

Additional Assistance

For more information please contact James Kevin Wholey at (202) 617-2714, jwholey@phillipslytle.com; any member of the Phillips Lytle International Business Law Team; or the Phillips Lytle attorney with whom you have a relationship.