Section 301 – Latest Update

Dear Friends,

Just a quick update on Section 301, and the process surrounding List 3, in particular. 

As you know, the U.S. Trade Representative is considering whether to impose an additional 25% duty on a list of tariff provisions that represent $200 billion worth of imports from China (this is ‘List 3’).  The Section 301 Interagency Committee will be holding a public hearing on the scope of List 3 beginning this week.  The USTR will hear testimony from approximately 350 interested parties over 6 days.  The hearing schedule and the list of parties testifying are attached here for your reference.

In addition, we wanted to let you know that, as of last Thursday, the USTR had received 386 product exclusion requests under List 1.  The oldest request was filed on July 16, 2018.  So far, none of the 386 product exclusion requests have been acted upon.  A list of the exclusion requests is attached for your reference.  The USTR is expected to publish a notice in the Federal Register opening the exclusion process for List 2 shortly.  A similar notice (presumably) will be published for List 3 shortly after that list is finalized (expected in mid-to-late September).  Remember, it is better to file your exclusion request as early in the process as possible (it is going to be a long line!).

Finally, there will be a meeting in Washington between Chinese and U.S. officials later this week. This meeting is billed as being between “mid-level” officials on both sides (so, it is likely a meeting about whether it makes sense to keep meeting).  While this is a positive sign, it does not mean that the end is near (by any stretch).  For one reason, the U.S. delegation is being lead by a Treasury Department official.  The trade agenda (at least when it comes to China) is being driven by the White House, Commerce Department and USTR (not by Treasury).  As a result, no major breakthroughs are expected at this meeting.  That said, it is also being reported that there could be a possible meeting between President Trump and President Xi at one of the international meetings both will be attending in November.  While a resolution may not seem likely, President Trump has demonstrated a certain penchant for ‘declaring victory’ after in-person meetings with world leaders (and leaving the details to be worked out by others later – e.g., the Singapore summit with North Korea, the White House meeting with EU Commission President Juncker last month).  Nothing would surprise me at this point.

We hope this update is helpful.  If you have any questions about these issues, please let us know.

Best regards,
Ted

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Trade Update

Dear Friends,

There has been a lot going on with international trade in recent weeks and we wanted to flag for you a couple of items you may have missed.

The first involves the NAFTA renegotiation.  Rather than engage in discussions involving all three countries at once, the U.S. has focused its efforts on first reaching agreement with Mexico.  U.S. and Mexican officials have been in discussions over the past several weeks and talks are expected to continue this week.  The talks re-started following the Mexican presidential election in July.  This effort seeks to conclude a deal in August, so that the current Mexican president (President Enrique Pena Nieto) can sign the revised deal before he leaves office November 30th (thereby allowing the new president, President-Elect Andres Manuel Lopez Obrador to focus on domestic issues). 

It appears that these bilateral talks are making progress, including on providing an exemption to the Automotive Section 232 investigation for existing Mexican auto plants (it is being reported that the U.S. is not willing to extend that exemption to future/new auto production in Mexico, to make sure that there is an incentive for companies to put new production in the United States).  That said, tough issues remain (e.g., a sunset clause, investor state dispute mechanisms, etc.).  In addition, Canada has not been included in these most recent discussions.  It appears that the U.S. and Mexico are intending to present Canada with a renegotiated agreement and a ‘take it or leave’ offer.  It is not clear how Canada will respond, if such an offer is made.  It should be an interesting couple of weeks.

The second involves the Steel and Aluminum Section 232 investigations.  While these are purportedly ‘national security’ investigations, President Trump announced last week that the U.S. would double the duties imposed on Turkish steel and aluminum imports (from 25% and 10% to 50% and 20%, respectively).  The U.S. Trade Representative also announced that it was reviewing Turkey’s continued eligibility under the Generalized System of Preferences program.   These efforts appear to be in response to Turkey detaining a U.S. citizen who is alleged to be involved in the July 2016 coup attempt. 

These developments show that President Trump is willing to use U.S. trade policy to influence other countries’ positions on unrelated issues.  While that may undercut the legal basis for some of these trade actions (e.g., is doubling the steel duties on imports from Turkey really related to U.S. national security concerns, or is it more of an effort to get Turkey to release Pastor Brunson?  Is the Automotive Section 232 investigation about U.S. national security, or about getting Mexico, Canada, the EU, Japan, Korea, etc. to change their policies on other issues?), and be a different way of doing things than previous administrations, it may be working (at least in the short term; in the longer term, this approach will likely come back to bite us in several different ways).

We hope this is helpful.  If you have any questions, please let us know.

Best regards,
Ted

Section 301 — US Finalizes List 2

Dear Friends,

The U.S. Trade Representative issued a press release announcing the imposition of an 25% duty on a finalized ‘List 2’ yesterday (as you will recall, List 2 is the $16 billion worth of Chinese imports published on June 18, 2018) .  The finalized list contains 279 of the 284 HTS subheadings originally proposed to be covered.  The duties will be imposed on covered articles beginning on August 23, 2018.  The press release states that a notice will be published in the Federal Register shortly and that notice will include details on how interested parties can file a product exclusion petition.  A copy of the press release is attached here together with the finalized List 2.

The recent escalation of trade tensions (e.g., the finalization of List 2, China’s likely retaliation, President Trump increasing the List 3 duties from 10% to 25%, China announcing its intention to impose additional duties on a further $60 billion worth of U.S. imports in response, etc.), and the lack of meaningful negotiations to date, suggests that the duties (on both sides) will be around for awhile.  As a result, all companies that import from China should be reviewing their sourcing options and devising short, medium and long terms pans for coping (e.g., possibility of moving certain production steps out of China in the short term, while longer term options are explored, etc.).  These plans should include continuing to participate in the administrative process (e.g., filing product exclusion petitions, submitting comments/providing testimony on the impact of List 3 – and any subsequent lists, etc.), as well as Congressional outreach.  We are assisting numerous clients with these efforts and would be happy to discuss the options with you further.  If that would be helpful, just let us know. 

Best regards,
Ted

 

Miscellaneous Tariff Bill — One Step Closer to Reality

Dear Friends,

In a bit of good trade news, late last week, the Senate passed a slightly modified version of the Miscellaneous Tariff Bill Act of 2018 that had passed the House back in January 2018.  The bill authorizes temporary duty suspensions or reductions for hundreds products (the duty suspensions/reductions are generally effective for 2 years).  The bill also contains a provision extending certain customs user fees. 

The Senate version strikes a small number of products included in the House version, and modifies a handful of others.  As a result, the two versions of the bill will now need to be reconciled (given the small number of changes made by the Senate, the House will likely just vote on/pass the Senate version).  If this occurs, then it appears that the MTB will be sent to the President for signature as a stand-alone bill (rather than waiting to include it as part of a larger trade bill).  Given the concerns some in Congress have raised regarding the President’s recent trade policies – e.g., the handling of the ZTE enforcement case, the processing of Section 232 product exclusion petitions, etc., MTB’s best shot is probably as a stand-alone bill, rather than waiting to be included as part of a larger trade bill, as has been done traditionally.  It will also be interesting to see whether the President is inclined to sign such a bill.  While MTB is generally viewed as providing a limited benefit to U.S. manufacturers (the MTB’s intent is to provide a tariff break to manufacturing inputs that are not available domestically), the President has indicated in the past that MTB primarily benefits Chinese exporters.   

It is important to note that the MTB, if enacted, only impacts the Column 1, General rates of duty for covered articles (i.e., the Most Favored Nation/Normal Trade Relations rates).  The MTB does not change or otherwise impact Section 232 or Section 301 duties; those still apply.

All companies should review the list of products included in the MTB.  The provisions are not (supposed to be) company-specific.  Stated differently, any company that imports an article covered by a MTB description can claim the duty benefit (even if you were not the proponent of the provision).  Also, it is worth mentioning that the process of requesting MTB benefits will re-open in about a year (by October 15, 2019), so it is not too early to start preparing to participate in that process.

We hope this is helpful.  We helped numerous companies get their articles included in the MTB and would be happy to discuss this with you further.  If you have any questions, please let us know.

Best regards,
Ted

A Possible Armistice in the U.S.-EU Trade War

Dear Friends,

Just a short note to let you know that an armistice may be in the works in the U.S.-EU trade war.

President Trump met with European Commission President Juncker at the White House today.  Following the meeting, the two each gave short statements to the media assembled in the Rose Garden. 

President Trump started by saying that the United States and EU were entering a “new phase” in their $1 billion bilateral trade relationship.  He went on to state that the two sides “agreed today . . .to work together towards zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods.”  He also mentioned that the EU had agreed to buy “a lot of soybeans” and to start importing more liquefied natural gas (the EU will be a “massive buyer of LNG”).  The two sides also agreed to start a dialogue on standards to help ease trade/reduce barriers and to work together to reform the WTO and combat unfair trade practices by other countries (read:  China).  He concluded by saying that these negotiations will start “now” and that the two sides will resolve both the U.S. steel and aluminum duties, as well as the EU retaliatory duties.

President Juncker gave a shorter statement that (largely) corroborated what President Trump said.  The two sides would negotiate a zero tariff agreement on industrial goods, cooperate more on energy and agriculture, begin a dialogue on standards and work together to reform the WTO.  He also said there was agreement that, as long as the parties are negotiating, no further tariffs would be imposed and existing tariffs would be reassessed.

This is a positive development.  That said, the devil is always in the details.  For example, it is not yet clear whether the United States will lift the 232 duties on steel and aluminum for EU origin products immediately, or only once an agreement is formally reached, etc.  Stay tuned for more.  In the meantime, if you have any questions, please let us know.

Best regards,
Ted

Section 301 – US Imposes Duties on $200 Billion Worth of Chinese Imports

Dear Friends,

The Trump Administration announced earlier today that the U.S. is beginning the process to impose an additional 10% duty on a further $200 billion worth of Chinese imports

As you may recall, when the Administration announced its intent to impose duties on $50 billion worth of Chinese imports, the Chinese government announced an intent to retaliate on a comparable value of U.S. imports.  At that time, President Trump announced that if China retaliated on U.S. imports, the United States would impose an additional duty on a further $200 billion worth of Chinese imports (see our June 19th update).

The U.S. imposed an additional 25% duty on a first round of products worth $34 billion on July 6th and China imposed an additional 25% duty on a first round of products also worth $34 billion that same day.  Both countries are also considering imposing additional duty on an additional $16 billion worth of merchandise.

In response to China’s retaliation, the U.S. Trade Representative issued a press release and advance copy of a Federal Register notice this afternoon.  The notice states that the U.S. is considering imposing an additional 10% duty on $200 billion worth of Chinese imports.  Before doing so, the USTR will accept public comments and testimony at a hearing.  The notice includes the schedule, as well as the list of the 6,031 tariff subheadings covered by the $200 billion. In coming up with the list of covered HTS provisions, the notice provides as follows:

“In developing the list of tariff subheadings included in this proposed supplemental action, trade analysts considered products from across all sectors of the Chinese economy. The tariff subheadings considered by the analysts included subheadings that commenters suggested for inclusion in response to the April 6 notice. The selection process took account of likely impacts on U.S. consumers, and involved the removal of subheadings identified by analysts as likely to cause disruptions to the U.S. economy, as well as tariff lines subject to legal or administrative constraints.”

A copy of the press release and the notice are attached here for your reference:

It is clear that the U.S.-China trade war is real and that the Trump Administration is willing to accept meaningful U.S. casualties (i.e., harm to U.S. businesses with interests in China).  It is also clear that the range of imports impacted by the duties is growing (by necessity).

All companies that import articles from China should be developing short, medium, and long-term plans for coping with this trade war.  We are assisting numerous clients with this and would be happy to discuss options with you further.

Best regards,
Ted

Section 301 – Product Exclusion Process

Dear Friends,

The U.S. Trade Representative issued a press release this afternoon that includes details on the process for seeking product-based exclusions from the additional duties being imposed on Chinese-origin articles under Section 301 (the first round of those duties went into effect earlier today).  An advance copy of the Federal Register notice containing the specifics for this process is attached for your reference.

 In summary, the product-based exclusion process is as follows:

* all requests to exclude a particular product must be filed by October 9, 2018 (90 days from today);

* there is an opportunity to file comments on such requests, and then for the requester to respond;

* if an exclusion request is granted, it will be effective back to July 6, 2018 (the effective date of this round of additional duties) and will be valid for one year from the date the exclusion approval is published in the Federal Register;

* exclusion requests should cover a “particular product” (this is broader than a just a part number and cannot be based on company-specific characteristics);

* exclusion requests may be filed by “interested persons, including trade associations” (which also suggests that the term “particular product” is meant to be interpreted broadly);

* each request must provide the rationale for the exclusion and, at a minimum, address (1) whether the particular product is available only from China, (2) whether the imposition of additional duties on this product will cause “severe economic harm” to the requestor or to other U.S. interests, and (3) whether the particular product is strategically important or related to China’s industrial policies, including “Made in China 2025”; and

* USTR will evaluate each request individually and take into account “whether the exclusion would undermine the objective of the Section 301 investigation”.

In terms of administering any approvals at the border, the notice also states that requestors may provide information on how U.S. Customs and Border Protection can administer the exclusion (i.e., how will CBP be able to differentiate between products covered by the exclusion and products not covered by the exclusion?).  Interestingly, the USTR’s press release makes it clear that one need not apply in order to benefit from an approval – i.e., approvals are product-specific, not company-specific (“Because exclusions will be made on a product basis, a particular exclusion will apply to all imports of the product, regardless of whether the importer filed a request. The U.S. Customs and Border Protection will apply the tariff exclusions based on the product.”).

The good news here is that (i) there is a product exclusion process (which should help address the impact the Section 301 duties are having on U.S. companies), (ii) petitions can be filed on a “product” basis, rather than on a single sku or part number basis, like with the Section 232 exclusion process, (iii) approvals will be retroactive to when the additional duties first went into effect (although it will be important to keep an eye on liquidation dates to be safe), and (iv) the USTR provided guidance on the factors that will be considered when reviewing requests.

The bad news is that there is no stated timeline for how long it will take the USTR to review and process exclusion requests.  Undoubtedly, the USTR is hoping that by broadening the scope of the petitions and the approvals to “particular products” it will result in fewer petitions being filed than have been filed at Commerce in the steel and aluminum Section 232 cases (i.e., more than 20,000 exclusion petitions filed and only 98 acted on in 3+ months = 51 years of processing time . . . .).  We believe that hope is misplaced and that the USTR will likely receive thousands of exclusion requests. 

Accordingly, it is important that any company impacted by the Section 301 duties, and considering filing a product exclusion petition, do so quickly.  We are assisting numerous clients with this process (which began before today) and would be happy to discuss with you how best to approach this effort now that we have these additional details.

We hope this is helpful.  If you have any questions, please let us know.

Best regards,
Ted