Section 232 Update — The End of the Temporary Exemptions

Dear Friends, 

Further to the below, the President issued two new proclamations this morning regarding the imposition of additional duties on imports of steel (25%) and aluminum (10%) under Section 232 of the Trade Expansion Act of 1962, as amended.  Copies are attached here for your reference. 

The steel proclamation (1) exempts imports from Argentina, Austrailia, Brazil and South Korea from the additional 25% duty (based on voluntary-export restraint agreements (i.e., export quotas) Argentina, Brazil and South Korea agreed to with the United States; Australia is also exempt, but thus far, no export quota has been imposed); and (2) ends the temporary exemptions previously afforded imports from Australia, Canada, Mexico and the EU.  As a result, imports of steel from all jurisdictions except Argentina, Australia, Brazil and South Korea will be subject to an additional 25% duty as of 12:01 am tonight (i.e., June 1, 2018).

The aluminum proclamation (1) exempts imports from Argentina and Australia from the additional 10% duty (based on voluntary-export restraint agreements (i.e., export quotas) those countries have agreed to with the United States); and (2) ends the temporary exemptions previously afforded imports from Brazil, Canada, Mexico and the EU.  As a result, imports of aluminum from all jurisdictions except Argentina and Australia will be subject to an additional 10% duty as of 12:01 am tonight (i.e., June 1, 2018).

We expect that many countries will proceed with imposing retaliatory measures.  For example, the EU already announced that it is ready to impose an additional 25% duty on $3.3 billion worth of U.S. imports as of June 20, 2018.   Other countries have also announced an intent to pursue this at the WTO level (e.g., Japan, India, etc.), which could lead to the imposition of more retaliatory duties on U.S. products.

At this point, it is not clear how long the additional U.S. duties will be in place.  It is clear, however, that the duties are being used as leverage to influence on-going negotiations aimed at re-balancing our trade relationships with many countries (including many of our closest allies).  In the meantime, companies impacted by today’s announcements should be considering all of their options, including the viability of filing product exclusion petitions with the Dept. of Commerce.

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

Best regards,
Ted


Dear Friends,

By now, you have probably seen that the President issued two new proclamations regarding the imposition of additional duties on imports of steel (25%) and aluminum (10%) under Section 232 of the Trade Expansion Act of 1962, as amended.  The proclamations do the following:  (1) extend the temporary exemption applicable to imports of covered articles from Argentina, Australia and Brazil while the details associated with permanent exemptions are finalized; (2) extend the temporary exemption applicable to imports of covered articles from Canada, Mexico and the EU through May 30, 2018; (3) address issues related to the application of the additional duties when foreign trade zones are involved; and (4) clarify that “[n]o drawback shall be available” with respect to section 232 duties.  The steel proclamation also finalizes the permanent exemption afforded imports of covered steel articles from South Korea.  Imports of aluminum covered articles from South Korea are not covered by a permanent exemption and are, therefore, subject to the additional 10% duties as of May 1, 2018.  Copies of the April 30th proclamations are attached here for your reference:  2018-09841 and 2018-09840.

Since the issuance of the proclamations, it has been reported that the permanent exemption to be afforded Brazil will only apply to steel imports (in exchange for a limit on Brazilian steel exports to the USA) and that aluminum imports will be subject to the additional 10% duty.  It is also been reported that the permanent exemption to be afforded Argentina will cover both steel and aluminum imports (again, in exchange for a limit on Argentine exports to the USA).

In terms of Canada and Mexico, the permanent exemptions appear to be tied to the on-going NAFTA negotiations.  While those negotiations have reportedly made substantial progress in recent weeks, it is not clear whether a deal will be able to be announced in the next couple of weeks.  The Administration has recently expressed concern that if a deal is not reached by May 21, 2018, then any revised agreement would need to be voted on by the next Congress, due to timing issues associated with applicable legal requirements (e.g., the Administration has to provide notice of any deal to Congress, the U.S. International Trade Commission has to do a study of any new deal, etc.).  This is problematic because the next Congress (which will be sworn in in January 2019) will not have had an opportunity to help direct the negotiations (as the current Congress has) and may have a different composition as a result of the elections in October.  As a result, expect the U.S. Administration to put on a full court press to get a deal done (or at least announced) before May 21st.  If that does not happen, then there is an increased chance that the section 232 duties will go into effect for Canada and Mexico June 1, 2018.

In terms of the EU, the Administration has made clear that the key to getting a permanent exemption from the section 232 duties is agreeing to an export quota, or other voluntary-export-restraint-type agreement.  The EU, however, has made it clear that it will not agree to any sort of quota or VRA.  It has, however, reportedly offered to enter into negotiations with the United States for a new ‘trade in goods’ free trade agreement.  It will be an interesting few weeks to be sure as these discussions play out.

In the meantime, we recommend that any company which imports covered articles from Canada, Mexico or the EU (or relies on covered articles from these countries imported by other U.S. parties) consider preparing product exclusion petitions now.  While exclusions are not needed currently, there is a meaningful chance that such exclusions will be needed in the near future (i.e., June 1st).  Given the delay in the processing of product exclusion petitions, it is important that companies which are impacted be proactive in protecting their interests (e.g., not languishing at the back of a very long line, etc.).

We hope that this update is helpful.  We are assisting numerous clients deal with these section 232 issues.  If you would like to discuss any of this further, please let us know.

Best regards,
Ted

Advertisements

Section 301 Update III

Dear Friends,

The White House announced today that, not only is the section 301 investigation alive and well, but sanctions will be imposed shortly.  More specifically, the announcement states that the United States will: 

(1) implement “specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology” shortly after they are announced by June 30, 2018;

(2) continue to pursue litigation at the WTO for China’s alleged violation of TRIPS; and

(3) impose an additional 25% duty on a list of $50 billion worth of Chinese-origin imports; the list of products subject to the additional 25% duty “will be announced by June 15, 2018[.]”

A copy of the announcement is attached for your reference. 

If you import articles produced by a WFOE and are interested in joining our coalition of companies pursuing that exemption, please let us know.

Best regards,
Ted


Dear Friends,

Further to the below, while there were some mixed signals sent yesterday, the Administration clarified today that the imposition of the section 301 duties is being suspended.  It is being reported that China and the United States have made enough progress in negotiations to warrant suspending the imposition of tariffs (as well as China’s retaliatory tariffs) for now.

While this is a positive development, it is also subject to change.  As a result, for now, we are recommending that companies continue to pursue exclusions just in case.

If you have any questions, please let us know.

Best regards,
Ted


Dear Friends,

Further to the below, we wanted to provide a brief update on the Section 301 situation and request your assistance.

First, the update.  Roughly, 2,900 comments were submitted in response to the list of Chinese-origin articles the USTR proposed to subject to an additional 25% duty upon importation into the United States.  The comments were both opposed to, and in favor of, the imposition of additional duties (with the vast majority being opposed either broadly, or with regard to the inclusion of specific articles on the proposed list).  A 3-day hearing was also held this past week where approximately 125 individuals provided verbal comments either in opposition to, or in favor, of the additional duties.  Rebuttal comments are due this coming Tuesday, May 22nd.

Now the request — we assisted several clients prepare comments and testimony opposing the imposition of the additional duties.  We also assisted these clients in discussions with their respective Congressional delegations and were able to get commitments of support.   We advanced several different arguments during this process, but one, in particular, seemed to resonate especially well.  Based on that positive feedback, we wanted to follow-up with all of you to see if your companies are similarly-situated and, if so, if you would be willing to join our effort to gain a broad-based exemption.

In short, we requested that USTR categorically exempt from the proposed additional duties products manufactured in China by wholly foreign-owned enterprises (“WFOEs”).

As explained in greater detail in our previous updates (below), the USTR concluded that China used foreign ownership/joint venture requirements, compulsory technology transfers, the acquisition of U.S. companies and assets, etc. to obtain cutting edge U.S. technology and that those practices were “unreasonable or discriminatory and burden or restrict U.S. commerce”[.]  It was then determined that the “appropriate” remedy “to obtain the elimination” of those practices was to impose an additional 25% duty on the identified articles.  So, stated simply, the USTR’s goal is to identify articles on which the imposition of additional duties will force China to change its unfair policies.

WFOEs, which are, by definition, owned entirely by non-Chinese entities, are not subject to the ownership restrictions (i.e., a WFOE does not have a joint venture partner).  WFOEs in most industries are also not subject to compulsory technology transfer through government licensing, for example.  As a result, the imposition of additional duties on articles produced in China by WFOEs will have no impact on Chinese government policy (i.e., there is no “forced” technology transfer when the manufacturer involved is a WFOE, therefore, assessing duties on articles produced by a WFOE does not make sense).

Accordingly, we requested that the USTR categorically exempt from any Section 301 duties articles produced in China by a WFOE.  We also pointed out that such an exemption would be easily administrable from a customs perspective.  A new ‘special program indicator’ could be created that, when used, meant that the importer was certifying that the articles being imported were produced by a WFOE (similar to how claims are made now under our more recent free trade agreements).  Such a certification would be subject to audit/verification by U.S. Customs and Border Protection.  The manufacturer identification (or MID) codes could also be used to help ensure that only articles produced (not just sold) by the WFOE were entered under the exemption.

We believe that such a request has a meaningful chance of success for a couple of reasons.  The first is that exempting articles produced by WFOEs is consistent with the Section 301 determination (i.e., the goal is to get China to lift its restrictive ownership requirements so U.S./foreign companies can operate without local joint venture partners; WFOEs are already entirely foreign owned).  Second, this exemption request is a lot easier to justify than picking and choosing among the large number of compelling stories U.S. companies told in the context of their HTS-specific requests (i.e., assuming the USTR wants to provide some exemptions, our categorical request would be easier to grant than picking and choosing from among the numerous HTS-specific requests companies made).  Finally, it is also administrable.

As mentioned, our WFOE exemption has received positive feedback at a number of levels.  Accordingly, if you are opposed to the imposition of the Section 301 duties (either because you are on the list in this round, or you fear being on the list in the next potential round) and the articles you import are produced by a WFOE, please let us know.  Regardless of whether you filed comments already or not, we believe that you have the opportunity to engage with the Administration on this issue as part of our coalition.

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

Best regards,
Ted

Russia/Ukraine Sanctions

Dear Friends:

We imagine that you have been closely following developments on the ground in Russia and Ukraine.  We wanted to drop a brief email to you to let you know that we have already been thinking through the key issues for a number of clients associated with the recent US and EU sanctions against Russia and Ukraine and considering the potential implications of Russia imposing retaliatory sanctions measures.

In case this is of interest, we wanted to flag the following points:

  • we have market-leading teams and dedicated trade sanctions experts in the US, the EU, Russia and elsewhere.  As we have experienced with the Iran and Libya sanctions, we are able to pull together swiftly a multi-jurisdictional team to advise on sanctions compliance issues.  Even across the EU, we have sanctions experts in key markets (including, the UK, Germany, the Netherlands, France, Italy, Spain, Belgium and Sweden) – this is important given that different EU Member States can take a very different approach to interpreting and licensing under EU sanctions regulations;
  • in addition to the sanctions compliance risks, we work closely with our team of litigators to consider and mitigate against the risk of damages claims associated with terminating commercial relationships due to sanctions risks;
  • our team produces sanctions alerts that are well received by clients.  Our Ukraine sanctions alert from last week (covering US, EU, Swiss and Canadian measures) and our more recent Russia sanctions alert are attached to this email.  You can also access our other recent sanctions alerts (close to 30 last year) via the following link: Sanctions alerts;
  • on top of the more detailed client alerts, our International Trade compliance team is launching a dedicated webpage through which they will provide briefer and more regular updates on Russia/Ukraine sanctions, including what further measures are being contemplated.  This will be of assistance to those clients who are following developments more closely.  If this is of interest, please let us know and we will give you access to this webpage.

Please let us know if you have any questions.  We stand ready to assist you with any query that you may have.  If it would help, we would be happy to set up an introductory call with one of our sanctions experts.

Best regards,

Ted