EU Retaliatory Tariffs – Enter into Force Today

Dear Friends,

As you may have heard, the EU has formally decided to impose retaliatory tariffs on certain products originating in the United States.  This is in response to President Trump’s decision to impose additional tariffs on EU steel and aluminium products.

The new additional tariffs will come into effect today, June 22nd.

List of affected items

The full list of affected EU tariff codes is set out in Annex I to Commission Implementing Regulation (EU) 2018/886, available here.  In almost all cases, products are subject to an additional duty of 25%.

The new tariffs affect all goods of US origin falling within the affected tariff codes that are imported into the EU from June 22nd, except for:

  • goods already exported from the US before 22 June (for which the importer must provide proof); and
  • goods for which an import licence exempting or reducing duty on the goods (e.g., by use of tariff quotas) has been obtained before 22 June.

As a result, if your goods have been shipped out of the US prior to the 22nd of June or if they are currently “on the water” or if  they are held under bond in the EU prior to the 22nd of June, they will not be affected by the additional tariffs.

The legislation also provides for additional tariffs on other product lines, which will take effect from the earlier of (i) 1 June 2021 or (ii) from the fifth day following a WTO ruling that the US is in violation of the WTO Agreement.  These products and tariff rates are listed in Annex II to the Regulation linked above.

Recommended actions

We suggest that you:

  • review the tariff codes for any products imported into the EU and identify those caught by these measures;
  • verify that none of those would qualify as “originating in the US”. We note that products that are manufactured in another country but have a high US content may qualify as ‘US-origin’ goods if the local manufacturing  / processing is not sufficient to confer origin. You should therefore carefully review the origin of products caught by the additional duties that have US content.

 

The situation remains fast-moving, and we note in particular recent news reports that suggest that the EU may offer to reduce its tariffs on automobile imports in exchange for relief from the new US measures.  If the US agrees, then the EU will drop its retaliatory measures.

Please do let us know if you have any questions on the new measures, or if we can assist in any way.

Best regards,

Ted

Advertisements

Section 301 – China’s Response

Dear Friends,

As expected, China has responded to today’s U.S. announcement with one of its own. 

 

China’s announcement mirrors the position adopted by the United States.  China will impose an additional 25% customs duty on approximately $34 billion worth of imports from the United States, as of July 6, 2018.  This list includes various agricultural products, certain food/juice/beverages, automobiles, auto parts, etc.  China is also considering imposing a 25% customs duty on a second list of U.S. products worth approximately $16 billion.  Both lists are attached here (although in Chinese, the tariff classifications are provided). 

This is the latest, but undoubtedly not the last, round in this dispute.  We expect that the U.S. administration will issue a response (likely in a tweet, at least initially) over the weekend (if not sooner).  A few months back, when China threatened to retaliate for any U.S. duties imposed under section 301, President Trump said he would up the ante by imposing a 25% customs duty on an additional $100 billion worth of imports from China.  We may now get to see if he is willing to make good on that threat.

Best regards,
Ted       

Section 301 – US Imposes Additional Duties

Dear Friends,

Earlier today, the White House issued a statement confirming that the United States will impose an additional 25% customs duty on $50 billion worth of imports from China.  The additional duty will be assessed on goods that “contain industrially significant technologies[,]” including those “related to China’s Made in China 2025 strategic plan to dominate the emerging high-technology industries[,]” according to the statement.  The statement goes on to say that the additional duty is “essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs.  In addition, they will serve as an initial step toward bringing balance to the trade relationship between the United States and China.”  Finally, the statement indicates that the United States will consider further additional duties if China retaliates (which it is expected to do).  A copy of the White House statement is attached.

Following the issuance of the White House statement, the U.S. Trade Representative published a notice on its website containing the list of products/tariff classifications that will be subject to the additional 25% duty.  The list is broken down into two pieces and focuses on “industrial” (not consumer) products.

The first piece contains 818 of the original 1,333 tariff classifications proposed in the list published on April 6, 2018.  These 818 tariff classifications represent approximately $34 billion worth of imports from China and the additional 25% duty will be assessed beginning on July 6, 2018.  A copy of this list is attached here: List 1.

The second piece contains 284 new tariff classifications identified by the interagency Section 301 Committee as benefitting from China’s industrial policies, including Made in China 2025.  These 284 tariff classifications represent approximately $16 billion worth of imports from China.  This list of tariff classifications will be subject to a new/separate public notice and comment process (including a hearing).  The details are expected to be published shortly.  A decision will be made whether to impose additional duties on products on this second list thereafter.  A copy of this list is attached: List 2.

The USTR notice also states that it will “soon provide an opportunity for the public to request exclusion of particular products from the additional duties subject to this action.”  This process will be detailed in a subsequent Federal Register notice.

We recommend that all clients review both lists published by the USTR.  We also recommend that clients keep their eye on the news.  It is widely expected that China will retaliate by imposing duties on U.S. exports to China.  In such a case, it is likely that the administration will seek to expand the second list of products subject to additional duties (the President had previously threatened to impose duties on an additional $100 billion worth of Chinese imports).  Finally, it is also important to stay tuned for the Federal Register notice that will be published with additional details, including on the product exclusions process.

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

Best regards,

Ted

Section 301 Update II

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

Section 232/Section 301 Update

Dear Friends,

I wanted to share with you a couple of thoughts on the Section 232/Section 301 process that I thought might be helpful.

The first is a reminder.  The temporary exclusions from the Section 232 duties on steel (an additional 25%) and aluminum (an additional 10%) granted to products of Canada, Mexico, Australia, Argentina, Brazil and the EU expire at midnight on Monday, April 30th (i.e., tomorrow).  While there has been some reports that the Administration intends to extend the temporary exclusions for some countries (i.e., those that have expressed a willingness to negotiate a voluntary export restraint-type agreement), that is not likely to extend to all countries.  Based on what the EU has said publicly about its willingness to accept a VER, it seems likely that the additional duties will go into effect on Tuesday.

The second is also a reminder.  As companies grapple with the Section 232/Section 301 duties, many are reviewing their imports and determining whether articles are correctly classified or not (e.g., if an article is on the list of products proposed to be subject to the Section 301 duties, can the article be re-classified in a different HTS provision not on the list?).  Many companies are also reviewing the publicly-available data of their competitors. . . .

 As many of you know, U.S. Customs and Border Protection makes available to the public manifest data for import and export shipments.  The manifest data includes information such as the name and address of the foreign shipper & U.S. consignee/notify party, the ports of lading and unlading, the carrier, a description of the goods, weight, etc.  This data is obtained by private companies that repackage it (and often add their best guess at classification, entered value, etc.) and then sell it to the public for a fee. 

You may also know that CBP allows companies to request confidential treatment for their manifest data.  Under the regulations, if a company requests confidential treatment, CBP will not disclose the names and addresses of the importer/consignee, foreign shipper or notify party and any other identifying marks. 

The process to obtain confidential treatment is pretty straight-forward (it involves submitting a letter to CBP HQ) and we recommend that all clients pursue confidential treatment every 2 years.

We hope that this is helpful.  If you have any questions, or if you would like any assistance with Section 232/Section 301 issues, including requesting confidential treatment for your manifest data, please let us know.

Best regards,
Ted

US to Impose Trade Measures on China as a Result of Section 301 Investigation

Dear Friends,

The President signed an executive memorandum earlier today that all companies that (i) import anything from China, (ii) do business in China, or (iii) export anything to China, should be aware of.  A copy of the memorandum is attached.

The memorandum was issued in response to an investigation the U.S. Trade Representative (USTR) conducted into whether “China’s laws, policies, practices, or actions that may be unreasonable or discriminatory and that may be harming American intellectual property rights, innovation, or technology development” under section 301 of the Trade Act of 1974, as amended.  Based on the USTR’s investigation, the President has concluded that:

“First, China uses foreign ownership restrictions, including joint venture requirements, equity limitations, and other investment restrictions, to require or pressure technology transfer from U.S. companies to Chinese entities.  China also uses administrative review and licensing procedures to require or pressure technology transfer, which, inter alia, undermines the value of U.S. investments and technology and weakens the global competitiveness of U.S. firms.

Second, China imposes substantial restrictions on, and intervenes in, U.S. firms’ investments and activities, including through restrictions on technology licensing terms.  These restrictions deprive U.S. technology owners of the ability to bargain and set market-based terms for technology transfer.  As a result, U.S. companies seeking to license technologies must do so on terms that unfairly favor Chinese recipients.

Third, China directs and facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and to generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.

Fourth, China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies.  These actions provide the Chinese government with unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications, and they also support China’s strategic development goals, including its science and technology advancement, military modernization, and economic development.”  

Based on this, the President has directed the USTR to:

(1)    Publish a list of products imported from China to subject to increased duties by Friday, April 6, 2018;

(2)    Pursue WTO challenges to China’s “discriminatory licensing practices”; and

(3)    Report back to the President on progress on (1) and (2) within 60 days.

The President also directed the Secretary of the Treasury to propose appropriate actions to “address concerns about investment in the United States directed or facilitated by China in industries or technologies deemed important to the United States” and to report back within 60 days.

It is being widely-reported that the list of products to be targeted with increased duties represents approximately $60 billion in Chinese imports and impacts a range of industries, including high tech products, consumer electronics, apparel, footwear, etc.  The draft list is reported to include approximately 1,300 tariff lines.  Once published, the public will have 15 days to provide comments on the USTR’s proposal.  Any duties ultimately imposed will be in addition to any other duties currently payable (e.g., normal duties, AD/CVD, etc.).

On the investment front, there are underway efforts in Congress to update/strengthen the Committee on Foreign Investment (CFIUS) process, but this signals a desire by the President to not wait and, possibly, go further than what Congress is currently contemplating.

Finally, it is expected that China will impose retaliatory measures on articles imported from the United States in response to today’s announcement.  It is expected that a range of U.S. exports will be impacted, but most notably, agricultural exports. 

We hope that this update is helpful.  We will continue to monitor and provide updates on developments as they arise.  In the meantime, if you would like to discuss the issues involved here further, just let us know.

Best regards,

Ted

 

3/8/17 Update: Section 232 Duties on Steel & Aluminum – Part IV

Dear Friends,

Further to the below, President Trump signed two Presidential Proclamations today – one on steel imports and one on aluminum imports (available here and here).  As expected, the President is imposing an additional 25% duty on steel, and an additional 10% duty on aluminum, imported from all countries except Canada and Mexico beginning on March 23, 2018.  The details are as follows:

Steel Duties

* the 25% additional duty will apply to “steel articles” imported from all countries except Canada and Mexico as of March 23, 2018; 

* “steel articles” are defined by reference to Harmonized Tariff Schedule (HTS) 6-digit subheading, as follows:  “7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90, including any subsequent revisions to these HTS classifications”;

* the 25% additional duty will apply to articles entered, or withdrawn from warehouse for consumption, as of March 23, 2018;

* imports from Canada and Mexico are exempted from the additional duty for now; the proclamation describes the special relationship the United States has with these countries and concludes that steel imports from these countries should be exempted, but qualifies it by saying “at least at this time”; this exemption is likely tied progress with the on-going NAFTA renegotiations and could be taken away by the President with little notice; also, it seems clear that the President means to exempt articles produced in Canada or Mexico, not just articles imported from Canada or Mexico (you cannot ship steel produced in China through Canada and avoid the additional U.S. duty);

* imports from countries with which the United States has “a security relationship” (e.g., allies, like the EU, Australia, Japan, Korea, etc.) are encouraged to discuss with the Administration “alternative ways to address the threatened impairment of the national security” presented by imports from their country; this could possibly lead to a series a ‘voluntary-restraint-type’ arrangements being negotiated where exporting countries agree to limit exports to certain levels; 

* there will be a petition-based, product exclusion process run by the Department of Commerce (with input from other agencies); the standard for exclusion will be whether the article is (i) produced in the United States “in a sufficient and reasonably available amount or of a satisfactory quality” or (ii) subject to specific national security considerations; petitions need to be filed by “a directly affected party located in the United States” (i.e., foreign suppliers need not apply); Commerce will issue formal procedures for this process by March 18th;

* the duties will remain in effect until “expressly reduced, modified, or terminated”;

* Commerce will continue to monitor the situation with regard to imports and their impact on the national security and recommend further actions to the President, as needed.

Aluminum Duties

* the 10% additional duty will apply to “aluminum articles” imported from all countries except Canada and Mexico as of March 23, 2018;

* “aluminum articles” are defined by reference to Harmonized Tariff Schedule (HTS) classification, as follows:  “(a) unwrought aluminum (HTS 7601); (b) aluminum bars, rods, and profiles (HTS 7604); (c) aluminum wire (HTS 7605); (d) aluminum plate, sheet, strip, and foil (flat rolled products) (HTS 7606 and 7607); (e) aluminum tubes and pipes and tube and pipe fitting (HTS 7608 and 7609); and (f) aluminum castings and forgings (HTS 7616.99.51.60 and 7616.99.51.70), including any subsequent revisions to these HTS classifications”;

* the 10% additional duty will apply to articles entered, or withdrawn from warehouse for consumption, as of March 23, 2018;

* imports from Canada and Mexico are exempted from the additional duty for now; the proclamation describes the special relationship the United States has with these countries and concludes that aluminum imports from these countries should be exempted, but qualifies it by saying “at least at this time”; this exemption is likely tied to progress with the on-going NAFTA renegotiations and could be taken away by the President with little notice; also, it seems clear that the President means to exempt articles produced in Canada or Mexico, not just articles imported from Canada or Mexico (you cannot ship aluminum produced in China through Canada and avoid the additional U.S. duty);

* imports from countries with which the United States has “a security relationship” (e.g., allies, like the EU, Australia, Japan, Korea, etc.) are encouraged to discuss with the Administration “alternative ways to address the threatened impairment of the national security” presented by imports from their country; this could possibly lead to a series a ‘voluntary-restraint-type’ arrangements being negotiated where exporting countries agree to limit exports to certain levels;

* there will be a petition-based, product exclusion process run by the Department of Commerce (with input from other agencies); the standard for exclusion will be whether the article is (i) produced in the United States “in a sufficient and reasonably available amount or of a satisfactory quality” or (ii) subject to specific national security considerations; petitions need to be filed by “a directly affected party located in the United States” (i.e., foreign suppliers need not apply); Commerce will issue formal procedures for this process by March 18th; 

* the duties will remain in effect until “expressly reduced, modified, or terminated”;

* Commerce will continue to monitor the situation with regard to imports and their impact on the national security and recommend further actions to the President, as needed. 

*     *     *

These additional duties will have a meaningful impact on the market that will go well beyond just producers or importers.  All companies that utilize steel or aluminum in their products are expected to be impacted.  As a result, there are a number of steps all companies should be taking to assess the impact.  For example, supply contracts should be reviewed (even for downstream – e.g., finished products) to determine whether cost increases due to increased customs duties can be passed on or not.  Companies should also be considering whether to apply for a product exclusion.  While the procedures will not come out for several more days, companies should be preparing now (this exclusion process is expected to be similar to that being used in the Section 201 cases, procedurally).  It is not clear whether exclusion will be granted with retroactive effect or not, so it would be best to get your petitions in as early in the process as possible.  We are helping a number of clients with the exclusion process and would be happy to discuss this or other issues related to these duties with you further.

We hope this is helpful.

Best regards,
Ted


It is being reported that the formal announcement regarding the section 232 duties will come as early as Thursday this week.  The reports also contain unclear/conflicting information on whether imports from certain countries could be exempted (the President had previously said that there would be no country-based exceptions, but that now seems to be in flux).  More to follow . . . .


Dear Friends,

Further to the below, it is being widely reported that the President has decided to impose a 25% duty on imported steel and a 10% duty on imported aluminum next week in response to the reports from Commerce.  It is not yet clear whether those additional duties will apply on imports from all countries, or just to imports from a subset of countries.

More to follow on this.  In the meantime, if you have any questions, please let us know.

Best regards,
Ted


Dear Friends,

As you may recall, early last year, President Trump issued two presidential memoranda instructing the U.S. Commerce Department to initiate an investigation into the national security implications of steel imports and aluminum imports into the United States.  If these so-called “section 232” (section 232 of the Trade Expansion Act of 1962, as amended) investigations determine that steel import and/or aluminum imports “threaten to impair the national security[,]” then the President can impose additional customs duties (among other things) on covered products.

Last Friday, the Secretary of Commerce issued his reports to the President in both matters (available here).   In each case, the Department of Commerce concluded that the quantities and circumstances surrounding steel and aluminum imports “threaten to impair the national security,” thereby opening the door to the imposition of import restraints.  Specifically, Commerce’s recommendations are as follows:

Steel – Alternative Remedies

1.  A global tariff of at least 24% on all steel imports from all countries, or

2.  A tariff of at least 53% on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota by product on steel imports from all other countries equal to 100% of their 2017 exports to the United States, or

3.  A quota on all steel products from all countries equal to 63% of each country’s 2017 exports to the United States.

The measures would apply to steel mill products classified in subheadings 7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90.

The goal of such measures is to ensure that U.S. steel producers utilize 80% of production of capacity.

The recommendation also includes a process to allow Commerce to grant requests from U.S. companies for specific product exclusions if there was insufficient domestic production, or for national security considerations.

Aluminum – Alternative Remedies

1.  A tariff of at least 7.7% on all aluminum exports from all countries, or

2.  A tariff of 23.6% on all products from China, Hong Kong, Russia, Venezuela and Vietnam. All the other countries would be subject to quotas equal to 100% of their 2017 exports to the United States, or

3.  A quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the United States.

These measures would apply to unwrought aluminum (heading 7601), aluminum castings and forgings (subheadings 7616.99.51.60 and 7616.99.51.70), aluminum plat, sheet, strip and foil (flat rolled products) (headings 7606 and 7607); aluminum wire (heading 7605); aluminum bars, rods and profiles (heading 7604); aluminum tubes and pipes (heading 7608); and aluminum tube and pipe fittings (heading 7609).

The goal of such measures is to ensure that U.S. aluminum producers utilize 80% of production of capacity.

The recommendation also includes a process to allow Commerce to grant requests from U.S. companies for specific product exclusions if there was insufficient domestic production, or for national security considerations.

The reports and recommendations are now under consideration by the President.  The President is required to make a decision on the recommendations by April 11th (for steel) and by April 19th (for aluminum).

*           *           *

We believe that it is likely that the President will take some action to “adjust imports” based on these reports.  Accordingly, all companies that rely on steel and/or aluminum articles need to evaluate the impact such action may have on their production.  This would apply not only to companies that import covered articles (which will be the articles hit with additional duties and/or quota limitations), but companies that import downstream articles (e.g., parts made of steel or aluminum) as well.  The actions being contemplated are significant enough to have a ripple effect that impacts far more than just the covered products.

If you have any questions about these reports, or what sort of evaluation you should be doing as a result, please let us know.

Best regards,

Ted