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

 

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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

Review of 2017 ITRAC/ACE Data

Dear Friends:

Just a quick note to remind you that one element of an effective internal customs compliance program involves a review of the company’s import data on (at least) an annual basis.  This is the time to review the 2017 data. 

The goal of internal controls is to effectively mitigate the risk associated with the company’s activities.  Thus, the starting point is understanding the company’s risk profile.  One way to do that from a customs perspective is to review the company’s import data (the same data that U.S. Customs and Border Protection looks at to select audit candidates).  The import data (whether ITRAC data obtained from CBP HQ, or ACE reports you are able to download).  This data includes general entry information, such as tariff classifications, values, preferential tariff programs used, etc.; as well as information regarding CBP’s review of a company’s import shipments (e.g., whether a CBPF-28 or CBPF-29 was issued).  It also identifies each of the links in the company’s international supply chain (i.e., foreign manufacturers, carriers, customs brokers and sureties).  In short, the import data is a useful tool for monitoring the effectiveness of your import compliance program, identifying areas of potential cost and duty savings, customs valuation reconciliation and identifying links in the international supply chain for security purposes (i.e., C-TPAT-related information). 

Given how useful this information is, we recommend that all companies obtain their import data and review it (at least) annually.  Due to the volume of data involved, and the way it is presented by CBP, we have developed simple macros that can extract the most relevant data and summarize it in a table format so that trends, issues and opportunities can be more easily identified.  If you would like to have us run your data through those macros and provide the summaries, please let us know.  If not, no problem, but please review it yourself and confirm that your controls are working effectively (e.g., your data does not know show the use of unapproved brokers, unauthorized preference claims, incorrect tariff classifications, etc.).  The business is always evolving.  You need to make sure your controls are keeping pace!

We hope this this helpful. 

Best regards,
Ted

 

Trump on Trade/NAFTA’s Future – Part II

Dear Friends,

It is being widely reported this afternoon that President Trump is considering imposing a 20% tax on imports from Mexico in order to pay for the border wall (which would mean that U.S. companies/consumers will be paying for the wall, not Mexico. . . ). 

While nothing is imminent, this is a further example of how the rhetoric on renegotiating/withdrawing from NAFTA is being ratcheted-up.  Any company with meaningful investments in Mexico, or that otherwise imports meaningful volumes from Mexico, should be modeling different scenarios and developing contingency plans.  We are assisting numerous clients with this and would be happy to discuss the issues with you further.  If you would like to do so, please let me know.

Best regards,
Ted

Trump on Trade/NAFTA’s Future

Dear Friends,

Earlier today, I had the privilege of speaking at a seminar hosted by my colleagues in Toronto entitled “Trade and Business Strategies for a Post-Globalization World – CETA, Brexit, NAFTA and Preserving Cross Border Data Flows.”  I spoke on a panel entitled “NAFTA’s Prospects and Preserving its Benefits” with colleagues from the US, Canada and Mexico.  I thought that you might find the slides from this panel to be of interest.

If you have any questions about the future of NAFTA, or trade in general, in these interesting times, please let me know.  Also, please check out our “Trump on Trade” webpage for further updates.

Best regards,
Ted

 

Miscellaneous Tariff Bills — Hope Becoming Reality

Dear Friends,

As you may have heard, the long awaited renewal of the Miscellaneous Tariff Bill (MTB) process is one step away from becoming reality.  The House passed the American Manufacturing Competitiveness Act by a vote of 415-2, and the Senate unanimously passed the same legislation on May 10th.  The President is expected to sign the bill shortly.

This legislation is uncommonly popular, and uncommonly bipartisan—and with good reason. The benefit here is a potential boon to downstream U.S. manufacturers, with as much as $500,000 in annual duty savings for each covered product.  Because benefits are limited to products with no or limited domestic production, there is little political downside to granting such relief.

What you need to know.

In the short term, there will be just one opportunity to obtain temporary duty suspension via the MTB process—a 60-day window this Fall during which a petition can be filed with the USITC.  (The next opportunity to take advantage of the MTB process won’t be until 2019.)  As a result, the time to begin preparing is now.

The main objective at this point should be to identify the products you import and pay duties on which either (1) are not manufactured in the United States or (2) are not manufactured in sufficient quantities to fulfill your sourcing requirements.  The $500,000 limitation on duty savings is calculated on a per article basis.  Consequently, to maximize duty benefits, the goal is to identify potentially eligible articles by as narrow a description as possible.

If you are interested in submitting a petition, please let us know.  We have extensive experience with the MTB process, and would be glad to help.

Best regards,

Ted

Dear Friends,

Further to the below, we are writing to make sure you are aware of an additional duty-savings opportunity that has been made available under the recently-renewed Generalized System of Preferences (“GSP”) program.

As you know, GSP is a U.S. trade preference program that affords certain articles produced in specified developing countries preferential tariff treatment upon importation into the United States.  As part of its annual product review for 2015, the United States Trade Representative (“USTR”) announced that it will accept petitions seeking to add articles to the GSP program (see the attached Federal Register notice). This is a significant opportunity because the exclusion on certain articles from the GSP program was recently lifted by statute.  Thus, this is the first time that certain articles are eligible under the program.

More specifically, importers of various travel goods classified under heading 4202, HTS (e.g., handbags, briefcases, backpacks, suitcases, sports bags, camera cases, etc.) now have the opportunity to petition the USTR to have such goods designated as eligible for GSP program benefits (i.e., duty-free treatment for such goods imported into the United States that are produced in specified developing countries).  Because these travel goods often carry high duty rates (up to 20% ad valorem), the potential savings opportunities at issue here are significant.  Any company importing articles classified in heading 4202 from a GSP-eligible country should country should consider submitting a petition.

Petitions for inclusion of the abovementioned products in the GSP program must be submitted by October 16, 2015.

If you have any questions about this opportunity, or would like any assistance identifying products that may be eligible, please let us know.

Best regards,

Ted