Trump on Trade/NAFTA’s Future – Part III

Dear Friends,

On the NAFTA front, there were two further developments this past week of which we wanted to be sure you were aware.

The first was a notice from the U.S. Trade Representative’s Office published in the Federal Register on Tuesday requesting public comment and input on what the U.S. position should be in negotiations with Canada and Mexico to modernize NAFTA.  Specifically, the USTR is interested in comments addressing the following topics:

(a) General and product-specific negotiating objectives for Canada and Mexico in the context of a NAFTA modernization.
(b) Economic costs and benefits to U.S. producers and consumers of removal of any remaining tariffs and removal or reduction of non-tariff barriers on articles traded with Canada and Mexico.
(c) Treatment of specific goods (described by HTSUS numbers), including comments on (1) Product-specific import or export interests or barriers, (2) Experience with particular measures that should be addressed in negotiations, and (3) Addressing any remaining tariffs on articles traded with Canada, including ways to address export priorities and import sensitivities related to Canada and Mexico in the context of the NAFTA.
(d) Customs and trade facilitation issues that should be addressed in the negotiations.
(e) Appropriate modifications to rules of origin or origin procedures for NAFTA qualifying goods.
(f) Any unwarranted sanitary and phytosanitary measures and technical barriers to trade imposed by Canada and Mexico that should be addressed in the negotiations.
(g) Relevant barriers to trade in services between the United States and Canada and Mexico that should be addressed in the negotiations.
(h) Relevant digital trade issues that should be addressed in the negotiations.
(i) Relevant trade-related intellectual property rights issues that should be addressed in the negotiations.
(j) Relevant investment issues that should be addressed in the negotiations.
(k) Relevant competition-related matters that should be addressed in the negotiations.
(l) Relevant government procurement issues that should be addressed in the negotiations.
(m) Relevant environmental issues that should be addressed in the negotiations.
(n) Relevant labor issues that should be addressed in the negotiations.
(o) Issues of particular relevance to small and medium-sized businesses that should be addressed in the negotiations.
(p) Relevant trade remedy issues that should be addressed in the negotiations.
(q) Relevant state-owned enterprise issues that should be addressed in the negotiations.

Comments on these issues (or any others) must be submitted to USTR by June 12, 2017.  In formulating any comments, it is important to keep in mind that this Administration has a different perspective than previous ones when it comes to modernizing or liberalizing NAFTA.  We believe that this effort (at least from a US perspective) will be aimed more squarely at benefitting the United States than previous efforts (which may have looked more at benefitting the NAFTA region as a whole, or US companies with operations in Mexico or Canada).  The following quote from the summary is clear (and consistent with the Administration’s messaging on trade to date): 

“The United States intends to commence negotiations with Canada and Mexico regarding modernization of the North American Free Trade Agreement (NAFTA). The NAFTA was negotiated more than 25 years ago, and, while our economy and U.S. businesses have changed considerably over that period, NAFTA has not. The United States seeks to support higher-paying jobs in the United States and to grow the U.S. economy by improving U.S. opportunities under NAFTA.”

Emphasis added.  A copy of the notice is available here.

The second development relates to a study the USTR requested the U.S. International Trade Commission undertake related to NAFTA imports.  The study, entitled “Probable Economic Effect of Providing Duty-Free Treatment for Currently Dutiable Imports,” will examine the impact of providing duty-free treatment to imports of currently dutiable imports from Canada and Mexico.  Specifically, the ITC will provide a report containing its advice as to the probable economic effect of providing such treatment on (i) industries in the United States producing like or directly competitive products, and (ii) consumers.  The ITC has been asked to look at every dutiable article in the Harmonized Tariff Schedule.  The ITC has also been asked to specifically address the probable economic effects of eliminating tariffs on any dutiable agricultural imports from Canada or Mexico.   

The report is due by August 16, 2017.  A copy of the ITC notice of initiation can be found here and the USTR’s letter to the ITC can be found here.

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These efforts to modernize NAFTA/trade with Canada and Mexico represent a ‘once in a generation’ opportunity.  Every company that produces articles in the NAFTA territory, sources articles in the NAFTA territory or competes with articles produced or sourced in the NAFTA territory has a strong incentive to participate in this process.  Given how quickly it is moving, companies need to assess their opportunities/challenges and decide how best to engage now.  Those who do not do so will likely find themselves at a competitive disadvantage once this process is over. 

We are helping numerous clients perform this assessment, as well as develop and implement strategies (offensive or defensive) to maximize the potential benefits.  If you have any questions about how to go about this, please let us know.

Best regards,
Ted

 

International Trade-Related Executive Orders

Dear Friends,

What an interesting time to be working in international trade! 

We are writing to make sure you saw the Executive Orders President Trump issued over the past few days on international trade issues.  All of the Executive Orders are available here.

The Presidential Executive Order Addressing Trade Agreement Violations and Abuses was signed on April 29, 2017.  It directs the Secretary of Commerce and the United States Trade Representative to conduct “comprehensive performance reviews” of all international trade and investment agreements the United States is a party to, as well as trade relations with those WTO member countries with which the United States does not have a trade agreement, but does have a significant trade deficit in goods. The goal of these reviews is to (i) identify violations or abuses by our trading partners, (ii) trade or investment agreements that have not created new U.S. jobs, had favorable effects on our trade balance, increased U.S. exports, etc., and (iii) make recommendations to address the issues identified in (i) and (ii). 

Based on statements President Trump has made to date, we expect that NAFTA as it relates to trade with Mexico, the Korea-U.S. Free Trade Agreement, the WTO Government Procurement Agreement and others to receive negative marks under the standards to be used in the performance reviews.  What will be more interesting are the recommendations that are made to address those perceived shortcomings (e.g., revising rules of origin, withdrawing from agreements, etc.).  The performance reviews must be submitted to the President by October 26, 2017.

The Presidential Executive Order on Establishment of Office of Trade and Manufacturing Policy was also signed on April 29, 2017.  It creates a new Office of Trade and Manufacturing Policy (OTMP) within the White House.  The stated mission of the OTMP “is to defend and serve American workers and domestic manufacturers while advising the President on policies to increase economic growth, decrease the trade deficit, and strengthen the United States manufacturing and defense industrial bases.”

These Executive Orders encapsulate much of the President’s trade policy, which is focused on (1) seeking to identify and remedy unfair trading practices, and (2) reducing the trade-in-goods deficits the United States has with other countries.  Companies should be viewing these Executive Orders as a creating an opportunity to engage with the Administration to help shape the recommendations for addressing the problems that they perceive exist with trade.

We are assisting numerous clients navigate these issues.  If you would like to discuss your specific situation and what you should be doing further, just let us know.

Best regards,
Ted

Post-Entry Preference Program Claims II

Dear Friends,

We wrote to you back in November about a development which was expected to expand the number of preferential duty claims that could be asserted for the first time via protest. 

U.S. Customs and Border Protection (CBP) has now issued updated guidance specifying that all preferential trade agreements for which post-importation refund claims were previously limited to post-entry amendments (PEAs) or post-summary correction (PSCs) may now also be raised for the first time via protest.  This includes preferential claims under GSP, AGOA, the Australia, Bahrain, Israel, Jordon, Morocco and Singapore FTAs, and the Pharmaceutical Products Agreement, among others.

As noted below, this is a significant development since it expands the period in which post-entry refund claims may be made under certain preference programs.  It also breathes new life into protests filed for such claims that were previously rejected as “non-protestable”.  We have been helping clients secure refunds from CBP on such protests and would be happy to discuss this with you further, if relevant.

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

Best regards,
Ted

 

Post-Entry Preference Program Claims

Dear Friends,

There has been some recent developments in the world of post-entry preference program claims that we wanted to make sure you were aware of, as they could provide meaningful refund opportunities.  A recent decision by the U.S. Court of International Trade (CIT) raised serious concerns about the legality of U.S. Customs and Border Protection’s 2014 policy limiting the filing of post-importation claims for preferential tariff treatment under a number of programs, including GSP, AGOA, the US FTAs with Australia, Bahrain, Israel, Jordan, Morocco and Singapore, the Pharmaceutical Products Agreement, and others (“the 2014 Policy”).  It is now being reported that CBP may have abandoned the 2014 Policy altogether.

There are two key outcomes from this development.  First, post-entry claims under certain preferential duty programs may now be raised for the first time in a protest.  Second, for companies which have filed protests asserting such claims, there may be an opportunity to revive such protests and obtain the duty savings, regardless of how long ago such protests were filed.

Background

Preferential duty programs (such as free trade agreements, GSP and the like) can be grouped into two buckets when it comes to post-entry preference claims—the programs which explicitly authorize post-entry claims (e.g., NAFTA), and those which do not.  When it comes to asserting post-entry preference claims for the second bucket of programs, CBP has, since 2014, taken the view that such claims could only be made prior to liquidation.  In other words, for this second group of programs, a preferential duty claim could not be raised for the first time in a protest.  Once an entry was liquidated, the window for claiming a duty preference was closed.

In August, the CIT issued an opinion in a case captioned, Zojirushi America Corp. v. United States, which questioned the legality of CBP’s 2014 Policy.  The CIT said that the 2014 Policy was based on a misreading of two key Federal Circuit cases.  Both of those cases had addressed post-entry claims for NAFTA (which belongs to the first bucket of preferential duty programs), and according to the CIT, it was a mistake for CBP to try and apply the outcome of those cases to post-entry claims made under preferential duty programs falling in the second bucket. 

Zojirushi was dismissed by the CIT for lack of jurisdiction, because the Court found that the importer had not followed the appropriate course to get into court.  The importer claimed that it could not follow the traditional course for bringing a customs case at the CIT, because CBP would not deny its protests.  Instead, its protests had been “rejected as non-protestable”, leaving the protests in a state of limbo— having been neither allowed nor denied. 

The Court pointed out that there is a way to get your protest denied, even where CBP merely rejects them.  Namely, an importer can file a request for “accelerated disposition”.  Any such protest that is not granted within 30 days is deemed to be denied, thereby satisfying one of the prerequisites for getting into court.  Interestingly, there is no limit on the time for requesting accelerated disposition on a protest that has not been denied.  In other words, any protest that (1) has not been approved or denied, or (2) has been rejected as non-protestable, can be “revived” by filing a request for accelerated disposition.  At the very least, the request for accelerated disposition will trigger a deemed denial, which will in turn start the 180-day clock for filing a summons with the CIT.

Just this week, it has been reported that Zojirushi took the Court’s advice.  It went back to CBP and requested accelerated disposition for all of its rejected protests.  CBP could have denied the protests, or just waited 30 days until they were deemed denied, giving Zojirushi a path back to court.  Instead, we understand that CBP has relented with respect to its 2014 Policy, and has decided to allow these protests, rather than denying them.  While this change in policy by CBP has not been formally announced, we believe that a similar outcome is likely available to any importer with similar facts.

What To Do Now

(1)  Make a note of this change in the law.  If you need to make a post-entry preference claim under a preferential program in the second bucket (i.e., a program which does not include an explicit post-entry refund provision), you may now seek to do so by filing a protest, which extends the period available to file the claim.

(2)  Review your records to identify any protests that your company may have filed that were “rejected as non-protestable”, particularly protests that were rejected for the reasons set out in CBP’s 2014 Policy. 

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

Best regards,
Ted

 

USTR Announces GSP Annual Product Review (2016-17)

Dear Friends,

We are writing to let you know that the United States Trade Representative (“USTR”) has announced its 2016-17 annual product review for the Generalized System of Preferences (“GSP”) trade preference program (see Federal Register notice).

As you know, the GSP program affords certain articles produced in specific developing countries preferential trade treatment upon importation into the United States.  Although GSP expired on July 31, 2013, as we reported last year, the President signed into law the Trade Preferences Extension Act of 2015 (“the Act”).  Title II of the Act authorized the renewal of the GSP through December 31, 2017.

As with the 2015-16 review, USTR announced that it will accept petitions to modify the list of articles eligible for duty-free treatment under the GSP program (i.e., designate additional articles as eligible for GSP benefits, suspend the application of GSP benefits for certain articles, or otherwise modify GSP coverage). 

Additionally, the USTR announced that it will now accept petitions seeking to add various travel goods, classified under heading 4202, HTS (e.g., handbags, briefcases, backpacks, suitcases, sports bags, camera cases, etc.) from “generally more advanced, beneficiary countries”.  As you recall, during the 2015-16 review the President designated various travel goods from least-developed beneficiary developing countries and AGOA beneficiary countries as eligible for duty-free treatment, but deferred the designation of travel goods from “generally more advanced, beneficiary countries”. 

Both petitions to modify the list of articles eligible for duty-free treatment, as well as petitions seeking to include certain travel goods under the GSP program for 2016-17 must be submitted by October 4, 2016.   

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 & Chris

 

Update – US Challenge to China Export Subsidy Program

Dear Friends,

Further to the below, we are writing to let you know that the U.S. Trade Representative announced yesterday that the below dispute has been resolved and that the Chinese government has agreed to terminate the export subsidies involved.  More details on the agreement can be found here.

Practically, this should mean that the companies that previously benefitted from the subsidies will now have to charge their customers higher prices (without the subsidies, the Chinese companies will now have higher costs, which they may attempt to pass on to their customers.  Given the weakening of the yuan, however, it will interesting to see if that happens.  Those companies in the 7 impacted sectors should keep an eye on the prices.

If you have any questions about this development, please let us know.

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