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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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

Retaliatory Duties On US Exports to Canada and Mexico Are A Step Closer to Becoming Reality

Dear Friends,

Further to the below, the WTO arbitrator issued its report today in the COOL dispute between the US, Canada and Mexico.  In short, the report concludes that the United States’ COOL program harms Canada in the amount of $1.054 billion annually (the $1.054 billion is CAD (not USD).  At today’s exchange rate, that comes to approx. $781 million USD), and harms Mexico in the amount of $227.758 million annually.  See here for more info.

This was the last major hurdle before Canada (and possibly Mexico) imposed retaliatory duties on imports from the United States.  We expect that Canada will proceed to impose such duties soon (i.e., in days or weeks).  The list of products to be subject to such duties, as originally published in 2013, is below.  We also expect that Mexico will identify the products it intends to sanction shortly.  We expect both countries to adopt a “carousel” approach, which means that the list of products subject to these retaliatory duties will change periodically (to exert maximum political pressure on the US).

In that regard, earlier this year, the House of Representatives passed legislation repealing COOL.  That effort stalled in the Senate, however.  It will be interesting to see how the Senate reacts once the sanctions are actually put into place.

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

Best regards,

Ted

Environmental Goods Agreement

Dear Friends, 

As you may recall, for the last year, the United States Trade Representative has been actively engaged in negotiating an Environmental Goods Agreement (“EGA”) with sixteen separate customs territories (plus the EU) at the WTO.  Last week, the USTR official with responsibility for these negotiations provided an optimistic briefing on the progress made through the most recent (6th) round of negotiations, and explained that USTR was now looking for further assistance from the private sector.  

The USTR is requesting that businesses with an interest in the outcome of the EGA negotiations provide non-branded 1-page product summaries, which identify the relevant features and environmental benefits of products under consideration for inclusion in the agreement. The USTR will compile these summaries in an internal database, which will be accessible to negotiators from all delegations, for use in the negotiations.  

We believe that this represents a significant opportunity for companies engaged in the global trade of environmental goods.  This is a chance to meaningfully frame the dialogue regarding environmental credibility and which products should be included in the agreement.  The potential long-term benefits of reduced or eliminated duties on a wide range of products in numerous jurisdictions are substantial. 

If you have any questions as to whether your products may be eligible for benefits under this agreement, or if you would like to see a sample 1-page product summary, please let us know. 

Best regards,
Ted

Retaliatory Duties On US Exports to Canada and Mexico Are A Step Closer to Becoming Reality

Dear Friends,

As you may know, the United States has been engaged for several years in defending a legal challenge brought by Canada and Mexico at the WTO to country of origin labeling (“COOL”) requirements for certain meat products.  The United States lost a substantive challenge to these provisions in 2013, and U.S. efforts to bring the COOL provisions into compliance with international legal obligations have also been challenged at the WTO.  

The WTO Appellate Body ruled yesterday that U.S. attempts to “fix” the problems created by the COOL legislation have fallen short. As a result, absent action by Congress to repeal the offending provisions, Canada and Mexico are poised to impose retaliatory duties on a variety of U.S. products (the retaliatory duties can be imposed on any products and are not limited to U.S. meat exports). 

In 2013, Canada published a list of tariff subheadings which it intends to subject to retaliatory duties (available here: http://gazette.gc.ca/rp-pr/p1/2013/2013-06-15/html/notice-avis-eng.html#d115).  Absent Congressional action on COOL, these duties are expected to take effect as soon as late summer/early fall.  

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

Best regards,

 Ted

US Challenge to China Export Subsidy Program

Dear Friends,

We wanted to make sure you are aware of a recent development in the US-China trade relationship that could affect imports in a number of industries.

On February 11, 2015, the U.S. Trade Representative announced that the United States was initiating an action at the World Trade Organization challenging China’s “Demonstration Bases-Common Service Platform” export subsidy program.  In short, the United States is alleging that China provided ~$1 billion in prohibited export subsidies to manufacturers and producers in 7 industries through 179 Demonstration Bases located throughout China.  The 7 industries are:  (1) textiles, apparel and footwear; (2) advanced materials and metals (including specialty steel, titanium and aluminum products); (3) light industry; (4) specialty chemicals; (5) medical products; (6) hardware and building materials; and (7) agriculture.  A copy of the USTR press release is available here for your reference.

Every company that imports articles in one of these sectors should be mindful of this development.  If the United States challenge is successful (directly or indirectly), importers could see increased prices (as the subsidies go away) or increased duties.  Accordingly, we recommend that companies confirm whether their Chinese suppliers participate in the ‘common service platforms’ or are located in Demonstration Bases.

If you have any questions about the United States’ challenge, how the action may impact you, or how to confirm whether your suppliers participate in the target program, please let us know.

Best regards,

Ted

Environmental Goods — Potential Savings Opportunity

Dear Friends:

Further to the below, we wanted to let you know that the United States will hold its first negotiations today with the thirteen other WTO members who committed to negotiate the Environmental Goods Agreement (EGA). Over the coming months, the WTO members will negotiate product coverage under the EGA, building upon the list of the 54 environmental goods on which the APEC Leaders agreed to either reduce or eliminate tariffs on by the end of 2015.

As you know, the U.S. Trade Representative has solicited written comments from industry in preparation for the negotiations, held a public hearing and meetings with Congress and other interested stakeholders and requested that the U.S. International Trade Commission conduct two studies to help inform the United States’ negotiating strategy on product coverage under the EGA. The U.S. International Trade Commission is expected to release the results of the studies in August and October.

As the negotiations move forward, the U.S. Trade Representative said that it will continue to consult with industry and other stakeholders to ensure that the EGA delivers concrete benefits to the United States. While time is short, if you are interested in participating in the process (e.g., having a product added to the list for consideration for duty free treatment), there are still steps companies can take to try to get considered. If you’d like to discuss this further, please let us know.

We hope that this is helpful. We will continue to keep you apprised of developments with the EGA.

Best regards,

Ted