A Possible Armistice in the U.S.-EU Trade War

Dear Friends,

Just a short note to let you know that an armistice may be in the works in the U.S.-EU trade war.

President Trump met with European Commission President Juncker at the White House today.  Following the meeting, the two each gave short statements to the media assembled in the Rose Garden. 

President Trump started by saying that the United States and EU were entering a “new phase” in their $1 billion bilateral trade relationship.  He went on to state that the two sides “agreed today . . .to work together towards zero tariffs, zero non-tariff barriers and zero subsidies on non-auto industrial goods.”  He also mentioned that the EU had agreed to buy “a lot of soybeans” and to start importing more liquefied natural gas (the EU will be a “massive buyer of LNG”).  The two sides also agreed to start a dialogue on standards to help ease trade/reduce barriers and to work together to reform the WTO and combat unfair trade practices by other countries (read:  China).  He concluded by saying that these negotiations will start “now” and that the two sides will resolve both the U.S. steel and aluminum duties, as well as the EU retaliatory duties.

President Juncker gave a shorter statement that (largely) corroborated what President Trump said.  The two sides would negotiate a zero tariff agreement on industrial goods, cooperate more on energy and agriculture, begin a dialogue on standards and work together to reform the WTO.  He also said there was agreement that, as long as the parties are negotiating, no further tariffs would be imposed and existing tariffs would be reassessed.

This is a positive development.  That said, the devil is always in the details.  For example, it is not yet clear whether the United States will lift the 232 duties on steel and aluminum for EU origin products immediately, or only once an agreement is formally reached, etc.  Stay tuned for more.  In the meantime, if you have any questions, please let us know.

Best regards,
Ted

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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

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

 

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