Trade Update

Dear Friends,

There has been a lot going on with international trade in recent weeks and we wanted to flag for you a couple of items you may have missed.

The first involves the NAFTA renegotiation.  Rather than engage in discussions involving all three countries at once, the U.S. has focused its efforts on first reaching agreement with Mexico.  U.S. and Mexican officials have been in discussions over the past several weeks and talks are expected to continue this week.  The talks re-started following the Mexican presidential election in July.  This effort seeks to conclude a deal in August, so that the current Mexican president (President Enrique Pena Nieto) can sign the revised deal before he leaves office November 30th (thereby allowing the new president, President-Elect Andres Manuel Lopez Obrador to focus on domestic issues). 

It appears that these bilateral talks are making progress, including on providing an exemption to the Automotive Section 232 investigation for existing Mexican auto plants (it is being reported that the U.S. is not willing to extend that exemption to future/new auto production in Mexico, to make sure that there is an incentive for companies to put new production in the United States).  That said, tough issues remain (e.g., a sunset clause, investor state dispute mechanisms, etc.).  In addition, Canada has not been included in these most recent discussions.  It appears that the U.S. and Mexico are intending to present Canada with a renegotiated agreement and a ‘take it or leave’ offer.  It is not clear how Canada will respond, if such an offer is made.  It should be an interesting couple of weeks.

The second involves the Steel and Aluminum Section 232 investigations.  While these are purportedly ‘national security’ investigations, President Trump announced last week that the U.S. would double the duties imposed on Turkish steel and aluminum imports (from 25% and 10% to 50% and 20%, respectively).  The U.S. Trade Representative also announced that it was reviewing Turkey’s continued eligibility under the Generalized System of Preferences program.   These efforts appear to be in response to Turkey detaining a U.S. citizen who is alleged to be involved in the July 2016 coup attempt. 

These developments show that President Trump is willing to use U.S. trade policy to influence other countries’ positions on unrelated issues.  While that may undercut the legal basis for some of these trade actions (e.g., is doubling the steel duties on imports from Turkey really related to U.S. national security concerns, or is it more of an effort to get Turkey to release Pastor Brunson?  Is the Automotive Section 232 investigation about U.S. national security, or about getting Mexico, Canada, the EU, Japan, Korea, etc. to change their policies on other issues?), and be a different way of doing things than previous administrations, it may be working (at least in the short term; in the longer term, this approach will likely come back to bite us in several different ways).

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

Best regards,
Ted

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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

Section 301 – Product Exclusion Process

Dear Friends,

The U.S. Trade Representative issued a press release this afternoon that includes details on the process for seeking product-based exclusions from the additional duties being imposed on Chinese-origin articles under Section 301 (the first round of those duties went into effect earlier today).  An advance copy of the Federal Register notice containing the specifics for this process is attached for your reference.

 In summary, the product-based exclusion process is as follows:

* all requests to exclude a particular product must be filed by October 9, 2018 (90 days from today);

* there is an opportunity to file comments on such requests, and then for the requester to respond;

* if an exclusion request is granted, it will be effective back to July 6, 2018 (the effective date of this round of additional duties) and will be valid for one year from the date the exclusion approval is published in the Federal Register;

* exclusion requests should cover a “particular product” (this is broader than a just a part number and cannot be based on company-specific characteristics);

* exclusion requests may be filed by “interested persons, including trade associations” (which also suggests that the term “particular product” is meant to be interpreted broadly);

* each request must provide the rationale for the exclusion and, at a minimum, address (1) whether the particular product is available only from China, (2) whether the imposition of additional duties on this product will cause “severe economic harm” to the requestor or to other U.S. interests, and (3) whether the particular product is strategically important or related to China’s industrial policies, including “Made in China 2025”; and

* USTR will evaluate each request individually and take into account “whether the exclusion would undermine the objective of the Section 301 investigation”.

In terms of administering any approvals at the border, the notice also states that requestors may provide information on how U.S. Customs and Border Protection can administer the exclusion (i.e., how will CBP be able to differentiate between products covered by the exclusion and products not covered by the exclusion?).  Interestingly, the USTR’s press release makes it clear that one need not apply in order to benefit from an approval – i.e., approvals are product-specific, not company-specific (“Because exclusions will be made on a product basis, a particular exclusion will apply to all imports of the product, regardless of whether the importer filed a request. The U.S. Customs and Border Protection will apply the tariff exclusions based on the product.”).

The good news here is that (i) there is a product exclusion process (which should help address the impact the Section 301 duties are having on U.S. companies), (ii) petitions can be filed on a “product” basis, rather than on a single sku or part number basis, like with the Section 232 exclusion process, (iii) approvals will be retroactive to when the additional duties first went into effect (although it will be important to keep an eye on liquidation dates to be safe), and (iv) the USTR provided guidance on the factors that will be considered when reviewing requests.

The bad news is that there is no stated timeline for how long it will take the USTR to review and process exclusion requests.  Undoubtedly, the USTR is hoping that by broadening the scope of the petitions and the approvals to “particular products” it will result in fewer petitions being filed than have been filed at Commerce in the steel and aluminum Section 232 cases (i.e., more than 20,000 exclusion petitions filed and only 98 acted on in 3+ months = 51 years of processing time . . . .).  We believe that hope is misplaced and that the USTR will likely receive thousands of exclusion requests. 

Accordingly, it is important that any company impacted by the Section 301 duties, and considering filing a product exclusion petition, do so quickly.  We are assisting numerous clients with this process (which began before today) and would be happy to discuss with you how best to approach this effort now that we have these additional details.

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

Best regards,
Ted

Trump Trade Agenda Presentation

Dear Friends,

Yesterday, I had the privilege of speaking at an industry-based international trade compliance forum in Houston.  My topic was ‘The Trump Trade Agenda:  Where Are We And Where Are We Going?’ (admittedly, I had more questions than answers to this question).  I addressed the Section 232 investigations on steel and aluminum, the Section 301 investigation on China, NAFTA renegotiation and few other trade issues that have begun to bubble up.  I thought you might find the presentation to be of interest: Trump on Trade Agenda.

If you have any comments or questions on the presentation, please let me know.

Best regards,

Ted

 

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

Section 232 Update — The End of the Temporary Exemptions

Dear Friends, 

Further to the below, the President issued two new proclamations this morning regarding the imposition of additional duties on imports of steel (25%) and aluminum (10%) under Section 232 of the Trade Expansion Act of 1962, as amended.  Copies are attached here for your reference. 

The steel proclamation (1) exempts imports from Argentina, Austrailia, Brazil and South Korea from the additional 25% duty (based on voluntary-export restraint agreements (i.e., export quotas) Argentina, Brazil and South Korea agreed to with the United States; Australia is also exempt, but thus far, no export quota has been imposed); and (2) ends the temporary exemptions previously afforded imports from Australia, Canada, Mexico and the EU.  As a result, imports of steel from all jurisdictions except Argentina, Australia, Brazil and South Korea will be subject to an additional 25% duty as of 12:01 am tonight (i.e., June 1, 2018).

The aluminum proclamation (1) exempts imports from Argentina and Australia from the additional 10% duty (based on voluntary-export restraint agreements (i.e., export quotas) those countries have agreed to with the United States); and (2) ends the temporary exemptions previously afforded imports from Brazil, Canada, Mexico and the EU.  As a result, imports of aluminum from all jurisdictions except Argentina and Australia will be subject to an additional 10% duty as of 12:01 am tonight (i.e., June 1, 2018).

We expect that many countries will proceed with imposing retaliatory measures.  For example, the EU already announced that it is ready to impose an additional 25% duty on $3.3 billion worth of U.S. imports as of June 20, 2018.   Other countries have also announced an intent to pursue this at the WTO level (e.g., Japan, India, etc.), which could lead to the imposition of more retaliatory duties on U.S. products.

At this point, it is not clear how long the additional U.S. duties will be in place.  It is clear, however, that the duties are being used as leverage to influence on-going negotiations aimed at re-balancing our trade relationships with many countries (including many of our closest allies).  In the meantime, companies impacted by today’s announcements should be considering all of their options, including the viability of filing product exclusion petitions with the Dept. of Commerce.

We trust that this update is helpful.  If you have any questions about these issues, please let us know.

Best regards,
Ted


Dear Friends,

By now, you have probably seen that the President issued two new proclamations regarding the imposition of additional duties on imports of steel (25%) and aluminum (10%) under Section 232 of the Trade Expansion Act of 1962, as amended.  The proclamations do the following:  (1) extend the temporary exemption applicable to imports of covered articles from Argentina, Australia and Brazil while the details associated with permanent exemptions are finalized; (2) extend the temporary exemption applicable to imports of covered articles from Canada, Mexico and the EU through May 30, 2018; (3) address issues related to the application of the additional duties when foreign trade zones are involved; and (4) clarify that “[n]o drawback shall be available” with respect to section 232 duties.  The steel proclamation also finalizes the permanent exemption afforded imports of covered steel articles from South Korea.  Imports of aluminum covered articles from South Korea are not covered by a permanent exemption and are, therefore, subject to the additional 10% duties as of May 1, 2018.  Copies of the April 30th proclamations are attached here for your reference:  2018-09841 and 2018-09840.

Since the issuance of the proclamations, it has been reported that the permanent exemption to be afforded Brazil will only apply to steel imports (in exchange for a limit on Brazilian steel exports to the USA) and that aluminum imports will be subject to the additional 10% duty.  It is also been reported that the permanent exemption to be afforded Argentina will cover both steel and aluminum imports (again, in exchange for a limit on Argentine exports to the USA).

In terms of Canada and Mexico, the permanent exemptions appear to be tied to the on-going NAFTA negotiations.  While those negotiations have reportedly made substantial progress in recent weeks, it is not clear whether a deal will be able to be announced in the next couple of weeks.  The Administration has recently expressed concern that if a deal is not reached by May 21, 2018, then any revised agreement would need to be voted on by the next Congress, due to timing issues associated with applicable legal requirements (e.g., the Administration has to provide notice of any deal to Congress, the U.S. International Trade Commission has to do a study of any new deal, etc.).  This is problematic because the next Congress (which will be sworn in in January 2019) will not have had an opportunity to help direct the negotiations (as the current Congress has) and may have a different composition as a result of the elections in October.  As a result, expect the U.S. Administration to put on a full court press to get a deal done (or at least announced) before May 21st.  If that does not happen, then there is an increased chance that the section 232 duties will go into effect for Canada and Mexico June 1, 2018.

In terms of the EU, the Administration has made clear that the key to getting a permanent exemption from the section 232 duties is agreeing to an export quota, or other voluntary-export-restraint-type agreement.  The EU, however, has made it clear that it will not agree to any sort of quota or VRA.  It has, however, reportedly offered to enter into negotiations with the United States for a new ‘trade in goods’ free trade agreement.  It will be an interesting few weeks to be sure as these discussions play out.

In the meantime, we recommend that any company which imports covered articles from Canada, Mexico or the EU (or relies on covered articles from these countries imported by other U.S. parties) consider preparing product exclusion petitions now.  While exclusions are not needed currently, there is a meaningful chance that such exclusions will be needed in the near future (i.e., June 1st).  Given the delay in the processing of product exclusion petitions, it is important that companies which are impacted be proactive in protecting their interests (e.g., not languishing at the back of a very long line, etc.).

We hope that this update is helpful.  We are assisting numerous clients deal with these section 232 issues.  If you would like to discuss any of this further, please let us know.

Best regards,
Ted

Section 232 Update

Dear Friends,

By now, you have probably seen that the President issued two new proclamations regarding the imposition of additional duties on imports of steel (25%) and aluminum (10%) under Section 232 of the Trade Expansion Act of 1962, as amended.  The proclamations do the following:  (1) extend the temporary exemption applicable to imports of covered articles from Argentina, Australia and Brazil while the details associated with permanent exemptions are finalized; (2) extend the temporary exemption applicable to imports of covered articles from Canada, Mexico and the EU through May 30, 2018; (3) address issues related to the application of the additional duties when foreign trade zones are involved; and (4) clarify that “[n]o drawback shall be available” with respect to section 232 duties.  The steel proclamation also finalizes the permanent exemption afforded imports of covered steel articles from South Korea.  Imports of aluminum covered articles from South Korea are not covered by a permanent exemption and are, therefore, subject to the additional 10% duties as of May 1, 2018.  Copies of the April 30th proclamations are attached here for your reference:  2018-09841 and 2018-09840.

Since the issuance of the proclamations, it has been reported that the permanent exemption to be afforded Brazil will only apply to steel imports (in exchange for a limit on Brazilian steel exports to the USA) and that aluminum imports will be subject to the additional 10% duty.  It is also been reported that the permanent exemption to be afforded Argentina will cover both steel and aluminum imports (again, in exchange for a limit on Argentine exports to the USA).

In terms of Canada and Mexico, the permanent exemptions appear to be tied to the on-going NAFTA negotiations.  While those negotiations have reportedly made substantial progress in recent weeks, it is not clear whether a deal will be able to be announced in the next couple of weeks.  The Administration has recently expressed concern that if a deal is not reached by May 21, 2018, then any revised agreement would need to be voted on by the next Congress, due to timing issues associated with applicable legal requirements (e.g., the Administration has to provide notice of any deal to Congress, the U.S. International Trade Commission has to do a study of any new deal, etc.).  This is problematic because the next Congress (which will be sworn in in January 2019) will not have had an opportunity to help direct the negotiations (as the current Congress has) and may have a different composition as a result of the elections in October.  As a result, expect the U.S. Administration to put on a full court press to get a deal done (or at least announced) before May 21st.  If that does not happen, then there is an increased chance that the section 232 duties will go into effect for Canada and Mexico June 1, 2018.

In terms of the EU, the Administration has made clear that the key to getting a permanent exemption from the section 232 duties is agreeing to an export quota, or other voluntary-export-restraint-type agreement.  The EU, however, has made it clear that it will not agree to any sort of quota or VRA.  It has, however, reportedly offered to enter into negotiations with the United States for a new ‘trade in goods’ free trade agreement.  It will be an interesting few weeks to be sure as these discussions play out.

In the meantime, we recommend that any company which imports covered articles from Canada, Mexico or the EU (or relies on covered articles from these countries imported by other U.S. parties) consider preparing product exclusion petitions now.  While exclusions are not needed currently, there is a meaningful chance that such exclusions will be needed in the near future (i.e., June 1st).  Given the delay in the processing of product exclusion petitions, it is important that companies which are impacted be proactive in protecting their interests (e.g., not languishing at the back of a very long line, etc.).

We hope that this update is helpful.  We are assisting numerous clients deal with these section 232 issues.  If you would like to discuss any of this further, please let us know.

Best regards,
Ted