Section 301 Update — Increase in US Duties (and Increased Pressure on China)

Earlier today, in between tweets about yesterday’s Kentucky Derby result and the Mueller report, President Trump announced that (i) the 10% duty on articles included on List 3 would increase from 10% to 25% this coming Friday (May 10, 2019), and (ii) a 25% duty would be imposed on the remaining $325 billion worth of imports from China “shortly”. 

 This announcement is a bombshell, particularly given recent stories about all of the progress being made in the negotiations between the United States and China.  Secretary Mnuchin and USTR Lighthizer were in China last week, and Vice Premier Liu was expected to come to Washington, DC this week, to continue (and potentially complete) those negotiations.  We believe that today’s announcement should be viewed in that context – i.e., the negotiations may be down to the final stages and President Trump is using the leverage he has to cinch the deal.  In particular, people should watch to see if Vice Premier Liu still comes to Washington, DC this week for talks, or whether he stays home in response to today’s tweets.  If he does come to town, then there is a greater likelihood that a deal is reached (and the proposed increase in duties may mooted or delayed); whereas, if he stays home, then the proposed increase in duties take effect.

 Unfortunately, President Trump believes that the Section 301 duties are “mostly borne by China” and “have had little impact on product cost”.  As a result, all companies that import articles from China (whether currently subject to the Section 301 duties or not) should be watching the news this week for further developments.  Interesting times.

 If you have any questions, please let us know.

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Section 301 — Notice Delaying Duty Increase on List 3 from 10% to 25%

Dear Friends,

Further to the below, included here is an advance copy of a notice that will be published in the Federal Register next week officially delaying the increase in Section 301 duties on articles included on List 3 from 10% to 25%.  Based on the agreement reached by President Trump and President Xi last month (see previous post), the duty rate will now increase on such articles on March 2, 2019 (rather than on January 1, 2019) unless an overall agreement is reached, or there is a further delay.

Best regards,
Ted

 

 

Miscellaneous Tariff Bill – Signed into Law!

Dear Friends,

Further to the below, President Trump signed the Miscellaneous Tariff Bill Act of 2018 into law yesterday. 

All companies should review the list of products included in the MTB.  The provisions are not (supposed to be) company-specific.  Stated differently, any company that imports an article covered by a MTB description can claim the duty benefit (even if you were not the proponent of the provision). 

Also, keep in mind that the MTB only impacts the Column 1, General rates of duty for covered articles (i.e., the Most Favored Nation/Normal Trade Relations rates).  The MTB does not change or otherwise impact Section 232 or Section 301 duties; those still apply.

If you have any questions about the MTB, please let us know.

Best regards,
Ted


Dear Friends,

Further to the below, earlier this week, the House of Representatives took up the Miscellaneous Tariff Bill Act of 2018 (H.R. 4318) and passed the version approved by the Senate back in July.  The bill will now be sent to the President for signature.  It is being reported that the President is willing to sign it, but stay tuned for more details.

If enacted, the MTB could provide a needed boost to U.S. manufacturers (and others).

If you have any questions about the MTB, please let us know.

Best regards,
Ted

Miscellaneous Tariff Bill — One Step Closer to Reality

Dear Friends,

In a bit of good trade news, late last week, the Senate passed a slightly modified version of the Miscellaneous Tariff Bill Act of 2018 that had passed the House back in January 2018.  The bill authorizes temporary duty suspensions or reductions for hundreds products (the duty suspensions/reductions are generally effective for 2 years).  The bill also contains a provision extending certain customs user fees. 

The Senate version strikes a small number of products included in the House version, and modifies a handful of others.  As a result, the two versions of the bill will now need to be reconciled (given the small number of changes made by the Senate, the House will likely just vote on/pass the Senate version).  If this occurs, then it appears that the MTB will be sent to the President for signature as a stand-alone bill (rather than waiting to include it as part of a larger trade bill).  Given the concerns some in Congress have raised regarding the President’s recent trade policies – e.g., the handling of the ZTE enforcement case, the processing of Section 232 product exclusion petitions, etc., MTB’s best shot is probably as a stand-alone bill, rather than waiting to be included as part of a larger trade bill, as has been done traditionally.  It will also be interesting to see whether the President is inclined to sign such a bill.  While MTB is generally viewed as providing a limited benefit to U.S. manufacturers (the MTB’s intent is to provide a tariff break to manufacturing inputs that are not available domestically), the President has indicated in the past that MTB primarily benefits Chinese exporters.   

It is important to note that the MTB, if enacted, only impacts the Column 1, General rates of duty for covered articles (i.e., the Most Favored Nation/Normal Trade Relations rates).  The MTB does not change or otherwise impact Section 232 or Section 301 duties; those still apply.

All companies should review the list of products included in the MTB.  The provisions are not (supposed to be) company-specific.  Stated differently, any company that imports an article covered by a MTB description can claim the duty benefit (even if you were not the proponent of the provision).  Also, it is worth mentioning that the process of requesting MTB benefits will re-open in about a year (by October 15, 2019), so it is not too early to start preparing to participate in that process.

We hope this is helpful.  We helped numerous companies get their articles included in the MTB and would be happy to discuss this with you further.  If you have any questions, please let us know.

Best regards,
Ted

Section 301 – Advance Copy of Federal Register Notice

Dear Friends,

Further to the below, the U.S. Trade Representative published on its website today an advance copy of the Federal Register notice related to Friday’s announcement.  A copy is attached here for your reference.

The notice confirms that an additional duty of 25% will be imposed on articles classified in the tariff subheadings included in Annex A of the notice as of July 6, 2018.  The notice also creates a new Chapter 99 subheading for entry purposes (entries of articles classified in the tariff subheadings identified in Annex A have to use the new Chapter 99 classification as a secondary classification, so the additional 25% duty can be assessed) and addresses foreign trade zone admissions.

The notice also sets the schedule for providing comments on the second list of articles proposed to be assessed an additional 25% duty.  This is the list of 284 tariff classifications the interagency Section 301 Committee identified as benefitting from China’s industrial policies, including Made in China 2025 (Annex C in the attached notice).  These 284 tariff classifications represent approximately $16 billion worth of imports from China.  The public comment schedule is as follows:

  • June 29, 2018 – deadline to file a notice requesting to provide testimony at the public hearing
  • July 23, 2018 – written comments due
  • July 24, 2018 – public hearing at the U.S. International Trade Commission
  • July 31, 2018 – rebuttal, post-hearing comments due

This notice does not provide the specifics for the product petition exclusion process referenced on Friday.  Instead, this notice says that the details of the product petition exclusion process will be included in a future Federal Register notice.

We are assisting numerous clients detail with these issues (e.g., re-aligning supply chains, filing comments, seeking Congressional support for exclusion requests, etc.) and would be happy to discuss this with you further, if helpful.

Best regards,

Ted

 

Section 301 – China’s Response

Dear Friends,

As expected, China has responded to today’s U.S. announcement with one of its own. 

 

China’s announcement mirrors the position adopted by the United States.  China will impose an additional 25% customs duty on approximately $34 billion worth of imports from the United States, as of July 6, 2018.  This list includes various agricultural products, certain food/juice/beverages, automobiles, auto parts, etc.  China is also considering imposing a 25% customs duty on a second list of U.S. products worth approximately $16 billion.  Both lists are attached here (although in Chinese, the tariff classifications are provided). 

This is the latest, but undoubtedly not the last, round in this dispute.  We expect that the U.S. administration will issue a response (likely in a tweet, at least initially) over the weekend (if not sooner).  A few months back, when China threatened to retaliate for any U.S. duties imposed under section 301, President Trump said he would up the ante by imposing a 25% customs duty on an additional $100 billion worth of imports from China.  We may now get to see if he is willing to make good on that threat.

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