Section 301 — US Finalizes List 2

Dear Friends,

The U.S. Trade Representative issued a press release announcing the imposition of an 25% duty on a finalized ‘List 2’ yesterday (as you will recall, List 2 is the $16 billion worth of Chinese imports published on June 18, 2018) .  The finalized list contains 279 of the 284 HTS subheadings originally proposed to be covered.  The duties will be imposed on covered articles beginning on August 23, 2018.  The press release states that a notice will be published in the Federal Register shortly and that notice will include details on how interested parties can file a product exclusion petition.  A copy of the press release is attached here together with the finalized List 2.

The recent escalation of trade tensions (e.g., the finalization of List 2, China’s likely retaliation, President Trump increasing the List 3 duties from 10% to 25%, China announcing its intention to impose additional duties on a further $60 billion worth of U.S. imports in response, etc.), and the lack of meaningful negotiations to date, suggests that the duties (on both sides) will be around for awhile.  As a result, all companies that import from China should be reviewing their sourcing options and devising short, medium and long terms pans for coping (e.g., possibility of moving certain production steps out of China in the short term, while longer term options are explored, etc.).  These plans should include continuing to participate in the administrative process (e.g., filing product exclusion petitions, submitting comments/providing testimony on the impact of List 3 – and any subsequent lists, etc.), as well as Congressional outreach.  We are assisting numerous clients with these efforts and would be happy to discuss the options with you further.  If that would be helpful, just let us know. 

Best regards,
Ted

 

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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

 

The Art of the Deal – Update on Section 232 Duties on Steel & Aluminum

Dear Friends,

Late last week, the President issued two proclamations amending his earlier proclamations imposing additional duties on imports of steel and aluminum.  Copies of these proclamations may be found here and here.

The proclamations made a number of important changes to the section 232 duties.  Most notably, the President extended the temporary exemption previously afforded to Canada and Mexico, to Australia, Argentina, South Korea, Brazil and the EU.  In addition, the temporary exemption will now only run through April 30, 2018.  As of May 1, 2018, covered steel and aluminum articles from all countries will be subject to the additional 25% (steel) and 10% (aluminum) duties unless a further agreement is reached.

The President also indicated that, if any long-term agreements are ultimately reached with any countries, such that the exemption is continued beyond April 30, 2018, he will consider whether to adjust the additional duty rates (the 25% and 10%) to ensure that the desired goal is achieved (limit imports sufficiently to allow for domestic production utilization of 80%).      

The proclamations also include provisions that discuss the possible implementation of a quota on imports from exempted countries, place restrictions on articles admitted into Foreign Trade Zones and provide further detail on the product exclusion petition process (e.g., additional criteria for approval and retroactive treatment for approved petitions).

Regardless of what you think of the policy, the threat of significantly increased duties has (thus far) had the desired result, as many countries have sought to negotiate with the United States.  It will be interesting to see what unfolds over the next few weeks (e.g., will the imposition of section 232 duties to Canada and Mexico be tied to concluding the NAFTA renegotiations? will countries like Japan seek its own long-term exemption? if long-term exemptions are granted, will the duty rates be increased to even higher rates? what sort of voluntary-restraint type of agreement/quota will be required in order to obtain a long-term exemption?).  All companies that utilize steel or aluminum articles (whether imported or domestically-produced) should be taking steps now to review the economic impact the section 232 duties will have on their business.  Consideration should be given to the impact on long-term supply agreements (whether upstream or downstream – who bears the cost of increased duties?), the impact on market competition (e.g., are you making a product here with imported steel or aluminum, but competing against finished products produced abroad and imported into the United States without being subject to the section 232 duties?), etc.

We are assisting numerous companies navigate these issues (as well as the product exclusion process) and would be happy to discuss your situation with you further.  If you would like to do so, just let us know. 

Best regards, 

Ted

 

Section 232 Duties on Steel & Aluminum — Process for Product Exclusions

Dear Friends, 

Further to the below, the Department of Commerce will publish procedures for (i) requesting product-based exclusions from the section 232 duties on steel and aluminum, and (ii) objecting to such requests, in tomorrow’s Federal Register (an advance copy of the Federal Register notice is attached here).  Any company potentially interested in seeking an exclusion for one or more articles covered by the section 232 duties should review the notice.  In particular, there are a number of key items worth noting:

(1) exclusion petitions may be submitted only by “individuals or organizations using [steel or aluminum] articles . . . in business activities . . . in the United States”;

(2) objections to exclusion petitions may be submitted by “any individual or organization in the United States”; 

(3) any approved exclusion petitions will be limited to a specific article (unless Commerce specifies a broader exclusion is granted) and to the petitioner (i.e., you cannot generally get the benefit of someone else’s exclusion petition); you can, however, file “follow-on” petitions;

(4) exclusions petitions must be filed electronically, using a specific form created for this purpose; objections must be filed within 30 days of an exclusion petition being filed, also using a specific form; petitions can cover only a single 10-digit Harmonized Tariff Schedule classification; and the review process will generally take 90 days from date of filing; and

(5) approved exclusions will be effective 5 business days after the approval is published; and will “generally” be good for 1 year.

Product exclusion petitions will only be approved “if an article is not produced in the United States in a sufficient and reasonably available amount, is not produced in the United States in a satisfactory quality, or for a specific national security consideration.”  We expect that Commerce will approve petitions only sparingly, and primarily for valid national security-related considerations. 

Product based exclusions can be filed beginning tomorrow, March 19, 2018.  If you are considering doing so, we recommend filing as soon as possible.  That said, it is important that your petition be as well prepared as possible (e.g., consider scope issues, the import data, whether there are any national security implications/allies in the federal government, any likely objections, etc.) to give it the best chance of success.  We are assisting many clients prepare petitions and would be happy to discuss this with you further.  If you are interested in doing so, please let us know.

Best regards,
Ted