On Monday, October 14, 2019, President Trump announced that the U.S. will increase steel tariffs to 50% as a sanction against Turkey’s military advance into Syria last week.  The steel tariffs were originally imposed at 25% under Section 232 of the Trade Expansion Act of 1962 in March, 2018.  In August, 2018, President Trump raised the duties on steel from Turkey to 50% because Turkish imports had continued to increase as the lira devalued against the dollar.  The President reduced them back to 25% in May, 2019, after import levels from Turkey had decreased.  The U.S. will also immediately end negotiations on a $100 billion trade deal that was underway.  These actions demonstrate the Trump Administration’s continued willingness to use tariffs and trade deals as a means of obtaining leverage to change the behavior of its trading partners.

The President’s plan was developed after a meeting with administration officials including Treasury Secretary Steve Mnuchin, Secretary of State Mike Pompeo, and National Security Advisor Robert O’Brien.  The increased steel tariffs will work in tandem with sanctions imposed by an Executive Order issued on Monday and enforced by the Secretary of the Treasury in consultation with the Secretary of State.  Our sanctions analysis can be found here.

While the Trump Administration has taken heat on Capitol Hill for its liberal use of tariffs to achieve its policy goals, there is broad, bipartisan and international support for some form of action against Turkey. President Trump’s statement on Turkey notes he is “fully prepared to swiftly destroy Turkey’s economy if Turkish leaders continue down this dangerous and destructive path.” Others, including Speaker Nancy Pelosi, have voiced the opinion that stronger sanctions are appropriate now. Finland, France, Germany, and Sweden also announced on Monday that they will suspend arms exports to Turkey.

The impact and duration of the sanctions are as of yet unclear.  Hours after President Trump’s announcement, Turkish President Erdoğan expanded the military operation amidst broad domestic support.

At this time, Turkish President Erdoğan is still expected to visit Washington, D.C. next month.

Yesterday, the U.S. government issued an Executive Order (E.O.) imposing new primary and secondary sanctions that target the government of Turkey in response to the escalating conflict in northern Syria.  Pursuant to the new sanctions, the Office of Foreign Assets Control (OFAC) also added the Turkish Ministry of Energy and Natural Resources, the Turkish Ministry of National Defense, and the Turkish ministers of Defense, Energy and Natural Resources, and Interior to the SDN List, formally blocking (freezing) those parties’ property and interests in property, subject to U.S. jurisdiction.  Entities owned 50 percent or more, directly or indirectly, by these SDNs are also subject to blocking sanctions pursuant to OFAC’s “50 percent rule.”

While the sanctions are currently narrowly targeted, the E.O. authorizes a broad array of future possible sanctions against other parties connected to the Turkish government and companies operating in Turkey.  Whether and to what extent sanctions are expanded on Turkey will depend on developments on the ground in Syria and U.S. domestic politics.  Various groups, including prominent voices in Congress, are pushing the administration for more aggressive action against Turkey, which could portend an expansion of sanctions against the Ankara government.

Blocking sanctions

The October 14, 2019 E.O. authorizes the U.S. government to block any person (e.g., designate that person as a Specially Designated National (SDN)) that the Secretary of the Treasury determines to:

  • Be engaged in activities related to undermining peace or security in Syria or the commission of serious human rights abuses;
  • Be a current or former official of the Government of Turkey (GoT)
  • Be a subdivision of instrumentality of the GoT;
  • Operate in certain sectors of the Turkish economy that have yet to be specified by the Secretary of Treasury;
  • Materially assist or provide support for persons blocked pursuant to the Executive Order; or
  • Owned or controlled by a person blocked pursuant to the Executive Order.

While this first round of designations was limited, the scope of the new blocking authorities in the E.O. authorize OFAC to designate a broad array of parties in the future that are related to the Turkish government or that operate in Turkey.  Companies subject to U.S. jurisdiction and all financial institutions should review their engagements with parties subject to the new sanctions and with parties that may become subject to the sanctions in the future, as dealings involving this U.S. NATO ally now present heightened sanctions risk.

Menu-based sanctions

The E.O. also authorizes the U.S. State Department to issue a menu of sanctions against non-U.S. persons that are:

  • Responsible for, complicit in, or financed any of the following:
    1. The prevention of a ceasefire in Syria;
    2. Preventing persons from voluntarily returning to Syria or forcibly repatriating refugees to Syria; or
    3. Preventing a political solution to the conflict in Syria;
  • An adult family member of a person engaged in the foregoing; or
  • Engaged in the expropriation of property in Syria for personal gain or political purposes.

After determining that a party meets one of the criteria above, the U.S. State and Treasury Departments are authorized to impose the following sanctions on that party:

  • Bar on U.S. government procurement from that party;
  • Denial of visas to that party and to corporate officers, principals, or controlling shareholdings of that party;
  • Prohibit U.S. financial institutions from making loans to that party totaling more than $10 million in a 12-month period, except for certain humanitarian-related loans;
  • Prohibit transactions in foreign exchange subject to U.S. jurisdiction;
  • Prohibit transfers of credit or payment subject to U.S. jurisdiction through any financial institution;
  • Block the property or interests in property of that party (i.e., add the party to the SDN List);
  • Prohibit investments in or purchases of significant amounts of debt or equity of that party;
  • Restrict imports to the United States from that party; and/or
  • Impose certain sanctions on principal executive officers of that party.

Secondary Sanctions

The E.O. authorizes the U.S. government to impose the menu-based sanctions described above against any non-U.S. financial institution that knowingly conducts or facilitates a significant financial transaction for or on behalf of a person blocked pursuant to the E.O.  The U.S. Treasury Department may also prohibit such financial institutions from opening a correspondent account or payable-through account in the United States and may prohibit or impose strict conditions on such financial institutions maintaining accounts in the United States.

General Licenses

OFAC issued three general licenses authorizing certain, limited activities involving the newly blocked parties.  General License 1 authorizes transactions and activities that are for the conduct of the official business of the U.S. government by its employees, grantees, and contractors.

General License 2 allows parties to engage in transactions and activities that are ordinarily incident and necessary to wind down operations, contracts, or other agreements involving the Turkish Ministry of Energy and Natural Resources and the Turkish Ministry of National Defense or involving entities owned 50 percent or more by those ministries.  Authorized wind down activities must be completed by 12:01 am EST on November 13, 2019.  The wind down general license does not authorize debits from blocked accounts held by U.S. financial institutions.

General License 3 authorizes transactions and activities involving the Turkish Ministry of Energy and Natural Resources or the Turkish Ministry of National Defense and entities owned 50 percent or more by those ministries for the official business of the United Nations, its Programmes and Funds, and its Specialized Agencies and Related Organizations, including twelve specifically listed organizations.

Please contact our sanctions team with any questions or concerns related to these developments.

On October 7, USTR Robert Lighthizer and Ambassador Shinsuke Sugiyama signed both the U.S.-Japan Digital Trade Agreement and the U.S.-Japan Trade Agreement. President Trump praised the agreements, stating “[t]hese two deals represent a tremendous victory for both of our nations.  They will create countless jobs, expand investment and commerce, reduce our trade deficit very substantially, promote fairness and reciprocity, and unlock the vast opportunities for growth.”

The two agreements signed Monday formalized earlier agreements between President Trump and Japanese Prime Minster Abe, which were reached a few weeks ago. Initialdetails of the agreements were covered in an earlier post on this blog in late September. The text of the agreements, as well as side letters on interactive computer services, alcoholic beverages, beef, rice, safeguards, skimmed milk powder, and whey, were also released Monday.

The Digital Trade Agreement includes many provisions similar to those included in the USMCA Digital Trade Chapter. Provisions eliminating discriminatory treatment of digital products, preventing future customs duties on electronic transmissions, validating the use of electronic signatures, and providing protections to online consumers and personal information appear in both the Digital Trade Agreement and the USMCA.

For information and communication technology (ICT) goods that use cryptography, neither party shall require a manufactureror supplier of a good, as a condition for sale, distribution, import, or use of an ICT good, to “transfer or provide access to any proprietary information relating to cryptography, including by disclosing a particular technology or production process.” This language is also found in Annex 12-C of the USMCA.

The agreements signal a growing economic partnership between the United States and Japan, and the two countries have committed to continue negotiating in the coming months with the hopes of concluding a comprehensive agreement.

Thursday, October 10, 2019
12:00 PM – 1:00 PM

Many companies are looking for opportunities to reduce or eliminate duties on products they import.  In 2015, Congress passed legislation codifying a duty reduction process, known as the Miscellaneous Tariff Bill (MTB), that reduces duties assessed on more than a thousand imported raw materials and intermediate products that are not produced in the U.S. or are unavailable domestically.  The first round of tariff suspensions under the new MTB process went into place in October of last year.

The second round of the MTB process begins on October 11th of this year, businesses will have a total of 60 days to propose tariff suspensions on particular imports.  The petitions are submitted to the US International Trade Commission for review.  The successful submissions are combined into a single piece of legislation that Congress aims to pass next year.

MTB duty savings are anticipated to eliminate import taxes in excess of $700 million annually and reduce tariffs on well over 1000 imported products, thereby cutting production costs in the United States and enhancing the competitiveness of U.S. manufacturers.

Please join Kelley Drye International Trade attorney Jennifer McCadney and senior International Trade advisor Gregory Mastel for a 1-hour webinar that will cover the new petition process, from filing to implementation, as well as how to identify imports that may qualify for temporary duty reduction.

To register for this webinar, please click here.

On October 2, 2019, the World Trade Organization (“WTO”) awarded the U.S. the largest arbitration award in the WTO’s history, $7.5 billion annually, in retaliation for the unlawful EU subsidization of Airbus.  The award comes after nearly 15 years of litigation at the WTO where the U.S. successfully argued that the EU and four of its member states conferred more than $18 billion to Airbus in subsidized financing.

As retaliation, the U.S. will impose an additional 10 percent duty on airplanes from France, Germany, Spain, and the United Kingdom, as well as an additional 25 percent duty on certain goods including single malt Irish and Scotch whiskies, coffee from Germany, cheeses from several countries, and certain garments from the United Kingdom.   The retaliatory tariffs will likely take effect on October 18, 2019 and will be “continually re-evaluate{d}. . . based on {U.S.} discussions with the EU.”  In selecting the goods that will be affected by the retaliatory tariffs, the Office of the U.S. Trade Representative explained that the tariffs are intended to most heavily impact imports from France, Germany, Spain, and the United Kingdom, the Member States that provided Airbus with the disputed subsidies.

Meanwhile, tariff threats also loom over the U.S. in a parallel WTO case regarding the illegal subsidization of Boeing in the U.S.  The global trade regulator is expected within six-to-eight months to authorize the EU to impose its own retaliatory tariffs on U.S. goods. In April, the EU published a preliminary list of U.S. products to be considered for countermeasures. Ahead of the WTO’s ruling on its case regarding the subsidization of Boeing, the EU might choose to revoke prior settlements with the U.S. in other WTO cases, which would effectively create tariffs on approximately $4 billion worth of U.S. imports into the EU. Continue Reading A Tale of Two Aircraft: U.S. Wins Historic Award in Airbus Case While EU Awaits Ruling on Boeing

On September 25, the United States and Japan reached an initial trade deal to lower certain tariff barriers between the two trading partners.  This initial agreement improves market access for certain agricultural and industrial goods and, according to the President, will open markets to approximately $7 billion in U.S. agricultural products.  The Fact Sheet released by the U.S. Trade Representative’s office stated that once the agreement is implemented over 90 percent of U.S. imports food and agricultural products into Japan will be duty free or have preferential tariff access.  In particular, Japan agreed to lower tariffs on U.S. imports of beef and pork, to provide a country-specific quota for U.S. wheat and wheat products, and to eliminate immediately tariffs on, among other products, almonds, walnuts, blueberries, cranberries, sweet corn, grain sorghum, and broccoli.  Reciprocally, the United States will reduce or eliminate tariffs on certain Japanese industrial goods including certain machine tools, fasteners, steam turbines, bicycles, bicycle parts, and musical instruments.

Digital trade has been another area of focus in the U.S.-Japan trade negotiations.  In this initial deal, the two countries have agreed not to impose customs duties on digital products transmitted electronically such as videos, music, e-books, software, and games, and to ensure non-discriminatory treatment for digital products.  The deal will also lower trade barriers for data transfers.

Although there was no specific mention of how the deal would impact the President’s past comments on imposing tariffs on imports of Japanese cars under Section 232 of the Trade Expansion Act of 1962, the joint statement provided that neither country will impose any further tariffs that would go against the spirit of the agreement.

In 2018, Japan was the United States’ fourth largest trading partner.  Trade negotiations for a bilateral agreement between the two nations began back in April of 2019.  The joint statement released by the United States and Japan stated that the two countries are aiming to complete trade talks in the next four months.

 

On Friday, August 23, China announced its plans to impose 5% to 10% tariffs on $75 billion of American products in response to Washington’s recent tariffs on $300 billion of Chinese products.  China’s new tariffs will take effect in two stages, the first on September 1, 2019 and second on December 15, 2019.  The new tariffs will affect items such as beef, small aircraft, and soybeans.

China also plans to revive a 25% tariff on U.S. automobiles and a 5% tariff on automobile parts that were lifted earlier this year.  The tariffs on automobiles and parts will take effect on December 15, 2019.

Following China’s announcement, President Trump issued a series of tweets in which he encouraged American companies to manufacture products in the U.S. and to “start looking for an alternative to China.”   In the same series of tweets, the President stated that he will respond to China this afternoon.

The U.S. and China are still expected to move forward with trade discussions in September, 2019.

The U.S. Department of Commerce announced on Wednesday that it is self-initiating an inquiry into whether U.S. imports of corrosion-resistant steel products (CORE) from Costa Rica, Guatemala, Malaysia, South Africa, or the United Arab Emirates using hot-rolled or cold-rolled substrate from China and Taiwan are circumventing existing antidumping (AD) and countervailing (CVD) duties.  This is Commerce’s first-ever exercise of authority to self-initiate such proceedings “based on its own monitoring of trade patterns” and involving multiple countries.  Commerce’s announcement also notes that the decision to self-initiate is consistent with the Trump Administration’s focus on “strict enforcement of U.S. trade law,” and demonstrates the agency’s “vigilance to stop circumvention of U.S. trade laws, wherever it occurs.”

In July 2016, Commerce issued AD and CVD orders on CORE from China and an AD order on CORE from Taiwan (along with AD and CVD orders on U.S. imports of CORE from India, Italy, and South Korea).  CORE subject to the orders is generally defined as a steel sheet that has been coated or plated with a corrosion‐ or heat‐resistant metal (such as zinc, zinc-iron alloy, aluminum, or zinc-aluminum alloy) to prevent corrosion and thereby extend the service life of products produced from the steel.  According to Commerce, shipments of CORE from Costa Rica, Guatemala, Malaysia, South Africa, and the UAE to the United States increased in value by 29,210 percent, 35,944 percent, 151,216 percent, 629 percent, and 5,571 percent, respectively, in the 45 months before and after the 2015 initiation of the AD and CVD investigations on CORE from China and Taiwan.  If Commerce preliminarily determines that circumvention of these orders is occurring, Commerce will instruct Customs and Border Protection to suspend liquidation and begin collecting cash deposits on imports of CORE from Costa Rica, Guatemala, Malaysia, South Africa, and the UAE using Chinese-origin substrate, and CORE completed in Malaysia using Taiwanese-origin substrate.

Commerce has previously investigated and found circumvention of the AD and CVD orders on imports of CORE from China and Taiwan.  In November 2016, in response to requests from domestic CORE producers, Commerce initiated an anti-circumvention inquiry into whether imports of CORE from Vietnam using hot-rolled and cold-rolled steel substrates from China were circumventing the AD and CVD orders on CORE from China.  In May 2018, Commerce reached an affirmative final determination in that anti-circumvention proceeding, applying cash deposit rates of 39-199 percent to imports of CORE from Vietnam unless use of non-Chinese origin substrate is documented.  In August 2018, Commerce initiated two additional anti-circumvention inquiries – again, at the domestic industry’s request – into whether imports of Vietnamese CORE using substrate from Taiwan and Korea circumvented the duties on CORE from those two countries.  In July 2019, Commerce reached preliminary affirmative circumvention determinations with respect to the orders on CORE from both Taiwan and Korea.

Kelley Drye & Warren LLP represented domestic CORE producer ArcelorMittal USA LLC in the original CORE AD and CVD investigations and in the 2016 and 2018 anti-circumvention proceedings.

Since last year, the Trump Administration has imposed tariffs ranging from 10 percent to 25 percent on nearly all imports of Chinese goods.  Now, the Administration is set to impose an additional $300 billion of tariffs on Chinese goods as of September 1, 2019, that will cover all remaining goods, the so-called “List 4” products.

On August 1, 2019, the president announced that a 10 percent tariff will go into effect on the remaining $300 billion worth of imports from China, which we previously blogged about here.  The president previously delayed imposing tariffs on “List 4” goods after a conversation with the Chinese president at the G20 leaders summit back in June.  This new announcement comes on the heels of talks regarding a trade deal between U.S. and Chinese government officials last week in Shanghai.  Previous reports indicated that a deal was close to being finalized several months ago, however, the president has stated that the Chinese decided to re-negotiate the deal prior to signing.   Following last week’s dialogue, the two governments agreed to meet again in September to continue discussing a potential trade deal.  This means, of course, that absent a change to that timeline there is not another opportunity for the two governments to negotiate prior to the imposition of new duties on September 1.

In response, China announced on Friday that it would impose counter-measures if and when the additional tariffs go into effect on September 1.  While no details about the nature of counter-measures was mentioned, a statement released by the Chinese Ministery of Commerce indicates that the Chinese believe that additional tariffs is a violation of the agreement between the two countries’ presidents at the G20 summit in June.   Then today,  China devalued the yuan to a significantly low point (letting it fall below its 7-to-1 ratio with the U.S. dollar) in what is certainly a response to last week’s announcement regarding the new tariffs.  The Chinese government has also reportedly asked Chinese state-owned companies to discontinue purchasing U.S. agricultural products, an issue that is wrapped up in the ongoing U.S.-Chinese trade deal negotiations.  Given that the administration has only announced but not yet imposed the new wave of tariffs, this may not be the end of China’s retaliatory measures.

 

 

The World Trade Organization’s (WTO) dispute settlement process risks collapse by the end of this year as the United States continues to block appointments to the WTO Appellate Body. Once the terms of two of the three remaining WTO Appellate Body Members expire on 10 December 2019, the WTO’s appeals court no longer will possess the necessary quorum to hear new appeals cases. Last week, however, the European Union (EU) and Canada announced an interim appeal arbitration arrangement that closely replicates WTO rules and procedures, including their binding character. The arrangement may serve as a blueprint for other countries to continue to uphold their rights under WTO agreements should WTO’s dispute settlement system soon become inoperable.

The EU-Canada interim appeal arbitration arrangement is grounded in Article 25 of the WTO’s Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), which contains rules for resolving disputes arising under WTO agreements. Article 25 DSU provides for “expeditious arbitration within the WTO as an alternative means of dispute settlement […] of certain disputes that concern issues that are clearly defined by both parties.” Under Article 25 DSU, parties agree in advance the procedures to be followed. The EU-Canada interim appeal arbitration arrangement thus provides in disputes between Canada and the EU for either party to appeal WTO panel reports to three arbitrators, which are chosen by the WTO’s Director-General from a pool of available former Appellate Body judges. The arrangement further specifies that the arbitration be governed by the provisions of the DSU and other rules and procedures applicable to WTO Appellate Review, and that a single arbitration panel should be formed to hear appeals filed by other WTO members on the same matter. Finally, the EU-Canada appeal arbitration procedure applies only if, and so long as, the WTO Appellate Body is unable to hear appeals.

The EU and Canada’s preferred course would be to unblock the WTO Appellate Body selection process. Work on WTO reforms to this end is ongoing. Reform leading to the re-establishment of the dispute settlement system remains critical in light of the fact that the U.S. might boycott any Article 25 DSU arbitration procedure. Furthermore, buy-in to the EU-Canada approach by other WTO members is uncertain. By activating the provision in Article 25 DSU, the EU and Canada nevertheless offer a way for WTO members to work around the impasse over WTO Appellate Body nominations. The two countries’ interim appeal arbitration arrangement can serve as template for similar arrangements, including a plurilateral arbitration agreement, should the WTO’s Appellate Body’s seats become vacant later this year.