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.

The Enforce and Protect Act (“EAPA”), signed into law as part of the Trade Facilitation and Trade Enforcement Act of 2015, established procedures for a wide variety of stakeholders to submit allegations of evasion of antidumping and countervailing duties to U.S. Customs and Border Protection (“CBP”).  After several years, it appears this new tool for addressing evasion of duties has started to take off.

CBP’s Trade and Travel Report for Fiscal Year 2018 relates a significant uptick in the agency’s investigative work stemming from EAPA allegations.  In particular, CBP received nearly double the allegations in fiscal year 2018 that it received in fiscal year 2017.  The agency also issued final determinations in 12 investigations, up from only 1 the year before.  Despite the uptick in work, CBP touts having “met every statutory deadline for all EAPA investigations,” even rendering decisions ahead of statutory deadlines in some cases, and proclaims that this process has “proven to be a success{}.”  CBP’s bullish outlook should encourage even more stakeholders to come forward with allegations and to participate in the process. Continue Reading AD/CVD Evasion Enforcement Uptick in 2018

What happens next in British politics could mean a significant shift in the United Kingdom’s trade ties with the United States – but the hurdles are many and the process to reach results could be lengthy. Voting in the Conservative Party leadership contest closes today, with the winner and successor to UK Prime Minister Theresa May to take up position on 24 July. The two Tory leadership rivals, former foreign secretary Boris Johnson and the incumbent foreign secretary Jeremy Hunt, both have been calling to strengthen the U.S.-UK “special relationship” as they vied for the support of 160,000 Conservative Party members. Frontrunner Boris Johnson has pledged to seek an ambitious UK-U.S. trade deal as one of his first acts in office. This would be good news for the more than 40,000 U.S. companies exporting to and operating in the UK, many of which are negatively impacted by uncertainty over Brexit and the possibility of an economic rupture between the UK and the European Union. If – as expected – UK Prime Minister Theresa May hands over the reins to Boris Johnson in two days, a highly topical question will be how his premiership might fare in securing a U.S.-UK trade deal.

On the U.S. side, there is strong political support by the Trump Administration and some Members of Congress for a U.S.-UK trading alliance. Several steps already have been taken to strengthen the Anglo-American trading relationship and mitigate negative impacts of Brexit. In February this year, a U.S.-UK Mutual Recognition Agreement (MRA) was concluded, which rolls over relevant aspects of the existing U.S.-EU MRA, covering electromagnetic compatibility, telecommunication equipment and good manufacturing practice of pharmaceuticals. U.S.-UK agreements on derivatives and insurance also have been agreed. These would take effect immediately after the UK exits the EU in an EU-UK “no deal” Brexit scenario or at the end of a transition period in a “deal” scenario. UK-U.S. preliminary talks on a bilateral free trade agreement (FTA) spanning the last two years, however, have failed to show any meaningful progress and are considered to be deadlocked. Should the UK leave the EU without a deal at the end of October, World Trade Organization (WTO) terms would govern U.S.-UK trade until such time as a trade deal is agreed.

Much hinges on the UK’s post-Brexit trading relationship with the EU, which still remains a priority for the UK. As Boris Johnson pursues hardline rhetoric on Brexit, insisting both that the current EU-UK deal needs to be renegotiated – which EU leaders reject – and that the UK will leave the EU on the scheduled date of 31 October 2019, with or without a deal, it is difficult to predict how the UK-EU trading relationship will unfold in the coming months. Continue Reading Tough Negotiations Ahead on a UK-U.S. Trade Deal

The ongoing WTO aircraft subsidy disputes, resulting in both EU and U.S. retaliatory tariff announcements, and the failing EU-U.S. trade agreement negotiations certainly have strained trade relations. Nevertheless, there appears to be some hope of reaching a trade deal before the end of the European Commission’s term in October. As currently outlined, the trade agreement primarily would seek to reduce tariffs on industrial products and enhance regulatory collaboration. The EU, pressed by Member States such as France, has refused to include agriculture in the deal despite U.S. demands. This, together with the potential U.S. imposition of tariffs on European automotive goods, stalled negotiations. Determined to protect its automobile industry, however, Germany is ready to resume negotiations, at least on the less contentious issues, to potentially reach a deal before November 1. The recent EU agreement to allow for increased U.S. exports of hormone-free beef to the EU perhaps is indicative that the two parties are committed to improving their trade relations.

Should negotiations fail in the short term, however, prospects for the new Commission may be better under the leadership of Ursula von der Leyen. Commission President-elect von der Leyen was elected in a vote in Parliament on 16 July following her nomination by the EU Council. Her next task is to select a team of Commissioners which must be approved by Parliament and the Council. The new European Commission will take office on 1 November 2019.

Commission President-elect von der Leyen is considered a staunch “transatlantist” whose agenda includes crafting a trade agreement with the U.S. Von der Leyen’s Commission will put forward a “strong, open and fair trade” plan and aim to reinforce a “balanced and mutually beneficial trading partnership” with the U.S. Further, von der Leyen has cultivated important relationships with politicians and business leaders in the U.S., which may facilitate trade discussions. A former German Defense Minister, she champions the EU’s development of its own security and defense forces and sharing more of the burden and expenses with the U.S. over NATO. This may bode well for the Trump Administration and heighten EU influence and stature in the U.S.

Von der Leyen’s background, policies and leadership selection of the new Commission may indeed give her leverage to strike a deal with the U.S. and it appears that she will be better positioned than her predecessors to bring a deal to fruition. Undoubtedly, the divergence between EU and U.S. climate policies, her proposed regulation of U.S. tech companies operating in the EU, and conflicting strategies concerning Brexit and Iran, will create some challenges. Nevertheless, improvements in trade relations between the two blocks may be just around the corner and that can only increase the chances of a deal.

On Monday, July 15, President Donald J. Trump signed his latest Executive Order aimed at maximizing the use of American-made goods, products, and materials in federal procurement. Executive Order 13881 directs the Federal Acquisition Regulatory (FAR) Council to consider strengthening standards applied to the 1933 Buy American Act (BAA)[1], which covers direct federal procurement of construction materials and supplies. Monday’s action came on the Presidentially-proclaimed “Made in America Day” and in conjunction with the third annual White House “Made in America Showcase.”

Potential Changes by FAR Council

The new order directs the FAR Council to “consider proposing for notice and public comment” several changes to existing BAA standards:

  • A higher domestic content threshold for federal agency procurements subject to the 1933 BAA. Currently under the BAA, an end product is considered domestic if: (1) it is mined, produced or manufactured in the United States; and (2) the cost of its components mined, produced or manufactured in the United States exceed 50 percent of the cost of all components. President Trump’s new order aims to increase the domestic component content threshold for American-made iron and steel from 50 to 95 percent and the threshold for all other products from 50 to 55 percent (and potentially to as high as 75 percent).
  • A modification to the formula executive agencies must use when determining whether a bid or offered price of materials of domestic origin is unreasonable or inconsistent with the public interest. Currently under the BAA, a domestic bid will not be accepted if the lowest foreign bid is more than 6 percent less expensive than the domestic bid. The President’s order contemplates a differential formula based on 30 percent (for small businesses) or 20 percent (for other than small businesses).

The new order directs the Secretary of Commerce and the Director of the Office of Management and Budget to work with the FAR Council, the Council of Economic Advisers and the Assistant to the President for Trade and Manufacturing Policy to submit a report to the President on other changes to the federal acquisition regulations that could better effectuate the Buy American Act. Among the input solicited by the President is whether to proceed with a graduated domestic content requirement for domestic products and construction materials (other than iron and steel) and the timing for such adjustments.

The existing standards described above were applied to the terms of the BAA via a 1954 Executive Order issued by President Dwight D. Eisenhower and subsequently implemented through the federal acquisition regulations. While Monday’s Executive Order does not immediately amend the domestic component content and unreasonable price differential of the Eisenhower-era executive order, E.O. 10582, it sets the stage for potentially doing so.

Timing for Reforms

The order directs the FAR Council to contemplate, within 180 days, whether to propose regulatory changes to implement the President’s proposed modifications to the BAA standards through notice and comment rulemaking. But the order is deferential to the FAR Council, stopping short of mandating that it proceed with the rulemaking to modify existing Buy American Act regulations and contract clauses.

While the order prescribes the time period during which the FAR Council can contemplate whether to proceed with a rulemaking to implement the President’s recommendations, it does not appear to set deadlines for the publication of a proposed rule or the promulgation of a final rule. If a new rule is adopted, executive agencies would then be responsible for issuing new regulations to ensure that their procurement practices conform to any new standards.

Finally, it should be observed that a number of other federal statutes impact the application of the BAA and the federal acquisition regulations that implement it. For example, certain of these laws currently waive the BAA’s domestic component content requirement for procurements of certain commercially-available items and procurements subject to U.S. trade agreement obligations. Those statutes will remain unchanged in the absence of Congressional action to amend those laws.

Next Steps

Monday’s Executive Order reaffirms President Trump’s commitment to improving and expanding the Buy American rules applicable to taxpayer-financed government procurement. Should the FAR Council proceed with a rulemaking to modify the federal acquisition regulations in accordance with the President’s directives, it would portend the most far reaching changes to the 1933 BAA in its 86 year history.

Manufacturers, federal contractors, subcontractors, suppliers and other interested parties should pay careful consideration to the FAR Council’s deliberations over the next 180 days and be prepared to engage in a notice and comment rulemaking process in anticipation that regulatory changes will be proposed. In light of President Trump’s clear support for Buy American policies, market participants should be prepared for additional presidential actions that could have an impact on capital investment decisions, supply chain management and marketing operations.

Previous Buy America Executive Orders

Monday’s action follows two previous Buy America-specific Executive Orders from the Trump Administration. The President’s April 2017 “Buy American, Hire American” Executive Order (E.O. 13788) was aimed at reducing the use of Buy American waivers by federal agencies. A subsequent order issued in January of this year (E.O. 13858) aimed to encourage federal–assistance recipients (such as state transportation agencies) to apply Buy America requirements on the public works infrastructure projects funded and financed by their federal financial assistance awards.


[1]           The FAR Council consists of the Administrator for Federal Procurement Policy as well as the Secretary of Defense, the Administrator of the National Aeronautics and Space Administration and the Administrator of the General Services Administration.

On July 10, U.S. Trade Representative Robert Lighthizer announced that his office will investigate under Section 301 of the Trade Act of 1974 (“Section 301”) whether France’s new digital tax law unfairly targets American businesses and restricts American commerce.  Section 301 affords the USTR broad authority to investigate and respond to unfair trade practices of foreign countries.  The law was most recently used by the Trump Administration to address Chinese unfair trade practices such as forced technology transfers and inadequate protection of intellectual property.   The USTR’s investigation into France’s digital tax will focus on concerns such as discrimination, retroactivity, and unreasonable tax policy.  The USTR will accept comments and hold a public hearing on August 19 on the topic.

On July 11, France’s Senate approved a 3% tax on companies with annual worldwide digital revenue of at least €750 million, of which at least €25 million is earned in France.  France’s National Assembly passed the bill on July 4 and President Macron is expected to sign the proposed rule into law in the next two weeks.  The tax will be retroactively applied and will impact companies such as Facebook, Google, and Amazon.

Last week, the U.K. Government published an update to its plans to impose a 2% tax on companies that provide social media platforms, search engines, or online marketplaces to British users beginning in 2020.  The planned tax is expected to be discussed in the ongoing trade negotiations between the U.S. and U.K.

The Governments of France and the U.K. face political pressure from the United States ahead of the Group of Seven (“G7”) ministers meeting because of the new tax law and draft legislation.  While the United States announced that it will continue to work towards a multilateral agreement on international tax in a digital economy through the Organization for Economic Cooperation and Development (“OECD”), the process at the OECD will likely take at least 18 months to conclude.

On 28 June 2019, the European Union and the South American customs union Mercosur (Brazil, Argentina, Paraguay, and Uruguay) struck a sweeping trade agreement covering almost 100 billion dollars’ worth of bilateral trade annually. Twenty years in the making, with stop-start trade negotiations having started in 1999, the EU-Mercosur political agreement is considered by the negotiating parties on both sides as a significant achievement. However, the terms of the deal – which have been published in draft individual chapters as both sides undertake a legal review of the text –  have elicited sharp criticism.

The European Commission characterises the accord as its most lucrative to date, saving businesses about 4 billion euros ($4.55 billion) in tariffs on exports, quadruple the amount achieved on its trade deal with Japan. For Mercosur, this would be its first deep trade agreement, which could spur economic growth in the region and strengthen Mercosur’s ability to compete in international markets. The Commission therefore has been quick to defend the deal, highlighting that it includes strong provisions on environmental protection and promotes sustainable development, notably by insisting that both parties maintain commitments and engagement under the Paris climate change agreement. EU Agriculture Commissioner Phil Hogan has been particularly vocal in support of the deal, underscoring that while including some trade-offs, it opens up new markets for EU agricultural producers and protects European food standards. While Irish Prime Minister Leo Varadkar has stated that he would not vote for the deal if it runs contrary to Ireland’s interests, Varadkar recently agreed to Hogan staying on in the next European Commission term, thereby positioning him to continue his strong advocacy in support of the agreement.

EU parliamentarians, several EU Member States and lobby groups, on the other hand, have decried the EU-Mercosur agreement as being detrimental for the environment, food safety and the EU’s agricultural sector. Surrounded by protesting Irish farmers, on 11 July, Continue Reading Challenges ahead for European Commission in pushing through EU-Mercosur trade deal