On May 13, the Trump administration announced plans to begin the process of placing an additional ad valorem duty of up to 25 percent on a fourth tranche of Chinese imports, valued at approximately $300 billion. Combined with three previous rounds of tariffs, the new measures, if implemented, would result in U.S. tariffs on virtually all imports from China.

The Office of the United States Trade Representative (USTR) released a draft notice and proposed tariff list (subsequently published in the Federal Register on May 17) outlining a process for public comment on its latest tariff proposal. The proposed list covers a wide range of products, from food and agriculture to books and electronics to clothing and footwear – but excludes pharmaceuticals and certain related inputs, select medical goods, rare earth materials, and critical minerals. Additionally, USTR indicated that product exclusions granted on prior tranches will not be affected

As with previous tranches, USTR is soliciting written comments and is planning a public hearing for those wishing to provide feedback on any of the potential covered products. The hearing is scheduled for June 17, 2019.

Key dates include:

  • June 10, 2019: Due date for filing requests to appear and a summary of expected testimony at the public hearing
  • June 17, 2019: Due date for submission of written comments
  • June 17, 2019: The Section 301 Committee will convene a public hearing; as with previous tranches, the hearing could span several days
  • Seven days after the last day of the public hearing: Due date for submission of post-hearing rebuttal comments

In previous rounds, USTR has finalized its tariff lists within approximately one month of its public hearings, meaning any additional tariffs are unlikely before July. High-level trade negotiations between the United States and China continue – despite last week’s tariff rate increase (see here) and this week’s proposal – and President Trump has said he will meet with Chinese President Xi Jinping at the upcoming G20 Summit in Japan (June 28-29).

The proposed tariffs are part of the Trump administration’s response to USTR’s investigation under Section 301(b)(1) of the Trade Act of 1974 regarding China’s acts, policies and practices related to intellectual property and forced technology transfers and come more than five months after Presidents Trump and Xi announced a trade “truce” to work toward a comprehensive agreement. The administration has cited China’s backtracking from previously agreed-upon commitments for its latest tariff actions. As mentioned, the most recent announcement follows prior USTR action last year on a combined $250 billion worth of Chinese imports.

Effective May 10, 2019 importations of merchandise covered under the Section 301 third tranche, manufactured in China and entered into the U.S., are subject to the increase in additional duties from 10 to 25%.  However, according to U.S. Customs and Border Protection updated guidance, the increased duties of 25% will not apply to goods a) exported from China prior to May 10th and b) entered into the U.S. prior to June 1, 2019.  Note that both requirements must be present to secure the earlier additional duty rate of 10%.

All merchandise entered after June 1st will be subject to the 25% rate.

The U.S. Trade Representative also issued a Notice modifying the implementing instructions regarding merchandise in foreign trade zones.  According to the May 10th Notice, merchandise subject to the Section 301 third tranche and admitted into a foreign trade zone in “privileged foreign” status will retain that status and will be subject, at the time of entry for consumption (i.e. entered into the commerce of the U.S.) to the additional duty rate that was in effect at the time of FTZ admission of the goods.  Therefore, merchandise entered into a foreign trade zone as privileged foreign status prior to May 10th will be locked into the 10% rate.

On May 2, the Trump Administration ceased the suspension of Title III of the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act (“Helms-Burton Act”), effectively authorizing U.S. nationals to bring claims regarding property expropriated by the Cuban government after the communist revolution.  Although in force since 1996, previous administrations had waived Title III.  Enforcement of Title III is a significant shift in U.S. policy toward Cuba, and has already resulted in new claims being brought under the statute.

The enforcement of Title III has created significant potential liability for entities, both U.S. and foreign, that deal with property in Cuba.  Title III creates a civil cause of action against any individual or entity that “traffics” in property expropriated by the Cuban government after January 1, 1959.  The statute defines “ trafficking” to include direct dealings in the property, including by selling or transferring the property, but also to indirect benefits derived from the property, such as engaging in business activities that use or otherwise benefit from the confiscated property.  Therefore, it is theoretically possible that a company profiting from business with Cuba, even if that business primarily occurs outside of Cuba, could be vulnerable to a claim under Title III.  Although most of the public statements regarding Title III focused on more direct cases of expropriation, the breadth of Title III’s language, along with its lack of precedent caused by its suspension, it is difficult to predict how courts may interpret and apply Title III.

Practical considerations add to the complications created by the potentially expansive and unpredictable jurisdiction.  Specifically, many non-U.S. countries have engaged in significant Cuba-related commerce since 1959, and entities from those countries are now vulnerable to Title III claims.  The EU has already suggested that it could retaliate against Title III judgments against its entities by invoking its “blocking statute,” which both prohibits EU compliance with extraterritorial U.S. economic sanctions, and allows EU entities to recover any damages suffered based on U.S. enforcement of those sanctions.  Monitoring how U.S. courts adjudicate these claims – and how the EU, and other jurisdictions with blocking statutes react – will help calibrate risk created by the enforcement of Title III.

On Sunday, May 5, U.S. President Donald Trump tweeted that the current 10% tariff on $200 billion in Chinese imports to the United States would increase to 25% on Friday, May 10. On Monday, United States Trade Representative (USTR) Robert Lighthizer confirmed the administration’s plans, saying the tariff rate increase would take effect at 12:01 a.m. Friday.

Additionally, President Trump tweeted on Sunday that the remaining $325 billion in Chinese imports not currently subject to Section 301 tariffs would be hit with a 25% tariff “shortly.” Combined, the two actions would subject virtually all Chinese imports to the United States to a 25% tariff.

The President’s weekend announcement followed last week’s visit to Beijing by Treasury Secretary Steven Mnuchin and Ambassador Lighthizer. A Chinese delegation led by Vice Premier Liu He was scheduled to travel to Washington this week, for what many thought would be a final round of negotiations ahead of a U.S.-China trade deal. Currently, meetings remain scheduled for Thursday and Friday, although there has been speculation about their status following the President’s tweets (e.g., it is uncertain whether Liu He will still lead the delegation).

U.S. officials have indicated that the two nations have made substantial progress since the trade truce and tariff freeze announced by President Trump and Chinese President Xi Jinping on December 1, 2018. In recent days, however, the Administration has been frustrated by China’s apparent back-pedaling on previously agreed-upon commitments as negotiations get more specific ahead of a final agreement.

Already, $50 billion in Chinese imports are subject to a 25% tariff under the administration’s actions pursuant to its Section 301 Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation. President Trump has twice delayed previously-scheduled increases to 25% for the $200 billion in imports now subject to a 10% tariff.

Whether enough progress can be made this week to hold off the President’s threatened tariff increase remains to be seen.

 

On April 25, 2019, the Office of the U.S. Trade Representative (USTR) issued its 2019 “Special 301 Report” on inadequate protection and enforcement of intellectual property rights by the United States’ trading partners.  USTR has issued a Special 301 Report each year since 1989 pursuant to section 182 of the Trade Act of 1974.  The Special 301 Report reflects the culmination of a public comment and hearing process allowing all interested parties – domestic businesses and industries, civil society groups, trade associations, think tanks, and other stakeholders – to identify foreign countries and expose the laws, policies, and practices that fail to provide adequate and effective IP protection and enforcement for U.S. inventors, creators, brands, manufacturers, and service providers.  The Special 301 Report and process provides an important opportunity for IP-intensive U.S. industries to highlight adverse cross-border IP rights issues and help shape the Administration’s priorities as it engages with trading partners on IP and related market access issues.

Countries that are identified as falling short with respect to protection, enforcement, and market access for IP-intensive industries are listed in the Special 301 Report in one of three ways.  Countries with the most egregious acts, policies, or practices that have the greatest adverse impact on U.S. companies and products are listed Priority Foreign Countries (“PFC”).  PFCs are subject to investigation and potential trade sanctions such as tariffs, quotas, or other measures.  A country may not be listed as a PFC under the law if it is entering into good faith negotiations or making significant progress toward providing and enforcing IP rights.  Notably, USTR may designate a country as a PFC even if Continue Reading USTR Releases Annual Special 301 Intellectual Property Report

The European Union has just released a list of U.S. products for retaliatory tariffs following the recent announcement by the U.S. of its intent to levy additional duties on European products. The EU list covers nearly $23 billion worth of U.S. goods including tractors, luggage, frozen fish, fruit, wine, ketchup, nuts, and orange juice.  The proposed list is available for public comment until May 31, 2019.

The U.S. and EU retaliatory measures follow the long running dispute over the respective subsidies to Boeing and Airbus.  Both parties are awaiting WTO decisions on the dispute settlement proceedings before the measures will go into effect and will determine the permissible level of damages.   The U.S. valuation decision is expected this summer and the EU decision by May 2020.  The U.S. list is expected to cover $11 billion worth of goods.

These recent retaliatory tariffs emerge amid growing trade tensions between the two blocks as they initiate negotiations for a transatlantic trade agreement.  However, EU Trade Commissioner Cecilia Malmstrom stated that “I still believe that dialogue is what should prevail between important partners such as the EU and the US….”

On April 15, 2019, the EU agreed to launch trade negotiations with the U.S. on the condition that the U.S. does not impose new tariffs on EU good and that the U.S. agrees to remove existing steel and aluminum tariffs.  The EU has adopted negotiating mandates for the talks, but agricultural products have been excluded. The EU, which considers this issue a red line, stated that “agriculture will certainly not be part of these negotiations.”

That said, with the exception of France (and an abstention from Belgium), the EU Member States expressed their support for a trade agreement with the U.S. Germany, particularly, champions a trade deal, due to its substantial car and car part exports industry. France, on the other hand, opposes negotiations with the U.S. in light of President Donald Trump’s announcement to withdraw the U.S. from the Paris Climate Agreement.

On the U.S. side, Senate Finance Committee Chairman Chuck Grassley (R-Iowa) stated that the U.S. cannot proceed unless agriculture is part of the talks.  Clearly, the situation is fluid and is creating uncertainty for importers of EU products into the U.S. and exporters of U.S. products into the EU.

On 10 April 2019, the European Union granted the United Kingdom a flexible extension, coined a “flextension”, until 31 October.  This additional period of time is intended, to allow the UK to ratify the Brexit Deal, an agreement devised between the EU and the UK for the orderly exit of the UK from the bloc. The Deal includes a transition period, a controversial solution to manage the border between Ireland and Northern Ireland, and provides for such things as citizens’ rights and the legal status of goods in transit at the moment of Brexit. The flextension will end as soon as the Deal is ratified, if it happens before the end of October.  Should the UK Parliament not find a majority to support the Deal, the UK could be forced to seek another extension or risk crashing out of the EU on Halloween.

The so-called “cliff edge” Brexit remains a real possibility considering that the Deal has been rejected by Members of the UK Parliament three times already, and successful cross-party negotiations is not by any means a foregone conclusion.  The UK certainly will continue its no deal preparations, including efforts to strike post-Brexit trade agreements with third countries; to date, the agreements it has secured cover only about 11 per cent of UK trade by value. The UK also could use this time to reconsider its Brexit strategy, which ranges from holding a second referendum to attempting to amend the Political Declaration attached to the Deal which delineates mutual commitments concerning the future UK-EU relationship to abandoning Brexit altogether. Continue Reading What does the Brexit Flextension Mean for Business?

In response to a long running dispute with the European Union (EU) over subsidies to Airbus, the U.S. Trade Representative (USTR) has proposed additional tariffs on certain products of the EU covering approximately $11 billion in trade.  The proposed list covers 317 tariff subheadings and includes fish, cheese, olive oil, wine, leather handbags, textiles, wool sweaters, outerwear, glassware, and table linens. In addition, helicopters and aircraft from four member states, France, Germany, Spain, and the United Kingdom, will also be subject to additional tariffs.

The Trump administration has not yet announced the additional duty rates.  This latest trade action, announced on April 8, 2019, is pursuant to Section 301 of the Trade Act of 1974, the same provision used in 2018 for the 10-25% additional tariffs on $250 billion of Chinese products imported into the U.S.

The administration will be holding a public hearing on the proposed list of products at the International Trade Commission in Washington, DC. on May 15, 2019. Requests to appear must be submitted by May 6, 2019.  Written comments may also be submitted by May 28, 2019.

The trade dispute dates back to a 2004 U.S. challenge in the World Trade Organization (WTO) to EU subsidies of Airbus which had “adverse effects” on the U.S.  According to the USTR, the final list of products will be announced and go into effect this summer once the WTO issues its final findings on the dispute settlement proceedings.  According to the USTR, once in place, the tariffs will be applied until the EU removes the Airbus subsidies.

On Friday, April 5th, a World Trade Organization (WTO) panel issued its decision in a landmark dispute between Russia and Ukraine.  The dispute, Russia – Measures Concerning Traffic In Transit, marks the first time a WTO panel has been tasked with determining whether it has jurisdiction to review actions taken by a WTO Member to protect its own national security interests.

The dispute was brought by Ukraine in September 2016 after Russia imposed various restrictions preventing Ukraine from using Russian road and rail transit to trade goods destined for Kazakhstan, the Kyrgyz Republic, Mongolia, Tajikistan, Turkmenistan, and Uzbekistan.  In defense, Russia claimed that its actions were not subject to WTO review because they constituted actions necessary to protect Russia’s “essential security interests” during an “emergency in international relations” between Russia and Ukraine.  Actions taken by a WTO Member during a war or an emergency in international relations are excepted from WTO review pursuant to Article XXI of the General Agreements on Tariff and Trade 1994 (GATT).  The Trump Administration has cited Article XXI as exempting from WTO jurisdiction its decision to impose duties on imports of steel and aluminum products pursuant to Section 232 of the Trade Expansion Act of 1962 (Section 232).  Continue Reading WTO Panel Issues Landmark Decision Regarding Actions Taken to Protect National Security Interests

On Monday, March 25, the Office of the United States Trade Representative (USTR) granted a second set of exclusions to the first list of Chinese goods subject to a 25% ad valorem duty (84 FR 11152). As part of the Section 301 action on China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation, USTR released the first list of products (Tranche 1) subject to this additional duty on June 20, 2018, totaling $34 billion in Chinese imports. The duty went into effect on July 6, 2018, and the granted exclusions will be applied as of that date and extend for one year after the March 25th publication date.

USTR is reviewing requests on a rolling basis and published the first set of granted exclusions on December 28, 2018 (83 FR 67463). USTR has not issued a publication date for a third round of granted exclusions, however, it will likely be several months before all determinations are made.

Currently, 1,004 exclusion requests have been granted, 5,312 have been denied, and the remaining 4,520 are still under consideration. An exclusion request status report is available on the USTR Section 301 navigation site and is updated on a weekly basis. Requestors should carefully monitor USTR’s updates to determine the status of their exclusion request.  If a request is denied, USTR advises there is still a possibility that the product could qualify for an exclusion if a later filed request covering the same 10-digit HTS provision is granted.  That said, there are a number of instances where USTR granted a specific request and created a new HTS carve-out limited to the scope of products described in the granted request, and denied all other petitions at the 10-digit level.  In such cases, only products meeting the description set forth in the new HTS provision would qualify for the exclusion.

USTR initiated a similar exclusion process for Tranche 2 ($16 billion) on September 18, 2018, which concluded on December 18, 2018. To date, the agency has issued no final determinations on exclusion requests filed for Tranche 2.  USTR has not yet initiated an exclusion process for  products covered by Tranche 3 ($200 billion), which are subject to a 10% ad valorem duty effective as of September 24, 2018.