Last April, the United States Trade Representative (“USTR”) initiated an investigation to enforce U.S. rights stemming from a World Trade Organization (“WTO”) ruling concerning the European Union’s (“EU”) provision of illegal subsidies on the manufacture of large civil aircraft.

In the notice initiating that investigation, USTR proposed imposing additional ad valorem duties of up to 100 percent on certain imports from the EU.  USTR also provided a list of proposed tariff headings covering an estimated $21 billion in trade value that might be subject to increased duties.

In May, USTR solicited comments and held a hearing concerning the list of products to be subject to retaliatory duties and the level of duties to be applied, among other issues.  A number of commenters urged USTR to consider retaliatory duties on additional products not included on the April 12 list.

Pursuant to these comments, USTR has proposed a second list of products covering an estimated trade value of $4 billion. The new list covers a variety of food items, including meats, cheeses, olives, fruits, coffee, pasta, waffles, and whiskey.  It also covers certain chemicals, including ammonia, urea, as well as metals, including ferrovandium, cast iron pipes and tubes, copper and copper based alloys.

USTR is again seeking public comment concerning the new list of products, the level of ad valorem duties that should be applied, and whether duties on products covered by the new list might have an adverse effect upon U.S. stakeholders.  The notice, which will be published in the Federal Register in the coming days, provides the following deadlines:

  • Requests to appear at an August 5, 2019 public hearing, as well as a summary of the testimony must be submitted by July 24, 2019;
  • Written comments are due on August 5, 2019;
  • The public hearing will be held on August 5, 2019 at U.S. International Trade Commission in Washington, DC; and
  • Post-hearing rebuttal comments are due on August 12, 2019.

Please contact the Kelley Drye team if your company requires assistance in participating in these proceedings.

Last June, pursuant to Section 301 of the Trade Act of 1974, President Trump announced the imposition of a tariff of 25 percent on certain imported goods from China (valued at $34 billion) in response to China’s unfair intellectual property and market access practices.  The Administration subsequently imposed tariffs on two more groups of Chinese imports – one valued at $16 billion (effective August 23, 2018) and one valued at $200 billion (effective September 24, 2018).  These tariff tranches are generally referred to as Lists 1, 2, and 3, respectively.

Section 301 tariffs on List 3 originally went into effect in September 2018 at a level of 10%.  On March 10, 2019, the List 3 tariffs increased to 25%.  That increase triggered an exclusion process, which opened June 30, 2019.  The exclusion process, administered by the Office of the U.S. Trade Representative (“USTR”), will be similar to the exclusion request procedures implemented with respect to tariffs on List 1 and List 2 imports.  Requests for a Section 301 tariff exclusion for a particular imported good from China may be submitted any time through September 30, 2019.  Interested parties may object to the request within 14 days.  The original requesting party may then submit a reply 7 days thereafter.  USTR will evaluate each exclusion request based on several considerations, including whether the product is only available from China; whether a comparable product is available in the United States or from a third country; whether the party requesting the exclusion has tried to source the product from the United States or a third country; whether the imposition of the Section 301 tariff will cause “severe economic harm” to the party requesting the exclusion; and whether the product is strategically important to China.

On May 13, 2019, the Administration announced plans to impose Section 301 tariffs on the remaining Chinese imports, valued at $300 billion (“List 4”).  USTR held public hearings on the proposed list of covered goods in mid-June.  On June 29, 2019, however, President Trump announced that, as the result of negotiations with President Xi Jinping of China, the imposition of tariffs on List 4 goods will be halted for now.

If you watched the first Democratic Presidential candidates debate for a discussion of the candidates’ positions on trade, you are likely to be disappointed. The differences among the Democratic candidates and between them and President Trump will undoubtedly emerge as the campaign proceeds, but the first round of debates shed little light on their positions.

The first night’s debate lacked any questions on trade by the moderators, but a few of the candidates mentioned “China” when asked about the largest geopolitical threat facing the United States. Congressman Tim Ryan (OH) was the most explicit in his remarks singling out China as an economic threat. He and several other candidates talked about manufacturing jobs, but there was little in the way of connecting trade and jobs.

On the second night, moderator Lester Holt of NBC asked a question about trade, but only three candidates had a chance to answer before the debate was halted for a break.

Senator Bennet of Colorado said that China is a big problem, but argued that  the best way to deal with China was to unite with our allies. Andrew Yang focused on China’s intellectual property theft, but said that imposing tariffs to address the Chinese behavior is a mistake. Mayor Pete Buttigieg stated that the Chinese government is using technology in the pursuit of authoritarianism. He mentioned as well that the Chinese are trying to dominate certain technologies. That said, he criticized the use of tariffs, which he referred to as a tax, and he said the tariffs have hurt farmers.

Missing from the first two nights were comments by the candidates leading in the polls. At some point in the campaign, perhaps in the next debate, former Vice President Biden and the other candidates will engage in a discussion of the trade policies of the Obama Administration, which proved to be somewhat sensitive for former Secretary of State Hilary Clinton when she was campaigning against candidate Trump. By way of background, in the 2008 Democratic primary campaigns, then-candidate Obama built up a lead with wins in the early primary states. When the campaign moved to the Midwest industrial states, then-candidate Clinton staked out a more hard-line trade policy that contrasted with the more free-trade policies of Sen. Obama. In doing so, she, her approach was also a contrast with President Clinton’s free trade actions, including NAFTA. Ultimately, Mr. Obama moved a little closer to former Sen. Clinton’s positions and went on to win the presidency. Notably, trade was not a particularly contentious issue in the campaign, as former Senator McCain, the Republican nominee was more free trade oriented than Sen. Obama. By the time of the 2016 campaign, however, trade was front and center. The Republican nominee, Mr. Trump, hammered former Secretary Clinton for referring to the Transpacific Partnership Agreement as the “Gold Standard” for trade agreements and being weak on trade generally. While Secretary Clinton tried to back away from that early support for the TPP, it was an issue that Mr. Trump emphasized, particularly in the Midwest industrial states, and proved costly there. If former Vice-President Biden is the Democratic nominee, President Trump will surely be raising the TPP issue as well as the other policies of the Obama Administration. As mentioned, it is likely that the debate over those policies will begin among the Democrats first. It will be a delicate issue as Democrats do not want to be seen as criticizing the Obama Administration, but do not want to give President Trump any openings.

The trade debate is unlikely to be boring–or largely absent, as it was for the first debates.

Results of the European elections held in the UK on 23 May resulted in a significant defeat for the ruling Conservative party and a win for the Brexit Party, a single issue political group seeking for the UK to withdraw from the European Union. Several contenders, including former Foreign Secretary Boris Johnson, are taking a hard-line approach to Brexit and have pledged that under their leadership the UK will leave the EU with or without a deal on Brexit day. Other candidates, such as Environment Secretary Michael Gove and Home Secretary Sajid Javid, promise to unite Brexiteers and Remainers and “deliver Brexit”. Whomever succeeds May will inherit a daunting task. For business, the latest developments mean prolonged uncertainty and an increased fear of an abrupt departure from the EU with trade on World Trade Organization terms.

In an attempt to create a majority in the UK Parliament to ratify the withdrawal agreement she negotiated with the EU, Prime Minister May intended to made certain concessions. Among them was the idea of negotiating a new and separate customs union with the EU that would take effect when the UK is no longer part of the EU internal market. The Brexit Party rejects this proposal and it may not be tenable for the next Conservative Party leader. Nevertheless, pressure to avoid a hemorrhaging hard Brexit, may yet result in further consideration of a separate customs union with the EU. It is useful then to consider what a customs union without single market access and EU membership might look like and how it could affect business.

Continue Reading Bespoke UK-EU Customs Union: Still a Viable Option?

On Friday, May 17th, the Trump Administration announced that it has reached a deal with Canada and Mexico to eliminate national security-focused Section 232 tariffs on steel and aluminum (at 25 percent and 10 percent, respectively) from Canada and Mexico.  According to a joint statement by the United States and Canada, US. tariffs are to be lifted “no later than two days” from today’s announcement.  In return, Canada has agreed to terminate all pending World Trade Organization litigation related to the Section 232 tariffs, and to eliminate Canadian tariffs imposed in retaliation for the U.S. Section 232 measures.

The deal does not impose quotas – which the United States had sought – but does requires the parties to develop and implement surge-monitoring procedures.  In the case of a surge “beyond historic volumes of trade over a period of time,” the exporting country faces the risk of reimposed tariffs.  In monitoring surges, however, steel that is “melted and poured in North America” may be separately counted.

The deal also requires Canada and Mexico to adopt anti-circumvention enforcement measures to avoid transshipment of non-Canadian and non-Mexican steel and aluminum across their borders.

Eliminating the Section 232 tariffs for Canada and Mexico removes a major hurdle to Congressional approval of the U.S.-Mexico-Canada Agreement (USMCA).  Senator Grassley (R-IA), chairman of the Senate Finance Committee (with jurisdiction over international trade issues), has repeatedly tied ratification of USMCA to lifting the tariffs for Canada and Mexico.

 

On Friday, May 17, President Donald J. Trump issued a proclamation directing the United States Trade Representative (USTR) to negotiate trade agreements to address the national security threat posed by imports of foreign automobiles and certain automotive parts. The proclamation provides for 180 days of negotiations, delaying the decision on whether to impose import restrictions until November 13, 2019.

The announcement comes in response to a Department of Commerce investigation initiated a year ago under Section 232 of the Trade Expansion Act of 1962. The Department submitted its statutorily-required report to the President on February 17, 2019, concluding that imports of automobiles and certain automobile parts threaten to impair the national security of the United States. Specifically, the Department highlighted the importance of domestic R&D expenditures and innovation in ensuring “long-term automotive technology superiority” that is critical to the defense industry.

The President’s proclamation highlighted a near-doubling of automobile imports into the United States from 1985 to 2017 and the declining share of the U.S. automobile market held by American-owned producers during the same time period (now 22% vs. 67% in 1985). Additionally, the proclamation cites the difficulty of U.S. producers to export as a result of protected foreign markets – specifically in the European Union and Japan.

In directing the trade negotiations, the proclamation specifically mentions the European Union, Japan and “any other country the Trade Representative deems appropriate.” The President highlighted the potential benefits of the renegotiated United States-Korea agreement and the new United States-Mexico-Canada Agreement (USMCA) in addressing the national security threat.

Under the statute, a decision was required by the President within 90 days of receiving the Department of Commerce report. The decision to enter into trade negotiations was one option.  Alternatively, in concurring with the Department’s findings, the President could have announced more immediate action to adjust imports (e.g., tariffs or quotas), or could have asked for additional analysis or review.

If agreements are not reached by November 13, 2019, the President will determine whether and what further action needs to be taken to address the national security threat.

 

 

 

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.