Canada-U.S. Blog Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Knock, Knock: The Tariffs Are Coming! The Tariffs Are Coming!

Posted in Aerospace & Defence, Agriculture, Anti-Trust/Competition Law, Antidumping, Border Security, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Government Procurement, Legal Developments, Politics, Trade Agreeements, Trade Remedies, World Trade Organization

Originally published by the Journal of Commerce in March 2018

As has been widely reported, on March 8, 2018, President Trump signed one Presidential Proclamations imposing a 25% additional tariff on defined steel products, and a second one imposing an additional 10% tariff on defined aluminum products.  The only countries exempted from the outset are Canada and Mexico, but that exemption may not be permanent.   These safeguards take effect on any entries filed on or after 12:01 a.m. on March 23, 2018.  So, what is happening in the meantime?

We should start with the relevant procedures for American companies to seek exclusion are to be published no later than March 19, 2018.  Do not expect much sympathy to any such requests, given the current climate.

As of this writing, we are days removed from signature, and so far, various countries and trading blocs are holding their powder in terms of retaliatory action.  Both Proclamations acknowledge a “shared concern about global excess capacity” and invited any “country with which [the U.S. has] a security relationship … to discuss … alternative ways to address the threatened impairment of the national security caused by the imports from that country.” As a result of those negotiations, modifications to the Proclamations may result. Regarding Canada and Mexico, the Proclamations state that “ongoing discussions”  are the desired form of action, but also carry the caveat that both Canada and Mexico are expected to “take action to prevent transshipment.”

In the meantime, negotiations between the U.S. and its trading partners are running hot and heavy, but not a peep from China.  When one looks at worldwide steel production, a chart published by CNN Money on March 2, 2018 clarifies that China accounts for 49% of worldwide steel production. See http://money.cnn.com/2018/03/02/news/economy/steel-industry-statistics-us-china-canada/index.html#.  That same article goes on to state that China ranks fifth in terms of exporters of steel to the U.S., but, of course, China’s exports to the U.S. have been dampened by antidumping and countervailing duties for some time.  Providing contradictory information, a recent New York Times article does not even acknowledge China as a major exporter to the U.S., instead lumping it in the “Rest of the world” category. See https://www.nytimes.com/interactive/2018/03/06/business/china-tariffs.html.

Almost overnight,  it was reported that Australia was negotiating with the U.S. to be excluded. Now,  there is coverage in the general press about the EU and Japan agreeing with the U.S. on new steps to fight overcapacity, but no clarity as to the grounds for exclusion.  The only conditions published call for stronger rules on industrial subsidies, strengthening of notification requirements in the WTO and intensifying information-sharing on trade-distorting practices.  On a broader front, there was also reference to coordinating more closely with international fora, in particular the G7, G20 and the OECD, and on sectoral initiatives such as the Global Steel Forum.

To be clear, the steel products subject to the 25% safeguard are those which are classified under HTSUS 7206.10 through 7216.50 (including ingots, bars, rods and angles), 7216.99 through 7301.10 (including bars, rods, wire, ingots, and sheet piling), 7302.10 (rails),  7302.40 through 7302.90 (including plates and sleepers), and 7304.10 through 7306.90 (including tubes, pipes and hollow profiles). Aluminum products are defined as unwrought aluminum (HTS 7601); aluminum bars, rods, and profiles (HTS 7604); aluminum wire (HTS 7605); aluminum plate, sheet, strip and foil (flat rolled products) (HTS 7606 and 7606); aluminum tubes and pipes and tube and pipe fittings (HTS 7608 and 7609); and aluminum castings and forgings (HTS 7616.99.5160 and 7616.99.51.70) .

The stated reason supporting these safeguards is the “failure of countries to agree on measures to reduce global excess capacity [and] the continued high level of imports since the beginning of the year.”  The national security ground is the weakening of the U.S.’ “internal economy and the shrinking of its ability to meet national security production requirements in the case of a national emergency”, citing to 19 U.S.C. 1862(d) which provides, in pertinent part: “[i]n the administration of this section, the Secretary and the President shall further recognize the close relation of the economic welfare of the Nation to our national security, and shall take into consideration the impact of foreign competition on the economic welfare of individual domestic industries; …”

There is every reason to think that negotiations will continue with a multitude of countries. It might even be reasonable to expect an agreement to be reached with at least the FVEY or Five Eyes countries, meaning between the U.S. and Canada, New Zealand, Australia and the United Kingdom. There are long standing intelligence relationships between these countries which led to the FVEY acronym.  Japan certainly seems to have reached such an agreement.  The EU and Japan agreements as announced are remarkably short on specifics that would appear to directly enhance U.S. economic security. The question is will any other countries be successful?  Equally unclear, what does “alternative ways to address the threatened impairment of the national security caused by the imports from that country” mean? The political leaders of Japan and the EU are consistently stating there is no clear direction or explanation from Administration officials.

The general press is handicapping the situation as if the EU retaliates, it will be against Harley Davidson,  Kentucky bourbon and Levi Strauss jeans, to name a few prominent brands, which happen to operate in states from which prominent Republicans were elected. Similarly, the Chinese are rumored to be ready to retaliate against soybeans and other agricultural products. None of this should be surprising as political leaders in other countries understand how the American political system works.  There should also be no surprise about how the Trump Administration views the world.  In his last stint in private practice, U.S. Trade Representative Robert Lighthizer was a trade remedies lawyer, meaning he pursued antidumping and countervailing duty cases on behalf of American companies. Coming from the same perspective is Secretary of Commerce Wilbur Ross. Now that Gary Cohn, Mr. Trump’s top economic advisor, has resigned, the globalists have lost their leading voice.

The stated reason for the imposition of these safeguards is national security which is presented as equating to economic security, while at the same time raising the point that steel and aluminum are needed for military preparedness.  So, that being the case, when will this Administration address the remarkable lack of American flag ocean-going carriers and the threat that poses in time of national emergency?