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

To Tariff or Not to Tariff – That Is The Question!

Posted in Aerospace & Defence, Agriculture, Border Security, Buy America, Controlled Goods Program, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Government Procurement, Legal Developments, NAFTA, Trade Agreeements, Trade Remedies

In the current tit for tat environment that overhangs international trade, below is an update regarding the 232 tariffs on steel and aluminum, the 301 tariffs related to China’s intellectual property rights and other business practices, and the 232 tariffs threatened on automobiles and parts.

Steel and Aluminum Tariffs:

As everyone by now knows, effective March 23, 2018, the U.S. imposed a 25% tariff on selected steel products and a 10% tariff on selected aluminum products.  The basis for this action was a finding by the Dept. of Commerce that foreign competition had essentially undermined U.S. steel and aluminum production capabilities and so triggered national security concerns.  In this context national security equates to economic security.  The shorthand reference in this context is 232, the section of the law -The Trade Expansion Act of 1962 – under which the Administration acted.

Customs and Border Protection clarified the affected products:

(1) “Aluminum” products are defined in the Harmonized Tariff Schedule (HTS) as: (a) unwrought aluminum (HTS 7601); (b) aluminum bars, rods, and profiles (HTS 7604); (c) aluminum wire (HTS 7605); (d) aluminum plates, sheets, strips, and foil (flat rolled products) (HTS 7606 and 7607); (e) aluminum tubes and pipes and tube and pipe fitting (HTS 7608 and 7609); and (f) aluminum castings and forgings (HTS 7616.99.51.60 and 7616.99.51.70), including any subsequent revisions to these HTS classifications.

(2)  “Steel” products are defined in the HTS as: (i) 7206.10 through 7216.50, (ii) 7216.99 through 7301.10, (iii) 7302.10, (iv) 7302.40 through 7302.90, and (v) 7304.10 through 7306.90, including any subsequent revisions to these HTS classifications.

Initially, certain traditional U.S. trading partners were exempted, but then not. South Korea reached agreement with the U.S. to revise the free trade agreement between the parties, and so as of May 1, 2018, the affected steel products from South Korea are subject to an agreed upon quota limit, but not the 25% steel tariffs.  The aluminum tariff remains in place.

Regarding steel and aluminum products from Argentina, Australia and Brazil, in the Presidential Proclamations Adjusting Imports of Steel and Aluminum issued on May 31, 2018, the successful conclusion of negotiations with these countries was announced and quotas imposed accordingly.

At the same time, our trading partners have been busy. Perhaps not surprisingly, China was the first to act. On March 29, 2018, it published a list of products on which retaliation would be taken against the U.S.’ 232 actions.  China’s World Trade Organization (“WTO”) complaint can be found here: China WTO Complaint, and lists the products on which retaliation was immediately imposed.

Next came India which filed at the WTO on May 18, 2018, see India WTO Complaint. The list of products on which retaliation is being taken was provided by way of a revision filed on June 13, 2018 and can be found here: India Product List. India first said retaliation would occur within 30 days and in the subsequent product list filing, the retaliation date was stated as May 18, 2018.

The European Union filed its own WTO complaint with a corresponding list of products on which retaliation would be taken, see EU WTO Complaint, starting on June 22, 2018.

The third country to file on May 18, 2018 was Russia. Its WTO complaint can be found here: Russia WTO Complaint, but no specific products are listed, only the promise that more details will follow.  In terms of when retaliation takes effect, Russia said within 30 days of its filing.

Turkey filed next on May 22, 2018, see Turkey WTO Complaint, and included its own list of products on which retaliation was to be applied effective June 21, 2018.

Japan also filed a WTO complaint on May 22, 2018, Japan WTO Complaint, which was supplemented on June 20, 2018, Japan WTO Supplement, but neither filing includes specifics about possible products.  Retaliation was to take effect within 30 days.

Finally, Norway has filed its own action to seek consultations with the US over the 232 tariffs, see Norway WTO Consultation Request. Consultations are the first step in the WTO process, and occur prior to filing a complaint. Many U.S. trading partners indicated they have been rebuffed when attempting consultations, so odds are that Norway’s complaint will soon be filed.

As to our NAFTA partners, Canada published a list of products on which retaliation will be imposed effective July 1, 2017.  That list can be found here: Canada 232 Retaliation Lists with Table 1 products subject to a 25% surcharge. While the products listed on Tables 2 and 3 are subject to a 10% surcharge. Mexico published its own list of products on which retaliation is taken effective June 5, 2018: Mexico Retaliation Notice.

China and 301:

In much the same way 232 laid the foundation for the U.S. to impose the steel and aluminum tariffs, 301 is another provision of another trade act which permits corrective action against U.S. trading partners, this time under the Trade Act of 1974. In this context, the culprit is China and its practices regarding intellectual property rights and other business actions, as has been widely reported.

Based on Congressional mandate, the U.S. Trade Representative (“USTR”) conducts regular reviews of the state of intellectual property rights throughout the world, and, in the past, typically found China’s practices to be troublesome and nothing more, but the Trump Administration changed policy and decided that punitive tariffs were in order.  The imposition of a 25% tariff on selected Chinese goods was announced on June 15, 2018.  This action followed the publication by USTR in early April on which retaliation was proposed.  The end result is that two lists were published in June when the final decision was announced.  The press release itself can be found here: USTR Press Release re China 301 Tariffs.  List 1 is published here: USTR China List 1, and List 2 here: USTR China List 2.  For products found on List 1, the 25% tariff takes effect on July 6, 2018.  For the products on List 2, since they are different from those originally mentioned, they will undergo notice and comment.  The relevant dates are as follows:

◄     June 29, 2018: Due date for filing requests to appear and a summary of expected testimony at the public hearing and for filing pre-hearing submissions.

◄     July 20, 2018: Due date for submission of written comments.

◄     July 24, 2018: The Section 301 Committee will convene a public hearing in the main hearing room of the U.S. International Trade Commission, 500 E Street SW Washington, DC 20436 beginning at 9:30 a.m.

◄     July 31, 2018: Due date for submission of post-hearing rebuttal comments.

If your products are on List 2, now is the time to submit comment about why your products are unique, cannot be found in the U.S. or cannot be found at a reasonable cost or in adequate quantities in the U.S.

Not surprisingly, almost immediately, China announced it would retaliate, see China 301 Retaliation Notice.  Schedule 1 can be found here – China 301 Retaliation Schedule 1  and, effective July 6, 2018, China’s 25% tariff takes effect.  Schedule 2 consists of products on which official action is intended but not yet taken, see China 301 Retaliation Schedule 2.

In response, on June 18, 2018, President Trump announced he directed USTR to identify $200 billion worth of Chinese goods which are to be subject to an additional 10% tariff.  See Trade With China Statement. The general consensus is the amount of trade with China does not present $200 billion in additional products on which to impose tariffs. So, how this will be implemented by the U.S. remains unclear.  Similarly, the expectation is China will find ways in addition to increased tariffs to make life difficult for American companies, such as delaying visas for business travelers,  increasing inspections of and delaying goods arriving at the borders, slowing down the granting of permits and licenses, raising new and different objections to new businesses where Americans are owners, enhancing its protective measures over key/sensitive industries, and other more subtle means to make it difficult/impossible for Americans to do business in China.

232 & Automobiles/Parts:

The third category of additional tariffs is expected to come from this review which was announced on May 23, 2018. Like the steel and aluminum tariff action, the auto and auto parts action is framed in the context of the decline in the production of autos and auto parts equates to a threat to U.S. economic security, and so national security.  The public hearing is scheduled to be held on July 19 and 20, 2018. It is expected that once the process is completed, the findings will support imposition of additional tariffs on these products, too.

The European Union 232 steel and aluminum retaliatory tariffs just took effect. Immediately President Trump took to Twitter, continued his attacks on the EU’s trading framework, and mentioned a 20% tariff to be imposed by the U.S. on European-made vehicles.   Is there really any doubt as to how the auto and auto parts 232 investigation will come out?   President Trump went on to say that European automakers should build their cars in the U.S., see Tweet re EU Tariffs. Perhaps someone in the Administration could point out many of the European auto makers already build many of their models in the U.S.  Interestingly, so do many of the Japanese auto makers. Are they next?  The only group that seems to be safe is the Korean auto makers, and then only because renegotiations regarding the Korea-U.S. Free Trade Agreement were recently concluded.