Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Steel/Aluminum Tariffs Exemptions Clarified

Posted in Aerospace & Defence, Antidumping, Border Security, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Government Procurement, Imports Restrictions, Legal Developments, Trade Agreeements, Trade Remedies

In off the record comments on March 28, 2018, an official of the Dept. of Commerce provided some clarification as to how the product exemption process will work. Of course, the starting point is if your product is subject to the steel or aluminum tariffs and is not from an exempted country, the 25% or 10%, respectively, will have to be paid. After that, things get trickier.

If you decide to seek exemption for your product, the first step obviously is to gather the needed details and file your exemption request. The way the process is intended to work is once the exemption request is uploaded to regulations.gov, the Bureau of Industry and Security (“BIS”)  will review it for completeness. If not complete, the application will be rejected. If complete, it will be officially posted on the regulations.gov website. That date is key. Because, if your exemption request is later granted, while not official until 5 days after it is published, you will be able to seek refunds on any entries filed between the date the exemption request is posted and when it is granted.

There are currently more than 100 exemption requests filed, although it is not clear any of them are officially posted. The aim is to have the review for completeness process concluded in a matter of days, but naturally at the outset, the process is taking longer. To complete the substantive review process and publish a decision, BIS acknowledges its aim remains approximately 90 days.

If an applicant has business sensitive information, one checks the appropriate box at the end of Section 5. As has been made clear in the Federal Register notices, once the exclusion request is officially posted, anyone may file objections within 30 days. There is no rebuttal process provided. As such, applicants would be wise to anticipate the nature of the objections which might be made, but BIS also anticipates the possibility there may be radically different views of the facts in some cases. If that happens, BIS is considering ways to follow-up with the parties to reconcile those differences.

BIS will rely on Commerce internal expertise but also conduct an interagency review, as warranted, for each exclusion application. It hopes to have that process completed in approximately 60 days and then have the remaining 30, of the 90 day anticipated processing time, to complete its actions. After reviewing the application and any objections, if BIS deems it advisable to seek the business proprietary information indicated by the applicant, it will make that request prior to reaching a final decision.

Given the need for Customs and Border Protection to administer any exclusions, if you are either downstream (e.g. an American buyer) or upstream (e.g. also an American buyer but purchasing it to be imported from a foreign country) from the importer, applicants would be wise to partner with importers in making their applications. Box 5.e. does ask: “Provide a detailed explanation as to how U.S. Customs and Border Protection (CBP) will be able to reasonably distinguish the steel product subject to the Exclusion Request at time of entry, without adding undue burden to their current entry system and procedures.” Identifying the importer with the specific goods will go a long way to addressing that question, but certainly is not the only factor to consider. Whether you are upstream or downstream, but are an American entity eligible to request an exclusion, companies should also look at their contracts and other commercial documentation to make sure they include provisions for the parties to cooperate in seeking and administering any exclusion which is sought or granted, and also provides for penalties and recourse in case cooperation is not forthcoming, or the exclusion is not properly administered once granted.

Trade Trifecta!

Posted in Aerospace & Defence, Agriculture, Antidumping, Border Security, Buy America, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Government Procurement, Imports Restrictions, Legal Developments, Trade Agreeements, Trade Remedies, World Trade Organization

Since the original publication of this Alert, South Korea and the U.S. have concluded their negotiations regarding the Korea-U.S. Free Trade Agreement, and, as a result, South Korea has been permanently excluded from the steel and aluminum tariffs.

—————

Some events rather significant to international traders occurred in the last few days. First, on Friday, March 23, 2018, President Trump signed the latest spending bill. It includes a provision to renew Generalized System of Preferences (“GSP”) benefits retroactive to December 31, 2017, when the program last expired. GSP is now authorized through December 31, 2020.

With history as a guide, we should expect Customs and Border Protection to shortly publish a message advising when its programming is updated, the deadline by which to file refunds and similar details. In the past, so long as the entry was filed with an “A” or similar indicator, refunds were routinely issued, but importers would still be wise to make sure their list of eligible entries is current, and then to track their refunds. Since the bill was signed into law on Friday, the deadline to file refund requests will be 180 days later, which works out to September 18, 2018.

Last Thursday, March 22, 2018, President Trump issued two proclamations by which he delayed application of the steel and aluminum tariffs on several major U.S. trading partners. Both Proclamations mention ongoing discussions with Canada, Mexico, Australia, Argentina, South Korea, Brazil and the member countries of the European Union, all of which are exempted from these tariffs through April 30, 2018. The member countries of the EU are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and United Kingdom. Oddly, Japan is not on the list!

On March 22, 2018, President Trump also issued a “Presidential Memorandum on the Actions by the United States Related to the Section 301 Investigation,” a copy can be found here: 301 Memo. In summary, the supporting findings hold that China is pressuring U.S. companies to transfer technology to Chinese entities to the detriment of those U.S. companies. The general press for at least the last 10 years has reported stories about major American companies allowing Chinese officials to review their source code or actually giving the Chinese government a copy of their source code. So, that finding was not unexpected.

The Presidential Memorandum goes on to assert that China uses “licensing procedures” and “other significant restrictions” so as to hamper U.S. companies from conducting business in China. The conclusion is China “supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies.” As a result, China obtains “unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications” which are described as supporting China’s “strategic development goals, including its science and technology advancement, military modernization, and economic development.”

As a result, the U.S. Trade Representative (“USTR”) was instructed to “take all appropriate action under section 301” (19. U.S.C. 2411) to address what is seen as China’s “unreasonable or discriminatory” acts, policies and practices, and which “burden or restrict U.S. commerce.” Specifically mentioned are increased tariffs on goods from China. A list proposed products is to be published within 15 days, meaning no later than April 6, 2018, although USTR indicates it will be published sooner. That list will be subject to notice and comment and consultations with domestic stake holders will also occur.

Additionally, USTR was instructed to initiate consultations under the World Trade Organization (“WTO”) dispute settlement mechanism focused on China’s “discriminatory licensing practices.” If appropriate, this should be done in cooperation with other WTO members “to address China’s unfair trade practices.” A report about progress is due within 60 days, or no later than May 21, 2018. The WTO action has been filed; a copy can be found here: US to China re WTO Consultations.

Finally, the Secretary of the Treasury, in consultation with other Administration officials is to consider changes to U.S. procedures regarding “investment … directed or facilitated by China in industries or technologies deemed important” to the U.S. This means there will be changes to the Committee on Foreign Investment in the U.S. or CFIUS approval process. Here, too, a report is due within 60 days.

China’s Ministry of Commerce issued a response which can be found here: MOFO Tariff List. It states: [t]his list tentatively contains seven categories and 128 tax products. According to the 2017 statistics, it involves the US exports to China of about 3 billion US dollars. The first part covers a total of 120 taxes involving US$977 million in US exports to China, including fresh fruit, dried fruit and nut products, wine, modified ethanol, American ginseng, and seamless steel pipes , and is expected to impose a 15% tariff. The second part covers a total of eight taxes involving US$1.992 billion of US exports to China, including pork and products, recycled aluminum, etc., and a 25% tariff is proposed.”

What is notable about this product list is the most high-profile American products are not on it. The sense is China is waiting to see what is on the USTR product list, and will then take further action. Whether on the next list or any one that follows, soybeans, farm products, aircraft and integrated chips are expected to be subject to retaliation.  Also be on the lookout for two other actions:

1)         Limits by the Chinese government on citizens being permitted to visit the U.S., and

2)         A reduction by China of purchases of U.S. Treasury notes.

Be careful what you wish for – how much more “interesting” can these times get?

New Tariffs : Definition and Exclusion

Posted in Aerospace & Defence, Antidumping, Border Security, Buy America, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, Government Procurement, Imports Restrictions, Legal Developments, Trade Agreeements, Trade Remedies

When President Trump announced the 25% steel and 10% aluminum tariffs on March 8, 2018, he instructed the  Secretary of Commerce to issue regulations explaining how American companies could seek exclusions from those tariffs no later than March 19, 2018, and that deadline has been met.  These new regulations can be found at:  https://www.commerce.gov/sites/commerce.gov/files/federal_register_vol_83_no_53_monday_march_19_2018_12106-12112.pdf

Before we discuss the new regulations, we should start with the data Customs and Border Protection (CBP) released with its programming updates to implement these safeguard tariffs:

The HTS numbers added are:

9903.80.01        STEEL PROD, NOTE 19, EX CA/M               25%

9903.85.01        ALUMINUM PROD, NOTE 19, EX CA/M    10%

with respect to goods entered, or withdrawn from warehouse for consumption, on or after 12:01 a.m. EDT on March 23, 2018.  [The text of Note 19 has yet to be published.] This rate of duty, which is in addition to any other duties, fees, exactions, and charges applicable to such imported steel and aluminum products, and shall apply to imports of steel and aluminum products from all countries except Canada and Mexico.

(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” 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.

Turning now to the exclusion process, we begin with the statement in the Federal Register notice that an exclusion will apply only if the steel or aluminum products are determined “not to be produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality or based upon specific national security considerations.”  In other words, do not expect a lot of requests to be granted.

There is one docket for the steel case (BIS-2018-0006) and another for the aluminum case (BIS-2008-0002).

Any exclusion request must be filed by an individual or organization which uses the steel or aluminum products in its U.S. domestic business activities, such as construction, manufacturing, or supplying steel/aluminum products.   Any individual or organization in the U.S. may file objections, but they will only be considered if the information submitted relates to the basis for the exclusion request, no general objections will be entertained.  Anyone wishing to object must locate the exclusion request and object by adding comments to that original filing.

Exclusion will be approved on a per product basis and be limited to the party seeking the relief. However, Commerce reserves the right to approve a broader application, meaning to additional importers.  Even once an exclusion is approved,  parties may still file objections. Similarly, even if a prior application was rejected, a later exclusion request for the same product is permitted.

15 C.F.R. part 705 has been amended so that Supplement No. 1 addresses steel products and Supplement No. 2 aluminum products.  In each case, the required form can be found on regulations.gov and on the BIS website.  The steel form is here – https://www.bis.doc.gov/index.php/232-steel – and the aluminum case form here – https://www.bis.doc.gov/index.php/232-aluminum.

The Federal Register notice reinforces that all filings for exclusion requests and objections are subject to public inspection and copying, so business proprietary or classified information should be submitted accordingly.

In seeking an exclusion, parties would be wise to first identify the grounds on which they will rely bearing in mind the President found that “steel and aluminum are being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security of the United States and therefore the President is implementing these remedial actions … to protect U.S. national security interests.”

When the exclusion request is prepared, it must include the submitter’s name, date of submission, the grounds for the request, plus specify the business activities in which the requester is engaged, that the party submitting the request is authorized to do so and the 10 digit HTS statistical reporting number.

A separate request is required for steel products with chemistry by percentage breakdown by weight, metallurgical properties, surface quality (e.g., galvanized, coated, etc.)  and distinct critical dimensions (e.g.,  0.25” rebar, 0.5” rebar, 0.5” sheet, or 0.75” sheet) even if covered by a common HTS subheading.  With aluminum products, separate exclusion requests must be submitted for distinct critical dimensions covered by a common HTS statistical reporting number, e.g. 10 mm diameter bar, 15 mm bar, or 20 mm bar.  Separate requests are also required for products falling into more than one HTS subheading.

Exclusion requests are permitted at any time. However, objections must be filed within 30 days of an exclusion request being published.  When filing an objection, the party doing so should clearly identify and provide support for its opposition by responding to the specifics urged in the exclusion request.  There is a 25 page limit. If the submission is incomplete, the exclusion will be denied or the objection not considered.  BIS’ findings will respond to any objections. Any approved exclusion is effective five (5) days after it is published, and typically remains valid for one (1) year.

BIS has indicated that processing of any exclusion request generally will not take more than 90 days, including consideration of any objections and any input needed from other agencies.  The way the Federal Register notice is written, CBP is expected to provide a means (as yet undefined)  by which the importer will be able to reference his exclusion once granted, and that exclusion is expected to be reported at time of entry.

One other major point was emphasized in the Federal Register notice – the procedure by which American companies will be permitted to seek exclusion or object to such requests has nothing to do with the grounds on which the U.S. may grant exclusion to any country.   On that topic, there is lots of speculation, most of which focuses around the following likely factors:

1)         That country has a “security relationship” with the U.S., but “security relationship” remains undefined;

2)         How that country protects its home market from underpriced imports;

3)         The position that country has taken in the past in response to U.S. positions in trade remedy cases at the World Trade Organization; and

4)         That country’s participating in various multilateral and bilateral steel overcapacity programs, including what are the trade patterns in that country for steel and aluminum products.

Another significant unanswered question is whether any country’s  exemption will be complete or whether quotas or other conditions might apply, or for that matter whether any exemption might be limited in time or scope.

The countries/blocs most often mentioned as potentially being exempted include Brazil, Japan, South Korea, Australia and EU, with China mentioned as likely to retaliate.  The interesting framework for the EU is the oft-repeated comment by President Trump that the EU must lower its tariffs on unrelated products, such as automobiles.  The EU has already published a list of products for comment on which retaliation is proposed, and it does include jeans, bourbon and similar iconic American products, see http://trade.ec.europa.eu/doclib/docs/2018/march/tradoc_156648.pdf for the full list.  The China metal industry is proposing China retaliate against American coal.

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?

Steel/Aluminum Safeguard Tariffs HTS Update Published

Posted in Aerospace & Defence, Antidumping, Border Security, Buy America, Corporate Counsel, Cross-border litigation, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, Imports Restrictions, Legal Developments, NAFTA, Trade Agreeements

The ABI programming for the new Harmonized Tariff System (HTS) classifications implementing the steel and aluminum safeguard tariffs was released earlier today by CBP.

The HTS numbers added are:

9903.80.01        STEEL PROD, NOTE 19, EX CA/M        25%

9903.85.01        ALUMINUM PROD, NOTE 19, EX CA/M    10%

with respect to goods entered, or withdrawn from warehouse for consumption, on or after 12:01 a.m. EDT on March 23, 2018.  This rate of duty, which is in addition to any other duties, fees, exactions, and charges applicable to such imported steel and aluminum products, and shall apply to imports of steel and aluminum products from all countries except Canada and Mexico.

(1) “Aluminum” products are defined in the 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” 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.

If you are properly classifying your products and the relevant HTS is not listed above, you should not be subject to these tariffs, but make sure you have proper documentation to back up the accuracy of your classification.

The new Trump tariffs – the tip of the trade iceberg

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

Our good friend and Australian lawyer – Andrew Hudson – has published an article about the U.S. steel and aluminum tariffs with an interesting take based on current events in Australia.

Andrew’s article can be found on the Rigby Cooke website at http://www.rigbycooke.com.au/latest/new-trump-tariffs-tip-of-trade-iceberg. It has also been published in the DCN at http://www.thedcn.com.au/the-new-trump-tariffs-the-tip-of-the-trade-iceberg/ (subscription required).

Thank you Andrew!

Here Come Those New Steel and Aluminum Tariffs!

Posted in Aerospace & Defence, Agriculture, Antidumping, Border Security, Buy America, Controlled Goods Program, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, Exports, Imports Restrictions, Legal Developments, Politics, Trade Agreeements, Trade Remedies, World Trade Organization

Earlier today, March 8, 2018, President Trump signed two Presidential Proclamations, one dealing with additional tariffs on steel and the other with additional tariffs on aluminum. As has been widely reported in the general press, those rates are 25% on steel and 10% on aluminum. The only countries exempted are Canada and Mexico.

Steel articles are defined as 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):

For the purposes of this section, the Secretary[of Commerce] and the President shall, in the light of the requirements of national security and without excluding other relevant factors, give consideration to domestic production needed for projected national defense requirements, the capacity of domestic industries to meet such requirements, existing and anticipated availabilities of the human resources, products, raw materials, and other supplies and services essential to the national defense, the requirements of growth of such industries and such supplies and services including the investment, exploration, and development necessary to assure such growth, and the importation of goods in terms of their quantities, availabilities, character, and use as those affect such industries and the capacity of the United States to meet national security requirements. In 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; and any substantial unemployment, decrease in revenues of government, loss of skills or investment, or other serious effects resulting from the displacement of any domestic products by excessive imports shall be considered, without excluding other factors, in determining whether such weakening of our internal economy may impair the national security [emphasis added].

The Proclamation also acknowledged 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 Proclamation may result.

Regarding Canada and Mexico, the Proclamation states that “ongoing discussions” are the desired form of action, but also carries the caveat that both Canada and Mexico are expected to “take action to prevent transshipment.”

These safeguards take effect on any entries filed on or after 12:01 a.m. on March 23, 2018. The Secretary of Commerce is directed to consult with the Secretaries of State, Treasury and Defense, the U.S. Trade Representative, the Assistants to the President for National Security Affairs and Economic Policy, and other Executive Branch members to provide relief from these safeguards for any steel or aluminum “not produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality and is also authorized to provide such relief based upon specific national security considerations.” A request for exclusion must be made by a directly affected party “located” in the U.S. Notice of any exclusion determination is to be published in the Federal Register and Customs and Border Protection is to be notified. The relevant procedures to seek exclusion are to be published no later than March 18, 2018.

The Secretary of Commerce (in consultation with the above designated Executive Branch members) is also ordered to continue to monitor imports of steel and aluminum and bring to the President’s attention any “circumstances” that might “indicate the need for further action” under section 232.

The most recent example of exclusion factors was published by the U.S. Trade Representative in the Federal Register on February 14, 2018 in conjunction with the solar safeguard case. This list may provide some idea of the criteria that could apply in the current matter and reads:

  1. Any request for exclusion clearly should identify the particular product in terms of the physical characteristics (e.g., dimensions, wattage, material composition, or other distinguishing characteristics) that distinguish it from products that are subject to the safeguard measures. USTR will not consider requests that identify the product at issue in terms of the identity of the producer, importer, or ultimate consumer; the country of origin; or trademarks or tradenames. USTR will not consider requests that identify the product using criteria that cannot be made available to the public.
  2. In evaluating requests for exclusion, the interagency group may consider the following factors or information:
  3. The names and locations of any producers, in the United States and foreign countries, of the particular product;
  4. Total U.S. consumption of the particular product, if any, by quantity and value for each year from 2014 to 2017, the projected annual consumption for each year from 2018 to 2022, and any related information about the types of consumers;
  5. Details concerning the typical use or application of the particular product;
  6. Total U.S. production of the particular product for each year from 2014 to 2017, if any;
  7. The identity of any U.S.-produced substitute for the particular product, total U.S. production of the substitute for each year from 2014 to 2017, and the names of any U.S. producers of the substitute;
  8. Whether the particular product or substitute for the particular product may be obtained from a U.S. producer;
  9. Whether qualification requirements affect the requestor’s ability to use domestic products;
  10. Whether the particular product is under development by a U.S. producer who will imminently be able to produce it in marketable quantities;
  11. Inventories of the particular product in the United States;
  12. Whether excluding the particular product from the safeguard measure would result in a benefit or advantage to the long-term competitiveness of the solar manufacturing supply chain in the United States, including by fostering research and development, supporting manufacturing innovation, or by leading to the development of differentiated products that command higher prices;
  13. The ability of U.S. Customs and Border Protection to administer the exclusion; and
  14. Any other information or data that interested persons consider relevant to an evaluation of the request.

The other important indicator of what may be coming takes the form of a caveat in that same Federal Register notice, which cautioned that USTR “will grant only those exclusions that do not undermine the objectives of the safeguard measure.” A similar restrictive framework was articulated in the Commerce recommendations regarding both the steel and aluminum safeguards stating the Secretary would grant the exclusion based on “a demonstrated: (1) lack of sufficient U.S. production capacity of comparable products; or (2) specific national security-based considerations.” However, we will have to wait for the final list.

No doubt companies will look carefully in the next few days at what documentation they have which might prove helpful to seeking an exclusion, while awaiting the final criteria on which any exclusion request must rely, but given the current climate, one should be prepared for close scrutiny and little wiggle room when it comes to exclusion being granted.

Steel & Aluminum: Tough Tariffs, Tough Road Ahead?

Posted in Aerospace & Defence, Agriculture, Antidumping, Border Security, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Exports, Legal Developments, Trade Remedies, World Trade Organization

Earlier today, President Trump announced his intention to adopt the recommendations of the Dept. of Commerce and impose tariffs on imports of steel and aluminum. The formal signing is said to be taking place “next week”.  President Trump has stated those tariffs will be 25% on foreign-made steel and 10% on foreign-made aluminum. Hopefully when the final document is signed and released, it will become clear how long these tariffs will be in place and whether they will be accompanied by any other measures, such as quotas.

Commerce’s original steel recommendations were: (i) a 24% tariff on all steel imports; or (ii) a 53% tariff on steel imports from Brazil, China, Costa Rica, Egypt, India, Malaysia, South Korea, Russia, South Africa, Thailand, Turkey and Vietnam; which (iii) could include a quota from all other countries equal to their 2017 level of imports; or (iv) no tariffs, but a quota on all steel products from all countries equal to 63% of their 2017 import levels.

As to aluminum, the original Commerce recommendations were : (i) a 7.7% tariff on all aluminum imports; or (ii) a 23.6% tariff on all aluminum products from China, Hong Kong, Russia, Venezuela and Vietnam, and (iii) a quota on all other countries equal to their 2017 export levels to the U.S.; or (iv) a quota applies to all imports from all countries equal to a maximum of 86.7% of last year’s exports to the U.S.

The President’s logic is that by imposing these tariffs, it would lead to the expansion of American production of both metals. The President is quoted as saying: “… you’ll have protection for a long time in a while…You’ll have to regrow your industries, that’s all I’m asking.”

As soon as a summary of Commerce’s report was issued, South Korea and Thailand sought consultations at the World Trade Organization (“WTO”). That effort is now expected to expand dramatically. Due to the length of time WTO proceedings take to come to conclusion, the more immediate impact is expected to take two distinct and potentially damaging forms. The first is the price increases that will hit American consumers due to how often steel and/or aluminum is found in products, starting with the cans in which so many products are sold.

Already under challenge at the WTO is the use of adverse facts available (“AFA”) when antidumping and countervailing duty cases are processed. The law is written to allow the International Trade Administration (“ITA”) (the agency which conducts the investigation) to find a party to a proceeding has not cooperated to the fullest extent possible and so adverse facts may be used. An AFA finding typically allows the ITA to pick and choose the information on which it will rely, and thereby dramatically increases the percentage of antidumping or countervailing duty found to apply.

The second impact which is expected to quickly develop takes the form of retaliation by our trading partners. For example, one of the major U.S. exporting industries is agriculture.  Soybeans are likely to be at the top of this list for retaliation by China. USDA reports the leading U.S. agricultural exports are grains/feeds, soybeans, livestock products, and horticultural products. How likely is it any of the remaining products will be spared from retaliation?

President Trump is focused on needing to rebalance the trade deficit. Secretary Ross comes from the financial sector where he dealt with failing companies in such industries as steel, coal, telecommunications, foreign investment and textiles. In a previous administration, now US Trade Representative Robert E. Lighthizer negotiated bilateral trade agreements regarding steel, automobiles, and agricultural products. When back in private practice, Mr. Lighthizer defended U.S. industries from unfair trading practices. No one should be surprised with the outcome given the parties involved in the decision-making and President Trump’s previous expressions of putting forth a new trade policy. The stock market certainly did not care about today’s announcement, but we will have to wait and see what the long term impact is to overall trade deficits, and commerce in general, given we are, as noted, likely to see retaliatory policies from certain international trading partners.

BEWARE OF THE WHISTLEBLOWER!

Posted in Aerospace & Defence, Anti-Trust/Competition Law, Antidumping, Border Security, Buy America, Corporate Counsel, Criminal Law, Cross-border litigation, Cross-border trade, Customs Law, Excise Duty, Excise Tax, Government Procurement, Legal Developments, Trade Agreeements, Trade Remedies, U.S. Federal Government, Uncategorized

Originally published by the Journal of Commerce in February 2018

Customs and Border Protection (“CBP”) and other federal enforcement agencies seizing goods or imposing penalties is not unexpected. However, there are other consequences triggered by the actions of private actors which present equal danger to importers. In particular,  there is the False Claims Act (“FCA”), otherwise known as a qui tam or whistleblower case.   The potential of a whistleblower case is not new.  In the 1990’s, the possibility came to light trade by way of a penalty case pursued by CBP against Hitachi America Ltd, and Hitachi, Ltd.  It started when a former employee of the American company reported information and gave documents to CBP detailing certain payments which should have been included in the dutiable value of the imported goods and was not.  For most, this highly publicized lawsuit was the first time whistleblowing and duty payments were joined in the same breath.  There have been a number of FCA cases recently, and the payments to settle them now are generally considerable. So, it is worth asking – are your import declarations accurate? If not, who knows about those mistakes?  How quickly are you getting them corrected?

These cases begin when a whistleblower, called a relator, brings information to a government agency asserting a party (often the former employer who fired the person) is misdeclaring (in our case) information related to the duty collected on its imported goods.  The government then has the option to step into the whistleblower’s shoes and pursue the case, or decline to do so.  It is commonplace for the relator to file a lawsuit, which is put under seal (kept from public knowledge) until the relevant agency makes its decision. If the case is pursued, the government agency becomes the plaintiff in the pending lawsuit or if none is filed, the Dept. of Justice pursues the matter by way of administrative action. If it declines, the relator pursues the case on his or her own.  Either way, if the case is successful, the whistleblower gets part of the recovery.

A “false claim” is defined in 31 U.S.C. § 3729(G) as: “… any person who knowingly makes, uses or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty or not less than  $5,000 and not more than $10,000, as adjusted [for inflation] ; plus 3 times the amount of damages which the Government sustains because of the act of that person.” Person, of course, includes both individuals and companies.  These types of cases are referred to as reverse false claims because the assertion is money which should have been paid was not.

To be clear,  “knowing” and “knowingly” are defined to mean one has actual knowledge, or acts in deliberate ignorance or reckless disregard of the truth or falsity of the information. There is no requirement there is a specific intent to defraud.

For anyone who did not know or had forgotten about the Hitachi penalty case, the whistleblower issue came to light again in 2014 when a number of customs brokers and others received civil investigative demands from Justice regarding wooden bedroom furniture imports from China. The companies receiving the list was long, the companies asked about was longer, and the list of documents demanded was exhaustive!

The most recent case was publicized in January 2018, when Justice announced that Bassett Mirror Company agreed to pay $10.5 million to resolve allegations that it violated the FCA by knowingly making false statements on customs declarations to avoid paying antidumping duties on Chinese wooden bedroom furniture.  A similar case was settled in April 2016, when Z Gallerie LLC agreed to pay $15 million to settle allegations that it, too, misdescribed the type of furniture it was importing in order to avoid the antidumping duties due on Chinese wooden bedroom furniture imported.   Here, it was publicized the whistleblower would receive $2.4 million from the settlement!

In July 2016, China-based clothing manufacturers, Motives Far East and Motives China Limited, and their affiliated US importer, Motives, Incorporated, agreed to pay nearly $13.4 million for engaging in a double invoicing scheme, designed to defraud the United States out of millions of dollars in duty. The double invoicing scheme was described as one invoice which undervalued the goods and was presented as the basis for entry, and a second invoice called a “debit note” or “cost sheet” reflecting the higher, true cost of goods. Sound familiar?

In May 2017, Justice announced a settlement with Import Merchandising Concepts L.P., an executive and an agent who agreed to pay $275,000 to resolve allegations against them. The claim was again that Chinese wooden bedroom furniture was misclassified as non-bedroom furniture on the import documents.

More interesting is the 2014 case brought by Customs Fraud Investigations, LLC (“CFI”) against Victaulic Co. (“Victaulic”). Therein,  CFI sought damages and civil penalties. Victaulic is a producer of iron and steel pipe fittings manufactured in the U.S., China, Poland, and Mexico. CFI was described as conducting research and analysis related to potential customs fraud. CFI alleged that Victaulic failed to mark or mismarked its foreign-made pipe fittings with their country of origin and also falsified the related customs entry documents, so as to avoid paying the 10% marking penalty due on mismarked or unmarked foreign products.

In finding support for its allegations CFI relied on a commercial manifest reporting service to identify import shipments for Victaulic. Victaulic is a privately held company, so CFI had to resort to data available on the Internet, including sales on eBay, to estimate the value of the imports which it claimed were not properly marked.  Victaulic argued the information being provided was public.  The court spent some time considering the nature of the sources of CFI’s information against what is defined in the statute as public sources of information. It found the manifest reporting service to provide “public” information, but not eBay and other Internet sources.

The court next turned to whether the 10% marking penalty meets the definition in the FCA of monies that would be due to the government and ultimately held that monies which result only when the government exercises its discretion do not qualify for recovery under the FCA. Ultimately, when looking at all the facts asserted, the court determined CFI had failed to provide proof the pipes were mismarked or not otherwise legally marked and so the case was dismissed with prejudice. However, that decision was overturned earlier this year by an appellate court.

This latest decision about the CFI v. Victaulic claim is being touted as opening the door to many similar cases.  Companies would be smart to check with their Labor and Employment counsel to make sure to cover potential information about errors and wrongdoing in their personnel exit interviews. Of course, good policies and procedures seeking compliance from the outset are key, so how recently did you update your policies and procedures, and make sure your staff is properly trained?  How recently did you audit your transactions? False Claims Act cases are obviously not limited to duty collection. So, beware of the whistleblower!

The Government of Canada Has Not Appointed Needed Canadian International Trade Tribunal Members

Posted in Antidumping, Canada's Federal Government, Customs Law, Government Procurement

Canada is nearing a trade law crisis point that, quite frankly, is avoidable and easily solved.  There are too few permanent members of the Canadian International Trade Tribunal (“CITT”) for the workload.  Section 3 of the Canadian International Trade Tribunal Act provides for the appointment of a Chairman and six (6) permanent members to the CITT.  Currently, there are only three (3) permanent members of the CITT (Peter Burns (appointed in 2014), Rose Ritcey (appointed in 2014) and Jean Bédard (appointed in 2014), one member is the acting Chairman (Jean Bédard). Serge Fréchette is a temporary member of the CITT appointed under a contract that expires on April 4, 2018 (no one knows if that contract will be renewed).  Ann Penner (appointed in 2014) and Daniel Pétit (appointed in 2013) have completed their first 4 year terms and have not been reappointed – they are still at the CITT completing files. The Government of Canada can and should solve this problem quickly by making appointments of 3-4 members to the CITT, including a Chairperson.  Canada has many trade law specialists – it is possible to have a gender balanced CITT with representation across Canada.

The CITT is an independent, Canadian quasi-judicial administrative tribunal that adjudicates a variety of international trade cases and matters. The CITT is the place to go to receive a fair, timely, transparent and effective resolution of a trade-related dispute and/or government-mandated inquiry/dispute, provided that the trade-related dispute is within an area of the Tribunal’s jurisdiction.

The types of international trade cases and matters within the CITT’s jurisdiction include:

  • customs valuation appeals;
  • customs origin appeals;
  • tariff classification appeals;
  • appeals of advance customs rulings;
  • excise tax (e.g., levied on certain petroleum products, heavy automobiles and air conditioners designed for automobiles) appeals;
  • reviews of procurement-related issues (mostly involving the Government of Canada) (also known as “bid challenges”);
  • antidumping/countervailing duty preliminary injury inquiries;
  • antidumping/countervailing duty injury inquires;
  • antidumping/countervailing duty interim reviews;
  • antidumping/countervailing duty expiry reviews;
  • antidumping/countervailing duty public interest inquiries;
  • antidumping/countervailing duty circumvention proceeding appeals;
  • appeals of antidumping/countervailing duty rulings;
  • exporter rulings relating imposition of antidumping and countervailing duties;
  • global safeguard inquiries;
  • reviews requested by the Government of Canada related to tariffs, trade and economics; and
  • textile references requests by domestic producers for tariff relief on imported textile inputs for production.

The lack of permanent CITT members will soon cause caseload crisis. There are only three permanent CITT members (including the Chairman) to hear all the antidumping and countervailing injury inquiries (always panels of 3), all expiry reviews and interim reviews on AD/CVD Orders (always panels of 3), all antidumping and countervailing duty appeals (always panels of 3), all safeguard inquiries (always panels of 3), all customs and excise appeals (single member panel) and all federal government procurement bid challenges under numerous free trade agreements (single member panel) and any textile reviews of governor-in-council or Minister of Finance references.  Quite frankly, it is not humanly possible to do all this important international trade work in the current environment with so few people.  The amount of information involved in any trade related matter is substantial.  Getting the answers right is important.

Antidumping and countervailing duty injury inquiries have tight statutory deadlines and will have to take priority.  Domestic industry complainants spend hundreds of thousands (if not millions) of dollars bringing AD/CVD complaints and often millions of dollars of business (sometimes tens or hundreds of millions of dollars) is at stake.  The statutory deadlines mean that decisions must be finished on time or they will not be worth the paper they are written on.

This means that customs and excise appeals, which do not have statutory deadlines, will have to wait until CITT members have time to hear them.  It also means that the CITT will not have the resources to conduct expedited government procurement bid challenges of federal government contracts.  This will hold up the ability of the federal Government of Canada to award contracts and purchase goods and services where an issue arises. Decisions on interim reviews will take longer to be issued.  Justice delayed will have a negative impact on trade and trade relationships.

There will be a corresponding impact on access to justice.  The CITT is the justice system for importers to seek redress.  The CITT is the justice system for potential bidders and bidders to seek redress when they are not treated fairly in federal government contracting. The CITT is the justice system for domestic producers who take the position that unfairly priced imports are entering Canada. The lack of members is a barrier to accessing that justice system expeditiously.  The current members will be stretched too thin to hear everyone in a timely manner.  The qualified and diligent ATSSC staff, who support the CITT members, will be overworked and may look for work elsewhere within the government.  Responsiveness will be affected as there is only so many hours in a day.

Hint to the Government: Yesterday, the Government of Canada announced 68 names of qualified Canadian trade lawyers and academics to a newly created NAFTA Chapter 19 Panel Roster.  The Order-in-Council will be published in the Canada Gazette on February 21, 2018.  There are many known trade law experts in Canada (many of whom are not on that list) who could be appointed to the CITT.  The Government has a binder of resumes and CVs.  There is no reason that the Government of Canada cannot make the necessary appointments to the CITT.

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.