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Planning for Survival in the New Normal

supply chain
3pls, Archives, Global Logistics, Global Trade Daily

Planning for Survival in the New Normal

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With so much having already been written on supply chain disruption over the past eighteen months – beginning with the initial shut-down of production in China, to fascinating tales of toilet paper hoarding, and now to the current inability to get backlogged demand through our ports of entry — I was initially reluctant to add yet another article to the stack. So what changed my mind? There are actually two reasons, which I’ll explain.

First, the problems and lessons learned from the COVID-19 pandemic are now forcing companies to become more agile, reassessing every element of their existing supply chains in preparation for the “new/next normal”. It’s now blank sheet of paper time as previous playbooks regarding sourcing, inventory levels, placement and risk mitigation plans (if they even had one) – together with any supporting infrastructure of people, processes and enabling technology – are being tossed out the window.

And while COVID-19 can be credited as the catalyst for forcing companies to perform these assessments, it doesn’t take a pandemic to bring a supply chain to its knees. In addition to the exposure contributed by single-sourcing key goods or from maintaining lean inventory levels (i.e., “Just-in-Time” versus “Just-in-Case”), designing a more resilient, risk-averse global supply-chain will require the inclusion of a broader list of potential risks to consider particularly when selecting foreign suppliers. These should include geopolitical conflicts, socio-economic factors including labor, crime and corruption, limited port capacity/infrastructure, weather-related disruptions, and even natural disasters (recall the 2011 earthquake and tsunami in Japan).

Take geopolitical risk, for example. The US’s over-dependency on China for products ranging from personal protective equipment (PPU) to rare-earth minerals has made it a growing concern from both a business and a national security perspective. A sobering report by the Hinrich Foundation (“Strategic US-China Decoupling in the Tech Sector”), states that “the China-US geopolitical competition has reached a competitive tipping point and morphed into a new ‘cold war’”, citing an increase in China’s bold hegemonic policies. The report further highlights China’s years of intellectual property theft, growing labor costs, and the more recent special tariffs levied by the Trump administration, as key reasons for an increase in US supply-chains decoupling from China and either moving into more risk-averse areas in Southeast China, near-shoring to Mexico, or even re-shoring to the US.

In an actual side-by-side near-shoring exercise which compared China with Mexico, the advantages quickly fell to Mexico citing a shorter supply chain with fewer physical touchpoints (damage/theft/service fees), lower freight costs, and eligibility for duty-free entry under the USMCA Free Trade Agreement, as well as side benefits that included ease of communication with vendors and the convenience of traveling to vendor sites.

Risk Management Meets Industry 4.0

The second reason for my writing is that there’s another movement afoot that aligns with supply-chain risk initiatives from the position of enabling technology capable of producing even greater resiliency. Labeled as “Industry 4.0”, this next industrial revolution is the result of the substantial transformation that is occurring through the digitization of manufacturing. For context, the first industrial revolution was through the introduction of water and steam power. Steam would give way to electrical power as the second industrial revolution, with the third being born out of the introduction of computers and their ability to automate previously manual tasks. Fast forward to today where the fourth revolution is now further optimizing that automation by connecting computers with smart machines and “disruptive technologies” such as Artificial Intelligence (AI), Machine Learning, Advanced Business Intelligence, Predictive Analytics and Data Lakes, capable of removing humans from decision-making processes, including applications capable of identifying and even predicting risk.

Where Industry 4.0 supports supply-chain risk initiatives is that the 4.0 movement includes the digitization of global supply-chains. This will translate into unprecedented transparency and connectivity across the entire end-to-end order and shipment process where supporting business functions such as Product Engineering, Procurement, Sales & Marketing, Transportation, Trade & Customs and Accounts Payable traditionally operate in respective silos.

For example, take Trade & Customs operations. Its typical placement near the end of the supply chain process, together with a lack of early visibility to international order, has served for years as a recipe for reactive firefighting as shipments become “stuck in customs” upon arrival until data/documentation issues are resolved. Under a digitized model, silos are replaced with connected supply-chain visibility that would allow Trade & Customs’ participation to move upstream to the earliest stages of new product build/buy decisions. As a result, they’re now in a position to proactively contribute critical advice on regulatory issues, import admissibility requirements, duty/tax minimization strategies such as Tariff Engineering, Foreign Trade Zones, Free Trade Agreements or changes in source countries (e.g., avoiding a 25 percent special tariff on Chinese goods by switching the sourcing to Mexico) – all key factors capable of removing cost, risk and time from their supply-chain.

If you’re currently building a business case to launch your own risk initiative, an interesting report from McKinsey & Company (“Resetting Supply Chains for the Next Normal”), might give you some additional support. For instance, in their survey of 60 senior supply-chain executives across industries and geographies, 85 percent responded that they struggled with insufficient digital technologies, 93 percent plan to increase resilience across the supply chain, and 90 percent plan to increase digital supply-chain talent in-house needed to support that new technology. In short, you’re not alone.

Whether your current project is to address the exposure from disruptions to your supply chain or to digitize the entire enterprise as a result of the increasing disruption caused by technology-driven innovation, what’s becoming clear is that companies will be forced to become agile and adaptive — able to change business models at unprecedented rates of speed in order to survive and thrive in the “new/next normal.”

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Jerry Peck is the Vice President of Product Strategy at QAD Precision, with over 30 years of experience in Global Trade Management. His career has uniquely encompassed nearly every facet of GTM, including third-party logistics, trade operations within Fortune 300 multinationals, and professional services consulting firms.

semiconductor
Archives, Global Trade Daily, News

BIS Requests Comments from Information and Communications Technology (ICT) and Semiconductor Supply Chains on Supply Chain Vulnerabilities

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The Department of Commerce’s (“Commerce”) Bureau of Industry & Security (“BIS”) recently issued requests for comment on risks to the information communications and technology (“ICT”) and semiconductor supply chains. These comments are being requested as part of the U.S. government’s broader review of supply chain vulnerabilities.

ICT Supply Chain Request for Comment:

Executive Order 14017 (“EO 14017”) requires Commerce and the Department of Homeland Security (“DHS”) to issue a report on supply chains for critical sectors and subsectors of the ICT industrial base. The recent Federal Register notice, published on September 20, 2021, describes the ICT industrial basis as: (a) hardware that enables terrestrial distribution, broadcast/wireless transport, satellite support, data storage to include data center and cloud technologies, and end user devices including home devices such as routers, antennae, and receivers, and mobile devices; (b) critical software; and (c) services that have direct dependencies on one or more of the enabling hardware. BIS seeks comments on eleven (11) topics, which are described in further detail in the notice and which we summarize below:

-“Critical goods and materials,” as defined in EO 14017, Section 6(b);

-“Other essential goods and materials,” as defined in EO 14017, Section 6(d);

-Manufacturing, or other capabilities necessary to produce or supply “critical goods and materials” and “other essential goods and materials”;

-Supply chain disruption and compromise threats such as cyber, health, climate, environmental, geopolitical, forced-labor, and other risks;

-Resilience and capacity of domestic ICT supply chains to support domestic requirements as described in EO 14017, such as national, economic, and information security;

-Allies’ and partners’ actions on ICT supply chains;

-Primary causes of risks for any vulnerable aspects of the ICT supply chain;

-Prioritization of “critical goods and materials” and “other essential goods and materials” to identify options and policy recommendations;

-Specific policy recommendations for ensuring a resilient ICT supply chain;

-Executive, legislative, regulatory, and policy changes needed to strengthen domestic ICT supply chain manufacturing and prevent supply chain disruption and compromise; and

-Suggested improvements to the government-wide effort to strengthen supply chains.

Comments on the ICT supply chain are due by November 4, 2021.

Semiconductor Supply Chain Request for Comment:

On September 24, 2021, BIS published a Federal Register notice which requests comments from interested parties, especially domestic and foreign semiconductor designers, manufacturers, material/equipment suppliers, as well as intermediate and end-users. Any interested party may submit comments, however. The BIS notice includes a questionnaire for semiconductor designers, manufacturers, and microelectronic assemblers, and their suppliers and distributors, as well as a questionnaire for intermediate and end-users of semiconductor products or integrated circuits. The questions mainly cover the production process and focus on disruptions to the semiconductor and integrated circuit inventories of intermediate and end-users. Interested parties should note before filing comments at regulations.gov that BIS requires commenters fill out an Excel spreadsheet form posted on BIS’ website to be completed and filed along with the comments. Comments on the semiconductor supply chain (including a completed form) are due by November 8, 2021.

_________________________________________________________________

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

section 301
Archives, Global Trade Daily, International Trade

Section 301 Case Offers Importers a Chance at Refunds as Administration Contemplates Further Tariff Action

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After a summer of wrangling, Plaintiffs in the ongoing Court of International Trade (‘CIT’) case challenging List 3 and 4A Section 301 duties on imports from China got a big win: in September the Government conceded that it is not able to administer a repository system that would require each importer to continually submit entry-specific information to preserve its rights to actual 301 duty refunds. The arguably unnecessary and burdensome repository system was the Court’s solution to the fact that the Government refused to stipulate that Plaintiffs would have the right to duty refunds on liquidated entries in the event their claims are ultimately successful. Usually, imports are “liquidated”—think “finalized”—on a rolling basis about a year after entry, so the Government’s position meant that Plaintiffs could potentially lose their rights to duty refunds on more and more entries each day as the CIT litigation continues to play out.

In the end though, after months of intransigence, the Government changed its position and agreed to stipulate that refunds on liquidated entries would be available post-judgment for all Plaintiffs’ entries that were unliquidated as of July 6, 2021. This about-face brings an end to this particular squabble, guarantees Plaintiffs will have access to duty refunds on this set of entries if they win, and allows the case to proceed to the merits. It also suggests that going forward, the Government intends to put forth any possible argument, however tenuous or impractical, to deny refunds to as many importers as possible even if the Plaintiffs prevail on the merits.


While the fact that the Government is vigorously defending its position may not be surprising, it does underscore the benefits of joining the litigation: if List 3 and 4A duties are ultimately declared unlawful, the next debate will center around the extent and form of relief that will be granted to importers who paid these unlawful duties, including which companies will actually get refunds. Actual Plaintiffs in the case will be in the best position to obtain these duty refunds, while the Government will likely make every effort to prevent the ruling from applying more broadly to all importers.

Door Still Open to Join Section 301 Litigation

The CIT case challenging List 3 and 4A duties, which began over a year ago, could very well reach the oral argument stage by early 2022 (barring any further tangential matters brought on by the Government’s efforts to limit potential duty refunds). This would set the stage for a CIT ruling in 2022. Yet the door is still open for other US importers that continue to pay List 3 or 4A duties on China-origin products to join the ongoing litigation and benefit from a potential Plaintiff win once the case and any related appeals are decided.

This opportunity is still available due to multiple arguments that extend the statute of limitations each time duties are assessed on an entry subject to List 3 or 4A. To boot, the burden associated with participating as a new Plaintiff will likely remain quite low in light of the fact that the day-to-day proceedings are led by a Plaintiffs’ Steering Committee that has already been established. So while the extent to which Section 301 duty refunds will be available to Plaintiffs and other importers is still up in the air, importers can still file a complaint to join the CIT litigation and improve their chances of benefiting from a favorable outcome.

More Tariffs May Be Coming

Meanwhile, hopes and predictions that the various unconventional tariff increases implemented under the Trump administration would cease and even be rolled back under President Biden have failed to materialize. So far, the Biden administration has left the additional Section 301 tariffs on many products from China untouched. And now, as a result of its ongoing months-long review of the United States’ policy regarding trade with China, the Biden administration is reportedly contemplating further action under Section 301 aimed at leveling the playing field with China.

Specifically, the Biden administration may launch a fresh Section 301 investigation into government subsidies the Chinese central government provides to the county’s manufacturers, thereby giving its manufacturers an advantage over their American counterparts. Understanding the extent of these subsidies and holding China to account for practices that violate US or World Trade Organization laws has been a longstanding US goal. However, the fact that the Biden administration is contemplating initiating its own investigation under Section 301 to address the concern suggests the use of tariffs as a tool to sway America’s trading partners is no longer considered out of bounds by either Republican or Democratic leaders.

For US companies that import goods from China—and are therefore legally liable for paying all duties owed to US Customs and Border Protection (‘CBP’) on those products— this new normal suggests that existing Section 301 duties will not be revoked by the Biden administration anytime soon. Quite the opposite in fact: it looks like more Section 301 tariffs on more China-origin goods could be on the horizon.

Navigating this new normal in a way that keeps companies’ tariff costs down while ensuring compliance with these ever-changing CBP requirements has prompted business leaders to take a more active approach to Customs law issues including classification and country of origin determinations—both of which have the potential to affect how much duty an importer pays to US Customs.

Other Ways to Mitigate Tariff Liability

Beyond joining the CIT litigation challenging List 3 and 4A Section 301 duties companies can identify opportunities to save on both general tariffs and additional Section 301 duties by reviewing and confirming the accuracy of the information they submit to CBP. One example of this is conducting a product-specific classification analysis to determine the correct Harmonized Tariff Schedule of the United States Code (or HTSUS code) applicable to a given product based on the product’s characteristics and the (often gray) body of rules and guidance governing classification. Each 10-digit HTSUS code has a corresponding general duty rate, so if a review of a product’s classification results in an HTSUS code correction, it could also result in a lower general duty rate for that product.

Similarly, conducting a supply chain-specific country of origin analysis to determine the correct country of origin of a given product based on where each manufacturing step is conducted and the applicable (and often gray) rules and guidance governing country of origin can result in duty savings. If a company can establish and document that its product’s country of origin is a country other than China, then Section 301 duties will no longer apply to that product.

While both classification and country of origin reviews present an opportunity to mitigate tariff costs, they also help ensure companies are not inadvertently providing incorrect information to US Customs and exposing themselves to potential penalties for such violations—another must for US importers in light of the fact that tariff issues remain front and center in the minds of regulators and requirements continue to evolve in response to the ever-changing geopolitical landscape.

 ___________________________________________________________________

Andrew Bisbas is Counsel at Lowenstein Sandler. His practice centers on US Customs and Border Protection import requirements and tariffs. He helps clients navigate CBP requirements including classification and country of origin determinations as well as USMCA and other trade agreement implications. Andrew also assists clients in setting up and maintaining corporate import compliance programs, conducting import audits and supply chain due diligence, preparing and submitting prior disclosures to US Customs, and advising on tariff engineering and supply chain structuring efforts geared towards mitigating tariff costs.

wine
Archives, EU Trade, Global Trade Daily

Climate Change: The French Wine Disaster & Beyond

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Complex supply chains around the world make countries dependent on others for essential items, including food and drink. When it is interrupted, the effects are felt globally. We’ve already experienced the turmoil that disrupted supply chains can have during the COVID-19 pandemic. For example, Finance Minister Bruno Le Maire issued a statement to the nation’s supermarkets urging them to stock French products.

There are a few instances other than COVID-19 where disasters have interrupted the supply chain, causing economic damage. Agriculture tends to take the biggest financial hits and losses during disasters such as extreme weather, which are becoming more frequent, intense, and complex. Between 2008 and 2018, agricultural disasters cost developing countries more than €908 billion, having a profound effect on the livelihoods of smallholder farmers who were already struggling against large corporations.


Electrix, a producer of coffret électrique encastré for the food industry, takes a look at the French wine disaster and other events around the world that had an impact on food and drink.

The wine disaster

Unseasonal frost hit France this year, seeing a usually warm April suddenly struck by freezing temperatures and bitter frost. The initial record-warm early spring resulted in vines and fruit trees blooming earlier than they would usually, and they were then ruined by an unexpected bout of cold temperatures. Research has found that as the world’s temperature rises, the timing of seasons will change and become more severe.

Vineyards in Bordeaux, Burgundy, Provence, and the Rhône Valley were affected and resorted to lighting thousands of fires and candles near the vines and trees in an attempt to keep them warm overnight. Sadly, many winemakers have reported a 100 percent loss on their yield.

French agriculture minister Julien Denormandie commented: “This is probably the greatest agricultural catastrophe of the beginning of the 21st century.” Meanwhile, Prime Minister Jean Castex pledged €1bn in aid to winemakers and farmers. It may take years for some vineyards to recover.

France’s wine industry has already been dealing with the effects of COVID-19 and decreased demand from restaurant orders, as well as previously battling with Donald Trump’s tariffs on key French goods, including wine and cheese, which resulted in a near 14 percent drop in French wine and spirits exports last year. Furthermore, due to the effects of climate change, the flavors of wine will likely change or, in some cases, disappear forever. Merlot, for example, could become a thing of the past due to the grapes used in that particular wine being less resilient to changing weather patterns.

Thirsty crops exhausting groundwater

Rice is the primary source of food for more than three billion people every day and is helping prevent the world’s food crisis from getting worse. Sadly, there is a risk of rising food insecurity for such a staple food.

India is experiencing both a water and agricultural crisis that has been developing for decades. Rice is one of the thirstiest crops that exist – farmers use 15,000 liters of water on average to grow one kilogram of paddy (rice plant). Rice is draining northern India’s Punjab of its groundwater, with the ground expected to be exhausted by 2039 and become comparable to a desert. A fifth of the world’s population lives in India, who only have four percent of global water while simultaneously being the largest user of it with 90 percent of their water used for agriculture.

India isn’t the only country struggling to grow rice due to a lack of water – countries in Southeast Asia such as China are facing the same challenge. Climate change is making extreme weather like flooding and droughts happen more regularly, making water difficult to source. Scientists are looking to develop new strains of rice that require less water and are more resilient to drought and climate change.  Plus, water technologists in New Delhi are looking to design water management techniques that use no more than 600 liters of water for one kg of paddy.

Increased breeding of rodents in Australia

Australia has faced the brunt of climate change, ranging from bushfires that devastated 27.2 million acres of land to damaged food and crops due to the largest plague of mice ever seen. Australian farmers are used to a mouse plague every ten years or so; however, with the planet warming up, they could become more regular with more mice than ever. The temperatures create the perfect breeding ground for the rodents, which then go on to destroy crops.

Farmers are even forced to burn their crops which have been infested with mice and mice urine.

A disaster-resilient future is possible if we develop sustainable agriculture. Preparing for risk management can help in reducing agriculture’s vulnerability to natural disasters and climate change.

______________________________________________________________________

Sources

http://www.fao.org/news/story/en/item/1381672/icode/

https://www.axios.com/french-wine-disaster-climate-change-1f86c34c-917c-4d86-b126-73f7618316a9.html

https://www.france24.com/en/20200328-france-issues-call-to-buy-french-as-coronavirus-erodes-single-market

https://www.theguardian.com/food/2021/apr/15/agricultural-disaster-two-billion-worth-of-french-wine-production-lost-after-cold-snaps

https://www.foodandwine.com/news/france-wine-vineyards-frost-damage-2021

https://www.foodandwine.com/news/france-wine-vineyards-frost-damage-2021

https://www.downtoearth.org.in/news/water-use-is-excessive-in-rice-cultivation-30352

https://apnews.com/article/india-climate-change-business-science-environment-and-nature-52a57d80d1dcb85f508cfd5f80120870

https://www.bbc.com/future/bespoke/follow-the-food/a-staple-food-to-withstand-disaster/

https://theprint.in/economy/rice-the-one-grain-thats-keeping-the-worlds-food-crisis-from-getting-worse/653855/

https://www.bbc.co.uk/news/world-australia-50951043

tariffs
Archives, Global Trade Daily, International Trade

How Will the Biden Administration Enforce Tariffs?

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It was no secret that the Trump administration had an aggressive trade policy with higher tariffs on China, tariffs on steel and aluminum products, new trade agreements, and pulling out of others. Customs duty revenue increased drastically under the Trump administration from $34.6 billion in 2017 to $74.4 billion in 2020. This major increase in revenue for the federal government has left many asking what the priorities will be for the Biden administration when it comes to U.S. trade deals.

Most experts do not expect any drastic changes in the early months of the Biden administration. Biden himself has stated that he will not make any immediate moves on tariffs with China. Some think he will stay tough on trade with China but may ease tariffs with allied countries. It is also presumed that he will make certain exceptions to the Section 232 tariffs on steel and aluminum for imports from certain allies.

These duties and tariffs have not been popular among many importers and foreign exporters. Some of these companies have resorted to fraud to avoid paying what they owe. As a result, the federal government has renewed a commitment to take enforcement action against companies who evade duties owed on imported goods.

Customs duties are implemented in order to level the playing field for U.S. manufacturers. In addition, the money the government collects from these duties goes directly to paying for programs such as veterans’ benefits, education, and infrastructure. When companies scheme to avoid paying the proper duties, they obtain an unfair advantage in the U.S. markets and cheat the federal government and taxpayers. Many companies have found schemes to avoid duties that are easy to pull off and give them a significant advantage over competing manufacturers and importers.

U.S. Customs and Border Protection is responsible for enforcing trade laws, including import compliance and revenue collection. However, CBP has limited resources and can’t possibly check every shipment for compliance. With millions of containers entering the U.S. each day, CBP tries to best allocate its resources to detect the imports at the highest risk of violation, making it easy for many fraudulent schemes to slip through the cracks. Some companies see the low risk of detection as an opportunity to save money by lying on import declarations to avoid paying higher duties.

Importers must declare the value of goods, country of origin, classification of goods, and amount of duties owed. Essentially, the process works on an honor system in which the importer is responsible for making sure the information declared is accurate. However, foreign exporters and U.S. importers have found ways to cheat the system by not accurately reporting information on their customs import declarations. Below are some of the common schemes used to avoid customs duties:

1, Undervaluing goods – Import duties are based on the value of goods as declared by the importer. By undervaluing the price of goods on declarations, importers wrongfully avoid paying the appropriate duties.

2. Misrepresenting country of origin – Shipments imported into the U.S. must be marked with the country of origin. Tariff rates vary by country of origin and certain countries are subject to anti-dumping tariffs and countervailing duties. By disguising the country of origin, importers avoid paying certain tariffs and duties. Most commonly, transshipping is a scheme used to misrepresent the country of origin. Transshipping involves shipping goods to another destination prior to reaching the final point of entry and relabeling to conceal the true country of origin.

3. Misclassifying goods – Import duties are also determined by the classification or category of goods being imported. Importers avoid paying the full amount of customs duties by falsely declaring goods under a different category that is subject to a lower duty.

Since these acts are so easily committed and concealed, customs fraud is often difficult to detect. The federal government relies heavily on whistleblowers to come forward and aid in the undercovering and prosecuting of customs violations. Insiders and competitors are typically in the best position to uncover and report customs fraud.

The False Claims Act (FCA) authorizes individuals to bring a lawsuit on behalf of the federal government and share in the monetary recovery from that lawsuit. Whistleblowers who have evidence of customs fraud may bring a lawsuit under the FCA.

Many people are concerned about reporting their employers or others for committing fraud because they fear retaliation. The FCA ensures whistleblowers are protected from retaliation, such as being fired, demoted, or denied benefits. A whistleblower attorney can help ensure these protections.

Maintaining the integrity of U.S. trade policies is critical to the nation’s economic stability and security. The revenue collected from customs duties belongs to the American people. The federal government, taxpayers, and other U.S. businesses get cheated when dishonest companies scam their way out of paying tariffs and duties. Rooting out these fraudsters is made easier when brave and honest individuals come forward to do what’s right.

________________________________________________________________

About Andrew Miller

Andrew Miller is a shareholder at Baron & Budd where he represents whistleblowers in qui tam cases. To learn more about whistleblower protections, go to www.becomeawhistleblower.com.

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Archives, Global Trade Daily, International Trade, News

US-EU Suspend Large Civil Aircraft Tariffs and Take Aim at China in Framework Addressing Non-Market Practices

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The United States and European Union (“EU”) announced a “cooperative framework” to address and potentially resolve their long-running dispute over large civil aircraft subsidies, also commonly known as the Boeing–Airbus or Large Civil Aircraft disputes. Originally initiated in 2004 when the U.S. filed a case at the World Trade Organization (“WTO”) against the EU alleging illegal subsidies to Airbus SE, the Large Civil Aircraft dispute is the longest running dispute at the WTO. As part of the new understanding, the U.S. and EU will suspend their respective WTO-authorized tariff countermeasures, which affected a total value of $11.5 billion in trade. The U.S.-EU’s announcement is a major step towards potentially resolving the 17-year transatlantic dispute over aircraft subsidies.

As previously reported, the initial duties occurred in October 2019 when the U.S. imposed 15 percent tariffs under Section 301 of the Trade Expansion Act of 1962 on imports of civil aircraft and aircraft parts (under the HTSUS codes 8802.40.0013, 8802.40.0015, 8802.40.0017, 8802.40.0019, and 8802.40.0021). A rate of 25 percent was adopted by the U.S. for all other listed EU-origin imports, covering agricultural products, spirits, and luxury goods among other products. The EU retaliated in November 2020 with tariffs on approximately $4 billion worth of U.S. imports, with matching rates of 15 percent for civil aircraft and aircraft parts and 25 percent for all other U.S.-origin imports, covering agricultural products and industrial and finished goods.

As part of the Understanding on a cooperative framework for Large Civil Aircraft, the US and EU expressed their intention to:

-Establish a Working Group on Large Civil Aircraft led by each side’s respective Minister responsible for Trade, which will meet every 6 months or on request,

-Provide financing to large civil aircraft producers only on market terms,

-Provide R&D funding through an open and transparent process and make the results of fully government-funded R&D widely available, to the extent permitted by law,

-Not to provide R&D funding as well as specific support (such as specific tax breaks) to their own producers that would harm the other side,

-Collaborate on addressing non-market practices of third parties that may harm their respective large civil aircraft industries,

-Continue to suspend application of their countermeasures, for a period of 5 years, avoiding billions of euros in duties for importers on both sides of the Atlantic.

According to statements made by U.S. Trade Representative (“USTR”) Katherine Tai, the tariffs would remain suspended as long as the terms of the agreement are upheld and while they work on addressing issues including outstanding subsidies already paid.

The U.S.-EU cooperative framework also includes an “Annex on Cooperation on Non-Market Economies” to “more effectively address the challenge posed by non-market economies” in the civil aircraft sector. These cooperative steps include coordinating and exploring information-sharing regarding cybersecurity and other concerns, screening of inward and outward investments, and “joint analysis of non-market practices,” especially China’s, in the large civil aircraft sector. USTR Tai described the agreement as “a model we can build on for other challenges” related to “the threat from China’s non-market practices.”

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Emily Lyons is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

CIT
Archives, Global Trade Daily, News

CIT Declares Section 232 Steel Tariffs on “Derivatives” Under Proclamation 9980 Invalid and Contrary to Law

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The U.S. Court of International Trade (“CIT” or “the Court”) ruled in an opinion issued on April 5, 2021, that Proclamation 9980 subjecting steel and aluminum “derivatives” to 25 percent tariffs under Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. § 1862) is invalid because of a failure to comply with statutory time limits.

The Court concluded that Proclamation 9980, which was issued by President Trump and based on the theory that the President had the power to issue the Proclamation based on earlier findings on different products, was void from the outset because it came too late and had no independent basis. As the CIT states in its opinion regarding the inability to rely on an earlier finding regarding different products: “Because the President issued Proclamation 9980 after the congressionally-delegated authority to adjust imports of the products addressed in that proclamation had expired, Proclamation 9980 was action outside of delegated authority.”

The Court’s order stated that, as a result, Plaintiff PrimeSource Building Products, Inc. is to have all its entries that were affected by Proclamation 9980 refunded, whether they were liquidated or unliquidated. This was a result of the derivatives duties being invalid from the outset. The CIT is now likely to act on the parallel challenges to the Section 232 derivative tariffs and issue similar findings. We expect consultations among the parties and with the Court to proceed soon.

This decision does not affect the original Section 232 tariffs placed on aluminum and steel pursuant to Proclamations 9704 and 9705 effective March 23, 2018. Those Proclamations were upheld by both the CIT and the U.S. Court of Appeals for the Federal Circuit and were issued in a timely manner.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Jeffrey Neeley is a Washington-based partner with the law firm Husch Blackwell LLP. He leads the firm’s International Trade Remedies team.

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Archives, Global Trade Daily, News

USTR Considering New Tariffs on Various Goods From Six Countries

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The Office of the United States Trade Representative (USTR) announced that it is accepting comments on whether to impose 25 percent tariffs on roughly $880 billion of goods imported from Austria, India, Italy, Spain, Turkey, and the United Kingdom in retaliation for digital services taxes (DST) imposed by those countries. The potential tariffs would be applied under Section 301 of the Trade Act of 1974.

Potential tariffs are aimed at products across various industries and include among others, leather articles, textile products, ceramic articles, stemware, glassware, glass fibers, copper alloys, printed circuit assemblies, and various instruments from Austria; seafood, rice, bamboo articles, corks, cigarette paper, wool yarn, bras, pearls, precious stones, precious metal articles, and furniture from India; seafood, perfumery, travel and leather goods, apparel, footwear, spectacle lenses, and optical elements from Italy; seafood, handbags, belts, footwear, hats, and glassware from Spain; textile floor coverings, bed linen, curtains, stone and ceramic articles, precious metal articles, and imitation jewelry from Turkey; and personal care and cosmetic products, apparel, footwear, ceramic articles, precious metal articles, imitation jewelry, refrigeration equipment, industrial robots, furniture, and games from the UK.

Complete country-specific lists of potentially affected products are included in the following notices: Austria/Deadline/Products, India/Deadline/Products, Italy/Deadline/Products, Spain/Deadline/Products, Turkey/Deadline/Products, and United Kingdom/Deadline/Products.

In January, USTR determined that each of the six countries’ digital services tax (DST) is unreasonable or discriminatory and burdens or restricts U.S. commerce, i.e., meets the legal standard under Section 301. USTR found these countries’ DST to be actionable for the following reasons:

Austria – only applies to companies with at least €750 million in global revenue and €25 million in Austria-specific revenue derived from digital advertising revenue; India – only applies to “non-resident” companies; Italy – only applies to companies with at least €750 million in global revenue and €5.5 million in Italy-specific revenue derived from the provision of digital services; Spain – only applies to companies with at least €750 million in global revenue and €3.0 million in Spain-specific revenue derived from the provision of digital services; Turkey – only applies to companies with at least €750 million in global revenue and TRY 20 million in Turkey-specific revenue derived from the provision of digital services; and the United Kingdom – only applies to companies with at least £500 million in global revenue and  £25 million in U.K.-specific revenue derived from the provision of digital services.

The USTR’s latest action also terminates its prior investigations of Brazil, Czechia, Indonesia, and the European Union because USTR has determined that these jurisdictions have not adopted or implemented DST’s.

For copies of USTR’s determinations, which detail each country’s DST, please see the notices attached at the following:  Austria, India, Italy, Spain, Turkey, and the United Kingdom.

The deadlines for the submission of comments and requests to appear at the virtual hearings, as well as the list of U.S. imports on which the 25 tariffs would be imposed, vary by country. The multi-jurisdictional deadlines are as follows:

April 21, 2021: Request to appear at the hearing and summary of written testimony

April 30, 2021: Written comments

May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions

May 10, 2021: Multi-jurisdictional written rebuttal comments.

The country-specific deadlines are set forth at the first set of hyperlinks.

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Archives, Global Trade Daily, News

U.S. Agrees to Temporarily Suspend Tariffs on UK and EU Goods in Large Civil Aircraft Dispute

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In a joint statement released by the Office of the United States Trade Representative (“USTR”), the U.S. and European Union (“EU”) have agreed to temporarily suspend the additional tariffs from the Large Civil Aircraft Dispute. Goods imported from EU countries, including dairy products and liquors, will temporarily not be subject to the additional 25 percent duties under Section 301. The temporary suspension will initially last four months. USTR has not yet announced a specific date when the suspension on tariffs for EU goods will begin. USTR plans to share that information in a forthcoming Federal Register notice.

Additionally, the USTR announced a similar temporary suspension of tariffs imposed on goods imported from the United Kingdom (“UK”) related to the Large Civil Aircraft Dispute. The temporary suspension began on March 4, 2021 and will remain in effect until at least July 2021.

As previously reported, the initial onslaught of duties occurred in October 2019 when the U.S. imposed duties on new European large civil aircrafts and 25 percent tariffs on agricultural and other products. In retaliation, in November 2020 the EU imposed $4 billion of tariffs on American products. In a statement, EU President von der Leyen sees this as a “fresh start” with the U.S. President von der Leyen also expressed that both countries are “committed to focus on resolving our aircraft disputes, based on the work our respective trade representatives. This is excellent news for businesses and industries on both sides of the Atlantic, and a very positive signal for our economic cooperation in the years to come.”

The UK government had suspended retaliatory tariffs on U.S. goods subject to tariffs on January 1, 2021. Given the current suspension of the tariffs, the UK government and USTR intend to use this time to focus on negotiating a settlement to the dispute and address challenges posed by new entrants to the civil aviation market.

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Emily Lyons is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

Turner Kim is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

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Archives, Global Trade Daily, International Trade

The Top Five International Trade Issues Under the New U.S. Administration

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After a tumultuous stretch of international trade wars and a global economic crisis courtesy of the pandemic, the U.S. has a new president directing trade policy. What can business leaders expect from a Biden presidency as far as strategies, relations with major trading partners, and the role of the U.S. in global trade for the next few years? Early indications are that the U.S. – China relationship will remain tense, but the Biden team approach in other areas will differ greatly from the previous administration. Global partners can expect a change in tone from Washington, and there are five issues which will stand out as major differences under Biden’s leadership:

Number Five: The U.S. will reengage with the World Trade Organization (WTO), which should lead to a substantial reduction in unilateral ‘trade wars’ and tit-for-tat tariff exchanges. Under Trump, the WTO was marginalized and hamstrung by U.S. policies, as the appellate body did not have enough judges to take any action on trade disputes. Under Biden, the U.S. will be an active participant in the WTO and will use the organization to bring pressure against China and other nations on issues such as illegal support to state-owned enterprises. There is still an urgent need to reform the WTO, but the new administration seems poised to jump in and push for improvements.

Number Four: Russia is in the crosshairs. The on-again, off-again political relations between the U.S. and Russia should switch firmly to ‘off’ for the foreseeable future, as Biden’s foreign policy team has already indicated grave concerns over Russia’s meddling in Belarus as well as its treatment of protestors and dissidents such as Alexei Navalny in Russia. Biden ordered an extensive intelligence review of Russia’s actions over the last few years and will likely use the results of that report to tighten sanctions on Putin’s inner circle through the Magnitsky Act or dramatically limit trade and transactions with Russian state-owned enterprises, such as the Trump administration did with Huawei and other Chinese companies.

Number Three: The UK faces an uphill climb on their eventual U.S. trade deal. PM Boris Johnson lost an ally when President Trump left office, and the relationship with President Biden will be cordial but arm’s length. Johnson is in a tough spot, as he would like to secure a trade deal quickly to bolster his post-Brexit polling numbers, but Biden’s team is focused on the domestic agenda and probably will not see a need to negotiate this before 2022. The only way to move this deal to the front burner is to offer the U.S. one or more of the concessions it has long desired – increased access to the NHS for the U.S. pharmaceutical industry, lowered trade barriers for food imports, or improved entry into the services industry in the UK.  None of these would be popular for British voters, but Biden’s trade representative will be well-positioned to insist on key concessions.

Number Two: Biden’s team has committed early in the presidency to implement a “worker-centered trade policy” and that will color all of the legislation and trade deals that his administration will touch.  The intent of the policy is to ensure that future trade deals (including any potential participation in the CPTPP) do not harm American workers by giving the U.S. market access to foreign goods that were produced by underpaid and under-protected workers.  The flip side of this approach should be easier U.S. market entry from countries with decent labor (and environmental) standards, as the administration formulates a way to preference the ‘right’ type of imports.

The number one issue that will differ under the Biden administration is a desire to improve ties and trade opportunities with reliable partners. The tension with China will remain and potentially even deepen, but the Biden administration – stocked with committed ‘globalists’ – is going proactively tie other partners (especially fellow democracies) closer to the U.S. through increased trade and investment opportunities. Outside of North America, this will benefit Japan, South Korea, Australia, New Zealand, Israel and the European Union most of all. Rather than adjustments to existing trade deals (some of which, like the USJTA and USMCA, were just recently completed), the Biden administration will look to use bilateral investment deals to promote greater trade ties with trusted partners, especially in areas such as renewable energy and defense technology.

On the outside looking in will be Saudi Arabia, Turkey, Russia and other countries that will find in the Biden administration a trade team that is willing to substantively weigh human rights abuses and the dangers of populist leaders when assessing trade deals, money-laundering regulations, sanctions and access to the U.S. market and technology. While this shift in approach and tone will not immediately push international trade traffic into new patterns, it will lay the groundwork for a transition to more benign trade policies and less regulation for businesses working with preferred partners.  The foundations of global trade will shift just enough to push some companies, already weakened and weary by the pandemic recession, into a difficult scramble to quickly move operations and find new partners.

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Kirk Samson is the owner of Samson Atlantic LLC, a Chicago-based international business consulting company which offers market entry research, political risk assessment, and international negotiations assistance.  Mr. Samson is a former U.S. diplomat and international law advisor.