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Trump Administration Trade Battles Continue

Trump Administration Trade Battles Continue

There have been several important developments in regard to (1) U.S. use of Section 301 of the Trade Act of 1974 to restrict imports of various products from China and (2) U.S. imposition of global trade restrictions on steel and aluminum imports pursuant to Section 232 of the Trade Expansion Act of 1962.  The Trump Administration asserts that the former are justified as a result of unfair intellectual property policies and practices maintained by China and that the latter are necessary to prevent emerging threats to U.S. national security.  As summarized below, the conflict between the United States and China continues to intensify, but there are signs that the Administration is looking to de-escalate the global conflict over steel and aluminum.

Developments in the U.S.-China Trade Relationship

On June 15, the Office of the U.S. Trade Representative (“USTR”) issued two lists of Chinese goods that would be subject to a 25 percent tariff surcharge as a result of its Section 301 investigation.  The first list covered approximately $34 billion in goods and was comprised of machinery and mechanical appliances; electrical equipment; vehicles, aircraft, vessels, associated transport equipment, and parts thereof; and measuring, checking, precision, medical or surgical instruments.  The second list covered approximately $16 billion in goods and was comprised of lubricants; plastics; machinery and mechanical appliances; electrical equipment; locomotives, vehicles, and parts thereof; and measuring instruments.  The duties for the goods on the first list were imposed starting July 6, while those for the goods on the second list were imposed starting August 23.

Shortly after USTR’s June 15 announcement, China announced its intention to retaliate against the United States by imposing a 25 percent tariff surcharge on certain U.S. goods being imported into China.  China issued two lists of targeted goods, with the first list covering agricultural products, cars, and aquatic products, and the second list covering mineral fuels, chemical products, and medical machinery.  The duties for the goods on those lists were imposed starting July 6 and August 23, respectively.

President Trump responded to China’s retaliatory measures by ordering USTR to develop an additional list of $200 billion worth of imports from China to be subject to a 10 percent tariff surcharge.  Shortly after that announcement, China promised to fight back with “qualitative” and “quantitative” measures.  On August 3, China announced new duties in the range of 5-10 percent on imports from the United States valued at $60 billion, and those duties were imposed starting September 24.

On September 18, USTR issued its third list of Section 301 tariffs, covering approximately $200 billion worth of imports from China, dwarfing the value of imports covered by the first and second lists.  The products targeted are subject to an additional tariff of 10 percent, effective September 24, which increases to 25 percent starting January 1.  The list contains 5745 tariff lines, covering a wide range of products, including live animals and animal products; vegetable products; prepared foodstuffs; mineral products; chemical products; plastics and rubbers; rawhides, skins, and articles thereof; wood and articles of wood; paper; textile articles; headgear; articles of stone, ceramic, and glass; pearls; base metals and articles thereof; mechanical and electrical equipment; vehicle parts; photographic and cinematographic equipment; and miscellaneous manufactured articles.  On October 12, U.S. Customs and Border Protection (“CBP”) confirmed that imports from China that qualify for reduced or suspended duties under the recently signed Miscellaneous Tariff Bill will still face the specified Section 301 tariffs.

USTR has established a process by which U.S. stakeholders (such as purchasers or importers) may request the exclusion of particular products from Section 301 tariffs covered by the first two tranches.  Notably, the notice for the third list did not indicate that there would be an exclusion process.

The deadline for requests regarding the first list lapsed on October 9, but the deadline for the second list is December 18.  USTR prefers electronic submissions made through the Federal eRulemarking Portal: www.regulations.gov.  Exclusion requests should include certain information, including the following: the applicable 10-digit subheading of the HTSUS; physical characteristics that distinguish the proposed excluded product from other products within the covered 8-digit subheading; the ability of CBP to administer the exclusion; the annual quantity and value of the Chinese-origin product that the requester has purchased in each of the last three years; and the percentage of total gross sales in 2017 accounted for by sales of the Chinese origin product.

Section 232 Tariffs on Steel and Aluminum

In March of this year, the Administration announced global tariffs on imports that it found to threaten U.S. national security – a 25 percent tariff on steel and a 10 percent tariff on aluminum.  Several countries negotiated their own deals to avoid the tariffs.  Australia is exempt entirely but is likely to be monitored for import surges.  Argentina, Brazil, and South Korea are subject to quotas (not tariffs) on steel.  Argentina has a quota for aluminum, but Brazil and South Korea did not reach a similar agreement and therefore are subject to the tariff on aluminum without any quantitative restriction.

The original, global Section 232 actions can be adjusted on a country-by-country basis.  For example, in August, the tariff for imports of steel from Turkey was increased to 50 percent in response to the depreciation of the Turkish lira – the concern there was that the depreciation of the lira had made imports of Turkish products less costly and thereby undermined the effectiveness of the original Section 232 tariffs.  Canada and Mexico are reportedly negotiating for quotas to replace the Section 232 tariffs as early as this November.  And the Administration recently notified Congress of its intent to negotiate trade agreements with Japan and the European Union, which could involve quotas to replace Section 232 tariffs.

The product exclusion process has been a key focus since imposition of the Section 232 measures.  Product exclusions may be requested by U.S. stakeholders on a rolling basis.  According to the Commerce Department, a product exclusion will be granted if the article is not produced in the United States in a sufficient and reasonably available amount or at a satisfactory level of quality, or if there is a specific national security consideration warranting exclusion.  The product exclusion process was recently extended to imports from the quota countries.

The Administration has made some important changes to the product exclusion process since it was established.  First, domestic companies can seek “expedited relief from quantitative limits” for existing supply contracts.  Second, since early September, rebuttals (responses to objections) and surrebuttals (responses to rebuttals) are allowed and the Commerce Department has facilitated tracking of requests through its website (www.commerce.gov/page/section-…).  Third, parties are now permitted to submit confidential business information in support of requests or comments.  These last two changes were implemented in response to significant criticism of the process from companies and Congress.

At present, over 3,500 exclusions for steel and aluminum products have been granted (about 10 percent of posted requests).  In all but a few cases, the exclusions that were granted had been unopposed.

How Does a Company Take Advantage of a Product Exclusion?

As of today, the Administration has not granted any requests for exclusion from the Section 301 tariffs on imports from China.  The Administration has, however, indicated that such exclusions would be effective for one year upon publication of the exclusion determination in the Federal Register, apply retroactively to July 6 for products on the first list and to August 23 for products on the second list, and cover all imports of the product in question.  (As mentioned above, no product exclusions are planned for the third list, but Congress is raising concerns with the Administration on this point.)

For product exclusions from the Section 232 measures, requestors must closely track the regulations.gov dockets (Steel 232 docket BIS-2018-0006 and Aluminum 232 docket BIS-2018-0002) for the status of requests.  Once granted, an exclusion is valid for one year and is limited to the product description, quantity, supplier(s), and country(ies) of origin as defined in the request.

After a decision is posted, the Commerce Department notifies CBP, but the importer of record is nevertheless required to inform CBP in advance of importation.  More specific guidance on claiming an exclusion can be found at CSMS #18-000378.  If an exclusion is granted, companies are eligible for a retroactive refund of Section 232 tariffs back to the date the request for exclusion was posted for public comment at regulations.gov.

It is especially important to remember that, other than with respect to the first list of products covered by the Section 301 tariffs, U.S. stakeholders who believe a product should be excluded from the application of Section 232 or Section 301 tariffs may still be able to file an exclusion request.

 

Written by:  Matthew R. Nicely, Dean A. Pinkert, Julia K. Eppard and James Ton-that at Hughes Hubbard & Reed LLP

 

U.S. Export Volume Declines as Trade Deficit Widens

Washington, D.C. – The volume of U.S. exports unexpectedly hit a five-month low in September, widening the trade deficit by 7.6 percent to $40.3 billion, according to the U.S. Department of Commerce (DOC).

The DOC said that September’s shortfall is bigger than the $38.1 billion deficit that the government had forecasted in its recently published advance gross domestic product (GDP) estimate for the third quarter.

As a result, the 3.5 percent annual growth pace it estimated “will probably be trimmed” when the government publishes its revisions later this month.

At the same time, the agency revised August’s trade deficit to $39.99 billion from a previously reported $40.11 billion shortfall. When adjusted for inflation, the trade deficit increased to $50.76 billion from $48.22 billion.

Trade was reported to have contributed only 1.32 percentage points to U.S. GDP growth.

Exports in September fell 1.5 percent to $195.59 billion, the lowest since April, while exports to the European Union fell 6.5 percent and those to China slipped 3.2 percent.

Transpacific shipments to Japan tumbled 14.7 percent with declines also seen in the volume of exports to both Mexico and Brazil.

Overall imports were unchanged in September as petroleum imports hit their lowest level since November 2009. A domestic energy boom has seen the United States reduce its dependence on foreign oil, helping to temper the trade deficit.

Consumer goods imports, however, were the highest on record, as were non-petroleum imports.

Imports from Canada were the highest since July 2008, while inbound shipments from China also hit an all-time record boosting the U.S. trade deficit with that country gap to $35.6 billion, the highest on record.

11/06/2014

US Trade Deficit Narrows, Petro Exports Surge

Washington, DC – In a surprise development, the US trade deficit narrowed in August to its smallest level in seven months on an increase in exports.

The trade gap narrowed 0.5 percent to $40.1 billion, while July’s trade deficit was revised to $40.3 billion, according to Department of Commerce figures released this morning.

Increased global sales of capital goods, consumer goods and industrial supplies were credited with the 0.2 percent increase in exports in August.

The trade gap with China narrowed in August, while exports to Japan rose to their highest level since March 1996.

Imports edged up 0.1 percent to $238.6 billion with imports of capital goods during the month were the highest on record.

However, inbound shipments of petroleum dropping to their lowest level since Nov. 2010 as US oil exports are set to surpass a record that’s held for the past 57 years.

The US shipped 401,000 barrels a day abroad in July, 54,000 shy of the record set in March 1957, according to data compiled by the US Department of Energy (DOE).

US oil exports are expected to reach 1 million barrels a day by the middle of 2015, the DOE said.

Canada accounted for 93 percent of US oil shipments in July with Italy, Singapore and Switzerland also accounting for an increasing share of US-sourced oil sales.

10/03/2014

Calls Growing to Ease Ban on US Petroleum Exports

Washington, DC – International pressure is growing on Washington from several major trading partners to ease, or end, the long-standing ban on US crude oil exports.

Mexico said recently that it could enter an agreements with the US on crude oil swaps or on direct imports, while one of South Korea’s leading refiners has opened discussions with the government in Seoul over how to encourage Washington to end the ban on ‘ultra-light sweet crude,’ and the European Union wants US oil and natural gas exports covered by the proposed Transatlantic Trade and Investment Partnership.

 

According to Petroleos Mexicanos (PEMEX), Mexico’s state-owned oil company, the country is seeking US-sourced oil because of a sharp decline in its own reserves.

 

South Korea, which relies on imports to cover more than 95 percent of its energy needs, has had to curb oil imports from major supplier Iran, due to US and EU sanctions introduced in 2012, and the EU is eagerly looking for an alternative to petroleum supplies from Russia.

 

Japan, while not pushing for an ease on the current ban, has said it’s interested in importing more of what can be pumped out of gushers in such states as Texas, Alaska and North Dakota, but only “if the supplies are economically feasible.”

 

While fully overturning the ban would require Congressional action that most consider unlikely in the near-term, many argue that the White House could gradually allow for more oil to flow abroad through existing means.

 

Due in large part to the increase in shale oil production, the US is soon expected to surpass both Russia and Saudi Arabia as the world’s largest oil producer.

 

In March, the US Department of Commerce approved the export of 500,000 barrels of lightly processed condensate exports to South Korea from two domestic companies. Three additional applications have been put on hold as the White House reviews its policies on the ban.

 

09/11/2014

 

US Sugar Groups Oppose Mexico Trade Deal

Los Angeles, CA – Several national industry groups representing candy makers, soda companies, and other food manufacturers are urging Washington to reject pressure to negotiate a trade deal with Mexico to end a months-long dispute over allegations of cheap sweetener imports from south of the border.

In a recent letter to several top US trade officials, several national business groups including the Coalition for Sugar Reform, the American Beverage Association, and the Grocery Manufacturers Association said any move to restrict imports “could incite retaliation from Mexico on other products, undermine free trade across the continent under the North American Free Trade Act, and threaten over $220 billion in US exports to Mexico.”

Such a move by Washington, the letter said, would “jeopardize this robust trading relationship [with Mexico] by providing US sugar producers with even more insulation from market forces.”

The joint letter, addressed to US Agriculture Secretary Thomas Vilsack, Commerce Secretary Penny Pritzker and US Trade Representative Michael Froman, cited “troubling rumors” that pressure is being applied on the government to hammer out a deal that would include trade barriers.

The communication is seen as the latest indication of escalating tensions in the US sugar industry between sugar producers that favor restricting imports or implementing dumping duties and end-users who oppose any change to NAFTA that allows Mexico to import sugar duty-free in the otherwise protected American market.

US sugar producers filed a complaint with the International Trade Commission earlier this year charging Mexico with dumping sugar on the US market. Two months later, Vilsack said he would “encourage a negotiated agreement” that “could set a ceiling on Mexican sugar imports, which are currently unrestricted.”

The letter also said an agreement could threaten the completion of negotiations of the Trans-Pacific Partnership, the ambitious Pacific trade pact.

07/28/2014

Trade Deficit Drops, Exports Up, Imports Down in May

Washington, DC – The US exported $195.5 billion of goods and services in May 2014, cutting the trade deficit by 5.6 percent to $44.4 billion after hitting a two-year high of $47 billion in April, according to the Commerce Department’s Bureau of Economic Analysis (BEA).

Exports of goods and services over the last twelve months totaled $2.3 trillion, which is 45.7 percent above the level of exports in 2009, and have been growing at an annualized rate of 8.9 percent when compared to 2009.

The rise in exports reflected record sales of US-made autos and auto parts, which rose to a record high, the BEA said, while exports of consumer goods were also the highest on record.

Total US exports to Canada were the highest on record while imports from Canada were the highest since July 2008, leaving a trade deficit of $2.8 billion with Canada. America had a record $2.7 billion trade deficit with South Korea in May as imports from that country hit a record high.

During the same time period among the major export markets (i.e., markets with at least $6 billion in annual imports of US goods), the countries with the largest annualized increase in US goods purchases, when compared to 2009, were Panama, 22.5 percent; Russia,19.6 percent; Peru, 17.9 percent; Colombia, 17.4 percent; Ecuador, 17.3 percent; Hong Kong, 17.3 percent; Argentina, 16.3 percent; Nigeria, 15.1 percent; Chile, 14.8 percent; and Indonesia, 14.6 percent.

Imports fell a slight 0.3 percent to $239.8 billion during the month due in large part to an 11.3 percent jump in exports of US petroleum products.

The rise in US production has helped lower the need for imported oil, which dropped by 5 percent in May to $28.3 billion, the lowest monthly import total since November 2010.

07/07/2014

 

US Trade Deficit Surges to Two-Year High

Washington, DC – The volume of US imports surged and exports declined in April, pushing the US trade deficit to a two-year high of $47.2 billion, according to the latest figures released by the US Department of Commerce.

The trade deficit for the month climbed by 6.9 percent from an upwardly revised March deficit of $44.2 billion with imports growing by 1.2 percent to an all-time high of $240.6 billion and exports falling for the fourth month in a row by a rate of 0.2 percent to $195.4 billion.

In 2013, the trade deficit declined by 11.4 percent to $476.4 billion. Some analysts feel the decline in exports can be pegged on the extreme cold weather in the eastern and southern US coupling with the continuing drought in California’s agricultural Central Valley to impact the country’s manufacturing capability and, at the same time, increase the volume of imported foodstuffs.

The same analysts, though, are guardedly forecasting a bounce back with economic growth reaching around 3 percent in the second half of the year as a boom in the nation’s energy sector could well narrow the trade gap. Stronger domestic petroleum production cut oil imports by 10.9 percent during the first quarter of the year, while oil imports in April fell 2.2 percent to $29.8 billion, while conditional US petroleum exports rose 3.1 percent to $11.8 billion.

The US trade deficit with the 28-member European Union hit a monthly record of $14 billion in April as imports from that region hit an all-time high, while the trade gap with China, the largest the US has with any trading partner, jumped 33.7 percent to $27.3 billion in April, the largest gap since January.

The US-China trade relationship has come under scrutiny on Capitol Hill with some lawmakers charging that Beijing is manipulating its currency to keep it undervalued against the dollar. That manipulation, they have said, makes imported Chinese goods cheaper in the US and American-made products more expensive in China.

06/09/2014

US SecCom on Major Philippine Trade Mission

Washington, DC – US Secretary of Commerce Penny Pritzker is leading a major business delegation to the Philippines this week.

The mission is seen as “a concrete sign that the United States is ready to engage Manila in further market access and trade negotiations” that “reaffirms Washington’s commitment to the Philippines and the entire Association of Southeast Asian Nations (ASEAN) region,” said the US Embassy in Manila.

The 12-person, “CEO-level” mission consists of representatives of companies in the services, energy, consumer goods, communications, electronics and mining sectors.

Part of Secretary Pritzker’s itinerary reportedly includes meetings with President Benigno Aquino, Trade and Industry Secretary Gregory Domingo, Finance Secretary Cesar Purisima and other key Philippine government officials.

Pritzker has served as Secretary of Commerce for the past two years as a member of the President’s Economic Recovery Advisory Board which formulated and evaluated economic policy.

US goods and services trade with the Philippines totaled $24 billion in 2012, according to the latest trade data available from the US Trade Representative. Exports totaled $10.6 billion; Imports totaled $13.3 billion.

In 2013, US companies invested $1.3 billion in the country, while the US ranked as the Philippines’ third largest trading partner and second largest global export market.

06/05/2014

Kuder Inc. Garners President’s “E” Export Award

Adel, IA – US Secretary of Commerce Penny Pritzker recently presented Kuder Inc. with the President’s “E” Award for Exports at a ceremony in Washington, DC, in recognition of the company’s “significant contribution to the expansion of US exports.”

Iowa-based Kuder is a leading provider of evidence-based assessment, education planning and career guidance tools and resources.

Between 2012 and 2013, the company’s export sales increased by 257 percent with the greatest overseas sales growth seen in Africa, Asia and the Middle East.

“The ‘E’ Awards Committee was very impressed with Kuder’s complete customization of products to fit unique international markets,” said Pritzker in her congratulatory letter to the company.

The company’s achievements, she wrote, “have undoubtedly contributed to national export expansion efforts that support the US economy and create American jobs.”

Kuder, founded in 1939, also received a special recognition from Rep. Tom Latham (R-Iowa), who said, “It is clear to me that Iowa’s own Kuder, Inc. truly represents the spirit of American business and the renowned Iowa work ethic.”

A total of 66 US companies were presented with the President’s “E” Award this year. The awards were based on four years of successive export growth and an innovative international marketing plan leading to an increase in exports.

06/02/2014