How the Trump Administration’s Trade Policy affects your international business and what you can do about it?

The Trump Administration’s aim of remaking global trade is fully underway. White House officials describe their new approach as “bold, creative and disruptive.” Over the past year, we have witnessed the imposition of tariffs not only against imports from China but also against steel and aluminum from our traditional allies (Canada, Mexico, the European Union (EU) and Japan) based upon national security grounds. At the same time, Customs & Border Protection (CBP) is asking more questions at the border about what exactly is being imported, where it comes from and how much it costs. For CBP, details matter.  CBP is also focusing on goods that might be covered by anti-dumping or countervailing (AD/CVD) duties. CBP inquiries come in the form of a Request for Information (Customs Form 28).

Our trading partners have not taken the imposition of tariffs against their countries lightly and have imposed retaliatory tariffs. This has led to the tit-for-tat trade war, regularly covered by mainstream press, which affects not only U.S. importers but U.S. exporters.

At the same time, the Administration has modified the Korea-U.S. Free Trade Agreement (KORUS) and finalized the renegotiation of NAFTA (now called the United States-Mexico-Canada Agreement (USMCA)).  USMCA has yet to be approved by the U.S. Congress, a necessary step for the agreement to become the law of the land. The Administration has also notified Congress of its intent under Trade Promotion Authority (TPA) to negotiate agreements with Japan, the EU and the United Kingdom. It is certainly welcome news that the Administration intends to negotiate market access opening agreements.

So how does this affect your business? 

  • Tariffs and Quotas:  If you import goods or are a U.S. manufacturer that purchases imported goods you may be facing higher costs because of hefty tariffs of as much as 25%.  If you are an exporter, you might find yourself facing unexpected tariffs in the country you are exporting to.  Farmers have been hit especially hard by retaliation.

    • Steel and Aluminum Tariffs
      On March 8, 2018, the President issued two proclamations, under his authority under the Trade Expansion Act of 1962 to protect the national security, on steel and aluminum products, imposing tariffs in the amount of 25% and 10% respectively.  The tariffs continue for steel products for all countries except for Argentina, Brazil and South Korea (covered by quotas) and for aluminum products for all countries except for Argentina (covered by quotas).  Australia is not covered by either tariffs or quotas. For the time being, the tariffs remain for Canada and Mexico even though USMCA has been renegotiated. There is a product exclusion process administered by the U.S. Department of Commerce Bureau of Industry & Security (BIS).

      There are other national security investigations pending that could lead to more tariffs, most notably regarding automobiles and auto parts, but also on uranium and titanium sponge.

    • Tariffs on Chinese Imports
      As a result of an investigation under Section 301 of the Trade Act of 1974 into China’s unfair trade policies and practices primarily relating to intellectual property and forced technology transfers, tariffs on $50 billion worth of goods are subject to a 25% ad valorem duty. A third tranche of goods in the amount of $200 billion are now subject to a 10% ad valorem duty.  Whether the duties on the $200 billion will be increased to 25% depends upon the ongoing negotiations between China and the U.S.  Product exclusions were considered for the first two tranches totaling $50 billion and the process for those imports is now closed.  At the current time, there is no process for product exclusion for the $200 billion despite pressure by some in Congress.
  • More enforcement by CBP at the border
    CBP is charged with enforcement of these policies and collection of the revenue.  As a result, you may be getting more questions about what you are importing, where it comes from and how much it costs. CBP might also ask questions regarding compliance with other U.S. government agency requirements, such as CPSC, FCC, USDA, FDA. These are often complicated questions resting on customs and other government agency laws.  If you get a Form 28, it is likely that CBP thinks that there has been a mistake, or even worse – an intentional deception – in the importation of the imported product.  Companies receiving such inquiries are well-advised to consult with an experienced customs attorney.  There are a variety of ways of mitigating penalties, which the customs attorney can advise on.  CBP may even be mistaken in its belief that there has been an infraction.

So what are some of the ways to mitigate the pain of these trade policies and increased enforcement at the border?

  • Examine your supply chains and make changes if possible.
  • Review your tariff classifications.
  • Make sure you are declaring the correct country of origin for your product. Value chains are complicated but so are rules of origin.
  • Review how your international transactions are structured.  You may be able to take advantage of a lower value by use of the “first sale” rule.  This is complicated.
  • Make sure your product really qualifies for any preferential tariff treatment claimed under free trade agreements or preferential programs, such as GSP, AGOA etc.
  • There is a fine line between “tariff engineering” and what can be considered customs fraud so great care must be taken in making these changes which often also trigger questions by CBP.
  • For steel and aluminum tariffs, there is a product exclusion process. Take advantage of it.
  • The steel and aluminum tariffs are being challenged in court and at the World Trade Organization.  Learn how you can preserve your rights in the event these challenges are successful.
  • In the future, there may be a product exclusion process for the third tranche of $200 billion worth of Chinese imports imposed under Section 301.
  • Avoid surprises that cost money.  Make sure your product is not subject to an AD/CVD order.
  • Ask for a scope ruling if you think your product is wrongfully caught by an AD/CVD order.
  • Evaluate the use of duty deferral programs (FTZ’s, bonded warehouse, duty drawback, TIBs).
  • For the future consider contract terms that allow adjustments for unexpected costs as a result of sudden increases in tariffs.
  • Consider what to do if your competitor is not paying the extra duties.
  • Keep your Congressional delegation informed as to the impact of these policies on your business.
  • Last but not least, stay informed.  In the past year, there have been many costly changes but there have also been opportunities to mitigate such costs.

For more information, please contact Evelyn Suarez at esuarez@suarezfirm.com or 202.552.0310.  For information about Evelyn Suarez see https://www.suarezfirm.com/about/evelyn-suarez/

Update on Section 301 Tariffs on Chinese Imports and Product Exclusion Process

UPDATE: The deadline for exclusion requests for the $16 billion list effective August 23, 2018 is December 18, 2018. More information here.

Effective July 6, 2018, the United States implemented an additional 25% ad valorem duty on $34b worth of imports from China. For a list of products covered by the 25% duty see Annex A to Notice of Action and Request for Public Comment Concerning Proposed Determination of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation

Effective August 23, 2018, the United States will implement an additional 25% ad valorem duty on an additional $16b worth of imports from China. Here is a list of products covered by the 25% duty.

For tariffs effective July 6, 2018 or August 23, 2018, formal request for exclusion for product exclusions may be made, as described herein. The deadline for filing such requests is October 9, 2018 for the July 6 list and December 18 for the August 23rd list.

Proposed 10% or 25% Tariff for $200b worth of imports from China: The final list is yet to be determined but here is the proposed list.  https://www.regulations.gov/document?D=USTR-2018-0026-0001

There are two opportunities to get products off the list by: (1) commenting on the proposed list. Comments are now due by September 6, 2018 (See Extension of public comment period)
or (2) requesting a product exclusion. As described below, the deadline for filing such requests is October 9, 2018.

Product Exclusion Process

On July 6, 2018, USTR announced a process to obtain product exclusions from the additional tariffs imposed on certain products imported from China.

The exclusion process has the following important dates and features:

  • The public will have 90 days to file a request for a product exclusion; the request period will end on October 9, 2018.
  • Following public posting of the filed request on Regulations.gov, the public will have 14 days to file responses to the request for product exclusion. After the close of the 14-day response period, interested persons will have an additional 7 days to reply to any responses received in support of or opposition to the request.
  • Exclusions will be effective for one year upon the publication of the exclusion determination in the Federal Register, and will apply retroactively to July 6, 2018.

Because exclusions will be made on a product basis, a particular exclusion will apply to all imports of the product, regardless of whether the importer filed a request. The U.S. Customs and Border Protection will apply the tariff exclusions based on the product.
https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/july/ustr-releases-product-exclusion

There is a form for filing requests – https://www.regulations.gov/document?D=USTR-2018-0025-0002

The form asks for, among other things: a complete and detailed description of the product and the 10-digit Harmonized Tariff Schedule of the United States (HTSUS) number for the product. It also asks whether comparable products are available from sources in the U.S. and/ or third countries. It asks for the value and quantity (with units) of the Chinese-origin product of concern purchased for the past 3 calendar years. Only one product may be submitted per exclusion request.

The requester must provide a rationale for the exclusion, addressing the following points:

  • Commercial availability of the product outside of China
  • Potential harm to the requester or other U.S. interests if the exclusion is not granted
  • Whether the product is strategically important or related to Beijing’s “Made in China 2025” or other industrial programs.

Questions: You may have questions whether your product is covered at all or on the process of how to seek an exclusion from the tariffs. If so, I would be glad to assist. Please contact Evelyn Suarez at esuarez@suarezfirm.com or 202.552.0310.

Section 301 Tariffs for Certain Chinese Products

Covered Products

  • On June 20, 2018, the Office of the U.S. Trade Representative (USTR) released a list of products imported from China that will be subject to additional tariffs in the amount of 25 percent. See June 20, 2018 Federal Register notice (83 Fed. Reg. 28710) – https://ustr.gov/sites/default/files/2018-13248.pdf

The duties are being imposed in response to China’s unfair trade practices related to forced transfer of American technology and intellectual property.

Effective Date

  • For the approximately $34 billion worth of imports from China, the additional duty of 25 percent will be collected by Customs and Border Protection (CBP) with respect to goods entered, or withdrawn from warehouse for consumption, on or after 12:01 AM Eastern Standard Time on July 6, 2018.
  • A second set of Chinese imports, valued at approximately $16 billion, were proposed by the interagency Section 301 Committee as benefiting from Chinese industrial policies, including “Made in China 2025.” This list of products will undergo further review in a public notice and comment process, including a public hearing to take place July 24, 2018. At the end of the process, USTR will issue a final determination on the products from this list that would be subject to the additional duties. The effective date is yet to be determined for this second set.

Foreign Trade Zones (FTZ)

  • Listed products, except those products eligible for admissionunder “domestic status” as defined in 19 CFR 146.43, which is subject to the additional duty, and that is admitted into a U.S. foreign trade zone on or after 12:01 am eastern daylight time on July 6, 2018, only may be admitted as “privileged foreign status,” as defined in 19 CFR 146.41. That means the products will be assessed duty based upon the condition when the goods are brought into the FTZ. Such products will be subject upon entry for consumption to any ad valorem rates of duty or quantitative limitations related to the classification under the applicable HTSUS subheading.

Product Exclusion Process

  • Administered by the Office of the U.S. Trade Representative
  • Can provide exclusion from the 25 per cent ad valorem duty for a particular product within a tariff subheading but not the tariff subheading as a whole
  • The public will have 90 days to file a request for a product exclusion; the request period will end on October 9, 2018.
  • Following public posting of the filed request on Regulations.gov, the public will have 14 days to file responses to the request for product exclusion.  After the close of the 14-day response period, interested persons will have an additional 7 days to reply to any responses received in support of or opposition to the request.
  • Because exclusions will be made on a product basis, a particular exclusion will apply to all imports of the product, regardless of whether the importer filed a request. CBP will apply the tariff exclusions based on the product.
  • Exclusions will be effective for one year upon the publication of the exclusion determination in the Federal Register, and will apply retroactively to July 6, 2018.

How to file Request?

  • Via regulations.gov, enter document ID number USTR2018-0025-0001 on the home page and click “search.” The site will provide a search results page listing the Federal Register Notice associated with this docket. Find a reference to this notice and click on the link titled “comment now!”. Once posted on the electronic docket, the exclusion request will be viewable in the “Primary Documents” section.

Chinese Retaliation

  • China has retaliated to the U.S. tariffs by imposing tariffs for $50 billion of U.S. goods to be implemented in two phases. Effective July 6, 2018, China has imposed a 25 per cent ad valorem duty on $34 billion of U.S. products across 545 categories. Agricultural products (especially soybeans), sport utility vehicles and electric vehicles are among the products hit.

Resources:

Questions: Should you have any questions, please contact Evelyn Suarez at esuarez@suarezfirm.com or 202.552.0310.