Dickinson Wright (@dickinsonwright) advises that we are entering the “Summer of Disruption” to global trade based on five (5) categories of recent US actions and other countries’ responses:
As a result, when companies return from their Canada Day and Fourth of July parades and picnics, the global trade environment will experience the US imposing nearly $200 billion in tariffs on ferrous metals and China-sourced goods, and US exports subject to nearly $75 billion in retaliatory tariffs ($34 billion from China/$40 billion for Canada, EU, and Mexico). The overarching question is whether the US will be moving toward its objective of achieving “rebalanced” trade, or whether the global economy will be rapidly moving toward recession. Companies cannot wait for the answer. Contingency planning is a must.
You can find background on these developments, as well as a sampling of Dickinson Wright’s comments in global media, as follows:
https://apnews.com/1ca6036369df43fe868e8edd348eb3c9 (G7 NAFTA)
https://www.theglobeandmail.com/business/article-nafta-negotiators-aim-to-make-deal-this-summer-foreign-minister/ (NAFTA and tariffs)
https://www.theglobeandmail.com/business/article-nafta-negotiators-aim-to-make-deal-this-summer-foreign-minister/ (NAFTA and steel/aluminum)
https://www.theglobeandmail.com/politics/article-freeland-headed-back-to-washington-in-bid-to-reignite-nafta-talks/ (steel and aluminum)
https://www.theglobeandmail.com/business/article-whats-at-stake-if-the-us-slaps-tariffs-on-canadian-auto-exports/ (auto tariffs)
https://insidetrade.com/daily-news/sources-administration-pushing-finish-auto-investigation-midterms (auto tariffs)
1. Section 301 Tariffs on Imports from China The Office of the United States Trade Representative (USTR) released on June 15, 2018 a list of products imported from China that will be subject to additional tariffs as part of the US response to China’s purported unfair trade practices. The action came following after a Section 301 investigation in which USTR found that China’s acts, policies and practices related to technology transfer, intellectual property, and innovation were unreasonable and discriminatory, and burdened U.S. commerce.
The list of products https://ustr.gov/sites/default/files/2018-0018%20notice%206-15-2018_.pdf covers 1,102 separate US tariff lines valued at approximately $50 billion in 2018 trade values. This list of products consists of two sets of US tariff lines. The first set contains 818 lines of the original 1,333 lines that were included on the proposed list published on April 6. These lines cover approximately $34 billion worth of imports from China. USTR has determined to impose an additional duty of 25 percent on these 818 product lines after having sought and received views from the public. US Customs and Border Protection will begin to collect the additional duties on July 6, 2018.
The second set contains 284 new tariff lines. These 284 lines, which cover approximately $16 billion worth of imports from China, will undergo further review in a public notice and comment process with written submissions due July 23, 2018 and a public hearing will be held on July 24, 2018. Parties desiring to appear at the hearing must submit a request and proposed testimony on or before June 29, 2018. After completion of this process, USTR will issue a final determination on the products from this list that would be subject to the additional duties.
USTR also has advised that it will be establishing procedures for product exclusions. Dickinson Wright will circulate notices regarding that process as they become available.
Unsurprisingly, China immediately announced that it would target $50 billion of US goods in two phases. http://gss.mof.gov.cn/zhengwuxinxi/gongzuodongtai/201806/t20180616_2930323.html The first phase on $34 billion of goods is slated to take effect on July 6 and targets soy, cars, sorghum, fish, pork, and cotton. Additional duties on $16 billion worth of US goods, including chemicals, medical equipment and energy products, will be finalized later.
President Trump has threatened additional tariffs against nearly $100 billion of China-sourced goods if Beijing retaliates. No talks between the US and China are planned before the July 6 deadline. Also factoring into the US-China trade talks is that the US Treasury Department has until July 30 to decide new rules and restrictions on China-sourced investments into the US.
· What Should We Do? Do not wait for July 6. The procedural, policy, and political factors all indicate that the first phase of US tariffs and China’s retaliation will occur. All companies should review (and review again) the list of products to determine potential exposure to the US Section 301 tariffs and China’s retaliation. In the event companies are subject to tariffs as of July 6, 2018, please contact Dickinson Wright and we can assist in preparing a product exclusion request once that process if fully established. In the event that your company may be impacted by one of the 284 product lines, it is imperative to participate in the written submissions and hearings. Notably, USTR removed 515 product lines from the original target list based on submissions received from companies. Dickinson Wright will monitor all developments and assist upon request.
2. Section 232 Steel and Aluminum Tariffs—The US has imposed 25% tariff ad valorem on steel and 10% ad valorem on aluminum imports into the United States from all countries previously subject to the tariffas well as the European Union, Canada, and Mexico.
Korea, Australia, Argentina, and Brazil received long-term exemptions from the tariffs in varying degrees based on commitments to quotas or other measures (if you are importing steel and, or, aluminum from these countries, please review US-CBP guidance on the issue or request assistance from Dickinson Wright).
As further predicted, the EU, Canada, and Mexico announced retaliatory measures. These retaliation lists include items tied to the steel and aluminum industry as well as products from key congressional districts and other political pressure points.
Mexico imposed retaliatory measures on June 6 ranging from 10%-25% on nearly $3 billion worth of US goods. (See attached report from Dickinson Wright’s Mexico-based ally IQOM.) These included steel, aluminum, bourbon, pork bellies, blueberries, apple, grapes and some cheese. However, Mexico did not impose retaliatory tariffs on US grains (nearly $4 billion) but is exploring whether or not to do so if the US imposes more tariffs.
The EU approved its 10 page list of retaliation targets zeroing in on $3.3 billion worth of goods on June 14, 2018 and implementation is expected in July (if not before). http://trade.ec.europa.eu/doclib/docs/2018/march/tradoc_156648.pdf.
Canada released its list of countermeasures against US imports www.fin.gc.ca/activty/consult/cacsap-cmpcaa-eng.asp and the public comment period is now closed. These measures will be implemented on July 1, 2018.
We anticipate that the retaliatory measures will be fully implemented against the US. It is imperative that companies monitor the retaliation lists to ensure that their goods will not be impacted by retaliatory tariffs. Dickinson Wright has produced a webinar to explain the retaliation process and strategies.http://www.dickinsonwright.com/events/canada-to-impose-tariffs-webinar In the event that retaliatory measures impact a company, Dickinson Wright can assist with working with the foreign government to potentially minimize the consequences.
3. NAFTA—The NAFTA has been on life support since the start of June. Beginning with Twitter spats between President Trump and Prime Minister Trudeau; to brief optimism at the G7 that was abruptly darkened by post-summit news conferences, social media, and Sunday new shows; to speeches and meetings in Washington this week to cool the temperature; to strong and credible rumors that the White House was seriously considering withdrawing from NAFTA over the Fathers’ Day weekend—the past week to 10 days has been a roller coaster for North American trade. The prevailing view at the moment is that the NAFTA will be on hold until after the July 1 Mexican elections. A Ministerial meeting between the three countries likely will be held in mid-July where there may be an opportunity to close the NAFTA auto rules of origin chapter and address the steel and aluminum tariffs. However, it is important to note that while the parties may reach a deal in the Summer of 2018, the procedural and political calendars are closed for ratification by the end of the year. It will be up to the next US Congress to ratify any deal. And with Canada having a federal election in 2019 and the public rallying around Prime Minister Trudeau’s “get tough on Trump” stance, it will be interesting to see if Canada can make any concessions.
· What Should We Do? While there may be noise around the NAFTA over the coming weeks, we do not see any meaningful activity happening until after the July 1, 2018 election in Mexico. There may be an attempt right after those elections to agree on framework for the automotive rules of origin that will include a steel and aluminum threshold in exchange for lifting the tariffs, and the parties then will agree to continue negotiating on other topics throughout the Fall. At this time, we do not envision NAFTA being completed and ratified in 2018. We likewise do not view that a US withdrawal will occur. We do believe, however, that the process will be very bumpy over the coming months. The status quo will remain for 2018, but not without a great deal of noise and saber-rattling.
4. Trade Promotion Authority 2015 Extension—All of this activity is occurring against the backdrop of the President’s Trade Promotion Authority (TPA aka “fast track”) expiring on June 30, 2018. While TPA has no role in Section 232 tariffs, it is the primary authority through which the President is negotiating the NAFTA and potentially will deal with UK, Japan and others. Pursuant to the statute, the President requested an extension of TPA until 2021. While Congress is not required to affirmatively approve the extension, Congress may file a “disapproval resolution” of the request. A report on the extension was filed by the International Trade Commission https://www.usitc.gov/publications/332/pub4792.pdf and the private sector USTR Advisory Committee on Trade Policy and Negotiations (see attached ACTPN Report) supporting extending TPA until 2021. We anticipate that TPA will be extended. On the Section 232 front, US Senator Bob Corker (R-TN) and US Senator Pat Toomey (R-PA) each tried to pass legislation this week limiting the President’s ability to impose Section 232 tariffs—to no avail. It appears that Congress will not take on POTUS in 2018 regarding trade; however, Dickinson Wright sources have advised that NAFTA withdrawal and Section 232 auto tariffs would be red-lines for Congress. Nevertheless, companies should not rely on Congress to stop the Trump trade agenda.
5. Section 232 Investigation into Auto Imports—As previously indicated, the US Department of Commerce (DOC) published a notice in the May 30, 2018 Federal Register regarding its proposed national security investigation into the imports of automobiles including cars, vans, SUVs, light trucks and automotive parts. https://www.gpo.gov/fdsys/pkg/FR-2018-05-30/pdf/2018-11708.pdf The Notice seeks input from companies in the following areas:
Any interested party may file a written submission on or before June 22, 2018. Rebuttals may be filed on or before July 6, 2018. Procedures are in place to ensure confidentiality of proprietary/sensitive information. A public hearing will be held on July 19 and 20, 2018. Parties may request to appear at the hearing by June 22, 2018.
The Secretary of Commerce has a total of 270 days to conduct an investigation and present the DOC’s findings and recommendations to the President. If the Secretary finds that an import threatens to impair US national security, the President shall determine whether he agrees with those findings within 90 days. If so, he must determine what, if any, action to implement to “adjust” the imports of the article in question so that they will not threaten to impair national security. Dickinson Wright previously indicated that we not believe that the President will elect to impose tariffs before the close of 2018 and certainly not before the November 2018 midterm elections. Our new information suggests that the tariffs may be issued in Fall 2018, likely in October. See full story below from Inside Trade with Dickinson Wright comments.
Dickinson Wright is engaged in all of these activities. We are happy to discuss and assist at any time.
Daniel D. Ujczo Practice Group Chair - Intl & Regional Practices