PNWER
  • Home
  • Our Work
    • Working Groups
    • Center for Regional Disaster Resilience
    • PNWER RIA Program
    • RISE-WA Project
    • Future Borders Coalition (Beyond Preclearance)
    • Congregate
  • Events
    • Upcoming Events
    • 2023 Annual Summit
    • 2023 Economic Leadership Forum
    • Past Events >
      • 2022 Economic Leadership Forum
      • 2022 Annual Summit
      • 2021 Economic Leadership Forum
      • 2021 Summit
      • 2020 Economic Leadership Forum-Rising Economy Week
      • 2019 Economic Leadership Forum
      • 2019 Summit
  • Webinars
    • Past Webinars
    • Pandemic Resilience Roadmap
  • Energy Institute
  • Sponsorship
    • Current Sponsors
  • About Us
    • Accomplishments
    • Employment Opportunities
    • Governance Structure
    • History
    • PNWER Staff
  • Resources
    • Action Items
    • Annual Reports
    • Blog
    • Leadership Awards
    • Media
    • Newsletter Archives
  • Home
  • Our Work
    • Working Groups
    • Center for Regional Disaster Resilience
    • PNWER RIA Program
    • RISE-WA Project
    • Future Borders Coalition (Beyond Preclearance)
    • Congregate
  • Events
    • Upcoming Events
    • 2023 Annual Summit
    • 2023 Economic Leadership Forum
    • Past Events >
      • 2022 Economic Leadership Forum
      • 2022 Annual Summit
      • 2021 Economic Leadership Forum
      • 2021 Summit
      • 2020 Economic Leadership Forum-Rising Economy Week
      • 2019 Economic Leadership Forum
      • 2019 Summit
  • Webinars
    • Past Webinars
    • Pandemic Resilience Roadmap
  • Energy Institute
  • Sponsorship
    • Current Sponsors
  • About Us
    • Accomplishments
    • Employment Opportunities
    • Governance Structure
    • History
    • PNWER Staff
  • Resources
    • Action Items
    • Annual Reports
    • Blog
    • Leadership Awards
    • Media
    • Newsletter Archives

PNWER Blog

News, Updates & Resources for the Region

Trade Talks, Tariffs, and Trouble | Dan Ujczo

5/29/2018

 
The past week—officially (and ironically) dubbed “World Trade Week” by the US White House (link) — witnessed significant trade policy developments for automotive manufacturers and suppliers.  However, the deadlines presented in the coming week (May 28-June 2) may lead to even greater disruption in the auto and advanced manufacturing sectors and require close attention. 
 
You can find background on these developments, as well as a sampling of Dickinson Wright’s comments in global media, as follows:
  • Trump officials weigh 25 percent tax on imported cars in a bid to force concessions in NAFTA trade talks, Washington Post (link)
  • Trump Administration explores auto related tariffs, CBS news (link)
  • Trump's auto tariff surprise, Politico (link)
  • Canadian Auto industry blindsided by Trump's absurd tariff threat, The Globe and Mail (link)
  • Canadian auto sector observers doubt US will carry through on tariff threat, Financial Post (link)
  • Trump administration explores tariffs on autos, auto parts, China Post (link)

Looking ahead to next week, Dickinson Wright encourages companies to be aware of the following five (5) trade issues:
 
1.Section 232 Investigation into Auto Imports— The “headline-grabbing” news of the past week was that US President Donald Trump ordered the US Department of Commerce (DOC) to launch a Section 232 national security investigation into automobile imports.  It was reported that President Trump asked for additional tariffs between 20-25%. 
 
According to a statement issued by DOC, the investigation will “determine whether imports of automobiles, including SUVs, vans, light trucks, and automotive parts into the United States threaten to impair the national security.” (Emphasis added.)  The Secretary of Commerce has 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. 

  • What Should We Do?  The DOC is expected to hold a public hearing and invite comments from the automotive industry and other stakeholders, the date of which will be announced “shortly” in the Federal Register (Dickinson Wright will forward once released).  As a result, companies with interest in the outcome of this investigation should consider their strategy as early as possible, including working with allies, congressional and otherwise.  Potentially affected parties ensure that the Trump Administration, especially the DOC and the White House, are aware of their views and concerns. This may include preparing comments for submission to the DOC or participating in the anticipated public hearing.  Dickinson Wright emphasizes that the Trump Administration relies heavily on individual company “stories” as opposed to broad pronouncements and policies from trade associations.  It is imperative that individual companies get engaged on this issue.  Dickinson Wright is available to assist and frequently appears on behalf of clients in these types of proceedings.   
 
2.Section 232 Steel and Aluminum Tariffs—Of greatest immediate impact, the  deadline for the Trump Administration to extend or grant country exemptions from the Section 232 steel and aluminum tariffs is fast approaching, without any resolution in sight.  The Trump Administration has already imposed 25% tariff ad valorem on steel and 10% ad valorem on aluminum imports into the United States from all countries (as of March 23, 2018), with the exception of a few countries as to which the Trump Administration is negotiating country-wide exemptions from tariffs, including Canada, Mexico, and the European Union.  Only South Korea has received a permanent exemption from the tariffs, in exchange for concessions in trade negotiations and establishing quotas (which are largely filled). 
 
It is highly unlikely that any new major country exemptions—such as for Japan—will be granted.  Dickinson Wright also anticipates, barring any developments over the next week, that it is unlikely that the EU and Mexico will continue to have country exemptions beyond .  Similarly, it is unlikely that Canada will maintain its country exemptions.  Again, Dickinson Wright does not expect Canada, Mexico, and the EU to have country exemptions past June 1 unless there is significant developments over the next week.    

  • What Should We Do?  Companies that rely on products from these countries should seek specific product exclusions from the tariffs.  Dickinson Wright has prepared and filed many product exclusion requests and has provided the following webinar to introduce companies on the process.  http://www.dickinson-wright.com/events/a-time-for-tariffs-steel-and-alum-webinar-3-28 
 
Additionally, Canada, Mexico, and the EU (as well as other affected countries) thereafter will publish lists of items upon which that country will impose retaliatory tariffs.  These products include steel and aluminum products as well as any product that may be of practical and political importance to the US (there is no requirement that it be linked to steel and aluminum production).  It is imperative that companies monitor those retaliation lists to ensure that its goods will not be impacted by retaliatory tariffs.  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 past week witnessed a flurry of activity targeting the NAFTA modernization process.  While there were several reports of potential concessions that were made by Mexico and the US over the past week, Dickinson Wright’s current intelligence is that the negotiations are at an impasse. 
 
Automotive Rules of Origin (ROO) are at the top of several key sticking points.  Specifically, the US presented it most recent auto ROO “proposal” (without formal text) in late April/early May, which the Mexican negotiating team considered and countered during the week May 7.  While Mexico’s counterproposal included all of the key “elements” contained in the US proposal—including wage requirements and a steel and aluminum threshold—the parties differed on the number/percentages.  Mexico also required that, in exchange for its concessions on auto ROO, the US would make concessions on other controversial areas such as a “sunset clause” (reauthorizing the NAFTA every five years), seasonal produce, and dispute resolution.  The US immediately rejected the proposal and Mexico withdrew its request.  No new offer has been tabled by any party.
 
The US proposal was a 75% top line regional value content for auto ROO, of which 40% (45% for light duty trucks) of the final assembly must be produced at the North American Average Wage (approx. $15-$17).  Up to 15% (20% for light duty trucks) of that  North American Average Wage requirement could include R&D, marketing, sales, etc. salaries.  The US proposal also required that 70% of all steel and aluminum originate in North America.  The US further proposed 2, 4, and 9 year phase-in requirements, depending on the components, with autonomous and electric vehicles having the longest phase-in period.
 
For its part, Mexico advanced a top-line RVC of 70% (as opposed to the US’ 75%) of which 20% (30% for light duty pickup) must be assembled at the North American Average Wage.  Mexico counter-proposed steel (30%) and aluminum (20%) thresholds. Mexico’s counterproposal included a 10 year phase-in period.  Mexico’s overarching concern was that only a limited percentage of its auto production could comply with all of the elements.  Consequently, Mexico’s proposal included certain options/credits for companies that complied with some, but not all, of the elements.  The full contours of that component of the proposal remain unclear and may be in flux.
 
The inability to reach an agreement in principle on auto ROO has prevented the parties from reaching any resolution.  Over the course of the past ten days, the US, Canada, and various stakeholders have floated the idea of a “skinny NAFTA”, relying on only the US Executive Branch (and not Congress) to “tweak” the NAFTA.  The purest form of the “skinny NAFTA” would be to have updated auto ROO provisions and a few other “fresh coat of paint” upgrades in areas such as anti-corruption.  More legally tenuous is to move the “skinny NAFTA” to a “fast NAFTA” which would have provisions on digital, customs and trade facilitation, as well as “quick-hits on dairy and other issues.   There has been significant push-back from Congress, including from the chairman of the influential House Ways and Means Committee, as well as labor, on the “skinny NAFTA” option.  While “skinny NAFTA” has some surface appeal as it would minimize any potential harm from the negotiations, the fall-out could bring the NAFTA closer to withdrawal. In short, faced with pushback that he is soft on NAFTA, the President will overreact.   Dickinson Wright’s view is that the parties will proceed for a full NAFTA, which will take time to resolve major outstanding issues such as auto ROO, government procurement, supply management, dispute resolution, textiles, and intellectual property rights.  Unfortunately, the parties are out of time under various domestic processes to reach a deal and submit for ratification by the close of 2018.  There will not be a fully ratified NAFTANEXT in 2018.

  • What Should We Do?  While the NAFTA appears in stall mode until after the July 1 elections in Mexico and potentially the US November midterms, the potential for a deal to rapidly come together is ever-present, even one that may not be ratified in 2018.  Any solution the parties reach on auto ROO will have place significant compliance burdens on the suppliers.  Companies should be ensuring that all documentation, origin certifications, and records are up to date as OEMs likely will be reviewing all supplier contracts and compliance protocols in the lead-up to a new NAFTA.
 
4.China—Negotiations between the US and China will continue, with Secretary Ross visiting China in the coming weeks.  China is starting to announce reductions in tariffs such as a new 15% auto tariff (down from 25%) and promotion of purchasing US goods.  Pushback to the President’s efforts has been severe, with the US Senate passing a bill preventing the implementation of one deal element (easing trade remedies on China’s ZTE) and labor vocally challenging the President’s commitment to “get tough” on China.  The politics of 2018 and 2020 will be determined by how the President handles China.  Success could bring victory.  Pushback, or allegations of the President easing up on China, could encourage wild extremes of actions and policies.    
 
5.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 .  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.  Up until this week, conventional wisdom was that the extension would smoothly sail through Congress; however, Congress may use June to “flex its muscles on trade.”  A report on the extension is due from the International Trade Commission by .  It may be worth a read and TPA extension may become the talk of June
 
Dickinson Wright is engaged in all of these activities.  We are happy to discuss and assist at any time.
 
Best,
Dan
 

 
Daniel D. Ujczo Practice Group Chair - Intl & Regional Practices

Comments are closed.

    Archives

    February 2023
    December 2022
    October 2022
    May 2022
    January 2021
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    August 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    November 2018
    September 2018
    August 2018
    June 2018
    May 2018
    April 2018
    March 2018
    January 2018
    November 2017

    Topics

    All
    2018
    Arctic
    Capital-visits
    Capital-visits
    D.C.
    Invasive Species
    NAFTA
    Ottawa

Phone: (206) 443-7723 
Fax: (206) 443-7703
Email: info@pnwer.org
World Trade Center West
2200 Alaskan Way, Suite 460
Seattle, WA 98121