Three weeks after the partial federal government shutdown began and shuttered most of the trade-related government agencies in Washington, D.C. (see Trump and Trade Update dated December 26, 2018), the Office of the U.S. Trade Representative (USTR) – which had remained fully operational – has indicated that it will begin to furlough staff on January 14, 2019. According to an Office of Management and Budget contingency plan, USTR is normally staffed by 265 personnel, but will be reduced to a staff of 79 until funding for fiscal year 2019 is provided.

While certain key staff and political appointees will continue to work, it is anticipated that staff reviewing exclusion requests for imported products from China subject to the Section 301 retaliatory tariffs will be furloughed and that the processing of these requests will cease until funding is restored. USTR Robert Lighthizer, however, is expected to attend the World Economic Forum in Davos, Switzerland later this month, along with Treasury Secretary Steven Mnuchin. On January 10, 2019, President Trump announced that he would not attend this annual event pending the outcome of the border wall funding dispute.

International trade and international trade disputes were a predominant focus of President Trump and his trade officials throughout 2018. Thompson Hine’s Trump and Trade team has prepared a slide presentation to provide our readers with a broad overview of the most significant trade actions taken by the Trump administration last year. From the renegotiation of the North America Free Trade Agreement (NAFTA), which is now the U.S.-Mexico-Canada Agreement (USMCA), to the many ongoing trade actions involving imports of steel, aluminum and products from China, it was a busy year. This overview concisely presents details and the current status of the president’s primary trade activities.

The presentation includes information on the current status of President Trump’s major trade actions, including NAFTA/USMCA negotiations, the U.S.-Korea Free Trade Agreement, and other bilateral trade negotiations with Japan, the European Union and the United Kingdom. It also provides details on major trade and tariff actions occurring in 2018, such as the Section 232 steel/aluminum tariffs, the Section 232 automobile and automobile parts investigation, and the Section 301 China-related tariffs.

We invite you to stay abreast of continuing developments in 2019 via our blog, TrumpandTrade.com. To receive an email notification whenever a new post is published, please subscribe to the blog.

Happy new year!

On December 21, 2018, the Office of the U.S. Trade Representative (USTR) announced its first round of product exclusions for U.S. imports from China receiving a 25 percent tariff increase on July 6, 2018, as part of the Section 301 process. In a December 28, 2018 Federal Register notice, the USTR announced that it will modify the Harmonized Tariff Schedule (HTS) to grant nearly 1,000 product exclusion requests. As set out in the annex to the notice, the exclusions are established in two different formats: (1) as an exclusion of an existing 10-digit subheading from within an 8-digit subheading included in the scope of the initial Section 301 action, which covered $34 billion worth of U.S. imports of Chinese products, or (2) as an exclusion reflected in specially prepared product descriptions. The USTR notes that the exclusions take the form of seven 10-digit HTSUS subheadings and 24 specially prepared product descriptions. The exclusions are available for any product satisfying the description in the annex, regardless of whether the importer filed an exclusion request. These exclusions will be applied retroactively to July 6, 2018 and will be effective for one year from December 28, 2018.

These HTS subheadings will be fully exempt from the 25 percent tariff applied on imports from China under Section 301: 8412.21.0075, 8418.69.0120, 8480.71.8045, 8482.10.5044, 8482.10.5048, 8482.10.5052 and 8525.60.1010. These subheadings cover certain hydraulic power engines, drinking water coolers, injection molds, radial bearings and CB radio transceivers. The USTR also created partial exemptions for certain products under other HTS subheadings satisfying the additional requirements of the specific product descriptions included in the annex to the notice.

While U.S. Customs and Border Protection (CBP) must issue instructions on entry guidance and implementation, CBP posted a message on December 31, 2018, noting that such instructions will be issued once the partial government shutdown is over. Any updates to the Automated Customs Environment (ACE) will be implemented 10 business days after the shutdown has concluded. Until these updates are completed, entry and entry summaries must be submitted without the Chapter 99 product exclusion number referenced in the USTR notice granting the exclusions for certain products. Entry and entry summaries will be rejected by ACE if the Chapter 99 product exclusion number the USTR referenced is currently transmitted. Once CBP issues guidance and implements ACE enhancements, a Post Summary Correction (PSC) or a Protest may be submitted for a refund.

On December 21, 2018, the U.S. Trade Representative (USTR) submitted to Congress and released to the public a summary of the Trump administration’s specific negotiating objectives for its U.S.-Japan Free Trade Agreement negotiations. This follows the USTR’s notification to Congress on October 16, 2018, of the Trump administration’s intention to enter into negotiations (see Trump and Trade Update dated October 17, 2018 and Update dated October 26, 2018), the submission of public comments – over 150 total – concerning negotiating objectives for any trade agreement with Japan, and a December 10, 2018 USTR hearing at which more than 40 witnesses testified on negotiating objectives.

The USTR has stated that its aim in the negotiations is to address both tariff and non-tariff barriers and to achieve fairer, more balanced trade. The summary notes that the United States and Japan are “the world’s first and third largest economies, respectively, representing about 30 percent of global Gross Domestic Product.” While Japan is an important market for U.S. exporters, the USTR notes, the market is “still too often underperforming” and “exporters in key sectors such as automobiles, agriculture, and services have been challenged by multiple tariff and non-tariff barriers for decades, leading to chronic U.S. trade imbalances with Japan.” The summary document consists of brief bullet point objectives for such issues as Trade in Goods; Customs, Trade Facilitation, and Rules of Origin; Technical Barriers to Trade; Trade in Services; Intellectual Property; Labor; Environment; Trade Remedies; Dispute Settlement; and other trade-related areas of focus for the negotiations.

In releasing the negotiating objectives, the USTR stated that it may “seek to pursue negotiations with Japan in stages, as appropriate, but we will only do so based on consultations with Congress.” It also noted that these negotiating objectives will be updated in the future and that the Trump administration is committed to working closely and transparently with Congress. Formal negotiations with Japan may commence in late January 2019.

With the partial federal government shutdown beginning at 12:01 a.m. on December 22, 2018, most of the U.S. government’s trade-oriented agencies have either shut down or had their operations severely restricted. What follows is a listing of the current operational status of many of these agencies:

U.S. Customs and Border Protection (CBP)

In a conference call with interested parties, CBP indicated that the ports will be “staffed as normal” to ensure that the “flow of trade {is} as close to normal as possible.” Due to the lapse in federal funding, however, the CBP website will not be actively managed, transactions submitted through the website might not be processed, and CBP will not respond to inquiries until after the shutdown.

U.S. Department of Commerce – Bureau of Industry and Security (BIS)

More than 86 percent of the Department of Commerce’s staff is affected by the shutdown and has been furloughed. As a result, BIS’s operations will be severely curtailed, including requests for licenses, advisory opinions, and other export licensing activities. Export enforcement will continue, however, including the ongoing conduct of criminal investigations, prosecutions, and coordination with other law enforcement and intelligence agencies in furtherance of national security.

U.S. Department of Commerce – International Trade Administration (ITA)

Most services and activities provided by the ITA have ceased due to the government shutdown.

U.S. Department of State – Directorate of Defense Trade Controls (DDTC)

Operations at DDTC are significantly curtailed, including requests for licenses, advisory opinions, and retransfers, except for those that provide direct support to the military, humanitarian aid, or other similar emergencies. All D-Trade electronic submissions will be rejected by the system and returned to the applicant. Requests that are currently in process at the DDTC as of December 21, 2018, will remain in that status. Further review actions, however, will be delayed until after restoration of funding.

Industry applicants believing they have a case (either “In-Review” or new submission required) involving direct support to the military, humanitarian aid, or other similar emergencies, should email the DDTC Response Team (DDTCResponseTeam@state.gov). The email subject line MUST read “Request for Emergency License,” and the message must include the license number (if already pending with DDTC), the applicant’s name and registration code, the end-use/end-user, justification for needing an emergency license, and a point of contact. The Directorate will contact the requestor with guidance on how to proceed if the request will be honored.

U.S. Department of the Treasury – Office of Foreign Assets Controls (OFAC)

While Treasury is expected to have critical staff reporting to work to maintain core operations, it is expected that OFAC’s operations will be significantly curtailed. With the government shutdown, many pages and documents on Treasury’s website will not be updated. The Specially Designated Nationals List (SDN List), however, will continue to be updated as necessary.

U.S. International Trade Commission (ITC)

The ITC has ceased regular operations. As a result, the ITC web site will be operating in a limited capacity. For security reasons, EDIS has been brought offline. The HTS Search Tool and Dataweb will continue to be available, but no staff assistance will be provided for these applications.

With growing congressional and business concerns over the backlog of Section 232 product exclusion requests and the lack of transparency in the review and decision-making processes of the Department of Commerce (Commerce), U.S. Senators Pat Toomey, Doug Jones and Thomas Carper submitted a letter November 26, 2018, to the Government Accountability Office (GAO) requesting a formal review by this government agency as to how Commerce has been granting these tariff exclusions. Among the issues the senators asked to be evaluated are:

  • What criteria are used to make a determination to approve or deny a request, and how does Commerce adjudicate rebuttals?
  • What steps is Commerce undertaking to improve the timely processing of exclusion requests?
  • How does Commerce ensure transparency and adequate communication with parties who have filed requests?
  • How has Commerce trained staff to properly evaluate petitions?

On December 12, the GAO responded to this request, confirming that it will conduct such an analysis and study. While this announcement will no doubt please trade practitioners and U.S. businesses that have been frustrated by the Section 232 product exclusion request process, the results of any such analysis – much like decisions resulting from the Section 232 product exclusion request process itself – are months away. The GAO informed the senators that staff will be available to initiate a review in approximately three months. The final findings of any GAO report will most likely not be presented to the Senate until mid-2019, at the earliest.

Following a dinner meeting between the two leaders at the G-20 summit in early December, President Donald Trump announced that he and Chinese President Xi Jinping agreed to begin and complete negotiations on certain trade issues between the countries within 90 days. As part of that process, Trump agreed to postpone for 90 days in the ongoing Section 301 trade action involving China the import tariff increase on the third tranche of Chinese products from 10 percent to 25 percent scheduled for January 1, 2019 (see Trump and Trade Update of December 3, 2018).

The announcement immediately triggered questions regarding when the 90-day postponement would begin – from the day of the president’s announcement or from the original January 1, 2019 deadline. Last Friday, the Office of the U.S. Trade Representative (USTR) confirmed in a Notice of Modification of Action that the 90-day period will end March 1, 2019. It announced that the rate of additional duties on the third tranche of Chinese products will increase to 25 percent as of March 2, 2019 at 12:01 a.m. (EST) if China and the United States do not successfully negotiate an outcome to address the unfair trade acts, policies and practices covered in the Section 301 investigation. In brief remarks to the press, USTR Robert Lighthizer stated that this was a “hard deadline.”

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has extended the public comment period for its November 19, 2018 advance notice of proposed rulemaking (ANPRM) for “Review of Controls of Certain Emerging Technologies.” In a December 10, 2018 announcement, Deputy Assistant Secretary for Export Administration Matthew Borman extended the deadline from December 19, 2018, until January 10, 2019, in response to public demand for an extension. The comment requirements and issues to be addressed are provided in BIS’s November 19, 2018 ANPRM. (See Trump and Trade Update of November 19, 2018.)

The U.S. International Trade Commission (USITC) determined December 7, 2018, by a 5-0 unanimous vote of its commissioners that U.S. industry is materially injured by reason of imports of common alloy aluminum sheet from China. This finding follows the determination of the U.S. Department of Commerce’s International Trade Administration (ITA) in early November that such imports are subsidized and sold in the United States at less than fair value. (See Trump and Trade Update of November 9, 2018.) These are the first trade remedy cases that the Trump administration has “self-initiated,” starting a process that usually begins with a petition from the domestic industry. It’s been more than 25 years since the last self-initiated trade remedy case.

As a result of the USITC’s final affirmative injury determination, the ITA will now issue antidumping and countervailing duty orders on imports of common alloy aluminum sheet from China. The USITC, however, made a negative finding concerning critical circumstances as to imports of this product from China. As a result, imports of common alloy aluminum sheet from China will not be subject to retroactive antidumping or countervailing duties.

The USITC’s public report, Common Alloy Aluminum Sheet from China (Inv. Nos. 701-TA-591 and 731-TA-1399 (Final), USITC Publication 4861, December 2018), will contain the views of the USITC and information developed during the investigations. The report will be available by January 11, 2019; when available, it may be accessed on the USITC’s Official Publication Log.

On December 1, 2018, President Donald Trump announced his intention to formally terminate the North American Free Trade Agreement (NAFTA) in 2019. Addressing the press aboard Air Force One, Trump stated that he will terminate the agreement within six months in an effort to get the U.S. Congress to move on implementing the United States-Mexico-Canada Agreement (USMCA): “And so Congress will have a choice of the USMCA or pre-NAFTA, which worked very well.” In accordance with NAFTA Article 2205, “A party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties.” While the president can announce his intention to withdraw from the agreement and even deliver written notice of termination, it remains open for debate if congressional approval is required for complete termination to take effect.

These comments set the stage for a showdown with congressional leaders on the passage of the USMCA and whether it can be done within the president’s desired timeline. Senator Ron Wyden, the ranking member of the Senate Finance Committee, issued a statement shortly after the USMCA was signed on November 30, 2019 indicating that he still has some concerns about the negotiated USMCA: “Over the coming months I will push to see that these concerns are addressed before Congress considers this proposal.” To implement the USMCA, a majority in each chamber of Congress is required to pass the law; as a result of the mid-term congressional elections in November, Trump will need bipartisan support to obtain that majority.