The Office of the U.S. Trade Representative (USTR) has announced that President Trump is moving forward with additional tariffs in its Section 301 investigation involving China’s acts, policies and practices related to forced technology transfers and intellectual property rights. The USTR has finalized a third list of Harmonized Tariff Schedule (HTS) subheadings resulting in additional tariffs of $200 billion on imports of Chinese products. The additional tariffs will go into effect September 24, 2018, and will be 10 percent at the start. The USTR has stated that these tariffs will increase to 25 percent on January 1, 2019. In making the announcement, President Trump stated, “For months, we have urged China to change these unfair practices, and give fair and reciprocal treatment to American companies. We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. But, so far, China has been unwilling to change its practices.” These tariffs are in addition to two earlier rounds of tariffs implemented against Chinese products (see Trump and Trade updates of June 18, 2018 and August 8, 2018) that amount to tariffs on $50 billion of Chinese products imported into the United States.

The final third list contains 5,745 full or partial HTS subheadings covering a wide range of products, including food, chemicals, pesticides, minerals, fabrics, construction materials, handbags, luggage, car parts, appliances, machines, televisions, items made from steel and aluminum, batteries, semiconductor assemblies and furniture. Only 297 HTS subheadings were removed from the original proposed list released in July 2018. Products covered by the HTS subheadings removed from the proposed list are certain consumer electronics products, certain chemical inputs for manufactured goods, textiles and agriculture, and certain health and safety products.

The president indicated that he will pursue tariffs on approximately $267 billion of additional imports if China takes retaliatory action. Almost immediately after the announcement by the USTR of these additional tariffs, China responded by announcing that it would impose import tariffs on approximately $60 billion of U.S. products, also effective September 24.

China’s tariffs on U.S. products will be covered under two separate lists – one list will be subject to 10 percent tariffs, and the second list will be subject to 25 percent tariffs. These lists cover over 5,000 products and include such items as wood veneer, non-electrical machines, makeup, natural gas, wood pulp, optical media, and needles and catheters. In making this announcement, the China Ministry of Commerce stated, “In order to safeguard its legitimate rights and interests and the global free trade order, China will have to retaliate as a response.” These actions further cloud the possibility of any near-term bilateral negotiations on U.S.-China trade issues.

On August 16, 2018, the United States implemented retaliatory tariffs of 25 percent on U.S. imports of 279 Chinese products covering an estimated trade value of $16 billion in 2018. This was in addition to the $34 billion in tariffs implemented in June 2018.

With these tariffs in place, the U.S. Trade Representative (USTR) has announced procedures to request the exclusion of products subject to this additional duty. In a notice published today in the Federal Register, the USTR has provided the criteria and detailed guidance for any product exclusion request application. Each request must specifically identify a particular product and provide supporting data and the rationale for the proposed exclusion. The USTR will not consider exclusion requests using criteria that cannot be made available to the public. Each request will be evaluated on a case-by-case basis. The USTR has specified, however, that the following information must be provided:

  • Identification of the particular product in terms of the physical characteristics (e.g., dimensions, material composition, or other characteristics) that distinguish it from other products within the covered 8-digit subheading. The USTR will not consider requests that identify the product at issue in terms of the identity of the producer, importer, ultimate consumer, actual use or chief use, or trademarks or tradenames. The USTR will not consider requests that identify the product using criteria that cannot be made available to the public.
  • The 10-digit subheading of the HTSUS applicable to the particular product requested for exclusion.
  • The annual quantity and value of the Chinese-origin product that the applicant purchased in each of the last three years.

Each exclusion request should address (1) whether the particular product is available only from China or whether a comparable product is available from other sources, (2) whether the imposition of the tariff will cause “severe economic harm to the requestor,” and (3) whether the product is strategically important to the “Made in China 2025” program or other Chinese industrial programs. There is a process for filing requests containing business confidential information; however, such submissions must also be accompanied by a public version of the request.

Parties interested in this Section 301 product exclusion process should be aware of the following dates and features of the process:

  • The public will have until December 18, 2018, to file any requests to exclude a particular product.
  • After a request is posted on regulations.gov under Docket USTR-2018-0032, the public will have 14 days to file responses to the request for product exclusion. Any replies to a response will be due the later of seven days after the close of the 14-day response period, or seven days after the posting of a response.
  • Exclusions will be effective for one year upon the publication of an affirmative exclusion determination in the Federal Register, and will apply retroactively to August 23, 2018, when the tariff went into effect.

Once Docket USTR-2018-0032 is fully activated, the USTR will post an exclusion request form in the “Supporting Documents” section. While the form is not required, the USTR strongly recommends that interested parties use the form to submit exclusion requests.

The Department of Commerce’s Bureau of Industry and Security (BIS) has amended the exclusion request process for the tariffs on certain steel and aluminum products implemented under Section 232 of the Trade Expansion Act of 1962. On March 8, 2018, President Trump exercised his authority under Section 232 and imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports (with certain countries receiving exemptions). U.S. Customs and Border Protection (CBP) began collecting the tariffs on March 23, 2018.

BIS has acknowledged that the number of filings has far surpassed expectations – as of August 20, BIS had received more than 38,000 exclusion requests and more than 17,000 objections – amid growing concerns over the importance of a transparent, fair and efficient product exclusion and objection process. The amendments seek to address these concerns and will create a process for rebutting objections filed to exclusion requests. They also attempt to clarify the criteria BIS considers during the review process to grant or deny an exclusion request.

The interim rule containing these amendments is scheduled to be published September 11, 2018, at which time it will become effective. Any comments on these proposed modifications to the Section 232 exclusion request process will be due no later than 60 days after publication in the Federal Register by filing on the Federal eRulemaking portal (www.regulations.gov) on Docket No. BIS-2018-0016.

Addition of Rebuttal and Surrebuttal Procedures

Under the amended rules and procedures, the original party filing an exclusion request will now be able to respond to any filed objections:

  • Rebuttals to Objections – Once implemented, BIS will allow for the party that originally submitted an exclusion request to rebut any filings that objected to the request. Rebuttals must address an objection to the exclusion request; if multiple objections were received on a particular exclusion, the original party may submit a rebuttal to each objector. BIS has indicated that “the most effective rebuttals will be those that aim to correct factual errors or misunderstandings in the objection(s).” While the full procedures for this process are not yet available, once an objection is posted on the Section 232 steel/aluminum dockets, the party who originally filed the exclusion request will have seven days to submit a rebuttal.
  • Surrebuttals to any Rebuttals – Once implemented, BIS will allow for the party that filed an objection to an exclusion request to file a surrebuttal to any rebuttals filed by the party seeking the exclusion request. Any surrebuttals must be filed within seven days of the posting of any rebuttals.

BIS has indicated that exclusion requests that currently remain open and pending will be “grandfathered” into this expanded process and reopened to allow for rebuttals/surrebuttals. With these additional steps in the review process, BIS has stated that the full review period will now run approximately 106 days.

Streamlined Review of “No Objection” Requests

BIS has more clearly and formally stated that it will “expeditiously grant properly filed exclusion requests which meet the requisite criteria, receive no objections, and present no national security concerns.” The interim rule states that if an exclusion request’s 30-day comment period expires and no objections were submitted, BIS will work with CBP to ensure that the entity requesting the exclusion provided an accurate Harmonized Tariff Schedule (HTS) subheading. Once confirmed, BIS will then immediately assess the request for any national security concerns and, if none is identified, will expeditiously post a decision granting the exclusion request.

Clarification on Review Criteria

BIS reviews each exclusion request to determine whether an article described in an exclusion request meets any of these criteria: (i) the article is not produced in the United States in a sufficient and reasonably available amount, (ii) the article is not produced in the United States in a satisfactory quality, or (iii) for specific national security considerations. The interim rule further details the intended meaning of each criterion.

The U.S. Trade Representative (USTR) has closed the public comment period on whether to take further action in the form of an additional 10 or 25 percent tariff on certain products imported into the United States from China with an annual trade value of approximately $200 billion. Nearly 6,000 comments were received during the comment period, which focused on the third list (or tranche) of over 6,000 Harmonized Tariff Schedule (HTS) subheadings proposed by the USTR on July 17, 2018 (see annex to 83 Federal Register 33608). This followed a marathon six-day public hearing featuring a parade of witnesses who mostly complained of the injury their U.S. companies would face if these tariffs were implemented. Highlighting this concern, more than 150 U.S. trade groups filed a joint letter opposing the proposed tariffs and arguing that, if implemented, such tariffs and the continuing “tit-for-tat tariff escalation with China only serves to expand the harm to more U.S. economic interests, including farmers, families, businesses, and workers.” The letter states that any tariffs will serve to only invite additional Chinese retaliation and “cause significant supply chain disruptions” since the assumptions that U.S. companies “can simply move their production out of China are incorrect.”

Despite the outcry that U.S. companies, manufacturers, service providers and consumers will bear the brunt of any new proposed tariffs, President Trump on Friday, September 7, 2018, in remarks to reporters, stated that “the $200 billion we are talking about could take place very soon” and that his administration is prepared to seek tariffs on another $267 billion on Chinese goods “if I want.”

On August 31, 2018, President Donald Trump officially notified Congress of his administration’s intent “to enter into a trade agreement with Mexico — and with Canada if it is willing, in a timely manner, to meet the high standards for free, fair, and reciprocal trade contained therein.” Notification was necessary under the provisions of the Trade Promotion Authority (TPA) legislation, which allows “fast track” consideration of trade agreements (i.e., Congress can vote to approve or reject a trade deal but cannot amend the text of the agreement). In the wake of the president’s notification, U.S. Trade Representative Robert Lighthizer indicated that a resulting free trade agreement could either be bilateral (with Mexico) or trilateral (with Canada also), depending upon the final negotiated text of any agreement. It has been questioned, however, whether a bilateral agreement fulfills TPA requirements since Congress had been earlier notified of the Trump administration’s intent to renegotiate a trilateral North American Free Trade Agreement (NAFTA). If Congress believes that a free trade agreement with only Mexico does not qualify for TPA consideration, amendments could be offered by Congress, potentially complicating any final agreement. With Congressional notification under the TPA, the actual text of any agreement must be submitted to Congress within the next 30 days for its consideration.

Canada and the United States could not conclude a final agreement last week in their renewed negotiations to revise and update the NAFTA after Mexico and the United States announced their successful negotiations. Both countries, however, indicated that progress was made and that they will continue negotiations over the next 30 days. According to trade officials from both countries, the remaining key issues relate to Canada’s agricultural programs (particularly its dairy program) and the United States’ desire to eliminate NAFTA’s Chapter 19 dispute settlement system. Matters were complicated on Friday, August 31, when President Trump was quoted in the press that he would make no concessions to Canada and could instead impose tariffs on U.S. imports of Canadian automobiles. Canadian Foreign Minister Chrystia Freeland replied that “the focus is on getting a good deal, and once we have a good deal for Canada we’ll be done.” On Saturday, September 1, the president further heightened tensions by tweeting, “There is no political necessity to keep Canada in the new NAFTA deal. If we don’t make a fair deal for the U.S. after decades of abuse, Canada will be out.” He added a warning that “Congress should not interfere w/ these negotiations or I will simply terminate NAFTA entirely & we will be far better off … ”

Late Wednesday night, Secretary of Commerce Wilbur Ross announced targeted relief from the voluntary quotas the United States successfully negotiated with South Korea, Argentina and Brazil on steel, and with Argentina on aluminum. U.S. companies may now apply for product exclusions seeking steel or aluminum from these countries based on insufficient quantity or quality available from U.S. steel or aluminum producers. In such cases, the Department of Commerce has stated that an exclusion from the negotiated quota limits “may be granted and no tariff would be owed.” Previously, the product exclusion request processes were limited to steel and aluminum from countries that were fully subject to the Section 232 steel and aluminum tariffs of 25 percent and 10 percent, respectively, and did not allow for the submission of product exclusion requests for steel and aluminum products subject to the Section 232 tariffs from countries with negotiated quotas, which allowed imported products within the quotas to be exempt from those tariffs.

President Donald Trump’s amended Section 232 steel proclamation states: “I have been informed that the quantitative limitations set forth in Proclamation 9740 and Proclamation 9759 have in some cases already filled for this year, and that projects in the United States employing thousands of workers may be significantly disrupted or delayed because imports of specific [steel/aluminum] articles, which were contracted for purchase prior to my decision to adjust imports of these articles, cannot presently be entered into the United States because the quantitative limits have already been reached. In light of these circumstances, and after considering the impact on the economy and the national security objectives of section 232 of the Trade Expansion Act of 1962, as amended, I have determined to direct the Secretary to provide relief from the quantitative limitations set forth in Proclamation 9740 and Proclamation 9759 in limited circumstances.”

The proclamation further directs Commerce to grant relief on an expedited basis from the quantitative limitations for any steel articles where: “(i) the party requesting relief entered into a written contract for production and shipment of such steel article before March 8, 2018; (ii) such contract specifies the quantity of such steel article that is to be produced and shipped to the United States consistent with a schedule contained in such contract; (iii) such steel article is to be used to construct a facility in the United States and such steel article cannot be procured from a supplier in the United States to meet the delivery schedule and specifications contained in such contract; (iv) the payments made pursuant to such contract constitute 10 percent or less of the cost of the facility under construction; and (v) lack of relief from the quantitative limitations on such steel article would significantly disrupt or delay completion of the facility being constructed in the United States with the steel article specified in such contract.” Such relief, however, will be granted only upon receipt of a sworn statement signed by the CEO and the chief legal officer of the U.S. party requesting relief. According to Commerce, in these limited instances where steel articles are being used in a facility construction project that were contracted for purchase before the implementation of the Section 232 tariffs, “an exclusion from the quota may be granted, but the product may only be imported upon payment of the 25% tariff.”

President Trump’s amended Section 232 aluminum proclamation states: “I have determined to authorize the Secretary to provide relief from quantitative limitations on aluminum articles adopted pursuant to section 232 of the Trade Expansion Act of 1962, as amended, including those set forth in Proclamation 9758 of May 31, 2018 (Adjusting Imports of Aluminum Into the United States), on the same basis as the Secretary is currently authorized to provide relief from the duty established in clause 2 of Proclamation 9704 … Such relief shall be provided for an aluminum article only after a request for relief is made by a directly affected party located in the United States. Such relief may be provided to directly affected parties on a party‑by‑party basis taking into account the regional availability of particular articles, the ability to transport articles within the United States, and any other factors as the Secretary deems appropriate.”

In early August 2018, after it was determined that the Russian government was involved in an attempt to assassinate UK citizen Sergei Skripal and his daughter Yulia Skripal with the use of a Novichok nerve agent, the U.S. Department of State (State Department) ruled under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 that the Russian government had used chemical or biological weapons in violation of international law. In an August 27, 2018 Federal Register notice, the U.S. government announced its sanctions in response, which became effective that date:

  • Foreign Assistance: Termination of assistance to Russia under the Foreign Assistance Act of 1961, except for urgent humanitarian assistance and food or other agricultural commodities or products.
  • Termination of Arms Sales: Termination of (a) sales to Russia under the Arms Export Control Act of any defense articles, defense services or design and construction services; and (b) licenses for the export to Russia of any item on the United States Munitions List.
  • Termination of Arms Sales Financing: Termination of all foreign military financing for Russia under the Arms Export Control Act.
  • Denial of U.S. Government Credit or Other Financial Assistance: Denial to Russia of any credit, credit guarantees, or other financial assistance by any department, agency or instrumentality of the U.S. government, including the Export-Import Bank of the United States.
  • Exports of National Security-Sensitive Goods and Technology: Prohibition on the export to Russia of any goods or technology on that part of the control list established under Section 2404(c)(1) of the Appendix to Title 50.

Under three of these sanctions, the State Department has provided waivers in the interest of national security. The prohibition on foreign assistance has been fully waived in the interest of national security. Regarding arms sales, licenses will continue to be issued on a case-by-case basis in support of inter-government space cooperation and commercial space launches. Limited waivers will be applied to the sanctions concerning new licenses for national security-sensitive goods and technology on a case-by-case basis as follows:

  • License Exceptions: Exports and reexports of goods or technology eligible under License Exceptions GOV, ENC, RPL, BAG, TMP, TSU, APR, CIV and AVS.
  • Safety of Flight: Exports and reexports of goods or technology for the safety of flight of civil fixed-wing passenger aviation.
  • Deemed Exports/Reexports: Exports and reexports of goods or technology for deemed exports and reexports to Russian nationals.
  • Wholly-Owned U.S. Subsidiaries: Exports and reexports of goods or technology to wholly-owned U.S. subsidiaries in Russia.
  • Commercial End-Users: Exports and reexports of goods or technology for commercial end-users’ civil end-uses in Russia.
  • State-Owned/State-Funded Enterprises: Exports and reexports of goods or technology for Russian state-owned or state-funded enterprises will be reviewed but subject to a “presumption of denial” policy.

On August 21, 2018, in a related development, the Department of the Treasury’s Office of Foreign Assets Control announced that it is further targeting Russian actors’ efforts to circumvent U.S. sanctions and, thus, has sanctioned certain entities and individuals for engaging in significant malicious cyber-attacks and for evasion of sanctions on North Korea in conducting ship-to-ship transfers with North Korea-flagged vessels.

On August 27, 2018, the United States and Mexico reached a preliminary agreement “in principle, subject to finalization and implementation,” to update the North American Free Trade Agreement (NAFTA). The Office of the U.S. Trade Representative (USTR) stated that the updated agreement will “support mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth in North America.” In reaching the agreement with Mexico, President Trump stated that, “America has … finally turned the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs, and our Nation’s wealth.”

While full details of the agreement have not yet been released, a White House fact sheet states that the agreement modernizes and rebalances the trade relationship “to reflect the realities of the 21st century,” including:

  • New “rules of origin” requirements to incentivize vehicle and automobile parts production in the United States, supporting high-wage jobs.
  • Stronger and enforceable labor standards.
  • New commitments to reduce trade-distorting policies for agricultural goods.
  • Improvements enabling food and agriculture to trade more fairly.
  • Strong and effective intellectual property protections.
  • Stronger disciplines on digital trade.
  • More robust transparency obligations.

The USTR has released a series of fact sheets providing more details on key provisions of the agreement with Mexico. See “Strengthening NAFTA for Agriculture,” “Rebalancing NAFTA to Support Manufacturing” and “Modernizing NAFTA to be a 21st Century Trade Agreement.”

While President Trump and USTR Robert Lighthizer have repeatedly indicated that the United States would insist upon a five-year “sunset clause” for any revised trade agreement, the preliminary agreement with Mexico includes a sunset clause for a 16-year period, with a review of the terms after six years to address any problems. At the six-year review juncture, the countries could negotiate on any issues or problems and/or agree to extend the trade agreement for another 16 years.

The announcement almost immediately became embroiled in controversy. President Trump stated that he would formally terminate the NAFTA since the United States had reached an agreement in principle with Mexico; however, Mexican President Enrique Peña Nieto responded that a new agreement ultimately must include Canada. In other remarks, President Trump indicated that Canada could either join the agreement between the United States and Mexico, or the United States could reach a separate agreement with Canada. Notably, Canada was not involved in these negotiations with the United States and Mexico, but Canadian Foreign Minister Chrystia Freeland indicated in the past that the country would rejoin discussions after the U.S.-Mexico bilateral issues were resolved; she rushed to Washington, D.C. this week for accelerated talks. Congress has been consistent in its position that it wishes to see a trilateral trade agreement (i.e., a revised and modernized NAFTA).

On August 10, 2018, President Trump announced on Twitter that the United States would double Section 232 steel and aluminum tariffs on Turkey, referencing the drop of the Turkish lira as his reason for hiking the tariffs. Later that day, the White House issued a presidential proclamation directing that a 50 percent ad valorem tariff be imposed on steel articles imported from Turkey. U.S. Secretary of Commerce Wilbur Ross released a statement the same day saying that “since the imposition of the Section 232 tariff in March, exports to the United States have declined and domestic capacity utilization has increased, but not to levels sufficient to remove the threat to national security. Doubling the tariff on imports of steel from Turkey will further reduce these imports that the Department found threaten to impair national security as defined in Section 232.” The increased tariff rate went into effect on August 13, 2018.

In response, Turkish President Recep Tayyip Erdoğan increased tariffs on several U.S.-origin products with a presidential decree published in the Turkish government’s Official Gazette on August 15, 2018. Turkey increased tariffs on products such as rice, tobacco, vehicles, alcohol, coal and cosmetics. With Erdoğan’s decree, tariffs on passenger cars, alcoholic drinks and leaf tobacco have been doubled, resulting in tariffs of 120 percent, 140 percent and 60 percent respectively. Other U.S. products now facing tariffs include nuts, cosmetics, plastics and paper. Turkey’s Vice President Fuat Oktay stated that the tariffs were “within the framework of the principle of reciprocity in retaliation for the conscious economic attacks by the United States.” These Turkish tariffs went into effect on August 15, 2018.

President Trump has signed into law the Foreign Investment Risk Review Modernization Act (FIRRMA) as part of the National Defense Authorization Act for Fiscal Year 2019 (Title XVII of the NDAA). The FIRRMA expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) to address national security concerns over foreign exploitation of certain investment structures that traditionally have fallen outside of CFIUS jurisdiction. Additionally, FIRRMA modernizes CFIUS’s processes to better enable timely and effective reviews of covered transactions.

CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States in order to determine the effect of such transactions on the national security of the United States. CFIUS’s authority was last updated more than a decade ago and its jurisdiction has remained unchanged in the 30 years since Congress first passed the Exon-Florio Amendment, which created Section 721 of the Defense Production Act of 1950, the statutory foundation of CFIUS for the review of certain foreign investment transactions in the United States. A generally bipartisan effort was undertaken by Congress earlier this year to update and revise the CFIUS process since both the nature of foreign investments in the United States and the level of concern over national security issues have changed in recent years.

Certain provisions of FIRRMA take effect immediately while others, including some related to the expanded scope of CFIUS, will take effect at a later date. The Department of the Treasury and the chairperson of CFIUS will issue interim regulations and guidance at a later date. In the meantime, parties should continue to notify transactions for CFIUS review as provided in CFIUS’s current regulations. Until more formal regulations and guidance are issued, Treasury has provided the following summary of key provisions of FIRRMA:

  • Covered transactions: Broadens the purview of CFIUS by explicitly adding four new types of covered transactions: (1) a purchase, lease or concession by or to a foreign person of real estate located in proximity to sensitive government facilities; (2) “other investments” in certain U.S. businesses that afford a foreign person access to material nonpublic technical information in the possession of the U.S. business, membership on the board of directors, or other decision-making rights, other than through voting of shares; (3) any change in a foreign investor’s rights resulting in foreign control of a U.S. business or an “other investment” in certain U.S. businesses; and (4) any other transaction, transfer, agreement or arrangement designed to circumvent CFIUS jurisdiction.
  • Declarations: Provides for an abbreviated filing or “light filing” process through a new “declarations” procedure that could result in shorter review timelines. It also allows CFIUS some discretion to require parties to file with CFIUS before closing a transaction.
  • Review period: Expands CFIUS’s review period from 30 to 45 days and allows an investigation to be extended for an additional 15-day period under “extraordinary circumstances.”
  • Mitigation: Strengthens requirements on the use of mitigation agreements, including the addition of compliance plans to inform the use of such agreements.
  • Special hiring authority and funding: Grants special hiring authority for CFIUS and establishes a fund for collection of new CFIUS filing fees.
  • Effective date and pilot programs: Delays the applicability of some of the bill’s most significant provisions until either (1) 18 months following enactment of FIRRMA, or (2) 30 days after the secretary of the Treasury publishes in the Federal Register a determination that the necessary regulations, organizational structure, personnel and other resources are in place to administer those provisions, whichever is sooner. This section also authorizes CFIUS to conduct pilot programs to implement any authority provided under this bill.

As previously noted, many of these provisions will be implemented only after a formal rulemaking process in which interested parties may comment on any proposed updates and revisions to the CFIUS regulations (31 C.F.R. Part 800). However, parties currently preparing or considering filings should note that one key provision effective as of August 13, 2018, is the extension of the initial review period after formally filing a CFIUS notification from 30 days to 45 days.