The Office of the U.S. Trade Representative issued another list of product exclusions from Section 301 tariffs on imported goods from China, granting full or partial exemptions in response to 87 separate exclusion requests, according to a pre-publication copy of the notice. The exclusions cover a wide range of products, including, inter alia, certain pumps, impellers, water filters/oxidizers/purifiers, rotors, check valves, bituminous pavers, electric motors and transformers, and flat panel display modules.

The exclusions can apply to any product meeting the description in the annex of the notice, regardless of whether the importer filed an exclusion request. The scope of each exclusion is governed by the scope of the 10-digit Harmonized Tariff Schedule of the United States (HTSUS) headings and product descriptions in the annex; it is not governed by the product description set out in any particular exclusion request. The exclusions apply as of July 6, 2018, which was the implementation date for the first list of imported Chinese products, worth $34 billion, subject to these tariffs, and will extend for one year after the formal publication of this notice in the Federal Register. U.S. Customs and Border Protection (CBP) will issue instructions on entry guidance and implementation.

In brief remarks to the press on March 21, 2019, President Donald Trump noted that the Section 301 tariffs will remain in place even once the United States and China enter into a trade deal. He stated, “We’re talking about leaving them and for a substantial period of time, because we have to make sure that if we do the deal with China, that China lives by the deal. Because they’ve had a lot of problems living by certain deals and we have to make sure.” He added that he and Chinese President Xi are friends and the deal is “coming along nicely” but that the United States is “taking in billions and billions of dollars right now in tariff money. And for a period of time, that will stay.”

On March 12, 2019, Robert Lighthizer, U.S. Trade Representative (USTR), testified before the Senate Finance Committee regarding the World Trade Organization (WTO) and President Donald Trump’s desire for a more effective international trading system. In his prepared remarks, Ambassador Lighthizer stated that the United States remains active at all levels of the WTO but has concerns about it. “In many ways, the WTO is not working as expected,” he stated, noting that the negotiating process has “largely broken down” and there has been no new significant multilateral market access agreement in 24 years. He indicated that, “[d]espite all the dramatic changes that have taken place in the last quarter century – the rise of China, the evolution of the Internet, and countless other developments – the WTO is still largely operating under the same old playbook from the early 1990s. It is now out of date.”

Lighthizer also argued that much work needs to be done in terms of lowering tariffs, “primarily in countries that consider themselves developing,” adding that “[n]umerous WTO members continue to have very high ‘bound’ tariff rates that allow them to maintain tariffs significantly above the bound rates that apply to the United States.” He stated that it is no longer reasonable to expect the United States to continue with such disparities in these rates simply because they were agreed to “many years ago,” but that rules on tariffs need to “keep pace with the realities of the global economy.” Lighthizer added that many WTO members are not living up to their obligations, and he specifically criticized members that declare themselves to be “developing countries” for purposes of obtaining special and differential treatment under WTO rules and retain such designations for years (i.e., China, India, Turkey and South Korea).

From the USTR’s testimony, it would appear that the Trump administration is most concerned with the WTO’s dispute settlement process (DSP), which “is being used to create new obligations to which the United States never agreed.” He argued that the DSP was never intended to make new rules but was designed only to resolve specific disputes. Instead, the WTO’s Appellate Body, he said, has repeatedly created new obligations, failed to follow basic rules of operation, and greatly undermined the negotiating process. In concluding his testimony, Lighthizer listed the work the United States has undertaken to negotiate new rules and to raise critical issues, “not to hurt the WTO – but to ensure that it remains relevant to a rapidly changing world.”

Senate Finance Chairman Chuck Grassley (R-Iowa) raised in his opening statement longstanding concerns over the WTO’s Appellate Body, noting that the United States has “refused to consent to new Appellate Body appointments under the Obama administration, and the Trump administration has maintained the same position.” If reform is not forthcoming, he noted, the Appellate Body could lose a minimum quorum needed to function. While the USTR intends to assist President Trump in updating and reforming the WTO, he noted that he will do so “with the understanding that erecting new market barriers with tariffs and quotas cannot be a long-term solution.” Ranking Minority Member Ron Wyden (D-Ore.) also issued an opening statement in which he stated that it is “long past time to fix what’s wrong” with the WTO, arguing that the process must begin with China.

On March 6, 2019, during a meeting of the Foreign Trade Commission of the Mexican Senate, Luz Maria de la Mora-Sanchez, Foreign Trade Undersecretary of Mexico’s Ministry of Economy, announced that the Mexican government is planning to include additional items on its list of U.S. products subject to retaliatory measures, which were originally imposed on June 5, 2018, in response to the U.S. government’s imposition of Section 232 tariffs on certain steel and aluminum imports into the United States (see Trump and Trade Update of June 1, 2018). This additional list of U.S. goods may be finalized by April 2019. On June 5, 2018, the Mexican government published its “Decree modifying Mexico’s Import and Export Tariff, the Decree that establishes the applicable Duty Rate for goods originating in North America and the Sector Promotion Program Decree” (Decree) in the Federal Official Gazette, imposing retaliatory measures with rates ranging from 7 to 25 percent ad valorem on the imports of several U.S. goods as a response to U.S. tariffs imposed on imports of Mexican steel and aluminum products of 25 and 10 percent, respectively. This additional list has been prepared in large part to address the Trump administration’s continuation of these Section 232 tariffs, which both Mexico and Canada expected to be terminated upon the successful conclusion of negotiations last fall among the United States, Mexico and Canada to revise and update the new free trade agreement replacing the NAFTA.

According to the undersecretary, Mexican steel and aluminum exports do not pose a threat to U.S. national security under its Section 232 law, and these U.S. measures were imposed in violation of World Trade Organization rules and harm both regional integration and the development of several North American supply chains. Although Mexican government efforts are focused on the elimination of the Section 232 tariffs on Mexican steel and aluminum and Mexico’s corresponding retaliatory measures, the government of President Andrés Manuel López Obrador is reviewing the list of 71 HTS codes (covering U.S. imports worth approximately $3 billion) currently subject to retaliatory tariffs in order to include new items that could be subject to a 7 to 25 percent ad valorem duty.

On March 6, 2019, the American Kitchen Cabinet Alliance (Alliance) filed antidumping (AD) and countervailing duty (CVD) petitions with the U.S. Department of Commerce (Commerce) and the U.S. International Trade Commission (Commission) against imports of wooden cabinets and vanities from China. The Alliance consists of U.S. producers of wooden cabinets and vanities: ACProducts, Inc., American Woodmark Corporation, Bellmont Cabinet Co., Bertch Cabinet Manufacturing, The Corsi Group, Crystal Cabinet Works, Inc., Dura Supreme Cabinetry, Jim Bishop Cabinets, Inc., Kitchen Kompact, Inc., Koch & Co., Inc., Kountry Wood Products, LLC, Lanz Cabinets Incorporated, Leedo Cabinetry, Marsh Furniture Company, Master WoodCraft Cabinetry LLC, MasterBrand Cabinets, Inc., Nation’s Cabinetry, Showplace Wood Products, Inc., Smart Cabinetry, Tru Cabinetry, Wellborn Cabinet, Inc., Wellborn Forest Products, Inc., Woodland Cabinetry, Inc., Woodmont Cabinetry, W. W. Wood Products, Inc. and two other undisclosed companies. According to the Alliance, wooden cabinets and vanities imported from China are being sold at less than fair value in the United States and are subsidized, causing material injury and threatening further material injury to the domestic industry if trade remedy duties are not imposed.

Wooden cabinets and vanities consist of a cabinet box (which typically includes a top, bottom, sides, back, base blockers, ends/end panels, stretcher rails, toe kicks and/or shelves) and may or may not include a frame, door, drawers and/or shelves. The products subject to these investigations are designed for permanent installation (including floor mounted, wall mounted, ceiling hung or by attachment of plumbing), and wooden components thereof. These include wooden cabinets and vanities with or without wood veneers, wood, paper or other overlays, or laminates, with or without non-wood components or trim such as metal, marble, glass, plastic, or other resins, whether or not surface finished or unfinished, and assembled, unassembled and/or “ready to assemble” (RTA), also commonly known as “flat packs,” except those covered by other AD and CVD orders. The products covered by these investigations are made substantially of wood products, including solid wood and engineered wood products (including those made from wood particles, fibers or other wooden materials such as plywood, strand board, block board, particle board or fiberboard), or bamboo.

The Alliance states that wooden cabinets and vanities, and their components, enter the United States under Harmonized Tariff Schedule of the United States (HTSUS) subheadings 9403.40.9060, 9403.60.8081 and 9403.90.7080. The proposed scope of the petition also includes wooden cabinets and vanities whether or not they are imported attached to, or in conjunction with, faucets, metal plumbing, sinks and/or sink bowls, or countertops. For such products, the petitions state that only the wooden cabinet or vanity is covered by the scope.

According to the Alliance, from January-November 2016 to January-November 2018, imports of wooden cabinets and vanities from China increased 19.9 percent. The Alliance further alleges that these products are unfairly subsidized by Chinese government programs, including preferential loans and interest rates, grant and tax benefit programs, VAT program and export credit subsidies. As a result, the Alliance claims that subsidized and unfairly priced imports of wooden cabinets and vanities are having significant, negative price effects resulting in lost sales and revenue to the domestic industry, including the closure of at least two U.S. cabinet manufacturers.

The petition lists both a large number of foreign producers/exporters that shipped wooden cabinets and vanities to the United States at allegedly dumped and subsidized prices from China and the U.S. importers of those products.

Commerce will determine by March 26, 2019, whether to formally initiate the investigations and, if Commerce does, the Commission will decide within 25 days after that whether there is a reasonable indication of existing material injury or threat of material injury to the domestic industry that will require continuation of the investigations.

Thompson Hine is monitoring this matter closely. For additional information or to obtain a copy of the petition, please contact us.

President Donald Trump has officially notified Congress of his intent to terminate the designation of Turkey and India as beneficiary developing countries under the Generalized System of Preferences (GSP) program. Termination means that products from these two countries will no longer receive duty-free access to the U.S. market. Official removal of these countries’ designation under the GSP program can occur 60 days after the March 4, 2019, notification to Congress; removal is thus likely to occur on or around May 3, 2019.

In his letter to Congress regarding Turkey, the president stated that the country should no longer be designated as a “developing country” since its “economy has grown and diversified. Increases in Gross National Income per capita, declining poverty rates, and export diversification by trading partner and by sector are all evidence of Turkey’s increased level of economic development.” In his letter to Congress regarding India, the president stated that “after intensive engagement between the United States and the Government of India, I have determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India.”

The GSP program is the largest and oldest U.S. trade preference program; it provides opportunities for poor and developing countries to trade favorably with the United States in an effort to develop and grow their own economies. See also U.S. Generalized System of Preference Guidebook. Historically, India has been the top GSP beneficiary country, with Turkey often ranked in the top five.

On September 27, 2018, Titanium Metals Corporation (TIMET) filed a Section 232 petition alleging that the quantity or circumstances of U.S. titanium sponge imports threaten to impair national security. On March 4, 2019, Secretary of Commerce Wilbur Ross announced that the petition had been accepted and an investigation initiated. Ross sent a letter to Acting Secretary of Defense Patrick Shanahan informing him of the investigation in response to this petition, stating that the Department of Commerce during the course of the investigation would consult with the Department of Defense on methodological and policy issues of national security concern.

In his announcement, Ross stated, “Titanium sponge has uses in a wide range of defense applications, from helicopter blades and tank armor to fighter jet airframes and engines.” Titanium sponge is the primary form of titanium metal from which almost all other titanium products are made. Titanium is used in the production of military aircraft, space vehicles, satellites, naval vessels, missiles and munitions. It is also widely used in critical infrastructure and commercial applications such as civilian aircraft, chemical plants, oil and gas plants, electric power and desalination plants, building structures, automobile products and biomedical devices. According to the Department of Commerce, imports account for more than 60 percent of U.S. titanium sponge consumption. Currently only one facility in the United States has the capacity to process titanium ore into the sponge used in manufacturing. Titanium sponge is difficult to stockpile for long periods as it degrades, rendering the sponge unsuitable for the most demanding military and aerospace applications.

This is the fifth Section 232 investigation initiated by President Donald Trump’s administration; before his administration, the last Section 232 investigation occurred in 2001. A Section 232 investigation is conducted under the authority of the Trade Expansion Act of 1962 to determine the effect of imports on U.S. national security. Once initiated, the secretary of Commerce must prepare a report for the president within 270 days of initiation on whether the importation of the article in question is in such quantities or under such circumstances as to threaten to impair the national security. The president can concur with or reject the secretary’s recommendations and take action to “adjust the imports of an article and its derivatives” or implement other non-trade related actions as deemed necessary.

In a Notice of Modification of Action published in the Federal Register on March 5, 2019, the Office of the U.S. Trade Representative (USTR) made official its earlier announcement (see Trump and Trade Update of March 1, 2019) that the Section 301 retaliatory tariff for the third tranche/list of products imported from China will remain at 10 percent until further notice. It remains a point of contention between Congress and USTR as to whether a product exclusion request process will be established for this tranche of products. It has been previously reported that Congress directed USTR to implement such a process; however, Ambassador Robert Lighthizer indicated in testimony before the House Ways & Means Committee that his intention was to initiate such an exclusion request process only if tariffs on the third tranche of products were increased to 25 percent.

The Office of the U.S. Trade Representative (USTR) has released President Donald Trump’s 2019 Trade Policy Agenda and 2018 Annual Report, detailing how the Trump administration’s trade policies “are benefitting American workers and contributing to the strongest economy in decades.” Claiming that the Trump administration “inherited a significantly flawed trading system,” the report states that the administration “took immediate and decisive action to implement a new trade agenda.” The USTR indicated that it “and other parts of the Administration have used both domestic laws and international fora to press U.S. trade priorities and enforce trade commitments made by America’s trading partners. In 2019, the Administration will continue this work and take further steps to rebalance America’s trade relationships and the global economy.”

In one of its more interesting statements in support of Trump’s trade agenda, the report states:

For too long, workers here and throughout the developed world have been frustrated by elected officials who talk about the problems resulting from globalization – but do nothing about them. For too long, policymakers here and throughout the developed world have been intimidated by the claim that any effort to shift trade policy in a more worker-friendly direction represents some type of Smoot-Hawley style “protectionism.” But this is nonsense – recent events demonstrate that by using its leverage as the world’s largest market, the United States can create better conditions for U.S. workers, and encourage more efficient global markets.

The lengthy report focuses on three broad areas: (1) President Trump “inherited a deeply flawed global trading system,” (2) the Trump administration is making U.S. trade policy “work better for American workers,” and (3) the administration in 2019 will continue to pursue new trade deals, enforce U.S. laws, monitor trade agreements and rebalance U.S. trade relationships. A fact sheet on the president’s Trade Agenda and Annual Report is also available.

The report provides summaries and comments on the United States-Mexico-Canada Agreement (USMCA), the revised U.S.-Korea Free Trade Agreement and discusses the new trade negotiations with Japan, the European Union and the United Kingdom. In the area of trade enforcement, the report addresses the ongoing Section 301 trade and tariff actions toward China and notes that the United States will continue to press China to address long-standing U.S. concerns about unfair trade practices. Concerning the World Trade Organization (WTO), the report notes ongoing reform efforts, particularly the challenges of non-market economies and concerns over the WTO dispute settlement system. These efforts are “part of an ongoing upgrade to adjust U.S. trade policy to the realities of the 21st century economy.”

On February 28, 2019, 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 United States-United Kingdom 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 Updates dated October 17, 2018 and November 16, 2018), the submission of public comments – over 133 total – concerning negotiating objectives for any trade agreement with the UK, and a January 29, 2019 USTR hearing at which 24 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 introduction to the negotiating objectives notes that “the President intends to negotiate a trade agreement with the United Kingdom (UK) once it leaves the European Union (EU).” It notes, “As the first and fifth biggest global economies, the U.S. economic relationship with the UK is one of the largest and most complex in the world, with annual two-way trade totaling more than $230 billion. Despite this significant trade volume, multiple tariff and non-tariff barriers have challenged U.S. exporters in key sectors while the UK has been a Member State of the EU and therefore a part of the common trade policy of the EU. The UK’s decision to leave the EU creates a new opportunity to expand and deepen the U.S.-UK trade relationship.” The summary document consists of brief bullet point objectives for such issues as Trade in Goods; Customs and Trade Facilitation; 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.

At the direction of President Donald Trump and due to recent progress in trade negotiations with China, the Office of the U.S. Trade Representative (USTR) announced that the Section 301 duty rate for certain products imported from China “will remain at 10 percent until further notice.” While this announcement will be formally published in the Federal Register, a draft of the notice is available.

On September 24, 2018, the Trump administration had implemented this 10 percent tariff on $200 billion worth of Chinese products imported into the United States (see Trump and Trade update of September 19, 2018). These tariffs were set to increase to 25 percent on January 1, 2019, but the president and the USTR announced in December 2018 (see Trump and Trade update of December 17, 2018), and again in February 2019 (see Trump and Trade update of February 25, 2019), postponements of their self-imposed deadline for increasing the tariff to 25 percent.

With this announcement, the tariffs on products covered under USTR’s China Section 301 List/Tranche 3 will indefinitely remain at 10 percent. What now remains unresolved is whether the USTR will initiate an exclusion request process for these products while the tariff rate remains at 10 percent. Upon passage of the Consolidated Appropriations Act, 2019, Congress in an accompanying explanatory statement required USTR to initiate an exclusion request process for this third list (see Trump and Trade update of February 19, 2019). In his testimony this week before the House Ways & Means Committee, however, Ambassador Robert Lighthizer indicated that an exclusion request process would be instituted on the third tranche of Chinese products only if those tariffs were increased to 25 percent (see Trump and Trade update of February 28, 2019). In response to this stance by the USTR, members of both the House of Representatives and Senate have recently introduced legislation – the Import Tax Relief Act – specifically requiring that the Trump administration implement a tariff exclusion request process for this list of Chinese products.