On April 30th, the President issued two proclamations extending country exemptions for certain U.S. allies on the steel and aluminum tariffs pursuant to Section 232(b) of the Trade Expansion Act of 1962.

The President extended temporary exemptions for Canada, Mexico, and the European Union, granted a permanent exemption on steel tariffs for South Korea, and is considering permanent exemptions for Australia, Argentina, and Brazil. Trump’s administration unveiled its decision to extend the country exemptions just prior to the May 1st deadline, leaving the countries unaware whether the tariffs would go into effect by midnight.

In addition, the proclamation creates new limitations by eliminating the ability of manufacturers to receive a refund on steel/aluminum duties when exporting from the United States. Specifically, the new proclamation eliminates drawback claims on steel and aluminum. The elimination of drawback claims follows the elimination of foreign trade zone benefits for steel/aluminum imports in the earlier revisions to the steel/aluminum proclamations.

The United States temporarily extended the country exemptions for Canada, Mexico, and the European Union until June 1st, 2018. Trump originally stated that a successful NAFTA renegotiation between the three countries would result in a permanent exemption for Canada and Mexico. However, Canada and Mexico said that there is no connection between the NAFTA renegotiations and the Section 232 tariffs.

The United States determined to permanently exempt South Korea after the two countries concluded discussions to reduce steel overcapacity. South Korea agreed to limit its exports of steel products to 70 percent of its current volume, or 2.86 million tons of steel, to the U.S. each year. However, South Korea is no longer exempted from the aluminum tariffs as of May 1, 2018.

The proclamations also indefinitely extended temporary exemptions for Australia, Argentina, and Brazil. Although the agreements with Australia, Argentina, and Brazil will be finalized shortly, the President threatened to re-impose the tariffs if the deals are not finalized quickly. “Because the United States has agreed in principle with these countries, in my judgment, it is unnecessary to set an expiration date for the exemptions. Nevertheless, if the satisfactory alternative means are not finalized shortly, I will consider re-imposing the tariff,” the President said in the steel and aluminum presidential proclamations.

What’s Next?

China, India, and Turkey have requested WTO consultations with the United States over the Section 232 tariffs on imported steel and aluminum products. If the European Union does not receive a permanent exemption, then it is also likely that the EU will request WTO consultations with the U.S.

Countries argue that the tariffs violate the WTO’s Agreement on Safeguards and Article XXI’s National Security Exception pursuant to the 1994 GATT Agreement. If the U.S. successfully sets a precedent of Article XXI for national security reasons, then other members of the WTO could invoke the never-before-used Article to apply tariffs or sanctions as retaliation against U.S. exports.

On April 19, Crowell & Moring’s International Trade Attorneys hosted a webinar on “Trade in 2018 – What’s Ahead?”

Please click here to register and view the webinar on demand.

Summary

From the Section 232 national security tariffs on steel and aluminum imports to the ongoing NAFTA re-negotiation, the Trump administration is seeking to implement significant changes in international trade policy and enforcement. Economic sanctions on Russia continue to expand, the future is far from clear regarding Iran, and perhaps North Korea is coming into focus. A new Asia trade agreement without the United States, and a bumpy road ahead for Brexit all make for uncertainty and the need for enhanced trade risk management. Join us as we identify the international trade risks and opportunities likely to continue and grow in 2018.

Our Crowell & Moring team discussed predictions for the remainder of the year, with cross-border insights from our practitioners in the U.S., London, and Brussels. Topics included likely trends and issues in the U.S. and EU including:

  • Trade policy developments: Section 232, NAFTA renegotiation, and trade remedies
  • Sanctions in Year Two of the Trump Administration: Russia, Iran, North Korea, and beyond
  • Anti-money laundering (AML) and beneficial ownership
  • Supply chain risk management: blockchain, forced labor, the U.K. Modern Slavery Act, and GDPR
  • Europe: Brexit, the EU’s 4th AML Directive, and the EU/U.K. AML enforcement
  • CFIUS: how significant is the new legislation?
  • Export controls: Wither reform?
  • Import and customs

On March 1, President Trump abruptly announced his decision to impose tariffs on steel and aluminum imports pursuant to Section 232 of the Trade Expansion Act of 1962. The day started with conflicting news reports as to whether the president would announce his decision to impose tariffs, followed by the spontaneous announcement by President Trump during a White House meeting with key U.S. steel and aluminum executives.

According to those in attendance, the president announced that the U.S. will impose a 25 percent tariff on all imported steel and a 10 percent tariff on all imported aluminum for an “unlimited period” of time. The president did not specify any country exemptions, nor did he discuss the process to exclude products from the scope.

Click here to continue reading the full version of this alert.

 

President Trump announced plans to approve tariffs on both steel and aluminum products pursuant to Section 232 of the Trade Expansion Act of 1962. According to his meeting earlier today with top steel and aluminum executives, the U.S. will impose a 25 percent tariff on steel imports and a 10 percent tariff on aluminum for a “long period” amount of time. 

The President has yet to specify any country exemptions, nor did he discuss the process to exclude certain products from the scope. The official announcement is expected to be formally signed and released next week.

 

On February 16, U.S. Secretary of Commerce Wilbur Ross released the findings of the Department of Commerce (Commerce) investigations on the effects of steel and aluminum imports on U.S. national security pursuant to Section 232 of the Trade Expansion Act of 1962.

Commerce concluded the present quantities of steel imports are “weakening [the U.S.] internal economy” and threaten to impact the national security of the United States. The same was said of aluminum imports, with the report noting that “recent import trends have left the U.S. almost totally reliant on foreign producers of primary aluminum … that is essential for key military and commercial systems.”

Steel Remedies

In terms of specific remedies, Commerce recommends the President adjust the level of steel imports through quotas and/or tariffs imposed on a broad range of all major categories of steel currently produced in the United States. The relief is intended to ensure that U.S. domestic steel producers maintain a capacity utilization rate of 80 percent or better. The report does not mention the duration of any proposed remedies.

Commerce presented two recommendations:

  • A global quota of 63 percent or global tariff of 24 percent on imports from all countries.
    • Commerce proposes that under this option the President could exempt specific countries by granting them a quota of 100 percent of their 2017 import volumes. Such exemption would be based on an overriding U.S. economic or security interest.
  • A higher overall tariff of 53 percent, but only on a subset of countries (Brazil, South Korea, Russia, Turkey, India, Vietnam, China, Thailand, South Africa, Egypt, Malaysia, and Costa Rica

Under either alternative, quotas and/or tariffs would be imposed on imports of all steel products that fall into one of the following five broad product categories:

Carbon and alloy flat products produced by rolling semi-finished steel through varying sets of rolls, including sheets, strips, and plates;
Carbon and alloy long products that fall outside the flat products category, including bars, rails, rods, and beams;
Carbon and alloy pipe and tube products either seamless or welded pipes and tubes, some of which may include stainless and alloys other than stainless;
Carbon and alloy semi-finished products consisting of initial, intermediate solid forms of molten steel, to be re-heated and further forged, rolled, shaped, or otherwise worked into finished steel products, including blooms, billets, slabs, ingots, and steel for castings; and
Stainless steel products in flat-rolled, long, pipe and tube, and semi-finished forms, containing at minimum 10.5 percent chromium and, by weight, 1.2 percent or less of carbon, offering better corrosion resistance than other steel.

Steel Exclusions

The Secretary also proposes a separate exclusion process through which affected U.S. parties may seek exclusions from the quota or tariff for specific products based on the following: (1) lack of sufficient U.S. production capacity of comparable products; or (2) specific national security-based considerations. Commerce will lead the exclusion appeal process, providing for public comment on exclusion requests and decisions within 90 days of the requests’ filing. Commerce will also consider whether the quota or tariff for remaining products must be adjusted to ensure the domestic industry achieves projected production levels.

Aluminum Remedies

The Secretary determined it necessary to reduce imports to a level that will allow the domestic industry to restart idled capacity of primary aluminum in order to remove the threat of impairment. The Secretary recommends the President impose quotas and/or tariffs on a wide range of aluminum products to ensure that U.S. aluminum producers operate profitably and maintain an average capacity utilization rate of 80 percent. The remedies’ duration is fairly open-ended, as the Secretary recommends that the action taken remain in effect long enough to “stabilize the U.S. industry” by building cash flow to reduce debt and raising capital for plant modernization. (The report mentions that it can take up to nine months to restart idled smelting capacity.)

Commerce presented two recommendations:

  • A global quota of 86.7 percent or global tariff of 7.7 percent on imports from all countries.
  • A higher overall tariff of 23.6 percent, but only on a subset of countries (China, Hong Kong, Russia, Venezuela, and Vietnam).

Under either alternative, quotas and/or tariffs would be imposed on imports of:

Unwrought aluminum (HTS code 7601)
Aluminum castings and forgings (HTS codes 7616.99.5160 and 7616.99.5170)
Aluminum plate, sheet, strip, and foil (HTS codes 7606 and 7607)
Aluminum wire (HTS code 7605)
Aluminum bars, rods and profiles (HTS code 7604)
Aluminum tubes and prices (HTS code 7608)
Aluminum tube and pipe fittings (HTS code 7609)

Aluminum Exemptions/Exclusions

Importantly, Commerce further proposes that under either alternative the President could exempt specific countries either entirely or by granting them a quota of 100 percent of their 2017 import volumes. Such exemption would be based on an overriding U.S. economic or security interest, including the exempted countries’ willingness to help address “global excess capacity and other challenges facing the U.S. aluminum industry.” (Any exemption would require a corresponding adjustment to the final quota or tariff imposed on the other countries.)

The Secretary also proposes a separate exclusion process through which affected U.S. parties may seek exclusions from the quota or tariff for specific products based on the following: (1) lack of sufficient U.S. production capacity of comparable products; or (2) specific national security-based considerations. Commerce will lead the exclusion appeal process, providing for public comment on exclusion requests and decisions within 90 days of the requests’ filing. Commerce will also consider whether the quota or tariff for remaining products must be adjusted to ensure the domestic industry achieves projected production levels.

Deadline for President Trump

President Trump has until April 11, 2018 to determine whether he agrees with the Secretary’s recommendations on steel, and until April 20, 2018 on aluminum.

On January 22nd, President Trump imposed new “safeguard” tariffs on imported solar panels and washing machines, which will be in place for the next three years before tapering downward.  For the renewable energy industry, this is another major blow from this administration. Solar panels, most of which currently come from China will have an additional tariff rate of 30% imposed. Notably, there are already more than 150 other U.S. trade measures in place against various Chinese products. This new measure threatens to handicap a $28 billion industry that relies on parts made abroad for 80 percent of its supply chain.

Trump has also imposed a tariff of 20% on imported washing machines.  This is the first use of safeguard tariffs by the United States since 2002 when President Bush used them to restrict steel imports.  This decision comes on the heels of a determination by the International Trade Commission (ITC) that imports of these goods had injured domestic producers.

While many have seen the action as a necessary means of protecting American manufacturers, members of the South Korean government have harshly criticized the move and signaled a willingness to formally air their grievances before the World Trade Organization (WTO).  Significantly, the 2002 safeguard tariffs imposed by the Bush Administration were ultimately withdrawn after an adverse ruling at the WTO put the United States under the threat of retaliation.

On December 20, 2017, the Bureau of Industry and Security (BIS) added two Russian companies to  its Entity List because they provided technology which aided the development of a new Russian cruise missile—the nuclear-capable Novator 9M729 missile (designated by NATO as the SSC-8)—which the U.S. alleges is a violation of the 1987 Intermediate Nuclear Forces Treaty (INF).

BIS’s action is part of the new Trump Administration INF Treaty Integrated Strategy. It states, “While the United States will continue to pursue a diplomatic solution, we are now pursuing economic and military measures intended to induce the Russian Federation to return to compliance.” In addition to the first BIS designations related to alleged INF treaty violations, the U.S. is beginning research and development on its own new nuclear cruise missile, an action that Russia is alleging represents a separate violation of the INF Treaty.

The two designated parties are: (1) Joint Stock Company Experimental Design Bureau Novator; and (2) Joint Stock Company Federal Scientific and Production Center Titan-Barrikady.

NAFTA negotiators at the working level met intersessionally from December 9-15 in Washington D.C., conducting technical discussions on digital trade, financial services, customs, energy, state-owned enterprises, and textiles, among other chapters.

No chapters were closed during the latest meeting. Negotiators also mostly avoided addressing in detail the most controversial proposals tabled by the United States at the fourth round of negotiations last October (i.e., rules of origin for automobiles, dispute settlement, the “sunset clause,” or procurement). These will likely be discussed at the next formal round on January 23-28.

Please click here for more information on the negotiations.

On December 20, 2017, the Court of Justice of the European Union (CJEU) decided that a company may not use transaction value for customs valuation purposes when a transfer price consisted of both an amount initially invoiced and declared, and a flat-rate adjustment made after the end of the accounting period.

The Community Customs Code (CCC) and its related jurisprudence provides that customs value must be determined primarily according to the transaction value method, with the price actually paid or payable for the goods to be adjusted where necessary to avoid establishing an arbitrary or fictitious customs value. The CJEU found that uncertainty regarding future adjustments at the end of the accounting period made it impossible for the transfer price to be used as the transaction value for imports into the EU.

Please click here for more on this decision, as well as a discussion on how the U.S. continues to allow importers to use the transaction value method of appraisement.

The Department of Commerce submitted its report on the impact of steel mill product imports on U.S. national security to President Trump on January 11.

In a statement on its website, the Department announced that the long-awaited results of the investigation, commonly known as the Section 232 Report, will not be made public until after the President makes his final decision. 

Although the president has 90 days to act, he has the discretion to announce his decision early.