Articles Posted in Trade Agreements

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On May 23, 2018, as directed by President Trump, the Secretary of Commerce initiated a Section 232 investigation into whether imports of automobiles, including SUVs, vans, light trucks and automotive parts, threaten to impair national security. President Trump reportedly is contemplating tariffs as high as 25% on automobile imports, similar to the tariff imposed a result of its recent 232 action on steel imports.

The statute authorizes the President to “adjust imports” so that “such imports will not threaten to impair the national security.” The Trump Administration has interpreted “national security” very broadly to include effects on the general economy. For example, in the steel and aluminum investigations, the Administration found that U.S. producers must be commercially viable (i.e. attract sufficient commercial business) in order to supply defense needs.

Although the main target of the investigation appears to be automobiles, imports of parts are also covered. The Federal Register Notice published on May 30 does not define “automotive parts” and the term could be interpreted to cover any part incorporated into an automobile. For example, the Commerce Department’s press release referred to threats of imports “to weaken the internal economy of the United States, including by potentially reducing research, development, and jobs for skilled workers in connected vehicle systems, autonomous vehicles, fuel cells, [and] electric motors and storage.” Thus, the Section 232 investigation and any subsequent trade action potentially could extend beyond traditional car parts.

Per the Federal Register Notice, companies have an opportunity to submit comments and participate in a hearing.

In particular, the Commerce Department has asked for comments on the following factors:

  • The quantity and nature of imports of automobiles, including cars, SUVs, vans and light trucks, and automotive parts and other circumstances related to the importation of automobiles and automotive parts;
  • Domestic production needed for projected national defense requirements;
  • Domestic production and productive capacity needed for automobiles and automotive parts to meet projected national defense requirements;
  • The existing and anticipated availability of human resources, products, raw materials, production equipment, and facilities to produce automobiles and automotive parts;
  • The growth requirements of the automobiles and automotive parts industry to meet national defense requirements and/or requirements to assure such growth, particularly with respect to investment and research and development;
  • The impact of foreign competition on the economic welfare of the U.S. automobiles and automotive parts industry;
  • The displacement of any domestic automobiles and automotive parts causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects;
  • Relevant factors that are causing or will cause a weakening of the national economy;
  • The extent to which innovation in new automotive technologies is necessary to meet projected national defense requirements;
  • Whether and, if so, how the analysis of the above factors changes when U.S. production by majority U.S.-owned firms is considered separately from U.S. production by majority foreign-owned firms; and
  • Any other relevant factors.

The due date for filing comments, for requests to appear at the public hearing, and for submissions of a summary of expected testimony at the public hearing is June 22, 2018. Rebuttal comments are due July 6, 2018. There are also public hearings scheduled for July 19 and 20, 2018.

The Commerce Department is required to submit a report to the President with findings and recommendations within 270 days of initiating the investigation, which means the due date for the report is in February 2019. However, it is possible that the Commerce Department could act sooner. The President is required to determine whether to concur with the recommendation, and determine whether and how to respond, within 90 days of receiving the report.

The Section 232 investigation potentially will establish a basis for the imposition of new tariffs on automobiles and automobile parts from all countries, including the EU, Canada, China, Mexico, Japan, and South Korea. The EU, China, and the UK have expressed concerns about the newly initiated investigation and questioned the national security justification for tariffs. As demonstrated by the prior Section 232 actions on aluminum and steel, imports from allied countries will not necessarily be exempt.

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There are several legislative proposals pending in Congress targeting trade and investment involving China. If enacted, the proposals would prevent Chinese entities from acquiring certain U.S. technologies, prohibit U.S. government procurement from ZTE and Huawei, and limit U.S. issuers from receiving investments from Chinese parties.

Fair Trade with China Enforcement Act

Sen. Marco Rubio (R-FL) has introduced the Fair Trade with China Enforcement Act (Fair Trade Act), which would impose significant restrictions on Chinese investment in U.S. companies producing certain categories of products as well as prohibit the outbound transfer of intellectual property (IP) and sensitive technologies to China. The bill would further institute a U.S. Government procurement ban on products/services from both Huawei and ZTE.

The Fair Trade Act focuses on the ten strategic sectors cited by China’s Made in 2025 initiative. The bill would require the U.S. Trade Representative (USTR) to create a list of products that receive support from the Chinese government pursuant to the Made in China 2025 policy, as well as any product receiving Chinese government support that has displaced U.S. exports of like products. At a minimum, the list would include products in the following industries:

(1) Civil aircraft; (2) Motor car and vehicle; (3) Advanced medical equipment; (4) Advanced construction equipment; (5) Agricultural machinery; (6) Railway equipment; (7) Diesel locomotive; (8) Moving freight; (9) Semiconductor; (10) Lithium battery manufacturing; (11) Artificial intelligence; (12) High-capacity computing; (13) Quantum computing; (14) Robotics; and (15) Biotechnology.

The Fair Trade Act would amend Section 13(d) of the Securities Exchange Act of 1934 to prohibit issuers participating in the above sectors from being majority-owned by a Chinese investor. In addition, the law would create a presumption that imports from China of products included in USTR’s list benefit from countervailable subsidies under the U.S. trade remedy law.

The legislation would also call for the U.S. Commerce Department to impose a blanket prohibition on the export of any sensitive technology or intellectual property to China. This likely would restrict licensing agreements with Chinese companies and could have significant effects on U.S. companies with Chinese subsidiaries or affiliates.

Finally, the Fair Trade Act would target ZTE and Huawei by prohibiting the U.S. Government from entering into any contract with an entity that uses, or contracts with any other entity that uses, any telecommunications equipment or services provided by ZTE or Huawei.

Foreign Investment Risk Review Modernization Act

The proposed Foreign Investment Risk Review Modernization Act (FIRRMA) would alter the Committee on Foreign Investment in the United States (CFIUS) review process. See our prior posting on FIRRMA here.

The Senate Banking Committee will mark up a FIRRMA draft on May 22, though the discussion draft does not include prior language that would have authorized CFIUS to review outbound investments for technology transfers that could harm U.S. national security. The discussion draft would still define a covered transaction to include any “non-passive” investment by a foreign person in critical technology or a critical infrastructure company, among other types of transactions.

Trade Authority Protection Act

The Trade Authority Protection (TAP) Act would require the President to submit a report to Congress prior to taking any “congressionally delegated trade action,” which is a defined list of actions under certain provisions of law (e.g., Section 232 of the 1962 Trade Expansion Act, Section 301 of the Trade Act of 1974, the International Emergency Economic Powers Act (IEEPA), etc.). The list is as follows:

  • A prohibition on importation of the article.
  • The imposition of or an increase in a duty applicable to the article.
  • The imposition or tightening of a tariff-rate quota applicable to the article.
  • The imposition or tightening of a quantitative restriction on the importation of the article.
  • The suspension, withdrawal, or prevention of the application of trade agreement concessions with respect to the article.
  • Any other restriction on importation of the article.

Congress would then be able to pass a joint resolution prohibiting the action.  The prospects for enactment of any of these proposed laws remains uncertain.

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Yesterday, President Trump issued a memorandum (“Memorandum”) directing his Administration to take several actions related to the investigation by the Office of U.S. Trade Representative (“USTR”) into China’s acts, policies, and practices (“APPs”) related to technology transfer, intellectual property, and innovation under Section 301 of the Trade Act of 1974 (“Section 301”). The actions include restrictions on Chinese investment in the United States and the imposition of higher customs duties on imports from China. At the signing ceremony, President Trump called this action “the first of many” against Chinese practices. USTR Ambassador Lighthizer echoed the President at a hearing before the Senate Finance Committee today, noting that the Administration “expects to bring additional [actions] in other areas where the [United States does not] have reciprocal response.”

Below we describe these actions and USTR’s findings in the Section 301 investigation.

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Pursuant to President’s Trump’s March 8, 2018 proclamations issued under authority of Section 232 of the Trade Expansion Act of 1962, added customs tariffs on imports of a wide variety of steel and aluminum imports from all countries except Canada and Mexico will enter into effect on March 23. On March 16, 2018, the Department of Commerce’s (“DOC”) Bureau of Industry and Security (“BIS”) issued an interim rule that specifies the requirements and process for parties to submit product-exclusion requests from the Section 232 tariffs. Under the new rule, DOC is authorized to exclude from the tariffs aluminum and steel articles that are determined to lack sufficient U.S. production capacity of comparable products, or for which there are “specific national security-based considerations.”

BIS determined that it has good cause to waive the prior notice and opportunity for comment procedures due to impracticability and public interest considerations, and therefore the new rule is immediately effective, although subject to being amended. Comments on the interim rule are due by May 18. BIS specifically advised that commenters “may submit comments regarding how and whether or not the country of origin of a proposed product should be considered … as part of the process for reviewing product-based exclusion requests,” therefore implying that it is considering whether imports from certain countries will be given more favorable treatment than imports from others.

In short, the process provides for parties that use steel or aluminum in business activities in the United States to submit company-specific exclusion requests, and for domestic industry participants to object to such requests. Parties filing exclusion requests and objections must fill out the applicable forms provided on BIS’s website. The forms for steel are available here and forms for aluminum are available here. If an exclusion is granted, it will take effect five days after approval and will be valid for one year.

Below we outline the key aspects of the product-exclusion information collection procedure set forth in the interim rule.

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On March 8, 2018, President Trump signed proclamations authorizing the imposition of a 25 percent customs duty on certain steel products and a 10 percent customs duty on certain aluminum products. The duties were imposed pursuant to Section 232 (“Section 232”) of the Trade Expansion Act of 1962, a rarely-used national security provision that authorizes the Department of Commerce (DOC) to investigate the effect of imports on national security.  The new customs duties are scheduled to enter into effect on March 23, 2018.  Below we discuss the Presidential Proclamations and reactions from Capitol Hill and other countries.

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Further to our alert published on November 13, 2017 regarding whether acts, policies, and practices (APPs) of China related to transfer of technology, intellectual property, and innovation are actionable under Section 301(b)(1) of the Trade Act of 1974 (Section 301), it is anticipated that the U.S. Trade Representative (USTR) will make affirmative findings and remedy recommendations well ahead of the August 2018 statutory deadline, potentially as early as January 2018. USTR is authorized to take specified actions (noted below), “subject to the specific direction, if any, of the President regarding such action[s]” and is authorized to take “all other appropriate and feasible action within the power of the President that the President may direct USTR to take.”

According to USTR officials, if the United States makes an affirmative determination, the next steps will likely proceed in two tracks: (1) the United States may elect to initiate a World Trade Organization (WTO) dispute regarding the APPs, if they are considered to be in violation of WTO commitments, and/or (2) the United States may take unilateral retaliatory action.  Below, we comment briefly on both tracks.

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During his visit to China, President Trump raised concerns about the trade deficit between the United States and China as well as China’s trade practices. One longstanding concern in this regard has been technology/intellectual property (IP) transfer requirements in China—an issue the U.S. Trade Representative is currently investigating through a rarely used tool under U.S. law. In their recent alert on the topic, colleagues Nancy A. Fischer, Stephan E. Becker and Sahar J. Hafeez examine the issue and its potential trade implications.

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On April 18, 2017, President Trump signed the “Presidential Executive Order on Buy American and Hire American.” While there is no immediate impact, the Executive Order (“EO”) sets the stage for executive agencies to perform reviews of compliance with Buy American laws and could potentially lead to changes in how these laws are implemented.  Note that although there is a “Buy American Act” the term “Buy American” is also used as a generic term to describe a variety of laws and regulations that impose domestic content requirements.

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“We will follow two simple rules: buy American and hire American.” While world leaders are pondering what these words from President Trump’s Inaugural Address mean for international trade, a different question looms for U.S. Government contractors—what is on the horizon as far as the Buy American Act and similar protectionist regulations?

  • Any new infrastructure spending bill that provides funding for state and local public works projects likely will incorporate domestic preference requirements similar to those incorporated in 2009’s American Recovery and Reinvestment Act.
  • The process for issuing new waivers when a particular item is not available in commercial quantities from U.S. producers may be further restricted, and some existing waivers could be cancelled.
  • Even if no new rules are implemented, contractors should be prepared for increased enforcement.

The Buy American Act, Balance of Payments Program, Cargo Preference Act, Berry Amendment and similar regulations all require U.S. Government contractors to exclusively use, or give a preference to, U.S. suppliers. Further, the Trade Agreements Act prohibits U.S. Government purchases of products from many foreign countries. Continue reading →

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In a development that may have important implications for companies selling products to the U.S. government, on December 7, 2016, the Court of International Trade (CIT) issued a decision holding that the assembly in the United States of a flashlight using imported components did not qualify as “U.S. origin” under the Trade Agreements Act. The court’s decision potentially may alter the manner in which government agencies determine whether a product with foreign content is eligible to be purchased.

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