Following President Trump’s direction in connection with the Section 301 investigation into China’s acts, policies and practices related to intellectual property (discussed here), on June 15, 2018, the Office of U.S. Trade Representative (USTR) announced a 25% tariff increase on Chinese products valued at approximately $34 billion in 2018 trade values, with more tariff increases to come. Below, we describe USTR’s action and China’s response.
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.
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.
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.
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.
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.
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.
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.
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.
“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 →