Steeling for Additional Tariffs
With ongoing negotiations apparently at an impasse, the President elected last week to terminate the temporary exemptions from the imposition of tariffs on imported steel and aluminum pursuant to Section 232 of the Trade Expansion Act of 1962, as amended, that previously had been afforded to Canada, Mexico, and the member states of the European Union (“EU”). Accordingly, effective June 1, 2018, imports of subject steel originating in Canada, Mexico, or any EU member state are subject to a 25 percent ad valorem tariff and imports of subject aluminum originating in Canada, Mexico, or any EU member state are subject to a 10 percent ad valorem tariff. As detailed below, however, Argentina, Australia, Brazil, and South Korea are permanently exempted from the imposition of the Section 232 steel and/or aluminum tariffs.
The President, through the U.S. Department of Commerce, also recently announced the initiation of another national security-focused Section 232 investigation that will address the importation into the United States of automobiles, including sport utility vehicles, vans, and light trucks, and automotive components.
Finally, the President recently publicized the intention of the United States to proceed with the imposition of 25 percent ad valorem tariffs on a wide array of Chinese-origin goods with an import value of approximately $50 billion, as well as other countermeasures, in connection with an investigation pursuant to Section 301 of the Trade Act of 1974, as amended, to assess whether certain Chinese acts, policies, and practices may be unreasonable or discriminatory and may be harming American intellectual property rights, innovation, or technology development.
These current and proposed tariff measures, in combination with the retaliatory actions already and to be undertaken by the targeted countries, inject uncertainty into trading relationships and are likely to impose real costs on American businesses engaged in cross-border transactions, as well as on U.S. consumers.
Section 232 Investigation Relating to the Effects on U.S. National Security of Steel and Aluminum Imports
Effective March 23, 2018, U.S. Customs and Border Protection (“CBP”) began implementing tariffs in connection with the above-described investigation into the effects that imported steel and aluminum have on U.S. national security. The President, however, initially exempted Canada and Mexico from the imposition of tariffs and, subsequently, also exempted Argentina, Australia, Brazil, the member countries of the European Union, and South Korea. These exemptions were intended to allow for negotiations to proceed regarding the implementation of satisfactory alternative means of removing the impairment to U.S. national security attributed to steel and aluminum imports.
Tariff Modifications Pertaining to Canada, Mexico, and the Member States of the European Union. In the case of Canada, Mexico, and the EU, the above-described negotiations did not result in arrangements deemed by the United States to be satisfactory by the May 31, 2018 expiration of the temporary exemption period. Please refer to the statement issued by the White House for additional details. Accordingly, effective June 1, 2018, imports of subject steel originating in Canada, Mexico, or any EU member state are subject to a 25 percent ad valorem tariff and imports of subject aluminum originating in Canada, Mexico, or any EU member state are subject to a 10 percent ad valorem tariff.
Predictably, none of Canada, Mexico, and the EU have taken these developments lying down. Canada, for example, has proposed tariffs of either 25 percent or 10 percent or other trade-restrictive countermeasures targeting approximately C$16.6 billion (approximately $12.8 billion) of imports of U.S.-origin items that would take effect on July 1, 2018. For additional information regarding the proposed Canadian retaliation, please refer to the fact sheet issued by the Department of Finance Canada. In addition, on June 1, 2018, Canada formally filed challenges in accordance with the requirements of the World Trade Organization (“WTO”) and North American Free Trade Agreement (“NAFTA”). Mexico also announced retaliatory tariffs targeting approximately $3 billion of U.S. imports, including flat steel, lamps, pork and prepared meat products, apples, grapes, cranberries, and cheeses, and has suggested that it will be requesting WTO consultations this week. Lastly, the EU expects to impose retaliatory tariffs on a wide array of U.S. imports before the end of June. Specifically, the EU notified to the WTO two lists on May 16, 2018. The first list identifies those goods on which the EU would impose additional tariffs of 25 percent, beginning June 20, 2018. The second list identifies those goods on which tariffs of 10 percent, 25 percent, 35 percent, or 50 percent would be imposed beginning on the earlier of March 23, 2021, or the date a WTO dispute settlement panel determines that the Section 232 tariffs are in violation of WTO rules.
Tariff Modifications Pertaining to Argentina, Australia, Brazil, and South Korea. Argentina, Australia, Brazil, and South Korea have implemented measures to address the impairment to U.S. national security attributable to steel and aluminum imports that have been deemed satisfactory to the United States. As a result, imports of steel and/or aluminum from these countries have been exempted from the imposition of tariff-based remedies, but, with the exception of Australia, the United States has implemented quantitative restrictions in the form of absolute quotas, meaning that imports in excess of the allotted quota will be disallowed. Once the quota is reached, imports of subject steel and aluminum may be warehoused, moved into a Foreign Trade Zone, exported, or destroyed.
The tariff-based exemptions for Argentina, Australia, and Brazil and the quantitative restrictions for Argentina and Brazil pertaining to steel imports were announced by the President on May 31, 2018 in a Presidential Proclamation Adjusting Imports of Steel into the United States and the tariff-based exemptions for Argentina and Australia and the quantitative restrictions for Argentina pertaining to aluminum imports were announced by the President on May 31, 2018 in a Presidential Proclamation Adjusting Imports of Aluminum into the United States.
South Korea previously had reached an agreement pertaining to steel imports, which reportedly limits imports to levels equal to 70 percent of the average export volumes between 2015 and 2017 (this translates to a quota of approximately 2.68 million tons of steel).
Additional information pertaining to the steel-related quotas applicable to Argentina and Brazil may be found in QB 18-122 and additional information pertaining to the steel-related quota applicable to South Korea may be found in QB 18-123. Weekly quota fill rates may be tracked through the CBP website at https://www.cbp.gov/trade/quota/tariff-rate-quotas and https://www.cbp.gov/document/report/quota-status-reports, though licensed customhouse brokers and importers with Automated Commercial Environment functionality likely will be able to track quota fill rates on a daily basis. Please note that, as of July 1, 2018, imports of subject steel and aluminum in a calendar quarter may not exceed 500,000 kilograms and 30 percent of the total aggregate quantity provided for a calendar year for a given country. For additional information pertaining to the implementation by CBP of the Section 232 tariffs and the administration by CBP of the Section 232 quotas, please refer to https://www.cbp.gov/trade/programs-administration/entry-summary/232-tariffs-aluminum-and-steel and Cargo Systems Messaging Service No. 18-000372.
In summary, as of June 1, 2018, all countries, except Argentina, Australia, Brazil, and South Korea, are subject to tariffs on imported steel and all countries, except Argentina and Australia, are subject to tariffs on imported aluminum. Furthermore, as of June 1, 2018, imports of steel from Argentina, Brazil, and South Korea are subject to absolute quotas and imports of aluminum from Argentina are subject to an absolute quota.
Section 232 Product Exclusion Process. To date, there have been several thousand requests for the exclusion of individual steel and aluminum products from the imposition of Section 232 tariffs, but none have yet been formally acted upon. CBP, however, has issued instructions to the importing community regarding the procedures for importing excluded items. Please refer to Cargo Systems Messaging Service No. 18-00352.
Section 232 Investigation Relating to the Effects on U.S. National Security of Automobiles and Automotive Components
On May 23, 2018, the U.S. Department of Commerce initiated a Section 232 investigation to determine whether imports of automobiles and automotive components threaten to impair U.S. national security. Based on the announcement made by the U.S. Department of Commerce, the investigation “will consider whether the decline of domestic automobile and automotive parts production threatens 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, electric motors and storage, advanced manufacturing processes, and other cutting-edge technologies.” In accordance with 83 Fed. Reg. 24735 (May 30, 2018), interested parties may submit comments, data, analyses or other information pertinent to the investigation, as well as requests to appear at the public hearings scheduled for July 19 and 20, 2018 by June 22, 2018. Any rebuttal comments will be due by July 6, 2018.
Section 301 Investigation Relating to Technology Transfers, Intellectual Property, and Innovation
Following a public hearing and the submission of written comments, the President announced on May 29, 2018 that the United States intends to implement several previously described measures intended to protect U.S. technology and intellectual property from burdensome and discriminatory Chinese trade practices. These measures include: (i) specific investment restrictions and enhanced export controls, neither of which has been defined, relating to the acquisition by Chinese persons of industrially significant technology, also undefined; (ii) 25 percent ad valorem tariffs targeting $50 billion in Chinese imports; and (iii) litigation at the WTO. The investment restrictions and export control regime changes are expected to be announced by June 30, 2018, and implemented shortly thereafter, and the list of targeted imports is expected to be published by June 15, 2018, with tariffs imposed shortly thereafter.
The pace of tariff-related announcements has been frenetic and the imposition of tariff and other trade-restrictive measures may be short-lived or may not come to fruition insofar as these measures seemingly are being used to leverage other trade-related negotiations, such as those relating to NAFTA and the reduction of the trade imbalance with China, or in connection with ongoing geopolitical discussions, such as those relating to the denuclearization of North Korea. Nevertheless, U.S. importers and exporters must stay continually attuned to these developments to enable, among other things, more accurate cost predictions and demand forecasts. They must also be vigilant for opportunities, either with the Administration or with Congress, to pursue their interests in the event these measures are anticipated to cause severe disruption.
Visit our website to learn more about V&E’s Export Controls and Economic Sanctions practice.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.