Trade Trifecta!

USA and Chinese flags on mountain signpost.

Photo credit: iStock.com/Darwel

By Susan Kohn Ross

Some events rather significant to international traders occurred in the last few days. First, on Friday, March 23, 2018, President Trump signed the latest spending bill. It includes a provision to renew Generalized System of Preferences (“GSP”) benefits retroactive to December 31, 2017, when the program last expired. GSP is now authorized through December 31, 2020.

With history as a guide, we should expect Customs and Border Protection to shortly publish a message advising when its programming is updated, the deadline by which to file refunds and similar details. In the past, so long as the entry was filed with an “A” or similar indicator, refunds were routinely issued, but importers would still be wise to make sure their list of eligible entries is current, and then to track their refunds. Since the bill was signed into law on Friday, the deadline to file refund requests will be 180 days later, which works out to September 18, 2018.

Last Thursday, March 22, 2018, President Trump issued two proclamations by which he delayed application of the steel and aluminum tariffs on several major U.S. trading partners. Both proclamations mention ongoing discussions with Canada, Mexico, Australia, Argentina, South Korea, Brazil and the member countries of the European Union, all of which are exempted from these tariffs through April 30, 2018. The member countries of the EU are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and United Kingdom. Oddly enough, Japan is not included in the list!

On March 22, 2018, President Trump also issued a “Presidential Memorandum on the Actions by the United States Related to the Section 301 Investigation;” a copy can be found here: 301 Memo. In summary, the supporting findings hold that China is pressuring U.S. companies to transfer technology to Chinese entities to the detriment of those U.S. companies. The general press for at least the last 10 years has reported stories about major American companies allowing Chinese officials to review their source code or actually giving the Chinese government a copy of their source code. So, that finding was not unexpected.

The Presidential Memorandum goes on to assert that China uses “licensing procedures” and “other significant restrictions” so as to hamper U.S. companies from conducting business in China. The conclusion is China “supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies.” As a result, China obtains “unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications” which are described as supporting China’s “strategic development goals, including its science and technology advancement, military modernization, and economic development.”

As a result, the U.S. Trade Representative (“USTR”) was instructed to “take all appropriate action under section 301” (19. U.S.C. 2411) to address what is seen as China’s “unreasonable or discriminatory” acts, policies and practices, and which “burden or restrict U.S. commerce.” Specifically mentioned are increased tariffs on goods from China. A list proposed products is to be published within 15 days, meaning no later than April 6, 2018, although USTR indicates it will be published sooner. That list will be subject to notice and comment and consultations with domestic stake holders will also occur.

Additionally, USTR was instructed to initiate consultations under the World Trade Organization (“WTO”) dispute settlement mechanism focused on China’s “discriminatory licensing practices.” If appropriate, this should be done in cooperation with other WTO members “to address China’s unfair trade practices.” A report about progress is due within 60 days, or no later than May 21, 2018. The WTO action has been filed; a copy can be found here: U.S. to China re WTO Consultations.

Finally, the Secretary of the Treasury, in consultation with other Administration officials is to consider changes to U.S. procedures regarding “investment … directed or facilitated by China in industries or technologies deemed important” to the U.S. This means there will be changes to the Committee on Foreign Investment in the U.S. or CFIUS approval process. Here, too, a report is due within 60 days.

China’s Ministry of Commerce issued a response which can be found here: MOFO Tariff List. It states: [t]his list tentatively contains seven categories and 128 tax products. According to the 2017 statistics, it involves the U.S. exports to China of about 3 billion U.S. dollars. The first part covers a total of 120 taxes involving U.S. $977 million in U.S. exports to China, including fresh fruit, dried fruit and nut products, wine, modified ethanol, American ginseng, and seamless steel pipes , and is expected to impose a 15% tariff. The second part covers a total of eight taxes involving U.S. $1.992 billion of U.S. exports to China, including pork and products, recycled aluminum, etc., and a 25% tariff is proposed.”

What is notable about this product list is the most high-profile American products are not on it. The sense is China is waiting to see what is on the USTR product list, and will then take further action. Whether on the next list or any one that follows, soybeans, farm products, aircraft and integrated chips are expected to be subject to retaliation. Also be on the lookout for two other actions:

1)         Limits by the Chinese government on citizens being permitted to visit the U.S., and

2)         A reduction by China of purchases of U.S. Treasury notes.

Be careful what you wish for – how much more “interesting” can these times get?

UPDATE 3/28/18:

Since the original publication of this Alert, South Korea and the U.S. have concluded their negotiations regarding the Korea-U.S. Free Trade Agreement, and, as a result, South Korea has been permanently excluded from the steel and aluminum tariffs.

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