TRADE IN THE TIME OF CORONAVIRUS: UPDATE #10

At Neville Peterson LLP, we’ve been working through the COVID-19 pandemic, and like everyone else, we’re hoping the end is in sight as vaccines become available.  Herewith, the latest news affecting international trade.

THREE BIG YEAR-END DEADLINES LOOM FOR TRADE

The trade community is facing three significant year-end deadlines, as the Trump Administration begins to hand over control to the incoming Biden Administration.

 MOST REMAINING EXCLUSIONS FROM SECTION 301 TARIFFS granted by the United States Trade Representative will expire December 31, 2020. Thereafter, all articles of Chinese origin appearing on the retaliation lists activated by the USTR will become subject to supplemental Section 301 retaliatory tariffs. The Biden Administration has indicated that it does not plan to lift the Trump tariffs immediately after taking office. It will use the tariffs as leverage to try to negotiate trade concessions from China. Importers of targeted goods from China will need to continue to exercise diligence regarding tariff classification, Customs valuation and country of origin issues.

As noted below, exclusions for COVID-related goods have been extended through March 31, 2020.

THE GENERALIZED SYSTEM OF PREFERENCES WILL EXPIRE on December 31, 2020, as well. The GSP provides duty-free treatment from goods from many “Beneficiary Developing Countries” While there is bipartisan support for renewal of GSP, Congressional negotiators were not able to fit it into the year-end spending bill. The terms of the renewal are being debated. Senator Chuck Grassley (R-IA) had proposed extending GSP as it currently exists for six months. Sen. John Hawley (R-MO) is floating a proposal which would modify eligibility requirements and rules of origin, tying them to external United States trade conditions. GSP has expired in the past and been renewed by Congress from time to time in the past. That is likely to be its fate again. 

MISCELLANEOUS TARIFF SUSPENSIONS AND REDUCTIONS CONTAINED IN HTS CHAPTER 99 will also expire on December 31. These measures provide temporary three year suspensions and reductions of tariffs on a wide range of articles, primarily chemicals and pharmaceuticals. Congress failed to include miscellaneous tariff bill (MTB) legislation in its year-end omnibus spending package. Congress has been considering legislation to extend most of these temporary suspensions and exclusions, while introducing some new ones. However, some legislators are proposing to cut certain items, primarily finished goods as opposed to inputs, from the bill before it passes. A coalition of over 200 companies has written to Congressional leaders urging passage of the MTB act, noting that American importers will spend approximately $1.3 million per day in extra duties if the measure is not passed. MTB renewals, when tardy, have generally not been retroactive.

The American Competitiveness Manufacturing Act (AMCA), under which duty suspensions and temporary reduction measures were submitted to, and vetted by, the United States International Trade Commission, instead of being introduced as legislative bills by individual members of Congress, provided for two (2)  three-years review cycles, which have now been completed. It remains to be seen if Congress will renew the AMCA, which appears to have been very popular with both Congress and industry, or will revert to receiving individual duty suspension and reduction bills in the new Congress.

Congressional negotiators were able to insert some amendments to the US-Canada-Mexico Agreement (USMTA) Implementation Act. They restored the ability to make post-entry claims for refunds of merchandise processing fees and other taxes (the law previously had allowed 19 U.S.C. §1520(d) petitions only for duties under USMCA). They also changed provisions which had allowed goods produced in United States Foreign Trade Zones to qualify as USMCA “originating” goods upon being withdrawn for consumption. The NAFTA Implementation Act had contained a provision prohibiting production of originating goods in FTZs, a feature which the USMCA legislation lacked. The restriction has now been added to USMCA.

USTR EXTENDS, ADDS TO, SECTION 301 EXCLUSIONS FOR COVID GOODS

U.S. Trade Representative Robert Lighthizer has taken last-minute action to extend through March 31, 2021, Section 301 product exclusions for goods related to the COVID pandemic response. The lists, covering more than 100 product descriptions and statistical tariff items, cover a wide range of personal protective equipment (PPE), hand sanitizers, X-ray, CAT and PET-scan, MRI and other devices, scientific equipment, and medical and surgical equipment. The new provisions take effect January 1, 2021.

BIDEN ADMINISTRATION BEGINS SETTING TRADE AGENDA

President-Elect Biden has nominated Katherine Tai as United States Trade Representative.

Popular across both sides of the political aisle, Tai is currently Chief Trade Counsel for the House Ways and Means Committee. She played an important role in strengthening labor protections in the United States-Mexico-Canada Agreement and previously served as deputy counsel at USTR from 2007 through 2014. She is fluent in Mandarin, and has been a critic of China’s trade policies. However, instead of relying on unilateral tariffs to corner China, she favors a more “strategic” policy focusing on cooperation with international institutions.

Tai’s Nomination Suggests that Trade Policy will not be an immediate Biden Administration focus. Unlike most other Biden cabinet appointees, Tai has no personal connections to the President-elect and has not served as deputy in any Cabinet-level departments. This is taken as an indication that the incoming administration will initially focus on COVID relief and shoring up the economy, leaving trade for later. Biden has already indicated he will not immediately drop President Trump’s China tariffs but will use them as leverage for future negotiations with the Chinese. Whether the incoming USTR initiates another round of exclusion requests for Section 301 tariffs remains to be seen.

TRADE CHALLENGES WORK THEIR WAY THROUGH COURT

Challenges to President Trump’s Section 232 tariffs on imported steel and aluminum, as well as his Section 301 tariffs on Chinese goods, are making their way through the courts, and are likely to change parts of the trade landscape in the new year.

One lawsuit is already on the brink of paying results for its plaintiff. In Transpacific Steel LLC v. United States, the Court of International Trade ruled that President Trump’s efforts to double Section 232 duties on Turkish steel from 25 to 50% were untimely and unlawful. While the government has appealed, the Court of Appeals for the Federal Circuit recently denied a motion by the government to stay the CIT’s judgment pending appeal – indicating that Transpacific will be repaid its excess duties and that the appellate court does not see a likelihood that the government will prevail on the merits of its appeal.

Other Section 232 challenges are working their way to the courts. This includes Universal Steel Products v. United States, a broad-based challenge to the President’s actions in proclaiming Section 232 tariffs, and Maple Leaf Marketing, Inc. v. United States, which asserts that the President’s imposition of tariffs on steel from Canada was time-barred and invalid. [This suit, if successful, would also pave the way for challenges to Section 232 tariffs on steel from Mexico and the European Union]. Thyssenkrupp Inc. v. United States charges that Commerce’s issuance of company-specific, rather than product-specific exclusions from Section 232 tariffs violates the “Uniformity Clause” of the United States Constitution. In addition, a number of challenges are pending to the President’s efforts to proclaim Section 232 tariffs on “derivative” iron and steel products such as iron nails and aluminum wire.

Section 301 Challenges in the Court of International Trade continue to proliferate. More than 3500 companies have filed (and are continuing to file) suits in the United States Court of International Trade, asserting that the President’s Section 301 tariffs on List 3 and 4A Chinese products were not properly promulgated and are void. An avalanche of cases descended on the CIT in September after HMTX Corp., a Georgia-based importer of tile products, filed a challenge asserting that the president improperly imposed the List 3 and 4A tariffs without first obtaining a proper report from the Secretary of Commerce, and without following legally required procedures. The CIT is working out procedural details, including whether to appoint a three-judge panel to hear the HMTX case, whether to combine any other cases with it, and whether to stay most cases while a test case is litigated. Cases are expected to spring to action in the new year, with the government most likely filing a motion to dismiss them.

Back on the Section 232 side, the Commerce Department is proposing new regulations which would govern requests for tariff exclusions, which would create a category of “generalized exceptions” for certain products. Currently, Commerce grants exclusions from the steel tariffs on an individual company basis, typically limiting the amount of steel that can be imported without regard to the tariffs.

The Commerce Department has announced it will also implement an import licensing scheme for aluminum, starting January 25, 2021.

CUSTOMS TAKING ACTION TO COLLECT SECTION 301 TARIFFS

The Treasury Department is working on a regulatory proposal which would prohibit the use of the “low value shipment” exception contained in Section 321 of the Tariff Act from being used for Chinese goods subject to Section 301 tariffs. The Section 321 provision, which allows commercial shipments valued at $800 or less to be imported without entry or payment of duty, has proven extremely popular with importers, particularly in the e-commerce area. Companies have been able to import substantial amounts of Chinese goods under Section 321 without paying the Section 301 China tariffs, something that Treasury considers a loophole it intends to close. The proposal is currently on Treasury’s regulatory agenda, and a proposed rulemaking is expected in early 2021.

Customs has also posted its annual year end “blanket election for immediate delivery status” for goods imported in the second half of December. This election has the effect of giving entries made in the latter half of December 2020 a 2021 “entry date”, for duty rate purposes. Given the expiration of GSP and MTB at year’s end, many importers may want to opt out of this election.

For help regarding these or other trade topics in these challenging times, please contact a Neville Peterson LLP professional.

 Best wishes for a Happy Holiday Season from everyone at the firm.