TRADE IS A TWO WAY STREET
“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 20, 1986
US CHINA TRADE WAR UPDATE-OCTOBER 1, 2018
As many will know because of the press updates, yesterday the United States and Canada reached agreement with Mexico on a New NAFTA, now known as the USMCA, the US Mexico Canada Agreement. Note that the term “Free Trade” has been removed. As President Trump has so clearly illustrated, Free Trade Agreements or FTAs are not truly free trade agreements, they are government managed trade.
To see the text of the New USMCA go to this link at the United States Trade Representative, https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/united-states-mexico.
If anyone has any questions, please feel free to contact me.
US CHINA TRADE WAR – SEPTEMBER 19, 2018
This blog post will go into detail about the Section 301 China IP case and the September 17th decision to impose the 10 TO 25% tariffs against an additional $200 billion in imports from China, the Product Exclusion process for tariffs on the $16 billion, the growing orbit of US antidumping (“AD”) and countervailing duty (“CVD”) cases, and more exclusions n the Section 201 Solar case. Will then comment briefly on the NAFTA, Europe negotiations and the new AD case against Mattresses from China.
If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address [email protected]
OCTOBER 9TH SPEECH HOUSTON TEXAS TRUMP & US CHINA TRADE WAR
On October 9, 2018, I will be speaking at a Trade and Intellectual Property symposium at the Petroleum Club in Houston Texas. The specific topic of my speech will be Current Topics Regarding Trump/China, Trade War Or Trade Agreements, Fact & Fiction.
Attached is information about the speech and the Symposium. 9_8 HOUSTON IP Symposium Invite If anyone is interested, please feel free to contact me.
TRUMP’S TRADE WAR AND THE SECTION 301 CASE – 10% TARIFFS ON $200 BILLION EFFECTIVE SEPTEMBER 24TH
On September 17th, President Trump announced his decision to impose a 10% tariff on the third list of $200 billion in imports from China effective September 24, 2018. On January 1, 2019, the 10% tariff will rise to 25%. The list of items on the $200 billion list subject to the 25% tariff is attached. Tariff List_09.17.18 in $200 billion
With regard to the third $200 billion list in the Section 301 case, in August there were five days of hearings with over 300 US companies and over 9,000 companies and groups of companies filed written comments by September 6, 2018. Those comments were to try and persuade USTR to exclude certain tariff categories from the list of subject tariff items. Product exclusion requests are filed after the USTR issues its determination to try and get specific products out of the tariff line item subject to the 25% tariff.
By September 6th, we filed numerous comments for importers and groups of importers of products ranging from wood doors and cabinets to aluminum curtain wall and paper gift bags. In many instances, there is no production of these specific items in the United States.
In the attached Presidential Proclamation, PRESIDENTIAL DECISION $200 BILLION, President Trump stated:
“Today, following seven weeks of public notice, hearings, and extensive opportunities for comment, I directed the United States Trade Representative (USTR) to proceed with placing additional tariffs on roughly $200 billion of imports from China. The tariffs will take effect on September 24, 2018 and be set at a level of 10 percent until the end of the year. On January 1, the tariffs will rise to 25 percent. Further, if China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.
We are taking this action today as a result of the Section 301 process that the USTR has been leading for more than 12 months. After a thorough study, the USTR concluded that China is engaged in numerous unfair policies and practices relating to United States technology and intellectual property – such as forcing United States companies to transfer technology to Chinese counterparts. These practices plainly constitute a grave threat to the long-term health and prosperity of the United States economy.
For months, we have urged China to change these unfair practices, and give fair and reciprocal treatment to American companies. We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. But, so far, China has been unwilling to change its practices. To counter China’s unfair practices, on June 15, I announced that the United States would impose tariffs of 25 percent on $50 billion worth of Chinese imports.
China, however, still refuses to change its practices – and indeed recently imposed new tariffs in an effort to hurt the United States economy.
As President, it is my duty to protect the interests of working men and women, farmers, ranchers, businesses, and our country itself. My Administration will not remain idle when those interests are under attack.
China has had many opportunities to fully address our concerns. Once again, I urge China’s leaders to take swift action to end their country’s unfair trade practices. Hopefully, this trade situation will be resolved, in the end, by myself and President Xi of China, for whom I have great respect and affection.
The core issue in this Section 301 is Intellectual Property (“IP”) and forced technology transfer of IP to Chinese companies. As USTR states in the attached press release, USTR PRESS RELEASE:
Washington, DC – As part of the United States’ continuing response to China’s theft of American intellectual property and forced transfer of American technology, the Office of the United States Trade Representative (USTR) today released a list of approximately $200 billion worth of Chinese imports that will be subject to additional tariffs. In accordance with the direction of President Trump, the additional tariffs will be effective starting September 24, 2018, and initially will be in the amount of 10 percent. Starting January 1, 2019, the level of the additional tariffs will increase to 25 percent.
The list contains 5,745 full or partial lines of the original 6,031 tariff lines that were on a proposed list of Chinese imports announced on July 10, 2018. Changes to the proposed list were made after USTR and the interagency Section 301 Committee sought and received comments over a six-week period and . . . as a result, determined to fully or partially remove 297 tariff lines from the original proposed list. Included among the products removed from the proposed list are certain consumer electronics products such as smart watches and Bluetooth devices; certain chemical inputs for manufactured goods, textiles and agriculture; certain health and safety products such as bicycle helmets, and child safety furniture such as car seats and playpens.
The USTR cited to the attached original March 2018 Section 301 report, USTR FULL 301 REPORT CHINA TECHNOLOGY TRANSFER, and then went on to describe the core issues in the Section 301 case stating:
Specifically, the Section 301 investigation revealed:
China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies.
China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations.
China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer.
China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.
After separate notice and comment proceedings, in June and August USTR released two lists of Chinese imports, with a combined annual trade value of approximately $50 billion, with the goal of obtaining the elimination of China’s harmful acts, policies and practices. Unfortunately, China has been unwilling to change its policies involving the unfair acquisition of U.S. technology and intellectual property. Instead, China responded to the United States’ tariff action by taking further steps to harm U.S. workers and businesses. In these circumstances, the President has directed the U.S. Trade Representative to increase the level of trade covered by the additional duties in order to obtain elimination of China’s unfair policies. The Administration will continue to encourage China to allow for fair trade with the United States.
CHINESE GOVERNMENT RETALIATES
Although the Presidential Proclamation and the decision to raise the tariff to 25% on January 1st would appear to pressure China to the negotiating table, that is not what happened. As one senior Chinese official recently stated, “China is not going to negotiate with a gun pointed to its head.”
In response to the tariffs on the $200 billion, on September 18th the Chinese government predictably retaliated and imposed tariffs on $60 billion in imports from the US, risking an escalation of the trade war by Trump. China announced 5 to 10% tariffs effective September 24th on $60 billion in imports from the US ranging from imports of farm products and machinery to chemicals.
On September 18th, anticipating the China response, President Trump warned in a tweet:
“China has been taking advantage of the United States on Trade for many years. They also know that I am the one that knows how to stop it. There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!”
BACKGROUND OF THE 301 CASE AND PRODUCT EXCLUSION REQUEST FOR THE $16 BILLION
With regards to the Section 301 case, to date in the Section 301 IP case, USTR has issued 25% tariffs on imports of $50 billion from China. The first $34 billion went into effect in June 20, 2018, FIRST SET OF $34 BILLION. USTR issued its determination in the second $16 billion, target list, in the Section 301 case on August 7th and made the tariffs effective August 23rd , PRODUCTS ON $16 BILLION LIST
On September 18th USTR in the attached notice, EXCLUSION REQUEST 16 BLLION FED REG NOTIICE, set up a product exclusion process for the $16 billion. The due date for products exclusion requests is December 18th. Thus, for products on Lists 1, $34 billion, and 2, $16 billion, and eventually 3, $200 billion, companies will have a second chance to exclude individual products out of the target lists in the product exclusion process.
USTR’s first round of comments were focused more on excluding specific tariff subheadings from the target list, while this second round of requests gives parties a second chance to explain why their specific particular products should be excluded from the tariffs. The List 1 product exclusion requests are due by October 9, 2018, 301 EXCLUSIONS FED REG NOTICE. The List 2 product exclusion requests are due by December 18th. The products and deadlines for the List 3 product exclusion requests have not been established yet.
List 1 Exclusion Process
Exclusion Request Conditions
USTR will accept requests from all interested US persons, including trade associations. Exclusion requests must identify a “particular” product with supporting data and rationale for an exclusion. Interested persons seeking an exclusion for multiple products must also submit a separate request for each particular product.
Factors for USTR Consideration in Granting Exclusion Requests
In granting an exclusion request on a product-by-product basis, USTR will consider whether the product is available from a source outside of China, whether the additional tariffs would cause severe economic harm to the requestor or other U.S. interests, and whether the particular product is strategically important or related to Chinese industrial programs including “Made in China 2025.” USTR is unlikely to grant any exclusion requests that undermine the objective of the Section 301 investigation.
USTR will consider each request on a product-by-product basis. Exclusions will be granted on a product basis, meaning any individual exclusion should apply to all imports of that particular product (not just to products imported by the requestor).
Exclusion Request Schedule for List 2.
The USTR notice for list 2 provides:
- Product exclusion requests are to be filed by no later than December 18, 2018.
- Following public posting of the filed request (in docket number USTR–2018–0032 on www.regulations.gov) the public will have 14 days to file responses to the product exclusion.
- At the close of the 14-day response period, any replies responses are due within 7-days.
- Any exclusions granted will be effective for one year upon the publication of the exclusion determination in the Federal Register, and will apply retroactively to August 23, 2018.
The schedule for product exclusion requests for the $200 billion in List 3 will be similar to the schedule for Lists 1 and 2.
Making Exclusion Requests – Requirements
The USTR notice provides that each request must address the specific factors set out in the bullet-point summaries listed below. See the Product Exclusion Process and Criteria, EXCLUSION REQUEST 16 BLLION FED REG NOTIICE.
- Identification of the particular product in terms of the physical characteristics (e.g., dimensions, material composition, or other characteristics) that distinguish it from other products within the covered 8-digit subheading. USTR will not consider requests that identify the product at issue in terms of the identity of the producer, importer, ultimate consumer, actual use or chief use, or trademarks or tradenames. USTR will not consider requests that identify the product using criteria that cannot be made available to the public.
- Interested persons seeking to exclude two or more products must submit a separate request for each.
- The 10 digit subheading of the HTSUS applicable to the particular product requested for exclusion.
- Requesters also may submit information on the ability of U.S. Customs and Border Protection to administer the exclusion.
- Requesters must provide the annual quantity and value of the Chinese-origin product that the requester purchased in each of the last three years. If precise annual quantity and value information are not available, USTR will accept an estimate with justification.
Exclusion requests should address the following factors:
- Whether the particular product is available only from China. In addressing this factor, requesters should address specifically whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries.
- Whether the imposition of additional duties on the particular product would cause severe economic harm to the requester or other U.S. interests.
- Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
- Requesters may also provide any other information or data that they consider relevant to an evaluation of the request.
All exclusion requests must be accompanied by a certification that the information submitted is complete and correct. USTR strongly encourages interested persons to submit exclusion requests on its attached prepared request form to simplify exclusion request filings.
Products that are not produced or cannot be adequately supplied by domestic producers would have a better chance at exclusion. Domestic producers have a chance to oppose any exclusion requests and likely would challenge any exclusion request for Chinese products that are competing with their products.
HOW DOES CHINA KILL THIS TRADE WAR?
The Chinese government complains that it does not know which government official will make the final decision on any US China trade deal.
When looking at the Section 301 negotiations between the US and China, despite the recent move by Treasury Secretary Mnuchin, the key officials in the decision making are President Donald Trump and USTR Robert Lighthizer. Lighthizer is the United States Trade Representative, and the Section 301 case was started by USTR so final decisions will be made by Trump and Lighthizer.
Treasury Secretary Mnuchin may be able to advise, but another Trump official who will also have influence is Larry Kudlow, the National Economic Council Director and a President Reagan free trader. Kudlow stated on September 17th on MSNBC that President Trump has “not been satisfied” with trade talks with China and confirmed the U.S. was preparing additional tariffs because Beijing’s economic reforms were moving in the wrong direction.
CHINA HAS NOT MADE A PROPOSAL TO DEAL WITH THE CORE 301 ISSUES—IP AND FORCED TECHNOLOGY TRANSFER
But even if the Trump Administration had given a clear policy direction as to its ultimate targets in trade negotiations, apparently to date China has not given the US any indication that it will address the U.S. core complaints on the theft of intellectual property and forced technology transfers. Without concrete proposals from the Chinese government on these two core issues, there will be no Section 301 agreement. Simple buying missions from the Chinese government are not going to solve this deep trade crisis.
The Chinese government complains that the United States is trying to “contain” China and prevent its rise. The real issue, however, is that the US is trying to “isolate” China by teaming up with a number of different countries, including the EC, Australia, Mexico, Canada and Japan, when it comes to stealing the intellectual property of foreign companies and forcing foreign companies to turn over technology to Chinese companies and the Chinese government.
In response, one Chinese friend has told me, “The issue is China government cannot do that! That is the core for getting China Strong!”
If the Chinese government cannot give up stealing the IP of foreign companies to make China strong, the Chinese government should expect to become very isolated and to risk ostracism by the international community.
On the other hand, Trump cannot expect the Chinese government to change its entire economic system for the US. But the Chinese government has to keep in mind that its economic system could create other problems.
Reports are that the US, Japan and the EC have held meetings aimed at dealing with China with a potential target of pushing China out of the WTO. When China entered the WTO, Premier Zhu Rongji was in charge of the economy and pushing China to become a market economy country. That was over 15 years ago.
After Premier Zhu retired, however, China slipped backwards, and that backward movement has accelerated under President Xi Jinping into more of a State-Ownership, State Control of the economy. The problem is that other countries in the WTO are market economy countries. The purpose of the countervailing duty law is that private companies should not have to compete against governments. But if the Chinese government has decided to take over the economy and funnel money directly into companies to compete against private foreign companies, that obviously is a problem for many market economy countries, including the EC and the US.
In a September 18th editorial in the Wall Street Journal entitled “Imperialism Will Be Dangerous for China”, Walter Russell Mead, a well -known academic and opinion writer, spoke in detail about the problems China faces by its own expansionist Imperialistic policy and the fact that the well-known Communist Lenin identified China’s problem long ago:
“China’s real problem isn’t the so-called Thucydides trap, which holds that a rising power like China must clash with an established power like the U.S., the way ancient Athens clashed with Sparta. It was Lenin, not Thucydides, who foresaw the challenge the People’s Republic is now facing: He called it imperialism and said it led to economic collapse and war.
Lenin defined imperialism as a capitalist country’s attempt to find markets and investment opportunities abroad when its domestic economy is awash with excess capital and production capacity. Unless capitalist powers can keep finding new markets abroad to soak up the surplus, Lenin theorized, they would face an economic implosion, throwing millions out of work, bankrupting thousands of companies and wrecking their financial systems. This would unleash revolutionary forces threatening their regimes.
Under these circumstances, there was only one choice: expansion. In the “Age of Imperialism” of the 19th and early-20th centuries, European powers sought to acquire colonies or dependencies where they could market surplus goods and invest surplus capital in massive infrastructure projects.
Ironically, this is exactly where “communist” China stands today. Its home market is glutted by excess manufacturing and construction capacity created through decades of subsidies and runaway lending. Increasingly, neither North America, Europe nor Japan is willing or able to purchase the steel, aluminum and concrete China creates. Nor can China’s massively oversized infrastructure industry find enough projects to keep it busy. Its rulers have responded by attempting to create a “soft” empire in Asia and Africa through the Belt and Road Initiative.
Many analysts hoped that when China’s economy matured, the country would come to look more like the U.S., Europe and Japan. A large, affluent middle class would buy enough goods and services to keep industry humming. A government welfare state would ease the transition to a middle-class society.
That future is now out of reach, key Chinese officials seem to believe. Too many powerful interest groups have too much of a stake in the status quo for Beijing’s policy makers to force wrenching changes on the Chinese economy. But absent major reforms, the danger of a serious economic shock is growing.
The Belt and Road Initiative was designed to sustain continued expansion in the absence of serious economic reform. Chinese merchants, bankers and diplomats combed the developing world for markets and infrastructure projects to keep China Inc. solvent. In a 2014 article in the South China Morning Post, a Chinese official said one objective of the BRI is the “transfer of overcapacity overseas.” Call it “imperialism with Chinese characteristics.”
But as Lenin observed a century ago, the attempt to export overcapacity to avoid chaos at home can lead to conflict abroad. He predicted rival empires would clash over markets, but other dynamics also make this strategy hazardous. Nationalist politicians resist “development” projects that saddle their countries with huge debts to the imperialist power. As a result, imperialism is a road to ruin. . . .
Meanwhile, China’s mercantilist trade policies-the subsidies, the intellectual-property theft, and the coordinated national efforts to identify new target industries and make China dominant in them-are keeping Europe and Japan in Washington’s embrace despite their dislike of President Trump.
China’s chief problem isn’t U.S. resistance to its rise. It is that the internal dynamics of its economic system force its rulers to choose between putting China through a wrenching and destabilizing economic adjustment, or else pursuing an expansionist development policy that will lead to conflict and isolation abroad. Lenin thought that capitalist countries in China’s position were doomed to a series of wars and revolutions.
Fortunately, Lenin was wrong. Seventy years of Western history since World War II show that with the right economic policies, a mix of rising purchasing power and international economic integration can transcend the imperialist dynamics of the 19th and early 20th centuries. But unless China can learn from those examples, it will remain caught in the “Lenin trap” in which its strategy for continued domestic stability produces an ever more powerful anti-China coalition around the world.
HUGE SEA CHANGE IN US CHINA TRADE RELATIONS
This is a very different time than any in 30 plus years of US China trade relations. From this 301 experience, am watching a Tsunami, a huge wave, of change as many, many US importers in the Section 301 $200 billion case are moving to source products in other countries. Products ranging from wood cabinets, wood doors, aluminum curtain wall, paper gift bags, gift wrapping, household thermometers, and quartz surface products. All of these importers are looking at second sources of supply so as to move out of China. US importers pay these duties, not the Chinese companies.
Moreover, Chinese companies are also moving to third countries to produce products targeted by trade cases and the Section 301 target lists. We represented several Chinese companies in a Citric Acid from Thailand AD and CVD case. In that case, all the Chinese companies moved to Thailand to get out of the cross hairs of a US AD case against Citric Acid from China.
Thailand has many benefits for Chinese companies. Under US AD and CVD law, Thailand is considered a market economy country, which mean Commerce must use actual prices and costs in Thailand to calculate AD rates. In that case, therefore, the AD rates for the Chinese companies in Thailand ranged from only 6 to 15%. In addition, and much to everyone’s surprise Commerce made a negative determination in the CVD case finding that all the subsidies were 0 or de minimis for the Chinese companies in Thailand.
Also in contrast to China, to date Thailand is a GSP country so US importers do not have to pay normal US Customs duties on imports of products from China, which can be in the 6.5% range.
With the raging US China trade war, all of these benefits are going to push more Chinese companies to leave China and move to a third country. The AD order on Wooden Bedroom Furniture from China resulted in a large part of the Chinese furniture industry moving to Vietnam. Now Vietnam exports more furniture than China.
Recently, JP Morgan issued a report predicting that if the US China trade war continues, the trade battle will cost at least 700,000 jobs. If the trade war becomes protracted, the job loss could be as high as 5.5 million jobs. See https://business.financialpost.com/news/economy/the-trade-war-will-likely-cost-china-700000-jobs-jpmorgan-says.
The point is that truthfully, the Chinese government needs to step up and settle this trade war quickly and put a concrete proposal on the table to deal with the IP and forced technology transfer issue.
Trump is not going to back down. On September 17th, Trump stated in a tweet:
“Tariffs have put the US in a very strong bargaining position with Billions of Jobs and Dollars flowing into our Country and yet cost increases have thus far been almost unnoticeable. If Countries will not make fair deals with us, they will be “Tariffed”
In this situation, China needs to take the first step because it has the most to lose. One friend of mine who knows China well believes that the Chinese government will not settle, but that China is moving to a massive recession similar to Japan’s lost decade. That lost decade cost the Japanese economy and its people, trillions of dollars.
Moreover, the Chinese government should be careful to not fall into the Japanese trap. Just before the lost decade, many, many Japanese companies moved out of Japan to foreign countries to get around trade orders on products, such as automobiles, televisions, and auto parts. This led to the “hollowing out” of the Japanese industry.
This would be very big problem for China becasue it has 1.3 billion people and needs to keep its citizens employed. Rising unemployment because of the hollowing out of the Chinese industry would put the Chinese government in a very difficult situation.
THE EVER EXPANDING ORBIT OF ANTIDUMPING AND COUNTERVAILING DUTY CASES AGAINST CHINA
IMPORTERS BEWARE — EXPANDING THE SCOPE AND RETROACTIVE LIABILITY IN AD AND CVD CASES TO COVER DOWNSTREAM PRODUCTS AND IMPORTS FROM THIRD COUNTRIES, INCLUDING CANADA
If a US company imports products from China or other countries, which are or maybe covered by an antidumping or countervailing duty order, the importer must be very careful and cannot ignore the situation. Two recent examples are the Commerce Department’s decision to expand antidumping (“AD”) and countervailing duty (“CVD”) orders on hardwood plywood to cover ready to assemble cabinets sold to the construction industry and the problem of third country/Canadian imports.
WOODEN CABINETS AND HARDWOOD PLYWOOD ANTIDUMPING AND COUNTERVAILING DUTY ORDERS
On September 10, 2018, the Commerce Department issued its final scope ruling on Ready To Assemble (“RTA”) Cabinets in the Hardwood Plywood AD and CVD case. In that attached decision, DOC FINAL SCOPE DETERMINATION, Commerce decided that the exclusion for RTA cabinets only applied to cabinets sold to the ultimate end user, the consumer, and not RTA cabinets sold to contractors, which install them in high rise buildings. In effect, Commerce expanded the AD and CVD orders to cover RTA cabinets sold to the construction industry, which many importers thought had been excluded by language in the AD and CVD orders.
In its decision, Commerce made two important points:
“The RTA kitchen cabinet exclusion does not expressly address the manner in which RTA kitchen cabinets must be packaged to be suitable for purchase nor expressly define the term “end-user.” Nevertheless, the exclusion’s unambiguous requirements necessitate that, to qualify for the exclusion, RTA kitchen cabinets must be packaged in a single package suitable for purchase by a retail consumer. The plain language of the scope requires that the RTA kitchen cabinets be “packaged for sale for ultimate purchase by an end-user” and requires that the RTA kitchen cabinets be packaged with “instructions providing guidance on the assembly of a finished unit of cabinetry.” We find that, together, these requirements make clear that the end-user is a retail consumer, as retail consumers are the end users that would require instructions for assembling a finished unit of cabinetry. . . .
We disagree with the U.S. Importers’, Chinese Exporters’, and IKEA’s argument that the requestors’ scope ruling asks Commerce to redefine plywood to include wooden furniture and furniture parts. The petitioners made clear during the investigations that furniture was not covered by their proposed scope for these investigations. This scope ruling does not expand the scope but, rather, clarifies that, to qualify for the RTA kitchen cabinet exclusion, the RTA kitchen cabinet must meet the requirements of the exclusion, and the requirements necessitate that the RTA kitchen cabinet components be in a single package suitable for purchase by an end- use retail consumer.”
Many US importers fought hard against the motion by Hardwood Plywood Petitioners and Master Brands to narrow the exclusion to cover only cabinets sold to retail customers. But this decision now exposes the US importers of RTA cabinets to millions of dollars in retroactive liability for AD and CVD duties.
Although there are strategies to deal with this problem, including an appeal to the Court of International Trade and other procedures for dealing with this problem, the US cabinet importer that sticks its head in the sand is going to wake up one morning with an enormous bill from the US government. Old Boy Scout motto “Be Prepared”
IMPORTS FROM CANADA AND THIRD COUNTRIES COVERED BY AN AD AND CVD ORDER ON CHINESE PRODUCTS
We have been involved in several review investigations involving products from China, which are covered by an AD and CVD Order, where the target has been a third country exporter, including a Canadian exporter. We have seen situations where a Chinese exporter/producer company of a product believes it did not export anything to the US during the review period.
Based on import data into the US, however, the Commerce Department determined that the small Chinese company was a mandatory respondent and had to spend 10s of thousands of dollars responding to the entire Commerce questionnaire and be subject to verification in the case.
The problem was although the Chinese company sold nothing to the US, it did sell to Canada. Apparently, the Canadian customer then sold the products to the US without realizing that the products would be hit with antidumping and countervailing duties.
Under the US AD and CVD law, sales made by the Chinese company, which are imported into the US, are only considered the sales of the Chinese company if the Chinese company knew at the time it sold the product to a third country that it was destined for the US. This can be a problem for customers in third countries, including Canada, Hong Kong, and other countries.
In those situations, where the Chinese company sold a product to a third country, such as Canada, where the Chinese company did not know the product was destined to the US, which company is the respondent in the AD and CVD case? The answer is the third country exporter, which, in effect, has become a “reseller” in the case. Third country resellers are respondents and can get their own rates in AD and CVD cases against China.
But the problem in a review investigation for a third country reseller, including a Canadian company and its US importer, is that since the Chinese company made no direct sales to the United States, it will probably give up and not participate in the AD and CVD review investigation. But the US importer of the products from Canada, which can often be a company affiliated with the Canadian company, will find itself owing substantial AD and CVD duties to the US government. In one situation, we talked to a Canadian company that had to shut down its entire US operations because they exported chemical products from Canada to the US that were covered by US AD and CVD orders. All of a sudden, the US subsidiary was hit with millions of dollars in retroactive liability because of an AD and CVD case.
US importers that import and Canadian and third country resellers that export products originally from China, which are covered or could be covered by US AD and CVD orders, cannot afford to be complacent and ignore the situation. The companies must be proactive, or they could wake up one morning and find themselves liable for millions in dollars in retroactive AD and CVD duties. An ounce of prevention is worth a pound of cure.
MORE EXCLUSIONS SECTION 201 SOLAR CASE
On September 19, 2018, USTR excluded more Solar Products from the Section 201 Solar case. In the attached Federal Register notice, USTR NOTICE EXCLUDING PRODUCTS FROM 201 CASE, the United States Trade Representative (“USTR”) excluded the following solar products from the Section 201 solar case. The relevant parts of the notice are:
Exclusions From the Safeguard Measure
USTR has considered certain requests for exclusion of particular products and determined that exclusion of the CSPV products described in subdivisions (c)(iii)(7) through (c)(iii)(14) of U.S. note 18 to subchapter III of chapter 99 of the HTS, as amended in the Annex to this notice, from the safeguard measure established in Proclamation 9693 would not undermine the objectives of the safeguard measure.
Therefore, USTR finds that these CSPV products should be excluded from the safeguard measure. Accordingly, under the authority vested in the Trade Representative by Proclamation 9693, the Trade Representative modifies the HTS provisions created by the Annex to Proclamation 9693 as set forth in the Annex to this notice. . . .
The following provisions supersede those currently in the HTS and are effective with respect to articles entered, or withdrawn from a warehouse for consumption, on or after 12:01 a.m., EST, on September 19, 2018. The HTS is modified as follows:
U.S. note 18 to subchapter III of chapter 99 of the HTS is modified:
By inserting the following new subdivisions in numerical sequence at the end of subdivision (c)(iii):
“(7) off-grid, 45 watt or less solar panels, each with length not exceeding 950 mm and width of 100 mm or more but not over 255 mm, with a surface area of 2,500 cm\2\ or less, with a pressure-laminated tempered glass cover at the time of entry but not a frame, electrical cables or connectors, or an internal battery;
- 4 watt or less solar panels, each with a length or diameter of 70 mm or more but not over 235 mm, with a surface area not exceeding 539 cm\2\, and not exceeding 16 volts, provided that no such panel with these characteristics shall contain an internal battery or external computer peripheral ports at the time of entry;
- solar panels with a maximum rated power of equal to or less than 60 watts, having the following characteristics, provided that no such panel with those characteristics shall contain an internal battery or external computer peripheral ports at the time of entry: (A) Length of not more than 482 mm and width of not more than 635 mm or (B) a total surface area not exceeding 3,061 cm\2\;
- flexible and semi-flexible off-grid solar panels designed for use with motor vehicles and boats, where the panels range in rated wattage from 10 to 120 watts, inclusive;
- frameless solar panels in a color other than black or blue with a total power output of 90 watts or less where the panels have a uniform surface without visible solar cells or busbars;
- solar cells with a maximum rated power between 3.4 and 6.7 watts, inclusive, having the following characteristics: (A) A cell surface area between 154 cm\2\ and 260 cm\2\, inclusive, (B) no visible busbars or gridlines on the front of the cell, and (C) more than 100 interdigitated fingers of tin-coated solid copper adhered to the back of the cell, with the copper portion of the metal fingers having a thickness of greater than 0.01 mm;
- solar panels with a maximum rated power between 320 and 500 watts, inclusive, having the following characteristics: (A) Length between 1,556 mm and 2,070 mm inclusive, and width between 1,014 mm and 1,075 mm, inclusive, (B) where the solar cells comprising the panel have no visible busbars or gridlines on the front of the cells, and (C) the solar cells comprising the panel have more than 100 interdigitated fingers of tin-coated solid copper adhered to the back of the cells, with the copper portion of the metal fingers having thickness greater than 0.01 mm;
14. modules (as defined in note 18(g) to this subchapter) incorporating only CSPV cells that are products of the United States and not incorporating any CSPV cells that are the product of any other country.”
NEW NAFTA NEGOTIATONS—THE CANADIAN DAIRY PROBLEM
The NAFTA negotiations between Mexico and the US have primarily wrapped up, but the question now is whether Canada will be willing to join the party. The key issue is dairy and the 275% tariff on US dairy products to Canada.
Mexican Economy Secretary Ildefonso Guajard has stated that negotiators need at least 10 days to put together “what’s going to be presented in any of the scenarios.” That means Thursday, Sept. 20 could be the last day for Canadian and American officials to announce a preliminary deal that offers enough time for the technical teams to prepare the text.
U.S. officials are demanding that Canada make major concessions on dairy and the tariffs on US dairy exports to Canada. Canadian Prime Minister Trudeau’s Liberal Party wants to maintain its allies in Ontario and Quebec where the powerful dairy industry is concentrated. Trump, who is watching the midterms closely, wants to increase support from the farmers, particularly from the hard-hit dairy sector. So the question is which country will blink first.
NEW EUROPEAN TRADE AGREEMENT
After discussions in Brussels and Washington, both sides know there are major differences over trade policy on cars and farming — meaning a large trans-Atlantic trade deal will have to wait. Instead, in the near-term negotiators will focus on regulatory cooperation on topics such as car blinkers, cosmetics, insurance and driverless vehicles.
USTR Lighthizer is pushing to “finalize outcomes” with the EU by November, as Trump wants a success story for the pending elections. The EU equally wants to create goodwill that will stop Trump from following through on his repeated threats to slap higher tariffs on European cars.
Susan Danger, the Chairman of the American Chamber of Commerce to the EU, said that “one school of thought” for how to move forward is “to do things piecemeal and address the low-hanging fruit.”
The China angle: Strategically, Lighthizer and Republican senators like Lindsey Graham want a swift deal with the Europeans so as to team up with the EU against the bigger mutual target in the trade area: China.
NEW ANTIDUMPING CASE
MATTRESSES FROM CHINA
On September 18th, 2018, Corsicana Mattress Company, Elite Comfort Solutions, Future Foam Inc., FXI, Inc., Innocor, Inc., Kolcraft Enterprises Inc., Leggett & Platt, Incorporated, Serta Simmons Bedding, LLC, and Tempur Sealy International, Inc. filed a new antidumping case against Mattresses from China.
If anyone has any questions about the 301 process, antidumping or countervailing duty law or other trade issues, please feel free to contact me.