American Trade & Manufacturing Blog

Trump Administration Announces Curbs On Travel and Trade With Cuba

Posted in BIS, Economic Sanctions, Trade Policy

President Trump today announced plans to restrict tourism and trade with Cuba, retreating from certain aspects of the Obama Administration’s liberalization of ties with the communist regime. Intended to strictly enforce the statutory ban on tourism to Cuba and to restrict the flow of money to the Cuban military, intelligence, and security services, the new measures prohibit individual “people-to-people” trips to Cuba, as well as most financial transactions with government entities that control the hotel and tourism industries in Cuba. Importantly, these changes will not go into effect until the relevant agencies, including the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), issue implementing regulations, which could take a few months.

The Ban on Tourist Travel Will Be Strictly Enforced

The new policy will prohibit individual people-to-people travel to Cuba that was previously allowed under the Obama Administration, as President Trump views this category as the most ripe for abuse of the legislative ban on tourism. Group-based travel intended to enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people’s independence from Cuban authorities, however, will remain authorized. Generally, the 12 categories of travel previously authorized – including travel for family visits, journalistic activities, professional research and meetings, educational activities, religious activities, and humanitarian projects – will also continue to be permitted.

Notably, travel for individual people-to-people travelers who have already completed one travel-related transaction (such as purchasing a flight) prior to today’s announcement will continue to be authorized even after the new regulations go into effect, assuming the travel is consistent with OFAC’s current regulations. In addition, while transactions with entities related to the Cuban military, intelligence, or security services will generally be prohibited, as explained below, OFAC has stated that any travel-related arrangements that include direct transactions with such entities that were initiated prior to the forthcoming regulations will be permitted.

Most Transactions with Entities Controlled by the Cuban Military, Intelligence, or Security Services Will Be Prohibited

In addition to clamping down on certain travel to Cuba, the new U.S. policy also targets the Cuban government by prohibiting many financial transactions with companies controlled by the military, intelligence, or security services in Cuba. This broad restriction covers Grupo de Administracion Empresarial S.A. (GAESA), which is the military’s business arm; some estimates indicate that 60% of the Cuban economy is controlled by the GAESA conglomerate. This measure likely will have a significant impact on travelers, as many brand name hotels and restaurants are controlled by the Cuban government.

Pursuant to the policy, there will be some exceptions to the prohibition on direct financial transactions with the military, intelligence, and security services, such as transactions related to authorized air and sea operations. Additionally, this new restriction, which will not take effect until OFAC issues implementing regulations, should not affect existing U.S. business with these Cuban entities. Indeed, OFAC issued guidance immediately before President Trump’s announcement stating that “{c}onsistent with the Administration’s interest in not negatively impacting American businesses for engaging in lawful commercial opportunities, any Cuba-related commercial engagement that includes direct transactions with entities related to the Cuban military, intelligence, or security services that may be implicated by the new Cuba policy will be permitted provided that those commercial engagements were in place prior to the issuance of the forthcoming regulations.” Similarly, the OFAC guidance indicates that existing licenses authorizing U.S. companies to do business in Cuba will not be impacted by the forthcoming regulations.

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Several other aspects of the Obama Administration’s Cuba policy likely will remain in effect. President Trump has indicated that the U.S. embassy in Havana will remain open, and it appears that several other exceptions to the Cuba embargo will remain in place. OFAC and BIS have been directed to begin the process of issuing new regulations soon, although, as noted, the final regulations may not be published for several months, so stay tuned.

U.S. International Trade Commission Submits Preliminary Report and Seeks Limited Additional Comments on Petitions for Import Duty Reductions

Posted in Customs Law, Manufacturing

On June 9, 2017, the U.S. International Trade Commission (Commission) submitted its preliminary report on petitions for duty suspensions and reductions, under the American Manufacturing Competitiveness Act of 2016 (AMCA), to the House Committee on Ways and Means and the Senate Committee on Finance.

As discussed in previous posts here and here, the AMCA reformed the Miscellaneous Tariff Bill (MTB) process, passing the authority for receiving and vetting duty reduction proposals from members of Congress to the Commission. Following a comment period earlier this year for petitions filed in late 2016, the Commission has now submitted a preliminary report that advised Congress whether the petitions received (and not later withdrawn) meet the requirements of the AMCA and should be included in the final MTB. In its preliminary report, the Commission provided recommendations on 2,536 petitions. A wide range of products are represented in the petitions, including chemicals; machinery and equipment; textiles, apparel, and footwear; and agriculture and fisheries products.

The Commission, in conjunction with the Department of Commerce and U.S. Customs & Border Protection, analyzed the petitions for compliance with the AMCA’s requirements. Accordingly, the Commission considered whether:

  • there is any domestic production of the relevant goods;
  • any domestic producers filed objections to individual petitions;
  • the proposed duty suspension or reduction would benefit all importers of the products at issue;
  • any defects in the product description would impede the potential administration of the duty suspension or reduction; and
  • the loss in revenue to the United States would be at or below $500,000/year.

For its preliminary report, the Commission placed each petition into one of six categories to reflect whether and how the petition meets (or fails to meet) the requirements of the AMCA. The Commission grouped petitions not being recommended for inclusion in the final MTB under category VI. The petitions included in this category are those for which the product description was found inadministrable or indiscernible, a domestic producer objected, or estimated revenue loss exceeded $500,000/year.

Today, the Commission begins accepting limited additional comments on the 764 petitions assigned to category VI. According to the Commission’s notice regarding these comments, the agency “will only accept information from the public that relates to its decision to place these petitions into Category VI.” The Commission’s portal for comments will remain open for a period of 10 days, ending on June 21, 2017 at 5:15 pm. Companies interested in opposing, supporting, or providing neutral information with respect to the Commission’s decision to list a petition under category VI may be interested in filing comments at this time.

The Commission is expected to deliver its final report in August 2017.

Handling of China’s predatory pricing may further divide US, EU

Posted in World Trade Organization

Over the past several months, U.S.-EU economic relations have at best been static, if not uncertain and wobbly. Now, the EU’s weak reaction to China’s World Trade Organization claim demanding treatment as a market economy — with the resulting potential reduction of measures against dumped imports — emerges as a very serious strain on the trans-Atlantic relationship.

The latest development comes after the Transatlantic Trade and Investment Partnership (T-TIP) talks stalled last year in part due to domestic European politics and are now on hold under the new U.S. administration. Bilateral dialogues like the Transatlantic Economic Counsel were dormant during the T-TIP negotiations and do not show much sign of life. The U.S. and the EU often used multilateral or plurilateral negotiations to foster engagement, but none are active. Both economies now seem more interested in pursuing agreements with other countries.

Now, the situation could worsen due to one of the largest trade issues involving China. The issue concerns how antidumping duties are calculated to address dumped imports from China. For most exporting countries, the duties are generally calculated based on that country’s own prices and costs. However, the U.S., EU and many other economies long recognized that this would not work for China because China’s economy is heavily distorted by government intervention.

This resulted in China being treated as what is known as a “non-market economy,” using costs and prices from other market-based countries to determine antidumping duties for Chinese products.

The need to do this was recognized when China joined the WTO in 2001. The Accession Protocol allowing China to join the WTO specifically permitted China to be treated as a non-market economy, while requiring China to reform its economy with the goal of ultimately losing this designation. While a portion of this provision in China’s Accession Protocol expired last December, the remainder, which allows the U.S. and the EU to continue to treat China as a non-market economy, is still in force.

The problem is that China has now brought a WTO claim to insist that it be treated the same as market economies. Although China initially asked for WTO consultations with both the U.S. and the EU, China chose to have the EU case proceed more quickly, in an apparent move to isolate the EU.

Separately, last year the European Commission introduced a proposed change to EU law that could significantly alter how the EU calculates antidumping duties for China. The proposal was recently considered by the European Council with some amendments and is now before the EU Parliament.

Meanwhile, in the United States, both the White House and Congress strongly agree that China should continue to be treated as a non-market economy. This consensus is based on the fact that the Chinese economy remains significantly distorted due to government intervention, that China meets the U.S. statutory criteria for being a non-market economy and that this treatment continues to be allowed by China’s WTO Accession Protocol.

It is notable that this position is held by both Republicans and Democrats in the Congress. The Republican and Democratic leaders of the House and Senate committees responsible for trade sent a letter to President Trump urging, among other things, that China continue to be treated as a non-market economy.

With this view in mind, it is not surprising that there is broad concern in Washington, D.C. about what direction the EU should take at the WTO on the China non-market economy issue. The worry is that the EU will not vigorously defend itself and coordinate with the U.S., like the U.S. and the EU have in past WTO cases involving China.

An adverse outcome could then influence further WTO determinations and therefore directly affect trade defense measures in the U.S. and other major trading partners. There is also concern about the European Commission’s proposed changes to EU antidumping law.

Some argue that the proposal would weaken the ability of the EU to defend against unfairly-priced Chinese imports and that it needlessly abandons the authority given by the WTO to treat China as a non-market economy. Unfortunately, this is consistent with a less-than-vigorous defense against China’s claim at the WTO, which could also explain why China has proceeded first only against the EU.

The EU should keep these concerns in mind as it considers its way forward on this issue. An approach that weakens the EU — and therefore other WTO Members’ — ability to treat China as a non-market economy would clearly affect the view of trade sceptics in the White House and Congress about the U.S.-EU economic relationship.

Perhaps more importantly, it could also influence the view of those who traditionally support trade and fostering the U.S.-EU economic relationship, particularly in Congress. Given the state of U.S.-EU economic relations, this is something decisionmakers on both sides of the Atlantic have to worry about.

 

The op-ed was initially published on The Hill.

 

President Trump Calls for Section 232 Reports in June; Comments Made Available to the Public

Posted in Trade Negotiations, Trade Policy, Trade Remedies

On April 20, 2017, President Trump issued a Presidential Memorandum for the Secretary of Commerce calling for an investigation into the national security implications of steel imports pursuant to Section 232 of Trade Expansion Act of 1962.  This marked the first invocation of Section 232 since 2001, when the Department of Commerce (Commerce) investigated imports of semi-finished steel products and iron ore.  The President called for a similar investigation into imports of aluminum a week later, on April 27.

Commerce held a public hearing in the steel investigation on May 24 and accepted written comments from the public through May 31. A video of the hearing, transcripts of witness testimony, and public versions of the comments that Commerce received are now publicly available through the Bureau of Industry and Security’s website.

A hearing in the aluminum investigation is scheduled for June 22, with any written comments due the following day. While the statute provides that Commerce must issue its findings and recommendations to the President within 270 days of initiation, President Trump has called informally for expedited findings, tweeting on May 27 that Commerce’s reports in both investigations are “to be released in June.”

The statute places few restrictions on the types of action that the President may take in response to Commerce’s findings. President Trump’s memoranda call for a broad interpretation of “national security,” including “the effect of foreign competition in the steel industry on the economic welfare of domestic industries.”  These investigations could therefore result in restrictions on steel and aluminum imports, or other actions which could be used as leverage in future negotiations on issues related to steel and aluminum trade.

Commerce Updates its Encryption Guidance to Reflect September 2016 Regulatory Changes

Posted in Export Controls

The Department of Commerce, Bureau of Industry and Security (BIS) recently updated the encryption guidance on its website to reflect the final rule it published in September 2016 easing the encryption-related controls in the Export Administration Regulations (EAR). Although BIS’s revamped guidance is not groundbreaking, it does provide industry with much-needed tools to navigate a somewhat complex area of the EAR.

BIS’s September 2016 rule simplified its encryption controls, expanded existing license exceptions, and loosened other restrictions, easing the regulatory burdens on industry.  However, BIS only just revised the oft-relied upon encryption guidance on its website to correspond to the current controls. The new web guidance includes a quick reference guide to the updated encryption controls, as well as a new, shorter version of BIS’s encryption-related Frequently Asked Questions. Perhaps most importantly, BIS has modified its famous encryption “flow charts,” which walk exporters step-by-step through the encryption classification process.

BIS’s updated encryption guidance is one of many user and business friendly resources on the agency’s website.  Additional helpful policy guidance is available here.

Trump Administration Notifies Congress of Intent to Renegotiate NAFTA

Posted in TPA

Today the Trump Administration sent a letter notifying Congress of its intent to renegotiate NAFTA.  The notification was required by the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (TPA).  By complying with this and other requirements in TPA, legislation required to implement a renegotiated NAFTA will be subject to streamlined procedures in Congress.

The Administration may now initiate negotiations with Canada and Mexico 90 or more days after sending the letter.  The Administration is required by TPA to continue to consult with the House Ways & Means Committee and the Senate Finance Committee, as well as the House Advisory Group on Negotiations and the Senate Advisory Group on Negotiations.  In addition, at least 30 days before initiating negotiations, a detailed and comprehensive summary of the negotiation’s specific objectives and how a renegotiated NAFTA would further those objectives and benefit the United States must be published on the U.S. Trade Representative website.

Unlike the draft of the letter that was leaked several weeks ago, the notification letter does not give much detail on the Administration’s objectives in renegotiating NAFTA other than to update and modernize the agreement.  The letter says that the Administration will seek new provisions to address intellectual property rights, regulatory practices, state-owned enterprises, services, customs procedures, sanitary and phytosanitary measures, labor, environment, and small and medium enterprises.  The Administration earlier raised concerns about NAFTA’s rules of origin provisions and dispute mechanism for trade remedy cases, but neither are mentioned in the letter.

The Administration has said that a renegotiated NAFTA will be the template for future agreements, possibly with the United Kingdom and Japan.  Thus, it will be important for interested parties to engage in the negotiations, even if their issues are not prominent in NAFTA.

U.S. Solar Manufacturer Files Global Safeguards Case Against Imports

Posted in Trade Remedies

On April 26, 2017, Suniva, Inc., a U.S. solar panel manufacturer that recently filed for bankruptcy, filed a trade petition asking the Trump Administration to provide relief from the serious injury that U.S. producers are alleged to be suffering at the hands of foreign imports of solar cells and panels.  Filed under a rarely invoked provision of the U.S. trade laws, the petition seeks an initial tariff of $0.40 per watt on all solar cells imported into the United States, from any country, and an initial floor price on solar modules of $0.78 per watt.  Suniva is also asking for a recommendation that the President negotiate with trading partners to address the global supply chain imbalance in and overcapacity of solar cells and modules.  A fact sheet on the petition is available here.

Also known as the “Global Safeguards” provision, section 201 of the Trade Act of 1974 allows a U.S. industry to petition for relief from the injurious effects of imports.  A successful case must show that the product at issue is being imported into the United States in such increased quantities as to be a substantial cause of serious injury or threat of serious injury to the petitioning industry.  The objective of a section 201 safeguards proceeding is not to remedy unfair trade, but to provide temporary relief to allow a U.S. industry to adjust to import competition.  There is thus no requirement to show that the imports under investigation are being subsidized or sold at less than fair value, as is the case in traditional antidumping and countervailing duty investigations.  Relief can include import duties and quotas and is potentially (though not necessarily) global in scope.  Initial relief is limited to four years, with the possibility of extending for an additional four years.

The U.S. International Trade Commission (“ITC”) has up to 150 days to make a determination of whether the U.S. solar cell and panel industry is seriously injured or threatened with serious injury, and must then transmit its recommendation to the President within 180 days.  The President has sole discretion to decide what relief, if any, will be provided to the domestic industry, and can adopt, modify, reject, or ignore the ITC’s recommendations.  Once the ITC’s recommendation is transmitted, the President has 60 days to make a final decision.

Commerce Officially Launches Investigation to Determine Whether Steel Imports Should be Restricted on National Security Grounds

Posted in Announcements, National Security, Trade Remedies

The Trump Administration has officially launched an investigation into whether steel imports should be restricted on national security grounds pursuant to Section 232 of the Trade Expansion Act of 1962.

Section 232 is a rarely-used provision of U.S. trade law and was last invoked in 2001.  The statute provides that investigations may be initiated upon request of the head of any department or agency, upon application of an interested party, or may be self-initiated by the Secretary of Commerce.  Commerce’s self-initiation of an investigation pursuant to this seldom invoked authority is an important indication of the Administration’s willingness to aggressively use all trade remedies available to address unfair trade practices.

Secretary Ross will conduct an investigation to determine the effects of steel imports on the national security of the United States in accordance with the statute.  At the end of the investigation, the Secretary will submit a report to the President on the findings.  If the Secretary finds that steel is being imported in such quantities or under such circumstances as to threaten to impair the national security, the Secretary will also recommend actions that should be taken to adjust steel imports.

The exact nature of how the investigation will proceed is still being set up.  While the statute provides the Secretary of Commerce 270 days to conduct an investigation and submit a report to the President, President Trump and Secretary Ross have indicated that this investigation will be significantly expedited.

Data Flows from China Could Be Significantly Restricted

Posted in National Security

This article is co-authored by Stephen Claeys and Shawn Chang of the Telecom, Media, & Technology practice.

Proposed Chinese regulations (open in Google Chrome for English translation) could substantially limit the ability of companies in China from sending data outside of that country.   If implemented, the regulations would potentially affect almost any type of business or data flow.

The regulations are to implement China’s wide-ranging Cybersecurity Law, which goes into effect on June 1.  This law already raised concerns due to its new security review requirements for data sent outside of China and a broadened scope for information that must be kept inside of China, among other troublesome provisions.

The proposed regulations increase these concerns because it vaguely defines the data subject to security review, such as data that could impact “national security and social public interests” that suggests that the Chinese government in some situations could have the ability to review any data sent overseas.  In addition, the regulations’ definition of companies subject to the national security review and server localization requirements is also vague.  Almost any company that uses telecommunications or Internet services could be subject to the regulation, including if the data flows are within a company.

Comments on the draft regulations are due by May 11.  However, an effective effort to meaningfully change the regulations would likely require a broad strategy involving not only business interests but also government-led responses.

Clues on the Future of NAFTA and Trade Agreements

Posted in Trade Agreement Compliance

While trade played a large role in the President Trump’s election, there have been few specifics on the new Administration’s objectives in that area.  This has been particularly the case regarding the Administration’s plans for revising NAFTA and negotiating new trade agreements.  The recently leaked draft letter from the Acting U.S. Trade Representative to notify Congress of the Administration’s intent to revisit NAFTA provides insight into the Administration’s thinking.

The purpose of the letter is to comply with one of the Congressional consultation requirements under the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (TPA).  TPA requires certain consultations with Congress regarding the initiation and conduct of trade negotiations, as well as consideration of specified negotiating objectives, in order for a trade agreement’s implementing legislation to receive streamlined consideration by Congress.  In this case, the aim of the letter would be to meet the TPA requirement to provide 90 day-notice of the President’s intent to initiate trade negotiations, as well as the date on which the President intends to initiate negotiations, the United States’ specific objectives for the negotiations, and whether the President is seeking a new agreement or change an existing agreement.  A draft of the letter was presumably provided to Congress to get input and ensure agreement that the letter would meet TPA’s requirements.

Much has already been written about how the negotiating objectives described in the letter are similar to many provisions of the Trans-Pacific Partnership agreement (TPP), which President Trump pulled out of soon after he was negotiated.  This is certainly the case.  The objectives of eliminating barriers for digital trade, stronger requirements for science-based food safety protections, improved trade facilitation practices, better services market access, more vigorous intellectual property rights protections, broader investment rights, and disciplines on state-owned enterprises, among others, closely follow TPP.

However, this does not necessarily signify a change in the Administration’s negative view of TPP.  The Administration, instead, likely recognized that many of the “21st century” trade issues addressed by TPP are needed for truly updating NAFTA.   There are also some significant aspects of TPP provisions missing from the letter.  For example, the intellectual property rights portion of the letter does not mention protections for pharmaceuticals or trade secrets.  The customs portion likewise does not raise increasing de minimus for customs purposes, which is a significant issue regarding Canada.

The draft letter also reflects several themes that the President has already stated about trade policy.  Although trade in agriculture and services are mentioned, improving trade in manufactured products gets greater focus.  Likewise, pointing to the U.S. trade deficit with Canada and Mexico as the reason for seeking a revised NAFTA is in line with the Administration’s view that a prime purpose of trade agreements should be to decrease trade deficits.  The objective in the letter of leveling the playing field on tax treatment reflects the President’s past stated concerned about Mexico’s value-added tax system discriminating against U.S. exports while benefiting Mexican exports.  The letter’s government procurement objective reiterates the Administration’s position of preserving and possibly expanding “Buy America” requirements and the letter repeats past Administration statements about eliminating NAFTA’s Chapter 19 dispute settlement provision for antidumping and countervailing duty determinations.

Nonetheless, despite the above similarities between the letter and the Administration’s stated trade positions, the letter also contains some significant departures.  The most notable is the lack of any objective regarding currency manipulation, which is contrary to past Administration statements about trade agreements needing to contain currency provisions.  Similarly, the letter’s language about a revised NAFTA creating non-economic benefits, such as in national security, is inconsistent with the Administration’s previous statements that trade agreements should be judged on economics alone, rather than as tools of foreign policy and national security.  Finally, the letter’s reference in the environment objective to promoting sustainable development is surprising given the Administration’s general environmental policies.

In sum, the letter shows that the Administration is willing to seek some, but not all, of the provisions in TPP, while also continuing to pursue its own trade policy objectives.  The disjointed nature of the letter also indicates that the Administration is still working internally to develop a coherent set of trade agreement objectives.  There are indications that the letter was not well received on either side of the aisle in Congress, so further revisions of the letter are expected.

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