American Trade & Manufacturing Blog

President Trump Signs Order on U.S. Manufacturing and National Security

Posted in Manufacturing, Trade Policy

As the Commerce Department prepares to issue its findings and recommendations in the ongoing Section 232 investigations into the national security implications of steel and aluminum imports, President Trump has signed a new Executive Order calling for a broader review of the state of the U.S. manufacturing and defense industrial base.  The Order, signed on July 21, 2017, links the condition of U.S. manufacturing directly to national security, saying that “{a} healthy manufacturing and defense industrial base and resilient supply chains are essential to the economic strength and national security of the United States.”  The Order calls on several U.S. government agencies, led by the Departments of Defense, Commerce, Labor, Energy, and Homeland Security, to conduct a 270-day assessment of the following five factors and to provide policy recommendations:

  • the military and civilian materiel, raw materials, and other goods that are essential to national security;
  • the manufacturing capabilities essential to producing such goods, including emerging capabilities;
  • the defense, intelligence, homeland, economic, natural, geopolitical, or other contingencies that may  disrupt, strain, compromise, or eliminate the supply chains of such goods;
  • the resiliency and capacity of the manufacturing and defense industrial base and supply chains of the United States to support national security needs upon the occurrence of those contingencies; and
  • the causes of any deficiencies in the defense industrial base or national-security-related supply chains.

The Order does not explicitly call for an assessment of the relationship between these factors and international trade.  According to Peter Navarro, Director of the White House Office of Trade and Manufacturing Policy, this assessment is independent of the ongoing Section 232 investigations.  The substance, however, appears to be closely related to the issues addressed under Section 232, which could foreshadow additional Section 232 investigations and responses covering vulnerabilities identified pursuant to the July 21 Order.

As noted previously on this blog, the relationship between the U.S. industrial base and U.S. national security has been a key element of Peter Navarro’s thinking on international trade issues.  The Trump Administration’s Trade Policy Agenda of March 2017 also included the objective of “{e}nsuring that United States trade policy contributes to the economic strength and manufacturing base necessary to maintain – and improve – our national security.”  As drafted, the July 21 Order does not provide procedures for public comment or participation.

Treasury Department Adds 16 Entities/Individuals to SDN List

Posted in Economic Sanctions

One day after President Trump reluctantly certified that Iran has been complying with the terms of the Joint Comprehensive Plan of Action relating to its nuclear program, the U.S. Treasury Department sanctioned 16 entities and individuals for supporting the Iranian military and Iran’s Islamic Revolutionary Guard Corps.  The designated entities are reported to have assisted in Iran’s development of unmanned aerial vehicles and military equipment, the production of fast attack boats, the procurement of electronic components in support of Iran’s military, and the theft of U.S. and western software programs.  At the same time, the U.S. State Department designated two Iranian entities involved in the country’s ballistic missile program.

As a result, these entities and individuals have been added to the Treasury Department’s list of Specially Designated Nationals and Blocked Persons (SDNs), and their property and interests in property are blocked.  U.S. persons are now generally prohibited from engaging in transactions with these (and any other) SDNs, and are also prohibited from engaging in transactions with entities 50 percent or more owned by such SDNs.

USTR and Commerce Call For Comments on Performance of Trade and Investment Agreements, Preference programs

Posted in Trade Policy, World Trade Organization

In today’s edition of the Federal Register, the U.S. Trade Representative and the U.S. Department of Commerce, two federal agencies at the forefront of U.S. trade policy, request comments from the public regarding the performance of U.S. free trade and investment agreements, preference programs, and trade relations with countries that are members of the World Trade Organization.

On April 29, President Trump issued an executive order calling for the agencies, along with other arms of the federal government to conduct comprehensive performance reviews of U.S. trade agreements, including the WTO Agreements. The agencies plan to use the public comments they receive as a result of today’s information request as part of this comprehensive performance review. As such, the agencies request that commenters submit information relating to:

  • The performance of any one or more of the United States’ fourteen free trade agreements and forty bilateral investment treaties;
  • The performance of the WTO Agreements as to any trading partner with which the United States has no current free trade agreement, “but with which the United States runs significant trade deficits in goods”; and/or
  • The performance of U.S. trade preference programs, such as the Generalized System of Preferences.

The request for comments indicates that commenters may wish to focus on whether violations or abuses of the agreements, treaties, or programs have harmed U.S. workers, manufacturers, or U.S. intellectual property rights. Likewise, the request asks for information on any unfair treatment by trade and investment partners that has harmed similar U.S. interests, and on whether U.S. agreements have failed to meet predictions regarding “new jobs created, favorable effects on the trade balance, expanded market access, lowered trade barriers, or increased United States exports.”

Comments are due to the agencies by July 31, 2017.

AIG Settles Potential Violations of U.S. Sanctions Regulations

Posted in Economic Sanctions

On June 26, 2017, the Office of Foreign Assets Control (OFAC) announced a settlement with global insurance giant American International Group, Inc. (AIG) for apparent violations of multiple U.S. sanctions regimes, including the regimes relating to Iran, Sudan, Cuba, and Weapons of Mass Destruction Proliferators.   The apparent violations involved 555 transactions totaling approximately $396,530 in premiums and insurance claims relating to maritime shipments of goods destined for and transiting through Iran, Cuba, or Sudan, or that involved a Specially Designated National (SDN).

While the overall penalty amount ($148,698) is not high, the settlement is nonetheless notable because the final penalty amount is lower than OFAC’s calculated base penalty of $198,266.  This reduced penalty reflects several mitigating factors that OFAC found important.  First, AIG voluntarily self-disclosed these violations, which were non-egregious.  Second, AIG’s compliance program included recommendations for the use of exclusionary clauses to prevent sanctions violations (even if OFAC found these clauses to be too narrow to be effective).  Third, AIG took remedial action upon discovering the violations.  Fourth, after submitting its disclosure, AIG cooperated with OFAC’s investigation, provided detailed and organized information to OFAC, and agreed to toll the statute of limitations.  Finally, AIG did not have any findings of sanctions violations or penalties during the prior five-year period.

This settlement serves as a good reminder of the importance of maintaining robust compliance policies and procedures, and, when violations are discovered, taking remedial measures and voluntarily disclosing such violations to OFAC promptly.  While OFAC’s penalties can be steep, cooperating companies may see their penalties reduced significantly, if not eliminated altogether.

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.

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