United States: Tariff Updates: New Exemptions, Deals Made To Avoid Tariffs, And New China Tariffs Incoming

Last Updated: April 6 2018
Article by Jonathan Creek

On March 8, 2018, President Trump announced new tariffs on imports of steel and aluminum from all countries except Canada and Mexico. The tariffs on steel are 25% and the tariffs on aluminum are 10%. These tariffs went into effect on March 23, 2018. This article serves as an update on the most recent tariff related developments.

New, Temporary Exemptions Granted to Specific Countries

On March 22, 2018, President Trump issued two new Presidential Proclamations, on steel1 and aluminum2 respectively, detailing new countries that will be temporarily exempt from the newly implemented steel and aluminum tariffs. These newly exempted countries include Australia, Argentina, Brazil, South Korea, and the EU. These countries join Canada and Mexico, who were granted exemptions in the original Presidential Proclamations. However, this reprieve from the tariffs is temporary. The Presidential Proclamations also set an expiration date of May 1, 2018 for all country exemptions, including Canada and Mexico. The exemptions will become permanent if the U.S. and the affected country are able to agree to alternative means to address the threatened impairment to the national security by the imports of steel and aluminum. These agreements will have to be agreed to on a country-by-country basis. What these agreements will entail is unknown at this point; however, Canada and Mexico will probably be required to re-work the North American Free Trade Agreement ("NAFTA") in order to keep their exemptions. If no agreement can be reached, then the exempted country will become subject to the tariffs on May 1, 2018. Additionally, tariff rates on other countries may be adjusted based on the number of countries who are granted permanent exemptions. Finally, even for countries who are able to maintain an exemption, quotas may be implemented on these countries for steel and aluminum imports as part of any potential agreements. Any potential quotas would take into account all the steel and aluminum imported from that country since January 1, 2018.

South Korea Secures First Permanent Exemption

On March 26, 2018, the U.S. and South Korea reached an agreement regarding the steel and aluminum tariffs, meaning South Korea will be permanently exempt from the steel and aluminum tariffs. As part of the agreement, South Korea will adhere to a quota of 2.68 million tons of steel exports to the United States a year. This equates to about 70 percent of its annual average sent to the U.S. between 2015 and 2017. In addition, South Korea will also lower trade barriers on vehicles imported from the U.S. The U.S. will now be allowed to export 50,000 vehicles to South Korea a year, without meeting local safety requirements. This roughly doubles the amount the U.S. is allowed to export to South Korea currently. In return, South Korea will be granted an exemption from the steel and aluminum tariffs.

Section 301 Report Means Potential Trade War with China

On March 22, 2018, President Trump signed a memorandum in response to a Section 301 Report3 conducted by the United States Trade Representative ("USTR") that could have wide ranging consequences on trade with China. The investigation found:4

  • "First, China uses foreign ownership restrictions, including joint venture requirements, equity limitations, and other investment restrictions, to require or pressure technology transfer from U.S. companies to Chinese entities. China also uses administrative review and licensing procedures to require or pressure technology transfer, which, inter alia, undermines the value of U.S. investments and technology and weakens the global competitiveness of U.S. firms.
  • Second, China imposes substantial restrictions on, and intervenes in, U.S. firms' investments and activities, including through restrictions on technology licensing terms. These restrictions deprive U.S. technology owners of the ability to bargain and set market-based terms for technology transfers. As a result, U.S. companies seeking to license technologies must do so on terms that unfairly favor Chinese recipients.
  • Third, China directs and facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and to generate large-scale technology transfers in industries deemed important by Chinese government industrial plans.
  • Fourth, China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies. These actions provide the Chinese government with unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications, and they also support China's strategic development goals, including its science and technology advancement, military modernization, and economic development."

Based on the findings of the report, President Trump ordered the USTR to publish a proposed list of products and any intended tariff increases by April 6, 2018. This publication will be followed by a period of notice and comment, and then the final rule will be published. Next, the USTR was ordered to pursue a dispute settlement with the World Trade Organization ("WTO") to address China's discriminatory licensing practices. The USTR is required to report its progress on this issue to the President by May 21, 2018. Finally, the Secretary of Treasury is required to propose executive branch action to address the concerns about investment in the U.S. directed or facilitated by China in industries or technologies deemed important to the U.S. A progress report on this is required to the President by May 21, 2018.   

Ever since President Trump's original announcement of the steel and aluminum tariffs on March 8, 2018, there have been a lot of developments with regards to tariffs. Torres Law will continue to monitor any further updates. Please feel free to reach out if you require any assistance.

Footnotes

1 Whitehouse.gov, Presidential Proclamation Adjusting Imports of Steel into the United States, https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-steel-united-states-2/ (last visited March 28, 2018).

2 Whitehouse.gov, Presidential Proclamation Adjusting Imports of Aluminum into the United States, https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-aluminum-united-states-2/ (last visited March 28, 2018).

3 This investigation occurred under section 301 of the Trade Act of 1974. Section 301 authorizes the President to take action to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S. commerce.

4 Whitehouse.gov, Presidential Memorandum on the Actions by the United States Related to the Section 301 Investigation, https://www.whitehouse.gov/presidential-actions/presidential-memorandum-actions-united-states-related-section-301-investigation/ (last visited March 28, 2018).

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Authors
Jonathan Creek
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