NATIONWIDE: An Introduction to USA - Nationwide

INTERNATIONAL TRADE OVERVIEW

The past year has seen dramatic developments in every aspect of US international trade law and policy – major legislation on economic sanctions, export controls, and investment screening; the return of customs duties as a significant policy instrument; increasing tensions with China, the conclusion of negotiations with Canada and Mexico and the first steps toward preferential agreements with the EU, Japan and the UK.

CFIUS  

On August 13, 2018, President Donald Trump signed into law the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which expands the jurisdiction and powers of CFIUS, the US interagency committee that conducts national security reviews of foreign investment. FIRRMA authorizes CFIUS to conduct pilot programs to implement provisions of the legislation that did not become effective immediately upon enactment. On the 10th of October 2018, CFIUS initiated a pilot program that addresses specific risks to US critical technologies. Separately, CFIUS issued updated regulations formally implementing some of FIRRMA’s provisions that became effective upon enactment.

Customs 

The past year was marked by significant changes in US tariff policy, including the imposition of three different types of additional duties: Section 201 duties on solar cells/panels and washing machines/parts; Section 232 duties on aluminum and steel; and Section 301 duties on products from China classified in specified subheadings. Because of these additional duties, importers are increasingly analyzing duty mitigation strategies, including, inter alia, reviewing classification and country of origin or supply chain changes and opportunities to use the first sale rule, which allows importers in certain situations to use a purchase price higher up the chain of sale to lower the entered value. In response, CBP has announced that it will increase its scrutiny of the use of first sale and importers can expect similarly increased scrutiny of other tariff-related changes. Additionally, in 2018, CBP published its long-awaited Modernized Drawback rule, implementing changes to the drawback regulations called for by the Trade Facilitation and Trade Enforcement Act of 2015, including the addition of a controversial regulation limiting the drawback of excise taxes.

Economic Sanctions and Export Controls 

For almost two decades, the Export Administration Regulations (EAR) had been kept in effect through executive orders and an emergency declaration. That changed when the Export Control Reform Act (ECRA) became law on August 13, 2018. ECRA codified existing regulations and policies, providing a permanent statutory authority for the EAR. Notably, ECRA establishes a new interagency process led by BIS to identify and control 'emerging' and 'foundational' technologies that are essential to the national security of the US. As a result, on November 19, 2018, BIS published an advance notice of proposed rulemaking relating to emerging technologies, identifying 14 proposed representative technology categories that reflect areas highlighted in the Made in China 2025 initiative and competition in cutting-edge fields, such as artificial intelligence, robotics and aerospace technology. BIS was expected to implement new controls on at least some of these technologies by the end of 2019.

Over the past year, the Trump Administration imposed a number of new sanctions, including several against the Maduro regime in Venezuela, and implemented the Global Magnitsky Act. The biggest development was the withdrawal of the US from the Joint Comprehensive Plan of Action (JCPOA) in May 2018, leading to the reinstatement by November 2018 of the sanctions on Iran that had been suspended under the JCPOA. This included revoking General License H, which had provided authorization for foreign subsidiaries of US parents to conduct business with Iran, as well as re-imposing nuclear-related secondary sanctions.

Trade Negotiations 

President Trump signed the modernized NAFTA, rebranded as USMCA, with Canadian and Mexican leaders in November 2018. The results of the November 2018 Congressional elections left unclear the prospects for US ratification of the pact. The USMCA would keep the bulk of the original NAFTA intact, but would make changes with respect to trade for automobiles, digital trade and US entry into the Canadian dairy market. The USMCA also would eliminate, after a three-year grandfather period, the investor-state dispute settlement (ISDS) between US and Canada, and narrow the scope of claims that can be brought under ISDS between US and Mexico.

The Trump Administration also notified Congress of its intent to negotiate trade agreements with Japan, the EU and the UK.

Finally, US and Chinese officials shifted their efforts in the first part of 2019 away from exchanging fire (in the form of tariff increases) and toward negotiating a resolution to the two countries’ trade feud. At the center of the negotiation is the US demand for China to reform its intellectual property and technology transfer rules, which led to the two earlier rounds of tariff increases on $250 billion worth of Chinese goods following USTR’s Section 301 investigation on this issue.

Trade Remedies 

Over the past year, the Trump Administration pushed forward with its actions pursuant to Section 232 of the Trade Expansion Act of 1962 – a Cold War-era statute that enables the US to impose trade restrictions on the basis of national security – aimed at addressing threats caused by imports of motor vehicles and automotive parts. On the 17th of February 2019, the Department of Commerce provided its report to the President, who had 90 days from that date to decide whether to impose additional tariffs. This threat of increased tariffs on automobiles and parts is also seen as a means of creating leverage for the Administration in its trade negotiations with, inter alia, the EU and Japan, both of which export a significant number of automobiles and parts to the US. These infrequently used remedies are in addition to the antidumping and countervailing duty investigations and reviews that took place throughout the year.

WTO Disputes 

The scope and justiciability of the WTO’s national security exceptions continue to be the hot button issue. Following the Trump Administration’s imposition in March 2018 of steel and aluminum tariffs pursuant to Section 232, nine WTO Members have filed complaints against such tariffs in the WTO, namely China, the EU, Canada, Mexico, Russia, Turkey, Norway, India and Switzerland. In response, the US asserted the national security exception, and that such exception is self-judging. It appeared that the national security exceptions would also play an important role in several other ongoing WTO disputes, including disputes brought by Qatar against the UAE (DS526) and Saudi Arabia (DS567), as well as disputes brought by the EU (DS475) and Ukraine (DS532) against Russia.

This year also saw the deepening of the impasse over vacancies on the WTO Appellate Body. For more than a year, the US Government has been blocking the appointment of new Appellate Body Members. As a result, the seven-seat Appellate Body is currently operating with only three Members, the minimum number needed to hear an appeal. If the deadlock is not broken before the next Member’s term ends in December 2019, the Appellate Body will be unable to hear new appeals. Several WTO Members have put forward proposals in an effort to avoid this result.