March 2018
March 1, 2018
May 2018
May 1, 2018
Top Story: Steel and Aluminum Tariffs Expanded to Include FTZs
President Trump issued new Proclamations regarding Section 232 tariffs on steel and aluminum just as the original ones were about to go into effect. The changes amending the original Proclamations (9704 and 9705) added exemptions for imports from Argentina, Australia, Brazil, Canada, the European Union, Mexico, and South Korea until May 1, 2018.
They also required that steel and aluminum subject to the tariffs be admitted to FTZs in privileged-foreign (PF) status. Admitting steel and aluminum products in PF status means that Foreign-Trade Zones will only be able to avoid the punitive measures on export sales.
The modified steel and aluminum tariffs took effect on March 23rd on imports from all countries that did not receive exemptions. If the President takes no further action, the tariffs will once again apply to imports from all countries starting May 1, setting a deadline for trade negotiations. If country-wide exemptions are granted on a longer-term basis, the President may adjust the tariffs applicable to other countries and/or impose quotas.
According to a White House statement announcing the tariff modifications, President Trump suspended the implementation of tariffs on imported steel and aluminum “pending discussions of satisfactory long-term alternative means to address the threatened impairment to U.S. national security.” The announcement asserts that the President “retains broad authority to further modify the tariffs, including by removing the suspensions or suspending additional countries” or by “imposing quotas as appropriate.”
The new suspensions do not impact the process established for affected parties to request product exclusions, but they do modify the provisions regarding product exclusion requests to clarify that exclusions will be provided on a party-by-party basis, “taking into account the regional availability of particular articles, the ability to transport articles within the United States, and any other factors as the Secretary (of Commerce) deems appropriate.” Additionally, the Proclamations direct that—where an exclusion request is granted—the exclusion from tariffs will apply retroactively to the date on which the exclusion request was posted for public comment.
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Recent Tariff Moves May Start The Dominoes Falling
The punitive tariffs recently declared on imports of steel and aluminum have created an unusual problem. If those products are no longer headed for the United States, where will they be sold?
Fear that other countries will now be sought as an outlet for excess capacity has set off a chain reaction around the globe, as governments from Europe to Canada prepare to erect barriers to prevent cheap metal once bound for the United States from entering their markets.
On Tuesday, Prime Minister Justin Trudeau of Canada announced a series of regulatory changes that would make it easier for border officials to block steel and aluminum imports into that nation. The European Union has begun a “safeguard investigation” that could result in tariffs or other trade actions if it determines that steel intended for the American market is being diverted to the bloc.
“These past few days, we’ve looked at strengthening the measures that we already have in place because it’s important that we not be taking in dumped steel from around the world,” Mr. Trudeau told reporters in Ottawa.
President Trump’s stiff 25 percent steel tariffs and 10 percent aluminum tariffs, which will slow the flow of foreign metals into the United States, have prompted other countries to move more rapidly to curtail overseas imports.
The response could help the president claim victory on one of his primary trade goals: cutting down on a glut of cheap Chinese steel. The American metals industry has long claimed that it is powerless against an onslaught of cheap metal from China, which now produces roughly half of the world’s steel and aluminum.
Companies argue that past efforts to get China to reduce overcapacity have largely failed and that the only recourse is taking broader action that could galvanize a global movement. That movement now seems to be underway, though exactly in which directions the dominoes may fall is unclear.
The Chinese government has announced plans to impose tariffs on 128 products from the United States, including pork and some fruits, in a response to the recent U.S. moves.
US pork producers exported $1.1 billion in pork to China last year, making it the third-largest market for the US industry.The new tariffs from the Chinese government will also hit US apples, oranges, almonds, pineapples, grapes, watermelons, cranberries, strawberries, raspberries, cherries, and more.
China’s tariffs will also hit US ethanol with an extra 15 percent tariff, raising fears that Chinese importers will suspend imports of ethanol from the United States. The tariffs on cheaper US ethanol will wipe out the price differential versus Chinese domestic supply.
Then, in addition to the steel and aluminum action, President Trump last month announced new tariffs on $60 billion in Chinese goods and will restrict China’s ability to invest in US technology businesses. The US Trade Representative is expected to unveil a list of targeted Chinese products soon. Such escalations make the form and timing of a resolution to the trade dispute harder to predict.
NAFTA Progress Unlikely Before Summer Election
The Trump administration is now pushing for a preliminary NAFTA deal to announce at a summit in Peru next week, and will try to host cabinet ministers in Washington to try to achieve a breakthrough. The sides remain far apart on key issues such as auto content, and progress may be unlikely before a new President is elected in Mexico on July 1st.
The White House wants leaders from Canada and Mexico to join in unveiling the broad outlines of an updated pact at the Summit of the Americas that begins April 13, while technical talks to hammer out the finer details and legal text could continue.
Those negotiators are working under some political calendar pressure, with July elections in Mexico and November ones in the U.S. threatening to complicate the process of reaching a deal and getting it approved. Negotiations between the countries would need to be concluded before the end of April in order for an agreement to go before the current Mexican Senate and U.S. Congress.
The NAFTA process could become trickier if Democrats take control in the U.S. House or Senate, or if leftist Mexican presidential frontrunner Andres Manuel Lopez Obrador wins or his Morena party picks up seats in the nation’s upper house. Those events probably would change the political calculus for a deal and the content required in a final agreement to win legislative approval. Mexico’s new Senate will be seated in September, with the new president taking office in December. Current Mexican President Pena Nieto is limited to a single six-year term.
Striking a nationalistic tone, candidate Obrador signaled that if he won the July 1 election in Mexico, he would be less accommodating toward Trump than the ruling Institutional Revolutionary Party, or PRI, which has lagged in opinion polls over its failure to contain violence and corruption.
"Mexico and its people will not be the pinata of any foreign government," Lopez Obrador said in a speech.
Lopez Obrador criticized President Enrique Pena Nieto for export-focused economic policies that he said benefited the few, and promised a strategy to build up Mexico's internal markets. While Obrador reaffirmed his backing for the pact, he said talks to renegotiate the agreement should be suspended until after the election, and that any new deal should address wages and immigration.
South Korea Hands the White House Its First Trade Victory, or Maybe It Was North Korea
Representatives from the U.S. and South Korea reached an agreement just last week to modify the US-Korea Free Trade Agreement. South Korea is agreeing to reduce its steel exports by 30 percent and to double its import quota for U.S. cars, exempting the country from the new U.S. steel tariffs. Changes to agriculture were left out of the agreement, much to the relief of the U.S. agriculture industry. South Korea becomes the first country to complete renegotiation of trade terms with the United States.
The President may owe much of the credit for progress on the agreement to Kim Jong-un’s recent visit to China. The face-to-face meeting of North Korean leader Kim Jong-un with China’s President followed the surprise announcement that he would take part in summits with South Korea’s President Moon Jae-in and US President Donald Trump to discuss the elimination of nuclear weapons.
Chinese President Xi Jinping’s willingness to meet with the ostracized North Korean leader may have convinced South Korean President Moon Jae-in that close ties with the United States are more important than ever. The U.S. also had reason to want to conclude trade negotiations with at least one of its trading partners.
According to the U.S. Meat Export Federation (USMEF), 2017 red meat exports to Korea topped $1.7 billion, almost double that of 2012 numbers when the FTA went into effect. The U.S. is the largest beef supplier to Korea and the country’s second largest supplier of pork. Almond shipments from California have more than doubled in value from $83.3 million to $167.6 million in that time.
U.S. Foreign-Trade Zone Board Activity
- Plaza Warehousing & Realty Corporation received approval for subzone status subject to the existing activation limit of FTZ 61 in Caguas, Puerto Rico. LEARN MORE
- BGM America, Inc. received approval for limited proposed production of Sailboats, Cabin Cruiser Powerboats, and Outboard Motor Boats, concerning a restriction requiring that a significant list of components be admitted to the subzone in privileged foreign status in their facility within Subzone 127A, in Marion, South Carolina. LEARN MORE
- The Rhode Island Commerce Corporation, grantee of FTZ 105, requested the authority to reorganize zone 105 under the alternative site framework (ASF) adopted by the FTZ Board. LEARN MORE
- The Madawaska Foreign-Trade Zone Corporation, grantee of FTZ 179, requested the authority to reorganize the zone under the alternative site framework (ASF) adopted by the FTZ Board. LEARN MORE
- Fuling Plastic USA, Inc. received approval for proposed production of Disposable Plastic and Paper Service Ware and Kitchenware Products in its facility within FTZ Subzone 272C, in Allentown, Pennsylvania. LEARN MORE
- Plaza Warehousing & Realty Corporation was granted approval for the creation of FTZ sub-zone 61T in Caguas, Puerto Rico. LEARN MORE
- Valeo North America, Inc. received approval for proposed production of Automotive Clutch and Compressor Assemblies for its facility within Subzone 47D, in Winchester, Kentucky. LEARN MORE
- The application by Valeo North America, Inc. to establish Subzone 47D was approved for in Winchester, Kentucky. LEARN MORE
- The application to establish Subzone 144C by Orgill, Inc., was approved in FTZ 144 in Tifton, Georgia. LEARN MORE
- Lam Research Corporation (Lam) has requested expanded subzone status for FTZ 18. Subzone 18F consists of 13 sites in Fremont and Livermore, located in Tracy, California. LEARN MORE
- Hyster-Yale Group, Inc. has requested an expansion of Subzone 98D for its facility in Sulligent, Alabama. LEARN MORE
- Swagelok Company (Swagelok) has submitted a notification of proposed production activity for their facility in FTZ 40 located in Solon, Willoughby Hills, Highland Heights, and Strongsville, Ohio. LEARN MORE
- E.R. Squibb and Sons, LLC has requested the expansion of Subzone 49C for its facility located in New Brunswick, New Jersey. LEARN MORE
- Quad/Graphics, Inc.—Chemical Research\Technology (Quad/Graphics—C\RT), has submitted a notice for proposed production of Offset and Gravure Publication Printing Ink for their facility in FTZ 41 located in Hartford and Sussex, Wisconsin. LEARN MORE
- Cummins, Inc. has received approval for proposed production of Gas and Diesel Engines in their facilities within Subzone 23D, in Lakewood and Jamestown, New York. LEARN MORE
- Estee Lauder Inc. received approval for proposed production of Skin Care, Fragrance, and Cosmetic Products in its facility within FTZ 35, in Bristol and Trevose, Pennsylvania. LEARN MORE
Is the Cold in Washington On Its Way Out Or In?
The cherry blossoms are out (and looking beautiful, we must say) in your Nation’s Capital, which is usually a sure sign that Spring and warmer weather are finally here. On the trade front however, warmth is less easy to find. Diplomatic expulsions and the imposition of a historic number of punitive tariffs have rattled trading partners and stock markets. Then the end of month brought the conclusion of the first set of FTA renegotiations, with improved export terms for the United States. Hopefully those cherry blossoms are telling us something after all.