September 2018
September 4, 2018
November 2018
November 1, 2018
While Justice Was In The Balance, Huge Trade Moves
In September, the nation was gripped by the succession plans for Supreme Court Justice Anthony Kennedy’s retirement. At the same time, there was a lot of important trade news of interest to the FTZ community in the month. First and foremost, the negotiating deadline which expired just last night brought us a brand new three-country trade agreement with Mexico and Canada. The largest and perhaps not last list of Chinese imports requiring additional duties went into effect late in the month. The President signed a Miscellaneous Tariff Bill to put an MTB into law for the first time in six years. Finally, the US and Japan announced intentions to start negotiations on a new bilateral free trade agreement which could have a broad impact on FTZ operators across the United States. Give these important topics justice! Read on!
Top Story: Marathon Negotiations Produce New Three-Country Trade Agreement
U.S. and Canadian officials worked late into the night last night to produce a three-country trade treaty - just don’t call it NAFTA.
With midterm elections fast approaching, republican senators and congressmen in dairy states have been pressing the administration to make a deal with Canada that would open up the northern border to milk and other dairy products from the United States. The ability to export dairy products from the U.S. to Canada had been a major sticking point in the negotiations.
Just hours before a midnight deadline, the US and Canadian governments agreed to a deal.
Canada agreed late Sunday to sign on to a trade deal between the United States and Mexico, now called the United States-Mexico-Canada Agreement, after more than a year of mudslinging interrupted by tenuous negotiations.
The new agreement would allow US farmers greater access to Canada's dairy market and address concerns about potential US auto tariffs, officials from both countries said.
The agreement with Canada and Mexico - our biggest trading partners - fulfills President Donald Trump's campaign pledge to renegotiate NAFTA and avoids his threat to exclude Canada if the talks failed.
"It will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home," said US Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland in a joint statement.
People briefed on the outlines of a revamped deal described changes in language governing dairy imports, dispute resolution between countries, limits on online shopping that can be done tax free, and limits on the U.S. threat of auto tariffs.
“It’s a good day for Canada,” Prime Minister Justin Trudeau said as he left the office late Sunday night. He said he would save other comments for an official announcement today.
Trump administration officials hailed the agreement as a big win for all concerned. Negotiators from the three countries spent all weekend working over the phone, hoping to keep the nearly 25-year-old trade pact alive.
The Trump administration plans to send the new deal to Congress, starting a 60-day review period before the President can sign it. Congress can suggest changes during that time.
The parties have been working to sign a new trade deal before Mexican President Enrique Peña Nieto leaves office on December 1. To meet that deadline, the text of the agreement had to be submitted to Congress before October.
New 301 Tariffs Have Broadest Impact Yet on FTZ Operators
Additional duties on thousands of new components from China have severely impacted the FTZ industry, especially for manufacturing zones. The reason is that the new tariffs not only add additional duties, they eliminate inverted tariff savings on every Chinese part on the list.
While the first two lists, covering $50 billion in merchandise, were somewhat contained, the latest $200 billion dollar list affected a wide array of industries and in many cases eliminated the savings of FTZ manufacturers. Without action by China, the President has threatened to expand the list further such that inverted tariff savings would be eliminated on all parts imported from China.
Tensions continue to flare between the two superpowers making it unlikely improvement is on the horizon.
For example, President Donald Trump recently accused China of attempting to interfere in the 2018 US elections. The Chinese government denied a US Navy warship permission to visit Hong Kong, the US sanctioned a Chinese defense entity over its purchase of Russian-made weapons, the State Department approved a military equipment sale to Taiwan, and a high-ranking Chinese naval officer canceled a meeting with his American counterpart.
Then the United States sailed a warship close to disputed islands in the South China Sea. Two US officials told CNN that the guided-missile destroyer USS Decatur sailed within 12 nautical miles of Gaven and Johnson reefs in the Spratly Islands as part of what the US Navy calls "freedom of navigation operations," which are meant to enforce the right of free passage in international waters.
While the Navy conducts such freedom of navigation operations all over the world, China is particularly sensitive about the operations when they come near areas where the Chinese government has built islands and established military facilities on disputed maritime features.
Also during the month, the US flew B-52 bombers over the South China Sea and East China Sea, areas considered sensitive by the Chinese military.
The flights drew a protest from Beijing, which labeled them provocative.
It cannot help that the punitive tariffs may be starting to impact the Chinese economy.
China's export orders shrank in September, two surveys showed last week.
The reports add to signs Chinese trade, which had held up despite U.S. President Donald Trump's tariff hikes, might be weakening. That adds to pressure on an economy that already was forecast to cool due to slowing global consumer demand and lending controls imposed to rein in a debt boom.
The official China Federation of Logistics & Purchasing's monthly measure of new export orders fell to 48 from August's 49.4 on a 100-point scale on which numbers below 50 show activity shrinking.
A separate index by a business magazine, Caixin, showed new export orders fell at the fastest rate in more than two years. The magazine said companies blamed "trade frictions" and tariffs.
Overall, the federation's monthly purchasing managers index showed manufacturing activity decelerated to 50.8 from August's 51.3. Caixin said its index fell to 50 from 50.6.
"Downward pressure on China's economy was significant," economist Zhengsheng Zhong said in Caixin's report.
The resiliency of China's $12 trillion-a-year economy until now has allowed President Xi Jinping's government to reject pressure for changes in initiatives such as "Made in China 2025" that call for state-led creation of champions in robotics and other technologies.
Washington, Europe and other trading partners say those violate Beijing's market-opening obligations.
The International Monetary Fund and other forecasters expect this year's economic growth to fall to about 6.5 percent from 2017's 6.8 percent. But that slowdown is due mostly to the ruling Communist Party's long-term efforts to steer China to self-sustaining growth based on consumer spending instead of trade and investment. Trade's importance to China has shrunk but it still supports millions of high-paying jobs. The United States is the destination for the highest-value Chinese exports including smartphones, industrial machinery and medical technology.
The logistics federation's employment index fell 1.1 points to 48.3, indicating workforces were shrinking.
"The employment situation worsened further," Zhong said in Caixin's report.
To date, however, such news has not forced a change in China’s negotiating policy.
Japan FTA Would Have Major Impact On FTZ Program
The US and Japan announced intentions to start negotiations on a new free trade agreement after a meeting between President Donald Trump and Japanese
Prime Minister Shinzo Abe at the U.N. General Assembly in New York.
Japan has consistently insisted it was not interested in entering into bilateral trade negotiations with the United States. Instead, it has repeatedly invited the United States to re-enter a broad trade pact (the Trans-Pacific Partnership, or TPP) among 11 countries from which President Trump withdrew during his first week in office.A free trade agreement with Japan, or entrance into the TPP, would dramatically reduce FTZ savings for manufacturers with significant imports from Japan.
Japan appeared at first blush to have acquiesced to American pressure and the threat of tariffs on imported cars by agreeing to start two-way negotiations to “promote Japan-U.S. trade.”Robert Lighthizer, the US Trade Representative, told reporters that the administration planned to seek fast-track trade negotiation powers from Congress under the current Trade Promotion Authority. This would allow the President to make a deal subject only to a majority vote in Congress. The full negotiation process is likely to take months or years.
While the development does not reverse Trump's tariffs on imports of steel and aluminum, the statement indicates that the US would not impose further tariffs on Japan over the course of talks. This is particularly important given the ongoing investigation by the Trump administration into tariffs on imported autos and auto parts.
Japanese carmakers in particular were worried about the possible effects of a new auto tariff on their businesses, which added pressure to begin negotiations.
President Signs First MTB Into Law Since 2012
The President signed into law H.R. 4318, the “Miscellaneous Tariff Bill Act of 2018,” in mid-September. The legislation provides for duty suspensions and reductions for over 1,000 chemicals and other items through December 31, 2020.
This is the first MTB to use the new process for enacting non-controversial tariff reductions and eliminations. The new bill is not retroactive as previous bills have been, leaving a long gap between the expiration of the last MTB and the effective date of the new one.
Port Hit By Ransomware Attack
The Port of San Diego was a victim of a ransomware attack, the agency announced last month.
The agency is partnering with the FBI and the Department of Homeland Security to investigate the matter, Port CEO Randa Coniglio said in a statement. Hackers breached the Port’s information technology systems and demanded payment in Bitcoin, the agency said, though the amount was not disclosed.
Ransomware works by encrypting a user's data and holding the decryption key until the ransom is paid. Once that happens, a typical recourse is to reformat and restore the system from backups, SDSU cyber warfare and cyber terrorism expert Steven Andrés said.
“When the NotPetya ransomware attacked Maersk shipping company, the company recovered by reformatting and restoring over 4,000 servers and 45,000 desktops from the backups,” he said.
It was unknown how the ransomware got onto the Port’s computer, but Andrés said it could happen a number of ways, such as someone opening an infected email attachment, clicking on a malicious web link, or plugging in a USB thumb drive that’s been infected.
Another way is a direct hack of a computer that's connected to the Internet, ESET senior security researcher Stephen Cobb said.
"So every company is using computers out on the internet, and if there's a bad actor, I can find one of those, guess the password, break into it," he said. "I can then use that as my platform to carry out an attack on the organization."
When the Port began having problems, a team of industry experts from local, state and federal levels was called in to minimize the impact of the breach and to restore the affected systems, Coniglio said.
She said the breach’s effect is only administrative and not operational.
“The Port remains open, public safety operations are ongoing, and ships and boats continue to access the Bay without impacts from the cybersecurity incident,” Coniglio said.
One of the systems compromised included the San Diego Harbor Police Department, but the agency has switched to a backup system, she said.
While only the some of the information technology systems were affected by the breach, the Port shut down other systems in “an abundance of caution,” Coniglio said.
The Port has not revealed which systems were compromised in the breach citing security concerns but did say that priority has been placed on restoring public safety-related systems.
U.S. Foreign-Trade Zones Board Activity
- ASML US, LLC, received approval for expansion of Subzone 76A in Walton and Bethel, CT. LEARN MORE
- International Flavors and Fragrances, Inc., submitted a notification of proposed production activity for flavor and fragrance products in Foreign-Trade Zone 44 in Trenton, NJ. LEARN MORE
- Deere-Hitachi Construction Machinery Corp. received authorization for production activity of forestry machinery and hydraulic excavator frames/booms/arms in Foreign-Trade Zone 230 in Kernersville, NC. LEARN MORE
- DSM Nutritional Products, LLC; submitted a notification of proposed production activity for vinylol in Foreign-Trade Zone 149 in Freeport, TX. LEARN MORE
- Lilly del Caribe submitted a notification of proposed production activity of pharmaceutical products in Foreign-Trade Zone 7 in Mayaguez, Puerto Rico.LEARN MORE
- Foreign-Trade Zone 105 in RI, will be reorganized under alternative site framework. LEARN MORE
- Foreign-Trade Zone 135 in Palm Beach, FL, will be reorganized under alternative site framework. LEARN MORE
- Foreign-Trade Zone 158 in Vicksburg/Jackson, MI, will be reorganized under alternative site framework. LEARN MORE
- Foreign-Trade Zone 179 in Madawaska, Maine, will be reorganized under alternative site framework. LEARN MORE
- Driftwood LNG, LLC received approval for subzone status of its facilities in Sulphur, Louisiana. LEARN MORE
- An application to establish a Foreign-Trade Zone under the alternative site framework has been submitted in Lufkin, TX . LEARN MORE
- Kaiser Aluminum Fabricated Products, LLC submitted a notification of proposed production activity for aluminum extrusions in Foreign-Trade Zone 207 in Richmond, VA. LEARN MORE
- Microchip Technology, Inc. submitted a notification of proposed production activity for semiconductor devices and related products in Foreign-Trade Zone 75 in Phoenix, AZ. LEARN MORE
- Takasago International Corp. (U.S.A.), submitted a notification of proposed production activity for fragrances in Foreign-Trade Zone 37 in Orange County, NY. LEARN MORE
- Tesla, Inc., submitted a notification of proposed production activity for lithium-ion batteries, electric motors, and stationary energy storage systems in Foreign-Trade Zone 126 in Reno, NV. LEARN MORE
While Justice Was In The Balance, Huge Trade Moves
In September, the nation was gripped by the succession plans for Supreme Court Justice Anthony Kennedy’s retirement. At the same time, there was a lot of important trade news of interest to the FTZ community in the month. First and foremost, the negotiating deadline which expired just last night brought us a brand new three-country trade agreement with Mexico and Canada. The largest and perhaps not last list of Chinese imports requiring additional duties went into effect late in the month. The President signed a Miscellaneous Tariff Bill to put an MTB into law for the first time in six years. Finally, the US and Japan announced intentions to start negotiations on a new bilateral free trade agreement which could have a broad impact on FTZ operators across the United States. Give these important topics justice! Read on!