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Topics to be Discussed

US Trade Policy Under the Current Administration Presented to by: Jorge A. Torres President/U.S. Licensed Customs Broker. Topics to be Discussed. The Current Trade Agenda Section 232 Tariffs on Aluminum and Steel Section 301 Tariffs on Chinese Products

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Topics to be Discussed

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  1. US Trade Policy Under the Current Administration Presented to by:Jorge A. TorresPresident/U.S. Licensed Customs Broker

  2. Topics to be Discussed • The Current Trade Agenda • Section 232 Tariffs on Aluminum and Steel • Section 301 Tariffs on Chinese Products • Strategies to Avoid or Reduce Section 232 and Section 301 Additional Tariffs • NAFTA Re-Negotiation • What is Next? • Summary and Conclusions

  3. The Current Trade Agenda • The current administration has a particular view of international trade and its impact on the U.S. economy and politics • A few things to consider: • Trade deficits are a negative thing (China, Mexico) • Fair trade is critical (reciprocal duty rates, market access, etc.) • Other countries’ policy is to win or come out on top in regards to trade and the US has been somewhat complacent with this (FTA’s, China’s stealing technology and flooding the U.S. with steel, the EU using high duty rates to hinder U.S. automobile exports, etc.)

  4. The Current Trade Agenda • All of these matters/topics have shaped the current agenda • The status quo is no longer accepted as a starting point to negotiate • There is a willingness to fight trade wars in multiple fronts without much regard to collateral damage (harm to U.S. companies by imposing duties on inputs needed or retaliatory measures by other countries imposed on U.S. products) • The idea is to create some degree of uncertainty so that companies are motivated to invest in the U.S. instead of overseas • Also, these type of negotiating tactics are believed to make trading partners more “flexible” towards the U.S. (eventually, they will cave in)

  5. The Current Trade Agenda • It is hard to say if these policies are temporary or will be in place for a prolonged period of time • We are going through an era of “nationalism” and to some degree “protectionism” while the rest of the world continues to push for trade liberalization via FTA’s and other agreements • Until we can decipher all of this, we will continue to have “uncertainty” and we all hate uncertainty because it limits our ability to make sound decisions • For now, if we can navigate through this turbulent time and if we do it correctly, we can turn uncertainty into a competitive advantage or at the very least survive and come out stronger

  6. Section 232 Tariffs on Aluminum and Steel • Effective March 23, 2018, as recommended by the Secretary of Commerce under Section 232 of the Trade Expansion Act of 1962, as amended (19 U.S.C. 1862), there will be additional tariffs on the importation into the U.S. of certain aluminum and steel articles • The tariffs will be 10% for aluminum and 25% for steel • Mexico and Canada were excluded from these additional tariffs until May 31st, 2018 • Countries currently excluded from these tariffs: • Aluminum: Argentina, Australia and Brazil • Steel: Argentina, Australia, Brazil and South Korea (quotas established)

  7. Section 232 Tariffs on Aluminum and Steel • Why the Section 232 tariffs on aluminum and steel? • The Department of Commerce found: • National Security is compromised by steel/aluminum imports • Present level of imports of steel/aluminum products subject to the investigation adversely impact the U.S. industry • Displacement of domestic steel/aluminum by excessive quantities of imports weakens the U.S. economy • Excess global steel/aluminum capacity contributes to weakening the U.S. economy

  8. Section 232 Tariffs on Aluminum and Steel • These are the HS tariff classifications that are affected for aluminum products: • 7601 – unwrought aluminum • 7604 – aluminum bars, rods and profiles • 7605 – aluminum wire • 7606 and 7607 – aluminum plate, sheet, strip and foil (flat rolled products) • 7608 and 7609 – aluminum tubes, pipes and tube and pipe fitting • 7616.99.5160 and 7616.99.5170 – aluminum castings and forgings

  9. Section 232 Tariffs on Aluminum and Steel • These are the HS tariff classifications that are affected for steel products: • 7206.10 through 7216.50 • 7216.99 through 7301.10 • 7302.10 • 7302.40 through 7302.90 • 7304.10 through 7306.90 • Basically, these cover steel in primary forms (coils, sheets, etc.) and steel pipes and tubes

  10. Section 232 Tariffs on Aluminum and Steel • The Proclamations authorize the Commerce Secretary to grant exclusions from the duties upon request of affected parties if the steel or aluminum articles are determined: • Not to be produced in the U.S. in a sufficient and reasonably available amount or of a satisfactory quality, or • Based upon specific national security considerations

  11. Section 232 Tariffs on Aluminum and Steel • Who can submit? • Only individuals or organizations using steel/aluminum articles in business activities in the U.S.: • Construction • Manufacturing • Supplying steel and aluminum to users • Any individual or organization in the U.S. may file objections to steel exclusion requests, but the Commerce Department will only consider information directly related to the exclusion request • The exclusion request forms and instructions can be found on www.bis.doc.gov website • It has to be product specific • As of July, 18,000 petitions for steel and 2,600 petitions for aluminum have been filed since the process started in March. To date, 200 steel product exclusions have been approved and 184 denied. 71 aluminum product exclusions have been granted and 26 denied • If approved, retroactive to date of exclusion request published for public comment and approved for one year

  12. Section 301 Tariffs on Chinese Products • On June 15, 2018, the office of the United States Trade Representative (USTR) issued a press release announcing its intent to impose additional tariffs on products imported from China • The additional tariffs are part of the U.S. response to China’s unfair trade practices related to the “forced transfer of American technology and intellectual property” pursuant to Section 301 of the Trade Act of 1974

  13. Section 301 Tariffs on Chinese Products • Two lists of tariff lines were released • The first list includes 818 of the original 1,333 lines that were proposed and is valued at $34 billion worth of imports from China • Products falling under these tariff lines will see an additional duty of 25 percent beginning on July 6, 2018 • The second list consists of 284 new tariff lines identified by the interagency Section 301 Committee as “benefiting from Chinese industrial policies, including the “Made in China 2025” industrial policy”

  14. Section 301 Tariffs on Chinese Products • These 284 tariff lines cover approximately $16 billion worth of imports from China • The Section 301 Tariffs for List 2 were implemented as of August 23, 2018 • List 2 as implemented includes 279 of the original 284 HTSUS provisions considered • The excluded HTSUS provisions were: • 3913.10.00 – Alginic acid, and its salts and esters, in primary forms • 8465.96.00 – Splitting, slicing or paring machines for working wood, cork, bone, hard rubber, hard plastics and similar hard materials • 8609.00.00 – Containers (including containers for transport of fluids) specially designed and equipped for carriage by one or more models of transport • 8905.90.10 – Floating docks • 9027.90.20 - Microtomes

  15. Section 301 Tariffs on Chinese Products • On July 10, 2018, the U.S. Trade Representative (USTR) has released a statement and upcoming notice that will appear in the Federal Register which proposes to impose additional 10% duties on a third list of Chinese products with an annual trade value of $200 billion pursuant to a determination under Section 301 of the Trade Act of 1974 (19 U.S.C. 2411) that certain laws, policies, practices, and actions of the Chinese government are unreasonable or discriminatory and harm American intellectual property rights and technology

  16. Section 301 Tariffs on Chinese Products • The proposed list includes 6,031 8-digit tariff subheadings across almost all HTS Chapters, such as agriculture, food, gases, chemicals, plastic articles, tires, leather, bags, gloves, wood products, paper, textiles, fabrics, hats, stone, ceramics, glass, utensils tools, engines, air conditioners, photocopiers, computer equipment, motors, valves, stoves, batteries, TVs, monitors, LEDs, vehicle parts, bicycles, microscopes, furniture, and iron, steel, and base metal products

  17. Section 301 Tariffs on Chinese Products • On September 17, 2018, President Trump announced the imposition of 10% tariffs on 5,745 tariff items out of the 6,031 tariff items on the original list which will be effective Monday, September 24th, 2018 • On January 1st, 2019, the tariff rate will rise to 25% (the increase to 25% has been delayed until further notice pending negotiations with China) • The $200 billion list is supplemental action because China announced retaliatory actions to the earlier tariffs and failed to address U.S. concerns about technology transfer, intellectual property an innovation • The first, second and third Section 301 lists amount to $250 billion in import value which is about half of all Chinese U.S. imports ($505 billion) • President Trump also indicated that if China takes retaliatory action he would immediately pursue phase four which would add tariffs on approximately $267 billion worth of additional imports from China • China has initiated retaliation on $60 billion of U.S. products so it is anticipated that the Trump Administration will announce additional Section 301 Tariffs

  18. Section 301 Tariffs on Chinese Products • The USTR has announced a procedure to request product exclusions for China products subject to Section 301 25% duties which took effect on July 6, 2018, pursuant to a USTR press release and prepublication Federal Register Notice

  19. Section 301 Tariffs on Chinese Products • The exclusion procedures, which are unique, can be summarized as follows: • All product exclusions requests must be filed by October 9, 2018 • Exclusion requests must describe the product and its 10-digit HTSUS tariff classification, but the USTR will not consider requests that identify the product by its actual or principal use, trademarks or trade names, or the identities of the producer, importer, or ultimate consumer. Separate requests must be submitted for each product • Exclusions will be made on a product basis, and an exclusion will apply to all imports of the product, regardless if the particular importer filed a request. This is similar to HTSUS Chapter 99 Miscellaneous Tariff Bill (MTB) provisions

  20. Section 301 Tariffs on Chinese Products • The exclusion procedures, which are unique, can be summarized as follows (con’t): • The USTR has posted a product exclusion form, which requests the product quantity and value information for 3 years of prior product imports. Documents may be submitted with business confidential and public versions • Each product exclusion request should address if the product is only available from China and availability of the product or comparable products from the U.S. or elsewhere, if the additional duties impose severe economic harm to the requestor or other U.S. interests, and if the particular product is strategically important related to “Made in China 2025” or other China industrial programs

  21. Section 301 Tariffs on Chinese Products • The exclusion procedures, which are unique, can be summarized as follows (con’t): • If granted, product exclusions apply for one year upon publication of the exclusion determination in the Federal Register and will apply retroactively to July 6, 2018 • After a product exclusion request is posted on docket number USTR-2018-0025, interested parties may provide responses to support of, or to object to, the request within 14 days. Interested parties may reply within 7 days after the close of the 14-day response period

  22. Strategies to Avoid or Reduce Section 232 and Section 301 Additional Duties • Importers and affected parties can implement strategies to avoid or reduce Section 232 and Section 301 additional duties: • Perform a detailed review of the products your company imports to the U.S. that are subject to these additional duties to evaluate the financial impact on your company • Solicit Exclusion requests • Tariff Engineering: By applying the HTSUS General Rules of Interpretation and modifying the condition of the imported product (unfinished or embellished forms), you might take advantage of a classification provision that is not on one of the lists

  23. Strategies to Avoid or Reduce Section 232 and Section 301 Additional Duties • Importers and affected parties can implement strategies to avoid or reduce Section 232 and Section 301 additional duties (con’t): • Operational Engineering: If you cannot modify the tariff provision for the imported product, consider changing its country of origin by moving assembly/manufacturing operations to other countries (These operations in other countries will have to be sufficient enough or satisfy substantial transformation rules to change the country of origin of the product. Be careful with trans-shipments)

  24. Strategies to Avoid or Reduce Section 232 and Section 301 Additional Duties • Importers and affected parties can implement strategies to avoid or reduce Section 232 and Section 301 additional duties (con’t): • Valuation: ensure you use the proper valuation so that you are not over-declaring the imported value of the imported products. However, the valuation analysis has to be done in accordance with U.S. Customs Laws and Regulations to avoid any sub-valuation issues • Implement the use of Bonded Facilities (Bonded Warehouses or Foreign Trade Zones) and shipping in-bond or in-transit through the U.S. if the products are to be exported from the U.S. or to delay any duty payment until the tariffs have been lifted or an exclusion has been granted • Drawback: Section 301 is subject to drawback so if the imported products are eventually exported, drawback can be claimed on the 25% duties

  25. Strategies to Avoid or Reduce Section 232 and Section 301 Additional Duties • Importers and affected parties can implement strategies to avoid or reduce Section 232 and Section 301 additional duties (con’t): • Note: it is very important to evaluate your particular situation with a trade expert (in-house, consultant, attorney, customs broker) to see if you can implement any of these strategies in your company in compliance with U.S. Customs Laws and Regulations

  26. NAFTA Re-Negotiation • NAFTA has been under re-negotiation since last year • On August 27, 2018, both the United States and Mexico announced that they have come to a general agreement regarding the updating of NAFTA • The new trade agreement known as the US-Mexico-Canada Agreement or USMCA, was signed on November 30th, 2018 by the 3 countries • It is still pending ratification (no known date as to when it will be ratified)

  27. NAFTA Re-Negotiation • This is a summary of some of the major provisions known to be agreed upon in the USMCA: • Motor Vehicle Production • The content standard will change from 62.5% to 75% over a period of 3 years • There are reports that Research and Development and Headquarters expense will be included and that the “tracing list” has been dropped • 40-45% of auto-content must be made by workers earning at least $16 USD per hour • There are reports that the $16 USD per hour standard is not just in North America but also part suppliers in Europe, Japan, Korea and elsewhere

  28. NAFTA Re-Negotiation • This is a summary of some of the major provisions known to be agreed upon in the USMCA (continuation): • Steel/Aluminum – No mention is made of terminating the current Section 232 Steel and Aluminum Tariffs for Mexico (and Canada) • Rules of Origin – Not all rules of origin under Annex 401 of NAFTA will be re-negotiated. Only certain rules will be modified: • Chemicals products • Glass, titanium, steel and fiber optic products • Televisions and electrical products

  29. NAFTA Re-Negotiation • This is a summary of some of the major provisions known to be agreed upon in the USMCA (continuation): • Intellectual property – Significant increases in Intellectual Property controls • Digital Trade – All Digital Trade will be Customs duty-free • Agriculture – Zero tariffs will remain on agricultural products • Labor/Environment – The agreement includes provisions to increase Mexican labor rights and strengthen environmental obligations • Dispute Settlement – A wide range of dispute settlement arrangements in the current NAFTA will be eliminated. It would be retained for oil, gas, energy and infrastructure only • Sunset Provision – The U.S. wanted Sunset Provision after 5 years; the agreement has a provision for 16 years (and possible reviews every 6 years)

  30. NAFTA Re-Negotiation • NAFTA Re-Negotiation Final Timeline: • August 27th, 2018 – The United States and Mexico finalized the NAFTA Re-Negotiation • August 31st, 2018 – The President of the United States officially notified the United States Congress of his intention to sign the new Agreement (with or without Canada) • September 30th, 2018 – The new Agreement text will be published • November 30th, 2018 – The President of the United States Signs the new Agreement • Ratification Process (still ongoing)

  31. What is Next? • The Department of Commerce announced on May 23, 2018 its self-initiation of an investigation under Section 232 of the Trade Expansion Act of 1962 to determine whether imports of automobiles (including SUVs, vans, and light trucks) and auto parts are harming U.S. national security • If the DOC finds that excessive automobile and auto parts imports are a threat to U.S. national security, and the president concurs, the president has the authority to adjust imports, including through the use of tariffs and quotas. The DOC has up to 270 days to conclude its investigation and any resultant action would be imposed within 15 days of the president’s determination to act • No official response of action on this matter has been issued by the President

  32. What is Next? • Other possible Section 232 investigations into uranium, semiconductors, etc., might be started • The administration may continue to take unilateral action to re-set the United States’ trading relationship with all country, allies and non-allies • Section 301 Tariffs for European Union products being considered • Countries that have already retaliated against the U.S.: • China • EU • India • Turkey • Russia • Canada • Mexico

  33. Summary and Conclusions

  34. The information provided in this presentation is for informational purposes only and it is not legally binding or to be used as legal advice

  35. Muchas Gracias!! Jorge A. Torres Jorge@interlinktrade.com Office: 956-843-9004 Cellular: 956-289-6799

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