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Can U.S. Companies Insure Against A Trade War?

The recent trade deal between the U.S. and China was welcome news for U.S. companies with investments in China. The tenuous relationship between the countries, however, continues to cause substantial uncertainty for U.S. investors. Their concerns are not unique to China—the Trump Administration has taken an aggressive trade stance even with nations usually considered friendly, including Brazil, Argentina, and France.

A growing number of companies are turning to political risk insurance to protect their foreign investments. Such policies typically cover a variety of commercial losses stemming from political events, including expropriation, political violence, or currency conversion restrictions.

Are political risk policies a valuable tool in a company’s arsenal for mitigating the uncertainties of doing business in China or other countries embroiled in a trade war with the United States? The answer depends, in large part, on the specific wording of the policy at issue. There is no standard political risk policy form, and jurisprudence on such policies is extremely limited. Potential policyholders must evaluate their needs carefully and be strategic during policy placement to ensure they are maximizing potential coverage. For example:

Expropriation: Political risk policies may cover losses stemming not only from a government’s outright nationalization or expropriation of a policyholder’s assets, but also from more subtle forms of unlawful discrimination against foreign entities. The bounds of such coverage, however, are not always clear. Many policies exclude incidental damages arising from lawful or legitimate acts of governance, which may give rise to disputes between policyholders and insurers as to the nature and motivation of a particular governmental act.

For example, the Chinese Government imposed tariffs and restrictions on U.S. companies doing business in China throughout 2019. A policyholder seeking coverage for losses suffered due to these measures would argue that the restrictions were retaliatory acts in response to the U.S.-China trade war, meaning that its damages arose from covered acts of discrimination in violation of international law. An insurer seeking to limit its coverage obligations may argue that China imposed these restrictions based on its view that the companies had violated market rules or otherwise damaged the interests of Chinese companies for noncommercial reasons—in other words, that these were legitimate act of governance taken in the public interest.

Given the lack of case law on the intended scope of expropriation coverage and the fact-intensive nature of disputes over the legitimacy of a particular governmental act, companies should seek to include the broadest possible definition of “expropriation” in their policy and to clarify the bounds of any exclusions.

Political Violence: In addition to coverage for expropriation and related governmental acts, political risk policies also may provide coverage for losses stemming from physical damage to property due to protests, riots, or other acts of violence intended to achieve a political objective. While U.S. investors may not commonly associate trade wars with physical violence, recent protests and riots over economic issues in countries such as Chile and Ecuador demonstrate the potential for severe economic turmoil (a common result of any trade war) to cause such violence. As a result, U.S. companies with warehouses, offices, or other property in countries facing aggressive trade restrictions by the U.S., or in any nation suffering from substantial economic uncertainty, may find such coverage appealing.

The potential benefit of political violence coverage may depend, in large part, on how a policy proposes to determine the value of any damaged property or resulting financial losses. Potential policyholders should ensure, for example, that a loss is valued pursuant to objective accounting standards and/or by a neutral third-party, as opposed to the insurer, who may have an interest in minimizing its liability.

Currency Inconvertibility: A third component of political risk insurance is currency inconvertibility coverage—i.e., coverage for losses arising from a policyholder’s inability to convert currency due to exchange restrictions posed by a foreign government. For example, such coverage might apply if a policyholder is unable to obtain repayment of a loan to a Chinese entity because of new restrictions by the Chinese Government on conversion of local currency to U.S. dollars or the transfer of funds to U.S. banks. U.S. companies with investments in countries facing particularly extreme economic instability, such as Venezuela, may benefit most from such coverage, as those countries are most at risk for collapse of their currency exchange system.

As with political violence coverage, a policy’s proposed standards for valuing a currency inconvertibility loss are once again crucial to maximizing a policyholder’s protection. Policies often calculate the value of a policyholder’s loss using the foreign country’s exchange rate on the date of loss. In such scenarios, policyholders may benefit from defining the “date of loss” as occurring the first time the policyholder is unable to convert currency, as opposed to after a waiting period has occurred or after the insured has made multiple conversion attempts. This may minimize the risk that the value of a covered loss decreases if the exchange rate in the country plummets while the insured fulfills other conditions for coverage.

Political risk policies likely cannot insulate U.S. companies from the full impact of a global trade war or other politically-inspired disruptions. However, U.S. businesses can maximize the benefits of such coverage through careful policy drafting and strategic evaluation of their individual risk profile.

ARTICLE BY Emily P. Grim of Gilbert LLP.

More on recent US trade negotiations on the National Law Review Antitrust Law and Trade Regulation page.

Brexit – Here We Go Again

The new Prime Minister of the UK, Boris Johnson, has taken up office following his decisive (66% : 34%) victory in the contest among Conservative Party members who were presented with a choice between him and the Foreign Secretary, Jeremy Hunt. He promised during the campaign to take the UK out of the EU by 31 October (when the extension to the Article 50 Brexit process expires) “do or die”. In his first speech as PM, he again underlined his determination that the UK should leave the EU by 31 October. He said that his intention was that this should be with a new deal – “no deal” was a remote possibility which would only happen if the EU refused to negotiate. But it was right to intensify preparations for “no deal”, which could be lubricated by retaining the £39 billion financial settlement previously agreed with the EU.

So the starting gun for the next phase of Brexit has fired.

What Does the Campaign Tell Us About the Approach to Brexit?

The Conservative leadership election campaign happened in two parts. The first, among MPs, whittled the long list of candidates down to two. Perhaps conscious of the broad spread of opinion among Conservative MPs, both final candidates took a nuanced line during that phase, stressing their desire to leave the EU with a (revised) deal. In the second phase, which involved selection between the two by the broader membership of the Conservative Party (roughly 160,000 people), the tone hardened notably. Polling suggests that a majority of the Conservative Party membership puts delivering Brexit ahead of the economy, the survival of the union of the UK and even the survival of the Conservative Party itself (polling after Theresa May’s European Parliament elections suggests that two thirds of party members voted for another party in those elections, with nearly 60% voting for Nigel Farage’s Brexit Party). Only averting the prospect of a Jeremy Corbyn-led Labour Government is apparently a higher priority for Conservative Party members. Responding to this sentiment, the position of both candidates became harder through the second phase of the campaign. While both favoured leaving with a deal, both were clear that the threat of a “no deal” exit must be real in order to stimulate further negotiations with the EU. Both, therefore, also favoured ramping up “no deal” preparations. In the end, the main difference between the two candidates was that Jeremy Hunt could countenance a “short” further delay to Brexit if that was necessary to secure a deal from the EU, whereas Boris Johnson promised that the UK would leave the EU on 31 October “come what may, do or die”. Significantly, in one of the last public hustings during the campaign, Boris Johnson also ruled out making changes to the Irish border backstop in the Withdrawal Agreement. His approach to how to deliver Brexit could be summarised as: deliver on citizens’ rights straight away, have a “standstill” on trade (not clear how this differs from the transitional period in the Withdrawal Agreement – it would certainly involve zero tariffs on both sides, but unclear whether it would involve regulatory alignment (see trade negotiations section below), still less continued jurisdiction of the European Court of Justice), resolve the Irish border through a comprehensive trade agreement and create “constructive ambiguity” about whether/when the UK would accept the €39 billion exit settlement in the Withdrawal Agreement – presumably making it contingent on the trade agreement. Boris Johnson called for optimism and determination to secure this outcome.

What Do the Key Ministerial Appointments Tell Us About Brexit?

In appointing his Cabinet, Boris Johnson has made far-reaching changes which shift the profile of government decisively towards pro-Brexit. All ministers were required to subscribe to keeping the possibility of “no deal” Brexit open. The principal portfolios concerning Brexit are all held by people who are either comfortable with, or even favour, a “no deal” Brexit. This looks like – and is no doubt intended to be seen in Brussels as – a government fully committed to a “no deal” Brexit, if necessary. Perhaps the most interesting appointment was, however, not of a minister at all, but of Dominic Cummings, campaign director for Vote Leave in the 2016 referendum, as a senior adviser. Taken together, this looks like a team both strongly committed to delivering Brexit and ready for a public campaign (election or referendum), if necessary.

What Happens Next?

The new Prime Minister effectively has more than five weeks’ respite from Parliamentary scrutiny, as Parliament starts its summer recess and returns on 3 September. This gives him time to consolidate his team, articulate his strategy (including boosting preparations for a “no deal” Brexit), and explore the possibilities for further negotiation with the EU. But even within his own party, on both pro-Leave and pro-Remain sides, he is, in effect, on probation.

The Parliamentary arithmetic has not changed significantly from that faced by Theresa May, but by carrying out such a substantial eviction of Mrs May’s ministers, Boris Johnson is likely to have increased the number of opponents to his Brexit policies on the Conservative back benches. They now also have an important figurehead in former Chancellor Philip Hammond. The Prime Minister has no majority without the support of the 10 Northern Ireland Democratic Unionist Party (DUP) MPs. And, within the Conservative Party, the hard Brexit supporting European Research Group (ERG) is now balanced by an anti “no deal” faction bolstered by ministers who resigned because they could not support his approach to Brexit or were sacked by him. Technically, the government’s majority, including the 10 DUP MPs, is down to two (three including one MP under criminal investigation). A by-election on 1 August is likely to reduce that by one. If the PM tries to push through a deal based on the existing Withdrawal Agreement (with changes to the accompanying Political Declaration about the future relationship, to which the EU has said it is open), he risks losing the DUP and some ERG from his majority. If his policy becomes “no deal”, he risks losing the more pro-European faction. In either case, he lacks a majority to deliver the result. The two big questions are whether Parliament (which has a substantial anti “no deal” majority) can find a way to erect a legal barrier to a “no deal” Brexit and, if not, how many Conservative MPs would really vote against their own party in a confidence vote to force either a change of direction or a fresh election – several have already indicated that they would do so if necessary. All of which points to the same Parliamentary deadlock Theresa May faced returning in September. So, unless the PM can come up with a renegotiated deal which the DUP and ERG would accept, the only way out of the deadlock would be to go back to the people. Mr Johnson’s strong opposition to a further referendum would make that a politically difficult choice. Current polling suggests that an election before Brexit is delivered would be a high risk strategy for the Conservatives.

As one influential commentator put it, the strategy may be to try for a new deal and see if the EU blinks. If they do not, go for “no deal” and see if Parliament blinks. If it does not, hold an election or referendum – an election is probably higher risk, but can be done more quickly and does not involve going back on strongly expressed views of the Brexiteers, including Mr Johnson.

What About the Europeans?

The debate about Brexit over the Conservative Party leadership campaign has been an entirely Brit-on-Brit affair, with reference to the EU position, but no engagement with it. European leaders’ reactions to Boris Johnson becoming Prime Minister have been polite, but also uncompromising, showing no willingness to re-open the Withdrawal Agreement. Michel Barnier looked forward to working with the Johnson Government to facilitate the ratification of the Withdrawal Agreement – signalling that negotiation is possible about the accompanying Political Declaration on the future relationship, and possibly other complementary accords, but not the Withdrawal Agreement itself. If the EU sticks to this position – and the EU team follows the UK Parliamentary arithmetic closely, so they know how much resistance there will be to “no deal” – the prospects for finding an agreed way forward look slim.

So “No Deal”, Then?

In April, we assessed the possibility of a “no deal” Brexit as very low. It has clearly now increased and, with a Cabinet committed to “no deal” if there is not a new deal, there are a number of ways in which it could come about. But Parliament’s majority against “no deal” remains, and there remain a number of obstacles to “no deal” in Parliament and in the economic analysis of the impact of “no deal” Brexit if the UK and EU are not able to agree on tariff-free trade using GATT XXIV. While some form of political process – such as an election – looks more likely than moving straight to “no deal” if the EU talks fail to yield a result, companies should certainly now put in place “no deal” contingency arrangements.

Free Trade Agreements

There are three interlinked free trade agreements (FTAs) in play: EU-US, EU-UK and UK-US. During the leadership campaign Boris Johnson spoke about making very rapid progress on the UK-US FTA (at one stage suggesting having a limited agreement in place by 31 October), but also about finding the long-term solution to the Irish border issue in the UK-EU FTA. In practice, it is likely that the UK-EU FTA has to come before the UK-US FTA, not least because the more the UK aligns to US regulatory standards through a UK-US FTA, the harder the solution to the Irish border issue will be – nowhere more so than in agriculture. The UK-EU FTA also has a unique character, in that the two parties start from a position of zero tariffs and complete regulatory alignment and the negotiation will, therefore, be about how far and in what respects to diverge. Both the EU-US and UK-US FTAs will have to address some highly charged political issues (agriculture, public procurement (in particular healthcare) and climate change); it could be argued that the UK would secure a better result on these issues by allowing the EU to find a politically workable way forward with the US first.

In an illustration of the complex interaction in the trade policy approach, the UK government has not been able to roll-over the EU-Canada FTA (CETA) into a bilateral UK-Canada FTA. This is because the Canadian government has analysed the impact for Canadian businesses of the UK moving to the interim “no deal” tariff policy published by the UK earlier this year – 87% of imported goods would be tariff-free to prevent harm to consumers – and concluded that the impact would be small. UK exporters to Canada would, however, face full Canadian WTO tariffs, rendering trade in some sectors unviable.

However the order of negotiations takes place, the three FTAs are effectively interlinked, and it will be important to ensure, for example, that something desirable in the UK-US FTA is not rendered more difficult to achieve by something agreed within the UK-EU FTA.

Article by Matthew Kirk and Jeremy Cape of Squire Patton Boggs (US) LLP.

For more Brexit developments, see the National Law Review Global page.

Trade Trouble – East, West, and South, But North is Settled For Now!

Agriculture Secretary Perdue recently stated the trade damages to be addressed in a new round of farm aid is $15 to $20 billion! The general press is replete with stories about how, as these tariffs continue, companies are making sourcing changes that will be hard to reverse. So, what is the latest news?

First, there is trade with China. It seems clear that unless there is a breakthrough at the G-20 meeting in Tokyo, or shortly thereafter, the anecdotal headaches we hear about will get far more costly. The American Chamber of Commerce in China and the American Chamber of Commerce in Shanghai conducted a survey before List 3 was announced. Even at that point, American companies operating in China acknowledged higher production costs, decreased demand for products, reduced staffing, reduced profits, increased inspections at importation, increased bureaucratic oversight and regulatory scrutiny, slower approval of licenses and permits, higher product rejections, and increasing plans to relocate (but not back to the U.S.).

On a point one can consider only marginally helpful, those with goods on List 3 now have until June 14th to file their entries. To be clear, the goods still must have left China before May 10, and the entry filed no later than June 14th for the 10% to apply. Otherwise, you pay the 25%.

On a somewhat more positive note, if you found the May 21, 2019 Federal Register notice, it published the submission by the U.S. Trade Representative (USTR) to the Office of Management and Budget of a request for expedited approval of a form to be used for List 3 exclusion requests. In that notice, USTR stated it expected the window to open for List 3 exclusion requests around June 30, 2019, which is 10 days after the Tokyo G-20 meeting. If they have not already done so, companies would be wise to start the data gathering process. Among the information to be submitted are product details, whether the product or one comparable can be purchased in the U.S. or other sources outside China, the value and quantity of the product imported in 2017, 2018 and Q1 2019 distinguished by sourcing from China, other third countries and domestically, the degree of severe economic harm caused by the tariffs, and whether or not the applicant submitted any exclusion requests regarding products on List 1 or 2. Those who have prepared exclusion requests for goods on Lists 1 and 2 will instantly recognize the data requirements.

Complicating U.S.-China relations further, on May 15, 2019, a Presidential Document was issued entitled Securing the Information and Communications Technology and Services Supply Chain. It forms the framework permitting the Administration to name companies barred from doing business with U.S. entities on national security grounds. On May 21, 2019, the Bureau of Industry and Security published a Federal Register notice adding Huawei Technologies Co., Ltd. and various affiliates (68 in total) to the Entity List on the ground there is reasonable cause to believe that Huawei “has been involved with activities contrary to the national security or foreign policy interests of the United States.” A May 22, 2019 Federal Register notice reversed that position and issued a Temporary General License effective between May 20, 2019 and August 19, 2019 for these same entities. See Supplement 7 to 15 CFR part 744.

Underscoring that tit-for-tat is very real, China announced on June 1, 2019 the creation of its own “unreliable” entities list. The initial rollout of this new policy took the form of a press briefing. That coverage made clear the criteria which China will rely upon is typically opaque: “foreign enterprises, organizations and individuals could land on this list because they do not obey market rules, violate contracts and block or cut off supply for non-commercial reasons, severely damage the legitimate interests of Chinese companies” or “pose a threat or potential threat to national security.” Almost immediately thereafter, it was announced that FedEx is under investigation in China for misdelivering some packages for Huawei (including returning them to sender or improperly routing them to the U.S.). China stated the purpose of the “unreliable entities list” was to “protect international economic and trade rules and the multilateral trading system, to oppose unilateralism and trade protectionism, and to safeguard China’s national security, social and publish interests,” according to a Ministry of Commerce spokesman.

Then there is the issue of China’s supply of rare earth minerals. China’s official press points out it is only a matter of time before China rolls out a plan to severely limit its exports of these metals which are used to make a variety of electronic products or accessories (including lithium batteries) along with items for U.S. military purposes such as to manufacture night vision goggles, precision-guided weapons and communications/GPS equipment. The latest numbers show that 52% of these metals are found in China and Russia (neither is exactly a friend to the U.S. right now), whereas 18% can be found in Brazil, but only about 1% in the U.S.

Add to this the announcement on May 30th, there will be tariffs imposed on “all goods imported from Mexico.” Even a few days later the most basic questions remain unanswered. Does this statement literally mean all goods from Mexico? What about American products returned which are duty free because unchanged? How about American products used to assemble the final product in Mexico but qualifying for duty free on the American components in the final product? [For you trade nerds – think 9801 and 9802.] What about goods which are of not of Mexican origin? Or are NAFTA qualifying?

Right now, all we have is the timeline – 5% on June 10%, 10% on July 1, 15% on August 1, 20% on September 1 and 25 % on October 1. Every indication right now is these tariffs will be imposed. Then the question becomes: are there grounds on which the tariffs would be removed? The only answer we have right now is if Mexico does “enough” to satisfy President Trump that all reasonable action was taken to stem the tide of migration, the tariffs would be removed. However, the determination as whether “enough” has been done is solely within the discretion of the President in the current proposal.

Having declared in February 2019 the migration situation at the U.S. southern border to be a matter of national security, President Trump has chosen now to invoke IEEPA to support the current action. IEEPA is the International Emergency Economic Powers Act, see 50 U.S.C. 1701 et seq. It authorizes the President to act in the national security interest of the country if dealing with “any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States.”

Article 302 of NAFTA as currently enacted provides: “… no Party may increase any existing customs duty, or adopt any customs duty, on an originating good.” In other words, the imposition of this additional tariff on NAFTA-qualifying goods violates NAFTA and presents yet another reason why a precisely-worded policy is needed and a claim is possible. Can we also expect a World Trade Organization claim, assuming the bilateral discussions between the two countries do not diffuse the situation?

How does any of this help hardworking American business owners (of any size and in any industry) to keep their companies operating and profitable? This situation makes us all wonder how long it will take for the American public to wake up and realize China and Mexico are not paying these tariffs?

This post was written by Susan Kohn Ross of Mitchell Silberberg & Knupp LLP.

Read more on Trade on our Antitrust and Trade Regulation Page.

U.S. Increases Tariffs On Chinese Imports

The president announced this week that special Section 301 tariffs on $200 billion of Chinese imports (List 3) will increase from 10% to 25%. The Office of United States Trade Representative (USTR) issued the official notice of the tariff increase May 8. The rate increase is effective on May 10, 2019.

List 3 is composed of about 6,000 different Harmonized Tariff Schedule of the United States (HTSUS) codes and $200 billion worth of imports; comparatively, the previously imposed List 1 and List 2 collectively cover approximately 1,000 HTSUS codes and $50 billion worth of imports from China.

This rate increase will have a massive effect on almost all industries that rely on imports from China, including agriculture, automotive, electronics, textiles, and energy, just to name a few.

Two other things of particular note from the notice:

(1) increased tariffs will be applied to goods entered for consumption (or withdrawn from warehouse for consumption) on or after 12:01 a.m. Eastern time on May 10, 2019, and exported from China on or after May 10, 2019, so goods that were on the water prior to May 10 will not be affected.

(2) USTR indicates that it will promulgate a product exclusion process in the near future so importers, purchasers, trade associations and other interested parties can request that certain products be excluded from the tariff. Domestic producers will also have the opportunity to object to such exclusion applications.

This post was written by David M. Spooner and Linda M. Weinberg Clinton K. Yu or Barnes and Thornburg LLP.

You can learn more about trade and tariffs on the National Law Review Global Page.

US Trade Representative Publishes List of Chinese Products Subject to Retaliatory Tariffs

The Office of the US Trade Representative (USTR) published a list of 1,300 Chinese products, valued at $50 billion, on which it intends to impose an additional 25 percent tariff in retaliation for the “harm to the US economy” resulting from certain Chinese industrial policies. USTR also announced a public comment period to enable interested parties to request that products be removed from the list. In response to this April 3 announcement, China announced its own retaliatory import tariffs on 106 US products.

In Depth

On April 3, the Office of the US Trade Representative (USTR) published a list of 1,300 Chinese products, valued at $50 billion, on which it intends to impose a 25 percent tariff on top of any existing US tariff in retaliation for the “harm to the US economy” resulting from certain Chinese industrial policies. The full US retaliation list, available here, includes products from the chapters listed in Annex I below.

In conjunction with its list, USTR announced a public comment period to enable interested parties to request that products be removed from, or added to, the list. Comments must be filed by May 11, 2018. The agency will also hold a public hearing on May 15, 2018, for parties wishing to comment further on the list. USTR has not set a specific deadline for implementing the new tariffs, but said it will provide “final options” to President Trump after the comment and hearing process conclude.

In addition to the proposed retaliatory tariffs, President Trump has also directed the Secretary of the Treasury to develop new restrictions on inbound Chinese investments aimed at preventing Chinese-controlled companies and funds from acquiring US firms with sensitive technologies. The US Treasury Department has until May 21, 2018, to develop these restrictions, which will be in addition to the restrictions already imposed by the Committee on Foreign Investment in the United States (CFIUS).

In response to the administration’s April 3 announcement, China announced its own retaliatory import tariffs on 106 US products. Its retaliation products, listed below in Annex II, will face 25 percent tariffs should the Trump administration move forward with its announced tariffs.

After China issued its retaliatory tariff list, President Trump directed USTR on April 5 to assemble an additional $100 billion worth of retaliatory tariffs against Chinese goods on the grounds that China had unfairly retaliated against American farmers and manufacturers rather than addressing its own “misconduct.” The specific additional tariffs, once announced by USTR, will be subject to a review and public comment period similar to the one now underway for USTR’s initial $50 billion list.

McDermott is actively engaged in this issue and can assist Firm clients and contacts affected by the announcement, including with the preparation of comments and other advocacy efforts to influence products on the list. Please contact any of the authors to seek assistance or learn more.

This post includes contributions from Leon Liu from China Law Offices.

Annex I

HTS Chapters Represented on the USTR Retaliatory List*

HTS Chapter	Product
28	Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, of radioactive elements or of isotopes
29	Organic chemicals
30	Pharmaceutical products
38	Miscellaneous chemical products
40	Rubber and articles thereof
72	Iron and steel
73	Articles of iron or steel
76	Aluminum and articles thereof
83	Miscellaneous articles of base metal
84	Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof
85	Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles
86	Railway or tramway locomotives, rolling-stock and parts thereof; railway or tramway track fixtures and fittings and parts thereof; mechanical (including electro-mechanical) traffic signaling equipment of all kinds
87	Vehicles other than railway or tramway rolling stock, and parts and accessories thereof
88	Aircraft, spacecraft, and parts thereof
89	Ships, boats and floating structures
90	Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments, and apparatus; parts and accessories thereof
91	Clocks and watches and parts thereof
93	Arms and ammunition; parts and accessories thereof
94	Furniture; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings; lamps and lighting fittings, not elsewhere specified or included; illuminated sign illuminated nameplates and the like; prefabricated buildings

* Not all products contained in each chapter are represented. For the complete list, visit: https://ustr.gov/sites/default/files/files/Press/Releases/301FRN.pdf

Annex II

Unofficial Translation of China’s Retaliation List

No.	Product	HTS Code
1.	Yellow soybean	12019010
2.	Black soybean	12019020
3.	Corn	10059000
4.	Cornflour	11022000
5.	Uncombed cotton	52010000
6.	Cotton linters	14042000
7.	Sorghum	10079000
8.	Brewing or distilling dregs and waste	23033000
9.	Other durum wheat	10011900
10.	Other wheat and mixed wheat	10019900
11.	Whole and half head fresh and cold beef	02011000
12.	Fresh and cold beef with bones	02012000
13.	Fresh and cold boneless beef	02013000
14.	Frozen beef with bones	02021000
15.	Frozen boneless beef	02022000
16.	Frozen boneless meat	02023000
17.	Other frozen beef chops	02062900
18.	Dried cranberries	20089300
19.	Frozen orange juice	20091100
20.	Non-frozen orange juice	20091200
21.	Whiskies	22083000
22.	Unstemmed flue-cured tobacco	24011010
23.	Other unstemmed tobacco	24011090
24.	Flue-cured tobacco partially or totally removed	24012010
25.	Partially or totally deterred tobacco stems	24012090
26.	Tobacco waste	24013000
27.	Tobacco cigars	24021000
28.	Tobacco cigarettes	24022000
29.	Cigars and cigarettes, tobacco substitutes	24029000
30.	Hookah tobacco	24031100
31.	Other tobacco for smoking	24031900
32.	Reconstituted tobacco	24039100
33.	Other tobacco and tobacco substitute products	24039900
34.	SUVs with discharge capacity of 2.5L to 3L	87032362
35.	Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 2500ml, but not exceeding 3000ml for SUVs (4 wheel drive)	87034052
36.	Vehicles with discharge capacity of 1.5L to 2L	87032342
37.	Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 1000ml, but not exceeding 1500ml for SUVs (4 wheel drive)	87034032
38.	Passenger cars with discharge capacity 1.5L to 2L, 9 seats or less	87032343
39.	Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 1000ml, but not exceeding 1500ml for 9 passenger cars and below	87034033
40.	Passenger cars with discharge capacity of 3L to 4L, 9 seats or less	87032413
41.	Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 3000ml, but not exceeding 4000ml for 9 passenger cars and below	87034063
42.	Off-road vehicles with discharge capacity of 2L to 2.5L	87032352
43.	Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 2000ml, but not exceeding 2500ml for off-road vehicles	87034042
44.	Passenger cars with discharge capacity of 2L to 2.5L, 9 seats or less	87032353
45.	Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 2000ml, but not exceeding 2500ml for 9 passenger cars and below	87034043
46.	Off-road vehicles with discharge capacity of 3L to 4L	87032412
47.	Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 3000ml, but not exceeding 4000ml for off-road vehicles	87034062
48.	Diesel-powered off-road vehicles with discharge capacity of 2.5L to 3L	87033312
49.	Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 2500ml, but not exceeding 3000ml for diesel-powered off-road vehicles	87035052
50.	Passenger cars with discharge capacity of 2.5L to 3L, 9 seats or less	87032363
51.	Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement exceeding 2500ml, but not exceeding 3000ml for 9 passenger cars and below	87034053
52.	Off-road vehicles with discharge capacity of less than 4L	87032422
53.	Other vehicles equipped with an ignited reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source. Cylinder capacity displacement not exceeding 4000ml for off-road vehicles	87034072
54.	Other vehicles which are equipped with an ignited reciprocating piston internal combustion engine and a drive motor and can be charged by plugging in an external power source	87034090
55.	Other vehicles that are equipped with a compression ignition type internal combustion engine (diesel or semi-diesel) and a drive motor, other than vehicles that can be charged by plugging in an external power source	87035090
56.	Other vehicles which are equipped with an ignition reciprocating piston internal combustion engine and a drive motor and can be charged by plugging in an external power source	87036000
57.	Other vehicles that are equipped with a compression-ignition reciprocating piston internal combustion engine and a drive motor that can be charged by plugging in an external power source	87037000
58.	Other vehicles that only drive the motor	87038000
59.	Other vehicles	87039000
60.	Other gasoline trucks of less than 5 tons	87043100
61.	Transmissions and parts for motor vehicles not classified	87084099
62.	Liquefied Propane	27111200
63.	Primary Shaped Polycarbonate	39074000
64.	Supported catalysts with noble metals and their compounds as actives	38151200
65.	Diagnostic or experimental reagents attached to backings, except for goods of tariff lines 32.02, 32.06	38220010
66.	Chemical products and preparations for the chemical industry and related industries, not elsewhere specified	38249999
67.	Products containing PFOS and its salts, perfluorooctanyl sulfonamide or perfluorooctane sulfonyl chloride in note 3 of this chapter	38248700
68.	Items listed in note 3 of this chapter containing four, five, six, seven or octabromodiphenyl ethers	38248800
69.	Contains 1,2,3,4,5,6-HCH (6,6,6) (ISO), including lindane (ISO, INN)	38248500
70.	Primarily made of dimethyl (5-ethyl-2-methyl-2oxo-1,3,2-dioxaphosphorin-5-yl)methylphosphonate and double [(5-b Mixtures and products of 2-methyl-2-oxo-1,3,2-dioxaphosphorin-5-yl)methyl] methylphosphonate (FRC-1)	38249100
71.	Containing pentachlorobenzene (ISO) or hexachlorobenzene (ISO)	38248600
72.	Containing aldrin (ISO), toxaphene (ISO), chlordane (ISO), chlordecone (ISO), DDT (ISO) [Diptrix (INN), 1,1,1-trichloro-2 ,2-Bis(4-chlorophenyl)ethane], Dieldrin (ISO, INN), Endosulfan (ISO), Endrin (ISO), Heptachlor (ISO) or Mirex (ISO).	38248400
73.	Other carrier catalysts	38151900
74.	Other polyesters	39079999
75.	Reaction initiators, accelerators not elsewhere specified	38159000
76.	Polyethylene with a primary shape specific gravity of less than 0.94	39011000
77.	Acrylonitrile	29261000
78.	Lubricants (without petroleum or oil extracted from bituminous minerals)	34039900
79.	Diagnostic or experimental formulation reagents, whether or not attached to backings, other than those of heading 32.02, 32.06	38220090
80.	Lubricant additives for oils not containing petroleum or extracted from bituminous minerals	38112900
81.	Primary Shaped Epoxy Resin	39073000
82.	Polyethylene Terephthalate Plate Film Foil Strips	39206200
83.	Other self-adhesive plastic plates, sheets, films and other materials	39199090
84.	Other plastic non-foam plastic sheets	39209990
85.	Other plastic products	39269090
86.	Other primary vinyl polymers	39019090
87.	Other ethylene-α-olefin copolymers, specific gravity less than 0.94	39014090
88.	Other primary shapes of acrylic polymers	39069090
89.	Other primary shapes of pure polyvinyl chloride	39041090
90.	Polysiloxane in primary shape	39100000
91.	Other primary polysulphides, polysulfones and other tariff numbers as set forth in note 3 to chapter 39 are not listed.	39119000
92.	Plastic plates, sheets, films, foils and strips, not elsewhere specified	39219090
93.	1,2-Dichloroethane (ISO)	29031500
94.	Halogenated butyl rubber sheets, strips	40023990
95.	Other heterocyclic compounds	29349990
96.	Adhesives based on other rubber or plastics	35069190
97.	Polyamide-6,6 slices	39081011
98.	Other primary-shaped polyethers	39072090
99.	Primary Shaped, Unplasticized Cellulose Acetate	39121100
100.	Aromatic polyamides and their copolymers	39089010
101.	Semi-aromatic polyamides and their copolymers	39089020
102.	Other polyamides of primary shape	39089090
103.	Other vinyl polymer plates, sheets, strips	39201090
104.	Non-ionic organic surfactants	34021300
105.	Lubricants (containing oil or oil extracted from bituminous minerals and less than 70% by weight)	34031900
106.	Aircraft and other aircraft with an empty weight of more than 15,000kg but not exceeding 45,000kg	88024010

This post was written by Carolyn B. Gleason and Benjamin O. Kostrzewa of McDermott Will & Emery.

White House Issues Presidential Proclamations Imposing Section 232 Tariffs on Steel and Aluminum Imports

President Trump, on March 8, 2018, issued two presidential proclamations imposing global tariffs of 25 percent on steel imports and 10 percent on aluminum imports in connection with the Section 232 investigations recently concluded by the Department of Commerce. The effective date of the tariffs for both Section 232 actions is March 23, 2018; their duration has not been specified at this time.

Steel

Product Scope

The presidential proclamation covers steel imports entered under HTSUS 7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90, including any subsequent revisions to these HTS classifications.

Remedy

This trade action imposes a 25 percent tariff on steel imports from all countries, with the exception of Canada and Mexico.

Aluminum

Product Scope

The presidential proclamation covers the following aluminum imports: (a) unwrought aluminum (HTS 7601); (b) aluminum bars, rods, and profiles (HTS 7604); (c) aluminum wire (HTS 7605); (d) aluminum plate, sheet, strip, and foil (flat rolled products) (HTS 7606 and 7607); (e) aluminum tubes and pipes and tube and pipe fitting (HTS 7608 and 7609); and (f) aluminum castings and forgings (HTS 7616.99.51.60 and 7616.99.51.70), including any subsequent revisions to these HTS classifications.

Remedy

This trade action imposes a 10 percent tariff on aluminum imports from all countries, with the exception of Canada and Mexico.

Product Exclusions

There will also be a mechanism for U.S. parties to apply for the exclusion of specific products based on unmet demand or specific national security considerations. The Secretary of Commerce shall issue procedures for exclusion requests within 10 days of March 8, 2018.

Country Exclusions

Canada and Mexico will be temporarily exempt from these measures due to their security relationship with the United States. Other countries may be able to qualify for a modification or removal of the tariffs if they come up with “alternate ways to address the threatened impairment of national security caused by imports.” The United States Trade Representative will be responsible for negotiations regarding such alternative arrangements. According to a White House official, the tariff rate for other countries may increase if Canada and Mexico secure a permanent exemption.

This post was written by Nate Bolin, Douglas J. Heffner and Richard P. Ferrin of Drinker Biddle.

Check out the National Law Review’s Global Page for more insights.

Brexit Poses Issues For Airports, Airlines

The United Kingdom’s split from the European Union could leave the nation and United States without a trade agreement to manage the aviation industry. The aviation industry currently operates between the two nations under the Open Skies agreement signed by the U.S. and the EU in 2007. However, the U.K. will no longer be covered under the agreement once it leaves the bloc and, while it is still an EU member, cannot negotiate a new agreement either.

Open Skies agreements are bilateral air service agreements (ASAs) the U.S. government negotiates with other countries to provide rights for airlines to offer international passenger and cargo services. Agreements cover a number of significant matters including rights to fly over and land in territories, regulatory requirements, competition, commercial opportunities, customs and duties, and landing charges.

The situation is creating uncertainty and legal challenges in one of the most important components of international trade. Forty percent of the EU’s air traffic to the U.S. departs from U.K. airports and nearly 48,000 flights left the U.S. bound for the U.K. in 2016 alone. Commercial arrangements in the aviation industry including for airlines, air freight companies, airports and all related businesses depend on the Open Skies agreements as a basis for their contractual arrangements. Some U.S. airlines are already seeking to renegotiate deals with U.K. airports to ensure that break clauses and other mechanisms are inserted to deal with any uncertainty following Brexit, which under Article 50 has a deadline of March 30, 2019. Post-Brexit flight bookings may also need some form of provision to deal with contractual rights to hedge against major changes in the event that the Open Skies agreement is terminated for the U.K.

Michael O’Leary, CEO of Ryanair, Europe’s largest airline, told reporters on Aug. 2 that without some understanding of what a future agreement will look like airlines won’t be able to plan their 2019 flight schedules.

“There is going to be a serious disruption unless the British government can negotiate an agreement by around this time next year,” Ryanair said.

In late July, Airlines for America, the nation’s largest aviation trade group, issued a formal statement calling for the airline industry to be dealt with immediately and separately from Brexit negotiations. On Aug. 1, Reuters reported that British Transport Secretary Chris Grayling met with White House and airline officials to assure them that an agreement would be in place when the U.K. exits the EU. The Federal Aviation Administration’s chief Michael Huerta has also recently explained the seriousness of the U.K.’s situation with regards to aviation safety. Along with the other EU member states, the U.K. is currently part of the European Aviation Safety Agency (EASA), which is responsible for all aspects of civil aviation safety in the EU. Speaking at the UK’s Aviation Club, Huerta pointed out that the U.K. currently benefits from the being part of EASA and that when it leaves the EU it will need to be replaced or there would be the very real possibility of an “interruption of service.”

Faced with uncertainty of legal rights and concerns about ongoing aviation safety regulation, it is important that U.S. airlines as well as U.S. logistics and freight companies monitor the situation and plan for potential disruption. Some comfort can be taken from British Government assurances that open skies agreements and regulations will be in place when the U.K. exits the EU, however, individual commercial agreements should be reviewed to minimize risk of disruption. For instance, U.S. airlines have agreements with U.K. airports for a range of services including landing rights and leases for office outlets. All these agreements may need to be reviewed sooner rather than later so that both parties have contingencies in place to avoid any disruption as much as possible.

This post was written by G. Thomas Lee and David B. Hamilton of Womble Carlyle Sandridge & Rice, PLLC.

Get more Brexit Analysis at the National Law Review.

President Trump Shifts the U.S. Policy Towards Cuba

As we have previously reported on the growing fear that the Trump Administration would roll back President Barack Obama’s plan to normalize relations with Cuba. Then-candidate Donald Trump was calling President Obama’s deals with Cuba “one-sided” and beneficial “only [to] the Castro regime.” Last week Friday, at an event at the Manuel Artime Theater in Miami, President Trump officially announced his Administration’s new public policy towards Cuba and fulfilled a campaign promise.

President Trump’s speech culminated in the issuance of a National Security Presidential Memorandum and an accompanying White House Fact Sheet on the U.S. Policy toward Cuba. In sum, President Trump’s directive:

(a) Ends economic practices that “benefit the Cuban government” by prohibiting most economic activities with the Cuban military conglomerate, Grupo de Administración Empresarial (“GAESA”). This change is most likely to affect the hotel and tourism industry sectors, since these are the industries said to be largely controlled by GAESA. A list of companies that will be on the “blacklist” will be issued by the State Department at a later date.

(b) Adheres “to the statutory ban on tourism to Cuba,” by amending regulations related to educational travel (i.e., by ending individual people-to-people travel) and enforcing the strict record keeping requirements related to travel to Cuba.

(d) Supports the expansion of internet services and free press in Cuba by convening a task force that will work with non-governmental organizations and private sector entities to examine the challenges and opportunities in those areas.

(e) Keeps in place the Obama Administration’s elimination of the “Wet Foot, Dry Foot” policy.

(f) Ensures that engagement with Cuba in general is advancing the interests of the United States.

As explained in the new FAQs issued by the U.S. Department of the Treasury, the policy changes will not go into effect until the Treasury Department and the U.S. Department of Commerce have finalized their new regulations. Importantly, the new Cuba policy changes will not have retro-active effect. Those travel arrangements and commercial engagements that were in place prior to the issuance of the upcoming regulations will not be affected.

Al Cardenas, who heads the Latin America practice group at Squire Patton Boggs and previously served as the former Chairman of American Conservative Union and former Chairman of the Florida GOP, explains: “Despite the emotional setting and rightful remembrance of the struggles of the Cuban people found in President Trump’s speech, which was focused on a Cuban exile audience, President Trump’s executive action preserves many of the changes made during President Obama’s Administration (some of which were outlined in President Obama’s 2014 Speech). For example, the respective embassies in Washington and Havana will remain open, the U.S. licenses issued to airlines and cruise line companies have been kept, efforts to expand direct telecommunications and internet access will continue, and the additional categories for travel to Cuba for the most part remain in place. While one-step back is the prohibition on U.S. travelers from staying at government-owed facilities, this should be a boon to the family-owned B&B’s and other rentals on the island. It remains to be seen whether there will be a significant drop off in tourist travel to the island.”

Viewed as a whole, President Trump is tightening some areas where improved economic relations with the United States could have benefitted some auspices of the Cuban Government.

This post was written by Beatriz E. Jaramillo and Stacy A. Swanson of Squire Patton Boggs (US) LLP.

NAFTA Renegotiation Would Intend to Benefit Farmers, Ranchers

In recent weeks, the Trump administration took the first step toward renegotiating the North American Free Trade Agreement (NAFTA). Robert Lighthizer, United States Trade Representative (USTR), sent a letter to Congress placing Congress on official notice of the Administration’s intention to renegotiate the Agreement with an eye toward advancing the interests of U.S. farmers, ranchers, workers, and businesses. The USTR’s notice to Congress created a ninety-day window before formal negotiations could begin. According to Michigan Farm Bureau (MFB) Associate National Legislative Counsel, John Kran, “This is the opportunity for the country to react to the President’s notice, and for feedback from voters and members of Congress to get surfaced and shared with the Administration before the formal negotiation process can begin.” The Administration hopes to renegotiate a new NAFTA within the next six months.

In a formal statement, Zippy Duvall, American Farm Bureau Federation (AFBF) President, said the American Farm Bureau will work with the Administration, Congress, other agricultural groups as well as with officials in Canada and Mexico to rectify issues with NAFTA which have limited the trade potential of U.S. farmers, ranchers, workers and businesses. Sonny Perdue, U.S. Secretary of Agriculture, issued the following statement: “While NAFTA has been an overall positive for American agriculture, any trade deal can always be improved. As President Trump moves forward with renegotiating with Canada and Mexico, I am confident this will result in a better deal for our farmers, ranchers, foresters, and producers.” Sonny Perdue acknowledged that while NAFTA has been good for farmers, the same cannot be said for other U.S. industries, such as manufacturing.

To stay informed on the progress of NAFTA modernization, visit the Michigan Farm Bureau’s new Trade page.

Thist post was written by Aaron M. Phelps of Varnum LLP.

President Trump Closes 100 Days in Office with Trade EOs, Debate of NAFTA Withdrawal

Under pressure to make good on campaign promises as his first 100 days in office drew to a close, President Donald Trump considered a number of new trade-related actions last week, highlighting the importance of stakeholder engagement with his Administration on trade matters.

On Wednesday, April 26, reports emerged that President Trump was seriously considering withdrawing the US from NAFTA. The action reportedly came as a surprise to many stakeholders, who were expecting trade developments ahead of President Trump 100th day in office but not NAFTA withdrawal. President Trump ultimately decided to shelve the draft executive action following conversations with the leaders of Mexico and Canada, calls from Members of Congress, and outreach by private stakeholders, as well as meetings with his most senior advisors.

In remarks the following day, President Trump confirmed that he had been seriously considering withdrawing the US from NAFTA, reiterating his promise to pursue the strongest deal possible and pledging to terminate the agreement “if we do not reach a fair deal for all.”

On Saturday, April 29, President Trump went on to sign two trade-related Executive Orders (EO).

The first EO states that the policy of the United States will be to negotiate agreements that benefit American workers, manufacturers, farmers and ranchers; protect intellectual property (IP) rights; and encourage domestic research & development. It is also states that the policy of the United States will be to renegotiate any existing trade agreement, investment agreement, or trade relation that, on net, harms the U.S. economic, businesses, IP rights, and “innovation rate,” or the American people.

The EO directs the Secretary of Commerce and the U.S. Trade Representative – working with the Secretary of State, the Secretary of the Treasury, the Attorney General, and the newly-established Office of Trade and Manufacturing Policy Director – to conduct comprehensive performance reviews of:

All bilateral, plurilateral, and multilateral trade agreements and investment agreements to which the United States is a party; and
All trade relations with countries governed by the rules of the World Trade Organization (WTO) with which the United States does not have free trade agreements, but with which the United States runs significant trade deficits in goods.

The second EO establishes the Office of Trade and Manufacturing Policy (OTMP) within the White House. The OTMP’s stated mission is “to defend and serve American workers and domestic manufacturers while advising the President on policies to increase economic growth, decrease the trade deficit, and strengthen the United States manufacturing and defense industrial bases.” Peter Navarro, previously Director of the White House National Trade Council, will serve as OTMP Director.

Last week’s developments provided the strongest indications yet that President Trump is ready to put his trade promises into action. International stakeholders must be prepared to engage with the Administration, to emphasize the importance of trade in the Western Hemisphere for the US economy and American jobs and businesses. The performance reviews mandated by the President’s April 29 EO – which are expected to help direct further policy-making efforts – will also provide Latin American stakeholders a chance to formally comment on the importance of existing trade relations and help to influence new policies going forward.

ARTICLE BY Ludmilla L. Savelieff & Stacy A. Swanson of Squire Patton Boggs (US) LLP

Tag: Trade

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