Leibowitz on Trade: The Latest on the USMCA, China Deals

Are Canada and Mexico looking at a unique arrangement? Korea and Brazil (along with Argentina) have quota agreements entered into last year in a very different climate. The quotas on Brazil and Korea cap steel imports at 70 percent of the 2015-17 average for those countries. Because demand has increased since 2017 due to the booming U.S. economy, those tariffs “bite” (meaning that they really ration imports at a level well below market demand). There is no doubt that Canada and Mexico would reject such a “biting” quota on their steel and aluminum exports to the United States. They might agree to a quota system that allowed for reasonable growth—but this has not been acknowledged yet.

Will product exclusions be permitted on an expedited basis? Product exclusions present real problems for U.S. companies and their suppliers. There are tens of thousands of requests that have never been decided. Many have been denied, presumably based on domestic industry objections. Domestic producers have alleged they can make products that they have never actually produced in commercial quantities. The lack of action and of a rigorous process for deciding exclusion requests arguably makes that process an unreliable and unacceptable safety valve for foreign suppliers and U.S. manufacturers. Canadian and Mexican negotiators appear to be open to discussing an improved system for exclusions.

Commitment to prevent transshipment? U.S. negotiators express concern that Canadian and Mexican exemptions from tariffs could undermine the Section 232 remedies previously imposed, which they claim have led to resurgent steel and aluminum industries. Sources have suggested that Canada and Mexico could agree to commit to end transshipment of these products as part of a deal.

China Deal Likely?

Secretary Mnuchin said last week that no U.S.-China trade deal is likely before the first of April. Secretary Mnuchin and most analysts expect a deal to be announced soon. Many reports suggest that the final details of the wording of an agreement are in the works. Given that the texts need to be translated and analyzed by lawyers in both countries, it’s not surprising that this takes a while. The draft agreements were prepared in English, and only recently have Chinese translations been drafted. (It appears that more Chinese negotiators know English than the reverse. That seems likely to me.) We will see what happens in April.

Customs Rulings on China

An interesting factoid: In February 2018, months before China tariffs were proposed, U.S. Customs and Border Protection issued 100 “binding rulings” on imports from China. In February 2019, 190 such rulings were issued, an increase of 90 percent. I thought that might be due to a backlog of rulings delayed from January to February because of the government shutdown (there were no Customs rulings issued between Dec. 21, 2018, and Jan. 28, 2019). I checked March 2019 rulings compared to March 2018 to see if there was a trend; through March 12, 2019, Customs issued 85 rulings on China imports, while in March 2018 104 rulings were issued in the entire month. At the rate of the first half of March, the total number of rulings for March will increase to about 170.

There is nothing surprising about this. The China tariffs have disrupted supply chains of U.S. manufacturers. Because the tariffs are solely based on the tariff classification of imported products, importers, Customs brokers and attorneys have been flooding the agency with requests to determine the correct classification for tariff purposes. Many tariff numbers are subject to the China tariffs and many are not. A favorable ruling can save a company millions of dollars. Customs law has never been more fascinating (at least not since the Smoot-Hawley Tariff, which imposed 50+ percent tariffs on most U.S. imports.)

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
1400 16th Street, N.W.
Suite 350
Washington, D.C. 20036

Phone: (202) 776-1142
Fax: (202) 861-2924
Cell: (202) 250-1551