Articles Posted in Trade Wars

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On September 15, 2020, a World Trade Organization (“WTO”) panel found that the Trump Administration’s unilateral tariffs imposed on Chinese products violated WTO rules regarding nondiscrimination and import tariff rates agreed to by the United States.  The dispute concerned China’s challenge to the Trump Administration’s tariffs imposed pursuant to the Trump Administration’s investigation under Section 301 of China’s intellectual property and technology transfer practices.  Specifically, China challenged USTR List 1 (discussed here) and List 3 (discussed here).

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On September 18, 2020, the U.S. Commerce Department published two rules defining the scope of prohibited transactions related to the mobile applications, WeChat and TikTok. The scope of prohibited transactions clarified the two parallel executive orders (EOs) issued by the Trump administration on August 6, 2020, which required the Commerce Department to impose restrictions on both platforms.

The scope of prohibited transactions are the same for both WeChat and TikTok. Prohibited transactions do not include individual use of these mobile platforms to exchange personal or business information. However, the rule would effectively shut down WeChat and TikTok within the United States via mobile application storefronts (e.g., Apple Store and Google Play), and additional restrictions would further impair the apps’ functionality and user experience.

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On September 1, a new round of Section 301 duties will be imposed on “List 4” products. President Trump previously announced plans for these duties, but had delayed implementation in June citing progress on the negotiations with China leading up to the G20 summit. Reportedly, however, the recently resumed talks have not led to the progress desired by the Administration. In his series of tweets announcing the 10 percent tariff, President Trump stated that China had failed to purchase increased quantities of U.S. agricultural goods and reduce the flow of fentanyl into the United States.

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As trade relations with China continue to evolve, Huawei Technologies Co., Ltd. (“Huawei”) and its foreign affiliates remain subject to broad U.S. export license requirements. However, President Trump’s statements at the G20 Summit on the relaxation of restrictions on Huawei were followed by recent senior administration officials’ announcements, including Commerce Secretary Wilbur Ross, that export licenses may be possible where the proposed transaction does not implicate U.S. national security.

The U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) maintains the Entity List, which is comprised of individuals and entities subject to U.S. export licensing requirements for exports, re-exports and in-country transfers of items subject to the Commerce Department’s export control jurisdiction. On May 16, 2019, BIS added Huawei and 68 affiliates to the Entity List, creating a license requirement for all items subject to the Export Administration Regulations (“EAR”). This designation means that licenses are required for all exports and re-exports to Huawei of U.S.-origin goods, including “EAR99” items that are not identified on the Commerce Department’s dual-use Commerce Control List (“CCL”). “Items subject to the EAR” can also include non-U.S. made items in certain circumstances, such as where they contain more than a de minimis amount of controlled U.S.-origin content, or are a “direct product” of certain controlled U.S.-origin technology. The official licensing policy for exports to Huawei is a “presumption of denial.”

BIS subsequently issued a Temporary General License authorizing a narrow subset of transactions through August 19, 2019. Temporarily authorized transactions include those relating to:

  • Continued operation of existing networks and equipment: Transactions necessary to maintain and support existing and currently fully operational networks and equipment, including software updates and patches, subject to legally binding contracts and agreements executed between Huawei on or before May 16, 2019.
  • Support to existing handsets: Transactions necessary to provide service and support, including software updates or patches, to existing models of Huawei handsets that were available to the public on or before May 16, 2019.
  • Cybersecurity research and vulnerability disclosure: The disclosure to Huawei of information regarding security vulnerabilities in items owned, possessed, or controlled by Huawei when related to the process of providing ongoing security research critical to maintaining the integrity and reliability of existing and currently fully operational networks and equipment, as well as handsets.
  • Engagement as necessary for development of 5G standards by a duly recognized standards body: Transactions necessary for the development of 5G standards as part of a duly recognized international standards body. U.S. and non-U.S. companies dealing in items subject to the EAR should be aware that Huawei is still on the Entity List and remains subject to broad export licensing requirements. The Temporary General License authorizes certain limited exports to Huawei until August 19, 2019, and could signal the types of activities that would be viewed favorably in a license request. For activities outside the scope of the Temporary General License, exporters may consider submitting license applications for exports to Huawei or its supply chain where they believe the U.S. government would not have national security concerns.

Since its designation, interested U.S. and non-U.S. parties have questioned whether Huawei’s Entity List designation will remain permanent. President Trump made statements that the U.S. would lift some of the restrictions on Huawei following a meeting with Chinese President Xi Jinping to reengage the stalled China-U.S. trade talks. On July 9, 2019, Commerce Secretary Wilbur Ross indicated that Huawei will remain on the Entity List with the same export licensing requirements. In other words, exports to Huawei of any items subject to the EAR (including EAR99 items) will continue to require a license subject to an official policy of a “presumption of denial.” However, Secretary Ross left open the possibility that BIS may grant licenses where the proposed exports do not threaten national security. He further stated: “Within those confines we will try to make sure that we don’t just transfer revenue from the U.S. to foreign firms.” BIS has not released any official guidance announcing any specific criteria that would need to be met in order to obtain a license.

U.S. and non-U.S. companies dealing in items subject to the EAR should be aware that Huawei is still on the Entity List and remains subject to broad export licensing requirements. The Temporary General License authorizes certain limited exports to Huawei until August 19, 2019, and could signal the types of activities that would be viewed favorably in a license request. For activities outside the scope of the Temporary General License, exporters may consider submitting license applications for exports to Huawei or its supply chain where they believe the U.S. government would not have national security concerns.

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On May 21, the Office of the United States Trade Representative (USTR) established a process through which U.S. stakeholders may exclude products included in List 3 from a 25% tariff imposed pursuant to the investigation of China’s intellectual property practices under Section 301 of the Trade Act of 1974 (“Section 301”) (discussed here). The window to submit exclusion requests will open “on or around” June 30.

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On May 9, 2019, the Office of the United States Trade Representative (USTR) issued a Federal Notice indicating that tariffs on $200 billion worth of Chinese imports would be increased from 10% to 25%. These products are included in the third set of tariff categories (the first two sets are discussed here) announced by USTR in connection with the investigation under Section 301 of the Trade Act of 1974 into China’s acts, policies, and practices related to intellectual property (discussed here). The increase will go into effect on May 10, 2019 at 12:01 am eastern daylight time. Over the weekend, President Trump also threatened a 25% tariff will “shortly” be imposed on the remaining $325 billion worth of imports not currently subject to tariffs. For the prior three sets of Section 301 duties, there were proposed regulations with opportunity for public comment, and it seems likely that USTR would follow the same approach if there will be a fourth set.

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  • June 15, 2018 – U.S. proposes an additional 25 percent ad valorem duty on products from China (818 tariff categories) with an annual trade value of approximately $34 billion. The $34 billion action became effective on July 6, 2018. (See our previous blog here)
  • June 15, 2018 – U.S. also proposes an additional 25 percent ad valorem duty on products from China (284 tariff categories) with annual trade value of approximately $16 billion. The $16 billion action is undergoing public comment.
  • June 15, 2018 – China retaliates imposing an additional 25 percent tariff on U.S. goods with a value of $50 billion. Part of this action ($34 billion) became effective on July 6, 2018. The additional $16 billion will be effective on a date to be determined.
  • July 11, 2018 – U.S. proposes an additional 10 percent ad valorem duty on products of China with an annual trade value of $200 billion.

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On July 11, 2018, the Office of the United States Trade Representative (“USTR”) proposed an additional 10 percent ad valorem duty on products of China with an annual trade value of $200 billion.  President Trump directed this action in connection with the Section 301 investigation into China’s acts, policies and practices related to intellectual property (discussed here and here).

According to USTR, President Trump directed this action in response to China’s decision to impose retaliatory tariffs on U.S. goods following the initial round of 25% tariff increases on Chinese goods covering $50 billion in trade value, $16 billion of which is currently proposed (discussed here).  According to the USTR, “China has shown that it will not respond to action at a $50 billion level” and “supplemental action at a $200 billion level is in accord with the President’s direction.”

The proposed tariffs cover 6,031 tariff subheadings and a wide variety of products, including food, chemical, mineral, electrical products; fertilizers; photographic goods; plastic, rubber, leather, cork, and wood articles; paper and paperboard; textile articles; headgear; stone, ceramic and glass articles; base metals; various types of machinery and appliances; electrical equipment; vehicles; ships; clocks; and furniture.

USTR will finalize the list following a public notice and comment process, including a hearing.  USTR has requested comments on:

  • Whether tariff subheadings included in the list should be retained or removed, or whether subheadings not currently on the list should be added;
    • In comments advocating for the removal of products from the list, commentators address whether imposing increased duties on a particular product would: 1) be practicable or effective to obtain the elimination of China’s acts, policies, and practices identified by USTR to be in violation of Section 301 (discussed in our blog post here); and 2) cause disproportionate economic harm to U.S. interests, including small- or medium-sized businesses and consumers.
  • The level of the increase, if any, in the rate of duty;
  • The appropriate aggregate level of trade to be covered by additional duties.

The relevant dates for the proceedings are as follows:

  • July 27: Requests to appear and a summary of expected testimony
  • August 17: Written comments
  • August 20-23: Public Hearing
  • August 30: Post-hearing rebuttal comments