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Adams Lee has more than twenty years’ experience providing strategic advice and legal guidance on complex international trade and administrative regulatory matters to US and foreign companies, trade associations, and foreign governments. He advises companies in a broad range of industries on international trade remedy and trade policy issues.

International trade lawyersOn March 6, 2019, The American Kitchen Cabinet Alliance, consisting of 27 United States domestic producers, (Petitioner), filed antidumping (AD) and countervailing duty (CVD) petitions against Wooden Cabinets and Vanities (“Wood Cabinets”) from China. A copy of that petition can be found here.

Under U.S. trade laws, a domestic industry can petition the U.S. Department of Commerce (“DOC”) and U.S. International Trade Commission (“ITC”) to investigate whether the named subject imports are being sold to the United States at less than fair value (“dumping”) or benefit from unfair government subsidies. For AD/CVD duties to be imposed, the U.S. government must determine not only that dumping or subsidization is occurring, but also that the subject imports are causing “material injury” or “threat of material injury” to the domestic industry.

Last year, domestic kitchen cabinet producers unsuccessfully argued that certain wooden cabinets were covered under the AD/CVD orders on Hardwood Plywood from China that were issued in January 2018. Because DOC rejected their scope ruling request and ruled that certain wooden cabinets were not covered by the Hardwood Plywood AD/CVD orders, the domestic producers have filed these petitions to start new AD/CVD investigations to try to get new AD/CVD orders to cover Chinese wooden cabinets.

In 2018, the total U.S. imports of wooden cabinets from China was about $4 billion.

Scope

The proposed scope definition in the petition identifies the merchandise to be covered by this AD/CVD investigation as follows:

The merchandise subject to these investigations consists of wooden cabinets and vanities that are designed for permanent installation (including floor mounted,  wall mounted, ceiling hung or by attachment of plumbing), and wooden components thereof. Wooden cabinets and vanities and wooden components are made substantially of wood products, including solid wood and engineered wood products (including those made from wood particles, fibers, or other wooden materials such as plywood, strand board, block board, particle board, or fiberboard), or bamboo. Wooden cabinets and vanities consist of a cabinet box (which typically includes a top, bottom, sides, back, base blockers, ends/end panels, stretcher rails, toe kicks, and/or shelves) and may or may not include a frame, door, drawers and/or shelves. Subject merchandise includes wooden cabinets and vanities with or without wood veneers, wood, paper or  other overlays, or laminates, with or without non-wood components or trim such as metal, marble, glass, plastic, or other resins, whether or not surface finished or unfinished, and whether or not assembled or completed.

Wooden cabinets and vanities are covered by the investigation whether or not  they are imported attached to, or in conjunction with, faucets, metal plumbing, sinks and/or sink bowls, or countertops. If wooden cabinets or vanities are imported attached to, or in conjunction with, such merchandise, only the wooden cabinet or vanity is covered by the scope.

Subject merchandise includes the following wooden component parts of cabinets and vanities: (1) wooden cabinet and vanity frames (2) wooden cabinet and vanity boxes (which typically include a·top, bottom, sides, back, base blockers, ends/end panels, stretcher rails, toe kicks, and/or shelves), (3) wooden cabinet or vanity doors, (4) wooden cabinet or vanity drawers and drawer components (which typically include sides, backs, bottoms, and faces), (5) back panels and end  panels, (6) and desks, shelves, and tables that are attached to or incorporated in  the subject merchandise.

Subject merchandise includes all unassembled, assembled and/or “ready to assemble” (RTA) wooden cabinets and vanities, also commonly known as “flat packs,” except to the extent such merchandise is already covered by the scope of antidumping and countervailing duty orders on Hardwood Plywood from the People’s Republic of China. See Certain Hardwood Plywood Products from the People’s Republic of China, 83 Fed. Reg. 504 (Dep’t Commerce Jan. 4, 2018) (amended final deter. of sales at less than fair value, & antidumping duty order); Certain Hardwood Plywood Products from the People’s Republic of China, 83 Fed. Reg. 513 (Dep’t Commerce Jan. 4, 2018) (countervailing duty order). RTA wooden cabinets and vanities are defined as cabinets or vanities packaged so that at the time of importation they may include: (1) wooden components required to assemble a cabinet or vanity (including drawer faces and doors); and (2) parts (e.g., screws, washers, dowels, nails, handles, knobs, adhesive glues) required to assemble a cabinet or vanity. RTAs may enter the United States in one or in multiple packages.

Subject merchandise also includes wooden cabinets and vanities and in-scope components that have been further processed in a third country, including but not limited to one or more of the following: trimming, cutting, notching, punching, drilling, painting, staining, finishing, assembly, or any other processing that  would not otherwise remove the merchandise from the scope of the investigation if performed in the country of manufacture of the in-scope product.

Excluded from the scope of these investigations, if entered separate from a wooden cabinet or vanity are:

Aftermarket accessory items which may be added to or installed into an interior of a cabinet and which are not considered a structural or core component of a wooden cabinet or vanity. Aftermarket accessory items may be made of wood, metal, plastic, composite material, or a combination thereof that can be inserted into a cabinet and which are utilized in the function of organization/accessibility on the interior of a cabinet; and include:

Inserts or dividers which are placed into drawer boxes with the purpose of organizing or dividing the internal portion of the drawer into multiple areas for the purpose of containing smaller items such as cutlery, utensils, bathroom essentials, etc.

Round or oblong inserts that rotate internally in a cabinet for the purpose of accessibility to foodstuffs, dishware, general supplies, etc.

Carved wooden accessories including corbels and rosettes, which serve the primary purpose of decoration and personalization.

Non-wooden cabinet hardware components including metal hinges, brackets, catches, locks, drawer slides, fasteners (nails, screws, tacks, staples), handles, and knobs.

Also excluded from the scope of these investigations are:

All products covered by the scope of the antidumping duty order on Wooden Bedroom Furniture from the People’s Republic of China (Inv. No. A-570- 890). See Wooden Bedroom Furniture From the People’s Republic of China, 70 Fed. Reg. 329 (Dep’t Commerce Jan. 4, 2005) (notice of amended final deter. of sales at less than fair value & antidumping duty order).

All products covered by the scope of the antidumping and countervailing duty orders on Hardwood Plywood from the People’s Republic of China (Inv. No. A-570-051 and Inv. No. C-570-052). See Certain Hardwood Plywood Products from the People’s Republic of China, 83 Fed. Reg. 504 (Dep’t Commerce Jan. 4, 2018) (amended final deter. of sales at less than fair value, & antidumping duty order) (Certain Hardwood Plywood Products from the People’s Republic of China, 83 Fed. Reg. 513 (Dep’t Commerce Jan. 4, 2018) (countervailing duty order).

Imports of subject merchandise are classified under Harmonized Tariff Schedule of the United States (HTSUS) statistical numbers 9403.40.9060 and 9403.60.8081. The subject component parts of wooden cabinets and vanities may be entered into the United States under HTSUS statistical number 9403.90.7080. Although the HTSUS subheadings are provided for convenience and customs purposes, the written description of the scope of these investigations is dispositive.

Alleged AD Margins

Petitioner calculated estimated dumping margins for China that range from 175.50% to 259.99%, with an average margin of 216.04%.

Although Petitioner alleged numerous government subsidy programs that benefitted the Chinese wood cabinet industries, Petitioner did not allege a specific subsidy rates.

Named Exporters/ Producers

Petitioner included a list of companies it believes are producers and exporters of the subject merchandise.  See the producer and exporter list here.

Named U.S. Importers

Petitioner included a list of companies that it believes are U.S. importers of the subject merchandise.  See the named United States importers list here.

Estimated Investigation Schedule 

March 6, 2019 – Petitions filed

March 26, 2019 – DOC initiates investigation

Mar 27, 2019 – ITC Staff Conference

April 20, 2019 – ITC preliminary determination

August 3, 2019 – DOC CVD preliminary determination (assuming extended deadline)

October 2, 2019 – DOC AD preliminary determination (assuming extended deadline)

February 14, 2020 – DOC final determination (extended and AD/CVD aligned)

March 30, 2020 – ITC final determination (extended)

April 6, 2020 – DOC AD/CVD orders issued (extended)

For those of you who have not been keeping track, there has been an onset of trade actions brought by U.S. companies against incoming product from China. With all the trade issues involving China and bipartisan anti-China sentiment prevalent in the United States right now, the view is that now is a great time to bring such actions. This specific case was no surprise to U.S. trade lawyers and we fully expect (many?) more to drop in the next few months. If you are importing products from China, now is the time to know the trade risks of your imports.

Dumping China Thailand Taiwan India Carbon Steel

Vulcan Steel Products Inc. (Petitioner) on February 19, 2019, filed antidumping (AD) and countervailing duty (CVD) petitions against Carbon and Alloy Steel Threaded Rod (“Steel Threaded Rod”) from China, India, Taiwan and Thailand.

Under U.S. trade laws, a domestic industry can petition the U.S. Department of Commerce (“DOC”) and U.S. International Trade Commission (“ITC”) to investigate whether the named subject imports are being sold to the United States at less than fair value (“dumping”) or benefit from unfair government subsidies.  For AD/CVD duties to be imposed, the U.S. government must determine not only that dumping or subsidization is occurring, but also that the subject imports are causing “material injury” or “threat of material injury” to the domestic industry.

— Scope

The proposed scope definition in the petition identifies the merchandise to be covered by these AD investigations as:

The merchandise covered by the scope of these investigations is carbon and alloy steel threaded rod. Steel threaded rod is certain threaded rod, bar, or studs, of carbon or alloy steel, having a solid, circular cross section of any diameter, in any straight length. Steel threaded rod is normally drawn, cold-rolled, threaded, and straightened, or it may be hot-rolled. In addition, the steel threaded rod, bar, or studs subject to these investigations are non-headed and threaded along greater than 25 percent of their total actual length. A variety of finishes or coatings, such as plain oil finish as a temporary rust protectant, zinc coating (i.e., galvanized, whether by electroplating or hot-dipping), paint, and other similar finishes and coatings, may be applied to the merchandise.

Steel threaded rod is normally produced to American Society for Testing and Materials (“ASTM”) specifications ASTM A36, ASTM A193 B7/B7m, ASTM A193 B16, ASTM A307, ASTM A320 L7/L7M, ASTM A320 L43, ASTM A354 BC and BD, ASTM A449, ASTM F1554-36, ASTM F1554-55, ASTM F1554 Grade 105, American Society of Mechanical Engineers (“ASME”) specification ASME B18.31.3, and American Petroleum Institute (“API”) specification API 20E. All steel threaded rod meeting the physical description set forth above is covered by the scope of these investigations, whether or not produced according to a particular standard.

Subject merchandise includes material matching the above description that has been finished, assembled, or packaged in a third country, including by cutting, chamfering, coating, or painting the threaded rod, by attaching the threaded rod to, or packaging it with, another product, or any other finishing, assembly, or packaging operation that would not otherwise remove the merchandise from the scope of the investigation if performed in the country of manufacture of the threaded rod.

Carbon and alloy steel threaded rod are also included in the scope of this investigation whether or not imported attached to, or in conjunction with, other parts and accessories such as nuts and washers. If carbon and alloy steel threaded rod are imported attached to, or in conjunction with, such non-subject merchandise, only the threaded rod is included in the scope.

Excluded from the scope of these investigations are: (1) threaded rod, bar, or studs which are threaded only on one or both ends and the threading covers 25 percent or less of the total actual length; and (2) stainless steel threaded rod, defined as steel threaded rod containing, by weight,1.2 percent or less of carbon and 10.5 percent or more of chromium, with or without other elements.

Excluded from the scope of the antidumping investigation on steel threaded rod from the People’s Republic of China is any merchandise covered by the existing antidumping order on Certain Steel Threaded Rod from the People’s Republic of China. See Certain Steel Threaded Rod from the People’s Republic of China: Notice of Antidumping Duty Order, 74 Fed. Reg. 17,154 (Dep’t Commerce Apr. 14, 2009).

Steel threaded rod is currently classifiable under subheadings 7318.15.5051, 7318.15.5056, and 7318.15.5090 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Subject merchandise may also enter under subheading 7318.15.2095 and 7318.19.0000 of the HTSUS. The HTSUS subheadings are provided for convenience and U.S. Customs purposes only. The written description of the scope is dispositive.

— Alleged AD Margins.

Petitioner calculated estimated dumping margins of:

China:  53.57% to 55.60%
India:  25.43% to 28.34%
Taiwan:  32.10%
Thailand:  20.3%

— Named Exporters/ Producers

Petitioner included a list of companies that it believes are producers and exporters of the subject merchandise.  See attached list here.

— Named U.S. Importers

Petitioner included a list of companies that it believes are U.S. importers of the subject merchandise.  See attached list here.

— Estimated Schedule of Investigations.

February 21, 2019 – Petitions filed

March 13, 2019 – DOC initiates investigation

March 14, 2019 – ITC Staff Conference

April 7, 2019 – ITC preliminary determination

July 21, 2019 – DOC CVD preliminary determination (assuming extended deadline)

September 19, 2019 – DOC AD preliminary determination (assuming extended deadline)

February 1, 2020 – DOC AD/CVD final determination (assuming extended deadlines)

March 17, 2020 – ITC final determination (extended)

March 24, 2020 – DOC AD/CVD orders issued (extended)

This product has previously been subject to other AD/CVD investigations.  In 2009, AD/CVD orders were imposed on carbon steel threaded rod from China.  In 2013, although Petitioner tried to get AD/CVD orders imposed on carbon steel threaded rod from India and Thailand, the ITC made a negative determination (i.e, no injury or threat of injury caused by the subject imports). This Petitioner appears to be a serial user of US trade laws repeatedly trying to get the US government to issue protective duties against subject imports. Given that the Petitioner’s most recent attempt to get AD/CVD duties imposed was unsuccessful, foreign exporters or US importers of this product may be able to use similar arguments to explain why these new AD/CVD actions should also be rejected.

On February 4, 2019, The American Institute of Steel Construction, LLC (Petitioner) filed antidumping (AD) and countervailing duty (CVD) petitions against Fabricated Structural Steel (“FSS”) from Canada, China and Mexico. You can see that petition here.

Under U.S. trade laws, a domestic industry can petition the U.S. Department of Commerce (“DOC”) and U.S. International Trade Commission (“ITC”) to investigate whether the named subject imports are being sold to the United States at less than fair value (“dumping”) or benefit from unfair government subsidies.  For AD/CVD duties to be imposed, the U.S. government must determine not only that dumping or subsidization is occurring, but also that the subject imports are causing “material injury” or “threat of material injury” to the domestic industry.

Scope

The proposed scope definition in the petition identifies the merchandise to be covered by this AD/CVD investigation as the following:

The merchandise covered by this investigation includes carbon and alloy (including stainless) steel products such as angles, columns, beams, girders, plates, flange shapes (including manufactured structural shapes utilizing welded plates as a substitute for rolled wide flange sections), channels, hollow structural section (HSS) shapes, base plates, plate-work components, and other steel products that have been fabricated for assembly or installation into a structure (fabricated structural steel). Fabrication includes, but is not limited to, cutting, drilling, welding, joining, bolting, bending, punching, pressure fitting, molding, adhesion, and other processes.

Fabricated structural steel products included in the scope of this investigation are products in which: (1) iron predominates, by weight, over each of the other contained elements; and (2) the carbon content is two percent or less by weight.

Fabricated structural steel is covered by the scope of the investigation regardless of whether it is painted, varnished, or coated with plastics or other metallic or non-metallic substances. Fabricated structural steel may be either assembled; disassembled, but containing characteristics or items, such as holes, fasteners, nuts, bolts, rivets, screws, tongue and grooves, hinges, or joints, so that the product(s) may be joined, attached, or assembled to one or more additional product(s); or partially assembled, such as into modules, modularized construction units, or sub-assemblies of fabricated structural steel.

Products under investigation include carbon and alloy steel products that have been fabricated for erection or assembly into structures, including but not limited to, buildings (commercial, office, institutional, and multi-family residential); industrial and utility projects; parking decks; arenas and convention centers; medical facilities; and ports, transportation and infrastructure facilities.

Subject merchandise includes fabricated structural steel that has been assembled or further processed in the subject country or a third country, including but not limited to painting, varnishing, trimming, cutting, drilling, welding, joining, bolting, punching, bending, beveling, riveting, galvanizing, coating, and/or slitting or any other processing that would not otherwise remove the merchandise from the scope of the investigation if performed in the country of manufacture of the fabricated structural steel.

Fabricated structural steel may be attached, joined, or assembled with non-steel components at the time of importation. The inclusion, attachment, joining, or assembly of non-steel components with fabricated structural steel does not remove the fabricated structural steel from the scope.

All products that meet the written physical description are within the scope of this investigation unless specifically excluded. Specifically excluded from the scope of this investigation is certain fabricated steel concrete reinforcing bar (“rebar”). Fabricated rebar is excluded from the scope only if (i) it is a unitary piece of fabricated rebar, not joined, welded, or otherwise connected with any other steel product or part; or (ii) it is joined, welded, or otherwise connected only to other rebar.

Also excluded from this scope is fabricated structural steel used for bridges and bridge sections. For the purpose of this scope, fabricated structural steel used for bridges and bridge sections is defined as fabricated structural steel that is used in bridges and bridge sections and that conforms to American Association of State and Highway and Transportation Officials (“AASHTO”) bridge construction requirements or any state or local derivatives of the AASHTO bridge construction requirements.

Also excluded from this scope are pre-engineered metal building systems. For the purposes of this scope, pre-engineered metal building systems are defined as complete metal buildings that integrate steel framing, roofing and walls to form one, pre-engineered building system and are designed and manufactured to Metal Building Manufacturers Association guide specifications. Pre-engineered metal building systems are typically limited in height to no more than 60 feet or two stories.

Also excluded from this scope are steel roof and floor decking systems designed and manufactured to Steel Deck Institute standards.

Also excluded from the scope are open web steel bar joists and joist girders that are designed and manufactured to Steel Joist Institute specifications.

The products subject to the investigation are currently classified in the Harmonized Tariff Schedule of the United States (HTSUS) under subheadings: 7308.90.9590, 7308.90.3000, and 7308.90.6000.

The products subject to the investigation may also enter under the following HTSUS subheadings:  7216.91.0010, 7216.91.0090, 7216.99.0010, 7216.99.0090, 7228.70.6000, 7301.10.0000, 7301.20.1000,            7301.20.5000, 7308.40.0000, 7308.90.9530, and 9406.90.0030.

The HTSUS subheadings above are provided for convenience and customs purposes only. The written description of the scope of the investigation is dispositive.

 

Alleged AD Margins

Petitioner estimated dumping margins of up to 31.46% for Canada, 218.85% for China, and 41.39% for Mexico.

Although Petitioner alleged numerous government subsidy programs that benefitted the Canadian, Chinese, and Mexican FSS industries, Petitioner did not allege specific subsidy rates.

 

Named Exporters/ Producers

Petitioner included a list of companies it believes are producers/exporters of the subject merchandise. You can see that list here.

 

Named U.S. Importers

Petitioner included a list of U.S. importers it believes to have imported the subject merchandise.

 

Estimated Schedule of Investigations

February 4, 2019 – Petitions filed

February 25, 2019 – DOC initiates investigation

February 26, 2019 – ITC Staff Conference

March 21, 2019 – ITC preliminary determination

July 5, 2019 – DOC CVD preliminary determination (assuming extended deadline)

September 3, 2019 – DOC AD preliminary determination (assuming extended deadline)

January 16, 2020 – DOC final determination (extended and AD/CVD aligned)

March 1, 2020 – ITC final determination (extended)

March 8, 2020 – DOC AD/CVD orders issued (extended)

 

If you are on one of these lists or you fear you should start preparing to respond.

international trade lawyersDespite the federal government shutdown, there have been a couple of recent developments regarding the Section 301 tariffs imposed by the Office of the U.S. Trade Representative (“USTR”) on a broad range of products imported from China.

First, on December 28, 2018, USTR published its determination for the first batch of exclusion requests granted for the 25% tariffs imposed on $34 billion worth of Chinese imports (List 1). USTR granted exclusions for 984 separate requests. Based on the USTR’s index of product exclusion requests, USTR also rejected around 1,000 exclusion requests. Thus far, USTR has made decisions on only about 20% of the 10,000 exclusion requests for the first tranche of China products, with the remaining exclusion requests still being considered.

Importers will be eligible to apply for refunds of the 25% tariffs paid on the List 1 products entered after their July 6, 2018 effective date. The product exclusions will remain in effect for one year, expiring on December 28, 2019.

USTR indicated that the product exclusions will be applied on a product basis, meaning all imports of the product will be excluded regardless of whether the importer filed an exclusion request. This is different from the steel/aluminum tariff exclusion request process which limited the exclusions only to the specific products identified by the specific requesting party.

Second, on January 11, 2019, USTR replied to eleven Democratic senators who had asked why an exclusion process had not yet been established for the $200 billion of Chinese products (List 3) subject to a 10 percent tariff similar to the exclusion request process already in place for the prior list of Chinese products (List 1 – $34 billion; List 2 – $16 billion). USTR stated that an exclusion process for the List 3 products would not be established unless negotiations fail to resolve the US-China trade dispute by President Trump’s March 1, 2019 deadline. If no US-China resolution is achieved,  tariffs on List 3 will increase from 10 to 25 percent on March 2, 2019.

These developments show that although some progress is being made on the Section 301 tariff exclusion requests, that process is going to be slow.  USTR has barely made a dent in the thousands of exclusion requests for the first two lists of Chinese products and it has deferred starting the exclusion request process for the much bigger $200 billion list of products. U.S. importers in the meantime will be required to continue paying the 10 or 25 percent tariffs while waiting for USTR to slog through the outstanding exclusion requests or for the U.S. and China to find a way to end the trade dispute. The companies for which my firm’s international trade lawyers filed exclusion requests are incredibly frustrated at not yet hearing back.

If Presidents Trump and Xi reach some agreement by March 1, 2019 the tariffs will likely be immediately lifted, but if they do not reach such an agreement by March 2, the U.S. will then increase tariffs on the $200 billion of List 3 Chinese products from 10 percent to 25 percent and very likely impose 25 percent tariffs on all remaining Chinese imports (about another $260 billion).

More to come. A lot more.

China tariffs vaping industry
Is the clock ticking on the vaping industry?

Like so many other U.S. industries, the U.S. vaping industry is now in the crosshairs of a 25% tariff on products imported from China. The first two waves of President Trump’s proposed tariffs against China covered about $50 billion worth of Chinese products but they did not include any vaping products. After China retaliated and proposed its own equivalent tariffs on an estimated $50 billion worth of U.S. products imported into China, President Trump proposed a much bigger third list of China products to cover an additional $200 billion in imports from China.  This third list targets vaping devices, vaping parts, and batteries from China. Because our law firm represents a large number of companies involved in various aspects of the vaping industry we are hearing a handful about how these tariffs will “decimate” this nascent industry.

The U.S. vaping industry is indeed particularly exposed to these tariffs. Though much of the e-liquid used for vaping is made in the United States, almost all of the vaping hardware is imported from China. Just as Gillette makes the most money selling razor cartridges and not razors, many U.S. vaping companies chose to focus on the higher margin e-liquids, rather than lower margin vaping devices. Some have noted that there are no U.S. companies that produce any vaping hardware products. We are hearing of how many vape shops will be unwilling or unable to pay the extra 25% tariffs because they do not believe they will be able to pass these extra costs on to their customers. If this does prove true, the vaping industry will indeed be decimated.

Fortunately, there is still time for vaping companies to seek a tariff exemption for certain vaping products. The U.S. Trade Representative will accept comments until September 6 on whether entire categories of products listed on the third wave of proposed tariffs — the $200 billion in imports from China — should be exempted. There likely will be yet another chance to make more product-specific exclusion requests later in the fall.

For an exclusion request to have any realistic chance at being granted, vaping companies should address the following factors:

  • A description of the physical characteristics (dimensions, material composition, etc.) of the particular vaping products and the 10 digit subheading of the HTSUS tariff category applicable to those products.
  • Whether the particular vaping product is available only from China. In addressing this factor, requesters should address specifically whether the particular vaping product and/or a comparable product is available from sources in the United States and/or in third countries.
  • Whether imposition of additional duties on the particular vaping product would cause severe economic harm to the requester or other U.S. interests.
  • Whether the particular vaping product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
  • Requesters must provide the annual quantity and value of the Chinese-origin product the requester purchased in each of the last three years. If precise annual quantity and value information are not available, USTR will accept an estimate with justification.
  • Requesters may also provide any other information or data they consider relevant to evaluating their request.

The process for reviewing and deciding on these exclusion requests will not result in any immediate decision but the hope is that a favorable decision eventually will allow for refunding the tariffs paid.

The goal is to have the USTR review the comments and grant exclusions, particularly for products that are not made in the United States and can only be sourced from China. The last time similar tariffs were applied on steel products back in the early 2000s, many exclusions were granted that helped ease the impact of the tariffs on downstream users.

There have already been many opposing comments and exclusion requests submitted for the first two waves of proposed China tariffs. Many of the opposing comments have noted how the proposed tariffs on the Chinese products have nothing to do with  Chinese practices of stealing or extorting intellectual property from U.S companies, which are the reasons claimed for invoking the China tariffs in the first place. Many have also objected to how these tariffs are not likely to change how China respects intellectual property  rights, but will have a catastrophic effect on certain American companies.  What was a booming U.S. vaping industry now faces going bust with the proposed tariffs. If you are in the vaping industry, now is the time to do what you can to prevent this.

Editor’s Note: The above focuses on the vaping industry but much of it holds true for a whole host of other U.S. industries caught up in the tariffs as well. The bottom line is that the situation for products and companies that will be hurt by these tariffs is not good and the chances of overturning the tariffs are in most cases less than 50 percent. But in many cases the situation is not yet hopeless and it behooves you to try.

International Trade LawyersPresident Trump has targeted about $250 billion of products imported from China. These China tariffs have been rolled out in three waves:

  • (List 1) – has a 25% tariff that covers about $34 billion of Chinese products listed in 818 tariff subheadings. The 25% tariff for List 1 went into effect on July 6, 2018.
  • (List 2) – has a proposed 25% tariff that would cover about $16 billion listed in 284 tariff subheadings. The 25% tariff for List 2 has not yet gone into effect.
  • (List 3) – has a proposed 10% tariff that would cover $200 billion listed in 6,031 tariff subheadings.

The products targeted in List 1 and List 2 were primarily intermediate inputs and capital equipment (semiconductors, machinery, equipment parts, industrial chemicals). These products were selected by the U.S. Trade Representative (USTR) because they were more patent-intensive and thus related to China’s unfair practices on intellectual property and technology transfer. The products in List 3 were selected to respond to China’s immediate retaliation to impose $50 billion tariffs on U.S. goods imported into China.  List 3 covers a much broader range of products, including many consumer goods that were specifically not chosen for List 1 and 2.

If your supply chain includes imported articles from China subject to the extra 25% or 10% tariffs, there is still hope for a product-specific exclusion. The process of how the List 1 China tariffs were rolled out shows that U.S companies have at least two chances to submit comments to try to get certain products off the list.

On April 6, 2018, USTR originally proposed a List 1 of products covered by 1,333 tariff subheadings and invited comments on the proposed tariff subheadings and whether they contained products that should or should not be hit with 25% tariffs. After receiving approximately 3,200 comments and holding three days of hearings in May 2018, USTR on June 20, 2018 issued a revised List 1 of products covered by 818 tariff subheadings. The total value of the products on the original and revised List 1 was still around $34 billion, but USTR noted that it had removed some tariff subheadings, and added others based on the comments and testimony provided on the List 1 products.

Although the 25% tariff went into effect for the List 1 products on July 6, 2018, USTR on July 11, 2018, published a notice explaining the procedures and criteria for requests for product-specific exclusions for the List 1 products. USTR’s first round of comments were focused more on the tariff subheadings proposed to be subject to the tariffs, while this second round of comments gives parties a second chance to explain why their specific products should be excluded from the tariffs. The List 1 product exclusion requests are due by October 9, 2018.

List 1 Exclusion Process

USTR will now consider excluding a particular product within one of the included 818 subheadings – but not the tariff subheading as a whole – from the additional 25% tariff. The details for exclusion requests are here List 1 Exclusion Request Procedures

Exclusion Request Conditions

USTR will accept requests from all interested persons, including trade associations. Exclusion requests must identify a specific product with supporting data and rationale for an exclusion. And interested persons seeking an exclusion for multiple products must submit a separate request for each product.

Factors for USTR Consideration in Granting Exclusion Requests

In granting an exclusion request on a product-by-product basis, USTR will consider whether the product is available from a source outside of China, whether the additional tariffs would cause severe economic harm to the requestor or other U.S. interests, and whether the particular product is strategically important or related to Chinese industrial programs including “Made in China 2025.”  USTR unlikely to grant any exclusion requests that undermine the objective of the Section 301 investigation.

USTR will consider each request on a product-by-product basis.  Exclusions will be granted on a product basis, meaning any individual exclusion will apply to all imports of that particular product (not just to products imported by the requestor).

Exclusion Request Schedule

The USTR notice provides:

  • Product exclusion requests are to be filed by no later than October 9, 2018.
  • Following public posting of the filed request (in docket number USTR–2018–0025-0001 on www.regulations.gov) the public will have 14 days to file responses to the product exclusion.
  • At the close of the 14-day response period, any replies responses are due within 7-days.
  • Any exclusions granted will be effective for one year upon the publication of the exclusion determination in the Federal Register, and will apply retroactively to July 6, 2018.

Making Exclusion Requests – Requirements

The USTR notice provides that each request must include material set out in the bullet-point summaries listed below.  And USTR has issued Exclusion Request Guidelines for facilitating submissions.

  • Identification of the particular product in terms of the physical characteristics (e.g., dimensions, material composition, or other characteristics) that distinguish it from other products within the covered 8-digit subheading.  USTR will not consider requests that identify the product at issue in terms of the identity of the producer, importer, ultimate consumer, actual use or chief use, or trademarks or trade names.  USTR will not consider requests that identify the product using criteria that cannot be made available to the public.
  • The 10 digit subheading of the HTSUS applicable to the particular product requested for exclusion.
  • Requesters also may submit information on the ability of U.S. Customs and Border Protection to administer the exclusion.
  • Requesters must provide the annual quantity and value of the Chinese-origin product that the requester purchased in each of the last three years.  (Trade associations should provide such information based on members’ data.)  If precise annual quantity and value information are not available, USTR will accept an estimate with justification.

Exclusion requests should address the following factors:

  • Whether the particular product is available only from China.  In addressing this factor, requesters should address specifically whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries.
  • Whether imposition of additional duties on the particular product would cause severe economic harm to the requester or other U.S. interests.
  • Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
  • Requesters may also provide any other information or data they consider relevant to an evaluation of the request.

All exclusion requests must be accompanied by a certification that the information submitted is complete and correct.  USTR strongly encourages interested persons to submit exclusion requests on its prepared form (request form) to simplify exclusion request filings.

As the China tariffs are still in the process of being rolled out, parties still have a chance to request that certain products be excluded from the proposed tariff list. For List 1 products, product specific exclusion requests can be filed up to October 9, 2018.  For List 2 and 3 products, initial comments on the proposed tariff subheadings can be filed by July 23, 2018 (List 2) and August 17, 2018 (List 3), and likely will get another chance to make product-specific exclusion requests if and when the tariffs for these two lists go effective.

Products that are not produced or cannot be adequately supplied by domestic producers would have a better chance at exclusion.  Domestic producers have a chance to oppose any exclusion requests and likely would challenge any exclusion request for Chinese products that are competing with their products. 

United States tariff exception
Happier times….

Well, that escalated quickly!

The U.S.-China trade war is back on.

President Trump last week announced that the U.S. will impose 25% tariffs on about $50 billion worth of Chinese imports, ostensibly to punish China for its “systematic theft” of U.S. intellectual property and/or to reduce America’s trade deficit with China. China immediately fired back by announcing it would  impose 25% tariffs on about $50 billion worth of U.S exports to China in two stages.

Here are the two lists of Chinese products the U.S. has targeted, primarily machinery and industrial parts from industries such as aerospace, robotics, automotive, industrial machinery, and information and communications technology. These 1,102 product lines theoretically benefit from the Chinese government’s “Made In China 2025” industrial plan to become a global leader in certain new and advanced technology industries.

China also issued two lists targeting U.S. products ranging from salmon to soybeans, Harley Davidsons to electric cars, orange juice to whiskey. China’s first list targets 545 product categories covering about $34 billion in U.S. exports to China and its second list targets another 114 product categories covering about $16 billion. Many of the U.S. products selected for extra tariffs are from Trump-voting red states that have benefitted from huge volumes of agricultural exports to China.

July 6 is currently the deadline for when China and the U.S. will start imposing the proposed tariffs on the first list of imported products. Given President Trump’s track record of flip-flopping on China trade issues, it is not entirely clear whether these tariffs on Chinese imports will actually be imposed.

So, what can and should U.S. companies do if they are caught in the cross-fire of this escalating trade war, either because they import goods from China that will be subject to U.S. tariffs or because they exporting U.S. goods to China that will be subject to Chinese tariffs?

For the U.S. tariffs, U.S. companies likely will be able to request that specific products be excluded from the tariffs on Chinese products. This process likely will be similar to the exclusion request process used for the recently imposed “national security” tariffs on steel (25% tariffs) and aluminum (10% tariffs). In the past few months, the U.S. Department of Commerce has been flooded with nearly 20,000 requests to have products excluded from these tariffs. Separate requests must be submitted for each product a company wants excluded.

An exclusion request typically includes the following:

  1. Identify the product you want excluded. The U.S. list of targeted products is identified by the Harmonized Tariff Schedule (HTS) number that is used to declare the product when imported into the United States. A company needs to identify the commercial name of the product, the HTS number for the product, and any other industry designation of the product under a recognized standard or certification (for example: ASTM, DIN).
  2. A description of the product based on physical characteristics (for example: chemical composition, metallurgical properties, dimensions) so your product can be distinguished from other products that would still be covered by the tariffs. A significant concern in considering exclusion requests is whether granting a specific exclusion request will create a loophole many other products can also use.
  3. The basis for requesting an exclusion. Is the steel/aluminum/other product unavailable from a domestic U.S. supplier and thus imports are needed to fill a demand no U.S. supplier can fill. Are there certain qualification requirements only the import supplier can satisfy? Have you been put on allocation by domestic suppliers?
  4. The names and locations of any producers of the product in the United States and in foreign countries.
  5. Total U.S. consumption of the product by quantity and value for each year for the past three to five years (2013 – 2017) and projected annual consumption for the next few years (2018- 2020), with an explanation of the basis for the projection.
  6. Total U.S. production of the product (or possible substitutes) for each of the past three to five years.
  7. Discussion of why the U.S. products (or substitute products) cannot be used in place of the imported products.
  8. A good story why your company deserves the exclusion it is requesting. This typically includes the history of your company (e.g., fifth generation family-owned), the products produced by your company, the strategic significance of your company’s products, the number of workers in your company, and your company’s annual sales.

On the Chinese side, U.S companies exporting to China likely will have a similar process to try to get a special waiver to get their products excluded from the Chinese tariffs listed U.S. imports into China. The Chinese exclusion process will likely not be as formalized as the U.S. process but it likely will require a Chinese company to submit the exclusion request and to provide the above listed items to explain why the U.S. products deserve to be exempted from the tariffs.

A U.S. exclusion process will likely proceed fairly slowly because there are so many exclusion requests already in the pipeline for the steel and aluminum tariffs, though a successful exclusion request likely will result in a refund of any tariffs paid. Waiting for a tariff refund is not the best thing in the world, but requesting such a refund will be the best path for many.

 

US-China Trade War -- Sorghum
US-China Trade War. Sorghum is the latest move.

For the first time in over a decade, the United States Commerce Department late last year self-initiated an antidumping and countervailing duty case. This case was against aluminum sheet imports from China.  Almost all other antidumping and countervailing duty cases are initiated by domestic producers filing a petition asking the U.S. government to investigate whether the subject imports are dumped or subsidized, and injure the domestic industry. It was highly unusual for DOC to self-initiate AD/CVD cases and act as both prosecutor and judge in these cases.

On February 4, 2018, China’s Ministry of Commerce (“MOFCOM”) self-initiated its own antidumping and countervailing duty case against the United States for imports of US sorghum grain. Total China imports of US Sorghum Grain in 2016 were 5,869,000 tons worth more than $1.26 billion USD. China is a significant export market for U.S. sorghum, accounting for about 70 percent of total US sorghum exports in 2016. Sorghum is used primarily as a livestock feed, but can also is used to make alcoholic beverages like Chinese Mao-tai and other baijiu. This self-initiated action by MOFCOM is widely viewed as China’s counter to U.S. trade actions over the past year.

China’s case involves dumping claims and it also targets large US agricultural subsidies for sorghum grain, such as the following United States agricultural assistance programs: Crop Insurance; Price Loss Protections; Agricultural Risk Protections; Marketing Loans; Export Credit Guarantees; Market Access Programs and Foreign Market Development Partner Program.

The following North American sorghum/ grain exporters may be targets of this MOFCOM Action:

  • Agniel Commodities, LLC
  • Attebury Grain, LLC=
  • Big River Resources
  • Bluegrass Farms of Ohio, Inc.
  • Bunge North America, Inc.
  • Cardinal Ethanol, LLC,
  • Cargill, Inc.
  • Consolidated Grain and Barge Co.
  • DeLong Company  Inc.
  • Enerfo USA, Inc.
  • Fornazor International Inc.
  • Freepoint Commodities LLC
  • Gavilon, Illinois Corn Processing, LLC
  • International Feed
  • Louis Dreyfus Commodities
  • Marquis Grain Inc.,
  • Mirasco Inc.,
  • Pacific Ethanol, Inc.,
  • Perdue AgriBusiness, LLC,
  • The Scoular Company,
  • Southwest Iowa Renewable Energy, LLC,
  • Tharaldson Ethanol Plant I, LLC,
  • United Wisconsin Grain Producers
  • Zeeland Farm Services.

This case is important because it signals a possible escalation of the on-going trade war with China. In January 2017 China issued AD duties of 42.2 to 53.7% and CVD duties of 11.2 to 12% on another U.S. grain product used primarily for livestock feed, dried distiller’s grains with solubles (DDGS). Some of the companies who exported DDGS to China may also export sorghum to China.

At a minimum, it shows that what goes around can come around and that China has no intention of remaining idle in the face of US trade actions. If the US is going to self-initiate antidumping and countervailing duty cases against China, China is going to self-initiate antidumping and countervailing duty cases against the US. This sorghum grain trade case indicates there is a price to pay for US tariffs and trade actions. Most of the companies listed above are based in or have very close connections to America’s heartland and that is surely no coincidence; China is aiming this sorghum grain case right at President Trump’s constituency—the agriculture and rural states.

Both the Wall Street Journal and Investors Business Daily have in numerous editorials warned the Trump Administration that the economic issue that could stop the rise in the US economy is a trade war. Trump and the Republicans have tied their political star to the rising US economy. But if President Trump levies more tariffs against Chinese imports, expect the Chinese government to retaliate and aim its trade guns at products and constituencies that will hurt President Trump and the Republicans the most—agriculture.

In the meantime, any company involved in providing sorghum grain to China should be looking to retain counsel experienced with both China and with international trade.

Things are starting to get serious.

 

 

China trade duties“Logic clearly dictates that the needs of the many outweigh the needs of the few.”  Spock, from the Wrath of Khan.

In most trade cases, a few domestic producers (or even one) ask the U.S. government to protect them by imposing extra duties or other trade barriers on imports. Usually, larger numbers of U.S. importers, downstream manufacturers or consumers wind up bearing these costs to protect the domestic producers, even though these costs are often arbitrary, excessive and unfair.

The U.S. International Trade Commission (ITC) just wrapped up its part in the latest trade case against imported solar cells and modules. Solar products from China were already hit with antidumping and countervailing (AD/CVD) duties in 2011 and 2014. This was not enough for the two largest remaining U.S. solar producers, Suniva, Inc. and SolarWorld Americas, Inc., who now have asked for a safeguard investigation to determine whether extra tariffs, quotas, and/or floor prices should be imposed on all imported solar cells and modules from any country. Opposing Suniva and SolarWorld is the rest of the $29 billion U.S. solar industry, mainly the U.S. solar energy developers, downstream U.S. solar panel installers and U.S. manufacturers of solar components, such as racking systems and inverters. On the one hand, Suniva and SolarWorld are hoping the safeguard relief measures will save hundreds of workers at their facilities. On the other hand, opponents argue these remedial measures would threaten many thousands of workers at other U.S. companies that have benefitted from the solar energy boom.

Though Suniva blames import competition for its bankrupt condition and its need for this safeguard action, the reality is that Suniva filed this case because it got whacked by the second solar trade case filed by SolarWorld. Previously, Suniva’s business model relied on producing solar cells in the United States that it then shipped to China where they were assembled into solar panels that were shipped back to Suniva’s U.S. customers.

The second solar trade case brought by SolarWorld in 2014, however, targeted any Chinese solar panels, regardless of where the solar cells were made. SolarWorld had complained that the first solar case in 2011 had an enormous loophole because it covered only Chinese solar panels made with Chinese solar cells. After that first case, Chinese module makers quickly switched to use cells from third-countries, mainly Taiwan, which caused SolarWorld to file its second case. Suniva in the second case claimed that any Chinese modules that used its American solar cells should be exempt from AD/CVD duties just because they were American, but the Department of Commerce (DOC) disagreed. The second round of solar duties disrupted Suniva’s supply chain and made using its Chinese module assemblers cost prohibitive. Suniva thus decided its last hope was to file a safeguard action that would artificially create a level playing field whereby all imported solar panels would be subject to the same high duties, quotas or floor prices.

The problem is how high do those trade barriers have to be for Suniva and SolarWorld to have any chance of surviving?

In this ITC safeguard investigation, Suniva and SolarWorld originally asked for extra tariffs to be imposed for four years, starting at 40 cents per watt on imported solar cells and a minimum price floor of 78 cents per watt for solar modules, as well as proposed import quotas to limit the total amount of imported cells (0.22 gigawatts) and modules (5.7 gigawatts). Solar industry analysts feared these measures would at least double the current cost of solar products, slash solar demand by two-thirds, and undermine billions of dollars of pending solar investment projects.

The ITC just released three different remedy packages that recommend far less than what Suniva and SolarWorld requested. The highest of the Commission proposals calls for extra tariffs of 30 to 35 percent on solar modules and cells that would then decrease certain percentage points each year for four years. Given the current forecasts that imported panels would cost around 32 cents per watt, analysts expect the highest Commission proposed remedies would add only an extra cost of 10 to 14 cents per watt.

Suniva and SolarWorld have expressed disappointment with the ITC recommendations and they have asked President Trump to impose stronger measures they claim are necessary to save the domestic U.S. solar manufacturing industry from extinction.

Unlike the more common AD/CVD cases in which the ITC and the DOC decide on whether to impose extra duties, in these rarely used safeguard investigations, the President has the ultimate authority to decide what, if any, remedial measures should be imposed. President Trump will have until January 12, 2018, to decide what remedial measures will be imposed that may affect $8.3 billion of imported solar cells and panels. He can follow any of the Commission’s recommendations or come up with his own remedial measures.

There have been few U.S. safeguard actions (and none since 2001). One reason why safeguard actions fell out of favor was because domestic industries found them less effective than the more commonly used AD/CVD actions. Because safeguard actions permit trade restrictions to be imposed on fairly traded imports, U.S. law specifically limits safeguard measures to a shorter period (usually four years or less) and to a maximum tariff rate of not more than 50% above existing rates.

Most importantly, the safeguard statute gives the President discretion to weigh the costs and benefits of imposing remedial measures. From 1975 to 2001, U.S. Presidents have declined to implement any trade restrictions in slightly more than half of the cases (19 of 40) in which they could have. In those cases where the President did impose trade barriers, they were usually much lighter than what the petitioning domestic industry sought. Past Presidents chose to impose no or much lighter safeguard remedies because they acknowledged the potentially harmful impact the proposed tariffs or quotas might have on downstream users and consumers, as well as the risk of other countries retaliating by imposing their own safeguard measures against U.S. exports to those countries.

But since President Trump has vowed to take strong action against imports, this solar safeguard action (along with another safeguard action on washing machines) is being watched closely as a test of whether President Trump’s actions will match his tough campaign rhetoric. If President Trump imposes remedial measures tougher than what the Commission recommends, we could see a flood of other safeguard petitions from other U.S. industries seeking a quick direct route to import relief from a sympathetic President.

In 2015-16, solar energy-related companies employed 374,000 people in the U.S., which is more than the combined number of workers in the coal, oil, and gas industries. Technological advances and competition have pushed solar installation costs down more the 60 percent since 2011 and solar electricity has in some places become cost competitive with electricity sourced from oil, coal, and gas. If President Trump imposes excessive safeguard remedies he could wipe out all progress solar energy has made in the United States. For the U.S. solar industry to live long and prosper President Trump will need to balance the needs of the many and not just consider the needs of the few.

Here is hoping the President makes a logical choice because a lot is going to be riding on it.

antidumping duties against ChinaEarlier this month I wrote about it was not clear whether the U.S. antidumping order on garlic from China helped domestic garlic producers. One of the unusual consequences of this garlic antidumping order was that the California garlic producers had worked out an arrangement that allowed Chinese garlic to be imported from one “fair” supplier (Harmoni), while blocking the vast majority of all other Chinese garlic sourced from “unfair” suppliers.

The latest Department of Commerce (DOC) annual administrative review threatened to destroy that cozy arrangement between the California garlic growers and Harmoni because a couple of New Mexico garlic growers had filed a request seeking DOC review of Harmoni. The DOC had accepted the New Mexico growers’ review request and had initiated a review of Harmoni. Harmoni did not respond to the DOC’s questionnaires, so DOC issued a preliminary determination finding Harmoni would be subject to a 376% dumping rate. But the DOC was still considering arguments that the New Mexico garlic grower’s review request for Harmoni was invalid and should not have been accepted by DOC in the first place.

Last week, the DOC issued its final determination for this garlic review, and concluded that the review request filed by the New Mexico garlic growers was not legitimate and therefore its review for Harmoni and its 375% dumping rate would be rescinded. As a result, Harmoni is able to maintain its zero dumping rate and continue supplying California garlic growers with Chinese garlic.

The DOC rejected the New Mexico garlic growers’ review request because new information submitted after the preliminary determination called into question the credibility of their assertion that they were actually domestic garlic producers. For example, contrary to specific statements made on behalf of the New Mexico garlic growers, the DOC pointed to the record information showing Chinese garlic growers were in fact extensively involved in planning the New Mexico growers’ review request and had both directly and indirectly compensated the New Mexico growers and the U.S. attorney for participating in this review. One of the two New Mexico garlic growers dropped his support for the Harmoni review request and then submitted a bombshell statement admitting that his small garlic farm in New Mexico did not really compete with Chinese garlic. “Our stated moral high ground – ‘leveling the playing field,’ etc., etc. – inevitably came with a ‘wink, wink’ whenever we talked about it.” DOC concluded that “material misrepresentations” by the New Mexico garlic growers had tainted all their statements and information submitted by them and so it could not rely on any of the garlic production information demonstrating the New Mexico garlic growers were in fact domestic producers.

So in the end, the California garlic growers got the DOC decision they wanted, which was to keep Harmoni out of the DOC review process. This allows Harmoni, to continue reaping the benefits from being the only remaining Chinese garlic company with a zero dumping rate. This also allows the California garlic growers to remain protected by incredibly high dumping rates that block most “unfair” Chinese garlic from sold in the United States, while still giving them direct access to cheaper Chinese garlic from the sole “fair” Chinese garlic supplier — Harmoni. In the end though, U.S. consumers bear the cost of protecting the handful of California fresh garlic producers still surviving.

I’m sure there will be other attempts to break down the antidumping barriers that block most Chinese garlic from the U.S. market and keep U.S. garlic prices the highest in the world. Perhaps garlic growers in Minnesota or some other state will file another review request targeting Harmoni.

Someone should.