Q1 Regulatory Updates

GSP Expired On December 31, 2017

The Generalized System of Preferences (GSP) provides duty-free treatment to goods of designated beneficiary countries. The program was authorized by the Trade Act of 1974 to promote economic growth in the developing countries and was implemented on January 1, 1976.

The GSP periodically expires and must be renewed by Congress to remain in effect. The 2015 GSP reauthorization (H.R. 1295) expired on December 31, 2017. All previous GSP renewals that have taken effect after a lapse have included a retroactive clause providing refunds to importers of eligible goods imported during the lapse period.  Until further notice, importers are strongly encouraged to continue to flag GSP-eligible importations with the SPI “A,” even as they pay normal trade relations (column 1) duty rates on otherwise GSP-eligible importations. Importers may not file SPI “A” without duties.

NAFTA Renegotiations Stall on Contentious Issues

The NAFTA renegotiations continue, but the most difficult issues remain unresolved.    Some chapters are reportedly closed, and progress has been reported in each round, including the fifth round that concluded in Mexico City, but a great deal of work remains.  Officials are trying to lay the foundation to announce more progress at the sixth official round of negotiations, scheduled to take place in Montreal on Jan. 23-28, 2018.

The talks remain deadlocked over several proposals the United States brought to the table for the first time.  These include controversial items, such as a review of the NAFTA after five years (a sunset clause); increased U.S. content requirements for automobiles; and, that NAFTA 2.0 must reduce the U.S. trade deficit in goods.

Complicating the negotiations, the US Commerce Dept. affirmed on December 20, 2017 antidumping duty (AD) and countervailing duty (CVD) of 292% pursuant to a claim by Boeing that Bombardier is selling its CSeries aircraft in the United States at below market prices.  This impedes the NAFTA negotiations on a key point.  Canada wants to keep its ability to appeal such trade decisions to a panel of judges from NAFTA countries through what is known as Chapter 19, but the US wants to eliminate the Chapter 19 dispute settlement mechanism from the new agreement.

The dispute also portends how a tougher trade stance can ripple through integrated global supply chains.  More than 50 percent of C-Series components are sourced from the US, where the supply chain sustains over 7,000 US jobs.  More importantly, disputes can escalate.  Canada announced earlier this month that it would scrap a $5.2 billion purchase of new fighter jets from Boeing and purchase Australian jets instead.  The British government has warned Boeing it could lose U.K. defense contracts. British Prime Minister Theresa May has said she was “bitterly disappointed” by the tariffs, which threaten about 1,000 jobs in Northern Ireland.

Imported Crystalline Silicon Photovoltaic (CSPV) Cells

Chinese noncompliance with World Trade Organization obligations contributed to a surge in solar imports into the U.S. and subsequent injury to the U.S. industry, the International Trade Commission argues in a new report released on December 29, calling Chinese government subsidies an “unforeseen development.”  “U.S. negotiators also could not have foreseen that such industrial policies, plans, and support programs would lead to the development and expansion of capacity to manufacture CSPV products in China to levels that substantially exceeded the level of internal consumption. They could not have foreseen that this capacity would largely be directed to export markets such as the United States,” the report states.  The report on any unforeseen developments in the case, requested by U.S. Trade Representative Robert Lighthizer on Nov. 27, is considered a key element that could be used to combat challenges the U.S. faces at the WTO if President Trump decides to impose trade restrictions on solar imports applying a rarely used global safeguard tariff.

The ITC recommended on October 31, 2017 the following: (i) a Tariff Rate Quota (TRQ)  on CSPV Cells, with over-quota thresholds of 0.5 GW–1 GW and over-quota rates of 30%–35%; (ii) a tariff rate of 30%–35% on CSPV modules; and (iii) consideration of measures aiding adjustment to import competition, such as trade adjustment assistance for workers or firms affected by CSPV product imports.

The President must act or decline to act on the ITC’s recommendations by January 27, 2018. Remedies such as tariffs (increased duties) and tariff-rate quotas (TRQs) (in which aggregate imports—i.e., all imports from all non-excluded countries—up to an “in-quota” level are entitled to a lower duty rate, but “over-quota” imports are subject to a higher duty rate) are generally to be implemented by February 11, 2018.

TPP lives on without the U.S., But Hurdles Remain

The United States withdrew from the Trans Pacific Partnership (TPP) on January 23, 2017, technically making it impossible for the Trade deal to go into force.  But on November 11, 2017, Ministers from the remaining 11 members (Australia, Mexico, Singapore, Canada, Chile, Japan, Singapore, Brunei, Peru, Vietnam and Malaysia) issued a joint statement saying that they had agreed on the core elements of a new Agreement, the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP), that will preserve the market access agreed upon in the TPP.   Giving up on the pact would squander years of talks as well as the opportunity to upgrade existing trade deals and spur economic reforms. Although months of potentially painful work remains to be done, the plan is to finalize a CPTPP in 2018.  Also, in an interesting twist, as the United Kingdom prepares for Brexit, it has initiated informal talks on joining the CPTTP after the March 19, 2019 Brexit.

Running parallel to the CPTTP negotiations is the 16-nation Regional Comprehensive Economic Partnership (RCEP).  The RCEP, which includes China and India but not the U.S., should have a framework agreement in early 2018.

Sources:
Generalized System of Preferences Expired December 31, 2017 – www.cbp.gov
Summary of Objectives for the NAFTA Renegotiation – www.ustr.gov
Governors Look To Save NAFTA Amid Washington’s Tough Talk – www.nytimes.com 12/15/17
Boeing and Bombardier Trade Clash Poses More Risks for NAFTA – www.nytimes.com 12/18/17
NAFTA negotiations: Where we are – www.ehoganlovells.com
A lesson in the basic physics of NAFTA negotiations – www.thehill.com 11/12/17
U.S. Department of Commerce Finds Dumping and Subsidization of Imports of 100- to 150-Seat Large Civil Aircraft from Canada – www.commerce.gov 12/20/17
Boeing win in trade case would jeopardize U.S. jobs, Canada says – www.thestar.com 12/18/17
ITC report on ‘unforseen developments’ in solar case cites China’s WTO record – www.insidetrade.com 01/02/18
U.S. Trade Representative Requests Further Information on Remedy Recommendations for Imported Crystalline Silicon Photovoltaic Cells (IRB No. 570) – www.bryancave.com 12/13/17
Who needs America? – www.economist.com 11/16/17
Agreeing on RCEP – China’s favorite trade deal – set to drag into 2018 – www.japantimes.co.jp