In this issue:
- Top Trade Developments
- Latest U.S. Trade Actions/Tariffs and Other Countries Retaliatory Measures
- Preliminary Injunction Granted Against U.S. Government in Solar Energy Tariff Case
- District Court Overturns OFAC’s $2 Million Fine Against Exxon Mobil
- Congress Passes New Russia and Venezuela Sanctions and Advances New Russia & Turkey Sanctions
- China Announces Tariff Adjustments for 2020
- U.S. Agrees to Suspend List 4b Tariffs and Decrease List 4a Tariffs in a “Phase One” Trade Deal with China
- Customs Rulings of the Week
This news bulletin is provided by the International Trade Group of Crowell & Moring. If you have questions or need assistance on trade law matters, please contact Jeff Snyder or any member of the International Trade Group.
Latest U.S. Trade Actions/Tariffs and Other Countries Retaliatory Measures
Finding it hard to stay on top of the latest in tariff increases?
Please click here anytime for the latest actions, covered products rate increases, and effective dates.
For more information, contact: Dan Cannistra, Robert Holleyman, Bob LaFrankie, Spencer Toubia, Ru Xiao-Graham, Cherie Walterman
Preliminary Injunction Granted Against U.S. Government in Solar Energy Tariff Case
Last week, the U.S. Court of International Trade(CIT) granted a preliminary injunction prohibiting the federal government, including U.S. Trade Representative Robert Lighthizer and Acting Commissioner of U.S. Customs and Border Protection Mark Morgan, from implementing the withdrawal of a tariff exclusion for bifacial solar panels without due process. The government’s withdrawal comes only months after the tariff exclusion had been put in place following an extensive notice-and-comment process.
Judge Gary S. Katzmann wrote in his December 5th decision that “the government must follow its own laws and procedures when it acts, and the court finds it likely that it did not do so in withdrawing the exclusion without adequate process.”
Crowell & Moring represented multiple clients in the case, including Invenergy Renewables LLC, Clearway Energy Group LLC, and AES Distributed Energy, Inc. in their fight against what they perceive is regulatory overreach and disregard for the Administrative Procedure Act, the Trade Act of 1974, and constitutional due process.
The court rejected all of the government’s arguments and adopted almost all of the arguments that the firm’s team put forth in briefs and at the hearing on both the jurisdictional and merits issues, providing multiple bases for its conclusions and thus making the injunction difficult to overturn on appeal. Previously, the firm’s team had secured a temporary restraining order that precluded the government from acting on the withdrawal, a rare outcome from the Court of International Trade. The court’s decision on December 5th came just before the TRO was set to expire on December 6th at 12:01 a.m.
The court found that our clients had suffered economic, business, and reputational injuries sufficient to establish both standing and irreparable harm. The decision is important because it will relieve clients from having to pay tens of millions of dollars to complete existing solar projects; it will allow them to qualify for the 30% “Safe Harbor” tax credit for solar projects by purchasing bifacial panels before the end of the year, when the 30% tax credit expires; and it will significantly increase the likelihood of their being able to secure favorable deals to import panels and complete new projects.
The Crowell & Moring team that secured this major victory was led by partners John Brew, Kathryn Clune, and Larry Eisenstat and included lawyers from across multiple practices and offices; Robert LaFrankie (senior counsel, DC), Frances Hadfield (counsel, NY), Amanda Shafer Berman (counsel, DC), Jacob Zambrzycki (counsel, NY), Leland Frost (associate, DC), Alexander Rosen (associate, NY), and Brian McGrath (associate, NY).
District Court Overturns OFAC’s $2 Million Fine Against Exxon Mobil
On December 31, 2019, a federal district court in Texas (the “District Court, or “Court”) overturned a $2 million fine levied by the Office of Foreign Assets Control (OFAC) against Exxon Mobil Corporation (“Exxon”) for alleged violations of the Ukraine-Related Sanctions Regulations (URSR). OFAC had assessed that Exxon received a prohibited service from a designated person when it allowed Igor Sechin, a Specially Designated National (SDN), to sign eight contracts with Exxon in his official capacity as the President and Chairman of the Board of Russian state-owned oil company Rosneft, which was not itself designated as an SDN. The case ultimately turned on the narrow question of whether Exxon had received fair notice that it was prohibited for U.S. persons like Exxon to deal with companies that are not designated by engaging with designated persons acting in their capacity as officials of the non-designated company. While the Court concluded that Exxon did not receive that notice, thereby overturning OFAC’s penalty, OFAC now has clarified its position on this issue through guidance issued after Exxon’s contested actions, limiting the ultimate significance of the substantive aspects of the decision. The Court’s decision could, however, have potential collateral effects on OFAC’s and other Administration official’s willingness to offer contemporaneous statements about the scope and meaning of recently issued sanctions.
OFAC designated Sechin on April 28, 2014 pursuant to Executive Order 13661 of March 16, 2014 (“EO 13661”). As a result, all of Sechin’s “property and interests in property” in the United States or within the possession or control of any U.S. person were “blocked,” and prohibited from being “transferred, paid, exported, withdrawn, or otherwise dealt in.” EO 13661, § 1. These prohibitions in section 1 included “the receipt of any contribution or provision of … services from any [designated] person.” Id. at § 4.
Sechin signed the eight contracts for Rosneft between roughly May 14 and May 23, 2014 (“Exxon Contracts”). On August 13, 2014, OFAC issued frequently-asked-question (“FAQ”) 400, explaining that “OFAC sanctions generally prohibit transactions involving, directly or indirectly, a blocked person, absent authorization from OFAC, even if the blocked person is acting on behalf of a non-blocked entity. Therefore, U.S. persons should be careful when conducting business with non-blocked entities in which blocked individuals are involved; U.S. persons may not, for example, enter into contracts that are signed by a blocked individual.” OFAC, FAQ 400, August 13, 2014.
On July 20, 2017, OFAC announced that it had assessed a $2 million civil penalty against Exxon for accepting the eight Exxon Contracts signed by Sechin.
The District Court’s Decision
The District Court agreed with Exxon’s argument, on cross motions for summary judgment, that OFAC violated Exxon’s constitutional right to Due Process by failing to provide fair notice that entering into the Exxon Contracts signed by Sechin was prohibited.
First, the Court held the text of the applicable OFAC regulations failed to provide fair notice that Exxon’s conduct was prohibited. Although it determined that the applicable regulations prohibited the receipt of services from an SDN like Sechin, it held that they were not clear about when Exxon would be deemed to have received such a service. In particular, the Court found that the rules were not clear about whether an action by an SDN that provides any incidental benefit to a U.S. person, as it found Sechin’s signing of the contracts had provided for Exxon, constituted “receipt,” or instead whether the service must have been undertaken specifically for the benefit of the U.S. person, which it found had not been true because Sechin acted in response to instructions from Rosneft.
Second, after finding that the text of the regulation did not provide fair notice, the Court considered the impact of public guidance and statements from OFAC and other Executive branch officials, and found that these also failed to provide fair notice. The Court reasoned that OFAC could not rely on a previous FAQ from its Burma sanctions (FAQ 285) articulating its position that U.S. persons could have no dealings with the designated head of an undesignated entity, because OFAC’s Russia sanctions regulations specifically stated that “differing foreign policy and national security circumstances may result in different interpretations of similar language among the parts of this chapter.”
Exxon and the Government also argued over the significance of a number of statements by executive branch officials regarding the Russia sanctions program and the specific designation of Sechin. Exxon pointed to statements by White House spokespersons and other Executive Branch officials, including but not limited to Treasury Department officials, that the designations were intended to target specific Russian persons and their personal assets and not companies they manage on behalf of the Russian state. While the government argued that none of these public statements changed the plain meaning of the relevant regulations, the Court concluded that a “regulated party,” such as Exxon, would be “entirely justified to rely in good faith” upon these publicly released statements. The confusion generated by these statements therefore created a further lack of fair notice. (By contrast, the Court held that Exxon could not rely on media characterizations of the regulation based on interviews with unnamed Treasury officials, or on a comment by the White House Deputy National Security Advisor in a PBS NewsHour interview.)
Finally, the Court considered Exxon’s failure to inquire as to the meaning of the applicable regulations as a point against its argument that it lacked fair notice. Ultimately, however, the Court held that the burden remains with the government agency to provide fair notice and that the other evidence that it had no done so weighed in favor of a finding that there had not been fair notice.
OFAC usually wins challenges to its sanctions, and this decision is noteworthy because it did not do so here. Overall, however, the significance of the decision for the particular interpretive question at issue appears limited. The District Court did not determine that OFAC could not interpret its regulations to prohibit Exxon’s conduct, only that it had not made such a prohibition clear at the time that Exxon took its actions. OFAC has addressed this issue going forward, at least with respect to its Russia sanctions, with FAQ 400 and a related FAQ 398.
Unless OFAC chooses to appeal the decision, its real impact is more likely to be broader and more practical. Going forward, OFAC and other Executive branch agencies may be less willing to provide commentary on the meaning of OFAC sanctions regulations outside of carefully-vetted guidance such as OFAC’s FAQs, or formally requested interpretive guidance. To the extent possible, the agency may also seek to ensure other administration officials do not opine on the scope or meaning of OFAC’s regulations without a similar level of careful vetting. The agency may take greater care in FAQs and other formal guidance to explain the scope of its interpretations across its programs. Retrospectively, the agency may look for dated guidance that might be read to contradict its current interpretations and seek to amend or withdraw such guidance. Finally, it is possible that OFAC may heighten its scrutiny of proposed penalties before imposing them, and in particular may be more hesitant to impose a penalty where a regulated party can point to published guidance or remarks that contradict the agency’s position. Regulated parties facing potential violations may wish to draw such contradictory guidance to OFAC’s attention where it exists in an effort to mitigate potential penalties. In general, however, this decision does not substantially change or limits OFAC’s authority to broadly interpret the breadth of the sanctions regulations it is tasked with enforcing.
For more information, contact: Carlton Greene, Michelle Linderman, Jeff Snyder, Dj Wolff, Nicole Succar, Erik Woodhouse
Congress Passes New Russia and Venezuela Sanctions and Advances New Russia & Turkey Sanctions
As 2019 drew to an end, Congress was been busy on economic sanctions legislation. This included passing new Russia-related sanctions and a Venezuela-related government contracts procurement restriction as part of the National Defense Authorization Act for Fiscal Year 2020 (NDAA 2020). The U.S. Senate Foreign Relations Committee has also approved two new pieces of legislation that would increase sanctions on Russia and Turkey, respectively. Full details on each of these developments are below the jump.
Section I: National Defense Authorization Act for Fiscal Year 2020
The President signed the NDAA 2020 into law on Friday, December 20, 2019. It contains numerous sanctions related elements including, but not limited to, the following:
The Protecting Europe’s Energy Security Act (PEESA) (incorporated as Section 7501 et seq. of the NDAA 2020), which requires:
- State Department Reports: The State Department is required to produce a report within 60 days (i.e., by February 18, 2020) and every 90 days thereafter that identifies the following:
- (1) any vessels that engaged in pipe-laying at depths of 100 feet or more below sea level for the construction of Nord Stream 2 or TurkStream pipelines;
- (2) any non-U.S. persons that have knowingly sold, leased, or provided those vessels for the construction of such a project; or
- (3) any non-U.S. persons that facilitate deceptive or structured transactions to provide those vessels for the construction of such a project.
- Sanctions: The United States is then required to:
- (a) freeze the property of all persons identified in the report; and
- (b) prohibit the entry into the United States of “corporate officers” or “controlling shareholders” of persons designated under (a).
- Exceptions: There are very limited exceptions to the mandatory imposition of these sanctions.
- Grace Period: There is no “wind down” period for these reports; the first report will identify all parties determined to have engaged in the described activity since the passage of PEESA on December 20, with subsequent reports identifying additional entities found to have engaged in these activities during the preceding 90 day period. However, there is a limited exception to sanctions for parties that are determined by the President to have initiated “good faith efforts to wind down operations” within 30 days after December 20, 2019. OFAC simultaneously issued guidance, in the form of a frequently asked question (FAQ) stating that sanctions can be imposed unless parties “immediately cease construction-related activity.” See FAQ No. 815.
- Safety: Sanctions also will not apply if the activities are “intended for the safety and care of the crew aboard the vessel, the protection of human life aboard the vessel, or the maintenance of the vessel to avoid any environmental or other significant damage.”
- Repair and Maintenance: Sanctions will not apply if activities are “necessary for or related to the repair or maintenance of, or environmental remediation with respect to, a pipeline project” described above.
The subjective nature of these limited exceptions will mean that entities that believe they may qualify for an exception to these sanctions should strongly consider taking affirmative steps to clarify as soon as possible whether they will qualify for these limited exceptions.
Venezuela-Related Procurement Restriction
While the NDAA 2020 does not contain any Venezuelan sanctions per se, it does contain a broad procurement prohibition tied to sanctions that arguably exposes an entire corporate family to a Department of Defense procurement restriction if any member of that corporate family has unlicensed Venezuelan business. Specifically, it provides (in Section 890):
- Procurement Prohibition: “The Department of Defense may not enter into a contract for the procurement of goods or services with any person that has business operations with an authority of the Government of Venezuela that is not recognized as “the legitimate Government of Venezuela by the United States Government.” Since January 23, 2019, the United States has recognized the government of Juan Guaidó as the legitimate Government of Venezuela.
- Relevant Definitions:
- Business Operations: The term “business operations” is defined broadly to include “engaging in commerce in any form,” which includes acquiring or possessing equipment, facilities, personnel, products, services, real property, or other apparatus of business or commerce.
- Person: Person is also defined broadly to not only capture natural and legal persons, but any “parent entity, or subsidiary of, or any entity under common ownership or control with” the aforementioned.
- OFAC: The restrictions do not apply if a person “has a valid license to operate in Venezuela” issued by OFAC.
- Discretionary Exception: The Secretaries of Defense and State can issue an exception if the contract is necessary for providing humanitarian assistance to Venezuela, carrying out disaster relief or urgent life-saving measures, or carrying out noncombatant evacuations.
Earlier drafts of the NDAA contained material Turkey-related sanctions. The final version removed these elements and simply contains a limitation on Turkey’s ability to participate in the F-35 program (Section 1245). The more material Turkey sanctions remain pending in Congress (see below).
The NDAA contains a range of additional sanctions provisions, including:
- North Korea Sanctions: The NDAA includes the “Otto Warmbier North Korea Nuclear Sanctions and Enforcement Act of 2019” (Section 7101), which requires: (1) the imposition of sanctions on any foreign financial institution that knowingly provides significant financial services to any person sanctioned pursuant to certain U.S. or UN Security Council North Korea-related sanctions (“North Korea Sanctioned Persons”); (2) prohibits non-U.S. entities that are owned or controlled by U.S. financial institutions from knowingly engaging in certain transactions with the Government of North Korea or North Korea Sanctioned Persons; and (3) amends the North Korea Sanctions and Policy Enhancement Act of 2016 (22 U.S.C. 9214) to add authorities by which the President can designate any person for certain knowing transactions involving exports to North Korea, imports from North Korea, or other activity involving North Korean persons (these authorities largely duplicate those already contained in Executive Order 13810 (September 20, 2017)).
- Syria Sanctions: The “Caesar Syria Civilian Protection Act of 2019” (Section 7401 et seq.) requires the imposition of sanctions on non-U.S. persons that knowingly engage with the Government of Syria in certain ways, including: (a) operating in a military capacity inside Syria for the Government; or (b) facilitating the maintenance or expansion of Syria’s domestic production of natural gas, petroleum, or petroleum products.
- Opioid Sanctions: The “Fentanyl Sanctions Act” (Section 7201 et seq.)requires the creation of a sanctions program that targets non-U.S. persons that are identified as “foreign opioid traffickers” in a report provided to Congress or that are owned/controlled by, supplying or sourcing precursors for, or knowingly acting on behalf of those persons. It follows a process similar to that used by OFAC under the Foreign Narcotics Kingpin Designation Act to designate foreign narcotics traffickers.
Legislation Still Pending in Congress
In addition to the NDAA, the U.S. Senate has taken steps to advance two other pieces of sanctions legislation targeting Russia and Turkey respectively.
Russia-Related Sanctions: Defending American Security Against Kremlin Aggression Act of 2019 (DASKA)
On Tuesday, December 17, the Senate Foreign Relations Committee (SFRC) also approved the “Defending American Security from Kremlin Aggression Act” (DASKA) by a vote of 17-5. The bill is also now awaiting a vote on the full Senate floor.
Referred to by Senator Lindsey Graham (R-SC), one of its sponsors, as the “sanctions bill from hell,” DASKA includes:
- Conventional Oil or Crude Oil (Section 603 (creating new Section 239A & 239B in the Countering America’s Adversaries Through Sanctions Act (22 U.S.C. 9521 et seq) (CAATSA)): Mandatory sanctions on any person knowingly: (1) undertaking an investment in excess of $250 millionin a project to explore for or produce crude oil or natural gas outside of Russia in which a Russian state-owned entity (SOE) has a 33 percent or greater ownership interest or ownership of a majority of the voting interests; or (2) selling or providing goods, services, or financing with a value in excess of $1 million in one transaction (or $5 million in aggregate) that supports Russia’s ability to develop crude oil resources in Russia.
- Russian Sovereign Debt (Section 602 (creating a new Section 238 in CAATSA (renumbering previous Section 238 as Section 239H)): If the Director of National Intelligence (DNI) determines, through a process provided in DASKA, that Russia engages in “malicious cyber activities targeting election infrastructure” after DASKA’s passage, then the President shall prohibit U.S. persons from transacting in Russian sovereign debt issued 90 days or more after the DNI reaches his/her determination.
- Liquefied Natural Gas (LNG) Export Facilities (Section 602 (creating a new Section 237 in CAATSA (renumbering previous Section 237 as Section 239G))): “Secondary” sanctions for any person determined to knowingly making a significant investment (defined as any individual transaction of $1 million or more, or $5 million in a year in aggregate) in Russia’s LNG export facilities outside of Russia; and
- Designation of Oligarchs and Entities Close to Putin (Section 602 (creating a new Section 235 in CAATSA (renumbering previous Section 235 as Section 239D)))): Sanctions on political figures, oligarchs and their families, Russian parastatal entities, and other persons that facilitate illicit and corrupt activities on behalf of the President of the Russian Federation, as well as persons acting for on on behalf of such persons. “Persons, including financial institutions, that knowingly engage in significant transactions” with designated oligarchs, political figures, and parastatal entities are also subject to sanctions designation.
- State Sponsor of Terrorism (Sec. 701): Requiringthe State Department to determine whether or not Russia should be considered a state sponsor of terrorism.
Turkey-Related Sanctions: Promoting American National Security and Preventing the Resurgence of ISIS Act of 2019 (PANSPRIA)
On Wednesday, December 11, 2019, the SFRC approved the Promoting American National Security and Preventing the Resurgence of ISIS Act of 2019 (PANSPRIA) (S. 2641) on an 18-4 vote. PANSPRIA contains a series of potential new sanctions, including:
- Administration Certification: PANSPRIA requires the Secretary of State, the Secretary of Defense, and the DNI to jointly submit a certification within 45 days of its passage (and every 90 days thereafter) that certifies that the Government of Turkey is not: (a) engaged or knowingly supporting offensive operations against the Syrian Democratic Forces, Kurdish or Arab civilians, or other religious or ethnic minorities in Syria; (b) committing, directing, or knowingly facilitating the commission of serious violations of internationally recognized human rights in Northeast Syria; (c) hindering counterterrorism operations against ISIS and its affiliates; or (d) engaged in the forcible repatriation of Syrian refugees from Turkey to Syria. If the Administration can make that certification, no sanctions are imposed. If not, the following sanctions come into effect.
- Halk Bankasi: PANSPRIA requires the President to impose a minimum of three of a choice of a menu of 11 restrictions on Halk Bankasi, Halkbank, and any successor entities within 90 days of its passage (collectively “Halkbank”). This menu parallels those contained in CAATSA, the Iran Sanctions Act as amended, and other “secondary” sanctions programs and includes restrictions ranging from cutting off access to the U.S. Export-Import bank to a full “blocking” or asset-freezing sanction. If the President fails to take the aforementioned action in 90 days, PANSPRIA requires that Halkbank be subject to the same restrictions as persons on the SDN list.
- Restriction on Defense Articles:PANSPRIA contains a number of defense-related restrictions, including:
- On or after the date that the above certification cannot be made (i.e., 45 days from PANSPRIA’s passage, or on a 90 day interval thereafter), no U.S. defense articles, services, or technology may be transferred to Turkey if they are “likely to be used in operations by the Turkish Armed Forces in Syria.” Further, using a process that Congress developed in CAATSA to retain involvement in Russia-related licenses, PANSPRIA requires the President to give Congress a 30 day advance warning about the issuance of any potential license for the transfer of defense articles or services to Turkey and then provides an expedited mechanism whereby Congress can block the issuance of that license. Neither of these restrictions applies if the ultimate end use is (a) by the U.S. Armed Forces, (b) military operations approved by NATO, or (c) “for verified incorporation into defense articles for re-exports to other countries.”
- No funds may be obligated to: (1) facilitate or transfer F-35 aircraft to Turkey; (2) transfer intellectual property or technical data necessary for or related to the maintenance or support of F-35 aircraft in Turkey; or (3) construct a storage facility for or facilitate the storage in Turkey of F-35 aircraft. These requirements can be waived if the Government of Turkey no longer owns, or operates, or exercises control over the S-400 missile defense system.
- No licenses may be issued to export F-16 aircraft or logistics, training, provision of spare parts or components or other support for F-16 aircraft to the Government of Turkey, and no U.S. defense articles or services can be provided until the President certifies to Congress that the Government of Turkey no longer operates, possesses, or exercises control over the S-400 air defense system and no such system is maintained by Russian nationals or persons acting on their behalf inside Turkey.
- Asset-Freezing Designations: PANSPRIA requires the President to designate the following persons for blocking sanctions on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List):
- The Minister of National Defence of Turkey;
- The Minister of Treasury and Finance of Turkey;
- The Chief of the General Staff of the Turkish Armed Forces;
- The Commander of the 2nd Army of the Turkish Armed Forces;
- Any person identified by the President:
- On a list submitted to Congress that includes (a) senior officials of the Turkish Armed Forces leading offensive operations against the Syrian Democratic Forces, civilians, or other minorities in northeast Syria; or (b) officials of the Government of Turkey significantly facilitating such operations.
- Any official of the Government of Turkey or member of the Turkish Armed Forces responsible for serious abuses of internationally recognized human rights relating to Turkey’s invasion of northeast Syria
- On a list submitted to Congress by the Secretary of State of Russian persons that knowingly exports, transfers, or otherwise provides to Syria significant support that materially contributes to the Government of Syria’s ability to acquire defense articles, services, and related information.
- Menu-Based Designation Authorities: PANSPRIA authorizes the Administration to impose three of a menu of sanctions on any non-U.S. person that the Secretary of State, in consultation with the Secretary of Defense and the DNI, determines meet the following criteria:
- Any foreign persons determined to have knowingly provided defense articles, services, or technology to Turkey if such articles, services, or technology could be used in operations by the Turkish Armed Forces (a term used, but not defined, in PANSPRIA) in Syria;
- Any foreign financial institution found to have knowingly facilitated transactions for the Turkish Armed Forces for the purpose of supporting military operations of Turkey in Syria; or
- Russian persons who knowingly export, transfer or otherwise provide to Syria significant financial, material, or technological support that contributes materially to the ability of the Government of Syria to acquire defense articles, defense services, and related information.
- Russia-Related Sanctions: PANSPRIA would also require the Administration to sanction Turkey for its purchase of Russian missile defense systems by defining this transaction as a “significant” transaction with the Russian defense industry within the meaning of CAATSA. This in turn would require the Administration to choose 5 of 12 possible sanctions, ranging from measures as restrictive as full asset blocking (i.e., designation as an SDN) to as limited as losing access to U.S. government contracts.
For more information, contact: For more information, contact: Carlton Greene, Addie Cliffe, Jeff Snyder, Dj Wolff, David Baron, Nicole Succar, Erik Woodhouse, Jana del-Cerro, Brian McGrath, Nimrah Najeeb
China Announces Tariff Adjustments for 2020
The Chinese Ministry of Finance (the MOF) issued this week a "Notice on Tariff Adjustment Plan 2020" (the "Notice") adjusting tariffs for certain products effective January 1, 2020.
According to the Notice, China will impose reduced temporary import tariffs, which are lower than the most-favored-nation (MFN) tariffs, on 859 products from all of its trade partners as part of an overall tariff adjustment program. The intent of the move is to “increase imports of products facing a relative domestic shortage, or foreign specialty goods for everyday consumption.” Products that will benefit include, without limitation, food, fruits, chemical, pharmaceutical, mineral, wood, machinery, electrical, optical, photographic and medical products. For example, currently the MFN rate for frozen pork is 12%; however, the applicable tariff rate will be reduced to 8% after the adjustment becomes effective. China will also apply zero import tariffs on raw materials used for the production of anti-cancer medicines and new diabetes medicines to promote the production of new medicines.
In addition, as of July 1, 2020, China will reduce the MFN rates for 176 information technology products, such as mobile communication base stations, routers and equipment used for production of semiconductors and integrated circuits.
Please contact us if you would like to assess further the impact of the adjustment on your imports into China.
For more information, contact: Evan Chuck, Walter (Sam) Boone
U.S. Agrees to Suspend List 4b Tariffs and Decrease List 4a Tariffs in a “Phase One” Trade Deal with China
On December 13, 2019, the United States Trade Representative (USTR) announced a “Phase One” agreement with China that will cease the imposition of 15% tariffs on $160 billion worth of Chinese imports that were scheduled to be imposed on December 15. According to a statement published by USTR, the U.S. will maintain tariffs on approximately $250 billion of Chinese goods (i.e. Lists 1 through 3), while lowering tariffs to 7.5% on approximately $120 billion of Chinese goods (i.e. List 4a).
In return, China has cancelled its retaliatory tariffs that it had planned for December 15, including a 25% tariff on U.S. autos, and agreed to increase purchases of U.S. agricultural goods, manufactured goods, energy, and services by at least $200 billion over the next two years. For perspective, China bought approximately $186 billion in goods and services from the U.S. in 2017 before the “trade war” with China began. In addition to increasing agricultural purchase targets, China has committed to reducing non-tariff barriers for products such as poultry and seafood.
The official text of the 86 page agreement has not formally been released. However the broad outline of the deal details commitments in areas such as intellectual property, currency manipulation, and enforcement. For intellectual property, China has pledged increasing protection for patents and trademarks, while also following through on previous commitments to curb technology transfers and providing financial assistance to outward investment purposed to acquire U.S. technology in certain key sectors outlined in the “China 2025” industrial plan. The currency manipulation language in the deal protects the U.S. against what it calls “competitive currency devaluations” and promotes transparency. As for enforcement, the U.S. and China came to agreement on a regular bilateral consultation process before enacting new tariffs or other penalties.
United States Trade Representative Robert Lighthizer touted the agreement in his official press statement: “President Trump has focused on concluding a Phase One agreement that achieves meaningful, fully-enforceable structural changes and begins rebalancing the U.S.-China trade relationship.”
For more information, contact: Spencer Toubia, Walter (Sam) Boone