Instead, however, the President has announced that the United States will take emergency measures by assessing 5% duties on goods imported from Mexico. The duties will be assessed on all goods imported from Mexico starting on June 10, 2019.
The President intends to raise the tariff rate each month if the flow of migrants does not subside as follows:
- 10% on goods imported from Mexico on July 1, 2019;
- 15% on goods imported from Mexico on August 1, 2019;
- 20% on goods imported from Mexico on September 1, 2019; and
- 25% on goods imported from Mexico on October 1, 2019.
According to the President’s statement, the tariffs will remain at 25% until Mexico “substantially stops the illegal inflow of aliens coming through its territory.”
For the tariffs to become effective, the president will need to issue an executive order. Further details will likely be spelled out in that document. In addition, Customs and Border Protection (CBP) will need to adapt their systems to account for the tariffs, perhaps by creating a separate tariff number to be used for all Mexico shipments in addition to the regular HTS number.
Basis for Proposed Action
The Administration cites the International Emergency Economic Powers Act (IEEPA) as the basis for the proposed action. The IEEPA provides the President broad authority to regulate a variety of economic transactions following a declaration of national emergency. Technically, the President declared a national emergency under the National Emergency Act (NEA) on the border situation earlier this year to attempt to reallocate existing funds for border wall construction (E.O. 9844, dated Feb. 15 , 2019). Traditionally, IEEPA has been used for national emergencies involving foreign policy and as the basis for imposing economic sanctions or blocking actions against transactions with foreign countries or foreign persons.
Tariffs have not been one of the measures that past presidents have chosen to use under IEEPA. Past presidents have issued tariffs under the Trading with the Enemy Act (TWEA), which is often considered to be a forerunner to IEEPA. In 1971, President Nixon used TWEA to impose a 10% ad valorem tariff on goods entering the United States to avoid a balance of payments crisis after he ended the convertibility of the US dollar to gold. However, IEEPA was created to provide more constraints on executive actions than were present under TWEA. Because such a move is unprecedented under IEEPA, it is unclear whether the courts would uphold this proposed action.
IEEPA gives Congress the ability to block presidential action through a joint resolution to terminate an emergency. However, the joint resolution is subject to Presidential veto.
Effect on USMCA
The tariffs certainly have added complexity to the USMCA ratification process. Mexico has reacted swiftly and strongly to the president’s announcement. We understand that Mexico has sent a delegation to the White House to discuss the tariffs. The situation remains fluid, and we will be closely monitoring developments and its impact on USMCA ratification.
For now the USMCA ratification process proceeds. USTR has released the cover letters to Congressional leaders transmitting a draft Statement of Administrative Action (SAA) to implement USMCA, which is a key step in starting to move the USMCA through Congress under the current fast track authority. And Canada has started its USMCA ratification process along with an apparently successful meeting between the Canadian Prime Minister and the US Vice President.
Recently, the president agreed to lift 25% tariffs on steel and 10% tariffs on aluminum imports from Mexico, which was widely considered to be designed to advance the USMCA through Congress. Trade with Mexico is driven by intracompany trade and is a key component of automotive and many other supply chains.
Effects on Shipments from Mexico
The Statement is unclear on how the action would be applied to specific types of shipments. One hopes the formal statement provided to Congress will provide more details on the implementation of this duty or that further guidance will be issued soon by the relevant Government agencies.
As yet, there are no indications of specific carve outs for maquiladora shipments, shipments claiming NAFTA preferential treatment, or any type of exclusion request process as has been implemented for the actions under Section 232 and Section 301.
We will continue to monitor the situation and provide updates as soon as practicable.