Québec City - May 18, 2016
On April 26, 2016, United States Steel Corporation filed a massive trade case accusing Chinese steel producers and their distributors of conspiring to fix prices, steal trade secrets and use false labeling to avoid trade duties. In its complaint to the US International Trade Commission, or ITC, brought under Section 337 of the Tariff Act of 1930, US Steel asks the Commission to exclude (bar) all Chinese steel imports from entering the United States. In addition, the case includes a request for a cease and desist order prohibiting importers from selling any imported Chinese steel that has already been imported into the United States.
A few months earlier, on January 8th, the US Commerce Department announced it was conducting an administrative review of multilayered wood flooring from China imported between December 1, 2013 and November 30, 2014. The Department’s investigation is based on concerns that Chinese importers were selling these wood flooring products at less than fair market value, putting US producers at a competitive disadvantage.
That same month, the United Steelworkers Union joined in filing antidumping and countervailing duty cases against imports of more than $1 billion truck and bus tires from China, and also India and Sri Lanka.
In June 2015 the ITC launched a second full review of tissue paper from China. In March 2016 a public notice was published that frozen warm water shrimp imports China would be scrutinized.
I could devote much ink of this post to a list of trade remedy cases launched by Washington in recent months. The products involved in almost all of these cases have one critical element in common – they are imported from China. That is not to say that China is the only country in the cross-hairs of Washington. But any cursory look at the ITC’s list of investigations names Chinese products over products from other trading partners.
This article is not intended to argue the merit of these investigations. But Canadian readers may be wondering why they need to read further? After all, Canada is not cited in these investigations, right? True, but these products are also staples of the Canadian manufacturing sector – including those used in a vibrant cross-border supply chain between Canada and the US.
Shipments arriving at US ports of entry of these “covered products” will always be held to sharp scrutiny by US Customs and Border Protection, including those from countries not specifically cited in the trade investigation. This is due to concerns by US Customs that the goods are being transshipped from China through third countries, including Canada. Recently enacted US legislation, such as the Prevention and Evasion of Antidumping and Countervailing Duty Orders contained in the Trade Facilitation and Trade Enforcement Act, will add new teeth to US Customs’ ability to prevent and counter evasion.
Many Canadian companies have received notices from US Customs asking for information regarding the country of origin of products and who are now concerned that transshipment may have occurred, creating liability on the Canadian company.
Other companies in Canada may be supplying component parts from China or other countries assuming that their finished product would not be covered by such US trade concerns. In other circumstances, a US affiliate or other producer uses product from China, sends it to Canada for further manufacturing, but when it re-enters the US the problematic component can still fall under the scope of the initial US trade order.
In other words, companies in Canada should know that, under US law, every time subject or covered merchandise crosses the border it can be subject to the active orders and possible additional duties.
In these times of expanding global supply chains and shrinking profit margins, companies in Canada will want to ensure that their products are not unduly barred from the US marketplace. In today’s world, it is important to maintain a trusted product brand and corporate reputation. Canadian companies need to be able to address the concerns of US Customs regarding certain products or certain trading partners proactively and head-on. If your company does not use covered components in the finished product sent to the US, you need to set up tracking systems to prove that when US Customs comes calling. If your company does include certain products subject to US trade remedies which you sell in the US, then a dynamic import compliance management program must be on the top of your next executive board meeting.
US business leaders understand the value of a global market – both in terms of consumption growth (demand) as well as broader choices in component parts (supply). These same leaders will continue to urge the next occupant of the Oval Office keep global markets open. But they will also want assurances that their industry interests at home are not harmed by unfair competition from abroad. This “ying and yang” will be played out at all 300+ US ports of entry and on all shipments from all countries.
The bottom line? Don’t wait until your broker calls with disturbing news. Successful companies know the importance of mitigating risk by seeking the best intelligence and advice so when that call does come, they will be ready.