President Donald Trump has officially notified Congress of his intent to terminate the designation of Turkey and India as beneficiary developing countries under the Generalized System of Preferences (GSP) program. Termination means that products from these two countries will no longer receive duty-free access to the U.S. market. Official removal of these countries’ designation under the GSP program can occur 60 days after the March 4, 2019, notification to Congress; removal is thus likely to occur on or around May 3, 2019.

In his letter to Congress regarding Turkey, the president stated that the country should no longer be designated as a “developing country” since its “economy has grown and diversified. Increases in Gross National Income per capita, declining poverty rates, and export diversification by trading partner and by sector are all evidence of Turkey’s increased level of economic development.” In his letter to Congress regarding India, the president stated that “after intensive engagement between the United States and the Government of India, I have determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India.”

The GSP program is the largest and oldest U.S. trade preference program; it provides opportunities for poor and developing countries to trade favorably with the United States in an effort to develop and grow their own economies. See also U.S. Generalized System of Preference Guidebook (UPDATE: see Guidebook dated December 2019). Historically, India has been the top GSP beneficiary country, with Turkey often ranked in the top five.

On September 27, 2018, Titanium Metals Corporation (TIMET) filed a Section 232 petition alleging that the quantity or circumstances of U.S. titanium sponge imports threaten to impair national security. On March 4, 2019, Secretary of Commerce Wilbur Ross announced that the petition had been accepted and an investigation initiated. Ross sent a letter to Acting Secretary of Defense Patrick Shanahan informing him of the investigation in response to this petition, stating that the Department of Commerce during the course of the investigation would consult with the Department of Defense on methodological and policy issues of national security concern.

In his announcement, Ross stated, “Titanium sponge has uses in a wide range of defense applications, from helicopter blades and tank armor to fighter jet airframes and engines.” Titanium sponge is the primary form of titanium metal from which almost all other titanium products are made. Titanium is used in the production of military aircraft, space vehicles, satellites, naval vessels, missiles and munitions. It is also widely used in critical infrastructure and commercial applications such as civilian aircraft, chemical plants, oil and gas plants, electric power and desalination plants, building structures, automobile products and biomedical devices. According to the Department of Commerce, imports account for more than 60 percent of U.S. titanium sponge consumption. Currently only one facility in the United States has the capacity to process titanium ore into the sponge used in manufacturing. Titanium sponge is difficult to stockpile for long periods as it degrades, rendering the sponge unsuitable for the most demanding military and aerospace applications.

This is the fifth Section 232 investigation initiated by President Donald Trump’s administration; before his administration, the last Section 232 investigation occurred in 2001. A Section 232 investigation is conducted under the authority of the Trade Expansion Act of 1962 to determine the effect of imports on U.S. national security. Once initiated, the secretary of Commerce must prepare a report for the president within 270 days of initiation on whether the importation of the article in question is in such quantities or under such circumstances as to threaten to impair the national security. The president can concur with or reject the secretary’s recommendations and take action to “adjust the imports of an article and its derivatives” or implement other non-trade related actions as deemed necessary.

In a Notice of Modification of Action published in the Federal Register on March 5, 2019, the Office of the U.S. Trade Representative (USTR) made official its earlier announcement (see Trump and Trade Update of March 1, 2019) that the Section 301 retaliatory tariff for the third tranche/list of products imported from China will remain at 10 percent until further notice. It remains a point of contention between Congress and USTR as to whether a product exclusion request process will be established for this tranche of products. It has been previously reported that Congress directed USTR to implement such a process; however, Ambassador Robert Lighthizer indicated in testimony before the House Ways & Means Committee that his intention was to initiate such an exclusion request process only if tariffs on the third tranche of products were increased to 25 percent.

The Office of the U.S. Trade Representative (USTR) has released President Donald Trump’s 2019 Trade Policy Agenda and 2018 Annual Report, detailing how the Trump administration’s trade policies “are benefitting American workers and contributing to the strongest economy in decades.” Claiming that the Trump administration “inherited a significantly flawed trading system,” the report states that the administration “took immediate and decisive action to implement a new trade agenda.” The USTR indicated that it “and other parts of the Administration have used both domestic laws and international fora to press U.S. trade priorities and enforce trade commitments made by America’s trading partners. In 2019, the Administration will continue this work and take further steps to rebalance America’s trade relationships and the global economy.”

In one of its more interesting statements in support of Trump’s trade agenda, the report states:

For too long, workers here and throughout the developed world have been frustrated by elected officials who talk about the problems resulting from globalization – but do nothing about them. For too long, policymakers here and throughout the developed world have been intimidated by the claim that any effort to shift trade policy in a more worker-friendly direction represents some type of Smoot-Hawley style “protectionism.” But this is nonsense – recent events demonstrate that by using its leverage as the world’s largest market, the United States can create better conditions for U.S. workers, and encourage more efficient global markets.

The lengthy report focuses on three broad areas: (1) President Trump “inherited a deeply flawed global trading system,” (2) the Trump administration is making U.S. trade policy “work better for American workers,” and (3) the administration in 2019 will continue to pursue new trade deals, enforce U.S. laws, monitor trade agreements and rebalance U.S. trade relationships. A fact sheet on the president’s Trade Agenda and Annual Report is also available.

The report provides summaries and comments on the United States-Mexico-Canada Agreement (USMCA), the revised U.S.-Korea Free Trade Agreement and discusses the new trade negotiations with Japan, the European Union and the United Kingdom. In the area of trade enforcement, the report addresses the ongoing Section 301 trade and tariff actions toward China and notes that the United States will continue to press China to address long-standing U.S. concerns about unfair trade practices. Concerning the World Trade Organization (WTO), the report notes ongoing reform efforts, particularly the challenges of non-market economies and concerns over the WTO dispute settlement system. These efforts are “part of an ongoing upgrade to adjust U.S. trade policy to the realities of the 21st century economy.”

On February 28, 2019, the U.S. Trade Representative (USTR) submitted to Congress and released to the public a summary of the Trump administration’s specific negotiating objectives for its United States-United Kingdom trade agreement negotiations. This follows the USTR’s notification to Congress on October 16, 2018, of the Trump administration’s intention to enter into negotiations (see Trump and Trade Updates dated October 17, 2018 and November 16, 2018), the submission of public comments – over 133 total – concerning negotiating objectives for any trade agreement with the UK, and a January 29, 2019 USTR hearing at which 24 witnesses testified on negotiating objectives.

The USTR has stated that its aim in the negotiations is to address both tariff and non-tariff barriers and to achieve fairer, more balanced trade. The introduction to the negotiating objectives notes that “the President intends to negotiate a trade agreement with the United Kingdom (UK) once it leaves the European Union (EU).” It notes, “As the first and fifth biggest global economies, the U.S. economic relationship with the UK is one of the largest and most complex in the world, with annual two-way trade totaling more than $230 billion. Despite this significant trade volume, multiple tariff and non-tariff barriers have challenged U.S. exporters in key sectors while the UK has been a Member State of the EU and therefore a part of the common trade policy of the EU. The UK’s decision to leave the EU creates a new opportunity to expand and deepen the U.S.-UK trade relationship.” The summary document consists of brief bullet point objectives for such issues as Trade in Goods; Customs and Trade Facilitation; Rules of Origin; Technical Barriers to Trade; Trade in Services; Intellectual Property; Labor; Environment; Trade Remedies; Dispute Settlement; and other trade-related areas of focus for the negotiations.

At the direction of President Donald Trump and due to recent progress in trade negotiations with China, the Office of the U.S. Trade Representative (USTR) announced that the Section 301 duty rate for certain products imported from China “will remain at 10 percent until further notice.” The announcement will be formally published in the Federal Register.

On September 24, 2018, the Trump administration had implemented this 10 percent tariff on $200 billion worth of Chinese products imported into the United States (see Trump and Trade update of September 19, 2018). These tariffs were set to increase to 25 percent on January 1, 2019, but the president and the USTR announced in December 2018 (see Trump and Trade update of December 17, 2018), and again in February 2019 (see Trump and Trade update of February 25, 2019), postponements of their self-imposed deadline for increasing the tariff to 25 percent.

With this announcement, the tariffs on products covered under USTR’s China Section 301 List/Tranche 3 will indefinitely remain at 10 percent. What now remains unresolved is whether the USTR will initiate an exclusion request process for these products while the tariff rate remains at 10 percent. Upon passage of the Consolidated Appropriations Act, 2019, Congress in an accompanying explanatory statement required USTR to initiate an exclusion request process for this third list (see Trump and Trade update of February 19, 2019). In his testimony this week before the House Ways & Means Committee, however, Ambassador Robert Lighthizer indicated that an exclusion request process would be instituted on the third tranche of Chinese products only if those tariffs were increased to 25 percent (see Trump and Trade update of February 28, 2019). In response to this stance by the USTR, members of both the House of Representatives and Senate have recently introduced legislation – the Import Tax Relief Act – specifically requiring that the Trump administration implement a tariff exclusion request process for this list of Chinese products.

On November 30, 2018, the United States, Mexico and Canada officially signed the United States-Mexico-Canada Agreement (USMCA), a proposed free trade agreement that, if approved by Congress and ratified by the governments of Canada and Mexico, would revise and modernize the North American Free Trade Agreement (NAFTA). Known as “NAFTA 2.0” during the trilateral negotiations, the USMCA is expected to be debated by the 116th Congress in the coming months as it considers legislation to implement the agreement. The new free trade agreement, consisting of 34 chapters and 14 side letters, retains many of NAFTA’s chapters but also makes notable changes and additions to the original trade agreement among the three countries.

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On February 27, 2019, Ambassador Robert Lighthizer, U.S. Trade Representative (USTR), testified before the House Ways & Means Committee on U.S.-China trade relations. In his brief opening statement, the ambassador stated that the United States “can compete with anyone in the world but we must have rules – enforced rules – that make sure market outcomes, not state-capitalism and technology theft, determine winners.” Due to the Section 301 tariffs implemented on certain imports from China, he said, the United States is “in a position to deal with this problem for the first time after decades of government inaction.” He closed his statement by emphasizing that ongoing negotiations with China are resulting in “real progress” that could help to “turn the corner in our economic relationship with China.”

Preceding Lighthizer in the hearing was House Ways & Means Committee Chairman Richard Neal, D-Mass., who acknowledged in this opening statement that “China has been good for some but also very bad for others.” He added that “[w]hile this Administration confronts the same challenges with China that previous administrations faced, it has chosen to use tactics and tools that previous administrations – of both parties – did not. The Trump Administration tariffs have been sweeping, disruptive, controversial, and painful. The Administration’s promise is that its high-risk approach will yield high rewards.” He closed his statement by claiming that “the future of America’s economic prosperity is at stake.” Ranking Minority Member Kevin Brady, R-Texas, stated in his opening statement that he was “hopeful that the substantive talks under way … will produce meaningful commitments from China that lower trade barriers, achieve structural reforms and establish a new era of fair trade.”

Under questioning by the committee members concerning ongoing U.S.-China trade negotiations, Lighthizer indicated that while progress was being made, much work still needed to be done before an agreement could be reached. He cautioned that even once a deal was reached, there would continue to be trade friction, stating “I’m not foolish enough to think there is going to be one negotiation with China that’s going to change all their practices.” Given concerns about China’s past lack of compliance with its WTO and other trade-related commitments, the ambassador acknowledged that any enforcement tools would have to be “very specific” and “have layers,” but that the United States would be able to “act proportionately but unilaterally to insist on enforcement” if a disagreement remains. Lighthizer insisted that any agreement reached with China will not be submitted to Congress for approval, despite President Trump’s claim that he wanted a “trade agreement” and not a series of memoranda of understanding (see Trump and Trade update of February 25, 2019). Instead, Lighthizer indicated that any agreement would be an “executive agreement” not requiring congressional approval.

Concerning current Section 301 tariffs on imports of Chinese products, Lighthizer testified that an exclusion request process would be instituted on the third tranche of Chinese products valued at $200 billion only if those existing tariffs of 10 percent were increased to 25 percent. Despite Congress’ instruction in the recent appropriations law funding the federal government through September that such an exclusion request process be implemented (see Trump and Trade update of February 19, 2019), he indicated the Office of the USTR would institute such a process if the tariffs are raised to 25 percent, but “[s]hort of that I sort of want to see where we are” and to see if U.S. companies seeking such exclusions are considering “ways to manufacture more in the U.S.”

At times, the questions by House members focused on topics other than trade with China, such as the proposed United States-Mexico-Canada Agreement (USMCA). In response to questions on this trade agreement, Lighthizer repeatedly called for its approval by Congress. Failure to do so, he argued, would leave the United States without a trade agenda “for the next several years” and indicate to other countries that “we don’t have a consensus.” “If the Congress doesn’t see fit to pass that, then everything else is kind of like a footnote,” he stated, adding that if the USMCA does not pass, “We can’t do trade deals.”

Several questions concerned the continuing Section 232 tariffs on imports of steel and aluminum. On this issue, the ambassador noted that the Trump administration wants “very much to work out a deal” and that they especially want a deal with Canada and Mexico. Numerous members of Congress from both parties have made clear their position that they will not approve the USMCA until the Trump administration removes these tariffs for Canada and Mexico.

President Donald Trump announced via Twitter on Sunday, February 24, 2019, that he will be postponing the scheduled March 2, 2019, increase in Section 301 tariffs from 10 to 25 percent on $200 billion worth of imported Chinese products due to “substantial progress” in ongoing trade negotiations between the two countries. While the postponement is not official until the Office of the U.S. Trade Representative (USTR) publishes an announcement in the Federal Register, we are – for the first time – posting this news based on a presidential tweet due to its significance. Check www.TrumpandTrade.com in the coming days for the formal Federal Register notification. No new date for the tariff increase has been provided. Until then, here are the president’s tweets announcing the postponement:

The president’s announcement followed a weekend of extended trade negotiations involving Vice Premier Liu He of China, Secretary of the Treasury Stephen Mnuchin, USTR Robert Lighthizer and their staffs. Trump met with Liu on Friday. In comments to the press before the meeting, the president stated, “We’re having very good talks. There’s a chance that something very exciting could happen.” He added that “if I see progress being made, substantial progress being made, it would not be inappropriate to extend that deadline – keep [the tariff] at 10 percent, instead of raising it to 25 percent.” (See Trump and Trade update of September 19, 2018.) Lighthizer added, “We’ve made progress on some very important structural issues and some progress on purchases. We have a few very, very big hurdles that we still have to face, but if we make – if we continue to make progress, that would be a great outcome.”

Confusion arose during this public portion of the meeting, however, when Mnuchin and Lighthizer referred to documenting the negotiations and agreements with multiple memorandums of understanding (MOUs) that would be “binding and enforceable.” The president responded that he does not “like MOUs because they don’t mean anything. To me, they don’t mean anything. I think you’re better off just going into a document. I was never a fan of an MOU.” Lighthizer replied, “An MOU is a contract. It’s the way trade agreements are generally used. People refer to it like it’s a term sheet. It’s not a term sheet. It’s an actual contract between the two parties. A memorandum of understanding is a binding agreement between two people. And that’s what we’re talking about. It’s detailed; it covers everything in great detail. It’s just called a memorandum of understanding. That’s a legal term. It’s a contract.” The president responded, “By the way, I disagree. I think that a memorandum of understanding is not a contract to the extent that we want.” Lighthizer relented, stating, “From now on, we’re not using the word ‘memorandum of understanding’ anymore. We’re going to the term ‘trade agreement.’ All right? … No more. We’ll never use the term again. We’ll have the same document. It’s going to be called a ‘trade agreement.’ We’re never going to use ‘MOU’ again.” While Liu agreed, the exchange left many trade analysts amused and a bit confused as to the form of any final agreement between China and the United States.

On February 20, 2019, Vulcan Steel Products Inc. (Vulcan) filed a petition with the U.S. Department of Commerce (Commerce) and the U.S. International Trade Commission (Commission) seeking antidumping duties (ADD) and countervailing duties (CVD) on imports of carbon and alloy steel threaded rod (CASTR) from the People’s Republic of China, India, Taiwan and Thailand. According to Vulcan, CASTR imports from these countries are being sold at less than fair value in the United States and causing material injury and threatening further material injury to the domestic industry if ADD and CVD are not imposed.

CASTR products are certain threaded rods, bars or studs of carbon or alloy steel, having a solid, circular cross section of any diameter, in any straight length and are non-headed and threaded along greater than 25 percent of their total actual length. CASTR is normally drawn, cold-rolled, threaded and straightened, or it may be hot-rolled, and it is subject to a variety of finishes or coatings, such as plain oil finish as a temporary rust protectant, zinc coating, paint, epoxy and other similar finishes and coatings. It can be, but is not necessarily, produced under certain ASTM, ASME and API specifications. It is used in construction to suspend electrical conduits, pipes, HVAC ductwork, sprinkler systems for fire protection and other items; it may also be used for hanging suspended ceilings and elevated conveyor belts, for joint restraint systems for underground piping, in structural tie downs in earthquake- and hurricane-restraint systems for roofing, and as headless screws in general fastener applications or for bolting pipe joints together. Vulcan states that CASTR enters the United States under Harmonized Tariff Schedule of the United States (HTSUS) subheadings 7318.15.5051, 7318.15.5056, 7318.15.5090, 7318.15.2095 and 7318.19.0000.

According to Vulcan, from December 2017 to November 2018, U.S. CASTR imports totaled 42.5 percent from China, 25.2 percent from India, 15.1 percent from Taiwan and 4.1 percent from Thailand. Vulcan claims that imports of CASTR from these countries increased 18.6 percent from 2016 to 2017 and that imports for 2018 represented a 18.8 percent increase over 2017. As a result, Vulcan claims that dumped and subsidized CASTR imports are having significant, negative price effects that are causing lost sales and revenue to the domestic industry.

The petition lists a large number of foreign producers and exporters that shipped CASTR products to the United States at allegedly dumped and/or subsidized prices from these countries as well as the U.S. importers of those products.

Commerce will determine by March 12, 2019, whether to formally initiate the investigations and, if Commerce does, the Commission will decide within 25 days after that whether there is a reasonable indication of existing material injury or threat of material injury to the domestic CASTR industry that will require continuation of the investigation.

Thompson Hine is monitoring this matter closely. For additional information or to obtain a copy of the petition, please contact us.