On October 30, 2021, the United States and the European Union (EU) reached an agreement regarding the Section 232 tariffs on steel and aluminum imports from the EU that were implemented during the Trump administration. Under the agreement, the United States will replace the current Section 232 duties with tariff-rate quotas (TRQs) for covered EU products effective January 1, 2022. The EU will suspend related retaliatory tariffs on U.S. products, and the United States and EU have agreed to suspend their World Trade Organization (WTO) disputes against each other regarding these Section 232 tariffs.

Under the framework of the agreement, the United States will replace the existing tariffs on EU steel and aluminum products under Section 232 with TRQs. For steel, historically-based volumes of EU steel products will enter the U.S. market without the application of Section 232 tariffs as follows:

  • The aggregate annual import volume under the TRQ is set at 3.3 MMT for 54 product categories and allocated on an EU member state basis in line with the 2015-2017 historical period. Section 232 steel products from the EU that are within the quota will enter free of any Section 232 duty, while all Section 232 steel products entering above the quota will continue to be subject to a Section 232 duty of 25 percent.
  • Imports of derivative articles of steel will not be subject to Section 232 duties.
  • In order to be eligible for Section 232 duty-free treatment under the quota, steel imports must be “melted and poured” in the EU according to current U.S. requirements.
  • The United States will maintain its steel product exclusion process.

For aluminum, historically-based volumes of EU aluminum products will enter the U.S. market without the application of Section 232 tariffs as follows:

  • The aggregate annual import volume under the TRQ is set at 18 thousand metric tons (TMT) for unwrought aluminum under two product categories and at 366 TMT for semi-finished (wrought) aluminum under 14 product categories. The import volumes will be allocated on an EU member state basis in line with the 2018-19 historical period, with the exception of foil (7607), where 2021 annualized data will be utilized. Section 232 aluminum products from the EU that are within the quota will enter free of any Section 232 duty, while all Section 232 aluminum products entering above the quota will continue to be subject to a Section 232 duty of 10 percent.
  • Imports of derivative articles of aluminum will not be subject to Section 232 duties.
  • An importer must provide a Certificate of Analysis for each aluminum product entered into the United States, as required by current U.S. law.
  • The United States will maintain its aluminum product exclusion process.

Further details on the application of these TRQs and the 54 steel product categories and 14 aluminum product categories are available here.

In addition, under the agreement, the EU will ensure market-oriented conditions in its market through the application of safeguards and other appropriate measures. In particular, the EU will enhance its enforcement mechanisms “to prevent leakage of Chinese steel and aluminum into the U.S. market.” A White House fact sheet also noted that the United States and the EU would “negotiate the world’s first carbon-based sectoral arrangement on steel and aluminum trade by 2024.”

In a brief statement, U.S. Department of Commerce Secretary Gina Raimondo stated, ““We have secured a deal that will protect American jobs; avoid retaliatory tariffs on iconic American brands like Harley Davidson and the Kentucky bourbon industry; reduce inflationary pressures on products like cars, trucks, appliances and canned goods; and alleviate a major supply chain crunch by supporting increased steel and aluminum capacity in the U.S.” U.S. Trade Representative Katherine Tai added, “With this dispute behind us, we are in a stronger position to address global overcapacity from China with an enhanced enforcement mechanism to prevent leakage of Chinese steel and aluminum into the U.S. market.” Both parties have also agreed to expand coordination involving trade remedies and customs matters and to meet regularly to consult and develop additional actions to address non-market excess capacity in these sectors.

On October 21, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS), released an Interim Final Rule to implement export controls on certain cybersecurity items that can be used for malicious cyber activities. Public comments are accepted until December 6, 2021. The final rule will become effective on January 19, 2022, and will revise the Commerce Control List (CCL) with new controls on these items for national security and anti-terrorism reasons. The rule will also create a new License Exception, Authorized Cybersecurity Exports (ACE), that authorizes exports of these items to many destinations. BIS states that “[t]hese items warrant controls because these tools could be used for surveillance, espionage, or other actions that disrupt, deny or degrade the network or devices on it.”

The rule will create new Export Control Classification Numbers (ECCNs) under Category 4 of the CCL – specifically, 4A005, 4D004 and a new paragraph 4E001.c. Under Category 5 of the CCL, numerous ECCNs will be revised and a new paragraph added as ECCN 5A001.j to more clearly define “IP network communications surveillance systems or equipment.” This new rule also makes various amendments and revisions to the definition of certain terms covered under the rule, such as “cybersecurity items,” “digital artifacts,” “cyber incident response” and “vulnerability disclosure.”

New License Exception, Authorized Cybersecurity Exports (ACE), will authorize exports, reexports and transfers (in-country) of cybersecurity items which are not also controlled in Category 5 – Part 2 of the CCL or for Surreptitious Listening (SL) reasons. There are certain “government end user” and “non-government end user” restrictions which will apply for exports to certain countries. “Favorable treatment” cybersecurity end users will be any of the following: (i) A ‘‘U.S. subsidiary’’; (ii) providers of banking and other financial services; (iii) insurance companies; or (iv) civil health and medical institutions. Finally, the license exception has a broad end-use restriction when the exporter “has reason to know” the cybersecurity item “will be used to affect the confidentiality, integrity or availability of information or information systems.” BIS stated that this license exception will “allow the export, reexport and transfer (in-country) of ‘cybersecurity items’ to most destinations, while retaining a license requirement for exports to countries of national security or weapons of mass destruction concern.”

In a press statement, the Department of Commerce indicated that “The United States Government opposes the misuse of technology to abuse human rights or conduct other malicious cyber activities, and these new rules will help ensure that U.S. companies are not fueling authoritarian practices.” While BIS will implement the rule on January 19, 2022, it is accepting public comments until December 6, 2021. Any comments must be submitted via the Federal rulemaking portal (www.regulations.gov). The docket number for this rule is BIS–2020–0038. BIS has noted that commenters should also refer to RIN 0694–AH56 in all comments.

On October 21, 2021, the Department of the Treasury announced that the United States has reached an agreement with Austria, France, Italy, Spain and the United Kingdom on the treatment of digital services taxes (DSTs), a little more than a month before the United States was scheduled to implement additional duties of 25% on certain imports from each of those countries in response to their DSTs.

The Office of the U.S. Trade Representative (USTR) had previously explained that the DSTs adopted by these countries “discriminate[] against U.S. companies, [are] inconsistent with prevailing principles of international taxation, and burden or restrict[] U.S. commerce.” See SmarTrade Updates of January 7, 2021 and January 14, 2021. In June 2021, USTR announced the imposition of ad valorem import duties of 25% on products of these countries but suspended implementation to allow ongoing multilateral negotiations on international taxation issues more time to resolve the issue. See SmarTrade Update of June 2, 2021.

Such negotiations were successful, and on October 8, 2021, the United States, Austria, France, Italy, Spain and the United Kingdom joined 130 other members of the OECD/G20 Inclusive Framework in reaching an agreement on the Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalization of the Economy and on reforming the international tax system. Under the October 21 agreement involving the United States, Austria, France, Italy, Spain and the United Kingdom, the countries have agreed as part of Pillar 1 to withdraw all unilateral measures (i.e., their DSTs) on all companies and to refrain from imposing new unilateral tax measures. As a result, any liability for DSTs that U.S. companies accrue during the interim period will be creditable against future income taxes accrued under Pillar 1 under the OECD agreement. (Pillar 1 of the OECD agreement is to be fully implemented in 2023.) In return, the United States will terminate the currently suspended additional duties on certain imports from Austria, France, Italy, Spain and the United Kingdom that had been adopted in the USTR’s DSTs Section 301 investigations. The USTR will formally terminate these trade actions and, in coordination with the Department of the Treasury, will monitor implementation of the agreement going forward.

The agreement on DSTs is reflected in a Joint Statement from Austria, France, Italy, Spain, the United Kingdom and the United States. Turkey and India, the other two countries covered by the USTR’s DSTs Section 301 investigations, are not parties to the agreement and could still be subject to the additional duties of 25% as of November 30, 2021.

On October 5, 2021, the Office of the U.S. Trade Representative (USTR) announced that it is seeking public comments on whether to reinstate previously extended product exclusions for certain imports from China subject to Section 301 tariffs. Of the more than 2,200 product exclusions that were granted by USTR during the administration of President Donald Trump, only 549 were ultimately extended beyond their initial expiration date. With the exception of exclusions related to the COVID-19 pandemic, all of these product exclusions have now expired. A list of these product exclusions covered by this USTR notice is available here.

As these exclusions were previously found to warrant additional time for being exempt from the additional Section 301 tariffs placed on certain products imported from China, USTR will evaluate, on a case-by-case basis, the possible reinstatement of each exclusion. In doing so, comments in support of, or opposition to, any reinstatement of an extension should address: (i) whether product remains available only from China; (ii) whether the product or a comparable product is available from sources in the United States or from third countries; (iii) any changes in the global supply chains since September 2018 with respect to the product or any other relevant industry developments; (iv) the efforts of the importers or purchasers to source the product from the United States or third countries; and (v) any domestic capacity for producing the product in the United States. In addition, USTR will consider whether or not reinstating the exclusion will impact or result in severe economic harm to the commenter or other U.S. interests, including the impact on small businesses, employment, manufacturing output and critical supply chains in the United States, and the possible impact of reinstatement of the exclusion on the goal of obtaining the elimination of China’s acts, policies and practices related to technology transfer, intellectual property and innovation covered in the Section 301 investigation. USTR is also seeking comments on the appropriate length for any reinstated exclusions. Finally, USTR is requesting the submission of certain business confidential information which will not be released to the public, which includes the value and quantity of the Chinese-origin product covered by the specific exclusion request purchased over the last three years (2019, 2020, first six months of 2021) and a company’s gross revenue in U.S. dollars for 2019, 2020 and 2021.

USTR will accept public comments from October 12 through December 1, 2021. All comments must be submitted via USTR’s online portal at https://comments.ustr.gov. While comments must be submitted via this portal, USTR is offering a sample copy of the “Exclusion Reinstatement Comment Form” as a guide for commenters. Submitted comments will be reviewed by USTR, which will also consult with other agencies as necessary.

Any reinstated product exclusions will be retroactive to October 12, 2021, and apply only to entries that are not liquidated at that time.

The Commerce Department’s Bureau of Industry and Security (BIS) has released a final rule to implement a multilateral agreement to control certain biotechnology software that could be misused for biological weapons purposes. This final rule amends the Export Administration Regulations (EAR) to implement the decision finalized by the Australia Group (AG) on August 6, 2021. The AG is a multilateral forum consisting of 42 participating countries and the European Union.  Its main purpose is to coordinate and maintain export controls on a list of chemicals, biological agents, and related equipment, software and technology that could be used in chemical or biological weapon programs. This AG decision and BIS’ final rule add export controls on nucleic acid assembler and synthesizer software that is capable of designing and building functional genetic elements from digital sequence data.  While this software has substantial beneficial civilian applications, it can be misused for biological weapons purposes.  This new licensing requirement could be significant for U.S. life sciences companies and other medical-related entities as the new export controls on such software cover a multitude of countries.

The final rule adds a new Export Control Classification Number (ECCN) to control “software” designed for certain nucleic acid assemblers and synthesizers (i.e., ECCN 2D352).  Specifically, the new software controls apply to nucleic acid assemblers and synthesizers that are both: (i) partly or entirely automated; and (ii) designed to generate continuous nucleic acids greater than 1.5 kilobases in length with error rates less than 5% in a single run.  Exports of this software will now require a license from BIS for chemical and biological weapons reasons and anti-terrorism reasons.  Further, BIS has also amended a related ECCN to cover the “technology” for the development of such nucleic acid assemblers and synthesizers software.

By strengthening export controls on software that could be inappropriately used for biological weapons proliferation, BIS has stated that this final rule “represents another step forward in preventing the misuse of this emerging technology by foreign adversaries and strengthening export control regimes in coordination with allies and partners.”  This final rule and the encompassing export controls on such software and related technology are effective as of October 5, 2021.

In an October 4, 2021 speech, U.S. Trade Representative (USTR) Katherine Tai offered several broad insights into President Joseph Biden’s approach to the U.S.-China trade relationship. Noting that this relationship is complex, competitive and “one of profound consequence,” she stated that “[f]or too long, China’s lack of adherence to global trading norms has undercut the prosperity of Americans and others around the world.” Instead of addressing concerns and meaningful reforms, China has “doubled down on its state-centered economic system.”

In her prepared remarks, USTR Tai reiterated President Biden’s message that the “key to [U.S.] global competitiveness and creating shared prosperity begins at home” with investments (i) to increase competitiveness, (ii) in research and development, clean energy technology and the U.S. manufacturing base, and (iii) to incentivize companies to Buy American. Regarding the Biden administration’s comprehensive review of U.S.-China trade, she stated that China has not lived up to its commitments under the Phase One agreement negotiated by the Trump administration. She added that the Biden administration has “serious concerns with China’s state-centered and non-market trade practices that were not addressed in the Phase One deal.”

While acknowledging that the Phase One deal may have “stabilized the market”, USTR Tai explained that it “did not meaningfully address the fundamental concerns that we have with China’s trade practices and their harmful impacts on the U.S. economy.”  She provided several examples of China’s subsidies of targeted industries and measures that limit market access for U.S. producers.  As a result, China’s policies have “reinforced a zero-sum dynamic in the world economy where China’s growth and prosperity come at the expense of workers and economic opportunity here in the U.S. and other market-based, democratic economies.”  In addressing these challenges, USTR Tai stated that the Biden administration is investing in U.S. workers and rebuilding our infrastructure, and investing in education and worker training.

In upcoming meetings with Chinese officials, USTR Tai indicated that she will have “frank conversations” about China’s performance under the Phase One agreement and its industrial policies. Given the size of the economies of the United States and China, “[d]urable coexistence requires accountability and respect for the enormous consequences of our actions.” She added that the United States will also work with “our allies and like-minded partners towards building truly fair international trade that enables healthy competition.”

Notably, after months of inquiries and complaints about the expired Section 301 tariff exclusion process for imported Chinese products, USTR Tai indicated that the agency will restart a targeted tariff exclusion process. In doing so, she stated that the office of the USTR “will ensure that the existing enforcement structure optimally serves our economic interests. We will keep open the potential for additional exclusion processes, as warranted.” Further details on this renewed exclusion process have not yet been provided by the agency.

On October 1, 2021, the Office of the United States Trade Representative (USTR) announced that the United States and the Socialist Republic of Vietnam (Vietnam) reached an agreement resolving the Section 301 investigation into Vietnam’s alleged import and use of timber illegally harvested or traded. The investigation was initiated in October 2020 by former President Donald Trump. See Updates of October 6, 2020 and November 25, 2020. In the investigation, the Office of the USTR alleged that Vietnam relies on imports of timber harvested in other countries and that the “evidence suggests that a significant portion of that imported timber was illegally harvested or traded (illegal timber). Some of that timber may be from species listed under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).” According to a USTR press release, the agreement reached between the United States and Vietnam “secures commitments that will help keep illegally harvested or traded timber out of the supply chain and protect the environment and natural resources.” While Ambassador Katherine Tai, the USTR, indicated that no trade action will occur, the USTR will monitor Vietnam’s implementation of the agreement.

The Agreement between the Governments of the Socialist Republic of Vietnam and the United States of America on Illegal Logging and Timber Trade (the Agreement) contains multiple commitments on issues related to illegal timber, including:

  • Vietnam’s treatment of confiscated timber.
  • Financial incentives related to illegal timber.
  • Customs inspections and clearance.
  • Entities covered by Vietnam’s timber legality assurance system.
  • The criteria used to classify a third country as a “positive geographical area exporting timber to Vietnam.”
  • The verification of domestically harvested timber.
  • The implementation of certain licensing schemes.
  • Cooperation with the governments of third-country sources of imported timber.
  • Illegal timber activities in third countries or involving third-country nationals.
  • Verification and enforcement measures.
  • Cooperation between the parties’ respective law enforcement agencies to combat the harvest and trade of illegal timber.
  • Creation of a timber working group under the U.S.-Vietnam Trade and Investment Framework Agreement Council.
  • Public information and participation on matters related to the implementation of the Agreement.
  • Cooperation on technical assistance and initiatives to promote sustainable forest management and to combat illegal logging and associated trade.

According to the Office of the USTR, this was the first Section 301 investigation to address environmental concerns. The Agreement notes that both countries agree “on the importance of the conservation and sustainable management of forests for providing environmental, economic, and social benefits for present and future generations, and the critical role of forests in providing numerous ecosystem services and habitat for wild fauna and flora.” The Agreement establishes various deadlines for Vietnam to implement programs and processes to address the treatment of illegal timber and to keep it out of the supply chain. Further, both countries’ law enforcement agencies will cooperate to combat the harvest and trade of illegal timber.

On September 29, 2021, the Coalition of Freight Coupler Producers, consisting of Amsted Rail Company, Inc. and McConway & Torley LLC (“Petitioners”), filed petitions with the U.S. Department of Commerce (“Commerce”) and the U.S. International Trade Commission (ITC) seeking antidumping and countervailing duties on imports of freight rail coupler (FRC) systems and components from the People’s Republic of China (PRC). According to the petitions, freight rail coupler systems and components from the PRC are being sold at less than fair value in the United States and benefit from countervailable subsidies, causing material injury to the domestic FRC industry and threatening further material injury if trade remedy duties are not imposed. FRCs from the PRC are currently subject to a 25 percent Section 301 tariff.

FRC systems and components, including knuckles, coupler bodies, coupler yokes, and follower blocks, are mechanisms used to connect freight rail cars together and meet or exceed the Association of American Railroads (AAR) specifications of M211 “Foundry and Product Approval Requirements for the Manufacture of Couplers, Coupler Yokes, Knuckles, Follower Blocks, and Coupler Parts” and/or AAR M215 “Coupling Systems” or equivalent domestic or international standards. Please contact us for a copy of the proposed scope of the investigations.

In the petitions, the Petitioners allege that Chinese FRC producers are benefiting from more than 30 subsidy programs. The Petitioners also allege dumping margins ranging from 142.98 to 147.11 percent.

Commerce will determine by October 19, 2021, whether to formally initiate the investigations, and, if Commerce does, the ITC will decide 25 days after that whether there is a reasonable indication of existing material injury or threat of material injury to the domestic FRC industry and whether the investigations should be continued or terminated.

On September 29, 2021, the inaugural meeting of the United States–European Union Trade and Technology Council (TTC) met to discuss and establish “common principles to update the rules for the 21st century economy.” Attending were U.S. Co-Chairs, Secretary of State Antony Blinken, Secretary of Commerce Gina Raimondo and United States Trade Representative Katherine Tai, and EU Co-Chairs European Commission Executive Vice Presidents Margrethe Vestager and Valdis Dombrovskis. The TTC was established during the U.S.-EU summit in June 2021 under the new Biden administration as one commitment to renew their transatlantic partnership and initially discuss a Joint Transatlantic Agenda for “regular dialogue to take stock of progress.” See Update of June 17, 2021. Ambassador Tai emphasized during the meeting that the TTC is an important platform for assuring that the United States and the EU “remain global leaders in technology and innovation, projecting our shared democratic values internationally, and protecting fundamental labor rights.”

At the conclusion of the TTC meeting, the U.S. and EU issued a Joint Statement reaffirming TTC’s objectives: to coordinate approaches to key global technology, economic, and trade issues; and deepen transatlantic trade and economic relations, basing policies on shared democratic values. As a result of this first meeting, the U.S. and EU announced close coordination on a set of critical economic and technology issues, including:

  • Global trade challenges and addressing non-market, trade distortive practices: Seek to strengthen U.S.-EU competitiveness and technological leadership by developing common strategies to mitigate the impact of non-market practices at home and in third countries and by working to avoid new and unnecessary barriers to trade, especially in products and services derived from emerging technologies. The U.S. and EU also intend to use various tools to protect workers and labor rights, combat forced and child labor, and consult on relevant trade, climate, and environmental issues.
  • Semiconductor supply chains: Intend to enhance cooperation on measures to advance transparency and communication in the semiconductor supply chain and identify gaps, shared vulnerabilities, and opportunities to strengthen our domestic semiconductor R&D and manufacturing ecosystems with a view to improving resilience in the semiconductor supply chain.
  • Investment screening: Intend to exchange information on investment trends affecting security, including industry specific trends, origin of investments, and types of transactions, and on best practices with respect to analyzing and addressing risk, with a focus on sensitive technologies and related sensitive data.
  • Export Controls: Determine shared principles and areas for export control cooperation, including capacity building assistance to third countries to support multilateral export control regimes, prior consultations on current and upcoming legislative and regulatory developments, and developing convergent control approaches on sensitive dual-use technologies.
  • Artificial Intelligence (AI): Develop and implement AI systems that are innovative and trustworthy and that respect universal human rights and shared democratic values, explore cooperation on AI technologies designed to enhance privacy protections, and undertake an economic study examining the impact of AI on the future of our workforces.

In a post-meeting news conference, Secretary Blinken noted the United States and EU represent two of the world’s largest economies and, thus, “have a unique ability to help shape the norms, the standards, the rules that will govern the way technology is used, the technology that affects the lives of virtually all of our citizens. We have an ability to set the pace, to set the standard.” While the next meeting of the TTC has not been announced, the Joint Statement does provide details for the future focus and scope of work for each of the 10 TTC Working Groups.

On September 24, 2021, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a notice seeking public comment and input from domestic and foreign semiconductor design firms, semiconductor manufacturers, materials and equipment suppliers, and semiconductor intermediate and end-users regarding ongoing risks in the semiconductor supply chain. The goal of this public comment request is to facilitate the flow of information across the various segments of the supply chain, to identify data gaps and bottlenecks in the supply chain, and to determine potential inconsistent demand signals.  The notice acknowledges that  “ongoing shortages in the semiconductor product supply chain are having an adverse impact on a wide range of industry sectors.”

This effort was mandated by President Joseph Biden’s Executive Order (E.O.) 14017, which included a 100-day supply chain review of the semiconductor industry. For additional background on this issue and the E.O., see past Updates of February 25, 2021, March 11, 2021, March 29, 2021, and June 11, 2021. In its notice, BIS stated that it is specifically seeking information and data from (i) front- and back-end manufacturers and microelectronics assemblers, and their suppliers and distributors, on semiconductor product design; and (ii) intermediate users and end users of semiconductor products or integrated circuits. Key issues to be addressed include any order backlogs; identifying any current delays, disruptions or bottlenecks in the supply chain; any deferred, delayed or suspended production; and identifying semiconductor products in short supply.

Comments must be submitted no later than November 8, 2021 via the U.S. government’s eRulemaking portal at www.regulations.gov. Submissions must be identified by docket number BIS 2021-0036 or RIN 0694-XC084. BIS requires commenters to download and submit a fillable form from the BIS website at https://bis.doc.gov/semiconductorFRN2021. Submissions containing business confidential information must be clearly marked, include a statement justifying nondisclosure and provide a non-confidential version of the submission. Material submitted that is marked as containing “business confidential information,” and accepted as such by BIS, will be exempted from public disclosure.