Trump Announces New Tariffs Aimed at China and South Korea

On January 22, 2018, President Trump announced new tariffs on imports of solar panels and washing machines. The companies that will be most affected are from just two countries – China and South Korea. Trump has often complained that China and South Korea have unfair trade advantages over the U.S. There are fears of a possible backlash against the new tariffs, as China and South Korea import American-made machinery and agricultural products, and could punish the U.S. by opting to buy from non-American international competitors. There is also a concern that these tariffs will affect U.S. solar energy jobs and increase customer costs.

 China may be cautious in applying their own tariffs on U.S. goods, as they export about four times more to the U.S. than the U.S. exports to China. This may just be the beginning as President Trump has stated he would like to issue further tariffs on aluminum and steel imports from China, as well as to address further trade action focusing on intellectual property. South Korea said it will file a complaint with the World Trade Organization (WTO). However, there is uncertainty whether the Trump Administration would accept a decision by the WTO, as the U.S. Trade Representative, Robert Lightizer, has previously questioned whether WTO decisions should be binding on the U.S. The new tariffs may also affect current talks with South Korea, as the U.S. is currently renegotiating a free trade agreement with them.

 The day after Trump’s decision on new tariffs, a group of 11 countries – including Canada and Mexico – announced they have a deal for a revived Trans-Pacific Partnership (TPP), the trade agreement Trump pulled the U.S. out of as one of his first actions as President. The new deal is called the CPTPP, which stands for the Comprehensive and Progressive Trans-Pacific Partnership. Under the CPTPP, companies will have access to 500 million people with an estimated combined GDP of $10 trillion. The countries hope to sign the agreement by the end of the year.  The tariff announcement also came a day before the start of the sixth round of North American Free Trade Agreement (NAFTA) talks.

 

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NAFTA Renegotiations and Agriculture

On January 8, 2018, President Donald Trump spoke at the American Farm Bureau Federation’s annual conference. During his speech, President Trump said his administration is working on negotiating a good deal for farmers in the North American Free Trade Agreement (NAFTA), but did not go into the details. The agriculture industry is very concerned with the Trump Administration’s renegotiation of NAFTA and do not want to see the President pull out of the agreement altogether, like he has recently threatened. Many people in the agriculture industry believe NAFTA has been a success to date and did not want to see the agreement reopened in the first place. However, there are some updates that the agriculture industry would like to see in this renegotiation, including access to Canada’s dairy industry, which has been a closed market. The U.S. Department of Agriculture Secretary, Sony Perdue, has put forward a number of agricultural proposals for NAFTA, including dairy and poultry tariffs in Canada. The renegotiations have been strained for several months, after Canadian and Mexican officials rejected U.S. demands. The sixth round of renegotiations for NAFTA are scheduled to begin January 23, 2018 in Montreal, Quebec.

 

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New Russian Sanctions Deadline Looms in January 2018

On August 2, 2017, President Trump signed a bipartisan bill entitled, “Countering America’s Adversaries Through Sanctions Act” that placed sanctions against Russia, Iran and North Korea. The legislation was largely in response to Russia’s interference in the 2016 presidential elections. The bill calls for sanctions against people and entities that: undermine U.S. cybersecurity on behalf of the Russian government; invest in Russia’s energy export pipelines; conduct “significant” transactions with Russian defense and intelligence agencies; commit or assist in serious human rights abuses; commit acts of “significant” corruption; provide support to the Syrian government to acquire arms; and invest or facilitate the investment of $10 million or more in the Russian government’s privatization of any state-owned asset in a one year period that could unfairly benefit government officials or their associates. The bill lists a dozen types of sanctions that can be imposed against Russia by the president, including freezing assets, revoking U.S. visas, and banning exports form the U.S. to those sanctioned.

 The Sanctions Act instructed the Trump Administration to issue guidance on which Russian entities in the military and intelligence sectors should be sanctioned. This was supposed to be completed by October 1, 2017, however the administration missed this deadline, and did not issue it until October 26, 2017. The next deadline is January 29, 2018, when the administration must provide a list of businesses and enterprises from different countries that have continued to do business with those Russian entities and which will face sanctions as a result. When the October deadline was missed, the Senate Armed Services Committee, chaired by Senator John McCain (R-AZ), pressed the White House. However, Congress is not able to directly enforce the law, and there appears to be little they can do to force President Trump to act.

 On December 20, 2017, the Trump Administration imposed sanctions on five Russian individuals for alleged human rights abuses and involvement in criminal conspiracies. These sanctions were designated by the U.S. Treasury Department under the authority of the 2012 Magnitsky Act, a law that freezes any assets held in the U.S. of Russian officials responsible for human rights abuses, and also bars them from receiving visas.

 

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Trump Administration Ramps up Sanctions on North Korea

On November 21, 2017, the U.S. Department of Treasury issued more sanctions against North Korea in an effort to intensify pressure on Kim Jong Un and his regime. These sanctions are targeted to one individual – a Chinese businessman, 13 companies, and 20 vessels that have all engaged in trade with North Korea. Treasure Secretary, Steven Mnuchin, said the latest sanctions targeted companies engaged in hundreds of millions of dollars of trade with North Korea. The Trump Administration also called on other countries around the world to put diplomatic and economic pressure on the North Korean regime. 

These sanctions came a day after President Trump declared he was placing North Korea on the list of state sponsors of terrorism. Trump stated this was a needed move, especially because North Korea has “repeatedly” sponsored acts of terrorism, including “assassinations on foreign soil.” North Korea had previously been removed from the list in 2008, by then President George W. Bush. Currently, there are only three other countries in the world with this label, including Iran, Sudan and Syria. Secretary of State, Rex Tillerson said that the move to designate North Korea as a state sponsor of terrorism was largely a symbolic one. The Trump Administration has indicated there are still more sanctions and actions to come against North Korea in the coming weeks. 

 

 

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NAFTA Talks Will Continue Into 2018

The time frame for the North American Free Trade Agreement (NAFTA) renegotiation talks has been extended and will now continue into 2018. The fourth round of talks between the U.S., Canada and Mexico took place October 11-17. These talks faced significant issues and top NAFTA officials are pushing back against recent U.S. proposals.

One of these U.S. proposals is the controversial change for the way cars are made – currently a rule requires that at least 62% of the parts of a car sold in North America come from the region to avoid import taxes. The Trump Administration is now pushing for an 85% threshold, with 50% requirement of U.S. specific content.

Other contentious U.S. proposals include doing away with dispute-resolution mechanisms that currently limit how the U.S. can retaliate against its trading partners; revisions to intellectual property requirements; new protections for U.S. seasonal produce growers; and adding a “sunset clause” under which NAFTA would have to be re-approved every five years or end. These proposals have been viewed as “non-starters” and some question if this is an attempt by the Trump Administration to undermine the negotiations with “poison-pill” proposals.

The fifth round of talks is scheduled to begin in Mexico City on November 17, 2017. When the NAFTA talks first began in August of 2017, there was a soft deadline to have the deal completed by the end of 2017. President Trump has said he will scrap the trade deal altogether if the countries cannot reach an agreement on revising NAFTA. However, U.S. Trade Representative (USTR) Robert Lighthizer has said the U.S. is not taking active steps to withdraw from NAFTA at this time.

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The Trump Administration Set to Renegotiate NAFTA

The North American Free Trade Agreement (NAFTA) is a trade deal that President Trump has been highly critical of, especially while campaigning. Trump once referred to NAFTA as the “worst trade deal” ever signed by the United States and promised to pull the U.S. out if he was elected. Since that time, his position has softened and after discussions with the Canadian Prime Minister and the Mexican President, Trump has agreed to renegotiate the agreement instead of scrap it altogether. Talks to renegotiate NAFTA will begin next week with Mexican and Canadian officials. Renegotiating NAFTA will be a major undertaking, as the agreement was written 23 years ago, and much has changed – especially in the technology sector.

 Bob Lighthizer, the U.S. Trade Representative (USTR) is leading the renegotiations for the U.S. and has said that Americans should expect a major overhaul of the agreement. He stated, “We feel that NAFTA has fundamentally failed many many Americans and needs major improvement.” The USTR has listed some goals for the renegotiation, including:  improving conditions for workers, producing more goods in North America, and reducing the trade deficits. Some trade experts worry about the risk to opening up renegotiations of NAFTA, as Canada and Mexico will also have demands and goals for improving trade in their countries. And while Mr. Lighthizer is an experienced negotiator from the Reagan era, few officials in the Trump Administration have experience with NAFTA.

 

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U.S. Announces Updates to Iran-Russia Sanctions Bill

On Tuesday, July 18, 2017, the Trump administration announced new sanctions against entities and individuals with ties to Iran.  The U.S. Department of State (DOS) and U.S. Department of the Treasury have listed 18 entities and individuals to be sanctioned for supporting Iran’s military procurement for its Islamic Revolutionary Guard Corps, a powerful government security agency that is Iran’s most powerful economic actor and carries a strong influence over political decisions.

“The United States remains deeply concerned about Iran’s malign activities across the Middle East which undermine regional stability, security and prosperity,” State Department spokeswoman Heather Nauert said in a statement.

Two of the entities were added to the sanctions list by the State Department “for engaging, or attempting to engage, in activities or transactions that have materially contributed to, or pose a risk of materially contributing to, the proliferation of weapons of mass destruction or their means of delivery,” according to Nauert.

The Treasury Department’s Office of Foreign Asset Control sanctioned 16 entities and individuals, including “an Iran-based transnational criminal organization and three associated persons,” along with companies and individuals tied to military technology procurement.

Similarly, on Saturday, July 22, 2017, the House and Senate reached a deal to add an amendment to the Iran sanctions bill for additional sanctions against Russia, while providing Congress with new veto power to block any easing of those sanctions.  “I expect the House and Senate will act on this legislation promptly, on a broad bipartisan basis and send the bill to the President’s desk,” Senate Minority Leader Chuck Schumer said in a statement.

The amendment would ensure that Congress has time to review any plans by Trump’s administration to relax, suspend or terminate sanctions that were imposed after Russia annexed Crimea in 2014.

The amendment would also add sanctions on Russians involved in human rights violations, those supplying weapons to the Syrian government and those conducting “malicious cyber activity on behalf of the Russian government.” A third part attempts to help countries in Central and Eastern Europe counter disinformation from Russia.

The sanctions bill’s aim is to “hold Russia and Iran accountable for their destabilizing actions around the world,” Democratic Whip Steny Hoyer of Maryland said. “The legislation ensures that both the majority and minority are able to exercise our oversight role over the administration’s implementation of sanctions.”

The House version of the bill is set for a vote on Tuesday, July 25th, 2017.

 

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President Trump Announces Changes to Cuba Policy

Cozen O’Connor’s Transportation and Trade Department analyzed President Trump’s announced changes in Cuban travel restrictions for U.S. persons. The article was authored by Robert Freeman, Donald J. Kassilke, and Jennifer Ann Urban. We thank them for their insight and are re-posting the article below for additional information to our previous post.

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On June 16, 2017, President Trump announced changes to the U.S. policy toward Cuba aimed at tightening travel restrictions on U.S. persons and limiting the Cuban military’s access to U.S. dollars. Although announced on June 16, the policy changes will not take effect until new regulations are issued. The Trump Administration has ordered the Department of the Treasury, Office of Foreign Assets Control (“OFAC”) and the Department of Commerce Bureau of Industry and Security (“BIS”) to initiate the rulemaking process for new regulations within 30 days. It will likely take several months, however, for final regulations to be published. Until that happens, the existing regulations will remain in place.

The rationale for the policy change is to continue to provide economic incentives to the Cuban people while channeling economic support away from the Cuban government. Accordingly, the new policy prohibits direct transactions with the Cuban government, intelligence and security services, and entities owned by the Cuban military. Specifically targeted is Grupo de Administracion Empresarial (“GAESA”), the Cuban military monopoly that owns and controls much of the travel and tourism industry in Cuba.

It is important to note that, according to Frequently Asked Questions published by OFAC, any Cuba-related commercial engagements that may be impacted by the new policy will be permitted provided that those engagements were in place prior to the issuance of the forthcoming regulations.  Thus, commercial flights and cruise ship sailings from the U.S. will likely still be permitted. However, depending on the breadth of the regulations, these too could be impacted. Moreover, even if air and vessel transportation remains available, access by individuals to hotel accommodations and other personal services will be limited to those provided by non-governmental entities. The U.S. State Department will publish guidance and a list of entities with whom direct transactions will not be permitted.

President Trump’s revised Cuba policy reiterates the ban on U.S. tourism in Cuba.  While the 12 OFAC general license categories of persons permitted to travel to Cuba will remain the same, individual “people-to-people” trips will no longer be allowed. Groups offering people-to-people travel will still be permitted, but employees, consultants, or agents of these groups must remain with the travelers and ensure the group sticks to a full time schedule of educational activities focused on increasing interaction with the Cuban people.

In order to minimize disruptions, persons who have completed at least one travel-related transaction prior to the President’s announcement of the new policy will be permitted to continue with their travel plans and any related commercial transactions, regardless of whether the trip takes place before or after the new regulations have been enacted.  Persons who have not yet booked travel may do so, but will need to complete the travel before the new regulations are published. Otherwise, they run the risk of violating the sanctions if new regulations are published while they are in transit to or from Cuba.

There are no changes to the customs allowance of the items that can be brought back to the U.S. from Cuba. Persons must continue to self-certify that the purpose for their travel to Cuba legally falls under one of the 12 OFAC general license categories. Further, travelers will still be required to keep records of any financial transactions from trips to Cuba, which may be audited by OFAC. Cuban-American visits to family on the island and remittances will continue to be allowed.

The effects of the revised policy will not be completely clear until new regulations are available. However, as under the prior regulations, persons subject to U.S. jurisdiction remain generally prohibited from doing business with Cuba unless licensed by OFAC and/or BIS. We would encourage anyone interested in transacting business with Cuba or a Cuban national to seek the advice of legal counsel.

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Trump Recasts U.S.-Cuba Policy

On Friday, June 16, President Trump announced policy changes towards Cuba while speaking in Miami.  Trump’s new policy directive reverses many of the Obama administration’s policies with Cuba. 

Trump directive calls for an effective ban of individual tourist travel to Cuba, as well as an absolute prohibition on U.S. companies conducting any business with entities controlled by GAESA, a state-run organization that has strong ties to the Castro family and military regime that operates in a majority of the Cuban economy.

The second part of Trump’s policy change will prohibit financial dealing with Cuba’s military and commercial wing, GAESA, which is known to exercise substantial control over the Cuban economy.  GAESA, the “Business Administration Group,” operates state-owned companies that account for at least half the business revenue produced in Cuba, including 40 percent of foreign currency earnings from tourism and imports and is headed by Raul Castro’s son-in-law, Luis Alberto Rodriguez.

Trump’s announced changes do not take effect until OFAC issues new regulations, in conjunction with the U.S. Department of Commerce and the U.S. Department of the Treasury, which will be issued in the next several months.

In response to inquiries about the rationale for this policy change, a White House official said “we want this relationship to be one in which we can encourage the Cuban people through economic interaction, and that process … has been started. You can’t put the genie back in the bottle 100 percent… It’s not that [Trump] is opposed to any deal with Cuba, he’s opposed to a bad deal with Cuba.”

Trump said that the Havana embassy that was established under the Obama administration as well as the Cuban embassy in Washington, D.C. will remain open, “in the hope that our countries can forge a much stronger and better path.”

It has been reported in the press that this policy reversal undercuts efforts by the US hotel industry, Trump’s competitors, to ease the sanctions towards Cuba. It is another reminder of the President’s dual roles, public and private, as a result of his decision to retain his ownership stake in his companies. This week both the Maryland Attorney General and DC Attorney General filed a lawsuit  that Trump’s decision to retain ownership of his business empire, and from inside the White House, “calls into question the rule of law and the integrity of the country’s political system.”  The suit alleges that Trump is violating the Constitution’s emoluments clause, which prohibits US officials from taking anything of value from foreign leaders.

The author was part of an ABA delegation that visited Cuba a couple years ago.  It is a country with friendly people, many of whom have ties to friends or family in the United States. They seek friendship with the United States and an end to the sanctions.  This new policy directive is a step backward to the new relationship that the Obama Administration sought to establish. 

 

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Trade Agreements Leading Up to NAFTA Renegotiations, US Industry Response

While formal NAFTA renegotiation has not begun, there has been movement by the administration to begin reshaping trade deals with both Mexico and Canada since President Trump announced his plans and sent notice to Congress to renegotiate the agreement on May 19.

Commerce Secretary Wilbur Ross and Mexican Economy Secretary Ildefonso Guajardo Villarreal announced Tuesday, June 6, that they came to an agreement to revise a deal regarding the suspension of anti-dumping and countervailing duties on Mexican sugar.  In a statement issued by Commerce, Secretary Ross said the revised agreement prevents the dumping of Mexican sugar and corrects for subsidies the Mexican sugar industry receives. Secretary Ross stated that the agreement “addresses the concerns of the U.S. sugar industry and prevents harm to other domestic industry – although Ross noted that the U.S. sugar industry has said it does not support the new deal.

Tuesday’s announcement comes after Commerce notified Mexico in early May that anti-dumping and countervailing duties on Mexican sugar would be reinstated on June 5th if the stalled negotiations did not produce an agreement.

The Agricultural Stewardship Association (ASA) has been joined in its resistance to the proposed agreement by the Coalition for Sugar Reform, a larger assembly of advocacy groups who have long called for U.S. sugar policy to be fixed starting at a more systematic level.  The coalition stated that “what the agreement does is solidify that it is time for Congress to shoulder the responsibility of fixing this broken plan in the 2018 farm bill, if not before.  U.S. sugar policy should empower America’s food and beverage companies to create more jobs, not put hundreds of thousands of good-paying U.S. jobs at risk just to benefit one small interest group.

On the U.S.’s northern border, after months of Trump’s threats to levy trade tariffs, the first substantial import hurdle was imposed on Canadian lumber.  Similar to Mexico’s sugar dumping, Secretary Ross accused Canada of “dumping lumber” into the U.S. It is thought this tariff decision was motivated by Canada’s recent pricing policy change for domestic milk, a move that would affect business for some U.S. dairy farmers.

Several American companies that rely on Canadian softwood lumber say thousands of American jobs are at risk unless Commerce exempts them from the hefty duties imposed by this import tariff.  Without an exemption, U.S. bed makers have noted that companies will be forced to substantially raise prices, risking lower sales and job losses.  Vice President of global sourcing for Kentucky-based Tempur-Pedic, Stephen McLaughlin, wrote “disruptions, even if temporary, will eliminate jobs in the U.S. and damage the financial stability of the U.S. mattress manufacturing base.”

On the heels of Trump’s ‘Buy American, Hire American’ plan, American companies who rely on foreign imports may suffer financially and in the process weaken the American job market that is the crux of the administration’s goal to grow.

Formal NAFTA negotiations are not slated to begin until after August 16th, marking the end of the 90-day consultation period required by U.S. domestic law.

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About Beyond Borders
In a world of growing global interdependence, laws are transcending borders and increasingly affecting international business. Thus, making significant developments in the international community of utmost importance. Cozen O’Connor’s international business law blog, Beyond Borders: An International Business Blog, focuses on topics, trends and laws impacting the international business community.
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