On April 16, 2024, USTR requested composition of an RRM panel, only the second such panel requested under the USMCA. This case centers on labor issues at two Atento Services call centers in Hidalgo, Mexico, which the U.S. asserts provide services to BBVA Mexico, a subsidiary of the Spanish multinational financial services company BBVA Group.

As explained in greater detail below, the Atento case is highly significant for the RRM, for services companies in Mexico, and for U.S. trade policy writ large.

What is the RRM?

The RRM requires individual companies operating in Mexico to comply with certain Mexican labor laws as designated by the USMCA. The RRM applies to all companies operating in a priority sector in Mexico – defined broadly to include all manufactured goods, mining, and services – that produce a good or supply a service traded between the U.S. and Mexico, or that compete with a U.S. good or service within Mexico. Petitioners can initiate a proceeding by requesting that the U.S. government review a matter, or the government can self-initiate a review.

The U.S. government has brought 22 RRM cases since the USMCA entered into force in July 2020, with 15 of these occurring in the last 11 months. USTR reports that 17 cases have resulted in comprehensive remediation plans or were otherwise successfully resolved to the satisfaction of the U.S. government. Also according to USTR, these cases have resulted in US $5 million in backpay and benefits to workers, reinstatements of dozens of terminated workers, and elections in which workers selected independent unions to represent them at nine facilities. Sixteen cases have focused on auto or auto parts facilities, two on mines, one on garments, and one on processed foods. Atento is the second case focused on a service provider.

Companies targeted in an RRM enforcement action and found in violation by the Parties (the U.S. and Mexican governments) or an RRM panel – a finding called a “denial of rights” – are subject to trade sanctions on a “three strike” basis, whereby the remedies become more severe for repeat violations, including:

1. Strike 1 – suspension of preferential tariff treatment for goods manufactured at the facility (loss of USMCA tariff preferences for goods from a facility and reversion to the MFN tariff rate) or the imposition of penalties on goods manufactured at, or services provided by, the facility;
2. Strike 2 – application of a remedy available for Strike 1 against all same or related goods or services, from all facilities in Mexico owned or controlled by the same person; and
3. Strike 3 – denial of entry into the U.S. of such goods.

Upon initiating a case, the U.S. government also issues a press release naming the company, and, for goods cases, usually suspends settlement of customs accounts from the facility.

As a key enforcement piece of the Trump Administration’s USMCA trade package and a priority for Congressional Democrats and the Biden Administration’s “worker-centered trade policy,” the RRM has achieved unique bipartisan support in Washington and is widely considered to be a model – or at least a jumping-off point – for future trade agreements.

Why is the Atento case significant?

Much of the RRM caseload to-date – 20 of 22 cases – has focused on trade in goods. This makes sense, as the remedies specifically spelled out in the USMCA focus on approaches that create significant penalties for non-compliant facilities engaged in goods trade, like increasing tariff rates or prohibiting importation of goods. It seems that service providers in Mexico and RRM petitioners have viewed potential RRM services cases as a bit of an afterthought. However, by requesting composition of an RRM panel in the Atento case, the U.S. government is clearly signaling that it disagrees. The U.S. government could have taken an off-ramp before it issued this panel request – it could have agreed to a settlement, for example, or taken the Mexican government’s announced actions to purportedly remediate the issue as sufficient to close out the matter – but instead it elevated the case in a way that has happened only once previously. This tells me two things about the government’s views of this case: (1) the U.S. government thinks its case is strong enough to win at panel; and (2) the U.S. government has a plan for the services-related remedies it will impose if it does.

Much of the attention on Atento has focused on the first point, and that makes sense. As the U.S. and Mexico both approach Presidential elections this year that re-emphasize political touchpoints around economic protectionism and sovereignty, and with the expiration of Mexico’s legitimation vote deadline that makes remediating RRM cases harder than just re-running a vote, and with the influx of Chinese electric vehicle investments in Mexico that has been called “an extinction level event” for the U.S. auto industry, the second RRM panel is a big deal.

But an analysis that stops with that first point misses the forest for the trees, because the implications of the second point are profound and could have ramifications for much of the Biden Administration’s trade policy, not just the RRM. The Biden Administration has sought to frame its trade policy as distinguishable from past approaches in a number of ways, but one notable distinction comes from its decision not to pursue negotiation of traditional market access, tariff-lowering, trade agreements. Since typical trade agreement enforcement in cases of non-compliance is conducted by taking away the market access that the agreement conferred, critics of the Biden Administration’s trade policy question whether the reportedly ambitious commitments it seeks in negotiations with Taiwan, Kenya, the EU, the UK, and 13 Indo-Pacific countries are actually enforceable. Without lowering tariffs, the critique goes, how will the U.S. make sure that its “worker-centered” trade policy is more than just words on paper?

It may be that the Atento RRM case is about to give us the U.S. government’s answer to that question. If the panel agrees with the U.S. government in Atento and permits the U.S. to impose remedies against the call centers involved in the case, we could gain concrete insight into what sorts of trade enforcement remedies it may be contemplating in each of the other trade agreements it is negotiating.

What are the next steps in the case?

The immediate next step in the case is that the USMCA Secretariat (the Mexican section, as the respondent Party) has until April 19 to select by lot the three panelists that will make up the RRM panel. One panelist is selected from Mexico’s list of panelists, one from the U.S. list, and one from the joint list. The three lists were established when the USMCA entered into force in July 2020, so it’s worth noting that the U.S. chose its own panelists and agreed to the joint list during the Trump Administration.

Once constituted, the panel has five business days to confirm that the petition meets basic threshold requirements and then will issue to Mexico a request for verification. Unless Mexico objects to the verification request (in which case the U.S. would ask the panel to find a denial of rights), the panel is to conduct the verification within 30 days of Mexico’s receipt of the request. The panel then has an additional 30 days from the verification to determine if there has been a denial of rights.

However, these timelines should be taken with a grain of salt. In the first case to go to an RRM panel – concerning labor issues at a Grupo Mexico lead, zinc, and copper mine in Zacatecas, Mexico – the panel proceedings have taken much longer than provided for in the USMCA. In that case, the U.S. requested composition of an RRM panel on August 22, 2023. The panel reportedly did not conduct its verification until February 26, 2024, and heard oral arguments from the parties from February 28-29, 2024. The delays in the case have been ascribed to additional time needed by the Mexican secretariat to translate documents. The Grupo Mexico panel’s decision is expected soon, but the panel process has evinced some operational delays in the panel process that the Parties may want to address in their 2026 review of the USMCA.

By way of background, on October 27, 2021, President Biden announced that the United States would explore the development of an economic framework with partners in the Indo-Pacific region. In February, the administration released a more detailed strategy for the region, which identified several areas of focus for the planned economic framework, including promoting and facilitating trade, developing rules to govern the digital economy, improving supply-chain resilience and security, catalyzing investment in infrastructure, and building digital connectivity. The administration’s vision for such a framework is something short of a free trade agreement. Given that trade promotion authority lapsed in July 2021 and has not been renewed, this would presumably allow the administration to achieve their goals without formal approval of the Congress.

The Office of the USTR is responsible for negotiations related to “fair and resilient trade” and is specifically seeking comments on:

1. General negotiating objectives for the IPEF;
2. Labor-related matters;
3. Environment and climate-related matters;
4. Digital economy-related matters;
5. Agriculture-related matters;
6. Transparency and good regulatory practice issues;
7. Competition-related matters;
8. Customs and trade facilitation issues; and
9. Other measures or practices, including those of third-country entities, which undermine fair market opportunities for U.S. workers, farmers, ranchers, and businesses.

1. General negotiating objectives for the IPEF;
2. Digital and emerging technologies related issues;
3. Supply chain resilience-related issues;
4. Infrastructure-related issues;
5. Clean energy-related issues;
6. Decarbonization-related issues;
7. Tax-related issues; and
8. Anti-corruption-related issues.

Among the announcements made were that (1) a Section 301 product exclusion process would be “restarted” with respect to the tariffs currently in effect, and (2) additional enforcement actions against China could be initiated, potentially to include another Section 301 investigation. Recall that the existing tariffs were imposed beginning in March 2018 under Section 301 of the Trade Act of 1974, pursuant to an investigation concerning “China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation.”

On Tuesday, October 5, the USTR announced as a first step toward (1) that it would open a proceeding to consider whether to renew any Section 301 product exclusions that had previously been granted and that had previously been extended. The USTR granted about 2,200 product exclusions between 2019 and 2020, and 549 of those were subsequently extended. Those 549 exclusions are now up for renewal. Comments are being invited on whether this particular universe of previously granted exclusions should be reinstated. USTR will be looking for information on (1) whether the product remains available only from China, (2) changes in the product’s global supply chain/relevant industry developments since September 2018, (3) efforts importers have taken since September 2018 to source the product from the U.S. or third countries, and (4) domestic capacity for producing the product. Any reinstated exclusions will be retroactive to October 12, 2021 and run for a time period yet to be determined.

It is possible that this exclusion renewal process is only a first step preceding a more extensive reopening of the product exclusion process, although no concrete indications of that have been made by the Administration. We will continue to make announcements as opportunities arise.

The Federal Register notice announcing the exclusion renewal process is available here. The USTR’s official list of 549 previously extended exclusions is available here. We have also prepared a fully sortable Excel based version of USTR’s list, available here. The comment period will be open between October 12, 2021 and December 1, 2021. We are available to assist with the preparation of comments either supporting or opposing renewal of exclusions on any of the listed products. Please let us know if you have any questions.

These investigations were launched in June 2020 along with investigations into DST proposals or policies in a number of other countries. As with the affirmative Section 301 findings issued with respect to India, Italy, and Turkey last week, USTR has stated that it is not taking any specific action with respect to Austria, Spain, and the UK, but will “continue to evaluate all available options.” The delay in immediate action gives some room for a multilateral solution currently being pursued at the OECD, which generally has bilateral support in Congress and would correspond to President-Elect Biden’s interest in a multilateral approach to resolving trade disputes.

USTR also provided a status update as to its investigations of DSTs proposed, but not yet implemented, in Brazil, the Czech Republic, the European Union, and Indonesia. The report on these DST proposals raises concerns, but does not reach any conclusion, noting that the analyses are ongoing. The report further states that the United States is encouraging “engagement on these matters through bilateral discussions and on related taxation issues through multilateral forums.”

A comprehensive list of the 21-covered product tariff subheadings is included in Annex A of the Federal Register Notice announcing the action. Examples of products subject to the additional tariff include cosmetics, beauty products, soaps and handbags.

The imposition of tariffs follow USTR’s July 2019 investigation and December 2019 finding that France’s digital services tax is unreasonable or discriminatory and burdens or restricts U.S. commerce. USTR held hearings in January 2020 to seek comment and input on the proposed application of 100 percent duties on a proposed list of 63 products from France. The final list of products subject to an additional 25 percent tariff is a subset of the proposed list. Notably, the final retaliatory list excludes Champagne, cheese and fine dinnerware, which were among the proposed products.

According to the announcement, USTR issued the 180-day suspension to allow additional time for bilateral discussions and multilateral negotiations that could potentially lead to a satisfactory resolution of the dispute. USTR further advises it could decide to impose tariffs at an earlier date and would issue a subsequent notice amending the effective date if it makes that determination.

USTR had initially determined to withhold taking action under this investigation in exchange for France’s agreement to delay collection of its digital services tax pending multilateral negotiations through the OECD to determine consensus on how to tax the activities of digital companies offering services outside a taxing jurisdiction. Those negotiations, however, have experienced setbacks as some OECD members have proceeded to enact and implement digital services taxes notwithstanding ongoing discussions, and it remains unclear whether calls for continued global talks will result in an outcome where the U.S. proceeds with or drops its proposed 301 tariffs.

For additional information about the investigation or proposed tariff implementation procedures please contact Jennifer McCadney.

The current round of GSP reviews by the interagency Trade Policy Staff Committee (TPSC) will evaluate whether:

1. Azerbaijan, Georgia, Kazakhstan, and Uzbekistan are meeting the GSP eligibility criterion requiring that a GSP beneficiary country afford workers in that country internationally recognized worker rights;
2. Ecuador is meeting the GSP eligibility criterion requiring a GSP beneficiary country to act in good faith in recognizing as binding or in enforcing applicable arbitral awards;
3. Indonesia and South Africa are meeting the GSP eligibility criterion requiring adequate and effective protection of intellectual property rights;
4. Indonesia and Thailand are meeting the GSP eligibility criterion requiring a GSP beneficiary country to provide equitable and reasonable access to its markets and basic commodity resources; and
5. Laos meets all of the GSP eligibility criteria and should be newly designated as a GSP beneficiary country.

The TPSC will hold its hearing on January 30, 2020. Interested parties intending to file written pre-hearing comments and/or requests to appear at the hearing must do so by January 17, 2020. Any post-hearing comments must be submitted by February 28, 2020. More information regarding these deadlines and submission requirements can be found here.

First Set of Exclusions Set to Expire December 28, 2019

The relevant product exclusions were granted December 28, 2018 in USTR’s initial set of exclusions from Section 301 duties on Chinese imports that took effect July 6, 2018. The 25 percent tariff covered more than 800 tariff lines, representing approximately $34 billion in annual trade value. In its December 28 action, USTR granted exclusions for more than 1,000 specific products classified within a tariff-covered 8-digit HTSUS subheading.

USTR subsequently issued seven more rounds of product exclusions from its July 6, 2018 tariff action (all expiring one year from the date of publication in the Federal Register) and continues considering exclusion requests for subsequent tariff actions. While additional extension request opportunities are anticipated going forward, the current opportunity only covers exclusions granted on December 28, 2018.

As detailed in a draft Federal Register Notice, USTR will evaluate the possible extension of each exclusion on a case-by-case basis. USTR has indicated it will focus its evaluation on whether the product under consideration remains only available from China. USTR will also consider whether additional duties would result in severe economic harm to U.S. interests. Additionally, USTR has asked commenters to address:

• Whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries.
• Any changes in the global supply chain since July 2018 with respect to the particular product, or any other relevant industry developments.
• The efforts, if any, the importers or U.S. purchasers have undertaken since July 2018 to source the product from the United States or third countries.
• USTR is also interested in whether the product or products are subject to an antidumping or countervailing duty order issued by the U.S. Department of Commerce.

Further, USTR is requiring commenters who are importers and / or purchasers of the products in question to submit additional “business confidential” information via a separate “Form B.” Among other things, Form B requests detailed financial information as well as specific details regarding entities’ attempts to source the product(s) in question from the United States or other third countries. Form B, a sample of which is also included in the Federal Register Notice, will not be published on the public portal.

Importers of products on List 4A may file exclusion requests with the agency beginning October 31, 2019 through January 31, 2020. Once USTR posts a request, there is a 14-day comment period for interested stakeholders to oppose or support, followed by a 7-day rebuttal period for the requestor to respond. USTR will grant approvals and denials on a rolling basis.

If granted, any importer of a product may utilize an exclusion, which would apply retroactively to the September 1, 2019 effective date. Importers may use an exclusion going forward, and also may seek duty refunds through U.S. Customs and Border Protection. USTR has set a uniform expiration date of September 1, 2020 for List 4A exclusions, regardless of the date they are granted.

The exclusion process does not cover products on List 4B, which are scheduled to be assessed an additional 15 percent duty effective December 15, 2019. Cabinet officials have suggested the President may forgo increasing tariffs on List 4B products pending the outcome of ongoing negotiations with China to address IP violations, forced technology transfer and cyber intrusions.

According to the United States, this lack of discipline has led to unpredictable and illogical results, with some of the world’s wealthiest and fastest developing (in terms of economic, social, and other indicators) – and often most trade-distorting – countries putting themselves as the same category as the WTO’s least-developed members in order to strategically or uniformly avoid additional commitments. Some of the examples cited by the United States of those WTO members seen to be unreasonably declaring themselves as developing include China, India, Singapore, Israel, Mexico, Turkey, Chile, Indonesia, South Africa, South Korea, the United Arab Emirates, and Qatar. As the United States explained in a WTO communication issued in February 2019:

Simply put, self-declaration has severely damaged the negotiating arm of the WTO by making differentiation among Members near impossible. By demanding the same flexibilities as much smaller, poorer Members, export powerhouses and other relatively advanced Members . . . create asymmetries that ensure that ambition levels in WTO negotiations remain far too weak to sustain viable outcomes. Members cannot find mutually agreeable trade-offs or build coalitions when significant players use self-declared development status to avoid making meaningful offers. Self-declaration also dilutes the benefit that the {least-developed countries} and other Members with specific needs tailored to the relevant discipline could enjoy if they were the only ones with the flexibility.

The United States’ February communication also proposed that the General Council adopt a new approach that would preclude special and differential treatment “in current and future WTO negotiations” for countries that fall into at least one of four categories: members of the Organization for Economic Cooperation and Development (OECD); one of the G20 countries; classified as “high income” by the World Bank; or account for “no less than 0.5 per cent of global merchandise trade (imports and exports).”

In July 2019, President Trump bolstered the U.S. Government position by requiring the Office of the U.S. Trade Representative (USTR) to secure changes to the current WTO developing country rules within 90 days. If progress was not made within that time, President Trump authorized USTR to “no longer treat as a developing country” any WTO member it views as “improperly declaring itself a developing country and inappropriately seeking the benefit of flexibilities in WTO rules and negotiations.” The memo also directed USTR not to support OECD membership of that same country.

Just before the October 16^th General Council meeting, India, China, and the WTO African Group preempted the anticipated discussion by issuing a statement in defense of the current system. The statement “reaffirmed” several special and differential treatment principles, including that “developing countries must be allowed to make their own assessments regarding their own developing country status.” The debate reached a peak, however, at the October 16^th meeting when U.S. Ambassador to the WTO, Dennis Shea, reiterated the United States position “that there is a group of self-declared developing country Members that are relatively advanced, wealthy, and influential and that should not have access to blanket special and differential treatment in current and future WTO negotiations.” He specifically identified China as a major perpetrator. While Ambassador Shea’s statement drew support from the EU, it drew the ire of both China and India, with India expressing concern that the actions outlined in President Trump’s July 2019 memo will cause special and differential treatment to “become extinct at the WTO.”

Without any specific outcome on this issue from the General Council meeting, it remains to be seen how USTR will implement the White House’s July directive. Developing country status does not affect tariff commitments, but could affect rights under current agreements and is likely to have the greatest impact in ongoing negotiations (such as the fisheries subsidies negotiation), where self-declared developing countries rely on such status to establish their commitments. The July memo instructs USTR to publish on its website a list of all self-declared developing countries that USTR believes no longer deserve such treatment for purposes of WTO rules and negotiations.

In the notice initiating that investigation, USTR proposed imposing additional ad valorem duties of up to 100 percent on certain imports from the EU. USTR also provided a list of proposed tariff headings covering an estimated $21 billion in trade value that might be subject to increased duties.

In May, USTR solicited comments and held a hearing concerning the list of products to be subject to retaliatory duties and the level of duties to be applied, among other issues. A number of commenters urged USTR to consider retaliatory duties on additional products not included on the April 12 list.

Pursuant to these comments, USTR has proposed a second list of products covering an estimated trade value of $4 billion. The new list covers a variety of food items, including meats, cheeses, olives, fruits, coffee, pasta, waffles, and whiskey. It also covers certain chemicals, including ammonia, urea, as well as metals, including ferrovandium, cast iron pipes and tubes, copper and copper based alloys.

USTR is again seeking public comment concerning the new list of products, the level of ad valorem duties that should be applied, and whether duties on products covered by the new list might have an adverse effect upon U.S. stakeholders. The notice, which will be published in the Federal Register in the coming days, provides the following deadlines:

• Requests to appear at an August 5, 2019 public hearing, as well as a summary of the testimony must be submitted by July 24, 2019;
• Written comments are due on August 5, 2019;
• The public hearing will be held on August 5, 2019 at U.S. International Trade Commission in Washington, DC; and
• Post-hearing rebuttal comments are due on August 12, 2019.

The announcement comes in response to a Department of Commerce investigation initiated a year ago under Section 232 of the Trade Expansion Act of 1962. The Department submitted its statutorily-required report to the President on February 17, 2019, concluding that imports of automobiles and certain automobile parts threaten to impair the national security of the United States. Specifically, the Department highlighted the importance of domestic R&D expenditures and innovation in ensuring “long-term automotive technology superiority” that is critical to the defense industry.

The President’s proclamation highlighted a near-doubling of automobile imports into the United States from 1985 to 2017 and the declining share of the U.S. automobile market held by American-owned producers during the same time period (now 22% vs. 67% in 1985). Additionally, the proclamation cites the difficulty of U.S. producers to export as a result of protected foreign markets – specifically in the European Union and Japan.

In directing the trade negotiations, the proclamation specifically mentions the European Union, Japan and “any other country the Trade Representative deems appropriate.” The President highlighted the potential benefits of the renegotiated United States-Korea agreement and the new United States-Mexico-Canada Agreement (USMCA) in addressing the national security threat.

Under the statute, a decision was required by the President within 90 days of receiving the Department of Commerce report. The decision to enter into trade negotiations was one option. Alternatively, in concurring with the Department’s findings, the President could have announced more immediate action to adjust imports (e.g., tariffs or quotas), or could have asked for additional analysis or review.

If agreements are not reached by November 13, 2019, the President will determine whether and what further action needs to be taken to address the national security threat.

All merchandise entered after June 1^st will be subject to the 25% rate.

The U.S. Trade Representative also issued a Notice modifying the implementing instructions regarding merchandise in foreign trade zones. According to the May 10^th Notice, merchandise subject to the Section 301 third tranche and admitted into a foreign trade zone in “privileged foreign” status will retain that status and will be subject, at the time of entry for consumption (i.e. entered into the commerce of the U.S.) to the additional duty rate that was in effect at the time of FTZ admission of the goods. Therefore, merchandise entered into a foreign trade zone as privileged foreign status prior to May 10^th will be locked into the 10% rate.

Countries that are identified as falling short with respect to protection, enforcement, and market access for IP-intensive industries are listed in the Special 301 Report in one of three ways. Countries with the most egregious acts, policies, or practices that have the greatest adverse impact on U.S. companies and products are listed Priority Foreign Countries (“PFC”). PFCs are subject to investigation and potential trade sanctions such as tariffs, quotas, or other measures. A country may not be listed as a PFC under the law if it is entering into good faith negotiations or making significant progress toward providing and enforcing IP rights. Notably, USTR may designate a country as a PFC even if that country is in compliance with the World Trade Organization’s IP agreement – the Agreement on Trade-Related Aspects of Intellectual Property Rights, or the TRIPS Agreement.

Countries whose conduct does not warrant PFC designation may instead be placed on USTR’s Priority Watch List or Watch List. USTR develops action plans and engages in bilateral discussions with countries on the Priority Watch List to resolve the problems identified (with the threat of designation as a PFC if the issues are not resolved). Watch List countries, with significant but less serious IP protection and enforcement problems, also face the risk of being elevated to the Priority Watch List if improvements are not made over time. USTR may also conduct Special 301 “out-of-cycle” reviews that allow for heightened engagement to address positive or negative developments in the bilateral negotiation process with a country.

USTR included 36 trading partners in its 2019 Special 301 Report, but did not identify any Priority Foreign Country. Countries listed on the Priority Watch List are Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Saudi Arabia, Ukraine, and Venezuela. The Watch List countries and a link to the full report can be found here.

There were several notable developments in this year’s report. On a positive note, Canada and Colombia moved from the Priority Watch List to the Watch List. USTR recognized the important steps taken by Canada toward improved IP protections as part of the U.S.-Mexico-Canada Agreement (“USMCA”), the terms of which address enforcement against counterfeits, inspection of goods in transit, transparency with respect to new geographical indications, national treatment, and copyright term (we previously addressed the IP provisions of the USMCA here). USTR, however, remains concerned about Canada’s IP regime with respect to innovative pharmaceuticals and exceptions added to its copyright law. Colombia has also made significant progress toward copyright reform, including the passage of legislation that included an extended protection term and stronger enforcement measures. Colombia’s efforts were recognized in a 2018 out-of-cycle review that focused on Colombia’s implementation of certain provisions of the United States-Colombia Trade Promotion Agreement.

This year’s Special 301 Report also added Saudi Arabia to the Priority Watch List and Paraguay to the Watch List. According to USTR, Saudi Arabia has failed to address long-standing and deteriorating IP concerns regarding the lack of IP and unfair commercial use protection for innovative pharmaceutical products and online piracy. After a four-year break from being specifically identified in the report pursuant to a Memorandum of Understanding with the United States, Paraguay has returned to the Watch List. USTR found that Paraguay has failed to meet key commitments made in the MOU, does not provide adequate or effective border enforcement against counterfeit and pirated goods, and, in fact, remains a “major transshipment point” for such goods.

The deadline for public comments for consideration in the next Special 301 Report and public hearing date are typically announced at the end of each year, with the report usually released the following April.

The Trump administration has not yet announced the additional duty rates. This latest trade action, announced on April 8, 2019, is pursuant to Section 301 of the Trade Act of 1974, the same provision used in 2018 for the 10-25% additional tariffs on $250 billion of Chinese products imported into the U.S.

The administration will be holding a public hearing on the proposed list of products at the International Trade Commission in Washington, DC. on May 15, 2019. Requests to appear must be submitted by May 6, 2019. Written comments may also be submitted by May 28, 2019.

The trade dispute dates back to a 2004 U.S. challenge in the World Trade Organization (WTO) to EU subsidies of Airbus which had “adverse effects” on the U.S. According to the USTR, the final list of products will be announced and go into effect this summer once the WTO issues its final findings on the dispute settlement proceedings. According to the USTR, once in place, the tariffs will be applied until the EU removes the Airbus subsidies.

Ambassador Lighthizer answered questions on a number of topics relating to the WTO and, more generally, current U.S. trade policies:

WTO Reform Is the WTO still relevant? In short, yes. Lighthizer explained that much work is done at the WTO committee level, including interpreting agreements, solving and diffusing disagreements, and helping parties move toward consensus. The problem, according to Lighthizer, is that the dispute settlement system established under the 1994 agreements has morphed the WTO from a negotiating forum to a litigation forum. This results in WTO members disfavoring agreements for concessions and instead litigating at the Appellate Body level to achieve gains they otherwise would not be entitled to. The solution? Lighthizer favors engaging in negotiations with small groups of countries with commonalities who are willing to take on extra obligations – for example, in the digital trade space – and excluding other members from that process. He suggests that such a plurilateral approach will be more fruitful. Lighthizer confirmed he knows of no other way to push for WTO reform than to use the only leverage available to the United States by blocking the appointment of Appellate Body members. Absent new appointments, the Appellate Body will no longer function by the end of 2019 as it will not have enough members to render decisions.

Another widespread complaint about the current functioning of the WTO is the ability of members to self-declare themselves “developing” countries. Developing countries are exempt from certain WTO obligations and receive benefits that are not available to non-developing countries. Lighthizer explained that this is particularly problematic in the case of countries like China, Korea, and Saudi Arabia, that have become increasingly wealthy over the years yet continue to reap the benefits of their self-declared developing country status. USTR has proposed and garnered some support for proposals to address this problem, for example, disallowing a country to be designated as “developing” if it is in the OECD.

In response to a number of questions about the status of Section 232 tariffs on imports of steel and aluminum, Lighthizer stated that the tariffs are working and are necessary. There are no immediate plans to lift those tariffs, but Lighthizer confirmed they are a constant topic of discussion in the ongoing US-China negotiations and US-Canada-Mexico conversations as the push to complete USMCA continues.

China Issues regarding China were a significant focus of the senators’ questions. In response to concerns that China’s growth since 2001 (when it joined the WTO) has come at the expense of the United States and in violation of WTO agreements and rules, Lighthizer explained that the current US-China negotiations address China’s failure to abide by WTO obligations as well as overcapacity, currency manipulation, subsidies (both generally and to state-owned enterprises (SOEs), and more. Lighthizer explained further that the current structure of the agreement, which is 110 to 120 pages long, addresses technology transfer, IP protection, currency, market access, agriculture, non-tariff barriers, and enforcement of the agreement. Without question, he stated the agreement will include a commitment not to competitively devalue currency and will require increased transparency on the part of China. Lighthizer assured the Committee that enforceability is a critical aspect of the negotiations and the President will not OK an agreement absent strict enforcement provisions. Ambassador Lighthizer did not, however, provide an estimated date for when he anticipates negotiations to be completed. He further reported that China is pushing for removal of Section 301 tariffs and wants increased market access in certain sectors.

For more information on what to expect in 2019 on trade issues, check out our post reviewing the Administration’s 2019 trade policy agenda.

According to the Office of the U.S. Trade Representative (“USTR”), neither India nor Turkey meet the statutory eligibility criteria to continue as beneficiary countries under the GSP program. USTR has found that Turkey is “sufficiently economically developed and should no longer benefit from preferential market access to the United States market.” With respect to India, USTR concluded that the country failed to provide “equitable and reasonable access to its markets in numerous sectors.” India is the largest single beneficiary of the GSP program, with GSP-eligible imports worth $5-6 billion.

The Indian GSP eligibility determination was the result of a review of India’s GSP eligibility initiated in April 2018. Six months earlier, USTR announced new enforcement measures for GSP, including a triennial review process for each beneficiary country examining that country’s compliance with the 15 eligibility criteria established by Congress. One of those criteria is that the GSP beneficiary country must provide the United States with equitable and reasonable market access. In its latest pronouncement, USTR explained that “intensive” discussions with India regarding its trade barriers, particularly in the dairy and medical device industries, had been unsuccessful. In a statement from the Ministry of Commerce and Industry on Tuesday, India rejected the United States’ characterization of the negotiations, claiming that it was “agreeable to a very meaningful, mutual acceptable package.”

Monday’s notice to Congress marks the beginning of a 60-day waiting period before duty-free treatment of the GSP-eligible imports from Turkey and India will end.

USTR’s notice follows President Trump’s announcement of his decision to delay the March 2, 2019 deadline for increasing tariffs on List 3 items due to “substantial progress” in his administration’s talks with China, as well as Ambassador Lighthizer’s testimony before the House Ways and Means Committee concerning the same issue.

The 10% percent duties, which took effect on September 24, 2018, were initially set to increase to 25% on January 1, 2019, but that deadline was delayed to March 2, 2019 pursuant to a December 19, 2018 Federal Register notice. USTR’s March 5, 2019 notice does not establish a new deadline for an increase in duties, but instead leaves the possibility of an increase open.

As Ambassador Lighthizer indicated in his testimony to the House Ways and Means Committee, there has been no agreement to remove the current 10% tariff on List 3 items, though the removal of such tariffs is a negotiating objective of the Government of China. We will continue to monitor further developments regarding the Trump Administration’s Section 301 tariffs and trade negotiations with China.

According to the Office of the U.S. Trade Representative (USTR), the trade policy agenda underscores three main points. First, the agenda notes that this Administration inherited a “deeply flawed global trading system” that it is striving to improve. The agenda calls out the primary targets of the Administration’s trade efforts to date: overhauling the North American Free Trade Agreement (NAFTA) into the United States-Mexico-Canada Agreement (USMCA), the overreach of the World Trade Organization’s (WTO) Appellate Body, and unfair trade practices from U.S. trading partners, such as China’s non-market policies.

Second, the Administration continues efforts to improve domestic trade policies to better serve U.S. workers. While the agenda reviews a number of the Administration’s recent achievements, it highlights that a primary goal of 2019 is to obtain Congressional approval of the USMCA, which the President has touted as better serving the interests of U.S. workers, farmers, and businesses than NAFTA. Trade issues with China are unsurprisingly a significant focus, with USTR highlighting its negotiations with China to eliminate a range of unfair trade policies and practices. The Administration’s concern that the WTO Appellate Body’s decisions are overreaching is well-known, and the agenda promises a commitment to WTO reform efforts.

Third, the Administration intends to pursue new trade deals and to continue its enforcement of current trade laws. Here, the Administration highlights its focus on efforts to preserve U.S. national security and national defense, a nod to its current use of Sections 232 and 301 to impose tariffs on a broad range of global imports. The agenda also notes USTR’s intent to pursue new trade deals with Japan, the European Union, and the United Kingdom, as well as to concentrate on trade and investment with Kenya.

In sum, the 2019 agenda focuses on the ongoing goals of the Administration to improve conditions for American workers, to strictly enforce U.S. trade laws, and to encourage U.S. economic growth. We continue to monitor the Administration’s efforts and initiatives as they unfold in 2019. Please contact the international trade group with any questions.

Any member of the public – including individual companies, industry coalitions, and trade associations – may submit written comments to USTR by November 26, 2018. That is also the deadline to submit written notice of intent to testify, along with a summary of intended testimony, at a public hearing to be held on December 10, 2018 at 9:30 am. The hearing will be held by the Trade Policy Staff Committee, an interagency committee chaired by USTR and comprised of 20 executive branch agencies that provide input into the Administration’s trade-related decision-making through review of policy papers and negotiating documents, and eliciting public feedback. Procedures are available for commenters to submit business confidential information.

Comments and/or hearing testimony may address any issue that the submitter believes is relevant to the development of USTR’s negotiating objectives for the agreement and policy positions going into the discussions. Examples include, but are not limited to, advice on existing product- or industry-specific barriers to trade, including specific tariffs; measures that may be taken to improve product- or industry-specific access to the Japanese market; experience with particular government policies or practices that should be addressed by the negotiations; comments on export priorities or import sensitivities; customs and trade facilitation issues that the trade discussions should address; and the economic costs and benefits to U.S. interests on the removal or reduction of existing trade barriers, including tariffs.

While USTR will issue specific negotiating objectives at least 30 days before the trade discussions begin, the agency has already identified several general priorities. These include addressing the “underperforming” nature of Japan as an important U.S. export market, tackling the tariff and non-tariff barriers for automobiles, agriculture, and services that has led to “chronic U.S. trade imbalances,” and finding ways to expand trade and investment between the two countries.

If you are interested in developing comments or appearing at the hearing, please contact Kelley Drye’s International Trade practice.

A complete list of products – covering 818 tariff lines – currently subject to the new tariffs (at a rate of 25%) is available here. USTR will consider excluding a particular product within a subheading (but not the tariff subheading as a whole) from the tariffs. Note that USTR is currently considering / accepting public comment on an additional 284 proposed tariff lines. Once finalized, the additional tariffs will likely be accompanied by a similar exclusion process.

In announcing the exclusion process, USTR indicated it received comments that specific products “were only available from China, that imposition of additional duties on the specific products would cause severe economic harm to a U.S. interest, and that the specific products were not strategically important or related to the ‘Made in China 2025’ program.” The new exclusion process was designed to address those concerns.

Criteria: USTR will accept requests from all interested persons, including trade associations. Each request must specifically identify a particular product and provide supporting data as well as the rationale for the exclusion request. Entities wishing to exclude more than one product must submit a separate request for each product.

In making its determination on each request, USTR may consider whether a product is available from a source outside of China, whether the additional duties would cause severe economic harm to the requestor or other U.S. interests, and whether the particular product is strategically important or related to Chinese industrial programs including “Made in China 2025.” USTR is unlikely to grant a request that would undermine the objective of the Section 301 investigation.

USTR will consider each request on a case-by-case basis. Exclusions will be granted on a product basis, meaning any individual exclusion will apply to all imports of that particular product (not just to products imported by the requestor).

Process / Timeline: According to USTR’s notice:

• The public will have 90 days to file a request for a product exclusion; the request period will end on October 9, 2018.
• Following public posting of the filed request on Regulations.gov, the public will have 14 days to file responses to the request for product exclusion. After the close of the 14 day response period, interested persons will have an additional 7 days to reply to any responses received in support of or opposition to the request.
• Exclusions will be effective for one year upon the publication of the exclusion determination in the Federal Register, and will apply retroactively to July 6, 2018.
• USTR will periodically announce decisions on pending requests.

Requirements: Each request must include:

• Identification of the particular product in terms of the physical characteristics (e.g., dimensions, material composition, or other characteristics) that distinguish it from other products within the covered 8-digit subheading. USTR will not consider requests that identify the product at issue in terms of the identity of the producer, importer, ultimate consumer, actual use or chief use, or trademarks or tradenames. USTR will not consider requests that identify the product using criteria that cannot be made available to the public.
• The 10 digit subheading of the HTSUS applicable to the particular product requested for exclusion.
• Requesters also may submit information on the ability of U.S. Customs and Border Protection to administer the exclusion.
• Requesters must provide the annual quantity and value of the Chinese-origin product that the requester purchased in each of the last three years. (Trade associations should provide such information based on members’ data.) If precise annual quantity and value information are not available, USTR will accept an estimate with justification.

• Whether the particular product is available only from China. In addressing this factor, requesters should address specifically whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries.
• Whether the imposition of additional duties on the particular product would cause severe economic harm to the requester or other U.S. interests.
• Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
• Requesters may also provide any other information or data that they consider relevant to an evaluation of the request.

Technical Notes: Business confidential information may be submitted, but applicants must also include a public version for posting.