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.

We previously reported on the investigations here and here, which concluded that these countries’ DST measures (plus measures announced in India and Turkey) burden or restrict U.S. commerce, and are discriminatory and inconsistent with prevailing principles of international taxation.[1] With the affirmative investigation findings, in March 2021, USTR proposed lists of products from Austria, India, Italy, Spain, Turkey, and the United Kingdom that would be subject to an additional 25 percent import tariff, subject to public comment and hearing. In June 2021, USTR announced that it would be suspending the proposed tariff measures for each of the six countries for 180 days to “to allow additional time for multilateral and bilateral discussions that could lead to a satisfactory resolution of this matter.” USTR had previously and separately investigated France’s DST measures, determining in June 2020 to impose an additional 25 percent tariff on certain French imports and, in January 2021, deciding to indefinitely suspend that action pending further negotiations.

The agreement reached today terminates the United States’ proposed Section 301 tariffs with respect to Austria, France, Italy, Spain, and the United Kingdom. India and Turkey did not join in the agreement. The “political compromise” reached does not require the five countries involved to withdraw their existing DST measures. Instead, those countries have agreed that to the extent U.S. companies accrue any DST liability before implementation of Pillar 1 of the Organization for Economic Co-operation and Development (OECD) global tax agreement, such liability will be creditable against future income taxes as determined under Pillar 1. The OECD global tax agreement is a historic, multilateral tax reform project aimed at addressing the challenges of the digital economy and earning the high-level political support of the G7, G20, and 136 members of the OECD. Pillar 1 of the OECD agreement relates to a global framework allocation of firms’ digital services profits by introducing new profit allocation mechanisms and nexus rules to expand the taxing authority of market jurisdictions. According to today’s Section 301 deal, once OECD Pillar 1 is in effect (2023), the United States will work with the five countries to roll back their existing, individual digital services taxes.

The suspended 25 percent tariffs on certain imports from India and Turkey are set to go into effect on November 30, 2021, barring satisfactory resolution of the dispute before that time or USTR’s decision to further suspend the tariff actions.

[1] USTR also investigated DST measures by Brazil, the Czech Republic, the European Union, and Indonesia. In March 2021, USTR announced the termination of these investigations, without further action, because none of the four investigated jurisdictions had adopted or implemented the DST policies at issue.

The deal is agreed to in principle, but subject to “getting everything papered.” Other aspects of the deal include technology transfer, financial services, and intellectual property. Without any documentation or draft text it remains unclear what exactly these additional provision will entail.

The agreement has had the effect of reducing tensions between the two countries. With President Trump facing an election in 2020 and China under scrutiny for its slowing economy, traction on the trade front, limited as it may be, may be seen as politically necessary by President Trump and Chinese President Xi Jinping. That said, there are virtually no details available on what is in the agreement, and how or whether the Chinese would implement any changes in their domestic law. Indeed, it was the unwillingness of hard line officials in China to commit to certain changes in law that derailed a draft agreement a few months ago. Skeptics on the U.S. side are wondering as well whether the written agreement will be much more than a commitment to purchase more farm goods, leaving the hardest issues to be resolved at a later point.

Absent from the agreement is any change regarding the Trump Administration’s treatment of Huawei, which USTR Lighthizer stated was a “separate process,” or a decision to rescind the tariff increases currently scheduled for mid-December. Treasury Secretary Steven Mnuchin said Monday that he expects the tariffs to be imposed if there is no agreement at that point.

President Trump estimates this “phase one” agreement will be papered in the next four or five weeks.

The two agreements signed Monday formalized earlier agreements between President Trump and Japanese Prime Minster Abe, which were reached a few weeks ago. Initialdetails of the agreements were covered in an earlier post on this blog in late September. The text of the agreements, as well as side letters on interactive computer services, alcoholic beverages, beef, rice, safeguards, skimmed milk powder, and whey, were also released Monday.

The Digital Trade Agreement includes many provisions similar to those included in the USMCA Digital Trade Chapter. Provisions eliminating discriminatory treatment of digital products, preventing future customs duties on electronic transmissions, validating the use of electronic signatures, and providing protections to online consumers and personal information appear in both the Digital Trade Agreement and the USMCA.

For information and communication technology (ICT) goods that use cryptography, neither party shall require a manufactureror supplier of a good, as a condition for sale, distribution, import, or use of an ICT good, to “transfer or provide access to any proprietary information relating to cryptography, including by disclosing a particular technology or production process.” This language is also found in Annex 12-C of the USMCA.

The agreements signal a growing economic partnership between the United States and Japan, and the two countries have committed to continue negotiating in the coming months with the hopes of concluding a comprehensive agreement.

Digital trade has been another area of focus in the U.S.-Japan trade negotiations. In this initial deal, the two countries have agreed not to impose customs duties on digital products transmitted electronically such as videos, music, e-books, software, and games, and to ensure non-discriminatory treatment for digital products. The deal will also lower trade barriers for data transfers.

Although there was no specific mention of how the deal would impact the President’s past comments on imposing tariffs on imports of Japanese cars under Section 232 of the Trade Expansion Act of 1962, the joint statement provided that neither country will impose any further tariffs that would go against the spirit of the agreement.

In 2018, Japan was the United States’ fourth largest trading partner. Trade negotiations for a bilateral agreement between the two nations began back in April of 2019. The joint statement released by the United States and Japan stated that the two countries are aiming to complete trade talks in the next four months.

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.

Introduction

The road ahead is fraught with obstacles, however, as the EU and U.S. negotiating positions differentiate substantially. The USTR’s summary of specific negotiating objectives seeks a broad free trade agreement with the EU, including on sticky issues such as agriculture, while the Commission aims to limit trade negotiations to reciprocal commitments on conformity assessment and industrial goods. This makes any future transatlantic trade negotiations challenging at best and raises the question of whether the two sides will be able to arrive at an agreement at all. The situation is further complicated by the Trump administration’s ongoing 232 investigations on imports of certain automobiles and parts, as the EU stands ready to suspend any trade talks and retaliate with duties on U.S. exports should the investigation lead to the imposition of tariffs on certain EU automotive products.

EU Perspective

US Perspective

A Path Forward

By focusing on common ground, the Commission and USTR have the opportunity to begin negotiations and avoid thorny issues related to autos and agriculture. The USTR has also indicated it “may seek to pursue negotiations with the EU in stages,” which may allow the parties to find agreement on common objectives.

The PTPA entered into force in February 2009, and total trade between the two countries has nearly doubled since that time to $15.9 billion in 2017. The PTPA was the first U.S. trade agreement – followed by agreements with Panama, Colombia, and Korea – to incorporate the more stringent and enforceable labor and environmental standards established in the May 10, 2007 Bipartisan Agreement on Trade Policy, known as the “May 10^th Agreement.”

The United States’ decision to raise this issue in formal consultations with Peru is notable in two contexts. First, the specific provision of the PTPA’s environmental chapter that guarantees OSINFOR’s independence is found in the Annex on Forest Sector Governance – a unique set of commitments designed to address the environmental and economic consequences of trade associated with illegal logging and illegal trade in wildlife. Illegal logging in particular was a priority concern for the United States in negotiating the PTPA, and OSINFOR is the Peruvian agency, established in 2008, primarily responsible for detecting and combatting illegal logging. Thus, ensuring the agency’s ongoing independence and ability to enforce Peru’s forestry commitments is an important policy concern for the United States in the context of the U.S.-Peru trade relationship.

Second, the Trump Administration is in the process of seeking Congressional support for the U.S.-Mexico-Canada Agreement (USMCA), designed to replace NAFTA. As we previously noted, the USMCA’s labor and environmental provisions are likely to be a sticking point for House Democrats, even though USTR has stated that the USMCA comports with the May 10^th Agreement. USTR’s action to enforce this particularly critical issue arising under the PTPA may be seen as a move to demonstrate the Administration’s commitment to the USMCA’s environmental terms and thereby garner Democratic support for the deal.

With the United States’ request for consultations, the parties have 60 days to resolve the dispute before the United States can request separate consultations or a meeting of the PTPA Commission under the dispute settlement provisions of the agreement. In a statement, USTR explained that it “will continue to confer with Members of Congress, interested agencies, and stakeholders on the results of these consultations before considering any further actions.”

KORUS first went into effect in 2012, but many in the U.S. business community had concerns about Korea’s implementation of key market access provisions. In April 2017, the United States and Korea began renegotiating the terms of KORUS, and the parties signed a revised version of the agreement in September 2018. In seeking an updated deal, President Trump expressed disappointment in the U.S. goods trade deficit with Korea, measuring $23.1 billion in 2017, notwithstanding the United States’ growing surplus in services trade with that country.

The renegotiated KORUS increases Korean market access for a number of American exports. Perhaps the most significant provisions of the new agreement relate to new rules for American automobile exports to Korea, including a doubling of the cap on the number of automobile exports and acceptance of U.S. emissions standards. Other key changes address Korea’s burdensome customs verification procedures and its pharmaceutical pricing and reimbursement policy. The revamped automobile trade terms, however, were expected to present the biggest political hurdle to passage of the updated agreement in the Korean parliament given the importance of that country’s domestic automobile industry. With that challenge now overcome, and with no congressional approval requirement in the United States, the revised agreement will go into effect in both countries.

The intellectual property (IP) chapter of the new U.S.-Mexico-Canada Agreement (USMCA), in particular, reflects significant updates. While NAFTA included IP provisions – and was, in fact, the first trade agreement to do so – the USMCA reflects a more comprehensive approach to ensuring the United States’ most important trading partners respect and enforce IP rights at a high level.

The IP chapter of the USMCA is largely aligned with the IP terms agreed to by the United States, Canada, and Mexico in the Trans-Pacific Partnership (TPP) negotiations in 2016. Although the United States withdrew from the TPP, Canada, Mexico, and the 9 other remaining TPP countries ultimately adopted a modified version of that agreement, called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), in March 2018. The USMCA builds on the updated terms reached by the United States, Canada, and Mexico as part of the TPP negotiations and final CPTPP agreement. Read More...

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.

This announcement was issued just days after the trilateral trade agreement, the U.S.-Mexico-Canada Agreement (“USMCA”) was reached among the United States, Canada, and Mexico. Notably, the Section 232 tariffs, imposed in June on the basis of national security pursuant to the Trade Expansion Act of 1962, remain in place for both Mexico and Canada despite the USMCA agreement being finalized.

As of June 1, 2018, imports of Mexican steel became subject to a 25 percent duty, while aluminum shipments are subject to a 10 percent duty. Certain countries, including Argentina, Brazil and South Korea, have already negotiated export quotas to nullify the Section 232 duties. For example, South Korean officials agreed in March to cut steel exports by 30 percent of the 2015-2017 average.

Mexico is also facing potential Section 232 tariffs and export quotas imposed by the U.S. regarding certain Mexican-origin autos and auto parts. The U.S. is currently investigating whether it will impose such tariffs, and results are expected in the coming months. If such duties are imposed, a side-letter to the USMCA states that Mexico and Canada will be subject to a 2.6 million annual passenger vehicle quota each, while also being subject to auto parts quotas of $108 billion and $32.4 billion annually, respectively.

Next Steps

Mexican officials indicate that an agreement on export quotas for steel should be reached in the next few weeks. Separately, the finalized USMCA is expected to be signed at the end of November 2018. Pursuant to the Congressional trade agreement authority, the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 or Trade Promotion Authority, a list of required changes to the U.S. law is due to Congress within 60 days of signing. In addition, the U.S. Department of Commerce is expected to release its recommendations regarding Section 232 automobiles and auto parts imports in mid-February 2019.

The seven classes include wire rod; stainless steel wire; hot-rolled sheet; heavy plate; energy tubular; pre-painted steel; and concrete reinforcing bar.

These “safeguard measures” were reportedly prompted by complaints from Canada’s steel industry that U.S. Section 232 tariffs on steel and aluminum have resulted in shipments of cheap steel to be diverted to Canada from the U.S., and follows the country’s countermeasures imposed on July 1^st applying tariffs on over $12 billion worth of U.S. goods in response to those tariffs.

Notably, the safeguards do not apply to goods originating in and imported from the U.S., Chile and Israel. However imports of energy tubular and wire rod from Mexico “are within the scope of the Tribunal’s inquiry.”

These safeguard measures are provisional, remaining in place for 200 days pending the safeguards inquiry conducted by the Canadian International Trade Tribunal (CITT). By April 2019, the CITT must provide recommendations on whether the safeguard should be continued for the longer term. While parties can participate in the CITT inquiry, they are “directed not to make submissions to the Tribunal on classes of goods or to request exclusions from safeguard measures for specific products, producers, exporters, regions, etc., as these matters are outside the scope of the inquiry.”

Under the Trade Promotion Authority (“TPA”) law, known as the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, the ITC must prepare a report that assesses the likely impact of the Agreement on the U.S. economy as a whole and on specific industry sectors, as well as the interests of U.S. consumers. This report, which will be made public, is due to the President and Congress no more than 105 days after the President signs the agreement. The TPA requires the President to wait 90 days from the date of the notification before signing the USMCA. President Trump notified Congress of his intent to enter into the new trade agreement on August 31, 2018. Therefore, the earliest the President may sign the agreement is November 30, 2018.

Congress is expected to wait until the ITC report is issued before voting on the new agreement. In fact, Senate majority leader Mitch McConnell recently told Bloomberg in an interview that the vote on USMCA will be a “next-year issue.”

If Congress does not pass the TPA, the President has threatened to withdraw from NAFTA. Although the ITC is not required to analyze the impact of withdrawing from NAFTA, there is at least one study prepared by Trade Partnership Worldwide that estimates that withdrawing from NAFTA could cost 1.8 million jobs in the first year.

The ITC will hold a public hearing at 9:30 a.m. on Thursday, November 15, 2018. Parties wishing to participate at the hearing must file a request to appear by October 29, 2018. Written submissions for the record are due by December 20, 2018.

In addition to general negotiating objectives across numerous areas – including trade in goods, services, and agriculture; intellectual property; digital trade and cross-border data flows; labor and the environment; trade remedies; anti-corruption; and dispute settlement – TPA also establishes procedures for consultation with Congress and other stakeholders throughout trade agreement negotiations. These procedures include required reports on certain aspects of the agreement prior to signing the agreement; Congressional notification 90 days before signature; release of the final agreement text 60 days before signature; and Congressional notification of expected changes to U.S. law 60-180 days before signature. USTR also engages with public and private sector stakeholders through consultation with various policy- and sector-oriented trade advisory committees and through comment periods and hearings announced in the Federal Register.

The United States began bilateral negotiations with the EU in July 2013 in an effort called the Transatlantic Trade and Investment Partnership (“TTIP”). The last round – the 15^th – of those negotiations took place in New York in early October 2016, during the Obama Administration. While the Trump Administration’s new trade talks with the EU will likely build on some aspects of the prior negotiations, it is unclear at this point how previously agreed upon terms will be treated. Notably, the interests of the United Kingdom, as a member of the EU, were represented in those earlier TTIP negotiations. As a result of the UK’s exit from the European Union, the Administration now intends to enter into a separate trade agreement with the UK. As stated in USTR’s notification letter to Congress, those discussions will begin “as soon as {the UK} is ready after it exits from the European Union on March 29, 2019.” In its Congressional notification letters regarding both the EU and the UK, the USTR cited challenges from multiple tariff and non-tariff barriers, leading to chronic U.S. trade imbalances.

The United States and Japan also have a history of trade negotiations, but in the context of the multilateral Trans-Pacific Partnership (“TPP”) among 12 countries. Although the United States signed a completed TPP agreement in February 2016, that deal was never ratified by the United States, which withdrew from the agreement on January 23, 2017. Japan was instrumental in corralling the remaining 11 countries to sign a modified agreement called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) in March 2018. Until as recently as September 26^th of this year, Japanese Prime Minister Shinzo Abe had resisted the idea of bilateral talks with the United States, instead favoring the United States’ return to the CPTPP. Recent discussions on the potential for the United States to impose 25 percent tariff on automobile exports from Japan apparently brought Japan to the table. “Japan is an important, but still too often underperforming, market for U.S. exporters of goods,” USTR said in its letter to Congress. “U.S. exporters in key sectors such as automobiles, agriculture, and services have been challenged by multiple tariffs and non-tariff barriers for decades.”

Last year, as a result of the expiration of certain language in China’s World Trade Organization (“WTO”) Protocol, the U.S. Department of Commerce conducted a review of its designation of China as a non-market economy country for purposes of the U.S. antidumping laws. The Department announced the results of its review of China’s status on October 26, 2017, concluding that China continued to be a non-market economy country. Further, none of the USMCA member countries have a free trade agreement with China. As a result, China would be considered a “non-market country” for purposes of the USMCA.

Article 32.10 requires a USMCA member country seeking to negotiate a free trade agreement with China, or any other “non-market country” to:

1. Inform the other member countries of their intention to negotiate such an agreement, at least three months prior to commencing negotiations;
2. Upon request of another USMCA member country, provide “as much information as possible” regarding the negotiating objectives; and
3. Provide the other USMCA member countries an opportunity to review the full text of the agreement at least 30 days before the date of signature.

This provision, as well as a number of other provisions aimed at strengthening trade enforcement, including Article 10, Section C, regarding the prevention of duty evasion of antidumping, countervailing, and safeguard duties, reflect the Trump administration’s strong stance against unfair trade practices by China.

The changes to KORUS focus on the auto sector, customs procedures, and pharmaceutical reimbursement. With respect to autos, the largest change is a 20-year extended phase-out period for the current 25% U.S. tariff on imports of light trucks from Korea. That tariff will now expire in 2041, instead of 2021, which, according to the U.S. International Trade Commission, will delay the anticipated increase of 59,000 Korean truck imports. Korea has also agreed to increasing the quota of U.S.-origin autos that meet U.S. safety standards (but not Korean safety standard) from 25,000 to 50,000 per manufacturer, per year. Korea further agreed to recognizing U.S. standards for auto parts exports necessary to service U.S. vehicles in Korea and a harmonized testing system for emissions standards. With respect to improving customs procedures, Korea will address onerous and costly customs verification procedures for U.S. exports, which have been particularly taxing for U.S. agricultural exports. Finally, Korea has promised to address its pricing and reimbursement policy for pharmaceuticals to align with existing KORUS commitments and ensure fair treatment for U.S. exports.

For Korea, successful renegotiation has earned it a break from the United States’ Section 232 tariffs on steel imports. Instead of being subjected to a 25% tariff, steel imports from Korea are subject to an absolute quota based on 70% of the average annual import volume of such products during the 2015-2017 period. Korea had initially been exempt from the tariffs pending further KORUS discussions. The final quota-based exclusion was announced on April 30, 2018, and on August 29, 2018, President Trump announced a review process for individuals to request tariff exclusions for imports beyond the quota.

While the White House is touting the updated agreement as a major do-over, the changes are understood to be fairly moderate. Notably, the new pact does not include any provisions on currency manipulation and does not allow for increased U.S. rice exports, which was a U.S. priority during the original talks 12 years ago. The changes being made will, however, improve predictability without major disruption to existing trade flows between the two countries.

The 11 TPP member countries account for approximately 14 percent of global GDP, and the planned reduction of 98 percent of tariffs in a $14 trillion market will result in an estimated net benefit of $37 billion for the trade pact participants. But the United States’ exit from the negotiations has changed the dynamic of the agreement. The United States’ inclusion in the agreement would have expanded the group’s representation to 40 percent of global GDP. The absence of the United States also puts Japan in a leadership role in the new agreement, shifting the focus of the agreement in many ways from North America to Asia. And the 11 TPP members suspended several provisions on intellectual property and investor state dispute settlement that had been important to the United States.

Many experts have opined on how the TPP, involving both Canada and Mexico, will impact current NAFTA renegotiations. TPP may free Mexico and Canada from dependence on NAFTA in the event the North American agreement dissolves (a new free trade agreement between Canada and the EU also entered into force in 2017). Yet, the United States will likely retain significant leverage in the NAFTA talks. The United States remains the most important trading partner for both Mexico and Canada, and many other provisions that the United States tabled in the TPP negotiations during the Obama Administration have survived, potentially weakening Canadian and Mexican attempts to revisit those issues in the NAFTA context.

Siemens has a long history of doing business in Russia, and claims to have taken steps to ensure compliance with what it has identified as the sanctions imposed by the international community related to the dispute over Crimea. According to Siemens, it had a written agreement with its Russian customer to comply with the sanctions by not re-exporting the turbines – or the power generated by the plant using the turbines – to Crimea. After delivery to a power generation project in Taman, a city in southern Russia, Siemens claimed it learned that Technopromexport diverted four turbines to the Crimea region, just across the Black Sea from Taman.

In addition to the indefinite halt on deliveries, Siemens indicated that it also plans to require that its own workers install equipment in Russia in the future. Siemens has also stated its intention to sell its stake in Interautomatika, a Russian power plant technology company.

While it is unclear what action the German or other governments will take in response to this incident, it should serve as a warning to U.S. and European companies – and companies with ties in either jurisdiction – that doing business in Russia can be far more complex and risky than ever before. Here, a very large and sophisticated firm appears to have taken steps, including a written agreement, to ensure its Russian customer’s compliance with the sanctions. According to Siemens, the Russian customer may have breached this understanding, and again according to Siemens, even went so far as to claim that the turbines were of Russian origin (and, thus, not subject to sanctions). Regardless of the details of what took place, companies currently engaging in -- or seeking -- business in Russia should carefully consider whether their existing sanctions compliance protocol and processes are sufficient to protect the company and personnel from these increased legal and commercial risks.

At a G20 summit in Hamburg on July 7, 2017, European Commission President Jean-Claude Juncker said that the EU is prepared to “react with counter-measures” within “days” if President Trump imposes steel tariffs. According to the Financial Times, because U.S. does not export much steel to Europe, EU officials are targeting U.S. agriculture products and other “politically sensitive” products with bourbon whiskey, orange juice and dairy at the top of the list.

In April 2017, the U.S. Department of Commerce initiated an investigation under Section 232 of the Trade Expansion Act of 1962 to determine whether steel imports are threatening U.S. national security. The investigation is still ongoing and it is possible that the Commerce Department may issue a report before the end of the month with a recommendation to impose tariffs on all steel imports. The EU is concerned that such measures would not only hurt China, but that steel industries in U.S. ally countries, such as Canada, Germany, Japan and South Korea, would likely suffer the biggest impact of any such measure.

The EC is using the threat of retaliation as leverage to convince the Trump Administration to exempt EU steel from the scope of any restrictions on steel. It is not clear what the Administration will do, or whether the EU itself would be violating international trade rules if it retaliates without a finding by the WTO that any steel restrictions by the U.S. were themselves a violation of the United States' WTO obligations. At this point, there is a great deal of political posturing without a timeline for resolution of this potential dispute.