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International Trade in the News – What Does It Mean?

International Trade in the News – What Does It Mean?By: Matthew L. Zehner – Vice President, Surety Information & Analysis

If you were wondering about all the new tariffs in the news recently, or why portions of what we do for a living are being discussed on TV news and on the front page of newspapers, continue reading for a high-level explanation of what is going on.

In addition to the HTSUS tariff rates on imported goods and the applicable taxes and fees imposed by statute, there are a variety of laws available to combat unfair trading practices. The U.S. government is currently dusting off some of these laws and putting them to use.

Unfair Imports: Common Protections

The two laws with which the trade and customs brokerage communities are most familiar allow for collecting antidumping and countervailing duties (ADD and CVD). Where a U.S. industry is injured, or threatened with injury, AND imported goods are sold below normal value or are subsidized by the exporting country, the U.S. can impose additional duties to counteract the low pricing and subsidies.

Another law involves the exclusion of goods that violate intellectual property (patents, trademarks, copyrights, etc.). This law is found under Section 337, and when a party is successful, CBP denies entry of infringing goods. During the investigation process, just prior to the actual exclusion occurring, goods may continue to enter the U.S. if an “ITC Exclusion Order bond” (CBP Activity Code 12) is posted. Most Section 337 investigations result in companies entering into licensing agreements for the use of the protected property.

Unfair Imports: “New” Protections

Now, a variety of duties that may be unfamiliar to the trade industry are appearing. Some of these are brought about by U.S. industries initiating actions under “safeguard” measures (washing machines, solar products), and some of these are initiated by the U.S. government (against imports of certain commodities such as aluminum and steel and against certain countries such as China).

  • Safeguard duties are imposed under Sections 201202203, and/or 204. In the most recent examples of washing machines and solar products, in addition to any existing tariffs, ADD, and CVD, high safeguard duties are imposed and will decline over 3 years. The purpose of this is to give the domestic industries some breathing room to counteract surging imports.
  • More recently, it was determined that global production of aluminum and steel pose threats to our national security. Under Section 232, the President can impose measures to curtail or counteract imports of goods in such quantities or under such circumstances that national security is threatened or impaired. This is what is being done with the additional 25% tariff on certain steel and 10% tariff on certain aluminum that took effect March 23. These decisions allow for carve-outs for countries, firms, or certain products when the right conditions are met.  Carve-outs presently include Canada and Mexico. Temporary exemptions have been extended to the EU, Argentina, Australia, Brazil, and South Korea.
  • Another section of the laws, Section 301, covers a catch-all category of unfair trade: a denial of U.S. rights under trade agreements and other unjustifiable, unreasonable, or discriminatory acts by foreign countries. Here is where President Trump counteracts China’s unreasonable practices (forced technology transfers, local content rules, investment restrictions, etc.) with 25% duties on upwards of $50 billion of targeted products imported from China. China’s actions may not be illegal, but the “unreasonable” nature of these practices is prompting the use of this law with the goal of securing more balanced trade rules.

What Does It Mean for Trade?

The general theme of most of these measures is that the duty is fixed/known and collected at the time of entry of the goods (AD/CVD is the exception as it is only an estimate of final liability). There are several things the surety underwriters may be concerned about in regards to these measures. One of these concerns is that these new and higher amounts due will not be properly paid. Duties may be evaded via transshipment or undervaluation, or even more overtly by bouncing the check/ACH used to pay the liability. The surety has enhanced exposure because large dollar amounts are involved with these duties.

The concern on the importer’s side is that, over time, these larger duty amounts become part of the prior 12 months of importing history. As bond sufficiency is measured on a rolling 12 months, the importer could see more mid-term bond insufficiency notices. The higher amount CBP suggests in these notices is based on past activity. To help prevent a mandated bond increase, an importer will want to look at duty projections for the upcoming 12 months. In this way the importer can stay ahead of the curve to prevent notices being sent every few months as CBP runs calculations weekly and reviews on a monthly basis.

Should you need assistance, please contact your Roanoke Trade Bond Service Team.

About the Author

Matt Zehner is Vice President, Surety Information & Analysis for Roanoke and has been involved in the international trade segment of the insurance field for over 25 years. Matt is involved with Roanoke’s customs and OTI bond product which includes monitoring current events for changes in the legal and regulatory environment and working closely with federal agencies and industry trade associations concerning changes impacting the international trade industry and its surety products.

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