Friday 16th Nov, 2018

The new Trump tariffs – the tip of the trade iceberg?

Photo: Ian Ackerman
Photo: Ian Ackerman

After several months of uncertainty and speculation, President Trump has finally announced his intention for the US to introduce additional tariffs on steel and aluminium imported into the US. To adapt a famous comment from former US Secretary of Defence, Donald Rumsfeld, it’s time to work out what we know we know, what we think we know and what we know we would like to know.

What we know we know. Now

Shortly after taking office and consistent with promises made during his election campaign, President Trump initiated an investigation into the need for additional tariffs to be imposed on steel and aluminium imports. However the investigation was not undertaken according to conventional dumping or subsidies processes (for which duties have already been imposed in the US) or according to the ‘safeguard’ processes which allow for the imposition of short – term tariffs to deal with damage from a surge of imports in a sector which may not allow dumping and subsidies to be imposed (which had been used in the US in 2002 with little effect). In this case, the investigation was conducted under Section 232 of the 1962 US Trade Expansion Act on the basis that the level of imports represented a “national security” threat to the US which provisions has rarely been invoked previously.

The imposition of the new measures followed two largely secret investigations conducted by the Commerce Department with the decision to impose the measures solely being a decision of the President himself.

There are a number of factors which we do know about the measures:

• Relevant WTO agreements allow action of this type to be taken to preserve national security but it has rarely been tested and the general understanding is that it would be invoked in times of conflict or other significant threat;
• There have been very few attempts to use the national security provisions. Since 1962, the US had conducted 28 investigations under the process, the last being in 2001 with the last measures being imposed in 1968 in relation to imported machine tools;
• The US military argued against the imposition of tariffs – which suggests that ‘national security’ is being defined according to economic criteria as opposed to military criteria;
• The Commerce Secretary concluded imports of steel and aluminium threatened America’s national security and recommended the President impose comprehensive import restrictions;
• There is no time limit for the measures and no mechanism for its removal under US law compared to other measures for which external revenue is available;
• The new tariffs (25% on steel and 10% on aluminium) were significantly higher than those recommended by the Commerce Secretary;
• Although there was a perception the measures were aimed at Chinese products, the largest sources of steel and aluminium imports into the US are from elsewhere such as Canada, the EU and Mexico. Of course, the US is currently re – negotiating the NAFTA with Canada and Mexico;
• The US (or more properly the US President) announced exemptions from the measures for Canadian and Mexican products on the basis that they were ‘friends’ and that their products did not threaten national security with the US;
• It has caused all my customs and trade lawyer colleagues in the US and EU to move to a higher level of readiness – a form of legal ‘DEFCON 3’.
What we think we know – #thatswhatfriendsarefor

Shortly after the measures were announced and seemingly after further lobbying by Australian interests, President Trump Tweeted that Australian products would also be exempted from the new measures. However, as of 12 March the formal exemption document has not yet become available. Hopefully it will be provided shortly – possibly by another executive Tweet with a link to the instrument. As always, we await the details of the exemption with some interest so we know what will apply to future Australian trade.

What we don’t know but we need to know

While the announcement of the Australian exemption was welcome, it goes nowhere near resolving much of the uncertainty of the nature of the measures being imposed or the possible retaliation from the rest of the world. Some of the elusive details can be summarised as follows

• The nature of the exemption being offered to Australian companies. Is it absolute or does it have a time limit or other conditions? How much certainty does it deliver to Australian companies producing and exporting to the US and is that enough to support ongoing investment decisions?
• Whether other countries will initiate action against the US at the WTO on the basis that the ‘national security’ provision has been improperly invoked. While media commentary originally suggested Australia may join other countries in action against the US at the WTO it has subsequently been confirmed that we will not be doing so;
• Whether other affected countries will seek exemptions from the new US measures and, if so, on what basis?
• Whether other affected countries will initiate unilateral ‘retaliatory’ actions against US exports regardless of WTO action. Again, media reports suggest the EU already has a list of US exports against which it could impose retaliatory measures including bourbon, motor vehicles, peanut butter, some fruit and denim jeans. The USA has already indicated such action would be met with further retaliation, perhaps in the form of additional tariffs on other EU exports such as motor vehicles;
• Whether there will be a surge in exports from affected countries towards Australia as an alternative market for the goods. This is a difficult question but it would seem to be unlikely in the immediate or short – term as there are often existing long – term contracts in place for these goods and given our existing comprehensive regime would allow for early action Ultimately Australia has a relatively small market subject to heavy regulation;
• Whether Australia will move further on its dumping and subsidy regime. At the moment we already have a comprehensive regime which is very active in relation to imports of steel and aluminium in different forms from around the world, especially from Asia so it is not clear what additional changes to the regime would be warranted.

It is still early days but the hope is the protectionist move by the US can be subject to normal rules – based responses and not premature unilateral responses which could quickly spiral into more measures bringing a significant level of uncertainty.

What do we know we should do now?

The present difficulty is there is little precedent available to deal with this scenario – and those which may be available cannot factor into account that the action by the US relies solely on a decision by its President which is not subject to traditional review. As the actions stem from the political environment then so will many of the responses which makes it hard to anticipate or respond to the actions (whether actual or possible)

It is also impossible to determine the attitude of politicians in countries affected by US measures and whether they will respond to the US actions or subsequent actions (and how they will respond).

However what can be done can be summarised as follows:

• Pay careful attention to the reports of measures which have actually been imposed including details of what goods are affected and in what circumstances especially if representing Australian exporters dealing in goods which may be subject to measures;
• Maintain a ‘watching brief’ on developments as they arise and advise colleagues and clients as to what could be the possible effects – so parties do not commit to actions which could adversely affect them or are able to avoid new measures;
• Be aware of new “deals” and “offers” which could arise on steel and aluminium from new sources or even from existing sources. These could be subject to ‘anti – circumvention’ actions or other enforcement by the ABF based on the origin of the goods not being as may appear;
• Continue to take care with due diligence on the origin on products. In a number of recent cases, the ABF has been prepared to disregard certificates of origin and find that the origin of goods is from countries subject to measures;
• Remain aware of the changing nature of new AD and subsidy investigations in Australia and proposed changes to the local regime. Both the Food and Beverages Importers Association and CBFCA are members of government consultative bodies considering changes to the regime and reports of developments give members the benefit of early notice of changes including the ability to make submission on the changes;
• Recognise that Australia is only a relatively small part of a much broader world economy and that developments overseas could have a “knock on” effect here. As a result, the apparently random and distant events in overseas markets could have an impact in our jurisdiction – which supports maintaining an “early warning system”.

Of course, whatever is the case, if pain persists, consult your friendly neighbourhood trade lawyer who has connections and contacts with other trade lawyers around the world.

Andrew Hudson is a partner with Rigby Cooke Lawyers

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