Contributed By Sidley Austin LLP
The USA is an original member of the World Trade Organization (WTO). The USA is a party to three WTO plurilateral agreements – the Civil Aircraft Agreement, the Government Procurement Agreement and the Information Technology Agreement.
The USA has free trade agreements in force with 20 countries. These are: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru and Singapore.
The USA and Vietnam entered into a bilateral trade agreement on 13 July 2000, normalising economic relations and imposing legally binding obligations on the USA with respect to non-discriminatory terms of trade. The USA participates in the following autonomous preferential arrangements:
The USA is in early stages of negotiation of a free trade agreement with Kenya, and has discussed free trade negotiations with the EU and the UK, as well as Brazil.
On 6 February 2020, President Donald Trump announced that the USA intends to initiate trade agreement negotiations with Kenya. On 14 February 2020, the US-China Phase One Economic and Trade Agreement entered into force. The United States-Mexico-Canada Agreement (USMCA) entered into force on 1 July 2020, replacing the North American Free Trade Agreement. In October 2020, the USA blocked consensus on the selection of a Director-General of the WTO.
The personnel in leadership positions in US trade policy roles will change in 2021, but it is too soon to tell how those personnel changes will affect the direction of trade policy. The Section 301 investigation on China’s technology transfer requirements remains pending, as are tariffs on hundreds of millions of dollars in Chinese exports. The Trade Promotion Authority (TPA) – what used to be referred to as the “fast-track” authority for congressional consideration of trade agreements – is set to expire on 1 July 2021. The TPA has expired in the past, but it remains to be seen how it will impact US negotiations with the EU and the UK.
The primary legal and administrative authorities governing US customs matters are codified at Title 19 of the United States Code (U.S. Code or USC) and Title 19 of the Code of Federal Regulations (CFR). These legal instruments implement the overarching multilateral, plurilateral and bilateral agreements covering customs law, such as the General Agreement on Tariffs and Trade and the Customs Valuation Agreement, among many others.
United States Customs and Border Protection (CBP), an agency within the U.S. Department of Homeland Security (DHS), administers and enforces US customs laws and regulations, as well as the laws and regulations of approximately 40 other agencies as they apply at the border to restrict, limit or otherwise impose requirements on imported merchandise. U.S. Immigration and Customs Enforcement/Homeland Security Investigations (ICE/HSI), also within DHS, is responsible for enforcing criminal violations of US customs, trade and other laws.
There are three primary legal instruments through which the USA addresses negative impacts of trade practices in other jurisdictions: Section 201 of the Trade Act of 1974, Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974.
Section 201 of the Trade Act of 1974 (19 USC §2251) authorises the President to provide temporary import relief to US domestic industry if the U.S. International Trade Commission (ITC) determines that a surge in imports has caused or threatens to cause serious injury to that industry. Section 201 “safeguard” actions are intended to facilitate positive adjustment of the US domestic industry to import competition.
A Section 201 investigation may be triggered in one of four ways:
The ITC is generally required to make its injury finding within 120 days (or, in more complex cases, 150 days) of the event triggering the ITC’s investigation and to transmit its report, along with any recommendations, to the President within 180 days.
If the ITC makes an affirmative injury determination, it must recommend a remedy to the President. The President is ultimately responsible for determining what relief, if any, will be provided. Relief may take the form of imposition of additional duties, tariff rate quotas or quantitative restrictions on the imported article, or provision of trade adjustment assistance to the affected industry, inter alia.
Relief may be provided for an initial period of up to four years, and may be extended one or more times up to a maximum of eight years. The ITC is required to monitor and periodically report on industry developments during the period of relief, and at the conclusion of the relief period, to report on the effectiveness of the action in facilitating positive adjustment to import competition by US domestic industry.
At the time of writing, there are two Section 201 measures in place related to solar cells and panels, and washing machines and parts. Following petitions from US industry and affirmative injury findings by the ITC, the President imposed tariff rate quotas and increased duties on imports of solar cells and panels, and washing machines and parts. These measures were effective 7 February 2018, for a period of four and three years, respectively. They cover imports from all countries, except certain developing countries and, in the case of washing machines and parts, Canada. On 14 February 2018, USTR issued a notice establishing procedures to request the exclusion of particular products from the safeguard measure on solar cells and panels; on 19 September 2018 USTR granted certain exclusion requests.
South Korea and China have filed WTO disputes against the USA for its imposition of safeguard measures on washing machines (South Korea) and solar panels (South Korea and China).
Section 232 of the Trade Expansion Act of 1962 (19 USC §1862) authorises the President to adjust imports of certain products (eg, through tariffs, quotas or other action) if the U.S. Department of Commerce (the DOC or Commerce) determines that such products are imported in such quantities or under such circumstances as to threaten to impair the national security of the USA.
A Section 232 investigation may be triggered by a written request from any department, agency head or “interested party”, asking the DOC to ascertain the effect on US national security of particular imports, or on the DOC’s own initiative. Once an investigation is initiated, the DOC is required to consult with the Secretary of Defense and may consult with other “appropriate officers of the United States” as well as the public. The DOC’s Bureau of Industry and Security (BIS) conducts the investigation and, as part of the investigative process, may request public comments or hold hearings. Interested parties, which may include domestic companies as well as non-domestic companies and even foreign governments, may participate in this process.
The DOC is required to report its findings and recommendations to the President within 270 days after initiating a Section 232 investigation and to publish an executive summary of its final report, excluding any confidential or classified material, in the Federal Register.
If the DOC makes a negative finding, it simply informs the President and no further action is required. If the DOC makes an affirmative finding, the President has 90 days from receiving the DOC’s report to determine whether he or she concurs with the findings and, if so, what action should be taken to adjust the imports in question. Actions may include the imposition of tariffs or quotas, or other appropriate action. After making a determination, the President has 15 days to implement the action and 30 days to submit a written statement to Congress explaining any action or inaction. The President’s determination must be published in the Federal Register.
Since 2017, the DOC has initiated a number of Section 232 investigations. Significantly, following affirmative findings by the DOC, effective 23 March 2018, the President imposed tariffs of 25% and 10% on certain imports of steel and aluminium, respectively. A number of countries have received temporary or permanent exemptions from the tariffs. Further, the DOC has implemented a process by which manufacturers may request exclusions from these measures if the products in question cannot be produced in sufficient quantity or quality in the USA, or for national security reasons. This process also permits domestic steel and aluminium producers to object to any exclusion requests.
A number of the USA’s trading partners, including China, the EU and India, have challenged the USA’s Section 232 measures as inconsistent with its WTO commitments.
Title III of the Trade Act of 1974 (Sections 301 through 310, 19 USC §§2411-2420) – collectively referred to as “Section 301” – authorises the United States Trade Representative (USTR) to take action (eg, suspend trade agreement concessions, impose import restrictions or enter into binding agreements) against any US trading partner that violates its trade agreement commitments or engages in acts that are unjustifiable, unreasonable or discriminatory, and burden or restrict US commerce.
A Section 301 investigation may be triggered in one of two primary ways: (i) any interested party may file a petition requesting USTR to take action under Section 301; or (ii) USTR may self-initiate an investigation, after consulting with appropriate stakeholders through trade advisory committees, or if USTR identifies a foreign country as a “priority foreign country” following its annual Special 301 review of protection and enforcement of intellectual property rights (IPR) in third countries. If USTR receives a petition from an interested party, USTR is required to determine whether to initiate an investigation within 45 days.
Once USTR decides to initiate an investigation, USTR typically solicits public comments, which may be made by any interested parties, including domestic and non-domestic companies, as well as foreign governments, and may hold a public hearing if requested. USTR is required to request consultations with the targeted foreign government concerning the issues raised in the investigation. Further, if the investigation involves a trade agreement and a resolution is not reached through consultations, USTR will generally request formal dispute settlement proceedings under the agreement in question.
If USTR makes an affirmative determination, it must then decide what action, if any, to take. Action is mandatory if USTR determines that US rights under a trade agreement are being denied or violated, or if USTR finds that an act, policy or practice of a foreign country is unjustifiable and burdens or restricts US commerce. Action is discretionary if USTR determines that an act, policy or practice of a foreign country is unreasonable or discriminatory and burdens or restricts US commerce. Retaliatory action may include:
Action should be equivalent in value to the burden or restriction on US commerce imposed by the foreign country.
USTR may modify or terminate any action taken if there is a change in the situation or if such action is no longer appropriate. Any action taken will automatically terminate after four years, unless the petitioner or a representative of the domestic industry that benefits from the action submits a written request for continuation.
Under the Trump Administration, USTR has initiated a number of Section 301 investigations and imposed retaliatory tariffs as a result of two such investigations. The investigations include the following:
United States-Mexico-Canada Agreement
The United States-Mexico-Canada Agreement (USMCA) entered into force on 1 July 2020, replacing the North American Free Trade Agreement (NAFTA), which had been in force since 1 January 1994. While many aspects of NAFTA are replicated in USMCA, there are some noteworthy changes and additions, particularly related to customs issues.
USMCA changes the rules of origin and origin procedures for many goods. Most significantly, USMCA includes new product-specific rules for passenger vehicles, light trucks and auto parts. Under the new rules, 75% (as opposed to 62.5%) of auto content must be manufactured in North America and 40-45% of auto content must be made by workers earning at least USD16 per hour. Importers who have historically taken advantage of NAFTA preferential treatment will need to reassess the originating status of their goods pursuant to these new USMCA rules.
USMCA also includes a new digital trade chapter governing electronic commerce (based on language originally negotiated for the Trans-Pacific Partnership Agreement), enhancing protection of copyrights and related rights, and making significant changes to the investor-state dispute settlement mechanism.
COVID-19-Related Import Safety Enforcement
While import safety has been a key priority for CBP over the last five years, since the onset of the COVID-19 pandemic in early 2020, CBP and its partner government agencies (PGAs) have stepped up their consumer safety-related enforcement at the border.
In particular, CBP has been focused on identifying and seizing counterfeit health-related products, such as personal protective equipment from China, as well as sanitation-related products – for example, disinfectants and other products purporting to kill germs.
Products claiming to kill bacteria or repel germs are considered pesticides under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) and must be registered by the EPA prior to being introduced into the commerce of the USA. In this regard, CBP has been working closely with the Environmental Protection Agency (EPA) to prevent shipments of products making illegal pesticidal claims – such as Virus Shut Out, a product which is not registered with the EPA – to the USA and to identify and seize such products on arrival. The EPA has reached out to online marketplaces about removing such products from their sites, and CBP has seized thousands of illegal products over the course of 2020.
Enforcement of Measures to Counter Forced Labour
In recent years, a number of US government agencies, including CBP, have placed an emphasis on supply chain security and the need to prevent goods made with forced labour from entering global supply chains. While the prohibition on importing merchandise mined, produced or manufactured using forced or indentured labour is not new, US government-wide prioritisation and enforcement of this issue has recently become a hot topic.
In September 2020, CBP issued four Withhold Release Orders (WROs, or detention orders) on products from the Xinjiang Uyghur Autonomous Region of China, where the Chinese government is alleged to engage in systematic human rights abuses against ethnic and religious minorities, particularly the Uyghur people, and one order on computer parts made by a company in Anhui, China.
The U.S. Congress is currently considering a bill that would, inter alia, prohibit the entry of goods manufactured or produced in Xinjiang unless CBP makes an affirmative determination that the goods in question were not manufactured by convict, forced or indentured labour, and reports this determination to Congress and the public. Over the next 12 months, importers can expect to see increased enforcement in the forced labour sphere and increased scrutiny over their global supply chains.
Intellectual Property Rights Enforcement
Intellectual property rights (IPR) enforcement has been and will continue to be a priority for CBP. In January 2020, following a presidential memorandum requiring the U.S. Department of Homeland Security (DHS) and other agencies to identify appropriate steps to mitigate the trafficking of counterfeit goods, DHS released a report identifying possible actions and recommendations for the US government. In particular, DHS recommended modernising the enforcement framework to fit the e-commerce environment and increasing scrutiny of de minimis low-value shipments made under Section 321 of the Tariff Act of 1930, as amended by the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA).
Section 321 allows articles with an aggregate value of USD800 or less, imported by one person on one day, to be admitted free of duty and taxes. These shipments are often not subject to the same formal customs procedures and data requirements as higher-value shipments. It is, therefore, difficult for CBP and other enforcement agencies to identify high-risk or counterfeit goods imported through de minimis shipments.
In response to DHS’s recommendations, CBP officials have indicated that they are considering legal, regulatory and policy changes to help streamline the process for seizing counterfeit goods. Over the next 12 months, importers can expect to see increased scrutiny of low-value shipments and increased intellectual property rights enforcement.
The USA imposes economic and trade sanctions on individuals, entities and jurisdictions throughout the world based on US foreign policy and national security goals. US sanctions programmes include comprehensive, country-based sanctions, and more selective, list-based sanctions, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals.
The International Emergency Economic Powers Act (IEEPA) is the main source of statutory authority for most US sanctions programmes. IEEPA authorises the US President to broadly regulate international commerce after declaring a national emergency in response to any unusual and extraordinary threat to the USA which has a foreign source. Other statutory authorities include the Trading with the Enemy Act of 1917 (TWEA), which is the basis for the Cuba sanctions programme, the Foreign Narcotics Kingpin Designation Act, the Antiterrorism and Effective Death Penalty Act of 1996, and the Clean Diamond Trade Act.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Department of State (DOS) are primarily responsible for administering US sanctions. The U.S. Department of Commerce, Bureau of Industry and Security (BIS) has jurisdiction over certain exports and re-exports of commodities, software and technology, and in this capacity also plays a role in aspects of US sanctions enforcement.
US persons are required to comply with all US economic sanctions.
Companies organised under the laws of other countries are not required to comply with primary US sanctions, with two important exceptions, as follow.
First, non-US companies must comply with US sanctions against Iran or Cuba if such companies are owned or controlled by a US person (ie, a company or individual).
Second, non-US companies must generally comply with all US primary sanctions to the extent any of their activities involve the USA in some way. For example, non-US entities may be subject to OFAC regulations to the extent their transactions involve the US financial system (eg, transactions denominated in US dollars that clear through US banks), items subject to US jurisdiction (eg, US-origin goods or goods containing a certain amount of US content), or the shipment of goods via the USA.
The USA prohibits dealings with persons on the List of Specially Designated Nationals and Blocked Persons (SDN List). The USA also maintains several lists of persons with which certain transactions are restricted, including the Sectoral Sanctions Identification List (SSI List), the Palestinian Legislative Council List (NS-PLC List), the Non-SDN Iran Sanctions Act List (NS-ISA List), the Foreign Sanctions Evaders List (FSE List) and the Cuba Restricted List. The US Treasury and State Departments have significant discretion over the addition of persons to sanctioned party lists.
The countries and territories subject to comprehensive country-based US sanctions are currently Cuba, North Korea, Iran, Syria and the Crimea region of Ukraine.
The USA maintains some sanctions under which certain transactions, but not all transactions, are restricted. For example, sectoral sanctions generally prohibit only certain specified activities with respect to particular persons. In the case of sanctions on Russia, sectoral sanctions apply to specific entities in Russia’s financial, energy and defence sectors that OFAC has identified for inclusion on the Sectoral Sanctions Identifications List. These sectoral sanctions prohibit US individuals and entities from engaging in specific kinds of transactions related to lending, investment, and/or trade with entities on the SSI List, but permit other transactions with these same entities.
The USA imposes certain sanctions on parties that have no connection to the USA (ie, secondary sanctions). Secondary sanctions target non-US entities doing business with certain listed persons or in identified sectors of certain sanctioned markets. The USA need not have jurisdiction over the entity for secondary sanctions to apply, as the USA can add the entity to the list of entities that are themselves being sanctioned (as opposed to being subjected to enforcement actions in the USA, as is the case for primary sanctions violations).
With respect to criminal penalties, a person who wilfully commits, wilfully attempts to commit, wilfully conspires to commit, or aids or abets in the commission of, a violation of any licence, order, regulation, or prohibition may, upon conviction, be fined not more than USD1 million or, if a natural person, be imprisoned for not more than 20 years, or both. In past cases receiving criminal penalties, there has often been an aspect of wilful concealment present.
OFAC assesses civil penalties on a transaction-by-transaction basis, according to (i) whether it considers a case to be egregious or non-egregious, and (ii) whether the apparent violation is disclosed through a voluntary self-disclosure. Most comprehensive US sanctions programmes are issued under the International Emergency Economic Powers Act (IEEPA), for which the statutory maximum per transaction is the greater of USD307,922 or twice the amount of the underlying transaction.
There are two types of licences: general licences and specific licences. A general licence authorises a particular type of transaction for a class of persons, without the need to apply for a licence. A specific licence is a written document issued to a particular person or entity, authorising a particular transaction in response to a written licence application.
For example, US sanctions programmes often allow for legitimate humanitarian-related trade and activity, and exports of medicines, under existing laws and regulations, either through general licences or other exemptions from the relevant prohibitions. Where a general licence is not available, parties may apply directly to the relevant enforcement agency for a specific licence authorising otherwise prohibited activity.
There is “strict liability” under US primary sanctions regulations, meaning that there is no element of knowledge required under the law.
Persons subject to US jurisdiction holding property blocked pursuant to US sanctions laws and regulations must report the blocked property to OFAC within ten days from the date that property becomes blocked. Persons subject to US jurisdiction must also report to OFAC rejected transactions that are not per se blocked pursuant to US sanctions laws and regulations, but where processing or engaging in the transactions would nonetheless violate such laws and regulations.
The USA maintains anti-boycott laws which prohibit US companies from furthering or supporting the boycott of Israel, including by complying with certain requests for information designed to verify compliance with the boycott.
Over the last year, the USA has continued to use its sanctions authority as a top foreign policy tool, most notably by authorising the imposition of sanctions on certain Chinese persons, and by significantly strengthening existing sanctions on Iran.
In particular, the USA authorised the imposition of sanctions on a number of Chinese persons, including Chinese and Hong Kong officials, relating to perceived human rights abuses and failures to uphold Hong Kong’s autonomy from China. The new sanctions on Iran create secondary sanctions liability for persons operating in, or engaging in significant transactions with persons operating in, the construction, mining, manufacturing, financial or textiles sectors of the Iranian economy, making it significantly riskier for non-US persons to engage with Iran.
The USA has simultaneously issued a number of new licences and authorisations designed to ensure that its sanctions programmes do not adversely affect humanitarian trade, particularly in the wake of the global COVID-19 pandemic.
The new presidential administration in the USA is likely to have different priorities than the current administration with respect to enforcement of economic sanctions. In particular, while the Biden Administration is expected to roll back some of the current restrictions on Cuba and Iran, it may take a stricter stance with respect to sanctions on North Korea and Russia.
The USA imposes export controls to protect national security interests and promote foreign policy objectives. To do so, the USA controls the export of sensitive goods, software and technology to certain destinations without an export licence.
The primary authorities governing the enforcement of US export controls are the Export Control and Reform Act of 2018 (ECRA) and the Export Administration Regulations (EAR). The restrictions on the export of certain defence articles and services covered on the United States Munitions List (USML) are authorised by the Arms Export Control Act and implemented through the International Traffic in Arms Regulations (ITAR).
The U.S. Department of Commerce Bureau of Industry and Security (BIS) has jurisdiction over export controls, including exports and re-exports of commodities, software and technology that are subject to the EAR.
The U.S. Department of State’s Directorate of Defense Trade Controls (DDTC) is responsible for enforcing the ITAR.
US export controls regulate:
Restricted party lists maintained by BIS include the Entity List, the Denied Persons List, and the Unverified List. The DDTC also maintains the Debarred Parties List. BIS and DDTC have significant discretion to add persons to the restricted party lists. For example, any company that has been involved in, or poses a significant risk of becoming involved in, activities contrary to the national security or foreign policy interests of the USA may be added to the Entity List.
BIS maintains the Commerce Control List (CCL), a list of items controlled for export to certain destinations without an export licence to due to the sensitive nature or potential use of the item.
DDTC maintains the USML, which covers and restricts the export of certain defence articles and services without DDTC authorisation.
Items not listed on the USML or the CCL may nevertheless be controlled for export based on the intended end use, the intended end user or the destination. For example, BIS restricts the export of all items subject to the EAR to certain parties on the Entity List.
For violations of the EAR, the statutory maximum civil penalty amount is USD300,000 per violation or twice the value of the transaction, whichever is greater. With respect to criminal penalties, a person who wilfully commits, wilfully attempts to commit, wilfully conspires to commit, or aids or abets in the commission of, a violation of any licence, order, regulation or prohibition may, upon conviction, be fined not more than USD1 million, or if a natural person, be imprisoned for not more than 20 years, or both.
Violations of the ITAR may result in civil penalties as high as USD500,000 per violation, and criminal penalties of up to USD1 million and ten years' imprisonment per violation.
There are certain licence exceptions which authorise the export, under stated conditions, of items subject to EAR or ITAR that would otherwise require a licence. Where a licence is required and an exception is not available, parties may apply to BIS for a licence authorising the export of specific items by the party holding the licence to the end users and under the circumstances identified in the licence.
Violations of US export controls are generally "strict liability" in nature. However, in certain instances, BIS may in an enforcement action consider a party’s reason or ability to know of the export violation.
Persons utilising certain licence exceptions or certain export licences may have reporting obligations to BIS, depending on the exception or licence used.
Persons registered under the ITAR have strict reporting requirements to the DDTC, including obligations to promptly notify the DDTC of any changes to the registration information initially reported.
Over the last year, the USA has increasingly used designations to the Entity List as a foreign policy tool. That is, while the Entity List was previously used only sparingly and to address traditional diversion concerns, it is now being used more frequently in a more novel way as an enforcement tool to address issues of national security.
Over the past 12 months, the USA has also implemented a number of measures focused on restricting exports to China. In April 2020, for example, BIS implemented stricter rules regarding the export of items intended for military end users or military end uses in China, Russia and Venezuela.
In May 2020, BIS expanded the application of the direct product rule, such that foreign-made items and output of plants subject to the EAR would require a licence or licence exception for re-export, export from abroad or transfer (in country) under certain circumstances when there is knowledge that the foreign-produced item is destined to a designated organisation on the Entity List. This rule change primarily affected Huawei and its affiliates.
In July 2020, BIS further announced that it would be suspending licence exceptions for exports, re-exports or transfers to or within Hong Kong that were not also available for shipments to mainland China. That is, if a licence exception is not available for shipments to China, then it can no longer be used for shipments to Hong Kong.
In other recent developments, ECRA introduced certain increased export requirements for “emerging” and “foundational” technologies. In August 2020, BIS solicited comments for identifying “foundational” technologies. In September 2020, BIS issued a final rule designating the first group of “emerging” technologies. These items are expected to be just the first of a number of technologies that will be designated in the coming months.
BIS is expected to further develop and refine its definitions of “emerging” and “foundational” technologies over the coming months. In particular, BIS has been receiving pressure from Congress to further develop and define the category of foundational technologies, given the implications of the definition in the context of CFIUS review. BIS is also expected to roll out additional designations of emerging technologies, probably as part of a multilateral effort to address such technologies.
BIS has also proposed other key changes to its regulations, including by modifying License Exception APR to no longer permit unlicensed re-exports from Country Group A:1 (the countries participating in the multilateral Wassenaar Arrangement, with the exception of Russia, Ukraine and Malta) and Hong Kong to Country Group D:1, which includes China, Russia and Venezuela. BIS has also signalled that, in the future, it may weight human rights factors more heavily in its consideration of licence applications.
The Tariff Act of 1930 (the Act) provides the statutory authority to impose antidumping (AD) and countervailing duties (CVD). The implementing regulations of the relevant administering authorities are included under Title 19 of the Code of Federal Regulations
US AD and CVD laws are administered by the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC). The DOC determines whether a producer is dumping and/or receiving unfair subsidies and the extent of such dumping or subsidisation. The ITC determines whether the US domestic industry is injured by subject imports.
Domestic companies may petition the ITC and the DOC to initiate an investigation. In the event dumping and/or subsidisation is found, and an order is imposed, interested parties must request reviews of companies with entries that may be subject to the order. Administering authorities may self-initiate an investigation, but unilateral initiation is rare.
The DOC conducts administrative reviews of AD and CVD orders on a regular basis. However, interested parties, including domestic interested parties (including domestic producers, importers, and trade or business associations) and foreign exporters and producers, must request a review of specific entities. If a request is not submitted by deadlines established under the law, the DOC will not conduct a review.
The DOC and ITC also conduct “sunset reviews” or AD and CVD orders every five years to determine whether revoking the order would be likely to lead to continuation or recurrence of dumping or subsidies and material injury. Similar to investigations, the sunset review is bifurcated – the DOC reviews the likelihood that dumping or subsidisation would continue or reoccur and the ITC reviews the likelihood of material injury.
Non-domestic companies are the subject of investigations and reviews and, therefore, are afforded the opportunity to participate. They may request a review of themselves, and if selected by the DOC for individual review would be required to participate to the best of their abilities by responding to the DOC’s enquiries. Non-domestic companies subject to an investigation or review but not individually investigated or reviewed may also participate; however, in general such companies will be assigned a rate equal to the average or weighted average rates calculated for the companies that DOC individually investigated or reviewed.
The investigation process is bifurcated between the DOC and the ITC. As noted above, the DOC investigates whether there is dumping or subsidisation, and the ITC investigates whether the domestic industry is injured because of subject imports.
The investigation begins with the ITC’s preliminary phase. During the preliminary phase, if the ITC finds there is a reasonable indication that an industry is materially injured or is threatened by material injury, or that the establishment of an industry is materially retarded, because of subject imports, then the DOC will continue the investigation.
The DOC will then review individual, foreign exporters and/or producers of subject merchandise. If it affirmatively finds dumping or subsidisation in its preliminary investigation, both the DOC and the ITC will continue the investigation into the final phase. During this process, the DOC will conduct a verification (typically on-site) of a respondent’s responses to the agency’s inquiries. The DOC will complete its final phase first and issue a final determination. If the DOC’s final determination is affirmative, thereafter the ITC will complete its final phase. If the ITC’s final determination is affirmative, then the DOC will issue an order and impose duties on subject imports.
With regard to “safeguards,” as explained above in Section 2.3, the ITC has the authority impose temporary import relief under Section 201 of the Trade Act of 1974. For further discussion related to safeguards see Section 2.3.
Both the ITC and the DOC issue preliminary and final determinations. The determinations are publicly reported in the Federal Register, and the accompanying reports and decision memoranda to the Federal Register notice are also made public on the ITC’s and the DOC’s websites. The DOC also issues preliminary and final results in reviews, which include publication of notice in the Federal Register and accompanying decision memoranda.
No jurisdictions are exempted from the potential imposition of AD or CVD duties.
Interested parties have the opportunity to request administrative reviews each year. Review requests must be made during the anniversary month of publication of the AD or CVD order. Requests for review are submitted to the DOC. Sunset reviews are conducted every 5 years.
In general, the administrative review process is similar to that of the DOC’s investigation process. There is a preliminary phase and a final phase. During the process, the DOC issues questionnaires to respondents it selects for individual review. In non-market economy proceedings, parties are invited to submit information. Similarly, the sunset review process is similar to that of the DOC’s and ITC’s investigation process.
Parties may appeal the DOC’s and the ITC’s findings before the U.S. Court of International Trade (CIT) or, if the proceeding involves Mexico or Canada, before a five-member binational panel under Chapter 10 of the USMCA.
Parties may also seek appellate review of the CIT’s determinations before the U.S. Court of Appeals for the Federal Circuit (CAFC). In most instances, parties may not seek review of panel determinations under the USMCA. Further appeal of decisions by the CAFC may be sought before the Supreme Court of the United States, but the Court has discretion to hear the appeal.
In addition, countries may seek review of the DOC’s and ITC’s determinations and practices before the WTO pursuant to the USA’s obligations under the General Agreement on Tariffs and Trade.
On 13 August 2020, the DOC published proposed modifications to its regulations regarding new shipper reviews, scope inquiries, circumvention proceedings, and required certifications, which are expected to add more hurdles for importers and exporters. The DOC invited the public to submit comments. The DOC is now considering the comments submitted and will likely issue final regulations in the coming months.
In November 2020, the DOC calculated a preliminary subsidy rate for undervalued currency. This was the first time the DOC has found currency undervaluation to be a countervailable subsidy, calculated a rate and has since found the same in other proceedings.
Based on the DOC’s findings, the US domestic industry is now expected to submit subsidy allegations related to undervalued currency in more proceedings. However, it is expected that parties will challenge this practice before US courts and the WTO.
The Committee on Foreign Investment in the United States (CFIUS) has jurisdiction to review certain foreign investment transactions in the USA that pose a threat to national security and recommend to the President actions to mitigate the threat.
Notifying a transaction to CFIUS carries the benefit that, if that CFIUS reviews and clears the transaction, it is cleared forever (with some limited exceptions). In contrast, if the parties choose not to file, CFIUS has the option to self-initiate a review of the transaction at any time (including many years after the deal has closed), with uncertain and potentially significant results, including the possibility that the buyer would be required to divest the US business or US assets.
Parties to a transaction typically jointly prepare the submission to CFIUS.
The notice process includes the preparation of a 30-50-page notice, the submission of a draft to CFIUS for comments, preparation and acceptance of a formal notice, a 45-day formal review by CFIUS, and (if necessary) a 45-day investigation. During this process, CFIUS often asks the parties some follow-up questions about the transaction. If CFIUS were to decide that the transaction posed a national security risk, CFIUS might still clear the transaction subject to conditions designed to mitigate the perceived risks.
Alternatively, the parties could choose to notify the transaction to CFIUS through an expedited filing process in which parties would submit an approximately five-page “declaration”. During CFIUS’s assessment of the declaration, CFIUS would ask the parties further questions about the parties and the transaction. The time to prepare the declaration and proceed through to the end of the assessment is approximately one-and-a-half to two months but, unlike the notice process, CFIUS may not always render a final determination of the risk – in such cases, this would not protect the parties against future review.
CFIUS operates pursuant to Section 721 of the Defense Production Act of 1950 (codified at 50 USC 4565). Section 721 was substantially revised by the Foreign Investment and National Security Act of 2007 (FINSA), which became effective 24 October 2007, and the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which became effective 13 August 2018.
CFIUS is an interagency committee, chaired by the US Secretary of the Treasury. Additional members of CFIUS include the Secretaries of Homeland Security, Commerce, Defense, State, Energy, and Labor, the Attorney General, the Director of National Intelligence, the US Trade Representative, and the Director of the Office of Science and Technology Policy. Representatives from other federal agencies also hold “observer” status.
CFIUS has jurisdiction over two types of “covered transactions”:
Under FIRRMA, CFIUS also has the authority to review certain real estate transactions involving property near sensitive US locations.
Certain covered transactions involving US businesses that produce, design, test, manufacture, fabricate or develop one or more critical technologies are subject to a mandatory filing requirement.
CFIUS also requires filings for certain covered transactions where a foreign government has a “substantial interest” in a foreign person that will acquire a substantial interest in US businesses involved in critical infrastructure, critical technology or storage/maintenance of sensitive personal information.
Certain investors from the UK, Australia and Canada are currently exempt from CFIUS’s review of non-controlling investments in certain US businesses. CFIUS may revise the list of exempt foreign states over time.
If CFIUS has concerns with a transaction, CFIUS could recommend that the President block the investment (or order divestment if the transaction has closed) or require other mitigation measures to address the national security concerns.
FIRRMA also authorises CFIUS to impose certain fees on parties who violate the CFIUS review process. Any person who submits a material misstatement or omission in a declaration or notice, or who makes certain other false statements, may be liable for a civil penalty of up to USD250,000 per violation.
As of May 2020, notices submitted to CFIUS are subject to a filing fee of up to USD300,000. The filing fee required in any given transaction is determined by the value of the transaction.
The final CFIUS regulations implementing FIRRMA came into effect in February 2020, expanding CFIUS jurisdiction over certain non-controlling investments in sensitive US businesses, and over certain real estate transactions. CFIUS has continued to roll out certain aspects of FIRRMA since that time, including by imposing filing fees in May 2020. In addition, effective October 2020, CFIUS revised its criteria for determining when a mandatory filing would be required from criteria based on NAICS codes to those based on whether certain US “regulatory authorisations”, such as export licences, would be required.
As previously discussed, CFIUS filings are now mandatory for certain controlling, and even some non-controlling, non-passive foreign investments in US critical technology companies. “Critical technologies” are defined to include foundational technologies identified under ECRA. Therefore, the continued designation of certain foundational technologies over the coming months will broaden the scope of transactions subject to the mandatory filing requirement.
CFIUS may also, over the next 12 months, designate additional countries as foreign states exempt from CFIUS’s review of non-controlling investments in certain US businesses. Further, the definition of exempt foreign states provides a two-part test for determining qualifying states: (i) CFIUS identifies it as an eligible foreign state; and (ii) CFIUS determines that the foreign state “has established and is effectively utilising a robust process to analyse foreign investments for national security risks and to facilitate coordination with the United States on matters relating to investment security”.
The second prong of this test does not take effect until 13 February 2022, giving the three foreign states currently eligible – Australia, Canada and the UK (and any other states which may become eligible over the next year) – time to ensure that their national security-based foreign investment review process meets the criterion. Foreign states who wish to become eligible for the exemption will likely continue to develop their investment security review process over the coming months in order to meet these criteria.
As described by the WTO Secretariat, the USA has no overarching legal framework governing subsidies at federal and sub-federal levels. Traditionally, federal subsidies have been in the form of grants, tax concessions, loan guarantees and direct payments. The federal government maintains a search engine referred to as “Assistance Listings” at https://beta.SAM.gov. According to a database maintained by SelectUSA, some 108 federal programmes and incentives exist specifically to promote small businesses, provide support to existing or prospective exporters and assist enterprises with regulatory compliance.
As described by the WTO Secretariat, the development of standards in the USA is decentralised and demand-driven. The private sector addresses the needs or concerns expressed by industry, government and consumers, through the development of voluntary consensus standards (VCSs). The actual work to develop these VCSs is undertaken by standards-developing organisations (SDOs). A private, non-profit organisation, the American National Standards Institute (ANSI), co-ordinates and administers the VCS system. ANSI is the sole US member body to the International Organization for Standardization (ISO) and, through the U.S. National Committee, to the International Electrotechnical Commission (IEC).
The basic legal framework for the preparation and adoption of standards and technical regulations includes the Trade Agreements Act of 1979, the Administrative Procedure Act (APA) of 1947, the National Technology Transfer and Advancement Act (NTTAA) of 1995 (PL 104-113), and the U.S. Office of Management and Budget (OMB) Circular A-119. Federal law specifically prohibits any government agency from engaging in any standards-related activity that creates unnecessary obstacles to the foreign commerce of the United States.
See the WTO Secretariat’s Report in the 2019 Trade Policy Review – USA, paragraphs 3.171-3.174.
As described by the WTO Secretariat, the USA has numerous laws and regulations pertaining to food safety, animal health and plant health. The promulgation of the Food and Drug Administration (FDA) Food Safety Modernization Act (FSMA) in 2011 (PL 111-353) represented a major and long-awaited update in the oversight of food safety. The FSMA was accompanied by the issuance of seven key implementing regulations during 2015 and 2016, as well as four supplementary regulations, following a period of extensive public comment and review.
Other major long-standing pieces of sanitary and phytosanitary (SPS) legislation include the Federal Food, Drug and Cosmetic Act (including the FSMA amendments), the Federal Meat Inspection Act, the Poultry Products Inspection Act, the Egg Products Inspection Act, the Plant Protection Act, the Animal Health Protection Act, and the Federal Insecticide, Fungicide, and Rodenticide Act.
Responsibilities for SPS matters are allocated among several federal agencies depending on the nature of the product and the element of risk. Food is generally regulated by the FDA, except for meat, poultry, Siluriformes fish and fish products (catfish) and processed egg products, which fall under the responsibility of the U.S. Department of Agriculture (USDA) Food and Safety Inspection Service (FSIS).
Other areas of FDA supervision and authority include food additives, dietary supplements, human and veterinary drugs, medical devices, human biologics, tobacco and cosmetics. Within the USDA, the FSIS ensures that commercial supplies, including imports, of meat, Siluriformes fish and fish products (catfish), poultry and egg products are wholesome, safe and properly labelled and packaged.
Imported goods are required to be produced under conditions equivalent to the level of protection applicable in the USA. The Animal and Plant Health Inspection Service (APHIS) at the USDA promotes and defends agricultural health, including protection against plant and animal diseases and pests. While both APHIS and FSIS responsibilities apply to imported goods, the APHIS safeguards against animal and plant health risks, whereas the FSIS ensures that food safety requirements are enforced.
The Environmental Protection Agency (EPA) is responsible, inter alia, for the registration of pesticides (including herbicides and fungicides) and the establishment of tolerances – ie, maximum residue limits – for pesticides in food. Other federal agencies involved in SPS issues include CBP, the Agricultural Marketing Service, the Agricultural Research Service, the National Institute of Food and Agriculture (USDA), the Centers for Disease Control and Prevention (Department of Health and Human Services), the National Marine Fisheries Service (Department of Commerce), and the Alcohol and Tobacco Tax and Trade Bureau (Department of Treasury).
Trading partners in the WTO have occasionally raised concerns that US SPS measures have the effect of reducing imports, whether or not they are so intended. For example, during the June 2020 meeting of the WTO SPS Committee, the EU noted its concerns about what it considered to be the unjustified and long delays of the USA to recognise the pest-free status in the EU for Asian and Citrus longhorn beetles. The EU noted that Canada had already declared the EU to be pest-free.
See the WTO's Committee on Sanitary and Phytosanitary Measures report, paragraph 3.14.
There are no competition policies or price controls at the federal level in the USA that appear to be aimed at reducing imports and/or encouraging domestic production. The competition policy framework has been well established in the USA for many years. The federal competition (antitrust) legislation consists of three core laws:
Government institutions, including those engaging in commercial activity, are exempted from federal antitrust legislation unless statute clearly provides otherwise. Limited immunity also applies, by way of example, to specific aspects of agriculture, fisheries, shipping and insurance.
In relation to international trade, the Webb-Pomerene Export Trade Act may allow associations of otherwise competing businesses to engage in the collective exports of goods, provided there are no anti-competitive effects or injury to competitors within the USA. The Export Trading Company Act (1982) also creates a procedure whereby persons engaged in export may obtain, under certain circumstances, an export trading certificate of review (ETCR) providing, inter alia, for limited antitrust immunity. The Shipping Act (1984) allows international ocean carriers to engage in pricing arrangements (liner conferences) that are filed with the Federal Maritime Commission, unless these are contested by that Commission.
See the WTO Secretariat’s Report in the 2019 Trade Policy Review – USA, paragraphs 3.190 and 3.192.
As noted by the WTO Secretariat, the incidence of US governmental authorities owning or controlling enterprises that engage in commercial activities is fairly limited. These entities – for example, the Tennessee Valley Authority – are not likely to conduct themselves in a manner that would reduce imports. At the federal level, a number of government corporations or government-sponsored enterprises generally fulfil public policy objectives or governmental functions and their intended purpose is not to compete with private enterprises.
While US states possess a general incorporation statute, the federal government does not have such powers, and each government corporation is chartered through an act of Congress to perform a public purpose with a clear and transparent mandate. Government corporations have a separate legal personality, and may receive federal allocations, but they may also have their own sources of revenue.
See the WTO Secretariat’s Report in the 2019 Trade Policy Review – USA, paragraph 3.219.
As summarised by the WTO Secretariat, the Buy American Act of 1933 (BAA) and the Trade Agreements Act of 1979 (TAA) remain the main laws regarding government procurement. The BAA requires the federal government to purchase domestic goods, while the TAA provides authority for the President to waive purchasing requirements, such as those contained in the BAA. These requirements are waived for WTO Government Procurement Agreement (GPA) participants, trading partners with which the USA has an FTA that covers procurement and beneficiaries of preferences. Federal agencies may waive domestic procurement requirements in US law under certain conditions.
Private construction activities are open to foreigners with few limitations, while public construction activities are subject to Buy American provisions and to the provisions of the GPA and FTAs.
Under the BAA, the purchase of supplies and construction materials by government agencies is limited to those defined as "domestic end-products", in accordance with a two-part test that must establish that the article is manufactured in the USA, and that the cost of domestic components exceeds 50% of the cost of all the components. The BAA does not apply to services. As a way of monitoring enforcement of the BAA, the Independent Agencies Appropriations Act of 2006 (PL No 109-115) requires the head of each federal agency to submit a report to Congress relating to acquisitions of articles, materials or supplies manufactured outside the USA. Federal domestic preference requirements are also sometimes included in annual appropriation and authorisation bills.
Under the TAA, the President may grant waivers from the BAA and other procurement restrictions; this authority has been delegated to the USTR. The Act waives the application of the BAA to the end-products of designated countries, which include the parties to the GPA, bilateral agreements that cover government procurement, CBERA beneficiaries and LDCs. CBERA and LDCs face GPA thresholds. For the other trading partners that are beneficiaries of a preferential agreement, there are thresholds. Eligible products are granted non-discriminatory treatment. There are few other situations in which procurement may be exempt from BAA requirements. Exceptions to the BAA can be granted if it is determined that the domestic preference is inconsistent with the public interest, in case of US non-availability of a supply or material, or for reasonableness of cost. Public interest determinations may be made on individual procurements or as a blanket for a set of procurements.
Non-availability may be determined following FAR 25.104, which contains a list of articles that have been determined to be non-available, which must go through public notice and comment every five years, or on an individual basis. The cost of the domestic offer is understood to be unreasonable if the cost of the foreign (non-eligible) product, inclusive of import duty and a 6% added margin, is below the lowest domestic offer when this offer is from a large business concern. If the lowest domestic offer is from a small business concern, the added margin considered is 12%.
For purchases by the US Department of Defense (DOD), the price difference must be at least 50%. The provisions of the BAA are also waived for civil aircraft and related articles that meet the substantial transformation test of the Act and originate in parties to the WTO Agreement on Trade in Civil Aircraft.
On 18 April 2017, Executive Order No 13788, Buy American and Hire American, was issued in relation to the implementation of Buy American laws. The Order instructs federal agencies to prioritise procurement of domestically produced goods, specifically referencing US iron and steel products.
As noted by the WTO Secretariat, the USA provides protection to foreign and domestic geographical indications (GIs) through its trade mark system for all classes of goods and services, usually as certification marks and collective marks with indications of regional origin. As such, the US system of GI protections would not appear to be aimed at reducing imports per se but, as is the case in any trade mark system, could be used to restrict infringing imports.
The US system provides that an interested party may assert grounds (such as those described below) to oppose an application to register, or to cancel a registered mark, if that party believes that it will be damaged by the registration or continued existence of the registration. The USPTO examines applications for trade marks, including certification marks and collective marks with indications of regional origin. Protection is not granted to geographic terms or signs that are generic for goods or services.
Under the system, the owner of a mark has the exclusive right to prevent its use by unauthorised parties when such use would likely cause consumer confusion, mistake or deception as to the source of the goods/services. A prior right-holder has priority and exclusivity over any later users of the same or similar sign on the same, similar, related, or in some cases unrelated goods/services where consumers would likely be confused by the two uses. Complementary protection is provided under the Federal Alcohol Administration Act and its implementing regulations for wine and distilled spirits of both domestic and foreign origin.
The Trademark Act differentiates certification marks with indications of regional origin from trade marks by two characteristics: (i) a certification mark is not used by its owner; and (ii) a certification mark does not indicate the commercial source nor distinguish the goods or services of one person from those of another person. Any entity, which meets the certifying standards, is entitled to use the certification mark. Certification marks identify the nature and quality of the goods, and affirm that these goods have met certain defined standards.
Geographic names or signs may also be registered as collective marks or as trade marks. However, the geographic term must not be deceptive, and the applicant must either show acquired distinctiveness in the geographic term, or disclaim exclusive right to use the geographic term. Although registration is preferable because of notice to the public and other benefits, GIs may also be protected through common law without being registered by the USPTO if they are a valid common law regional certification or collective mark (not a generic term). See the WTO Secretariat’s Report in the 2019 Trade Policy Review – USA, paragraphs 3.296-3.298.
There are no other significant issues or developments in US trade or investment law that have not already been addressed. However, as noted, the US regime in 2021 will be marked by political transition and significant uncertainty in terms of international trade.