Recent US trade developments affecting supply chains: PwC

In brief

The past few months have seen several important developments affecting US global trade, including:

A bipartisan May 10 letter from Senate Finance Committee Chairman Ron Wyden, Ranking Member Michael Crapo, and other Finance Committee members to United States Trade Representative (USTR) Katherine Tai calling for improved transparency and consultation with Congress on pending trade negotiations. The letter states that recent consultations have not met the standards of the Transparency Principles that the USTR announced last year. Chairman Wyden on July 20 released a statement requesting dispute settlement consultations with Mexico under the United States-Mexico-Canada Agreement (USMCA).
US Customs and Border Protection (CBP) on June 13 released operational guidance for importers regarding P.L. 117-78 (commonly referred to as the ‘Uyghur Forced Labor Prevention Act’ or UFLPA, which was signed into law by President Biden on December 21, 2021, and effectively bans imports of all goods from the Xinjiang Uyghur Autonomous Region (XUAR) of China. The Forced Labor Enforcement Task Force (FLETF) on June 17 released its 68-page Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China (the Strategy), as required by the UFLPA. Section 3(b) of the UFLPA requires importers to comply with the importer guidance contained in the Strategy.
The USTR on June 30 released the first report on the operation of the USMCA regarding trade in automotive goods. The required biennial report examines compliance with USMCA by auto producers and the effectiveness of the USMCA’s automotive rules of origin in the two years since USMCA’s entry into force.
The US and Canada on July 7 announced a memorandum of understanding (MOU) to settle a dispute on trade in solar products under the USMCA. USTR Tai and Canadian Minister of International Trade, Export Promotion, Small Business and Economic Development Mary Ng signed the MOU on July 8. On July 19, CBP sent a message through its Cargo Systems Messaging Service (CSMS) providing guidance on the USTR’s retroactive suspension of Section 201 solar safeguard measures on imports of crystalline silicon photovoltaic cells (CSPV) and modules originating in Canada and entered on or after February 1, 2022.
USTR Tai, Canadian Minister Ng, and Mexican Secretary of Economy Tatiana Clouthier on July 8 released a statement following the second meeting of the USMCA Free Trade Commission (FTC). The representatives agreed to hold a Deputies meeting before the end of 2022 to assess progress on the areas discussed and identify ongoing opportunities for future engagement.
CBP on July 13, through CSMS, announced an increase in Column 2 duties for certain articles imported from Russia, effective June 27, 2022.

Action item: Taxpayers that could be affected by any of these developments should analyze the potential impact on their supply chains and overall operations.

In detail

Trade negotiations

According to the Wyden-Crapo letter,

“Members of Congress may profess different views on the merits of any given trade negotiation. But there is no dispute that Congress has every right to be involved in the negotiation process. We expect a sound consultation process to, at a minimum, adhere to the standards of the Transparency Principles USTR announced last year, which incorporate the Guidelines for Consultation and Engagement to which USTR agreed in 2015, following extensive negotiations between Congress and the Executive Branch.

“Regrettably, USTR’s recent consultations have not met those standards. For example, USTR recently announced that a “compromise outcome” was reached with the European Union, India, and South Africa with respect to a waiver of the World Trade Organization (“WTO”) Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS Agreement”) that offers a path to a broader agreement with the 164 members of the WTO. USTR’s announcement of the outcome preceded its informing Congress of the specifics of the compromise or sharing text of the proposal. USTR has committed in the Guidelines to share both text of U.S. proposals and consolidated text with Members of Congress and their cleared staff during negotiations. Importantly, USTR has shared — as it should — text for other trade proposals at the WTO and elsewhere with relevant Congressional committees in the past. There is no reason to have broken with that tradition here. USTR should promptly provide any new U.S. proposals or consolidated text to Congress.

“We want to ensure that this failure to consult properly with Congress will not be replicated in other areas, particularly as the Administration seeks to launch new trade negotiations under the auspices of the Indo-Pacific Economic Framework, pursue multilateral and plurilateral negotiations at the WTO, and engage in bilateral discussions with countries such as the United Kingdom….”

Chairman Wyden’s July 20 statement provides, in part, “Mexico’s protectionist energy policies are a one-two punch against economic and environmental progress. As I discussed with Ambassador Tai in our March hearing, Mexico is flouting its USMCA obligations by shutting American renewable energy providers out of the market and giving unfair advantages to less reliable, fossil fuel-based state-owned enterprises. These actions are not only discriminatory, but they also have dire environmental consequences and raise questions about whether Mexico can meet its climate goals under the Paris Agreement.”

Uyghur Forced Labor Prevention Act

The UFLPA establishes a rebuttable presumption that the importation of any goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the XUAR, or produced by certain entities, is prohibited by Section 307 of the Tariff Act of 1930 and that such goods, wares, articles, and merchandise are not entitled to entry to the United States. The presumption applies unless the CBP Commissioner determines that the importer of record has complied with specified conditions and, by clear and convincing evidence, that the goods, wares, articles, or merchandise were not produced using forced labor.

The UFLPA also requires the interagency FLETF, chaired by the Secretary of Homeland Security, and in consultation with the Secretary of Commerce and Director of National Intelligence, to develop and submit to Congress a strategy for supporting CBP’s enforcement of Section 307 of the Tariff Act of 1930 with respect to goods, wares, articles, and merchandise produced with forced labor in the People’s Republic of China.

The importer guidance released by CBP is intended to assist the trade community in preparing for the implementation of the UFLPA rebuttable presumption, which went into effect on June 21, 2022.

For an in-depth look at this guidance, see PwC Tax Insight, CBP and FLETF issue guidance for importers under ‘Uyghur Forced Labor Prevention Act’, June 22, 2022.

US-Canada solar trade

According to a USTR press release, “The MOU promotes greater North American solar supply integration and reaffirms both countries’ commitment to prohibit imports of solar products produced in whole or in part with forced or compulsory labor. The MOU also contains a mechanism to ensure that solar product imports from Canada do not undermine the existing U.S. safeguard measure on imports of solar products.”

USMCA Free Trade Commission

Attendees at the second meeting of the FTC reviewed the ongoing work by USMCA committees and working groups to implement the USMCA, particularly those on Agriculture Trade, Agricultural Biotechnology, Trade Facilitation, Temporary Entry, Private Commercial Disputes, Sanitary and Phytosanitary Measures, Technical Barriers to Trade, Transportation Services, State Owned Enterprises, and Good Regulatory Practices.

The FTC members took note of this progress, offered guidance for future work, and reiterated that ongoing engagement is critical to the Agreement’s full implementation. The FTC also engaged in broader discussions on North American competitiveness, small and medium-sized enterprises (SMEs), and inclusive trade, labor, and environment.

The FTC members also affirmed their shared interest in strengthening regional economic growth, prosperity, and competitiveness. They acknowledged that North American competitiveness underpins the future prosperity, security, and sustainability of all three countries. They recognized that integrated supply chains are a competitive advantage for North America and that maintaining trade flows in emergency situations is essential for all three countries.

Therefore, they directed the USMCA Competitiveness Committee to complete, within 90 days, negotiations on the establishment of a subcommittee to cooperate during emergency situations in order to maintain, re-establish, or otherwise address issues related to the flow of trade between the USMCA countries as well as a working group under that subcommittee to coordinate on a shared understanding of critical infrastructure priorities.

Imports from Russia and Belarus

President Biden on April 8 signed into law H.R. 7108, the “Suspending Normal Trade Relations with Russia and Belarus Act.” Pursuant to this legislation, imports from Russia and Belarus became subject to the tariff rates set forth in Column 2 of the Harmonized Tariff Schedule of the United States (HTSUS). This legislation also granted authorization to the President to proclaim increases in the Column 2 tariff rates applicable to products of Russia or Belarus.

President Biden on June 27 issued Presidential Proclamation 10420, announcing an increase in Column 2 tariffs for certain articles imported from Russia, effective June 27. According to the USTR, the products covered by the proclamation include steel and aluminum; minerals, ores, and metals; chemicals; arms and ammunition; wood and paper products; aircraft and aircraft parts; and automotive parts.

The July 13 CBP message provides details regarding implementation of these tariff increases.

For prior coverage, see PwC Tax Insight, United States revokes MFN status for Russian and Belarusian goods, April 21, 2022.