Industry is finding it can move components out of China, and it's still affordable to produce those components closer to final assembly plants, especially with more automation, said Peter Anderson, vice president of global supply chain at Cummins, an Indiana-based Fortune 500 company that makes engines for heavy equipment and heavy-duty trucks. The sections 301 and 232 tariffs made Cummins start “to think about what we could do differently,” and he said many Cummins suppliers have “started to take things out of China to mitigate those tariffs.” Anderson was one of several voices on a webinar on how manufacturing will change after the COVID-19 pandemic response, hosted by the Hudson Institute on April 22.
Panelists tasked with envisioning how trade will change post-COVID-19 pandemic disagreed on what's most useful to avoid another shortage of critical supplies in an emergency, but said they expect that things will change. Nicole Bivens Collinson, a lobbyist at Sandler Travis, said clients are already planning how to reshape supply chains, after the painful experience of not receiving shipments as the pandemic hit China, then South Korea, then the rest of the world.
Although the hearing scheduled for input on a Kenya Free Trade deal was canceled, comments continue to come in for what the U.S. trade representative's priorities should be.
The evaluation of exclusion requests related to COVID-19 is too slow, two senators say, and they're asking that the Office of the U.S. Trade Representative eliminate duties on all imports covered by Section 301 that are needed to fight the pandemic. Sen. Pat Toomey, R-Pa., and Sen. Tom Carper, D-Del., sent a letter to USTR Robert Lighthizer April 20, asking him to “work with [Health and Human Services (HHS)], the Federal Emergency Management Agency (FEMA), the Department of Commerce, industry, and other relevant experts to develop a list of inputs, substitutes, machinery, and other products that U.S. companies need to meet the current demand for medical supplies, that will be subject to 301 tariff exemptions. U.S. companies must be able to access the materials needed to manufacture critical medical supplies without the added cost of 301 tariffs for the duration of the COVID-19 emergency, and they should not be subjected to the lengthy process of submitting tariff exemption requests for each individual input required to make products essential for addressing the ongoing pandemic. Time is of the essence, and these exclusions should be issued as soon as possible.”
Importers hailed the temporary duty deferral announced April 19 (see 2004200024), even as many said applying it to Section 301 is also needed. Apparel faces some of the highest Most Favored Nation tariffs, which are the only category the duty deferral applies to. American Apparel and Footwear Association CEO Steve Lamar said: “Deferring duty payments and import fees in a time of limited liquidity is a welcome move. As revenue has receded due to closed stores and less commerce, American companies have been faced with the difficult decision to pay their tariff bill to the U.S. government or keep American workers on payroll. The deferral of these payments will provide some of the liquidity needed to keep more Americans employed and more American companies operational during this crisis,” He said, however, that Section 301 duties should be included.
The Office of the U.S. Trade Representative issued a pre-publication notice April 20 that carmakers must submit draft staging plans under the U.S.-Mexico-Canada Agreement no later than July 1. Their final plans are due by Aug. 31, the notice said. If USTR approves the plans, companies would have five years instead of three to increase regional content and adjust to other changes in the auto rules of origin. In order to be approved, the companies must show how every model can meet the stricter standards, even if that can't be done within the five-year time frame. Many cars imported from Mexico do not meet the current standards and pay the 2.5% duty. “The petitioner also should identify any North American investments and sourcing, preferably by calendar year and location, which will allow such vehicles to meet the standard USMCA rules,” USTR said.
Trade groups that represent importers are asking that restrictions to the products eligible for the Generalized System of Preferences benefits program from Thailand be delayed. The groups said in a letter to President Donald Trump that the changes, scheduled for April 25, “would increase costs for American employers [that] already are struggling to maintain employment levels in response to shutdowns and falling demand around the world” brought on by COVID-19 pandemic response measures. They asked for at least a six-month delay.
Braumiller Law Group attorneys told webinar listeners April 20 that outside of the automotive sector, the U.S.-Mexico-Canada Agreement has more liberal rules of origin than NAFTA. Jim Holbein said that the decision on whether a product qualifies based on tariff shift is a “much simpler rule to apply. I believe that’ll be useful, particularly if your process for obtaining origin is based all on NAFTA.” He gave the example of a flat-screen TV assembled in Mexico, which currently has content percentage rules. Under USMCA, if the manufacturing process qualifies as substantial transformation, that's enough to count as Mexican.
The Council on Foreign Relations said that U.S., European and Japanese pushback over Made in China 2025, at least the part on high performance medical devices, may ebb after the coronavirus pandemic has passed -- because other countries will want to implement their own versions. “If any country knows a little bit about reducing industrial dependence on the rest of the world through conscious industrial choices, that would be China,” said Brad Stetser, a CFR senior fellow for international economics, during a webinar April 16. He said China is displacing imported semiconductors, but has been less successful in displacing imported aircraft.
As a date of entry into force, June 1 “is too aggressive and unrealistic,” said The American Association of Exporters and Importers in a letter sent April 15 to the U.S. trade representative. The organization did not say what day would be late enough for traders, who are affected by the COVID-19 public health emergency. “Many companies have personnel working from home due to COVID-19, which will make responses to queries for data slower, thereby causing delays in the certification process for USMCA,” they said. But they noted that without final regulations, “it is impossible for companies to know if there will be an impact or if supply chains may need to be shifted.” Once the regulations are in place, AAEI said, it will take time to solicit documents from suppliers. The group asked that NAFTA certificates of origin for 2020 continue to be valid during a period of informed compliance until Jan. 1, 2021.