President Trump announced May 17 that he is delaying for 180 days a decision on whether to impose new tariffs on imports of automobiles and auto parts. During that time the U.S. plans to hold talks with the European Union, Japan, and possibly others that will likely seek to reduce imports of these goods.
In May 2018 the Department of Commerce self-initiated an investigation under section 232 of the Trade Expansion Act of 1962 to determine whether foreign-made automobiles (sedans, sport utility vehicles, crossover utility vehicles, minivans, cargo vans, and light trucks) and auto parts (engines and engine parts, transmissions and powertrain parts, and electrical components) are being imported in such quantities or under such circumstances as to threaten or impair U.S. national security.
A May 17 presidential proclamation states that the DOC’s determination was affirmative. According to the proclamation, the DOC determined that U.S.-owned auto producers’ share of the domestic and global markets has fallen sharply in recent decades, which decreases the sales revenues that enable the research and development expenditures necessary for long-term automotive technological superiority, which in turn is essential for national defense.
Under U.S. law the president has authority to adjust imports in response to such a finding, including through the use of tariffs and quotas, and President Trump has threatened tariffs of up to 25 percent. However, for the time being the president has concurred with a DOC recommendation to seek agreements with other countries that address the national security threat. (The proclamation indicates that the DOC recommended other actions as well but does not say what they were.)
The president will therefore direct U.S. Trade Representative Robert Lighthizer to pursue negotiations with the EU and Japan, which he said “impose significant barriers to automotive imports from the U.S.” and any other country deemed appropriate. Press reports indicate that the focus of these talks will likely be ways to reduce subject imports from those countries, something they have largely objected to in the past. Lighthizer will have to report on the outcome of these negotiations within 180 days, at which point the president will determine whether and what further action needs to be taken.
The proclamation notes that the renegotiated U.S.-Korea Free Trade Agreement and the U.S.-Mexico-Canada Agreement designed to replace NAFTA, when implemented, could help address the national security threat posed by auto imports. For example, KORUS has been revised to extend the phase-out of the 25 percent U.S. tariff on Korean trucks from 2021 to 2041, and the USMCA includes changes that will make it more difficult for automobiles from Canada and Mexico to qualify for duty-free treatment in the U.S. However, the proclamation makes no explicit commitment to exempt any of these countries from any import restrictions that may ultimately be imposed.
For more information on this section 232 investigation and how it may affect your business, please contact trade consultant Nicole Bivens Collinson at (202) 730-4956 or trade attorney Kristen Smith at (202) 730-4965.
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