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U.S. to Review and Consider Additional Section 301 Tariffs Targeting the EU Over Trade Dispute

In Short

The Situation: The U.S. government is revisiting whether to maintain or impose up to 100% additional tariffs on certain goods originating in the European Union following the World Trade Organization's ("WTO") recent findings that the European Union has continued unlawful trade practices relating to the provision of subsidies associated with the production of large civil aircraft. The European Union has filed an appeal against those findings.

The Result: The proposed tariff actions target EU-origin products currently subject to 10% or 25% additional duties, as well as EU-origin goods not currently subject to additional duties.

Looking Ahead: Interested parties have until January 13, 2020, to submit written comments concerning the proposed tariffs, as well as the potential impact the proposed tariffs could have on U.S. interests and modifying the European Union's practices. Also, the European Union is still considering the imposition of additional tariffs on imports from the United States, in the context of the WTO dispute concerning subsidies granted by the United States for large civil aircraft.

On December 6, 2019, the U.S. Trade Representative ("USTR") published a Federal Register notice ("Notice") seeking written comments regarding whether to maintain or impose up to 100% in additional duties on certain EU-origin goods. The proposed action follows a December 2, 2019, WTO compliance panel report that rejected the European Union's claims that its modified practices associated with the provision of subsidies to produce large civil aircraft are now fully consistent with WTO rules. The panel concluded that the European Union and certain Member States failed to implement the WTO Dispute Settlement Body's recommendations and rulings to bring its measures into conformity with WTO obligations. On December 6, 2019, the European Union filed an appeal against the panel report. The status of that appeal is unclear given that the WTO's Appellate Body has been unable to hear new appeals since December 11, 2019.

As we previously detailed in our Commentary "Turbulence Across the Pond: United States and EU Trade Tariff Threats Over Subsidies," in April 2019 the USTR initiated an investigation into the European Union's provision of subsidies associated with the production of large civil aircraft. This investigation came after the WTO found that the European Union's trade practices were inconsistent with WTO obligations and measured the harm caused to the United States at $7.5 billion.

Following its investigation, effective October 2019, the USTR imposed 10% additional tariffs on large civil aircraft manufactured in the European Union and 25% additional tariffs on certain EU-origin food and agricultural products pursuant to Section 301 of the Trade Act of 1974 ("Trade Act"). At the same time, the USTR indicated that it had "the authority to increase the tariffs at any time, or change the products affected," including "the authority to apply a 100 percent tariff on affected products."

The USTR's authority to revisit the list of goods subject to additional duties, often referred to as "carousel retaliation," is provided in Section 306 of the Trade Act. Subject to limited exceptions, the law directs the USTR periodically to revise the list of goods subject to additional tariffs upon a finding that the foreign country has failed to implement WTO recommendations. Carousel retaliation could continuously threaten tariffs on EU-origin goods up to 100%, regardless of whether those goods are currently subject to additional tariffs.

The Notice identifies: (i) the EU-origin products currently subject to 10% or 25% additional tariffs and (ii) EU-origin products on which the USTR previously considered imposing additional tariffs but ultimately chose not to do so as part of the October 2019 additional tariffs. The latter group of products includes a variety of food and wine products, clothing, construction materials and tools, and household products.

While the USTR conducted public hearings in relation to the initial imposition of additional tariffs on EU-origin goods described above, there currently is no indication that another round of public hearings will be held in connection with the current proposed action.

With respect to EU-origin goods currently subject to additional tariffs, which are provided in the Notice in Annex I, the USTR is requesting comments regarding whether: (i) additional duties should remain on those products and (ii) the additional duties should be increased to 100%.

With respect to products on which additional duties were not imposed in October 2019, which are provided in the Notice in Annex II, the USTR is requesting comments regarding: (i) whether additional duties should be imposed on those products and (ii) the rate of additional duties that should be imposed on those products.

The USTR also invites interested persons to address the following topics in their written submissions:

  1. Whether maintaining or imposing additional duties on a specific product from one or more specific EU Member States would be appropriate to enforce the United States' WTO rights or eliminate the European Union's practices, and would be likely to result in the European Union implementing the WTO Dispute Settlement Body's recommendations in the large civil aircraft dispute or in achieving a mutually satisfactory solution.
  2. Whether maintaining or imposing additional duties on specific products from one or more specific EU Member States would cause disproportionate economic harm to U.S. interests, including small or medium-size businesses and consumers.

Interested parties may electronically submit written comments through the USTR's online portal. Jones Day has been participating in the proceedings associated with tariff actions taken pursuant to the Trade Act, and we will continue to monitor developments associated with these potential tariffs, the comment process, and final tariff actions taken by the USTR.

The European Union is also considering whether to adopt additional import duties under Regulation (EU) No 654/2014 to enforce the European Union's rights in the WTO dispute against the United States regarding U.S. subsidies on large civil aircraft. Countermeasures available to the European Union are subject to ongoing WTO arbitration.

Three Key Takeaways

  1. The USTR is considering whether to maintain or impose up to 100% additional tariffs on EU-origin goods currently subject to additional tariffs and those previously considered for additional tariffs.
  2. The USTR may continually revisit whether to maintain or impose additional tariffs on EU-origin products, requiring interested parties to monitor recent developments, assess the potential impact on current or planned business activities, and consider engaging in the process to advance their interests.
  3. The USTR's recently proposed tariffs and the additional tariffs on U.S.-origin goods that are being considered by the European Union in the context of the WTO civil aircraft dispute potentially set the stage for continuous retaliatory trade measures that could impact trade between the United States and EU Member States. 

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