Administration Amends Canadian Section 338 List Again, Requests Comments on ITC Role

On October 30, a second set of modifications to the list of approximately $20 billion annually of Canadian goods currently subject to 50% tariffs or outright import bans imposed under Section 338 of the Tariff Act of 1930, 19 U.S.C. § 1338, took effect under Proclamation 11076. Negotiations to end the U.S.-Canada trade war have reportedly thawed, while U.S. importers have challenged the tariffs in court and the U.S. International Trade Commission (ITC) has solicited comments, due November 9, on its role in the process under the statute.

Revisions Since the Initial Implementation

As we explained in our last advisory on the topic, Section 338(a) and (d) permits the president to proclaim a tariff of up to 50% on imports of a foreign country to offset "any burden or disadvantage" he finds to be placed "upon the commerce of the United States" compared to the commerce of other countries through "unequal impositions or discriminations." On July 20, President Trump issued three separate proclamations in response to what he viewed as discriminatory trade measures concerning the alcoholic beverage, dairy, and motor vehicle industries, which became effective August 22 after negotiations between the two governments collapsed and prompted Prime Minister Mark Carney to announce similar and equivalent countermeasures against U.S. goods.

In addition, subsection (b) authorizes the president to exclude entirely goods of the targeted country where he finds that, after duties were imposed, such country "maintained or increased its said discriminations against the commerce of the United States," while under subsection (c) he may amend the initial proclamations. On September 8, the day the countermeasures took effect, the president issued five new proclamations under this authority revising the July 20 series:

• Proclamations 11061, 11062, and 11063 exclude from importation some Canadian goods that had been subject to the new tariffs, namely 68 lines of the Harmonized Tariff Schedule of the United States (HTS) covering packaged and nonpackaged alcohol, molasses, motorcycles, nonalcoholic beer, and whey, effective September 29. These bans do not apply to goods that were imported but not entered for consumption before the effective date, such as those brought into a bonded warehouse or foreign trade zone.
• Proclamations 11064 and 11065 amended the alcoholic beverage and motor vehicle proclamations to add to the product list 122 HTS lines covering cheeses, oils, animal skins, paper products, metal articles, golf carts, ATVs, motorboats, and furniture and to remove 10 HTS lines covering salts, cements, spirits, sugars, tissues, bedsheets, lead, switchboards, and fishing equipment, effective September 15. The proclamations also eliminated the exemption for goods on the alcoholic beverage and motor vehicle (but not dairy) lists also covered by tariffs imposed under Section 232 of the Trade Expansion Act of 1962, meaning those two tariffs now stack up to 100%.

The president also issued a memorandum dated September 16 directing that the Office of Management and Budget director and the U.S. trade representative remove or restrict Canadian products across the federal civil procurement system, intended as reprisal for Canada's "Buy Canadian" procurement preference policy that he sees as discriminatory and inconsistent with Canada's international commitments.

On October 23, reportedly at the behest of Senator Susan Collins of Maine, whose state relies heavily on trade with its Canadian neighbor and who faces a tough reelection fight next week, the president again amended the motor vehicle proclamation tariff list, this time to replace 22 HTS lines covering seaweeds, packaging materials, plywood, paper products, and machinery—industries important to Maine's economy—with 100 HTS lines covering cocoa powders, paint products, shampoos and soaps, waste products, carpets, valves, medical equipment, and other products. These changes became effective at 12:01 a.m. Eastern time on October 30 with no in-transit exemption.

Importer Strategies and Court Challenge

Despite these changes, Washington and Ottawa say that talks regarding Section 232 steel and auto tariffs, which were sticking points in the previous round, are gaining momentum, meaning that further amendments to the list, and perhaps even a rescission of the Section 338 tariffs and Canadian countermeasures, could be forthcoming. Nonetheless, in the meantime, importers of covered Canadian goods may wish lawfully to avoid or to mitigate the impact by turning to the big three variables governing duty amount: classification, valuation, and origin. If a particularly good occasion to optimize these declarations exists, it is when new tariffs are levied. You should consider whether small, viable changes in your company's supply chain or product itself may remove the product from coverage or reduce duty exposure—whether by shifting sourcing or discrete manufacturing operations to a new country or identifying cost elements that can be deducted from customs value. In addition, customs bond sufficiency and the allocation of tariff costs to customers in terms and conditions should be reviewed.

Or relief could again come from the courts. On October 20, New Jersey-based food products importer Gellert Global Group Corp. filed a challenge in the U.S. Court of International Trade (CIT) to the Section 338 tariffs on Canadian goods. In its complaint, Gellert alleges that Section 338 has been impliedly repealed by Section 301 of the Trade Act of 1974, does not cover the actions that the July 20 proclamations are intended to offset, is unconstitutional as a violation of the nondelegation doctrine, and was not properly followed in Proclamations 11064 and 11065. The plaintiff styled the complaint as a class action, following the certification of a class of certain importers who paid duties under the International Emergency Economic Powers Act of 1977 (IEEPA) tariffs earlier this month in that litigation, and is represented by the same legal group that also challenged—so far successfully—the second Trump Administration's IEEPA, Section 122, and Section 301 forced labor tariffs. Gellert moved on October 23 for an injunction against collection of the duties and summary judgment seeking refunds with interest, for which supporting amicus briefs are due November 13.

Solicitation of Comments on ITC Role

Finally, Section 338(g) charges the ITC "to ascertain and at all times to be informed" of discriminations against the commerce of the United States and issue recommendations for action to the president where they exist. This did not happen prior to the proclamations at issue, which exercised this statute's authority for the very first time in its nearly 100-year history, although the ITC played an active role under the predecessor statute, Section 317 of the Tariff Act of 1922. In order to modernize and to formalize its procedures, the ITC therefore has solicited public input on how best to meet its statutory obligations. Specifically, the ITC is asking for comment on the meaning of "unreasonable" and "discriminatory" conduct; the specific methods and mechanisms by which foreign countries burden or disadvantage U.S. commerce, including to the benefit of a third country; how the ITC should obtain and analyze relevant information; and how it should convey recommendations to the president. Comments are due no later than 5:15 p.m. Eastern time on November 9 via email or the ITC's Electronic Document Information System (EDIS) and will be made public unless marked as containing confidential business information.

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DWT's international trade, investment & national security team can assist importers in navigating and lawfully mitigating the impact of the Section 338 tariffs, filing amicus briefs to the CIT, and submitting comments to the ITC. Please contact the authors if you have any questions or need assistance. To stay informed, sign up for our alerts.