The International Business Transactions Blog

USTR Planning Section 301 Tariffs on Countries Using Digital Service Taxes

By BethEl Nager, Law Student Editor
& Aaron Fellmeth, Faculty Co-Editor

Digital Services Taxes (DSTs) are taxes levied on the gross income of companies providing such services as advertising, e-commerce, and user-data collection, based on the number of digital users within a country. Since 2020, at least 18 countries have proposed or adopted DSTs ranging from 1.5% to 7.5%. The United States has no such tax, and the U.S. Trade Representative (USTR) is now considering taking action under Section 301 of the Trade Act of 1974 against countries that adopt DSTs.  Section 301 gives the President, and by extension, the USTR, the power to take “all appropriate and feasible action” to terminate any foreign government policy that violates a U.S. trade treaty or disadvantages U.S. foreign commerce more generally. 

The USTR objects to DSTs because they are aimed at large technology companies providing digital services globally, and the United States is a leading exporter of such services. At the beginning of 2021, the USTR deemed some countries’ DSTs to be “unreasonable or discriminatory” and burdensome or restrictive of U.S. commerce. The targeted DSTs include those implemented in the United Kingdom, Italy, Spain, Turkey, India, and Austria, as well as those proposed in other countries. However, the imposition of retaliatory tariffs was delayed in some countries until the DSTs took effect.

When the import duties take effect, they will add a 25% punitive tariff on various niche items and could amount to almost $1 billion each year in toto. For example, imports of makeup ingredients, refrigeration units, video game units, and merry-go-rounds from the United Kingdom would be targeted; as well as anchovies, caviar, perfume, and eyeglasses from Italy; and octopus, handbags, shoes, hats, and glassware from Spain. 

From May 3-7, 2021, the USTR will host various virtual hearings on the suggested tariffs in each country. A multi-jurisdictional meeting will be held on May 3, followed by one meeting per day on individual countries. The day-long meetings will occur in the following order: the United Kingdom, Italy, Spain, and Turkey. There will not be separate meetings to discuss the proposed actions regarding DSTs in India and Austria. Instead, they will solely be discussed during the multi-jurisdictional meeting.

The major legal concern with U.S. retaliation under Section 301 is that it violates the WTO Agreements binding on the United States, as well as public assurances by previous U.S. Presidents that Section 301 would not be used contrary to the WTO Agreements. The proper procedure is to initiate negotiations under the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes, and to assert a claim if negotiations fail. Donald Trump was the first U.S. President to use Section 301 and other U.S. trade laws to violate the WTO Agreements, and many are surprised to see President Biden pursuing the same lawless policy.

CIT Dismisses Unconstitutionality Claim Against Trump’s Metal Tariffs

By BethEl Nager, Law Student Editor
& Aaron Fellmeth, Faculty Co-Editor

On March 10, 2021, the U.S. Court of International Trade (CIT) dismissed a claim questioning the constitutionality of former President Trump’s tariffs on metal imports under Section 232 of the 1962 Trade Expansion Act, 19 U.S.C. § 1862. The Act authorizes the President to impose tariffs on imports that yield a danger to national security. The Secretary of Commerce also has the power to investigate the impact of the national security threat, collaborate with the Secretary of Defense, and create a report detailing the threat caused by the imports. The President then may decide what action to take based on the report within 90 days of its submission. Subsequently, the President may implement the tariff and inform Congress within thirty days.

As detailed in an IBTBlog post last year, Donald Trump issued a proclamation in March 2018 imposing a 25% tariff on steel imports and a 10% tariff on aluminum imports from numerous countries. However, he also authorized the Secretary of Commerce “to exclude aluminum and steel articles from the imposition of these tariffs if the article is ‘determined not to be produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality and [Commerce] is also authorized to provide such relief based upon specific national security considerations.’”

Early in 2021, the CIT heard a complaint brought by Thyssenkrupp Materials, an importer of aluminum and steel. Thyssenkrupp argued that the exclusion process adopted by the Department of Commerce violated the Uniformity Clause of the Constitution, which requires that the federal government apply a uniform tax rate on similar kinds of businesses and property across the United States. Thyssenkrupp complained that, because it did not apply for and receive an exclusion, other importers paid lower import duties on metals than Thyssenkrupp in violation of the Uniformity Clause. Also, Thyssenkrupp alleged an abuse of discretion under Section 232 of the Trade Expansion Act because the exclusion process was granted to specific importers rather than to all importers of specific imported products, despite the Proclamation’s language directing Commerce to provide import relief for a specific steel or aluminum “article.”

The three-judge panel of the CIT found the exclusion process consistent with the Uniformity Clause and granted the government’s motion to dismiss. The Government argued there were non-geographic requirements for companies to avoid the tariffs. United States v. Ptasynski set forth a “simple test” holding that if there were non-geographic criteria in the law, the Uniformity Clause is not violated. Because the national security criteria were not geographical in nature, the CIT upheld former President Trump’s tariffs. As for the Proclamation itself, the CIT found that the Commerce Department’s interpretation of the Proclamation is entitled to “great deference” under Chevron USA v. NRDC, and given the ambiguity of the Proclamation’s language, Thyssenkrupp had not made out a convincing case that Commerce’s interpretation limiting exclusions to specific companies was an abuse of discretion.

Although the U.S. Government has been unable to present a plausible national security rationale for granting import duty exclusions to specific importers rather than on specific imports, Thyssenkrupp’s complaint focused on the consistency of the Commerce regulations with the Uniformity Clause and with the Proclamation, not with the consistency of the Proclamation with the Trade Expansion Act. The CIT granted the Government’s motion to dismiss Thyssenkrupp’s case for failure to state a claim.

Erik Prince and New Arms Export Restrictions on Russia

By BethEl Nager
Law Student Editor

Manufacturers and exporters of military supplies are experiencing new limitations by United Nations (UN) and United States (U.S.) arms export restrictions. The UN Security Council implemented an arms embargo against Libya in February of 2011. It was created to ensure military supplies were not traded with Libya to impede human rights violations by the Libyan government during the “Arab Spring” protests. In 2014, the UN loosened the trade restrictions when the disputing factions agreed on a National Accord government. Rather than a complete ban, the Security Council required its Sanctions Committee approve any arms provided to Libya. In June 2016, the Security Council required the National Accord government to investigate seagoing vessels off Libya’s coast that might be illicitly exporting weapons and munitions to the Islamic State in Iraq and the Levant (ISIL). This inspection obligation has been periodically extended, most recently through June 2021.

Erik Prince, one of former President Trump’s close allies and founder of the infamous Blackwater private military contractor, allegedly violated this regulation by participating in a failed mercenary plot in Libya, called Project Opus, in 2019. Prince is accused of offering “weapons, drones and mercenaries to a Libyan militia commander seeking to overthrow the government.” In 2020, a panel of UN experts issued a classified report finding that Prince evaded the UN and U.S. arms embargoes in hopes of aiding in the overthrow of the Libyan government. This violation could result in UN-mandated sanctions, including an asset freeze and a travel ban. Prince was not acting alone. Three United Arab Emirates companies also allegedly participated in the organization and finance operations. Sanctions are yet to be imposed.

In addition, Prince’s acts, if proved, would violate the U.S. Arms Export Control Act. This legislation, enacted in 1976, allows the U.S. President to control the exportation of military items. The Act and its administrative provisions, the International Traffic in Arms Regulations (ITAR), require an export license for any exports or reexports of military equipment from the United States.

The United States also restricts the exportation of munitions and dual-use items to Russia. Due to the Russian government’s attempted assassination of an opposition leader by poisoning, on March 2, 2021, the United States implemented a variety of export controls and trade sanctions on Russia, including tightened restrictions of dual-use items under the Export Administration Regulations, stricter ITAR controls on munitions exports, and new trade and economic sanctions on specific Russian companies, government agencies, and government officials, such as the Federal Security Service. The new provisions  affect U.S. business firms that work with the Russian government (e.g., by providing Internet and telecommunications services) and any firms that do business with the sanctioned companies, agencies, and persons. The U.S. Secretary of State explained the restriction as intended to punish “Russia’s use of chemical weapons and abuse of human rights.” 

Blog Editors

Faculty Editors
Prof. Aaron Fellmeth

Prof. Victoria Sahani

Law Student Editor
BethEl Nager

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