Murphy: 40% Vietnam Transshipment Tariff Will Be Linked to Amount of Chinese Content
Sidley trade lawyer Ted Murphy sent a note to clients about his thoughts on the U.S.-Vietnam tariff deal announced July 2 "based on what we (think we) know about the deal thus far," though he noted that the deal is likely still being negotiated.
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Referring to a 40% tariff announced on transshipped goods as part of the deal, he said that, "While it is not clear what 'Transshipping' will be defined to mean exactly, it is clear that it will mean Vietnamese-origin product with some amount of Chinese content (it may say 'third country content', but this provision is undoubtedly aimed at Chinese-origin content)."
In effect, he said, there will be a rule of origin, rather than relying on substantial transformation.
"This is a big change and could impact a significant percentage of product depending on where the threshold for Chinese content is set," he wrote in the July 3 note.
He asked if Thailand, Cambodia, Malaysia and Mexico will be subject to the same approach. "What has been disclosed thus far raises some important questions that go well beyond just trade with Vietnam," he wrote.
He said he doesn't know if the 20% regular Vietnam tariff announced in the deal replaces most favored nation duties, or stacks on top of them, as the 10% reciprocal rate currently in effect for Vietnam does.
If Congress doesn't approve the deal, he said, he expects litigation on whether the International Emergency Economic Powers Act can be used to arrive at a change in tariffs and a new rule of origin.
Finally, what is the president’s legal authority for entering into a trade agreement of this type? A trade agreement that imposes tariffs and adopts a new rule of origin would seem to require congressional approval. If the administration seeks to rely on delegated authority under IEEPA (which was the cited legal basis for imposing the reciprocal tariffs in the first place), this issue will certainly be litigated.