Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

On 10 July 2024, the Biden Administration reached an agreement with Mexican President Manuel Lopez Obrador to implement additional trade measures to prevent the circumvention of current United States (US) punitive tariffs imposed on steel and aluminum imports under Section 232 of the Trade Expansion Act of 1962 (Section 232).

New trade measures

While steel and aluminum products of Mexico were previously exempt from the 25% and 10% Section 232 punitive duties, respectively, along with steel and aluminum imports from Argentina, Australia, Brazil, Canada and South Korea, the Presidential Proclamation introduces a requirement that, to be exempt from the existing tariffs, steel from Mexico must be melted and poured in the US, Canada or Mexico, and aluminum from Mexico must not be smelt or cast in China, Russia, Belarus or Iran.

The Section 232 tariffs for Mexican steel and aluminum products take effect immediately on or after 12:01 a.m. EST on 10 July 2024. Importantly, the Proclamation provides that the same Section 232 tariffs would apply to steel and aluminum articles admitted to US Foreign Trade Zones (FTZs) under "privileged foreign status" and entered for consumption.

Action for businesses to consider

Companies with international supply chains, particularly with those including Mexico and China sourcing and manufacturing, should immediately identify the potential impact of these measures and explore potential mitigation strategies. Actions to take may include:

• Monitoring updates from US Customs and Border Protection to provide further instructions on "melt and pour requirements" for steel products as well as "smelt and cast requirements" for aluminum products
• Developing compliance processes and procedures that demonstrate reasonable care in the face of increased customs enforcement and scrutiny
• Reviewing FTZ operations and admission status of steel and aluminum products under the new requirements

Additionally, the imposition of Section 232 duties will almost certainly affect transfer prices for US distributors who purchase from related parties and identify that their products are now subject to the punitive duties. Along with mitigating duty impact while aligning the income tax and customs approaches, affected parties should also review the mechanics for reporting any transfer pricing adjustments to US Customs. This process may be particularly complex when duties are present for only a portion of the year. US Customs has specific rules for reporting adjustments to prices made after importation, including rules for transfer pricing adjustments. These rules require the importer to take specific actions before importing goods for which prices may be adjusted, including adding customs-specific language to transfer pricing policies. With proper planning, refunds may be obtained on duties paid if transfer prices are reduced.