Will the Australia-United States Free Trade Agreement save Australian exporters from the proposed US Tariffs?

Australia and the United States of America (US) entered into the much-lauded Australian-United States Free Trade Agreement (AUSFTA) 20 years ago this year. At the time, the AUSFTA reduced most of Australia’s non-agricultural exports and seventy-five per cent of agricultural exports to duty-free, while the remaining duty rates phased down over the subsequent years.

Fast forward from 2005 to 2017, Donald Trump, then-president of the United States and now president-elect for a second term, proposed his policy of “America First” by implementing tariffs on certain goods imported into the US. Of particular relevance to Australian exports were the steel and aluminium tariffs of 25 per cent and 10 per cent, respectively.

Whilst the Australian Prime Minister of the time, Malcolm Turnbull, successfully obtained an exemption from the tariffs, the AUSFTA did not play a part in obtaining that exemption. Rather, it was the US’ significant trade surplus with Australia and our strategic military alliance that ultimately persuaded the US President of the time to approve the exemption.

Donald Trump has expressed concerns about broad free trade agreements that do not serve the US’ best interests. During his previous term, he exited the US from the Trans-Pacific Partnership Agreement negotiations and actively worked to remove the 30-year-old North America Free Trade Agreement (NAFTA) between the US, Canada and Mexico. The agreement was replaced in 2020 with the United States-Mexico-Canada Agreement. 

What can Australian exporters expect? 

Firstly, there are a range of additional tariffs that can be implemented (noting that “Section 301” and “Section 232” Tariffs remain in place from Donald Trump’s previous term in office). These include:

  • Anti-dumping and countervailing duties – duties imposed where goods are exported to a country with an export price lower than the domestic market (or subsidised price) and material injury is caused to the industry in the importing country as a result of this; 
  • Section 301 Tariffs – imposed by Presidential Proclamation under the Trade Act of 1974 where any foreign government act, policy or practice violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts US Commerce 
  • Section 232 Duties – imposed under the Trade Expansion Act of 1962, where the President is authorised to impose tariffs to restrict imports that threaten the national security of the US 
  • Section 201 “Safeguard” Tariffs – imposed under the Trade Act of 1974 by Presidential Proclamation when import surges that cause or threaten injury to US industries 
  • Section 221 Balance of Payment Quotas and Tariffs – imposed under the Trade Act of 1974 against countries with balance-of-payment surpluses 
  • Section 338 Tariffs – imposed under the Tariff Act of 1930 on merchandise originating in countries that have discriminated against the commerce of the US. 

Secondly, the World Trade Organization’s Appellate Body (the trade dispute settlement body) is not currently operational as the US has continued to block the appointment of judges to hear trade disputes between countries. This means there is no international arbitration available to countries that have additional tariffs applied. 

Excluding comments made about tariffs on goods from Mexico, Canada, and China, Donald Trump indicated plans during his election campaign to impose tariffs of ten per cent to twenty per cent for all countries.

Practical next steps for Australian exporters 

Donald Trump has now been inaugurated as the President of the US and indicated that tariffs will be placed on all goods imported into the US.

Whilst there is no timeline at present, there are some practical steps exporters can take. These include:

  • Map and understand your organisation’s supply chain and ability to make changes if needed.
  • Accurately assess the real country of origin of the goods you are manufacturing using legislated rules of origin 
  • Confirm the accuracy of the tariff codes being used in the US at the time of import 
  • Given tariffs are mostly levied on values, ensure the customs values of the goods are accurate, and where appropriate, all non-dutiable costs and charges are invoiced separately from the goods 
  • For related parties, understand the impact of tariff increases on transfer pricing arrangements and where the increased tariffs are allocated 
  • Research and understand alternative markets, particularly if additional tariffs would make your goods unprofitable to sell in the US 
  • Understand your industry and whether or not goods diverted from the US market in response to possible additional tariffs are being dumped in Australia and injuring your industry so that anti-dumping investigations can be considered.

How BDO can help 

Our experienced customs, international trade and excise team can support your business plan for additional tariffs if or when they are implemented in the US. Contact us today to learn more about how we can support your business.