Saying the Silent Part Out Loud: Aircraft Parts Will Continue to be Subject to Changing Tariff Rules

The White House has given the industry more guidance on their plans for import tariffs that may be applied to aircraft parts. In an Executive Order published last night, the Administration confirmed that the United States will set aircraft parts duty rates at unique levels for each trading partner.

“The list of imports for which I may be willing to provide a zero percent reciprocal tariff rate is … [description of other products]; aircraft and aircraft parts…. Given the complex, fact-specific, and sensitive nature of negotiations and the national emergency declared in Executive Order 14257, among other relevant considerations, the imports that might receive a reciprocal tariff rate of zero percent may be different for each final agreement between a foreign trading partner and the United States.”

This confirms that the Administration has no intent to honor the Agreement on Trade in Civil Aircraft provisions (including the statutory provisions that implemented that agreement) that provide for duty-free entry of aircraft and aircraft parts. Instead, the Administration expects to set varying tariff levels for imported aircraft parts, based on the country of origin. This can be very complicated to assess for some parts.

For example, an aircraft component that was produced in France might be a product of France when it sold into the aftermarket by the manufacturer. But the substantial transformation doctrine dictates that if the same part was original equipment on a Boeing aircraft produced in the United States, then it became a product of the United States because the fabrication of the complete aircraft (incorporating the component) was a complex assembly. Thus, two otherwise identical aircraft parts might actually be treated differently upon their import into the United States, with the former being a product of France subject to the EU HTSUS provisions, and the latter being a product of the United States that may eligible for duty-free return (assuming that it has not been advanced in value while abroad).

Aviation has a robust record-keeping practice, but the historical duty-free treatment of aircraft parts has meant that the record-keeping practices evolved to support airworthiness, rather than for the purpose of meeting import tariff rules. Modern aircraft parts record-keeping practices may be inadequate in some cases to support common exceptions that should otherwise apply to the U.S. import of aircraft parts.

In June, ASA published an argument to the United States government suggesting that current United States law does not permit duties on aircraft parts, because of (1) the Agreement on Trade in Civil Aircraft and also (2) statutory law that implemented the duty-free treatment of aircraft and aircraft parts. That discussion included the following text:

Any effort to impose tariff-based restrictions on commercial aviation must take into account the
Agreement on Trade in Civil Aircraft. The Agreement on Trade in Civil Aircraft requires
signatories to eliminate tariffs on aircraft and aircraft parts. The Agreement has been signed by
the United States and by many of its major aviation trading partners, including Canada, France,
and the United Kingdom

In 1979, Congress approved the ATCA. That law authorized the president to accept the final
language of the Agreement on Trade in Civil Aircraft and established that it would become
effective when the President finds that other countries have accepted the obligations of the
agreement with respect to the United States. The current implementation of this in the U.S.
Code recognizes that Congress approved the ATCA. While President Carter signed the
Agreement in 1979, it was President Reagan who issued the proclamation described in the
authorizing legislation. At least since 1984, then, the ATCA has been recognized as part of the
law of the United States. The mechanism by which Congress approved the ATCA and
authorized the President to proclaim the ATCA makes it a “congressional-executive agreement.”

Congress has passed other statutory provisions to implement ATCA. For example, the ATCA is
defined in by statute as “the Agreement on Trade in Civil Aircraft approved by the Congress
under section 2503 of [title 19 of the U.S.C.].” Congress has identified that the negotiating
objectives of the United States include eliminating tariff barriers through expanding membership
in the ATCA. General Note 6 of the HTSUS establishes which goods are eligible for duty-free
treatment under the ATCA, and the current language of that General Note was established in
1996 by Congress in the Miscellaneous Trade and Technical Corrections Act of 1996. Thus,
the duty-free treatment of aircraft is established under both the Agreement on Trade in Civil
Aircraft (an international agreement) and also by implementing domestic legislative language.
Eliminating those provisions means eliminating statutory law, as well as eliminating U.S.
obligations under an international agreement. [citations omitted]