Embraer Parts Appear to be Exempt from Latest Brazil Tariffs

Earlier today, the President issued an Executive Order imposing new sanctions on Brazil. The Executive Order imposes an additional 40% duty on goods of Brazil. This would be in addition to the existing 10% duty that already exists, for a total of a 50% duty on affected goods. Both of these are tariffs listed under Chapter 99 of the Harmonized Tariff Schedule, so they are called “chapter 99 tariffs.”

The good news for the aviation industry is that the Order appears to recognize the United States’ obligations under the Agreement on Trade in CIvil Aircraft, and it exempts civil aircraft parts under a wide array of tariff headings. In fact, the list includes things that are no always recognized as aircraft parts, like wires, tubes, and base metal parts [for purposes of the aviation exception, in all cases, only when the parts are intended for installation in civil aircraft]. As always, check your tariff code against the lust to be sure how your goods are treated, but the list of civil aircraft parts tariff codes that are not subject to this new Brazil tariff is a long one.

One particularly interesting element of the Executive Order is the way that it treats civil aviation maintenance performed in Brazil. When goods are exported for maintenance work overseas and the goods are then returned to the U.S., the work is typically tariffed on the invoice value of the work performed (under HTSUS 9802.00.50, for example). Many of the Chapter 99 tariffs have explicitly imposed their duties rates to maintenance performed in the subject country (for example, the tariff on goods of the EU also applies to the ‘added value’ associated with parts sent to the EU, repaired, and then returned to the United States [this is often the invoice value of the repairs]). But the additional 40% tariff does not apply to the value of maintenance of civil aircraft parts exported to Brazil for maintenance and then returned to the United States following that maintenance (at present, the earlier 10% tariff on goods of Brazil continues to apply to the added value of the repairs).

This is the second time we’ve seen this treatment for new chapter 99 tariffs – the UK tariff also has an exception for civil aircraft maintenance performed in the UK.

The Aviation Suppliers Association has filed documents with the Administration, asserting that application of many of the chapter 99 tariffs to civil aircraft parts violates both U.S. law and U.S> obligations under the Agreement on Trade in Civil Aircraft. Hopefully, the Administration is starting to recognize that aircraft parts need to be left out of the scope of the new chapter 99 tariffs.

Opportunities Abound in the Chinese Civil Aviation Marketplace

The Civil Aviation Administration of China (CAAC) has published a year-end report examining the traffic numbers for 2023, and making predictions for 2024.

The report shows that the Chinese commercial aviation market is robust and growing, having surpassed its 2019 (pre-Covid) numbers.

In the Report, CAAC touted its efforts to reform the supply chain for aviation. ASA has been working with China on this project since before Covid, with CAAC having issued formal recognition of the ASA-100 standard (in the CAAC’s information bulletin: IB-FS-MAT-001 R1 (2020)). This CAAC-ASA partnership was meant to protect the integrity of the international supply chain that supports the Chinese market.

CAAC also stressed its focus on safety management (an example of which can be seen in their new Part 145 regulations, which included an SMS requirement).

Air traffic highlights from the CAAC report support the conclusion that this is a growing market:

  • 2023 domestic commercial flight volumes exceeded 2019 (pre-Covid) volumes by 1.5%, and are expected to keep growing.
  • International passenger flights recover from less than 500 flights per week at the beginning of the year to more than 4,600 flights per week by the end. 
  • Passenger traffic between China and Europe has recovered to more than 60% of the pre-Covid level.
  • Regular direct flights between China and the United States have increased to 63 flights per week.
  • In 2023, Chinese civil aviation transported 620 million passengers.
  • In 2024, CAAC predicts that Chinese civil aviation will transport 630 million passengers on domestic routes, and will increase international flights to 6000 per week by the end of 2024.

From the CAAC Report, it appears that the Chinese aviation market has grown and will continue to grow. This could be an excellent opportunity for ASA members to increase their presence in China. ASA continues to maintain its relationship with CAAC and is proud to play a role in the CAAC aviation safety plans.