CBP’s Section 301 Enforcement Push

Dear Friends,

As companies consider mitigation strategies to offset the impact of the Section 301 duties, we wanted to share an important update regarding enforcement priorities at the border.  Further to recent reports, CBP’s Office of Regulatory Audit has confirmed that it will be ramping up enforcement of “various types” of imported electronics (i.e., products classified in chapters 84 and 85 of the Harmonized Tariff Schedule of the United States).  In connection with these efforts, Regulatory Audit is adding staff, including managers and auditors.  For instance, CBP is adding 60 new auditors across Regulatory Audit’s 10 field offices.  Our contacts in Regulatory Audit have informed us that, as part of this effort, a first “wave” of CF-28s (Requests for Information) since the imposition of the Section 301 duties will be issued in 2-4 weeks.  

There are several reasons for CBP to focus its enforcement on imported electronics.  Most importantly, billions of dollars in revenue are at stake for the U.S. government, and CBP is intent on collecting that revenue (the Trump administration expects CBP to collect “record-setting revenues”).  Also, given that electronics have generally been entitled to be entered duty free (or subject to very low duty rates), CBP recognizes that importers are under pressure to reduce the Section 301 impact and, therefore, may (intentionally or unintentionally) act in a manner contrary to U.S. customs laws and regulations.  Last, targeting electronics is justifiable given the conclusions of the Section 301 investigation, namely that the Government of China engages in intellectual property theft and forced technology transfers to support its industrial advancement goals.  Stated differently, targeting electronics aligns with the legal basis for the Section 301 duties and the administration’s messaging around China’s unfair policies. 

While CBP has confirmed that an enforcement push will be made with respect to electronics, we understand that CBP is increasing enforcement activities on all fronts.  As such, companies pursuing Section 301 mitigation strategies should tread cautiously.  Re-classifying products, changing the country of origin, and/or decreasing the customs valuation (for example, by declaring the “first sale” price in a multi-tiered transaction, rather than the price the U.S. importer pays), is likely to draw scrutiny from CBP.  As such, it is important that companies be able to demonstrate that they exercised reasonable care in carrying out these activities (not exercising reasonable care can lead to steep penalties, in addition to owing unpaid duties).  To demonstrate that a company is exercising reasonable care, we recommend having on file contemporaneously drafted documentation that substantiates the legal basis for any changes (e.g., documentation explaining that, based on changes to the supply chain, the product is no longer Chinese origin, since it is now last substantially transformed origin somewhere else).  Further, any company that receives a CF-28 or CF-29 (Notice of Action) should escalate the matter to the company’s legal department before responding and/or engage outside trade counsel, if appropriate. 

We hope this is helpful.  If you have any questions regarding the above, please let us know.    

Best regards,

Ted

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Section 301 – China’s Response

Dear Friends,

As expected, China has responded to today’s U.S. announcement with one of its own. 

 

China’s announcement mirrors the position adopted by the United States.  China will impose an additional 25% customs duty on approximately $34 billion worth of imports from the United States, as of July 6, 2018.  This list includes various agricultural products, certain food/juice/beverages, automobiles, auto parts, etc.  China is also considering imposing a 25% customs duty on a second list of U.S. products worth approximately $16 billion.  Both lists are attached here (although in Chinese, the tariff classifications are provided). 

This is the latest, but undoubtedly not the last, round in this dispute.  We expect that the U.S. administration will issue a response (likely in a tweet, at least initially) over the weekend (if not sooner).  A few months back, when China threatened to retaliate for any U.S. duties imposed under section 301, President Trump said he would up the ante by imposing a 25% customs duty on an additional $100 billion worth of imports from China.  We may now get to see if he is willing to make good on that threat.

Best regards,
Ted       

Section 301 – US Imposes Additional Duties

Dear Friends,

Earlier today, the White House issued a statement confirming that the United States will impose an additional 25% customs duty on $50 billion worth of imports from China.  The additional duty will be assessed on goods that “contain industrially significant technologies[,]” including those “related to China’s Made in China 2025 strategic plan to dominate the emerging high-technology industries[,]” according to the statement.  The statement goes on to say that the additional duty is “essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs.  In addition, they will serve as an initial step toward bringing balance to the trade relationship between the United States and China.”  Finally, the statement indicates that the United States will consider further additional duties if China retaliates (which it is expected to do).  A copy of the White House statement is attached.

Following the issuance of the White House statement, the U.S. Trade Representative published a notice on its website containing the list of products/tariff classifications that will be subject to the additional 25% duty.  The list is broken down into two pieces and focuses on “industrial” (not consumer) products.

The first piece contains 818 of the original 1,333 tariff classifications proposed in the list published on April 6, 2018.  These 818 tariff classifications represent approximately $34 billion worth of imports from China and the additional 25% duty will be assessed beginning on July 6, 2018.  A copy of this list is attached here: List 1.

The second piece contains 284 new tariff classifications identified by the interagency Section 301 Committee as benefitting from China’s industrial policies, including Made in China 2025.  These 284 tariff classifications represent approximately $16 billion worth of imports from China.  This list of tariff classifications will be subject to a new/separate public notice and comment process (including a hearing).  The details are expected to be published shortly.  A decision will be made whether to impose additional duties on products on this second list thereafter.  A copy of this list is attached: List 2.

The USTR notice also states that it will “soon provide an opportunity for the public to request exclusion of particular products from the additional duties subject to this action.”  This process will be detailed in a subsequent Federal Register notice.

We recommend that all clients review both lists published by the USTR.  We also recommend that clients keep their eye on the news.  It is widely expected that China will retaliate by imposing duties on U.S. exports to China.  In such a case, it is likely that the administration will seek to expand the second list of products subject to additional duties (the President had previously threatened to impose duties on an additional $100 billion worth of Chinese imports).  Finally, it is also important to stay tuned for the Federal Register notice that will be published with additional details, including on the product exclusions process.

We hope that this is helpful.  If you have any questions, please let us know.

Best regards,

Ted

Section 232/Section 301 Update

Dear Friends,

I wanted to share with you a couple of thoughts on the Section 232/Section 301 process that I thought might be helpful.

The first is a reminder.  The temporary exclusions from the Section 232 duties on steel (an additional 25%) and aluminum (an additional 10%) granted to products of Canada, Mexico, Australia, Argentina, Brazil and the EU expire at midnight on Monday, April 30th (i.e., tomorrow).  While there has been some reports that the Administration intends to extend the temporary exclusions for some countries (i.e., those that have expressed a willingness to negotiate a voluntary export restraint-type agreement), that is not likely to extend to all countries.  Based on what the EU has said publicly about its willingness to accept a VER, it seems likely that the additional duties will go into effect on Tuesday.

The second is also a reminder.  As companies grapple with the Section 232/Section 301 duties, many are reviewing their imports and determining whether articles are correctly classified or not (e.g., if an article is on the list of products proposed to be subject to the Section 301 duties, can the article be re-classified in a different HTS provision not on the list?).  Many companies are also reviewing the publicly-available data of their competitors. . . .

 As many of you know, U.S. Customs and Border Protection makes available to the public manifest data for import and export shipments.  The manifest data includes information such as the name and address of the foreign shipper & U.S. consignee/notify party, the ports of lading and unlading, the carrier, a description of the goods, weight, etc.  This data is obtained by private companies that repackage it (and often add their best guess at classification, entered value, etc.) and then sell it to the public for a fee. 

You may also know that CBP allows companies to request confidential treatment for their manifest data.  Under the regulations, if a company requests confidential treatment, CBP will not disclose the names and addresses of the importer/consignee, foreign shipper or notify party and any other identifying marks. 

The process to obtain confidential treatment is pretty straight-forward (it involves submitting a letter to CBP HQ) and we recommend that all clients pursue confidential treatment every 2 years.

We hope that this is helpful.  If you have any questions, or if you would like any assistance with Section 232/Section 301 issues, including requesting confidential treatment for your manifest data, please let us know.

Best regards,
Ted

3/8/17 Update: Section 232 Duties on Steel & Aluminum – Part IV

Dear Friends,

Further to the below, President Trump signed two Presidential Proclamations today – one on steel imports and one on aluminum imports (available here and here).  As expected, the President is imposing an additional 25% duty on steel, and an additional 10% duty on aluminum, imported from all countries except Canada and Mexico beginning on March 23, 2018.  The details are as follows:

Steel Duties

* the 25% additional duty will apply to “steel articles” imported from all countries except Canada and Mexico as of March 23, 2018; 

* “steel articles” are defined by reference to Harmonized Tariff Schedule (HTS) 6-digit subheading, as follows:  “7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90, including any subsequent revisions to these HTS classifications”;

* the 25% additional duty will apply to articles entered, or withdrawn from warehouse for consumption, as of March 23, 2018;

* imports from Canada and Mexico are exempted from the additional duty for now; the proclamation describes the special relationship the United States has with these countries and concludes that steel imports from these countries should be exempted, but qualifies it by saying “at least at this time”; this exemption is likely tied progress with the on-going NAFTA renegotiations and could be taken away by the President with little notice; also, it seems clear that the President means to exempt articles produced in Canada or Mexico, not just articles imported from Canada or Mexico (you cannot ship steel produced in China through Canada and avoid the additional U.S. duty);

* imports from countries with which the United States has “a security relationship” (e.g., allies, like the EU, Australia, Japan, Korea, etc.) are encouraged to discuss with the Administration “alternative ways to address the threatened impairment of the national security” presented by imports from their country; this could possibly lead to a series a ‘voluntary-restraint-type’ arrangements being negotiated where exporting countries agree to limit exports to certain levels; 

* there will be a petition-based, product exclusion process run by the Department of Commerce (with input from other agencies); the standard for exclusion will be whether the article is (i) produced in the United States “in a sufficient and reasonably available amount or of a satisfactory quality” or (ii) subject to specific national security considerations; petitions need to be filed by “a directly affected party located in the United States” (i.e., foreign suppliers need not apply); Commerce will issue formal procedures for this process by March 18th;

* the duties will remain in effect until “expressly reduced, modified, or terminated”;

* Commerce will continue to monitor the situation with regard to imports and their impact on the national security and recommend further actions to the President, as needed.

Aluminum Duties

* the 10% additional duty will apply to “aluminum articles” imported from all countries except Canada and Mexico as of March 23, 2018;

* “aluminum articles” are defined by reference to Harmonized Tariff Schedule (HTS) classification, as follows:  “(a) unwrought aluminum (HTS 7601); (b) aluminum bars, rods, and profiles (HTS 7604); (c) aluminum wire (HTS 7605); (d) aluminum plate, sheet, strip, and foil (flat rolled products) (HTS 7606 and 7607); (e) aluminum tubes and pipes and tube and pipe fitting (HTS 7608 and 7609); and (f) aluminum castings and forgings (HTS 7616.99.51.60 and 7616.99.51.70), including any subsequent revisions to these HTS classifications”;

* the 10% additional duty will apply to articles entered, or withdrawn from warehouse for consumption, as of March 23, 2018;

* imports from Canada and Mexico are exempted from the additional duty for now; the proclamation describes the special relationship the United States has with these countries and concludes that aluminum imports from these countries should be exempted, but qualifies it by saying “at least at this time”; this exemption is likely tied to progress with the on-going NAFTA renegotiations and could be taken away by the President with little notice; also, it seems clear that the President means to exempt articles produced in Canada or Mexico, not just articles imported from Canada or Mexico (you cannot ship aluminum produced in China through Canada and avoid the additional U.S. duty);

* imports from countries with which the United States has “a security relationship” (e.g., allies, like the EU, Australia, Japan, Korea, etc.) are encouraged to discuss with the Administration “alternative ways to address the threatened impairment of the national security” presented by imports from their country; this could possibly lead to a series a ‘voluntary-restraint-type’ arrangements being negotiated where exporting countries agree to limit exports to certain levels;

* there will be a petition-based, product exclusion process run by the Department of Commerce (with input from other agencies); the standard for exclusion will be whether the article is (i) produced in the United States “in a sufficient and reasonably available amount or of a satisfactory quality” or (ii) subject to specific national security considerations; petitions need to be filed by “a directly affected party located in the United States” (i.e., foreign suppliers need not apply); Commerce will issue formal procedures for this process by March 18th; 

* the duties will remain in effect until “expressly reduced, modified, or terminated”;

* Commerce will continue to monitor the situation with regard to imports and their impact on the national security and recommend further actions to the President, as needed. 

*     *     *

These additional duties will have a meaningful impact on the market that will go well beyond just producers or importers.  All companies that utilize steel or aluminum in their products are expected to be impacted.  As a result, there are a number of steps all companies should be taking to assess the impact.  For example, supply contracts should be reviewed (even for downstream – e.g., finished products) to determine whether cost increases due to increased customs duties can be passed on or not.  Companies should also be considering whether to apply for a product exclusion.  While the procedures will not come out for several more days, companies should be preparing now (this exclusion process is expected to be similar to that being used in the Section 201 cases, procedurally).  It is not clear whether exclusion will be granted with retroactive effect or not, so it would be best to get your petitions in as early in the process as possible.  We are helping a number of clients with the exclusion process and would be happy to discuss this or other issues related to these duties with you further.

We hope this is helpful.

Best regards,
Ted


It is being reported that the formal announcement regarding the section 232 duties will come as early as Thursday this week.  The reports also contain unclear/conflicting information on whether imports from certain countries could be exempted (the President had previously said that there would be no country-based exceptions, but that now seems to be in flux).  More to follow . . . .


Dear Friends,

Further to the below, it is being widely reported that the President has decided to impose a 25% duty on imported steel and a 10% duty on imported aluminum next week in response to the reports from Commerce.  It is not yet clear whether those additional duties will apply on imports from all countries, or just to imports from a subset of countries.

More to follow on this.  In the meantime, if you have any questions, please let us know.

Best regards,
Ted


Dear Friends,

As you may recall, early last year, President Trump issued two presidential memoranda instructing the U.S. Commerce Department to initiate an investigation into the national security implications of steel imports and aluminum imports into the United States.  If these so-called “section 232” (section 232 of the Trade Expansion Act of 1962, as amended) investigations determine that steel import and/or aluminum imports “threaten to impair the national security[,]” then the President can impose additional customs duties (among other things) on covered products.

Last Friday, the Secretary of Commerce issued his reports to the President in both matters (available here).   In each case, the Department of Commerce concluded that the quantities and circumstances surrounding steel and aluminum imports “threaten to impair the national security,” thereby opening the door to the imposition of import restraints.  Specifically, Commerce’s recommendations are as follows:

Steel – Alternative Remedies

1.  A global tariff of at least 24% on all steel imports from all countries, or

2.  A tariff of at least 53% on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota by product on steel imports from all other countries equal to 100% of their 2017 exports to the United States, or

3.  A quota on all steel products from all countries equal to 63% of each country’s 2017 exports to the United States.

The measures would apply to steel mill products classified in subheadings 7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90.

The goal of such measures is to ensure that U.S. steel producers utilize 80% of production of capacity.

The recommendation also includes a process to allow Commerce to grant requests from U.S. companies for specific product exclusions if there was insufficient domestic production, or for national security considerations.

Aluminum – Alternative Remedies

1.  A tariff of at least 7.7% on all aluminum exports from all countries, or

2.  A tariff of 23.6% on all products from China, Hong Kong, Russia, Venezuela and Vietnam. All the other countries would be subject to quotas equal to 100% of their 2017 exports to the United States, or

3.  A quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the United States.

These measures would apply to unwrought aluminum (heading 7601), aluminum castings and forgings (subheadings 7616.99.51.60 and 7616.99.51.70), aluminum plat, sheet, strip and foil (flat rolled products) (headings 7606 and 7607); aluminum wire (heading 7605); aluminum bars, rods and profiles (heading 7604); aluminum tubes and pipes (heading 7608); and aluminum tube and pipe fittings (heading 7609).

The goal of such measures is to ensure that U.S. aluminum producers utilize 80% of production of capacity.

The recommendation also includes a process to allow Commerce to grant requests from U.S. companies for specific product exclusions if there was insufficient domestic production, or for national security considerations.

The reports and recommendations are now under consideration by the President.  The President is required to make a decision on the recommendations by April 11th (for steel) and by April 19th (for aluminum).

*           *           *

We believe that it is likely that the President will take some action to “adjust imports” based on these reports.  Accordingly, all companies that rely on steel and/or aluminum articles need to evaluate the impact such action may have on their production.  This would apply not only to companies that import covered articles (which will be the articles hit with additional duties and/or quota limitations), but companies that import downstream articles (e.g., parts made of steel or aluminum) as well.  The actions being contemplated are significant enough to have a ripple effect that impacts far more than just the covered products.

If you have any questions about these reports, or what sort of evaluation you should be doing as a result, please let us know.

Best regards,

Ted

Review of 2017 ITRAC/ACE Data

Dear Friends:

Just a quick note to remind you that one element of an effective internal customs compliance program involves a review of the company’s import data on (at least) an annual basis.  This is the time to review the 2017 data. 

The goal of internal controls is to effectively mitigate the risk associated with the company’s activities.  Thus, the starting point is understanding the company’s risk profile.  One way to do that from a customs perspective is to review the company’s import data (the same data that U.S. Customs and Border Protection looks at to select audit candidates).  The import data (whether ITRAC data obtained from CBP HQ, or ACE reports you are able to download).  This data includes general entry information, such as tariff classifications, values, preferential tariff programs used, etc.; as well as information regarding CBP’s review of a company’s import shipments (e.g., whether a CBPF-28 or CBPF-29 was issued).  It also identifies each of the links in the company’s international supply chain (i.e., foreign manufacturers, carriers, customs brokers and sureties).  In short, the import data is a useful tool for monitoring the effectiveness of your import compliance program, identifying areas of potential cost and duty savings, customs valuation reconciliation and identifying links in the international supply chain for security purposes (i.e., C-TPAT-related information). 

Given how useful this information is, we recommend that all companies obtain their import data and review it (at least) annually.  Due to the volume of data involved, and the way it is presented by CBP, we have developed simple macros that can extract the most relevant data and summarize it in a table format so that trends, issues and opportunities can be more easily identified.  If you would like to have us run your data through those macros and provide the summaries, please let us know.  If not, no problem, but please review it yourself and confirm that your controls are working effectively (e.g., your data does not know show the use of unapproved brokers, unauthorized preference claims, incorrect tariff classifications, etc.).  The business is always evolving.  You need to make sure your controls are keeping pace!

We hope this this helpful. 

Best regards,
Ted

 

CBP Offers Classification and Value Assistance to Exporters

Dear Friends, 

U.S. Customs and Border Protection (“CBP”) has a notice in today’s Federal Register that we thought you might to be of interest.  The notice, which is entitled, “Notice of Opportunity and Procedures to Request Assistance on Tariff Classification and Customs Valuation Treatment by Other Customs Administrations Affecting United States Exports” (copy available here), is aimed at companies that run into tariff classification and/or customs valuation disputes with foreign customs administrations.  

In short, the notice reminds the public that the rules for tariff classification and customs valuation are based on international/harmonized standards, there are international forums where questions/disputes as to how these rules should be applied can be addressed (e.g., Harmonized System Committee and the Technical Committee on Customs Valuation), and the United States government actively participates in these forums.  Accordingly, CBP encourages U.S. exporters who run into tariff classification and/or customs valuation issues in foreign countries (e.g., a country classifying a product differently than the U.S. exporter believes to be correct; a country requiring an impermissibly high customs value, etc.) to raise these issues with CBP.   CBP will review the issue, and if it agrees with the U.S. exporter’s position, it will intercede with the foreign government on the company’s behalf. 

This is a well-intentioned gesture by CBP.  As any company which has experienced this sort of dispute knows, it could be quite helpful to have CBP on your side.  The same argument advanced to a foreign customs administration may carry more weight if it came from CBP, than if it came from the importer/exporter alone.  That said, it will be interesting to see if CBP will be able to respond to requests for assistance in a timely manner.  The notice states that CBP will “endeavor to provide an initial response” within 60 days.  Given the current backlog on requests for rulings on imports (CBP’s primary mission), that seems to be an ambitious target.  Nevertheless, any company that runs into a customs-related dispute with a foreign customs administration should keep this notice in mind as another potential avenue to resolve it. 

We hope this is helpful.  If you have any questions, please let us know. 

Best regards,
Ted