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USTR Considering New Tariffs on Various Goods From Six Countries

USTR
Archives, Global Trade Daily, News

USTR Considering New Tariffs on Various Goods From Six Countries

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The Office of the United States Trade Representative (USTR) announced that it is accepting comments on whether to impose 25 percent tariffs on roughly $880 billion of goods imported from Austria, India, Italy, Spain, Turkey, and the United Kingdom in retaliation for digital services taxes (DST) imposed by those countries. The potential tariffs would be applied under Section 301 of the Trade Act of 1974.

Potential tariffs are aimed at products across various industries and include among others, leather articles, textile products, ceramic articles, stemware, glassware, glass fibers, copper alloys, printed circuit assemblies, and various instruments from Austria; seafood, rice, bamboo articles, corks, cigarette paper, wool yarn, bras, pearls, precious stones, precious metal articles, and furniture from India; seafood, perfumery, travel and leather goods, apparel, footwear, spectacle lenses, and optical elements from Italy; seafood, handbags, belts, footwear, hats, and glassware from Spain; textile floor coverings, bed linen, curtains, stone and ceramic articles, precious metal articles, and imitation jewelry from Turkey; and personal care and cosmetic products, apparel, footwear, ceramic articles, precious metal articles, imitation jewelry, refrigeration equipment, industrial robots, furniture, and games from the UK.

Complete country-specific lists of potentially affected products are included in the following notices: Austria/Deadline/Products, India/Deadline/Products, Italy/Deadline/Products, Spain/Deadline/Products, Turkey/Deadline/Products, and United Kingdom/Deadline/Products.

In January, USTR determined that each of the six countries’ digital services tax (DST) is unreasonable or discriminatory and burdens or restricts U.S. commerce, i.e., meets the legal standard under Section 301. USTR found these countries’ DST to be actionable for the following reasons:

Austria – only applies to companies with at least €750 million in global revenue and €25 million in Austria-specific revenue derived from digital advertising revenue; India – only applies to “non-resident” companies; Italy – only applies to companies with at least €750 million in global revenue and €5.5 million in Italy-specific revenue derived from the provision of digital services; Spain – only applies to companies with at least €750 million in global revenue and €3.0 million in Spain-specific revenue derived from the provision of digital services; Turkey – only applies to companies with at least €750 million in global revenue and TRY 20 million in Turkey-specific revenue derived from the provision of digital services; and the United Kingdom – only applies to companies with at least £500 million in global revenue and  £25 million in U.K.-specific revenue derived from the provision of digital services.

The USTR’s latest action also terminates its prior investigations of Brazil, Czechia, Indonesia, and the European Union because USTR has determined that these jurisdictions have not adopted or implemented DST’s.

For copies of USTR’s determinations, which detail each country’s DST, please see the notices attached at the following:  Austria, India, Italy, Spain, Turkey, and the United Kingdom.

The deadlines for the submission of comments and requests to appear at the virtual hearings, as well as the list of U.S. imports on which the 25 tariffs would be imposed, vary by country. The multi-jurisdictional deadlines are as follows:

April 21, 2021: Request to appear at the hearing and summary of written testimony

April 30, 2021: Written comments

May 3, 2021: Multi-jurisdictional virtual hearing on proposed actions

May 10, 2021: Multi-jurisdictional written rebuttal comments.

The country-specific deadlines are set forth at the first set of hyperlinks.

duty drawback
Archives, Global Trade Daily, International Trade

New Customs Duty Drawback Refund Program Helps Mitigate the Impact of China Tariffs

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The Trade Facilitation and Enforcement Act of 2016 (known by its acronym TFTEA) profoundly liberalized the unique tariff mitigation strategy commonly referred to as duty drawback refunds. This represented the culmination of a nearly 12-year collaboration effort between the Drawback Trade Community and Customs and Border Protection in an effort to modernize the drawback refund program to make this valuable export incentive program more accessible to U.S. Business.

The duty drawback law originally enacted in 1789 by the first U.S. Congress allows for the refund of Customs duties on imported merchandise subsequently exported from the U.S. either in the same form or following a manufacturing process.

As an example, a producer of eyewear in China imports sunglasses into its distribution facility located in the U.S. at a duty rate of 2.5%. Eighty percent of the glasses are sold in its stores in the U.S. but twenty percent are exported to its stores in Canada and Latin America. Upon reexport to Canada and Latin America, the eyewear company is eligible for a refund of the 2.5% regular duty and if applicable, the 25% China tariff.

The implementation of the new drawback program in 2018 could not have been timelier as it coincided with the Trump Administration’s decision to levy 25% punitive tariffs on nearly $400  billion in value on imports from China. The purpose of the tariff was an effort to balance a massive trade deficit, address a variety of alleged unfair trade practices by Beijing, and benefit American manufactures, and by extension, U.S. factory workers.

One major electronics company we represent went from paying under a few million a year in duty to nearly $50 million following the impositions of the China Tariffs. The duty drawback program will allow them to recapture nearly $20 million in duties thus substantially reducing the cost impact of the tariff. Another alcohol company we work with withstands to recover nearly $15 million in federal excise tax (also eligible for a refund via the drawback program in addition to duties and tariffs). They are taking advantage of the drawback program that allows not only for the refund of future imports and exports but provides refunds on duties associated with 5 years of historical activity!

The imposition of these massive tariff increases disrupted supply chains as it sent U.S. importers scrambling for compliant strategies to mitigate the additional 25% cost on much of the import activity from China. Selecting the correct strategy for U.S. importers among a number of options was further complicated by one primary unknown variable – how long would the tariffs last? In addition to duty drawback refunds, U.S. businesses evaluated many strategies that included petitioning the Trump Administration for product exclusions, shifting supply chains to source products from outside of China, adjustments to classification/valuation, foreign trade zones, and bonded warehouses.

The duty drawback program with its minimal start-up costs and with no disruption to existing product flows and supply chains offers significant advantages to other tariff mitigation strategies but is limited to those companies with significant export volumes from the United States. Companies that only import into the U.S. with no offsetting export volume, are better served by other compliant tariff minimization methods.

Understanding the Drawback Substitution Methodology  

The new drawback law substantially liberalized the substitution rules to allow more flexibility when matching import and export activity for drawback purposes. Understanding how substitution works is key to determining a company’s recovery potential. The substitution method allows a drawback claimant to match “like” merchandise instead of directly linking an export back to the original importation using lot number or serial number tracing. Under the previous substitution drawback rules prior to the 2018 amendment of the law, the imported and exported merchandise needed to share the same material code and/or product specifications. With the new rules implemented in 2018, the import and the export need only share the same tariff classification number at either the 8th or the 10th digit of the HTS number.

As an example, under the previous drawback regime, a U.S. importer and exporter of orange juice would need to match on the basis of grade and specification. Since many Florida orange juice distributors source juices from multiple countries including Mexico and Brazil (two of the world’s largest producers of OJ) in addition to procuring domestic juice, the exported juice and the imported juice needed to be commercially interchangeable in the marketplace, a very narrowly defined standard. Today, the same company can match export Florida grade A juice and reclaim the duty assessed on imported Brazilian Grade B juice because both fall under the same general tariff classification – grade, specification, or material code are no longer relevant.

The liberalization of this substitution standard places additional recovery on the table for a number of industries while simplifying the process of preparing drawback claims. Returning to the example of sunglasses, the eyewear company could now export a pair of U.S.-made sunglasses and offset the duty paid on imported glasses from China. In the case of beer, there is only one harmonized tariff classification for beer, so an exported Coors light would be interchangeable with Molson beer imported from Canada.

The first step in the drawback process is to conduct a thorough evaluation of a company’s drawback potential both for the past five years as well as moving forward. As the saying goes, a company must first determine if the “juice is worth the squeeze.” For many large importers/exporters, the answer is a resounding “yes”, and given the opportunity for retroactive recovery, the first-year refunds can provide a significant boost to the bottom-line while assisting many importers in reducing the impact of the Trump tariffs.

____________________________________________________________________

Anthony Nogueras, the founder and current CEO of Alliance Drawback Services, brings nearly 30 years of drawback specific experience to Alliance’s  extensive list of clients that includes many Fortune 500 firms. In 2020, Alliance cumulative drawback filings exceeded $100 million in drawback refunds.

During his extensive career as a drawback specialist, he has spoken on drawback matters before a host of organizations including National Associations of Purchase Managers, The Juice Products Association and  the International Titanium Association in addition to many international trade organizations.    He has also been published in the Journal of Commerce, and numerous other trade industry publications.

Mr. Nogueras drawback experience includes the management of drawback accounts in a variety of industries including retail, petrochemicals, metals, and agricultural products.  In 1989 he graduated with high honors from San Francisco State University with a bachelor’s degree in International Relations and Economics.  He is also a Licensed Customs Broker.

burma
Archives, Global Trade Daily, News

BIS Implements New Burma Export Controls and Adds Four Entities to the Entity List

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The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued final rules amending the Export Administration Regulations (“EAR”) by implementing new export controls on Burma (Myanmar), and adding four entities linked to the recent coup to the Entity List. These final rules effective March 8, 2021 come less than a month after President Biden imposed sanctions blocking U.S. property and interests of Burmese military and government officials.

Burma Removed from Country Group B with Significant Repercussions

As of March 8, Burma is now in the more highly controlled Country Group D:1 (it was previously in Country Group B). Because of Burma’s move to Country Group D:1, transactions involving Burma are no longer eligible for the following License Exceptions under the EAR:

-Shipments of Limited Value (“LVS”);

-Shipments to Group B Countries (“GBS”); and

-Technology and Software under Restriction (“TSR”).

Additionally, the move to Country Group D:1 limits the availability of the following EAR License Exceptions for transactions involving Burma:

-Temporary Imports, Exports, Reexports, and Transfers (in-country) (“TMP”);

-Servicing and Replacement Parts and Equipment (“RPL”);

-Aircraft, Vessels, and Spacecraft (“AVS”);

-Additional Permissive Reexports (“APR”);

-Encryption Commodities, Technology, and Software (“ENC”); and

-Computers (“APP”)

–(APP was suspended for use to Burma along with LVS, GBS, and TSR effective February 17, 2021, but with the March 8 final rule APP is now available again on a limited basis with Burma now placed in Computer Tier 3.)

Burma’s new Country Group D:1 status will also impose new restrictions on exports, reexports and in-country transfers to Burma involving microprocessors under EAR Section 744.17, export activities to certain foreign vessels and aircraft under EAR Section 744.7, and reexports to Burma of foreign-produced direct products of certain U.S.-origin technology and software under EAR Section 736.2.

MEU and National Security Restrictions Now Apply

Burma joins China, Russia, and Venezuela as one of four countries subject to BIS “military end-use” and “military end user” restrictions. Exports, reexports, and transfers (in-country) of specific items listed in Supplement No. 2 to 15 CFR Part 744 to Burma with “knowledge” that the items are intended for a “military end-use” or a “military end-user” will now require licensing from BIS and BIS will evaluate these license applications with a presumption of denial. The EAR’s definitions of “knowledge”, “military end-use” and “military end-user” are all quite broad and as a result, these new rules could potentially capture a large amount of transactions.

Additionally, items that are “subject to the EAR” and controlled for national security (NS) reasons will continue to require BIS licensing when exported, reexported or transferred (in-country) to Burma. However, BIS will now add an additional layer of review when reviewing those applications in order to determine whether the transactions present a risk of diversion to a “military end-user” or a “military end-use”.  BIS will then apply a presumption of denial when it evaluates whether the subject transactions would materially contribute to Burma’s ability to develop, produce or operate weapons systems, subsystems and assemblies.

Four Entities Added to BIS Entity List

BIS announced on February 18 that “[e]ffective immediately, BIS will apply a presumption of denial for items subject to the EAR requiring a license for export or reexport when destined to Burma’s Ministry of Defense, Ministry of Home Affairs, armed forces, and security services.”  Most recently, on March 8, BIS added four military or military-linked entities to the Entity List. Licenses are required for exports, reexports, or transfers in-country of all items “subject to the EAR” (including EAR99 items) to entities on the Entity List. The four newly designated entities are:

-Ministry of Defence, a.k.a. Ministry of Defense or MOD;

-Ministry of Home Affairs, a.k.a. MOHA;

-Myanmar Economic Corporation, a.k.a. MEC;

-Myanmar Economic Holdings Limited, a.k.a. MEHL, Myanma Economic Holdings Limited, Myanma Economic Holdings Public Company Limited, Myanmar Business Holdings Public Company Limited, Myanmar Economic Holdings Public Company Limited, UMEH, Union of Myanmar Economic Holdings Company Limited, Union of Myanmar Economic Holdings Limited.

The Federal Register notice clarifies no license exceptions are available for export activities to the four newly designated entities above. Anyone applying to BIS for a license to export to the named entities will face a presumption of denial review policy.

____________________________________________________________________

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Grant Leach is an Omaha-based partner with the law firm Husch Blackwell LLP focusing on international trade, export controls, trade sanctions and anti-corruption compliance.

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

tariff
Archives, Global Trade Daily, News

U.S. Agrees to Temporarily Suspend Tariffs on UK and EU Goods in Large Civil Aircraft Dispute

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In a joint statement released by the Office of the United States Trade Representative (“USTR”), the U.S. and European Union (“EU”) have agreed to temporarily suspend the additional tariffs from the Large Civil Aircraft Dispute. Goods imported from EU countries, including dairy products and liquors, will temporarily not be subject to the additional 25 percent duties under Section 301. The temporary suspension will initially last four months. USTR has not yet announced a specific date when the suspension on tariffs for EU goods will begin. USTR plans to share that information in a forthcoming Federal Register notice.

Additionally, the USTR announced a similar temporary suspension of tariffs imposed on goods imported from the United Kingdom (“UK”) related to the Large Civil Aircraft Dispute. The temporary suspension began on March 4, 2021 and will remain in effect until at least July 2021.

As previously reported, the initial onslaught of duties occurred in October 2019 when the U.S. imposed duties on new European large civil aircrafts and 25 percent tariffs on agricultural and other products. In retaliation, in November 2020 the EU imposed $4 billion of tariffs on American products. In a statement, EU President von der Leyen sees this as a “fresh start” with the U.S. President von der Leyen also expressed that both countries are “committed to focus on resolving our aircraft disputes, based on the work our respective trade representatives. This is excellent news for businesses and industries on both sides of the Atlantic, and a very positive signal for our economic cooperation in the years to come.”

The UK government had suspended retaliatory tariffs on U.S. goods subject to tariffs on January 1, 2021. Given the current suspension of the tariffs, the UK government and USTR intend to use this time to focus on negotiating a settlement to the dispute and address challenges posed by new entrants to the civil aviation market.

________________________________________________________________

Emily Lyons is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

Turner Kim is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

supply chains
Archives, Global Trade Daily, International Trade

Biden Issues Executive Order to Review Critical Supply Chains

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President Biden issued an “Executive Order on America’s Supply Chains” (the “EO”) on February 24, 2021, ordering 100-day and 1-year reviews of certain critical supply chains.

The initial 100-day review aims to assess risks posed to the following critical supply chains:

-Semiconductor manufacturing and advanced packaging

-High-capacity batteries, including electric vehicle batteries

-Critical minerals, including rare earth elements

-Pharmaceuticals and active pharmaceutical ingredients

The EO also orders supply chain reviews of six (6) sectors with reports due within one year. The sectoral assessments will cover:

-Defense

-Public health and biological preparedness

-Information and communication technology

-Energy

-Transportation

-Agriculture

The EO leaves open the possibility that other industrial bases may be assessed as part of the one-year review and that digital networks, services, assets, and data (“digital products”), goods, services, and materials not otherwise described in the EO that span more than one sector may be assessed.

The EO directs that both the 100-day and 1-year reports shall review “critical goods and materials,” “other essential goods and materials,” manufacturing and production capabilities of such critical or essential goods and materials, supply chains’ resiliency, and all the major risks to the supply chains. The EO imagines the term “risks” broadly. Risks include physical threats such as climate and other natural events, as well as geopolitical dynamics. Risks also comprise digital products’ inclusion in supply chains and the possibility that such digital products could be exploited. Additionally, the EO directs that the risk of human-rights or forced-labor abuses along the supply chains be described.

The EO arrives as shortages or anticipated shortages of semiconductors are widely reported, especially in the automobile industry. A general policy goal of the Biden Administration is to increase domestic manufacturing capability and economic growth, particularly in communities of color and economically distressed areas. The EO could be the first step in a significant reimagining of how the U.S. incorporates civilian and defense supply chains into its national and economic security and foreign policy strategies. At this time, however, the Administration has only ordered reviews. Interested companies should anticipate and consult the relevant Secretaries’ 100-day and 1-year reports for forthcoming policy suggestions.

__________________________________________________________

Tony Busch is an attorney in Husch Blackwell LLP’s Washington, D.C. office.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

mollusc
Archives, Global Trade Daily, News

While the European Mollusc Market Struggles with the Pandemic, Brexit Emerges Another Serious Threat to the UK’s Producers

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IndexBox has just published a new report: ‘EU – Molluscs (Scallops, Mussels, Cuttle Fish, Squid, and Octopus) – Market Analysis, Forecast, Size, Trends, and Insights’. Here is a summary of the report’s key findings.

Molluscs are one of the best-known types of seafood in the EU. These include scallops, mussels, cuttlefish, squid, and octopus, etc. The market is well established and characterized by a high rate of per capita consumption in comparison with other regions. Molluscs are traditionally used in Mediterranean cuisine, they can be consumed on their own or as an ingredient in traditional dishes. Since molluscs have been a well-known and popular product for a long time, their consumption is mainly determined by the population size and the dynamics of disposable incomes.

In 2019, the EU molluscs market amounted to $3.6B (IndexBox estimates). The market value increased at an average annual rate of +2.1% from 2012 to 2019; the trend pattern remained consistent, with somewhat noticeable fluctuations being observed throughout the analyzed period. The level of consumption peaked at $3.8B in 2018 and then fell modestly in the following year. In 2019, molluscs consumption totaled 674K tonnes, flattening at 2018 figure.

The countries with the highest volumes of molluscs consumption in 2019 were Spain (309K tonnes), Italy (176K tonnes), and Portugal (41K tonnes), together accounting for 78% of total consumption. France, Greece, Germany and the UK lagged somewhat behind, together comprising a further 14%. In value terms, the largest mollusks markets in the European Union were Spain ($1.5B), Italy ($1B), and France ($280M), with a combined 77% share of the total market. The countries with the highest levels of molluscs per capita consumption in 2019 were Spain (6.61 kg per person), Portugal (4 kg per person) and Italy (3 kg per person).

Since the beginning of 2020, due to restrictive measures against the spread of the COVID-19 pandemic, the market has been facing significant challenges related to the destruction of the usual sales channels and disruptions in the supply chains. The HoReCa sector was almost completely paralyzed for several months, which significantly reduced the demand for molluscs and other types of seafood. However, retail sales did not decline as much as in-store food demand increased as consumers cook more at home and buy more products suitable for long storage. Another threat came from the possible disruption of molluscs supply chains due to the lower transport activity and quarantine restrictions.

The mollusc market is expected to contract over 2020 amid a marked drop in demand from the HoReCa sector, and will resume weak growth in 2021 as the HoReCa and tourism sectors find their ‘new normality’. In the medium term, the market is expected to grow moderately with a CAGR of +1.0% between 2020 and 2030, which is projected to bring the market to 703K tonnes by the end of 2030. However, these expectations are vulnerable to a risk of intensifying the second wave of the pandemic.

Brexit poses another significant threat to the mollusc market, a problem even more serious for the UK itself than for the EU. After Brexit, the rules for third countries apply to the UK from 2021, and therefore the vast majority of mollusc sales are no longer legal since the EU cannot import mollusc from Class B waters.

Before Brexit, the UK was the third-largest mollusc exporter in the EU, with shipments of 11K tonnes in 2019. Meanwhile, Spain (145K tonnes) remains the major exporter of molluscs, comprising near 64% (IndexBox estimates) of the total exports. Portugal (25K tonnes) held the second position in the ranking.

Although the UK’s share of total exports is relatively small, more than $72M of shipments are at stake (at wholesale prices excluding retail margins), not to mention possible losses of incomes for British mollusc producing staff. Without a special agreement, the mollusc trade between the UK and EU countries cannot continue normally, and this situation threatens the existence of export-oriented British producers. The need for COVID testing for drivers delivering goods to the EU poses another threat as it degrades the quality of seafood due to delays.

The pandemic, coupled with the UK’s exit from the EU, could lead to noticeable changes in the European mollusc market, which will not only affect sales channels and supply chains but also lead to market redistribution among producers from other countries.

Source: IndexBox AI Platform

cross-border
3pls, Archives, Global Logistics, Global Trade Daily

CROSS-BORDER CARGO TRANSPORTATION CHALLENGES AND SOLUTIONS

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Managing a streamlined supply chain for cross-border cargo transportation entails much more than identifying the fastest, most efficient method of getting cargo from point A to point B. Current market challenges have been amplified due to the pandemic and now go beyond ensuring cargo arrives at the final destination on time. The safety of transportation workers as a result of internal processes is now at the forefront of cross-border transportation. After all, if the truck driver is not healthy enough to deliver the products, the products do not move. In the new normal, worker safety is more important than ever.

“Some of the challenges out there are found more so in the area of the trucks that are crossing and the drivers,” says Michael Ford, vice president of Government and Industry Affairs at BDP. “If I was a trucking company, how do I ensure my driver’s safety? When that driver gets in the cab every day, do I know they are healthy?”

Ford continues, “Setting up those types of protocols internally, ensuring that I’m putting a safe driver on the road and that they’re able to perform those tasks as if there’s any type of cross border is critical, especially now. Coordinating, communicating, setting that up, and ensuring that everything is in play really becomes important.”

When driver safety has been established, coordination efforts are challenged once again depending on the region the cargo is crossing. Each region presents a unique set of roadblocks from customs to short and long-haul planning times. Cross-border transport from the U.S. to Canada is a much different process than what U.S. to Mexico transport requires for success.

Although these challenges are not new, they include more variables that require streamlined coordination from the very beginning. Trade lanes are now more open and traveler impact has shifted, presenting opportunities along with the challenges.

“In the past, we have seen much more congestion than we do currently,” Ford notes. “It has always been there between the U.S. and Mexico. But now, while there is less cargo and less traffic running back and forth, it has improved processing time. So, less cargo, less travel. If anything, it has improved and allows U.S. and Mexico customs to do what they need to do–which is all about security and ensuring the right cargo is coming through.”

Technology continues to play a critical role in ensuring worker safety and the efficient transport of cargo. The pandemic created an environment where technology is no longer simply an option but a requirement for the continuation of operations as it provides alternatives to paper-processes and close-contact for workers and customs agents.

“Previously when trucks cross, the driver pulls over, gets out of the cab, and hands paperwork over,” Ford says. “So, the question now is how do we achieve that full paperless experience on both sides in the U.S., Canada, and Mexico? When the driver pulls off, I need to know I have the driver, the driver’s ID, etc. and technology supports the keeping up with this information. It also keeps the driver in the cab and allows whatever information needed to be accessed.

“Advanced data has allowed a lot of that to take place. Being able to share and obtain better inter-agency  cooperation goes a long way to helping the flow of cargo across the borders.”

Technology is a part of the bigger picture. Without technology, the constant exchange of information and obtaining updated data is slowed down. Without inter-agency communications along with customs collaborations, cross-border operations are at risk for further delay. Collaborations between customs agents are the key to making operations for cross-border providers more simplified and accelerated. This incorporates security and accuracy while verifying the right cargo continues to its final destination.

“U.S. Customs has been working with Mexico and vice versa to establish points inside of the other’s country and allowing personnel to set up there,” Ford says. “In the case of letting Mexican Customs come into U.S. territory and process the clearance, it allows that truck to go all the way through, eliminating the need for stopping at the border area. This makes a world of a difference and it speeds everything up. It requires the need for cooperation of the companies that want to improve their business flow. Changing to a brand-new environment for cross borders is big.”

Beyond reducing interactions, the overall reduction of paper processes and redundancies continues to be at the top of mind for companies engaging in cross-border operations. Along with its other supply chain disruptions, COVID-19 has pushed logistics players toward paperless and contactless operations, adding more pressure to the already complex market. For some, utilizing the technology toolbox (such as blockchain) could be the very thing that overcomes the hurdles presented by the pandemic.

“We hear a lot about blockchain, and there are applications inside of this cross-border sector where blockchain can be used as a piece of technology,” Ford says. “Instead of paper, using a blockchain technology to prove that your goods qualify under the USMCA agreement should be in play, for example.”

Regardless of whether the world is battling a pandemic, streamlined collaboration will ultimately pave the way for successful cross-border trade. This requires the latest data for every participant, thorough internal and external communications, and solid business relationships with a common goal to ensure products are received safely and accurately.

“Everybody needs to be involved,” Ford maintains. “It is everybody working together: the carrier, the custom-house broker, the government, and all others. It is also about forming that type of relationship where information is being shared and collected, and as much in advance as possible is part of the success that needs to happen.”

He concludes: “Things can’t just stay the way they have been. But on the other side of things, we need cargo security and the customs officers from the U.S. and Mexico need to be safe. We talk about COVID-19 and workers, but we are also asking those officers to be on the front lines. Keeping that in play becomes a big challenge.”

____________________________________________________________________

Michael Ford is a career professional with more than 40 years of experience in international transportation, specializing in import/export documentation and regulatory compliance. Among his other affiliations, Mr. Ford is the co-chair for Trade on the Export Committee in the development of the new Customs ACE system and has served with Customs as a member of COAC (Commercial Operations Advisory Council), chair of the Mid-Atlantic District Export Council and the partner sector with the American Chemistry Council, Responsible Care Committee. He can be reached at michael.ford@bdpint.com. 

This article was originally published in December 2020

trade policy
Archives, Global Trade Daily, International Trade

US Trade Policy – A Tool to Help Combat the Climate Crisis

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A climate crisis is upon us—the scientific evidence is overwhelming. The question is how to respond quickly and decisively on all fronts—at both a domestic and an international level. Carbon pricing is a key mechanism that economists believe is essential to reduce carbon emissions and mitigate climate change. With this in mind, we believe the time has come to harness the power of global trade by using international trade laws to create incentives for a global economy in which the price of carbon is considered in regulating international trade flows. A new administration in Washington provides an opportunity for a more creative approach in which trade policy also serves climate policy. Indeed, President Biden explicitly stated in his climate change platform that “[w]e can no longer separate trade policy from our climate objectives.”

The Biden administration can use existing international trade laws—without delay and without legislation—to take action in response to the global climate crisis. By doing so, the US can lead the way and help shape an international regime that will provide an incentive for companies around the world to price carbon in connection with their operations or face economic consequences at the US border.

Two existing trade remedy laws facilitate such an approach: (1) Section 301 of the Trade Act of 1974 and (2) the countervailing duty law. Together or individually, these laws provide a basis for immediate action creating commercial incentives for responsible behavior by US trading partners. Thoughtful use of Section 301 and the countervailing duty law would be consistent with sound climate policy and ensure that US workers are not disadvantaged by competition with foreign industries that ignore the carbon cost of products they export to the United States.

Section 301 authorizes trade retaliation against “an act, policy, or practice of a foreign country” that “is unjustifiable and burdens or restricts United States commerce.” This broad language should be interpreted as including industrial practices that fail to recognize the cost of carbon in the production of products imported into the United States. For example, the production of steel in China benefits from low-cost, carbon-intensive manufacturing. These unpriced carbon costs disadvantage US steel companies, which compete with Chinese steel imports, no less than other Chinese government policies that directly subsidize the Chinese steel industry. The United States could utilize Section 301 to increase pressure on trading partners such as China and, absent a change in behavior, impose duties to offset the negative impact of carbon-intensive production practices on US industries.

Likewise, the US countervailing duty law is sufficiently flexible to facilitate recognition of the cost of carbon, consistent with other efforts to expand the concept of what constitutes an unfair subsidy. For example, just last year the Department of Commerce revised its countervailing duty regulations to permit currency undervaluation to be treated as a subsidy.  Under this new approach, Commerce recently determined that Vietnam’s currency practices provide an unfair advantage to Vietnamese exporters and justify the imposition of countervailing duties on Vietnamese imports. The simple point is that US trade officials have now recognized that a broader set of foreign government policies are just as pernicious as the traditional subsidization practices that have long been the basis for imposing countervailing duties to protect US workers from unfair foreign competition.

We anticipate that our suggestions could be met with skepticism on the grounds that we are advocating an expansion of traditional notions of unfair trade practices. So be it. We are in a global crisis and business as usual will not do. Our point is to cut through the red tape and bureaucratic delays that have traditionally characterized the federal government’s response to the climate crisis. If nothing else, these trade tools could serve as forcing mechanisms to incentivize more effective international cooperation to fight climate change. Better to act immediately using the international trade tools we already have at our disposal than engage in a lengthy debate over procedure while the jobs and prosperity of US citizens are threatened by imports from countries unwilling to do their part in combatting climate change. There is no time to wait.

______________________________________________________________________

Mark Herlach, a partner at Eversheds Sutherland, is an international lawyer with a practice focused on energy, international trade and defense matters. Mark represents a broad range of clients, including corporations, advanced-technology companies and governments. Emily Rosenblum, an associate at Eversheds Sutherland, is a member of the Energy Group and international trade practice. Emily advises clients on a wide range of regulatory and commercial issues involving international trade.

Burma
Archives, Global Trade Daily, International Trade

OFAC Announces Burma Sanctions in Response to Coup

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On February 10, 2021, President Biden issued a much-anticipated executive order in response to the military coup in Burma that occurred on February 1, 2021. On February 11, pursuant to that executive order, the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC) designated certain individuals and entities controlled by the Burmese military deemed responsible for the coup. Concurrently, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) implemented a series of restrictions on exports of sensitive items to Burma’s Ministry of Defense, Ministry of Home Affairs, armed forces, and security services, while the United States Agency for International Development (USAID) shifted $42.4 million in funding from programs benefitting the Government of Burma.

Background

On February 1, 2021, the Burmese military overthrew the country’s democratically elected government in a coup d’état, detaining its civilian leadership, shutting down the country’s internet, and seizing control of the Burmese government. The actions came immediately prior to what would have been the swearing-in of Burma’s newly elected Parliament, formalizing the results of the country’s November 8, 2020 general election, which was a landslide victory for civilian leader Aung San Suu Kyi over her military-backed challenger.

In response, the Biden Administration announced a series of actions against persons and entities associated with the coup, demanding that the Burmese military “immediately restore power to the democratically elected leadership, end the state of emergency, release all those unjustly detained, and respect human rights and the rule of law, including by ensuring peaceful protestors are not met with violence.”

Targeted Sanctions

The Biden administration designated 10 individuals and three entities for their association with the military apparatus responsible for the coup. These were:

Six members of the National Defense and Security Council, including Commander-in-Chief of the Burmese military forces Min Aung Hlaing and Deputy Commander-in-Chief of the Burmese military forces Soe Win, who were “directly involved in the coup,” and were designated pursuant to the new executive order for being foreign persons who are or were “leaders or officials” of the “military or security forces of Burma.”

Four members of the State Administration Council, including the Minister of Defense, General Mya Tun Oo, and the Minister for Transport and Communications, Admiral Tin Aung San, who were appointed after the coup to their positions by the Burmese military.

Three Burmese gem companies, which were wholly-owned subsidiaries of a large conglomerate run by the Burmese military, for being foreign persons that are owned or controlled by, or that have acted or purported to act for or on behalf of, directly or indirectly, the military or security forces of Burma.

As expected, the U.S. did not to resort to broad comprehensive sanctions of the past, which can be difficult to undo and carry broader harm for the fragile economy, but the Executive Order leaves open the possibility of more wide-reaching restrictions. The sanctions target elements of the military and, importantly, their business interests. Secretary of State Blinken explained in a press statement that “[t]hese designations specifically target current or former members of the military who played a leading role in the overthrow of Burma’s democratically-elected government. They do not target the economy or people of Burma, and we have gone to great lengths to ensure we do not add to the humanitarian plight of the Burmese people.”

The Burma Executive Order nevertheless offers a range of options for the United States if it later chooses to adopt a more aggressive approach. Among the foreign persons that could be targeted, but have not yet, include:

-Those responsible for or complicit in, or to have directly or indirectly engaged or attempted to engage in actions or policies that “threaten the peace, security, or stability of Burma,” or that “prohibit, limit, or penalize the exercise of freedom of expression or assembly by people in Burma, or that limit access to print, online, or broadcast media in Burma.”

-Leaders or officials of “the Government of Burma on or after February 2, 2021.”

-Any “political subdivision, agency, or instrumentality of the Government of Burma.”

Targeted Export Restrictions

In parallel to OFAC designations, BIS imposed a series of restrictions on exports of sensitive items to the Burmese military and security services. Effective as of February 11, 2021, BIS will:

-Apply a presumption of denial for items requiring a license for export and reexport to Burma’s Ministry of Defense, Ministry of Home Affairs, armed forces, and security services.

-Revoke certain previously issued licenses to these departments and agencies which have not been fully utilized.

-Suspend certain license exceptions previously available to Burma as a result of its current Country Group placement under the Export Administration Regulations (EAR), including Shipments to Country Group B countries (GBS) and Technology and Software under restriction (TSR).

-Assess additional actions, including possible Entity List additions, adding Burma to the list of countries subject to the EAR’s military end-use and end-user (MEU) and military intelligence end-use and end-user (MIEU) restrictions, and downgrading Burma’s Country Group status in the EAR.

BIS’s actions, as with OFAC’s, target Burma’s military and security services, rather than aim more broadly at exports to Burma as a whole. The Department of Commerce explained that “[b]y taking immediate action to prevent the Burmese military from benefiting from access to sensitive U.S. technology, we are sending a direct message that the United States stands with the people of Burma and their lawful democratic institutions.”

Redirected Humanitarian Aid to Burmese People

In keeping with its efforts to target those responsible for the coup, but lessening the adverse impact on the Burmese people, the Biden Administration shifted $42.4 million in USAID assistance from projects that benefit the Government of Burma to programs that “support and strengthen civil society and the private sector.” The Administration will also continue to support the Burmese people with approximately $69 million for programs that provide “direct benefits to sustain and improve the health of the people of Burma, including efforts to maintain democratic space, foster food security, support independent media, and promote peace and reconciliation in conflict-affected regions.”

This latter step may be critical to building a multilateral consensus for future sanctions actions targeting the military-led government.

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By Ryan Fayhee, Roy (Ruoweng) Liu, Tyler Grove and Joshua Rosenthal at Hughes Hubbard& Reed LLP  

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Archives, Global Trade Daily, International Trade

BIDEN DREW A STARK CONTRAST FROM TRUMP ON THE CAMPAIGN TRAIL, BUT WILL HIS TRADE POLICIES BE ALL THAT DIFFERENT?

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As we all saw throughout the 2020 elections, Americans and those around the world anxiously awaited the results while international and domestic trade players planned for anticipated policy and regulatory changes to come in the short and long terms. For now, some things are here to stay. Flexibility is a must for maintaining the current trends within the international trade atmosphere. Trade relations with China and Vietnam as well as new tariffs on the horizon remain critical questions. 

The next four years will undoubtedly require careful strategic planning with an emphasis on digital innovation for trade policy experts as COVID-19 continues to add an additional layer of complexity to operations while adjusting to a new administration and policy changes. 

To help you navigate the future, Global Trade talked with Washington, D.C.-based law firm Miller & Chevalier’s international trade experts Richard Mojica and Dana Watts. They weigh in on the 2020 election outcome, how international and domestic trade lane shifts can be anticipated and what traders can do to prepare now for the near future. 

“President Biden will likely continue a trade policy of protectionism,” Mojica says. “Biden’s approach would be more subtle than Trump’s, but his trade policy agenda is centered around the familiar themes of taking a hard line on China and boosting U.S. industries by increasing government purchases of U.S.-based goods and services. Further, although Biden would certainly seek to restore trade relations with long-time allies, he has signaled that his administration would focus on domestic investments before pursuing any new trade agreements. That probably includes not pursuing Phase II of the U.S.-China Agreement, in part due to growing animosity between the countries.

“On the topic of tariffs, Biden has not yet pledged to remove the tariff regime he inherited from Trump and is not likely to do so without getting something in return that would satisfy his base supporters,” Mojica adds. “Biden has also vowed to use other tools to keep China at bay, which may include economic sanctions, the tightening of export controls, anti-dumping investigations, restrictions to foreign investment and investigations into human rights abuses.”

The question on the minds of global traders is what can be done now to prepare for what’s to come and how proactive measures can solidify operations for the future. Supply chains experienced new levels of disruption throughout 2020, requiring changes in established production locations and tapping into new market opportunities for outsourcing. However, these moves do not come without a cost in some form, and right now, the right move is hard to determine beyond what has already been implemented. 

It’s important to note that prior to Donald Trump’s departure from the White House, the U.S.-China deal still remained a key issue for many American manufacturers. With Biden now officially sworn in, relations with China are a constant question. 

“For the last 2-3 years, many companies with supply chains involving China have moved all or some production out of China and into Vietnam, Malaysia and elsewhere in Asia,” Watts explains. “U.S. companies are also considering moving production to Mexico because of its proximity to the United States and the potential cost-savings associated with the U.S.-Mexico-Canada Agreement (USMCA) implemented on July 1.” 

President Biden’s “Made in America” plan–a $400 billion, four-year increase in government purchasing of U.S.-based goods and services–will further incentivize companies to take a closer look at sourcing from the U.S., where there is capacity. “Still, we continue to hear from companies that China’s supply chain ecosystem is unrivaled, so they are experiencing growing pains as they ramp up production in other countries,” Mojica notes.

Having previously served as a U.S. Customs Headquarters attorney, Mojica predicts that under the Biden administration, tariff compliance enforcement from U.S. customs will most likely continue and even become more significant. Not only does this increase the chance for penalties and investigations but also the enforcement of USCMA and importer auditing protocols. Starting from the inside out, USMCA mirrors NAFTA while adding drastic changes to specific sectors, where operating procedures are not a “one-size-fits-all” approach. For many companies, USMCA requires a careful comparison and evaluation from compliance to anticipated penalties. 

“Companies that seek to benefit from cost savings under the USMCA must have a compliance infrastructure in place to verify that its products qualify for preferential treatment under the agreement, Mojica says. “Based on our experience working with multinational companies, developing adequate internal controls requires an effort that may involve stakeholders in various departments, including procurement, finance, supply chain and legal. U.S. Customs afforded companies through the end of 2020 to get up to speed, but that grace period has since expired and will be followed by USMCA audits.”

The Phase One trade deal is an additional key topic that companies are grappling with. Which strategic planning efforts will support business and whether there will be additional conflict between the already strained relationship with China are in question. Future agreements are at a standstill as Phase One requirements have yet to be fulfilled on China’s end and show no progress. 

The question is: Now that Biden is the 46th U.S. President, what will the Phase One Deal look like? 

“Biden has criticized the Phase One deal for not addressing Chinese subsidies and support for state-owned enterprises, cybertheft, and other unfair practices,” Watts points out. 

Mojica and Watts both expect an uptick in investigations into forced labor in the supply chains of companies that import merchandise into the United States.

“The U.S. government has taken a keen interest in human rights abuses around the world, and it is charging companies to ensure that there is no forced labor in their supply chains,” Mojica says. “In response to the rise in U.S. Customs-led investigations and enforcement cases concerning imports made with forced labor, companies are taking steps to enhance their supplier due diligence efforts.”

Short-term resolutions are bleak, and the inevitable shift in policy adds more of a strain on companies aiming to determine what preparations are within their control. Specific strategies can support forward-thinking approaches in the interim, but without concrete provisions, the future does not look favorable for peaceful international relations but rather growing tensions, which are already being felt. 

The future of policies in place and the possibilities for policy implementation have yet to be fully felt under the Biden administration. The future of trade could be completely different from what companies are currently navigating on a domestic and international scale in the coming weeks and months. Nevertheless, companies would do themselves a favor by extending strategic approaches and ensuring compliance while anticipating another year of change.

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Richard Mojica is a member of Washington, D.C.-based law firm Miller & Chevalier, where he counsels U.S. and international companies on how to minimize the cost of importing merchandise into the United States through strategic customs planning and duty-savings programs.

Dana Watts is counsel of Miller & Chevalier’s International Practice, focusing on customs law. She advises clients with all aspects of import compliance.