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LATEST: CBP Issues Marking Guidance for Goods Produced in Hong Kong

hong kong

LATEST: CBP Issues Marking Guidance for Goods Produced in Hong Kong

On August 10, 2020, U.S. Customs & Border Protection (CBP) issued a notice that goods produced in Hong Kong will need to be marked as a product of China starting on September 25, 2020. The marking changes are the result of the July 14, 2020 Executive Order on Hong Kong Normalization that ended Hong Kong’s special trade status.

CBP is allowing for a 45-day transition period after the date of publication in the Federal Register to implement the requirements due to the “commercial realities.” The notice does not specify how the changes affect tariff treatment of Hong Kong goods.

An administration official has stated that the Executive Order does not “provide for new U.S. tariffs on goods from Hong Kong”, but that the Administration is continuing to evaluate its policies. Therefore, at this time, it remains unclear whether goods originating in Hong Kong will be subject to the same tariffs as Chinese origin goods, including antidumping duties, countervailing duties and Section 301 duties.

Additional guidance from CBP, USTR and the U.S. Department of Commerce is expected.

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Stephen Brophy is an attorney in Husch Blackwell LLP’s Washington, D.C. office focusing on international trade.

Robert Stang is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Customs group.

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

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

3PLs

10 3PLS KILLING IT WITH DISTRIBUTION LOGISTICS

The third-party logistics (3PL) industry did more than $200 billion in revenue in the U.S. in 2018, according to Armstrong & Associates. That figure is double what it was just a decade ago. Rising labor costs, tight shipping capacity and a general need for companies to cut distribution costs are all fueling the growth.

Here are 10 3PLs that are making noteworthy advancements in the world of distribution logistics.

C.H. Robinson

Already one of the largest 3PLs in the world, C. H. Robinson is in the process of acquiring Prime Distribution Services, one of the nation’s leaders in retail consolidation services. “Prime Distribution Services is a high-quality growth company that brings scale and value-added warehouse capabilities to our retail consolidation platform, adding to our global suite of services,” said Bob Biesterfeld, C.H. Robinson CEO, in January. Prime currently operates five distribution centers throughout the U.S., totaling about 2.6 million square feet. With nearly $20 billion in freight under management and 18 million annual shipments, C. H. Robinson earned the top slot in Armstrong & Associates’ Top 50 U.S. 3PLs for 2018.

Holman Logistics

Headquartered in Kent, Washington, Holman opened in Portland back in 1864. Today, it’s one of the leading logistics firms in the Pacific Northwest, though it also manages facilities throughout the nation. The company offers public and contract warehousing (with 7 million square feet of warehousing space), manufacturing logistics, plant support, transportation, collaborative logistics and order-fulfillment services. In terms of distribution, Holman handles both truckload and LTL deliveries, as well as spotting and shuttle services. Some of Holman’s biggest customers are Hill’s Pet Nutrition, Kimberly-Clark, General Electric appliances, Dr. Pepper/Snapple Group, Dole Pineapple, Kerry Foods, Cargill and Morton Salt.

Anchor 3PL

For customers that deal with hazardous materials, logistics can be a tricky, even dangerous proposition. If it’s going the 3PL route for distribution, it’s imperative that it find a company that thoroughly understands the demands of hazmat logistics. While not a large firm, Anchor 3PL operates a 140,000-square-foot warehouse that has 40,000 square feet dedicated to hazmat. Based in Salt Lake City, Anchor regularly deals with chemical and hazmat storage and distribution, works with fire and safety departments, stays on top of the thousands of legal requirements for storing and transporting hazardous materials and maintains relationships with all the regulating authorities.

Kanban

Even with the Trump Administration’s 2018 tariffs on imported photovoltaic panels, the solar industry is booming. Located in eastern North Carolina, in the heart of domestic solar energy production, Kanban is using its thorough knowledge of the industry and logistics to help customers with warehousing and distribution of solar panels. With a million feet of warehouse space, Kanban was able to both assist customers with high-volume warehousing before the tariffs took effect, and then offer solutions for companies that had to change course once the tariffs started. The company also offers logistics assistance for aerospace, food processing and automotive industries.

Cardinal Health Specialty Solutions

Moving pharmaceuticals around the country requires more than simply a cold chain distributor. In 2011, Cardinal began using a special non-toxic, environmentally friendly insulated tote to keep products between 2°C – 8°C (36°F – 46°F) during shipment. The result keeps the supply chain safe as well as prevents possible spoiled or adulterated products from re-entering the supply chain. For vaccine storage and shipment, Cardinal’s commercial refrigeration units are only calibrated using devices from the National Institute of Standards and Technology (NIST). It’s no surprise that Cardinal Health moves one out of every six pharmaceutical products in the country.

Cerasis

Since 1997, Cerasis has specialized in less than truckload (LTL) freight management. In fact, close to 95 percent of the company’s business has been in the LTL realm. Not only does this make sense for those wishing to move smaller volumes of freight, but it’s also perfect for e-commerce shipping. Cerasis is based in Minnesota but maintains offices in Oklahoma and Texas. GlobalTranz acquired Cerasis in January 2020. “Combining with GlobalTranz allows us to continue this history while providing our customers with increased service offerings and access to capacity,” said Cerasis President Steve Ludvigson shortly after the acquisition.

Expeditors

Based in Seattle, Expeditors operates 322 locations in more than 100 nations. Though it handles logistics for a variety of industries, Expeditors has considerable experience and expertise in the automotive world. Its customers include both original equipment manufacturers and tier suppliers, and it uses its sprawling global network—which includes more than 25 million square feet of warehouse space—to track items at the part or vehicle identification number level. Expeditors’ distribution services even include light manufacturing, labeling, product localization, inspection and product rework and compliance.

BDP International

Moving oil and gas around the world is complex, even in the realm of international logistics. No shipment is the same, and regulations are often changing. But BDP has long specialized in moving fuel, so it understands pricing, procurement, heavy lift and turn-key rig mobilization. In terms of distribution, the company operates facilities all around the world (including Dallas, Houston, Los Angeles and Philadelphia), and uses extensive barcode scanning technology to keep track of everything. The company even offers its own BDP Smart Tower application, which allows customers to monitor asset locations, maximize asset utilization and coordinate maintenance and repairs to keep equipment downtime at a minimum.

Qualex

In 1990, Qualex opened as a dock-to-dock delivery company for Southern California furniture makers. Since then, it’s evolved into a full 3PL firm with tightly integrated warehouse and transportation services, though it still specializes in the furniture industry. For each customer, Qualex sets up an Electronic Data Exchange (EDI), which channels replenishment orders directly into its own Warehouse Management System (WMS), making logistics practically invisible.  Full distribution services include confirmation receipts, the automatic emailing of proof of delivery, inventory status reports, installation job status and even emailed photos of product condition upon delivery.

United Natural Foods, Inc.

Since grocery profit industry margins hover around just 2 percent, outsourcing logistics is practically mandatory. With its 2018 acquisition of Supervalu Advantage Logistics, United Natural Foods Inc. (UNFI) became a leader in grocery industry logistics. In fact, it’s the largest publicly traded grocery distributor in the nation. And its warehouse facilities are cutting edge—some have radiofrequency devices that guide selectors to stock, while others are completely automated, ready to deliver aisle-ready pallets to retail stores. SuperValu also ran all the logistics for four regional warehouses belonging to Krogers, the second-largest grocery chain in the country.

administrative review

Opportunity to Request Administrative Review

On August 4, 2020, Commerce announced in the Federal Register the opportunity to request an annual administrative review for products that are currently subject to antidumping and countervailing duties.

The products and countries that have August anniversary months are the following:

-Seamless Line and Pressure Pipe from Germany

-Sodium Nitrite from Germany and China

-Finished Carbon Steel Flanges from India and Italy

-Brass Sheet & Strip; Tin Mill Products from Japan

-Polyethylene Retail Carrier Bags from Malaysia, Thailand, and China

-Light –Walled Rectangular Pipe and Tube from Mexico, Korea, and China

-Dioctyl Terephthalate; Large Power Transformers; Low Melt Polyester Staple Fiber from Korea

-Small Diameter Carbon and Alloy Seamless Standard Line and Pressure Pipe from Romania

-Ripe Olives from Spain

-Certain Frozen Fish Fillets from Vietnam

-Steel Propane Cylinders from Thailand

-Silicomanganese from Ukraine

-Various Products from China

As part of this annual review process, Commerce intends to select respondents based on an analysis of U.S. Customs and Border Protection (CBP) data for U.S. imports during the period of review, which is released only to legal counsel for interested parties.

Any party wishing to participate in the antidumping and countervailing duty review process or who may be affected by duties on the products identified in the Federal Register notice should file a request for review no later than August 31, 2020.  In order to be eligible to participate in the review, a party must either be an exporter or importer of the specific products and during the specific time periods identified in the Federal Register notice.

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

hs code

HS Code Classification Freeway: Take Your Exit

Since the introduction of the Harmonized Tariff System (HTS or HS) in January of 1988 and its global implementation in following years (for example, in the U.S. on January 1, 1989), classifying products (i.e., associating the tangible product to its related HS code) has been a global party. Used on import (and export) declarations, HS codes identify the duty rates applicable to the specific goods, relate to statistics, give regulators an opportunity to link Anti-Dumping Duties (ADD) and Countervailing Duties (CVD) to products, dictate how to qualify for preferential treatment, and can govern document and license requirements. Quite a laundry list—and that makes the correct HS code classification an important piece of information, especially when using an incorrect classification can lead to penalties and delays upon import.

In the U.S., with roughly 16,000 HS codes to choose from, a customs ruling database for U.S. classifications only (CROSS) that is 206K classifications strong, ongoing changes to import tariffs, and a massive World Customs Organisation-initiated overhaul every five years (2022 here we come), it is no wonder classification is evergreen on trade compliance professionals’ list of concerns that demand a significant amount of attention.

To make it more complicated—although harmonized globally at the six-digit level, local authorities are allowed to differentiate down to a local nth digit (usually eight or 10) and have not been hesitant to do so. For example, the U.S. and European Union both support HS codes that have 10 digits, but few are the same or represent the same products. As import declarations are filed locally, this implies that, for each importing country, a different HS code must be identified and then maintained for any product shipped into that country. Do the math: a product catalog of 50,000 parts that ship to 50 different countries adds up to a solid 2.5 million classifications. Not something to maintain on the back of an envelope—unless it’s a really, really big one, erasers are cheap, and pencils are free.

With widely diverse needs for classification (e.g., from a B2C ecommerce shipment of two cotton T-shirts that need an HS code for a quick landed costs calculation, to raw materials and semi-finished products for manufacturers, to a single unique import of a $10 million factory engine), it is no surprise that any self-respecting Global Trade Management (GTM) solution or consultant is happy to assist companies in desperate need for those classifications. And no wonder that, since around 2000, numerous software companies have been trying to solve the mystery of auto-classification.

The diversity in the initial reason for classification comes with different parameters for success. For an ecommerce retailer, an autoclassification tool can solve many challenges (e.g., quick returns, high volume of items are immediately classified), but accuracy can be a challenge. A lack of accuracy is not something importers can afford when, for example, the classification determines whether the import is subject to ADD, is heavily restricted from a license perspective, or is subject to quotas. Basically, (auto-) classification is like a freeway and, depending on the exact needs, companies take a different exit.

There are three key components to a successful (auto-) classification project—other than, of course, the hopefully not superfluous statement that a decent amount of classification expertise comes in handy when either classifying or building a tool.

First, the quality of the product description. ‘Garbage in, garbage out’ also applies to classifying. Poor descriptions, lack of product detail, or even incorrect specifications will likely lead to an incorrect HS code with all related consequences. For quality descriptions, product managers or developers may get involved to provide the necessary technical detail as some classification decisions are made based on those elements.

Second, the classification logic. Whether the classification is assigned by a person or a tool, classification logic cannot lack, well, logic. This means many things: rules that decide to classify a piece of clothing that is not gender-specific as textiles for female or male (and the U.S. handles it differently from the EU); rules-based classification that guides the correct classification in a decision matrix fashion; the ability to ignore information not relevant to the classification (e.g., color); or the ability to observe characteristics that may be needed in one case but not for another (e.g., weight), including material compositions that are usually very important. The logic must also account for a way to ‘smart search’, or search across different references to generate results from, such as synonyms, natural language, industry jargon, and even from images. In addition, classification logic means integrating Artificial Intelligence (AI) and Machine Learning (ML) into the application so results can automatically improve, which enhances both the number of items classified and the quality of the classifications without human intervention.

Third, the classification reference database. The classification logic must look to match a description with an HS code not only by matching it with a ‘word in the tariff’ but also with the explanatory notes and, preferably, for broader context a natural language reference. This might include a shipping manifest reference or information gained via access to previous imports and classification repositories of identical products. Regardless, all types of references need to be reviewed before the final classification is determined. The logic is only as sound as the foundation on which it is built.

It’s important to keep in mind that references are also where, as an industry, companies should actually assist one another. Data privacy concerns notwithstanding, there must be a way to ‘crowd source’ references, which could reduce the efforts made and resources spent on classification in sensational fashion—engineering a classification freeway that is even more well-marked and efficient to traverse.

hong kong

President Trump’s Executive Order Ends Hong Kong Country of Origin

On July 14, 2020, President Trump signed into law an Executive Order that ends Hong Kong’s differential treatment compared to the People’s Republic of China (“PRC” or “China”). The President’s action follows the Chinese government’s decision in late May to impose new national security legislation on Hong Kong that outlaws any act of “secession,” “terrorism,” or “collusion” with a foreign power.

The United States government objects to this legislation and believes that it has compromised Hong Kong’s autonomous status, which justified  Hong Kong’s differential treatment from China for a number of purposes. As President Trump stated following the signing of the Executive Order, “Hong Kong will now be treated the same as mainland China…no special privileges, no special economic treatments and no export of sensitive technologies.”

As a result of the Executive Order, any imported Hong Kong origin goods will now be considered Chinese origin and will be subject to the Section 301 tariffs on certain Chinese imports, or any antidumping or countervailing duty orders applicable to China.

The Executive Order also eliminates any passport preferences for persons from Hong Kong as opposed to those from the PRC and revokes any Export Administration Regulation (“EAR”) license exceptions for exports, re-exports, and in-country transfers pertaining to Hong Kong. The order also authorizes steps to end other forms of U.S.-Hong Kong cooperation unrelated to international trade, such as the Fulbright exchange program.

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Robert Stang is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Customs group.

Jeffrey Neeley is a Washington-based partner with the law firm Husch Blackwell LLP. He leads the firm’s International Trade Remedies team.

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

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

france

USTR Announces Additional Duties on Cosmetics and Handbags from France, Delays Effective Date Until January 2021

On July 10, 2020, the U.S. Trade Representative (USTR) announced that it would impose a 25 percent additional duty on certain cosmetics, soaps and cleansing products, and handbags that are products of France, valued at $1.3 billion, due to the French Digital Services Tax (DST). Nevertheless, USTR delayed the application of the duties for as long as 180 days, which means that at the earliest, the additional duties would go into effect January 6, 2020.  USTR stated that the tariffs could go into effect sooner than the 180-day suspension period, but if this change were to occur, USTR would issue a subsequent Federal Register Notice amending the effective date of implementation for the tariffs.

In July 2019, USTR opened an investigation directed at the Government of France under Section 301 of the Trade Act of 1974, because of France’s new DST, which imposed a 3 percent revenue tax on companies providing certain online services directed at French customers. In December 2019, USTR found that the French DST was “unreasonable, discriminatory, and burdens U.S. commerce” and was expected to collect over $500 million in taxes for activities in 2021. USTR accepted comments from interested parties in early 2020 on a proposed list of goods targeted for additional tariffs, which included French cheeses, wines, cosmetics, and handbags. However, prior to the imposition of additional duties, the U.S. and French governments were able to negotiate a truce that temporarily delayed the implementation of the DST until December 2020 and obviated the need for USTR to take immediate action.

USTR has stated that this action concerning tariffs on certain French goods is not intended to escalate trade tensions with France but instead was necessitated by Section 304(a)(2)(B) of the Trade Act of 1974 requiring that USTR announce the action to be taken within 12 months of the initiation of the Section 301 investigation. The 180-day delay of the imposition of the tariffs is intended to provide USTR and France additional time to continue discussions, which could lead to a satisfactory resolution of the DST matter.

USTR has stated that it will continue to monitor the effect of the trade action and may modify the list of affected goods necessary to ensure resolution of the matter with the Government of France.

This action comes on the heels of USTR announcing a similar action into digital service taxes involving India, the European Union and several other countries. Over the last few years, various governments have enacted or considered taxes on revenues generated by digital services companies within the different jurisdictions. Proponents of DSTs argue that the tax corrects corporate taxation to cover previously untaxed or undertaxed revenues. Alternatively, the position of the Trump administration is that DSTs unfairly discriminate against “large, U.S.-based tech companies” such as Amazon and Google.

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Robert Stang is a Washington, D.C.-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Customs group.

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

products

USTR Grants Extensions to Products Subject to Section 301 List 1

The Office of the U.S. Trade Representative (“USTR”) announced today that it will extend certain product exclusions scheduled to expire on July 9, 2020, for twelve (12) specific products which were subject to Section 301 List 1 tariffs at a rate of 25%.  As a result of these extensions, the exclusion extensions will now expire on December 31, 2020.

The products for which the Section 301 exclusions were extended include the following:

(1) Direct-acting and spring return pneumatic actuators, each rated at a maximum pressure of 10 bar and valued over $68 but not over $72 per unit (described in statistical reporting number 8412.39.0080);

(2) Pump casings and bodies (described in statistical reporting number 8413.91.9080 prior to January 1, 2019; described in statistical reporting number 8413.91.9095 effective January 7 1, 2019 through December 31, 2019; described in statistical reporting number 8413.91.9085 or 8413.91.9096 effective January 1, 2020);

(3) Pump covers (described in statistical reporting number 8413.91.9080 prior to January 1, 2019; described in statistical reporting number 8413.91.9095 effective January 1, 2019, through December 31, 2019; described in statistical reporting number 8413.91.9085 or 8413.91.9096 effective January 1, 2020);

(4) Pump parts, of plastics, each valued not over $3 (described in statistical reporting number 8413.91.9080 prior to January 1, 2019; described in statistical reporting number 8413.91.9095 effective January 1, 2019, through December 31, 2019; described in statistical reporting number 8413.91.9085 or 8413.91.9096 effective January 1, 2020);

(5) Compressors, other than screw type, used in air conditioning equipment in motor vehicles, each valued over $88 but not over $92 per unit (described in statistical reporting number 8414.30.8030);

(6) Structural components for industrial furnaces (described in statistical reporting number 8514.90.8000);

(7) Aluminum electrolytic capacitors, each valued not over $3.20 (described in statistical reporting number 8532.22.0085);

(8) Rotary switches, rated at over 5 A, measuring not more than 5.5 cm by 5.0 cm by 3.4 cm, each with 2 to 8 spade terminals and an actuator shaft with D-shaped cross-section (described in statistical reporting number 8536.50.9025);

(9) Rotary switches, single pole, single-throw (SPST), rated at over 5 A, each measuring not more than 14.6 cm by 8.9 cm by 14.1 cm (described in statistical reporting number 8536.50.9025);

(10) Zinc anodes for use with machines and apparatus for electroplating, electrolysis or electrophoresis (described in statistical reporting number 8543.30.9080);

(11) Weather station sets, each consisting of a monitoring display and outdoor weather sensors, having a transmission range of not over 140 m and valued not over $50 per set (described in statistical reporting number 9015.80.8080); and

(12) Multi-leaf collimators of radiotherapy systems based on the use of X-ray (described in statistical reporting number 9022.90.6000).

USTR requested comments in April on whether or not it should extend the exclusions, which were originally issued on July 9, 2019. Over 100 products which were previously granted exclusions and which were not listed in this extension notice will now expire on July 9, 2020.

To view the full list of extended product exclusions, please click here.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

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.

 

fireworks

DESPITE TRADE TENSIONS FIREWORKS EXPORTS FROM CHINA ARE BOOMING

Liuyang, China: Birthplace and Epicenter of Fireworks Production

Many historians credit the Chinese in ancient Liuyang with creating the first natural firecracker around 200 B.C. Roasting bamboo caused it to explode due to its hollow air pockets. The noise it generated was said to ward off evil spirits. Some 800 to 1,000 years later, Chinese alchemists mixed saltpeter, charcoal, sulfur and other ingredients to discover an early form of gunpowder. When they stuffed that mixture into bamboo shoots and threw them into a fire, boom – the first “modern” fireworks were born.

Capitalizing on its pedigree of two centuries of fireworks production, Liuyang has focused its economy on becoming the undisputed fireworks capital of the world. Overall, China produces some 90 percent of the world’s fireworks. Around 60 percent of those are made in Liuyang.

Global Fireworks Exports in 2017

Potential Powder Keg: Mr. Ding’s Dynasty

Whether you bought a multipack of screamers, bottle rockets, and roman candles from a roadside stand, or plan to watch a professionally-designed community display this Fourth of July, chances are the fireworks themselves were produced in China. In 2016, the United States imported $307.8 million worth of fireworks. Nearly all, $296.2 million worth, came from China. U.S. consumers purchase about half of the pyrotechnics China exports globally.

That may not be very surprising when you consider the abundant use of pyrotechnics at American events and celebrations. “Thunder Over Louisville” is an annual event that blasts through 60 tons of fireworks in 30 minutes.

What might be concerning, however, is the discovery by a Washington Post investigative team that around 70 percent of all Chinese fireworks entering the United States are produced, warehoused, transported, and ultimately imported under the control of companies owned by just one Chinese businessman, Ding Yan Zhong. The reporters estimate that Mr. Ding’s companies have imported 7,400 containers, 241 million pounds, of fireworks so far this year. Of the 108 containers that arrive on average every day, 72 are controlled by Mr. Ding.

Another Example of China on the Smile Curve?

There is a brighter side for the American fireworks industry. While there’s practically no firework manufacturing left in the United States, jobs in and around the fireworks industry follow a familiar pattern where the lower-skilled work is performed in China and other, higher value-added jobs can be found occupied by Americans. Here are some examples.

Pyrotechnic engineers are trained chemists who deploy their knowledge of how certain compounds react with other inputs to create bigger, brighter, and more exciting pyrotechnics. We love the classic chrysanthemum, peonies, and willow fireworks that send bright stars scattering into arcing trails. But we also await each Fourth of July the new patterns and colors these engineers have dreamed up.

The mean salary for a U.S.-based chemical engineer in 2015 was $103,960. Contrast this job with a firework maker in Liuyang, China, where most fireworks are still made by hand, by women for a mere $80-285 a month depending on skill level. It’s not just low paying; it’s dangerous work. According to a Slate article, Wang Haoshui, chief engineer with China’s State Administration of Workplace Safety, told a Chinese newspaper that only coal mining was considered a more dangerous occupation in China.

Today China produces 90% of the world’s fireworks.

In more desirable parts of the fireworks ecosystem, American show producers spend their days “choreographing” pyrotechnic displays for large scale events in sports arenas (Super Bowl halftime show and the Olympics) and concert venues (Kiss and Mötley Crüe). Winco Fireworks in Prairie Village, Kansas, imports and distributes fireworks but also innovates electrical firing systems. The company just launched the FireFly firing system that allows backyard enthusiasts to sync their music using Bluetooth® technology while detonating their fireworks wirelessly. Enthusiasts turned entrepreneurs are also common in the American fireworks industry. Scott Smith is one such example. He’s an electrical and computer systems engineer from Ganesvoort in upstate New York and founded COBRA, a company that creates software for designing fireworks shows.

Growth is Explosive in China

As with so many other consumer products, demand for fireworks is growing so rapidly in China that Liuyang manufacturers are turning their attention inward. China’s Spring Festival and lunar New Year celebrations offer healthy competition to demand for fireworks at American Fourth of July parties.

Chinese manufacturers also say it’s getting harder to export due to strict U.S. requirements. The U.S. American Tobacco and Firearms agency (ATF) requires “anyone in the business of importing, manufacturing, dealing in, or otherwise receiving display fireworks” to first obtain a Federal explosives license or permit from ATF for the specific activity. Firecrackers sold to the American public can only have 50 milligrams or less of pyrotechnic composition per firecracker.

China’s regulations are more permissive, not simply as they pertain to manufacturing, but also with respect to the power consumer fireworks can pack. Fireworks available for purchase can be several times more potent than fireworks that have been banned in the United States.

US fireworks consumption

Trade Ensures the Continuation of an American Tradition

The first American fireworks display is said to have taken place in Jamestown in 1608. According to historians, John Adams wrote a letter to his wife on July 3, 1776 in which he predicted that the Fourth of July, the day on which the Continental Congress adopted the Declaration of Independence, would be “the most memorable in the history of America… celebrated by succeeding generations as the great anniversary festival.”

He went on to suggest the commemorations “be solemnized with pomp and parade…and illuminations [fireworks]…from one end of this continent to the other, from this time forward forevermore.” Wherever and with whomever you enjoy those colorful bursts in the night sky, celebrate this symbol of American independence and also the economic dynamism we currently enjoy thanks to our role in the global economy.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

tariff exclusions

What Your Business Needs to Know and Do About Tariff Exclusions

As COVID-19 continues to wreak havoc on the world economy, it’s prudent to find ways to keep your shipping business afloat by finding economic relief if and whenever possible. First off, being aware of the changing complexities of the China-U.S. trade war is essential. According to the Census Bureau’s Foreign Trade Statistics, China is one of our country’s largest trading partners, which means companies large and small are likely affected by the trade situation. Last year, the U.S. imported $452 billion from China, which made up about 14% of overall U.S. imports by value.

Section 301 of the Trade Act of 1974 allows the U.S. to impose trade sanctions as recourse for unfair foreign trade practices. In 2017, China was under investigation for issues regarding innovation practices, intellectual property rights, and technology transfer. Since then, retaliation measures have been put in place for the past couple of years and remain in effect for an indefinite amount of time. While the USTR recently announced reductions on some tariff measures and a suspension of others, about two-thirds of U.S. imports from China are still taxed an additional 7.5% to 25%, covering about $350 billion worth of product. Keep in mind, the average duty rate for U.S. imports is only 2%; thus, China’s products are incurring additional costs on top of that.

The current tariffs are extremely broad and cover many industries including food/beverage, industrial supplies, transport equipment, consumption goods, and fuels and lubricants. As of this month, the U.S. Customs and Border Protection (CBP) reports collecting $52 billion in Section 301 duties since the trade remedies took effect.

This is a hot issue for importers and we’re currently seeing more industry associations and companies pushing for relief from these measures. While the period to request exclusions from the Section 301 tariffs is now closed, it is a great time to confirm that you are doing all you can to potentially recover duties previously paid, and potentially apply on a go-forward basis the exclusions that the USTR has been granting against certain products.

How to seek relief now and in the future

Cost savings and refunds are top of mind for all, so to help provide some relief, the USTR has released many tariff exclusions shippers can apply for. The important thing to keep in mind here is that ample work is involved. It’s not just a one-time process, because you’ll likely need to continuously apply for new exemptions where applicable. Some of the exclusions being granted are product-specific whereas some are granted at the HTS classification. You’ll also want to be ready in case CBP asks for proof of eligibility. Staying organized is paramount to identify the opportunities and defend against CBP scrutiny.

Each exclusion round also has a validity period, and many of those expiration dates are coming up fast! We’re seeing the USTR opening several new short-window comment periods to consider extending previously granted tariff exclusions. This could be your chance to drop commentary to protect and extend your granted exclusions or to oppose competitors, if applicable and necessary so that your company is not left at a disadvantage.

What are the eligibility requirements?

Eligibility is simple – companies affected by the China 301 tariffs.

Exclusions can be granted based on sourcing, impact on U.S. jobs and product type and need. Producers of goods used to combat COVID-19 can also be eligible for exclusions.

Also, tariff exclusions are retroactive to the date the tariffs were first applied, and exclusions generally expire after one year from the date of publication of the granted exclusion.

Important Reminder for Process

The customs entry and liquidation process is complicated, spanning a lengthy period. It can take up to 480 days and is broken down into these windows of time:

1. Day 1: Customs entry is filed

2. Day 1 – 300: Post Summary Correction (PSC) – can be filed to request refund prior to the entry liquidating

3. Day 300: PSC no longer eligible as entry is deemed liquidated (importer may request suspension or extension of liquidation prior to this point).

4. Day 301 – 480: Entry is liquidated, and protest must be filed to request a refund

5. Day 480+: Entry may be past protest period and is no longer eligible for a refund request via PSC or protest.

Since the process is lengthy, make sure you consider these tips when conducting your duty recovery analysis:

-Know your product (10-digit HTS codes and know the barcodes toward the products)

-Apply their qualifications

-Narrow down lists of products impacted by tariffs

-Identify which ones have exclusions granted – work with that list

-Run a report and gather import activity

-Start looking at validity dates

-Make sure brokers are applying it to the new shipments of the products

-File petitions if you want to continue to take advantage of it

Insights for the future

The trade war is not ending soon and it’s hard to unravel, but we know it’s an important issue that we can expect to see in the spotlight for the foreseeable future. Customers are advised to stay close to this and to pay attention to the advisories from C.H. Robinson and USTR.

To check for exclusion status against your products click the resources here:

1. $34 Billion Trade Action (List 1),

2.  $16 Billion Trade Action (List 2),

3. $200 Billion Trade Action (List 3)

4. $300 Billion Trade Action (List 4)

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streaming

TRADE BARRIERS EVOLVE WITH MOVIE STREAMING TRENDS

We’re All Streaming Now

During our collective stay-at-home period, movie streaming has grown to the point where industry analysts are wondering whether many people will return to movie theaters. Netflix reported 15.8 million new subscribers for the first quarter of the year, more than double their forecast, according to the Wall Street Journal. Some studios are eschewing the traditional theatrical release and going straight to digital. As some indicator of how the trend is taking off, the Motion Picture Academy has said that — just for this year — movies released via streaming would be eligible for the upcoming Oscars.

Streaming movies online has been growing in popularity in recent years, but the coronavirus has accelerated the trend. Unfortunately, where consumer and commercial trends go, trade policy barriers may follow.

The Hollywood Juggernaut

Movies both reflect and shape our national cultures. Hollywood has traditionally dominated among international viewership (a phenomenon that has been shifting over recent years), sometimes to the consternation of “keepers of culture” in other countries. As far back as the 1920s, European countries offered subsidies to domestic film producers and imposed so-called screen quotas to establish a minimum number of screening days for domestic films. The OECD keeps track of restrictions on services trade in OECD member countries, including audiovisual services, the category under which movies fall. According to the OECD, eleven countries still today reserve a quota for local motion pictures shown in theaters or on television.

Other measures to shore up local culture against the tidal wave of cultural influence that is Hollywood include import quotas, tax breaks to domestic film industries, foreign investment restrictions, requirements for local sourcing of cast and crews, and blackout periods during which no new imported films may be released, often during prime movie-going periods or timed to political events.

Film Distribution in Hollywood

Ready, Action…Trade

Such measures discriminate against the film industries of other countries and constitute barriers to trade. Policymakers have sought to address screen quotas in trade agreements such as the WTO’s General Agreement on Tariffs and Trade (GATT) and the original North American Free Trade Agreement (where Mexico agreed to reduce its screen quotas). Provisions to remove barriers to audiovisual services have also been included in many recent bilateral free trade agreements.

In the case of Korea, whose vibrant film industry reached a pinnacle of global recognition with the Academy’s choice of Parasite as Best Picture in 2020, formal restrictions targeting foreign films date back to Korea’s Motion Picture Law of the 1960s. The Korean government abolished its import quota in the late 1980s, and only after the Motion Picture Export Association of America (MPEA) in 1985 filed a complaint (later withdrawn) with the U.S. Trade Representative under section 301, the same tool being used today to try to address China’s technology transfer requirements. In 2006, just prior to the Korea-U.S. (KORUS) free trade agreement negotiations, Korea agreed to reduce by half its screen quota from a minimum of 146 days to the current 73 days per year.

Digital Era Trade Restrictions

While cultural protections for film have traditionally focused on theatrical screenings, screen quotas don’t work in the digital era, where on-demand audiovisual services such as Netflix and Amazon Prime are increasingly capturing viewership. As a result, new forms of trade barriers are popping up.

For example, China has imposed tighter regulatory controls in recent years, limiting foreign content purchased for streaming in the Chinese market, which has over 850 million digital consumers. U.S. streamers must license their content for China under a 30 percent streaming quota. Chinese content, however, can reach global audiences through video streaming platforms with no such numerical limits. In today’s tense political environment – and with China marking the 100th anniversary of the establishment of the Communist Party in 2021 – we could anticipate increased censorship, which would exacerbate the problem of foreign content scarcity while simultaneously elevating the risk of piracy and other illegal distribution of unauthorized content.

In line with a longstanding European Union (EU) focus on protecting the European film industry, the EU passed a law in late 2018 that requires Netflix, Amazon and other online streaming services to dedicate at least 30 percent of their output to films made in Europe, which they must subsidize by either directly commissioning content or contributing to national film funds. Regulation now applies similar rules to similar services, whether online or offline.

U.S. and European trade discussions are now focused on a limited set of issue areas, but in an earlier push for a Transatlantic Trade & Investment Partnership (TTIP) in 2013, the camera zoomed in on issues of culture in trade negotiations. At the time, the European Commission was given a negotiation mandate that expressly excluded opening the European audiovisual sector to competition from U.S. firms.

China has 850 million digital consumers

Competition Makes Most Things Better – Even Movies

Culture clashes aside, there is a strong case that greater competition has been the force behind successful film industries outside of Hollywood. Researchers Jimmyn Parc and Patrick Messelin posit that the success of contemporary Korean cinema is due to “less interventionist public policies over the last two decades,” together with “benchmarking, learning, and innovating among non-subsidized private companies.” They point to data from the decade preceding the industry’s opening in the late 1980s, when the Korean film industry released around 90 films per year with an average revenue of KRW ₩0.9 billion per film (roughly USD $0.7 million at the current exchange rate). From 1989-2005, around 75 films were released per year with an average revenue of KRW ₩2.7 billion per film (roughly USD $2.2 million at the current exchange rate), a signal of the improvement in film quality.

Brian Yecies of the University of Wollongong Australia agrees that Korea’s efforts to liberalize in the 1980s and address censorship enhanced competition. As Hollywood expanded into Asia-Pacific markets, Korean cinema became stronger. The increased distribution and exhibition of U.S. films, Yecies argues, gave birth to a new generation of moviegoers who also increased their consumption of Korean content. Park Moo Jong credits three elements with reviving the Korean film industry: talented young filmmakers, the virtual abolition of government censorship, and remarkable technological developments. In short, he says, “Good films attract fans.”

EU streaming requirements

The Streamed Show Must Go On

In a 2019 submission to the U.S. Trade Representative, the Motion Picture Association pointed out that the industry’s international sales “now depend increasingly on member companies’ ability to capitalize on major distribution windows in the digital market.”

The need to remove barriers to stream internationally and enable competition holds true for online streaming as it has for many years for screening in theaters. As streaming gains momentum, trade agreements will continue to tackle the array of barriers the U.S. film industry faces abroad, from intellectual property challenges to subsidies to foreign investment restrictions. Likewise, negotiators will work to advance market access for creative content as it flows through both traditional and new distribution platforms. After Parasite’s surprise Best Picture Oscar win, who knows if 2021 may bring our first direct-to-digital winner? Put your feet up and get the popcorn ready.

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Leslie Griffin is Principal of Boston-based Allinea LLC. She was previously Senior Vice President for International Public Policy for UPS and is a past president of the Association of Women in International Trade in Washington, D.C.

This article originally appeared on TradeVistas.org. Republished with permission.