As part of the plea agreement, Cadence will pay criminal penalties of nearly $118 million. 

In addition to the charges, the Department of Commerce’s Bureau of Industry and Security (BIS) also announced the resolution of a civil enforcement action against the company in which Cadence agreed to pay over $95 million in civil penalties. 

The DoJ and BIS have coordinated the resolution of the parallel investigation, and each agreed to a partial credit against their fine for payments made to satisfy the other agency’s fine. Under the coordinated agreement, Cadence will pay criminal and civil penalties of more than $140 million.

Cadence committed criminal violations of the export control laws by selling hardware, software, and semiconductor design intellectual property to the National University of Defense Technology (NUDT) in China. NUDT was added to the Department of Commerce’s Entity List in February 2015. The university was involved in the development of supercomputers with applications for military and nuclear explosive simulations. 

Cadence and its Chinese subsidiary engaged in a conspiracy to commit export control violations by exporting this technology to NUDT without obtaining the requisite licenses from BIS. 

Court documents reveal that Cadence continued exporting software even after acknowledging via email that NUDT had been added to the Entity List.

In negotiating the plea agreement, the DoJ considered that Cadence was cooperative when the investigation commenced, but also noted the company’s failure to voluntarily disclose the misconduct to NSD. Accordingly, the amount of the monetary penalty reflects a 20% reduction of the statutory maximum fine.

​​This case demonstrates the government’s priority in enforcing export controls and the importance of prioritizing compliance programs.

Diaz Trade Law can help create a new export compliance plan for your business or review and update an existing one. To learn more about how we can help, contact us at info@diaztradelaw.com or call us at 305-456-3830.

Read more:

• The Importance of Regular Export Compliance Training for Your Business
• Building a Strong Export Compliance Plan
• Building & Maintaining an Effective Export Compliance Plan
• Introduction to Export Controls
• ICYMI: State Department Reaches $200M Settlement with RTX Corporation for Export Violations

Importing goods into the U.S. requires navigating a web of regulations that spans 47 federal agencies. If you are the importer of record, it is your duty to exercise “reasonable care” in meeting these obligations. As part of this duty, importers must take adequate steps to properly classify and determine the value of imported goods, provide information to CBP in properly assessing duties, and determine whether other applicable legal standards and requirements have been met.

When importing drones into the U.S., importers need to be mindful of several requirements including classification, intellectual property, additional duties, and a changing U.S. trade policy.

Classification

When importing goods into the United States, importers must correctly classify their products. The Harmonized Tariff Schedule of the United States (HTSUS) is the primary resource for classifying goods and determining which tariffs apply.

The HTSUS is issued annually by the International Trade Commission (ITC). It is comprised of a 10-digit import classification system that is specific to the United States. This 10-digit code encompasses the World Customs Organization’s (WCO) six-digit uniform classification system shared among more than 200 countries.

An HTSUS is formatted to list the first 6-digits set forth by the WCO, also known as a heading and subheading and the last four digits assigned by the ITC that are specific to the U.S.

Prior to 2022, the HTSUS has lacked classifications specific to Unmanned Aircraft System (UAS). Importers had to classify under codes applicable to crewed aircraft systems. In December 2021, President Biden issued a proclamation adopting 11 new HTSUS codes for UAS. Importers are responsible for properly identifying which of these codes applies to their product.

Penalties for incorrect classification can be severe – CBP may issue penalties for negligence, gross negligence or fraud – depending on the degree of culpability CBP believes the importer had at the time of non-compliance.

Intellectual Property Rights

Importers need to be vigilant about intellectual property (IP) issues when dealing with U.S. Customs. CBP actively enforces IP rights at the border, and can seize counterfeit and infringing goods to protect trademark and copyright holders. Importing products that violate these rights—whether knowingly or unknowingly—can result in costly seizures, fines, and legal complications. To avoid these risks, importers should ensure that their goods comply with IP regulations, verify the authenticity of their suppliers, and stay informed about any trademarks or copyrights that may affect their shipments.

If you are a trademark owner, you can leverage CBP’s e-recordation program to ensure your goods are protected from infringement. The program allows trademark and copyright holders to obtain border enforcement of their IP rights. CBP will look for infringing goods and detain, seize, forfeit, or destroy them.

Duties & Country of Origin

Importers must accurately determine and declare the country of origin when bringing goods into the U.S. The country of origin affects duty rates, eligibility for preferential trade programs, trade sanctions, and import quotas. Incorrect or misleading declarations can lead to penalties, shipment delays, and even the seizure of goods by U.S. Customs. To avoid these risks, importers should carefully review manufacturing processes, supply chains, and applicable rules of origin to ensure that their declarations are accurate and precise.

The importer is ultimately responsible for calculating and paying duties. Calculating duties correctly isn’t always a straightforward process, and may require the assistance of an expert. For example, Unmanned Aircraft Systems (UAS) from China are subject not only to standard import duties but also have an additional 25% section 301 duty. Section 301 refers to the section of the Trade Act that allows the United States Trade Representative to impose restrictions or tariffs on imports in response to unfair trade practices.

Some lawmakers are calling for even higher duties on Chinese imported drones.

Department of Commerce’s Bureau of Industry and Security (BIS)

On January 3, 2025, Bureau of Industry and Security (BIS) put out an advanced notice of proposed rulemaking seeking public comment on issues related to transactions involving unmanned aircraft from China and other foreign countries. It stated that “Once the President declares a national emergency, [the International Emergency Economic Powers Act] IEEPA empowers the President to, among other acts, investigate, regulate, prevent, or prohibit any ‘acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property, subject to the jurisdiction of the United States’” (Emphasis added). While this is just an advanced notice of proposed regulations, it does give us an idea on the trajectory on future unmanned aircraft import issues down the road.

Forced Labor

Forced Labor is the third most lucrative illicit trade, behind only drugs and weapons, and has an annual trade value of roughly $150 billion. Right now, over 40 million people around the world are victims of some type of forced labor, including modern slavery, human trafficking, child labor, etc.

Section 307 of the Tariff Act of 1930 (19 U.S.C. 1307) prohibits the importation of all goods and merchandise mined, produced, or manufactured wholly or in part in any foreign country by forced labor, convict labor, and/or indentured labor under penal sanctions, including forced child labor.

U.S. Customs and Border Protection (CBP) is the only U.S. government agency, and one of the few in the world, with the legal authority to take action against goods produced with forced labor to prevent entry into domestic commerce. On June 21, 2022, the Uyghur Forced Labor Prevention Act (UFLPA) was enacted to further reinforce the United States’ prohibition against the importation of goods made with forced labor. The UFLPA establishes a rebuttable presumption that goods mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of China or by an entity on the UFLPA Entity List are prohibited from importation into the United States under 19 U.S.C. § 1307.

In many ways, the UFLPA heightened the standard for forced labor compliance in comparison to its predecessor / parallel enforcement system, Withhold Release Orders. However, if an Importer of Record can demonstrate by clear and convincing evidence that the goods in question were not produced wholly or in part by forced labor the Commissioner of CBP may grant an exception to the presumption.

It is an importers responsibility to know how their goods are made, from raw materials to finished goods, by whom, where, and under what labor conditions.

CBP has made clear that they will continue to prioritize forced labor enforcement and has in the past targeted certain Chinese drone manufacturers citing forced labor concerns.

Bottom Line: Exercise Reasonable Care and Seek Help from an Expert

Exercising reasonable care in the import process is not just a best practice—it’s a necessity to ensure compliance with U.S. Customs regulations. The complexities of customs laws, from proper classification and valuation to country of origin and intellectual property considerations can be challenging to navigate alone. Partnering with an experienced customs expert can provide invaluable guidance, helping importers meet their obligations, streamline operations, and protect their business. This is vital so you don’t have your drone shipments hung up in customs. With proper due diligence, some of these headaches can be prevented.

Learn more

• Bloomberg Law: What is an Importer’s Reasonable Care Standard?
• Bloomberg Law: Tariff Classification Basics
• Bloomberg Law: S. Customs Targets the Use of Forced Labor
• Webinar: Importing 101
• Webinar: Basics on Tariff Classification
• Webinar: Navigating CBP Regulations: Essential Practices for Import Success
• Know Your Supply Chain: Forced Labor
• New Tariffs on China, Mexico, and Canada: Key Updates for Importers

From September 8-11, U.S. Customs and Border Protection (CBP) held its first virtual trade week. Over the course of the event, CBP held an action-packed series of webinars on the following topics:

• United States-Mexico-Canada-Agreement (USMCA)
• Forced Labor
• Customs-Trade Partnership Against Terrorism (CTPAT)
• E-Commerce
• 21^st Century Customs Framework (21CCF)

In the midst of this global pandemic and the vast challenges that (we are all navigating) the trade community faces, by us coming together in this way collective commitment to continue our persistent and ongoing dialogue about the most pressing issue facing.  CBP believes that improving and delivering effective transparency is an essential element to enhancing trust, and trust is essential to strengthening partnerships and getting things done for your business to thrive and trade community to succeed.

Below are summaries of each of the sessions. Have questions on them? Contact DTL at info@diaztradelaw.com.

USMCA

Whether you choose to refer to it as USCMA, T-MEC, or CUSMA, it continues to work towards economic prosperity and security for North America, and not just a replacement to NAFTA. USCMA provisions are cross-cutting in nature and affect multiple sectors of the economy. This agreement will facilitate mutually beneficial trade leading to freer markets, fairer trade, and robust economic growth in North America. The USMCA seeks to re-balance trading relationships in North America through having changed the legacy NAFTA provisions on investment protection, government procurement, and rules of origin for key manufacturing sectors, especially automobiles.

This Agreement also provides strong effective protection and enforcement through enhanced enforcement capabilities and unprecedented incorporation of the three customs administration best practices, in areas such as trusted trader and authorized economic operator, single window, risk-based analysis, targeting, trade advisory committees, and post-clearance audit. Additionally, it also addresses a new competition policy provision, expending on provisions of legacy NAFTA, to ensure fair competition by requiring parties to adopt and maintain laws against anti competitive business conduct. As for Rules of Origin, the USMCA will be more liberal for some products and stricter for others. Overall, the rules of origin promote production in North America, streamlining certification and verification rules of origin and strengthen enforcement.

USMCA, just as NAFTA once was, is extremely important to the economic recovery of Mexico, and North America as a region. The Mexican President came to Washington DC to convey exactly that when meeting with President Trump. USMCA signifies, or can even be the driver, for productivity working towards attracting investments for job creation, and ultimately for more welfare. That being said, customs authorities are fully engaged and committed to a successful implementation of this agreement. Knowing that such an implementation is paramount to this end. Customs authorities view themselves as partners to companies involved in the trade community, helping you comply with the agreement.

CBSA is responsible for Customs administration in Canada ranging from the risking and processing of commercial goods, per the assessment and reassessment of duties and taxes as well as enforcement of compliance directed by international commitments, domestic law, and security policy procedures. With regards to DGF trade and Dumping program in Canada, CBSA plays a key role in implementing Canada’s commitment in three areas:

1. Origin procedures.
2. New chapter on customs and trade facilitation Chapter 7; and
3. Trade remedies (e.g. anti-dumping)

When it comes to the Agreement and its implementation to Customs, it is safe to say there’s a dual process to the improvements being brought to bear. The first being, the drive to modernize and streamline customs experience, through the adoption of E-solution by reducing unnecessary and unjustified red tape, simplifying procedures, and standardizing how customs works. That thrives to modernize is backstopped by a clear focus on ensuring that the rules are enforced effectively and appropriately by each party. The compliance enforcement is grounded, transparent, predictable expectation in procedures, but due regard to privacy and confidentiality, and close collaboration across customs authorities.

Importers and producers can be a certifier and whoever certifies must have the records to show proof upon request. However, as such, they will have full appeal rights as well. Must provide clear facts establishing origin.

Diaz Trade Law’s President, Jennifer Diaz, and Associate Attorney, Denise Calle provided a thorough review of the agreement in their article published in Bloomberg Law, titled USMCA Import Considerations for Practitioners.

FORCED LABOR 

Unfortunately, the use of forced labor worldwide is extremely prevalent. Currently, roughly 40 million people are victims of modern slavery; over half, approximately 25 million, are victims of forced labor, specifically. Furthermore, over 150 million children around the world are laborers, rather than students. The use of forced labor is not only common but exceptionally profitable. In fact, behind drugs and weapons, Human Trafficking (which encompasses forced labor) is the third most profitable illicit trade, with an annual trade value of more than $144 Billion. According to the Global Slavery Index, the US imports the following items produced by forced labor:

• Electronics ~ $91 Million
• Clothing/Textiles ~$47 Million
• Cocoa ~ $1 Million

Thankfully, U.S. Customs and Border Protection has been working to curb this inhumane practice. The relatively recent push to fight forced labor came about with revisions to Section 307 of the Tariff Act of 1930. Section 307 of the Tariff Act of 1930 codifies into law the prohibition of importing items produced -wholly or in part- by the use of forced labor.

The Trade Facilitation and Trade Enforcement Act of 2015  ended the “consumptive demand” clause in 19 U.S.C. § 1307, which had previously allowed for the importation of goods that had been partially produced by forced labor. Since its repeal, CBP, in partnership with U.S. Immigration and Customs Enforcement, has been actively investigating allegations of forced labor around the globe, examining various supply chains in order to curb the illicit practice. According to CBP, the agency does not target whole product lines or industries, rather it focuses on information regarding specific actors and their merchandise.

The strategic use of Withhold Release Orders (WROs) on certain industries and nations has had a notable effect on mitigating this practice. Since May 2016, the US has implemented 19 WROs, which has had ripples world-wide. Another integral aspect aiding in this effort is Executive Order 13923 and the broad authority it grants to the newly established Forced Labor Enforcement Task Force. This EO aims to strengthen the task force monitoring the prohibition on the importation of goods produced by (or with) forced labor. Today, there is a joint effort between Non-profits, government agencies, as well as private industries to cooperate in quelling this international crisis.

What Can You Do to Address Forced Labor?

According to CBP, importers must exercise reasonable care and due diligence to ensure that forced labor is not included in any aspect of their supply chain. To effectively do this, importers must include forced labor into their internal risk assessment. CBP recommends referencing the International Labour Organization’s eleven (11) Indicators of forced labor, which are:

1. Abuse of Vulnerability
2. Restriction of Movement
3. Withholding Wages
4. Deception
5. Isolation
6. Physical & Sexual Violence
7. Intimidation & Threats
8. Retention of Identity Documents
9. Debt Bondage
10. Abusive Working & Living Conditions
11. Excessive Overtime

Have you taken reliable measures to ensure that you are not inadvertently using forced labor at any point of your supply chain? Ask yourself these 12 questions.

CTPAT

Customs-Trade Partnership Against Terrorism (CTPAT) is a voluntary partnership program between CBP and industry to protect supply chains, identity security gaps, implement specific security and trade compliance best practices, and maintain the integrity of low-risk cargo entering the US. CTPAT has about 11,400 members in the program and 350 trade compliance members. Due to COVID-19 companies have been withdrawing from the program. Out of 100+ Companies that have withdrawn from the program stems from financial reason or change of habits of supply, and not necessarily due to the minimum-security requirement. Pandemic or not, this program is something that companies in the industry need to adhere to.

Companies were given multiple opportunities during the pandemic to provide the information they needed for minimum security criteria that were due in 2018- 2019. Companies were given an ample amount of time to get to what they need to be with the validation report and responses to them but unfortunately plenty of companies have not been responding. Those companies represented about 53% of the total cargo coming into the US by value. Overall, 52 companies have been suspended this fiscal year and 14 of them since January 1. Those 14 companies were suspended not because of what they did in 2020 but what they did not do in 2019, and for some that were due to failure to respond within 30 days. Suspension leads to removal.

CBP is in the process of updating its bulletin on suspensions, removals, appeals, and the reinstatement process. (within the coming weeks). CBP recognizes that seizures have been affecting CTPAT partners. However, with staggering data relating to Narcotics seizure in the South West borders (e.g. methamphetamine and fentanyl) in the commercial environment. CBP is seeking help from partners and CTPAT members to do the right thing by training their employees and giving notice that something may be wrong with shipments. Seizures of Meth have doubled this fiscal year. Have had a number of companies notifying their supply chain specialist telling CBP things they are finding within their supply chain, leading to seizures in the border.

With regards to forced labor, CBP ensured that forced labor was a part of the new minimum-security criteria and was included as a “should”. Companies should have a social compliance policy in place and be transparent as to any discrepancy going on in the supply chain (e.g. drug smuggling from suppliers).

All scheduled in-person validations were postponed indefinitely, on Friday, March 13. At that time, it became clear that CTPAT needed a new approach to its validation process and the ability to validate members without traveling. So far, a few test cases have been conducted with members, while others are in the process of being conducted as well, which is helping how they will develop their internal policy moving forward. The program is working on finalizing its internal policy model along with conducting several more validation tests. CTPAT is tracking data of virtual validation tests to be assessed and compared to the in-person validation process. Once that has been finalized, that process will be scaled through training of SCS’s and most importantly to provide documentation to members on the updated process as well. CTPAT is planning on starting the virtual validation process at the start of fiscal year 20201. Regarding additional validation updates, those scheduled for 2020 (which they are unable to conduct) will be pushed to 2021. If a company is selected for virtual validation, it will always be a requirement of membership that they must uphold. However, CTPAT will work with companies to make reasonable accommodations on an as-needed basis. While finale decision is still forthcoming it is most likely that the 2021 validation cycle will be pushed to 2022. There is a potential for “self-certification”. Still in discussion, but any company considered for this would be based on their demonstration of being very low risk. CTPAT is also working on a long term validation process (e.g. Enhancement and Capability to conduct live facility tours, as well as Interviews with secure tool).

This enhanced platform for members and SCS’s is to conduct live interviews and upload facility tours and additional videos, to enhance proof of compliance with MSC and to reduce reliance on visiting member facility in person. This will help reduce administrative burning and generate additional time for SCS’s to tailor their assessment to focus further on critical areas of member risk and compliance.

Included below are helpful tips to navigate this process:

• First step: identify activity to automate and streamline the virtual validation process
  • Data
  • Document for member upload
  • Pre-validation information
  • Electronic communication
  • Secure data exchange with members, government, and MRA partners.
• Cognitive analytics and anomaly detection for virtual validation, research analytics tools that can help CTPAT assess member risk and flag threats based on validation, to inform risk-based validation actions in training and mass aggregated view of member supply chain risk trends.
• This process came about, similar to cybersecurity, was to navigate through this world of the virtual platform and actually see what the government (e.g. CBP and CHS) had in their repertoire to go through this new process.
  • Supply chain specialists will be able to establish their own private room (i.e. private connections) and invite important members or points of contact, subject matter experts – to the virtual validation, knowing that this link is as secure as it can be from a federal point of view.
  • CTPAT will always be a boot on the ground program. That is the methodology of this entire process, which is to physically go and view supply chains. SCS’s will visit facilities and every member at that facility will gain the knowledge and experience about the supply chain that is sorely needed.
  • CTPAT continues to learn from this process. Developing a risk-based approach (SOP) to make sure that candidates for virtual validation are recognized. A low risk-based operation, not a one size fits all. Not everyone eligible for virtual validation.
• Virtual Validation is another tool in CTPAT’s toolbox. Although it continues to learn from the process, CTPAT will always be a boot on the ground program.

Diaz Trade Law’s President, Jennifer Diaz, and Associate Attorney, Denise Calle provided an in-depth discussion of the relevant changes in their article, CTPAT Minimum Security Criteria Changes, published by Bloomberg Law.

E-COMMERCE

E-Commerce is one of the fastest-growing sectors of the US economy. Although E-Commerce has become increasingly more common over the past several decades, since the onset of the pandemic in early 2020, the prevalence of E-commerce has propelled by 3-5 years. Not only did the value of e-commerce in the second quarter of 2020 (Q2) see a 45% increase from the same time last year, but also, currently, more than 1 out of every $5 (28%) spent in the United States is related to e-commerce! Below are some e-commerce statistics CBP presented:

• $2.29 trillion in sales (globally)
• 80% of American use at least 1 e-commerce platform
• Nearly 2 Million mail and express shipments enter the US each day; FY 2019 volumes exceeded 600 million shipments
• Over 90% of all IPR seizures occur in the mail and express environments

E-commerce’s share of the market had been growing for years prior to the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA).  In TFTEA, CBP raised the De Minimis value, i.e., the value of a shipment of merchandise imported by one person in one day that generally may be imported free of duties and taxes, from $200 to $800 per shipment. The Section 321 Program provides admission of articles free of duty and of any tax imposed on or by reason of importation, but the aggregate fair retail value in the country of shipment of articles imported by one person on one day and exempted from the payment of duty shall not exceed $800.

The increased definition of “low valued” shipments has seen an accompanying growth in the use of the Section 321 Program. This substantial increase, coupled with a reactive, rather than a proactive federal government has worsened CBP’s ability to efficiency enforcement the required measures. Today, some of the major challenges posed by the growth of E-commerce are:

• As volumes of small e-commerce packages grow rapidly, the inspection challenges intensify
• Transitional criminals ship illicit goods via small packages due to perceived lower interdiction risks and less severe consequences
• High volumes of small packages make it difficult to scale processes and procedures
• Domestic buyers are vulnerable to substandard products

The central message of the e-commerce webinar is modernization. The exponential growth of this eclectic industry has left a gap between private actors and the government agencies tasked with its regulation.  To begin to close the gap between regulations and innovations CBP has laid out four (4) concrete goals:

1. Enhance legal and regulatory authorities to better address emerging threats
2. Adapt all affected CBP operations to respond to emerging supply chain dynamics
3. Drive private sector compliance through incentives and enforcement resources
4. Facilitate international standards for e-commerce to support economic prosperity

Today, the US government partners, the trade community, and foreign customs agencies are cooperating to modernize e-commerce in an efficient and effective manner. The key tenets of bolstering e-commerce enforcement and facilitation are:

• Coordinating on actions set forth in the DHS Report on Combatting Trafficking in Counterfeit and Pirated Goods.
• Coordinating on actions set forth in the Executive Order Ensuring Safe & Lawful E-commerce.
• Establishing an international Framework of Standards for e-commerce through the World Customs Organization
• Applying enhanced Section 321 Data Pilot and Entry Type 88 Test Data (125 Million+ shipments to date) to identify and segment risk
• Leveraging data collection efforts to drive enforcement, enhance trade facilitation, and inform updated regulations
• Creating a predictable enforcement environment and addressing duty evasion by issuing an administrative ruling clarifying Section 321 eligibility.

21^st CENTURY CUSTOMS FRAMEWORK (21CCF)

CBP is a diverse agency and their responsibilities are not limited to just border security, instead, they act as a national security agency. With the ever-changing market conditions within the trade community, as they face new and unforeseeable challenges increasing the urgency to adapt, the U.S. government has been required to act now and set the stage for sustainable success.  Now more than ever, the trade community needs to adapt to cutting off trade rather than increasing trade and maintaining that kind of effect further down the line in case of a force majeure. In today’s world the market condition of the trade community and the challenges they face pertain to.

• The Expansion of the global marketplace
• The rapidly changing technology
• The Emergence of e-commerce
• Forced labor and unethical trade practices
• IPR infringement; and
• Product quality and safety concerns.

CBP’s 21^st Century Customs Framework (21CCF) stems from such unprecedented obstacles in an effort to tackle challenges, leverage emerging opportunities, and achieve transformational long-term changes. With collaboration amongst government agencies, the trade community (e.g. partners and trade agreement members), and Congress the five pillars of the 21CCF as they move towards modernization is,

• To enhance facilitation and security through 21 Century processes
• To define customs and trade responsibilities for emerging and traditional actors
• To ensure seamless data sharing and access
• To employed intelligent enforcement; and
• To protect and enhance Customs infrastructure through secure funding.

As such, these five pillars will be a game-changer for trade centers and government agencies and will further enable them to transform how they facilitate and effectively enforce trade. The 21CCF vision is to drive change by achieving end-to-end supply chain transparency, driving and facilitation data-centric decision making, and decentralizing and diversifying reasonable care standards. As a result, the U.S. government seeks to ensure that legitimate goods are never subject to unexpected delays at the border; that forced labor continues to be reduced within the supply chains; that seamless data sharing enables the same day order fulfillment around the globe; that trade capabilities can scale indefinitely with volume; and lastly, that security and speed no longer remain competing priorities. Through its 21CCF the U.S. government lead the world with innovative trade policy. As companies continue to divert their supply chain across the globe, e-commerce grows more and more as a crucial aspect of the trade community. CBP must look closely at what the future trade landscape is, especially with companies located globally. CBP seeking to evolve in this changing time, through partnership with another governmental agency (e.g.  US of Chamber of Commerce) to help each other adapt to new technology and ensure the on-time sharing of information. CBP asserts that this new initiative will have an extreme impact with all sectors having an equal share of the end game to ensure complete and accurate data collection. This data information is intended to be gathered from the right people, by the right people, and at the right time to properly enforce compliant trade. Today’s Technology is available for the use of proof of origin, proof of concept, IPR proof of concept, and the same for steal and pipeline exports. The U.S. government continues to take advantage of verifiable credential technology, which creates an underlying sense of trust, reduces fraud, and drives efficiency. The steps to such verification of data comprise of:

• Issuer created data credential
• A holder who stores the data credential; and
• Verifier who assure everything is correct.

Data will be made available to all parties. The owner of the data is responsible for what can be shared. They may also choose what data to share and with whom they are being shared. While it is all secured, there is a possibility that bad data be shared. With 21CCF, if bad data is given then the party responsible can be held accountable, as it helps identify discrepancies and anomalies. While Blockchain, which is most simply defined as a decentralized, distributed ledger that records the provenance of a digital asset, is not the only technology out there but was recommended by COAC. Proof of concept is proving very worthwhile and CBP along with other governmental agencies have had some positive feedback. That being said, some of the most important things to overcome across CBP are identifying the responsible parties and holding them accountable (starts and usually ends with importers), but they hope that they will be able to expend to others in the supply chain. The data discussion (i.e. what is being collected, who should be collected, and who already is providing data). Technology is here, but with that biggest challenges would be the legal aspect to it such as statutes and regulations in place for data being capture and who it is being captured from, along with funding. Taking modernization work and extending it for there to be one governmental control for imports and exports.

Have questions about the above topics or any CBP matter generally? Contact our Customs and International Law attorneys at 305-456-3830 or info@diaztradelaw.com.

Hong Kong’s unique political situation as an autonomous city-state initially called for specially tailored laws and regulations governing items imported into the United States. For more than 20 years the US recognized the separation between China and Hong Kong, evidenced by the requirements to distinguish between the two. Additionally, in light of the Section 301 investigation of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation; as well as the regime’s human rights and forced labor abuses, the United States is especially keen on identifying items produced in China.

On July 14, 2020, the President signed an Executive Order on Hong Kong Normalization. The Order states that China’s unilateral and arbitrary imposition of national security legislation on Hong Kong in May 2020, “was merely China’s latest salvo in a series of actions that have increasingly denied autonomy and freedoms that China promised to the people of Hong Kong under the 1984 Joint Declaration of the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the People’s Republic of China on the Question of Hong Kong (Joint Declaration)”.

China’s forced absorption of the formerly sovereign city has led to, “the determination that Hong Kong is no longer sufficiently autonomous to justify differential treatment in relation to China”. In this vein, the August 11^th Federal Register Notice details the administration’s decision to suspend the application of section 201(a) of the United States-Hong Kong Policy Act of 1992 and section 304 of the Tariff Act of 1930, with respect to imported goods produced in Hong Kong. 

In practice, this means that all goods produced in Hong Kong and destined for the United States are now to be marked as items “Made in China”. Although the announcement is technically applicable as of July 29, 2020, there is an implementation transition period for importers, which ends on September 25, 2020.

The administration has not yet clarified, although we can reasonably imply that items imported from Hong Kong, once legally marked with a country of origin as “Made in China” will now be subjected to China Tariffs. For background information on China Tariffs and numerous ways to mitigate the effect of the China tariffs, check out our previous blogs. Diaz Trade Law has assisted clients in assessing their best options to prepare or mitigate the China tariffs and submitted comments and exclusion requests. Our Customs and International Law attorneys are available at 305-456-3830 or info@diaztradelaw.com.

According to the DHS, Blockchain and Distributed Ledger Technologies (DLT) have great potential to greatly enhance the US government’s ability to deliver services to organizations and citizens. In fact, DHS states that these technologies will enhance “transparency and auditing of public service operations, greater visibility into multi-party business operations, and automation of paper-based process to improve the delivery of services to organizations and citizens.”

These technologies may aide multiple Executive Agencies, such as CBP, USCIS, and TSA in the execution of their respective objectives. Currently, these agencies must issue a variety of documents, all of which are currently paper-based and effectively “susceptible to loss, destruction, forgery, and counterfeiting.”

DHS published a guidance document, entitled, Preventing Forgery & Counterfeiting of Certificates and Licenses: Other Transaction Solicitation Call, to explain the application process to become part of SVIP. This guidance document provides a range of Hypothetical Scenarios which highlight specific areas of potential improvement via technological advancements. The most reoccurring characteristics of the scenarios lie in the ability of Blockchain and DLTs to secure and improve the efficiency and effectiveness of government agencies. The following are examples of the various hypotheticals provided:

• TSA: Hypothetical Scenario I – TSA currently checks passengers through manual, human inspection by Officers at airports and intends to move towards automatic, electronic verification through the use of DLTs and Blockchain tech
• CBP: Hypothetical Scenario II – CBP, as well as other groups, is charged with the responsibility of securing supply chains, and enforcing intellectual property rights. The given technology evidently would improve authentication and validation of organizations and individuals alike, holistically aiding the agency in their overall objectives.
• Hypothetical Scenario III: Tribal Identity Documents for Travel – Because Tribal Jurisdictions within the US have the authority to issue documents that TSA and USCIS may accept for domestic flights, and other uses, the current system requires institutional improvements. The vast amounts of both the number of federally recognized tribes, as well as the types and variations in the documents these tribes may issue,  digital integration of the issuance, authorization, and inspection of documents, would streamline, and strengthen the typically lengthy and relatively un-secure process.
• Hypothetical Scenario IV: Citizenship, Immigration and Employment Authorization – USCIS (attempts) to administer the US’ legal immigration system and is the agency tasked with the issuance of documentary evidence of citizenship, immigration, and employment authorization. Virtually the entire legal immigration requires an overhaul in order to enhance verification while expediting the infamous process. The application of the proposed technologies will help to integrate the multifaceted relationship amongst agencies while providing various agencies the ability to manage the lifecycle of given credentials (electronic documents) without concern of their validity.
• Hypothetical Scenario V: Cross-Border Oil Import Tracking – Oil pipelines work similarly to private railroads, in the sense that given oil products must apply to be admitted into a given pipeline to eventually enter the US. In this instance, in relation to oil trade between Canada and the US, the current process for admission, pricing and organization are done nearly entirely manually, which is extremely complex. The introduction of the discussed technologies will enhance the associated agencies’ and parties’ ability to accurately import and apply duties to oil under the tentative USMCA. Specifically, the technology will track the evidence of the oil flow, and attribute oil imports with the accurate composition and country of origin.
• Hypothetical Scenario VI: Origin of Raw Material Imports – Many industries rely on the transaction of raw materials, including timber, diamonds, and precious metals. Currently, CBP relies on the country of origin data from importer documentation, which makes the task of confirming the material’s country of origin extremely costly and subject to potential inaccuracy.  Additionally, when products are sourced from numerous countries it may be difficult to prove the product is compliant with the origin requirement of a free trade agreement. Technology can be a solution to illicit importers attempting to illegally import items with a false country of origins to evade China tariffs or anti-dumping duties, resulting in a major loss of duty revenue to the US. Blockchain and DLT technologies will enhance agencies’ ability to track and confirm the accurate flow of raw materials, and other similar items, from point of origin all the way to the consumer. This will ensure that imported goods come from trusted individuals, rather than terror organizations or from forced labor.

With the growing concerns over data protection and data privacy, the issue of digital security has become significantly more important.

The US government’s commitment to technological advancements and intra-agency efficiency is highlighted by their initiation of programs, such as the SVIP. In the coming months and years, we expect to see more executive agencies follow the lead of DHS in establishing specific research and development projects that scout and recruit private entities to aid in the facilitation of a more effective and efficient public sector.

This program appears to signal an influential and relatively monumental direction for the government to explore. If SVIP renders valuable results, expect more exploratory committees into technological fields that may provide opportunities to private entities that help update and improve current areas governed and managed by the public sector.

While the trade war continues, neither side seems ready to reconcile. In early May, the two parties came close to a consensus. According to President Trump, China backed out of the deal, re-igniting tensions. In response to China reneging on the tentative agreement, President Trump called for an additional 25% tariff increase on Chinese Products on List 3.

China’s Retaliatory Tariffs

In response to the US’ call for an increase from 10% to 25% on Chinese goods for list 3, China announced their own increase. China’s proposes tariffs on over $60 billion in US goods will go into effect June 1, assuming negotiations remain stagnant. China breaks down the new proposition into four separate lists. According to China’s Ministry of Finance of the People’s Republic, the first list of roughly 2500 items would be subjected to a 25% tariff. The 1078 items in Annex 2, shall experience a 20% tariff increase; the 974 items of list 3 (Annex 3) shall undergo a 10% tariff, and the 595 items in Annex 4 would be subjected to a 5% tariff. Chinese list subjects over 5,000 US goods to tariffs as high as 25%.

U.S. Stands Ready to Strike Back

Considering the trade war essentially began over competition in technological industries, undermined by China’s abhorrent and blatant disregard for international trading norms, relating to intellectual property rights and narrowed to combat China’s Made in China 2025 plan, previous lists focused specifically on modern industries.

However, The newly proposed list of goods, however, slaps a 25% tariff on roughly 300 billion worth of goods. From food products to furniture, the proposed list would include “essentially all products not currently covered” under previously imposed lists including literally thousands of irrelevant goods.

According to USTR, the new list does not affect any good that already obtained an exemption from prior rounds, such as many medical products, as well as pharmaceuticals.

Interested in Submitting a Comment to Let USTR know Why Your Goods Shouldn’t be on the New List?

(USTR) is seeking public comment and will hold a public hearing regarding this proposed modification of the new list. Below are important deadlines to consider:

• June 10, 2019: Due date for filing requests to appear and a summary of expected testimony at the public hearing.
• June 17, 2019: Due date for submission of written comments.
• June 17, 2019: The Section 301 Committee will convene a public hearing in the main hearing room of the U.S. International

USTR requests comments with respect to any aspect of the proposed action, including:

• The specific tariff subheadings to be subject to increased duties, including whether the subheadings listed in the Annex should be retained or removed, or whether subheadings not currently on the list should be added.
• The level of the increase, if any, in the rate of duty.
• The appropriate aggregate level of trade to be covered by additional duties.

While the president attempts to place America’s interests first, the new list (along with the other lists) appears to afflict the very constituents he intends to protect. In addition to the list’s over-inclusion of non-intellectual property, many of the most affected businesses happen to be small and medium-sized business. Trump tells American companies to produce in the US in order to avoid hefty tariffs. Not only do these companies face illegal and unfair practices from their Chinese counterparts, but they also must cope with the tariffs levied on US imports. At the same time, many large companies, have greater means to either negotiate with their suppliers (while SME’s don’t) or pass the tariff costs to their customers. We encourage all parties impacted to provide comments to the USTR to have your voice heard, and fight to have your product excluded from the new list.

For background information on China Tariffs and numerous ways to mitigate the effect of the China tariffs, check out our previous blogs. Diaz Trade Law has assisted clients in assessing their best options to prepare or mitigate the China tariffs and submitted comments and exclusions. Our Customs and International Law attorneys are available at 305-456-3830 or info@diaztradelaw.com.

After the announcement, the ensuing backlash from Beijing, as well as trade talks in China, President Trump stated that he and Chinese president Xi Jiping are working together to bring ZTE “back into business”.

Now, the Trump administration threw a metaphorical lifeline to this tech giant, seemingly easing tensions with Beijing. Secretary Ross announced a $1.4 Billion dollar settlement with ZTE.

ZTE has agreed to severe additional penalties and compliance measures to replace the U.S. Commerce Department’s Bureau of Industry and Security (BIS) denial order imposed as a result of ZTE’s violations of its March 2017 settlement agreement.  Under the new agreement, ZTE must pay $1 billion and place an additional $400 million in suspended penalty money in escrow before BIS will remove ZTE from the Denied Persons List. These penalties are in addition to the $892 million in penalties ZTE has already paid to the U.S government under the March 2017 settlement agreement.

The announcement of a deal stirred up controversy in Washington, due to the administration’s uncertain stance towards China. The deal provides ZTE the opportunity to buy American parts, so long as it complies with specific parameters. The US not only levied over 1 Billion in penalties against ZTE, but also placed $400 million in escrow, in the event it reneged on the deal. The agreement will be enforced by a handpicked US compliance team, which will serve at the US Commerce Department for the next decade. The team is tasked with overseeing ZTE’s replacement of its entire board of directors, as well as oversight of general compliance.

The conditions set on ZTE to reenter the US are the toughest sanctions ever to be placed on a public or private company. Although the move faced backlash in Washington, “analysts say the ban is likely to have cost ZTE billions of dollars in lost revenue, tarnished its brand and strained its relationships with customers around the world”. As one of the largest and most profitable companies in China, ZTE, touting over 160 corporate and governmental clients worldwide, plays a vital role in the China’s functioning.

The initial announcement of ZTE’s ban, included “Commodity, Software or Technology” products as items prohibited to be sold or exported to ZTE. Effectively, the ban would do more than just tarnish the brand, rather it would have potentially ended ZTE’s ability to function as a mobile electronics production company.

While seemingly gracious for the Chinese government and the Chinese economy, the deal sets a precedent that sanction violators may never face severe consequences. Although the company must pay over $1 Billion in penalties, it was granted a gift. Assuming that they work within the confines of the deal, the penalties will be a minuscule price to pay, while ZTE maintains its position and its prowess.

President Barack Obama announcedWednesday that the U.S. and Cuba will now reestablish diplomatic ties and reopen embassies in their respective capitals. The announcement comes just one month after the Secretary of State removed Cuba from the State Sponsor of Terrorism list. Although it would take an act of Congress to lift the trade embargo, reopening embassies is another brick in the foundation of normalizing trade relations. With the new embassies opening in July, there will be greater contact between the US and the Cuban people which will ultimately lead to a change in the US’s attitude towards the trade embargo.

U.S. Customs and Border Protection (CBP) is set to launch Enforcement Link to Mobile Operations (ELMOcargo) at the Port of Miami. This technology will allow CBP Officers and Agriculture Specialists to release inspected cargo in real-time.

Currently, CBP Officers and Agriculture Specialists conduct inspections on site, but the subsequent release of cargo is delayed until field personnel return to the office and enter inspection results into their data systems.

With the implementation of ELMOcargo, field officers using handheld devices will be able to immediately clear containers. This device speeds up release time by up to four hours making operations more efficient while continuing to keep the Port secure.

CBP Agriculture Specialist recently started using this new technology as a pilot at other Florida ports and agreed to expand the program to Port Miami starting in January 2012.

About the Port of Miami
The Port of Miami is among America’s busiest ports and recognized across the globe with the dual distinction of being the Cruise Capital of the World and the Cargo Gateway of the Americas. The Port of Miami contributes more than $18 billion annually to the South Florida economy and helps provide direct and indirect employment for more than 180,000.

MEDIA CONTACT:
Andria C. Muñiz
305-347-4962
amuniz@miamidade.gov