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.

Established by the 1974 Trade Act, the GSP is the largest and longest-running preference program. It is designed to facilitate free trade amongst allies and interests of the United States, specifically focusing on economic development in “designated beneficiary” countries.

According to the Office of the United States Trade Representative (USTR), in order to earn the classification of “designated beneficiary”, a nation must meet the following criterion: affording workers’ rights to their people, enforcing intellectual property rights, and supporting the rule of law, as well as providing the US with reasonably fair market access.

The Trump Administration cited India’s failure to “provide equitable and reasonable access to its markets” as reasons for its removal from the program. Until its removal, India received more in US goods than any other nation. In fact, in 2017, India acquired $5.7 Billion from Duty-Free items exported to the US. However, similar to trade disputes with other nations, the Trump Administration seeks to better balance the playing field for American companies overseas.

Similar to tactics of other nations entrenched in trade disputes with the US, India appears to be targeting primarily agricultural goods, in an effort to affect Trump voters and their opinions of the president.

While the level of the proposed duties appear extreme, geopolitical norms suggests that India announced these tariffs for two reasons: (1) A form of retaliation for their removal from GSP, (2) as a means of getting the administration’s attention in order to renegotiate any sort of trade agreement in the near future.

Additionally, both the removal of India from GSP and the imposition of the proposed tariffs bode beneficial for no one. Not only do hundreds of US businesses, which account for billions of dollars in profit, oppose the decision, but also the US Congress and the Indian Government.

Due to the mutual disservice, the Trump Administration presumably initiated the process in order to provide the US with additional leverage going into trade negotiations. Negotiators last met in New Delhi on Friday, July 12, to no avail. Although there is no indication of exacerbation, and negotiators are set to meet in Washington in August, it appears that the two nations may be on the precipice of a growing trade conflict.

If these tariffs do go into effect, industries in both nations will suffer. Obviously, we hope this is not the case, but, if it is, don’t fret. Many involved parties are unaware of the various options available to mitigate import duties.

If you import or export items to or from India, contact Diaz Trade Law for assistance with any and all inquiries. Call us at 305-456-3830 or email us at info@diaztradelaw.com

This blog provides an easy reference overview of five (5) proven and legitimate options for duty-saving opportunities.

We recommend U.S. importers, exporters, and manufacturers to consider these five (5) options as they apply to all products from virtually any country subjected to a tariff, including Section 201 tariffs for solar systems, Section 232 tariffs for aluminum and steel, and the infamous Section 301 Tariffs in place for Chinese originating goods and violations of trade agreements, as well as acts, policies or practices that are unjustifiable,  unreasonable, or discriminatory and that burden or restrict U.S. commerce.

Your options:

1. Foreign Trade Zones (FTZ) or Bonded Warehouses
2. Duty Drawback
3. Tariff Engineering
4. Country of origin changes
5. First Sale 

FOREIGN TRADE ZONES (FTZ)/ CUSTOMS BONDED WAREHOUSES:

Foreign Trade Zones (FTZ) are secured areas outside of US Customs and Border Protection’s (CBP) jurisdiction. Although located in the United States, FTZs function similarly to Free Trade Zones and are located in or around CBP ports of entry. As prescribed by the Foreign-Trade Zones Act of 1934 (19 U.S.C. 81a-81u), the FTZ Board vests the authority to establish these facilities and cooperates with CBP to set regulations.

These facilities bode are beneficial for both exporters and importers due to their allowance to move merchandise into zones of operations, such as storage, exhibition, assembly, manufacturing, and processing. Since FTZs are in the US, they are subjected to Federal Laws, State and or local laws, as well as the restrictions and requirements prescribed by the FTZ board.

What may be placed in zones?

Unless prohibited by law or other exceptions listed by CBP, all foreign or domestic merchandise, whether dutiable or not, can enter an FTZ. While prohibited merchandise is, in fact, prohibited by FTZs, due to the disconnect with CBP, merchandise subjected to a quota may be placed in an FTZ until the quota is opened up or is removed.

Why FTZs?

When using an FTZ, the typical CBP entry process, such as payment of duties, does not apply to the foreign merchandise until it leaves the FTZ, entering CBP territory for domestic consumption. While the FTZ is, in fact, inside the US, it is not under U.S. Custom and Border Protection’s jurisdiction

To enter an FTZ or to ESTABLISH YOUR OWN FACILITY AS AN FTZ, Contact DTL for aide and guidance to ensure a legal and desirable option.

How Can I avoid Section 301 Tariffs Using an FTZ?

According to CBP, per the Federal Register Notice published by the USTR, any product which is subject to the additional duty imposed by this determination, and that is admitted into a U.S. foreign trade zone on or after 12:01 am eastern daylight time on July 6, 2018, only may be admitted as ‘privileged foreign status’ as defined in 19 CFR 146.41. Such products will be subject upon entry for consumption to any ad valorem rates of duty or quantitative limitations related to the classification under the applicable HTSUS subheading.

CUSTOMS BONDED WAREHOUSES

Bonded warehouses function similarly to FTZs, in that they are subjected to different rules and regulations upon the entry of merchandise into the US. These facilities, which have been around for over 150 years and allow for goods subjected to duties to be “stored, manipulated, or manufactured without having to pay the given duties. Essentially the warehouses, which are secured and supervised by the US government, enable companies to avoid a duty until the items leave the warehouse for consumption.

Bonded Warehouses serve almost like a “pause button”. Importers may hold their goods in the warehouse until they want to distribute the goods to consumers. Until the moment the item(s) leave the facilities, they are exempt from duties. This allows for importers to transfer their goods from warehouse to warehouse and allows for items to be held, manufactured, and or manipulated prior to paying any obliged duty.

If you wish to explore more deeply the intricacies, similarities, and differences between Foreign Trade Zones and Bonded Warehouses, check out our previous blogs for the more valuable insight!

How Can I avoid 301 Tariffs Using a Bonded Warehouse?

According to CBP, an importer could store section 232 or 301 applicable merchandise in a bonded warehouse and then export it to another country without having to pay the tariffs on it.  There is no special status for section 232 or 301 goods entered into a bonded warehouse and it serves as a great mechanism to mitigate the impact of Section 232 and 301 tariffs.

DUTY DRAWBACK

If you import products into the US only to export them to another country, you may be entitled to compensation for the duties paid upon importation to the US. Duty Drawback provides for the refund of up to 99% for certain duties, internal revenue taxes, and fees collected by CBP upon importation. The drawback may be granted only after the subjected item(s) have been either exported or destroyed (under CBP supervision). In order to receive a Duty Drawback, a Customs broker must file a submission to CBP on behalf of your company. While potentially beneficial, it is important to recognize that the duty drawback process is detailed and may span the course of months before any monetary compensation is retrieved. Some of the required information includes proof of the export or destruction, as well as proof that duty was originally paid. According to CBP, a bill of sale or airway bill is valid proof of export and a CBP Officer must witness the destruction of the goods. Without proof of export or the destruction, the claim is not substantiated.

Duty Drawback is available for Section 301 duties, but not for Section 232 duties; it is unclear that the president had the authority to eliminate drawback for Section 232 duties under his import authority.

TARIFF ENGINEERING

Essentially, tariff engineering is a method of altering the HTS classification of an intended imported good to benefit from a lower duty rate. Since CBP can only levy tariffs on the condition of goods as imported, tariff engineering gives importers the opportunity to redefine their imported products and pay lower duties. An importer cannot simply re-classify the exact same good under a different HTS (this would be evasion), rather the imported product must actually embody the qualities of another HTS, which happens to be duty-free.

In order to properly re-classify the imported good, importers should review the HTS chapter of the good and determine whether there is a more appropriate classification that has a lower duty (or even duty-free).  Additionally, slight deviations in packaging or how the product is purchased may change the classification of the product. For instance, product components may be imported separately and assembled in the United States; these components would be individually classified under HTSs that may have fallen into an entirely different tariff provision that has a lower duty (or even duty-free).

For the purposes of mitigating Section 232 and 301 tariffs, ensure your new classification is currently excluded from the China Tariff Lists and not subject to an additional 25 percent tariff.

While Tariff engineering exists in a legal gray-zone, Courts have frequently upheld the legality of the process since the 1880s. However, companies attempting to alter their products’ classification have run into problems.

The most notable recent dispute appeared in Ford Motor Company v. United States (2018). The case regarded Ford’s classification of imported vans. While Ford and the courts preceding rulings favor the legality of the company’s decision to modify the interior of the vehicle enough to earn the classification of a passenger van (subjected to a 2.5% ad valorem), and effectively avoiding the tariffs subjected to cargo-vans (subjected to a 25% ad valorem), the court ruled otherwise. This case, as well as other similarly controversial ones,  highlight the need for a cautious, concerted effort to both modify the imported good, while fully adhering to US law. DTL has successfully assisted multiple clients in their tariff-engineering efforts, resulting in a legal avoidance of potentially crippling duties.

COUNTRY OF ORIGIN CHANGE 

An additional option is to consider relocating operations or your sourcing country, i.e., the product’s country of origin. If a given country has exceptionally higher duties for imports than a comparable third country, move your supply chain to the duty-free nation.  While potentially costly to initially relocate, changing the country of origin will allow you to import the exact same item(s) without paying the additional duties. If considering this option, one must be cognizant of the list of nations that have a free-trade agreement with the United States. Even though another nation may not be subjected to substantial duties, shifting your supply chain to a nation that has a formal, free and fair-trade agreement with the US ensures accountability and reliability.

FIRST SALE 

First Sale is a system that decreases the dutiable value of imported goods by authorizing importers to use the price paid in the first sale. It allows an earlier sale to be used in declaring customs value as long as that sale can be documented as a sale for exportation to the United States and the importer meets all other Customs requirements.

Consequently, that equivalent value is assigned according to the transaction between the manufacturer and the middleman not between the middleman and the new buyer. The First Sale benefit is available to all importers that meet the above criteria. We are currently seeing importers subject to China tariffs avail themselves to this duty savings opportunity. Importers subject to high duty rates or high middleman markup and have a cooperative relationship with the middleman would greatly benefit from the First Sale valuation option.

More information on First Sale read our blog on “USING A MIDDLEMAN? LEARN HOW TO LOWER YOUR CUSTOMS VALUE USING FIRST SALE!“

Importers, exporters, and manufacturers should consider this five duty-saving (5) options when negotiating trade deals to mitigate the impact of tariffs, including Section 201, Section 232, and Section 301 tariffs. To assess your specific business and product to determine your duty-saving opportunity, contact our international trade law attorneys at info@diaztradelaw.com or 305-456-3830.

The effective date of the imposition of the additional tariffs are as follows:

• 10% on July 1;
• 15% on August 1;
• 20% on September 1;
• 25% on October 1.

On February 15, 2019, President Trump issued a declaration of a National Emergency arguing that “the current situation at the southern border presents a border security and humanitarian crisis that threatens core national security interests and constitutes a national emergency.” President Trump stated his authority to impose the additional tariff is pursuant to the International Emergency Economic Powers Act (IEEPA) of 1977. IEEPA grants unilateral presidential power to regulate the economy in response to any unusual and extraordinary threats to the US. President Trump invoked his legal right to regulate the economy in the White House statement, dated May 30, 2019, when it asserted that “Mexico’s passive cooperation in allowing this mass incursion constitutes an emergency and extraordinary threat to the national security and economy of the United States.”

According to Secretary of Homeland Security, Kevin McAleenan, the number of illegal immigrants crossing our border has increased significantly over the past few months. In fact, McAleenan states that “[t]he month of May is on pace to be the highest month in crossings in over 12 years and will significantly surpass the record 109,000 in April….”

While IEEPA undoubtedly vests the authority to regulate aspects of the economy, section 1702, which prescribes which actions may be taken by the President, it is silent as to whether the imposition of additional tariffs is permitted. The White House Counsel has yet to explain its full legal rational, and many expect this decision to be challenged in courts.

Not only is the scope of authority and the imposition of additional tariffs questionable, but questions also remain regarding the US compliance with World Trade Organization regulations, as well as whether the imposition of tariffs is authorized under NAFTA (or the still in negotiation)  United States-Mexico-Canada Agreement (USMCA). The purpose of the USMCA (the “NAFTA 2.0”) is to align the trade agreement with the current trade environment.

Vice President Pence recently stated, “Congress should pass USMCA this summer”. With negotiations still underway, the threat of these additional tariffs also threatens the timeline for USMCA.

Mexican President,  Andres Manuel Lopez Obrador, replied to President Trump’s tweet with his own and had separately directed the Mexican senate on Thursday to set up sessions regarding the USMCA, in order to ratify the agreement in an expedient fashion. However, these recent tariff developments may stymie discussions.

Considering that the costs of tariffs falls on the importer and that the importer typically then passes that costs onto the consumer, many claim that these tariffs will only harm consumers in the US. However, White House spokesperson Hogan Gidley articulates, “Illegal immigration comes at a cost. The American taxpayer is paying for what’s going on at the border.”

With Democratic representatives refusing to fund the Wall, the White House has reverted to other means of securing our nation’s border, one of the fundamental obligations as President. Prior to the tariff announcement, President Trump released a video of the largest apprehension of illegal immigrants inside of the United States:

Diaz Trade Law will be monitoring the ongoing trade war, and keeping our readers updated. Our Customs and International Law attorneys are available at 305-456-3830 or info@diaztradelaw.com.

The TPP covers almost 40 percent of the goods and services produced in the world.  The United States ships more than $1.9 billion in goods to TPP countries every day. One of the main objectives of the TPP–according to USTR and the Obama administration–is to cut the “red-tape of trade,” by reducing costs and making CBP more efficient. Specifically, the TPP looks to create commitments that would ensure the quick release of goods through customs.

The TPP is not the only trade deal the Obama administration has in their sights. The U.S. Trade Representative, Michael Froman, looks to tie up the Transatlantic Trade and Investment Partnership Agreement (TTIP), the World Trade Organization’s Information Technology Agreement, the Environmental Goods Agreement, and the 24-party Trade in International Services Agreement.

In 2014, there were over 23,000 intellectual property rights seizures by U.S. Customs and Border Protection (CBP), with the property seized having an estimated MSRP value of $1.2 billion. According to a recent report published by the Office of the U.S. Trade Representative (USTR), U.S. made exports that rely heavily on IP law protection are a central source of domestic economic development, with tens of millions of Americans owing their jobs to intellectual property-intensive industries. It is no wonder why the U.S. and Japan, who jointly in 2013 brought in almost half of the worlds intellectual property revenue, are currently advocating for stronger protections for patents, trademarks, copyrights and other intellectual property while negotiating the Trans-Pacific Partnership (TPP).

Although the details of the TPP are locked behind closed doors, there is a lot of opportunity in multiple industries, innovative and high technology products as well as agricultural. The USTR has advised:

The United States exported more than $622.5 billion of manufactured products to TPP countries in 2013. With the elimination of TPP countries’ tariffs on manufactured products, including innovative and high technology products, such as industrial and electrical machinery, precision and scientific instruments, and chemicals and plastics, U.S. products will compete on a more level playing field with goods from TPP countries’ other free trade agreement (FTA) partners – including China, India, and the EU. As just one example, certain U.S. auto parts currently face a 27-percent tariff entering Vietnam. Other countries that have an FTA with Vietnam, such as China, Thailand, and Indonesia, export their auto parts to Vietnam duty free. By eliminating duties U.S. auto parts companies face, TPP would help boost their competitiveness in the Vietnamese market.

Twenty percent of U.S. farm income comes from agricultural exports and those exports support rural communities. In fact, U.S. food and agricultural exports to the world reached an all-time high in 2013 of over $148 billion. Of that total, we exported more than $58 billion to TPP countries – a figure that would increase as a result of tariff elimination under TPP. As just one example: U.S. poultry currently faces a 40-percent tariff in Malaysia. U.S. poultry would become more affordable in Malaysia under a TPP agreement that reduces these duties to zero.

If you export high tech or agricultural products, and want to stay informed on how to properly take advantage of duty free treatment once the TPP is in place, contact me anytime at jdiaz@bplegal.com.      

A previous post discussed the expiration of GSP and need for congressional action to renew it. GSP expired July 31, 2013. Importers were advised to continue to use the Special Program Indicator (SPI) “A” when importing into the U.S., which would signify a valid claim for GSP but to pay duty subsequent to that date, so that in the event of a retroactive renewal, CBP could process refunds automatically.

Unfortunately, the picture above is still correct – the trade community is in limbo – will we get our duties refunded if we are entitled to GSP?  The answer… Yes, Maybe, No.  Not comforting or reassuring.

Today, CBP advised the trade community that:

.. neither requests to extend liquidation under 19 CFR 159.12, nor protest under 19 CFR Part 174, should be used to stop the liquidation of claim potential subject to GSP in anticipation that GSP will be renewed. Assuming that the goods were properly classified and appraised, they should be liquidated as scheduled. CBP does not have the legal authority to further extend liquidation pending possible renewal of GSP.

If GSP were to be renewed, the legislation would specify an effective date of for the date of renewal. The renewal date, if GSP is reauthorized, might or might allow for retroactive claims. On previous occasions when GSP was renewed retroactively, the legislation authorized CBP to disregard liquidation status in determining GSP eligibility and consequent refunds.

If you have any questions on Free Trade Agreements or GSP issues, please contact me anytime at jdiaz@bplegal.com.

• Importers should pay the normal trade relations (column 1) duty rate but continue to flag GSP-eligible importations with the applicable SPI (“A” or “A+” until further notice. If the program is renewed with a retroactive clause, use of the SPI will allow CBP to process automatic duty refunds. No corresponding procedure is available for the ATPA or ATPDEA programs. [MAKE SURE YOU DISCUSS THIS WITH YOUR BROKER AND DO SO!]

• Goods eligible for preference under African Growth and Opportunity Act (AGOA) may continue to receive preference on tariff items displaying SPI “A,” “A+” or “D” in the “Special” column of the Harmonized Tariff Schedule of the United States (HTSUS).

• The expiration of GSP has no impact on the payment/non-payment of the merchandise processing fee (MPF).

The conference is in conjunction with Enterprise Florida’s Trade Mission to Colombia led by Florida’s Governor Rock Scott. The purpose of the half day conference is to address the current environment of big business opportunities in Florida, especially in light of the new U.S.-Colombia Free Trade Agreement (FTA).

Other panels include: The U.S. Economy and Investment Opportunities; Rules of Origin & Trade Facilitation (Compliance with the new FTA); Business Opportunities in Infrastructure and Utilities. All panelists will be available for question and answer sessions as well.

Colombia is the fifth largest economy in Latin America, with a population of approximately 45 million. During the last decade, improvements in security and political stability have fostered economic growth and a secure business climate. With 4 percent GDP growth in 2010 and an estimated 4.6 percent growth in 2011, the Colombian market presents unbounded opportunities for Florida companies.

You may register and view the agenda here.

See you in Bogota!

Co-authored by Carlos Gimenez.

Just because you are importing a product from a party to the DR-CAFTA Free Trade Agreement, does not necessarily mean that the product will be granted DR-CAFTA treatment by U.S. Customs & Border Protection (“CBP”). Even if 95% of the product is made from components that all originate from DR-CAFTA party nations, that still may not be enough.

If the product has one component that originates outside of DR-CAFTA parties, whether or not the product will receive DR-CAFTA treatment will rely heavily on General Note 29(n), Chapter 61, Chapter rule 2, which states:

For purposes of determining whether a good of this chapter is originating, the rule applicable to that good shall only apply to the component that determines the tariff classification of the good and such component must satisfy the tariff change requirements set out in the rule for that good. If the rule requires that the good must also satisfy the tariff change requirements for visible lining fabrics listed in chapter rule 1 to this chapter, such requirement shall only apply to the visible lining fabric in the main body of the garment, excluding sleeves, which covers the largest surface area, and shall not apply to removable linings.

Case in point, a client requested an alaysis of whether DR-CAFTA would apply to a garment produced of components that all originated in DR-CAFTA party countries, with one exception, the lace that was used to create a decorative front panel. The lace portion of the garment originated in Korea and it only accounted for roughly 17% of the material used overall. In this case, the analysis hinged upon whether or not the lace was the “component that determines the tariff classification”, and whether the lace provided the “essential character” of the garment. In this case, the determination was that the lace was in fact the essential character, DR-CAFTA treatment was precluded, and a tariff of 16.5% was applied. If the garment was subject to DR-CAFTA treatment, rate of duty would have been FREE.

The moral of this story, if you want to ensure that the product imported is entitled to DR-CAFTA treatment, do not add any components that would jeopardize that treatment without seeking and receiving an expert opinion and/or a Binding Ruling from CBP. The worst thing that could happen is to work so hard to avail yourself of DR-CAFTA treatment, only to have to pay a double digit tariff for not doing your homework.