Blog Post - Guilty Until Proven Innocent by Janet Labuda

The legal premise of innocent until proven guilty gets turned on its head with the passage of the “Countering America’s Adversaries Through Sanctions Act” known as CAATSA. At a government meeting last week representatives from the Departments of Homeland Security, State, Labor, and Treasury participated in a panel discussion of addressing North Korean forced labor in the supply chain.

A kickoff of the two hour meeting by Assistant Secretary (Homeland Security) Michael Dougherty and Deputy Assistant Secretary (State) Scott Busby set the stage for highlighting the seriousness of this enforcement focus that is starting to descend on the import community. The government officials were joined by Greg Scarlatolu, Executive Director, Committee for Human Rights in North Korea, and Bob Mitchell, Vice President, Responsible Business Alliance.

The panel focused specifically on CAATSA Section 321(B) which provides for sanctions on goods produced by North Korean forced labor. It was stressed that these sanctions are part of the Administration’s larger strategy regarding the denuclearization of North Korea.

The State Department indicated in the last call for information on forced North Korean labor from U.S. embassies around the world, 39 countries reported the use of such labor. In the latest call for information, the number of countries reporting the use of forced Korean labor has risen to 59. China exceeds the number of laborers followed by Russia, and various Southeast Asian nations along with those in Latin America. While North Korean forced labor has been used in the countries of the Middle East and Africa it appears that here it is part of a construction labor force.

Key industries where North Korean forced labor is used include textiles and footwear, mining, seafood, logging, and pharmaceuticals.

The panel stressed the need for comprehensive due diligence by and on behalf of U.S. companies involved in importing goods. Careful consideration of, and reasonable care with respect to, the different risks presented in your supply chain should always be taken into account when importing into the United States. Failure to do so will result in seizures, penalties, and possible criminal prosecution.

The presumed prohibition of merchandise mined, produced, or manufactured with North Korean nationals or citizens may be overcome by “clear and convincing evidence.” Clear and convincing evidence is a higher standard of proof than a preponderance of the evidence. Determining that the importer has met this standard will be under the authority of U.S Customs and Border Protection. Importers will have to show clear evidence that the goods were not produced with convict labor, forced labor, or indentured labor.

You are encouraged to read the newly published FAQ document which can be found posted on the Department of Homeland Security’s website. One area to note is section 8 of the document entitled: “What steps should my company take to ensure North Korean workers are not in our supply chain?” While many questions were raised regarding the due diligence aspect, the government was adamant that when it comes to due diligence there is no such thing as one size fits all. In addition, they stressed that use of prior disclosure may mitigate the penalty, but does not exonerate one from having committed a violation.

I highly recommend intense training on this issue and that someone in the corporate legal department and someone in the import compliance department join forces to ensure that strong corporate measures are in place to address this hot burner issue.

Please contact Vandegrift if you have received a CF28 on this issue or been contacted by directly by CBP regarding North Korea forced labor.

GSP Renewal Effective Date

On Friday, March 23, 2018, the President signed into law H.R. 1625, the “Consolidated Appropriations Act, 2018,” which in addition to providing full-year federal appropriations through September 30, 2018, extended GSP with retroactivity, from January 1, 2018, through December 31, 2020.

GSP-eligible importations continue to be flagged with the SPI “A” and pay normal duty rates until the effective date of the Act which is April 22, 2018.

Shortly after April 22, 2018, CBP will begin refunding GSP duties without interest, to the importer of record, for goods on entry summaries filed with SPI "A" preceding the tariff number, during the lapse period.

Please contact Vandegrift with any questions or concerns regarding GSP refunds.

US Trade Representative Announces List of Proposed Tariffs for Additional Duties on Chinese Goods

The US Trade Representative (USTR) has published a proposed list of products imported from China that could be subject to additional tariffs. These tariffs are in response to China’s unfair trade practices related to the forced transfer of US technology and intellectual property to domestic Chinese enterprises. The tariff sectors include industries such as aerospace, information and communication technology, robotics, and machinery. 

Once the list is published in the Federal Register, there will be a 30 day period allowed for written comments. After consultation with appropriate agencies and committees, the USTR shall, as appropriate, publish a final list of products and tariff increases, if any. Should the additional tariffs go into effect, the rate will be 25% in addition to the existing duty rate. 

Any merchandise subject to the increase tariffs admitted into a US foreign trade zone on or after the effective date of the increased tariffs would have to be admitted under privileged foreign status and would be subject to the additional duty upon entry for consumption.

The complete list of tariff subheadings is available here.

President Signs Omnibus Trade Bill

The President has just signed the $1.3 trillion Omnibus Trade Bill into law.  The Bill includes a three year GSP extension and will provide retroactive benefits for goods normally eligble for the program after it lapsed on December 31, 2017.

Additionally, the Bill funds the federal government through FY 2018 preventing another government shutdown.

Vandegrift will follow up with details regarding retroactive GSP claims.  Please contact us with any questions concerning the filing of such claims.

Omnibus Trade Bill and Trade Enforcement Tariffs Against China

The Omnibus Trade Bill, which will clear the way for GSP renewal has passed in both the House and the Senate.  However; early this morning the President threatened that he may veto the Bill over immigration issues.  

Yesterday, the President announced his plan to go through with a "series of trade enforcement actions designed to punish China for years of widespread violations of U.S. intellectual property rights" the White House said. A list of some 1,300 tariff lines on goods imported from China are expected to be subject to the additional tariffs. The list should be announced in the next 15 days.

These are both developing situations and Vandegrift will continue to provide new information as it becomes available.

Trade Groups Speak Out Against Potential 301 Tariffs

After a recent announcement from Republican lawmakers of their intention to impose punitive tariffs on a range of goods imported from China that benefit from US intellectual property, many trade groups and retailers have voiced major concerns.  

Concerned parties from the textile, apparel and footwear industries as well as technology and consumer electronics are sending letters to the President urging him to reconsider these tariffs that they say will hurt US retailers and consumers.

Under section 301 of the trade act, the government has given itself the power to unilaterally impose sanctions against countries which it decides are not trading fairly.

Vandegrift is following this situation closely and will continue to provide new information as it becomes available.

Blog Post: CBP's E-Commerce Strategy by Janet Labuda

On March 6th U.S. Customs and Border Protection (CBP) published its E-Commerce Strategy. While the synopsis provided by CBP was immediately posted on various websites, an even closer look at the strategy is warranted.

Since 2000, the number of Americans shopping online has increased nearly fourfold, up from 22 percent to 79 percent. This rapidly accelerating increase in volume is largely comprised of shipments valued under $2,500. According to the “CrossBorder Merchant Research 2016” report from market research firm Ipsos, 36 percent of U.S. online merchants are selling across borders.

Fifty-three percent of cross-border sellers use online marketplaces — with eBay and Amazon being the most common. Many of these companies have robust compliance programs in place which is not the case with individuals who are buying direct from overseas suppliers.

However, the volume of e-commerce shipments has increased exponentially, taxing existing CBP resources. At the end of Fiscal Year 2017, one port that has an express consignment hub received an estimated 25 million predominantly informal and de-minimis value shipments. In comparison, this same facility averaged 2.4 million shipments between 1997 and 1999.This is an increase of over 1000 percent in 20 years.

Similarly, the U.S. Postal Service (USPS) has experienced a significant increase in the number of international mail packages arriving in the United States. The growing volume of small shipments is also impacting operations at sea, rail, and land ports of entry. Industry projections strongly suggest that air freight traffic will only increase as the volume in online sales continues to rise over the course of the next decade.

For purposes of this strategy, CBP defines e-commerce as high-volume, low-value shipments entering the port limits of the United States. According to the agency, “this growth has increased the opportunity for illicit and dangerous products to cross our borders, placing Americans’ health and safety at risk and compromising U.S. economic security.”
The growth in e-commerce is “creating inspection challenges.”

What are these challenges?

• E-commerce shipments pose the same health, safety, and economic security risks as containerized shipments, but the volume is higher and growing.
• Transnational criminal organizations are shipping illicit goods to the United States via small packages due to a perceived lower interdiction risk and less severe consequences if the package is interdicted.
• New or infrequent importers often possess less familiarity with U.S. customs laws and regulations, which can lead to the importation of non-compliant goods.

The level of information required for entry of these packages that will undoubtedly be declared under Section 321 will be minimal. CBP has recently talked about “intelligent enforcement.” This concept is based on the use of data and information. Absent the level of data for these individual e-commerce shipments CBP will be confronted with a daunting enforcement task. To correct this vulnerability, CBP must put into place new protocols that allow for effective identification, enforcement, and deterrence of trade violations in the e-commerce environment.

CBP will need to improve data collection for its targeting systems and field personnel. Without key pieces of data, CBP will most likely use more time-consuming techniques to try to uncover violations. This will require use of physical inspections along with x-ray scanning technologies, and leveraging postal, other government agency, and foreign government assets to plug information gaps.

CBP is stressing that it remains committed to facilitating legitimate trade while ensuring consumer safety and economic vitality as the volume of e-commerce shipments continues to increase. This e-commerce strategy positions CBP to properly enforce violations and address the various complexities and threats resulting from this global shift in trade. This is the crux of the e-commerce dynamic. CBP is faced with an increased workload plus increased pressure to enforce and protect while at the same time needing to facilitate trade.

It is interesting to note that CBP is seeking to enhance current wide ranging legal and regulatory authorities in order to better posture the agency and other government partners to address emerging threats. According to CBP these new authorities will “enable the agency to more easily adapt to evolving business practices and develop risk segmentation processes, improve targeting, and realign resources.”

Enhancing and adapting all affected CBP operations to respond to emerging supply chain dynamics created by the rapid growth of e-commerce is anticipated. In order to implement the necessary changes, CBP will seek additional resources, develop and utilize state-of-the-art techniques and technologies, and amend relevant staffing.

This strategy strengthens CBP’s ability to protect the health and safety of American citizens and the U.S. economy from non-compliant goods. By transforming CBP operations, driving compliance, and promoting cooperation domestically and internationally, the United States will build a strong trade posture in e-commerce, ensuring a shared economic prosperity.

The bottom line is CBP is restructuring its framework for ensuring compliance of informal entries. How this will affect the future of small package shipments and the use of Section 321 remains to be seen.

Please contact Vandegrift to discuss your e-commerce framework.

Blog Post: Spring Cleaning by Janet Labuda

Over the last few weeks the rhetoric regarding the global trade environment has increased dramatically. Less than a month after he declared to the World Economic Forum that India was open for business, Prime Minister Narendra Modi has raised import duties to their highest in three decades, setting the stage for a protracted trade war. The U.S. administration announced it would look at reciprocal tax treatment.

The administration has also announced a 25% duty on steel and aluminum products to counteract what are considered unfair trade practices affecting those industries. This has caused allied trading partners to look at various U.S. made products for retaliation.

The renegotiation of the trilateral North American Free Trade Agreement continues and the Administration is taking another look at the Trans-Pacific Partnership agreement and discussing a possible model free trade agreement with an unnamed country in Africa.

The stage was set at the State of the Union address, when President Trump reiterated his position on trade. He stated “we expect trading relationships to be fair and to be reciprocal. We will work to fix bad trade deals and negotiate new ones. And we will protect American workers and American intellectual property, through strong enforcement of our trade rules.”

The pendulum is swinging sharply toward enforcement. Customs is using terms like intelligent enforcement and consequence delivery in order to effect deterrence.

With increased enforcement just around the corner, a good spring cleaning may be needed. Now is a good time to reorganize, clean up, and ensure that all systems are in good working order.

The compliance team should be asking the following questions:

• Are corporate compliance manuals up to date?
• Have all training materials been refreshed and have new employees  been trained? 
• Have all employees been trained on any compliance changes within the company?
• When was the last time the company did an internal audit to check that compliance procedures are working effectively?
• Are vendors and suppliers knowledgeable about the importers compliance requirements?
• When was the last time corporate internal controls were reviewed and updated?
• When was the last time we talked with our broker about changes in sourcing, use of trade preference programs, and the introduction of new product lines?

Clearing out the compliance cobwebs now will undoubtedly pay off in the long run.

Please contact Vandegrift to learn more about conducting an internal compliance assessment. 

New Tariffs on Steel and Aluminum

On March 8, 2018, the President of the United States signed Executive Orders imposing additional duties on certain steel and aluminum products. Mexico and Canada are exempt from these tariffs.

The steel tariff is 25%. The following HTS numbers will be subject to the additional tariff: subheadings 7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90, including any subsequent revisions to these HTS classifications.

The aluminum tariff is 10%. The following HTS numbers will be subject to the additional tariff: (a) unwrought aluminum (HTS 7601); (b) aluminum bars, rods, and profiles (HTS 7604); (c) aluminum wire (HTS 7605); (d) aluminum plate, sheet, strip, and foil (flat rolled products) (HTS 7606 and 7607); (e) aluminum tubes and pipes and tube and pipe fitting (HTS 7608 and 7609); and (f) aluminum castings and forgings (HTS 7616.99.51.60 and 7616.99.51.70), including any subsequent revisions to these HTS classifications.

HTS heading 9903 will be updated with these changes. The Orders go into effect for goods entered, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on March 23, 2018. 

A clause has been built in to each Executive Order that a directly affected party located in the United States can apply for relief from the tariffs for any steel or aluminum article determined not to be produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality. Relief can also be authorized based upon specific national security considerations.

These changes will remain in effect, unless such actions are expressly reduced, modified, or terminated.

Additional information will be provided as it becomes available.  Please contact Vandegrift with any questions or concerns regarding the imposition of these new tariffs.

Effective Date for Seafood Import Monitoring Program

According to CSMS 18-000124, published today, all filings covered by the Seafood Import Monitoring Program (SIMP) must comply with electronic filing requirements in order for an entry to receive a "may proceed" by April 7, 2018.

Effective April 7, filings for products flagged for National Marine Fisheries Service (NMFS) SIM (NM8) data, with no SIMP data, that are incomplete, or that contain erroneous SIM PGA data, must be corrected before they will be accepted.

Please contact Vandegrift with any questions regarding SIMP compliance.