Recent Trade & Tariff Perspectives

July 14, 2021 | Kevin Koch Product Development Manager

Ground view of many countries' flags flying against a blue sky

U.S. Trade Policy & Customs Enforcement—A Quarterly Review

Trade policy review

Trade policy under the Biden Administration appears to remain less of a priority than during the Trump Administration. Expect a worker-centered focus from the current administration with a preference for policy that produces jobs, protects labor, raises environmental standards, and enforces existing free trade agreements.

The Trade Promotion Authority expired last month, which previously enabled the White House to sign any new agreement that could be submitted to Congress for a straight up-or-down vote. With that said, it is unlikely that we’ll see any major trade agreement negotiations with other countries in the near term. Follow along with the rest of this quarterly view by downloading our market review executive overview.

Trade estimate report findings

The United States Trade Representative (USTR) continues to scrutinize foreign labor practices to address substandard practices that both impinge on labor obligations in U.S. free trade agreements (FTAs) and deny foreign workers their internationally recognized labor rights. In addition, the USTR has enhanced its monitoring and enforcement of U.S. FTA partners’ implementation and compliance efforts with respect to their obligations under the environmental chapters of those agreements.

Our trade relationship with China

The “top to bottom” review of China-U.S. Trade Policy that the Biden team announced earlier this year appears to be a slow burn. In mid-May, USTR Katherine Tai appeared before the U.S. House and Senate to discuss the Biden Administration’s policy agenda for the year. She shared that her office had yet to start its comprehensive review. What does this mean for shippers? Mainly, don’t expect any changes to China-US trade policy anytime soon.

China tariff exclusions (Section 301)

Outside of products used in the fight against COVID-19, such as personal protective and medical equipment, most duty exclusions have expired. There is some movement on China duty exclusions covered under the Senate Bill, the U.S. Innovation and Competition Act (USICA), but it’s too soon to determine if that bill will come into play and when.

The legislation passed through the Senate on June 8, 2021, and now needs be taken up by the House of Representatives. While the bill contains a surplus of various trade concepts, the USICA also addresses Section 301 China duty exclusions.

If passed by the House and signed by the president, USICA could have a large impact on the import trade community, especially since nearly two-thirds of Chinese product will still be subject to additional duties ranging from 7.5% to 25%. Refer to our trade war timeline for details on the current situation.

For even more details, read our recent post regarding a new exclusions process, duty refunds, and exclusion reinstatements that will come about if the USICA makes its way through Congress and the President’s desk.

China duty lawsuit

Over the last year, thousands of importers have sued the U.S. Government over the Section 301 China tariffs imposed under the Trump Administration, covering lists 3 and 4A (nearly $320 billion in value). Importers are seeking duty refunds, plus interest, arguing that the two additional duty lists were unlawful.

While litigation may take years and the outcome of the cases cannot be known, importers affected by the tariffs have been encouraged by law firms to participate since the deadline may be coming soon to join the case. We recommend you speak with your internal counsel and trade attorney to determine what is right for your business regarding this lawsuit and to gain the latest information on the legal proceedings. Our customs experts are here to help with any reporting you may need in the process.

Biden’s secure supply chain review

The Biden Administration will form a new “supply chain strike force” to combat unfair trade practices from other nations. This decision follows the conclusion of 100-day supply chain reviews that were seeking to determine whether industries critical to U.S. national security were overly reliant on foreign suppliers, particularly in China, or affected by pandemic-related shortages, like semiconductors and lumber.

In addition to the 100-day reviews, the Administration also set up year-long reviews starting in February for six broader sectors: defense, public health, information technology, transportation, energy, and food production. The results of those reviews are still on track to be delivered next February.

Read the fact sheet for more information.

Boeing | Airbus dispute—5-year tariff ceasefire

On June 15, 2021, the United States and the European Union (EU) suspended tariffs, announcing a shift from confrontation to a more cooperative framework to address civil aircraft disputes. The United States and the EU also agreed to clear principles, including a shared intent that any financing for the production or development of large civil aircraft be structured on market terms. The deal suspends tariffs, ranging from 15% to 25% on $7.5B (United States applied against EU) and $4B (EU applied against the United States), for a period of five years.

The United Kingdom and the United States also made a separate agreement to suspend each trading partners’ tariff measures for five years, beginning July 4, 2021.

Find the releases from each government here: EU announcement | US announcement. For more details, including the other products involved in the retaliatory tariffs, read the fact sheet.

Uncertainty over Section 232—Steel & aluminum tariffs

On June 15, 2021, the United States and the EU issued a summit statement expressing a renewed transatlantic partnership. Section 21 of the announcement addresses the remaining dispute regarding the U.S. application of steel and aluminum tariffs against the EU, stating “We will engage in discussions to allow the resolution of existing differences… before the end of the year.”

Digital Service Tax investigations

USTR Katherine Tai has announced the conclusion of the year-long Section 301 investigations of Digital Service Taxes (DSTs) adopted by Austria, India, Italy, Spain, Turkey, and the United Kingdom. The final determination is to impose additional tariffs on certain goods while simultaneously suspending the tariffs for up to 180 days.

The decision provides the additional time needed to complete the ongoing multilateral negotiations on international taxation at the Organization for Economic Cooperation and Development and in the G20 process. Read more about this event and check the Federal Register Notices of Action to see if your commodities are impacted by this announcement.

Trade preference programs—GSP & MTB

For shippers that have benefitted in years past from either of two trade preference programs, the Generalized System of Preference (GSP) or the Miscellaneous Tariff Bill (MTB), both programs expired on December 31st, 2020. We have seen these two programs lapse in the past, but the current political environment might make the reinstatement process more challenging than ever.

Both the House of Representatives and the Senate have introduced bills calling to reinstate the programs. There are considerable differences between the two chambers’ bills that may require some months to work through before serious progress is made.

Here’s a refresher on the two duty-reduction and elimination programs:

  • The Generalized System of Preference (GSP) waives duties on thousands of goods from developing countries. There are currently 112 participating beneficiary countries in this program, and last year, American companies saved an estimated $1 billion in tariffs due to GSP. 
  • The Miscellaneous Tariff Bill (MTB) waives duties on raw materials and intermediate goods that manufacturers use to make final products. MTB amended the Harmonized Tariff Schedule of the United States (HTSUS) to suspend and reduce tariffs on 1,660 products.

Customs & enforcement

Forced labor will remain a critical factor for your supply chain trade compliance review from here on out. Here’s what White House Press Secretary, Jen Psaki, had to say about it during a recent press conference: “You can expect that the United States will continue to hold those who engage in forced labor accountable and that we will continue to remove goods made from local forced labor from our supply chains.”

U.S. Customs and Border Protection (CBP) had a record-breaking fiscal year in forced labor enforcement efforts, confiscating goods suspected of being made with forced labor outside of the country. During FY2020, CBP issued 13 new withhold release orders and its first civil penalty since enactment of the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA). Under U.S. law, it is illegal to import merchandise that has been mined, produced, or manufactured, wholly or in part, by forced labor—including forced child labor. 

Withhold Release Orders

Several new Withhold Release Order (WRO) cases have been opened since the start of the Biden Administration. First, it was announced that CBP will be barring all seafood imports from the Dalian Ocean Fishing company, citing evidence that the Chinese company’s products are harvested under forced labor conditions.

Department of Homeland Security (DHS) Secretary Mayorkas said in a joint press conference that he’s instructed CBP personnel at all U.S. ports of entry to detain shipments containing tuna, swordfish, and other seafood harvested by the company’s fleet. This order also covers end products, such as canned tuna and pet food. A DHS official said that this move sends a powerful signal that the United States will not tolerate the use of forced labor in the seafood supply chain.

CBP also announced that it will be detaining silica-based products, made by Hoshine Silicon Industry Co., Ltd. and its subsidiaries, under a new WRO. The agency said there is information to indicate that Hoshine used forced labor in manufacturing these products.

The polysilicon produced in the Xinjiang region of China is a core material of solar panels made in Asia. The WRO instructs personnel at all U.S. ports of entry to detain shipments containing silica-based products made by the Chinese company and its subsidiaries. "Our environmental goals will not be achieved on the backs of human beings in a forced labor environment," DHS Secretary Mayorkas told reporters.

Aluminum licenses required for entry

Importers of aluminum products, take note: license requirements took effect on June 28, 2021. Please ensure you’re up to speed on expectations. Review the International Trade Administration’s website to understand the specifics of the license requirements and how this changes your import processes.

One of the new regulations requires license applicants to identify the country or countries where the largest and the second largest volume of primary aluminum used in the manufacture of the imported aluminum product was smelted (subject to certain exceptions) and the country where the aluminum product was most recently cast.

Please visit the Aluminum Import Monitoring (AIM) informational site to learn more about what to expect and how the new license requirements will change your import process. In addition, our customs brokerage experts can quickly help you determine if any of your commodity codes will be impacted by this change and prepare you for a seamless transition to the reporting requirements, if applicable.

Duty evasion in the spotlight?

Economists from the Federal Reserve Bank of New York recently published a report analyzing the U.S.-China trade deficit after the imposition of Section 301 tariffs on imports from China in 2018. They concluded that the trade deficit narrowed but attributed a significant part of this narrowing to duty evasion on the part of Chinese exporters and/or their U.S. importers.

“Misreporting of trade to avoid taxes would appear to be highly relevant given that the United States imposed huge tariff increases on China and that China responded with sweeping VAT tax policies. From the U.S. side, it seems clear that U.S. importers faced incentives to minimize tariff tax liabilities by finding ways to underreport import values from China, perhaps utilizing low-ball invoices provided by their Chinese suppliers.”

Economists estimate that the United States lost approximately $10 billion in duty revenue through the possible underreporting of entered value.

Expect increased enforcement 

CBP and their Participating Government Agency (PGA) partners have made a noticeable shift in their enforcement strategies over the last couple of years. The increased frequency of holds, exams, requests for information (CF28), refusals, and other obstacles have posed new challenges for many importers that had left their trade compliance program on cruise control for a while.

All importers should take notice of the shift to enforced compliance, especially since CBP puts the emphasis on importers to use reasonable care when conducting customs business. Now is the time to build in some internal compliance measures.

Where to go from here?

We shared the importance of keeping your supply chain security and trade compliance programs complete and up to date, as the trade policy environment is ever-changing and increasingly complex. The focus on forced labor is just the tip of the iceberg. Now is a good time to review all your trade and customs policies and procedures manuals so that you’re fully prepared for what the future may bring.

To aid in your preparation, we’d like to share a resource to make the process a little bit easier: Our 20-point trade compliance checklist. To make full use of the checklist, have your trade data handy.

Also, don’t hesitate to reach out if you need help. Our trade policy and customs teams can help you navigate your data with ease, perform mock audits, and shore up trade compliance program manuals. Happy housekeeping!

Bonus download: Quarterly customs & trade overview

Gain additional clarity on current customs and trade events—why they are important to shippers and what could be coming next. Download the report.

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