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This Week's Trade & Tariff Perspective

January 26, 2022  |  Ben Bidwell  Director, North American Customs and Trade Compliance

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The Complexities of Trade Policy and Customs Enforcement—What’s Keeping You Up at Night This Quarter?

It’s no secret that today’s trade environment is much more complex than ever before. We’ve seen a surge of vessels waiting to berth over the last several months. There have been significant bottlenecks at ports, terminals, and railyards across the country. And from a tariff perspective, many companies continue to pay additional duties on numerous goods from China.

Multiple punitive tariffs have also been put in place over the past three years. Most notably, the Section 301 tariffs, also known as the “China tariffs,” affect nearly 70% of our imports from China with an additional duty of either 7.5% or 25% required on top of normal trade relations rates.

Are there any opportunities to avoid paying these extra duties?

There were Section 301 (China) tariff exclusions in place for hundreds of products being imported from China, but nearly all those exemptions expired, except for a small number of PPE and medical product exclusions.

There is pending legislation in Congress today, called the U.S. Innovation and Competition Act (USICA), that would address many of these duty exclusions. As it is currently written, the USICA would reinstate tariff exclusions on a go-forward basis and retroactively reinstate a considerable number of exclusions back to January of last year.

Importers and the trade community are watching this legislation very closely, as passage of this bill would result in millions of dollars in duty refunds and substantial savings on certain imports from China going forward.

The Import Security and Fairness Act

The other significant piece of pending legislation I wanted to touch on is the Import Security and Fairness Act, which was just introduced last week. This act would address de minimis shipment activity in the United States—where more than two million small packages arrive daily.

The current de minimis value in the United States is $800, which means one can import shipments valued at $800 or less without paying duties and taxes. This includes the aforementioned punitive tariffs, along with less stringent reporting requirements to Customs and Border Protection (CBP).

According to U.S. Representative Earl Blumenauer (D-OR), chairman of the House Ways and Means Trade Subcommittee, “The number of packages we receive in the United States has skyrocketed… and will only climb in the coming years. As long as foreign companies that sell their goods in America are splitting up their shipments to evade tariffs and oversight, American businesses will continue to be put at a competitive disadvantage cost-wise.

This loophole also makes it easier for people to import illegal goods and harmful products, because there is virtually no way to tell whether these packages contain products made through forced labor, intellectual property theft, or are otherwise dangerous.”

This legislation proposes that the United States:

  • Prohibits goods from countries that are both non-market economies and on the United States Trade Representative’s (USTR) Watch List from using de minimis benefits;
  • Prohibits goods subject to enforcement actions (e.g., Section 301 tariff measures) from using the program;
  • Closes de minimis loopholes for offshore distribution or processing facilities; and
  • Requires CBP to collect more information on all de minimis shipments to prohibit the use by bad actors

Forced labor

The recently signed Uyghur Forced Labor Prevention Act (UFLPA) prohibits goods from being imported into the United States that are either produced in China’s Xinjiang province or by certain entities identified in the forthcoming UFLPA enforcement strategy—unless the importer can prove by clear and convincing evidence that the goods were not produced with forced labor.

A request for public comment was recently published in the Federal Register January 24, 2022. Comments will be accepted for 45 days. Individuals may submit comments by following the instructions in the Federal Register notice. The ban is set to become effective June 21, 2022.

After receiving comments, the Forced Labor Enforcement Task Force will conduct a public hearing and develop a strategy for supporting enforcement of section 307 of the Tariff Act of 1930, as amended. The Department of Homeland Security and CBP will issue guidance for importers. 

The effects of COVID-19 on the trade community

Looking back to March 2020, COVID-19 forced the trade community and government agencies into a virtual environment. Shipments that traditionally required original physical documentation were quickly changed to email or online acceptance.

Agencies had to rely on customs brokers to help address government requests because agencies were not able to send requests via traditional U.S. mail, and CBP didn’t have email contacts for many importers. It was a big challenge and a big change for everyone. However, it was also a very welcome change.

In many ways, COVID-19 forced everyone to embrace faster and lower-cost methods to conduct business. CBP and many of the other agencies that helped facilitate imports into the United States must be commended. They acted very quickly and kept trade flowing every step of the way.

New to many importers was the need to import PPE. I remember talking to a bike importer at the onset of the pandemic who wanted to import masks and hand sanitizer for their staff. These are not easy commodities to import, and in many cases, involved other agencies, like the Food and Drug Administration (FDA). The FDA did a great job not only helping to facilitate the shipments, but also in educating the trade community on how to quickly navigate their requirements.

Also new to most people within the industry was the concept of Emergency Use Authorizations (EUA), issued from the FDA. There was, and still is, a need for masks, gloves, testing kits, etc., and the issuance of these EUAs, along with clear guidance on how to use them, allowed the trade community to effectively get these goods into the country.

However, it hasn’t been uncommon to hear a news story about a shipment of counterfeit masks or packages of hand sanitizer that were seized. While counterfeit goods and international property rights (IPR) issues have always been a problem, we’re much more aware now of how we depend on the safety and quality of these imported goods. According to CBP, on any given day, the agency will seize an estimated nine million dollars’ worth of product with IPR violations.

How can C.H. Robinson help?

The takeaway here is that the current trade climate is extremely complex and there are no signs of this slowing down or getting easier. Whether it is understanding what pending legislation means to your business or how recently implemented tariffs will affect your landed costs, we explain what’s happening each week to keep the trade community informed.

We recently published a tariff search tool that breaks down by tariff number what effect the USICA may have on your imported products. We all know labor is very challenging to come by these days, and tools like this can save hours of research time, providing clarity in a very complex environment.

Connect with one of our trade policy experts to learn even more.

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Trade & Tariff Resources

Get the latest news regarding tariffs and trade that can impact your business. We break down the variables of recent changes into simple, effective summaries you can use to better understand the ever-changing and often complicated trade policy and enforcement environment.

USICA resources

The United States Innovation and Competition Act (USICA) was passed by the U.S. Senate in June 2021 to counter China’s growing influence in science, technology, and advanced manufacturing.

What’s included in the bill

Major components of the bill include investments in domestic manufacturing of “strategic sectors” like computer chips and PPE.

Also included is the Trade Act of 2021, which would reinstate certain exclusions to Section 301. Additionally, under USICA, importers of Generalised System of Preferences (GSP) products could be retroactively refunded for certain duties paid and no longer have to pay duties and tariffs on GSP imports until January 1, 2027, when GSP will expire again.

Determine the potential impact to your business

Uncover potential duty refunds if the USICA passes into law* with our U.S. Tariff Search Tool. Instantly search by Harmonised Tariff Schedule (HTS) and estimate your retroactive duty refund amount today.

*The USICA is currently a bill and has not yet become law. Aspects of the bill can change and amendments can be made. The information provided herein does not guarantee any refund and undue reliance should not be placed on it. Proper review and thorough analysis are required to determine outcome.

U.S. Tariff Search Tool

Section 301 - Unfair trade practices

What is it?

Section 301 of the Trade Act of 1974 — Allows the United States Trade Representative (USTR) to suspend trade agreement concessions or impose import restrictions if it determines a U.S. trading partner is violating trade agreement commitments or engaging in discriminatory or unreasonable practices that burden or restrict U.S. commerce.

Background ReportCongressional Research Service – Section 301 of the Trade Act of 1974 – August 2020

Update: October 4, 2021

Reinstatement of Targeted Potential Exclusions — Following United States Trade Representative’s (USTR) announcement on October 4, 2021, the USTR has started a targeted tariff exclusion process. The agency invited public comments on whether to reinstate previously extended exclusions. Of the more than 2,200 exclusions granted, 549 were extended. Most previously expired on December 31, 2020. The USTR will evaluate, on a case-by-case basis, the possible reinstatement of each exclusion. If granted, the USTR will reinstate exclusions retroactively to October 12, 2021, and publish them in the Federal Register.

 

Section 232 - National security concerns

What is it?

Section 232 of the Trade Expansion Act of 1962—Allows the president to adjust imports if the Department of Commerce finds certain products are imported in such quantities or under such circumstances as to threaten to impair U.S. national security.

Background ReportCongressional Research Service – Section 232 Investigations: Overview and Issues for Congress – August 2020

 

Section 201 – Cause/threat to domestic industry

What is it?

Section 201 of the Trade Act of 1974—Allows the president to impose temporary duties and other trade measures if the U.S. International Trade Commission (ITC) determines a surge in imports is a substantial cause or threat of serious injury to a U.S. industry.

Background ReportCongressional Research Service – Section 201 of the Trade Act of 1974 – August 2018

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Trade & Tariff FAQs

Q: Are products entered under the Section 321 de minimis exemption (under $800) subject to Section 301 duties?

No, not right now. Goods properly entered under Section 321 are not subject to Section 301 duties. Please note that a formal entry is required if a shipment contains merchandise subject to AD/CVD. Goods subject to AD/CVD do not qualify for Section 321. Something to keep an eye on: U.S. Customs and Border Protection (CBP) submitted a proposal in early September 2020 to the Office of Management and Budget that would eliminate the $800 de minimis exemption for goods subject to Section 301 tariffs. Remember, Section 321, 19 USC 1321 is the statute that describes de minimis. De minimis 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 de minimis threshold was previously $200, but increased with the passage of the Trade Facilitation and Trade Enforcement Act (TFTEA).

Q: Can I still apply for exclusions to the Section 301 (China) tariffs?

The time window to submit new exclusion requests is now closed, but the USTR is considering extensions of exclusions granted from Lists 1, 2, 3, and 4. While the USTR approved, on average, 35% of requests under the first two actions, the approval rates under the third and fourth actions were 5% and 7%, respectively.3 Be sure to check in with your trusted trade advisors to see if new comment periods open.

Q: If I previously paid Section 301 (China) duties, but an exclusion was later issued by the United States Trade Representative (USTR), can I get my money back?

Yes. You have the opportunity to potentially recover duties paid on previous entry activity. Your customs broker, trade attorney, or trade consultant can submit a refund request via Post Summary Correction (PSC) or Protest as long as the entry has not exceeded the liquidation date plus 180-day time period (roughly 480 days from the original entry date). Remember, your company doesn’t have to be the one that requested the exclusion in the first place. You qualify as long as your product meets the specific description of the exclusion granted by the USTR.

Q: Are products used to support the fight against COVID-19 subject to the additional Section 301 (China) tariffs?

The USTR announced on March 20, 2020, that, prior to theCOVID-19 outbreak, the agency had been working with the U.S. Department of Health and Human Services “to ensure that critical medicines and other essential medical products were not subject to additional Section 301 tariffs.” Consequently, the United States had not imposed tariffs on certain critical products, such as ventilators, oxygen masks, and nebulizers. Moreover, the USTR indicated that, in recent months, it has prioritized the review of requests for exclusions on medical care products, resulting in exclusions granted on basic medical supplies, including gloves, soaps, face masks, surgical drapes, and hospital gowns. Since March 2020, the USTR has exempted certain medical products from Section 301 tariffs in several rounds of exclusions. 3

Q: What is the timing of duty calculations on immediate transportation in bond entries subject to Section 301?

Duties are due on goods that are entered for consumption, or withdrawn from warehouse for consumption, on or after the effective date of the provisional tariffs. For entries covered by an entry for immediate transportation, and with a country of origin of China, and a Harmonized Tariff Schedule (HTS) classification covered by Annex A to the FRN, such entries shall be subject to the duty rates in effect when the immediate transportation entry was accepted at the port of original importation, pursuant to 19 CFR 141.69 (b), which states:

Merchandise which is not subject to a quantitative or tariff-rate quota and which is covered by an entry for immediate transportation made at the port of original importation, if entered for consumption at the port designated by the consignee or his agent in such transportation entry without having been taken into custody by the port director for general order under section 490, Tariff Act of 1930, as amended (19 U.S.C. 1490), shall be subject to the rates in effect when the immediate transportation entry was accepted at the port of original importation.

Q: How much has the U.S. government collected from the various trade remedy measures?

U.S. Customs and Border Protection (CBP) assesses and collects duties on U.S. imports, including the additional duties imposed as a result of the president’s tariff actions. As of September 9, 2020, U.S. CBP has reported the following duty assessments.

Q: Are products of Hong Kong subject to the additional Section 301 duties against China?

No. Additional duties imposed by the Section 301 remedy only apply to articles that are products of the People’s Republic of China (ISO Country Code CN). Imported goods that are legitimately the product of Hong Kong (HK) or Macau (MO) are not subject to the additional Section 301 duties. Please note that Section 301 duties are based on country of origin, not country of export. 2

Q: What are various types of import restrictions that can be imposed by the government?

Tariffs – A tax on imports of foreign goods paid by the importer. Ad valorem tariffs are assessed as a percentage of the value of the import (e.g., a tax of 25% on the value of an imported truck). Specific tariffs are assessed at a fixed rate based on the quantity of the import (e.g. 7.7% per kilogram of imported almonds), and are most common on agricultural imports.

Quotas – A restriction on the total allowable amount of imports based either on the quantity or value of goods imported. Quotas are in place on a limited number of U.S. imports, mostly agricultural commodities, in part due to past trade agreements to remove and prohibit them.

Tariff-Rate Quota (TRQ) –TRQs involve a two-tiered tariff scheme in which the tariff rate changes depending on the level of imports. Below a specific value or quantity of imports, a lower tariff rate applies. Once this threshold is reached, all additional imports face a higher, sometimes prohibitive, tariff rate.

Q: Does U.S. Customs and Border Protection (CBP) pay interest when refunding duties previously paid?

Yes! CBP does pay interest from the date the original money was deposited. The current interest rates are published in the Federal Register on a quarterly basis. Review the most recent Federal Register Notice for the latest rates.

Q: How do I find out if my product is subject to Section 301 tariff duties?

Enter the product’s harmonized tariff schedule (HTS) classification on the USTR website. In addition, you can refer to our exclusive guide to quickly search both the Section 301 tariff lists but also identify if there are any exclusion opportunities. Talk to your Trusted Advisor® expert at C.H. Robinson to learn more.

Q: Do Section 301 (China) duties still apply if I ship goods to another country, such as Canada or Mexico, and have them packaged there before entering the commerce of the United States?

Yes. Basic changes/processes such as packaging, cleaning, and sorting would not change the country of origin to be declared in most cases. The origin would still be China and therefore the Section 301 duties would still apply.

Q: Are Section 301 duties eligible for drawback?

As noted in CSMS Message 18-000419, Section 301 duties are eligible for duty drawback. Drawback is the refund of certain duties, internal revenue taxes, and certain fees collected upon the importation of goods. Such refunds are only allowed upon the exportation or destruction of goods under U.S. Customs and Border Protection supervision.

Q: Have U.S. trading partners taken or proposed retaliatory trade actions?

Yes. Some U.S. trading partners subject to the additional U.S. import restrictions have taken or announced proposed retaliations against each of the three U.S. actions. Since April 2018, a number of retaliatory tariffs have been imposed on U.S. goods accounting for $126 billion of U.S. annual exports, using 2017 export values.

Q: What is a tariff?

Tariffs or duties are taxes assessed on imports of foreign goods, paid by the importer to the U.S. government, and collected by U.S. Customs and Border Protection (CBP). Current U.S. tariff rates may be found in the Harmonized Tariff Schedule (HTS) maintained by the U.S. International Trade Commission (ITC). The U.S. Constitution grants Congress the sole authority to regulate foreign commerce and therefore impose tariffs, but, through various trade laws, Congress has delegated authority to the president to modify tariffs and other trade restrictions under certain circumstances. 1

References

1. Congressional Research Service – Trump Administration Tariff Actions (Sections 201, 232, and 301): FAQs

2. Section 301 Trade Remedies Frequently Asked Questions

3. Congressional Research Service - Section 301: Tariff Exclusions on U.S. Imports from China

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