American Trade & Manufacturing Blog

CBP Gears Up For Trade Enforcement

Posted in Customs Law

U.S. Customs & Border Protection (CBP) has launched a new website to keep the trade apprised of its authorities and efforts under the Trade Facilitation and Trade Enforcement Act (TFTEA) of 2015, which President Obama signed into law earlier this year. The TFTEA included significant new provisions strengthening CBP’s authority to combat trade remedy evasion, enforce intellectual property rights at the border, and ensure that all importers correctly declare their merchandise.

The new website includes a fact-sheet describing the major goals of the legislation, as well as links to implementation updates, summaries of meetings of the Customs Operations Advisory Committee discussing implementation of the TFTEA, and relevant remarks from agency officials.

TFTEA’s passage signaled a retrenchment of governmental interest in the vigorous enforcement of U.S. trade and importation laws, to ensure that all importers are competing on a fair playing field – both with one another and with their U.S.-based competition. At the same time, the law also offered provisions meant to streamline the importation process, such as an increase in the “de minimis” value for duty assessment.

CBP has not sat on its new authority, instead taking action to develop new regulations to process complaints regarding antidumping and countervailing duty evasion.

U.S. Lodges WTO Complaint Requesting that China Clear Its Crop Subsidies

Posted in World Trade Organization

On September 13, 2016, the United States filed a complaint with the World Trade Organization (WTO) alleging that China has unfairly subsidized the production of Chinese rice, wheat, and corn. The U.S. government’s complaint takes issue with China’s “market price support” subsidy program, in which the Chinese government sets the minimum price at which it will purchase rice, wheat, and corn from Chinese farmers above the prevailing world market price for these crops.

As with many industries within China that are plagued with overcapacity, including steel, aluminum, and solar, China’s provision of massive subsidies and its interference in the grain industry has led to significant over production by Chinese farmers. Indeed, since 2012, China has regularly used its “market price support” subsidy program to manipulate agricultural production decisions within the country and encourage the production of rice, wheat, and corn beyond the level of what would otherwise occur. Ultimately, China’s market price support subsidy program has distorted its domestic market for these crops, displacing imports and limiting opportunities for U.S. products to satisfy China’s import demand for rice, wheat, and corn.

When China joined the WTO, it agreed that it would not provide trade-distorting subsidies to the grain industry above the de minimis level of 8.5 percent.  But according to the United States government, China has significantly exceeded this level of support to its local farmers in each of the last four years. In 2015, China provided over $100 billion of support to its rice, wheat, and corn industries.

U.S. rice, wheat, and corn exports collectively represent $20 billion annually and support over 200,000 American jobs. But China’s provision of agricultural subsidies that essentially limit access to its market can have negative effects on American workers and their communities.  According to a 2016 study sponsored by the U.S. Wheat Associates, China’s “market price support” subsidies cost U.S. wheat farmers approximately $650 million in revenue annually.

Since 2009, the U.S. government has challenged China’s unfair trade practices on 13 separate occasions and has won every single case – ranging from export restrictions on rare earths to the imposition of duties on U.S. chicken products.  Another U.S. win before a WTO panel would bring the U.S. rice, wheat, and corn industries one step closer to competing on a level playing field to supply China’s import demand for these crops.

WTO Appellate Body Rules Against U.S. in Large Residential Washers from Korea Case

Posted in World Trade Organization

This past Wednesday, the World Trade Organization (WTO) Appellate Body made its ruling in a challenge brought by Korea on the U.S. antidumping and countervailing duty case involving large residential washers from Korea. This ruling, which was largely unfavorable to the United States, is the result of appeals brought by both Korea and the United States concerning the Panel decision issued this March. The Appellate Body upheld the Panel’s finding that the WTO agreement does not permit the application of zeroing (i.e., the practice of setting ‘negative’ margins at zero when calculating overall dumping margins) even where it can be shown that dumping is targeted at specific customers, regions, or times. However, one Appellate Body member dissented from the majority opinion (a rare move in WTO precedent), and stated his view that zeroing is permissible when there is targeted dumping.

The Appellate Body did affirm that the WTO Agreements permit members to make some adjustments to their margin calculations in “targeted dumping” situations. However, the Appellate Body found that the methods resorted to by the United States were not in compliance with the Agreements, going so far as to expand upon the Panel decision and find additional bases of noncompliance. For example, the Appellate Body, unlike the Panel, found that the United States Department of Commerce (Commerce) did not do enough to explain why it resorted to its chosen comparison methodology. Separately, the Appellate Body also found, unlike the Panel, that  Commerce failed to adequately support its finding that the government subsidies granted to a Korean company were directly tied to the washers at issue in the dispute.

Commerce will now have a reasonable period of time to comply with the Appellate Body decision. Both Commerce and the U.S. Trade Representative’s Office (USTR) are studying the report to determine what measures they can take to bring the Washers determination into compliance with WTO obligations, but at the same time still maintain effective trade remedy tools to protect domestic industries from unfairly imported goods.

A summary of the Appellate Body’s findings and a copy of the full report can be found here: https://www.wto.org/english/news_e/news16_e/464abr_e.htm

Trade Relief on Diamond Sawblades from China Significantly Reduces Unfairly Traded Imports

Posted in Antidumping

The most recent administrative review of the antidumping order on diamond sawblades and parts thereof from the People’s Republic of China resulted in the highest margins to date against imports of such products from China. As a result of the antidumping order, imports of diamond sawblades from China in the recent years have been on a steady decline. However, but for the continuation of the antidumping duty order for another 5 year period, there is little doubt that the flood of imports from China would have continued – causing further harm to the US manufacturers and their employees.

The diamond sawblade case was brought by a coalition of primarily small, family-owned companies and is one of the hardest-fought battles in the trade remedies world. The case set a variety of legal precedent including an original U.S. Pickard GraphInternational Trade Commission negative final injury determination, which was reversed pursuant to successful appeals to the Federal Courts by the domestic industry. There were other significant legal issues raised in this case, each of which resolved favorably to the domestic industry. These developments have been significant victories for U.S. diamond sawblade manufacturers and their workers, as well as for other U.S. manufacturers looking to protect themselves from unfair imports. We will continue our efforts to ensure that U.S. manufacturers compete on a level playing field, which will allow U.S. producers to produce more American products and hire more American workers.

U.S. G20 Fact Sheet: Mixed Signals on Industrial Overcapacity

Posted in Trade Agreement Compliance, Trade Negotiations, Trade Policy, World Trade Organization

On September 5, 2016, the White House issued a Fact Sheet summarizing outcomes from the recent G20 summit in Hangzhou, China.  On the issue of overcapacity, the Fact Sheet incorporates language promoted by China leading up to the summit, characterizing “excess capacity in steel and other industries” as “a global issue that requires a collective response.”  In this sense, the Fact Sheet seems to overlook China’s unique position as the largest source, by far, of excess capacity in these sectors.

At the same time, however, the Fact Sheet hints at stronger unilateral action by the United States, including stricter enforcement of domestic trade laws and the possibility of challenges under global trade agreements:

{T}he United States will continue its efforts to address many of the trade-related challenges in the global steel industry.  This includes enforcing 160 anti-dumping and countervailing duty orders on steel and steel-related products, tracking U.S. and global steel trade flows, working to address evasion of anti-dumping and countervailing duties and upholding U.S. rights under trade agreements.

The full text of the Fact Sheet is available here.

OFAC Targets Ukraine/Russia-Related Sanctions Evaders

Posted in Economic Sanctions

As part of its continued efforts to oppose Russia’s conduct in Ukraine and its occupation of Crimea, on September 1, 2016, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated 37 individuals and entities related to the conflict in Ukraine.  The new designations are, in part, intended to address attempts to circumvent existing sanctions.  With respect to evasion, OFAC designated CJSC ABR Management for acting for or on behalf of Bank Rossiya.  Bank Rossiya was designated in 2014 for, in turn, being controlled by a designated member of the Russian leadership’s inner circle.

OFAC also designated 17 Ukrainian separatists for threatening the peace, security, or territorial integrity of Ukraine and for acting for or on behalf of previously designated entities.  In addition, 18 construction, transportation, and defense entities were designated for operating in the Crimea region of Ukraine.  This includes entities involved in the construction of the Kerch Bridge (from Russia to Crimea) and entities operating in the Crimean maritime sector.  One such entity, PJSC Mostotrest, is a major Russian construction firm.  OFAC has also issued a general license authorizing, until October 1, 2016, transactions necessary to divest or transfer holdings in PJSC Mostotrest.

Finally, OFAC also identified a number of subsidiaries of the Bank of Moscow and Gazprombank as being 50 percent or more owned by their parent companies, which have both been previously sanctioned.  As a reminder, U.S. persons are prohibited not only from engaging in transactions with designated entities, but also with entities owned 50 percent or more (either directly or indirectly) by such entities.

These recent changes are a reminder of the constantly evolving sanctions regimes, particularly the Ukraine/Russia-related sanctions program.  Companies should exercise heightened due diligence when engaging in or considering potential transactions with entities located in Russia and Ukraine.

How Customs Can Collect Billions in Unpaid AD/CVD Duties

Posted in Antidumping

On August 15, 2016, the United States Government Accountability Office (GAO) released a report finding that there are $2.3 billion in uncollected antidumping and countervailing duties (AD/CVD) that U.S. Customs and Border Protection (CBP) has yet to receive.  GAO examined data for entries from 2001 through 2014, and the amount owed on these entries through May 12, 2015.

After Commerce issues AD/CVD orders, CBP collects initial estimated duties at importation on entries of the products covered by the orders.  A final duty rate is calculated after the first year, either automatically or through an annual administrative review.  CBP then instructs ports to apply the final rate and calculate final duties, issuing bills if a final rate is higher than the initial estimated rate.  While most importers are required to post a customs bond to secure their financial obligations to the U.S. government, and CBP has other enforcement measures in place, as of May 12, 2015, according to GAO’s report, CBP has yet to receive $2.3 billion on entries from 2001 to 2014 that are subject to AD/CVD orders.

GAO estimates that the CBP has only collected about 31 percent of the total value of AD/CVD bills issued on entries from 2001 through 2014.  The uncollected $2.3 billion mostly reflect unpaid antidumping duties, and debts tied primarily to six products: fresh garlic, wooden bedroom furniture, crawfish tail meat, honey, and pure magnesium.  Further, Chinese companies owe most of this unpaid amount – about 95 percent, i.e., $2.2 billion out of $2.3 billion.

Despite GAO’s assessment of the problem, CBP reportedly estimates that $1.6 billion of this debt are likely uncollectible, even once all current CBP measures are exhausted.  In its report, GAO recommends that CBP issue guidance and collect data on liquidation errors, conduct risk analyses, and take other steps to strategically mitigate AD/CVD duty nonpayment.  CBP has agreed to implement these recommendations and estimates that it will finish fulfilling them by mid-September 2017.

Yet there are other options available for CBP to promptly mitigate and eventually eliminate nonpayment.  Given CBP’s centralization of the management of single transaction bonds, the agency should harness these bonds as tools to allow CBP to protect against nonpayment on an entry-specific and full-value basis.  Another option is to require non-resident importers to have assets in the United States on which CBP can collect duties owed.  CBP should also take special steps to ensure that it can collect when bond amounts are not enough to cover AD/CVD duties owed.  In addition, CBP should boost its efforts to require more information from importers of record.  Without more importer information upfront, CBP could lose on the opportunity to pursue a delinquent importer who later imports under a new name.  To effectively do so, CBP should reconsider its decision – as noted in the report – against revising its regulations on the information requirement, and should also begin to consistently and routinely reject forms with incomplete information.

At stake is the continuation of domestic industries that are significantly impacted by below-cost and subsidized imports.  Without the firm enforcement of the payment AD/CVD duties, the ability of U.S. AD/CVD law to actually level the playing field against unfair foreign competition is faint.  CBP must act on its legal authority as soon as possible, recover this significant lost revenue, and ensure the effectiveness of AD/CVD law through the rigorous enforcement of the payment of duties.

Get Ready: Final Rules Revising Certain EAR and ITAR Definitions Go into Effect in Just a Few Days

Posted in Export Controls

Exactly a year after their last round of proposed rules, the Department of Commerce’s Bureau of Industry and Security (BIS) and Department of State’s Directorate of Defense Trade Controls (DDTC) published their much-anticipated final definitions rules. These rules revise certain key terms in the Export Administration Regulations (EAR) and International Traffic in Arms Regulations (ITAR). The final rules go into effect on September 1, 2016, meaning that, if they haven’t already started, impacted industries need to get to work on updating their compliance programs to reflect the changes.

Keeping with the theme of the rest of the President’s Export Control Reform Initiative, the two agencies’ final rules attempt to more fully harmonize the EAR and the ITAR by, among other things, revising/adding definitions of “export,” “reexport,” and “transfer”(BIS)/“retransfer” (DDTC). And, while the two agencies’ proposed rules largely were aligned, BIS’s final rule covers a lot more ground than does DDTC’s, such as the treatment of encrypted technology that is sent abroad, leaving the door open for still more changes to come.

For more detailed information on the changes made in BIS’s and DDTC’s final rules, see our recent article. The full text of the final rules, including a complete list of the regulatory revisions, can be found here (BIS’s final rule) and here (DDTC’s final rule).

State and Commerce: Harmonizing Their Way Through Export Control Reform

Posted in Export Controls

Last week, the State Department’s Directorate of Defense Trade Controls (DDTC) and the Commerce Department’s Bureau of Industry and Security (BIS) harmonized the destination control statements (DCS) required for exports of certain items from the United States.  The new rules, which took more than one year to finalize, ease the burden on exporters by requiring the same DCS language for shipments subject to the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR).

Effective November 15, 2016, both sets of regulations will require that the following language be included as an integral part of the commercial invoice when items are shipped abroad in tangible form:

“These items are controlled by the U.S. government and authorized for export only to the country of ultimate destination for use by the ultimate consignee or end-user(s) herein identified. They may not be resold, transferred, or otherwise disposed of, to any other country or to any person other than the authorized ultimate consignee or end-user(s), either in their original form or after being incorporated into other items, without first obtaining approval from the U.S. government or as otherwise authorized by U.S. law and regulations.’’

Of course, although BIS and DDTC are only requiring that the language be included on one document (the commercial invoice) and are explicitly limiting this requirement to physical shipments, the agencies did not make everything easier.  Companies exporting “600 series” or 9×515 items under the EAR still must include the Export Control Classification Number (ECCN) on the commercial invoice.  And, DDTC’s companion rule continues to require:

  1. incorporation of the DCS for ITAR-controlled exports, reexports, and retransfers;
  2. inclusion of the country of ultimate destination, end-user, and license or approval number or exemption citation on the commercial invoice; and
  3. provision of the ECCN or EAR99 designation for any EAR-controlled items exported pursuant to a DDTC license or approval to the end-user and consignees.

So what’s next?  Companies should start planning to change the language pre-printed on their commercial invoices so that they are ready on November 15, when the new DCS requirements go into effect.

Still Going: BIS Relief Continues for Chinese Telecom Giant ZTE

Posted in Export Controls

On Friday, the Department of Commerce’s Bureau of Industry and Security (BIS) published a notice extending the relief it granted earlier this year to ZTE Corporation and ZTE Kangxun, which had been placed on BIS’s Entity List in early March of this year.

As noted in prior posts, on March 8, 2016, BIS imposed broad export restrictions on ZTE Corporation, ZTE Kangxun Telecommunications Ltd. (China), Beijing 8-Star International Co. (China), and ZTE Parsian (Iran). BIS’s action was a response to ZTE’s alleged execution of a scheme to violate U.S. export controls through its creation and use of “detached” shell or front companies. The scheme facilitated the reexport of items subject to the Export Administration Regulations (EAR) to countries sanctioned by the United States. The restrictions were significant: they prohibited the provision of even common, off-the-shelf EAR99 and other low-technology electronic components, commercial software, and technology to ZTE without a license. The imposition of such restrictions caused an uproar amongst industry members across the United States and China, which was not surprising given ZTE’s position as a leading provider of telecommunications and other technology equipment to markets worldwide.

Likely in response to the industry’s reaction and ZTE’s agreement to cooperate with the U.S. government in resolving this matter, just two weeks later, BIS created a temporary general license suspending the export restrictions on ZTE Corporation and ZTE Kangxun and generally permitting parties to engage in business as usual with the two ZTE entities. The privileges under the temporary general license, while originally available only through June 30, were then extended until August 30, 2016.

Friday’s action marks the second such extension of the temporary general license applicable to ZTE Corporation and ZTE Kangxun. Parties may now take advantage of the relief granted via the temporary general license through November 28, 2016. Whether further extensions will follow the expiration of this period remains to be seen – BIS will have to grapple with what, ultimately, to do with ZTE at some point or another. In the meantime, we recommend that companies continue to conduct heightened due diligence, remain sensitive to any potential “red flags,” and maintain vigilance in transactions involving exports to ZTE to ensure that such exports are not diverted to ZTE’s restricted affiliates or any other sanctioned entities/countries.

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