Section 301 Tariffs on Chinese goods continues to be at the forefront of international trade relations with China and the United States. As part of the four-year review required under the relevant statute (19 USC § 2417), the United States Trade Representative (USTR) began a two-phase notice-and-comment period in May 2022. The first phase closed in September 2022 with comments mostly in support of the continuation of the tariffs; the second phase closed in January 2023 with comments mostly in opposition. Meanwhile, in March 2023, the U.S. Court of International Trade upheld two tranches of Section 301 tariffs (Lists 3 and 4A), finding that the USTR did not exceed its statutory authority or violate the Administrative Procedures Act (APA) when it promulgated them. This case will continue on appeal this year before the U.S. Court of Appeals for the Federal Circuit. Product-specific duty exclusions for the tariffs, including COVID and medical-related exclusions, are set to expire on September 30, 2023, with the possibility of an additional extension.
The U.S. spearheads enforcement against traded goods that were made using forced labor. The Uyghur Forced Labor Prevention Act (UFLPA) bans the importation of all goods made in the Xinjiang Uyghur Autonomous Region (XUAR) in China. Using the UFLPA presumption and its authority under 19 U.S.C. § 1307, U.S. Customs & Border Protection (CBP) can exclude or seize goods it believes were made in XUAR, destroy those goods if they are not exported (absent proof of no forced labor), issue penalties against the importer, revoke import privileges and investigate and audit importers that it believes are importing goods from XUAR. Recent activity of The Forced Labor Enforcement Task Force (FLETF), including expansion of its list of priority sectors to include aluminum, steel, auto parts, and PVC, and plans to expand the entity list, confirms that the UFLPA represents a heightened priority in Customs enforcement at the direction of Congress. To that end, several third-party technical solution providers now offer tools to identify forced labor risk in supply chains, including software for partner screening, supply chain mapping, and DNA/isotopic testing.
The U.S. continues to restrict electronics and technology exports to China. New export controls aimed at curbing semiconductor fabrication industry growth in China were published by the Department of Commerce’s Bureau of Industry and Security (BIS) late last year. These new controls imposed additional license requirements regarding the export, reexport, or transfer of certain items, equipment, software, and technology to China. The new restrictions include end-use and end-user controls, Foreign Direct Product rules for advanced computers, supercomputing, and transactions involving Entity List companies and persons, item-specific controls providing for additional Export Control Classification Numbers (“ECCNs”) that expand the Commerce Control List (CCL) in Categories 3 through 5, Regional Stability requirements on related items, and restrictions on facilitating activities by U.S. persons located anywhere involving items not subject to the EAR. The number of Chinese individuals and companies continues to grow on BIS’s Entity List, Unverified List, and Military End User List (which primarily consists of Chinese entities) under 15 C.F.R. Part 744, and on the Department of the Treasury, Office of Foreign Asset Control’s (OFAC) restricted party list and Non-SDN Chinese Military-Industrial Complex Companies List.
Update on U.S. Sanctions and Export Controls on Russia and Belarus
As Vladimir Putin’s “special military operation” in Ukraine drags into its second year, with no foreseeable conclusion on the horizon, a heavily sanctioned trade relationship with Russia has become the new normal. Although the initial round of sanctions and tariffs following the February 2022 invasion primarily targeted Russia’s energy and financial sectors, the last year has seen an expansion of sanctions and tariffs into raw materials, derivative products, and technology. As of April 2023, all aluminum articles and aluminum derivative products are subject to a 200% ad valorem import duty if any part of the primary aluminum used in the article is smelted in Russia or if the article is cast in Russia. This 200% rate is in stark contrast to the 10% duty that applies to aluminum imports from most other countries, and it effectively cuts off the world’s second-largest producer of aluminum from the world’s largest importer of aluminum. Also as of April 2023, imports of Russian ores, inorganic chemicals, iron, nickel, copper, lead, and non-railway vehicles are now subject to a 70% ad valorem import duty, which is double the prior rate.
Over the course of the past year, BIS has continued to expand and refine the scope of export controls on goods subject to EAR that are bound for Russia or Belarus or those that the U.S. believes are evading sanctions. Specifically, BIS has strengthened Foreign Direct Product regulations to ensure U.S.-origin technology does not provide material military assistance to Russia as a component in an article manufactured in a third-party country. It is no secret that these actions are retributive in nature and primarily intended, in conjunction with other adverse trade restrictions, to undermine Russia’s war-fighting capabilities. That being said, however, they have inherent consequences for American companies with previously established supply chains involving Russia, particularly the oil and gas industry.
Modifications to U.S. Customs Broker Regulations
The broadest change in the past year relating to the day-to-day operations of customs businesses engaged in international trade came in the form of CBP’s updated rules for customs brokers, which are codified in 19 C.F.R. Part 111 (“Part 111”). Published in October 2022 and effective December 2022, the modifications to Part 111 reflect an attempt by CBP to modernize the broker system. Among the most significant changes, firstly, are the elimination of the national permit system in favor of national permitting for all brokers. Further, the modifications to Part 111 mandate heightened responsibilities for brokers, such as an explicit requirement that the broker must report the termination of agency with the importer and the reason for the termination to CBP. Additionally, brokers must execute a customs power of attorney directly with the importer of record or drawback claimant, and not via a freight forwarder or other unlicensed third party, to transact customs business for that importer of record or drawback claimant. Other modifications to Part 111 include a modernized broker exam and license application process, more stringent supervision requirements for brokers with unlicensed employees, and a general shift towards digitization. Although these rules impose a moderate burden on the broker community in the short-term, their long-term impacts will likely increase efficiency and reduce fraud in the import system.
Companies importing to or exporting from the United States this year should be aware of the various import restrictions, tariffs, export controls, and party restrictions that are part of doing business in the country.