That Was the Month That Was!

Source: Canada US
Link: That Was the Month That Was!

Originally published by the Journal of Commerce in February 2020

In the early 1960’s, there was a televisions show called “That Was the Week That Was!” While it was intended as a satire, the events of the last month or so have been breathtaking, focusing, as we do, even on just on trade issues.  With apologies to David Frost and his colleagues who presented that show, we are going to take only a slightly longer view of events than one week and not attempt any satire.

On January 29th, we saw the signing of the U.S.- Mexico- Canada Trade Agreement. The text can be found here: USMCA Text. Almost immediately, there were questions raised about the role of U.S. diplomatic officials posted in Mexico related to labor issues, but little has been heard in the last few days on that topic, perhaps because of the seriousness of recent events.

On January 31, 2020, President Trump issued Executive Order 13904 (“EO”) entitled “Ensuring Safe & Lawful E-Commerce for US Consumers, Businesses, Government Supply Chains, and Intellectual Property Rights.” It begins by stating that e-commerce is “being  exploited by traffickers to introduce contraband into the United States, and by foreign exporters and United States importers to avoid applicable customs duties, taxes and fees.” The types of malfeasance cited are counterfeit goods, narcotics (specifically synthetic opioids, such as fentanyl), and other contraband, plus, of course, protection of the revenue. The focus of the EO is on express consignment operators, carriers, hub facilities, international posts, customs brokers and e-commerce platform operations (the “Regulated Parties”). Anyone who participates in the “introduction or attempted introduction” of parcels containing contraband can be held accountable with accountability taking the form of both civil and criminal consequences, as appropriate.  The EO goes on to state that CBP’s suspension and debarment procedure will form the framework through which these actions will be carried out. Suspension and debarment apply in the context of doing business with the government, such as government contracts, subcontracts, grants, loans and other assistance programs.

CBP already has a suspension and debarment process in place, the goals for which are to: 1) Enhance legal and regulatory authorities to better posture CBP and interagency partners to address emerging threats; 2) Enhance and adapt all affected CBP operations to respond to emerging supply chain dynamics created by the rapid growth in e-commerce; 3) Drive private sector compliance through enforcement resources and incentives; and 4) Facilitate international trade standards for e-commerce to support economic prosperity. Well, no more Mr. Nice Guy!

The EO calls for an Importer of Record Program which starts with the issuance of a proposed rule that will establish criteria importers must meet to obtain an importer of record number. Any suspended or debarred person (which includes individuals and business entities of all forms) will not be eligible to obtain such a number. Within 60 days of publication of any suspended or debarred person in the System for Award Management, see SAM Search Page, the Regulated Parties are required to notify CBP of any attempt to import about which they “know or have reason to believe” by such persons.  Enforcement could take the form of limiting the participation of any of the Regulated Parties in any CBP trusted trader program, but also revocation of operating privileges or suspension or revocation of any broker license.

There will be similar restrictions placed on international mail services. Metrics will be established by which each international mail post will be rated. The rate of trafficking through each post will be considered, as will the effectiveness of that post to reduce such trafficking, along with cooperation with CBP. Compliance scores are to be updated quarterly subject to a minimum threshold. If the international post is found to be non-compliant for two quarters, targeting shall be increased. If the international post is found to be non-compliant for 6 or more quarters, additional documentation may be required, but all appropriate efforts should be made to prevent importation of any shipment from that international post if the additional information requested is not “promptly” provided. If the international post is non-compliant for 8 or more quarters,  measures should be taken to prevent importation of any packages from that location.

Information about seizures in the international mail and express consignment environments that involve specific types of violations should be published. Those violations deal with intellectual property rights, illegal drugs and other contraband, incorrect country of origin, under valuation and other violations related to CBP’s priority trade issues (i.e., Agriculture and Quota;  Antidumping and Countervailing Duty; Import Safety; Intellectual Property Rights;  Revenue; Textiles/Wearing Apparel and Trade Agreements). When deciding what to publish, repeat offenses are to be given greater weight.

Also under consideration is whether any fees CBP assesses should be revised. Beside the fact that customs brokers have been added to the list of possible targets and are the only parties named that generally do not see or handle the cargo, the definition of an e-commerce platform is worthy of note. An e-commerce platform is defined to mean “any web-based platform that includes features primarily designed for arranging the sale, purchase, payment, or shipping of goods, or that enables sellers not directly affiliated with an operator of a web-based platform to sell physical goods through the web to consumers located in the United States [emphasis added].” In short, the focus of this effort is third party platforms, not those a company itself operates.

Also adding to the “fun” are the newly announced additional products subject to the steel and aluminum tariffs. Specifically, on January 24, 2020, two Presidential Proclamations were issued, one for steel and the other for aluminum “derivative” products. The additional tariff took effect on February 8, 2020. A list of those products can be found here:  232 Derivative Products – Annexes I and II.  Countries which were exempted from the earlier round of these tariffs remain exempted. When it comes to the aluminum tariff, the list is Argentina, Australia, Canada and Mexico. Regarding the steel tariff, the list of exempted countries is Argentina, Australia, Brazil, Canada, Mexico and South Korea. The tariff rate on the derivative products is the same – 10% on those made of aluminum and 25% on those made of steel.

While by no means a list of all the trade-related events that happened since the turn of the new year, as if all of these events was not challenging enough, there is the seriousness of the coronavirus. The health consequences are being vigorously covered in the general press and are truly frightening. What is getting less attention, and for the obvious reason that the health threat is more immediate and potentially deadly, is the impact on the supply chain. As has been widely reported, the Lunar New Year holiday has been extended by the Chinese government, but the date to which it has been extended is open to question. Most sources are reporting the holiday has been officially extended until mid-February, with the exact date varying by province in China. However, many local factories are reporting they are being told they cannot reopen until March 1 at the earliest.  Equally consequential is the inability of many businesses outside China to have their workers return which, therefore, means production outside of China is also seriously impacted by the lack of workers and the lack of China-sourced raw materials and inputs. Obviously the potential consequences of this pandemic spread deep into everyday lives on many fronts. That having been said, to this point, there is no indication additional screening is being required of cargo, only arriving passengers.