On June 13, 2022, U.S. Customs and Border Protection (CBP) issued its Operational Guidance for Importers, to assist the trade community in preparing for the UFLPA rebuttable presumption. The operational guidance includes resources for supply chain diligence and tracing and information regarding the nature and type of information that may be required when an importer requests a UFLPA exception, such as:
(1) Documentation showing a due diligence system for suppliers, employees, and stakeholders.
(2) Supply chain tracing information detailing the overall supply chain and records specific to the imported merchandise and its components.
(3) Information on supply chain management measures, such as internal controls to prevent forced labor.
(4) Documentation that traces the supply chain to show that the goods were not mined, produced, or manufactured wholly or in part in the XUAR.
On June 17, 2022, the FLETF, chaired by the Department of Homeland Security (DHS), introduced its Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China, providing greater detail on the risk of forced labor and plans to support forced labor prevention. Importantly, the guidance further expounded upon the level of due diligence expected of importers in managing supply chain risks and in mapping the entirety of their supply chains.
On June 21, 2022, the UFLPA went into effect with the trade community anticipating how implementation would look in a practical sense. Since enforcement began, CBP’s monthly operational guidance shows active targeting of shipments made with forced labor. In October alone, CBP targeted nearly 400 entries for suspected use of forced labor in the production of imported goods valued at more than USD $129.8 million. To date, other than monthly operational updates, CBP has published limited UFLPA enforcement data, although sources state that UFLPA seizures neared 1,600 by November 2022.
Since the UFLPA went into effect, importers and suppliers have identified practical implementation as the leading challenge due to the vast amount of supply chain formations that could arise and the overall complexity of supply chain tracing. Obtaining information from upstream suppliers, tracing commingled merchandise, and obtaining credible insight into overseas operations are among the barriers importers face in achieving compliance. As CBP has put technology at the forefront of UFLPA enforcement, platforms for DNA testing and trace element identification are among the many emerging ideas for meeting new forced labor requirements.
CBP is considering numerous proposals to streamline enforcement measures and provide greater visibility for importers. On November 2, 2022, CBP published the UFLPA Region Alert enhancement to the Automated Commercial Environment (ACE), which will use postal codes to provide early notification to importers of goods that may have been produced in the XUAR. The implementation date is yet to be determined; however, this enhancement is one of several expected to come as forced labor enforcement continues to rise.
For importers seeking to gain more insight into the UFLPA, CBP and DHS have published several resources to aid in forced labor compliance, including FAQs, fact sheets, and government resources available on the CBP and DHS webpages.
II. CTPAT Introduces New Anti-Forced Labor Requirements
In 2022, CBP announced the rollout of new forced labor-related requirements to the Customs Trade Partnership Against Terrorism (CTPAT) program. CTPAT is a voluntary program under which U.S. importers agree to implement certain anti-forced labor measures in exchange for specific benefits. The CTPAT program has two “sides:” the Security side, to which all 11,000-plus CTPAT partners belong, and the Trade Compliance side, to which a subset of CTPAT partners belong. CBP maintains oversight over both sides of the program. CBP announced forced labor-related enhancements on the CTPAT Security side and six new forced labor requirements on the CTPAT Trade Compliance side.
A. CTPAT Security & Forced Labor
As of January 2023, all CTPAT Security partners must have a documented social compliance program in place. Before January 2023, having a social compliance program was listed as a “should” and not a “must” for CTPAT partners. At a minimum, the social compliance program must address how the company ensures the goods it imports into the United States are not “mined, produced or manufactured, wholly or in part, with prohibited forms of labor (i.e., forced, prisoner, indentured, or indentured child labor).” It should also include policies and practices to implement the Code of Conduct’s social and labor-related elements and address the partner’s responsibilities to certain stakeholders.
B. CTPAT Trade Compliance & Forced Labor
In 2022, CBP outlined additional anti-forced labor requirements for CTPAT Trade Compliance partners which are more comprehensive than the social compliance program detailed in the Minimum-Security Criteria. As described by CBP, the new forced labor requirements are divided into six sections:
(1) Risk-Based Mapping: Partners must conduct risk-based mapping of their entire supply chains, including “the regions, suppliers, etc. that the importer feels” pose the most forced labor risk.
(2) Code of Conduct: “Partners must create a Code of Conduct statement that represents their position against the use of Forced Labor within any part of their supply chain” and must have policies and procedures to operationalize the Code of Conduct. Partners must publicly publish their Code of Conduct, upload it to the CTPAT portal, and integrate the Code of Conduct into their social compliance program.
(3) Evidence of Implementation: Partners must provide CBP with evidence of implementation of their social compliance program (including their Code of Conduct). Additionally, partners must identify high-risk parts of their supply chain and be ready to provide CBP with related requested information.
(4) Due Diligence and Training: “Partners must provide training about the social compliance program requirements to their suppliers that identifies the specific risks and helps identify and prevent forced labor in the supply chain” and be ready to provide CBP with proof of training, if requested.
(5) Remediation Plan: If forced labor is identified in their supply chain, partners must maintain a remediation plan and provide it to CBP if requested. Remediation plans must include a process to disclose identified forced labor to CBP and outline steps for corrective actions.
(6) Shared Best Practices: Partners must share best practices for mitigating forced labor with CBP, as appropriate, to help mitigate the risk of forced labor.
Existing CTPAT Trade Compliance partners must implement these six elements by August 1, 2023. Since August 1, 2022, prospective CTPAT Trade Compliance partners must have had these elements in place when they applied for the program.
In addition, Trade Compliance partners have been provided with new forced labor-related benefits:
(1) Prioritized Reviews: Partners whose products have been detained due to forced labor concerns will have their admissibility packages sent to the “front of the line” and prioritized for review upon request.
(2) Avoiding Redelivery: Partners whose products have arrived at their facilities, but are later held due to forced labor ties, may hold shipments at their warehouses, rather than redelivering the goods to CBP as would normally be required. Goods may stay at the partners’ facilities until an admissibility decision is made or until the physical inspection is required.
(3) Holds in Bonded Facilities: Partners who have had goods detained subject to a Withhold Release Order may move their goods to a bonded facility until an admissibility decision is made.
III. Import Restrictions and Duty Implications of Russian-Origin Products
On February 24, 2022, the Russian Federation (Russia) invaded Ukraine. The response to that invasion has included significant economic sanctions on Russia and Belarus and several Western companies pulling out from or halting their business operations in Russia, disrupting global trade flows. While the most significant impact of the invasion and ongoing war in Ukraine remains unquestionably the humanitarian crisis it has created, the tranche of economic sanctions imposed in response has included notable changes to the rules for importing Russian-origin goods. This short commentary focuses on U.S. import measures imposed on Russia.
A. Restrictions on Imports from the Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) Regions of Ukraine
The first U.S. import restrictions imposed on Russia immediately followed the Russian government’s decision to recognize the DNR and LNR as independent from Ukraine. On February 21, 2022, the Biden Administration responded by issuing Executive Order 14065. That Executive Order imposed comprehensive trade sanctions on the DNR and LNR, including a ban on all imports into the United States of any goods, services, or technology from these regions.
B. Restrictions on Imports from Russia
Like the import ban from DNR and LNR, the United States has imposed various import restrictions on goods from Russia or goods that are of Russian origin. These include restrictions on imports of crude oil, petroleum, energy products, and gold, as well as a ban on certain items from key Russian sectors, such as seafood, alcohol, and non-industrial diamonds.
C. Suspending Normal Trade Relations with Russia and Belarus
As the conflict in Ukraine escalated in April of 2022, President Biden signed a bill that revoked Russia’s Normal Trade Relations (NTR) status (the Suspending NTR Act), thereby giving the President the authority to raise tariffs on Russian goods beyond most-favored-nation (MFN) levels at the World Trade Organization (WTO).
For some imported products from Russia, simply revoking NTR status caused a significant increase in import duty. For many other products, the effect was more modest, given that, under then-existing U.S. tariff codes, there was little difference between the MFN import duty rate and the import duty rate for countries that do not have MFN privileges.
Under the authority of the Suspending NTR Act, on June 27, 2022, President Biden signed a proclamation increasing the duty rate applicable to a range of Russia-origin products to thirty-five percent ad valorem. The duty increase applies to more than 570 tariff subheadings, which were listed in Annex A to the proclamation. These subheadings covered raw materials and other production inputs (e.g., certain chemicals, minerals, textiles, and articles made from steel, aluminum, or copper) in addition to finished goods (e.g., certain machinery, lighting equipment, electrical devices, and optical equipment). The additional duty took effect on July 27, 2022.
D. U.S. Commerce Department Downgrades Russia to Nonmarket Economy Status
The most recent U.S. custom import trade restriction on the Russian economy occurred on November 10, 2022, when the U.S. Department of Commerce (DOC) announced that it had reclassified Russia as a nonmarket economy. This designation means that the U.S. government will no longer treat Russia as a market economy in antidumping proceedings. Specifically, the application of DOC’s “non-market methodology” in antidumping proceedings is essentially a summary finding that the Department cannot rely on the costs reported by Russian manufacturers in the dumping calculation. This generally results in significantly higher duty rates through the use of surrogate costs from comparable market economy producers.
IV. Notable CIT and CAFC Cases in 2022
This section covers 2022 cases from the Court of Appeals for the Federal Circuit (CAFC) and the Court of International Trade (CIT) that have significant ramifications for U.S. customs law.
A. CAFC Clarifies the “First Sale Price” Valuation Rule for Nonmarket Economies in Meyer Corp. v. United States
In Meyer Corp. vs. United States, the CAFC vacated and remanded the CIT’s decision on the issue of first sale valuation regarding merchandise from a nonmarket economy. In its decision, the CAFC clarified its prior holding in Nissho Iwai American Corp. v. United States and held that importers are not required to prove the “absence of any market-distortive influences” in order to declare the “first sale” transaction value in multi-tiered transactions involving merchandise from nonmarket economies.
The value of imported merchandise is calculated using the transaction value (price actually paid or payable), when viable, in accordance with 19 U.S.C. § 1401a(a)(1). In a multi-tiered transaction, the “first sale” transaction value is the price paid by the middleman to the foreign seller for the merchandise in question, rather than the price paid by the importer to the middleman. In Nissho, the CAFC held that importers may declare the first sale price “when the goods are clearly destined for export to the United States and when the manufacturer and the middleman deal with each other at arm’s length, in the absence of any nonmarket influences that affect the legitimacy of the sales price.”
Interpreting Nissho Iwai in 2021, the CIT in Meyer Corp. required the plaintiff to prove the “absence of any market-distortive influences” from a nonmarket economy, such as China, in order to declare the value of the first sale transaction. Disagreeing with the CIT, the CAFC held that this requirement is extraneous because the “absence of nonmarket influences” is determined based on the effects of the relationship between the buyer and the seller on the price, not whether the transaction was affected by a foreign government’s market-distortive influences. Further, the CAFC held that Congress did not expressly distinguish market economies from nonmarket economies in § 1401a, nor did it authorize differing treatment in any other related provision. The CAFC’s holding in Meyer Corp. eliminates the CIT’s extraneous burden on importers to prove the absence of market-distortive influences from foreign governments when declaring the first sale transaction value.
B. The CIT Remands Lists 3 and 4 to the USTR
In a slip opinion published on April 1, 2022, the CIT held that the Office of the United States Trade Representative (USTR) had the authority to modify the section 301 action in response to Chinese retaliatory tariffs. The CIT explained that “modifications are based on activity increasing (or decreasing) the burden on U.S. commerce after the initial determination,” and therefore, what matters is not the timing but whether the USTR found that China’s retaliation increased the burden from the “acts, policies, and practices” that were “subject of the action.” The CIT determined that the USTR Report provided a basis for considering China’s retaliation “within the scope of the acts, policies, and practices” constituting the original action because China’s conduct was intended to uphold those same unfair trade policies. Thus, the CIT held that the USTR did not exceed its authority by promulgating Lists 3 and 4A.
On the other hand, the CIT conceded that the USTR failed to provide sufficient rationale for the tariffs in the notice and comment process as required by the Administrative Procedure Act (APA). The CIT held that “the USTR was required to address comments regarding any duties to be imposed, the aggregate level of trade subject to the proposed duties, and the products covered by the modifications,” and that such action must be taken “in light of section 301’s statutory purpose to eliminate the burden on U.S. commerce . . . and subject to the specific direction of the President, if any.” But the USTR’s responses failed to adequately explain how it came to its decision to act and why it chose to act the way it did. Although the USTR cited the direction of the President and the harm of Chinese policies as reasons for taking action, the CIT explained that the agency solicited comments and had an obligation to respond to significant issues they raised under the APA. The CIT remanded the USTR’s actions for further explanation while List 3 and 4A tariffs remain in effect.
C. The CIT Denies Summary Judgment for Importers who Claimed Government’s Customs Fraud Action was Time Barred in United States v. Greenlight Organic, Inc.
On August 4, 2022, the CIT denied the defendants’ motion for summary judgment in United States v. Greenlight Organic, Inc. upon finding that the undisputed facts were insufficient to establish the date of discovery of fraud.
The government brought a civil enforcement action on February 8, 2017, to recover unpaid duties and affix penalties against the defendants under 19 U.S.C. § 1592 for allegedly undervaluing and misclassifying imported wearing apparel. In a motion for summary judgment, the defendants claimed that the statute of limitations had run under 19 U.S.C. § 1621(1), contending that the fraud was discovered on May 31, 2011, when a competitor reported the defendants’ double invoicing to Immigration and Customer Enforcement (ICE). Alternatively, the defendants argued that the date of discovery of fraud was on October 31, 2011, when ICE allegedly opened a criminal investigation into the defendants’ double invoicing. Alternatively, the defendants argued that the date of discovery of fraud was on December 19, 2011, when Customs personnel interviewed officials at the defendants’ offices and subpoenaed the defendants for information. On the other hand, the government argued that the statute of limitations did not begin to run until at least February 9, 2012, when it first received physical records that evidenced the defendants’ double invoicing.
In denying the defendants’ motion for summary judgment, the CIT explained that the date of the discovery of fraud was defined in United States v. Spanish Foods, Inc. (Spanish Foods I) as “the date when the plaintiff first learns of the fraud or is sufficiently on notice as to the possibility of fraud to discover its existence with the exercise of due diligence,” specifically the date when Customs comes into possession of information or knowledge that “(1) amount[s] to more than a mere suspicion; and (2) could have led a man of ordinary prudence to learn of the fraud or the possibility of fraud under the particular circumstances." But the CIT further explained that the inquiry of the date of discovery of fraud is fact-intensive, and not often resolved by summary judgment. As many facts were in dispute when the motion was filed, the CIT denied summary judgment.
V. Section 201 Tariffs on Imported Crystalline Silicon Photovoltaic Cells
On January 23, 2018, pursuant to section 203 of the Trade Act of 1974, as amended, President Trump issued Proclamation 9693 imposing a four-year safeguard measure that included both a tariff-rate quota (TRQ) limiting the amount of crystalline silicon photovoltaic cells (CSPV cells) allowed for import into the United States as well as an increase in duties on imports of these products (hereinafter Section 201 tariffs). The scope of the safeguard measures includes CSPV cells partially and fully assembled into other products, such as solar panels. These Section 201 tariffs, which are in addition to any preexisting duties, were initially set at 30 percent but gradually reduced to 15 percent in the fourth year of the order. Imports of CSPV cells from designated WTO member developing countries were excluded from the Section 201 tariffs and not counted toward the TRQ limits.
On February 1, 2022, a U.S.-Mexico-Canada Agreement (USMCA) panel ruled that the imposition of safeguard measures on imported CSPV cells violated U.S. obligations under USMCA, requiring the exclusion of Canada from such safeguard measures.
On February 4, 2022, President Biden issued Proclamation 10339 announcing that safeguard measures on imports of CSPV cells continue to be necessary to prevent or remedy serious injury to the domestic industry. This action extended the safeguard measures invoked in 2018 for an additional four years with certain modifications effective February 7, 2022. The TRQ within-quota quantity of 5.0 GW per year and exclusion of bifacial panels from safeguard measures remained unchanged. But the duty rates of the Section 201 tariffs applicable to imported CSPV cells were reduced to 14.75 percent in the first year and gradually stepped down to fourteen percent in the fourth year of the action. Imports of CSPV cells from designated WTO member developing countries remain excluded from the Section 201 tariffs.
On July 8, 2022, the United States and Canada signed a Memorandum of Understanding resolving a USMCA dispute and suspending Section 201 tariffs on unliquidated entries of CSPV cells eligible for USMCA treatment effective February 1, 2022. The agreement and its terms also apply to Mexican CSPV cell imports.
VI. Section 232 Tariffs on Imported Steel and Aluminum Products
In March 2018, President Trump issued Proclamations 9704 and 9705, announcing concurrence with the Secretary of Commerce’s determination that aluminum and steel articles were being imported into the United States in quantities and under circumstances that threatened to impair the national security of the United States. Under the authority of section 232 of the Trade Expansion Act of 1962, the President authorized additional tariffs of twenty-five percent on steel articles and ten percent on aluminum articles imported from most countries effective March 23, 2018 (Section 232 tariffs). Legal challenges arguing that these tariffs resulted from an unconstitutional delegation of authority to the president that allowed too much discretion were unsuccessful. The tariffs remain in place.
On December 27, 2021, President Biden issued Proclamation 10328, announcing the United States had successfully concluded discussions with the European Union regarding imports of steel articles from EU member countries. The United States agreed to implement a TRQ system for steel articles that are melted and poured in the European Union. Only items entered after the quota quantity is exceeded will be subject to Section 232 tariffs. Items granted exclusions from the tariffs will not be subject to the TRQ limits. All exclusions granted and utilized to import steel products tariff-free from the European Union in fiscal year 2021 were renewed for two calendar years.
The United States reached an agreement with the United Kingdom in March 2022 to allow historically based volumes of U.K. steel and aluminum products to enter the United States free from Section 232 tariffs. In May 2022, The United States announced a one-year suspension of Section 232 tariffs on Ukrainian steel products.
The DOC continues to administer a Section 232 tariff exclusion process. Exclusions from the tariffs have been granted for items not available from U.S. sources. Exclusions are granted for twelve months and may be renewed. Exclusions granted in the past fiscal year will be automatically extended through the end of 2023 without the need to submit a renewal request. On December 14, 2020, the DOC published an Interim Final Rule revising the process for requesting exclusions and adding 123 General Approved Exclusions (GAEs). Any importer may use these GAEs, and they do not include quantity limits. On December 9, 2021, the DOC published an Interim Final Rule removing twenty-seven GAEs for steel and five GAEs for aluminum imports.
VII. Section 301 Tariffs on Imports from China
In 2022, certain product exclusions from the section 301 of the Trade Act of 1974 (Section 301) tariffs on China-origin goods were reinstated, while the majority of previously granted exclusions have expired. As of the end of 2022, the Section 301 tariffs themselves are under review.
As background, the USTR has imposed four rounds of tariffs on China-origin goods based on its Section 301 investigation initiated in August 2017 of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. The USTR initially imposed Section 301 tariffs on approximately USD $50 billion of annual imports from China, divided into “List 1” goods (worth USD $34 billion), which became effective on July 6, 2018, and “List 2” goods (worth USD $16 billion), which became effective on August 23, 2018. The USTR subsequently imposed two additional rounds of tariffs, known as “List 3” (on goods worth USD $200 billion) and “List 4A” (on goods worth USD $126 billion). Collectively, the four lists are known as the Section 301 tariff actions, as modified.
On March 23, 2022, the USTR announced the reinstatement of previously expired tariff exclusions for 352 categories of products covered by the Section 301 tarpreviously grantedin goods. The USTR applied the reinstated tariff exclusions retroactively to October 12, 2021, and extended the exclusions through December 31, 2022. Separately, on May 27, 2022, the USTR published another Federal Register notice extending Section 301 tariff exclusions for eighty-one medical-care products needed to address the COVID pandemic for six months, through November 30, 2022. Beyond these select reinstated exclusions, all other previously-granted Section 301 product exclusions have expired.
On May 5, 2022, the USTR announced that under section 307(c)(2) of the Trade Act, the Section 301 tariff actions, as modified, were subject to possible termination on their respective four-year anniversary dates (i.e., July 6, 2022 and August 23, 2022), and notified representatives of domestic industries which benefit from the Section 301 tariffs of the opportunity to request continuation of the actions. On September 8, 2022, the USTR issued a notice that the Section 301 tariff actions, as modified, would remain in effect because at least one representative of a domestic industry, which benefits from each action, submitted to the USTR a request for continuation of the action. This notice also announced that, in accordance with section 307(c)(3) of the Trade Act, the USTR would review the Section 301 tariff actions.
The Trade Act requires the USTR to conduct a review of “(A) the effectiveness in achieving the objectives of Section 301 of (i) such tariff actions, and (ii) other actions that could be taken (including actions against other products or services), and (B) the effects of such actions on the United States economy, including consumers.” On October 17, 2022, the USTR published a notice in the Federal Register requesting comments in its four-year review of the Section 301 tariffs. The comment portal opened on November 15, 2022, and closed on January 17, 2023.
Interested persons were able to submit comments concerning any aspect of the above considerations, including comments on:
(1) The effectiveness of Section 301 tariff actions in eliminating China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation.
(2) The effectiveness of Section 301 tariff actions in counteracting China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation.
(3) Other actions or modifications that would be more effective in obtaining the elimination of or in counteracting China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation.
(4) The effects of the actions on the U.S. economy, including U.S. consumers.
(5) The effects of the actions on domestic manufacturing, including capital investments, domestic capacity and production levels, industry concentrations, and profits.
(6) The effects of the actions on U.S. technology, including in terms of U.S. technological leadership and U.S. technological development.
(7) The effects of the actions on U.S. workers, including with respect to employment and wages.
(8) The effects of the actions on U.S. small businesses.
(9) The effects of the actions on U.S. supply chain resilience.
(10) The effects of the actions on the goals of U.S. critical supply chains outlined in Executive Order 14017 and subsequent reports and findings.
(11) Whether the actions have resulted in higher additional duties on inputs used for manufacturing in the United States than the additional duties on particular downstream product(s) or finished good(s) incorporating those inputs.
On November 1, the USTR published a comment form prescribing the submission format for public comments. The comment form separates the questions into three sections (A, B, and C) and invites views concerning the Section 301 actions at increasing levels of specificity. Section A invites comments on the effectiveness of the tariffs at an economy-wide level. Section B invites comments on the effectiveness of the tariffs at a sector/industry level, including comments on the effects of the actions on domestic manufacturing, supply chain resilience, U.S. workers, and consumers of goods within the industry or sector. Section C invites comments at the level of individual Harmonized Tariff Schedule of the United States (HTSUS) tariff subheadings, including comments on whether those tariffs should be maintained, eliminated, or modified and whether additional subheadings should be added to the actions. The comment process thus presents an opportunity for interested parties to submit new exclusion requests as the USTR considers the future of the Section 301 tariffs.
VIII. Conclusory Remarks
Although 2022 has been a tumultuous year for global trade, there continued to be significant developments on the trade front. And despite the disruptive effects of the Russian-Ukrainian conflict and increasing enforcement actions by the US government, many trade practitioners continually found ways to adapt to unexpected changes to their business environment. These trends will likely continue in 2023.
