Lenny Feldman, Senior Member | Sandler, Travis & Rosenberg Trade Report
Importers, customs brokers, and supply chain service providers are likely to see important changes affecting customs and trade policy in 2018. Tighter regulation of e-commerce, tougher enforcement of laws, and new developments in trade preferences, supply chain security, and other areas will all pose challenges to even the most experienced operators. This article highlights five issues that might affect your business this year and how you can successfully respond to each.
E-Commerce – Develop Your Strategy
As online sales continue to skyrocket, so too does U.S. Customs and Border Protection’s interest in stanching the resulting increase in illicit small-package trade while facilitating legal shipments. As a result, CBP and other government agencies are expected to start establishing a framework for the automation, data, processes, and liabilities pertaining to e-commerce handlers and fulfillment enablers.
Companies should place a priority on developing and implementing an e-commerce strategy that will address importer of record/right to make entry requirements, data and information receipt and dissemination, filing opportunities and restrictions, and terms and conditions with business partners.
NAFTA and GSP – Consider the Alternatives
As negotiations to update NAFTA stumble, there is increasing concern that the U.S. may actually withdraw from this foundational free trade agreement, which would have significant ramifications for sourcing for numerous industries. In addition, the recent expiration of the Generalized System of Preferences has once again halted duty breaks on imports of thousands of products from more than 100 countries, with no clear indication as to when those benefits might be restored.
Traders should carefully examine how their goods may qualify for duty-free treatment under other available agreements or programs. In particular, importers should take a closer look at using the First Sale Rule, which yields a 10-20 percent average tariff reduction by basing the dutiable value on the first sale, rather than the last, in a multi-tiered import transaction.
Trusted Trader – Position Yourself for Benefits
Companies focused on return on investment should act now to refocus on or recalibrate their participation in trade partnership programs. Membership in CBP’s CTPAT (supply chain security) and ISA (import compliance) programs has plateaued, prompting CBP to launch efforts to enhance these initiatives by updating requirements and providing more benefits. For example, with CBP’s ten Centers of Excellence and Expertise now fully operational, trusted accounts can expect not only fast track and front of the line privileges at border crossings but also greater penalty mitigation in enforcement actions.
To take advantage of benefits under the updated CTPAT and ISA programs, importers will have to demonstrate effective processes and procedures that meet the reasonable care standard on issues like classification and valuation while addressing admissibility standards related to other government agencies, intellectual property, and forced labor.
Trade Remedies – Look Carefully at Your Supply Chain
The Trade Facilitation and Trade Enforcement Act enacted in 2015 revved up federal efforts to enforce trade remedy laws, including by giving CBP a bigger role in investigating efforts to circumvent antidumping and countervailing duty orders. However, the Trump administration put the pedal to the metal in 2017 by issuing executive orders calling for enhanced or supplemental bonding to secure the payment of AD/CV duties after billions of dollars in such revenues were lost in recent years. The administration also took the unusual step of self-initiating national security and global safeguard investigations on products such as steel, aluminum, and clothes washers, introducing an element of uncertainty that has required importers to carefully weigh sourcing options to avoid supply chain disruptions.
In this environment companies are well-advised to consider tactics such as availing themselves of AD/CV duty rates for specific manufacturers and shippers (which are generally lower than the country-wide or “all others” rates), properly identifying and declaring manufacturers and shippers (and combinations thereof), and intentionally increasing import volumes during gap periods between the effective dates of orders.
In-Bond Movements – Map Out the Data Flows
Last fall CBP overhauled the requirements of its in-bond program, which allows imported goods to be entered at one port of entry without appraisement or payment of duties and transported to another destination for entry or exportation. Changes include requiring carriers to file in-bond applications (CBP Form 7512) electronically in most cases, specifying a 30-day window for transportation of in-bond shipments, and revising the time frame for reporting or updating in-bond records. However, a requirement to submit additional data elements, including the six-digit classification number under the Harmonized Tariff Schedule of the U.S., has sparked major concerns.
CBP has indicated a willingness to initially allow for an informed compliance period for the HTSUS number requirement, but in the meantime, companies need to make any necessary adjustments to their processes and controls to ensure they have HTSUS numbers and other required information. Failure to adequately prepare could result in cargo delays, holds, and liquidated damages claims.
All parties involved in global supply chains will feel the impact of the legal, regulatory, and policy changes anticipated in the coming months. Particularly in the areas of e-commerce, NAFTA and GSP, trusted trader, trade remedies, and in-bond movements, taking the right steps now to adjust and enhance internal controls, policies, and procedures will help companies address new challenges while taking advantage of new opportunities.