2021 Trade Update: Time to shift direction?

The year 2020 was the year of “pivoting” in terms of international trade. The pandemic had a devastating impact on trade, as supply chains throughout the world were faced with reduced available transportation capacity and congestion in many ports that brought with it many extra costs and surcharges. In short, shippers had to rethink how to safely and cost effectively move their freight.

Meanwhile, shippers also had to cope with Section 232 and 301 tariffs, ongoing Committee on Foreign Investment in the United States (CFIUS) investigations, the new United States-Mexico-Canada Agreement (USMCA) regulations among other new trade related initiatives.

Now, with a new U.S. regime change, here are some key international trade areas shippers need to understand heading into 2021 as they consider whether they need to continue to alter their trade compliance and supply chain strategies.

Continued retaliatory tariffs

The new administration under President-elect Biden will most likely work with U.S. allies to put pressure on China to stop its unfair trade practices. Biden has made statements that he would be tough against China and its predatory tactics on stealing U.S. technology.

So, right now, there’s no indication that the Biden administration will eliminate the Section 301 tariffs on Chinese goods, at least in 2021. The whole point of the Section 301 tariffs against China was because of the extensive violations on U.S. intellectual property—and it appears this will continue to be a concern.

However, on the flip side, there are still opportunities to file lawsuits for refunds of Section 301 tariffs for List 4A. There is a two-year statute of limitations to file for refund cases under 28 USC 1581(i), so it’s too late for List 3, but List 4A was not published until August 2019, so the deadline is August 2021 for items under 4A.

Brexit: New tariffs and requirements

The European Union imposed $4 billion in tariffs on U.S. goods on November 17, 2020. The list includes a 15% tariff on Boeing airplanes and a 25% tariff on a range of products including tractors, whiskey, suitcases, games, and exercise equipment. These tariffs are related to a disagreement over government subsidies given to Airbus and Boeing. A full list of HTS numbers can be found here: hts.usitc.gov/

Note that effective January 1, 2021, companies importing goods into the UK must have a UK value-added tax (VAT) or a Pseudo Turn number. A Pseudo Turn number is a nine-digit number issued for use on goods imported for trade purposes (for example: resale, commercial use, etc.) when the importer/exporter is not VAT registered with a legal entity. More information can be found here: gov.uk/vat.

New military end use regulations

The definition of “military end use” used to include both direct use and indirect use (such as items intended for development, production, or use of military items). As of June 2020, the definition of military end use has expanded to include ancillary applications and now covers items that support or contribute to the operation, installation, maintenance, repair, overhaul, refurbishing, development, or production of military items.

The new regulations states that you may “not export, reexport, or transfer (in-country) any item subject to the U.S. Commerce Department’s Export Administration Regulations (EAR) listed in Supplement No. 2 to part 744 to the People’s Republic of China (China), Russia, or Venezuela without a license if, at the time of the export, reexport, or transfer (in-country), you have ‘knowledge,’ as defined in 772.1 of the EAR, that the item is intended, entirely or in part, for a ‘military end use,’ as defined in paragraph (f) of this section, or ‘military end user,’ as defined in paragraph (g) of this section, in China (including Hong Kong), Russia, or Venezuela.”

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) clarifies that there are two types of military end users. A “military end user” means the national armed services (Army, Navy, Marine, Air Force, or Coast Guard), as well as the National Guard and national police, government intelligence or reconnaissance organizations, or any person or entity whose actions or functions are intended to support “military end uses.”

License exception GOV is still available for exports to U.S. government entities under EAR 740.11. So, make sure you have updated your end user statement process with these new regulations.

Committee on Foreign Investment in the U.S. (CFIUS)

CFIUS is a committee made up of 16 inter-government agencies authorized to review certain transactions involving foreign investment in U.S. transactions in order to determine the effect of such transactions on the national security of the U.S. The 16 agencies include the International Trade Administration (ITA) and the BIS, which throws export controls into the CFIUS decision-making process.

Effective October 15, 2020, the determination as to whether a CFIUS filing will be required is entirely dependent on whether a U.S. export authorization would be required to export the company’s “critical technology” to certain foreign persons involved in the transaction, regardless of whether an actual export of the technology has or is intended to occur. The new Treasury rule eliminates the NAICS code as a trigger for reporting or investigation.

Companies are now on the hook for determining their technologies and whether they fall under the CFIUS risk profile for a mandatory filing. It’s important to note that CFIUS only considers certain license exceptions as valid—License Exception Technology and Software Unrestricted (TSU), License Exception Encryption Commodities, Software, and Technology (ENC), and License Exception Strategic Trade Authorization (STA).

Trade Tip for 2021: Know your import tariff and export classifications

It’s key to understand how your products are classified under the Harmonized Tariff System (HTS) for import purposes. Your HTS classifications will determine duty rates (including Section 301 and 232 tariffs, antidumping, and countervailing duties), government agency requirements (i.e. FDA, FCC, ATF, etc.), and whether your products qualify for certain free-trade agreements.

Tariff wars will continue to be an issue in 2021, so it’s important to be able to quickly analyze the duty impact of the countries you ship to as well as the HTS numbers for your products as it will allow you to perform this analysis.

Export classifications, otherwise known as Export Control Classification Numbers (ECCN), will determine the export controls on your products in terms of export licensing, government reporting and other shipping restrictions. ECCNs apply not only to products and software, but also to technology.

If you employ foreign nationals (e.g. H1-B visa holders), the technology they work with is known as a “deemed” export because they will most likely leave the U.S. with this new knowledge of technology, therefore “exporting” it to their home country.

So, depending on the ECCN of the technology they work with, it could require an export license for the individual while they’re in the U.S. In the U.S., we’re also going to see new regulations surrounding emerging technologies such as artificial intelligence. It’s very possible that in 2021 we’ll see new ECCNs for emerging technologies, so it’s important to stay up to date on regulatory changes.

ACE reports

All of these trade-related issues require the analysis of data to decide whether a shipper has to shift their supply chain strategy. Many shippers are unaware that they can have access to all of their U.S. import and export data regardless of freight forwarder or customs broker.

The Automated Commercial Environment (ACE) is a free, secure, on-line portal for shippers to obtain their data. It’s administered through U.S. Customs and Border Protection and more information can be found on their website. ACE import/export transaction reports can help shippers understand where they’re incurring the most costs in terms of duties and fees; they provide the origin of goods if changes need to be made to their supply chains due to retaliatory tariffs; they provide visibility to errors in declarations; and they provide the data needed to analyze whether if there are opportunities to take advantage of a free trade agreement. It’s also a wealth of information for shippers to calculate their trade compliance metrics.

The year 2021 will bring many of the same issues for shippers that 2020 did, but the new administration under Biden will most likely be more methodical in trade related changes and allow for shippers to have time to pivot their supply chains.

Biden will most likely try to reverse or modify many of the executive orders that Trump put in place, but it will take time to do so. So, stay patient, and hopefully 2021 will be more predictable and less turbulent than 2020.