TRADE IN THE TIME OF CORONAVIRUS UPDATE #8

At Neville Peterson LLP, we’re continuing to work in remote mode, as the COVID-19 crisis appears, at last, to be winding down a bit.  Herewith, the latest news affecting international trade.

China Relations Keep Going Downhill:

            The President’s Phase I trade deal with China hangs in the balance, as trade relations between the two superpowers continue to go downhill. Following an announcement from Secretary of State Pompeo that Hong Kong was no longer considered autonomous from China, the Chinese Trade Minister apparently told two large state-owned agriculture companies, Cofco and Sinograin, to stop buying American goods. Under the Phase I deal, China has made a commitment to buy certain quantities of United States-origin goods during 2020-21. The President has repeatedly threatened to impose additional sanctions on China if that country does not meet its purchase commitments. Whether the COVID-19 crisis would block those commitments from being met has been a subject of considerable speculation.

            US Trade Representative Robert Lighthizer struck a more conciliatory tone in a virtual event with the Economic Club of New York, indicating that the COVID-19 pandemic made it hard for China to get its economy in running order before March 1, and that he believed China was making a serious effort to meet its commitments under the pact.

Hong Kong: About That State Department Finding:

            The Hong Kong Policy Act of 1992 provides various ways in which United States treats Hong Kong as a separate sovereign, notwithstanding Britain’s ceding the city-state to China some 28 years ago. The Act provides that the United States and Hong Kong may enter into bilateral agreements dealing with various topics such as investment, transportation, extradition, trade and banking, either completely independently or with provision of notice to Beijing. The Act requires the Secretary of State to certify that Hong Kong continues to be an autonomous entity, a finding the Secretary made every year until this one.

The Secretary’s finding has no immediate consequences, but leads to extended policy reviews to determine whether the United States should remove privileged treatment from Hong Kong in various areas. The Secretary can issue waivers even after making a finding of “no autonomy”.  The U.S. Chamber of Commerce and other groups have urged the Administration to go slow on any such measures. However, actions the United States might take would include treating Hong Kong as part of China for purposes of export control laws, which would slow the flow of technology to Hong Kong, and by extension, China. In the import area, China enjoys the same Normal Trade Relations (NTR) status as Hong Kong, but Hong Kong products could be subject to Section 301 tariffs which the President has imposed on Chinese goods, as well as antidumping and countervailing duties imposed on Chinese products. It is believed that approximately 50% of Hong Kong’s $16.1 billion exports to the United States could be affected by Section 301 tariffs. United States exports to Hong Kong totaled $50.8 million in 2018.

More Section 301 Action:

            The United States Trade Representative has announced a series of new Section 301 unfair trade investigations against various foreign countries which have adopted, or are in the process of adopting, digital services taxes. Should an investigation determine these digital taxes to be in violation of international trade rules, the United States could impose retaliatory measures, including the imposition of tariffs on goods from offending countries.

            In addition, the Department of Commerce announced a new Section 232 investigation to determine whether of imports of vanadium constitute a threat to national security.

EU Pursues Medical Supplies Trade Deal:

            Just days after lifting its pandemic-driven restrictions on the exports of medical equipment and supplies, the European Union is proposing negotiations aimed at a global agreement to eliminate tariffs and trade restrictions on medical supplies and pharmaceuticals.

USMCA Implementation Draws Near: 

            According to certain Customs officials, CBP is planning initially to have a lax approach to enforcement of certifications of origin, once the U.S.-Mexico-Canada agreement enters into force on July 1, 2020. According to Maya Kumar, CBP’s director of textiles and trade agreements, “the first six months of this trade agreement we can pretty much say there will be little to no enforcement.” The comments were given at a recent agency webinar. CBP stressed that it wishes to avoid putting “trade under stress”. Customs also noted that should an importer be issued a CBP Form 28 Request for Information on USMCA matters during the initial months of the deal, the agency will allow extra time for importers to get the documents they need from a supplier.

            The Administration is also pursuing a legislative fix to one of the provisions in the USMCA implementation act which indicates that post-entry USMCA claims can be filed to recover duties, but not to recover merchandise processing fees. CBP’s Interim Instructions on USMCA implementation contained the restriction, which resulted from an oversight in the USMCA Implementation Act which Congress passed earlier this year.

            The United States Trade Representative also published the new Uniform USMCA Regulations, which govern the making of claims for preferential treatment, rules of origin, textile trade and Customs administration.

CBP Issues Proposed Customs Broker Regulatory Overhaul

            Customs and Border Protection has issued proposed new regulations “modernizing” the regulation and supervision of licensed Customhouse brokers. The new regulations eliminate Customs “districts” into which brokers were categorized, as well as eliminating “district permits” for brokers. All brokers will operate under a national permit, and be permitted to locate their offices anywhere in the Customs territory of the United States. CBP will eliminate the requirement that firms employ at least one licensed broker in each Customs district, and require only that enough brokers be employed to allow the exercise of “responsible supervision and control” over the Customs business they do. A new definition of “responsible supervision and control” has also been formulated.

            Broker regulation will be transferred from port offices to CBP’s Centers of Excellence and Expertise (CEE), and fees for individual and organization broker’s licenses will be increased.

            Two requirements are likely to be controversial. First, CBP will no longer allow brokers to accept powers of attorney from freight forwarders, and will require brokers instead to obtain powers of attorney directly from importers themselves. Second, the proposed regulations would require brokers to notify Customs in writing whenever they drop a client who they believe is attempting to defraud, or perpetrate a crime, against the government. This is part of an effort to turn brokers into a “force multiplier” for Customs enforcement. 

            Customs is accepting comments on the proposed regulations.

            For help regarding these or other trade topics in these challenging times, please contact a Neville Peterson LLP professional.