TRADE IN THE TIME OF CORONAVIRUS: UPDATE #9

At Neville Peterson LLP, we’re continuing to work in remote mode, as the COVID-19 crisis has eased in some areas of the country, but flared up in others.  Herewith, the latest news affecting international trade.

President Revokes Special Trade Status for Hong Kong

Following the Secretary of State’s certification under the Hong Kong Policy Act that Hong Kong is no longer autonomous from China, the President signed an order terminating China’s special trade status, effective July 14, 2020. Agencies have fifteen (15) days from that date to announce implementing actions. It is anticipated that goods manufactured in Hong Kong and imported into the United States will be required to be marked as “Made in China;” they will be subject to Section 301 retaliatory tariffs on Chinese-origin goods, where applicable. Although the volume of Hong Kong merchandise imported into the United States each year is not great, these changes will be significant for those dealing in such goods.

Other agencies are imposing restrictions on trade with Hong Kong as well. The Department of Commerce is effectively extending export controls to China on goods exported to Hong Kong. Initially, this will affect the availability of several export licensing exceptions, including TSR (technology and software under restriction), APR (additional permissive re-export), ENC (encryption), CIV (civilian end user; currently eliminated for China, Russia and Venezuela) and GBS (exports to Group B countries).

The State Department is also treating Hong Kong as part of China under the International Traffic in Arms Regulations (ITARs). Similar measures are being announced by other countries. Canada has extended much of its export control scheme on exports to China to include Hong Kong, and has announced that it will no longer allow extraditions to Hong Kong. The actions follow China’s adoption of a new Hong Kong security law, which many Hong Kong residents fear marks the end of the “one country, two systems” approach, agreed with Great Britain, when the former Crown Colony was handed over to China in 1984.

China has vowed to impose retaliation against the United States for its actions, although no specific measures have been announced.

CIT Limits President’s Power to Impose “National Security” Tariffs

The United States Court of International Trade has dealt a serious blow to the President’s imposition of sanctions against imported steel and aluminum pursuant to Section 232 of the Trade Expansion Act of 1962. In Transpacific Steel, Inc. v. United States, 20-98 (July 14th, 2020),  a three-judge panel of the Court held that the President’s power to “adjust imports” under Section 232, was constrained by the time limits set out in the statute. Once those time limits have expired, the Court held, the President’s authority to take action pursuant to a Section 232 report from the Secretary of Commerce has expired.

Transpacific Steel involved a challenge to the President’s decision to increase retaliatory tariffs against Turkish steel from 25 to 50% ad valorem. Transpacific had argued that the measure was not motivated by national security concerns and had deprived importers of due process rights. The Court held that the President’s action was invalid, because it was taken beyond the time specified in Section 232 from acting within specific time periods.

The decision also suggests that importers who have paid Section 232 duties on steel and aluminum imported from Canada, Mexico and the European Union could sue for recovery of those tariffs, since they were imposed after statutory deadlines had expired as well. It also indicates that the President’s attempts earlier this year to impose Section 232 tariffs on “derivative” steel and aluminum products, such as steel nails and aluminum wire, already being challenged in the courts, will be struck down.

The decision also casts doubts about the legality of the President’s threat to re-imposes Section 232 tariffs on imports of Canadian aluminum.

Customs Preparing New Regulation for Type 086 “Low Value Shipment” Entries

Customs has indicated that it is preparing regulations to implement new data collection processes for low value shipments ($800 or less) imported free of duty under Section 321 of the Tariff Act of 1930. Currently, Section 321 allows most low value shipments to be cleared on the carrier manifest without entry or payment of duty. However, the process is not available for shipments subject to requirements of “partner government agencies (PGA),” but those shipments can be imported duty-free using a type 086 entry.

CBP Trade Symposium Goes Virtual

Customs and Border Protection’s in-person Trade Symposium has been canceled as a result of the coronavirus pandemic. Instead, CBP plans to hold a “virtual trade event” in late August. CBP hopes to resume an in-person event in 2021.

New WRO Released for Disposable Gloves from Malaysia

CBP has issued a new “withhold release order” on disposable gloves from Malaysia effective July 15, 2020. The WRO applies to disposable gloves manufactured by Top Glove Sdn. Bhd. and TG Medical Sdn Bhd. Customs issues WROs in response to evidence that forced labor is used in a supply chain.

USMCA Correction Legislation Targeted for September

Legislators are hoping to pass technical corrections legislation for the United States-Mexico-Canada Agreement by September, according to various Capitol Hill sources. The legislation is intended to correct certain omissions in the USMCA Implementation Act, the most significant of which prevents companies from filing post-importation petitions for refunds of Customs user fees paid at the time of entry. As currently structured, USMCA only allows post-importation applications for refunds of duties.

US Threatens French Goods with Section 301 Tariffs

The United States Trade Representative has threatened to impose 25% retaliatory tariffs on imports of French make-up, soaps and handbags, if the countries cannot resolve their conflict over France’s new digital services tax. The United States contends that the tax, which would assess approximately $450 million per year from United States digital services companies violates international trading rules. France, the United States and other countries are engaged in WTO discussions to try and agree on a common framework for taxing digital services, but it is unclear if these negotiations will be successful.

As France has not yet imposed its tax, USTR has delayed implementation of the retaliatory tariffs until possibly as late as January 6th, 2021.

Customs Laws Reorganized?

The Office of Law Revision Counsel of the House of Representatives has indicated that it is planning to restructure the Customs laws in Title 19 of the United States Code. As it currently exists, Title19 features a number of gaps, representing sections of the law which have been repealed over the past half century.  The reorganization would not substantively change the law, but simply streamline the codification of the Tariff Act and various other trade-related acts currently contained in Title 19.

FTC Proposes New “Made in USA” Regulations

The Federal Trade Commission (FTC) on July 16, 2020 proposed new regulations to strengthen enforcement of the agency’s “Made in USA” (MUSA) labeling guidelines. The FTC has long prohibited the use of unconditional “Made in USA” statements unless goods are produced wholly or almost wholly in the United States, wholly or almost wholly of domestic materials. The new regulations, adopted under authority of 15 USC 45a, create a new Part to the FTC’s regulations [16 C.F.R. Part 323] which indicate that improper uses of the terms “Made”, “Manufactured”, “Built”, Produced”, “Created” or “Crafted”, with reference to the United States, will be considered an unfair practice under the Federal Trade Commission Act. The regulations extend to mail order (and presumably internet) advertising. The FTC is accepting comments through September 14, 2020.

CBP Hopeful About Rescheduling Brokers License Exam for October

After the COVIS-19 pandemic forced cancelation of the April 2020 Customs Broker’s exam, Customs and Border Protection has indicated that it hopes to accommodate test-takers in October 2020. The agency is monitoring local conditions related to COVID, with a view toward adopting additional examination sites, or using paper exams instead of electronic ones. However, plans for administering the exam will depend on local conditions at the ports where the exam is go be administered,  CBP officials have noted.

FDA Issues Emergency Use Authorization for “Sample Pooling” in COVID Testing

The Food and Drug Administration has issued an Emergency Use Authorization (EUA) to allow Quest Diagnostics to use “sample pooling” in COVID-19 testing. Sample pooling is a practice where samples from four swabs are tested together. If the pooled sample tests negative, all 4 patients are considered negative. If a positive result comes back, the samples are then tested individually. Sample pooling is expected to expedite testing in areas where there is a low prevalence of COVID-19.

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