Wait Is Over: USMCA Border Enforcement Begins
On December 31, 2020, the “Phase I Implementation” of the United States-Mexico-Canada Agreement (USMCA) came to an end, marking the end of the “self-imposed” restraint from US Customs and Border Protection (CBP) on enforcing the new USMCA.
Phase I Implementation
- CBP designed the six-month period to show restraint on USMCA enforcement while providing the trade community time to adjust to the new USMCA requirements.
- Restraint included allowing USMCA automotive certifications until December 31, 2020, to satisfy the corresponding documentation requirements. The benefit to non-automotive imports was ambiguous at best, and all importers were still required to act with reasonable care.
Critically, this transition period did not apply to Mexico and Canada.
What to Know
- The fact that CBP is talking about the end of the Phase 1 Implementation suggests it will start enforcing the USMCA in 2021.
- Through formal audits and targeted inquiries, such as CF-28 notices addressing USMCA transactions, a CBP determination on the invalidity of USMCA claims and certifications could lead to significant duty exposure and possible financial penalties.
- To reduce the risk of invalid USMCA certifications and claims, companies should reaffirm the basis for qualifying the products included in the USMCA certifications they issued in 2020.
- Additional time may still be provided to automotive commodities under USMCA verifications through June 30, 2021, but any further grace period will not provide a “free pass” to the USMCA certifications automotive companies will issue during 2021.
- There is no incentive or political motivation for the incoming Biden Administration to make major changes to the USMCA, instead, we anticipate major developments to focus on the agreement’s enforcement, particularly labor issues.
Ocean Shipping and the Perils of Delay
On December 17, 2020, the US Federal Maritime Commission (FMC) issued important advice to the trade community in regard to detention and demurrage charges on containers at US seaports. As US import volumes continue to climb, especially via ocean freight, this recent announcement will be important to fully understand.
What to Know
- The FMC regulates the practices in handling commercial property that involves ocean shipping, in particular the detention and demurrage charges/costs related to shipping containers.
- Detention is a charge for extended use of a shipping container until it is returned empty to the shipping line.
- Demurrages charges relate to the time that a container is inside a shipping terminal and depend on how much time a container is in port after arrival. It is a charge the terminal places on the shipment if it is held up at the terminal for some reason, such as awaiting transportation, customs clearance, etc., after a certain free time period has expired.
- The FMC has been investigating the detention and demurrage practices of ocean carriers that operate in an alliance and which call at the Port of Los Angeles, Port of Long Beach, or the Port of New York/New Jersey and whether these practices are in violation of US law (46 U.S.C. § 41102(c)).
A Not So Modern US Customs Modernization Act – Will a Biden Administration Bring It into the New Century?
The decades-old Customs Modernization Act, or “Mod Act,” was the last significant overhaul of the US Customs regime in recent years. The evolution of international trade in the years since has spurred calls for a new reform package that might find support from the incoming Biden administration.
The Mod Act Is No Longer So Modern
- The Mod Act, passed in 1993 as part of the NAFTA implementation process, reoriented the burdens of US import compliance by introducing the concepts of “shared responsibility” and “informed compliance.” Shared responsibility requires the trade community to exercise reasonable care in reporting information to the government, while informed compliance refers to the government’s responsibility to make importers aware of their import obligations.
- While the Act increased US Customs and Border Protection’s (CBP) enforcement capabilities post-import entry, it also provided for increased automation and efficiency in the entry process to benefit importers.
- Emerging technologies, new national security threats, and increased trade volumes over the past thirty years have not been matched by new legislation to address these developments. Some of these challenges involve the rise of e-commerce and rapid fulfillment, the use of illegal forced labor in supply chains, and intellectual property rights. CBP has kept up with such developments operationally, but its ability to adapt is limited by statutory inaction from Congress
Proposals for Reforming Customs Administration
- CBP has recently proposed required legal changes in an initiative called the 21st Century Customs Framework (21CCF). The 21CCF has the pronounced goals of achieving end-to-end supply chain transparency to improve safety and speed, driving data-centric decision making in the entry process, and diversifying reasonable care liability beyond just the importer of record.
- Now, with the “new NAFTA” – USMCA/CUSMA/T-MEC, CBP is seeking authority to require product and country data deeper into an import’s production and supply chain.
FTA Update: Not so Fast, Biden To Prioritize “Investments Here at Home”
In an about-face from the intense focus on bilateral trade deals under the Trump Administration, President-elect Biden has said that he intends to focus first on “major investments” in the US before entering any new free trade agreements (FTAs).
What the Future Holds For US FTAs
- The US Trade Representative (USTR) is currently engaged in ongoing formal and informal negotiations with the EU, the UK, and others (Kenya, Japan, and India), which are unlikely to be completed before President Trump leaves office.
- Though US negotiations with the EU were formally launched in October 2018, they have been largely stalled since negotiating objectives were approved by the EU Council in April 2019. However, the Biden administration intends to prioritize re-engagement with traditional allies like the EU.
- The US and the UK formally launched trade negotiations on May 5, 2020 and have held four sets of negotiating sessions thus far, which are expected to continue. While the UK deal is further along, it is unlikely to be completed before mid-2021 and appears to be a stronger priority for President Trump than for President-elect Biden.
What to Know
- US trade negotiations will take a back seat to domestic policies in the initial months of the Biden administration. Its priorities will instead be on the COVID-19 pandemic, protection of American workers, and education.
- We believe the Biden administration will ultimately focus on existing negotiations and FTAs with US allies like the EU and the UK and will seek coordination to combat perceived adversaries like China.
- Biden has nominated Katherine Tai as the US Trade Representative. She currently is the Democratic Chief Trade Counsel for the US House Ways and Means Committee, and previously served as chief counsel for USTR China trade enforcement, Ms. Tai will lead future FTA negotiations.
CBP Ratches Up Forced Labor Import Ban Enforcement
The U.S. Government is cracking down on goods from China suspected of being produced with forced labor. Sweeping enforcement actions through U.S. Customs and Border Protection (CBP) are aimed at both direct imports into the U.S. as well as third countries where illicit transshipment may be occurring.
Existing and Upcoming Enforcement Actions
- Targeting China: Bipartisan legislation, making its way through Congress, will expand CBP’s authority to stop suspected imports from China’s Xinjiang Uighur Autonomous Region (XUAR) and require corporate data on the importer’s international supply chain.
- Withhold Release Orders (WROs): Under existing authority, CBP moves aggressively with WROs to ban wide swaths of imports at the border. While the current focus is on China, especially XUAR, it is likely these monitoring efforts will expand to other areas.
- Risk Analysis and Survey Assessment (RASA): CBP has already started leveraging forced labor compliance by issuing RASA inquiries – mini-audits – to major cotton importers from the XUAR, as well as imports from countries suspected of transshipment, such as Malaysia.
- Custom Trade Partnership Against Terrorism (C-TPAT): Currently, C-TPAT only suggests rather than mandates a force labor compliance program. However, if this becomes mandatory, as is being discussed, C-TPAT participants would be required to establish a documented social compliance program that addresses how the company ensures its US imports were not mined, produced, or manufactured, with prohibited forms of labor.
- Other Forced Labor Measures to Be Announced in 2021: At a recent Commerical Operations Advisory Committee (COAC) meeting, CBP reported several new forced labor initiatives. Specificall, CBP announced that the agency is working on a notice of proposed rulemaking (NPRM) to be issued in early 2021, and is updating the CBP “Informed Compliance Publication” and other guidance on this issue.
What to Know
- Imports are increasingly being scrutinized at the border, and supply chains are being probed for goods made with forced labor, especially from China.
- CBP will continue to leverage existing programs like RASA and C-TPAT to achieve social responsibility goals.
- Importers of raw material, component parts, or finished goods should carefully evaluate their supply chains for forced labor risk and engage with their foreign suppliers to increase their compliance and reduce risk exposure in this area.
- Non-compliance can result in significant delays, detained and seized goods, and other supply chain disruptions.