As the (Customs and Trade) World Turns: March 2024

In this March 2024 edition, we cover:

1. Biden’s actions related to Chinese “connected vehicles.”
2. The latest on Commerce’s AD/CVD investigation on aluminum extrusions.
3. Supply chain questionnaires issued to solar companies.
4. Regulatory and legislative developments on de minimis.
5. US Trade Representative (USTR) Katherine Tai’s efforts to address the surge on imports of Mexican steel.
6. Recent updates in forced labor enforcement and litigation.

1. Biden’s Bid to Put the Brakes on Chinese EVs

Hot on the heels of an industry report calling the prospect of Chinese electric vehicles (EVs) built in Mexico an “extinction event” to US auto manufacturers, President Biden announced on February 29 an effort that could potentially curb this threat. Noting that most cars sold now are “connected” and akin to “smart phones on wheels,” Biden has directed the US Department of Commerce to investigate connected vehicles using information technology developed by countries of concern, such as China. In response, the Bureau of Industry and Security (BIS) issued a notice seeking public comment to determine whether these technologies pose an unacceptable national security risk when made by foreign adversaries. This comes amid recent reports that Chinese EV companies are setting up shop in Mexico, which would allow Chinese EVs produced there to avoid existing Section 301 tariffs of 25% under current origin rules.

And the Fox Says…: If the BIS rule goes through as proposed, the sale of Chinese EVs with “connected” technology would be effectively banned in the United States, even if made in Mexico. The BIS proposal could be the first in a series of actions by the US government to stem the flow of Chinese EVs. Other potential actions could include a Section 421 China safeguard investigation that could lead to double-digit tariffs or other trade barriers, changes to antidumping and countervailing duty laws that would make it easier for Commerce to counter “country hopping” and third-country subsidies, and efforts to further tighten the United States-Mexico-Canada Agreement (USMCA) auto rules of origin.

If you are an automotive original equipment manufacturer (OEM) or supplier affected by the BIS proposal and would like to weigh in, we can assist you in with preparing comments, which are due April 29.

Contributors: James Kim, Antonio Rivera

2. Update on the AD/CVD Investigation on Aluminum Extrusions

The Department of Commerce is conducting an antidumping duty (AD)/countervailing duty (CVD) investigation on aluminum extrusions from Colombia, Ecuador, India, Indonesia, Italy, Malaysia, Mexico, China, South Korea, Taiwan, Thailand, Turkey, the United Arab Emirates, and Vietnam. See our alerts here and here. The proposed scope of products that are covered by the investigations is extremely broad and ill-defined. For now, importers should be aware that if your product contains aluminum extrusions or a part that contains extruded aluminum, it may be subject to additional duties on the value of that extruded aluminum as of March 11 (see here).

Commerce has acknowledged the many arguments raised by importers, purchasers, and even Customs brokers, that the scope is problematic. Thus far, Commerce has released one preliminary scope decision excluding six items from the scope. It will address the remaining scope comments received from interested parties no later than May 1. In the meantime, Commerce has noted that it will establish a briefing schedule for additional comments relating to the revised proposed scope language at a “later date” and asks that “parties submit no additional scope comments until the date established by Commerce.”

And the Fox Says…: If a product contains extruded aluminum, and your company is acting as the importer of record, duty deposits may now be required on the aluminum extrusion portion of that product. Importers will need to determine the: (1) producer of the aluminum extrusion; (2) country (or countries) in which the extrusion process was carried out; (3) Aluminum Association Series Designation Number for the extruded aluminum; and (4) percent of value attributed to the extruded aluminum raw materials (likely this would be a percentage of sold cost). Additionally, opportunities still exist to challenge the scope of this case. The AFS team is happy to discuss the types of products you are importing, the current (unresolved) scope issues, and potential next steps for you at your convenience if you are importing products containing extruded aluminum.

Contributors: Mario Torrico, Leah Scarpelli

3. CBP Issues Questionnaires to Solar Companies

US Customs and Border Protection (CBP) has issued questionnaires to several solar product importers in attempts to gain insight into their supply chains and due diligence processes and procedures.

CBP’s questionnaires follow Congress’s increased scrutiny over CBP’s enforcement of the Uyghur Forced Labor Prevention Act (UFLPA), and particularly increased scrutiny over solar supply chains. The questionnaires request extensive information and tracing documentation, including invoices and transaction documents, locations of suppliers, and financial records from entities within the companies’ supply chains. The requests for information also inquire into the organizational structure of the companies and the procedures and measures companies are taking to prevent the use of forced labor, child labor, convict labor, and indentured labor in their supply chains.

Significantly, the information requested under these questionnaires extends beyond that typically maintained in the normal course of business and is outside the scope of the documentation requested by CBP as part of a UFLPA detention. Bloomberg previously published an article covering CBP’s inquiries into the solar supply chain.

And the Fox Says…: Solar-related detentions already account for the vast majority of UFLPA enforcement actions. CBP’s questionnaires demonstrate that there will likely be increased scrutiny and inquiries by CBP moving forward. We recommend that all importers, especially those in high-risk sectors such as solar, bolster their supply chain due diligence and mapping programs to prepare for potential increased enforcement.

Contributors: Lucas Rock, Angela Santos

4. Developments in De Minimis

CBP is set to overhaul its regulations on de minimis shipments, aiming to modify the clearance process for imports valued under $800. The forthcoming proposed rule, currently under White House review, incorporates lessons learned from the Section 321 data pilot and the Type 86 test and focuses on improving data collection to better identify high-risk shipments involving contraband goods or violations regarding forced labor or intellectual property rights. Ahead of this action, CBP amended the Type 86 test, now requiring entry filings to be completed upon or before shipment arrival, which would provide the agency more time to preemptively screen for potential violations.

Simultaneously, Congress is actively considering legislation that could significantly reshape de minimis rules, especially concerning Chinese-origin shipments. A bipartisan bill introduced last year proposes eliminating de minimis exemptions for Chinese goods, spurred by concerns over smuggled contraband and the evasion of Section 301 tariffs. The legislative push to tighten the de minimis rules is opposed by some, however, warning of the potential adverse effects on e-commerce, highlighting increased costs for consumers and small businesses reliant on low-value imports.

And the Fox Says…: CBP’s proposed rulemaking on the de minimis clearance process is a high priority for the agency and appears likely to arrive later this year. This regulatory action is taking place amid a larger policy debate on the de minimis rules, with China once again in the crosshairs. We’ll be watching closely to see if Congress or the Administration takes further action on this issue in the coming months, which would have significant ripple effects on players in the e-commerce and textiles industries, as well as freight forwarders.

Contributors: James Kim, Angela Santos

5. Fighting the Surge: Potential Section 232 Tariffs on Steel and Aluminum Imports from Mexico

In response to a significant increase in steel and aluminum imports from Mexico, which contravenes a 2019 Joint Agreement between the United States and Mexico to monitor and prevent unfairly traded imports beyond historical volumes, the United States is considering taking action. The surge of steel imports in particular, which has been highlighted by members of Congress (see here and here) and the steel industry, has seen annual iron and steel imports from Mexico jump by approximately 73% over the pre-Section 232 baseline of 2015-2017. Specific categories like rebar have experienced even more dramatic increases. In a recent meeting, Ambassador Tai emphasized the urgent need for Mexico to take immediate steps to address this issue, noting the agreement allows for the potential reinstatement of Section 232 tariffs, if necessary, on individual product categories. The United States and Mexico are reportedly working towards an agreement that would require Mexico to implement an export monitoring system for certain products, including rebar, to mitigate the surge and address the concerns of the US steel industry. In the event tariffs are reimposed, the agreement also authorizes Mexico to retaliate, though any such retaliation would be limited to the targeted sector.

And the Fox Says…: The US’ reimplementation of 25% Section 232 tariffs on certain steel imports from Mexico, and any retaliation thereto, could have significant implications for steel exporters from Mexico, as well as US importers.

Contributors: Mario Torrico, Leah Scarpelli

6. Recent Updates in Forced Labor Enforcement and Litigation

Recent developments in the Court of International Trade (CIT) spotlight the intensifying legal disputes over forced labor allegations within the global supply chain. Ninestar Corporation and its affiliates filed suit in the CIT contesting their inclusion on the UFLPA Entity List, arguing against CBP’s allegation that Ninestar works with the Xinjiang Uyghur Autonomous Region (XUAR) government and engages in labor transfers of persecuted groups. The CIT recently ruled on two issues, denying Ninestar’s motion for preliminary injunction but finding that Ninestar didn’t need to exhaust administrative remedies before challenging the listing. The CIT opined that the Forced Labor Enforcement Task Force (FLETF) only needed “reasonable cause” to add an entity to the Entity List and allowed the FLETF to provide information to justify its decision to add Ninestar to the Entity List post-hoc.

Separately, Hoshine Silicon Industry Co. filed a CIT complaint arguing against a withhold release order (WRO) issued by CBP, which aimed to detain shipments of silica-based products from Hoshine and its affiliates due to forced labor concerns. Hoshine’s suit raises critical questions about whether entities should receive prior notice before a WRO is issued and challenges the accuracy and sufficiency of the evidence needed to justify such a decision.

And the Fox Says…: These CIT cases are at the forefront of challenging and shaping the processes and standards that apply to CBP’s enforcement of the UFLPA and forced labor prohibitions generally. The CIT’s recent opinion in Ninestar indicates that CBP has considerable enforcement flexibility, allowing it to retroactively justify UFLPA Entity List designations with merely “reasonable cause,” which may lead to more Entity List designations. We also expect the Hoshine case to clarify procedural requirements related to WROs, particularly on the necessity of prior notice and evidentiary standards the agency must meet before issuing WROs.

Contributors: Lucas Rock, Angela Santos