As the TPP Takes Another Step Forward, the US Keeps Sight of the NAFTA and other FTAs

And here in Washington, DC, some rumblings are emerging from US Customs on the need for a closer look at current free trade programs such as NAFTA. Our intelligence indicates that, in the backdrop of US ratification of the TPP, there is a renewed initiative by US Customs to verify importers’ legal claims under free trade agreements and special duty programs as part of CBP’s national compliance measurement.

For those of you who have been following our series of TPP alerts, our message has been clear– companies should take the time now to assess the opportunities and risks presented by the TPP. Even if the TPP is not ratified until late 2016 or in 2017, we believe companies that act now in anticipation of a TPP rollout will have the necessary time to evaluate critical decision points, such as the selection of suppliers and the pursuit of new market opportunities.

In promoting the benefits of a TPP analysis, we have suggested companies leverage such a review by conducting a side-by side analysis with the NAFTA and other free trade programs. The noise from Washington this week suggests that a free trade program evaluation may prove more beneficial to companies with strategic interests in the US marketplace than originally envisioned.

Companies should not expect that the increasing focus by US Customs on validating free trade eligibility will be accompanied by a Trump-like roar. Rather, we expect US Customs will pursue a “business as usual” approach. For example, we anticipate increased requests from both CBP’s Centers for Excellence and Expertise (CEEs) as well as port officials. These requests likely will be in the form of benign looking CBP Form 28 “Requests for Information” notices. These notices will cut across various products and cover all free trade agreements and special duty programs, notably NAFTA.

Some companies may not feel the immediate need for a review of their tariff preference claims, especially those that have had steady product lines over the years. However, we caution that even for these companies, a perceived unchanging environment can be deceptive. Especially for the NAFTA, which is entering its 23^rd year, product eligibility reviews performed by companies may be decades old. All it takes is a change in an input or a supplier or two to turn a qualifying product into a non-qualifying product. This could lead to a snowball effect where more and more of the company’s tariff preference claims are put under CBP’s microscope.

Whether or not as part of a TPP review, Arent Fox stands ready to help your company best position itself in the wake of this renewed enforcement priority by US Customs. For starters, there are some basic inquiries a company should make regardless:

• First, determine how US Customs CF-28s notices are received and processed by your company. Are they typically sent to your broker for routine handling?
• Either through ACE or an ITRAC request, determine the extent of your free trade claims as an indicator of your company’s audit and increased duty exposure.
• Review how your company issues free trade certifications and, if so, find out whether they are reviewed annually and by whom? For example, does your company issue such certifications to affiliates, third parties, or both?
• Ascertain when these certifications were subject to meaningful review either through a formal government inquiry or a company-initiated self-review. Such review would likely have required a bill of material analysis and the production of cost information in many cases.
• Ask some questions - What are the general trends of your supply chain? Does the company use a few or many suppliers? Are they longstanding suppliers or do they frequently change? From which regions of the world? A Customs audit can run as deep and as wide as a company’s knowledge of its entire supply chain.

The step-up of free trade verification actions by US Customs illustrate that the TPP process does not and will not occur in a vacuum. Whether the TPP continues to gain momentum in 2016 or stalls, leaders in the US Administration and Congress will expect and pursue robust border enforcement of existing free trade agreements.

Organizers of this year’s Toronto International Auto Show will showcase the very best in new car technology and product innovation. Even as we predict that the TPP will become the showcase trade agreement for years to come, US Customs is reminding us today that a company’s use of the NAFTA and other FTAs may be long overdue for a check-up.