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

This edition provides essential insights for sectors including Automotive, E-commerce, Fashion and Retail, Manufacturing, and Technology, as well as for In-House Counsel, Compliance Professionals and Customs Brokers.

In this October 2024 edition, we cover:

1. Commerce’s final ruling on aluminum extrusion duties from 14 countries, emphasizing compliance challenges for US importers.
2. BIS’s proposed restrictions on connected vehicles with Russian and Chinese ties, impacting imports and sales in the United States.
3. USTR’s Section 301 exclusion process for machinery from China, offering potential duty savings for domestic manufacturers.
4. Forced labor enforcement updates, Part 1: UFLPA Entity List additions and increased enforcement in USMCA countries.
5. Forced labor enforcement updates, Part 2: CTPAT storage benefits and glove WRO modifications.
6. The Biden Administration’s proposed Section 321 de minimis reforms would affect e-commerce sales and low value products from China.
7. Potential USMCA changes under a Trump or Harris Administration, focusing on stricter rules of origin and their impact on trade policies.

1. Commerce Issues its Final Affirmative Determination in its AD/CVD Investigations of Aluminum Extrusions — Now What?

Last month, the US Department of Commerce (Commerce) issued its Final Determination in the much anticipated antidumping and countervailing (AD/CVD) investigations on aluminum extrusions. Commerce determined that aluminum extrusions from 14 countries (see our alert here) are being sold in the United States at less than fair value, and that in Turkey, Indonesia, Mexico, and China, countervailing subsidies were being provided by their governments (see our alert here). The final AD/CVD rates vary significantly among this large group of countries (see here).

Once Commerce issues a final affirmative AD/CVD determination, the United States International Trade Commission (ITC) — an independent agency — continues its investigation into whether the US industry has been materially injured as a result of dumped and/or subsidized imports. On October 1, the ITC conducted a public hearing where petitioners supported the imposition of orders, while many foreign producers, US importers, and purchasers opposed them. The ITC is scheduled to vote on October 30. If the ITC votes affirmatively, AD/CVD orders will be issued in November by Commerce.

And the Fox Says…: As we previously reported, what makes this case unique is its extraordinarily complex and broad scope, encompassing virtually any downstream product that incorporates an aluminum extrusion, as well as the challenge of calculating the value of the aluminum extrusion portion of your imported product to ensure you are paying the correct AD or CVD deposit. By law, importers are required to assess whether their imported products are subject to the AD/CVD scope on aluminum extrusions and, if so, enter them as “Type 03” entries and remit the required cash deposits. Those entries will then be subject to suspension of liquidation until a future administrative review process. At the time of final liquidation, additional AD or CVD duties may be owed along with interest, or a refund of AD or CVD duties may be issued along with interest. Failure to properly enter the products will likely result not only in the repayment of the back duties owed but also interest charges, fines, penalties, and other possible legal actions.

Contributors: Mario A. Torrico, Nancy A. Noonan

2. Commerce Proposes Crackdown on Connected Vehicles With Russian, Chinese Nexus

On September 26, the Bureau of Industry and Security (BIS) proposed restrictions on connected vehicles that incorporate certain hardware or covered software with ties to Russia or China.

BIS’s proposal targets Vehicle Connectivity Systems (VCS) and Automated Driving Systems (ADS). Here are a few key terms, simplified:

• Connected vehicle: A vehicle that integrates onboard networked hardware with automotive software systems for wireless spectrum connectivity.
• Covered software: Software supporting VCS and ADS functions in which there is any foreign property interest.
• VCS: Hardware and software for a connected vehicle supporting radio frequency communications above 450 megahertz. VCS hardware includes things like Bluetooth, Wi-Fi modules, and telematics control units.
• ADS: Hardware and software enabling autonomous driving.

The proposed rule would prohibit the import of VCS hardware (alone or already installed) and the import or sale of connected vehicles incorporating covered software in the United States, if that hardware or software was designed, developed, manufactured, or supplied by persons under Chinese or Russian ownership, control, jurisdiction, or direction. Manufacturers with the same China/Russia ties also cannot sell connected vehicles in the United States incorporating VCS hardware or covered software.

VCS hardware importers and connected vehicle manufacturers would also need to self-certify compliance with the proposed regulation.

The restrictions on VCS hardware would not apply for imports before January 1, 2029, or to model years before 2030. The restrictions on connected vehicle manufacturers would not apply to model years before 2027.

BIS would give certain parties (e.g. small companies making connected vehicles) general authorization for otherwise prohibited transactions. Otherwise, parties can request specific authorization or an advisory opinion on whether a prospective transaction is prohibited.

Public comments on the proposed rule are due October 28.

And the Fox says…: The proposed rule reflects BIS’s increased willingness to protect information and communications technology and services (ICTS) supply chains from foreign adversaries. After the automotive space, other “connected” industries may be next for sector-wide ICTS regulation.

Contributors: Maya S. Cohen, Derek Ha, Sylvia G. Costelloe, Kay C. Georgi

3. Section 301 Uncertainty? The USTR Announces Delay in Section 301 Modifications Once Again and The House Select Committee Issues Questionnaires to US Auto Part Firms

The United States Trade Representative (USTR) opened the Section 301 exclusion process for certain machinery of the Harmonized Tariff Schedule Chapter 84 and 85 from China used in domestic manufacturing (see our previous alert here). The list of products eligible for consideration for Section 301 exclusion can be found in Annex E of the USTR’s September notice.

As part of the exclusion process, the USTR is requesting that commenters provide, among other things, a detailed description of the manufacturing equipment and its ten-digit Harmonized Tariff Schedule of the United States classification, information on how any equipment considered for an exclusion is used in domestic manufacturing, whether comparable equipment is available from alternate sources, whether the sector is a recipient of a US federal investment program, and whether the equipment is a target of Beijing’s “Made in China 2025” initiative or other industrial programs.

Once an exclusion request is posted on USTR’s online portal, interested parties have 30 days to respond — either in support or in opposition to the request. Thereafter, the requester will have 15 days after the posting of a response to submit a reply. The USTR will make exemption determinations on a rolling basis and granted exclusions will be valid from the Federal Register publication date through May 31, 2025.

And the Fox Says…: Companies who utilize machinery for domestic manufacturing should consider commenting on the eligible Section 301 exclusions. The comment period is open from October 15 through March 31, 2025. With Section 301 duty rates as high as 25%, which may increase even further, Section 301 exclusions can provide companies with considerable duty savings. Requestors should also monitor whether other interested parties have objected to their request and consider whether a reply is warranted.

Contributors: Lucas A. Rock, Mario A. Torrico, James Kim, Angela M. Santos

4. Forced Labor Enforcement Updates, Part 1: Additions to the UFLPA Entity List and Calls to Strengthen Forced Labor Laws for USMCA Countries

Additions to the UFLPA Entity List

In October, the US Department of Homeland Security (DHS) announced the addition of two entities to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List. The additions of Chinese steelmaker Baowu Group Xinjiang Bayi Iron and Steel Co., Ltd., (also known as Xinjiang Bayi Iron and Steel Co. Ltd.; Baosteel Group Xinjiang Bayi Iron and Steel Co., Ltd.; and Bayi Iron and Steel) and aspartame producer Changzhou Guanghui Food Ingredients Co., Ltd., now bring the UFLPA Entity List to 75 companies. We expect more additions in other industries.

Call to Strengthen Forced Labor Laws Under the USMCA

A bipartisan group of lawmakers, who were the primary sponsors of the UFLPA, sent a letter to the trade representatives in the United States, Canada, and Mexico, urging further action to combat forced labor. While commending the forced labor import laws in Canada and Mexico, the lawmakers emphasized the need for stronger enforcement in those countries and encouraged the adoption of legislation similar to the UFLPA to prohibit the importation of goods from Xinjiang, China. The lawmakers called for greater cooperation between the three countries to prevent goods detained under the UFLPA from entering Canada and Mexico, and then re-attempting importation to the United States.

And the Fox Says…: As we previously reported, we anticipate that the UFLPA Entity List will continue to grow, particularly in newly identified priority enforcement sectors, as the Entity List office adds resources such as partnerships with risk assessment platform Kharon. These additional resources will allow the DHS Entity List office to streamline their supply chain reviews.

We also expect that US Congress will continue to monitor and mount pressure on the USTR to urge Canada and Mexico to increase enforcement of their forced labor import restrictions. It is likely that forced labor will be part of the impending United States-Mexico-Canada Agreement (USMCA) review process. Companies with supply chains that have touchpoints in the USMCA countries should pay close attention.

Contributors: Lucas A. Rock, Mario A. Torrico, Angela M. Santos

5. Forced Labor Enforcement Updates, Part 2: Storage Benefits for CTPAT Trade Compliance Members and Modifications to Glove WRO

CTPAT Trade Compliance Members Can Use FTZs

US Customs and Border Protection (CBP) announced that Customs Trade Partnership Against Terrorism (CTPAT) Trade Compliance partners in good standing will now be permitted to utilize Foreign Trade Zones (FTZ) to store goods subject to potential forced labor enforcement actions.

CTPAT Trade Compliance partners will be allowed to store goods detained under the UFLPA in an FTZ. This benefit avoids costly storage charges that accrue while CBP’s review of the admissibility of detained goods is pending. Trade Compliance partners should also receive advance notice of potential UFLPA detentions.

Glove WRO is Modified

CBP recently modified the withhold release order (WRO) covering disposable gloves produced by Brightway Holdings Sdn. Bhd., Laglove (M) Sdn., and Biopro (M) Sdn. Bhd. Due to Brightway’s remediation efforts, as of October 11, disposable gloves produced by Brightway may enter the United States.

And the Fox Says…: The government’s forced labor program continues to evolve, as evidenced by the new FTZ benefits and modification of the Brightway WRO, thus it is important for companies to stay on top of these developments.

Companies in all industries, particularly those with complex supply chains and those in priority sectors, should evaluate and develop comprehensive supply chain due diligence processes and procedures in preparation for increased enforcement. ArentFox Schiff has seen a significant increase in enforcement and CBP inquiries related to forced labor and supply chain due diligence.

Contributors: Lucas A. Rock, Mario A. Torrico, Angela M. Santos

6. Proposed Administration Action Could Significantly Limit Duty Savings Opportunity

A recent proposed action by the Biden Administration could significantly limit the scope of merchandise eligible for the Section 321 de minimis program and affect how many companies operate.

In an effort to address bipartisan concerns surrounding the program, the Administration announced a notice of proposed rulemaking intended to prevent circumvention of tariffs and import restrictions. The proposal includes removing Section 321 de minimis eligibility for products subject to additional tariffs under Sections 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962, requiring more detailed shipment information, and mandating Certificates of Compliance for consumer products. These efforts aim to reduce import volumes under the Section 321 de minimis program and strengthen trade enforcement, while urging Congress to pass further reforms. The notice also urges Congress to take action to reform the de minimis program. There are a number of pending bills with various restrictions on the use of the program, but it is unclear whether any of them will pass.

And the Fox Says…: Companies that take advantage of the Section 321 de minimis program should closely monitor these developments. It is very likely that there will soon be restrictions on the use of de minimis on Chinese goods. For e-commerce retailers, these changes could mean a shift in how they manage their imports and could significantly impact the tariffs that are applied to their goods.

For more information, please see our comprehensive alert on the Administration’s proposed action. Our team will continue to monitor these developments. At ArentFox Schiff, our International Trade and Investment team has extensive experience counseling fashion and retail companies and can help you navigate these developments. If you would like more information or assistance, please contact any ArentFox Schiff Customs & Import Compliance group member listed below.

Contributors: Ashley N. Tomillo, Lucas A. Rock, Joy Marie Virga, Angela M. Santos

7. Decoding the 2024 Presidential Election: Part 2 — Both Candidates Seek to Tighten the Rules of Origin Under USMCA

As the presidential election enters its final weeks, both Former President Donald Trump and Vice President Kamala Harris have made known some of their key trade policies. In our previous alert, we explored the topic of tariffs and China. Both candidates endorse their continued use of tariffs, though Vice President Harris adopts a more measured approach than Former President Trump. As it relates to trade agreements, specifically the USMCA, there are synergies between the candidates in that they both are pressing for significant changes — either in the form of a new deal or significantly revising the existing agreement — in the upcoming 2026 review of the USMCA.

Former President Trump has promised that if re-elected, he will outright renegotiate the USMCA to, in part, “better protect and promote the US auto industry.” According to him, he will advocate for stronger provisions “against transshipment so that China and other countries cannot smuggle their products and auto parts into the United States tax free through Mexico to the detriment of our workers and our supply chains.” Vice President Harris has likewise raised concerns with the USMCA. For context, she was one of only 10 senators to vote against the deal to replace the North American Free Trade Agreement (NAFTA) with the USMCA. Most recently, Vice President Harris said that the USMCA made it “far too easy” for automotive companies to outsource jobs.

This means that under either a Trump or Harris presidency, it is likely that the USMCA’s rules of origin will be revisited with an eye on increasing qualification requirements. These revisions seek to address concerns that China and other third countries are using Mexico to take advantage of preferential access to the US market via the USMCA.

And the Fox Says…: Importers, manufacturers, and other distributors that utilize the USMCA for duty-free treatment or customer obligations should anticipate changes to the USMCA rules of origin. In particular, companies should proactively assess their global supply chain into North America and develop strategies to overcome higher qualification thresholds. Led by former government attorneys with first-hand experiences of the NAFTA and USMCA implementations, the ArentFox Schiff team advises companies through the evolving USMCA landscape with optimal strategies directly tailored for their supply chain challenges.

Contributors: Mario A. Torrico, Jodi Tai, Antonio J. Rivera