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

This edition offers critical insights for industries including Consumer Products, Energy & Cleantech, Fashion & Retail, National Security, Real Estate, and Transportation & Mobility, as well as foreign investors, compliance professionals, importers, and customs brokers.

In this August 2024 edition, we cover: 

1. Do not run afoul of CFIUS’ new rules on real estate transactions involving foreign buyers. 
2. Clean energy, domestic manufacturers, and other importers have to wait a little longer for the USTR modifications to Section 301 tariffs.
3. States are passing forced labor laws too, and DHS continues to add to the UFLPA entity list.
4. CBP’s suit against importers for alleged unpaid AD/CVD duties on aluminum extrusions.
5. Vietnam’s continued designation as a NME by Commerce. 
6. The government continues attempts to reform the Section 321 de minimis program.

1. Property Buyers Beware: CFIUS Expands Real Estate Coverage Near Military Sites 

The Committee on Foreign Investment in the United States (CFIUS) has proposed new rules that will significantly expand its oversight of real estate transactions involving foreign buyers near US military installations. The proposed changes, outlined in a Notice of Proposed Rulemaking (NPRM) published on July 19, would increase the number of military sites subject to CFIUS review, particularly in states like Ohio, Michigan, and Texas. 

Under the Foreign Investment Risk Review Modernization Act (FIRRMA) of 2018, CFIUS has the authority to review certain foreign investments in real estate located within specified distances of sensitive military facilities. The NPRM proposes to add 40 new installations to the list of those with a one-mile “close proximity” zone and 19 to the list with a 99-mile “extended range” zone. CFIUS also proposes to move eight installations from the “close proximity” zone list to the “extended range” zone list. These changes likely reflect a greater focus on real estate transactions following growing public national security concerns over foreign ownership of US property in recent years. 

And the Fox Says…: The expansion of CFIUS’s jurisdiction emphasizes the importance of considering CFIUS risk in real estate transactions near US military sites involving foreign persons. With more areas falling under CFIUS review, thorough due diligence and risk-informed decision-making are essential. For businesses and investors, understanding the implications of these new rules will be crucial in navigating the evolving landscape of US foreign investment regulations. 

Contributors: William G. Stroupe II, James Kim, Sylvia G. Costelloe 

2. The USTR Announces Delay in Section 301 Modifications

The United States Trade Representative (USTR) announced on July 30 that modifications to Section 301 tariffs scheduled to take effect on August 1 will be delayed. As we previously reported, Section 301 tariffs were scheduled to increase significantly on a variety of goods, including parts of batteries, electric motor vehicles, solar cells, and certain metals such as iron, stainless and alloy steel, among others. This USTR decision to postpone comes in response to the overwhelming participation in the comment period that closed in June, with the agency receiving more than 1,100 public comments on the proposed modifications. The USTR subsequently published a Federal Register Notice on August 15 requesting comments regarding the proposed Section 301 exclusion comment process for domestic manufacturing equipment classified in Chapters 84 and 85.

And the Fox Says…: We eagerly await the USTR’s announcement on modifications to Section 301 tariffs as there are several important open questions: (1) will the proposed tariff increases proceed, or will any products drop off the list – there were many comments regarding the hefty tariff increases on non-electric vehicle (EV) lithium-ion batteries; (2) what domestic manufacturing equipment will be included in the Section 301 exclusion process (because apparently there was need for an initial comment process to determine what products should be included in the final exclusion comment process, a second comment on the process itself, and then finally the exclusion comment process); and (3) whether all proposed solar equipment Section 301 exclusions will be confirmed or any adjustments to the proposed exclusionary descriptions will be made. The decision is expected sometime in August, with the effective date set to be two weeks after the announcement. We will provide a comprehensive analysis once the USTR publishes its modification announcement. Stay tuned!

Contributors: Lucas A. Rock, Angela M. Santos

3. Forced Labor Legislation Updates: The States Want a Piece of the Action Too – Starting with Florida and the DHS UFLPA Entity List Continues to Expand

As importers continue to navigate through the fast-moving federal forced labor developments, like the five recent new additions to the US Department of Homeland Security’s (DHS) Uyghur Forced Labor Prevention Act (UFLPA) entity list, they now have to consider state legislation as well. Effective July 1, Florida House Bill (HB) 1331 created Section 287.1346 of the Florida Statute, which prohibits any state agency from purchasing goods produced, in whole or in part, using forced labor. The statute requires the Florida Department of Management Services (DMS) to create and maintain a forced labor vendor list (List), which prohibits disqualified companies from participating in Florida state procurement and contracting bids for one year, unless such companies are removed from the List. The List will be updated quarterly on the DMS’s website. In addition, the new law requires a prospective supplier’s senior management to provide a certification that the products are not produced using forced labor. False certifications can result in a fine.

The new Florida law shares similarities with federal public procurement regulations. The Defense Federal Regulation Supplement (DFARS) prohibits contractors from using federal funds to knowingly procure products manufactured, in whole or in part, by forced labor from the Xinjiang Uyghur Autonomous Region (XUAR) of China. Subsequently, in 2023, the DFARS was amended to require offerors to “represent” that, by submission of an offer, the offeror made a good faith effort to determine that forced labor from XUAR will not be used to perform the contract. See our prior alert here.

And the Fox Says…: The federal and state governments are significant purchasers of imported goods. Companies that want to continue participating in lucrative government contracts must ensure that they have robust forced labor and supply chain due diligence processes in place. Florida’s anti-forced labor statute is part of a larger effort by US states to require supply chain due diligence (e.g., proposed NY Fashion Act, Washington State’s Bills 5607 and 5541, and implemented California Transparency Supply Chain Act). In addition, companies should continue to monitor additions to the UFLPA entity list to ensure that their supply chain is not impacted. There are now a total of 73 entities on the UFLPA Entity List after the recent addition of Century Sunshine Group Holdings, Ltd. (magnesium fertilizer and magnesium alloys), Kashgar Construction Engineering (Group) Co. Ltd.(structural components and materials for construction), Rare Earth Magnesium Technology Group Holdings, Ltd. (magnesium alloy products); Xinjiang Habahe Ashele Copper Co., Ltd. (nonferrous metals), and Xinjiang Tengxiang Magnesium Products Co., Ltd. (magnesium and magnesium alloy products).

Contributors: Jodi Tai, Mario Torrico, Angela M. Santos

4. CBP Files Suit Against Importer for Alleged Unpaid Duties Relating to the 2011 AD/CVD Orders on Aluminum Extrusions from China

Last month, the US government filed suit at the Court of International Trade against Forest Group USA and its alleged successor company, Drapery Hardware USA. According to the complaint, Forest Group imported aluminum extrusions from China that were subject to 2011 antidumping/countervailing duties (AD/CVD) orders (see here and here). However, Forest Group allegedly did not declare them as being subject to the orders and therefore did not deposit any AD or CVD duties. There were a total of two entries of subject merchandise: one in 2011 and another in 2012. As a result, the government is seeking over $1.1 million in AD/CVD duties plus a $2 million civil penalty.

The suit against Forest Group for unpaid AD/CVD duties on aluminum extrusions, and penalties corresponding with those unpaid duties, coincides with an active AD/CVD investigation on aluminum extrusions from a number of countries, including China. In relation to China, the current investigations on aluminum extrusions are much broader than the 2011 AD/CVD orders and include products that the US Department of Commerce (Commerce) has previously found to be excluded. See here and here for additional information on the current AD/CVD investigations on aluminum extrusions.

And the Fox Says…: The suit against Forest Group highlights the importance for importers to assess whether their products are subject to the 2011 AD/CVD orders on aluminum extrusions from China, the current aluminum extrusions investigations for which cash deposits are currently due, and any other AD/CVD order. Failure to make the appropriate cash deposits can lead to penalties and other adverse actions by US Customs and Border Protection (CBP). We expect to see more of these types of enforcement penalty actions in the future as producers in additional countries are subject to AD/CVD orders on extrusions. The AFS team has vast experience counseling importers on all things related to AD/CVD orders, including scope assessment, entry procedures, and administrative actions, as well as defending against penalty actions.

Contributors: Mario Torrico, Matthew Nolan, Nancy Noonan

5. Commerce Keeps Vietnam in the NME Zone

On August 2, Commerce announced that it would continue to treat Vietnam as a non-market economy (NME) country under US AD duty laws. An NME is any foreign country determined by Commerce not to “operate on market principles of cost or pricing structures so that sales of merchandise in such country do not reflect the fair value of the merchandise.” Vietnam’s designation as an NME dates back to 2002.

In October 2023, in response to a request from the Vietnamese citing the country’s recent economic reforms, Commerce announced a review of Vietnam’s status as an NME. Commerce applied its six-part legal test to review the NME designation and found that there is “extensive and pervasive government involvement in Vietnam’s economy.” While Commerce acknowledged Vietnam’s substantial market-oriented reforms, it concluded that the level of government intervention distorts Vietnamese prices and costs, ultimately rendering them unusable for purposes of calculating AD duties.

And the Fox Says…: Commerce’s NME designation for Vietnam only impacts the AD rates that are calculated in investigations and administrative reviews in which Vietnamese companies are found to be dumping goods in the United States. The NME methodology used in calculating AD duties on imports from Vietnam, which relies on factors of production and surrogate data from other countries, remains unchanged and is believed to lead to higher AD rates in affirmative determinations.

Vietnam’s rise as one of the US’ top 10 trading partners underscores the importance of this issue for many US companies that rely on imports from Vietnam. For example, many fashion companies have shifted production from China to Vietnam. This increase in trading volume has been accompanied by a rise in trade remedies: Commerce currently administers 24 AD orders or investigations on merchandise from Vietnam, ranging from seafood to steel, packaging products, wind towers, and more.

Contributors: Diana Dimitriuc Quaia, Mario Torrico

6. Criticism Over the De Minimis Program Continues

Legislative Updates

As we previously reported, the Section 321 de minimis program has been the subject of increased scrutiny over lack of oversight and enforcement for shipments claiming de minimis benefits, particularly for shipments from China. 

The House Ways and Means Committee recently approved a bill that would preclude the use of de minimis for goods subject to AD/CVD, Section 301, Section 232, or Section 201 tariffs. On August 8, Senate Finance Committee Chairman Ron Wyden (OR), along with Senators Cynthia Lummis (R-WY), Sherrod Brown (D-OH), Susan Collins (R-ME), and Bob Casey (D-PA) announced a bipartisan draft bill to prevent the importation of illicit goods such as fentanyl, counterfeits, and products made with forced labor. 

Similar to the House bill, the Senate draft would preclude any goods subject to AD/CVD, Section 301, Section 232, or Section 201 tariffs from de minimis eligibility. The draft bill goes further by limiting the scope of goods eligible for de minimis and would prohibit “Chinese corporate giants” from using the de minimis program for certain textiles, shoes, and apparel goods. 

Type 86 Filing Validation is Deployed in ACE

Starting July 25, Type 86 filings must include an estimated date of arrival. According to reports, in September, CBP will begin to reject Type 86 filings where the consignee reaches the $800 per person/per day de minimis threshold based on the estimated date of arrival. This scenario can cause complications where in-transit shipments have estimated dates of arrival that result in the consignee exceeding the $800 limit. In these cases, according to CBP, the shipments will not be eligible for Type 86 filings and will be rejected.

And the Fox Says…: While it is unclear whether de minimis legislation will become law this year due to differing approaches and a limited number of legislative days remaining this calendar year, these proposals indicate widespread concern over the de minimis program.

Companies using Type 86 filings should be aware of CBP’s new Automated Commercial Environment (ACE) validation program and its potential impact on their de minimis eligibility when CBP begins to use the estimated date of arrival to calculate the $800 per person/per day threshold. We will continue to monitor developments in the Section 321 de minimis program.

Contributors: Kelsey Griswold-Berger, Lucas A. Rock, Angela M. Santos