President Obama signed the bipartisan Trade Facilitation and Trade Enforcement Act of 2015 (TFTE) on February 24. This is the first major customs legislation enacted since the Customs Modernization Act, Title VI of the North American Free Trade Agreement Implementation Act, Pub. L. 103-182 (1993). The TFTE focuses on facilitating legitimate trade and enforcing existing trade laws, such as those relating to intellectual property and trade remedies.
Although the TFTE does not go so far as to implement a management-by-account system for customs entries, in an effort to streamline and modernize trade, the legislation provides support for the Automated Commercial Environment (ACE) and the International Trade Data System (ITDS), addresses trade partnership programs and statutorily authorizes the Centers of Excellence and Expertise (CEEs). The new law also makes significant changes to drawback in the hopes of simplifying what many consider to be archaic and complicated rules.
In keeping with the administration’s goals of implementing ACE and ITDS, the TFTE provides further funding for the development of ACE and requires not only that ITDS be implemented no later than ACE is fully implemented but that no later than December 31, ITDS must be the primary means for other agencies to receive data and documentation required for entry. In addition, the law requires that U.S. Customs and Border Protection (CBP) work with the participating agencies to ensure that they develop and maintain the infrastructure necessary to support ITDS and identify and transmit to CBP admissibility criteria and data elements for incorporation into ACE no later than June 30.
The law also addresses trade partnership programs. CBP currently maintains two primary trade partnership programs, the Customs-Trade Partnership Against Terrorism (C-TPAT), a security-focused program, and the Importer Self-Assessment program, a compliance-focused program. The TFTE requires CBP to consider consolidating partnership programs, ensure a transparent system of benefits and compliance requirements and coordinate with other federal agencies for qualified parties to receive immediate clearance for entries, absent information that the transaction poses a threat. While the TFTE requires that CBP provide participants in partnership programs with “commercially significant and measurable trade benefits,” the only benefit specifically enumerated is the requirement that CBP provide preclearance of merchandise for those that demonstrate the highest levels of compliance.
Additionally, the TFTE provides statutory authority for the CEEs, established as a pilot program in 2011. While the legislation requires the establishment of the CEEs, it largely leaves open their role. The new law merely directs that the CEEs must facilitate the consistent enforcement of trade laws and regulations across the ports of entry.
Some of the most significant changes in the law include amendments made to drawback, which is a refund of 99 percent of the customs duties paid on imported merchandise, linked to an exportation (or destruction) of an article. Although the law makes a number of changes to the drawback statute, one of the most important is the substitution of “merchandise classifiable under the same eight-digit” tariff subheading in place of the “commercially interchangeable” and “same kind and quality” standards for unused merchandise drawback and substitution drawback, respectively. In the case of unused merchandise drawback, however, the tariff classification may not be used if the provision begins with the term “other” at the eight- or ten-digit level. These changes, which will apply to the drawback claims filed on or after February 24, 2018, should result in a more administrable and objective drawback system.
Miscellaneous Customs Provisions
In addition to incorporating the facilitation and simplification measures discussed above, the TFTE addresses a number of miscellaneous customs matters, some of which present duty savings opportunities. These provisions address, among other things:
- Increased de minimis value: The legislation raises the de minimis value — the value of goods that may be entered without payment of duty — from $200 to $800.
- Amendments to Chapter 98 of the Harmonized Tariff Schedule: The law introduces a number of important changes to duty savings provisions in Chapter 98. First, it authorizes the use of inventory management for commingled, fungible articles for purposes of subheadings 9802.00.40 and 9802.00.50, concerning articles exported and returned after repair or alteration abroad. The TFTE does not go so far as to authorize the use of inventory management in other Chapter 98 provisions, such as subheading 9802.00.80. Second, the new law expands the universe of articles that may be potentially imported duty-free by amending subheading 9801.00.10, previously for American goods returned, to allow the duty-free entry of any article, regardless of origin, that is exported and returned within three years of exportation, provided it is not advanced in value or improved in condition while abroad.
- Voluntary reliquidations by CBP: The TFTE makes a technical correction to the pre-existing law, which allowed CBP to reliquidate an entry within 90 days of the date of notice of liquidation. The new law changes the statute to allow CBP to reliquidate an entry within 90 days of the liquidation, as opposed to within 90 days of notice of such liquidation.
- Residue of bulk cargo in instruments of international traffic: The TFTE amends the Harmonized Tariff Schedule to exempt from entry requirements residue of bulk cargo in instruments of international traffic previously exported from the United States. This supplants a CBP ruling from 2009 requiring the entry of such residue.
- The creation of a program to provide duty-free treatment for certain textile and apparel products produced in Nepal: The program, based on rules established under the Generalized System of Preferences and African Growth & Opportunity Act and authorized through 2025, is limited to about five dozen tariff classifications encompassing bags, carpets and accessory items like hats and shawls.
With respect to trade enforcement, the legislation addresses issues with importer-of-record identification, intellectual property rights and antidumping and countervailing duty evasion.
Importer-of-Record Identifying Information
In the wake of increased concerns surrounding unscrupulous and “fly-by-night” importers of record, the TFTE authorizes three key changes to how CBP manages importers of record. First, the legislation requires the establishment of an importer-of-record program. As part of the importer-of-record program, CBP must establish criteria that importers must meet to obtain an importer-of-record number and must provide a process by which numbers are assigned. CBP must also maintain a database of importer-of-record numbers and associated information on the importer. Second, the new law requires CBP to establish an importer risk assessment program to review the risk associated with certain importers, particularly new importers and nonresident importers, to determine whether to adjust an importer’s bond amounts and to increase screening for an importer’s entries. Tier 2 and Tier 3 C-TPAT members are excluded from this program. Finally, the TFTE requires CBP to prescribe minimum standards for identifying information that brokers must collect and maintain on importers of record, particularly nonresident importers. Significantly, in addition to collecting and maintaining the information, the law requires that these standards include procedures a broker is required to follow to verify the authenticity of the information and provides for monetary penalties, in addition to the potential revocation or suspension of the broker’s license or permit, for failure to comply with the standards.
Intellectual Property Rights Enforcement In an effort to combat concerns over the importation of merchandise that infringes on intellectual property rights, the new law provides enhanced enforcement tools to CBP and establishes an administrative framework for managing intellectual property issues. Although prior law allowed CBP to share unredacted images and samples with rights holders, the TFTE requires CBP to share certain information about merchandise that potentially infringes on trademarks or copyrights with the rights holder if CBP believes this would assist in determining whether a violation occurred. The TFTE also adds circumvention devices — devices designed to circumvent a technological measure to control access to protected work — to the list of items CBP is authorized to seize and requires CBP to enforce a copyright for which an application for registration is pending. The new law also provides statutory authorization for the National Intellectual Property Rights Coordination Center, the dedication of certain CBP and U.S. Immigration and Customs Enforcement employees to intellectual property rights issues and enhanced training for CBP employees on intellectual property rights issues, including though coordination with the private sector.
Trade Remedies Enforcement
Title IV of the TFTE, separately titled the Enforce and Protect Act of 2015, makes significant changes to how CBP enforces antidumping and countervailing duty orders. In addition to requiring the creation of a Trade Remedy Enforcement Division within CBP’s Office of Trade, the newly enacted legislation establishes a mandatory procedure for CBP to investigate allegations of duty evasion. Title IV borrows heavily from the Senate’s previously proposed ENFORCE Act, with some amendments.
Under the newly defined procedures, investigations into allegations of evasion must occur as follows:
- Not later than 15 business days after receiving an allegation, or a referral from another federal agency, that a person has entered covered merchandise into the United States through evasion, CBP is required to initiate an investigation if it determines that the information provided in the allegation or referral reasonably suggests that evasion has occurred.
- Not later than 300 calendar days after the date on which CBP initiates an investigation, CBP shall make a determination, based on substantial evidence, with respect to whether such covered merchandise entered the United States through evasion. This deadline may be extended by 60 calendar days if CBP determines that the investigation is extraordinarily complicated and additional time is necessary to make a determination.
- In making its evasion determination, CBP may collect additional information, including by issuing questionnaires (to the party that filed the allegation, the person alleged to have entered the covered merchandise through evasion and the foreign producer or exporter) or by conducting verifications. If CBP finds that the person alleged to have entered covered merchandise through evasion has failed to act to the best of the person’s ability to comply with a request for information, CBP may use an inference that is adverse to the interests of that person in selecting from among the facts otherwise available to determine whether evasion has occurred. An adverse inference may include reliance on information derived from the allegation of evasion of the trade remedy laws submitted to CBP; a determination by CBP in another investigation, proceeding or other action regarding evasion of the unfair trade laws; or any other available information.
- If CBP makes a determination that covered merchandise was entered into the United States through evasion, CBP shall (1) suspend the liquidation of unliquidated entries of such covered merchandise that are subject to the determination and that enter on or after the date of the initiation of the investigation; (2) extend the period for liquidating unliquidated entries of such covered merchandise that are subject to the determination and that entered before the date of initiation; (3) notify the Department of Commerce of the determination and request that Commerce identify the applicable antidumping/countervailing duties rates; and (4) require the posting of cash deposits and assess duties on entries.
- The person found to be evading duties may file an administrative appeal of CBP’s determination within 30 business days, which must be decided de novo within 60 days. The appeal is subject to judicial review at the Court of International Trade.
Title IV also eliminates the ability of an importer of a new shipper’s merchandise to post a bond or security instead of a cash deposit for entries of that merchandise while the Department of Commerce is determining the new shipper’s individual weighted average dumping margin or individual countervailing duty rate. This provision is intended to avoid unscrupulous importers importing large quantities of dumped or subsidized merchandise during the review period and then disappearing or otherwise failing to pay the proper amount due.
Companies may see increased enforcement efforts by CBP due to the enhanced tools provided by the TFTE, but the law also aims to facilitate trade through increased cooperation and automation and presents numerous duty savings opportunities for importers to consider. Notably, CBP will have to promulgate new regulations to implement many of the provisions mandated by Congress. That rulemaking process should provide important opportunities for input by the business community.
The newly enacted legislation also asserts Congress’ strong desire to pass a miscellaneous tariff bill in the future, the last of which expired on December 31, 2012. Given continuing controversy over whether temporary duty suspension bills constitute earmarks, passage of such a bill is not likely to happen during the current Congress.