The new customs law, the Trade Reconciliation and Trade Enforcement Act of 2015 (“TRTEA”), signed into law February 24, 2016, includes some of the most momentous changes to the customs laws since the passage of the Customs Mod Act in 1993. While it not as all-encompassing as that landmark customs legislation, it makes important changes to multiple areas of trade law. The highlights: TRTEA improves intellectual property rights protection rules and establishes a new IPR Center, toughens antidumping provisions to prevent duty evasion, expands substitution drawback of duties, and increases time periods for claiming drawback. Importers can take advantage of these changes to decrease duty exposure and increase their company’s bottom line, while domestic producers will enjoy increased enforcement of IPR, and decreased evasion of ADD/CVD orders.
Behind the scenes, TRTEA requires increased cooperation among agencies and consultation with Congress on CBP’s progress in implementing the new provisions, improving transparency, accountability, and coordination in enforcement efforts. The TRTEA pushes CBP to provide real benefits to the importing community: Customs must report to Congress on the measured benefits to importers of the various programs CBP offers. The TRTEA gives Congress’ statutory blessing to CBP’s streamlining of operations through the creation of Centers of Excellence and Expertise (CEE) and the final implementation of the ACE program.
The TRTEA makes important changes to its intellectual property protection programs, which had been a sore point with many trademark owners. It creates a new National Intellectual Property Rights Coordination Center within U.S. Customs and Immigration Enforcement (ICE). This Center will be responsible for coordinate IP investigations to identify producers, smugglers, or distributors of infringing merchandise. CBP will now provide intellectual property rights holders with better notice of potentially infringing merchandise. In addition, the TRTEA requires the US Trade Representative to negotiate for increased IP protections in treaty negotiations. It creates the post of Chief Innovation and Intellectual Property Negotiator, who will conduct trade negotiations and enforce trade agreements involving intellectual property.
The TRTEA will allow CBP to act more quickly to prevent importers from evading AD/CVD orders on unfairly traded imports of steel and other products. In conjunction with the TRTEA, the Obama administration announced increased ADD/CVD inspections at U.S. ports and increased Customs personnel to help enforce duties already in place. As Commerce Department Secretary Pritzker said after President Obama signed the TRTEA into law:
Importantly, new authorities created by this bipartisan legislation will enhance the Department of Commerce’s ability to coordinate with U.S. Customs and Border Protection on AD/CVD enforcement efforts. The Department will also have access to the newly authorized Trade Enforcement Trust Fund that would make available resources dedicated to monitoring the implementation of bilateral and multilateral trade agreements by our trading partners and to engaging them in capacity building efforts in areas such as labor, environment, and intellectual property protection.
The TRTEA sets up a new ADD/CVD enforcement body within Customs (the “Trade Remedy Law Enforcement Division”), and includes new investigatory powers to, for example, demand information from foreign suppliers suspected of violating or evading ADD/CVD orders. The TRTEA also allows CBP to make statistical inferences to bar imports it suspects are evading ADD/CVD orders, for example if there is a shift in imports from a country subject to ADD to another source country. The TRTEA also includes provisions aimed at preventing evasion of ADD duties by fly-by-night importers who use the “new shipper” provisions for reduced cash deposits, but then vanish before the final duties are determined.
Fundamental changes will be made to CBP’s duty drawback program. Companies which use the drawback program know that it is complex, and compliance burdensome, oftentimes outweighing any duty refund benefits. Two provisions of the TRTEA will improve the profitability of drawback. First, the substitution rules, which allow imports of one product to be matched for drawback with exports of “same kind and quality” product, will permit matching instead of products classified in the same 8-digit HTSUS subheading. Second, the new law extends the period of time between import and export of the matched products, from 3 years to 5 years. Under the new rules, a company could import apple puree in 2017 and export pear puree in 2023 and match the two shipments up for drawback purposes.
Unfortunately, the TRTEA does not change the “lesser of the two” rule for NAFTA drawback, and so it will have limited impact on importers from Canada or Mexico. But as most every NAFTA-originating commodity enters the U.S. duty-free, the “lesser of the two” rule is not usually a large impediment.
The new drawback rules will be implemented over two years, in part because CBP needs to draft new regulations. Starting in February, 2018, drawback claimants can file claims under the new rules, which will give importers time to consider which products best fit the new regime. With the law’s new five-year retroactivity window, drawback could be claimed in 2018 on imports made as long ago as 2013 using the 8-digit HTSUS substitution method.
Among the miscellaneous provisions, the TRTEA increases the threshold for de minimis imports (up to $800 from $200) and significantly liberalizes recordkeeping under HTSUS Chapter 98 (U.S. goods returned) program. The TRTEA also bans imports of goods made by forced labor, even where consumer demand cannot be met otherwise (a previous loophole).
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