The COVID-19 pandemic is significantly disrupting international trade as global and domestic supply chains grapple with declining trade volumes and inadequate supplies of medical goods, including personal protective equipment (such as masks, gloves and gowns), medical equipment (such as ventilators) and pharmaceuticals.
According to the World Trade Organization, global trade volumes are projected to plummet between 13% and 32% in 2020 as the pandemic disrupts normal economic activity and life around the world. In this environment, Texas importers and exporters must quickly adapt and adjust based on the fluidity of the pandemic environment and shifting governmental policies.
Given the potential for delays and supply chain disruptions, now more than ever trade compliance must be part of all major supply chain decisions. This will have its own challenges as COVID-19 spreads, such as filing timely customs entries, export license applications and other required shipping documents. Texas importers and exporters must also monitor the U.S. federal trade agencies’ developing import facilitation and export policies.
This article briefly summarizes the import facilitation policies to help ease tariffs on much needed products, as well as export policies to restrict PPE exports while at the same time promoting humanitarian assistance worldwide.
Import Facilitation Policies and Measures
U.S. Customs and Border Protection and the U.S. Trade Representative are pushing import facilitation policies applicable to all Texas importers and medical PPE importers in particular.
On April 18, 2020, President Trump issued Executive Order 13916 to provide additional economic support for U.S. businesses, including critical supply chains for U.S. manufacturers, during the COVID-19 pandemic. Under the Executive Order, CBP announced a 90-day deferment period on certain payments for importers who have faced significant financial hardship due to the COVID-19 response. The temporary deferment period is available only for importers with a significant financial hardship. Deferment will apply to payments for goods entered in March or April 2020. Unfortunately, imports subject to duties associated with antidumping and countervailing duties, and Section 201, 232 and 301 Trade Remedies, are not included in this relief effort. Critically, CBP will impose no penalties, liquidated damages, or other sanctions for the postponed payment of the deposit of estimated duties, taxes and fees in accordance with this temporary postponement. To achieve maximum benefits, Texas importers should carefully evaluate whether the temporary deferment program applies to their import entries.
The USTR recently granted additional relief from Section 301 remedies on Chinese-origin medical PPE imports. In September 2018, the USTR imposed additional duties (10% to 25%) on Chinese-origin goods (List 3) with an annual trade value of approximately $200 billion as part of the action in the USTR Section 301 investigation of China’s acts, policies and practices related to technology transfer, intellectual property and innovation. In September 2019, the USTR imposed additional duties (7.5% to 15%) on Chinese-origin goods (List 4A) with an annual trade value of approximately $300 billion.
The List 3 tariff exclusions include seamless disposable gloves, plastic sacks and bags and nonwovens of man-made filaments. These exclusions will be retroactive to Sept. 24, 2018, and remain in place until Aug. 7, 2020. The List 4A tariff exclusions include soap, medical gloves, surgical drapes, bedsheets, face and medical masks, steel electromechanical shoe cover dispensers and protective articles. These exclusions will be retroactive to Sept. 1, 2019, and remain in place until Sept. 1, 2020. The tariff exclusions are available for any product that meets the description, regardless of whether the importer filed an exclusion request. Importers may request retroactive refunds for additional tariff relief.
Furthermore, the USTR opened a public comment period on possible further modifications to remove Section 301 duties from additional Chinese-origin medical-care products. The USTR invites comments from interested persons with respect to whether a particular product covered by Section 301 duties on Chinese goods is needed to respond to the COVID-19 outbreak. The comment docket will remain open at least until June 25. Texas importers that are paying Section 301 duties on Chinese-origin medical care products are strongly encouraged to submit comments to exclude their merchandise. For example, a comment may address whether a product is directly used to treat COVID-19 or to limit the outbreak or whether the product is used in the production of needed medical care products.
In an effort to further assist importers of medical supplies and PPE, CBP established the COVID-19 Cargo Resolution Team. The CCRT is a multidisciplinary team to triage incoming inquires, coordinate with affected ports, and respond directly as appropriate. The CCRT may be contacted at COVID19_RELIEF_IMPORTS@cbp.dhs.gov. Furthermore, the CCRT created the new imports.cbp.gov/s/ webpage with the latest import guidance on PPE, cargo hold facilitation and other duty questions.
Experienced trade counsel can assist Texas importers on various legal strategies to further lessen import tariffs in this changing environment. For example, ensuring a product’s correct tariff classification is a critical compliance strategy to determine duty impact. Using an incorrect tariff classification may result in overpayments or underpayments for imported goods classified under the wrong tariff codes. Companies may also investigate alternative sourcing strategies to establish favorable countries of origin for products.
Export Restrictions on PPE and Humanitarian Assistance Promotion
For export compliance, the U.S. Government has issued measures to restrict PPE exports but promote humanitarian assistance.
On April 10, the U.S. Federal Emergency Management Agency published a Temporary Final Rule that allocates certain scarce or threatened materials used for domestic use and may not be exported from the United States without explicit approval by FEMA. The rule covers five types of PPE including N95 Filtering Facepiece Respirators and PPE surgical gloves. Under the Temporary Final Rule, CBP will temporarily detain any export shipment of covered PPE and the FEMA Administrator will determine whether to return for domestic use or issue a rated order for part or all of the shipment. This rule is effective from April 7 until Aug. 10.
However, FEMA updated the export restrictions rule to exempt 10 scenarios such as:
- Exports of covered materials by nonprofit or nongovernmental organizations that are solely for donation to foreign charities or governments for free distribution (not sale) at their destination(s).
- Intracompany transfers of covered materials by U.S. companies from domestic facilities to company-owned or affiliated foreign facilities.
- Shipments of covered materials that are exported solely for assembly in medical kits and diagnostic testing kits destined for U.S. sale and delivery.
- Shipments for which the final destination is Canada or Mexico.
Texas companies may utilize these exemptions to send restricted PPE to company-owned or company-affiliated foreign facilities. Additionally, Texas companies are using the exemption for shipments for which the final destination is Canada or Mexico.
CBP also released guidance to implement the new exemptions. In order to qualify for intracompany and Canada or Mexico exemptions, FEMA requires the submission of a letter of attestation to CBP. The letter of attestation should include a description of which exemption(s) the exporter is claiming along with details regarding the shipment that are sufficient for the CBP and FEMA officials to determine whether the shipment falls under the claimed exemption(s).
Guidance from the U.S. Commerce Department should also be closely monitored. In the past, the SARS virus itself was categorized as requiring a license to export under Export Control Classification Number (ECCN) 1C351.a.46. There is no export licensing classification for COVID-19 to date, and the virus itself is still listed as EAR99 according to the Commerce Department – with no license required for export to most countries. However, exporters are reminded that certain end-users and destination countries may require a license even for the export of EAR99 items. Exporters should also continue to screen all requests for exported merchandise for denied and debarred parties. The International Trade Administration maintains a Consolidated Screening List that is a searchable and downloadable file that consolidates export screening lists of the Departments of Commerce, State and the Treasury into one spreadsheet to assist in screening potential parties to regulated transactions.
To promote COVID-19 related humanitarian assistance and trade, the U.S. Treasury Department’s Office of Foreign Assets Control issued a Fact Sheet highlighting the most relevant exemptions, exceptions, and authorizations for humanitarian assistance and trade under the Iran, Venezuela, North Korea, Syria, Cuba and Ukraine/Russia-related sanctions programs. The Fact Sheet also outlines specific guidance for OFAC-administered sanctions programs related to PPE and other COVID-19-related humanitarian assistance and trade. Texas exporters contemplating humanitarian assistance to OFAC-sanctioned countries are strongly encouraged to reach out to experienced trade counsel to confirm the use of General Licenses or apply for licensing authorization.
In addition to publishing the fact sheet, OFAC is encouraging persons affected by the COVID-19 global pandemic, including financial institutions and other businesses, to contact OFAC as soon as practicable if they believe they may experience delays in their ability to meet deadlines associated with OFAC regulatory requirements. Specifically, OFAC recommends that compliance professionals reach out if they have difficulty filing blocking and reject reports within 10 business days, responses to administrative subpoenas, reports required by general or specific licenses or any other required reports or submissions.
Further, OFAC supports a risk-based approach to sanctions compliance. For example, a Texas business facing technical and resource challenges caused by the COVID-19 pandemic may need to reallocate compliance resources temporarily as part of its risk-based approach to sanctions compliance. OFAC will evaluate this as a factor in determining the appropriate administrative response to an apparent violation that occurs during this period. OFAC will address these issues on a case-by-case basis.
Finally, Texas exporters may take advantage of export loans through the U.S. Small Business Administration to help businesses respond to the challenging COVID-19 trade environment. The SBA Office of International Trade helps small businesses achieve sales through exports. For example, the Export Working Capital program enables small businesses to fulfill export orders and finance international sales by providing revolving lines of credit or transaction-based financing of up to $5 million.
Like import compliance, experienced trade counsel can assist Texas exporters on various trade compliance strategies to reduce export burdens. For example, making licensing determinations and screening all end-users are two vital components of any export compliance program. Understanding licensing and reporting requirements early on can further boost a Texas company’s exports abroad.
As Texas and the world continues to manage the COVID-19 pandemic, we reiterate that trade compliance should be incorporated into all significant supply chain decisions. By monitoring the latest policies and measures from the U.S. federal trade agencies, Texas importers and exporters can fortify their supply chains and maintain compliance.
Michelle Schulz is a shareholder and chair of the international trade and customs practice at Polsinelli PC in Dallas. She serves as an advisor to the U.S. Secretary of Commerce and the U.S. Trade Representative on the Industry Trade Advisory Committee for Aerospace. She formerly served on the Export Council Subcommittee for Export Administration, an advisory body to the U.S. Department of Commerce and its Bureau of Industry and Security.
Luis Arandia, Jr. is an international trade and customs attorney at Polsinelli PC in Dallas. He is the current treasurer of the State Bar of Texas, International Law Section.
Matthew Savage and Kelly McCorkle also contributed to this article.