USTR ANNOUNCES CHINA SECTION 301 TARIFFS WILL REMAIN IN EFFECT

Why:

• In a press release on September 2nd this year, the Office of the United States Trade Representative (USTR) confirmed as part of its required four-year review of the Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation will continue and may be subject to further modifications.
• This means that Jabil and its partners will continue to be subject to the 7.5% - 25% Section 301 duties against targeted goods that originate from China.

Who:

• Any site that is located in the US or US territory that imports targeted materials that originate from China into the US.

What:

• Section 301 of the Trade Act of 1974 grants the USTR the responsibility to investigate and enforce US rights under trade agreements and respond to certain foreign trade practices.
• In August 2017, it was declared that China’s technology transfer, IP, and innovation policies and practices are unreasonable, discriminatory, and restrict US commerce. Starting in March 2018 through September 2019, the USTR Imposed ad valorem tariffs, ranging from 7.5% to 25%, on China origin goods on 4 separate lists of products imported into the US.

Key Takeaways:

• Section 301 duties against items originating from China ranging from 7.5% to 25% will remain in effect until further notice.

BIS ANNOUNCES FOUR ENFORCEMENT POLICY CHANGES:

Why:

• On June 30, 2022, the US Department of Commerce’s Bureau of Industry and Security (BIS) announced four significant policy changes intended to strengthen its administrative enforcement of the Export Administration Regulations (EAR).
• These policies are effective immediately and the changes intend to hold companies accountable and incentivize them to invest in a strong compliance program.

Who:

• Any US or global site that exports, handles, or warehouses items subject to the EAR.

What:

• BIS will impose higher penalties in egregious cases to ensure resolutions are commensurate with the national security harm caused, discourage violations, and provide parity for companies that proactively adopt robust compliance programs. 
• In pending cases that are not egregious but required a warning letter or no-action letter, BIS will offer non-monetary settlement agreements. These agreements will impose a suspended denial order with conditions, such as training and compliance requirements. Violators will also be required to accept responsibility, admit to their conduct, and commit to enhanced compliance measures.
• While a violator will still receive a reduced penalty for a settlement agreement, the violator will be required to admit that the underlying conduct occurred. 
• BIS will “fast-track” minor violations to resolve them within 60 days of the final VSD submission. For the most serious cases, the Department of Justice may assign an attorney from the Counterintelligence and Export Control Section which is expected to create a quicker turnaround for review.

Key Takeaway(s):

• BIS announced four significant policy changes that will result in significantly higher penalties for egregious cases, create non-monetary penalties for settlement agreements, and fast-track minor violations for Voluntary Self Disclosures (VSD).

AES RESPONSE CODE 66Q

Why:

• To coordinate and combine the efforts of different agencies, US Customs and Border Protection (CBP) has implemented logic in its Automated Export System (AES) to cross reference ECCNs being exported with license exceptions or licenses declared on the shipper’s Electronic Export Information (EEI).

Who:

• Any site located in the US or US territory that ships material out of the US.

What:

• Automated Export System (AES) created a Response Message “66Q” for when US Exporters selected license type “C33: No License Required (NLR)” when not allowed based on ECCN, country, and other details submitted on the Electronic Export Information (EEI).   
• Response Code: 66Q 
• ECCN & CTRY OF DEST NOT ALLOWED FOR C33 (NLR) 
• Severity: FATAL 
• Users were required to update the license type or ECCN for that shipment before submitting the EEI. 
• CBP has now updated the AES system to make this a fatal error which means effective July 13, 2022, if any US exporter files an EEI and receives Response Code 66Q, they will not be able to receive an ITN, and notification of the errors will be communicated to BIS.

Key Takeaway(s):

• Effective July 13, 2022, all US exports must ensure that the ECCN and license exception license is valid and accurate.
• If not, CBP will reject the AES filing and prevent an ITN from being received. Exporting shipments without a required ITN is a violation of CBP and BIS regulations and is subject to fines, penalties, and potential loss of export privileges.
• Each EEI declaration must be made accurately and before the shipment leaving a Jabil site to be considered “on time”.

US CUSTOMS USER FEE CHANGES

Why:

• Effective October 1, 2022, in accordance with the Fixing America’s Surface Transportation Act of 2015 (FAST Act) CBP import fees have been updated.

Who:

• Any Jabil site that is in the US or US territory that imports material into the US.

What:

• Formal Entry Merchandise Processing Fee (MPF) ad valorem rate of 0.3464% will not change, but the minimum MPF will change from $27.75 to $29.66, and the maximum will change from $538.40 to $575.35.
• Informal Entry/Release, automated and not prepared by CBP personnel (class code 311a), will change to $2.37.
• The surcharge for Manual Entry/Release (class code 500) will change to $3.56.
• The dutiable Mail fee (class code 496) will change to $6.52.
• Express Consignment Carrier/Centralized Hub Facility fee will change to $1.19 per individual waybill/bill of lading. An individual airway bill is the bill at the lowest level and is not a master bill or other consolidated document. 
• Commercial Vessel or Commercial Aircraft Passenger Arrival customs fee will change to $6.52 per passenger.
• Commercial Vessel Passenger Arrival (from exempt areas) customs fee will change to $2.29 per passenger.
• The Commercial Truck Arrival fee will change to $6.50 (CBP fee only and does not include other USDA fees).

RUSSIA AND BELARUS SANCTIONS

• The closure of Tver and/or Uzhgorod would create a potential loss of revenue for the divestiture/liquidation, and added costs of the potential relocation of staff, manufacturing lines, equipment, and capital assets. In addition, organizations would be exposed to costs associated with legal and environmental risks as well as geopolitical barriers to exit.
• Fixed Costs may be eliminated at those sites; however, variable costs of labor may change according to the region where operations are relocated.
• Depending on the industries of business partners in Russia, US export regulations may not allow the acceptance of accounts receivables.
• Payment of outstanding debt may also be blocked which will be a negative impact on an otherwise amicable business relationship.
• The sale of assets, if allowed, may only be allowed to go to certain entities. 
• Failure to liquidate business/assets according to US and local regulations will expose Jabil to fines, penalties, and potential loss of export privileges in the US.
• Penalties:
• Imports:
• The penalty for gross negligence is a minimum of 2.5 times to a maximum of 4 times the total duty loss, or 25% to 40% of the dutiable value in non-revenue loss cases, but never to exceed the domestic value of the merchandise.    
• Exports:
• Criminal penalties can include up to 20 years of imprisonment and up to $1 million in fines per violation, or both.
• Administrative monetary penalties can reach up to $300,000 per violation or twice the value of the transaction, whichever is greater.

BIS ANNOUNCES FOUR ENFORCEMENT POLICY CHANGES

• BIS is looking to generate revenue and make an example of companies that violate export control laws. Any US or global site that exports, handles, or warehouses items subject to the EAR will be under the BIS umbrella and is subject to these more severe fines and penalties.
• With the significant costs incurred by Section 301 duties and other inflationary and supply chain cost increases, Operations Managers need to understand and ensure that their sites operate within the guidelines to minimize exposure to fines, penalties, and potential loss of export privileges in the US. Penalties:            
• Exports:​
• Criminal penalties can include up to 20 years of imprisonment and up to $1 million in fines per violation, or both.​
• Administrative monetary penalties can reach up to $300,000 per violation or twice the value of the transaction, whichever is greater.​
• Jabil may also be subject to the denial of its export privileges.

USTR ANNOUNCES CHINA SECTION 301 TARIFFS WILL REMAIN IN EFFECT

• USTR imposed ad valorem tariffs, ranging from 7.5% to 25%, on China origin goods on 4 separate lists of products imported into the US and will continue until further notice. Jabil has paid over $40 million in Section 301 duties in FY21 and FY22.
• While Jabil should look for ways to mitigate these costs internally or pass on Section 301 duty costs to its partners; its partners will do the same because consuming these costs is not sustainable.
• Jabil’s buyers, planners, and BUs should look for, expect, and try to prevent its partners from altering agreements or finding other creative ways to pass on their own Section 301 duty liabilities towards the organization.

BIS ANNOUNCES FOUR ENFORCEMENT POLICY CHANGES

• The enforcement policy changes affect every Jabil US site and every Jabil global site that exports, handles, or warehouses items subject to the EAR. For exports, penalties are as follows:
• Criminal penalties can include up to 20 years of imprisonment and up to $1 million in fines per violation, or both.
• Administrative monetary penalties can reach up to $300,000 per violation or twice the value of the transaction, whichever is greater.
• Jabil may also be subject to the denial of their export privileges.

AES RESPONSE CODE 66Q

• Every Jabil US site must file applicable EEI declarations accurately and before the shipment leaves the site. Each US site is regularly trained and assessed by the Global Trade Compliance team and is notified of errors that must be corrected. 
• Late filing penalties are as follows:
• $1,100 for each day of delinquency up to a maximum of $10,000 per violation.
• Failure to file or correct EEI penalties are as follows:
• Maximum $10,000 or imprisonment for not more than five years, or both, for each violation.
• With coordinated efforts of the various US export agencies, it is likely to compound AES and BIS penalties as listed below:
• Criminal penalties can include up to 20 years of imprisonment and up to $1 million in fines per violation, or both.
• Administrative monetary penalties can reach up to $300,000 per violation or twice the value of the transaction, whichever is greater.
• Jabil may also be subject to the denial of their export privileges.

US CUSTOMS USER FEE CHANGES

• The CBP fee increase regarding MPF for informal and formal entries is 7%. In FY22, Jabil US cleared 15,994 shipments as formal entries and 1,321 informal entries and paid a total of $2,135,696.98 in MPF charges. Ceteris paribus to FY22, we can estimate MPF fees in FY23 to be around $2,285,196 ($2.1M x 7%) or an increase of approximately $150,000.

 

RUSSIA AND BELARUS SANCTIONS

• Imports into the US:
• The following are banned for import into the US.
• Any materials originating from the Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) territories in Ukraine.
• Any Russian-origin crude oil, petroleum, petroleum fuels, oils, and products of their distillation, liquefied natural gas, coal, and coal products.
• Any Russian-origin fish, seafood, alcoholic beverages, non-industrial diamonds, and any other products as determined by the US Secretary of the Treasury, State, and Commerce. 
• US Exports, Re-Exports, and In-Country Transfers:
• BIS placed an export license application requirement for the following items shipped from the US or foreign-made items using US technologies (Foreign Direct Product or FDR) to ship to Russia or Belarus.
• While the export license requirement is in place, it is important to note that BIS has also imposed a general policy of denial. This means that if an organization applies for an export license to Russia or Belarus, it will be denied, and the shipment may not be fulfilled without violating US export legislation. The following items are forbidden to be shipped to Russia or Belarus:
• All items on the Commerce Control List (CCL – ECCNs starting with 0, 1, 2, 3, 4, 5, 6, 7, 8, and 9). 
• Any item that is classified as EAR99 where the HTS Code / Schedule B number of the item does not appear in Supplement 4 to Part 746 of the EAR.
• Any item manufactured outside of the US, but still using or relying on US technology (machines, software, designs, etc.).
• Any luxury goods, and any other products as determined by the US Secretary of the Treasury, State, and Commerce.
• All items to Russia or Belarus “military end users” or for “military end users” except for food and medicine classified as EAR99 and where the HTS Code / Schedule B number of the item does not appear in Supplement 4 to Part 746 of the EAR.
• Any items to the DNR or LNR territories in Ukraine.
• Businesses may not engage in any of the below-specified activities conducted from the US, directly or indirectly, or by a US person wherever located. However, the below activities may occur by a US person, if they are located within the Russian Federation: 
• Accounting Services – services related to the measurement, processing, and evaluation of financial data about economic entities.  
• Trust and Corporate Formation Services – services related to assisting in forming or structuring trusts and corporations; acting as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address; and providing administrative services for trusts. 
• Management Consulting Services – services related to strategic business advice; organizational and systems planning, evaluation, and selection; development or evaluation of marketing programs or implementation; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.
• Penalties:
• Imports: Penalty for gross negligence is a minimum of 2.5 times to a maximum of 4 times the total duty loss, or 25% to 40% of the dutiable value in non-revenue loss cases, but never to exceed the domestic value of the merchandise.    
• Exports: Criminal penalties can include up to 20 years of imprisonment and up to $1 million in fines per violation, or both.
• Administrative monetary penalties can reach up to $300,000 per violation or twice the value of the transaction, whichever is greater.
• Businesses may also be subject to the denial of their export privileges.