Department of Commerce / BIS Issues Advisory Opinion on Deemed Exports

Why:

• Companies are hiring and contracting internal and third-party vendors that are foreign nationals to support key roles in engineering, development, and support.
• It is important to ensure that hiring managers understand the technologies that potential employees will be exposed to, and the proper license determination is executed prior to engaging in projects that require an export license.
• This is especially evident with the recent SpaceX matter where the DOJ filed an administrative lawsuit alleging that SpaceX engaged in “routine” discrimination by refusing to hire asylees and refugees.
• It is very common for employers to misinterpret export control laws and regulations or err too cautiously and straddle the line of discrimination when hiring individuals for roles that are for “US Persons” only.

Who:

• Hiring managers, human resources, and individuals that contract with third parties.

What:

•  The Bureau of Industry and Security (BIS) issued an advisory opinion on the Export Administration Regulations (EAR) licensing requirements for deemed reexports to third-country nationals and certain individuals that maintain dual citizenships.
• “Reexport” (per the Code of Federal Regulations) means an actual shipment or transmission of items subject to the EAR from one foreign country to another foreign country; or release of technology or software subject to the EAR to a foreign national outside the United States.
• However, this deemed reexport definition does not apply to persons lawfully admitted for permanent residence.
• BIS historically stated that its deemed export licensing requirement was based on a foreign national’s most recent country of citizenship or permanent residency.
• However, it subsequently indicated that this approach would be applied when concerns arise in instances where a foreign national maintains dual citizenship or multiple permanent residence relationships.
• In scenarios where a foreign national’s residency status is not clear, it is recommended that exporters consult BIS for guidance as it may be difficult to determine where the individual may have stronger ties.
• BIS also stated that it would assist the exporter by reviewing the foreign national’s familial, professional, and financial connections.
• BIS also indicated that the most recent country approach reflects a “general policy” and is not the most definitive criteria for determining a foreign national’s home country or countries.

Key Takeaway(s):

• When hiring or contracting foreign nationals or foreign vendors, it is important to look at the project and technologies that will be disseminated.
• It is crucial that a license determination is performed to ensure appropriate licenses or authorizations are acquired to prevent any export violations.

China & Russia Regulations & Sanctions Simplified

Why:

• The waves of new regulations regarding China and Russia require every exporter to reassess their strategy of engaging in commerce in either country as it is no longer as simple as knowing that your items are EAR99.

Who:

• All US Exporters and Re-exporters into China, Russia, and Belarus.

What:

• US export regulations to China.
• While there are currently no China sanctions, the China export regulations are more complex compared to a typical sanction as companies doing business in China can no longer rely on the Export Control Classification Number (ECCN) of an item to determine if an export license is required.
• The recent regulations expand license requirements for products destined to the PRC classified under ECCNs that are controlled for anti-terrorism purposes only (including EAR99, 3A991, 4A994, and 5A992).
• Now export license requirements require a knowledge of the end user and end use of the item. Companies can no longer manufacture their products outside of the US with de minimis levels of US content to avoid the US export regulations as they must now understand the Foreign Direct Product Rules and the restrictions on specific activities of US persons involving items not subject to the EAR.
• The foreign direct product rule (FDPR) is a mechanism to control diversion of US technologies and products made from US technologies. It effectively states that if a product was made using US technology anywhere in the world, the US government has the power to stop it from being sold.
• Additionally, the Entity List and the Unverified List are frequently updated so having access to a robust restricted party screening solution is critical.
• As a best practice, any company exporting to China should require an end-use/end-user declaration.
• US Export regulations to Belarus and Russia:
• They are subject to comprehensive multi-lateral sections. In addition to relying on the ECCN of an item, for the first time the Harmonized Tariff Schedule (HTS) number of an item is also critical in determining if an export to Russia requires a license.
• Additionally, there are restrictions on items only identified by a description (regardless of their ECCN or HTS classifications).
• For any company that needs to export to China and Russia, it is critical to familiarize yourself with the most recent export regulations, classify your products, screen your end users, and the end use for every transaction, and thoroughly document our due diligence and license determination process.

Key Takeaway(s):

• The US export and re-export regulations to China, Russia, and Belarus are complex and may change as the conflict evolves.
• It is important for US Exporters and Re-Exporters to stay up to date with regulations and document their supply chain to discover and mitigate any potential gaps.

COMPLIANCE COMMENTARY

• The European Commission has published a proposal for the reform of the European Union customs environment.
• This initiative is being described as “the most ambitious and comprehensive reform of the EU Customs Union since its establishment in 1968”.
• The recently released proposals intend to:
  • Enhance duty revenue collection.
  • Prevent the circulation of illegal and non-conforming goods.
  • Adapt the existing customs structure to the evolving e-commerce scenario.
  • Standardize the practical application of customs procedures across various EU Member States.

REGULATIONS COMMENTARY

• The reform should simplify and rationalize customs reporting for traders. The time needed to complete import procedures will be reduced, data will be re-used and communicated via one single EU interface – an EU Customs Hub.
• The EU Customs Hub will be used by traders to submit their customs-related data.
• Upon its implementation, traders will only need to interact with a single IT system and follow one set of procedures potentially contributing to the consolidation of customs operations.
• The new platform is supposed to simplify the exchange and combination of information within a single environment and is meant to gather and process data for customs risk analysis and targeted controls.
• The proposed new system will grant customs authorities an overarching perspective of supply chains and production processes of goods entering the EU.
• Each Member State will possess real-time access to data and the capability to pool information to enable quicker, uniform, and efficient responses to risks.
• The EU Customs Hub will be overseen by a new EU Customs Authority which will assist Member States in identifying and prioritizing the risks and coordinating their checks and inspections.
• The traders deemed most reliable (‘Trust and Check’ traders) will be able to release their goods without any active customs intervention. The ‘Trust and Check’ category is the next level of the already existing Authorized Economic Operator (AEO) program.
• The ‘Trust and Check’ traders will grant the customs authorities access to their electronic systems with records on the movement of their goods. In return, they will be able to release the goods on behalf of customs and defer the payment of the customs debt.
• There will be a modernization of e-commerce import procedures, leading to increased transparency.
• Digital platforms will be considered importers and will be responsible for reporting e-commerce sales data to customs authorities.
• The reform aims to establish a uniform method for administrative penalties across all Member States.

COST SITUATION COMMENTARY

• The Commission plans to eliminate the EUR 150 customs duty exemption for low-value goods to prevent fraudulent practices such as undervaluation. E-commerce businesses have the option to choose the simplified tariff treatment when calculating customs duties for low-value goods.
• Under the simplified rules for business-to-consumer e-commerce transactions, the customs value should be determined as the net purchase price, excluding VAT, but including the total transport costs until the destination.
• The origin of the goods will not be required in this case. However, the deemed importer can still benefit from the preferential origin of the goods by applying the standard customs procedures.

IMPACT ANALYSIS COMMENTARY

• The establishment of the EU Customs Hub aims to simplify and streamline customs procedures for traders, eliminating the necessity for them to interact with the IT systems of 27 individual national customs administrations.
• Supporting documents can be submitted once to cover multiple consignments, thereby reducing administrative burdens.
• Trust and Check traders experience fewer physical and document-based controls. They share real-time data on their goods with customs and in return, have the authority to release goods on behalf of customs authorities and can also defer the payment of the customs debt.
• Digital e-commerce platforms will function as deemed importers, transferring the responsibility from consumers to these platforms.
• The simplified tariff treatment for e-commerce goods not only streamlines imports but also enhances duty and VAT revenue collection.
• The proposals are slated for gradual implementation over the upcoming 10 to 15 years. The Commission outlines that the initial launch of the new regulations for the EU Customs Authority, the EU Customs Data Hub, and the updated e-commerce rules are set for 2028.
• Initially, the EU Customs Data Hub will exclusively cater to e-commerce transactions. By 2032, its utilization will extend to all traders. An assessment of these new rules is scheduled for 2035, potentially leading to the mandatory adoption of the EU Customs Data Hub for all traders by 2038.

Introduction of India 'The Customs (Assistance in Value Declaration of Identified Imported Goods) Rules (CVAR) 2023

Why:

• The amendments to the Finance Act of 2022 have imposed additional responsibilities on importers, particularly in cases where imported goods are suspected to be undervalued.
• These amendments introduce rules outlining the importer's enhanced obligations related to a specific class of imported goods whose declared values are potentially incorrect.
• The CVAR 2023 has been introduced to establish a mechanism for the government to identify the category of goods that require increased scrutiny and obligations concerning undervaluation.

Who:

• This policy will impact all importers engaged in importing goods into India.

What:

• The key highlights of CVAR 2023 are as follows:
  • Notifications related to the class of goods will have a validity period of a minimum of one year and a maximum of two years initially.
  • These notifications will be subject to a mid-term review or, if necessary, an earlier review in specific cases to determine whether denotification or an extension of the validity period is warranted.
• CVAR 2023 will not be applicable to certain categories of goods, including:
  • Imports not subject to duty.
  • Goods for which tariff values have been established or those subject to specific duty rates.
  • Imports that are under investigation by the Special Valuation Branch (SVB) or are already covered by an existing SVB report.
  • Imports carried out under authorization or licenses issued under the duty exemption scheme of the Foreign Trade (Development and Regulation) Act 1992.
  • Project imports.
  • Any other imports specified in the regulations.

Key Takeaways:

• Importers must carefully assess these rules, as they will introduce additional compliance requirements, especially when clearing goods for which the declared value is deemed incorrect.
• Going forward, traders must establish robust systems and processes to ensure compliance, including providing justifications for declared values in cases where imports are subjected to heightened scrutiny and checks by Indian Customs authorities due to notifications issued under these rules.
• Importers engaged in the importation of goods subject to higher duties or related party transactions should proactively ensure that their declared values align with India's customs valuation regulations.

Thailand HS Version Change under AJCEP from HS 2002 to HS 2017

Why:

• The Thai Customs issued Customs Notification (CN) 46/2566 (2023), which amends the previous notification CN 230/2564 (2021) concerning criteria and procedures for duty exemption and reduction under the ASEAN-Japan Comprehensive Economic Partnership (AJCEP).
• This notification, effective from March 1, 2023, introduces changes that include updating the Harmonized System (HS) code version from HS 2002 to HS 2017.

IMPACT ANALYSIS COMMENTARY

Introduction of India 'The Customs (Assistance in Value Declaration of Identified Imported Goods) Rules (CVAR) 2023:

• Importers should ensure that their current company's transactional value policies and processes are in place to comply with the new CVAR 2023 regulations in India.
• It is advisable to review all imported goods with HS codes subject to higher import duties or related party transactions. In such cases, finance departments should thoroughly review and ensure the declared values are justifiable.

 

Thailand HS Version Change under AJCEP from HS 2002 to HS 2017:

• To avoid potential issues, product descriptions on invoices and Form AJ should align with HS 2017. Failure to do so could lead to Form AJ rejection by customs authorities in the importing country, resulting in the imposition of import duties at standard rates and potentially higher costs.

 

China Adjusts Tariffs on Some Imports and Exports from January 1, 2023:

• Import and export tariffs on aluminum and aluminum alloys have been increased.
• The RCEP agreement tax rates have been implemented for some goods originating from Indonesia, typically lower than most-favored nation rates.
• The overall tariff level in China has been lowered from 7.4% to 7.3%, indicating a more favorable tariff environment for trade.

 

Apply for Market-Oriented Exclusion against the Counter-Tariff of US 301 Measure:

• Enterprises in China have the option to independently apply for market-oriented exclusion from counter-tariffs when importing goods from the US. This can help reduce the impact of the US 301 measures and lower costs for businesses.
• It's advisable for enterprises to consider applying for market-oriented exclusion even if the product is not on the exclusion list.
• Statistics from Q1 and Q2 show that 13 factories in China achieved $1.29 million in tariff savings through market-oriented exclusion, emphasizing the potential financial benefits for businesses.
• The extent of savings obtained through market-oriented exclusion varies depending on factors such as the type of goods, quantities, prices, and tariff rates applied.