PROPOSED MODIFICATION TO SECTION 301 DUTIES

On May 14, 2024, the Biden Administration proposed significant tariff increases on Chinese-origin products, with implementation slated for August 1, 2024. The Office of the U.S. Trade Representative (USTR) has since delayed these increases pending a review of over 1,100 comments received.

The proposed tariff increases include:

• Battery Parts: From 7.5% to 25%
• Lithium-Ion Batteries: From 7.5% to 25%
• Electric Vehicles: From 25% to 100%
• Critical Minerals: From 0% to 25%
• Face Masks/Respirators: From 0%–7.5% to 25%
• Ship-to-Shore Cranes: From 0% to 25%
• Solar Cells: From 25% to 50%
• Steel and Aluminum Products: From 0%–7.5% to 25%
• Syringes and Needles: From 0% to 50%

KEY TAKEAWAYS

• Economic Impact: The proposed tariff increases could substantially affect the cost of importing Chinese goods into the U.S. This can lead to higher prices for consumers and businesses, potentially influencing purchasing decisions and overall market dynamics.

• Supply Chain Disruption: Increased tariffs can disrupt supply chains by raising costs for imported materials and components. This could affect industries reliant on these imports, leading to production delays or the need to source alternatives.

• Strategic Business Adjustments: Companies may need to reassess their supply chain strategies, including finding new suppliers or shifting sourcing strategies to mitigate the impact of the increased tariffs. This can lead to significant operational and financial adjustments.

• Impact of the US Presidential Election in November 2024: The Biden Administration may decide not to take action until after the election. If former President Trump wins the election, increases in tariffs on goods from China are likely.

DEVELOPMENTS & INSIGHTS

Vietnam Hosts the 33rd ASEAN Directors-General of Customs Meeting

The 33rd Meeting of the ASEAN Directors-General (DG) of Customs was held in Phu Quoc, Vietnam, from June 4-6, 2024. This key gathering focused on the progress of customs integration across ASEAN member states.

Major Insights:

• The ASEAN Mutual Recognition Arrangement (MRA) signing on Authorized Economic Operator (AEO) was welcomed. Full implementation is targeted for 2025.
• Updates were provided on ongoing Free Trade Agreement (FTA) negotiations, particularly the ASEAN Trade in Goods Agreement (ATIGA) and ASEAN-China Free Trade Area (ACFTA) upgrade discussions. The conclusion of these upgrades is anticipated in 2024.
• Myanmar officially joined the ASEAN Customs Transit System (ACTS) as the 7th Participating Member State. Efforts are underway to encourage more traders to use the ACTS.
• The meeting stressed the importance of developing guidelines for exchanging e-commerce data between ASEAN Customs administrations and operators, given the growing importance of e-commerce.
• ASEAN Customs authorities and Joint Business Councils engaged in consultations to strengthen partnerships between customs administrations and the private sector.

Who: Suppliers and customers across ASEAN markets.

• Market Size, Trends, and Projections: Companies within ASEAN can gain significant advantages by becoming Authorized Economic Operators (AEO) and receiving priority treatment for customs inspections. This is an essential strategy for businesses involved in regional trade, especially with the upcoming implementation of the AEO by 2025.

What: With FTA negotiations progressing, it is crucial for businesses to review and understand any changes to the legal text of these agreements. Such updates may offer new opportunities or potential challenges in managing supply chains across ASEAN.

KEY TAKEAWAYS

• Opportunities and Challenges: It will likely only happen after 2024 and beyond, as this is a first-of-its-kind initiative, and we expect some teething issues during the process.  
• Risk Assessment: We do not see a significant risk in this MoU, but rather an excellent opportunity for companies to take advantage of this new policy. 
• Strategic Implications: As this is in its very early stages of development, we will need to continue to monitor this area. 
• Stakeholder Impact: Stakeholders must monitor this closely and see how the supply chain, regarding duty/VAT and transportation, can save costs and reduce lead time.  
• Conclusion and Call to Action: This is a good initiative from both countries, and we can only wait for further development before drawing any conclusions. 

DEVELOPMENTS & INSIGHTS

Malaysia Launches Centralized Customs Voluntary Disclosure Mechanism

On May 23, 2024, the Royal Malaysian Customs Department (RMCD) introduced a centralized voluntary disclosure mechanism, the Compliance Verification Audit Program (AViP). The initiative aims to promote self-compliance and voluntary disclosures by businesses with a streamlined audit process designed to reduce time and resource burdens.

• The AViP applies to all indirect taxes and levies managed by the RMCD, including customs duties, sales tax, service tax, and tourism tax. Officially launched on July 1, 2024, the program is expected to remain in effect indefinitely.
• Previously, voluntary disclosures were handled state-by-state, leading to inefficiencies as businesses navigated differing regional practices. AViP standardizes this process at the federal level, offering a unified approach.

Key Benefits of AViP:

• It allows businesses to rectify customs errors voluntarily and serves as a platform for RMCD to offer practical advice on regulatory compliance.
• Offers incentives such as penalty remission and installment payment options for businesses that voluntarily disclose non-compliance.
• The RMCD is expected to publish detailed guidelines on AViP for further clarification.

Companies with import/export activities should evaluate their potential participation in AViP through internal audits.

Market Size, Trends, and Projections: Governments increasingly encourage voluntary compliance to avoid non-compliance and the associated penalties. Programs like AViP ease the burden on companies and support government revenue through improved compliance.

Companies should conduct internal audits to meet compliance standards. Participating in AViP offers several benefits, including reduced penalties compared to non-disclosed errors discovered during external audits. The program also mirrors incentives previously seen in the Special Voluntary Disclosure Program (SVDP), with the added advantage that AViP is not time-limited, making it more business-friendly in fostering long-term compliance.

DEVELOPMENTS & INSIGHTS

China's Implementation of CCC Certification for Electrical Equipment

Starting on March 21, June 25, and June 28, 2024, the State Administration for Market Regulation of China will implement the China Commission for Conformity Certification (CCC) management for several product categories, including commercial gas burners, flame retardant wires and cables, and lithium-ion batteries for electric bicycles. This regulatory expansion reflects China’s ongoing focus on enhancing product safety for high-risk items such as fire, electricity, high temperature, and high voltage.

Why? The expanded scope of the CCC certification is driven by the need to strengthen product quality and safety standards, protect consumers, and improve environmental outcomes. As technology advances and new safety concerns emerge, the government is adapting its regulations to mitigate potential risks in the market.

Who? The new certification requirements affect suppliers and customers, particularly in industries dealing with the 104 product categories listed by the Certification and Accreditation Administration of China. CCC certification is essential for businesses importing, exporting, selling, and using these products. While the certification guarantees product quality, it also introduces additional time and costs for businesses.

Market Size, Trends, and Projections: More products may be added to the CCC catalog with continued technological innovation and safety incidents. For instance, electric bicycle chargers were recently included due to safety concerns. Companies must stay updated with these changes to avoid disruptions and maintain compliance.

Impact on Jabil China: The addition of the new product categories has not directly affected Jabil China. However, the compulsory certification for lithium-ion batteries, announced on March 16, 2023, was officially enforced on August 1, 2024. If CCC certification cannot be provided for non-bonded processing products, they may not be eligible for import.

• Additionally, all 3C products, even those exempt from certification, must undergo quantity verification and inventory control under the supervision of the Market Supervision and Administration Bureau. This requires stringent record-keeping and oversight of product flows.

Key Takeaways:

• Strengthening supervision of high-risk products.
• Ensuring product quality, consumer safety, and environmental protection.
• Staying compliant with updated CCC requirements, particularly for lithium-ion batteries.

DEVELOPMENTS & INSIGHTS

Dual-Use Items and Import License Supervision

In 2024, China’s Customs authorities are intensifying the regulation of dual-use items. Key updates include:

• The inclusion of γ-butyrolactone on January 1, 2024
• The addition of drones and related items to the 2024

Catalogue of Import Licenses for Dual-Use Items and Technologies

• New controls on equipment, software, and technology related to aerospace structural parts and engine manufacturing, effective from July 1, 2024.

Why is this happening? The regulation of dual-use items is designed to safeguard national security, fulfill international obligations, and prevent these technologies from being misused, particularly for military purposes.

Who will be impacted? High-tech, chemical, and aerospace companies will face stringent import/export controls. Regulatory agencies like the Ministry of Commerce and Customs will strictly enforce compliance. Businesses must introduce or strengthen internal trade compliance measures to avoid penalties.

Market Size, Trends, and Projections: As global demand for sensitive technologies grows, regulations around dual-use items are becoming more stringent. Companies must proactively ensure they have the appropriate licenses for importing/exporting these items to avoid supply chain disruptions.

Key Takeaways:

• Obtain licenses for all dual-use items.
• Ensure trade compliance at every stage of the process.
• Adapt quickly to any new regulatory changes to maintain seamless operations.

DEVELOPMENTS & INSIGHTS

China’s Unreliable Entity List Update

On May 20, 2024, the China Bureau of Safety and Control added General Atomics Aeronautical Systems, General Dynamics Land Systems, and Boeing Defense, Space and Security to its list of unreliable entities. The following restrictions were imposed:

• Prohibition of import/export activities related to China
• Prohibition of new investments in China
• Prohibition of entry into China for senior executives from these companies
• Cancellation of work permits, stay, or residence qualifications for these senior executives
• Fines for these enterprises, effective immediately

Why? These companies were sanctioned for their involvement in arms sales to Taiwan, which the Chinese government views as a threat to national security and sovereignty. This is also a response to foreign sanctions imposed on China.

Who? Companies on the unreliable entity list will lose access to the Chinese market and face restrictions on business operations. Chinese companies doing business with these entities may also experience increased production costs as they seek alternative suppliers.

Market Size, Trends, and Projections: Businesses importing relevant materials from these companies must assess the potential impact on their supply chains. They must also evaluate whether parts or components involved in business transactions will affect relationships with listed companies.

KEY TAKEAWAYS

In 2024, businesses operating in China and engaging in international trade must navigate a complex regulatory landscape involving product certification, supervision of dual-use items, and restrictions related to the unreliable entity list. By staying informed and implementing rigorous compliance measures, companies can mitigate risks, maintain operational efficiency, and protect their market position.

• Companies should monitor trade flows closely to ensure compliance.
• Incorporate the unreliable entity list into internal compliance systems to prevent non-compliant transactions.
• Strengthen internal screening processes and conduct regular training to stay compliant.

COMPLIANCE COMMENTARY

Export Controls for Cameras Revised ​

• Why: 

  • Effective 8 March 2024, the U.S. Bureau of Industry and Security (BIS) will update license requirements to export specific cameras, systems, and related components.  

  • BIS decided to amend the license requirements for these items as it has already approved a significant number of license applications for these items over the last decade and has determined that they do not pose a national security risk.  

  • Additionally, the global commercial market for these items has grown considerably, and they are widely available outside the U.S., including China, so continued restrictions will unnecessarily damage U.S. companies. 

• Who: 

  • All entities and transactions are subject to Export Administration Regulations (EAR), a set of regulations in the United States that control the export and re-export of certain commodities, technologies, and software. The EAR is administered by the Bureau of Industry and Security (BIS), which is part of the U.S. Department of Commerce. 

• What: 

  • The new rule creates a recent Export Control Classification Number (ECCN), “6A293” and adds export controls on specific cameras not already controlled by either ECCN 6A003 or 6A203 that have:  

    • a minimum exposure time of one microsecond or faster, and

    • a throughput of 13.43 gigapixels per second or more significant at 205,000 frames per second.  

  • 6A293 is controlled for nuclear non-proliferation and anti-terrorism reasons, and license exception STA (Strategic Trade Authorization) is unavailable. 

  • With specific exceptions and specifications, this rule also removes the license requirement for the export, reexport, and transfer (in-country) of cameras, systems, and related components described in ECCNs 0A504, 6A002, 6A003, 6A993.a, and 8A002.d when these items are intended to be used by a military end-user in Country Group A:1 countries. Previously, a license was required for such transactions to all destinations except Canada. 

  • BIS states that under this rule, “focal plane arrays” exports will continue to require a license to Country Group A:1 countries because these items are controlled for regional stability reasons. BIS currently will not allow license exceptions to STA for these items. 

KEY TAKEAWAYS

• On 8 March 2024, BIS will issue a final rule to remove some license requirements for cameras, camera systems, and related components to prevent unnecessary damage to U.S. commerce.  

• The final rule will create a new ECCN 6A293 for previously uncontrolled camera specifications. 

• The rule affects not only U.S. businesses but also international partners. Harmonizing export controls fosters cooperation and security across borders.