It’s been quite a year for the Trade Compliance and Logistics teams. As a baseball fan, I can best describe the past year by referencing Abbott & Costello’s decades-old “Who’s on first” routine, a comedy skit they first performed. on the radio in 1938.
The skit is a play on words and names, leaving one wondering who exactly the players are on the pitch. Well, that pretty much sums up 2022.
Professionals in all sectors of the commercial industry have struggled to keep up with new regulations and sanctions from export agencies and customs; made double takes when existing commercial programs were refreshed; and constantly waiting to see what else might be around the corner.
Here are some highlights of the major regulatory changes that took place during 2022 that impacted U.S. exports and imports and how supply chain and logistics organizations should approach each new twist.
Who is the first ?
The Russian invasion of Ukraine in the first quarter of 2022 put the commercial industry on high alert and bracing for impact. Sanctions and regulations issued by governments around the world sparked a frenzy that lasted for weeks, and the backlash continues to be felt.
There was no time for a slow boil. The regulations were published before all of their ramifications could be assessed, and in some cases they had to be changed almost as quickly to fill unforeseen loopholes. Companies have had to scramble to find creative solutions to equally creative sanctions programs.
One of the biggest surprises in the approach to sanctions occurred when export agencies rolled out Harmonized Program (HS) code restrictions for exports in addition to the usual checks based on classification number of export control (ECCN). In the United States, the Department of Commerce’s Bureau of Industry and Security has added two new lists based on the HTS, which companies must now screen against when exporting to Russia or Belarus.
The first of these, Supplement 4 to Part 746 of the Export Administration Regulations (EAR), imposed licensing requirements when products specified on the list were intended for use in certain industrial sectors. The second list, Supplement 5 to EAR Part 746, identifies controlled items as prohibited luxury goods destined for Russia and Belarus.
Global Trade Management (GTM) systems, usually programmed with ECCN and destination-based controls, were not originally designed for this new type of export control. Many companies have had to put all items on hold when they are “exported” to these sanctioned destinations while they study regulations and develop other control mechanisms.
An additional layer of complexity has arisen as the Harmonized Calendar codes are globally harmonized only up to the sixth digit, with country-specific variations thereafter up to the tenth digit. US multinationals exporting from different geographies had little time to carefully study each country’s regulations and listings to ensure compliant exports.
To adapt, companies found new ways to use existing logic in their GTM systems, creating new part numbers, HS codes and hold types that could prevent unauthorized exports to Russia or Belarus. These major changes have highlighted the importance of automation to help keep up with trade regulations and sanctions. And as we well know, manual processes alone can significantly hamper a company’s ability to stay compliant.
As we enter budget season, companies need to think about what their systems need, when compliance and logistics systems were last updated, and how often they are tested. If it’s been a while, meeting with GTM software service providers now could give businesses incredible insight into what they’ve learned this year and new updates that will help them stay ahead of the game.
With businesses still reeling from Russian sanctions, the second quarter of the year marked the start of the implementation of the Uyghur Forced Labor Prevention Law (UFLPA), which came into force on 21 June.
In the past, trade professionals could rely on their Quality or Environment, Social and Governance (ESG) teams to meet forced labor requirements, but it has become increasingly difficult to continue to do so with the US Customs and Border Protection (CBP) renewed emphasis on law enforcement.
Under the UFLPA, CBP now presumes that all goods mined, produced, or manufactured in whole or in part in the Xinjiang Uyghur Autonomous Region (“XUAR”) of China are unfit for entry into any what an American port. CBP requires “clear and convincing evidence” to allow clearance of these goods, and evidence showing that no business has been conducted with persons sanctioned for non-compliance.
More than ever, UFLPA compliance requires increased supply chain traceability and collaboration between companies and their logistics and customs brokerage partners to prove when requested by CBP that they have exercised due diligence. reasonably appropriate. However, the requirements are heavy.
In its June 17, 2022 report to Congress, the U.S. Forced Labor Task Force recommended that importers develop due diligence systems that would engage stakeholders and partners, communicate, and train throughout their supply chains, monitor compliance and incorporate Feedback.
Rather than rushing to roll out a new verification process, many companies have been able to identify existing annual processes and leverage them to verify UFLPA compliance. For example, some companies started with an assessment of their existing collection of vendor declarations, partner onboarding documentation, and selection procedures.
Additionally, companies already participating in trade programs with review processes, such as the Customs and Trade Partnership Against Terrorism (C-TPAT) or the Trusted Trader program, have found that they can share information from these exams.
Another tool that has proven useful is the Automated Trading Environment (ACE), a free tool available to the importing community that can be used to identify suppliers in China and specifically provide visibility to anyone who may in the XUAR region. This collaboration with internal teams and pooling of resources has allowed many companies to avoid having to create their UFLPA compliance program from scratch.
I don’t know, it’s the third
As 2022 approached, there was much speculation regarding the future of Section 301 tariffs, which were first imposed in 2018 on the majority of Chinese-origin products imported into the United States. Would they be repealed? Would further exclusions be granted after the last round expires at the end of 2021? Still, the more pressing question remained whether the tariffs would stand up to the tests of the US Court of International Trade.
The first response came on March 28, when the Office of the United States Trade Representative (USTR) reinstated Section 301 exclusions on 352 products. The exclusions were made retroactive to October 12, 2021 and remain valid until December 31, 2022. Companies were sent again to review the exclusions, determine whether or not any applied to their product imports and, if so , to then file their protests to claim the duties they had paid during the interim period.
Then, a few days later, on April 1, the US Court of International Trade issued its ruling on the legality of the tariffs. They found that while the imposition of the tariffs was not illegal, the USTR failed to follow proper procedure when it imposed the third and fourth rounds of tariffs without giving importers ample opportunity to comment. the proposal and then again when they didn’t. I don’t explain what consideration was given to the limited feedback they received.
Since then, there has been a back-and-forth between the USTR and the plaintiffs in the case, who continue to demand that the court rescind the Lists 3 and 4A tariff actions and order the defendants to repay all duties they have paid to date. As with most court cases, we can expect this one to drag on for some time. The crystal ball remains murky, particularly because there is no sign that the United States will ease its trade control over China anytime soon.
In the meantime, companies continue to scrutinize their supply chains to minimize tariff impacts. Involving trade compliance teams earlier in the new product introduction process means a company can make more informed decisions about the sourcing and manufacturing of its products before origin becomes an issue.
Sourcing conversations can no longer be about lowest cost, but must involve looking at all the countries along a product’s supply chain to properly assess the landed costs that can so easily eat away a company’s net income.
It is said that the way a team plays as a whole determines its success. The companies that have weathered 2022 the best are the ones that have quickly realized the futility of trying to get by on their own. Instead, they quickly turned to other players on the pitch for help.
Logistics and supply chain professionals worked more closely than ever with external partners such as GTM solution providers, freight forwarders and customs brokers, and brought together internal teams, pooling resources available from their engineering, finance, operations, and compliance organizations. With such a strong lineup in place, businesses will be well prepared for the challenges ahead in 2023.