On March 8, 2018, President Trump issued Executive actions relating to the adjusting of imports of steel and aluminum into the United States. These actions were issued under the authority of Section 232 of the Trade Expansion Act of 1962, which allows for the president to unilaterally adjust tariffs upward when he deems it a national security issue. These tariff adjustments for additional import duties for steel mill and aluminum articles went into effect March 23, 2018. Subsequent to that initial action, several additional executive actions have been issued by the President resulting in steel duties of 25 percent and aluminum duties of 10 percent. As of June 1, 2018, all steel products originating in all countries of origin except Argentina, Australia, Brazil, and South Korea will be affected by the President’s executive actions. Those countries have agreed to quotas which as of this date have already been filled. Also, as of June 1, 2018 all countries of origin except Argentina and Australia will be affected by the President’s executive actions relating to aluminum imports. Again, those countries have agreed to quotas which as of this date have already been filled.

In a separate investigation, on March 22, 2018 the Office of the United States Trade Representative, Executive Office of the President issued findings into China’s acts, policies and practices related to the transfer of intellectual property and innovation under section 301 of The Trade Act of 1974.

To summarize the 215-page investigative report, Section IV.D of the report stated the following:

“China has engaged in acts, policies, and practices that are unreasonable, and that burden U.S. commerce. The market-distorting acts, policies, and practices of the Chinese government in technology-focused sectors impose significant costs and risks on U.S. industry. They undermine the ability of U.S technology companies to innovate and adapt, and threaten the long-term competitiveness of U.S. industry”.

As a result of the findings, over the next several months the President compiled a list of Chinese imports subject to additional duties:

• List # 1 listed 870 imported items from China-additional duty of 25 %
• List # 2 listed 302 imported items from China- additional duty of 25 %
• List # 3 listed 6,387 imported items from China- additional duty of 10 % or 25 %

These additional duties imposed on Chinese imports are, in effect, meant to level the playing field for U.S. manufacturers. However, in many cases there are exceptions, and the “one size fits all” fix to leveling the playing field is in some ways too simplistic a solution. The good news in all this is that there are exclusions that can be filed within the comment period stated in the Federal Register Notice.

If your company imports products from China, and you think you may be impacted by these additional duties, you must move quickly. For items on “List # 3” the period to file a comment has been extended to September 6, 2018. All 6,387 items on the list will be significantly impacted by higher rates of duty that you, the importer will have to pay.

For more information contact Glenn at: glenn@foreigntradezonesolutions.com or call Glenn at 603-957-8247.

If your company imports material from China, chances are you imported product is on the latest round of China tariff increases.  Foreign Trade Zone Solutions LLC can assist you in filing a timely and successful claim.  Contact us at:  glenn@foreigntradezonesolutions.com or by calling 603-957-8247.

See below a list of products affected:

• Meat: pork; beef intestine; rabbit meat; venison; frog legs
• Fish and seafood: live fish including ornamental fish, trout, eels, tuna, and carp; chilled or frozen meat of various types of trout, salmon, halibut, plaice, sole, albacore, tuna, herring, mackerel, cobia, swordfish, pollack, whiting, catfish, rays, and more; various types of salted or smoked fish; other seafood including various types of lobsters, crabs, shrimps, prawns, oysters, scallops, mussels, clams, squid, octopus, conchs, abalone, sea cucumbers, and sea urchins.
• Non-meat animal products such as eggs and dairy: Whey products; butter; various types of eggs including chicken; honey; hair of animals including human, hog, horse and badger; animal intestines, bladders; feathers; bones including shells, beaks, corals, hooves, antlers, and more.
• Vegetables: onions; garlic; cauliflower and broccoli; cabbage; carrots; turnips; radishes; beats; cucumbers; peas of various types; beans; lentils; celery; mushrooms; peppers of various types; squash; okra; sweet corn; potatoes; sweet potatoes and yams; some types of tomatoes; spinach; Brussels sprouts.
• Fruit and Nuts: Coconuts; cashews; almonds; hazelnuts; walnuts; chestnuts; pistachios; macadamia nuts; pecans; dates; figs; pineapples; guavas; oranges; mandarins; clementines; raisins; grapes; apples; pears; quinces; peaches; berries including strawberries, raspberries, cranberries, blueberries and others; bananas; a variety of dried fruits; peels of various fruits.
• Cereals: wheat, including durum wheat; barley; oats; corn; various types of rice; grain sorghum; buckwheat; quinoa; and more.
• Mill products: flours including those form wheat, corn, buckwheat, rice, rye, other cereals, potatoes, and bananas; groats and meal of various types including wheat, corn, oats, and rice; malt; starches of wheat, corn, potato, and more
• Oil seeds: soybeans; seeds of sunflower, flax seed, sesame, mustard, poppy and more; planting seeds for certain crops; cocoas and mint leaves; and seaweeds.
• Sugars and candies: cane sugar; candies with no cocoa
• Breads and Pasta: uncooked pasta; various breads, pastries, cakes, and biscuits.
• Prepared vegetables and fruits: various vegetables and fruits previously listen in their prepared or preserved forms; various fruit jams including strawberry, pineapple, apricot, and more; peanut butter; various fruit juices including orange, pineapple, lime, grape, apple, and more.
• Other food items: soy sauce; condiments and seasonings; protein concentrates.
• Beverages and vinegars: water, including mineral water; fruit or vegetable juices and juice mixes; beer from malt; wine, including rice wine; ethyl alcohol; vinegars
• Food processing waste and animal feed: brans from processing; oil cakes; dog or cat food; animal feed
• Tobacco products: various types and preparations of tobacco; tobacco refuse; cigars; cigarettes; smoking tobacco
• Salts and minerals: salt/sodium chloride; sulfur; graphite; quartz; types of clays; chalk; slate; marble; granite; sandstone; dolomite; gypsum; some plasters; some types of cement; mica; Epsom salts
• Ores, slag, and ash: ores of iron, copper, nickel, cobalt, aluminum, lead, zinc, tin, chromium, tungsten, uranium, titanium, silver, other precious metals, and others; slag, various types of ash.
• Mineral fuels and oils: coal; lignite; peat; coke; tars; various types of light oil; various types of kerosene; petroleum oils; liquefied fuels including natural gas, propane, butane, ethylene, and petroleum; oil shale and tar sands
• Inorganic Chemicals: chemicals such as chlorine, sulfur; carbon, nitrogen, oxygen, and silicon; acids including sulfuric, nitric, and more; various types of fluorides, chlorides, sulfates, nitrates, carbonates, and more. (See full list below.)
• Organic chemicals: (See full list below.)
• Fertilizers: animal or vegetable fertilizers; urea; ammonium sulfate; sodium nitrate; and more.
• Tanning and drying extracts, dyes, and paints
• Essential oils, perfumes: perfume; lip or eye make up preparations; manicure or pedicure products; shampoo; hairspray; bath salts.
• Soaps and cleaning products: various types of soap; leather and textile treatments; polishes for shoes and furniture.
• Glues, adhesives, and enzymes
• Cigarette lighter fluid
• Photographic goods: various types of photo plates; instant film; various types of film in rolls; various types of motion picture film.
• Various chemical products: pesticides; herbicides; fungicides
• Plastics: vinyl flooring and other plastic floor and wall coverings; sausage casings; bags; gloves including baseball gloves; rain jackets; machinery belts.
• Rubber: latex; rods, tubes, and other products; conveyor belts; various types of transmission belts; various types of pneumatic tires; gloves; gaskets; dock fenders.
• Raw hides and leather: animal skins including cow, buffalo, sheep, goats, reptile; various types of leather made from cow, buffalo, sheep, goats, reptile; leather trunks and suitcases; leather handbags; CD cases; gloves including ski, ice hockey, and typical use; belts; fur clothing, incluidng artificial fur.
• Wood: fuel wood; charcoal; various types of wood including oak, beech, maple, ash and cherry; moldings; rods; particleboard; various types of plywood; doors; corks and stoppers; wicker and bamboo baskets.
• Wood pulp products
• Paper: Newsprint; writing paper; vegetable parchment; carbon paper; self-adhesive paper; cigarette paper; envelopes; tablecloths; handkerchiefs; folders.
• Silk
• Wool or animal hair products: cashmere; yarns; tapestries and upholstery.
• Cotton: fibers; thread; yarn; denim; satin.
• Flax: yarn; fabrics
• Man-made textiles: polypropylene; rayon; nylon; polyester
• Other textile products, rope, twine: hammocks; fish nets; carpets;
• Fabrics: corduroy; gauze; terry towel; lace; badges; embroidery
• Headgear: caps; hairnets; wool hats; safety headgear like hard hats; head bands.
• Stone, plaster, cement, asbestos: stone for art; marble slabs; roofing slate; millstones; sandpaper; floor or wall tiles; cement bricks.
• Ceramics: fire bricks; pipes; tiles; porcelain and china.
• Glass and glassware: balls; rods; drawn or blown glass; float glass; tempered safety glass; mirrors; carboys, bottles, jars, pots, flasks, and other containers; microscope slides; woven fiberglass
• Precious stones and pearls: diamonds; silver and products made of silver; gold and products made of gold; platinum; palladium.
• Iron and steel and products derived from the metals: drums; tubes; pipes; doors; windows; screws; horseshoes;
• Copper: plates; cables; tubes; pipes; springs
• Nickel: bars; rods; wires
• Aluminum: powder; cable; wire; screws.
• Various metal products, tools, cutlery: industrial items made from lead, zinc, tin, and more; saw blades; bolt cutters; hammers; wrenches; crow bars.
• Machinery, both industrial and retail: steam turbines; engines; fuel-injection pumps; air compressors; air conditioning machines; refrigerators; cream separators; hydraulic jacks; escalators; manure spreaders; copiers; automatic beverage-vending machines
• Electronics: vacuum cleaners; hair clippers; spark plugs; generators; bicycle lights; electric amps; television cameras; various types of TVs; video projectors.
• Vehicles and parts: axles; driving shafts; gear boxes; radiators.
• Parachutes
• Ships and boats: sailboats; motorboats; canoes; yachts.
• Instruments for scientific or medical purposes: microscopes; cameras for non-art purposes; gauges for pressure, electrical currents, and more.
• Clocks and watches
• Furniture, bedding, mattresses: car seats; wood chairs; furniture designed for offices, kitchens, and more; mattresses; chandeliers; lamps.
• Assorted items: buttons; stamps; paintings; collections of zoological, botanical, mineralogical, anatomical, historical, archaeological interest; antiques of an age exceeding one hundred years

Last week I wrote about free trade and the issues that sometimes complicate so called “Free Trade” agreements.  This week, I’ll comment and focus on three very critical pieces that can either make or break any “Free Trade” agreement.

The first issue I’ll focus on is environmental rules and regulations.   On December 2, 1970 under President Nixon, the United States created the Environmental Protection Agency, (EPA).  The agency is responsible for protecting health and the environment through the writing and enforcing of environmental laws and regulations passed by the U.S. Congress.  Developing nations around the world have similar environmental rules and regulations.  However, quite often economic growth becomes more of a priority and those environmental rules and regulations take a back seat.  Not so here in the United States.  The EPA, since its inception has expanded its jurisdiction to include the Clean Air Act, Clean Water Act, Toxic Substances Control Act, Chemical Safety Information, Site Security and Fuels Regulatory Relief Act, Federal Food and Drug Act and the Occupational Safety and Health Act.  While most people would agree that it’s necessary to keep our environment clean, the reality is that it can become an additional financial burden for some U.S. companies to do business in the U.S.

The second issue causing headwinds for U.S. businesses is U.S. Labor Law.  The National Labor Relations Act of 1935 was created, in part to set the rules between employees and employers and to correct the \”inequality of bargaining power.\”  Since 1935 labor laws have broadened to include other such regulations as child labor laws, prison labor law, workplace safety & health laws, workers\’ compensation, The Family and Medical Leave Act, Veterans\’ Preference, safety & health, the Equal Employment Opportunity Commission and many more.  Again, while many people would agree that these regulations may be necessary, in many instances they have become an additional financial burden on American businesses.  Many of our global competitors do not have the same regulatory burden as U.S businesses and thus the U.S. is put at a clear disadvantage.

The third and final piece of this complicated puzzle is what some perceive as currency manipulation on the part of some of our competitors.  If all other areas of a “Free Trade” agreement between countries are equal, one trading partner could begin to gain an advantage simply by devaluing their currency and as a result causing that country’s currency to be significantly cheaper and more attractive to foreign investment.

As you can see, it’s not always one issue such as tariffs that make up a “Free Trade” agreement.  These agreements can be complicated.  In the end, it’s always about trusting the other trading partners and whether or not they’re holding up to their end of the agreement.

The WTO states on their website, that they “provide a forum for negotiating agreements aimed at reducing obstacles to international trade and ensuring a level playing field for all, thus contributing to economic growth and development”.  Keeping this in mind, let’s take a look at China for a moment.  China has been a member of the WTO since December 2001. Despite having the world\’s second-largest economy, China is considered a “developing” country.  The WTO in trade agreements gives developing countries, “special rights or extra leniency—special and differential treatment”.  In exchange for entry into the WTO, China agreed to change its policy regarding foreign investors and implement the WTO requirement to abide by the   Agreement on Trade-Related Aspects of Intellectual Property Rights, (IPR).  This provision is a legal agreement between all the member nations of the WTO, obligating each county to respect each other’s Intellectual Property Rights.

Fast forward to March 22, 2018, and the release of the U.S. Trade Representatives “Findings of the Investigation into China’s Act, Policies, and Practices related to Technology Transfer”.  The report states that “prior to 2001, China often explicitly mandated technology transfer, requiring the transfer of technology as a quid pro-quo for market access. After joining the WTO, China committed not to condition the approval of investment or importation on technology transfer.   Since then, according to numerous sources, China’s technology transfer policies and practices have become more implicit, often carried out through oral instructions and “behind closed doors.”  According to the report, “China continues to restrict foreign investment while selectively granting market access to foreign investors in exchange for commitments to transfer technology”.  China’s foreign ownership restrictions, joint venture requirements, foreign equity limitations, licensing and approvals process all contribute to pressure foreign investors to transfer their technology prior to conducting business in China.

You make the call.  Is China’s information technology transfer practice consistent with the spirit of the requirements outlined by the WTO?

Next week I’ll look at other ways which the Chinese as well as other countries around the world make the so called “level playing field” not so level.

Look closely at the window sticker of a new vehicle and you may see a list of the larger foreign components (engine, transmission, etc.), and their country of origin. This is not unusual, as most manufacturing companies in the United States use a number of different components when producing or assembling a finished product. For example, an automobile assembled in the U.S. can have as much as 30%-40 % of its vehicle consist of foreign manufactured parts. Unfortunately, many of these components have significantly high import duties associated with their importation. Fortunately, there is a process that many companies can put in place to avoid paying these high tariff rates; they have employed a not well-known government statute known as the Foreign Trade Zone Act, (FTZ).  

What is the Foreign Trade Zone Act?

The Foreign Trade Zone Act was established by Congress in 1934 during the great depression. It was intended to be used as an incentive for U.S. manufacturers to continue manufacturing in the U.S. and not move manufacturing operations overseas.

How do Foreign Trade Zone Procedures work?

Foreign material that is moved into a Foreign Trade Zone is never dutiable, (tariffs never assessed) until it leaves the Foreign Trade Zone and is entered into the “Customs Territory”. The Foreign Trade zone can be identified simply as your manufacturing facility. In some instances, the component foreign material is exported from the Foreign Trade Zone and never enters the “Customs Territory” and therefore a tariff is never collected by U.S. Customs. When Anti-Dumping, (ADD) or Countervailing duties (CVD) are implemented by the U.S. government, (as President Trump has recently imposed on some imported steel and aluminum) a Foreign Trade Zone may be established to avoid those ADD’s/CVD’s only for those component parts that ultimately leave the FTZ and are exported outside the territory of the U.S.

According to the 2016 annual FTZ Report to Congress, some 3,300 businesses that employed more than 42,000 people leveraged the value and benefits of Foreign Trade Zones. In short, if your company can utilize the benefits of a Foreign Trade Zone by eliminating the ability of the government to collect tariffs on imported material, it’s something to seriously consider.

For further information on Foreign Trade Zone’s or for a free consultation to determine if your business would benefit from establishing an FTZ, please contact us at glenn@foreigntradezonesolutions.com or visit our website at https://foreigntradezonesolutions.com/.

On Thursday, October 13, 2016, Glenn Page of FTZ Solutions, and David Trumbull of Agathon Associates, appeared as subject matter exporters on behalf of Gino Marconi, Director of Ports and Harbors, Pease Development Authority (Foreign-Trade Zone #81) at the Fourteenth Annual Governor\’s Advanced Manufacturing and High Technology Summit, held in Concord, New Hampshire. Page and Trumbull conducted one-on-one discussions with New Hampshire manufacturing companies regarding the potential for cost savings using FTZ procedures for production, warehousing, and distribution activity. Recently the team assisted a textile manufacturing in Massachusetts to have $200,000 per year, and hire 20 new workers, using FTZ procedures.

Foreign-trade zones are secure areas under supervision of U.S. Customs and Border Protection (CBP) that are considered outside the customs territory of the United States for the purposes of duty payment. Located in or near customs ports of entry, they are the U.S. version of what are known internationally as free trade zones. Authority for establishing these facilities is granted by the Foreign-Trade Zones Board under the Foreign-Trade Zones Act of 1934, as amended (19 U.S.C. 81a-81u), and the Board’s regulations (15 C.F.R. Part 400). The Executive Secretariat of the Board is located within Enforcement and Compliance of the U.S. Department of Commerce in Washington, D.C.

During Fiscal Year 2015, the FTZ Board received and docketed 85 requests, and issued 87 decisions. The FTZ Board’s decisions included the establishment of four new foreign-trade zones, the reorganization or expansion of 22 zones under the alternative site framework (ASF), as well as decisions on 54 applications and notifications for new or expanded production authority. Under delegated authority, the FTZ Board Staff processed an additional 181 requests that included minor boundary modifications and scope determinations.

There were 186 FTZs active during the year, with a total of 324 active production operations. Over 420,000 persons were employed at some 2,900 firms that used FTZs during the year. The value of shipments into zones totaled nearly $660 billion, compared with $798 billion the previous year. About 63 percent of the shipments received at zones involved domestic status merchandise. The level of domestic status inputs used by FTZ operations indicates that FTZ activity tends to involve domestic operations that combine foreign inputs with significant domestic inputs.

Warehouse/distribution operations received nearly $228 billion in merchandise while production operations received over $431 billion (65 percent of zone activity). The largest industries accounting for zone production activity include the oil refining, automotive, electronics, pharmaceutical, and machinery/equipment sectors.

Exports (shipments to foreign countries) from facilities operating under FTZ procedures amounted to over $84 billion.

Main Foreign-Status Products Received in U.S. FTZs

FTZ Procedures Under Utilized in New England

Connecticut

FTZ 71, WINDSOR LOCKS, no activity.

FTZ 76, BRIDGEPORT, no activity.

FTZ 162, NEW HAVEN, no activity.

Maine

FTZ 58, BANGOR, no activity.

FTZ 179, MADAWASKA:

• Production: Evergreen Trading Co. LLC (Fragrances/Cosmetics), $25-50 million.

FTZ 186, WATERVILLE, no activity.

• Flemish Master Weavers(Textiles/Footwear) was approved in 2016, but effectively limited to warehousing/distribution and production for export.

FTZ 263, AUBURN, no activity.

FTZ 282, BRUNSWICK, no activity.

Massachusetts

FTZ 27, BOSTON:

• Warehousing/Distribution: 14 companies, $500-750 million.
• Production: AstraZeneca (Pharmaceuticals), $1-5 million.
• Production: Claremont Flock was approved in late 2015 and actived in 2016.

FTZ 28, NEW BEDFORD:

• Warehousing/Distribution: 1 company, $100-250 million.
• Production: Acushnet Company (Textiles/Footwear), $70-100 million

FTZ 201, HOLYOKE, no activity.

New Hampshire

FTZ 81, PORTSMOUTH:

• Production: Millipore Corporation (Advanced Fiber Materials), $100-250 million.

Rhode Island

FTZ 105, PROVIDENCE & NORTH KINGSTOWN:

• Warehousing/Distribution: 1 company, $1-5 million.

Vermont

FTZ 55, BURLINGTON:

• Production: Wyeth Nutritionals, Inc. (Food Product), $0-0.5 million.

FTZ 268, BRATTLEBORO, no activity.

FTZ 286, CALEDONIA, ESSEX AND ORLEANS COUNTIES, no activity.

What is a Foreign Trade Zone?

In 1934, Congress enacted the Foreign Trade Zones Act \”to expedite and encourage foreign commerce.\” The Act created domestic \”foreign-trade zones\”, and was designed to stimulate international trade and create jobs in the United States.

When you operate under Foreign Trade Zone procedures, your company is treated (for purposes of customs duties) like it\’s located outside the United States. That can mean that U.S. import duties don\’t have to be paid on imported components coming to your factory. If your finished product is ultimately shipped to the U.S. market, you may have the option of paying the finished product duty rate rather than the component duty rate. (Many finished products have lower duty rates – or are duty-free – than their components.) And if you re-export the finished product, you don\’t ever pay duties on the component materials. There are other potential savings, too, like avoiding duties on imported materials that become scrap, and possible administrative savings and efficiencies.

What are the benefits?

Duty Exemption. No duties on re-exports compared to duty drawback which is a refund of duty paid when the product is later exported.

Duty Deferral. Customs duties and federal excise tax deferred on imports.

Inverted Tariff. In situations where zone manufacturing results in a finished product that has a lower duty rate than the rates on foreign inputs (inverted tariff), the finished products may be entered at the duty rate that applies to its condition as it leaves the zone — subject to public interest considerations.

Logistical Benefits. Companies using Foreign Trade Zone procedures may have access to streamlined customs procedures (e.g. \”weekly entry\” or \”direct delivery\”).

Other Benefits. Foreign goods and domestic goods held for export are exempt from state/local inventory taxes. Foreign Trade Zone status may also make a site eligible for state/local benefits which are unrelated to the Foreign Trade Zone Act.

Examples of successful Foreign Trade Zone implementation

Claremont Flock, a textile company in Leominster, Massachusetts, imports textile fiber called \”tow\” and processes it into another form of textile fiber called \”flock.\” Claremont was paying 7.5% duty on their imports of tow. We helped Claremont qualify for Foreign Trade Zone procedures. Now they import tow without paying the duty, turn it into flock, and when the flock leaves the factory it is subject to the rate of duty applicable to flock, which is zero. Claremont said in a newspaper article that this will save them $200,000 per year.

Millipore Corporation located in Jaffrey, New Hampshire, manufacturers filters containing the imported material polyvinylidene fluoride.  Utilizing Foreign Trade Zone procedures they avoid the 6.5% import duty on polyvinylidene fluoride.   On its domestic shipment and exports to NAFTA markets, the company is entitled to elect the duty rate that applies to finished filters, (0 %) and thus save the company significant amounts of money.

Interested in learning how setting up a Foreign Trade Zone can save your company money? Schedule a consultation with a FTZ expert.