From the cubicle at the end of the hall to the front page…

Note - above image is from Library of Congress, and is public domain[i].

If you’re anything like me, you know what I mean by “the cubicle at the end of the hall”. Those responsible for or involved in Trade Compliance often feel like the unwanted guest at the party. No one is too sure what exactly we do, but they know it’s usually bad news when we get involved! I think sometimes they place us as far as possible from the action, but maybe that’s paranoia!

In all seriousness, most of us have had those conversations over the years when asked “what do you do”. I’m sure I’m not the only one who’s seen glassy eyes in response when I say “NAFTA”, or Customs Compliance. Cross border trade compliance just hasn’t been a well known or understood topic historically. Maybe this sounds familiar to you too:

“So, what do you do?”

“Oh, I look after customs and trade compliance, NAFTA, that sort of thing”

“Hmmn?”

“You know the North American Free Trade Agreement?”

“…”

“Forget it, just pass the crackers please…”

Similarly, many companies that take “compliance” seriously, historically haven’t considered “trade compliance” much. A recent survey by PWC showed that only 32% of companies with a corporate compliance function, include “Export compliance” under the umbrella of “Corporate Compliance”[ii]. (I’m proud to say I work for one of those 32%!).

Well, whether you consider it good news or bad news, I believe things are changing, and changing quickly. Since the beginning of the 2016 Presidential race (which feels like it started in 1916!), I have heard people comment on the benefits/costs of NAFTA that I swear had never heard of it before. Similarly, in Canada right now, it is big news discussing whether or not we will sign the CETA free trade deal with the EU. For those not following, a province in Belgium called Wallonia is sticking to their guns and refusing to ratify, which means the whole agreement may fail. As I write this, my Prime Minister has cancelled his trip to Europe for the signing. I guess there must be a ``Make Wallonia Great Again” movement going on[iii]… A good article on it can be found here:

http://www.economist.com/news/europe/21709330-failure-ceta-heralds-age-vetocracy-if-eu-cannot-do-trade-what-can-it-do

Returning to the US Presidential race, as anyone following knows, deals like TPP and NAFTA have been front and center in the debates. I haven`t seen this level of public discussion on free trade since NAFTA was first debated in the Clinton campaign… (Oh, am I having déjà vu…)

Beyond free trade, several other high profile events have affected trade compliance recently. From the activity in the Ukraine, to Syria, to Cuba, foreign policy decisions seem to be affecting the rules we trade by almost daily.

On the enforcement side, several significant court decisions and US CBP announcements promise to bring trade compliance into the public litigation sphere. For example, the recent court decision on False Claim Act application to Marking Duties:

http://whistleblowerlawinsights.com/2016/10/13/customs-fraud-whistleblower-case-victaulic-appeals-court/

And the recent US CBP statement re: AD/CV duty enforcement:

https://www.federalregister.gov/documents/2016/08/22/2016-20007/investigation-of-claims-of-evasion-of-antidumping-and-countervailing-duties

Based on these developments, we may see a new cottage industry for lawyers. I tried hard to think of an import/export equivalent to “ambulance chasers” but came up empty – any ideas?

As I said earlier: all of this may be good or bad news for you. If you liked your quiet cubicle at the end of the hall, maybe this is bad! However, if you’ve been seeking more exposure in your company, and feel ready for increased challenges, this can only be good for you. Best start catching up on what’s going on: wouldn’t want to be unprepared the next time someone brings a newspaper article to your cubicle and says “hey – isn’t this that stuff you do?”

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[i] http://www.loc.gov/pictures/item/ne0108.photos.198654p

[ii] https://www.pwc.com/us/en/risk-management/state-of-compliance-survey/assets/pwc-soc-2015-chart-pack.pdf

[iii] Fear not – I`m not making a judgement on the value of `Make American Great Again`… just trying to point out how much our profession has been hitting the news lately!

Follow up # 3 on US CBP forced labour seizures

Not a whole lot has happened related since my last post on the subject (Click to see last post on topic), but there have been some developments which are worth mentioning:

First, there has been a new detention order issued for Peeled Garlic from Hongchang Fruits and Vegatbles[i]. That makes for 4 so far this year after a period of none in 21 years.

Second, US CBP has begun a new TFTEA web page, which (among other things) covers the repeal of the consumptive demand clause[ii]. (The banner from that page is atop this blog post).

Third, the issue of forced labour and enforcement was given a spot in the most recent quarterly enforcement newsletter from US CBP[iii].

Lastly, forced labour is specifically listed as a topic at the upcoming US CBP East Coast Trade Symposium[iv].

Overall I still maintain my position that this trade issue will not go away, and will only become more important. I encourage anyone with overseas supply chains to pay attention. A good starting place is the Department of Labor list of goods produced by forced labor. While not directly binding, CBP alludes to it multiple times and I would say any item on that list is at high risk of enforcement from CBP[v].

Stay tuned….

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[i] https://www.cbp.gov/trade/trade-community/programs-outreach/convict-importations

[ii] https://www.cbp.gov/trade/trade-enforcement/tftea

[iii] https://www.cbp.gov/sites/default/files/assets/documents/2016-Jul/Quarterly%20CBP%20Trade%20Enforcement%20Bulletin-%20FY%202016%2C%20Quarter%203.pdf

[iv] https://www.cbp.gov/trade/stakeholder-engagement/trade-symposium

[v] https://www.dol.gov/ilab/reports/child-labor/list-of-goods/

Could Canadian Extra Territorial Export Rules Be Coming?

As a Canadian working for a US multi-national, I have long been familiar with the extra territorial application of US export law. US export controls, whether ITAR or EAR sectors, apply not just to the physical movement of goods from the US, but also the future re-export of those goods to a third country. They can even control goods not made in the US, if they are made with sufficient US content or US ownership.

Canadian export rules, in contrast, have focused on the simple physical movement of goods from Canada to a second country. There have not really been controls on foreign made Canadian content goods, or even subsequent re-exportation of Canadian goods. There is a limited scope offence of “diversion”, whereby a Canadian commits an offense by assisting in diversion. However, this is limited to automatic firearms and the few countries listed on the area control list[i]. Similarly, there are no real controls over what your foreign subsidiary does. For example:

Canadian subsidiary in Country A sells goods to Country B, that would have required a permit had they shipped from Canada.

The good news is the role of Compliance Manager in Canada tends to be a little simpler than the equivalent role in the US.

In light of a recent development, however, there are signs this could change. Here is the development:
In 2012 Canadian company Streit sold armoured vehicles to Libya and Sudan[ii]. This was done through their UAE facility (manufactured and shipped from UAE). Had these vehicles exported from their Canadian facilities it almost certainly would have required an export permit. This was recently denounced by a UN panel, prompting a Canadian government response. A good blog post with links to relevant articles can be found here:

http://www.canada-usblog.com/2016/09/07/questions-are-being-asked-about-application-of-canadas-trade-restrictions-to-sales-by-streit-group/

What interests me the most, is what may come of all this. A couple key comments I have seen lead me to speculate that extra territorial application may get added to the Canadian rules in the near future.

Defence Minister Saijan said “we will be bring(ing) in regulations” when discussing the topic of Canadian subsidiaries operating abroad in “fragile states”[iii].

Global Affairs Canada spokesperson Francois Lasalle said this about the UN report: “the armoured vehicles were manufactured and shipped by the company's branch in the United Arab Emirates, and therefore the sale is outside of the federal government's arms export regulatory regime”. However, they followed up with this key statement:

“there will be "more rigour and transparency for Canada's export controls system," and that legislation will be coming this fall[iv]”

In a September 24 article in the Globe and Mail, the following observation is made:

“A parliamentary committee is preparing to take a hard look at the export controls Canada places on foreign sales of military goods and whether sanctions and embargoes meant to stop arms shipments by Canadians have sufficient teeth[v]”

In light of imminent legislation to make Canada compliant with the recently signed Arms Trade Treaty – a key Liberal platform piece, this is something we may want to pay attention to….


P.S. - how ironic would it be if Canada does implement some extraterritorial measures, in light of the Canadian law called the Foreign Extraterritorial Measures Act, which was passed to block other countries from imposing their rules on subsidiaries in Canada!

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[i] The Export and Import Permits Act has two key diversion offenses: Sections 15(1) and 15(2):

http://laws-lois.justice.gc.ca/eng/acts/E-19/page-7.html#docCont

[ii] http://www.cbc.ca/news/politics/streit-statement-south-sudan-1.3731184

[iii] http://www.cbc.ca/news/politics/streit-loophole-sajjan-1.3719273

[iv] http://www.cbc.ca/news/politics/streit-south-sudan-1.3711685

[v] http://www.theglobeandmail.com/news/politics/commons-committee-to-scrutinize-arms-export-controls/article32042251/

Follow up # 2 on US CBP forced labor seizures

Just a quick entry here, to give an update on some new developments on this subject, since my first two posts:

First post on forced labor

Second post on forced labor

Since those posts, a couple key developments tell me this is a story that has yet to be fully told.

First, on July 27, CBP Commissioner Kerlikowske raised the matter in his opening remarks to the Commercial Customs Operations Advisory Committee (COAC)[i]:

“And as you know, enforcement of the nation’s trade laws is a core mission for CBP, and I want to announce the new Forced Labor Working Group focusing on this key enforcement priority.

Following the Custom’s Bill’s repeal of the “consumptive demand” loophole, we have been working with industry, civil society organizations, and others to rigorously enforce the law and prevent the import of goods made with forced, convict, or child labor into the United States.”

He further went on to say:

“The role of industry in this issue is clear, and we must work closely with importers, brokers, and companies who want to do the right thing to clarify standards for their supply chains.”

I find this second statement very interesting. Is this hinting at a trusted trader type strategy? Perhaps a CTPAT type model, but targeting forced labor in supply chains? How about CTPAFL? No, to many letters…. Regardless of my conspiracy theories, this is just further evidence that CBP has no intention of dropping the matter, whatever their future plans are exactly.

Another development comes from the private business side. Recently Descartes’ SPL division “Descartes MK Denied Party Screening” added a new list type to their offering, called “Customs and Border Protection Forced Labor”.  They explain the list as: “The manufacturers listed have Withhold Release Orders (WRO) issued by the Commissioner”.

Descartes MK is a leader in the generation of SPL content[ii] for automation, such as in SAP GTS, and their inclusion of this content is a good indication that we can expect to see the list grow.

I’ll keep checking in on this subject, and I encourage anyone reading this to start the process of a supply chain review for forced labor. As I mentioned in my last post on the subject, there are other good reasons to do so.

P.S.: I’m a little surprised that Descartes called the list “… Forced Labor”. I was really hoping to see “… Forced LaboUr” from a Canadian company, eh! Ok. If you’re not Canadian, you probably didn’t get that one….

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[i] https://www.cbp.gov/newsroom/speeches-and-statements/2016-07-27-000000/commissioner-kerlikowske%E2%80%99s-opening-remarks

[ii] https://www.descartes.com/documents/descartes-mk-denied-party-screening-list-offerings

Follow up on US CBP forced labor seizures

On April 23, I posted about an unexpected result of the Trade Facilitation and Trade Enforcement Act of 2015, which had passed in February. See here:

http://intltradecompliance.blogspot.ca/2016/04/import-controls-on-products-produced.html

In that post I predicted that this would become a more significant factor in global trade then it had been previous to TFTEA. I just wanted to follow up on that with a couple observations; however, the jury is still out on whether or not I was accurate in my prediction!

At the time I wrote the original post, there had been 2 "withhold release" orders since TFTEA, in contrast to only 39 times in 85 years (and not at all in 15 years previous to TFTEA). How many times has this power been used by US CBP since my post? Well, as far as I can tell, only 1 more time[i], which is still significant (no activity in 15 years, 3 times since TFTEA), but not earth shattering. However, I still feel confident that this is a new dynamic for global supply chains that compliance officers need to take seriously.

Perhaps more telling than the enforcement in the last 3 months is the amount of communication and publicity around the subject. Here are some highlights that may convince you the new reality is here to stay:

·         On May 2^nd, following the TFTEA, US CBP announced the creation of a new task force. This Trade Enforcement Task Force will “focus on issues related to enforcement of antidumping and countervailing duty laws, and interdiction of imported products using forced labor”[ii]. (My emphasis)

·         On May 2^nd, US CBP Commissioner R. Gil Kerlikowske referred to the following in his remarks to the Joint Annual Meeting of the American Iron and Steel Institute: “core priorities like interdiction of products manufactured using forced, convict, or child labor”[iii]

·         The Commissioner warned the public of the following, in a June 1^st announcement: “It is imperative that companies examine their supply chains to understand product sourcing and the labor used to generate their products,” and followed this with: “CBP is committed to ensuring U.S. values outweigh economic expediency and as part of its trade enforcement responsibilities, will work to ensure products made with forced labor do not cross our borders”[iv]

The reader must make their own appraisal, but it seems to me that US CBP is signalling to trade to get ready: this is going to be a significant initiative.

As you consider whether or not this is significant, I want to remind the readers about the similarly intended California Transparency in Supply Chain Act[v]. This California law, effective since 2012, requires affected companies to disclose what efforts (if any) they are taking to combat slavery and human trafficking throughout their supply chain. This law stops at the requirement to disclose, and makes no minimum effort requirements. Therefore, you could be 100% compliant simply by stating you have absolutely no plan to eradicate slavery from your supply chain. However, that may be bad PR, and so most companies do in fact speak to some level of effort.

This is where the risk appears: your statement (as required under the law) must be accurate and truthful or you risk a lawsuit (such as the class action lawsuit against Costco[vi]) or worse: could this be a False Claims Act violation?

Lastly, I just wanted to mention another new possible development: Canada may very well end up with similar laws. A recent World Vision report[vii] demanded that Canada enact laws to restrict commerce that uses forced labour. There is no indication yet that this will happen, but as a Canadian I can say doing so would fit squarely with the agenda of the current government.

If you take one thing away from this, I hope it is that your company needs a strategy for dealing with possible forced labour in your supply chain. You need it to ensure the new US Customs enforcements don’t affect you. You need it to comply with California’s law. And you just may need it to comply with new laws we haven’t yet seen. I happen to think it’s also just the right thing to do….

Please leave comments on this if you disagree: I’m curious to know what the rest of the industry thinks!

Kevin Riddell

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[i] https://www.cbp.gov/trade/trade-community/programs-outreach/convict-importations

[ii] https://www.cbp.gov/newsroom/national-media-release/2016-05-02-000000/cbp-creates-trade-enforcement-task-force

[iii] https://www.cbp.gov/newsroom/speeches-and-statements/2016-05-02-000000/commissioner-kerlikowske%E2%80%99s-remarks-joint-annual

[iv] https://www.cbp.gov/newsroom/national-media-release/2016-06-01-000000/cbp-commissioner-issues-detention-order-stevia

[v] https://oag.ca.gov/sites/all/files/agweb/pdfs/sb657/resource-guide.pdf

[vi] https://www.consumerproductmatters.com/wp-content/uploads/sites/13/2015/11/Sud-v.-Costco.pdf

[vii] https://nochildforsale.ca/resource/supply-chain-risk-report/

An unexpected outcome of the rise of populist protectionism?

Anyone paying attention has noticed a significant trend this year in Western politics: protectionism. In international trade references, the definition of “protectionism” is:

“the theory, practice, or system of fostering or developing domestic industries by protecting them from foreign competition through duties or quotas imposed on importations”[i]

I can cite several examples this year of protectionism in Western politics:

1.       The “Brexit” vote by Britain to leave the EU

2.       The appeal of Donald Trump’s anti-free trade message in the USA

3.       The rise of the National Front in France

In case you are getting worried – don’t! I will not be making any comments on the value of any of these political movements! This is a trade compliance blog, and I intend to leave it at that…. This political movement is real, and I just want to focus on what impact it may have on us trade compliance folk.

With that said, you have probably already formed a conclusion about where this is going: clearly he is going to talk about free trade, specifically the TPP and the TTIP, right? Well, as much as that deserves its own post (hmmmnn…) I actually wanted to talk about something a little different: existing US country of origin product marking regulations.

Many in our industry can recite from memory the country of origin “marking rules” found in 19 CFR 134[ii]. These rules govern what country of origin must be shown on an imported foreign good, and how that needs to be shown. These rules explicitly only apply to goods of non-US origin (19 CFR 134.11 directs an importer to ensure that any “article of foreign origin” is appropriately marked with the country of origin). These regulations actually make no requirements or even offer guidance about the marking of a US origin good. Does that mean that you are free to mark a US origin good however your marketing group prefers? Not according to the Federal Trade Commission (FTC).

According to the FTC, for most items of US origin[iii], you have absolutely no obligation to state that US origin. However, they caution that if you choose to do so, then the “FTC Made in USA standard applies”. I fear that too many businesses are making claims of US origin on their packages, without fully understanding this FTC standard.

The FTC standard for a Made in USA claim is extremely strict. Their standard is:

“For a product to be called Made in USA, or claimed to be of domestic origin without qualifications or limits on the claim, the product must be "all or virtually all" made in the U.S”[iv]

What does this mean? It means that:

“all significant parts and processing that go into the product must be of U.S. origin. That is, the product should contain no — or negligible — foreign content.”

I don’t know about you, but I have a feeling that a walk around your local big box retailer will find many items marked “made in USA” that actually contain more than a “negligible” amount of foreign content…. So how can this be? Surely any businesses in violation of the requirements would be penalized and ordered to change their label? The truth is, the FTC has not enforced this standard very much historically. A quick look at the press releases in the FTC web site will show you that they have a long way to go, to catch up with other trade regulating agencies like BIS, Customs and State in the enforcement game….

Ok, so you can take a breather right? This is not a big deal. Well, historically that may be true. However, in an environment of increased protectionism, and public distrust of globalisation and multinational corporations, can you be sure these rules will continue to be ignored? As we have seen with the recent US Customs seizures of goods manufactured with forced labor, sometimes the rules don’t need to change: they just need to be enforced more (See here: http://intltradecompliance.blogspot.ca/2016/04/import-controls-on-products-produced.html).

I think now is an excellent time for any company making US origin claims to have a good look at their products and ensure they are compliant. Waiting for the political winds to change is not great risk management, in my opinion…. Something else to keep in mind is the recent rise of False Claims Act enforcement. This sure sounds like a pretty close fit with the False Claims Act, and those penalties are significant.

Oh – and one final parting shot. If you make products that you sell globally and need to mark their US origin for other national requirements (i.e. Canada or Mexico country of origin marking rules) you have a real decision to make. Do you make two separate skus? (One with “Made in USA” on it and one without) Or come up with another creative solution? Whatever your personal solution, I recommend you start thinking about it now: 2016 could be a big deal in trade compliance.

Kevin Riddell

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[i] http://www.dictionary.com/browse/protectionism

[ii] http://www.ecfr.gov/cgi-bin/text-idx?rgn=div5&node=19:1.0.1.1.28

[iii] As they state at the following link, some products of US origin such as textiles are in fact required to state their origin due to other regulations: https://www.ftc.gov/news-events/media-resources/tools-consumers/made-usa

[iv] https://www.ftc.gov/tips-advice/business-center/guidance/complying-made-usa-standard

Import controls on products produced with forced labor: a developing story

Most professionals involved in international trade compliance in the USA have heard of the recent Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), signed by President Obama on February 24, 2016. There was significant coverage of this both within our industry and outside of it, no doubt helped by the incredible coverage of the Republican and Democratic primaries. Some of the clauses in this act have been covered well, such as:

• The increase from $200 to $800 for Section 321 clearances
• Changes to the US Goods Returned program
• Minimum standards for Customs Brokers
• Changes to Duty Drawback procedures
• Etc.….

One aspect of this bill that has not been discussed as much, is the repeal of an old law called the “Consumptive Demand” clause. This clause was found in 19 U.S.C. § 1307[i] until the TFTEA repealed it.

What does this mean exactly?

The hidden lesson in OFAC guidance on “false hit lists”

http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20151021.aspx

A recent OFAC press release, and guidance document, offers some good advice, but also risks misleading readers. A careful read of the case and guidance will reveal a hidden lesson to be learned. At first glance, the guidance simply reminds companies to ensure their SPL lists are updated and reviewed, and most readers will come away satisfied that they are compliant.  A primary message in the guidance refers to what they call “false hit lists”, and reminds readers to ensure entities on that list are reviewed as regulations change. Upon a deeper look, however, this Finding of Violation contains another lesson, one that may surprise readers and give them reason to review their compliance program. Before we explain that statement, let’s take a good look at the finding, and the guidance.