While it is impossible to predict exactly what will happen with tariffs, trade policy, export controls and trade sanctions, the International Trade and Supply Chain legal team at Husch Blackwell anticipates some combination of the following developments will take place in 2020.
Tariffs and Trade Policy
While negotiations continue between China and the United States, we do not anticipate a rapid resolution to the ongoing trade war. Similar to the phased institution of the Section 301 tariffs, we anticipate that any de-escalation and/or removal of these tariffs will be implemented on a phase-specific basis. The opportunity to request product exclusions under List 4 continues until January 31, 2020.
There are several Section 232 tariff investigations that are ongoing, including uranium and titanium sponge. We anticipate that those investigations will be acted upon in 2020. Given the current enforcement focus of the administration, we expect that the Section 232 tariffs on steel and aluminum will continue for the foreseeable future.
U.S. companies importing goods from China should be prepared for increased enforcement by U.S. Customs and Border Protection (CBP). Specifically, companies should study and understand the test for “substantial transformation” and ensure that their imported goods are marked and reported properly for country-of-origin purposes.
U.S. companies seeking to take advantage of granted product exclusions for sections 232 and 301 must ensure that the goods being imported meet the specific tariff classification and product description set forth in the exclusion. We expect that CBP will continue to closely review and question entry summaries or requests for refunds made through post-summary correction or protest where the goods involved fall under a specific Section 301 product exclusion.
2020 should be another busy year for Section 337 litigation around intellectual property and trademark infringement. With more companies prioritizing the protection of their intellectual property—and with increasing awareness of how ITC remedies provide enormous competitive leverage—filings may increase again. Relatedly, the trend of more non-patent cases is expected to continue. While approximately 90% of Section 337 cases used to involve assertion of a patent, there is increasing diversity in the caseload, with more complaints alleging misappropriation of trade secrets, trademark infringement or other “unfair acts” related to the importation of products. In sum, the ITC will remain a crucial venue for high-stakes litigation at the intersection of trade and intellectual property. Companies battling harmful import competition should consider availing themselves of Section 337.
We expect an increased use of traditional trade remedies and several antidumping and countervailing duties (AD/CVD) cases to be filed in 2020 covering a variety of products.
Export Controls and Trade Sanctions
At some point in 2020, we expect the U.S. Bureau of Industry and Security to issue new rules addressing exports and reexports of “emerging technologies” that are essential to U.S. national security. BIS had indicated that technologies subject to these new rules will likely include biotechnology, artificial intelligence, advanced computing technology, 3D printing and robotics.
The new Committee on Foreign Investment rules are expected to be codified into regulations no later than February 13, 2020, subject to any changes that the U.S. Treasury Department might adopt to address feedback received during the public comment period. When enacted, these rules will significantly expand the scope of foreign investments that are subject to CFIUS review. Businesses that operate in any “emerging technology” sector identified under the forthcoming BIS rules will need to be especially mindful of applicable restrictions on accepting foreign investment under the new CFIUS rules.
The U.S. Treasury Department’s Office of Foreign Assests Control will surely continue to aggressively enforce its Iran sanctions against both U.S. and non-U.S. persons. OFAC may also target or designate additional sectors of the Iranian economy in order to achieve maximum pressure against the current regime.
The Directorate of Defense Trade Controls (DDTC) and BIS have indicated that they will prioritize enforcement of export provisions (ITAR and EAR provisions), which prohibit “deemed exports” of sensitive technical data and technology to non-U.S. persons. These enforcement efforts will most likely target companies and academic research institutions that handle research and production data for export-controlled items and share such information with employees, faculty or students who are not U.S. citizens or who maintain foreign citizenship.
Congress is evaluating the Defending American Security from Kremlin Aggression Act (DASKA), which has been proclaimed as the sanctions “bill from hell.” If enacted, DASKA would significantly enhance current U.S. sanctions against Russia and impose additional sanctions on Russian President Vladimir Putin’s associates, Russian oil and natural gas projects, the Russian financial system and other key sectors of the Russian economy. Congress also considered but did not enact a prior version of DASKA in 2018, while the current version of DASKA has not yet advanced beyond the U.S. Senate Committee on Foreign Relations. However, DASKA could become a legislative priority depending on whether or not Russian interference becomes an issue in the upcoming 2020 U.S. elections.
At some point in 2020, the Commerce Department will implement final versions of the Information and Communications Technology and Services rules which will address ICTS transactions with foreign adversaries that have the potential to impact U.S. national security and/or the U.S. digital economy. The Commerce Department is currently soliciting comments to these proposed rules and it is uncertain what form the final rule will take; however, when these ICTS rules do take effect, companies in the ICTS industry will need to be prepared to evaluate their supply chain to determine whether any of their transactions with vendors or service providers might be subject to suspension under the new rules.
How to Get Trade Ready – Trade Compliance Checklist for 2020
To help you get ready for 2020, we have prepared the following checklist of best practices for U.S. businesses to consider as they develop a strategy for managing their supply chain and export compliance in 2020.
· Companies importing goods subject to AD/CVD duties or Section 301 and 232 tariffs should consider reviewing the country-of-origin designation analysis for their products. Are the correct rules of origin being applied for the relevant duties and tariffs?
· Companies should consider being proactive and plan for sourcing and supply chain audits and compliance reviews especially if they are currently subject to any additional tariffs such as AD/CVD, Section 232 or Section 301.
· If a company hears the rumblings of a trade action at various conferences or through conversations with foreign vendors or local suppliers, it’s a good idea to contact experienced counsel to explore options and business strategies proactively rather than waiting for an action to be filed.
· Companies with suppliers located in China who are contemplating sourcing from third-country suppliers should review the country of origin of any sourced products and ensure that goods are properly marked and designated. Are the new operations sufficient to meet the “substantial transformation” test?
· Companies should be on alert for higher scrutiny at the time of entry for any imports of goods from China, India, Vietnam and Korea, among others, and be prepared to submit documentation upon request from Customs to support and supplement their entry filings.
· Companies should ensure that they are handling all Customs and country-of-origin determinations internally with their own personnel and the advice of counsel and not rely on their brokers as the ultimate entity responsible.
· Review the proposed USMCA to see what affect the new agreement will have, if any, on products currently imported or exported under the NAFTA rules.
· If companies engage in international sales, research or collaboration with foreign customers or universities and do not already have an export controls and sanctions compliance program, they should implement one.· Companies that already maintain sanctions compliance programs should evaluate them against OFAC’s Compliance Framework and implement appropriate updates if necessary in order to better conform to OFAC’s recommendations.
· The International Chamber of Commerce (ICC) new Incoterms 2020 go into effect on January 1, 2020, and companies should check their purchase agreements and terms of sale to ensure accuracy and protection against risk of loss.
· Any companies contemplating international M&A transactions for 2020 should ensure that they conduct adequate export controls and trade sanctions diligence, terminate any prohibited activity by the target company prior to closing and then implement appropriate compliance procedures at the target after closing. Foreign persons seeking to acquire U.S. target companies should consider whether such acquisitions are subject to the CFIUS review process.
· Companies that operate in “emerging technology” industries should monitor BIS’s forthcoming rules very carefully and be prepared to comply with any new export prohibitions or licensing requirements that BIS might impose upon their products.
· Companies with multinational employees and academic institutions with international faculty and students should closely examine whether they possess technology or technical data which might be EAR- or ITAR-controlled and then either obtain licensing or take appropriate measures to prevent “deemed exports” of such information to any foreign employees, faculty or students.
· Companies in the ICTS industry should consider reviewing their supply chain and identifying transactions with foreign vendors and service providers that could become subject to the new ICTS rules when they take effect.
Cortney Morgan, Beau Jackson, Grant Leach, Nithya Nagarajan and Robert Stang are partners with the law firm Husch Blackwell LLP. They practice in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.