How the Government Shutdown Is Affecting Trade

Jan. 22, 2019
Tariff exclusions, licensing approvals and self-reporting of violations are among the activities not happening during the shutdown.

With the government shutdown entering its fifth week and no end in sight, a number of federal agencies are feeling the pressure. The Department of Commerce and the U.S. International Trade Commission have been effectively shuttered for the past four weeks, and recently the Office of the U.S. Trade Representative released a short statement indicating that they had begun furloughing nonessential personnel. A number of other agencies and departments have also had their work affected or completely suspended.

The shutdown is affecting these federal agencies that are critical to imports, exports, and international trade:

U.S. Department of Commerce
Nearly 90% percent of the Department of Commerce’s staff is affected by the shutdown and has been furloughed. Commerce issued a plan in late December providing for an orderly shutdown. The International Trade Administration (“ITA”) and the Bureau of Industry and Security (“BIS”) are operating with extremely minimal staff. The ITA has effectively ceased all Antidumping and Countervailing duty investigations (penalities for foreign governments and manufacturers selling/subsidizing goods at less than fair value) as well as other administrative proceedings, including annual administrative reviews, due to the lack of funding.

The delay in ongoing proceedings will have cascading effects on impending deadlines for months to come, as all cases are either delayed or postponed for several weeks after the agency reopens.

The shutdown has also resulted in a halt to the Commerce Department’s Section 232 product exclusion process for tariffs on steel and aluminum. No new exclusions have been granted since December 21, 2018, because DOC is not operating during the shutdown. We expect to see a significant backlog and further delays when the government reopens, as the Commerce Department approximately has more than 100,000 steel and aluminum exclusion requests to review.

The Bureau of Industry and Security (“BIS”), which oversees export control and treaty compliance as it relates to national security and high-tech, has had operations curtailed significantly, including the processing and review of license requests, advisory opinions and other export licensing activity. Export enforcement operations continue, including the conduct of criminal investigations, prosecutions, coordination with other law enforcement and intelligence agencies, as well as review of voluntary self-disclosures (“VSDs”) of violations of Foreign Trade Regulations.

However, the BIS website is not being maintained due to a lack of federal funding, and VSD submissions made via mail are not currently being processed. SNAP-R, BIS’ online licensing system, has been taken offline until further notice.

Court of International Trade
On January 18, 2019 the Court system’s funding will run out. The Administrative Office of the U.S. Courts stated that federal courts would continue any paid operations using “court fee balances and other ‘no-year’ funds” until Jan. 18. The CIT released a statement that all deadlines would still apply, but this may change should the shutdown of the key agencies with active matters before the CIT continue.

U.S. Department of State: Directorate of Defense Trade Control 

The Directorate of Defense Trade Controls (“DDTC”), the State Department agency which enforces the export and temporary import of arms and defense services, has posted guidance on its website advising that services have been curtailed significantly, including the processing and review of license requests, advisory opinions and retransfers, except for those that request to provide “direct support to the military, humanitarian aid, or other similar emergencies.” D-Trade, DDTC’s online licensing system, is not offline during the shutdown. However, all new applications submitted through D-Trade will be rejected and will need to be resubmitted once normal operations resume.

U.S. Department of Treasury: Office of Foreign Assets Control
The Office of Foreign Assets Control (“OFAC”), which enforces economic and trade sanctions, is currently open but with limited capacity and faculty. For now, OFAC will continue some of its responsibilities such as administering the Specially Designated Nationals and Blocked Persons List, enforcing U.S. sanctions, and administering newly authorized sanctions should the need arise. Additionally, all national security-related functions will continue to be performed. However, OFAC is not currently processing any licensing applications and has limited resources to respond to hotline inquiries.

Office of the U.S. Trade Representative
Though the exclusion process for Section 301 tariffs continued during the shutdown, funding for the USTR has run out, so the process is likely to be suspended sometime this week. USTR recently granted nearly 1,000 product exclusion requests with regards to the $34 billion list, but there has been no movement on the remainder of the exclusion requests as they have been unable to consult with personnel at Customs to determine how to administer the product exclusions.

U.S. Customs and Border Protection

The Automated Commercial Environment (ACE) is the system the trade community uses to report imports and exports and the government uses to determine admissibility. According to U.S. Customs and Border Protection (CBP), updates to the ACE to reflect tariff exclusions will not be implemented until 10 business days after the shutdown has ended. This means that until the government reopens, importers that qualify for exclusions will have to continue paying additional tariffs on affected goods. The newly released 301 exclusions have not been updated on ACE.

CBP will continue a portion of its responsibilities including: issuing Customs broker licenses, permits, filer codes, reviewing and responding to Enforce and Protect Act allegations and electronic allegations of trade fraud.

CBP also notes that once it issues guidance and implements ACE enhancements, filers may submit post-summary corrections or proests to obtain refunds. The liquidation process is functioning but the agency is not processing refunds on any type of normal entry or drawback transaction and interest may apply to those delayed refunds. Additionally, Customs is currently not issuing any new rulings to importers on CROSS, its online search system.

U.S. International Trade Commission

The International Trade Commission (“ITC”) is also closed, which affects the release of all ITC economic impact reports. Additionally, all HTS (Harmonized Tariff Schedule) classification revisions are not being updated until the ITC reopens. The ITC has suspended investigative activities, including aspects of proceedings under section 337 (investigation of unfair practices in import trade) as well as sections 701/731 antidumping/countervailing duty cases.

Notably, the ITC is currently expected to submit their report on the economic impact of the United States-Canada- Mexico Agreement (USCMA) to Congress on March 15, 2019, however due to the currently “ceased operations,” this deadline may not be met on time.

Nithya Nagarajan and Cortney Morgan and are Washington-based 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.

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