Repeal NAFTA Drawback Restrictions, Expand ACE, Commenters Tell Commerce

Industry groups asked the U.S. government to work to repeal restrictions on NAFTA drawback and duty deferral and to expand ACE, in response to the Commerce Department’s request for information (here) on regulations that hamper domestic manufacturing. Although negotiators included the drawback and deferral restrictions in NAFTA to prevent China from using Mexico as a platform for component parts to be exported to the U.S., several companies involved in duty preference programs for foreign investors and domestic firms have nevertheless convinced suppliers from Asia and Europe to establish production facilities in Mexico to replace imports from non-NAFTA sources, according to the Duty Drawback Coalition’s comments (here). To counter the negative effects of NAFTA drawback restrictions on foreign-owned manufacturing plants in Mexico, Mexico established Sectoral Promotion Programs, which reduce several standard duty rates, the coalition said. Canada has reduced duty rates to mitigate the effects of the NAFTA drawback restrictions as well, the group said.

“These actions not only circumvent the original intent of drawback restrictions as relates to the creation of an export platform, but also demonstrate that the premise is fallible,” said the coalition, which includes the American Association of Exporters and Importers, the National Customs Brokers & Forwarders Association of America and the American Association of Port Authorities, among others. “Without a correction, there will remain an incentive to shift manufacturing operations to non-U.S. locations, such as Canada or Mexico, where drawback is not restricted. Duty restrictions require U.S. manufacturers importing and paying duties on foreign components and exporting a finished good to Canada or Mexico to pay higher production and export costs compared to factories located in “any other non-NAFTA country,” the coalition said. Finding a pathway through any upcoming NAFTA renegotiation for reinstating drawback and duty deferral would “reintroduce fair trade” and help level the playing field for U.S. manufacturers and workers, according to the group.

Other groups called for Commerce to focus on trade facilitation efforts that wouldn’t necessarily require renegotiation of agreements. The National Association of Manufacturers (NAM) commented (here) that the Trump administration should support trade facilitation and risk management priorities embedded in ACE, require PGAs to use the system to maximize shipping efficiency, and ensure post-departure filing is kept for eligible companies and to work collaboratively with exporters. NAM said that manufacturers will continue to work closely with carriers and other stakeholders to ensure a “smooth transition” toward an expected requirement to require advance electronic manifests for all modes of transportation. The group noted that it has encouraged CBP to consider potentially negative impacts on exporters if it moves forward with the plan.

The National Tooling and Machining Association and Precision Metalforming Association (here) called for the government to update U.S. trade laws to allow more flexibility in sourcing manufactured goods that might be in short supply or unavailable domestically, particularly goods that might be covered by antidumping and countervailing duties. Petitioning industries have an “effective veto” over any attempt to change the scope of a trade case to exclude such products, the groups said. U.S. policy bars the International Trade Commission from considering domestic downstream impacts of imposing AD/CV duties, unlike EU trade laws, and “closing U.S. borders to imports” buoys an artificial commodities market, increasing prices for U.S. manufacturers and consumers, the groups said. “Often specialty metals are no longer produced in the quantity required or delivered in a timely basis to U.S. industrial consumer[s], leading to a short supply during the period of a five year sunset review,” the submission reads. “Industrial consumers and the U.S. Government need a way to adapt to the market and address short supplies of critical raw materials.”

The same groups called for the executive branch to assign a corresponding HTS code for every North American Industrial Classification System (NAICS) code. Overhauling the trade data collection and reporting system at Commerce, CBP and the World Trade Organization would help the U.S. government enforce trade laws and develop policies to strengthen U.S. manufacturing, their submission said. “Without an HTS code, industries and government policymakers cannot make informed decisions about the domestic marketplace and activity of downstream suppliers and their foreign competitors, nor can they determine how domestic manufacturing sectors are performing relative to global markets and the effect of particular unfair trade practices on their performance,” the groups said. The submission calls for Commerce and CBP to create a corresponding HTS number for every NAICS code associated with more than 10,000 domestic jobs, and to petition the WTO during the next review period for “global harmonization of the new HTS to at least the six digit.”

Responders also commented on existing environmental regulations as they relate to imports. A joint submission (here) from the American Home Furnishings Alliance, the Kitchen Cabinet Manufacturers Association, the International Wood Products Association, the National Retail Federation, the Retail Industry Leaders Association and the Recreation Vehicle Industry Association urges the Trump administration to “substantially improve” or eliminate EPA’s formaldehyde emissions standards for composite wood products, as finalized Dec. 12 (see 1612120022).

The groups said the rule will “severely disrupt” supply chains for composite wood products. It is currently proposed to take effect on May 22, which would shorten time for compliance with third-party certification requirements and make implementation more difficult. The EPA should extend the rule’s effective date until May 22, 2018, the groups said, and maintain the same time windows between implementation milestones outlined therein. Formaldehyde emissions standards, certification, testing and labeling requirements are set to begin taking effect Dec. 12, 2017, except for laminated products. Recordkeeping requirements for importers also take effect Dec. 12, 2017.

Taylor Guitars highlighted other environmental agency procedures it says should be improved (here). The company said that the Fish and Wildlife Service could improve its processing times for Convention on the International Trade in Endangered Species permitting if it had more technology and personnel resources. In the U.S., it typically takes 45-60 days to receive such a permit, while it takes usually two to three weeks in the EU and Mexico. The company also complained that port understaffing requires it to “pay overtime charges to FWS for our shipments,” and criticized a regulation requiring guitar manufacturers to file wildlife declarations that “seem to serve no purpose,” and which require wildlife declarations and accompanying fees for items such as mother-of-pearl on a guitar, although the shell isn’t a protected species under law, Taylor Guitars said.

The Motor & Equipment Manufacturers Association (MEMA) (here) and the Association Connecting Electronics Industries (IPC) (here) said the Securities and Exchange Commission (SEC) should withdraw their conflict minerals reporting requirements. MEMA said the rule ignores the challenges of accuracy and practicality in tracking materials through the “multifaceted multi-level supply chain.” Under the rule, corporate automobile customers require privately owned companies of all sizes to track the source of minerals in products they sell, despite the fact that many small and medium parts manufacturers are not required to file reports with the SEC. IPC urged the Trump administration to work with Congress to repeal the conflict minerals requirement, saying it hasn’t improved the human rights situation in the Democratic Republic of the Congo and has resulted in a “de-facto ban” on minerals purchases from the central Africa region, depleting income from those the law was designed to help, the group said.

The International Dairy Foods Association (IDFA) also weighed in (here) calling for FDA to work with the Chinese government to make its “cumbersome registration program” for U.S. dairy exporters more reasonable. The Chinese require the FDA to submit a list of U.S. dairy exporters and a list of products currently being manufactured and permitted for shipment to China. But changes by the Chinese government to requirements for inclusion on the list can often constrain the U.S. dairy industry’s ability to export to China, IDFA said.