CBP Says USTR Action Needed to Change Course on Treatment of Section 301 Goods From FTZs
The Office of the U.S. Trade Representative would need to provide specific guidance to CBP in order to change treatment of goods from foreign-trade zones that were subject to the recently decreased Section 301 tariffs, CBP said in response to a recent letter from the National Association of Foreign-Trade Zones (see 2002180046). CBP said it enforces the Section 301 duties issued by the USTR “based on CBP laws and regulations, including 19 CFR 146.65(a)(1), unless USTR directs CBP to take different actions pursuant to Section 301.” NAFTZ President Erik Autor said the association is reviewing its next steps.
The NAFTZ should contact “the USTR officials listed in USTR’s January 22, 2020 Federal Register notice” to relay “any concerns with the USTR’s Section 301 actions, including the treatment of goods in Foreign Trade Zones,” CBP said. The NAFTZ may also request a ruling or file protest in response to CBP's decision, CBP said. While the NAFTZ pointed to differences in how CBP treats FTZ goods under the Section 232 tariffs as an inconsistency, CBP said that “actions under Section 232 are issued under different legal authority than actions under Section 301.” USTR didn't comment.
Autor remains largely unconvinced, though. The NAFTZ argues that there is a difference between the regulations for when privileged foreign status is mandated, which is the case for the Section 301 tariffs and antidumping or countervailing duties, and when PF status is chosen by the operator. Both Section 232 and Section 301 tariffs, while under different statutes, are “special trade action duties applying temporary duties that are assessed under Chapter 99 of the Harmonized Tariff Schedule” and involving mandated PF status, he said.
CBP seems to have the “discretion to apply the duty rate in effect at time of entry” because it's “been done in other cases,” Autor said. There is a disconnect when CBP appears to say its “hands are tied,” while the agencies say the specifics of collecting the duties are CBP's job, he said. The NAFTZ did mention the issue to a USTR official during its recent legislative summit, Autor said. Effectively, FTZs are “being treated differently than any other U.S. importer of this merchandise in how these duties are being assessed and it's a way that disadvantages the program and discourages folks from using it,” he said.
The NAFTZ is undecided on how to approach the disagreement going forward, Autor said. “We're discussing what our next steps are going to be,” including the options mentioned by CBP in its response, he said. So far, Autor hasn't heard any imminent plans to litigate. “If you're looking at several million dollars in litigation costs, just to save a million bucks in duties, you know, it's probably not worth it,” he said. “Although, I think in the long run, I think it's in everyone's interest, including someone in that situation, to get once and for all clarification because I don't think we are through the woods by any stretch of the imagination on these trade actions.”
The NAFTZ has been trying to attach some legislative language that would codify what tariff rates would apply to FTZ goods with mandated PF status when the rates change. Under that language, if the tariff rates decrease for goods in the FTZs, the applicable tariff rate would be the one in effect at the time of entry, he said. If the rates increase, the applicable tariff rate would be the one in effect at the time of admission, as was the case for past Section 301 tariff increases. Basically, the FTZ importer should get the benefit of the lowest duty rate, he said.
Such statutory language would remove the uncertainty around what tariffs apply when the tariff rates change, Autor said. Asked why the government might want this, Autor said it would prevent any discouragement of use of the FTZ program. The NAFTZ is “shopping it on the Hill” and is still working to find a sponsor, he said.