NAFTZ to Ask CBP to Rethink Application of Section 301 Tariff Decrease to FTZ Goods

The National Association of Foreign-Trade Zones appealed to CBP officials during the group's annual legislative summit on Feb. 11 on the issue of CBP's treatment of goods that are in foreign-trade zones and are subject to the Section 301 tariffs on goods from China that will be reduced on Feb. 14. CBP said in a recent CSMS message about the tariff decrease that the applicable tariff rate for goods in FTZs is based on “the rate of duty and tax in force on the date of filing the application for privileged foreign status.” That policy has prompted some industry claims of inconsistency by the agency (see 2002050038).

CBP's regulations for FTZs cover “the normal privileged form, when it is elected by the operator,” said Marshall Miller, a lawyer at Miller & Co. who represents the NAFTZ. When the privileged foreign status is “mandated,” as was the case for the Section 301 tariffs, there are no CBP regulations, but there are FTZ Board regulations, he said. In previous situations, which involved antidumping or countervailing duties, “it had always been written that it was the rate in effect at the time of withdrawal,” he said.

The NAFTZ understands that “this is a totally new area for everybody,” Miller said. The NAFTZ also plans to send CBP its legal analysis, “which is slim, in our view, just because the other side is slim as well,” he said. “It's an unusual situation legally where the customs service is interpreting a statute that is not their statute.” John Leonard, CBP executive director-trade policy and programs, who spoke at the conference, was noncommittal about changes and said the agency would continue to consider the requests. This question points to a broader problem of the need for more clarity from CBP on duty rates for FTZ goods around the frequently changing trade remedies, NAFTZ President Erik Autor said.

Work is ongoing toward risk-based bonding (see 1912050044), Leonard said. A previous effort involving AD/CV duty orders on shrimp (see 10102520) was “beaten back by the Court of International Trade and World Trade Organization as unfair trade practice,” he said. “This time we're going to take a very pragmatic approach to it.and work with the trade community and bonding community by use of a notice of proposed rulemaking and advance notice of proposed rulemaking.” The notices should be out “in a couple months,” Leonard said. The “trade input on the formulas we are proposing” will hopefully lead to a “risk-based bonding program that will withstand judicial scrutiny,” given the likelihood of a lawsuit over the issue, he said.

Since drawback was updated as part of the Trade Facilitation and Trade Enforcement Act, drawback claims have increased, Leonard said. In fiscal year 2017, there was about $900 million in drawback claims. After TFTEA “came into play” in FY18, there were $1.2 billion in claims and in FY19 there were $1.4 billion in claims, he said. Leonard also mentioned some momentum toward requiring continuing eduction for customs brokers (see 2001290037), but noted that one challenge is that “it's very likely going to require a change in statute.”

Leonard said the first quarterly quota for washing machines subject to Section 201 safeguards remains surprisingly open. The quota was recently switched to a quarterly allocation of 300,000 washing machines (see 1912200068), and the agency expected the quota to be full upon opening, he said. “But we only got 100,000 machines,” he said. “It could be coronavirus, Chinese New Year slowdown, but we were a little surprised actually that it didn't fill immediately upon opening.“

Asked about the recent executive order that calls for a rulemaking around changes to the importer of record regulations (see 2001310062), Leonard said the proposal is a priority even though the order did not include a time limit. “We're going to work it quickly,” he said. “Along with the 8 million other things we've got to do.”