Policy Updates

U.S. and Virginia Trade Policy Updates

June 26, 2024

U.S. Trade Negotiations

The United States is continuing negotiations with a number of countries to tighten compliance around sanctions and export controls, with recent negotiations involving the United Kingdom and France. In addition, the White House has looked to ensure the viability of the critical minerals supply chain, holding discussions with Norway, Kazakhstan, and the Philippines over the last three months. U.S. trade negotiators have also been active in several Africa nations, making progress on a trade agreement with Kenya and seeking public comments on the African Growth and Opportunity Act (AGOA). 

U.S. and United Kingdom Discuss Sanctions and Export Controls

The second U.S.-UK Strategic Sanctions Dialogue was held May 8 in London. According to the State Department, these talks delivered on a commitment under the 21st Century U.S.-UK Economic Partnership to strengthen coordination on sanctions and export controls. Specifically, the delegations discussed the uses of targeted, coordinated sanctions and export control measures to deter and disrupt malign activity and to defend international norms. They also pledged continued collaboration to counter circumvention occurring in third-country jurisdictions. 

This may be a topic of discussion at the upcoming Farnborough International Airshow in England on July 22. VEDP is leading a trade show there, where the entire aviation and aerospace industry gathers to learn, network, and do business. Those interested in attending the trade show can learn more here. For more information on the U.S.-UK Strategic Sanctions Dialogue, click here.

U.S. to Strengthen Customs Cooperation with France

The U.S. and France recently signed a joint declaration aiming to strengthen bilateral cooperation in customs matters and to improve the facilitation of goods and travelers. According to the Department of Homeland Security, improved collaboration is expected to include the following areas.

  • Intelligence, inspections, investigations, targeting and operational cooperation, and exchange of best practices;

  • Risk analysis and targeting of controls on passengers and cargo;

  • Securing container traffic, major port and airport facilities, express freight, and e-commerce; and 

  • Combatting arms and drug trafficking, transnational organized crime, and threats to national security

Virginia companies have exported $88 million to France in the first four months of 2024. This joint declaration aims to make the exporting process more streamlined and easier for those companies. For more information, click here.

Bilateral Talks with Norway and Kyrgyzstan Focus on Critical Minerals

U.S. and Norwegian officials met April 17 to discuss a bilateral memorandum of understanding on cooperation on critical minerals trade. The State Department said key focus areas under this MOU will include advancing high-standard labor and environmental conditions in global critical minerals supply chains and examining and identifying appropriate responses to non-market policies and practices in third countries.

Advancing critical minerals partnerships was also among the goals outlined in an April 22 meeting between U.S. and Kyrgyzstan officials, during which the two sides also underscored a commitment to improve regional connectivity and trade, grow and diversify the Kyrgyz economy, increase U.S. private-sector investment, and expand agricultural cooperation. For Virginia companies relying on critical mineral inputs, these discussions may make it easier to access these items. For more information, click here.

Expanding Trade with Taiwan

An in-person negotiating round on the U.S.-Taiwan Initiative on 21st Century Trade was held April 29-May 3 in Taipei. According to the Office of the U.S. Trade Representative, the two sides continued to exchange views on proposed texts, including in the areas of agriculture, labor, and the environment. Those issues have been under discussion for the better part of a year, and USTR characterized the most recent talks as “productive” and said regular discussions will continue in an effort to reach consensus. It appears those issues could be the focus of a second agreement under the initiative, following the first one announced in May 2023 covering issues such as trade facilitation, services, and good regulatory practices.

According to a recent report, the two sides “spent quite some time discussing what constitutes forced labor and how to counter such practices,” with Taiwan noting that it “currently lacks a mechanism, legal tools, and professionals” to address this issue. These negotiations may make it easier for companies to trade with Taiwan, although they will not affect tariff rates. Taiwan is a top 10 export destination for Virginia companies so far in 2024. For those companies exporting to Taiwan, VEDP is leading a trade mission to Taiwan on September 23. For more information on the trade mission, click here. For more information on the U.S.-Taiwan Initiative, click here.

Improving Trade with Japan and the Philippines

At an April 11 summit, the leaders of the U.S., Japan, and the Philippines discussed opportunities for potential trilateral trade and investment collaboration, including in the areas of critical minerals supply chains, semiconductors, clean energy, and infrastructure development. The Philippines also pushed to join the U.S.-Japan Critical Minerals Agreement.

In addition, representatives from the three countries announced their intent to develop the Luzon Economic Corridor, which will support connectivity between Subic Bay, Clark, Manila, and Batangas in the Philippines by accelerating coordinated investments in rail infrastructure, port modernization, clean energy and semiconductor supply chains, and agribusiness. These developments may make it easier to Virginia companies to trade with Japan and the Philippines, especially for companies reliant on critical mineral imports. For more information click here.

AGOA Tariff Preference Eligibility Under Review

Importers and others can now seek changes in the eligibility of sub-Saharan African countries to receive benefits under the African Growth and Opportunity Act as part of USTR’s annual review. USTR held a virtual public hearing June 27; pre-hearing written comments, requests to testify, and written testimony were due by June 6; and post-hearing written comments, briefs, supplementary materials, and written statements are due by July 11.

Public comments will be considered in developing recommendations on AGOA country eligibility for 2025. In addition, comments related to the AGOA child labor criteria may be considered by the Department of Labor as it prepares its required report on that issue. For more information on AGOA (which is currently scheduled to expire in September 2025), please click here. Moreover, VEDP is leading a trade show to the Africa Endeavor 2024 Senior Leader Communications Symposium in Livingstone, Zambia from July 29 to July 31. This exposition is designed for industry exhibitors to showcase the latest in emerging technologies. For more information on the trade show, click here.

Kenya Trade Talks Advance

USTR reports that during the most recent negotiating round on the U.S.-Kenya Strategic Trade and Investment Partnership, held June 3-7 in Mombasa, officials primarily exchanged views on texts regarding agriculture; customs, trade facilitation, and enforcement; good regulatory practices; and workers’ rights and protections. The two sides are working to conclude an agreement by the end of this year.

Furthermore, top Democrats on the Senate Finance Committee and the House Ways and Means Committee are urging the Biden administration to upgrade its current trade discussions with Kenya into negotiations on a “comprehensive, enforceable trade agreement.” Ways and Means Committee Chair Jason Smith, R-Mo., is also calling on the administration to negotiate with Kenya a “model free trade agreement to set a high standard for U.S. engagement in sub-Saharan Africa, including new access for U.S. agriculture.”

Kenya is a relatively small export destination for Virginia companies, but a finalized trade agreement with Kenya may spur more trade with the African nation. For more information, click here.

Expanding Trade with Nigeria

The State Department reports that at the sixth meeting of the U.S.-Nigeria Binational Commission held April 29-30 in Abuja, the two sides reiterated their intent to expand trade and investment ties and noted that they are developing a commercial and investment partnership that focuses on “key priority sectors” such as infrastructure, agriculture, and the digital economy. Specific topics of discussion included the importance of Nigeria removing import prohibitions and reducing high tariffs on a wide array of agricultural products, increasing African exports to the U.S., facilitating Nigeria’s use of trade opportunities, and Nigeria’s utilization of the AGOA. Although Nigeria is another small export destination for Virginia companies, these negotiations may result in lower tariffs and less trade barriers. For more information, click here.

U.S. Trade Activity

Over the last quarter, U.S. federal agencies have focused on cracking down on vague cargo descriptions, reminding importers understand requirements around completing origin documents, and expanding sanctions and export controls. At the same time, the White House is proposing new tariffs on Chinese goods while looking to limit smart vehicles from select countries and expanding sanctions in Iran. On the liberalization front, the U.S. is looking to increase defense trade with the UK and Australia and have continued the suspension of Section 232 tariffs with the Ukraine.

ACE 2.0 Development Moving Ahead Slowly

U.S. Customs and Border Protection appears to have signalled at least a slight delay in the development of a new system that will ultimately replace the Automated Commercial Environment.

CBP has said that ACE 2.0 will not be a refresh of ACE or a set of incremental changes but instead is intended to be a new system designed to ensure that CBP has the technology to implement the reimagined trade processes developed as part of the 21st Century Customs Framework to align with modern supply chains. CBP states that this system will allow it and its partner government agencies to receive better-quality data much earlier in the supply chain, often in near-real time from traditional as well as non-traditional actors, which will facilitate better, faster, and earlier government responses and determinations on cargo. All Virginia companies should be aware of this transition, but ACE 2.0 will likely not be operational in 2024. For more information, click here.

CBP Cracking Down on Vague Cargo Descriptions

CBP has announced that on April 1 it began advising entry filers when their shipments have vague noncompliant cargo descriptions. CBP regulations require a precise, or specific, description of the merchandise being imported. Carriers and other parties electing to file electronic cargo information data must provide a precise description of the cargo. Brokers and freight forwarders who self-file house bills are held to the same standard as carriers and are expected to screen data for compliance with cargo declaration regulations. Entry filers are expected to review cargo messages for compliance when concerns are identified. 

However, CBP is concerned that it continues to receive vague cargo descriptions like “gift,” “daily necessities,” “accessories,” “parts,” and “consolidated” (which is only acceptable at the master bill level). Virginia imports need to ensure they are in compliance with these standards and can reach an expert at VEDP here. For more information on CBP’s announcement, click here.

Importer Obligations in Completing Origin Documents

CBP has issued a notice reminding the trade community of the obligations and requirements of importers in completing origin documents. According to CBP, origin declarations, origin statements, or certifications of origin must be completed and signed by an official or agent of the importer, exporter, or producer having knowledge of the relevant facts as to the origin of the goods, as specified by the respective trade preference program.

However, CBP has observed an increase in the use of consignee information where importer information is required; specifically, when the consignee is not the importer of record. The importer must be the actual IOR, CBP states, and if a consignee is not the IOR it may not be listed as the importer on the origin declaration, origin statement, or certification of origin. For assistance, Virginia companies can click here. For more information on CBP’s notice, click here.

U.S. Expands Sanctions and Export Controls

The U.S. announced additional sanctions and export controls June 12 in a continuing effort to degrade Russia’s ability to prosecute its war in Ukraine. The Treasury Department has imposed sanctions on more than 300 companies in China, Singapore, the United Arab Emirates, Kyrgyzstan, Türkiye, and Moldova, including producers, exporters, and importers. These entities are being targeted for supplying critical dual-use goods in support of Russia’s war effort; engaging in the development of Russia’s future energy, metals, and mining production and export capacity; and evading or circumventing existing sanctions.

As a result of these sanctions, all property and interests in property of the designated persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to Treasury’s Office of Foreign Assets Control. All entities and individuals that have ownership, either directly or indirectly, 50 percent or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the U.S. that involve any property or interests in property of designated or otherwise blocked persons are prohibited unless authorized by a general or specific license issued by OFAC or exempt. Virginia companies doing business with companies in the aforementioned countries need to ensure they are in compliance with all existing sanctions and export controls. For more information, click here.

Defense Trade with UK and Australia to be Liberalized

The Bureau of Industry and Security has issued an interim final rule that, effective April 19, allows military items, missile technology-related items, and hot section engine-related items controlled under the Export Administration Regulations to be exported or reexported to Australia and the United Kingdom without a license. BIS anticipates that these changes will reduce licensing burdens for trade with Australia and the UK by over 1,800 total licenses valued at over $7.5 billion per year and will enable the agency to further focus its resources on scrutinizing high-risk exports to countries of concern.

In addition, the State Department is accepting comments through May 31 on a proposed rule that aims to facilitate secure license-free defense trade between the three countries. The proposed rule would amend the International Traffic in Arms Regulations to provide that no license or other approval from State’s Directorate of Defense Trade Controls is required for the export, reexport, retransfer, or temporary import of defense articles; the performance of defense services; or engagement in brokering activities between or among a specific list of authorized users within these three countries. For more information on the BIS interim final rule, click here. For more information on the State Department’s proposal, click here.

Suspension of Section 232 Tariffs for Ukraine Steel Continued

The U.S. has extended through June 1, 2025, its suspension of the 25 percent Section 232 tariffs on steel and derivative steel products imported from Ukraine. This suspension also applies to steel articles from the European Union that are made from steel melted and poured in Ukraine. Steel articles eligible for this suspension must be accompanied by a certificate of origin.

Any imports of steel articles from Ukraine that were admitted into a U.S. foreign-trade zone under privileged foreign status prior to 12:01 a.m. EDT on June 1, 2022, and any imports of steel articles from an EU member country where the steel used in the manufacture of the article is melted and poured in Ukraine that were admitted into an FTZ under privileged foreign status prior to 12:01 a.m. EDT on June 1, 2023, will be subject to Section 232 tariffs upon any entry for consumption made on or after those times. For more information, click here.

Further Tariff Increases, Other Changes Proposed for Imports from China

A mandatory review of the Section 301 tariffs on imports from China – initially established in 2018 – concluded May 14 with recommendations to increase some tariffs on $18 billion worth of Chinese goods, establish an exclusion process for a limited number of products, and make other changes. 

The Biden administration has proposed to establish a process for excluding goods from the Section 301 tariffs on imports from China. However, importers should be aware that such exclusions will not likely be available for some time. USTR has issued a Federal Register notice seeking comments by June 28 on whether hundreds of specified subheadings under Chapters 84 and 85 of the HTSUS (covering certain machinery used in domestic manufacturing) should be eligible for temporary exclusion from the section 301 tariffs. It is important to note that comments may also be submitted on whether products classified in Chapters 84 and 85 that are not on USTR’s list should be eligible for exclusions as well. In 2024 so far, Virginia companies imported more from China than any other country. These increased tariffs will likely lead to some companies seeking either an exclusion or a different import destination. For more information, click here.

Import Restrictions on Connected Vehicles Could be Considered

The Biden administration has launched an inquiry that could ultimately result in import restrictions on smart automobiles that incorporate technology from China and other countries of concern.

According to a White House fact sheet, automobiles increasingly leverage advanced technologies to enable navigational tools, provide driver assist features, and reduce operating costs and carbon emissions through fast and efficient charging. These vehicles are constantly connecting with personal devices, other cars, U.S. infrastructure, and their original manufacturer. For more information, click here.

Economic Sanctions on Iran Expanded

The Biden administration announced April 18 additional economic sanctions against Iran in the wake of its drone attack on Israel earlier this month and its continued military cooperation with Russia.

The Department of Commerce’s Bureau of Industry and Security is imposing additional export controls to further restrict Iran’s access to low-level technologies such as basic commercial-grade microelectronics. BIS said this action will cut off a wider range of items from reaching Iran, including items manufactured outside the U.S. that are produced using U.S. technology. BIS already imposes comprehensive export restrictions on Iran, including controls targeting Iran’s involvement in supplying unmanned aerial vehicles in support of Russia’s war against Ukraine. Virginia companies trading with Iran should review these sanctions to determine the level of impact on their operations. For more information, click here.

Forced Labor Focus on Three Sectors Increases

The Department of Homeland Security announced June 11 that it is adding three China-based companies to the Uyghur Forced Labor Prevention Act Entity List because it has reasonable cause to believe that they work with the government of China’s Xinjiang Uyghur Autonomous Region to recruit, transport, transfer, harbor, or receive forced labor or Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups out of the XUAR. Effective June 21, goods produced by these entities will be prohibited from entering the U.S.

According to DHS, the newly-added companies (1) process, sell, and export frozen seafood products, vegetables, quick-frozen convenience food, and other aquatic foods, (2) produce and manufacture shoes and shoe material products, and (3) produce electrolytic aluminum, graphite carbon, and pre-baked anodes. DHS states that these additions signal an increase in its focus on the seafood, aluminum, and footwear sectors, which “play an important role” in the XUAR economy. Other sectors represented on the Entity List, which now comprises 68 companies, include agriculture, apparel, batteries, chemicals, electronics, food additives, household appliances, nonferrous metals, polysilicon, and plastics. The U.S. has been focused on eliminating forced labor in China, and all companies should be aware of these developments to ensure their compliance with current regulations and law. For more information, click here.

Special Topic: Export Compliance: Common Violations and Responding to Violations and Enforcement Actions

There are many ways exporters can violate applicable laws and regulations, and the results can include damaging penalties, restrictions on their business, delays in their shipments, and harm to their reputations. It is imperative for Virginia exporters to understand (1) how to avoid committing violations and (2) how to effectively respond to a violation or enforcement action.

The Bureau of Industry and Security oversees the Export Administration Regulations, which primarily concern exports of dual-use goods that can be used for military or civilian use. Items controlled under the EAR may require a license or authorization to be exported, and it is the responsibility of the exporter (not a freight forwarder or other third party) to determine if a license is required.

However, actions that effectively circumvent this requirement are among the most frequent violations reported by BIS. Typical examples include falsely describing in export filings (the electronic export information filed through the Automated Export System, or what used to be filed as a paper shipper’s export declaration) what the goods being exported are, how much they are worth, where they are going, and what they are intended to be used for.

In some cases, these actions may be taken intentionally to avoid having to obtain an export license, but most violations happen unintentionally. For example, companies that lack a formal export classification process may be unaware of applicable licensing requirements or may fail to properly screen the parties involved in a transaction or identify red flags.

Exporters, forwarders, and other parties to an export transaction may be subject to criminal and/or administrative sanctions for these and other violations, and BIS has a robust system in place to investigate and prosecute violators. With respect to investigations, BIS conducts pre-license checks, which validate information on export license applications, and post-shipment verifications, which involve on-site visits to verify that exporters, consignees, end-users, and other parties to export transactions comply with the terms of export licenses and the EAR. In fiscal year 2023, BIS completed 1,509 of these end-use checks in 62 countries.

With respect to prosecution, BIS can and does impose substantial monetary penalties when a violation is found. Civil penalties can reach as high as $364,992 per violation or twice the value of the transaction, whichever is greater, while criminal penalties can include up to 20 years in prison and $1 million per violation. Companies may also be required to forfeit assets obtained in the conduct of unlawful activity, in both civil and criminal cases, and the value of forfeited assets can greatly exceed criminal fines or administrative penalties. BIS often imposes tougher measures against companies that commit willful or reckless violations or are repeat offenders but also offers mitigation for those that have shown cooperation or taken effective remedial actions.

In fiscal year 2023, BIS investigations led to the criminal conviction of 67 individuals and businesses for export violations with penalties of $1.7 million in criminal fines, $3.4 million in forfeitures, $9.0 million in restitution, and 1,779 months of imprisonment. BIS also completed 147 administrative export matters resulting in $303.4 million in civil penalties. The convictions, restitution, months of imprisonment, and civil penalties all represent the highest in BIS history.

BIS has other enforcement tools available as well. Both domestic and foreign companies can have their export privileges suspended for up to ten years, or they may be placed on lists that restrict or prohibit their involvement in export and re-export transactions. BIS agents can also search, inspect, detain, seize, and administratively forfeit items about to be illegally exported, reexported, or transferred (in-country), as well as conveyances involved in such shipments, and can order goods exported illegally to be redelivered to the U.S.

As U.S. agencies continue to increase their efforts to enforce export control and sanctions laws and regulations, more exporters are focusing on compliance as they seek to avoid the monetary penalties and other costs that violations can incur. However, it is also important for exporters to have plans in place that set forth the steps they will take to minimize the consequences if a violation were to happen.

Export compliance programs can and should establish policies and procedures designed to address known risks and prevent violations, but it is equally important that they offer clear guidance on how to detect and respond to suspected or actual incidents of noncompliance. Among other things, they should provide for specific internal (including anonymous) reporting procedures; detailed processes for investigating, confirming, and correcting problems; and disciplinary actions for failures to act. ECPs should also be regularly reviewed and updated to reflect current laws and regulations, industry best practices, relevant changes in corporate operations, and lessons learned from internal and external audits, enforcement actions, and other experiences.

Of course, no policies or procedures will be effective unless they are followed, and a strong internal culture of compliance can go a long way toward making that happen. This culture typically starts at the top, where leaders should consistently communicate an intolerance of willful violations but should also create an environment in which employees are empowered to report potential problems in good faith without fear of retribution. Leaders should also ensure that employees have adequate training, knowledge, and resources tailored to their responsibilities; regularly monitor their compliance; and enforce standards consistently.

A good ECP also establishes what will happen when a violation is found. For example, the exporter should conduct a thorough internal investigation to ensure all violative actions are identified, determine why they happened, and then develop corrective actions to ensure they do not recur. These measures should be implemented as quickly as possible and monitored to make sure they are working properly.

Effective ECPs and rapid remedial measures are frequently given great weight as mitigating factors in enforcement actions. Voluntary self-disclosures of violations to federal agencies often receive similar treatment. However, there are both pros and cons to submitting VSDs, and exporters should strongly consider consulting a knowledgeable advisor before making a decision.