17-0222 Wednesday “The Daily Bugle”

17-0222 Wednesday “Daily Bugle”

Wednesday, 22 February 2017

The Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, Customs, NISPOM, EAR, FACR/OFAC, FTR/AES, HTSUS, and ITAR), plus news and events.  Subscribe 
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  1. DHS/CBP: UFAC to Meet on Mar 22 in Wash DC 
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions 
  2. Commerce/BIS: (No new postings.) 
  3. DHS/CBP Posts Clarification on DDTC Implementation Guide V1.5 
  4. DHS/CBP Announces ACE Production Deployment on Feb 23 
  5. State/DDTC Announces DDTC System Outage on Feb 24 
  6. State/DDTC Posts Four Name/Address Change Announcements 
  7. Treasury/OFAC Posts Compressed Version of the SDN.XML File
  8. Canada Global Affairs: Canada Welcomes Entry Into Force of WTO Agreement on Trade Facilitation 
  9. UK/DIT ECO Posts Notice on Amended Export Control Order Concerning North Korea, Ivory Coast and Syria 
  1. E. McClafferty & B. Ringel: “Risk and Reward: Minimizing Liability for Export Control Compliance” 
  2. R.H. Huey & G. Husisian: “U.S. Customs and the New Administration: Your Top Ten Questions Answered” (Part 2 of 2) 
  3. R.C. Burns: “Unhelpful Suggestion of the Day” 
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (27 Jan 2017), DOD/NISPOM (18 May 2016), EAR (1 Feb 2017), FACR/OFAC (10 Feb 2017), FTR (15 May 2015), HTSUS (10 Feb 2017), ITAR (11 Jan 2017) 



DHS/CBP: UFAC to Meet on Mar 22 in Wash DC
(Source: Federal Register) [Excerpts.]
82 FR 11367-11368: The U.S. Customs and Border Protection User Fee Advisory Committee (UFAC)
* AGENCY: U.S. Customs and Border Protection, Department of Homeland Security (DHS).
* ACTION: Committee management; notice of federal advisory public committee meeting.
* SUMMARY: The U.S. Customs and Border Protection User Fee Advisory Committee (UFAC) will meet on Wednesday, March 22, 2017, in Washington, DC. The meeting will be open to the public. … 
* ADDRESSES: The meeting will be held at U.S. International Trade Commission, 500 E Street SW., Courtroom A, Washington, DC 20436. … 
* FOR FURTHER INFORMATION CONTACT: Ms. Wanda Tate, Office of Trade Relations, U.S. Customs and Border Protection, 1300 Pennsylvania Avenue NW., Room 3.5A, Washington, DC 20229; telephone (202) 344-1440; facsimile (202) 325-4290.
* SUPPLEMENTARY INFORMATION: Pursuant to the Federal Advisory Committee Act (5 U.S.C. Appendix), the Department of Homeland Security (DHS) hereby announces the meeting of the U.S. Customs and Border Protection User Fee Advisory Committee (UFAC). The UFAC is tasked with providing advice to the Secretary of Homeland Security (DHS) through the Commissioner of U.S. Customs and Border Protection (CBP) on matters related to the performance of inspections coinciding with the assessment of an agriculture, customs, or immigration user fee. … 
  Dated: February 16, 2017.
Valarie Neuhart, Acting Director, Office of Trade Relations.

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OGS_a12. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
(Source: Federal Register)

[No items of interest
 noted today.]

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DHS/CBP Posts Clarification on DDTC Implementation Guide V1.5

CSMS# 17-000091, 22 February 2017.)
New ACE Programming
[Reference CSMS# 16-000993 Updated DDTC Implementation Guide V1.6, October 2016]
CSMS# 16-000993 “Updated DDTC Implementation Guide V1.6, October 2016” was issued on December 5, 2016 announcing the posting of DDTC Implementation Guide V1.6, dated October 2016. However, V1.6 included the PG25 line value which was determined to be Post Core work and is not yet implemented. The schedule for this implementation has not yet been determined. Therefore the current and accurate version of the DDTC Implementation Guide is V1.5, dated May 2016. It can be found at
  – Related
CSMS No. 16-000993

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Announces ACE Production Deployment on Feb 23

CSMS# 17-000093, 22 February 2017.)
New ACE Programming
Please be advised that there will be an ACE PRODUCTION deployment on Thursday morning, February 23, 2017, from 0500 – 0700 ET, which will impact ACE Cargo Release and ACE Entry Summary processing.
To be deployed:
  –  PGAD-14487 NMFS- Implement update to NMFS business rules that trigger PK7.
For the National Marine Fisheries Service (NMFS), 370 program (Tuna Tracking and Verification), if the DOC ID= 877 in the PG22, the only allowed conformance declaration codes will be A, B1, B2, B3, B4 or B5, as indicated in their published IG. If one of these conformance declaration codes is not provided, the entry will be rejected. Previously, any code was accepted without a reject being generated.

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State/DDTC Announces DDTC System Outage on Feb 24

DDTC systems including DTrade and EFS will be unavailable to industry from 6:00PM (ET) Friday, February 24 through 12:00PM (ET) Saturday, February 25 due to scheduled system maintenance.

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State/DDTC Posts Four Name/Address Change Announcements

State/DDTC) [Excerpts.]
The Directorate of Defense Trade Controls of the U.S. Department of State has posted three (3) name change announcements and one (1) address change announcement. Excerpts of the web notices are included below.
Effective immediately, Triumph Actuation Systems – UK will change as follows: Triumph Aerospace Operations UK, Ltd. Due to the volume of authorizations requiring amendments to reflect this change, the Deputy Assistant Secretary for Defense Trade Controls is exercising the authority under 22 CFR 126.3 to waive the requirement for amendments to change currently approved license authorizations. The amendment waiver does not apply to approved or pending agreements. …
Effective immediately, Thales Avionics S.A.S., 19-21 Avenue Morane Saulnier, 78140, Velizy-Villacoublay, France will change as follows: Thales S.A.S., 75-77 Avenue Marcel Dassault, 33700, Merignac, France. Due to the volume of authorizations requiring amendments to reflect this change, the Deputy Assistant Secretary for Defense Trade Controls is exercising the authority under 22 CFR 126.3 to waive the requirement for amendments to change currently approved license authorizations. The amendment waiver does not apply to approved or pending agreements. …
Effective immediately, Ultra Electronics, Precision Air & Land Systems will change as follows: Ultra Electronics, Precision Control Systems. Due to the volume of authorizations requiring amendments to reflect this change, the Deputy Assistant Secretary for Defense Trade Controls is exercising the authority under 22 CFR 126.3 to waive the requirement for amendments to change currently approved license authorizations. The amendment waiver does not apply to approved or pending agreements. …
Effective immediately, Hitachi Kokusai Electric, Inc., 4-14-1, Sotokanda Chiyoda-ku, Tokyo, Japan 101-8980 will change as follows: Hitachi Kokusai Electric, Inc., 2-15-12, Nishi-Shinbashi, Minato-ku, Tokyo, Japan 105-8039. Due to the volume of authorizations requiring amendments to reflect this change, the Deputy Assistant Secretary for Defense Trade Controls is exercising the authority under 22 CFR 126.3 to waive the requirement for amendments to change currently approved license authorizations. The amendment waiver does not apply to approved or pending agreements. … 

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Treasury/OFAC Posts Compressed Version of the SDN.XML File

OFAC is now offering a compressed version of its SDN.XML file in order to provide bandwidth savings for users that frequently download this file.  This new file compresses the SDN.XML file by approximately 92%.
The new (zip) file can be found at
here. This file will be updated at the same time as all other SDN-related files.

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Canada Global Affairs: Canada Welcomes Entry Into Force of WTO Agreement on Trade Facilitation

Canada Global Affairs) [Excerpts.]
Canada welcomed today’s announcement by the World Trade Organization that the Agreement on Trade Facilitation (TFA) has entered into force. The TFA is important for Canadians because it will lower trade costs globally by modernizing and simplifying the customs and border procedures of WTO members. Canada’s support for the TFA reaffirms its commitment to a rules-based system for trade that levels the playing field for exporters and creates opportunities for middle-class Canadians.
The TFA will particularly help small and medium-sized enterprises (SMEs) increase their exports, because trade costs are disproportionately high for them. The implementation of the TFA will help Canadian SMEs export to fast-growing emerging markets in Latin America and the Caribbean, Africa and Asia. If all the provisions of the TFA are implemented by all the WTO members, Canada could achieve a reduction in trade costs of up to 11.4 percent, potentially leading to an increase in the total value of trade of up to 1.7 percent. Using Canada’s 2013 two-way trade as a reference, this would be a $16.1-billion gain.
Canada submitted its acceptance of the TFA recently. Along with international partners and through mechanisms that include the Global Alliance for Trade Facilitation and the World Bank Group’s Trade Facilitation Support Program, Canada provides assistance to developing countries to implement the TFA.
Canada encourages WTO members that have not yet ratified the TFA to do so as soon as possible and looks forward to working with developing countries to fully implement the commitments in the agreement. … 

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UK/DIT ECO Posts Notice on Amended Export Control Order Concerning North Korea, Ivory Coast, and Syria

UK/DIT ECO) [Excerpts.] 
The Export Control Organisation (ECO) of the UK Department for International Trade has posted an Amended Export Control Order concerning North Korea, Ivory Coast and Syria.
Export Control (North Korea Sanctions and Iran, Ivory Coast and Syria Amendment) Order 2017 will come into force on 22 February 2017. This order updates, and revokes, the Export Control (North Korea and Ivory Coast Sanctions and Syria Amendment) Order 2013.
The 2013 Export Control Order prohibited:
  – trade with North Korea in dual-use goods and technology as listed in Annex I to Council Regulation (EC) No 428/2009.
  – trade with North Korea in goods and technology which would contribute to North Korea’s nuclear-related, other weapons of mass destruction-related or ballistic missile-related programme, and on the provision of related service
  – trade in luxury goods as listed in Annex III of EU Council Regulation No 329/2007.
The 2017 Export Control Order includes these restrictions and provides for:
  – national offences, penalties and licensing provisions specified in the North Korea Regulation (Council Regulation EC No. 329/2007) and that fall within the remit of Department of International Trade to implement
  – enforcement of the North Korea sanctions amended last year by the UN and EU.
The North Korea Council Regulation was amended on 4 April 2016 to include a list of additional goods to which prohibitions on the transfer, procurement and provision of technical assistance apply. This regulation was further amended on 4 August 2016 to include a list of additional goods to which prohibitions on the transfer, procurement and provision of technical assistance apply. This list (annex Ig) was further amended by Council Implementing Regulation on 14 October 2016.
Miscellaneous Amendments
In addition, the Order makes amendments to the:
  – Export Control Order 2008 to move the Ivory Coast from Part 2 of Schedule 4 (embargoed destinations) to that Order to Part 4 of Schedule 4 (destination subject to transit control) as sanctions against the Ivory Coast have recently been lifted.
  – Export Control (Syria Sanctions) Order 2013. This amendment, along with the amendment to the Export Control Order 2008, re-enacts and therefore continues the amendments that were contained in the Export Control (North Korea and Ivory Coast Sanctions and Syria Amendment) Order 2013, which is revoked by this order.
  – Export Control (Iran Sanctions) Order 2016 to correct a small drafting error.
Since 2006 the UN Security Council has adopted six resolutions imposing trade, financial and other sanctions against North Korea in response to that country’s nuclear weapon and ballistic missile programmes, most recently in March 2016 (UNSCR 2270). UN Security Council Resolutions are binding on all states.
The EU implements UN sanctions through council decisions, and, for those measures that fall within EU competence, council regulations. The EU may also adopt additional sanctions beyond those imposed by the UN and may also adopt sanctions in the absence of UN action (as it has done in the case of Russia and Syria). Each member state is then responsible for taking appropriate action to give effect to the sanctions, including for licensing and enforcement.
The UK fully supported the adoption of these sanctions.
Full details of these measures and their impact are contained in the
explanatory note to the order. … 

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11. E. McClafferty & B. Ringel: “Risk and Reward: Minimizing Liability for Export Control Compliance”

* Authors: Eric McClafferty, Esq.,
emcclafferty@kelleydrye.com; and Brooke Ringel, Esq.,
bringel@kelleydrye.com. Both of Kelley Drye & Warren LLP Washington DC. 
Many firms or organizations in the biopharmaceutical industry are not adequately protecting themselves from very real regulatory risk. Cutting-edge research and commercialization possibilities – for example, the development of new antibiotics, the creation of customizable large molecule biologic medicines, or the discovery treatments to combat emerging zootonic diseases – also bring new or expanded responsibilities for complying with the numerous, often complex sets of regulations that govern the biopharmaceutical product life cycle. When companies are laser-focused on the many moving parts of getting a new product to market, it is not uncommon to lose sight of what should be another critical piece of a company’s compliance profile: export controls.
The risk of non-compliance with export controls, and the associated civil and criminal penalties, are very real given the sensitive and global nature of the biopharmaceutical industry’s work. Failure to address export control regulatory risk in a systematic way can lead to violations by otherwise well-intentioned companies, resulting in penalties, reputational damage, and threats to national security. Adding an export compliance component to your existing regulatory or biosecurity program does not need to be onerous, but does protect your business and your personnel (including executive) if an export problem emerges down the line.
Export Control Basics
U.S. export control rules are designed to keep the industry’s benevolent, potentially life-saving technological advances out of the hands of those who would use them for nefarious purposes. Many people are surprised to learn that a number of materials, chemicals, and processing and lab equipment that they work with are controlled under these rules. Export control regulations govern the transfer of military-grade and less-sensitive dual-use chemicals and biological material (moving between facilities with authorization or perhaps as the infamous “vial in the pocket”), the equipment required to process those materials (the same equipment used by bad actors), and the technology, or “know-how”, to develop or produce those items (which can be unwittingly shared by researchers or business personnel).
The U.S. Department of State administers the International Traffic in Arms Regulations governing military “defense articles.” Additionally, the U.S. Treasury Department’s Office of Foreign Assets Control implements international economic and trade sanctions that limit or prohibit “dealing with” – a very broad concept – individuals, financial institutions, and other governmental or private entities under 26 country-specific and transnational programs (e.g., non-proliferation sanctions).      
The biopharmaceutical industry is most likely affected by the U.S. Department of Commerce’s Export Administration Regulations (EAR) controlling dual-use products, software, and technology – items or information that can be used for both commercial and military (or terrorist) purposes. [FN/1] Commerce’s Bureau of Industry and Security (BIS) maintains a list of controlled items called the Commerce Control List (CCL). Many chemicals and biological agents, equipment, and technology common in the biopharmaceutical industry are covered under the EAR. For example, certain cross-flow filtration equipment used to produce vaccines (a very good thing) can also be used to recover a bacterial toxin to be used as a biological weapon (a very bad thing).
While export rules are often thought of as controlling the physical shipment of items outside the United States, an unlawful “export” can also occur by transferring a controlled item or information to certain non-U.S. persons even within the United States. For dual-use items, the countries (or non-U.S. persons who are nationals of those countries) that are off-limits vary depending on the level of control on that specific item. That is why it is so critical to classify products and know-how under the regulations. Moreover, a necessary export, such as the need to share certain controlled information with your non-U.S. person engineer or partner lab in China, often requires an export license issued in advance. Understanding the contours of these rules is critical to limiting your risk of violation even if your lab or company is not regularly sending products or equipment outside of the United States.
Where is Our Risk?
You should start by thinking about the EAR controls on chemicals and biological agents found in Category 1 of the CCL. On the pharmaceutical side, Export Control Classification Numbers (ECCN) 1C350, 1C355, and 1C995 control the movement of Chemical Weapons Convention (CWC) Schedule 2 and Schedule 3 chemicals, certain mixtures thereof, and other non-CWC chemicals that may be used as precursors for toxic chemical agents.
On the biotechnology side, ECCNs 1C351 and 1C354 control human, animal, and plant viral and bacterial pathogens (and plant fungi) and toxins. ECCN 1C353 controls genetic elements (e.g., chromosomes, genomes, plasmids), whether or not genetically modified or chemically synthesized, and genetically modified organisms. Other ECCNs cover medical, diagnostic, food testing, and other kits, vaccines, and immunotoxins.
Categories 1 and 2 of the EAR also include controls on much of the equipment commonly found around biotechnology and pharmaceutical facilities. Chances are very good that you have equipment that should be closely examined to determine if it is controlled under the rules or if some of the specifications and exceptions that narrow the controls on these broad categories apply.
A blind spot for many companies, particularly those who do not have significant international operations or sales, is the issue of “deemed exports.” The EAR control the technology related to the development and production (and disposal in the case of chemicals and biological agents) of controlled items – in other words, the rules cover the transmission of know-how outside the U.S. and sometimes to foreign nations in your company or lab. The regulations deem the transfer of this technology to a non-U.S. person as the equivalent of a shipment of that underlying material or equipment outside the United States. Foreign national employees are a great asset to companies in the biopharmaceutical industry, but the information they have access to in the lab or production facility can create liability for the company if not managed in accordance with the rules.
What is Our Potential Liability?
There is value for company leadership in the biopharmaceutical industry to carefully assess compliance with export control regulations. Does your company have foreign subsidiaries or affiliates that share supply chains and IT systems with U.S. facilities, or a partnership with a foreign university lab? Foreign access to data on a U.S. IT system is considered an export to that country. Many dual-use exports required for your business or university to operate are permitted without a license or are licensable through an online system, making the cost to putting the right policies and procedures in place much less than the potential penalties for a violation.
Without a full evaluation and program designed to mitigate risk, exposure to civil and criminal penalties can be severe. U.S. export control regulations are enforced on a strict liability basis – even an unintentional violation is punishable by up to $250,000 per violation (or twice the value of the transaction, whichever is greater), a possible denial order (loss of the right to export), loss of the right to do business with the U.S. government, imposition of a third-party auditor, and property seizure. A willful violation can lead to criminal sanctions of imprisonment and fines of $250,000 per violation for individuals and $1 million per violation for companies. Note that a single transaction can have multiple violations and implicate action by other regulatory agencies (e.g. Customs and Border Protection).
The potential for reputational harm is also quite significant. BIS publicly reports enforcement actions, as does the Department of Justice in the case of criminal prosecution. In this industry, the release of technology, even if unintentional, could seriously undermine U.S. national security interests by providing those who would do us harm through chemical or biological weapons access to some of the know-how to do so.
How Can We Manage Our Liability in a Cost-Effective Way?
Biopharmaceutical companies can leverage existing regulatory and/or biosecurity compliance efforts by building export control policies and procedures into that system. Basic export control compliance tools can also boost compliance across different regulatory programs, further mitigating risk through a uniform approach.
  (1) Organizational structure: identify compliance personnel responsible for implementing compliance and managing issue escalation.
  (2) Corporate policy: show the value of compliance through effective endorsement of a policy by company leadership.
  (3) Procedures: develop processes to identify, classify, and track controlled products and technology; track and license exports and re-exports; avoid restricted or prohibited transactions; and address potential violations.
  (4) Recordkeeping: implement a recordkeeping and retention plan, as required by the regulations.
  (5) Awareness: regularly train employees to ensure competency, earn buy-in, and to gain feedback.
  (6) Maintenance: tailor internal monitoring and auditing to your company’s unique risk profile and business processes.
While export controls may present potentially unanticipated or unexamined challenges for biopharmaceutical companies, there are also important gains to be made from discovering, addressing, and taking steps to avoid liability. Just as your company protects its investment in the science, it should protect its investment in the business and employees that make those scientific advances possible.
  [FN/1] 15 C.F.R. § 730 et seq.  

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R.H. Huey & G. Husisian: “U.S. Customs and the New Administration: Your Top Ten Questions Answered”

* Authors: Robert H. Huey, Esq.,
rhuey@foley.com, 202-295-4043; and Gregory Husisian, Esq.,
ghusisian@foley.com, 202-945-6149. Both of Foley & Lardner LLP.
[Editor’s Note:  This is the second half of an item concerning this subject; part 1 was published in The Daily Bugle of Tuesday, 21 February 2017.]
(8) “What are the expected hot-button issues where Customs will be focusing its attention under the new administration?”
CBP is resource-challenged. Practitioners before CBP have horror stories of lost filings, requests for advisory opinions and protests that take years to resolve, and difficulties in achieving uniform rulings from port to port. Further, the port-by-port administration of CBP can make for great differences in the enforcement priorities, classification approach, and other issues encountered by individual importers. It is expected that the new Centers of Excellence program will take care of some of these issues, yet it will still be true that the issues of concern will vary by port.
Nonetheless, despite these uncertainties, we anticipate the following areas will see significant attention from CBP over the coming administration:
  * Informed compliance letters. A recent development is the issuance of “informed compliance” letters by CBP. These letters often are issued to major U.S. importers to encourage them to review their recent entries and determine if they have treated entries correctly where they acted as the importer of record. These letters often are sent to major importers who have not been audited in the past decade or that are viewed as being at a higher risk for violations.
The receipt of an informed compliance notification letter means CBP has reviewed the data of an importer of record and likely identified specific problems with its import transactions, putting the company at an increased risk of a comprehensive audit. According to CBP officials, the expectation is that companies that receive these letters will soon be the subject of a “focused assessment” or other type of CBP audit in the near future. The letters, thus, are a way of encouraging major importers to enhance their compliance and file voluntary self-disclosures in anticipation of the audit.
To provide further encouragement, CBP has indicated that companies that do not follow up with a voluntary self-disclosure can expect that any subsequently discovered violations will be subject to higher-than-normal penalties. The letters warn not only of potential monetary penalties, but also the prospect of seizure or forfeiture of imported merchandise.
While the letters do not change the operative level of care expected of all importers (who are required to exercise “reasonable care” in the execution of their Customs obligations), the letters serve as a warning shot that the company needs to get its Customs house in order and should start:
  – Preparing for a CBP audit
  – Reviewing its Customs compliance policies
  – Reviewing the care taken by its Customs brokers
  – Conducting a risk assessment, including with regard to the issues identified in the letter
  – Determining if its classifications are correct and supported by the product attributes
  – Determining whether any post-entry adjustments are needed
  – Determining whether free trade preferences are supported by FTA certificates of origin and appropriate regional content
  – Evaluating whether off-invoice items such as royalties and assists are appropriately recognized
  – Considering whether there are any other issues in the company’s import data to indicate compliance failures and penalty risks
While the assessment should start with the issues identified in the letter, the review should be comprehensive. CBP auditors have the authority to examine any areas where compliance may be lacking. If issues are found, the company should consider whether the issues are systemic. If the entries are too numerous to make a quick evaluation, statistical sampling can be used to help evaluate the scope of potential issues and the potential risk exposure. Further, the review also should cover the company’s Customs compliance program and the rigor of its compliance measures and training, as these are evaluated by CBP in an audit. Any errors should be documented and a plan put in place to strengthen the company’s compliance procedures and internal controls to prevent their recurrence.
The company also should strongly consider filing a prior disclosure. This can be accomplished using an initial marker, which merely informs CBP that an investigation of potential compliance lapses is ongoing. This locks in voluntary disclosure credit while buying time to complete a thorough investigation and to provide a subsequent full report.
  * Forced labor in China. In 2016, Customs issued nationwide orders instructing U.S. ports to detain certain products produced by forced labor in China. The authority for these orders is found in 19 U.S.C. § 1307 (known as section 307), which authorizes CBP to issue orders prohibiting importation of merchandise mined, produced, or manufactured, wholly or in part, by forced labor. Although section 307 has been in place for years, the TFTEA enhanced the efficacy of the provision by removing certain restrictions on when the provision could be applied, thereby removing a loophole which provided that the provision only could be applied if the “consumptive demand” for those goods in the United States exceeded domestic production. Under the revised law, any interested party (including competitors and public interest groups) may request that CBP investigate whether an import was produced using forced labor in another country. If the investigation proves the charges, then any products found to be made in whole or in part using forced labor are subject to exclusion or seizure.
CBP has been making the blockage of goods produced by forced labor a priority, as shown by
CBP outreach on the program [FN/19] and frequent press releases announcing detention orders for violations. [FN/20] Given the prominent role that criticisms of China played in the campaign, we expect this focus will increase, making it imperative that companies that import from China put in place enhanced due diligence and supply chain compliance measures, as described below.
  * Trade security issues. Since September 11, the enhancement of border security has been a priority of CBP, not only for immigration and visits to the United States, but also with regard to the movement of goods. We expect these efforts will accelerate under the new administration, as part of the anticipated Trump administration national security initiative. This likely will mean changes in the frequency of searches of incoming cargo, potentially impacting the time of clearance, especially at busy ports. It may also mean changes in the operation of, or eligibility to use, the
C-TPAT program, a voluntary program that allows certified importers, carriers, consolidators, licensed Customs brokers, and manufacturers to enjoy expedited processing and transit times at the border, reduced number of CBP examinations, and other benefits of being a trusted CBP partner. [FN/21]
We also anticipate that the money being spent on the Mérida Initiative, which was designed to help Mexico increase its border security in the broad sense of disrupting Mexican criminal activity and enhancing Mexican police capabilities, will be refocused on the issue of creating enhanced inspections of goods flowing between the two countries.
  * Revenue collection issues. Although post 9/11 border security concerns have somewhat eclipsed what was long considered the main role of Customs – the collection of tariffs on entries – tariff collection still remains a core function of CBP. In particular, we are seeing a renewed emphasis by CBP on the issues of:
  – The classification of goods
  – The appropriate valuation of goods, especially with regard to off-invoice items (royalties and assists, and so forth)
  – The correct country of enforcement
  – The importer maintaining the appropriate support for regional content and maintaining free trade agreement certificates of origin at the time of importation
  – The declaration of the correct country of origin based upon the appropriate rules of substantial transformation or tariff shifts (e.g., for NAFTA)
  – The declaration of any payment of antidumping and countervailing duty tariffs.
Importers should review the way in which these issues are handled to ensure they are occurring in a compliant fashion.
(9) “Sounds scary. What can I do to cope?”
All importers should evaluate whether they need to enhance their compliance measures in the following ways:
Enhance/Implement a Customs compliance program. It is surprising that even large importers often do not have compliance programs in place, or have compliances measures that are dated or are not well adapted to current import patterns. Since the existence and effectiveness of a compliance program is one of the first items tested by CBP in an audit, a pro-active review of the compliance program is the starting point for enhanced Customs compliance.
Conduct a classification and valuation review. Importers should regularly review the items they commonly import and confirm the accuracy of HTS classifications. These classifications should be maintained in a tariff classification database that is available to Customs brokers or any other party responsible for ensuring correct entry. Importers also should review the methodologies that are used to calculate the ad valorem value of entries, paying particular attention to transactions with affiliates and to whether the valuation includes all off-invoice items, such as royalties and assists.
Antidumping and countervailing duties product review. The collection of full AD/CVD tariffs and the prevention of circumvention of the hundreds of AD/CVD orders currently in effect is a priority of CBP. The TFTEA gives CBP the tools to fight antidumping and countervailing duty evasion, as discussed above. Companies that know they are importing goods subject to these orders should carefully review their entries to ensure they are occurring in good order with the payment of full duties, consistent declaration of the correct country of origin and coverage by the orders, and so forth. Importers should confirm their judgment that goods being declared as not being subject to AD/CVD orders are correctly classified. Where importers of record are importing goods that are covered by antidumping duty orders, they should confirm that they are in a position to certify that they have not entered into an agreement to receive, and have not in fact received, any reimbursement of antidumping duties. The importer should confirm that it is consistently following this requirement, as any failure to provide the required certification will lead both CBP and the Department of Commerce to
presume reimbursement, thereby doubling the duties to be imposed. [FN/22]
FTA claims. Importers should review any FTA or duty preference program instructions to determine their accuracy. Common issues to confirm are whether the regional content requirements are met, whether required certificates of origin are at hand at the time of entry, and that all required documentation to support claimed free-trade preferences is maintained for the appropriate period of time.
Coordinate with freight forwarders and Customs brokers. Importers should engage with their freight forwarders and Customs brokers to determine whether Customs requirements are being consistently followed and should coordinate required recordkeeping. Although it is acceptable to delegate responsibility for import responsibilities to third parties, the ultimate responsibility for the handling of entries is on the importer of record.
Conduct a Customs audit. Larger importers, or importers that have not been chosen for an audit in recent years, should consider performing a Customs audit. A good starting point is found in the ”
best practices of compliant companies” on the Customs website; [FN/23] Customs specialists can help design a tailored audit that reflects the importer’s individual risk profile, goods imported, country sourcing of goods, and other patterns of importation.
As noted above, CBP is emphasizing the combatting of goods that benefited from forced labor (adult and children alike). With enhanced section 307 giving CBP the tools to block more imports, companies should be pro-active in monitoring and auditing suppliers for lapses that could lead to costly detentions by CBP. Measures to consider implementing include the following:
Monitor U.S. government intelligence. The U.S. Department of Labor, in consultation with the U.S. Departments of State and Homeland Security, publishes an annual list of products believed to be produced by forced labor. Importers should monitor this list to see if the U.S. government is flagging products they commonly import.
Review products where the company acts as the importer of record. Importers should be aware of all products where they commonly act as the importer of record, as doing so automatically makes them the responsible parties for dealings with CBP, including with regard to the issue of CBP forced labor inquiries.
Conduct a supply chain audit and perform supplier due diligence. Because the forced labor provisions are designed, by definition, to bring in outside parties, it seldom is a good idea to wait for any CBP inquiry, as it often will not be possible to put together a response within a tight timeframe where third parties are involved. Waiting until receiving a notice from CBP of a potential violation risks seizures, loss of the goods, penalties, lost business, and public relations issues. Pro-active due diligence on the supply chain will allow the importer to assess the risk of a violation, determine the types of products most likely to be implicated, identify suppliers and countries of concern, allow for the creation of an audit schedule of suppliers, and generally gather information to disprove any allegation of the use of forced labor. Visits to supplier sites and gathering knowledge about the sub-suppliers that also form a part of the supply chain can also forestall problems down the road.
Follow up on red flags. Importers that source from countries of concern, such as China, should monitor suppliers for potential red flags that might indicate sourcing issues. Importers that discover or reasonably suspect the use of forced labor should shift to alternative sources.
Implement a compliance program. All importers should have a comprehensive Customs/import compliance policy; any companies that do not should implement one. The program should be reviewed to ensure it addresses supply chain management, including provisions for limiting the potential for human trafficking and forced labor in the supply chain.
Gather certifications. Importers should review all supplier agreements to confirm that they contain an affirmative certification that the supplier is: (1) aware of the company’s Customs/import compliance policy; (2) abides by its terms; (3) specifically is not using any form of forced labor; (4) will cooperate with any investigation of same by the importer; and (5) will be punished if these provisions are violated, including through the requirement to cover the costs of an investigation and the termination of the supply arrangement.
Conduct training. Importers should incorporate training regarding forced labor requirements into Customs/import training not only for persons who directly handle import transactions, but also for employees who work directly with the company’s supply chain.
Consider joining the Customs-Trade Partnership against Terrorism (C-TPAT) program. C-TPAT is a voluntary supply chain security program, where companies work with CBP to improve the security of private companies’ supply chains. Although the provision is aimed at terrorism, becoming part of C-TPAT helps shore up the reliability and accountability of the company’s supply chain.
Review government contracts. Finally, government contractors should be aware that they have a potential second source of liability, which is Executive Order 13,627. That Executive Order, implemented into the Federal Acquisition Regulation, prohibits U.S. government agencies from acquiring products produced by forced or indentured child labor, while also implementing the requirement for government contractors to certify they neither use nor source from companies that use forced labor. The penalties for violating this prohibition include termination of the government contract, debarment, and civil and criminal punishment.
Miscellaneous items. Finally, importers should look into the following housekeeping issues, which can lead to compliance lapses and, potentially, costly penalties:
Data collection
Request ITRAC data. It is a good idea periodically to request an Importer Trade Activity (ITRAC) Report from CBP for the last five years as a way of gathering a copy of all data held by Customs regarding entries for the company as an importer of record. Such information can be used for compliance purposes and, in the event of a Customs-focused assessment or voluntary self-disclosure, as a complete record of all imports where the company acted as importer of record. Since CBP is transitioning to the Automated Commercial Environment (ACE) in 2017, ITRAC data will eventually be discontinued, making it important to gather a copy of the ITRAC data while it is still available.
Request Census Bureau data. The Export Administration Regulations (EAR) require that exporters maintain certain information regarding exports for a period of five years after the time of exportation. To help comply with this requirement, it is a good idea to request Census Bureau data for the prior twelve months once a year.
Sign up for ACE. Importers that have not signed up for ACE should do so. Advantages include the elimination of paper entry summaries, decreased administrative costs, enhanced ACE report capabilities, and remote location filings for entry summaries.
Bond issues
Bond sufficiency. CBP monitors the sufficiency of continuous entry bonds to determine if the bond covers likely import activity. CBP determinations of inadequacy can result in increases in the bond amount over a short period of time (15 days). Failure to comply can result in CBP declaring the bond insufficient, thereby forcing the use of more expensive single entry bonds.
Listing multiple principals on the same bond. Companies should consider whether it makes sense to include multiple entities on the same bond. While doing so allows for bond savings, each entity is jointly and severally liable and responsible for paying any claim regardless of which entity is at fault. Any one of the entities can terminate the bond at any time, which can cause problems if the management of the bond is not coordinated.
Customs broker dealings
Custom broker powers of attorney. Although it is common to grant a Customs powers of attorney to Customs brokers, these grants should be monitored to ensure they are accurate and there are no unnecessary legacy authorizations in place. Reviewing ACE or ITRAC data allows for the ready identification of all Customs brokers who have made entries on behalf of an importer of record by reviewing the filer codes on the entries. Any unneeded powers of attorney should be revoked.
Entry clearance items
Update names and addresses on file with CBP. Under new procedures, CBP now maintains an importer-of-record program that seeks to more closely monitor companies that import, as a means of preventing fly-by-night importers who seek to evade duties (particularly antidumping and countervailing duties). CBP uses name and contact information from Form 5106 to communicate with importers. Importers should review the information on file with CBP to ensure the accuracy of all information and that it meets new importer tracking requirements.
Manifest confidential treatment. Much of the information filed as part of the entry process is available for review by companies such as PIERS, which gather it together and sell it, including to competitors. By filing a government confidentiality request and keeping it up to date, importers can take steps to keep import data confidential.
Confirm your reconciliation items. Companies that participate in CBP’s Reconciliation Prototype Program should ensure they (or their Customs brokers) are appropriately flagging entries, as CBP will no longer allow a blanket flag as of January 14, 2017. A monitoring program can help ensure the reconciliation process occurs appropriately, with reconciliation being used to reflect post-importation value additions and adjustments for such items as retroactive transfer price adjustments, assists, royalties, and other value elements that are unknown at the time of entry.
Partner Government Agencies (PGAs). There are at least sixteen partner government agencies, ranging from the Department of Agriculture to the Department of Commerce to the Environmental Protection Agency
that work with CBP to effectuate specialty requirements, such as for the importation of food and medicine, and a wide range of other products. [FN/24] Importers who are impacted by these specialty requirements should ensure that they are adhering to all regulations issued by the partner agencies and effectuated as they impact cross-border transactions through CBP regulations and control.
Updated certificates of origin. FTAs, including NAFTA, often impose a requirement to have Certificates of Origin (COO) for anticipated duty preference claims. If these COOs are not in hand at the time of entry, then the entry is not eligible for duty preference, even if the rules of the FTA otherwise are met. Importers should work with their Customs brokers to ensure they have all required COOs on hand.
Steel entry requirements. In 2016, CBP instituted special procedures for the more than 100 steel products covered by antidumping and countervailing duty orders. These “live entry” procedures are designed to require the filing of electronic paperwork and upfront duties before the release of steel products subject to these orders. Importers of steel products should ensure they are correctly classifying steel entries, declaring the goods to be covered by these orders where appropriate, and that they are adhering to the “live entry” procedures.
Export items
Destination control statement (DCS). Exports require a Destination Control Statement, which appears on export documentation. The language being used should be reviewed to ensure it meets current regulatory requirements, even for EAR99 products.
Denied parties screening/end use/end user controls. The Office of Foreign Assets Control and the Bureau of Industry and Security restrict exports to certain persons who have been determined to have taken actions contrary to U.S. foreign policy. Exporters should confirm they maintain screening protocols that are consistently followed to prevent such dealings. Companies should also ensure that they consistently follow up on red flags indicating that goods are potentially being used/diverted for use by inappropriate end users/inappropriate end uses, such as for the support of terrorism or the proliferation of weapons of mass destruction.
Controlled goods. Exporters should be certain that they have not fallen into “EAR99” mode, automatically classifying all exports as EAR99 where they are, in fact, controlled under the ITAR or the EAR. Even commercial goods can become subject to the ITAR, for example, if they are modified to meet military specifications or for military use. Companies that have not undertaken a classification review in recent years should consider performing one, particularly if they are known to export goods that are controlled by the ITAR/on the U.S. Munitions List or controlled by the EAR/have an Export Control Classification Number (ECCN).
Trademark and trade name protections. As noted above, CBP has the ability to help bar entries that violate trademarks and trade names that are registered with the CBP. Companies that believe they are seeing infringing imports should consider taking steps to protect their intellectual property through the registration process or should consider whether seeking section 337 import protections is appropriate.
Training. Importers should train all compliance stakeholders annually on Customs requirements. This allows updating all relevant personnel regarding changes to CBP regulations, which often change, especially in the current environment when CBP is reflecting new statutory changes.
(10) “Are there any money-saving opportunities?”
The TFTEA contains certain provisions that can aid importers. Among these are the increase of the de minimis entry threshold from $200 to $800, which increases eligibility for duty-free entries without the requirements of a formal entry; the expansion of the American Goods Returned program (HTS 9801.00.10) to certain goods that are not of U.S. origin, but were at one time in the United States; duty-free treatment for certain goods from Nepal; and enhanced duty drawback rules (available beginning in February of 2018).
Companies also should consider whether they can benefit from ways to process or import goods outside the Customs territory of the United States or otherwise without needing to pay duties, such as through the use of Free Trade Zones, the use of Customs bonded warehouses, or through use of Temporary Importation under Bond procedures. Although the exact circumstances where such measures would apply requires individual consideration, a Customs expert may be able to identify significant money-saving opportunities.
Finally, importers of record should realize that audits of imports can result in the discovery of areas of missed opportunities under free trade agreements. Chapters 89 and 99, the potential use of FTZs, TIBs, customs bonded warehouses, and other areas where there may be money-saving opportunities. An importer can perform reviews of entry data to capture opportunities of duty overpayment. If these exist, importers may be able to file requests for refunds using section 520d claims or post-summary corrections.
As shown, the landscape under the new administration is uncertain. Missteps by importers can lead to costly seizures and penalties. Fortunately, there are a great many steps that importers can take to sharply reduce their risk of a Customs audit or inquiry, or to secure a good outcome if an audit, in fact, does occur. The compliance advice outlined above is a good starting point for any importer, but a Customs specialist will be able to design a program that is tailored to the company’s individual products, import patterns, and business profile.
  [FN/19] See CBP, “Forced Labor” (2017), available at
  [FN/20] See CBP, “CBP Commissioner Issues Detention Order on Stevia Produced in China with Forced Labor,” (2016), available at
here; CBP, “CBP Commissioner Issues Detention Order on Potassium Products Produced in China with Forced Labor” (2016), available at
here; CBP, “CBP Commissioner Issues Detention Order on Chemical, Fiber Products Produced by Forced Labor in China” (2016), available at
  [FN/21] See CBP, “C-TPAT: Customs-Trade Partnership Against Terrorism” (2016), available at
  [FN/22] See CBP, “Guidance for Reimbursement Certificates,” available at
  [FN/23] See CBP,
Best Practices of Compliant Companies (2013), available at
  [FN/24] See CBP, “Partner Government Agencies (PGAs) Involved with BIEC,” available at

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Export Law Blog. Reprinted by permission.)
* Author: R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC,
Clif.Burns@bryancave.com, 202-508-6067)
An interesting
article [subscription required] in the
Journal of Commerce (JoC) reports survey results indicating that one-third of all U.S. e-commerce merchants report that they have incurred fines and delays from regulatory agencies in connection with their imports and exports.  Within that group, 29 percent of the companies surveyed stated that they had been subject to fines in connection with cross-border shipments. With respect to delays, they cited the Bureau of Industry and Security, and the Directorate of Defense Trade Controls, at 32 percent and 30 percent, respectively. That’s a surprising figure by any measure, if true and representative.
But more astonishing and surprising is the suggestion that the JoC article author proposes to fix this:
The task of ensuring trade compliance is also becoming more difficult, as 48 percent said they now do business in more than 50 countries.Trade regulations are constantly increasing and growing, necessitating agile and adept global trade management platforms, empowered by a combination of technology, trade compliance intelligence, and automation.
These systems can help properly classify goods based on descriptions from product catalogs, country of export, and country of import. Strong and reliable classification can help avoid hang-ups at Customs agencies. … In addition to helping avoid run-ins with these agencies, automation is helpful because it allows shippers to track the costs and length of these delays, allowing for better forecasting and business planning.
Don’t get me wrong, automation is often a good idea. But to suggest that the HTSUS, USML Categories or ECCN numbers can be assigned to a product through automation is, well, preposterous. It is something that can only be suggested by someone who has never looked at the USML, the CCL, or the HTSUS. Maybe this will be possible
sometime in the future when cars fly and robots are butlers. But right now, it’s not a feasible solution.

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(Source: Editor) 

  – “Men are by nature merely indifferent to one another; but women are by nature enemies.”
  – “Politeness is to human nature what warmth is to wax.”
George Washington (22 Feb 1732 – 14 Dec 1799, was the first President of the United States from 1789 to 1797 and was one of the Founding Fathers of the United States. He served as Commander-in-Chief of the Continental Army during the American Revolutionary War, and later presided over the 1787 convention that drafted the United States Constitution.)
  – “Associate with men of good quality if you esteem your own reputation; for it is far better to be alone than to be in bad company.”
  – “My observation is that whenever one person is found adequate to the discharge of a duty… it is worse executed by two persons, and scarcely done at all if three or more are employed therein.”

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. Are Your Copies of Regulations Up to Date?
(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  Changes to applicable regulations are listed below.
: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War
  – Last Amendment: 15 Jan 2016: 81 FR 2657-2723: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm. 
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment: 27 Jan 2017: 82 FR 8589-8590: Delay of Effective Date for Importations of Certain Vehicles and Engines Subject to Federal Antipollution Emission Standards; and 82 FR 8590: Delay of Effective Date for Toxic Substance Control Act Chemical Substance Import Certification Process Revisions.

  – Last Amendment: 18 May 2016: Change 2: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and canceled Supp. 1 to the NISPOM  (Summary here.)

  – Last Amendment: Last Amendment: 1 Feb 2017: 82 FR 8893-8894: Commerce Control List: Removal of Certain Nuclear Nonproliferation (NP) Column 2 Controls. 

: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment:
10 Feb 2017: 82 FR 10434-10440: Inflation Adjustment of Civil Monetary Penalties. 
: 15 CFR Part 30
  – Last Amendment: 15 May 2015; 80 FR 27853-27854: Foreign Trade Regulations (FTR): Reinstatement of Exemptions Related to Temporary Exports, Carnets, and Shipments Under a Temporary Import Bond 
  – HTS codes that are not valid for AES are available
  – The latest edition (9 Mar 2016) of Bartlett’s Annotated FTR (“BAFTR”), by James E. Bartlett III, is available for downloading in Word format. The BAFTR contains all FTR amendments, FTR Letters and Notices, a large Index, and footnotes containing case annotations, practice tips, and Census/AES guidance.  Subscribers receive revised copies every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance website.  BITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR.
, 1 Jan 2017: 19 USC 1202 Annex. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)
  – Last Amendment: 10 Feb 2017: Harmonized System Update 1701, containing 1,295 ABI records and 293 harmonized tariff records.  
  – HTS codes for AES are available
  – HTS codes that are not valid for AES are available
  – Latest Amendment: 11 Jan 2017: 82 FR 3168-3170: 2017 Civil Monetary Penalties Inflationary Adjustment
  – The only available fully updated copy (latest edition 24 Jan 2017) of the ITAR is Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III. The BITAR contains all ITAR amendments to date, plus a large Index, over 750 footnotes containing case annotations, practice tips, DDTC guidance, and explanations of errors in the official ITAR text.  Subscribers receive updated copies of the BITAR in Word by email, usually revised within 24 hours after every ITAR amendment.  The BITAR is available by annual subscription from the Full Circle Compliance website.  BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please contact us to receive your discount code.  

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* The Ex/Im Daily Update is a publication of FCC Advisory B.V., edited by James E. Bartlett III and Alexander Bosch, and emailed every business day to approximately 8,000 readers of changes to defense and high-tech trade laws and regulations. We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOJ/ATF, DoD/DSS, DoD/DTSA, State/DDTC, Treasury/OFAC, White House, and similar websites of Australia, Canada, U.K., and other countries and international organizations.  Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items.

* RIGHTS & RESTRICTIONS: This email contains no proprietary, classified, or export-controlled information. All items are obtained from public sources or are published with permission of private contributors, and may be freely circulated without further permission. Any further use of contributors’ material, however, must comply with applicable copyright laws.

* CAVEAT: The contents of this newsletter cannot be relied upon as legal or expert advice.  Consult your own legal counsel or compliance specialists before taking actions based upon news items or opinions from this or other unofficial sources.  If any U.S. federal tax issue is discussed in this communication, it was not intended or written by the author or sender for tax or legal advice, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any transaction or tax-related matter.

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