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20-0813 Thursday “Daily Bugle”

20-0813 Thursday “Daily Bugle”

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Thursday, 13 August 2020

  1. USTR: “Product Exclusions Amendments”
  1. Items Scheduled for Future Federal Register Edition
  2. Commerce/BIS Announces Virtual Conference on Export Controls on 2 Sep
  3. State/DDTC: (No new postings)
  4. Singapore Customs Updates of Interest: “Tradenet Extended Downtime”
  1. CNBC: “Huawei Has Limited Options as U.S. Sanctions Cut Off Supply to Smartphone Chips”
  2. Reuters: “Hong Kong Goods for Export to U.S. to Be Labelled Made in China”
  3. The Epoch Times: “US Residents Prosecuted for Exporting Restricted Military-Related Tech to Hong Kong, China”
  1. Braumiller: “What is the Country of Origin?”
  2. HFW: “Transitioning to New Border Arrangements – EU-UK Trade From 1 Jan 2021”
  3. Sidley: “Marking Hong Kong-Origin Articles as China Origin”
  1. Heidi Grant Moves from DTSA to DSCA
  1. ECTI Presents: Import 101 for Aerospace Professionals Webinar: 26 Aug
  2. FCC Academy Presents 4 Webinars: U.S. Export Controls: ITAR & EAR | FMS | Designing and Implementing an ICP
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Find the Latest Amendments Here. 
  3. Weekly Highlights of the Daily Bugle Top Stories 
  4. Submit Your Job Opening and View All Job Openings 
  5. Submit Your Event and View All Approaching Events 

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EXIM ITEMS FROM TODAY’S FEDERAL REGISTER

(Source: Federal Register, and Federal Register, 13 Aug 2020) [Excerpts]
 
85 FR 49414 and 49415: Notices
* AGENCY: Office of the United States Trade Representative.
* ACTION: Notices.
* SUMMARY #1: Effective August 23, 2018, the U.S. Trade Representative imposed additional duties on goods of China with an annual trade value of approximately $16 billion as part of the action in the Section 301 investigation of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. The U.S. Trade Representative’s determination included a decision to establish a product exclusion process. The U.S. Trade Representative initiated the exclusion process in September 2018, and stakeholders have submitted requests for the exclusion of specific products. In July, September, and October 2019, and February and July 2020, the U.S. Trade Representative granted exclusion requests. This notice announces the U.S. Trade Representative’s determination to make an amendment to a previously granted exclusion.
* SUMMARY #2: Effective July 6, 2018, the U.S. Trade Representative imposed additional duties on goods of China with an annual trade value of approximately $34 billion as part of the action in the Section 301 investigation of China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. The U.S. Trade Representative’s determination included a decision to establish a product exclusion process, which was initiated in July 2018. Stakeholders submitted requests for the exclusion of specific products and in December 2018, March, April, May, June, July, September, October, and December 2019, and February, May, June, and July 2020, the U.S. Trade Representative granted exclusion requests. This notice announces the U.S. Trade Representative’s determination to make a technical amendment to one previously granted exclusion. 
* DATES: The amendment is retroactive to the date the original exclusion was published and does not extend the period for the original exclusion. U.S. Customs and Border Protection will issue instructions on entry guidance and implementation.
* FOR FURTHER INFORMATION CONTACT: For general questions about this notice, contact Associate General Counsel Philip Butler or Director of Industrial Goods Justin Hoffmann at (202) 395-5725. For specific questions on customs classification or implementation of the product exclusions identified in the Annex to this notice, contact traderemedy@cbp.dhs.gov.

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OGS OTHER GOVERNMENT SOURCES

[No items of interest posted]

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   The Bureau of Industry and Security (BIS) will offer a virtual conference on export control policy on Wednesday, 2 September 2020. This full day virtual experience will include keynote speakers, plenary sessions, breakout sessions, and live Q&A with BIS and other agency experts.
 
   The planned agenda for this conference includes sessions on:
  • Executive Order 13873: Securing the Telecommunications Supply Chain
  • The Transition of USML Categories I-III to the CCL (Firearms)
  • Military End Use and End User Controls
  • Export Controls in Academic and Research Environments
  • CFIUS/FIRRMA Update
  • Regulatory Updates
  • Anatomy of an Export Enforcement Investigation
  • License Exceptions in the EAR and Country Groups – Update
  • Semiconductors: What the Controls Look At
  • Sanctions & Foreign Policy-based Export Controls
  • DDTC Updates
  • The Entity List: Understanding and Managing the Impact
  • Registered attendees will be able to access recorded sessions for a month after the date of the conference.
To register and for more information CLICK HERE.
For additional information on the BIS 2020 Virtual Conference, you may contact the Outreach and Educational Services Division at: virtualevent@bis.doc.gov.

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* * * * * * * * * * * * * * * * * * * *  

   

   In addition to the usual housekeeping time for TradeNet on Sundays from 4am to 8am and the extended downtime on 16 Aug 2020 (as indicated in Notice No. 10/2020), we wish to inform you that Singapore Customs will be performing system maintenance work which will affect TradeNet for the following date(s) and time.

Date
Time Duration
30 Aug 2020 4am to 12pm 8 hours
  You are advised not to submit any applications through TradeNet during the above mentioned period. Please submit your applications through TradeNet after the indicated timing above.
  Please bring the contents of this Notice to the attention of your staff. Kindly plan in advance and submit applications before the downtime, to minimise disruptions to your business operations. We apologise for any inconvenience caused.

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COM NEWS

(Source: CNBC, 11 Aug 2020) [Excerpts]

 
   Huawei is reportedly running out of its own high-end chips for smartphones due to U.S. sanctions – and the company may have limited options to secure future supply.
   The inability to obtain cutting-edge chips will threaten Huawei’s newly-acquired status as number one smartphone maker in the world. It could also wipe out billions of dollars of sales for the Chinese technology giant. …
   In May, the U.S. introduced a rule which requires foreign manufacturers using American chipmaking equipment to get a license before they’re able to sell semiconductors to Huawei. 
   The Chinese firm designs its own chips via a subsidiary called HiSilicon. But those semiconductors, which go by the Kirin brand name, are actually manufactured by Taiwanese contract chipmaker Taiwan Semiconductor Manufacturing Company. Washington’s rule has effectively cut Huawei off from TSMC.
  To comply with the rule, any chips currently in production must be shipped to Huawei by Sept. 15. …

(Source: Reuters, 11 Aug 2020) [Excerpts]
 
  Goods made in Hong Kong for export to the United States will need to be labelled as made in China after Sept. 25, according to a U.S. government notice posted on Tuesday. 
  The move follows China’s imposition of a national security law on Hong Kong and a U.S. decision to end the former British colony’s special status under U.S. law, escalating bilateral tensions that were already rising over trade war tariffs and the handling of the coronavirus outbreak. 
  The latest step will see Hong Kong companies subject to the same trade war tariffs levied on mainland Chinese exporters, should they make products subject to these duties, said the U.S. Customs and Border Protection notice.
It said that 45 days after its publication, goods “must be marked to indicate that their origin is ‘China'”. 
  The step was taken after the United States determined that Hong Kong is “no longer sufficiently autonomous to justify differential treatment in relation to China”. 

(Source: The Epoch Times, 12 Aug 2020) [Excerpts]
 

   U.S. authorities recently announced two criminal cases involving individuals who allegedly skirted U.S. export rules to illegally ship restricted electronics to Hong Kong and mainland China.

   In one of the cases, Alex Yun Cheong Yue, 69, of South El Monte, California, is charged with conspiring with Wai Kay Victor Zee, 56, of Hong Kong, in attempts to purchase cesium atomic clocks and send them to Hong Kong without obtaining required export licenses, beginning in December 2015, according to court documents.
   Atomic clocks are devices used to synchronize time in modern technology, such as global positioning systems. They measure time using the frequency of atomic emission from certain elements, such as hydrogen and cesium.
Cesium atomic clocks are controlled for export by the Department of Commerce-meaning businesses and individuals must apply for special licenses to export them-due to national security and anti-terrorism reasons. For example, the devices can be used in defense and space applications. …
  On Aug. 10, Yue pleaded guilty to one count of conspiracy to commit export violations, two counts of unlawful exports and attempted exports of U.S. goods to Hong Kong, and one count of smuggling, according to a DOJ statement. …

 

   In the other case, Chong Sik Yu, 58, of Oradell, New Jersey, and Yunseo Lee 33, of Fort Lee, New Jersey, were arrested on Aug. 6, according to a DOJ statement. They face multiple charges, including unlawful export of dual-use electronics components, wire fraud, bank fraud, and money laundering.
“Chong Sik Yu and Yunseo Lee are accused of violating U.S. export laws by sending electronics components with military applications to Hong Kong and China,” Audrey Strauss, acting U.S. attorney for the Southern District of New York, said in the statement.
   Yu was president of a U.S.-based company called America Techma Inc. (ATI), while Lee was the company’s sales representative. ATI began illegally exporting electronic components from the United States to Hong Kong for re-export to countries including China since at least 2019, according to prosecutors. …

COM COMMENTARY

 
  Determining the country of origin of imported articles has become increasingly important in recent years.  There has long been a requirement that imported articles be marked with the name of the country of origin.  Country of origin also determines eligibility for special duties or free trade agreements. Now with the number of Antidumping and Countervailing duties dramatically increasing, the imposition of Section 232 and 301 duties on products of certain countries, and new or changed free trade agreements, the definition of country of origin has taken on greater importance.
  According to Part 134.1 of the Customs Regulations, “Country of origin” means “the country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the ‘country of origin’ within the meaning of this part.”
  The easiest determinations of country of origin are for natural products, such as fruits, vegetables, lumber and grains.  This category also includes other products taken from the natural resources of a single country, such as metals and minerals.  The country of origin of such products is the country in which they were grown or mined.   From this point on, it gets more complicated.
  Suppose a product is manufactured in Country C using parts and materials from Country A and Country B.  Is Country C the country of origin?  Well….maybe.
  There have been a couple of court cases that give guidance on the subject of “substantial transformation.”  The first is the U.S. Supreme Court case of Anheuser-Busch Brewing Ass’n v. United States, 207 U.S. 556, 562 (1908) in which the court stated that “manufacture implies a change, but every change is not manufactured.  There must be transformation; a new and different article must emerge, having a distinctive name, character, or use.”
  Another case is United States v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940).  In this case the U.S. Court of Customs & Patent Appeals stated that a product “undergoes a substantial transformation if, as a result of further manufacturing or processing, the product loses its identity and is transformed into a new product having “a new name, character, and use.”
New name, character and use must be read in the conjunctive – the parts and materials making up the end item must be changed into something having a new name and a new character and a new use – not the best one or two out of three. 
  So – you think this is all clear?   Maybe it needs more clarification.  Let’s look at some other rulings and court cases.
  The U.S. Court of International Trade considered substantial transformation in Uniroyal v. United States (3 CIT 220, 1982).  This case involved whether attaching an outsole (resembling a moccasin) to imported shoe uppers was a substantial transformation.  The court said it was not; largely because the basic nature of the product – a shoe – was not changed by this attachment.
  This ruling added some factors to be considered in determining whether a substantial transformation has taken place, including the time involved in the operation, the cost of performing the operation, and the comparative skilled operations involved in the original manufacture and the additional operations being performed.  Simply combining materials and components may not be enough, as these other factors must be considered in a substantial transformation and determination of country of origin.
  In Energizer Battery Inc. v. United States (190 F. Supp. 3rd 1308, 2016) the court ruled again on the issue of substantial transformation.  In this instance preformed flashlight components were imported into the U.S. and assembled into flashlights.  The issue was whether the flashlights would be considered U.S. origin for the purpose of government procurement.  The court used the name, character and use test.  They noted that when “the post-importation processing consists of assembly, courts have been reluctant to find a change in character, particularly when the imported articles do not undergo a physical change” and also that “when the end-use was pre-determined at the time of importation, courts have generally not found a change in use.”  Furthermore, they found that the individual flashlight parts did not undergo a change in character or use by being assembled; especially where the assembly process was simple. There was no substantial transformation in this instance.
  A recent CBP ruling that drew some attention was HQ H305370 of Oct. 11, 2019.  The ruling involved three electric motor components of Chinese origin imported into Mexico, assembled into complete motors and subsequently imported into the U.S.  The ruling cited both the Uniroyal and Energizer decisions in determining that assembling the three components in Mexico did not change the country of origin. CBP noted that the assembly was simple, and the components did not undergo a physical change. The country of origin remained China and the motors took the additional 25% Section 301 duty.
  Where does this leave us?  Simply moving the final production or assembly of a product from one country to another may not be enough to change the country of origin.  To effect a substantial transformation:
  • Parts having a predetermined use due to their design and characteristics may not undergo a change in use. To have a change in use it may be necessary to have raw or basic materials, such as raw plastic or sheet metal, that are converted into a new component then assembled into the end product.
  • A simple assembly, done quickly by a semi-skilled worker or a robotic machine, may be insufficient for substantial transformation. For substantial transformation to occur it may require a detailed process and/or highly skilled workers.
  • Time and cost are important factors. A simple assembly involving 5 or fewer parts may not change the country of origin. Making a television with use of dozens of parts and materials, sophisticated machinery and hours of work will more closely resemble substantial transformation.
  Thinking of moving production from China to another country to avoid the Section 301 duties?  Better make sure it will change the country of origin or an expensive move may be in vain.

 
* Principal Author: Anthony Woolich, 44-20-7264-8033, Holman Fenwick Willan LLP
 
   The UK Government has revealed the border controls that will apply on the UK border between the UK and the European Union following the end of the Brexit transition period (Transition Period), anticipated to be on 1 January 2021. This follows its announcement in June 2020 that import controls on goods moving from the EU to the UK would be introduced in phases over the first six months of 2021, giving importers ‘time to adjust’ and avoiding a cliff edge of regulation.
   Even so, the 200 page guidance document entitled The Border with the European Union: Importing and Exporting Goods (also described as the ‘Border Operating Model’) is comprehensive and detailed, demonstrating the sea-change that those trading with the EU will face from the beginning of next year. Commercial operators should familiarise themselves with the new rules (as applicable to their business) and ensure that they have taken all necessary steps to prepare.
   The nature and timing of the new restrictions and requirements that will apply depend on the nature of the goods in question, and whether they are being imported from or exported to the EU. The UK Government’s guidance document draws a distinction between the ‘Core Model’, which reflects changes that will affect all goods, and ‘Additional Requirements’ which only apply to a narrower set of goods. These changes will apply irrespective of the detail of any trade deal between the EU and UK.
   There are three key dates for the introduction of border controls: 1 January, 1 April and 1 July.
 
Imports – Core Model
From 1 January 2021 importers of goods from the EU to the UK must:
  • Complete customs declarations for controlled goods. Traders moving standard goods may defer their declarations for six months, or submit standard declarations.
  • Account for customs duties under the new UK Global Tariff, as applicable for imports from the rest of the world. Payment may be deferred.
  • Account for import VAT – how this is to be achieved will depend on whether customs declarations have been deferred.
From 1 July 2021 it will also be required to
  • Complete customs declarations at the time of import i.e. importers may no longer defer making declarations.
  • Submit Safety and Security Declarations in respect of all goods, as is currently required for imports from ‘Rest of the World’ countries.
Imports – Additional Requirements
Additional requirements and restrictions will apply in respect of the following types of goods:
  • Goods covered by International Conventions/Commitments, such as endangered flora and fauna (CITES), and rough diamonds (Kimberley)
  • Goods subject to sanitary and phytosanitary controls
  • Goods with specific customs requirements
  • Other goods, including medicines, firearms and waste
Each of these classes of goods is subject to additional requirements, which will be introduced at one of the three key dates mentioned above. In particular, it should be noted that from 1 April imports of goods subject to sanitary and phytosanitary controls, including products of animal origin will be subject to import pre-notification, health certification and checks (documentary, identity and physical).

Import preparations
All traders intending to import goods from the EU to the UK after the end of the Transition Period should take the following steps to prepare for and ensure compliance with the introduction of border controls:
  • Determine the classification of goods, and consider whether only the Core Model applies, or whether the goods are subject to Additional Requirements.
  • Determine what tariffs apply to the goods by reference to their commodity code. In cases of uncertainty HMRC can be asked to make a ruling on the classification of the goods and their origin.
  • Assess the customs value of the goods.
  • Register for a GB Economic Operator Registration and Identification (EORI) number. This can take up to 5 days to obtain depending on whether HMRC determine checks need to be made.
  • Consider applying for a duty deferment account, which can be used to pay customs duty, excise duty and import VAT monthly via direct debit as opposed to on an ad hoc basis.
  • Prepare either to pay or account for import VAT. This may be achieved either through postponed VAT accounting or by payment as part of the customs process depending on the trader’s VAT status.
Exports – Core Model
From 1 January 2021 exporters of goods from the UK to the EU will be required to complete a UK customs export declaration (which may be deferred by up to four weeks if a simplified customs declaration is made upfront), and an EU import customs declaration. EU customs import declarations will also be required, but details on these have not yet been made available. Further, all exports will require a Safety and Security declaration.
 
Export – Additional Requirements
As for imports, additional requirements will apply in respect of certain categories of goods. The list of relevant goods is the same as listed above in respect of imports, with the addition of strategic exports i.e. military and dual use goods.
 
Export preparations
In order to prepare for the end of the Transition Period, all businesses and persons that intend to export goods from the UK to the EU from 1 January 2021 should take the following steps:
  • Determine classification of goods, and consider whether only the Core Model applies, or whether the goods are subject to Additional Requirements.
  • Determine what tariffs apply to the goods by reference to their commodity code. In cases of uncertainty HMRC can be asked to make a ruling on the classification of the goods and their origin.
  • Register for a GB EORI number. This can take up to 5 days to obtain depending on whether HMRC determine checks need to be made.
  • Decide whether you will be making use of an intermediary, such as a freight forwarder to complete customs requirements. This will be the appropriate course for most exporters. If you decide not to use an intermediary you will need to register for the CHIEF and S&S systems.

(Source: Author)
 

* Author: Ted Murphy, Esq., 1-202-736-8016, Sidley Austin LLP  

 

   On 12 August, CBP published FAQs on its website stating, in relevant part, that:
   “The change in marking requirements does not affect country of origin determinations for purposes of assessing ordinary duties under Chapters 1-97 of the HTSUS or temporary or additional duties under Chapter 99 of the HTSUS. Therefore, goods that are products of Hong Kong should continue to report International Organization for Standardization (ISO) country code “HK” as the country of origin when required.”
   So, if you have Hong Kong-origin articles, you will need to mark them as being of China origin (e.g., “Product of China”), but you will enter them as being of Hong Kong origin, as of September 25, 2020. This means that such articles will not be subject to the Section 301 duties on China.
   Seems like a strange and unnecessarily complicated result (it also seems inconsistent with what President Trump said during his press conference announcing the executive order back in July). In any event, all companies that import articles from Hong Kong should take note.

TE EX/IM MOVERS & SHAKERS

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TE EX/IM TRAINING EVENTS & CONFERENCES

 
* What: Import 101 for Aerospace Professionals
* When: 26 Aug; 1:00 p.m. (EDT)
* Where: Webinar
* Sponsor: Export Compliance Training Institute (ECTI)
* ECTI Speaker: Marc Binder
* Register: here or Ashleigh Foor, 1-540-433-3977,
* * * * * * * * * * * * * * * * * * * *

ITAR & EAR from a non-US perspective
Tuesday, 8 September 2020
More Info
The ABC of Foreign Military Sales (FMS)
Tuesday, 29 September 2020
Designing and Implementing an ICP
Tuesday, 6 October 2020 More Info
Wednesday, 7 October
More Info
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EN EDITOR’S NOTES

EN_a115. Bartlett’s Unfamiliar Quotations

(Source: Editor)
 

* Alfred Hitchcock (Sir Alfred Joseph Hitchcock; 13 Aug 1899 – 29 Apr 1980; was an English film director and producer. He is one of the most influential and extensively studied filmmakers in the history of cinema. His films garnered a total of 46 Oscar nominations and 6 wins.)
  – “The more successful the villain, the more successful the picture.”
  – “Disney has the best casting. If he doesn’t like an actor he just tears him up.”
 
* Ben Hogan (William Ben Hogan; 13 Aug 1912 – 25 Jul 1997; was an American professional golfer who is generally considered to be one of the greatest players in the history of the game. Hogan is notable for his profound influence on golf swing theory and his legendary ball-striking ability.)
  – “There is no similarity between golf and putting; they are two different games, one played in the air, and the other on the ground.”
  – “Golf is not a game of good shots. It’s a game of bad shots.”
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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.  The latest amendments are listed below.
 
Agency 
Regulations 
Latest Update 
DHS CUSTOMS REGULATIONS: 19 CFR, Ch. 1, Pts. 0-199.

 

5 Apr 2019: 84 FR 13499:

Civil Monetary Penalty Adjustments for Inflation. 
DOC EXPORT ADMINISTRATION REGULATIONS (EAR): 15 CFR Subtit. B, Ch. VII, Pts. 730-774. 
31 Jul 2020: 85 FR 45998: Revision of the Export Administration Regulations and Suspension of License Exceptions for Hong Kong. 
DOC FOREIGN TRADE REGULATIONS (FTR): 15 CFR Part 30.   24 Apr 2018: 83 FR 17749: Foreign Trade Regulations (FTR): Clarification on the Collection and Confidentiality of Kimberley Process Certificates.  
DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM)

: DoD 5220.22-M. Implemented by Dep’t of Defense. 

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 cancelled Supp. 1 to the NISPOM (Summary here.)  
DOE ASSISTANCE TO FOREIGN ATOMIC ENERGY ACTIVITIES: 10 CFR Part 810.    23 Feb 2015: 80 FR 9359: comprehensive updating of regulations, updates the activities and technologies subject to specific authorization and DOE reporting requirements. 
DOE EXPORT AND IMPORT OF NUCLEAR EQUIPMENT AND MATERIAL; 10 CFR Part 110.  

15 Nov 2017, 82 FR 52823: miscellaneous corrections include correcting references, an address and a misspelling.

 
DOJ ATF ARMS IMPORT REGULATIONS: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War. 
14 Mar 2019: 84 FR 9239: Bump-Stock-Type Devices.

DOS INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130. 

29 Jul 2020: 85 FR 45513 Extension to Certain Temporary Suspensions, Modifications, and Exceptions due to Corona Virus.  The latest edition of the BITAR is 29 July 2020.  

 
DOT FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR): 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders

17 Jul 2020: 85 FR 43436: Nicaragua Sanctions Regulations. 

 
 
 
USITC HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA), Revision 8.

1 Jan 2019: 19 USC 1202 Annex.
  – HTS codes for AES are available here.
  – HTS codes that are not valid for AES are available here.

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