By Jennifer Horvath , Partner and
Brandon French , Associate, Braumiller Law Group
The House Committee on Science, Space, and Technology recently voted to advance the America Competes Act of 2022 “the Act.” This comes after the Senate passed its version of the bill, the U.S. Innovation and Competition Act, in June of 2021. The focus of the Act is to strengthen America’s scientific and technological activities in the 21st Century, in order to be able to compete with China in these critical fields in the future. Along with having bi-partisan support, President Joe Biden has expressed his support for the Act, “The House took an important step forward in advancing legislation that will make our supply chains stronger and reinvigorate the innovation engine of our economy to outcompete China and the rest of the world for decades to come . . . [t]ogether, we have an opportunity to show China and the rest of the world that the 21st century will be the American century – forged by the ingenuity and hard work of our innovators, workers, and businesses. “
The America Competes Act is separated into eleven divisions, A-K, with Division K being titled “Matters Related to Trade.” The Matters Related to Trade division is further divided into seven sections: (1) Trade Adjustment Assistance, (2) Improvements to Trade Remedies Law, (3) Import Security and Fairness Act, (4) National Critical Capabilities Review, (5) Modification and Extension of Generalized System of Preferences, (6) Reauthorization of the American Manufacturing Competitiveness Act of 2016 and Other Matters, and (7) Temporary Duty Suspensions and Reductions.
These key initiatives in the Matters Related to Trade division focus specifically on the importing aspect. For importers, the sections relating to the Improvements to Trade Remedies Law and the Import Security and Fairness Act may have the biggest impacts. A modified version of the Import Security and Fairness Act, which was recently presented by the Chairman of the House Ways and Means Subcommittee on Trade, Earl Blumenauer, was included as part of the larger America Competes Act. The Senate’s version of the bill, the U.S. Innovation and Competition Act, did not include any changes to the de minimis rules.
One of the main proposals in the Improvements to Trade Remedies Law section of the America Competes Act relates to strengthening ADD/CVD laws. A few of the updates include:
• Expanding the application of Countervailing duty rates: Applying CVD subsidies conferred by a government of a country that is not the country in which the class of merchandise is produced, exported, or sold for importation in the U.S. as having been provided by the government of the subject merchandise country and shall cumulate all subject CVD subsides within the territory of the subject merchandise country.
• Decreasing processing times for order renewals: Accelerated decisions for successive investigations.
• Limiting opportunities for challenging assessments: Any decision as to the liquidation or reliquidation of an entry of covered merchandise in accordance with a determination under subsection (c) and review under subsection (f), if applicable, shall not be subject to a protest of such decision filed in accordance with section 514.
In addition to the proposed ADD/CVD changes, the Import Security and Fairness Act would put certain restrictions on the usage of the “de minimis” provision. The purpose of the Import Security and Fairness Act is to stop non-market economies from taking advantage of the current de minimis thresholds and loopholes which often provide unfair benefits to their own domestic companies.
So, what does de minimis mean? Section 321, 19 U.S.C. 1321 is the statute that describes the de minimis provisions. The de minimis provisions allow articles to be imported free of duty and any tax imposed. However, the aggregate fair retail value in the country of shipment of the articles imported by one person on one day cannot exceed $800. This value was previously $200 before the passage of the Trade Facilitation and Trade Enforcement Act of 2015. The de minimis provision is often used for smaller shipments as CBP has provided this mechanism to minimize administrative burdens in such low-dollar shipments.
The proposed changes to the de minimis provisions are much needed at a time when small package importations are at an all-time high. According to U.S. Representative Earl Blumenauer, “[t]he number of packages we receive in the United States has skyrocketed to more than two million daily packages—a number that will only climb in the coming years. As long as foreign companies that sell their goods in America are splitting up their shipments to evade tariffs and oversight, American businesses will continue to be put at a competitive disadvantage cost-wise.” The COVID-19 pandemic is one of the reasons that small package importations have increased so rapidly as households are more likely to purchase things directly from online retailers which are often being shipped from foreign countries.
If passed, the Import Security and Fairness Act would:
• Prohibit imports from countries that are both (1) identified as non-market economies and (2) included on the United States Trade Representative’s Priority Watch List of countries that violate intellectual property standards (i.e., China) from receiving de minimis treatment. This will ensure that certain countries are not taking advantage of the de minimis provisions to avoid paying duties and taxes.
• Provide CBP with statutory authority to collect additional information regarding all imports that receive de minimis treatment upon importation. This should decrease the number of illicit and illegal packages that enter the U.S.
• Prohibit importers that are suspended or debarred from receiving de minimis treatment.
• Simplify CBP’s requirements for processing goods that receive de minimis treatment upon importation.
Foreign companies who have historically been able to evade certain taxes and duties will now be under more scrutiny if this legislation goes into effect. CBP would have increased visibility to small packages from non-market economies which in turn should lead to higher compliance with U.S. Customs laws, as well as bolster competitiveness for the U.S. economy. For example, products that are currently imported from China under the de minimis provisions avoid paying the Section 301 duty. If this bill is passed, these same shipments would be subject to the additional punitive tariff on Chinese goods. This would create a more level playing field for the U.S. market for these types of importations. To further this point, the de minimis level in China is approximately $8. This means that if a U.S. good is imported into China and is valued over $8, the associated duties and taxes must be paid. On the other hand, if the same item is valued at $750 and imported into the U.S. from China, no taxes or duties need to be paid. This example illustrates why this type of legislation is needed as the U.S. attempts to strengthen its international trade market while adding additional visibility and security to its borders.
At this time, both the Senate and the House have revealed their respective versions of the proposed bills (i.e., the America Competes Act and the U.S. Innovation and Competition Act). While there are still multiple policy issues that need to be addressed, it seems evident that some form of the bill will eventually be passed due to the overwhelming support of both parties, as well as the President. Importers should continue to monitor the progress of this legislation and be aware of any potential impacts its changes may have on a Company moving forward.
For any additional inquiries, or if you would like to discuss the America Competes Act of 2022 in more detail, please contact Jennifer Horvath at Jennifer@braumillerlaw.com, or Brandon French at Brandon@braumillerlaw.com.
