Bad Blood: IEEPA Refund Delays, Transshipment Rules, and the U.S.-Canada Trade War
In this week’s Simply Trade: Cindy’s Version, host Cindy Allen ties two weeks of major trade news to a fitting Taylor Swift pick: Bad Blood.
Refunds, Transshipment, and New Compliance Risk
CBP delayed CAPE 3 IEEPA refund processing. Meanwhile, several attorneys report CBP is still offsetting disputed debts, despite court statements to the contrary. If you have open state or federal debts, it’s worth checking your refund status. Separately, the “Great Transshipment Scam” issue could upend country-of-origin rules. CBP argues that a component, like a motor, can retain its own origin even after manufacturers build it into a finished product abroad. Most importers can’t easily trace that level of detail through their supply chains.
Foreign Importers, Brokers, and Flying Trucks
A pending executive order would require foreign importers of record, mostly Canadian, to use CTPAT certified brokers. This shifts liability onto brokers who have little guidance to manage it. CBP is also pushing brokers to explain how they vetted and filed older clients. In addition, CBP eliminated the “flying trucks” process for air-manifested cross-border shipments, giving carriers a 90-day compliance window.
Bad Blood with Canada
The U.S. imposed 50% Section 338 duties on Canadian goods. In response, Canada plans dollar-for-dollar retaliation starting September 8. Legal challenges are expected, and neither side shows signs of backing down.
Transcript
Cindy Allen – Trade Force Mult (00:05)
Hello. Today is Friday, August 28th. I’m Cindy Allen, CEO of Trade Force Multiplier, a global trade consultancy service, also known as the Taylor Swift of Trade, so dubbed by the producers of Simply Trade. Welcome to Simply Trade Cindy’s version, where I base an international trade update on a Taylor Swift song. This is brought to you in association with the Global Training Center. Today’s song is Bad Blood.
And before I get into that, what’s happened for the past two weeks in trade? I missed last week. And we have a lot to cover. First, IEEPA tariff update, CAPE refunds. CAPE three has been delayed, and that was the finally liquidated entries that were under the jurisdiction of the court that was supposed to come out last week. It was delayed by CBP without a real true in-depth.
explanation other than they needed to do some more work on that and some more testing.
in a court filing regarding liquidated entries, CBP indicated that it was not offsetting disputed debts. However, several attorneys have come forward and given specific cases where that has happened, specifically the section 232 duties on steel and aluminum, component level valuation and duty rates.
That the importers have questioned with CBP. Those have been advanced without understanding that this is still disputed. So this is an open issue. reported that they’re seeing offsets also of state level taxes and some federal level taxes. And this is due to the disputes being recorded in a federal debt program that CBP is likely using.
To process the refunds. So this remains an open issue. So if you have any open debts with the state or federal government, you may want to check on your IEPA duty refunds to do some investigation there. The great transshipment scam. This seems to be getting some more press and recognition, which I think it should. This is a huge, huge change to what could possibly be country of origin determinations, as well as reports.
Requirements. This is a really an attempt, as I indicated a couple of weeks ago, to really redefine how country of origin of goods is affected. So the example given in the Great Transshipment Scam paper was a motor for a recliner.
That was imported from China into Vietnam. The recliner was produced in Vietnam and incorporated that Chinese motor and was then brought into the United States as a Vietnam country of origin chair. CBP holds that that motor retains its essential character and should be broken out and reported as a component separate from the chair. So if you apply that across a broad range of goods, this completely
up in 100 years of country of origin, determinations, essential characters, substantial transformation definitions. And also, importers of record don’t have visibility to this level of information for all of their products. Many import a completed product and they may know who that supplier is. And some of the suppliers that they use, they don’t understand the details of this. So this could also completely change the entire entry process.
And require that importers not only know all of that information back to possibly raw materials like you would for a a disputed forced labor issue, but also just on every single import that you’re bringing into the United States. So this is a very hot topic, should be very concerning for importers, and we expect to talk more about this in the future. Also concerning the executive order on enforcement. This
Transshipment memo also references that the EO, that executive order on enforcement, gives CBP, DHS, and other enforcement agencies the power to take action to ensure that these goods are not transshipped or what the administration determines
their definition of transshipment, which is a little bit different from ours. We think of illegal transshipment, which is fraud basically. We don’t think of normal transshipment where you incorporate an an article into another article and buy that whole article or import that as being transship. So again, this is something that the administration is pushing as a broader strategy to redefine
Enforcement and how goods and information is filed with U.S. Customs. Also in that executive order on enforcement is the foreign importer of record. This requires that CTPAT membership for a class of companies that don’t really currently qualify for that. So if you’re a foreign importer of record, you have to become CTPAT certified.
But many can’t. They don’t qualify for the program as is. So that requires those foreign importer of records to use a CTPAT certified customs broker. So customs brokers are getting a little concerned about this for their foreign clients. They’re awaiting regulations to support what that requirement looks like and what it is. And the concern is that the liability for that responsibility will now transfer from that foreign importer of record to the customs broker.
And that they will have additional increased liability and responsibilities that they really have no means to meet. They’re also concerned about liability and how it would affect their bond rating. If they have to become an importer of record for those foreign importers of record, what does that look like? How does that increase your bond requirements? And also it should be noted that most foreign importers of record into the United States are Canadian.
So that has a bigger impact. Customs brokers are discussing this actively. They are awaiting the regulations to come out. They are looking to understand what liability they will take on on behalf of those foreign importers of record if they choose to go down that path. So it’s still an open discussion. Importers of record should also review the definitions in that executive order because.
What is considered a foreign importer of record is also going to change. So the administration is again upending current definitions to look at what a foreign importer of record is. We would always consider that one domiciled outside of the United States and therefore being a foreign importer of record. The executive order talks about ownership. It talks about even US companies that have a level of foreign ownership or control by a foreign entity.
as possibly requiring the foreign importer of record designation and requiring that a CTPAT certified customs broker handle their business as well as some other barriers to entry that that executive order outlays. So if you are
have any foreign ownership in your company, you may want to dust off that executive order, take another look at those definitions and make sure that you couldn’t be lumped into a new definition of foreign importer of record. Because if you are, you may have some additional requirements to report to the to the US government and also require a CTPAT certified customs broker, which Mothing,
Aren’t most customs brokers CTPAT certified? I would say most of them are, but there’s a very large percentage that are not. Why? Because they really haven’t seen the value of being a CTPAT certified customs broker. We have a very high level of oversight by the government already. Many of us don’t handle freight. Many of us never see the shipment. So those security elements of a CTPAT program aren’t really applicable to a customs broker.
Yes, we handle information, but we also have requirements from customs when we transmit information. There’s a memorandum of understanding. There’s a high level that we have to meet as customs brokers in filing that information that is already there outside of the CTPAT requirements. So some customs brokers haven’t seen the value in meeting those additional costs to be a CTPAT certified customs broker.
Especially those that are small and medium, depending on what that local CTPAT office requires in terms of security. And with the raise of work at home, work from where you are, those security concerns are a little bit different, and those criteria aren’t necessarily applicable to modern-day customs brokerage work. Also at issue for a customs broker is how a broker vets a client.
And how they have put them on file. Now, many customs brokers have clients who have been with them for decades. They have an old power of attorney. They’ve put them on file with customs a long time ago. They may not even have those records available, but customs is asking customs brokers to vet how they are certifying the customs brokers.
are certifying those importers rather and how they are putting them on file and with what information they did that. And they are requiring that for enforcement purposes. So they are reaching out to the customs workers currently saying, how did you put this custom how did you put this importer on file?
What was your vetting process? Well, if that vetting process was pre-9-11, there probably wasn’t one. We had a credit check that was done, we got a power of attorney, we talked to that client, we started doing their business. So this is really concerning to customs brokers. They’re wondering now what level of vetting is going to be required, other than are we making sure that this is a real company?
That we are getting information from a real person that works for that company? And how do you do that? You know, from a large company perspective, how do you do that? If you are handling business on behalf of a very large international corporation and you’re now required to have the license of the person who signed the power of attorney who may be a corporately licensed officer, how do you even reach into that company and get that level of information? And how do you keep that secure?
You don’t want to maintain that information in your system because then you become a target for cyber attacks. So you don’t want that to happen. So this is also an open issue with customs brokers. and if you are filing 5106s, customs is asking a little bit more information. And the 5106 is the form that puts the
Importer on file with customs. Unfortunately, it’s also the way that importers report or customs brokers report consinees, simply people who are receiving these shipments into the United States. So that becomes a little muddied because we may not have a relationship with the actual consinee. We have a relationship with the importer of record who may or may not be the consinee. So
It seems here’s another case where the government is pushing more responsibility onto the customs broker without giving us additional tools or guidance to do that. So we’re looking for that additional guidance. In other news, man, the express carriers just can’t seem to catch a break. First, we had De Minimus being eliminated, which was a significant portion of their business.
Now we are seeing what’s known as flying trucks being eliminated. So flying trucks allowed a shipment of air goods that came into an airport on the border in Canada or in Mexico to use that air manifest instead of a truck manifest to come into the United States. And that’s because those goods come into a border point airport.
Are immediately loaded on a company-owned truck, brought across the border. That information is not changed. These are mainly just for transportation, ease in transportation, because it’s not near an airport in the United States or it’s not near a hub, and those goods come into the United States for distribution. So when manifest became required on all modes of transportation, there was an agreement made to allow that.
Airport the air manifest to be acceptable on the border, but that has now been eliminated. It said effective immediately, it was eliminated, but it gave the express carriers 90 days to comply with that order. again, a massive change for those express carriers who who can’t seem to catch a break in this environment. and for those of you who said many years, those express carriers get away with everything. Well.
This is definitely proof that that they do not, in fact, get away with a lot. And on to why I chose Bad Blood. Major news, the Canadian US trade war. I looked at a couple of different songs from Taylor Swift to talk about this regard regarding the US trade war, including the Great War, but I really settled on Bad Blood because I think that really is what we have now with Canada.
the US has imposed section three three eight duties on Canada for a list of articles at fifty percent. many thought this was a negotiation tactic. And as I talked several weeks ago, you know, I gave it a 50-50 that you know that possibly could happen because we’ve seen other things like this where many thought, this is just a negotiation tactic, it’s just a position, and then it happened. So we’ve seen that. It came true. this actually
was if it was a negotiation tactic, it would definitely have failed negotiation tactic. and now we definitely do have bad blood. After weeks of negotiations and talks between the two, the administration did did oppose that duty. And Canada, instead of backing down as the administration had hoped, is set to impose dollar-for-dollar duties on US products starting September 8th. So the Prime Minister
Prime Minister Kearney indicated that there just wasn’t enough in it for Canada to sign on to this agreement. And this is part of the overall USMCA renegotiation. So this is following months and months and months of negotiations to try to keep that agreement alive and also to come to terms for both both administrations to get something that they felt was valuable for their their their countries.
and the administration just responded saying that it was gonna retaliate against the retaliations, it was gonna raise additional duties or raise those that they put the 50% on. We aren’t quite sure where that’s gonna go. But it is expected to continue to escalate because neither administration she seems willing to back down on this position, and neither will without a win that it can then communicate to its citizens.
so we are in for a lot of bad blood in the next couple of months. It is expected again that there will be a legal challenge to the section 338 duties. to recap, we still have ongoing legal actions in IEEPA. We have a legal action against section 122, and we do expect a challenge to section 338. So for those of us who said that this administration was going to be a litigious one, we were right, unfortunately.
And given that the foreign importer of record restrictions are mainly gonna fall on Canadian companies who import to the US and we have Section three hundred three three eight and the continued pressure to be the fifty first state, is it any wonder that we have bad blood? We’ll talk to you next week
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