Ahead of the Curve: Butzel Legal Corner

By Leslie Alan Glick, Shareholder and Chair, International Trade and Customs Specialty Team

Butzel, Washington, DC (Glick@butzel.com)

When Henry Ford was developing his River Rouge plant, he manufactured most of the components there himself, including steel and glass and sourced the raw materials locally. As one observer memorably described the Rouge Plant, “iron ore, sand and coal went in one end, cars came out the other.” As the automotive industry became globalized, increased competition and the classic economic theory of comparative advantage made it logical to source materials in those countries that could produce them best and most cost effectively. But offshore sourcing brought with it the need to understand and comply with an ever-increasing number of trade laws.

Unfair trade practices, like subsidies and selling below cost, can distort economic concepts and cause injury to domestic producers. There are many unfair trade practices and laws that are difficult to navigate. Mere sales at lower prices (below fair or normal value) in the United States, compared to the home market, leading to injury to U.S. competitors, can be violations of the U.S. antidumping laws and lead to the imposition of high “antidumping duties” even affecting companies that didn’t participate in the investigation. Receipt of certain types of subsidies from a foreign government leading to injury to U.S. competitors can lead to high countervailing duties in the U.S. The laws are complex and often very little time is allowed to respond to such complaints (e.g. initially 45 days in antidumping and countervailing duty cases). How can companies be prepared? Only through advance planning and compliance programs to review their pricing and receipt of certain types of subsidies from foreign suppliers in advance (such as export financing below prevailing rates). Adjustments in prices and rejection or return of subsidies prior to the filing of a case is one approach that can save time and costly legal fees.

Section 301 Tariffs

In well publicized cases against China and other countries, we have seen high duties imposed under Section 301 of the Trade Act 1974 that allows imposition of duties in response to unfair practices by foreign governments. This can be the imposition by foreign governments of restrictions on market access of U.S. companies or impairing enforcement of intellectual property rights of U.S. companies operating in another country. The Trump administration imposed nearly $80 billion worth of Section 301 duties on Americans by levying tariffs on thousands of products from China valued at approximately $380 billion in 2018 and 2019.

The Biden administration has retained most of the Trump administration tariffs, and in May 2024 the Biden administration imposed an additional $18 billion in tariffs on Chinese goods, including semiconductors and electric vehicles, for an additional tax increase of $3.6 billion.

While antidumping, countervailing duties and Section 301 investigations are vexing enough, they are the type of investigations that importers might expect. Today there are many new types of related investigations which can catch importers blindsided. For example, one of these, the wood packaging materials laws and regulations requiring anti-pest fumigation and, or heat treatment of all wooden packaging and pallets attached to the imported product. Moreover, the pallet must have the ISPM stamp (International Standards for Phytosanitary Measures No. 15). Even if the wood has been properly treated for insects, the absence of the ISPM stamp is itself a violation. Such a violation generally leads to an immediate reexport order within 15 days, followed by a high proposed penalty.

Uyghur Forced Labor Prevention Act (UFLPA)

Another recent law that has been particularly vexatious to U.S. importers is the Uyghur Forced Labor Prevention Act (UFLPA), a law designed to combat forced labor in the Xinjiang region of China against the minority Uyghur population. While laws to prevent use of child labor and forced labor have existed for some time, they have never been enforced in this rigid manner. Customs states there is a presumption of guilt that an importer purchasing goods with content from the Uyghur region that is in violation of the law, unless the importer can prove otherwise. This is contrary to the long history of U.S. jurisprudence where there is a presumption of innocence until proven guilty. The Draconian provisions of the law would prohibit importation into the United States of any product coming from any country that might contain any inputs made by Uyghur forced labor coming from certain regions from China. Initially this new law was met with indifference by the U.S. auto industry which believed that it affected mostly textiles and low value agricultural products produced in the region. However, a study by the Sheffield Hallam University in England found that many materials for the automotive industry originated in this region and this law was elevated in importance to the automotive industry. During the last two years alone 3,596 shipments were detained under this law valued at 3.46 billion. Rather extensive supply chain tracing methods have been developed. Due diligence in supply tracing is one method to convince Customs of your good faith efforts. UFLPA should also be included in you company’s compliance program.

Customs Trade Partnership Against Terrorism (CTPAT)

Finally, five letters that every importer of automotive parts should be familiar with are CTPAT. This stands for Customs Trade Partnership Against Terrorism (CTPAT). It was initiated as a voluntary program by customs after 9/11 when Customs realized that containers and other instruments of commerce could be weaponized and that supply chains need to be secured. Still a “voluntary” program; however, it has become almost a necessity for auto suppliers, since almost all the original equipment manufacturers (OEM) as part of their own compliance are requiring their suppliers to also join CTPAT or at least adopt the same standards. Often this is made a contractual obligation in the Terms and Conditions.

Compliance involves considerable work and companies are usually counseled by experience experts to insure they are certified by customs. It requires review of many internal areas such as physical security, conveyance security (trailers and seals) and personnel security, among others. After initial acceptance and validation visits, the information must be updated annually. CTPAT has now become a recognized symbol of supply chain security and companies exhibit the CTPAT logo on their letterhead and websites. If you have not yet been asked by your OEM customer to join CTPAT, you likely will in the future. Often time limits are imposed so it is best to learn the requirements and qualify well in advance of being required. Customs brokers, carriers and consolidators can also join as well as importers. Among the ancillary benefits of CTPAT membership are access to certain “FAST LANES” at the border.

In today’s busy business environment, the average importer is not likely to be able to identify every risk involved and needs the support and education provided by a compliance program and CTPAT review and membership supported by their trade advisor can pay for itself, in avoiding even one penalty.

For assistance navigating the rocky road through customs and trade law, please contact the author or your Butzel attorney. Butzel, THE Automotive Supplier’s Law Firm.