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FTZ’ine July 2019
July 1, 2019
FTZ’ine September 2019
September 5, 2019

FTZ’ine August 2019

CFS Is The New FTZ:

Container Freight Stations (CFS) are replacing FTZs as the must-have supply chain tool for e-commerce fulfillment. Because a CFS can be little more than a cross-dock operation, communities with e-commerce distribution facilities stand to lose jobs overseas unless action is taken soon to allow FTZs to process shipments that qualify for the de minimus (Section 321) duty exemption enacted by Congress in 2016. Read why below.

The Federal Reserve lowered interest rates 0.25% yesterday and noted that the current strength of the U.S. economy may not warrant any more cuts.

The latest round of trade talks between the U.S. and China ended on Wednesday in Shanghai with no end to the dispute in sight. Even within the Administration all hope is gone that any agreement will be reached before the Presidential elections. FTZ users should plan accordingly, as discussed below.

That was fast - Acting Commissioner of Customs John Sanders stepped down from the post on July 5th, after only 8 weeks in the job. Mark A. Morgan, previously Acting Commissioner of Immigration and Customs Enforcement (ICE), took over the role.

Truck

Top Story: CFS Program Replacing FTZs as Must-Have Supply Chain Tools

On May 8, 2018, U.S. Customs issued a ruling (HQ H275567) stating that withdrawals from a foreign-trade zone could not qualify for duty-free treatment under Section 321. Congress previously expanded the limit of merchandise that could be entered duty-free under Section 321 to $800 per person, per day as part of the TFTEA legislation.

However U.S. Customs will allow duty-free entries under Section 321 when they are processed through a Container Freight Stations (CFS). Since a CFS has very low labor input, this disparity will lead to a loss of U.S. jobs unless Congress is pressed to resolve the difference.

In a CFS, an importer can deconsolidate bulk shipments of merchandise already packaged for individual sale in the United States. Thus, much less work is required when the package gets to the United States.

Only larger ports receiving full containers, such as rail heads and ocean ports, make sense to take part in the CFS model. Smaller zone programs with e-commerce operators may experience the outright closure of their facilities.

Once CFS supply chains become more prevalent, it will he hard to reverse the trend, because the CFS model has inherently lower U.S. labor input than an FTZ. If there is a long delay in Congressional action on Section 321, job losses will likely be permanent.

Unless Grantees and other push for change in the law, smaller ports in particular are likely to experience employment losses in distribution centers that fulfill e-commerce goods.

To deal with the explosion of interest, CBP has announced the development of an entry type 86 for ABI submission of Section 321 shipments. Though release of this functionality was pushed back from this month to the end of September, this automation will greatly ease the process for filing duty-free Section 321 entries.

A CFS is a warehouse that specializes in the consolidation and deconsolidation of cargo. The maximum stay in a CFS is 15 calendar days pending release from CBP. Automated release in ACE will make it easier to comply with this requirement.

As a result, U.S. Customs has been inundated in certain ports with requests to approve more Container Freight Stations in advance of automation of the entry process.

Its Official: China Tariffs Are Here To Stay

U.S. and Chinese trade negotiators held four hours of talks Wednesday without reaching an agreement that would reduce or eliminate the 25% tariffs now in place on goods from China. Both sides described the talks as constructive and said the next round will be held in September in Washington.

The Chinese technology company Huawei and agriculture purchases from the U.S. are key issues in the trade negotiations, but no progress on any front was reported by the negotiating teams.

This means foreign-trade zones, and prospective users of the program, will want to configure their FTZ operations taking into account the reality that the 25% tariffs will be with us at least through 2020.

Though the yearlong trade dispute—with punitive tariffs slapped on hundreds of billions of dollars of goods—has exacerbated a slowdown in China’s economic growth, many Chinese policy makers believe that the economy is bottoming out. Meanwhile, a protracted dispute is likely to prove a headache for President Trump, as tariffs pinch U.S. farmers and consumers in the run-up to the presidential election.

“China can take it easy and wait patiently,” said Mei Xinyu, a researcher at a think tank under China’s Commerce Ministry. China’s economy is recovering, he said, while the U.S.’s is likely to slow: “The impact of the trade war falls in the early stage on China’s economy but in a later stage for the U.S. economy.”

President Trump, in comments in Washington on Tuesday, noted that China’s economy “is doing very badly” and suggested Beijing might delay negotiations until next year’s election to see if he loses. “The problem with them waiting, however, is that if & when I win, the deal that they get will be much tougher than what we are negotiating now,” he said in a tweet.

Agricultural purchases were supposed to be a goodwill measure in restarting the negotiations. Mr. Trump has said Chinese President Xi Jinping promised them when the two leaders met a month ago and agreed to resume negotiations, which had broken down over U.S. demands for changes to Chinese policies and laws seen as unfair to American companies.

Beijing is likely holding out on buying large amounts of U.S. farm goods while waiting for concessions from the U.S. side, the people following the talks said. Key among those is relaxing the blacklisting of Chinese telecommunications gear-maker Huawei Technologies Co., blocking its access to U.S. technology. Mr. Trump had previously said U.S. companies would be allowed to resume sales to Huawei as part of his agreement with Mr. Xi.

Since negotiations faltered in May, Chinese officials have said that for any eventual trade deal, the U.S. must be reasonable about the amount of goods China can purchase and must remove all the tariffs placed on Chinese exports in the dispute.

China’s greater patience over a deal now contrasts with Beijing’s attitude late last year, when a precipitous slowdown in the economy unnerved Mr. Xi and his top officials, driving them to the negotiating table.

In recent months, economists and other analysts, at the behest of the government, have been touring the provinces and poring over data to assess whether the domestic economy can withstand the protracted impact of punitive tariffs by the U.S., according to people briefed on the matter. One issue being examined is the potential impact of U.S. companies moving supply chains out of China.

Officials have said publicly that they have enough policy tools to keep growth stable and achieve the government’s target of between 6% and 6.5% this year. At a key economic policy meeting Tuesday, the Communist Party’s Politburo said that authorities will boost measures to tackle “new challenges” in the economy.

Top leaders also urged financial institutions to provide longer-term funding to manufacturers to help stabilize investment. An official gauge of activity in China’s manufacturing sector picked up in July, though it remained in contractionary territory as it has been for much of the year.

Some economists believe China’s economic slowdown will worsen in coming months, as domestic demand, particularly from private companies, remains weak. Others expect Beijing to ratchet up spending and take other measures to support growth and employment ahead of the 70th anniversary of Communist Party rule on Oct. 1.

Despite the uptick in July, economist Larry Hu at Macquarie Group said, “The Chinese economy is still in the middle of a downturn cycle. The worst hasn’t come yet.” Employment is a high priority for Chinese leadership, with factories shedding workers in response to the domestic slowdown, a drop-off in global demand and the tariffs. Some five million Chinese workers have lost their jobs since last July, with as many as 1.9 million due to the tariffs, according to an estimate by securities firm China International Capital Corp. That report covered data through May, before the U.S. increased tariffs on $200 billion in Chinese goods to 25% from 10%.

With tariffs imposed by both sides affecting businesses in both countries, the two governments are likely to reach a trade agreement at some point, business executives said. “It’s not in their interest to have this confrontational relationship go on too long,” said Eric Zheng, chairman of the American Chamber of Commerce in Shanghai. “Both sides are hurting, and it’s not sustainable.”

FTZ’ine August 2019
Fed

Federal Reserve Lowers Interest Rates But Cites Strong U.S. Economy

The Federal Reserve Bank reduced U.S. interest rates by 25 basis points this week, marking its first cut since the financial crisis more than 10 years ago. The central bank’s policymaking committee cited “global developments” along with “muted inflation” as reasons for easing monetary conditions.

Stocks fell Wednesday as the Fed Chairman dampened hopes for further rate cuts later this year.

The cut comes amid mixed economic data. U.S. economic growth slowed down to 2.1% in the second quarter. However, that growth rate was better than expected.

Fed Chair Jerome Powell told reporters the central bank’s rate cut was a “mid-cycle adjustment, ” hinting that further rate cuts later this year are not a sure thing.

“This is very much in line with what we were expecting, including the balance sheet,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities. “When you look at what they’ve released, a lot of that has been out there. He’s talking about uncertainty, the potential for more if it’s warranted. He’s referring to survey and market-based inflation numbers as both being muted. These are pretty consistent with what he’s pointed to.”

“The Fed has capitulated to softer economic growth. Inflation is headed lower, but recession is unlikely,” said David Abramson, chief U.S. strategist at Alpine Macro, in a note.

The projected move from the Fed has supported risk asset prices worldwide recently. However, trade war concerns have resurfaced to dampen gains.

Boris Johnson Intent On Brexit, Deal or No Deal

The new Prime Minister of England, Boris Johnson, faces a real challenge keeping a restive four-nation kingdom allied as it hurtles toward a cliff-edge departure from Europe. He may rise or fall over how he handles questions about borders, the union and sovereignty.

As Johnson begins his premiership, vowing to leave the European Union, “do or die,” by the end of October, he is being greeted with blunt talk about what leaving without a withdrawal deal would entail.

He is also learning that his gung-ho Brexit-at-any-cost — which appealed to the elderly, white, male, well-to-do Conservative Party members who picked him as their leader — doesn’t translate as well outside England’s borders.

Johnson met Wednesday with the five fractious parties of Northern Ireland — a place so split that its gridlocked assembly has not convened since January 2017.

Irish party leaders were largely united on one thing: They warned Johnson that his threat to take Britain out of the E.U. without a deal, without a trade pact or a transition period, was folly, or worse.

Mary Lou McDonald, the Sinn Fein president, said Johnson’s plan for a no-deal Brexit has increased the likelihood that the United Kingdom will splinter — by boosting the case for Irish reunification.

Northern Ireland is currently slated to leave the E.U. along with the rest of the United Kingdom. The Republic of Ireland to the south will remain a member of the E.U. One of the most vexing challenges of Brexit is what to do about the border between the two. Under what terms will milk, machine parts, beer, financial services, bacon and people move across?

Johnson has said he will not meet with European leaders until they agree to strike the Irish border “backstop,” or guarantee, from the withdrawal agreement they negotiated with his predecessor, Theresa May.

The backstop seeks to ensure an open border by essentially tying Britain to E.U. rules and regulations in the case the two sides cannot agree to a trade deal that makes such a guarantee unnecessary.

Ireland’s central bank released estimates forecasting that a “disorderly Brexit” would cost the republic 34,000 jobs and reduce annual economic growth from 4.1 percent to 0.7 percent in 2020.

After her meeting with Johnson, Sinn Fein’s McDonald said that if there was a hard Brexit, she would push for a vote for Northern Ireland to leave the United Kingdom. Quite a threat just in Johnson’s first week on the job.

England
CBP

ISF Penalties Catching FTZ Users

Importers must transmit an Importer Security Filing (ISF, and sometimes referred to as 10+2) to CBP no later than 24 hours before cargo is laden aboard a vessel destined to the U.S.

Enforcement of this regulation was most recently delayed by the government shutdown at the beginning of the year.

Those delays are now over and U.S. Customs has rapidly ramped up levying fines for infractions, most notably including late filing.

The ISF consists of either ten data elements for shipments of goods intended to be entered into the U.S. or delivered to a foreign-trade zone, or five data elements for shipments entirely of cargo or goods intended to be transported for export.

CBP can assess damages up to a maximum of $10,000 per shipment for violations such as failure to file ISF ($5,000 per shipment), late filing of ISF ($5,000 per shipment), incomplete filing of ISF ($5,000 per shipment), failure to withdraw ISF ($5,000 per shipment), or failure to ensure ISF filing matches Bill of Lading ($5,000 per shipment)

If that were not bad enough, you may also face cargo holds until CBP receives the required information and has had the opportunity to review and examine the documentation.

In a best-case scenario , violations can be reduced to $1,000 for 1st violation, $2,500 all subsequent violations. C-TPAT Participants (Tier II & III only) can get a further reduction to 50% of that amount.

slide deck2

U.S. Foreign-Trade Zones Board Activity

  • ProAmpac Holdings, Inc. received approval to operate its facilities in Neenah and Appleton, Wisconsin as a subzone of Foreign-Trade Zone 162.  MORE
  • Mayfield Consumer Products received approval to expand subzone 294A in Mayfield, Kentucky.  MORE
  • BWF America, Inc. did not receive authorization of production activity for textile/felt filter bags and other filter products in Foreign-Trade Zone 47 in Hebron, Kentucky.  MORE
  • Whirlpool Corporation received authorization of production activity for dishwashers in Foreign-Trade Zone 151 in Findlay, Ohio.  MORE
  • Detroit Bikes LLC received authorization of production activity for electric and non-electric cycles in Foreign-Trade Zone 70 in Detroit, Michigan. MORE
  • Offshore Energy Services Inc. received authorization of production activity for casing pipe with connectors in Foreign-Trade Zone 124 in Broussard, Louisiana. MORE
  • Puerto Rico Steel Products Corporation received authorization of production activity for construction and fencing products in Foreign-Trade Zone 163 in Coto Laurel, Puerto Rico. MORE
  • Flemish Master Weavers received approval to expand Subzone 186A in Sanford, Maine.  MORE
  • GDI Technology, Inc. received approval to operate its facility in Miami, Florida as Subzone 281C.  MORE
  • Framatome, Inc. received authorization of production activity for fuel rod subassemblies in Foreign-Trade Zone 203 in Richland, Washington. MORE
  • MTD Consumer Group Inc. submitted additional evidence in support of its application for production authority within Foreign-Trade Zone 158 in Verona, Mississippi.  MORE
  • Lexmark International received authorization of production activity for organic photoconductor drums in Foreign-Trade Zone 123 in Longmont, Colorado. MORE
  • Staal & Plast USA, Inc. submitted a notification of proposed production activity for irrigation trays in Foreign-Trade Zone 176 in Rockford, Illinois. MORE
  • Cheniere Energy Partners, L.P. received authorization of production activity for liquified natural gas in Foreign-Trade Zone 291 in Cameron, Louisiana. MORE
  • GE Renewables North America, LLC received authorization of production activity for wind turbine nacelles, hubs, and drivetrains in Foreign-Trade Zone 249 in Pensacola, Florida. MORE
  • ZF Chassis Systems Duncan, LLC submitted a notification of proposed production activity to add addional components for automotive suspension systems in Foreign-Trade Zone 38 in Spartanburg County, South Carolina. MORE
  • The Lee County Port Authority submitted an application to reorganize Foreign-Trade Zone 213 under the Alternative Site Framework with a service area of Charlotte, Collier, and Lee County, Florida.  MORE
  • The Lewiston-Auburn Economic Growth Council received approval to expand the ASF service area of Foreign-Trade Zone 263 to include York County, Maine.  MORE
  • Electrolux Home Products, Inc. received authorization of production activity for appliances in Foreign-Trade Zone 38 in Anderson, South Carolina. MORE

CFS Is The New FTZ:

Container Freight Stations (CFS) are replacing FTZs as the must-have supply chain tool for e-commerce fulfillment. Because a CFS can be little more than a cross-dock operation, communities with e-commerce distribution facilities stand to lose jobs overseas unless action is taken soon to allow FTZs to process shipments that qualify for the de minimus (Section 321) duty exemption enacted by Congress in 2016. Read why below.

The Federal Reserve lowered interest rates 0.25% yesterday and noted that the current strength of the U.S. economy may not warrant any more cuts.

The latest round of trade talks between the U.S. and China ended on Wednesday in Shanghai with no end to the dispute in sight. Even within the Administration all hope is gone that any agreement will be reached before the Presidential elections. FTZ users should plan accordingly, as discussed below.

That was fast – Acting Commissioner of Customs John Sanders stepped down from the post on July 5th, after only 8 weeks in the job. Mark A. Morgan, previously Acting Commissioner of Immigration and Customs Enforcement (ICE), took over the role.

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