Talking Trade with Brenda Smith of CBP’s Office of Trade

The Adam Smith Project recently sat down with Brenda Smith of U.S. Customs and Border Protection’s Office of International Trade to review the agency’s progress on implementing the Trade Facilitation and Trade Enforcement Act.    In early 2016, Congress and the Obama administration passed and enacted into law the Trade Facilitation and Trade Enforcement Act (TFTEA). Customs and Border Protection (CBP) became the primary agency responsible for implementing the myriad regulatory requirements placed upon the trade by the legislation. The Adam Smith Project sat down with Brenda Smith, CBP’s executive assistant commissioner for the Office of Trade, in early March, at the agency’s Washington, D.C. headquarters, to discuss TFTEA’s anti-forced labor enforcement mandates, as well as the legislation’s simplified drawback procedures, which went active in CBP’s Automated Commercial Environment (ACE) on Feb. 24. Smith, who joined CBP in 1994, has served in her current role since fall 2014. She oversees a range of trade facilitation and enforcement matters for the agency, including intellectual property rights, antidumping and countervailing duty enforcement, trade data management, and implementation of ACE.

Q: It’s been two years since TFTEA was enacted. Are there any upcoming deadlines with regard to the updated customs processes that the trade should be aware of?

A: The one that we’ve spent a great deal of time around, and it’s been kind of high on everybody’s list, are the drawback regulations and the simplified drawback implementation. The statute called for us to have final regulations and automation implemented on Feb. 24 of this year. The automation is ready, the ACE deployment that went live on the 24th allowed us to be able to take in simplified drawback claims. We feel like we have met the spirit of law. Ideally the final rule would be in place, but that is still going through review by the various interested parties within the executive branch. We’re keeping our fingers crossed; we’ve done quite a bit of outreach to the private sector. I think that they know what we’re ultimately looking for; they know how it will operate. We’ve worked with them around their business practice to make sure that we’re all both consistent with our approach and that it’s as effective as Congress envisioned when they passed the law, and we are anxious for the implementation of the final reg.

Q: Is CBP still on track to make TFTEA drawback the only legal framework for filing drawback claims by the TFTEA-required date of Feb. 24, 2019?

A: We believe so. We have ensured that our partners in the executive branch are well aware that that Feb. 24, 2019 date is a pretty critical date. Ideally, it would have been in place by Feb. 24, 2018. But now we have a year of transition, when you can do both what we’re calling “core” or traditional drawback and then the simplified. Those businesses that manage drawback programs . . . have a business to support, a business to run, and if the simplified drawback process isn’t in place, they then have to run drawback through the old process, which is fine, except that on Feb. 24, 2019, that ability goes away. We’re pretty focused on making sure that everybody understands that if we don’t have a final rule in place, there will be no drawback payments made under either program after Feb. 24, 2019.

Q: To the extent you can answer, is the proposed rulemaking pending at OMB [the Office of Management and Budget] right now [March 7]?

A: Not formally. I believe it is still at Treasury, and we have certainly briefed OMB. They’re aware of what’s in the package, but in terms of actually doing the formal review part of this, I don’t believe that clock has started yet.

Q: ACE reconciliation was scheduled to go live on Feb. 24. Is that reconciliation area following the timeline [CBP] had set out?

A: Yes, we’re in good shape. As of March 5, we had 106 successful reconciliations, and we’re really pleased with the way it’s working. It’s working as designed.

Q: In December, CBP issued a final rule for IPR (intellectual property rights) enforcement donation acceptance. How much participation have you seen in that program so far, and how many donors are currently participating?

A: At this point we’ve announced our first successful acceptance, which came from Proctor & Gamble. They have donated testing equipment around one of their products and we will be using that in the ports. First one started out a little slow, which is fine. We obviously have a lot of experience with donation acceptance programs, but in this particular space, we wanted to be sure that we were getting it right, we had the right criteria in place, so that as we accepted technology, that we were able to use it effectively and it didn’t overwhelm our ports of entry. I think we’re on a good path there, and we’re looking forward to working with more companies that have ideas and are looking for enforcement of their trademarks.

Q: Can you take us through the process of how CBP determines something that is made with forced or child labor?

A: As you know, there was a technical change in TFTEA around what’s known as the consumptive demand clause, which allowed products made with forced labor to come into the United States if the United States had no domestic capacity for producing whatever it is. A lot of times people use cocoa as an example of that. We have no domestic cocoa production. However, TFTEA removed that exclusion, and so the rule now is, anything made with forced labor must be excluded from the United States. 
   The challenge, and we’ve spent the last two years working this challenge, is to identify and show to a reasonable suspicion level, reasonably conclusive level, that, in fact, forced labor existed in that particular supply chain. What we’ve seen is that forced labor is very often used sort of in the initial production, so things like used in the production of a particular chemical or ash that is then made into cloth, which is then turned into a piece of a shirt or a sweatshirt, and then the sweatshirt is made. So it’s three or four layers down in the supply chain. We’re finding that, that’s fairly typical.
   What we’ve had to learn how to do, is to partner with foreign governments and across DHS (Department of Homeland Security), as well as with the non-governmental organizations, to gather information around forced labor and actually be able to show reasonably conclusively that forced labor exists.
   That’s a bit of a challenge, because you’ve got to get a lot of ducks lined up and then you’ve got to have evidence that in fact it exists. And a lot of times the evidence will come from people who have been victimized, and you don’t want to make them victims again of a law enforcement process, so we also try to be sensitive to that. That’s one of the reasons that we work so closely with the civil society organizations.

Q: Are you seeing the level of use you expected at the e-Allegations portal for filing of evasion claims pursuant to EAPA (Enforce and Protect Act) provisions of TFTEA?

A: We are at this point. We didn’t quite know what to expect when the new legislation went into effect. We drafted an interim final rule within six months of TFTEA passing, which was a pretty heavy lift, but we did it. Then we waited to see what was going to happen—was the business community going to take advantage of this or not? The first one came in and you may be aware that it didn’t quite give us the information that we believe the statute and the regulations required. That was the first one. The second one, though, was right on the money. 
   And we were able to work with Milton Magnus of M&B Metals, who is a steel wire hanger producer in Alabama…He had been seeing evasion of dumping orders that he worked very hard with his industry to get in place. He was the last of what I understand were five wire hanger producers in the United States, and everybody else had gone out of business. He was kind of carrying the flag, and we worked very closely with him to identify the…lack of production of wire hangers in Thailand. They had been claiming Thai origin and we found they didn’t have the capability to produce.
   We are seeing similar behavior, and in fact, Mr. Magnus and his company have filed a number of other evasion allegations. We’ve also seen evasion allegations filed around other commodities with other countries. In fact, we have on [March 9], another workshop. This is our second or third workshop that we’ve done to basically say to the trade community, “This is what we can do to help better enforce antidumping orders; this is what we need from you for a successful allegation; this is why you should take the time to gather that information and provide it to us; here’s Mr. Magnus’ experience.” And what he showed us was—it was like a cliff—a drop-off of wire hanger exports from Thailand, and we’re aware, we have a good baseline for where else they come from, and we’re watching to see if it moves or if, in fact, people just stop exporting.
   That’s just one example. But what I think is that the domestic industry that relies on antidumping orders to remedy unfair trade realize now that this tool can be very effective for them. And so, if they partner with us and give us good information, we can take strong action.

Q: How soon can we expect a final rule for establishment of the CEEs (Centers of Excellence and Expertise)? 

A: The center rule went out as an interim final rule [in December 2016]. It was big. It’s a very thick rule and it covered a lot of technical functions that transferred from the port to the centers. I’m a big believer that, as you operate under a new set of circumstances, you have to give it time to work. I think with the centers, and I just met, in fact, this morning, with the center directors. Based on the IFR (interim final rule), and based on the new ACE functionality, and based on some planning processes that we’ve put in place that help us with the coordination of taking action between headquarters, the centers, to really get our arms around facilitation and enforcement. What I’d like to see us do is use the authorities in the IFR, the automation capabilities of ACE, and then just operational processes, which are getting stronger, see where we are, and as we’re finding changes that need to made more permanently, then rewrite the IFR.

Q: Could you speak broadly about the customs processes that the CEEs have already assumed, and what processes they’re anticipated to take on in the future? Any additional ones?

A: I think one of the things that they are doing is, very clearly, the post-entry work that used to be done in the ports of entry, and now we have what are essentially national ports of entry focused on particular industry sectors. We think there are a lot of benefits to that. We’ve talked about them over the years. They can develop expertise, they can see patterns, they can manage by account. I think those transitions have gone relatively well, particularly with the import specialists, and then we’ve figured out how to make sure that the relationship with the fines and penalties officers works well. We’ve made sure that we understand how the entry specialists should be used. We still have some open questions, I think, on what information capabilities they need. We’ve just recently revamped the relationship between the centers and the analytical support that’s provided by the NTACs (National Threat Assessment Centers) and we’ve essentially made a really strong relationship, assigned two centers to each NTAC, so that that group works together around targeting, around enforcement, around the trade analysis that really has to shine the light on where our biggest risks are, and then let the center take the action that they should be taking.