February 7, 2023
Global Trade Compliance Update—February 2, 2023
Welcome to the weekly Global Trade Compliance update to keep you apprised of the ongoing rustlings in the world of Global Trade Compliance. This weekly update seeks to serve FlavorCloud customers and partners best as we facilitate and automate frictionless international trade and logistics.
GLOBAL: China, Russia, and Export Controls
The expectation is that Russia and China will remain the primary targets of US export control regulations, with the Bureau of Industry and Security (BIS) leading the way, in enforcement actions. This trend will likely continue for many years.
The Biden administration aims to regulate American investment in many Chinese industries broadly. It is even considering targeting entire portions of the Chinese tech economy, which include semiconductors, artificial intelligence, cyber and quantum computing. These potential investment blockades are based upon perceived threats to national security and the economy and limiting access to dual-use military commodities and other advanced technologies that benefit the central Chinese government and the Chinese military. Proposed actions are still in the planning stages and would require authorization by the Treasury Department, Committee on Foreign Investment into the United States (CFIUS), and/or Executive Orders. Additional details, background, and possible next steps can be found here: https://www.axios.com/2023/01/12/white-house-biden-china-executive-order-cfius.
EU: New EU Regulations for Cosmetics and Personal Care Products
EU regulators are considering altering safety assessments for cosmetics and personal care products manufactured in the EU and imported into the EU from non-EU countries. Experts have categorized these updated measures as draconian and warn that they will drastically impact the industry. For 2023 and beyond, the EU has imposed new bans and restrictions on specific chemicals/ingredients, which can be found here.
Several EU regulations are at various stages of approval, which will determine the final outcome on the regulatory footprint. These include updates to EC 1223/2009 (EU Cosmetics Regulation), EU REACH Directives, EU restrictions on microplastics, EU Waste Water Treatment Directives, and EU Packaging Directives. Current best practice is to regularly consult the EU’s compiled and consolidated repository for Cosmetic Product Regulations and Regulation (EC) 1223/2009. FlavorCloud continues to monitor all relevant developments closely and will provide proactive guidance in the event regulatory updates may impact our merchants and partners.
US: Challenges to Steel and Aluminum Tariffs
In early December 2022, the World Trade Organization (WTO) ruled against the United States in multiple cases that member nations brought against the US for how it imposed tariffs against steel (Section 301) and aluminum (Section 232) imports. The US has appealed and fought back against the rulings contending that it has the right to protect itself and that the WTO has no authority to limit its ability to respond to attacks. Trade representatives from the EU and China have claimed that the appeals essentially amount to abuse and protectionism. The outcome of these appeals will likely culminate with the initial rulings never becoming final as the US has blocked judicial appointments to the WTO’s appeals body, thereby nullifying them. For now, the US Steel and Aluminum Tariffs endure and will likely remain so for the foreseeable future.
GLOBAL: Microchips, Sanctions, and Ukraine-Russia War
The 2022 CHIPS and Science Act and ongoing Russia Sanctions programs have reduced international exports of semiconductors to Russia by almost 70%. These regulations are currently imposed by the United States and 37 other countries and aim to limit Russia’s ability to manufacture weapons and supply its military with materials. In addition to military production, domestic Russian automotive manufacturing has dropped 75%, as chips originally intended for automobiles have been re-requisitioned for military purposes. This has drastically impacted the Kremlin’s ability to supply its military and has forced them to seek alternative means from Iran and North Korea.
Ukraine’s Zelenskiy Calls for More EU Sanctions on Russia
Ukraine’s president, Volodymyr Zelenskyy, has requested new and enhanced sanctions against Russia. Zelenskyy appeals to the EU and international community for new sanctions targeting Russia’s nuclear sector. In addition to current sanctions, which impose a price cap on oil, Ukraine wants the EU to introduce a new cap on petroleum products and further tech sanctions to limit the production of war materials. This is to close loopholes in existing sanctions and prosecute those who aim to skirt or evade current sanctions more tightly. Reluctance to new sanctions has been voiced by certain EU member states, which may delay or even prevent rolling out any new measures. FlavorCloud continues to monitor all relevant developments closely and will provide proactive guidance in the event regulatory updates may impact our partners.
GLOBAL: US-China Trade Concerns and Potential Supply Chain Diversification Away from China
As US-China trade impasses grow, we can likely expect further negative impacts on supply chains. While trade between the top two global economies are slowly returning to pre-pandemic levels, the United States has made efforts to reduce interdependence on Chinese imports. Many experts feel the theme will be a potential decoupling and supply chain diversification away from China. Trade and tariff disputes between the US and China lead to a nearly $60 billion drop in US imports from China between 2017-2019 over the first two years of the Section 301 tariffs.
While tensions and trade barriers continue, the US is encouraging diversification efforts to reduce dependence and increase domestic self-reliance for strategic economic sectors. The 2022 CHIPS and Science Act and international cooperation with Japan and the Netherlands, who is ready to accede to US prohibitions on exporting microchip manufacturing equipment to China, are all signs of a shift from hyper-localized production to a broader geographic manufacturing footprint. Impacted commodities include those products affected by US tariffs, microchips, semiconductors, and other fundamental higher technology components. Expectations are that manufacturing will move away from China to other Southeast Asian nations or potentially even closer to the US.
Mexico’s President, Andrés Manuel López Obrador (AMLO), has signaled intentions to create a Mexico-US-Canada committee to reduce its dependence on imports from Asia by 25%. This intent was conveyed in AMLO’s closing statements at the recent North American Leaders summit. This import substitution project is still in planning, and nothing concrete has been published, but if it gains traction, it will undoubtedly create major ripples in the global supply chain. While the project targets Asia in its entirety, China would be most impacted. In 2021, the US imports from Asia totaled $1.24 trillion, with just over $500 billion from China and the remainder from Japan, South Korea, Vietnam, Malaysia, and Indonesia. A 25% reduction
That concludes this week’s Global Trade Compliance update. Stay tuned for further updates in the coming weeks.
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Whit Bolland is Head of Global Trade Compliance at FlavorCloud, an operations leader and our resident international trade compliance expert. His track record speaks volumes about delivering success in highly complex environments. His deep knowledge of trade compliance is unrivaled and is an essential beacon amongst the team.