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China, a thriving global economic powerhouse, is a prime location for businesses looking to expand their horizons and tap into new markets. The potential for growth and profit is immense, as China is the world's largest consumer market. However, importing goods to China can be a complex process, especially for businesses that are new to international trade. This brief post aims to guide you through the crucial information you need to know about importing to China. Understanding China’s Import Regulations First and foremost, you need to familiarize yourself with China's import regulations. The country has strict rules and regulations regarding imports, and failure to comply with them can result in hefty fines, delays, or even confiscation of your goods. It's essential to understand the country's customs duties, import licenses, and documentation requirements. Identifying Your Products HS Code Every product that enters China needs to be classified under the Harmonized System (HS) Code. This international standard system of names and numbers is used to classify traded products, and it's crucial to get your product's HS code right, as it determines the import duties and regulations that will apply to your product. Choosing a Reliable Freight Forwarder Selecting a reliable freight forwarder can make your import process significantly smoother. They will handle all the logistics involved in transporting your goods from one place to another, reducing your workload and ensuring that your products reach their destination safely and promptly. Understanding Chinese Consumers Before you start importing, ensure you understand the Chinese consumers' needs and preferences. This is incredibly important because what sells well in your home country may not necessarily have the same appeal in China. Conducting market research can provide valuable insights into consumer behavior and popular trends in China. Labeling and Packaging China has specific requirements for the labeling and packaging of imported goods. Incorrect labeling or packaging can lead to your products being held at customs, causing delays and additional costs. Therefore, it's essential to ensure that your products meet all the necessary labeling and packaging requirements before they are shipped. Inspections and Customs Clearance Your products will need to pass through inspections and customs clearance before they can be sold in China. This process involves verifying the compliance of your goods with Chinese regulations and paying any necessary customs duties and taxes. It's crucial to be prepared for this process and have all the necessary documentation ready. Overall, while the process of importing to China can be complex and challenging, it can also be highly rewarding. With thorough preparation and understanding of the Chinese market and its regulations, businesses can tap into the immense opportunities that China offers and achieve significant growth and success.

December 1, 2022 - Following the G20 summit in Bali on Nov. 14, 2022, President Joe Biden reported that a new cold war with China can be avoided. This is certainly welcome news to global businesses, but day-to-day businesses continue to struggle with the chaos of unprecedented international trade regulations that have taken hold in the past six years. The Trump-era China tariffs, the Ukraine/Russia related sanctions, as well as other trade restrictions challenge U.S. companies with an international reach as they navigate a tumultuous geopolitical scene. It is also important to note the lasting impact of the U.S. withdrawal from the Trans-Pacific Partnership Agreement (TPP), which would have included 12 Pacific Rim economies. The agreement has moved forward without the U.S. as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, or TPP11). So, amidst this global unrest, what are U.S. companies really struggling with today when it comes to international trade? It's understanding and navigating the technicalities. Below, we examine some of the major international trade issues facing U.S. companies. China As U.S. importers are aware, the China Section 301 tariffs impact certain products for certain periods of time, depending on the product's applicable classification under the Harmonized Tariff Schedule (HTS). Having an incorrect HTS classification can result in penalties and interest, with fees. If the Section 301 tariffs apply to a given product by HTS code, the importer must pay an additional 10-25% tariff to the U.S. Government to import the merchandise. As outside trade counsel looking in, we see first-hand through company sales data that many U.S. businesses cannot shoulder this additional burden. Some companies have shifted production to Mexico, where they may take advantage of the U.S.-Mexico-Canada Agreement (USMCA) as long as they meet the technical requirements for originating products. For others, China is the only feasible country from which to source a particular commodity — for example, due to limited product availability or the difficulty of relocation of manufacturing plants. Importers were allowed to request exclusions during specific windows of time, and such requests frequently involved proving severe economic harm to the U.S. requestor. Exclusions were granted for certain products, again for certain periods of time. The U.S. Trade Representative (USTR) extended 352 of 549 total eligible exclusions in March 2022 that were valid from Oct. 12, 2021, to Dec. 31, 2022. In addition, on May 27, 2022, the USTR extended 81 product-specific exclusions for COVID-related products. These exclusions are set to expire on Dec. 1, 2022, so importers are watching for new developments. USTR began a four-year review of Section 301 actions taken on May 3, 2022, but that review will take time. Congress also instructed the ITC to gather public comments on Section 301 economic impacts, but that report is not due to Congress until 2023. Much is up in the air. For assistance or questions with the four-year review or exclusion process, the USTR has a hotline for Section 301 at (202) 395-5725. In addition to the tariffs, compliance teams are working to document compliance with the Uyghur Forced Labor Prevention Act (UFLPA), which involves a rebuttable presumption that the importation of certain goods from China is prohibited. Add to that the complexity of denied party screening of entities that are state controlled even if they are not state OWNED per se. Tracking that ownership back is extremely difficult, and companies do not know how deep to dig in the due diligence process. Mexico The USMCA went into effect July 1, 2020, keeping in place the detailed content analysis required to substantiate country of origin product-by-product. To qualify for preferential tariff treatment, products must contain a minimum amount of North American content. Whether an import qualifies as originating depends on the percentage of content from the region or a substantial transformation within a USMCA country (e.g., a change in the essential character of the item as specified in the tariff code). Despite several updates in 2020, substantiating country of origin remains a technical and detailed process. The USMCA also adds new twists to the origin analysis of certain imports such as vehicles. For example, the article, "USMCA — Impact on the Automotive Industry," by The Descartes Systems Group, a trade software service provider, notes significant changes to the automotive industry. "To qualify for tariff-free entry, automakers must use an increased minimum of North America-made parts, from 62.5 percent from NAFTA to 75 percent. Additionally, increased worker compensation is now required." Specifically impacting manufacturers in Mexico, which under NAFTA saw wages accounting for one-eighth of costs, USMCA provisions now require companies "to produce 40-45 percent of their parts from factories paying an average wage of $16 USD per hour." Russia The Ukraine/Russia-related sanctions are not comprehensive. Rather than covering the entire country, the U.S. Department of Treasury Office of Foreign Assets Control (OFAC) has designed these sanctions to target specific entities and individuals. In our practical experience, targeted, complex sanctions regimes such as the Russia sanctions can give companies false hope. On its face, a proposed transaction may not appear to violate U.S. sanctions on Russia. In practice, however, transactions can wind up prohibited due to tangential aspects of the deal. Among other verifications needed to ensure a transaction is legal, vetting Russian entities requires knowing precisely how the ownership of an entity is structured and who the owners are. Corporate documents generally are not publicly available for China and Russia. Even if a proposed transaction passes screening initially, the bank or banks involved may be blocked so the seller cannot get paid. Conclusion Lingering COVID-19 supply chain issues and dynamic international relations have led to stricter regulatory controls in the U.S. Not only are certain imported goods subject to significant tariffs, but transportation and logistics are also more expensive because of supply chain shortages. As companies strive to expand, are they growing their trade compliance programs? The past six years have culminated in an extraordinary administrative burden on corporate trade compliance teams. And growth will not stop anytime soon. To grow in a healthy way, leading companies are reevaluating the regulatory landscape and scaling up trade compliance programs to meet demands in the coming year.

September 7, 2022 - With the pandemic, we saw an incredible demand for technology that consumers use in work and for entertainment. Unfortunately, that demand was coupled with worldwide shortages and significant supply chain issues, and these factors had a devastating effect on semiconductor production. With semiconductor chips in very short supply, there was a wide-ranging impact in many industries, from automobiles to gaming consoles, leaving consumers with few options for purchasing. This shortage has highlighted the fact that these chips that we rely on for so much of our technology are not widely made in America. According to a statement from Whitehouse.gov, while America invented the semiconductor, we currently only produce about 10 percent of the world's supply. All of this has led to the passage of the CHIPS and Science Act of 2022, designed to tackle the chip shortage with a new approach to bringing chip technology, manufacturing, and innovation to the United States. President Joe Biden signed this bill into law on Aug. 9, and we can now expect to see a boost in U.S. leadership in semiconductor research and design, innovation, and manufacturing. The CHIPS Act will have a broad impact, bolstering U.S. leadership in wireless technology, and CHIPS funding will benefit not only U.S. chip manufacturers, but also U.S. universities, K-12 STEM educational programs, and regional hubs among other advancements in innovation. To assist in securing the domestic chip supply, the CHIPS Act provides $52.7 billion for American semiconductor research, development, manufacturing, and workforce development, including: •$39 billion in manufacturing incentives, including $2 billion for the legacy chips used in automobiles and defense systems; •$13.2 billion in R&D and workforce development; •$500 million to provide for international information communications technology security and semiconductor supply chain activities, such as research and design, packaging, and distribution; •A 25 percent investment tax credit for capital expenses for manufacturing of semiconductors and related equipment. (See here https://bit.ly/3e9xqMg). The Bureau of Industry and Security (BIS) already controls exports of semiconductors and semiconductor technology strictly under Category 3 of the Export Administration Regulations (EAR) Commerce Control List (CCL). The reasons for control for Category 3 electronics include national security, regional stability, missile technology, nonproliferation, and antiterrorism. The U.S. government has not hesitated to enforce these controls, for example in the 2021 case of Vorago Technologies Inc., an Austin-based semiconductor manufacturer, charged with illegally exporting controlled wafers to Russia via Bulgaria. According to the BIS publication "Don't Let This Happen to You," on Sept. 28, 2021, Vorago Technologies agreed to a civil penalty of nearly $500,000, $247,00 of which was suspended, along with a two-year denial of export privileges. The BIS also added three Russian companies and four Russian individuals to the BIS Entity List in connection with this investigation. The Department of Justice (DOJ) also charged individuals criminally in this case. The Assistant Attorney General explained in a Dec. 18, 2020, press release, "Time and again, we find the Russians attempting to get access to sensitive American technology. The defendants here are charged with exporting radiation-hardened chips to Russia, knowing that it was illegal to do so and establishing a business in Bulgaria to circumvent U.S. enforcement authorities." (See here https://bit.ly/3AXzL5V). So, now that chip production will inevitably increase in the United States, what does that mean for export controls? The U.S. export controls on semiconductors are hardly new, but taking on a greater leadership role in this area will require the United States to protect even more carefully against unauthorized exports of controlled technology. For example, CHIPS funds will come with "guardrails" to help ensure subsidized entities do not build certain facilities in China or other countries of concern. This bill also comes at a time when the U.S. has been implementing stricter semiconductor export controls and licensing policies — and tougher export enforcement overall. For example, in June, the BIS announced heightened enforcement measures for export control, including for example the publicizing of administrative penalties. (https://bit.ly/3pXc07L). "Our enforcement tools have never been a better match for the global threat environment than they are right now, and today's changes will help to make sure that we are using those tools to their fullest potential to protect our national security," said Assistant Secretary of Commerce for Export Enforcement Matthew S. Axelrod in a June 30, 2022, press release on the BIS website. Then, on Aug. 15 BIS announced a formal ban on the export of four technologies directly tied to semiconductor manufacturing. According to BIS, in a statement released on Aug. 12 on its website, the rule "establishes new export controls on four technologies that meet the criteria for emerging and foundational technologies under Section 1758 of the Export Control Reform Act (ECRA) and are essential to the national security of the United States." The four technologies include two substrates of ultra-wide bandgap semiconductors: Gallium Oxide (Ga2O3), and diamond; Electronic Computer-Aided Design (ECAD) software specially designed for the development of integrated circuits with Gate-All-Around Field-Effect Transistor (GAAFET) structure; and Pressure Gain Combustion (PGC) technology. (See here https://bit.ly/3CJ3Qra). All of this increased regulation in tandem with the CHIPS Act will have a direct impact on Chinese corporations, covering a wider range of Chinese end-uses and end-users. Recent "entity listings" cover certain public and private semiconductor-related entities, including chip designers and end-users (like Huawei), various Chinese supercomputing entities, and Chinese chipmakers (like Fujian Jinhua). These controls typically cover all semiconductor technologies. With the passage of the CHIPS Act, U.S. semiconductor manufacturers, technology developers, universities, educators, funded state and regional hubs, electronics distributors, and other leaders in semiconductor and telecom innovation must remain vigilant in protecting against unlawful releases to China, Russia, and any listed entities and individuals under U.S. export laws and regulations. For example, any CCL products, equipment, or technology classified under Export Control Classification Numbers in Category 3 or Category 5 will require a license for export to certain destinations. U.S. export controls are far-reaching, and enforcement is trending upward. U.S. export controls touch exports as well as re-exports to third countries, in-country re-transfers, and even releases of drawings, blueprints, formulas, and other technology to foreign nationals located in the United States. Fortunately, the BIS offers outreach on compliance in this complex area of law and technology. (See here https://bit.ly/3TrF3hm). As the semiconductor industry navigates the benefits of the CHIPS and Science Act, export controls will also require an increase in export compliance awareness. https://www.reuters.com/legal/legalindustry/passage-chips-science-act-what-does-this-mean-us-export-controls-2022-09-07/

Dallas-Based Boutique Law Firm Dedicated Exclusively to Complex International Trade, Customs Compliance and Enforcement Matters Dallas, TX – With over 22 years of in-depth experience focusing on international trade matters at some of the country’s largest law firms and a leading trade firm, Michelle Schulz has now launched Schulz Trade Law PLLC, a boutique, Dallas-based law firm dedicated exclusively to assisting clients in international trade, customs compliance, and enforcement matters. Michelle is joined by a team of seasoned international trade attorneys and trade advisors with the extensive knowledge and skill sets needed to assist clients in navigating the highly complicated issues associated with fast-changing international trade issues. Michelle and her team represent clients in export and import disclosures, investigations, audits, penalties, encryption controls, and other complex areas of international trade law. As the founding partner of Schulz Trade Law, Michelle leads her team in the representation of clients in a variety of industries such as oil and gas, aerospace, electronics, health care, food and beverage, and automotive. She has served as outside trade counsel for clients including Fortune 500 manufacturers, distributors, and defense contractors, and she is well-known for negotiating with enforcement, leveraging an unparalleled understanding of government requirements and expectations. Michelle and her team are well-versed in defense exports under the International Traffic in Arms Regulations (ITAR) as well as dual-use exports under Export Administration Regulations (EAR). They are also highly experienced in the US Customs Regulations, Foreign Corrupt Practices Act (FCPA), Foreign Trade Regulations (FTR), and Committee on Foreign Trade Investment in the U.S. (CFIUS) regulations and routinely navigate compliance issues in sanctions, embargoes, Foreign-Trade Zones (FTZs), free trade agreements, country of origin, valuation, and trade data reporting to the U.S. Census Bureau (Census). The team at Schulz Trade Law includes Senior Associate Attorney Lindsay Forbes, Associate Attorney Marina Mekheil, Of Counsel Ogbo Ossai, Of Counsel Adrienne Braumiller, Senior Trade Analyst Kelly McCorkle, Trade Analyst Matt Savage, Paralegal Matthew Regner, and Chief Operating Officer Brian Lawrence. About Schulz Trade Law, PLLC Schulz Trade Law PLLC is a boutique Dallas-based law firm dedicated to assisting our clients with all of their international trade concerns. We represent clients across a variety of industries, including Aerospace, Healthcare, Technology, Oil & Gas, Manufacturing, and Transportation, offering a broad range of legal services such as ITAR & EAR Compliance, Export, Licensing and Agreements, Voluntary Disclosures, Compliance Programs, Auditing, and Customs Regulations. Learn more at https://www.schulztradelaw.com ###

BIS reached its first settlement under the new policies announced last month. The respondent received non-monetary penalties because he admitted to the illegal conduct. This settlement still resulted in a two-year suspended denial of export privileges. BIS is also requiring the respondent to implement compliance training and perform a twelve-month audit of the company's export compliance program. BIS will seek to resolve administrative enforcement actions with non-monetary penalties in relatively less serious matters, but targets of these enforcement actions will need to ac cept responsibility for the illegal conduct and agree to remedial measures.

Since the Kremlin’s February 24th invasion of Ukraine, western countries have put in place extensive global financial ramifications. To gauge the extent of effectiveness, ne must decipher the numbers behind Russia’s deceiving published economic statistics. One staggering implication of the trade war with the west lies within the entire collapse of the GDP growth acquired in the post-Soviet era. Sanctions have certainly not only impacted the aggregate of the Russian economy, but also the individuals. According to the Yale school of management’s first comprehensive economic analysis published this July, in 2022, by Jeffery Sonnenfeld, based on an in-depth dive on high frequency consumer data, cross channel checks, releases from Russia’s international trade partners, and data mining of complex shipping data, it is evident that: “business retreats and sanctions are catastrophically crippling the Russian economy.” Office of Foreign Assets Control (OFAC) sanctions include the designation of approximately 29 individuals and 70 legal entities to the Specially Designated Nationals (SDN) list, as the US Department of Treasury had deemed them integral to support of the Russian Federation’s military industrial complex, and in turn directly the conflict in Ukraine. Additionally, the Bureau of Industry and Security (BIS) issued a new rule adding 36 entities spanning 9 countries to aid the effort to stop American inputs from ending up with Russian military end-users. The direct impact these policies impose on the Russian economy already resulted in a mass exodus from foreign corporations that are said to account for 40% of Russia’s yearly GDP. In addition, the lack of access to foreign capital markets has forced Russia’s commodity-based export market to rely on an Asian-centric approach to sell commodities like natural gas, which of course is being negotiated from a desperate position in Moscow resulting in the unraveling of Russia’s long-term strategic positioning in the commodities market. As Russian gas exports to Europe decrease to near record lows thanks in part to the Nord Stream pipeline’s cease in operation to Europe, the shift to the east as a buyer comes at great consequence. The infrastructure to transport the natural gas that is being built and financed by China is not presently in place. Consequently, China has increased oil purchases at an unheard-of 35 dollar a barrel discount compared to the brent benchmark price demonstrating Putin’s lack of negotiating power. The Russian consumer price index, or the economic measure of inflation, is estimated to be at more than 20% since February, as imports are drastically down including from their closest ally China. Lack of foreign components for technology have led to much of Russia’s military and consumer struggles. Prior to the invasion, on average approximately 100.000 cars were sold in Russia month-to-month, whereas now only a quarter of those transactions happen. Domestic production without international supply chain inputs have led to Putin suspending safety requirements on cars such as air bags, and anti-lock brakes. In international input import reliant industries like technology, inflation is estimated to range from 40-60% percent. Unsuccessful import substitution and the exodus of 10,000 foreign companies as well as approximately 500,000 people - many of whom are wealthy and/or highly skilled - has placed Russia in an extremely precarious position. This will likely lead to Russia’s heavy reliance on a Chinese government that does not reciprocate the codependency. Ultimately, the pressures from sanctions have resulted in many supply chain input shortages affecting the invasion, the military infrastructure (especially in aerospace, such as Boeing’s withdrawal both tangibly), and in product support deeming these repurposed planes parts as unsafe. These warnings from Boeing have not stopped airlines like Aeroflot from repurposing parts of planes on hand to continue to operate. Even Pobeda has gone as far as to suspend nearly half of their fleet to service and provide parts for the remaining planes. According to Commerce Secretary Gina Raimondo, there are reports of Ukrainians finding semi-conductors from kitchen appliances repurposed for military use. The overwhelming amount of empirical evidence shows the wide-reaching consequences of the sanctions for not only the Russian government and military, but especially the difficulties for those still living in Russia.