2012 is likely to be another active year for international trade. It is, of course, an election year, and that, alone, causes turmoil as Democrats and Republicans trade barbs and use international trade as a political football. Neither side believes anything the other side is doing is right, a situation that has only deteriorated with each successive election.
The Republican debates already have produced a number of less-than-well-reasoned demands for how the U.S. should retaliate against China for real or perceived trade infractions — from valuation of the yuan to anti-dumping. These somewhat hair-brained ideas all fall under the excuse of having to better manage the huge U.S. trade imbalance with China.
From the Republican perspective, President Obama is too soft on China. Many Democrats, of course, have reached the same conclusion. Finding the all-important middle ground — wherever it may be — will be critical over the next year or two.
Perhaps not surprisingly, the regulatory arena seems a tad more predictable. That’s certainly helped by the long-awaited November confirmation of Eric Hirschhorn as undersecretary of commerce, heading up the Bureau of Industry and Security. Hirschhorn’s confirmation is a positive sign reinforcing the export reforms already under way. While that focus may change in 2013 if President Obama loses his re-election bid, the reforms will remain on track at least through this year.
The reform effort, dubbed “higher walls around smaller yards,” aims to establish a single licensing agency, a single computer system, a single control list and a single primary enforcement agency. Many of these changes will require legislative reform, and we can all guess how likely Congress is to undertake such changes in an election year. Still, it’s clear BIS is working closely with the Defense and State departments to accomplish many of the desired results through regulatory reform.
Perhaps one of the most predictable advances will come with full implementation of the free trade agreements with South Korea, Colombia and Panama. Although Congress has approved each pact, a lot of work remains before the FTAs can be implemented. How quickly that happens is anyone’s guess.
For example, the South Korean Parliament has approved that agreement, but congressional approval in Colombia and Panama has not occurred. Even once those steps are completed, Customs and Border Protection needs to publish the necessary regulations. Given the number of FTAs to which the U.S. is a party, preparing the regulations should be relatively straightforward, but that doesn’t negate the requirement for the regulations to be published, commented upon and for Customs to issue the final regulations.
Of course, any discussion about trade issues in 2012 must include this question: Who will be customs commissioner? Barring a last-minute miracle of a confirmation by the Senate, Alan Bersin is out. The question now is whether President Obama will be able to get anyone of the proper caliber to accept a short-term appointment. If not, Deputy Commissioner David Aguilar will lead the agency.
Although Aguilar is certainly a quick study at understanding the agency’s priorities and workings, the fact that Customs protects the U.S. borders alone means the agency should not have to do without a permanent leader. Yet it keeps getting treated as a misbehaving stepchild when it comes to filling the commissioner position.
Customs faces other important issues in 2012, including completing implementation of the Automated Commercial Environment and entry simplification, identifying more significant benefits for members of the Customs-Trade Partnership Against Terrorism and figuring out a workable definition for trusted traders — which may or may not end up continuing to include Importer Self-Assessment membership.
Asked about its future priorities, Customs representatives consistently mention more significant trade enforcement or improving enforcement, but what does that mean? We know interdicting counterfeit goods is also a critical priority for the agency, but how will that play out?
The vast majority of seized goods — even those said to be counterfeit — currently get released after horrible delays and significant fines. Customs concedes its process on seizure, penalty and liquidated damages on goods is broken. What will follow?
Of course, the single biggest issue Customs faces is how to meet its significant and ever-expanding responsibilities with limited staffing and equipment. That shortage is particularly harmful to the agency and international traders when it comes to the delays that occur regularly when imports and exports are detained and when it comes to getting legal decisions from the Office of Regulations and Rulings. More, better-trained employees are needed across the agency, but where will the money come from?
The Food and Drug Administration also faces significant regulatory challenges. Many provisions of the Food Safety Modernization Act, signed into law early last year, still must be implemented. The key proposed changes are expected by mid-2012, including foreign supplier verification procedures, eligibility in the voluntary qualified importer program (including fees), how the FDA will deal with high-risk foods, updates the FDA intends with its targeting system, third-party verifications (who qualifies, under what circumstances, what will those auditors be allowed/expected to do, how will/can traders rely on these auditors?) and, of course, user fees, their amounts and how they will be implemented on imported goods.
Also expect to see changes to the Lacey Act, the federal law that prohibits trade in wildlife, fish and plants that have been illegally taken, transported or sold. Many companies have encountered significant difficulties getting the details they demand, even when imported wood found to violate the act accounts for only a minimal amount of a product’s content. How should this law be applied? What should it require? Just how much detail is needed when the product has only a small imported wood component? Should buttons on sweaters be treated the same as wooden furniture?
Finally, there is one more overarching issue not related to any given enforcement agency. How will the Dodd-Frank whistleblower provisions impact international traders? Companies, in some cases, have spent millions of dollars to implement wide-reaching compliance programs. Many of those programs started in 2002 when Sarbanes-Oxley was enacted. The vast majority of those programs have been reviewed by outside accountants only, and their goal, correctly, is to identify and report all relevant significant risks.
With all due respect to those professionals who no doubt take their responsibilities seriously, until we start to see more reviews of companies’ compliance programs by the Justice Department and the Securities and Exchange Commission, there is no assurance these programs will be considered adequate. We’re already seeing staggering fines arising out of violations of the Foreign Corrupt Practices Act. We know what Justice and the SEC want in compliance programs when it comes to the FCPA.
How many companies have compared their overall compliance programs to those standards? For those who have, have you incorporated your trade compliance programs into that review/update? With the new whistleblower provision in Dodd-Frank, the SEC is reporting more complaints. How soon will those mature into significant enforcement actions? How many of those enforcement actions involve third-party providers to those publicly traded companies?
In the end, the vast majority of those engaged in international trade are small and medium-sized companies that aren’t publicly traded and so not subject to Sarbanes-Oxley or SEC jurisdiction. The question to all those companies is what are you doing to be compliant and is it enough? That question will haunt us all in 2012 and beyond. The trade enforcement agencies have begun to look at more transactions and to identify more violations. Can significant fines be far behind?
What happens in 2012 also will be influenced greatly by world political and economic events, and if we are honest among ourselves, the crystal ball we collectively have isn’t good enough to see those consequences clearly just yet. Here’s hoping none of those events create seismic shifts for international traders. There is already enough going on!
Susan Kohn Ross is an international trade attorney with Mitchell Silberberg & Knupp in Los Angeles. Contact her at firstname.lastname@example.org.