As tech companies ponder “mitigation strategies” to reduce the cost impact of tariffs on Chinese imports, be aware Customs and Border Protection's Office of Regulatory Audit has confirmed it’s beefing up enforcement for imported electronics, blogged Baker McKenzie customs compliance lawyer Ted Murphy Tuesday. Expect the agency in two-four weeks to send out the first wave of CF-28 forms -- requests for information -- since the imposition of the Trade Act Section 301 tariffs, said Murphy. “Billions of dollars in revenue are at stake for the U.S. government, and CBP is intent on collecting that revenue.” The agency recognizes importers “are under pressure to reduce the Section 301 impact and, therefore, may (intentionally or unintentionally) act in a manner contrary to U.S. customs laws and regulations,” he said. CBP justifies targeting electronics “given the conclusions of the Section 301 investigation,” which found China “engages in intellectual property theft and forced technology transfers to support its industrial advancement goals,” he said. “Targeting electronics aligns with the legal basis for the Section 301 duties and the administration’s messaging around China’s unfair policies.” Companies pursuing Section 301 mitigation strategies “should tread cautiously,” because such strategies are “likely to draw scrutiny from CBP,” said Murphy: Anyone receiving a CF-28 “should escalate the matter to the company’s legal department.”

CTA, the Information Technology Industry Council, National Retail Federation and a dozen others want U.S. Trade Representative Robert Lighthizer to strip language from the U.S.-Mexico-Canada trade agreement that leaves open lowering the de minimis exemption from $800. It's the maximum value of merchandise that can be imported duty- and tax-free. Congress unilaterally raised it in 2016 from $200 because "reduced logistics costs improve the bottom line of American small businesses across industries who import low value components for assembly and value-added manufacturing operations," said Tuesday's letter. It benefits "importers and logistics firms by reducing the time and cost to process millions of shipments and shaving a half-a-day or more from clearing each," they said. Others signing included the Computer & Communications Industry Association, Information Technology Industry Council and Internet Association.

The Trade Act Section 301 tariffs that took effect Sept. 24 on $200 billion worth of Chinese imports (see 1809240011) “have not substantially hurt our business,” said Mike Long, CEO of global components distributor Arrow Electronics, on a Thursday earnings call. Most of Arrow’s hundreds of components supplier customers are reacting to the tariffs “as they should,” said Long. “Anything that is artificially created,” such as tariffs, “we’re against,” he said. “We believe that tariffs are a bad thing in general, but if one government anywhere in the world decides they’re going to increase tariffs, don’t be surprised if worldwide manufacturers” move their production to other countries of origin, as many already have, said Long. The “bottom line” is that manufacturers “need to make their money,” and “they’re all smart enough to manufacture anywhere in the world,” and most are doing so “in more than one place,” he said. Long estimates about a third of Arrow’s customers shifted at least some production away from China since the tariffs took effect, he said. Arrow is helping customers “mitigate” the “burden” of tariffs on their businesses, said Long. “We’re assisting customers who are moving manufacturing locations and rerouting supply chains.” Arrow boasts the world’s largest “proprietary real-time database” of electronics components, he said. Tariffs were “not the reason we developed the database,” but the “value it’s providing confirms our belief in the power of data,” he said.

Custom OEM server hardware company MBX Systems sent a letter to its independent software vendor, OEM and cloud service customers this month, alerting them about upcoming price increases resulting from tariff-driven price hikes by over 30 of its component suppliers, President Chris Tucker told us. The Illinois-based company integrates motherboards, chassis, power supplies, cables, disk drives, central processing units and memory, most coming from China, said Tucker, describing a “bit-by-bit” approach to price increases by individual vendors resulting from the 10 percent Trade Act Section 301 tariffs imposed by the Trump Administration Sept. 24. MBX’s price increase for finished products is “slight” at this point because “10 percent on a motherboard may be a small percentage of the overall product cost so maybe we’re seeing a single-digit increase,” he said. Suppliers have had different responses to tariffs, some taking a wait-and-see approach and others “running through inventory"; by January, Tucker expects “one quick bump from everybody when people really feel it.” MBX has spent a “huge amount of resources” managing tariffs as it receives individual price adjustments, Tucker said. “We’re not slapping 10 percent across the board and saying, ‘that’s the tariffs,’” but the company has expended hundreds of hours across the organization managing the supply chain, marketing and educating account managers how to inform customers of price changes, he said. “That’s labor we could be using in other areas to expand the business; it’s a lost opportunity for us.” Third-party hardware partners listed on the MBX website include AMD, Broadcom, Dell, EMC, HP, Intel, NVidia, Microsoft, Red Hat and Samsung.

Advanced Micro Devices is “monitoring the tariff situation very closely,” but “we don't see anything material” in the “overall impact,” said CEO Lisa Su on a Wednesday-evening earnings call. “We are doing quite a bit to adjust our supply chain, as I'm sure many others are,” she said. “We already had a supply chain that was highly multisourced, and so that's very helpful.” Computing and graphics revenue, the biggest portion of Q3 sales, rose 12 percent to $938 million from the year-ago quarter but declined sequentially. "The quarter-over-quarter decline was due to significantly lower graphics revenue driven by high channel inventory," AMD reported. The stock closed down 15 percent at $19.27.

IRobot’s decision not to pass along to retailers or consumers the higher costs of the 10 percent Trade Act Section 301 tariffs that took effect Sept. 24 on all vacuum cleaners manufactured in China will cost the company about $5 million in Q4 gross margin, said CEO Colin Angle on a Wednesday earnings call. The company is discussing “a lot of different scenarios about how to tackle” the 25 percent tariffs that take effect Jan. 1, said Angle. Many of those scenarios “assume some level” of pass-along price increases, “but we haven’t exactly settled on the final answer yet there,” he said. With the market experiencing “continuing strong growth,” iRobot has “some ability to absorb an impact without putting us in a dangerous situation,” he said.

Arris emphasized “serious concerns” in meetings last week with aides to FCC Commissioners Mike O’Rielly and Jessica Rosenworcel about “harmful effects” the third tranche of Trade Act Section 301 tariffs will have on “U.S. 5G leadership" and broadband deployment, it posted Tuesday in docket 13-49. The 10 percent tariffs took effect Sept. 24 on “core broadband infrastructure and networking equipment and other critical inputs for wireless and wireline connectivity, as well as consumer broadband equipment,” and will “automatically increase” to 25 percent Jan. 1 (see 1809240025 or 1809240011), said Arris. “At just the 10 percent level,” Arris estimates the fees will impose $200 million a year “in additional costs on its equipment and devices.” The levies already had “serious business implications” for Arris when an analyst downgraded the stock because of the expected higher tariff-related costs, it said. The tariffs “risk slowing deployment of 5G and broadband more generally, diverting resources away from 5G and other broadband research and development efforts,” it said. Arris tried to enlist FCC support for an “exclusion process” for the third tranche of duties to give affected companies “additional time to make adjustments to their operations and mitigate the harms,” it said. The Trump administration has announced no process for requesting exemptions on the third tranche of tariffs as it did on the first two.

Customs and Border Protection is substantially increasing staffing levels at its Office of Regulatory Audit to keep up with “the revenue on the table” from the imposition of Trade Act Section 301 tariffs on Chinese imports and the Trump administration’s push for more enforcement, said Tom Jesukiewicz, director of regulatory audit’s Los Angeles field office, at the recent Western Cargo Conference. CBP’s enforcement “push” this year will be on electronics, Jesukiewicz said. There are going to be “a lot of companies hit over the next few months,” he said.

Customs and Border Protection is doing a “360-degree” assessment of lessons from its “proof of concept” test using blockchain technology for North American Free Trade Agreement and Canadian Free Trade Agreement certificates of origin, said Vincent Annunziato, Business Transformation and Innovation office director, Friday at the Western Cargo Conference in Palm Springs, California. A report should be done in November, he said. The test worked by using a computer program’s algorithm to create a unique string of characters called a “hash” corresponding to each certificate of origin, said Tom Gould of Sandler Travis. Those hashes can then be put together into a “block,” representing a set of hashes created around the same time, Gould said. Those “blocks” are linked together into “chains” of a series of blocks. By making this data available to all participants in the blockchain, each time data changes hands or otherwise needs to be verified it can be run back through the program to see if the hash is still the same. Cybersecurity is a concern, given several instances where blockchains have been hacked, Annunziato said. CBP is trying to decide what data should be put on the blockchain, and what can't, such as personal identifying information and trade secrets.

Calling it "win for digital trade," BSA|The Software Alliance CEO Victoria Espinel, noted the U.S.-Mexico-Canada Agreement has a default rule that data can move across borders. Ratification of the North America Free Trade Agreement replacement could be "one of the steps toward ... an international consensus on data," she said Thursday at the Washington International Trade Association. Espinel described USMCA as a great template for future negotiations with Japan and with the EU but "the next version could be better." She would like to see stronger language on encryption, with explicit language not allowing back doors for encrypted messages. She wants language to prohibit governments from using "cybersecurity as a pretext for protectionism" and from requiring disclosure of algorithms or source codes to get market access.