The President has issued two new executive orders providing some relief from tariffs on products of Canada and Mexico.
The essence of the two executive orders is that Canadian and/or Mexican goods that are subject to general note 11 to the Harmonized Tariff Schedule of the United States (HTSUS) may be entered under the duty-free provisions of that note. The note implements the trade agreement between the United States, Mexico, and Canada. This represents an alternative path to the one traditionally taken by aircraft parts importers, who often rely on the traditional zero-duty provisions that apply to many aircraft parts.
The good news is that many aircraft parts from these two jurisdictions are likely to be covered under this general note 11, so they can continue to enter duty-free until the expiration of this executive order. There is no stated expiration in either executive order; however the President has announced in social media that this forbearance shall only last until April 2, 2025.
The bad news is that there may be different documentation and analysis required to properly claim the duty-free treatment, so it may require importers to perform some additional due diligence and paperwork to support the claim of duty-free treatment.
In each case, the tariffs apply to products of Canada and Mexico, so aircraft parts that are products of these countries will be affected; and the dutiable value of maintenance that is performed in these two countries may also be affected.
As always, the implementation in the Federal Register could vary from the language of the executive order, so pay careful attention to the actual Federal Register publication implementing these executive orders.
The United States has issued new tariffs on products from Canada, China, and Mexico. These new tariffs go into effect for all products from those countries. This includes aircraft, aircraft engines, and aircraft parts. The announced tariffs will apply a duty of 25% on products of Canada and Mexico and 10% on products of China. These duties represent a tax on the value of the goods that must be paid by the importer.
If your company is importing goods from one of these jurisdictions, then you will need to make sure that the proper tariff codes are declared, and the duties are paid. Typically, the importer must make sure that the import-declarations identify the base tariff code for the good in question, and also identify any additional special tariff codes, such as the codes for these country-based tariffs. The proper tariff codes for these additional tariffs have not yet been published, but we hope that we will be able to identify and publish them soon for your benefit.
These tariffs will apply to aircraft, engines and parts that are manufactured in Canada, China or Mexico (in addition to all other goods from those jurisdictions). Normally, most aircraft parts are imported into the United States duty-free, so the duties imposed by the new tariffs will be a significant change.
Canadian aerospace product examples include (this is not a complete list!):
Bell helicopters manufactured in Mirabel, Quebec
Bombardier Aircraft
De Havilland Aircraft of Canada
Diamond Aircraft
Pratt & Whitney Canada Engines
In 2023, the Canadian aerospace manufacturing industry exported over $19B of aerospace products.
Many aircraft parts from China are already subject to a 25% tariff under tariff code 9903.88.01; the new 10% tariff will be in addition to the existing 25% tariff.
The new U.S. duties go into effect as of 12:01 a.m. eastern time on Tuesday, February 4, 2025.
The G7 is taking an interest in export enforcement, and this could affect everyone in aviation.
The G7 has announced new cooperation and new guidance for the world’s exporting community. The G7 is comprised of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. The European Union also participates in the Group.
The G7 Sub-Working Group on Export Control Enforcement met today (September 24) and published new guidance on the prevention of diversion of high priority goods to Russia. Russia is a particular focus of this group partly because of the Ukrainian invasion, but also partly because of the significant efforts that Russia has made to circumvent sanctions.
The identified high priority goods included aircraft parts (Tariff Code 8807.30), avionics (Tariff Code 9014.20) and other navigational instruments and appliance (Tariff Code 9014.80). Thus, this reaffirms that aviation is a high priority target for diversion and it is also a high priority target for government enforcement.
The newest G7 guidance includes a list of red flags that should cause additional scrutiny if they arise in your transactions:
Sudden changes in business activity after 24 February 2022, or after subsequent changes in export controls/sanctions
False, inaccurate, or missing documentation
Concealing the end user (remember, there is a U.S. legal obligation to show end use compliance when exporting aircraft parts intended for installation on foreign aircraft (15 C.F.R. § 744.7))
Inconsistencies in the transaction
Vague details and/or incomplete information
Dividing an invoice value into smaller amounts to remain under value limits of sanctioned goods or export controls
Suspicious customer information
Customer has connections of concern
Concerning business practices
Last-minute changes to parties involved with the transaction from an entity in Russia or Belarus to an entity in another country
Payments from entities located in third countries that are not otherwise involved with the transactions, particularly through a sanctioned country
Customer unwilling to provide certification that it will not sell items to Russia or sanctioned parties in third countries
There are examples in the G7 document for each of these bullets so be sure to click through and look at the full list of red flags and examples. Many of the latest red flag examples represent fact patterns that we’ve seen arise in the aviation community.
There is also a recommended due diligence outline in the G7 document, but this is a very short outline that might be inadequate for most aircraft parts transactions subject to U.S. law.
The Aviation Suppliers Association will be covering export compliance analysis and due diligence topics during its popular Export Week! seminars on October 7-11, 2024. These are short (30 minutes of content followed by a 15 minute question period) lunch-time (11:30 am eastern time) session designed to educate the community about export compliance without overwhelming the audience with jargon and a mountain of regulations. The seminars are free for ASA members! I hope to see you all, there!
ASA spent the day today with All Nippon Airways (ANA), meeting with several different departments at both the airport offices and the downtown offices. This is part of ASA’s continuing global commitment to aircraft parts education.
We held Q&A sessions at both sites with a mix of pre-solicited and live questions from ANA staff. Topics included FAA parts approval (including PMA and TSOA), documentation, designees, traceability norms, distributor accreditation, bilateral airworthiness safety agreements, the application of US export law to parts transactions, contract issues – just to name a few of them!
We were able to address some of the concerns that might have otherwise inhibited an air carrier like ANA from buying airworthy parts from sources outside of Japan. By keeping the lines of communication open, we hope to keep the purchasing lines open between ANA and our other members.
Tomorrow (Friday), ASA will join MARPA in hosting the Japan Aircraft Parts Education Seminar. This seminar sold out at 130 seats with attendance by Japanese air carriers, MROs and manufacturers. The speakers come from American Airlines, Chromalloy, Delta Air Lines, the FAA, Heico, Jet Parts Engineering, Mid-American Aerospace and Wencor.
Does the European Deforestation Regulation (EUDR) affect your business? The EUDR has been the subject of discussion in the aircraft parts community and is leading to questions about the compliance strategies that aviation companies should be taking.
Background
The EU is continuing to work with partner countries and companies to ensure a successful transition to deforestation-free supply chains. As part of this, the deforestation rule (EUDR) was promulgated to prevent the import of articles that are the product of a deforestation event.
The EUDR goes into effect on December 30, 2024, and Europeans are taking steps to prepare for the new rule. These steps include European companies sending messages to their non-European partners asking them to support compliance. If you get a note from a European partner about the new rule, then here are the things you need to know:
The scope of the rule is limited and very few aircraft parts appear to be affected;
If you are exporting a product that is potentially affected (see the chart below) then you will need to assess whether that product contains one of the relevant commodities (cattle, cocoa, coffee, oil palm, rubber, soy or wood);
If you are exporting an affected product and it contains one of the relevant commodities then you will have an obligation to ensure the commodity is not sourced from land subject to deforestation after December 31, 2020.
What Products Are Affected?
The good news for the aviation community is that very little in our community can be affected by this new rule.
The scope of the rule is tied to Combined Nomenclature (CN) codes. CN codes are analogous to the harmonized tariff codes used in other countries. The new rule will affect products whose CN code falls into one of the listed categories (found in annex I to the new rule), but only when the relevant product contains, has been fed with, or has been made using one of the following: cattle, cocoa, coffee, oil palm, rubber, soy or wood.
We thus will start with the CN codes. This is important because many aircraft parts are under CN codes that are not affected by the new rule, so the fact that they are made from an affected commodity (like rubber) will not matter when their CN code is not subject to the rule..
The categories most likely to affect the aircraft parts community include:
CN Code
Product
4011
New pneumatic tires, of rubber
4012
Retreaded or used pneumatic tires of rubber; solid or cushion tires, tire treads and tire flaps, of rubber
4013
Rubber inner tubes
4016
Other articles of vulcanised rubber other than hard rubber, not elsewhere specified in chapter 40
4017
Hard rubber (e.g. ebonite) in all forms including waste and scrap; articles of hard rubber
4415
Packing cases, boxes, crates, drums and similar packings, of wood; cable-drums of wood; pallets, box pallets and other load boards, of wood; pallet collars of wood (not including packing material used exclusively as packing material to support, protect or carry another product placed on the market)
4417
Tools, tool bodies, tool handles, broom or brush bodies and handles, of wood; boot or shoe lasts and trees, of wood
49xx
Printed books, newspapers, pictures and other products of the printing industry, manuscripts, typescripts and plans, of paper
Note that this is not a complete list of affected products (for example, leather or rubber that is used as a raw material is likely to be covered under this new rule). If you want to look at the entire list then you can find it in annex I of the EUDR rule, or you can find a reproduction of Annex I here, on duracert’s website. It is worth noting that an aircraft part that is imported as an aircraft part under CN heading 8807 will not be affected by this new rule because it falls under a CN code that is not listed.
Are There Affected Aircraft Parts?
There will be some aircraft parts that could be affected by the EUDR. They key will be the CN code that applies to the parts. For example, O-rings made of rubber may fall within heading HTSUS 4016 under U.S. law (the link is to a U.S. Customs ruling distinguishing synthetic rubber O-rings from those made of plastics). This means that they are likely to also fall within CN Code 4016 under EU law, which is within the scope of the deforestation regulation.
Be careful to classify your article correctly! One of the U.S. customs rulings specifies that O-rings made of Viton and silicone were not rubber products and fell within HTSUS heading 3926 (the corollary CN Code would be outside of the scope of the EUDR.
Other articles that could be classified under the rubber headings include neoprene rubber plugs which are likely to fall within heading 4016.
[NOTE: the links in this section are all to US Customs rulings; these are not binding on EU CN Code classifications, but they are analogous so they are used to demonstrate the scope of particles that could be classified under the deforestation regulations ]
What if I am Exporting a Relevant Product to the Europe Union?
If you discover that you are exporting a relevant product to the EU, and that the relevant product contains one of the affected commodities, then you will have an obligation to ensure that the relevant product does not contain (and was not made from) affected commodities that were produced on land subject to deforestation after 31 December, 2020.
Today, the Department of Commerce’s Bureau of Industry and Security (BIS) has published new guidance reminding the export community about the dangers of divergence of goods to Russia. This new BIS guidance outlines additional recommendations for screening transactions.
High Priority List (Including Aircraft Parts)
BIS has identified a list of 50 Common High Priority List (CHPL) items. These are items that Russia has been procuring to support its weapons programs. For this reason, these 50 items have been identified as special focus items for scrutiny to avoid divergence of shipments to Russia. This list includes aircraft parts (particularly those subject to HTSUS 8807.30), bearings (particularly those subject to HTSUS Heading 8482) and certain instruments and appliances subject to HTSUS Heading 9014. Exporters should be sure to look at the full list to get an idea of the full scope of this CHPL list.
The CHPL list is meant to drive a heightened scrutiny of certain transactions, to ensure that they cannot be diverted to Russia. BIS expects that exporters will ensure compliance for every export, but has asked for extra diligence in the scrutiny applied to transaction in the 50 CHPL articles.
The TIP website includes a list of companies that have exported certain materials into Russia. TIP was developed by the UK-based Open-Source Centre for monitoring trade with Russia. The TIP website specifically focuses on trade in CHPL items, and displays entities that have shipped CHPL items to Russia since 2023. It is based on publicly available trade data. TIP does not reflect all exports into Russia, and it may not include some companies that have exported aircraft parts into Russia. The TIP website is meant to support export diligence investigations, but it should not be your only resource.
We have recommended Import Genius as another good resource for identifying companies that have exported goods to Russia; but we have also warned that this is also a starting point for scrutiny; we have heard about U.S. companies who are falsely listed as the source of goods by the actual exporters, so it is important to check out the data you find. Using Import Genius is NOT part of the latest BIS screening recommendation.
If you discover that the partner in question has been selling to Russia, then this may reflect a red flag that needs to be cleared before the transaction can be completed. For example, if you are selling to a distributor who is on the TIP list, but they ask you to drop ship the goods directly to a legal end user in a place like the UK (particularly if you get a signed end-use-statement from the end user validating the compliance elements), then this might be sufficient to clear a red flag that would otherwise casts a shadow over other transactions.
BIS Warning Letters
BIS is issuing two different types of letters to warn companies about their business partners who may be violating US export laws:
Red Flag Letters
Is Informed Letters
If BIS believes that one of your partners may have violated the export laws (such as by illegally diverting goods to Russia) then BIS may send you a “red flag” letter. A “red flag” letter informs you of the BIS suspicions, and imposes on your company an additional burden to clear the red flag before continuing to do business with the partner. A company that receives a “red flag” letter should conduct additional due diligence to resolve and overcome the red flag identified by BIS before filling an order from the identified partner.
BIS may inform you that a license is required for export, reexport or transfer of items to a specified end-user because BIS has determined that there is an unacceptable risk of diversion (e.g. because of a threat of diversion to a military end user in a restricted country). This is known as an “Is Informed” letter. When you receive this sort of communication, then you are typically required to comply with the restriction (if the communication is oral then it will usually be followed by a written communication within two days). In most cases, this means that you will need a license for the transaction, and it may cancel prior licenses. From an enforcement perspective, non-compliance with an “is informed letter” is treated the same as non-compliance with any other license requirement under the regulations and may be subject to penalties.
If you receive a “red flag” letter or an “is informed” letter than you should coordinate your actions with an export attorney.
Are you struggling with export compliance? ASA is here to help!
The U.S. government has been actively investigating aircraft parts export transactions. There is a concern about circumvention which could result in aircraft parts from the United States being exported or re-exported to sanctioned destinations.
As part of the Association’s ongoing commitment to compliance, ASA will be hosting Export Week! next week. Export Week! is a series of five webinars discussing export compliance for aircraft parts exporters.
Monday, October 9 (11:30 am ET) – Introduction to Export Compliance and OFAC Compliance
Tuesday, October 10 (11:30 am ET) – Aircraft Part Compliance: Distinguishing EAR Jurisdiction (BIS) from ITAR Jurisdiction (DDTC); Identifying Your ECCN and Using it to Establish the Destination Restrictions
Wednesday, October 11 (11:30 am ET) – Aircraft Part Compliance: Forbidden Parties, Use-based Reasons for Control, Aviation-specific rules
Thursday, October 12 (11:30 am ET) – Aircraft Part Compliance: Special Destination Sanctions Including the Russia Sanctions, and Anti-Boycott Provisions
Friday, October 13 (11:30 am ET) – Aircraft Part Compliance: Licensing and License Exceptions
Each webinar lasts 45 minutes, with 30 minutes of training and 15 minutes for questions and answers. They are scheduled for 11:30 eastern time (lunch-time on the U.S. east coast — a nice time for a coffee break in other time zones) so grab a lunch, snack, or a cup of coffee and join us to learn about how to keep out of trouble when you export aircraft parts
You can register for the webinar series on ASA’s website. The webinars are free for ASA members. If you are not an ASA member then one registration fee allows you to register for the entire series.
The United States has indicted four people for fraud related to aircraft parts transactions. The indictment alleges that an air carrier employee directed aircraft parts transactions to the other defendants in exchange for kickbacks.
According to the indictment, the air carrier employee would text a part number and a “price ceiling” to the other defendants, and then the defendants would know to quote below or at the price ceiling in order to win the business. The indictment alleges that a percentage of the parts sales was paid as a kickback to the air carrier employee.
The government has accused the defendants of conspiracy to commit fraud (in that the air carrier was denied the honest services of its employee) as well as wire fraud (18 U.S.C. 1343) for using wire services to transmit the proceeds of the scheme.
The indictment names four individuals, bu not their companies, as defendants. It is important to remember that an indictment is just the government’s allegations. These factual allegations have not yet been tested against the defendants’ stories, and the actual facts adduced at trial could differ substantially from the facts alleged in the indictment.
Regardless of the facts of this matter, the matter illustrates the importance of having corporate rules that prevent buyers from taking things of substantial value from seller, and corporate rules that prevent sales agents from providing undisclosed gifts or kickbacks to buyers. If you think that a transaction could be characterized as unethical or as unfair, or if you identify any other red flags, then it is always best to consult with an attorney to ensure that the transaction does not violate any laws.
Last month we wrote here to notify the ASA community that Harmonized Tariff Codes that affect aircraft parts were revised, effective January 27, 2022. Notably, heading 8803, which had long applied to “Propellers and rotors and parts thereof . . . Undercarriages and parts thereof . . . [and] Other parts of airplanes or helicopters” was revised to a new heading of 8807. Absent from our notification was any discussion of the corresponding Schedule B numbers (typically used for export data collection by the Census Bureau and reported via EEI filings).
We can now report that the Schedule B numbers for 2022 have been released, and as expected reflect the revisions to the Harmonized Tariff Codes we discussed last month. The U.S. Census Bureau’s website indicates that the 2022 Schedule B numbers are to be used after February 10, 2022, but to the best of our knowledge the new numbers went live only yesterday, February 16.
Relevant examples of revised Schedule B numbers include:
Schedule B Number and Heading
Commodity Description
8807
– Parts of goods of heading 8801, 8802 or 8806:
8807.10
– – Propellers and rotors and parts thereof:
8807.10.0010
– – – For use in civil aircraft
8807.10.0060
– – – Other
8807.20
– – Undercarriages and parts thereof:
8807.20.0010
– – – For use in civil aircraft
8807.20.0060
– – – Other
8807.30
– – Other parts of airplanes or helicopters:
8807.30.0010
– – – For use in civil aircraft
8807.30.60
– – – Other
A complete list of obsolete and new Schedule B numbers accompanies the 2022 listing.
As always, remember that not all aircraft parts are included under new Heading 8807 and many often appear under a more precise Heading, e.g., engine parts, fasteners, and bearings. Take the time to be sure you are shipping under the correct Schedule B when you submit your EEIs.
The tariff codes for aircraft parts will change, effective January 27, 2022 (the thirtieth day after publication in the Federal Register).
Most importers are used to assigning tariff codes in the form 8803.XX.XXXX to their aircraft parts. These tariff codes are being replaced! So if you have been using a tariff code that starts with 8803, then it is likely to have been changed to a new tariff code that begins with 8807.
The new tariff codes were announced in Proclamation 10326. The Proclamation cross references ITC Publication 5240, which provides the specific new tariff codes:
Heading
Subheading
Article Description
8807
Parts of goods of heading 8801, 8802, or 8806
8807.10.00
Propellers and rotors and parts thereof
8807.20.00
Undercarriages and parts thereof
8807.30.00
Other parts of airplanes, helicopters or unmanned aircraft
8807.90.00
Other:
8807.90.30
Parts of communications satellites
8807.90.30
Other
Remember! Not all aircraft parts are imported under Heading 8803. for example, engine parts have their own Heading.
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