Regulatory Compliance updates January 2023

Croatia joins the Euro and Schengen areas

On 1 January 2023 Croatia has adopted the euro as its currency and will fully join the Schengen area. This marks an important milestone in the history of Croatia, of the euro and Schengen areas and of the EU as a whole. It follows a period of intensive preparation and substantial efforts by Croatia to meet all the necessary requirements. The Commission has fully supported Croatia in the process of joining the euro and Schengen areas. With Croatia, 20 EU Member States and 347 million EU citizens will share the EU's common currency. As for Schengen, this is the eighth enlargement and the first after 11 years.

The euro will deliver practical benefits to Croatian citizens and businesses. It will make travelling and living abroad easier, boost the transparency and competitiveness of markets, and facilitate trade. Euro notes and coins will also become a tangible symbol for all Croatians of the freedom, convenience and opportunity that the EU makes possible. Public support for the euro in the euro area remains very strong, with broad majorities of EU citizens believing the euro is a good thing for the EU as a whole and for their own country.

The Schengen area allows 420 million people to travel freely between member countries without going through border controls. It allows to develop a common, shared responsibility for controlling the external borders of the Union and the responsibility to issue common Schengen visas. Above numbers, for more than 35 years now Schengen has been an area of values, freedom, security and justice. Especially in the current geopolitical and economic context, the Schengen area is instrumental to stability, resilience and recovery.

Canada, Mexico win auto rules trade dispute with US

Canada and Mexico have won their challenge to the U.S. interpretation of content rules for autos under the new North American trade pact, a dispute panel ruled on Wednesday, a decision that favors parts makers north and south of the U.S. border. A year ago Canada and Mexico filed a complaint against the United States over how to apply automotive-sector content requirements under the United States-Mexico-Canada (USMCA) free trade agreement, which came into effect in 2020. The U.S. interpretation of the rules is "inconsistent" with the USMCA, the panel said in its ruling. Under the USMCA, the United States must now agree with Canada and Mexico on how to apply the panel decision, or face possible retaliatory tariffs.

The decision was announced amid a separate USMCA dispute centered on energy that has pitted the United States and Canada against Mexico. Ottawa and Washington argue Mexico’s energy policies are putting U.S. and Canadian firms at a disadvantage, while Mexico has defended its policies and said it has broken no laws.

Under USMCA, 75% of a vehicle’s components must originate in North America to qualify for tax-free status, but the United States disagreed with how to calculate that number.

Mexico and Canada said if a "core part," such as the engine or transmission, has 75% regional content, the USMCA allows that number to be rounded up to 100% when calculating the broader requirement for an entire car’s regional content. The United States said "core part" content should not be rounded up when determining the content of the entire car.

European Union: Commission updates EU control list of dual-use items

On 11 January 2023, the European Commission published the Delegated Regulation (EU) 2023/66 that updates the EU dual-use export control list in Annex I to Regulation (EU) 2021/821. This brings it in line with the decisions taken within the framework of the international non-proliferation regimes and export control arrangements until December 2021. 
The updated EU control list includes new entries in the field of electronics, semiconductors and computers such as: Electronic Computer-Aided Design (ECAD) used in the design process of Gate-All-Around Field-Effect Transistor (GAAFET), certain frequency synthesisers and signal generators, gallium oxide and diamond as new semiconductor materials, as well as their related technology. The control on digital computers has been adapted to the evolution of the technology, being 70 TeraFLOPS the new threshold.

In the chemical and biological sector, the updated list includes software specially designed for nucleic acid assemblers and synthesisers. Under the category of aerospace and propulsion, the addition of sub-orbital crafts and certain technology for the manufacturing of gas turbines (pressure gain combustion) stands out. There is a modification on additive manufacturing equipment designed for “superalloys”.

The updated control list also adds technical notes as local definition for “resolution”, “superalloys”, and a new technical note for “direct-acting hydraulic pressing”. It also adds a new nota bene regarding gas turbine engines and a definition of GAAFET. 
Other changes are mostly removals, changes of references and editorial changes.

EU adopts 9th package of economic and individual sanctions against Russia

On December 16th, the Council of the European Union adopted a ninth package of new measures intended to step up pressure on Russia and its government. The package includes the following measures:

• Export controls and restrictions: Imposed new export controls and restrictions on dual-use goods and technology as well as goods and technology that can contribute to the technological enhancement of Russia’s defence and security sector by significantly expanding the list of entities connected to Russia’s military and industrial complex by additional 168 entities targeted by sectoral measures. 
• Furthermore, the EU will expand the export ban on aviation and the space industry related goods and technology to include aircraft engines and their parts. This prohibition will apply to both manned and unmanned aircrafts, meaning that from now on there will be a ban on the direct exports of drone engines to Russia and any third country that could supply drones to Russia.
• Banking Sector: Imposed an asset freeze against two additional Russian banks and add the Russian Regional Development Bank to the list of Russian State-owned or controlled entities that are subject to a full transaction ban.
• Broadcasting: The EU and its member states, the Council initiated the process for suspending the broadcasting licences of four additional media outlets: NTV/NTV Mir, Rossiya 1, REN TV and Pervyi Kanal. 
• Consulting services: a ban on the provision of EU advertising, market research and public opinion polling services, as well as product testing and technical inspection services to the Russian Federation.
• Energy and mining sectors: The EU will expand the prohibition targeting new investments in the Russian energy sector by additionally prohibiting new investments in the Russian mining sector, with the exception of mining and quarrying activities involving certain critical raw materials.
• Others: EU nationals will be forbidden from holding any posts on the governing bodies of all Russian State-owned or controlled legal persons, entities or bodies located in Russia.
• Individual listings: In addition to economic sanctions, the Council decided to adopt a comprehensive package of individual measures both in number and content with list a very significant number of additional individuals and entities.

EU agrees new carbon tariff in ‘global first’ in fight against climate change

The EU has agreed a world-first scheme to support European industries to decarbonise by levying a CO2 emissions tariff on imports of polluting goods. The law will impose carbon dioxide emissions duties on imports of iron and steel, cement, fertilisers, aluminium and electricity, with importers required to buy certificates to cover embedded emissions (emissions that occur in the production of goods but not physically incorporated in the goods). It will also apply to imported hydrogen. Domestic EU industries are already required to buy permits from the EU carbon market when they pollute, meaning that importers will now have to pay the same price as these domestic producers under this emissions trading system.

EU preferential exports to Singapore shall be covered by statements on origin made out by registered exporters as from 1 January 2023

The Committee on Customs of the Free Trade Agreement between the EU and Singapore has adopted on 20 December 2022 Decision No 1/2022 amending the Origin Protocol of that FTA. The Decision entered into force on 1 January 2023 and it will be publish in the Official Journal, C series, in the coming days.
The Decision covers the following elements:

• Protocol 1 is updated to the 2022 version of the Harmonized System
• For EU exporters, the system of ‘approved exporters’ is replaced by the system of ‘registered exporters’. It means that, as from 1 January 2023, importers in Singapore have to claim the tariff preference by means of statements on origin made out by EU registered exporters, indicating their REX number and no longer by means of ‘origin declarations’ indicating an approved exporter authorization number.

To facilitate the transition, the Decision provides for a transition period which ensures that Singapore customs will still accept origin declarations made out by EU approved exporters until 31 March 2023.

• The coverage (but not the volumes) of 3 origin quotas for Singapore exports to the EU is extended.

Switzerland: Abolition of industrial tariffs

Industrial tariffs will be abolished from 1 January 2024 (Federal Gazette 2021 2330). This decision was made by the Federal Council at its meeting on 2 February 2022, after the necessary amendment to the Customs Tariff Act was passed by Parliament on 1 October 2021. By choosing 1 January 2024, the Federal Council selected a date for the entry into force that keeps transitional costs as low as possible for economic actors and administrative authorities. All concerned therefore have sufficient time to make the necessary technical and organisational preparations. Removing industrial tariffs will strengthen Switzerland's position as a business and industrial location. The potential welfare gains are estimated at some CHF 860 million. Whereas customs duties once served to protect domestic industry from foreign competition, today they make it more expensive to procure materials from abroad. With the lifting of customs duties and the associated simplification of administrative procedures, businesses in Switzerland will benefit from cheaper inputs and thereby also from lower production costs.

United States: Refund of Alcohol Excise Tax

U.S. Customs and Border Protection has published regulations to implement certain changes made by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which amended the Craft Beverage Modernization Act provisions of the Tax Cuts and Jobs Act of 2017. Pursuant to these changes, the responsibility for administering refunds, reduced tax rates, and tax credits on imported alcohol is moving from U.S. Customs and Border Protection (CBP) to the U.S. Department of the Treasury, effective January 1, 2023.

This interim final rule is effective from January 1, 2023; comments must be received by March 2, 2023.

USTR Extends Exclusions from China Section 301 Tariffs

The Office of the United States Trade Representative announced a nine‑month extension of 352 product exclusions in the China Section 301 Investigation that had been scheduled to expire at the end of 2022.  These exclusions were initially reinstated on March 28, 2022 and the extension will help align further consideration of these exclusions with the ongoing comprehensive four-year review. Interested persons may submit comments on the tariff headings containing these exclusions through the USTR portal in the four-year review, which closes January 17, 2023.