As members of Congress continue to negotiate government spending levels allotted for the next fiscal year, the United States is poised for its fourth partial government shutdown in the last decade—putting at risk the regular operations of U.S. agencies responsible for trade activities.
A shutdown appears more likely by the day, unless the Republican-controlled House of Representatives and the Democratic-led Senate reach an agreement on spending bills for fiscal year 2024 by September 30, 2023. If negotiations drag on, approximately 438 government agencies will suspend their normal operations starting on October 1, 2023, which will force non-essential federal workers into furlough and disrupt various services critical to U.S. trade activities. Agencies and federal workers deemed "essential" will continue to provide vital services, such as those relating to national security or activities necessary to protect life and property, as well as activities funded outside of the appropriations process.
Since the length of the impending government shutdown remains uncertain, the trade industry must prepare for impacts on trade operations for importers, exporters, transportation and logistics companies, customs brokers, and all other parties involved in global trade involving the United States.
Companies operating in the foreign commerce of the United States must carefully consider the impact of the potential government shutdown on agencies responsible for key trade and transportation services, including U.S. Customs and Border Protection (CBP), the Department of the Treasury's Office of Foreign Assets Control (OFAC), the Department of Commerce's Bureau of Industry and Security (BIS), the Department of State's Directorate of Defense Trade Controls (DDTC), the Department of Transportation (DOT), the Census Bureau (Census), and the Federal Maritime Commission (FMC).
If the looming funding lapse follows the patterns of prior shutdowns, and federal agencies follow their recently published contingency plans, the following activities will likely be impacted.
Some Disruption of Import Activities
Federal government activities related to imports, including tariff exclusion request processing, antidumping duty and countervailing duty investigations, and other regulatory and administrative activities, will likely cease during a government shutdown. For example, during the previous government shutdown in 2018, the Department of Commerce's International Trade Administration furloughed a significant number of its staff and halted its antidumping duty and countervailing duty investigations, as well as administrative proceedings, such as annual administrative reviews of existing antidumping duty and countervailing duty orders. The Department of Commerce also suspended processing of Section 232 tariff exclusion requests for steel and aluminum imports.
By contrast, as it has in the past, CBP is expected to continue its normal operations at U.S. ports with staffing at levels to permit continued flow of trade. CBP is expected to continue cargo processing and inspections at the U.S. ports of entry; security screenings and revenue collection; and enforcement activities related to alleged antidumping duty and countervailing duty evasion pursuant to the Enforce and Protect Act. However, policy, regulatory, legislative, auditing, and training activities will likely be suspended in line with past practices.
As September 30 approaches, importers should also be cognizant of the operational impacts of a potential government shutdown on other Partner Government Agencies (PGAs) involved with processing imported merchandise, including the U.S. Environmental Protection Agency, U.S. Food and Drug Administration, and U.S. Department of Agriculture, which may result in slower clearance of shipments subject to review.
Suspension of Non-Essential Activities by Transportation Agencies
The impact of a federal government shutdown on the transportation sector will vary between agencies and modes of transportation. Similar to CBP, in the past DOT implemented contingency plans to continue activities and operations necessary for safe travel and movements for vehicles, including trucks and aircraft. For example, the Federal Aviation Administration is expected to continue essential activities, including, but not limited to, air traffic control services, flight standard field inspections, hazardous materials safety inspections, and existing airport development grants. Non-essential activities, including facility security inspections, aviation rulemakings, and most administrative support functions, are likely to be suspended. Similarly, the Maritime Administration is expected to continue functions necessary for protecting human life and U.S. vessels, such as emergency and disaster assistance.
On the other hand, the Federal Maritime Commission will likely suspend virtually all activities for the duration of the shutdown. As a result, the trade industry will be unable to contact the Commission; access the FMC online databases such as the Agreements Notices & Library; or submit new filings or applications, such as ocean transportation intermediary licenses, service contracts, tariff registrations, vessel-operating common carrier and marine terminal operator agreements, certifications of financial responsibility for cruise lines embarking from U.S. ports, and agreement reports. Formal and informal adjudicatory and investigatory proceedings pending before the FMC or the administrative law judges are also expected to be temporarily suspended until the government reopens.
Continued Sanctions Enforcement but Less Licensing and Guidance
In prior shutdowns, OFAC has prioritized sanctions enforcement activities, including administering the Specially Designated Nationals and Blocked Persons List (SDN List), issuing new sanctions designations, and handling sanctions-related inquiries on a limited basis. While enforcement activities will continue, the trade industry should be prepared for longer wait times or the full suspension of OFAC's review of voluntary disclosures, license applications, petitions for removal from the SDN List, and other communications. During previous shutdowns, OFAC has noted that its reduced staffing has impacted the agency's ability to communicate with financial institutions and other key sectors for sanctions compliance and enforcement.
In addition to reduced sanctions licensing and compliance activities, the Department of the Treasury will have impaired regulatory activity related to anti-money laundering (AML) and counter-terrorism operations. For example, in prior government shutdowns, the Financial Crimes Enforcement Network (FinCEN) ceased rulemaking and regulatory guidance activities; however, it continued providing financial intelligence to law enforcement.
Suspension of Export License Application and Classification Request Processing but Continued Enforcement
In prior government shutdowns, BIS suspended regular services, such as processing for export license applications, commodity classification requests, encryption reviews and registrations, and advisory opinion requests, except in extraordinary circumstances essential to national security. The SNAP-R portal was closed during the length of the government shutdown. While exporters should anticipate potential delays in securing export licenses or other determinations from BIS, export controls enforcement activities are expected to continue.
Similarly, during previous shutdowns DDTC experienced significant delays in its operations as a result of the downsized staffing and prioritized only license application requests pertaining to urgent causes, such as military and humanitarian aid needs. Exporters of defense articles and defense services should anticipate delays for less urgent requests. However, DDTC has resumed certain regular operations, such as processing non-emergency registration and renewal requests and new license applications, ahead of the end of earlier government shutdowns.[1] DDTC services requiring interagency review, such as Commodity Jurisdiction determinations, will likely cease or be substantially reduced.
While licensing activities may be halted, exporters are expected to maintain access to the Automated Commercial Environment (ACE) in order to submit mandatory Electronic Export Information (EEI) to the Automated Export System (AES), as required by the Census Bureau.
In short, a government shutdown will likely create a backlog in export-related requests at these agencies and levy a significant administrative burden on exporters in their compliance efforts.
Conclusion
In summary, companies engaged in the foreign commerce of the United States should expect to be impacted in numerous ways, including by disruptions to transportation services and freight fluidity. Venable's International Trade and Logistics Group is carefully monitoring the developing situation in Congress and will continue to provide updates on disruptions to global trade as a result of any shutdown. If you have any questions on the impact of a federal government shutdown on your operations, please reach out to the authors for guidance.
[1] "Rolling Out a New Export Control Regime During a Government Shutdown," Venable International Trade and Logistics Group (Oct. 15, 2013), available at https://www.venable.com/insights/publications/2013/10/rolling-out-a-new-export-control-regime-during-a-g.