On September 18, 2018, the United States Trade Representative (USTR) published a notice in the Federal Register explaining the procedures and criteria related to requests for product exclusions from the additional tariffs placed on goods from China on August 23, 2018.

Deadlines

The USTR must receive requests to exclude a particular product by December 18, 2018. Responses to a request for exclusion of a particular product are due 14 days after the request is posted in the docket. Any replies to responses to an exclusion request are due the later of 7 days after the close of the 14 day response period, or 7 days after the posting of a response.

Per the notice, a docket will be opened on regulations.gov for the receipt of exclusion requests. The docket number is USTR–2018–0032. One product is allowed per request. Each request must identify a specific product and the 10-digit HTS. The product exclusion request must include the identity of the product, its physical characteristics and how to differentiate that product from others under the 8-digit HTSUS subheading. The USTR will not consider requests that identify the product using criteria that cannot be made public, or that identify the product by using the producer, importer, customer, chief use, trademark or trade name.

The USTR will periodically announce decisions on exclusion requests. If granted, the exclusion will be retroactively effective starting August 23, 2018 and extend for one year after the date on which the decision is published in the Federal Register.

 

On September 13, 2018, President Trump signed the Miscellaneous Tariff Bill (MTB) Act of 2018 (MTB), which temporarily reduces or eliminates import duties on specified raw materials and intermediate products used in manufacturing that are not produced or available domestically. It is intended to ensure that U.S. manufacturers are not at a disadvantage to their foreign competitors when sourcing manufacturing components.

The American Manufacturing Competitiveness Act of 2016 (AMCA) directed the International Trade Commission (ITC) to establish a process for the submission and consideration of MTB petitions for duty suspensions and reductions. It required the ITC to submit preliminary and final reports on the petitions to the House Committee on Ways and Means and the Senate Committee on Finance (Committees). The ITC’s preliminary report was submitted on June 9, 2017 and the final report was submitted on August 8, 2017. On September 4, 2018, the House agreed to Senate amendments, moving the legislation to the president for signature. The current MTB petition cycle is now complete. The next MTB petition cycle, for 2021 through 2023, will begin not later that October 15, 2019.

The duty suspensions and reductions are effective for goods entered or withdrawn from a warehouse for consumption on or after October 13, 2018, which is 30 days after the date of the enactment.  The suspensions and reductions will last until December 31, 2020. All of the MTB provisions are in subchapter II to chapter 99 of the Harmonized Tariff Schedule of the United States (HTSUS). This language was added in a Federal Register Notice on August 16, 2018 (83 Fed Reg 40,823 at page 40,825). The notice also created a new U.S. Note 20(c) to Subchapter II of Chapter 99, HTSUS.

Of the 1,660 items are covered by the new law, roughly half are produced in China. Therefore, overlap between the MTB list and the Section 301 tariffs in effect, and those being considered exists. Goods originating in China are still subject to relevant Section 301 tariffs.  On August 21, 2018, U.S. Customs and Border Protection (CBP) issued a message stating, “Products of China that are covered by the Section 301 remedy and that are eligible for special tariff treatment…or that are eligible for temporary duty exemptions or reductions under subchapter II to chapter 99, shall be subject to the additional 25 percent ad valorem rate of duty imposed by headings 9903.88.01 and 9903.88.02.

 

The recent Sigvaris appeals decision provides guidance to companies seeking to import products for handicapped or disabled persons and obtain duty free treatment under the Nairobi Protocol.

Sigvaris imported a number of different styles of compression hosiery, which is used to increase blood circulation, and claimed that the products should be entered duty free under the Nairobi Protocol, heading 9817 of the Harmonized Tariff Schedule of the United States (HTSUS).  Congress passed the Educational, Scientific, and Cultural Materials Importation Act in 1982, incorporating the Nairobi Protocol into U.S. law and eliminating import duties on items “specifically designed or adapted for the use or benefit of the blind or physically or mentally handicapped persons.”

Customs denied Sigvaris’ duty free claims and the company appealed to the U.S. Court of International Trade (CIT).  The CIT determined that Plaintiff Sigvaris’ “500 Medical Therapy Natural Rubber Series” were entitled to duty free treatment under Nairobi Protocol because these products were specifically designed for people suffering from upper-limb lymphedema, a condition sometimes resulting from a mastectomy that causes chronic swelling of the arm, which can limit the affected arm’s use. These high-compression series 500 sleeves and gauntlets were also specifically designed for and marketed to individuals who suffered from upper-limb lymphedema and that doctors prescribed the sleeves and gauntlets to treat the condition.  However, the CIT rejected the importer’s claim for an exemption on three other models of compression sleeves, saying their use in treating chronic venous disease, a circulatory disorder, did not qualify them as specialty items for individuals with disabilities. In reaching this conclusion, the CIT stated that “A physical handicap is a permanent physical impairment that substantially limits one or more major life activities such as walking or working.” The court went on to explain that the symptoms experienced in the early stages of CVD do not render a person physically handicapped within the meaning of the Harmonized Tariff Schedule of the United States (HTSUS). The CIT further explained that Sigvaris’ own advertising of its lower-compression Series 120, 145 and 185 compression garments touted their use in treating such conditions as fatigued legs from long periods of standing and prophylaxis during pregnancy, indicating any use of the sleeves for treating CVD would not include advanced stages of the disorder that might be accompanied by significantly impaired mobility.

On Appeal of these three models, the U.S. Court of Appeals for the Federal Circuit panel said it needed to take a step further back to see if the circulatory disease was even the main usage of the compression gear. The panel found that the compression garments were instead created for a variety of usages, including helping people who sit for a long time, and weren’t specifically made for a physical disorder.  The court explained that “[a]lthough the Court of International Trade erred in its analysis, we conclude that it reached the correct result,” the Federal Circuit wrote. The Federal Circuit said that since the garments aren’t “specially designed” to treat a physical handicap, the products don’t qualify for an exemption.

For more information regarding your company’s imports and the applicability of the Nairobi protocol please contact us.

 

As a consequence of U.S. and UN sanctions on the Democratic People’s Republic of Korea (DPRK or North Korea), companies increasingly need to coordinate compliance efforts across the typically distinct worlds of economic sanctions and import/customs compliance. This is particularly necessary with respect to identifying, and mitigating the risk of DPRK-related labor in supply chains. Below, we summarize first the expanded scope of UN restrictions on the DPRK, including the prohibition on the use of DPRK labor, and then second, how those rules have been implemented and expanded in the United States in increasingly complex ways.

Part I:    United Nations Restrictions:

The United Nations has maintained limited sanctions on North Korea for years, but in 2017 it expanded those sanctions in a number of material ways.  Of relevance to this analysis, the UN Security Council (UNSC) reached a determination that all DPRK labor outside of North Korea poses a high forced labor-related risk.  As a result, the UNSC first required that all new work visas for DPRK citizens be approved by the UNSC, before expanding that restriction in December 2017 (UNSCR 2397) to require all UN Member States to repatriate all DPRK workers currently employed in their territory “immediately but not later than 24 months” (i.e., December 2019).  Therefore, for example Chinese and Taiwanese companies could currently employ DPRK citizens, but they will be required to reduce that employment and ultimately curtail it, or risk violation of UN resolutions.

Part II:   U.S. Restrictions:

In parallel, the United States has implemented a growing array of restrictions that also target DPRK labor.  Below, we summarize the relevant (a) U.S. sanctions prohibiting transactions with the DPRK and (b) a parallel set of import requirements presumptively prohibiting products manufactured with DPRK nationals in the supply chain:

(1) U.S. Sanctions on the DPRK:

The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has maintained a comprehensive embargo on the DPRK since 2017 and more limited restrictions for decades. Today, OFAC prohibits the export of any goods or services to the DPRK  and any transactions with the Government of North Korea or the Workers Party of North Korea.  OFAC generally considers a transaction with a DPRK national ordinarily resident in the DPRK to be prohibited as an indirect export of a service to the DPRK.

Importantly, for this analysis, OFAC also prohibits the importation of any goods or services from the DPRK, even items with only a de minimis percentage DPRK content (e.g., a $10,000 widget produced in Russia with a $2 North Korean origin part would be considered North Korean origin and prohibited entry into the United States).

Over the last few months, we have seen that OFAC has aggressively expanded its enforcement of these provisions, including designation of persons involved in DPRK trade, and issuing advisories to the shipping community about DPRK risks in the supply chain.  See https://home.treasury.gov/news/press-releases/sm458; https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Documents/dprk_vessel_advisory_02232018.pdf; and https://www.treasury.gov/resource-center/sanctions/Programs/Documents/dprk_supplychain_advisory_07232018.pdf.

(2) DPRK-Related Import Prohibitions:

In parallel, since August 2017, U.S. Customs and Border Protection (“CBP”) has maintained a North Korean related import restriction.  Specifically, pursuant to Section 321(b) of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”), CBP utilizes a presumption that any “significant goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part by the labor of North Korean nationals or citizens” is produced through forced labor and therefore is prohibited for entry into the United States.  The presumption can be rebutted only through “clear and convincing” evidence that the DPRK nationals are not forced labor (e.g., a demonstration that they are asylees or refugees in a third country).  To assist importers in meeting their “reasonable care” obligation to ensure that goods entering the United States meet these new provisions, the Department of Homeland Security has published CAATSA Section 321(b) Guidance on due diligence steps importers can take, while CBP has noted that the seafood industry presents a high risk of DPRK nationals.  See e.g., https://www.cbp.gov/newsroom/spotlights/cbp-leads-delegation-thailand-discusses-forced-labor-concerns-fishing-industry.

Part III: Significant Points for Importers, Exporters and U.S. Companies

The net result of the overlap of the above restrictions is:

  • All U.S. and non-U.S. companies are prohibited to grant new work permits to DPRK nationals, except DPRK nationals seeking an asylum or refugee status.
  • U.S. companies are prohibited under U.S. sanctions law from directly or indirectly exporting goods or services to the DPRK, including transacting with persons ordinarily resident in the DPRK.
  • U.S. companies are prohibited under U.S. sanctions to import any products produced in whole or in part (no matter how small the percentage) with DPRK origin material into the United States.
  • All products manufactured in whole, or in part, with DPRK national labor are presumptively considered to be produced with forced labor and are therefore prohibited to enter the United States, unless the importer can demonstrate through “clear and convincing” evidence that the DPRK nationals were not forced labor (e.g., by demonstrating they are asylum seekers).

 

On September 4, 2018, the House agreed to Senate amendments made to the Miscellaneous Tariff Bill (MTB) Act of 2018 last month, moving the legislation to the president for signature. The White House reportedly indicated President Trump will sign the bill. The last MTB passed by Congress expired on December 31, 2012.

Once signed into law, the bill would cut or eliminate tariffs on articles such as chemicals, footwear, toasters, and roughly 1,660 other items made outside the United States. Roughly half of those items are produced in China and there is an overlap between MTB and the Section 301 tariffs in effect, and those being considered.

Section 1664 states the effective date is on or after the 30th day after the date of the enactment of the Act. It provides for duty suspensions and reductions through December 31, 2020.

The next MTB petition cycle will be in the Fall of 2019.

The purpose of MTB is to reduce or eliminate what many businesses claim are unfair, out-of-date and/or anticompetitive taxes.

 

 

 

Crowell & Moring Partner Michelle Linderman is co-presenting a webinar, in association with SanctionsAlert.com on September 13, 2018 on “The Potential Effects of Brexit on U.K. Sanctions Law and How Compliance Officers Can Prepare for the Switch.” Michelle’s co-presenter is Susan Lake, the regional compliance head of Swiss Re’s Reinsurance Business Unit.

You can register at the link below.

Register Online ($195)

Date: September 13, 2018

Time: 10:00 – 11:15 AM EDT (3:00 – 4:15 PM in Amsterdam)

The U.K. currently derives its power to implement sanctions from European law, regardless of whether they originated at the U.N., E.U., or OSCE. Since June 2016’s ‘Brexit’ decision, when the U.K. voted to leave the E.U., it has been unclear how the U.K. will implement sanctions policy after the divorce.

The new Sanctions and Anti-Money Laundering Bill, which received Royal Assent earlier this year, provides the U.K. powers to impose, update, and lift sanctions and AML regimes after the U.K. leaves the E.U. in March 2019. But will the U.K. sanctions landscape stay the same, or is it likely to change drastically?

In this SanctionsAlert.com webinar, you will learn:

  • What powers will be derived from the new U.K. Sanctions and Anti-Money Laundering Bill and how this will change (or not change) the sanctions landscape; and
  • What the potential effect of Brexit on U.K. Sanctions Law will be as well as how Compliance Officers can prepare for the switch.

 

 

On August 31, after a week of talks, Canada and the United States failed to reach agreement on a new NAFTA that aligns with the bilateral U.S.-Mexico agreement reached on August 27. Among the key outstanding issues is the U.S. objective of opening up Canada’s dairy market and the Canadian objective of maintaining Chapter 19 of the original NAFTA’s dispute settlement for antidumping and countervailing duty cases. Canada will resume negotiations with the U.S. on September 5.

Despite the breakdown in talks, the Trump administration notified to Congress its intent to sign an agreement with Mexico, noting also the possible inclusion of Canada if agreement is eventually reached. The notification begins the 90-day timeline under Trade Promotion Authority (TPA) after which the administration can, according to USTR, legally sign an agreement with both Mexico and Canada. Although there are some legal questions as to whether adding Canada after the notification would fulfill TPA notification requirements, it is not likely to face significant challenge (most would like to see Canada included in the agreement).

60 days prior to signature, however, the Trump administration is still required under TPA to publish the text of the new NAFTA agreement, meaning a text must be agreed to and released by October 1 in order to achieve the administration’s goal of a signed agreement before December 1, when Mexican President Enrique Pena Nieto’s term ends. This likely means that Canada and the U.S. would have to agree on terms by the start of October, if not before.

If no agreement with Canada is reached, it remains possible that the Trump Administration would seek to terminate the existing NAFTA and replace it with the August 27 bilateral U.S.-Mexico agreement. This of course would raise the significant legal and political concerns noted in our August 29 post.

 

On August 27, the U.S. and Mexico announced a “preliminary agreement in principle” on the renegotiation of NAFTA—a deal reached without Canada, which sat out the latest bilateral talks. Canada’s Foreign Minister, Chrystia Freeland, has joined negotiations this week in hopes of reaching a trilateral agreement by Friday, August 31. Despite the significant publicity around this announcement, the ultimate fate of NAFTA still remains uncertain, given that Canada was not part of the bilateral deal and many details have yet to be released.

Link to CNBC Squawk Box discussion on NAFTA with Ambassador Robert Holleyman, Crowell & Moring (8/29/18).

The parties are attempting to conclude negotiations to allow for the Mexican President Enrique Peña Nieto’s Administration to sign the deal before he leaves office on December 1. By statute, U.S. Trade Promotion Authority (TPA) procedures require the Trump Administration to notify Congress 90 days before it can sign any agreement, which it seeks to do while Peña Nieto is still in office. U.S. Trade Representative (USTR) Robert Lighthizer has said he will notify the agreement to Congress this Friday, with or without Canada.

While the U.S. President has the authority to negotiate trade agreements, he does not have the authority to implement trade agreements.  Once negotiations are complete, the President must notify Congress and then submit an implementing bill for approval by both houses of Congress (see TPA statutory timelines below). The vote under TPA is a yes or no majority vote on the negotiated agreement and amendments are not permitted.  The preliminary “agreement” with Mexico, or one to be reached with Mexico and Canada, has no legal significance until it is approved by Congress. This process is expected to continue into 2019.

Trade Promotion Authority Timeline

Source: Congressional Research Service

According to USTR fact sheets, the preliminary agreement with Mexico includes the following:

  • Market access: Maintains zero tariffs on originating agricultural and industrial products
  • Autos/Auto parts: Requires 75% of auto content to be made in Mexico or the United States and 40-45% of automobile content be made by workers earning at least $16/hour in order to qualify for duty-free treatment; it is unclear if existing facilities will be exempted from this requirement
  • Other industrial products: Strengthens rule of origin for other industrial products such as chemicals, steel-intensive products, glass, and optical fiber
  • Textiles: Limits rules that allow for non-originating inputs to qualify for duty-free treatment, including for sewing thread, pocketing fabric, narrow elastic bands, and coated fabric
  • Agriculture: Enhances rules for sanitary and phytosanitary standards and protects use of certain geographical indicators (GIs)
  • Intellectual property: Protects biologics data for 10 years, extends minimum copyright terms to 75 years, and enhances patent and trademark protections
  • Digital trade: Minimizes localization requirements on data storage and processing, limits requirements for disclosure of proprietary source code and algorithms, and limits civil liability of Internet platforms for hosting non-IP content

According to press reports, the agreement also includes the following:

  • Sunset clause: Requires the U.S. and Mexico to renew the agreement 6 years after entry into force, for the agreement to extend beyond a 16 year-period
  • Investor-State Dispute Settlement (ISDS): Limits ISDS protections outside of the oil and gas, energy, telecommunications, and infrastructure sectors
  • Autos/Auto parts: While not made explicit, reports suggested that Mexico could receive an exception from supplemental import duties arising from the national security investigation into autos and auto parts.  This suggests that the U.S. is still considering implementing new supplemental import duties on autos and auto parts pursuant to Section 232 of the Trade Expansion Act of 1962.

NAFTA termination and replacement?

In announcing the deal, President Trump suggested he could terminate NAFTA and replace it with the bilateral U.S.-Mexico agreement if no agreement is reached with Canada. Actually doing so would raise two immediate legal concerns: 1) whether President Trump can withdraw from NAFTA without Congress, and 2) whether the Trump Administration has legal authority to enter into a bilateral agreement with Mexico under TPA procedures, given that the Administration previously notified intent to renegotiate NAFTA in May 2017.

Termination:  The consensus is that President Trump can unilaterally terminate NAFTA – although not all of the provisions enacted as part of the original NAFTA implementing legislation approved by both houses of Congress and signed into law in 1993.  NAFTA is not a “treaty” from a constitutional perspective because it was not approved by two-thirds of the U.S. Senate in accordance with Article II, section 2 of the U.S. Constitution. NAFTA is an “executive agreement” approved through the adoption of ordinary legislation adopted by both houses of Congress under TPA.

Article 2205 of NAFTA provides that “[a] Party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties.” The president shall have 60 days following the day of withdrawal to submit to Congress recommendations as to the appropriate rates of duty for those articles which were affected by the termination.

To date, there has been no litigation challenging the President’s power to withdraw from a trade agreement. A legal challenge may be made in U.S. courts on the basis that the President had exercised his delegated powers to negotiate trade agreements in a manner inconsistent with what the Constitution and/or Congress intended. As noted above, however, the legal consensus is that the President can withdraw from NAFTA given the explicit termination clause embedded in the agreement. Therefore, it is not likely that such a challenge will be successful.

 

Bilateral or trilateral replacement agreement: A Mexico-U.S. only agreement would face political difficulties: Mexico has thus far indicated a strong preference that Canada remain a part of any agreement, and leading U.S. lawmakers have also made statements in favor of a trilateral agreement.  Mexico has suggested that Canada could join the agreement during the 90-day period before it is signed.  Further questions also remain about whether Canada’s later entry would satisfy TPA notification procedures.

New Partner Establishes Trade Group’s California Presence; His Practice Focuses on Global Customs, Trade Compliance

Los Angeles – August 27, 2018: Crowell & Moring LLP is pleased to announce the addition of David R. Stepp as a partner in the firm’s International Trade Group in Los Angeles. With more than 30 years of experience, Stepp provides strategic counsel on global customs and international trade compliance. At Crowell & Moring, he will advise multinational companies and importers as they move goods across borders and establish subsidiaries around the world. He joins the firm from Bryan Cave Leighton Paisner LLP.

Stepp’s arrival expands the presence of the firm’s recognized International Trade Group into California, further broadening the global practice’s reach to serve clients across the Pacific Rim.

“David’s global customs experience represents a wonderful addition to our International Trade Group,” said Philip T. Inglima, chair of Crowell & Moring. “Further building our highly-regarded trade practice is a firm priority, and David’s presence in California presents new opportunities for us. He has a well-earned reputation as a trusted advisor, and his experience will be a tremendous benefit to many of the firm’s clients.”

Stepp’s practice focuses on customs compliance and counseling, including tariff classification, valuation, country of origin marking, free trade agreements, Customs-Trade Partnership Against Terrorism (CTPAT) participation, and other international trade regulatory requirements. He also advises companies on their e-commerce strategies globally, conducts global customs and international trade audits, and counsels clients on improving, benchmarking, and coordinating compliance programs across borders. He also has experience in advising on trade remedies and coordinating government investigations, including FCPA matters. His clients span a range of industries, including retail, e-commerce, aerospace, motor vehicles, steel, food, agriculture, textile/apparel, footwear, electronics, cosmetics, and other consumer goods.

“Given the current trade wars and uncertainties of the global trade environment, clients are hungry for deft guidance to minimize tariffs, resolve supply chain disruptions, and secure market access,” said John Brew, chair of the firm’s International Trade Group. “David has a strong trade practice and skill set that meets all of these client needs, and is focused on the movement of goods and services in Asia. His practice meshes well with our existing trade group and expands our capabilities to provide counsel on emerging trade issues worldwide.”

Stepp has practiced in Los Angeles, Singapore, and Washington. He joined Bryan Cave as a partner in 2005, and he later served as managing partner of Bryan Cave’s Singapore office (2014-2017), coordinating regulatory issues for clients across Asia. While in Singapore, he led initiatives focused on strategic business and professional development in Southeast Asia. His previous experience includes working with a major U.S. customhouse broker where he advised the company’s importing clients on U.S. customs practices and procedures. He is admitted to practice before the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit.

“The firm is strongly committed to strengthening our litigation and regulatory capabilities in California, and David’s arrival provides further momentum in that effort,” said partner Jason C. Murray, the head of Crowell & Moring’s Los Angeles office and co-chair of the firm’s global Antitrust Group.

Stepp is active in the international trade and legal communities in California. He currently serves on the Board of Directors for the Northern California World Trade Center. He also taught the Los Angeles Customs Brokers and Freight Forwarders Association’s semi-annual course for ten years, preparing students to take the customs brokers licensing test. He previously served as chairman of the International Visitors Council of Los Angeles; president of the Global Legal Customs Association; and co-chair of the ABA Customs Law Committee.

“I am excited to join Crowell & Moring,” Stepp said. “The firm’s International Trade Group is well known and regarded, and I am pleased to help establish the group’s West Coast presence and help us open further avenues to support clients in the Asia-Pacific region. The firm’s full range of regulatory and litigation capabilities is a tremendous asset to my clients and my practice.”

Stepp received his J.D. from the University of Georgia and his A.B. from Duke University. He is a frequent author and speaker on global customs and international trade issues. He authored a guidebook on NAFTA procedures for a major U.S. electronics trade association and lectured in Asia, Europe, and the Americas on the scope and effect of many bilateral and multilateral free trade agreements

On August 17, 2018, U.S. Customs and Border Protection (CBP) published a document entitled, “Responsible Business Practices on Forced Labor Risk in the Global Supply Chain“, which provides details regarding the best practices for importers of goods into the U.S. The agency indicated that the guidelines were published in order to further CBP’s strategic goal to stop the importation of goods produced with forced labor. The Office of Trade also recommends the adoption of the Department of Labor (DOL) Comply Chain principles in order to create a social compliance system. To this end, the DOL has made an APP available for download called Sweat & Toil, which identifies problematic countries, commodities, and types of exploitation.

Finally, CBP’s Responsible Business Practices document recommends that a company review the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises because they provide non-binding principles and standards for responsible business conduct in a global context consistent with applicable laws and internationally recognized standards. These guidelines are the only multilateral and comprehensive code of responsible business conduct that governments have agreed to promote.

For further information regarding Forced Labor and your supply chain please does not hesitate to contact us.