In ruling NY N321763 (October 21, 2021), Customs and Border Protection (CBP) discussed the classification and country of origin of . The merchandise is described as carbonated vodka sodas – specifically Absolute Vodka Lime & Cucumber; Absolut Vodka Soda Grapefruit & Rosemary; and Absolut Soda Raspberry & Lemongrass. The vodka sodas are ready to drink products in cans that do not need to be mixed with any other beverage prior to consumption. They contain water, vodka, natural extracts and essences, and carbon dioxide. The production of the vodka itself begins in Sweden with an alcohol by volume of 60%. It is then exported to Canada in bulk, where the bulk vodka is diluted with water, natural extracts and essences, and carbon dioxide in order to form the bulk finished product. At this portion, the alcohol by volume content is of approximately 5%. The bulk finished product then undergoes a canning process whereby it is filtered and sealed in 35 ml cans. The cans are pasteurized to form the vodka sodas ready for export to the U.S.

Beginning with its classification, CBP looked towards the Harmonized Commodity Description and Coding System Explanatory Notes (EN) – which serves as the official interpretation of the Harmonized System at the international level. CBP noted that the EN to heading 2208 provides the following:

(A)  Spirits produced by distilling wine, cider or other fermented beverages or fermented grain or other vegetable products, without adding flavouring; they retain, wholly or partly, the secondary constituents (esters, aldehydes, acids, higher alcohols, etc.) which give the spirits their peculiar individual flavours and aromas.

Because flavoring was added to the vodka sodas in Canada, pursuant to the language of the EN, the vodka sodas cannot be classified as “Spirits.” As such, CBP determined that the applicable subheading for the three vodka soda products is 2208.90.8000, Harmonized Tariff System of the United States (HTSUS), which provides for “Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80 percent vol.; spirits, liqueurs and other spirituous beverages: Other: Other: Other.” The general rate of duty is 21.1 cents per liter.

Regarding the country of origin marking, CBP referred to sections 102.1 through 102.18 and 102.20 of the USMCA, which determine the country of origin for marking purposes with respect to goods imported from Canada and Mexico. Section 102.11 provides a hierarchy for determining the country of origin for marking purposes, which establishes origin in the country in which:

  • (a)(1) The good is wholly obtained or produced;
  • (a)(2) The good is produced exclusively from domestic materials; or
  • (a)(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other requirements of these rules are satisfied.

CBP found that Sections 102.11(a)(1) and 102.11(a)(2) did not apply to the vodka sodas because neither were wholly obtained or produced exclusively from “domestic” – in this case Canadian – materials. As such, CBP turned to Section 102.11(a)(3) and found that the tariff shift rule was met. This was due to the fact that the foreign materials – the vodka and the natural extracts and essences – are classified under subheadings 2208.60 and 3302.10, respectively. As such, CBP determined that the country of origin for marking purposes of the vodka sodas was Canada.

In ruling NY N322379 (October 25, 2021), Customs and Border Protection (CBP) discussed the classification of decorative LED lanterns from China. There are four distinct decorative lanterns. The first lantern measures approximately 13” in diameter and is 22” tall. It is constructed of thin rattan rods that form an inner core and crisscross around the outside to form an open-work lattice that allows light to shine through. The lantern is rounded towards the middle and tapers towards the opening at the top. The second lantern measures approximately 18” tall and is also constructed of thin rattan rods that form a birdcage-like appearance. The rods are held in place by an iron frame. In addition, this lantern also features a metal handle. A plastic, battery-operated light is positioned in the base of both of these first two lanterns.

The third lantern comes with an inner structure made of Paulownia woods and an outer lattice work of interwoven Poplar strips. This lantern features a jute handle as well as a plastic, battery operated light positioned at the bottom of the lantern. Alternatively, the fourth lantern is constructed of Paulownia wood with an outer lattice work of interwoven Paulownia strips. It comes with a rope handle, and, like the third lantern, has a plastic, battery operated light positioned at the bottom. Batteries are not included in any of the four lanterns.

In their analysis, CBP determined that the lanterns do not meet the definition of lamps or light fixture since they are used for a decorative effect. As such, decorations are excluded from Heading 9405 by Note 1(1) of Chapter 94. Next, CBP noted that the lanterns meet the definition of a composite good – within the meaning of General Rule of Interpretation (GRI) 3(b) – due to their multiple materials. The agency notes that GRI 3(b) states, in pertinent part:

(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

Establishing that the lanterns are composite goods, CBP turned to define what gives them their essential character. CBP determined that the essential character of the lanterns is imparted by the external interwoven elements – in this case the rattan rods for the first two lanterns and the wooden strips for the second two lanterns. Notably, while both the rattan rods and the Poplar and Paulownia wooden strips meet the definition of plaiting material in Chapter 46, Harmonized Tariff Schedule of the United States (HTSUS), they note that the rattan rods are considered wickerwork due to their round cross-section. However, the Poplar strips and Paulownia pieces are not. As such, for the first two rattan lanterns, CBP determined that the applicable subheading is 4602.12.3500, HTSUS, which provides for “Basketwork, wickerwork and other articles, made directly to shape from plaiting materials or made up from articles of heading 4601:  Of vegetable materials:  Of rattan:  Other:  Wickerwork.” The rate of duty is free. Alternatively, CBP determined that the applicable subheading for the Poplar and Paulownia lanterns is 4602.19.4500, which provides for “Basketwork, wickerwork and other articles, made directly to shape from plaiting materials or made up from articles of heading 4601:  Of vegetable materials:  Other:  Other:  Of willow or wood:  Other.” The rate of duty is 6.6% ad valorem.

Additionally, pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, Chinese products under subheadings 4602.12.3500 and 4602.19.4500, HTSUS, unless specifically excluded, are subject to an additional 25% ad valorem duty rate. As such, the chapter subheading 9903.88.03 must be reported in addition to subheadings 4602.12.3500 and 4602.19.4500, HTSUS.

A cross-practice C&M team scored two major victories for Invenergy Renewables LLC in related cases challenging the Trump Administration’s attempts to re-impose tariffs on bifacial solar panels. This was the government’s third attempt to re-instate tariffs on bifacial solar panel imports and the history of these cases is long and tortured. As background, the U.S. Trade Representative (USTR) enacted the safeguard tariffs in January 2018 during the Trump administration to address a temporary surge in solar cell imports. Solar panel importers and domestic solar panel producers argued as to whether dual-sided solar panels should be excluded from the increased tariffs and several companies petitioned USTR to issue an exclusion for bifacial panels. After granting the bifacial panel exclusion in mid-2019, the USTR attempted to withdraw it only a few months later. The C&M team blocked that move by filing a complaint on behalf of their client Invenergy and quickly moving for a TRO and preliminary injunction. The court granted the TRO and then entered a Preliminary Injunction in December 2019, finding that USTR’s action was likely arbitrary and capricious. USTR tried to remedy those deficiencies through a new notice-and-comment process, culminating in a new rule again withdrawing the solar panel tariff exclusion in April 2020. The government then asked the court to lift its PI—but again Invenergy prevailed, convincing the court that USTR’s action remained arbitrary and capricious.

In October 2020, then-President Trump attempted to overcome the court’s decisions and issued a Proclamation withdrawing the bifacial solar panel exclusion. He used Section 204 of the Trade Act of 1974 to place safeguard tariffs on two-sided solar panels and increased the duty on them from 15% to 18% ad valorem. However, Section 204 of the Trade Act of 1974 sets forth specific conditions allowing the “reduction, modification or termination” of an existing safeguard, including that a majority of the domestic industry petition the president to take action.

The C&M team brought a new suit to challenge that executive action, and again prevailed. The CIT’s November 16 opinion agreed that, under Section 204 of the Trade Act, the President may not reimpose the safeguard tariff on solar panels. On November 16, the Court of International Trade granted summary judgment in favor of Invenergy and its co-plaintiffs in their challenge to Presidential Proclamation 10101, in which President Trump attempted to withdraw a tariff exclusion for bifacial solar panels critical to U.S. utility-grade solar developments. And on November 17, the court granted judgment to Invenergy and its co-plaintiffs in their challenge to the Trade Representative’s prior attempt to withdraw the solar panel exclusion. The court’s November 17 opinion held that USTR lacked statutory authority to take such action, and that USTR’s action was also arbitrary and capricious because USTR did not sufficiently explain its decision or respond to comments from Invenergy and others.

The C&M team included John Brew, Larry Eisenstat, Amanda Berman, Katie Clune, Frances Hadfield, Robert LaFrankie, Jacob Zambrzycki, Alex Rosen, Brian McGrath, April Marconi, Brad Hutter and Jena Talarico. The C&M team partnered with counsel for the Solar Energy Industries Association (SEIA) and other solar importers and developers in both cases, but took the lead in briefing and arguing the first case, and briefed and argued key parts of the second.

In an order filed on November 10, 2021, the District Court for the Southern District of Texas granted a motion to dismiss an indictment finding that it lacked jurisdiction over Foreign Corrupt Practices Act (“FCPA”) and money laundering claims brought against Swiss resident and citizen Daisy T. Rafoi-Bleuler. Moreover, the court concluded that the FCPA and money laundering claims were unconstitutionally vague as applied. See United States v. Rafoi-Bleuler, Case No. 4:17-CR-0514-7, Dkt. No. 255 (Nov. 10, 2021).

Click here to continue reading the full version of this alert.

 

On October 15, 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued its first-ever sanctions compliance guidance (the “OFAC Guidance” or “Guidance”) for the virtual currency industry. The Guidance represents a focused effort by OFAC to highlight sanctions risks present in the virtual currency industry, which has experienced tremendous growth in the past few years, and to suggest methods for ensuring compliance. The Guidance is a helpful compilation and distillation of OFAC’s guidance and resources relevant to virtual currency, as well as virtual currency-related enforcement actions and frequently asked questions, all designed to serve as a primer for those operating in the virtual currency sector who may be unfamiliar with OFAC and U.S. sanctions. OFAC suggests that many virtual currency businesses are launching products and services without making adequate provision for sanctions compliance, and the Guidance seems aimed at addressing this. The Guidance is the latest in a series of OFAC actions focused on the virtual currency sector, including a series of enforcement actions against virtual currency companies, updated guidance on ransomware attacks and designation of a virtual currency exchange. Industry participants should be aware of this history and the new guidance, and prepare for enhanced scrutiny and enforcement.

Click here to continue reading the full version of this alert.

The Customs and International Trade Bar Association (CITBA) is holding its Fall Semi-Annual Meeting on November 16, 2021 from 3:00 pm to 6:00 pm EST.

Crowell Counsel Frances Hadfield is moderating the Customs Exclusion Panel.

You can sign up to attend at this link.

Agenda
3:00 – 4:00 pm Trade and Environment Panel  – Panel discussion regarding the interaction between the Biden administration’s environmental agenda and international trade tools.

Rishi Gupta, Associate at Covington & Burling (moderator)
Timothy Brightbill, Partner at Wiley Rein
Kelly Ann Shaw, Partner at Hogan Lovells, former Deputy Assistant to the President for International Economic Affairs
John Smirnow, General Counsel & Vice President of Market Strategy at Solar Energy Industries Association
Mike Williams, Senior Fellow at the Center for American Progress

4:00 – 5:00 pm Customs Exclusions Panel  – Panel discussion regarding exclusion determinations by CBP which prohibit merchandise from entering the United States (e.g., intellectual property violations, forced labor statute).

Frances Hadfield, Counsel at Crowell & Moring (moderator)
Shara Aranoff, Partner at Covington & Burling, former Commissioner and Chairman of the U.S. International Trade Commission
Marcella Powell, Senior Trial Counsel, Int’l Trade Field Office, Department of Justice
Alexandra (Sasha) Khrebtukova, Senior Attorney—Trade & Finance, Office of Chief Counsel, U.S. Customs and Border Protection

5:00 – 5:30 pm Semi-Annual Meeting of CITBA

On November 1, 2021, the U.S. Department of State’s Directorate of Defense Trade Controls (DDTC) issued a final rule adding Ethiopia to the Proscribed Country List found in the International Traffic in Arms Regulations (ITAR) in § 126.1 and also updating the existing restrictions on Eritrea.

A policy of denial now applies to licenses (or other approvals) for exports of defense articles or defense services to or for the armed forces, police, intelligence, or other internal security forces of either Ethiopia or Eritrea. The details of this policy can be found in ITAR § 126.1(h) and (n).

This policy change was made in response to concerns of the ongoing crisis in northern Ethiopia along with other threats to Ethiopia’s sovereignty, national unity, and territorial integrity. People in northern Ethiopia continue to suffer human rights violations, abuses, and atrocities. But as this occurs, Ethiopian and Eritrean militaries are blocking needed humanitarian relief. The Secretary of State announced in May of 2021 restrictions on security assistance to Ethiopia and Eritrea. This final rule makes the ITAR consistent with this announcement.

The Federal Register notices are available here.

In ruling NY N321798 (October 27, 2021), Customs and Border Protection (CBP) discussed the tariff classification of cappuccino and latte macchiato cold brew beverages from Denmark. The two items from Illy Caffé North American, Inc., are described as ready-to-drink cold brew coffee beverages. The first variety – identified as the Cappuccino Cold Brew – is imported in a can containing 8.45 ounces of the beverage. The Cappuccino Cold Brew contains treated water, milk, sugar, coffee extract, fat reduced cacao, stabilizer (including microcrystalline cellulose, carboxymethylcellulose, and carrageenan), and acidity regulators (in this case potassium bicarbonate). The product consists of 3.47% by volume of nonfat milk solids and 4.04% by volume of total milk solids. The other beverage – identified as the Latte Macchiato Cold Brew – contains the same ingredients as the former beverage and also comes in a can containing 8.45 ounces. This product consists of 3.63% by volume of nonfat milk solids and 5.07% by volume of total milk solids.

In considering the classification of the item, CBP determined that the applicable Harmonized Tariff Schedule of the United States (HTSUS) subheading for both the Cappuccino and Latte Macchiato Cold Brews was 2202.99.9000, HTSUS, which provides for “Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavored, and other nonalcoholic beverages, not including fruit or vegetable juices of heading 2009: Other: Other: Other.” The rate of duty is 0.2% per liter.

On October 31, 2021, the Office of the United States Trade Representative (USTR) announced that the United States would be replacing the existing 25% tariff on EU steel and 10% tariff on EU aluminum under Section 232 with a tariff-rate quota (TRQ). As such, eligible products that are within the quota will be able to enter free of any Section 232 duties. Products that enter the U.S. above the quota will continue to be subject to the 25% tariff on steel and 10% tariff on aluminum. Both TRQs for each product are set to take effect as of January 1, 2022.

In their announcement, USTR also noted that the U.S. will maintain its exclusion process, as implemented under Section 232, for both steel and aluminum. Excluded products will not count against the TRQ nor will Section 232 duties apply to these imports. For steel exclusions only, the U.S. will also be extending the application of exclusions granted and used in the U.S. for Fiscal Year 2021 for steel products imported from the EU and will not require additional reapplication for a period of two calendar years – i.e., until December 31, 2023. These exclusions will be for U.S. exclusion holders and to corresponding EU exporter(s). In their announcement, USTR did not include any language about additional benefits for aluminum exclusions which signifies that those exclusions will still require reapplication on an annual basis.

For steel imports from the EU, the annual import volume is set at 3.3 million metric tons (MMT) under 54 product categories. This amount will also be allocated on an EU member state basis and will be in line with historically based volumes from 2015-2017. Steel product imports must be “melted and poured” in the EU in accordance to U.S. requirements and rules to be eligible as well. Calculation of the TRQ will take place each year on a quarterly basis. Any unused TRQ volume from the first quarter of that specific year – and only up to 4% of the allocated quota for that quarter – will roll over to the third quarter of that year. Unused TRQ volumes between the second quarter and the fourth quarter as well as between the third quarter and first quarter of the next year, are subject to the same roll-overs. The TRQ will be allocated on a first-come, first-served basis for each of the 54 categories from each EU member state, and the U.S. will provide updated information regarding the use of the quarterly quota on a public website.

For aluminum imports from the EU, the annual import volume is set at 18 thousand metric tons (TMT) for unwrought aluminum under two product categories, and 366 TMT semi-finished (wrought) aluminum under 14 product categories. The amount will be allocated on an EU member state basis similar to the quota for steel; however, the volumes will be in line with 2018-2019 historical levels – with the exception of foil, where 2021 annualized data will be used. Importers of aluminum steel will need to provide a Certificate of Analysis for each aluminum product. The TRQ for aluminum will be administered on a semi-annual basis, with no more than 60% of the TRQ to be filled in the first half of a given year.

The announcement is available here.

For more information on Section 232 tariffs and Tariff-Rate Quotas, contact our team and see previous posts below.

U.S. – EU Aim to Resolve Excess Capacity Issues and Section 232 Tariffs by the End of the Year – International Trade Law (cmtradelaw.com)

EU Suspends Increase in Steel and Aluminum Retaliatory Tariffs in Favor of Excess Capacity Dialogue   – International Trade Law (cmtradelaw.com)

On October 28, Deputy Attorney General (“DAG”) Lisa O. Monaco delivered remarks at the ABA’s 36th National Institute on White Collar Crime. Department of Justice (“DOJ” or “Department”) officials have recently referenced the coming enforcement “surge,” and the DAG’s remarks last week provide a roadmap to corporate criminal enforcement under the current administration.

The upshot(i) the Yates Memo is back—full cooperation again means disclosing facts about all individuals involved in misconduct; (ii) corporate recidivism includes unrelated prior misconduct if it demonstrates an ineffective compliance program; and (iii) corporate monitors are back in the federal prosecutor’s toolbox.

The remarks covered extensive ground, outlining several corporate crime trends and related enforcement priorities, previewing three new actions DOJ will undertake to strengthen its overall response to corporate crime, and highlighting areas of DOJ focus in the coming weeks and months.

Corporate Crime Trends

In her discussion of corporate crime trends and DOJ’s responses, the DAG recalled the early 2000s corporate enforcement—criminal actions against Enron (the DAG was an Enron Task Force Prosecutor), WorldCom, and Tyco, and others, recalling DOJ’s successes in those significant investigations due to the resources and support DOJ provided to the agents and prosecutors working the cases. In considering the current threats to the nation, and pledging the Department’s support to tackle these threats much like it did with corporate enforcement nearly two decades ago, DAG Monaco referenced the increasing national security dimension at play in sanctions and export control cases and cyber vulnerabilities that expose U.S. industry to foreign attacks; the continued importance of data analytics in corporate crime investigations—including healthcare fraud, insider trading, and market manipulation; and the increase in threat actors capitalizing on emerging technology and financial industries (e.g., virtual currency) to defraud and exploit the investing public. While acknowledging these new threats, the DAG firmly reinforced the Department’s commitment to combatting corporate crime, and emphasized that DOJ’s mission includes standing as a bulwark against individuals and corporations who break the law.

Three Immediate Actions

The DAG announced three changes DOJ will make to support its enforcement priorities:

  • Required disclosure of all individual involvement in corporate misconductDOJ has restored earlier guidance (i.e., the Yates Memo) that, companies must provide DOJ with non-privileged information about all individuals implicated in the misconduct at issue—regardless of status, position, or seniority – to be eligible for any cooperation credit in an investigation or subsequent enforcement action. This requirement eliminates a company’s ability to cabin disclosures to those individuals it deems “substantially involved” in the misconduct, and extends disclosure requirements to those with “peripheral” involvement who may have information important to the investigation. Significantly, it also re-emphasizes DOJ’s view that its agents and prosecutors are best able to determine the relevance and/or culpability of any individuals involved.
    • Takeaway: Companies seeking cooperation credit should continue to conduct rigorous internal investigations and now must identify all individuals with any relation to the alleged misconduct at issue.
  • Consideration of all prior corporate misconduct during current investigations: DOJ will evaluate all prior corporate misconduct when determining appropriate corporate dispositions, whether or not the prior conduct is similar to the conduct under investigation. DOJ’s consideration of this information includes evaluation of the historical misconduct and what it reveals about the overall effectiveness of a company’s compliance programs and controls.
    • Takeaway: Remediation is a critical factor and companies cannot rely on the existence of policies without regular updating, periodic training, and active enforcement. (For more information, see previous alert on the most recent update to DOJ Corporate Compliance Guidance). For example, an FCPA violation after an unrelated tax issue may pose more serious consequences for companies when the seemingly different infractions highlight flaws or ineffectiveness of the company’s compliance apparatus.
  • Renewed focus and prioritization of independent corporate monitorships: Rescinding prior guidance indicating that monitorships are disfavored or should be the exception to the rule, DOJ prosecutors again have leeway to impose independent monitors when necessary to ensure that companies comply with their obligations under DPAs or NPAs.
    • Takeaway: Companies should prepare for DOJ to “trust but verify,” which may include the imposition of an independent monitor. Such monitorships will require additional resources as a consequence of corporate resolutions.

Looking Ahead

Forecasting additional changes in DOJ policies and guidance, the DAG also highlighted areas the Department is reviewing for potential action in the coming weeks and months:

  • Treatment of repeat corporate offenders (10-20% of significant corporate resolutions involve companies that have previously had a resolution): Explaining that recidivism undermines the purpose of pretrial diversion programs, in which companies receive leniency for their cooperation and corrective actions, DOJ will consider how to evaluate entities that are repeat offenders.
  • No “free passes” under NPA/DPAs: DOJ will hold accountable any company that breaches the terms of its NPA or DPA, to include serious consequences for any violations.
  • Creation of Corporate Crime Advisory Group: Consisting of representatives from all parts of DOJ responsible for corporate criminal enforcement, this group will have a “broad mandate” to consider the issues highlighted in the DAG’s remarks, as well as others. It will also make recommendations for prioritizing individual accountability and ensuring adequate resources for “rigorous enforcement.”

In light of the coming enforcement surge and the continued presence of new and evolving legal risks, companies should heed the four closing points highlighted by DAG Monaco, which, in addition to warning that this is the beginning of the Department’s actions, included:

  • Active review of their compliance programs to ensure that those programs “adequately” surveil for and address misconduct.
  • Understanding that the company’s entire enforcement record – including civil and regulatory – will be considered by the Department in evaluating potential resolutions.
  • Companies must identify all individuals involved in the misconduct and produce all non-privileged facts regarding those individuals’ respective roles in order to be eligible for full cooperation credit.
  • Corporate monitors are no longer disfavored and will be considered given the facts and circumstances within each investigation.