Congress failed to pass much needed and anticipated trade legislation last session. Issues the new House and Senate must face include: the extension of the Trade Adjustment Assistance, the future of the Trade Promotion Authority, renewed Generalized System of Preferences, and a new Miscellaneous Tariff Bill.

The Future of the Trade Adjustment Assistance and Trade Promotion Authority

The Trade Adjustment Assistance (TAA) was extended by one year in the fiscal year 2023 omnibus following its expiration at the end of June 2022. The TAA is a top Democratic party priority that may be used as a bargaining tool for the potential renewal of the Generalized System of Preferences (GSP) and the new Miscellaneous Tariff Bill (MTB). Senator Ron Wyden (D-OR) hopes this extension could also lead to a long-term package of “other expired trade initiatives.”

Sen. Wyden said, “I fought to ensure the omnibus renewed for funding… I look forward to working with my colleagues to improve the program as part of a long-term package that addresses other expired trade initiatives as well.” He emphasized that this extension is a key first step and went on to say, “You can’t build sustainable economy without putting workers first, and the Trade Adjustment Assistance is an essential part of the safety net to help workers get the skills they need. There should be bipartisan agreement on policies that support high-tech and sustainable American manufacturing of everything from semiconductor chips to solar panels. TAA is a win-win that helps workers succeed, and have the skills to run the manufacturing facilities that will be the backbone of a durable American economy.”

On the other side of the aisle, Republicans have pushed to preserve the historical pairing between TAA and the Trade Promotion Authority (TPA), which permits presidential ability to pursue Free Trade Agreements (FTAs) in accordance with congressional direction. However, the Biden administration has neither requested TPA renewal nor pursued new FTAs, to the chagrin of Republicans.

The newly GOP-led House is anticipated to focus on more traditional trade deals, with heavier scrutiny on trade deals past and present, and placing more emphasis on China. The Republican Ways & Means Committee members will likely utilize their majority to pressure the Biden administration toward pursuing more traditional trade agendas, centered around opening new markets, although FTAs require the renewed TPA. Rep. Kevin Brady (R-TX) told reporters that, “with a Republican majority, I’m hopeful that we can [go] back and show that there’s bipartisan support for market access… opening free trade. It’s really crucial, especially with our economy to sell more American.”

However, both the president and Office of the U.S. Trade Representative Katherine Tai have avoided market access talks in favor of broader economic arrangements, including the Indo-Pacific Economic Framework for Prosperity. Both sides of the aisle remain concerned about the administration’s efforts to provide more robust consultations on agreements such as this one. “A lot of members want to talk about TPA and market access. Other countries over the years… have seen more market access here than they’re willing to give us in their respective countries,” says Rep. Adrian Smith (R-NE).

In early December, Senate Finance Committee Chair Ron Wyden (D-OR) and ranking member Mike Crapo (R-ID) along with 19 other members, sent a letter to President Biden emphasizing the Indo-Pacific Economic Framework of Prosperity’s (IPEF) required congressional approval. House democrats followed suit, sending a similar letter. These letters follow months of accusations from both Republicans and some Democrats that the administration was not being forthcoming regarding TRIPS talks and IPEF, which USTR denies. The agency holds that it has and will continue to consult with lawmakers on trade policy. Sen. Bob Menendez (D-NJ), who serves on the Finance Committee, says that USTR recently committed to address accountability- although the agency hasn’t confirmed what that this commitment entails. Menendez has extensively sought to establish a USTR inspector general to improve accountability and transparency.

The Biden administration’s decision to avoid pursuing TPA renewal has made some Democrats in Congress hesitant to provide support. Democrats have instead prioritized the renewal of TAA, which provides benefits to workers who lost their jobs as a result of global trade. However, many Republicans will only support TAA if it is accompanying TPA, as the two have been historically linked.

Sen. Portman (D-OR) and Sen. Chris Coons (D-DE) attempted to pass a trade package in December that included limited TPA deals with four countries: United Kingdom, Kenya, Taiwan, and Ecuador, as well as the restoration of both the TPA and GSP, and a new MTB. These efforts did not yield success as both Democrats and Republicans have yet to reconcile major differences on key issues.

Renewing Generalized System of Preferences and Miscellaneous Tariff Bill

Lawmakers and various industry groups have urged Congress to reauthorize both the GSP and MTB, following the expiration of both in 2020. However, these efforts have not pushed Congress forward. Last Congress, both the House and the Senate separately passed legislation to restore the programs but their different criteria present challenges. Efforts to push them through the jam-packed session were unsuccessful. GSP and MTB are typically bipartisan priorities that do not generate much controversy, and there is still a possibility that the two are moved through Congress without accompanying other trade measures.

Among industry representatives urging lawmakers to reauthorize GSP is Beth Hughes, American Apparel & Footwear Association’s vice president of trade and customs policy. Hughes told reportersthat GSP and MTB will be among the top priorities in the new Congress. “Unfortunately, for American companies and consumers, we’re just going to wait out the clock until Republicans take control, and then they’re going to get GSP and MTB done,” Hughes said.

The new Republican-controlled House provides a “great opportunity” to pass bipartisan legislation renewing the GSP, including a new MTB, Rep. Adrian Smith (R-NE) said. He is confident that the House and Senate will agree on a bill that reinstates both GSP and MTB, accomplishing a key priority for many business groups.

Both programs have bipartisan support and is a priority for many lawmakers on both sides of the aisle. However, House Democrats have pushed for strengthened GSP eligibility criteria, among other differences. It is unlikely that House Ways & Means Republicans will support House Democrats’ plans for GSP and MTB, as they said they would back the Senate version.

Changes in Leadership: What a GOP-Led House Means for Trade

Amid the change in leadership in Congress, Rep. Jason Smith (R-MO) was picked in early January by the House Republican Steering Committee to chair the Ways & Means panel in the 118th Congress. In a statement, Jason Smith noted Republicans under his leadership would “examine using both trade policy and our tax code to re-shore and strengthen our supply chains, where products and services vital to our national security are made here at home using American labor, as well as craft policies that help America achieve food and medical security rather than dependence on nations like China.” His statement further indicates that, “the interests of American workers and punishing unfair trade practices that benefit China at the expense of American workforce and job creators,” is a top priority.

Smith’s appointment follows ranking member Kevin Brady’s (R-TX) retirement. The Senate Finance Committee will remain under Democrat control and is to be steered by Chair Ron Wyden (D-OR). However, the departures of two outspoken voices on trade issues, Sen. Rob Portman (R-OH) and Pat Toomey (R-PA), will also shake up the makeup of the Finance committee.

Senate Finance Committee’s Pat Toomey (R-PA) and House Ways & Means Committee’s Ron Kind (D-WI) teamed up to leave a roadmap, called “How to save trade,” for the next Congress which calls for increased market access, amplified congressional authority over tariffs, and an urge for World Trade Organization reform. Toomey and Kind note their discontent with the trade policies of the past two administrations, but the pair remain hopeful and state, “Rebuilding a bipartisan pro-trade consensus is possible,” they continue, “but it will require leadership from Congress. We have spent our careers advocating for freer trade because it leads to greater economic prosperity, disproportionately benefits lower-income Americans, enhances our security ties to friendly nations, and is morally right.”

Toomey and Kind provide the following recommendations for the Congress to prioritize:

  • Aggressively work to conclude comprehensive free trade agreements- inclusive of market access- with U.S. allies; reject so-called “sole executive agreements”
    • Clarify the legal process for withdrawal from free trade agreements
    • Renew & strengthen trade promotion authority
    • Rein in executive abuse of tariff authorities, including Section 232
    • Support efforts to positively reform the world trade organization; reaffirm the United States’ Commitment to the WTO

Brady’s retirement may also alter the relationship between USTR and the Ways & Means Committee. Prior to taking office as trade representative, Tai was the chief trade counsel for Ways & Means Democrats. “She’s famously very close to Mr. Brady. That is something else… to watch in the new Congress is how the committee’s relationship may change with USTR, with Mr. Brady no longer being at the helm,” said Brian Pomper, former chief international trade counsel for the Senate Finance Committee.  

Republicans have added new members to the House Ways & Means Committee. The House Republican Steering Committee selected Reps. Mike Carey (OH), Randy Feenstra (IA), Michelle Fischbach (MN), Brian Fitzpatrick (PA), Nicole Malliotakis (NY), Blake Moore (UT), Michelle Steel (CA), Greg Steube (FL), Claudia Tenney (NY) and Beth Van Duyne (TX) to join the panel pending approval by the House Republican Conference, said Chair Smith. However, the final makeup of the committee is not yet set in stone; Democrats will make some compromises regarding their members to make way for the Republicans majority.

Since March 2018, when President Trump exercised his authority under Section 232 of the Trade Expansion Act of 1962 to impose a 25 percent tariff on steel imports and a 10 percent import on aluminum, trade partners of the United States have made efforts to receive exemptions from the steel and aluminum tariffs. In several instances, the Department of Commerce used the leverage created by the Section 232 tariffs to negotiate tariff rate or absolute quotas with strategic allies. While Canada, Mexico, and Australia are now exempt from the Section 232 tariffs, the U.S. maintains quota deals with Argentina, Brazil, South Korea, the EU, Japan, and the United Kingdom. Despite all of these countries having quota deals with the U.S., these agreements do have key differences that importers need to understand.

Back in the first half of 2018, the U.S. reached quota deals with Argentina, Brazil, and South Korea as alternatives for the Section 232 tariffs. The tariff quotas were set based on historical average volumes where a subject country’s exports of a particular steel or aluminum product cannot exceed 500,000 kg or 30%” of the annual product-specific quota in a given quarter. Since these are absolute quotas, imports from these countries cannot exceed the quota limit and continue to import by paying tariffs. Imports will be denied entry if the absolute quota is full.

The only way to import Argentina, Brazil, and South Korea products subject to the Section 232 tariffs once the quota is full is by applying for and obtaining a Section 232 quota exclusion from the Department of Commerce. Exclusions are retroactive to the date of their application. When entering those goods with an exclusion, importers should utilize 9903.80.60 in place of 9903.80.05 through 9903.80.58 but continue to reference the appropriate chapter 72 or 73 harmonized tariff schedule (HTS) classification. Quota exclusion entries are charged against the quarterly limit that is in place at the time of entry and count towards the annual limit. This means that entries with exclusions will “use up” quota limits, but they continue to be accepted until the close of the annual quota period regardless of whether the quarterly or annual limits have been reached. Exclusion quantity that is over the quarterly or annual limit is tracked by CBP as “exclusion quota overflow” using the distinct quota ALXC suffix.

In October 2021, the U.S. announced that it would establish a tariff rate quota for steel and aluminum products from the EU in exchange for the EU suspending its retaliatory tariffs. Steel from the EU operates with a quota managed on a quarterly basis with limits and carry forward amounts set by the Department of Commerce. Each quarter has initial limit of 25% of the annual country limit for each HTS group but the unused quota amount from the first quarter of the year will be combined into the third quarter, while the unused second quarter will combine into the fourth quarter. Aluminum from the EU operates on a semiannual and annual quota where no more than 60 percent of the tariff-rate quota to be filled in the first half of the year. Importers can still bring in products from the EU once the quota for that specific HTS is full but will need to pay the Section 232 tariffs for the amount that exceeds the tariffs.

A key difference in the U.S.-EU deal is that entries with exclusions from the Department of Commerce do not count against the quota. Importers holding exclusions a particular HTS can enter goods at any time during the quota year, regardless of whether the tariff rate quota thresholds have been met. In practice, this means that the steel and aluminum quotas for the EU are significantly less likely to fill up compared to the other quota agreements. While Importers using the quota need to file using the appropriate 9903.80.65 through 9903.81.19 quota HTS number, no Chapter 99 HTS number is required when using an exclusion.

The most recent two deals, both of which have a similar structure, are the U.S.-UK and US-Japan agreements. Starting in April 2022, the U.S. announced that Japan can import up to 1.25 million tons of steel duty free under a tariff rate quota. Meanwhile, since June 2022 the U.S. replaced the tariffs on steel and aluminum from the UK with tariff-rate quotas allowing up to 500,000 tons of steel and 12.3 thousand tons of UK aluminum to enter the U.S. duty-free each year. The tariff rate quotas for steel products also function on a quarterly basis with rollover quantities working the same as with the EU deal. Not entries can be made that would exceed the aggregate quantity under the relevant subheading, which means entries must entirely fit under the quota or pay tariffs on the entire volume.

Similar to the Brazil, Argentina, and Korean arrangements, entries that have exclusions from the Department of Commerce will count against the quantitative limitations. As a result, even importers with an exclusion will need to report the relevant chapter 99 quota subheading. This is true even if the quota is already full. The nature of combining a tariff rate quota with exclusions counting against the quota can create tricky situations when attempting to retroactively obtain relief from Section 232 duties. Even if the quota period has ended, importers should have no issues filing a post summary correction (“PSC”) to retroactively claim a Section 232 exclusion and refund on an unliquidated entry (up to 15 days prior to the scheduled liquidation date). 

The snag lies where the original entry was not filed as a quota entry.  Essentially, entries that claim exclusion also must count toward the quota, even though the exclusion continues to apply after the quota is filled.  Therefore, an entry that applies the exclusion subheading code must also be filed as a quota entry, e.g., Type 02 or Type 07.  If the original entry was non-quota (e.g., Type 01), and the importer wishes to apply the Section 232 exclusion HS code retroactively via PSC, this is not possible because the original entry was non-quota.  In that instance, the entry may need to be canceled and re-filed as quota entry that also applies the Section 232 exclusion HTS code. 

For updates on the status of Section 232 quotas, please refer to U.S. Customs and Border Protection’s (“CBP”)  weekly commodity status report.  CBP also maintains quota bulletins that describe in detail the specifics of each Section 232 quota program. This bulletin can be used to identify the quarterly, semiannual, or annual limits set for all Section 232 quotas. Even less than one month in to 2023, certain products such as line-pipe from Italy under subheading 9903.80.81 and cold finished stainless-steel pipe from Japan under subheading 9903.81.57 have already filled their quota. Importers must be diligent in monitoring quotas to avoid having goods stopped at the border, or paying a higher tariff.

Main Idea: Feeling positive about your country of origin determination? CBP’s decision on battery modules and packs confirms the importance of understanding the complexity of the substantial transformation rules.

In a decision impacting the electric vehicle, renewables, and other related industries, U.S. Customs and Border Protection (CBP) discusses the country of origin of battery modules and battery packs, as well as the applicability of certain trade remedies under Section 301 to such products.  The products CBP analyzes in ruling N329847 (Jan. 10, 2023) are lithium-ion battery modules and battery packs that are used in various battery electric systems for electric vehicles.  Each battery module’s main components include: lithium-ion battery cells, a top and bottom housing, a cell holder and current collector, a module cold plate, and a battery management board. The battery modules are manufactured into battery packs containing multiple battery modules. Both the battery modules and battery packs are assembled in Canada through multi-step assembly processes that include: applying adhesive, aligning, pressing, curing, plasma cleaning, laser ablation, wire bonding, material injection, bolting, and testing of inputs sourced from Canada, China, Germany, Indonesia, Japan, Singapore, South Korea, and the United States.  The lithium-ion battery cells are sourced from either China, Japan, or South Korea.

19 C.F.R. § 134.1(b) defines country of origin as: “… the country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” …” A substantial transformation occurs when an article emerges from a manufacturing process with a name, character, and use that differs from the original material subjected to the processing.” See National Hand Tool Corp. v. United States, 16 C.I.T. 308 (1992), aff’d, 989 F.2d 1201 (Fed. Cir. 1993). CBP country of origin determinations on a case-by-case basis based on the totality of evidence.

Applying the substantial transformation analysis to the battery modules and battery packs assembled in Canada, CBP focuses on the component providing the “essence” of the battery module and in which country that component undergoes a substantial transformation. In its ruling CBP determines that the country of origin for the products is China, Japan, or South Korea, depending upon where the battery cells are manufactured. CBP states that the assembly operations in Canada do not substantially transform the battery cells, which provide the essence of the battery module and subsequent battery pack, into an article with a new name, character, or use, different from that possessed by the article prior to processing. 

CBP has previously held that assembling battery cells into battery packs does not characterize substantial transformation of the battery cells because the fundamental character of the cells is not altered simply by being placed together in plastic casing.  See HQ 563045 (Aug. 9, 2004) and HQ 734393 (Mar. 20, 1992). 

CBP’s ruling presents an example of why importers and manufacturers need to be aware of the manufacturing and assembly criteria CBP considers “substantial” enough to constitute a substantial transformation.

Washington, D.C. – January 23, 2023: Jason Prince, former chief counsel to the U.S. Treasury Department’s Office of Foreign Assets Control, has joined Crowell & Moring and will advise financial institutions and other companies on the growing list of sanctions and export controls on Russia and other targeted nations and parties.

Prince brings in-depth experience leading OFAC’s implementation and enforcement of more than 40 sanctions programs against nations such as Russia, Iran, Syria, North Korea, Cuba, and Venezuela, and thousands of designated individuals and entities deemed to threaten the national security, foreign policy, or economy of the United States. He oversaw the legal design of new sanctions measures and led the legal review of all major OFAC enforcement, compliance, licensing, litigation, and regulatory actions. Prior to the chief counsel role at Treasury, he served as an attorney‐advisor in the Office of the Assistant General Counsel for Enforcement and Intelligence, where he advised the under secretary who sits over OFAC and its anti‐money laundering counterpart the Financial Crimes Enforcement Network.

At Crowell, Prince will advise clients on the explosive growth of global sanctions and export controls as a partner in the firm’s International Trade and Financial Services practices. Given his experience in government, Prince will provide insight on how to comply with complex, evolving legal restrictions governing international trade and investment, as well as internal investigations and voluntary self‐disclosures. In addition, Prince will guide clients on how to identify risks in private equity and venture capital investments, and M&A, as well as how to handle what is anticipated to be a continuing increase in sanctions‐focused enforcement matters. 

“Jason has stand-out sanctions credentials due to his senior role at OFAC during a pivotal period and his years of private practice experience,” said Nicole Simonian, co-chair of the firm’s International Trade Group. “He was at the eye of the sanctions hurricane after Russia launched its full-scale invasion of Ukraine, helping to design the largest, fastest expansion of sanctions in our nation’s history.” Prince was at the center of OFAC’s conception, implementation, and enforcement of sanctions against Russia, which involved unprecedented international coordination with allies on EU and UK sanctions.

Prior to his tenure at the Treasury Department, Prince spent 14 years in private practice. He co-chaired the economic sanctions and export controls practice at a large national law firm, where he served as primary outside counsel on sanctions and export controls issues for one of the world’s 10 largest international defense trade companies, a Fortune 100 heavy equipment manufacturer, and an array of emerging growth companies. He also counseled multinational and exporting companies on developing compliance programs and conducting audits and internal investigations related to the U.S. Foreign Corrupt Practices Act. While in private practice, Prince specialized in coordinating internal investigations, preparing voluntary self‐disclosures to the U.S. government, and conducting compliance program reviews involving OFAC’s sanctions regulations and various agencies’ export controls.

“The opportunity to obtain first‐hand knowledge from one of the key legal architects of U.S. sanctions on Russia and other adversaries will greatly benefit our clients around the globe,” said Carlton Greene, chair of the firm’s Financial Services Group. “Jason can translate the complex regulations and sanctions for financial institutions and companies that devote substantial time and effort to trying to make contact with and get answers from OFAC.”

Prince earned his law degree at the University of Notre Dame, a master of philosophy at the University of Cambridge, and an undergraduate degree from Davidson College. He also served as a law clerk for Judge Susan H. Black on the U.S. Court of Appeals for the Eleventh Circuit. 

“I was drawn to Crowell’s strong global platform and highly regarded international trade practice, as well as its skilled investigations team, as I anticipate we will see an increase in cross-border investigations,” said Prince. “I look forward to building my practice with lawyers who genuinely collaborate across practices and offices to help in-house legal and compliance teams of companies and financial institutions located around the world.”

About Crowell & Moring LLP

Crowell & Moring LLP is an international law firm with offices in the United States, Europe, MENA, and Asia. Drawing on significant government, business, industry and legal experience, the firm helps clients capitalize on opportunities and provides creative solutions to complex litigation and arbitration, regulatory and policy, and corporate and transactional issues. The firm is consistently recognized for its commitment to pro bono service as well as its programs and initiatives to advance diversity, equity, and inclusion.  

This Tuesday, January 17, marked the close for the Office of the United States Trade Representative’s (USTR’s) comment period for its statutory 4-year review of tariffs imposed on Chinese goods under Section 301 of the Trade Act of 1974. To-date, the Biden Administration has retained Section 301 tariffs on over $300 billion worth of imports from China, which were initially imposed in four different tranches (referenced as Lists 1, 2, 3 and 4A) starting in 2018 by the Trump Administration.  

As part of its mandatory 4-year review on whether the Section 301 tariffs imposed on China have been effective, USTR asked stakeholders their “views on the effectiveness of the actions in obtaining the elimination of China’s acts, policies, and practices related to technology transfer, intellectual property and innovation.” As of the January 17 deadline, USTR’s questionnaire had received 1497 public comments.   

Many of the responses on the USTR comments portal argued for specific HTS lines to be removed from the duties. Key arguments for many stakeholders commenting for tariff removal are that Section 301 tariffs on Chinese goods have harmed domestic manufacturing due to increased costs on critical inputs from China, disrupted global supply chains, contributed to rising inflation and unemployment levels, and have hurt U.S. workers and consumers across various critical industries, such as healthcare and communications. In addition, another key argument for removal of Section 301 tariffs is that “rather than counteract China’s acts, policies, and practices related to technology transfer, intellectual property and innovation, Section 301 tariffs led China to assess retaliatory tariffs on goods imported from the United States.”

In its response, the U.S.-China Business Council, a nonprofit organization whose stated goal is promoting trade between the U.S. and China, stated that Section 301 tariffs “have been generally ineffective in pressuring China to change its practices”, and have resulted in “an estimated peak loss of 245,000 jobs” in the U.S. In addition, many of the responses supporting removal of the duties stated that “rather than counteract China’s acts, policies, and practices related to technology transfer, intellectual property and innovation, Section 301 tariffs led China to assess retaliatory tariffs on goods imported from the U.S.,” thus being counterintuitive to the Biden administration’s goals. Later this year, USTR may decide to remove tariffs on certain imports by HTS lines based on comments submitted as part of this four-year review process.   

Other stakeholders have called for the tariffs to remain in place after July 2022, four  years after they were initially imposed by USTR under the Trump Administration. They range from leading domestic manufacturers to small private businesses across various industries.

Crowell & Moring, LLP will continue to monitor developments and the potential impact to businesses and consumers moving forward.

Main Idea:  Automatic data processing (ADP) system units of heading 8471 must satisfy three criteria: sole or principal use in an ADP system, connectable to processing units, and capable of accepting or delivering data within the system.

In ruling NY N328964 (Nov. 10, 2022), Customs and Border Protection (CBP) discusses the tariff classification of the Grabba X-Series, a biometric scanner device.  This device contains a fingerprint reader, passport reader, facial recognition scanner, barcode reader, RFID and Smart Card reader within a single enclosure.  A USB connector connects the device to a compatible Android smartphone.  Various industries, e.g., law enforcement, retail, security, border protection, emergency response services, travel, and warehousing, use the device to capture biometric and biographic data and populate the data on the smartphone for the user’s viewing.

Despite the requestor’s suggestion, CBP determines that the Grabba X-Series is not classified under subheading 8471.90.0000 of the Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Automatic data processing [ADP] machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included: Other.”

To classify a machine as an ADP system unit under heading 8471, the item must meet the terms specified in Legal Note 6 (C) of Chapter 84, HTSUS, which are as follows:

(i) It is of a kind solely or principally used in an automatic data processing system;

(ii) It is connectable to the central processing unit either directly or through one or more other units; and

(iii) It is able to accept or deliver data in a form (code or signals) that can be used by the system.

The Grabba X-Series fails the first and second conditions set forth in Note 6 (C) to Chapter 84 because it is not primarily used in ADP systems, nor is it connectable to the central processing unit directly or through one or more other ADP units.  Instead, the Grabba X-Series mounts to an Android smartphone to collect data from scannable sources (e.g., passport or biometric fingerprint).  Therefore, the Grabba X-Series is not classifiable as an ADP system unit.

Instead, CBP concludes that the applicable subheading for the Grabba X-Series will be 8543.70.9860, HTSUS, which provides for “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter; parts thereof: Other machines and apparatus: Other: Other: Other: Other,” which carries a general rate of duty of 2.6% ad valorem.

The U.S. Court of International Trade (“CIT”) issued a final opinion in Virtus Nutrition LLC’s (“Virtus”) challenge to Customs and Border Protection’s (“CBP”) detention of Malaysian palm oil imports, rejecting Vitrus’ request that the CIT confirm the importer’s right to re-export the shipment.  Please see link to case [here].      

CBP detained the shipment in early 2021 alleging that the palm oil was subject to a withhold release order (“WRO”) issued against Sime Darby Plantation Berhad. See link [here].  To obtain release of the shipment, Virtus provided CBP with extensive documentation concerning the production process. However, CBP found the documentation was not sufficient and instructed Virtus to export or destroy the merchandise within a 60-day time frame.  Virtus filed a protest on CBP’s decision, which CBP denied, claiming insufficient documentation. Virtus brought the case before the CIT to contest the denial of the protest. (Virtus Nutrition, LLC v. United States, CIT #21-00165).  Prior to the appeal, Virtus and CBP entered into a temporary storage agreement stating that Virtus could export the merchandise.  

After filing the appeal Virtus sought to dismiss the case, effectively conceding that it could not prove CBP’s detention was unlawful but requested the CIT order that Virtus be allowed to re-export the goods pursuant to the storage agreement.  CBP agreed that the case should be dismissed with prejudice but argued that the CIT does not issue an order allowing export of the goods because the storage agreement would apply only if Virtus sought a final decision from the court.  

In its December 15, 2022, opinion, the CIT dismissed the case and denied Virtus’s request to export the goods.  The court found that CBP is allowed to seize the goods as they deem appropriate.  If CBP seized the goods, and did not allow Vitrus to export, which is common in WRO proceedings, then the court noted that Virtus may challenge CBP’s decision pursuant to 28 USC § 1356.  Finally, the Court also denied the American Apparel & Footwear Association’s bid to join the suit as an amicus curiae.  It is unlikely Virtus will appeal its loss.   

In the end, the case did not provide insight into the evidence needed to successfully challenge CBP forced labor detentions. The importing community was hoping for such guidance but will have to wait.          

Main Idea: GRI 3(b) of the HTSUS and the explanatory notes to the HTSUS control the classification of both goods put up in sets for retail sale, and individual composite goods.  

In ruling N329453 (Dec. 6, 2022), Customs and Border Protection (CBP) discussed the tariff classification of an Outdoor Gift Set and an Axe-Saw from China.  The Outdoor Gift Set, which was imported packaged for retail sale, included the following items:

  • Axe-Saw –  that consisted of a hardened stainless steel, serrated saw blade, attached to a polymer handle.  It also incorporated a stainless-steel hatchet head and a mallet.  A safety sheath was included to cover the hatchet head and saw blade.  The saw blade was noted as capable of cutting branches up to 4” in diameter.
  • Typhoon Match Kit (TMK) – that featured a water-resistant storage chamber with a lid and a strike pad cap.  It included 4” long natural wood matches that were windproof and had water-resistant coating.
  • Zippo Firefast Bellows – that were made of plastic and included an electric motor, an impeller style fan, and a vent to provide air flow for fire starting needs.
  • Tinder Shreds – that were 2” long natural shredded pine tinder shreds.  The tinder shreds had a water-resistant paraffin wax coating and ignited with a spark or flame.

CBP first determined the applicable classification for the Outdoor Gift Set.  CBP noted that the Outdoor Gift Set was imported in a single retail package containing items classifiable under different headings of the Harmonized Tariff Schedule of the United States (HTSUS). 

The General Rules of Interpretation (GRIs) of the HTS govern the classification of merchandise imported into the U.S.  GRI 3 provides, in relevant part, that when “goods are, prima facie, classifiable under two or more headings, classification shall be effected” via GRI 3(a) through GRI 3(c), in hierarchical order.  GRI 3(b) of the HTSUS, which covers goods put up in sets for retail sail, provides the following:

“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.”

Furthermore, Explanatory Note (EN) X for GRI 3(b) provides the following definition for “goods put up in sets for retail sale:”

“(X) For the purposes of this Rule, the term “goods put up in sets for retail sale” shall be taken to mean goods which :

(a) consist of at least two different articles which are, prima facie, classifiable in different headings. Therefore, for example, six fondue forks cannot be regarded as a set within the meaning of this Rule;

(b) consist of products or articles put up together to meet a particular need or carry out a specific activity; and

(c) are put up in a manner suitable for sale directly to end users without repacking (e.g., in boxes or cases or on boards).”

CBP determined that the Outdoor Gift Set met the criteria of a good put up in a set for retail sale, noting that all the articles in the set were used together to start a campfire. CBP also needed to determine the essential character of the good in order to determine the classification of the set.  EN VIII for GRI 3(b) provides, in relevant part, that the essential character can “be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods.”  As such, CBP found that the Axe-Saw imparted the essential character of the Outdoor Gift Set due to the fact that the Axe-Saw predominated by bulk, weight, and value.

CBP also determined the classification of the Axe-Saw when imported without the rest of the above mentioned items.  As noted, the Axe-Saw was composed of different parts (i.e. a handsaw, axe, and mallet), and CBP therefore considered it a composite good, in accordance with GRI 3(b). Similar to the Outdoor Gift Set, CBP needed to determine the essential character of the Axe-Saw.  In this case, CBP determined that the essential character of the Axe-Saw was imparted by the handsaw.

Finding that the handsaw imparted the essential character of the Axe-Saw, which subsequently imparted the essential character of the Outdoor Gift Set, CBP ruled that both items were classifiable under 8202.10.0000, HTSUS, which provides for “handsaws, and metal parts thereof; blades for saws of all kinds (including slitting, slotting or toothless saw blades), and base metal parts thereof: handsaws, and parts (except blades) thereof.”  The general rate of duty was free.

Finally, CBP noted that Chinese-origin goods are typically subject to additional duties under U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, pursuant to the ongoing trade action under Section 301 of the Trade Act of 1974.  As such, unless specifically excluded, items under subheading 8202.10.0000, HTSUS, are subject to an additional 25% ad valorem duty rate.  Therefore, subheading 9903.88.03 needed to have been included in addition to subheading 8202.10.0000, HTSUS.

The European Union has filed a legal challenge before the World Trade Organization against China’s use of “anti-suit injunctions” (ASIs) to restrict EU holders from enforcing standard-essential patents against Chinese companies in any non-Chinese court. The EU’s request for the establishment of a WTO panel challenges Chinese court-issued ASIs as they “forbid patent holders to commence, continue or enforce the results of any legal proceedings before any non-Chinese court and which are enforced through daily penalties in case of infringement.”

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

On December 16th, the United States Trade Representative (“USTR”) extended 352 exclusions which exclude certain products from the additional duties caused by the Section 301 actions taken against imports from China. These exclusions were scheduled to expire on December 31, 2022 but will now extend until September 30, 2023. USTR reinstated these 352 exclusions in an FR notice published on March 28, 2022 following their expiration during the previous administration.

The list of exclusions covers a wide-array of products from List 1 to List 4 and multiple industries. Products of interest include certain DC electric motors, heat exchanger plates, rubber tracks for use in construction equipment, rotary switches, air purification equipment, artificial graphite, duffel bags, and portable electric heaters. With the exception of the COVID exclusions currently valid until February 28, 2023, these 352 exclusions represent the only active exclusions at this time. Although members of Congress expressed interest in restarting the Section 301 exclusion process, the effort has been opposed by USTR and does not look likely for at least the near future.

Since requesting new exclusions has not been an available option since early 2020, importers looking for Section 301 relief currently have their eyes on the Section 301 4-year review comment process  as perhaps the only means to have products removed from Section 301 tariffs in the future.  USTR is soliciting comments on the effectiveness of the China tariffs at individual HTS levels, which leaves that possibility that USTR may raise, lower, or eliminate the tariff levels of certain goods as a result of their 4-year review. Interested parties that wish to remove or increase duty levels for their products should consider filing comments on the USTR website. The docket for submitting comments opened on November 15, 2022, and will close on January 17, 2023.