In June 2018, the Office of the United States Trade Representative (USTR) announced additional tariffs on products imported from China. The additional tariffs are part of the U.S.’ response to China’s unfair trade practices related to “the forced transfer of American technology and intellectual property” pursuant to Section 301 of the Trade Act of 1974. To date, three lists of tariffs against China have been posted.

On August 13, 2019, the USTR released two additional lists (List 4A and List 4B) of products that will be subject to a 10% tariff that will directly affect the Fashion Industry, particularly apparel and clothing accessories, footwear, and hats.

This 4A list will go into effect September 1, 2019. This ad valorem tariff could potentially impact approximately $42 billion worth of imported apparel.

List 4A covers the following:

Footwear articles (91 tariff lines);

Apparel and clothing accessories (e.g., scarves, gloves, trousers, suits, blouses, shirts, skirts) (356 tariff lines); and

Headwear products (hair-nets, safety headgear of reinforced or laminated plastics, and safety head wear) (3 tariff lines).


List 4B (the second list of products subject to the tariffs) will not go into effect until December 15, 2019.  It will include an additional 56 lines of footwear articles; and 35 lines of apparel and clothing accessories.

List 4A: Effective as of September 1, 2019

List 4B: Effective as of December 15, 2019

USTR also indicated that it will launch an exclusion request process for products subject to the additional 10 percent ad valorem tariff.

The complete list of Chinese Tariffs, Trade Actions, and Retaliatory Measures is available here.

Podcast – Let’s Talk FCA

Customs Fraud

In this episode, hosts Mana Lombardo and Jason Crawford speak with Crowell & Moring attorneys Frances Hadfield and Allegra Flamm about the steady rise in the number of False Claims Act investigations and lawsuits alleging that U.S. importers have concealed obligations to pay duties to U.S. Customs and Border Protection.

“Let’s Talk FCA” is Crowell & Moring’s podcast covering the latest developments with the False Claims Act.

Link to Podcast

On August 13, the United States Trade Representative (USTR) released two additional lists of products that will be subject to a 10 percent tariff on approximately $300 billion worth of imported Chinese goods, pursuant to Section 301 of the Trade Act of 1974. The first set of tariffs will go into effect on September 1, 2019 as announced by the president on August 1. Some products have been removed from the tariff list based on health, safety, national security, and other factors, according to USTR.

The second set of tariffs for certain products from China, including, but not limited to, cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain footwear and clothing will be delayed to December 15, 2019.

List 4A: Effective as of September 1, 2019

List 4B: Effective as of December 15, 2019

USTR will introduce an exclusion request process for products subject to the additional 10 percent ad valorem tariff.

The official Federal Register notice will be published as soon as possible with additional details and the list of imported products affected by the tariffs.

On August 13, 2019, the FAR Council will publish in the Federal Register an interim rule, FAR Subpart 4.21, effective immediately, which implements a portion of section 889 of the FY 2019 National Defense Authorization Act, specifically, the ban on government procurement of any equipment, system or service that uses covered telecommunications equipment or services from certain Chinese companies.

The interim rule defines covered telecommunications equipment and services to include any telecommunications equipment or services from Huawei or ZTE (or any affiliate) and certain video surveillance and telecommunications equipment or services from three other Chinese companies (or their affiliates).

The interim rule also provides for expanding the ban to other companies that the Secretary of Defense, in consultation with the Director of National Intelligence, reasonably believes to be owned or controlled by, or otherwise connected to, the Chinese government.

Unless a waiver is granted, the rule will broadly apply to all contracts including commercial item procurements and acquisitions below the simplified acquisition threshold. The implementing clauses, FAR 52.204-24, Representation Regarding Certain Telecommunications and Video Surveillance Services or Equipment and FAR 52.204-25, Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment, must also be added to any existing contracts before those may be extended or renewed.

Over the course of the last week, the United States has escalated its sanctions programs targeting Russia and Venezuela. It began by implementing the long-delayed second round of sanctions on Russia mandated by the Chemical and Biological Weapons Act of 1991 (CBW Act) on Saturday, August 3, 2019. While the CBW sanctions will have a limited impact on most companies, the same cannot be said of the issuance of Executive Order 13884 (“E.O. 13884”) on Monday, August 5, 2019, which designated the Government of Venezuela and all entities that it owns or controls as “blocked.” Full details on each action are below.

Russia: Implementation of CBW Sanctions

The United States CBW-related sanctions have been almost a year in the making. The CBW Act requires the United States to impose certain prescribed sanctions when it concludes that a foreign government has used chemical weapons in violation of international law or in lethal form against its own nationals. As a result, after concluding on August 8, 2018 that the Russian Federation had sponsored the use of chemical weapons as part of the attempted assassination of its former spy in Salisbury, U.K., the United States issued a first round of CBW-related sanctions. These measures became effective on August 27, 2018, but had limited commercial impact as the Administration either waived their implication (with respect to sanctions cutting off foreign assistance), established limits for certain activity that was largely not occurring (e.g., foreign military financing to Russia or U.S. government financial assistance to Russia), or imposed restrictions that largely duplicated existing requirements (e.g., export licensing requirements on items controlled for national security purposes).

The CBW Act required the imposition of a second round of sanctions unless the Administration could certify within 90 days that the identified country has ceased its use of chemical weapons. On November 9, 2018, the State Department publicly confirmed that it could not make that certification, requiring the imposition of sanctions.

Those sanctions were finally implemented on August 3, 2019. Specifically, the United States imposed three related measures:

  • Non-Ruble Denominated Sovereign Loans: The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a new “CBW Act Directive” that prohibits a “U.S. Bank” from: (1) participating in the primary market for non-ruble denominated bonds issued by the Russian sovereign; or (2) lending non-ruble denominated funds to the Russian sovereign. “U.S. Bank” is defined broadly, including not only banks, but also securities brokers and dealers, commodity futures and options brokers, and U.S. affiliates of any of the foregoing. “Russian sovereign” is defined to mean any ministry, agency, or fund of the Russian Federation, including the Central Bank of Russia and the Ministry of Finance, but not state-owned enterprises.
  • Export Restrictions: The United States announced new export licensing restrictions on Department of Commerce-controlled goods and technology. However, to date, the specific restrictions have not yet been identified.
  • Multilateral Financial Institutions: Finally, the United States announced its intention to oppose the extension of any loan or financial or technical assistance to Russia by international financial institutions, such as the World Bank or International Monetary Fund.

These requirements will only take effect upon publication in the Federal Register, expected on or after August 26, 2019. Simultaneously, OFAC issued a series of Frequently Asked Questions to provide guidance on the new requirements.

Venezuela: Blocking of the Entire Government of Venezuela

On August 5, 2019 the U.S. Administration re-escalated its Venezuela sanctions program issuing an Executive Order, Blocking Property of the Government of Venezuela (E.O. 13884) that designates the entire Government of Venezuela, including everything it owns or controls (collectively the GoV), for blocking sanctions.

This action represents a continued escalation of the U.S. Venezuela sanctions program. While that program has been in place since March 2015, it has strengthened in intensity since the United States recognition of Juan Guaidó as the “Interim Leader” of Venezuela on January 26, 2019. Since then, the United States has designated a series of key GoV entities, including: Petróleos de Venezuela, S.A. (PdVSA) (January 28, 2019); CVG Compañía General de Minería de Venezuela CA (Minerven) (March 19, 2019); Banco de Desarrollo Económico y Social de Venezuela (BANDES) and four of its subsidiaries (March 22, 2019); and the Central Bank of Venezuela (April 17, 2019).

The GoV as a whole had been subject to a limited set of debt, equity, and securities related restrictions since August 2017. E.O. 13884 now imposes comprehensive blocking sanctions on the GoV and its many owned and controlled entities. As a result, U.S. Persons are now prohibited from engaging in virtually all transactions with the GoV and these entities unless a general license (GL) applies.

OFAC has issued 13 new GLs and made amendments to 12 existing GLs to mitigate the impact of E.O. 13884. Below is a selection of a few of the key amendments and new GLs specific to the new action:

  • Wind-Down Authorization (GL28): OFAC issued a comprehensive 30-day wind-down authorization for all activities pursuant to operations, contracts, or other agreements, that were in place as of August 5, 2019, with the newly-designated elements of the GoV through September 3, 2019.
  • Transactions with the Interim President and Designees (GL31): OFAC authorized U.S. Persons to engage in transactions involving the Government of the Interim President of Venezuela (Juan Guaidó), including transactions with (a) the Venezuelan National Assembly, (b) any official, designee, or representative appointed or designated by Juan Guaidó to act on behalf of the Government of Venezuela and their staff, (c) any ambassador or other representative to the United States or to a third country appointed by Juan Guaidó, and their staff, and (d) any person appointed by Juan Guaidó to the board of directors (including any ad hoc board of directors) of a Government of Venezuela entity.
  • Continued Authorization for Several PdVSA Subsidiaries: The existing authorizations for (a) PDV Holding, Inc., (b) CITGO Holding, Inc., and (c) Nynas, A.B. were preserved through updated GLs 2A, 7C, 9E, and 13C. The authorizations related to the former two entities are effectively permanent until rescinded, while the Nynas GL currently expires on October 25, 2019.
  • Conforming Changes: OFAC updated a series of GLs to extend them to apply to the prohibitions in E.O. 13884, including the authorization related to: (a) agricultural commodities, medicine, and medical devices (GL 4C); (b) bonds issued prior to August 25, 2017 by GoV entities (GL 3F); (c) Chevron, Halliburton, Schlumberger, Baker Hughes, and Weatherford activities in Venezuela (GL 8C); and (d) purchases of refined petroleum in Venezuela (GL 10A).

In addition, while E.O. 13884 does not constitute an embargo—insofar as OFAC has not categorically prohibited the export of goods or services to, or the import of goods or services from, Venezuela—several of the 13 new GLs largely parallel the types of GLs that OFAC typically includes in its country-based embargo programs, including GLs for:

  • Venezuela’s Mission to the United States (GL 22).
  • Third-country Diplomatic and Consular Funds Transfers (GL 23).
  • Certain Transactions Involving the Government of Venezuela Related to Telecommunications and Mail (GL 24).
  • Exportation of Certain Services, Software, Hardware, and Technology Incident to the Exchange of Communications over the Internet (GL 25).
  • Certain Transactions Related to Patents, Trademarks, and Copyrights (GL 27).
  • Certain Transactions Related to Personal Maintenance of Individuals who are U.S. Persons Residing in Venezuela (GL 32).
  • Certain Overflight Payments, Emergency Landings, and Air Ambulance Services over, and in, Venezuela (GL 33).

Simultaneously, OFAC issued a series of new Frequently Asked Questions and a new document titled “Guidance Related to the Provision of Humanitarian Assistance and Support to the Venezuelan People.” The latter document reaffirms the U.S. commitment to supporting humanitarian assistance, and notes various general licenses that may assist humanitarian activities (including, e.g., for agricultural commodities, medicine, and medical devices in GL 4C and for certain international organizations such as the United Nations and the International Federation of the Red Cross and Red Crescent societies), along with a new statement of favorable licensing policy for activities that promote humanitarian assistance. At the same time, it reiterates that any such activities must meet the terms of the applicable general licenses. This is a relevant caveat given that at least one recent OFAC designation has targeted a corrupt network that was seeking to abuse the Venezuelan food subsidy program, Los Comités Locales de Abastecimiento y Producción (CLAP).

Practical Considerations

The U.S. Congress is debating several pieces of legislation that would increase pressure on both Russia and Venezuela. Companies doing business in, or exposed to commercial risk, in either country therefore may wish not only to evaluate the impact of the changes described above, but also (1) actively monitor for additional potential change over the next few weeks or months; and (2) ensure that new contracts with exposure to these countries provide for the possibility of new restrictions.

In ruling NY N305266, Customs and Border Protection (CBP) determined the classification of Ridge® wallet credit card/money holders. The holders are imported and sold in five styles. Each wallet features two anodized aluminum inner plates, an aluminum screwdriver with a base metal working edge, and four extra steel screws. The holders will have two outer plates comprised of aluminum, titanium or graphite, and a steel money clip or an elastic and plastic cash strap. The wallets are fully assembled upon importation and are packaged in a cardboard box. Each of the holders measures approximately 3 5/16 inches long by 2 1/8 inches wide by 1/4 inch thick.

Each wallet under consideration is a composite article that consists of components that are classified in different headings: aluminum, titanium, graphite, steel, elastic and plastic components. Since no one heading in the tariff schedules covers the aluminum, titanium, graphite, steel, elastic and plastic components in combination, GRI 1 cannot be used as a basis for classification.

As the Ridge® wallets are composite goods, and therefore rule GRI 3(b) is applied, which provides that composite goods are to be classified according to the component that gives the goods their essential character. EN VIII to GRI 3(b) explains that “the factor which determines essential character will vary as between different kinds of goods.” CBP believes that the metal components impart the essential character to the wallets. In accordance with GRI 3(b), each of the five styles of Ridge® wallets will be classified as an other article of its constituent metal.

Section XV Note 7 of the HTSUS, states that the classification of composite articles of base metal containing two or more base metals are to be treated as articles of the base metal that predominates by weight over each of the other metals.

The applicable subheading for Ridge® wallets, in which aluminum predominates by weight, with extra screws is 7616.99.5190, HTSUS, which provides for Other articles of aluminum: Other: Other: Other: Other: Other: Other. The rate of duty will be 2.5 percent ad valorem.

The applicable subheading for Ridge® wallet, in which titanium predominates by weight, with extra screws is 8108.90.3060, HTSUS, which provides for Titanium and articles thereof, including waste and scrap: Other: Articles of titanium, Other. The rate of duty will be 5.5 percent ad valorem.

The applicable subheading for the screwdrivers will be 8205.40.0000, HTSUS, which provides for Handtools (including glass cutters) not elsewhere specified or included; blow torches and similar self-contained torches; vises, clamps and the like, other than accessories for and parts of machine tools or water-jet cutting machines; anvils; portable forges; hand- or pedal-operated grinding wheels with frameworks; base metal parts thereof: Screwdrivers, and parts thereof. The rate of duty will be 6.2 percent ad valorem.

Products of China classified under subheadings 7616.99.5190, 8108.90.3060 and 8205.40.0000, HTSUS, unless specifically excluded, are subject to the Section 301 List 3 25% duty. At the time of importation, 9903.88.03, in addition to subheadings 7616.99.5190, 8108.90.3060 and 8205.40.0000, HTSUS, listed above, must be reported.


The Office of the United States Trade Representative (USTR) released three distinct batches of product exclusion requests from its Section 301 tariffs during July and early-August.



Nicole Succar is a Counsel in Crowell & Moring’s International Trade Group and a resident in the firm’s New York office. She joins Crowell after serving as a senior vice president and head of U.S. economic sanctions advisory, and previously a vice president in the financial crimes division for HSBC, one of the world’s largest international financial institutions. At Crowell, Nicole’s practice will focus on economic sanctions, anti-money laundering, and other financial crimes issues.

Nimrah Najeeb is an Associate in Crowell & Moring’s International Trade Group and a resident in the firm’s Washington, D.C. office. She joins Crowell after spending three years at another Washington law firm, where she advised U.S. and foreign-based multinational companies on public international law issues, mergers and acquisitions, government and internal investigations, and third-party due diligence. At Crowell, Nimrah’s practice will focus on economic sanctions, export controls, anti-money laundering, and other cross-border international regulatory regimes.

Walter “Sam” Boone is an International Trade Analyst in Crowell & Moring’s International Trade Group and a resident in the firm’s Washington, D.C. office. He joins Crowell after serving as a trade policy intern at the Corn Refiners Association. Sam also completed an internship at the U.S. Department of Commerce, working in the International Trade Administration’s Latin America and Caribbean office. At Crowell, he will provide practice support on import regulatory matters pending before the Office of the U.S. Trade Representative (USTR) and U.S. Customs and Border Protection.


Following the passage of the Taxpayer First Act, the IRS updated its guidance on how and when an auditor may contact third parties in an audit. Under the new law, the IRS must meet stricter procedural requirements before contacting third parties during an audit. Congress made this change due to concern that contacting third parties may harm a taxpayer’s business or reputation. Taxpayers should be aware of the new procedures to ensure the IRS is following them and to take advantage of the advance notice to voluntarily supply information to the IRS.

Notification Requirement

Historically, the Internal Revenue Code required the IRS to notify the taxpayer under audit when the IRS would contact third parties, such as customers, banks, and former employees. To meet this obligation, the IRS would send taxpayers “Publication 1, Your Rights as a Taxpayer,” which stated that, in the course of an examination, the IRS may need to obtain information from third parties that the taxpayer has not provided or to verify information the IRS has received. The IRS asserted that Publication 1 provided sufficient notice. District courts were split on whether Publication 1 was sufficient or if specific notice was required. In March 2019, the Ninth Circuit held that specific notice was required (see prior client alert). The Taxpayer First Act nullified the issue—specific notice is now required.

Taxpayer First Act

The Taxpayer First Act, signed on July 1, 2019, imposes additional procedure requirements on IRS auditors before they can contact third parties. The Act amended IRC section 7602(c) to provide that:

  • The auditor must notify the taxpayer that he or she intends to contact third parties.
  • When the auditor notifies the taxpayer, he or she must actually intend to contact the third parties.
  • The auditor must notify the taxpayer at least 45 days before he or she contacts the third party.
  • The auditor must tell the taxpayer the time period in which he or she intends to make the contact and the period must not be more than a year.

These requirements make clear that the auditor cannot simply issue a generic notice at the beginning of the audit that he or she may contact third parties at some point during the audit.

IRS Interim Guidance

The IRS recently provided interim guidance to its examining divisions (Large Business & International, Small Business & Self-Employed, Tax-Exempt & Government Entities, and Wage and Investment) on the new advance notice requirements. The memorandum states that Publication 1 no longer satisfies the advance notice requirements. The memorandum specifically states that auditors “may not contact a third party until the 46th day following the date of the notice.” The memorandum states that the advance notice requirements apply to all notices and third party contacts after August 15, 2019.

Record of Contacts

Amended IRC section 7602(c) maintains the requirement that the IRS keep a record of persons contacted. Upon request of the taxpayer, the IRS must provide the taxpayer with a list of those persons contacted.

Bottom Line for Taxpayers

The new rules are good news for taxpayers. Taxpayers will receive advance notice that the IRS is contacting third parties and will be able to obtain a list of who the IRS has contacted. In certain circumstances, taxpayers may be able to reduce the IRS’s contacts with third parties by voluntarily providing the information sought by the IRS.

On August 5th, the U.S. Treasury labeled China a currency manipulator, a move not taken by the United States since the early 1990s, as China allowed its currency to fall to an 11-year low against the dollar. Although the People’s Bank of China played down the drop, it did link it to the trade tensions with the United States.

Although the Omnibus Trade and Competitiveness Act of 1988 requires the U.S. to engage in negotiations with the International Monetary Fund (IMF) to adjust the rate of exchange, on May 28, 2019, the U.S. Department of Commerce (DOC or Commerce) introduced a draft rule and invited comments for new rules that would considerably change how it addresses countervailing duty (“CVD”) proceedings involving claims that countries have undervalued its currency.

Countervailing duties are anti-subsidy duties. They are imposed after an investigation finds that a foreign country subsidizes its exports, injuring domestic producers in the importing country. Because countries can determine whether domestic industries are in danger and whether foreign countries subsidize the products, the institutional process surrounding the investigation and determinations has significant impact. Countervailing duties in the U.S. are assessed by the International Trade Administration of the DOC which determines whether imports in question are being subsidized and, if so, by how much. If there is a determination that there is material injury to the competing domestic industry, the DOC will instruct U.S. Customs and Border Protection (CBP) to levy duties in the amount equivalent to subsidy margins.

Petitions for remedies may be filed by domestic manufacturers or unions within the domestic industry, but the law requires that the petitioners represent at least 25% of the domestic production of the goods for which competition is causing material injury.

The proposed new rule could put goods from many countries (now China) at risk of higher tariffs. These countries could include Japan, South Korea, India, Germany and Switzerland. All are listed on the Treasury Department’s semi-annual currency report’s monitoring list.

Commerce stated that that these “modifications, if adopted, would clarify how the DOC determines the existence of a benefit resulting from a subsidy in the form of currency undervaluation, and clarify that companies in the traded goods sector of an economy can constitute a group of enterprises for purposes of determining whether a subsidy is specific.”

The proposed rule, if passed, could open the door for a myriad of new Countervailing Duty Investigations and provide a source for enacting addition new duties in Administrative Reviews for existing CVD orders products from China, now that President Trump has followed through with his promise to name China as a currency manipulator.

Crowell & Moring, LLP will be monitoring the rule-making process for these proposed rules and the potential impact to businesses and consumers.