In ruling NY N321071 (September 9, 2021), Customs and Border Protection (CBP) discussed the country of origin of an instant-read food thermometer. The item features a probe that folds into the body of the thermometer, as well as a second detachable corded probe that can be plugged into a receptacle on the thermometer. This corded probe allows users to check the temperature of food inside an oven while the LCD display of the thermometer remains safely outside. The item also contains a magnet that allows the thermometer to be attached to an oven door, refrigerator, or other ferrous surfaces. Lastly, it features a bottle opener and metal clip.

The manufacturing process begins in China, where the thermocouple and thermocouple adapter are produced. These two pieces are the probes used by the thermometer to determine temperature. Alongside these two pieces, the proprietary firmware of the thermometer is also designed and developed in China. Additional components manufactured in China include: the printed circuit board assembly (PCBA), adapter cover, a battery and battery door O-ring, clip, clip spring, clip pad, display panel, gasket, LCD, lock, magnet, magnet cover, opener, power button, and screws.

The components are then sent to Indonesia and assembled with Indonesian plastic parts that form the body and housing of the thermometer. These parts include the battery cover, bottom cover, housing, stand, and top cover. In Indonesia, the PCBAs are assembled into a housing unit with wiring and are soldered into place. The battery is then inserted into the housing unit before the top and bottom housing are assembled and secured. Next, the LCD overlay is placed into the housing. A separate plastic component holding the magnet is also placed inside the housing. Once the thermometer is fully assembled, it undergoes temperature testing using a thermostatic bath.

In its determination, CBP notes that, as defined under 19 CFR 134.1(b), the country of origin is 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’ within the meaning of this part.” CBP also established that “substantial transformation” takes place when a particular product “emerges from a process with a new name, character or use different from that possessed by the article prior to processing.” In this case, the agency established that the essence of the digital thermometer is established by Chinese-produced thermocouples, thermocouple adapters, and software. CBP found that no substantial transformation took place in Indonesia, but rather a combining process. As such, CBP determined that the country of origin of the instant-read food thermometer is China.

In ruling NY N320917 (September 2, 2021), Customs and Border Protection (CBP) discussed the classification of four wine preservation systems. A breakdown of the four products is provided below:

  • Model Three SL: consists of a Coravin Model Three device, a needle clearing tool, a bottle bag, and in some instances a screw cap;
  • Model Three Plus: consists of a Coravin Model Three device, an aerator, two screw caps, a needle clearing tool, and a bottle bag;
  • Model Pivot: consists of a Coravin Pivot device, two pivot stoppers, and a bottle bag; and
  • Model Pivot Plus: consists of a Coravin Pivot device, a pivot aerator, two pivot stoppers, and a bottle bag.

All four products are to be repackaged with gas argon capsules upon importation. CBP found that the items do not represent a set in accordance with Explanatory Note X due to the fact that the system is repacked to include the argon gas capsules upon importation. As such, CBP classified each item separately.

Both Model Three and Model Pivot devices are primarily plastic, handheld devices that are used to compress argon gas in order to allow a user to pour wine from an unopened wine bottle. With the Model Three device, a user aligns the SmartClamps™ over the bottle’s neck and pushes on the handle to insert the thin metal needle through the cork and into an unopened wine bottle. Once inserted, the needle facilitates the flow of argon gas from the device into the bottle and draws wine out. The device also comes with a hand-operated trigger that allows the user to regulate the flow of the compressed argon gas. In order to pour the wine, a user tilts the bottle towards a glass and presses the trigger button to send argon gas into the bottle and force pressurized wine to flow up the needle to the pouring spout. Once the device and its needle are removed, the cork reseals itself and the argon gas within the bottle prevents the wine from spoiling through oxidization. Alternatively, the Model Pivot device is a single-system where the user replaces the cork of a bottle with a pivot stopper. The user then inserts a gas argon capsule into the Model Pivot device. For this case, the device’s metal insert is pushed through the pivot stopper, where a trigger button at the top of the device allows for the flow of argon gas into the bottle in order to release the wine. Once the device is removed from the bottle, the pivot stopper is closed to seal the wine bottle. CBP determined that the applicable subheading for both devices is 8481.80.5090, HTSUS, which provides for “Taps, cocks, valves and similar appliances, for pipes, boiler shells, tanks, vats or the like, including pressure-reducing valves and thermostatically controlled valves; parts thereof: Other appliances: Hand operated: Of other materials: Other.” The general rate of duty is 3 percent ad valorem.

The bottle bag accessory is designed to be used with a wine bottle to provide protection and containment of glass. It is composed of 100% nonwoven polypropylene textile material and measures 6 inches in width by 11 ½ inches in height. CBP found the applicable subheading to be 6307.90.9891, HTSUS, which provides for “Other made up articles, including dress patterns:  Other:  Other:  Other:  Other:  Other.” The general rate of duty is 7 percent ad valorem.

The stainless-steel needle clearing tool for the Model Three SL and Model Three Plus is used to clear cork from inside the needle. A user can use the tool to push cork down from the top of the eye of the needle in order to clear the pathway. CBP determined that the applicable subheading for the needle clearing tool is 8205.59.5560, 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; anvils; portable forges; hand- or pedal-operated grinding wheels with frameworks; base metal parts thereof: other handtools (including glass cutters) and parts thereof: other: other: of iron or steel: other: other (including parts).”  The general rate of duty is 5.3 percent ad valorem

The screw cap that come with the Model Three SL and Model Three Plus is made of molded plastic and incorporates a silicone plug into the center to seal the bottle. Alternatively, the two pivot stoppers included with the Model Pivot and Model Pivot Plus systems are composed of silicone and are hollow. The stopper is inserted into the bottle to replace the removed cork and can be opened to insert the Model Pivot device for use. CBP found the applicable subheading for the screw cap and the pivot stoppers to be 3923.50.0000, HTSUS, which provides for “Stoppers, lids, caps and other closures, of plastics.” The general rate of duty is 5.3 percent ad valorem.

Lastly, the aerator (compatible with both the Model Three SL and Model Three Plus) and the Pivot Aerator operate in similar fashion, though this differ in size and angle of the wine spout. Both force wine through their two rings, which aerates the wine. The aerator, which is primarily of plastic material, consists of an inner separator, outer separator, a mid-separator, a screen, and a body. CBP found the aerators to be classifiable under subheading 3926.90.9985, HTSUS, which provides for “Other articles of plastics and articles of other materials of headings 3901 to 3914: Other: Other: Other.” The general rate of duty is 5.3 percent ad valorem.

 

On August 31, 2021, New York Governor Kathy Hochul announced the nomination of Adrienne Harris as the Superintendent of the New York Department of Financial Services – New York’s top financial regulator and a key regulator in the banking, anti-money laundering, fintech, insurance, and cryptocurrency spaces. Harris, whose nomination is still subject to confirmation, has diverse experience serving in both the private and public sector. Harris currently serves as a Professor of Practice at the University of Michigan’s Gerald R. Ford School of Public Policy. Harris also worked as Chief Business Officer and General Counsel for a San Francisco-based insurtech start-up.

Harris previously served at the U.S. Department of the Treasury as a Senior Advisor to both Acting Deputy Secretary and Under Secretary for Domestic Finance, Mary Miller, and Deputy Secretary Sarah Bloom Raskin during the Obama Administration. She was later appointed Special Assistant to the President for Economic Policy as part of the White House’s National Economic Council. In 2017 during her time in the Obama Administration, Harris co-published the White House’s “Framework for FinTech,” which served as the Obama Administration’s policy framework for the fintech ecosystem.

As noted by Governor Hochul, Harris’s experience “working with President Obama to help the nation forge a path forward in the aftermath of 2007’s Great Recession to her vast experience in the private sector helping ensure companies of all sizes act as good corporate citizens” will play a central role in her duties to oversee the banking and insurance industries of the state as well as help rebuild New York’s economy in the wake of the pandemic.

The Governor’s press release is available here.

For more information on regulations impacting financial services, sanctions, anti-money laundering, fintech, and cryptocurrencies, contact our team and see previous posts below.

FinCEN and CFTC Announce $100 Million in Regulatory Settlements With Foreign Cryptocurrency Exchange for BSA Violations and Failures to Register | International Trade Law (cmtradelaw.com)

Treasury Deputy Secretary Wally Adeyemo Holds Roundtable Discussion with Bipartisan Group of Former Sanctions Senior Leaders | International Trade Law (cmtradelaw.com)

Agency Issues First National Priorities for Anti-Money Laundering and Counter-Terrorist Financing, Completes Assessment on Potential No-Action Letter Process, Provides 180-Day Update on AML Act Implementation, and Appoints First-Ever Chief Digital Currency Advisor | International Trade Law (cmtradelaw.com)

In ruling NY N320340 (July 30, 2021), Customs and Border Protection (CBP) discussed the classification of three different from Argentina. A breakdown of the three products is provided below:

  • Cheddar Sticks: composed of cheddar cheese, wheat flour, water, refined sunflower oil, modified starch, rice flour, salt, hydroxypropyl methylcellulose, pasteurized egg powder, flavoring, guar gum, mono and diglycerides of fatty acids, and annatto extract.
  • Provolone Sticks: composed of provolone cheese, mozzarella cheese, wheat flour, water, refined sunflower oil, modified starch, rice flour, salt, hydroxypropyl methylcellulose, pasteurized egg powder, flavoring, spices, carboxymethylcellulose, onion powder, guar gum, mono and diglycerides of fatty acids, and annatto extract.
  • Mozzarella Sticks: composed of mozzarella cheese, water, wheat flour, refined sunflower oil, modified starch, rice flour, salt, hydroxypropyl methylcellulose, pasteurized egg powder, flavoring, sugar, carboxymethylcellulose, spices, guar gum, powdered onion, mono and diglycerides of fatty acids, and annatto extract.

All three products are pre-fried and frozen, and will be imported for retail sale in packages that have a net weight of fifty-three ounces.

In its determination, CBP determined that each product could have two different classifications, depending on whether the product entered under quota. If the Cheddar Sticks entered under quota, CBP determined the applicable subheading to be 0406.30.2400, Harmonized Tariff Schedule of the United States (HTSUS), which provides for: “Cheese and curd: Processed (process) cheese, not grated or powdered: Cheddar cheese: Described in additional U.S. note 18 to this chapter and entered pursuant to its provisions.” The rate of duty is 16% ad valorem. If entered outside the quota (i.e. without a valid import license), the subheading would be 0406.30.2800, HTSUS, which provides for: “Cheese and curd: Processed (process) cheese, not grated or powdered: Cheddar cheese: Other.” The rate of duty is $1.227 per kilogram.

For the Provolone Sticks, the applicable subheading if entered under quota is 0406.30.7700, HTSUS, which provides for: “Cheese and curd: Processed (process) cheese, not grated or powdered: Other, including mixtures of the above: Other: Containing, or processed from, Italian-type cheeses (Romano, Reggiano, Parmesan, Provolone, Sbrinz and Goya): described in additional U.S. Note 21 to chapter 4 and entered pursuant to its provisions.” The rate of duty is 10% ad valorem. Outside the quota, the subheading is 0406.30.7900, HTSUS, which provides for: “Cheese and curd: Processed (process) cheese, not grated or powdered: Other, including mixtures of the above: Other: Containing, or processed from, Italian-type cheeses (Romano, Reggiano, Parmesan, Provolone, Sbrinz and Goya): Other.” The rate of duty is $2.146 per kilogram.

Lastly, for Mozzarella Sticks imported under the quota, the applicable subheading is 0406.90.9500, HTSUS, which provides for: “Cheese and curd: other cheese: Other cheeses, and substitutes for cheese, including mixtures of the above: Other, including mixtures of the above (excluding goods containing mixtures of subheadings 0406.90.61 or 0406.90.63): Other: Other: Containing cow’s milk (except soft-ripened cow’s milk cheese): Described in additional U.S. note 16 to chapter 4 and entered pursuant to its provisions.” The general rate of duty is 10% ad valorem. If entered outside of the quota (in this case without a USDA cheese-import license), the applicable subheading would be 0406.90.9700, HTSUS, which provides for: “Cheese and curd: other cheese: Other cheeses, and substitutes for cheese, including mixtures of the above: Other, including mixtures of the above (excluding goods containing mixtures of subheadings 0406.90.61 or 0406.90.63): Other: Other: Containing cow’s milk (except soft-ripened cow’s milk cheese): Other.” The general rate of duty is $1.509 per kilogram.

 

On August 26, 2021, U.S. Customs and Border Protection (CBP) announced that for FY 2021 between October 1, 2020 and August 6, 2021, the agency had detained approximately $368 million ($367,743,052) worth of cargo in relation to forced labor by issuing Withhold Release Orders (WROs). As noted by the agency’s trade statistics, this represented a total number of 967 detained shipments during this period of time, which marks an increase of 331 stopped shipments from the previous release of statistics in June 2021. In terms of total value of detained cargo, this represented a 562% increase compared to FY 2020 where CBP detained $56 million ($55,541,383) worth of cargo in relation to forced labor.

This increase shows the U.S. government’s continued efforts to exclude goods suspected of using forced labor from entering the United States. During its forced labor investigations, CBP works to identify if any of the International Labour Organization’s (ILO’s) 11 indicators of forced labor exist in an entity’s operations, which include the following:

  • Abuse of vulnerability
  • Deception
  • Restriction of movement
  • Isolation
  • Physical and sexual violence
  • Intimidation and threats
  • Retention of identity documents
  • Withholding of wages
  • Debt bondage
  • Abusive working and living conditions
  • Excessive overtime

WROs are issued by the U.S. government when information reasonably but not conclusively indicates goods were made in whole or in part using forced labor. Merchandise detained under a WRO order must be exported immediately or a substantial submission made that provides specific information showing that the goods were not made with forced labor. To obtain a release of any shipment that has been subjected to a WRO, a certificate of origin along with this detailed statement regarding the merchandise’s production and supply chain origin must be submitted to CBP. CBP makes a determination on a case-by-case basis.

The latest trade statistics are available here.

For more information on actions Withhold Release Orders (WROs) and forced labor violations, contact our team and see previous posts below.

CBP Issues Withhold Release Order (WRO) on Certain Silica-Based Products from Xinjiang, PRC | International Trade Law (cmtradelaw.com)

Customs Denies Protest and Excludes Shipment of Cotton Garments for Violation of Xinjiang Withhold Release Order (WRO) | International Trade Law (cmtradelaw.com)

In ruling NY N320557 (August 4, 2021), Customs and Border Protection (CBP) discussed the country of origin of five Thin Film Transistor – Liquid Crystal Display (TFT-LCD) modules. All five modules are virtually identical in composition, as they are all composed of a TFT-LCD cell, polarizers, a backlight, a driver and control printed circuit board (PCB), and a flexible PCB for connection. TFT display technology allows for the construction of high-resolution LCD displays, and the modules – once completed – can be incorporated into a variety of consumers display applications.

The manufacturing process for the five modules is also identical. The process begins in Japan where the TFT-LCD cell is manufactured. The TFT is created by depositing transistors onto a substrate through chemical vapor deposition, while the color filter is manufactured by building a color matrix on a glass substrate. The creation process of the cells is then completed when a layer of liquid crystal is deposited between the color filter and TFT as the two part are bonded together, creating a sheet of TFT-LCD cells. As next steps, the sheet of cells is delivered to China to be cut into individual cells. The cut-up cells are then bonded to the printed circuit board assembly (PCBA) – which contains the driver and control circuity – before the polarizers, backlight, and flexible connection PCBA are attached.

In its determination, CBP notes that, as defined under 19 CFR 134.1(b), the country of origin is 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’ within the meaning of this part.”

CBP also established that “substantial transformation” takes place when a particular product “emerges from a process with a new name, character or use different from that possessed by the article prior to processing.” The agency explained that the completed TFT-LCD cell is what imparts the essential function of the module and that the manufacturing process in Japan is what renders the end-use of the product. Despite the assembly that took place in China, the process did not substantially transform the cell into a new and different article. As such, CBP determined that the country of origin of the five modules is Japan.

On August 10, 2021, the Financial Crimes Enforcement Network (“FinCEN”) and the Commodity Futures Trading Commission (“CFTC”) jointly announced $100 million in civil settlements with five entities responsible for the operations of BitMEX, a foreign peer-to-peer convertible virtual currency (“CVC,” or cryptocurrency) derivatives exchange.  FinCEN said that the settlement represents FinCEN’s first enforcement action against a futures commission merchant (“FCM”).  The settlements signal continued regulatory scrutiny of cryptocurrency exchanges, particularly those based outside the U.S., for their anti-money laundering (“AML”) compliance and compliance with related securities and derivatives laws.

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

 

On August 16, 2021, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) that it had reached a settlement agreement with Dynatex International (“Dynatex” or “the company”) – a California-based semiconductor company – where the company would pay a civil penalty of $469,060 for allegedly violating the Export Administration Regulations (EAR).

In its Proposed Charging Letter (PCL), BIS charged Dynatex with only one violation of Conspiracy (15 C.F.R. § 764.2(d)), alleging that Dynatex conspired with “others known and unknown,” between December 14, 2015 and January 17, 2020, to export a “DTX-150 MDB scribe and break tool and associated consumables and accessories, items subject to the Regulations and designated EAR99,” to the following two companies on BIS’s Entity List:

(1) Chengdu GaStone Technology Company (CGTC) (also known as Chengdu HiWafer Semiconductor); and

(2) China Electronics Technology Group Corporation 55th Research Institute (CETC 55).

Notably, the PCL details some of the activity, including that “prior to engaging in the transactions, Dynatex that CGTC was on a black list and was asked for clarification that Dynatex could ship the scriber breaker machine to CGTC in China without a problem.  Dynatex was also informed that CGTC’s name should not be shown on shipping documents.” Dynatex responded that the transaction could continue because “CGTC was not their customer, but that of their distributor.” The company also continued to ship items to both Chinese companies without the required licenses even after becoming aware that CGTC and CETC 55 were on the Entity List.

BIS states that at all times relevant, both CGTC and CETC 55, were (and remain) listed on BIS’s Entity List. . Additional licenses are required for the exportation, re-exportation, and transfer of commodities, software, and technology to any listed entities.

The Proposed Charging Letter and Settlement Agreement are available here.

For more information on BIS’s Entity List, the EAR, or possible violations of the EAR, contact our team and see previous posts below.

Bureau of Industry and Security (BIS) Fines Company $200,000 for Violating the Export Administration Regulations (EAR) | International Trade Law (cmtradelaw.com)

Commerce Adds 23 Companies to Entity List Citing Forced-Labor, Military Technology, and Sanctions Concerns | International Trade Law (cmtradelaw.com)

BIS adds more Burmese entities to Entity List | International Trade Law (cmtradelaw.com)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In ruling NY N320860 (August 9, 2021), Customs and Border Protection (CBP) discussed the tariff classification of a decorative wreath from China. The 22’’ “Thistle Asymmetrical Wreath” is a decorative door wreath fashioned from a dried grapevine wrapped with metal wiring to hold its shape. Each wreath is decorated with polyester fabric leaves and plastic thistles that wrap approximately two-thirds of the way around the wreath. The heaviest concentration of leaves and thistles is located at the bottom and tapers off up the sides.

The dried grapevines meet the definition of “plaiting materials” as set forth in Note 1 to Chapter 46 of the Harmonized Tariff Schedule of the United States (HTSUS), which states that plaiting materials refers to:

“materials in a state or form suitable for plaiting, interlacing or similar processes; it includes straw, osier or willow, bamboos, rattans, rushes, reeds, strips of wood, strips of other  vegetable material (for example, strips of bark, narrow leaves and raffia or other strips obtained from broad leaves), unspun natural textile fibers, monofilament and strip and the like of plastics and strips of paper, but not strips of leather or composition leather or of felt or nonwovens, human hair, horsehair, textile rovings or yarns, or monofilament and strip and the like of chapter 54.”

The wreath is also considered a composite article because it is made up of plaiting materials (i.e. the grapevines), polyester fabric, plastic, and metal wiring. For its classification, CBP referred to General Rule of Interpretation (GRI) 3(b), which provides that composite articles with different materials are to be classified “as if they consisted of the material or component which gives them their essential character.” CBP found that the grapevines confer the essential character of the wreath because the vines contribute to the wreath’s decorative appeal and provide the wreath with its structure and shape. As such, CBP determined that the applicable subheading for the Thistle Asymmetrical Wreath was 4602.19.6000, HTSUS, which provides for “Basketwork, wickerwork and other articles, made directly to shape from plaiting materials or made up from articles of heading 4601; articles of loofah: Of vegetable materials: Other: Other: Other: Wickerwork.” The rate of duty is free.

Additionally, pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, Chinese products under subheading 4602.19.6000, 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 subheading 4602.19.6000, HTSUS.

Crowell & Moring’s Derek Hahn and Dj Wolff have co-authored the United States chapter of WorldECR’s Managing Investigations: Best Practice in Government and Internal Investigations. The guide provides information about investigatory authorities in 21 countries responsible for sanctions, export control, anti-corruption, and AML enforcement, and answers questions on related policies, procedures, and best practices in each jurisdiction. The United States chapter covers the American “enforcement landscape, and the key issues faced by those hoping to successfully navigate it.”

To read the full Managing Investigations U.S. chapter, visit here.