In NY N303641, Customs and Border Protection (CBP) discussed the classification of the “Snoopy Sno-Cone Machine.” The imported item is a snow-cone making set for children. It consists of a plastic housing with a metal cylindrical blade. The plastic housing is in the shape of a doghouse and has a closeable chute for the ice shavings to exit the housing. Also included is the Snoopy ice pusher which serves as a plunger to push ice cubes against the grating cylinder blade, a plastic crank to turn the blade, rubber foot pads to help level and hold the housing to a table or other platform, and a clamp to hold the sno-cone maker to the edge of the table. The product comes with three disposable paper cups, a package of fruit punch mix to flavor the ice shavings, and a 6-inch plastic shovel to transfer the ice shavings from the grater chute to the cups. A small squeeze bottle in the shape of a snowman is also provided to hold and dispense the fruit punch flavoring over the ice shavings. 

The sno-cone machine grates ice to then be eaten as a snow cone; however, it has limited functionality. The machine is simpler than a household ice crushing machine, such that the grinding chamber can only accommodate one ice cube at a time, therefore CBP considers it distinguishable from a typical manually operated machine used to crush ice. The Snoopy Sno-Cone Machine is principally designed for the amusement of children ages 6 years and older.

CBP determined that the applicable subheading for item in question is 9503.00.0073 HTSUS, which provides for “Tricycles, scooters, pedal cars and similar wheeled toys…dolls, other toys…puzzles of all kinds; parts and accessories thereof… ‘Children’s products’ as defined in 15 U.S.C. § 2052: Other: Labeled or determined by importer as intended for use by persons: 3 to 12 years of age.” The rate of duty will be free.

 

Views and Input Sought From Stakeholders by May 31, 2019.

The European Union (EU) has published its preliminary list of U.S. goods that will be targeted for retaliatory tariffs over subsidies to Boeing. The preliminary list is focused on farm products. Some of the products include: Fish, cheese, agricultural goods such as fruits and vegetables, chocolate, wine, spirit alcohols, lobster, handbags/wallets, tractors, motorcycles/motorcycle parts, helicopters, planes, video game consoles, exercise machines, tobacco, etc.

The World Trade Organization (WTO) will ultimately decide the level of damages the EU can seek, with a verdict likely by the end of this year or in early 2020. The closing date for consultations is May 31, 2019, with private stakeholders potentially affected by the planned EU commercial policy measures due to the trade dispute with the United States.

The EU proposed retaliatory tariffs follows the U.S. threat to seek $11 billion in damages through duties on European goods ranging from helicopters to cheeses to counter state aid to Airbus.

The EU is also seeking input regarding the views and information regarding the EU economic interests in the products originating in the United States, which could be subject to EU commercial policy measures. See List of Products. This information must be submitted by 12:00 AM on May 31, 2009.

For further information please contact us,

 

In NY N301235, Customs and Border Protection (CBP) discussed the classification of the “Mac in a Sac,” a woman’s down jacket with an accompanying bag. The item in question is a reversible hip-length jacket constructed from 100% nylon, woven fabric that is quilted to a 100% nylon, woven fabric, and filled with a mixture of down and feathers. The jacket features a full front opening with a zipper closure that extends to the top of a stand-up collar; zippered pockets below the waist on one side, and unsecured pockets on the reverse side; long sleeves with elasticized fabric, bound cuffs; and an elasticized fabric, bound bottom. The jacket comes with a cylindrical storage bag made of 100% polyester woven fabric. The bag is approximately 7 ½ inches by 6 inches when flat, and contains a draw cord closure with a cord lock on the open end.

The CBP laboratory analyzed the women’s garment and found that it contains over 10% by weight of down.

The agency has previously ruled that similar bags imported and sold with a garment constructed from the same fabric and in the same color are composite goods, with the essential character imparted by the garment. Therefore, the bags and jackets are classified together.

 

Furthermore, CBP ruled that the applicable HTSUS for this item is 6202.93.1500, which provides for: Women’s or girls’ overcoats, carcoats, capes, cloaks, anoraks (including ski-jackets), windbreakers and similar articles (including padded, sleeveless jackets), other than those of heading 6204: Anoraks (including ski-jackets), windbreakers and similar articles (including padded, sleeveless jackets): Of man-made fibers: Other: Containing 15 percent or more by weight of down and waterfowl plumage and of which down comprises 35 percent or more by weight; containing 10 percent or more by weight of down. The rate of duty will be 4.4% ad valorem.

Summary:

  • In the early hours of 11 April, the EU and the UK agreed to delay Brexit until 31 October 2019, removing the threat of the UK crashing out with No-Deal on Friday 12 April.
  • The EU’s decision operates as a “flextension”: if the UK Government is successful in its talks with the opposing UK Labour party and the Withdrawal Agreement it negotiated with the EU is ratified by UK Parliament at the fourth time of asking, Brexit can still be implemented before 31 October 2019.
  • Under the terms of the flextension, the UK must now take part in European Parliamentary elections on 23-26 May: in the unlikely event it fails to do so, a No-Deal Brexit would occur on 1 June 2019. In addition, the EU has stated it will review the UK’s progress in Brexit negotiations at the European Council summit in Brussels on 20 June 2019.
  • Whilst the EU’s granting of the flextension has been welcomed in that it removes the immediate threat of No-Deal Brexit tomorrow, there is still a lack of certainty and tangible progress around the Brexit process. European Council president Donald Tusk has urged the UK to “not waste this time”, but he noted that the EU could offer an extension again in October, acutely aware that the political position in the UK remains unstable.
  • The breathing space allowed via the six-month flextension is likely to result in continued strategic maneuvering between rival UK political factions, as the wide variety of options – a UK Conservative leadership contest to elect a new prime minister, a General Election, a Second Referendum, or an outright revocation of Article 50 – remain on the table.

    Chart Available at https://www.bbc.com/news/uk-politics-46393399
  • Meanwhile, UK and European businesses remain in a state of flux. The director general of the British Chambers of Commerce noted in a statement that the flextension means that businesses “will be relieved…but their frustration with this seemingly endless political process is palpable”.

 

 

 

 

 

 

On April 8, 2019, the Trump administration released a list (see Annex) of $11 billion of European goods threatened with tariffs because of the WTO decision finding that “harmful subsidies” support the aircraft manufacturer Airbus. This case had been in litigation at the WTO for 14 years. It began in 2004 when the United States first challenged European government support for Airbus. The EU then challenged U.S. federal and state support for Boeing. The WTO ruled that the EU and the four governments involved in Airbus failed to comply with an earlier ruling that they should withdraw contested subsidies. The US then asked for authorization to retaliate in the amount of $11 billion dollars. These proposed tariffs against the EU would be imposed in addition to those already in place for European products.

A380-003 Michael Rehfeldt

Unites States Trade Representative Robert Lighthizer said the U.S. issued the proposed $11 billion list in order to “respond immediately when the WTO issues its finding on the value of U.S. countermeasures. The USTR press release may be found here.

The annex of goods is part of an unpublished Federal Register Notice entitled, “Initiation of Investigation; Notice of Hearing and Request for Public Comments: Enforcement of U.S. WTO Rights in Large Civil Aircraft Dispute”, which includes, among other things, aircraft and aircraft parts, as well as traditional European specialty products including certain cheeses and wines.

In addition to the tariff list, it includes the following schedule:

Event Due Date/Date
Submission of requests to appear at the public hearing and summary of testimony May 6, 2019
Section 301 Committee Public Hearing May 15, 2019
Submission of written comments, including post-hearing rebuttal comments May 28, 2019

 

A WTO arbitrator has not yet ruled on this case, therefore the amount of retaliation remains undetermined until later this summer at the earliest. The EU said proposing to place tariffs on $11 billion dollars’ worth of goods is excessive.

Crowell & Moring represented Irwin Tools in a dispute over whether the company should have to pay increased duties on its Vise Grip® brand imported hand tools. The International Trade Group had previously won two rounds of summary judgment briefing and the government’s motion for reconsideration at the U.S. Court of International Trade. The government then appealed their loss to the U.S. Court of Appeals for the Federal Circuit.

On April 9, 2019, the Federal Circuit affirmed the U.S. Court of International Trade’s decision for Appellee Irwin Tools on the challenged hand tool products and determined that they were pliers and not wrenches. The precedential decision may be found here. The challenged hand tool products were: large jaw, curved jaw, long nose with wire cutter, curved jaw with wire cutter, and straight jaw.

The three judge panel rejected U.S. Customs and Border Protection’s (CBP) proposed historical classification, which had been used by the agency for more than 30 years, classifying the products as wrenches dutiable at 9% ad valorem. Instead, it agreed with Irwin that the Vise Grip® products were properly classified as pliers, dutiable at 12 cents/dozen + 5.5% ad valorem. The case was argued by Frances Hadfield.

For more information or if you have questions regarding this decision please contact us.

 

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is known for imposing hefty penalties for violations of US economic sanctions, with individual violations amounting to up to US $295,141 or twice the value of the transaction, whichever is greater, per prohibited transaction, and overall penalties sometimes running into the hundreds of millions, or even billions, of dollars.

Despite this, OFAC historically has not provided much guidance for companies on the expected elements of an effective OFAC compliance program.  OFAC regulations do not specifically require a sanctions compliance program, but OFAC’s Enforcement Guidelines provide that OFAC will take into account the “existence, nature, and adequacy” of a company’s “risk-based” sanctions compliance program in deciding whether to impose a penalty and, if so, the amount of such a penalty.  Treasury has provided limited guidance directed specifically to financial institutions, but industry often found itself reading between the lines of OFAC’s enforcement actions for guidance.

That has changed in recent months. In December 2018, Treasury Under Secretary for Terrorism and Financial Intelligence, Sigal Mandelkar, gave public remarks detailing specific elements that Treasury expects to see in an effective sanctions compliance program for all U.S. companies.  These include:

  1. Ensuring senior management commitment to compliance;
  2. Conducting frequent risk assessments to identify and mitigate sanctions-specific risks within an institution and its products, services, and customers;
  3. Developing and deploying internal controls, including policies and procedures, in order to identify, interdict, escalate, report, and maintain records pertaining to activity prohibited by OFAC’s regulations;
  4. Engaging in testing and auditing, both on specific elements of a sanctions compliance program and across the organization, to identify and correct weaknesses and deficiencies; and
  5. Ensuring all relevant personnel, particularly those in high-risk areas or business units, are provided tailored training on OFAC obligations and authorities in general and the compliance program in particular.

Under Secretary Mandelkar promised that OFAC would be providing further information on the expected elements of sanctions compliance programs, including as a feature of future OFAC settlement agreements.  In accordance with this promise, OFAC in recent enforcement actions has raised and elaborated on these elements.  For example, in its December 2018 settlement with Zoltek Companies, Inc.  (“Zoltek”), OFAC explained that “[e]ffective sanctions compliance programs have policies, procedures, and controls designed to identify prospective and in-process transactions, as well as customers and counter-parties, for potential OFAC issues, as well as mechanisms designed to adequately respond to warning signs and raise sanctions-related issues to a sanctions compliance officer or point-of-contact.”   Zoltek also agreed to various undertakings organized around the specific elements identified above.  As part of its “Management Commitment” obligations, for example, Zoltek agreed to provide appropriate human capital, information technology, and other resources to its OFAC compliance program, and to expand a Director of Global Compliance position to include US sanctions issues.

Likewise, in its March 2019 settlement with Stanley Black & Decker, Inc. (“Black & Decker”) and a Chinese subsidiary,  Black & Decker committed, in accordance with the elements above, to: (1) senior management establishing a “culture of compliance” that empowered sanctions compliance personnel; (2) conduct regular risk assessments to ensure that its internal controls appropriately mitigate the entity’s sanctions-related risks; (3) conduct regularized audits; and (4) provide ongoing sanctions compliance training.  OFAC also noted that foreign acquisitions pose “unique risks,” and explained its expectation that U.S. companies will conduct substantive sanctions-related diligence before and after mergers and acquisitions, including “appropriate steps to audit, monitor, and verify newly acquired subsidiaries and affiliates for OFAC compliance.”  OFAC in particular encouraged U.S. companies to consider “[t]esting of compliance procedures and timely auditing of subsidiaries” to mitigate sanctions risks from such events.

OFAC’s articulation of specific elements it expects to see in OFAC compliance programs for all U.S. companies, not merely U.S. financial institutions, is consistent with another trend that emerges from its enforcement over the past few years: an increasing focus on actions against non-financial companies.  All of 2019’s five enforcement actions to date have been against non-financial institutions, more than 70% of 2018’s and 2019’s were against non-financial institutions, and the largest aggregate sanctions-related penalty in the last three years was assessed against a non-financial institution.

Practical Considerations

All U.S. companies, and non-U.S. companies with any form of U.S. exposure, should be considering whether they have a comprehensive program for compliance with OFAC sanctions and whether it contains the specific elements OFAC has said it expects.  This is especially important for non-financial companies which in the past have had less guidance for their programs and faced less enforcement but now increasingly are the subject of enforcement.

OFAC’s recent actions also point to the need for an enterprise-wide approach to sanctions compliance, one that addresses not only U.S. affiliates but also the activities of non-U.S. affiliates and recently acquired subsidiaries.  In particular, more than half of OFAC’s enforcement actions in 2019 have involved activity undertaken by a recently acquired affiliate.  OFAC expects that acquiring companies not only will conduct sufficient due diligence to identify potential sanctions exposure prior to acquisition, but, critically, that they will implement a post-closing control framework—including policies, training, and audits—that ensures that any problematic activity has in fact stopped.  This requires the sanctions compliance team to be treated as an active part of the acquisition diligence team and to be given the resources necessary to immediately bring a new acquisition up to the same enterprise-wide risk management standards.

For more information, please contact us.

In HQ H298524, U.S. Customs and Border Protection (CBP) discussed the classification of a disassembled “balance ball chair” consisting of a deflated exercise ball, a frame, caster wheels, a manual air pump, and a desk guide with stretching exercises. The frame of the exercise apparatus, made of a nylon plastic and steel, has a support bar on the back and caster wheels, which move and lock.  It holds a removable 52-cm anti-burst balance ball made of PVC plastic, capable of supporting a weight of up to 300 pounds.  The ball is sold deflated and must be inflated before use. the The item was “specifically developed to relieve stress on the spine, strengthen the core, improve posture and keep the body active while sitting.” The guide provides stretching and strengthening exercises that could be performed on the frame with the inflated ball. 

CBP examined whether the item should be classified under heading 9401 (Seats) or 9506 (Articles and equipment for general physical exercise…). GRI 1 provides that classification shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes.  In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied.  Pursuant to GRI 6, classification at the subheading level uses the same rules as classification at the heading level.

GRI 2(a) states:

“Any reference in a heading to an article … shall also include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), entered unassembled or disassembled.”

Under GRI 1, CBP looks to the terms of the headings and any relevant section or chapter notes.  It argues that even though the merchandise is called a “balance ball chair,” the name is not indicative of the tariff classification. The merchandise is disassembled and therefore cannot be classified under GRI 1.

Under GRI 2(a), the disassembled frame, caster wheels, deflated ball, manual air pump, and exercise guide are not a “seat” within the meaning of heading 9401, as the disassembled contents do not contain a seat at all.  Once assembled, the apparatus is distinguishable from the seats listed under EN 94.01 (e.g., lounge chairs, arm-chairs, folding chairs, deck chairs, etc.) because an exercise ball does not constitute a seat similar to the examples.  The frame with castor wheels is exercise equipment designed to hold the ball after it is inflated.  The ball can be removed and used separately for exercise purposes.  That the exercise performed might occur in a seated position does not make the balance ball or the assembled apparatus a seat.

By application of GRIs 2(a) and 6, CBP determines the classification of the item to be 9506.91.0030, HTSUS, which provides for “Articles and equipment for general physical exercise, gymnastics, athletics, other sports (including table-tennis) or outdoor games, not specified or included elsewhere in this chapter; swimming pools and wading pools; parts and accessories thereof: Other: Articles and equipment for general physical exercise, gymnastics or athletics; parts and accessories thereof: Other.” The general rate of duty is 4.6% ad valorem.

On March 25, 2019, the U.S. Court of International Trade (CIT) in American Institute for International Steel, Inc., Sim-Tex, LP and Kurt Orban Partners, LLC v. United States, held that Section 232 duties imposed on certain steel and aluminum imports by President Trump were constitutional. The three-judge panel denied the American Institute for International Steel’s challenge to the Section 232 duties.

In its decision, the Court held it was bound by the Supreme Court precedent in Algonquin that section 232 does not violate the delegation of powers. The Court expressed concern that section 232 allows for a “gray area” with respect to the separation of powers. Still, it acknowledged that “the broad guideposts of subsections (c) and (d) of section 232 bestow flexibility on the President and seem to invite the President to regulate commerce by way of means reserved for Congress, leaving very few tools beyond his reach.” Unlike government agencies, the President is not subject to the Administrative Procedure Act (“APA”). The Court explained that “the judicial review would allow neither an inquiry into the President’s motives nor a review of his fact-finding”. As a result, the Court found that “such concerns are beyond the court’s power to address, given the Supreme Court’s decision in Algonquin.”

In a rarely used move, Judge Katzmann issued a “dubitante” opinion (which concurred with the majority’s conclusion while suggesting an alternative view), and expressed “grave doubts” that section 232 “passes constitutional muster”. Judge Katzmann joined the majority in light of the binding precedent in Algonquin, but calls for a revisit of the issue because section 232 “provides virtually unbridled discretion to the President with respect to the power over trade that is reserved by the Constitution to Congress.”

Plaintiff American Institute for International Steel immediately announced that it intends to appeal this decision. The case was a second lawsuit against the President’s section 232 tariffs. In an earlier case, the Court denied Severstal Export Gmbh’s challenge for a preliminary injunction that would have stopped the President’s 232 tariff from being imposed.

 

For further information, please contact us.

 

The Supreme Court issued an opinion in Jam v. International Finance Corp., that open the door to claims against international organizations by holding that international organizations are not entitled to absolute immunity from suit in U.S. courts, but are instead entitled to only the same limited immunity currently granted to foreign governments.

The decision revives the claims of certain farmers, fisherman, and villagers who live near a power plant in Gujarat, India and who brought suit against the International Finance Corporation (IFC), an international development bank and member of the World Bank Group, for financing a power plant that they allege polluted the surrounding air, land, and water. The IFC asserted that it was completely immune from suit under the International Organizations Immunities Act of 1945 (IOIA), which provides that international organizations “shall enjoy the same immunity from suit . . . as is enjoyed by foreign governments.” 28 U.S.C. § 288a(b).

The District Court and the D.C. Circuit had previously concluded that the IFC was immune because “the IOIA grants international organizations the virtually absolute immunity that foreign governments enjoyed when the IOIA was enacted” back in 1945. Jam, 586 U.S. ____ (2019). Chief Justice Roberts, writing for the seven-Justice majority, referred to the “reference” canon of statutory interpretation to conclude that the IOIA should be read to refer to the law of foreign sovereign immunity as it exists at the time the question under the IOIA arises, not as it existed in some sort of time capsule when the IOIA was enacted back in 1945. Accordingly, an international organization’s immunity is not absolute, but must be decided with reference to the current law of foreign sovereign immunity.

The current law of foreign sovereign immunity is embodied in the Foreign Sovereign Immunities Act (FSIA), which provides certain exceptions to sovereign immunity. The Jam opinion discusses the possible application of one of these exceptions, the commercial activity exception, which would allow suits based on an international organization’s commercial activity if there is a sufficient nexus to the United States. The FSIA contains other exceptions as well that may also provide the basis for suits against international organizations – such as potentially allowing suit for torts committed by international organizations or their employees.

The Supreme Court’s decision affects not only the IFC, but other World Bank organizations, (such as the International Bank for Reconstruction and Development, the International Development Association, and the Multilateral Investment Guarantee Agency), as well as numerous other international organizations, including the United Nations, the World Health Organization, the Inter-American Development Bank and its private-sector arm, IDB Invest, and the Organization for Economic Cooperation and Development. This decision may make it possible to bring claims against such international organizations, but because many such international organizations have their own immunity agreements with the United States, knowledge of the IOIA, the FSIA, and international law will be crucial to the success of such claims.