On November 9, 2020, the European Union announced the imposition of retaliatory tariffs on U.S. goods worth approximately $4 billion stemming from the WTO case alleging the U.S. government has provided illegal subsidies to aircraft maker Boeing. High profile products targeted by the tariffs include fish, cheese, cotton, tractors, spirits, and jets.  Of the products affected, Boeing jets will be hit with a 15 percent tariff while select industrial and agricultural goods will face 25 percent tariffs. The tariffs took effect starting November 10, 2020.

These tariffs are the latest development in the long-lasting feud between the U.S. and EU over government subsidies to aircraft manufacturers. In a parallel case involving Airbus, the United States applied WTO-approved tariffs on EU goods worth up to $7.5 billion in October 2019. The U.S. levied tariffs targeting similar industries, including aircraft, wine, cheese, and olives.

The two sides have exchanged proposals for a solution but disagreements over ensuring future compliance and aid repayment have derailed efforts up until this point. The U.S. offered a truce on October 14, 2020 if Airbus agreed to repay state loans at a level of interest assuming a 50% product failure rate, however the EU declined and decided to move forward with tariffs. EU Trade Commissioner Valdis Dombrovskis spoke to EU trade ministers following the news of the new tariffs and said, “we have made clear all along that we want to settle this long-running issue. Regrettably, due to lack of progress with the U.S., we had no other choice but to impose these countermeasures.” The USTR has not issued comments on the new tariffs but it is possible U.S. Trade Representative Robert Lighthizer could opt to impose additional measures.

The EU has called on the U.S. to mutually drop the existing tariffs and expressed hope that a new administration under President-elect Biden will renew efforts to find a solution. Biden has spoken of rebuilding relationships with allies and resolving the Boeing-Airbus dispute would ease trade tensions with trading partners in Europe. However, it remains to be seen if there is any end in sight for the aircraft trade dispute where WTO litigation has been dragging on since 2005.

In ruling NY N315746 (Nov. 17, 2020), Customs and Border Protection (CBP) discussed the classification of an electric vehicle, identified as the Bugatti Baby II. The ruling states that the vehicle is a 3/4 scaled replica of a Bugatti Type 35, which is powered by an electric power plant that can be driven by an adult or child. There are three types of vehicle design: Base, Vitesse and Pur Sang. They only differ in body materials and the capabilities of the powertrain. As stated in the ruling, the “Base” model will be available with a two mode electric powertrain, either 1 kW (20kph) or 4kW (45kph), with an additional 10 kW (delimited mode) in the Vitesse & Pur Sang models that will allow it to achieve a speed of approximately 75kph

CBP determined that the applicable subheading for the all three models of the Bugatti Baby II is 8703.80.0000, HTSUS, which provides for “Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 8702), including station wagons and racing cars: Other vehicles, with only electric motors for propulsion”. The rate of duty is 2.5% ad valorem.

In ruling NY N315191 (Nov. 3, 2020), Customs and Border Protection (CBP) discussed the classification of prepared pork and beef meals from the United Kingdom. One of the products discussed in the ruling is the Spicy Pork Noodles, composed of minced pork (24.87%), broccoli, rice noodles, onions, cabbage, garlic, fresh chilies, fresh ginger, dried coriander, soy sauce, spring onions, honey, rapeseed oil, lime juice, sesame oil and fish sauce. The product will be packed in a pouch with a net weight of 160 grams. Another product discussed in the ruling is the Orzo Pasta Bolognese is composed of minced beef (29.84%), orzo pasta, canned tomatoes, onions, garlic, tomato puree, olive oil, salt, beef stock concentrate, bay leaves, dried oregano, cracked pepper and star anise. The product will be packed in a pouch with a net weight of 200 grams. Both are dehydrated slow-cooked meals. To prepare, consumers can either pour and mix in boiling water directly into the pouch or place the contents of the pouch into a pan, add cold water, and bring to a boil.

CBP determined that the applicable subheading for the Spicy Pork Noodles is 1602.49.9000, HTSUS, which provides for: “Other prepared or preserved meat, meat offal or blood: Of swine: Other, including mixtures: Other: Other.”  The rate of duty is 6.4 percent ad valorem.

Furthermore, CBP determined the applicable subheading for the Orzo Pasta Bolognese is 1602.50.9020, HTSUS, which provides for: “Other prepared or preserved meat, meat offal or blood: Of bovine animals: Other: Other: Prepared meals.”  The general rate of duty is 2.5 percent ad valorem.

In ruling NY N314727 (Oct. 19, 2020), Customs and Border Protection (CBP) discussed the classification of a pet toy called the Busy Box. The item is a toy designed for the entertainment of pet parrots. As described in the ruling, the Busy Box is made of 95% extruded aluminum and 5% steel, consisting of an aluminum cube, 3 aluminum threaded rods, 5 aluminum wing nuts, two removable aluminum flat square sides, a steel eyehook, and an aluminum hanger assembly.

CBP determined that the applicable subheading for the Busy Box is 7615.10.9100, HTSUS, which provides for “Table, kitchen or other household articles and parts thereof, of aluminum: Other: Other.” The rate of duty will be 3.1 percent ad valorem.

On October 8, 2020, the Treasury Department’s Office of Foreign Assets Control (OFAC) took a long-rumored final step in curtailing virtually all non-humanitarian financial flows with Iran, identifying the Iranian “financial sector” as a target for potential “secondary” sanctions designation, and simultaneously designating eighteen Iranian financial institutions, many of which had been the only remaining conduits by which funds flowed to or from Iran. OFAC designated sixteen banks for operating in the Iranian financial sector under the authority of Executive Order (EO) 13902, one bank for being owned or controlled by a bank designated under EO 13902, and one bank that serves Iran’s armed forces under the non-proliferation authorities of EO 13382 (EO 13382). Following a 45-day wind-down period, the sanctions become effective on November 22, 2020.

The October 8 Designations

The October 8 actions relied on a pre-existing authority, EO 13902, which the President issued on January 10, 2020. EO 13902 was intended, in part, to “deny the Iranian government revenues, including revenues derived from the export of products from key sectors of Iran’s economy, that may be used to fund and support its nuclear program, missile development, terrorism and terrorist proxy networks, and malign regional influence.” The EO authorized sanctions on persons operating in the “construction, mining, manufacturing, or textiles sectors of the Iranian economy,” or in any other sector of the Iranian economy identified by the Secretary of the Treasury in consultation with the Secretary of State. The secondary sanctions in EO 13902 authorized OFAC to designate non-U.S. persons for operating in or knowingly engaging in a “significant” transaction for the sale or supply to or from Iran of “significant” goods or services “in connection with” the identified sectors in Iran.

On October 8, the Treasury Secretary in consultation with the Secretary of State, utilized this open-ended authority, to add the “financial sector” to the above list. That identification authorizes OFAC to designate persons for operating in Iran’s financial sector, and OFAC exercised this authority by designating the sixteen named Iranian banks along with one bank – Islamic Regional Cooperation Bank – for being owned or controlled by the now-designated Eghtesad Novin Bank.

Hekmat Iranian Bank was designated under a separate, longstanding authority under EO 13382 to impose sanctions on persons involved in the proliferation of weapons of mass destruction. Earlier this year, Hekmat merged with Bank Sepah, which was designated under EO 13382 in 2018 for providing financial services to Iran’s ministry of defense and armed forces. Accordingly, Hekmat was designated for being owned or controlled by Bank Sepah.

Along with the designations, OFAC also issued General License L (GL L), and six Frequently Asked Questions (FAQs). GL L provides that exemptions and authorizations in the Iranian Transactions and Sanctions Regulations (ITSR) (31 CFR Part 560), including general and specific licenses issued pursuant to the ITSR, apply to transactions prohibited by EO 13902. This was necessary because EO 13902 has not been codified within the ITSR. GL L does not authorize transactions prohibited under any other OFAC sanctions authorities.

Treasury made a point to state several times in the press release that these designations are directed at the Government of Iran not the Iranian people, and authorized humanitarian trade can continue. To this point, GL L emphasizes that EO 13902 does not prohibit any transactions “for the provision (including any sale) of agricultural commodities, food, medicine, or medical devices to Iran.”

FAQ 846 clarifies that the October 8 designations per EO 13902 do not affect waivers issued by the Department of State and exceptions set forth in Iranian Freedom and Counter-proliferation Act of 2012 (IFCA) only for the duration of the 45-day wind-down period. FAQ 846 explains that the State Department is currently assessing whether these waivers will be modified “prior to the close of the wind-down period to account for actions taken pursuant to EO 13902.” OFAC directs any questions on this issue to the State Department for guidance.

Legal Implications

OFAC’s action will have immediate legal impacts on U.S. and non-U.S. activity with Iran, including likely restricting even permissible trade as U.S. and non-U.S. parties further limit Iran-related payments:

Limited Legal Effect on U.S. Persons: The designations should have a limited legal effect on U.S. Persons. Specifically, U.S. Persons were generally prohibited from conducting virtually all activity with Iranian financial institutions even prior to these designations. Further, pursuant to GL L, OFAC has clarified that to the extent activity was previously authorized under the ITSR, it remains authorized with these newly designated banks.

Designation Risk for Foreign Financial Institutions (FFIs): The designations do, however, increase risk for FFIs interacting with these banks. Specifically, prior to the designations, FFIs would not have been subject to sanctions risk simply for transacting with the Iranian financial sector or these newly designated banks, though of course they could have faced such designation risk for other aspects of Iran-related activity (g., the payment being processed was ultimately for the benefit of an SDN or a previously identified sector). Now, pursuant to EO 13902, FFIs can be designated for having “knowingly conducted or facilitated any significant financial transaction” (1) for the sale, supply, or transfer to or from Iran of significant goods or services used in connection with Iran’s financial sector; or (2) for or on behalf of any of the newly designated Iranian banks (or any other person designated pursuant to EO 13902). FFIs considering engaging in activity with these banks will therefore need to consider what activity might be considered “significant” by OFAC. OFAC did provide guidance that the following activities would not be considered “significant”:

  1. Activity within 45 Day Wind-down: First, FAQ 845 provides a 45-day wind down period for non-U.S. persons engaged in previously non-sanctioned transactions with the designated Iranian banks to conclude such transactions without risking sanctions exposure.
  2. Activity that Would Be Permissible for U.S. Persons: Second, in FAQ 847, OFAC explains that it “would not generally view transactions or activities by non-U.S. persons to be sanctionable if they are consistent with activities permissible by U.S. persons.” OFAC continues to emphasize that U.S. persons are authorized under GL L to undertake any activity authorized by the ITSR and also that EO 13902 does not prohibit any person to conduct or facilitate “a transaction for the provision (including any sale) of agricultural commodities, food, medicine, or medical devices to Iran.”
  3. Humanitarian Related Activity:Third, OFAC notes that, consistent with prior guidance on EO 13902, “foreign financial institutions and other non-U.S. persons would not generally risk exposure to U.S. sanctions for engaging in transactions for the purpose of supporting the sale, supply, or transfer of certain goods and services to Iran or for manufacturing of such goods in Iran … to ensure the protection of life, health, and safety,” so long as such goods were for use in Iran and not for export. Covered items include “products used for sanitation, hygiene, medical care, medical safety, manufacturing safety, including soap, hand sanitizer, ventilators, respirators, personal hygiene products, diapers, infant and childcare items, personal protective equipment, manufacturing safety systems, safety devices, alarm systems, and ventilation systems.”
  4. Activity Deemed Not “Significant”: Finally, OFAC states that it “continues to analyze whether select types of transactions and activities may, nonetheless, be non-significant and, thus, not sanctionable even after the end of the wind-down period,” and indicates that it expects to issue additional guidance on “the scope of transactions and activity by non-U.S. persons” that will be sanctionable following the wind-down period, as well as definitions relating to the financial sector of the Iranian economy and goods or services used in connection with the financial sector of the Iranian economy, for purposes of evaluating sanctions risk under EO 13902.

Practical Implications

The identification of Iranian’s financial sector and the October 8 designation of 18 major Iranian financial institutions is in line with this Administration’s use of sanctions as a national security tool to financially isolate the Iranian government. Although U.S. financial institutions have long avoided business with any Iranian bank, the new designations appear intended to deter non-U.S. financial institutions from doing business with the designated Iranian banks. Additional guidance from OFAC should shed light on how it intends to enforce the secondary sanctions provisions in EO 13902, but overall it remains to be seen how European banks in particular respond to this step, as the European Union, Germany, France, and the United Kingdom still participate in the Joint Comprehensive Plan of Action with Iran regarding its nuclear program.

Separate, while Treasury repeatedly emphasized that these actions should not interfere with humanitarian trade, it is unclear if the limitation in EO 13902 and the terms of GL L provide sufficient comfort for people to continue such authorized transactions to the extent they involve the designated banks. Banks seeing any of the designated Iranian financial institutions in transaction information or payment messages may decide the business is not worth the risk of a secondary sanctions designation and thus reject transactions that may be covered by EO 13902’s humanitarian exemptions.

In ruling NY N315085 (October 19, 2020), Customs and Border Protection (CBP) discussed the classification of a kitchen appliance, referenced as the PowerXL Grill Air Fryer Combo. The item is a multi-functional appliance intended for use in a home kitchen setting and represents an all-in-one cooking device. There are 12 food preparation preset functions: slow cook, steam, sauté, grill, air fry (dehydrate), bake, roast, rice, simmer, sous vide, fry, and keep warm. The appliance includes the main housing unit, detachable air frying lid, detachable glass lid, air inlet vent, air outlet vent, lid handle, control panel, control knobs, power cord, inner pot with ceramic coating, grill plate, and ladle. The product does not have a thermometer probe, however, it features an LED timer with automatic shutoff, has a six quart capacity, provides 1550 watts of power, and has a temperature range of 100 degrees to 500 degrees Fahrenheit.

From CBPs perspective, it has two primary configurations, one with the air fryer lid that provides oven-like functionality, and the other with the glass lid allowing cooking with liquids. CBP stated that each of these configurations would be classified in separate subheadings within heading 8516. As such, CBP stated that it will be classified using GRI 3(c), classifying the item in the heading that appears last in numerical order among the headings that equally merit consideration, as it lacks a single principal function.

CBP determined that the applicable subheading for the appliance is 8516.79.0000, HTSUS, which provides for “[e]lectric instantaneous or storage water heaters and immersion heaters; electric space heating apparatus and soil heating apparatus; electrothermic hairdressing apparatus (for example, hair dryers, hair curlers, curling tong heaters) and hand dryers; electric flatirons; other electrothermic appliances of a kind used for domestic purposes; electric heating resistors, other than those of heading 8545; parts thereof: [o]ther electrothermic appliances: [o]ther.” The general rate of duty is 2.7 percent.

On October 17, BIS issued a press release announcing that exporters may request a six-month extension for any licenses due to expire on or before December 31, 2020.

The press release states, “BIS will streamline the extension of the validity process by creating a central electronic mailbox for submission of requests: LicenseExtensionRequest@bis.doc.gov.” The original license will be reviewed and, in most cases, the validity period extended via the electronic system. Depending on the number of requests received, BIS estimates the majority of extension requests will be processed and approved within two to three business days.

Acting Under Secretary for Industry and Security, Cordell Hull said, “The streamlined process will help ensure that exporters with licenses due to expire on or before the end of 2020, who may not have been able to ship orders due to resource constraints during the pandemic, have the opportunity to benefit fully from the authorizations granted on their licenses.”

In ruling NY N315004 (October 13, 2020), Customs and Border Protection (CBP) discussed the classification of hard seltzer, identified as “White Claw Hard Seltzer.” The subject merchandise is provided in five different flavors (Lime, Raspberry, Ruby Grapefruit, Black Cherry and Mango) with the brand name “White Claw Hard Seltzer.” The products are composed of Beer Base (15%-17%), Natural Flavors (2%-3%), Water (81%-82%) and trace amounts of Juice Concentrate, Cane Sugar, Citric Acid and Sodium Citrate. The beer base is composed of Sugar (51%), Yeast & Nutrients (less than 4%), Water and trace amounts of Malted Gluten-Free Grains. The hard seltzer has an alcohol by volume content of 5 percent. Each flavor of the bulk finished product is packaged in 12-ounce, approximately 0.35 L, and 19.2-ounce, approximately 0.57 L, aluminum beverage cans.

The applicable subheading for the Hard Seltzer will be 2203.00.0060, Harmonized Tariff Schedule of the United States (HTSUS), which provides for Beer made from malt: In containers each holding not over 4 liters:: Other The duty rate will be Free.

Date: Thursday, October 15, 2020

Time: 9:00 AM Eastern Daylight Time

Duration: 1 hour

The second webinar in our Election 2020 series will focus on the candidates’ positions on International Trade issues and how the election results might impact businesses in 2021 and beyond. In this roundtable webinar, a team of lawyers and consultants from both Crowell & Moring and its international policy and regulatory affairs affiliate, C&M International, will discuss the two candidates’ trade priorities for the coming years, including:

  • How China’s growth and trade practices animate U.S. action and campaigns and whether the election will shift U.S.-China dynamics from the White House and Congress;
  • How companies are restructuring their organizations and supply chains to expand market share in China but not lose their competitive positions in lucrative markets like North America and Europe;
  • The new Section 301 investigation targeting Vietnam and what it means for companies diversifying away from China;
  • Evolving and divergent approaches to data governance, the Internet, and tech policy;
  • The impact of expanded national security trade protections; and
  • Multilateralism and trade agreements.

Speakers: Caroline E. Brown, Evan Y. Chuck, Ambassador Robert Holleyman, Clark Jennings, and Shelley Su

On September 14, 2020, China’s highest court, the Supreme People’s Court of the People’s Republic of China, released the “Opinions on Increasing Enforcement Against Intellectual Property Infringement According to Law” (关于依法加大知识产权侵权行为惩治力度的意见) (“Opinions”).

The Opinions cover four main areas: (1) Evidence Preservation, (2) Injunctions, (3) Monetary Relief, and (4) Criminal Enforcement

  • Evidence Preservation
    • Articles 1-4 cover evidence preservation.  Evidence preservation is a measure taken by Chinese courts to investigate, collect, and preserve evidence when it may be destroyed or difficult to collect in the future.  Article 2 directs courts to promptly review and decide an application for an injunction and an application for evidence preservation when a party applies for both.  Article 4 allows courts to make inferences in favor of an intellectual property rights holder when the alleged infringer damages or transfers evidence subject to an evidence preservation order.
  • Injunctions
    • Articles 5-6 cover injunctions.  Article 5 reaffirms the primacy of injunctions in Chinese intellectual property litigation and states courts should grant an injunction first when facts supporting infringement are clear and infringement has been established.
  • Increasing Monetary Relief
    • Articles 7-13 cover increasing monetary relief for intellectual property infringement. Notably, Article 10 permits punitive damages in the event of severe and intentional infringement to deter intentional infringement.  In terms of statutory damages, Article 11 permits courts to award statutory damages up to a maximum limit in situations where the infringement has caused a right holder severe damages or an infringer has obtained a substantial amount of profits through infringement and evaluates factors in assessing damages including whether the infringement was intentional; whether defendant has repeatedly infringed; duration of infringement; whether infringement involves a large area; and whether infringement endangers personal safety, exploits natural resources, or damages public interests.
  • Increasing Criminal Enforcement
    • Articles 15-16 cover increasing criminal enforcement of intellectual property rights and states courts should impose severe penalties for counterfeiting disaster relief items and epidemic prevention supplies. Notably, the Opinions removed a foreigner-targeted clause from the draft opinions, which would have imposed severe penalties for infringement of trade secrets by overseas institutions, organizations, and personnel.

As China becomes a viable venue for intellectual property enforcement, it is important to monitor the recent developments in Chinese intellectual property legal system.