On Monday, August 1st, the Office of the U.S. Trade Representative (USTR) filed remand results with the U.S. Court of International Trade (CIT), releasing updated explanations for retaliatory tariffs on roughly $300 billion worth of Chinese goods imposed in the midst of the U.S. – China Trade War. USTR filed the remand as ordered by the CIT, which found that the USTR had not satisfied its obligations under the Administrative Procedure Act (APA). The APA governs the process by which federal agencies develop and issue regulations.

Under the Trump Administration, the USTR levied two rounds of Section 301 tariffs on a combined $50 billion worth of Chinese goods in the response to the country’s forced intellectual property transfer and discriminatory trade policies. Section 301 authorizes USTR to take action to encourage foreign countries to abandon or mitigate unfair trade practices affecting U.S. commerce. After Beijing retaliated with its own tariffs on U.S. goods, the Trump Administration directed the USTR to expand its Section 301 tariffs to cover roughly $300 billion of imports, a development that was controversial from the start. The decision to impose a third and fourth round of Section 301 tariffs on China elicited more than 9,000 public comments on the proposed expansions.  Despite these comments, the USTR imposed the tariffs and thousands of importer plaintiffs have filed suit in the CIT challenging these actions.

The 90-page document addresses product-specific comments across eight categories, including new explanations on why the USTR included some products (parts) and excluded others (certain rare earths/critical minerals, seafood products, antiquities and art, consumer electronics, health and safety products, and chemicals and chemical inputs).   The USTR did not explain inconsistencies in its decision-making process, but relied heavily on its desire to maintain the level of coverage directed by of former President Trump.  The USTR stated in Monday’s remand that “most comments urging for additional inputs to be removed failed to demonstrate how imposing the additional duties on the input would not be practicable or effective to eliminate China’s acts, policies, and practices or failed to show how imposing the additional duties would cause disproportionate economic harm to U.S. interests.”

Prior to filing its remand results Monday, the USTR submitted a motion to correct the administrative record in the case, asking to add several Federal Register notices and press releases it said influenced decision-making around List 3 and List 4. USTR Associate General Counsel Megan Grimball stated on Monday that “upon drafting the remand results as ordered by the court, USTR determined that additional documents were directly or indirectly considered in the process of issuing List 3 and List 4.”  None of these documents were provided or cited in USTR’s original notices implementing the tariffs. 

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

In ruling N326933 (July 27, 2022), Customs and Border Protection (CBP) discussed the tariff classification of a “2-in-1 Tot Swimmer” flotation device from China. The item comes in two different styles and functions as a swim training system to grow with children as they become more comfortable in the water. The flotation device consists of a buoyancy vest and detachable arm floats that serve to provide support and balanced flotation. These arm floats are attached by a textile-covered zipper onto the vest, allowing for easy removal. In turn, this allows both items to be used separately. The vest includes a belt and buckle on the back that allows for the vest to be securely attached onto the child. The complete item comes in multiple prints and bright colors that allow the child user to be highly visible while swimming in the pool.

Both of the styles under consideration by CBP consist of expanded polyethylene (EPE) foam inserts in the arm floats as well as in the vest. Style #1 features a neoprene/poly knit cover and is composed of, by weight, 50% EPE foam, 40% neoprene, 5% polyester, 3% polyoxymethylene and 2% resin. Alternatively, Style #2 features a polyester cover and is composed of, by weight, 61% EPE foam, 32%, polyester and 7% polyoxymethylene. Both include zippers that allow the arm floats to be attached to the vest.

CBP determined that the applicable subheading for the two “2-in-1 Tot Swimmer” flotation devices would be 9506.29.0080, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Articles and equipment for general physical exercise, gymnastics, athletics, other sports…or outdoor games…; Water skis, surf boards, sailboards, and other water-sport equipment; parts and accessories thereof: Other…Other.”  The rate of duty is free.

Additionally, pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, Chinese products under subheadings 9506.29.0080, HTSUS, unless specifically excluded, are subject to an additional 7.5% ad valorem duty rate. As such, the chapter subheading 9903.88.15 must be reported in addition to subheading 9506.29.0080, HTSUS.

EU Extends Sanctions Six Months: On July 26, 2022, the EU renewed restrictions on specific sectors of Russia’s economy until January 31, 2023.  This includes restrictions on finance, energy, technology and dual-use goods, industry, transport and luxury goods.

UK Designates 41 More Individuals and One Additional Entity: On July 26, 2022, the UK designated a number of additional parties, including Syrian and Palestinian individuals involved in recruiting mercenaries to support Russia’s fighters in Ukraine, regional governors in Russia, Russian officials, officials of the so-called Donetsk People’s Republic and Luhansk People’s Republic, a British video blogger, and a Syrian entity that has recruited mercenaries to fight in Ukraine.

UK Sanctions Time Frame Update: The UK Office of Financial Sanctions Implementation (“OFSI”) sent an email on July 28, 2022, stating that OFSI is unable to respond to specific licenses for four weeks due to “exceptionally high demand.”  OFSI noted that it is prioritizing “cases where there are issues of personal basic needs and/or wider humanitarian issues at stake which are of material impact or urgency, or which are deemed to be of particular strategic, economic or administrative importance.”  The agency also issued updated financial sanctions guidance.

UK Issues General License for Certain Insurance Payments: On July 22, 2022, the UK published General License INT/2022/2009156, which allows UK designated individuals and entities to pay UK insurers for insurance premiums and broker commissions related to the provision of building and engineering insurance for UK properties.  It also permits UK insurers to make payments to UK designated parties for successful claims made against an insurance policy, or for refunds for any over-payments made pursuant to the license.  The license includes authorization to process and receive such payments.

U.S. Sanctions General Licenses: On July 22, 2022, OFAC issued two new general licenses (“GLs”), and two new “Frequently Asked Questions” (“FAQs”), clarifying the “new investment” prohibitions under Executive Order (“E.O.”) 14071, and updated two FAQs relating to E.O. 14071. 

  • GL 45: permits “all transactions” in debt or equity issued by an entity in the Russian Federation (a “Russian Entity”) ordinarily incident to the wind-down of financial agreements entered into on or before June 6, 2022 (“Covered Contracts”), through October 19, 2022, notwithstanding the new investment prohibitions in E.O. 14071 § 1(a)(i).  GL 45 expressly permits (1) U.S. persons to purchase Russian Entity debt or equity to the extent the purchase is necessary to wind down Covered Contracts, and (2) U.S. persons to facilitate, clear, and settle such purchases, to the extent necessary to wind down Covered Contracts. 
  • GL 46: permits “all transactions related to the establishment, administration, participation in, and execution of an auction process” as announced by the EMEA Credit Derivatives Determination Committee (the “Auction”), to settle credit derivative transactions with a reference entity of “the Russian Federation.”  GL 46 permits U.S. persons to purchase or receive debt obligations of the Russian Federation, to the extent prohibited by E.O. 14071 § 1(a)(i), “for the period beginning two business days prior to the announced date of the auction and ending eight business days after the conclusion of the auction.”  GL 46 also permits transactions ordinarily incident and necessary to facilitate, clear, and settle such transactions.  There is no expiration date for the authorizations in GL 46. 
  • OFAC issued FAQ 1071, explaining that GL 45 permits U.S. persons to purchase, or facilitate purchases of, Russian Entity debt or equity to cover or close out a short position, pursuant to a securities lending agreement, if the agreement was entered into on or before June 6, 2022. 
  • OFAC issued FAQ 1072, explaining that GL 45 permits Auction participants and their customers to submit and accept bids and offers of physical settlement requests, or delivery of Russian Federation debt obligations and corresponding settlement amounts.  While U.S. persons may purchase or receive Russian Federation debt obligations within certain periods (two business days prior to the announced Auction date, and ending eight days after the conclusion of the Auction), there is no deadline to clear and settle such transactions.  GL 46 presumably should allow the restart of the credit default swap market relating to Russian Federation-bonds, which had been substantially frozen following the issuance of OFAC’s FAQs 1053 and 1054, which had established that the prohibition on “new investment” in E.O. 14071 prohibited the purchase or sale of Russian Entity debt or equity by U.S. persons.
  • OFAC updated FAQs 1053 and 1054 to note the authorizations provided by GLs 45 and 46, and explained that the purpose of GL 45 is to “authorize the close out of financial contracts entered into on or before June 6, 2022 that might not otherwise be considered a divestment of debt or equity securities issued by entities in the Russian Federation.”

G7 Plans to Implement Russian Oil Price Cap by December 5: According to media reports, the G7 plans implement a price cap mechanism for Russian oil by December 5, the date on which the EU ban on Russian oil sea imports takes effect.  The G7 has discussed this with the Indian and Chinese governments, and reports indicate that they will publicize the set price.  Media reports suggest that the price cap will be above the cost of production but below the current market rate.

U.S. Senators Introduce Bill to Sanction Chinese Purchases of Russian Energy: On July 26, 2022, three Republican senators introduced a bill that would sanction any entity insuring or registering tankers shipping Russian oil or liquified natural gas to China.  According to media reports, there is scepticism that the bill would be put up for a vote in the Democrat-controlled Senate.

In ruling N326746 (July 21, 2022), Customs and Border Protection (CBP) discussed the country of origin of Sea Urchin Roe Skeins. The Sea Urchin Roe (also known as “Uni”) is an organ of the sea urchin. Five strips of Uni reside within the structure of an urchin, and range in color from rich gold to light yellow. The strips bear a resemblance to tongue in shape and have an outer texture with a creamy consistency.

The sea urchins are harvested by divers from Chinese, Mexican, or Russian flagged vessels in Japan. The sea urchins then undergo processing in various plants within Japan. These processes consist of cutting the shell around the mouth, the removal of the mouth, splitting the shell for roe extraction, cleaning, draining, and treating the roe with alum for preservative purposes. The roe skeins are then sorted by quality and size before they are packed. Finally, the items are shipped by air to the United States for immediate use and consumption.

CBP notes in its ruling that, per 19 CR 134.1(b), the country of origin of an item is defined as “the country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the ‘country of origin’ within the meaning of the marking regulations.” In addition, CBP notes that a substantial transformation occurs “when an article emerges from a process with a new name, character or use different from that possessed by the article prior to processing.” However, if the manufacturing or combining process is minor and leaves the identity of the article intact, then no substantial transformation occurs.

In addition, there exists a specialized rule (known as the “Law of the Flag”) that governs seafood articles. This rule states that, unless the animal was caught or harvested within the territorial waters of a country, the country of origin of said article follows the flag of the catching vessel. In this case, the Uni is harvested by Chinese, Mexican, or Russian-flag vessels in the territorial waters of Japan. However, the Uni does not undergo substantial transformation in the processing in Japan. As such, CBP determined that the country of origin of the Uni would be China, Mexico, or Russia, respectively, depending on the catching vessel.

New UK Sanctions:On July 21, 2022, the UK introduced a new tranche of restrictions in the 14th amendment to its Russian Sanctions Regulations.  Several of the new restrictions are detailed below.

The UK prohibited UK persons from directly or indirectly providing accounting services, business and management consulting services, and public relations services to “persons connected with Russia,” and also prohibits “the provision of services to Russian residents who are temporarily located in another country, including the UK.”  There is an exemption for activity that are required by another UK legal requirement.  However, there is not an exemption for services to subsidiaries of UK-parented companies.  The definition for each of these services can be found here. These prohibitions provide long-awaited clarity to the scope of the UK’s May 4, 2022, announcement banning the export of UK management consulting, accounting and PR services to Russia, which announcement provided very little detail as to scope.

The UK also banned the export to Russia of a broad range of items listed on the G7 dependencies and energy-related goods list (found here).  Further, the UK expanded the scope of prohibitions on the export of “energy-related goods” to include all energy exports to Russia, regardless of the eventual point of use.  The regulation also prohibits the provision of technical assistance, financing, financial services, and brokering related to such goods, as well as services necessary for oil and gas exploration or production in Russia.

Finally, the UK introduced bans on the import of Russian (i) oil and oil products, (ii) coal and coal products, and (iii) gold.  All three prohibitions ban the import of such products that originate in or are consigned from Russia, or the acquisition or supply and delivery of the products with the intention of those goods entering into the UK (as well as related technical assistance, financial services, funds, and brokering services).  The oil ban takes effect on December 31, 2022 and, according to the UK explanatory memorandum, the coal ban takes effect on August 10, 2022.  The gold ban took effect upon announcement.  

New EU Sanctions: On July 21, 2022, the EU introduced its seventh package of Russian sanctions, which added several new prohibitions and clarified prior regulations.  Several of the new provisions are detailed below.

The EU made dozens of additions to the list of controlled items that might contribute to Russia’s military and technological enhancement or the development of its defense and security sector.  These additions include certain law enforcement equipment, certain oil and gas exploration equipment, certain processing equipment, and certain software.  The regulations prohibit the sale, supply, transfer, or export of listed items.

Like the UK, the EU also prohibited the import, purchase, or transfer of Russian-origin gold in the EU.

The EU also extended its port access ban to locks (in canals and other bodies of water) in order to prevent circumvention of EU sanctions.  It also updated its regulations to allow the sharing of technical assistance with Russia when related to establishing technical standards for the International Civil Aviation Organization.

Finally, the EU updated its regulations to permit transactions with certain EU member state-owned entities for transactions relating to agricultural products and the supply of oil and petroleum products to third countries.  The EU further clarified that none of its measures target the trade in agricultural and food products.  The EU also noted that its measures do not prohibit third countries and their nationals operating outside of the EU from purchasing pharmaceutical or medical products from Russia.

Additional Sanctions Designations: In addition to the above updates, the UK made minor amendments to the entries of several designated individuals and entities, and delisted two individuals.  The EU designated six individuals and one entity involved in the recruitment of Syrian mercenaries to fight in Ukraine alongside Russian troops.  In its seventh sanctions package, the EU also designated dozens of additional individuals, and ten additional entities.  The individuals include certain members of the National Guard of the Russian Federation, regional Russian political figures, and members of the nationalist motorcycle club, the Night Wolves.  The EU also designated Sberbank, Russia’s largest bank, which accounts for about a quarter of Russian banking assets and a third of Russian banking capital.

General Licenses: The UK issued general license (“GL”) INT/2022/2002560, which allows for a seven-day wind-down period for the UK’s Russian investment ban.  For example, the GL allows a person to (i) directly or indirectly acquire any ownership interest in land located in Russia, (ii) directly or indirectly acquire any ownership interest in or control over a person, other than an individual, connected with Russia, or (iii) open a representative office or establish a branch or subsidiary located in Russia.  The GL expires on July 26, 2022.

New UK Sanctions: On July 21, 2022, the UK introduced a new tranche of restrictions in the 14th amendment to its Russian Sanctions Regulations.  Several of the new restrictions are detailed below.

The UK prohibited UK persons from directly or indirectly providing accounting services, business and management consulting services, and public relations services to “persons connected with Russia,” and also prohibits “the provision of services to Russian residents who are temporarily located in another country, including the UK.”  There is an exemption for activity that are required by another UK legal requirement.  However, there is not an exemption for services to subsidiaries of UK-parented companies.  The definition for each of these services can be found here. These prohibitions provide long-awaited clarity to the scope of the UK’s May 4, 2022, announcement banning the export of UK management consulting, accounting and PR services to Russia, which announcement provided very little detail as to scope.

The UK also banned the export to Russia of a broad range of items listed on the G7 dependencies and energy-related goods list (found here).  Further, the UK expanded the scope of prohibitions on the export of “energy-related goods” to include all energy exports to Russia, regardless of the eventual point of use.  The regulation also prohibits the provision of technical assistance, financing, financial services, and brokering related to such goods, as well as services necessary for oil and gas exploration or production in Russia.

Finally, the UK introduced bans on the import of Russian (i) oil and oil products, (ii) coal and coal products, and (iii) gold.  All three prohibitions ban the import of such products that originate in or are consigned from Russia, or the acquisition or supply and delivery of the products with the intention of those goods entering into the UK (as well as related technical assistance, financial services, funds, and brokering services).  The oil ban takes effect on December 31, 2022 and, according to the UK explanatory memorandum, the coal ban takes effect on August 10, 2022.  The gold ban took effect upon announcement.  

New EU Sanctions: On July 21, 2022, the EU introduced its seventh package of Russian sanctions, which added several new prohibitions and clarified prior regulations.  Several of the new provisions are detailed below.

The EU made dozens of additions to the list of controlled items that might contribute to Russia’s military and technological enhancement or the development of its defense and security sector.  These additions include certain law enforcement equipment, certain oil and gas exploration equipment, certain processing equipment, and certain software.  The regulations prohibit the sale, supply, transfer, or export of listed items.

Like the UK, the EU also prohibited the import, purchase, or transfer of Russian-origin gold in the EU.

The EU also extended its port access ban to locks (in canals and other bodies of water) in order to prevent circumvention of EU sanctions.  It also updated its regulations to allow the sharing of technical assistance with Russia when related to establishing technical standards for the International Civil Aviation Organization.

Finally, the EU updated its regulations to permit transactions with certain EU member state-owned entities for transactions relating to agricultural products and the supply of oil and petroleum products to third countries.  The EU further clarified that none of its measures target the trade in agricultural and food products.  The EU also noted that its measures do not prohibit third countries and their nationals operating outside of the EU from purchasing pharmaceutical or medical products from Russia.

Additional Sanctions Designations: In addition to the above updates, the UK made minor amendments to the entries of several designated individuals and entities, and delisted two individuals.  The EU designated six individuals and one entity involved in the recruitment of Syrian mercenaries to fight in Ukraine alongside Russian troops.  In its seventh sanctions package, the EU also designated dozens of additional individuals, and ten additional entities.  The individuals include certain members of the National Guard of the Russian Federation, regional Russian political figures, and members of the nationalist motorcycle club, the Night Wolves.  The EU also designated Sberbank, Russia’s largest bank, which accounts for about a quarter of Russian banking assets and a third of Russian banking capital.

General Licenses: The UK issued general license (“GL”) INT/2022/2002560, which allows for a seven-day wind-down period for the UK’s Russian investment ban.  For example, the GL allows a person to (i) directly or indirectly acquire any ownership interest in land located in Russia, (ii) directly or indirectly acquire any ownership interest in or control over a person, other than an individual, connected with Russia, or (iii) open a representative office or establish a branch or subsidiary located in Russia.  The GL expires on July 26, 2022.

In ruling N326582 (July 6, 2022), Customs and Border Protection (CBP) discussed the tariff classification of a Halloween-themed pet toys from China. The item, which is described as “2-Pack Cat Toys,” is set of two plush pet toys that are meant for use by cats. Both toys are composed of 100% polyester woven plush fabric stuffed with polypropylene foam and catnip. The first style, which measures 3 inches in length by 2 ½ inches in width, depict a purple bat. This purple bat features three 100% polyester curled ribbon tails and black felt eyes, ears, and wings. The second style, which measures 3 inches in length by 2 ½ inches in width depicts a candy-corn colored (white, orange, and yellow) mouse. The mouse features three 100% polyester curled ribbon tails, black felt eyes, and white felt ears. Both items are packed and sold together.

CBP first determined that both pet toys could be classified under subheading 6307.90.7500, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Other made up articles, including dress patterns: Other: Toys for pets, of textile materials.”  The rate of duty is 4.3% ad valorem. Additionally, CBP also determined that only the “Bat Shaped Halloween Pet Toy” could be classified under subheading 9817.95.05, HTSUS, which provides for “Utilitarian articles in the form of a three-dimensional representation of a symbol or motif clearly associated with a specific holiday in the United States.” The specific holiday in this case would be Halloween. Items that fall under 9817.95.05 are eligible for duty-free treatment. Per CBP, this occurs because if the item falls within one of the specifically enumerated tariff numbers cited in the terms of the subheading. Subheading 6307.90 is one of the specifically enumerated tariff numbers and the bat is recognized as a festive motif.

U.S. General Licenses and Guidance: The Office of Foreign Assets Control (“OFAC”) issued four general licenses (“GLs”) this week.  In GL6B, OFAC expanded the authorizations in the previous GL 6A to also permit all transactions “related to…the production, manufacturing, sale, or transport of…agricultural equipment”, in addition to the previously-authorized transactions, including transactions relating to agricultural commodities, medicine, and medical devices, among others.  The Treasury Department issued a related Fact Sheet clarifying that U.S. sanctions against Russia do not target agricultural commodities (including fertilizer), agricultural equipment, or medicine.

GL 25C authorizes transactions ordinarily incident and necessary to the receipt or transmission of telecommunications involving Russia.  GL 25C is largely similar to GL 25B, but adds that transactions with media outlets New Eastern Outlook and Oriental Review are not permitted under the GL, unless separately authorized.

GL 30A permits all transactions involving SEFE Securing Energy for Europe GmbH (formerly known as Gazprom Germania GmbH, the entity referenced in GL 30), and any entity in which it owns, directly or indirectly, a 50 percent or greater interest.  The revisions in GL 30A also extend the expiration of the GL from the end of September to December 16, 2022.

GL 44 authorizes all transactions ordinarily incident and necessary to exportation or supply of tax preparation or filing services from the U.S. or by a U.S. person to any individual who is a U.S. person located in Russia.

This week OFAC also issued three new FAQs relating to GLs 6B and 25C and the U.S. prohibitions related to correspondent or payable-through Accounts and processing of transactions involving certain foreign financial institutions (Russia-related CAPTA Directive).

Separately, on July 11th, the U.S. State Department publicly supported Canada’s decision to export a sanctioned natural-gas turbine to Germany for use in the Nord Stream 1 pipeline.  “In the short term, the turbine will allow Germany and other European countries to replenish their gas reserves, increasing their energy security and resiliency and countering Russia’s efforts to weaponize energy,” U.S. State Department spokesperson Ned Price said in a statement.

EU Guidance and Potential Future Actions: On July 8th, the European Commission published two new FAQs addressing a Russian person’s repayment of a loan from an EU credit institution and the scope of the ban on services for trusts.

This week, the European Commission published guidance that states sanctioned goods may transit through the EU from Russia provided that they are transported via rail.  However, the transit of such goods is prohibited if transported by road.  Regardless of means of transport, the transit of military and dual-use goods and technology is prohibited.  Lithuania has blocked Russian shipments to Kaliningrad from transiting Lithuania and requested clarification from the EU on whether the transit of sanctioned Russian goods is permitted under EU measures.

According to the press, the EU is considering lifting sanctions imposed on some Russian individuals.  Around 30 individuals have filed lawsuits against the EU seeking removal from the EU’s sanctions list and 10 others have appealed directly to the EU.  Media reports indicate that the EU believes some of the requests are legitimate.

Media reports indicate that the EU is preparing a seventh package of sanctions, expected to be adopted on July 15.  It is reported to include designations of 50 additional people and entities.  The package is also expected to ban gold imports and adopt a more extensive list of dual-use goods subject to export controls.

UK Guidance: A number of UK agencies issued a “Red Alert” on July 12 to provide information about techniques designated persons may use to evade sanctions.  The alert includes a number of indicators of suspected sanction evasion, as well as recommended best practices for industry. 

Enforcement of Sanctions:  The European Commission Director General for Trade, Sabine Weyand, described the EU and U.S. joint approach on sanctions enforcement at an event earlier this week.  The two jurisdictions are monitoring and exchanging data, including classified information.  Within the EU, media reports indicate that EU member states are discussing ways to close loopholes, tighten enforcement, and share data with other EU members.

Proposed Russian Oil Price Cap: U.S. Treasury Secretary Janet Yellen, currently traveling in Asia, is focusing on a proposed cap on Russian oil.  The U.S. has reportedly been discussing the plan with a number of countries, although the specific nations have not been named.  This week, U.S. Deputy Treasury Secretary Wally Adeyemo said he did not expect that the U.S. would sanction countries or entities that do not join the proposed oil cap plan, stating: “I don’t think we need secondary sanctions because, in this case, what we’re doing is something that is creating the right incentives for the countries that are purchasing Russian oil.”  He added: “There’s going to be a natural incentive for countries to join this coalition.”

U.S.-EU Export Control Coordination: The U.S. and the EU, as part of the Trade Technology Council Export Control Working Group, is holding a Stakeholder Session on Tuesday, July 19 at 10:00-12:00 / 16:00-18:00.  Save the date https://policy.trade.ec.europa.eu/events/2nd-joint-eu-us-stakeholder-outreach-dual-use-exportcontrols-2022-07-19_en  The registration page is available: https://ttd-registration.com/ttd-jsm1-wg7/

In ruling N326929 (July 8, 2022), Customs and Border Protection (CBP) discussed the tariff classification of a portable chair-and-backpack from China. The product, identified as an the “Playamigo All-in-One Portable Chair & Backpack,” is a combination travel tote bag with storage compartments and a portable seat. The item is constructed of 3 internal round steel tube rails and 100% polyester fiber. The tote area, removable zipper pouch, interior elastic straps, and three exterior pockets serve to provide for the placement and portable storage of items. A convertible zipper chain strap allows users to carry the Playamigo over the shoulder, across the body, or as a backpack. A reverse-coil zipper pocket – which is located at the base – stows a mat that unfolds and extends for seating. This mat provides portable seating for outdoor recreations such as picnics, camping, hunting, fishing, beach, lakes, concerts, hiking, and sporting events. The dimensions approximate 17” in length, 18” in width, 10” in depth, and a weight of 5 lbs. The item is available in different colors as well.

In its ruling, CBP referred to Explanatory Note (EN) XII to General Rule of Interpretation (GRI) 3(c), which notes in part: “when goods cannot be classified by reference to Rule 3(a) specific description or 3(b) essential character, they are to be classified in the heading which occurs last in numerical order among those which equally merit consideration in determining their classification.”  As noted, the item is a composite good that serves as a backpack (heading 4202) and a seat (heading 9401). Because the Playamigo is suitable for functional use both as a backpack and as a portable seat, CBP found that no essential could be determined by one of the two components. As such, the Playamigo would need to be classified according to the component that occurs last in numerical order within the tariff headings, which would be heading 9401.

CBP determined that the applicable tariff classification would 401.79.0015, HTSUS, which provides for “Seats (other than those of heading 9402), whether or not convertible into beds, and parts thereof:  Other seats, with metal frames:  Other:  Other:  Outdoor:  With textile covered cushions or textile seating or backing material:  Other.”  The rate of duty is free.

Additionally, pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, Chinese products under subheadings 9401.79.0015, HTSUS, unless specifically excluded, are subject to an additional 25% ad valorem duty rate. As such, the chapter subheading 9903.88.04 must be reported in addition to subheading 9401.79.0015, HTSUS.

On June 28, 2022, the Financial Crimes Enforcement Network (“FinCEN”) and the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a joint alert (the “Alert”), urging financial institutions regulated under the Bank Secrecy Act (“BSA”) to remain vigilant of efforts by third parties to evade the extensive U.S. export controls imposed on Russia and Belarus relating to Russia’s invasion of Ukraine. The Alert provides BSA-regulated financial institutions (“Covered Institutions”) with guidance on how to identify customers and transactions that may pose elevated export controls evasion risks. The Alert reflects the Biden Administration’s “whole of government” approach to prevent Russian circumvention of U.S. export controls. 

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