In ruling NY N306782, Customs and Border Protection (CBP) discussed the classification of charging mousepads from China. The items are the PowerTrack Wireless Charging Mousepad and the PowerTrack Plush Wireless Charging Mousepad. Both are constructed of cellular plastic with a covering of polyester microfiber, has an embedded 10 W wireless inductive charging coil, LED status indicators, and a USB port for connecting to a power source. In use, both items are placed on a desk surface for the purpose of interacting with the user’s mouse, or other input unit, while also charging their personal electronic devices.

CBP determined that the applicable subheading for the PowerTrack Wireless Charging Mousepad and the PowerTrack Plush Wireless Charging Mousepad is 8473.30.5100, HTSUS, which provides for “Parts and accessories (other than covers, carrying cases and the like) suitable for use solely or principally with machines of headings 8469 to 8472: Parts and accessories of the machines of heading 8471: Not incorporating a cathode ray tube: Other.” The general rate of duty will be Free.

Products of China classified under subheading 8473.30.5100, HTSUS, unless specifically excluded, are subject to List 3 25% ad valorem rate of duty.  At the time of importation, 9903.88.03, in addition to subheading 8473.30.5100, HTSUS, must be reported.

On Friday, October 25, 2019 the Financial Crimes Enforcement Network (FinCEN) issued a final rule pursuant to Section 311 of the USA PATRIOT Act finding Iran to be a jurisdiction of primary money laundering concern and imposing special measures prohibiting U.S. financial institutions from maintaining correspondent accounts for or on behalf of Iran. Separately on Friday, the U.S. Departments of the Treasury and State announced the rollout of a new mechanism to facilitate humanitarian trade with Iran.

Finding and Special Measures Against Iran

FinCEN based its finding on the role of Iran’s central bank in facilitating terrorist financing, the dominance of Iran’s Revolutionary Guard Corps (IRGC) in Iran’s economy, Iran’s support to terrorist groups, and the regime’s efforts to develop weapons of mass destruction (WMD). FinCEN’s actions build on comprehensive U.S. sanctions against Iran, which already prohibit U.S. persons, including U.S. financial institutions, from nearly all transactions with Iran and Iranian financial institutions. The primary effect of the new rule is to require U.S. banks to conduct special diligence efforts to ensure that their correspondent relationships are not used indirectly to facilitate transactions by Iran.

This is the second time that FinCEN has found Iran to be a jurisdiction of primary money laundering concern. FinCEN made such a finding in 2011 and proposed a rule that would have imposed the same special measures, but never finalized it. FinCEN’s new finding and final rule were issued without re-opening the process for public comment, relying on the Administrative Procedure Act’s “foreign affairs” exception. This appears to be the first time that FinCEN ever has done this, and suggests that the agency may in the future seek to issue special measures against other targets without public comment. That would be a substantial departure from the agency’s recent approach to Section 311. In addition to a long history of submitting proposed Section 311 designations for public comment, even when they were based in part on risks of terrorism financing or the proliferation of WMD, FinCEN in recent years had begun to make the non-classified, non-privileged parts of its administrative record to support such actions available for public review, partly as the result of due process litigation brought by designated foreign financial institutions.

Mechanism for Humanitarian Assistance to Iran

The new mechanism is intended to facilitate exports of agricultural commodities, food, medicine, and medical devices to Iran for humanitarian purposes while preventing such aid from being diverted by the Iranian regime. It is intended in particular to restrict the role of Iran’s central bank in such trade, based on that entity’s previous facilitation of terrorism financing. The mechanism will require the submission of extensive information about the details of proposed transactions and the identity, affiliations, and beneficial owners of Iranian purchasers. In exchange for providing this information, Treasury would provide written confirmation that an approved financial channel cleared with Treasury will not be subject to U.S. sanctions. U.S. persons, including U.S. financial institutions, taking part in humanitarian trade with Iran are free to also make use of this mechanism, but must continue to abide by existing requirements that apply to them under the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) for humanitarian exports to Iran, as implemented through OFAC regulations. How this new mechanism will actually look and work in practice will become clearer over the coming weeks and months.

Practical Considerations

  • U.S. financial institutions that offer correspondent accounts to foreign financial institutions should ensure that they have implemented reasonable, written procedures to prevent the use of their correspondent relationships to provide indirect access to Iran. This may include in particular reviewing their questionnaires for holders of such accounts to capture information on whether account holders maintain accounts for Iranian customers. Based on the responses received you may wish to consider reviewing your current controls around, and risk rating of, that correspondent relationship.
  • U.S. persons engaging in humanitarian trade with Iran—exporters, insurers, shipping companies and financial institutions alike—may wish to review OFAC’s list and consider whether collecting the same types of information, or participating in the new mechanism, might help them to manage risk. In addition, if U.S. persons are aware that an Iranian buyer in a transaction covered by license will provide its bank, a foreign financial institution, information for submission to Treasury under the new mechanism, then they may wish to also be privy to the same information for their own risk considerations.

On November 1, 2019, the World Trade Organization (WTO) granted China clearance to levy $3.5 billion of duties on U.S. goods in response to a WTO case where China challenged a wide-range of U.S. anti-dumping duties. The U.S. initially placed anti-dumping duties on China in an effort to fight cheap Chinese goods from flooding the U.S. market. However, the Chinese alleged that the U.S. anti-dumping calculation method of “zeroing”, which has been determined illegal at the WTO, has been artificially inflating dumping margins for Chinese exporters.

China brought the case to the WTO six years ago in response to the U.S. placing anti-dumping duties on more than 40 Chinese goods, including Chinese furniture, solar panels and steel products. In 2017, the WTO ruled that the United States did not comply with the organization’s rules and guidelines in the way it implemented anti-dumping duties. Beijing hoped to score more than $7 billion worth of retaliatory duties but the WTO decided to award only half of China’s original ask.

This decision comes at a time of high-tension between the world’s largest economies and hits at several longstanding disputes. China is also chasing another $2.4 billion worth of retaliatory tariffs in relation to U.S. countervailing duties. Countervailing duties, commonly referred to as anti-subsidy duties, are import duties designed to neutralize the effects of government subsidies. The United States has long defended the use of countervailing duties at the WTO in response to Chinese-subsidized goods.

 

In ruling NY N306374, Customs and Border Protection (CBP) determined the classification of a “Mart Cart,” a multi-function cart designed to be used at Farmer Markets, or other shopping venues, where no shopping carts are available, but can also include retail store venues. The multi-function shopping cart is an all-purpose utility cart designed to transport supplies such as groceries, sporting equipment, chairs, and etc. The cart is hand propelled, has 4 wheels, D shape handle, 2 cup holders, 2 side chair holders, and 2 webbing handles. The frame folds down for easy storage in a garage or the trunk of a car. The cart weighs 18.4 pounds.

The applicable subheading for the item in question is 8716.80.5090, HTSUS, which provides for “Trailers and semi-trailers; other vehicles, not mechanically propelled; and parts thereof: Other vehicles: Other: Other: Other.” The general rate of duty will be 3.2% ad valorem.

Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 8716.80.5090, HTSUS, unless specifically excluded, are subject to an List 3 additional 25% ad valorem rate of duty. At the time of importation, 9903.88.03, in addition to subheading 8716.80.5090, HTSUS, must be reported.

CBP also made a determination on whether the Mart Cart qualifies for the exclusion granted by the United States Trade Representative. According to CBP, household carts, like the one described in this ruling, are listed in U.S. note 20(p)(7), corresponding to subheading 9903.88.13, HTSUS. As a result, the Mart Cart (Item # TR – 21807) will also be classified in subheading 9903.88.13, HTSUS.

The Office of the United States Trade Representative (USTR) is considering possible extension requests for Section 301 List 1 exclusions granted in December 2018 and invites public comments on whether to extend exclusions granted in its December 2018 notice. These will be evaluated on a case-by-case basis.

USTR is focusing its analysis on whether the particular product remains available only from China. In addressing this factor, commenters should address specifically:

  • Whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries.
  • Any changes in the global supply chain since July 2018 with respect to the particular product, or any other relevant industry developments.
  • The efforts, if any, the importers or U.S. purchasers have undertaken since July 2018 to source the product from the United States or third countries.

Additionally, USTR will consider whether the imposition of additional duties on the products covered by the exclusion will result in severe economic harm to the commenter or other U.S. interests.

USTR is encouraging commenters to complete two forms, which USTR will post on its website before the docket opens on November 1st. The public docket can be found on http://www.regulations.gov. The docket number is USTR-2019-0019. One form will be posted on the public docket while one form will contain business confidential information which will not be posted on the public docket.

The USTR is asking for commenters to provide several other data points that it did not request from parties in in the original exclusion requests.

The docket closes on November 30th.

The Trump Administration announced that it will suspend $1.3 billion in trade preferences for certain products from Thailand under the Generalized System of Preferences (GSP) program citing Thailand’s “failure to adequately provide internationally-recognized worker rights.”

GSP provides reduced tariff rates for certain products from certain developing and least developed countries.  Per the office of the U.S. Trade Representative’s (USTR) announcement, the suspension is slated to take effect in April, 2020.  Because the USTR gave notice to Congress, it has the legal ability to remove benefits within 60 days (U.S. law requires the President to give 60 days’ notice to Congress and the recipient-country before removing GSP eligibility).

The list of products that will be removed from eligibility will affect about a third of Thailand’s GSP-eligible products and include products such as certain fresh and frozen seafood, lumber, and textile products.

The Administration also noted that it is “restoring some GSP benefits for Ukraine following its passage of legislation aimed at addressing shortcomings in its intellectual property (IP) regime” and announced that it is opening new GSP eligibility reviews for two countries: South Africa and Azerbaijan.

In ruling NY N306236, Customs and Border Protection (CBP) discusses the classification of a dog training collar device made by Garmin Sport Pro. The device is retail packaged with a correction module, collar, handheld transmitter, and an A/C charging adapter with cable. In use, the correction module is attached to the dog’s neck via the collar, which allows the metal contact points to meet the skin. The handheld transmitter is then used by the owner to deliver a corrective notification in the form of a vibration or electric nerve stimulation when any unwanted behavior is witnessed. The training device can also automatically track the number of times the dog barks and deliver a corrective notification when a predetermined number of barks is reached.

The set, as described above, meets the definition of “goods put up in sets for retail sale” as set forth in General Rule of Interpretation (GRI) 3(b). GRI 3(b) provides that such sets are classified by the component that imparts the essential character. It is the opinion of CBP that the correction module imparts the essential character. As the module incorporates multiple functions, both correction and tracking, it is considered a composite machine and CBP believes it should be classified pursuant to Note 3 to Section XVI of the HTSUS by the principal function of the unit. The ability to correct the dog’s behavior, either automatically or manually via the handheld transmitter, is the principal function in the view of CBP. The ability to count and display the number of barks is a secondary feature that does not merit equal consideration along with the training capability.

CBP determined that the applicable subheading for the item is 8543.70.9960 HTSUS, which provides for “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter; parts thereof: Other machines and apparatus: Other: Other: Other: Other.” The general rate of duty will be 2.6% ad valorem.

The U.S. Trade Representative (USTR) will soon publish a federal register notice outlining the process for submitting Section 301 exclusion requests for List 4.  The USTR noted that if an exclusion is granted, it will effective from the day the  first tranche of List 4 tariffs (i.e. “Annex A”) came to effect (i.e. from September 1, 2019).  Instead of being effective for one year after after exclusions are granted, as was the case for Lists 1-2,  any exclusion will be effective for one year, starting from the September 1, 2019 effective date for Annex A of the August 20, 2019 notice.

The key dates moving forward are:

  • October 31, 2019 at noon EDT: The web portal for submitting exclusion requests – https://exclusions.USTR.gov – will open.
  • January 31, 2020 at 11:59 PM EDT: Last day for submitting exclusion requests.

The federal register notice introduced new questions and data points that were not included in the exclusion request forms for list 3 and concern:

  1. The requestor’s import and revenue data for first half of 2019 instead of the first quarter of 2019.
  2. Whether the product is subject to an antidumping or countervailing duty order issued by the U.S. Department of Commerce.

Last week, the Department of Justice issued new guidance regarding the application of Exemption 4 to the Freedom of Information Act (FOIA) following the Supreme Court’s decision this past June in Food Marketing Institute v. Argus Leader Media, 139 S. Ct. 2356 (2019). (Crowell & Moring previously wrote about Argus Leader here.)

As a refresher, Exemption 4 allows agencies to withhold documents otherwise responsive to a FOIA request if the documents contain “trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential.” For nearly 50 years prior to Argus Leader, courts held that Exemption 4 allowed documents to be withheld only if disclosure would result in “substantial competitive harm” to the submitter of that information. In Argus Leader, the Supreme Court rejected that test, holding that the inquiry for Exemption 4 purposes is simply whether the information is “confidential.” The Court identified two factors potentially relevant to that inquiry: (1) whether the information customarily is kept confidential by the submitting party; and (2) whether the submitting party received some assurance from the government that the information would be kept confidential. DOJ’s guidance speaks to the application of these two factors, and includes a “Step-By-Step Guide” for determining confidentiality after Argus Leader.

As to the first factor—whether the information is customarily treated as confidential—DOJ highlights the Supreme Court’s holding that this condition is mandatory (because the information could not be withheld as confidential if the submitting party did not treat it as such). DOJ explains that agencies may assess whether such information is treated as confidential by considering “its own knowledge of the information, the submitter’s practices, and/or [] the records themselves.”

As for the second factor, DOJ’s guidance makes two important points:

  • First, the Supreme Court did not hold that an assurance of confidentiality is a prerequisite for the invocation of Exemption 4. The Court expressly stated that it did not have occasion to address the question and therefore, according to DOJ’s guidance, “it is yet unclear whether future judicial precedents governing Exemption 4 will require” an assurance.
  • Second, even if such an assurance is required, it may be implied. To determine whether an implied assurance has been given, agencies may “look to the context in which the information was provided to the government,” and consider “the government’s treatment of similar information and its broader treatment of information related to the program or initiative to which the information relates.”
    • Accordingly, an agency’s long history of not disclosing a certain type of information may “serve as an implied assurance to submitters” that their information would not be disclosed.
    • By contrast, “a submitter would not normally have a reasonable expectation of confidentiality for records the agency has historically disclosed.”
    • DOJ’s Step-by-Step Guide instructs that, if “the government has effectively been silent” as to whether it would publicly disclose the information, “a submitter’s practice of keeping the information private will be sufficient to warrant confidential status.”

Although DOJ’s guidance ostensibly is to assist agencies in navigating the new, post-Argus Leader landscape, it also provides a useful framework for entities that have non-government entities seeking to invoke Exemption 4 to demonstrate why otherwise responsive information should be withheld as confidential. Notably, until a post-Argus Leader decision finds that an assurance of confidentiality is a prerequisite for the invocation of Exemption 4, DOJ’s guidance provides a compelling reminder that no such requirement currently exists.

On October 14, 2019, the Trump Administration followed through on its recent threats by issuing a new Executive Order (EO) (as yet unnumbered) establishing sanctions that effectively target the Turkish Government in response to the latter’s military intervention into Northern Syria. Using this authority, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) simultaneously added both the Turkish Ministry of Energy and Natural Resources and the Turkish Ministry of National Defence, as well as three Turkish Ministers to its list of Specially Designated Nationals (SDN), creating not only immediate risk for U.S. Persons (defined below) currently engaged in transactions with these new SDNs but also on-going risk of designation for non-U.S. persons that continue to transact with the targeted government agencies. Click through for more details.

Scope of New Authorities

On October 14, 2019, the Trump Administration issued a new EO titled “Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Syria.” Declaring a national emergency arising from the “recent actions by the Government of Turkey to conduct a military offensive into northeast Syria,” the EO grants the Secretaries of the Treasury and State Department a series of new authorities to designate persons as follows:

  • Asset-Freezing Authorities: The Secretary of the Treasury has the authority to freeze the assets of any person determined to be, inter alia:
    1. Responsible for, complicit in, or have directly or indirectly engaged in, or attempted to engage in (a) actions or policies that threaten the peace, security, stability, or territorial integrity of Syria or (b) the commission of serious human rights abuse;
    2. A current or former official of the Government of Turkey;
    3. An agency, instrumentality, or subdivision of the Government of Turkey;
    4. Operating in such sectors of the Turkish economy “as may be determined by the Secretary of the Treasury”; or
    5. To have materially assisted, sponsored, or provided financial material, or technological support for, or goods or services to or in support of, any person designated by the foregoing.
  • Menu-Based Sanctions Authorities: In parallel, the Secretary of State has new authorities to designate non-U.S. persons that are determined to be, inter alia, responsible for, complicit in, or attempting to engage in or finance:
      1. The obstruction, disruption, or prevention of a ceasefire in north Syria;
      2. The intimidation or prevention of displaced persons from returning to residence in Syria;
      3. The forcible repatriation of persons to Syria; or
      4. The obstruction or prevention of a UN led Syrian constitutional process, elections, and creation of a representative Syrian government.

    If the Secretary of State identifies a person under these authorities, it can impose the full range of traditional “menu-based” sanctions, ranging from denials of U.S. visas for senior executives, denial of U.S. government contracts, loss of U.S. export privileges, to full blocking of assets subject to U.S. jurisdiction.

  • Foreign Financial Institution Authorities: The Secretary of the Treasury is authorized to prohibit or impose strict conditions on the maintaining or opening of U.S. correspondent accounts or payable through accounts for any foreign financial institution determined to be “knowingly” conducting or facilitating any “significant financial transaction for or on behalf of” any person subject to the asset-based designations described above.

Simultaneously with announcement of the EO, OFAC used the new authorities to identify a first group of designations while providing for a wind-down period and certain exceptions for government activities:

New Designations

Using the authority contained in the new EO, OFAC designated the following five persons:

  • Republic of Turkey Ministry of Energy and Natural Resources.
  • Republic of Turkey Ministry of National Defence.
  • Hulusi AKAR, Turkey’s Minister of Defence.
  • Fatih DONMEZ, Turkey’s Minister of Energy and Natural Resources.
  • Süleyman SOYLU, Turkey’s Minister of the Interior. Minister SOYLU had previously been designated as an SDN pursuant to the Global Magnitsky program (GLOMAG), but had been removed on November 2, 2018.

OFAC simultaneously issued three general licenses, authorizing otherwise newly prohibited activity as follows:

  • Official U.S. Government Business: General License 1 (GL1) authorizes all transactions that are for the conduct of the official business of the U.S. Government by its employees, grantees, or contractors.
  • 30 Day Wind Down Authorization: General License 2 (GL2) authorizes all transactions that are “ordinarily incident and necessary to the wind down of operations, contracts, or other agreements” that involve (a) the Ministry of National Defence, (b) the Ministry of Energy and Natural Resources, or (c) any entity in which one or both ministries has a 50 percent or greater interest. GL2 expires at 12:01 AM on November 13, 2019 and does not (1) authorize any debit to a blocked account on the books of a U.S. financial institution (USFI) or (2) authorize any transactions with the three designated Ministers.
  • Certain International Organizations: Finally, General License 3 (GL3) authorizes all transactions involving (a) the Turkish Ministry of National Defence, (b) the Turkish Ministry of Energy and Natural Resources, or (c) any entity in which they hold a 50 percent or greater interest that are for the official business of the United Nations, including its “Specialized Agencies and Related Organizations” such as the World Bank, IMF, World Health Organization, World Food Program, and others. GL3 does not authorize the debiting of any blocked accounts at a USFI except for official business authorized by GL3(a).

Analysis

While the full effects of these new sanctions will only emerge over the course of the next few days and weeks, we offer a few initial thoughts on their potential ramifications:

  • Immediate Impact on U.S. Persons Transacting with the New SDNs: U.S. Persons—including all U.S. citizens and permanent residents, U.S. legal entities, and persons in the United States—currently involved in transactions with or for the Turkish National Defense or Energy and Natural Resources Ministries must wind down that exposure prior to November 13, 2019 and must immediately suspend activity with the three designated Ministers. Any company whose products or services are destined for the Turkish military will need to immediately evaluate how to extricate themselves where no GL applies.
  • Designation Risk for Non-U.S. Persons Transacting with Designated Persons: While non-U.S. persons are not directly prohibited from transacting with the new SDNs, doing so now comes with a substantial risk of becoming designated for doing so. Specifically, non-U.S. persons that provide goods or services to these SDNs, could be considered to be providing material support or assistance, and thereby subject to designation as SDNs themselves. Moreover, FFIs that conduct significant financial transactions with these SDNs can lose access to U.S. correspondent accounts and, in effect, use of the U.S. dollar.
  • Broad Authority To Target the Full Turkish Government: Currently, the sanctions target only the three designated Ministers and two government agencies. However, OFAC now has authority to designate any Turkish Government official and any of its agencies or instrumentalities. As a result, anyone transacting with a Turkish government counterpart now needs to consider the risk that their counterparty could be sanctioned if this program escalates further.
  • Broad Authority To Expand Program Across Turkish Economy: Worse, the sanctions related risk is not just limited to government counterparties. Specifically, OFAC’s new authorities give it the ability to impose asset freezing measures on virtually the entire Turkish economy. Specifically, OFAC’s authority to target anyone operating in any “sector” of the Turkish economy that it chooses to designate is exactly the same authority that OFAC has in the Venezuela sanctions program (EO 13850). In that context, OFAC has steadily identified more sectors—now including oil, gold, finance, defense and intelligence—and used that authority to not only designate some of Venezuela’s largest companies (e.g., Petróleos de Venezuela, S.A. (PdVSA), MINERVEN, and the Central Bank), but also European companies transacting with them. OFAC now has similar authority to escalate in the pressure against Turkey if it chooses to do so.