On July 18th, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned seven companies and five individuals involved in the procurement of materials for sanctioned elements of Iran’s nuclear program.

Based in Iran, China, and Belgium, these persons allegedly obtained items for Iran’s Centrifuge Technology Company (TESA), an entity previously designated by OFAC for its role in the proliferation of weapons of mass destruction.  OFAC alleged that this network of companies and individuals collaborated to source aluminum products that are controlled by the Nuclear Suppliers Group (NSG), a multi-national export control regime, for use by Iran in its production of centrifuges.

For more, please see OFAC’s press release. For a list of designated parties, click here.

Importers of battery chargers or external power supplies (EPSs), and manufacturers or sellers of consumer products that include battery chargers or EPSs, are likely subject to strict energy conservation standards. By virtue of Department of Energy (DOE) regulations that took effect in February 2016 and June 2018 for EPSs and battery chargers, respectively, manufacturers and importers of these charging devices must now meet stringent conservation standards under the Energy Policy and Conservation Act (EPCA) or risk the assessment of civil penalties.

Under EPCA, DOE enforces mandatory appliance efficiency or conservation standards for over 60 covered products, such as refrigerators, dehumidifiers, washing machines, and recently, EPSs and battery chargers. The EPS and battery charger regulations are expansive, and affect products that charge thousands of standard consumer electronic products, including laptop computers, mobile phones, game consoles, electric razors, and electric toothbrushes. With so many products powered by batteries or external power supplies, the universe of EPCA-regulated chargers seems infinite.

Under the standards, EPSs are defined as devices that convert household electricity to direct current in order to operate a consumer product. The battery charger rule applies to any charger that charges batteries for a consumer product, including chargers embedded in those consumer products. Notably, the rules cover all manufacturers of these charging devices and often the companies that import them from foreign manufacturers. EPCA also requires companies to certify and demonstrate compliance with the standards to DOE, and DOE has authority to independently confirm that these representations are accurate.

The scope of these regulations creates significant potential liability for manufacturers and sellers. The cost of non-compliance may be steep: EPCA penalties are assessed on each noncompliant unit distributed into commerce (either sold or made available for sale), at a maximum penalty rate of $460 per unit, with a “look-back” period of five years. As a result, manufacturers and sellers of consumer products are potentially liable for tens of millions of dollars for chargers that are in most cases adjuncts to their core product lines. Moreover, DOE generally seeks the maximum penalty against manufacturers and sellers who knowingly distribute products that violate EPCA standards, although DOE’s practice is to reduce these maximum penalties based on mitigating factors such as self-reporting, cooperation and prompt cessation of sales of non-compliant products.

To avoid these substantial civil penalties, a manufacturer or seller of EPSs or battery chargers should develop procedures to determine whether the rules apply to its devices, and to establish, demonstrate, and maintain its current and future compliance with these rules.

In ruling NY N304661, Customs and Border Protection (CBP) determined the classification of an alarm clock for the hearing impaired. The Futuristic Alarm Clock is a digital alarm clock with an opto-electronic display that exhibits the hour, minute, AM/PM indicator and snooze button.  The Futuristic Alarm Clock features a dimmable clock display, dimmable light emitting diode (LED) flasher, dual alarms, dual AC outlets and dual USB Charging Ports. The ruling requester stated that the clocks are specifically designed for use by physically disabled persons. The significant electronic/physical features on the Futuristic Alarm Clocks included a blinking light with no audible noise sounding.  The outlets (flashing and steady) are for either a lamp or bed shaker vibrator.  The clocks are exclusively for the deaf and hard-of-hearing.

CBP determined that the applicable subheading for the Futuristic Alarm Clock will be 9105.11.40 HTSUS, which provides for other clocks: alarm clocks: electrically operated: with opto-electronic display only.  The rate of duty will be 3.9 percent on the movement and case plus 5.3 percent on the battery.

Furthermore, CBP also determined that the item satisfies the description set forth in Chapter 98, Subchapter XVII, U.S. Note 4(a), HTSUS which defines the term blind or other physically or mentally handicapped persons as including “any person suffering from a permanent or chronic physical or mental impairment which substantially limits one or more major life activities, such as caring for one’s self, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, or working.”.  CBP also determined that a secondary classification would apply to the Futuristic Alarm Clocks under 9817.00.96, HTSUS, and will be free of duty and the MPF upon importation into the U.S.

The clocks are designed to wake up a person by use of an audible alarm.  Should the sleeper not be able to hear the audible noise, the blinking lights may be used.  In cases where the blinking lights are insufficient to wake the sleeper, the bed shaker may be added to the alarm clock to vibrate the bed or pillow.  These additional features are not normally found on a typical alarm clock and are intended for use by individuals who suffer from hearing impairment which substantially limits one or more major life activities which include caring for one’s self and hearing.

The reaction of the Iranian government to the boarding of the Grace 1 off Gibraltar has been swift and direct reciprocal action has been threatened against “British” ships. Whether that is British flagged as opposed to British managed or operated ships, is unclear. But in the light of the recent attacks on tankers in the Straits of Hormuz and off Fujairah by Iranian forces that threat must be taken seriously. At the moment the threat is conditional on release but recent action in the U.S. Courts to seize a vessel involved in alleged sanction busting trades may yet see the Grace 1 subject to forfeiture action in the U.S. This latest case has parallels with the U.S. backed detention of the North Korean vessel the Wise Honest in May 2019 in Indonesia which saw the first seizure of a vessel under the U.S. civil asset forfeiture procedure more normally aimed at financial assets.

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In Ruling NY N304567, Customs and Border Protection (CBP) determined the classification of a storm glass weather forecaster. This item uses a liquid mixture of distilled water, potassium nitrate, ammonium chloride, ethanol, and camphor to predict atmospheric change. The liquid in the glass appears cloudy when precipitation is approaching; when crystals are visible in the liquid, humid or foggy weather can be expected; a cloudy glass with small stars indicates thunderstorms; and a clear glass predicts calm weather. The glass orb is sealed completely airtight, housed on a wood pedestal, and secured with brass fittings.

CBP determined that the applicable subheading of the storm glass is 9025.80.1500 HTSUS, which provides for Hydrometers and similar floating instruments, thermometers, pyrometers, barometers, hygrometers, and psychrometers, recording or not, and any combination of these instruments; parts and accessories thereof: Other instruments: Other: Barometers, not combined with other instruments. The rate of duty will be 1% ad valorem.

The United States Trade Representative (USTR) has released a supplemental list of $4 billion worth of products to be added to the proposed tariff pursuant Section 301 of the U.S. Trade Act of 1974 related to the Boeing-Airbus Subsidy Dispute before the World Trade Organization’s (WTO) Dispute Settlement Body. You can find the complete product list in the appendix to this notice.  The list includes, among other products, several specialized food and beverage products such as cheeses, pasta, and Irish whiskey.

The public comment dates are below:

  • July 24, 2019: Due date for submission of requests to appear at the public hearing and summary of testimony.
  • August 5, 2019: Due date for submission of written comments.
  • August 5, 2019: The Section 301 Committee will convene a public hearing in the Main Hearing Room of the U.S. International Trade Commission, 500 E Street SW, Washington DC 20436 beginning at 9:30 a.m.
  • August 12, 2019: Due date for submission of post-hearing rebuttal comments.

The final list will take into account the report of the WTO arbitrators and appropriate level of retaliatory tariffs as authorized by the WTO.

In ruling NY N304446, Customs and Border Protection (CBP) determined the classification a piece of training, conditioning and strength building equipment, called “The Finisher.” It is designed for football training. “The Finisher” is 67.2 inches long, 23.5 inches high, 30 inches wide and weighs 260 pounds and described as a cross between a push sled and a tire flip. It is equipped with handles which allow users to push it like a sled or flip it upside down converting it from a sled, to a wheelbarrow, to a tire flip in seconds. These movements are commonly used in strength conditioning and football training exercises for building power in athletes. Users may attach a harness for speed and resistance training and add additional weight to challenge athletes of all abilities. “The Finisher” is also used in relay competitions and team sled drills. The product will be marketed primarily to football, strength and conditioning coaches, however the training applications of the product extends to many other sports.

CBP determined that the appropriate subheading for “The Finisher” is 9506.91.0030 HTSUS, which provides for “Articles and equipment for general physical exercise, gymnastics, athletics, other sports…or outdoor games…; parts and accessories thereof: Other: Articles and equipment for general physical exercise, gymnastics or athletics; parts and accessories thereof…Other.” The rate of duty will be 4.6% ad valorem.

In today’s protectionist environment, importers are facing heightened legal risks and a potential False Claims Act (“FCA”) violation when providing information to Customs and Border Patrol (“CBP”).  Earlier this month, the United States Attorney’s Office for the Southern District of New York filed a civil fraud lawsuit against Manhattan-based children’s apparel companies Stargate Apparel, Inc. (“Stargate”), Rivstar Apparel, Inc. (“Rivstar”), and their CEO, Joseph Bailey.  The Complaint, filed under seal, had alleged that Bailey, Rivstar, and Stargate violated the FCA when they submitted invoices to CBP understating the true value of imported goods.

The alleged fraud was first brought to light by a whistleblower who filed a complaint under the FCA. It alleged that from 2007 to 2015, Stargate engaged in a double-invoicing scheme with a manufacturer in China.  And that the manufacturer provided Stargate with two invoices for the each shipment of goods.  One invoice, referred to as the “pay by” invoice, was for a much higher amount and reflected the actual price Stargate paid the manufacturer for the goods.  The second invoice was for a much lower price.  Stargate presented only this second invoice to CBP and thus was able to pay a fraudulently lower amount of customs duties.

A second variation of this fraud scheme involved invoices for “sample” goods.  The Chinese manufacturer would send two invoices for one shipment, one marked commercial invoice and one marked sample invoice.  Together, the two invoices reflected the real price Stargate paid to the manufacturer, but Stargate only paid customs duties on the commercial invoice and not on the sample invoice because sample goods are not subject to customs duties.  According to the Complaint, none of the goods Stargate received from the manufacturer were actually sample goods.

The allegations claim that Bailey, Stargate, and Rivstar engaged in similar schemes with additional manufacturers. Through these schemes, the Complaint alleges that they undervalued imports by tens of millions of dollars and cost the U.S. government over $ 1 million in duty revenue. Bailey and his companies now face civil penalties and treble damages, and Bailey faces an additional criminal charge of conspiracy to commit wire fraud.

Importer FCA cases just like this one have been on the rise in recent years.  The Trump administration’s focus on trade policy will likely only lead to continued scrutiny in this area.  Additionally, the recent Supreme Court ruling in U.S. ex rel Hunt v. Cochise Consultancy, No. 18-315 (2019), has allowed whistleblowers to take advantage of a longer statute of limitations period previously only available to the government under 31 U.S.C. § 3731(b)(2).  Thus, where the government does not learn of the FCA violation, a lawsuit can be filed up to 10 years after the date the false statement was made.  This expanded statute of limitations may also contribute to the increase in importer FCA cases.

In Ruling NY N304557, Customs and Border Protection (CBP) determined the classification of “dummy” security cameras from China. These are plastic items manufactured in the shape of security cameras with no internal components to allow it to record or capture still images.  The cameras contain a battery-powered, blinking LED light as their only electrical component to give the impression that the camera is recording.  The “dummy” security cameras are designed to replicate the presence of functioning security cameras, thus deterring criminal activity.  

CBP determines that applicable classification for the “dummy” security cameras 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.”  The general rate of duty will be 2.6% ad valorem.

Products of China classified under subheading 8543.70.9960, HTSUS, unless specifically excluded, are subject to the additional 25 percent ad valorem rate of duty.  At the time of importation, the Chapter 99 subheading, 9903.88.02, must be reported in addition to subheading 8543.70.9960 HTSUS.

The U.S. Trade Representative (USTR) published a federal register notice today outlining the process for submitting Section 301 exclusion requests for List 3.  The USTR noted that if an exclusion is granted, it will effective from the day the 10% tariff came to effect (i.e. from September 24, 2018).  The USTR also introduced a new “web portal” for exclusion request. The key dates moving forward are:

  • June 30, 2019 at noon EDT: The web portal for submitting exclusion requests – http://exclusions.USTR.gov – will open.
  • September 30, 2019: Deadline for submitting exclusion requests.

The federal register notice introduced new questions and data points that were not included in the exclusion request forms for lists 1 and 2 and concern:

  1. The value in USD of the product being requested, and
  2. The quantity (with units) of the product that a requestor purchased from any third-country source in 2017, 2018, and the first quarter of 2019, and
  3. The value in USD and quantity (with units) of the product of concern purchased from domestic sources in 2017, 2018, and the first quarter of 2019.

The USTR exclusion request form also asks whether the requestor is a small business under the requirements of the Small Business Administration. And whether the company has attempted to “source product from the United States or third countries” in addition to the factors considered by the USTR in the exclusion request processes for the previous lists. After a request for exclusion of a particular product is posted on USTR’s online portal, interested persons have 14 days to respond to the request, indicating support or opposition and providing reasons for their view.