On Friday, August 23, 2019, President Trump indicated in a series of tweets that tariffs on the $250 billion of imports already in place would be raised to 30% from 25% on October 1.  President Trump also said the remaining $300 billion of imports set to go into effect on September 1 would be taxed at 15% ad valorem, rather than 10% ad valorem.

On August 23, the Customs Tariff Commission of China’s State Council announced the decision to impose approximately $75 billion in additional tariffs on the United States. Beijing’s latest retaliatory tariffs are in response to President Trump’s List 4 Trade Action of $300 billion dollars which USTR published earlier in August.

Mirroring the rollout of U.S. tariffs, the Chinese tariffs will also be installed in two batches. Starting on September 1, tariffs of 5 and 10 percent will affect 5,078 products. Tariffs of 5 and 25 percent on U.S.-made vehicles and auto parts will begin on December 15. Taking the existing duties into account, the total tariffs levied on U.S. cars will soon be as high as 50 percent. Notable U.S. products targeted by the tariffs other than autos include crude oil, soybeans, pork, chicken, wheat, sorghum, cotton and other farm products.

China will begin their second-phase of collecting tariff exemption applications on September 2 and will conclude the process on October 18. Firms in China that import, produce, or use relevant input material are eligible to apply for exclusions, including from the most recent trade action. Details for how to apply can be found here.

Unofficial translations for China’s $75 billion trade action can be accessed below:

List 1 – Effective September 1, 2019

List 2 – Effective December 15, 2019

On Wednesday, August 22nd, the United States and Mexico reached a draft agreement that suspends the ongoing antidumping investigation of fresh tomatoes from Mexico. The original antidumping case was filed in 1996 by Florida tomato growers, and since then suspension agreements have been in place to manage trade between the two countries and hold off the antidumping probe. In May, the Trump administration withdrew from a previous suspension agreement and placed a 17.5% tariff on Mexican tomatoes. This later increased in July when Commerce announced a 25% preliminary antidumping duty on imports of tomatoes from Mexico.

A final agreement can be signed on September 19 between the Department of Commerce and Mexican growers, as a 30-day notice period is required by statute. If this occurs, the ongoing antidumping investigation will be suspended by Commerce without issuing a final determination.

The draft agreement will establish minimum prices for certain types of tomatoes. This comes after complaints from U.S. growers over underpriced tomatoes from Mexico undercutting their produce, especially during their peak summer season. The draft agreement sets minimum prices for round and roma tomatoes at 31¢ per pound, stem-on tomatoes at 46¢, tomatoes on the vine at 50¢, specialty loose tomatoes at 49¢ and specialty packed tomatoes at 59¢. Organic tomatoes will be priced 40% higher than non-organics.

Commerce also announced new inspection requirements that will be set forth in the agreement, with these inspections eventually being conducted jointly by the USDA and CBP. Ross said the agreed-upon inspection process will be similar to the one used for imports of sugar, citrus and other Mexican agricultural products. The U.S. had concerns over imports of low-quality tomatoes that would further suppress prices. Several Mexican growers groups said in a statement that the agreement would allow for quality-control inspections on 92% of tomato exports at the U.S. border. However, Commerce said in a statement that the figure was inaccurate because it included tomatoes on the vine, which are excluded from the border inspection requirement, making the correct figure 66% of Mexican tomato imports.

Under the new deal, Commerce will also be allowed to audit up to 80 Mexican producers per quarter. The Mexican growers said importers will be entitled to reimbursement of duties that had been paid since May 7, once the deal enters into force on September 19. According to the Mexican government, there are some 1.5 million tomato growers in Mexico, and exports of the product to the United States are worth around $2 billion annually.

Late last month, New York enacted the Stop Hacks and Improve Electronic Data Security Act (SHIELD Act). In doing so, it has become the latest state to impose additional data security and breach notification obligations on businesses handling private data. The breach notification amendments take effect on October 23, 2019, while the data security requirements take effect on March 21, 2020.

Expanded Breach Notification Requirements

The SHIELD Act revises various definitions and increases the scope of the state’s breach notification statute. The law expands the definition of “private information” to include:

  • Financial account information that can be used to access an individual’s financial account without a security code, access code, or password.
  • Biometric information used to authenticate or ascertain an individual’s identity.
  • A user name or e-mail address in combination with a password or security question and answer that would permit access to an online account.

The SHIELD Act also expands the definition of “breach of the security of the system” to include any unauthorized “access” to computerized data that compromises the security, confidentiality, or integrity of private information. Unauthorized “acquisition” of such data is no longer the sole trigger for breach notification obligations – a distinction that only a handful but growing number of states make.

In addition, the SHIELD Act expands the jurisdiction of the breach notification statute, making it applicable to any person or business that maintains private information of New York residents, regardless of whether that person or business conducts business in New York. There are, however, several exceptions to this jurisdictional reach. For example, the law adopts a risk-of-harm inquiry, where a business need not provide notification if “the exposure of private information was an inadvertent disclosure by persons authorized to access private information, and the person or business reasonably determines such exposure will not likely result in misuse of such information, or financial harm to the affected persons or emotional harm in the case of unknown disclosure of online credentials.” Moreover, businesses subject to certain breach notification requirements, such as the Gramm-Leach-Bliley Act (GLBA), the Health Insurance Portability and Accountability Act (HIPAA), and the New York Division of Financial Services Cybersecurity Regulation (NYDFS Cybersecurity Regulation), do not need to make additional notifications to affected New York residents, though such businesses still need to notify the New York attorney general and state regulators in accordance with the statute.

Data Security Requirements

In addition to expanding the state’s breach notification requirements, the SHIELD Act imposes additional data security obligations on businesses that own or license private information of New York residents. Such businesses are required to implement various administrative, technical, and physical safeguards designed to protect the security, confidentiality, and integrity of private information. The SHIELD Act lists various examples of such safeguards, including designating one or more employees to coordinate the security program, conducting risk assessments, training and managing employees, selecting vendors capable of maintaining appropriate safeguards and requiring such safeguards contractually, adjusting the security program based on business changes or new circumstances, and disposing private information within a reasonable amount of time after it is no longer needed for business purposes.

“Small businesses” are permitted to tailor their security programs based on their size, the nature of their activities, and the sensitivity of the personal information. The SHIELD Act defines a small business as any person or business with (a) fewer than 50 employees, (b) less than $3 million in gross annual revenue in each of the last three fiscal years, or (c) less than $5 million in year-end total assets. Here too, the SHIELD Act allows businesses to leverage their other regulatory obligations: Companies subject to, and in compliance with, other legal and regulatory regimes such as GLBA, HIPAA, and the NYDFS Cybersecurity Regulation are considered in compliance with this part of the SHIELD Act.

Penalties

There is no private right of action under the SHIELD Act. Nonetheless, covered businesses are subject to attorney general enforcement with civil penalties for knowing and reckless violations of the breach notification obligations of up to $20 per instance with a cap of $250,000. Violations of the reasonable safeguard requirements may carry penalties of up to $5,000 per violation. The SHIELD Act also lengthens the statute of limitations from two years to three years.

Conclusion and Takeaways

The SHIELD Act greatly increases the jurisdictional reach of New York’s breach notification statute, which now applies to entities that do not do business in the state, as long as they maintain private information of New York residents. It also expands various key definitions. Businesses across the country that maintain private information on New York residents will want to consider reviewing their security programs and incident response plans to determine if any changes are needed to comply with the SHIELD Act.

In ruling NY N305378, Customs and Border Protection (CBP) determined the country of origin of an all-in-one computer. The item in question is identified as the AIO Touch Screen (AIO), and is described as a touch screen computing device for use in commercial environments for point of sale machines and similar applications. The AIO consists of a motherboard, a LCD display module, various printed circuit board assemblies (PCBAs) such as a touch controller, two USB controllers, a keypad controller, an antenna, speaker, power supply, camera module and various cables and hardware.

The assembly of the AIO involves mounting the motherboard and control PCBAs into the enclosure, attaching the cabling, assembling the enclosure and wireless antenna module, and mounting the LCD module. The AIO then receives its firmware and operating system, is tested, and packaged for shipment. All of the parts that make up the AIO are all sourced from China and the assembly of the AIO is conducted in Taiwan.

The “country of origin” is defined in 19 CFR 134.1(b), in pertinent part, 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 this part.”

CBP notes that the finished machine consists of a number of discrete subassemblies that are previously manufactured in China. CBP believes the assembly operations performed in Taiwan, which consists of attaching, fastening, and taping and/or gluing, is not complex. The AIO is produced by joining these subassemblies together to form a touch screen computing device, but the Chinese subassemblies do not undergo a physical change as a result.

CBP determined that the assembly process performed in Taiwan does not result in a substantial transformation of the Chinese goods. The components themselves are not transformed in Taiwan into a new and different article of commerce with a name, character, and use distinct from the articles exported from China. Therefore, the AIO, is considered a product of China for origin and marking purposes at time of importation into the U.S.

 

In June 2018, the Office of the United States Trade Representative (USTR) announced additional tariffs on products imported from China. The additional tariffs are part of the U.S.’ response to China’s unfair trade practices related to “the forced transfer of American technology and intellectual property” pursuant to Section 301 of the Trade Act of 1974. To date, three lists of tariffs against China have been posted.

On August 13, 2019, the USTR released two additional lists (List 4A and List 4B) of products that will be subject to a 10% tariff that will directly affect the Fashion Industry, particularly apparel and clothing accessories, footwear, and hats.

This 4A list will go into effect September 1, 2019. This ad valorem tariff could potentially impact approximately $42 billion worth of imported apparel.

List 4A covers the following:

Footwear articles (91 tariff lines);

Apparel and clothing accessories (e.g., scarves, gloves, trousers, suits, blouses, shirts, skirts) (356 tariff lines); and

Headwear products (hair-nets, safety headgear of reinforced or laminated plastics, and safety head wear) (3 tariff lines).

 

List 4B (the second list of products subject to the tariffs) will not go into effect until December 15, 2019.  It will include an additional 56 lines of footwear articles; and 35 lines of apparel and clothing accessories.

List 4A: Effective as of September 1, 2019

List 4B: Effective as of December 15, 2019

USTR also indicated that it will launch an exclusion request process for products subject to the additional 10 percent ad valorem tariff.

The complete list of Chinese Tariffs, Trade Actions, and Retaliatory Measures is available here.

Podcast – Let’s Talk FCA

Customs Fraud

In this episode, hosts Mana Lombardo and Jason Crawford speak with Crowell & Moring attorneys Frances Hadfield and Allegra Flamm about the steady rise in the number of False Claims Act investigations and lawsuits alleging that U.S. importers have concealed obligations to pay duties to U.S. Customs and Border Protection.

“Let’s Talk FCA” is Crowell & Moring’s podcast covering the latest developments with the False Claims Act.

Link to Podcast

On August 13, the United States Trade Representative (USTR) released two additional lists of products that will be subject to a 10 percent tariff on approximately $300 billion worth of imported Chinese goods, pursuant to Section 301 of the Trade Act of 1974. The first set of tariffs will go into effect on September 1, 2019 as announced by the president on August 1. Some products have been removed from the tariff list based on health, safety, national security, and other factors, according to USTR.

The second set of tariffs for certain products from China, including, but not limited to, cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain footwear and clothing will be delayed to December 15, 2019.

List 4A: Effective as of September 1, 2019

List 4B: Effective as of December 15, 2019

USTR will introduce an exclusion request process for products subject to the additional 10 percent ad valorem tariff.

The official Federal Register notice will be published as soon as possible with additional details and the list of imported products affected by the tariffs.

On August 13, 2019, the FAR Council will publish in the Federal Register an interim rule, FAR Subpart 4.21, effective immediately, which implements a portion of section 889 of the FY 2019 National Defense Authorization Act, specifically, the ban on government procurement of any equipment, system or service that uses covered telecommunications equipment or services from certain Chinese companies.

The interim rule defines covered telecommunications equipment and services to include any telecommunications equipment or services from Huawei or ZTE (or any affiliate) and certain video surveillance and telecommunications equipment or services from three other Chinese companies (or their affiliates).

The interim rule also provides for expanding the ban to other companies that the Secretary of Defense, in consultation with the Director of National Intelligence, reasonably believes to be owned or controlled by, or otherwise connected to, the Chinese government.

Unless a waiver is granted, the rule will broadly apply to all contracts including commercial item procurements and acquisitions below the simplified acquisition threshold. The implementing clauses, FAR 52.204-24, Representation Regarding Certain Telecommunications and Video Surveillance Services or Equipment and FAR 52.204-25, Prohibition on Contracting for Certain Telecommunications and Video Surveillance Services or Equipment, must also be added to any existing contracts before those may be extended or renewed.

Over the course of the last week, the United States has escalated its sanctions programs targeting Russia and Venezuela. It began by implementing the long-delayed second round of sanctions on Russia mandated by the Chemical and Biological Weapons Act of 1991 (CBW Act) on Saturday, August 3, 2019. While the CBW sanctions will have a limited impact on most companies, the same cannot be said of the issuance of Executive Order 13884 (“E.O. 13884”) on Monday, August 5, 2019, which designated the Government of Venezuela and all entities that it owns or controls as “blocked.” Full details on each action are below.

Russia: Implementation of CBW Sanctions

The United States CBW-related sanctions have been almost a year in the making. The CBW Act requires the United States to impose certain prescribed sanctions when it concludes that a foreign government has used chemical weapons in violation of international law or in lethal form against its own nationals. As a result, after concluding on August 8, 2018 that the Russian Federation had sponsored the use of chemical weapons as part of the attempted assassination of its former spy in Salisbury, U.K., the United States issued a first round of CBW-related sanctions. These measures became effective on August 27, 2018, but had limited commercial impact as the Administration either waived their implication (with respect to sanctions cutting off foreign assistance), established limits for certain activity that was largely not occurring (e.g., foreign military financing to Russia or U.S. government financial assistance to Russia), or imposed restrictions that largely duplicated existing requirements (e.g., export licensing requirements on items controlled for national security purposes).

The CBW Act required the imposition of a second round of sanctions unless the Administration could certify within 90 days that the identified country has ceased its use of chemical weapons. On November 9, 2018, the State Department publicly confirmed that it could not make that certification, requiring the imposition of sanctions.

Those sanctions were finally implemented on August 3, 2019. Specifically, the United States imposed three related measures:

  • Non-Ruble Denominated Sovereign Loans: The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a new “CBW Act Directive” that prohibits a “U.S. Bank” from: (1) participating in the primary market for non-ruble denominated bonds issued by the Russian sovereign; or (2) lending non-ruble denominated funds to the Russian sovereign. “U.S. Bank” is defined broadly, including not only banks, but also securities brokers and dealers, commodity futures and options brokers, and U.S. affiliates of any of the foregoing. “Russian sovereign” is defined to mean any ministry, agency, or fund of the Russian Federation, including the Central Bank of Russia and the Ministry of Finance, but not state-owned enterprises.
  • Export Restrictions: The United States announced new export licensing restrictions on Department of Commerce-controlled goods and technology. However, to date, the specific restrictions have not yet been identified.
  • Multilateral Financial Institutions: Finally, the United States announced its intention to oppose the extension of any loan or financial or technical assistance to Russia by international financial institutions, such as the World Bank or International Monetary Fund.

These requirements will only take effect upon publication in the Federal Register, expected on or after August 26, 2019. Simultaneously, OFAC issued a series of Frequently Asked Questions to provide guidance on the new requirements.

Venezuela: Blocking of the Entire Government of Venezuela

On August 5, 2019 the U.S. Administration re-escalated its Venezuela sanctions program issuing an Executive Order, Blocking Property of the Government of Venezuela (E.O. 13884) that designates the entire Government of Venezuela, including everything it owns or controls (collectively the GoV), for blocking sanctions.

This action represents a continued escalation of the U.S. Venezuela sanctions program. While that program has been in place since March 2015, it has strengthened in intensity since the United States recognition of Juan Guaidó as the “Interim Leader” of Venezuela on January 26, 2019. Since then, the United States has designated a series of key GoV entities, including: Petróleos de Venezuela, S.A. (PdVSA) (January 28, 2019); CVG Compañía General de Minería de Venezuela CA (Minerven) (March 19, 2019); Banco de Desarrollo Económico y Social de Venezuela (BANDES) and four of its subsidiaries (March 22, 2019); and the Central Bank of Venezuela (April 17, 2019).

The GoV as a whole had been subject to a limited set of debt, equity, and securities related restrictions since August 2017. E.O. 13884 now imposes comprehensive blocking sanctions on the GoV and its many owned and controlled entities. As a result, U.S. Persons are now prohibited from engaging in virtually all transactions with the GoV and these entities unless a general license (GL) applies.

OFAC has issued 13 new GLs and made amendments to 12 existing GLs to mitigate the impact of E.O. 13884. Below is a selection of a few of the key amendments and new GLs specific to the new action:

  • Wind-Down Authorization (GL28): OFAC issued a comprehensive 30-day wind-down authorization for all activities pursuant to operations, contracts, or other agreements, that were in place as of August 5, 2019, with the newly-designated elements of the GoV through September 3, 2019.
  • Transactions with the Interim President and Designees (GL31): OFAC authorized U.S. Persons to engage in transactions involving the Government of the Interim President of Venezuela (Juan Guaidó), including transactions with (a) the Venezuelan National Assembly, (b) any official, designee, or representative appointed or designated by Juan Guaidó to act on behalf of the Government of Venezuela and their staff, (c) any ambassador or other representative to the United States or to a third country appointed by Juan Guaidó, and their staff, and (d) any person appointed by Juan Guaidó to the board of directors (including any ad hoc board of directors) of a Government of Venezuela entity.
  • Continued Authorization for Several PdVSA Subsidiaries: The existing authorizations for (a) PDV Holding, Inc., (b) CITGO Holding, Inc., and (c) Nynas, A.B. were preserved through updated GLs 2A, 7C, 9E, and 13C. The authorizations related to the former two entities are effectively permanent until rescinded, while the Nynas GL currently expires on October 25, 2019.
  • Conforming Changes: OFAC updated a series of GLs to extend them to apply to the prohibitions in E.O. 13884, including the authorization related to: (a) agricultural commodities, medicine, and medical devices (GL 4C); (b) bonds issued prior to August 25, 2017 by GoV entities (GL 3F); (c) Chevron, Halliburton, Schlumberger, Baker Hughes, and Weatherford activities in Venezuela (GL 8C); and (d) purchases of refined petroleum in Venezuela (GL 10A).

In addition, while E.O. 13884 does not constitute an embargo—insofar as OFAC has not categorically prohibited the export of goods or services to, or the import of goods or services from, Venezuela—several of the 13 new GLs largely parallel the types of GLs that OFAC typically includes in its country-based embargo programs, including GLs for:

  • Venezuela’s Mission to the United States (GL 22).
  • Third-country Diplomatic and Consular Funds Transfers (GL 23).
  • Certain Transactions Involving the Government of Venezuela Related to Telecommunications and Mail (GL 24).
  • Exportation of Certain Services, Software, Hardware, and Technology Incident to the Exchange of Communications over the Internet (GL 25).
  • Certain Transactions Related to Patents, Trademarks, and Copyrights (GL 27).
  • Certain Transactions Related to Personal Maintenance of Individuals who are U.S. Persons Residing in Venezuela (GL 32).
  • Certain Overflight Payments, Emergency Landings, and Air Ambulance Services over, and in, Venezuela (GL 33).

Simultaneously, OFAC issued a series of new Frequently Asked Questions and a new document titled “Guidance Related to the Provision of Humanitarian Assistance and Support to the Venezuelan People.” The latter document reaffirms the U.S. commitment to supporting humanitarian assistance, and notes various general licenses that may assist humanitarian activities (including, e.g., for agricultural commodities, medicine, and medical devices in GL 4C and for certain international organizations such as the United Nations and the International Federation of the Red Cross and Red Crescent societies), along with a new statement of favorable licensing policy for activities that promote humanitarian assistance. At the same time, it reiterates that any such activities must meet the terms of the applicable general licenses. This is a relevant caveat given that at least one recent OFAC designation has targeted a corrupt network that was seeking to abuse the Venezuelan food subsidy program, Los Comités Locales de Abastecimiento y Producción (CLAP).

Practical Considerations

The U.S. Congress is debating several pieces of legislation that would increase pressure on both Russia and Venezuela. Companies doing business in, or exposed to commercial risk, in either country therefore may wish not only to evaluate the impact of the changes described above, but also (1) actively monitor for additional potential change over the next few weeks or months; and (2) ensure that new contracts with exposure to these countries provide for the possibility of new restrictions.