Customs

Subscribe to Customs

 

Most textile and wool products have a label listing the fiber content, country of origin, and identity of the manufacturer. In view of recent concerns about ocean pollution, a few states have passed bills to require polyester clothing to have a label warning consumers about washing their garments to prevent fiber pollution.

Current Legislation

Connecticut recently passed The Act Concerning Clothing Fiber Pollution, House Bill 5360, making it the first state to implement a law aimed at combatting microfiber pollution. Based on the House Bill, a working group of representatives from the apparel industry and environmental community was convened to develop an awareness and education program about microfiber pollution. The bill’s text requires representatives of specific influential organizations in the apparel industry to be part of the working group. The consumer awareness and education program must include consumer-oriented information explaining the process by which microfibers are shed from clothes and enter the waterways, best practices for consumers to eliminate and reduce the shedding, and information on efforts that members of the apparel industry—including brand labels—are undertaking to reduce or eliminate microfibers in clothing.

In New York, A10599 has been referred to the Committee on Environmental Conservation and, if passed, would require an additional care label by January 1, 2020 on clothing made of more than 50% synthetic material. The required care label, on clothes for which (1) such label would not violate federal law and (2) hand washing is either recommended or required, must state that the garment sheds plastic microfibers when washed and that hand washing is recommended. For all other clothing, the care label must explain that the garment sheds plastic microfibers when washed.

California’s legislation (AB-2379), which is similar to the New York legislation but has been tabled for now, would require that new clothing made from at least 50% synthetic material include a care label that informs consumers that the clothing sheds plastic microfibers when washed. It would also require a visible label at the point of sale that says, “This garment sheds plastic microfibers when washed, which contributes to marine plastic pollution.”

Industry Response and Takeaways

Companies have reacted to the research on microfiber pollution in a variety of ways. For example, Patagonia has helped fund research studies into the issue. It sells a filter bag called the Guppy Friend that is intended to capture microfibers from clothes being washed in a washing machine. Tersus Solutions, a water-less textile processing platform, has made considerable efforts to develop a waterless washing machine that uses pressurized carbon dioxide to clean clothing. Some companies such as Eileen Fisher have donated to the research that first brought this issue to light. The Outdoor Industry Association’s Sustainability Working Group, which represents over 250 companies, has started to examine the issue along with marine-debris specialists at the Ocean Conservancy.

Critics of the current legislative efforts believe they are premature and that the existing research does not yet show what impact synthetic microfibers in clothing truly have on microfiber pollution, unfairly blaming the problem on the apparel industry. They also argue that there is not yet a viable solution to solve the problem and that washing clothes by hand is not necessarily going to reduce microfiber pollution.

It is nonetheless important for the fashion industry to keep an eye on the pending legislation in New York and California as well as programs the working group in Connecticut implements. For example, if New York or California, which both make up a large part of the United States apparel industry, pass any labeling laws related to synthetic microfibers, it’s likely that these labels will essentially be required nationally.

While labeling laws would impose much more immediate and strict requirements on the apparel industry than the working group in Connecticut’s potential programs, the working group’s recommendations could not only have impacts on future legislation but also on consumers’ perception of synthetic microfibers in clothing. These impacts would be in addition to the publicity generated by the pending legislation in New York and California and the working group’s proceedings in Connecticut have already garnered.

It is possible that more states could follow in the path of Connecticut, New York, and California, though a lot may depend on if the pending legislation in New York gains ground or if the California legislation is brought back for a vote. If either one passes, we could be seeing more legislation related to microfiber pollution in the next few years in other states, and with it the possibility of more requirements for apparel companies to follow.

 

Thanks to Suzanne Trivette who contributed to this article as a 2018 summer associate with Crowell & Moring’s New York Office.

On September 17, 2018, the White House directed the United States Trade Representative (USTR) to implement 10 percent tariffs on nearly all the tariff lines in the original Section 301 List 3 valued at approximately $200 billion. Significantly, the notice does NOT indicate that there will be an exclusion process similar to Section 301 List 1 and 2.

The following day, the USTR issued a press release stating, “The [final] list contains 5,745 full or partial lines of the original 6,031 tariff lines that were on a proposed list of Chinese imports announced on July 10, 2018.”

On September 18, 2018, the USTR published the formal notice of this action in the Federal Register. 83 Fed Reg. 47,974.

For an unofficial downloadable spreadsheet providing affected HTS subheadings across all Section 301 actions, please click here. This includes:

  • Final List 1 ($34 billion);
  • Final List 2 ($16 billion);
  • Original List 3 ($200 billion);
  • Final List 3
    • Part 1 (5,745 lines);
    • Part 2 (11 Partial Lines listing 8-digit lines with their 10-digit exceptions); and
  • The 286 removed HTS codes.

The White House statement said the tariffs will rise to 25 percent on January 1, 2019.

On August 3, 2018, China threatened retaliatory tariffs on $60 billion worth of U.S. goods should President Trump move forward with any tariffs. This would result in a possible List 4.

Check here for the latest developments on all the on-going trade actions.

On September 18, 2018, the United States Trade Representative (USTR) published a notice in the Federal Register explaining the procedures and criteria related to requests for product exclusions from the additional tariffs placed on goods from China on August 23, 2018.

Deadlines

The USTR must receive requests to exclude a particular product by December 18, 2018. Responses to a request for exclusion of a particular product are due 14 days after the request is posted in the docket. Any replies to responses to an exclusion request are due the later of 7 days after the close of the 14 day response period, or 7 days after the posting of a response.

Per the notice, a docket will be opened on regulations.gov for the receipt of exclusion requests. The docket number is USTR–2018–0032. One product is allowed per request. Each request must identify a specific product and the 10-digit HTS. The product exclusion request must include the identity of the product, its physical characteristics and how to differentiate that product from others under the 8-digit HTSUS subheading. The USTR will not consider requests that identify the product using criteria that cannot be made public, or that identify the product by using the producer, importer, customer, chief use, trademark or trade name.

The USTR will periodically announce decisions on exclusion requests. If granted, the exclusion will be retroactively effective starting August 23, 2018 and extend for one year after the date on which the decision is published in the Federal Register.

 

On September 13, 2018, President Trump signed the Miscellaneous Tariff Bill (MTB) Act of 2018 (MTB), which temporarily reduces or eliminates import duties on specified raw materials and intermediate products used in manufacturing that are not produced or available domestically. It is intended to ensure that U.S. manufacturers are not at a disadvantage to their foreign competitors when sourcing manufacturing components.

The American Manufacturing Competitiveness Act of 2016 (AMCA) directed the International Trade Commission (ITC) to establish a process for the submission and consideration of MTB petitions for duty suspensions and reductions. It required the ITC to submit preliminary and final reports on the petitions to the House Committee on Ways and Means and the Senate Committee on Finance (Committees). The ITC’s preliminary report was submitted on June 9, 2017 and the final report was submitted on August 8, 2017. On September 4, 2018, the House agreed to Senate amendments, moving the legislation to the president for signature. The current MTB petition cycle is now complete. The next MTB petition cycle, for 2021 through 2023, will begin not later that October 15, 2019.

The duty suspensions and reductions are effective for goods entered or withdrawn from a warehouse for consumption on or after October 13, 2018, which is 30 days after the date of the enactment.  The suspensions and reductions will last until December 31, 2020. All of the MTB provisions are in subchapter II to chapter 99 of the Harmonized Tariff Schedule of the United States (HTSUS). This language was added in a Federal Register Notice on August 16, 2018 (83 Fed Reg 40,823 at page 40,825). The notice also created a new U.S. Note 20(c) to Subchapter II of Chapter 99, HTSUS.

Of the 1,660 items are covered by the new law, roughly half are produced in China. Therefore, overlap between the MTB list and the Section 301 tariffs in effect, and those being considered exists. Goods originating in China are still subject to relevant Section 301 tariffs.  On August 21, 2018, U.S. Customs and Border Protection (CBP) issued a message stating, “Products of China that are covered by the Section 301 remedy and that are eligible for special tariff treatment…or that are eligible for temporary duty exemptions or reductions under subchapter II to chapter 99, shall be subject to the additional 25 percent ad valorem rate of duty imposed by headings 9903.88.01 and 9903.88.02.

 

The recent Sigvaris appeals decision provides guidance to companies seeking to import products for handicapped or disabled persons and obtain duty free treatment under the Nairobi Protocol.

Sigvaris imported a number of different styles of compression hosiery, which is used to increase blood circulation, and claimed that the products should be entered duty free under the Nairobi Protocol, heading 9817 of the Harmonized Tariff Schedule of the United States (HTSUS).  Congress passed the Educational, Scientific, and Cultural Materials Importation Act in 1982, incorporating the Nairobi Protocol into U.S. law and eliminating import duties on items “specifically designed or adapted for the use or benefit of the blind or physically or mentally handicapped persons.”

Customs denied Sigvaris’ duty free claims and the company appealed to the U.S. Court of International Trade (CIT).  The CIT determined that Plaintiff Sigvaris’ “500 Medical Therapy Natural Rubber Series” were entitled to duty free treatment under Nairobi Protocol because these products were specifically designed for people suffering from upper-limb lymphedema, a condition sometimes resulting from a mastectomy that causes chronic swelling of the arm, which can limit the affected arm’s use. These high-compression series 500 sleeves and gauntlets were also specifically designed for and marketed to individuals who suffered from upper-limb lymphedema and that doctors prescribed the sleeves and gauntlets to treat the condition.  However, the CIT rejected the importer’s claim for an exemption on three other models of compression sleeves, saying their use in treating chronic venous disease, a circulatory disorder, did not qualify them as specialty items for individuals with disabilities. In reaching this conclusion, the CIT stated that “A physical handicap is a permanent physical impairment that substantially limits one or more major life activities such as walking or working.” The court went on to explain that the symptoms experienced in the early stages of CVD do not render a person physically handicapped within the meaning of the Harmonized Tariff Schedule of the United States (HTSUS). The CIT further explained that Sigvaris’ own advertising of its lower-compression Series 120, 145 and 185 compression garments touted their use in treating such conditions as fatigued legs from long periods of standing and prophylaxis during pregnancy, indicating any use of the sleeves for treating CVD would not include advanced stages of the disorder that might be accompanied by significantly impaired mobility.

On Appeal of these three models, the U.S. Court of Appeals for the Federal Circuit panel said it needed to take a step further back to see if the circulatory disease was even the main usage of the compression gear. The panel found that the compression garments were instead created for a variety of usages, including helping people who sit for a long time, and weren’t specifically made for a physical disorder.  The court explained that “[a]lthough the Court of International Trade erred in its analysis, we conclude that it reached the correct result,” the Federal Circuit wrote. The Federal Circuit said that since the garments aren’t “specially designed” to treat a physical handicap, the products don’t qualify for an exemption.

For more information regarding your company’s imports and the applicability of the Nairobi protocol please contact us.

 

As a consequence of U.S. and UN sanctions on the Democratic People’s Republic of Korea (DPRK or North Korea), companies increasingly need to coordinate compliance efforts across the typically distinct worlds of economic sanctions and import/customs compliance. This is particularly necessary with respect to identifying, and mitigating the risk of DPRK-related labor in supply chains. Below, we summarize first the expanded scope of UN restrictions on the DPRK, including the prohibition on the use of DPRK labor, and then second, how those rules have been implemented and expanded in the United States in increasingly complex ways.

Part I:    United Nations Restrictions:

The United Nations has maintained limited sanctions on North Korea for years, but in 2017 it expanded those sanctions in a number of material ways.  Of relevance to this analysis, the UN Security Council (UNSC) reached a determination that all DPRK labor outside of North Korea poses a high forced labor-related risk.  As a result, the UNSC first required that all new work visas for DPRK citizens be approved by the UNSC, before expanding that restriction in December 2017 (UNSCR 2397) to require all UN Member States to repatriate all DPRK workers currently employed in their territory “immediately but not later than 24 months” (i.e., December 2019).  Therefore, for example Chinese and Taiwanese companies could currently employ DPRK citizens, but they will be required to reduce that employment and ultimately curtail it, or risk violation of UN resolutions.

Part II:   U.S. Restrictions:

In parallel, the United States has implemented a growing array of restrictions that also target DPRK labor.  Below, we summarize the relevant (a) U.S. sanctions prohibiting transactions with the DPRK and (b) a parallel set of import requirements presumptively prohibiting products manufactured with DPRK nationals in the supply chain:

(1) U.S. Sanctions on the DPRK:

The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has maintained a comprehensive embargo on the DPRK since 2017 and more limited restrictions for decades. Today, OFAC prohibits the export of any goods or services to the DPRK  and any transactions with the Government of North Korea or the Workers Party of North Korea.  OFAC generally considers a transaction with a DPRK national ordinarily resident in the DPRK to be prohibited as an indirect export of a service to the DPRK.

Importantly, for this analysis, OFAC also prohibits the importation of any goods or services from the DPRK, even items with only a de minimis percentage DPRK content (e.g., a $10,000 widget produced in Russia with a $2 North Korean origin part would be considered North Korean origin and prohibited entry into the United States).

Over the last few months, we have seen that OFAC has aggressively expanded its enforcement of these provisions, including designation of persons involved in DPRK trade, and issuing advisories to the shipping community about DPRK risks in the supply chain.  See https://home.treasury.gov/news/press-releases/sm458; https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Documents/dprk_vessel_advisory_02232018.pdf; and https://www.treasury.gov/resource-center/sanctions/Programs/Documents/dprk_supplychain_advisory_07232018.pdf.

(2) DPRK-Related Import Prohibitions:

In parallel, since August 2017, U.S. Customs and Border Protection (“CBP”) has maintained a North Korean related import restriction.  Specifically, pursuant to Section 321(b) of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”), CBP utilizes a presumption that any “significant goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part by the labor of North Korean nationals or citizens” is produced through forced labor and therefore is prohibited for entry into the United States.  The presumption can be rebutted only through “clear and convincing” evidence that the DPRK nationals are not forced labor (e.g., a demonstration that they are asylees or refugees in a third country).  To assist importers in meeting their “reasonable care” obligation to ensure that goods entering the United States meet these new provisions, the Department of Homeland Security has published CAATSA Section 321(b) Guidance on due diligence steps importers can take, while CBP has noted that the seafood industry presents a high risk of DPRK nationals.  See e.g., https://www.cbp.gov/newsroom/spotlights/cbp-leads-delegation-thailand-discusses-forced-labor-concerns-fishing-industry.

Part III: Significant Points for Importers, Exporters and U.S. Companies

The net result of the overlap of the above restrictions is:

  • All U.S. and non-U.S. companies are prohibited to grant new work permits to DPRK nationals, except DPRK nationals seeking an asylum or refugee status.
  • U.S. companies are prohibited under U.S. sanctions law from directly or indirectly exporting goods or services to the DPRK, including transacting with persons ordinarily resident in the DPRK.
  • U.S. companies are prohibited under U.S. sanctions to import any products produced in whole or in part (no matter how small the percentage) with DPRK origin material into the United States.
  • All products manufactured in whole, or in part, with DPRK national labor are presumptively considered to be produced with forced labor and are therefore prohibited to enter the United States, unless the importer can demonstrate through “clear and convincing” evidence that the DPRK nationals were not forced labor (e.g., by demonstrating they are asylum seekers).

 

On September 4, 2018, the House agreed to Senate amendments made to the Miscellaneous Tariff Bill (MTB) Act of 2018 last month, moving the legislation to the president for signature. The White House reportedly indicated President Trump will sign the bill. The last MTB passed by Congress expired on December 31, 2012.

Once signed into law, the bill would cut or eliminate tariffs on articles such as chemicals, footwear, toasters, and roughly 1,660 other items made outside the United States. Roughly half of those items are produced in China and there is an overlap between MTB and the Section 301 tariffs in effect, and those being considered.

Section 1664 states the effective date is on or after the 30th day after the date of the enactment of the Act. It provides for duty suspensions and reductions through December 31, 2020.

The next MTB petition cycle will be in the Fall of 2019.

The purpose of MTB is to reduce or eliminate what many businesses claim are unfair, out-of-date and/or anticompetitive taxes.

 

 

 

New Partner Establishes Trade Group’s California Presence; His Practice Focuses on Global Customs, Trade Compliance

Los Angeles – August 27, 2018: Crowell & Moring LLP is pleased to announce the addition of David R. Stepp as a partner in the firm’s International Trade Group in Los Angeles. With more than 30 years of experience, Stepp provides strategic counsel on global customs and international trade compliance. At Crowell & Moring, he will advise multinational companies and importers as they move goods across borders and establish subsidiaries around the world. He joins the firm from Bryan Cave Leighton Paisner LLP.

Stepp’s arrival expands the presence of the firm’s recognized International Trade Group into California, further broadening the global practice’s reach to serve clients across the Pacific Rim.

“David’s global customs experience represents a wonderful addition to our International Trade Group,” said Philip T. Inglima, chair of Crowell & Moring. “Further building our highly-regarded trade practice is a firm priority, and David’s presence in California presents new opportunities for us. He has a well-earned reputation as a trusted advisor, and his experience will be a tremendous benefit to many of the firm’s clients.”

Stepp’s practice focuses on customs compliance and counseling, including tariff classification, valuation, country of origin marking, free trade agreements, Customs-Trade Partnership Against Terrorism (CTPAT) participation, and other international trade regulatory requirements. He also advises companies on their e-commerce strategies globally, conducts global customs and international trade audits, and counsels clients on improving, benchmarking, and coordinating compliance programs across borders. He also has experience in advising on trade remedies and coordinating government investigations, including FCPA matters. His clients span a range of industries, including retail, e-commerce, aerospace, motor vehicles, steel, food, agriculture, textile/apparel, footwear, electronics, cosmetics, and other consumer goods.

“Given the current trade wars and uncertainties of the global trade environment, clients are hungry for deft guidance to minimize tariffs, resolve supply chain disruptions, and secure market access,” said John Brew, chair of the firm’s International Trade Group. “David has a strong trade practice and skill set that meets all of these client needs, and is focused on the movement of goods and services in Asia. His practice meshes well with our existing trade group and expands our capabilities to provide counsel on emerging trade issues worldwide.”

Stepp has practiced in Los Angeles, Singapore, and Washington. He joined Bryan Cave as a partner in 2005, and he later served as managing partner of Bryan Cave’s Singapore office (2014-2017), coordinating regulatory issues for clients across Asia. While in Singapore, he led initiatives focused on strategic business and professional development in Southeast Asia. His previous experience includes working with a major U.S. customhouse broker where he advised the company’s importing clients on U.S. customs practices and procedures. He is admitted to practice before the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit.

“The firm is strongly committed to strengthening our litigation and regulatory capabilities in California, and David’s arrival provides further momentum in that effort,” said partner Jason C. Murray, the head of Crowell & Moring’s Los Angeles office and co-chair of the firm’s global Antitrust Group.

Stepp is active in the international trade and legal communities in California. He currently serves on the Board of Directors for the Northern California World Trade Center. He also taught the Los Angeles Customs Brokers and Freight Forwarders Association’s semi-annual course for ten years, preparing students to take the customs brokers licensing test. He previously served as chairman of the International Visitors Council of Los Angeles; president of the Global Legal Customs Association; and co-chair of the ABA Customs Law Committee.

“I am excited to join Crowell & Moring,” Stepp said. “The firm’s International Trade Group is well known and regarded, and I am pleased to help establish the group’s West Coast presence and help us open further avenues to support clients in the Asia-Pacific region. The firm’s full range of regulatory and litigation capabilities is a tremendous asset to my clients and my practice.”

Stepp received his J.D. from the University of Georgia and his A.B. from Duke University. He is a frequent author and speaker on global customs and international trade issues. He authored a guidebook on NAFTA procedures for a major U.S. electronics trade association and lectured in Asia, Europe, and the Americas on the scope and effect of many bilateral and multilateral free trade agreements

On August 17, 2018, U.S. Customs and Border Protection (CBP) published a document entitled, “Responsible Business Practices on Forced Labor Risk in the Global Supply Chain“, which provides details regarding the best practices for importers of goods into the U.S. The agency indicated that the guidelines were published in order to further CBP’s strategic goal to stop the importation of goods produced with forced labor. The Office of Trade also recommends the adoption of the Department of Labor (DOL) Comply Chain principles in order to create a social compliance system. To this end, the DOL has made an APP available for download called Sweat & Toil, which identifies problematic countries, commodities, and types of exploitation.

Finally, CBP’s Responsible Business Practices document recommends that a company review the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises because they provide non-binding principles and standards for responsible business conduct in a global context consistent with applicable laws and internationally recognized standards. These guidelines are the only multilateral and comprehensive code of responsible business conduct that governments have agreed to promote.

For further information regarding Forced Labor and your supply chain please does not hesitate to contact us.

 

The USTR announced on August 3rd that it will review Turkey’s eligibility for the Generalized System of Preferences (GSP) program that grants duty-free access to the U.S. market. GSP is a U.S. trade program designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories. Concern over Turkey’s “compliance with the GSP market access criterion,” led the USTR to initiate the review. This also follows Turkey retaliatory tariffs on U.S. goods in response to the Section 232 tariffs imposed by the U.S. in March. Earlier this year, Commerce submitted reports to President Trump stating U.S. importers’ reliance on foreign-made aluminum and steel posed a national security risk.

In 2017, the top categories of goods imported from Turkey under the program were vehicles and vehicle parts, jewelry and precious metals, and stone articles. The final decision on Turkey’s GSP status will be made after a public hearing and comment process.

Steel imports from Turkey have fallen significantly according to data from the U.S. International Trade Commission. Steel imports from Turkey were 1.3% of total U.S. steel imports from January to June of 2018 and dropped over 41% since June 2017. Following on the heels of the USTR’s announcement regarding Turkey’s GSP eligibility review, on August 10, 2018, President Trump threatened to double the Section 232 tariffs on steel and aluminum imports from Turkey, to 50 percent and 20 percent, respectively claiming that the existing tariffs have less of an impact due to Turkey’s currency, the lira, depreciating against the U.S. dollar.

The White House issued the following statement:

“[T]he President has authorized the preparation of documents to raise tariffs on imports of steel and aluminum from Turkey. Section 232 tariffs are imposed on imports from particular countries whose exports threaten to impair national security as defined in Section 232, independent of negotiations on trade or any other matter.”

For further information, please contact us.