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.

 

On August 8, China released its list of retaliatory tariffs on $16 billion in U.S. goods. This was in direct response to the USTR’s announcement on August 7 of the final List 2 of Section 301 tariffs on $16 billion in Chinese imports. The Chinese Ministry of Finance’s list released today includes an additional 219 tariff items that were added to the list China originally released back in June. Both the U.S. and China are setting tariff rates at 25% for this second tranche of goods and plan to implement the duties on August 23.

Please click here for an unofficial English version of the HTS Subheadings on the Chinese list.

For an overview of the current U.S. Section 301 tariff status, please click here.

 

 

 

 

 

On August 7, 2018, the United States Trade Representative (USTR) released a final list of approximately $16 billion worth of imports from China that will be subject to a 25 percent additional tariff. The list contains 279 of the original 284 tariff lines that were on a proposed list announced on June 15.

Update: the five tariff items that were excluded from the final List 2 are:

3913.10.00 Alginic acid, and its salts and esters, in primary forms
8465.96.00 Splitting, slicing or paring machines for working wood, cork, bone, hard rubber, hard
plastics or similar hard materials
8609.00.00 Containers (including containers for transport of fluids) specially designed and
equipped for carriage by one or more modes of transport
8905.90.10 Floating docks
9027.90.20 Microtomes

Changes to the proposed list were made after USTR and the interagency Section 301 Committee sought and received written comments and testimony during a two-day public hearing last month. Customs and Border Protection will begin to collect the additional duties on the Chinese imports on August 23.

A formal notice of the $16 billion tariff action will be published in the Federal Register. Please contact us if you have any questions or need assistance.

 

On July 26, 2018, the Senate unanimously passed the Miscellaneous Tariff Bill Act of 2018 (MTB), a bill that 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. The bill was passed without debate. The last MTB passed by Congress expired on December 31, 2012.

President Trump had announced a series of punitive tariffs on Chinese imports and China has retaliated with its own duties on imports from the United States. The White House has not yet announced a position on the MTB bill, which has now passed both the Senate and the House of Representatives unanimously. There are minor differences that need to be resolved before the legislation can be sent to the President to sign into law.

Associations have been urging Congress to pass MTB in order to eliminate what they claim are unfair, out-of-date and/or anticompetitive taxes. It is estimated that the 2018 MTB Act would eliminate import tariffs of more than $1.1 billion over the next three years and boost U.S. manufacturing output by more than $3.1 billion. Supporters of the bill have stated that it would boost the economy by getting rid of tariffs set up to protect industries that no longer exist in the United States.

 

 

 

On July 16, 2018, the Court of Federal Claims released a far-reaching decision in Acetris Health, LLC v. United States, concluding that a drug could qualify as a “U.S.-made end product” under the Trade Agreements clause, FAR 52.225-5, despite a Customs and Border Protection (CBP) ruling under the Trade Agreements Act (TAA), that the drug had not been “substantially transformed” in the United States, the usual test for whether a product from a designated country is eligible for sale to the United States under the TAA. The court concluded that a drug which met the definition of a “domestic end product” would also qualify as a “U.S.-made end product” and enjoined the Department of Veterans Affairs from relying on the CPB ruling in declaring the product ineligible. In doing so, the court has given effect to often overlooked language in the FAR 25.003 definition of “U.S.-made end product” that allows either an item manufactured in the United States or an item substantially transformed in the United States to be eligible for sale to the federal government. The decision opens the door for manufactured COTS items to be eligible under the TAA as long as final assembly occurs in the United States, without regard to the source of a COTS product’s components. It might even have broader implications because the FAR has never included an express definition of “manufacture,” and the definition of “U.S. made end product” does not expressly reference the definition of “domestic end product,” under which, in the Buy American context, “manufacture” is just one of two elements for determining eligibility.