In ruling NY N305266, Customs and Border Protection (CBP) determined the classification of Ridge® wallet credit card/money holders. The holders are imported and sold in five styles. Each wallet features two anodized aluminum inner plates, an aluminum screwdriver with a base metal working edge, and four extra steel screws. The holders will have two outer plates comprised of aluminum, titanium or graphite, and a steel money clip or an elastic and plastic cash strap. The wallets are fully assembled upon importation and are packaged in a cardboard box. Each of the holders measures approximately 3 5/16 inches long by 2 1/8 inches wide by 1/4 inch thick.

Each wallet under consideration is a composite article that consists of components that are classified in different headings: aluminum, titanium, graphite, steel, elastic and plastic components. Since no one heading in the tariff schedules covers the aluminum, titanium, graphite, steel, elastic and plastic components in combination, GRI 1 cannot be used as a basis for classification.

As the Ridge® wallets are composite goods, and therefore rule GRI 3(b) is applied, which provides that composite goods are to be classified according to the component that gives the goods their essential character. EN VIII to GRI 3(b) explains that “the factor which determines essential character will vary as between different kinds of goods.” CBP believes that the metal components impart the essential character to the wallets. In accordance with GRI 3(b), each of the five styles of Ridge® wallets will be classified as an other article of its constituent metal.

Section XV Note 7 of the HTSUS, states that the classification of composite articles of base metal containing two or more base metals are to be treated as articles of the base metal that predominates by weight over each of the other metals.

The applicable subheading for Ridge® wallets, in which aluminum predominates by weight, with extra screws is 7616.99.5190, HTSUS, which provides for Other articles of aluminum: Other: Other: Other: Other: Other: Other. The rate of duty will be 2.5 percent ad valorem.

The applicable subheading for Ridge® wallet, in which titanium predominates by weight, with extra screws is 8108.90.3060, HTSUS, which provides for Titanium and articles thereof, including waste and scrap: Other: Articles of titanium, Other. The rate of duty will be 5.5 percent ad valorem.

The applicable subheading for the screwdrivers will be 8205.40.0000, HTSUS, which provides for Handtools (including glass cutters) not elsewhere specified or included; blow torches and similar self-contained torches; vises, clamps and the like, other than accessories for and parts of machine tools or water-jet cutting machines; anvils; portable forges; hand- or pedal-operated grinding wheels with frameworks; base metal parts thereof: Screwdrivers, and parts thereof. The rate of duty will be 6.2 percent ad valorem.

Products of China classified under subheadings 7616.99.5190, 8108.90.3060 and 8205.40.0000, HTSUS, unless specifically excluded, are subject to the Section 301 List 3 25% duty. At the time of importation, 9903.88.03, in addition to subheadings 7616.99.5190, 8108.90.3060 and 8205.40.0000, HTSUS, listed above, must be reported.

 

The Office of the United States Trade Representative (USTR) released three distinct batches of product exclusion requests from its Section 301 tariffs during July and early-August.

 

 

Nicole Succar is a Counsel in Crowell & Moring’s International Trade Group and a resident in the firm’s New York office. She joins Crowell after serving as a senior vice president and head of U.S. economic sanctions advisory, and previously a vice president in the financial crimes division for HSBC, one of the world’s largest international financial institutions. At Crowell, Nicole’s practice will focus on economic sanctions, anti-money laundering, and other financial crimes issues.

Nimrah Najeeb is an Associate in Crowell & Moring’s International Trade Group and a resident in the firm’s Washington, D.C. office. She joins Crowell after spending three years at another Washington law firm, where she advised U.S. and foreign-based multinational companies on public international law issues, mergers and acquisitions, government and internal investigations, and third-party due diligence. At Crowell, Nimrah’s practice will focus on economic sanctions, export controls, anti-money laundering, and other cross-border international regulatory regimes.

Walter “Sam” Boone is an International Trade Analyst in Crowell & Moring’s International Trade Group and a resident in the firm’s Washington, D.C. office. He joins Crowell after serving as a trade policy intern at the Corn Refiners Association. Sam also completed an internship at the U.S. Department of Commerce, working in the International Trade Administration’s Latin America and Caribbean office. At Crowell, he will provide practice support on import regulatory matters pending before the Office of the U.S. Trade Representative (USTR) and U.S. Customs and Border Protection.

 

Following the passage of the Taxpayer First Act, the IRS updated its guidance on how and when an auditor may contact third parties in an audit. Under the new law, the IRS must meet stricter procedural requirements before contacting third parties during an audit. Congress made this change due to concern that contacting third parties may harm a taxpayer’s business or reputation. Taxpayers should be aware of the new procedures to ensure the IRS is following them and to take advantage of the advance notice to voluntarily supply information to the IRS.

Notification Requirement

Historically, the Internal Revenue Code required the IRS to notify the taxpayer under audit when the IRS would contact third parties, such as customers, banks, and former employees. To meet this obligation, the IRS would send taxpayers “Publication 1, Your Rights as a Taxpayer,” which stated that, in the course of an examination, the IRS may need to obtain information from third parties that the taxpayer has not provided or to verify information the IRS has received. The IRS asserted that Publication 1 provided sufficient notice. District courts were split on whether Publication 1 was sufficient or if specific notice was required. In March 2019, the Ninth Circuit held that specific notice was required (see prior client alert). The Taxpayer First Act nullified the issue—specific notice is now required.

Taxpayer First Act

The Taxpayer First Act, signed on July 1, 2019, imposes additional procedure requirements on IRS auditors before they can contact third parties. The Act amended IRC section 7602(c) to provide that:

  • The auditor must notify the taxpayer that he or she intends to contact third parties.
  • When the auditor notifies the taxpayer, he or she must actually intend to contact the third parties.
  • The auditor must notify the taxpayer at least 45 days before he or she contacts the third party.
  • The auditor must tell the taxpayer the time period in which he or she intends to make the contact and the period must not be more than a year.

These requirements make clear that the auditor cannot simply issue a generic notice at the beginning of the audit that he or she may contact third parties at some point during the audit.

IRS Interim Guidance

The IRS recently provided interim guidance to its examining divisions (Large Business & International, Small Business & Self-Employed, Tax-Exempt & Government Entities, and Wage and Investment) on the new advance notice requirements. The memorandum states that Publication 1 no longer satisfies the advance notice requirements. The memorandum specifically states that auditors “may not contact a third party until the 46th day following the date of the notice.” The memorandum states that the advance notice requirements apply to all notices and third party contacts after August 15, 2019.

Record of Contacts

Amended IRC section 7602(c) maintains the requirement that the IRS keep a record of persons contacted. Upon request of the taxpayer, the IRS must provide the taxpayer with a list of those persons contacted.

Bottom Line for Taxpayers

The new rules are good news for taxpayers. Taxpayers will receive advance notice that the IRS is contacting third parties and will be able to obtain a list of who the IRS has contacted. In certain circumstances, taxpayers may be able to reduce the IRS’s contacts with third parties by voluntarily providing the information sought by the IRS.

On August 5th, the U.S. Treasury labeled China a currency manipulator, a move not taken by the United States since the early 1990s, as China allowed its currency to fall to an 11-year low against the dollar. Although the People’s Bank of China played down the drop, it did link it to the trade tensions with the United States.

Although the Omnibus Trade and Competitiveness Act of 1988 requires the U.S. to engage in negotiations with the International Monetary Fund (IMF) to adjust the rate of exchange, on May 28, 2019, the U.S. Department of Commerce (DOC or Commerce) introduced a draft rule and invited comments for new rules that would considerably change how it addresses countervailing duty (“CVD”) proceedings involving claims that countries have undervalued its currency.

Countervailing duties are anti-subsidy duties. They are imposed after an investigation finds that a foreign country subsidizes its exports, injuring domestic producers in the importing country. Because countries can determine whether domestic industries are in danger and whether foreign countries subsidize the products, the institutional process surrounding the investigation and determinations has significant impact. Countervailing duties in the U.S. are assessed by the International Trade Administration of the DOC which determines whether imports in question are being subsidized and, if so, by how much. If there is a determination that there is material injury to the competing domestic industry, the DOC will instruct U.S. Customs and Border Protection (CBP) to levy duties in the amount equivalent to subsidy margins.

Petitions for remedies may be filed by domestic manufacturers or unions within the domestic industry, but the law requires that the petitioners represent at least 25% of the domestic production of the goods for which competition is causing material injury.

The proposed new rule could put goods from many countries (now China) at risk of higher tariffs. These countries could include Japan, South Korea, India, Germany and Switzerland. All are listed on the Treasury Department’s semi-annual currency report’s monitoring list.

Commerce stated that that these “modifications, if adopted, would clarify how the DOC determines the existence of a benefit resulting from a subsidy in the form of currency undervaluation, and clarify that companies in the traded goods sector of an economy can constitute a group of enterprises for purposes of determining whether a subsidy is specific.”

The proposed rule, if passed, could open the door for a myriad of new Countervailing Duty Investigations and provide a source for enacting addition new duties in Administrative Reviews for existing CVD orders products from China, now that President Trump has followed through with his promise to name China as a currency manipulator.

Crowell & Moring, LLP will be monitoring the rule-making process for these proposed rules and the potential impact to businesses and consumers.

In ruling NY N304774, Customs and Border Protection (CBP) determined the classification of “avocadomilk.” The subject merchandise, is described as a plant-based dairy-free milk sold under the brand name “avacadomilk”. It contains Water, Oat Milk Powder, Honeydew Honey, Freeze-Dried Avocado, Cocoa Powder, Salt, Gellan Gum (Stabil 101) and Natural Sweet Spot Flavour #1413124. “avacadomilk” is made in New Zealand and will be packaged for retail sale in 380 ml and 800 ml aseptic PET bottles.

CBP determined that the applicable subheading for “avacadomilk” is 2202.99.9000 HTSUS, which provides for Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavored, and other nonalcoholic beverages, not including fruit or vegetable juices of heading 2009: Other: Other: Other. The general rate of duty will be .02 cents per liter.

It is noted that this merchandise is subject to The Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (The Bioterrorism Act) which is regulated by the Food and Drug Administration (FDA).

In ruling NY N305076, Customs and Border Protection (CBP) determined the classification of the Four Layer Vertical Aeroponic Plant Growth System, the Single Layer Aeroponic Plant Growth System and the Two Layer Aeroponic Plant Growth System. All three systems operate in the same manner with the main differences being the number of layers and the size.

The Four Layer Vertical Aeroponic Plant Growth System is for indoor use and is comprised of a 65” x 32” x 83” irrigation and dosing unit connected via both irrigation piping and drainage piping to one or more twelve tub plant growth sections (three tubs per layer).

A PVC spray manifold with nozzles fit inside each tub, which sprays nutrient rich fluid to the roots of the plants, which grow through the sixty-three circular cutouts of the tray that sit on top of each tub. The plant stems are suspended in each cutout by neoprene collars inserted in cup holders that sit in the cutouts. The irrigation and dosing unit is comprised of a 50 gallon PVC reservoir with an aluminum cover and seven one-gallon bottles, each with a pump, which are mounted into an aluminum T-slot frame structure with four legs and caster wheels. Integrated above each tub is an LED flat panel light. PH, EC, and temperature sensors sit in the reservoir, which provide measurements used by the operating software to determine the dosage of the nutrients that need to be added.

The Single Layer Aeroponic Plant Growth System is for indoor use and is comprised of up to ten ABS tubs. Each tub has an external dimension of 57” x 43.5” x 12” mounted on its corresponding aluminum T-slot framing structure. The system contains many of the same features as the four-layer system described above.

The Two Layer Aeroponic Plant Growth System is for indoor use and is comprised of similar elements of both the four layer and single layer systems. The units external dimensions are 65” x 32” x 83”. The main difference to the other two systems is the size and number of layers.

CBP determined that the applicable subheading for the items in question is 8424.82.0090 HTSUS, which provides for Mechanical appliances (whether or not hand operated) for projecting, dispersing or spraying liquids or powders; fire extinguishers, whether or not charged; spray guns and similar appliances; steam or sand blasting machines and similar jet projecting machines; parts thereof: Other appliances: Agricultural or horticultural: Other. The rate of duty will be 2.4% ad valorem.

Products of China classified under subheading 8424.82.0090, HTSUS, unless specifically excluded, are subject to the List 2 additional 25% ad valorem rate of duty. At the time of importation, 9903.88.02 must be reported in addition to subheading 8424.82.0090.

Additionally, CBP determined that the items could be subject to duty free treatment as agricultural or horticultural machinery under subheading 9817.00.50. This was determined through a three-part test. Firstly, subheading 8424 is not excluded from classification in 9817 by operation of Section XXII, chapter 98, Subchapter XVII, U.S. Note 2, HTSUS. The second part of the test calls for the unit to be included within the terms of the subheadings. Subheading 9817.00.50, as required by GRI 1, states the unit must be “machinery”, “equipment” or “implements” used for “agricultural or horticultural purposes”. CBP determined that the subject merchandise falls within “equipment” which fulfills the requirement of a horticultural pursuit. Lastly, based on the information provided, the items are classifiable in subheading 9817.00.50, HTSUS, if the actual use conditions and requirements of Sections 10.131 through and including 10.139, Customs Regulations, are met.

Additional duties imposed through Section 301, do not apply to goods for which entry is properly claimed under a provision of chapter 98 of the HTSUS, except for goods entered under headings 9802.00.40, 9802.00.50, 9802.00.60, and 9802.00.80.

A recent International Trade Commission (ITC) case shows that, although rarely used, the ITC remains a viable option for parties pursuing trade secret misappropriation claims. Trade secret claims can be brought under Section 337(a)(1)(A)’s catch-all for other “unfair methods of competition and unfair acts in the importation of articles”—often called “non-statutory” claims—and can result in remedies that effectively bar the entry of the offending products into the U.S., or prevent their commercialization to the extent already imported.

On June 27th, 2019, about a month after a Complaint was filed by Illinois Tool Works Inc., the ITC instituted an investigation into a possible Section 337 violation based on trade secret misappropriation. Illinois Tool Works and its Guangzhou-based subsidiary, Vesta, alleged that Vesta employees left to form a new company called Rebenet, taking Vesta’s trade secrets with them. Vesta’s asserted trade secrets fall into two categories: (1) technical—relating to the materials, components, schematics, and tooling used to create Vesta’s foodservice equipment products; and (2) commercial—including Vesta’s customer list, supplier list, and commercial agreement terms. Vesta claims that its more than 20,000 products are “highly customized,” and that competitors could only achieve a similar level of customizability by relying on Vesta’s proprietary and long-developed methods of coding and tracking the various materials and parts. Under the ITC’s statutory charge to conduct investigations expeditiously, the evidentiary hearing will likely take place within about 9 months.

This new case demonstrates the ITC’s continuing broad jurisdiction. It appears from the Complaint that most, if not all, of the acts constituting the alleged trade secret misappropriation took place entirely overseas. Even so, the ITC may still find a Section 337 violation and issue the appropriate exclusionary remedies, as the Federal Circuit held in the landmark decision TianRui Grp. Co. v. Int’l Trade Comm’n, 661 F.3d 1322, 1332 (Fed. Cir. 2011).

Companies that conduct business internationally may become entangled in cross-border employment issues that often seem complicated because of the interaction between U.S. laws and potentially unfamiliar laws in the foreign country. In some cases, obligations may arise even when the company does not have “employees” on the ground. During this webinar, our attorneys discuss circumstances in which companies may incur legal obligations abroad and common compliance issues for employers with workers in foreign countries. These topics will include the overlap of employment laws with issues such as anti-bribery laws, tax concerns, data privacy, and export controls. They also summarize the basic options for engaging workers and some pitfalls to avoid when sending employees across borders. 

This webinar will provide you with the basic tools to address any global workforce issues that may arise, whether your company is a newcomer to international business or an experienced multinational.

To access On Demand Webinar –https://event.on24.com/wcc/r/2048631/CDEFF03176E25F099C7F4BDE32C0EEE5

Effective August 3, 2019, the U.S. Patent and Trademark Office (USPTO) will require all foreign-domiciled trademark applicants, registrants, and parties to a trademark proceeding to be represented by an attorney who is licensed to practice law in the United States. This requirement will apply to any entity with a principal place of business outside of the United States and its territories and any individual with a permanent legal residence outside of the United States and its territories.

This new rule is one of the USPTO’s responses to an increasing number of inaccurate, overbroad, and in some instances, possibly fraudulent trademark submissions, some of which originate abroad.  The goal of this rule (and other USPTO efforts not focused solely on foreign trademark owners) is to help improve the accuracy of the U.S. trademark register and increase compliance with U.S. trademark law.

According to the USPTO, “increasing numbers of foreign applicants are likely receiving inaccurate or no information about the legal requirements for trademark registration in the U.S., such as the standards for use of a mark in commerce, who can properly aver to matters and sign for the mark owner, or even who the true owner of the mark is under U.S. law.” As further explained by Andrei Iancu, Under Secretary of Commerce for Intellectual Property and Director of the USPTO, “Businesses rely on the U.S. trademark register to make important legal decisions about their brands. In order to maintain the accuracy and integrity of the register, for the benefit of all its users, the USPTO must have the appropriate tools to enforce compliance by all applicants and registrants. This rule is a significant step in combatting fraudulent submissions.”

Currently pending applications and submissions filed by someone other than a U.S.- licensed attorney will be considered by the USPTO as-is. However, applicants and registrants may not respond after August 3, 2019 to USPTO office actions without first appointing U.S. counsel. Further, for ongoing TTAB proceedings where a foreign-domiciled party is not currently represented by a U.S.-licensed attorney, the TTAB will suspend the proceeding and require appointment of a U.S. -licensed attorney.

Further guidance can be found here.