On December 13, 2019, the United States Trade Representative (USTR) announced a “Phase One” agreement with China that will cease the imposition of 15% tariffs on $160 billion worth of Chinese imports that were scheduled to be imposed on December 15. According to a statement published by USTR, the U.S. will maintain tariffs on approximately $250 billion of Chinese goods (i.e. Lists 1 through 3), while lowering tariffs to 7.5% on approximately $120 billion of Chinese goods (i.e. List 4a).

In return, China has cancelled its retaliatory tariffs that it had planned for December 15, including a 25% tariff on U.S. autos, and agreed to increase purchases of U.S. agricultural goods, manufactured goods, energy, and services by at least $200 billion over the next two years. For perspective, China bought approximately $186 billion in goods and services from the U.S. in 2017 before the “trade war” with China began. In addition to increasing agricultural purchase targets, China has committed to reducing non-tariff barriers for products such as poultry and seafood.

The official text of the 86 page agreement has not formally been released. However the broad outline of the deal details commitments in areas such as intellectual property, currency manipulation, and enforcement. For intellectual property, China has pledged increasing protection for patents and trademarks, while also following through on previous commitments to curb technology transfers and providing financial assistance to outward investment purposed to acquire U.S. technology in certain key sectors outlined in the “China 2025” industrial plan. The currency manipulation language in the deal protects the U.S. against what it calls “competitive currency devaluations” and promotes transparency. As for enforcement, the U.S. and China came to agreement on a regular bilateral consultation process before enacting new tariffs or other penalties.

United States Trade Representative Robert Lighthizer touted the agreement in his official press statement: “President Trump has focused on concluding a Phase One agreement that achieves meaningful, fully-enforceable structural changes and begins rebalancing the U.S.-China trade relationship.”

Last week, the U.S. Court of International Trade(CIT) granted a preliminary injunction prohibiting the federal government, including U.S. Trade Representative Robert Lighthizer and Acting Commissioner of U.S. Customs and Border Protection Mark Morgan, from implementing the withdrawal of a tariff exclusion for bifacial solar panels without due process. The government’s withdrawal comes only months after the tariff exclusion had been put in place following an extensive notice-and-comment process.

Judge Gary S. Katzmann wrote in his December 5th decision that “the government must follow its own laws and procedures when it acts, and the court finds it likely that it did not do so in withdrawing the exclusion without adequate process.”

Crowell & Moring represented multiple clients in the case, including Invenergy Renewables LLC, Clearway Energy Group LLC, and AES Distributed Energy, Inc. in their fight against what they perceive is regulatory overreach and disregard for the Administrative Procedure Act, the Trade Act of 1974, and constitutional due process.

The court rejected all of the government’s arguments and adopted almost all of the arguments that the firm’s team put forth in briefs and at the hearing on both the jurisdictional and merits issues, providing multiple bases for its conclusions and thus making the injunction difficult to overturn on appeal. Previously, the firm’s team had secured a temporary restraining order that precluded the government from acting on the withdrawal, a rare outcome from the Court of International Trade. The court’s decision on December 5th came just before the TRO was set to expire on December 6th at 12:01 a.m.

The court found that our clients had suffered economic, business, and reputational injuries sufficient to establish both standing and irreparable harm. The decision is important because it will relieve clients from having to pay tens of millions of dollars to complete existing solar projects; it will allow them to qualify for the 30% “Safe Harbor” tax credit for solar projects by purchasing bifacial panels before the end of the year, when the 30% tax credit expires; and it will significantly increase the likelihood of their being able to secure favorable deals to import panels and complete new projects.

The Crowell & Moring team that secured this major victory was led by partners John Brew, Kathryn Clune, and Larry Eisenstat and included lawyers from across multiple practices and offices; Robert LaFrankie (senior counsel, DC), Frances Hadfield (counsel, NY), Amanda Shafer Berman (counsel, DC), Jacob Zambrzycki (counsel, NY), Leland Frost (associate, DC), Alexander Rosen (associate, NY), and Brian McGrath (associate, NY).

 

In ruling NY N307209, Customs and Border Protection (CBP) determined the classification of the Yamaha Soundbar with Built-in Subwoofers and USB Playback from China. The device incorporates the following: two speakers, two built-in subwoofers, an amplifier, input jacks, and output jacks. It also includes a USB port that contains the internal circuitry to read and reproduce audio music files stored on a USB memory device. The soundbar is packaged together for retail sale with the following: a remote control, a power cord, an optical digital audio cable, a mounting template, an analog audio cable, two spacers, and an owner’s manual. CBP believes this combination is considered a set for tariff classification purposes, with the soundbar imparting the essential character.

 

CBP determined that the applicable subheading for the Soundbar with Built-in Subwoofers and USB Playback is 8519.81.4050, HTSUS, which provides for “Sound recording or reproducing apparatus: Other apparatus: Using magnetic, optical or semiconductor media: Other: Other. The rate of duty will be Free.

On December 2, 2019, the United States Trade Representative (USTR) announced the timeline for a proposal to impose up to 100% tariffs on up to $2.4 billion in French goods. The details for this proposal were published in a Federal Register notice. According to the notice, USTR determined that “France’s Digital Services Tax [DST] is unreasonable or discriminatory and burdens or restricts U.S. commerce.” The French measure, approved this past summer, charges a 3% tax on companies earning more than 25 million euros in France and would affect prominent U.S. tech companies such as Facebook, Apple, and Amazon.

In the wake of the French Government’s first proposal for the DST in March 2019, USTR initiated an investigation this July pursuant to section 302(b)(1)(A) of the Trade Act of 1974, which grants the President authorization to take retaliatory measures to remove unfair foreign trade practices. The proposed retaliatory tariffs cover 63 unique products and include popular consumer items such as French champagne, cheese, and handbags. The French Finance Minister Bruno Le Maire has called the U.S. tariffs “unacceptable” and assured that “the European Union would be ready to retaliate.”

The USTR will hold public hearings and accept written comments from interested parties. To be assured of consideration, USTR requests that parties adhere to the following schedule:

  • December 30, 2019: Due date for submission of a request to appear at the public hearing and a summary of testimony.
  • January 6, 2020: Due date for written comments.
  • January 7, 2020: The Section 301 Committee will convene a public hearing in the main hearing room of the U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436 beginning at 9:30 am.
  • January 14, 2020: Due date for submission of post-hearing rebuttal comments.

In ruling NY N306613, Customs and Border Protection (CBP) determined the classification of the Feel Emotion Sensor, which is an electronic wearable device used to track heart rate, skin temperature and skin conductance. Via this wristband, five embedded sensors collect certain biometric indicators. The wristband contains a three-axis accelerometer used by the connected smart device to detect wrist motion and remove noise from the measured bio signals. There is also an ambient temperature and humidity sensor, which is used to determine the environmental temperature and humidity conditions. The sensors provide raw data, which it then converts to an appropriate machine format where the smart device performs certain calculations. A vibration motor is used to notify the user about a detected measurement (which the company calls an emotion) as well as for alerting the user that the wristband position requires realignment.

The Feel Emotion Sensor is considered to be a composite good by CBP, and no one component imparts the essential character to the item. CBP believes that the tracking of the heart rate in heading 9029, HTSUS, merits equal consideration to the accelerometer in heading 9031, HTSUS. Therefore, classification will be determined based on the competing heading that occurs last in numerical order. GRI 3(c) noted.

CBP determined that the applicable subheading for the Feel Emotion Sensor will be 9031.80.8085, HTSUS, which provides for “Measuring and checking instruments, appliances and machines, not specified or included elsewhere in this chapter, profile projectors; parts and accessories thereof: Other instruments, appliances and machines: Other: Other.” The rate of duty will be free.

Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 9031.80.8085, HTSUS, unless specifically excluded, are subject to the List 1 25% ad valorem rate of duty. At the time of importation, 9903.88.01, in addition to subheading 9031.80.8085, HTSUS, must be reported.

 

 

The Trump Administration’s trade policy took another unexpected turn following the President’s Monday morning tweets on December 2, 2019. President Trump announced his intention to re-impose steel and aluminum tariffs on Argentina and Brazil due to “massive devaluation of their currencies.” In March 2018, President Trump imposed 25% duties on all foreign steel imports and 10% duties on all aluminum imports, but spared key U.S. allies such as Brazil and Argentina by implementing an absolute quota on imports of steel and aluminum products from these two countries. Trump explained in his tweets “the Federal Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our manufacture[r]s & farmers to fairly export their goods.”

The move to restore steel and aluminum tariffs is likely to cause major tension between the trading partners. Census Bureau data indicates that Brazil accounts for nearly 11% of all steel imports to the U.S., which is the second most behind Canada. After hearing news of the tariffs, Brazilian President Bolsonaro stated in an interview that Trump will listen to his concerns because “our economy basically comes from commodities.”

 

The Commerce Department will publish, in proposed form, long-awaited regulations to implement the sweeping language of the May 2019 Executive Order entitled “Securing the Information and Communications Technology and Services Supply Chain.”

The proposed regulations, to be promulgated under the authority of the International Emergency Economic Powers Act (IEEPA) and the EO, would establish a case-by-case process, by which the Secretary of Commerce could initiate (at its discretion, or at the request of another agency, or even a private party, via a dedicated web portal for “credible” tips) a review of any specific transaction (meaning “any acquisition, importation, transfer, installation, dealing in, or use of any information and communications technology or service”) that is: (1) initiated, pending, or to be completed after May 15, 2019; (2) involves persons or property subject to US jurisdiction; (3) involves any property in which a foreign country or national has an interest; (4) “involves information and communications technology or services designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary” (with the definition of “foreign adversary” adopted from the EO, not narrowed to identify any specific foreign governments or persons); and (5) that poses either:

  1. Undue risk of sabotage to or subversion of the design, integrity, manufacturing, production, distribution, installation, operation, or maintenance of information and communications technology or services in the United States;
  2. Undue risk of catastrophic effects on the security or resiliency of United States critical infrastructure or the digital economy of the United States; or
  3. Otherwise poses an unacceptable risk to the national security of the United States or the security and safety of United States persons.

The parties to a transaction under review would receive a preliminary determination of the Secretary’s findings and would then have 30 days to present “an opposition,” or proposed measures for mitigation in lieu of an outright prohibition of the transaction. Commerce will accept public comments on all aspects of the proposed regulations for 30 days (until December 27, 2019).

In ruling NY N307027, Customs and Border Protection (CBP) discussed the classification of the following products, and their ingredients are listed below:

  • Biscoff Ice Chocolate Chips Bars: skim milk, cream, sugar, Biscoff cookies, canola oil, glucose syrup, unsweetened chocolate processed by alkali, dried skim milk, cocoa powder processed by alkali, whey protein concentrate, mono and diglycerides, soy lecithin, milkfat, locust bean gum, guar gum, citric acid and natural flavor.
  • Biscoff Ice Salted Caramel Bars: skim milk, cream, glucose syrup, sugar, Biscoff cookies, condensed milk, dried skim milk, cocoa butter, water, butter (cream), coconut oil, whey protein concentrate, mono and diglycerides, sea salt, locust bean gum, guar gum, salt and carrageenan.
  • Biscoff Ice Cheesecake Blueberry Bars: skim milk, cream, Belgium style fresh cheese, sugar, wheat syrup, Biscoff cookies, glucose syrup, blueberry puree, dried skim milk, water, cocoa butter, whey protein concentrate, mono and diglycerides, cornstarch, citric acid, locust bean gum, guar gum, lemon juice concentrate, natural flavor and salt.
  • Biscoff Ice Cream Bars: skim milk, cream, Biscoff cookies, sugar, canola oil, glucose syrup, dried skim milk, cocoa butter, whey protein concentrate, mono and diglycerides, soy lecithin, locust bean gum, guar gum, citric acid and salt.
  • Biscoff Ice Choco Brownie Bars: skim milk, cream, sugar, Biscoff cookies, canola oil, glucose syrup, dried skim milk, cocoa powder processed with alkali, wheat flour, whey protein concentrate, mono and diglycerides, soy lecithin, unsweetened chocolate processed with alkali, water, egg powder, locust bean gum, guar gum, citric acid and salt.

Each product will be imported in containers with a net weight of 460 milliliters.

CBP determined that the applicable subheading for the above-described Biscoff Ice Cream Bars, if entering the United States during the tariff-rate quota open period (before 154,221 kilograms have entered the country within the calendar year) is 2105.00.3000, HTSUS, which provides for ice cream and other edible ice, whether or not containing cocoa: other: dairy products described in additional U.S. Note 1 to chapter 4: described in additional U.S. Note 10 to chapter 4 and entered pursuant to its provisions.  The rate of duty will be 20% ad valorem. However, if entered after the tariff-rate quota period is closed, the applicable subheading is 2105.00.4000, HTSUS, which provides for ice cream and other edible ice, whether or not containing cocoa: other: dairy products described in additional U.S. Note 1 to chapter 4: other.  The rate of duty will be 50.2 cents per kilogram plus 17% ad valorem.

Products classified in subheading 2105.00.4000, HTSUS, are also subject to additional safeguard duties based on their value, as described in subheadings 9904.04.50—9904.05.01.

In ruling NY N306903, Customs and Border Protection (CBP) discussed the country of origin of a programmable robot, the Misty II. The item is a fully customizable robot that is fitted with electric motors for movement. The Misty II features an LCD display, camera, speakers, microphone, internal memory, and a rechargeable battery. The Misty II also incorporates a variety of sensors that allow it to move freely and autonomously throughout its environment by providing obstacle avoidance, bump sensors, and capacitive touch. The robot is powered by multiple system on memory (SOM) processors running a specially designed Android operating system.

The manufacturing process begins in Taiwan where Taiwanese origin bare printed circuit boards are populated with the necessary electrical components to create the three logic printed circuit board assemblies (PCBAs) that will be incorporated into the robot. All components are placed on the board except for the specially designed SOM chip, which will act as the functional brain of the system. The PCBAs are then shipped to Hong Kong where the SOM is added and programmed with the Android operating system.

Chinese origin plastic molded parts are then imported into Hong Kong along with low level subassemblies, mechanical parts, and electrical components reflecting a variety of origins. The electric motors are of Malaysian origin, and the LCD display, speakers, camera and sensors from China. Then the complex assembly process of the finished robot begins in Hong Kong. The electronic components, including multiple sensors, speakers, a camera, USB connectors, a battery, the charging system, and the above mentioned logic boards are built together with the mechanical parts including the electric motors, heat sinks, and machined fasteners. This electronic and mechanical system is then encased within the body of the robot by assembling the plastic molded parts. The robot is then tested, packaged and shipped to destination.

Based on the information provided, CBP determined that the assembly process in Hong Kong is substantial and complex so as to transform the assembled components into a new and different article with a name, character, and use that is distinct from the exported articles. Though the mechanical, electronic, and plastic molded components are important to the function of the robot, they lose their separate identities and become an integral part of a new article as a result of the assembly process. Therefore, the country of origin of the Misty II programmable robot is Hong Kong.

In ruling NY N306782, Customs and Border Protection (CBP) discussed the classification of charging mousepads from China. The items are the PowerTrack Wireless Charging Mousepad and the PowerTrack Plush Wireless Charging Mousepad. Both are constructed of cellular plastic with a covering of polyester microfiber, has an embedded 10 W wireless inductive charging coil, LED status indicators, and a USB port for connecting to a power source. In use, both items are placed on a desk surface for the purpose of interacting with the user’s mouse, or other input unit, while also charging their personal electronic devices.

CBP determined that the applicable subheading for the PowerTrack Wireless Charging Mousepad and the PowerTrack Plush Wireless Charging Mousepad is 8473.30.5100, HTSUS, which provides for “Parts and accessories (other than covers, carrying cases and the like) suitable for use solely or principally with machines of headings 8469 to 8472: Parts and accessories of the machines of heading 8471: Not incorporating a cathode ray tube: Other.” The general rate of duty will be Free.

Products of China classified under subheading 8473.30.5100, HTSUS, unless specifically excluded, are subject to List 3 25% ad valorem rate of duty.  At the time of importation, 9903.88.03, in addition to subheading 8473.30.5100, HTSUS, must be reported.