On March 28th, BIS issued a final rule amending the Export Administration Regulations (EAR) to confirm that protecting human rights worldwide is a basis for adding entities to the Entity List. Additionally, BIS added 11 entities from Burma, China, Nicaragua, and Russia to the Entity List.

As reflected in the decision by the DC Circuit in Changji Esqual Textile Co. Ltd v. Raimondo, 40 F.4th 716 (2022), BIS has the authority to add parties to the Entity List for purposes of protecting human rights. This authority stems from the foreign policy objectives set forth in the Export Control Reform Act, which includes the “protection of human rights and the promotion of democracy” as a purpose for controlling exports.

All 11 entities added to the Entity List under this final rule were added due, in part, to being implicated in various human rights violations including: providing Burma’s military regime with military equipment, allowing it to conduct aerial attacks against Burmese civilians; being complicit in arbitrary or unlawful killings of civilians in Nicaragua; and aiding the implementation of mass arbitrary detention and high-tech surveillance against the Uyghur people and members of other Muslim minority groups in China.

On March 24, 2023, the Financial Crimes Enforcement Network (“FinCEN”) issued its first set of guidance documents for its beneficial ownership reporting requirements, which take effect on January 1, 2024.

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The U.S. Department of Commerce (“Commerce”) is seeking public comment on how to protect national security while boosting investment in the domestic semiconductor manufacturing industry as part of a new financial incentive program established under the CHIPS and Science Act.

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Main Idea: When making multiple determinations in a single ruling, the totality of evidence based on each determination contributes to the final decisions.

In ruling N330744 (Feb. 28, 2023), Customs and Border Protection (CBP) issued a decision on the classification, country of origin, marking and eligibility of the United States-Mexico-Canada Trade Agreement (USMCA) for a “Sucrose, Lactose and Cocoa Powder Blend” (“SLCB”) from Mexico.  This product is a dry blend of 94.9 percent refined cane sugar, 4.1 percent lactose and 1 percent cocoa powder.  The sugar component is grown and refined in Mexico, the lactose component is a product of the United States, and the cocoa powder is produced in the United States using cocoa beans sourced from non-USMCA countries.  All of the aforementioned ingredients are processed, blended, and packed in Mexico, and the finished SLBC will be imported in 1000-1500 kg supersacks via railway to be used in making chocolate and confectionary products.

Classification

CBP determined that the appropriate subheading for the SLCB is 1806.10.4500, Harmonized Tariff Schedule of the United States (HTSUS), providing for Chocolate and other food preparations containing cocoa: Cocoa powder, containing added sugar or other sweetening matter: Containing 90 percent or more by dry weight of sugar: Articles containing over 65% percent by dry weight of sugar described in additional U.S. note 2 to chapter 17: Described in additional U.S. note 7 to chapter 17 and entered pursuant to its provisions.  The general rate of duty will be 10 percent ad valorem.

However, if the limit of additional U.S. note 7 chapter 17 have been reached, the product will be classified under subheading 1806.10.5500, HTSUS, and will be dutiable at the rate of 33.6 cents per kilogram.  Additionally, products classified under subheading 1806.10.5500, HTSUS, will be subject to additional duties assessed based on their value, per subheadings 9904.17.17 to 9904.17.48, HTSUS.

Country of Origin Marking

CBP ultimately determined that the country of origin for the SLCB is Mexico.

“Country of origin” is defined in 19 C.F.R. § 134.1(b) as “the country of manufacture, production, or growth of any article of foreign origin entering the United States.  Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within the meaning of this part; however, for a good of a NAFTA or USMCA country, the marking rules set forth in part 102 of this chapter (hereinafter referred to as the part 102 Rules) will determine the country of origin.”

Under section 102.0, interim regulations related to marking rules, tariff-rate quotas, and other USMCA provisions, the rules outlined in sections 102.1 through 102.18 and 102.20 determine the appropriate country of origin for marking purposes, regarding goods imported from Canada and Mexico.  Section 102.11 lays out a hierarchy that is used in determining the country of origin of a good and for marking purposes, excluding textile goods which are subject to the guidelines outlined in 19 C.F.R. § 102.21. The hierarchy is laid out as follows:

The country of origin of a good is the country in which:

(1) The good is wholly obtained or produced;

(2) The good is produced exclusively from domestic materials; or

(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other requirements of these rules are satisfied.

CBP first found that the SLCB was neither “wholly obtained or produced” nor “produced exclusively from domestic materials,” in Mexico and therefore determined that the first two criteria did not apply to this case.  CBP thereby applied the third criteria and found that the applicable tariff shift requirement in section 102.20 for the “SLCB” of subheading 1806.10, HTSUS, consisted of the following:

A change to subheading 1806.10 from any other heading, except from heading 1805 or from Chapter 17; or

A change to subheading 1806.10 from Chapter 17, provided that the good contains less than 65 percent by dry weight of sugar.

CBP determined that the tariff shift rule was not satisfied because the foreign materials, cocoa powder and lactose, contained in the SLCB are classified in subheading 1805.00 and 1702.11 within the heading 1805 and Chapter 17. Section 102.13 provides for a de minimis exception for foreign materials that do not undergo applicable change in tariff classification as required in § 102.20.  Section 102.13(a) provides:

Except as otherwise provided in paragraphs (b) and (c) of this section, foreign materials that do not undergo the applicable change in tariff classification set out in § 102.20 or satisfy the other applicable requirements of that section when incorporated into a good shall be disregarded in determining the country of origin of the good if the value of those materials is no more than 7 percent of the value of the good or 10 percent of the value of a good of Chapter 22, Harmonized System.

Based on the information supplied by the manufacturer of this product, the value of the cocoa powder contained in the SLCB does not exceed any more than 7 percent of the total value of the product.  Therefore, CBP reasoned that the cocoa powder is de minimis below § 102.13(a) and is to be disregarded in tariff shift requirement applicability of § 102.20.  However, the total value of lactose exceeds 7 percent of the total value of the SLCB.

Since the utilization of section 102.11(a)(3) did not yielded a country of origin determination, CBP turned to section 102.11(b) of the regulations.

Section 102.11(b) states, in relevant part:

Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:

(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good, or…

Upon determining the essential character of a good under 19 C.F.R. §§ 102.11, 102.18(b)(1) holds that only domestic and foreign materials classified under a tariff provision, which a change in tariff classification is not permitted under the section 102.20 specific rule or requirements applicable to the good will be taken info consideration.

With respect to the SCLB, the domestic material, which is sugar of Mexican origin, is classified under heading 1701 within Chapter 17, where the tariff classification change is now allowed under the tariff shift rule.  Therefore, neither foreign material, lactose of U.S. origin, nor the domestic material, sugar of Mexican origin, meet the requirements of the applicable tariff shift and both the lactose and sugar require equal consideration for the essential character determination.

Section 102.18(b)(2) provides, in relevant part:

For purposes of determining which one of two or more materials described in paragraph (b)(1) of this section imparts the essential character to a good under § 102.11, various factors may be examined depending upon the type of good involved. These factors include, but are not limited to, the following:

(i) The nature of each material, such as its bulk, quantity, weight or value; and

(ii) The role of each material in relation to the use of the good.

CBP determined that Mexican sugar provides the essential character of the SLCB because sugar has the highest value and weight in contrast to the other ingredients used in the SLCB.  Therefore, per 19 C.F.R. § 102.11(b)(1), the country of origin of the SLCB for origin and marking purposes is Mexico.

USMCA

Signed by the Governments of the United States, Mexico, and Canada in November 2018, the USMCA was approved and enacted in January 2020. General Note (“GN”) 11, HTSUS, implements USMCA and outlines the criteria for determination of whether a good is an originating good for purposes of the USMCA.

GN 11(b) states, in relevant part:

For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a “good originating in the territory of a USMCA country” only if—

(i) the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;

(ii) the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;

(iii) the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or

All of the ingredients in the SLCB are USMCA originating, and therefore the finished SLCB product is a good produced entirely within one or more USMCA countries.  According to GN 11(b)(11), the SLCB is classified under subheading 1806.10.4500, HTSUS, is indeed eligible for preferential tariff treatment under the USMCA

However, as mentioned in the classification section, if the quantitative limits of additional U.S. note 7 to chapter 17 have been exceeded and the SLCB is classified under subheading 1806.10.5500, HTSUS.  CBP noted that the special column for subheading 1806.10.5500, HTSUS, references subheadings 9823.10.01-9823.10.45, HTSUS.  U.S. Note 10 to Subchapter XXII, concerning sugar containing products pursuant to the USMCA, provides that:

“This note and subheadings 9823.10.01 through 9823.10.45 are effective as to originating goods of the USMCA countries eligible for special tariff treatment under the terms of general note 11 to the tariff schedule provided for in subheadings … 1806.10.55 … From July 1, 2020, through December 31, 2020, in 2021 and in successive years thereafter, the rates of duty provided for in subheadings 9823.10.01 through 9823.10.45 in the “Special” subcolumn of rates of duty column 1 followed by the symbol “(S+)” shall apply to goods of such countries in lieu of the duty rates set forth in the special subcolumn in the permanent subheadings enumerated above.”

U.S. Note 10(a) states that “Goods of Mexico that qualify to be marked as a good of Mexico pursuant to U.S. law, without regard to whether the good is marked, and goods of the United States shall be eligible for USMCA tariff treatment only under subheading 9823.10.01.”  Therefore, with respect to the SLCB, the “S+” rates are applicable for goods classified under subheading 1806.10.55, HTSUS. 

CBP determined that the applicable subheading for the SLCB is 9823.10.01, HTSUS, which provides for goods entered under the provisions of the USMCA under general note 11 to the tariff schedule: (con.) Goods provided for in subheading . . . 1806.10.01 . . . . Goods provided for in note 10(a) to this subchapter.  CBP therefore found that the special rate of duty will be free (S+).

In conclusion, CBP determined three things (1) that the appropriate subheading for the SLCB is 1806.10.4500, HTSUS, and the general rate of duty will be 10 percent ad valorem, (2) the country of origin of the SLCB for origin and marking purposes is Mexico, and (3) the SLCB is subject to USMCA tariff treatment under subheading 9823.10.01 and the special rate of duty will be free (S+).

Eight months after the issuance of the draft Measures on the Standard Contract for the Export of Personal Information (“SCC Regulations”), on February 24, 2023, the Cyberspace Administration of China (“CAC”) released the final version of the SCCs Regulations, along with the Standard Contractual Clauses (“SCCs”).

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Customs and Border Protection (CBP) released new guidance following the announcement of new 200% tariffs on Russian aluminum.  CBP’s guidance outlines new reporting requirements for all imports of aluminum and aluminum derivative products, regardless of the country of origin.

The new reporting requirements follow the issuance of Presidential Proclamation 10522.  Under Proclamation 10522, any imports of aluminum articles or aluminum derivative articles that are produced in Russia, or produced in any other country using any amount of primary aluminum that is smelted or cast in Russia are subject to a 200 percent ad valorem duty, effective as of March 10, 2023 and April 10, 2023, respectively.

CBP specifies in its guidance that the following aluminum articles and derivative aluminum articles are subject to Proclamation 10522, and subject to the new smelt and cast reporting requirements:

  • Aluminum articles:
    • Unwrought aluminum provided for in heading 7601:
    • Bars, rods and profiles provided for in heading 7604; wire provided for in heading 7605;
    • Plates, sheets and strip provided for in heading 7606; foil provided for in heading 7607;
    • Tubes, pipes and tube or pipe fittings provided for in heading 7608 and 7609;
    • Castings and forgings of aluminum provided for in subheading 7616.99.51.
  • Aluminum derivative articles:
    • Stranded wire, cables, plaited bands and the like, including slings and similar articles, of aluminum and with steel core, not electrically insulated; the foregoing fitted with fittings or made up into articles (described in subheading 7614.10.50);
    • Stranded wire, cables, plaited bands and the like, including slings and similar articles, of aluminum and not with steel core, not electrically insulated; the foregoing comprising electrical conductors, not fitted with fittings or made up into articles (described in subheading 7614.90.20);
    • Stranded wire, cables, plaited bands and the like, including slings and similar articles, of aluminum and not with steel core, not electrically insulated; the foregoing not comprising electrical conductors, not fitted with fittings or made up into articles (described in subheading 7614.90.40);
    • Stranded wire, cables, plaited bands and the like, including slings and similar articles, of aluminum and not with steel core, not electrically insulated; the foregoing fitted with fittings or made up into articles (described in subheading 7614.90.50);
    • Bumper stampings of aluminum, the foregoing comprising parts and accessories of the motor vehicles of heading 8701 to 8705 (described in subheading 8708.10.30); and
    • Body stampings of aluminum, for tractors suitable for agricultural use (described in subheading 8708.29.21).

Reporting smelt and cast countries will take effect regarding goods entered for consumption, or withdrawn from warehousing for consumption, on or subsequent to 12:01 a.m., eastern daylight time on May 10, 2023.  Smelt and cast reporting requirements may also apply to goods withdrawn from a Foreign Trade Zone (FTZ) for consumption, on or after 12:01 a.m. eastern daylight time on May 10, 2023.  Regardless of Section 232 duties, quotas, exclusions, or general approved exclusion applicability, all importers of aluminum and aluminum derivative articles of all countries of origin must report the following information upon entry of summary:

  • Primary Country of Smelt: This field requires the reporting of the country where the largest volume of new aluminum metal is produced from alumina (or aluminum oxide) by the electrolytic Hall-Héroult Process.
  • Secondary Country of Smelt: If Russia is not the country reported as the primary country of smelt, and if any primary aluminum used in the manufacture of the product was smelted in Russia, this field requires the reporting of the ISO code for Russia as the secondary country of smelt.  Note that products of the United States are not covered by the countries of smelt and cast reporting requirements and until further notice, for products of the United States, filers may report “N/A” for the countries of smelt, and United States for country of cast.
  • Country of Cast: This field requires the reporting of the country where the aluminum, with or without alloying elements, was last liquified by heat and cast into a solid state. The final solid state can take the form of either a semi-finished product, such as slap, billets or ingots, or a finished aluminum product.  Note that products of the United States are not covered by the countries of smelt and cast reporting requirements and until further notice, the products of the United States, filers may report “N/A” for the countries of smelt, and United States for country of cast.

On February 24, 2023, the United States and other G7 nations announced a number of new sanctions and export control measures coinciding with the one-year mark of Russia’s military invasion of Ukraine. Shortly after these expansive sanctions and export controls were announced, the Departments of Justice (“DOJ”), the Treasury (“Treasury”), and Commerce (“Commerce”) issued their first-ever joint guidance regarding a planned crack-down by these agencies on sanctions and export controls evasion related to Russia in concert with DOJ’s sweeping announcements of a renewed focus on corporate compliance with sanctions and export controls.

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This client alert summarizes the Administration’s ongoing trade priorities and summarize trade activities in the past year based on the Biden Administration’s 2023 Trade Policy Agenda and 2022 Annual Report, which was issued on March 1, 2023.

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New proclamations published to the U.S. Federal Register will bring additional tariffs on Russian metals (including a 200% tariff on aluminum), minerals, and chemicals imported into the United States.

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Global Trade Talks is a podcast that shares brief perspectives on key global issues on international trade, current events, business, law, and public policy as they impact our lives. In this podcast, hosts Nicole Simonian and Ambassador Robert Holleyman talk to Jason Prince, a Crowell & Moring Partner and immediate-past Chief Counsel to OFAC , about what it was like to be at the eye of the sanctions hurricane following Russia’s full-scale invasion of Ukraine, what to expect in the Russia-related sanctions arena in 2023, and steps that companies should be taking now to mitigate the risks of potential future China-related sanctions.

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