A Chinese company was recently forced to sell California-based Grindr, the world’s largest gay dating app, after the Committee on Foreign Investment in the United States (CFIUS) determined that its ownership constituted a national security risk.

To explain the issue to readers, Bloomberg Law featured an article by Partner Nevena Simidjiyska, co-chair of the International Trade Practice Group, on the significance of the determination and what it means for foreign ownership of U.S. social media companies. In her piece, Nevena examines the impact of the Foreign Investment Risk Review Modernization Act of 2018 and the signals the Grindr decision sends about scrutiny of companies that hold U.S. citizens’ personal data.

Read her piece, “INSIGHT: U.S. Swipes Left on Chinese Acquisition of Grindr Over National Security Concerns,” in Bloomberg Law.

In recent weeks, the United Stated Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) expanded the scope of sanctions against current and former Venezuelan government officials who have supported controversial President Nicholas Maduro and his regime of corruption and human rights abuses.

The first sanctions implemented against Venezuelan individuals and entities were authorized by President Barrack Obama in March 2015 (Executive Order 13692).  Following President Maduro’s re-election to a second six-year term on May 20, 2018, President Donald Trump has expanded the scope of both the prohibited conduct and the designated individuals and entities subject to sanctions.

On November 1, 2018, President Trump issued Executive Order 13850 broadly prohibiting transactions with individuals directly or indirectly involved in the deceptive and corrupt practices of the Government of Venezuela.  President Trump has subsequently issued Executive Orders designating specific individuals and entities subject to the sanctions regime.  On January 28, 2019, Executive Order 13857 revised the definition of “Government of Venezuela” (which is subject to sanctions) to specifically include, among others, the Central Bank of Venezuela and state-run oil company Petroleos de Venezuela, S.A. (“PdVSA”)  Further, in press releases on February 15, 2019 and February 25, 2019, OFAC announced additional individuals and entities with whom transactions are prohibited. Among those named in the recent press releases are Venezuelan military and intelligence officers, the head of the Special Action Force of Venezuela’s police, the President of PdVSA, and, most recently, the Governors of four Venezuelan states that have aligned themselves with President Maduro.

The recent press releases note that sanctions “need not be permanent” and that removal of sanctions is possible for individuals who “take concrete and meaningful actions to restore democratic order, refuse to take part in human rights abuses, speak out against abuses committed by the former Maduro regime, and combat corruption in Venezuela.”

For US companies transacting across borders, it always essential to verify that their business partners are not subject to US sanctions.  With the rapidly changing scope of sanctions relating to Venezula, the need to consult with experienced counsel is even greater and must continue on an ongoing basis throughout the life of a transaction of business venture.

A complaint filed in the United States Court of International Trade (“CIT”) late last week highlights the practical challenges and frustration that come from delayed resolutions and parallel proceedings between federal courts and agencies, such as US Customs and Border Protection (“CBP”). In the Complaint, One World Technologies, Inc. (“One World”), a manufacturer of garage door openers sought injunctive relief and declaratory judgment against CBP for its continued detention of One World’s products contrary to the CIT’s prior order.

This dispute originally began in July 2016, when another garage door manufacturer filed a complaint alleging that One World’s wireless garage door model infringed on their patents.  As part of the litigation that ensued, One World changed redesigned its garage door openers to resolve the infringement claims.  One World sent shipments of the redesigned products which CBP detained in light of the ongoing infringement dispute.

On December 14, 2018, the CIT entered an order in which it found that One World’s redesigned products did not infringe the patent at issue.  The CIT, however, declined to exercise jurisdiction over the pending protest before CBP in which One World sought approval to import the products. This left One World in a position where the CIT had determined that the products were not infringing, but the CBP proceedings had not yet progressed to their own determination.  The practical reality being that One World’s non-infringing products remain in CBP detention.  Accordingly, One World filed its new complaint urging the Court to intervene and direct CBP to release the products.

While the Court’s reluctance to interfere with administrative proceedings is certainly reasonable, the practical effect for companies can be frustrating.  Here, a federal court had made a determination as to the question of infringement, but the parallel proceeding before CBP rendered the CIT’s order all but ineffective. There is no simple resolution when these unfortunate systemic inefficiencies arise, but experienced counsel can help anticipate potential periods of delay and find the most efficient path forward – even if the path is fraught with frustration.

The government shutdown, which is now in its fourth week, is causing a backlog of cases that will need to be reviewed by the Committee on Foreign Investments (“CFIUS”) once the government reopens.

CFIUS is an interagency committee chaired by the Secretary of the Treasury, which reviews certain transactions involving foreign investment in the Unites States in order to determine the effect of such transactions on national security. The shutdown will ultimately cause a delay in the ability of foreign acquirers to finalize transactions involving investments in the United States.

 

Since the government shutdown that began on December 22, 2018, CFIUS activities have been suspended. CFIUS has only been able to perform “caretaker functions” related to cases filed before the enactment of the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), which was signed into law in August 2018.

In addition, the deadlines for all other cases that were not initiated prior to the enactment of FIRRMA are “tolled” during the shutdown. Although CFIUS filings can continue to be made during the shutdown, the Committee will not officially accept the filings for review.

The clock will not start running on any cases that are “tolled,” meaning the review or investigation process will not start until after the shutdown ends and CFIUS is able to officially acknowledge receipt of the case. CFIUS members will not be able to examine these transactions in order to identify and address any national security concerns that may arise as a result of the proposed transactions.

A link to the Department of Treasury’s contingency plan can be found here.

The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), signed into law in August, authorizes the Committee on Foreign Investment in the United States (CFIUS) to conduct pilot programs to implement provisions of the legislation that did not become effective immediately upon enactment.

On October 10,, 2018, a FIRRMA pilot program was enacted that expands the scope of transactions subject to review by CFIUS to include certain noncontrolling investments made by foreign persons in U.S. businesses involved in critical technologies related to specific industries and mandates the filing of mandatory declarations for transactions that fall within the scope of the pilot program.

Type of investments covered: The pilot program expands CFIUS’s jurisdiction to allow review of certain investments by foreign persons that do not constitute an acquisition of control of a U.S. business (referred to in FIRRMA as “other investments”).

For an investment to be covered under the pilot program, it must give the foreign investor:

  • Access to any material nonpublic technical information in the possession of the target U.S. business;
  • Membership or observer rights on the board of directors or equivalent governing body of the U.S. business, or the right to nominate an individual to a position on the board of directors or equivalent governing body of the U.S. business; or
  • Any involvement, other than through voting of shares, in substantive decisionmaking of the U.S. business regarding the use, development, acquisition, or release of critical technology.

Foreign persons covered: The pilot program covers all foreign persons and is not country-specific.

U.S. businesses covered: The pilot program covers any U.S. business that produces, designs, tests, manufactures, fabricates, or develops a critical technology that is: (1) utilized in connection with the U.S. business’s activity in one or more Pilot Program Industries (discussed below); or (2) designed by the U.S. business specifically for use in one or more Pilot Program Industries (“Pilot Program U.S. Businesses”).

The pilot program covers all critical technologies, as defined by FIRRMA, of Pilot Program U.S. Businesses, including emerging and foundational technologies controlled pursuant to the Export Control Reform Act of 2018.

Industries covered: The pilot program covers 27 industries, identified by their respective North American Industry Classification System (NAICS) code (“Pilot Program Industries”).

Mandatory declarations: The pilot program establishes mandatory declarations (i.e., abbreviated notices that generally should not exceed five pages in length) for foreign transactions involving Pilot Program U.S. Businesses that are within the purview of CFIUS (i.e., both controlling investments and “other investments”).

  • Declarations must be filed at least 45 days prior to a transaction’s expected completion date. The Committee will have 30 days to take action.
  • Parties may choose to file a notice under CFIUS’s standard procedures rather than a declaration.
  • Parties that are required to file with CFIUS and do not do so can be assessed a civil monetary penalty up to the value of the transaction.

The pilot program commenced on November 10, 2018. It will end no later than the date on which the final FIRRMA regulations are implemented.

This post is authored by Fox Rothschild associate Rocky Rogers:

As a result of the new Section 232 and Section 301 tariffs on steel, aluminum, and goods imported from China, United States importers and customs brokers relying upon continuous bonds should review their bond amount to ensure it is sufficient to account for these new tariffs.  The continuous bond should be in the amount of 10% of estimated duties, taxes, and fees to be paid on goods imported over a twelve month period.  The new tariffs directly increase the amount of duties owed for these types of shipments and accordingly require an increase in the bond amount.

On November 8th, the United States Customs and Border Protection issued Cargo Systems Messaging Service Update 18-000664 reminding those holding continuous bonds that sufficiency reviews are conducted on a monthly basis.  The agency recommended importers forecast their import activities for the next twelve months and determine if a bond increase is appropriate.  The bonding formula utilized to conduct sufficiency reviews may be found at https://www.cbp.gov/sites/default/files/documents/bond_form_7.pdf.

Importers are already reporting an increase in bond insufficiency determinations since the announcement of the tariffs.  Update 18-000664 is further evidence of the agency’s increased attention to this issue.

If the Revenue Division of CBP determines a continuous bond is insufficient, any imported goods covered by that bond will not be released upon entry to the United States.  This will result in accruing demurrage charges and disruption of the supply chain.  Additionally, the agency can inactivate the bond, thereby requiring importers to obtain Single Transaction Bonds for future imports, which are far more costly and burdensome than maintaining a continuous bond.  For any imports of goods subject to anti-dumping or countervailing duties, the bond requirements can be “stacked” because often determinations by the Department of Commerce on those types of goods take longer than twelve months, so multiple bond periods remain exposed.

The impact of the new tariffs continue to affect importers and custom brokers in a variety of different ways.  Those importing goods subject to the new tariffs should immediately contact their surety to determine whether an increase in the bond amount is required.

In a recent decision, the Court of International Trade (CIT) denied the government’s request for a stay of the preliminary injunction that the CIT had implemented in July, banning the importation of certain seafood from Mexico.

In July, the CIT upheld its preliminary order and granted the preliminary injunction sought by conservation groups to protect the critically endangered vaquita porpoise – of which just 15 remain.  In imposing the preliminary injunction, the Court found that the Marine Mammal Protection Act (MMPA) properly applied and mandated that the Secretary of the Treasury “shall ban the importation of commercial fish or products from fish which have been caught with commercial fishing technology which results in the incidental kill or incidental serious injury of ocean mammals in excess of United States standards.” 16 U.S.C. § 1371(a)(2). Accordingly, the CIT imposed the preliminary injunction, pending final adjudication on the merits, banning the importation of all fish and fish products caught using gill-nets within the range of the vaquita in the Northern Gulf of California.

In the government’s recent motion to stay the preliminary injunction, the government cited, among other things, the negative impact the ban could have on ongoing trade negotiations between the United States and Mexico.  The CIT was not convinced, citing the mandatory ban language of the MMPA and finding that “[i]t is implausible that Congress was unaware that embargoes or limitations on imports may impact foreign relations.” In addition, the CIT was unmoved by the government’s arguments regarding the conservation groups’ purported lack of standing, finding that the government had unlawfully withheld agency action under § 706(1) of the Administrative Procedure Act and, in doing so, created cognizable harm to the vaquita.  The CIT also defended the narrowly tailored scope of the injunction, which is limited only to importation of fish and fish products caught using gill-nets in a small portion of the Gulf of California.

Accordingly, the ban remains in place until a full adjudication on the merits is complete.

 

Australia will become the newest member of the World Trade Organization (WTO) plurilateral Government Procurement Agreement (GPA). On October 17, 2018, parties to the GPA unanimously approved a decision to welcome Australia as the 48th WTO member to be covered by the GPA.

The GPA is a plurilateral agreement that strives to ensure open, fair and transparent conditions of competition in the government procurement markets. It aims to provide legal guarantees of non-discrimination for the products, services or suppliers of GPA parties in procurement covered by the Agreement.

The Agreement is open to all WTO members, and it is currently binding on the 47 members to the Agreement (19 parties, including the United States, and the EU and its 28 member states). The GPA is composed of two main parts: the text of the Agreement and the coverage schedules. The Agreement applies only to those procurement activities that are carried out by covered entities that are purchasing services or goods of a value exceeding specified thresholds.

Australia will become a member after it submits its Instrument of Accession to the WTO’s Director General. With an estimated overall government procurement market worth USD $78 billion, Australia will add significantly to the current government procurement covered by the other 47 members to the Agreement, which is currently approximately USD $1.7 trillion.

Australia initiated negotiations to join the Agreement three years ago, in September of 2015. At the meeting, the GPA also reviewed the accession bids of China, the Kyrgyz Republic, the former Yugoslav Republic of Macedonia, the Russian Federation and Tajikistan. Other countries with currently pending accession negotiations include Albania, Georgia, Jordan and Oman. See a full list of the GPA members and observers here.

On September 17, 2018, the Trump Administration finalized tariffs on $200 billion of Chinese imports and announced the final list (List 3) of tariff line items.   The additional tariffs became effective on List 3 products on September 24, 2018 in the amount of a 10 percent ad valorem duty.  The level of additional tariffs is set to increase to 25 percent on January 1, 2019.  The final list includes 5,745 tariff line items of the 6,031 tariff line items initially proposed.  Products that were removed from the final list include certain consumer electronics products, such as smart watches, fitness trackers, and health and safety products like bicycle helmets and child safety furniture.  In a statement announcing the imposition of tariffs on List 3, President Trump stated that “{i}f China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.”

The Office of the United States Trade Representative (“USTR”) also announced a new product-specific exclusion process for List 2 items, upon which a 25 percent ad valorem duty has been imposed since August 23, 2018.  The deadline to apply for an exclusion for products on List 2 is December 18, 2018.  Products on List 1 have been subject to a 25 percent ad valorem duty since July 6, 2018. The deadline to apply for an exclusion for products on List 1 is October 9, 2018.  The USTR has not announced an exclusion process for List 3 and has indicated there are no immediate plans to implement such a process.  Fox Rothschild continues to monitor these developments.  Should you have any questions about filing a product-specific exclusion request, please contact Brittney Powell or Lizbeth Levinson.

 

In a recent Opinion, the United States Court of International Trade denied cross motions for summary judgment filed by Ziploc bag producer S.C. Johnson & Son (“S.C. Johnson”) and the U.S. government which sought competing classifications for the well-known plastic bags.

S.C. Johnson argued that the 6 1/2 inch by 5 7/8 inch version of its polyethylene zipper-sealed bags should be classified under HTSUS Subheading 3924.90.56 covering “tableware, kitchenware, other household articles and hygienic or toilet articles, of plastics: other: other” which can be imported duty free. The government asserted that the bags were properly classified under Subheading 3923.21.00 covering: “articles for the conveyance or packing of goods, of plastics; stoppers, lids, caps, and other closures, of plastics: sacks and bags (including cones): of polymers of ethylene” which would be subject to a 3% ad valorem duty.

The CIT found that neither party had presented sufficient undisputed factual support for their proposed classification.  The CIT set forth its two-part classification analysis. First, determining the legal question of the proper meaning of the terms of the tariff provisions and; second, determining the factual question of whether the product at issue falls within that provision.

Accordingly, the CIT examined the terms definitions of the terms “conveyance” and “packing” in defining the scope of Heading 3923 and determined that the principal use of that provision is “goods of plastic used to carry or to transport other goods of any kind.” The CIT also examined the words”household” and “article” which a central terms under Heading 3924 and determined that the heading encompasses “plastic goods of or relating to the house or household.”

Having dispensed with the first step in its analysis — determining the proper meaning of the prospective tariff provisions — the CIT found that it could not go further because issues of fact remained as to under which heading the bags fell.  Specifically, while acknowledging that the physical characteristics of the bags and customers uses and expectations with respect to the bags were uncontested, the CIT found that neither party had provided sufficient undisputed facts to permit a full analysis under the factors set forth in Carborundum.

Under Carborundum, the Court looks at factors including: [1] use in the same manner as merchandise which defines the class; [2] the general physical characteristics of the merchandise; [3] the economic practicality of so using the import; [4] the expectation of the ultimate purchasers; [5] the channels of trade in which the merchandise moves; [6] the environment of the sale, such as accompanying accessories and the manner in which the merchandise is advertised and displayed; and [7] the recognition in the trade of this use.

Therefore, with the proper definition of each proposed heading now established, the parties must move forward to trial to finally determine the proper classification of the bags and the resulting tariff.