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.

 

 

 

On August 29, 2018, the United States circulated a request for consultations to the World Trade Organization (WTO) members. The US has requested that the WTO help resolve a dispute between the US and Russia concerning additional duties imposed by Russia on certain US goods.

A request for consultations is similar to other forms of dispute resolution. The request for consultations formally initiates a dispute in the WTO. If after 60 days of consultations, the parties have not been able to resolve the dispute, the complainant may request adjudication by a panel.

In its claim initiated earlier this week, the US claims that the additional duties imposed by Russia are inconsistent with provisions of the WTO’s General Agreement on Tariffs and Trade (GATT) 1994, and appear to impair the benefits accruing to the US under GATT 1994. The US claims that Russia is imposing duties on US goods, and that it is not imposing comparable duties on similar products originating in the territory of other WTO members.

The claim also includes a statement that Russia appears to be applying duty rates that are greater than those in Russia’s WTO schedule of concessions. The “schedules of concessions” is a document that reflects specific tariff concessions and other commitments a member gives in the context of trade negotiations.

 

In a recent opinion, the United States Court of International Trade (CIT) upheld its categorical ban of the importation of fish and fish products caught with gillnets in the habitat of the critically endangered vaquita, off the coast of Mexico.

In a July 26, 2018 Order, the CIT granted a preliminary injunction sought by several conservation groups prohibiting the importation of certain fish and fish products from Mexico which had been caught using gillnet — fishing nets hung from boats that entangle fish and shrimp — within the limited range of the vaquita, the smallest porpoise in the world.  Experts believe that just 15 vaquitas remain and all inhabit a small area in the Northern Gulf of California, between Baja California and Mexico.  The CIT entered an order, pending final adjudication, banning the importation of shrimp, curvina, sierra, and chano fish from Mexican commercial fisheries that use gillnets within the vaquita’s range under the authority of the Marine Mammal Protection Act (“MMPA”).

The government subsequently filed a “motion to clarify” in which it questioned the scope of the ban and whether it was immediately effective.  Specifically, the government challenged the scope of the MMPA with respect to illegal commercial fisheries, whether other federal environmental protection statutes rendered the express duties of the MMPA inoperative, and asserted that the regulatory challenges with respect to implementation made immediate implementation impossible. The CIT rejected each of these challenges and held, unequivocally, that the ban was effective immediately.

The CIT determined that nothing in the language of the MMPA limited its authority to “legal” fisheries and, in fact, the MMPA was not limited to “commercial” fish, let alone, “legally caught” commercial fish. The CIT also found that the MMPA and other federal environmental protection statutes were “complimentary” and “non-duplicative” and, as such, did not excuse the government from its obligations under any of the statutes. Finally, the CIT “discern[ed] no merit” in the government’s argument lengthy certification processes meant that the ban was not effective immediately.

The CIT Opinion did not mince words in upholding its prior determination and chastising the governments request for “clarification.”  The decision serves as cautionary reminder that the words of the CIT, or any Court, are meant to be followed by governments, importers, and brokers alike.

 

On Monday, July 30, 2018, the World Trade Organization (WTO) released new resources regarding trends in global trade. The resources issued by the WTO are the latest editions of the annual publications of World Trade Statistical Review, Trade Profiles and World Tariff Profiles.

World Trade Statistical Review provides an in-depth analysis of trends in global trade, including the types of goods and services being traded.

Trade Profiles provides a concise overview of global trade by providing key indicators on trade for 197 economies and highlighting the breakdown of exports and imports for each economy.

World Tariff Profiles is a joint publication of the WTO, the United Nations Conference on Trade and Development (UNCTAD) and the International Trade Centre (ITC). The publication provides comprehensive information on the tariffs and non-tariff measures imposed by over 170 countries and customs territories.

Additional information about the publications and additional data can be found on the WTO’s website with links to download the publications.

On July 10, 2018, the Trump Administration announced a list of proposed tariffs on $200 billion of Chinese goods pursuant to Section 301 of The U.S.  Trade Act of 1974.  The proposed products are potentially subject to a 10 percent ad valorem duty. The United States Trade Representative (USTR) has targeted products from the “Made in China 2025” sectors in response to China’s unfair practices and policies with respect to foreign, including U.S., technologies and intellectual property.  Made in China 2025 is a strategic plan to make China a leader in a wide range of key global industries, such as advanced technologies, aerospace, and telecommunications, among others.

The list of proposed tariffs and the process for public notice and comment are provided in the Federal Register.  USTR is providing an opportunity to submit comments on the proposed list, which should include a discussion of the potential harm to U.S. interests, the potential effectiveness of tariffs on the proposed products, and other relevant information.  The important deadlines are as follows:

  • July 27, 2018 – Due date for filing requests to appear and for filing pre-hearing submissions
  • August 17, 2018 – Due date for the submission of written comments
  • August 20-23, 2018 – Public Hearing
  • August 30, 2018 – Due date for the submission of post-hearing rebuttal comments

At the conclusion of the public comment period and the public hearing, USTR will consult with federal agencies, such as the Department of Labor, Department of Commerce, and Department of Homeland Security, to determine the final list of products subject to the 10 percent ad valorem duty.  There are no statutory timeframes for the publication of the final list, though USTR is expected to move as quickly as possible.

Fox Rothschild’s International Trade team is actively involved and prepared to assist companies that wish to participate in this process. Please contact Brittney Powell or Lizbeth Levinson for more information.

 

 

In a recent opinion, the US Court of International Trade (CIT) found that certain fabric covered pool floats should be classified as plastics — not textiles — for tariff purposes.  Despite the textile elements of the floats, the sequential application of the General Rules of Interpretation led the CIT to find that the air-filled plastic bladder which allowed the product to float in water gave the floats their “essential character.”

The products at issue are floats for a swimming pool which a generally designed with an outer perimeter containing a plastic bladder which is covered with fabric.  Inside the perimeter is a fabric mesh which “suspends” the user’s body at or just below the water’s surface.  The floats also contain a flexible steel rod around the perimeter which allowed the floats to be folded neatly for storage and then “sprung” into a usable position. US Customs and Border Protection (CBP) had classified the floats as textiles under subheading 6307.90.98 for “[o]ther made up articles, including dress patters: Other: Other” and subject to a 7% duty.  The producer of the floats asserted that the products should be classified under subheading 3926.90.75 for “[o]ther articles of plastics and articles of other materials of headings 3901 to 3914: Other: Pneumatic mattresses and other inflatable articles, not elsewhere specified or included” and subject to 4.2% duty.

At the core of the dispute was the intersection of the textile and plastic elements of the the products. The CIT began its analysis under General Rule of Interpretation (GRI) 1 and determined that neither proposed heading, 6307 or 3926, fully described the floats which contained significant components of both textile and plastic.  CBP argued that, like life jackets which are classified as textiles, the were no separate components to the textile floats which required evaluation beyond GRI 1. Nevertheless, the Court found the textile and plastic components to be distinct and, therefore, pursuant to GRI 2, the mixed-material products were to be evaluated in accordance with GRI 3. Under GRI 3(b), if a material or component of the imparts the “essential character” of the good, then product should be classified based on that defining material or component.

CBP argued that the product was entirely covered in textiles and, significantly, without the textile mesh which suspends the user, the float would not function as intended.  The CIT, however, determined that the air-filled plastic bladders around the perimeter where the component which gave the floats their essential character.  As the Court found, even if one conceded that the mesh component is necessary for proper function, without the bladders, the mesh would lack support to help the user float. Accordingly, the CIT determined that heading 3926 was the correct heading.

In a separate part of its opinion, the CIT declined to classify certain floats designed for babies as general exercise equipment in part because the packaging lauded the products ability to keep babies “comfortable and happy.”