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.”

 

On June 27, 2018, a coalition of U.S. steel users, the American Institute for International Steel (“AIIS”), and two steel trading companies filed a complaint in the United States Court of International Trade (“CIT”) challenging the Trump Administration’s imposition of a 25% tariff increase for steel products.  AIIS’ challenge, however, is not made to the scope of the tariff or the countries effected, but to the constitutionality of the tariff itself.

The tariff increase is was enacted in March 2018 under Presidential Proclamation 9705. The President has authority to make such proclamations pursuant to Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. 1862).  Section 232 directs the Secretary of Commerce, upon the application of any department, agency or interested party, to undertake an investigation of the effect of the importation of a product on national security.  The President then has 90 days to determine whether to concur with the finding of the Secretary with respect to the potential national security implications of a product.

AIIS alleges that Section 232 is an unconstitutional delegation of Congress’s exclusive authority to lay duties and regulate commerce with foreign nations under Article I of the U.S. Constitution.  Specifically, AIIS asserts that the broad definition of “national security” under Section 232 lacks an “intelligible principle” to circumscribe the President’s authority under the statute. Under Section 232, the President may consider the “close relation” of economic warfare and our national security, including the effect on domestic industries and the “weakening of our internal economy” in making a determination regarding the imposition of tariffs in the name of national security.

As evidence of the alleged lack of an intelligible principle, AIIS points to the fact that the President is not required consider, for example, the source of products (i.e., whether the products are imported from close allies), the specifications and use of the products as they relate to national security concerns (i.e., the fact that some steel imports are used to manufacture weapons or other products that aid national security), or the possible negative economic ramifications of protectionism on national security grounds (i.e., economic retaliation).  In addition, Section 232 does not contain any provision for judicial review of the President’s determination.

The government has not yet filed a response to the Complaint and whether the Court will entertain these constitutional challenges remains to be seen.  Nevertheless, as protectionist policies and threats of trade wars continue to mount, all industries must continually evaluate not only the effect of changes in relevant tariffs, but consider whether novel challenges such as those raised by AIIS may be necessary to protect the rights of industry members.

On Tuesday, May 29, 2018, the U.S. Court of International Trade (CIT) ruled that the anti-dumping and countervailing duties for steel nails from Vietnam do not apply to zinc wall anchors.

In August 2016, OMG Inc. asked the Department of Commerce to determine whether wall anchors were within the scope of the anti-dumping and countervailing duties imposed on steel nails imported from Vietnam. The Department of Commerce determined that zinc wall anchors from Vietnam that were imported by OMG Inc. fit unambiguously within the scope of the anti-dumping and countervailing duty orders.

The CIT considered the common meaning of the term “nail” by consulting dictionary meanings and trade usage, and it reversed the previous scope ruling from the Department of Commerce. The CIT determined that because OMG’s zinc anchor is a unitary article of commerce, the entire product must be considered as a whole, and the entire item did not fit within the definition of a nail. Based on trade usage, the pin (a component) is considered a nail, but the unitary article of commerce is considered an anchor, not a nail.

The CIT remanded the case to the Department of Commerce for further consideration consistent with the CIT’s opinion.

The case is OMG Inc. v. United States, case number 1:17-cv-00036-GSK, in the U.S. Court of International Trade. You can read the full opinion here.

In a May 22, 2018 Opinion and Order, the U.S. Court of International Trade (“CIT) upheld the U.S. Department of Commerce’s (“Commerce”) use of a Thai nail producer, rather than a Dubai producer, as a surrogate for the calculation of anti-dumping duties to be assessed on two nail producers from the United Arab Eremites (“UAE”).  As a result, the nails will be assessed an 0.87% duty rate, not the 7.8% rate that the nails had been preliminary assigned.

In determining the appropriate anti-dumping duty to be assessed, Commerce had considered using, among others, the financial statements of Overseas International Steel Industry LLC (“OISI”), a Dubai-based subsidiary of one of the UAE nail producers at issue.  Commerce determined, however, that the subsidiary acted as “toll processor,” meaning that it was a service provider that used subcontractors to convert raw materials to finished products, but did not actually produce nails itself.  Accordingly, because OISI was not a producer, Commerce found that its financial records lacked some significant line items, including for material costs and inventory.  Therefore, Commerce determined that the financial records of a Thai nail producer, L.S. Industry Co. Ltd. (“LSI”), were a more fitting basis for its calculation of a constructed value profit on which the anti-dumping duties were based. As a result of using LSI’s financial statements, the anti-dumping duty calculation fell from the 7.8% rate contained in Commerce’s preliminary determination to 0.87%.

Before the CIT, a domestic nail producer argued that Commerce had erred in its determination that OISI was not the proper analog because OISI uses the same raw materials and production process as the UAE producer and that the financial statements sufficiently reflect all necessary information, such as material costs and inventory.

The CIT determined that, even if the domestic producer’s arguments were true, there was still not a sufficient basis to overcome “the presumption of administrative regularity” that insulates Commerce’s decision making.  The CIT found that Commerce had concluded that OISI was a toll producer and, therefore, did not consider its financial statements.  Instead, Commerce determined that LSI’s was the best surrogate and based its well-supported analysis on LSI’s financials.  Ultimately, the CIT found that there was no clear error demonstrated in the record which would warrant the Court’s substitution of its judgment for that of Commerce.