In an Opinion made public last week, the U.S. Court of International Trade (CIT) sustained the U.S. Commerce Department’s (“Commerce”) change of opinion with regard to antidumping duties assessed on frozen fish fillets from Vietnam.  Ultimately, the CIT found that Commerce had “reasonably explained” its shift in position based on Commerce’s new understanding of the evidence presented to it and the company in question’s failure to present evidence to rebut the assumption Commerce had applied.

In January 2017, the CIT granted in part and remanded in part Commerce’s final determination of the tenth administrative review of its antidumping duty order for frozen fish fillets from the Socialist Republic of Vietnam.  As part of its tenth administrative review, Commerce assigned a $2.39 per kilogram duty on pangasius fish fillets.  The antidumping duty was based on the presumption that all respondent companies in a non-market economy, such as Vietnam, are subject to government control and assigned the same duty rate.  Nevertheless, the CIT questioned Commerce’s basis for its determination of a “broad-market advantage” in the production of the fillets based on the affidavit of an Indonesian fisheries official.

In addition, one company, Can Tho Import-Export Joint Stock Co. (“Casemax”) disputed the assignment of antidumping duty rate to its products. Casemax asserted that, based on the structure of its articles of formation, it was not subject to control of the communist government.  In its January 2017 decision, the CIT found that Commerce had not sufficiently explained why it denied Casemax’s assertions and assigned it the same duty rate as other pangasius exporters.

As set forth in the CIT’s most recent opinion, Commerce has now sufficiently explained the two questions that required remand.

First, Commerce subsequently came to learn that the assertions contained in the Indonesian official’s affidavit applied to the three provinces in Indonesia which accounted for 99.8% of Indonesia’s pangasius production during the relevant period.  Learning that the affidavit provided essentially nation-wide data, Commerce gave the affidavit greater credence than an Indonesian magazine article on which it had relied on as part of its prior administrative reviews.

Second, the application of anti-dumping duties to Casemax was largely a result of Casemax’s failure to present evidence to rebut the presumption that it was subject to government control.  Despite Casemax’s assertions, Commerce properly presumed government control in the absence of evidence demonstrating that the communist government had neither de jure or de facto control over the company.  Accordingly, the CIT found that Commerce was not unreasonable in applying the presumption and denying Casemax’s request for a separate duty rate.

Any U.S. company which believes it is facing unfair completion from foreign producers should explore whether a petition for protective duties may be appropriate. As here, the antidumping duties were originally instigated by a complaint from U.S. producers in 2002 and Commerce has continued to ensure appropriate protections over the past fifteen years.

Last week, the U.S Department of Commerce announced that it was revising the definition of solar panels from China which are subject to countervailing and antidumping duties to exclude educational solar energy kits which had been lumped in with panels designed for industrial and other applications in a recent Order.

Earlier this month, the Commerce Department announced the preliminary results of an administrative review of countervailing and antidumping duties originally ordered in December 2012.  The Commerce Department began its initial investigation in November 2011 after it received a petition from U.S. solar cell manufacturers which suggested that solar cells imported from China were being sold at unfair value.  The investigation broadly examined crystalline silicon photovoltaic cells, regardless of whether the cells had been assembled into modules, such as solar panels.  The initial investigation found evidence of improper subsidies and the December 2012 Orders imposed countervailing and antidumping duties against Chinese manufacturers.

In February 2017, members of the solar energy industry and other interested parties requested that the Commerce Department undertake an administrative review of the 2012 countervailing and antidumping Orders.  As a result of the administrative review, the Commerce Department announced countervailing duties of between approximately 11% and 14% against mandatory and non-selected Chinese companies.  In addition, the Commerce department announced preliminary antidumping margins of 61.61% against Trina Solar Energy based on an adverse inference resulting from Trina’s failure to provide necessary information.

Caught up among these industrial and mass market solar cell producers was Pitsco Inc., based in Pittsburg, Kansas. Pitsco produces small, low voltage solar cells in China for use in educational classroom science sets.  Accordingly, Pitsco filed a request for a changed circumstances review revocation pursuant to section 751(b)(1) of the Tariff Act of 1930 and 19 CFR 351.216(b).  Notably, neither the lead petitioner nor any other entity opposed Pitsco’s request that its products be carved out of the countervailing and antidumping duty Orders.   Accordingly, the Commerce Department announced the Final Results of its Changed Circumstances Reviews, and Revocations of the Orders, in Part to reflect a particularized exclusion for solar cells of between approximately 5 and 50 square inches, with one black and one red wire of specified gauge and length, which do not exceed minimal voltage, amp, and wattage outputs, and not containing a battery or computer peripheral port.

Quite rightfully, this educational David was able to avoid the fight between international solar energy Goliaths.  Nevertheless, the labors undertaken to petition and develop appropriate and well-drafted exclusion language were necessary to bring about the result.

On January 12, 2018, President Trump issued a statement announcing that he will approve certain sanctions waivers necessary in order to preserve the Iran nuclear deal. At the same time, he called on the U.S.’s European allies to work with the U.S. to fix the flaws of the Iran nuclear deal (the Joint Comprehensive Plan of Action or the JCPOA), or he would terminate the deal.

President Trump began his statement by condemning the Iranian regime as the world’s leading state sponsor of terror. He also added 14 more Iranian individuals and entities to the Specially Designated Nationals and Blocked Persons List.

In his statement, President Trump explained that he is open to working with Congress on bipartisan legislation dealing with Iran. However, any bill must include four critical components. First, the bill must allow immediate inspection by international inspectors at all nuclear sites. Second, it must demand that Iran not come close to possessing nuclear weapons. Third, there must be no expiration date on these requirements. Finally, the bill must subject Iran’s long-range missile program to the same sanctions imposed on its nuclear weapons program.

Although President Trump waived the application of certain nuclear sanctions, he stated that “this is a last chance.” He called on the U.S.’s European allies to fix the Iran deal and made it clear that if the allies cannot agree on a new supplemental JCPOA, President Trump will not waive sanctions again to stay in the deal. The President also reserved the right to withdraw from the deal immediately if he determines that an agreement is not within reach.

The President’s full statement can be found here.

In an attempt to become a modern hub in Southern China for domestic and international arbitration, the Government of Shenzhen announced at the end of December 2017 that it was combining two arbitration centers. The previous Shenzhen Court of International Arbitration (“SCIA”) and the Shenzhen Arbitration Commission will be combined into one center called the Shenzhen Court of International Arbitration.

The merger of the two institutions will help integrate the resources of both institutions and further build the Shenzhen arbitration platform.

This is part of China’s One Belt, One Road Initiative, which calls for investment in and development of trade routes in that region. The One Belt, One Road Initiative is part of the growth of Chinese exports and a push by China to expand its trading network.

Both the SCIA and the Shenzhen Arbitration Commission had jurisdiction to handle contract disputes and various types of commercial disputes. In December 2016, the SCIA promulgated new arbitration rules relying heavily on the UNCITRAL Arbitration Rules, which made the SCIA the first Chinese institution to make this move.

The UNCITRAL Arbitration Rules provide comprehensive procedural rules regarding arbitral proceedings arising out of commercial relationships. The UNCITRAL Arbitration Rules provide a model arbitration clause, set out rules regarding appointing arbitrators, and establish rules related to the effect and interpretation of the awards.

Once the combination is effective, cases submitted to either of the institutions will be handled by the SCIA. It is still unclear what rules will apply to cases that the parties had agreed to submit to the Shenzhen Arbitration Commission and which panel of arbitrators will be used to arbitrate those cases. The combination into one arbitration body does mean that arbitration rules consistent with international standards, like the UNCITRAL Arbitration Rules, will likely be applied to more cases in China.

In recent remarks, Deputy Attorney General Rod Rosenstein announced significant revisions to the Department of Justice’s (DOJ) policies for enforcing the Foreign Corrupt Practices Act.  The policy revisions make permanent many of the aspects of the FCPA Pilot Program which began in 2016 and sought encourage voluntary self-disclosures of FCPA violations by formalizing the benefits to corporations for doing so.  The recent policy revisions even went a step farther than the Pilot Program, announcing that if company voluntarily discloses FCPA violations, fully cooperates in the government’s investigation, and makes timely and appropriate remediation, there will be a presumption that the DOJ will resolve the company’s case through a declination to prosecute.

This policy revisions reinforce that the DOJ is focused on prosecution culpable individuals.  Indeed, Deputy Attorney General Rosenstein noted that “[i]t makes sense to treat corporations differently than individuals, because corporate liability is vicarious; it is only derivative of individual liability.”

While the DOJ appears to have made it even easier for companies to insulate themselves from liability if they turn over the individual bad actors, there are still many difficult decisions to be made by companies contemplating self-disclosure. Each of the requirements for unlocking the benefits of corporate disclosure – voluntary disclosure, full cooperation, and appropriate remediation – have specific criteria and pose nuanced questions for executives and directors to consider.

First, under the revised FCPA enforcement policy, the self-disclosures must be genuinely voluntary (i.e., prior to the “imminent threat” of disclosure or government investigation) and must be made within a “reasonably prompt time” after discovery of the violation.  This creates some potential issues for directors and officers who may learn of potential violations and seek to conduct an internal investigation to gather more information.  The policy revisions do not further define an “imminent threat” or “reasonably prompt” period, but company must be aware that protected investigations may jeopardize their ability to make an effective voluntary disclosure.

Second, full cooperation may be onerous.  Although the policy revisions do not contain an exhaustive list of the types of cooperation that the DOJ will expect, it does instruct that companies should “proactively” disclose all relevant facts and evidence.  Accordingly, companies must determine the appropriate scope of their disclosures (and may need to do so even if an internal investigation is not complete because concerns regarding the timeliness of the disclosure have arisen).  Moreover, the instruction that the companies take a proactive approach to disclosures appears to add additional pressure on companies to make broad disclosure (but not data dumps which could frustrate DOJ investigations) or risk failing to meet the full cooperation criterion.

Third, remediation efforts must be genuinely aimed at and capable of correcting the source of the violation.  The DOJ acknowledges that there will be variances based on the size of the company and the nature of the underlying violation; however, companies should be prepared to commit necessary resources to develop and implement ethics and compliance programs that will demonstrably improve the company’s ability to stop future violations.

Finally, another condition that has been made permanent is the requirement that the company pay all disgorgement, forfeiture, and/or restitution in full.  Depending on the amount in question, the ability to pay in full may be a difficult practical issue for a company.  Nevertheless, as part of the gateway to non-prosecution, a company must address the issue and develop a strategy for obtaining the necessary funds as it approaches voluntary self-disclosure.

Robust compliance programs remain the critical first step for companies seeking eradicate FCPA violations from their corporate culture.  As Deputy Attorney General Rosenstein noted, criminals try to evade law enforcement, but must first evade internal controls and compliance programs, therefore, “[h]onest companies pose a meaningful deterrent to corruption.”  Fostering a culture of compliance, dedicating sufficient resources, and ensuring that compliance personnel have access to management and the board were all cited by Deputy Attorney General Rosenstein as hallmarks of effective compliance and should be at the core of any compliance program.

In a customs classification case, Chemtall, Inc. v. United States, the U.S. Court of Appeals for the Federal Circuit affirmed a U.S. Court of International Trade (“CIT”) ruling that the vinyl polymer acrylamide tertiary butyl sulfonic acid was properly classified under the Harmonized Tariff Schedule of the United States (“HTSUS”).

The Federal Circuit was called on to distinguish between “Amides” and “Other” in a heading of the HTSUS that covers amides, their derivatives and salts thereof. The case considered the appropriate duty rate for the product that Chemtall, Inc. (“Chemtall”) is importing.

The HTSUS is a hierarchical structure for describing all goods in trade for duty, quota, and statistical purposes. Goods are classified in accordance with the General and Additional U.S. Rules of Interpretation, starting at the 4-digit heading level to find the most specific provision and then moving to the subordinate categories. The United States International Trade Commission maintains and publishes the HTSUS. However, the Bureau of Customs and Border Protection of the Department of Homeland Security (“CBP”) is responsible for interpreting and enforcing the HTSUS.

The Federal Circuit affirmed the CIT determination that the chemical product of the plaintiff-appellant Chemtall, acrylamide tertiary butyl sulfonic acid, is not an amide, but rather is a derivative of an amide.

The significance of this categorization is that derivatives of amides are subject to a higher duty rate, which is almost double that of amide imports. The categorization that Chemtall argued applied carries a 3.7% duty rate. However, the federal judge affirmed the decision of the CBP to apply the higher 6.5% duty rate for the product.

The full opinion of Chemtall, Inc. v. United States, case number 2016-2380, in the U.S. Court of Appeals for the Federal Circuit can be found here.

Some of the most important trade partners of the U.S. are raising concerns about the proposed U.S. plan to overhaul its tax code. The finance ministers of Europe’s five largest economies voiced concerns about the tax plan in a letter sent to Treasury Secretary Steven Mnuchin on Monday, December 11, 2017.

The letter was signed by Germany’s Peter Altmaier, France’s Bruno Le Maire, the U.K.’s Philip Hammond, Italy’s Pier Carlo Padoan and Spain’s Cristobal Montoro Romero.

The E.U. leaders are generally concerned that U.S. businesses will gain a competitive edge on international markets once the tax proposal is enacted. In the letter, the leaders voiced concern that the U.S. tax overhaul contains protectionist measures that could violate double-taxation treaties and breach the World Trade Organization (WTO) rules.

The letter mentions certain provisions in both the proposed House and Senate bills. Two provisions in particular have prompted pushback from the E.U. leaders.

First, the 20% excise tax provisions on payments to foreign affiliated companies that is included in the proposed House bill would impact payments that are made for foreign goods or services. The finance ministers said that this could discriminate in ways that are at odds with the WTO rules and impose a tax on profits of non-U.S. companies that do not have a U.S. permanent establishment.

The finance ministers also criticized the anti-abuse tax provisions of the proposed Senate bill. The letter states that the anti-abuse tax provisions would impact genuine commercial arrangements of payments to foreign companies taxed at an equivalent or higher rate than in the U.S. The letter further explains that this could be harmful for international banks and insurers because it would make cross-border, intragroup financial transactions subject to a 10% tax that would be non-deductible. The E.U. leaders are concerned that this would distort international financial markets.

In response to the letter, a Treasury spokesperson said that they “appreciate the views of the finance minsters” and are “working closely with Congress as they finalize the legislation.”

In consultation with the Department of State and pursuant to Executive Order 13662, the Director of the Office of Foreign Assets Control (“OFAC”) has updated Directive 4, which will expand sanctions on the Russian energy industry.

The new rules issued by OFAC prohibit certain activities by a U.S. person or within the United States, except where such activities are otherwise authorized by law or a license. The rules bar persons subject to U.S. jurisdiction from providing, exporting, reexporting (directly or indirectly) goods, services (except financial services), or technology in support of exploration or production for deepwater, Arctic offshore or shale projects that have the potential to produce oil in the Russian Federation, or in maritime area claimed by the Russian Federation and extending from its territory, and that involve any person determined to be subject to Directive 4.

Additionally, Directive 4 further prohibits the provision, exportation, or reexportation (directly or indirectly) of goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that meet all three of the following criteria: (1) the project was initiated on or after January 29, 2018; (2) the project has the potential to produce oil in any location; and (3) any person determined to be subject to Directive 4, including their property or interests in property, either has a 33% percent or greater ownership interest in the project or owns a majority of the voting interests in the project.

Examples of prohibited projects include, for example, drilling services, geological services, and mapping technologies. The prohibitions do not apply to the provision of financial services, for example, clearing transactions or providing insurance related to such activities.

The full text of Directive 4, as amended, can be found here.  For a listing of persons that are subject to a directive under Executive Order 13662, see OFAC’s Sectoral Sanctions Identifications List.

Recently OFAC also announced new sanctions on Russia’s financial sector and energy sector, as set forth in the revised Directive 1 and Directive 2, respectively.

In a recently issued Final Determination, U.S. Customs and Border Protection (CBP) confirmed that the roasting of coffee beans substantially transforms the beans into a product of the country in which the beans were roasted.

Coffee producer Keurig Green Mountain (“Keurig”) requested the determination as to the country of origin assignment to green coffee beans that it imported into the United States and Canada and then roasted in those countries.  Specifically, Keurig sought the determination as it relates to the procurement of its products by the U.S. government and certain regulatory waivers for  “U.S.-made end products.”

CBP answered unequivocally that it has consistently held that the act of roasting coffee beans substantially transforms green coffee beans into a different article of commerce pursuant to 19 U.S.C. section 2518(4)(B).  Noting numerous letter rulings dating back to the mid-1980s, CBP concluded that “roasting” or “roasting and blending” substantially transformed green coffee beans for country of origin purposes.

Interestingly, CBP found that it did not have occasion to address whether other processes in coffee manufacturing would be considered substantially transformative.  For example, a portion of the green coffee beans at issue had been undergone a decaffination process in their country of origin, prior to importation into the U.S.  Accordingly, CBP did not address whether the decaffeination process alone would substantial transform a caffeinated bean to a new article of commerce.  Similarly, the beans at issue were roasted, flavored, ground, degassed, and packaged in the same country (either the U.S. or Canada).  Therefore, CBP did not have occasion to determine whether any of these other processes, alone or in combination, may create different articles of commerce throughout the coffee production process.

As is often the case, a seemingly conclusive determination by CBP can still leave open significant questions related to the issues not squarely placed before the agency. Experienced counsel can help business determine what avenues of trade remain open and which are truly settled issues.

Just in time for the holiday season, the U.S. Court of International Trade (“CIT”) recently held that certain components of a Santa Claus suit were of such quality that they should be subject to apparel duties, not the free duty assessed on costumes and other “festive articles.”

The articles at issue were imported by Rubies Costume Co. (“Rubies”) as a complete Santa Clause costume. Included in the “premier” set, which carried a retail price of $100, were red polyester and acrylic pants, jacket and hat – adorned with white faux fur, of course – white gloves, shoe covers, a belt, wig, beard, and sack. Upon importation, U.S. Customs and Border Protection (“CBP”), evaluated each of the components and determined that the jacket and pants were classifiable under chapter 61 as “wearing apparel” and assessed duties of 32% and 28.2%, respectively.  In addition, CBP determine that the gloves and sack were also subject to duties.

Rubies filed a protest, arguing that the Santa suit should be classified under heading 9505 as a “festive article” which in not ordinarily worn other than as part of Christmas festivities.  Rubies argued that, like the other costumes that it imports, the Santa suit is worn by those who want to depict Santa Claus and any practical utility in the garments is merely incidental.  CBP argued, essentially, that the articles are of such quality that they function as apparel and were appropriately classified as such.

The CIT defined the issue of the case as follows: “[t]he issue is not whether the Santa Suit is a costume or apparel as those terms are colloquially understood; rather, the issue is whether the Santa Suit is ‘fancy dress , of textiles, of chapters 61 or 62’ or a ‘festive article,’ as those terms are defined in the HTSUS and relevant case law, which is a legal question.”  The Court focused on Chapter Note 1(e) to chapter 95 which states that “fancy dress, of textiles, of chapter 61 or 62” are barred from classification under chapter 95.  In light of this unequivocal exclusion, the CIT needed only to determine whether the jacket and pants are properly classified as “fancy dress” under the law. The Court rejected the testimony of Rubies’ expert testimony regarding fashion theory and comparisons with couture gowns as the height of “fancy dress.” Instead, the CIT, in an extensive review of prior case law, determined that components of the Santa suit were above a threshold or floor of minimum quality to be properly considered “fancy dress.”  Unlike cases where low quality costumes that lacked finished edges, closure hardware, or the general durability to be worn repeatedly were found to be “festive articles,” the Santa suit components were fully finished, listed as dry-clean only, and had stitching of ordinary durability.  Accordingly, the CIT found that the jacket and pants met legal definition of “fancy dress” and, as such, were expressly excluded from classification under chapter 95. The CIT applied a similar analysis for the gloves and sack which were of similar quality.

Cases with familiar subject matter are great for headlines, but can also highlight important inconsistencies between ‘gut’ expectations and the legal outcome of a product classification.  Most people may not hesitate in thinking that a Santa Claus suit, regardless of quality, is inherently a festive costume.  However, as the CIT demonstrated, tariff classifications do not turn on colloquial definitions.  Rather, as here, the legally binding chapter notes and precedential opinions defined the outcome in a manner that might surprise the casual observer.  Experienced counsel can ensure that classification (and duty) expectations are consistent with prevailing law.