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U.S. Issues Advisory on Sanctions Risks Involving North Korea (July 23, 2018)

Posted By RCVF Admin, Saturday, August 4, 2018
Updated: Saturday, August 4, 2018



U.S. Issues Advisory on Sanctions Risks Involving North Korea (July 23, 2018)

 By Melissa Proctor (Miller Proctor Law PLLC)

 

On July 23, 2018, the U.S. Departments of State, Treasury and Homeland Security issued an advisory that warns companies of the tactics used by North Korea to evade U.S. and United Nations economic sanctions. The advisory does not impose any new sanctions on North Korea. Rather, the sanctions on North Korea remains fully in effect. The advisory merely provides examples of how North Korea is attempting to evade existing sanctions, and draws attention to the risks of inadvertent sourcing and purchasing of goods, service and technology from North Korea.[1] In many cases, U.S. companies are wholly unaware of North Korea’s involvement in their overseas transactions.

 

For example, third-country suppliers are known to have moved their manufacturing operations (or have subcontracted portions of their production processes) to factories in North Korea without notifying their customers. In addition, North Korean companies often place false country of origin labels on goods that were produced in North Korea. The advisory also notes that North Korean companies have entered into joint ventures with entities located in other countries—the involvement of North Korea in those entities are not readily apparent to many multinational companies in industry sectors that include seafood, consumer electronics, minerals and precious metals, textiles and apparel, and construction, among others. (A list of the known joint ventures are identified in Annex 2 of the advisory.) Further, companies in North Korea are known to sell their products far below market prices, making them very attractive to middlemen and trading companies.

 

The advisory also points to the use of North Korean labor in international supply chains—where North Korean nationals have been loaned out by the North Korean government to manufacturers located throughout Asia, Eastern Europe, the Middle East and even South America. Based on a report issued by Military.com earlier this year, it is estimated that approximately 200,000 North Koreans are being used as slave labor in over 45 countries around the world, and that the North Korean government earns an estimated $3 billion annually for supplying slave labor to these countries. All of the wages earned by the workers are paid directly to the North Korean government or to companies controlled by the North Korean government. The average wage for a North Korean worker, payable to the North Korean government, is reportedly around $400 per month; however, the workers receive only 10% to 20% of that total amount. The export of slave labor is in addition to the forced labor taking place in the numerous prison labor camps inside North Korea.[2] Affected industries include seafood processing, shipbuilding, medical and pharmaceutical, textile apparel and footwear, IT, and the restaurant and hospitality industries.


1. Current Sanctions on North Korea

 

By way of background, the Foreign Assets Control Regulations,[3] which are enforced by the Treasury Department’s Office of Foreign Assets Control (“OFAC”) prohibit virtually all dealings by U.S. persons with North Korea. The U.S. Customs Regulations also prohibit the importation of North Korean-originating goods into the United States—specifically, imported merchandise that contains any amount of North Korean content is prohibited from entering the United States. CBP has also long had the authority to deny entry into the United States of merchandise produced, in whole or in part, by prison, forced, child or indentured labor under the Tariff Act of 1930 (19 U.S.C. Section 1307). The Trade Facilitation and Trade Enforcement Act (“TFTEA”),[4] which was enacted in 2016, further solidified CBP’s enforcement authority in this area. CBP is authorized to deny the entry of imported goods into the United States where there is evidence that they were produced by forced labor—but the burden was placed on CBP to prove that forced labor was in fact involved in the manufacture of imported goods.

 

The Countering America’s Adversaries Through Sanctions Act (“CAATSA”),[5] however, changed the rules of the game. CBP continues to refuse the entry of imported merchandise into the United States where it is believed to have been produced with forced labor, but the burden of proof now falls on the U.S. importers to show by clear and convincing evidence that North Korean forced labor was not used. If there is evidence of North Korean labor, CBP may detain and seize the imported goods, subject the goods to forfeiture, assess civil penalties, and may even refer the issue to Immigration and Customs Enforcement’s Homeland Security Investigations (“HSI”) for criminal investigation. U.S. importers caught up in a violation of CAATSA should expect to have their future import shipments scrutinized by CBP to a much greater degree, such as through increased examinations and detentions. And of course, violators will likely suffer negative publicity as a result of the violations.

 

2. Previous Guidance Issued on North Korea’s Deceptive Practices & U.S. Enforcement

 

Earlier this year, OFAC issued guidance on the various deceptive shipping practices employed by North Korea. For example, North Korea is known to physically alter the names and International Maritime Organization (“IMO”) number of vessels passing themselves off as different vessels. North Korea has also transferred cargo from one ship to another while at sea rather than while located a port, thereby concealing the origin or destination of the cargo. North Korea has also falsified vessel and cargo documents to obscure the origin or destination of cargo, as well as disabled the Automatic Identification System (“AIS”), a vessel’s collision avoidance system, to mask their movements.

 

We also previously reported that CBP had begun scrutinizing import shipments suspected of being made with North Korean forced labor, as directed by CAATSA. For example, CBP has detained and seized shipments from China, and has requested information and documentation from U.S. Importers through the issuance of CF-28s. The documents and records that may be requested by CBP as part of a CF-28 inquiry may include certificates of origin, supplier certifications stating that no forced labor was used, foreign supplier daily production records (including subcontractor production records), finishing and packing records, employee timecards and wage records, employee lists, purchase orders and delivery documents for raw materials, inputs and components used, inventory records, bills of material, commercial invoices, packing lists, proof of payment, factory visit reports and photographs, inline and final inspection reports, factory utility bills and payment, etc.  At the same time, CBP encourages parties, who have information about the use of North Korean or forced labor with respect to imported merchandise, to submit information via its online eAllegation portal—parties who provide tips that lead to the recovery of a penalty, fine, or the forfeiture of violative merchandise may be eligible to receive compensation of up to $250,000.

 

3. Advisory Urges Due Diligence and Awareness of North Korean Tactics


The advisory reinforces the need for companies with multinational operations to make themselves aware of the deceptive practices described above, and to implement due diligence policies and procedures to prevent inadvertent dealings with North Korea that violate U.S. sanctions laws and regulations. Companies should first and foremost ensure that they are screening all supply chain parties and those involved in international activities against the U.S. restricted parties lists, the restrictive measures imposed by the European Union, and other applicable country sanctions lists. Companies should also review the list of joint ventures involving North Korean entities provided in Annex 2 to the advisory.

 

In addition, to assist U.S. companies in their increased supply chain due diligence efforts, CBP previously published guidance on its website recommending the adoption of additional internal controls for compliance and updated its Reasonable Care Checklist. CBP recommends that U.S. importers—

 

  • Fully understand the sourcing, manufacturing and finishing processes for their imported goods, all of the companies involved, where exactly such operations are performed, and the labor conditions that exist in each of the production facilities:
  •  Review the information contained on CBP’s website relating to Forced Labor, such as fact sheets and recent investigations conducted by CBP;
  •  Review the U.S. Labor Department’s “List of Goods Produced by Child Labor or Forced Labor” and “Reducing Child Labor and Forced Labor Toolkit,” as well as the International Labor Organization’s (“ILO’s”) publication “Indicators of Forced Labour,” with respect to high-risk countries, high-risk commodities, and red flags;
  •  Perform regular risk assessments and internal audits of their supply chains to confirm that their imported goods are both “forced labor free” and “North Korea free”;
  •  Implement a formal, robust process for vetting foreign suppliers and vendors in high-risk areas, and incorporate prohibitions against the use of forced labor in purchase order terms and conditions, supplier agreements and codes of conduct; and,
  • Implementation of a formal social corporate responsibility compliance program.


Melissa Proctor is the founder of Miller Proctor Law PLLC, an international trade law firm located in Scottsdale, Arizona. For more than twenty years, she has advised companies on the full of array of international trade issues, imports, exports, embargoes and economic sanctions, anti-corruption compliance, and other agency requirements that impact the cross-border movement of goods, information and services. She may be reached at 480-447-8986 or melissa@millerproctorlaw.com.



[1] See https://www.state.gov/r/pa/prs/ps/2018/07/284312.htm.

[2] See http://www.military.com/daily-news/2017/07/10/how-north-korea-uses-slave-labor-exports-to-circumvent-sanctions.html

[3] See 31 C.F.R. Part 500 et seq.

[4] See Pub. L. 114-125.

[5] See Pub. L. 115-44.

 

Tags:  exports  imports  North Korea  Regulations  sanctions  Tariff 

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Retaliating Against the Retaliator – U.S. Proposes Additional Tariffs on Chinese-Origin Goods Valued at $200 Billion

Posted By Administration, Thursday, July 12, 2018
Updated: Thursday, July 12, 2018


by Melissa Proctor, Miller Proctor Law PLLC


It appears that the U.S. is moving deeper into its trade dispute with China. Late in the day on July 11th, the U.S. Trade Representative (USTR) announced that the United States may impose additional 10% ad valorem duties on a new list of Chinese-origin products valued at $200 billion. The new list covers certain agricultural goods, chemicals, materials used in building construction, and electronics. The USTR's proposal is in response to China's retaliation against the first round of Section 301 tariffs that took effect on July 6th.

By way of background, the United States' decision to impose increased tariffs under Section 301 of the Trade Act of 1974 (9 U.S.C. § 2411) was the result of an investigation into China's practice of requiring U.S. companies to transfer their intellectual property rights and technologies to Chinese companies in order to obtain business licenses and approvals to invest in China. The USTR determined that these practices were unreasonable, discriminatory and restrict U.S. commerce.

The following provides a timeline of the key events and developments in the Section 301 saga –

June 20, 2018: The USTR published a notice in the Federal Register announcing the imposition of the 25% ad valorem duties on certain Chinese-origin products. Affected goods included items classified in over 800 HTSUS subheadings valued at $34 billion – these items are identified in Annex A of the June 20th Federal Register notice. In addition, the USTR also requested public comments on the proposed imposition of additional tariffs on more Chinese-origin goods, which are valued at $16 billion – they are identified in Annex C of the June 20th Federal Register notice. The public comment process for the proposed on the Annex C items is ongoing. See 83 Federal Register 28710, June 20, 2018.
July 6, 2018: Additional 25% tariffs on the initial group of Chinese-origin (Annex A) products imported into the United States took effect. On the very same day, China retaliated by imposing increased tariffs on U.S.-origin products imported into China. China is now assessing 25% tariffs on U.S.-origin goods classified under 545 Harmonized System subheadings, which include agricultural products, SUVs, electric vehicles, whiskey, dog food and tobacco. China is also threatening to impose tariffs on 114 additional U.S.-origin goods if the U.S. takes further action under Section 301.
July 10, 2018: The USTR issued a notice of proposed tariffs (10% ad valorem duty rates) on even more Chinese-origin products valued at $200 billion in response to China's retaliatory action on July 6th.
July 11, 2018: The USTR published a notice in the Federal Register outlining the procedures and criteria for submitting requests for product exclusions from the Section 301 tariffs that took effect on July 6, 2018. See 83 Federal Register 32181 (July 11, 2018).

Upcoming Deadlines and Key Takeaways
The USTR is current seeking public comments on the June 20th proposed tariff increases on items identified in Annex C in the Federal Register notice. Key dates for this proposed action are as follows –

  • July 23rd: Deadline for submission of comments.
  • July 24th: Public Hearing at the International Trade Commission in Washington, D.C.
  • July 31st: Deadline for submission of post-hearing rebuttal comments.

The USTR is also currently seeking public comment on the July 10th proposed retaliatory tariff increases, and will hold a public hearing on the proposal. Key dates for the public comments and the hearing are as follows –

  • July 27th: Deadline for filing requests to appear at the public hearing.
  • August 17th: Deadline for submission of written comments.
  • August 20th-23rd: Public hearing at the International Trade Commission in Washington, D.C.
  • August 30th: Deadline for submission of post-hearing rebuttal comments.

The USTR prefers that public comments and rebuttal comments be submitted via the Federal eRulemaking Portal at http://www.regulations.gov.

The following provides the key takeaways for understanding the scope and requirements associated with the Section 301 actions:

  • The current and proposed Section 301 tariffs apply only to Chinese-origin goods – they do not apply to goods that are products of Hong Kong or Taiwan, even if they are exported from China to the United States.
  • Chinese-origin goods that are shipped to the United States from countries other than China are subject to the Section 301 tariffs.
  • Upon the entry of covered goods into the United States, U.S. importers must declare the HTSUS classifications that normally apply to the products, as well as the special Section 301 HTSUS subheading (HTSUS 9903.88.01).
  • The Section 301 tariffs do not apply to goods that are entered under HTSUS Chapter 98, such as HTSUS 9801 or 9802 – in these cases, the U.S. importer must declare HTSUS subheading 9903.88.01, the applicable HTSUS Chapter 98 subheading, and the Chapter 1 – 97 HTSUS classification that normally applies to the merchandise in question.
  • Section 301 duties are eligible for duty drawback.
  • Section 301 duties will apply to affected Chinese-origin products that are entered under free trade agreements or special trade programs.
  • With respect to Foreign Trade Zones (FTZs), affected products that enter into an FTZ on or after July 6th (except for those eligible for admission under Domestic Status) must be entered as Privileged Foreign Status (PFS) – they will be subject to the Section 301 duties or any applicable quantitative restrictions upon their withdrawal for consumption. (Note that withdrawals for export from the United States will not be impacted by the Section 301 tariffs.)

Key Strategy Considerations for U.S. Companies
In order to assess the impact of these developments on international supply chains, U.S. companies are urged to carefully review the lists of covered goods. Companies dealing in these products should consider submitting exclusion requests to the USTR. They should also consider reviewing the accuracy of the tariff classifications currently used for these items as valid arguments for their reclassification may be available thereby removing them from the scope of the Section 301 tariff increases. However, companies should exercise extreme caution here, as any sudden classification changes will likely draw scrutiny from U.S. Customs and Border Protection (CBP). Any classification changes should be made only after conducting a thorough legal analysis under the U.S. customs laws and regulations in order withstand such scrutiny.

U.S. importers of Chinese-origin goods that do not fall within the scope of the Section 301 tariffs should still anticipate close scrutiny by CBP. CBP will likely want to investigate whether the Section 301 tariffs are being unlawfully circumvented. The same holds true for U.S. importers of goods that are classified in Section 301 tariff classifications but that are sourced from other countries, as CBP will likely scrutinize those shipments to whether illegal transshipment may be occurring.

Of course, it goes without saying that U.S. companies should, if at all feasible, explore sourcing alternatives for products that are captured by the Section 301 actions.

U.S. companies should also consider submitting public comments and post-rebuttal comments to the USTR. Concerns about the likely impact of the Section 301 actions on U.S. companies and the economy should be voiced loudly – for example, the key decisionmakers should be made aware of any current and anticipated disruptions in supply chains, the impact of Section 301 actions on U.S. manufacturing operations and U.S. jobs, examples of price-gouging by some non-Chinese suppliers of covered products, and so on.

Finally, as this is an incredibly fluid situation with developments occurring at lightning speed, U.S. companies should continue to monitor closely the Section 301 actions that have been taken and those that are threatened. It appears that this game of chicken will continue at least for the near term.


Melissa Proctor is the founder of Miller Proctor Law PLLC, an international trade law firm located in Scottsdale, Arizona. For more than twenty years, she has advised companies on the full of array of international trade issues, including export controls, embargoes and economic sanctions, customs laws, anti-corruption compliance, and other agency requirements that impact the cross-border movement of goods, information and services. She may be reached at 480-447-8986 or melissa@millerproctorlaw.com.

Tags:  Tariff 

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Update and Key Developments on U.S. Increased Tariffs under Sections 232 and 301 – What Manufacturers, Importers and Retailers Need to Know

Posted By Administration, Thursday, June 14, 2018
Updated: Thursday, June 14, 2018


by Melissa Proctor, Miller Proctor Law PLLC


In March 2018, the Trump Administration imposed additional tariffs on certain steel and aluminum products imported into the United States from all countries1 for national security reasons in response to an investigation conducted by the Commerce Department's Bureau of Industry and Security ("BIS") under Section 232 of the Trade Expansion Act of 1962.2 Later that month, the Trump Administration announced that it would also impose increased tariff rates on certain goods imported from China under Section 301 of the Trade Act of 1974.3

By way of background, Section 232 gives the Executive Branch the ability to conduct investigations to assess the effects of imports on U.S. national security. In January 2018, the BIS delivered Section 232 reports on steel and aluminum to the President concluding that the quantities and circumstances of steel and aluminum imports threaten to impair national security. Specifically, the reports found that U.S. steel imports quadrupled U.S. exports of the same, and that aluminum imports had increased to 90% of the total demand for primary aluminum. Accordingly, the Commerce Department recommended that the President act to protect the long-term viability of the U.S. steel and aluminum industries.

In addition, Section 301 authorizes the Office of the United States Trade Representative ("USTR") to investigate unreasonable and discriminatory trade practices. The USTR recently investigated China's practice of requiring U.S. companies to transfer their intellectual property rights ("IPR") and technologies to Chinese companies in order to obtain business licenses and approval to invest in China. The USTR determined that these practices were indeed unreasonable and discriminatory, and effectively burden or restrict U.S. commerce.

Key Developments – Section 232
On March 8, 2018, the President issued proclamations4 announcing the increase in import tariffs on certain aluminum and steel products imported into United States from all countries. Exemptions to the increased tariffs were made for certain countries. For example, imports from Canada, Mexico, and the European Union were exempted until May 31, 2018, on which date the U.S. formally began imposing the tariffs on these countries.5 Tariff exemptions for Brazil and South Korea continue in effect as those countries negotiated quotas restricting steel and aluminum exports to the United States. Australia and Argentina also continue to be exempt while negotiations are ongoing with the U.S. There is also a process by which requests for product-specific exclusions may be submitted by U.S. persons to the Commerce Department.

On May 24th, the Commerce Department formally announced the commencement of an investigation of the impact of certain automotive imports on U.S. national security under Section 232.6 The investigation targets imports of cars, SUVs, vans, light trucks and automotive parts, and will focus on whether the decline in U.S. production of these products threatens the economy of the United States.

Key Developments – Section 301
On April 3, 2018, the U.S. Trade Representative ("USTR") published a proposed list of 1,300 Chinese products that would be subjected to additional 25% tariff rates.7 The targeted products include: chemicals and pharmaceutical products; certain rubber products; products of iron and non-alloy steel; airplanes and helicopters; aluminum; boats; electrical machinery; firearms; glass and microscopes; motor vehicles; tires and conveyor belts; and, TV image and sound recorders and reproducers. However, on May 20, 2018, Treasury Secretary Steven Mnuchin announced that the U.S. was "putting the trade war on hold" with respect to the Section 301 increased tariffs pending negotiations with China to reduce the U.S. trade deficit and address certain acts, policies, and practices related to intellectual property rights.8

Retaliation to U.S. Actions under Sections 232 and 301
The European Union, China, Japan, Russia, Turkey, and India have each notified the World Trade Organization (WTO) of their potential retaliation to the U.S. increased tariffs on steel and aluminum products under Section 232 tariffs per the WTO's Safeguards Agreement. In addition, Canada has requested the establishment of a NAFTA dispute panel on the issue as well. Further, China, the EU, Canada and Mexico have either already taken retaliatory measures or have threatened to do so in response to the U.S. actions under Sections 232 and 301 as follows:

  • China: On April 2, 2018, China increased import tariffs on 128 U.S. goods in retaliation against the U.S. Specifically, China imposed a 15% tariff on nuts, fresh and dried fruits, grape wine, denatured ethyl alcohol, ginseng roots, and seamless tubes, pipes and hollow profiles of iron and steel. It also imposed a 25% tariff on aluminum waste and scrap, as well as pork products.9 On April 4th, China proposed a second set of potential retaliatory tariffs on 106 U.S. products affecting $50 billion in U.S. exports – those goods reportedly include: aircraft and automobiles, including parts and components; industrial equipment and machinery; plastic products; agricultural products; alcohol; and, tobacco.10 However, the Chinese Ministry of Commerce has not advised when these tariffs might become effective.
  • Canada: Canada announced a trade-restrictive tariff list, targeting over $12.8 billion of U.S. products, that will formally take effect on July 1, 2018 – these measures will remain in effect until the U.S. terminates the Section 232 increased tariffs on Canada.11 The trade-restrictive list provides that steel and aluminum products will be assessed a 25% tariff rate, and the following products will be assessed a 10% tariff rate:
  • Aluminum products
  • Dishwasher detergents
  • Pens and markers
  • Iron or steel beer kegs
  • Coffee
  • Refrigerators, freezers, dishwashers, washing machines
  • Certain water heaters
  • Certain vegetables
  • Handkerchiefs, cleansing tissues, facial tissues, towels
  • Plastic household articles
  • Inflatable boats, motorboats, sailboats
  • Insecticides and herbicides
  • Licorice, toffee
  • Manicure and pedicure products
  • Maple sugar and syrup
  • Mattresses
  • Mayonnaise, salad dressing, condiments, seasonings, sauces
  • Lawn mowers
  • Nut and fruit purees, pastes, jams and jellies
  • Orange juice
  • Liquid or cream skin products and preparations
  • Iron or steel parts for stoves, ranges, grates, cookers, BBQs, and similar non-electric domestic appliances
  • Playing cards
  • Plywood
  • Perfumes or deodorizers for rooms
  • Prepared meals, pizza, soups and broths
  • Postcards and greeting cards
  • Shaving products
  • Sleeping bags
  • Tablecloths, tableware and kitchenware
  • Toilet paper
  • Waters (still or aerated, with or without sugar, sweetening, flavors)
  • Whiskey
  • Yogurt
  • EU: In May, the EU published two retaliation lists targeting U.S. exports valued at $7.5 billion. The increased tariffs will be imposed in two phases.12 In the first phase, tariff concessions will be suspended as of June 20th on products including corn, cranberries, tobacco, cosmetics, clothing and steel products. The second phase of tariffs will either be implemented on March 23, 2021 or the 5th day following the date of the WTO's finding that the Section 232 tariffs violates the WTO – those tariffs would target:
  • Aluminum
  • Apparel and footwear
  • Batteries
  • Bourbon
  • Ceramics, glass
  • Fishing vessels
  • Household articles
  • Motor vehicles and boats
  • Paper
  • Textiles
  • Washing machines
  • Yarn
  • Mexico: On June 4th, the Ministry of Economy published a list of U.S. goods13 that will be subject to equivalent measures to the Section 232 tariffs, as follows:
  • 25% tariff on flat steel products
  • 25% tariff on pork products (legs, hams, sausages)
  • 20% tariff on agricultural products (apples, potatoes, cranberries, parmesan and grated cheese)
  • 25% tariff on Tennessee whiskey and bourbon, fresh cheese
  • 7% - 15% tariffs on certain metal furniture, lamps and lighting fittings, fans and air pumps, aluminum kitchen wares and motor boats

Key Takeaways
Both the Section 232 and Section tariffs imposed by the United States, as well as the retaliatory measures (both taken and proposed) by U.S. trading partners, continue to be fluid situations. It is critical for U.S. companies to review the products that may be subjected to the tariffs proposed by the United States and its trading partners, assess how these measures may impact their international operations, and stay up-to-date on new developments as they rapidly arise to ensure that they have sufficient lead time to adapt to changes that will impact their international supply chains.

[1] See https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-steel-united-states-4/. See also https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-aluminum-united-states/.
[2] See 19 U.S.C. Ch. 7.
[3] See 9 U.S.C. § 2411.
[4] See https://www.whitehouse.gov/presidential-actions/page/2/.
[5] Id.
[6] See https://www.commerce.gov/news/press-releases/2018/05/us-department-commerce-initiates-section-232-investigation-auto-imports.
[7] See https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/april/under-section-301-action-ustr.
[8] See https://www.reuters.com/article/us-usa-trade-mnuchin/u-s-china-putting-trade-war-on-hold-treasurys-mnuchin-says-idUSKCN1IL0JG.
[9] See https://www.reuters.com/article/us-usa-trade-china/china-hammers-u-s-goods-with-tariffs-as-sparks-of-trade-war-fly-idUSKCN1H81J3.
[10] See also https://ig.ft.com/us-china-tariffs/.
[11] See https://www.fin.gc.ca/activty/consult/cacsap-cmpcaa-eng.asp.
[12] See http://trade.ec.europa.eu/doclib/docs/2018/march/tradoc_156648.pdf.
[13] See https://www.wsj.com/articles/mexico-details-its-list-of-retaliatory-tariffs-against-u-s-adds-bourbon-1528217507.


Melissa Proctor is the founder of Miller Proctor Law PLLC, an international trade law firm located in Scottsdale, Arizona. For more than twenty years, she has advised companies on the full of array of international trade issues, including export controls, embargoes and economic sanctions, customs laws, anti-corruption compliance, and other agency requirements that impact the cross-border movement of goods, information and services. She may be reached at 480-447-8986 or melissa@millerproctorlaw.com.

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A Game of Chess Well-Played or a Game of Chicken? Significant Import Tariff Increases by the United States and China

Posted By Administration, Thursday, April 12, 2018
Updated: Thursday, April 12, 2018


by Melissa Proctor, Miller Proctor Law PLLC


In early March, as has been widely reported throughout the media and industry organizations, the Trump Administration imposed additional tariffs on certain steel and aluminum products imported into the United States for national security reasons because of the investigation conducted by the Commerce Department's Bureau of Industry and Security (BIS) under Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. Ch. 7). Also making news as of late is the March 22nd announcement that the United States would further increase tariff rates on additional goods imported from China under Section 301 of the Trade Act of 1974 (9 U.S.C. § 2411). These international trade punches and counterpunches appear to be accelerating between the United States and China continue to accelerate rapidly. The following is intended to provide a detailed summary for manufacturers, suppliers, retailers and consumers of all the "need-to-know" developments in these fast-moving areas.

Increased Tariffs on Aluminum and Steel (Section 232 Investigation):

  • Section 232 of the Trade Expansion Act of 1962 gives the Executive Branch the ability to conduct investigations to determine the effects of imports on U.S. national security. In January 2018, the BIS delivered Section 232 reports on steel and aluminum to the President concluding that the quantities and circumstances of steel and aluminum imports threaten to impair national security.1 Specifically, the reports found that U.S. steel imports quadrupled U.S. exports of the same, and that aluminum imports had increased to 90% of the total demand for primary aluminum. Accordingly, the Commerce Department recommended that the President act to protect the long-term viability of the U.S. steel and aluminum industries. The President issued Proclamations on March 8, 2018, announcing the increase in import tariffs on certain aluminum and steel products.2
  • The increased tariffs apply to products originating in all countries – except for those countries that were specifically exempted. The new tariff rates went into effect on March 23, 2018.
  • The affected steel products include goods classified in HTSUS Subheading 7206.10 – 7216.50, 7216.99 – 7301.10, 7302.10, 7302.40 – 7302.90 and 7304.11 - 7306.90.
  • The affected aluminum products include: unwrought aluminum in HTSUS Heading 7601; aluminum bars, rods and profiles in Heading 7604; aluminum wire in Heading 7605; aluminum plate, sheet, strip and foil in Headings 7608 – 7609; and, aluminum castings and forgings in HTSUS Subheadings 7616.99.5160 and 7616.99.5170.
  • U.S. Customs and Border Protection issued instructions for the filing of entries that are subject to the increased tariffs on aluminum and steel products.3 U.S. importers are required to report the regular HTSUS classifications applicable to the imported steel products as well as HTSUS Subheading 9903.80.01. For aluminum products, U.S. importers must report the applicable HTSUS classifications of those goods as well as HTSUS Subheading 9903.85.01.
  • The following countries have been exempted from the additional tariffs on the covered steel and aluminum products: European Union member states; Argentina; Australia; Brazil; Canada; Mexico; and, South Korea.4
  • Aluminum and steel products determined not to be produced in the U.S. in a sufficient and reasonably available amount or in a satisfactory quality will be excluded from the increased tariffs upon request. Products may also be excluded based on national security issues. The BIS will accept public comments until May 18, 2018 on the process that will allow interested parties to request exclusions from the increased tariffs. Parties eligible to request such exclusions are individuals or entities that are suppliers of the covered products in the United States or that use them in the United States in construction and manufacturing operations. (Note that any individual or entity in the U.S. may also file objections to the requests for exclusions under the announced process.)5
  • On April 2, 2018, China increased import tariffs on 128 U.S. goods totaling approximately $3 billion in U.S. exports to China in retaliation against the additional tariffs imposed by the Trump Administration on steel and aluminum products. China imposed a 15% tariff on the following products: nuts; fresh and dried fruits; grape wine; denatured ethyl alcohol; ginseng roots; and, seamless tubes, pipes and hollow profiles of iron and steel. It also imposed a 25% tariff on aluminum waste and scrap, as well as pork.

Proposed Increase in Tariffs on 1,300 Chinese Products (Section 301 Investigation):

  • Section 301 of the Trade Act of 1974 authorizes the Office of the United States Trade Representative (USTR) to investigate unreasonable and discriminatory trade practices. The USTR recently investigated China's practice of requiring U.S. companies to transfer their intellectual property rights (IPR) and technologies to Chinese companies in order to obtain business licenses and approval to invest in China. The USTR determined that these practices were indeed unreasonable and discriminatory, and effectively burden or restrict U.S. commerce.6
  • On April 3, 2018, per the Section 301 investigational findings, the USTR published a proposed list of 1,300 Chinese products that would be subjected to additional 25% tariffs.7 (Note that the proposed Section 301 tariff increases will be in addition to the increased duties assessed on aluminum and steel products from China.) These tariff increases have not yet taken effect.
  • The Chinese products targeted for the proposed increase in import duties under Section 301 include: chemicals and pharmaceutical products; certain rubber products; products of iron and non-alloy steel; airplanes and helicopters; aluminum; boats; electrical machinery; firearms; glass and microscopes; motor vehicles; tires and conveyor belts; and, TV image and sound recorders and reproducers.
  • Interested parties may submit written comments to the USTR on the proposed tariff increase by May 11, 2018, and a public hearing is scheduled to be held on May 22, 2018. Thereafter, the USTR will issue a final determination as to which products will be subject to the increased import duties and the deadline on which those increases will go into effect.
  • In retaliation, China proposed to impose an additional 25% tariff on more than 100 U.S. products, such as corn, cotton, sorghum, soybeans and wheat, beets, cranberries, orange juice, tobacco and whiskey. China has also proposed to target certain manufactured items for an additional 25% tariff as well (e.g., aircraft, automotive parts and components, chemicals, off-road vehicles, passenger cars, SUVs and plastics). In addition to the tariff increases, the U.S. has also proposed the imposition of restrictions on Chinese investment in the United States.

The U.S. tariff increases under Section 232, as well as China's retaliatory actions, are currently in effect, and U.S. importers should confirm that they are in full compliance with the new entry requirements applicable to covered products.

However, the tariff increases proposed by the United States and China relating to the Section 301 investigation have not yet gone into force. It is therefore critical for U.S. companies to review the products that may be subjected to the tariffs proposed by the United States and China and assess how these measures may impact of these measures on their international operations and supply chains. As with all things international trade-related, it is crucial for U.S. companies to stay up-to-date on any new developments to ensure that they have sufficient lead time to adapt to changes that will impact their international supply chains.

[1] https://www.bis.doc.gov/index.php/other-areas/office-of-technology-evaluation-ote/section-232-investigations
[2] https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-steel-united-states
https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-aluminum-united-states
[3] https://www.cbp.gov/trade/programs-administration/entry-summary/232-tariffs-aluminum-and-steel
[4] https://www.whitehouse.gov/briefings-statements/president-trump-approves-section-232-tariff-modifications
[5] https://www.commerce.gov/news/press-releases/2018/03/us-department-commerce-announces-steel-and-aluminum-tariff-exclusion
[6] https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/march/section-301-report-chinas-acts
https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/march/section-301-fact-sheet
[7] https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/april/under-section-301-action-ustr


Melissa Proctor is the founder of Miller Proctor Law PLLC, an international trade law firm located in Scottsdale, Arizona. For more than twenty years, she has advised companies on the full of array of international trade issues, including export controls, embargoes and economic sanctions, customs laws, anti-corruption compliance, and other agency requirements that impact the cross-border movement of goods, information and services. She may be reached at 480-447-8986 or melissa@millerproctorlaw.com.

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Tags:  China  Tariff 

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New Miscellaneous Tariff Bill Process Signed into Law – US Companies Should Start Exploring Potential Duty-Savings Opportunities Now

Posted By Administration, Thursday, June 9, 2016
Updated: Wednesday, June 8, 2016


by Melissa Proctor, Polsinelli, P.C.


On May 20, 2016, President Obama signed into law The American Manufacturing Competitiveness Act of 2016 (H.R. 4923), which fundamentally reforms the Miscellaneous Tariff Bill ("MTB") process and provides significant duty savings opportunities for U.S. companies. The MTB process temporarily suspends or reduces the duties that are assessed on imports of certain goods into the United States for a three-year period. U.S. importers and manufacturers favor MTBs because they allow finished goods to be produced in the United States at significantly lower costs, resulting in savings that can be passed along to their customers and U.S. goods that have an increased competitive edge in international markets.

As reported in last month's RVCF Link, the MTB process has been around for decades. Under the previous rules, members of Congress introduced duty suspension bills on specific goods at the request of their constituents. The bills were then reviewed by the International Trade Commission ("ITC") and the executive branch to ensure that: (1) the imported items were non-controversial (i.e. not readily available from U.S. sources); (2) the estimated revenue loss to the U.S. government as a result of the proposed duty suspension or reduction was less than $500,000 per year; and, (3) the duty suspension could have been administered by U.S. Customs and Border Protection. If all three conditions were satisfied the individual bills were then inserted into larger miscellaneous tariff bills by the House Ways and Means and Senate Finance Committees.

The new law establishes an enhanced process whereby individual importers and manufacturers may submit written petitions directly to the ITC requesting that certain products be afforded MTB treatment. Later this year, the ITC will publish a Federal Register notice requesting petitions from the public on items that warrant duty suspensions or reductions. Petitions should provide the following information:

  • Identification of the petitioner;
  • Certification that the products will likely satisfy the three (3) conditions noted above;
  • Detailed description of the product and its tariff classification;
  • The U.S. industry or industries utilizing the product;
  • Whether the petition requests a new duty suspension or reduction, or merely requests extensions of existing preferential tariff treatment;
  • Estimated total import value of the product (by all importers) over the following five-year period; and,
  • Information regarding any domestic production of the item, if known.

Companies that may be interested in submitting petitions should first review their import data obtained through ITRAC or ACE to identify imported merchandise that is currently subject to duties and the amount of duties paid on those items on a yearly basis. For items that are currently subject to high rates of duty, companies should then assess: (a) the extent to which the items in question are currently manufactured domestically; (b) the extent to which the items are available from foreign suppliers; and, (c) whether the total duties paid on imports of the product into the United States likely exceed $500,000 annually. Petitions should describe the products as narrowly as possible in order to distinguish them from others in the market and increase the likelihood of success. Compiling this data will generally require input from various sources both within and outside the company (i.e., sourcing/purchasing departments, accounting and finance, legal, compliance, logistics and transportation, suppliers and vendors, national trade associations, etc.).

The ITC will then publish in the Federal Register all of the petitions that are received, and solicit comments from the public and input from U.S. Customs and Border Protection ("CBP"), the Commerce Department and other agencies. The ITC will then confirm whether the three above-referenced conditions are satisfied, and issue its recommendations to Congress. At that point, the House Ways and Means Committees will review the ITC's findings, draft proposed MTB legislation that will amend Chapter 99 of the Harmonized Tariff Schedule of the United States, and certify that there are no associated spending earmarks and publish a list of limited tariff benefits. The proposal would then move on to the House for consideration.

The new MTB process is intended to provide U.S. companies with greater transparency and ability to participate more directly in the process of securing temporary duty suspensions and reductions. The ITC is expected to publish instructions for participating in the new MTB process in the Federal Register in October; however, manufacturers and importers are advised to start exploring this potential duty-saving opportunity now.


Melissa Proctor is a Shareholder with Polsinelli, P.C. With significant experience in the customs laws and regulations, export controls, economic sanctions, and international trade, Melissa is committed to understanding companies' operations and providing assistance geared toward helping them reach their specific business and operational goals. She may be reached at (602) 650-2002 or via e-mail at mproctor@polsinelli.com.

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Tags:  Customs  Tariff 

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U.S. Exporters Should Seek the Assistance of Customs and Border Protection in Resolving Disparate Tariff Classification and Customs Valuation Treatment in Foreign Markets

Posted By Administration, Thursday, July 9, 2015
Updated: Tuesday, July 7, 2015

by Melissa Proctor, Polsinelli, P.C.


On June 18, 2015, U.S. Customs and Border Protection ("CBP") published a General Notice in the Federal Register announcing a new process that will allow U.S. exporters to request CBP's assistance in resolving disputes with foreign government authorities involving tariff classification and customs valuation issues. See 80 Fed. Reg. 34924. This new avenue should prove to be an important tool for U.S. companies that may, from time to time, receive pushback from foreign markets on the classifications and values that are being used for their products. Exporters are encouraged to seek assistance from CBP when they encounter differing interpretations on classification and valuation in foreign markets, as they can lead to the disparate treatment of their goods resulting in additional costs and potential liability for foreign customers. In addition, U.S. exporters may experience a competitive disadvantage due to these varying interpretations and costly delays in the clearance of their goods in the countries of importation. The following describes the mechanics of CBP's new process as well as provides tips for preparing and submitting effective requests to CBP.

By way of background, when imported goods are entered into the United States, they require a ten-digit tariff classification code under the Harmonized Tariff Schedule of the United States ("HTSUS"). The HTSUS provides detailed commodity descriptions of more than 5,000 items in various chapters, sections and headings. The assigned classification codes are what drive the duty rates that are applied to the imported goods at the time of entry. The HTSUS reflects the classification rules established under the international Harmonized Commodity Description Coding System (or "Harmonized System") developed by the World Customs Organization ("WCO"). The Harmonized System was designed to ensure a uniform approach for the worldwide tariff classification of products. The United States, European Union and more than 100 other countries around the world are parties to the Harmonized System and utilize it as the basis of determining the tariff classification. The Harmonized System Committee ("HSC"), comprised of the various WCO members, meets twice annually to discuss tariff classification issues, settle disputes, and update the Harmonized System nomenclature and Explanatory Notes. Disputes between WCO members regarding proper interpretations of the Harmonized System rules are generally settled by negotiation between the parties. If these issues cannot be resolved, the parties may refer the dispute to the HSC for consideration and recommendations. CBP leads the U.S. delegation at meetings of the HSC.

Similarly, the U.S. rules for appraising imported merchandise reflects those of the international Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (i.e., the "WTO Valuation Agreement"). For example, the primary basis of appraisement for imported goods is transaction value, which is defined as the price actually paid or payable for merchandise when sold for exportation to the United States plus certain statutorily required additions. There are times when transaction value cannot be used as the proper basis of appraisement – in those cases, the value of the imported goods must be based on other approved valuation methods. Proper valuation of imported merchandise will ensure the accurate calculation of duties, fees and taxes in the country of importation. All members of the WTO are expected to have implemented this common set of valuation rules. The WTO's Technical Committee on Customs Valuation ("TCCV") meets twice annually and is responsible for reviewing valuation issues, resolving disputes amongst WTO member countries, and issuing advisory opinions. Disputes arising under the WTO Valuation Agreement may be referred to the TCCV for consideration and recommendations. The United States currently chairs the TCCV, and CBP represents the United States at meetings of the TCCV.

In theory, based upon an item's commodity description, the tariff classification of a good imported into countries that adhere to the Harmonized System is supposed to be identical up to the first six digits; however, as noted above, many products that would normally be expected to be uniformly classified can be assigned widely varying codes by foreign government authorities because of different interpretations of the rules themselves. The same holds true for the valuation of imported merchandise – where the rules may be arbitrarily applied from jurisdiction to jurisdiction. Foreign customers or their brokers may reject product tariff classifications or product values used by U.S. companies, which are reflected on the commercial invoices and other shipping documents. U.S. companies may even be requested to modify the classifications and values reflected on their documentation in order to comply with the mandates of foreign customs authorities – mandates that may conflict with the requirements under U.S. law.

When such situations occur, CBP invites U.S. exporters to submit formal requests for assistance. The requests should be in the form of a narrative letter that is prepared in essentially the same manner as binding ruling requests. For example, requests involving tariff classification issues should include:

  • A detailed description of the merchandise;
  • Clear explanation of the disparate treatment received in the foreign country;
  • Samples, photographs or diagrams of the goods;
  • Primary use and composition of the goods;
  • Purchase price and selling price of the goods; and,
  • Other technical and commercial specifications of the items.

Requests for valuation assistance should be supported by:

  • A detailed description of the goods;
  • Clear explanation of the disparate treatment received in the foreign country;
  • Any assists, commissions, royalties, license fees, discounts, and special packing requirements;
  • The sales terms applicable to the transaction;
  • The relationship between the exporter and foreign customer;
  • Whether the sale for export was made at arm's length;
  • Whether any agents are used in the sales transaction; and,
  • Samples, photographs or diagrams of the goods.

U.S. companies' requests should be addressed to the Commerce and Trade Facilitation Division of the Office of International Trade, Regulations and Rulings. If it agrees with the exporter, CBP will consider the appropriate course of action which may include discussions with the foreign customs administration or dispute settlement before the HSC or TCCV. CBP notes that it will strive to provide an initial response to the exporter within 60 days of the receipt of a formal request and will keep the exporter updated on its progress in resolving the conflict.

CBP notes that, in 2014, a company informally requested its assistance in a situation in which a foreign country was apparently misclassifying its products. The company asked CBP to try to resolve the issue with the foreign customs authorities and refer the matter to the HSC, if necessary. Within 30 days of receiving the company's request, CBP attorneys and import specialists reviewed the issue, agreed that the foreign administration's interpretation was in error, and raised the issue bilaterally with the country in question. In the end, the foreign customs authorities agreed with CBP's position and reclassified the goods accordingly. Thus, the new request process outlined by CBP should be very useful for U.S. companies that find themselves at a commercial and competitive disadvantage as a result of unequal classification and valuation treatment of their products in foreign markets.


Melissa Miller Proctor is a Shareholder with Polsinelli, P.C. With significant experience in the customs laws and regulations, export controls, economic sanctions, and international trade, Melissa is committed to understanding companies' operations and providing assistance geared toward helping them reach their specific business and operational goals. She may be reached at (602) 650-2002 or via e-mail at mproctor@polsinelli.com.

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Tags:  CBP  Customs  HTSUS  Tariff 

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