• Camel Group Co., Ltd. (“Camel Group”), and
• Chenguang Biotech Group Co., Ltd. (“Chenguang Biotech”) and its subsidiary Chenguang Biotechnology Group Yanqi Co. Ltd. (“Chenguang Biotech Yanqi”).

Goods produced by these companies, wholly or in part, will be restricted from entering the United States. The addition of these companies brings the total number of entries on the UFLPA Entity List to 24.

Camel Group, headquartered in Xiangyang City, Hubei Province, China, is one of the world’s leading manufacturers of car batteries, particularly lead-acid batteries. Camel Group was ostensibly added to the Entity List on the grounds that it is allegedly “working with the government of Xinjiang to recruit, transport, transfer, harbor or receive forced labor or Uyghurs, Kazakhs, Kyrgyz, or members of other persecuted groups out of Xinjiang.” (Sec. 2(d)(2)(B)(ii), Pub. L. 117-78).

Chenguang Biotech is headquartered in Handan, Hebei Province, China, and produces plant-based extracts, food additives, natural dyes, pigments, and supplements from agricultural products. Chenguang Biotech Yanqi is based in the Xinjiang Uyghur Autonomous Region and is engaged in the production of food additives and nutritional supplements. These companies were ostensibly added to the UFLPA Entity List on the grounds that they allegedly “source material from Xinjiang or from persons working with the government of Xinjiang or the Xinjiang Production and Construction Corps for purposes of the ‘‘poverty alleviation’’ program or the ‘‘pairing-assistance’’ program or any other government-labor scheme that uses forced labor.” (Sec. 2(d)(2)(B)(v), Pub. L. 117-78).

The 2023 UFLPA Strategy Updates are relatively limited. There have been no official changes to the list of high priority sectors, although the report notes that “CBP continues to enforce the UFLPA against all sectors, prioritizing across all tariff codes in the Harmonized Tariff Schedule that could be at risk of having a supply chain that touches Xinjiang.” These prioritized “tariff codes” are not disclosed, and their relationship to the so-called “high-priority sectors” is not discussed.

While not officially updating the list of high priority sectors, the 2023 UFLPA Strategy Update does call out several additional categories of products as “potential risk areas” including “red dates and other agricultural products, vinyl products and downstream products, aluminum and downstream products, steel and downstream products, lead-acid and lithium-ion batteries, copper and downstream products, electronics, and tires and other automobile components.”

The 2023 UFLPA Strategy Updates also discuss the FLETF’s ongoing engagement with nongovernmental organizations (NGOs). NGOs are given a direct line of access to FLETF, which means that NGO allegations of forced labor in global supply chains must be treated with extremely careful consideration.

[1] The 2023 UFLPA Strategy Updates was published on July 26, 2023, but shared publicly on August 1, 2023.

Currently, a product imported into the United States from Canada or Mexico can have two “countries of origin” for customs purposes. Goods imported from Canada and Mexico have to be marked as a Product of Canada or Product of Mexico, pursuant to the application of the so-called NAFTA marking rules. However, those same goods may be treated as a product of a different country for purposes of the application of supplemental tariffs (e.g., Section 301 tariffs on goods from China) or government procurement. This can lead to some strange results—for example, in one case, goods imported from Mexico were marked “Product of Mexico” but subject to the Section 301 tariffs imposed on products of China. See, e.g., Headquarters Ruling Letter HQ H301619 (Nov. 6, 2018).

Under CBP’s proposed amendment, the current NAFTA marking rules would apply for all non-preferential purposes for goods from Canada and Mexico (e.g., admissibility determinations, administering quotas, government procurement contracts, and Section 301 duty assessment). This change would, in theory, reduce burdens on importers who previously were required to comply with two different sets of rules on the same merchandise, and would avoid the strange result of two different countries of origin applicable to the same goods. The actual commercial impact on any given company or product may vary and will be highly fact dependent. Companies reliant on imports from Canada and Mexico should carefully consider the impact of the proposed rule change on their import activity, and may wish to comment on the NPRM before the Thursday, August 5, 2021 deadline.

CBP’s Country of Origin Determinations

For U.S. imports from all jurisdictions other than Canada and Mexico, CBP uses the “substantial transformation” test to determine the country of origin for all non-preferential purposes (including marking the product and completing the customs declaration). The substantial transformation test involves a fact-specific examination, influenced by judicial and administrative precedent, of where the imported article was last transformed into a new and different article of commerce with a different name, character and use distinct from its constituent components.

For goods from Canada and Mexico, the NAFTA marking rules prescribe an objective set of rules for determining country of origin by comparing the tariff classification of imported components used to produce the finished goods and the tariff classification of the finished goods. When the final manufacturing operation accomplishes the specified “shift” in tariff classification, the marking rules are satisfied.

While the substantial transformation test is somewhat subjective, it has been historically favored by the trade. The importing community strongly resisted a proposal by CBP in 2008 to replace the substantial transformation test with tariff-shift rules for all non-preferential purposes. Importers expressed a preference for the subjective test that is flexible in its application.

CBP seems to be reasoning that, in the wake of the “strange result” rulings treating goods marked as a Product of Mexico as subject to the Section 301 tariffs on goods from China, the importing community’s appetite for the objective rules may have evolved.

Considerations for Companies Importing from Canada and Mexico

Unifying the country of origin test for all non-preferential purposes in North America could reduce administrative burdens, but the actual financial impact will vary depending on the facts. Companies affected by the rule change should consider submitting comments. The deadline is Thursday, August 5, 2021.

The Harmonized System is an international nomenclature that classifies products using six-digit codes. Signatories to the Harmonized System Convention, including the United States, agree to classify imported goods using the same six-digit codes in an effort to facilitate trade between countries. Signatories are permitted to further define products beyond six-digits, as the United States does using eight- and ten-digit codes. However, all signatory countries classify merchandise using the same six-digit codes. As a result, while the USITC employs a separate process that allows interested parties to advocate for more specific 10-digit statistical breakouts for classification of merchandise entering the United States, any changes above the 10-digit level, which would impact all signatory countries, must begin with advocacy through the WCO.

There are several potential benefits for having more specific classifications of products. Specific tariff classifications can allow companies and industries to better track trade flows helping to combat trade fraud and facilitate trade enforcement. For companies and industries that sell products globally, a single clear tariff classification can also have substantial trade facilitation benefits.

The WCO’s modifications to the Harmonized System are the culmination of a multi-year process (that repeats every five years) and accommodates products of new or emerging commercial significance. In particular, the changes that will take effect in January 2022, include new codes for flat panel display modules, smart phones, 3D printers, and unmanned aircraft. Overall, the USITC implementation of the WCO’s modifications will impact the classifications of more than 350 products relevant to a wide-range of industries.

The modifications will not have a tariff impact per se, but importers and customs brokers should nevertheless be aware of the changes to ensure they continue to identify the appropriate classification for all imports.

If you have any questions regarding the appropriate classification for a particular article of commerce, or require assistance in achieving more specific or harmonized classifications for your products, don’t hesitate to contact Kelley Drye’s international trade team for assistance.

USTR originally extended the Section 301 exclusions for these 99 products on December 29, 2020. The extensions were set to expire on March 31, 2021. The list of products for which exclusions are being extended is included in the annex of the December 29, 2020 notice. The list of products includes x-ray equipment, oxygen tubes, hand soap, hand sanitizer, and personal protective equipment, among others.

USTR has made no announcement regarding plans to extend other non-COVID-19 related exclusions that expired on December 31, 2020, or earlier.

If you have any questions, please contact: Jennifer McCadney or Matthew Pereira.

The First Sale Rule

The first sale rule permits importers to declare a lower customs value—and by extension, to lower the customs duty liability—for certain types of qualifying importations. To be eligible, an importation must involve a multi-tiered transaction (i.e., there must be three or more parties involved in the sequence of sales leading to the importer). Under U.S. law, the earliest sale in such a sequence of transactions may be declared as the customs value provided that the goods are clearly destined for the United States at the time of such sale and the first sale value otherwise satisfies the requirements applicable to any transaction value (i.e., it must be a bona fide sale that has been conducted at arm’s length).

First sale is thus commonly described as having “three elements”: the first sale in a multi-tiered transaction may be used as a customs value provided (1) it is a bona fide sale, (2) the goods are clearly destined for the United States at the time of the transaction, and (3) the value is an arm’s length price.

Meyer v. United States

The CIT’s decision in Meyer hinges on additional language from the seminal 30-year-old case that established first sale as a viable basis for customs valuation—language that has frequently been quoted, but seldom, if ever, scrutinized for meaning. The CIT interpreted that language to impose an overlooked requirement, namely that any legitimate first sale must be (4) absent any distortive non-market influences. While the first three requirements for the use of first sale are frequently assessed and litigated, the fourth requirement, the CIT notes, “has generally been neglected.”

In Meyer, the plaintiff failed to establish that it was entitled to use the “first sale” transaction value because it failed to produce sufficient evidence to satisfy both the (well-established) arm’s length and (newly in focus) distortive non-market influence requirements. The importer’s failure to produce sufficient information on these elements was decisive.

Significantly, the CIT also expressed doubt that the first sale rule was ever intended to be applied to transactions involving non-market economy participants and inputs, inviting the U.S. Court of Appeals for the Federal Circuit to provide further clarification.

Heightened Risk to First Sale Programs

While Meyer is not directly binding on other importers or fact patterns, and does not invalidate the use of first sale in all cases, the opinion does increase the risk associated with using first sale with suppliers in non-market economies (e.g., China and Vietnam). While it remains to be seen whether the importer in Meyer will appeal the final decision of the CIT, the Meyer decision creates a clear path for U.S. Customs and Border Protection to begin dismantling the use of first sale in transactions involving non-market economies, should it choose to do so.

Companies Should Reevaluate First Sale Programs

Any company currently relying on first sale to lower customs duty liability should evaluate its program to consider the ramifications of the Meyer decision, and to assess the overall health of the first sale program. Regardless of whether the Meyer decision is appealed, exercising reasonable care—and reducing the risk of customs penalties—requires importers to take account of court decisions relevant to customs value.

Even where all parties in a multi-tiered transaction are unaffiliated, and thus presumptively at arm’s length, companies may now have to establish the absence of any distortive non-market influences in order to maintain first sale programs. In light of the Meyer decision, companies should take affirmative steps to demonstrate the lack of non-market economy influence throughout these programs.

We are happy to help review your first sale program and to advise on strategies for preserving this important duty saving mechanism. Please contact us with any questions.

Yesterday, U.S. Customs and Border Patrol (CBP) issued a new rule that requires importers to begin marking Hong Kong goods as “made in China” for purposes of 19 U.S.C. § 1304. Goods that are entered or withdrawn from warehouse for consumption into the United States after September 25, 2020 will be subject to the new requirements. The rule was issued pursuant to last month’s Executive Order (E.O.) on Hong Kong Normalization, which requires U.S. government agencies to update their regulations to eliminate the differential treatment between China and Hong Kong under U.S. international trade rules.

Importers should act now to ensure that subject imports are properly marked. As CBP notes in the rule notice, failure to comply with marking requirements will result in the imposition of a 10 percent ad valorem duty.

A comprehensive list of the 21-covered product tariff subheadings is included in Annex A of the Federal Register Notice announcing the action. Examples of products subject to the additional tariff include cosmetics, beauty products, soaps and handbags.

The imposition of tariffs follow USTR’s July 2019 investigation and December 2019 finding that France’s digital services tax is unreasonable or discriminatory and burdens or restricts U.S. commerce. USTR held hearings in January 2020 to seek comment and input on the proposed application of 100 percent duties on a proposed list of 63 products from France. The final list of products subject to an additional 25 percent tariff is a subset of the proposed list. Notably, the final retaliatory list excludes Champagne, cheese and fine dinnerware, which were among the proposed products.

According to the announcement, USTR issued the 180-day suspension to allow additional time for bilateral discussions and multilateral negotiations that could potentially lead to a satisfactory resolution of the dispute. USTR further advises it could decide to impose tariffs at an earlier date and would issue a subsequent notice amending the effective date if it makes that determination.

USTR had initially determined to withhold taking action under this investigation in exchange for France’s agreement to delay collection of its digital services tax pending multilateral negotiations through the OECD to determine consensus on how to tax the activities of digital companies offering services outside a taxing jurisdiction. Those negotiations, however, have experienced setbacks as some OECD members have proceeded to enact and implement digital services taxes notwithstanding ongoing discussions, and it remains unclear whether calls for continued global talks will result in an outcome where the U.S. proceeds with or drops its proposed 301 tariffs.

For additional information about the investigation or proposed tariff implementation procedures please contact Jennifer McCadney.

The instructions provide a rules of origin definition to determine whether a good qualifies as an “originating good” under the USMCA, such that it is eligible for preferential tariff treatment. Under USMCA a good is “originating” in the United States, Mexico, or Canada when:

a) The good is wholly obtained or produced entirely in the territory of one or more of the Parties, as defined in Article 4.3 of the Agreement;

b) The good is produced entirely in the territory of one or more of the Parties using non-originating materials provided the good satisfies all applicable requirements of product- specific rules of origin;

c) The good is produced entirely in the territory of one or more of the Parties exclusively from originating materials; or

d) Except for a good provided for in Chapter 61 to 63, HTSUS:

the good is produced entirely in the territory of one or more of the Parties, is classified with its materials or satisfies the “unassembled goods” requirement, and meets a regional value content threshold of not less than 60% if the transaction value method is used or not less than 50% if the net cost method is used (not including RVC for autos); and

e) The good satisfies all other applicable origin requirements.

USMCA includes substantial new rules governing the rules of origin for automotive goods. The agreement increase the RVC rule for automotive goods by requiring that 75 percent of auto content be made in North America. At least 70 percent of an auto producer’s use of steel and aluminum must also originate in North America. The interim instructions further explain the alternative staging regime included in USMCA that implements the new auto goods rules. It provides that a passenger vehicle or light truck may be considered originating until the later of January 1, 2025 or five years after entry into force of the agreement. To be eligible for the alternative staging regime, the passenger vehicle or light truck must be numerous requirements, including a RVC that is not lower than 62.5 percent (using the net cost calculation method) and must be 75 percent by the later of January 1, 2025 or five years after entry into force of the agreement. Appendix 1 of the interim instructions includes certification procedures for automotive goods.

The instructions indicate that the U.S. Department of Labor will issue separate regulations regarding certain components of the labor value content requirements.

When the USMCA will enter into force, and officially replace the 1994 North American Free Trade Agreement (NAFTA) between the three countries, remains unclear. The USMCA was signed into law on January 29, 2020, and was ratified on March 13, 2020. Currently, the Administration plans for the agreement enter into force on June 1, 2020. However, a number of parties in all three countries, including a group of U.S. senators, is calling for a delayed entry into force of the agreement in light of the COVID-19 pandemic.

* The interim instructions are advisory only. They are not final, not legally binding, and are subject to further revision.

The report noted the following facts:

• For bills issued in fiscal years 2001 – 2018, CBP collected over $20 billion in uncollected AD/CV duties.
• For bills issued over the same period, $4.5 billion in AD/CV duties remained uncollected as of May 2019.
• Only 20 importers accounted for $1.93 billion (or 43.3 percent) of the $4.5 billion in AD/CV duties with the remaining $2.52 billion (or 56.7 percent) in uncollected duties accounted for by 1,118 importers.

CBP has also undertaken variety of measures to address uncollected duties. Perhaps most interesting is CBP’s use of new statistical models to identify key risk factors associated with nonpayment. As noted above, with only 20 importers accounting for more than 43 percent of the value of billed but uncollected duties, identifying high risk importers would appear to be a prudent step.

The report also identified the United States’ retrospective system of duty assessment as one factor contributing to complexities in duty collection faced by both agencies. The retrospective system is widely viewed as a net positive, however, which leads to more accurate duty assessment over time. The report concludes that while the two agencies have undertaken measures to address weaknesses in the process for collecting duties, more can be done.

One significant factor that the report failed to identify is that a significant portion of the uncollected duties are the result of prior loopholes in the so-called “new shipper” provisions of the AD/CVD law. Subsequent amendments to the law, including the bonding requirements, have since largely addressed this issue. Additionally, ongoing litigation between CBP and sureties accounts for much of those uncollected duties. Those sureties were left liable for the uncollected duties under bonds written for the importers who defaulted on their duty liability. The sureties have been largely unsuccessful in their attempts to avoid liability under the bonds they issued, and much of this duty liability will likely be collected once that litigation is completed.

A complete copy of the report may be accessed through the GAO’s website or using the following link: https://www.gao.gov/assets/710/702570.pdf.

Thursday, October 10, 2019 12:00 PM - 1:00 PM

The second round of the MTB process begins on October 11th of this year, businesses will have a total of 60 days to propose tariff suspensions on particular imports. The petitions are submitted to the US International Trade Commission for review. The successful submissions are combined into a single piece of legislation that Congress aims to pass next year.

MTB duty savings are anticipated to eliminate import taxes in excess of $700 million annually and reduce tariffs on well over 1000 imported products, thereby cutting production costs in the United States and enhancing the competitiveness of U.S. manufacturers.

Please join Kelley Drye International Trade attorney Jennifer McCadney and senior International Trade advisor Gregory Mastel for a 1-hour webinar that will cover the new petition process, from filing to implementation, as well as how to identify imports that may qualify for temporary duty reduction.

To register for this webinar, please click here.

All merchandise entered after June 1^st will be subject to the 25% rate.

The U.S. Trade Representative also issued a Notice modifying the implementing instructions regarding merchandise in foreign trade zones. According to the May 10^th Notice, merchandise subject to the Section 301 third tranche and admitted into a foreign trade zone in “privileged foreign” status will retain that status and will be subject, at the time of entry for consumption (i.e. entered into the commerce of the U.S.) to the additional duty rate that was in effect at the time of FTZ admission of the goods. Therefore, merchandise entered into a foreign trade zone as privileged foreign status prior to May 10^th will be locked into the 10% rate.

According to the Office of the U.S. Trade Representative (“USTR”), neither India nor Turkey meet the statutory eligibility criteria to continue as beneficiary countries under the GSP program. USTR has found that Turkey is “sufficiently economically developed and should no longer benefit from preferential market access to the United States market.” With respect to India, USTR concluded that the country failed to provide “equitable and reasonable access to its markets in numerous sectors.” India is the largest single beneficiary of the GSP program, with GSP-eligible imports worth $5-6 billion.

The Indian GSP eligibility determination was the result of a review of India’s GSP eligibility initiated in April 2018. Six months earlier, USTR announced new enforcement measures for GSP, including a triennial review process for each beneficiary country examining that country’s compliance with the 15 eligibility criteria established by Congress. One of those criteria is that the GSP beneficiary country must provide the United States with equitable and reasonable market access. In its latest pronouncement, USTR explained that “intensive” discussions with India regarding its trade barriers, particularly in the dairy and medical device industries, had been unsuccessful. In a statement from the Ministry of Commerce and Industry on Tuesday, India rejected the United States’ characterization of the negotiations, claiming that it was “agreeable to a very meaningful, mutual acceptable package.”

Monday’s notice to Congress marks the beginning of a 60-day waiting period before duty-free treatment of the GSP-eligible imports from Turkey and India will end.

In the memorandum, CBP reminds the public that regulations by the Department of Commerce (“DOC”) require that importers must file a certificate advising whether the importer has entered into an agreement, or otherwise has received reimbursement of AD duties, prior to liquidation of the entry.

Failure to file reimbursement certificates (stating that importer was not reimbursed) may double importer’s antidumping duties upon liquidation. CBP’s memorandum offers specifics on how to file the certificates and includes an example of a blanket reimbursement form.

The memo also outlines procedures for filing in ACE and ACS. Although CBP will accept paper reimbursement certificates, it is encouraging importers to file electronically.

CBP addresses other guidelines for filing reimbursement certificates, including the following: • Required language for reimbursement certificates • Instructions for filing blanket certificates

• Instructions for filing blanket certificates • Information regarding reimbursement certificates submitted in a CBP protest

For further information, please visit www.kelleydrye.com/Our-Practices/International/International-Trade or contact a Kelley Drye attorney.

For example, the imported Chinese components processed in a third country may nonetheless be subject to section 301 duties when imported into the United States unless they are “substantially transformed” into a new and different article of commerce in the third country. This is a product-specific analysis and involves a review of components and production steps. Recently, the Court of International Trade ruled that mere assembly of foreign component parts does not constitute substantial transformation. (Energizer Battery Inc. v. United States, 190 F. Supp. 3d 1308 (Ct. Intl. Trade 2016). The decision noted that, “whether there has been a substantial transformation depends on whether there has been a change in the name or use of the components.” The court focused not on whether “the components as imported have the form and function of the final product” but rather “whether the components have a pre-determined end-use at the time of importation.” The court suggested that the imported parts would need to undergo “further work” beyond mere assembly to be considered substantially transformed.

It is worth noting that Customs cited the Energizer action in its recently released ruling, HQ H300226, in which the importer argued that electric motors should be considered country of origin Mexico where the Chinese components are imported to Mexico and assembled into the electric motors. Customs ruled that based on the NAFTA tariff shift rules, the product qualified as a product of Mexico only for marking purposes; however, in accordance with Energizer, the production process performed in Mexico is “mere simple assembly and the foreign subassemblies are not substantially transformed.” Accordingly, for origin purposes, the country of origin of the motor remained the country of origin of the parts -- China.

HQ H300226 is significant as it is the first ruling issued post enactment of the Section 301 duties which makes the distinction between country of origin for marking vs. origin purposes. Customs makes it clear that when “considering a product that may be subject to antidumping, countervailing, or other safeguard measures, the substantial transformation analysis is applied to determine the country of origin.” The same would be true of section 301 duties. Once the product is determined to be country of origin China, the importer will be assessed the additional Section 301 duties of 10-25%.

Drawback provides an opportunity for importers to apply for refunds of duty payments upon exportation of the same or similar product. It is also a terrific opportunity for importers of components to receive duty refunds once the finished product is exported. Importers and exporters need not be the same party to apply for drawback as long as there is cooperation between the two.

The 444 page proposed regulations attempt to simplify the program especially with regard to manufacturing in the US and record keeping requirements. Electronic filing will also be a new requirement. Comments may be submitted until September 16, 2018.

In a decision that cited, among other sources, former President Harry Truman’s remark “{i}f you want a friend in Washington, get a dog,” the Court found that because pets are not clothing, the ability for the carriers to fall under the HTSUS heading 4202 rested on whether pets are “personal effects.” Relying on precedent from the U.S. Court of Appeals for the Federal Circuit in Avenues In Leather Inc. v. United States, 423 F.3d 1326, 1332 (Fed. Cir. 2005), which stated that “the common characteristic or unifying purposes of goods in heading 4202 consist{s} of organizing, storing, protecting, and carrying various items,” the Court determined that pets are not “personal effects” because “pets are living beings, and thus not things or items.” Further, that the distinction between animate and inanimate objects was critical to the classification of the pet carriers at issue, as all “goods listed in heading 4202 are designed to contain inanimate objects and not living beings.” Accordingly, the Court held that the pet carriers were excluded from heading 4202 as a matter of law, because the primary purpose of the pet carriers’ is to carry pets and not items.

The Court also refrained from ruling on the proper classification for the pet carriers, finding that the record was not sufficiently developed for such a determination. Reflecting this absence of evidence, the Court scheduled further proceedings to address the issue in the upcoming months.

CBP has one hundred fifty agents and officials, sixty five Air and Marine Operations personnel, three UH-60 Black Hawk, and three AStar helicopters working at the big game this year. We salute CBP’s well-coordinated effort in ensuring the safety of the Super Bowl.

In other Super Bowl-related Customs news, CBP has been busy seizing imported merchandise with intellectual property violations in advance of Super Bowl LII. Fake Super Bowl rings, team jerseys, bracelets, among other merchandise has been confiscated at U.S. ports. Smart trademark holders register their marks with CBP enabling the agency to seize counterfeit merchandise before it enters the stream of commerce.

The Automated Commercial Environment will have a minimal staff and Customs will not be enforcing Trade Facilitation and Trade Enforcement Act allegations during the shutdown. However, Customs will be sending “some messaging” on AD and CVD orders.

In addition, Customs will not be issuing requested rulings, monitoring quotas, or updating CBP.gov.

McAleenan will be holding a daily briefing during the shutdown and we will update this post with any developments.

U.S. Customs and Border Protection argued and the Court agreed that the quality of the Santa Claus suit took it out of the festive article provision and into wearing apparel. The Court noted the seams, finished edges, closure hardware and durability of the outfit. Not to mention the dry clean only label. The Court confirmed that to be considered a festive article, the costume must be below the threshold of a certain quality. For example, unfinished rather than finished edges.

Not exactly season’s greetings from the Court of International Trade, but a lesson for importers of holiday apparel. Best to review classification prior to entry and not get stuck with a duty bill from U.S. Customs.