June 10 and 17 Deadlines for Challenging Tranche 4 of Section 301 Tariffs on Chinese Imports

On May 17, 2019, the Trump Administration issued its fourth list (or tranche) under Section 301 of imported products from China to have a 25% tariff. Tranche 4 is the largest tariff increase list under Section 301 against China and will affect $300 billion of goods imported annually. Just two days earlier, the Trump Administration increased the tariff rate from 10% to 25% for Tranche 3 items. Tranche 4 completes the 25% tariff increase on all Chinese imports except for the tariff classifications exempted as described below. Importers must pay the rate increase in addition to any antidumping duties owed.

However, you may be able to convince our government to remove certain tariff classifications from the Tranche 4 tariffs if you act quickly. The US Trade Representative is asking for the public to comment on Tranche 4 and, through the filing of public comments and the submission of testimony in support at a hearing in Washington, D.C., is offering the public the opportunity to try to convince a special committee, called the Section 301 Committee, that certain tariff provisions should be exempted from the increased rate. Do not confuse this public comment opportunity with tariff exclusions. Tariffs exclusions are offered only after the public comment period has closed and after a tariff list or tranche is permanent. Tranche 4 in its present state is only tentative and will be amended and finalized shortly after the public comment period closes. Public comments, if successful, are more effective than tariff exclusions. Tariff exclusions last for only one year and the USTR has not said whether renewals or extensions will be permitted. In contrast, the public comment procedure provides the opportunity to exempt a specific tariff classification before Tranche 4 is finalized. If the public comment works, importers do not pay the 25% duty under that tariff classification and do not have to worry about a tariff exclusion.  

We strongly advise that anyone who is impacted by Tranche 4 file a public comment. You do not have to be an importer to file a public comment or to testify at the public hearing. Any interested party may submit and appear. Again, if your public comment and testimony succeed and your tariff classification is not part of the final Tranche 4, there is no need to thereafter request a tariff exclusion (once the procedure is rolled out). If your public comment and testimony do not succeed, you still may be able to file a tariff exclusion request. 

You must act quickly, however. June 10 is the deadline to file a request with the USTR to testify at a June 17 hearing in Washington, D.C.  June 17 is the deadline to file your public comment. We also encourage those wishing to prepare a public comment and testimony to enlist the help of legal professionals who possess the right touch and experience. While there are no guarantees, every single company that our law firm previously helped with the public comment/hearing process saw positive results.

As mentioned above, the tariff rate for Tranche 3 items increased from 10% to 25%. A tariff exclusion procedure for Tranche 3 is expected to be announced soon. We also suggest that you start preparing your Tranche 3 exclusion request immediately. From the example of Tranche 1 and 2, the window for filing tariff exclusion requests under Tranches 3 and 4 is likely to be small and announced with little notice. Often companies find it difficult to get all the information and arguments together in time. You do not want to rush your tariff exclusion request. You do not want your request rejected because it was poorly argued or because you did not follow the correct procedures. How do you start preparing your tariff exclusion request for Tranche 3 (or 4, for that matter) if no exclusion procedure has yet to be issued? Two ways: First, use the previous exclusion procedure as your template. While there is no guarantee, the tariff exclusion procedures for Tranches 3 and 4 are likely to be similar, albeit is likely to require a great deal of more information, as earlier tranches. Second, hire an experienced international trade law firm to assist you. Our law firm has successfully anticipated and prepared arguments that work.   

Getting Rich By Whistleblowing on Companies — Even The One You Work For — For Illegally Skirting Customs Duties 

When, as now, increased tariffs cut into the bottom line of so many companies, there is an almost irresistible desire to do just about anything to avoid paying those tariffs. To be sure, there are sound and legal methods available to avoid paying tariffs, and our firm helps importers with those options, but a surprisingly large number of importers will resort to illegal acts. They may misrepresent the tariff classification, country of origin, or value, for example. Some even smuggle. Of course, violators risk both and civil criminalities. What is not commonly known is that violators are often turned in by competitors or their own employees, sometimes even the very person in charge of customs compliance. You read that right. Your customs compliance department may narc on you to the feds. Of course, this usually happens only because the company ignored the compliance officer’s repeated warnings and appeals.  

It is understandable why companies narc on each other. Compliant importers hate when their honest efforts to pay higher duties and abide by the law puts them at a financial disadvantage relative to their less scrupulous competitors. Honest importers can easily uncover what cheating competitors are shipping through industry scuttlebutt and online resources.

Whistleblowing can be lucrative. Thanks to the False Claims Act (FCA), a whistleblower can receive between 15% to 30% of any recovery from the violator, and the recovery amount can be three times what the importer owed.  

A recent FCA case is illustrative. On May 13, 2019, the US Department of Justice settled a customs fraud case brought originally by two whistleblowers. The defendant, a British importer, agreed to pay $610,000, a healthy portion of which went to the whistleblowers.

A whistleblower will not collect an award if the government already knows and has begun investigating the violation. A whistleblower will also not collect an award if it does not carefully follow the FCA procedure.

Individuals and companies that are considering filing an FCA whistleblower case should consult an experienced law firm with both customs law and litigation experience. Please let us know if we can assist you.

Cracking Down On Huawei

Huawei, the giant Chinese phone manufacturer and telecom, is a primary reason that President Trump is cracking down on Chinese companies and Chinese imports. Congress has investigated and condemned Huawei. In December, the CFO and chairwoman of Huawei was arrested in Canada and is being held for possible extradition to the US for violations of Iranian sanctions. Federal prosecutors brought charges against Huawei for stealing technology from T-mobile. On May 15, 2019, President Trump issued an executive order declaring a national emergency because foreign adversaries were stealing US-origin technology. Although not singled out, Trump’s executive order is aimed at China and Huawei. Regulations interpreting and implementing President Trump’s executive order are expected within 150 days. The Department of Commerce also added Huawei and its 68 non-US affiliates in 26 countries to the Entity List. The Department of Commerce is giving a 90-day reprieve before President Trump's executive order takes effect to allow Huawei to help customers find alternative technologies.

Trump Sweetens NAFTA/USMCA By Lifting Tariffs on Mexican and Canadian Steel and Aluminum

The United States-Mexico-Canada Agreement (USMCA) is President’s Trump's proposed update of NAFTA, but it has been stalled in the U.S. House of Representatives over a variety objections, including labor, environmental, and drug pricing. To accommodate some of those objections, on May 19, 2019, President Trump rescinded the Section 232 tariffs on steel (25%) and aluminum (10%) from Mexico and Canada.  Last year, the U.S. imposed Section 232 tariffs at 25% on most of the countries of the world, excluding only those few countries that agreed to annual quotas. President Trump did not impose annual quotas on Mexican or Canadian Steel. Under NAFTA as it currently stands, to be free of duty and to qualify as duty-free a car or truck must have 62.5 percent of parts manufactured in Mexico, USA, or Canada -- the NAFTA Territory. The USMCA would up that amount to 75 percent. Seventy percent of the steel and aluminum used in vehicles will have to come from the U.S., Canada, or Mexico. The USMCA would also require many Mexican workers in the automobile sector to be paid at least $16 dollars per hour. The leaders of the three countries signed the USMCA, but no country has ratified it.

3 Important OFAC Developments

  1. Earlier this month, the Office of Foreign Assets Control (OFAC) issued its first ever compliance go-by. OFAC enforces our nation's sanctions/embargoes laws. OFAC’s new compliance guide is called a Framework for OFAC Compliance Commitments. The guide sets out five areas that all sanctions compliance programs (SCPs) should meet: management commitment, risk assessment, internal controls, testing and auditing, and training. The guide also lists common mistakes to avoid.
  2. On April 17, 2019, President Trump proclaimed that under the Helms-Burton Act, US companies and persons may, as of May 2, 2019, sue companies operating in Cuba if the US companies or persons had property confiscated by Cuba when Cuba nationalized an industry.  Lawsuits have already been filed and the US has already certified 6,000 claims. Companies from the EU, Mexico and Canada are oppose the policy as they have heavily invested in Cuba and consider Trump's policy an illegal extension of American jurisdiction. Even some companies in the USA may be sued. The EU enacted a blocking statute making it illegal for companies to cooperate and comply with Helms-Burton and is expected to legally challenge this new policy in the WTO and elsewhere.  
  3. On May 8, 2019, OFAC imposed broader and more strict financial and investment restrictions on Iranian metals, specifically iron, copper, steel, and aluminum​.   

CBP’s Customs Trade Partnership Against Terrorism Finalized an Update to its Minimum Security Criteria

Release Date:  May 3, 2019

WASHINGTON—After over two and a half years of collaboration with the trade community, U.S. Customs and Border Protection’s Customs Trade Partnership Against Terrorism (CTPAT) program has finalized its review and update of its Minimum Security Criteria (MSC)….This collaboration produced a series of MSC booklets, one for each business entity type eligible for CTPAT membership. The booklets address both the eligibility requirements and the MSC for each of the twelve entities in CTPAT. These booklets have been uploaded to the CTPAT Portal and will soon be uploaded to the CTPAT website as well (cbp.gov/ctpat). Members are expected to implement the new criteria throughout the remainder of calendar year 2019 and validations on the new MSC will begin in early 2020…CBP’s goal is to establish a holistic approach to ensuring the security of the supply chain – and an approach that better reflects CBP’s overall mission. To that end, issues related to cybersecurity, the protection of the supply chain from agricultural contaminants and pests, the prevention of money laundering and terrorism financing, and the proper use and management of security technology, such as intrusion alarms and security camera systems, have been incorporated into the program’s new criteria.