OUR FIRM

As a premier law firm specializing in customs and trade matters, ITC has gained international accolades for its inspired solutions to clients' cross-border concerns. Formed more than thirty years ago, its trade advisors can trace their customs and international trade expertise to practice in government and private sectors. Mark K. Neville, Jr., LL.M. (International Legal Studies), NYU, is Principal of ITC. He has served as an adjunct professor at The University of California, Berkeley’s Haas School of Business and NYU’s Stern School. Among his many publications is The Customs Valuation Agreement (Wolters Kluwer, 2023) the definitive treatise on that topic.
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NEWSWORTHY

Jumping on the Bandwagon
China Imposes 100% Duties on China EVs.

On August 26, Canada declared that effective October 1, it would impose a 100% tariff on imports of Chinese electric vehicles and a 25% tariff on imported steel and aluminum from China. This move follows high tariffs imposed by the US and the EU.

According to Prime Minister Justin Trudeau, the move was punitive because China has engaged in an intentional policy of “over-capacity.”

"What is important about this is we're doing it in alignment and in parallel with other economies around the world," Trudeau said.

Parallel US Moves

In May 2024 President Biden announced tariffs on Chinese electric vehicles would rise to 100% from 25%. This will be effective September 27.

The US and Canada have a common objective to protect their fledgling EV producers from cheap Chinese goods.

On September 13, U. S. Trade Representative Katherine Tai stated a reason for the tariff increases. Echoing statements of other U. S. and Western officials she explained that the increases were in response to “harmful” Chinese trade policies and practices. She also explained that the Biden Administration was “standing up for American workers and businesses.” As we approach the election, it has been commonplace to see the use of politically charged language with a populist flavor. Every trade decision, it appears has been made to appeal to a particular constituency, a labor union or the consumer. See also Biden Administration rhetoric on changes to the di minimis rule.

The USTR also announced tariff increases for the following products effective on either September 27 or January 1; needles and syringes to 100%; semiconductors and solar cells to 50%; and lithium-ion batteries, steel, and “other strategic goods” to 25%.

The US got the ball rolling on special tariffs for Chinese goods in 2019 when it began imposing additional tariffs of up to 25% on a range of select goods under Section 301 of the Trade Act of 1974 administered by the USTR. These “301 Tariffs” did not vanish when Joe Biden became president as he, too, embraced Section 301 as a useful trade policy tool “to protect American workers and businesses from China’s unfair trade practices.”

Update on Section 301 Litigation

The imposition of Section 301 duties in 2019 created an earthquake in the trade community. We know because when the lists of goods subject to additional duties was issued we represented several clients who filed exclusion requests with USTR regarding the importation of furniture, jewelry, and lighting fixtures.

CBP created an infamous series of lists earmarking the goods that would be subject to additional tariffs of up to 25%: List 1, 2, 3, and 4A. To many, the exclusion process appeared opaque and arbitrary and to the dismay of many importers CBP denied the vast majority of exclusion requests and allowed the tariffs to stand.

The production of the Lists was a response to a USTR Investigation begun in 2017 that concluded that China had engaged in the theft of intellectual property and trade secrets and was evidence of a full-on trade war.

Ultimately one disgruntled plaintiff, HTMX Industries, stepped forward and filed a complaint alleging that the 301 tariffs were not lawfully implemented. Thousands of aggrieved importers eagerly joined the lawsuit.

In the ensuing litigation in the lower court, the Court of International Trade issued two opinions, the first in 2022 and the second the following year. The first suit concluded in favor of plaintiffs that the 301 actions in Lists 3 and 4A was properly reviewable by the court. The second court decision concluded that the publication of the lists was related to the original USTR investigation and thus a proper expression of statutory authority.

The litigation has now moved to the US Court of Appeals for the Federal Circuit. The plaintiffs and the government have each filed their briefs with the appellate court and we await the scheduling of oral arguments.

What or Who is CFIUS?

According to Greek legend, Sisyphus was a Corinthian king condemned for eternity to roll a heavy rock up a hill in Hades and to repeat this labor after the rock rolled down the hill once it reached the peak. While there are times when we can all identify with this hapless king, he should not be confused with CFIUS, the shorthand name for Committee on Foreign Investment in the United States.

CFIUS legislation grants the President power to suspend or prohibit foreign acquisitions of U. S. businesses. See section 721 of the Defense Production Act of 1950, Executive Order 11858, and chapter VIII of Title 31, Code of Federal regulations. CFIUS has the scope to review any transaction that could result in control of a U. S. business by a foreign person. Certain real estate transactions also fall under CFIUS review.

The Committee is chaired by the Secretary of the Treasury and the Heads of DOJ, Homeland Security, Commerce and other offices. Refer to the Department of the Treasury website for the full roster.

The task of the Committee is to review transactions that may pose a national security risk. If the risk assessment uncovers a security risk, the Committee may suspend the transaction, unwind it, or force the parties to accept new terms to mitigate risks.

Focus on China

A careful observer of U. S. trade policy would recognize that a CFIUS review resulting in a ban or modification is yet another tool in the government toolkit to combat the threat or perceived threat of China’s ascendance. It is another example of the ongoing trade war between the two countries, especially where tech is concerned. It should not be surprising that attempted Chinese acquisitions of U. S. assets are one of the most common targets of a CFIUS intervention. In 2023, China was subject to 115 “covered notices,” almost twice the number for the next highest country, Canada with 67 actions.

At the same time, it is easy to see parallels with the 301 Investigation that was concluded in 2019 and which found that China had engaged in “the theft of intellectual property and trade secrets.” Essentially Chinese theft or market acquisition of IP or tech is under review. As we previously discussed in this space, President Biden in May, 2024 announced tariffs on Chinese electric vehicles would rise to 100%; semiconductors and solar cells would see tariffs raised to 50%; and lithium-ion batteries, steel, and “other strategic goods” would see a new 25% tariffs.

Finally, one can see the connection between CFIUS reviews and export controls administered by the U.S. Department of Commerce’s Bureau of Industry and Security through its publication of Export Administration Regulations (EAR).

As an example of a prominent transaction that has been scuttled after a CFIUS review we point to the attempted Chinese acquisition of Lattice Semiconductor Corporation. On September 13, 2017, President Trump issued an Executive Order blocking the proposed $1.3 Billion takeover of the publicly traded semiconductor company on the grounds that that the transaction posed a risk to national security.

TRADE RESTRICTIONS & SANCTIONS

CBP Altering De Minimis Entry Requirements
China E-Commerce Platforms Drive Changes

Under the de minimis exemption, relaxed customs entry requirements apply to low-value shipments. Currently, a shipment is eligible for the de minimis exemption, and thus not subject to duties and taxes, if the aggregate fair retail value of the articles imported by one person in one day is under $800. See Section 321, 19 USC 1321, the statute that describes the de minimis rules.

The Biden Administration intended to issue a Notice of Proposed Rulemaking that would exclude from the de minimis exemption all shipments containing products covered by tariffs imposed under Sections 201 or 301 of the Trade Act of 1974, or Section 232 of the Trade Expansion Act of 1962. The Biden administration stated that the volume of de minimis entries had exploded 700% over the previous 10 years to over 1 billion entries per year, largely as Chinese e-commerce platforms have taken advantage of the rule. It further stated that foreign sellers used the di minimis entry process to circumvent 301 tariffs. The White House used charged language, calling all the targeted practices abusive.

To curb these abuses the Biden Administration issued a Notice of Proposed Rulemaking that would do the following:

eliminate the use of di minimis rules for goods subject to Section 301 duties and other trade enforcement actions.

require the 10-digit HTS number for all di minimis entries.
require filers to identify the person on whose behalf the exemption is being claimed.
require importers of consumer products to file Certificates of Compliance (CoC) electronically with CBP and CPSC at the time of entry

The Biden administration promised to explore other decisive actions to protect the U.S. textile industry from illicit textile and apparel imports and implement measures to address the illicit trade of fentanyl. Further, the Administration urged Congress to pass legislation before the end of the year, to signal the urgency of these matters.

Our Take

These sweeping reforms are long overdue and will have many consequences, most especially a reduction in use of the diminis rule entries. Those goods subject to Section 301 duties will be barred as an important work-around loophole to entry is now closed. For all other entries, the burden to place a 10-digit classification number at tie of entry may be problematic, especially for one-off shipments. And what will express carriers do when a number is not provided?

We observe that since the bulk of the di mimimis entries originate from China sellers, as acknowledged in the Biden White House Fact Sheet, we see yet another series of measures targeting China producers in what is accurately described as a hot trading war.

We wonder why the Biden administration was so concerned with protecting the textile and apparel industry, but were glad they were taking action. Perhaps this being it was an election year made this push politically motivated since it would no doubt be applauded by the apparel and textile workers and their unions. More likely, the Administration wasresponding to leverage applied by American retailers Amazon, Walmart, Target, and H & M who have seen market share losses to juggernaut Chinese e-commerce apparel platforms Shein and Temu.

Finally, we salute this and any effort to stem the importation of fentanyl and yet maybe this venture is also meant to appease the voting public outraged by thousands of annual fatalities.