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Recent News Articles Linking China Production to North Korean Factories-- Additional Compliance Measures May be Required - Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP
Recent news articles have reported that Chinese apparel manufacturers are using North Korean factories to assist in the manufacture of garments sold for exportation to the United States. Based on these recent articles, the difference in labor rates, which has traditionally moved Chinese production to lower wage rate countries like Vietnam, has inspired Chinese producers to transfer some production to North Korea. Unlike Vietnam, however, the goods made in North Korea are contraband and cannot be imported into the United States. As a result, to hide the fact that North Korean factories are being used, the finished goods will have to be transshipped through China or third countries to the United States and falsely claimed to be products of China or other countries.
Purchasing products from North Korea is against the law and violators may be subject to criminal punishment and civil fines. (See E.O.13570; International Emergency Economic Powers Act (50 U.S.C. § 1701 et seq.) (IEEPA). In addition, the current administration has made it a point to stop Chinese trade violations and to impose strict enforcement of the recent economic sanctions that have been put in place against North Korea. Criminal penalties of up to $1,000,000, and/or imprisonment for up to 20 years may be imposed on any person who willfully violates this law. Civil penalties of the greater of $284,582 or twice the amount of the underlying transaction may be imposed administratively against any person who violates this law. Of course goods made in North Korea can always be seized and forfeited by U.S. Customs.
In the past, Chinese vendors were accused of transshipping goods to the United States through third countries claiming false country of origin in order to avoid the textile and apparel quota limits that had been imposed. There have also been multiple allegations that Chinese vendors have transshipped goods to the United States through third countries to avoid the huge antidumping and countervailing duty deposits that must be paid on those goods. These latest news stories indicate that China country of origin problems are continuing today.
Against this background, it is recommended that importers should review their due diligence programs. Their programs may have to be enhanced to ensure that the claimed country of origin is correct. Please feel free to contact our office if you should have questions.
Proper Tariff Engineering Can be used to Achieve More Favorable Tariff Treatment - Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP
The Court of International Trade recently issued an important decision which reaffirms an importer’s right to “tariff engineer” its products by designing them to qualify for more favorable duty treatment.
In Slip Opinion 17-102 issued on August 16, 2017, the U.S. Court of International Trade agreed with Ford Motor Company that a vehicle called the Transit Connect was properly classifiable as a passenger vehicle. In doing so, the court acknowledged tariff principles dating back to the 1800s which hold that importers may engage in legitimate tariff engineering--structuring their products, and locating their manufacturing operations in different countries to achieve favorable duty treatment. The court also applied the well-established principle that all goods are to be classified in their condition as imported. While this case involves the classification of motor vehicles, the principles that have been affirmed here have application to a number of products and import transactions.
Ford imported the Transit Connect into the United States in both van and passenger models. Ford developed both models from a passenger vehicle that was being sold in Turkey. Both models had the identical additional safety features added in production so they could meet U.S. safety standards imposed by NHTSA. Both vehicles had many of the same structural and auxiliary features. The rear seats in the van model started out the same as the rear seats in the passenger model, but they were made a bit less expensively in later years. The passenger model was delivered to customers in the United States in its condition as imported. The van version was changed after Customs clearance by removing rear seats, adding a flat floor to increase the cargo area at the expense of the passenger area, and making other modifications. The structural features present in the van that made it a passenger vehicle at importation remained in the vehicle after U.S. processing, so it could be converted back to its imported condition if the user so desired.
The question presented was whether these Transit Connect models were principally designed for the transport of persons. The duty rate on “passenger vehicles” is 2.5% and the duty rate on cargo vehicles is 25%. The court agreed with Ford for a number of reasons. First and foremost, the court applied the same standards created by the Court of Appeals for the Federal Circuit im Marubeni Am. Corp v. United States which classified the Nissan Pathfinder as a passenger vehicle. The court’s determination in Marubeni was based on a review of the structural and auxiliary features of the vehicle. In addition, in the Ford case, the court reviewed the Explanatory Notes to heading 8703 and found that Ford’s van fit squarely with the features that defined passenger vehicles. The court was also impressed with the fact that many of the same features in the van version were also found in the passenger version which Customs agreed was a passenger vehicle.
The major to benefit to all importers comes from the fact that the court agreed with Ford that tariff classifications are to be made based on the condition of the merchandise at the time of entry. If this were not the case, then Customs would be charged with following all products into commerce to see what they are made into and how they are used. The court also reviewed a number of vintage court cases where the condition of importation principle was established. There were cases where sugars that had been made with unusual colors to obtain favorable duty treatment, cases involving the separate importation of gun stocks and barrels, and a case which sanctioned the disassembly of a pearl necklace overseas to import “pearls” at a more favorable duty rate than pearl necklaces. The point of all of these case is that the condition of the merchandise at the time of importation should be compared to the text of the statute to see if the imported product meets the terms of the statute. If the product is not disguised (like hiding good tobacco leaves in bales of ordinary tobacco) and the invoicing is not deceitful, then the product should be classified based on its condition as imported. Importantly, the intention of the importer is not relevant in these determinations. That is, it does not matter if the importer intends post entry operations to assemble the gun parts or reassemble the pearls into a necklace because Customs must classify products based on their condition as imported.
Legitimate tariff engineering, whether it relates to structuring products or transactions has been given a huge reaffirmation by this court decision. It is too soon to tell how Customs will react to this decision because the decision can be appealed or limited. The case law is solid, but over the years, Customs has created some limits to the use of this concept. This decision puts tariff engineering back on its rightful footing. Please feel free to contact our office if you should have any questions as to how tariff engineering can be incorporated into your business.
West Coast Agreements & Changes to Controlled Carrier List on Agenda for Commission July Meeting - Federal Martime Commission
The Commission met on July 19, 2017 for a regular scheduled meeting where staff reported on two West Coast related agreements as well as changes to the Controlled Carrier List.
Two agreements related to the west coast and trade flows between the United States and Asia were addressed today by the Federal Maritime Commission during a regularly scheduled meeting, as were recent developments regarding government linked ocean carriers.
The Commission was briefed in open session on updates to the list of "Controlled Carriers", those ocean common carriers that are majority owned or controlled by foreign governments. The Commission is charged with monitoring foreign government control of ocean shipping lines. The FMC maintains a list of these companies which is periodically updated as circumstances warrant.
Recent consolidation in the container shipping industry has resulted in four notable changes among Controlled Carriers:
•China Shipping was integrated into COSCO Container Lines Company, Limited, which then changed its name to COSCO SHIPPING Lines Co, Ltd.
•American President Lines, Ltd. and APL Co., Pte. is being removed from this list because it is now wholly owned by CMA CGM S.A. and no state entity is a majority owner
•United Arab Shipping Company Ltd. (formerly United Arab Shipping Company (S.A.G.) is being removed from this list because it is now wholly owned by Hapag-Lloyd and no state entity is a majority owner
•Hainan P O Shipping Co., Ltd. is being removed from the list because it no longer operates in the U.S.-Foreign trades
COSCO SHIPPING Lines Co., Ltd. and CNAN Nord SPA remain on the Controlled Carrier List.
The Commission went to closed session to receive confidential reports on the Trans-Pacific Stabilization Agreement (TSA) and the West Coast Marine Terminal Operators Agreement (WCMTOA). The FMC reviews agreements under the Shipping Act to assure that participating parties do not engage in anticompetitive behavior that results in unreasonable increases in rates or decreases in service, or other prohibited acts.
The Commission’s next meeting is scheduled for September.
NASA : Solar Eclipse 8/21/17 - Eclipse 2017 NASA
On Monday, August 21, 2017, all of North America will be treated to an eclipse of the sun. Anyone within the path of totality can see one of nature’s most awe inspiring sights - a total solar eclipse. This path, where the moon will completely cover the sun and the sun's tenuous atmosphere - the corona - can be seen, will stretch from Salem, Oregon to Charleston, South Carolina. Observers outside this path will still see a partial solar eclipse where the moon covers part of the sun's disk. NASA created this website to provide a guide to this amazing event. Here you will find activities, events, broadcasts, and resources from NASA and our partners across the nation.
Read further at:
Philadelphia CBP Discovers Destructive Pest in Passenger Baggage - U.S. Customs & Border Protection
PHILADELPHIA – U.S. Customs and Border Protection (CBP) agriculture specialists intercepted Khapra beetle larvae, an insect considered one of the world’s most destructive insect pests of grains, cereals and stored foods, in passenger baggage recently at Philadelphia International Airport.
CBP officers referred a woman who arrived August 3 from Sudan to an agriculture secondary examination. There, CBP agriculture specialists discovered two immature insects in dried berries within her luggage. The dried berries showed obvious insect damage.
CBP submitted the specimens to the U.S. Department of Agriculture (USDA) entomologist who confirmed on Friday that the specimen was Trogoderma granarium Everts, commonly known as Khapra beetle.
“The Khapra beetle poses a serious threat to our nation’s agriculture and to our economy,” said Shawn Polley, CBP Acting Port Director for the Area Port of Philadelphia. “Our best defense against destructive pests, like the Khapra beetle, is to prevent their entry into the United States, and that is a mission that Customs and Border Protection agriculture specialists take very serious.”
Khapra beetle remains the only insect in which CBP takes regulatory action against even while the insect pest is in a dead state. The Khapra beetle is a ‘dirty feeder’ because it damages more grain than it consumes, and because it contaminates grain with body parts and hair. These contaminants may cause gastrointestinal irritation in adults and sickens infants.
Khapra beetle can also tolerate insecticides and fumigants, and can survive for long periods without food.
According to the USDA Animal and Plant Health Inspection Service, previous infestations of Khapra beetle have resulted in massive, long term-control and eradication efforts at great cost to the American taxpayer.
For example, California implemented extensive eradication measures following a Khapra beetle infestation discovered there in 1953. The effort was deemed successful, but at a cost of approximately $11 million. Calculated in today’s dollars, that would be about $90 million.
“This Khapra beetle interception illustrates the need each day for Customs and Border Protection agriculture specialists to exercise vigilance during inspections of passenger baggage entering the United States,” said Casey Owen Durst, CBP Director, Baltimore Field Operations. “Safeguarding America’s agriculture industries remains an enforcement priority for CBP.”
CBP’s Office of Field Operations
Almost a million times each day, CBP officers welcome international travelers into the U.S. In screening both foreign visitors and returning U.S. citizens, CBP uses a variety of techniques to intercept narcotics, unreported currency, weapons, prohibited agriculture, and other illicit products, and to assure that global tourism remains safe and strong. Please visit CBP Ports of Entry to learn more about how CBP’s Office of Field Operations secures our nation’s borders.
CBP Agriculture Specialists have extensive training and experience in the biological sciences and agricultural inspection.
On a typical day nationally, they inspect over 1 million people as well as air, land and sea cargo imported to the United States and intercept 4,638 prohibited meat, plant materials or animal products, including 404 agriculture pests and diseases. Learn more about CBP’s agriculture protection mission.
FDA Warns of Potential Contamination in Multiple Brands of Drugs, Dietary Supplements - Food & Drug Administration
The U.S. Food and Drug Administration is advising consumers and health care professionals not to use any liquid drug or dietary supplement products manufactured by PharmaTech LLC of Davie, Florida, and labeled by Rugby Laboratories, Major Pharmaceuticals and Leader Brands, due to potential contamination with the bacteria Burkholderia cepacia (B. cepacia) and the risk for severe patient infection.
The drug and dietary supplement products made by PharmaTech include liquid docusate sodium drugs (stool softeners), as well as various dietary supplements including liquid vitamin D drops and liquid multivitamins marketed for infants and children.
“B. cepacia poses a serious threat to vulnerable patients, including infants and young children who still have developing immune systems,” said FDA Commissioner Scott Gottlieb, M.D. “These products were distributed nationwide to retailers, health care facilities, pharmacies and sold online – making it important that parents, patients and health care providers be made aware of the potential risk and immediately stop using these products.”
According to the Centers for Disease Control and Prevention (CDC), B. cepacia poses the greatest threat to hospitalized patients, critically ill patients and people with health problems such as weakened immune systems and chronic lung diseases. The symptoms of B. cepacia infections vary widely from none at all to serious respiratory infections. It can spread from person-to-person by direct contact and is often resistant to common antibiotics.
Consumers, pharmacies and health care facilities should immediately stop using and dispensing all liquid drug and dietary supplement products manufactured by PharmaTech and labeled by Rugby Laboratories, Major Pharmaceuticals and Leader Brands. These distributors voluntarily recalled the following products:
LEADER BRAND
• Liquid Multivitamin Supplement for Infants and Toddlers 50 mL, UPC: 096295128611 ALL LOTS
• Liquid Vitamin D Supplement for Breastfed Infants 400 IU 50 mL, UPC: 096295128628 ALL LOTS
MAJOR PHARMACEUTICALS
• Certa-Vite Liquid 236ML 00904-5023-09 ALL LOTS
• Poly-Vita Drops 50ML 00904-5099-50 ALL LOTS
• Poly-Vita Drops W/Iron 50ML 00904-5100-50 ALL LOTS
• Ferrous Drops Iron Supplement 50ML 00904-6060-50 ALL LOTS
• D-Vita Drops 50ML 00904-6273-50 ALL LOTS
• Tri-Vita Drops 50ML 00904-6274-50 ALL LOTS
• Senna Syrup 237ML 00904-6289-09 ALL LOTS
RUGBY LABORATORIES
• C Liquid 500mg 118ML 00536-0160-97 ALL LOTS
• Diocto Liquid 50mg/5ml 473ML 00536-0590-85 ALL LOTS
• Ferrous Sulfate Elixir 473ML 00536-0650-85 ALL LOTS
• Fer Iron Liquid 50ML 50ML 00536-0710-80 ALL LOTS
• Senexon Liquid 237ML 00536-1000-59 ALL LOTS
• Diocto Syrup 60MG/15ML 473ML 00536-1001-85 ALL LOTS
• Aller Chlor Syrup 120ML 00536-1025-47 ALL LOTS
• Calcionate Syrup 16OZ 00536-2770-85 ALL LOTS
• Cerovite Liquid 236ML 00536-2790-59 ALL LOTS
• D3 400iu Liquid 50ML 00536-8400-80 ALL LOTS
• Poly-Vitamin Liquid 50ML 00536-8450-80 ALL LOTS
• Tri-Vitamin Liquid 50ML 00536-8501-80 ALL LOTS
• Poly-Vitamin W/Iron Liquid 50ML 00536-8530-80 ALL LOTS
On Aug. 8, 2017, the FDA advised health care professionals and patients not to use any liquid drug products manufactured by PharmaTech, following CDC’s laboratory testing of PharmaTech’s oral liquid docusate detected a strain of B. cepacia linked to recent patient infections.
In 2016, the FDA advised health care professionals and patients not to use liquid docusate drug products manufactured at PharmaTech’s Davie, Florida, facility after the products were implicated in CDC’s public health investigation into a multistate outbreak of B. cepacia infections.
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