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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.


USITC Makes Determinations in Five-Year (Sunset) Reviews Concerning Stainless Steel Sheet and Strip from Japan, Korea, and Taiwan - U.S. International Trade Commission

The U.S. International Trade Commission (USITC) today determined that revoking the existing antidumping duty orders on imports of stainless steel sheet and strip from Japan, Korea, and Taiwan would be likely to lead to continuation or recurrence of material injury within a reasonably foreseeable time.

As a result of the Commission’s affirmative determinations, the existing antidumping duty orders on imports of this product from Japan, Korea, and Taiwan and the existing countervailing duty order on imports of this product from Korea will remain in place.

Chairman Rhonda K. Schmidtlein, Vice Chairman David S. Johanson, and Commissioners Irving A. Williamson and Meredith M. Broadbent voted in the affirmative.

Today’s action comes under the five-year (sunset) review process required by the Uruguay Round Agreements Act. See the attached page for background on these five-year (sunset) reviews.

The Commission’s public report Stainless Steel Sheet and Strip from Japan, Korea, and Taiwan (Inv. Nos. 701-TA-382 and 731-TA-800, 801, and 803 (Third Review), USITC Publication 4725, September 2017) will contain the views of the Commission and information developed during the reviews.

The report will be available by October 11, 2017; when available, it may be accessed on the USITC website at: http://pubapps.usitc.gov/applications/publogs/qry_publication_loglist.asp.


USITC Institutes Section 337 Investigation of Certain Microfluidic Devices - US International Trade Commission

The U.S. International Trade Commission (USITC) has voted to institute an investigation of certain microfluidic devices. The products at issue in the investigation are certain microfluidic devices, commonly referred to as chips or cartridges, specifically designed to use either alone or in combination with genetic sequencing platforms.

The investigation is based on a complaint filed by Bio-Rad Laboratories, Inc., of Hercules, CA, and Lawrence Livermore National Security LLC of Livermore, CA, on July 31, 2017. The complaint alleges violations of section 337 of the Tariff Act of 1930 in the importation into the United States and sale of certain microfluidic devices that infringe patents asserted by the complainants. The complainants request that the USITC issue a limited exclusion order and a cease and desist order.

The USITC has identified 10X Genomics, Inc., of Pleasanton, CA, as the respondent in this investigation.

By instituting this investigation (337-TA-1068), the USITC has not yet made any decision on the merits of the case. The USITC’s Chief Administrative Law Judge will assign the case to one of the USITC’s administrative law judges (ALJ), who will schedule and hold an evidentiary hearing. The ALJ will make an initial determination as to whether there is a violation of section 337; that initial determination is subject to review by the Commission.

The USITC will make a final determination in the investigation at the earliest practicable time. Within 45 days after institution of the investigation, the USITC will set a target date for completing the investigation. USITC remedial orders in section 337 cases are effective when issued and become final 60 days after issuance unless disapproved for policy reasons by the U.S. Trade Representative within that 60-day period.


ITA:  Press Releases - U.S. International Trade Administration

08/28/2017 Factsheet: Preliminary Determinations of the Countervailing Duty (CVD) Investigations of Imports of Carbon and Alloy Steel Wire Rod from Italy and Turkey

08/22/2017 Preliminary Determinations of the Countervailing Duty (CVD) Investigations of Imports of Biodiesel from Argentina and Indonesia


FTC Advice for Helping Hurricane Harvey Victims - Federal Trade Commission

The Federal Trade Commission has information for people who want to help Hurricane Harvey victims, and for those who are dealing with and recovering from, its long-term effects. In addition to the important tips and advice below, they can find more at www.FTC.gov/weatheremergencies.

Wise giving after the storm

If you’re looking for a way to give, be cautious of charity scams. Do some research to ensure that your donation will go to a reputable organization that will use the money as promised:

  • Donate to charities you know and trust with a proven track record with dealing with disasters.
  • Be alert for charities that seem to have sprung up overnight in connection with current events. Check out the charity with the Better Business Bureau's (BBB) Wise Giving Alliance(link is external), Charity Navigator(link is external), Charity Watch(link is external), or GuideStar(link is external).
  • Designate the disaster so you can ensure your funds are going to disaster relief, rather than a general fund.
  • Never click on links or open attachments in e-mails unless you know who sent it. You could unknowingly install malware on your computer.
  • Don’t assume that charity messages posted on social media are legitimate. Research the organization yourself.
  • When texting to donate, confirm the number with the source before you donate. The charge will show up on your mobile phone bill, but donations are not immediate.
  • Find out if the charity or fundraiser must be registered in your state by contacting the National Association of State Charity Officials(link is external). If they should be registered, but they're not, consider donating through another charity.

Picking up the pieces

The storm has devastated much of Southeastern Texas. Once the rain and floodwaters recede, it will be time to take stock and develop a recovery plan. Here are some tips and links to resources to help make the task less burdensome:

  • Contact your insurance company. Ask what the next steps are in assessing any damage to your home or business.
  • Your home and its contents may look beyond hope, but it’s possible many of your belongings can be restored. With luck and hard work, your flooded home could be cleaned up, dried out, rebuilt, and reoccupied.
  • Be skeptical of people promising immediate clean-up and debris removal. Some may demand payment up-front for work they never do, quote outrageous prices, or simply lack the skills, licenses, and insurance to legally do the work.
  • If you’re looking for a place to rent during recovery, be cautious of rental listing scams. Scammers often advertise rentals that don’t exist to trick people into sending money before they find out the truth.
  • Many people will be asking for your personal information. Make sure you know who you are dealing with. Ask for identification before you share your Social Security or account numbers. Scammers sometimes pose as government officials, and ask for your financial information or money to apply for aid that you can request on your own for free. Government officials will never ask you for money in exchange for information or the promise of a check.
  • You might have had to leave your home without IDs, checks, credit and debit cards, and other documents. You also might be without access to a bank account or paycheck for some time. If you need to get money, understand your options for paying bills and replacing important documents. This list of contacts may help you regain your financial footing.
  • Call your creditors and ask for help. If you’re a homeowner, even if your home is uninhabitable, you still have a mortgage. Contact your lender to discuss your options.
    Fidget Spinners Safety Information Center - Consumer Product Safety Commission

In light of reported incidents with fidget spinners, the U.S. Consumer Product Safety Commission (CPSC) is issuing these safety tips:

Fidget spinners and children:

  • Keep fidget spinners away from children under 3 years of age.
  • The plastic and metal spinners have small pieces (including batteries) that can be a choking hazard. Choking incidents involving children up to age 14 have been reported.
  • Warn children of all ages not to put fidget spinners or small pieces in their mouths and not to play with the fidget spinner near their faces.

Battery-operated fidget spinners:

  • Have working smoke alarms in your house to protect you if there is a fire.
  • Be present when products with batteries are charging.
  • Never charge a product with batteries overnight while you are sleeping.
  • Always use the cable that came with the fidget spinner.
  • If the fidget spinner did not come with a cable, make sure to use one with the correct connections for charging.
  • Unplug your fidget spinner immediately once it is fully charged.

Acting Chairman’s Statement

Read the full statement from CPSC Acting Chairman Ann Marie Buerkle on fidget spinner safety.

Fidget Spinner Business Requirements and Guidelines

CPSC business requirements and guidelines for fidget spinners are available in our Business Education Center.

                                                                                                                                                                                                                               
 
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