Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Where Do Your Goods Originate?

Posted in Aerospace & Defence, Agriculture, Antidumping, Border Security, Buy America, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Exports, FCPA/Anti-Corruption, Government Procurement, Imports Restrictions, Legal Developments, origin, Trade Agreeements, Trade Remedies

Originally published by the Journal of Commerce in April 2018

The brewing trade war between the U.S. and China serves as a reminder to international traders that knowing where your goods are made and being able to prove it are two very different issues.  At a time when it remains common place for U.S. Customs to deny duty deferral benefits to American importers over the lack of adequate paperwork, companies would do well to again examine what they are doing and how they are documenting it.

Customs auditors have been open for many years that duty deferral programs are “low hanging fruit.” What they mean is lots of companies make those claims, but few have the documentation to back them up. Given the current climate, let’s start with the obvious context – free trade agreements (“FTA”).  It has never been enough to just rely on a certificate of origin from your supplier.  It has always been necessary for the importer to conduct a proper written analysis and make sure his products qualify, or not make the claim.  It has always been necessary to make sure that you track any sourcing changes and timely analyze their impact on your FTA qualification. It has also always been necessary to keep those records for five (5) years. Do you?

GSP is another duty deferral program where the lack of documentation routinely ends up with claims being denied.  The requirement to qualify is that the product and country both be designated as GSP eligible.  Then, at least 35% of the materials and labor must originate in the GSP eligible country.  What frequently trips up successful claims is there is a foreign raw material or component and it represents a significant portion of the overall value. In other words, the remaining labor and materials cannot meet the 35% requirement.  Put another way, because the raw material is foreign, the resulting good does not qualify, unless that foreign item undergoes double substantial transformation, and the intermediate product is itself something that is a commercial product.   Substantial transformation is the concept of taking a raw material, further processing it and ending up with a new and different article of commerce.  In the simplest terms, you take wood from Country A and cut it to size and shape in Country B. Once it is cut in Country B, it is ready to be assembled into a bookcase. In so doing, you have substantially transformed the wood into a bookcase, even if you import it into the U.S. unassembled.  If bookcases and Country B are both GSP eligible, that is great, except the wood has to go through the substantial transformation twice to be GSP eligible, and, in this example, it did not.

A circumstance where double substantial transformation is more likely is with steel.  We will assume the steel is made in Country A.  It is then formed, shaped and finished it into a cylinder out of which a lunch pail is made.  We will also assume the lunch pail (the intended end product) and Country B are GSP eligible.  What the importer needs to have in his records when Customs asks for it is evidence of the origin of the steel, where it is formed, shaped and finished into the cylinder, and then how that cylinder is further manufactured into the resulting lunch pail, and how that change confers Country B origin and so GSP eligibility on the lunch pail which exported to the U.S.  The importer will succeed only if he can document the first change – from raw steel into the cylinder shape – is substantial transformation, and then the second change – from cylinder into lunch pail – is the second substantial transformation. Additionally, the importer also has to be able to prove the 35% local content requirement is met, and the closer you are to 35%, the more closely our claims will be examined (and likely rejected). The cylinder itself is a product of its own, one from which lunch pails are made, so the requirement of it being a commercial product  should be clear, but importers would be nonetheless wise to have evidence of that fact in their records.  It has been our experience that importers do not have those details in their files and, in fact, typically rely on the supplier to provide information if it is requested.  All too often we have seen the supplier go out of business or the parties no longer do business together (perhaps over a billing dispute), and so the importer cannot document his claims, they are denied and the importer ends up paying the duty plus interest.

With the recent 232 tariffs, a number of international traders have started looking more closely at how their goods are classified.  They want to see if they properly belong in one of the assessed classifications. The legal obligation on importers is to exercise reasonable care.  This has been interpreted by Customs to mean at time of entry, the declarations made about value, classification and other admissibility factors should be correct. If you are relying on your broker and do not check their work, that is not reasonable care.  It is not required that each entry be audited, but a spot check at least should take place.   We frequently hear about importers whose broker or forwarder says, we did you a favor and saved you some money – by using a different classification  – not a good position with Customs is demanding proof of eligibility!

We should also be clear, this is not just an importer issue.  If you are an exporter and supply product to buyers, every time you change sourcing, an analysis of on-going qualification for a given, for example, FTA claim should be conducted.  It is equally troubling how often we hear – well, the product was made in the U.S., but what they really mean is it was purchased in the U.S. Where it is purchased is generally not relevant to whether it qualifies under a given duty deferral program.

Exporters, of course, also have compliance concerns when it comes to export license and economic sanctions issues. And again in this context, what analysis did you perform and how have you documented it?

It is true that many companies do not have their own compliance departments. Nonetheless, someone on the staff should be the resident expert on what is required to keep your products compliant, and that those decisions are properly documented.  It is always a significant loss to a company when it has to pay additional duties, or loses a customer because somebody overlooked a sourcing change!  When asked how he was doing, a former boss used to say – “Putting out fires!” Right now, there seems to be a lot of that going on unnecessarily!

As a starting point, here is a list of basic questions:

1)         What is the correct classification for your products? Who makes the classification decision and how it is documented? If you are relying on your broker (for imports) or forwarder (for exports) does your contract with your broker or forwarder make clear they have agreed to assume that responsibility and are liable if it is wrong? How are you making sure any classification assigned to your products is correct? Your service provider classifying your goods does not get you off the hook for any mistakes made with the enforcing agency, even if the service provider agreed by contract to assume the responsibility.

2)         What is the correct value for your products? Have you considered the typical additions to value? Assists, royalties, commissions, packing and subsequent proceeds? What is the INCOterm of sale on which we are selling or buying the goods? If you are entering the goods into the U.S., what documentation do you have of the actual amounts paid or to be paid for any deductions if the term of sale is other than FOB?  Is duty paid in the importing country based on the FOB or CIF value of the imported goods? Are you related to the other party with whom you are doing business? If so, how are you documenting the arms-length nature of the pricing between you?

3)         What other requirements apply to your goods? Are they only for the export of the goods? What more do you or your buyer need to import the goods at destination?

All too often international traders wait until a problem arises to figure out the requirements, or they rely on a service provider and while some of them are very good, honestly, some simply are in over their heads. So, even if you think your broker or forwarder is really good, you have to take reasonable steps to make sure they are giving you sound advice. Otherwise, you are the one who will pay the price when something goes wrong! Are you ready for that?

What We Have is a Failure to Communicate: Computer Programmers Should Not be Expected to Know Customs and Trade Compliance

Posted in AMPs, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, Exports, GST/HST, Imports Restrictions, origin, Sales Taxes, tariff classification, Tax, valuation

This is a common problem – too common.  The people in the company responsible for customs and trade compliance do not work closely with the computer programmers as software is being developed — and mistakes are made.  The computer programmer does his or her job in preparing the code, but does not have any knowledge of customs and trade law and cannot incorporate customs and trade compliance into the software. Without effective communication (a download) of customs and trade compliance rules, the computer programmer cannot make sure that the rules are being implemented and the correct information is bring communicated to the customs authorities and that the proper paperwork is being developed.  When there are omissions or mistakes, this can lead to significant assessments of customs duties and the imposition of penalties.  The reputation of the company may be at risk.

Common Scenario: A company outside Canada (e.g., the United States, but could be any where) sells goods to Canada (either direct B-to-C electronic sales (e-sales or Internet sales) to customers or B-to-B sales to Canadian distributors or Canadian retailers or Canadian manufacturers).  The company outside Canada hires a computer programmer to develop a fantastic computer program to receive the orders, print shipping documents, send information to customs brokers/freight forwarders, record the sales in the financial reports, monitor inventory, etc.  However, no one in the legal department or compliance department or finance department communicates to the computer programmer the customs and trade rules applicable to the business (e.g., the customs rules relating to origin).

Common mistakes we have seen:

  • Computer programmers are not told that shipping a good from one country (e.g., the United States) does not mean that the good is considered to be originating in that country (e.g., the United States).  As a result, the computer programmer creates a program to issue NAFTA certifications of origin for all goods shipped from the a United States warehouse when goods in the warehouse were not actually manufactured in the United States.
  • Computer programmers are not told that different goods must be identified separately on customs documents and the computer program write code so that the company computer that sends information to the customs broker only provides the total invoice price.
  • The computer programmer is not informed that the company will be the importer of record and that delivery will take place in Canada.  The computer programmer does not know that Canada imposes sales sales and charges federal GST/HST at different rates and provincial sales tax in some provinces. Sales taxes are not included on the invoice.
  • The computer programmer is not informed that the company will be the importer of record and the computer programmer writes code to put the value of a complimentary item at $0 rather than the cost of goods.
  • Different computer programmers write the code for the invoice generating software and the software to communicate with the customs broker. The customs broker uses a different currency (e.g., USD) than the currency used on the invoice (CDN$).  The computer programmer does not consider that prices would be anything other than USD.
  • The computer programmer is not informed that certain goods require export permits before they can be shipped and code is not prepared to flag potentially problematic transactions or trigger the application for the export permit. The goods are shipped without an export permit.
  • The computer programmers is not informed that certain goods require import permits before they can be shipped to certain countries and the computer program does not flag potentially problematic transactions or trigger the application for the permit. The goods are shipped without the import permit.
  • The Computer programmer is not informed that the exporting country (e.g., Canada) has imposed economic sanctions on certain persons from certain countries or certain goods and the computer program does not flag potentially illegal transactions. The goods are shipped.
  • The computer programmer is not informed of the Incoterm that is being used and the financial accounting software books the transaction on the date of entry into the database and not when the goods are delivered to the customer.

If you have not conducted a customs or trade compliance audit of your software, you may want to take a moment to do so.  If you have not asked “what information is our customs broker receiving and is is accurate”, it is time to investigate. If you have not asked whether the information your company provides the customs broker is correct with respect to origin, valuation, tariff classification, currency, description of goods, quantity of goods, etc., it is time to compare the invoices that are generated against the appropriate customs documentation. If you have not asked whether the computer program flags certain problematic transactions that are placed by Internet customers, you might want to input a transaction that should be flagged and see what happens.  If you have not asked when electronic transactions are booked in your financial records, you might want to investigate further.

We have worked with many clients (and their computer programmers) to prepare computer programs that communicate the correct information.  We have worked with clients to ensure that the computer program continues to accurately communicate information – adjustments are made when the law changes.  This is not something that you “set it and forget it”.  Computer programs need to be tested just like any other internal recordkeeping.  It is important to conduct internal reviews and external reviews (e.g., with the assistance of your customs broker or freight forwarded) to ensure that what you think is accurate information is being received and processed as true, accurate and complete information (and does not raise audit flags).  You might be surprised to find that computers play “broken telephone”.  We rely so much on computers, but do not take the steps to make sure that there are no “glitches”.

If you require customs compliance assistance or assistance in determining origin of goods, please contact Cyndee Todgham Cherniak at 416-307-4168 or at

Schrödinger’s Cat: Can Goods Be Subject to Customs Duties and Not Subject Customs Duties At the Same Time?: Look in the Box before Shipping

Posted in Customs Law, NAFTA, origin

Anyone who watches “The Big Bang Theory” knows about Schrödinger’s cat.  The cat was both thought to be dead and thought to be not dead at the same time.  There is a similar paradox for Canadian companies who sell to the United States and/or China.  Canadian goods may be thought to be not subject to the trade war tariffs and subject to the trade war tariffs at the same time.  You have to wait for the customs officers to open the box and take a look inside — and ask for proof of Canadian origin.

March 8, 2018, President Trump signed two Presidential Proclamations, one dealing with additional (232) tariffs on steel and the other with additional tariffs on aluminum. As has been widely reported in the general press, those rates are 25% on steel and 10% on aluminum. Canada and Mexico (along with other countries) are exempted for the time being. China responded notified the World Trade Organization that it was withdrawing concessions against 128 U.S. origin goods.

On March 22, 2018, President Trump issued a “Presidential Memorandum on the Actions by the United States Related to the Section 301 Investigation” threatening to impose (301) tariffs against certain China-origin goods valued at $50 Billion.  The U.S. Trade Representative (“USTR”) has prepared for publication a Federal Register Notice (“Notice”) that identifies a list of approximately 1,300 tariff lines on which it proposes to levy additional duties of up to 25% on goods made in China. China has indicated that it will respond with additional U.S.-origin goods being subjected to retaliatory tariffs.  The Peterson Institute for International Economics has prepared an English list – available here.

President Trump has asked the United States Trade Representative to draw up a list of China-origin goods worth $100 Billion against which the United States will impose tariffs.  China has indicated that it will respond and will impose additional tariffs against U.S.-origin goods.  These lists have not yet been released.

While only the steel and aluminum (and solar panels and washing machine) tariffs are in place and the retaliatory tariffs may be the subject of negotiations, we do know that tariffs are possible and may be on the horizon. We have some of the lists of covered goods and we have the benefit of time to prepare.  If the tariffs are imposed, there may not be a lead time – they may be imposed within a 24 hour window of time.

What does this mean for Canadian exporters?

Some say there are opportunities because Canadian-origin goods would not be subject to the duties. BUT, what is a Canadian-origin good?  Canada does not have a free trade agreement with China that sets out rules of origin.  Even though Canada has a free trade agreement with the United States, U.S. Customs and Border Protection officers routinely deny NAFTA treatment to Canadian-origin goods where they are not satisfied with the paperwork or evidence.  It is not unusual for there to be NAFTA paperwork problems (in fact, paperwork problems are common) because many Canadian exporters do not have full time compliance staff and MFN duties are low.  Many Canadian exporters do not understand the risk and the cost associated with the risks of denial of preferential tariff treatment.  The risk is now both a denial of preferential treatment and an imposition of punitive treatment.

With new potential duties of 25% being imposed (possibly), it will become more important to be attentive to customs compliance and maintaining satisfactory evidence of origin.  When I say “satisfactory” I do not mean satisfactory to the exporter, I mean satisfactory to the government on the importing country.  I mean satisfactory to government officials who are looking for a reason to reject the Canadian tariff treatment.  I mean satisfactory to suspicious customs officers who think that Canada is a transshipment point.

Make a List of Goods Subject to Retaliatory Tariffs

It is important to know what goods are subject to retaliatory tariffs.  Either someone in your organization should be tasked with monitoring the lists or hire someone to notify you when certain goods are subject to retaliatory tariffs.  If goods that you export are on a list, you will have an increased risk.  more questions should be asked such as:

  • Which goods are subject to retaliatory tariffs?
  • Which country imposes the retaliatory tariffs?
  • Does the company export goods subject to the retaliatory tariffs to the country imposing the retaliatory tariffs?
  • Does the company use rules of origin under a free trade agreement to benefit from duty free treatment or do specific rules of origin help with the determination of origin?
  • Does the company act as the importer of record when it exports goods subject to the retaliatory tariffs to the country imposing the retaliatory tariffs?
  • Is the relationship with the buyer important – if we make an error in the paperwork, will it be detrimental to our relationship with the buyer?
  • Does the country that imposes the retaliatory tariffs have laws that puts liability of the exporter fro errors in paperwork?

Internal Review

When was the last time that your company took a close look at its customs compliance and the paperwork that supports origin claims?  When was the last time that your company closely reviewed the paperwork to see if there are errors relating to statements of origin or determinations of origin? Do you keep a binder of internal origin determinations?  Do you have your certificates of origin up-to-date?  Do you trust that your certificates of origin are accurate?  When was the last time you asked how and where the origin paperwork is maintained and kept?  When was the last time that your company reviewed the rules of origin in NAFTA?  When was the last time you spot checked an origin determination with respect to goods that you export? Have you ever asked what paperwork is required by China? When was the last time that your company reviewed its internal procedures for tracking inputs?  It is time to start to ask questions – a lot of questions.

If you do not ask the right questions or conduct an internal compliance review, you might find that goods that you think are not subject to retaliatory tariffs are subject to retaliatory tariffs.  It may be costly.  It will not be helpful to think that “our goods are Canadian, we do not have to worry about these tariffs” because you might find that your assumptions are incorrect. How much exactly is 25% of the value of your expected shipments of listed goods to countries who are retaliating against someone?  If the amount is more than $5000, it might be worth asking the necessary questions.

If you require customs compliance assistance or assistance in determining origin of goods, please contact Cyndee Todgham Cherniak at 416-307-4168 or at




USTR Publishes 301 Product List / China Reacts

Posted in Aerospace & Defence, Agriculture, Antidumping, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Government Procurement, Imports Restrictions, Legal Developments, Trade Agreeements, Trade Remedies, World Trade Organization

Since this article was originally published by MSK, we have learned China filed a complaint at the WTO challenging imposition of the threatened 301 tariffs. This WTO challenge is in addition to the one previously filed challenging the 232 tariffs the U.S. imposed.

The U.S. Trade Representative (“USTR”) has prepared for publication a Federal Register Notice (“Notice”) that identifies a list of approximately 1,300 tariff lines on which it proposes to levy additional duties of up to 25% on goods made in China.  The pre-published copy of the Notice was released  yesterday, April 3, 2018, and includes an Annex identifying the products on which USTR proposes to assess the additional duties. The notice can be found here: to an accompanying press release, the sectors targeted for the proposed tariffs “include industries such as aerospace, information and communication technology, robotics, and machinery.”  The press release further indicates these tariffs are intended to combat China’s “industrial plans, such as ‘Made in China 2025.’”  The tariffs, therefore, are intended to “target products that benefit from China’s industrial plans while minimizing the impact on the U.S. economy.”

The Notice announces a public hearing and an opportunity for interested parties to submit written comments.  The public hearing will take place on May 15th;  interested members of the public must file requests to appear at that hearing, and a summary of expected testimony as well as any other pre-hearing submissions are due by April 23rd.  Written comments must be filed by May 11th, and any post-hearing rebuttal comments are due May 22nd.

This action stems from the Trump Administration’s Section 301 investigation into China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation.  In particular, USTR investigated China’s actions regarding forcing U.S. firms to transfer their technology and intellectual property to Chinese companies, engaging in discriminatory practices regarding licensing and technology contracts, acquiring U.S. companies to obtain sensitive technologies, and supporting or participating in cyber intrusion into U.S. commercial networks to access sensitive U.S. intellectual property and confidential business information.

Section 301 of the Trade Act of 1974 was enacted at 19 U.S.C. 2411 and provides for mandatory action under § 2411(a)

(1) If the United States Trade Representative determines … that — …

(B) an act, policy, or practice of a foreign country— …

(ii) is unjustifiable and burdens or restricts United States commerce;

In light of affirmative findings, pursuant to 19 U.S.C. 2411(c)(1)(B), USTR is empowered to: “… impose duties or other import restrictions on the goods of, and, notwithstanding any other provision of law, fees or restrictions on the services of, such foreign country for such time as the Trade Representative determines appropriate;…”

The result of that investigation has been well-publicized in the general press. USTR found that China’s acts, policies, and practices regarding each of the mentioned activities was unreasonable or discriminatory and burdened or restricted U.S. commerce.  USTR’s findings, published on March 22nd, can be found here:  Accompanying those findings, the President issued a Memorandum directing USTR to take certain measures, including increasing tariffs on goods from China, to address China’s violations of Section 301. On March 23rd, USTR also initiated a dispute against China at the World Trade Organization to address China’s discriminatory practices regarding licensing and technology contracts.

The Notice provides some insight into how the USTR determined the product list:

‘Trade analysts from several U.S. Government agencies identified products that benefit from Chinese industrial policies, including Made in China 2025. The list was refined by removing specific products identified by analysts as likely to cause disruptions to the U.S. economy, and tariff lines that are subject to legal or administrative constraints. The remaining products were ranked according to the likely impact on U.S. consumers, based on available trade data involving alternative country sources for each product. The proposed list was then compiled by selecting products from the ranked list with lowest consumer impact.

The value of the list is approximately $50 billion in terms of estimated annual trade value for calendar year 2018. This level is appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China’s harmful acts, policies, and practices.”

While the Notice requests comments regarding “any aspect of the proposed action,” it identifies the following issues:

  • The specific products to be subject to increased duties, including whether products listed in the Annex should be retained or removed, or whether products not currently on the list should be added.
  • The level of the increase, if any, in the rate of duty.
  • The appropriate aggregate level of trade to be covered by additional duties.

Wasting no time, China has already announced the list of products against which it will retaliate that is said to involve $50 billion of U.S. products, including cars, airplanes and soybeans, characterizing its actions as securing a “truce.”  For this list, see   Unlike the list of 1,300 products identified by USTR, reports indicate that China is targeting a narrower range of goods, purportedly chosen because they are high profile valuable U.S. exports, and also to negatively impact U.S. states that supported President Trump.  China has indicated the timing of the implementation of these proposed additional tariffs will depend on negotiations between the United States and China.  In addition, on April 4th, China initiated a World Trade Organization dispute over the proposed tariffs, stating the “Section 301 investigation is an intentional and gross violation of the WTO’s fundamental principles of non-discrimination and bound tariffs.”   Stay tuned for more developments!

Ontario Adopts “Don’t Buy New York Steel” Provisions

Posted in Buy America, Government Procurement

On March 28, 2018, the Wynne Government of Ontario promulgated a regulation, Suppliers from New York“, O.Reg 117/18, to prevent the Ontario Government from buying steel from the State of New York.  The Suppliers from New York Regulation was made pursuant to the Fairness in Procurement Act, 2018, that was passed on March 8, 2018.  The Suppliers from New York Regulation came into effect on April 1, 2018 – this is no joke.  The Suppliers from New York Regulation is Ontario’s reaction to the New York Buy America Act (which enters into effect April 1, 2018).

There are seven main points to keep in mind about the Suppliers from New York Regulation:

1) The Suppliers from New York Regulation does not apply to any procurement processes initiated by a broader public sector entity or any procurement contracts entered into by a broader public sector entity (see Section 2);

2) The Suppliers from New York Regulation does not apply to all types of steel products. It only applies in respect of “structural iron”, which is defined to mean “a product that is made of either wrought iron or cast iron or both and that is designed to carry a load, but does not include a product that contains any form of steel” (See Section 1);

3) The Suppliers from New York Regulation does not apply to any procurement contract that was awarded before April 1, 2018, even if it was entered into on or after that date (See paragraph 6(1)(a)) or any procurement contract that will be awarded on or after April 1, 2018, if the contract will be awarded under a procurement process for which a request for bids, a request for proposals or other procurement document, including a request for qualifications, was issued before April 1, 2018 ((See paragraph 6(1)(b));

4) The Suppliers from New York Regulation applies to any procurement process initiated by an Ontario Government entity for the construction, reconstruction, alteration, repair, maintenance or improvement of a surface road or bridge where the value of the procurement contract at the time that the procurement contract is entered into is expected to be greater than $1,000,000 U.S. dollars, and to any procurement contract that results from such a procurement process (See Subsection 5(1));

5) Exemptions may be granted (See Sections 7 and 8).  Further, the Suppliers from New York Regulation does not apply to any procurement contract that is entered into for a purpose that is consistent with the objectives of an order issued under the Emergency Management and Civil Protection Act;

6) The Suppliers from New York Regulation applies in respect of suppliers in New York and NOT all US states.  The supplier must be from New York.  Goods in transit through New York State are not caught unless the supplier is from New York.  That being said, if the supplier of the steel is owned by a private equity firm located in New York, it will be necessary to determine if they are caught by the Suppliers from New York Regulation (See Sections 3 and 4); and

7) Other US states may be targeted by Ontario.  Currently, Texas has been warned.

For more information about Ontario’s government procurement rules and whether they may affect your bid or contract, please call Cyndee Todgham Cherniak at 416-307-4168 or email

China Retaliates

Posted in Aerospace & Defence, Agriculture, Antidumping, Border Security, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Imports Restrictions, Legal Developments

China suspended concessions  on certain U.S. goods effective April 2, 2018 See here for a list of the impacted products – 9927131

The WTO is circulating a communication from China which also lists the products against which retaliation has been taken – see China 232 Product List for more details


Steel/Aluminum Tariffs Exemptions Clarified

Posted in Aerospace & Defence, Antidumping, Border Security, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Government Procurement, Imports Restrictions, Legal Developments, Trade Agreeements, Trade Remedies

In off the record comments on March 28, 2018, an official of the Dept. of Commerce provided some clarification as to how the product exemption process will work. Of course, the starting point is if your product is subject to the steel or aluminum tariffs and is not from an exempted country, the 25% or 10%, respectively, will have to be paid. After that, things get trickier.

If you decide to seek exemption for your product, the first step obviously is to gather the needed details and file your exemption request. The way the process is intended to work is once the exemption request is uploaded to, the Bureau of Industry and Security (“BIS”)  will review it for completeness. If not complete, the application will be rejected. If complete, it will be officially posted on the website. That date is key. Because, if your exemption request is later granted, while not official until 5 days after it is published, you will be able to seek refunds on any entries filed between the date the exemption request is posted and when it is granted.

There are currently more than 100 exemption requests filed, although it is not clear any of them are officially posted. The aim is to have the review for completeness process concluded in a matter of days, but naturally at the outset, the process is taking longer. To complete the substantive review process and publish a decision, BIS acknowledges its aim remains approximately 90 days.

If an applicant has business sensitive information, one checks the appropriate box at the end of Section 5. As has been made clear in the Federal Register notices, once the exclusion request is officially posted, anyone may file objections within 30 days. There is no rebuttal process provided. As such, applicants would be wise to anticipate the nature of the objections which might be made, but BIS also anticipates the possibility there may be radically different views of the facts in some cases. If that happens, BIS is considering ways to follow-up with the parties to reconcile those differences.

BIS will rely on Commerce internal expertise but also conduct an interagency review, as warranted, for each exclusion application. It hopes to have that process completed in approximately 60 days and then have the remaining 30, of the 90 day anticipated processing time, to complete its actions. After reviewing the application and any objections, if BIS deems it advisable to seek the business proprietary information indicated by the applicant, it will make that request prior to reaching a final decision.

Given the need for Customs and Border Protection to administer any exclusions, if you are either downstream (e.g. an American buyer) or upstream (e.g. also an American buyer but purchasing it to be imported from a foreign country) from the importer, applicants would be wise to partner with importers in making their applications. Box 5.e. does ask: “Provide a detailed explanation as to how U.S. Customs and Border Protection (CBP) will be able to reasonably distinguish the steel product subject to the Exclusion Request at time of entry, without adding undue burden to their current entry system and procedures.” Identifying the importer with the specific goods will go a long way to addressing that question, but certainly is not the only factor to consider. Whether you are upstream or downstream, but are an American entity eligible to request an exclusion, companies should also look at their contracts and other commercial documentation to make sure they include provisions for the parties to cooperate in seeking and administering any exclusion which is sought or granted, and also provides for penalties and recourse in case cooperation is not forthcoming, or the exclusion is not properly administered once granted.

Trade Trifecta!

Posted in Aerospace & Defence, Agriculture, Antidumping, Border Security, Buy America, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Government Procurement, Imports Restrictions, Legal Developments, Trade Agreeements, Trade Remedies, World Trade Organization

Since the original publication of this Alert, South Korea and the U.S. have concluded their negotiations regarding the Korea-U.S. Free Trade Agreement, and, as a result, South Korea has been permanently excluded from the steel and aluminum tariffs.


Some events rather significant to international traders occurred in the last few days. First, on Friday, March 23, 2018, President Trump signed the latest spending bill. It includes a provision to renew Generalized System of Preferences (“GSP”) benefits retroactive to December 31, 2017, when the program last expired. GSP is now authorized through December 31, 2020.

With history as a guide, we should expect Customs and Border Protection to shortly publish a message advising when its programming is updated, the deadline by which to file refunds and similar details. In the past, so long as the entry was filed with an “A” or similar indicator, refunds were routinely issued, but importers would still be wise to make sure their list of eligible entries is current, and then to track their refunds. Since the bill was signed into law on Friday, the deadline to file refund requests will be 180 days later, which works out to September 18, 2018.

Last Thursday, March 22, 2018, President Trump issued two proclamations by which he delayed application of the steel and aluminum tariffs on several major U.S. trading partners. Both Proclamations mention ongoing discussions with Canada, Mexico, Australia, Argentina, South Korea, Brazil and the member countries of the European Union, all of which are exempted from these tariffs through April 30, 2018. The member countries of the EU are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and United Kingdom. Oddly, Japan is not on the list!

On March 22, 2018, President Trump also issued a “Presidential Memorandum on the Actions by the United States Related to the Section 301 Investigation,” a copy can be found here: 301 Memo. In summary, the supporting findings hold that China is pressuring U.S. companies to transfer technology to Chinese entities to the detriment of those U.S. companies. The general press for at least the last 10 years has reported stories about major American companies allowing Chinese officials to review their source code or actually giving the Chinese government a copy of their source code. So, that finding was not unexpected.

The Presidential Memorandum goes on to assert that China uses “licensing procedures” and “other significant restrictions” so as to hamper U.S. companies from conducting business in China. The conclusion is China “supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies.” As a result, China obtains “unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications” which are described as supporting China’s “strategic development goals, including its science and technology advancement, military modernization, and economic development.”

As a result, the U.S. Trade Representative (“USTR”) was instructed to “take all appropriate action under section 301” (19. U.S.C. 2411) to address what is seen as China’s “unreasonable or discriminatory” acts, policies and practices, and which “burden or restrict U.S. commerce.” Specifically mentioned are increased tariffs on goods from China. A list proposed products is to be published within 15 days, meaning no later than April 6, 2018, although USTR indicates it will be published sooner. That list will be subject to notice and comment and consultations with domestic stake holders will also occur.

Additionally, USTR was instructed to initiate consultations under the World Trade Organization (“WTO”) dispute settlement mechanism focused on China’s “discriminatory licensing practices.” If appropriate, this should be done in cooperation with other WTO members “to address China’s unfair trade practices.” A report about progress is due within 60 days, or no later than May 21, 2018. The WTO action has been filed; a copy can be found here: US to China re WTO Consultations.

Finally, the Secretary of the Treasury, in consultation with other Administration officials is to consider changes to U.S. procedures regarding “investment … directed or facilitated by China in industries or technologies deemed important” to the U.S. This means there will be changes to the Committee on Foreign Investment in the U.S. or CFIUS approval process. Here, too, a report is due within 60 days.

China’s Ministry of Commerce issued a response which can be found here: MOFO Tariff List. It states: [t]his list tentatively contains seven categories and 128 tax products. According to the 2017 statistics, it involves the US exports to China of about 3 billion US dollars. The first part covers a total of 120 taxes involving US$977 million in US exports to China, including fresh fruit, dried fruit and nut products, wine, modified ethanol, American ginseng, and seamless steel pipes , and is expected to impose a 15% tariff. The second part covers a total of eight taxes involving US$1.992 billion of US exports to China, including pork and products, recycled aluminum, etc., and a 25% tariff is proposed.”

What is notable about this product list is the most high-profile American products are not on it. The sense is China is waiting to see what is on the USTR product list, and will then take further action. Whether on the next list or any one that follows, soybeans, farm products, aircraft and integrated chips are expected to be subject to retaliation.  Also be on the lookout for two other actions:

1)         Limits by the Chinese government on citizens being permitted to visit the U.S., and

2)         A reduction by China of purchases of U.S. Treasury notes.

Be careful what you wish for – how much more “interesting” can these times get?

New Tariffs : Definition and Exclusion

Posted in Aerospace & Defence, Antidumping, Border Security, Buy America, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, Government Procurement, Imports Restrictions, Legal Developments, Trade Agreeements, Trade Remedies

When President Trump announced the 25% steel and 10% aluminum tariffs on March 8, 2018, he instructed the  Secretary of Commerce to issue regulations explaining how American companies could seek exclusions from those tariffs no later than March 19, 2018, and that deadline has been met.  These new regulations can be found at:

Before we discuss the new regulations, we should start with the data Customs and Border Protection (CBP) released with its programming updates to implement these safeguard tariffs:

The HTS numbers added are:

9903.80.01        STEEL PROD, NOTE 19, EX CA/M               25%

9903.85.01        ALUMINUM PROD, NOTE 19, EX CA/M    10%

with respect to goods entered, or withdrawn from warehouse for consumption, on or after 12:01 a.m. EDT on March 23, 2018.  [The text of Note 19 has yet to be published.] This rate of duty, which is in addition to any other duties, fees, exactions, and charges applicable to such imported steel and aluminum products, and shall apply to imports of steel and aluminum products from all countries except Canada and Mexico.

(1) “Aluminum” products are defined in the Harmonized Tariff Schedule (HTS) as: (a) unwrought aluminum (HTS 7601); (b) aluminum bars, rods, and profiles (HTS 7604); (c) aluminum wire (HTS 7605); (d) aluminum plates, sheets, strips, and foil (flat rolled products) (HTS 7606 and 7607); (e) aluminum tubes and pipes and tube and pipe fitting (HTS 7608 and 7609); and (f) aluminum castings and forgings (HTS 7616.99.51.60 and 7616.99.51.70), including any subsequent revisions to these HTS classifications.

(2)  “Steel” are defined in the HTS as: (i) 7206.10 through 7216.50, (ii) 7216.99 through 7301.10, (iii) 7302.10, (iv) 7302.40 through 7302.90, and (v) 7304.10 through 7306.90, including any subsequent revisions to these HTS classifications.

Turning now to the exclusion process, we begin with the statement in the Federal Register notice that an exclusion will apply only if the steel or aluminum products are determined “not to be produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality or based upon specific national security considerations.”  In other words, do not expect a lot of requests to be granted.

There is one docket for the steel case (BIS-2018-0006) and another for the aluminum case (BIS-2008-0002).

Any exclusion request must be filed by an individual or organization which uses the steel or aluminum products in its U.S. domestic business activities, such as construction, manufacturing, or supplying steel/aluminum products.   Any individual or organization in the U.S. may file objections, but they will only be considered if the information submitted relates to the basis for the exclusion request, no general objections will be entertained.  Anyone wishing to object must locate the exclusion request and object by adding comments to that original filing.

Exclusion will be approved on a per product basis and be limited to the party seeking the relief. However, Commerce reserves the right to approve a broader application, meaning to additional importers.  Even once an exclusion is approved,  parties may still file objections. Similarly, even if a prior application was rejected, a later exclusion request for the same product is permitted.

15 C.F.R. part 705 has been amended so that Supplement No. 1 addresses steel products and Supplement No. 2 aluminum products.  In each case, the required form can be found on and on the BIS website.  The steel form is here – – and the aluminum case form here –

The Federal Register notice reinforces that all filings for exclusion requests and objections are subject to public inspection and copying, so business proprietary or classified information should be submitted accordingly.

In seeking an exclusion, parties would be wise to first identify the grounds on which they will rely bearing in mind the President found that “steel and aluminum are being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security of the United States and therefore the President is implementing these remedial actions … to protect U.S. national security interests.”

When the exclusion request is prepared, it must include the submitter’s name, date of submission, the grounds for the request, plus specify the business activities in which the requester is engaged, that the party submitting the request is authorized to do so and the 10 digit HTS statistical reporting number.

A separate request is required for steel products with chemistry by percentage breakdown by weight, metallurgical properties, surface quality (e.g., galvanized, coated, etc.)  and distinct critical dimensions (e.g.,  0.25” rebar, 0.5” rebar, 0.5” sheet, or 0.75” sheet) even if covered by a common HTS subheading.  With aluminum products, separate exclusion requests must be submitted for distinct critical dimensions covered by a common HTS statistical reporting number, e.g. 10 mm diameter bar, 15 mm bar, or 20 mm bar.  Separate requests are also required for products falling into more than one HTS subheading.

Exclusion requests are permitted at any time. However, objections must be filed within 30 days of an exclusion request being published.  When filing an objection, the party doing so should clearly identify and provide support for its opposition by responding to the specifics urged in the exclusion request.  There is a 25 page limit. If the submission is incomplete, the exclusion will be denied or the objection not considered.  BIS’ findings will respond to any objections. Any approved exclusion is effective five (5) days after it is published, and typically remains valid for one (1) year.

BIS has indicated that processing of any exclusion request generally will not take more than 90 days, including consideration of any objections and any input needed from other agencies.  The way the Federal Register notice is written, CBP is expected to provide a means (as yet undefined)  by which the importer will be able to reference his exclusion once granted, and that exclusion is expected to be reported at time of entry.

One other major point was emphasized in the Federal Register notice – the procedure by which American companies will be permitted to seek exclusion or object to such requests has nothing to do with the grounds on which the U.S. may grant exclusion to any country.   On that topic, there is lots of speculation, most of which focuses around the following likely factors:

1)         That country has a “security relationship” with the U.S., but “security relationship” remains undefined;

2)         How that country protects its home market from underpriced imports;

3)         The position that country has taken in the past in response to U.S. positions in trade remedy cases at the World Trade Organization; and

4)         That country’s participating in various multilateral and bilateral steel overcapacity programs, including what are the trade patterns in that country for steel and aluminum products.

Another significant unanswered question is whether any country’s  exemption will be complete or whether quotas or other conditions might apply, or for that matter whether any exemption might be limited in time or scope.

The countries/blocs most often mentioned as potentially being exempted include Brazil, Japan, South Korea, Australia and EU, with China mentioned as likely to retaliate.  The interesting framework for the EU is the oft-repeated comment by President Trump that the EU must lower its tariffs on unrelated products, such as automobiles.  The EU has already published a list of products for comment on which retaliation is proposed, and it does include jeans, bourbon and similar iconic American products, see for the full list.  The China metal industry is proposing China retaliate against American coal.

Knock, Knock: The Tariffs Are Coming! The Tariffs Are Coming!

Posted in Aerospace & Defence, Agriculture, Anti-Trust/Competition Law, Antidumping, Border Security, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Government Procurement, Legal Developments, Politics, Trade Agreeements, Trade Remedies, World Trade Organization

Originally published by the Journal of Commerce in March 2018

As has been widely reported, on March 8, 2018, President Trump signed one Presidential Proclamations imposing a 25% additional tariff on defined steel products, and a second one imposing an additional 10% tariff on defined aluminum products.  The only countries exempted from the outset are Canada and Mexico, but that exemption may not be permanent.   These safeguards take effect on any entries filed on or after 12:01 a.m. on March 23, 2018.  So, what is happening in the meantime?

We should start with the relevant procedures for American companies to seek exclusion are to be published no later than March 19, 2018.  Do not expect much sympathy to any such requests, given the current climate.

As of this writing, we are days removed from signature, and so far, various countries and trading blocs are holding their powder in terms of retaliatory action.  Both Proclamations acknowledge a “shared concern about global excess capacity” and invited any “country with which [the U.S. has] a security relationship … to discuss … alternative ways to address the threatened impairment of the national security caused by the imports from that country.” As a result of those negotiations, modifications to the Proclamations may result. Regarding Canada and Mexico, the Proclamations state that “ongoing discussions”  are the desired form of action, but also carry the caveat that both Canada and Mexico are expected to “take action to prevent transshipment.”

In the meantime, negotiations between the U.S. and its trading partners are running hot and heavy, but not a peep from China.  When one looks at worldwide steel production, a chart published by CNN Money on March 2, 2018 clarifies that China accounts for 49% of worldwide steel production. See  That same article goes on to state that China ranks fifth in terms of exporters of steel to the U.S., but, of course, China’s exports to the U.S. have been dampened by antidumping and countervailing duties for some time.  Providing contradictory information, a recent New York Times article does not even acknowledge China as a major exporter to the U.S., instead lumping it in the “Rest of the world” category. See

Almost overnight,  it was reported that Australia was negotiating with the U.S. to be excluded. Now,  there is coverage in the general press about the EU and Japan agreeing with the U.S. on new steps to fight overcapacity, but no clarity as to the grounds for exclusion.  The only conditions published call for stronger rules on industrial subsidies, strengthening of notification requirements in the WTO and intensifying information-sharing on trade-distorting practices.  On a broader front, there was also reference to coordinating more closely with international fora, in particular the G7, G20 and the OECD, and on sectoral initiatives such as the Global Steel Forum.

To be clear, the steel products subject to the 25% safeguard are those which are classified under HTSUS 7206.10 through 7216.50 (including ingots, bars, rods and angles), 7216.99 through 7301.10 (including bars, rods, wire, ingots, and sheet piling), 7302.10 (rails),  7302.40 through 7302.90 (including plates and sleepers), and 7304.10 through 7306.90 (including tubes, pipes and hollow profiles). Aluminum products are defined as unwrought aluminum (HTS 7601); aluminum bars, rods, and profiles (HTS 7604); aluminum wire (HTS 7605); aluminum plate, sheet, strip and foil (flat rolled products) (HTS 7606 and 7606); aluminum tubes and pipes and tube and pipe fittings (HTS 7608 and 7609); and aluminum castings and forgings (HTS 7616.99.5160 and 7616.99.51.70) .

The stated reason supporting these safeguards is the “failure of countries to agree on measures to reduce global excess capacity [and] the continued high level of imports since the beginning of the year.”  The national security ground is the weakening of the U.S.’ “internal economy and the shrinking of its ability to meet national security production requirements in the case of a national emergency”, citing to 19 U.S.C. 1862(d) which provides, in pertinent part: “[i]n the administration of this section, the Secretary and the President shall further recognize the close relation of the economic welfare of the Nation to our national security, and shall take into consideration the impact of foreign competition on the economic welfare of individual domestic industries; …”

There is every reason to think that negotiations will continue with a multitude of countries. It might even be reasonable to expect an agreement to be reached with at least the FVEY or Five Eyes countries, meaning between the U.S. and Canada, New Zealand, Australia and the United Kingdom. There are long standing intelligence relationships between these countries which led to the FVEY acronym.  Japan certainly seems to have reached such an agreement.  The EU and Japan agreements as announced are remarkably short on specifics that would appear to directly enhance U.S. economic security. The question is will any other countries be successful?  Equally unclear, what does “alternative ways to address the threatened impairment of the national security caused by the imports from that country” mean? The political leaders of Japan and the EU are consistently stating there is no clear direction or explanation from Administration officials.

The general press is handicapping the situation as if the EU retaliates, it will be against Harley Davidson,  Kentucky bourbon and Levi Strauss jeans, to name a few prominent brands, which happen to operate in states from which prominent Republicans were elected. Similarly, the Chinese are rumored to be ready to retaliate against soybeans and other agricultural products. None of this should be surprising as political leaders in other countries understand how the American political system works.  There should also be no surprise about how the Trump Administration views the world.  In his last stint in private practice, U.S. Trade Representative Robert Lighthizer was a trade remedies lawyer, meaning he pursued antidumping and countervailing duty cases on behalf of American companies. Coming from the same perspective is Secretary of Commerce Wilbur Ross. Now that Gary Cohn, Mr. Trump’s top economic advisor, has resigned, the globalists have lost their leading voice.

The stated reason for the imposition of these safeguards is national security which is presented as equating to economic security, while at the same time raising the point that steel and aluminum are needed for military preparedness.  So, that being the case, when will this Administration address the remarkable lack of American flag ocean-going carriers and the threat that poses in time of national emergency?