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More Duties and Tariffs

1. New AD/CV Duties Possible on Ceramic Tile from China

A petition was filed on April 11, 2019, alleging that ceramic tiles from China is being sold at less than fair value in the U.S. market and benefitting from countervailable subsidies. The alleged average dumping margins are 178.22 percent to 428.58 percent.

This petition covers ceramic tiles regardless of the percent water absorption. The covered products include porcelain tile, vitreous tile, semi-vitreous tile, and non-vitreous tile, glazed and unglazed ceramic flooring and wall tile, countertop tile, paving tile, hearth tile, porcelain tile, mosaic cubes, finishing tile, and the like, whether or not the tile is on a backing. Imports of subject goods are classified under a number of subheadings in HTSUS headings 6905, 6907, and 6914.

Ceramic tiles produced in China that undergo processing in another country, including beveling, cutting, trimming, staining, painting, polishing, finishing, or other processing, before entering the United States are also covered.

Ceramic bricks properly classified under HTSUS 6904.10.00 through 6904.90.0000 are excluded from the scope of the petition.

The Department of Commerce and the International Trade Commission are still deciding whether or not to launch an investigation on the products mentioned in the petition. There are strict statutory deadlines associated with the investigation. If you are an importer, exporter, manufacturer of the covered products, or other concerned parties, you can contact us for more information.

2. Wooden Cabinets and Vanities from China

On March 6, 2019, a petition was filed by The American Kitchen Cabinet Alliance alleging that wooden cabinets and vanities from China are being sold at less than fair value in the U.S. market and benefitting from countervailable subsidies. The alleged average dumping margins are 175.50 percent to 259.99 percent.

The goods covered by this petition are cabinets and vanities made substantially of wood products, including solid wood and engineered wood products (including those made from wood particles, fibers, or other wooden materials such as plywood, strand board, block board, particle board, or fiberboard), or bamboo. Wooden cabinets and vanities with or without wood veneers; wood, paper, or other overlays; or laminates; with or without non-wood components or trim such as metal, marble, glass, plastic, or other resins; whether or not surface finished or unfinished; and whether or not assembled or completed are included.

The covered products serve the purpose and function of permanently affixed cabinetry typically found throughout the home, including kitchen and bath cabinetry, modular vanities, and pedestal vanities (which may or may not include a top composed of stone, plastic, or other material). Covered products can also be used in places other than in a home kitchen or bathroom, such as laundry room cabinets, home office, kitchen and bathroom in commercial buildings, apartments, hotels, assisted living or healthcare facilities, or other environments.

Covered products also include component parts of cabinets and vanities, including frames; boxes (which typically include a top, bottom, sides, back, base blockers, ends/end panels, stretcher rails, toe kicks, and/or shelves); doors; drawers and drawer components (which typically include sides, backs, bottoms, and faces); back panels and end panels; and desks, shelves, and tables attached to or incorporated in the subject goods.

Wooden cabinets and vanities and in-scope components that have been further processed in a third country (including one or more of the following: trimming, cutting, notching, punching, drilling, painting, staining, finishing, assembly, or any other processing) can also be subject to the antidumping and countervailing duties.

Imports of subject goods are normally classified under HTSUS 9403.40.9060 and 9403.60.8081, and the subject component parts may be entered under HTSUS 9403.90.7080.

Commerce has initiated the investigation.  There are strict statutory deadlines associated with the investigation. If you are an importer, exporter, manufacturer of the covered products, or other concerned parties you can contact us for more information.

3. Quartz Surface Products from China Subject of New AD/CV Petition

The petition for antidumping and countervailing duty investigation concerning quartz surface products was filed on April 17, 2018. On November 20, 2018, Commerce issued a preliminary determination concerning antidumping duties (case A-570-084). Commerce also preliminarily determined that critical circumstances existed with respect to QSP from China for CQ International, Foshan Yixin Stone Co., Ltd. (Yixin Stone), and Guangzhou Hercules Quartz Stone Co., Ltd. (Hercules Quartz), all other separate rate companies and the China-wide entity.

On November 15, 2018, Commerce issued the preliminary affirmative determination of critical circumstances in the countervailing duty investigation (case C-570-085). Commerce preliminarily found that critical circumstances existed with respect to Foshan Hero Stone and Fasa Industrial, but did not exist with respect to Foshan Yixin or all-other rates companies.

The combined ADCVD rate varies from 270 – 500%.

It is expected that within the next few weeks, Commerce will issue its final determination as to antidumping, countervailing and their respective critical circumstances.

If you are an importer, exporter, manufacturer of the covered products, or other concerned parties you can contact us  for more information.

4. Possible Retaliatory Duties On Products From The European Union

The Section 301 Tariffs (aka Trump Tariffs) do not only apply to Chinese origin goods, but E.U. goods are now threatened to be subject up to 100% tariff. This threat came from a prolonged discussion on aircraft subsidies.  

A preliminary list has been published. It includes about 317 different tariff lines: from products in the aerospace sector to handbags to swordfish steaks and to guava jam. An arbitrator from the WTO is set to make a decision on the amount of countermeasures the U.S. may impose against the EU.

USTR is inviting public comments on any aspect of the proposed retaliation, including (1) products that should be retained, removed, or added; (2) how high tariffs should be raised; (3) the aggregate level of trade to be covered by additional tariffs; and (4) whether higher tariffs might harm U.S. stakeholders, including small businesses and consumers. The important dates are:

The relevant dates are as follows:

• May 6, 2019 – Due date for submission of requests to appear at the public hearing and summary of testimony
• May 15, 2019 – Public hearing convened by the Section 301 Committee
• May 28, 2019 – Due date for submission of written comments, including post-hearing rebuttal comments

If you have any questions or would like to make comments to the USTR, please contact us.

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The 2016 Food Facility Registration biennial renewal period is wrapping up! In January of 2011 the FDA Food Safety Modernization Act (“FSMA”) was signed into law. It designated a renewal period spanning from 12:00 AM on October 1st to 11:59 PM on December 31st. If an importer’s registration is not renewed during this time, it will be completely removed from the account due to expiration.

The registration renewal window occurs in the same October-December window of every even-numbered year. If you don’t renew in time there is no planned extension; This is not something to put on the back burner! Be sure to note that renewing a registration is a completely different process than updating a registration. You are unable to update without renewal first. On the FFRM main menu, the “Update Facility Registration” button will remain hidden until your registration renewal has been processed.

The main effect that the FSMA had on the shipping industry is that it mandated that any domestic or foreign facility that manufactures, processes, packs, or holds food for human or animal consumption in the United States must register with the FDA. If a company meets these requirements but doesn’t renew in time, all food imported from the source is subject to be held at the port upon arrival in the U.S. Because of the severity of this risk, import brokers are encouraged to take early action and contact any clients who import high-volume food shipments and be sure they are updated where they need to be. Clarify that the renewal status is properly associated with their shipments, confirm any new registration numbers, and do so before 2017 rolls around and you’ll be in the clear!

If you have any questions about renewal, updating, or whether or not you meet the requirements contact us and we will gladly help you navigate these regulations.

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Maersk, the world’s leading container ship operator, and Alibaba, the owner of China’s biggest e-commerce platforms, have decided to join forces in what has traditionally been the domain of NVOCCs
and Freight Forwarders.  The two have established a portal to allow shippers/customers to use Alibaba to book space on Maersk vessels. This union illustrates the growing trend of e-commerce and logistics firms working together, and to me sounds very much like an early warning signal for the great diminishment, if not demise altogether, of NVOCCs and Freight Forwarders.

Effective December 22nd, 2016 Chinese shippers obtained the ability to reserve space through Alibaba’s OneTouch booking website. OneTouch is intended to cater to small and medium-sized Chinese exporters by providing online services including logistics and customs clearance. OneTouch also gives these exporters access to platforms where they can book air freight and parcel delivery services while still supporting the business-to-business marketplace that Alibaba is known for. Traditionally, shippers had gone through freight forwarders in order to book on container vessels.  However, vessel operators such as Maersk are beginning to streamline this process by allowing the beneficial owner of the cargo (the shipper, rather than the shipper’s intermediary) to book directly from the internet.

What does Alibaba gain from its involvement in this? In recent years, Alibaba has been making inroads into logistics services by buying warehouses and taking stakes in couriers.  E-commerce giants are increasingly venturing into logistics in order to enhance their control over the supply chain networks they work with.  Amazon, for example, has dedicated fleets of aircraft, drones, and stores (which are actually mini warehouses/distribution centers), and is rumored to be planning its own U.S. domestic delivery fleet.  Walmart will not remain far behind: its brick and mortar locations and existing truck fleet give it a strong start in the logistics arena.

When asked about the Alibaba partnership, Maersk said that this was part of the shipping line’s plan to provide digitized services to consumers and that it plans to initiate more pilot programs on third-party portals in the near future. Maersk stated that the launch of the service was not focused on bypassing the industry’s traditional middlemen (freight forwarders and NVOCCs), as the OneTouch platform still engages freight forwarders to offer some services, including haulage. Though it may not be the public goal of this joint venture, bypassing intermediaries will inevitably be an effect.

Many tech startups have launched services like this one, attempting to bypass third-party shipping services, but until now Amazon has been the only other high-profile company to venture into these waters. This new partnership between Alibaba and Maersk will add another big name to the list of e-commerce companies exploring a streamlined process, as well as giving carriers a chance to see how these online retail capabilities mesh with their shipping business.  Forwarders and NVOCCs are well-advised to watch this trend closely, and be careful about large investments in physical facilities. A look at today’s ghost towns which were formerly bustling shopping malls gives you a hint of what could be if intermediaries become very easily done without.

The Importer of Record, or “IOR” has a lot of liability for entry.  Any penalties resulting from discrepancies relating to classification of the goods or admissibility issues, and the duties to be paid, must be covered financially by the IOR.   Changed from when I got my Customs broker’s license in 1978 is the fact that today the IOR must have a financial interest in the merchandise. No longer can it just be a nominal consignee.  This is to guarantee Customs that the importer is not a straw man, but has sufficient knowledge of the import so as to identify its appropriate duty rate, etc.   The sole exception to the rule is that a licensed Customs broker an always serve as IOR, though most are justifiably loathe to do so.

We encountered a very unusual case in which a CHB was put in the position of being the only possible importer of a DDTC licensable product.  In this case, European aircraft parts were being imported by an American company. The American repair station requested that the basis for delivery be “DDP” which means that the seller would have sole responsibility for making sure that the product properly clears customs and was delivered, “duty paid”.  Because the agreement was that it would be DDP, the consignee repair station refused to be the IOR. However, the goods were DDTC licensable.  Because the a DDTC license is only given to U.S.-located companies, the European seller could not be the IOR either. This leaves only one individual who is able to accomplish both: the Customs Broker.

The customs broker was left in the unenviable position of having to serve as the IOR for their European client.  Given the broker’s understandable lack of knowledge of the intricacies of aviation spares, it runs the risk of being responsible for any penalties from a mistake on the entry it files. In order to avoid this, we recommended indemnification.  Indemnification ensures that if something goes wrong, the broker will be put in the same position they’d have been in had they not agreed to assist- meaning that the seller will cover any monetary penalties, legal fees, etc. in the event of any demand.

The below paragraph was the language we suggested to our client’s customs broker, in order to make them feel comfortable that they are indemnified against all liabilities arising from the  agreement to serve as IOR. This absolves the broker from any responsibility if the duty is found to be incorrect or other problems arise, and it is among standard CHB terms and conditions.

Where a bond is required by U.S. Customs to be given for the production of any document or the performance of any act, the Customer shall be deemed bound by the terms of the bond notwithstanding the fact that the bond has been executed by the Company as principal, it being understood that the Company entered into such undertaking at the instance and on behalf of the Customer, and the Customer shall indemnify and hold the Company harmless for the consequences of any breach of the terms of the bond. (b) On an export at a reasonable time prior to the exportation of the shipment the Customer shall furnish to the Company the commercial invoice in proper form and number, a proper consular declaration, weights, measures, values and other information in the language of and as may be required by the laws and regulations of the U.S. and the country of destination of the goods. (c) On an export or import the Company shall not in any way be responsible or liable for increased duty, penalty, fine or expense unless caused by the negligence or other fault of the Company, in which event its liability to the Customer shall be governed by the provisions of paragraphs 8 – 10 below. The Customer shall be bound by and warrant the accuracy of all invoices, documents and information furnished to the Company by the Customer or its agent for export, entry or other purposes and the Customer agrees to indemnify and hold harmless the Company against any increased duty, penalty, fine or expense including attorneys’ fees, resulting from any inaccuracy, incomplete statement, omission or any failure to make timely presentation, even if not due to any negligence of the Customer.

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On April 20, 2017, President Trump directed the U.S. Department of Commerce (DOC) to conduct an investigation into the effects of steel imports on U.S. national security. (Presidential Memorandum Can Be Seen Here). On April 27, 2017, the President directed DOC to conduct an investigation into the effects of aluminum imports on U.S. national security. On these respective dates, DOC self-initiated investigations under section 232 of the Trade Expansion Act of 1962 to determine whether increasing imports of foreign-made steel and aluminum threaten the U.S. economic security and military preparedness.

Section 232 investigations include consideration of factors such as the amount of domestic production needed for projected national defense requirements and whether imports impair the domestic industry’s ability to meet those needs, the effect of foreign competition on the domestic industry, and any detrimental impacts from the displacement of domestic products by excessive imports. DOC last conducted an investigation under Section 232 of the Trade Expansion Act in 2001, when it examined whether U.S. imports of iron ore and semi finished steel threatened to impair national security. DOC found that they did not, and the President took no action to restraint imports. Past investigations under Section 232 have only rarely led to the imposition of import restraints. The most recent such occurrence was in the early 1990s, when an investigation regarding imports of certain machine tools culminated in voluntary restraint agreements (VRAs) with Japan and Taiwan.

Citing the more than 150 antidumping and countervailing orders currently in place on steel products imported from various countries, the Presidential Memorandum announced the investigation claims that U.S. steel producers continue to be harmed by continued unfair trade practices, such as subsidies provided by foreign governments and excess production capacity in producing countries. These systemic trade abuses, according to the Presidential Memorandum, jeopardize long-term investment in the U.S. industry and weaken the pool of qualified workers for this strategic industry.

Under Section 232, the Secretary of Commerce is required to report the findings and recommendations resulting from DOC’s investigation to the President within 270 days. In this case, however, the Trump administration is seeking to complete DOC’s report on an expedited schedule, well in advance of the maximum statutory time frame permitted by Section 232.

Within 90 days of receiving the Secretary’s report, the President must determine whether he agrees with the Secretary’s findings and recommendations, but he is free to take action to restrict the imports at issue regardless of those findings and recommendations. Within 30 days of the President’s decision, pursuant to Section 232, he is required to report his actions to Congress. In a Federal Register notice that will be published, the DOC announced that it will hold a hearing on May 24, 2017, and will consider written submissions received by May 31, 2017.

The Trump administration’s resort to Section 232 of the Trade Expansion Act now is controversial for various reasons, including because Section 232 predates the trading rules and obligations to which the United States and almost all of its major trading partners agreed to in joining the World Trade Organization (WTO). Thus, reliance by the United States on Section 232 to limit imports of steel could trigger challenges by steel-exporting countries in the WTO dispute settlement process. For example, Article XXI of the General Agreement on Tariffs and Trade (GATT) provides for a national security exception that a WTO member may lawfully rely upon to justify a restraint on trade that might otherwise violate WTO obligations. It is unclear whether the Trump administration could adequately justify any import restraints on steel resulting from the current Section 232 investigation under the Article XXI national security exception.

Additionally, Article XI of the GATT contains a strong presumption against quantitative restrictions on trade, which an import restraint under Section 232 may violate, depending on its terms. Other WTO rules may also be implicated by U.S. action under Section 232, including the national treatment requirement under GATT Article III, or the provisions of the WTO Anti-Dumping and Subsidies and Countervailing Measures Agreements that limit action against alleged dumping and subsidies to the measures specified in those agreements.

Finally, the Presidential Memorandum announcing the investigation identifies the aluminum, vehicle, aircraft, shipbuilding and semiconductor industries, along with steel, as other “core industries” that are vital to the U.S. manufacturing and defense industrial base and thus may warrant protection against alleged foreign trade abuses. The Presidential Memorandum thus signals that the Trump administration may be contemplating comparable action to potentially restrain imports in these other industrial sectors.

Business Valuation is the process of determining the economic value of a business or company. Although this may seem pretty straightforward, accurately valuing each business takes a great amount of preparation and thought. Establishing what a business is worth is not an exact science, largely due to the way different people view each aspect of a company. An investor will likely base their assessment of the business value solely on how much money the company brings in, while the owner may heavily value its connection to the community it serves. Beyond the possible differences in opinion, economic conditions affect what people believe a business is worth. As job scarcity increases, the number of business buyers in the market follows and that increased competition results in higher selling prices.  Also, low interest rates spur investors to put their money into businesses rather than banks, because returns are so much higher.

When it comes to business valuation, there are three umbrella terms for methods used. Each of the following represents a choice of several methods all grouped into the same approach.

Asset approach: The asset approach views the business as a set of assets and liabilities that are weighed against one another to determine business value. The asset approach is based on substitution by answering this question: What would it cost to create an identical business that will produce equal economic benefit for its owners?   Although this may seem like a fairly simple equation, there are many important details than cannot be overlooked, including which assets and liabilities should be considered, what standard to use to measure their value, and how to set each individual item’s worth.

Market approach:  As one could assume from its name, the market approach relies on signals from the market place to determine what a business is worth.  The market approach applies the principle of competition, asking “What are businesses worth that are comparable to my business?” In assessing the value of a company using the market approach, the fair market value-a value which buyers are willing to pay and sellers are willing to accept-is found by searching the market for the current business price equilibrium. The market approach is commonly used as a way to substantiate one’s offer or asking price. If you determine the “going rate” is a certain amount, why offer any more or accept any less?

Income Approach:  This approach focuses in on a company’s core motivation for existing: profit. It attempts to answer the question “If I invest time, money, and effort into owning this business, what economic benefits will it provide me, and when?”  The income valuation approach centers around a future expectation of economic benefit while also factoring in the risk of the money not being brought in on time – or at all.   This is probably the most common in the Customs brokerage and/or freight forwarding fields, as the companies tend not to be asset based, and market valuations are difficult among closely held businesses which don’t publicly report sales, income, or private sale prices.

With three different approaches, business valuation methods often produce different results.  When deciding which assessment style best fits your needs, it is important to consider the size and age of the business in question, as well as whether what you’re valuing is a start-up or already a cash cow. Although you may find a particular method best geared towards your company (i.e. the income approach with a brand new company that has yet to bring in much profit) it is important to keep in mind that all of the approaches listed above are reliable methods which can be successfully applied to a business of any kind.

Contact us anytime if you have any questions about this topic or would like to speak with a member of our experienced legal team.  In the past year we have performed valuations of roughly a half-dozen logistics firms.  Contact Us