Section 301 Update

Just a quick update on the evolving Section 301 situation.

 First, negotiations for a deal are continuing (and appear to be making meaningful progress).  U.S. trade officials were in Beijing this week, and Chinese officials will be coming to Washington, DC next week, to continue the negotiations.  By all accounts, progress is being made on the terms of a deal, but certain key issues remain unresolved.  If progress continues to be made (which, while not guaranteed, we expect given both sides’ strong desire for a deal), there will likely be a summit/signing ceremony sometime late April-June. 

 One of the things to keep an eye on as the talks progress is whether the deal will result in either side rolling back the duties already imposed (e.g., the List 1, 2 and 3 duties in the United States).  Last week, President Trump said that, even if a deal is reached, he intended to keep the duties in place “for a substantial period of time” until he is sure that China is complying with the terms (remember, we do not always take what he says literally, but we do take it seriously).  If the United States takes this approach, we expect that China will keep its retaliatory duties in place as well (the U.S. has imposed additional tariffs on $250 billion worth of Chinese-origin goods and China has imposed retaliatory duties on $110 billion worth of U.S.-origin goods).

 Second, the U.S. Trade Representative’s office recently released a second tranche of product exclusion approvals for List 1.   These exclusions include numerous products in Chapter 84, 85 and 90, including various types of housings, filters, rotors, valves, engines & motors.  There are also exclusions for certain high tech products (ADP storage units, digital displays, LED displays), and consumer products (instrument tuners, breast pumps, salad spinners).  Since the approvals are product-specific (not company-specific), all companies which import merchandise subject to Section 301 duties should be reviewing the approvals to see if they can benefit.  Remember, the approvals are retroactive (e.g., back to July 6, 2018 for List 1 articles).

Third, the U.S. Trade Representative’s office has not created a product exclusion process for List 3 by March 17th, despite the clear instruction from Congress in the Explanatory Statement to the Consolidated Appropriations Act, 2019 (H.J. Res. 31) (see previous post).  It appears that the USTR is sticking to its position that the exclusion process will only be created if the List 3 duty rate goes from 10% to 25%.

Finally, one of the ‘hidden’ (or maybe lingering) costs of the trade way will be the increased bond costs many importers are bearing as a result of the increased duties.  Even if a deal is reached (and even if duties are eventually rolled back), we do not believe that bond amounts will be lowered very quickly (if at all).  As a result, importers will likely be bearing this additional cost well into the future.

We hope this is helpful.  If you have any questions, please let us know.



Section 301 Update

 The latest round of negotiations in the on-going trade war between the United States and China concluded yesterday in Washington, DC.  We are now less than a month away from the additional duties imposed on Chinese-origin articles included on List 3 increasing from 10% to 25%, and the possible initiation of a List 4 (the imposition of additional duties on the remaining $267 billion worth of Chinese-origin imports), so we thought it would be helpful to recap where we are and share some thoughts on where we may be going.

 To recap:  The U.S. administration determined under section 301 of the Trade Act of 1974, as amended, that China’s laws, policies, practices, and actions are unreasonable or discriminatory and are harming American intellectual property rights, innovation, or technology development.  Specifically, the U.S. concluded that China uses foreign ownership restrictions (e.g., joint venture requirements, etc.), restrictive technology licensing terms, strategic investment in, and acquisition of, U.S. companies and assets, and unauthorized intrusions, cyber theft, etc. to improperly obtain U.S. intellectual property, trade secrets and other confidential information. 

 Based on this, the U.S. took a number of measures in an effort to get China to change its behavior.  These measures included, among other things, the imposition of additional customs duties on Chinese-origin products imported into the United States.  So far, the U.S. has imposed additional duties on 3 separate lists of Chinese-origin products (List 1 =25%, List 2 = 25% and List 3 = 10%).  In response, China took retaliatory measures that included imposing additional customs duties on U.S.-origin products imported into the United States.

 Late last year, the two sides agreed to a temporary cease fire to allow negotiations to begin.  The two sides gave themselves 90 days (until March 1, 2019) to work out a resolution.  Since then, there have been a series of discussions/meetings, including the meetings that occurred this week in Washington.  If a deal is not reached, the additional duties imposed on Chinese-origin articles included on List 3 are scheduled to increase from 10% to 25%.  President Trump has also indicated previously that, if an agreement is not reached, the United States is ready to proceed with imposing duties on the remaining $267 billion worth of Chinese-origin imports (i.e., initiating a List 4).

 Resolving this dispute is a tall order, under the best of circumstances.  The U.S. administration believes that China needs to make structural changes to how it operates and that there needs to be strong enforcement mechanisms in place to ensure continued compliance.  In response, China has reportedly focused on purchasing more U.S. products and services over time (with one series of reports suggesting that China would increase its purchases of U.S. agricultural, energy and other products to eliminate the trade deficit with the United States within 6 years – a period that would coincide with a second term for the Trump administration).  By most accounts, the two sides are still far apart.  That said, President Trump is expressing optimism that a deal can be reached.  He has also said, however, that a final deal (and a great deal, it would be) could only be reached during an in-person meeting with President Xi.  Thus far, no such meeting is scheduled.

 As a result, we view that the two most likely scenarios are (1) the parties continue negotiating over the next month and make enough progress that further escalation is delayed until a meeting between President Trump and President Xi where the two sides declare victory and then retreat to their respective corners, and (2) not enough progress is made and the U.S. increases the duties on List 3 goods to 25%.  While both sides are interested in reaching a deal, the two sides are too far apart to expect that a substantive solution will be reached in the next 30 days.  The question is whether China’s offer to purchase more U.S. products and some small structural changes will be sufficient to get the U.S. administration to declare victory.

 If an agreement is ultimately reached, people should also watch how the other presidential candidates react.  As you know, the race for president has already begun and several of the Democratic Party candidates have expressed ‘economic nationalist’ sentiments.  It will be interesting to see if President Trump is criticized for being ‘soft on China’ if an agreement is reached that does not address the issues covered in the Section 301 report.

 We hope this is helpful.  If you have any questions about how best to cope with the Section 301 duties, please let us know.

Is Increased/Intensified FTC Enforcement of “Made in USA” Claims on the Horizon?

Dear Friends,

There have been some recent developments with regard to the Federal Trade Commission’s enforcement of the “Made in USA” guidelines that we wanted to bring to your attention.

A theme of “America First” trade enforcement activity under the current administration is protecting/promoting U.S. manufacturing.  This is evident in the Section 301 tariffs on Chinese-made goods, the Section 232 tariffs on steel and aluminum, the renegotiation of NAFTA and the pending Section 232 investigation contemplating duties on autos and auto parts.  It is now also visible in significant changes to “Made in USA” enforcement at the FTC.

Since taking office, President Trump has appointed a full contingent of new FTC Commissioners (5 of 5).  This is uncommonly quick (Commissioners are appointed for limited terms; Presidents Bush, Obama and Clinton each only appointed all five FTC commissioners once they reached their second terms in office.)  The effect of the new appointees is already being seen.

As you may know, the FTC enforces a stringent definition of what qualifies as “Made in USA” for labeling and advertising purposes. Only products manufactured or assembled in the United States with “all or virtually all” U.S.-origin content (generally viewed as 95%+ U.S. content) meet this standard.  While the FTC has engaged in regular enforcement actions over the last 20 years, it has rarely sought to impose penalties greater than a public censure in the form of a consent order.  Most consent orders do not even involve an admission of guilt by the named party (just an agreement to change the offending behavior going forward).

A trio of recent cases suggest that this may be about to change.  In each case, the facts were clear cut—companies plainly (even enthusiastically) advertising Chinese-made products as “Made in USA” (for example, in one case, Chinese-made hockey pucks were labeled as “Proudly Made in the USA,” “MADE IN AMERICA,” “100% Made in the USA!,” “100% American Made!”, and sold as “The Only American Made Hockey Puck!”).  What was noteworthy about these cases, was that three Commissioners issued (or joined in) separate opinions addressing the settlements.

Commissioner Slaughter (D) and Chairman Simons (R) took the unusual step of issuing a concurring statement, supporting the cases’ resolution by consent decree, but emphasizing that the FTC should make “strategic use of additional remedies” such as “monetary relief or notice to consumers” to enhance effectiveness going forward, and noting that the FTC has begun a “broad review of whether we are using every available remedy as effectively as possible” to pursue “vigorous enforcement.”

Commissioner Chopra (D), on the other hand, was the lone vote against the three consent settlements.  He argued, quite simply, that “no-money, no-fault settlements” are an insufficient remedy for extreme cases of consumer fraud.  In cases like these, he argued, the FTC should insist that companies admit to fraud before accepting a settlement.  Doing so could make it easier for such companies to be exposed to lawsuits by competitors under the Lanham Act.

Although the current FTC commissioners were all appointed by President Trump, these enforcement developments do not seem to be partisan (or may actually be bipartisan. . .).  Earlier this week, three Democratic Senators (Sens. Brown, Baldwin and Murphy) wrote to the FTC that “no-fault no-money” settlements of “Made in USA” cases are indicative of “lackluster enforcement”, and urged that the FTC begin assessing fines and making wrongdoing companies “admit they lied to the public” when the FTC determines that has been a violation of the guidelines.

As a result, all companies that label, advertising or otherwise market goods in the United States as “Made in USA” (or with any other type of U.S.-origin claim) should be mindful of these developments and appreciate that such claims are likely to face greater scrutiny going forward.  In addition, to the extent you are aware of competitors who may be violating these rules to gain an unfair competitive edge, the FTC appears more receptive than ever to complaints.

We have advised many businesses on these issues in the past, and would be happy to answer any questions you may have.

We hope this his helpful.

Best regards,

Recent FTC “Made in USA” Enforcement Actions

Dear Friends,

We are writing to let you know about increased enforcement activity at the federal level related to “Made in USA” claims.

In the past few weeks, the Federal Trade Commission (FTC) has resolved two administrative complaints filed against U.S. companies for allegedly making false U.S.-origin claims. 

In February, the FTC published an agreement containing a consent order involving a water filtration company based in Georgia.  The FTC’s complaint alleged that the company deceived its consumers with claims that its systems and parts are “Built in USA”, “Proudly Built in the USA” and “Built in USA Legendary brand of water filter” when in fact the company either imported its products or built them using significant imported components. 

Similarly, earlier this week, the FTC published an agreement containing a consent order involving a Texas company that sells metal pulleys for industrial use.  The complaint alleges that the company advertises its products online, in stores, at trade shows, through social media, etc. and uses unqualified U.S. origin claims, such as “Made in USA”, “Made in the USA American Product” and graphical depictions of the American flag, on the product and in its advertising.  The FTC alleged that many of the company’s products contained significant imported components (and some of the parts were imported from abroad already stamped “Made in USA”).

Without admitting wrong-doing, both companies agreed to enter into consent orders with the FTC to resolve the matters. These orders mandate compliance with the FTC’s Enforcement Policy Statement on U.S. Origin Claims going forward, and include certain reporting and recording requirements.  Each consent order remains in effect for 20 years.  Violations of the consent orders lead to significant monetary fines.  Additional information about each case can be found here and here.

These actions are important, as they may signal increased enforcement of this issue at the federal level.  As you know, the FTC has adopted strict guidelines for making unqualified U.S.-origin claims – the ‘all or virtually all’ U.S. content standard.  In recent years, however, there has not been a great deal of enforcement at the federal level.  These actions may signal that this will be changing.  Accordingly, every company should review its product markings, as well as its advertising (including social media), to make sure that any U.S.-origin claims (unqualified or qualified) comply with the FTC’s guidelines.  If your claims are in compliance, you should also consider reviewing the types of claims your competitors are making to help ensure there is a level playing field for everyone.

We regularly advise clients on these issues (and have represented companies in FTC enforcement actions) and would be happy to discuss this with you further.  If such a discussion would be helpful, just let us know.

We hope this is helpful.

Best regards,

Recent NAFTA Penalty Decision

Dear Friends,

We are writing to let you know about an all-too-common misunderstanding of the law by U.S. Customs and Border Protection that, as the attached penalty decision demonstrates, can be an expensive trap for the unwary.

The issue involves claims made under NAFTA that are later corrected/revoked by the importer after being informed by the exporter that the goods no longer qualify – and more specifically what the importer is liable for in such a situation.

In the situation involved in the attached decision, a U.S. company imported goods from a related party in Mexico and claimed NAFTA preference based on a NAFTA Certificates of Origin provided by the exporter/producer.  The NAFTA eligibility of the goods hinged on the fact that a key component was itself NAFTA originating.  The exporter/producer had a NAFTA Certificate of Origin covering this component from an unrelated supplier.  Based on the applicable rule of origin, the finished goods would originate, provided that this component originated.  Since it had a NAFTA Certificate of Origin from the unrelated component supplier, the exporter/producer certified that the finished goods were originating and the importer made claims based on the exporter/producer’s NAFTA Certificate of Origin.

Years after the claims were made, the unrelated component supplier advised that its component was actually of Chinese origin and revoked its NAFTA Certificates of Origin.  This resulted in the finished goods no longer qualifying for NAFTA.  After confirming this analysis, the exporter/producer notified the U.S. importer that the goods it had previously certified as being NAFTA originating no longer qualified.  The U.S. importer then filed a corrected declaration with CBP at the appropriate Port of entry pursuant to 19 C.F.R. §181.21(b).  The corrected declaration identified all of the effected entries over multiple years.  In terms of duties, however, the importer only tendered the duties and Merchandise Processing Fees on the unliquidated entries.  The importer’s position was that it had acted with reasonable care when it relied on the NAFTA Certificate of Origin voluntarily provided by the exporter/producer (and the exporter/producer acted reasonably when it relied on a facially valid NAFTA Certificate of Origin for the component voluntarily provided by the third-party supplier).  The fact that the supplier revoked its certification years after the fact does not make those claims negligent acts.  If the importer was not negligent, there was no basis to reopen the liquidated entries.

The Port disagreed and chose to treat the corrected declaration as a prior disclosure (i.e., an admission of a culpable violation of the law).  Since the importer did not tender all of the duties covered by the “prior disclosure,” it was deemed to be invalid and the Port initiated a penalty action.  The Port sought duties and MPF of approximately $400,000 and a penalty based on a claim of negligence of approximately $800,000.  After much back and forth, the importer was ultimately able to get the case referred to CBP Headquarters for a decision.  As you will see from the attached, CBP Headquarters confirmed that an importer that relies on a facially-valid NAFTA Certificate of Origin is exercising reasonable care and that, if that certificate is later revoked, the importer is not liable for the duties or MPF on the liquidated entries.  The Port’s $1.2 million demand was remitted in full.

This an issue that any company that imports under NAFTA should be aware of, as the approach taken by the Port involved here is not an isolated instance.  We have 3 similar cases currently pending at other Ports and are aware of at least one other situation handled by another firm.  Importers should remember (particularly since CBP seems not to) that NAFTA (unlike our more recent FTAs) is an exporter-based agreement, which means that an importer who relies on a facially-valid NAFTA Certificate of Origin voluntarily provided by the exporter has a good argument that it exercised reasonable care.  If that certificate later turns out to be incorrect, then the importer will be liable for the duties and fees on the unliquidated entries (i.e., the past 10 months or so), but not on the liquidated ones.  As demonstrated by the attached, remembering this can help ensure that the company does not tender monies to the government unnecessarily.

We hope you find this helpful.  If you have any questions, please let us know.

Best regards,

FTC Challenge to “Made in USA” and Other U.S. Origin Claims

Dear Friends,

We wanted to let you know about a lawsuit the Federal Trade Commission (FTC) recently filed contesting an Ohio company’s use of U.S.-origin claims.

The complaint, filed earlier this week in U.S. District Court for the Northern District of Ohio, alleges that the company deceived consumers by making unqualified U.S.-origin claims.  More specifically, the complaint alleges that the company used unqualified “Made in the USA” and “Proudly Made in the USA” claims for its glue products, when a significant proportion of the cost of the chemical inputs (~55%) are attributable to imported chemicals.  A copy of the complaint can be found here.

As you know, the FTC has strict requirements for making unqualified U.S.-origin claims, such as “Made in USA”.  Specifically, the FTC rules require, among other things that the product contain “all or virtually all” U.S. content (generally, viewed as 95%+ US content by cost) in order to be eligible for an unqualified U.S.-origin claim.

This case is important for a couple of reasons.

First, the case serves as an important reminder to all companies that utilize U.S.-origin claims on their products (or that sell other companies’ products that contain U.S.-origin claims) that they need to be extra vigilant in this area.  Given that the rules for making such claims can seem counterintuitive (e.g., just because a product is made, or even last substantially transformed, here in the United States does not automatically mean it can be labeled “Made in USA”), such claims are often a trap for the unwary.

Second, it is important to note that the FTC is pursuing this action through litigation.  Typically, the FTC’s policy is to police these types of claims administratively (i.e., closing the case without action if there is no violation, or getting the company to enter into an administrative consent order if there is a violation).  Here, the FTC could not resolve the matter administratively, so is forced to sue the company in U.S. district court.  This could result in the court considering whether the FTC’s “all or virtually all” U.S.-content test is appropriate/sustainable.

We will continue to monitor this case as it develops and keep you informed.  In the meantime, if you have any questions about making U.S.-origin claims (unqualified or qualified), please let us know.

Best regards,


False Designations of Origin on GSA Advantage!

Dear Friends,

We thought you might be interested in a letter Sen. Charles Schumer (NY-D) recently sent to the General Services Administration regarding potential misstatements of origin on GSA-Advantage!  As you may know, GSA Advantage! is the on-line shopping site for federal agencies.  A copy of Sen. Schumer’s letter can be found here.

In the letter, Senator Schumer alleges that GSA Advantage! contains numerous products with potentially false designations of origin.  This is an issue because in order to be listed on GSA Advantage!, products are required to comply with the country of origin requirements contained in the Trade Agreements Act of 1979 (“TAA”).  This generally means that the products must be manufactured/last substantially transformed in the United States or in a TAA country in order to be listed/acquired.  TAA countries do not include countries like China, India, Malaysia, etc.

If a product is not TAA eligible, it is not supposed to be listed on GSA Advantage!  In practice, however, this is not very well enforced.  Generally, if a product is listed by the offeror as TAA eligible, such representation is not questioned by GSA.  Since products are often offered for sale to the government by third-party resellers (i.e., many companies do not themselves list products on GSA Advantage!), there can be a disconnect between the actual origin and what is included by the reseller.

We expect the GSA Administrator to take Sen. Schumer’s request seriously.  While the request was focused on a particular industry, we believe that the review will likely expand to other products.  We encourage all companies to do a quick search on GSA Advantage! to see if their products are included (you can search by your company name) and, if so, whether the origin is identified correctly (e.g., is “Made in:  United States of America” correct?).  If not, please let us know.  We have helped clients in the past clear up potential misstatements of origin made to GSA by third-party resellers.

We hope this is helpful.  If you have any questions, please let us know.

Best regards,