Trump on Trade/NAFTA’s Future – Part II

Dear Friends,

It is being widely reported this afternoon that President Trump is considering imposing a 20% tax on imports from Mexico in order to pay for the border wall (which would mean that U.S. companies/consumers will be paying for the wall, not Mexico. . . ). 

While nothing is imminent, this is a further example of how the rhetoric on renegotiating/withdrawing from NAFTA is being ratcheted-up.  Any company with meaningful investments in Mexico, or that otherwise imports meaningful volumes from Mexico, should be modeling different scenarios and developing contingency plans.  We are assisting numerous clients with this and would be happy to discuss the issues with you further.  If you would like to do so, please let me know.

Best regards,
Ted

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Trump on Trade/NAFTA’s Future

Dear Friends,

Earlier today, I had the privilege of speaking at a seminar hosted by my colleagues in Toronto entitled “Trade and Business Strategies for a Post-Globalization World – CETA, Brexit, NAFTA and Preserving Cross Border Data Flows.”  I spoke on a panel entitled “NAFTA’s Prospects and Preserving its Benefits” with colleagues from the US, Canada and Mexico.  I thought that you might find the slides from this panel to be of interest.

If you have any questions about the future of NAFTA, or trade in general, in these interesting times, please let me know.  Also, please check out our “Trump on Trade” webpage for further updates.

Best regards,
Ted

 

DOJ Settlement Related to Lacey Act Violations

Dear Friends:

We are writing to let you know about the recent settlement of a Department of Justice (“DOJ”) investigation related to violations of the Lacey Act.

As background, the Lacey Act is the oldest wildlife protection statute in the United States, and it protects against the trade of certain plants, fish and wildlife.  In short, the Lacey Act makes it unlawful to:

  • Trade in plants or wildlife products that are taken, possessed, transported, or sold in violation of the laws of the United States, a State, Indian Tribe, or any foreign law protecting plants;
  • Falsify or submit falsified documents, accounts or records of any plant covered under the Lacey Act; and
  • Import plants/plant products without an import declaration.

Last week, Lumber Liquidators announced that it will pay a $10 million settlement to the Environment and Natural Resources Division of the DOJ related to the Company’s import of timber used to make hardwood flooring.  More specifically, the DOJ alleged that Lumber Liquidators violated the Lacy Act by importing timber from foreign suppliers that harvested timber in excess of approved amounts, and falsifying the country of origin and type of timber on its import declarations to conceal the illegality.  A copy of Lumber Liquidator’s press release is available here.

There are several important take-a-ways from this case.

First, despite unsuccessful prosecution attempts in the past, this settlement shows that the DOJ has not lost interest in enforcing the Lacey Act against U.S. importers.  In fact, its worth noting that the DOJ launched its initial inquiry against Lumber Liquidators (that included factory raids) back in 2013.

Second, as illustrated above, the prohibitions of the Lacey Act require companies to exercise due care throughout all levels of the supply chain (i.e., companies are required to have supply chain visibility beyond just purchases from sellers/distributors).  In publicly announcing the settlement, Jill Witter, Lumber Liquidators’ Chief Compliance and Legal Officer revealed that the Company will work with the DOJ to develop a Lacey Act compliance plan to ensure “an unbroken and verified chain of custody and documentation of…products from the store all the way to the forest”.

Finally, in addition to the $10 million settlement, the allegations involved in this investigation have produced an on-going securities fraud claims action (filed in in Virginia federal court) as well as two false advertising complaints (filed in March in California and South Carolina federal courts).  Therefore, this settlement should provide significant incentive for companies to review their products – particularly with respect to purchases/imports of plants and wildlife products – and review their internal controls to ensure they are working effectively.  Otherwise, companies may find themselves embroiled in expensive (and varied) enforcement actions.

We hope that this is helpful.  We have significant experience advising clients with regards to Lacey Act compliance and developing/implementing corresponding compliance plans.

Best regards,

Ted

Russia/Ukraine Sanctions

Dear Friends:

We imagine that you have been closely following developments on the ground in Russia and Ukraine.  We wanted to drop a brief email to you to let you know that we have already been thinking through the key issues for a number of clients associated with the recent US and EU sanctions against Russia and Ukraine and considering the potential implications of Russia imposing retaliatory sanctions measures.

In case this is of interest, we wanted to flag the following points:

  • we have market-leading teams and dedicated trade sanctions experts in the US, the EU, Russia and elsewhere.  As we have experienced with the Iran and Libya sanctions, we are able to pull together swiftly a multi-jurisdictional team to advise on sanctions compliance issues.  Even across the EU, we have sanctions experts in key markets (including, the UK, Germany, the Netherlands, France, Italy, Spain, Belgium and Sweden) – this is important given that different EU Member States can take a very different approach to interpreting and licensing under EU sanctions regulations;
  • in addition to the sanctions compliance risks, we work closely with our team of litigators to consider and mitigate against the risk of damages claims associated with terminating commercial relationships due to sanctions risks;
  • our team produces sanctions alerts that are well received by clients.  Our Ukraine sanctions alert from last week (covering US, EU, Swiss and Canadian measures) and our more recent Russia sanctions alert are attached to this email.  You can also access our other recent sanctions alerts (close to 30 last year) via the following link: Sanctions alerts;
  • on top of the more detailed client alerts, our International Trade compliance team is launching a dedicated webpage through which they will provide briefer and more regular updates on Russia/Ukraine sanctions, including what further measures are being contemplated.  This will be of assistance to those clients who are following developments more closely.  If this is of interest, please let us know and we will give you access to this webpage.

Please let us know if you have any questions.  We stand ready to assist you with any query that you may have.  If it would help, we would be happy to set up an introductory call with one of our sanctions experts.

Best regards,

Ted

Recent “Made in USA” Enforcement Case

Dear Friends:

We are writing to let you know about a recent (and interesting) “Made in USA” enforcement case.

As many of you know, the use of U.S.-origin claims in product labeling or advertising is governed by rules promulgated by the Federal Trade Commission.  These rules set an incredibly high standard for unqualified U.S. origin claims, such as “Made in the USA”.  Under this standard, a product must be “all or virtually all” made in the United States.  “All or virtually all” means that all significant parts and processing that go into the product must be of U.S. origin; that is, the product may only contain a negligible amount of foreign content.  This has generally be viewed to mean that the product was last substantially transformed in the United States and contains at least 95% U.S. content.  If a product is last substantially transformed in the United States, but does not contain “all or virtually all” U.S. content, then a qualified U.S. origin claim is more appropriate (e.g., “Made in the U.S. of U.S. and imported parts” or “Assembled in USA”).

Earlier this week, the FTC announced that E.K. Ekcessories, Inc., a U.S.-based outdoor accessories retailer, agreed to settle charges that it falsely advertised, labeled and distributed certain products to consumers throughout the United States as “Made in the USA.”  According to the FTC’s complaint (available here),  the Company made a number of unqualified U.S.-origin on the packaging, on its website and in its product catalogs.  The claims that were made included:

“Truly Made in USA [with an image of an American flag]”

“For 28 years, E.K. Ekcessories has been producing superior quality made accessories in our 60,000 sq. ft. facility in Logan, Utah”

“[O]ur source of pride and satisfaction abounds from a true ‘Made in USA’ product.”

“Made in USA”

The FTC alleged that in fact many of the products, or certain components of these products, were made outside of the United States and, thus, were not eligible to use these unqualified claims.  The FTC also alleged that by distributing promotional materials to third-party retailers, the company provided the means and instrumentalities to those retailers for the commission of deceptive acts.

Under the proposed settlement agreement, which contains a 20-year Consent Order (available here), the company is prohibited from claiming that a product is made in the United States, or providing third-party retailers with promotional materials with which to make that claim, unless the product is “all or virtually all” made in the United States.  More significantly, the company is required to contact all distributors who purchased or otherwise received any products from the company over a certain time period, and provide them with a notice and a copy of the Order.  As you will see from the attached notice, the company is now in the uncomfortable position of having to ask its distributors to immediately stop using some of its marketing materials, and to affix stickers over the packaging of certain products to cover claims that the items are made in the United States.

The proposed agreement will be subject to public comment for 30 days, after which the FTC will decide whether it will make the Order final.

The use of U.S.-origin claims has become increasingly important for many companies in recent years.  This case underscores the need to exercise caution when making such claims, whether on product packaging or on your website.  The standard for making these claims differs from the traditional customs test and the standard for making unqualified U.S. claims is extremely high (and, arguably, counterintuitive).  Companies need to review their packaging and marketing materials to ensure that any such claims are accurate and capable of being substantiated.

We have a great deal of experience advising clients on country of origin marking issues, including the use of “Made in USA” claims.  If you have any questions about the case discussed above, or making U.S.-origin claims more generally, please let us know.

Best regards,

Ted

Lacey Act/Trade Compliance

Dear Friends:

As you may have seen, last week brought another example of trade-related enforcement that companies should find to be of interest.  U.S. authorities raided two offices of Lumber Liquidators Inc. on September 26th.  While the search warrant is sealed, reports indicate that the warrant was executed in connection with an investigation by Immigration and Customs Enforcement, the U.S. Department of Justice and the U.S. Fish and Wildlife Service of alleged potential violations of the Lacey Act.

The Lacey Act (16 U.S.C. §3371 et. seq.; 18 U.S.C. §42) broadly prohibits, among other things, the import, export, transport, sell, receipt, acquisition or purchase in interstate or foreign commerce of any fish, wildlife or plant taken, possessed, transported or sold in violation of any law or regulation of any State or any foreign law that protects such wildlife.  The Lacey Act provides for strict liability forfeiture of infringing merchandise, as well as civil and criminal penalties.  Felonies under the Lacey Act carry maximum fines of $250,000 for individuals, $500,000 for organizations and/or imprisonment for up to five years.

Last year, Gibson Guitar Corporation (“Gibson”) entered a criminal enforcement agreement with the Department of Justice, which required Gibson to pay a $300,000 penalty directed to the Lacey Act Rewards account.  The settlement was reached after highly-publicized (and controversial) raids of Gibson’s manufacturing facilities in Nashville and Memphis and allegations that Gibson had sourced ebony wood from Madagascar and rosewood and ebony from India in alleged violation of the laws and policies of those countries.  The settlement acknowledges that certain questions and inconsistencies exist with respect to India’s policy and the related claim.  Under the settlement agreement, Gibson is required to take a number of steps to strengthen its supply chain compliance program.  Such steps include, among others, providing annual training for its purchasing employees and wood suppliers; independently researching and exercising care to verify, prior to purchases, the documentation required for the legal export of woods and the validity of the documentation received from suppliers; and conducting annual supply chain audits, including the evaluation of all documents, certifications, licenses and other records associated with its wood purchases and the evaluation of its adherence to existing laws governing the protection and export of wood in all countries where it sources wood.

While these cases should be of special interest to any company that imports wood, plants or other Lacey Act-regulated products, they also underscore how important it is for all companies involved in international trade to understand their business activities and the inherent areas of risk associated with those activities (e.g., importations subject to special requirements like FDA requirements, antidumping and countervailing duties, etc.).  Once this is understood, the next step is to develop and implement internal controls that are tailored to the business activities and that take into account the company’s level of risk.  The controls should be designed to mitigate the risks involved, but it is equally important to make sure that such controls are documented, tested periodically and revised when necessary.

If you have any questions about developing or revising internal controls over customs and trade compliance, in general, or questions involving Lacey Act compliance in particular, please let us know.

Best regards,

Ted

EU Report on Increasing Use of Protectionist Trade Measures

Dear Friends:

As many of you know well, the recent economic downturn saw a rise in the use of protectionist trade measures in many parts of the world.  While much of the increase is attributable to a down economic cycle, there are other causes as well; some of which persist even in better economic times.

To that end, I thought that you might find a recent report by the European Commission, Directorate-General for Trade on potentially-restrictive trade measures to be of interest.  The report (available here) identifies more than 150 new trade measures put in place by EU trading partners (including the United States) over the period May 2012-May 2013.  The report notes that these potentially restrictive measures can take many forms, including increases in duty rates, new import licensing requirements, use of reference or minimum import prices for customs duty purposes, new domestic origin requirements in the government procurement context, export stimulus/subsidy, increased technical regulations, etc.  It also notes that these measures are increasingly being used by emerging economies such as Argentina, Brazil, India, Indonesia, Russia, China, South Africa and Ukraine to protect domestic industries (which the report believes undercuts their development in the long run).  The report is worth a quick read for anyone who is responsible for getting product into or out of multiple jurisdictions on a compliant basis (or who is otherwise interested in world trade).

Our global customs compliance group has a great deal of experience dealing with the types of measures mentioned in this report.  If you have any questions about the evolving requirements in one the jurisdictions discussed in the report, or otherwise, please let us know.

Best regards,

Ted