The Month in International Trade – June 2019

In this issue:

• Top Trade Developments
  • Latest U.S. Trade Actions/Tariffs and Other Countries Retaliatory Measures
  • USTR Announces List 3 Exclusion Process for Section 301 Tariffs
  • African Continental Free Trade Area Enters Operational Phase
  • Clothing Importer Faces FCA Suit and Criminal Charges for Undervaluing Goods
  • USTR Adds Supplemental List of $4B Worth of Products to EU Airbus Dispute
  • Supreme Court Reaffirms that Deference is Due to Agency Regulatory Interpretations – Sometimes
  • SCOTUS Relaxed Definition of “Confidential” Commercial Information Exempt from FOIA
  • Customs Rulings of the Week
• Crowell & Moring Speaks

This news bulletin is provided by the International Trade Group of Crowell & Moring. If you have questions or need assistance on trade law matters, please contact Jeff Snyder or any member of the International Trade Group.

---

Top Trade Developments

Latest U.S. Trade Actions/Tariffs and Other Countries Retaliatory Measures

Finding it hard to stay on top of the latest in tariff increases?

Please click here anytime for the latest actions, covered products rate increases, and effective dates.

For more information, contact: Dan Cannistra, Robert Holleyman, Bob LaFrankie, Spencer Toubia, Ru Xiao-Graham, Cherie Walterman

---

USTR Announces List 3 Exclusion Process for Section 301 Tariffs

The U.S. Trade Representative (USTR) published a federal register notice today outlining the process for submitting Section 301 exclusion requests for List 3. The USTR noted that if an exclusion is granted, it will effective from the day the 10% tariff came to effect (i.e. from September 24, 2018). The USTR also introduced a new “web portal” for exclusion request. The key dates moving forward are:

• June 30, 2019 at noon EDT: The web portal for submitting exclusion requests - http://exclusions.USTR.gov - opened.
• September 30, 2019: Deadline for submitting exclusion requests.

The federal register notice introduced new questions and data points that were not included in the exclusion request forms for lists 1 and 2 and concern:

1. The value in USD of the product being requested.
2. The quantity (with units) of the product that a requestor purchased from any third-country source in 2017, 2018, and the first quarter of 2019.
3. The value in USD and quantity (with units) of the product of concern purchased from domestic sources in 2017, 2018, and the first quarter of 2019.

The USTR exclusion request form also asks whether the requestor is a small business under the requirements of the Small Business Administration. And whether the company has attempted to “source product from the United States or third countries” in addition to the factors considered by the USTR in the exclusion request processes for the previous lists. After a request for exclusion of a particular product is posted on USTR’s online portal, interested persons have 14 days to respond to the request, indicating support or opposition and providing reasons for their view.

For more information, contact: John Brew, Frances Hadfield, Spencer Toubia

---

African Continental Free Trade Area Enters Operational Phase

After four years of discussion, an agreement to form the African Continental Free Trade Area (AfCFTA) went into force on May 30 and entered its operational phase on July 7 following the African Union (AU) summit in Niger. Ghana was selected as the host of headquarters for the trade bloc. As of July 2019, 54 of the continent’s 55 countries have signed up, 25 of which have already ratified the agreement.

Members have committed to eliminating tariffs on most goods, which will increase trade in the region by 15 to 25 percent in the medium term, according to the International Monetary Fund (IMF). The regional economic communities (RECs) – ECOWAS in the west, EAC in the east, SADC in the south, and COMESA in the east and south – will continue to trade among themselves as they do now. The role of the AfCFTA is to liberalize trade among those member states that are not currently in the same REC.

The AU summit also saw the launch of a digital payments system for the zone and instruments that will govern rules of origin and tariff concessions, as well as monitor and seek to eliminate non-tariff barriers to trade. Following final negotiations, the free-trade zone should be operational be July 2020.

For more information, contact: Ambassador Robert Holleyman, Andrew Blasi, and Eric Obscherning

---

Clothing Importer Faces FCA Suit and Criminal Charges for Undervaluing Goods

In today’s protectionist environment, importers are facing heightened legal risks and a potential False Claims Act (FCA) violation when providing information to Customs and Border Patrol (CBP). Earlier this month, the United States Attorney’s Office for the Southern District of New York filed a civil fraud lawsuit against Manhattan-based children’s apparel companies Stargate Apparel, Inc., Rivstar Apparel, Inc., and their CEO, Joseph Bailey. The Complaint, filed under seal, had alleged that Bailey, Rivstar, and Stargate violated the FCA when they submitted invoices to CBP understating the true value of imported goods.

The alleged fraud was first brought to light by a whistleblower who filed a complaint under the FCA. It alleged that from 2007 to 2015, Stargate engaged in a double-invoicing scheme with a manufacturer in China. And that the manufacturer provided Stargate with two invoices for the each shipment of goods. One invoice, referred to as the “pay by” invoice, was for a much higher amount and reflected the actual price Stargate paid the manufacturer for the goods. The second invoice was for a much lower price. Stargate presented only this second invoice to CBP and thus was able to pay a fraudulently lower amount of customs duties.

A second variation of this fraud scheme involved invoices for “sample” goods. The Chinese manufacturer would send two invoices for one shipment, one marked commercial invoice and one marked sample invoice. Together, the two invoices reflected the real price Stargate paid to the manufacturer, but Stargate only paid customs duties on the commercial invoice and not on the sample invoice because sample goods are not subject to customs duties. According to the Complaint, none of the goods Stargate received from the manufacturer were actually sample goods.

The allegations claim that Bailey, Stargate, and Rivstar engaged in similar schemes with additional manufacturers. Through these schemes, the Complaint alleges that they undervalued imports by tens of millions of dollars and cost the U.S. government over $ 1 million in duty revenue. Bailey and his companies now face civil penalties and treble damages, and Bailey faces an additional criminal charge of conspiracy to commit wire fraud.

Importer FCA cases just like this one have been on the rise in recent years. The Trump administration’s focus on trade policy will likely only lead to continued scrutiny in this area. Additionally, the recent Supreme Court ruling in U.S. ex rel Hunt v. Cochise Consultancy, No. 18-315 (2019), has allowed whistleblowers to take advantage of a longer statute of limitations period previously only available to the government under 31 U.S.C. § 3731(b)(2). Thus, where the government does not learn of the FCA violation, a lawsuit can be filed up to 10 years after the date the false statement was made. This expanded statute of limitations may also contribute to the increase in importer FCA cases.

For more information, contact: Jason M. Crawford, Frances Hadfield, Allegra Flamm

---

USTR Adds Supplemental List of $4B Worth of Products to EU Airbus Dispute

The United States Trade Representative (USTR) has released a supplemental list of $4 billion worth of products to be added to the proposed tariff pursuant Section 301 of the U.S. Trade Act of 1974 related to the Boeing-Airbus Subsidy Dispute before the World Trade Organization’s (WTO) Dispute Settlement Body. You can find the complete product list in the appendix to this notice. The list includes, among other products, several specialized food and beverage products such as cheeses, pasta, and Irish whiskey.
The public comment dates are below:

• July 24, 2019: Due date for submission of requests to appear at the public hearing and summary of testimony.
• August 5, 2019: Due date for submission of written comments.
• August 5, 2019: The Section 301 Committee will convene a public hearing in the Main Hearing Room of the U.S. International Trade Commission, 500 E Street SW, Washington DC 20436 beginning at 9:30 a.m.
• August 12, 2019: Due date for submission of post-hearing rebuttal comments.

The final list will take into account the report of the WTO arbitrators and appropriate level of retaliatory tariffs as authorized by the WTO.

For more information, contact: John Brew, Spencer Toubia

---

Supreme Court Reaffirms that Deference is Due to Agency Regulatory Interpretations – Sometimes

When the Supreme Court granted certiorari in Kisor v. Wilkie, many observers thought the Court was poised to overturn the longstanding Auer deference doctrine, under which courts defer to an agency’s reasonable interpretation of its own regulations. But on June 27, 2019, in what was probably the most eagerly anticipated administrative law decision of the past term, the Court declined to do so. In a victory of sorts for the actual petitioner, if not advocates deeply skeptical of Auer’s legal underpinnings, the Court remanded Mr. Kisor’s challenge to the Department of Veterans Affairs’ denial of disability benefits, directing the lower court to reconsider whether its original application of Auer deference was appropriate. The Court, however, left the Auer doctrine itself intact—albeit with limitations that seem likely to narrow the doctrine’s scope and application. How much the the doctrine has been narrowed probably depends on whom you ask: some say a lot; some say maybe not much.

Inasmuch as Auer has not been discarded outright, one thing is certain: for businesses regulated by the federal government, the regulating agencies may continue to invoke Auer to defend their regulatory actions, and parties will continue to litigate whether deference should apply. And while the limitations on the Auer doctrine articulated by the majority may give regulated parties better fodder for arguments against deference, only time will tell what the lower courts will make of Kisor, and whether over time we will still be referring to Auer deference, or to some less potent “Kisor” deference.

For more, please see Crowell & Moring’s Client Alert.

For more information, contact: Thomas A. Lorenzen, Daniel W. Wolff, Amanda Shafer Berman

---

SCOTUS Relaxed Definition of “Confidential” Commercial Information Exempt from FOIA

The Supreme Court yesterday made it easier for the Federal Government to withhold from the public certain records that businesses want kept private. Under the Freedom of Information Act (FOIA), the Government ordinarily must make available information it receives from a private entity to members of the public who request it. But FOIA exempts from disclosure (among other things) any “commercial or financial” information that is “confidential.”

For nearly half a century, following a 1974 decision by the D.C. Circuit in National Parks and Conservation Association v. Morton, courts held that information is “confidential” for purposes of that exemption only where its disclosure would result in “substantial competitive harm.”

In yesterday’s decision in Food Marketing Institute v. Argus Leader Media, the Court rejected the National Parks test, noting that the plain language of FOIA makes no mention of “substantial competitive harm.” Instead, the Court held that information is “confidential” for purposes of this exemption so long as it is: (1) both customarily and actually treated as private by its owner, and (2) provided to the government under an assurance of privacy. That definition is substantially broader — and far easier to meet — than the one set out in National Parks.

For more information, contact: John E. McCarthy Jr., Daniel W. Wolff, Anuj Vohra, Mark Thomson, Lauren H. Williams, G. Meredith Parnell

---

Customs Rulings of the Week

• June 17: Classification of Knit Socks with Sensors
• June 23: Classification of “Dummy” Security Cameras
• July 1: Classification of “The Finisher” Sports Equipment

For more information, contact: Frances Hadfield, Rebecca Toro Condori

---

Crowell & Moring Speaks

Michelle Linderman and Dj Wolff will be speaking at the Managing Regulatory & Compliance Challenges in Shipping Seminar at Lloyd’s Maritime Academy in London on September 27. They will be on a panel entitled, “Sanctions: Current Focus and Potential Changes.”

Ambassador Robert Holleyman was interviewed by CNBC’s Squawk Box about China and U.S. trade on July 8. You may find it at China must make long-term commitments to the US for a trade truce, expert says.