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The Month in International Trade – January 2020

Client Alert | 31 min read | 02.12.20

In this issue:


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.

Crowell & Moring International, LLC Expands to Singapore

Second Office in Asia, Signals Global Growth

Crowell & Moring International, LLC is expanding into Singapore to launch a strategic hub that will advise global businesses on the fast-evolving policy and regulatory landscape across Asia.

C&M International, a global government affairs, public policy, and public affairs firm, is launching its first formal office in Southeast Asia, building upon more than three decades of experience working in the world's most dynamic markets across the Asia-Pacific. The firm is affiliated with the international law firm of Crowell & Moring LLP.

“Singapore is increasingly a center of gravity for all of Asia, not only for commercial and business operations, but as a regulatory and policy innovator,” said Ambassador Robert Holleyman, president and CEO of C&M International and former deputy U.S. Trade Representative responsible for Asia. “Our work and client demand is driving this commitment in Singapore and the office only strengthens our ability to serve our clients in Asia and globally.”

Clark Jennings, director at C&M International and former White House official, will serve as managing director of Asia and oversee the new operation in Singapore. Jennings served at the National Economic Council of the Obama Administration, where he helped coordinate the president’s trade agenda, and as chief of staff at the U.S. Trade and Development Agency. His work at C&M International focuses on digital transformation and related policy developments in Asia.

C&M International's Clark Jennings, Patty Wu, and Robert Holleyman

“Our work is already deeply rooted in the Asia-Pacific, and we're keenly watching how digital transformation is reshaping every industry and reorienting the way that governments work with the private sector,” Jennings said. “Having a physical presence in the region will help us deepen our collaboration with governments, associations, and business executives to shape the policies and manage the emerging issues that will define economic growth in 'the Asian century’.”

C&M International is well established in Southeast Asia, having advised on high-profile policy initiatives and supported the development of unique, impactful public-private partnerships for a wide range of industries. This includes advising on the creation of a new framework within the Association of Southeast Asian Nations (ASEAN) to enable cross-border data flows and helping launch the region’s largest public-private platform to strengthen ethical business practices across national health systems. The firm has long worked with governments to raise standards, having secured a political commitment from 21 Asia‐Pacific trade ministers to align regulatory approval procedures for medical products, and is now working to deploy international standards for the energy sector, particularly for LNG importation. Beyond its traditional trade policy and supply chain analysis capabilities, the firm has a growing portfolio related to sustainable infrastructure development and public-private sector collaboration to address the global environmental challenge around plastic marine debris.

The move into Singapore comes less than one year after C&M International opened an office in Shanghai to support clients facing cross-border transactional, investigative, policy, and regulatory needs.

“Singapore is a market that is growing in importance to our clients,” said Philip T. Inglima, a board member of C&M International and chair of Crowell & Moring LLP. “With the rapid growth in Asia, a presence in Singapore will help C&M International meet client needs to navigate the ever-changing nature of international sanctions, expand operations, align with regional partners, and engage with multilateral organizations and governments. The direct experience in the region and the insights that C&M International has gained through more than three decades of work in the region will add additional value through our on-the-ground presence.”

McKinsey Global Institute has noted that Asia is on its way to exceeding 50 percent of global GDP by 2040 and driving 40 percent of the world’s total consumption. Over 70 percent of global economic growth last year came from Asia.

C&M International provides government affairs, public policy, and public affairs services that complement legal services provided by Crowell & Moring LLP in areas such as digital transformation; innovation policy and IP; trade, investment, and market access, including supply chain analysis; global health policy and regulation; data protection, privacy and cybersecurity; and other emerging policy areas.

“Singapore has established a reputation for being one of the best places in the world in which to do business. Having an office there complements Shanghai by allowing C&M International to serve clients in China and throughout Asia and to connect their policy and commercial priorities to the issues evolving in Washington, Brussels, London, and beyond,” Inglima said.

@Crowell & Moring International is expanding into #Singapore to launch a strategic hub to advise global businesses on the fast-evolving policy and regulatory landscape across #Asia. The move builds upon more than three decades of experience working in the world's most dynamic markets across the #AsiaPacific.

Be sure to follow @Crowell & Moring International to stay abreast of the latest developments!

For more information, contact: Clark Jennings, Robert Holleyman; Patricia Wu

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

Crowell & Moring Releases Litigation Forecast 2020 — Importing is a Risky Business

Crowell & Moring has released Litigation Forecast 2020: What Corporate Counsel Need to Know for the Coming Year. The eighth-annual Forecast provides forward-looking insights from leading Crowell & Moring lawyers to help legal departments anticipate and respond to challenges that might arise in the year ahead.

For 2020, the Forecast focuses on how the digital revolution is giving rise to new litigation risks, and it explores trends in employment non-competes, the future of stare decisis, the role of smartphones in investigations and litigation, and more.

The story focusing on international trade, “Importing: Risky Business,” focuses on how for companies that import goods into the U.S., new, expansive tariffs have made business much more complicated and expensive — and have increased risk from a legal standpoint.

Be sure to follow the conversation on Twitter with #LitigationForecast.

For more information, contact: David Stepp, John Brew, Frances Hadfield

Getting Products to China: Avoiding Tariff Classification Traps in Uncertain Times

Chinese law requires companies to accurately classify and declare goods imported into or exported out of China under its version of the Harmonized System (HS). Importers and exporters who fail to properly classify products may be e subject to criminal or civil penalties. Tariff misclassification in China has become a flashpoint for multinational companies due to uncertainty caused by the convergence of the following events:

US-China Trade War: Over the past year, the US and the People’s Republic of China (PRC) have imposed substantial, retaliatory tariffs on goods coming from each country. Tariff classification is critical in determining whether affected products fall within the tariff lists issued by the two countries.. Many multinational companies have been re-examining the HS codes of their products in an effort to assess whether there are opportunities to mitigate the impact of the tariffs resulting from the trade war. In some cases, this has resulted in the declaration of different HS codes for the same product – which can be flagged by the customs authorities of either country. Multinational companies need to be prepared for inquiries or investigations from China Customs and have a strategy to mitigate potential penalties.

China Customs Reform: The General Administration of Customs of the PRC (“China Customs”) implemented a series of trade facilitation reforms over the past few years. For example, prior to the reforms, China Customs would verify the HS code declared by the importer before subject goods were released. After the reforms, China Customs stopped conducting such verifications, which effectively shifts the burden to the importer to ensure that the goods are correctly classified. Thus, the release of goods by China Customs does not mean that China Customs views the corresponding tariff classification declarations as accurate. China Customs may initiate a post-clearance audit on tariff declarations anytime up to three years after release of the corresponding goods. China’s trade facilitation reforms in this area may actually increase noncompliance risk for importers. Without shipment-by-shipment verification by China Customs at clearance and release of goods, a relatively minor mistake could result in severe consequences for companies.

Restructuring of China Customs: The merger of the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) into China Customs, and the subsequent rotation of officers between the two agencies, has created an uneven level of expertise in handling issues such as tariff classification across the combined agency. The differing levels of experience and expertise of China Customs officers are bringing more uncertainty, risks and challenges for multinational companies.

Generally, China Customs’ initial approach to tariff classification is to determine whether an imported product satisfies the explicit provisions of the PRC tariff classification rules. If the product classification is not consistent with the classification rules, China Customs deems the classification to be a regulatory violation. Generally, the explicit classification rules cover the following circumstances:

  1. The product in question is expressly described in the headings or subheadings or the explanatory notes to the sections, chapters or (sub)headings of the PRC Tariff Schedule.
  2. The product in question is a commodity specifically provided for in the Explanatory Notes to Headings of the PRC Tariff Schedule.
  3. The product in question is identical to a commodity as described in the Explanatory Notes to Subheadings of the PRC Tariff Schedule.
  4. The product in question is identical to those which have been covered in the classification rulings or decisions issued by China Customs.
  5. There is evidence showing that China Customs has made a pre-classification ruling or decision on the product and has sent such ruling or decision to the company engaged in the import or export activity.

Where a misclassification constitutes a regulatory violation, the violating company may be subject to confiscation of illegal gains (if any) plus a fine ranging from 30% to 200% of the underpaid import taxes. An intentional misclassification may expose the violating company to a smuggling charge, which is a criminal offense.

A misclassification would not be deemed as a regulatory violation (and thus no penalty would be imposed) if the misclassification does not fall within any of the above circumstances, and meets any of the following requirements:

  1. The misclassification arose from an incorrect pre-classification ruling issued by China Customs.
  2. The product in question has been substantively reviewed by China Customs in the past, but the HS code declared by the company has never been challenged by China Customs. Substantive review includes laboratory testing, physical inspection, or a request for the company to file a supplementary declaration or revised declaration of HS code.
  3. The classification of the product in question is technically difficult and has been submitted to GAC’s Technical Committee on Tariff Classification for its review.

For companies involved in exporting components and parts or newly developed products, it is essential to develop an in-depth understanding of Chinese tariff classification issues, including effective communications with China Customs. Strategic legal and operational perspectives are essential in determining the HS codes and duty rates applicable to products in the current international trade environment, particularly given the possible civil and criminal liability.

From a compliance perspective, multinational companies should seek pre-classification rulings from China Customs for their most significant products as well as actively monitor changes to the Subheadings and Headings of the Explanatory Notes of the PRC Tariff Schedule.

For more information, contact: Evan Chuck, David Stepp

Coronavirus: Key Issues for Employers

As concern about coronavirus – the upper-respiratory infection that was first diagnosed in humans in Wuhan, China in late 2019, and has spread to the United States in recent days – grows worldwide, employers face a series of questions regarding the impact the virus will have on the workplace.

What Must Employers Do to Maintain a Safe Workplace?

U.S.-based employers may have concerns about compliance with workplace safety laws, including the Occupational Safety and Health Act (OSHA). Under OSHA, workers have the right to working conditions that do not pose a risk of serious harm; to receive information and training about workplace hazards; and to exercise their rights without retaliation, among others. To that end, employers should continue to monitor the development of the coronavirus and analyze whether employees could be at actual risk of exposure. Employers may refer to OSHA’s Guidance for Preparing Workplaces for an Influenza Pandemic. While not written to address coronavirus in particular, this Guidance does provide steps employers can take to address public health crises. OSHA has also aggregated its resources relating directly to coronavirus, and will continue to update its guidance as conditions evolve.

Given that employers have a legal obligation to provide a safe workplace for employees, employers should take some basic steps to help prevent the spread of disease and keep employees healthy:

  • Educating employees on the signs and symptoms of the coronavirus and the precautions that can be taken to minimize the risk of contracting the virus. At this time the CDC believes symptoms appear within two to fourteen days after exposure, with some infected individuals showing little to no signs.
  • Providing hand sanitizer and hand washing stations, flu masks and facial tissues; encouraging employees to wash hands with soap and water for at least 20 seconds; and cleaning and disinfecting frequently-touched objects and surfaces.
  • Minimizing unnecessary meetings and visitors, and assessing the risks of exposure by identifying workers who may have recently traveled to, come in direct contact with, or are scheduled to go to Wuhan City, and the Hubei Province in China.
  • Implementing and/or evaluating workplace emergency response protocols.
  • Implementing travel guidelines and procedures for approvals for travel to China.
  • Allowing sick employees to work from home or take leave as appropriate.

Does Contraction of Corona Virus Implicate the ADA?

One question facing U.S.-based employers is whether an employee who contracts coronavirus – or, for that matter, any similar communicable disease, like influenza – could be considered to have a disability under the meaning of the Americans with Disabilities Act (ADA). Generally, the answer is no. Although an argument might be made that an upper-respiratory virus like the coronavirus meets the ADA’s definition of a “disability” on the basis of its limiting of the major life function of breathing, the fact that the coronavirus is a temporary condition weakens that argument. That said, employers should take care not to make assumptions about any employee’s illness or other health condition – including refraining from making armchair diagnoses which run the risk of generating a “regarded as” claim under the ADA. The ADA permits employees to bring claims that an employer discriminated against them because the employer regarded them as having a physical or mental impairment that substantially limits a major life activity. Employers may note that the U.S. Equal Employment Opportunity Commission has issued a fact sheet on Pandemic Preparedness in the Workplace and the ADA, which provides some guidance on this issue. Employers should also consider applicable state and local laws, which may apply definitions of “disability” broader than that of the ADA.

How Should Employers Handle Travel Concerns?

As of January 27, 2020, the CDC had issued a "Level 3" health travel notice advising travelers to avoid all non-essential travel to China. On January 30, following the World Health Organization’s (WHO’s) global health emergency declaration, the U.S. State Department raised its China travel advisory to "Level 4: Do Not Travel." In its communication, the U.S. State Department noted that “the World Health Organization has determined the rapidly spreading outbreak constitutes a Public Health Emergency of International Concern” and advised that “travelers should be prepared for travel restrictions to be put into effect with little or no advance notice.” Employers should consider whether to limit business travel to affected areas at this time and provide reasonable accommodations such as video conferencing during the duration of the threat and heightened risk.

Many large global employers have put a complete suspension on travel to China, or implemented policies which would require senior management approval for any such travel that would be considered essential. Employers would be wise to be particularly sensitive to requests from employees whose health is vulnerable, including employees with immunodeficiencies and those who are older or pregnant. Employers should also monitor travel alerts issued by the U.S. State Department, which provides objective guidance about the level of danger posed by travel to specific areas. Indeed, at this time, commercial carriers have reduced or suspended routes to and from China.

To the extent employers have employees who have recently traveled to China, and to the Wuhan area in particular, employers can consider asking the returning employees to work from home and/or place them on paid leave to ensure they are not bringing the virus into the workplace. Any such approach should take into account the recency of the travel, the areas to which the employee traveled, and the employee’s current condition. In short, employers should consider the facts and circumstances of each situation and make decisions that protect against the potential spread of the virus but also account for employee rights.

Employers with employees in China should continue to work closely with their employees and be mindful of the local regulations being implemented for safety precautions. The State Council in China issued a Circular on January 27 under which the public holiday of the Chinese New Year will be extended to February 2 (Sunday) and all employees will start to return to work on February 3 (Monday). Following this announcement, several local governments issued local rules to further extend the start date for all companies to open offices locally (i.e., February 9th). Employers should be mindful of the continued updates and communicate closely with their employees in China.

Employers in the U.S. and elsewhere are wise to remain sensitive to employee concerns and accommodate them to the extent reasonable. They should avoid assuming that any given employee would opt out of travel, e.g. passing over a pregnant employee who may in fact want to take an opportunity which would require travel, as doing so could give rise to an accusation of disparate treatment. And, to the extent possible, employers should not pressure employees into traveling; disciplining an employee for refusing to travel to Asia may not directly give rise to an actionable claim, but would negatively impact workplace morale.

What Else Should Employers Keep In Mind?

The number of new coronavirus cases is small, and employers should not overreact to any threat it poses. Many employers can likely continue to operate largely as normal; those with significant employee travel or employee interchange in Asia should continue to take steps that are appropriate in light of all circumstances and updates issued by the State Department and the WHO.

Coronavirus impacts persons of all ethnicities; singling out employees because of their ethnicity for testing, leave, or other virus-related actions could lead to discrimination charges. All policies should be enforced in a uniform and consistent way. Within China, as the quarantine measures are now conducted by the local governments, any employees who are ordered to be quarantined by the local government (including patients, suspected patients and individuals who are categorized as close contacts), should not have their pay impacted by the fact that they cannot perform work during the special period due to the quarantine measures. Employers should continue to check updated local rules in China for further information as different local governments in China may have different local rules regarding employee benefits and pay practices during the extended period after February 3rd – the official date published by the State Council for employees to return to work.

U.S.-based employers should not administer any medical tests for workers, unless they are otherwise a job-related necessity, because insisting upon such tests may violate the ADA. U.S. employers operating abroad should consult applicable laws and regulations regarding medical testing in other countries. However, employers should reinforce sick leave policies and encourage employees to stay home if they are feeling ill, to the extent feasible. And, employers should not offer medical opinions or propagate information about the virus that does not come from a reliable government source. As this situation continues to evolve, employers should continue to seek guidance from counsel.

For more information, contact: Nicole Simonian, Evan Chuck, Jackson Pai, Jillian Ambrose

China Set to Reduce Tariffs on $75 Billion of U.S. Goods

In the wake of the Phase One trade deal signed on January 15, 2020, China has decided it will reduce tariffs on $75 billion of U.S. goods. China’s ministry of economy published an announcement on February 5, 2020 outlining that it will reduce tariffs on some U.S. goods to 5% from 10%, while other products will see a drop to 2.5% from 5%. The tariff cut will take place starting on February 14, the same day the U.S. has announced it will lower tariffs on List 4A tariffs to 7.5% from 15%.

China had previously enacted the retaliatory tariffs early last September in response to President Trump’s decision to impose $100 billion of imports for the List 4A tariffs. As a component of the Phase One trade deal, Beijing has promised to increase purchases of U.S. goods by $200 billion over the next two years compared to 2017 levels. It is expected that lower tariffs will assist China to reach these aggressive purchasing targets.

For more information, contact: Nicole Simonian, Sam Boone

U.S. and China Sign "Phase One" Trade Deal

In January, President Trump and Chinese Vice Premier Liu He signed a “Phase One” trade agreement, the first formal text agreement between the two sides since the United States initiated the Section 301 investigation in August 2017, which has since led to mounting U.S. and Chinese tariffs affecting bilateral trade.

The agreement does not specifically address any tariffs currently in place. Instead, it includes pledges by China to increase U.S. exports of certain goods by specified amounts above 2017 baselines by 2020 and 2021, along with commitments in the areas of intellectual property, technology transfer, agriculture (including agricultural biotechnology), financial services, and currency and foreign exchange. The agreement also includes a mechanism for bilateral consultation and enforcement.

Existing tariffs: While the Phase One trade agreement forestalled tariffs set to begin in December 2019 when it was first announced, the text of the Phase One trade agreement released today does not directly address U.S. or Chinese tariffs in place as a result of the trade dispute.

In December 2019, President Trump announced that 15% tariffs on $110 billion in imports would be cut to 7.5%. Beyond that, neither the U.S. nor China has pledged to cut additional existing tariffs. U.S. Treasury Secretary Steve Mnuchin and U.S. Trade Representative (USTR) Robert Lighthizer issued a joint statement on January 14 that “there is no agreement for further reduction in tariffs” at this time, which means that $370 billion in Chinese imports will continue to be subject to U.S. tariffs.

Expanding trade: China has pledged that it will increase import levels for some goods and services by specified amounts above 2017 import levels over a two-year period ending in 2021:

  • Certain manufactured goods, including autos, aircraft, electronics, some pharmaceutical products, and industrial machinery: Increase of $32.9 billion by 2020 and $44.8 billion by 2021;
  • Agricultural goods, including soybeans, meat, seafood, grains, and cotton: Increase of $12.5 billion in 2020 and $19.5 billion in 2021;
  • Energy products, including liquefied natural gas, crude oil, and coal: Increase of $18.5 billion in 2020 and $33.9 billion in 2021; and
  • Services, including financial services, travel, telecommunications, and information services: Increase of $12.8 billion in 2020 and $25.1 billion in 2021.

The agreement does not specify how China will increase import levels, leaving open questions as to whether China will increase state-ordered imports of certain commodities or encourage private sector imports through trade liberalization (or a combination of both). For U.S. companies in these sectors, there may be opportunities to demonstrate to U.S. and Chinese policymakers how they can help China meet these commitments through increased exports.

Intellectual property: China has agreed to commitments strengthening protections for trade secrets (including from misappropriation via cyber intrusions), combatting online piracy, enhancing patent protections for pharmaceuticals, improving trademark and copyright enforcement, and preventing manufacture and export of pirated or counterfeit goods, including unlicensed use of software.

Technology transfer: China has agreed that it will not support or direct outbound foreign investment aimed at acquiring foreign technology, and that it will refrain from pressuring (formally or informally) U.S. entities to transfer technology through administrative or licensing requirements or as a condition of market access.

Agriculture: China has agreed to commitments related to sanitary and phytosanitary approvals for a range of agricultural imports, including dairy, infant formula, meat, grains, pet food, and biotechnology products.

Financial services: China has agreed to commitments relaxing controls and enhancing approval systems for U.S. financial services companies operating in China, including the removal of foreign equity limits for the insurance, securities and fund management, and futures sectors.

Macroeconomic policies and exchange rate: Both sides committed to make public disclosures of foreign exchange reserve and balance of payments data, and avoid competitive currency devaluations and manipulation of exchange rates.

Enforcement: On enforcement, the Phase One Agreement establishes new bilateral consultative bodies to discuss implementation of the agreement, including:

Contacts

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