James Y. Rayis

United States Begins Broad Tariff Action on Thousands of Chinese Imported Goods

The Office of the U.S. Trade Representative (USTR) April 2019 notice of a third round of additional tariffs on $200 billion worth of goods (List 3 goods) imported from China went into effect today increasing rates from 10 percent to 25 percent. This follows a July 2018 imposition of Section 301 tariffs (List 1) and an August 2018 second round of Section 301 tariffs imposed on different import sectors (List 2). The Federal Register Notice for List 3 item tariff increases was published September 21, 2018 by USTR. The April announcement followed a formal Section 301 investigation into acts, policies, and practices of China related to technology transfer, intellectual property, and innovation.

China retaliated after the announcement with its own announcement to impose tariffs on 128 U.S.-origin goods ranging from dried fruit to stainless steel pipes to be hit with an additional 15% duty while items including pork and aluminum scrap will have an additional 25% hike.

The USTR notice amends the Harmonized Tariff Schedule of the U.S. to provide that the tariff increase for List 3 goods will be effective with respect to goods (a) entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on May 10, 2019, and (b) exported to the U.S. on or after May 10, 2019.

According to the notice, the President elected to increase the additional tariff on List 3 goods due to a lack of progress since March in negotiations toward a bilateral trade agreement and because “China has chosen to retreat from specific commitments agreed to in earlier rounds.” The reference is to China’s decision not to implement the commitments into law but to instead implement them through regulatory and administrative actions, which seems to have raised questions of enforceability for the USTR.

The USTR made no mention of the May 5, 2019 announcement by the President that the administration would impose 25 percent duties on all remaining U.S. imports from China (“List 4”). These additional duties would effectively cover the entirety of U.S. imports from China, possibly including a large amount of raw materials, including steel and aluminum products currently excluded from List 1 duties but subject to additional duties under Section 232. Section 232 allows tariffs for national security issues as opposed to Section 301 response rates.

List 3 covers 5,745 tariff items including raw materials, construction machinery, agricultural equipment, electronics, medical devices, and consumer goods. Already, however, about 300 items were removed from the list by the USTR. The exclusions are for smart watches, Bluetooth devices, certain chemicals used manufactured goods, textiles, agricultural products, and safety items such as bicycle helmets, car seats, and playpens.

USTR also states that it will publish a separate notice describing a process by which interested persons may request the exclusion of specific products from the additional tariff on List 3 goods, including procedures for submitting requests and opposition to requests. While it is unclear when this process may get underway, importers of List 3 goods can start preparing now to file exclusion requests for their products.

Please contact James Rayis from the International Trade practice of Giamarco, Mullins & Horton to consider exclusions requests on your imported goods to mitigate the tariff burden or to discuss how to plan for goods imported from China to protect your interests.

Revisions to U.S. Export Control Rules

Beginning in July of 2013 the Commerce and State Departments, as well as the Bureau of Industry and Security (“BIS”), began publishing proposed revisions to the export control laws on products and technology.  In October final rules were implemented by executive order and administrative regulations. Further revisions and reclassification of products were made in January 2014. These changes are intended to simplify the classification and review process for determining licenses required and outright bans on specific products exported to specific nations.

There are three primary areas of reform under the President’s Export Control Reform Initiative. The first is the gradual consolidation of separate lists under multiple enforcement regimes into a single list of controlled items, beginning with shifting many products previously listed on the U.S. Munitions List (“USML”), regulated under the International Traffic in Arms Regulations (“ITAR”), to the Commodity Control List (“CCL”). A second area of reform is the redefinition of specially designed items, a reform which has major significance to the automotive industry. The third area is a simplification of the export licensing and approval process.

The consolidation to a single list of controlled items is intended to ease the licensing burdens on many items and will eliminate the prior prohibitions on the export of certain items. These specified products will still be subject to controls but the system for approval and licensing is revised to attempt a more predictable and less burdensome process than under ITAR. Items shifted from the USML list to the CCL list include certain aircraft, ground vehicles used for military purposes, turbine engines and test equipment and components.

Item descriptions were clarified to remove some of the inherently vague descriptions under the prior lists, allowing  more definite identification. Products may now be identified with specific criteria such as speed, weight, dimensions, accuracy and other more objective measurements. Automotive components, for example are more easily categorized. A single consolidated screening list is available at the export.gov website.

Specifically exempted from ITAR restrictions on “specially designed” products are those allowed prior export, nuts, bolts and screws, and certain items developed for commercial (not military) use. Many automotive components, parts and systems built for commercial vehicles are subject to less restrictions and many may be exported without a license.

Companies that export products or technology should conduct a review to determine how the new rules and regulations apply to them.  Certain items may be grandfathered under existing licenses, but to the extent the new rules apply, companies will need to invest time and effort to be ready when their existing licenses expire.

For assistance with import and export or other government regulatory matters, please contact James Y. Rayis at (248) 457-7173; jrayis@gmhlaw.com

Federal Budget Cutbacks Deeply Affecting Government Contractors

Lawmakers last week grilled TSA’s Deputy Administrator John Halinski over decisions recently made – including a $50 million contract for new uniforms — around the same time TSA claimed that it faced severe cuts from the government sequester.

Fourteen of the U.S. government’s 20 largest pending contract awards have been delayed as a result of across the board federal spending cuts. The total value of those contracts has fallen nearly 40 percent from the 2012 fiscal year.

The Washington, D.C. market research firm Deltek reported the drop in value is a result of federal agencies’ efforts to avoid duplicative contracts as their budget allocations are reduced. Their report shows the Army delaying six contracts worth up to $22 billion combined.

Deltek writes that the Army alone scaled back an $8 billion war fighter training contract award from June 2013 to March 2014 and another potential $4.9 billion space and missile technology contract from April to August.

The Air Force owns the largest contract on Deltek’s survey, a potential $10-year, $20.9 billion award for training systems.  Deltek expects the Air Force to issue an award in June 2014, one year later than it previously expected.

Government Accountability Office figures show 2012 fiscal year with the most bid protests (contractor objections) filed since 2008. There was a 5-percent increase in overall cases from 2011 to 2012. The number of sustained (winning) protests also rose from 67 cases in 2011 to 106.

Among the possible results of the budget cuts on contract awards are government cancellations or terminations, scale-back changes, options not being exercised and work going back to government agencies instead of being procured out. This would lead to many possible outcomes of losses to contractors that have remedies in federal procurement law under the federal acquisition regulations (FAR) and defense regulations (DFAR). Considering the way that government agencies are drawing attention to the cutbacks through public outcry, expect more government action to negatively affect many federal government contractors.

James Y. Rayis is part of the Business Practice Group of Giarmarco, Mullins and Horton, P.C., with special expertise in governmental contracting and international business transactions.  For more information, you may contact him directly at (248) 457-7173 or jrayis@gmhlaw.com.

Giarmarco, Mullins & Horton is pleased welcome James Y. Rayis

Giarmarco, Mullins & Horton, P.C. is pleased to welcome James Y. Rayis

Practice Areas: Corporate/business law, international corporate transactions, Human Rights law and development program, government contracts/procurement law, Director-Baghdad, Global Justice Project Iraq.

Current: Principal, James Y. Rayis, P.C. International Law History:

Director-Chief of Party: Global Justice Project Iraq 2008-2009 Iraq program on legislative and regulatory consultation to improve and strengthen judicial and legal practice independence of Iraqi law and structures, including Supreme Court, lower courts and bar practice reforms,

Law Partner: Dickinson Wright, PLLC, Washington D.C., Atlanta Balch & Bingham, LLP Washington, D.C., Atlanta Associate: Powell, Goldstein (currently Bryan Cave), Atlanta

V. P. & General Counsel: Omnivest International, Inc. Denver, Colorado Organized, guided and directed legal function for globally operating venture capital and financial investment firm based in Taipei, Taiwan.

Admitted to Practice: Washington, D.C., Georgia, Michigan, Colorado

Education: University of Georgia, J.D., Dean Rusk International Research Scholar, Managing Board, Georgia Journal of International and Comparative Law. Michigan State University, B.A., Economics/French minor, Phi Gamma Delta Memorial Scholarship; Michigan Competitive Scholar.