By: Henry T. Chou, Esq.

In early April 2018, the Trump administration announced that it would place a 25% tariff on more than 1,300 products imported from China that include items used in the robotics, information technology, communication technology and aerospace industries. What is not widely known, however, is the fact that dozens of drugs and medical devices are among the Chinese products and ingredients that the Trump administration targeted for the 25% tariff.  Under the administration’s proposal, defibrillators, pacemakers, artificial joints, dental fillings, birth-control pills, vaccines, insulin, epinephrine and lidocaine are among the many items targeted by the tariff.

The U.S. medical device industry has expressed concern because many of its member companies own and operate factories in China that manufacture products that are sold in the U.S.  Manufacturing activities in China have boomed in recent years, resulting in a situation where 12% of all medical devices imported into the U.S., worth $3 billion per year, are made in China.  Analysts have estimated that the proposed tariff could cost the U.S. medical device industry up to $1.5 billion each year, with the increased costs ultimately being passed down to consumers.

The generic pharmaceutical industry is also bracing for the effects of the tariff, given that China is a leading exporter of raw pharmaceutical ingredients.  Of particular concern are generic injectable drugs, which are already in short supply due to existing manufacturing and supply issues.  Two drugs on the list of Chinese exports subject to the proposed tariff are epinephrine and lidocaine, both of which are in short supply in their sterile injectable form.  Additionally, since the raw ingredients for generic injectable drugs made in the U.S. are mostly sourced from abroad, the full extent of the tariff’s impacts may not be known for some time.

The list of items subject to the proposed tariff can be viewed at https://ustr.gov/sites/default/files/files/Press/Releases/301FRN.pdf.  There is still time to act if a product that you import appears on this list, as companies have until May 22 to submit comments to the administration regarding the tariff.  Hill Wallack LLP stands ready to assist its clients in minimizing the effects of the proposed tariff.

On October 13, 2015, Henry Chou and Kun Zhao, attorneys in Hill Wallack LLP’s Princeton office, attended the International Business Opportunities Conference (IBOC) at The College of New Jersey.  The event was organized by the MIDJersey Center for Economic Development (MIDCED), a non-profit organization dedicated to fostering and accelerating growth in central New Jersey.  The IBOC focused on gathering international trade experts, business leaders and state officials to explore the fundamentals of exporting regional business products and services to strategic global markets, and Messrs. Chou and Zhao discussed their experiences in international transactions with the participants.  The program agenda is available at MIDCED’s website.

Princeton, NJ September 15, 2014 — On Wednesday, September 10, 2014, Henry Chou, a partner in Hill Wallack LLP’s Princeton office, spoke at the International Business Opportunities Conference (IBOC). The conference, which was held at Forsgate Country Club in Monroe, New Jersey, was organized by the MIDJersey Center for Economic Development (MIDCED), a non-profit organization dedicated to fostering and accelerating growth in central New Jersey.

The IBOC focused on gathering international trade experts, business leaders and state officials to explore the fundamentals of exporting regional business products and services to strategic global markets. Mr. Chou spoke on the panel “Hottest Export Markets for New Business” where he discussed his experience representing U.S. companies investing in China. He gave an overview of U.S. foreign direct investment in China, the advantages of investing in China and the government approval process. Mr. Chou also discussed concrete examples of how local businesses based in Mercer and Middlesex Counties have successfully ventured across the Pacific.

The panel was moderated by Eddy S. Mayen, a State Department official who oversees the state’s international business strategy. Additional panel members included The Honorable Christian Rodriguez (Consul General, Colombia), The Honorable Ghafur Dharmaputra (Consul General, Indonesia), The Honorable George Monyemangene (Consul General, South Africa), Vered Nohi-Becker (Executive Director, Philadelphia-Israeli Chamber of Commerce), and William R. Healey (Senior Vice President, Altman Group).

The keynote speakers of the conference were Richard H. Bagger, a senior executive at Celgene, and New Jersey State Senate President, Stephen Sweeney. IBOC also featured two other panels, “Exporting: A Plan of Action,” moderated by BioNJ CEO Debbie Hart, and “Exporting: Success Stories,” moderated by Minister-Counselor Richard Steffens, who serves in the U.S. Embassy in Ottawa, Canada.

By Henry T. Chou, Esq.

The U.S. International Trade Commission (“ITC”) has decided that there is “a reasonable indication” that carbon and alloy steel wire imported from China could materially injure a U.S. industry, clearing the way for the U.S. Department of Commerce to continue its investigation into the imports.

Steel producers in the U.S. have long complained about imports of cheap Chinese wire rod, which is used for nails, fencing, barbed wire and rope. Imports of these products from China rose from 144 tons in 2011 to over 614,000 tons in 2013, valued at $313 million.

Earlier this year, a coalition of major U.S. steel producers, including ArcelorMittal USA, Nucor Corporation, Charter Steel, Evraz Rocky Mountain Steel and Gerdau Ameristeel filed a petition, alleging that Chinese steel wire rod is sold between 99.32 and 110.25 percent below their fair market value in the U.S. and that their manufacturers receive inappropriate levels of subsidies from the Chinese government.

The Commerce Department’s investigation will culminate in a determination concerning the level of improper Chinese subsidies by June 30, 2014 and a determination on the level of anti-dumping duties to be imposed on such imports by July 10, 2014.

This case is deemed to be a “game changer” for the domestic market, and the looming threat of anti-dumping subsidies has already caused Chinese producers to retract offers made to U.S. importers in February and March 2014 over fears that retroactive duties could be applied to imports. In response, Beijing has urged Washington to avoid protectionism and to work with China to maintain a free and open trade environment.

Anti-dumping investigations of Chinese imports have been on the rise in recent years and are spreading to industries and sectors that previously escaped notice. Importers of products manufactured in China should be vigilant of decisions that may drastically alter the duties and penalties associated with their imports. Staying informed of such matters will help importers to plan ahead and avoid costly import duties.

By: Kun Zhao, Esq.

On May 26, 2011, the International Trade Commission issued an antidumping duty order and a countervailing duty order against aluminum extrusion products from China (76 FR 30, 650 (May 26, 2011); 76 FR 30, 653 (May 26, 2011), referred to as “the Orders”). The merchandise subject to the Orders includes aluminum extrusions produced and imported in a wide variety of shapes and forms, such as hollow profiles, other solid profiles, pipes, tubes, bars, and rods. Many aluminum products including, but not limited to, drapery rails and rods have drawn the attention of customs officials, who are imposing antidumping and countervailing duties on such products.

Unbeknownst to many importers, the Orders exclude finished goods containing aluminum extrusions that are imported unassembled in “a finished goods kit.” A memorandum from the Department of Commerce dated February 3, 2012 regarding drapery rod kits explained that a finished goods kit is understood to mean a packaged combination of parts that contain, at the time of importation, all of the necessary parts to fully assemble final finished goods and requires no further or fabrication, such as cutting or punching, and is assembled “as is” into a finished product.

The memo further determined that drapery rail kits without including curtains are not a “finished goods kit.” Other memos regarding the scope of the Orders from the Department of Commerce determined that a shower door frames without glass is not a finished good. A retractable awning mechanism kit without textile cover is not a “finished product.”

Thus, the criteria for determining the scope of the exclusion is whether the kits contain all of the necessary parts to fully assemble a final finished good at the time of importation. To ensure that merchandise containing aluminum extrusions is not subject to antidumping and countervailing duty, importers should confirm that:

(1)   The merchandise is packaged in kits and each kit has all necessary parts to fully assemble a final finished good, including non-aluminum parts, such as curtain, glass, textile cover, sheet, etc.; and

(2)   The purchaser order is placed for the kit and not for the parts of the kit; and

(3)   The unit price is offered for each kit and not the breakdown prices for individual parts of the kit; and

(4)   The kit is from one manufacturer or exporting company.

By: Kun Zhao, Esq.

In international trade, suppliers of goods often sell on credit to their customers, facing credit risks especially when the customers are experiencing financial difficulties in this economy. Sellers have growing concerns when their customers start to delay payments or even stop payments. How to recover something from the defaulting customer to mitigate the loss is a frequently asked question. The reality is that the delay or failure to pay is often due to the customer’s financial difficulties or even insolvency. If the financially distressed customer files bankruptcy, the seller will probably not receive a recovery, as the customer’s primary lenders normally have earlier-filed security interest in the customer’s assets, including the goods, and therefore have priority in recovery over the seller.

There is a relatively simple protection device that Chinese suppliers have rarely used, called the Purchase Money Security Interest under the Uniform Commercial Code (“UCC”) Article 9 (“PMSI”), which to some extent affords a certain level of protection in securing the seller’s interest in the goods to mitigate the loss if the customer defaults. In some common cases, it could provide Chinese suppliers with superior recovery rights in the goods themselves or the identifiable proceeds from the goods when the customer is insolvent or files bankruptcy. This device is widely used in the sale of large equipment or in a series of sales of goods in inventory for further manufacturing or resale.

A PMSI under UCC §9-103 is defined as a security interest in goods that are taken in collateral to the extent that it secures all or part of the purchase price of the collateral (the goods). In the sale of goods scenario, it is a security interest in collateral created by a seller who secures the obligation to pay the purchase price of goods sold on credit to a customer. A properly perfected PMSI gives the seller of goods on credit with “super priority” in the goods and the identifiable cash proceeds from the goods, trumping other creditors who have a conflicting security interest in the same goods, including those who have earlier-filed security interest in the customer’s assets and inventory in general.

New Jersey and New York have adopted the UCC. The UCC rules for acquiring a PMSI are set out in UCC §9-324. To achieve priority over an earlier-filed security interest in the same goods, the seller and its customer must:

(1)        execute a security agreement, which can be part of the sales agreement. The collateral in the security agreement must relate only to the goods that will be sold to the customer in the future;

(2)        the PMSI must be perfected by filing the appropriate financing statements with the secretary of state or other filing agency in the state where the customer is legally organized when the debtor receives possession of the collateral. In other words, the seller must file the financing statement before the goods are delivered;

(3)        the seller must give written notice to the holder of the conflicting security interest if the holder of that conflicting security interest has filed a financing statement. Any earlier-filed conflicting security interest holder can be found through a UCC filing search at the filing agency in the state;

(4)        This notice must be received by the holder of the other security interest before the debtor receives possession of the purchase-money collateral (the goods), and is valid for a period of five years;

(5)        the notification must state that the person giving the notice has or expects to acquire a purchase money security interest in inventory of the debtor, describing such inventory by item or type.

If sellers have taken proper steps above, they will have priority over earlier, normally superior, security interests that cover the same goods. Sellers will have additional remedies in collecting their receivables, or will have priority to retrieve and resell goods sold on credit for which the customers failed to pay.

Therefore, the PMSI is a valuable tool to help Chinese suppliers in managing credit risks in international trade. It affords Chinese suppliers security rights senior to their customers’ lenders in the goods sold on credit and gives them a better chance to recover at least something rather than nothing.