Importers of Automotive Parts Save Major Duties and Taxes

There are a number of ways that vehicle and automotive parts companies can lower the duty that they pay for items imported into the United States.

While these strategies have been in existence for many years, the use of these strategies has grown tremendously in recent years given the increase in taxes imposed on various goods imported into the United States.

Tariff Classification and Engineering

Vehicle and automotive parts companies importing goods into the United States may be able to lower the duty that they pay for articles imported into the United States by changing the tariff classification that is used to enter these items.

This can be done lawfully when the tariff classification being used is found to be incorrect or when slight changes are made to the design and manufacture of the articles at issue.

For example, in a ruling issued by U.S. Customs and Border Protection in December of 2020, an importer successfully argued that its two-post vehicle lifts were classifiable as “Other lifting, handling, loading or unloading machinery” in heading 8528 of the tariff schedule as opposed to “Jacks hoists of a kind used for raising vehicles” in heading 8525.

CBP had previously ruled that the company’s lifts were classifiable as “jacks hoists” but overturned its decision after finding that the articles did not “pull a vehicle up using a hook and chain or a rope” and that they “raise vehicles more than a short distance”.

Additionally, in a ruling issued by CBP in May of 2017, an importer successfully argued that an oil cooler core was classifiable as a “part of heat exchange unit” in heading 8419 rather than as a “part of a motor vehicle” in heading 8708.

CBP looked to the section notes of the tariff schedule before finding that the importer was correct in its assessment that the oil cooler cores were classifiable as parts of heat exchange units. This change in tariff classification resulted in a 2.5% duty savings for the importer.

To help importers who may not have the bandwidth or know-how to fully engage in the classification process, Sandler Travis & Rosenberg, P.A. has professionals with extensive knowledge of the classification opportunities that exist for automotive parts and vehicles.

ST&R works with importers by reviewing their current classifications to ensure their correctness and by suggesting design changes to current products that may result in substantial duty savings.

Companies requiring expert assistance in identifying potential alternative classifications for the products that they import should contact ST&R. Charles “Chuck” Crowley can be reached at (914) 433-6178 and Mika M. McLafferty can be reached at (212) 549-0165.

Strategic Manufacturing

The assessment of duties on goods imported into the United States is dependent on a product’s country of origin as much as its classification.

The more recent implementation of additional duties of between 7.5% and 25% on certain goods that are Made in China has meant that the country of origin of products imported into the United States has become increasingly relevant.

Where vehicle and automotive parts companies are manufacturing a specific product in more than one country, ST&R can review manufacturing processes to determine the proper country of origin of that product. ST&R can advise companies as to what steps in the manufacturing process may confer origin to a product so that companies can strategically perform origin-conferring operations for a product in the country that provides the most favourable duty rate.

In the case of goods being produced in part in China, it is imperative that companies understand whether the operations being performed in China are origin-conferring such that the finished product may be subject to additional duties of between 7.5% and 25% upon importation into the United States.

As an example, CBP has recently analysed the proper country of origin of motors that were manufactured in multiple countries including China. Importers of those items were interested in understanding whether CBP would consider the country of origin of those motors to be China in which case additional duties of 25% would apply to the products at the time of importation.

As recently as May of 2021, CBP has issued rulings in which it has found that rotors and stators are the dominant components of finished electric motors and has found that the origin of a motor was determined by the origin of the rotor and stator cores.

Those interested in understanding how to strategically manufacture their product to avoid the potential assessment of Section 301 duties of between 7.5% and 25% should contact ST&R. Charles “Chuck” Crowley can be reached at (914) 433-6178 and Mika M. McLafferty can be reached at (212) 549-0165.

Recovery of Foreign Judgment Debts

Enforcement of foreign judgments has significant relevance in this era of increased international trade and foreign investments. Businesses are more comfortable doing business with foreign partners knowing that if they obtain judgment from a superior court in their home country; it can be enforced against the judgment debtor across borders.

Fortunately, Nigerian courts recognise judgments from superior courts of commonwealth countries and countries with reciprocal treatment with Nigeria.

This has increased the confidence of foreigners and foreign companies to do business with Nigerians and Nigerian companies. Nevertheless, the procedure for registration of foreign judgment in Nigeria is not without challenges. Apart from the uncertainty in the statute and rules regulating the enforcement of foreign judgment, the procedure for registration of foreign judgments does not take into cognisance the evolving trends in global economy and international commerce.

The statute regulating the enforcing of foreign judgments in Nigeria is imprecise. Ordinarily the recent Foreign Judgment Act, CAP 152, Laws of the Federation of Nigeria, 1990 would have been the legislation regulating enforcement of foreign judgment but the Supreme Court in the case of Macaulay v R.Z.B of Austria 18 NWLR 282 held that the Minister of Justice has not made an order extending the Act to judgments of the United Kingdom and other countries with reciprocal treatment with Nigeria pursuant to Sections 3 and 9 of the Act as such the first part of Act is inapplicable.

Again, in the case of Grosvenor Casinos Ltd v Ghassan Halaoui 10 NWLR 309, the Supreme Court postulated that both the Act and the Reciprocal Enforcement of Judgments Ordinance, CAP 175, Laws of the Federation of Nigeria, 1958 are relevant statutes in the enforcement of foreign judgments in Nigeria.

Judgment creditors now rely on the colonial Reciprocal Enforcement of Judgment Ordinance, 1958 which provides for a 12 months period to register and recover a foreign judgment debt in Nigeria. This is why in Suit No. FHC/ABJ/CS/203/2017; Emmanuel Ekpenyong Esq v. Attorney General and Minister of Justice of the Federation, I sought an order of mandamus at the Federal High Court, Abuja Division to compel the Attorney General and Minister of Justice of the Federation to promulgate an Order to bring the 1990 Act into operation.

The Federal High Court in its judgment opined that the Minister has discretionary powers to promulgate the Order. The trial court held that the Minister had unlimited powers to determine when to promulgate the Order. An appeal against the trial court’s judgment is pending before the Court of Appeal, Abuja division. The backlog of appeals at the appellate court has made it difficult to obtain a hearing date for the appeal.

The imprecision on the particular statute regulating foreign judgment enforcement has a devastating effect on the whole process of registering foreign judgment in Nigeria. For instance, the time within which to register a judgment under the 1990 Act is 6 years while the time to register a judgment under the Ordinance is 12 months. Since there is no Foreign Judgment Enforcement Rules for the 1990 Act, the Reciprocal Enforcement of Judgments Rules of the Ordinance which was enacted in 1922 regulates the legal conditions for registration of foreign judgment in Nigeria today.

Rules 1 and 5 of the Rules of the Ordinance which provides that the application for enforcement of foreign judgment be made by a motion ex-parte is inconsistent with the modern concept of fair hearing and the current civil procedure rules of Courts that an adverse party must be put on notice. It is without doubt that the Rules of the Ordinance is out of touch with modern realities and the different conditions in the applicable legislations have led to calamity and more uncertainty.

In a Ruling of a Lagos High Court, per Candide-Johnson J, the Court rejected the registration of a Judgment of Justice Michael Burton of the High Court of Justice, Queen’s Bench Division, Commercial London on the ground that since the Lagos Court did not have jurisdiction to hear the subject matter before the original Court, it could not register and execute the Judgment of the original court against the judgment debtor. But registration of foreign judgment under the provisions of the applicable legislations appears to be a subject matter on its own. Little wonder the process of registration of foreign judgment is regulated by its separate and distinct legislations and rules which spell out its conditions and legal requirements.

The applicable legislations provide that Nigerian courts shall accord reciprocal treatment to judgment of ‘superior courts’ from commonwealth countries and other countries with reciprocal treatment with Nigeria. They also provide that a judgment creditor from a foreign country with reciprocal treatment with Nigeria may apply to a ‘superior court’ in Nigeria within the specified time for registration of the judgment. From the ordinary meaning of the wordings of the provisions of the applicable legislations on conditions for registration of foreign judgments, it did not contemplate that the jurisdiction of the Nigerian court to register a foreign judgment will be subject to its jurisdiction to hear and determine the original subject matter of the case.

Since the judgment creditor is not asking the Nigerian court to hear the case based on its subject matter, but to grant leave for registration of the foreign judgment under the applicable legislations only, Nigerian courts have no business making its jurisdiction to hear the subject matter of the case, a condition precedent for registration of the judgment. Unless the appellate courts pronounce on this grey area, it will continue to impede the registration of foreign judgments in Nigeria.

An interesting requirement of the applicable legislations is that the Defendant against whom the foreign judgment is to be enforced must have been a Defendant at the original court. This requirement creates a profound difficulty for Judgment creditors. With the recent economic meltdown, businesses are trying to stay afloat by merging or acquiring other companies. To maintain a local presence, a multinational company may take over the business and goodwill of viable Nigerian Company. Upon such takeover the acquired company is wound up.

What then happens to a judgment creditor who obtained a foreign judgment against the acquired company? Does it mean that the judgment creditor cannot maintain a cause of action against the acquiring company just because the acquiring company was not a Defendant at the original court? Since the acquiring company acquired both the assets and liabilities of the acquired company and the acquired company is no more, the justice of the case demands that the foreign judgment obtained against the acquired company should be enforced against the acquiring company.

Another curious requirement in both the Act and the Ordinance is that foreign judgments in respect of fine, taxes and penalties cannot be enforced in Nigeria. This is against the whole concept of reciprocal treatment of judgment because it may give a safe haven to impenitent tax evaders. With the increase in tax evasion by foreign businesses and multinational companies, inability of states and government bodies to recover judgment debts in respect of fines, taxes and penalties across borders would led to a great loss of revenue. The role of fines, taxes and penalties is invaluable in the economic development of states in the 21st Century. Unlike the 19th Century where most states closed their borders against foreign goods and investment, the 21st century world is a global village.

Though Section 1 of the Foreign Judgments Act 1933 provides that taxes or other charges of a like nature or in respect of a fine or other penalty cannot be registered and enforced in United Kingdom, the United Kingdom Prime Minister David Cameron in a letter to Leaders of the British Overseas Territories and Crown Dependencies dated 20 May 2013 said “… I very much welcome the commitments you have made to automatic tax information exchange, both on a bilateral and multilateral basis, which will help us to reach our goal of setting a global standard in tax transparency… We also need to ensure information exchange works effectively for all… That is why we strongly support the Multilateral Convention on Mutual Assistance in Tax Matters”.

This highlights the importance of cross border tax collection. Nigeria will gain more if it offers herself and other states the opportunity to recover fine, taxes and penalties against evading offenders by either amending her Foreign Judgment statutes to accord foreign judgments on fine, taxes and penalties the same status with monetary judgments or enter into Multilateral and Bilateral treaties with other states to assist themselves on recovery of cross borders fine, taxes and penalties.

Furthermore, the requirement that once an appeal is filed at the original court, the foreign judgment cannot be registered at the registering court may be prejudicial to the judgment creditor. What happens in a situation where an unscrupulous debtor in an attempt to forever deny the judgment creditor the fruits of his judgment files an appeal at the original jurisdiction and goes to sleep? What happens to the judgment creditor where the judgment debtor dissipates the res before outcome of the appeal at the original court? Is it not justiciable to preserve the res at the registering court pending the outcome of the appeal at the original jurisdiction? This is the reasoning behind the provisions of Section 1 of the United Kingdom’s Act which provides that “a judgment shall be deemed to be final and conclusive notwithstanding that an appeal may be pending against it, or that it may still be subject to appeal, in the courts of the country of the original court”.

In conclusion, there is a need for the lingering crisis on the law regulating enforcement of foreign judgment in Nigeria to be settled. The legal conditions for enforcement of foreign judgment have been interpreted too broadly to adequately protect the interest of foreign judgment creditors. Therefore, the law and rules should be amended to reflect modern realities.

The Courts should be proactive in breaking new grounds and developing the jurisprudence on enforcement of foreign judgment in Nigeria in accordance with the essence of reciprocity of judgments. This will improve the prospects of Nigeria as a business destination and enhance the growth of her economy.

Trade Relations Championed by Investment Minister Visit

Trade is a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties.

International Trade Minister Graham Stuart MP travels to China today, to bolster the trade relationship between the United Kingdom and China post-Brexit.

Beginning his visit in the Chinese capital Beijing, the Minister will meet with key representatives in the Chinese government in the Ministry of Commerce and officials at the Chinese National Development and Reform Commission, to promote the United Kingdom-China economic relationship and champion British business in the region.

While in China, he will meet with dozens of potential investors, hosting roundtables with Chinese life sciences, education, infrastructure and financial services businesses, to promote the strengths of the United Kingdom as an investment destination and encourage stronger trade ties between the two countries.

The visit will see Minister Stuart lead a 200-strong delegation of United Kingdom business leaders representing sectors such as tech, manufacturing, transport and education to the Smart China Expo in Chongqing , where he will champion the United Kingdom’s global leadership in smart technology, and attend the United Kingdom’s flagship pavilion at the Horticulture Expo in Beijing, where the United Kingdom is showcasing its leadership in clean energy and sustainable development.

The 10-day visit comes as trade and investment with China reaches record levels, bilateral trade between the 2 countries has more than doubled over the past 10 years, with the latest statistics showing trade has succeeded the £70bn mark for the first time during the last financial year.

Over the last decade, China has been the 3rd biggest contributor to the overall increase in British exports, beaten only by Germany and the United States.

The Minister’s visit follows on from the United Kingdom-China 10th Economic and Financial Dialogue which took place in London in June this year.

The EFD saw the former Chancellor, Philip Hammond, and Chinese Vice Premier, Hu Chunhua, launch the London-Shanghai Stock Connect UK, which allowed listed companies to sell their shares in China for the first time, alongside the announcement of £500 million worth of commercial deals and partnerships.

Minister Stuart’s visit is expected to secure a number of commercial deals and new partnerships between British and Chinese businesses.

European Union and Mercosur Reach Trade Agreement

The European Union is the first major partner to strike a trade pact with Mercosur, a bloc comprising Argentina, Brazil, Paraguay and Uruguay. The agreement concluded today will cover a population of 780 million and cement the close political and economic relations between the European Union and Mercosur countries.

It represents a clear commitment from both regions to rules based international trade and will give European companies an important head start into a market with an enormous economic potential. It will anchor important economic reforms and modernisation undergoing in Mercosur countries.

The agreement upholds the highest standards of food safety and consumer protection, as well as the precautionary principle for food safety and environmental rules and contains specific commitments on labour rights and environmental protection, including the implementation of the Paris climate agreement and related enforcement rules.

Mercosur countries will also put in place legal guarantees protecting from imitation 357 high-quality European food and drink products recognised as Geographical Indications, such as Tiroler Speck, Fromage de Herve, Münchener Bier, Comté, Prosciutto di Parma, Polska Wódka, Queijo S. Jorge, Tokaji or Jabugo.

The agreement will open up new business opportunities in Mercosur for European Union companies selling under government contracts, and to service suppliers in the information technology, telecommunications and transport sectors, among others.

It will simplify border checks, cut red tape and limit the use of export taxes by Mercosur countries. Smaller companies on both sides will also benefit thanks to a new online platform providing easy access to all relevant information.

While delivering significant economic benefits, the agreement also promotes high standards. The European Union and Mercosur commit to effectively implement the Paris Climate Agreement. A dedicated sustainable development chapter will cover issues such as sustainable management and conservation of forests, respect for labour rights and promotion of responsible business conduct.

It also offers civil society organisations an active role to overview the implementation of the agreement, including any human rights, social or environmental concerns. The agreement will also provide for a new forum to work closely together on a more sustainable approach to agriculture and, as part of the political dialogue under the Association Agreement, address the rights of indigenous communities.

The agreement also safeguards the European Union and Mercosur’s right to regulate in the public interest and preserves the right to organise public services in the way they consider appropriate.

European Union food safety standards will remain unchanged and all imports will have to comply with the European Union’s rigorous standards, as is the case today. The agreed food safety, and animal and plant health provisions will reinforce cooperation with the authorities of the partner countries and speed up the flow of information about any potential risks through a more direct and efficient information and notification system. In this way, the agreement will increase our efficiency in ensuring the safety of the products traded between the European Union and Mercosur countries.

The trade agreement reached today is part of a comprehensive new Association Agreement under negotiation between the European Union and Mercosur countries. It is composed of a political and cooperation pillar – on which negotiators already reached a general agreement in June 2018 in Montevideo – and the trade pillar.

Beyond trade, the agreement will enhance political dialogue and increase cooperation in areas such as migration, digital economy, research and education, human rights, including the rights of indigenous people, corporate and social responsibility, environment protection, ocean governance, as well as fight against terrorism, money laundering and cybercrime. It will also offer increased possibilities for cooperation at multilateral level.

The Association Agreement will complete the network of Association Agreements in the Americas and consolidate the relations with the important partners in the region, supporting European Union positions on many global issues.