New FDA Criteria for Labeling Food as “Healthy”
All of us have probably had the experience of browsing the aisles at the grocery store looking for healthy foods to take home for our families. A few foods we find may include the word “healthy” on the packaging. Did you know that the FDA has actually defined what “healthy” on a food label means? Or that the FDA recently issued a new rule redefining the word “healthy”? While the meaning of the word “healthy” may seem simple, it is actually much more complicated for FDA labeling purposes than you probably imagined.
The FDA first promulgated a definition of “healthy” in 1994 and set standards that foods had to meet in order to include the word “healthy” on their labels. A new definition was finalized on December 19, 2024, with an effective date of April 28, 2025. Under FDA regulations, foods must comply with the new requirements in order to include the word “healthy” or derivatives of healthy like “healthful,” “healthfully,” “healthfulness,” “healthier,” “healthiest,” “healthily,” and “healthiness” on their labels.
So – what made the cut as “healthy”? As many would probably anticipate, vegetables and fruits, whether fresh, frozen, or canned (with only water) all made the cut as healthy. Some, perhaps, surprising foods which did not previously meet the FDA definition of “healthy” but now do, include olive oil, eggs, and salmon. While deciding what is “healthy” may seem simple, the new definition of “healthy” is rather complicated. In order to meet the new definition of “healthy” a food must:
contain a certain amount of food from at least one of the food groups or subgroups (such as fruit, vegetables, grains, fat-free and low-fat dairy and protein foods) recommended by the Dietary Guidelines for Americans, and
meet specific limits for added sugars, saturated fat and sodium.
A couple of acronyms important to understand the new definition of “healthy” are FGE and RACC. FGE stands for “food group equivalent,” and RACC means “Reference Amount Customarily Consumed.” The FDA rule defines an FGE as:
Vegetable — 1/2 cup equivalent (c-eq)
Fruit — 1/2 cup equivalent
Grains — 3/4 ounce (oz) equivalent whole grain
Dairy — 2/3 cup equivalent
Protein foods:
Game meat — 1 1/2 oz equivalent
Seafood — 1 oz equivalent
Egg — 1 oz equivalent
Beans, peas, or lentils — 1 oz equivalent
Nuts and seeds, or soy products — 1 oz equivalent
The FDA recognizes that for some foods the amount commonly consumed at a sitting – the RACC – may be smaller than the FGE.
Before diving into the logistics of FGEs and RACCs, let’s start with what is exempt from the new rule:
Individual or mixed food products (which contain nothing other than the food product(s) and water), which are vegetables, fruit, whole grains, fat free and low fat dairy, lean meat, seafood, eggs, peas, lentils, nuts and seeds; and
Water, tea, and coffee with less than 5 calories per RACC.
These products may be labeled as “healthy” because they are considered nutrient-dense foods.
Now for the more complicated calculations. Foods are divided into five categories: (1) an individual food with a RACC greater than 50 g or 3 tablespoons, (2) an individual food with a RACC less than 50 g or 3 tablespoons, (3) mixed foods, (4) main dishes, and (5) meals.
A food with a RACC over 50 g or 3 tablespoons can be labeled “healthy” only if it meets the FDA’s requirements listed below. The same criteria apply to an individual food with a RACC of less than 50 g or 3 tablespoons, but the criteria are judged based upon a serving size of 50 g.
DV stands for daily value.
For mixed foods [21 CFR § 101.65(d)(3)(iii)] – meaning foods composed of elements from more than one food group – to be labeled as “healthy,” they must meet the following criteria per RACC.
FCC Issues One Year Waiver for Consent Revocation Rule
On April 7, the FCC issued an order staying the effective date of a key provision in its Telephone Consumer Protection Act (TCPA) rules. The provision—originally set to take effect on April 11, 2025—would have required that a consumer’s revocation of consent apply broadly to all robocalls and robotexts from a sender, not just the type of message that prompted the opt-out.
The stay follows petitions from banking industry groups, who raised concerns that the rule would force institutions to block important customer communications, such as fraud alerts or low balance warnings, based solely on a consumer opting out of unrelated messages. In response, the FCC agreed that affected senders need additional time to prepare.
The now-delayed rule would have required:
Broad application of revocation. A single opt-out message—such as replying “stop” to a promotional text— would revoke consent for all future robocalls and texts from that sender, including those unrelated to the original message.
Universal treatment of revocation. Senders would be required to apply the opt-out across all communication lines or departments, rather than limiting it to the context in which the revocation occurred.
Companies now have until April 11, 2026 to comply with the global revocation requirement. Other provisions from the 2024 TCPA Consent Order—such as honoring standard opt-out keywords and processing revocations within ten business days—will still take effect as planned on April 11, 2025.
Putting It Into Practice: The FCC’s decision provides short-term relief for financial institutions and other regulated entities preparing for the rule. This development reflects ongoing efforts by federal regulators to balance consumer protection with operational feasibility (previously discussed here, here, and here). Nonetheless, businesses should continue preparing for full compliance with the global revocation rule by April 2026 and closely monitor any strengthening of consumer protection efforts at the state level (previously discussed here, here, and here).
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White House Unveils Government-Wide Plan to Streamline AI Integration
On April 7, the White House issued a fact sheet outlining new steps to support the responsible use and procurement of AI across federal agencies. The initiative builds on the Biden Administration’s 2023 Executive Order on AI and is intended to reduce administrative hurdles, improve interagency coordination, and expand access to commercially available AI tools.
The announcement requires the Office of Management and Budget, the Office of Federal Procurement Policy, and the General Services Administration to issue updated guidance and provide centralized tools to support implementation. Key measures of the guidance include:
Appointing Chief AI Officers. Each agency must designate a senior official responsible for overseeing AI governance and compliance.
Developing AI Strategies. Agencies are required to submit AI implementation plans within 180 days, identifying operational uses, risk mitigation strategies, and workforce needs.
Removing procurement barriers. Agencies must streamline acquisition processes that may hinder the timely adoption of AI systems, including by adopting performance-based procurement approaches.
Standardizing commercial AI guidance. OMB will release uniform guidance to support the responsible procurement and deployment of off-the-shelf AI tools, with a focus on privacy, equity, and safety.
Expanding Shared Tools and Expertise. The Administration will centralize technical resources to help agencies evaluate AI systems and manage associated risks.
Increasing Access for Small Businesses. The initiative aims to ensure that small and disadvantaged businesses can compete for AI-related government contracts.
Putting It Into Practice: The directive highlights the federal government’s commitment to institutionalizing responsible AI use across sectors while promoting innovation (previously discussed here). Similar momentum is building at the state level, where we expect to see continued parallel developments (previously discussed here and here).
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State-Level E-Verify Proposals Signal Shift in Employment Compliance Landscape
A growing number of states are considering legislation that would require more employers to use E-Verify, the federal system used to confirm that new hires are authorized to work in the United States. These proposals suggest a broader trend toward increased immigration-related employment compliance and may impact how businesses manage their hiring practices, particularly in sectors with large immigrant workforces.
Expanding E-Verify Requirements
In 2025, legislators in over a dozen states have introduced or advanced bills that would expand the use of E-Verify. Some states, such as Idaho, Indiana, Kansas, Montana, and Texas, are exploring new mandates that would apply to all employers. Others are building on existing laws by lowering employer size thresholds or increasing penalties for noncompliance.
For example, Florida currently requires private employers with 25 or more employees performing services in Florida to use E-Verify. New proposals in the state would extend the requirement to all employers, apply verification obligations to independent contractors, and propose higher fines and the potential revocation of business licenses for violations.1
Impact on Employers
These proposals are particularly relevant for industries that rely on a significant number of foreign-born workers, such as agriculture, hospitality, construction, and healthcare. In several states, representatives from these sectors have raised concerns about the operational challenges associated with mandatory E-Verify use.
While E-Verify is currently mandatory only in a few states, it remains optional at the federal level for most private-sector employers, with certain exceptions, including but not limited to, employers with federal contracts. However, national policy discussions continue, with some lawmakers advocating for a broader federal mandate.
Federal Developments
The push for expanded E-Verify use is occurring alongside other immigration enforcement efforts, including worksite inspections and proposed changes to immigration programs that could affect work authorization for certain populations. A federal E-Verify mandate was previously included in immigration legislation, but it did not advance. Nonetheless, similar proposals continue to be introduced, with the most recent federal bill being introduced last month.
Employers may face additional uncertainty as state and federal discussions unfold, particularly where there are delays in visa processing or changes to Temporary Protected Status (TPS) and other programs affecting employment eligibility.
Considerations for Employers
Given the evolving landscape, employers should consider:
Reviewing Form I-9 procedures to enhance accurate and compliant employment eligibility verification practices.
Evaluating E-Verify enrollment and usage processes, especially in states where legislation is pending or likely.
Training HR and compliance personnel on the potential changes and how they may affect onboarding and recordkeeping.
Monitoring legislative activity in states where their organizations operate or have a significant workforce.
Implementing workforce planning strategies, including alternative hiring or mobility options, where appropriate.
As state-level E-Verify proposals continue to emerge, employers are encouraged to stay informed and prepare for the possibility of new compliance obligations. Early preparation may help minimize disruption and ensure alignment with both state and federal employment verification requirements.
1 See SB 782.; See HB 1033.
Georgia Governor Signs Bill to Strengthen Religious Exercise Protections, but Lawmakers Leave Anti-DEI Bill on the Table
On April 4, 2025, the final day of Georgia’s legislative session, Governor Brian Kemp signed into law a “religious liberty” bill that will strengthen protections for the free exercise of religion by prohibiting state and local government actions that substantially burden religious practices or activities. However, Georgia lawmakers left on the table a bill that would have prohibited state schools, colleges, and universities from promoting diversity, equity, and inclusion (DEI) despite advancing the legislation in the final days of the legislative session.
Quick Hits
Senate Bill 36, known as the Georgia Religious Freedom Restoration Act, aims to protect the free exercise of religion by imposing a “compelling interest” test for government actions that may burden religious practices.
The bill has significant implications for Georgia schools, including state higher education institutions, as Georgia lawmakers seek to align the state with broader federal policies pushed by the Trump administration.
Despite being advanced by the Georgia Senate, House Bill 127, which seeks to ban DEI programs at state colleges and universities, ultimately did not pass the House on the final day of the session.
SB 26—Georgia Religious Freedom Restoration Act
Governor Kemp signed Senate Bill (SB) 36, known as the “Georgia Religious Freedom Restoration Act,” a day after lawmakers sent the bill for signature on April 3, 2025. The law will enshrine the “compelling interest” test for determining whether actions of the Georgia state and local governments unconstitutionally burden the free exercise of religion.
The bill is modeled on the former federal Religious Freedom Restoration Act of 1993 (RFRA) which the Supreme Court of the United States in 1997 struck down as applicable to states.
Georgia’s SB 36 will prohibit the state and local governments from “substantially burden[ing] a person’s exercise of religion even if the burden results from a rule of general applicability.” Such laws will only be upheld if the government demonstrates: (1) the action furthers “a compelling governmental interest” and (2) is the “least restrictive means of furthering such compelling governmental interest.”
The bill will enable an individual whose religious exercise is burdened to file a claim against the government or use it as a defense in a judicial proceeding and obtain reasonable attorneys’ fees and costs.
Notably, SB 36 will apply to “any branch, department, agency, instrumentality, and official or other person acting under color of law of this state, or any political subdivision” defined by state law, including local governments and school boards. The law may further apply to actions by state colleges and universities as Georgia courts have recognized the Board of Regents of the University System of Georgia to be a state agency or subdivision.
Proponents of the bill argued that it would protect the free exercise of religion from intrusions by federal, state, and local governments. However, opponents have argued that more religious exercise protections are unnecessary as it could lead to discrimination against LGBTQ+ people and religious minorities. More than half of states have RFRA-like protections.
In other states with similar RFRA laws, students and parents have sued colleges and universities due to various rules and regulations that govern student life. In addition, the law provides an additional avenue for employees to sue if they believe that their religious freedom is being infringed upon. Local and state governments, including public colleges and universities, may want to consider conducting a privileged review of existing laws, rules, and policies that may run afoul of the law and also consider narrowly tailoring any new actions that may face scrutiny.
HB 127—DEI Ban
In the final week of the legislative session, the Georgia Legislature advanced but ultimately did not pass House Bill (HB) 127, which would have banned a wide range of DEI programs and initiatives in Georgia’s public schools, colleges, and universities. The legislation follows President Donald Trump’s recent executive orders to eliminate “illegal” DEI programs and initiatives.
The bill would have prohibited all public schools and state colleges and universities from “promot[ing], support[ing], or maintain[ing] any programs or activities that advocate for diversity, equity, and inclusion.” Such prohibited programs under the bill would include efforts to promote:
“different treatment of, or provide special benefits to, individuals on the basis” of protected classes or characteristics;
“policies and procedures designed or implemented with reference” to protected classes or characteristics;
“training, programming, recruitment, retention, or activities” that provide “preferential treatment of any race, color, sex, ethnicity, national origin, gender identity, or sexual orientation over another”; and
“training, programming, or activities designed or implemented with reference to race, color, ethnicity, gender identity, or sexual orientation.”
Specifically, state colleges and universities would be prohibited from taking official positions on any “widely contested opinion referencing” a range of topics or principles around race and gender, including “unconscious or implicit bias,” “cultural appropriation,” “allyship,” “gender ideology or theory,” “microaggressions,” “group marginalization,” “Antiracism,” “systemic oppression,” “social justice,” “intersectionality,” “neopronouns,” “heteronormativity,” “disparate impact,” and racial or sexual privilege.
State schools and colleges that violated the bill could have been stripped of state funding or state-administered federal funding. However, the bill would not have applied to interscholastic and intercollegiate athletics programs or “to the design, designation, or use of a multiple occupancy restroom or changing area.”
Although the bill ultimately failed to pass, higher education institutions, as well as K-12 schools, may want to consider conducting a privileged review of all diversity, equity, and inclusion programs, given that the bill may be revived during a subsequent session. Further, the Trump administration has issued similar guidance to all schools that receive federal funding. Thus, many Georgia schools are already under scrutiny for diversity, equity, and inclusion programs and likely will remain so for the immediate future.
McDermott+ Check-Up: April 11, 2025
THIS WEEK’S DOSE
House Passes Concurrent Budget Resolution for Reconciliation Process. Passage of the resolution didn’t resolve the policy differences between the House and the Senate. Those still need to be addressed as the reconciliation package is developed.
House Ways and Means Health Subcommittee Discusses Lowering Costs of Biosimilars. Witnesses included physicians and biosimilar manufacturers, and members discussed their views on the biosimilar market.
House Oversight Committee Examines FDA Reform. Democrats criticized the Trump administration’s restructuring of the US Food and Drug Administration (FDA), while Republicans pushed for further FDA reform.
CMS Releases Two MA Final Rules. The regulations increase plan payments for 2026 but omit several significant proposals.
Trump Administration Takes Further Deregulation Actions. The administration directed federal agencies to repeal, without notice and comment, regulations that do not comply with Loper Bright, and sought public comment on which regulations to repeal.
CMS Notifies States of Intent to Deny Future Funding of DSHPs and DSIPs. The Centers for Medicare & Medicaid Services (CMS) believes providing federal funding for designated state health programs (DSHP) and designated state investment programs (DSIP) is not in line with the mission of Medicaid.
Federal Judge Strikes Down Biden-Era Nursing Home Staffing Rule. The ruling could impact ongoing reconciliation discussions as Republicans look for policies that would save money.
Supreme Court, Fourth Circuit Rule on Firing of Probationary Workers. Both rulings held that the plaintiffs lacked legal standing to bring the cases.
CONGRESS
House Passes Concurrent Budget Resolution for Reconciliation Process. Over the weekend, the Senate passed the concurrent budget resolution by a 51 – 48 vote, with Sens. Paul (R-KY) and Collins (R-ME) joining Democrats in voting no. The resolution includes differing instructions for House and Senate committees, requiring the committees to continue debating spending and savings levels. Democrats introduced 800 amendments, including a bipartisan amendment from Sens. Wyden (D-OR) and Hawley (R-MO) to strike instructions for the House Energy and Commerce Committee to find at least $880 billion in savings, likely to come from Medicaid. The amendment failed, but Sens. Collins, Hawley, and Murkowski (R-AK) voted with Democrats in support.
House Republican leadership’s plan to pass the resolution before leaving for the two-week Easter recess was complicated by opposition from multiple members of the party, including House Budget Committee Chairman Arrington (R-TX). Those members were opposed to separate spending cut instructions for the House and Senate, as they wanted to stick with the House’s version of a budget resolution, which called for at least $1.5 trillion in federal spending cuts. Leadership repeatedly postponed a Rules Committee meeting to discuss the resolution, and President Trump met with House Republicans to urge them to support the concurrent resolution. Ultimately, a vote on the concurrent resolution was brought to the House floor Wednesday night but was cancelled amid strong opposition.
Senate Majority Leader Thune (R-SD) stated on Thursday that the Senate is “aligned with the House . . . in terms of savings,” noting that some senators believe the $1.5 trillion threshold is a minimum and that the Senate will “do everything we can to be as aggressive as possible to see that we are serious about the matter.” While this still leaves wiggle room as reconciliation continues, the House passed the resolution by a 216 – 214 vote. Reps. Spartz (R-IN) and Massie (R-KY) were the only Republicans to oppose it. As the vote was happening, Senate Democrats issued a letter to the public criticizing the budget resolution, arguing that it would provide a tax cut for the wealthy while cutting Medicaid. In related news, the Congressional Budget Office (CBO), in response to a request from Sen. Merkley (D-OR), released a report showing that if the Trump-era tax cuts were made permanent, the federal deficit would increase by $6 trillion over the next 10 years.
House Ways and Means Health Subcommittee Discusses Lowering Costs of Biosimilars. During the hearing, Democrats continued to express their concerns about National Institutes of Health grant reductions and the US Department of Health and Human Services (HHS) reorganization and reductions in force. Democrats were concerned about the implications of these actions for biosimilar market research and approvals. Republicans discussed disincentives and barriers to the development of new life-saving drugs, as well as issues with the current reimbursement system in Medicare and the role of pharmacy benefit managers (PBMs) in the biosimilar market. Witnesses included physicians and biosimilar manufacturers who discussed the importance of biosimilars and threats to a healthy biosimilar market, including actions from insurance companies and PBMs, cuts to federal research grants, and federal regulations.
House Oversight Committee Examines FDA Reform. Republicans in the hearing expressed the need for FDA reform, while Democrats criticized the Trump administration’s current efforts to restructure the agency. Members from both parties emphasized that relying on foreign countries for drug manufacturing poses dangers to the domestic supply chain. Witnesses provided suggestions for how to improve FDA product review and regulation of products such as hemp, e-cigarettes, and anti-obesity medications.
ADMINISTRATION
CMS Releases Two MA Final Rules. CMS released the Medicare Advantage (MA) and Part D contract year 2026 policy and technical changes final rule late on April 4, 2024. The Biden administration had issued the proposed rule in November 2024. CMS did not finalize proposals from the Biden administration to expand coverage of anti-obesity medications in Medicare and Medicaid, modify health equity policies, or increase guardrails on artificial intelligence. CMS noted that it may consider future rulemaking on these issues. Read the fact sheet here.
On April 7, 2024, CMS released the 2026 MA capitation rates and Part C and D payment policies, known as the final rate announcement. Released on an annual basis, the rate announcement is used to calculate MA plan payments and includes other payment policies that impact Part D. CMS projects that the payment policies and updates in the final rate announcement will result in a net 5.06% increase in payments to MA plans in 2026. This percentage is an increase from the advance notice, which proposed a 2.23% increase. After accounting for expected trends in coding, CMS projects a net payment increase of 7.16%. This projection is an average across the industry and will vary for each plan. Read the press release here and the fact sheet here.
Trump Administration Takes Further Deregulation Actions. The Office of Management and Budget (OMB) issued a Deregulation Request for Information (RFI) asking for suggestions for rules and regulations that can be rescinded that are unnecessary, unlawful, or unduly burdensome, along with reasons to support the rescission. OMB particularly seeks information on regulations that are inconsistent with statute, unconstitutional, or have costs that exceed benefits. Comments are due May 11, 2025. This follows the January 2025 executive order (EO) “Unleashing Prosperity Through Deregulation,” which states that the Trump administration will repeal 10 regulations for every new regulation issued.
President Trump also sent a memo to federal agencies in follow-up to the February 2025 EO “Ensuring Lawful Governance and Implementing the President’s Deregulatory Initiative,” which directed agencies to identify unlawful and potentially unlawful regulations and begin efforts to repeal them by mid-April. The memo directs federal agencies to prioritize repeal of regulations that do not comply with various US Supreme Court decisions, including Loper Bright. The memo directs agencies to take such actions without notice and comment where doing so is in line with the “good cause” exception of the Administrative Procedure Act. That means that rules could begin being rescinded without any public input as soon as April 19, 2025.
On April 9, 2025, President Trump issued a new EO, “Reducing Anti-Competitive Regulatory Barriers,” which directs agencies to identify regulations that create monopolies, impose unnecessary barriers to market entry, or limit competition, and to recommend recission or modification. The EO also directs the Federal Trade Commission to issue an RFI within 10 days seeking public input on anticompetitive regulations, and to create within 90 days a list of anticompetitive regulations to be rescinded or modified.
CMS Notifies States of Intent to Deny Future Funding of DSHPs and DSIPs. In a State Medicaid Director Letter, CMS notes it will not approve new requests or extend existing requests for federal matching funds for Section 1115 waivers that authorize DSHPs and DSIPs. The letter notes that CMS takes issue with federal matching funds being provided to support DSHP and DSIP which have not necessarily been tied directly to services provided to Medicaid beneficiaries, unlike traditional Medicaid matching funds. Specific examples cited include funding housekeeping for individuals not eligible for Medicaid and internet for rural providers. CMS notes it will conduct direct outreach to states with existing DSHP and DSIP authority to emphasize that it will not be extended beyond the currently approved period. Read the press release here.
COURTS
Federal Judge Strikes Down Biden-Era Nursing Home Staffing Rule. A US District Court for the Northern District of Texas judge ruled that the Biden administration’s CMS exceeded its authority when issuing the regulation, citing the Supreme Court’s Loper Bright decision. The final rule in question required nursing homes to have a registered nurse onsite 24 hours a day, seven days a week, and to implement a nurse staffing standard so that each resident received 3.48 hours of nursing care per day. Plaintiffs argued that the staffing mandate would close nursing homes because they face workforce shortages. Repealing the regulation through congressional action would save an estimated $22 billion, and House Republicans have considered it as a cost-saver in the budget reconciliation process. It is unclear if the Trump administration will appeal the court’s decision and how it might impact Congress’ ability to capture those savings for reconciliation.
Supreme Court, Fourth Circuit Rule on Firing of Probationary Workers. The Supreme Court’s ruled, in a case brought by multiple nonprofits, that the nonprofits lacked legal standing to sue over the firing of probationary employees at the US Departments of Defense, Treasury, Energy, Interior, Agriculture, and Veterans Affairs. In a separate case, the US Court of Appeals for the Fourth Circuit ruled that the plaintiff states lacked legal standing to sue against firings at 18 federal agencies, including HHS. The Fourth Circuit’s decision overrules a lower court’s decision this month that the agencies must reinstate fired probationary employees in plaintiff states.
QUICK HITS
HHS Secretary Kennedy Visits Southwestern States in MAHA Tour. The Make America Healthy Again (MAHA) tour made stops in Utah, Arizona, and New Mexico, where Secretary Kennedy met with state, tribal, and local leaders about their initiatives to improve nutrition and food supply, reform the Supplemental Nutrition Assistance Program, and ban fluoride in drinking water.
Trump Pauses Tariffs, Signals Potential Pharmaceutical Tariffs. President Trump announced a 90-day pause on his administration’s reciprocal tariffs for all countries, except China, which will now be subject to a 145% tariff. Although pharmaceuticals were exempt from the original tariff policy, President Trump indicated that they may soon be subject to a separate tariff. Twenty-six Democratic representatives sent a letter to the administration expressing concern about the impact of tariffs on the medical supply chain.
HHS Secretary Kennedy Publishes Op-Ed Defending HHS Reforms. In the New York Post opinion article, he discusses the Trump administration’s goal of addressing chronic diseases and outlines the HHS restructuring announced in March.
CMS Administrator Oz Publishes Vision for the Agency. The vision notes CMS will implement President Trump’s EO on healthcare transparency, reduce unnecessary paperwork for providers, eliminate fraud, waste, and abuse, and focus on chronic disease prevention and management.
MedPAC Holds Final Meeting of 2024 – 2025 Cycle. The Medicare Payment Advisory Commission (MedPAC) meeting included a vote on a draft recommendation to reform and improve the physician fee schedule. Additional sessions focused on Part D plans, MA supplemental benefits, rural hospitals, software technologies, hospice services, and nursing home quality.
MACPAC Holds Final Meeting of 2024 – 2025 Cycle. The Medicaid and CHIP Payment and Access Commission (MACPAC) meeting included a vote on recommendations for the June 2025 report to Congress, along with sessions focused on home- and community-based services, substance use disorder and mental health, artificial intelligence in prior authorization, Medicare-Medicaid plans, and children’s healthcare.
GAO Releases Report on Drug Shortages. The US Government Accountability Office (GAO) report describes trends in drug shortages since the COVID-19 pandemic and includes two recommendations for HHS to improve its coordination of drug shortage activities across agencies.
Senate Homeland Security and Governmental Affairs Committee Advances OPM Director Nomination. Scott Kupor’s nomination for director of the Office of Personnel Management (OPM) advanced to the full Senate floor by a party-line vote of 7 – 4.
House Energy and Commerce Democrats Send Letter on HHS Hire. Ranking Member Pallone (D-NJ), Health Subcommittee Ranking Member DeGette (D-CO), and Oversight and Investigations Subcommittee Ranking Member Clarke (D-NY) posed seven questions to HHS and expressed concern about the hiring of David Geier to lead a study on the link between vaccines and autism.
NEXT WEEK’S DIAGNOSIS
The first series of proposed Medicare payment regulations are expected soon, including the Inpatient Prospective Payment System proposed rule. Both chambers have left town for the annual Easter and Passover recess and are scheduled to return on April 28, 2025. The M+ Check-Up will be on hiatus next week and will return April 25, 2025, to recap the two-week recess.
Maine Board Approves Motion to Adopt Rule on PFAS in Products; CUU Proposals for Products Prohibited as of January 1, 2026, Are Due June 1, 2025
As reported in our April 1, 2025, blog item, the Maine Board of Environmental Protection (MBEP) was scheduled to consider the Maine Department of Environmental Protection’s (MDEP) December 2024 proposed rule regarding products containing per- and polyfluoroalkyl substances (PFAS) during its April 7, 2025, meeting. As reported in our December 31, 2024, memorandum, on December 20, 2024, MDEP published a proposed rule that would establish criteria for currently unavoidable uses (CUU) of intentionally added PFAS in products and implement sales prohibitions and notification requirements for products containing intentionally added PFAS but determined to be a CUU. During the April 7, 2025, meeting, MBEP unanimously approved a motion to adopt the Chapter 90 rule, the Chapter 90 basis statement, and MDEP’s response to comments “as presented and with correction of minor typographical errors, and the addition of ‘Maine Department of Transportation’ at section 4(A)(8),” according to MBEP’s draft meeting minutes. Two MBEP members were absent.
Under the approved rule, CUU requests for products scheduled to be prohibited January 1, 2026, are due June 1, 2025. The products containing intentionally added PFAS that are scheduled to be prohibited include:
Cleaning products;
Cookware;
Cosmetics;
Dental floss;
Juvenile products;
Menstruation products;
Textile articles. The prohibition does not include:
Outdoor apparel for severe wet conditions; or
A textile article that is included in or a component part of a watercraft, aircraft or motor vehicle, including an off-highway vehicle;
Ski wax; or
Upholstered furniture.
The January 1, 2026, prohibition applies to any of the products listed that do not contain intentionally added PFAS but that are sold, offered for sale, or distributed for sale in a fluorinated container or container that otherwise contains intentionally added PFAS.
Proposals for CUU determinations may be submitted by manufacturers individually or collectively. Under the rule, a separate proposal must be submitted for each individual combination of product category and the associated industrial sector. Proposals must include details of any sales prohibition to which the product is subject because of the intentionally added PFAS. As of January 1, 2025, Minnesota prohibited intentionally added PFAS in an almost identical list of products, with the exception of textile articles (Minnesota has banned textile furnishings containing intentionally added PFAS). A CUU proposal in Maine is still possible, but submitters will need to explain how products available in compliance with Minnesota’s prohibition are not reasonably available alternatives in Maine.
Deportation Ruling Highlights a Potential Separation-of-Powers Clash – SCOTUS Today
Late in the day on April 10, the U.S. Supreme Court issued a unanimous opinion relating to an order in the case of Noem v. Abrego Garcia.
This order is noteworthy for several reasons. First, this is yet another of what has become a series of emergency-motion cases resolved without full briefing or oral argument on the so-called “shadow docket.” Second, contrary to what some have argued about that docket in the past, there is nothing that isn’t fully transparent about this opinion rendered on behalf of all the Justices. Third, and most importantly, yesterday’s opinion, while brief, might be a significant chapter in what very well may prove a classic separation-of-powers clash between the increasingly unorthodox executive branch and the Supreme Court.
The much-in-the-news Kilmar Armando Abrego Garcia was removed by the United States to El Salvador, where he is currently detained. The government now acknowledges that he had been subject to a withholding order forbidding his removal to El Salvador and that his removal was thus illegal. The government alleges the removal was caused by an “administrative error” but nevertheless argues that he was a member of a gang that had been designated as a foreign terrorist organization. Abrego Garcia denies this, and there is no record of his having engaged in any illegal activities.
The U.S. District Court for the District of Maryland had entered an order directing the government to “facilitate and effectuate the return of [Abrego Garcia] to the United States by no later than 11:59 PM on Monday, April 7.” That order had been stayed by the Chief Justice, and now the issue of the deadline had become irrelevant. However, in its latest opinion, the Supreme Court says that
[t]he rest of the District Court’s order remains in effect but requires clarification on remand. The order properly requires the Government to “facilitate” Abrego Garcia’s release from custody in El Salvador and to ensure that his case is handled as it would have been had he not been improperly sent to El Salvador. The intended scope of the term “effectuate” in the District Court’s order is, however, unclear, and may exceed the District Court’s authority. The District Court should clarify its directive, with due regard for the deference owed to the Executive Branch in the conduct of foreign affairs.
The question, therefore, has become, what must the government do to satisfy the Supreme Court’s mandate concerning the requirement to “facilitate” and “effectuate” Abrego Garcia’s release and, more pointedly, what can the Supreme Court do if the government is less than energetic in satisfying these obligations? Indeed, the point of a concurrence by Justice Sotomayor, joined by Justices Kagan and Jackson, is that the government already has been less than diligent and forthright in the matter so far.
As the Court (likely per the Chief Justice) notes, while the term “facilitate” might be more easily described, “effectuate” is more elusive, and efforts in that regard might conflict with the executive branch’s foreign affairs power. That is what defines the next stage in what might become a separation-of-powers battle. That stage will begin with the district court doing what the Supreme Court has required. But will the government otherwise comply with the facilitation requirement and any further obligation imposed upon it, or will it claim that it is ultimately unable to convince another sovereign to act and that any order of the Court requiring it to deliver exceeds the constitutional authority of the judiciary? That is still to be determined. We’ll keep you posted.
Federal Court to Block Termination of Humanitarian Parole for Citizens of Cuba, Haiti, Nicaragua, Venezuela
On Apr. 10, 2025, U.S. District Court Judge Indira Talwani stated her intention to block DHS’s Mar. 25, 2025, decision to terminate Humanitarian Parole for individuals from Cuba, Haiti, Nicaragua, and Venezuela, also known as the CHNV program. The program allows approximately 450,000 people to live and work legally in the United States. It is set to expire on Apr. 24, 2025.
During an Apr. 10, 2025, hearing in a case brought by parolees and their U.S. sponsors to stay termination of the CHNV program, Judge Talwani said, “I am going to issue an order staying the revocation of parole under the Federal Register Notice and of people’s individual parole.” The judge stated that she is unlikely to block the Trump Administration from canceling the program going forward.
Judge Talwani called DHS’s decision to terminate the CHNV program a “Hobson’s choice” where “your parole gets ended, and you either go back to the country you fled … or they stay here in illegal status, at which point they lose all opportunity to adjust their status legally.”
Judge Talwani continued, “I don’t understand the reason … to say ‘No, that’s not enough for people who have been following the law, but instead we want to make them illegal now. We want to make them flee the country.’”
Although the judge is considering certifying the case as a class action, saying “there’s a sufficient basis” to certify a class of immigrants from Cuba, Haiti, Nicaragua, and Venezuela, she declined to issue an order requiring DHS to notify parolees of the ruling. On that, she stated, “I am trying to stay in my lane and address the problem that’s been created here. I don’t want to throw out the baby with the bathwater because I’m awarding more than I have jurisdiction to do.”
Department of Justice attorney Brian Ward argued that DHS Secretary Kristi Noem has discretion to cancel the CHNV program at any time. Plaintiffs’ attorney Justin Cox contends that DHS’s rationale to ending the CHNV program (to subject former parolees to expedited removal to enable DHS to deport them without a hearing before an immigration judge) is a clear example of legal error and grounds to block termination of the CHNV program.
A Policy Guide for Transitioning Founder-Owned Law Firms
The purpose of this document is to provide a detailed listing and description of supporting policies needed when transitioning a founder-owned law firm. This guide aims to facilitate a smooth and orderly transition by outlining clear policies, actionable steps, and real-life examples. The scope of this document includes associate progression, origination sharing, equity transfer, lease and debt guarantees, post-retirement compensation, and contingency planning.
Associate and Income Partner Progression
When developing progression criteria for associate lawyers, it is crucial to consider what is at stake. Partnership admission criteria are critical long-term factors for talented young professionals deciding whether to invest in the firm’s success or seek opportunities elsewhere.
Action Steps:
Establish clear and detailed criteria for associate progression based on performance, client acquisition, and contribution to firm initiatives.
Create a partnership admission process that includes periodic evaluations, mentorship programs, and feedback mechanisms.
Communicate advancement opportunities and criteria transparently to all associates and potential lateral hires.
Incorporate regular training and professional development workshops to enhance the skills and knowledge of associates.
Implement incentives for senior partners to mentor associates and income partners, fostering a culture of growth and collaboration.
Develop a succession planning framework that identifies and nurtures potential future leaders within the firm.
EXAMPLE:
A founder-owned law firm with a highly concentrated business book successfully spread the business over three successor partners. The firm is well on its way to a second generation.
Origination Sharing Policies
Most firms compensate partners based on business originations. An essential component of any transition plan is a policy for sharing originations during the transition period.
Action Steps:
Develop a clear origination sharing agreement that outlines the percentage of credit transferred over the transition period.
Determine whether the firm or the successor partner will underwrite the transitioning partner’s compensation costs.
Regularly review and adjust the origination sharing policy to ensure it meets the firm’s evolving needs.
EXAMPLE:
A law firm established a three-year transition plan where the retiring partner’s origination credit declined by one-third yearly. This policy ensured a smooth transfer of client relationships and maintained firm stability.
Orderly Transfer of Equity
Equity transfers are typically more complicated in smaller law firms. A systematic process for transferring equity is essential for an orderly transition.
Action Steps:
Establish a basis for transferring equity between partners.
Develop policies for new partner equity, lateral partner equity, and capital requirements tied to ownership.
Implement a valuation approach to firm assets to ensure fair equity reallocation.
EXAMPLE:
A small/mid-sized founder-owned law firm implemented a process that facilitated admitting junior partners over a 3-year vesting period. This approach facilitated transparent and equitable equity transfers among partners.
Removing Retiring Partners from Leases and Debt Guarantees
Debt guarantees and office leases can pose challenges during the transition period.
Action Steps:
Review and update bank guarantees and office leases to reflect changes in firm ownership.
Ensure that senior partners support junior partner guarantees when necessary.
Develop agreements among partners regarding lease obligations and debt responsibilities.
EXAMPLE:
A firm negotiated with their bank to adjust the debt guarantees based on the current equity structure and the financial ability of junior partners, ensuring that retiring partners were relieved of their obligations.
Post-Retirement Compensation
Providing retiring partners with a post-retirement option can facilitate a gradual transition.
Action Steps:
Develop policies for post-retirement compensation and separate law practice options.
Ensure agreements are in place to govern competitive behavior and client relationships post-retirement.
EXAMPLE:
A law firm allowed retiring partners to maintain a small client base while providing mentorship to junior associates. This arrangement ensured continuity and leveraged the retired partners’ expertise.
Return of Capital and Interests in Billing Assets
Retiring founders with significant fixed capital and undistributed earnings invested in the firm need clear policies for the payout of these monies.
Action Steps:
Develop a process for valuing and returning fixed capital and undistributed earnings.
Implement payment schedules for returning fixed capital and billing assets (WIP and AR) net of liabilities.
Establish agreements for splitting net proceeds from contingent cases and addressing contingent liabilities.
EXAMPLE:
A firm created a detailed payout schedule for returning fixed capital over three years and interest in the net WIP and AR over 5 years, ensuring financial stability while honoring retiring partners’ investments.
Addressing Potential Challenges
Transitions can pose various challenges, including resistance from senior partners and communication breakdowns.
Action Steps:
Foster open communication among partners to address concerns and expectations.
Develop contingency plans to manage unexpected challenges during the transition process.
Engage external consultants to provide objective insights and facilitate smooth transitions.
EXAMPLE:
A firm experiencing resistance from founding partners hired PerformLaw to mediate discussions and develop a transition plan that addressed all parties’ concerns.
Importance of Communication
Effective communication is crucial during the transition process to ensure transparency and collaboration.
Action Steps:
Regularly update all stakeholders on the progress and changes related to the transition.
Encourage open dialogue and feedback to address any issues promptly.
Utilize multiple communication channels to reach all partners and associates effectively.
EXAMPLE:
A law firm conducted quarterly meetings to discuss transition updates and gather feedback, fostering a collaborative and supportive environment.
Conclusion
These supporting policies facilitate a smooth and orderly transition for founder-owned law firms. Clear advancement criteria, equitable origination sharing, systematic equity transfers, and well-defined post-retirement compensation are essential components. Addressing potential challenges and maintaining open communication ensures a successful transition that benefits both the firm and its partners.
Summary of Benefits:
Enhanced retention and recruitment of talented associates.
Stable financial performance during the transition period.
Transparent and equitable processes for all partners.
Continued client satisfaction and firm reputation.
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Eleventh Circuit Revives Trade Secret Misappropriation Claim in Long-Running Litigation
On April 4, 2025, the Eleventh Circuit reversed the U.S. District Court for the Northern District of Alabama’s ruling dismissing Alabama Aircraft Industries’ (“AAI”) trade secret misappropriation claim against Boeing, thereby allowing AAI to pursue unjust enrichment damages in addition to amounts previously recovered on its breach of contract claim. See Alabama Aircraft Industries Inc. v. The Boeing Co., No. 20-11141.
Background
In 2005, the parties entered a “teaming arrangement” to jointly pursue a maintenance contract with the U.S. Airforce. The agreement consisted of three contracts: a master agreement, a work share agreement, and a non-disclosure agreement. In 2011, AAI filed suit against Boeing alleging misappropriation of trade secrets and breach of contract with respect to the master agreement and non-disclosure agreement. In 2013, the Northern District of Alabama dismissed AAI’s trade secrets claim as barred by the Alabama statute of limitations. But in 2020, AAI’s two remaining claims for breach of contract proceeded to trial where a jury returned a verdict in favor of AAI and awarded AAI $2.1 million in damages.
In February 2022, the Eleventh Circuit reversed and remanded the dismissal of AAI’s trade secrets claims, holding that the claim was not time-barred. On October 26, 2022, the district court dismissed AAI’s trade secrets claim on the grounds that AAI had already recovered all the damages that were available on its breach of non-disclosure agreement claim, and therefore it could not pursue a Missouri Trade Secrets Act “for the same injury arising from the same course of conduct.” AAI appealed.
Eleventh Circuit’s Holding
On April 4, 2025, the Eleventh Circuit reversed and remanded the dismissal of AAI’s trade secrets misappropriation claim, holding that the Missouri Trade Secrets Act expressly permits the remedy of unjust enrichment recovery, so long as the amount is not duplicative of the actual loss damages stemming from the misappropriation. According to the Eleventh Circuit, the unjust enrichment recovery AAI sought is distinct from the consequential damages awarded in the jury verdict (which compensated AAI for out-of-pocket expenses resulting from the breach of contract). In contrast, an unjust enrichment remedy would deprive Boeing of the gain it purportedly obtained from allegedly misappropriating AAI’s trade secrets.
Further, pointing to the parties’ master agreement, the Eleventh Circuit noted that the remedy of unjust enrichment was “conspicuously absent from the list of categorically barred damages” under the limitation of liability provision. Acknowledging that AAI and Boeing were both “sophisticated parties,” the Eleventh Circuit reasoned that if the parties “had wanted the liability limitation provision to categorically bar an unjust enrichment award, they could have added it to the list of remedies they specified were barred by the contractual provision. They didn’t.”
Implications
While trade secret misappropriation statutes typically offer a broad range of remedies, the Eleventh Circuit’s ruling suggests that sophisticated parties may potentially limit such remedies through carefully drafted agreements.
What Every Auto-Sector Company Should Know About … the New Automotive Tariffs
On April 3, 2025, President Trump issued the full details of the automotive tariffs, including the exact Harmonized Tariff Schedule (HTS) subheadings to which the automotive tariffs apply. This completed the implementation of the automotive tariffs, first announced on March 26, 2025, which established comprehensive 25% tariffs on imported automobiles (sedans, sport utility vehicles, crossover vehicles, minivans, and cargo vans) as well as light trucks. A review of the subheadings contained in the newly announced Annex to the proclamation shows that it also covers over 150 auto parts categories, including most of the parts and components used in automobile production. The Annex includes tariff codes for electrical automotive parts, engines, transmissions, power trains, lithium-ion batteries, and other major components, along with commonly imported parts such as tires, shock absorbers, and brake hoses.
These tariffs took effect on April 3, 2025 for completed automobiles; for automobile parts, the tariffs will start collection on May 3, 2025 (with a carveout for USMCA-certified parts, which will be exempt until a collection mechanism is finalized). The one-month delay is intended to give the U.S. government time to work out rules to exempt the value of automotive parts that contains U.S.-made materials, which will not be subject to the tariffs.
These new automotive tariffs are not occurring in a vacuum. Indeed, they come at the same time as the implementation of expanded 25% Section 232 duties on steel and aluminum (which are widely used in automobiles); global and reciprocal tariffs on nearly all countries worldwide of between 10% and 49% (since paused for 90-days, but still applied at 10%); additional China-specific tariffs of 145% (on top of early Section 301 tariffs of up to 25%, thus implementing tariffs starting at to 170% for China); and 25% duties on Canada and Mexico (partially suspended for USMCA-compliant goods). Although the automotive tariffs are specifically exempted from the global and reciprocal tariff measures, in all other cases the duties “stack,” adding to the cumulative financial burden on importers.
The net result is a massive increase in tariffs for automotive goods imported into the United States, which will have a major impact on the entire automotive sector, which is an industry dependent on a complex international supply chain. To help automotive companies understand the impact of these tariffs, we are presenting a summary of the current status of the tariffs, as well as Frequently Asked Questions that we are receiving from various clients.
Automotive Tariffs: What We Know So Far
As a starting point, it is important to understand how the automotive tariffs fit into the overall tariff structure that has grown up over the last two months. Here are the groupings of tariff announcements to understand the context of tariffs:
Chapter 1-97 Pre-Existing Tariffs: These are the tariffs that have existed for decades, generally in the range of 0%–7%. These tariffs continue to apply, as all tariffs “stack” on top of the normal tariffs.
Section 301 Tariffs: These tariffs were imposed just on Chinese-origin goods in the first Trump administration. About half of trade with China is exempt from these tariffs (the so-called “List 4B”); the other half of imports from China pay a tariff of between 7.5% and 25%. These tariffs lasted through the Biden administration and stack on top of the Chapter 1-97 tariffs for China alone.
Section 232 Sectoral Tariffs: The third set of tariffs are the sectoral tariffs imposed under Section 232 on specific products. These sectoral tariffs fall into three buckets:
First, there are 25% tariffs imposed on steel and aluminum, payable on products from anywhere in the world. The tariffs extend to certain identified steel and aluminum derivative products (i.e., products in identified Harmonized Tariff Schedule (HTS) subheadings that contain a lot of steel or aluminum). The only carveout here is for products that use steel and aluminum that are “melted and poured” or “smelted and cast” within the United States. For derivative products, only the value of the steel or aluminum is subject to the additional 25% tariff.
Second, there is a 25% tariff imposed on automobiles and most automotive parts. For the automotive tariffs, there currently is a pause in their implementation for parts and components that are USMCA-compliant. By May 3, 2025, the Department of Commerce will establish a system to calculate non-U.S. content, which will be subject to the 25% tariff rate for both automobiles and automotive parts.
Third, certain sectors will be subject to forthcoming sectoral tariffs. The U.S. government already has initiated investigations into copper and lumber. President Trump has indicated there is a strong likelihood that the same will occur for semiconductors and pharmaceutical products.
IEEPA 25% Canada and Mexico Tariffs: The fourth set of tariffs are the 25% tariffs imposed on Canada and Mexico relating to what President Trump characterizes as their role in not exerting sufficient efforts to halt the flow of fentanyl and unauthorized immigrants int to the United States. These tariffs are suspended for any goods that are USMCA-compliant.
IEEPA 20% China Tariffs: This fifth set of 20% tariffs is related to what President Trump characterizes as the Chinese government’s failure to halt the shipment of fentanyl precursors into the United States.
IEEPA Global and Reciprocal Tariffs: The final set is the largest set of tariffs by far, which include (1) 10% global tariffs imposed on the entire world and (2) reciprocal tariffs, which are calculated based mostly on the level of the trade deficit with each country. The calculated ranges for these tariffs go from 10% (countries subject only to the global tariffs, like Singapore and the United Kingdom), up to 49%. Due to the Trump administration’s response to China’s retaliatory tariff, the current level of these tariffs against China is 125%, which when combined with the IEEPA 20% tariffs gives China a net increase of 145%, over and above pre-existing Section 301 tariffs that were imposed in the first Trump administration.
Importantly, although the reciprocal tariffs are currently paused for 90 days, this pause does not impact the automotive tariffs, which remain in place. This new round of automotive tariffs isn’t based on fresh findings; instead, as a way to implement these tariffs quickly, the Trump administration is leaning on the Section 232 auto-sector investigation and report produced during President Trump’s first term. While that investigation concluded that automotive imports were “weakening our internal economy” and posed a threat to national security, President Trump directed the USTR to pursue trade deals to mitigate the threat rather than imposing tariffs. Now, in his second administration, President Trump is carrying through on the tariffs that he did not impose in his first administration.
Here’s how the new tariff regime is structured:
25% tariffs apply to automobiles and automotive parts listed in Annex A to the Federal Register order.
USMCA-eligible automobiles and automotive parts qualify for a reduced tariff, as the tariff only applies to non-U.S. content. Importers may submit documentation to the Commerce Department detailing the value of U.S. content, which is defined as parts that are wholly obtained, entirely produced, or substantially transformed in the United States. The 25% tariff applies only to what remains (i.e., the non-U.S. portion).
USMCA-eligible parts are not subject to the new tariffs until a method is established (by Commerce and CBP) for applying the duty to the non-U.S. content value. This mechanism must be in place by May 3, 2025. Thus, tariffs on USMCA-eligible parts are currently set to zero.
Knock-down kits and parts compilations are excluded from the tariff.
The 90-day pause will allow domestic producers and industry groups to petition the Commerce Department to include additional auto parts under the tariff regime, citing rising import levels and national security concerns. Commerce will create a process within 90 days for domestic automakers or industry groups to request that additional auto parts be brought under the tariff umbrella, where there is an argument that rising import levels pose a threat to national security.
Any autos or parts entering foreign-trade zones (FTZs) on or after April 3, 2025, must enter under privileged foreign status unless eligible as domestic status. This locks in the dutiable classification of the goods in the form in which they were imported. In effect, this means that any such products would have to pay any automotive duties even if processed into a different good in the FTZ.
Consistent with the other special tariffs imposed during the current Trump administration, no duty drawback will be available for the automotive tariffs.
Customs and Border Protection (CBP) is directed to closely monitor U.S. content claims closely. If CBP determines that an importer has overstated the U.S. content, the full 25% tariff will apply to the entire value of the vehicle or part model, retroactive to April 3, 2025, and prospectively, until the issue is resolved and verified.
The proclamation does not include any information on treatment of goods in transit, goods imported using Temporary Importation under Bond (TIB), or the impact or application of temporary duty exemptions. The Department of Commerce and/or CBP may likely issue additional implementing instructions to cover these gaps.
Although coverage of the automotive proclamation extended to automotive parts, it was not until April 2, 2025, that the critical Annex listing the automotive was released, along with CBP guidance regarding the fully assembled automobile provisions. The Annex provides three new elements to the Presidential Proclamation:
The Annex expands the list of automobiles and automobile parts that fall within the scope of the automotive tariffs.
The Annex confirms the USMCA exemption for parts until a process is finalized for applying the tariff to non-U.S. content.
The Annex confirms the Section 232 automobile and automobile parts tariffs do not stack with the global and reciprocal tariffs.
The list of automobiles covered is all inclusive, and covers automobiles falling within the following HTS subheadings:
8703.22.01
8703.23.01
8703.24.01
8703.31.01
8703.32.01
8703.33.01
8703.40.00
8703.50.00
8703.60.00
8703.70.00
8703.80.00
8703.90.01
8704.21.01
8704.31.01
8704.41.00
8704.51.00
8704.60.00
To accommodate the additional duties, new Chapter 99 subheadings have been introduced in the HTS for different classifications of vehicles and parts, including passenger vehicles and light trucks from all countries:
The HTS is expanded to include a new Chapter 99 subheading of 9903.94.01 for all entries of passenger vehicles (sedans, sport utility vehicles, crossover utility vehicles, minivans, and cargo vans) and light trucks from all countries.
A new Chapter 99 subheading of 9903.94.02 is established for all entries covered in the above codes that are not passenger vehicles or light trucks, or where the “U.S. content” of passenger cars and light trucks are exempt from tariffs eligible for preferential treatment under the USMCA. Use of this second subheading requires prior approval by the Secretary of Commerce to take advantage of the preferential tariff treatment.
A new Chapter 99 subheading of 9903.94.03 applies 25% tariffs to the non-U.S. content for USMCA-certified passenger vehicles and light trucks.
A new duty-free Chapter 99 subheading of 9903.94.04 is created for exempt passenger vehicles and light trucks manufactured “at least 25 years prior to the year of the date of entry from the tariffs.”
The list of automotive parts and components also is very broad, basically covering nearly all automotive parts and components, covering HTS subheadings under Chapters 40, 70, 73, 83, 84, 85, 87, 90 and 94. Entries subject to these automotive tariffs are to be filed under new Chapter 99 subheading 9903.94.05. Importers should use subheading 9903.94.06 for all entries of articles classifiable under these HTSUS subheadings that (i) are eligible for special tariff treatment under the USMCA (other than automobile knock-down kits or parts compilations) or (ii) are not parts of passenger vehicles and light trucks. While USMCA-certified passenger vehicles and light trucks remain in the scope of the new automotive tariffs for non-U.S. content, USMCA-certified automobile parts receive a full exemption from the scope of the tariffs. The full list of HTS subheadings is found in the published Annex.
It can be difficult to parse how the various tariffs work together, as well as when they take effect. To aid importers in understanding these two issues, a summary of the operation of the tariffs is as follows. In each case, the “total duty amount” assumes that the normal Chapter 1-97 tariffs (i.e., tariffs existing before President Trump took office) are at the 2.5% standard duty rate.
Automotive Tariff Summary
Source
Part Status
Automotive Tariff
Implementation
Total Duty Amount
Canada / Mexico
USMCA Compliant
In Annex
+25%, but reduced by U.S. content
Temporarily duty-free until Commerce establishes U.S.-origin process
0% today; will become 25%, but only on non-US-origin content value
Not in Annex
No change
No change
0%
Non-USMCA Compliant
In Annex
+25% tariff
Mary 3, 2025
52.5% (as written) (27.5% previously)
Not in Annex
No change
No change
27.5%
China
In Annex
+ 25% tariff
May 3, 2025
72.5% (as written) (47.5% previously)
Not in Annex
No change
No change
81.5% (47.5% previously)
Korea
In Annex
+ 25% tariff
May 3, 2025
25% (2.5% previously)
Not in Annex
No change
No change
2.5% + reciprocal tariff rate
Rest of World
In Annex
+ 25% tariff
No change
27.5% (2.5% previously)
Not in Annex
No change
No change
2.5% + reciprocal tariff rate
Automotive Tariffs: Open Questions
The one thing that is clear is the automotive tariffs are not impacted by the 90-day pause; they are moving ahead along the schedule announced in the original automotive tariff proclamation. Beyond that, just as is true with the other new tariffs, the automotive tariffs leave a lot of open questions, including the following:
The auto parts tariffs begin on May 3, 2025, but USMCA-compliant parts are exempt until the Secretary of Commerce, in consultation with CBP, establishes a process to apply tariffs to non-U.S. content. Will the calculation of the U.S.-origin content for partial tariff relief use the USMCA rules of origin or establish a new set of calculations?
What type of documentation will importers need to provide to support the U.S.-origin calculation? Will it involve a certification process like the USMCA regional content calculations?
How is the U.S.-origin content to be calculated when goods cross the border multiple times?
The Federal Register notices states companies or importers will need to submit documentation directly to the Secretary of Commerce that identifies the amount of U.S. content in each vehicle for approval. How will this process work? How quickly will that review take given the large number of applications that are likely to flood in from automotive companies?
The Annex covers automotive computers that fall under the four-digit heading associated with general computer products such as laptop computers. How will this tariff be implemented for automotive computers, when there is no separate code for “automotive” computers?
The proclamation directs the Commerce Department to establish a process within 90 days for domestic producers to request that other parts imported be targeted. How will this process work?
Will importers have to apply both the substantial transformation test and the USMCA rules to demonstrate compliance? That dual-track approach of applying both rules regarding imports from Canada and Mexico already has arisen for Section 301 duties, as importers have had to apply USMCA rules for Chapter 1-97 tariffs and marking requirements, while applying substantial transformation rules to determine the country of origin for purposes of Section 301 tariffs. A similar outcome could occur here.
Will negotiations by other countries impact the scope of the automotive tariffs? How will such changes be reflected in the automotive tariffs?
What will happen at the end of the 90-day reciprocal tariff pause?
Customs has been issuing new Cargo System Message Service messages to give updates to the importing community regarding how to handle import-related issues flowing out of the new tariffs. We expect the same to happen with the new automotive tariffs. We will continue to update our tariff FAQs to provide timely answers as new information becomes available.