President Trump Announces “Reciprocal” Tariffs Beginning 5 April 2025
On 2 April 2025, President Trump announced a series of “reciprocal” tariffs on US imports from all countries. The tariffs apply at different rates by country, starting at a baseline of 10% and reaching as high as 50%.
The tariffs, which are being implemented under the authority of the International Emergency Economic Powers Act (IEEPA), will go into effect at a rate of 10% on 12:01 am ET on 5 April 2025. For some countries (see the complete list at the end of this alert), the 10% tariff baseline will increase to a higher per-country rate effective 12:01 am ET on 9 April 2025.
The latest tariffs are intended to address the customs duties and related VAT and non-tariff barriers imposed by each covered trading partner on US exports, as summarized in the National Trade Estimate Report issued by the Office of the US Trade Representative on 31 March 2025.
The reciprocal tariffs announced on 2 April 2025 will not apply to:
Certain news publications and other similar media;
Goods that are already subject to c Section 232 tariffs on steel, aluminum, and autos/auto parts;
Certain metals and minerals, pharmaceuticals, semiconductors, lumber, electronics, energy, and other products identified in Annex II to the president’s Executive Order;
Imports from countries such as North Korea and Cuba subject to “Column 2” customs duty rates; and
Any goods that later become subject to tariffs pursuant to future Section 232 trade actions.
Additionally, for goods that incorporate US content, the reciprocal tariffs will apply only to the non-US content – provided at least 20% of the value of the good is US content (defined as produced or substantially transformed in the United States). Thus, for example, a good that incorporates 15% US content will be dutiable at its entire value, whereas a good incorporating 25% US content will be dutiable at 75% of its value.
Goods from Canada and Mexico that qualify for tariff-free treatment under USMCA will not face additional tariffs. Any goods from Canada or Mexico that do not qualify for USMCA will continue to be subject to the tariffs of 10% (for certain energy and mineral products) or 25% (all other products) that were announced in February 2025. In the event the President decides to terminate these 10-25% tariffs, goods from Canada or Mexico that do not qualify for USMCA treatment will be subject to a 12% reciprocal tariff.
In addition to the latest reciprocal tariffs, goods from China and Hong Kong will continue to be subject to the 20% tariffs implemented in February and March pursuant to the President’s IEEPA authority as well as (for most products from China) existing Section 301 tariffs of 25%. Further, starting 2 May 2025 at 12:01 a.m. ET, US tariffs will apply to products from China and Hong Kong that are imported through the Section 321 “de minimis” exception for low value shipments to a single US recipient on a single day.
According to President Trump, the United States will consider removing the latest reciprocal tariffs if US trading partners lower their tariff rates on US exports and take other steps to open their markets to US products. Countries that retaliate against the latest US tariffs may face even higher tariff rates.
Companies importing goods from the covered countries should carefully evaluate the list of covered imports and consider appropriate measures to determine their tariff exposure and potentially mitigate risks arising from the tariffs.
Countries Subject to “Reciprocal” Tariffs Higher than 10% (Effective 9 April 2025)
Countries and Territories
Reciprocal Tariff Rate
Algeria
30%
Angola
32%
Bangladesh
37%
Bosnia and Herzegovina
36%
Botswana
38%
Brunei
24%
Cambodia
49%
Cameroon
12%
Chad
13%
China
34%
Côte d`Ivoire
21%
Democratic Republic of the Congo
11%
Equatorial Guinea
13%
European Union
20%
Falkland Islands
42%
Fiji
32%
Guyana
38%
India
27%
Indonesia
32%
Iraq
39%
Israel
17%
Japan
24%
Jordan
20%
Kazakhstan
27%
Laos
48%
Lesotho
50%
Libya
31%
Liechtenstein
37%
Madagascar
47%
Malawi
18%
Malaysia
24%
Mauritius
40%
Moldova
31%
Mozambique
16%
Myanmar (Burma)
45%
Namibia
21%
Nauru
30%
Nicaragua
19%
Nigeria
14%
North Macedonia
33%
Norway
16%
Pakistan
30%
Philippines
18%
Serbia
38%
South Africa
31%
South Korea
26%
Sri Lanka
44%
Switzerland
32%
Syria
41%
Taiwan
32%
Thailand
37%
Tunisia
28%
Vanuatu
23%
Venezuela
15%
Vietnam
46%
Zambia
17%
Zimbabwe
18%
Karla M. Cure, Myeong S. Park, Ted Saint, and Brian J. Hopkins also contributed to this article.
GLP-1 Receptor Agonists: Drug Litigation Overview and Trends
The recent uptick and rise in popularity of GLP-1 drugs for addressing weight loss and obesity has led to an increase in U.S. litigation involving this class of drugs. Over the past few years, litigation has focused on a wide range of issues including patent and other IP disputes, product liability, regulatory challenges, importation concerns, and legal issues concerning the availability of compounded versions of GLP-1 drugs in view of the U.S. Food & Drug Administration (FDA)-declared drug shortages.
Compounded Drugs and FDA-Declared Drug Shortages
Due to the increased popularity of GLP-1 drugs for treatment of diabetes and for weight management, many of the FDA-approved drugs have experienced drug shortages over the past few years. In contrast to the FDA-approved GLP-1 drugs, compounded drugs are typically created by licensed pharmacists for individual patient needs and are not subject to the same rigorous FDA review process for safety and efficacy. Entities may only sell compounded drugs that are identical to an FDA-approved drug when that drug is on the FDA drug shortage list. Although compounded drugs may be legally sold during a declared drug shortage, the compounded drugs must still comply with certain other legal and regulatory requirements directed to quality and safety issues.
Finding an inability of brand name GLP-1 manufacturers to keep up with patient demand for approved GLP-1 drugs, the FDA temporarily placed many of the approved GLP-1 drugs on the FDA shortage list, leading to an increase in the availability and sale of compounded drugs containing the active ingredient. This in turn led to significant litigation between brand name GLP-1 manufacturers and groups representing entities selling compounded drugs.
For example, brand name GLP-1 manufacturers have filed numerous lawsuits against entities manufacturing and selling compounded versions of their drugs, alleging a wide range of claims including failure to comply with regulatory requirements, trademark infringement, violation of consumer protection laws, and various allegations directed to mispresenting and deceiving patients as to the regulatory status of the compounded versions.
As brand name manufacturing capacity has increased to meet patient demand, the FDA has removed some of the GLP-1 drugs from the drug shortage list, leading to lawsuits filed by the compounding pharmacies against FDA. For example, FDA removed tirzepatide from the drug shortage list in October 2024. In response, Outsourcing Facilities Association filed a lawsuit against FDA in the Northern District of Texas on behalf of its members, challenging FDA’s decision to remove the drug from the drug shortage list as arbitrary and capricious. The matter was remanded back to FDA for reconsideration, and FDA issued a decision in December 2024 confirming the drug shortage was resolved. Most recently, in March 2025, the district court denied the plaintiff’s motion for a preliminary injunction, finding FDA’s decision to remove tirzepatide from the drug shortage list was proper. That case is now on appeal.
A similar round of lawsuits was filed in 2025 following FDA’s decision to remove semaglutide products from the drug shortage list.
Given the ongoing popularity and high demand for GLP-1 drugs in the U.S., we expect both sides to continue litigating over these issues.
Patent Litigation
To date, patent infringement lawsuits have largely followed the framework under the Hatch-Waxman Act applicable to generic drug manufacturers who seek FDA approval to market generic versions of approved drugs (“reference listed drugs”) by filing Abbreviated New Drug Applications (ANDAs). The ability to even file an ANDA is subject to applicable FDA exclusivity periods. One of the relevant exclusivity periods applies to New Drug Applications (NDA) for approved products containing new chemical entities (NCEs), whereby an ANDA with a paragraph IV certification may not be submitted until four years after the NDA was approved (i.e., the NCE-1 date). Another relevant exclusivity period applies when a previously approved drug is approved for a new patient population based on new clinical studies–any ANDAs directed to that new patient population (NPP) may not be approved for a period of three years.
Because the filing and/or approval of ANDAs is tied to the FDA exclusivity periods granted to the reference listed GLP-1 drugs, the timing of related patent infringement lawsuits brought under the Hatch-Waxman Act varies as well.
For example, liraglutide was first approved in 2010 as Victoza® for treatment of diabetes and later approved in 2014 as Saxenda® for weight loss. All relevant FDA exclusivity periods for liraglutide have expired, with patent litigation against potential generic competitors starting in 2017. FDA approved the first generic drug containing liraglutide in December 2024.
As another example, semaglutide was first approved in 2017 as Ozempic® for treatment of diabetes and later approved in 2021 as Wegovy® for weight management and weight loss. The NCE period for semaglutide has expired permitting the filing of ANDAs, although the three-year NPP exclusivity is still active for Wegovy® through December 2025. Patent litigation has been initiated against at least nine generic competitors, with settlements reported in connection with the first wave of lawsuits filed in 2022. New lawsuits were filed in 2024 against additional generic competitors, which remain ongoing. FDA has not yet approved any generic versions of semaglutide, and it is unclear when any such approved generic drugs may be permitted to enter the U.S. market.
The newest GLP-1 drug, tirzepatide, was first approved in 2022 as Mounjaro® for treatment of diabetes and later approved in 2024 as Zepbound® for obesity. The NCE period for tirzepatide runs through May 13, 2027, which means generic companies may not file an ANDA seeking approval for a generic version of Mounjaro® or Zepbound® until May 13, 2026, with patent infringement lawsuits expected to occur in the following months.
Two additional areas that may be ripe for future patent-related litigation challenges involving GLP-1 drugs include patent infringement claims brought against compounding pharmacies and claims challenging whether patents are properly listed in the Orange Book for certain GLP-1 drugs.
To date, name brand manufacturers of FDA-approved GLP-1 drugs have not appeared to target compounding pharmacies with patent infringement lawsuits, choosing instead to litigate other claims against these entities, as discussed in more detail above. As those litigations wrap up, it is possible that we could see additional patent infringement claims brought against entities making and selling compounded versions of the drugs.
Starting in fall of 2023, the Federal Trade Commission (FTC) announced a new policy expressing concerns over the potential anticompetitive effect of patents that may have been improperly listed in the Orange Book. The FTC followed this announcement with several rounds of letters to name brand manufacturers (including GLP-1 manufacturers), notifying them of FTC’s claim that certain patents were improperly or inaccurately listed. Similar challenges have been raised in U.S. courts (although directed to other drug classes), with the Federal Circuit reaching a decision in Teva Branded Pharm. Prods. R&D, Inc. v. Amneal Pharms. LLC in December 2025. In that case, Amneal filed a counterclaim seeking an order to delist certain device patents from the Orange Book. The Federal Circuit affirmed the district court’s delisting order, finding the device patents were not properly listable because they did not claim a specific active ingredient and instead were only directed to components of the device. Although there are a range of different patents listed in the Orange Book for GLP-1 drugs, it is worth monitoring ongoing FTC investigations and enforcement trends to the extent these may impact future Orange Book listing challenges raised by competitors.
International Trade Commission
Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337) grants the U.S. International Trade Commission (ITC) authority to resolve complaints filed by companies alleging unfair acts in the importation of products into the U.S. Although Section 337 cases typically involve allegations of infringement of various IP rights, including patents, trade secrets and trademarks, the ITC is also empowered to address other violations, including claims based on importation of non-approved drugs and Lanham Act claims based on false advertising and false designation of origin.
In addition to moving more quickly relative to most U.S. district court litigations, ITC cases involve several unique aspects, including a domestic industry requirement whereby the complainant asserting the violation must prove that it has established (or is in the process of establishing) a domestic industry that practices the IP right through a significant investment in various activities, including plant, equipment, labor, capital and/or a substantial investment in research and development or licensing. The remedies that may be awarded for a violation are extremely effective and can include either a limited or general exclusion order, enforced by U.S. Customs and Border Protection, which effectively bar the importation of products in violation of Section 337 from entering the U.S. Limited exclusion orders are limited to only the subject articles imported by named respondents, whereas general exclusion orders are more difficult to obtain and apply generally to all subject articles, regardless of who is responsible for importation. If proven, a general exclusion order can be extremely valuable to companies who are facing competition through importation of infringing or counterfeit articles from multiple entities where the responsible party is difficult to identify or routinely changes names/addresses.
At least one approved GLP-1 manufacturer (Eli Lilly) has filed a complaint with the ITC against various online pharmacies selling compounded drugs containing tirzepatide. Eli Lilly’s claims against the online pharmacies allege importation of unapproved drug products containing tirzepatide along with misuse of the Mounjaro® trademark and false and misleading statements regarding FDA approval and equivalency to the approval Mounjaro® product. In December 2024, the Administrative Law Judge (ALJ) at the ITC issued an Initial Determination partially granting summary determination against several of the accused pharmacies on the trademark, false designation and false advertising claims. In that decision, the ALJ also recommended the ITC issue a general exclusion order banning the importation of all products containing tirzepatide. In January 2025, the ITC issued a notice stating it was not going to review the summary determination order but sought further comments on public interest and remedy. A final decision on remedy is expected in April 2025.
Future Litigation Trends
Just as the U.S. market has adapted to the increase in sales of approved GLP-1 drugs, leading to FDA-declared drug shortages and the availability of compounded versions, the litigation landscape has adjusted as well with recent decisions focusing on FDA’s decision to remove these drugs from the shortage list. Likewise, patent litigation involving GLP-1 drugs is expected to evolve as FDA exclusivity periods expire in the near future, leading to additional challenges raised by potential generic drug competitors. Given the popularity of these drugs, relevant players in the market have adapted their litigation strategies to raise new legal claims, including in additional forums with significant remedies for violation of various IP rights.
Trump Administration Efforts to Eliminate Cartels Pose Heightened Risk for Financial Institutions
As discussed in Bracewell’s February 11 and February 26 updates, the executive branch is prioritizing the “total elimination” of cartels and transnational criminal organizations, both through edicts from the Oval Office and through agency initiatives. Each action is significant on its own, but taken together, this concerted effort increases the potential criminal and civil liability of any company — but particularly financial institutions — that conducts business in Mexico and certain parts of Central and South America. Below we break down three significant pieces of this effort and provide guidance on how companies should navigate this new risk landscape.
Designation of Cartels as FTOs and SGDTs Expands Scope of Criminal and Civil Liability
Pursuant to Executive Order 14157, the US State Department designated eight international cartels and transnational organizations[1] as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SGDTs). The list includes six Mexican cartels, TdA (a cartel active in parts South America) and MS-13 (a cartel active in parts of Central America). These new designations increase the risk of criminal and civil liability for both US and foreign companies that may interact with these cartels knowingly or unknowingly, directly, through third-party vendors, or when paying certain “fees” and to conduct business in areas controlled by the cartels.
Criminal Liability. Providing any of the cartels now designated as FTOs with money, financial services, lodging, personnel or transportation may constitute the criminal offense of providing “material support” to a terrorist organization in violation of 18 U.S.C. § 2339B. Because the reach of 18 U.S.C. § 2339B is not confined to US entities or activities on US soil, these charges have been brought against foreign companies for transactions in foreign countries, including against Lafarge, a French building materials manufacturer for sharing revenue with FTOs (ISIS and ANF) in Syria, and Chiquita Banana for making payments to an FTO (the AUC) in Colombia. By increasing the number of FTOs, the new designations increase the risk of similar prosecutions directed at any company providing material support to these newly designated FTOs operating in Mexico and in parts of Central and South America. While some of these entities may previously have been subject to US sanctions, criminal liability creates an even greater threat.
Civil Liability. The Anti-Terrorism Act, 18 U.S.C. § 2333, allows US nationals injured by an act of terrorism to bring claims against companies that engage in or aid and abet an act of international terrorism by providing material support or knowingly providing substantial assistance to the FTO who perpetrated, planned or authorized the attack. The potential liability is considerable, because the statute allows the victims to “recover threefold the damages he or she sustains and the cost of the suit, including attorney’s fees.” In Linde v. Arab Bank, PLC,[2] for example, a jury found Arab Bank Plc liable for knowingly supporting militant attacks in Israel linked to Hamas — an FTO — based on the bank’s providing financial services to charities that plaintiffs allege were agents of Hamas set up to solicit and launder money to support the FTO’s operations. Before the verdict was overturned on appeal, the bank was facing at least $100 million in damages. Ultimately, Arab Bank Plc reached a settlement with the plaintiffs for an undisclosed amount.
Justice Department Expedites Cartel-Related Prosecutions
Historically, certain types of prosecutions required approvals by various stakeholders within the Department of Justice. To facilitate the “aggressive prosecution” of cartels and transnational criminal organizations (TCOs), Attorney General Pam Bondi has suspended certain approval requirements, to which she referred as “bureaucratic impediments,” that might slow down or impede prosecutors from bringing charges against cartels, TCOs or their affiliates for some terrorism charges,[3] violations of the International Emergency Economic Powers Act (IEEPA), racketeering, violations of the Foreign Corrupt Practices Act and money laundering and asset forfeiture. See Bondi Memorandum regarding Total Elimination of Cartels and Transnational Criminal Organizations (Bondi Memo).
Before this suspension, a prosecutor would need approval from either the Criminal Division or the National Security Division (NSD) before issuing warrants and filing the charges listed above. Now, prosecutors are able to proceed more easily, without the same level of oversight. The Bondi Memo does, however, encourage consultation with the NSD and requires that prosecutors provide 24 hours’ advance notice of the intention to seek charges or apply for warrants. Nevertheless, the requirement to provide NSD with 24 hours’ notice, as compared to the requirement to meet NSD’s approval requirements, will allow for more charges to be brought more quickly.[4]
In addition to increasing the number of charges brought against cartels and their members directly, these changes will likely lead to an increase in the number of charges brought against companies for various crimes, including providing “material support” to a terrorist organization in violation 18 U.S.C. § 2339B, as described above; facilitating payments related to the human smuggling or illegal drugs, which has been declared a national emergency under IEEPA; and laundering money used for activities of the cartels.
Financial institutions are particularly at risk of tripping these wires. Banks that may provide financial services, or money transfer businesses (MTBs) that facilitate payments to cartels, for example, could be the subject of the criminal prosecutions described above. Given that cartels are woven into the fabric of many industries in Mexico, Central and South America, banks may be providing these services unwittingly. To address this threat, banks must reevaluate their Customer Due Diligence and KYC policies and reassess their current customers.
OFAC Highlights Risk for Financial Institutions Related to Cartel Designations
Reinforcing the increased risk of liability to financial institutions described above, the Office of Foreign Asset Control (OFAC) issued an alert on March 18, 2025 (OFAC Alert), warning of exposure to sanctions and civil or criminal penalties, especially for providing material support to foreign terrorist organizations in violation of 18 U.S.C. 2339B. The OFAC Alert is specifically directed at US and foreign financial institutions, noting that “foreign financial institutions that knowingly facilitate a significant transaction or provide significant financial services for any of the designated organizations could be subject to US correspondent or payable-through account sanctions.” This could suggest that the administration is not only aware that its new approach may ensnare financial institutions, but that doing so is one of its aims, likely calculating that such a focus will decrease cartel access to finances.
There is a precedent for such prosecutions of financial institutions for failing to maintain effective anti-money laundering programs and to conduct appropriate due diligence to avoid transacting with customers located in countries subject to sanctions enforced by OFAC. These prosecutions can result in fines and penalties greater than $1 billion. Now, the OFAC Alert serves as a warning that financial institutions may be prosecuted if they provide financial services to any of the cartels now designated as FTOs.
[1] The first round of designations include: Tren de Aragua (TdA); La Mara Salvatrucha (MS-13); Cártel de Sinaloa; Cártel de Jalisco Nueva Generación (CJNG); Cártel del Noreste (CDN); La Nueva Familia Michoacana (LNFM); Cártel del Golfo (CDG); and Cártel Unidos (CU).
[2] Case No. 04-cv-2799 in the United States District Court for the Eastern District of New York.
[3] The terrorism charges for which NSD approval has been suspended include: 18 U.S.C. §§ 2332a, 2332b, 2339, 2339A, 2339B, 2339C, 2339D, 21 U.S.C. § 960A, and 50 U.S.C. § 1705. This policy does not exempt from NSD’s approval and concurrence requirements cases involving 18 U.S.C. §§ 175, 175b, 219, 793, 794, 831, 951, and 1030(a)(l).
[4] Although it is not entirely clear in the Bondi Memo, these changes appear to apply only to “investigations targeting members or associates of cartels or TCOs.” The suspension of approval requirements could be interpreted, or may be amended, to include all charges under the enumerated statutes.
US Treasury Extends Recordkeeping Requirement for Economic Sanctions Compliance to 10 Years
On March 20, 2025, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) published a final rule (Final Rule) extending the recordkeeping requirement for compliance with U.S. economic sanctions regulations from five to 10 years. This change aligns with the April 2024 legislation (Pub. L. 118-50) that increased the statute of limitations for economic sanctions violations under the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. § 1705, and the Trading with the Enemy Act (TWEA), 50 U.S.C. § 4315 to 10 years. The Final Rule took effect March 21, 2025.
10-Year Recordkeeping Requirement for Sanctions Compliance
The April 2024 legislation doubled the statute of limitations for civil and criminal violations of IEEPA and TWEA. Subsequently, OFAC issued an interim final rule (89 Fed. Reg. 74832) in September 2024 to amend its recordkeeping requirements, consistent with the revised statute of limitations. After reviewing public comments, OFAC finalized the rule, officially codifying the 10-year recordkeeping requirement at 31 C.F.R. 501.601 and requiring that:
[E]very person engaging in any transaction subject to [U.S. sanctions regulations] shall keep a full and accurate record of each such transaction engaged in, regardless of whether such transaction is effected pursuant to license or otherwise, and such record shall be available for examination for at least 10 years after the date of such transaction.
Additionally, individuals or entities holding blocked property must keep a full and accurate record of that property for at least 10 years after the date of unblocking.
Implications for Financial Institutions
Financial institutions – including banks, casinos, and money services businesses – subject to the Bank Secrecy Act (BSA) must implement risk-based measures to address compliance risks related to money laundering and terrorist financing.
Previously, the BSA’s recordkeeping requirements aligned with OFAC’s five-year retention period. With the Final Rule’s extension, financial institutions must reassess their record retention policies and update internal frameworks to comply with the new 10-year requirement. Regulatory agencies will expect institutions to revise policies, procedures, and controls to reflect this change.
Key Takeaways
The extended recordkeeping requirement applies only to sanctions compliance and does not affect the five-year retention requirements for the International Traffic in Arms Regulations (ITAR) or the Export Administration Regulations (EAR).
Companies should review their existing recordkeeping and record retention policies to determine updates or adjustments to be made to align with the new 10-year OFAC period, as well as evaluate potential conflicts with other regulatory record retention periods to be reconciled. Companies should also evaluate from an operational standpoint whether their systems, resources, and technologies can support the longer retention period, including assessing potential impacts on data management, storage costs, access controls, and cybersecurity.
Compliance measures should include updating record-retention policies, enhancing automated systems, and conducting organization-wide training to ensure adherence to the new rules.
This change carries significant operational and compliance implications, particularly for financial institutions, which must ensure readiness to meet the extended requirements while maintaining secure and accessible records for regulatory purposes.
Wyoming Enacts Law to Restrict the Use of Noncompete Agreements
Employers in Wyoming will soon be limited in their use of noncompete agreements under a newly enacted law that makes the state the latest of a growing number of states to restrict noncompete agreements in the employment context.
Quick Hits
Wyoming enacted legislation that will void noncompete agreements with employees with limited exceptions.
Noncompete agreements will remain permissible in certain contexts, such as the sale of a business, the protection of trade secrets, the recovery of employers’ costs to relocate or train employees, and to restrict post-employment activity of executive or managerial personnel and their key staff.
The law also prohibits noncompete clauses in agreements involving physicians and will allow them to inform patients with certain rare disorders of their new practice without facing liability.
The law only applies to contracts entered into on or after July 1, 2025.
On March 19, 2025, Governor Mark Gordon signed Senate File 107 into law, which will significantly limit the enforceability of noncompete covenants in employment contracts. The new legislation, which will take effect on July 1, 2025, applies to contracts entered into on or after that date. Employers that use restrictive covenants will have to rethink how they protect their business interests and manage their workforce.
In enacting the new noncompete prohibitions, Wyoming joins a growing list of states, which includes California, Minnesota, and Oklahoma, to impose significant restrictions or completely ban employee noncompete agreements. Ohio is also considering a bill that would ban noncompete agreements for workers or prospective workers this legislative session.
Here is what employers need to know about the new Wyoming law and its implications.
Employee Noncompete Agreements Are Void
The law declares that as of July 1, 2025, “[a]ny covenant not to compete that restricts the right of any person to receive compensation for performance of skilled or unskilled labor” is void. The law applies prospectively to contracts entered into on or after July 1, 2025, specifically stating that “[n]othing in this act shall be construed to alter, amend or impair any contract or agreement entered into before July 1, 2025.”
Key Exceptions to the Ban
While Senate File 107 broadly invalidates noncompete agreements, the law contains some notable exceptions:
Sale of Business—Under the law, noncompete clauses remain enforceable in contracts related to the purchase and sale of a business or its assets.
Protection of Trade Secrets—The law will permit the use of noncompete agreements or clauses “to the extent the covenant provides for the protection of trade secrets” as they are defined under state law.
Recovery of Training Expenses—The law permits employers to include provisions in employment contracts allowing them to recover relocation, education, and training expenses, with recovery amounts decreasing based on the length of the employee’s service. (Up to 100 percent for service less than two years, up to 66 percent for between two and less than three years, and up to 33 percent for between three and less than four years.)
Executive and Management Personnel—The law exempts the noncompete ban for agreements involving “[e]xecutive and management personnel and officers and employees who constitute professional staff to executive and management personnel.”
Although not defined, the “executive and managerial personnel” restriction substantially mirrors a prior version of Colorado’s noncompete statute. Cases interpreting the Colorado statute recognized that the issue would typically be a question of fact. However, courts routinely recognized that restrictive covenants could be applied to both key personnel who are “in charge” and individuals who conduct or supervise a business, often including various levels of management.
Special Considerations for Physicians
Senate File 107 specifically declares void “[a]ny covenant not to compete provision of an employment, partnership or corporate agreement between physicians that restricts the right of a physician to practice medicine … upon termination of the physician’s employment, partnership or corporate affiliation.” The law will further allow physicians, upon termination of their employment, the partnership, or corporate affiliation, to inform patients with certain “rare disorders[s]” about their new practice and provide their contact information without facing liability.
Next Steps
Wyoming’s new noncompete law marks a significant shift in the state, reflecting a broader national trend. That trend could continue, particularly after a 2024 Federal Trade Commission (FTC) rule that sought to ban nearly all noncompete agreements in employment was struck down in court. The government had appealed but the Trump administration has halted those appeals while it considers the FTC’s rule.
In light of the changes, employers in Wyoming may want to consider reviewing and revising any new employment contracts and evaluating alternative strategies for protecting their business interests. Employers using noncompete agreements may want to consider whether those provisions are being applied in one of the specifically enumerated exceptions. Employers may also want to ensure that noncompete agreements that fall into one of the permissible categories have reasonable geographic and temporal limitations. Wyoming courts will not blue pencil or revise noncompliant restrictive covenants, and instead, noncompliant restrictive covenants will be voided.
Maritime Chokepoints and Freedom of Navigation The US Federal Maritime Commission Investigation Into “Transit Constraints”
On March 14, 2025, the US Federal Maritime Commission (FMC) announced the initiation of a nonadjudicatory investigation into transit constraints at international maritime “chokepoints.”
The Federal Register notice initiating the investigation identified the following seven global maritime passageways that may be subject to such constraints: (1) the English Channel, (2) the Malacca Strait, (3) the Northern Sea Passage, (4) the Singapore Strait, (5) the Panama Canal, (6) the Strait of Gibraltar and (7) the Suez Canal. The FMC announcement is another sign of the continued merger of national security, trade issues and global shipping and transportation issues.
The FMC has a statutory mandate to monitor and evaluate conditions affecting shipping in US foreign trade. 46 U.S.C.42101(a) provides that the commission “shall prescribe regulations affecting shipping in foreign trade … to adjust or meet general or special conditions unfavorable to shipping in foreign trade,” when those conditions are the result of a foreign country’s laws or regulations or the “competitive methods, pricing practices, or other practices” used by the owners, operators or agents of “vessels of a foreign country.” The FMC is also required under 46 U.S.C. 46106 to report to Congress on potentially problematic practices of ocean common carriers owned or controlled by foreign governments, e.g., China. The FMC will conduct this investigation in accordance with its procedures for a nonadjudicatory investigation set forth in 46 CFR Part 502, Subpart R.
The FMC is conducting this investigation into any actions by a foreign country or other maritime interests that might constitute anticompetitive practices, irregular pricing or pricing that is deemed prejudicial to US foreign trade interests, and any other practices of government authorities, vessel owners, operators or agents affecting transit through such passageways. That is an incredibly broad mandate, and there is complete uncertainty as to what “remedies” or “proposed actions” the FMC might recommend so as to remediate any perceived constraints on transit.
However, given the potentially severe and disruptive impact of the proposed actions currently being considered by the Office of the US Trade Representative (USTR) in relation to the ongoing Section 301 investigation into “China’s Targeting of the Maritime, Logistics, and Shipbuilding Sectors for Dominance,” 1 this new FMC investigation bears careful monitoring and engagement by affected parties.
Some commentators have already concluded that this new FMC investigation is simply a new front in the trade war the US is waging on the Chinese maritime and shipbuilding industries. Seatrade Maritime News claims that the FMC investigation is “not about trade at all,” but rather a continuation of the “China witch hunt” that started with the USTR Section 301 investigation.2 Others see the inclusion of the Panama Canal in the FMC investigation as an extension of the Trump administration’s stated desire to “take back” the canal, although in truth, the recent controversy over the Panama Canal was in part related again to China, and concerns over the involvement of the Panama Ports Company, a subsidiary of Hong Kong-based Hutchison Port Holdings.3 The references in the FMC notice of initiation to “other maritime interests” and “other practices of government authorities,” including irregular pricing or “pricing that is deemed prejudicial to US foreign trade interests,” appear to be a veiled reference to the Panama Maritime Authority and allegations that US vessels were being treated differently. Most commentators now agree that the FMC investigation is another element or tool that the administration intends to use to reduce US reliance on foreign-owned cargo vessels, and indeed force cargo interests to use US vessels.4 In this context, the focus on the Suez Canal may actually be a US ploy to target and extract concessions out of Egypt;5 the English Channel may be more about targeting the UK and France.
The FMC summarizes its individual concerns about (1) the English Channel, (2) the Malacca Strait, (3) the Northern Sea Passage, (4) the Singapore Strait, (5) the Panama Canal (6) the Strait of Gibraltar, and (7) the Suez Canal in the Federal Register notice. In summary, the concerns range from congestion, limited passing opportunities, an elevated risk of collisions, navigational challenges, variable weather conditions, environmental risks, geopolitical tensions, security threats and, in some areas, piracy and smuggling.
With respect to the Northern Sea Passage, the FMC notes that this is emerging as a critical maritime chokepoint as the region’s waters become ice free for longer periods, with it offering a shortcut between Europe and Asia 6. Reference is made to Russia seeking control over the route and its strategic importance being amplified by increased military activity from Russia, China and NATO forces.
In the section on the Panama Canal, while noting that Panama’s ship registry is one of the world’s largest, the FMC notes that remedial measures it can take include “refusing entry to US ports by vessels registered in countries responsible for creating unfavorable conditions.” In addition to Panama, states that control other areas in which chokepoints are located operate some of the world’s other largest ship registries, such as Singapore, Malaysia and Indonesia. If this investigation leads to the US refusing entry to, or imposing penalties on, vessels flagged in these states, or on vessels owned by interests from these states, it could have very farreaching implications.
As is foreseen in the impact of the Section 301 proposed actions, these measures could have the potential to significantly raise the costs of calling at US ports (either by way of reduced availability of tonnage or the imposition of direct penalties) with these costs being passed down the charterparty chain and then ultimately to customers and consumers.
The FMC notes that other significant constraints affecting US shipping may arise quickly in the global maritime environment. For example, when the Singapore-flagged containership Dali struck a bridge in Baltimore, Maryland in March 2024, six people were killed and maritime access to the Port of Baltimore was blocked, a situation that persisted for many weeks and led to losses that have been estimated to reach as high as US$4 billion.
Interested parties are permitted to submit written comments by May 13, 2025, with experiences, arguments and/or data relevant to the above-described maritime chokepoints, particularly concerning the effects of laws, regulations, practices or other actions by foreign governments, and/or the practices of owners or operators of foreign-flag vessels, on shipping conditions in these chokepoints.
The FMC states that it welcomes comments not only from government authorities and container shipping interests, but also from tramp operators, bulk cargo interests, vessel owners, individuals and groups with relevant information on environmental and resource-conservation considerations, and anyone else with relevant information or perspectives on these matters.
In particular, the FMC has expressed an interest in information and perspectives on the following six questions:
What are the causes, nature and effects, including financial and environmental effects, of constraints on one or more of the maritime chokepoints described above?
To what extent are constraints caused by or attributable to the laws, regulations, practices, actions or inactions of one or more foreign governments?
To what extent are constraints caused by or attributable to the practices, actions or inactions of owners or operators of foreign-flag vessels?
What will likely be the causes, nature and effects, including financial and environmental effects, of any continued transit constraints during the rest of 2025?
What are the best steps the FMC might take, over the short term and the long term, to alleviate transit constraints and their effects?
What are the obstacles to implementing measures that would alleviate the above transit constraints and their effects, and how can these be addressed?
It will be interesting, and indeed imperative, for global shipping interests to monitor the comments received and how the proposed measures are developed accordingly.
A recent Bloomberg News article went so far as to indicate that the “Billion-Dollar US Levies on Chinese Ships Risk a ‘Trade Apocalypse’.”
Interestingly, there are some notable exclusions from the list of the seven “chokepoints,” including some that are significantly more problematic and/or more important to global trade flows, including the Black Sea and the Bosphorus, the Strait of Hormuz, and the Bab Al Mandeb Strait.
The Carnegie Endowment for International Peace published a February 19, 2025 article examining the US motivations behind the Panama Canal gambit.
TradeWinds posits in one article that the FMC may try to ban or detain ships from the “maritime chokepoint” countries, or restrict or ban service to the US by shipping lines or vessel operators that are said to contribute to issues relating to transit through these passageways.
For example, this may be about the US getting preferential deals for US vessels; e.g., US-flagged vessels being given free Suez transits by the Egyptian government, under threat of measures against Egypt being imposed if not.
Although consultant Darron Wadey at Dynaliners in the Netherlands has expressed a view, quoted in Seatrade Maritime News, that this route is “an outlier” in the list and has “zero relevance” to US foreign trade.
FTC Alleges Fintech Cleo AI Deceived Consumers
On March 27, 2025, the Federal Trade Commission (FTC) filed a lawsuit and proposed settlement order resolving claims against Cleo AI, a fintech that operates a personal finance mobile banking application through which it offers consumers instant or same-day cash advances. The FTC alleges that Cleo deceived consumers about how much money they could get and how fast that money could be available, and that Cleo made it difficult for consumers to cancel its subscription service.
Pointing to those allegations, the FTC alleges Cleo (1) violated Section 5 of the Federal Trade Commission Act (FTC Act) by misrepresenting that consumers would receive—or would be likely to receive—a specific cash advance amount “today” or “instantly” and (2) violated the Restore Online Shoppers’ Confidence Act (ROSCA) by failing to conspicuously disclose all material transaction terms before obtaining consumers’ billing information and by failing to provide simple mechanisms to stop recurring charges.
“Cleo misled consumers with promises of fast money, but consumers found they received much less than the advertised hundreds of dollars promised, had to pay more for same day delivery, and then had difficulty canceling,” said Christopher Mufarrige, Director of the FTC’s Bureau of Consumer Protection.
The FTC cites to consumer complaints in support of its action against Cleo, including one stating: “There’s no other way for me to say it. I need my money right now to pay my rent. I have no other option I can’t wait 3 days. I can’t wait 1 day I need it now. I would never have used Cleo if I would have thought I would ever be in this situation.”
The FTC’s Allegations
In its complaint, filed in the U.S. District Court for the Southern District of New York, the FTC alleges that Cleo violated Section 5 of the FTC Act by:
“Up To” Claims. Advertising that its customers would receive “up to $250 in cash advances,” and then, only afterthe consumer subscribes to a plan and Cleo sets the payment date for the subscription, is the consumer informed of the cash advance amount they can actually receive. For “almost all consumers, that amount is much lower than the amount promised in Cleo’s ads.”
Undisclosed Fees. Advertising that its customers would obtain cash advances “today” or “instantly,” when Cleo actually charges an “express fee”—sometimes disclosed in a footnote—of $3.99 to get the cash same-day, and, even then, the cash may not arrive until the next day.
In addition, the FTC’s complaint alleges that Cleo violated Section 4 of ROSCA by:
Inadequate Disclosures. Failing to clearly and conspicuously disclose all material terms before obtaining customers’ billing information.
Inadequate Cancellation Mechanisms. Failing to permit consumers with an outstanding cash advance to cancel their subscriptions through the app.
Proposed Consent Agreement
The FTC’s proposed consent order would be in effect for 10 years and require that Cleo pay $17 million to provide refunds to consumers harmed by the company’s practices. The consent order would restrict Cleo from misleading consumers about material terms of its advances and require that it obtain consumers’ express, informed consent before imposing charges. More specifically, the consent order:
Prohibits Cleo from misrepresenting the amount of funds available to a consumer, when funds will be available, any applicable fees (including the nature, purpose, amount, or use of a fee), consumers’ ability to cancel charges, or the terms of any negative option feature.
Requires Cleo to clearly and conspicuously disclose, prior to obtaining the consumer’s billing information, all material terms, including any charges after a trial period ends, when a consumer must act to prevent charges, the amount the consumer will be charged unless steps are taken to prevent the charge, and information for consumers to find the simple cancellation mechanism.
Requires Cleo provide a simple mechanism for a consumer to cancel the negative option feature, avoid being charged, and immediately stop recurring charges. Such cancellation method must be through the same medium the consumer used to consent to the negative option feature.
The Commission voted 2-0 to issue the Cleo complaint and accept the proposed consent agreement.
Takeaways
The FTC has increased enforcement activities for negative options, such as last year’s enforcement action against Dave, Inc., another cash advance fintech company, which we wrote about previously. This attention on negative options, and consumers’ ability to easily cancel negative options, may provide insight into the FTC’s regulatory agenda, given that the remainder of its Click-to-Cancel Rule takes effect on May 14, 2025.
The FTC recently filed a brief in defense of its Click-to-Cancel Rule, vigorously defending the FTC’s rulemaking against trade association challenges consolidated in the Eighth Circuit. The FTC’s brief puts an end to speculation that the Commission may rethink or roll back the rule given the recent administration change and shifts in FTC leadership.
Businesses should be preparing to adopt changes to implement the Click-to-Cancel Rule, to the extent not already in process. The FTC’s complaint against Cleo should also serve as a reminder that businesses that employ “up to” claims, complex fee structures, or negative option offers should be careful to monitor their conduct in light of developments within the FTC and the other federal and state agencies that police advertising and marketing practices.
CFTC Withdraws Pair of Advisories on Heightened Review Approach to Digital Asset Derivatives [Video]
On March 28, the staff of the Commodity Futures Trading Commission (CFTC) issued two press releases announcing the withdrawal of two previous advisories that reflected the agency’s heightened review approach to digital asset derivatives.
These announcements appear to mark the end of the CFTC’s heightened review of digital asset products. The CFTC rules certainly still apply, but this seems to be a deliberate move by the CFTC to start treating digital asset derivatives like other CFTC-regulated products. It also gives a glimpse of how the CFTC would regulate digital asset spot transactions if Congress gives it the authority to do so.
The first advisory the CFTC withdrew was Staff Advisory No. 18-14, Advisory with Respect to Virtual Currency Derivative Product Listings, which was issued on May 21, 2018. The withdrawal is effective immediately. That advisory provided certain enhancements that CFTC-regulated entities were asked to follow when listing digital asset derivatives. These included enhanced market surveillance, closer coordination with the CFTC, reporting obligations, risk management and outreach to members and market participants. That advisory was withdrawn in its entirety, with the CFTC staff citing its increased experience with digital asset derivatives and that the digital asset industry has increased in market growth and maturity.
The second advisory the CFTC staff withdrew was Staff Advisory No. 23-07, Review of Risks Associated with Expansion of DCO Clearing of Digital Assets, issued on May 30, 2023. It stated that CFTC staff would focus on the heightened risks of digital asset derivatives to system safeguards, fiscal settlement procedures and conflicts of interest.
Virginia Expands Non-Compete Restrictions Beginning July 1, 2025
At the end of March, Governor Glenn Youngkin signed SB 1218, which amends Virginia’s non-compete ban for “low-wage” workers (the “Act”) to include non-exempt employees under the federal Fair Labor Standards Act (the “FLSA”).
The expanded restrictions take effect July 1, 2025.
What’s New?
As we discussed in more detail here, since July 2020, the Act has prohibited Virginia employers from entering into, or enforcing, non-competes with low-wage employees. Prior to the amendment, the Act defined “low-wage employees” as workers whose average weekly earnings were less than the average weekly wage of Virginia, which fluctuates annually and is determined by the Virginia Employment Commission. In 2025, Virginia’s average weekly wage is $1,463.10 per week, or approximately $76,081 annually. “Low-wage employees” also include interns, students, apprentices, trainees, and independent contractors compensated at an hourly rate that is less than Virginia’s median hourly wage for all occupations for the preceding year, as reported by the U.S. Bureau of Labor Statistics. However, employees whose compensation is derived “in whole or in predominant part” from sales commissions, incentives or bonuses are not covered by the law.
Effective July 1, 2025, “low-wage employees” will also include employees who are entitled to overtime pay under the FLSA for any hours worked in excess of 40 hours in any one workweek (“non-exempt employees”), regardless of their average weekly earnings. In other words, the amendment will extend Virginia’s non-compete restrictions to a significantly larger portion of the Commonwealth’s workforce.
A Few Reminders
The amendment does not significantly alter the other requirements under the Act regarding non-competes, including the general notice requirements and ability for a low-wage employee to institute a civil action. Although Virginia employers are not required to give specific notice of a noncompete to individual employees as some other states require, they must display a general notice that includes a copy of the Act in their workplaces. Failing to post a copy of the law or a summary approved by the Virginia Department of Labor and Industry (no such summary has been issued) can result in fines up to $1,000. Therefore, Virginia employers should update their posters to reflect the amended Act by July 1, 2025.
Employees are also still able to bring a civil action against employers or any other person that attempts to enforce an unlawful non-compete. Low-wage employees seeking relief are required to bring an action within two years of (i) the non-competes execution, (ii) the date the employee learned of the noncompete provision, (iii) the employee’s resignation or termination, or (iv) the employer’s action aiming to enforce the non-compete. Upon a successful employee action, courts may void unlawful non-compete agreements, order an injunction, and award lost compensation, liquidated damages, and reasonable attorneys’ fees and costs, along with a $10,000 civil penalty for each violation.
While the law creates steep penalties for non-competes, nothing within the legislation prevents an employer from requiring low-wage employees to enter into non-disclosure or confidentiality agreements.
Takeaways
The amendment emphasizes the importance for Virginia employers to correctly classify their employees as exempt or non-exempt under the FLSA. Additionally, the amendment does not apply retroactively, so it will not affect any non-competes with non-exempt employees that are entered into or renewed prior to July 1, 2025. Nevertheless, enforcing non-compete agreements with non-exempt employees may be more challenging after this summer, so Virginia employers may wish to consider renewing such agreements without non-compete provisions to ensure other provisions can be properly enforced.
EC Begins Public Consultation on Upcoming EU Bioeconomy Strategy
The European Commission (EC) began a public consultation on March 31, 2025, on the upcoming European Union (EU) Bioeconomy Strategy. The EC states in its March 31, 2025, press release that the Strategy “marks a significant step forward in harnessing the opportunities of the bioeconomy to support European businesses and drive progress towards the EU’s environmental, climate and competitiveness objectives.” According to the call for evidence, the Strategy’s main aims include:
Ensuring the long-term competitiveness of the EU bioeconomy and investment security. The Strategy will identify measures to scale up and commercialize existing and emerging biotechnology solutions and biobased products, in particular by tapping into the significant growth potential of biobased materials substituting fossil-based ones (e.g., sources of alternative proteins, biobased materials, or biochemicals). It will entail looking at practical measures to remove unnecessary barriers to biobased manufacturing and bio-innovation and unleash the full opportunities of primary biobased production;
Increasing resource-efficient and circular use of biological resources, by creating an efficient demand. This means transforming how the EU values and uses biomass resources, prioritizing extended high-value applications while encouraging industries and consumers to embrace circular practices that maximize economic returns from each unit of biomass. It might also entail providing targeted support and incentives for higher value added uses of biomass feedstock and by-products in line with the cascading principle;
Securing the competitive and sustainable supply of biomass, both domestically and from outside the EU. The Strategy will strengthen the role of primary producers, generating wealth in rural areas by creating jobs and diversifying incomes for foresters and farmers and rewarding them for the preservation of ecosystems; and
Positioning the EU in the rapidly expanding international market for biobased materials, biomanufacturing, biochemicals, and agri-food and biotechnology sectors. This will be done by steering existing foreign policy mechanisms in the area of the bioeconomy in the context of the EU’s Global Gateways initiative, exploring the need and appropriateness of bringing bioeconomy under international multilateral fora, and promoting green diplomacy on bioeconomy.
The EC encourages all stakeholders to participate in the online consultation. Comments are due June 23, 2025. Stakeholders can also contribute by participating in targeted sessions on the bioeconomy in upcoming events such as the European Circular Economy Stakeholder Platform (ECESP) Circular Economy Stakeholder Dialogue, taking place on April 10, 2025, and EU Green Week, taking place from June 3 to 5, 2025.
Winding Back the Clock: CFTC Withdraws Controversial SEF Registration Staff Letter
The Division of Market Oversight (DMO) of the Commodity Futures Trading Commission (CFTC) has withdrawn its previous staff advisory letter on swap execution facility (SEF) registration requirements (Letter 21-19).
Published on March 13, CFTC’s staff letter 25-05 (Letter 25-05) withdrew Letter 21-19 due to DMO’s understanding that it “created regulatory uncertainty” regarding whether certain entities operating in the swaps markets were required to register as SEFs. Letter 21-19 was therefore withdrawn with immediate effect.
The withdrawal of Letter 21-19 has removed what was seen by many parts of the swaps industry as a problematic widening of the interpretation of SEF regulatory requirements, which was difficult to apply and raised more questions than it answered.
A Look Back at Letter 21-19 and SEF Registration Requirements
Letter 21-19 was published in September 2021 as a “reminder” for entities of the SEF registration requirements under the Commodity Exchange Act (CEA). The entities specifically in scope of the remainder were those: (1) facilitating trading or execution of swaps through one-to-many or bilateral communications; (2) facilitating trading or execution of swaps that are not subject to the trade execution requirement under the CEA; (3) providing non-electronic means for the execution of swaps; or (4) falling within the SEF definition and operated by an entity currently registered with the CFTC in some other capacity, such as a commodity trading advisor (CTA) or an introducing broker.
In relation to the first set of entities (i.e., facilities offering one-to-many or bilateral communications), the CEA defines a SEF as, in relevant part, “a trading system or platform in which multiple participants have the ability to execute or trade swaps by accepting bids and offers made by multiple participants in the facility or system.” Prior to Letter 21-19, the wider swaps industry had interpreted this as multiple-to-multiple trading; in other words, two or more market participants interacting with two or more other market participants to execute swaps. Letter 21-19 drastically increased the scope of such SEF requirement, however, by providing that the multiple-to-multiple trading requirement could be met even if (1) the platform only allows bilateral or one-to-one communications; and (2) multiple participants cannot simultaneously request, make, or accept bids and offers from multiple participants. DMO went on to express its view that a one-to-many system or request for quote (RFQ) system would satisfy the multiple-to-multiple requirement if more than one participant were able to submit an RFQ on the platform.
Letter 21-19 coincided with the CFTC’s settlement of an enforcement action with Symphony Communication Services, LLC (Symphony) for failure to register as a SEF. The CFTC found that Symphony had operated a multiple-to-multiple platform by operating a communications platform that allowed participants to send RFQ messages to multiple other market participants. Subsequently, the CFTC also relied on Letter 21-19 when it issued an order against Asset Risk Management, LLC, a registered CTA, for failing to register as a SEF.
What is the Cross-Border Impact
The potential relaxation of the SEF registration scope in the United States stands in contrast to similar regimes in the EU and the UK. The European Securities and Markets Authority (ESMA) and the UK’s Financial Conduct Authority (FCA) each published guidance in 2023, similar to Letter 21-19, which focused on the registration requirements for multilateral platforms. However, there are no signs that the EU or UK regulatory guidance will be amended. Technology service providers and trading venues may, therefore, wish to reconsider their cross-border service offerings in light of Letter 25-05 and the differing positions in the EU and UK.
Letter 21-19 is available here and Letter 25-05 is available here.
25% Tariff on Automobiles and Automobile Parts Begins April 3; USMCA Vehicles May Qualify for Partial Relief
Go-To Guide:
New 25% tariff on imported cars starts April 3, 2025, citing national security concerns.
Automobile parts from USMCA countries temporarily exempt, but full implementation expected by May 3, 2025.
USMCA-qualifying vehicles may receive partial relief based on U.S. content value.
Importers that do not carefully document U.S. content may face retroactive, full tariffs on misstatements.
On March 26, 2025, President Donald Trump announced a proclamation, “Adjusting Imports of Automobiles and Automobile Parts Into the United States,” directing the imposition of a 25% tariff on imports of passenger vehicles, light trucks, and certain automobile parts, citing national security concerns under section 232 of the Trade Expansion Act of 1962. The 25% duty will apply to designated Harmonized Tariff Schedule of the U.S. (HTSUS) codes listed in the proclamation’s annex, which will be published in the Federal Register at a later date.
U.S. Customs and Border Protection (CBP) will begin collecting duties on imports of covered automobiles at 12:01 a.m. EDT on April 3, 2025. Covered automobile parts will be subject to the same duty on a date to be determined, but no later than May 3, 2025.
Covered Products and Future Expansion
The proclamation applies the 25% tariff to passenger vehicles (sedans, SUVs, crossovers, minivans, cargo vans), light trucks, and selected automobile parts including engines and engine parts, transmissions and powertrain parts, and electrical components. The precise list of covered vehicles and parts (by HTSUS code) will be contained in the yet-to-be-published annex to the proclamation. Additional categories of automobile parts may be included over time. Domestic producers and industry associations may request the inclusion of other parts if they demonstrate that increased imports threaten to impair U.S. national security.
USMCA Automobiles: Partial Duty Based on US Content
The proclamation introduces a new content-based valuation system for qualifying automobiles under the United States-Mexico-Canada Agreement (USMCA). Importers of USMCA-qualifying automobiles may submit documentation supporting the value of U.S. content in a given model, defined as “the value of parts wholly obtained, produced entirely, or substantially transformed in the United States.” The 25% tariff will apply only to the automobile’s non-U.S. content, calculated as the vehicle’s total value minus the verified U.S. content.
Enforcement and Penalties for Misstatements
Importers should take note of deterrent measures built into the proclamation. If CBP determines that the declared non-U.S. content of a USMCA-qualifying automobile has been understated, the 25% tariff will apply retroactively and prospectively to the full value of the affected model. Specifically, duties will be retroactively assessed from April 3, 2025, and will continue to apply to all subsequent imports of the same model by the same importer until CBP verifies corrected values.
USMCA Automobile Parts: Temporary Exemption
USMCA-qualifying automobile parts are temporarily exempt from the 25% tariff. This exemption will remain in place until the secretary of Commerce establishes a process to calculate and apply the tariff only to the non-U.S. content of each part and publishes a notice in the Federal Register. In contrast, non-USMCA-qualifying parts will become subject to the full 25% tariff no later than May 3, 2025.
Other Implementation Measures: FTZs and Duty Drawback
Any automobile or automobile part subject to the 25% tariff and admitted into a U.S. foreign-trade zone (FTZ) on or after the effective date must be admitted in privileged foreign (PF) status—unless eligible for admission under domestic status (referring to goods that have been imported to the United States and for which all duties and taxes paid). Upon entry for consumption from the FTZ, the article will be subject to the duty rate applicable to its HTSUS subheading as of the admission date into the FTZ. Importers utilizing FTZs should review inventory and entry strategies, as this provision may reduce one of the traditional benefits of FTZ operations.
Additionally, duty drawback will not be available for the new 25% tariffs. Companies seeking to recover duties through export programs will not be able to claim refunds for these duties, even if the automobile or part is subsequently exported. This may affect cost planning for companies with international supply chains and re-export strategies.
Key Takeaways: Automobiles
1.
Effective at 12:01 a.m. EDT on April 3, 2025, covered imports of passenger vehicles and light trucks will be subject to a 25% duty on entry or withdrawal from warehouse for consumption.
2.
USMCA-qualifying automobiles may receive a partial exemption, with the 25% duty applied only to the non-U.S. content of each model.
3.
Understatement of non-U.S. content will trigger full-duty liability on the total value of all affected models, retroactive to April 3, 2025, and continuing until CBP verifies corrected values.
4.
Importers must maintain thorough documentation of U.S. content and be prepared for CBP audits and potential enforcement actions.
5.
Additional automobile parts may be added to the tariff schedule based on industry petitions and agency determinations.
Key Takeaways: Automobile Parts
1.
A 25% duty will apply to covered automobile parts—engines, transmissions, and electrical components—no later than May 3, 2025.
2.
USMCA-qualifying parts are temporarily exempt until Commerce and CBP establish a U.S. content-based valuation system.
3.
Additional automobile parts may be included under the tariff regime upon petition by domestic producers or industry groups.
4.
Importers should prepare for heightened CBP scrutiny on valuation and content origin, especially for complex supply chains involving USMCA-qualifying parts.
Stephanie Vélez contributed to this article