Healthcare Preview for the Week of: April 7, 2025 [Podcast]
Final Week Before Easter Recess
Focus this week on Capitol Hill will remain on reconciliation, as Republicans aim to pass the unified budget resolution in the House before leaving on Thursday for the two-week Easter recess. The Senate passed the resolution in a 51 – 48 vote after considering 800 amendments from Democrats in a “vote-a-rama.” Senators Paul (R-KY) and Collins (R-ME) joined all Democrats to vote against the resolution. As a reminder, the unified budget resolution includes instructions for the House Committee on Energy and Commerce to save at least $880 billion, likely to come from Medicaid reforms.
After Republicans won two House special elections last week, the House margin is at 220 – 213. That means Speaker Johnson can only lose three votes to pass the resolution, which may be challenging since House Budget Committee Chair Arrington (R-TX) and members of the House Freedom Caucus are currently opposed. A floor vote is scheduled for Wednesday, and passage may require intervention from President Trump.
The House Committee on Energy and Commerce will mark up 26 bills, six of which are bipartisan healthcare bills. It will be worth watching if they advance easily out of the committee, or if Democrats use the markup as an opportunity to continue to express their concerns with Republicans and the Trump administration. The Senate Health, Education, Labor, and Pensions Committee will mark up S. 932, the Give Kids a Chance Act. Hearings will also be held to discuss lowering the cost of biosimilars and how to restore trust in the US Food and Drug Administration. The Senate continues to advance Trump nominees, and the Senate Homeland Security and Governmental Affairs Committee will vote on the nominations of Scott Kupor to be director of the Office of Personnel Management and Eric Ueland to be deputy director for management at the Office of Management and Budget.
Meanwhile, US Department of Health and Human Services Secretary Kennedy will be on a Make America Healthy Again tour in Utah, Arizona, and New Mexico to discuss state, tribal, and local initiatives to improve healthy eating and ban fluoride in drinking water. Later in the week, the Medicare Payment Advisory Commission (MedPAC) and Medicaid and CHIP Payment and Access Commission (MACPAC) will hold their final meetings of 2024 – 2025 cycle. Both commissions will vote on recommendations, including a MedPAC vote on reforming the physician fee schedule and a MACPAC vote on recommendations for its June report to Congress.
Today’s Podcast
In this week’s Healthcare Preview, Debbie Curtis and Rodney Whitlock join Julia Grabo to discuss priorities in the House of Representatives ahead of the Easter recess, including reconciliation and an Energy & Commerce Committee markup of several healthcare bills.
Another Court Blocks DEI-Related Certification Requirement
On March 27, 2025, U.S. District Judge Matthew Kennelly of the United States District Court for the Northern District of Illinois issued a temporary restraining order (TRO) prohibiting the Department of Labor (DOL) from enforcing certain provisions of Executive Orders 14173 (Ending Illegal Discrimination and Restoring Merit-Based Opportunity) and 14151 (Ending Radical and Wasteful Government DEI Programs and Preferencing) against Chicago Women in Trades (CWIT), a domestic nonprofit that receives federal funding from the DOL. The court found that Executive Order (EO) 14173’s certification provision, which sought to require CWIT to certify that it does not operate any programs “promoting DEI that violate any applicable Federal anti-discrimination laws,” is problematic because the EO does not define what constitutes “illegal” DEI activities, and that the CWIT is likely to succeed on the merits of their claim that the certification provision violates the First Amendment of the U.S. Constitution. The court precluded the federal government from initiating any False Claim Act enforcement action against CWIT pursuant to the certification provision.[1]
Furthermore, the court determined that the federal government’s enforcement of its policy through EO 14151’s “termination provision,” which — as relevant to the court’s TRO — orders the government to “terminate, to the maximum extent allowed by law . . . all ‘equity action plans,’ ‘equity’ actions, initiatives, or programs, ‘equity-related’ grants or contracts” would cause irreparable harm to CWIT.
While the court’s ruling on EO 14151’s termination provision applies only to CWIT, its ruling on EO 14173’s certification provision extended to all grants and contracts controlled by the DOL, stating that the DOL “shall not require any grantee or contractor to make any ‘certification’ or other representation” contemplated by the provision. The TRO does not extend to other federal agencies.
The TRO will remain in effect for 28 days, and a hearing is scheduled for April 10, 2025, to determine whether the TRO should be converted into a preliminary injunction.
Compliance Obligations Under EOs 14151 and 14173
As previously reported, President Trump signed EO 14151 and EO 14173 on January 20 and 21, 2025, revoking various earlier executive orders, including EO 13985 (a Biden administration executive order requiring federal agencies submit “Equity Action Plans”) and EO 11246 (a longstanding executive order that required certain federal contractors to maintain affirmative action plans). As we noted articles published on February 24 and March 17, the courts have been asked to address the EO’s application and implications to various employers and businesses.
Of particular concern has been the language in EO 14173 requiring contracts and grants to include a term that “compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for the purpose of section 3729(b)(4) of title 31, United States Code” (the False Claims Act)” as well as requiring contractors and grant recipients “to certify, that [they do] not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”
Consistent with the requirements of EO 14173, some government agencies have begun to issue DEI self-certification forms to contractors and grant recipients to complete and return.
Compliance Implications
Organizations that contract with or seek to contract with the federal government should take proactive steps to ensure compliance with EO 14173 and EO 14151. This includes conducting risk assessments to identify potentially noncompliant DEI or DEIA policies. Organizations should also review and update internal training programs to reflect current obligations under the civil False Claims Act, ensuring training is tailored to relevant operational roles.
[1] This reporting adds to our previous article published on April 3, 2024.
US Tariffs Update: Universal and Reciprocal Tariffs Imposed (as of April 4)
Go-To Guide:
President Donald Trump imposed a 10% universal tariff, effective April 5, 2025, covering imports from all countries into the United States.
Reciprocal tariffs were also imposed on over 50 countries with rates ranging from 11% to 50%, effective April 9, 2025.
USMCA-compliant goods from Canada and Mexico will continue to enter duty-free.
Steel and aluminum products subject to the 25% additional tariffs, effective March 12, are exempt from the universal and country-specific reciprocal tariffs.
Autos and auto parts, subject to 25% additional tariffs effective March 26, are exempt from the universal and country-specific reciprocal tariffs.
Copper, pharmaceuticals, lumber, semiconductors, bullion, energy and certain critical minerals not available in the United States, and products that may be subject to Section 232 tariffs in the future are not included in the tariffs announced April 2 but may be subject to additional tariffs later.
De minimis shipments from China and Hong Kong will no longer be duty-free.
Many countries will likely announce retaliation plans.
Importers should consider sourcing and duty-mitigation strategies to manage increased costs.
On April 2, 2025, the Trump administration announced 10% global tariffs on 100% of goods imported into the United States. The new tariffs are effective April 5 at 12:01 a.m. Goods that are on the water as of that date are exempt from the additional tariffs. On April 9 at 12:01 a.m., merchandise from more than 50 countries will face supplemental “reciprocal” tariffs including:
Vietnam 46%
Bangladesh 37%
China 34%
Indonesia 32%
Taiwan 32%
India 26%
South Korea 25%
Japan 24%
EU 20%
The on-the-water exception applies to the reciprocal tariffs as well. Accordingly, for the listed countries, the rates in effect will increase from 10% to the country-specific rate. Should the United States content of the entered merchandise be 20% or greater, the new tariffs will only apply to the non-U.S. content. According to the Executive Order, the tariffs are being imposed pursuant to the International Emergency Economic Powers Act of 1977 (IEEPA) due to economic and national security implications of the country’s global trade deficits.
Regarding Canada and Mexico, the 25% tariffs imposed on all merchandise since March 4 except for “energy or energy resources” or “critical minerals,” which have a 10% tariff, remain in effect. Note that USMCA-compliant goods continue to enjoy duty-free treatment. Previously announced sectoral tariffs of 25% on imports from Canada or Mexico continue to apply, with steel and aluminum effective March 12, autos effective April 3, and auto parts effective May 3. See April 1 GT Alert on auto tariffs. However, the Executive Order is silent on other free-trade agreements, which may indicate that goods imported pursuant to other free-trade agreements enter the United States duty-free for general duties but still must pay the country specific reciprocal or universal tariff.
For importers of raw materials, components, or finished products, the new universal and reciprocal tariffs are in addition to General duties, 20% tariffs on products of China effective March 4, Section 301 duties on most products of China, Section 201 duties on solar products, and any anti-dumping or countervailing duties, and other duties and fees. For example, a steel product from China may carry: General duties + 20% + Section 301 (25% or 7.5%) + 34% + 25% for steel products. The steel and aluminum tariffs are imposed only on products covered under the listed Harmonized Tariff Schedule provisions.
The Executive Order also includes the following:
Merchandise entering free-trade zones (FTZs) must be entered under “privileged foreign status,” which means that when the goods enter the U.S. commerce area, the duty rates in effect at entry to the zone must be paid.
Noticeably, drawback, which enables a U.S. importer/exporter to qualify for duty refunds, is not mentioned in the April 2 executive order and thus may be utilized. However, drawback is not permitted for the additional tariffs on steel, aluminum, the 20% on China, the 25% on products of Canada or Mexico, or the 25% on autos and auto parts.
On April 2, the Trump administration also issued an Executive Order stopping de minimis shipments, those valued under $800, from China and Hong Kong from entering duty free as of May 2.
Notably, the Executive Order specifically exempts certain products from the universal and reciprocal tariffs. Those products are listed in Annex II of the Executive Order and include products such as copper, pharmaceuticals, semiconductors, lumber articles, energy and energy products, and certain critical minerals.
Note that as other countries announce retaliation plans, the Trump administration may change its stated reciprocal rates. We expect to issue an Alert on retaliation plans next week.
Sourcing and Mitigation Strategies
There are numerous duty-mitigation and sourcing strategies importers can utilize to potentially blunt the impact of the reciprocal and universal tariffs, including reducing the value of imported goods by taking all possible legal deductions, such as international and foreign inland freight, and by using “first sale” in a multi-tier transaction that shrinks the value declared at entry by shaving off middleman profit and administrative expenses. For certain duties, drawback can also be used for duty refunds and bonded warehouses for duty deferral. With a bonded warehouse, duties are due only when the goods leave the warehouse and enter the commerce of the United States. Importers are also advised to review the origin of imported products, which is based on the product’s essential character and in which country it is substantially transformed. Country of final assembly or export is not necessarily country of origin.
How Far Do They Reach? Four Issues Entities Should Consider When Analyzing the Trump Administration Executive Orders Related to Diversity, Equity, and Inclusion
The Trump Administration Executive Orders related to Diversity, Equity, and Inclusion (“DEI”), Executive Order 14170 (Reforming the Federal Hiring Process and Restoring Merit to Government Service) and Executive Order 14173 (Ending Illegal Discrimination and Restoring Merit-Based Opportunity) (the “EOs”), have given businesses and other organizations (including universities) much to think about regarding their DEI initiatives. This includes entities that do business with the federal government, entities that do business with state and local governments, and entities with operations outside the United States. As the landscape continues to shift, below are four issues every organization should consider as they perform their DEI reviews:
1. Conflicting State Law or State Contractual Requirements
Let’s start with a quick refresher. The U.S. Constitution provides the following regarding conflicts between federal law and state law:
This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding.
This is known as the “Supremacy Clause.” The Supremacy Clause is the primary constitutional foundation for what has come to be known as the federal “Preemption Doctrine.” Courts have interpreted the Supremacy Clause, which itself focuses on “laws,” to provide federal regulations and valid Executive Orders (i.e., constitutional Executive Orders) the same preemptive effect.
However, many entities currently are facing a different challenge: What to do if the state/federal conflict is not clear. The possibility of a not clear state/federal conflict is not at all far-fetched, especially where the definition of “illegal DEI” still is unsettled. (See a prior blog by our colleague for a refresher on what is “illegal DEI” according to the EOs.) While OPM on February 4, 2025, provided industry with “further guidance ending DEI Offices, Programs, and Initiatives,” which included examples of “illegal DEI,” many questions still remain unanswered. These unanswered questions make it harder for businesses to determine whether a state/federal conflict actually exists.
In the absence of a clear state/federal conflict, businesses may find themselves in a bind, with competing yet different state and federal obligations. Businesses, for example, may need to continue submitting state-required reports consistent with state requirements knowing that those same reports are looked upon unfavorably by the Federal Government. Where possible, businesses should work with their state or local government partners (e.g., contracting officers) to determine the appropriate path forward in light of the EOs.
2. Whether the Executive Orders Apply to Corporate Parent/Subsidiary/Affiliate Entities
Typically, the default rule is that Federal Acquisition Regulation (“FAR”) clauses apply to the entity executing the award document (the contracting entity). When a new requirement is announced, a common concern of contractors is whether the forthcoming FAR clause will reach into their corporate parents, subsidiaries, or affiliates. The DEI-focused EOs will be implemented, at least in part, by new contract or grant terms incorporated into federal awards. Based on history, entities should have an answer to this question during the rulemaking process.
We have seen this same concern unfold twice recently. The first instance was when Section 889 of the Fiscal Year National Defense Authorization Act came into being. The scope of that rule applied to the “entity,” which raised questions regarding whether the rule applied to affiliates entities. The Section 889 Interim Rule clarified that it would not:
The 52.204-25 prohibition under section 889(a)(1)(A) will continue to flow down to all subcontractors; however, as required by statute, the prohibition for section 889(a)(1)(B) will not flow down because the prime contractor is the only “entity” that the agency “enters into a contract” with, and an agency does not directly “enter into a contract” with any subcontractors, at any tier.
A similar concern arose regarding Executive Order 14042 (Ensuring Adequate COVID Safety Protocols for Federal Contractors). EO 14042 explicitly stated that affiliates would be covered by the FAR clause if employees of the entity shared office space with the contracting entity. If the FAR Council intends the forthcoming DEI-focused FAR clauses to apply to affiliates, we would expect that point to be explicitly stated in the proposed and final rule.
Until there is additional clarity on this point, it is important for entities to respond to any certification requests in an accurate, clear, and straightforward manner, particularly regarding whether your compliance efforts include affiliates.
3. The Applicability of the Executive Orders to Entities that Do Business Outside the United States
As discussed above, the default rule is that FAR clauses apply to the contracting entity, not to its affiliates. The related default rule is that FAR clauses apply to the contracting entity irrespective of whether the entity performs its work in the U.S. or abroad. Whether the DEI-focused EOs apply to entities doing business outside the United States will depend on the approach taken by the FAR Council. FAR 52.222-26 (Equal Opportunity), for example, explicitly states that it does not apply to “work performed outside the United States by employees who were not recruited within the United States.” This means the requirements apply to employees performing outside the United States only if they were recruited in the United States.
On the other hand, FAR 52.222-50 (Combating Trafficking in Persons) requires a compliance plan for all services performed outside the United States. Again, similar to the discussion above regarding affiliates, we expect the FAR Council include explicit language regarding oversees application.
We acknowledge that we may sound like a broken record on this point, but, until we have more clarity, it is important for entities to respond to any certification requests in an accurate, clear, and straightforward manner, particularly regarding whether your compliance efforts include any affiliates performing work outside of the United States.
4. Impact on Universities
The Executive Orders make clear the federal government is focused not only on goods and services providers, but also on the higher education sector. Because many major universities receive federal grants and loans, these institutions are subject to a number of federal contract clauses and regulations, as well as OIG investigations and False Claims Act suits. Additionally, many colleges and universities also are government contractors, which means they soon will see the forthcoming contract clauses requiring them to (i) certify the termination of all DEI programs and (ii) acknowledge that that certification is “material” for False Claims Act purposes. Both clauses will materially increase the risk to Higher Ed.
Even if a college or university is not a contractor or direct recipient of federal funds, the federal government nonetheless plans to aggressively identify, investigate, and enforce compliance with all civil rights laws, including the laws the Government (and many courts) read as preventing any preferences based on sex or race. Higher education institutions should thoughtfully consider the impact of the EOs on their respective institutions and should be seriously considering the several activities below.
Next Steps
There still are many open questions regarding how entities should go about implementing the DEI EOs. In this time of uncertainty, below are several activities entities should be considering:
Cataloging and evaluating state, local, and foreign contracts to identify requirements that could run afoul of the EOs.
Evaluating the level of risk the entity is willing to take in areas of uncertainty.
Cataloging and evaluating DEI programs, initiatives, and activities, as well as internal and external communications regarding DEI initiatives (e.g., scrubbing website, CSR reports, internal announcements, etc.). And, ultimately, eliminating those programs, initiatives, and activities that run afoul of federal law and/or the EOs.
Briefing leadership on the steps needed to comply with the EOs and the potential risks associated with the agreed upon path forward for the respective entity, including from the False Claims Act. (For more on this risk, see the blog published by our colleague here.)
Working with experienced in-house or outside counsel and communications experts to craft policies and communications that demonstrate an intent to comply with the EOs. This includes preparing template responses to the forthcoming modification requests, stop work orders, suspensions, and/or terminations.
The Trump Administration’s Diversity, Equity, and Inclusion (DEI) Executive Orders: A Brief Primer
The first 100 days of President Trump’s second term have been action-packed with the President issuing 43 Executive Orders within hours of his inauguration – and an additional 46 that soon followed. Two Executive Orders in particular – Executive Order 14151, “Ending Radical and Wasteful Government DEI Programs and Preferences,” and Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” – have received significant attention. These Orders mark a significant shift from prior administrations, and aim to redefine the role of DEI not only within the Federal Government, but also within the private sector. What follows is a brief overview of these Orders and how they likely affect – or will affect –businesses.
What do the DEI Executive Orders Actually Require?
The DEI-related Executive Orders identify 5 objectives:
The elimination of Federal personnel whose roles focus on enhancing DEI programs within the Federal Government;
The termination of all DEI programs and activities that promote or support DEI objectives;
Requiring Federal Contractors to eliminate internal DEI efforts, certifying compliance with federal anti-discrimination laws and affirming they do not operate “illegal DEI” programs;
A return to merit-based practices, discouraging any form of preference based on race or sex in hiring, promotion, or contracting processes; and
Encouraging companies that do not take federal dollars to end their internal DEI efforts.
Since January, we have seen the Administration pursue these objectives using all tools at its disposal, including closing Federal DEI offices, placing Federal employees on leave, rescinding Executive Orders issued by predecessors (including the well-known Executive Order 11246), defunding grant programs and terminating contracts that emphasize DEI objectives, directing the non-enforcement of existing DEI-related requirements, and expanding the Department of Justice’s (DOJ) authority to investigate non-compliance these initiatives.
What is “Illegal DEI”?
One of the primary open questions surrounding compliance with these Executive Orders is the lack of guidance on exactly what constitutes “illegal DEI.”
On February 5, 2025, Acting OPM Director Charles Ezell provided additional insight into how OPM, at least, views the scope of the President’s Orders. According to the OPM memorandum, the following activities likely constitute “illegal DEI”:
“Recruiting, interviewing, hiring, training or other professional development, internships, fellowships, promotion, retention, discipline, and separation, based on protected characteristics like race, color, religion, sex, national origin, age, disability, genetic information, or pregnancy, childbirth or related medical condition….”
Diversity requirements “for the composition of hiring panels, as well as for the composition of candidate pools (also referred to as “diverse slate” policies).”
Employee Resource Groups (ERGs) “that . . . advance recruitment, hiring, preferential benefits (including but not limited to training or other career development opportunities), or employee retention agendas based on protected characteristics.”
ERGs that are open only to “certain racial groups but not others, or only for one sex, or only certain religions but not others.”
Events that limit attendance to only members of an ethnic group, or that permit employees to discourage attendance by those outside the ethnic group.
Social or cultural events or other “inclusion-related” events or trainings that segregate “participating employees into separate groups of ‘White’ and ‘People of Color’ (or other compositions based upon protected characteristics).”
Conversely, the memorandum suggests the following activities do not constitute “illegal DEI”:
Activities required by statute or regulation “to counsel employees allegedly subjected to discrimination, receive discrimination complaints, collect demographic data, and process accommodation requests.”
Accessibility or disability-related accommodations, assistance, or other programs that are required by those or related laws.”
Affinity/resource group events that allow “employees to come together, engage in mentorship programs, and otherwise gather for social and cultural events.” The Memorandum cautions, however, that discretion must be exercised to ensure such events do not cross the line into “illegal DEI.” The Memorandum offers this specific warning to Government officials: “When exercising this discretion, agency heads should consider whether activities under consideration are consistent with the [EOs] . . . and the broader goal of creating a federal workplace focused on individual merit.” The Memorandum warns that, for any activities that are retained, “agencies must ensure that attendance at such events is not restricted (explicitly or functionally) by any protected characteristics, and that attendees are not segregated by any protected characteristics during the events.”
Last month, the Equal Employment Opportunity Commission (“EEOC”) published two additional memoranda (“What to do if you Experience Discrimination Related to DEI at Work” and “What You Should Know About DEI-Related Discrimination at Work”) that provide additional pieces to help solve the “illegal DEI” puzzle. According to the EEOC, the following activities may be unlawful under Title VII (and therefore likely would constitute “illegal DEI”):
Disparate Treatment, including discrimination against applicants or employees on the basis of sex or race;
Harassment, including subjecting employees to “unwelcome remarks or conduct based on race, sex, or other protected characteristics.”
Limiting, Segregating, and Classifying, including limiting membership in workplace groups to specified individuals or “separating employees into groups based on race, sex, or another protected characteristic when administering DEI…”
Retaliation, including retaliation by an employer “because an individual has engaged in protected activity under the statute, such as objecting to or opposing employment discrimination related to DEI, participating in employer or EEOC investigations, or filing an EEOC charge.”
Though the Administration is signaling that not all DEI programming is illegal, without clear definitions and guidance from the Administration, federal contractors and grantees face uncertainty in their compliance obligations. At least one court case pending in Maryland hinges largely on the absence of concrete definitions and guidance for companies – perhaps opening the door for other courts to weigh in on this topic.[1]
How will the Federal Government Enforce these Requirements?
The Trump Administration has indicated its intent to utilize every tool at its disposal to execute on its DEI priorities, including using the False Claims Act (“FCA”). In particular, the Executive Orders direct government contracts and grant agreements to include:
A term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of section 3729(b)(4) of tile 31, United States Code [the FCA]; and
A term requiring such counterparty or recipient to certify that it does not operate any programs or promot[e] DEI that violate any applicable Federal anti-discrimination laws.
In sum, this language adds a new certification and pre-ordained “materiality” finding, designed to make it easier for the Government to bring civil enforcement actions under the FCA against contractors – essentially removing from the playbook the typical “materiality” defense.
Federal contractors and grant recipients are not the only entities at risk of enforcement action. The Executive Orders also direct Federal agencies to “identify up to nine potential civil compliance investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets of 500 million dollars or more, State and local bar and medical associations, and institutions of higher education with endowments over 1 billion dollars.” The DOJ has since indicated that it will initiate, where appropriate, criminal investigations against these companies.
Conclusion
Though the DEI Executive Orders are in some cases expansive, it is important to remember that their overall scope is limited by the Administration’s ability to act without Congressional intervention. For example, where some Federal contractor Affirmative Action Plan requirements are predominantly administrative in nature – stemming from the now defunct Executive Order 11246 – others, such as non-discrimination provisions addressed by the Civil Rights Act of 1964, the Rehabilitation Act, VEVRAA, and even the Small Business Act, cannot, by law, be eliminated by Executive Order alone.
Still, the DEI Executive Orders represent a significant shift in federal policy, with wide-ranging implications for government contractors and private organizations. The ongoing legal challenges emphasizes the need for clear guidance and thoughtful compliance strategies. Organizations must stay vigilant and adaptable as they navigate this complex regulatory environment.
FOOTNOTES
[1] See, e.g, Nat’l Assoc. of Diversity Officers in Higher Ed. v. Trump, D. Md., No. 1:25-cv-00333.
The Lobby Shop: Post Liberation Day Blues [Podcast]
In the aftermath of President Trump’s “Liberation Day” tariff announcements, the Lobby Shop team breaks down the philosophy behind President Trump’s new tariffs and the real world ramifications for both domestic and foreign policy. The team also examines reactions from the private sector and Congress, including the potential impact on the timing for the Republicans’ plan to move forward on a tax package. With a multitude of scenarios playing out at once, the Lobby Shop team discusses the one question on many Americans minds: where do we go from here?
We Aren’t in Kansas Anymore – Dr. Oz Confirmed as Head of CMS
Well, maybe they held off until after Medicarians, but the Senate has confirmed Dr. Mehmet Oz as the new head of the Center for Medicare and Medicaid Services (CMS).
Dr. Oz is probably most known for hosting a daytime TV-show. But, he is now in charge of the CMS and its substantial budget which equates to over 20 percent of federal outlays. Importantly, for TCPAWorld readers, CMS also is the primary regulator for the marketing of Medicare Advantage (MA) and Part D plans.
Dr. Oz has been vocal in his support for Medicare Advantage in the past and could work to make the MA process better for consumers. However, during his confirmation hearing, he did note that “We’re actually apparently paying more for Medicare Advantage than we’re paying for regular Medicare. So it’s upside down”.
With a proposed final rule still waiting to be finalized, it will be interesting to see how Dr. Oz’s leadership of the organization will affect agencies and marketers. One area of interest will be the finalization of the expansion of CMS’s oversight of “marketing” under the MA and Part D plans which will be bring even more advertising materials under the purview of CMS for review and approval. Prior to this proposed rule, whether a MA or Part D “communication” counted as “marketing” depended on two things: its content and its intent. “Content” meant it had to include details about plan benefits, costs, ratings, or MA-specific rewards.
Now, CMS is proposing a shift. They want to drop the content requirement entirely. If this rule is finalized, the only thing that will matter is the “intent” behind the communication. Does the communication intend to influence the consumer’s enrollment decision? CMS will figure this out by looking at objective factors like the audience and the message itself, not just the plan’s stated purpose. The expectation is that this will significantly increase the amount of materials that plans will need to submit for CMS review, leading to more comprehensive oversight of Medicare marketing.
Maybe under Dr. Oz’s leadership this rule will get another look. One thing is for certain, as Dr. Oz pointed out at his hearing, “There’s a new sheriff in town.”
Delaware Enacts Significant Changes to Delaware General Corporation Law
As discussed in Foley’s Corporate Governance Update last month, SB 21: Delaware Responds In The DExit Battle, the Delaware legislature has been moving quickly to ensure that Delaware remains the preeminent home of choice for many corporations by amending the DGCL. The comprehensive changes, known as SB 21, became law on March 25, 2025, when the Delaware House of Representatives passed the Bill, and Delaware Governor Matt Meyer signed it into law. A copy of SB 21 as finally adopted is available here.
Delaware’s legislature and Governor acted with dispatch to pass a law with a number of changes intended to reduce litigation targeting directors, officers, and controlling stockholders. Our previous update contained a detailed explanation of the Bill. Here is a summary of the most notable changes to DGCL Section 144 and DGCL Section 220:
Raising the bar for deeming a stockholder to be a “controlling stockholder”. One of the major criticisms of existing case law is the scope creep in the definition of who is a controlling stockholder. This has significant implications because having a controlling stockholder on both sides of a transaction pushes the standard of review into the enormously pro-plaintiff entire fairness standard. The new law effectively introduces a floor of one-third ownership in order to be deemed to be a controlling stockholder.
Easing the standard for shielding controlling stockholder transactions from judicial review outside the “going private” context. Recent case law required the double protections of approval by both disinterested and independent directors and a majority of minority stockholders in order to obtain the business judgment standard of review. The new law only requires one of these two protections. It also further relaxes the standard in other ways, such as by relaxing the test for directors of listed companies to be deemed disinterested, and lowering the voting standard for obtaining majority of minority stockholder approval.
Narrowing the ability to make Books-and-records demands. The scope of available books-and-records under DGCL Section 220 has been narrowed under most circumstances to exclude emails, text messages, or informal board communications, and to limit books and records to a three-year look-back. In addition, a complainant must now show a “proper purpose” for any books-and-records demand and must do so with “reasonable particularity” while showing that the requested materials are “specifically related” to that purpose. These changes give Delaware corporations more tools to fight back against nuisance requests.
SB 21 was signed into law only 36 days after it was first introduced—in large part due to the legislature’s bypassing the normal process for amending the DGCL. In the House, the Bill faced nearly two hours of debate and five failed amendments. The motive for acting quickly was clear and explicit: Governor Meyer had asked for a bill like SB 21 to be on his desk by month’s end in an effort to preserve Delaware’s status as the preeminent place to incorporate in response to a growing movement by companies to exit the State following some unfavorable decisions from the State’s judiciary over the last few years.
Notably, the amendments to Sections 144 and 220 apply retroactively unless (1) an action commenced in court concerning an act or transaction is already completed or pending or (2) a books-and-records demand was made on or before February 17, 2025, when SB 21 was first introduced in the Delaware Senate.
SB 21’s changes to the DGCL have been heralded by some in the legal community, but criticized by others as engaging in a race-to-the-bottom with Texas and Nevada that risks long-term repercussions because they push Delaware’s carefully constructed balance too much in favor of corporate controllers and insiders and away from the rights of minority stockholders. Only time will tell whether Delaware remains the domicile of choice for so many of America’s corporations, but the State’s legislative and executive branches have made quite clear that they intend to do whatever is in their power to preserve the advantages of incorporating in the State.
Minnesota Employment Legislative Update 2025, Part I: Breaking the Tie to Make the Law
After controlling Minnesota’s House, Senate, and governorship since 2023, the Minnesota Democratic–Farmer–Labor (DFL) Party’s legislative and gubernatorial “trifecta” at the state capitol is no more. The 2025 regular session of the Minnesota Legislature began with Democrats and Republicans tied at sixty-seven members each in the House and a slim DFL majority in the Senate, meaning no single party can push through its agenda alone.
With every vote carrying significant weight in the session, legislators must reach across the aisle to achieve the majority vote required to pass bills. The question is, who will compromise, and what will it take to break the tie?
Quick Hits
The Minnesota Legislature’s party divide creates uncertainty for employers, with amendments to key labor laws like Paid Family and Medical Leave and Earned Sick and Safe Time potentially facing delays or requiring bipartisan compromise.
Proposed amendments to Minnesota’s Earned Sick and Safe Time Law include delaying penalties for violations before January 1, 2026, making Earned Sick and Safe Time permissive, and changes to leave notice requirements and documentation for extended leave, but none have advanced past initial stages.
Various bills aim to modify or delay the Paid Family and Medical Leave Law, with some proposing exemptions for small employers and others seeking to repeal the law or delay its implementation until 2027.
This divide in the Minnesota Legislature means uncertainty for Minnesota employers. Critical issues, such as Minnesota’s Paid Family and Medical Leave and Earned Sick and Safe Time (ESST) laws, may either face delays or require bipartisan compromise to advance. Employers should stay alert until the end of the legislative session on May 19, 2025, as the legislature negotiates the future of Minnesota’s labor and employment laws.
This article previews key proposed bills that would impact employers if enacted. While it is too early to predict which bills will reach the governor’s desk, the nature of the proposed legislation offers insight into the extent of the legislative divide and the effort required by the legislature to pass any bills.
Minnesota Earned Sick and Safe Time
A handful of proposed bills would amend Minnesota’s ESST law, but none have advanced past their introduction and first reading. These bills sit in the Minnesota House of Representatives’ Workforce, Labor, and Economic Development Finance and Policy Committee and the Minnesota Senate’s Labor Committee, respectively.
House File (HF) 2025 / Senate File (SF) 2300 would create the most significant changes among the proposed bills. These companion bills, among other amendments, would:
exempt employers with fewer than fifteen employees from ESST requirements;
allow prorating ESST hours based on full-time or part-time employee status;
change employee notice for unforeseeable leave from “as soon as practicable” to “as reasonably required by the employer”;
allow employers to ask for documentation if ESST use exceeds two days;
remove certain paid time off (PTO) requirements; and
let employers ask employees to find replacements unless the leave is unforeseeable and permit employees to find replacements on their own.
Other proposed bills would exclude farm employees working for farms with five or fewer employees (HF 1057 / SF 310), Department of Transportation workers (HF 1905), and inmates of correctional facilities (SF 947) from certain requirements; exclude employees appointed to serve on boards or commissions from certain definitions (HF 758 / SF 494); and give employers the option to provide certain benefits (HF 1542 / SF 2572). HF 1325 / SF 2605 would prohibit penalties for violations before January 1, 2026, and provide various exemptions and proration options for small employers.
Paid Family and Medical Leave (Paid Leave)
Various proposed bills aim to change the Paid Leave Law, including potentially delaying its implementation for another year or repealing it altogether. Notably, HF 0011 / SF 2529 would delay the law’s implementation by one year, meaning employees would not receive benefits until January 1, 2027. Once it was sent to the House floor for debate and vote, the House laid HF0011 on the table. No further action will be taken until the House reconsiders the bill.
Other related bills to watch:
HF 1241 / SF 1771 and HF 1263 / SF 2277 would repeal the Paid Leave Law and return unspent money to the general fund.
HF 0260 / SF 1793 would exempt employers with twenty or fewer employees until January 1, 2028.
HF 2113 would exempt employers with fifty or fewer employees.
HF 2024 would exempt certain small employers; change the definition of a seasonal employee; allow private plans to provide shorter durations of leave and benefits under certain circumstances; and postpone benefits until January 1, 2027.
HF 1523 / SF 1849 would exempt certain agricultural workers.
HF 2269 would delay employer penalties for failure to notify employees of paid leave benefits until January 1, 2027.
HF 1976 / SF 2466 would exempt collective bargaining agreement employees from the definition of “covered employment” under certain conditions; remove individuals with personal relationships with employees from the definition of “Family Member”; change the definition of “small employer” to fifty or fewer employees; and require small employers to pay a 50 percent rate among other amendments.
Nondiscrimination
The legislature introduced numerous bills targeting nondiscrimination laws, which are summarized here.
HF 1672 / SF 2371 would expand nondiscrimination provisions to include medical cannabis patients.
HF 2182 / SF 200 would allow employers to justify adverse impact of discriminatory practices if related to the job or business purpose.
HF 0481 / SF 1529 would prohibit employment discrimination based on refusal of medical intervention.
HF 0282 / SF 407 would add political affiliation as a protected category under the Minnesota Human Rights Act. Similarly, SF 863 would prohibit employers from engaging in economic reprisals based on political contributions or activity.
HF 1427 / SF 1111 would require transportation network companies to make vehicles wheelchair-accessible and adopt nondiscrimination policies.
Independent Contractors
The legislature has taken up several bills related to independent contractors. Below is a summary of the key bills currently under consideration:
HF 1316 / SF 2306 would require employers to report newly hired independent contractors to the commissioner of children, youth, and families for child support purposes.
SF 2153 would expand “prohibited practices” to include “if an employer has a formal job classification and compensation plan, place an employee in a job classification or job category or provide a job title that misrepresents the employee’s experience or actual job duties and responsibilities.”
HF 2145 / SF 2361 woulddouble the potential penalty for employers that intentionally misrepresent an employee as an independent contractor in the unemployment insurance or paid family and medical leave programs.
Job Postings, Employment Agreements, and Unions
The legislature also introduced bills that would affect job posting requirements, employment agreements, and unions. Namely:
Job Postings
HF 1484 / SF 2235 would require job postings to disclose whether employee health plan options comply with cost-sharing limits.
Employment Agreements
HF 2567 / SF 2533 would prohibit stay-or-pay provisions as a condition of employment.
HF 1768 would provide more circumstances under which a covenant not to compete is valid and enforceable.
Unions
HF0107 / SF1532 would allow strikers who stop working due to a labor dispute to be eligible for unemployment benefits.
SF 1148 would allow applicants to be eligible for unemployment benefits if the employer hires a replacement worker for their position.
HF 2240 / SF 3050 would allow private employees to allocate their union dues to a local, state, or national organization of their choice.
Another Post SB21 Proposal To Reincorporate From Delaware To Nevada
The ink has barely dried on Delaware’s hotly debated amendments to its General Corporation Law and already another company has proposed reincorporation in Nevada. In preliminary proxy materials filed yesterday with the Securities and Exchange Commission, Roblox Corporation, an NYSE listed company, gave the following reasons for the reincorporating in Nevada:
Our Board believes that there are several reasons the Nevada Reincorporation is in the best interests of the Company and its stockholders. Our Board and the NCGC [Nominating & Corporate Governance Committee] determined that to support the mission of innovation of the Company it would be advantageous for the Company to have a predictable, statute-focused legal environment. The Board and the NCGC considered Nevada’s statute-focused approach to corporate law and other merits of Nevada law and determined that Nevada’s approach to corporate law is likely to foster more predictability in governance and litigation than Delaware’s approach. Among other things, the Nevada statutes codify the fiduciary duties of directors and officers, which decreases reliance on judicial interpretation and promotes stability and certainty for corporate decision-making. The Board and the NCGC also considered the increasingly litigious environment in Delaware, which has engendered costly and less meritorious litigation and has the potential to cause unnecessary distraction to the Company’s directors and management team. The Board and the NCGC believe that a more predictable legal environment will better allow the Company to pursue its culture of innovation as it pursues its mission.
Note that the Roblox’s statement focuses on Nevada’s statutory approach as opposed to Delaware’s judge-made development of the law. In the recent debate over Delaware’s amendments to its General Corporation Law, some decried the Delaware legislature’s interference with lawmaking by the courts:
The Delaware General Corporate Law is characterized by the strength of judicial oversight, whereas the bill seemingly has as its express purpose the disempowerment of the Court of Chancery and Supreme Court—a key feature and reason why companies incorporate in Delaware. The bill would overturn decades of precedent and carve out avenues for the most conflicted transactions to proceed unchallenged.
Council of Institutional Investors Letter dated March 18, 2025 to Chair of Delaware General Assembly’s Senate Judiciary Committee. The effrontery of the General Assembly in presuming to make law! Based on recent proposals, it would seem that the Court of Chancery and Supreme Court are the reason that companies are looking for the exit.
Blockading the Ports: U.S. Imposes 10% Global Tariff; Higher Reciprocal Tariff Rates by Country
On April 2, President Trump issued an Executive Order (EO) imposing global reciprocal tariffs (White House Fact Sheet). The EO drew enough parallels to the Smoot-Hawley Tariff Act that Trump mentioned it in his Rose Garden announcement. The EO imposes a 10% baseline tariff on all imports to the United States beginning April 3, 2025.
On top of that baseline, the EO also imposes country-by-country tariffs reciprocal tariffs represented in the chart below. Those amounts are based on what the United States Trade Representative (USTR) determined in its 2025 Foreign Trade Barriers report to be the current tariff rate imposed on U.S. goods for imports to that country. That rate includes official tariffs, as well currency manipulation and other “trade barriers.” The “kind” reciprocal tariffs for each country are roughly half of that amount.
Certain goods will not be subject to the reciprocal tariff. Those include the following:
Communications of no value, humanitarian donations, information materials and media, and personal luggage, subject to 50 USC 1702(b);
Steel/aluminum articles and autos/auto parts already subject to Section 232 tariffs;
Copper, pharmaceuticals, semiconductors, and lumber articles;
All articles that are or become subject to future Section 232 tariffs (e.g., steel, aluminum, autos and auto parts);
Bullion; and
Energy and other certain minerals that are not available in the United States.
For Mexico and Canada the existing tariffs imposed in March remain in effect. USMCA compliant goods will continue to see a 0% tariff, non-USMCA compliant goods will be subject to a 25% tariff, and non-USMCA compliant energy and potash will be subject to a 10% tariff. However, if the EO specific to Mexico and Canada were to be terminated, USMCA compliant goods would receive preferential treatment, and non-USMCA compliant goods would be subject to the 12% reciprocal tariff.
In addition to the universal tariff imposition, beginning on May 2, 2025, the 54% tariff rate on imports from China will also be applied to packages worth less than $800 coming to the United States from China or Hong Kong.
Because the new tariffs are imposed under the International Emergency Economic Powers Act (IEEPA), there does not appear to be a formal process for requesting a waiver to the tariffs or providing comments on their implementation. However, it is likely that actions will be filed in U.S. courts as well as before the World Trade Organization contesting the tariffs.
Additional Author: Marta Piñol Lindin
What Every Multinational Company Should Know About … The Global and Reciprocal Tariffs Announcement
On April 2, 2025, President Trump implemented the steepest American tariffs in over a century. The implications for numerous multinational companies — including importers, manufacturers, distributors, and retailers — will be immense. As an aid to the importing community, we are providing: (1) a summary of the April 2 “reciprocal tariff” and other trade-related proclamations, including how these tariffs fit within other tariff pronouncements and the prior Section 232 and 301 tariffs; (2) an overview of multinational companies that could be most impacted by the reciprocal tariffs; and (3) the implications for importers trying to manage these drastic changes to the cost of importing goods into the United States.
At its core, the reciprocal tariff announcement consists of a baseline 10% tariff on all exports to the United States, with significantly higher duties on approximately 60 nations. In essence, countries that maintain a trade surplus or roughly equal trade in manufactured goods were hit with a 10% tariff, while countries that maintain significant trade surpluses — including China, the European Union (EU), Japan, Cambodia, and Vietnam — face steep new levies. China, the primary target of Trump’s trade war, now faces tariffs exceeding 50% on nearly all goods, and tariffs approaching 89% for many imports. Moreover, the tariffs are almost as great on countries that generally have formed the “China +1” strategy of many multinational companies, such as Cambodia, Vietnam, and Malaysia. The net result is an average tariff rate that has climbed from a historic average of under 3% to around 23% — the highest level in over a century.
Details of the Reciprocal Tariff Plan
A statement from the U.S. Trade Representative confirmed that the Trump administration calculated tariffs primarily based on trade imbalances rather than an analysis of trade barriers, as was initially telegraphed by the administration. Countries with neutral trade patterns or even trade deficits with the United States face a minimum 10% duty (the global tariff), while all other major trading partners (with the exception of Canada and Mexico) will be subject to sharply higher rates (the reciprocal tariffs). Tariffs will be imposed using the following timetable:
Implementation Timeline: The 10% global tariff takes effect at 12:01 a.m. on April 5, 2025. The higher reciprocal tariffs will take effect at 12:01 a.m. on April 9, 2025. It is not clear if Customs is already equipped to handle collecting these special tariffs, which likely will require implementation in the Automated Commercial Environment (ACE) portal that Customs maintains for importers to submit import-related information and to pay tariffs.
Notable Exemptions: Prior Trump administration tariffs were carved out:
25% Steel and Aluminum Tariffs:The tariffs on steel and aluminum, and identified derivative products, remain undisturbed at 25%.
25% Canada and Mexico:Canada and Mexico also are exempt from this round of tariffs, although separate 25% tariffs imposed due to the Trump administration’s concerns regarding unauthorized immigration and fentanyl imports remain in place. These latter tariffs continue to be partially suspended for United States-Mexico-Canada Agreement (USMCA)-compliant goods.
25% Automotive Tariffs: The reciprocal tariffs also exclude all automobiles and automotive parts, subject to the additional 25% duties imposed in Proclamation 10908 (“Adjusting Imports of Automobiles and Automobile Parts into the United States”) on March 26, 2025. The automotive tariffs, which became effective on April 3, impose a 25% sectoral tariff on sedans, SUVs, crossovers, minivans, cargo vans, and light trucks up to 8,500 pounds, with a payload capacity up to 4,000 pounds. The tariffs also extend to automobile parts such as engines, transmissions, powertrain parts, and electrical components, beginning on May 3, 2025. Again, this tariff construct is left untouched.
Sector-Specific Exclusions: Certain products, such as copper, pharmaceuticals, semiconductors, lumber, critical minerals, and energy products, are unaffected by the April 2 reciprocal announcement. It is expected that these products will be subject to future tariffs, thus making this an “exemption” to allow for future action, rather than indicating no tariff imposition.
Future Sectoral Tariffs: The proclamation states that it will not apply to any future special tariffs that might be imposed under Section 232.
U.S.-Origin Content: The proclamation states that “the ad valorem rates of duty set forth in this order shall apply only to the non-U.S. content of a subject article, provided at least 20 percent of the value of the subject article is U.S. originating.”
Finally, President Trump also announced the end of duty-free shipping for many small parcels using the “de minimis” exemption. This further tightens trade restrictions, particularly on goods from China, which most commonly used the exemption.
U.S. Multinational Companies and Importers Hit Hardest Hit by the New Tariff Announcements
The new tariffs are likely to hit U.S. multinationals hardest in the following areas:
Companies that Import from China: China, which runs the largest trade surplus with the United States, continues to bear the brunt of duties. Goods from China now have to pay: (1) the normal Chapter 1-97 duties (generally 3%–6%); (2) the 20% additional duties imposed earlier this year by the Trump administration, related to Chinese government’s alleged failure to prevent fentanyl precursor exports; (3) a 34% reciprocal tariff rate; and (4) for about half of all Chinese imports, the 2018 Section 301 tariffs, which range from 7.5% to 25%. All of these tariffs stack, meaning that imports of Chinese-origin goods now face duties of 55%–60% and potentially up to 89%. There are no exceptions for goods produced by U.S.-owned subsidiaries.
Companies that Pivoted from China, Using a “China +1 Strategy”: In response to the tariffs imposed on China during the first Trump administration, many multinational companies — with the encouragement of both the Trump and the Biden administrations — pivoted to a “China +1” strategy. This involved generally moving production out of China and into other countries (the +1) to minimize tariffs and geopolitical risks and to reduce dependency on Chinese production. But the countries that most popularly used this strategy — Cambodia, Vietnam, Thailand, Malaysia, and India — now are facing high tariffs of their own, upending the benefits of the China +1 strategy.
Companies that Import from the EU: Companies importing goods from the European Union will be impacted more than anticipated by the reciprocal tariffs, with the Trump administration imposing a 20% duty on EU-origin products.
Automotive Companies: Automotive companies will be hit particularly hard in the new tariff environment, as they face increased costs on multiple fronts. Automobiles and automotive parts that fall under the specific automotive tariffs will see significant duty hikes, raising the cost of manufacturing and assembly. Additionally, reciprocal tariffs on all other imported components will further strain supply chains and profit margins.
Moreover, the following countries and sectors, while not a focus of the new tariffs, are at heightened risk for future tariff increases:
U.S. Importers Already Hit by High Reciprocal Tariffs: According to administration officials, the currently announced tariffs are the “ceiling” — unless other countries retaliate. To this end, many countries (and the European Union) have announced plans to develop retaliatory tariffs. The currently announced tariffs could thus increase even further if other countries implement their own retaliatory tariffs.
Canada and Mexico: Canada and Mexico were carved out from the April 2 tariffs, but this exemption is largely because of previously implemented tariffs on certain imports from these countries. For some importers, it may seem encouraging that USMCA-compliant products from Canada and Mexico remain duty-free. This relief, however, may be temporary. The USMCA is set to be reviewed by 2026, creating uncertainty about future trade terms.
Lumber, Pharmaceuticals, and Copper: While lumber, pharmaceuticals, and copper were excluded from the new reciprocal tariffs, this exemption is not expected to provide long-term relief for importers in these sectors. Instead, it is widely anticipated that these goods will be targeted by separate sector-specific tariffs in the coming months.
U.S. Companies Selling U.S.-Origin Goods into the EU, Canada, Japan, Korea, and Other Countries Hit by High U.S. Tariffs: While the Trump administration has cautioned countries from retaliating, all of the countries listed above are known to be preparing retaliatory tariffs, which potentially will be done on a joint basis.
Implications of the Tariff Announcements
The April 2 tariffs exceed initial expectations, both in scale and impact. The average U.S. tariff rate was just 2.7% at the outset of the first Trump administration, with earlier increases confined to one country and a couple of products. It now stands at 23% or higher, a nearly fourfold increase. The U.S. government is projected to collect $600–700 billion in tariffs annually, up from $95 billion per year — with importers of record (generally, U.S. companies) paying these tariffs. Further, unlike prior tariffs, the administration has signaled that few, if any, exemptions will be granted.
The April 2 tariffs also introduce significant compliance and cost-allocation challenges for U.S. importers. In this new trade environment, we expect CBP will increase its enforcement efforts considerably, focusing on high-tariff goods. Further, while previous tariffs generally were focused on one country (China), tariff-related risks are now spreading out to a large number of countries, especially those that once benefited from U.S. efforts to reduce reliance on China such as Cambodia, Vietnam, Thailand, and Malaysia.
Multinational companies thus should carefully and thoroughly reevaluate their import and customs programs in light of the new tariffs to ensure compliance and to mitigate potential financial risks. Below are several items that merit a special Customs and tariff compliance focus:
Country of Origin Determination: The level of tariffs is now most heavily influenced by the country of origin of imported goods, making accurate country of origin determinations a top (if not the highest) priority. Incorrect origin reporting could result in penalties, back duties, and potential legal consequences. To help prevent these outcomes, importers should focus on the following:
Importers should conduct thorough origin analysis by reviewing raw material/component sourcing, manufacturing processes, and assembly locations to ensure compliance with CBP transformation requirements.
Importers should consider working with customs compliance specialists or trade attorneys to assist with complex origin determinations and to avoid unexpected tariff liabilities.
Importers should prepare reasonable care memorandums to document the methodology and evidence used in determining the country of origin, providing a defensible position in case of an audit.
Importers should consider requesting advisory opinions regarding gray areas relating to the country of origin.
USMCA Compliance: USMCA-compliant goods may be exempt from many of the newly imposed tariffs, including the April 2 reciprocal tariffs. Accordingly, we expect Customs will focus heavily on ensuring all goods claiming preferential status under the USMCA in fact meet all requirements. Items for a probing compliance review in these areas include:
To take advantage of duty-free treatment under the USMCA, companies must have valid and complete USMCA certificates of origin at the time of entry. Post-entry certification is not permitted.
CBP is expected to closely scrutinize USMCA claims, so importers should immediately confirm all originating status claims are well documented. This includes conducting product-specific audits to verify that products meet regional value content (RVC) and tariff shift rules, ensuring eligibility before making a claim.
Anti-Dumping and Countervailing Duties (AD/CVD): In addition to reciprocal tariffs, we expect CBP to continue its strict enforcement of AD/CVD orders, particularly on imports from China and Southeast Asia. Importers should take steps to ensure compliance and minimize exposure to unexpected duty liabilities, including:
Importers should closely review Commerce Department scope determinations to confirm whether their products fall within the scope of existing AD/CVD orders.
Customs entry documentation (CF-7501) and supplier contracts should be carefully reviewed to ensure proper classification and duty payment. Importers should be prepared for enhanced CBP audits and verifications.
Chinese Parts and Components: We expect that the presence of Chinese-origin parts and components in finished goods will continue to be an area of particular CBP scrutiny. Consistent with the above point regarding country-of-origin determinations, the presence of Chinese-origin parts and components raises concerns about substantial transformation claims, which determine whether a product’s country of origin is considered China or another jurisdiction. Importers should consider putting reasonable care memorandums in place to document the analysis supporting substantial transformation claims, including descriptions of manufacturing processes and component alterations and supporting CBP advisory rulings.
Direct and Indirect Supply Chain Costs: Companies should take a holistic approach when evaluating the impact of tariffs, considering not just the direct cost but also indirect costs associated with supply chain adjustments, contract renegotiations, and compliance risks. Steps to consider include the following:
Importers should review supplier contracts to determine how tariff costs are allocated between buyers and sellers.
Importers should consider that supply chain disruptions due to increased tariffs may lead to delays in production and ordering, higher transportation costs, and the need to identify alternative sourcing options.
Companies should conduct cost-benefit analyses to evaluate whether shifting production to low-tariff jurisdictions or USMCA partners would provide long-term savings, despite short-term transition costs.
The message from Washington is clear: We are entering what will likely be an extended high-tariff, high-enforcement environment. The current trade landscape has vastly multiplied the need for multinational companies to understand the new importing rules and emphasize full compliance.