SEC Issues New Guidance on Self-Certification of Accredited Investor Status in Private Placements
On March 12, 2025, the staff of the Division of Corporate Finance (the staff) of the US Securities and Exchange Commission (the SEC) concurrently issued a no-action letter and interpretive guidance via new Compliance and Disclosure Interpretations (C&DIs) that helpfully clarify and expand the circumstances in which “accredited investor” status may be verified through investor self-certification when the minimum investment amount of an offering crosses applicable thresholds.
The private offering safe harbor afforded by Rule 506(c) of Regulation D (Rule 506(c)) under the Securities Act of 1933, as amended (the Securities Act), allows for the use of general solicitation and general advertising in connection with private placements, provided that, among other requirements, the issuer takes “reasonable steps” to verify that all of the participating purchasers qualify as “accredited investors” pursuant to SEC rules and regulations.1 This accredited investor verification requirement has historically been viewed as materially limiting the usefulness of the Rule 506(c) safe harbor, as the requirement has been understood to necessitate the undertaking of an oftentimes administratively burdensome manual verification process of each participating investor’s status and qualifications, including, for example, the collection and review of individual purchasers’ tax returns to confirm income eligibility thresholds had been met or requiring the engagement of third-party services to confirm ownership of assets (as relying solely on representations delivered by the investors themselves with respect to such qualifications and metrics was deemed insufficient in terms of conducting the “reasonable steps” verification process required by Rule 506(c)).
Significantly however, the recent no-action letter and C&DIs confirm that an issuer may now reasonably conclude in the context of an offering under Rule 506(c) that it has taken reasonable steps to verify a purchaser’s status as an accredited investor in circumstances where:
the purchaser has agreed to make a minimum investment of (i) $200,000 if the purchaser is a natural person or (ii) $1,000,000 if the purchaser is an entity (including, in each case, with confirmation from the purchaser that if such purchase is being made via a capital commitment, that such commitment is binding);
the purchaser provides representations both that (i) it is an accredited investor and that (ii) it is not receiving thirdparty financing in whole or in part with respect to the purchase; and
the issuer does not have any actual knowledge indicating that the purchaser is not in fact an accredited investor or that any of its provided representations (including as to the lack of thirdparty financing) are untrue.
Although the no-action letter and C&DIs, by simplifying the accredited investor verification process in certain circumstances, are expected to enhance the attractiveness of the Rule 506(c) exemption for issuers conducting private offerings, it is important to note that if a Rule 506(c) offering fails to qualify for the safe harbor for any reason, and the issuer has already engaged in general solicitation with respect to such offering (as would normally be permitted under Rule 506(c)), neither the exemption provided by Rule 506(b) of Regulation D (Rule 506(b)),2 which allows issuers to raise unlimited capital from accredited investors and up to 35 non-accredited investors (provided there has been no general solicitation or advertising), nor the general private placement exemption provided by Section 4(a)(2) of the Securities Act, for transactions not involving a public offering, would be available as fallback options with respect to the potentially busted securities law exemption – it is therefore crucial that issuers consult with counsel as early in the process as possible to ensure any potential offering is structured and conducted in a manner in which the availability of an exemption from registration is not called into question.
1 Rule 506(c)(2)(ii).
2 Issuers seeking to avoid burdensome accredited investor verification processes have historically turned to Rule 506(b) as the securities law exemption of choice – between July 1, 2020, and June 30, 2021 (the latest period for which data is available), issuers raised approximately $1.9 trillion under Rule 506(b), compared to $124 billion under Rule 506(c). https://carta.com/learn/private-funds/regulations/regulation-d.
What Every Multinational Company Should Know About … The Current Trump Tariff Proposals
Although we are only two months into the new administration, we have seen a dizzying array of new tariffs that have been proposed, imposed, revoked, suspended, and sometimes reimposed. It can be difficult for importers to keep up with all the proposals. So, as an aid to the importing community, we have put together an “evergreen” tariff article, which contains three key items for importers:
A table of the tariff proposals, including their current status[1] and the key importer issues for each;
A list of resources for importers looking for aids to cope with tariff and international trade uncertainty; and
A list of the most common questions we are receiving from clients regarding the new tariffs and their implementation.
We will be regularly updating these resources to reflect new tariff proposals and modifications, which are in some cases being updated or changed daily.
Where Are We on the Various Tariff Announcements?
At this point, we count 12 tariff initiatives that are proposed or in play. They range from broad-based tariffs that cover all goods from a certain country (Canada, China, and Mexico), tariffs that cover certain types of goods (aluminum and steel), promises of future tariffs (automotives, semiconductor, pharmaceutical, copper, and lumber), and promised retaliatory tariffs (European wine and alcoholic beverages). Further, although we have seen more tariff announcements in the first two months of the second Trump administration than we saw in the entirety of the first one, the largest tariff shoe is yet to drop: It is likely that the announced “Fair and Reciprocal” tariff rollout will dwarf the tariffs imposed to date, with the countries at the greatest risk of increased tariffs consisting of:
Countries that impose high tariffs. Notable examples include Argentina, Bangladesh, Brazil, Egypt, India, and Pakistan.
Countries that are viewed as heavily subsidizing their manufacturers. Depending on the particular type of products, examples include China (especially) as well as Australia, Canada, and the European Union countries.
Countries that are viewed as manipulating their exchange rate. The Department of Commerce already has issued a finding that Vietnam grants subsidies by manipulating its exchange rate, in a countervailing determination involving tires from Vietnam. As part of its semiannual report to Congress, the Treasury Department maintains a “monitoring list” of exchange rate policies that arguably confer subsidies. The November 2024 list included China, Germany, Japan, Singapore, South Korea, Taiwan, and Vietnam.
Countries that have put in place import barriers aimed at high-profile, high-volume products such as automobiles. While the United States maintains tariff levels of 2.5 percent for automobile imports, most of the rest of the world starts at 10 percent or higher.
We will be updating this article as new policies are announced, including the reciprocal tariffs. The state of play for each tariff is as follows:
Where Are We on the Trump Tariffs?
Tariff Proposal
Effective Date
Likely To Stick?
Likely To Increase?
Key Issues for Importers
2018 Section 301 Tariffs 83 FR 28710; 83 FR 40823; 83 FR 47974; 84 FR 43304
In force
Yes
Probably; likely to be equalized at top level and/or raised
Review HTS classifications to ensure accuracy, particularly for List 4B products; see “New 20% China Tariffs” below
2018 Aluminum/ Steel Tariffs 83 FR 11625; 83 FR 11619
Superseded as of 3/4/2025
N/A
N/A
N/A
New 20% China Tariffs 90 FR 11426
3/4/2025
Yes
Possibly
Use of Chinese parts and components for China+1 strategies; ensure substantial transformation of all products manufactured in +1 countries
25% Canada and Mexico Tariffs 90 FR 9113; 90 FR 9117
3/4/2025- 3/6/2025
Superseded as of 3/6/25
N/A
3/6/2025 (non-USMCA-Compliant goods) 90 FR 11429 90 FR 11423
Possibly
Possibly
Verify and document compliance (e.g., rules of origin, special rules for autos and textiles) for all claims of preferential treatment under USMCA; maintaining certificates of origin at time of entry. Consider Mexico duty-saving opportunities (e.g., IMMEX)
New 25% Aluminum/ Steel Tariffs 90 FR 9807; 90 FR 9817;
3/12/2025
Yes
Yes, by adding new derivative products
Monitor for new derivative products proposed for addition to steel and aluminum derivative products; verify potential HTS matches for aluminum and steel derivatives; look for Customs instructions regarding derivative products and apply
Reciprocal Tariffs
4/2/2025 (likely roll out in stages)
Yes
Unclear
Monitor; see above for list of high-tariff countries
Broad European Tariffs
Promised
Unclear
N/A
Monitor
25% Auto, Semiconductor, Pharmaceutical Tariffs
Promised
Yes
Subject to negotiation with Europe, Korea, Japan, and Mexico
Monitor; consider front-loading inventory for critical components
New Lumber Tariffs
Under study
Yes (if issued)
N/A
Monitor; consider front-loading inventory
New Copper Tariffs
Under study
Yes (if issued)
N/A
Monitor; consider front-loading inventory
200% Retaliatory Wine Tariffs
Threatened
No (if issued)
EU
Monitor; consider front-loading inventory
Future of USMCA
2026 review
Unclear
N/A
See Canada and Mexico Tariffs; monitor for expedited negotiations
Frequently Asked Questions
After presenting at numerous seminars and webinars, and in discussions with clients, we have noticed certain recurring questions. As an aid to the importing community, we have compiled a list of these, which include the following:
General
Do the tariffs stack?
Yes, all tariffs stack. This means an entry of steel from China would incur:
the normal Chapter 1–97 tariff;
the 25-percent Section 232 steel tariff;
the original Section 301 China steel tariff (up to 25 percent); and
the new 20-percent additional China tariff.
In addition, if the product is covered by an antidumping or countervailing duty order, then those duties also would stack.
Is the stacking compounded?
No. The tariffs add up without compounding. If both a 20-percent and a 25-percent tariff apply, then this results in a 45-percent increased tariff.
Are you seeing clients pursue a China +1 strategy to cope with the new tariffs?
Yes. Many clients have been pursuing a strategy of adding additional capacity outside of China since the imposition of the original Section 301 duties. These efforts appear to be accelerating, as there is a growing realization that high tariffs on China are the new normal. In this regard, it is important to note the original Section 301 tariffs remained in place even under the Biden administration. Further, China is likely to see the greatest amount of increased tariffs under the reciprocal tariff proposal because it hits so many categories — it heavily subsidizes its industries, it has been tagged as a currency manipulator by the Department of Treasury for years, and there are numerous countervailing duty findings by the Department of Commerce that provide a clear roadmap to identify subsidy programs.
One caution is that when companies move production out of China, they often continue to use Chinese-origin parts and components. Companies pursuing this strategy need to do a careful analysis to ensure they are “substantially transforming” the product by doing enough work and adding enough value in the third country to create a new and different article of commerce with a new name, character, or use, thus giving it a new, non-Chinese country of origin.
Will there be exceptions for goods like medical devices in the proposed tariffs?
Unclear. But the tariffs have veered toward being universal. Further, one of the purposes of the aluminum and steel tariff announcement was to wipe out the list of accumulated product-specific exceptions that had grown over the years. These factors work against an announcement of tariff-specific exceptions.
Are there any discussions relating to potential tariff relief for certain sectors (Defense, Navy, etc.)?
So far, the only somewhat industry specific reprieve has been the lifting of tariffs on USMCA compliant goods until April 2, 2025, as a result of the U.S. auto manufacturer concerns. While this is intended to apply to a lot of automotive imports, the lifting of the tariffs on USMCA compliant items is not exclusively tied to automotive imports. If discussions regarding tariff relief for other sectors have been occurring, they have not been announced.
Will the Executive Orders on tariffs be challenged in litigation?
Almost certainly, yes. But in general, the Court of International Trade and the Court of Appeals for the Federal Circuit tend to defer to the Executive in matters of international trade policy. Also, the imposition of special tariffs in the first Trump administration were generally upheld by the trade courts.
Have you heard of any plans to change Foreign Trade Zones (FTZ) laws?
In general, no. Specific tariff announcements, however, have contained provisions relating to the FTZs, such as stating any goods that go into Foreign Trade Zones need to enter in “privileged foreign status.” This means the duty rate is fixed at the time the goods enter the zone, meaning even if the goods are further manufactured within the FTZ, the duty will be based on the original classification when they entered the FTZ.
Steel and Aluminum Tariffs
How have the Section 232 aluminum and steel tariffs changed from the original 2018 version?
The aluminum tariffs increased from 10 to 25 percent.
All negotiated tariff-rate quotas for the EU, Japan and the United Kingdom, as well as the quotas negotiated with Argentina, Brazil, and South Korea, are no longer applicable. The previous exemptions for Australia, Canada, Mexico, and Ukraine no longer apply.
All product-specific exemptions that had been granted under the original aluminum and steel program are revoked.
The “derivative articles list” is considerably expanded.
Are Chapter 72 articles still subject to 25-percent tariffs?
Yes. Certain headings in Chapter 72 that were previously subject to the original Section 232 tariffs are still covered. All exclusions that previously applied to certain Chapter 72 products are now revoked.
Are iron products covered?
Based on the description of the covered products in the Executive Orders, carbon alloy steel products, not iron, are covered by the exclusions.
How should we treat imports that fall under the “derivative articles” HTS codes but do not actually contain any aluminum or steel?
In some cases, certain HTS classifications that are on the derivative aluminum and steel HTS classifications can cover types of products that may not contain any aluminum or steel. For example, certain types of metal furniture are covered, but if these are made out of a metal other than steel then they would not be covered even though they fall within an HTS that is listed in Annex 1 of the steel proclamation. In these cases, it would be appropriate to have the foreign producer include a statement on the commercial invoice to state that the product does not contain aluminum or steel, to support why the tariffs are not due on the entry.
After the elimination of the product-specific exemptions, are there any remaining exemptions?
The only exemption remaining is for derivative articles that are manufactured from steel melted/poured in the United States or aluminum smelted/cast in the United States. For such products, the importer should request a statement on the commercial invoice stating that the product contains aluminum smelted/cast in the United States or steel that was melted/poured in the United States. In case of Customs inquiry, it would be appropriate to include copies of steel mill certificates or aluminum certificates of analysis in the 7501 Entry Summary packet.
For derivative articles, is the 25-percent tariff paid on the full value of the article?
The Executive Orders state that the 25-percent tariff is paid on the “value” of the aluminum or steel “content” of the “derivative article.” There are, however, no instructions as to how this value should be calculated. In accordance with normal Customs requirements, the value should be calculated using a reasonable method that is supportable. This could potentially be based on a calculation from the foreign supplier. Frequent importers of derivative products should monitor CSMS announcements to see if CBP issues instructions on this issue.
Is duty drawback available for the aluminum and steel tariffs?
No, the Executive Orders state that duty drawback cannot be used.
Does Chapter 98 provide relief from the 25-percent aluminum and steel tariffs?
The Executive Orders do not list any Chapter 98 exceptions for the new tariffs. This is consistent with the original Section 232 tariffs, which also did not contain any Chapter 98 exceptions.
Will there be an exclusion process?
None has been announced or established. It is unlikely that the Trump administration would wipe out all product-specific exemptions only to build them back up again.
Could the list of “derivative articles” expand?
The Executive Orders directed the Department of Commerce to establish a process by May 11, 2025, to consider requests to add additional “derivative articles.” We anticipate that U.S. aluminum and steel manufacturers will aggressively use this process to push for additional excluded derivative products.
USMCA/Canada and Mexico Tariffs
Will the reciprocal tariffs replace the Canadian and Mexican tariffs? Or will they stack?
The reciprocal tariffs have not been announced yet. But because all of the other tariffs stack, there is a high likelihood that the reciprocal tariffs also will stack on top of the existing 25-percent tariffs rather than replace them where they overlap. Also, the 25-percent tariffs were announced as being imposed due to concerns about fentanyl and unauthorized immigration, which is an entirely separate issue from the tariff equalization that is the goal of the reciprocal tariffs.
How will tariffs effect the IMMEX/Maquiladora imports from Mexico?
Because the Maquiladora, Manufacturing, and Export Services Industry (IMMEX) Program is a figure of Mexican law, we anticipate Mexico will do all that it can to protect companies that operate using the Program. Although uncertain, as per previous experiences in imposing retaliatory measures, Mexico will most likely establish tariffs on US sumptuous goods and/or finished products, and hardly to raw materials used by IMMEX/Maquiladora companies.
Will the Canada and Mexico tariffs be lifted when the USMCA review occurs?
Unclear. We do note, however, that the United States lifted the prior aluminum and steel tariffs as part of the negotiation of the USMCA under the first Trump administration. The second Trump administration, however, is taking a much harder line on tariff and international trade issues.
Reciprocal Tariffs
What are reciprocal tariffs?
“Reciprocal tariffs” are intended to equalize tariff rates, such as when a foreign country imposes a higher tariff on the United States than the United States does for the same product category. Because the United States generally has low tariffs, this means that there are a great many HTS classifications that likely will increase, with the impact varying by country. Moreover, because the announcement of the coming reciprocal tariffs states that it will take into account any form of discrimination against U.S. companies or programs that favor foreign companies, then calculated reciprocal tariffs will likely be very high. For example, most countries have Value Added Taxes that rebate any VAT payments when goods are exported; the Trump administration has indicated that this would be considered a form of subsidy that should be counteracted with reciprocal tariffs. So would subsidized electricity, currency manipulation, and so forth. Adding these concepts on top of equalizing tariffs across HTS categories leads to likely major increases in tariffs.
When will they be announced?
The reciprocal tariff announcement is expected for April 2, 2025. The Trump Administration also announced that it would proceed to consider countries with major trade deficits with the United States first, so it is possible that April 2nd will be the start of a rolling set of reciprocal tariff announcements.
Force Majeure and Surcharges FAQs
The Foley Supply Chain team also has published a set of FAQs regarding contractual issues, which we are repeating here for convenience.
What are the key doctrines to excuse performance under a contract?
There are three primary defenses to performance under a contract. Importantly, these defenses do not provide a direct mechanism for obtaining price increases. Rather, these defenses (if successful) excuse the invoking party from the obligation to perform under a contract. Nevertheless, these defenses can be used as leverage during negotiations.
Force Majeure
Force majeure is a defense to performance that is created by contract. As a result, each scenario must be analyzed on a case-by-case basis, depending on the language of the applicable force majeure provision. Nevertheless, the basic structure generally remains the same: (a) a listed event occurs; (b) the event was not within the reasonable control of the party invoking force majeure; and (c) the event prevented performance.
Commercial Impracticability (Goods)
For goods, commercial impracticability is codified under UCC § 2-615 (which governs the sale of goods and has been adopted in some form by almost every state). UCC § 2-615 excuses performance when: (a) delay in delivery or non-delivery was the result of the occurrence of a contingency, of which non-occurrence was a basic assumption of the contract; and (b) the party invoking commercial impracticability provided seasonable notice. Common law (applied to non-goods, e.g., services) has a similar concept known as the doctrine of impossibility or impracticability that has a higher bar to clear. Under the UCC and common law, the burden is quite high. Unprofitability or even serious economic loss is typically insufficient to prove impracticability, absent other factors.
Frustration of Purpose
Under common law, performance under a contract may be excused when there is a material change in circumstances that is so fundamental and essential to the contract that the parties would never have entered into the transaction if they had known such change would occur. To establish frustration of purpose, a party must prove: (a) the event or combination of events was unforeseeable at the time the contract was entered into; (b) the circumstances have created a fundamental and essential change; and (c) the parties would not have entered into the agreement under the current terms had they known the circumstance(s) would occur.
Can we rely on force majeure (including if the provision includes change in laws), commercial impracticability, or frustration of purpose to get out of performing under a contract?
In court, most likely not. These doctrines are meant to apply to circumstances that prevent performance. Also, courts typically view cost increases as foreseeable risks. Official comment of Section 2-615 on commercial impracticability under UCC Article 2, which governs the sale of goods in most states, says:
“Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section. (See Ford & Sons, Ltd., v. Henry Leetham & Sons, Ltd., 21 Com. Cas. 55 (1915, K.B.D.).)” (emphasis added).
That said, during COVID and Trump Tariffs 1.0, we did see companies use force majeure/commercial impracticability doctrines as a way to bring the other party to the negotiating table to share costs.
May we increase price as a result of force majeure?
No, force majeure typically does not allow for price increases. Force majeure only applies in circumstances where performance is prevented by specified events. Force majeure is an excuse for performance, not a justification to pass along the burden of cost increases. Nevertheless, the assertion of force majeure can be used as leverage in negotiations.
Is a tariff a tax?
Yes, a tariff is a tax.
Is a surcharge a price increase?
Yes, a surcharge is a price increase. If you have a fixed-price contract, applying a surcharge is a breach of the agreement.
That said, during COVID and Trump Tariffs 1.0, we saw many companies do it anyway. Customers typically paid the surcharges under protest. We expected a big wave of litigation by those customers afterward, but we never saw it, suggesting either the disputes were resolved commercially or the customers just ate the surcharges and moved on.
Can I pass along the cost of the tariffs to the customer?
To determine if you can pass on the cost, the analysis needs to be conducted on a contract-by-contract basis.
If you increase the price without a contractual justification, what are customers’ options?
The customer has five primary options:
1. Accept the price increase:
An unequivocal acceptance of the price increase is rare but the best outcome from the seller’s perspective.
2. Accept the price increase under protest (reservation of rights):
The customer will agree to make payments under protest and with a reservation of rights. This allows the customer to seek to recover the excess amount paid at a later date. Ideally, the parties continue to conduct business and the customer never seeks recovery prior to the expiration of the statute of limitations (typically six years, depending on the governing law).
3. Reject the price increase:
The customer will reject the price increase. Note that customers may initially reject the price increase but agree to pay after further discussion. In the event a customer stands firm on rejecting the price increase, the supplier can then decide whether it wants to take more aggressive action (e.g., threaten to stop shipping) after carefully weighing the potential damages against the benefits.
4. Seek a declaratory judgment and/or injunction:
The customer can seek a declaratory judgment and/or injunction requiring the seller to ship/perform at the current price.
5. Terminate the contract:
The customer may terminate part or all of the contract, depending on contractual terms.
[1] Please note that the implementation of the various tariff programs remains in flux, and thus the status of these program should be monitored closely. The included table is current as of the date of publication of this article.
Foley Automotive Update 19 March 2025
Foley is here to help you through all aspects of rethinking your long-term business strategies, investments, partnerships, and technology. Contact the authors, your Foley relationship partner, or our Automotive Team to discuss and learn more.
Special Update — Trump Administration and Tariff Policies
Foley & Lardner partner Kathleen Wegrzyn addressed a number of FAQs regarding force majeure and price increases amid the current turbulent tariff landscape.
Key tariff announcements include:
President Trump on March 17 told reporters that “in certain cases, both” 25% sector-specific tariffs as well as unspecified “reciprocal tariffs” could apply on U.S. imports beginning April 2. U.S. imports that have been traded duty-free under the United States-Mexico-Canada Agreement (USMCA) are exempt — until April 2 — from the 25% tariffs on goods from Mexico and Canada that were announced on March 4.
Following the implementation of 25% tariffs on U.S. imports of steel and aluminum, Canada on March 13 imposed levies on C$29.8 billion in U.S. imported goods. This follows 25% tariffs on C$30 billion of products Canada announced on March 4.
Mexican President Claudia Sheinbaum thus far has not moved forward with a plans to apply retaliatory tariffs on U.S. imports.
The European Union intends to reinstate 2018 and 2020 countermeasures on April 1 against a range of U.S. goods, with a more extensive retaliatory tariff package planned for later next month.
China imposed tariffs on U.S. goods including large-engine vehicles, as well as export and investment controls on over two dozen U.S. firms after the Trump administration applied 20% duties on Chinese imports.
Automotive Key Developments
Analysis from S&P Global Mobility indicates the disruptive effects of 25% tariffs on all vehicle imports could potentially reduce North American production “by up to 20,000 units per day within a week.” S&P predicted a 50% probability for a tariff-related “extended disruption scenario” this year, during which certain high-profile vehicles “will slow or cease production.”
MichAuto and AlixPartners described volatile tariff policies as “crippling” and “debilitating” for the automotive industry and noted the ongoing uncertainty has already damaged OEMs’ and suppliers’ ability to make investment and product decisions.
Statements from MEMA and the American Automotive Policy Council emphasized the potential for significant cost increases for automakers, suppliers, and consumers resulting from the 25% tariffs on U.S. imports of steel and aluminum. In addition, a recent survey by the vehicle suppliers association found 97% of respondents had concerns regarding increased financial distress among sub-tier suppliers due to the announced tariffs, and over 80% of surveyed suppliers are exposed to steel and aluminum derivative tariffs.
Tariffs on steel and aluminum could raise costs up to$400 to $500 per vehicle on average, with the potential for greater impact on larger, aluminum-intensive vehicles such as the Ford F-150 pickup.
Relocating an assembly line between existing facilities can take up to eight months, and an automaker would likely need up to three years or longer to fully staff and significantly build out new U.S. manufacturing capacity.
Ford is reported to be amassing inventories of USMCA-compliant parts to mitigate the effects of tariffs, and the automaker has told its suppliers to keep shipping under existing terms, according to an update from Crain’s Detroit.
Automotive News assessed the exposure of certain EV brands to the impact of U.S. import tariffs.
University of Michigan economists projected U.S. new light-vehicle sales will reach 16.3 million units in 2025, while noting the projections have “substantial uncertainty” due to trade policy volatility. The economists also expect steel and aluminum tariffs to “raise production costs in the automotive supply chain,” and the levies could reduce Michigan’s employment by approximately 2,300 jobs by 2026.
Preliminary discussions concerning the renewal of the USMCA suggested a revised pact could result in higher tariffs for non-compliance, according to unidentified sources in The Wall Street Journal.
The Environmental Protection Agency on March 12 announced 31 deregulatory actions that include the reconsideration of the Biden administration’s emissions standards for light-duty, medium-duty and heavy-duty vehicles.
OEMs/Suppliers
While tariffs in the U.S., Canada, and the EU may continue to impede sales by Chinese automakers in the near term, market share is rising in emerging markets for Chinese brands that include BYD, Great Wall Motor, Chery Automobile, and SAIC Motor Corp.
Volkswagen intends to reduce production and headcount at its Chattanooga, Tennessee plant to support cost-cutting initiatives and in response to lower EV demand. Planned layoffs across VW Group have reached nearly 48,000 globally, including a 30% headcount reduction at its Cariad software unit by the end of this year.
Ford will invest €4.4 billion ($4.8 billion) in its German operations, in an effort to boost sluggish sales in Europe.
Nissan named Ivan Espinosa, currently serving as Chief Planning Officer, to succeed CEO Makoto Uchida, effective April 1.
Market Trends and Regulatory
U.S. new light-vehicle inventory reached 3 million units at the beginning of March, representing an 89-day supply industrywide, according to analysis from Cox Automotive.
The percentage of subprime auto borrowers at least 60 days past due on their loans reached 6.56% in January, representing the highest level in over 30 years, according to data from Fitch Ratings. The share of auto loans in serious delinquency across all borrower types was 2.96% in the fourth quarter of 2024, compared to 2.66% in Q4 2023 and 2.22% in Q4 2022.
Kelley Blue Book estimates that new-vehicle sales incentives were up 18.6% year-over-year in February 2025. The average incentive package last month reached 7.1% of average transaction price, or $3,392, compared to 6% of ATP in February 2024.
U.S. Senate Republicans introduced the Preserving Choice in Vehicle Purchases Act (S. 2090) to “prevent the elimination of the sale of motor vehicles with internal combustion engines” by limiting the Environmental Protection Agency’s issuance of certain Clean Air Act waivers.
GM has again applied with the Federal Deposit Insurance Corp. to establish an industrial bank, and this would enable the automaker to hold deposits and expand their financial offerings to consumers, dealerships, and employees. Stellantis and Ford have also recently submitted applications for banking licenses.
U.S. House lawmakers included language in an amendment to the Full-Year Continuing Appropriations and Extensions Act that effectively “removes the ability for any House members to use an expedited process” to compel a vote for the remainder of this calendar year on whether to terminate the national emergency declaration utilized as the basis to pursue tariffs on imports from Canada and Mexico. The “continuing resolution” (CR) to fund the federal government through the rest of the fiscal year 2025 was signed by the president on March 15, 2025.
Autonomous Technologies and Vehicle Software
Industry organizations, including the Alliance For Automotive Innovation, urged the Department of Transportation to establish a national framework to support the deployment of autonomous vehicles.
NVIDIA will collaborate with GM and Magna to advance next-generation vehicle technologies. NVIDIA has described artificial intelligence technologies in the auto industry as a “trillion-dollar opportunity.”
GM named Barak Turovsky, formerly of Cisco and Google, as its first Chief Artificial Intelligence Officer.
Ford announced tech veteran Mike Aragon will join the company as President, Integrated Services. The position is expected to support the automaker’s goals to boost revenue from software-enabled subscriptions and features.
Autonomous trucking startup Bot Auto plans to begin its first driver-out commercial freight pilot program in Texas this year, on routes between Houston and San Antonio. Houston-based Bot Auto was founded in 2023 by former TuSimple CEO Xiaodi Hou.
Electric Vehicles and Low-Emissions Technology
Over 50% of new EV purchases in the fourth quarter of 2024 were leases, and EVs accounted for nearly 20% of all new vehicle leases during the quarter, according to data from Experian released this month.
BYD plans to launch new charging technology on certain models in China next month that will enable 400 kilometers (249 miles) of range with five minutes of charge time, or roughly the same duration required to refuel comparable gas-powered models.
Cadillac intends to begin production of the electric 2026 Cadillac Escalade IQL in mid-2025 at GM’s Factory Zero electric vehicle assembly plant in Detroit.
Volkswagen recently debuted its ID Every1 electric minicar concept, and the low-cost EV will be the brand’s first model to use software from the automaker’s joint venture with Rivian.
Isuzu will invest $280 millionto establish a commercial EV plant in Piedmont, South Carolina.
UAW members ratified their first labor agreement at the Ultium Cells joint venture battery plant in Spring Hill, Tennessee.
SK On will supply Nissan with nearly 100 gigawatt-hours of batteries from 2028 to 2033, to support future EV models produced at the automaker’s Canton, Mississippi plant.
Stellantis will invest €38 million ($41 million) to produce EV engine parts at its Verrone transmissions plant in Italy.
Analysis by Julie Dautermann, Competitive Intelligence Analyst
Amendments to the Amparo Law
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On March 13, 2025, several amendments to the Amparo Law were published. These amendments intend to harmonize the Amparo Law with the recent modifications made to the structure and operation of the Federal Judicial System. The changes include:
Establishing that rulings in which amparo is granted against any law will only benefit the party who filed the respective lawsuit and cannot be extended to the rest of the persons. It is important that companies or individuals proceed in court against each authority or legislative act they consider unconstitutional.
Applying the new National Code of Civil and Family Procedures, which recently entered effect for the entire country, supplementarily to the Amparo Law.
Eliminating all references and attributions corresponding to the two Chambers of the Supreme Court as these were dissolved, and now the Supreme Court will only be integrated by a Plenum.
Eliminating references to the Federal Judiciary Board as the administrative and disciplinary officer of the Federal Judicial System replaced by the Judicial Administrative Body and the Court of Judicial Discipline.
Updating of the amounts owed in fines and eliminating references to the general minimum wage as a basis for calculation; Fines will now be calculated based on the Measurement and Updating Unit (Unidad de Medida y Actualización).
Using inclusive language in the wording of the various articles of the law.
Reforma a la Ley de Amparo
El 13 de marzo de 2025 se publicaron diversas reformas a la Ley de Amparo. Dichas reformas buscan armonizar esa ley con las recientes modificaciones que se hicieron a la estructura y funcionamiento del Poder Judicial de la Federación. Los cambios son, en esencia, los siguientes:
Se estableció expresamente que las sentencias en las que se otorga el amparo contra normas generales (leyes) solo beneficiarán a las personas que promovieron el juicio respectivo, por lo que el beneficio no se puede extender al resto de las personas, por lo tanto, es importante que las empresas o personas físicas acudan al juicio contra cada acto que consideren como inconstitucional.
Se hace referencia al nuevo Código Nacional de Procedimientos Civiles y Familiares mismo que recientemente entró en vigor para todo el País, lo anterior es relevante puesto que ahora dicho Código se aplicará supletoriamente a la Ley de Amparo.
Se eliminaron todas las referencias y atribuciones correspondientes a las dos Salas de la Suprema Corte puesto que éstas desaparecieron, siendo que ahora la Corte estará integrada solamente por un Pleno.
Se eliminan las referencias al Consejo de la Judicatura Federal como órgano administrativo y disciplinario del Poder Judicial ya que fue sustituido con el Órgano de Administración Judicial y el Tribunal de Disciplina Judicial.
Por lo que hace a las multas, éstas fueron actualizadas en montos y, además, se eliminaron las referencias al salario mínimo general como base para el cálculo, ahora dichas multas se calcularán con base en la Unidad de Medida y Actualización (UMA).
Se emplea un lenguaje inclusivo en la redacción de los diversos artículos de la ley.
Are Wages for Research Credit Purposes Limited to “Reasonableness?”
Smith v. Commissioner,[1] a pending research credit case in the United States Tax Court, presents an issue of first impression: Is a partner’s self-employment income in a partnership allowable as a qualified research expense only to the extent that the amount is reasonable within the meaning of former IRC Section 174(e)? The case should interest partners in partnerships and self-employed individuals who perform technological research. [2]
Facts in Smith
The petitioners in Smith are partners in a partnership that provides architectural design services for extremely large and uniquely designed buildings, including the tallest building ever built. For the taxable years in issue, each partner calculated his federal income tax credits for research expenses from the tax attributes that the partnership passed through to him.
Statutory Framework
In 1981, Congress enacted a federal income tax credit for research expenses under the predecessor of IRC Section 41 (“Section 41”).[3] The credit was in addition to the deduction for research expenditures already allowed by IRC Section 174 (“Section 174”). Congress thereafter came to believe that the credit as enacted in 1981 was interpreted by taxpayers too broadly, and that some taxpayers claimed the credit for virtually any expense related to product development.[4] The Tax Reform Act of 1986[5] consequently created a four-part test to limit research activities for research credit purposes.[6]
Section 174 Test:
The first credit-eligibility test, at issue in Smith, provided, that “qualified research [for credit purposes] means research … with respect to which expenditures may be treated as expenses under Section 174.” [7] The Tax Court has consistently interpreted this provision “as requiring only that qualified research activities [under Section 41] constitute research and development within the meaning of Section 174.”[8] This means that the Section 174 test refers not to the amount the taxpayer can currently deduct under Section 174 but instead to whether the taxpayer’s activity is of a character that would permit its deduction under section 174.
Activities that satisfy Section 174 must then satisfy the three remaining tests that define credit-eligible qualified research (research activities (1) that are technological in nature, (2) that are intended to develop or improve a product or process, and (3) substantially all the activities of which constitute a process of experimentation). If they do, then the wages, contract expense, and supply expense paid or incurred to perform the qualified research are “qualified research expenses” from which the tax credit is calculated.
Partners in Service Partnerships
Partners in service partnerships, as well as self-employed individuals, are not “employees” – they do not employ themselves – and cannot pay themselves “wages” used to calculate the tax credit. Recognizing that these individuals would be disadvantaged if they performed qualified research activities but were not paid wages, Congress enacted a special definition of wages for them. For a partner in a partnership performing qualified research, “wages” means the partner’s net income from self-employment.[9]
Partners “Wages” for Research Credit Purposes
In Smith, a partner’s qualified research wages were calculated by the following steps. First, the IRS and each partner stipulated to the percentage of time during the taxable year that the partner engaged in qualified research activities. Second, which is the basis of the dispute with the IRS, each partner then multiplied his stipulated percentage by his share of partnership income that is treated as self-employment income from the partnership.
The Issue: Are Partner Wages “Reasonable”
The issue is whether the resulting amount of “wages” – the partner’s self-employment income multiplied by the stipulated percentage – is unreasonable in violation of Section §174(e). Section 174(e), enacted in 1989, provided that the deduction under Section 174 “shall apply to a research or experimental expenditure only to the extent that the amount thereof is reasonable under the circumstances.” Section 174(e) applies to the taxable years in issue in Smith. Congress repealed Section 174(e), effective January 1, 2022.
The IRS Argument
The IRS acknowledges that a partner uses self-employment income as a substitute for wage expense but argues that the amount taken into account is limited to the self-employment income that reasonably relates to the partner’s performance of qualified research. Wages are qualified research expenses only if the wages paid or incurred to an employee are for qualified services,[10] which means that the wages are for engaging in qualified research.[11] From the IRS perspective, the self-employment income that the Smith partners took into account “were a function of the net income (profit) of [the partnership] and were not paid for the qualified services performed by the Partners.” The IRS relies on Section 174(e) to limit the amount of self-employment income to an amount that is reasonable and plans to use an expert witness to express an opinion of the cost that is reasonable for the architectural services performed.
The IRS thus agrees to the percentage of time that each partner devoted to qualified research activities but argues that the percentage is being applied to an amount that is too large because it includes profits from the business.
The Partners’ Argument
The partners argue that “[c]ertain forms of income, such as net earning[s] from self-employment and section 401(c)(2) earned income were never contemplated to have a reasonableness requirement as they are included as claimable under section 41 but not referenced under section 174.” In other words, the partners are arguing that the reasonableness requirement in Section 174(e) logically applies only to research expenses that are deductible pursuant to Section 174 but cannot possibly apply to earned income from self-employment because an income item is not an expense item.
Comment
Section 174(e) Reliance
The IRS’s reliance on Section 174(e) to limit the taxpayer’s self-employment income to a reasonable expense amount for credit purposes is questionable. The statutory language does not appear to fit: Expenses are not income. Moreover, the only function that Section 174 serves for research credit purposes is to define “research activities” and not their cost. In relying on Section 174(e), the IRS may well be in the wrong pew.
IRC Section 1402(a) Reliance v. IRC Section 702(a)(8) Reliance
The fundamental question for a Smith partner is whether his self-employment income from the partnership, multiplied by the percentage of time that he devoted to qualified research, was for engaging in qualified research.
The IRS argument focuses on IRC Section 702(a)(8), the statutory provision determining a partner’s distributive share of taxable income from the partnership, to conclude that the partners are erroneously taking into account their profit from the partnership, which was “not paid for the qualified services performed by the Partners.”
The partners’ argument focuses on I.R.C. Section 1402(a), the statutory definition of net earnings from self-employment. When the stipulated percentage of time that each partner engaged in research is multiplied by that partner’s “net earnings from self-employment,” the result certainly looks like the portion of the partner’s self-employment income allocated to the performance of qualified research, that is, his qualified “wages.”
The taxpayer’s argument appears more faithful to the statutory language defining wages for a partner[12] than does the IRS’s argument. The partner’s “wages” are his “earned income (as defined in section 401(c)(2),” which means net earnings from self-employment (as defined in section 1402(a)).” Once the partner’s net earnings from self-employment is determined, that should end the statutory analysis. The IRS would go further, pursuing in IRC Section 702(a)(8) the partnership items that make up net earnings from self-employment. That pursuit is of a level of detail that is not expressed in the statutory language defining a partner’s “wages” for research credit purposes.
Can Reasonable Qualified Research Wages Be Derived from Partnership Income?
The IRS approach, extended to its logical conclusion, might never allow research credits, because the timing of the self-employment income, if any, from qualified research might always be out-of-synch with the performance of qualified research. Unlike an employee who receives wages regardless of whether the research in which he engages produces any revenue for his employer, a partner who engages in qualified research that produces no revenue will not have any “wages” to take into account as qualified research expenses for the qualified research activities. Also, the likelihood of a partner having qualified research in one taxable year and revenue from commercialization of the research in a later taxable year is quite likely to result in no qualified research expenses for the partner’s qualified research activities. In these circumstances the partner would get no research credit for his performance of qualified research, which seems an inappropriate outcome.
The IRS in the Smith case would throw out the partners’ self-employment income and substitute expert witness testimony to determine the hypothetical wages that architects would be paid for performing the qualified research that the partners performed. That approach ignores the statutory provision that makes self-employment income a substitute for wages.
Congress did not require a partner to show under Section 41 that his self-employment income for the taxable year reflects what would be the partner’s wages if the partner were an employee. Instead, Congress said that self-employment income is wage expense. It is a policy choice that approximates wages. The IRS has no authority to challenge it. Sometimes the approximation works to the benefit of a taxpayer and sometimes to his detriment because an approximation is never going to be mathematically perfect, and an effort to find perfection is fruitless.
Footnotes
[1] No. 13382-17 (U.S. Tax Ct. filed June 14, 2017).
[2] Also pending is an issue of funding, previously discussed in The Tax Court Recently Decides Two Research Credit Cases: Miller Canfield.
[3] Economic Recovery Tax Act of 1981, Pub. Law 97-34.
[4] General Explanation of the Tax Reform Act of 1986 at 130, Staff of the Joint Comm. on Taxation, 99th Cong. (Comm. Print May 4, 1987).
[5] Pub. Law 95-914 (Oct. 22, 1986).
[6] IRC §41(d)(1). The four-test test, as applied to the taxable years in issue in Smith defined qualified research as research (i) with respect to which the expenditures may be treated as expenses under Section 174, (ii) was technological in nature, (iii) the application of which was intended to be useful in the development or improvement of the taxpayer’s product or process, and (iv) substantially all of the activities of which constituted an experimental process related to a new function, performance, reliability, or quality.
[7] IRC §41(d)(1)(A), prior to its amendment by the Tax Cuts and Jobs Act, Pub. Law 115-97, sec. 13206(d)(1). The Tax Cuts and Jobs Act amended Section 174, effective for amounts paid or incurred after December 31, 2021. Prior to the amendment, Section 174 allowed a current deduction for the cost of research activity. The current version of Section 174 disallows the current deduction and instead requires research expenditures incurred in a taxable year to be amortized over a five-year period (fifteen years for foreign research). The version of Section 174 prior to its amendment applies in the Smith case.
[8] Siemer Milling Co. v. Comm’r, T.C. Memo 2019-37 (2019).
[9] “In the case of an employee (within the meaning of section 401(c)(1)) for such taxable year, the term ‘wages’ includes the earned income (as defined in section 401(c)(2)) of such employee.” IRC. IRC §41(b)(2)(D)(ii). An employee within the meaning of IRC §401(c)(1) is a self-employed individual who has earned income as described in IRC §401(c)(2). Earned income described in IRC §401(c)(2) means “net earnings from self-employment” (as defined in IRC § 1402(a)), but only with respect to a trade or business in which personal services of the taxpayer are a material income-producing factor. “Net earnings from self-employment,” as defined in IRC §1402(a), means for a partner his distributive share (whether or not distributed) of income or loss described in IRC §702(a)(8) from any trade or business carried on by a partnership of which he is a member. Section 702(a)(8) provides that in determining his income tax, each partner shall take into account separately his distributive share of the partnership’s taxable income or loss, exclusive of items requiring separate computation. In summary, a partner’s earned income from self-employment is a surrogate for the partner’s “wages” for research credit purposes.
[10] IRC §41(b)(2)(A)(i).
[11] IRC §41(b)(2)(B)(i).
[12] §41(b)(2)(D)(ii).
Florida DABT Issues Declaratory Statement on Taxability of “Heat Stick” Products.
Phillip Morris International (PMI) requested a declaratory statement regarding the taxability of their IQOS “heat stick” tobacco products. During the pendency of the ABT response, the First District Court of Appeal released an opinion expanding the judicial interpretation of the term “loose tobacco suitable for smoking” as used in chapter 210, Florida Statutes, to include hookah products. This change pivoted from the traditional interpretation that “suitable for smoking” required some sort of ignition/combustion of the actual tobacco product, and also clarified that tobacco leaves/trimmings in conjunction with a binding agent can still be considered “loose tobacco.”
The opinion created tension with a prior ABT declaratory statement response in which the Division determined that Logic’s tobacco product, which included capsules of loose tobacco and a liquid mixture, were not taxable tobacco products.
To arrive at an outcome where PMI’s product is not taxable, ABT distinguished the product on factual differences – namely that the product did not produce hookah-like smoke infused with nicotine, the makeup of the tobacco product (ground tobacco reformulated into sheets/layers), and the absence of combustion.
Ultimately, while this declaratory statement may be based on distinctions that may not make a difference under the First DCA’s Global Hookah opinion, because ABT administers the tax on tobacco products itself and does not intend to tax the IQOS, any challenge to the taxability of the product or the declaratory statement itself is unlikely.
Note that there is currently pending legislation seeking to amend the definition of other tobacco products in the taxing contests. If the definition is amended, the language could potentially impact the precedential value of both this declaratory statement’s determination and the Global Hookah case.
A copy of the Declaratory Statement is available here.
Tariffs and Other Regulatory Charges on Imported Goods
This is the first installment in a series of pieces in which members of the Womble Bond Dickinson Global Trade Advisors (GTA) team will review a number of current issues in international trade regulation. The authors will discuss strategies for companies to stay aware of change in this dynamic area of law and achieve their business goals, while avoiding regulatory noncompliance costs.
In this first piece, we will review the regulatory landscape of, and recent practice regarding, tariffs and other regulatorily mandated charges on imported goods including, in particular, antidumping duties (ADD) and countervailing duties (CVD).
Tariffs
Changes to U.S. tariff rates have been highlighted in the news lately as the Trump administration seeks to use increased tariffs to achieve a variety of stated aims. The Womble international trade team recently published a piece reviewing recent tariff rate change announcements and implementation. It is clear that we are in a time of dramatic change to U.S. tariff law and policy.
Tariffs, of course, are taxes charged on imported goods at the point of entry into a customs territory. Since the establishment of the General Agreement on Tariffs and Trade (GATT) in 1947, the U.S. and other member states have typically complied with the provisions of GATT Article II, which obligate all member states to publish and bind themselves to a tariff schedule. This schedule lists the tariff rates to be applied to all goods imported into the country, using an item classification system called the Harmonized Tariff Schedule (HTS). Countries periodically negotiate with each other on tariff rates and apply the nondiscrimination provisions elsewhere found in the GATT (and since 1995 enforced through the World Trade Organization (WTO)), in order to lower tariffs generally.
This system has overall been quite effective in lowering tariffs around the world. For example, in 1947, the average U.S. applied tariff rate was around 30%. Today it is around 2.3%. This doesn’t include the various free trade agreements to which the U.S is a member, which frequently allow goods to be imported into the U.S. tariff-free. In fact, roughly 70% of imports enter the U.S. tariff-free.
In U.S. domestic law, Congress has essentially statutorily delegated the setting of tariff rates to the President. Various executive branch agencies play a role in exercising these powers, including the Office of the United States Trade Representative (USTR), the Department of Commerce (DOC), the Department of the Treasury (TREAS), and Customs and Border Protection (CBP). In a number of statutes, Congress has granted the President extraordinary powers to set tariffs in response to dynamic changes in international affairs. These include particularly:
The Trading with the Enemy Act of 1917, which gives the President authority to regulate trade with countries considered adversaries;
The Reciprocal Trade Agreements Act of 1934, which empowers the President to negotiate bilateral trade agreements and adjust tariffs reciprocally without the need for direct Congressional approval.
The Trade Expansion Act of 1962, Section 232, which allows the President to adjust imports, including imposing increased tariffs, if the DOC determines that imports from a particular country threaten national security;
The Trade Act of 1974, Section 301, which gives the President broad authority to take action, including imposing increased tariffs, to enforce U.S. rights under trade agreements and to address unfair foreign trade practices; and
The International Emergency Economic Powers Act (IEEPA) of 1977, which grants the President broad powers to regulate commerce after declaring a national emergency in response to any unusual and extraordinary threat to the U.S. that has a foreign source;
The Omnibus Trade and Competitiveness Act of 1988, which reaffirmed and expanded the President’s authority under Section 301 of the Trade Act of 1974 and provided additional tools to address unfair trade practices.
The Customs Modernization Act of 1993 (Mod Act), which, while primarily aimed at simplifying trade procedures, also strengthened the President’s enforcement capabilities regarding trade facilitation and tariff adjustments.
The Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (TPA), commonly known as “fast track authority,” which allows the President to negotiate trade agreements and submit them to Congress for an up-or-down vote without amendments, effectively expediting tariff-related adjustments within the context of broader trade agreements.
U.S. tariff practice has changed considerably since 2017 and become much more dynamic than in previous decades. Shortly after coming into office in 2017, President Trump ordered an unfair trade investigation into China’s technology transfer and intellectual property laws. These investigations culminated in the imposition of increased tariffs on $370 billion of imports from China – roughly 73% of all U.S. imports from China – of from 10% to 25%.
Similarly, the Trump administration in 2017 also began an investigation on the national security implications of the importation of steel and aluminum products. This investigation led to increased U.S. tariffs on imports of steel and aluminum products by 10%-25%. While some adjustments to these targeted tariff increases were made during the years of the Biden administration, such as reinstating certain product exclusions to alleviate specific industry concerns, the essential structure and substance of these tariff increases has remained in effect to the present.
Since his return to office in January 2025, President Trump has announced or proposed a number of new targeted tariff increases, though so far the application of many of these tariffs has been deferred. The key stated objectives of these additional tariffs are to protect domestic industry, reduce dependance on China, counter unfair trade practices, enhance national security, and to establish strategic leverage for negotiations.
Tariffs are typically paid by an importing company at the time of customs clearance. This company may or may not be closely associated with other companies in the supply, manufacturing, and retail chain. This creates complex interactions between and among companies in the supply chain and can result in the cost of the tariff being passed on among companies, possibly affecting the price of the goods at point of sale to consumers.
At present, U.S. trade regulations include, unless specifically waived, a de minimis rule which allows imported goods delivered in the U.S. with a value less than $800 to enter the country tariff free. This has allowed direct shipment of packages by some foreign exporters to U.S. consumers duty free. Goods that enter under the de minimis rule are generally not subject to Section 301 or Section 232 tariffs.
Antidumping Duties and Countervailing Duties (AD/CVD)
Another source of regulatorily mandated charges on imports of goods, so-called trade remedies, comes from regulations concerning dumping and subsidies, which are typically classed as unfair trade practices. The U.S. government regulates these unfair trade practices through a complex system of investigations and determinations through an interagency process, that can result in the imposition of ADD or CVD on imports, which apply in addition to any tariffs that may be due.
The primary statutory authority for AD and CVD measures is the Tariff Act of 1930, as amended by subsequent legislation, and as implemented through regulations issued by the DOC, the U.S. International Trade Commission (USITC), and the CBP. The process leading to the imposition of ADD or CVD begins with petitions filed with the DOC and ITC by U.S. industries or, in some cases, self-initiated by DOC. The post-petition process is different in the ADD and CVD contexts, but both follow a similar parallel process through which both the DOC and ITC complete different parts of the investigation. The DOC ultimately determines whether dumping or unfair subsidies exist and calculates the economic impact of those actions. The USITC determines whether U.S. domestic industry has suffered a material injury stemming from this unfair trade practice. Then the DOC determines whether AD or CVD should be ordered to be applied to the subject imports in order to counteract this injury and calculates the amount of the duties. CBP then enforces and collects the duties as ordered by the DOC. DOC then conducts regular reviews of the AD/CVD orders.
In recent years there has been increased activity in both petitions and investigations into dumping and subsidies. ADD/CVD orders have varied by country and by commodity. Recent subjects of investigations include:
Solar cells from Cambodia, Malaysia, Thailand, and Vietnam;
Active anode material from China;
A herbicide from China and India;
Brake drums from China and Turkey; and
Hexamethylenetetramine from China and India.
Metals (Steel and Aluminum): Metals are the single largest category under AD/CVD protection. The majority of all current AD/CVD orders are on iron and steel imports. As of 2017, for example, 40% of all U.S. AD/CVD orders in place were on steel products. This trend has continued – by 2024, there were over 300 active orders on steel and steel-related products alone. The steel industry has benefited from these measures through reduced import competition; the American Iron and Steel Institute noted the prevalence of unfairly traded steel imports and stressed the importance of vigorous enforcement of AD/CVD laws for the sector. Aluminum products have also been targeted (e.g. aluminum extrusions, sheet, foil from China and other countries). After duties on aluminum foil from China were imposed, U.S. producers saw tangible relief: Chinese aluminum foil imports dropped by 64% and domestic investment in foil production increased by $169 million within a year. This suggests AD/CVD actions in metals achieved their intended effect of curbing unfair imports and bolstering U.S. industry.
Further, the DOC in particular has expanded its authority to apply its Particular Market Situations (PMS) doctrine, which allows it to adjust cost calculations when foreign market distortions are present. It has also increased its scrutiny of state-owned enterprises (SOEs) and indirect subsidies, particularly in non-market economies (NMEs) like China.
ADD and CVD are increasingly being used as part of the U.S. government’s focus on addressing what it considers to be unfair trade practices by other countries, which harm U.S. industries.
Common Commodities Subject to ADD and CVD Duties:
Steel and Aluminum Products
Steel pipes
Aluminum extrusions
Consumer Goods
Mattresses
Wood Cabinets / vanities
Industrial and Manufacturing Goods
Tires
Paper Products
Summary
The past few years have seen a marked increase in the imposition of tariffs, ADD/CVD, and other regulatorily mandated charges on imported goods. For importers and companies all along the supply, manufacturing, and retail chain, these import charges are important to understand and monitor.
What can you do to keep your business safe from noncompliance costs?
The most important step businesses can take is to practice informed Compliance. They can do this by staying current on changes to tariff rates and ADD/CVD duties which apply to goods in their supply chain. Companies should identify in detail the actors, both upstream and downstream, in their supply chain, and the goods that may be impacted by changes in tariffs and impositions of ADD/CVD. Maintaining this awareness of changes and supply chain dynamics can help in potentially identifying alternative suppliers of goods and other supply chain services.
Companies can also be active in making sure that HTS classifications, and values of imports are being calculated/assigned correctly, as these assessments can significantly affect duties imposed. They can investigate the possibility of use of free-trade zones, or bonded warehouses to minimize or postpone duty payments. And they can make sure they have a good working relationship and good communications with brokers and forwarders.
Partnering with industry experts and regulatory specialists can help with all of these tasks.
Brief Overview of Importer Compliance with AD/CVD Requirements
Importers must ensure compliance with antidumping (AD) and countervailing duties (CVD) to avoid penalties and shipment delays. Key compliance steps include:
Determine Product Coverage
Review U.S. Department of Commerce and U.S. Customs and Border Protection (CBP) determinations to check if a product is subject to AD/CVD orders.
Use HTSUS classification and scope rulings to verify applicability.
Declare AD/CVD Properly
Ensure the correct entry type is used in CBP filings (e.g., Type 03 for AD/CVD entries).
Provide accurate manufacturer and exporter details, as duty rates vary by producer.
Deposit Estimated Duties
Importers must pay cash deposits at the rates determined by Commerce when goods enter the U.S.
These deposits are subject to annual administrative reviews, which may result in refunds or additional duty liability.
Maintain Records & Conduct Internal Reviews
Keep detailed records of purchase orders, invoices, shipping documents, and communications related to AD/CVD compliance.
Periodically review imports to identify any misclassification risks.
Request Scope Rulings if Necessary
If uncertainty exists regarding AD/CVD applicability, importers can request a scope ruling from the Department of Commerce.
Monitor Ongoing Changes
Stay updated on new orders, reviews, and rate changes published in the Federal Register and CBP updates.
Proactive compliance reduces risk, prevents delays, and ensures smooth trade operations under U.S. AD/CVD laws.
IRS Roundup February 17 – March 14, 2025
Check out our summary of recent Internal Revenue Service (IRS) guidance for February 17, 2025 – March 14, 2025.
Editors’ note: With the change in presidential administrations, the IRS has undergone significant transition in recent weeks and issued significantly less guidance than normal. We did not publish the IRS Roundup regularly during these weeks as we awaited new guidance from the agency.
February 19, 2025: The IRS issued Revenue Ruling 2025-6, providing the March 2025 short-, mid-, and long-term applicable federal rates for purposes of Section 1274(d) of the Internal Revenue Code (Code), as well as other provisions.
February 21, 2025: The IRS issued Notice 2025-15, providing guidance on the alternative method for furnishing health insurance coverage statements to individuals, as required by Code Sections 6055 and 6056. This alternative method allows entities to post a clear and conspicuous notice on their websites, informing individuals that they can request a copy of their health coverage statement. This notice must be posted by the due date for furnishing the statements and retained through October 15, 2026. The guidance applies to statements for calendar years after 2023.
March 5, 2025: The IRS issued Revenue Procedure 2025-17, providing guidance for individuals who failed to meet the eligibility requirements of Code Section 911(d)(1) (foreign earned income exclusion) for 2024 because of adverse conditions in certain foreign countries. The revenue procedure lists specific countries, including Ukraine, Iraq, Haiti, and Bangladesh, where war, civil unrest, or similar conditions precluded normal business conduct. Individuals who left these countries on or after specified dates in 2024 may still qualify for the foreign earned income exclusion if they can demonstrate that they would have met the eligibility requirements but for these adverse conditions.
March 5, 2025: The IRS issued Notice 2025-16, providing adjustments to the limitation on housing expenses for 2025 under Code Section 911. These adjustments account for geographic differences in housing costs relative to those in the United States. The notice includes a detailed table listing the adjusted housing expense limitations for locations worldwide. It also allows taxpayers to apply the 2025 adjusted limitations to their 2024 taxable year if the new limits are higher.
March 6, 2025: The IRS issued Revenue Ruling 2025-7, providing interest rates for tax overpayments and underpayments for the second quarter of 2025 in accordance with Code Section 6621.
March 11, 2025: The IRS issued Notice 2025-17, providing updates on the corporate bond monthly yield curve, spot segment rates, and 24-month average segment rates used under Code Sections 417(e)(3) and 430(h)(2). The notice includes the interest rate on 30-year Treasury securities and the 30-year Treasury weighted average rate for plan years beginning before 2008. It also specifies the minimum funding requirements for single-employer plans, the methodology for determining monthly corporate bond yield curves, and the adjusted 24-month average segment rates for March 2025. Additionally, the notice outlines the permissible range of rates for calculating current liability for multiemployer plans.
New “Self-Correction” Option for Voluntary Fiduciary Correction Starts March 17, 2025
Starting March 17, 2025, the Employee Benefits Security Administration’s Voluntary Fiduciary Correction Program (“VFCP”) will have a “self-correction” option. Although the new option eliminates the need to wait for formal approval of a correction submission, participating fiduciaries will still need to satisfy a notice requirement and submit information to the Department of Labor. The applicable guidance is available here.
What is the VFCP?
The Department of Labor’s Employee Benefits Security Administration (“EBSA,” previously known as the Pension and Welfare Benefits Administration) established VFCP to encourage fiduciaries of employee benefit plans to self-report and correct specified breaches of fiduciary responsibility and prohibited transactions. EBSA encourages the use of the program to correct late contributions and loan repayments to a plan.
Under VFCP, EBSA waives civil penalties for specified transactions and, if certain conditions are satisfied, provides prohibited transaction relief.
What Transactions Qualify for Self-Correction?
Self-correction is available for two types of transactions that would otherwise be prohibited, each of which is described below:
Late Participant Contributions and Loan Repayments
Eligible Inadvertent Participant Loan Failures
Late Participant Contributions and Loan Repayments
Under EBSA guidance, participant contributions and loan repayments are considered plan assets as soon as they can reasonably be segregated from the employer’s general assets. For example, if an employer’s process for withholding amounts from participants’ pay, reconciling files, and sending the money to the trust normally takes 5 days, EBSA treats the amounts withheld as plan assets after 5 days. Consequently, a hiccup that results in a delay relative to the normal 5 days would result in the employer holding plan assets, which EBSA treats as a prohibited extension of credit between the plan and the employer—triggering a self-reported excise tax and potential civil penalties.
By participating in VFCP, fiduciaries can avoid civil penalties and, if the applicable amounts are contributed to the plan’s trust within 180 days after withholding (and all other requirements are satisfied), get relief from the excise tax. Starting March 17, 2025, the relief provided by VFCP is available through self-correction if the following requirements are satisfied:
Neither the employer nor the plan may be “under investigation” (as defined by the VFCP);
The applicable amounts must be remitted to the plan’s trust, with lost earnings (as described below), within 180 calendar days after the date of withholding from the participant’s paycheck (or, if applicable, receipt of the loan repayment) (the “Loss Date”);
Lost earnings are determined in the same manner as under VFCP, except that they must be measured from the Loss Date rather than the date the amount should have been contributed to the trust, and the amount of lost earnings must not exceed $1,000;
The plan sponsor or another plan official must send a notice to EBSA through an electronic tool on EBSA’s website;
The employer (or another responsible party) must send to the plan’s administrator records related to the correction, including a “Retention Record Checklist” that confirms the correction has been completed, documentation of the breach and its correction, and a signed statement, under penalties of perjury, confirming that the signer is not under investigation and the accuracy of the checklist; and
The employer must pay all penalties, late fees, and other charges (if any) out of the employer’s assets (and not, for example, out of plan assets).
2. Eligible Inadvertent Participant Loan Failures
A participant loan failure is a violation of the requirements under EBSA’s prohibited transaction exemption (29 C.F.R. § 2550.408b-1) for a loan from a plan to a participant or beneficiary. The following violations are eligible for self-correction:
Failing to comply with plan terms incorporating Internal Revenue Code requirements regarding the amount, duration, or amortization of plan loans;
Defaulting a loan because an employer failed to withhold loan payments from a participant’s wages;
Failing to obtain spousal consent when required; and
Exceeding the plan’s permitted number of loans.
To complete the self-correction, plan officials must first correct the participant loan failure under the IRS’s Employee Plans Compliance Resolution System and then submit a self-correction notice to EBSA via its web tool. The notice to EBSA must include, among other things, the type of loan failure, the loan amount, the number of people affected, the dates of the error and correction, and the correction method. Plan officials must also provide the plan administrator with documents related to the error and correction and a signed certification of accuracy that is subject to penalties of perjury.
Excise Tax Relief
Prohibited Transaction Exemption 2002-51 has been amended to provide excise tax relief for transactions corrected under the self-correction program. To be eligible for the excise tax relief, however, self-correctors must pay the amount of the excise tax directly to the plan. This leaves the plan sponsor with the following options for the excise tax:
Complete a full VFCP application and seek relief from the excise tax, subject to satisfying additional requirements, including a notice to impacted individuals;
Complete self-correction under VFCP and pay the full amount of the excise tax to the plan; or
File Form 5330 with the IRS and pay the full amount of the excise tax to the IRS. If this option is followed, EBSA would retain the right to assess a civil penalty of up to 5% of the amount involved.
Other Notable Updates to the VFCP
In addition to introducing self-correction, EBSA has made other improvements to VFCP, including:
Expanded correction options for prohibited loan transactions and prohibited purchase and sale transactions;
Extending relief from transactions involving a prohibited sale and leaseback of real estate to covers eligible transactions with affiliates of the plan sponsor; and
Allowing VFCP applications to address violations across more than one plan in a single submission.
Proskauer Perspective
The self-correction program should streamline the EBSA-approved process for correcting common errors. At the same time, however, the requirements for self-correction are not trivial, and EBSA reserves the right to scrutinize the submission and corrective action.
Plan sponsors and fiduciaries should discuss with counsel practical solutions for any violation.
The BR International Trade Report: March 2025
Recent Developments
U.S. tariffs on Canada and Mexico take effect.
On March 4, President Trump’s tariffs against Canada and Mexico took effect following a one-month pause.
Canadian Prime Minister Justin Trudeau responded by levying retaliatory tariffs on C $30 billion (~USD $21 billion) of U.S. goods, which eventually could range up to C $155 billion (USD $108 billion) total, although to date, Mexican President Claudia Scheinbaum has held off on announcing retaliatory measures.
On March 5, following conversations with leaders in the automotive industry, the Trump Administration announced a one-month pause on tariffs for imported automobiles that comply with the rules of origin under the United States-Mexico-Canada Agreement (“USMCA”).
Shortly thereafter, the administration carved out an exemption for all imports from Canada and Mexico that fall under the USMCA—estimated to account for approximately 38 percent and 50 percent of imports from Canada and Mexico, respectively.
On March 10, Ontario Premier Doug Ford announced a 25 percent surcharge on electricity exports to New York, Minnesota, and Michigan. In response, on March 11, President Trump announced the doubling of tariffs on Canadian steel and aluminum from 25 percent to 50 percent. Later that day, both parties agreed to suspend these threatened actions.
President Trump doubles tariffs on imports from China. On March 3, President Trump amended Executive Order 14195 (“Imposing Duties to Address the Synthetic Opioid Supply Chain”) to increase tariffs on Chinese goods from 10 percent to 20 percent, effective March 4, 2025. Beijing responded in kind, implementing tariffs on U.S. agricultural imports (including wheat, soybeans, pork, etc.), suspending imports of U.S.-origin lumber, and adding 15 American companies to its export control list and 10 countries to its unreliable entity list. The Chinese Embassy in the United States stated on X, “If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.”
President Trump’s tariffs on steel and aluminum go into force, and trading partners retaliate. On March 12, the United States imposed 25 percent tariffs on steel and aluminum products, as President Trump had previously promised. The European Union and Canada immediately announced that they would impose retaliatory tariffs on U.S. exports. The European Union’s countermeasures are scheduled to come in two phases, a first set of tariffs on $8 billion in goods on April 1, and an $18 billion package sometime in mid-April. At press time, it was being reported that Canada would impose duties on C $29.8 billion (USD $21 billion) worth of goods, to go into effect at 12:01 am Thursday March 13. Other exporters of steel and aluminum to the United States have not yet announced any countermeasures.
White House unveils “America First” investment policy. On February 21, President Trump issued a Memorandum to various U.S. executive departments regarding the administration’s “America First” investment policy. The memorandum calls for “fast track” review by the Committee on Foreign Investment in the United States (“CFIUS”) of investments by allied country investors that can demonstrate “verifiable distance” from China, as well as the curbing of U.S. investments by China-linked parties. Furthermore, the memorandum refers to potential new restrictions on U.S. outbound investment into China across various sectors. See our alert.
President Trump initiates Section 232 investigations into copper and lumber imports. On February 25 and March 1, President Trump directed the U.S. Department of Commerce (“Commerce”) to begin investigations under Section 232 of the Trade Expansion Act into copper and lumber imports, respectively. Generally, a 232 investigation requires Commerce to evaluate the national security risks associated with the imported product under investigation. Commerce has until November 22 and November 26 to issue its reports and tariff suggestions for copper and lumber, respectively. President Trump followed these measures with an executive order to immediately expand U.S. domestic timber production.
President Trump confirms goal of instituting “reciprocal tariffs” on April 2. As previously reported, President Trump requested an assessment no later than April 1 on instituting a reciprocal tariff regime. In this regime, the United States will impose tariffs on countries that impose trade barriers on U.S. goods, e.g., tariffs and unfair trade practices. The Office of the United States Trade Representative solicited public comment in support of this assessment. President Trump has since stated that he intends for these tariffs to come into force on April 2.
Taiwan Semiconductor Manufacturing Co. announces $100 billion investment into chip manufacturing operations in the United States. On March 3, Taiwan Semiconductor Manufacturing Co. (“TSMC”) Chief Executive Officer Dr. C.C. Wei and President Trump announced an additional $100 billion investment by TSMC into U.S. chipmaking operations. This move aims to bolster U.S. national security efforts by increasing domestic chip production and reducing reliance on foreign-made semiconductors. The investment announcement came just days before President Trump called for the repeal of the CHIPS Act, a bipartisan law that provides for subsidization of U.S. semiconductor manufacturing.
Ukraine accepts U.S.-led ceasefire proposal, putting ball in Russia’s court and setting up a critical minerals deal. On March 11, Ukraine agreed to an American-led ceasefire proposal following negotiations in Saudi Arabia, although the deal still awaits Russia’s response. The agreement marked a turnaround in U.S.-Ukraine relations following Ukrainian President Volodymyr Zelensky’s contentious February White House meeting with President Donald Trump and Vice President J.D. Vance, which had set off a chain of events resulting in the United States suspending military aid to Ukraine, a move that the Trump Administration immediately reversed upon reaching the ceasefire agreement. Furthermore, the U.S.-Ukraine Joint Statement following the March 11 meeting notes that President Trump and President Zelensky agreed “to conclude as soon as possible” an agreement regarding U.S. development of Ukrainian critical mineral resources.
Conservatives secure majority vote in German federal election. In late February, Friedrich Merz’s CDU/CSU alliance claimed victory in the German federal election, securing approximately 28.5 percent of the vote and positioning Merz to become the next Chancellor. The CDU/CSU intends to form a coalition with the Social Democrats (“SPD”) instead of the Alternative for Germany (“AFD”) party, which became the second-largest party in the Bundestag. Following the victory, Merz remarked during a post-election debate, “My absolute priority will be to strengthen Europe as quickly as possible so that, step by step, we can really achieve independence from the USA.”
Vice President Vance remarks at Munich Security Conference rankle European countries. On February 14, Vice President J.D. Vance, speaking at the 61st Munich Security Conference, delivered remarks that criticized European restrictions on free speech and its approach to security, arguing that the continent was stifling open discourse. The speech drew negative reactions from U.S. allies, including German Defense Minister Borris Pistorius, who said that the vice president’s comments were “not acceptable.”
U.S. Department of State designates certain Latin American cartels as terrorist organizations. On February 20, the U.S. Department of State (“State”) designated certain international cartels, including Mara Salvatrucha (“MS-13”), South America-based Tren de Aragua (“TdA”) and Cártel de Jalisco Nueva Generación (“CJNG”), as both Foreign Terrorist Organizations (“FTOs”) and Specially Designated Global Terrorists (“SDGTs”). The terrorist designations could present significant compliance challenges for companies that operate in areas controlled by cartels. See our alert.
U.S. trade deficit rose sharply in January ahead of Trump tariffs. The U.S. trade deficit grew by 34 percent in January to $131.4 billion, largely driven by a 10 percent increase in imports, which grew to $401.2 billion. Reports indicate that the spike in the deficit may have been driven by American companies frontloading imports in anticipation of upcoming tariffs.
George T. Boggs and Kathleen H. Shannon contributed to this article
USTR Seeks Public Comment on Proposed Action in Section 301 Investigation of China’s Targeting of the Maritime, Logistics, and Shipbuilding Sectors
The Office of the United States Trade Representative (“USTR”) announced its proposed actions under Section 301 of the Trade Act of 1974 (“Section 301”), in connection with its Investigation of China’s Targeting of the Maritime, Logistics, and Shipbuilding Sectors for Dominance (the “Proposed Action”) on February 21, 2025.
In short, the Proposed Action includes a variety of recommended remedies, including (1) imposing significant port fees on Chinese vessel operators and other operators of Chinese-built vessels, and operators with orders for new vessels being built in Chinese yards, and (2) implementing requirements for mandatory use of U.S.-flag and U.S.-built vessels to carry fixed percentages (increased annually) of U.S. exports.
At this time, the Proposed Action is not final and USTR is seeking public comment by March 24, 2025, as discussed further below. Given the role that ocean transportation plays in the economy, the Proposed Action would have far-reaching effects to the extent it is adopted. Accordingly, vessel owners and operators and other interested parties in the industry should consider commenting on the Proposed Action and/or appearing at the upcoming hearing with respect to how the Proposed Action may affect them and their industry. In addition, at a minimum, shipowners, operators, charterers, and shippers should start considering their operations, contracts, and how the Proposed Action may affect them.
It is worth noting that in the days since USTR released its Proposed Action, the Trump administration has taken several significant steps focused on promotion of the U.S. shipbuilding and maritime industry, including measures drawing revenue from the proposed Section 301 fees:
Creation of a Shipbuilding Office: President Trump announced plans to establish a new office of shipbuilding within the White House. The Office of Maritime and National Capacity is organized within the National Security Council and aims to revitalize domestic ship production.
Tax Incentives: The administration plans to offer special tax incentives to encourage investment in both military and commercial shipbuilding.
Executive Order Under Consideration: An executive order (“EO”) is under consideration that includes measures to support U.S. shipbuilders. A draft order, which has been circulated in recent days throughout the maritime industry, reportedly includes a directive that USTR impose, through the ongoing 301 investigation, tonnage-based fees on Chinese-built and Chinese-flagged ships (or vessels in fleets that contain such ships) entering the United States. However, at this point, the EO is still in draft form and has not been signed or released to the public.
Background
Section 301 authorizes USTR to investigate foreign trade practices and impose measures on foreign countries found to violate U.S. trade agreements or engage in acts that are “unjustifiable,” “unreasonable,” or “discriminatory” in ways that burden U.S. commerce. USTR’s powers under Section 301 are quite broad.
In March 12, 2024, five major U.S. labor unions filed a Section 301 petition regarding alleged acts, policies, and practices of China to dominate the maritime, logistics, and shipbuilding sector. The petition was accepted, and on April 17, 2024, USTR initiated an investigation. Following its investigation, on January 16, 2025, in the last days of the Biden Administration, USTR published its report and determined that China’s practices were “actionable”.[1]
In connection therewith, USTR published the Proposed Action and is now seeking public comments from interested parties. Comments must be submitted via USTR’s online portal (https://comments.ustr.gov/s/) no later than March 24, 2025. USTR has also scheduled a public hearing on the proposed actions on March 24, 2025, in the main hearing room of the U.S. International Trade Commission located at 500 E Street S.W., Washington, D.C. 20436. Interested parties may request to appear at the hearing no later than March 10, 2025, and the request should include a summary of the proposed testimony and may be accompanied by a pre-hearing submission. Remarks at the hearing are limited to five minutes.
Proposed Action
The Proposed Action includes the following fees and service restrictions:
Fees
Chinese maritime transport operators will be charged a fee:
up to U.S. $1,000,000 per vessel entrance to a U.S. port; or
up to U.S. $1,000 per net ton of the vessel’s capacity per entrance to a U.S. port.
Chinese maritime transport operators with fleets comprised of Chinese-built vessels will be charged:
up to U.S. $1,500,000 per vessel entrance to a U.S. port;
fees based on the percentage of Chinese-built vessels in the operator’s fleet:
up to U.S. $1,000,000 per vessel entrance at a U.S. port if greater than 50 percent of the fleet;
up to U.S. $750,000 per vessel entrance at a U.S. port if between 25 percent and 50 percent of the fleet; or
up to U.S. $500,000 per vessel entrance at a U.S. port if between 0 percent and 25 percent of the fleet; or
an “additional” fee up to U.S. $1,000,000 per vessel entrance to a U.S. port if the number of Chinese-built vessels in the operators fleet is equal to or greater than 25 percent.
Maritime transport operators with prospective orders for Chinese vessels:
an “additional fee” based on the percentage of vessels ordered from Chinese shipyards:
up to U.S. $1,000,000 per vessel entrance at a U.S. port if greater than 50 percent of their vessel orders in Chinese shipyard or vessels expected to be delivered by Chinese shipyards over the next 24 months;
up to U.S. $750,000 per vessel entrance at a U.S. port if between 25 percent and 50 percent of their vessel orders in Chinese shipyard or vessels expected to be delivered by Chinese shipyards over the next 24 months; or
up to U.S. $500,000 per vessel entrance at a U.S. port if between 0 percent and 25 percent of their vessel orders in Chinese shipyard or vessels expected to be delivered by Chinese shipyards over the next 24 months; or
a fee up to U.S. $1,000,000 per vessel entrance at a U.S. port if 25 percent or more of the total number of vessels ordered by an operator, or expected to be delivered to the operator, are ordered or expected to the delivered by Chinese shipyards over the next 24 months.
The Proposed Action also includes a proposed “refund” for additional fees, on a calendar year basis, up to U.S. $1,000,000 per entry into a U.S. port of a U.S.-built vessel through which the operator is providing international maritime transport services. However, the Proposed Action does not include any further details as to the timing of refunds or the process to obtain a refund.
Service Restrictions
In addition to the above fees, the Proposed Action includes restrictions on services aimed at promoting the transport of U.S. goods on U.S. vessels. In that regard, the international maritime transport of all U.S. goods (e.g., capital goods, consumer goods, agricultural products, and chemical, petroleum, or gas products), must comply with the following schedule:
“As of” Effective Date
Effective Date of Action
Two Years Following Effective Date of Action
Three Years Following Effective Date of Action
Seven Years Following Effective Date of Action
Percentage of U.S. Products, Per Calendar Year, Exported by Vessel, Restricted to Export on U.S.-Flagged Vessels by U.S. Operators
At least 1 percent
At least 3 percent
At least 5 percent (at 3 percent of which must be U.S.-flagged, U.S.-built, by U.S. Operators)
At least 15 percent (at 5 percent of which must be U.S.-flagged, U.S.-built, by U.S. Operators)
The Proposed Action also includes a requirement that U.S. goods are to be exported on U.S.-flagged, U.S. built vessels, but may be approved for export on a non-U.S.-built vessel provided the operator providing international maritime transport services demonstrates that at least 20 percent of the U.S. products, per calendar year, that the operator will transport by vessel, will be transported on U.S.-flagged, U.S.-built ships.
Other Actions
In addition, the Proposed Action included a recommendation that relevant U.S. agencies take actions to reduce exposure to and risk from China’s promotion of the National Transportation and Logistics Public Information Platform (“LOGINK”) or other similar platforms, including investigating alleged anticompetitive practices from Chinese shipping companies, restricting LOGINK access to U.S. shipping data, or banning or continuing to ban terminals at U.S. ports and U.S. ports from using LOGINK software.
Key Takeaways
Open Issues: While the Proposed Action listed a number of proposed fees and restrictions, the descriptions are generally vague and include no regulatory details or necessary definitions for implementation. For effective implementation, many of the proposals will need to be fleshed out further before a final rule is adopted.
For example, many requirements are based on who the vessel “operator” is, but that term is not defined, and there is no standard definition of “vessel operator” in U.S. law; it can vary depending on the particular legal or regulatory requirements at issue. There is also no indication how affiliated companies would be treated in the fleet-wide analysis of the origin of vessels or newbuilds.
In addition, the Proposed Action sets maximum fees (“at a rate of up to $1,000,000 per entrance”) but does not include any analytical principles, policies, or procedures to determine how the U.S. government would set the actual fees for specific vessels (e.g., how will fees be adjusted based on vessel type, cargo type, trade, volume, export status, and/or other factors, etc.).
Status of the Proposed Action: The Proposed Action is only a set of proposals at this stage and the various fees and service restrictions are not yet final. At this time, it is unclear whether USTR will ultimately impose all, some, or any of the proposals included in the Proposed Action. However, given the lack of specificity and open issues, public comment and testimony at the public hearing by interest parties may help shape what form the final rules takes.
Timeline: The public hearing is scheduled for March 24, 2025, and the deadline for public comments also closes on March 24, 2025. Section 301 cases are supposed to be completed within one year, which would require the rule to be finalized by April 17, 2025, and then implemented 30 days after. However, the White House may extend that period up to 180 days.
Given the lack of specificity in the Proposed Action and the anticipated wide-ranging opposition from inside the United States (from importer, exporters, manufacturers, retailers, etc.) and also outside the United States (shipowners, shippers, associations, governments, etc.), it will be challenging for USTR to finish this process and publish a workable final regulation within the one-year timeframe. However, given the velocity of other recent administration trade actions, an implementation of some or all proposed measures in April cannot be ruled out.
Contract Review: In the interim, vessel owner and operators and other actors in the industry should review their existing and prospective contracts and consider how the Proposed Action may affect them and whether they may have any applicable relief. For example:
Which party is responsible for port fees (typically the charterers) and are there any exceptions or restrictions that may be applicable;
Does the contract include tariff or sanction provisions that may be applicable; or
Would the Proposed Action constitute a force majeure event, a change in law, or a material adverse change such that certain rights such as suspension of performance, substitution of vessel, or termination may be applicable?
[1] The full 182-page report titled Section 301 Investigation: Report on China’s Targeting of the Maritime, Logistics, and Shipbuilding Sectors for Dominance, may be found here: https://ustr.gov/sites/default/files/enforcement/301Investigations/USTRReportChinaTargetingMaritime.pdf
Blockchain+ Bi-Weekly; Highlights of the Last Two Weeks in Web3 Law: March 13, 2025
Among the biggest news that dropped in the past two weeks was the Trump administration’s announcement of a national Bitcoin reserve plan, a move whose mere discussion marks a significant shift from the federal government’s previous stance on digital assets and crypto. The SEC has continued its trend of closing non-fraud-related investigations and enforcement actions, providing some long-awaited relief for the industry. On the litigation front, Uniswap secured a key victory at the Second Circuit against the SEC, marking another win for DeFi. Meanwhile, the SEC continues to make waves with its statement on memecoins, asserting that the tokens themselves are not securities in many contexts unless tied to an investment contract. This statement has sparked widespread debate and heightened expectations for further developments and related classifications in the coming weeks.
These developments and a few other brief notes are discussed below.
National Bitcoin Reserve Plan Announced: March 6, 2025
Background: After a few weeks of teasing it, President Trump has released his Executive Order establishing a Strategic Bitcoin Reserve and Digital Asset Stockpile capitalized with digital assets that were forfeited as part of criminal or civil asset forfeiture. On the day the Executive Order was signed, Crypto/AI Czar David Sacks released a statement on social media that under prior administrations (which includes Trump’s first term) “the federal government sold approximately 195,000 bitcoin for proceeds of $366 million. If the government had held the bitcoin, it would be worth over $17 billion today.”
Analysis: In practice, this order primarily directs federal agencies to account for and retain, rather than sell, digital assets, seized digital assets—a move that, while noteworthy, is not particularly groundbreaking. There was some interesting text in the Order about it being a “strategic advantage” to be among the first nations to create a bitcoin reserve due to its limited supply. However, beyond this symbolic step, it does little to shift the broader landscape. That said, the absence of federal government sell pressure for the next four years is a welcome development for Bitcoin markets.
More SEC Investigations and Cases Dropped: March 3, 2025
Background: The creators of Bored Ape Yacht Club NFTs and related products, Yuga Labs, have announced the SEC has closed its investigation into the company, stating on X (formally Twitter), “NFTs are not securities.” At the same time, the SEC appears to have reached an agreement with Kraken to drop its pending case against the second largest digital asset exchange in the U.S. This leaves only the Ripple and PulseChain lawsuits still active, with the Cumberland DRW case dismissed while we were finalizing this update, highlighting just how quickly things are changing. The PulseChain case, meanwhile, is effectively dead if the jurisdiction dismissal holds up.
Analysis: While it remains unclear how Ripple and the SEC can coordinate a dismissal at this stage in the appeal process, with nearly every other non-fraud case either closed or in the process of closing, it is reasonable to assume that this case is also likely to wind down or end in the near future. While fraud cases will continue and new cases may emerge, it is highly unlikely that we will see new non-fraud enforcement actions related to failure-to-register as a security until clearer regulatory rules are established. The substantial costs and uncertainty these cases have imposed on the industry make their resolution a much-needed reprieve.
Uniswap Wins with the SEC and at the Second Circuit: February 25, 2025
Background: The SEC’s Enforcement Division issued a Wells notice to Uniswap in April of last year, signaling its intention to recommend enforcement action against the decentralized exchange. Last week, Uniswap announced that it has been informed that the SEC has officially closed its investigation with no further action. In the same week, the Second Circuit upheld the dismissal of a civil securities class action filed against Uniswap.
Analysis: The closure of the SEC’s investigation into Uniswap follows similar decisions regarding the NFT platform OpenSea and the online exchange Robinhood. The ruling in the Second Circuit, meanwhile, is seen as a broader win for DeFi, holding that social media posts about the security of the platform and transactions executed via its smart contracts do not make its developers statutory sellers or solicitors of securities transactions. Combined with the SEC dropping its case against Consensys over the Metamask wallet swapping and staking functionalities (which facilitate transactions with third-party DeFi providers), DeFi had a strong week—despite market-wide token price declines.
SEC Stays Busy with Flurry of Developments: February 26, 2025
Background: In addition to the Uniswap and Consensys closures noted above, the SEC also has called off its investigation into the Winklevoss-backed platform Gemini. It also acknowledged 4 crypto ETFs, released a Staff Statement on Memecoins, had six Crypto Task Force meetings, released Commissioner Peirce’s statement on litigation by enforcement, and two statements from Commissioner Crenshaw decrying recent Agency actions.
Analysis: It is hard to imagine all of this would be happening so quickly if there wasn’t unofficial buy-in from the likely future Chair of the SEC, Paul Atkins. The biggest development by far was the statement on memecoins, which is seemingly an official shift in the SEC’s interpretation of the Howey test as well as an official statement that the tokens themselves aren’t securities in certain situations and need a separate investment contract, which is basically the exact opposite position the SEC took in LBRY and Kik.
Briefly Noted:
OCC Permits Banks to Engage in Cryptocurrency Activities: The Office of the Comptroller of the Currency (OCC) has issued Interpretive Letter 1183, clarifying that national banks and federal savings associations can engage in cryptocurrency-related activities, including custody services and certain stablecoin operations, without needing prior regulatory approval. This marks a significant policy shift, removing previous barriers for banks offering crypto services.
White House Crypto Summit: The White House hosted a summit of leaders in the crypto industry. While not much in terms of developments came from that meeting, it is nice to see this level of interaction between government officials and industry leaders.
Richard Heart Beats SEC: It looks like the court overseeing the Richard Heart/Hex/PulseChain case has agreed that his interactions with the U.S. were not sufficient to create specific jurisdiction or satisfy what is required for application of U.S. securities laws to his (alleged) conduct.
OKX Exchange Settles with DOJ: OKX has agreed to pay over $500 million for serving as an unregistered money transmitter for U.S. customers from 2018 until 2024.
ByBit Hack Developments: There appears to be conflicting information on whether Bybit had its own systems compromised or if the breach was solely due to a hack of its SAFE multi-sig provider. The attack resulted in significant fund losses, though the full extent is still being assessed. Notably, the founder gave a full 1-hour interview in the days following the incident—an unusual level of transparency in the aftermath of a major security breach and possibly even a level of pretty radical transparency.
Senate Banking Hearing on Digital Asset Legal Framework: The Senate Banking Subcommittee on Digital Assets held a hearing titled Exploring Bipartisan Legislative Frameworks for Digital Assets, demonstrating that lawmakers are following through on their commitment to prioritize the fast-tracking of digital asset regulations in the coming months.
Senate Passes CRA to Overturn IRS Crypto Broker Rule: In a strong bipartisan move, the Senate passed a 70-28 resolution to overturn a controversial tax reporting rule enacted in the final days of the previous administration. This rule would have broadly classified internet service providers as brokers, requiring them to collect tax information, including Social Security numbers, from users. President Trump has already stated that he will sign this resolution into law if and when it passes in the House. If enacted, this legislation will prevent the IRS from reintroducing similar tax reporting requirements in the future without Congressional approval.
SEC Sets First Crypto Roundtable: The SEC is set to host their first roundtable for the crypto task force, conveniently scheduled for the Friday before the D.C. Blockchain Summit. The SEC also named a number of industry veterans as the staff of its Crypto Task Force, with a promising sign that those with hands-on experience in the space will have a role in shaping policy.
Bi-Partisan “Congressional Crypto Caucus” Formed: Republican House Majority Whip Tom Emmer and Democrat Ritchie Torres are creating a “Congressional Crypto Caucus,” which is intended to create a unified and bipartisan coalition to spearhead bills that support the growth of digital assets in America.
Senate Bill to Stop Chokepoint 3.0: The chair of the Senate Finance Committee is proposing a bill that eliminates “reputational risk” as a component of the supervision of depository institutions after it was used to debank unfavored industries in Operation Chokepoint and Chokepoint 2.0.
Houlihan Capital Issues Q4 2024 Crypto Market & VC Industry Report: Houlihan Capital released its latest report analyzing crypto market trends, venture capital deal activity and sector performance. A key takeaway is that while early-stage investments slowed, later-stage crypto deals saw an uptick, reflecting growing investor confidence in established blockchain projects.
Crypto Market Sees Price Declines, Over the past two weeks, Bitcoin (BTC) dropped about 21% to $78,000, while Ethereum (ETH) fell nearly 15% to $1,873. Despite prices still being much higher than six months ago, the decline suggests that crypto remains viewed as a high-risk asset rather than a hedge like gold, reflecting its continued correlation with equities.
Conclusion:
Although the current iteration of the national Bitcoin reserve strategy is quite limited—essentially just preventing the federal government from selling Bitcoin it otherwise would have—it is symbolically significant and has the potential to evolve into something much more impactful. The SEC appears to be following through on its commitment to wind down non-fraud-related litigations and investigations, providing some regulatory relief for the industry. Beyond the SEC, Congress has been increasingly active in exploring and advancing crypto-related legislation and regulatory frameworks, further intensifying focus on the industry.