Importing as a “Finished Goods Kit” Makes a Big Difference
May 16, 2012
By: Kun Zhao, Esq.
On May 26, 2011, the International Trade Commission issued an antidumping duty order and a countervailing duty order against aluminum extrusion products from China (76 FR 30, 650 (May 26, 2011); 76 FR 30, 653 (May 26, 2011), referred to as “the Orders”). The merchandise subject to the Orders includes aluminum extrusions produced and imported in a wide variety of shapes and forms, such as hollow profiles, other solid profiles, pipes, tubes, bars, and rods. Many aluminum products including, but not limited to, drapery rails and rods have drawn the attention of customs officials, who are imposing antidumping and countervailing duties on such products.
Unbeknownst to many importers, the Orders exclude finished goods containing aluminum extrusions that are imported unassembled in “a finished goods kit.” A memorandum from the Department of Commerce dated February 3, 2012 regarding drapery rod kits explained that a finished goods kit is understood to mean a packaged combination of parts that contain, at the time of importation, all of the necessary parts to fully assemble final finished goods and requires no further or fabrication, such as cutting or punching, and is assembled “as is” into a finished product.
The memo further determined that drapery rail kits without including curtains are not a “finished goods kit.” Other memos regarding the scope of the Orders from the Department of Commerce determined that a shower door frames without glass is not a finished good. A retractable awning mechanism kit without textile cover is not a “finished product.”
Thus, the criteria for determining the scope of the exclusion is whether the kits contain all of the necessary parts to fully assemble a final finished good at the time of importation. To ensure that merchandise containing aluminum extrusions is not subject to antidumping and countervailing duty, importers should confirm that:
(1) The merchandise is packaged in kits and each kit has all necessary parts to fully assemble a final finished good, including non-aluminum parts, such as curtain, glass, textile cover, sheet, etc.; and
(2) The purchaser order is placed for the kit and not for the parts of the kit; and
(3) The unit price is offered for each kit and not the breakdown prices for individual parts of the kit; and
(4) The kit is from one manufacturer or exporting company.
Right Time to Invest in Commercial Properties in the U.S.?
April 27, 2012
By: Kun Zhao, Esq.
The second annual Chinese Investment in the U.S. Real Estate Forum is scheduled to be held on June 21, 2012 in Los Angeles, California. U.S. real estate professionals will gather there to address the latest trends and opportunities in China-U.S. real estate investments and transactions. Given the current drop in housing prices and a strong and rising RMB, Chinese investors have shown a greater than ever interest in the U.S. real estate market.
Chinese investors are increasingly targeting commercial properties in New York and New Jersey. According to a report, China’s HNA Group, which owns Hainan Airlines, acquired 1180 Avenue of the Americas, a 23-story office building in Manhattan for $265 million, and the luxury Cassa Hotel and Residences near Times Square for $126 million last year. Hong Kong billionaire Cheng Yu-tung’s family also invested in five U.S. luxury hotels in 2011, including Manhattan’s iconic Carlyle, for $570 million.
Chinese investments in New Jersey’s port area have been growing substantially as well. China is the largest source of goods imported through Newark, accounting for 27.8 percent of all goods entering the Port of New York and New Jersey. Chinese investments will continue to grow with the imminent widening of the Panama Canal, the expansion of the New Jersey Terminal, the dredging of New York Harbor and the raising of Bayonne Bridge. All these projects aim to substantially increase the New Jersey’s ports’ capacity to handle more containers. These projects will allow large cargo ships that currently anchor in California to sail directly to New Jersey, which would eliminate the need to deliver goods cross-country via trucking or railway. To Chinese companies, it means that a new distribution center in the east coast will be established.
Resonant with the port expansion in Newark, Chinese companies have invested substantially in in industrial properties near the Port of Newark. According to a real estate newsletter, last November, Sun Taiyang Co. signed a lease for a new 95,542-square-foot industrial facility in Moonachie. Early this year, Asian food distributor, Walong Marketing, renewed its 175,456-square-foot lease at 99 Caven Point Rd. in Jersey City. The facility has served as the company’s east coast distribution center for 10 years and Walong will stay in place for an additional 20 years. Currently, many Chinese companies are seeking to lease warehouses to handle their products. It is anticipated that these companies will need to acquire their own warehouses to accommodate their rapid growth.
The Real Estate Practice Group at Hill Wallack LLP stands ready to handle your real estate issues with the skill and sophistication necessary to achieve the desired results.
Purchase Money Security Interest-A Useful Recovering Device in International Trade
April 4, 2012
By: Kun Zhao, Esq.
In international trade, suppliers of goods often sell on credit to their customers, facing credit risks especially when the customers are experiencing financial difficulties in this economy. Sellers have growing concerns when their customers start to delay payments or even stop payments. How to recover something from the defaulting customer to mitigate the loss is a frequently asked question. The reality is that the delay or failure to pay is often due to the customer’s financial difficulties or even insolvency. If the financially distressed customer files bankruptcy, the seller will probably not receive a recovery, as the customer’s primary lenders normally have earlier-filed security interest in the customer’s assets, including the goods, and therefore have priority in recovery over the seller.
There is a relatively simple protection device that Chinese suppliers have rarely used, called the Purchase Money Security Interest under the Uniform Commercial Code (“UCC”) Article 9 (“PMSI”), which to some extent affords a certain level of protection in securing the seller’s interest in the goods to mitigate the loss if the customer defaults. In some common cases, it could provide Chinese suppliers with superior recovery rights in the goods themselves or the identifiable proceeds from the goods when the customer is insolvent or files bankruptcy. This device is widely used in the sale of large equipment or in a series of sales of goods in inventory for further manufacturing or resale.
A PMSI under UCC §9-103 is defined as a security interest in goods that are taken in collateral to the extent that it secures all or part of the purchase price of the collateral (the goods). In the sale of goods scenario, it is a security interest in collateral created by a seller who secures the obligation to pay the purchase price of goods sold on credit to a customer. A properly perfected PMSI gives the seller of goods on credit with “super priority” in the goods and the identifiable cash proceeds from the goods, trumping other creditors who have a conflicting security interest in the same goods, including those who have earlier-filed security interest in the customer’s assets and inventory in general.
New Jersey and New York have adopted the UCC. The UCC rules for acquiring a PMSI are set out in UCC §9-324. To achieve priority over an earlier-filed security interest in the same goods, the seller and its customer must:
(1) execute a security agreement, which can be part of the sales agreement. The collateral in the security agreement must relate only to the goods that will be sold to the customer in the future;
(2) the PMSI must be perfected by filing the appropriate financing statements with the secretary of state or other filing agency in the state where the customer is legally organized when the debtor receives possession of the collateral. In other words, the seller must file the financing statement before the goods are delivered;
(3) the seller must give written notice to the holder of the conflicting security interest if the holder of that conflicting security interest has filed a financing statement. Any earlier-filed conflicting security interest holder can be found through a UCC filing search at the filing agency in the state;
(4) This notice must be received by the holder of the other security interest before the debtor receives possession of the purchase-money collateral (the goods), and is valid for a period of five years;
(5) the notification must state that the person giving the notice has or expects to acquire a purchase money security interest in inventory of the debtor, describing such inventory by item or type.
If sellers have taken proper steps above, they will have priority over earlier, normally superior, security interests that cover the same goods. Sellers will have additional remedies in collecting their receivables, or will have priority to retrieve and resell goods sold on credit for which the customers failed to pay.
Therefore, the PMSI is a valuable tool to help Chinese suppliers in managing credit risks in international trade. It affords Chinese suppliers security rights senior to their customers’ lenders in the goods sold on credit and gives them a better chance to recover at least something rather than nothing.
House Committee Advances Bill to Assist Capitalization Efforts of Small and Mid-Sized Businesses
February 28, 2012
By Kun Zhao, Esq.
On February 16, 2012, the House Financial Services Committee approved the Schumer-Toomey bill, which makes it easier for growing small and mid-sized companies to go public. The measure is aimed to help growing companies raise capital through public markets to spur job creation.
The bill would establish an exemption for “emerging growth companies” that have less than $1 billion in annual revenue at the time they register with the SEC for an Initial Public Offering (IPO) and less than $700 million in public float to meet certain SEC compliance requirements for up to five years until they reach the thresholds.
These so-called emerging growth companies would be exempted from paying an outside auditor to attest to a company’s internal controls and procedures under Sarbanes-Oxley Act. The bill would allow investors to have access to research reports about emerging growth companies prior to the IPO. It would also permit emerging growth companies to evaluate the possibility of success in a potential offering by allowing some pre-filing communications to institutional investors which are previously prohibited during the so called “quiet period.” The bill also allows filing a registration statement with the SEC on a confidential basis.
Under the bill, CEOs and chief financial officers would still be required to be personally liable for the adequacy of the internal controls and procedures that they have certified.
A similar bill is pending in the Senate and President Barack Obama has called for Congress to pass it. If passed and signed into law, the bill will ease the compliance obligations for growing companies and substantially reduce the high compliance costs, thereby encouraging small and mid-sized companies to raise capital through public markets.
Chinese “Investment” in U.S. Citizenship Pays Off
January 30, 2012
By: Henry T. Chou, Esq.
Even in the aftermath of the worst recession in American history and today’s uncertain economic climate, the U.S. remains a very desirable destination for immigrants. Today, there is a new breed of immigrants who do not arrive penniless like the generations before them, but come flush with cash and a mission of invigorating the American economy.
The Chinese, in particular, have taken on this mission more than any other immigrant group. According to the U.S. Citizenship and Immigration Service (USCIS), thousands of wealthy nationals of the People’s Republic of China (PRC) have applied for the EB-5 visa, which comes with a green card and a path towards citizenship.
Under the EB-5 visa program, foreign investors must finance commercial projects in the U.S. by investing at least $1 million (or $500,00 in a targeted employment area) and create at least 10 full-time jobs. EB-5 investors must undergo a background check, identify the source of their wealth and create and sustain 10 full-time jobs. If all of the requirements are satisfied and sustained after five years, the investors and their families are eligible for citizenship.
While the EB-5 visa program attracts a diverse range of applicants, Chinese nationals comprised a dominant majority – three quarters – of the applicants in 2011. According to USCIS, 2,969 Chinese nationals applied for the program and 934 of those applicants were approved in 2011. These figures represent a huge increase from previous years. For example, in 2007, only 270 Chinese nationals applied and only 161 were approved, accounting for only about a third of the totals.
The explosion of Chinese applicants is attributable to the rapid economic development of China, which has created an abundance of millionaires and billionaires. Surveys indicate that a majority of these newly rich are either considering emigrating or have already implemented plans to do so. Those surveyed cite education, advanced medical treatment, environmental issues and due process rights as their reasons for emigrating.
New Jersey, which is a highly populated state located strategically between the metropolitan areas of New York City and Philadelphia, is one of the top destinations of EB-5 investors. USCIS has established a regional center in New Jersey, which presently facilitates investment in Bergen, Essex, Hudson, Mercer, Middlesex, Passaic and Union Counties. Permitted investment options currently include hotels, restaurants, retail stores, office buildings, light industrial warehouses, civic buildings, apartments, condominiums and various types of mixed use development.
As one of the largest full-service firms in central New Jersey, Hill Wallack LLP is well-positioned to assist Chinese EB-5 investors with their immigration applications and business transactions and operations in New Jersey. The firm has attorneys on staff who are both fluent in Chinese and experienced in the areas discussed above.
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