THIS MONTH'S TOP FIVE DEVELOPMENTS

1) BIS and DDTC Issue First Final Rules to Implement the Administration's Export Control Reform Initiative

To implement the President's Export Control Reform Initiative, the Department of State's Directorate of Defense Trade Controls (DDTC) and the Department of Commerce's Bureau of Industry and Security (BIS) concurrently issued the first in a series of long-awaited final rules amending the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR) by transferring certain less sensitive items from the United States Munitions List (USML) to the Commerce Control List (CCL), and creating a more positive control list that eliminates, where possible, "catch all" controls.

The first final rules revised USML Category VIII (Aircraft and Related Articles) and the addition of USML Category XIX (Gas Turbine Engines and Associated Equipment), as well as the unchanged Categories XVII (Classified Articles, Technical Data, and Defense Services Not Otherwise Enumerated) and XXI (Articles, Defense Services). The DDTC and BIS rules also established the definition of "specially designed," and the DDTC rule sets forth the so-called "transition rule" to govern the procedure for licensing of items transitioning from the USML to the CCL.  

Responding to public comments citing the administrative burden stemming from the changes, BIS and DDTC delayed the effective date of the rules until October 15, 2013, giving exporters additional time to review their products, licenses and procedures. 

The expiration of the 30-day Congressional notification period required under Section 38(f) of the Arms Export Control Act without any considerable objections made possible the publication of the first set of final rules. The Administration is expected to submit the next set of proposed rules to Congress shortly, which will reportedly include the proposed changes to Categories VI (surface vessels of war and special naval equipment), VII (ground vehicles), XIII (materials and miscellaneous articles) and XX (submersible vessels and related articles).

For more information, contact: Alan Gourley, Lorraine Halloway, Jana del-Cerro, Chris Monahan

2) NAFTA Rules of Origin Changes? ITC Investigates

On March 28, The International Trade Commission (ITC) announced it had launched an investigation covering the "probable economic effect" that proposed modifications to the North American Free Trade Agreement's (NAFTA) rules of origin could have on U.S. trade and domestic industries.

The NAFTA rules of origin determine the preferential tariff treatment on a wide range of articles, including edible preparations; mineral fuels; chemical products; plastics; rubber articles; cork; glass and glassware; copper, nickel, and other base metals; machinery and parts; rail locomotives; trailers; optical and medical instruments; furniture; toys and games; lighters; and smoking pipes. 

The ITC invites interested parties to submit comments concerning the investigation no later than June 4.

For more information, contact: John Brew, Michael Larmoyeux

3) Moving Towards a TTIP Launch

U.S. and EU trade policy authorities continue to pursue domestic preparations enabling a summer-time launch of negotiations for a Transatlantic Trade and Investment Partnership (TTIP) agreement linking the world's leading industrialized economies. The Office of the U.S. Trade Representative (USTR) has solicited private sector input on negotiating objectives to be pursued in TTIP, with a May 10 deadline for responses. Meanwhile in Europe, Member State trade ministers and their officials are continuing to debate a draft "mandate" intended to guide the European Commission's trade negotiators. Despite a French-driven flare-up over whether or not audio-visual services and other "culture"-related trade issues would be tackled within the TTIP, approval of the mandate is considered likely between now and June, enabling a formal, political launch of the TTIP when President Obama and European leaders meet on the margins of the annual G8 summit meeting. An initial round of technical negotiations may occur in July.

Crowell & Moring and its consulting affiliate, C&M International, are following all aspects of the TTIP. Please contact us to discuss how to engage in this process to advance your company's targeted commercial objectives.

For more information, contact: Christopher Wilson, Laurent Ruessmann

4) CBP Opens Three New Centers of Excellence and Expertise

On April 18, U.S. Customs and Border Protection (CBP) announced the opening of three new Centers of Excellence and Expertise (CEE) - Base Metals (Chicago, IL); Industrial & Manufacturing Materials (Buffalo, NY), and Machinery (Laredo, TX). The CEEs are the product of extensive collaboration between industry stakeholders and CBP. Importers, including but not limited to C-TPAT and ISA program members, may apply to CBP to participate in the new Centers.

CBP plans to open three more Centers in FY 2013: Agriculture & Prepared Products (Miami, FL), Apparel, Footwear & Textiles (San Francisco, CA), and Consumer Products & Mass Merchandising (Atlanta, GA). By the end of the fiscal year, CBP will operate a total of ten Centers.

The CEE directors will maintain offices in the locations listed above; however, the centers themselves are "virtual" in that they include industry expert specialists in other locations (including other CEEs and Ports of Entry). The CEE system is intended to provide a centralized, single contact for importers in an industry, utilizing account management principles. CEEs are expected to handle many post-entry functions, including entry cancellations, rejected ACS entry summaries, Requests for Information (CF-28), Notice of Action (CF-29), Requests for Internal Advice, extensions and suspensions of liquidation, protests and prior disclosures.

Assignment to a CEE is based on a company's highest percentage of imports within a particular industry (by tariff classification), regardless of whether a company imports in multiple sectors. This allows CBP to pair each company with an account manager to provide a single point of contact for any import issues. Currently, participation in a CEE is limited to "trusted partner" companies, such as participants in the Customs and Trade Partnership Against Terrorism (C-TPAT) and/or Importer Self Assessment (ISA) programs.

For more information, contact: John Brew, Michael Larmoyeux

5) First Round of EU-Japan Trade Talks

The EU and Japan held the first round of negotiations for a Free Trade Agreement (FTA) recently in Brussels. The Parties will hold the next round of negotiations in Tokyo in June.

The goal of the Parties is to conclude a comprehensive agreement covering goods, services and investment. The negotiating directives adopted by the Council last November foresee a commitment to abolish EU duties in exchange for the elimination by Japan of non-tariff barriers. The EU negotiating objectives also authorize the suspension of the negotiations after one year if Japan does not live up to its commitments to propose removing non-tariff barriers. In addition, a safeguard clause would protect sensitive European sectors.

Analysts estimate that an FTA would boost EU exports to Japan by 32.7 percent, while Japanese exports to the EU would increase by 23.5 percent.

For more information, contact: Laurent Ruessmann, Jochen Beck, Francesca Condello

THIS MONTH IN TRADE – OTHER NEWS

Agency Enforcement Actions

Bureau of Industry and Security (BIS)

• Oklahoma Man Fined $1,500, Denied Export Privileges for 10 Years for Exporting Night Vision Goggles to Vietnam Without a License.
• California Man Fined $10,000, Denied Export Privileges for 10 Years for Exporting Defense Articles to Iran Without a License.
• Dubai Company Settled for $2.8 Million for Exporting Internet Monitoring Equipment and Software to Syria.

Customs and Border Protection (CBP)

• CBP Intercepts 400 Pills of Carisoprodol, an Unapproved Pharmaceutical Product.
• CBP Intercepts Illegally Imported Land Rovers.
• CIT Upholds Civil Penalty of $10 Million For Entries of Evening Primrose Oil.

Office of Foreign Assets Control (OFAC)

• California Company Settles for $22,500 for Violations of Iranian Transactions and Sanctions Regulations. SAN Corporation of Oxnard, CA, allegedly sold nutritional supplements to an entity in Kuwait with the knowledge that the goods were intended for end use in Iran. The company did not voluntarily disclose the matter and settled the case for $22,500.

Securities and Exchange Commission (SEC)

• Parker Drilling Settles For $4 Million Over Allegations of FCPA Violations. Parker Drilling Company agreed to pay $4,090,818 to settle allegations that it violated the FCPA by making payments to a Nigerian agent in order to have a customs fine reduced.
• Ralph Lauren Settles For $734,000 Over Allegations of FCPA Violations. Ralph Lauren Corporation agreed to pay $734,846 to settle allegations that it had violated the FCPA by making improper payments to Argentinean government officials to avoid customs inspections. This case was the first time the SEC used a non-prosecution agreement (NPA) in a FCPA matter. 

For more information, contact: Richard Massony

EU and Morocco Launch Trade Negotiations

The EU and Morocco launched negotiations for a Deep and Comprehensive Free Trade Area (DCFTA) on March 1, 2013. The two countries held the first round of negotiations on April 22, 2013, in Rabat. 

The EU and Morocco entered into an Association Agreement in 2000. The aim of the DCFTA is to extend the existing agreement to include trade in services, government procurement, competition, intellectual property rights, and investment protection, and to achieve the gradual integration of the Moroccan economy into the EU single market in such areas as industrial standards and sanitary and phytosanitary measures.  The parties are planning  for a second negotiating round in late June.

The EU is also expected to launch negotiations towards bilateral DCFTAs with Egypt, Jordan, and Tunisia. These negotiations represent the EU's commitment to further develop trade and investment ties with Middle East countries in response to the recent political changes across the Arab world.

For more information, contact: Laurent Ruessmann, Jochen Beck, Francesca Condello

New Rules in China for Export Tax Exemptions and Refunds

Beginning April 1, 2013, the State Administration of Tax (SAT) implemented new rules governing refunds of exemptions of indirect export tax sought by companies who export goods and services from China. These rules are a continuation of China's value-added tax (VAT) pilot. SAT announcement [2013] No. 12 clarifies and updates certain filing procedures, deadlines, documentation, and other provisions related to manufacturing enterprises that may apply for a VAT credit, exemption, or refund. 

The State Administration of Taxation announced the changes on March 13. The changes supersede and modify previous circulars regarding export tax refunds and exemptions. In particular, deadlines for certain filings were specified. The last filing of the export tax refund is the filing date before April 30th in the year following the export; the export tax exemption can be filed monthly, with the last filing date being May 31 in the year following the export.

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For more information, contact: Jini Koh

Application of New Rules of Origin in the Pan-Euro-Mediterranean Cumulation Zone

On April 17, 2013, the European Commission published a notice in the C series of the EU Official Journal specifying the dates of application of the diagonal cumulation of origin in the pan-Euro-Mediterranean zone, provided for by the Regional Convention on pan-Euro-Mediterranean preferential rules of origin, between the European Union, Albania, Algeria, Bosnia and Herzegovina, Croatia, Egypt, Faeroe Islands, Iceland, Israel, Jordan, Kosovo, Lebanon, the former Yugoslav Republic of Macedonia, Montenegro, Morocco, Norway, Serbia, Switzerland (including Liechtenstein), Syria, Tunisia, Turkey and West Bank and Gaza Strip.

The Regional Convention on pan-Euro-Mediterranean rules of origin offers new origin cumulation possibilities that were not provided for in the nearly 60 bilateral protocols with the above-mentioned countries. For example, the Convention permits cumulation among the EU, certain Western Balkan countries, Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Syria, Tunisia, West Bank and Gaza strip, as well as the EFTA Member States.

For more information, contact: Laurent Ruessmann, Jochen Beck, Francesca Condello

EU Lifts Economic Sanctions on Burma

On April 22, 2013, the EU published its decision to lift all economic sanctions on Burma and maintain only the embargoes on arms and on equipment for internal repression going forward. The revised sanctions are set out in Decision 2013/184/CFSP and apply until April 30, 2014.

For more information, contact: Jochen Beck, Cari Stinebower

CROWELL AND MORING SPEAKS

John B. Brew and John Fuson spoke at the Grocery Manufacturer's Association Science Forum on April 3, 2013, at Marriott Wardman Park in Washington, D.C. Their panel included a discussion entitled, "Understanding the Food Safety Modernization Act's Impact on your International Supply Chain."

Jonathan ("Josh") S. Kallmer spoke on the U.S. process for reviewing the national security implications of inward foreign investment as part of the "CFIUS Regulations and FINSA Compliance" Strafford CLE webinar on April 16, 2013.

John B. Brew and Laurent Ruessmann will speak on "Import-Export Global Management" at the All Hands Meeting International (AHMI) event in Santa Clara, CA on May 16.

Jini Koh will be moderating a panel on "Regional Insight: Russia" at the Annual American Association of Exporters and Importers (AAEI) Conference in Washington, D.C. on June 17, 2013.

CROWELL AND MORING PUBLICATION

The Crowell & Moring Advertising and Project Risk Management Group has published a Crisis Management Handbook including a chapter on "Border Control Limbo: Saving Your Product From Seizures, Forfeitures, Fines and Delays" by John Brew and Richard Massony.

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