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This Month in International Trade - July 2016

Client Alert | 22 min read | 08.04.16

In this issue:


This news bulletin is provided by the International Trade Group of Crowell & Moring. If you have questions or need assistance on trade law matters, please contact John B. Brew or any member of the International Trade Group.

BREXIT

For information and analysis regarding the 2016 Brexit referendum and its legal ramifications, please visit the firm's Brexit update page or follow via RSS feed.

U.K. Faces Arduous Trade Negotiations Post-Brexit

As international trade is an area of EU competence for its Member States, the United Kingdom will regain sole responsibility for the negotiation and management of trade agreements once it leaves the European Union. This will require the U.K. to conclude new trade agreements with its trading partners, including all the countries with which the EU has trade agreements from which the U.K. currently benefits as an EU Member State.

It is suggested that the U.K. could agree with certain key trading partners to apply provisionally the terms and conditions of existing trade agreements between those partners and the EU. This would be important to allow the U.K. to preserve the benefits of these preferential agreements pending finalization of the terms of its exit from the EU and the conclusion of new agreements. It would also ensure businesses enjoy a degree of certainty in ongoing trade.

Beyond such a provisional solution, the United Kingdom will have to engage in the difficult task of simultaneous detailed negotiations with many countries. This will require the rebuilding of a foreign trade service with hundreds of civil servants, when currently no more than twenty U.K. civil servants are thought to have significant trade negotiation experience. As a partial solution, the U.K. could recruit some of its nationals presently working for the EU in this context.

U.K. Members of Parliament have called for the immediate launch of trade talks with countries that have traditionally strong ties with the U.K., such as Australia, New Zealand, Canada, and the United States. Some of these calls have been reciprocated. For example, Canadian officials have shared with their U.K. counterparts details of the recently concluded EU-Canada Comprehensive Economic and Trade Agreement. In addition, Senate Finance Committee Chairman Orrin Hatch and House Ways and Means Committee Chairman Kevin Brady have formally introduced a joint congressional resolution calling for a new trade agreement between the U.S. and the U.K.

However, Brexit has not tempered other trading partners’ desire to prioritize ongoing negotiations with the EU, given its economic importance relative to the U.K. For example, free trade agreement (FTA) negotiations between the European Union and Indonesia began on July 18 and FTA negotiations with the Philippines launched in 2015 are proceeding unaffected. Similarly, bilateral FTAs were concluded in 2014 with Singapore and in 2015 with Vietnam and are expected to enter into force in 2017.

EU Trade Commissioner Cecilia Malmström has confirmed that regardless of Brexit the EU will pursue and conclude all the different negotiating processes in which it is currently engaged with key trading partners at the bilateral, plurilateral, and multilateral level. She has emphasized her determination to make as much progress as possible in the coming months, especially in negotiations on the Transatlantic Trade and Investment Partnership (TTIP) with the U.S.

The EU’s trading partners will likely seek to conclude bilateral trade agreements with the U.K. as well. However, they are unlikely to engage in anything other than informal discussions until the U.K. formally leaves the EU and the terms of its future relationship with the EU are clearly established.

For more information, contact: Charles De Jager, Dj Wolff, Paul Davies, Gordon McAllister, Benjamin Blase Caryl

Rationale for TTIP Negotiations Remains Strong Despite Brexit

Following a fourteenth round of Transatlantic Trade and Investment Partnership (TTIP) negotiations in Brussels in mid-July, the EU and U.S. chief negotiators confirmed the official intention to try to conclude an agreement before the end of President Obama’s administration. Both agreed that the U.K. vote to leave the European Union will not impact the negotiations, as the rationale for TTIP remains as strong as ever despite Brexit.

U.S. chief negotiator Dan Mullaney acknowledged that the United States continues to analyze the overall impact of the U.K.’s eventual departure from the European Union. However, even though the U.K. accounts for approximately 15 percent of EU nominal Gross Domestic Product (GDP) and 13 percent of EU population, the European Union post-Brexit remains a market of more than €12 trillion and 440 million consumers.

As there is much to lose if negotiations cannot be completed, each side has now tabled proposals for nearly every TTIP chapter and the outlines of a deal are reportedly becoming more clear. Nonetheless, Mullaney and EU chief negotiator Ignacio Garcia Bercero confirmed that a number of important issues remain outstanding. Principal among these are government procurement, a small number of tariff lines the EU deems critically important, and geographical indications (signs used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin).

Discussions on these points, as well as investment protection, are ongoing and may ultimately be resolved towards the end of negotiations. Following this latest official round, EU and U.S. officials also regrouped specifically to address the area of services, in which further progress is needed. In addition, the European Union has tabled a proposal on financial services, although the United States maintains these should not be included within TTIP.

U.S. Secretary of State John Kerry has further confirmed the shared goal of completing TTIP negotiations this year, emphasizing that TTIP becomes more important following Brexit. However, Senate Finance Committee Chairman Orrin Hatch has also identified a number of conditions for TTIP to win congressional approval, including the elimination of both discriminatory geographical indications and barriers to digital trade.

With President Obama reportedly willing to expend the political capital needed to complete an ambitious TTIP and negotiators due to regroup by the end of summer with consolidated texts in virtually all areas, there is seemingly a strong push to complete the deal.

For more information, contact: Charles De Jager, Dj Wolff, Paul Davies, Gordon McAllister, Benjamin Blase Caryl

Post-Brexit London Will Remain a Pre-Eminent Arbitration Seat

In this article Crowell considers London’s position as one of the world’s leading centres for international commercial arbitration and argue this will be unaffected by Brexit. Put simply, the attributes that make English law and London-seated arbitrations attractive to commercial parties are largely independent of the U.K.’s membership in the EU.

For an in-depth discussion of the most important of these characteristics, please see Crowell’s Client Alert.

For more information, contact: Adrian Jones, George D. Ruttinger, Gordon McAllister, Edward Norman

Brexit – What About Your Trademarks and Designs?

“Brexit means Brexit, and we are going to make a success of it.” Considering this statement by Theresa May, Britain’s new prime minister, the June 23, 2016 vote to leave the EU seems irrevocable. This will undeniably have implications with regard to trademarks and designs, although it is impossible to predict the exact extent. In any event, existing and future owners of trademarks and/or designs should keep an eye on several potential issues.

For a detailed discussion of these possible concerns, please see Crowell’s Client Alert.

For more information, contact: Diego Noesen, Flip Petillion

TOP TRADE DEVELOPMENTS

Privacy Shield Formally Adopted: Self-Certifications Start August 1, 2016

The European Commission, alongside the U.S. Department of Commerce, on July 12 announced the final adoption of the EU-U.S. Privacy Shield (Privacy Shield), the legal framework that replaces the previously invalidated U.S.-EU Safe Harbor (Safe Harbor) framework for transatlantic data transfers. Companies will be able to self-certify under the new regime starting August 1, 2016.

For more details, please see Crowell’s Client Alert.

For more information, contact: Jeffrey Poston, Emmanuel Plasschaert, Jeane A. Thomas, Evan D. Wolff, Robin B. Campbell, Frederik Van Remoortel, Christopher Hoff, Lisa Weinert

U.K.’s Serious Fraud Office (SFO) Secures Second Deferred Prosecution Agreement

On July 8, the U.K.'s Serious Fraud Office (SFO) gained approval of its second Deferred Prosecution Agreement (DPA) with an unnamed U.K. small and medium-sized enterprise (SME). The company is not being identified due to ongoing, related criminal proceedings.

DPA’s are a new phenomenon in the U.K., having been introduced in Schedule 17 of the Crime and Courts Act 2013. A DPA can be reached where a corporate entity faces allegations of criminal misconduct; it provides a mechanism whereby that entity can escape formal prosecution by agreeing to stipulations about its conduct over a defined period of time. Once that period has elapsed, if the entity has adhered to those stipulations, no prosecution is launched. The SFO’s guidance characterises the purpose of a DPA as being to enable the “corporate body to make full reparation for criminal behaviour without the collateral damage of a conviction.”

According to an SFO press release, the SME was the subject of an indictment alleging conspiracy to corrupt, contrary to section 1 of the Criminal Law Act 1977, conspiracy to bribe, contrary to section 1 of the same Act, and failure to prevent bribery, contrary to section 7 of the Bribery Act 2010. All of the allegations related to contracts to supply its products to customers in a number of foreign jurisdictions.

The company has agreed to pay financial orders of £6,553,085, comprised of a £6,201,085 disgorgement of gross profits and a £352,000 financial penalty. £1,953,085 of the disgorgement will be paid by the SME’s U.S. registered parent company as repayment of a significant proportion of the dividends that it received from the SME over the indictment period.

The SFO’s investigation found that 28 of 74 contracts the company received were procured through bribery. This systemic pattern of behavior came to light through the SME’s parent company compliance program, which then self-disclosed to the SFO.

For more information, contact: Cari Stinebower, Carlton Greene, Dj Wolff, Gordon McAllister

Cuba: Financial Services Conference and Renewed Diplomatic Engagement

One year after the reestablishment of diplomatic relations between the United States and Cuba, efforts to enhance engagement continue across a broad range of areas. During a background call on July 20, the State Department noted progress in commerce, law enforcement, health, the environment, and access to the internet, but did stress the continued need for progress in areas such as human rights, property claims, and the return of fugitives.

In particular, the State Department praised the efforts made on the reestablishment of mail transportation and direct air transportation, advances in counternarcotic dialogue, engagement to promote protection of the environment, and improvement in the telecommunications sector. The State Department noted that a meeting of the Bilateral Commission - the primary coordination vehicle for advancing the normalization process - will likely occur before the end of the year.

Public reports indicate that much of the U.S. financial services industry remains reluctant to fully utilize the available licenses the United States has issued recently (e.g., allowing establishment of correspondent accounts at Cuban financial institutions), which has, in turn, limited U.S. corporate engagement in Cuba. To try and identify solutions, the Florida International Bankers Association and the Cuban Central Bank organized a seminar in July in Havana to discuss the regulatory framework affecting banking and financial transactions with Cuba with a number of participants from U.S. financial institutions.

On July 25, the U.S. Department of the Treasury’s Office of Foreign of Assets Control (OFAC) updated its list of Frequently Asked Questions to: (1) confirm that persons subject to U.S. jurisdiction may engage in transactions in U.S. dollars in Cuba or with Cuban nationals for authorized activity and to reaffirm the existence of a general license for U-Turn payments; (2) clarify that foreign branches or subsidiaries of U.S. banking institutions may act as the originating or beneficiary banks for such transactions; and (3) clarify that U.S. carrier and travel service providers may retain on file the passengers’ specific license number in lieu of a physical or electronic copy of the license for at least five years.

A second meeting on claims was held on July 28 in Washington. According to a senior State Department official, the claims being discussed include claims of U.S. nationals that were previously certified by the Foreign Claims Settlement Commission, claims related to unsatisfied U.S. court judgments against Cuba, and claims of the U.S. Government. The Government of Cuba also provided further details about claims that it has against the United States, which are related to the embargo and to human damages that have been adjudicated by its courts.

For more information, contact: Cari Stinebower, Dj Wolff, Mariana Pendas

Blockchains and Distributed Ledgers: Can New Technologies Enhance Risk Management in Import/Export Supply Chains?

Blockchains and distributed ledger technologies (DLT) have the potential to provide significant tools to address import and export supply chain risk. Will these new technologies eliminate risk? Will they solve the legal challenges companies face in complying with the many obligations throughout the supply chain? Unfortunately, nothing can completely eliminate risk; however, these new tools may help reduce and manage it, thereby easing the compliance burden.

For more details on this new technology and how it might make supply chains more transparent, please see Crowell’s Client Alert.

For more information, contact: Jeff Snyder, John Brew, Jenny Cieplak, Matt Welling

Commerce Department Announces Final Duties in Cold-Rolled Steel Investigations

On July 21, the U.S. Department of Commerce (DOC) announced its final determinations in the antidumping (AD) and countervailing (CVD) investigations of certain cold-rolled steel flat products from Brazil, India, Korea, Russia, and the United Kingdom. Two months ago, DOC had announced its final determinations of its investigations of cold-rolled steel from China and Japan. Altogether, the following AD/CVD duties for all countries investigated are as follows.

Final AD Cash Deposit Rates
Brazil 10.34 to 31.66%
China 265.79%
India 7.6%
Japan 71.35%
Korea 6.32 to 34.33%
Russia 0.00 to 13.36%
United Kingdom 5.4 to 25.56%
Final CVD Cash Deposit Rates
Brazil 11.09 to 11.31%
China 256.44%
India 10.00%
Korea 3.91 to 58.36%
Russia 0.00 to 6.95%

 

The U.S. International Trade Commission (ITC) has already issued affirmative final injury determinations on imports from China and Japan, and is scheduled to issue its final injury determinations on the remaining countries by September 12.

For more information, contact: Daniel Cannistra, Alexander Schaefer, Benjamin Blase Caryl

EU Trade Remedies: Update on Metals Cases

On July 28, the European Commission (Commission) imposed definitive antidumping (AD) duties between 18.4 and 22.5 percent against imports of high fatigue performance steel concrete reinforcement bars from China.

Earlier in the month, on July 18, the Commission granted a Korean exporting producer’s request for exemption from a duty of 60.4 percent in the antidumping case against steel ropes and cables from China, as extended to imports consigned from Korea.

Also on July 18, the Commission terminated the partial interim review in the AD case against certain threaded tube or pipe cast fittings of malleable cast iron from China and Thailand. An importer of products from China had requested the review to determine whether electrical conduit fittings should be excluded from the product scope.

Finally, the Commission initiated an AD proceeding against imports of certain hot-rolled flat products of iron, non-alloy or other alloy steel originating in Brazil, Iran, Russia, Serbia and Ukraine on July 7.

For more information, contact: Daniel Cannistra, Charles De Jager, Benjamin Blase Caryl

New Trade Cases Filed on Tire Rubber from Brazil, Korea, Mexico, and Poland

On July 21, Lion Elastomers and East West Copolymers filed antidumping (AD) petitions on low-priced imports of emulsion styrene-butadiene rubber (ESB rubber) from Brazil, Korea, Mexico, and Poland. ESB rubber is a key input for new rubber tire production. Petitioners allege that U.S. imports of ESB rubber from these countries are being dumped at levels ranging from 22 to 69 percent of their prices.

The U.S. International Trade Commission (ITC) will hold a public preliminary conference on August 11, in which interested parties (U.S. producers, importers, purchasers, and foreign producers/exporters) may testify and answer ITC staff questions about the ESB rubber industry and market.

For more information, contact: Daniel Cannistra, Benjamin Blase Caryl

Int’l Tribunal Rules against Philip Morris in Tobacco Packaging Dispute against Uruguay

On July 8, an International Centre for Settlement of Investment Disputes (ICSID) tribunal issued an arbitral award against subsidiaries of Philip Morris International (PMI) in a case brought against the Government of Uruguay. The arbitral tribunal dismissed all claims brought by PMI over rules set by Uruguay concerning the packaging of cigarettes.

Two anti-tobacco measures were at issue: (i) the Uruguayan Government’s adoption of a single presentation requirement (a measure precluding tobacco companies from marketing more than one variant of cigarette per brand family); and (ii) 80/80 health warning requirement (involving an increase in the size of health warnings on cigarette packets from 50 percent of the total pack size to 80 percent). The tribunal concluded that these measures were “reasonable, proportionate and adopted in good faith,” and thus did not contravene Uruguay’s obligations under the Switzerland-Uruguay Bilateral Investment Treaty (BIT).

Please click here for a brief summary of the Award and the implications for related arbitration cases in the future.

For more information, contact: Ian Laird, Eduardo Mathison, J.J. Saulino

New Legislation Dramatically Alters Chemical Regulation in the U.S.

On June 22, 2016, President Obama signed into law the Frank R. Lautenberg Chemical Safety for the 21st Century Act. This legislation, which amends the 40-year old Toxic Substances Control Act (TSCA), completely overhauls how chemical products are regulated in the U.S.

From a trade perspective, it means any company importing virtually any chemical products into the U.S. is affected by this law.

For a discussion of four key aspects of the amended TSCA that every company should be aware of, please see Crowell’s Client Alert.

For more information, contact: Warren Lehrenbaum, Natalia R. Medley, Preetha Chakrabarti

AGENCY ENFORCEMENT ACTIONS

Bureau of Industry and Security (BIS)

  • On July 14, BIS entered into a Settlement Agreement with R&A International Trading Inc. doing business as (d/b/a) R&A International Logistics and RU.K.hansa Kadri a/k/a Roxanne Kadri for four alleged violations of the Export Administration Regulations (EAR). The violations included conspiracy; misrepresentation of facts through false statements on export control documents; soliciting a false statement during the course of an investigation; and making false statements to BIS in the course of an investigation. A civil penalty of $500,000 was assessed with $350,000 suspended for a five-year probationary period. Both parties also pled guilty and were convicted and sentenced in a related prosecution in the U.S. District Court for the Eastern District of New York.

Bureau of Industry and Security (BIS) and Office of Foreign Assets Control (OFAC)

  • Alcon Laboratories, Inc. of Fort Worth, Texas, and Alcon Pharmaceuticals Ltd. and Alcon Management SA of Switzerland agreed to settle potential civil liability for apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR) and the Sudanese Sanctions Regulations (SSR), as well as violations of the Export Administration Regulations (EAR).
    • An OFAC investigation found Alcon allegedly violated the ITSR 452 times and the SSR 61 times from 2008 to 2011 when it engaged in the sale and exportation of medical end-use surgical and pharmaceutical products from the U.S. to Iran and Sudan without authorization.
    • A BIS investigation found one or more of the Alcon entities allegedly committed 188 violations of the EAR including 100 instances of acting with knowledge of a violation, 45 unlicensed re-exports to Syria, and 43 unlicensed exports to Iran.
    • Both BIS and OFAC entered into Settlement Agreements with Alcon. The company will pay civil penalties in the amount of $8.1 million and $1.3 million, respectively.

Financial Crimes Enforcement Network (FinCEN)

  • On July 15, FinCEN assessed a $2.8 million civil monetary penalty against Hawaiian Gardens Casino, Inc. doing business as (d/b/a) The Gardens Casino of Hawaiian Gardens, California. The card club admitted it violated the Bank Secrecy Act’s (BSA) program and reporting requirements and has agreed to future undertakings, including periodic independent reviews to examine and test its BSA Anti-Money Laundering program.

Office of Foreign Assets Control (OFAC)

  • On July 27, OFAC issued a Finding of Violation to Compass Bank, known as BBVA Compass, for violations of the Foreign Narcotics Kingpin Sanctions Regulations. From June 2013 to June 2014, Compass maintained accounts on behalf of two individuals on OFAC’s List of Specially Designated Nationals and Blocked Persons (the SDN List). OFAC took into account no managers or supervisors appeared to be aware of the situation; Compass’ conduct did not confer economic benefit to an SDN; Compass took remedial action in response to the apparent violations and corrected a misconfiguration in its sanctioned screening software; and Compass cooperated with OFAC by signing a statute of limitations tolling agreement, and two extensions to the agreement.

Securities and Exchange Commission (SEC)

    On June 11, the
  • SEC announced
    • Wisconsin-based Johnson Controls agreed to pay more than $14 million to settle charges that it violated the Foreign Corrupt Practices Act (FCPA). An SEC investigation found that a wholly-owned Chinese subsidiary of the company used sham vendors to make improper payments of approximately $4.9 million to employees of Chinese government owned shipyards, and ship-owners and others, to obtain and retain business and personally enrich themselves.

Securities and Exchange Commission (SEC)

  • On July 25, LATAM Airlines Group S.A., a commercial airline company based in Chile, agreed to pay a $12.75 million criminal penalty to DOJ in connection with a scheme to pay bribes to Argentine union officials via a false consulting contract with a third-party intermediary in violation of the accounting provisions of the Foreign Corrupt Practices Act (FCPA).
    • LATAM entered into a three-year deferred prosecution agreement (DPA) with DOJ to resolve the case.
    • In a related matter, LATAM reached a settlement with the U.S. Securities and Exchange Commission (SEC) under which it agreed to pay $6.74 million in disgorgement and $2.7 million in prejudgment interest.

For more information, contact: Edward Goetz

OTHER AGENCY ACTIONS

Bureau of Industry and Security (BIS) and Directorate of Defense Trade Controls (DDTC)

Directorate of Defense Trade Controls (DDTC)

  • On July 15, DDTC announced it had relaunched its Company Visit Program (CVP).
    • CVP “entails visits by DDTC officials to U.S. entities registered with DDTC as manufacturers, exporters, or brokers of defense articles and defense services, as well as others involved in ITAR-regulated activities, to include foreign companies and foreign governments.”
    • An overview of the program may be found here; FAQs on the program here.
  • On July 22, DDTC published consolidated policy guidance about whether various activities related to firearms constitute manufacturing for International Traffic in Arms Regulations (ITAR) purposes and require registration with DDTC and payment of the registration fee. This guidance is intended to aid firearms manufacturers and gunsmiths in making registration determinations and is available here.

Financial Crimes Enforcement Network (FinCEN)

  • On July 27, FinCEN expanded the reach of real estate “geographical targeting orders” beyond Manhattan and Miami to (1) all boroughs of New York City; (2) Miami-Dade County and the two counties immediately north (Broward and Palm Beach); (3) Los Angeles County, California; (4) three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties); (5) San Diego County, California; and (6) the county that includes San Antonio, Texas (Bexar County).

Office of Foreign Assets Control (OFAC)

  • On July 29, OFAC issued Iran General License J, “Authorizing the Reexportation of Certain Civil Aircraft to Iran on Temporary Sojourn and Related Transactions.”

For more information, contact: Edward Goetz

CROWELL & MORING SPEAKS

On July 20, Crowell co-hosted a webinar with the United States Fashion Industry Association entitled “Update on U.S. Customs and Border Protection’s (CBP) Forced Labor Detentions.”

  • Frances Hadfield, counsel in Crowell & Moring's International Trade Group in New York City, discussed the new Trade Facilitation & Trade Enforcement Act of 2015 and the impact it is having on brands and retailers because of the increase in forced labor detentions by CBP.
  • David Wolff, counsel in the firm's Washington office and consultant with C&M International, the firm's trade policy affiliate, spoke on North Korean sanctions and the recent reports that North Koreans are working for Chinese manufacturers just over the China-DPRK border.

Chris Monahan led the post-conference AML OFAC workshop at the 12th National Forum on Insurance Regulation at the Carlton Hotel on Madison Avenue in NYC on July 25-26. The workshop was “Developing the Most Efficient AML and OFAC Compliance Procedures to Improve Your Company’s Competitiveness.”

Contacts

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