Click here to visit www.crowell.com International Trade Bulletin


CHINA IN THE SPOTLIGHT

INTELLECTUAL PROPERTY

The U.S. and Japan recently announced a joint initiative to strengthen the protection and enforcement of intellectual property rights (IPR) in China and other third countries.

U.S. Commerce Secretary Gutierrez and Japanese METI Minister Nikai have announced that the U.S. and Japan will regularly exchange information, share resources and cooperate to address counterfeiting and piracy, streamline their own patent procedures and increase business outreach and technical assistance for third countries.

The initiative has several elements designed to help U.S. and Japanese businesses combat IPR infringement in China and other third countries. Under the initiative, the U.S. and Japan will exchange information on ways to help companies which have suffered IPR infringement in China and other third countries. It would provide for closer cooperation between each country's IPR specialists in third countries, as well as facilitate discussions of IPR protection strategies with small and medium-sized businesses.

This new initiative will also strengthen cooperative efforts to support a U.S., Japan and EU initiative in the World Intellectual Property Organization to create a mechanism which would allow the search and examination of information from one patent office to be used to secure a patent in another office. The streamlined patent procedures will benefit patent applicants and offices by providing higher patent quality, lower costs and fewer redundancies.

The U.S. Patent and Trademark Office (USPTO) and Commerce Department have already begun to plan the implementation of the initiative with the Government of Japan.

For more information please contact Brian Peck in our California office at bpeck@crowell.com.

MARKET ACCESS

The World Trade Organization completed its first Trade Policy Review report of China which concludes that, although China has achieved success in its trade and investment reforms, it still faces challenges.

China 's Trade Policy Review Mechanism (TPRM) Report prepared by the WTO confirms that, in accordance with WTO obligations, China has reduced its MFN tariffs and non-tariff barriers to trade. It still retains, however, some tariff rate quotas for agricultural products and relies on state trading to manage some imports.

Regarding exports, while China has made strides in its efforts to move away from direct government economic intervention, the Report highlights the fact that China continues to maintain significant barriers to export. China still restricts exports in order to preserve domestic supply and fulfill international commitments through export quotas or prohibitions on certain products. It subjects a variety of products to state trading, and it frequently changes VAT rebate rates and interim export taxes to protect domestic supply.

On the investment front, the Chinese government continues to have a hand in "guiding" foreign investment. China uses its investment policy to address domestic supply concerns, which consequently has resulted in funneling significant direct investment into the manufacturing sector, namely export processing activities. The Report highlights this as an area that needs improvement, noting that the Chinese government is using its industrial policy in the form of administrative approvals, taxes and financing to encourage and discourage investment in certain areas.

As other areas for improvement, the Report notes that, although China has a competition law policy and framework, it is not very effective and should be revised to encourage foreign investment. It also states that China must take further efforts to revise and strengthen its laws, notably penalty amounts and procedures, which apply to intellectual property protection. In addition to specific areas of law, the Report notes that China faces more global economic issues, such as a growth in the inequality in the distribution of income.

U.S. Ambassador to the WTO, Peter Allgeier, issued a statement regarding the WTO's Trade Policy Review of China. Like the WTO Report, Allgeier praised China for its significant trade and investment reforms but also remarked that China has continued to promote or protect "favored industries," such as the steel and automotive industries. He also expressed concerns about China's inadequate enforcement of laws, particularly those relating to intellectual property protection, as well as protectionist policies relating to the telecommunications and financial services industries.

For more information please contact Erin Mikita in our Washington office at emikita@crowell.com.

EUROPE IN THE SPOTLIGHT

CUSTOMS

The recent EU WTO "victory" over the U.S. on customs practices in Europe may seem like a blow to businesses facing customs clearance problems in the EU. However, be reassured, the EU already has well advanced plans for a customs reform, which will synchronize and modernize customs procedures throughout the EU.

Today's business environment requires fast and cheap customs procedures for businesses to be able to run their activities efficiently. The lack of uniform treatment of imported goods in the EU therefore creates serious problems. The EU is, however, expected to prevail in a ruling soon to be delivered by the WTO on U.S. allegations that EU customs procedures are in breach of WTO rules. Although the EU is a Customs Union, based on common rules and harmonized customs tariffs, day-to-day customs procedures are managed locally through the customs authorities of the EU Member States.

In the WTO, the U.S. claimed that the EU lacks a single EU customs system and that many important aspects of the EU customs administration are handled differently by different Member State authorities, causing uncertainty for U.S. companies and particularly for small and mid-size businesses. The U.S. specifically points towards inconsistent procedures for classification and valuation of goods. In a confidential interim ruling issued earlier this year, the WTO indicated that most of the U.S. claims would be rejected.

Nevertheless, the EU is itself recognizing the increasing need for faster, easier and more harmonized EU customs procedures. According to EU reform proposals, this should be achieved through:

  • Electronic declarations instead of paper-based declarations;
  • A “single window” concept according to which traders will only have to submit documentation once for all information required by customs and other authorities;
  • The introduction of pan-European Customs IT Systems for the purpose of making customs information accessible to any authority in the EU; and
  • Possibility for authorised traders to pay their customs duties at the place where they are established, irrespective of the Member State through which the goods will be brought in or out of the EU.

Although this falls short of establishing a centralized EU customs organization, it will go a long way in facilitating international trade and increasing competitiveness of European businesses. It should however be noted that the idea of creating a truly centralized "European Customs Agency" is also under discussion in the EU. Interested companies are advised to get involved in the ongoing consultation procedures.

For more information please contact Margareta Djordjevic in our Brussels office at mdjordjevic@crowell.com.

COUNTERFEIT

The EU is to introduce harmonized criminal sanctions and heavy fines for infringements of intellectual property rights throughout the EU.

Latest statistics on seizures of counterfeit and pirated goods at EU borders show an alarming increase in intellectual property rights infringements in recent years. The most frequently pirated goods are alcohol, medicines, toys, cosmetics and perfumes.

Although EU legislation ensures an equivalent level of intellectual property protection throughout the EU, these rules do not set common standards as to the sanctions to be applied to IP infringements. This is because some EU Member States are reluctant to cede legal competence to the EU in this area. However, despite this resistance, the European Commission already last summer proposed to introduce harmonized EU sanctions against those responsible for counterfeiting and piracy. In the Commission's opinion, some EU Member States are treating such perpetrators too leniently. The Commission therefore proposed that the EU Member States would be required to treat all intentional infringements of intellectual property rights on a commercial scale as criminal offenses. Fearing that the EU Member States would reject mandatory rules, the Commission only recommended minimum levels of criminal penalties.

In September of last year, however, the European Court of Justice confirmed that the EU may impose EU-wide criminal law provisions when necessary for the effective implementation of Community law. Accordingly, t he European Commission has now adjusted its previous proposal to take account of the new legal situation. Instead of recommendations as to the level of criminal sanctions, the new proposal contains mandatory rules. The proposal includes a minimum term of at least four years of imprisonment if the offense involves a criminal organization or if it jeopardizes public health and safety. The applicable fine must be at least 100,000 to 300,000 Euros for cases involving criminal organizations or posing a risk to public health and safety. The Member States will however be allowed to impose heavier penalties or fines.

The European Commission is confident that the new proposal will be adopted by both the EU Council of Ministers and the European Parliament. Reluctant Member States are likely to be out-voted since the proposal only requires a qualified majority in the Council.

For more information please contact Margareta Djordjevic in our Brussels office at mdjordjevic@crowell.com.

Cross Lander's Investment in Romanian Auto Company Hits Rocky Terrain. In response to an array of problems arising from its Romanian automobile investment, the company has decided to file a dispute against the country of Romania, claiming that violations of the U.S.-Romanian Bilateral Investment Treaty have occurred.

Auto Romania, known as Aro, was the national automotive company of Romania for over fifty years, specializing in the manufacture of military vehicles, light trucks, and other off-road vehicles. In 2002, as Romania sought to privatize a number of its nationally controlled industries, Jose Perez, a U.S. businessman, created Cross Lander USA, which purchased a majority stake in the Aro automotive factor located in Campulung, Romania. The purpose of the investment was to create a model for import to the U.S., which would provide a low-cost, sport recreation vehicle as an alternative to the multitude of SUVs available in the U.S. In early 2006, the U.S. government agreed to allow the import of the Cross Lander vehicle to the U.S., despite its lack of air bags, for a period of two years.

On March 27, the Romanian Authority for State Assets Recovery ("AVAS"), Romania 's main privatization agency, filed suit against Cross Lander, based on an ordinance regarding severance payments to employees of privatized companies. Several days later, Cross Lander announced its intention to bring a claim against Romania under the Bilateral Investment Treaty ("BIT") between Romania and the United States. Cross Lander claims that it has encountered problems from the outset of its investment in Aro, including attacks by current and former Romanian government officials, the former head of internal security, officials in AVAS, and the Romanian media. Cross Lander accuses these parties of corruption and failure to fulfill the privatization agreement, which includes the cancellation of a $47 million government-backed loan intended to capitalize the venture.

In effect since 1994, the BIT between the United States and Romania is intended to spur U.S. investment in Romania by assuring investors that their investments will be relatively secure in the tide of Romania's economic and investment reforms and to provide protections for investors in both countries. In 2003, the United States and the European Commission signed a political understanding with regard to the U.S.-Romanian BIT, in light of Romania's candidacy for accession to the EU in 2007.

Details regarding Cross Lander's suit against Romania have not yet been revealed. Both the U.S. and Romania are contracting states to ICSID, the International Centre for Settlement of Investment Disputes. In 2005, Romania successfully defended its treatment of foreign investment in the steel industry against claims by Noble Ventures that Romania had violated its BIT obligations.

For more information please contact Erin Mikita in our Washington office at emikita@crowell.com.

Representative Edward Markey, member of the House Homeland Security Committee, announces his intention to introduce an amendment to the Safe Ports Bill requiring inspection of all cargo coming into U.S. seaports.

The amendment proposed by the Massachusetts democrat charges the Department of Homeland Security ("DHS") with ensuring that that all cargo containers are subjected to X-ray and radiation scanning and fitted with tamper-proof seals before loading onto ships destined for the U.S. If the seals are tampered with, an alarm will be sent to DHS before the ship reaches U.S. waters. The amendment would require compliance for larger ports in the next three years and for smaller ports in the next five years.

Representative Markey offered this proposal initially when the bill was in subcommittee. It was rejected by the subcommittee in an eight to six vote down a straight party line. Republicans claimed that the amendment was not feasible. Both parties agreed to a proposal to test and deploy radiation portal monitors at U.S. ports. In a press release, Markey expressed concerns that only 5% of all cargo is inspected before coming into the U.S. He believes that the technology is available to conduct this screening, as evidenced by screening at the ports of Hong Kong and Boston, and that the cost to industry is not significant. Markey intends to introduce the amendment again during the committee mark-up of the bill.

For more information please contact Erin Mikita in our Washington office at emikita@crowell.com.

Is Zeroing Finally Dead? The WTO Appellate Body has ruled that the "zeroing" methodology used by the U.S. Government in its calculations of antidumping duty margins violates various articles of the WTO Anti-Dumping Agreement.

A foreign product is dumped in the United States when it is sold at less than its fair value. “Zeroing” refers to the practice of giving less than full effect in that dumping calculation to foreign products that are not dumped (i.e., sold at fair value). The WTO Appellate Body found zeroing to be inconsistent with Article 9.3 of the Anti-Dumping Agreement because this methodology resulted in the assessment of antidumping duties that exceeded a foreign producers' or exporters' dumping margin. The Appellate Body also found that zeroing could be challenged in a WTO dispute settlement proceeding, even though it was not expressed in the form of a written instrument, because it was a longstanding, constant feature of the U.S. Government's antidumping computer programs.

Although it is too early yet to assess the full impact of the Appellate Body's decision on U.S. antidumping practice, it is likely that the eventual absence of zeroing will lower U.S. dumping calculations. Nonetheless, the United States has been resilient in its efforts to maintain some aspects of zeroing as part of its dumping regime, and one trade report said that the USTR planned to pursue changes in rules during the Doha round that would permit zeroing. Only time then will tell whether zeroing has truly disappeared from the antidumping lexicon forever.

For more information please contact Matthew Jaffe in our Washington office at mjaffe@crowell.com.

Recent Cancelled Sale of U.S. Computer Technology to China Highlights Concern over New Planned "Catch-All" Export Rule.

Recently, Transmeta Corporation, a U.S. processor developer, lost out on a $15 million dollar deal with a Hong Kong company due to U.S. export controls. The U.S. Department of Commerce is expected to publish a proposal for a new export control "catch-all" rule that U.S. industry claims will further stiffen controls on a range of high-technology exports to China. Transmeta Corporation stated that U.S. technology export controls forced it to cancel a previously agreed sale of its Crusoe x86 processor and the licensing of its Efficeon 130nm processor technology to a subsidiary of Hong Kong-based Culturecom Holdings Ltd. Both U.S. industry and Chinese officials have claimed that existing U.S. export controls have stifled sales of U.S. technology to China which is readily available from non-U.S. suppliers.

While the Transmeta sale was cancelled because of an export license requirement, not the so-called "catch all" control, it nonetheless highlights U.S. industry concerns over the new “catch-all” rule which the U.S. Department of Commerce is expected to publish later this Spring. U.S. industry is concerned that the new rule — which will be published as a proposed rule open for public comment — will tighten restrictions on transfers of any technology that could contribute to the modernization of the Chinese military. According to the Coalition for Employment through Exports, the new catch-all rule will re-impose controls on previously decontrolled exports of two to three dozen categories of products, including composite materials, certain computer software, navigational equipment, and civil aircraft engines. U.S. government officials have said that the list is also likely to include some personal computers and microprocessors.

Such "catch-all" rules have historically had a major impact on business. In this case, U.S. industry is concerned because end use by the Chinese military could include any number of activities ranging from the distribution of foodstuffs to the provision of security at airports or the upcoming Olympic Games. The Department of Commerce is expected to publish the proposed rule for public comment in mid-May.

For more information please contact Brian Peck in our California office at bpeck@crowell.com.

The EU imposes punitive duties on eight additional U.S. products as retaliation against the U.S. Byrd law. The products that will be subject to an additional duty of 15% are, among others, blankets, paper products, photocopying machinery and drills.

In 2003, the U.S. Byrd law, according to which proceeds from anti-dumping and countervailing duty cases in the U.S. shall be paid to the U.S. companies responsible for bringing the cases, was declared illegal under WTO rules. As a consequence, the EU, Canada, Brazil, Chile, India, Japan, Mexico and South Korea were authorised to retaliate against the U.S. at a level equal to 72 percent of the amount of duties that were collected on their exports to the U.S. and redistributed to U.S. companies. The EU imposed such retaliatory measures, in the form on an additional duty of 15% on a wide range of U.S. products, in May 2005. The total value of trade that the EU retaliation affected was estimated at $27.8 million.

According to new figures in the annual report on Byrd law distributions by the U.S. Customs and Border Protection (CBP) for fiscal year 2005, the EU is now allowed to adjust the retaliation amount upwards by roughly an additional $10 million, i.e., to $36.9 million. The EU has therefore extended the list of U.S. products affected by the Byrd retaliation to an additional eight products, including blankets, paper products, photocopying machinery and drills. The new EU measures will be effective as of 1 May 2006.

Since the amount of duties that were collected on Canadian exports to the U.S. has decreased significantly, the Canadian government is instead considering reducing the retaliation level or discontinuing the retaliation all together. Other countries that have imposed retaliation measures, such as Mexico and Japan, are not yet allowed to adjust their duties.

For more information please contact Margareta Djordjevic in our Brussels office at mdjordjevic@crowell.com.

June 20, 2006
Jeff Snyder, chair of Crowell & Moring's International Practice Group will be speaking on customs regulation for the import and export of ITAR related items at the National Forum on ITAR Compliance in Washington, DC.

June 28-July 5, 2006
Kim Nobles will be participating in a panel discussion, session titled, "Breaking the Piracy Food Chain" in the Global Piracy Prevention Conference in Los Angeles, CA.

Visit www.crowell.com

Crowell & Moring LLP is a full-service law firm with more than 300 attorneys practicing in litigation, antitrust, government contracts, corporate, intellectual property and more than 40 other practice areas. More than two-thirds of the firm's attorneys regularly litigate disputes on behalf of domestic and international corporations, start-up businesses, and individuals. Crowell & Moring's extensive client work ranges from advising on one of the world's largest telecommunications mergers to representing governments and corporations on international arbitration matters. Based in Washington, DC, the firm has offices in Brussels, California and London. Visit Crowell & Moring online at www.crowell.com.

The information contained in this Bulletin is of a general nature and should not be construed as constituting legal advice. For specific legal advice on any of the issues mentioned in this Bulletin, please refer to the contact person identified as responsible for the item in question.

You can opt out of this service at any time by simply e-mailing publications@crowell.com. If there are others at your company who would benefit from this service, please forward this message on to them so they can contact us and be added to the distribution list.

©2006 Crowell & Moring LLP | Privacy Policy