European workers are now able to move more freely within the EU as transitional arrangements for the EU enlargement are eased. Workers from the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Slovenia and Slovakia are now free to take employment in a number of additional EU Member States and benefit from the EU fundamental principle of free movement of workers, without having to apply for special work permits. Companies are consequently able to select from a considerable larger workforce when recruiting for some of their European business operations.
The EU principle of free movement of workers includes the right to look for a job in another EU Member State, the right to work and remain in that country and the right to receive equal treatment concerning access to employment as well as working conditions. Certain of these rights also extend to the workers' family members.
At the time of the accession of the ten "new" EU Member States on 1 May 2004, the "old" EU Member States were authorised to apply transitional arrangements and restrict access to their labour markets for workers from the Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Slovenia and Slovakia. All "old" Member States except Ireland, Sweden and the UK implemented such restrictions.
The restrictions were to be kept for a maximum period of seven years. However, according to the transitional arrangements, the restrictive measures expire automatically at the end of an initial two year period, i.e., on 1 May 2006, unless the Member States in question notify the European Commission beforehand that they wish to extend their restrictions for another three years, i.e., until May 2009. Only if specifically authorised, can the restrictions be kept until the end of the maximum time limit, i.e., May 2011.
As the deadline for the initial phase expired, the Commission had not received any notifications from Finland, Greece, Portugal and Spain. Restrictive measures in force in these countries have therefore expired. Other countries, such as Denmark, France and Italy have notified the Commission that they are lifting their restrictions to some extent, for example by enlarging applicable quotas or by easing restrictions in specific sectors. A minority of other countries, notably Germany and Austria still intend to keep initial restrictions in place.
For more information, please contact Margareta Djordjevic in our Brussels office at firstname.lastname@example.org.
European Commission changes its policy to permit anonymous anti-dumping complaints from European industries. Normally, anti-dumping cases are initiated by trade associations or companies who are expressly identified in the Notices that the European Commission publishes in order to start their investigations. An EU anti-dumping investigation has now been initiated for the first time based on a complaint made by a group of companies that has been granted full anonymity. Hence no-one is actually identified as the petitioner in the proceedings.
In some rare instances, the European Commission has allowed individual companies to keep their identities confidential as long as the European trade association that has filed the complaint is identified. In Ironing Boards from China, the Commission has gone one step further and allowed the complainants full confidentiality. The justification for taking this action is the allegation made by the European producers that they would be subjected to "retaliation measures" by large EU distributors if it became public knowledge that they submitted the complaint. The European Commission appears to have accepted that this possibility is real and consequently withheld their identity.
This change of policy is one of many that have been occurring to EU anti-dumping policy this year but in many ways represents the most significant one. By establishing this precedent, it seems highly likely that many other European industries will be encouraged to file anti-dumping complaints since fear of commercial retaliation is often cited as a reason why European industries and enterprises do not make more use of the EU's anti-dumping instrument.
It is not clear why the specific circumstances of this complaint created a greater threat than is normal when requests for anti-dumping measures are made. The industry in question does not appear to have any special characteristics that make it more sensitive or susceptible to this kind of threat than others. Part of the explanation may be the stated policy of the European Union to do more for Small and Medium Sized Enterprises (SME) in the area of trade policy.
On the other hand, it will be very difficult for the Chinese exporters to defend themselves since many of the key aspects of the allegations cannot be effectively verified. For example, since the European industry producing these goods is quite small, the complainants were not require to identify the other producers in Europe who form the industry as a whole. The logic is that, if the other producers were identified, then it would be a simple process of deduction to work out who the complainants are. It is therefore impossible, for example, to ascertain whether or not the complainants meet the standing requirements under EU anti-dumping law of being at least 25% of the EU industry.
For more information about this case, or EU anti-dumping and trade remedy laws generally, please contact Robert MacLean in our Brussels office at email@example.com.
ANTITRUST IN THE SPOTLIGHT
Antitrust enforcement outside the US has grown at a rapid clip. Many are familiar with European antitrust enforcement rules but Asia is not far behind. Japan has a new leniency program (similar to the US amnesty program) that went into effect on January 1, 2006. This new program can eliminate or reduce the fines for companies that have engaged in illegal price-fixing and other forms of cartel behavior. The catch is that to receive a reduced fine companies have to be one of the first companies to come into the Japan Fair Trade Commission and disclose their illegal behavior. Those who are participating in Japanese cartels now have incentive to blow the whistle on their illegal enterprise. A more detailed discussion of this new program can be found at:
South Korea has also recently increased its competition law enforcement activities. Taking a page from the US Antitrust enforcement handbook, Korea is now exporting its competition law. The Korean Supreme Court, the country's highest court, has ruled that the Korean Fair Trade Commission may take punitive action against foreign companies for violating the companies competition rules. The Court ruled, "The domestic antitrust law can be applied to not only local businesses but also overseas companies." In issuing an extremely broad order, the Court stated that foreign firms, even without local operations, can be subject to the law if their illegal conduct causes damages to local companies. This order should serve as a warning not only to foreign companies who have facilities in Korea, but to any companies that do business with Korea or Korean companies.
In the lead advising companies on antitrust matters, Crowell & Moring Antitrust Partners Rob Lipstein and Jeff Blumenfeld will team up with Kozo Yabe and Shigeru Ohira, partners in the Tokyo law firm Yuasa and Hara, to present a 3 hour program on June 6, 2006 on "Leniency programs – A Comparative View The US, the EU & Japan." The seminar will focus on the risks that Japanese businesses may encounter if they pursue leniency for cartel behavior only with the Japan Fair Trade Commission, and ignore the other major jurisdictions that have leniency programs. The seminar will be held at the Tokyo International Forum near Tokyo Station, from 1-4 pm. Gordon Mackenzie and Volker Soyez in C&M's Brussels Office, and Queena Hu in the Irvine Office, have also collaborated with Rob and Jeff to publish an article in the Legal Times on this subject, and an article to be published in cooperation with Yuasa and Hara in the Japanese Business Law Journal. For more information on the seminar in Tokyo, contact Rob Lipstein or Jeff Blumenfeld at firstname.lastname@example.org or email@example.com.
The Swiss government recently approved an agreement which creates a US-Swiss Trade and Investment Cooperation Forum ("Forum"). The Forum, designed to strengthen US-Swiss trade and investment relations, marks an intermediate step on the path to developing a bilateral free trade agreement.
The two governments have agreed on an initial workplan of short-term and medium-term items for discussion in the Forum. An early project would include negotiating a wine agreement modeled on that reached between the US and the EU.
In September of 2005, the US and Switzerland began exploratory discussions regarding the potential launch of free trade negotiations. Talks came to a standstill in January of 2006, however, with agriculture as the point of contention. Switzerland maintains exceedingly high tariffs on agricultural imports, provides a significant amount of subsidies to local farmers, and employs other measures, such as quotas, regulations, and safeguards, to protect its agricultural sector. According to the USTR, the US is committed to the development of a US-Swiss free trade agreement, but in order for agreement to be reached, the countries must reach a comprehensive trade solution.
Rather than abandon these efforts altogether, the US and Switzerland have agreed to create the Forum to continue discussions in hopes of an eventual bilateral free trade agreement. The parties are significant trading partners in both merchandise and services. In addition, the countries have a highly developed investment relationship; US foreign direct investment in Switzerland exceeded $100 billion last year. As talks proceed, Switzerland will be forced to balance its desire to maintain protectionist agricultural policies with its desire to liberalize relations with the US.
The US Department of Transportation's Strengthening of Foreign Control Proposal May Make the Proposal More Attractive in the United States, but Not to Foreign Investors. In an effort to appease the US Congress that may have killed prospects for a US-EU open skies agreement in 2006, the US Department of Transport (the "DOT") last week modified its foreign control proposal to permit majority US shareholders to revoke unilaterally their delegation of authority over commercial decisions to a non-US investor and reopened the comment period for 60 days.
The DOT's Supplemental Notice of Proposed Rulemaking ("SNPRM") attempts to forestall congressional action prohibiting DOT from issuing or implementing its new interpretation and to address growing US concern over the original foreign control proposal that have escalated as a result of the Dubai/P&O transaction.
The original proposal allowed actual control by non-US citizens over all commercial aspects of US airlines, reserving for American citizens decisions related to organization/corporate documents, safety, security and military airlift. (See C&M's International Trade Bulletin, Issue No. 1, March 20, 2006) In addition to permitting US shareholders to revoke the authority given to non-US investors, the SNPRM expands the safety, security and military airlift carve-out areas to include all decisions, not just those implementing FAA and TSA safety and security rules. The change related to unilateral shareholder revocation rights discussed in the SNPRM preamble is not reflected in changes to the text of DOT's new policy.
Some US and European commentators had criticized the original rule as unworkable and unacceptable from an investor's perspective. Those critics will likely find the SNPRM even less acceptable because it would subject continuing authority of non-American investors to possible revocation by US investors. The original proposal fell short of the European desire to allow European airlines to operate within the US or establish their own airlines in the US. Initial reaction abroad indicates the SNPRM is even less acceptable. The US and EU have met to assess where negotiations stand. Proponents and opponents alike presented their preliminary views on the SNPRM May 9 at a hearing before the Senate Committee on Commerce, Science and Transportation.
Because DOT has altered the interpretation it originally proposed, it has reopened the comment period for another 60 day. Foreign and US stakeholders will now have another opportunity to submit comments to DOT concerning the modified proposal through July 5. The Bush Administration still predicts a final rule by August 2006.
Export Control Alert - Draft China Catch All Rule Available. Exporters are eager to learn the details of the Commerce Department's new "catch all" control on exports to China. Until now there has been only speculation.
An internal draft of the proposed rule has become available. While the draft rule still has a way to go before it is published in the Federal Register for public comment, the draft provides the first indication of the likely scope of coverage of the rule, including specific ECCNs, none of which were subject to a license requirement for China before.
Many aspects of the rule are likely to draw comment and criticism. For example, the rule would require exporters to apply for a license for a broad range of otherwise uncontrolled dual-use items if those exporters have "positive or actual knowledge" that the items are intended for "military end-use." The draft's notes say that this knowledge standard is narrower than the standard used for other provisions of the Export Administration Regulations ("EAR"), but how narrow would it be in practice? Would exporters be penalized for "conscious disregard" or "willful avoidance" of the facts surrounding an export's end-use as would be the case under existing provisions of the EAR? How should exporters tailor their compliance programs? Might due diligence expose exporters to greater liability?
And just what constitutes "military end-use" under the proposed rule's definition? The latest draft has a sweeping definition that would include any incorporation of an export into the "design" or "development" (also defined as "design") of a wide variety of military technology.
Fortunately, the proposed rule does not merely create new restrictions. It also creates a new license exception for exports of certain items to "Certified End-Users" who have an established record of exclusive civil end-use and nonproliferation. But in order to qualify for the exception, such end-users must permit on-site compliance reviews by United States Government representatives – a likely nonstarter for many companies in the PRC.
Whatever form the rule eventually takes, it is now more likely that it will in fact be issued, and the likely ECCNs are now identified. While the debate proceeds, now is the time to evaluate your export profile to assess the possible impact on your business.
If you have any questions or would like a copy of the full draft and list of ECCNs, please contact Chris Gagne at firstname.lastname@example.org or Jeff Snyder at email@example.com in our Washington, DC office.
USTR Releases 2006 Special 301 Report with Focus on Intellectual Property Rights (IPR) issues. The Office of the US Trade Representative recently released its annual Special 301 Report which reviews the adequacy and effectiveness of IPR protection provided by US trading partners and identifies countries which need to take stronger measures to protect and enforce IPRs.
The report serves as a useful tool for IP right holders who seek to exploit and/or protect their IP assets in foreign markets, by listing specific IP infringement problems in trading partners as well as any progress made from the previous year. This year's Special 301 Report focuses on the serious IPR infringement and enforcement problems in China and Russia, and also reports on positive progress in many countries.
The Report places 48 countries on the Priority Watch List, Watch List or the Section 306 monitoring list. Countries on the Priority Watch List are those that do not provide an adequate level of IPR protection or enforcement, or market access for those seeking IP protection. These include: Argentina, Belize, China, Egypt, India, Indonesia, Israel, Lebanon, Russia, Turkey, Ukraine, and Venezuela.
In response to the continued "unacceptable" levels of infringement in China, USTR announced that it would "step up consideration of its WTO dispute settlement options," and institute the first special provincial-level review of China's IPR enforcement in the coming year. Businesses will be provided an opportunity to submit public comments in conjunction with the special review.
The report also cites continued serious concern over Russia's high levels of infringement, with a particular focus on IPR infringements related to optical disc plants and websites. In response to requests from US copyright-related industries, USTR announced that it will continue to review whether to remove Russia's tariff benefits it receives under the US Generalized System of Preference program.
USTR also identified thirty-four trading partners which merit bilateral attention to address underlying IPR problems. This “Watch List” includes: the Bahamas, Belarus, Bolivia, Bulgaria, Canada, Chile, Colombia, Costa Rica, Croatia, Dominican Republic, Ecuador, European Union, Guatemala, Hungary, Italy, Jamaica, Kuwait, Latvia, Lithuania, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, the Republic of Korea, Romania, Saudi Arabia, Taiwan, Tajikistan, Thailand, Turkmenistan, Uzbekistan, and Vietnam.
The Report includes a new section which highlights online websites and traditional markets which have been the subject of enforcement action or may merit further investigation for possible IPR infringement, or both. Examples include:
USTR also announced five "out-of-cycle" reviews before the next year's report for the following countries: Canada, Chile, Indonesia, Latvia and Saudi Arabia. Businesses will be provided an opportunity to submit comments on IPR problems they face in each of these countries at the outset of these reviews, which will be announced in the Federal Register.
The 2006 Special 301 Report can be found on the USTR's website at:
Establishing Injury in US Antidumping Investigation Requires Specific Finding on Non-Subject Imports. Because antidumping orders are issued on a country specific basis and few countries have a monopoly on anything, the issue of the impact of non-subject imports – those not being investigated but nonetheless present in the market – is one the International Trade Commission, or ITC, often faces.
Non-subject imports can be significant for investigations involving commodity products. The courts have had to address how the ITC deals with non-subject imports, and in a recent decision that will be of interest to both petitioners and respondents, the US Court of Appeals for the Federal Circuit has made it very clear that the ITC must, before it can issue an affirmative injury determination, determine that non-subject imports will not replace the subject imports.
The ITC made an affirmative determination of material injury by reason of imports of silicon metal from Russia. The respondent, believing that the ITC decision was faulty, appealed and sought review in the Court of International Trade, or CIT. The respondent, Bratsk Aluminum Smelter, argued that the ITC failed to consider adequately the impact of non-subject imports. The CIT ruled that the ITC did not need to follow an earlier Federal Circuit case (Gerald Metals), which held that “the Commission is required to make a specific causation determination and in that connection to directly address whether non-subject imports would have replaced the subject imports with any beneficial effect on domestic producers.” Further, the Federal Circuit rebuked the ITC for avoiding the ruling in Gerald Metals. The Federal Circuit stated firmly, “The obligation under Gerald Metals is triggered whenever the antidumping investigation is centered on a commodity product, and price competitive non-subject imports are a significant factor in the market.”
An important decision, the Bratsk case requires that the ITC specifically examine non-subject imports. The decision does not mean that the ITC cannot find injury if there are non-subject imports, but it cannot find injury if it does not find that the non-subject imports would not replace the subject imports. In other words, if the subject imports will be replaced by non-subject imports, an injury finding is less warranted under the law.
The Federal Circuit stressed that the mere presence of non-subject imports is not enough to prevent an injury finding, but it is the Commission's burden, not the respondent's, to demonstrate that non-subject imports will not replace subject imports. As the court said, “it may well be that non-subject importers lack capacity to replace the subject imports or that the price of the non-subject imports is sufficiently above the subject imports such that the elimination of the subject imports would have benefited the domestic industry. The point is that the Commission has to explain, in a meaningful way, why the non-subject imports would not replace the subject imports and continue to cause injury to the domestic industry.”
If you would like more information about the case or non-subject imports, please contact Alex Schaefer at 202 624 2773 or firstname.lastname@example.org, or Jeff Snyder at 202 624 2790 or email@example.com in our Washington, DC office.
Congress Moves Closer to New Iran Sanctions. On April 26, 2006, the House of Representatives passed the Iran Freedom HR 282, a bill to amend the Iran and Libya Sanctions Act, or ILSA, by a vote of 397 to 21.
ILSA, originally enacted in 1996, authorized the President to impose sanctions on non-US companies investing in the development of Iran 's petroleum sector. As ILSA reaches its ten-year anniversary, concern has grown in Congress about Iran 's nuclear ambitions and its support for terrorism.
In its ten-year history only three companies were found to have been in violation of ILSA – Total, Gazprom, and Petronas – in 1998. But as part of a larger resolution of US-EU disputes, sanctions were waived. Since then, public reports of investments which would appear to violate ILSA have generated questions about US enforcement of ILSA, but no action has been taken. Against this background, the House passed the amendment which now awaits action by the Senate.
The amendment would make at least ten changes to ILSA, including some minor ones, such as deleting Libya from the title (Libya was eliminated from the Act when it renounced WMD). As amended, the law would no longer have a five-year sunset, and it would be harder for the President to issue a waiver of the sanctions. It would change the scope of activity triggering sanctions because it would apply not only to investments in the petroleum sector in Iran, it would also apply to investments in petroleum by-products.
Perhaps most significant, the new law would require the President to conduct investigations, and to report the findings either way. This part of the law would change the way the US has administered the law since it came into force in 1996. The President would be required to conduct and complete investigations under deadlines and to report the results in the Federal Register. Many view the proposed change as placing pressure on the Administration. A similar bill, S. 333, is pending in the Senate.
The US decision to ignore a World Trade Organization ("WTO") ruling on US gambling laws leaves questions unanswered for US relations with Antigua and Barbuda. Although the US made a notification to the WTO that its laws were in compliance with the earlier ruling by the April 2006 deadline, the US statement was not based on changes to its domestic gambling laws and, rather, served as a mere reiteration of the US position during the course of the initial dispute.
The dispute between Antigua and Barbuda and the United States began in 2003 when the island nation raised objections to American laws applicable to the cross-border supply of gambling and betting services. A 2004 WTO Panel decision found that US federal and state laws were contrary to its commitments pertaining to the supply of gambling and betting services and that the United States failed to accord services and service suppliers of Antigua and Barbuda treatment no less favourable than that required by the market access requirements of GATS.
On appeal, the WTO Appellate Body determined that the US laws on betting and gambling services could be justified under WTO rules allowing for measures "necessary to protect public morals or maintain public order." The Appellate Body, however, determined that, despite this exemption, the US failed to prove that the measures were applied in a manner that would not constitute arbitrary and unjustifiable discrimination as required by GATS Article XIV. The Appellate Body specifically noted that the Interstate Horseracing Act, which allows for the remote placement of bets on horse racing, created an exception to the ban on Internet gambling only available to domestic providers. The Appellate Body gave the United States one year to bring its laws into compliance with the WTO decision.
In its recent response to the WTO, the US claimed that it could demonstrate that its laws were in compliance with its WTO commitments. In its view, the WTO Appellate Body decision took issue only with the Interstate Horseracing Act and supported the US view that its legislation regarding gambling and betting services could be justified as a measure to protect "public morals and public order." It stated that American criminal statutes prohibit the interstate transmission of bets or wagers, including those made on horse races, and that the Department of Justice is currently undertaking a civil investigation pertaining to violations of this law.
In the course of the WTO procedure, the next step for Antigua and Barbuda is to invoke an Article 21.5 compliance panel. The function of such a panel is to review legislative changes to determine if the offending country has brought its laws into compliance with the Appellate Body decision. Since the US has not actually made any changes to its laws, review by such a panel would appear to be nothing more than a mere formality.
The U.S. disregard for the WTO process leaves larger questions for the United States and Antigua and Barbuda. While Antigua and Barbuda would have the option to seek retaliatory sanctions against US goods, such action would probably cause greater harm to the small island economy than the US Press covering the continuing battle has suggested that Antigua and Barbuda may be contemplating actions alternative to trade sanctions which would greatly impact the US. Notably, the media has suggested that Antigua and Barbuda could refuse to enforce American patents and trademarks, making the country a haven for the production of knock-offs. Whether or not such measures would accord with WTO standards which allow for proportionate retaliatory action by injured countries is yet to be seen.
Internet gambling remains at the forefront of domestic discourse as well, and its future remains unclear. Two Internet gambling bills are currently under consideration by the US Congress. The first, the Internet Gambling Prohibition Act, would criminalize Internet gambling and is currently under review by the House Judiciary Committee. The second, the Unlawful Internet Gambling Enforcement Act, would prevent the use of credit cards or fund transfers for unlawful Internet gambling. This bill has recently been approved by a House subcommittee.
Although the future of these bills remains uncertain, the effects of such a measure, which would prohibit gambling on over 2000 Internet gambling sites, would deliver a devastating blow to a $12 billion industry. Further, an outright ban on Internet gambling would pull the rug out from under Antigua and Barbuda, as it would not longer be able to claim its services were being discriminated against vis-à-vis domestic betting and gambling services.
Globalization Accelerates: Trade and Business Strategies for the Pacific Rim, Irvine, CA
The California office will be presenting this seminar designed to help companies and individuals understand how globalization affects companies doing business in California and the Pacific Rim. Panel 1 will discuss leveraging trade policy for business success in the Pacific Rim. Panel 2 will examine how off-shore firms can expand in the U.S. market, and the smart way to acquire IP assets. Panel 3 will review the challenges that companies face in complying with U.S. laws, export controls and California labor law. The seminar is offered in affiliation with the California Council for International Trade (CCIT) and features speakers from the California office, Washington, DC office, C&M International and CCIT. For more information please see: www.crowell.com/globalization/
June 1, 2006
June 20, 2006
June 28 - July 1, 2006
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.
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