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June 12, 2006 | www.crowell.com


EUROPE IN THE SPOTLIGHT

DATA PROTECTION

European Court of Justice Annuls PNR Data Transfer Framework.

On May 30, the European Court of Justice ("ECJ") annulled the decisions of the European Council and the European Commission which contained requirements to ensure an adequate level of data protection for the processing and transfer of Passenger Name Records ("PNR") from the EU to the United States Bureau of Customs and Border Protection ("CBP") in the U.S.

In its judgment, the ECJ decided that the Commission decision could not be validly based on the EU Data Protection Directive 1995/46 because the processing and transfer of PNR data concerns “third pillar” activities (i.e., matters of public security, policy or judicial cooperation) which are excluded from the Directive's scope. The ECJ found that this was the case regardless of the fact that the PNR data is collected and processed by air carriers within the context of the sale of plane tickets.

The ECJ quashed the Council Decision on analogous grounds. It confirmed the European Parliament's plea that the Council Decision does not concern “the establishment and functioning of the internal market” in either its substance or form; rather, it exclusively concerns the processing of personal data for the abovementioned third pillar activities.

The ECJ decided to preserve the effect of the Commission Decision until 30 September 2006 to avoid a situation of abrupt legal uncertainty and to protect the data protection rights of travelers. Without this transition period, air carriers would be obliged to transfer PNR data to the CBP in violation of national data protection law or, in the case that such transfers were stopped, face significant fines under U.S. legislation.

The ECJ's annulment does not mean that such processing and transfer are necessarily exempted from national data protection laws in the EU, since many member states have national privacy laws that extend the requirements of the Directive to include processing for police and security matters to a certain extent. Additionally, data transfer restrictions may also, in some member states, be found to exist in other legal instruments such as the European Human Rights Convention or the right to privacy.

The ECJ's judgment creates anxiety and legal uncertainty for airline companies who will find themselves trying to conform with conflicting legal requirements on either side of the Atlantic, and it is expected that the PNR issue will re-appear on the political agenda between the U.S. and the EU.

For more information, please contact Jan Dhont in our Brussels office at jdhont@crowell.com or Gaela Bailey in our London office at gbailey@crowell.com.

CUSTOMS IN THE SPOTLIGHT

FALSE CLAIMS

No court is willing to accept jurisdiction over False Claims Act actions for Customs violations.

In the latest effort by the U.S. government to use the False Claims Act ("FCA") to recover duties avoided by false statements and penalties, the Court of International Trade ("CIT") has ruled that it does not have jurisdiction over such FCA claims.

Originally pursued in federal district court in California, the FCA suit was brought against importers of garlic from the People's Republic of China who allegedly claimed non-PRC origin to avoid antidumping duties. Under the so-called "reverse false claims" portion of the FCA, the U.S. government sought “$10,000 plus 3 times the amount of damages which the government sustains because of the act of that person.” The trial court found in favor of the government, ordering relief of $1,957,237 against one defendant, and $1,952,237 against the other. On appeal, the Ninth Circuit reversed, ruling that permitting such actions in district courts would undermine the grant of exclusive jurisdiction over actions to recover customs duties in the CIT. The Ninth Circuit therefore ruled that the CIT had exclusive jurisdiction over duty recovery actions, and ordered the case transferred to the CIT. 

The CIT (which is directly governed by the appellate precedents of the Federal, not the Ninth Circuit) initially found jurisdiction "plausible" but, on further review, determined that it did not have jurisdiction to hear FCA claims: “a plain reading of the FCA does not provide for the recovery of any duties, customs or otherwise.” Similarly, the statute defining the CIT's jurisdiction does not encompass actions for the sort of treble damages and civil penalties provided for in the FCA. The FCA has a statute of limitations that can be as long as ten years, whereas the customs fraud statute has only a five year period. The case of United States v. United Fruits and Vegetables Corp., Slip Op. 06-79, May 25, 2006, will undoubtedly be appealed to the Court of Appeals for the Federal Circuit. If the Federal Circuit affirms the decision of the CIT, the case will be a strong candidate for Supreme Court review, to decide which of the two contradictory Court of Appeals decisions is correct.

For more information, please contact Barry Cohen at bcohen@crowell.com or Michael Newman at mnewman@crowell.com.

NAFTA

Customs Tightening NAFTA Recordkeeping Requirements.

A NAFTA penalty action has raised serious concerns among importers who bring merchandise into the U.S. free of duty under NAFTA. A recent penalty issued to Ford Motor Company has spurred debate among importers regarding the extent of required import records.

In 2001, U.S. Customs and Border Protection (“Customs”) requested that Ford Motor Company provide NAFTA certificates of origin supporting a series of NAFTA claims made on Ford's imports into the U.S. from Mexico back in 1996. Customs also asked Ford to provide bills of material, certificates of origin, manufacturers' affidavits, tariff classifications and other information for all parts and components used by the Mexican subsidiary in the manufacture of finished products that eventually were shipped to the U.S. Customs argued that such documents are part of the so-called “a(1)(A)” list of documents that U.S. importers are required to maintain. Ford was able to locate some but not all of the supporting documents, and, as a result, Customs issued a penalty notice to Ford totaling over $41 million - $25 million for filing false NAFTA claims and $16 million for recordkeeping violations—which later was mitigated down to about $21 million. When Ford did not pay the penalty, Customs brought suit in Texas seeking the full $41 million. Ford also has brought a suit, alleging that the implicit requirement by Customs that importers maintain such records is unlawful.

In the past, although Customs has frequently sought importer records to verify origin claims, the agency generally has stopped short of demanding records retained by offshore suppliers. If the Ford case is a sign that Customs is taking a broader view of the records that importers are required to maintain, then many more importers are likely to experience similar difficulties in NAFTA verifications in the short term. In the long term, importers will have to work more closely with their foreign suppliers to either secure copies of additional claim-support documents at the time of entry or at least to ensure that the suppliers maintain them in the event of a future Customs inquiry.

Aside from the specific question of what foreign documents Customs may require in the context of origin claims, the Ford situation is a good example of the critical importance for importers of maintaining an up-to-date and comprehensive recordkeeping program.

For more information, please contact Alexander H. Schaefer in our Washington, DC office at aschaefer@crowell.com.

Recent Regulations Proposed by Department of State Will Make U.S. Agency Regulators More Accountable for Regulatory Commitments Abroad.

The rules are proposed at a time when international agreements are becoming an increasingly important source of regulation by the federal government, affecting everything from agricultural pesticides, to exhaust standards or ballast water standards for oceangoing ships, to asthma inhalers.

On May 18, the U.S. Department of State issued a proposed regulation to expand its existing internal procedures for agencies to consult on U.S. international agreements - 71 FR 28831 (May 18, 2006). First, a regulatory agency proposing an international agreement with a significant regulatory commitment must inform the State Department what arrangements have been planned or carried out for timely consultation with the Office of Management and Budget ("OMB"), which is responsible for reviewing draft agency regulations. Second, the U.S. Department of State ultimately must receive confirmation that OMB has been consulted in a timely manner.

International agreements are developed outside of the normal rulemaking procedures that allow politically accountable officials and affected parties to have notice and an opportunity to provide input on proposals before they are consummated. Once final, however, these agreements can significantly curtail the discretion of the Executive Branch. Any subsequent review of the resulting draft regulation by OMB or other reviewers may be rendered moot where the agency's discretion has already been constrained by the agreement.

This proposal would help ensure that accountable officials at OMB's Office of Information and Regulatory Affairs, the State Department, and the regulatory agencies are informed of, and concur with, regulatory commitments embodied in international agreements. This should increase accountability and reduce the likelihood of unwarranted or ill-conceived regulations.

Parties interested in commenting on the proposed regulation have until July 26 to submit comments to the Department of State. For more information, please contact Paul Noe in our Washington, DC office at pnoe@crowell.com or (202) 508-8863.

Pharmaceutical Companies May Face Override of Patent Rights for Public Health Concerns.

Introduced by Democratic Senator Leahy, the Life-Saving Medicines Export Act of 2006 (“Act”) would allow for the compulsory licensing of patented pharmaceuticals to less-developed countries faced with public health crises.

The Act requires the U.S. Patent and Trademark Office (“PTO”) to issue a compulsory license permitting generic drug companies to manufacture and export medicine. Its structure and language are designed to put into place U.S. commitments made within the World Trade Organization (“WTO”). The Act allows generic pharmaceutical manufacturers to export medicine for life-threatening public health problems to “eligible countries,” including least-developed countries and developing countries which are unable to manufacture the drugs domestically. Before obtaining licenses, generics manufacturers must attempt to purchase rights to the patent under normal business arrangements with the patent holder. Labeling and packaging must indicate that the medicine is for use under the WTO agreement, and the license to sell the product is permitted for seven years with the potential for one extension. Medicine sold under this authority may not be exported, except in very limited regional circumstances.

The generics manufacturer who receives the compulsory license is required to pay a royalty to the patent holder which will be set by the PTO based on the specific circumstances. The maximum royalty payment for shipments is capped at four percent times the commercial value of the pharmaceutical products to be exported. The Act specifies that the compulsory license shall not be considered a patent infringement and provides for waiver of the bill in emergency circumstances.

The importance of the availability of generics in the event of a massive outbreak of an infectious disease such as the avian flu is evident. Even in situations of non-apocalyptic proportion, however, all pharmaceutical manufacturers will be affected by the passage of this Act. Generics manufacturers will encounter a new wave of opportunities, depending on how aggressive the PTO is in its compulsory licensing decisions in combating situations such as the HIV/AIDS epidemic in Africa whereas brand name manufacturers may experience a blow to their bottom line depending on PTO licensing and royalty determinations.

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

Multi-National Firms Use Southeast Asian FTAs to Enter Indian Markets Demonstrating the Benefits of FTAs to Non-FTA Party Companies.

In yet another sign of the growing awareness by international trade-related companies about the benefits provided by bilateral and regional free trade agreements (“FTAs”), Japanese, South Korean and Swiss multinational companies are utilizing their Southeast Asian operations and India's bilateral free trade agreements with Thailand and Singapore to ship products tariff-free directly to India's booming markets.

India's bilateral free trade agreements with Thailand and Singapore eliminated tariffs on several products from those countries. Taking advantage of this opportunity to ship products to India's markets tariff-free, several multinational companies have either begun utilizing their manufacturing operations in Thailand and Singapore or are planning to establish plants to ship products directly to India and save on the tariffs they would have to pay if the products were shipped from their respective home countries.

For example, Toshiba Corporation is shipping refrigerators and washing machines from its Thai factory to India, while Samsung is shipping microwaves from Thailand. Both Matsushita Electric and Sony are shipping cathode-ray tubes (“CRTs”) for televisions from their Thai plants to India which has become a huge market for CRTs. NEC Corporation is shipping semiconductors to India from its Singapore plant, while Novartis is building a $180 million manufacturing plant in Singapore in order to produce and export hypertension and heart disease medicines to India.

In each of these cases, the companies are able to obtain significant savings on tariff-related costs as well as to price their products more competitively in India's markets. There are currently about 185 FTAs concluded worldwide, providing opportunities for companies to benefit from reduced or eliminated tariffs between the FTA partners.

For more information on specific bilateral and regional FTAs and how you can benefit from lowered and eliminated tariffs, please contact Brian Peck in our California office at bpeck@crowell.com.

New Agreement Among WTO Members Could Allow Foreign Companies Greater Access to Taiwan's Government Procurement Market.

WTO members reached an agreement on June 2 which would allow Taiwan to implement its obligation to accede to the WTO Government Procurement Agreement (“GPA”), which requires signatories to guarantee fair international competition for government procurement contracts.

As part of its WTO accession agreement, Taiwan was required to sign on to the GPA. In 2002, Taiwan actually agreed to the number of government entities that would be covered under the GPA obligations to prohibit discriminatory treatment between local and foreign suppliers as well as between foreign suppliers from different countries for those entities' procurement contracts. However, since that time China has blocked the GPA committee from accepting Taiwan due to its objection to the use of official names from several Taiwanese central government entities. The WTO members reached a political deal on June 2 which overcame China's objections and will allow Taiwan to formally accede to the GPA.

Taiwan's formal accession to the GPA could allow foreign companies of other GPA signatories greater access to Taiwan 's government procurement market, estimated to be almost $26 billion in 2004, and create new opportunities for foreign firms to obtain government contracts with entities such as Taiwan's Ministry of Defense, the Presidential Office and the national parliament.

Other GPA signatories include the EU and its 25 member states, Canada, Japan, South Korea, Switzerland and the United States.

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

European Commissioner for Trade, Peter Mandleson, announces review to decide the best way of balancing competing commercial interests in enforcing EU anti-dumping policy.

Recognizing that anti-dumping duties adversely affect an increasingly wide spectrum of different economic operators in an increasingly globalised world, EU Commissioner for Trade, Peter Mandelson, has announced that the European Commission will launch a formal consultation in the second half of 2006 on developing a formula to strike the right balance of commercial interests when the EU decides to use its anti-dumping instrument.

The main purpose of the consultation will be to review the way that the European Union decides whether introducing anti-dumping measures is in fact in the interests of the European Union economy as a whole. Unlike its major trading partners, the EU imposes anti-dumping duties only when four conditions are proved to exist, namely: (a) dumping; (b) injury to an EU industry; (c) a causal link between the dumped products and the injury suffered by the EU industry; and (d) an assessment of whether or not the imposition of such duties is actually in the overall interests of the EU as a whole, taking into account the whole range of economic operators that will be affected. Most other countries—for example the United States, China and India—do not apply this fourth test.

Stung by widespread criticism of the European Commission's handling of anti-dumping investigations in a series of recent high-profile cases including leather shoes from China and Vietnam, but also others, Commissioner Mandelson has decided that the interests of economic operators other than exclusively the EU complaining industry have to be given greater weight in this calculation. These interests include those of EU importers, major sales brands, distributors, retailers, industrial users and, of course, European consumers.

The idea is to try to develop a formula to allow a better balance of these competing interests to be struck before a final decision is taken to impose anti-dumping duties. These kinds of duties can be as high as 40% and must be paid by EU importers before the products in question can be released for free circulation inside the European Union. To determine how this balance is to be struck, the European Commission will initiate a general consultation review process to enable interested parties (inside and outside the EU) to contribute their views.

It is likely that the consultation process will lead either to amendments to the “EU interest test” contained in the EU's Basic Anti-Dumping Regulation or fresh administrative guidelines on the way that the EU's interests are assessed in individual anti-dumping investigations. This opens up the prospect that—even if EU industries are able to prove dumping and injury caused by these kinds of practices—relief in the form of anti-dumping duties will not always be automatic. Two high profile EU anti-dumping investigations are currently in the pipeline which will also turn on whether or not the interests of economic operators other than those of the EU complaining industries can justify the imposition of protective measures.

Ultimately, the main challenge will be for the European Commission to develop a viable formula for balance these interests against each other. Input from interested parties is actively sought.

For more information, please contact Robert MacLean or Margareta Djordjevic in our Brussels office at rmaclean@crowell.com or mdjordjevic@crowell.com.

BIS Reaffirms Deemed Export Rules By Formally Withdrawing Advance Notice of Proposed Rulemaking.

Exporters felt some initial relief when BIS declined to make changes suggested by the U.S. Department of Commerce Office of Inspector General ("OIG") Report. On May 31, BIS gave further comfort to those who wrestle with the EAR and explained why it had not made any changes, thereby providing a valuable articulation of policy that will guide exporters in this area.

First, BIS rejected the notion that country of birth should be a factor in deemed export licensing determinations. BIS explained, in very rational terms, that a decision based on citizenship or permanent residency "recognizes the significance of declarative assertion on affiliation over the mere geographical circumstances of birth."

Second, BIS decided not to change the definition of "use" in 772.1. Currently controlled "use" technology must include all of the following: operation, installation, maintenance, repair, overhaul, and refurbishing. BIS stated that switching the language to "or" would create a significant licensing burden with "no corresponding national security benefit."

Finally, BIS announced that it will conduct additional outreach with the academic community on the scope and operation of the "fundamental research" branch of the publicly available tree.

BIS' withdrawal is a welcome response that recognizes the contribution made by foreign nationals and preserves the status quo, which while not perfect, is better than the OIG alternative. If you would like a copy of the Federal Register notice, or have any questions, please contact Jeff Snyder at jsnyder@crowell.com or (202) 624-2790.

C-TPAT Establishes Mandatory Security Link Portal.

U.S. Customs and Border Protection ("CBP") has established as part of its Customs-Trade Partnership Against Terrorism ("C-TPAT") program a security link portal. All certified C-TPAT members and eligible C-TPAT participants are now required to create and maintain an account on this portal.

Importers, U.S./Canada and U.S./Mexico highway carriers, and rail, sea and air carriers must complete this requirement before August 1, 2006, while foreign manufacturers, licensed brokers, U.S. marine port authority/terminal operators, and others must complete this requirement before September 1, 2006. Failure to comply with this requirement will result in the removal of all C-TPAT benefits, including reduced and expedited exam processing and Free and Secure ("FAST") lane access.

According to CBP, the C-TPAT security link portal “will allow qualifying C-TPAT participants to:

  • Enter new applications.

  • Instantly submit information updates and add new information.

  • Maintain a ‘living' Supply Chain Security Profile that can be updated as needed and must be updated and re-certified on a yearly basis.

  • Communicate directly with CBP C-TPAT and/or their designated C-TPAT Supply Chain Security Specialists using a secure system.

  • Receive information directly from CBP to include cargo security alerts and sanitized intelligence information.

  • Maintain a list of authorized users.”

All eligible C-TPAT participants should be contacted by CBP about gaining access to the portal. If your company's primary point of contact for C-TPAT has not yet been contacted by CBP, you should send an e-mail to industry.partnership@dhs.gov. CBP has also posted a presentation that provides additional instructions about the security portal, which is available at:

http://www.customs.gov/linkhandler/cgov/import/commercial_enforcement/ctpat/
implement_ portal/sec_link_portal.ctt/sec_link_portal.ppt
.

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

June, 2006
Crowell & Moring hosted two major client events on June 1, 2006. The Brussels office held a series of roundtable discussions on privacy, antitrust and international trade issues and the Irvine office hosted "Globalization Accelerates,"—the fourth installment in their series on the subject. If you would like to receive invitations to future Crowell & Moring events, please send your contact information to events@crowell.com.

US: Careful Dealing
Jeffrey L. Snyder, Lorry B. Halloway and Alan W.H. Gourley write about managing the risks of U.S. trade laws in international deals. Click here to read the full article.

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 1, 2006
Kim Nobles will be chairing and moderating a panel on "China Issues" at the United States Federal Circuit Bar Association Annual conference. Panelists include:
Stephen Koplan – The Chairman of the International Trade Commission; Judge Jose Linares, USDC, NJ; Judge James Otero, USDC, Cal; Chief Judge Jane Restani, U.S. Court of International Trade.

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