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Vol. I: Issue 8  |  June 12, 2006  |


The international pressure over the EU's initiative for REACH ( Registration, Evaluation and Authorisation of CHemicals) is intensifying as thirteen countries form a coalition to persuade EU legislators to accept changes to the draft initiative. A potential WTO challenge seems more likely than ever.

Australia, Brazil, Chile, India, Israel, Japan, Korea, Malaysia, Mexico, Singapore, South Africa, Thailand and the United States have recently joined forces to challenge certain aspects of the EU's REACH initiative in a joint statement which goes as far as proposing amendments addressed to EU legislators. The statement is timely, as it comes before the European Parliament's second hearing on the draft REACH text this autumn.

The concerns of the EU trading partners can broadly be divided into three groups:

  1. Costs and consequences of an overly burdensome regulatory environment. These EU trading partners fear that excessive registration and authorization requirements will cause important chemical substances to disappear from the market not because of health or environmental concerns but rather because of cost reasons. This will in turn decrease competition in the market. To avoid this, the registration and authorization process should be risk-based instead of the current system, which is based on volume of production or imports.

  2. Impediments to innovation and protection of intellectual property rights. The main concern is that REACH's requirements to disclose safety data within the supply chain—to potential competitors—might threaten the proprietary know-how of companies and have a negative impact on innovation. In addition, mandatory substitution and time limits on REACH authorizations might discourage companies to invest in research and development.

  3. Discriminatory treatment in international trade. Concerns have been raised both with regard to discriminatory treatment between EU and foreign producers of chemicals, one the one hand, as well as between multinational chemical producers and small and medium sized chemical companies from developing countries on the other. In some instances, foreign manufacturers consider themselves greatly disadvantaged under REACH compared to their European competitors. Specifically, chemical companies from developing countries are said to be unable to bear the cost of the EU REACH requirements.

A possible challenge of REACH in the World Trade Organization ("WTO") may yet emerge based on the proportionality of specific aspects of the REACH's regulatory environment. According to WTO rules, national legislation should not create unnecessary obstacles to international trade. Any law that is more trade-restrictive than necessary to fulfill a legitimate objective is therefore in principle illegal. In the case of REACH, the requirements must consequently be assessed against their ability to accomplish the EU objective of protecting human health and the environment.

A WTO challenge may also be based on the emergence of certain specific discriminatory treatment that may become evident from the practical application of REACH. In general, under WTO rules, it is not permitted to discriminate as between different trading partners or as between domestic and foreign producers.

For more information, please contact Margareta Djordjevic in our Brussels office at


Unite States Trade Representative (USTR) Commences Special Review of Intellectual Property Rights (IPR) Protection in China's Provinces. In this year's Special 301 Report released on April 28, the USTR announced plans to conduct an unprecedented special provincial review of intellectual property rights protection in China.

The USTR has commenced the special review to examine the adequacy and effectiveness of China's IPR protection and enforcement at the provincial level by requesting written comments from the public concerning the locations and issues to be covered by the special review.

The agency will focus the special review on locations in China that are most economically significant for U.S. right holders or merit attention for other reasons. USTR stated in the 2006 Special 301 Report that enforcement of intellectual property rights is inconsistent across China and that many locations in China require increased attention and resources to improve weak criminal, administrative, and/or civil enforcement for various forms of IPR. The special review will place particular focus on “hot spots” identified in the 2006 Special 301 Report where there appears to be an acute need to more effectively establish and sustain proactive, deterrent IPR enforcement: Guangdong Province, Beijing City, Zhejiang Province and Fujian Province, as well as the municipalities of Chongqing, Shanghai and Tianjin and China's autonomous regions.

USTR is seeking comments from the public to identify in detail key locations such as regions, cities, towns, districts and markets where IPR infringement is taking place, as well as the type of infringement activity i.e., piracy or counterfeiting, the types of products, and any factors that affect the ability to enforce IP rights, e.g. laws, lack of enforcement resources or local policies.

The deadline for submitting comments to USTR for the special provincial review is July 14, 2006.

For more information, please contact Brian Peck in our California office at


Upcoming U.S. Bureau of Industry and Security (BIS) China Export Rule. After having taken bold action to derail the unpopular proposed changes to the deemed export rule, US Under Secretary of Commerce for Industry and Security, David McCormick, the most senior export official at Commerce, has announced that BIS will not back down from new controls on China, even if they are unilateral.

Under Secretary McCormick argued (in a June 9 address to the Center for Strategic and International Studies, along with an op-ed in the Financial Times) that the "Chinese military's appetite for cutting edge technology" requires restricting exports in selected technology categories to prevent diversion. He explained that: "The new policy will also bolster U.S. security by preventing exports of technologies for incorporation into Chinese weapons systems. It is not a wide-ranging “catch-all regulation” that subjects everything from fountain pens to office furniture to government scrutiny. Rather, these changes carefully target certain technologies that, while unrestricted until now, have the potential to materially enhance China's military capabilities. The Administration will also urge others, particularly in Europe and Japan, to take similar steps."

The new rules would impose a license requirement on exports of 47 categories of dual use items on the CCL if they are for military end users in China. The specifics of the new rule are not yet publicly available; they are expected to be published in proposed form this summer. Exporters are eagerly anticipating the specifics of the new rule and dread even more unilateral controls. Under Secretary McCormick said it would be unrealistic to expect "universal and consistent implementation." In the meantime, exporters are evaluating their China export profile and planning to manage the impact of the new rule.

For more information about the new rule or evaluating export profiles, please contact Chris Gagne or Jeff Snyder in our Washington, DC office at or

“Made in USA” Marking Update. Products that satisfy the Customs requirements for being considered products of U.S. origin frequently do not satisfy the FTC's guidelines for being marked “Made in USA.”

Companies involved in import trade are often confused by the different overlapping regimes governing “country of origin” marking. Under the U.S. Customs regulations, for example, every importer is required to mark the country of origin on the imported product or packaging in a way that the “ultimate purchaser” is aware of the country of origin of the imported goods. Further, the tests for determining the appropriate country of origin for U.S. Customs purposes generally involve either a “substantial transformation” analysis ( i.e., an analysis of the last country in which the product was transformed into a “new and different article of commerce”), or the “tariff-shift” test (a comparison of the tariff classifications of the product's components versus the classification of the finished product itself that is utilized, for example, in NAFTA rules of origin determinations). Thus, U.S. Customs requires that a product whose raw materials are from Country A but which is “substantially transformed” in Country B must be marked as originating in Country B, unless the product meets one of the limited exceptions to the marking rules.

One of those exceptions applies to goods that U.S. Customs considers to be of American origin—such goods, when imported and later sold, need not be marked with the country of origin to satisfy Customs' marking regulations. Sellers of such goods must separately contend with the U.S. Federal Trade Commission's “Made in USA ” marking rules. While marking goods “Made in USA” is never required for sale within the United States, manufacturers frequently wish to mark their goods as “Made in USA” to appeal to consumer perceptions. Under the “Made in USA” rules, to be marked or advertised as “Made in USA”, a product must be “all, or virtually all” of US origin to qualify; otherwise, marking or advertising the product as “Made in USA” would be deceptive and a violation of § 5 of the FTC Act. The “all or virtually all” standard is much more stringent than the Customs “substantial transformation” standard—as a result, products that satisfy the Customs requirements for being considered products of U.S. origin frequently do not satisfy the FTC's guidelines for being marked “Made in USA.”

On June 8, 2006, the FTC issued a Complaint against Stanley Works, a producer of tools, for violating not only the Made in USA marking regulations but also a 1999 Consent Order entered against Stanley for prior similar marking violations. As this was a violation of a prior order, the FTC levied $205,000 in penalties against Stanley for the violation. In addition, Stanley is required to maintain more detailed records to support its compliance with the law and the order, and the order extends Stanley 's obligations for another 10 years from June 8, 2006. The 1999 order had a 10 year life span, so this new order both broadens the earlier order and extends the obligations imposed on Stanley for seven additional years.

This is the first significant enforcement action taken by the FTC in this area since the late 90s, when the FTC enforced the “Made in USA” rules against approximately six companies in more or less concurrently filed actions. The recent action, however, should serve as a reminder to companies to be vigilant in their marking and promotional actions, especially where “Made in USA” marking or advertising is under consideration.

For more information, please contact Rob Lipstein or Alex Schaefer in our Washington, DC office at or

The U.S. Department of Commerce formulates comments submitted in response to the U.S.-adverse WTO Appellate Body Report in United States – Zeroing. More…

On March 6, 2006, the Department of Commerce issued a request for comments in response to the adverse WTO panel report in United States – Zeroing, which was recently affirmed by a WTO Appellate Body. These comments have now have now been published.

The WTO Appellate Body affirmed again that the practice of zeroing (which means excluding the results of comparisons which are beneficial for exporters) in average-to-average comparisons is inconsistent with Article 2.4.2 of the WTO Antidumping Agreement in its Report, United States – Laws, Regulations and Methodology for Calculating Dumping Margins (WT/DS294/AB/R). The U.S. DoC requested comments on two issues: (1) its proposal to abandon zeroing in investigations involving average-to-average price comparisons; and (2) the development of a new standard price comparison methodology for antidumping investigations.

Several interested parties submitted comments and rebuttal comments in response to the Department's request. The main arguments centered around three points. First, interested parties argued over whether the DoC can eliminate the practice of zeroing without Congressional action. Domestic parties (petitioners) argued that it cannot since zeroing is statutorily required, while foreign producers/exporters (respondents) argued that since zeroing is not prohibited or required by statute, it can be eliminated without further action. The second main issue raised in the comments pertained to the Doha Round Negotiations. Petitioners argued that the Department should delay any changes in its current practice until the conclusion of the Doha Round, in which clearer obligations may be defined. Respondents, on the other hand, argued that by not eliminating its practice of zeroing right away, the U.S. is failing to comply with its obligations under the WTO. Finally, the third issue raised related to the most appropriate methodology to be applied in future antidumping duty investigations. Petitioners argued in favor of comparisons on a transaction-to-transaction basis, with no offsets for non-dumped comparisons. Respondents urged the Department to maintain the clear statutory preference for average-to-average comparisons and to not allow zeroing under any methodology.

Once the Department has considered all of the comments that were submitted, it will publish in the Federal Register a final notice regarding the calculation of the weighted average dumping margin using the average-to-average comparison methodology in an investigation. Any changes in its methodology will be applied in all investigations initiated on the basis of petitions received on or after the first day of the month following the date of publication of the Department's final notice of the new weighted average dumping margin calculation methodology.

See Antidumping Proceedings: Calculation of the Weighted Average Dumping Margin During an Antidumping Duty Investigation, 71 Fed. Reg. 11,189 (Mar. 6, 2006).

For more information, please contact Rob Lipstein or Sobia Haque in our Washington, DC office at or

U.S. Business Optimism Tempered by Corruption in Southeast Asia.

Concerns about Corruption Underscore the Need for Effective Compliance Measures under the Foreign Corrupt Practices Act (“FCPA”). The American Chamber of Commerce in Singapore announced that some 80 percent of nearly 300 companies surveyed planned to expand their operations in Southeast Asia this year.

The survey reflects the widespread belief that most ASEAN economies are in full recovery mode. Approximately 62 percent also believe that the ASEAN region will contribute more to their global revenues over the next two years.

Despite this confidence, corruption was identified as the biggest burden on businesses in the region—especially in Indonesia and the Philippines. Official corruption continues to have a major impact on investment decisions.

Recent violations of the FCPA—including a case in the ASEAN region—reinforce the need for companies doing business in overseas markets and, in particular, markets with high levels of corruption, to have an effective FCPA compliance program in place. The FCPA prohibits bribery of foreign officials to obtain or keep business or secure an improper advantage.

Because most FCPA violations involve indirect payments—through agents or intermediaries—sales involving agents in markets known for corruption carry risk. To manage this risk, companies needs to exercise due diligence in the selection, monitoring and compensation of agents. Background checks and training of agents are essential for countries with a high corruption index, such as several members of ASEAN.

Increased scrutiny of accounting records in recent years has included investigations into whether companies are complying with the FCPA's so-called “Books and Records” provision. Failing to keep accurate records of expenditures is a common mistake in this area.

For more information on the FCPA and compliance programs, please contact Don Sovie or Brian Peck in our California office at or

New Sanctions on Belarus Leaders. President Bush signed an Executive Order, effective June 19, 2006, admonishing the Republic of Belarus' undemocratic March 2006 elections, its recent human rights abuses, and public corruption. More…

The Executive Order provided that these actions were a threat to the national security and foreign policy of the United States, thereby declaring a national emergency. This most recent action highlights the continued approach of the Bush Administration to use the International Emergency Economic Powers Act (“IEEPA”) in support of democracy.

The impact of the sanctions will be limited to ten individuals in Belarus, listed in an Annex to the Executive Order, as well as others who may be added. The Office of Foreign Assets Control (“OFAC”) will subject additional individuals or companies to the sanctions if they: (1) participate in actions that undermine democratic processes or institutions in Belarus, (2) commit human rights abuses related to political repression in Belarus, (3) are senior-level officials, or family members or persons closely tied to those officials, engaging in public corruption related to Belarus, (4) assist, sponsor, or provide financial, material, or technological support for, or goods or services in support of the actions mentioned in 1 through 3, or (5) were owned or controlled by, or acted for or on behalf of, any individual listed in the Annex. 

For more information, please contact Nicole Jenkins or Jeff Snyder in our Washington, DC office at or

Supreme Court Decision Likely to Generate More Intellectual Property Import Protection (Section 337) Cases. The U.S. Supreme Court's recent decision in eBay, Inc. v. MercExchange, LLC, 126 S. Ct. 1837 (May 15, 2006), may encourage more Section 337 filings at the U.S. International Trade Commission (“ITC”).

Section 337 is a relatively unknown U.S. trade law that provides a powerful remedy against unfair practices in import trade, especially with respect to U.S. intellectual property rights. One section 337 remedy—the exclusion order—acts like an injunction to bar unfairly traded articles from entry into the United States. Thus, when the action of infringement involves imported products, U.S. patent holders have two legal avenues they can pursue: they can seek an injunction before U.S. district courts or an exclusion order before the ITC. The Supreme Court's decision in eBay will now make it more difficult for patent holders who do not actually produce the patented item to get an injunction because eBay requires district courts to apply a four-factor test before awarding injunctive relief.

Specifically, prior to eBay, a district court would enjoin patent infringement, absent exceptional circumstances, when an entity was found to have infringed a valid patent. The unanimous decision by the Supreme Court in eBay ends this practice and mandates that a patentee plaintiff first pass the following four-factor test before a court will award injunctive relief: (1) plaintiff has suffered an irreparable injury; (2) remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) a remedy in equity is warranted considering the balance of hardships between plaintiff and defendant; and (4) the public interest would not be disserved by a permanent injunction. As Justice Kennedy's concurring opinion in eBay demonstrates, it is likely that the application of this four-factor test to cases involving non-manufacturing patent holding companies and business method type patents will result in fewer injunctions:

When the patented invention is but a small component of the product the companies seek to produce and the threat of an injunction is employed simply for undue leverage in negotiations, legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest. In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test.

Even though only a month has passed since the eBay decision, its effects are being noticed in the district courts. For example, in z4 Technologies, Inc. v. Microsoft, the plaintiff—who does not create any products but merely owns a patent on the ability to activate a software product—won a jury verdict against Microsoft. However, the z4 Technologies court (the Eastern District of Texas)—citing eBay—refused to issue an injunction, finding that monetary relief was sufficient to compensate z4 Technologies.

Therefore, as eBay makes it more difficult for certain plaintiff patentees to get injunctive relief from the courts, it is likely that these patentees will turn to the ITC to seek similar relief via section 337 whenever the action of infringement involves imported products.

For more information, please contact Michael J. Songer in our Washington, DC office at

Korea-U.S. FTA Negotiators Set a Fast Pace in First Round of Negotiations. The U.S. and Korea began formal negotiations for a free trade agreement on June 5, 2006, and set a pace not often seen in previous FTA negotiations.

Both sides had carefully prepared for the negotiations and are clearly working hard to achieve their shared goal of completing negotiations by the end of 2006. U.S. negotiators focused on explaining their requests to Korea in detail, and the Korean negotiators gave presentations on certain aspects of their systems. Their preparation was evidenced by the major accomplishment of the week—a nearly-complete consolidated text, which is a compilation of both countries' initial texts identifying areas of agreement and disagreement.

While this strong start is promising, there are many areas of disagreement in the consolidated text—identified by brackets—that must be resolved to conclude a satisfactory agreement. The U.S. government is strongly committed to eliminating the barriers that U.S. companies face in Korea as part of the FTA negotiations. These barriers are evident throughout the automotive, pharmaceutical, agriculture and financial services sectors, among others. The U.S. intends to target them through innovative provisions related to regulatory transparency, technical barriers to trade and sanitary and phyto-sanitary measures, in addition to the traditional focus on liberalizing market access barriers.

The Korean government continues to press for the inclusion of products produced in the Kaesong Industrial Park in North Korea to be treated as South Korea products under the FTA. Currently, most of the South Korean companies in the Kaesong complex produce textiles or apparel, which is already a sensitive issue for the U.S. government, quite apart from the sensitivity of the location of the Kaesong complex.

The U.S. Trade Representative's office is currently developing tariff offers and lists of non-conforming services measures to present to their Korean counterparts prior to next round on July 10. While negotiations have already started, U.S. companies still have ample opportunity to work with the U.S. government to have their market access and other regulatory issues addressed by the FTA.

For more specific information on the Korea-U.S. FTA negotiations and how you can benefit from lowered and eliminated tariffs and on-tariff barriers, please contact Amy Jackson in our Washington, DC office at

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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