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Vol. I: Issue 9  |  July 10, 2006  |  www.crowell.com


EUROPE IN THE SPOTLIGHT: EU ANTIDUMPING

The Latest Series of Anti-Dumping Measures Proposed by the EU Clearly Show the Fingerprints of a More Liberalized Policy. In the summer of 2005, the European Commission announced a large batch of new anti-dumping investigations, across a whole range of products, all of which are now coming up for final determination. The European Commission's proposals for dealing with many of them incorporate certain innovative features which seem to reflect a more friendly approach towards the treatment of non-European exporters.

The most notable aspect of 2005, from the point of view of EU anti-dumping at least, was the large number of new complaints that the European Commission agreed to investigate in the first two quarters of the year. The cases in question involved a wide array of products – leather shoes, DVD+/-Rs, CD-Rs, safety shoes, ethyl alcohol and plastic bags and sacks. Many of these investigations are now at the stage where the European Commission has to adopt definitive anti-dumping measures or terminate them.

In the most politically sensitive case – involving Leather Shoes from China and Vietnam – the European Commission has proposed yet another novel element to lessen the impact of the definitive measures on Chinese exporters. This is in addition to the already existing exclusion of children's shoes from the provisional application of the measures which is based on the grounds that the overall interests of the EU did not justify imposing additional costs on such shoes.

The European Commission is now proposing to introduce, for the first time, a Deferred Duty system. This will allow about 140 million pairs of Chinese shoes and 80 million pairs of shoes from Vietnam, to enter the EU each year without attracting any anti-dumping duty at all. After this ceiling has been reached, the full rates of dumping duties will kick in. It is estimated that this scheme – if adopted - will mean that only about half the imports of these products into the EU will be subject to the full rates of dumping duties assuming, of course, that the level of imports from China and Vietnam remains constant.

Separately, in the investigation into Plastic Bags and Sacks from China, Malaysia and Thailand, the European Commission has proposed a new approach which may allow Malaysian exporters to completely escape anti-dumping duties. Previously, the European Commission applied the de minimis principle on a company-by-company basis. This meant that when an individual exporter had a dumping margin of less than 2%, it could it escape without any duties being applied. The European Commission is proposing to change this approach by applying this principle on a country-wide basis. In this specific investigation, the average dumping duty margin – on a country wide basis - for all the sampled companies taken together was below the de minimis threshold of 2%. This was despite the fact that some of the individual dumping margins found for separate exporters were as high as 11.4%. However, because of the size of the negative dumping margins for the other companies (and because the EU does not apply zeroing), overall the average dumping rate for all the sampled companies was less than 2%. This means that all Malaysian exporters may escape with no duties.

In the same case, the European Commission also demonstrated an unprecedented flexibility towards the evaluation process for determining Market Economy Treatment (MET) for Chinese companies included in the sample. Nine out of the ten companies included in the sample were successful in fulfilling the five - normally extremely difficult - tests for proving that they operate in market economy conditions. As a result, the final dumping duty rates for these nine companies (ranging from 0% to a maximum of 15%) were well below the normally high levels found in Chinese anti-dumping cases.

There is little doubt that the European Commission has recognized that a large range of commercial interests are adversely affected in EU anti-dumping cases. Of course, non-European exporters are claiming that these steps are not enough but, compared to the situation even one year ago, a much more flexible approach has started to emerge. This reflects an underlying approach adopted by the European Commission of trying to strike a more reasonable balance among the diverse and competing interests that are involved.

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

EUROPE IN THE SPOTLIGHT: MARKET ACCESS

The European Commission Formally Kicked Off Its Strategic Review of EU-China Trade Relations on 7th July With a High-Profile Conference in Brussels. The Conference was expressly designed to develop a special market access strategy towards China. According to EC Commissioner Mandelson, the Strategic Review will endeavour to find a broad-based 21st century partnership between the two trading partners, based on mutual economic interests. The format being used for this Review also sheds light on the future shape of the EU's revised general Market Access Strategy due to be rolled out at the end of this year.

The growing likelihood is that China will be the EU's second most important trading partner by 2012 and hence the view has emerged inside the European Commission that a special Strategic Review for China is both urgent and necessary. The Strategic Review places special emphasis on improving market access for key EU industries and sectors.

Commissioner Mandelson pointed out at the Opening Speech of the Conference that the EU's future policy must reflect the changing nature of the relationship between EU corporations and Chinese ones. This relationship can no longer be expressed in simple black and white terms. The economic and commercial interests of EU corporations are no longer simply to be viewed in defensive terms – such as resort to the EU's anti-dumping instrument. With European companies investing heavily in China to produce goods and provide services there, Commissioner Mandelson is asking for reflection on the question "what do we mean when we say 'cheap Chinese exports' are threatening European livelihoods?"

A more holistic view of the relationship is now being sought by the EU to take into account the interests of EU corporations that have set up factories, joint ventures and subsidiaries in China. The same is true for many companies based in the EU for which, as Commissioner Mandelson pointed out, “China is turning our whole approach to the European supply chain on its head."

To carry out the review process, the European Commission has identified ten key sectors where barriers to entry in the Chinese market will have to be addressed and, if possible, reduced. These are:

  • ICT Equipment and telecommunications services;
  • Financial services;
  • Construction services;
  • Transport equipment;
  • Distribution and retail services;
  • Machinery and related appliances;
  • Pharmaceuticals;
  • Chemicals;
  • Sustainable technologies and services
  • Intellectual Property protection and enforcement

The selection of these ten sectors is based on the notion that these are the areas where the European Union, at least in theory, has a competitive advantage relative to China. These strengths should allow EU industries and enterprises to compete favorably with their Chinese counterparts and increase their presence in the Chinese market. To date, this has not happened in any material way. The Review is intended to find out why and what can be done to change this situation.

It is expected that the Strategic Review findings will form a key component in the final shape of the EU's revised Market Access Strategy. As a model for the general review of the EU's Market Access Strategy itself, it is highly likely that the final shape of this policy will mirror – to a large extent – this sectoral approach. In other words, the European Commission will actively seek to promote greater market access in all major trading partners for those sectors where clear opportunities for improved performance by EU corporations can be achieved.

The European Commission intends to publish an “Ideas Paper” on the general contours of the revised Market Access Strategy just after the Strategic Review for China is completed – which means around August 2006. Thereafter, it is likely that a Stakeholder consultation process will be initiated with a view to communicating the revised Market Strategy by the end of the year.

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

CHINA IN THE SPOTLIGHT: EXPORT CONTROLS

China Export Rule: The Latest Development – What Does "Know" Mean? On July 6th the U.S. Bureau of Industry and Security (“BIS”) published in the Federal Register a revised version of its "military end use" rule.  This rule imposes a license requirement on some forty-seven Commercial Control List (“CCL”) items (listed items also include equipment, technology, and software) where the exporter knows they are “intended, entirely or in part, for a military end use."

One of the major changes in the new version is just what the term “know” means. In the last version, BIS would have found knowledge only where the exporter had actual knowledge. In this new version, expected to be published soon in the Federal Register for public comment, BIS has dropped the limit to cases of actual knowledge, and now "know" means either-

(1) the exporter is informed by BIS that the item is so intended, or

(2) that the exporter knows it, not only in the sense in the sense of actual knowledge, but also -- as is the case elsewhere in the EAR - where the exporter has "reason to know."

The EAR definition also permits a finding of knowledge where there is “an awareness of a high probability of its existence or future occurrence. Such awareness is inferred from evidence of the conscious disregard of facts known to a person and is also inferred from a person's willful avoidance of facts.”

Much more important than simple word games, the knowledge standard has significant practical implications for exporters. “Reason to know” is a standard that is hard to apply prospectively, but lends itself well to hindsight, and as the saying goes, “hindsight is always 20/20.” What will amount to grounds for reason to know? This is a question that exporters wrestle with on a daily basis, and is made more complex in the China market. Unless an exporter is shipping to a related party or otherwise has actual knowledge of the non-military use, the risk of hindsight is present.

Exporters shipping any of the 47 items to any locations should consider their export profiles in the light of the proposed rule. Questions of interpretation and application will inevitably accompany the implementation of the new rule. Companies should consider commenting on the rule, and take steps to prepare for some version. If past practice is any guide, senior BIS officials have made clear that this rule will be adopted eventually.

For questions about the new draft or to revisit compliance processes, contact Chris Gagne or Jeff Snyder in our Washington, D.C. office at cgagne@crowell.com or jsnyder@crowell.com.

US-India Agreement May Give U.S.-India Tech Transfers A Yellow Light. The Bush Administration's controversial agreement with India to permit US-India cooperation in civilian nuclear technology is not likely to open the floodgates to U.S. technology exports any time soon. While Congress will likely approve such co-operation, it will seek various forms of oversight to address its non-proliferation concerns.

For example, a recent bill in the U.S. House of Representatives' International Relations Committee endorsed cooperation with India but required the White House to satisfy a number of reporting requirements and certifications before implementing the agreement. The U.S. Senate is likely to raise similar concerns. Moreover, the U.S. Congress would have to approve any action under the agreement by a joint resolution.

Under the March Agreement between the Government of India and the Bush Administration, India would put 14 of its 22 current and planned nuclear reactors under international safeguards by 2014, but not its existing breeder reactors, or enrichment and reprocessing facilities. Critics argue that, with the ability to obtain nuclear fuel abroad, India will be able to divert its own limited stocks of uranium from its civilian to its military program. Some experts say that, under those circumstances, India could finish its stockpile within a year.

Some critics are also concerned that the US-India nuclear agreement will worsen the proliferation of nuclear technology. But Indian legislation passed last summer could help to assuage at least some of those concerns and bring India in sync with the United States and others on export control issues. In particular, India 's “WMD Act”:

  • Criminalizes the unauthorized possession, export, re-export, transit, transshipment, and brokering of materials and technologies related to nuclear weapons and missile delivery systems;
  • Criminalizes intangible transfers of technology;
  • Forbids Indian citizens - wherever they might be physically located - from participating in efforts they know or have reason to believe will contribute to the development of weapons of mass destruction and;
  • Broadens corporate liability to owners and managers of entities found to be in breach of export control laws.

U.S. Congress will undoubtedly be watching closely to see how India enforces this law and progresses towards aligning its control lists with those of the Australia Group and the Wassenaar Arrangement.

As the tug-of-war between Congress and the White House over US-India nuclear cooperation continues, Congressional concerns could translate into new US export control laws and regulations while India begins to implement its own ambitious export control regime. Hopeful exporters of nuclear and dual-use technologies will need to keep their eyes on both Washington and New Delhi to anticipate new opportunities and roadblocks during this dynamic transition.

For more information, please contact Chris Gagne or Jeff Snyder in our Washington, D.C. office at cgagne@crowell.com or jsnyder@crowell.com.

State Department Shifts Policies Toward Venezuela and Libya on Trade Sanctions. The State Department recently removed Libya from the List of State Sponsors of Terrorism, and designated Venezuela as “not co-operating fully” with U.S. antiterrorism efforts. Neither determination will have an immediate practical effect on exports, however, as Libya remains a proscribed destination and the U.S. State Department reportedly already had an unofficial denial policy regarding license applications for exports to Venezuela.

The rescission of Libya 's status as a state sponsor of terrorism follows Libya 's abandonment in 2003 of its WMD development programs and President Bush's May 12, 2006 certification that the government of Libya has not provided support for international terrorism in the past six months and has provided assurances that it will not provide such support in the future. Libya will remain a proscribed destination for exports and imports of defense articles and services under Section 126.1 of the ITAR until publication in the Federal Register of a notice of its removal.

The addition of Venezuela to the list of states not cooperating fully with U.S. antiterrorism efforts – where it joins Cuba, Iran, North Korea and Syria – means that beginning October 1, 2006, new U.S. sales and licenses for commercial exports of defense articles and services to Venezuela will be expressly prohibited. Previously approved authorizations will not be rescinded and exports under ITAR exemptions will continue to be allowed. In the period prior to October 1, DDTC will likely deny new license applications.

For more information, please contact Jeff Snyder or Carrie Fletcher in our Washington, D.C. office at jsnyder@crowell.com or cfletcher@crowell.com.

New U.S. Legislation Could Impose Significant Penalties Against U.S. Companies that Provide Information to Internet-Restricting Countries Such as China. The U.S. House of Representatives' International Relations Committee is readying to mark-up legislation that would impose significant penalties against U.S. companies that provide information about specific Internet users to the governments of “Internet restricting countries” such as China.

The legislation is in response to censorship measures that companies such as Yahoo, Microsoft and Cisco Systems have agreed to in order to comply with laws of various countries including China, and would allow fines as high as $2 million against companies and $100,000 against individuals.

The objective of the bill (H.R. 4780) is to provide several measures to prevent countries from restricting Internet content. Civil penalties would be imposed on companies and/or individuals that disclose to foreign officials any information that identifies an Internet user except for “legitimate law enforcement purposes.” Under the legislation, U.S. companies would be banned from storing personally identifiable information about users in Internet-restricting countries.

In addition, the legislation would authorize the imposition of export controls on any technology that would facilitate Internet restrictions against countries that are determined by the United States to restrict the Internet after a 180-day feasibility study by the Departments of Commerce and State.

Critics of the legislation believe that a large number of countries – including certain EU Member States could be unintentional targets and would prevent U.S. companies from being able to operate in those countries, which would have a significant economic impact. Critics are also concerned that the imposition of any export controls would lead to retaliatory measures.

Mark-up of the legislation by the U.S. House of Representatives' International Relations Committee could start as early as this month.

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

Potential Backlog in U.S. Validations Causes Concern for C-TPAT Members. More than 10,000 companies and importers have applied to participate in C-TPAT since its post 9-11 inception. C-TPAT (Customs-Trade Partnership Against Terrorism) is a voluntary cargo security program under which CBP officials partner with private companies to review their supply chain security plans.

In exchange for their membership to C-TPAT, companies may receive benefits such as reduced numbers of inspections or shorter border wait times for their shipments. Before benefits are received, companies must be certified by CBP or, in the case of importers, must be vetted to determine, through a review of the compliance with customs laws and regulations and violation history of the importer, if there is questionable information that might preclude approval of benefits. If CBP gives the importer a favorable review, benefits begin within a few weeks of the vetting process. If not, benefits are not granted until the validation process is successfully completed.

The program, although designed to give participants speedier entry to U.S. ports, has been significantly held up by a shortage of validators. The Department of Homeland Security (DHS) only has about 80 inspectors who have to examine over 10,000 applicants. Although the Department plans to hire an additional 40 inspectors in the near future, it is also considering outsourcing some of its duties (the validation process, in particular) to private companies.

The U.S. House and Senate are deliberating bills (HR 4954 and S. 2008) which would allow for this, in addition to affecting other changes to existing port and cargo security rules. For instance, the bills require each C-TPAT member to undergo an in-country validation within a year of acceptance into the program in order to receive benefits, and then require members to undergo another in-country validation every three years. If these validations are not performed in time, C-TPAT members will lose their benefits until the validation is completed. The House and Senate proposals also state that if a validation is not completed in time, the importer can hire an approved third party validator to confirm its compliance with C-TPAT.

Given the shortage of DHS validators relative to the over 10,000 applicants, and over 7,000 C-TPAT members, there is a valid concern that a lack of validators will lead to a backlog of completed validations, resulting in several C-TPAT members losing their benefits. Furthermore, third party validations would likely impose significant costs on the importers that hire them. Although the House passed HR 4954 (the Security and Accountability for Every (SAFE) Port Act) on May 4, 2006, it has not been enacted into law since the Senate has not yet passed comparable legislation.

For more information, please contact Sobia Haque or Jeff Snyder at shaque@crowell.com or jsnyder@crowell.com.

Supporters of U.S. Department of Transport's (“DOT”) Foreign Control Proposal Seek Changes to Expand Foreign Control While Opponents Argue the Rule Already Permits Too Much Foreign Control. The U.S. DOT's revamped proposal for redefining “actual control” of U.S. airlines to encourage foreign investment drew support from five U.S. airlines while U.S. labor, Continental Airlines, and the UK's two leading airlines voiced strong opposition.

A number of the parties supporting the proposal and viewing it as essential to a U.S.-EU open skies deal they want, decried the lack of clarity in the proposal and sought significant changes to it. In particular, these parties urged DOT to permit foreign investors to impose burdensome conditions on revocations of agreements providing control to foreign minority investors., leaving questions about how effective it will be in promoting foreign capital for U.S. airlines.

Comments were submitted July 5 on DOT's Supplemental Notice of Proposed Rulemaking (SNPRM) which attempted to forestall congressional action prohibiting the U.S. agency from issuing or implementing its new interpretation of “actual control” by expanding slightly the operational areas requiring continuous U.S. control, and imposing a requirement that U.S. citizens be given rights to revoke delegations of control without burdensome conditions, and to address growing U.S. concern over the original foreign control proposal in the wake of the ill-fated Dubai/P&O transaction. As expected, Delta, Federal Express, Hawaiian, UPS, USA-BIAS, Washington Airports Task Force and Airports Council International-North America and Europe, bmi, AEA and IATA expressed support for the proposal, although they raised questions about how it would work and suggested ways in which it should be amended. For example, Delta, which “applauds” the proposal because it will “open the closed skies” between the U.S. and the U.K. and enhance competition among U.S. airlines, “opposes” the SNPRM's revocation requirement (permitting U.S. shareholders to revoke foreign control) and asked DOT to explain how U.S. airlines would remain under de facto U.S. control if the proposal is adopted. Hawaiian and Federal Express also seek clarification or refinement of the proposal.

The proposal's opponents include British Airways, which calls the SNPRM a “step backwards” and says it “creates new confusion and ambiguity”, as well as Virgin Atlantic, which views the revocation requirement as a “fatal flaw” and says the SNPRM only “reinforce[s]” the airline's initial conclusion that the proposal is deeply flawed and offers less to prospective investors than DOT might believe.” The Air Line Pilots Association explains why revocation will not keep control in U.S. hands, safety and security cannot be separated out for control purposes and labor concerns. Several other labor unions (including the Independent Pilots Association and the Aircraft Mechanics Fraternal Association) raise similar concerns. And, in a 70-page submission, Continental says the SNPRM is unlawful, would hamper operation and governance of U.S. airlines, and at same time it would discourage investment in U.S. airlines. Continental also predicts that DOT's final rule will be found unlawful by Congress or overturned by the courts. Both Continental and US Airways argued that the proposed EU-U.S. agreement fails to provide adequate access to slots and facilities at London Heathrow, with Continental arguing the agreement should be re-negotiated and US Airways arguing that any benefits of the EU-U.S. agreement and the foreign control rule should be denied to U.K. airlines until competitive access is achieved at Heathrow.

Despite a Congressional Conference Report on Emergency Supplemental Appropriations containing language preventing DOT from issuing a final rule on foreign control for 120 days and a 291 to 137 vote in the House of Representatives prohibiting finalizing or implementing the policy in Fiscal Year 2007, Administration officials have vowed to issue a final rule before Labor Day, setting up a confrontation with Congress. Whether such a rule would survive congressional and judicial scrutiny, leading to the long-sought US-EU deal or promote any investment in U.S. airlines, remains to be seen.

For further information, contact Lorry Halloway at lhalloway@crowell.com or Bruce Keiner at rbkeiner@crowell.com.

OAC Issues Proposed Anti-Boycott Penalty Guidelines. There have been a number of recent statements by Saudi Arabia, Bahrain and other members of the Arab League suggesting that they are abandoning (or moderating) their longstanding boycott of Israel. Nonetheless, as reflected by recent enforcement actions brought by the U.S. Department of Commerce's Office of Anti-boycott Compliance (OAC), U.S. companies and those foreign affiliates "controlled in fact" by U.S. persons continue to receive boycott requests and must remain vigilant in their anti-boycott compliance efforts.

On June 30, 2006, OAC published for notice and comment a proposed rule that would –

(a) establish formal procedures for the submission of voluntary disclosures of violations and

(b) identify the factors that OAC would use in determining to bring enforcement actions and/or establish the amount of a penalty.

OAC's long-awaited proposed rule provides, for the first time, an express regulation governing submission of voluntary self-disclosures of anti-boycott violations including specifying the kind of information that must be submitted to OAC. While similar to the rules governing voluntary disclosures of export control violations, there is one significant difference that is likely to provoke comment from industry: the proposed rule reflects OAC's policy judgment that a required report of a boycott request does not itself qualify as a voluntary self-disclosure. The proposed rule requires that the company make both the report and a voluntary self-disclosure in order to receive credit for a self-disclosure; otherwise, the report will be treated as "information received from another source."

With respect to the penalty guidance, the proposed rule is again structured similarly to the guidance applicable to export control violations. The rule specifies a number of factors – both mitigating and aggravating – that OAC will consider in determining whether to bring charges and in calculating the amount of any penalty. While the factors are similar to those considered in the export controls context, they have been tailored to reflect the different nature of anti-boycott violations. Thus, under both regimes an effective compliance program and exceptional cooperation provide mitigation. But the proposed rule also acknowledges the ambiguity of some boycott requests and provides for mitigation where the request is vague, although it will treat a clear request as an aggravating circumstance. The level of familiarity with the type of transaction at issue and significant prior business with or in a boycotting country can also be an aggravating circumstance. Similarly, "active" violations will be treated more harshly than "passive" violations.

Another significant difference from the penalty guidance applicable to export control violations is OAC's proposal to establish three categories of violations reflecting OAC's judgment that some antiboycott violations are inherently more serious than others, thereby warranting more substantial penalties. The most serious violations – those in “Category A” – include refusals to do business; discriminating on the basis of or furnishing information about race, religion, sex or national origin; evading the antiboycott regulations; furnishing information about business relationships with boycotted countries; and implementing letters of credit containing prohibited conditions or requirements. Other violations, such as recordkeeping violations and furnishing information about associations with charitable or fraternal organizations which support a boycotted country (“Category B”) or failing to report timely receipt of boycott requests (“Category C”), are considered less serious.

In another innovation, the proposed guidance also provides illustrative scenarios regarding how OAC might view multiple violations arising from related transactions. When the penalties were $11,000 per violation, OAC was perceived as being very aggressive in identifying numerous violations for what was essentially a single transaction. The proposed guidance apparently reflects OAC's acknowledgement that with the increased penalties available (now $50,000 per violation) it should be more circumspect in calculating the amount of the penalty from what is essentially a single transaction.

Finally, the proposed guidelines expressly address another issue that has often been raised with Commerce in the export control context. OAC's proposed guidance acknowledges that for enforcement purposes OAC will “treat similarly situated cases similarly.” But, the utility of this language is undermined by its placement in the paragraph that protects OAC's discretion by emphasizing that the guidance does not create any rights or impose any obligations on Commerce in litigating enforcement cases.

Comments on the proposed rule must be received by OAC by August 29, 2006.

For more information, please contact Alan Gourley or Carrie Fletcher in our Washington, D.C. office at agourley@crowell.com or cfletcher@crowell.com.

 

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