|Vol. I: Issue 12 | August 22, 2006 | www.crowell.com|
Industry is invited to comment on three guidance documents on the implementation of the future EU Registration, Evaluation and Authorisation of CHemicals (REACH) legislation.
The European Chemicals Bureau (ECB) is responsible for developing methodologies and tools for the future efficient implementation of the EU REACH legislation under the so-called REACH Implementation Projects (RIPs). This is done through the development of guidance documents and IT-tools for industry; the future European Chemicals Agency; as well as the chemical authorities of the individual EU Member States. As part of this effort, the ECB has now finalized three technical guidance documents (TGDs) concerning:
Industry and other stakeholders are invited to comment on the different documents within specified time limits. With regard to the TGDs on Article XIV dossiers and on requirements concerning substances in articles, the deadline is 31 August 2006. Comments on the TDG on the identification and naming of substances in REACH are due by 4 th September 2006.
These documents, as well as draft versions of other guidance documents, are available on the ECB webpage http://ecb.jrc.it.
For more information, please contact Margareta Djordjevic in our Brussels office at firstname.lastname@example.org.
EXPORT CONTROL IN THE SPOTLIGHT: BIS ENFORCEMENT UPDATE
China has been the destination country in an increasing number of BIS enforcement actions over the past several years. While exports to China were the focus of approximately 16 percent of cases in both 2004 and 2005, they have increased to nearly 18 percent in 2006 to date. These recent enforcement actions have involved numerous industries and commodities, covering the majority of Commerce Control List categories. These actions have regularly focused on exports of technical data, as well. Over half of BIS's deemed export enforcement actions in the past three years have focused on China, primarily involving electronics technology controlled under Category 3. These enforcement actions, coupled with BIS's recent proposed China rule and statements by BIS officials, reflect the ongoing effort to address the risk and opportunity of trade with China. With the departure of Under Secretary McCormick to the NSC, many observers are eager to see how these issues will be addressed in the future.
Much of what BIS has accomplished in the almost five years since 9/11, including its enforcement priorities, is included in a vigorous rebuttal of a recent Government Accountability Office ("GAO") report. The report appears to miss the mark but elicits useful information on enforcement. The report is titled, "Improvements to Commerce's Dual-Use System Needed to Ensure Protection of U.S. Interests in the Post-9/11 Environment." The latest in a string of reports on export controls, the GAO report carries three criticisms of BIS: (1) failing to conduct systematic, measurable evaluations of export controls since 9/11; (2) omitting the names of 147 known persons of concern from its watch list; and (3) failing to address earlier GAO recommendations. BIS responded with an effective rebuttal on all points, demonstrating the steps it has taken in each area. BIS noted that the EAR have been amended over 100 times since 9/11, indicating a robust response. BIS's defense of its post-9/11 activities includes some revealing, if not novel, information. In response to GAO's criticism, BIS explained,
Illustrating the priorities OEE has adopted, these metrics suggests a bias toward certain kinds of enforcement. A quick survey of BIS enforcement action over the past few years confirms that BIS has been active in cases involving WMD, terrorism, and military diversion.
The GAO report was silent on one problem BIS faces: the absence of an Export Administration Act, or EAA. Unable to obtain legislative consensus on export control policy, the President has resorted to emergency authority to keep the EAR in place.
For more information, please contact Carrie Fletcher in our Washington, DC office at email@example.com.
EXPORT CONTROL IN THE SPOTLIGHT: PROPOSED DFARS RULE FOR DoD CONTRACTS
United States Revises Proposed Rule to Foster Export Compliance on DoD Contracts.
On August 14, after nearly a year considering 145 separate comments on the initial version, the U.S. Department of Defense (“DoD”) published a significant revision to a proposed Defense Federal Acquisition Regulation Supplement (“DFARS”) rule seeking to foster export control compliance on DoD contracts. Like Commerce's Bureau of Industry & Security's controversial “deemed export” rule revisions last year (that were ultimately abandoned to further study), the DoD action stemmed from an Inspector General (“IG”) export compliance program audit mandated by the FY 2000 DoD Authorization Act. The DoD IG audit identified perceived weaknesses on the protection of export controlled information used or generated during research and development activities at Universities and Federally Funded Research and Development Centers.
The original July 2005 proposed DFARS rule would have required contractors to implement an export control compliance program that included certain specified elements of the program (such as distinct badging of foreign workers and segregated work areas) regardless of the specific circumstances of the contractor. In the revised proposal, DoD has acknowledged these elements were “overly prescriptive,” and removed them. The new proposal instead makes clear that the rule is “intended to ensure that contractors are aware of their existing responsibilities and comply with those responsibilities.”
The new proposal has also sought to address some of the concerns with having a DFARS rule employ terms that have specific meaning under the export control regulations. Unfortunately, while the revised proposed rule is improved, it is not entirely successful in this regard. For example, in responding to the comments of a number of universities, the new proposal provides a separate clause for contracts involving “fundamental research” (as defined in National Security Decision Directive 189). The clause clearly states the parties' mutual expectation that the work is fundamental research (and thus not normally generating export-controlled information), but leaves open the possibility that export-controlled information might be used or generated. This ambiguity apparently reflects BIS's position (set out first in the now-withdrawn notice of advanced rulemaking regarding deemed exports) that while the fundamental research exception removes from export control the results of such research, it does not eliminate controls on controlled technology used to perform the research (e.g., “use” technology for controlled equipment).
Another welcome aspect of the proposed rule is the attempt to impose on contracting officers the obligation to identify when contracts will involve the use or generation of export-controlled technical data. While it should be DoD's responsibility in the first instance to identify when it is seeking the generation of technical data that will be export-controlled, it may not be of any practical significance as contracting officers are likely to default to the export-control option. The promised export-compliance training of DoD contracting officers and program personnel—if in fact done—may have the beneficial effect of reducing the number of instances where DoD personnel inadvertently foster export control violations by such actions as bringing foreign military personnel to meetings.
The deadline for receiving comments is October 13, 2006. For more information about this proposed rule or about submitting a comment, please contact Chris Gagne or Jeff Snyder in our Washington, DC office at firstname.lastname@example.org or email@example.com.
Section 337: Today's Trade Remedy of Choice?
Section 337 cases are on the rise. The U.S. International Trade Commission (“ITC”) instituted 18 investigations in 2003; 26 in 2004; and 29 in 2005. As of early August, the ITC has already instituted 22 investigations, and five more are expected soon, which means that the number of section 337 cases in 2006 should easily surpass last year's total. In the June 26, 2006 edition of the International Trade Bulletin, Mike Songer explained that the U.S. Supreme Court's recent decision in eBay, Inc. v. MercExchange, LLC, 126 S. Ct. 1837 (May 15, 2006), may spark even more section 337 filings, because eBay makes it more difficult for non-manufacturing patent holding companies and business method type patent holders to get injunctive relief. These patent holders, however, can still qualify for section 337's comparable exclusion remedy as long as they can demonstrate sufficient standing to file a complaint that will allow the ITC to exercise jurisdiction.
To demonstrate standing to file a section 337 complaint, “an industry in the United States [relating to the articles protected by the patent . . . must exist] or . . . [be] in the process of being established.” 19 U.S.C. § 1337(a)(2). This requirement is satisfied in patent cases if “with respect to the articles protected by the patent” there is in the United States either: “(A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial investment in its exploitation, including engineering, research and development, or licensing.” 19 U.S.C. §§ 1337(a)(3)(A)-(C). True to the law, the ITC has found these requirements satisfied in actual cases. For example, in Semiconductor Chips, ITC Inv. No. 337-TA-432 (2002), the ITC stated that a complainant “may established that a domestic industry exists by relying solely on its investment in licensing, without showing that articles are manufactured in the United States that practice a [patent] claim.” Similarly, in Digital Satellite System (DSS) Receivers, ITC Inv. No. 337-TA-392 (1997), the ITC found that a domestic industry existed based solely on a U.S. licensing program that employed five individuals in the United States. There is otherwise no requirement under section 337 that a complainant show that a product covered by the patent at issue is made by the licensees, or that any products manufactured by the domestic industry actually compete with the allegedly infringing imported products. And as long as jurisdiction remains appropriate under section 337 (i.e., as long as the complainant has standing to bring the section 337 complaint), an exclusion order constitutes a viable remedy. Therefore, although eBay may make it more difficult for certain plaintiff patentees to get court-ordered injunctive relief, these patentees can still turn to the ITC to seek similar relief via section 337 whenever the action of infringement involves imported products.
For more information, please contact Matthew P. Jaffe in our Washington, DC office at firstname.lastname@example.org.
Will Nonproliferation Sanctions on Russian Companies Draw Retaliation?
Russia's central arms export hub, Rosoboronexport, and the country's largest aircraft manufacturer, Sukhoi, are among seven non-U.S. entities that were sanctioned by the U.S. Department of State under the Iran Nonproliferation Act of 2000. While the list of sanctioned entities also includes Korean, Cuban and Indian companies, it is the sanctions on Russian companies that have attrached the most attention. Coming so soon after U.S.-Russia cooperation, many have questioned the wisdom of the timing of the sanctions. Retalitation by Russia is possible and therefore individual companies need to review the impact of the sanctions.
The State Department edict prohibits all U.S. departments and agencies from: procuring, or contracting to procure, any goods, technology or services from the sanctioned entities; providing assistance to the named entities; selling the named entities any item on the United States Munitions List; or granting licenses for exports to the named entities of commercial/dual use items controlled under the Export Administration Regulations. Existing licenses for commercial/dual use items under the EAR are suspended and sales of defense articles, defense services or design and construction services under the Arms Export Control Act are terminated. These sanctions will remain in place for two years, although a new determination will be made if circumstances warrant a change in the duration. Imports into the U.S. are not affected, nor are exports of commercial/dual use items and technology to the sanctioned entities that do not require a license.
The big question is whether the sanctions will adversely impact U.S.-Russia business and diplomatic relations. The Russian Government has condemned the sanctions, suggesting they were retaliation for Russia's agreement last month to sell arms and military aircraft to Venezuelan president Hugo Chavez. In July, Sukhoi and Venezuela entered into an agreement for Sukhoi to supply four Sukhoi Su-30 fighter jets and 53 military helicopters to Venezuela.
Whether Russia will impose counter-measures remains to be seen. Possible targets reportedly could include a $20 billion project by a U.S. firm to develop Arctic gas deposits and Aeroflot's planned $3 billion purchase of Boeing 787 jets. On the other hand, Boeing reportedly plans to create a 50/50 Russian joint venture with VSMPO-Avisma and buy $4 billion in parts from the joint venture over the next 10 years, and a top Boeing executive was quoted as saying the U.S. sanctions would not impact its joint project on the SuperJet 100 with Sukhoi or the titanium project.
Other companies sanctioned along with Rosoboronexport and Sukhoi are: Korean Mining and Industrial Development Corporation (KOMID); Korea Pugang Trading Corporation; Center for Genetic Engineering and Biotechnology (Cuba); Balaji Amines (India); Prachi Poly Products (India). KOMID and Korea Pugang are already included on the Treasury Department's Specially Designated Nationals List. U.S. and other companies need to assess the implications of the State Department sanctions on their own business and plans involving Rosoboronexport, Sukhoi and the other named entities. Further, these new sanctions and their potential implications for U.S. companies are additional reminders of the need for companies to have a comprehensive export control monitoring and compliance program.
For additional information, please contact Lorry Halloway in our Washington, DC office at email@example.com.
WTO Closes Door on U.S. Zeroing Practice. The U.S. Department of Commerce's policy of “zeroing” in antidumping duty investigations and administrative reviews has come under repeated fire from U.S. trading partners. Although the WTO previously has left methodological loopholes in its findings on zeroing, its most recent decision appears to preclude all types of zeroing as unlawful.
Antidumping duty margins under U.S. law are based on a comparison between a non-U.S. manufacturer's home market price for a good and its U.S. price for the same good. Where the home market price is lower than the U.S. price (after adjustments for differences in shipping and selling costs), the sale is said to be “above fair value.” However, where the home market price exceeds the U.S. price, the sale is said to be at “less than fair value,” or “dumped.” Pursuant to its practice of “zeroing,” the U.S. Commerce Department discards all of the “above fair value” sales in its calculation of the dumping margin. As a result, the dumping margin is based only on the “less than fair value” sales, even if they comprise only a fraction of the manufacturer's U.S. sales. Because of this methodological quirk, many respondent companies who would otherwise not be found to be dumping (because of their above fair value sales) end up with significant antidumping margins.
The EU (in a series of steel cases) and Canada (in the softwood lumber case) both challenged this practice as being inconsistent with the U.S.'s obligations under the WTO. In the EU cases, the WTO Appellate Body held that the practice—as it had been implemented in both investigations and administrative reviews—was unlawful. The initial panel in the Canada case likewise found it unlawful but created an exception for antidumping margins calculated on the basis of transaction-to-transaction (“T-T”) comparisons as opposed to weighted average comparisons. This decision created widespread speculation that the U.S. could simply switch to T-T comparisons and continue to apply the zeroing methodology without falling afoul of its WTO obligations.
On August 15 th, the WTO's appellate body reversed the Canada Lumber panel's decision and held that zeroing in the context of T-T comparisons is unlawful. This appears to shut the door on the U.S.'s zeroing practice. The U.S. already has committed to stop its previous zeroing practice in the cases challenged by the EU, and this decision appears to preclude as WTO-inconsistent a simple switch to T-T zeroing in those or other cases. Given the prospective nature of WTO decisions, and the U.S.'s past reluctance to quickly implement such findings, the impact of this decision may not be felt for some months. Nevertheless, the decision is of enormous significance to respondents (or potential respondents) in U.S. antidumping investigations.
A copy of the WTO decision referenced herein is available at http://www.wto.org/english/news_e/news_e.htm#bkmk137. We will continue to monitor the Commerce Department's treatment of the zeroing practice and its implementation of the WTO's decisions. For more information on U.S. antidumping laws and procedures, please contact Matthew Jaffe or Alex Schaefer in Crowell & Moring's Washington, DC office at firstname.lastname@example.org or email@example.com.
The U.S. has announced its decision to appeal the recent WTO ruling concerning non-uniform application of the EU's customs administration.
In June this year, a WTO Panel circulated its ruling in the EU - Selected Customs Matters dispute, concerning U.S. allegations that EU customs procedures are in breach of WTO rules. Although the EU is a Customs Union, based on common rules and harmonized customs tariffs, day-to-day customs procedures are managed locally through the customs authorities of the EU Member States.
In the WTO, the U.S. claimed that the EU lacks a single EU customs system and that many important aspects of the EU customs administration are handled differently by different Member State authorities, causing uncertainty for U.S. companies and particularly for small and mid-size businesses. According to the U.S., the EU customs administration as a whole is therefore not conforming to WTO standards. The U.S. did however also point towards certain specific procedures for classification and valuation of goods, where different EU Member States apply diverging rules. Finally, the U.S. claimed that the EU customs administration has failed to provide for judicial, arbitral or administrative tribunals or procedures for prompt review and correction of administrative action relating to customs matters as required by WTO law.
The WTO Panel did not rule on the issue whether the EU customs administration as such is contrary to the EU's WTO obligations, claming that this question was outside of the Panel's terms of reference. The Panel did however examine the specific U.S. claims and found three cases of inconsistent procedures, relating to the classification of liquid crystal display monitors and blackout draper lining as well as rules concerning successive sales for purposes of customs valuation. The Panel rejected 16 other claims of inconsistent procedures. The Panel also rejected the U.S. claim concerning judicial, arbitral or administrative procedures for review of customs actions. According to the Panel, such review must not govern all agencies throughout the EU.
The U.S. is expected to file an appeal within the next week. The WTO Appellate Body will thereafter have 90 days to rule in the case.
U.S. and EU Renew their Commitment to Open Skies After DOT Delays Its Controversial Foreign Control Rule.
The U.S. Department of Transportation (“DOT”) advised the European Commission, U.S. airlines and lawmakers that DOT will not be finalizing its controversial foreign control rule (see ITB Vol. 1, No. 5) before the upcoming October meeting of the European Council of Ministers as planned. While this decision will likely delay the signing of a U.S.-EU Open Skies Agreement, since the rule is seen as a prerequisite for such an agreement, both sides have reaffirmed their desire to conclude such a deal by the end of 2006, despite this set back. At the same time, DOT officials vowed to make a stronger effort to win congressional support for the DOT proposal, which would permit foreign investors to control commercial activities of U.S. airlines, and has been strongly criticized by U.S. lawmakers who say DOT lacks authority to finalize it.
Opposition from U.S. lawmakers is the main reason cited by DOT for the delay, which has also been opposed by U.S. labor and some airlines. House lawmakers included an amendment in the Transportation Spending Bill that would delay DOT action on the rule for four months. A similar measure was included in a Transportation-Treasury Spending Bill approved by the Senate Appropriations Committee. The FY ‘06 War and Hurricane Emergency Spending Bill included conference report language that prevents the issuance of a final rule for 120 days.
DOT set no new timeline for issuing a final rule. Jeffrey Shane, DOT Undersecretary for Policy, said there was "very, very substantial pressure" to delay the rule in the face of congressional opposition. "The feeling was that given that opposition and the fact that we really haven't engaged very effectively [with Congress and the public] ... that a little more time could be given to address these concerns in a more deliberate way." Regardless of the delay, "We remain interested in seeing the extent that we can liberalize these rules," Shane said. "We'll continue to press forward." (Congress Daily, August 16, 2006)
Lawmakers welcomed the delay. "I am very pleased that DOT is responding to the concerns voiced by myself and other members of Congress," House Transportation and Infrastructure ranking member James Oberstar, D-Minn., said in a statement. He added that, “This proposed rule constitutes a major change in public policy, and would create serious problems in safety, security, national defense, and loss of U.S. jobs.” A spokesman for European Transport Commissioner Jacques Barrot expressed “regret” over the delay and adding that, “we welcome the [DOT] commitment to have a deal before the end of the year.” The intention is to have an open-skies accord in place in time for the summer airline schedules that begin in March 2007. Another Commission official predicted that the open-skies accord, which will address competition, security and safety issues as well as landing rights, will likely come down to whether the issue of access to Heathrow Airport in London for U.S. airlines is resolved.
If the EU and U.S. fail to meet an end-of the year deadline, the Commission will be in a difficult position. It has been three years since the European Court of Justice ruled in favor of the Commission and struck down certain terms of the current bilateral open-skies agreements that eight EU Member States and U.S. had negotiated over a 10-year period. The ECJ ruled that the preferential terms that the bilateral agreements gave to the EU national carriers for transatlantic flights are illegal. The previous EU Transport Commissioner continually threatened to bring EU Member States back to court if they did not promptly repeal the bilateral accords and sign an open-skies agreement, negotiated by the Commission, with the U.S. Current Transport Commissioner Barrot has taken a more moderate approach and refrained from such public threats, although Commission officials recognize that the bilateral accords are still “illegal and if an agreement is not reached then the only recourse we will have is to have them repealed or go to court”.
After Doha : Practical Approaches for Cutting the Costs of Trade.
Part 1: Valuation Review
As companies and trade associations say "Aloha Doha," they are left to explore other strategies for addressing trade barriers and reducing the cost of trade. Free Trade Agreements provide some opportunities, but they tend to tackle issues in a piecemeal fashion. That can be good for some companies and some issues, but inevitably in the give and take of trade negotiations others will be left out. So what can individual companies do? What steps can they take to scrub their supply chain, enhance export sales, and cut import duties?
This post-Doha environment provides a perfect opportunity for corporate counsel to use legal strategies to benefit to their companies' bottom lines. Taking action now, rather than waiting for the trickle-down effects of ponderous multilateral initiatives, can make the legal department a profit center via cost savings and sometimes even recovery of past payments.
The failure of the Doha round to liberalize trade will spur assorted multilateral recriminations and eventually some redirection of the WTO. In the meantime, most companies continue to face cost levels that are unnecessary and likely would not be addressed by Doha anyway. In the short term there are concrete steps you can take. This is the first in a series of articles that will address the following topics:
In each of these areas the key element is a legal analysis that can cut deeper into operations than a purely administrative approach. While compliance and logistics personnel can aid in an effort of this type, the legal review adds a dimension and a perspective to the effort. What does the law require, and what will the law allow? Can arrangements be restructured in a way that is consistent with the law but also saves money? OF COURSE! What a famous judge once said, "Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes[. . . . ]" Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934), is equally true of duty. Making use of the full benefit of the legal rules governing trade can have an impact on the bottom line.
For most imported goods, import duties are based on the value of the merchandise multiplied by the applicable duty rate. Identifying that duty rate is an important process—and one that we'll examine in next week's article—but the process begins with the determining the correct value of the goods.
Most importers use the “transaction value” method for valuing their imports. That is, they base the declared value on the price that they have paid (or will pay) for the merchandise. What many importers don't know, however, is that this need not be the end of the story. First, in transactions in which the importer is paying for freight and insurance costs, those costs (if accurately documented) can be deducted from the dutiable value of the goods. Skyrocketing oil prices mean skyrocketing freight costs for both ocean and foreign inland freight, and eliminating the portion of value attributable to those costs can mean significant savings. (Note that in the case of foreign inland freight, the transaction must be properly structured to ensure that the freight charges occur after the sale and after the placement of the goods with a carrier—this is a technical requirement, but an important one to preserve the status of the charges as non-dutiable.)
Separately, under certain circumstances it may be possible to declare a lower value by moving backward in the sale transaction chain. This becomes especially important in sales transactions involving a “middleman” who purchases goods from a manufacturer and “flips” them to a U.S. purchaser. The default rule for this type of transaction is that the “transaction value” is the price from the middleman to the U.S. purchaser. However, under the so-called “Nissho Iwai” doctrine, the initial price—from the manufacturer to the middleman—can be used instead. To use that (usually lower) price, the U.S. importer must show that the sale from the manufacturer to the middleman was a bona fide, arm's length sale, that the merchandise was clearly destined for the United States when the manufacturer sold it to the middleman, and that no statutory additions to value are required to be added.
Determining whether the “Nissho Iwai” doctrine applies can be complex (and is best done with the assistance of a Customs professional to ensure adherence to Customs' “reasonable care” standard) but given the significant mark-ups that “middlemen” frequently place on the goods that they broker, using the first sale can mean significantly lower declared values, which in turn mean significantly lower duties and fees.
Crowell & Moring's Customs lawyers are experienced in all aspects of Customs valuation—for more information on these or other Customs issues, please contact Barry Cohen or Alex Schaefer in Crowell & Moring's Washington, DC office at firstname.lastname@example.org and email@example.com.Next Week: Tariff classification, and how pet costumes can save you money.
Dispute Avoidance and Resolution 2006 - August 29-31: Crowell & Moring's Kimberley Chen Nobles and Alex de Gramont will be speaking on the topic, Litigation & Arbitration Planning: Maximizing Your Company's Ability To Achieve Its Interests in Dispute Resolution. More...
C&M International Trade Group continues growth. Two new associates will join the International Trade group in September, when we will welcome Addie Cliff Taylor and Elizabeth Abraham. The Trade Group has also recently welcomed Sabina Neumann, International Economist and Trade Analyst; Sabina is an expert in trade remedy cases and all aspects of the economics of international trade.
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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