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Vol. I: Issue 10  |  August 11, 2006  |  www.crowell.com


MULTILATERAL TRADE IN THE SPOTLIGHT: WTO DOHA DEVELOPMENT ROUND

End of Doha May Still Provide Market Access Opportunities. The collapse of the Doha round is a serious setback for global efforts towards trade liberalization. On the other hand, businesses can keep prospects for improved market access alive in the longer term, if companies look at creative alternative policy options.

Two factors tipped the balance against a successful Doha round at this time. First, world economic growth is healthy—close to 4% on average—so policy makers are not as desperate for levers to increase trade as they would be if growth were averaging around 1%. Second, countries' trade options are increasingly become broader. Since 1990, countries have negotiated over 330 bilateral or regional trade agreements. Free Trade Agreements (“FTAs”) are a second-best economic option compared to a global deal but have been popular tools for governments to gain fresh market opportunities in selected markets.

Thus the negative consequences of the Doha failure do not affect governments and businesses as they did in previous negotiations, when growth was lower and fewer countries were creating FTAs. As a result, the Doha round is unlikely to recover of its own accord.

Governments will try to re-engage in coming months, particularly to try not to lose what is already on the table—including a prospective Trade Facilitation Agreement. However, serious re-engagement on the Doha round will not happen on the same terms as in July when it broke off.

Where to next?

The failure of the Doha round creates opportunities and risks for business in promoting liberalization. Businesses can re-create momentum for an ambitious global deal if they are creative and imaginative in proposing trade initiatives because governments will be looking for ideas and advice. Here are a few that are likely to emerge and worth testing:

  1. Further FTAs. Leverage to create FTAs is more powerful now that Doha is off the agenda—if countries want additional access to large markets like the U.S. and EU, a comprehensive FTA is the price. A full FTA agenda should motivate the U.S. Congress to renew Trade Promotion Authority. The EU has also suggested doing new deals with markets such as China, and the U.S. is looking at further agreements, particularly in the Asia-Pacific. “Strategic competition” between the two blocs for access to major markets may well emerge in the near future.

  2. PlurilateralInitiatives. Initiatives to achieve progress on selected parts of the Doha agenda on a regional basis could include:

    • Implementing the current ideas on the table in the WTO trade facilitation negotiations throughout the Pacific Rim via APEC.
    • Creating a “digital millennium” agenda emphasizing intellectual property protection and liberalization in investment and high-value services (financial and telecom) at a regional level.
    • Devoting resources to implementing the “barrier free transatlantic marketplace” – addressing regulatory harmonization between the U.S. and EU in financial services, product standards, and cooperation to tackle regulatory problems in third country markets.

  3. A new role for the WTO. Countries could do worse than to use the WTO to try to harmonize the elements of FTAs that fragment the trading system the most. For example, the web of FTAs creates an ever-multiplying network of rules of origin, imposing large search costs on firms looking for the most efficient global supply chain. The WTO could identify the most problematic areas in global rules of origin and provide a forum for affected countries to try to harmonize those rules.

For more information or assistance in using available resources to promote trade, please contact Paul Davies at Pdavies@crowell.com or Melissa Coyle at Mcoyle@crowell.com in our Washington, DC office or Robert MacLean at rmaclean@crowell.com in our Brussels office.

EUROPE IN THE SPOTLIGHT: EU TO INTRODUCE NEW PRE-IMPORTATION REQUIREMENTS

EU importers will shortly have to provide EU customs authorities with information on goods prior to import into the EU. The new system will allow the authorities to carry out security and safety controls prior to the arrival of the goods.

In general, all goods that enter the EU must be covered by a so-called ‘summary declaration' with information about the goods brought into the EU. The summary declaration is to be submitted to the customs office of entry, i.e., the customs office at which the goods are to be subject to appropriate risk-based entry control. Currently, the summary declaration must typically be submitted within 24 hours after the goods have arrived.

According to new rules, which aim at reducing terrorism, fraud and counterfeit and which are expected to enter into force on 1 January 2007, the summary declaration must instead be lodged at the customs office of entry before the goods are brought into the EU's customs territory (pre-arrival declarations). The declaration should be lodged between at least one and 24 hours before entry into the EU, depending on whether the goods are carried by sea, air, rail or road.

The new rules also foresee the possibility for reliable traders to apply for a special certificate in order to benefit from simplified procedures, such as reduced data requirements in pre-arrival declarations (so-called Authorised Economic Operator or AEO certificates).

Traders without such certificates risk being seen as less secure and could be subject to delays and audits. Since the application process for AEO certificates may initially take several months, traders are advised to plan for certificates well in advance.

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

USTR Does Not Have Authority To Instruct the U.S. Department of Commerce To Implement Measures To Comply With An Adverse WTO Dispute Settlement Report. The U.S. Court of International Trade's (“CIT”) decision in Tembec, Inc., v. United States, No. 05-00023, slip op. 06-109 (July 21, 2006), could lead to the refund of four billion in duties collected pursuant to the U.S. anti-dumping and countervailing (“AD/CVD”) orders on softwood lumber from Canada. The reason: The CIT has held that the U.S. Trade Representative (“USTR”) does not have statutory authority to order the Commerce Department (“DoC”) to implement an affirmative determination by the U.S. International Trade Commission (“ITC”) formulated in response to an adverse ruling by a World Trade Organization (“WTO”) panel.

The softwood lumber dispute between the United States and Canada dates back to 1982. After the expiration of a 1996 agreement, the United States ordered AD/CVD duties imposed on Canadian softwood lumber imports in 2002. Both sides requested a North American Free Trade Agreement (“NAFTA”) bi-national panel review of the determinations that led to this order, while the Canadian Government asked for a WTO panel review. The NAFTA panel eventually led to the issuance of an ITC negative injury determination. The WTO panel proceeding also found that the ITC's original affirmative determination was not consistent with the United States' WTO obligations.

USTR asked the ITC if it could amend its affirmative injury determination so it could was consistent with WTO obligations. The ITC advised that it could; and notwithstanding the negative NAFTA remand determination, the ITC subsequently issued an affirmative determination finding the domestic industry threatened with material injury by reason of the softwood lumber imports ( i.e., a section 129(a)(4) determination). USTR then instructed the DoC to amend the AD/CVD orders “to implement” the ITC's amended affirmative section 129(a)(4) determination. The DoC did so and continued to collect AD/CVD deposits pursuant to the amended orders while the negative NAFTA remand determination languished in limbo. Tembec thereupon filed a complaint before the CIT alleging that USTR's action was unlawful.

The CIT held that USTR did not have legal authority to order the Commerce Department to implement “anything other than the total or partial revocation of an AD, CVD, or safeguards order following a determination by the ITC under section 129(a)(4) [of the Uruguay Round Agreements Act].” According to the CIT, Congress enacted section 129 so as to grant USTR authority to decide whether the United States will implement an adverse WTO decision. The section 129( b ) provisions involving adverse WTO decisions that impact DoC determinations grant USTR the authority to direct the DoC to implement a determination. The section 129( a ) provisions involving adverse WTO decisions that impact ITC determinations, however, only grant USTR the authority to revoke an AD/CVD order in whole or in part. “Because ITC determinations do not involve the changes in [AD/CVD] margins made by section 129(b) determinations, Congress saw no need to give the USTR authority to order implementation of an affirmative section 129(a) determination.” As a result, the CIT found that USTR's order to DoC to implement the ITC's section 129(a) determination was ultra vires and void, and thus DoC's 2002 AD/CVD orders, as amended, were not supported by an affirmative finding of injury. Although the CIT stated that the issue of remedies would be addressed in a separate order, its decision found that the parties had conceded that, absent the section 129(a) determination, the NAFTA negative injury determination would control and some or all of the AD/CVD cash deposits collected would be refunded.

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

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. Following a recent decision by the WTO holding zeroing in antidumping duty investigations to be illegal, the U.S. has reached an agreement with the EU to eliminate this practice—at least in some cases—as soon as April of 2007. This could be a significant victory for respondents in U.S. antidumping duty investigations and reviews, though how significant remains to be seen.

Background

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 challenged this practice, with respect to both initial investigations and annual administrative reviews, as inconsistent with the U.S.'s obligations under the WTO. In a recent decision, the WTO appellate body held that the practice—as it had been implemented in both investigations and administrative reviews—was unlawful. Since the decision, the Commerce Department issued a request for comments on potential replacement methodologies, but it has not otherwise provided any indication of its intentions as to zeroing.

Development

In a recent communication to the EU, the U.S. has indicated that it will discontinue its practice of zeroing by April of 2007. It is clear that the practice will be ended in the investigations that the EU challenged at the WTO; what is less clear is (1) whether the U.S. will cease zeroing in non-challenged investigations and administrative reviews. In any case, the discontinuation of the zeroing practice—however limited that discontinuation may be—is a tremendous victory for the EU and for EU respondent companies (and potential respondent companies) in U.S. antidumping duty proceedings.

* * *

We will continue to monitor the Commerce Department's treatment of the zeroing practice and associated issues. 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 mjaffe@crowell.com or aschaefer@crowell.com.

China Postpones Higher Tariffs on Imported Auto Parts To Address Potential WTO Case. China recently announced that it has postponed until 2008 the implementation of a rule that allowed the Chinese customs authorities to impose higher tariffs on imported auto parts. The U.S., EU and Canada had threatened to file a WTO case on the tariff rule, and may still do so since implementation of the rule has only been postponed.

Under the tariff rule, China would impose the higher duty rate reserved set for automobiles on imported auto parts if a car assembled in China has a high percentage of imported auto parts or, if a certain combination of high-value imported parts are used for assembly in China. The U.S. and other WTO members have complained that this practice violates China's commitment to bind its auto parts tariffs at a lower rate and effectively prevents market access for U.S. and other foreign auto part suppliers. China's bound auto parts tariff rates are between 10 and 14 percent, while China's current bound rate for autos is 25 percent.

The U.S. is expected to request a WTO dispute settlement panel if China does not agree to eliminate the tariff entirely rather than just postpone implementation. The earliest possible date that the U.S., EU and Canada could seek establishment of a WTO panel would be September 1, 2006.

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

U.S. Commerce Department Invites Comments on Its Controversial China Export Proposal. The U.S. Commerce Department's proposed China export rule continues to stir controversy as Commerce prepares to receive comments from the business sector. One industry observer notes that European and Asian firms are already developing alternatives to U.S. components in commercial, defense, and space products in anticipation of the rule. Another suggests that comments by a U.S. company on the proposed rule could be used against the commenter by its competitors and also alienate the commenter with the U.S. Department of Defense, which has been a driving force behind the regulation.

At a hearing on July 17, U.S. Deputy Assistant Secretary of Commerce for Export Administration Matt Borman answered questions from the business community about the U.S. Commerce Department's proposed China export control rule. While much of his time was spent clarifying interpretations of the rule, Mr. Borman countered some criticism by soliciting industry input on whether any of the 47 newly restricted items are produced in China and whether the regulations might produce arbitrary results when applied to certain kinds of technology.

The proposed rule would do three things:

  1. require a license for 47 previously uncontrolled dual-use items and technology where the exporter or re-exporter has “knowledge” that the items will have a “military end-use”;
  2. require certification from MOFCOM for any export or re-export to China requiring a license from Commerce where the total value of the items is $5000 or more (current regulations only require a license for items controlled for national security reasons); and
  3. allow Chinese entities to certify with Commerce as Valid End-Users for specific items in lieu of regular export/re-export license requirements.

Several U.S. industry representatives have complained that the scope of the 47 previously uncontrolled items is too broad and that the list includes common, low-level technologies that China already has the capacity to produce. Others pointed out there are already specific regulations covering some listed technology that would conflict with the proposed rule and produce absurd results. For example, the proposed rule would impose tougher restrictions on low-level encryption technology than more advanced forms of encryption that are already subject to special rules. Mr. Borman indicated that Commerce will pay particular attention to these comments and others like them as it considers whether and how to modify the proposed rule.

Despite the perceived risks of doing so, now is the time to point out the logical inconsistencies and unintended consequences of the proposed rule. Comments identifying specific examples of how and why the proposed rule is too broad or too strict are more likely to have a positive effect than vague complaints about placing U.S. businesses at a disadvantage. In particular, comments that point out which of the 47 items are already being produced in China and who is producing them may succeed in narrowing the scope of the final rule.

The deadline for receiving comments is November 3, 2006. For more information about this rule or about submitting a comment, please contact Chris Gagne or Jeff Snyder in our Washington, DC office at cgagne@crowell.com or jsnyder@crowell.com.

U.S. Congress Approves Legislation Regarding Economic Sanctions Against Burma and Iran. Both the U.S. House and Senate have approved legislation which authorizes the extension of economic sanctions on Burma for up to three more years. Economic sanctions on Iran under the Iran-Libya Sanctions Act (ILSA) are set to expire on August 5, 2006, however, the U.S. House of Representatives has approved a temporary extension of ILSA until September 29, 2006.

Burma:
The legislation related to Burma authorizes the extension of sanctions first imposed in mid-2003 which includes a ban on all imports from Burma. Although the authorization is for an additional three years, the House and Senate will need to vote to renew the sanctions each year. President Bush is expected to sign the legislation.

Iran:
Unable to reach agreement on a path forward to renew the Iran and Libya Sanctions Act (“ILSA”), which expires this month, the House passed a “plain vanilla” extension through September 29, before departing for recess. The Senate passed the same extension and it was signed by the President. The interim extension of ILSA shifts the debate into September, when many lawmakers expect Iran to have addressed the UN process (due August 22) and to have the additional time to consider Iran's role in the Lebanon crisis. Most observers expect that an additional plain vanilla extension will be required as Congress debates U.S. policy toward Iran.

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

U.S. Bureau of Industry and Security (“BIS”) Actively Enforcing Deemed Exports. In many public statements, BIS enforcement officials have placed emphasis on deemed export enforcement for several years now, starting most notably when Amanda DeBusk was the U.S. Under Secretary. Subsequent U.S. officials have now confirmed this focus.

In fact, BIS has been active on deemed export enforcement. A quick survey of enforcement actions and settlements shows that since April 2004, BIS has settled at least nine administrative cases involving deemed exports. These cases have a few aspects in common, reflecting some of the ways that OEE finds and resolves these cases.

For example, five of the nine cases involved voluntary disclosures to BIS. China has been the primary country involved, but Iran, Ukraine, Taiwan, Japan, the Netherlands, Spain, Russia, South Africa, Korea, and Mexico have also been involved in these types of cases.

The technology at issue has included CCL technology in the areas of microwave communications technology, solid state amplifier technology, digital fiber optic transmission and broadband switching technology, extended range programmable logic technology, aircraft technology, resin technology, deep ultra violet light technology, graphics accelerator technology contained in software, and voice stress analysis technology.

One case involved a successor to the company that engaged in the violations.

OEE uses many different investigative techniques to find deemed export violations. Other than self-disclosures and whistleblowers, OEE uses the Visa Application Review Program, which it describes as, “conducted to prevent unauthorized access to controlled U.S. technology or technical data by foreign nationals visiting the United States. OEE reviews information on visa applications to detect and prevent possible violations of the EAR. Under this program, EE makes recommendations to the U.S. Department of State against issuing visas for technology control reasons.”

The lessons of these enforcement actions point to the continued need to screen employees for export control purposes. If you would like talk about the screening process or if you have any questions about deemed exports, please contact Carrie Fletcher or Jeff Snyder in our Washington, DC office at cfletcher@crowell.com or jsnyder@crowell.com.

Crowell & Moring Trade Team completes Report for the European Commission on the tools that should be made available to implement the upcoming revised EU Market Access Strategy. The Crowell & Moring International Trade Team has now completed a rigorous and in-depth Study for the European Commission concerning the EU's Market Access Strategy and the tools that should be made available to EU industries and enterprises to enforce it. The European Commission awarded the study contract to Crowell & Moring because of our expertise and experience in pursuing market access solutions and strategies.

The project, started earlier this year, involved consultations with over 150 European Stakeholders to determine what legal, technical and policy tools should be placed at their disposal to improve their performance in third countries. The Report itself deals with ways to improve exports of goods, services, investment and ideas from Europe.

The Final Report has been submitted to the European Commission's DG-Trade for consideration. It makes many recommendations on ways to improve the current situation. It is expected that the Report itself will be published on the internet site of DG-Trade in time for the publication of the European Commission's proposals for a revised and more proactive EU Market Access Strategy.

For more information, please contact rmaclean@crowell.com or mdjordjevic@crowell.com in our Brussels office.

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...

Crowell & Moring Trade Partners Robert MacLean, Lorry Halloway and Jeff Snyder have been recognized by Chambers in their respective areas of expertise.

 

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