|Vol. I: Issue 14 | September 22, 2006 | www.crowell.com|
European Union Confirms Switch in Emphasis in its External Trade Policy Towards Bilateral Trade Agreements with Key Trading Partners. The European Commission has announced separate negotiations with China and Korea on partnership, trade and co-operation agreements in order to improve market access opportunities for EU businesses in these two countries. At the same time, the EU Commissioner for Trade, Peter Mandelson, has called for the long-stalled EU-Mercosur negotiations to be finalized as soon as possible.
For some time now, EU industries and enterprises have been calling for the European Union to catch up with the United States in the race to sign up major trading partners to bilateral trade commitments. The European Commission has now responded to these criticisms by identifying China, Korea and the Mercosur countries (which include Brazil ) as the main focus for these efforts. Previously, the EU was extremely cautious about announcing its intentions to pursue such initiatives because of the repercussions on the WTO DDA Round of multilateral trade negotiations. It now seems that the EU is no longer willing to gamble on the successful outcome of these discussions.
EU-China Partnership and Co-operation Agreement
In the Joint Statement of the Ninth EU-China Summit, held in Helsinki, on 9 th September, 2006, the EU and China agreed to launch negotiations on a new Partnership and Co-operation Agreement to encompass the full scope of their bilateral relationship including enhanced co-operation in political matters. The final agreement will ultimately reflect the full breadth and depth of the proposed comprehensive strategic partnership between the EU and China that the European Commission has been recently urging. It is therefore likely that the final agreement will go beyond the boundaries of a traditional bilateral free trade agreement.
These negotiations will therefore significantly update the 1985 EEC-China Trade and Economic Co-operation Agreement, which only contains very general provisions to regulate their relationship.
EU-Korea Free Trade Agreement
The EU and Korea have been having exploratory talks, at the technical level, on a possible EU-Korea Free Trade Agreement. The aim of these discussions is to verify their common level of ambition and readiness to examine the feasibility of a comprehensive FTA. At the EU- Republic of Korea Summit, also held in Helsinki, both sides agreed to re-energize their efforts to achieve tangible positive outcomes in all areas of trade and cooperation. It is possible that such a free trade agreement could be finalized in 2007.
EU-Mercosur Free Trade Agreement
Speaking in Brazil, EU Commissioner for Trade, Peter Mandelson emphasized the importance of concluding a bilateral free trade agreement between the EU and Mercosur within a short time frame. Emphasizing that the EU-Mercosur negotiations will create the first free trade agreement in the world connecting two regions, he confirmed that there should be no doubt about Europe's commitment to finalize these negotiations as soon as possible. Citing the view that the “shared focus on the Doha negotiations … has diverted us over the last 18 months,” Commissioner Mandelson confirmed that he looked forward to concluding these negotiations on solid commercial terms.
The EU's Global Europe Strategy Paper
The above three elements are key aspects of the European Commission's forthcoming Global Europe Strategy Paper, due to be adopted on October 4, 2006. While continuing to pay lip service to the possibility of a successful conclusion to the WTO DDA multilateral negotiations, there is little doubt that the Global Europe Strategy Paper will confirm that the EU is no longer willing to place all its efforts on multilateral discussions. Instead, a “new generation” of bilateral free trade agreements designed to deliver more open markets and fairer trading conditions, especially with Asian countries, is likely to be proposed.
While the three proposed free trade agreements will not contain identical provisions, several central themes are likely for inclusion. These include measures to remove barriers to trade in key sectors, public procurement, the protection of intellectual property rights and, where relevant, restrictions in trade in energy goods.
Concerning the relationship with the United States post-DDA, the Global Strategy Paper will stress the need for improved regulatory convergence. Proposals will also be made to strengthen the EU's trade relationships with Russia and Ukraine.
OECD Spearheads Initiative to Curb Protectionism of Investments On the Basis of National Security Concerns. As countries have internally debated legislation to counter growing concerns over politically-charged investments, the Organization for Economic Co-operation and Development (OECD) has launched its own project to ensure that domestic measures do not significantly impede the growth of foreign investment.
The OECD members have long adhered to a Declaration on International Investment and Multinational Enterprises, renewed in 2000, which, although explicitly not limiting the right of member countries to regulate foreign investment, provides that such regulations should be transparent and apply equally to domestic and foreign companies operating within those countries. In June of this year, OECD members met in Paris to discuss their concerns that a wave of domestic legislative proposals—citing national security concerns—may limit foreign investment, noting, as examples, the highly-publicized opposition of the U.S. to the proposed UAE ports acquisition, UK concerns over Gazprom's growing influence in the British energy market and other uneasiness about potential mergers in banking, steel, toll roads, energy and dairy markets in Europe and the U.S. In addition to activity in member countries, OECD commented that non-member countries such as Russia, China, India, Brazil and South Africa, which have come to play an increasingly important strategic role in international investment, have started to reevaluate their own merger and acquisition policies.
As this domestic activity unfolds, OECD will initiate a phased approach to limit the use of national security rhetoric to block foreign investment by examining the various laws proposed by member and non-member states and how those laws deal with commercial complexities, such as the difficulty of identifying true investors in an M&A world marked by holding companies and hedge funds. Concurrently, OECD will also engage in consultations with the public and private sectors over the next year.
The final stage of the OECD initiative will entail the creation of a platform of “good practices” intended to assist domestic governments in preventing the abuse of national security measures in such a way that foreign investment is unfairly restricted. In establishing these “best practices,” OECD will be guided by core principles it believes are critical to the just regulation of investments. First, regulations must be transparent to companies wishing to invest in a given country. Second, regulations must be predictable so that prospective investors are aware of the procedures to which they will be subjected. Finally, regulations must be non-discriminatory and based on objective criteria.
To fulfill these core principles, OECD will advise that regulations be applied in the least-restrictive way possible and that national security claims not be used as a pretext for protecting domestic companies from competition. Furthermore, it will urge that regulations protect the confidentiality of business information and that the financial cost of international M&A procedures be minimized. While international business must continue to monitor and react to the various domestic legislative proposals—like the pending U.S. legislation to modify its foreign investment review process—it is hoped that the OECD effort will serve to promote some consistency in approaches among the members and those non-member states that have signed the Declaration.
Senate Approves Port Security Bill Without 100% Screening Requirement. In an attempt to address growing concerns that maritime transportation may be a potential target for terrorist attacks on the U.S., the Senate passed the Port Security Improvement Act by a vote of 98-0 last week. The House passed its version of the bill, known as the SAFE Port Act, and both versions have now been sent to committee for reconciliation.
The version of the Port Security Improvement bill passed by the Senate requires that 22 of the largest U.S. ports, which together handle 98 percent of cargo shipped into the U.S., must install radiation detection equipment by 2007. It authorizes $70 million in competitive grants over the next three years for Research & Development on nuclear and radiological detection equipment for U.S. seaports. The bill also: (1) provides for worker security training programs; (2) authorizes new federal agents to screen cargo unloaded from ships; (3) codifies Customs anti-terrorism programs, including Customs-Trade Partnership Against Terrorism, a government-industry initiative to secure the global supply chain, and the Container Security Initiative, which provides for the screening of cargo in foreign ports; (4) establishes an Office of Cargo Security Policy within the Department of Homeland Security; and (5) requires DHS to develop a plan within one year for the random physical inspection of shipping containers.
Debated rigorously in the Senate, the port security bill has emerged without the 100% screening requirement for cargo destined to the U.S. proposed by Senator Schumer. Instead, the bill requires the U.S. Department of Homeland Security (the “DHS”) to implement a plan for screening of U.S.-bound cargo when such screening is practicable and does not disrupt trade. The bill creates a pilot screening program for the screening of all U.S.-bound cargo at three foreign ports, yet to be determined. Although not part of the port security bill passed by the Senate, Senator Schumer's proposals, which required shipping companies to bear the full burden of increased screening costs, estimated at $8 a container, may resurface as the DHS investigates its path forward.
The Senate and House versions of the port security bill are currently in committee undergoing the reconciliation process. Unlike the House version of the bill, the Senate version authorizes spending for mass transit security grant programs as well as freight and passenger rail security programs. Neither version provides for 100% screening of cargo destined for the U.S.
Uncertainty Concerning New Legal Framework on EU-U.S. Passenger Name Record (PNR) Transfers. While the 30 September deadline imposed by the European Court of Justice is rapidly approaching, there are few signs of political consensus on a new legal framework to transfer PNR data to the U.S.
During the last two weeks, conflicting news on the PNR issue reached the press. At the beginning of September, there were some indications that the U.S. would prefer signing bilateral agreements with EU Member States instead of agreeing on a new U.S. -EU data agreement. This news was quickly denied, first by some U.S. officials, and later by some EU officials confirming that only the legal basis of the annulled agreement would be changed and not its substance. According to these officials, it would be hard, if not impossible, to meet the September 30 deadline if the agreement's substance were amended.
However, after a round of negotiations between European and U.S. authorities, EU Commissioner Franco Frattini declared that a new data agreement by the end of September is unlikely. Reason for this would be demands by the U.S. authorities to use and share additional data elements. Both sides have suggested that to avoid disruption of transatlantic air traffic the existing agreement will ultimately be extended on an interim basis for the short term.
For further information, please contact Jan Dhont in our Brussels office at firstname.lastname@example.org.
First Dispute Settlement Case Against China in the World Trade Organization (WTO) Soon to be Launched. The EU, the U.S. and Canada have requested the establishment of a Panel to decide on the WTO legality of Chinese import tariffs for auto parts. The proceedings are the first case by any WTO Member State against China for failing to comply with its WTO commitments. It suggests that the leniency period applied against China after its WTO accession in 2001 may now be at an end.
The EU, the U.S. and Canada are arguing that Chinese measures imposing a duty on “complete vehicles” of 25 percent on specific combinations of imported auto parts where these parts do not constitute complete vehicles violates WTO rules. The Chinese measures in question apply to imported auto parts that constitute 60 percent of the vehicles' content or price or when specific combinations of imported auto parts are used in the final vehicle. Other auto parts may be imported with a 10 percent ad valorem duty. According to the EU, the U.S. and Canada, the combinations of car parts attracting the 25 percent duty are far from constituting a whole vehicle and the Chinese measures are therefore designed to effect transfer of technology to China by obliging western car makers established in China, who wish to avoid higher duties, to source their auto parts locally.
The Chinese government, on the other hand, is claiming that the measures have been introduced to improve consumer protection and to avoid import tariff circumvention.
Nevertheless, the EU, the U.S. and Canada are arguing that the Chinese measures are contrary to WTO law as well as specific obligations in the Chinese WTO accession commitments. In particular, the complainants are claiming that the 25 percent duty is in excess of the maximum tariff of 10 percent for auto parts that China has committed in its WTO schedules of commitments; that the higher duty constitutes a discriminatory tax in favor of imported goods; that the imposed duty provides a subsidy contingent on the use of domestic goods; and that the Chinese measures are contrary to China's accession commitment not to apply measures which impose the obligatory use of locally produces parts or materials.
The request for a WTO dispute settlement Panel, which is expected to be submitted to the WTO Dispute Settlement Body meeting on 28 th September, 2006, comes after WTO consultations between the parties failed to solve the issue. China offered to postpone the entry into force of the 60-percent rule until 1 st July, 2008. However, the three complaining countries rejected this proposal as being inadequate to address the problem.
As the first WTO case against China, the auto parts dispute has broader implications. The auto parts case might therefore very well open up a Pandora's Box of future trade disputes involving China.
For more information, please contact Margareta Djordjevic in our Brussels office at email@example.com.
International Patent Law Treaty Sent to U.S. Senate for Ratification. President Bush has sent the Patent Law Treaty and accompanying regulations to the Senate for ratification with one amendment to preclude the necessity of changing current U.S. patent law. If ratified, the treaty will make it easier for U.S. patent applicants and owners to protect their intellectual property in overseas markets.
The treaty was completed in June 2000 and has been signed by over 50 countries, including the United States. The Patent Law Treaty generally provides for the simplification and harmonization of national and regional patent laws and practices, as well as measures to help reduce the costs necessary for obtaining and maintaining patents throughout the world. The treaty sets forth the maximum procedural requirements that can be imposed on patent applicants by the contracting countries, and also provides standardized requirements for obtaining a filing date from which no party can deviate. The treaty also makes it easier and less costly to obtain patents by barring countries from requiring the hiring of representation for the purpose of filing an application, and protects patents from being invalidated because of noncompliance with certain application requirements, unless it is a result of fraud. The Administration stated that the treaty does not prevent the United States from establishing requirements that are more favorable to the patent applicant or owner than those provided for in the treaty, or prevent the U.S. from establishing requirements that are currently provided for in substantive U.S. patent law.
The one amendment submitted with the Patent Law Treaty to the Senate relates to “unity of invention” provision in the treaty, which would require that a patent application can relate to only one invention or inventive concept. The USPTO determined that such a requirement for all national patent applications would be inconsistent with U.S. law and would require both substantive and impractical changes to U.S. law. As a result, the Administration is requesting that the Senate ratify the Patent Law Treaty with an exemption from the unity of invention requirement for international applications.
The treaty is now before the Senate Foreign Relations Committee. In order for the President to proclaim the treaty to be in force, it must be approved by a two-thirds majority in the Senate.
For more information, please contact Brian Peck in our California office at firstname.lastname@example.org.
Iran: The U.S. hits Bank Saderat and Pursues “Back Door Sanctions.” In the ongoing effort by the U.S. Government to bring various forms of pressure on Iran, the Office of Foreign Assets Control, OFAC, has amended the Iranian Transactions Regulations (ITR) to cut off Bank Saderat, one of Iran's largest government-owned banks, from the U.S. financial system.
According to OFAC, Bank Saderat has facilitated Hizballah's financial activities and the Government of Iran's dealings with Hizballah, Hamas, the Popular Front for the Liberation of Palestine-General Command, and the Palestinian Islamic Jihad.
To “cut off” Bank Saderat's access to the U.S. financial system, OFAC has amended the ITR to deny U.S. banks, including offshore branches, authorization to process any transactions involving Bank Saderat. The most common way in which Bank Saderat used the U.S. financial system was through so called “U-turn” payments. These are payments in which U.S. banks process payments from or to Iran that do not include direct transactions with Iranian accounts (e.g., Iranian accounts in non-U.S. banks). U.S. banks were previously permitted to process such payments, but are now barred. This means that no U.S. bank is permitted to handle a transaction involving Bank Saderat in any way, effectively denying it, and those customers using it, from the U.S. system. The other ways in which Bank Saderat might be involved—such as transactions incident to licensed transactions or payments in exchange for lawful sales, such as humanitarian goods—are also eliminated. Non-U.S. companies doing business with Iran must be alert to the reach of these ITR amendments.
Simultaneously, the U.S. is urging other G-7 countries to adopt similar restrictions. Describing a “network of front companies,” Treasury Secretary Paulson, at the G-7 meeting in Singapore, called on finance ministers to deny access to some 30 (unidentified) front companies using the banking system to fund terrorism and other illicit activities.
The U.S. push comes amid continued dialogue at the UN over Iran's nuclear ambitions. Iran's posture on suspension of uranium enrichment activities appears to be splitting the coalition, with French President Chirac adding his voice to the call for compromise. However, Undersecretary of State for Political Affairs Nicholas Burns reported to the Senate Foreign Relations Committee that the five permanent members of the UN Security Council and Germany have agreed to implement an initial sanctions program prohibiting exports of dual-use items to Iran. Depending on the effect of these or other future UN sanctions, the U.S. can be expected to continue to push for targeted sanctions by as many nations as possible.
U.S. Bureau of Industry and Security (BIS) Publishes Final Rule to Amend the Export Administration Regulations (EAR). The Final Rule reflects revisions agreed upon at the December 2005 Wassenaar Arrangement Plenary Meeting. The Wassenaar-driven revisions to the EAR are made by agreement of the government members at annual meetings, without advance notice to the public by way of congressional debate, agency hearings, or notice and comment.
The September 7 rule revises or adds the following Export Control Classification Numbers (ECCNs):
The new rule removes certain controls. For example, polyether ether ketone (PEEK) was removed from 1C008 and included in a new ECCN, 1C998. This shift has the effect of removing national security controls from PEEK, while retaining anti-terrorism controls. This change, and the decontrol of most consumer digital cameras otherwise described in 8A002, was based on the rare determination by Wassenaar that foreign availability of these items renders continued national security control obsolete.
National security controls were also removed as regards certain technology ECCNs. As an example, 1E001 now excludes control of development and production technology for ECCNs 1B999 and 1C995 through 1C999, because none of those technologies are controlled on the Wassenaar List. These technologies are still controlled for anti-terrorism reasons under 1E998. The removal of the national security controls is in keeping with section 5(c)(6)(A) of the Export Administration Act (lapsed), which limits the duration of non-Wassenaar national security controls.
The examples included in this article are not exhaustive, illustrating just a few of the many revisions to the CCL. Companies are wise to analyze the changes to the CCL with reference to their product and technology specifications. Staying up to date with revisions to the EAR—particularly substantive revisions to the CCL—allows companies to benefit immediately when their products are decontrolled and to ensure they are in prompt compliance with newly imposed restrictions. An up-to-date export control matrix for all company products and technology is an invaluable tool to help businesses monitor whether and how they are affected by revisions to the CCL.
Court Rewrites Byrd Amendment to Correct Constitutional Problem. The Court of International Trade recently held that a domestic producer that opposed the original antidumping investigation can receive monies collected pursuant to an antidumping duty order under the Continued Dumping and Subsidy Offset Act (“CDSOA” or “Byrd Amendment”). SKF USA Inc. v. United States, No. 05-00542, slip op. 06-139 (Sept. 12, 2006). Plaintiff SKF USA is a U.S. and multinational manufacturer of antifriction bearings. It opposed the original 1989 antidumping duty investigation involving antifriction bearings imported from various countries. In 2005, it tried to qualify for disbursements made pursuant to the CDSOA. Its request was first rejected by the International Trade Commission, then by U.S. Customs and Border Protection, because the company failed to qualify under the CDSOA as an “affected domestic producer,” which the statute defined as “a petitioner or interested party in support of the petition with respect to which an antidumping duty order … has been entered.” 19 U.S.C. § 1675c(b)(1) (emphasis added).
SKF USA appealed and the Court held that the CDSOA's requirement that a domestic producer must have supported the original antidumping petition before it can qualify for a disbursement violated Equal Protection guarantees under the Fifth Amendment to the Constitution. The Court found that “[t]o make a distinction between individual producers within an industry is incongruous with the fundamental purpose of the antidumping statute, that is to remedy the injurious affects of dumping to the domestic industry as a whole.” SKF USA at 15 (emphasis in original). Still, the Court decided it was not necessary to invalidate the CDSOA in its entirety because the offending words “in support of” could be severed from the Act and replaced with the words “participated in,” which would allow for the possibility of relief for the entire domestic industry consistent with Congress's intent. Since SKF USA was denied eligibility under the unconstitutional definition of “affected domestic producer,” the Court then remanded the matter to the agencies to review their decisions and to determine, if the company qualified for relief, how to ensure it received its pro rata share of the 2005 CDSOA disbursements.
Part 3: After Doha: Practical Approaches for Cutting the Costs of Trade
Classification Review Update: Importers Winning Classification Cases in the CIT
In the last issue, we talked about the complexity of tariff classification of imported merchandise, as well as the dividends that periodic re-analysis of classification can pay. In the example we provided (pet costumes!), Customs selected a classification with a lower duty rate than the one the importer had chosen. The bad news is that it doesn't always work that way—when confronted with a classification puzzle, Customs frequently selects the classification with the highest duty rate. The good news, though, is that Customs isn't always right, and in recent months the U.S. Court of International Trade (aka “the CIT”) has proven it. Twice.
First, in the case of Rhodia, Inc. v. United States, Slip Op. No. 06-118 (July 28, 2006), Customs had liquidated entries of certain “rare earth carbonate mixtures” as “cerium compounds” at a duty rate of 3.7%, rather than in the duty free “catch-all” category that the importer had proposed. The CIT analyzed the competing classifications and found no merit to Customs' argument. As a result, Rhodia will not have to pay any duty on the entries at issue in the case, nor will it have to pay duties on future entries of the same products.
More recently, in Degussa Corporation v. United States, Slip Op. 06-127 (August 18, 2006), the CIT again rejected Customs' position on a classification. In that case, Customs had argued that certain imported silicon carbide should be classified as an “other chemical” at a 5% duty rate. The CIT disagreed and opted for the classification asserted by the importer—“silicon dioxide,” which can be imported duty-free.
Customs may sincerely have believed that its proposed classifications were correct, or (if you take the cynical view), they may just have been trying to maximize duty revenue. Either way, the fact is that the duty differentials between its proposed classifications and those advanced by the importer were significant, and the Court's holdings represented huge savings for those importers.
We often hear importers repeat the two “golden rules” that Customs likes to repeat:
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Crowell & Moring's Customs lawyers are experienced in all aspects of tariff classification and CIT litigation—for more information on these or other Customs issues, please contact Barry Cohen or Alex Schaefer in Crowell & Moring's Washington, DC office at email@example.com and firstname.lastname@example.org.
Next Week: Special Programs
Crowell & Moring LLP, C&M International and the American University International Business Association present
The 1st Annual International Business Conference Navigating the Risks and Opportunities of the Chinese Market
October 16, 2006, 3:00 pm - 7:00 pm
Keynote Address by John Frisbie, President, U.S.-China Business Council
Doing business in China, one of the world's most dynamic countries, can be an overwhelming endeavor for many U.S.-based businesses. Positioning your company for success while simultaneously managing the significant risks that come with investing in, sourcing from, or selling to China is essential in this important market. Crowell and Moring, C&M International and the American University International Business Association invite you to join us on October 16th for two expert panel discussions on how to navigate the Chinese market (how to form joint-ventures, protect intellectual property, and market products in China, etc.) and how to understand the political and economic forces that shape U.S.-China relations and impact how U.S. businesses operate in China. Our two panel discussions will feature Fortune 500 executives, senior government officials from the Office of the United States Trade Representative and the Department of Commerce, top Crowell lawyers and distinguished academics. Following the panel discussion, a keynote address will be delivered by John Frisbie, President of the U.S.-China Business Council.
For more information on our speakers, please visit www.crowell.com/evite/IBC-invite-III.htm.
To register for the 1st Annual International Business Conference, please respond to email@example.com.
Crowell & Moring LLP with AeA and CCIT present
Globalization's New Road Map: Best Practices and Policies for Growing and Protecting Your International Business
October 26, 2006, 1:00 pm - 5:45 pm with a cocktail reception to follow.
Hyatt Regency Hotel
For more information on topic panels and our speakers or to register to attend this seminar, please visit the web site for this event at www.crowell.com/globalization/.
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.
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