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This Month In International Trade - July 2012

Aug.10.2012

THIS MONTH'S TOP FIVE DEVELOPMENTS

1) Russia Completes Ratification of WTO Accession; U.S. Congress Delays on PNTR

On July 10, the State Duma ratified Russia's protocol of accession to the World Trade Organization. The Federation Council, the Russian parliament's upper house, passed the measure on July 10, paving the way for signature by President Putin on July 21. With the completion of these steps, Russia will officially become a WTO member on August 22.

However, U.S. businesses, investors, and farmers will not see the full benefit from Russia's membership unless Congress repeals the application to Russia of the Jackson-Vanik Amendment and enables the United States to grant Russia permanent normal trade relations (PNTR). Not only will U.S. firms be unable to take advantage of specific market access and other concessions, they also will find themselves at an immediate disadvantage in competing with firms from other WTO member states.

The Benefits of Accession: Russia's accession offers substantial benefits to foreign exporters, investors, and farmers. Russia will have to implement a number of specific market access commitments, both by lowering bound tariff rates on agricultural and industrial products, and by opening specific services markets to foreign competition. New tariff rates will apply in key sectors including automobiles, civil aircraft, medical devices, and many others. Russia also has committed to join the Information Technology Agreement, which aims to eliminate tariffs on critical IT products. And Russia has committed to opening markets in key services sectors including telecommunications, financial services, and energy services.

Moreover, Russia's accession will mean that Russia is bound by the WTO system of established and enforceable trade rules. Beyond the basic obligations of most favored nation and national treatment, Russia will be required to implement WTO-consistent measures in areas including technical barriers to trade, intellectual property protection, anti-dumping, subsidies, and customs measures. Russia also has taken specific commitments requiring state-owned enterprises to operate on the basis of commercial considerations. The implementation of all these commitments will be subject to binding dispute settlement once Russia becomes a member.

U.S. Firms Disadvantaged: Unless Congress acts to repeal Jackson-Vanik, U.S. companies will only partially benefit from the Russia's accession, and even that benefit will not be assured. While the United States will be entitled to MFN tariff treatment under the terms of an existing bilateral trade agreement, Russia's new commitments on services market access and specific rules will not apply. Russia will be obliged to conform its trade regime to WTO rules, but the U.S. government will not have recourse to the WTO's dispute settlement provisions to compel Russia to implement its commitments.

U.S. companies and investors will find themselves at an immediate disadvantage as their competitors, including China, India, and the European Union, take immediate full advantage of market opening and other benefits that, in many cases, resulted from the efforts of U.S. government negotiators.

Repealing Jackson-Vanik: The White House strongly supports legislation to repeal the application to Russia of Jackson-Vanik. While two key Congressional committees took steps in July to advance legislation to accomplish this objective, the timing of final action on these bills was uncertain as of the end of July. Strong business community support in favor of rapid final votes was balanced by the emergence of opposition from U.S. labor unions. Democratic and Republican lawmakers appeared to share anxiety about casting votes on the Jackson-Vanik issue against the backdrop of controversy over Russia's support of Syria. The dynamics surrounding this issue are further complicated by virtue of proposals linking the repeal of Jackson-Vanik to passage of legislation sanctioning certain Russian officials implicated in the death of Sergei Magnitsky, a prominent whistleblower (the Sergei Magnitsky Rule of Law Accountability Act). Russian officials, including President Putin, have excoriated the Magnitsky Act, which they consider unacceptable meddling in Russia's internal affairs. The Administration opposes the legislation, but is considered likely to accept it if necessary.

Firms that stand to benefit from Russia's accession may wish to urge their Senators and Representatives to take immediate action to repeal Jackson-Vanik. Failure to do so does not penalize Russia; rather, it disadvantages America by making U.S. firms less competitive in the Russian market and by depriving them of essential tools available to their foreign competitors. Beyond assistance with the immediate fight over Jackson-Vanik, our professionals can assist companies and trade associations in navigating the myriad implications of Russia's WTO accession for their business activities, and ensuring that they get in practice the advantages to which they are entitled.

2) OFAC Authorizes Exports of Financial Services to and New Investment in Burma

On July 11, 2012, the United States Government lifted some of the sanctions on Burma by removing restrictions prohibiting U.S. persons from exporting financial services to or investing in Burma. It is anticipated that the Special Measures prohibiting U.S. financial institutions from opening, operating or maintaining correspondent or payable-through relationships with banks in Burma also will be removed.1 Nonetheless, significant compliance obligations remain. U.S. companies and non-U.S. companies with a nexus to the United States should enter the Burmese market only after conducting a risk assessment and implementing compliance measures to mitigate against potential exposure to sanctioned parties, corrupt practices, and/or money laundering, among other risks, and to comply with reporting requirements for authorized investments.

For more information, please click here to read our prior client alert.

3) ITC Proposes Comprehensive Changes to its Rules of Practice and Procedure

On July 12, the International Trade Commission (ITC) issued a comprehensive proposal to overhaul its rules of Practice and Procedure. The ITC's proposal is aimed at streamlining Section 337 investigations and clarifying existing ambiguity in the rules. If adopted as proposed, the most significant changes would affect written discovery, depositions, pre-institution amendments and petitions for review.

For more information, please click here to read the prior client alert.

4) Benefiting from the Investment Rules in a Transatlantic Free Trade Agreement

As the United States and European Union potentially undertake the hard work of negotiating a high-standard and commercially meaningful investment agreement in the context of a comprehensive U.S.-EU free trade agreement (FTA), companies with a stake in either market have the opportunity to realize significant and varied benefits, for example in the following areas:

Market access: One of the core issues in a U.S.-EU investment negotiation would relate to market access, i.e., the extent to which either side permits the other side's companies to invest in sectors that have been largely closed in the past. For example, both sides would have to decide whether to permit greater foreign ownership in certain key services sectors, such as maritime transportation and aviation for the United States and audiovisual services for the EU. The United States would also come under pressure to identify and remove investment restrictions at the state and local government level, which previously have not been subject to negotiation. Increased market access in these and other sectors could mean substantial new investment opportunities for companies investing across the Atlantic.

Regulatory transparency: A critical factor affecting companies' decisions to invest across borders is whether the "rules of the road" are clear and understandable. While both the United States and the EU currently have good levels of regulatory transparency, binding bilateral investment rules could improve transparency even further for transatlantic investors (and third country investors as well, who would likely also benefit from improved rules). A U.S.-EU investment agreement would likely require both sides to publish investment-related regulations in advance of their going into force, allowing companies to anticipate changes to the regulatory environment and have opportunities to provide comments. Such advance notice would be especially valuable for U.S. companies investing throughout an EU of 27 member states, many of which still have their own domestic transparency standards.

Enforcement of rights: U.S.-EU investment rules would almost certainly provide for "investor-State arbitration," a powerful tool allowing companies to directly enforce their rights against host governments in binding and neutral international arbitration. While both the United States and EU have high-standard judicial systems that generally operate fairly and expeditiously, companies would benefit greatly from this additional remedy. A European company that grew concerned about how it was being treated by a state or local government in the United States would have an additional point of leverage. And a U.S. firm investing in an EU member state with a less favorable track record for judicial efficiency could hold the EU itself to account for a failure to protect its rights.

Investment is fundamental to the U.S.-EU economic relationship, and European and American firms have invested in each others' markets smoothly and successfully for decades. Nevertheless, a transatlantic agreement on investment could create important additional benefits for internationally engaged companies. Along with the many other areas of a U.S.-EU FTA where their interests would be affected, companies should ensure that they fully appreciate how newly negotiated investment rules could influence their business plans.

5) USTR Opens 2012 Petition Process for Duty Free Treatment Under GSP; President Expands Duty Free Treatment for Monitor Imports

The Office of the U.S. Trade Representative (USTR) announced on July 27, 2012 that it would begin accepting petitions to modify the list of products eligible for duty free treatment under the Generalized System of Preferences (GSP) program.

The GSP provides for duty free treatment of imports of specified products from certain beneficiary developing countries as a means of promoting economic growth in those countries. USTR conducts an annual review of the list of eligible products as well as eligible countries. Interested parties may submit petitions to designate additional products as eligible for GSP benefits or to suspend or limit application of duty free treatment to GSP-eligible articles. Petitioners must submit their requests by October 5, 2012.

Earlier this summer, the White House announced that it would remove Gibraltar, as well as Turks and Caicos, from GSP eligibility, as both are now considered "high income countries" as defined by the World Bank. Their removal becomes effective in 2014. Meanwhile, Senegal will be added to the list of "least developed beneficiary developing countries" for purposes of the GSP, effective 60 days after publication in the Federal Register.

In Proclamation 8840 the President modified the Harmonized Tarff Schedules of the United States (HTS), changing the definition of monitors and expanding duty free treatment on these imports effective July 1, 2012. Monitors are classified under HTS subheading 8528.59. In the past, only monitors that were solely or principally used in automatic data processing machines (ADPs) as defined by the HTS were eligible for duty free treatment. Monitors that had multiple uses, or were used with machines that were not considered to be ADPs (e.g., standard computers), were subject to a five percent duty.

The President has changed note 13 to chapter 85 to make clear that monitors "capable of displaying signals or data from devices other than ADP machines" may now be imported duty free. U.S. Customs and Border Protection (CBP) will be issuing guidelines on how these changes to the HTS should be implemented by the ports.

THIS MONTH IN TRADE – OTHER NEWS

BIS Annual 'Update' Conference: Export Controls Reform Continues Apace

The Commerce Department's Bureau of Industry and Security (BIS) held its annual Update conference in Washington, DC, on July 17-19. Speakers included FBI Director Robert Mueller, Acting Commerce Department Secretary Rebecca Blank, Commerce Undersecretary Eric Hirschhorn, Commerce Assistant Secretary Kevin Wolf, Assistant Secretary of State Andrew Shapiro, and numerous other U.S. export control officials. The focus of the conference was on the wide-ranging Export Control Reform (ECR) initiated by the Obama Administration in 2010. Export control agencies are currently focused on formulating the mechanics of ECR, including establishment of a "positive" U.S. Munitions List (USML), with bright lines on jurisdiction between the USML and the Commerce Control List (CCL). Apart from ECR, BIS officials stated they are reviewing broad technology-related policy issues, such as controls on radiation-hardened integrated circuits and high-performance computers and treatment of cloud computing.

State and Commerce export control officials are working with members of Congress to prepare for the first notification under Section 38(f) of the Arms Export Control Act later this year to move certain items controlled on the USML deemed to be militarily less significant to the CCL. The first revised USML categories that will be notified to Congress will be Category VIII (Aircraft) and Category XIX (Gas Turbine Engines). Under proposed rules, items that move from the USML to the CCL will fall into a new "600" series on the CCL. Once final rules are issued to transfer a given set of items from the USML to the CCL, there will be a period, proposed to be two years, during which exporters may continue to use existing State Department export authorizations for those 600-series items or seek a new license under BIS rules. Unless changes are required to an exporter's State Department license prior to the two-year mark, the license holder will be required to seek authorization under BIS regulations at the end of the two-year period.

With regard to License Exception Strategic Trade Authorization (STA) in the Export Adminsitration Regulations (EAR), BIS issued proposed revisions on June 21, 2012; the deadline for comments on the revisions is August 6, 2012. Among the proposed revisions is a requirement that all foreign parties to a transaction under STA must have been previously approved on a BIS or DDTC license. In addition, the Consignee Statement that U.S. exporters must obtain for STA use must include confirmation by the foreign consignee that the ultimate end-use of an item is by one of the eligible foreign governments or the U.S. Government; and the consignee agrees to an end-use check by the U.S. Government. The revisions also include the requirement that all shipments under STA and all shipments of 600 series items, regardless of value, be filed in AES. Currently, unlicensed exports under the EAR valued at less than $2,500 do not require AES filing. Officials stated that agencies are working on modifications to AES, including a means to confirm that STA shipments for 600-series items involve only previously approved foreign parties. The new BIS Munitions Control Division (MCD), under Director Todd Willis, will review license applications for 600-series items. MCD has filled 18 of its positions to date; 70 percent of the current hires have DoD experience.

Presentations from the conference are available on the BIS website here.

EU Requests WTO Consultations on Argentina's Import-Licensing Regime

On May 25, 2012, the European Union (EU) requested consultations under the auspices of the World Trade Organization (WTO) with Argentina with respect to certain import requirements Argentina has recently imposed as part of its "re-industrialization" policies. Amongst others, the EU has challenged Argentina's requirements that: (1) imported goods be subjected to a presentation for approval before import; (2) imported goods are subject to various licensing requirements; (3) importers are required to undertake certain commitments including offsetting imports with exports, increasing local content, or limiting imports before importation is permitted; and (4) these requirements are being administered in non-transparent ways. The EU argues that these measures discriminate between imported and domestic goods and do not relate to the implementation of an objective which can be justified under the WTO.

The request for consultations comes less than two months after Argentina's decision to nationalize YPF, Argentina's biggest oil company and a subsidiary of Repsol, a Spanish company. In March, 19 countries including the U.S., the EU, South Korea, and others criticized Argentina's import-licensing regime at a WTO Trade in Goods Council meeting, potentially foreshadowing additional parties to the dispute. Under the WTO, the EU and Argentina now have 60 days to negotiate a mutually agreeably resolution to the dispute. If after that time a settlement is not reached, the EU can request the initiation of a three person WTO Dispute Panel. To partake in the benefits of a decision by the panel providing the authorization to retaliate, additional countries would need to formally join the dispute proceedings.

New EO and OFAC Sanctions re Iran

On July 23, President Obama signed an Executive Order (EO) providing new sanctions authorities to the Department of the Treasury and the Department of State. The EO authorizes the imposition of sanctions on financial institutions that knowingly conduct or facilitate transactions related to petroleum products. The EO specifically targets the National Iranian Oil Company (NIOC), Naftiran Intertrade Company (NICO), the Central Bank of Iran and the Government of Iran in providing authority to Treasury to block property and interests in property for any person involved in specific transactions with those entities. Section 5 of the EO also authorizes the imposition of sanctions on persons who have engaged in transactions with NIOC, NICO or the Central Bank of Iran.

In addition, the Office of Foreign Assets Control (OFAC) imposed sanctions on Bank of Kunlun in China and Elaf Islamic Bank in Iraq under the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA). The two financial institutions were sanctioned for knowingly facilitating significant transactions or providing significant financial services for designated Iranian banks. The sanctions bar Bank of Kunlun and Elaf Islamic Bank from accessing the U.S. financial system - U.S. financial institutions must close any correspondent or payable-through accounts held for those two entities.

Hong Kong Halves Import and Export Declaration Charges

Beginning August 1, 2012, the import and export declaration charges in Hong Kong will be reduced by 50%. The new import declaration charges will be $0.2 for the first $46,000 of goods and then $0.125 for each additional $1,000 for non-food items and $0.2 for food items. For exported goods, the declaration charges will be $0.2 for the first $46,000 of goods and then $0.125 for each additional $1,000. Exempted articles from the declaration charges remain unchanged, as do the tariff rates on liquor, tobacco, hydrocarbon oil and methyl alcohol.

ENFORCE Act Passes Senate Finance Committee

On July 18, the Senate Finance Committee approved the Enforcing Orders and Reducing Customs Evasion Act (ENFORCE Act) to require U.S. Customs and Border Protection (CBP) to investigate the possible evasion of anti-dumping and countervailing duties by importers. The proposal amends the Tariff Act of 1930 with the addition of Section 517 requiring CBP to initiate investigations within 10 business days after receipt of allegations or referrals from U.S. producers or other Federal agencies. If CBP makes an affirmative determination of evasion by the importer, CBP shall suspend liquidation of covered merchandise, notify the Department of Commerce and request Commerce determine appropriate duty rates, require importers to post cash deposits, and take additional measures as necessary.

USTR Requests 332 Investigation of ICT Products; WTO Expanded ITA?

On July 31, the United States Trade Representative (USTR) filed a "Section 332" request with the United States International Trade Commission (USITC) to conduct an investigation under Section 332(g) of the Tariff Act of 1930 regarding information and communications technology (ICT) products, including computers and peripheral equipment, communications equipment, consumer electronics and electronic components. Under Section 19 U.S.C. § 1332(g), the USITC conducts fact-finding inquiries to determine the effect of customs laws, tariffs, treaties and conditions of competition on U.S. industries. The investigation request is likely connected to the ongoing Information Technology Agreement (ITA) negotiations in the World Trade Organization (WTO); the resulting evidence and reports would provide guidance to the USTR in those negotiations.

WTO members have been negotiating to expand coverage of the ITA. The current ITA requires the elimination of tariffs for over 150 technology products including computers, communications equipment and semiconductors. The agreement could be expanded to cover hundreds of additional products such as television cameras, liquid crystal display (LCD) monitors, various integrated circuits and batteries, smart cards, optical fibers and light-emitting diode (LED) products. WTO members are scheduled to continue the review of ITA products during September discussions in Geneva.

Companies interested in expanded ITA coverage should consider filing comments or participating in a possible Section 332 investigation and monitor the Federal Register for notices related to this pending investigation.

Barnett Nominated For CIT

On July 12, President Obama nominated Mark Barnett to serve on the U.S. Court of International Trade (CIT).

Mark A. Barnett has worked as an attorney in the Office of Chief Counsel for Import Administration at the United States Department of Commerce since 1995, the last seven years as Deputy Chief Counsel. From 2008 to 2009, Barnett served as Trade Counsel for the Subcommittee on Trade, United States House of Representatives Committee on Ways and Means. Prior to joining the Department of Commerce, Barnett was an associate at the law firm of Steptoe & Johnson from 1988 to 1995. He received his J.D. cum laude in 1988 from the University of Michigan Law School and his B.A. magna cum laude in 1985 from Dickinson College.

USITC Releases Annual Trade Report

On July 18, the U.S. International Trade Commission (USITC) released its annual overview of the previous year's trade-related activities, The Year In Trade 2011. The comprehensive report covers trade cases, U.S. trade in goods and services, and other trade-related activities, including:

  • The operation of U.S. trade preference programs, including the U.S. Generalized System of Preferences, the African Growth and Opportunity Act, the Andean Trade Preference Act, and the Caribbean Basin Economic Recovery Act, including initiatives for Haiti
  • Significant activities in the World Trade Organization (WTO), including dispute settlement decisions; the Organization for Economic Cooperation and Development; and the Asia-Pacific Economic Cooperation forum
  • Overviews of the U.S. free trade agreements with Columbia, Korea and Panama
  • Developments regarding the North American Free Trade Agreement, other U.S. free trade agreements (FTAs), and the negotiation of the Trans-Pacific Partnership Agreement
  • Bilateral trade issues with major U.S. trading partners – the European Union, Canada, China, Mexico, Japan, Korea, Brazil, Taiwan, India and Russia The Year in Trade 2011 (USITC Publication 4336, July 2012) is available on the USITC's website; requests for CD-ROM or printed copies may be sent to pubrequest@usitc.gov.

CBP Announces East Coast Symposium

U.S. Customs and Border Protection (CBP) will hold the 2012 East Coast Trade Symposium in the Washington D.C. area on September 27-28. To allow a wide range of companies to participate in the event, CBP is limiting each company to three representatives. More details on location and registration will be available soon.

CROWELL AND MORING SPEAKS

Jonathan (Josh) S. Kallmer will speak on "The Nuts and Bolts of Treaties: Negotiation, Ratification and Interpretation" at the International Chamber of Commerce's Seventh Annual New York Conference: Arbitration with States and State Entities under the ICC Rules in New York City, September 10, 2012.

John B. Brew will be speaking on "Getting Customs Valuation Right" and moderating a panel on "Key Government Agencies" at the American Conference Institute (ACI)'s U.S. Customs Compliance "Boot Camp" at the Washington Plaza Hotel, November 27-28, 2012, in Washington, D.C. Please note: Crowell clients attending ACI events receive a discount; please contact your Crowell representative for details.

Cari N. Stinebower will speak on "Doing Business in Burma/Myanmar: What You Can and CANNOT Do Under New, Eased Sanctions Restrictions," at ACI's OFAC Boot Camp, in New York City, December 5-6, 2012.

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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

John B. Brew
Partner – Washington, D.C.
Phone: +1 202.624.2720
Email: jbrew@crowell.com
Kathryn L. Clune
Partner – Washington, D.C.
Phone: +1 202.624.2705
Email: kclune@crowell.com
Cari N. Stinebower
Partner – Washington, D.C.
Phone: +1 202.624.2757
Email: cstinebower@crowell.com
Ian A. Laird
Partner – Washington, D.C.
Phone: +1 202.624.2879
Email: ilaird@crowell.com
Jini Koh
Counsel – New York
Phone: +1 212.803.4065
Email: jkoh@crowell.com
Elena Klonitskaya
Counsel – Brussels
Phone: +32.2.214.2893
Email: eklonitskaya@crowell.com
James (J.J.) Saulino
Associate – Washington, D.C.
Phone: +1 202.624.2717
Email: jsaulino@crowell.com
David (Dj) Wolff
Counsel – Washington, D.C.
Phone: +1 202.624.2548
Email: djwolff@crowell.com