This Month in International Trade - October 2015
In this issue:
Obama Administration Releases Full TPP Text
Customs, Imports, and Trade Remedies
Agency Enforcement Actions
Other Agency Actions
Crowell & Moring Speaks
Obama Administration Releases Full TPP Text
On November 5, the Obama Administration released the full text of the Trans-Pacific Partnership (TPP) and notified Congress of its intention to sign the agreement, starting the 90-day Congressional review period mandated under Trade Promotion Authority (TPA) procedures.
U.S. business groups have mostly withheld final judgment on TPP to this point, as have several key Republican members of Congress, including newly-elected Speaker of the House Paul Ryan (R-Wisconsin) and Senate Finance Committee Chairman Orrin Hatch (R-Utah). The support of the Republican leadership in Congress will be important for TPP ratification in the United States. Meanwhile, outspoken critics of TPP, such as Rep. Lloyd Doggett (D-Texas) have already begun rallying support against the agreement.
Crowell, and its trade policy affiliate C&M International, will review the newly released text and alert clients to developments that may affect U.S. business interests.
For more information, contact: Paul Davies, Dj Wolff, Evan Yu
Customs, Imports, and Trade Remedies
U.S. Producers Allege Scheme to Evade Aluminum Extrusion Duties with Aluminum Pallets
On October 22, certain U.S. producers of aluminum extrusions requested that the U.S. Department of Commerce (DOC) issue a scope ruling that aluminum pallets—extruded aluminum lengths welded together into shapes resembling wood pallets produced by China Zhongwang Holdings Ltd. (Zhongwang) and exported to its U.S.-based importer and producer affiliates—be covered by the antidumping (AD) and countervailing duty (CVD) orders on aluminum extrusions from China.
Specifically, the Aluminum Extrusions Fair Trade Committee (AEFTC) requested DOC to determine that Zhongwang's aluminum pallets circumvent the orders such that they should be included within the scope because the pallets are "deliberately manufactured and sized to serve the sole purpose of being remelted and made into other aluminum extrusion products by Zhongwang's affiliated U.S. producers."
If the DOC determines that Zhongwang's aluminum pallets are not covered by the plain language of the scope, AEFTC also alleges that Zhongwang and its affiliates import aluminum extrusions products designated as 5050 aluminum alloy whose chemistries and chemical properties have been manipulated to circumvent the orders.
This is the latest allegation by aluminum producers that Zhongwang has created a scheme to avoid AD/CVD orders on aluminum extrusions throughout the world. At the end of August 2015, U.S. Customs and Border Protection issued instructions that U.S. imports of aluminum extrusions from China that were transshipped from Mexico by Zhongwang and its affiliates were covered by the AD order on aluminum extrusions from China.
For more information, contact: Daniel Cannistra, Alexander Schaefer, and Benjamin Blase Caryl
Round Two: CIT Again Remands Chinese Steel Investigation Results Back to Commerce
For the second time, the U.S. Court of International Trade (CIT) has directed the Department of Commerce (DOC) to reconsider its use of an alternative margin calculation to determine its antidumping (AD) duties on a Chinese importer of steel cylinders. Beijing Tianhai Industry Co. (BTIC) challenged numerous aspects of the DOC's 2012 determination that imposed import duties on high-pressure steel cylinders from China. BTIC was one of the mandatory respondents in the Commerce investigation that began in 2010 when U.S. producer Norris Cylinder Co. complained to the agency about low-priced imports.
Senior Judge Richard K. Eaton explained in his decision that the explanations given by DOC for the alternative margin calculations were insufficient and based upon what is known as a "confirmation bias." Essentially, the DOC used the average-to-transaction method, which takes individual export sales under consideration, when calculating the 6.62 percent dumping margin assigned to BTIC. This is contrary to the standard average-to-average method, which takes into account the weighted average price of comparable products.
According to Judge Eaton, "Commerce's only explanation for using a different method is that because substantial dumping was not found using average-to-average method, but substantial dumping was found using average-to-transaction method, it was permissible for the Department to use the alternative average-to-transaction methodology." The court determined that the DOC method and its determination was unsupported and insufficient.
For more information, contact: Frances Hadfield, Nicholas DeLong
WTO: U.S. Must Comply with China CVD Decision Within Next 14 Months
The WTO dispute settlement panel and Appellate Body in United States—Countervailing Duty Measures on Certain Products from China found countervailing duties (CVD) imposed by the U.S. on certain products from China in 17 CVD investigations initiated between 2007 and 2012 to be inconsistent with several provisions of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement). One of the main issues in the case related to the impact of Chinese state-owned enterprises (SOEs) on trade. Under the SCM Agreement, one of the elements in determining whether a subsidy exists is whether there is a financial contribution by a government or any public body within the territory of a member.
At issue was the method by which the U.S. determined whether Chinese SOEs were public bodies. Mere ownership of an entity by a government is insufficient to render an entity a public body, and further analysis is required to determine whether the entity in question has the authority to carry out governmental functions. Accordingly, it was found that the U.S. incorrectly determined, or did not have a sufficient basis to determine, that certain Chinese SOEs were public bodies within the meaning of the relevant provision of the SCM Agreement in 12 of the 17 CVD investigations. China’s claims against the U.S. findings that certain Chinese SOEs were public bodies capable of providing financial contributions were thus upheld.
Following the Dispute Settlement Body’s (DSB) adoption of the Panel and Appellate Body reports in this case, the U.S. confirmed its intent to implement the DSB’s recommendations and rulings within a reasonable period of time. However, as the U.S. and China could not agree on the actual duration of such reasonable period of time, an arbitrator was designated in accordance with WTO Dispute Settlement Understanding (DSU) rules to resolve the issue. Chinese officials pushed for a 10-month deadline for the U.S. to implement the WTO’s findings, while the U.S. argued for 19 months, highlighting the significant number of affected CVD investigations. Ultimately, arbitrator Georges M. Abi-Saab gave the U.S. 14 and a half months to comply, with the reasonable period of time expiring on April 1, 2016.
For more information, contact: Frances Hadfield, Nicholas DeLong, Charles De Jager
New Trade Cases Filed at the U.S. International Trade Commission
On October 29, TB Wood Incorporated filed antidumping (AD) and countervailing duty (CVD) petitions on low-priced imports of iron mechanical transfer drive components (IMTDC) from Canada and China. IMTDC include sheaves (pulleys), bushings, and flywheels that transmit power within machinery, such as elevators, conveyor belts, and other material handling equipment. This is the first U.S. AD or CVD investigation of such products.
On the same day, Bull Moose Tube Company, EXLTUBE, Wheatland Tube, and Western Tube and Conduit filed AD and CVD petitions on low-priced imports of welded carbon-quality steel pipe (CWP) from Oman, Pakistan, the Philippines, the United Arab Emirates (UAE), and Vietnam. There are already AD or CVD orders in place on U.S. imports of CWP from Brazil, China, India, Korea, Mexico, Taiwan, Thailand, and Turkey.
The U.S. International Trade Commission (ITC) will hold public preliminary conferences on both cases on November 18, in which interested parties (U.S. producers, importers, purchasers, and foreign producers/exporters) may testify and answer ITC staff questions about the IMTDC and CWP industries and markets.
For more information, contact: Benjamin Blase Caryl
Iran Nuclear Deal Adoption Day Reached – Next Step: Implementation Day
Adoption Day, representing 90 days after the United Nations Security Council (UNSC) adopted a resolution endorsing the Joint Comprehensive Plan of Action (JCPOA) and the day on which the JCPOA's parties commitments took effect, occurred on October 18. The U.S. and European Union marked Adoption Day by issuing conditional sanctions waivers and approving a new legislative framework for lifting sanctions, respectively.
In the U.S., the President directed the relevant government departments "to take all necessary steps to give effect to the U.S. commitment with respect to sanctions described in (the Iran deal)." To date, those steps have included:
- The Secretary of State has issued waivers and made findings with respect to relevant statutory sanctions. The contingent waivers exercised and findings made by the Secretary pertain to certain sanctions provided for in relevant sections of the Iran Freedom and Counter-Proliferation Act of 2012, the Iran Threat Reduction and Syria Human Rights Act of 2012, the National Defense Authorization Act for Fiscal Year 2012, and the Iran Sanctions Act of 1996;
- These waivers and findings would apply to certain transactions by non-U.S. persons involving Iran that take place after Implementation Day; and
- These waivers apply to the sectors identified in the JCPOA, namely:
- Transactions with Iran's financial and banking sectors, including the Central Bank of Iran;
- Transactions for the provision of underwriting services, insurance, or reinsurance in connection with activities consistent with the JCPOA;
- Transactions with Iran's energy and petrochemical sectors, including the purchase or sale of petroleum, petroleum products, or petrochemicals or investment in or support to those sectors;
- Transactions with Iran's shipping sector;
- Trade with Iran in precious metals and other metals and software for activities consistent with the JCPOA; and
- Trade with and support for Iran's automotive sector.
The United States is expected to issue regulations in the coming months to provide further clarity regarding the scope of its relaxations.
Similar to the U.S., on Adoption Day, the European Council approved the legislative framework for lifting all of the EU's nuclear-related economic and financial sanctions, as specified in the JCPOA.
For its part, Iran began the task of removing 12,000 centrifuges to be placed in International Atomic Energy Agency (IAEA) monitored storage, shipping 12 tons of low-enriched uranium out of the country, and redesigning the Arak heavy-water reactor.
The next major milestone will be Implementation Day which will occur when the IAEA verifies Iran's compliance with the agreed nuclear-related measures to the UNSC. On Implementation Day, the U.S., EU, and UNSC sanctions waivers will take effect. This is expected to come early next year.
For more information, contact: Cari Stinebower, Salomé Cisnal de Ugarte, Chris Monahan, Dj Wolff, Charles De Jager, Lorenzo Di Masi
UK and EU Publish Amendments to Export Control Laws
On October 8, the UK Export Controls Organization (ECO BIS) amended and updated 23 Open General Export Licenses (OGELs). The new OGELs entered into force on October 19, 2015 (see here).
As a background, OGELs are pre-published licenses for the export to non-sensitive destinations of military and dual-use items determined to pose limited security issues. The main amendments to the OGELs:
- Clarify the Ministry of Defense (MOD) security requirements. These include, most notably, listing the necessary authorizations that need to be granted by MOD in case the license covers security classified goods, software and technology, or in case the license holder intends to release classified information or goods to foreign entities;
- Add South Sudan to the list of prohibited destinations for eight licenses (for example, the OGEL for technology for military goods and the OGEL for software and source code for military goods);
- Update references to the rating codes for ML8 (energetic materials) and PL5001 (security and para-military police goods) of the UK Strategic Export Controls Lists; and
- Revoke permanently the OGEL for international non-proliferation regime decontrols: military items.
In addition to the UK changes, on October 22, the European Commission published a draft updated version of the EU dual-use items control list (Annex I of Regulation 428/2009). The draft updated control list is intended to implement some 100 changes from 2014 arising from the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technology and the Missile Technology Control Regime. These amendments include new controls of machine tools, avionics technology and aircraft wing-folding systems, spacecraft equipment and civil drones as well as the removal from control of certain encrypted information security products (see here for a detailed explanation of the amendments).
The draft updated control list is expected to be approved by the Commission in the next few months following consultations with the European Parliament and the Council of the European Union.
For more information, contact: Cari Stinebower, Salomé Cisnal De Ugarte, Chris Monahan, Dj Wolff, Charles De Jager, or Lorenzo Di Masi
EU Court of Justice Decision on Safe Harbor Leaves Companies in Suspense
On October 6, the Court of Justice of the EU (CJEU) in the Schrems case determined that the current EU-U.S. Safe Harbor Framework does not provide a valid legal basis for transfers of personal data from the EU to the U.S. The Framework has been in place since 2000 to facilitate personal data transfers from the EU to eligible U.S. companies that certified to and complied with the Safe Harbor principles. The elimination of the Safe Harbor leaves many companies to find other more onerous mechanisms to transfer data lawfully from the EU to the U.S.
Under the current EU data protection directive, EU Member States' national data protection authorities have retained a significant degree of independence to enforce the rules strictly. Over the years, the data protection authorities of a number of Member States have imposed fines as a result of enforcement actions. Member States' regulators have now issued some guidance but also stated their intent to oversee data transfers more strictly, issuing fines and blocking transfers, as needed, if the EU and U.S. do not reach a new agreement by the end of January 2016.
In discussions with their EU counterparts since the CJEU's judgment, U.S. officials are reportedly committing to stronger oversight by the U.S. Commerce Department and greater cooperation between the Federal Trade Commission and EU regulators to address complaints. The intent is to move from a system based on self-regulation to one based on oversight, including enforcement and sanctions. The passage of the USA Freedom Act, which imposes new limits on data collection by U.S. intelligence agencies, may help in this context.
In addition, the European General Data Protection Regulation (GDPR) is in the final phases of the EU legislative process. The GDPR is intended to replace the current EU data protection directive with one unified framework. If approved, the GDPR would streamline compliance but also increase fines for infractions. Although U.S. industry sources have welcomed the predictability the GDPR would provide once finalized and implemented, they have also expressed concern about its apparent emphasis on the minimization of data collection by companies.
For more information, contact: Charles De Jager
OFAC Blacklists Honduran Entities; Releases General License Authorizing Certain Transactions
On October 7, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) announced the designation of three Honduran individuals as Specially Designated Narcotics Traffickers pursuant to the Foreign Narcotics Kingpin Designation Act for providing money laundering and other services that support international narcotics trafficking activities.
In addition, OFAC designated seven companies located in Honduras for being owned by the blocked individuals. These companies include Banco Continental S.A. and Inversiones Continental, S.A. de C.V. (also known as Grupo Financiero Continental). The latter company appears to also own 50 percent or more of Seguros Continental S.A., which would make the latter entity also designated by operation of law.
On October 11, the Government of Honduras informed OFAC that it had initiated proceedings to liquidate Banco Continental S.A. In response, OFAC issued a statement announcing that it would allow for the liquidation of the bank; and on October 21, issued a general license authorizing certain liquidation and wind-down transactions through December 12, 2015.
On October 22, OFAC issued another statement allowing transactions related to the Government of Honduras' move to seize shares of Seguros Continental S.A. In particular, OFAC authorized transactions by non-U.S. persons that are necessary to facilitate the seizure and maintenance of operations of the Honduran company. Transactions involving U.S. persons or within the jurisdiction of the U.S. remain prohibited unless specifically authorized by OFAC or unless they occur at a point when Seguros Continental S.A. is no longer owned 50 percent or more by one or more of the blocked persons.
For more information, contact: Cari Stinebower, Chris Monahan, J.J. Saulino, Eduardo Mathison
U.S. Launches Investigations into Venezuela's PDVSA on Corruption
U.S. authorities have reportedly launched a series of investigations into executives of the state-owned oil company Petróleos de Venezuela (PDVSA) over allegations of corruption and money laundering.
According to reports, the investigations center on high and mid-level Venezuelan government officials – including PDVSA – who have allegedly been using shell companies, fake contracts, and import schemes to hide the illicit movement of billions of dollars. Last January, a Venezuelan hedge fund operator, Francisco Illarramendi, was sentenced by the U.S. District Court for the District of Connecticut to 13 years in prison for running corruption schemes involving PDVSA's pension funds. Also, last March the Treasury Department raised concerns about the Andorran bank, Banca Privada d'Andorra, for being a channel for money-laundering schemes operated by Venezuelan officials.
On March 8, President Obama issued an Executive Order (E.O.) enacting a new sanctions program on Venezuela, and imposing sanctions on seven Venezuelan officials responsible for human rights abuses. Importantly, the E.O. provided new criteria for imposing sanctions on individuals involved in public corruption. As such, the new investigations could result in action against high-ranking Venezuelan officials suspected of corruption, including Rafael Ramírez, former president of PDVSA who currently serves as Venezuela's ambassador to the United Nations. For more details, please see Crowell's Client Alerts on the Implementation of the Venezuela Sanctions Program and the Publication of Venezuela Sanctions Regulations.
These sanctions are in addition to the sanctions already imposed on PDVSA pursuant to the Iran Sanctions Act (ISA). In 2011, the U.S. imposed sanctions on PDVSA for allegedly engaging in activities in support of Iran's energy sector. These sanctions, however, do not apply to PDVSA subsidiaries and only prohibit certain activities before U.S. agencies.
Although PDVSA has not yet been sanctioned under the Venezuela sanctions program and there is no indication that it is linked with any of the sanctioned persons, the investigations into PDVSA officials could potentially affect companies doing business with PDVSA.
For more information, contact: Cari Stinebower, J.J. Saulino, Dj Wolff
AGENCY ENFORCEMENT ACTIONS
U.S. and New York State Multi-Agency Action
- Crédit Agricole Corporate and Investment Bank (CACIB), a corporate and investment bank owned by Crédit Agricole S.A. and headquartered in Paris, agreed to forfeit $312 million and enter into a deferred prosecution agreement with the U.S. Attorney's Office of the District of Columbia for CACIB's violations of the International Emergency Economic Powers Act (IEEPA) and the Trading With the Enemy Act (TWEA).
Office of Foreign Assets Control (OFAC)
- On October 27, Gil Tours Travel, Inc. (Gil Travel), of Philadelphia, Pennsylvania, agreed to pay $43,875 to settle potential civil liability for apparent violations of the Cuban Assets Control Regulations (CACR). Between October 21, 2009 and August 19, 2010, Gil Tours appears to have violated the CACR when it dealt in property in which Cuba or Cuban nationals had an interest, by providing Cuba travel-related services involving 191 individuals, without authorization from OFAC.
Bureau of Industry and Security (BIS)
- On October 7, BIS amended the Export Administration Regulations (EAR) by adding twelve (12) persons to the Unverified List (UVL), adding additional addresses for four (4) persons currently listed on the UVL, and removing two (2) persons from the UVL The 12 persons are being added to the UVL on the basis that BIS could not verify their bona fides because an end-use check could not be completed satisfactorily for reasons outside the U.S. Government's control.
- The new entries consist of one person located in Canada, one person located in the Czech Republic, one person located in Georgia, four persons located in Hong Kong, and five persons located in the United Arab Emirates.
- On October 26, three individuals working for Arc Electronics, Inc., a Houston-based corporation, were convicted of conspiring to export, and illegally exporting, controlled microelectronics to Russia. One of the three was also convicted of money laundering conspiracy. Originally, eight individuals were charged in October 2012, but five previously pled guilty to related charges.
- The microelectronics shipped to Russia included analog-to-digital converters, static random access memory chips, microcontrollers and microprocessors. These commodities have applications, and are frequently used, in a wide range of military systems, including radar and surveillance systems, missile guidance systems and detonation triggers. Russia does not produce many of these sophisticated goods domestically.
Securities and Exchange Commission (SEC)
- On October 5, the Securities and Exchange Commission (SEC) charged New York-based pharmaceutical company Bristol-Myers Squibb with violating the Foreign Corrupt Practices Act (FCPA) when its joint venture in China made cash payments and provided other benefits to health care providers at state-owned and state-controlled hospitals in exchange for prescription sales.
- Without admitting or denying the SEC's allegations, Bristol-Myers Squibb consented to the order and agreed to return $11.4 million of profits plus prejudgment interest of $500,000 and pay a civil penalty of $2.75 million;
- The company also agreed to report to the SEC for a two-year period on the status of its remediation and implementation of FCPA and anti-corruption compliance measures.
For more information, contact: Edward Goetz
OTHER AGENCY ACTIONS
Office of Foreign Assets Control (OFAC)
- OFAC issued General License No. 2 with Respect to Executive Order 13405 of June 16, 2006, "Blocking Property of Certain Persons Undermining Democratic Processes or Institutions in Belarus."
- Effective October 30,2015, all transactions otherwise prohibited by Executive Order 13405 involving the following named entities, or any entities that are owned, individually or in the aggregate, directly or indirectly, 50 percent or more by one or more of the following named entities, are authorized:
- Belarusian Oil Trade House
- Belneftekhim USA, Inc.
- Belshina OAO
- Grodno Azot OAO
- Grodno Khimvolokno OAO
- Lakokraska OAO
- Naftan OAO
- Polotsk Steklovolokno OAO
U.S. Customs and Border Protection (CBP)
- On October 13, CBP posted an interim final rule in the Federal Register on "Automated Commercial Environment (ACE) Filings for Electronic Entry/Entry Summar[ies] (Cargo Release and Related Entry)."
- Regulations will be amended to reflect that as of November 1, 2015, the Automated Commercial Environment (ACE) is a CBP-authorized Electronic Data Interchange (EDI) System;
- ACE will replace the Automated Commercial System (ACS) as the CBP-authorized EDI system for processing commercial trade data;
- The interim final rule is effective on November 1, 2015; and
- Written comments must be submitted on or before November 12, 2015.
- On October 15, Secretary of Homeland Security Jeh Johnson and Mexican Secretary of Finance and Public Credit Luis Videgaray Caso signed a memorandum of understanding formalizing the U.S.-Mexico Cargo Pre-Inspection Program.
- The Cargo Pre-Inspection Program allows U.S. Customs and Border Protection (CBP) officers and Mexican Customs officers to work side-by-side to facilitate the flow of goods across the border.
- Department of Homeland Security worked in close coordination with the Mexican Ministry of Finance and Public Credit to develop the Cargo Pre-Inspection Program, which will formally begin operations at the Laredo International Airport in Laredo, Texas and the Mesa de Otay Customs Facility in Baja California, Mexico this year.
- A third site is planned for San Jerónimo, Chihuahua.
Directorate of Defense Trade Controls (DDTC)
- On October 9, DDTC published an Industry Notice extending the transition timeline for Export Control Reform (ECR). Previously, the Transition Plan for ECR advised that certain licenses, authorizations, and agreements would remain valid for a period of two years from October 3, 2013, the effective date of the final rule implementing the initial revisions of ECR. The Updated Guidance may be found here and is summarized below.
- Licenses or authorizations tuhat would otherwise expire at the conclusion of the referenced two-year period will remain valid for 48 months from the date of issuance, or as otherwise indicated on the license or authorization; and
- For agreements that wold otherwise expire at the conclusion of the referenced two-year period, DDTC is extending the period of validity by one year.
- On October 13, Mr. Brian Nilsson became Deputy Assistant Secretary (DAS) of State for Defense Trade Controls at the U.S. Department of State in the Bureau of Political-Military Affairs, Directorate of Defense Trade Controls.
- Mr. Nilsson has served for the past seven years on the White House National Security Council as the Director of Nonproliferation and Export Controls, chairing the White House Export Control Reform Task Force;
- Mr. Anthony Dearth, who had been serving as the Acting DAS for the past three and half months, will return to his duties as Director of the Office of Defense Trade Controls Licensing.
For more information, contact: Edward Goetz
CROWELL & MORING SPEAKS
Crowell & Moring was an official sponsor of WorldECR's Washington, D.C. and London Export Controls and Sanctions Forums this fall. Alan Gourley and Dj Wolff were presenters at both the Washington, D.C. forum in September and the London forum in October.
Frances Hadfield was a panelist on an October 20 webinar sponsored by the United States Fashion Industry Association titled "The Fusion of Fashion & Technology: The Emerging Legal Landscape for the Fashion Industry in the Digital Media Age." Other panelists included Cheryl A. Falvey and Lora A. Moffatt.
Frances Hadfield presented on "Protecting Your Fashion Brand Against Counterfeiting By Using U.S. Customs and Border Protection's E-Recordation System" at China.Net: A Global Marketplace Revolution in Chicago on October 23.
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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.