This Month In International Trade - February 2012

THIS MONTH'S TOP FIVE DEVELOPMENTS

1) Congress Passes New Countervailing Duty Legislation Resulting in the Continuation of Countervailing Duties Against China, But at Reduced Rates

On March 6, the House of Representatives approved legislation affirming the Commerce Department's authority to impose countervailing duties (CVDs) on imports from China and other non-market economies (NMEs). The legislation overturns a Dec. 19 ruling by the Court of Appeals of the Federal Circuit in the case of GPX International Tires v. United States, which held that Commerce does not have the authority to impose CVDs on NME imports.

The retroactive effective date of the legislation ensures that 24 ongoing China CVD cases can continue.  Specifically, the legislation provides the following:

EFFECTIVE DATE.—Subsection (f) of section 701 7 of the Tariff Act of 1930, as added by subsection (a) of 8 this section, applies to (1) all proceedings initiated under subtitle A of 10 title VII of that Act (19 U.S.C. 1671 et seq.) on or 11 after November 20, 2006;

The bill also includes measures to ensure the U.S. is in compliance with a ruling by the Appellate Body of the World Trade Organization, which ruled that the Commerce Department must guard against so-called “double counting” of subsidies in cases where Commerce imposes both anti-dumping and countervailing duties on the same NME import.  This section is effective as follows:

EFFECTIVE DATE.—Subsection (f) of section 16 777A of the Tariff Act of 1930, as added by subsection 17 (a) of this section, applies to—
(1) all investigations and reviews initiated pursuant to title VII of that Act (19 U.S.C. 1671 et 20 seq.) on or after the date of the enactment of this 21 Act; and
(2) subject to subsection (c) of section 129 of 23 the Uruguay Round Agreements Act (19 U.S.C. 24 3538).

Commerce has not yet announced a formula for recalculating countervailing duties in such scenarios.  Going forward, we anticipate that Commerce will set forth a proposed double-counting methodology and recalculate countervailing duties on OTR.  In anticipation of this announcement, we expect that a significant number of Chinese exporters will request future administrative reviews to take advantage of the new methodology and reduce their overall trade remedy duty rates.

2) New Agreements and Regulations May Result in a Reduction of Antidumping Duties

On February 6, the Office of the United States Trade Representative (USTR) announced the U.S. signed agreements with the European Union (EU) and Japan regarding the calculation of anti-dumping duties on imported products sold in the United States at less than fair value. When the Department of Commerce uses “zeroing” to calculate dumping margins in administrative reviews (after eliminating its use in original anti-dumping investigations in 2007), it ignores instances where the import price is higher than the domestic price (treating that difference as a zero), which leads to higher average margins and greater duty rates.  Under the new agreements, Commerce will no longer use zeroing in new administrative reviews.  However, it remains to be seen how the agency and the courts will interpret the agreements with regards to past administrative reviews and ongoing cases. 

On February 14, the Department of Commerce also announced a new policy regarding zeroing, which in principle would reduce antidumping duties in future administrative reviews. However, the final zeroing policy announced by Commerce leaves open the possibility that Commerce will continue to using zeroing in certain situations.   Specifically, Commerce anticipates making case-by-case decisions on targeted dumping in reviews, which -- if found -- would effectively reinstate zeroing.   For all practical purposes, Commerce has already reverted to zeroing in investigations by routinely finding targeted dumping.

Given the importance of Commerce’s case-by-case analysis, the real significance of Commerce’s zeroing rule will be established during the recently initiated 129 proceedings. The policies and procedures set forth in those proceedings will provide importance guidance on the practical impact of the final rule.  Under the terms of the agreements with Japan and the EU, Commerce is obliged to publish final decisions in the 129 proceedings within four months.

3) New Sanctions Target the Iranian Financial Sector; General Licenses for Previously Authorized Transactions

On February 6, 2012, the President issued an Executive Order Blocking Property of the Government of Iran and Iranian Financial Institutions. On the same day, OFAC issued General Licenses A and B authorizing, in relevant part, payments through Iranian financial institutions relating to licensed humanitarian exports to Iran.

General License A ensures that transactions involving property and interests in property of the Government of Iran or Iranian financial institutions authorized under general licenses set forth in the Iranian Transactions Regulations, 31 C.F.R. Part 560, are authorized except for closing an Iranian account and transferring the lump sum to the account party. The General License also authorizes all transactions involving property and interests in property of the Government of Iran or Iranian financial institutions authorized under specific licenses (where those licenses have expiration dates) pursuant to any part of OFAC's regulations, 31 C.F.R. Part 500, including licenses for exports of agricultural commodities, medicine and medical devices.

4) Duty-Free Exports To Korea Beginning March 15

On February 21, the Office of the United States Trade Representative (USTR) announced the U.S.-Korea free trade agreement would take effect on March 15. The entry into force of the Korea FTA is a significant opportunity for U.S. exporters; almost 80 of industrial products and two-thirds of agricultural products, exported from the U.S. to Korea, will become duty-free.

Certain industrial products to become duty-free include aerospace equipment, agricultural equipment, auto parts, building products, chemicals, consumer goods, electrical equipment, environmental goods, footwear, travel goods, paper products, scientific equipment, and shipping and transportation equipment. Many agricultural products will also become duty-free, including wheat, corn, soybeans for crushing, whey for feed use, hides and skins, cotton, cherries, pistachios, almonds, orange juice, grape juice, and wine. Korea's new non-tariff obligations include motor vehicle safety measures, environmental standards, regulatory transparency, standard-setting, technology neutrality, customs administration, and stronger intellectual property rights protections.

5) Faster FTZ Approvals?

On February 17, the U.S. Foreign-Trade Zones (FTZ) Board, chaired by the Department of Commerce (Commerce), announce the publication of new regulations which were published in the February 28 Federal Register (77 Fed. Reg. 12,112). The new rule is comprehensive and constitutes a complete revision, replacing the present version of 15 CFR part 400 intended to simplify many of the Board's procedures. Significant changes to the rule included: establishing a combined definition of "production" that incorporates substantial transformation and processing with a reduced timeline for approval moving from one year to four months; limitations on fines for untimely annual reports; streamlining of subzone application requirements; and establishing guidance on grantee liability, uniform treatment, and public utility concerns.

The notice also explains that the new rules are intended to improve flexibility for U.S.-based operations, including export-oriented activity, enhance clarity, and strengthen compliance and enforcement. Additionally, after concerns were raised by industry groups, the new regulations do not single out goods covered by antidumping and countervailing duties for special treatment and streamlined application procedures. A comparison of the old to new regulations is available here: http://ia.ita.doc.gov/ftzpage/letters/newregs.html

THIS MONTH IN TRADE – OTHER NEWS

New FATF Recommendations to Combat Terrorist Financing and Money Laundering; FinCEN Publishes an Advance Notice of Proposed Rule Making Calling for Consolidated Customer Due Diligence Regulations

On February 16, 2012, the Financial Actions Task Force ("FATF") published its revised Recommendations to address anti-money laundering ("AML"), counter-terrorist financing ("CTF") and those involved with the proliferation of weapons of mass destruction. The new 40 Recommendations replace the 40 Recommendations and 9 Special Measures in place since 2001. The FATF also published nine pages in response to the public sector/private sector involvement in the consultation process. The response highlights certain tensions between the FATF and those who must implement the corresponding AML/CTF rules. Financial institutions and Designated Non-Financial Business and Professions ("DNFBPs") have expressed concerns about the implementation of several of the new FATF Recommendations. In sum, financial institutions and DNFBPs are principally concerned with:

• Potential confusion over the flexibility allowed by the new risk based approach to AML/CTF;
• The inclusion of tax crimes as a predicate offense for money laundering;
• The burden and expense of implementing customer due-diligence ("CDD") measures;
• The broad definition of politically exposed persons ("PEPs");
• The failure to clearly define "beneficial owner;"
• Jurisdiction over lawyers, notaries and accountants involved in real estate transactions; and
• Conflicting data privacy laws and the resulting complexity and potential cross-border liability.

The United States Government has cited these new Recommendations in FinCEN's Advance Notice of Proposed Rule Making ("ANPRM"), published February 29, 2012. The ANPRM, in relevant part, solicits public comments on the proposed consolidation of Customer Due Diligence ("CDD") regulations designed to codify, clarify and consolidate existing CDD regulatory requirements. In addition to targeting traditional financial institutions, the ANPRM also announces the intent to include within the concept, at a later date, insurance companies offering covered products, money services businesses, casinos, dealers in precious metals, non-bank mortgage lenders. The ANPRM also calls for the collection of beneficial ownership information - a term that has created much controversy based on its rather amorphous definition.

Antiboycott Settlements Continue To Mount in 2012

Three more U.S. companies settled alleged violations of the U.S.'s antiboycott regulations as the Commerce Department's Office of Antiboycott Compliance ("OAC") continues its recent enforcement push. All three cases involved U.S. companies allegedly furnishing prohibited information - e.g., the blacklist status of a shipping vessel or certificates indicating the products were not of Israeli origin - and two of the cases involved the companies' failure to report the receipt of a boycott-related request. Specifically, Weiss-Rohlig USA LLC paid $8,000 to settle one alleged furnishing and one alleged non-reporting violation; JAS Forwarding paid $19,200 to settle three alleged furnishing violations; and, Rexnord Industries LLC paid $8,000 to settle one furnishing and four non-reporting violations. Rexnord Industries voluntarily disclosed the potential violations.

All three of these cases involved transactions from 2006 and 2007, indicating OAC is continuing its enforcement even for transactions at the outer-edge of the five-year statute of limitations. With 4 settlements already announced in 2012, OAC appears set to surpass the 11 and 12 settlements it announced in 2011 and 2010 respectively.

New EU Sanctions Against Syria

On February 27, the European Union approved additional sanctions against the Syrian government. At a meeting in Brussels, the Council of the European Union: (1) froze the assets of the Syrian central bank, banned trade in gold, precious metals and diamonds with Syrian public bodies, (2) banned certain Syrian carrier cargo flights from EU airport access, and (3) subjected seven Syrian government ministers to asset freezes and visa bans. The new restrictive measures are yet another increase in pressure to force the current regime to end its campaign of violence against its own civilians.

CIT Finds No Gender Discrimination In HTSUS

In Rack Room Shoes et al. v. United States, slip op 12-18 (C.I.T. 2012), the Court again considered whether differing tariff rates for men's clothing articles versus women's (gloves, shoes, etc.), as well as differing rates for comparable children's items, constitute gender and age discrimination in violation of the Equal Protection Clause. The CIT had dismissed similar claims in a prior case and the Federal Circuit had affirmed, holding that since the HTSUS provisions were not facially discriminatory, plaintiffs would have to show a governmental intent to discriminate rather than simply a disparate impact on men and women. In Rack Room Shoes, the Court considered an amended complaint in which plaintiffs attempted to establish such intentional discrimination. It dismissed the case with prejudice, finding that plaintiffs had still not alleged sufficient facts to support a claim that the HTSUS is intentionally discriminatory.

IRS Outlines Rules On "Taxable Medical Devices"

The Internal Revenue Service (IRS) published a Notice of Proposed Rulemaking for proposed regulations providing guidance on the implementation of a 2.3 percent excise tax imposed on the sale of certain medical devices under a provision of the Affordable Care Act (ACA). Section 1491 of the Internal Revenue Code, enacted by section 1405 of the Health Care and Education Reconciliation Act, in conjunction with the patient Protection and Affordable Care Act (jointly, the ACA), imposes an excise tax on the sale of certain medical devices by the manufacturer, producer, or importer of the device in an amount equal to 2.3 percent of the sale price. "Taxable medical devices" include any goods classified under the U.S. Food and Drug Administration's (FDA's) medical device registration requirements, subject to certain exemptions. Comments on the proposed rule are due May 7 and a public hearing is scheduled for May 16.

Certain Faux Suede CAFTA-DR Determination

Effective February 14, the Committee for the Implementation of Textile Agreements (CITA), an interagency group chaired by the Department of Commerce, determined Certain Faux Suede Bonded to Faux Fur Pile Fabric is not available commercial quantities in a timely manner in the US-DR-CAFTA region. The subject fabric was added to the list in Annex 3.25 of the CAFTA-DR.

Textiles determined to be in short supply by CITA and added to CAFTA-DR Annex 3.25 may be sourced outside the CAFTA-DR countries (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua) for use in qualifying textile and apparel products. A fabric on the Annex list may come from a non-CAFTA-DR country, be cut-and-assembled into a garment in a CAFTA-DR country and imported in to the U.S. duty free.

CROWELL AND MORING SPEAKS

Lindsay Denault will speak on a panel about "Facilitating Access to International Markets" at the AICPA International Business Conference, June 11-12, 2012.