THIS MONTH'S TOP FIVE DEVELOPMENTS

1) Administration Continues Efforts to Reform Export Controls

The Administration took further steps towards reforming U.S. export controls in June, with additional proposed revisions to the U.S. Munitions List ("USML") and Commerce Control List ("CCL"), as well as a new proposed definition for "specially designed" and proposals for a reform implementation transition plan.  The proposed rules mark continued progress toward the Administration's goal of a unified control list. To date, DDTC and BIS have coordinated to propose revisions to nine of the existing 21 active and reserved USML categories.

Proposed Changes to USML Category X. 

On June 7, 2012, the Department of State's Directorate of Defense Trade Controls ("DDTC") published a proposed new USML Category X addressing personal protective equipment and shelters to describe more precisely the materials warranting control on the USML.  The Department of Commerce's Bureau of Industry and Security ("BIS") issued a related proposed rule on the same day describing how articles transitioned from Category X would be controlled under the CCL in new Export Control Classification Numbers ("ECCNs") 1A613, 1B613, 1D613, and 1E613.  In conjunction with establishing these new ECCNs, BIS's proposed rule would control military helmets (currently controlled under ECCNs 0A018 and 0A988) under new ECCN 1A613 and amend ECCN 1A005, which addresses certain body armor. The proposed rule also would remove machetes from ECCN 0A988. Comments on the June 7th proposed rules are due by July 23, 2012.

Proposed Changes to USML Category IX. 

On June 13, 2012, DDTC proposed revisions to USML Category IX.  First, the proposed rule would change the title of Category IX from "Military Training Equipment and Training" to "Military Training Equipment" to clarify that training on a defense article would be a defense service covered under the category in which the defense article is enumerated. Additionally, the proposed rule attempts to more accurately describe the articles within Category IX. The proposed rule would also group all controlled training equipment into a positive list at paragraph (a) and all controlled simulators into a positive list at paragraph (b). The proposed text moves certain generators to other USML categories and shifts the coverage of related production, tooling equipment, generic parts, components, accessories, and attachments to the CCL.

BIS issued a related proposed rule on the same day describing how items in the current Category IX that no longer warrant control on the USML would be controlled on the CCL in new ECCNs 0A614, 0B614, 0D614, and 0E614. Comments on the June 13th proposed rules are due by July 30, 2012.

Proposed Definition for "Specially Designed." 

On June 19, 2012, in parallel rules, DDTC and BIS proposed a new definition for the term "specially designed" to be adopted in both the International Traffic in Arms Regulations ("ITAR") and the Export Administration Regulations ("EAR"). For purposes of the ITAR, DDTC intends for the definition to "differentiate between those articles 'enumerated' on the USML and those articles not enumerated but captured in 'catch-all' paragraphs." DDTC and BIS proposed a two-paragraph, "catch and release" style definition where the text of the first paragraph would 'catch' items that were "specifically designed" and then, if control is unwarranted, the text of the second paragraph would 'release' the item. The DDTC and BIS definitions follow the same format and can be distinguished by EAR- and ITAR-specific criteria for exclusion from the second, "release" paragraph. Comments on the two proposed rules are due by August 3, 2012.

Implementation of Transition Plan. 

On June 21, DDTC and BIS published coordinated implementation plans to addresses issues arising from the transition of items from the jurisdiction of the Department of State to the Department of Commerce. 
The proposed plans would combine a number of tactics such as:

• Establishing a General Order in the EAR regarding the continued use of State Department authorizations for a specified period;
• Providing guidance to license applicants submitting new license applications and amendments prior to and shortly after proposed and final rules revising USML categories;
• Broadening license exceptions in the EAR to make them consistent with ITAR exemptions;
• Specifying the validity period for existing DDTC approved agreements during the transition; and
• Extending the validity period of Commerce licenses.

Comments on the two proposed plans are due by August 6, 2012.

2) The U.S. and the EU – A Step Closer to Free Trade?

As U.S. and EU policymakers press forward with consideration of a major Transatlantic trade initiative, the time is ripe for companies to evaluate how such a deal could advance their global commercial objectives and consider how to provide the most effective input to the policymakers in order to get concrete results.

On the margins of the G20 summit in Los Cabos, Mexico, U.S. and EU trade officials released an interim report of the EU-U.S. High Level Working Group on Jobs and Growth (HLWG). Co-chaired by EU Trade Commissioner Karel De Gucht and U.S. Trade Representative Ron Kirk, the HLWG has spent the past six months examining prospects for deeper economic integration across the Atlantic, notably through consideration of a comprehensive free trade agreement (FTA). The interim report represents a key step towards a final set of conclusions due towards the end of 2012.

The interim HLWG report reflects a growing convergence of dynamics pointing towards a "go" signal on Transatlantic free trade. Europe's dire economic circumstances are driving a fairly desperate search for any policy mechanism that can generate growth in the EU, and it is clear that policymakers in both Brussels and Washington view the prospect of free trade through this prism. Business groups on both sides of the Atlantic have been actively pushing for free trade. There is growing sentiment that a closer knitting up of the American and European economies is essential to meeting challenges presented by China and other emerging economies. Recent steps towards a mega-trade agreement among China, Korea, and Japan creates yet another incentive for the U.S. and EU to keep pace. And the difficult politics of trade policy are ameliorated in a U.S.-EU context, since both parties are high-wage economies, and so concerns about job displacement and worker rights issues are minimal. Indeed, the U.S. Congress and the European Parliament appear to share the general enthusiasm for an FTA.

At the same time, and as the interim report makes clear, negotiating a U.S.-EU FTA would be no easy feat. Policymakers – particularly on the American side – appear to want to develop stronger confidence that a negotiation would not become bogged down in longstanding, deep-seated differences in areas like agriculture, regulatory approaches, access to government procurement, and certain aspects of intellectual property rights. This week's interim report makes clear that the achievability of comprehensive free trade is still an open question – one that will be the chief focus of the HLWG in the remainder of the year.

In the end, a final decision on launching a U.S.-EU free trade initiative is likely to be driven at least as much by political factors as by consideration of practicalities. And those political factors will likely be influenced considerably by twists and turns in the Euro zone crisis over the coming months.

As policymakers continue to work through this process, companies with a current or future stake in U.S.-EU trade should begin considering where a U.S.-EU FTA could advance their interests in tariff reduction, removal of regulatory barriers to trade, or other expansions of market access opportunities. If a formal FTA launch comes late this year or early next – a prospect that appears quite possible – an early identification of key market access objectives could have important payoffs.

3) ITA Proposes Rule re Attorney Misconduct in AD/CVD Proceedings

On June 26, the International Trade Administration ("ITA"), Department of Commerce ("Commerce"), issued a notice and request for comments regarding its proposed rule to hold attorneys (and non-attorney representatives) subject to disciplinary action for misconduct during antidumping duty ("AD") and countervailing duty ("CVD") proceedings before the Import Administration. The proposed rule:

• Establishes a good cause standard for the application of sanctions for misconduct,

• Identifies possible sanctions for misconduct including suspension and barring one from practice before the agency or a lesser sanction (that may be public or private) at the Secretary's discretion, and

• Permits attorneys and representatives to have an opportunity to present their views on the matter to Commerce.

The proposed rule follows the 2011 interim final rule regarding alleged certification violations and criminal sanctions. Under the new rule, Commerce will maintain a public register of attorneys and representatives suspended or barred from practice. All public comments on this proposed rule must be received no later than August 10, 2012.

4) Mexico and Canada Invited to Join TPP As New Negotiating Partners

On June 18 and 19, the Obama Administration invited Mexico and Canada to join the Trans-Pacific Partnership (TPP) negotiations. The current TPP negotiating partners include Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and the United States.

Since March 2010, the TPP partners have completed 12 rounds of negotiations covering trade agreement issues for Pacific region including industrial, agriculture, and textile products, intellectual property rules, technical barriers to trade, labor, the environment, regulation and competition policy. The latest round of negotiations, held in San Diego, CA, concluded on July 10.

5) U.S. Wins WTO Dispute With China

On June 15, the World Trade Organization (WTO) dispute settlement panel sided with the United States in a dispute regarding China's treatment of grain-oriented flat-rolled electrical steel (GOES) as subject to antidumping and countervailing duties. The panel found China acted in a manner inconsistent  with certain obligations under the Subsidies and Countervailing Measures Agreement, and Anti-Dumping Agreement, based on its conduct during the investigation and in its application of AD/CVD duties.

The WTO established the dispute panel in March 2011 after settlement negotiations begun in September 2010 failed.  The panel noted in particular that China breached its WTO obligations by:

• Initiating countervailing duty investigations based on insufficient evidence;
• Failing to provide non-confidential summaries of Chinese submissions containing confidential information;
• Calculating the subsidy rates for U.S. companies in a manner unsupported by the facts;
• Calculating the "all others" subsidy and dumping rates without a substantiated basis;
• Failing to provide an adequate explanation of its conclusions;
• Failing to disclose essential facts underlying its conclusions;
• Failing to objectively examine the evidence on the record; and
• Making unsupported findings of injury to China's domestic industry.

The full panel report can be found here. 

THIS MONTH IN TRADE – OTHER NEWS

EU Signs Trade Agreement With Colombia and Peru, Talks With Vietnam

On June 26, representatives from the European Union (EU), Colombia and Peru signed a free trade agreement to reduce tariffs for EU exporters in the automotive, chemicals, textiles, pharmaceuticals, and telecommunications sectors. Colombia and Peru would immediately benefit from the elimination of tariffs for all industrial and fisheries products. The agreement will open up trade in the Andean region (with the possibility of adding Ecuador and Bolivia to the trade pact) by increasing market access for agricultural products, improving public procurement, services and investment access, strengthening intellectual property rights and reducing technical barriers to trade.

Also on June 26, representatives from the EU and Vietnam launched negotiations to establish a free trade agreement between the two trading partners. The negotiations follow a partnership cooperation agreement signed in 2010. EU exports to Vietnam include electrical machinery and equipment, aircraft, vehicles, pharmaceutical products and iron and steel. Vietnam's key export items to the EU include footwear, textiles and clothing, coffee, seafood and leather furniture.

Federal Court Blocks Florida's Sanctions Against Cuba and Syria

A Federal judge in the Southern District of Florida blocked enforcement of a state law that would have barred companies doing business in Cuba or Syria from bidding on state contracts. The law, which was set to take effect July 1, was challenged by the Florida subsidiary of a Brazilian construction firm as an unconstitutional encroachment on the federal government's foreign affairs powers. District Judge K. Michael Moore agreed, issuing a temporary injunction to prevent the law from taking effect. 

CROWELL & MORING SPEAKS

Cari Stinebower was featured in the latest issue of WorldECR with the article "OFAC and The Reinsurance Industry."

Laurent Ruessmann and Cari Stinebower spoke on U.S. and EU Economic Sanctions affecting Global Reinsurers in Hamilton, Bermuda, June 19, 2012.

John Brew joined a panel for discussion of "Joint CPSC-Customs Inspections" for the Sporting Goods Manufacturing Association (SGMA) Thought Leadership Webinar on June 21, 2012.

* * * * *

Crowell and Moring welcomes Josh Kallmer, counsel, to the International Trade Group.