This Month In International Trade - October 2011

THIS MONTH'S TOP FIVE DEVELOPMENTS

1) President Obama Signs FTAs, GSP and TAA

The President signed legislation implementing the Colombia, Panama and South Korea Free Trade Agreements (FTAs), along with the bills implementing the renewal of the Generalize System of Preferences (GSP) and Trade Adjustment Assistance (TAA).  

U.S.-Korea FTA

South Korea is the United States' 7th largest trading partner, with $88 billion in two-way trade, making the newly signed FTA the largest enacted by the U.S. since the passage of the North American Free Trade Agreement. The key benefits of the deal will be:

• 95% of bilateral trade in consumer and industrial products becomes duty-free within three years of the date of coming into force and most remaining tariffs will be eliminated within ten years.
• The key U.S. exports which stand to receive the greatest benefit include farm products, textile and apparels (requiring a ‘yarn forward ' rule of origin), automobiles & auto parts, remanufactured goods, industrial and consumer electronic machinery and parts, power generation equipment, chemicals, medical and scientific equipment, motorcycles, and certain wood products.
• The U.S.-Korea FTA establishes a legal framework and protections for U.S. investors operating in Korea.
• The FTA also opens the Korean services markets (e.g., financial, legal, healthcare, education, research, telecommunications, express delivery). The financial services chapter of the U.S.-Korea FTA represents a "gold standard" that industry wants as a model for subsequent trade agreements.
• Finally, the FTA also establishes significant intellectual property protections.

Similar to other FTAs, goods can qualify as originating under the wholly originating, regional-value content or tariff shift methods, depending on the good.

U.S.- Colombia FTA

Colombia is the 3rd largest economy in Latin & South America and the U.S.-Colombia FTA will provide significant new access to Colombia 's $166 billion services market. Currently, U.S. industrial exports face average Colombian tariffs of ranging from 7.4 to 14.6 percent. The key benefits of the Colombian FTA include:

• Over 80% of U.S. exports of consumer and industrial products will become duty free immediately and remaining tariffs will phase out over the next ten years.
• The industries which stand to benefit the most include, agriculture and construction equipment, aircraft and parts, auto parts, fertilizers and agro-chemicals, information technology equipment, medical and scientific equipment, and wood products.

Goods can qualify as originating primarily under the wholly originating or regional-value content methods, depending on the good.

Colombia has already ratified the FTA but implementation will not take effect until the Administration certifies that Colombia has successfully implemented key elements of the Labor Action Plan, which could delay implementation by three to six months beyond the timeframe for Korea and Panama.

U.S.-Panama FTA

Panama is one of the fastest growing economies in Latin America whose GDP is expected to jump with the completion of the expanded Panama Canal in 2014. The key benefits of the FTA include:

• Over 87% of U.S. exports of consumer and industrial products will become duty free immediately and remaining tariffs will phase out over the next ten years.
• Key export sectors that will benefit include: information technology equipment, agricultural and construction equipment, aircraft and parts, medical and scientific equipment, environmental products, pharmaceuticals, fertilizers, and agro-chemicals. U.S. industrial exports face currently face tariffs ranging from 7 to 81 percent.
• Agriculture also stands to benefit as today, U.S. agricultural exports face Panamanian duties ranging from 15 to 260 percent.

Panama has already ratified the U.S.-Panama FTA and so implementation could take effect quickly. Significantly, this may mean that the U.S.-Panama FTA will likely come into force before Panama 's free trade agreements with Canada and the EU go into force, which will yield a significant competitive advantage to U.S. exports of goods and services, at least temporarily.

GSP & Andean Trade Preferences Act Reauthorization

The GSP is a tool of U.S. foreign policy and economic development, authorizing preferential duty treatment on imports from more than 75 developing countries. The program had lapsed at the end of 2010, forcing importers to pay dramatically higher duties overnight.

The trade legislation signed by President Obama included a reauthorization for GSP, retroactive to January 1, 2011. As a result, importers can now make claims for duty recovery for all GSP-eligible entries they imported during the period in which GSP had been in lapse.

Also, the Andean Trade Preferences Act ("ATPA") was reauthorized. Once the U.S.-Colombia FTA enters into force, Colombian goods will cease to be eligible for ATPA or GSP. With the recent FTA implementation, ATPA now only covers goods imported from Ecuador and Bolivia. Both GSP and ATPA have been extended through July 31, 2013.

TAA Expansion

Trade Adjustment Assistance ("TAA") for workers and farmers is a federal program, initially authorized in 1962 under President Kennedy to reduce the impact of increased imports felt by certain sectors of the U.S. economy. TAA provides reemployment services and benefits to workers who have lost their jobs or suffered a reduction of hours and wages resulting from increased imports or shifts in production outside the U.S.. The TAA program aims to help program participants obtain new jobs, ensuring they retain employment and earn wages comparable to their prior employment and provides assistance while they obtain new jobs such as health care tax credits and education funding. The reauthorization of TAA passed by Congress ensures continuance of TAA through December 31, 2012 and includes many, but not all, of the expansions previously authorized in the American Recovery and Reinvestment Act ("ARRA") of 2009.

2) U.S. Coalition Alleges Solar Product Dumping and Subsidies Involving  Chinese Producers

On October 19, a coalition of U.S. solar cell and solar panel manufactures, led by SolarWorld, filed anti-dumping duty (AD) and countervailing duty (CVD) petitions with the U.S. Department of Commerce and the International Trade Commission. The petitions allege high dumping margins and illegal subsidies regarding Chinese solar product manufactures. The petitions cover crystalline silicon photovoltaic (PV) cells and products; the AD petition alleges dumping margins over 100% while the CVD petition points to government subsidies including tax incentives, export assistance, and discounted raw material and power costs. Commerce will decide whether to initiate investigations by November 8.

3) CBP Publishes Final Rule on Use of Sampling Methods in Audits and Prior Disclosures

After collecting comments and making revisions based on feedback to the proposed rule, U.S. Customs and Border Protection (CBP) has published the final rule on the use of sampling methods in CBP audits and prior disclosure cases and the offsetting of over-payments and over-declarations in audits that involve a calculation of lost revenue or monetary penalties under 19 U.S.C. § 1592. The amendments to CBP regulations will go into effect on December 27th, 2011. The changes regarding sampling methods are designed to reflect in the regulations (19 CFR 163.11) a practice recognized in both government and industry as the most practical and expeditious way to reliably assess voluminous numbers of transactions, such as are often encountered per audit in the modern commercial importation environment.   

4) Increased MPF, Now How?

Passed without much fanfare within the GSP, TAA and KORUS bills, but with important immediate and day-to-day impacts on U.S. importers, the Merchandise Processing Fee ("MPF") assessed by U.S. Customs & Border Protection ("CBP") on each entry was increased by 60%. Retroactively effective as of October 1, 2011, the MPF is increased from 0.21 percent to 0.3464 percent ad valorem. The maximum MPF assessed per entry of $485 was not modified, thus shipment values above $230,000 will not be affected. 

Currently, CBP's systems will not accept the increased MPF payments.  Thus, importers should continue to pay the 0.21 percent rate and CBP has indicated that they will give notice 5-7 days prior to when they can accept the increased MPF. Sometime thereafter, CBP will issue bills to importers for any retroactive MPF owed since October 1, 2011.  CBP has also indicated that they may not issue bills for de minimis increases of MPF (i.e., less than $20).  Goods which qualify as originating under any of the three new FTAs are not subject to the MPF. Additionally, importers may consider reexamining their supply chain to seek opportunities to import >$230,000 per entry to maximize the MPF in fewer shipments, such as through consolidation or distribution Foreign Trade Zones.

5) New Rules and Greater Reach for Section 337

Two recent developments in the Section 337 arena [link to full text]:

(1) The Court of Appeals for the Federal Circuit's decision in TianRui Group v. International Trade Commission, Slip Op. 10-1395 (Oct. 11, 2011) held that Section 337 has extraterritorial reach for activities that happened exclusively overseas.  Briefly, a U.S. trade secret holder sought to exclude merchandise from a Chinese manufacturer claiming that the manufacturer had hired former employees of the U.S. IP holder thereby appropriating trade secrets. Among other issues, the Federal Circuit's opinion is notable because it held that Section 337 has an extraterritorial reach and that Congress intended to regulate products manufactured under foreign activity, even when all events occurred overseas, as they did in TianRui.

(2) The U.S. International Trade Commission issued a final rule on October 19, 2011 (76 Fed. Reg. 64,803) amending its rules of practice and procedure relating to Section 337 investigations to gather more information on public interest issues arising from Section 337 complaints. The amended rules go into effect on November 18, 2011.  The rules are aimed at helping the ITC identify investigations that require further development of public interest issues and to identify and develop information regarding the public interest at each of the investigation's stages.

As background, Section 337 of the 1930 Tariff Act permits U.S. holders of intellectual property rights to bring an action before the U.S. International Trade Commission to exclude importation of products into the United States that infringe said intellectual property rights. Section 337 can apply to intellectual property rights such as patents, copyrights, trademarks, and other rights as well as other certain methods of unfair competition. If the ITC determined that a violation exists, it issues an exclusion order, which is enforced by U.S. Customs and Border Protection of prohibit the entry of the infringing merchandise. Appeals are directly made to the Court of Appeals for the Federal Circuit.

OTHER NEWS

USTR To Receive Petitions Regarding GSP Product and Country Reviews

The Office of the United States Trade Representative (USTR) is prepared to receive petitions regarding Generalized System of Preferences (GSP) modifications for duty free products and beneficiary developing country status based on country practices. The deadline for submission of petitions is December 5, 2011; for petitions requesting competitive need limitation (CNL) waivers, the deadline is extended to December 16, 2011.

Antiboycott Settlements Keep Coming

Continuing its recent enforcement push, the Department of Commerce's Office of Antiboycott Compliance ("OAC") has issued four more penalties for violations of the Antiboycott regulations in September and October.

• World Kitchen, L.L.C. paid $10,000 to settle five charges that it provided agent-signed certifications to companies in the UAE (furnishing violations) between 2006 and 2008;
• Tollgrade Communications Inc. paid $10,000 to settle three charges that it certified it was not doing business in Israel to the Saudi Arabian Embassy (agreements to comply) between 2002 and 2004;
• Weiss-Rohlig USA LLC paid $8,000 to settle one charge that it supplied an agent-signed certification to Kuwaiti companies (furnishing) in 2006; and
• JAS Forwarding (USA) Inc. paid $19,200 to settle three charges that it supplied negative certificates of origin to a Lebanese company (furnishing)  in 2006.

OAC's recent enforcement efforts demonstrate the continued need for compliance vigilance.  These settlements involved four different countries and all involved transactions which took place more than five years ago.

U.S. Submits China and India Subsidy Data to WTO

The United States provided details on Chinese and Indian subsidy programs to the World Trade Organization (WTO). The submission included information on 250 subsidy programs not previously identified by China and India as required by Article 25 of the Agreement on Subsidies and Countervailing Measures.  China has not provided subsidy program data to the WTO since 2006; India has provided data covering only three subsidy programs.

Steel Pipe Producers File AD/CVD Petition

On October 26,  a group of domestic steel producers filed an anti-dumping and countervailing petition with the Commerce Department and the U.S. International Trade Commission (ITC). The petition alleges that circular welded carbon-quality pipe (CWP) imports from India, Oman, United Arab Emirates (UAE) and Vietnam, threaten the U.S. welded standard and structural pipe industry.

New CBP Facilities Centralize Activities for Certain Importers

Two new CBP facilities, the Centers of Excellence and Expertise, based in New York and Los Angeles, will be the processing centers for certain activities involving pharmaceutical and electronics importers, rather than the regional ports.  Importers in those industries enrolled in the Customs-Trade Partnership Against Terrorism (C-TPAT) or Importer Self Assessment (ISA) programs will use their respective industry centers for post-entry amendment and post-summary correction reviews, prior disclosure validation, protests, and other validation procedures.

Mexican Tariffs Suspended After Trucking Company Certification

On October 14, the Mexican Economic Ministry announced the suspension of remaining retaliatory tariffs on U.S. products related to a long dispute over the safety of Mexican trucks on U.S. roads. The ministry's decision follows the U.S. Federal Motor Carrier Safety Administration's certification of a Mexican trucking company to operate on U.S. roads under the provisions of a memorandum of understanding between the U.S. Department of Transportation and the Mexican Secretariat of Communications and Transportation signed in July, 2011.  

CPSC Adopts Rules Regarding Third-Party Testing of Toys

The Consumer Products Safety Commission (CPSC) voted to adopt rules regarding the testing of children's products. The new rules require periodic testing by third-party to ensure continued compliance.  Children's products include goods designed or intended primarily for children under 13 years of age; the requirements cover lead and phthalate content, safety standards, testing by CPSC-approved laboratories, certification and labeling.

AGOA restored for Cote d'Ivoire, Guinea and Niger

On October 25, 2011, President Obama signed a proclamation restoring trade preferences to Cote d'Ivoire, Guinea and Niger under the African Growth and Opportunity Act ("AGOA"). AGOA eligibility had previously been revoked due to undemocratic changes in government, which subsequently all three countries conducted Presidential elections that were considered free and fair in late 2010 - early 2011. Since enactment in 2000, the objectives of AGOA include expansion of U.S. trade and investment with sub-Saharan Africa as well as stimulate economic growth in Africa. Most goods produced in AGOA-eligible countries to enter the U.S. market duty-free.

CBP to Raise Informal Entry Limit, Lower MPF Costs?

U.S. Customs and Border Protection (CBP) seeks comments regarding its notice of proposed rulemaking involving raising the informal entry limit from $2,000 to $2,500. CBP estimates the change would lower merchandise processing fees for the industry by $11 million.  The proposed rules would also eliminate 19 CFR 102.24 paragraph (a), covering formal entry requirements for certain textile and apparel shipments following the Agreement on Textiles and Clothing.  Comments are due by December 27, 2011.

Trade Related Appointments

The Senate confirmed the nominations of John Bryson for Commerce Secretary, Michael Punke for Deputy U.S. Trade Representative, Islam Siddiqui as Chief Agricultural Negotiator at the USTR, and Paul Piquado for Assistant Secretary for Import Administration, Department of Commerce.

CROWELL AND MORING SPEAKS

On October 19, Crowell & Moring hosted the Product Risk Management Seminar.  The event covered a wide range of topics, including antitrust, social media, and customs issues related to product development, manufacturing and distribution.  Panelists included Matthew Jaffe, Robert Lipstein, Laurent Ruessmann and Alex Schaefer.