International Trade Update

Transcription

1 International Trade Update A Publication of Alston & Bird s International Trade and Regulatory Group November 2004 In This Issue: BIS Proposes Redefinition of Knowledge, Expands Red Flag List, and Offers New Safe Harbor Provision 1 United States Pushes Global Security Initiatives 2 STOP Initiative to Increase IPR Protection 3 DOC Considers Changes to Procedures for Antidumping Investigations in Non-Market Economies 3 DOC Lowers Duties on Chinese Bedroom Furniture 4 BIS Holds 17th Annual Update Conference 4 United States Challenges EU Customs Procedures 5 Safeguard on Socks from China Invoked 5 Threat-Based Safeguard Petitions Accepted on Apparel Imports from China 5 USTR Rejects Section 301 Petition on China s Currency 7 Dominican Republic Tax Threatens CAFTA 7 WTO s Hong Kong Ministerial Conference Scheduled 8 Congress Passes ETI Bill 8 Congress May Still Vote on Misc. Tariff Bill 9 Slim Chance for Passage of Bill for Haiti Trade Preferences 9 BIS Proposes Redefinition of Knowledge, Expands Red Flag List, and Offers New Safe Harbor Provision The Bureau of Industry and Security (BIS) issued a notice of proposed rulemaking on October 13, 2004, with three potential changes that will significantly alter the way exporters deal with suspicious transactions. First, BIS suggests revising the definition of knowledge of such transactions by using a reasonable person standard. That is, would a reasonable person conclude, given a set of facts and circumstances, that the existence or future occurrence of a suspicious transaction is more likely than not to occur? This definition puts the burden on exporters to assure that they do not self-blind or ignore suspicious transactions. Second, BIS intends to revise its red flag list and know your customer guidance. This guidance goes hand-in-hand with the revised knowledge standard by establishing how a reasonable exporter should behave in certain questionable circumstances, and the guidance seems to require more due diligence on potentially questionable transactions. An exporter should inform all who act on its behalf of the red flags and, where a red flag exists, of their affirmative duty to inquire, verify and go behind the customer s representations. If the exporter is unable to remove the concerns raised by the red flag, it is obligated to refrain from undertaking the transaction or to contact BIS through the safe harbor procedure described below. BIS revised and updated the red flag list with additional examples of suspicious behavior. While the proposed additional examples of red flags, which BIS will list in supplement No. 3 to Part 732 of the regulations, should make BIS s rules more concrete, some of the proposed examples may actually make compliance more difficult. Example 18, for instance, instructs exporters to be concerned if the customer is known to have or is suspected of having dealings with embargoed countries. Because the United States has unilaterally sanctioned countries such as Iran, Sudan, Syria, Burma, and Cuba, a customer outside the United States that deals with one of these countries may be doing so perfectly legitimately. The new red flag guidance therefore could have a chilling effect on U.S. export transactions if U.S. exporters hesitate to do business with customers that operate under different legal systems. As an example of heightened due diligence requirements, the new red flags seem to imply that exporters should Comments and questions from readers are welcome. Please direct inquiries to Jon Fee jfee@alston.com. continued on page 2

2 know the usual manner of addressing and marking shipments to the countries where they export. The new red flag guidance therefore could have a chilling effect on U.S. export transactions if U.S. exporters hesitate to do business with customers that operate under different legal systems. In its third proposal, BIS suggests a new safe harbor procedure for exporters who do not have actual awareness of an impending violation, but are unable to resolve red flags and therefore may have imputed knowledge of a potential violation under the reasonable person standard. Under this newly proposed procedure, exporters who can afford to wait can report the red flag and the results of the exporter s investigation to BIS. BIS will respond within 45 days, indicating whether or not it concurs with the exporter s judgment about whether the red flag has been properly addressed. If BIS concurs with the exporter, then the exporter cannot be subject to an enforcement action, so long as it does not possess actual knowledge or misstate or withhold relevant information from BIS. The 45 day response time will make this option impractical for many exporters. Numerous exporters and associations are expected to comment on the proposed regulations. These rules, if implemented, will require changes to many exporters internal compliance systems and increase some companies potential liabilities. To allow more time to respond, BIS reopened the comment period and will accept comments until December 15. United States Pushes Global Security Initiatives U.S. Customs and Border Protection (CBP) Commissioner Robert Bonner has called on the EU to adopt security procedures similar to those that have been adopted in the United States. These include the 24-hour rule, the Customs-Trade Partnership Against Terrorism (C- TPAT), the Container Security Initiative (CSI), and the use of automatic risk targeting to help identify potential terrorist risks. Commissioner Bonner has suggested that the World Customs Organization should lead an effort to have these four core elements adopted by the EU as well as other countries. At the same time, reports indicate that CBP is developing standards and requirements for C-TPAT members. Companies involved in international trade should plan for these security initiatives to apply to all of their trade. Companies have the ability to shape these initiatives so as to cause the least disruption to their existing supply chains if they begin to act now. Alston & Bird has assisted companies with security issues and has recently teamed with Good Harbor Consulting, which includes such nationally prominent security experts as Roger Cressey, to provide companies with broad security experience and expertise. 2

3 STOP Initiative to Increase IPR Protection The program is a multi agency endeavor... to educate the public about the dangers of counterfeit goods and to use skills developed for fighting terrorism to target suspicious imports... On October 4, the Bush Administration publicized its new Strategy Targeting Organized Piracy (STOP) initiative. The program is a multi agency endeavor by the Department of Homeland Security, the Commerce Department, the Justice Department, and the Office of the U.S. Trade Representative. Its goal is to educate the public about the dangers of counterfeit goods and to use skills developed for fighting terrorism to target suspicious imports and decrease admission into the United States of counterfeit goods. Specific proposals include development of a description of a model foreign counterfeiter for Customs agents at the ports, a new emphasis on intellectual property rights protection in negotiation of trade agreements, and a HALT number that U.S. companies can call for help in protecting their intellectual property rights overseas. The Department of Justice also plans to ask Congress to pass new legislation to permit U.S. district courts to issue injunctions against counterfeit imports that are valid nationwide rather than only at ports within a district court s jurisdiction. DOC Considers Changes to Procedures for Antidumping Investigations in Non-Market Economies Interested Parties Comment The Department of Commerce (DOC) has announced plans to revise its procedures for granting separate rates to non-market economy country (NME) respondents in antidumping investigations. Pursuant to this effort, in May 2004, DOC requested comments from interested parties with respect to a number of general issues affecting the selection of separate rate respondents and the determination of the appropriate rate. DOC received 23 submissions. After reviewing those submissions, DOC again asked for comments in a September 20 Federal Register notice. Specifically, DOC asked interested parties to comment on the application process for separate rate respondents, the possibility of switching from assignment of exporter-specific rates to assignment of exporter-producer combination rates, and whether DOC should establish a rebuttable presumption that producers shipping goods through third countries are aware that their goods are bound for the United States. DOC received 14 submissions by its October 15 deadline. Those who commented seemed to agree that any changes DOC institutes should be accompanied by explicit notice and clear guidelines. Almost all the comments submitted also expressed concern about DOC s proposal regarding third country re-sellers. Otherwise, those who submitted comments on behalf of parties that are or have been petitioners in antidumping investigations tended to support DOC s proposals (even if suggesting that DOC needs to address a number of associated concerns), while those representative of respondents interests or the 3

4 governments of NMEs generally opposed the changes proposed by DOC. DOC has indicated that it will consider these comments and may request further public comment if necessary. DOC Lowers Duties on Chinese Bedroom Furniture The Department of Commerce (DOC) reduced the antidumping duty margins on the vast majority of imported Chinese furniture from 12.9 percent to 8.6 percent in a final determination dated November 8. These relatively low margins on Section A respondents companies that were deemed independent of the Chinese government and cooperative with the investigation, but were not selected by DOC to receive a questionnaire are expected to have a minimal impact on import levels or pricing. After years of finding triple digit dumping margins on Chinese products, this result follows an earlier decision finding low antidumping margins on Asian shrimp, and may mark a trend in DOC s handling of investigations in non-market economies. BIS Holds 17th Annual Update Conference On October 4 and 5, the U.S. Bureau of Industry and Security (BIS) held its Update 2004 Conference on Export Controls and Policy. The conference, which was attended by members of the import and export community and representatives of fifteen foreign governments, featured plenary and breakout sessions focused on current issues and recent and upcoming changes in regulatory controls. BIS Under Secretary Kenneth Juster, Deputy Secretary of Commerce Theodore Kassinger, and Deputy Under Secretary of Commerce Mark Foulon gave the keynote addresses. Other speakers included representatives from the Departments of Commerce, State, Defense, Justice, and Energy. Speakers emphasized that a system of export controls is only as strong as its weakest link and that a strong economy and a strong industrial base are not mutually exclusive with effective export controls and national security. Specific topics receiving attention were the commitment made by UN members under UN Security Council Resolution 1540 to prevent the proliferation of weapons of mass destruction, transshipment concerns, China-related concerns, deemed exports and re-exports, and the recent relaxation of export controls on Iraq and India. Presentations also addressed recent regulatory changes affecting export licensing and incentives for exporters to implement effective export compliance programs. We have a more detailed summary of the conference available, and we welcome further inquiries. 4

5 United States Challenges Customs Procedures in EU The United States filed a complaint against the EU on September 21 requesting consultations with the WTO regarding administration of the customs system in the EU. The United States alleges that current practices in the EU hinder U.S. exports and harm U.S. producers, farmers, and exporters. The main problem with EU customs Through the dispute administration is inconsistency across the various member states, for example, in the different ways states classify or impose tariffs on the settlement process at same good. The United States also claims that these problems have the WTO, the United been exacerbated by the recent expansion in EU membership and by the EU s failure to promptly review procedures across member states States can seek various or to ensure that authorities within the EU are allocated such that remedies, including harmonization of customs procedures is possible. Japan, Australia, Argentina, and Brazil have requested to sit in on the consultations. If retaliatory tariffs consultations fail to resolve this dispute, the United States may ask against European goods. for the formation of a dispute-settlement panel. Through the dispute settlement process at the WTO, the United States can seek various remedies, including retaliatory tariffs against European goods. Safeguard on Socks from China Invoked The Committee on the Implementation of Textile Agreements (CITA) announced on October 22 its decision to invoke the safeguard on cotton, wool, and man-made fiber socks from China. CITA determined that the U.S. market for socks is being disrupted by imports from China and that there is also a threat of further disruption. CITA thus officially requested consultations with China on October 29. If an agreement is not reached within 90 days, the United States will maintain a quota for one year that limits the growth in imports of socks from China to 7.5 percent (6 percent for wool socks), based on data for the first 12 of the 14 months prior to the date the United States requests consultation. As of the date of request for consultation, the safeguard quota was set at 42,433,990 dozen pairs of the subject socks produced in China and exported between October 29, 2004, and October 28, Threat-Based Safeguard Petitions Accepted on Apparel Imports from China After Commerce Under Secretary for International Trade Grant Aldonas announced on September 3 that the government would consider threatbased petitions for safeguard actions against apparel imports from China, a group of U.S. domestic industry interests, including textile manufacturers, fiber producers, and labor unions, filed a petition on October 8 that covers cotton trousers. The Committee for the Implementation of Textile Agreements (CITA), which administers the safeguards, accepted that petition on October 25. Comments are due on December 3. 5

6 The Committee for the Implementation of Textile Agreements (CITA), which administers the safeguards, accepted that petition on October 25. Comments are due on December 3... Through the comment process producers, exporters, importers, and trade associations should make all available arguments and objections to the petitions in an effort to avoid the safeguards. The petitioning groups also announced on October 12 that they would file petitions seeking safeguards on the basis of threat on a total of 15 additional categories of Chinese products on which quotas are scheduled to be removed on January 1, As of November 9, the group had filed petitions requesting safeguards on imports of man-made fiber trousers, cotton and man-made fiber knit and non-knit shirts, non-knit cotton and man-made fiber underwear, cotton yarn, and synthetic filament fabric. During the first week of November, CITA accepted the petitions on manmade fiber trousers, cotton and man-made fiber knit and non-knit shirts, and non-knit cotton and man-made fiber underwear. According to the earlier announcement by the petitioning groups, petitions on wool trousers and cotton sheets are anticipated in the near future. Furthermore, the coalition has announced an intention to petition for renewal of the safeguards already instituted against brassieres, dressing gowns, and knit fabric. Through the comment process producers, exporters, importers, and trade associations should make all available arguments and objections to the petitions in an effort to avoid the safeguards. In the past, the lack of transparency at CITA has given some reason to believe that objections are not genuinely considered, but this time strong objections are important and could yield results for several reasons. Some have suggested that the Administration s acceptance of the petitions was, in part, because of the November 2 election. Now that the elections are over the Administration could pull back on support for threat-based petitions. Indeed, recent comments from Administration officials suggest that the acceptance of the petitions is no indication of whether safeguards will be imposed. This may be the last chance to halt petitions from effectively becoming an across the board continuous renewable quota on most Chinese articles through 2008 (the general product safeguards available under other procedures apply through 2013). Finally, if the existing safeguards are renewed, it is unclear how the Administration will calculate the allotment, as petitioners may seek to restrict the Chinese exporters asserted right to 7.5% annual increases. Opponents of renewal of existing safeguards argue that the WTO Accession Agreement does not allow for renewal of a safeguard without an intervening period. With respect to the new petitions, the U.S. Association of Importers of Textiles and Apparel, the American Apparel and Footwear Association, the National Retail Federation, and the Retail Industry Leaders Association have all argued that the administration should not accept threat-based petitions, because products cannot simultaneously be subject to quota and safeguards, and because the requisite data is lacking for products still under quota. Chinese textile manufacturers have also stated that they are highly concerned about these safeguard actions, especially because of the timing of the petitions with respect to the U.S. elections. 6

7 USTR Rejects Section 301 Petition on China s Currency The Congressional Coalition asserts that the Administration s policy with respect to China s currency has been too passive, and the 301 petition therefore asked USTR to seek the immediate elimination of this currency undervaluation. On November 12, the Office of the U.S. Trade Representative (USTR) formally rejected the latest attempt to use the Section 301 process to demand that China float its currency. On September 30, the Congressional China Currency Action Coalition ( Congressional Coalition ) filed a petition with USTR under Section 301 of the Trade Act of 1974 ( 301 petition ). Section 301 allows the United States to respond to unfair trade practices that harm the United States. The 301 petition alleged that China s system of pegging its currency, the yuan, at a rate of yuan to the dollar has resulted in an undervaluation of China s currency that acts as a subsidy to Chinese imports to the United States and a tax on U.S. exports to China. Sources claim that China s currency is undervalued by at least 15 percent and perhaps as much as 75 percent. The actual figure probably is around 40 percent. The Congressional Coalition asserted that the Administration s policy with respect to China s currency has been too passive, and the 301 petition therefore asked USTR to seek the immediate elimination of this currency undervaluation. After rejecting the 301 petition, USTR commented that it had acted aggressively with respect to China on that issue. The petition also demanded that USTR file a formal dispute settlement case with the WTO if China does not immediately change its currency valuation policies. This petition, the third 301 petition on China s currency this year, followed the filing of an almost identical petition on September 9 by the China Currency Coalition, a private-sector group of 20 industrial, agricultural, and service organizations and unions. Based on a previous decision by the Bush administration that it would reject any 301 petition asking the United States to demand that China immediately float the yuan, the government rejected the September 9 petition only hours after it was filed. That decision marked the fastest rejection of a 301 petition in history. Normally, the administration has 45 days to determine whether or not to accept a petition, and if a petition is accepted, the government has one year to complete an investigation and attempt to solve the process via independent negotiation or by bringing the dispute to the WTO. The statute requires action if negotiations do not resolve the dispute within one year. Dominican Republic s Proposed Sweetener Tax Threatens CAFTA Although the U.S. Congress is not expected to vote on whether to implement the U.S.-Central American Free Trade Agreement (CAFTA) until 2005, a proposal in a tax reform bill that was approved by the Dominican Republic s House of Representatives and forwarded to its Senate on August 26 may cause the United States to suspend action on the free trade agreement indefinitely, according to the Office of the U.S. Trade Representative (USTR). 7

8 Congress Passes ETI Repeal Bill The proposal would impose a 25 percent tax on soft drinks sweetened with high fructose corn syrup. USTR claims that this tax discriminates against imported sweeteners and is therefore contrary to both WTO rules and provisions in CAFTA. U.S. industry groups, such as the National Corn Growers Association, the Corn Refiners Association, and the U.S. Grains Council, also oppose the sweetener tax, based on a similar experience with a Mexican tax on high fructose corn syrup sweetened soft drinks. The United States is currently challenging Mexico s tax in the WTO. WTO s Hong Kong Ministerial Conference Scheduled The WTO has announced that it will hold its sixth ministerial conference from December 13 to December 18, 2005, in Hong Kong. The agenda for that conference most likely will not be determined until next spring. Representatives from some nations would like to finalize negotiating modalities in agriculture and nonagricultural market access. Others, however, feel that delegates must first make more progress in other areas of the Doha agenda. After months of disagreement over the details, the House of Representatives and the Senate finally passed H.R to repeal the Extraterritorial Income Tax (ETI) on October 7 and October 11, respectively. The President signed the bill into law on October 22, paving the way for the EU to lift retaliatory sanctions it had imposed after the WTO declared the ETI an illegal export subsidy. There was initial hesitation from EU officials because of the two-year phase-out for current ETI beneficiaries and because of the close connection between ETI and the ongoing dispute between the United States and the EU over subsidization of Boeing and Airbus. The EU alleges that Boeing is one of the top two beneficiaries of the ETI system. Nonetheless, European Trade Commissioner Pascal Lamy announced on October 25 that he would propose to the European Council that it lift sanctions as of January 1, 2005, the effective date of the new law. The new law replaces ETI with a new tax deduction for domestic manufacturing. It also includes various international tax reforms that supporters hope will make U.S. firms more competitive, and a number of non-trade-related provisions as well. 8

9 Congress May Still Vote on Miscellaneous Tariff Bill In addition to the changes to the protest rules, the current version of the bill contains a technical correction to the AGOA III legislation that appears to ensure that apparel that is otherwise eligible for preferential treatment, except for its cuffs and collars, will get the benefit of the retroactivity provisions in AGOA III. Congress plans to convene for a lame duck session on November 16. Although the primary purpose of the session will be to ensure passage of a few remaining 2005 spending bills, sources suggest that the Senate may also try to pass H.R. 1047, the Miscellaneous Trade and Technical Corrections Act of Conferees from the House of Representatives and the Senate already have agreed upon a single version of the bill, and the House of Representatives passed that version on October 8. If the bill passes, it will make a number of noteworthy changes to U.S. trade law. For example, the law would grant temporary duty-free treatment to a number of goods (mostly chemicals) for which special interest groups have lobbied. The bill also contains two significant changes to the rules for protesting Customs liquidation of entries of imported merchandise. The law would repeal Section 520(c), which currently allows for reliquidation at any time and regardless of whether a protest was filed, if there has been a clerical error, mistake of fact, or other inadvertence, but the new law would extend the time after liquidation during which a protest can be filed from 90 days to 180 days. In addition to the changes to the protest rules, the current version of the bill contains a technical correction to the most recent African Growth and Opportunity Act legislation ( AGOA III ) that appears to ensure that apparel that is otherwise eligible for preferential treatment, except for its cuffs and collars, will get the benefit of the retroactivity provisions in AGOA III. The bill also contains a repeal of the antidumping provisions in Section 801 of the Revenue Act of 1916 to bring the act into compliance with a WTO ruling. The 299-page long conference version of H.R contains a number of other changes to U.S. trade law, and we welcome further inquiries on this topic. Slim Chance for Passage of Bill for Haiti Trade Preferences Last minute negotiations conducted in the House of Representatives before Congress adjourned in October were unsuccessful in reaching consensus on Haiti legislation that would allow duty free treatment for apparel articles assembled in that country from fabric or yarn of any origin. The Senate bill that passed unanimously several weeks ago would have allowed a generous cap for such garments, but the House was considering a version that may have included a lower cap with more restrictions on the origin of thread, elastomerics, and elastic fabric used to produce eligible garments, and may have limited the coverage of the measure to exclude certain garments. It is possible that consideration could continue in a lame duck session after the elections, but such consideration is unlikely in view of other pressing business expected to be considered in such a session. 9

10 The A&B International Trade Update is published by Alston & Bird LLP ( to provide a summary of significant developments in law and operations to our clients and friends. It is intended to be informal and does not constitute legal advice regarding any specific matter. This material may also be considered advertising under applicable court rules. This Update may be reprinted without the express permission of Alston & Bird, so long as it is reprinted in its entirety including the Alston & Bird name and logo. If you have any questions, please contact your responsible Alston & Bird attorney or one of the International Trade and Regulatory Group attorneys listed below. International Trade and Regulatory Group Thomas E. Crocker tcrocker@alston.com Thomas M. Boyd tboyd@alston.com Paul F. Brinkman pbrinkman@alston.com Kipp A. Coddington kcoddington@alston.com Jonathan M. Fee jfee@alston.com H. Stephen Harris, Jr sharris@alston.com Kenneth G. Weigel kweigel@alston.com Robert W. Irish rirish@alston.com David P. Sanders dsanders@alston.com BJ Shannon bshannon@alston.com Jason M. Waite jwaite@alston.com Jonathan M. Winer jwiner@alston.com ATLANTA One Atlantic Center 1201 West Peachtree Street Atlanta, GA Fax: CHARLOTTE Bank of America Plaza 101 South Tryon Street Suite 4000 Charlotte, NC Fax: NEW YORK 90 Park Avenue New York, NY Fax: If you would like to receive future A&B Customs Updates electronically, please forward your contact information including address to customsupdate@alston.com. Be sure to put subscribe in the subject line. Alston & Bird LLP 2004 RESEARCH TRIANGLE 3201 Beechleaf Court Suite 600 Raleigh, NC Fax: WASHINGTON, D.C. 601 Pennsylvania Avenue, N.W. North Building, 10th Floor Washington, D.C Fax: