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May 22 2012 issue

Tuesday, May 22, 2012
Sandler, Travis & Rosenberg Trade Report

Progress Seen on TPP Negotiations; Still No Decision on Additional Participants

The 12th round of negotiations toward the Trans-Pacific Partnership agreement concluded May 18 in Dallas, Texas, with what the Office of the U.S. Trade Representative called “better-than-expected progress.” However, the round was marked by protests about the degree of transparency into the talks and continued uncertainty as to when a decision may be made on including additional participants.

Status of Negotiations. According to a USTR press release, negotiating teams “focused heavily on making as much progress as possible on the texts of the agreement” and “can now see a clear path forward toward conclusion of most of the more than 20 chapters of the agreement.” Negotiators completed the chapter on small and medium-sized enterprises and moved toward closure on regulatory coherence, deepening of regional supply linkages and promoting development. No specific advances were noted with respect to other issues, including market access for goods and services, investment, telecommunications, e-commerce, customs, intellectual property, labor, environment and competition. USTR did note that there were “valuable exchanges” on a U.S. proposal intended to lay out rules to ensure that state-owned enterprises compete fairly with private companies as well as “similarly productive exchanges” on new issues related to trade and the environment, the digital economy and the development of regional supply chains.

Participants have signaled a desire to conclude the TPP negotiations by the end of 2012, but it remains unclear if that goal can be met. Inside US Trade quoted a Chilean negotiator as saying talks are “now just getting down to the most difficult issues in each chapter” and that “the crucial process of making trade offs between different areas of the negotiations” has not yet begun. However, International Trade Daily quoted a U.S. official as saying participants are “within striking distance on a number of these chapters of closing, or closing minus a couple of political issues not likely to be solved until quite late in the negotiations.” The next round is slated to be held July 2-10 in San Diego, Calif., and chief U.S. negotiator Barbara Weisel said the U.S. hopes “to use that round to make a major step forward.”

Participants. The TPP is currently being negotiated by Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the United States and Vietnam. Canada, Mexico and Japan expressed an interest in joining in November 2011 and since then have been conducting bilateral talks with existing participants. Those discussions have centered on whether Ottawa, Mexico City and Tokyo are willing to put their various sensitive issues on the TPP negotiating table.

U.S. officials have suggested recently that no other countries will be added to the TPP until after a final agreement is reached. USTR Ron Kirk said that “if the nine of us don’t produce an agreement … within the near term, it doesn’t matter” if other interested parties are ready to join or not. Weisel added that a decision on whether to admit new participants will not be made until all the ongoing bilateral discussions are completed. The matter is likely to come up at a meeting of APEC trade ministers in Russia in June but no decision is expected at that time.

Transparency. There have been increasing complaints in a number of countries over the past few years concerning the lack of transparency into international trade negotiations, including bilateral free trade agreements and the Anti-Counterfeiting Trade Agreement, and the TPP talks have come in for similar scrutiny. As the Dallas round got underway nearly three dozen self-described academics sent a letter to USTR Kirk calling on him to publicly release information on U.S. negotiating positions and proposals and rejecting USTR’s assertions that doing so would jeopardize U.S. national security. According to Reuters, Kirk responded that it is still too early to release a draft text for public input, citing the need to “preserve negotiating strength and to encourage our partners to be willing to put issues on the table they may not otherwise.” However, he also said “there will be a time, once we have agreed on text, that we may – as we have with other agreements – be able to release that.”

The letter also criticized USTR for “eliminating the full-day stakeholder forums that have been hosted at other rounds” and replacing it with a “four-hour mid-day exhibit hall for stakeholder tables” that the academics saw as “a further decrease in amount, variety and effectiveness of means for the public to speak to negotiators on matters of broad public concern.” However, USTR defended this change in a May 16 press release. “Many stakeholders took advantage of provided presentation spaces for one-on-one engagement with negotiators from all nine teams,” USTR said, and many “commented that this format was more useful for this advanced stage of the negotiations and allowed them to provide input to negotiators on specific issues still on the table.” The press release added that the U.S. hosted a roundtable during which the nine chief negotiators briefed stakeholders and responded to their questions on TPP issues from Internet freedom and intellectual property enforcement to investor-state dispute settlement. USTR is planning to host a similar forum at the beginning of the next round of talks.

AD Duties on Solar Cells from China Could Inflame Trade Tensions

The International Trade Administration announced May 17 a preliminary affirmative dumping determination on imports of crystalline silicon photovoltaic cells, whether or not assembled into modules, from China. Some observers say the move could spark a reaction from China that is stronger than normal for dumping cases and increase bilateral trade tensions.

AD Duty Rates. U.S. Customs and Border Protection will be instructed to begin collecting AD cash deposits on imports of covered solar cells from China at rates ranging from 31.14% to 249.96%. Because the ITA also preliminarily determined that critical circumstances exist with respect to such imports, these cash deposit requirements will be applicable to all entries of Chinese solar cells made up to 90 days prior to the date this preliminary determination is published in the Federal Register, which is expected in the next few days.

The ITA is currently scheduled to make its final AD duty determination in early October. If that determination and the International Trade Commission’s final AD injury determination (which is due by Nov. 19) are both affirmative, the ITA will issue an AD duty order.

Subject Items. The products covered by this investigation are crystalline silicon photovoltaic cells and modules, laminates and panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including modules, laminates, panels and building integrated materials. This investigation covers solar cells of a thickness equal to or greater than 20 micrometers, having a p/n junction formed by any means, whether or not the cell has undergone other processing such as cleaning, etching, coating and/or the addition of materials (including metallization and conductor patterns) to collect and forward the electricity that is generated by the cell. Subject merchandise may be described at the time of importation as parts for final finished products that are assembled after importation, including modules, laminates, panels, building-integrated modules, building-integrated panels, or other finished goods kits. Covered items are currently classified in HTSUS 8501.61.0000, 8507.20.80, 8541.40.6020, 8541.40.6030 and 8501.31.8000.

Excluded from the scope of this investigation are thin film photovoltaic products produced from amorphous silicon (a-Si), cadmium telluride (CdTe) or copper indium gallium selenide (CIGS). Also excluded are crystalline silicon photovoltaic cells not exceeding 10,000 mm2 in surface area that are permanently integrated into a consumer good whose function is other than power generation and that consumes the electricity generated by the integrated crystalline silicon photovoltaic cell. Where more than one cell is permanently integrated into a consumer good, the surface area for purposes of this exclusion is the total combined surface area of all cells that are integrated into the consumer good.

The ITA adds that modules, laminates and panels produced in a third country from cells produced in China are covered by this investigation but that modules, laminates and panels produced in China from cells produced in a third country are not.

Response. Press sources speculate that the U.S. decision could inflame trade tensions with China out of proportion to what would normally be expected in an adverse AD duty decision. One reason, The New York Times reports, is that Beijing may see the AD duties as being at odds with agreements it has reached with the U.S. to cooperate on developing and commercializing sources of renewable energy to “reduce air pollution, combat climate change and limit the need for oil imports from politically volatile countries in the Mideast.” Another is that China feels discriminated against by the United States’ continued refusal to treat it as a market economy and resulting use of surrogate values from other countries in AD cases, which it believes improperly inflates the amount of AD duties imposed. China’s Ministry of Commerce said the AD duty decision on solar panels is “biased and unjust” and accused the U.S. of “deliberately provoking trade friction in the clean energy sector.”

However, it is unclear what measures China may take in response to the U.S. decision. One likely step is the announcement within the next week or two of the results of an investigation into government policy support and subsidies provided to the U.S. renewable energy sector, which was launched shortly after the U.S. launched its AD and CV cases on Chinese solar cells last November. MOFCOM has said that if violations are found in this investigation it will “adopt appropriate measures” that could include filing a complaint at the World Trade Organization.

It is worth noting that U.S. industries both upstream and downstream of Chinese solar cell manufacturers are opposing the new AD duties. U.S. producers of manufacturing equipment and component materials who count those Chinese companies among their major customers fear that high AD duties will lead to fewer orders, while companies that install solar panels for U.S. homeowners and businesses worry that the higher prices AD duties may cause could lower demand for their services.

CBP Can Take Steps to Improve Detection and Deterrence of AD/CV Duty Evasion, GAO Says

The Government Accountability Office has released a report urging U.S. Customs and Border Protection to take steps to improve its efforts to detect and deter the evasion of antidumping and countervailing duties. The report comes at a time when such evasion appears to be decreasing even as government and industry groups are still pursuing ways to prevent it.

Challenges to CBP Efforts to Deter Duty Evasion. According to the report, CBP’s efforts in this area consist of identifying potential cases of evasion, attempting to verify if evasion is occurring and taking enforcement action. To identify potential cases CBP targets suspicious import activity, analyzes trends in import data and follows up on allegations from external sources. Techniques used to attempt to verify whether evasion is occurring include asking importers for further information, auditing the records of importers suspected of evasion and inspecting shipments arriving at ports of entry. Once evasion is verified, enforcement actions can include pursuing the collection of evaded duties, imposing civil penalties, conducting seizures and referring cases for criminal investigation.

However, the GAO states, these efforts can be hindered in two ways. First, CBP faces several external challenges in attempting to gather conclusive evidence of evasion and take enforcement action: (1) the inherent difficulty of verifying evasion conducted through clandestine means, (2) limited access to evidence of evasion located in foreign countries, (3) the highly specific and sometimes complex nature of products subject to AD/CV duties, (4) the ease with which importers attempting to evade duties can change names and identification numbers to avoid detection, and (5) the limited circumstances under which CBP can seize goods evading AD/CV duties. The second factor is a gap in information sharing. For example, although communication between CBP and the Department of Commerce has improved, CBP lacks information from DOC that would enable it to better plan its workload and help mitigate the administrative burden it faces in processing AD/CV duties, an effort that diminishes its resources available to address evasion. Additionally, CBP has encouraged the use of larger bond amounts to protect AD/CV duty revenue from the risk of evasion but has neither a policy nor a mechanism in place for a port requiring a larger bond to share this information with other ports in case an importer withdraws its shipment and attempts to make entry at another port to avoid the higher bond amount.

The report also identifies shortcomings in CBP’s tracking of its anti-evasion efforts. GAO acknowledges that CBP has made some improvements, including by developing better performance measures and monitoring its use of higher bonding requirements. However, CBP does not systematically track or report key information, such as the number of confirmed cases of evasion or the outcomes of allegations received from third parties, that agency leadership and Congress could use to assess and improve efforts to deter and detect AD/CV duty evasion.

Recommendations for Action. The GAO therefore recommends the following actions.

- DOC should work with CBP to identify opportunities for DOC to regularly provide CBP with advance notice of liquidation instructions and notify CBP when courts reach decisions on AD/CV duty cases in litigation.

- To help minimize the risk of port shopping by importers seeking to avoid higher bond requirements, CBP should create a policy and a mechanism for information sharing among ports regarding the use of higher bond requirements.

- CBP should be required to develop and implement a plan to systematically track and report on (1) instances of AD/CV duty evasion and associated data, such as duties assessed and collected, penalties assessed and collected, and the country of origin, product type and method of evasion for each instance of evasion, and (2) the results, such as enforcement outcomes, of allegations of evasion received from third parties.

Evasion Declining but Efforts Continue. The amount of AD and CV duties that has gone uncollected by CBP (largely due to evasion) plummeted from $297.7 million in fiscal year 2009 to $103.9 million in FY 2011. CBP and DOC have been focusing on this problem for a number of years and have pursued or considered a number of solutions. One change currently being discussed is switching from a retrospective duty assessment system to a prospective system (wti/wti.asp?pub=0&story=35976&date=&company=), which has been formally recommended by the Advisory Committee on Commercial Operations of U.S. Customs and Border Protection (COAC). Lawmakers have taken up the matter as well, introducing legislation that would give DOC more authority to investigate AD/CV duty evasion (wti/wti.asp?pub=0&story=35184&date=&company=) or transfer such authority from DOC to CBP (wti/wti.asp?pub=0&story=36076&date=&company=). Another bill (wti/wti.asp?pub=0&story=38036&date=&company=) would require customs brokers to obtain identifying information from their clients and make a good faith effort to verify it and would also permanently eliminate the provision allowing new shippers to post a bond for duties owed.

In the meantime CBP is taking its own steps to address the issue. Al Gina, assistant commissioner for CBP’s Office of International Trade, told a Senate subcommittee in May 2011 that CBP is paying particular attention to the risk of non-payment or evasion posed by non-resident importers of record and that he has directed his staff to develop internal guidance to ensure that single transaction bonds are required whenever CBP suspects that a risk of revenue loss exists. Other efforts include pursuing authority to conduct overseas visits to verify production capabilities, developing a task force with the Justice Department to concentrate resources on the most complex cases, working with DOC to tighten new shipper requirements, and clarifying the responsibility of customs brokers to ensure the legitimacy of importers. CBP has also created a Re-Engineering Dumping (RED) Team charged with studying the import process for entries subject to AD/CV duties to identify where and what the threats, challenges and vulnerabilities are in each step of the process, with a particular focus on transshipment, under collections and the role of shell companies.

Dolphin-Safe Tuna Labeling Rules Overturned Again by WTO

The World Trade Organization’s Appellate Body issued earlier this month a decision against U.S. rules for labeling imported tuna as “dolphin-safe.” The Appellate Body called on the U.S. to bring these rules into compliance with WTO standards, and retaliatory sanctions from Mexico are a possibility if Washington does not comply.

The Department of Commerce currently prohibits tuna harvested in the eastern tropical Pacific Ocean by intentionally encircling dolphins with purse seine nets from being labeled as dolphin-safe. Some years ago the DOC sought to weaken this standard, reportedly under pressure from Mexico and other Latin American countries, so that tuna harvested by such means could be labeled as dolphin-safe as long as no dolphins were killed or seriously injured. Federal courts overturned this effort in 2004 and 2007, finding that it was based more on politics than scientific evidence. Mexico subsequently filed this WTO case in 2009.

In September 2011 a WTO dispute settlement panel found that the U.S. rules do not discriminate against Mexican tuna products and that the U.S. is not in violation of WTO rules requiring technical regulations to be based on relevant international standards where possible. The panel did find that the rules are more trade-restrictive than necessary to fulfill the legitimate objectives of (a) ensuring that consumers are not misled or deceived about whether tuna products contain tuna that was caught in a manner that adversely affects dolphins and (b) contributing to the protection of dolphins by ensuring that the U.S. market is not used to encourage fishing fleets to catch tuna in a manner that adversely affects dolphins.

The Appellate Body has now ruled that the U.S. tuna labeling rules are in fact inconsistent with the WTO Agreement on Technical Barriers to Trade. The AB explained that these rules are “not even-handed” because they address the adverse effects of setting on dolphins in the eastern tropical Pacific but do not address the risks to dolphin mortality from other fishing methods in other areas, which in some cases can be just as high. On the other hand, the Appellate Body reversed the panel’s decision that the U.S. rules are more trade restrictive than necessary, stating that the panel had conducted a flawed analysis and comparison between the U.S. rules and the alternative proposed by Mexico, which would not make an equivalent contribution to the United States’ objectives.

While the Appellate Body decision was decried by some as improper interference in U.S. policymaking, it could leave the door open for the existing rules to remain in place if the U.S. modifies them to address the risks to dolphins from all types of tuna fishing. A spokeswoman from the Office of the U.S. Trade Representative appeared to signal that such a possibility remains under consideration, saying that “the U.S. remains committed to ensuring that consumers receive accurate information concerning whether the tuna in a product labeled ‘dolphin safe’ was caught in a manner that caused harm to dolphins.”

Of Note: World Bank Reports on Logistics Performance, African Free Trade Zone

Global Trade Logistics Performance Slows Down Amid Recession and Major Events,,contentMDK:23196035~pagePK:64257043~piPK:437376~theSitePK:4607,00.html

Africa plan for $1 trillion trade bloc on track

Auxiliary/Miscellaneous Military Equipment Proposed for Transfer to Commerce Control List

As part of President Obama’s Export Control Reform Initiative the Bureau of Industry and Security has issued a proposed rule describing how auxiliary and miscellaneous military equipment and related articles that the president determines no longer warrant control under the U.S. Munitions List would be controlled under the Commerce Control List in new export control classification numbers 0A617, 0B617, 0C617, 0D617 and 0E617. Concurrently, the State Department’s Directorate of Defense Trade Controls has issued a proposed rule that would revise USML category XIII to describe more precisely those types of such articles that warrant continuing control on the USML. Comments on these proposed rules are due no later than July 2.

The BIS rule also proposes to (a) integrate into the five new ECCNs items within the scope of Wassenaar Arrangement Munitions List Category 17 that would be removed from the USML or that are not specifically identified on the USML or CCL but that are currently subject to USML jurisdiction and (b) control some items now classified under ECCNs 0A018, 0A918 and 0E018 under new ECCNs 0A617 and 0E617. BIS believes that the principal effect of this rule will be to provide greater flexibility for exports and reexports to NATO member countries and other multiple regime-member countries in the form of (a) availability of license exceptions, particularly RPL (servicing and replacement of parts and equipment) and STA (strategic trade authorization), (b) eliminating the requirements for manufacturing license agreements and technical assistance agreements in connection with exports of technology, (c) reducing or eliminating exporter and manufacturer registration requirements and associated registration fees, and (d) applying the EAR’s de minimis threshold principle for items constituting less than a de minimis amount of controlled U.S.-origin content in foreign-made items.

Click here for BIS rule
Click here for State Dept. rule

AD Notices: Steel Wire Rod, Large Residential Washers, Welded Line Pipe

Agency: ITA.
Commodity: Carbon and certain alloy steel wire rod.
Country: Canada.
Nature of Notice: NAFTA panel affirmation in part and remand in part of final results of 2005-2006 administrative review of AD duty order.

Agency: ITA.
Commodity: Large residential washers.
Country: Korea and Mexico.
Nature of Notice: Postponement of preliminary AD duty determinations from June 7 to July 27.

Agency: ITA.
Commodity: Welded large diameter line pipe.
Country: Japan.
Nature of Notice: Rescission of administrative review of AD duty order for the period Dec. 1, 2010, through Nov. 30, 2011, based on the withdrawal of the request for review.
Details: For affected companies, AD duties will be assessed at rates equal to the AD cash deposit required at the time of entry or withdrawal from warehouse for consumption.

Labor Dept. to Review Alleged Violations of DR-CAFTA Provisions in Honduras

The Labor Department accepted May 14 a submission alleging that the government of Honduras has violated the labor chapter of DR-CAFTA. The DOL states that the objective of its review will be to gather information so it can better understand the allegations and publicly report on the U.S. government’s views. A public report that includes a summary of the review process as well as any findings and recommendations is expected to be issued within 180 days.

The submission alleges that the GOH’s actions or lack thereof denied workers at factories in the apparel and auto parts manufacturing sectors, plantations in the agricultural sector and enterprises at the Port of Cortez their rights under Honduran labor law relating to freedom of association, the right to organize, the right to bargain collectively, child labor and acceptable conditions of work. The submission cites specific instances allegedly demonstrating an inability or unwillingness to find and remedy labor violations, the failure of labor inspectors to use all means provided for under the Labor Code to gain access to facilities for inspections or to serve notice of union establishment and protections, improper or questionable practices of Ministry of Labor and Social Security (STSS) employees in the enforcement of labor laws, the failure of STSS officials to grant union recognition or verify mandated corrections of violations uncovered by an inspection in the legally established timeframe, government mediation that failed to afford workers benefits meeting the standards established in the Labor Code, and lengthy proceedings that effectively served to deny workers their labor rights. The submission also identifies recently passed legislation that allegedly weakens workers’ rights as well as ongoing deficiencies in Honduras’ laws and legal system.

New Patent Infringement Investigation of Electronic Devices with Retractable USB Connectors

The International Trade Commission has instituted investigation 337-TA-843 to determine whether imports of certain electronic devices having a retractable USB connector are violating Section 337 of the 1930 Tariff Act by reason of patent infringement. The products at issue include cameras, camcorders, digital audio recorders, MP3 players, wireless modems and flash memory drives.

The complainant, Anu IP LLC of Longview, Texas, requests that after this investigation the ITC issue an exclusion order, which would direct U.S. Customs and Border Protection to prohibit the entry of the infringing products into the U.S., and cease and desist orders, which would require the named respondents to cease actions that violate Section 337, including selling infringing imported articles out of U.S. inventory. The respondents in this investigation are located in Taiwan, China, Japan, Belgium, Korea and the U.S.

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