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June 4 2012 issue

Monday, June 04, 2012
Sandler, Travis & Rosenberg Trade Report

CBP to Provide More Flexibility for Post-Importation Adjustments

U.S. Customs and Border Protection has finalized a policy change on the applicability of transaction value in the context of post-importation adjustments. This change, which will take effect July 30, is intended to make it easier to make transfer pricing adjustments after importation and could result in some duty savings as well.

Merchandise imported into the U.S. is appraised under 19 USC 1401a and the primary method of appraisement is transaction value, or the price actually paid or payable for the merchandise when sold for exportation to the U.S. plus certain additions. The term “price actually paid or payable” means the total payment (whether direct or indirect) made, or to be made, for imported merchandise by the buyer to, or for the benefit of, the seller. Transaction value is normally fixed at the time of importation but may be arrived at by using a formula. Rebates, or any other decreases in the price actually paid or payable made or effected after the date of importation, are to be disregarded for the purposes of determining transaction value.

However, CBP notes, importations that involve transactions between related parties may involve adjustments to initial transfer prices after importation in accordance with the company’s formal transfer pricing policy or formula. In some cases that policy may provide for year-end compensating adjustments to comply with the requirements of an advance pricing agreement between the U.S. party and the Internal Revenue Service. Such adjustments could affect whether the price is considered fixed or determinable by objective formula at the time of importation.

CBP’s current policy on the treatment of post-importation adjustments is set forth in ruling HQ 547654, dated Nov. 9, 2001, in which the price for the goods was arrived at pursuant to a methodology that included an initial sum subject to adjustments. CBP determined that transaction value did not apply because the price was not considered to be fixed or determinable pursuant to an objective formula prior to importation because at least one of the elements for determining the price was within the control of the buyer and/or the seller. Nonetheless, following the hierarchy of the valuation statute, CBP found that the goods could be appraised using the “fallback” method of valuation based on the related party price and that the adjustments could be reported (and claimed) to CBP through reconciliation.

CBP has now issued ruling HQ W548314 revoking HQ 547654 and changing this policy so that that even if the parties are related and certain costs may be within their control the transfer pricing policy may be considered an objective formula, thus allowing the use of transaction value for post-importation adjustments. However, the following criteria will have to be met.

- A written intercompany transfer pricing determination policy (prepared in a manner consistent with section 482 of the Internal Revenue Code) that sets out how the transfer price is to be determined is in place prior to importation.

- The importer/buyer is the U.S. taxpayer and uses its transfer pricing policy in filing its corporate income tax returns, and any adjustments resulting from that policy are reported or used by the taxpayer in filing its income tax return.

- The company’s transfer pricing policy specifies how the transfer price and any adjustments are determined with respect to all products covered by the policy for which the value is to be adjusted.

- The company maintains and provides accounting details from its books and/or financial statements to support the claimed adjustments in the U.S.

- No other conditions exist that may affect CBP’s acceptance of the transfer price.

While all of these criteria must be met, no single one will be determinative and CBP’s finding with respect to whether an objective formula exists will be made on a case-by-case basis. In addition, companies will still have to be prepared to show that transaction value is acceptable under the circumstances of the sale test or the test values test.

Finally, CBP is strongly encouraging importers to use the reconciliation program to report these types of post-importation adjustments. CBP is not requiring such use, as it had proposed, because reconciliation remains a test program. However, CBP states that if importers claim adjustments outside the reconciliation program they will be expected to demonstrate at the time of entry that the price is at arm’s length and to provide supporting information.

Click here for CBP notice

U.S. Announces Mutual Recognition of Air Cargo Security Programs with Canada, EU

The Department of Homeland Security has announced mutual recognition agreements concerning air cargo security with Canada, the European Union and Switzerland. These agreements are aimed at allowing air cargo to move faster, more efficiently and more securely, which in turn will cut costs for businesses and consumers.

Canada. DHS reports that the U.S. and Canada achieved mutual recognition as of March 31. As a result, cargo shipped on passenger aircraft will be screened at the point of origin and will not need to be rescreened at the border or prior to upload in the other country.

A DHS fact sheet states that this agreement is the first step toward fulfilling the integrated cargo security objectives of the action plan on perimeter security and economic competitiveness the two countries announced in December 2011 (wti/wti.asp?pub=0&story=38717&date=&company=). The U.S. and Canada are also working to strengthen coordination, cooperation and timely decision-making at the border for cargo shipped by sea or land, and the fact sheet states that when the action plan is fully implemented the principle of “screened once, accepted twice” is intended to apply to all modes of shipping cargo.

EU and Switzerland. Effective June 1 the U.S., the EU and Switzerland will mutually recognize their respective air cargo security regimes. A New York Times article states that under this agreement the Transportation Security Administration “will accept a set of European rules on the screening of cargo and the maintenance of a secure supply chain for all airlines and freight shippers flying cargo and mail into or through the European Union.” The article notes that with this agreement the TSA has expanded air cargo security mutual recognition from five to all 27 EU members.

Imports of Certain Handbags, Luggage, Etc. Banned for Trademark Infringement

The International Trade Commission has issued a general exclusion order prohibiting the unlicensed entry of handbags, luggage, accessories and packaging that infringe any of five specified trademarks owned by Louis Vuitton. The ITC states that this step is necessary because there is a pattern of trademark violation and it is difficult to identify the source of infringing products. The ITC does not believe there are sufficient public interest factors to preclude the issuance of this order, but the White House will now have 60 days to review and potentially overturn that decision.

The order states that handbags, luggage, accessories and packaging that infringe the specified trademarks or any marks confusingly similar thereto or that are otherwise misleading as to source, origin or sponsorship are excluded from entry into the U.S. for consumption, entry for consumption from a foreign-trade zone, or withdrawal from a warehouse for consumption except if imported by, licensed from or with the permission of the trademark owner or as provided by law. However, such entries may be made under a bond in the amount of 100% of the entered value of the products during the 60-day presidential review period.

At the discretion of U.S. Customs and Border Protection, persons seeking to import handbags, luggage, accessories or packaging that are potentially subject to this exclusion order may be required to certify that they are familiar with the terms of this order, that they have made appropriate inquiry and that to the best of their knowledge the products being imported are not excluded from entry under this order. CBP may also require those who provide such certifications to furnish such records or analyses as are necessary to substantiate them.

This prohibition will remain in effect until such date as the trademarks are abandoned, canceled, or rendered invalid or unenforceable. Louis Vuitton will be required to file a written statement with the ITC each year indicating whether such action has been taken and whether it continues to use each of the trademarks at issue in U.S. commerce.

Of Note: Imported Orange Juice Testing Eased; Multimodal Freight Policy Urged

FDA Ends Mandatory Imported OJ Testing After Fungicide Concerns

Senator urges DOT to create multimodal freight office

NAFTA Treatment Available for Recovered Refrigerant Gas, CBP Says

U.S. Customs and Border Protection is proposing to modify ruling NY N161355, which held that refrigerant gas recovered in Canada does not qualify for preferential tariff treatment under NAFTA, and to modify any treatment it has previously accorded to substantially identical transactions. Comments on this proposal are due no later than June 29.

NY N161355 addresses a scenario in which a company imports used refrigerant gas that is recovered from used refrigeration equipment undergoing service or dismantling in Canada. Once the gas is recovered, which requires specialized equipment, it is pumped into 1000 lb. cylinders for importation into the U.S. The country of origin of both the gas and the refrigeration equipment is unknown. CBP ruled that the gas did not qualify as originating under NAFTA because it did not undergo the requisite tariff shift in Canada.

CBP is now proposing to issue ruling HQ H172315 to reverse this determination. CBP notes that under 19 CFR 181.132, for purposes of the NAFTA rules of origin provisions disassembly is considered to be production and a component recovered from a used good disassembled in the territory of a NAFTA party will be considered to be originating provided that it satisfies certain requirements. CBP has determined that the recovery of refrigerant gas from used equipment is the result of disassembly and is therefore eligible for NAFTA treatment. In addition, since the origin of the gas cannot be determined, CBP is using the NAFTA preference override in 19 CFR 102.19 to find that since Canada is the last country in which the gas undergoes processing other than minor processing it is the country of origin for marking and duty purposes.

AD Notices: Ribbons, Mushrooms, Foundry Coke, Coated Steel Sheet

Agency: ITA.
Commodity: Narrow woven ribbons with woven selvedge.
Country: Taiwan.
Nature of Notice: Preliminary results of administrative review of AD duty order for the period Sept. 1, 2010, through Aug. 31, 2011.
Details: Weighted average dumping margin of 137.20% for sole reviewed manufacturer/exporter.

Agency: ITA.
Commodity: Preserved mushrooms.
Country: India.
Nature of Notice: Rescission of administrative review of AD duty for the period Feb. 1, 2011, through Jan. 31, 2012, with respect to four companies due to withdrawal of petitioner’s request.
Details: AD duties on entries of subject merchandise from these companies during the period of review will be assessed at the cash deposit rates required at the time of entry or withdrawal from warehouse for review.

Agency: ITC.
Commodity: Foundry coke.
Country: China.
Nature of Notice: Sunset review determination that revocation of AD duty order would be likely to lead to continuation or recurrence of material injury to an industry in the U.S. within a reasonably foreseeable time.

Agency: ITC.
Commodity: Tin- and chromium-coated steel sheet.
Country: Japan.
Nature of Notice: Sunset review determination that revocation of AD duty order would be likely to lead to continuation or recurrence of material injury to an industry in the U.S. within a reasonably foreseeable time.

CPSC to Review FY 2014 Priorities at June 20 Meeting

The Consumer Product Safety Commission will hold a public hearing June 20 in Bethesda, Md., on its agenda and priorities for fiscal year 2014, which begins Oct. 1, 2013. At this meeting and through the submission of written comments the CPSC is inviting input on the priorities it should consider emphasizing and de-emphasizing in its FY 2014 congressional budget request as well as ways it can measure its progress toward achieving those priorities.

IPR Enforcement Actions on Image Sensors, Program Guide Products, Circuit Packages, Handheld Devices

New Patent Infringement Probes of CMOS Image Sensors, Program Guide Products. The International Trade Commission has instituted the following patent infringement investigations.

- investigation 337-TA-846 of certain CMOS image sensors and consumer electronic devices containing same, such as camera phones (complainant California Institute of Technology; respondents located in Switzerland, Finland, Canada and the U.S.)

- investigation 337-TA-845 of certain products containing interactive program guide and parental control technology (complainants Rovi Corporation, Rovi Guides Inc., Rovi Technologies Corporation, Starsight Telecast Inc., United Video Properties Inc. and Index Systems Inc.; respondents located in Korea, Japan and the U.S.)

In both cases the complainants request that 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.

IPR Infringement Petition on Integrated Circuit Packages. The International Trade Commission received May 31 a petition on behalf of Industrial Technology Research Institute and ITRI International requesting that it institute a Section 337 investigation regarding certain integrated circuit packages provided with multiple heat-conducting paths and products. The proposed respondents are located in Korea and the U.S.

Section 337 investigations primarily involve claims regarding intellectual property rights violations by imported goods, including the infringement of patents, trademarks and copyrights. Other forms of unfair competition involving imported products, such as misappropriation of trade secrets or trade dress and false advertising, may also be asserted. The primary remedy available in Section 337 investigations is an exclusion order that directs U.S. Customs and Border Protection to stop infringing imports from entering the U.S. In addition, the ITC may issue cease and desist orders against named importers and other persons engaged in unfair acts that violate Section 337, including selling infringing imported articles out of U.S. inventory.

Termination of Patent Infringement Probe of Handheld Computing Devices. The International Trade Commission has terminated patent infringement investigation 337-TA-769 of certain handheld electronic computing devices, related software and components thereof based on the withdrawal of the allegations as to one respondent and a settlement agreement between complainant Microsoft Corporation and the other remaining respondents.

New FTZ in Idaho, Expanded Zones in Puerto Rico and Maryland

The Foreign-Trade Zones Board has recently approved the following actions.

- the creation of FTZ 280 under the alternative site framework with a service area of Ada and Canyon counties in Idaho, within and adjacent to the Boise CBP port of entry

- the reorganization and expansion of FTZ 74 under the ASF with a service area of the city of Baltimore and the counties of Anne Arundel, Baltimore, Cecil and Harford in Maryland, within and adjacent to the Baltimore CBP port of entry

- the expansion of FTZ 163 in Ponce, Puerto Rico, to include existing sites 14 and 15 in Caguas on a permanent basis and include a site (site 16) in Ponce within and adjacent to the Ponce CBP port of entry

WTO Case on India’s Agricultural Import Restrictions Subject of USTR Comment Request

The Office of the U.S. Trade Representative is accepting through July 5 comments on the issues raised in the United States’ World Trade Organization case against measures imposed by India on the importation of various U.S. agricultural products, including poultry meat and chicken eggs. The two sides held consultations on this matter April 16-17 but were unable to reach a resolution, and earlier this month the U.S. requested the establishment of a dispute settlement panel.

USTR has said that since at least February 2007 India has formally banned imports of various agricultural products from the U.S., supposedly to prevent outbreaks of avian influenza even though the U.S. has not had an outbreak of highly pathogenic avian influenza since 2004. U.S. agricultural trade groups have asserted that if these restrictions were lifted the value of U.S. poultry exports to India each year would surpass $300 million.

Dangerous Goods Transport Standards to be Discussed at June 13 DOT Meeting

The Department of Transportation’s Pipeline and Hazardous Materials Safety Administration will hold a public meeting June 13 in Washington, D.C., in preparation for the 41st session of the United Nations Sub-Committee of Experts on the Transport of Dangerous Goods, which will be held June 25 to July 4 in Switzerland. During this meeting PHMSA will also solicit comments relative to potential new work items that may be considered for inclusion in its international agenda.

The UNSCOE TDG will consider proposals for the 18th Revised Edition of the United Nations Recommendations on the Transport of Dangerous Goods Model Regulations, which will be implemented within relevant domestic, regional and international regulations from Jan. 1, 2015. General topics on the agenda for the UNSCOE TDG meeting include explosives and related matters; listing, classification and packing; electric storage systems; electronic data interchange for documentation purposes; global harmonization of transport of dangerous goods regulations; guiding principles for the Model Regulations; and the Globally Harmonized System of Classification and Labeling of Chemicals.

USDA End-Use Certificate Under Review

The Department of Agriculture is accepting comments through July 5 on the proposed extension of information collections associated with the end-use certificate program. This program requires such certificates to be included in the documentation covering the entry into the United States of any wheat originating from Canada to ensure that Canadian wheat does not benefit from USDA or Commodity Credit Corporation-assisted export programs. Form FSA-750, “End-Use Certificate for Wheat,” is used by importers of Canadian wheat to report entry and must be submitted within 15 workdays following the date of entry. Millers, exporters and other users of imported Canadian wheat use form FSA-751, “Wheat Consumption and Resale Report,” to report the final disposition of Canadian wheat in the U.S.

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