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June 19 2012 issue

Tuesday, June 19, 2012
Sandler, Travis & Rosenberg Trade Report

Export Control Reform Advances with Proposed Common Definition of “Specially Designed”

The Bureau of Industry and Security and the State Department’s Directorate of Defense Trade Controls have issued separate proposed rules that would set forth, as much as possible, a common definition of the term “specially designed” for use in the Export Administration Regulations and the International Traffic in Arms Regulations. This term is used widely in the Commerce Control List and would play an important role in the 600 series of export control classification numbers that the BIS has proposed to create to control less-sensitive defense articles transferred to the CCL from the U.S. Munitions List. Comments on these proposals are due no later than Aug. 3.

The BIS states that the “specially designed” definition it is proposing would capture the items currently captured under the ITAR “specifically designed, modified or configured” for a military application catchall. BIS understands that the issues associated with catch-all control text would largely be transferred from one set of regulations to another but believes that industry and government would benefit from adopting this new definition because doing so would confine the term’s use to a single set of regulations for a large volume of parts, components and other items that do not warrant the worldwide and collateral controls of the ITAR. Moreover, this proposal would objectively define the catch-all term “specially designed” for such items and consistently apply the “normal commercial use” carve-outs. It would also implement a policy under which the new 600 series ECCNs should not control items that (a) have predominant civil applications and performance equivalents to those used for civil applications and (b) do not have significant military or intelligence applicability such that control under the ITAR (or a new 600 series ECCN) is warranted.

According to the BIS, the proposed definition would provide the public with an as objective as possible basis for determining whether any other item on the CCL is “specially designed.” It also responds to a common industry request to clarify that “specially designed” does not mean merely “capable of use in” or “capable of use for” another item. For example, non-application specific general purpose integrated circuits that are not designed for a particular application would not be “specially designed” items even if they are used in controlled end items. Rather, the extent of the controls on such circuits would be described by the technical and other parameters in category 3 of the CCL.

The BIS is also engaging in a longer term effort to remove “specially designed” from the EAR as much as possible. To that end the agency is soliciting input through Sept. 17 on the feasibility of replacing this term in the CCL with exhaustive lists of the specially designed components referred to in certain ECCNs. This cannot be done at the present time because (1) the lists of items controlled by multilateral export control regimes rely on the term extensively, (2) BIS has not developed lists of which specific items would be “specially designed,” a process that would take many years to complete, and (3) the new 600 series of ECCNs must use a catch-all “specially designed” term to avoid inadvertently de-controlling items other than common, single unassembled parts that are now ITAR-controlled as “specifically designed, modified or configured” for a military application.

Click here for BIS proposed rule
http://www.ofr.gov/OFRUpload/OFRData/2012-14475_PI.pdf
Click here for State Dept. proposed rule
http://www.ofr.gov/OFRUpload/OFRData/2012-14471_PI.pdf
Click here for BIS ANPR
http://www.ofr.gov/OFRUpload/OFRData/2012-14473_PI.pdf

Higher AD Duty Rates Possible for Imports from China and Vietnam

The Department of Commerce is making a change in methodology that will reduce the export price or constructed export price in antidumping proceedings involving China and Vietnam by the amount of an export tax, duty or other charge. This change, which could result in higher AD duty rates, will be applied to future administrative proceedings involving merchandise from China or Vietnam that are initiated after June 19.

Current AD law requires the DOC to make such an adjustment in all dumping margin calculations, but for many years the department had taken the position that it could not do so in AD proceedings involving non-market economies because pervasive government intervention in these countries precluded the proper valuation of taxes paid by NME respondents to NME governments. In 2007, however, the DOC determined in separate countervailing duty proceedings that the present-day Chinese and Vietnamese economies are sufficiently dissimilar from the Soviet-style economies for which the above policy was developed that it can be determined whether these governments have bestowed an identifiable and measurable benefit on a producer and whether that benefit is specific, including certain measures related to taxation. This determination has led the DOC to make a similar change with respect to the identification and measurement of taxes paid by NME companies to NME governments.

As a result, the DOC is changing its administrative practice concerning the consideration of export taxes and similar charges in future AD duty investigations and administrative reviews of AD duty orders on goods imported from China and Vietnam. This proposed methodology could be applied to other NMEs in the future if they are also determined to be dissimilar from Soviet-style economies.

• First, the DOC will determine whether, as a matter of law, regulation or other official action, the NME government has imposed an export tax, duty or other charge on the subject merchandise during the period of investigation or the period of review (e.g., an export tax or value-added tax that is not fully refunded upon exportation). It is anticipated that parties would place on the record copies of laws, regulations, other official documents or similar publicly available information that identify the particular tax imposed. DOC will also consider evidence as to whether the particular respondent was, in some manner, exempted from the requirement to pay the export tax, duty or other charge.

• Provided that the NME government imposed an export tax, duty or other charge on subject merchandise and the respondent was not exempted from it, the respondents’ EP and CEP will be reduced accordingly but not rebated. The DOC anticipates that in many instances the export tax, VAT, duty or other charge will be a fixed percentage of the price and that in such cases the EP or CEP will be adjusted downward by the same percentage. In instances where the tax or charge is a flat fee or nominal sum denominated in NME currency, the ratio of the flat fee to the respondent’s EP or CEP as denominated in its domestic currency will be determined and the EP or CEP will be adjusted downward by the same ratio.

U.S. Wins WTO Case Against Chinese AD/CV Duties on Steel

The Office of the U.S. Trade Representative is claiming a win in a World Trade Organization case filed against China’s imposition of antidumping and countervailing duties on grain-oriented flat-rolled electrical steel from the U.S. An Inside US Trade article cites a USTR official as saying the decision “helps to send a clear signal to China that it … cannot use trade remedies as a retaliatory tool,” which a USTR press release says “carries the potential to strengthen future challenges to China’s trade remedy tactics.”

According to the press release, the WTO dispute settlement panel found that “China conducted an investigation and applied duties in a manner inconsistent with numerous obligations under the Subsidies and Countervailing Measures Agreement and Anti-Dumping Agreement.” Among other things, the panel found that China initiated 11 CV duty investigations without sufficient evidence, calculated subsidy rates for U.S. companies in a manner unsupported by the facts, calculated “all others” subsidy and dumping rates without a substantiated basis, failed to provide an adequate explanation of its conclusions or disclose essential facts underlying those conclusions, failed to objectively examine the evidence on the record, and made unsupported findings of injury to the domestic industry.

China’s WTO ambassador pointed out that the panel found that China “acted consistently with the WTO rules regarding various issues in dispute.” For example, the panel rejected the U.S. claims that China’s Ministry of Commerce (a) was obligated to disclose the data and calculations it used to arrive at the dumping margins for two respondents, (b) did not give adequate public notice of information concerning the subsidy benefit relating to government procurement, and (c) improperly resorted to “facts available” to calculate some subsidy rates. However, the official said Beijing “reserves the right to appeal” the panel’s decisions in favor of the U.S.

CBP to Begin Retroactive Billing for MPF Increase

U.S. Customs and Border Protection has announced that it will begin billing for the merchandise processing fee increased that was retroactively effective on Oct. 1, 2011. CBP did not begin accepting the new MPF rate until Nov. 5 but could not begin the retroactive billing process for merchandise entered between Oct. 1 and Nov. 4 until the refund processing was completed for the Generalized System of Preferences, Andean Trade Preference Act and Andean Trade Promotion and Drug Eradication Act retroactive renewals.

CBP states that it will script liquidate entries with a future liquidation date to generate a bill for the additional MPF due. Differences of less than $20 are de minimis and as such will not be processed for retroactive MPF. Entries flagged for reconciliation will have the MPF increase accounted for via the reconciliation entry.

The scripting process was to have begun the week of June 11 and CBP is expecting to liquidate approximately 20,000 entries per week.

AD Notice: Fresh Garlic from China

Agency: ITA.
Commodity: Fresh garlic.
Country: China.
Nature of Notice: Rescission of administrative review of AD duty order for the period Nov. 1, 2010, through Oct. 31, 2011, with respect to 101 producers/exporters due to the withdrawal of the petitioner’s request for review.
Details: AD duties on entries of subject merchandise from these entities will be assessed at rates equal to the AD cash deposit rate required at the time of entry or withdrawal from warehouse for consumption.

Labor Dept. Pursuing Alleged DR-CAFTA Violations in Dominican Republic

The Department of Labor is accepting through July 2 comments and specific information concerning allegations that the government of the Dominican Republic has violated the labor chapter of the DR-CAFTA. The petitioner charged that the DR government’s actions or lack thereof have denied workers in the sugar sector their rights under the country’s laws relating to freedom of association, the right to organize, child labor, forced labor, the right to bargain collectively and acceptable conditions of work. This request for comments is part of the department’s review of this submission, which has also included receiving information from stakeholders, visiting the DR, meeting with organizations and individuals, and conducting interviews with workers and their representatives, management and other sugar industry representatives, and the government.

DOT Notes Hazmat Special Permit Applications, Decisions, Delays in Processing

The Department of Transportation’s Pipeline and Hazardous Materials Safety Administration has issued the following concerning exceptions from the Hazardous Materials Regulations.

- a list of applications for special permits (http://www.ofr.gov/OFRUpload/OFRData/2012-14696_PI.pdf) for exceptions from the HMR, including for motor vehicles, rail freight, cargo vessels, cargo aircraft and passenger-carrying aircraft (comments due no later than July 19)

- a list of applications to modify (http://www.ofr.gov/OFRUpload/OFRData/2012-14693_PI.pdf) previously issued special permits; e.g., to provide for additional hazardous materials, packaging design changes, additional mode of transportation, etc. (comments due no later than July 5)

- a list of actions taken on special permit applications (http://www.ofr.gov/OFRUpload/OFRData/2012-14692_PI.pdf), including modified, new and emergency permits granted and permits denied

- a list of special permit applications that have been in process for 180 days or more (http://www.ofr.gov/OFRUpload/OFRData/2012-14698_PI.pdf), including the reason(s) for delay and the expected completion date

CBP Reviewing Application to Manipulate, Examine, Sample or Transfer Goods

U.S. Customs and Border Protection is accepting comments through Aug. 20 on the proposed extension without change of CBP form 3499, Application and Approval to Manipulate, Examine, Sample or Transfer Goods. This form is used as an application to perform various operations on merchandise located at a CBP approved bonded facility. It is filed by importers, consignees, transferees or owners of merchandise and is subject to approval by the port director. The form may also be approved as a blanket application to manipulate for a period of up to one year for a continuous or repetitive manipulation.

Comments should address whether this form is necessary for CBP to properly perform its functions, ways to enhance the quality, utility and clarity of the information collected, the accuracy of the estimates of the burden associated with this form and ways to minimize that burden, and the annual cost burden to respondents or record keepers (total capital/startup costs
and operations and maintenance costs).

License Transfer and Duplicate License Services Subject of BIS Comment Request

The Bureau of Industry and Security is accepting comments through Aug. 20 on the proposed extension of information collections associated with services to exporters who have lost their original license and require a duplicate or wish to transfer their ownership of an approved license to another party. Each of these actions requires a letter to the BIS that includes certain information or information and certification, as explained in sections 750.9 and 750.10 of the Export Administration Regulations. Comments should address whether the collection of information is necessary for the Bureau’s proper performance of its functions, ways to enhance the quality, utility and clarity of the information collected, the accuracy of the estimated burden and ways to minimize that burden.

Foreign Regulatory Changes Could Affect Exports of Drugs, Vehicles

According to the National Institute of Standards and Technology, the World Trade Organization has been notified of regulatory changes that may affect exports of specific products to the following countries. For information on how these restrictions may affect your business, contact ST&R.

Chile – May 22 effective date of technical standard on pharmaceutical products

Ecuador – draft amendment of technical regulation on school transportation vehicles

Export Financing Sought for Shipment of Titanium Production Equipment to Kazakhstan

The Export-Import Bank of the U.S. has received an application for a $22.5 million working capital guarantee to support the export of approximately $21.6 million worth of titanium refining and production equipment to Kazakhstan. These exports will enable the Kazakh firm to establish a maximum production capacity of 7,000 metric tons of titanium per year, and available information indicates that all of the new production will be sold in South Korea. Comments on this transaction are due no later than July 3.

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