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July 12 2012 Issue

Thursday, July 12, 2012
Sandler, Travis & Rosenberg Trade Report

Proposed Change to Use of Transaction Value for Calculating Regional Value Content Under NAFTA

U.S. Customs and Border Protection is proposing to modify ruling HQ H064378 relating to the use of the transaction value method for purposes of calculating the regional value content under NAFTA if there is no sale for export between the parties to the transaction. Comments on this proposal are due no later than Aug. 6.

In HQ H064378, the importer proposed to use the TV method to satisfy the RVC and base the TV on the domestic sale between a U.S. importer and a U.S. customer. The importer argued that since in ruling HQ H028880 CBP determined that the U.S. clients of a maquiladora operation in Mexico were the producers for purposes of completing the NAFTA certificate of origin the U.S. importer should be considered a producer as defined in NAFTA regulations and the U.S. customer should be considered the buyer for purposes of the RVC calculation as well. CBP found that the price actually paid or payable, as defined by the NAFTA rules of origin regulations, would be the price paid by the U.S. customer to the U.S. importer, which could therefore could choose to satisfy the RVC by showing that it can satisfy the 60% of TV standard set forth in the tariff shift rule for the imports at issue. However, CBP added that the price used for the purpose of calculating the RVC would not be utilized for the purpose of valuation of the imported goods.

Upon review, CBP is proposing to take the position that even though under certain circumstances the U.S. clients of a maquiladora may be considered producers for purposes of filing the certificate of origin, the TV method may not be used to satisfy the RVC requirements in this case because according to the facts presented by the importer there is no sale between the maquiladora in Mexico and the U.S. importer, as required by the NAFTA rules of origin regulations. As a result, the net cost method would have to be used to calculate the RVC.

Latest Trans-Pacific Partnership Talks See Progress on Customs, Procurement, Services, Etc.

The nine current participants in the Trans-Pacific Partnership agreement negotiations wrapped up their latest round of talks July 10 in San Diego, Calif. A press release from the Office of the U.S. Trade Representative states that during these discussions “negotiating groups made particularly significant progress in a number of chapters, including customs, cross-border services, telecommunications, government procurement, competition policy, and cooperation and capacity building.” Other groups “moved their work ahead substantially” on issues such as rules of origin, investment, financial services and temporary entry. There were also continued discussions on lowering tariffs on industrial, agricultural and textile goods, how to promote regional supply chains, and specific commitments on the liberalization of markets for services.

USTR announced separately that for the first time in any U.S. trade agreement it has proposed a provision that would obligate parties to seek to achieve an appropriate balance in their copyright systems in providing copyright exceptions and limitations for purposes such as criticism, comment, news reporting, teaching, scholarship and research. USTR notes that these principles are both “critical aspects of the U.S. copyright system” and “consistent with the internationally-recognized ‘3-step test.’” 

USTR made no mention of discussions on textile and apparel issues after the round, but as it got underway several U.S. and Vietnamese textile groups sent a letter to USTR Ron Kirk and Vietnamese trade minister Vu Huy Hoang calling for the TPP to include “updated and commercially meaningful rules for the apparel industry that recognize the importance of global value chains.” Specifically, they said, the TPP should include (a) simple and flexible rules of origin for apparel focusing on either assembly or regional value content requirements, (b) immediate and reciprocal duty-free access for apparel, and (c) customs procedures that facilitate trade and reflect smart enforcement based on risk. They added that “restrictive rules of origin, such as the yarn forward rule of origin, should be used only in very limited circumstances and only for sensitive products where there is domestic production data establishing that such rules are necessary and appropriate.”

The next round of TPP talks has been scheduled for Sept. 6-15 near Washington, D.C., but Canada and Mexico will not be at the table. The two NAFTA partners were invited to join the negotiations in June but under a now-expired grant of trade promotion authority to the Obama administration they cannot take part until 90 days after the White House notifies Congress of their involvement, which only occurred this week. There was also no further word on the potential participation of Japan, which has expressed interest but has yet to reach an internal decision on whether or not to join.

Brazil Imposes AD Duties on Chinese Footwear Parts and Accessories

Brazil announced last week that it is imposing an antidumping duty of 182% on footwear parts and accessories classified under tariff codes 6406.10.00 and 6406.20.00 of the Mercosur Common Nomenclature and imported from China. Brazil already maintains an AD duty of $13.85 per pair on Chinese-made shoes, but Brazilian authorities decided the additional duties are necessary to combat efforts to circumvent those tariffs by importing shoe components from China and assembling them in Brazil.

Of Note: Increasing Exports, Russia Vote on Joining WTO, New Services Group Chief, Product Safety Summit

It's the exports, stupid!

Russian lawmakers ratify WTO entry

Ambassador Peter F. Allgeier to Serve as New CSI President

US, China, EU vow closer co-op on product safety

$7.4 Million in Penalties for Medical Device Firm Charged with Bribery in Mexico

A Texas-based medical device company will pay $5.2 million to the Securities and Exchange Commission to settle charges that it violated the Foreign Corrupt Practices Act. The company has also reached an agreement with the Department of Justice to pay a $2.22 million penalty in a related action.

The SEC alleged that the company’s Mexican subsidiary paid more than $300,000 in bribes to officials at Mexico’s government-owned health care and social services institution to obtain lucrative sales contracts with government hospitals. According to an SEC press release, the bribes came in the form of cash, laptop computers, televisions and appliances that were provided directly to Mexican government officials or indirectly through front companies that the officials owned. The bribery scheme lasted for several years and yielded nearly $5 million in illegal profits for the subsidiary. 

The press release notes that the parent company did launch an inquiry into the subsidiary’s training and promotional expenses, which were significantly over budget due to the bribes, but did very little to investigate or diminish the excessive spending. However, upon discovering the bribe payments through an executive of the subsidiary, the company immediately self-reported the matter to the SEC and implemented significant remedial measures, including terminating the executives who orchestrated the bribery scheme. The company has also agreed to certain undertakings, including monitoring its FCPA compliance program and reporting back to the SEC for a two-year period.

ITC Proposes to Revise Rules for Conducting IPR Infringement Investigations

The International Trade Commission is soliciting public comments through Sept. 10 on a proposed rule that would amend its rules of general application, adjudication and enforcement, particularly with respect to the conduct of Section 337 intellectual property rights infringement investigations. The ITC states that these amendments are necessary to make certain technical corrections, clarify certain provisions, harmonize different parts of the rules and address concerns that have arisen in ITC practice. The intended effect is to facilitate compliance and improve the administration of agency proceedings.

Specific changes proposed include the following.

- The complainant would have to (a) plead with particularity whether it alleges a domestic industry that exists or a domestic industry that is in the process of being established, (b) specify if it is requesting a general exclusion order, a limited exclusion order and/or cease and desist orders, and (c) identify the accused products with a clear statement in plain English, which would be included in the Federal Register notice requesting public interest comments as well as the notice of investigation.

- To address the filing of substantial amendments to Section 337 complaints during the pre-institution review period, which has become increasingly common and places significant burdens on the ITC as well as respondents, any significant amendment to a complaint prior to the institution of an investigation would restart the normal 30-day process for determining whether to institute the investigation.

- Regulations on the termination of investigations by consent order would be clarified by providing that consent order stipulations must include a statement identifying the asserted intellectual property right or unfair trade practice that is the basis for the alleged violation of Section 337 and whether the stipulation calls for cessation of importation, distribution, sale or other transfers (other than exportation) of subject articles in the United States and/or specific terms relating to the disposition of existing U.S. inventories of subject articles. 

Foreign Regulatory Changes Could Affect Exports of Foods, Insecticides, Play and Sports Equipment, Fuels, Etc.

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.

Brazil – draft resolution on distribution transformers in insulating liquid (comments due by July 30)

Colombia – amended technical regulation on meat and meat products (comments due by Sept. 21)

Colombia – draft sanitary requirements for establishments engaged in the slaughter of poultry and the cutting, storage, marketing, sale, importation, exportation and transport of meat and edible meat products (comments due by Sept. 24)

Dominican Republic – standard on maximum pesticide residue limits for tomatoes (comments due by Aug. 20)

Grenada – national standards on (a) fruit and vegetable juices and drinks and fruit nectars and (b) aerosol insecticides for household use (comments due by Sept. 3)

Israel – revised mandatory standards on milk and milk products, solar water heating systems, ceramic ware, pre-packaged food, pressure vessels, inflatable play equipment, plugs and socket-outlets, gasoline and automotive fuels (comments due by Sept. 6)

Jamaica – safety and performance requirements for soccer goals (comments due by Sept. 9)

Japan – safety requirements for portable laser-applied equipment (comments due by Sept. 9)

Japan – revised standards on residential heat pump water heaters (comments due by Sept. 9)

Mexico – revised official standard on measuring instruments

Saudi Arabia – draft technical regulation on lubricating oils for internal combustion engines (comments due by Sept. 9)

South Africa – proposed quality and compositional standards for edible ices (comments due by Aug. 31)

Taiwan – revised standards on uninterruptible power systems (comments due by Sept. 9)

Taiwan – proposed energy efficiency labeling scheme for electric pots (comments due by Sept. 9)

USDA Reviewing Information Collections on Meat and Poultry Recalls

The Department of Agriculture’s Food Safety and Inspection Service is accepting comments through Aug. 13 on information collections associated with voluntary recalls of meat and poultry products. A firm that has produced or imported meat or poultry that is adulterated or misbranded and is being distributed in commerce may voluntarily recall the product in question. In conducting a recall, the establishment will be asked to provide FSIS with some basic information, including the identity of the recalled product, the reason for the recall and information about the distributors and customers of the product. FSIS field personnel will use FSIS form 8400-4 A to determine if the retail consignee received notification of the recall as well as the amount of recalled products received. FSIS field personnel will also use FSIS form 8400-4 B to verify that product held by the retail consignee was properly disposed.

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