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July 23 2012 Issue

Monday, July 23, 2012
Sandler, Travis & Rosenberg Trade Report

USTR Soliciting Input on TPP Negotiating Objectives With Respect to Canada, Mexico

The Office of the U.S. Trade Representative is accepting comments through Sept. 4 on U.S. negotiating objectives with respect to the participation of Canada and Mexico in the Trans-Pacific Partnership agreement. USTR will also hold a public hearing on this subject Sept. 24 in Washington, D.C., and has requested that the International Trade Commission provide its advice on the probable economic effects of including these two countries in the TPP. 

USTR states that comments and testimony may address the reduction or elimination of tariffs or non-tariff barriers on any articles provided for in the Harmonized Tariff Schedule of the United States that are products of Canada or Mexico, any concession that should be sought by the U.S., or any other relevant matter. Comments are particularly sought on the following issues that should be addressed in the TPP negotiations. 

- economic costs and benefits to U.S. producers and consumers of the removal of tariffs and the removal or reduction of non-tariff barriers 

- the treatment of specific goods (described by HTSUS numbers), including product-specific import or export interests or barriers, experience with particular measures, and approaches to tariff negotiations, including recommended staging and ways to address export priorities and import sensitivities 

- the adequacy of existing customs measures to ensure that qualifying imported goods from TPP countries receive preferential treatment 

- existing sanitary and phytosanitary measures and technical barriers to trade 

- existing barriers to trade in services 

- relevant issues concerning electronic commerce, trade-related intellectual property rights, investment, competition, government procurement, the environment and labor 

- how the participation of Canada and Mexico might affect new and emerging issues being addressed in the TPP, such as promoting innovation and competitiveness, encouraging new technologies and emerging economic sectors, increasing the participation of small and medium-sized businesses in trade, and supporting the development of efficient production and supply chains that include U.S. firms 

House Agriculture Committee Passes Farm Bill Including Cotton “Reference Price,” Irks Brazil

[Editor’s note: This article originally appeared in the July 19, 2012, issue of the Advisor, a weekly publication of Sandler, Travis & Rosenberg’s STR-TAP textile and apparel information service. Click here for more information.] 

On July 12, the House Committee on Agriculture reported favorably on its latest version of H.R. 6038, the Federal Agricultural Reform and Risk Management Act, commonly known as the Farm Bill. The bill passed the House Agriculture Committee by a vote of 35-11. 

The most recent version of the bill, sponsored by Committee Chair Frank Lucas (R-OK), includes a provision that would give more generous subsidies to upland cotton farmers than the Senate version of the Farm Bill would. The provision is a reference price that sets the benchmark for calculations to determine cotton subsidy levels in the event of a drop in global cotton prices. The reference price provision would operate as part of STAX, a federal crop insurance program. A similar provision was stripped from an earlier Senate version of the bill. 

The STAX program insures a portion of a farmer’s projected revenue and pays out if expected revenue for a given farmer falls by 10 percent. If enacted, the House bill would add a reference price of $0.68 per pound of cotton. Such a high reference price guarantees cotton farmers at least a certain level of payment, regardless of whether actual market prices are lower than $0.68 per pound. If the market price for cotton is higher than $0.68 per pound, payments to cotton farmers would be even higher. 

This provision amounts to a market distorting subsidy, according to Brazilian officials. They claim that it will cost the U.S. government roughly $700 million annually and will insulate U.S. cotton farmers from market pressures. The Congressional Budget Office, on the other hand, has stated that the cost of STAX would be far lower than $700 million per year, regardless of whether the reference price is included. If the reference price is included in the final farm bill and global cotton prices do fall, Brazil fears its cotton farmers would not only lose revenue due to lower prices but also face competition from a glut of subsidized U.S. cotton. 

Brazil claims that both the House and Senate bills violate a 2008 World Trade Organization ruling that U.S. cotton subsidies violated multilateral trade rules. From 1999-2005, cotton farmers enjoyed subsidies ranging from $2-4 billion per year. Friends of the U.S. cotton industry claim that the new STAX program—either the Senate or House version—would comply with that WTO ruling, since either program would pay less than the U.S. paid at the time of the 2008 WTO ruling. 

The Agriculture Committee’s treatment of the General Sales Manager (GSM) 102 export credit guarantee also alarms Brazilian officials. The WTO ruling described the program as a prohibited export subsidy. While U.S. and Brazilian officials reached a temporary agreement on the GSM 102 program earlier this year, the program still causes consternation among Brazilian trade officials. 

U.S. to Expedite Work to Enable East Coast Ports to Handle Larger Container Ships

The Obama administration announced July 19 that seven infrastructure projects will be expedited to help modernize and expand the ports of Jacksonville, Miami, Savannah, New York/New Jersey and Charleston. The White House is also establishing a multi-agency task force that will develop a federal strategy and coordinated decision making principles that focus on the economic return of investments into coastal ports and related infrastructure to support the movement of commerce throughout the U.S. 

Port Projects. The port projects are largely focused on enabling the ports to accommodate the larger cargo vessels and other ships that will be able to transit the Panama Canal once its ongoing widening is complete in 2014. In Jacksonville, the Army Corps of Engineers will finalize by April 2013 a study on the feasibility of deepening the navigation channel from 40 feet to 50 feet. In Miami, all federal permit and review decisions concerning the deepening of the navigation channel from 42 feet to 50 feet are targeted for completion by this August and the Army Corps expects to complete the project by the end of the year. In Savannah, the Army Corps has completed a feasibility review of deepening the existing channel from 42 feet to 47 feet and committed to completing all federal permit and review decisions by this November. In New York/New Jersey, the Army Corps expects to complete in 2014 the deepening of existing channels that provide access to four container terminals to 50 feet. In addition, the Coast Guard hopes to reduce by several months the overall permit decision-making and review timelines for raising the roadbed of the Bayonne Bridge from 151 feet to 215 feet. In Charleston, the Army Corps is planning to complete by September 2015 a feasibility study on deepening the navigation channel from 45 feet to 50 feet. 

Also in Jacksonville, the Department of Transportation plans to complete by July 2013 all permits for the new Jacksonville Port Intermodal Container Facility, which will increase the capacity of the port to handle containers that arrive or depart by rail and thereby reduce truck traffic on local and regional roads. 

New Task Force. A White House fact sheet states that U.S. coastal ports are facing new challenges and increased competition, including from ports in Canada and the Caribbean, but new opportunities as well, including those that will result from the expansion of the Panama Canal. The Task Force on Ports will examine these and other issues from a national perspective, the fact sheet states, and its work “will reflect a strategic, multimodal view of the nation’s investment priorities for the physical and information infrastructure that supports the movement of freight through our ports.” It will be comprised of senior officials from the National Economic Council, the Office of Management and Budget, the Council of Economic Advisers, the Council on Environmental Quality, the Office of the U.S. Trade Representative, and the departments of the Army, Commerce, Homeland Security, Transportation and the Treasury. 

Russia PNTR Bill Introduced in House

House Ways and Means Committee leaders introduced July 19 legislation to grant permanent normal trade relations status to good imported from Russia. A committee press release states that while a review of the legislative text of the PNTR bill passed by the Senate Finance Committee is still pending, the House bill “is expected to mirror” it. Provisions designed to address concerns about human rights violations in Russia, which were added to the Senate bill before the Finance Committee passed it, are expected to be grafted into the House bill after a Ways and Means Committee vote. 

Ways and Means is also planning to mark up the House bill the week of July 23. This step could improve chances that PNTR for Russia will be approved by both the House and Senate before they begin their month-long summer recess. That, in turn, would allow U.S. businesses to take full advantage of the trade liberalization concessions Russia will implement once it formally joins the World Trade Organization in August. 

Federal Import Safety Center Adds NHTSA as Eighth Partner Agency

U.S. Customs and Border Protection announced July 19 that the Department of Transportation’s National Highway Traffic Safety Administration, the nation’s chief automotive safety agency, has become the eighth federal partner to join CBP’s Import Safety Commercial Targeting and Analysis Center. CTAC is a multi-agency center for targeting commercial shipments that pose potential threats to health and safety. “U.S. consumers rightfully expect the millions of vehicles operating on our roadways to meet federal safety standards—whether they are produced entirely on American soil or use parts or products manufactured elsewhere,” said NHTSA Administrator David Strickland. “By partnering with CBP and other agencies to identify illegal or non-compliant shipments, we can better ensure public safety while leveling the playing field for companies that follow the law.”  

Maritime Industry Warned of False Flags on Iranian Vessels

The Office of Foreign Assets Control issued July 19 a global advisory to alert the maritime industry that the Islamic Republic of Iran Shipping Lines (IRISL) has recently been operating vessels despite their flags having been revoked. OFAC states that international sanctions, and IRISL’s efforts to evade them through deceptive practices, have led to increased vigilance by the maritime industry and prompted an increasing number of countries to revoke or refuse to issue a flag to vessels in which IRISL or its affiliates have an interest. As more jurisdictions refuse to flag IRISL vessels, it is increasingly likely that persons will encounter IRISL vessels that are not properly flagged. 

OFAC is therefore encouraging maritime authorities to be alert to the presentation by IRISL of potentially fabricated vessel registration and flag credentials at ports of call and canal entrances. The agency is urging state port control and canal authorities to thoroughly scrutinize the certificates of registry of IRISL vessels to ensure that such documentation is not expired or fraudulent and to take appropriate action if it is found lacking. OFAC is also warning maritime authorities and others in the maritime industry that assisting IRISL or its blocked affiliates to re-flag their vessels may constitute the provision of services to a person whose property is blocked and could thus lead to U.S. sanctions. 

Three Foreign-Trade Zones Seek to Reorganize Under Alternative Site Framework

The Foreign-Trade Zones Board will accept comments through Sept. 21 on applications to reorganize the following FTZs under the alternative site framework. 

- FTZ 104 in Savannah, Ga., which would have a service area of Bulloch, Bryan, Chatham, Columbia, Effingham, Evans, Liberty, Long, Richmond and Screven counties in Georgia and would be adjacent to the Columbia, S.C., U.S. Customs and Border Protection port of entry 

- FTZ 8 in Toledo, Ohio, which would have a service area of Sandusky, Henry, Wood, Lucas and Defiance counties, within and adjacent to the Toledo-Sandusky CBP port of entry 

- FTZ 32 in Miami, Fla., which would have a service area of the portion of Miami-Dade County located north of State Road 836 (Dolphin Expressway), south of US-27 (SW Okeechobee Road) and west of State Road 969 (Milam Dairy Road and West 72nd Avenue) to State Road 825 (NW 137th Avenue), within the Miami CBP port of entry 

Clarification on CBP’s Erroneous Assessment of Higher MPF

U.S. Customs and Border Protection announced earlier this week that it will reliquidate entry summaries entered prior to Oct. 1, 2011, that have erroneously been assessed the higher merchandise processing fee that was effective as of that date. We wish to clarify that such entry summaries will be reliquidated to reflect the original MPF of 0.21%, not the current MPF of 0.3464%. 

Export Regulations Amended to Reflect Changes Concerning Arms Embargoes

The Bureau of Industry and Security has issued a final rule that, effective July 23, will amend the Export Administration Regulations concerning the imposition of arms embargoes by the United Nations Security Council. Under this rule a license will be required to export or reexport certain items to countries subject to such an embargo and a presumptive denial policy will apply to applications to export or reexport items that are controlled for UN reasons and would contravene a UNSC arms embargo. This rule also reflects the lifting of the UNSC arms embargo against Rwanda, including by removing machetes from Export Control Classification Number 0A988. 

U.S. Programming Operations Substantially Transform Network Security Devices, CBP Says

U.S. Customs and Border Protection has issued a final determination concerning the country of origin of certain devices known as Pwn Plugs that may be offered to the U.S. government under an undesignated government procurement contract. These devices are described as a full security testing suite packed into a micro-server that provides covert, encrypted access over Ethernet, wireless and 3G/GSM connections and is designed to conduct cyber security audits of computer networks. 

CBP states that fully assembled microcomputer devices are imported into the U.S. where they are programmed with proprietary software developed in the U.S. that provides a Web-based interface for configuring the microcomputer devices into Pwn Plugs. This constitutes a substantial transformation, and the country of origin of Pwn Plugs is therefore the U.S. Moreover, CBP adds, when the U.S.-origin Pwn Plugs are packaged together with cables, wireless adaptors and modems from China and memory cards from Taiwan, those products are substantially transformed and their essential character is provided by the Pwn Plugs and thus their country of origin for government procurement purposes is also the U.S. 

CBP issues country of origin advisory rulings and final determinations as to whether an article is or would be a product of a designated country or instrumentality for the purposes of granting waivers of certain “Buy American” restrictions in U.S. law or practice for products offered for sale to the U.S. government. 

CBP’s final determination was issued July 13. Any party-at-interest may seek judicial review of this determination by Aug. 22. 

Advance Notice to be Required for Imports of Two Chemical Substances

The Environmental Protection Agency has issued a final rule that, effective Aug. 22, will impose new import restrictions on two chemical substances: rutile, tin zinc, calcium-doped; and rutile, tin zinc, sodium-doped. Under this rule, persons who intend to import, manufacture or process either of these substances for an activity that is designated as a significant new use by this rule must notify EPA at least 90 days before commencing that activity. However, this requirement does not apply to quantities of these substances that have been incorporated into a polymer, glass, dispersion, cementitious matrix, or a similar incorporation. 

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