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August 15 2012 Issue

Wednesday, August 15, 2012
Sandler, Travis & Rosenberg Trade Report

Double Check Your CAFTA-DR Shipments: CAFTA-DR Technical Changes Enacted, Not Yet Effective

CAFTA-DR importers, exporters and supply chain participants should take note of the technical fixes that were enacted Aug. 10 which may have an impact on their goods. These modifications to the CAFTA-DR origin rules will take effect upon publication of a Federal Register notice by USTR, but no sooner than Oct. 9. 

New Apparel Subject to Cut & Sew Rule The cut and sew rule for woven sleepwear will be extended to women’s and girls’ sleep pants when imported as separates. Previously such pants were subject to a yarn-forward requirement. 

New Sewing Thread Requirement In addition to yarn classified as sewing thread in the Harmonized Tariff Schedule of the United States (headings 5204, 5501, 5508), synthetic filament yarn (heading 5402), when used as sewing thread, will have to be formed and finished in the CAFTA-DR parties for apparel or textile articles to qualify as originating. 

Short Supply Changes Short supply fabric will no longer require originating spandex yarn. Apparel imported under the short supply provision may now contain a non-originating ribbed waistband (in addition to collars and cuffs) as long as the garment contains both a waistband and cuffs, and the waistband is of the same construction as the cuffs. Materials used as visible linings, narrow elastics, sewing thread or pocketing fabric may now be designated as short supply. Short supply will include apparel and textile articles knit-to-shape in the CAFTA-DR out of short supply yarn. 

Action Companies should take action to make any necessary changes in their supply chains so as to be prepared when the changes go into effect. For more information, please contact either: 

Forced Out, Double-Crossed, Bought Off, & Upheld: A Cautionary Tale of the Battle for Corporate Bribe Reserves and International State Decisis Gone Awry

by Marcus R. Cohen, Of Counsel with Sandler, Travis and Rosenberg, P.A., and faculty member of the TRACE Anti-bribery Specialist Accreditation program (originally posted Aug. 13 on the TRACE blog - 

Squeezed out of a lucrative Russian gas deal, Zenon and Oleg turned on each other. With the High Court in Jerusalem as the ultimate arbiter, there is more at stake than a multimillion dollar bribe slush fund – the rule of law hangs in the balance. Will Soviet-style cash-and-carry justice prevail? 

More than just the tag line for a straight-to-DVD melodrama, the disastrous dealings between Zenon Kluger, Oleg Izikowitz, and Russia’s energy giant Gazprom triggered a wave of litigation, arbitration, and cross complaints in the courts of Helsinki, London, Moscow, and Tel Aviv. 

Following the Soviet collapse, Russia was the place to make a fortune. But there were known dangers. Russia consistently ranks near the bottom of Transparency International’s Corruption Perceptions Index, with a score on par with Nigeria and Tajikistan. 

In the late 90’s, Kluger, an Israeli businessman and former banker, managed to receive a license from Gazprom to export natural-gas from Russia to Finland. Kluger partnered with Izikowitz, a Russian intermediary who brokered the deal for railroad cars to ship the natural-gas condensate, and formed the chemical trading company, Double K Oil Products Ltd. Four years later, Double K entered into a multi-year contract with Gazprom valued at approximately $350M to supply the natural-gas condensate to the Finnish national gas company, called Neste Oil Oyj. Double K was poised to make a sizable profit of $100M. But within 3 years, Gazprom and Neste squeezed the middleman out of the deal – or so Double K’s allegations went. 

Litigation ensued. First, Double K turned to the courts in Finland. Then the company sought arbitration in London – a courtroom spectacular, complete with charges of forged documents and double-dealing. Next, Double K appealed to the High Court in Britain, but to no avail. 

Meanwhile Gazprom filed a complaint with the Russian Court of Claims in Moscow, seeking €5M for gas purchases from Double K before that company had its export license revoked. Unsurprisingly, the Russian court sided with Gazprom, Vladimir Putin’s personal monopoly. But Double K refused to pay up. Undeterred, Gazprom filed suit in Israel. And this is where things get interesting… 

Suing for Bribes 

In 2010, with its business in ruin, Double K’s owners turned on each other. Specifically, Kluger sued Izikowitz for his share of a fund that was created by skimming profits from each shipment of gas and depositing the money in a subsidiary’s account in the Virgin Islands. Kluger claimed that the account contained funds for the express purpose of “giving special incentives to the persons at Gazprom in order to move the deal forward.” 

You mean bribe money… right? In response to this question from the court, Kluger responded, “you could call it bribery, or you could call it incentives.” Ok, let’s call it bribe money. In any event, Kluger alleged that the money was intended for Gazprom officials, but was withdrawn by Izikowitz for his own personal business deals. Kluger wanted his money back and he went to court to get his share of the bribe slush fund back. Now that’s chutzpah! 

Izikowitz denied these allegations and countered that the funds were used to cover office expenses in Moscow as well as “commission” payments. The Jerusalem District Court agreed, primarily because this was how the account was described in the financial records that Kluger signed – financial records that were likely doctored to conceal the intended nature of the funds. Touché Izikowitz. 

Justice for Sale 

Last year Gazprom sued Kluger in an Israeli court, seeking to enforce the prior Russian judgment against Double K. In response, Kluger claimed that the decision of the Russian court was the result of fraud and, further, that the entire Russian court system is corrupt. In his testimony, Kluger declared that because Gazprom is controlled by Putin and his cronies, no judge will rule against Gazprom. He testified that “[t]here is no court in Moscow that will rule against Gazprom, there is no such judge. All of the judges are afraid, and no judge will rule against Gazprom, and all of the Russians who are here in this room today know that.” 

Kluger averred that the fungiblilty of Russian judicial decrees was common knowledge, but last month the Tel Aviv District Court Judge disagreed. The precedent-setting decision, that the Russian judgment was enforceable in Israel, sent shockwaves throughout the Israeli business community. 

Kluger is appealing the ruling to Israel’s Supreme Court. But in the interim, it appears that a decision which may have been obtained through dishonest means in Moscow can be enforced in Jerusalem. Corruption, it seems, is no bar to reciprocity.

USTR Seeks Comments on Foreign Trade Barriers

The Office of the U.S. Trade Representative is seeking input by Oct. 15 for its annual national trade estimate report on foreign trade barriers. Comments may be submitted with respect to one or more of the following categories of trade barriers.

1. import policies (e.g., tariffs and other import charges, quotas, import licensing and customs barriers)

2. government procurement restrictions (e.g., “buy national” policies and closed bidding)

3. export subsidies (e.g., export financing on preferential terms and agricultural export subsidies that displace U.S. exports in third country markets)

4. lack of intellectual property rights protection (e.g., inadequate patent, copyright and trademark regimes)

5. services barriers (e.g., limits on the range of financial services offered by foreign financial institutions, regulation of international data flows, restrictions on the use of data processing, quotas on imports of foreign films, and barriers to the provision of services by professionals)

6. investment barriers (e.g., limitations on foreign equity participation and on access to foreign government-funded research and development consortia; local content, technology transfer and export performance requirements; and restrictions on repatriation of earnings, capital, fees and royalties)

7. anticompetitive conduct of state-owned or private firms tolerated by foreign governments that restricts the sale or purchase of U.S. goods or services in the foreign country’s markets

8. trade restrictions affecting e-commerce (e.g., tariff and non-tariff measures, burdensome and discriminatory regulations and standards, and discriminatory taxation)

9. other barriers, including barriers that encompass more than one category such as bribery and corruption, or that affect a single sector

The USTR is particularly interested in practices that may violate U.S. trade agreements as well as information on new barriers and new or updated information pertaining to the barriers covered in its 2012 NTE report. 

The USTR indicates that in 2013 it will once again release in conjunction with the NTE report two reports dealing with additional trade barriers, one on sanitary and phytosanitary measures and the other on standards-related measures. The USTR will request public input on issues related to these two reports through a separate Federal Register notice. Information regarding such measures should therefore not be submitted at this time.

Proposal to Amend CBP Regulations Related to Rough Diamond Trade

U.S. Customs and Border Protection and the Department of the Treasury are proposing to amend the CBP regulations to set forth the prohibitions and conditions that are applicable to the importation and exportation of rough diamonds pursuant to the Clean Diamond Trade Act, as implemented by Executive Order 13312 dated July 29, 2003, and the Rough Diamonds Control Regulations issued by the Office of Foreign Assets Control. In addition to restating pertinent provisions of the RDCR, the proposed amendments would clarify that any U.S. person exporting from or importing into the United States a shipment of rough diamonds must retain for a period of at least five years a copy of the Kimberley Process Certificate that currently must accompany such shipments and make the copy available for inspection when requested by CBP. The proposal would also clarify that a certificate accompanying a shipment is an entry record that must be maintained for a period of at least five years from the date of importation. In addition, the proposal would require formal entry for shipments of rough diamonds. Interested parties may submit comments on this proposal by Oct. 15. 

CBP believes that it is appropriate and in the interest of the trading community to restate in its regulations certain of the entry, export and recordkeeping requirements currently set forth in the RDCR. This statute requires any person importing a shipment of rough diamonds to have the original Kimberley Process Certificate at the time of importation and to present it if demanded by CBP. The law further requires the ultimate consignee to retain the original certificate for at least five years from the date of importation and to present it to CBP upon demand. CBP believes that the recordkeeping provisions included in the proposal will assist the agency in verifying whether importations of rough diamonds are properly controlled by the KPCS.

EPA Adopts Import Restrictions on Certain Chemicals; Proposes Restrictions on Chemicals Used in Carpets

The Environmental Protection Agency has issued a final rule under the Toxic Substances Control Act that, effective Oct. 15, will impose new import restrictions on 25 chemical substances that were the subject of pre-manufacture notices. Fourteen of these substances are subject to TSCA section 5(e) consent orders. Under this rule, persons who intend to import, manufacture or process any of these 25 chemical substances for an activity that is designated as a significant new use by the rule must notify EPA at least 90 days before commencing that activity. This notification will provide EPA with the opportunity to evaluate the intended use and, if necessary, to prohibit or limit that activity before it occurs. 

This rule may also affect certain entities through pre-existing import certification and export notification rules under the TSCA. Persons who import any chemical substance governed by a final SNUR are subject to the TSCA section 13 (15 USC 2612) import certification requirements and the corresponding regulations at 19 CFR 12.118 through 12.127. Those persons must certify that the shipment of the chemical substance complies with all applicable rules and orders under the TSCA, including any SNUR requirements. In addition, any persons who export or intend to export a chemical substance that is the subject of a final SNUR are subject to the export notification provisions of TSCA section 12(b) (15 USC 2611(b)) and must comply with the export notification requirements in 40 CFR part 707, subpart D. 

Separately, EPA is seeking comments by Oct. 15 on a proposal that would amend a SNUR for perfluoroalkyl sulfonate (PFAS) chemical substances to add PFAS chemical substances that have completed the TSCA new chemical review process but have not yet commenced production or import, and designate for all listed PFAS chemical substances processing as a significant new use. EPA is also proposing a SNUR for long-chain perfluoroalkyl carboxylate (LCPFAC) chemical substances that would designate importing, manufacturing or processing for use as part of carpets or for treating carpet (e.g., for use in the carpet aftercare market) as a significant new use. For this SNUR, EPA is also proposing to make the article exemption inapplicable to the import of LCPFAC chemical substances as part of carpets. Persons subject to these SNURs would be required to notify EPA at least 90 days before commencing any significant new use.

FDA Issues Draft Guidance with Proposed Update to Food Categories Used in Food Facility Registrations

The Food and Drug Administration has issued a draft guidance for industry entitled “Necessity of the Use of Food Categories in Food Facility Registrations and Updates to Food Categories.” The draft guidance sets forth FDA’s determination of the necessity for additional food categories and sets forth the additional food categories to be included as mandatory fields in food facility registrations, as determined appropriate by FDA. The FDA Food Safety Modernization Act provides that, when determined necessary by FDA through guidance, a registrant is required to submit a registration to FDA containing information necessary to notify the agency of the general or any other food category of any food manufactured, processed, packed or held at such facility. 

FDA is interested in receiving comments by Sept. 14 on including the other food categories as mandatory fields in food facility registrations. FDA intends to issue a final guidance on this matter before the first biennial registration renewal period, which begins Oct. 1. A copy of the draft guidance is available here.

AD Notices: Certain Pasta, Pipe Fittings, Saccharin

Agency: ITA. 
Commodity: Certain pasta. 
Country: Italy. 
Nature of Notice: Court decision not in harmony with final results of AD administrative review and issuance of amended final results of administrative review. 
Details: The U.S. Court of International Trade recently affirmed the results of the third remand redetermination issued by the DOC. Accordingly, the DOC has amended the final results of its ninth administrative review of subject merchandise with respect to the margin assigned to Atar S.r.L. for the period July 1, 2004 through June 30, 2005. 

Agency: ITA. Commodity: Certain carbon steel butt-weld pipe fittings.Country: China. 
Nature of Notice: Court decision not in harmony with amended final scope ruling and issuance of amended final scope ruling.
Details: The DOC has issued a final scope ruling where it determines that certain pipe fittings imported by King Supply Co. LLC are within the scope of the AD duty order on subject merchandise.

Agency: ITA. 
Commodity: Saccharin. 
Country: China. 
Nature of Notice: Final results and partial rescission of AD administrative review. 
Details: The DOC has published the final results of its administrative review of the AD duty order on subject merchandise for the period July 1, 2010 through June 30, 2011. The DOC has also rescinded its review of Kingchem LLC because the request for a review of that company was withdrawn.  

Remedy Comments Sought in Section 337 Enforcement Proceeding Involving DC-DC Controllers

The U.S. International Trade Commission has determined to partially review an enforcement initial determination by the presiding administrative law judge that found a violation of the Aug. 13, 2010 consent order by a Taiwanese respondent in the underlying Section 337 proceeding involving certain DC-DC controllers and products containing the same. The ITC is requesting written submissions by Aug. 23 (reply submissions are due by Aug. 30) regarding certain issues under review as well as remedy, bonding and the public interest. In connection with the final disposition of this investigation, the ITC may revoke the consent order and issue an order excluding the subject articles from entry into the United States.

Accordingly, the ITC is interested in receiving written submissions that address the form of remedy, if any, that should be ordered. If a party seeks exclusion of an article from entry into the United States for purposes other than entry for consumption, it must indicate that fact and provide information establishing that activities involving other types of entry either are adversely affecting it or likely to do so. If the ITC were to revoke the consent order and issue an exclusion order, the USTR would have 60 days to approve or disapprove the ITC’s action.  

DOE Proposes to Amend Energy Test Procedures for Dishwashers and Cooking Products

The Department of Energy is seeking comments, data and information by Aug. 30 on a proposal to amend the minimum energy efficiency test procedures for residential dishwashers and cooking products. Specifically, the proposal would update certain obsolete dishware, flatware and food items; make minor amendments to the definition of the normal cycles; and update the ambient temperature and pre-conditioning requirements as well as the industry test method references in DOE’s test procedure. The proposal would also add water pressure, drain height, rack position, loading, rinse aid container, and soil preparation specifications to the dishwasher test procedure and amend the procedures for both dishwashers and conventional cooking products for the measurement of energy use in fan-only mode.

FTZB Seeks Input on Proposed Reorganization of Illinois/Iowa FTZ, Proposed Production Activity at Texas FTZ

The Foreign-Trade Zones Board is seeking comments by Oct. 15 (rebuttal comments are due by Oct. 29) on an application filed by the Quad-City Foreign-Trade Zone Inc., grantee of FTZ 133, requesting authority to reorganize the zone under the alternative site framework. The ASF is an option for grantees for the establishment or reorganization of general-purpose zones and can permit significantly greater flexibility in the designation of new subzones or “usage-driven” FTZ sites for operators/users located within a grantee’s service area in the context of the FTZB’s standard 2,000-acre activation limit for zone. 

The grantee’s proposed service area would be Henderson, Henry, Mercer, Rock Island and Warren Counties in Illinois, as well as Cedar, Clinton, Des Moines, Dubuque, Henry, Jackson, Johnson, Jones, Lee, Louisa, Muscatine, Scott and Washington Counties in Iowa. If approved, the grantee would be able to serve sites throughout the service area based on companies’ needs for FTZ designation. The proposed service area is within and adjacent to the Davenport, Iowa-Moline and Rock Island, Illinois Customs and Border Protection port of entry. 

The FTZB is also seeking comments by Sept. 24 on a notification by the McAllen Foreign Trade Zone Inc., grantee of FTZ 12, requesting a production activity on behalf of Hidalgo-based TST NA Trim LLC. Activity at this facility involves the lamination and cutting of automotive upholstery material for export (no shipments for U.S. consumption would occur). Production under FTZ procedures could exempt TST from customs duty payments on the foreign status upholstery materials used in export production (100% of shipments). Customs duties also could possibly be deferred or reduced on foreign status production equipment. Upholstery fabrics and material sourced from abroad include laminated (polyurethane coated) polyester knit, polyester warp knit (pile), polyester and nylon warp knit, and leather (duty rate ranges from free to 17.2%). 

New and Amended Maritime Agreements Filed

The Federal Maritime Commission has issued notice that the following new or amended agreements have been filed. Interested parties may submit comments by Aug. 27. 

Westbound Transpacific Stabilization Agreement – The amendment deletes American President Lines Ltd. and APL Co. PTE Ltd. (operating as a single carrier) from the agreement, effective Sept. 1. 

HLAG/HSDG Latin America Slot Exchange Agreement – The agreement would authorize the parties to exchange space on their respective services in the trades between the U.S. Gulf Coast and ports in Argentina, Brazil, Colombia, the Dominican Republic, Mexico and Uruguay. The parties have requested expedited review. 

Bi-State Marine Terminal Discussion Agreement – The agreement would authorize the parties to discuss, among other things, terminal rates, charges, rules, conditions of service, terminal congestion and methods for relieving terminal congestion. The parties have requested expedited review.

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