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August 21 2012 Issue

Tuesday, August 21, 2012
Sandler, Travis & Rosenberg Trade Report

United States Claims Victory in First Round of WTO Dispute with China over Electronic Payment Services

By Marcus R. Cohen, Of Counsel with Sandler, Travis & Rosenberg, P.A. (originally posted in the Aug. 2012 issue of E-Finance & Payments Law & Policy

It has been an impressive summer for the United States on the global stage. Before it came away with the most medals in the London Olympics, the United States was riding a string of largely favourable outcomes in the international trade arena. In the last three months, these included World Trade Organization (‘WTO’) disputes with China over steel and electronic payment services (‘EPS’). The latter disagreement has spanned over two years culminating in a 16 July report that China maintains a number of measures which treat its domestic provider, China UnionPay (‘CUP’), more favorably then foreign providers such as MasterCard, Visa and American Express and, thus, inconsistently with its WTO obligations. Both countries will have until 14 September 2012 to determine whether any issues exist for appeal. 

The inconsistencies alleged by the United States focused on the following: (1) requirements that establish CUP, a Chinese company, as the sole supplier of EPS for all domestic Renminbi (‘RMB’) payment card transactions; (2) requirements that payment cards issued by banks in China bear the ‘Yin Lian’/’UnionPay’ logo (the logo of CUP's network); (3) requirements that all ATMs, merchant card processing equipment and point-of-sale terminals in China be capable of accepting payment cards bearing the Yin Lian/UnionPay logo; (4) requirements that acquiring institutions post the ‘Yin Lian’/’UnionPay’ logo and be capable of accepting all payment cards bearing the ‘Yin Lian’/’UnionPay’ logo; (5) prohibitions on the use of non-CUP cards for inter-bank and cross-region payment card transactions; and (6) requirements pertaining to RMB transactions involving payment cards issued in China and used in Hong Kong, China or Macao, China, and payment cards issued in Hong Kong, China or Macao, China and used in China. 

The United States through its Office of the US Trade Representative (‘USTR’) argued that China’s market access restrictions and discriminatory limitations on foreign suppliers seeking to engage in the supply of EPS violate Articles XVI and XVII of the General Agreement on Trade in Services (‘GATS’). Under the terms of its accession to the WTO, China agreed to fully implement its commitments to remove market access and national treatment limitations in this service sector by 11 December 2006. Accordingly, the United States claimed that China acted inconsistently with its obligations under Articles XVI and XVII of the GATS. While the United States did not win all of its claims, the WTO panel sided with it on several points. The panel rejected the US claim that China maintains CUP as an across-the-board monopoly supplier for the processing of all domestic RMB payment card transactions. However, the panel concluded that China maintains CUP as a monopoly supplier for the clearing of certain types of RMB-denominated payment card transactions. The specific transactions in respect of which the panel determined that CUP is a sole supplier involve RMB payment cards issued in China and used in Hong Kong or Macao, or RMB payment cards issued in Hong Kong or Macao, and used in China. The panel found these measures to be inconsistent with China’s market access commitments under Article XVI of the GATS. 

The panel also found the following requirements to be inconsistent with China’s obligations under Article XVII of the GATS: the requirement that all payment cards issued in China must bear the ‘Yin Lian’/’UnionPay’ logo and be interoperable with that network; the requirement that all terminal equipment in China must be capable of accepting ‘Yin Lian’/’UnionPay’ logo cards, and finally, the requirement that acquiring institutions post the ‘Yin Lian’/’UnionPay’ logo and be capable of accepting all payment cards bearing the ‘Yin Lian’/’UnionPay’ logo. 

Overall, the result was welcomed by the USTR. The agency has viewed the case as a precedential issue of China using its industrial policies to develop ‘national champions,’ which could grow, transition and compete in other countries. The panel decision will incentivise China to bring its EPS regime into compliance with WTO rules. This, however, could take several years even if China waives its appeal. In the meantime, it will be up to the United States to make certain that China has implemented the fixes to its EPS measures.

CBP to Modify Ruling on Eligibility of Certain Recovered Gas for NAFTA Duty Treatment, Classification of Saw Kits, Coated Gloves, Automobile Assemblies                                                

In the Aug. 22, 2012, Customs Bulletin and Decisions, U.S. Customs and Border Protection is proposing to revoke classification rulings on the following products. Comments are due by Sept. 21. 

Product: Hole saw kits. 
Proposed action: Revocation of NY N090938. 
Current classification: HTSUS 8207.5020, tools for drilling other than for rock drilling, with cutting part containing by weight over 0.2% of chromium, molybdenum or tungsten or over 0.1% of vanadium (5.0% duty). 
Proposed classification: HTSUS 8202.99.00, other saw blades and parts thereof (duty-free). 
Explanation: The subject kits consist of six hole saws and two mandrels. CBP believes that the hole saws are the components that impart the kits their essential character partly because the kits are put up for sale for the exclusive purpose of cutting holes and do not contain a wood spade bit to be used for boring or drilling. 

Product: Polyurethane coated gloves. 
Proposed action: Revocation of NY N013115 and modification of N042821. 
Current classification: HTSUS 3926.20.1050, seamless gloves, mittens and mitts of plastics or other materials of headings 3901 to 3914 (duty-free). 
Proposed classification: HTSUS 6116.10.55, knitted or crocheted gloves, mittens and mitts impregnated, coated or covered with plastics or rubber, without fourchettes, containing 50% or more by weight of cotton, manmade fibers or other textile fibers, or any combination thereof (13.2% duty). 
Explanation: The gloves at hand are 100% high performance polyethylene fiber string knit work gloves featuring a polyurethane palm coating on the outer surface of the palms, from fingertips to wrist, which also overlaps the backside fingertips. The gloves also have a polyurethane coating on the underside fabric of the palms. CBP is of the opinion that these gloves are textile gloves coated with plastic material and should therefore be classified in heading 6116. 

Product: Automobile heater controller assemblies. 
Proposed action: Revocation of NY N075384. Current classification: HTSUS 8708.29.50, other parts and accessories of bodies (2.5% duty). 
Proposed classification: HTSUS 8537.10.90, boards, panels, consoles, desks, cabinets and other bases, equipped with two or more apparatus of heading 8535 or 8536, for electric control or the distribution of electricity, including those incorporating instruments or apparatus of chapter 90, and numerical control apparatus, other than switching apparatus of heading 8517, for a voltage not exceeding 1,000 V (2.7% duty). 
Explanation: The primary function of the subject heater controller assemblies is to control the airflow and air temperature within an automobile for the comfort of the driver and passengers. As a secondary function, the assemblies provide a mounting surface for several air conditioning components as well as an aesthetic finish that matches the contours of the instrument panel. CBP notes that these assemblies meet the plain language of heading 8537 because they consist of two or more devices of heading 8536. 

CBP has also modified a ruling letter relating to the eligibility of recovered refrigerant gas for preferential tariff treatment under the NAFTA, effective Oct. 22, 2012. 

Product: Recovered refrigerant gas. 
Action: Modification of NY N161355. 
New ruling: HQ H172315. 
Previous duty treatment: Not eligible for preferential tariff treatment under NAFTA. 
New duty treatment: Eligible for preferential tariff treatment under NAFTA. 
Explanation: CBP held in the original ruling that refrigerant gas recovered in Canada from used refrigerant equipment was not eligible for preferential duty treatment under NAFTA. Upon further review, CBP believes that Canada is the country of origin of this good because it is the last NAFTA country in which the good underwent processing and the processing involved was more than minor processing.

AD Notices: Small Diameter Pipe, Honey, Fresh Tomatoes, Polyester Staple Fiber                                     

Agency: ITA. 
Commodity: Certain small diameter carbon and alloy seamless standard, line and pressure pipe. 
Country: Romania. 
Nature of Notice: Preliminary results of AD administrative review. Details:The ITA has issued the preliminary results of its administrative review of subject merchandise for the period Aug. 1, 2010 through July 31, 2011. The review covers only one producer/exporter (ArcelorMittal Tubular Products Roman S.A.). 

Agency: ITA. 
Commodity: Honey. 
Country: China. 
Nature of Notice: Final affirmative determination of circumvention of AD duty order. 
Details: The ITA has determined that blends of honey and rice syrup are subject to the AD duty order on subject merchandise. 

Agency: ITA. 

Commodity: Fresh tomatoes. 

Country: Mexico. 
Nature of Notice: Initiation of AD changed circumstances review. Details:The ITA has initiated a proceeding to consider a request to terminate the investigation and the suspension agreement on subject merchandise. 

Agency: ITC. 
Commodity: Polyester staple fiber. 
Country: China. 
Nature of Notice: Scheduling of expedited AD sunset review. 
Details: The review will seek to determine whether revocation of this order would be likely to lead to continuation or recurrence of material injury to a domestic industry within a reasonably foreseeable time. The staff report will be placed in the non-public record on Aug. 30 and a public version will be issued thereafter. Comments and statements are due by Sept. 5 and may not contain new factual information.

FTZB Seeks Input on Proposed Production Activities at Nebraska and Iowa FTZs                                                  

The Foreign-Trade Zones Board is seeking comments by Oct. 1 on a notification by Novartis Consumer Health Inc. requesting a production activity for the company’s facilities located within sites 3 and 4 of FTZ 59, in Lincoln, Nebraska. The facilities are used for the production of dosage-form and bulk quantity mixed medicines, including those containing penicillin, alkaloids, analgesics, antibiotics, antihistamine/decongestants, cold remedies, anti-infectives, dermatological and anesthetic agents, digestive treatments, insulin, vitamins and hormones; vitamins and provitamins; food preparations, including those containing fiber and various digestive products, lozenges, nicotine gum and cold symptom products; preparations for skincare; pharmaceutical reference standards; and medicines for veterinary use. Production under FTZ procedures could exempt Novartis from customs duty payments on the foreign-status components used in export production. On its domestic sales, Novartis would be able to choose the duty rates during customs entry procedures that apply to the finished products (mostly duty-free, but some would be up to 6.4% for certain food preparations) for the foreign-status inputs noted below. Customs duties also could possibly be deferred or reduced on foreign status production equipment. 

Components and materials sourced from abroad include menthol; ibuprofen; sodium salicylate (USP); aspirin; terbinafine; diphenhydramine citrate (USP); diclofenac sodium; acetaminophen; rivastigmine hydrogen tartrate; tolnaftate (USP/EP); lansoprazole; loratadine; pyrilamine maleate (USP);dextromethorphan HBR(USP); clemastine fumarate; clomipramine hydrochloride; acesulfame K; benzalkonium chloride; microcrystalline cellulose; inulin; aloe vera gel; carrageenan (viscarin GP109F); wheat dextrin; insulin; benzyl alcohol NF; camphor USP; synthetic; anhydrous citric acid USP/EP find grain; butylparaben NF; methylparaben NF; diphenhydramine citrate USP; aspartame NF; aspartame; coated acetaminophen crystals; xylometazoline HCL; heterocyclic compounds; dextromethorphan hydrobromide USP; crospovideone NF; polyplasdone xl-10; clomicalm A.S.; isradipine (USP); desiccant; croscarmellose sodium NF; microcellulose; bulk penicillin mixed medicines; bulk mixed drugs; including penicillins; antibiotics; hormones; and alkaloids; caffeine; dextrins and modified starches; gums; guar gum; oleoresins; balsam gum; ginseng; vegetable extracts and similar thickeners; iron oxides and hydroxides; disodium carbonate; carbonates; flavoring compounds; aniline derivative compounds; amino-alcohol-phenols; amino-acid-phenols; other nitrile function compounds; other antihistamine chemicals; other vegetable alkaloids and derivatives; articles of plastic, including bands, bags and fiber drum liners, bottles, plugs, caps, drums, tubes, packaging materials, droppers, stoppers, dispensing tubes, plug dip tubes, dosage cups and syringes; stopper dip tube assemblies; aluminum collapsible tubes; aluminum containers; artificial flavors; pine needle oil; benorilate; and sodium cyclamate (duty rates range from duty free to 6.5%). 

Parties may also submit input by Oct. 1 on a separate request by Winnebago Industries Inc., operator of Subzone 107A, for a production activity for the company’s facilities in Forest City and Charles City, Iowa. The subzone currently has authority to produce and warehouse recreational vehicles under FTZ procedures using certain imported components. The current request is to cut, sew, upholster and warehouse wet coagulation process 100% polyurethane coated fabric for use as upholstery in motor homes. Production under FTZ procedures for this activity could exempt Winnebago from customs duty payments on the foreign status components used in export production. On its domestic sales, Winnebago would be able to choose the duty rate during customs entry procedures that applies to motor homes (2.5% duty rate) for the foreign status input noted below. Customs duties also could possibly be deferred or reduced on foreign status production equipment. Components and materials sourced from abroad include wet coagulation process 100% polyurethane coated fabric (7.5% duty rate).

Export Meetings to Focus on Policy, Regulations, Transportation Equipment
                                                  
The Bureau of Industry and Security has announced the following export-related meetings that will be held in the next few weeks. 

The President’s Export Council Subcommittee on Export Administration will hold a partially open meeting Sept. 6 in Washington, D.C. The open session of the meeting will include an update of ongoing export control reform efforts, working group updates, and a presentation of papers and comments by the public. The open session will be accessible via teleconference to 25 participants on a first come, first served basis, and requests to participate in this manner are due by Aug. 30. In addition, a limited number of seats will be available at the public session, but reservations are not accepted. 

The Regulations and Procedures Technical Advisory Committee, which advises BIS on the implementation of the Export Administration Regulations and provides for continuing review to update the EAR as needed, will hold a partially open meeting Sept. 11 in Washington, D.C. The open session will include an update of regulations, export enforcement efforts and the Automated Export System, working group reports, and a presentation of papers and comments by the public. 

The open session will be accessible via teleconference to 25 participants on a first come, first served basis, and requests to participate in this manner are due no later than Sept. 4. In addition, a limited number of seats will be available at the public session, but reservations are not accepted. 

The Transportation and Related Equipment Technical Advisory Committee, which advises BIS on technical questions that affect the level of export controls applicable to transportation and related equipment or technology, will hold a partially open meeting Sept. 13 in Washington, D.C. The open session of this meeting will include status reports by working group chairs and comments and proposals from the public. This session will be accessible via teleconference to 20 participants on a first come, first served basis, and requests to participate in this manner are due no later than Sept. 6. In addition, a limited number of seats will be available at the public session, but reservations are not accepted. 

Meeting of State’s Advisory Committee on International Communications and Information Policy

The Department of State’s Advisory Committee on International Communications and Information Policy will hold a public meeting Oct. 2 in Washington, D.C. to discuss preparations for the World Conference on International Communications to be held Dec. 3-14 in Dubai. This advisory committee provides a formal channel for regular consultation and coordination on major economic, social and legal issues and problems in international communications and information policy, especially as these issues and problems involve users of information and communications services, providers of such services, technology research and development, foreign industrial and regulatory policy, the activities of international organizations with regard to communications and information, and developing country issues. Parties wishing to participate in the meeting must submit the necessary information to be placed in the pre-clearance list by Sept. 27.

Commercial Gaugers Approved

CBP has announced that the following companies have been approved to gauge petroleum and petroleum products, organic chemicals and vegetable oils for customs purposes. 

• Amspec Services LLC of Paulsboro, New Jersey (effective May 10, 2012)
• Amspec Services LLC of Yorktown, Virginia (effective May 31, 2012)

A complete listing of CBP approved gaugers and accredited laboratories is available here.    

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