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August 24 2012 Issue

Friday, August 24, 2012
Sandler, Travis & Rosenberg Trade Report

Conflict Mineral Reporting Requirements Issued; First Reports Due in 2014  

The Securities and Exchange Commission adopted Aug. 22 a final rule requiring companies to publicly disclose their use of conflict minerals that originate in the Democratic Republic of the Congo or an adjoining country. SEC Chairman Mary Schapiro said her agency has incorporated many changes from the proposed rule that are designed to address concerns about the regulation’s costs. 

Under the final rule companies that file reports with the SEC under the Securities and Exchange Act of 1934, whether foreign or domestic, will have to use a new Form SD to disclose their use of tantalum, tin, gold or tungsten originating in the DRC or an adjoining country if those minerals are necessary to the functionality or production of a product they manufacture or contract to manufacture. Subject companies will have to comply with this rule for calendar year 2013 and the first reports will be due May 31, 2014. Future reports covering the previous calendar year will be due annually on May 31. Click here for a copy of the final rule, which has not yet been published in the Federal Register. 

Contracting to Manufacture. According to an SEC fact sheet, a company is considered to be “contracting to manufacture” a product if it has some actual influence over the manufacturing of that product. This determination is based on facts and circumstances, taking into account the degree of influence a company exercises over the product’s manufacturing. A company will not be deemed to have influence over manufacturing if it merely affixes its brand, marks, logo or label to a generic product manufactured by a third party; services, maintains or repairs a product manufactured by a third party; or specifies or negotiates contractual terms with a manufacturer that do not directly relate to the manufacturing of the product. 

Non-Originating Minerals. The fact sheet adds that under this final rule a company that uses any of the designated minerals is required to conduct a reasonable country of origin inquiry that must be performed in good faith and be reasonably designed to determine whether any of its minerals originated in the covered countries or are from scrap or recycled sources. If the inquiry determines that the company either (a) knows the minerals did not originate in the covered countries or are from scrap or recycled sources or (b) has no reason to believe that the minerals may have originated in the covered countries or may not be from scrap or recycled sources, then the company must disclose its determination and provide a brief description of the inquiry it undertook and the results on Form SD. The company also is required to make its description publicly available on its Web site and provide the Internet address of that site on Form SD. 

Originating Minerals. If the inquiry determines that the company knows or has reason to believe both (a) that the minerals may have originated in the covered countries and (b) that the minerals may not be from scrap or recycled sources, then the company must undertake due diligence on the source and chain of custody of its conflict minerals and file a conflict minerals report (CMR) as an exhibit to Form SD. The company also is required to make the CMR publicly available on its Web site and provide the Internet address of that site on Form SD. 

Conflict-Free Determinations. The SEC states that if a company determines that its products are “DRC conflict free” (i.e., the minerals may originate from the covered countries but did not finance or benefit armed groups) it must undertake the following audit and certification requirements: obtain an independent private sector audit of its CMR, certify that it obtained such an audit, include the audit report as part of the CMR, and identify the auditor. If a company’s products have not been found to be “DRC conflict free” the company must describe the following in its CMR in addition to the audit and certification requirements: the products manufactured or contracted to be manufactured that have not been found to be “DRC conflict free,” the facilities used to process the conflict minerals in those products, the country of origin of the conflict minerals in those products, and the efforts to determine the mine or location of origin with the greatest possible specificity. 

Conflict Status Undeterminable. For a temporary two-year period (four years for smaller reporting companies), if the company is unable to determine whether the minerals in its products originated in the covered countries or financed or benefited armed groups in those countries, those products will be considered “DRC conflict undeterminable” and the company must describe the following in its CMR: products manufactured or contracted to be manufactured that are “DRC conflict undeterminable,” the facilities used to process the conflict minerals in those products (if known), the country of origin of the conflict minerals in those products (if known), the efforts to determine the mine or location of origin with the greatest possible specificity, and the steps the company has taken or will take, if any, since the end of the period covered in its most recent CMR to mitigate the risk that its necessary conflict minerals benefit armed groups, including any steps to improve due diligence. 

For those products that are “DRC conflict undeterminable,” the company is not required to obtain an independent private sector audit of the CMR regarding the conflict minerals in those products. 

Recycled or Scrap Due Diligence. If a company’s conflict minerals are derived from recycled or scrap sources rather than from mined sources, the company’s products containing such minerals are considered “DRC conflict free.” If a company cannot reasonably conclude after its inquiry that its gold is from recycled or scrap sources, it will be required to undertake due diligence in accordance with the OECD Due Diligence Guidance and get an audit of its CMR. Currently, gold is the only conflict mineral with a nationally or internationally recognized due diligence framework for determining whether it is recycled or scrap. For the other three minerals, if a company cannot reasonably conclude after its inquiry that its minerals are from recycled or scrap sources, until a due diligence framework is developed the company is required to describe the due diligence measures it exercised in determining that its conflict minerals are from recycled or scrap sources in its CMR. It is not, however, required to obtain an independent private sector audit regarding such conflict minerals.

Pilot Test of Electronic Submission of Export Ocean Manifest Being Expanded  

U.S. Customs and Border Protection is expanding nationwide a pilot test in which export ocean manifests (CBP Form 1302A) are submitted via a readable PDF attachment to an email into the Document Imaging System. The pilot is an interim step toward the full development of an electronic export manifest, and participants are not required to present a paper copy of the manifest and/or a paper bill of lading to participating ports during the pilot. CBP has noted that this is a voluntary program offered as a means to help reduce trade costs associated with the filing of paper export manifests. 

The pilot is currently running at the ports of Norfolk, Wilmington, Beaufort, Georgetown, Charleston, Savannah and Brunswick. As of Aug. 20 CBP extended the pilot to Florida, all Gulf Coast ports to Brownsville, Texas, and Puerto Rico. Future deployments will include all East Coast ports as well as Buffalo, Chicago and Detroit on Sept. 4 and all West Coast ports, Alaska and Hawaii on Sept. 17. CBP notes that current participants may immediately begin filing export ocean manifests via e-mail into DIS at all Florida, Puerto Rico and Gulf Coast ports. 

Participants submit an email to CBP that includes specific data elements in the subject line and the body. The subject line must include the vessel IMO number, the vessel departure date, the U.S. port of departure and the action code (new, add, update, delete). The body of the email must disclose the vessel name, voyage number, vessel standard carrier alpha code (SCAC), submitting SCAC and first foreign port of unlading. Point of contact information and comments may also be included but are not required. 

All other forms still required by CBP must continue to be submitted in paper format. In addition, the current filing timeline for submission of the export manifest applies to DIS transmission of documents as well.

Dates and Deadlines: In-Bond Revision, WTO Cases, Upholstery Textiles, AD/CV Duty Orders  

Following are highlights of regulatory effective dates and deadlines and federal agency meetings coming up in the next week. 

Aug. 27 – effective date of final rule revising list of factors USDA considers when evaluating the animal health status of a foreign region 

Aug. 27 – comments on economic impact on small entities of CBP in-bond revision proposal  

Aug. 27 – comments on OFAC electronic license application form  

Aug. 27 – comments on WTO case against Chinese export measures on rare earths 

Aug. 28 – ST&R webinar on minimizing risk and maximizing compliance in antidumping matters 

Aug. 28 – STTAS webinar on Brazilian free trade agreements 

Aug. 29 – effective date of mandatory safety standard for portable bed rails 

Aug. 31 – comments on issues raised in WTO complaint against China’s AD/CV duties on automobiles  

Aug. 31 – comments on use of nanomaterials in flame-retardant coatings for upholstery textiles  

Aug. 31 – requests for administrative reviews of AD/CV duty orders 

Aug. 31 – comments on proposed revocation of classification rulings on wax additive, thermal insulation blanket
                                                 

CBP Rulings on Saw Kits, Plastic Coated Gloves, Auto Heater Controllers, Refrigerant Gas  

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

Product: Bi-metal hole saw kit consisting of six steel hole saws, two mandrels permanently attached to steel pilot drill and one threaded mandrel adapter, all imported in a hard plastic carrying case. 
Proposed action: Revocation of NY N090938. 
Current classification: HTSUS 8207.50.2055, other tools for drilling (5% duty). 
Proposed classification: HTSUS 8202.99.00, other saw blades (duty free). 
Explanation: The components that impart the essential character of the kits are the hole saws and the case is classified with the kits. 

Product: Polyurethane coated gloves used for assembly operations where cut resistance and dexterity is desired. 
Proposed action: Revocation of NY N013115 and modification of NY N042821. 
Current classification: HTSUS 3926.20.1050 (duty-free). 
Proposed classification: HTSUS 6116.10.55 (other gloves containing 50% or more by weight of cotton, manmade fibers or other textile fibers (13.2% duty). 
Explanation: Chapter 39 is intended to cover products composed primarily of plastic where the textile fabric is present merely for reinforcement and textile articles entirely coated or covered on both sides, neither of which is the case here. 

Product: Automobile heater controller assembly. 
Proposed action: Revocation of NY N075384. 
Current classification: HTSUS 8708.29.5060, other parts and accessories of motor vehicle bodies (2.5% duty). 
Proposed classification: HTSUS 8537.10.90, other boards, panels, etc. for electric control (2.7% duty). 
Explanation: The subject items are assemblies of two or more devices of HTSUS 8536, are therefore classifiable under that heading and are thus eliminated from consideration as a good of HTSUS 8708. 

Also in the Aug. 22, 2012, Customs Bulletin and Decisions, CBP modified the following ruling, effective Oct. 22 

Product: Refrigerant gas recovered in Canada. 
Action: Modification of NY N161355. 
New ruling: HQ H172315. 
New determination: Refrigerant gas recovered from used refrigeration equipment undergoing service or dismantling in Canada and pumped into cylinders for importation into the U.S. is eligible for preferential tariff treatment under NAFTA. 
Explanation: Under 19 CFR 181.132, for purposes of the NAFTA rules of origin provisions disassembly is considered to be production and a component recovered from a used good disassembled in the territory of a NAFTA party will be considered to be originating provided that it satisfies certain requirements. Since the origin of the gas cannot be determined, CBP is using the NAFTA preference override in 19 CFR 102.19 to find that because Canada is the last country in which the gas undergoes processing other than minor processing it is the country of origin for marking and duty purposes.

$402,000 Penalty for Violation of Iran, WMD Sanctions  

The Treasury Department’s Office of Foreign Assets Control announced Aug. 22 that a Texas company has been assessed a penalty of $402,000 for violating the Iranian Transactions Regulations and the Weapons of Mass Destruction Proliferators Sanctions Regulations. 

OFAC states that in 2005 the company negotiated a sale of graphitized petroleum coke to a company in the United Arab Emirates with knowledge that the goods were for delivery to Iran. After negotiating the terms of the sale and the related letter of credit the company referred the sale to its parent company in China, from which it later received a commission payment for the sale. OFAC adds that from July 2009 to August 2009 the company dealt in property in which the Islamic Republic of Iran Shipping Lines had an interest and engaged in transactions or dealings in or related to services of Iranian origin when it was involved in the shipment of cargo aboard the blocked vessel “Sabalan” and presented trade documents related to the shipment to its bank for payment pursuant to a letter of credit referencing the blocked vessel. The company also engaged in transactions that resulted in the removal of references to Iran and an Iranian entity from the trade documents associated with the shipment. Finally, in September 2009 the company transferred the trade documents related to the shipment to its customer in Turkey without OFAC authorization. 

The base penalty amount for the violations totaled $670,000. The assessed penalty reflects that the 2005 ITR violation was a non-egregious case and that the company cooperated with OFAC’s investigation (including by agreeing to toll the statute of limitations) and was not the subject of an OFAC enforcement action in the five years preceding the transactions at issue. On the other hand, the company did not voluntarily self-disclose the violations and the 2009 violations of the ITR and WMDPSR were an egregious case in light of the company’s willful concealment and evasion involving senior-level management.

$175,000 Penalty for Imports in Violation of Toxic Substances Control Act  

The Environmental Protection Agency announced Aug. 22 that a Delaware company will pay a $175,000 civil penalty to resolve allegations that it violated the Toxic Substances Control Act by importing various short-chained chlorinated paraffins into the U.S. without providing the required notice to the EPA. An agency press release notes that SCCPs are used as lubricants and coolants for metal working and as plasticizers and flame retardants in plastics and are persistent, bioaccumulative and toxic to aquatic life. 

As part of the settlement the company has ended its imports of SCCPs, which an EPA official said will remove the last known major source of this chemical from the marketplace. The company has also agreed to provide the notices required by TSCA Section 5 for any medium or long-chain chlorinated paraffin it wishes to import, which will enable the EPA to identify and evaluate the health and environmental effects, exposures, releases and risks posed by these substances.

AD/CV Notices: Hangers, Clothes Washers, Lined Paper  

Agency: International Trade Administration. 
Commodity: Steel wire garment hangers. 
Country: Vietnam. 
Nature of Notice: Preliminary affirmative determination of critical circumstances in AD duty investigation. 
Details: U.S. Customs and Border Protection will be directed to suspend liquidation of unliquidated entries of subject merchandise entered or withdrawn from warehouse for consumption on or after May 4, 2012. 

Agency: International Trade Administration. 
Commodity: Large residential washers. 
Country: Korea and Mexico. 
Nature of Notice: Scheduling of final phase of antidumping and countervailing injury investigations. 
Details: Prehearing staff report place on non-public record Nov. 27 and public version issued thereafter, hearing scheduled for Dec. 11, requests to appear at hearing due by Dec. 6, pre-hearing briefs due by Dec. 4, post-hearing briefs due by Dec. 18, final comments due by Jan. 15. 

Agency: International Trade Commission. 
Commodity: Lined paper school supplies. 
Country: China and India. 
Nature of Notice: Sunset review determination that revocation of antidumping duty orders on subject merchandise from China and India and countervailing duty order on subject merchandise from India would be likely to lead to continuation or recurrence of material injury in the U.S. within a reasonably foreseeable time. As a result, these orders will be continued for five years. 

Agency: International Trade Commission. 
Commodity: Lined paper school supplies. 
Country: Indonesia. 
Nature of Notice: Sunset review determination that revocation of antidumping duty order would not be likely to lead to continuation or recurrence of material injury to an industry in the U.S. within a reasonably foreseeable time. As a result, this order will be revoked.

IPR Enforcement Actions on Wireless Devices, Media Library Devices, Secure Comm. Devices  

New IPR Infringement Investigation of Wireless Devices. The International Trade Commission has instituted investigation 337-TA-853 to determine whether imports of certain wireless consumer electronics devices and components thereof are violating Section 337 of the 1930 Tariff Act by reason of patent infringement. Complainants Technology Properties Limited LLC, Phoenix Digital Solutions LLC and Patriot Scientific Corporation request that after this investigation the ITC issue an exclusion order, which would direct U.S. Customs and Border Protection to prohibit the entry of the infringing products into the U.S., and cease and desist orders, which would require the named respondents to cease actions that violate Section 337, including selling infringing imported articles out of U.S. inventory. The respondents in this investigation are located in Taiwan, Switzerland, China, Japan, Korea, Canada and the U.S. 

Potential IPR Probe of Wireless Devices Evaluated for Public Interest Issues. The International Trade Commission is requesting comments no later than Sept. 4 on any public interest issues raised by a Section 337 intellectual property rights infringement complaint filed on behalf of Motorola Mobility LLC, Motorola Mobility Ireland and Motorola Mobility International Limited against certain wireless communication devices, portable music and data processing devices, computers, and components thereof. Comments should address whether the issuance of exclusion orders and/or cease and desist orders pursuant to this complaint would affect the public health and welfare in the U.S., competitive conditions in the U.S. economy, the production of like or directly competitive articles in the U.S., or U.S. consumers. In particular, the ITC is interested in comments that: 

- explain how the articles potentially subject to the orders are used in the U.S.; 

- identify any public health, safety or welfare concerns in the U.S. relating to the potential orders; 

- identify like or directly competitive articles that the complainant, its licensees or third parties make in the U.S. that could replace the subject articles if they were to be excluded; 

- indicate whether the complainant, the complainant’s licensees and/or third-party suppliers have the capacity to replace the volume of articles potentially subject to the requested orders within a commercially reasonable time; and 

- explain how the requested orders would impact U.S. consumers. 

Import Restrictions Considered on Automated Media Library Devices. The International Trade Commission is reviewing an administrative law judge’s final initial determination that the importation, sale for importation and sale within the U.S. after importation of certain automated media library devices do not violate certain patents owned by Overland Storage of San Diego, Calif. The ITC is also accepting comments through Sept. 4 on (1) whether it should issue an exclusion order and/or cease and desist orders, (2) the effects of any such remedy on the public health and welfare, competitive conditions in the U.S. economy, U.S. production of articles that are like or directly competitive with those that are subject to investigation, and U.S. consumers, and (3) the amount of the bond under which imports of subject merchandise could enter the U.S. during the 60-day period the president has to review any ITC-ordered remedy. 

No Import Restrictions on Devices with Secure Communication Capabilities. The International Trade Commission has terminated without the imposition of any import restrictions patent infringement investigation 337-TA-818 of certain devices with secure communication capabilities, components thereof and products containing the same. The ITC states that complainant VirnetX Inc. of Nevada has no standing to bring this complaint because it does not possess all substantial rights in the patent at issue. The ITC has also declined this company’s request to add Science Applications International Corporation as a complainant.

Foreign Regulatory Changes Could Affect Exports of Pots, Roofing Tiles, Printers, Sardines  

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 – Aug. 1 publication of mandatory technical requirements and conformity assessment procedures for metal cooking pots for home use 

Brazil – draft amended resolutions on biological products 

Brazil – draft technical regulation on ceramic roofing tiles and concrete tiles (comments due by Aug. 31) 

Chile – standby energy efficiency labeling certification procedures and safety certification procedures for printers (comments due by Oct. 9) 

Colombia – draft amended resolution on dynamic test emissions certificate (comments due by Nov. 8) 

Nicaragua – technical standard specifying the quality and safety requirements to be met by canned sardines (comments due by Oct. 17)

International Panel on Processed Fruits and Vegetables to Meet in October  

The Department of Agriculture’s Food Safety and Inspection Service will hold a public meeting Sept. 17 in Washington, D.C., to provide information and receive public comments on agenda items and draft U.S positions that will be discussed at the 26th session of the Codex Committee on Processed Fruits and Vegetables, which will be held in Montego Bay, Jamaica, Oct. 15-19. The CCPFV is responsible for elaborating worldwide standards and related texts for all types of processed fruits and vegetables, including canned, dried and frozen products as well as fruit and vegetable juices and nectars. The following items on the agenda for the 26th session of the CCPFV will be discussed during the public meeting. 

- proposed draft Codex standards for table olives, canned fruits and quick frozen vegetables 
- proposed draft sampling plans including metrological provisions for controlling minimum drained weight of canned fruits and vegetables in packing media 
- food additive provisions for processed fruits and vegetables 
- possible extension of the territorial application of the Codex regional standard for ginseng products 
- development of a Codex standard for chemically flavored water-based drinks 
- revision of Codex standards for processed fruits and vegetables

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