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September 6 2012 Issue

Thursday, September 06, 2012
Sandler, Travis & Rosenberg Trade Report

CPSC to Vote Oct. 3 on Reducing Third-Party Testing Costs for Children’s Products  

The Consumer Product Safety Commission is scheduled to discuss and vote Oct. 3 on ways to reduce the costs of third-party testing for children’s products. 

Under the Consumer Product Safety Improvement Act of 2008, manufacturers of children’s products subject to an applicable safety rule must submit samples to a CPSC-accepted third-party conformity assessment body for testing and, based on those tests, issue a certificate that such product is in compliance with the applicable rule. The CPSC recently posted to its Web site a briefing package prepared by Commission staff that includes the recommendations listed below for lowering the costs of this testing. 

(The staff also notes that this list is not exhaustive, as changes in materials technology, new screening methods, new ideas not considered previously or other means might result in lowering the testing costs. In addition, after some experience with the implementation of the testing and labeling regulation other opportunities for cost reduction may become evident.) 

- develop information and education programs for finished product and component part manufacturers and suppliers to increase their understanding of the rules and their applicability, which could give rise to opportunities for using the same component part test results across many products or avoiding instances of redundant testing 

- consider creating, maintaining and recognizing a list of equivalent tests in international standards, conformity to which would be indicative of conformity to the corresponding test in a CPSC-administered children’s product safety rule 

- research the feasibility of developing a list of materials determined not to contain antimony, arsenic, barium, cadmium, chromium, lead, mercury, selenium or prohibited phthalates, which would not be subject to third-party testing 

- investigate whether fourier transform infrared spectroscopy can be effective as a screening technology for determining that a plastic component part contains no phthalates 

- consider an option in which a periodic testing interval based on low production volume would be allowed in addition to a time period, including whether some products should be excluded from such an option 

- evaluate whether accreditation bodies other than ILAC-MRA signatories should be allowed to accredit testing labs to test children’s products for certification purposes 

- consider whether certification bodies accredited to the upcoming standard ISO/IEC 17065 could have their accreditation accepted for children’s product certification purposes 

- evaluate the issues regarding determining de minimis levels of paint and plasticized materials that would not require third-party testing and recommend changes to the applicable regulations as warranted 

- investigate whether the adhesives used in manufactured woods can be determined not to contain lead in amounts above 100 parts per million 

- investigate whether the process by which materials are determined not to contain lead in amounts above 100 ppm can be expanded to include synthetic food additives 

- consider clarifying that manufacturers who do not conduct periodic testing (e.g., importers or manufacturers with short production runs) are not required to create a periodic testing plan 

- determine whether it is feasible to vary a periodic test interval based on the risk of noncompliance 

- explore the application of information technology to address the administrative costs involved with third-party testing 

- seek legal authority from Congress to allow for certification of a manufacturing process to be an acceptable method of satisfying the third-party testing requirements

FTZs Can Lower Costs, Help Retain Manufacturing Jobs, Report Finds  

The Congressional Research Service issued recently a report examining the costs and benefits of foreign-trade zones as well as issues Congress might consider relating to the FTZ program. Highlights of this report include the following. For more information on using FTZs, contact Lesley Couch of Sandler & Travis Trade Advisory Services at (415) 490-1408. 

Use of FTZs 

- Between 1993 and 2008 total foreign and domestic zone inputs increased seven-fold, although much of that increase was due to inflation in the price of crude oil. 

- U.S. FTZs are primarily places where smaller shares of foreign inputs are combined with larger shares of domestic inputs. 

- Most U.S. FTZ outputs are consumed domestically, as opposed to the export processing zones that predominate in developing countries and from which most outputs are exported. 

- U.S. employment in FTZs rose somewhat during the early 1990s when substantial numbers of labor-intensive auto production companies moved into zones but has leveled off since then for several reasons. One is that FTZs have been used increasingly by petrochemical companies making capital-intensive gasoline, diesel, kerosene and jet fuels (which benefit from tariff-free storage) and petrochemicals (which benefit from the inverted tariff structure). Another is that high levels of inflation in crude oil prices, combined with some increase in productivity, has helped to raise the current value of zone output while decreasing employment slightly. 

- Crude oil accounts for 75% of all foreign products brought into FTZs, auto components account for 6%, and other industries, led by consumer electronics and machinery, account for the remaining 19%. 

Costs and Benefits of FTZs 
The primary sources of cost savings for U.S. FTZ users are as follows. 

Duty reduction on inverted tariff situations – With specific authority, zone users may choose the lower duty rate when a product is entered into customs territory (for importation) in inverted tariff situations (when the tariff rate on foreign inputs is higher than the tariff rate applied to the finished product produced in the zone.) 

Duty deferral – Cash flow savings can result because customs duties are paid only when and if the goods are transferred from the zone into the U.S. customs territory for consumption. 

Duty exemption on exports – No duty is payable on goods that are exported from, or scrapped or destroyed in, a zone. 

Duty drawback elimination – Zones eliminate the need for duty drawback; i.e., the refunding of duties previously paid on imported and then re-exported merchandise. 

Tax savings – Goods stored in zones and goods exported are not subject to state and local ad valorem taxes such as personal property taxes. 

Zone-to-zone transfer – Merchandise can be transferred in-bond from one zone to another and customs duties may be deferred until the product’s eventual entry into U.S. customs territory. 

Customs inventory control efficiencies – Cost savings (especially cash-flow savings) can occur from zone efficiencies affecting inventory control, including customs procedures such as direct delivery and weekly entries. 

The report states that the savings identified above may help U.S. corporations maintain operations in the U.S. and may attract foreign producers to establish manufacturing facilities in the U.S. as well. This could help communities retain their manufacturing bases and secondary service sector support systems as well as the jobs that go with them. Consumers may benefit from any cost savings that may be passed along and federal, state and local tax revenues may benefit from increased activity that the FTZs may generate. 

However, FTZs also pose four potential costs to the U.S. economy. First, granting tariff reductions on imported components might disadvantage domestic producers of competing components whose products would otherwise be somewhat protected by the tariffs. Second, if certain producers in an industry obtain zone status to save production costs, this could put other domestic producers of the final products in the same industry at a competitive disadvantage. Third, the tariff benefits companies enjoy by operating in FTZs can also result in some loss or deferral of tariff revenue for, although U.S. tariffs are generally low and represent a very small share of government revenue. Finally, some economists might argue that FTZs result in a misallocation of resources to benefit a small number of businesses, especially oil companies. 

Future of FTZs 

Major factors that in the future could increase the use of free trade zones around the world, including U.S. FTZs, include (1) continuing improvements in technology, which will extend recent advancements in communication tools, computer capabilities and the transport industry; (2) advancements and improvements in security monitoring; (3) new efficiencies for zone users, including advancements in the automated, electronic tracking of goods and services traded internationally; and (4) external trends, such as events or forces that would encourage a return of basic manufacturing to the U.S. and a boost to U.S. exports. The report notes that as long as international tariff and non-tariff barriers remain, along with the need for heightened security to deal with issues such as terrorism and money laundering, the U.S. FTZ system and other zone programs abroad are likely to continue and possibly even expand. 

Issues for Congress 

The report does not identify or recommend any particular congressional action that needs to be taken with respect to FTZs but does list the following issues that lawmakers may want to consider. 

Misallocation of resources – FTZs were established in the 1930s with the goal of spurring U.S. commerce in the wake of the high tariff regime established by the Smoot Hawley Tariff Act, but today U.S. tariff levels are among the lowest in the world and U.S. commerce is highly connected with the global economy. In addition, because it confers specific tariff and logistical benefits on some but not all producers, the FTZ system may cause a misallocation of productive resources. Congress may therefore choose to consider whether the FTZ system still fulfills its original intent and remains the best vehicle through which to do so. Broader customs reform applicable to all importers could provide similar benefits without the risk of distortions, but given the background checks and heightened security associated with operating an FTZ, providing all firms with the logistical benefits of FTZ use may not be feasible. 

Data availability – Two agencies publish data relating to FTZs: the Census Bureau publishes detailed data by Harmonized Tariff Schedule number on imports into FTZs and bonded warehouses, along with data on import charges owed on these imports, while the FTZ Board publishes data on both foreign and domestic products entered into zones as well as final products leaving zones for U.S. consumption and for export. Neither agency collects or publishes industry-specific data on domestic inputs into zones, goods transferred from zone to zone, value added in zones or the relationship between the actual character of goods entering and goods exiting FTZs. These data are reported by companies to U.S. Customs and Border Protection and are used for protecting the revenue, ensuring compliance with U.S. laws and regulations, and ensuring the secure movement of merchandise in the U.S. but are not available publicly for other uses. 

Security issues – Compared to products that are directly imported for consumption, FTZs incorporate additional screening and security measures; e.g., companies must apply to use a zone, a process that includes a background check on key employees, a review of the security of the facility, and an assessment of the integrity of the inventory control and recordkeeping system. Companies must produce a detailed procedures manual explaining how all merchandise is handled at every stage of its movement through the zone, and the storage of merchandise in a zone exposes it to audit and inspection for the length of time that it remains there, which is often significantly longer than if it had been entered and cleared into commerce upon arrival at a U.S. port. The report notes that while the Government Accountability Office has raised some concerns about the in-bond process, which applies among other things to shipments to, from and between FTZs, similar concerns have not applied directly to the FTZ process. 

Employment and competitiveness – FTZs employ 320,000 mostly manufacturing workers in the U.S., less than 3% of total U.S. manufacturing employment. Since 1979, the number of manufacturing jobs in the U.S. has declined by nearly 40% due primarily to two factors: productivity gains in domestic operations and the movement of U.S. manufacturing facilities abroad due to lower operating costs. FTZ trade groups argue that zone operations can encourage job retention and job growth and, more broadly, enhance the global competiveness of firms located in the U.S. by, for example, saving production and transportation costs. 

Worker rights – Congress has an impact on worker rights in trade zones worldwide through U.S. trade preference laws and free trade agreements, which all include eligibility requirements associated with the protection of worker rights. However, there may be a grey area on the applicability of these requirements to free trade zones, an issues that has never been tested under dispute resolution procedures. While the International Labor Organization has issued a number of reports on working conditions in export processing zones, none of them is up-to-date in showing where specific country laws allow different labor standards in free trade zones.

Updated Textile and Apparel Export Guide Identifies Largest, Fastest Growing Markets  

The Commerce Department’s Office of Textiles and Apparel has issued an updated version of “Going Global,” a guide for U.S. exporters of textiles and apparel. In the introduction to this guide OTEXA notes that the supply chain for textiles and apparel has become increasingly global, to include North America, Latin America, Europe, Africa and the Asia-Pacific region, and that customers, suppliers, manufacturers and assemblers located throughout the world represent new potential partners for U.S. firms. U.S. exports in this industry are increasing – up 14% in 2011 to more than $22.4 billion – indicating that conditions are favorable for U.S. companies looking to grow their business internationally. 

This guide report examines the 15 largest markets for U.S. exports of textiles and apparel: Canada, Mexico, Honduras, China, the Dominican Republic, Japan, El Salvador, the United Kingdom, Belgium/Luxembourg, Hong Kong, South Korea, Germany, the Netherlands, Guatemala and Australia. Economic and trade information, as well as detailed data on export trends and processes, are provided for each. U.S. exporters can use this information to help determine which markets are most attractive and offer the greatest long-term growth opportunities. 

The guide also profiles the five fastest growing markets for U.S. exports of textiles (Chile, Turkey, Peru, Sweden and Poland) and apparel (Chile, the United Arab Emirates, the Netherlands, Israel and Malaysia). While exports to these countries are at lower levels they are growing rapidly due to numerous factors, including economic development and recently-signed free trade agreements with the U.S. 

Finally, the report highlights each textile and apparel category in the Harmonized Tariff Schedule and the corresponding top five export markets.

ITC Moves Toward Import Restrictions on Protective Cases for Handheld Electronics  

The International Trade Commission has upheld an initial determination that the importation, sale for importation and sale within the U.S. after importation of certain protective cases and components thereof is violating patents owned by Otter Products LLC of Fort Collins, Colo. The presiding administrative law judge has recommended that the ITC issue (a) a general exclusion order directed to infringing articles because there has been a widespread pattern of unauthorized use of the asserted patents and (b) cease and desist orders directed to the defaulting respondents, including their Internet activities. The ALJ also recommended that the amount of the bond posted for any entries of infringing merchandise during the 60-day period the president has to review any ITC remedial orders should be set at (a) 331.80% of entered value for tablet cases and 195.12% for non-tablet cases for products of the defaulting respondents and (b) 12.45% for tablet cases and zero for non-tablet cases for products of Griffin Technology Inc. 

The ITC is seeking comments by Sept. 14 on whether it should issue an exclusion order and/or cease and desist order; 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 the amount of the bond that should be required during the presidential review period.

AD Notices: Ferrovanadium, Steel, Aluminum Extrusions, Polyester Staple Fiber, Pipe  

Agency: International Trade Administration. 
Commodity: Ferrovanadium and nitrided vanadium. 
Country: Russia. 
Nature of Notice: Revocation of antidumping duty order, effective Oct. 13, 2011. 
Details: The products covered by this order are ferrovanadium and nitrided vanadium, regardless of grade, chemistry, form or size, unless expressly excluded. Ferrovanadium includes alloys containing ferrovanadium as the predominant element by weight and at least 4% by weight of iron. Nitrided vanadium includes compounds containing vanadium as the predominant element, by weight, and at least 5%, by weight, of nitrogen. The products subject to the order are classifiable under HTSUS 2850.00.20, 7202.92.00, 7202.99.5040, 8112.40.3000 and 8112.40.6000 

Agency: International Trade Administration. 
Commodity: Corrosion-resistant carbon steel flat products. 
Country: Korea. 
Nature of Notice: Preliminary results of administrative review of antidumping duty order for the period Aug. 1, 2010, through July 31, 2011. 
Details: Weighted average dumping margin of zero for reviewed manufacturers/exporters. Review rescinded for Pohang Iron & Steel Co. Ltd. and Pohang Coated Steel Co. Ltd. because this company has been revoked from the order. 

Agency: International Trade Administration. 
Commodity: Aluminum extrusions. 
Country: China. 
Nature of Notice: Final results of changed circumstances review of antidumping duty order. 
Details: Guangdong Zhongya Aluminum Company Limited is the successor-in-interest to Zhaoqing New Zhongya Aluminum Co. Ltd. The ITA will therefore instruct U.S. Customs and Border Protection to suspend liquidation and collect cash deposits at the rate of 33.28% on all shipments of subject merchandise exported by Guangdong Zhongya and entered or withdrawn from warehouse for consumption on or after Sept. 6. 

Agency: International Trade Administration. 
Commodity: Polyester staple fiber. 
Country: China. 
Nature of Notice: Sunset review determination that revocation of antidumping duty order would be likely to lead to continuation or recurrence of dumping at margins ranging from 3.47% to 44.30%. 
Details: If the International Trade Commission’s sunset review determination is also affirmative this order will be continued for another five years; otherwise, it will be revoked. 

Agency: International Trade Commission. 
Commodity: Seamless carbon and alloy steel standard, line and pressure pipe. 
Country: Germany. 
Nature of Notice: Sunset review determination that revocation of this antidumping duty order would be likely to lead to continuation of recurrence of material injury to an industry in the U.S. within a reasonably foreseeable time. 
Details: This order will be continued for another five years.

Ocean Transportation Intermediary License Applicants  

The Federal Maritime Commission has provided notice that the following applicants have filed applications for licenses as non-vessel-operating common carrier and/or ocean freight forwarder ocean transportation intermediaries. Persons knowing of any reason why any of these applicants should not receive a license are requested to contact the FMC. 

- Ambassador International Ltd., Sterling, Va. 
- Carico USA LLC, Houston, Texas 
- Gemini Logistics Inc., Jacksonville, Fla. 
- LV Shipping (USA) Inc., Humble, Texas 
- O.K. Cargo Corp., Miami, Fla. 
- Ocean World Lines Inc., Lake Success, N.Y. 
- Next Day Cargo Inc., Doral, Fla. 
- Nica Mar Corp. , Miami, Fla. 
- Racon Line Inc., Paramount, Calif. 
- Radjames Mejia Inc. d/b/a MM Shipping, Bay Shore, N.Y. 
- RF International Ltd., Lake Success, N.Y.

FTZ Board Approves New Activity in South Dakota Zone, Reorganizes Three Texas Zones  

The Foreign-Trade Zones Board has recently announced the following actions. 

- authorization of production activity at the Rosenbauer America LLC/Rosenbauer South Dakota LLC facility within FTZ 220—proposed site 8 in Lyons, S.D., which is used for the production of emergency vehicles and firefighting equipment (pumps, tankers, rescue, aerials and specialty emergency vehicles) 

- approval of the reorganization of FTZ 155 under the alternative site framework with a service area of Calhoun, Victoria and Matagorda counties in Texas, within the Port Lavaca-Point Comfort U.S. Customs and Border Protection port of entry 

- approval of the reorganization of FTZ 149 under the ASF with a service area of Brazoria and Fort Bend counties in Texas, within and adjacent to the Freeport CBP port of entry 

- approval of the reorganization of FTZ 94 under the ASF with a service area of Webb County, Texas, within and adjacent to the Laredo CBP port of entry

Export-Import Bank’s Sub-Saharan Africa Panel to Meet Sept. 19  

The Sub-Saharan Africa Advisory Committee of the Export-Import Bank of the United States will hold an open meeting Sept. 19 in Washington, D.C. This meeting will include a presentation by Bank staff on recent developments in sub-Saharan Africa markets, an update on the Bank’s ongoing business development initiatives in the region, and discussion of current challenges and opportunities for U.S. exporters.

Amended Maritime Agreements Filed  

The Federal Maritime Commission has issued notice that the following amended agreements have been filed. Interested parties may submit comments by Sept. 17. 

Central America Discussion Agreement – The amendment deletes APL co. PTE Ltd. as a party to the agreement. 

West Coast of South America Discussion Agreement – The amendment deletes APL Co. PTE Ltd. as a party to the agreement.

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