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September 25 2012 Issue

Tuesday, September 25, 2012
Sandler, Travis & Rosenberg Trade Report

WTO Lowers Estimate for Global Trade Growth      

The World Trade Organization has downgraded its prediction for global trade expansion in 2012 from 3.7% to 2.5% and has scaled back its estimate for 2013 as well, from 5.6% to 4.5%. According to a press release, the WTO anticipates a 1.5% increase in developed economies’ trade (down from 2%) and a 3.5% expansion for developing countries (down from 5.6%). On the import side, nearly stagnant growth of 0.4% is expected in developed economies (down from 1.9%), compared to a more robust 5.4% increase in developing countries (down from 6.2%). 

The WTO explains that “the global economy has encountered increasingly strong headwinds” in the last few months, including lower than hoped output and employment in the U.S., slower growth in China and the continuing debt crisis in Europe. Other events could intrude to produce worse outcomes in 2012, including a “hard landing” for the Chinese economy or geopolitical tensions. However, the WTO adds, there is some upside potential if the European Central Bank’s recently announced bond purchasing program has an immediate salutary effect on import demand in Europe. 

California Lawmaker Promotes Trade Liberalization with Four Bills      

Rep. Devin Nunes, a Republican member of the House Ways and Means Committee that oversees U.S. trade policy, announced Sept. 21 the following four measures that aim to promote further trade liberalization. No legislative action on any of these bills is likely before the 112th Congress comes to a close in the coming days; instead, they can be seen as an effort to promote the idea of free and open trade at a time when that concept is under fire amid an ongoing global economic downturn. 

- The Transatlantic Commerce and Trade Enhancement Act would authorize the president to conduct negotiations on a comprehensive free trade agreement with the European Union. A joint working group issued a preliminary report recommending such an agreement in June, and a final report is expected by the end of the year. 

- The United States-Brazil Joint Commission on Commerce and Trade Act would establish a bilateral commission to work toward dismantling mutual trade barriers, promoting commercial opportunities and, in the long term, establishing a free trade agreement. Prospects for such developments have dimmed in recent months as Brazil has taken measures the U.S. has criticized as protectionist. 

- The Agriculture Trade Facilitation Act would establish U.S. negotiating objectives for removing improper sanitary and phytosanitary barriers to U.S. agricultural exports. 

- The Generalized System of Preferences Improvement Act would reform GSP so that certain countries with rapidly developing economies would no longer receive benefits while blocking U.S. imports in their own markets. Instead, such countries would be encouraged to work with the U.S. to remove trade barriers on both sides. Lawmakers have been discussing GSP reform for several years, particularly the idea of limiting benefits for recipients that no longer need them or have been antagonistic to U.S. interests, but little concrete progress has been made. 

Court Says DOC Improperly Disallowed Separate AD Rate for Chinese Exporter      

The Court of International Trade has remanded to the Department of Commerce a case involving a Chinese exporter of steel threaded rods subject to a U.S. antidumping duty order. The court said the DOC improperly assigned this company a much higher AD duty rate than it would have otherwise received by ignoring various facts. 

Gem Year Industrial Co. Ltd. did not participate in the original AD duty investigation but sought to obtain an individual AD duty rate during the first administrative review covering the period Oct, 8, 2008, through March 31, 2010, when it was the second-largest exporter of subject merchandise. The DOC subsequently notified Gem Year that there was no evidence that it made a sale to the U.S. during the period of review that resulted in suspension of liquidation. Gem Year responded that an unaffiliated U.S. importer had made an error that resulted in all of its entries during the POR being liquidated. Nevertheless, the DOC ultimately replaced Gem Year with a different mandatory respondent, calculated a de minimis dumping margin for the one cooperating mandatory respondent, calculated an all others rate of 55.16% and applied a 206.00% rate to the China-wide entity, including Gem Year. 

According to the CIT, the DOC has not explained how it reconciles its obligation to review entries that occurred during the period of review with its refusal to review Gem Year’s merchandise, which clearly entered the U.S. during the POR, or how its policy can be justified in light of its non-market economy methodology. The CIT rejects the DOC’s “singular explanation” that one of the primary purposes of an administrative review is to determine final assessment rates for entries suspended from liquidation, stating that reviews also have other functions that are wholly unrelated to liquidation, especially in the NME context (e.g., determining individual rates, a China-wide rate and an all others rate for assessment and deposit purposes). Among other things, the court notes, the exclusion of one of the largest exporters of subject merchandise is likely to result in a less accurate all others rate, especially when the only other mandatory respondent received a de minimis rate. The CIT also states that while Commerce appears to interpret “entries” to mean “liquidated entries” for purposes of the statute and regulation, it has never formally articulated this position or provided an explanation for it that would make the meaning of its regulation clear to the parties affected. 

The court also finds that the DOC improperly denied Gem Year an opportunity to show that it is entitled to a separate AD duty rate by virtue of being independent from state control. The law does not provide for this separate rate process as part of an administrative review process but the DOC has linked the two, leading it to deny Gem Year’s request for a separate rate after determining that it was not eligible to participate in the administrative review. However, the CIT states, previous cases demonstrate that Commerce cannot use unrelated findings in a review to avoid a separate rate analysis. Gem year timely submitted a separate rate application , the court notes, and the DOC cannot ignore this record evidence merely because it labels the separate rate application process part of the administrative review process. 

Further, the court states that the application of an adverse facts available AD duty rate to Gem Year is inconsistent with the law and unsupported by the record. In order to apply an AFA rate to a party such as Gem Year that seeks to comply with its requirements, the DOC must determine either that the party has failed to cooperate by not acting to the best of its ability or that its separate rate application failed to rebut the presumption of state control, neither of which was done in this case. Moreover, the court notes, Commerce cannot rely on an unaffiliated party’s failure to cooperate to justify the application of the AFA rate unless the exporter is also found responsible for the behavior in some way. 

If the DOC determines on remand that Gem Year remains part of the China-wide entity, it will then be required to consider Gem Year’s challenge to that rate. The court states that Gem Year’s inability to export or import merchandise as a result of the imposition of a 206% AD duty rate satisfies the “injury in fact” requirement but that it was not given an opportunity to develop a record concerning its allegations that this rate is unrelated to both Gem Year and the commercial reality of the industry. 

Of Note: Ukraine Tariff Increase, Airplane Subsidies, China-Japan Dispute      

Ukraine trade demand shocks global partners 
U.S. says it has complied with WTO ruling on Boeing subsidies 
Some Japanese imports to China delayed by more customs checks amid islands row

Senate Again Gets Bill to Extend Copyright Protection to Fashion Design      

The Senate Judiciary Committee approved by voice vote Sept. 20 a bill to extend copyright protection to fashion designs. Similar efforts have been made in recent years but the current bill reflects changes made to gain the support of those who have opposed previous versions. 

Under the Innovative Design Protection Act of 2012 (S. 3523), fashion designs would be copyright protected for three years. Designs would not be deemed to have been copied from a protected design if (a) it is not substantially identical in overall visual appearance to and as to the original elements of a protected design or (b) it is the result if independent creation. A fashion design owner would have to provide written notice of the design protection to any person the owner has reason to believe has violated or will violate the bill’s protections, and any infringement action could not be initiated until 21 days after such notice is provided. 

The American Apparel & Footwear Association, which was critical of previous efforts for going too far, indicated that the current bill is acceptable. AAFA President and CEO Kevin Burke called the measure “a workable and practical approach to the real but limited issue of design piracy” and applauded Sen. Charles Schumer for “his proactive effort in bringing all stakeholders together in search of a solution that protects genuine creativity in fashion design but still allows for the industry to explore the trends hardworking American families on a budget desire.” 

CBP Updates Country of Origin Rules to Reflect HTSUS Changes      

U.S. Customs and Border Protection has issued a final rule that, effective Sept. 25, makes technical corrections to part 102 of its regulations to reflect recent changes in the Harmonized Tariff Schedule of the United States. These changes affect 19 CFR 102.20, which prescribes the tariff shift rules used to determine whether a good is considered a good of a NAFTA country or whether an imported good is a new or different article of commerce under the free trade agreements the U.S. has with Morocco and Bahrain, and 19 CFR 102.21, which provides the rules of origin relating to trade in textile and apparel products other than those that are products of Israel. 

CBP explains that as a result of the 2012 modifications to the HTSUS, certain tariff provisions have been added or removed and certain goods have been transferred, for tariff classification purposes, to different or newly-created tariff provisions. These changes involve product coverage and/or numbering of certain headings and subheadings and are not intended to have any other substantive effect. Accordingly, this rule makes technical corrections to conform the tariff shift rules to the current version of the HTSUS. This rule also corrects typographical errors in certain subheadings of Chapter 90 that occurred when the regulations were updated for the 2007 HTSUS. 

Potential IPR Probe of Integrated Circuit Chips Evaluated for Public Interest Issues      

The International Trade Commission is requesting comments no later than Oct. 3 on any public interest issues raised by a Section 337 intellectual property rights infringement complaint filed on behalf of Realtek Semiconductor Corporation against certain integrated circuit chips and products containing the same. 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. 

Foreign Regulatory Changes Could Affect Exports of Tobacco, TVs, Light Bulbs, Engines      

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 – technical regulations on food packaging and cooking and hot filtration papers (comments due by Nov. 3) 

Canada – Aug. 22 effective date of order amending Schedule 3 of the Canadian Environmental Protection Act concerning hazardous chemicals and pesticides 

Korea – proposal for additional warning messages on sides of tobacco product packages (comments due by Oct. 30) 

Mexico – draft official standard establishing technical specifications and guidelines for electrical installations (comments due by Sept. 25) 

New Zealand – amended minimum energy performance standards for televisions, compact fluorescent lamps, air conditioners and heat pumps 

Peru – draft technical regulation on alcoholic beverages (comments due by Nov. 19) 

Singapore – regulations on off-road diesel engine emissions 

DOC Reviewing Annual Survey of Foreign Direct Investment      

The Department of Commerce is accepting comments through Nov. 26 on the proposed extension of form BE-15, Annual Survey of Foreign Direct Investment in the United States. This form obtains sample data on the financial structure and operations of U.S. affiliates of foreign investors, which are needed to provide reliable, useful and timely measures of FDI in the United States, assess its impact on the U.S. economy and, based on this assessment, make informed policy decisions regarding FDI. The data are also used to update similar data for the universe of U.S. affiliates collected once every five years on the BE-12 benchmark survey.   

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