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October 17 2012 Issue

Wednesday, October 17, 2012
Sandler, Travis & Rosenberg Trade Report

Mexico Targets Chinese Subsidies for Textile and Apparel Industries

Mexico filed with the World Trade Organization Oct. 15 a dispute settlement case against a wide variety of measures allegedly taken by China that directly and indirectly support the production and export of textile and apparel products. According to press reports, these measures include exemptions and reductions of import duties and various taxes; preferential terms for land, electricity and raw materials; support for the cotton sector; and financial aid from government agencies such as low-cost loans, grants and debt forgiveness. Mexico believes that these measures involve both prohibited and actionable subsidies that are inconsistent with China’s obligations under the WTO Subsidies and Countervailing Measures Agreement, GATT 1994, the WTO Agreement on Agriculture and China’s WTO accession protocol.

Mexico and China will now have 60 days to hold consultations aimed at resolving the dispute. If those talks are unsuccessful, Mexico will request that the WTO establish a dispute settlement panel to review its allegations. That panel will then have six months to reach a conclusion. Should the panel’s decision be appealed, the Appellate Body would have up to 90 days to render a decision and the Dispute Settlement Body would adopt that decision within another 30 days. Readers should note that these time periods are frequently exceeded due to factors such as the complexity and political sensitivity of the case. In addition, when China is the target of a WTO dispute it often settles the matter before the full process is completed, though it appears to be less inclined to follow this pattern as time goes on.

U.S. officials indicated that they have not yet reviewed Mexico’s complaint or how it may affect U.S. interests. However, it would not be surprising to see Washington join in the dispute in some way in the months ahead, as both major political parties have expressed an intent to strengthen trade enforcement efforts with respect to China.

What is less certain is the effect the new case may ultimately have. ST&R’s Mark Ludwikowski notes that if China removes the measures at issue, either unilaterally or after an adverse WTO decision, any related countervailing duties currently imposed on Chinese textile or apparel goods would have to be adjusted to the extent they are based on those measures. In addition, removal of the subsidies could make it more expensive to source textile and apparel articles in China, which could benefit U.S. fiber makers if production then shifts to countries that use more inputs from the U.S. than China does.

A decision against China could also spur the filing of similar WTO cases targeting subsidies to other Chinese industries. However, the final resolution of any such proceedings would take several years at least. In the meantime, those who feel they have been harmed by unfairly traded Chinese products will likely continue to seek relief primarily through the imposition safeguards or antidumping or countervailing duties. 

Agricultural Import Inspection Program Improving but Still Needs Work, GAO Says

The Government Accountability Office has issued a report reviewing the implementation of seven recommendations it made in 2006 concerning the Agricultural Quarantine Inspection program, which places agriculture inspectors at U.S. ports of entry to inspect imports and intercept foreign pests. The GAO notes that AQI is important not only to the U.S. economy, which loses an estimated $136 billion in agricultural revenue to invasive species each year, but also to efforts to protect against the deliberate introduction of pests and diseases.

Historically, the Department of Agriculture was responsible for AQI, but the Homeland Security Act of 2002 split responsibility for the program between USDA’s Animal and Plant Health Inspection Service and the Department of Homeland Security. DHS acquired the authority (exercised by U.S. Customs and Border Protection) to inspect passenger declarations and cargo manifests, international passengers, baggage, cargo, and conveyances such as ships, aircraft, vehicles, buses and rail cars and to seize and quarantine suspect articles. Inspection methods include the examination of baggage by hand, X-ray and canine inspection and the examination of documents accompanying incoming cargo to ensure compliance with plant and animal health and trade agreements. An agriculture inspection may result in an interception; i.e., the identification of items that may be confiscated or transferred to an APHIS facility for subsequent evaluation or treatment depending on the product or material. APHIS remains responsible for setting inspection policy, overseeing CBP agriculture specialists’ training, and managing and collecting AQI user fees.

The GAO notes that USDA and DHS have taken steps to implement all seven of its 2006 recommendations but face challenges in fully implementing four of them. Specifically, DHS and USDA have implemented recommendations to improve information sharing, review DHS’s financial management system for AQI, and remove barriers to timely and accurate transfers of AQI user fees, which are collected for AQI services provided in connection with the arrival of international air passengers and conveyances at U.S. ports. “However,” the GAO states, “the AQI program continues to wrestle with fundamental problems that undermine the management of the program and risks wasting resources in a fiscally constrained environment.”

- The use of one measure assessing the program’s effectiveness at intercepting foreign pests and disease has been expanded but other measures have not been developed.

- There is no strategic plan that defines what the program seeks to accomplish, sets goals to achieve desired results and identifies performance measures for gauging progress toward those goals.

- Having devoted six years and hundreds of thousands of dollars to the effort, CBP still does not have a national, risk-based staffing model that provides assurance that those ports of highest vulnerability for the entry of pests and diseases are adequately staffed. Officials anticipate that this model will recommend significant staffing increases that they cannot afford, but the agency has not developed a plan that assesses the risk of potential fiscal constraints on its ability to implement the staffing model or considers the resources that may realistically be available. Without such a plan, CBP risks not only increasing the vulnerability of the agriculture sector to foreign pests and diseases but also disrupting international trade if agriculture specialists cannot keep up with demand for inspections.

- AQI uses data on arrivals, inspections and interceptions at U.S. ports of entry to determine how well agriculture inspections identify prohibited materials and review port performance, but reviews conducted in 2010 and 2011 found data discrepancies at 10 of 22 ports.

Officials responded that they have re-convened a joint task force that aims to formulate a strategic plan, determine a strategy for implementing the AQI staffing model, and discuss next steps on improving data quality by Aug. 23, 2013. 

Of Note: Product Safety, Sourcing in China

Feds muff kid jewelry cadmium crackdown

Reports of the Demise of Chinese Exports Are Greatly Exaggerated

WTO Case on China’s Subsidies for Autos and Auto Parts Subject of USTR Inquiry

The Office of the U.S. Trade Representative is soliciting comments through Nov. 12 on the issues raised in a dispute settlement case the U.S. recently filed at the World Trade Organization alleging that the Chinese government is providing prohibited subsidies to manufacturers of automobiles and auto parts. USTR states that the measures at issue appear to provide subsidies such as grants, loans, forgone government revenue, the provision of goods and services, and other incentives contingent upon export performance, which would be inconsistent with China’s obligations under the WTO Agreement on Subsidies and Countervailing Measures. The U.S. also asserts that China has failed to notify these measures as required by its transparency obligations under the WTO Agreement. 

New Agreement Aims to Ease U.S. Telecom Exports to Israel

The Office of the U.S. Trade Representative announced Oct. 15 the signing of a mutual recognition agreement that will ease burdens on U.S. companies seeking to export telecommunications products to Israel while “maintaining the United States’ high technical standards and facilitating cross-border trade.” This agreement, which covers equipment subject to telecom regulation including wire and wireless equipment and terrestrial and satellite equipment, will enter into force after both sides have completed all internal legal requirements.

USTR states that under this agreement Israeli regulatory authorities will accept tests that recognized U.S. laboratories perform to determine the conformity of telecom equipment with Israeli technical requirements, rather than requiring additional testing by Israeli laboratories. The U.S. will extend similar treatment to tests performed in Israel, and vice versa. The agreement also provides that in the future the two countries can agree to the mutual acceptance of equipment certifications by recognized conformity assessment bodies in the U.S. and Israel. USTR anticipates that these provisions will save manufacturers the time and expense of additional product testing and certification, which is expected to lower prices for consumers and boost exports. 

AD Notices: Frozen Shrimp, Pure Magnesium

Agency: International Trade Administration.
Commodity: Frozen warmwater shrimp.
Country: Vietnam.
Nature of Notice: Amended final results of administrative review of antidumping duty order for the period Feb. 1, 2008, through Jan. 31, 2009.
Details: Amended dumping margin of 3.92% for Amanda Foods (Vietnam) Ltd. In addition, the ITA is re-conducting this review with respect to Grobest & I-Mei Industrial (Vietnam) Co. Ltd., which the Court of International Trade directed the ITA to review as a voluntary respondent.

Agency: International Trade Administration.
Commodity: Pure magnesium in granular form.
Country: China.
Nature of Notice: Continuation of antidumping duty order for five years, effective Oct. 17.
Details: The scope of this order includes imports of pure magnesium products, regardless of chemistry, including, without limitation, raspings, granules, turnings, chips, powder and briquettes. Pure magnesium includes (1) products that contain at least 99.95% primary
magnesium by weight (“ultra pure”), products that contain less than 99.95% but not less than 99.8% primary magnesium by weight (“pure”), chemical combinations of pure magnesium and other material(s) in which the pure magnesium content is 50% or greater but less than 99.8% by weight (“off-specification pure”), and physical mixtures of pure magnesium and other material(s) in which the pure magnesium content is 50% or greater but less than 99.8% percent by weight. The subject merchandise is currently classifiable under HTSUS 8104.30.00. The scope of this order excludes pure magnesium that is already covered by the existing AD duty order on pure magnesium in ingot form, which is currently classifiable under HTSUS 8104.11.00 and 8104.19.00. 

CPSC Proposes $650,000 Penalty for Failure to Report Product Defects

The Consumer Product Safety Commission has provisionally accepted an agreement under which a Massachusetts company would pay a $650,000 penalty to settle charges related to defective inflatable baby boats. Any interested person may ask the CPSC not to accept this agreement or otherwise comment on its contents through Nov. 1.

The CPSC states that the boats at issue are defective because the leg straps in the seat can tear with normal use, causing children to unexpectedly fall into or under the water. The company received its first complaint about this problem in 2001 and later that year announced a recall of 90,000 of the subject items. Following the recall the CPSC monitored the company’s corrective action plan for two years, at which time it closed the case. However, between July 2003 and July 2006 the company became aware of 17 incidents involving the different versions of the boats that it produced after the recall that demonstrated that the leg straps were not being produced in accordance with the width and thickness specifications of the replacement product evaluated by CPSC staff as part of the corrective action plan. The company did not immediately report these incidents to the Commission and, once it did, failed to report the full scope and severity of the hazard.

The company denies the CPSC’s allegations that it knew that the subject products contained defects that could create a substantial product hazard and further denies that it knowingly violated the statutory reporting requirements. Among other things, the company asserts that the warnings and instructions it provided with the baby boats meant that the leg strap problems were not reportable events. 

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 Oct. 29.

NYK/HUAL Space Charter and Cooperative Working Agreement – The amendment clarifies that the agreement covers U.S. export trades only, adds Libya and Lebanon to the geographic scope of the agreement, and corrects the U.S. address of Hoegh Autoliners.

U.S. Pacific Coast-Oceania Agreement – The amendment would adjust the minimum and maximum size of vessels that can be deployed by the parties.

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