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December 11 2012 Issue

Tuesday, December 11, 2012
Sandler, Travis & Rosenberg Trade Report

Jan. 1, 2013 Deadline for Compliance with New Medical Device Excise Tax

Members of the healthcare and medical device industries should take note that as of Jan. 1, 2013, Section 4191 of the Internal Revenue Code will establish an excise tax in the amount of 2.3% of the sale price on sales of any taxable medical device by the manufacturer, producer or importer. The Internal Revenue Service has issued final regulations on this new tax as well as Notice 2012-77, which provides interim guidance on determination of the sale price and other tax-related issues.

Virtually all medical devices intended for human use (including dental instruments, dental equipment and research use-only devices) that are sold after Dec. 31, 2012, as well as such devices that are in inventory on Dec. 31, 2012, but are not sold until after Jan. 1, 2013, are taxable medical devices. The IRS has said that if a device is not currently listed with the FDA but the FDA determines at a later date that it should have been listed, the device will be considered listed as a device with the FDA as of the date the agency provides written notification to the manufacturer or importer that corrective action with respect to listing is required. The excise tax will then apply to such devices.

Eyeglasses, contact lenses and hearing aids are exempt from the new excise tax, along with medical devices that are (a) to be further manufactured, (b) exported or destined for export, (c) sold for non-human use, or (b) intended to be purchased by the general public at retail for individual use (referred to as the retail exemption). The final regulations specify that the retail exemption applies if (a) if the medical device is regularly available for purchase and use by individual consumers who are not medical professionals and (b) the device design demonstrates that it is not primarily intended for use in a medical institution or office or by medical professionals (e.g., it does not have to be implanted, inserted, operated or otherwise administered by a medical professional).

The regulations also include a safe harbor provision that identifies certain categories of taxable medical devices that fall within the retail exemption, including IVD home-use lab tests, over-the-counter devices and certain devices that qualify as durable medical equipment, prosthetics, orthotics or supplies for which payment is available on a purchase basis under Medicare Part B payment regulations. The regulations make clear that a manufacturer or importer is generally liable for the new excise tax when the title to a taxable device passes from the manufacturer to a purchaser. The regulations also underscore that the price for which a taxable device is sold includes the total consideration paid for the device irrespective of the form (i.e., money, services or trade-in). Packaging costs are included but shipping, transportation and other expenses incurred by the manufacturer or importer in placing the device in the hands of the purchaser are excluded. The sale price also excludes any warranties that may be purchased and any rebates that may be offered to the purchaser.

Sandler, Travis & Rosenberg P.A. recommends that affected companies consider and update their evaluation of their tax commitment, assess the availability and application of any exemptions or anticipated business changes impacting the tax, and structure financial and budget estimation systems to ensure timely compliance beginning Jan. 1, 2013. For additional information and guidance on which medical devices are taxable, determination of the intended uses of the products, calculation of the sale price of the products, and assessment of possible exemptions, please contact ST&R to speak with a regulatory professional. 

Trade Tensions with Argentina Escalate with Request for WTO Dispute Panels

Concerns about rising protectionism in Argentina escalated last week with requests by the U.S. and several others for World Trade Organization dispute settlement panels to address specific policies. Buenos Aires responded with several panel requests of its own.

The U.S., the European Union, Japan and Mexico have each filed WTO cases against trade restrictive measures imposed by Argentina in recent months, and a handful of other countries have asked to join in as well. These measures include the broad use of non-automatic import licensing requirements through non-transparent means that result in burdensome procedures and delays up to six months. These requirements now apply to approximately 600 eight-digit tariff lines in Argentina’s goods schedule covering items such as laptops, home appliances, air conditioners, tractors, machinery and tools, autos and auto parts, plastics, chemicals, tires, toys, footwear, textiles and apparel, luggage, bicycles and paper products.

In conjunction with these licensing requirements Argentina has adopted informal trade balancing requirements whereby companies seeking to obtain authorization to import products must agree to export goods of an equal or greater value, make investments in Argentina, lower prices of imported goods and/or refrain from repatriating profits. This appears to take the form of a systematic, unwritten practice, the EU states, and is often used as a precondition to the release of imported goods at the border. The EU adds that earlier this year Argentina introduced a requirement for products subject to non-automatic import licensing to also follow a new import pre-approval procedure that “creates long delays and results in significant costs for many companies.”

Argentinean officials have argued that these measures are necessary to support economic growth by reindustrializing the country and controlling trade deficits. However, the EU states, these internal policy choices “cannot be achieved to the detriment of WTO members and in breach of international trade commitments.” The EU also worries that if more WTO members adopt these kinds of measures “the damage to world trade and growth would be devastating.”

Argentina is responding in kind. Last week Buenos Aires requested the establishment of dispute settlement panels to review its allegations that Spain has discriminated against its exports of biodiesel and that the U.S. maintains unfair restrictions on imports of Argentinean fresh lemons and fresh, frozen and chilled beef. Officials also pledged to file similar challenges to agricultural subsidies in the U.S. and Europe. The government issued a statement reiterating “the need for the countries that are the epicenter of the global crisis to avoid maintaining protectionist policies that hinder global trade to the detriment of developing countries.” 

New Task Force Aims to Further Increase U.S. Exports

President Obama signed Dec. 6 an executive order establishing an Interagency Task Force on Commercial Advocacy that will provide a one-stop shop for U.S. exporters competing for public international contracts against foreign firms. This task force will provide increased support for U.S. exporters beyond traditional commercial advocacy by creating packages of government support from 15 federal agencies, including trade promotion, commercial diplomacy, financing, lead generation, market intelligence, technical assistance and other services.

A fact sheet states that this new initiative builds on and coordinates existing programs “to create a whole-of-government efficiency that can best compete against state-supported international competitors.” Specific efforts in which the task force will be engaged include the following.

- reviewing and prioritizing commercial advocacy cases and coordinating the activities of relevant agencies to enhance federal support for such cases

- coordinating the engagement of agency leadership with their foreign counterparts regarding commercial advocacy issues in order to increase the number of senior-level agency officials regularly and effectively advocating on behalf of U.S. exporters

- developing strategies to increase the number of U.S. businesses utilizing commercial advocacy services

- instituting processes to obtain and distribute information about foreign procurement opportunities that may be of interest to U.S. businesses

- facilitating voluntary short-term personnel exchanges between the Department of Commerce and other task force agencies in order to cross-train federal personnel to better serve U.S. exporters

- submitting a semiannual progress report to the Export Promotion Cabinet 

USDA to Restrict Distribution of Imported Meat and Poultry Pending Test Results

The Department of Agriculture’s Food Safety and Inspection Service has announced a new policy requiring official establishments and importers of record to maintain control of meat and poultry product tested for adulterants by FSIS and to not allow such products to enter commerce until negative test results are received. FSIS practice has been to allow products tested for adulterants to bear the mark of inspection and to enter commerce, even when test results have not been received. While FSIS has asked import inspection and other official establishments to maintain control of products tested for adulterants pending test results, they have not consistently done so, resulting in adulterated product entering commerce.

The new policy, which will become effective as of Feb. 8, 2013, will cover (1) non-intact raw beef product or intact raw beef product intended for non-intact use that is tested for Escherichia coli O157:H7, (b) any ready-to-eat product tested for Listeria monocytogenes, E. coli O157:H7 or Salmonella, (c) ready-to-eat product that passed over food contact surfaces that have been tested for the presence of Listeria monocytogenes and Salmonella, and (d) livestock carcasses subject to FSIS testing for veterinary drugs such as antibiotics, sulfonamides or avermectins or the feed additive carbadox. The policy will not cover raw meat or poultry products tested for Salmonella or other pathogens that FSIS has not designated as adulterants in those products.

In response to concerns from industry, foreign trade organizations and foreign governments about the potential impact of this policy on small businesses, especially those that produce product with a short-shelf life, and those entities who import product, FSIS has indicated the following.

- Before implementing this new policy FSIS will issue instructions reiterating to inspection program personnel that they are to provide establishments prior notification of sampling for adulterants. FSIS will also issue specific instructions to address sample collection at small and very small establishments to make it clear that they can produce smaller representative batches of product for sampling. Additionally, FSIS will consider reducing its frequency of sampling at small and very small establishments that have certain measures in place.

- FSIS will not require imported product tested for adulterants to be held at an import establishment until test results become available. The importer of record will be required to control all affected products that FSIS tests for adulterants during re-inspection so that they do not enter commerce until the test results are received. However, the importer of record could move the product away from the import establishment under company seal or other adequate controls.

- When this policy becomes effective, if an establishment fails to prevent products tested by FSIS for adulterants from entering commerce before negative test results are received, the Office of Field Operations will take appropriate enforcement action; e.g., immediately suspending inspection or issuing a Notice of Intended Enforcement Action. Also, FSIS will request a voluntary recall of product, detain the product in commerce or institute other product control actions if necessary. 

CPSC to Require Child-Resistant Packaging for Drugs with Decongestant Substance

The Consumer Product Safety Commission has issued a final rule to require child-resistant packaging for any over-the-counter or prescription product containing the equivalent of 0.08 milligrams or more of an imidazoline in a single package. Imidazolines are a family of drugs that are used as decongestants in eye drops and nasal products. Products containing imidazolines can cause serious adverse reactions, such as central nervous system depression, decreased heart rate and depressed ventilation, in children who accidentally ingest them. Eye drops and nasal sprays containing imidazolines, which include tetrahydrozoline, naphazoline, oxymetazoline and xylometazoline, are widely available at drug, grocery and mass market retailers.

This rule will become effective as of Dec. 10, 2013, and apply to products packaged on or after that date. However, the CPSC has set the following conditions for this one-year stay of enforcement.

- The manufacturer of a product containing the equivalent of 0.08 milligrams of imidazolines or more must notify the CPSC prior to Dec. 10, 2013, of its intent to avail itself of the stay. This notification must include a detailed time line setting forth the steps necessary to produce child-resistant packaging for its product(s) and the range of time anticipated for completion of each step. The CPSC advises manufacturers to submit this notice well before the deadline.

- Each manufacturer providing notice of its intent to avail itself of the stay must submit quarterly reports for each affected product that provide the following information: (a) proposed packaging specifications; (b) estimated initial production date; (c) progress made and/or steps completed during the reporting period; and (d) reports of any incidents or exposures involving the firm’s imidazoline-containing products that are subject to the rule. Failure to comply will subject the manufacturer’s imidazoline-containing products to enforcement of the child-resistant packaging requirement. 

AD/CV Notices: Hangers, Glycine, Bearings, Sawblades, Pipe, PET Film, Fish, Plywood

Agency: International Trade Administration.
Commodity: Steel wire garment hangers.
Country: Taiwan.
Nature of Notice: Issuance of antidumping duty order, effective Dec. 10.
Scope: This order applies to steel wire garment hangers fabricated from carbon steel wire, whether or not galvanized or painted, whether or not coated with latex or epoxy or similar gripping materials, and whether or not fashioned with paper covers or capes (with or without printing) or nonslip features such as saddles or tubes. These products may be referred to by a commercial designation, such as shirt, suit, strut, caped or latex (industrial) hangers. Specifically excluded from the scope of the order are (a) wooden, plastic and other garment hangers that are not made of steel wire; (b) steel wire garment hangers with swivel hooks; (c) steel wire garment hangers with clips permanently affixed; and (d) chrome plated steel wire garment hangers with a diameter of 3.4 mm or greater.
Details: AD duties will be assessed, and AD cash deposits will be required, at the following rates: 69.98% for Golden Canyon Ltd., 125.43% for Taiwan Hanger Manufacturing Co. Ltd., and 69.98% for all others.

Agency: International Trade Administration.
Commodity: Glycine.
Country: China.
Nature of Notice: Final partial affirmative determination of circumvention of antidumping duty order.
Details: Glycine exported from India but processed using Chinese-origin inputs by Salvi Chemical Industries Limited and AICO Laboratories India Ltd. is circumventing this AD duty order. Paras Intermediates Pvt. Ltd. is not circumventing the order because its exports of glycine to the U.S. were produced from India-origin inputs.

Agency: International Trade Administration.
Commodity: Ball bearings and parts thereof.
Country: France, Germany and Italy.
Nature of Notice: Final results of administrative reviews of antidumping duty orders for the period May 1, 2010, through April 30, 2011.
Details: Weighted average dumping margin of zero for all respondents. No AD duties will be assessed on entries of subject merchandise made during the period of review, and because these orders were revoked as of Sept. 15, 2011, there are no longer any AD cash deposit requirements.

Agency: International Trade Administration.
Commodity: Diamond sawblades and parts thereof.
Country: China.
Nature of Notice: Preliminary results of administrative review of antidumping duty order for the period Nov. 1, 2010, through Oct. 31, 2011.
Details: Dumping margins ranging from zero to 164.09%.

Agency: International Trade Administration.
Commodity: Diamond sawblades.
Country: Korea.
Nature of Notice: Preliminary results of administrative review of antidumping duty order for the period Nov. 1, 2010, through Oct. 23, 2011.
Details: Dumping margins ranging from zero to 121.19%. If finalized, these margins will be used to determine AD duties assessed on entries of subject merchandise made during the period of review, but no AD cash deposits will be required because this AD duty order was revoked as of Oct. 24, 2011.

Agency: International Trade Administration.
Commodity: Seamless refined copper pipe and tube.
Country: Mexico.
Nature of Notice: Preliminary results of administrative review of antidumping duty order for the period May 1, 2011, through Oct. 31, 2011, for one exporter and Nov. 22, 2010, through Oct. 31, 2011, for another.
Details: Dumping margin of zero for both exporters.

Agency: International Trade Administration.
Commodity: Polyethylene terephthalate film, sheet and strip.
Country: China.
Nature of Notice: Preliminary results of administrative review of antidumping duty order for the period Nov. 1, 2010, through Oct. 31, 2011.
Details: Dumping margins ranging from zero to 2.95%.

Agency: International Trade Administration.
Commodity: Frozen fish fillets.
Country: Vietnam.
Nature of Notice: Rescission of administrative review of antidumping duty order for the period Aug. 1, 2010, through July 31, 2011, with respect to An Giang Fisheries Import & Export Joint Stock Company.

Agency: International Trade Administration.
Commodity: Hardwood and decorative plywood.
Country: China.
Nature of Notice: Postponement from Dec. 24 to Feb. 26 of preliminary countervailing duty determination pursuant to a request by the petitioners.

Agency: International Trade Administration.
Commodity: Steel wire garment hangers.
Country: Vietnam.
Nature of Notice: Preliminary affirmative determination of critical circumstances, except for hangers from Hamico Companies.
Details: The ITA will direct U.S. Customs and Border Protection to suspend liquidation of any unliquidated entries of subject merchandise from Vietnam (except from Hamico Companies) entered or withdrawn from warehouse for consumption on or after March 6, 2012. 

Technical Corrections to Customs Regulations

U.S. Customs and Border Protection has issued a final rule making various amendments to its regulations to correct a number of discrepancies. These changes, which are effective as of Dec. 10, include the following.

- removes references to the Great Lakes license endorsement, which was repealed in 1996

- removes duplicative tariff numbers in the rules of origin in 19 CFR 102.20

- corrects a typographical error concerning the tariff shift rule that encompasses optical fibers and optical fiber bundles and cables 

Expanded Foreign-Trade Zone Activity Approved in Three States

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

- approved the expansion of FTZ manufacturing authority at the Mercury Marine facilities in Fond du Lac and Oshkosh, Wis. (subzone 41H), to include (a) marine stern drives and transom assemblies as additional finished products and (b) additional foreign-sourced components

- approved FTZ manufacturing authority for a Sub-Zero Inc. facility within site 3 of FTZ 277 in Goodyear, Ariz., that is used to manufacture refrigerators, freezers and wine storage units for export and the domestic market

- authorized production activity involving the lamination and cutting of automotive upholstery material for export at the TST NA Trim LLC facility within subzone 12A in Hidalgo, Texas 

CBP Adds Montana Airport to List of User Fee Airports

U.S. Customs and Border Protection has issued a final rule that, effective Dec. 10, adds Bozeman Yellowstone International Airport in Belgrade, Mont., to the list of user fee airports. Generally, the type of airport that seeks designation as a user fee airport is one at which a company such as an air courier service has a specialized interest in regularly landing. Because the volume of business at such airports is insufficient to justify the funding from federal appropriations of customs services for the processing of aircraft entering the U.S. and the passengers and cargo of those aircraft, such services are paid for by the user fee airport, which is then reimbursed by the recipients of the services.

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