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December 19 2012 Issue

Wednesday, December 19, 2012
Sandler, Travis & Rosenberg Trade Report

South American Trade Bloc Expanding Despite Problems

The Mercosur trade bloc formally added one country this month and extended invitations to two others, reflecting a global trend toward the expansion and consolidation of regional trade groupings. However, the moves came despite the objections of Paraguay, whose membership in Mercosur is currently suspended, and at a time of growing trade tensions among the original members, which also include Argentina, Brazil and Uruguay.

At a summit in Brasilia, Mercosur members officially welcomed Venezuela, which had been seeking admission since 2006 but had been stymied by Paraguayan lawmakers concerned about its commitment to democracy and open trade. The summit also saw the signing of a memorandum of intent to join by Bolivia and the extension of a membership offer to Ecuador. Press reports indicate that both Venezuela and Bolivia will have until 2016 to fully satisfy membership requirements, which include adopting a common external tariff that sets duties on goods imported from outside the bloc. Venezuela reportedly plans to do this in four roughly equal phases beginning this month.

Efforts to add three currently left-leaning countries have raised concerns among business leaders in Brazil, Bolivia and elsewhere and symbolize what some see as Mercosur’s accelerating drift away from efforts to promote regional economic development through trade liberalization. The past year has seen perhaps the most significant challenges in this area since the bloc’s inception in 1991. Mercosur’s two economic heavyweights, Brazil and Argentina, have been involved in a simmering trade spat that has seen occasional flare-ups of reciprocal trade barriers that have slowed the flow of cross-border commerce. Paraguay was suspended following what was seen as an anti-democratic impeachment of its president, but officials there claim the suspension was illegal and that actions taken by Mercosur since then are null and void. Landlocked Paraguay has also complained that Argentina is blocking its exports.

Should Mercosur remain intact and functional, it may not be particularly friendly to the United States. Brazil is attempting to position itself as a competitor to the U.S., Argentina continues to unapologetically pursue what Washington sees as protectionist trade measures, and Venezuelan President Hugo Chavez is frequently antagonistic to U.S. interests in the region. Bolivia was suspended from a U.S. trade preference program and has opted out of joint counter-narcotics efforts, and last week President Evo Morales was critical of neighboring countries who have negotiated bilateral free trade agreements with the U.S. Ecuador’s policies under President Rafael Correa have put it in danger of losing U.S. trade preferences as well. 

Trans-Pacific Trade Talks Work Toward October 2013 Conclusion

The now 11 countries negotiating the Trans-Pacific Partnership Agreement held their 15th round of negotiations earlier this month in New Zealand and reported “solid steps forward.” Canada and Mexico participated in the talks for the first time, joining the U.S., Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. A press release from the Office of the U.S. Trade Representative said that with most chapters of the agreement “far along” participants agreed to work between now and the next round, which is scheduled for March 4-13 in Singapore, “to address the handful of issues still open” and to “intensify their efforts on the chapters where the volume of remaining work is more substantial.”

Nevertheless, press reports indicate that there is some skepticism as to whether participants can conclude a TPP agreement by the working deadline of October 2013, when the annual meeting of leaders of the Asia-Pacific Economic Cooperation forum will be held. U.S. Trade Representative Ron Kirk said negotiators have only “done the low hanging fruit” thus far and that “there are still a lot of big issues left,” including intellectual property rights, state-owned enterprises, rules of origin and textiles. Other issues where there continues to be difficulty in reaching consensus include agriculture, the environment, investment, dispute resolution and government procurement.

Kirk, who is expected to step down as the top U.S. trade official within the next few weeks, said the U.S. “badly want[s] this” and will push hard to conclude the TPP talks by the end of next year. “It will be very difficult to close,” he said, but “we’ve done it before.” Nevertheless, he added, “it's got to meet our test of being a high-standard, next-generation trade agreement.” 

In the News: Trade Disputes, EU FTAs, Air Cargo Price Fixing

WTO sees more trade disputes ahead after vintage year

EU approves deals to boost trade with Latin America

EU and Singapore agree on landmark trade deal

Price-fixing costs Thai Airways $7.5m

Two Changes to Expedited Dual-Use Exports to Validated End Users

The Bureau of Industry and Security has issued a final rule that, effective Jan. 18, 2013, will make two changes to its regulations concerning license authorization VEU (validated end user).

Authorization VEU is a mechanism to facilitate increased high-technology exports to companies in China and India that have a verifiable record of civilian end-uses for such items. End-users qualified as VEUs are eligible to receive a wide range of specified items on the Commerce Control List under this authorization instead of under individual transaction-specific export licenses. Authorization VEU may also be used by foreign reexporters and by persons transferring in-country. Eligible items may include commodities, software and technology, except those controlled for missile technology or crime control reasons.

This final rule adds a requirement for persons exporting, reexporting or transferring (in-country) under authorization VEU to send written notification to the recipient VEU with details about their shipment. Required details include a list of the contents of the shipment and the quantity of such items that have been or will be shipped to the respective VEUs under authorization VEU as well as a list of the applicable export control classification numbers for items included in the shipment under authorization VEU. BIS notes that this change is not the result of noncompliance by existing VEUs but instead is intended to improve the ability of VEUs to determine which shipments are made to them under authorization VEU and to better determine which set of conditions governs their use of the received items more efficiently.

BIS is also clarifying that VEUs who are subject to item-specific conditions and have received items subject to such conditions under authorization VEU will no longer be bound by the conditions associated with the items if the items no longer require a license for export or reexport to the VEU’s authorized location or become eligible for shipment under a license exception to the destination. However, this rule also adds a new paragraph to remind exporters that records requirements for shipments that were made under authorization VEU prior to the removal of a license requirement or the availability of a license exception remain subject to the review requirements of paragraph (f)(2) of section 748.15 on and after the date that the license requirement was removed or the license exception became applicable.

BIS states that the final rule includes the following changes from the proposed rule.

- specifies that the notification requirement applies only to the VEU authorized items in a shipment and not to items shipped under other authorizations in the same shipment as VEU items

- includes as an option the ability for exporters, reexporters and transferors (in-country) to consolidate notifications to VEUs when multiple shipments are made under authorization VEU

- removes a requirement to provide notification within seven days of shipment and instead allows the notification timeframe to be agreed between the VEU and the shipper so long as this is accomplished prior to shipment or transfer 

Lower Limit on Duty-Free Apparel from Haiti

The International Trade Administration has announced that 306,742,329 square meters equivalent of apparel articles assembled in Haiti will be eligible for preferential treatment under the Haitian Hemispheric Opportunity Through Partnership for Encouragement (HOPE) Act for the period Dec. 20, 2012, through Dec. 19, 2013. Apparel articles entered in excess of this amount, which is lower than the 326,752,739 authorized for the previous year, will be subject to otherwise applicable tariffs.

HOPE provides for duty-free treatment for certain apparel articles imported directly from Haiti. To qualify for such treatment apparel articles must be wholly assembled or knit-to-shape in Haiti from any combination of fabrics, fabric components, components knit-to-shape and yarns. However, the sum of the cost or value of materials produced in Haiti or one or more countries described in HOPE, or any combination thereof, plus the direct costs of processing operations performed in Haiti or one or more specified countries, or any combination thereof, may not be less than an applicable percentage of the declared customs value of such apparel articles. Pursuant to the Haiti Economic Lift Program Act of 2010, the applicable percentage for the period Dec. 20, 2012, through Dec. 19, 2013, is 50% or more.

For every 12-month period following the effective date of HOPE, duty-free treatment under this value-added program is subject to a quantitative limitation. For the 12-month period beginning Dec. 20, 2012, this limitation is 1.25% of the aggregate square meter equivalent of all apparel articles imported into the U.S. in the most recent 12-month period for which data are available. For purposes of this notice, that period is the 12-month period ending Oct. 31, 2012. 

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.

- Acco Foreign Shipping Inc., Doral, Fla.
- DI Global Logistics Inc., Miami, Fla.
- Exclusive Global Logistics Inc., San Diego, Calif.
- KJW-CHB LLC, Bensenville, Ill.
- Sippi Logistics Inc., Inglewood, Calif.
- Star Freight Logistics LLC
- Doral, Fla.
- Titan International Shipping Inc., Coral Springs, Fla.
- Rapid Cargo & Logistics Inc., Gardner, Calif. 

FTZ Board Considering Zone Expansions in Arizona, Puerto Rico

The Foreign-Trade Zones Board is accepting comments through Feb. 19, 2013, on the following applications.

- The Greater Maricopa Foreign-Trade Zone Inc., grantee of FTZ 277, is requesting authority to expand its zone under the alternative site framework to include two new magnet sites in western Maricopa County, Ariz., and extend usage-driven designation to an existing temporary site. The proposed new and the existing sites are located adjacent to the Phoenix U.S. Customs and Border Protection port of entry.

- The Puerto Rico Trade & Export Company, grantee of FTZ 61, is requesting special-purpose subzone status for the facility of Sea World Inc. in Guaynabo, Puerto Rico. No authorization for production activity has been requested at this time. 

Sand Pears from China to be Allowed Into the U.S.

The Department of Agriculture’s Animal and Plant Health Inspection Service has issued a final rule that, effective Jan. 18, will allow the importation of sand pears from China. APHIS notes that China is expecting to export 24,000 metric tons of sand pears annually to the United States.

As a condition of entry, sand pears from areas in China in which the Oriental fruit fly is not known to exist will have to be produced in accordance with a systems approach that includes requirements for registration of places of production and packinghouses, sourcing of pest-free propagative material, inspection for quarantine pests at set intervals by the national plant protection organization of China, bagging of fruit, safeguarding, labeling and importation in commercial consignments.

Sand pears from areas in China in which Oriental fruit fly is known to exist may be imported if, in addition to these requirements, the places of production and packinghouses have a monitoring system in place for Oriental fruit fly and the pears are treated with cold treatment.

All sand pears from China will also be required to be accompanied by a phytosanitary certificate with an additional declaration stating that all conditions for the importation of the pears have been met and that the consignment of pears has been inspected and found free of quarantine pests. 

Advance Notice Proposed for Imports of Chemical Used in Ink Colorant

The Environmental Protection Agency is accepting through Jan. 18, 2013, comments on proposed new import restrictions on a chemical substance identified generically as ethoxylated, propoxylated diamine diaryl substituted phenylmethane ester with alkenylsuccinate, dialkylethanolamine salt, which is typically used as a colorant for aqueous ink applications. Under this proposal persons who intend to import, manufacture or process this substance for an activity that is designated as a significant new use by this rule would have to notify the EPA at least 90 days before commencing that activity. This notification would provide the EPA with the opportunity to evaluate the intended use and, if necessary, to prohibit or limit that activity before it occurs. 

New and Amended Maritime Agreements Filed

The Federal Maritime Commission has issued notice that the following new or amended agreements have been filed. Interested parties may submit comments by Dec. 31.

KL/WHS Space Charter and Sailing Agreement – The amendment permits a larger capacity vessel to be used under the agreement.

HMM/CMA CGM Slot Exchange Agreement – The agreement authorizes Hyundai and CMA to exchange slots on their respective services for the purpose of repositioning empty containers. 

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