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January 17 2013 Issue

Thursday, January 17, 2013
Sandler, Travis & Rosenberg Trade Report

WTO/OECD Analysis Seeks to Clarify Data on Trade Flows

The World Trade Organization and the Organization for Economic Cooperation and Development released Jan. 16 preliminary data that could give more accurate insights into the nature of global trade flows. A joint press release states that the Trade in Value-Added database “breaks with conventional measurements of trade, which record gross flows of goods and services each time they cross borders, [and] seeks instead to analyze the value added by a country in the production of any good or service that is then exported.” The database aims to inform trade policy in a number of areas and to better reflect the significantly higher contribution made by services in global value chains, the role of imports of intermediate goods and services in export performance, the true nature of economic interdependencies, the role of emerging economies in GVCs, and how supply and demand shocks might affect downstream and upstream production.

Findings. According to the press release, the first trade data made available under this initiative show that business competitiveness and export performance are increasingly tied to countries’ integration into global production chains and a willingness to open their markets wider to imports of intermediate goods and services. “This has important implications for how we should understand today’s trade policy,” said WTO Director General Pascal Lamy. “Realizing that imports of a country are good for its exports changes what trade negotiators call ‘defensive interests’ and also how they evaluate the cost/benefit balance of adopting trade remedy measures. Furthermore, they may change the relevance of the good old reciprocity principle.”

Other preliminary findings include the following.

- China’s bilateral trade surplus with the U.S. was over $40 billion (25%) smaller in value-added terms in 2009, reflecting not only relatively higher imports of U.S. value-added but also the high level (33%) of foreign-sourced content in Chinese exports.

- One-third of the total value of motor vehicles exported from Germany, and nearly 40% of the total value of China’s electronics exports, comes from foreign sources.

- While conventional trade data suggest that services represent less than 25% of total trade, on a value-added basis services trade reaches an average 50% of OECD countries’ exports (even more in the U.S., the United Kingdom, France, Germany and Italy), in large part because services add significant value to manufacturing output.

- Bilateral trade surpluses of major commodity exporters like Australia, Brazil and Canada shrink on a value-added basis as their raw materials are further processed by trading partners and then re-exported, highlighting where these countries might move up the value chain.

- The foreign content in exports and the share of imported intermediates used in exports are lower in Brazil than in all OECD countries.

- Value chains in the EU are not exclusively regional but only 13.4% of exports reflect foreign content, a lower share than both the U.S. and Japan.

- Japan exports more to the U.S. than to China when trade flows are measured in value-added.

Trade Policy. A background note states that while this database is not currently able to provide information on specific goods or services that would benefit from further trade liberalization it does “paint a compelling picture” of the benefits that could be gained through liberalization, particularly in services. The database also reveals the importance of intermediate imports to export competitiveness and so highlights the potential for protectionist measures. Moreover, the database shows that relatively low tariff rates applied on gross trade flows may not be so insignificant when looked at through a value-added lens, particularly when one considers the multiplicative impact of tariffs as intermediate goods and services pass through the value chain. 

CBP Releases Statistics on FY 2012 Enforcement of AD/CV Duty Orders

U.S. Customs and Border Protection posted to its Web site this week the following statistics on its efforts in cooperation with U.S. Immigration and Customs Enforcement to enforce antidumping and countervailing duty orders in fiscal year 2012.

- 57 shipments were seized with a domestic value of $13,681,270.

- more than 50 monetary penalties valued at $24,256,361 were imposed on importers for fraud, gross negligence and negligence for AD/CV violations under 19 USC 1592

- more than 50 audits of importers of AD/CV commodities were completed and discrepancies with a value of approximately $41 million were identified (with more than $13 million collected so far)

- 149 allegations of AD/CV duty order evasion and noncompliance were received and CBP took action on 15 and found no violation or insufficient information for 11 others

CBP states that it employs multiple methods at the port and national level to target AD/CV duty order evasion, including import trade trend and valuation analysis, the use of targeted reviews and audits to address high-risk cases, lab testing and special operations. CBP also takes all indications or allegations of evasion “very seriously” and, in coordination with HSI, employs “all available methods” to address these matters.

CBP’s Web site appears to not have AD/CV enforcement statistics for previous years so it is unclear if the FY 2012 numbers are higher or lower. 

Improving Transportation Infrastructure Critical to Avoid Trade Losses, Report Says

The American Society of Civil Engineers released Jan. 15 a report asserting that improving the condition of U.S. ports, roads, waterways, bridges and other infrastructure is “critical.” The report summarizes the ASCE’s previous findings and examines the cumulative effect of failure to adequately invest in surface transportation, airports, inland waterways and marine ports, electricity, and water/wastewater.

The report asserts that current investment needs across key infrastructure sectors total $2.75 trillion while planned expenditures are about $1.66 trillion, leaving a gap of $1.1 trillion. If this gap is not addressed, the report warns, the U.S. economy is expected to lose almost $1 trillion in business sales, resulting in a loss of 3.5 million jobs. Moreover, if current trends are not reversed, the cumulative cost to the U.S. economy from 2012 to 2020 will be more than $3.1 trillion in gross domestic product and $1.1 trillion in total trade, including $484 billion in exports. Sectors likely to be most negatively affected by degrading infrastructure in terms of value of exports in both 2020 and 2040 are finance and insurance ($9 billion loss in 2020/$50 billion loss in 2040), wholesale trade ($7 billion/$35 billion)), aerospace ($6 billion/$47 billion)), agriculture, forestry and fisheries ($5 billion/$18 billion), and air transport ($4 billion/$31 billion).

The report concludes by emphasizing that the U.S. economy relies on low transportation costs and the reliable delivery of clean water and electricity to businesses and households to offset higher wage levels and costs of production when compared with many competitors. However, business costs and therefore prices will increase if surface transportation systems worsen, ports and inland waterways become outdated or congested, and water, wastewater and electricity infrastructure systems deteriorate or fail to keep up with changing demand. Greater costs to transport the wide array of imported goods that supply U.S. domestic manufacturers and rising costs for exports will affect the nation’s ability to compete in global markets for goods produced in the U.S., while the irregular delivery of water and wastewater services and electricity will make production processes more expensive and divert household disposable income to these basic necessities. 

U.S., Peru Advance Efforts to Prevent Illegal Timber Trade

According to a press release from the Office of the U.S. Trade Representative, the U.S. and Peru have agreed on a five-point action plan that aims to strengthen efforts to prevent illegal trade in bigleaf mahogany and Spanish cedar, which are protected under the Convention on International Trade in Endangered Species of Wild Fauna and Flora. Specific commitments in this action plan include the following.

- strengthening physical inspections of bigleaf mahogany and Spanish cedar contained in annual operating plans (POAs) prior to their approval

- strengthening accurate POA development and implementation

- ensuring timely criminal and administrative proceedings to sanction anyone violating Peru’s forestry and wildlife laws

- improving systems to track and verify the chain of custody of timber exports of bigleaf mahogany and Spanish cedar

- strengthening the implementation of Peru’s National Anti-Corruption Forest and Wildlife Sector Plan, specifically activities aimed at eliminating the submission of false POAs and the approval of POAs that contain false information

In April 2012 the Environmental Investigation Agency, a non-governmental organization, released a report alleging at least 112 illegal shipments of cedar or mahogany wood from Peru to the U.S. between May 2008 and May 2010, accounting for over 35% of all two-way trade in these protected species. The EIA said at the time that if the federal government took action in response to its allegations “future shipments could be stopped and companies could receive fines or even face criminal charges.” While the EIA had made no statement on the matter at press time, it appears that the U.S. has opted for further collaborative efforts to prevent such illegal shipments rather than punitive measures in response to past violations.

The action plan was announced at recent meetings in Lima at which the U.S. also noted the significant improvements shown by Peru in strengthening its forest sector governance since the entry into force of the U.S.-Peru Free Trade Agreement. These include the adoption of laws and administrative procedures for the management, supervision and issuance of permits for exports of bigleaf mahogany and Spanish cedar. USTR notes that the environment chapter of the FTA includes an annex on forest sector governance that reflects the commitment of both countries to take concrete actions to enhance forest sector governance, promote legal trade in timber products, combat trade associated with illegal logging and illegal trade in wildlife, and further sustainable management of forest resources. 

In the News: Panama Canal Expansion, Canada Trade Sanctions

Expanded Panama Canal sparks race to be ready for bigger cargo ships

Canadian Pork Producers Warn of $500 Million in Retaliation in WTO Labeling Dispute

Court Rules on Classification of Screws Capable of Use in Wood and Metal

In what it called “a challenging case,” the Court of International Trade ruled Jan. 14 that certain steel screws are properly classified as self-tapping screws under HTSUS 7318.14.10 (6.2% duty). U.S. Customs and Border Protection had classified the screws as other wood screws under HTSUS 7318.12.00 (12.5% duty).

The subject screws are made of corrosion-resistant case hardened steel, have heads, shanks, threads and points, and are of various lengths and diameters. They can be used in wood, sheet metal, plastics, medium-density fiberboard, polyvinyl chloride board, cement fiberboard, melamine, arborite and other man-made composite materials.

The plaintiff argued that the terms “self-tapping screws” and “other wood screws” should be defined by physical characteristics, asserting that a self-tapping screw is essentially an enhanced wood screw that offers performance capabilities that a mere wood screw “simply cannot provide” but that these enhanced capabilities do not preclude the screw from also being used in wood. CBP countered that the terms should be defined by the materials in which the screws are used and that the screws at issue are properly classified as wood screws because they are designed primarily for use in wood applications, whereas self-tapping screws are primarily intended to be used in materials like steel, concrete and marble. However, the CIT noted that the subheadings in question are eo nomine provisions and that CBP’s emphasis on the use of the subject screws is a weakness that ultimately undermines its proposed classification.

The CIT concluded that the screws at issue possess the defining characteristics of self-tapping screws but also have the general characteristics of other wood screws and thus cannot be classified under General Rule of Interpretation 1. GRI 2 (unfinished or incomplete goods) and GRI 3(b) (composite goods of different materials or components) are inapplicable and GRI 3(a) cannot be used because neither of the subheadings under consideration is more difficult to satisfy than the other. The court therefore turned to the “rarely used” GRI 3(c), which prescribes classification under the heading that occurs last in numerical order among those that equally merit consideration. In this case that is the subheading for self-tapping screws, which “is a logical outcome if one considers that the addition to the HTSUS of self-tapping screws generally reflects advances in design and technology within this universe of fasteners.” 

AD/CV Notices: Residential Washers, Large Diameter Line Pipe

Agency: International Trade Commission.
Commodity: Large residential washers.
Country: Korea and Mexico.
Nature of Notice: Jan. 23 open meeting for vote on final antidumping and countervailing injury determinations.

Agency: International Trade Commission.
Commodity: Welded large diameter line pipe.
Country: Japan.
Nature of Notice: Determination to conduct full sunset review of antidumping duty order. 

IPR Enforcement Actions on Blu-ray Players, Rubber Resins

No IPR Import Restrictions on Blu-ray Players. The International Trade Commission has terminated without the imposition of import restrictions patent infringement investigation 337-TA-824 of certain Blu-ray disc players, components thereof and products containing the same. The ITC determined not to review the presiding administrative law judge’s initial determinations terminating this investigation as to five respondents on the basis of Walker Digital LLC’s withdrawal of its complaint and as to the remaining two respondents on the basis of a settlement agreement.

Rubber Resin Investigation Expanded. The International Trade Commission has agreed to expand the scope of investigation 337-TA-849 of certain rubber resins and processes for manufacturing same to include respondents in Hong Kong, the Marshall Islands, the Cayman Islands, Belize and the U.S. This investigation is reviewing allegations by SI Group Inc. that the sale for importation, importation, or sale within the U.S. after importation of the subject products is violating Section 337 of the 1930 Tariff Act by reason of misappropriation of trade secrets, the threat or effect of which is to destroy or substantially injure an industry in the United States. 

USDA Proposes Increase in Fees for Federal Dairy Grading and Inspection Services

The Department of Agriculture’s Agricultural Marketing Service is accepting comments through Feb. 19 on a proposed rule that would increase the fees for voluntary federal dairy grading and inspection services. The fee increases proposed are 15% during fiscal year 2013 and 5% during FY 2014. This would translate into the following amounts.

- $72 per hour for continuous resident services effective February 2013 and $76 per hour effective October 2013

- $78/$82 per hour for non-resident services between the hours of 6 a.m. and 6 p.m.

- $85.80/$90.20 per hour for non-resident services between the hours of 6 p.m. and 6 a.m.

- $108/$114 per hour for services performed in excess of eight hours per day and for services performed on Saturday, Sunday and legal holidays

- $117/$123 per hour for non-resident grading services

AMS provides voluntary inspection and dairy product grading services to about 360 plants. Plants participating in this program process milk into dairy foods that enter commerce as retail products, ingredients for further processing, purchases for federal food assistance programs or exports to other countries. Dairy products manufactured in facilities complying with USDA inspection requirements are eligible to be graded against official quality standards and specifications established by AMS and certain contract provisions between buyer and seller. Dairy products tested and graded by AMS have certificates issued describing the product’s quality and condition. 

Foreign Quarantine Notices Under Review by USDA

The Department of Agriculture’s Animal and Plant Health Inspection Service is soliciting through Feb. 19 comments on an information collection requirement concerning foreign quarantine notices. APHIS uses a number of forms to collect information to ensure that plants, fruits, vegetables, roots, bulbs, seeds, foreign logs, lumber, other unmanufactured wood articles and other plant products imported into the United States do not harbor plant diseases or insect pests that could cause serious harm to U.S. agriculture. Comments should address whether the collection of information is necessary for the proper performance of APHIS’ functions, including whether the information has practical utility; ways to enhance the quality, utility and clarity of the information collected; and the accuracy of the estimate of the burden of this collection as well as ways to minimize that burden, including through the use of appropriate automated, electronic, mechanical or other technological collection techniques or other forms of information technology.

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