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January 28 2013 Issue

Monday, January 28, 2013
Sandler, Travis & Rosenberg Trade Report

Report Downplays Economic Threats from China

The U.S.-China Business Council released this week a report that aims to provide a more objective overview of economic and trade ties between these two countries. While some argue that the U.S. is threatened by a Chinese economy whose sustained growth has been built on cheap labor and unscrupulous practices, the USCBC report asserts that “there is much to be gained, in both economic and strategic terms,” if the two sides can build “an enduring and constructive relationship.”

Stating that the Sino-U.S. relationship is “a defining global strategic issue” for Washington, the report highlights a number of positives. China is a $250 billion market for U.S. companies and a 542% increase in imports from the U.S. over the last decade has turned China into America’s third-largest export market. U.S. services exports to China are growing and the U.S. has a trade surplus in this sector. Washington has successfully used negotiation and dispute settlement mechanisms to resolve trade irritants. Most U.S. companies with operations in China are focused on supplying that market, not shipping goods back to the U.S., and their presence has yielded a positive influence in areas such as rule of law, civic institutions, food and product safety, human resources and environmental practices.

The Council also downplays a number of oft-heard warnings concerning the economic threat China supposedly poses to the U.S. For example, China’s exchange rate is “not the significant factor in the U.S. trade deficit or U.S. employment that many make it out to be” and U.S. policymakers should “move on to issues that do matter.” China is not stealing U.S. manufacturing jobs and in fact is beginning to increase its investment in the U.S., which creates new jobs. While China’s economy is rapidly developing and one day will be larger than that of the U.S. simply by virtue of the country’s much larger population, the U.S. economy remains nearly nine times bigger on a per capita basis and over the last 20 years grew by the equivalent of the entire Chinese economy. The U.S. also remains the world’s largest manufacturer and retaining that position will largely be dependent on domestic policy choices on issues such as taxation, energy, infrastructure, trade, investment and innovation, not on actions taken by China. Finally, China owns only about 7% of U.S. government debt, so concerns about its leverage in this area are “misplaced.”

On the other hand, the report prescribes a number of steps the U.S. can take to achieve further success.

- work to lower China’s import tariffs on luxury and consumer goods

- direct the Export-Import Bank of the U.S. to make support of exports to China one of its top priorities

- work with China to adopt reciprocal five-year, multiple-entry visas to facilitate bilateral trade and investment

- continue to focus on China’s financial reforms (including market openings to U.S. financial services providers) as the ultimate solution to achieving a fully convertible currency and a truly market-driven exchange rate

- press China to reduce ownership restrictions on U.S. companies seeking to invest in China and prioritize the negotiation of a meaningful bilateral investment treaty 

Antigua Considers “Government-Authorized Piracy” to Retaliate in WTO Gambling Case

The Caribbean nation of Antigua and Barbuda will turn up the heat in a long-running trade dispute with the U.S. Jan. 28 when it unveils a plan to set up a subscription Web site allowing users to download U.S. movies, music and software without having to pay royalties to the copyright holders. The World Trade Organization has authorized Antigua to suspend $21 million worth of U.S. intellectual property rights in response to the United States’ failure to comply with a WTO ruling against its ban on Internet gambling, and Antigua is hoping that proceeding with the first-ever cross-retaliation by one WTO member against another (or at least threatening to) will finally prompt the U.S. to change its policy.

Nearly a decade ago the WTO ruled that the Internet gambling ban violates U.S. commitments under the General Agreement on Trade in Services. The U.S. responded by removing online gambling from the scope of those commitments and saying it never meant to include them. The WTO subsequently found that the U.S. had not complied with the initial ruling and granted Antigua permission to levy $21 million in retaliation, far below the $3.4 billion the island nation had sought. Authorities did not want to resort to traditional measures such as higher tariffs on imported goods out of concern that they would be more harmful to Antiguan consumers than U.S. suppliers. Instead they sought and obtained authorization to suspend concessions under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights concerning copyrights, trademarks, industrial designs, patents and protection of undisclosed information.

Press sources indicate that Antigua will ask the WTO Dispute Settlement Body at its monthly meeting Jan. 28 for final authority to launch the Web site, which could then begin operation as early as February. It is unclear what kinds of material would be offered, what the cost to subscribers would be or how Antigua would monitor or control the amount of material downloaded without compensation to the IPR owners to ensure it does not exceed the $21 million retaliation amount.

U.S. officials have warned Antigua against proceeding with its plan, calling it “government-authorized piracy” and asserting that it would “hurt Antigua’s own interests” as well as chances of reaching a settlement. Others, however, say Antigua may finally have the leverage to get Washington’s attention. As an article on the TorrentFreak news site pointed out, if the planned Web site goes live “it will make headlines all across the world, which may result in the site becoming one of the larger authorized suppliers of U.S. media on the Internet.” Press reports indicate that the two sides are continuing to hold talks on the issue, and an attorney for Antigua suggested that a satisfactory outcome could still prevent the launch of the Web site. 

Export Advisory Committees Seeking New Private-Sector Members

The Bureau of Industry and Security is recruiting new private-sector members for its seven technical advisory committees, which provide advice on the technical parameters for export controls and the administration of those controls within the following areas.

Information Systems TAC: Commerce Control List categories 3 (electronics), 4 (computers) and 5 (telecommunications and information security)

Materials TAC: CCL category 1 (materials, chemicals, microorganisms and toxins)

Materials Processing Equipment TAC: CCL category 2 (materials processing)

Regulations and Procedures TAC: the Export Administration Regulations and procedures for implementing the EAR

Sensors and Instrumentation TAC: CCL category 6 (sensors and lasers)

Transportation and Related Equipment TAC: CCL categories 7 (navigation and avionics), 8 (marine) and 9 (propulsion systems, space vehicles and related equipment)

Emerging Technology and Research Advisory Committee: (1) the identification of emerging technologies and research and development activities that may be of interest from a dual-use perspective, (2) the prioritization of new and existing controls to determine which are of greatest consequence to national security, (3) the potential impact of dual-use export control requirements on research activities, and (4) the threat to national security posed by the unauthorized exports of technologies

The TACs are composed of representatives from industry, academic leaders and the U.S. government representing diverse points of view on the concerns of the exporting community. Industry representatives are selected from firms producing a broad range of goods, technologies and software controlled for national security, non-proliferation, foreign policy and short supply reasons or that are proposed for such controls, balanced to the extent possible among large and small firms. TAC members serve terms of not more than four consecutive years and must obtain secret-level clearances prior to appointment. Those interested in becoming a TAC member should email BIS their resume.

Foreign-Trade Zone Actions: Furniture Coverings, Generators, Consumer Electronics

The Foreign-Trade Zones Board has approved a request from the Greater Mississippi Foreign-Trade Zone Inc., grantee of FTZ 158, for authority to manufacture upholstered furniture covering sets under FTZ procedures at the Morgan Fabrics Corporation facility in Verona, Miss. The annual volume of foreign micro-denier suede upholstery fabric finished with a hot caustic soda solution that MFC may admit to FTZ 158 under non-privileged foreign status will be limited to 3.0 million square yards. In addition, MFC must admit all foreign-origin upholstery fabrics other than micro-denier suede fabric finished with a hot caustic soda solution to the zone under domestic (duty-paid) status.

The FTZ Board has received from the port of Milwaukee, grantee of FTZ 41, a notification of proposed production activity on behalf of Generac Power Systems Inc., operator of subzone 41J. Generac’s facilities are located at three sites in Whitewater, Edgerton and Jefferson, Wis., and are used for the production of generators, pressure washers, engines and other related components. The request indicates that certain radial ball bearings that would be sourced from abroad are subject to an antidumping/countervailing duty order, and the FTZ regulations require that merchandise subject to AD/CV actions be admitted to the subzone in privileged foreign status. Generac has indicated that any textile products would also be admitted in privileged foreign status. Comments on this notification are due no later than March 11.

The FTZ Board has received from the Illinois International Port District, grantee of FTZ 22, a notification of proposed production activity at the Panasonic Corporation of North America in Aurora, Ill., which is used for the kitting of consumer electronics parts into retail packages. Comments on this notification are due no later than March 11. 

IPR Enforcement Actions on Wireless Equipment, Dissection Devices, Electronics Cases

IPR Infringement Petition on Wireless Communication Base Stations. The International Trade Commission received Jan. 24 on behalf of Adaptix Inc. a petition requesting that it institute a Section 337 investigation regarding certain wireless communications base stations and components thereof. The proposed respondents are located in Sweden and the U.S.

Section 337 investigations primarily involve claims regarding intellectual property rights violations by imported goods, including the infringement of patents, trademarks and copyrights. Other forms of unfair competition involving imported products, such as misappropriation of trade secrets or trade dress and false advertising, may also be asserted. The primary remedy available in Section 337 investigations is an exclusion order that directs U.S. Customs and Border Protection to stop infringing imports from entering the U.S. In addition, the ITC may issue cease and desist orders against named importers and other persons engaged in unfair acts that violate Section 337, including selling infringing imported articles out of U.S. inventory.

New Patent Infringement Investigations. The International Trade Commission has instituted the following investigations to determine whether imports of the products listed are violating Section 337 of the 1930 Tariff Act by reason of patent infringement.

- investigation 337-TA-865 of certain balloon dissection devices and products containing same, which are used by surgeons in performing laparoscopic hernia repair (complainant Covidien LP, respondents located in Germany and the U.S.)

- investigation 337-TA-866 of certain wireless communication equipment and articles therein, including base stations (complainants Samsung Electronics Co. Ltd. and Samsung Telecommunications America LLC, respondents located in Sweden and the U.S.)

- investigation 337-TA-867 of certain cases used to protect handheld portable electronic devices (complainant Speculative Product Design LLC, respondents located in Taiwan, China and the U.S.)

In each case the complainant requests that after the investigation the ITC issue an exclusion order, which would direct U.S. Customs and Border Protection to prohibit the entry of the infringing products into the U.S., and cease and desist orders, which would require the named respondents to cease actions that violate Section 337, including selling infringing imported articles out of U.S. inventory.

Allocations of 2013 Worsted Wool Fabric TRQs

The International Trade Administration has determined the allocation for calendar year 2013 of imports of certain worsted wool fabrics under tariff-rate quotas.

The ITA oversees TRQs providing for temporary reductions of the import duties on specific quantities of two categories of worsted wool fabrics suitable for use in making suits, suit-type jackets or trousers: (a) fabric with average fiber diameters greater than 18.5 microns (HTSUS 9902.51.11; 5.5 million square meters), and (b) fabric with average fiber diameters of 18.5 microns or less (HTSUS 9902.51.15; five million square meters). These two TRQs are allocated to persons (including firms, corporations or other legal entities) who cut and sew men’s and boys’ worsted wool suits, suit-type jackets and trousers in the U.S. A third TRQ, which is also for worsted wool fabric with average fiber diameters of 18.5 microns or less (HTSUS 9902.51.16; two million square meters), is only for use by persons who weave worsted wool fabric in the U.S.

The following firms have received allocations for HTSUS 9902.51.11.

- Adrian Jules Ltd., Rochester, N.Y.
- Gil Sewing Corp., Chicago, Ill.
- HMX LLC, Chicago, Ill.
- Hugo Boss Fashions Inc., Brooklyn, Ohio
- JA Apparel Corp., New York, N.Y.
- John H. Daniel Co., Knoxville, Tenn.
- Miller’s Oath – New York, N.Y.
- Saint Laurie Ltd., New York, N.Y.
- Warren Sewell Clothing Company Inc., Bremen, Ga.

The following firms have received allocations for HTSUS 9902.51.15.

- Adrian Jules Ltd., Rochester, N.Y.
- Brooks Brothers Group, New York, N.Y.
- Elevee Custom Clothing, Van Nuys, Calif.
- Gil Sewing Corp., Chicago, Ill.
- HMX LLC, Chicago, Ill.
- Hugo Boss Fashions Inc., Brooklyn, Ohio
- JA Apparel Corp., New York, N.Y.
- John H. Daniel Co., Knoxville, Tenn.
- Martin Greenfield Clothiers, Brooklyn, N.Y.
- Miller’s Oath, New York, N.Y.
- Saint Laurie Ltd., New York, N.Y.
- Shelton and Company, East Rutherford, N.J.
- Warren Sewell Clothing Company Inc., Bremen, Ga.
- Southwick Apparel LLC, Haverhill, Mass.
- Tom James Co., Franklin, Tenn.

Warren Corporation of Stafford Springs, Conn., is the only company to receive an allocation for HTSUS 9902.51.16. 

Export Committee on Materials to Meet Feb. 7

The Bureau of Industry and Security’s Materials Technical Advisory Committee will hold a partially open meeting Feb. 7 at the Commerce Department building in Washington, D.C. This committee advises BIS on technical questions that affect the level of export controls applicable to materials and related technology. The open session of the upcoming meeting will include remarks from BIS senior management, a presentation by DuPont on the impact of Australia Group and Wassenaar membership for Mexico in particular, reports from the Composite Working Group and other working groups, and a report on regime-based activities.

The open session will be accessible via teleconference to 20 participants on a first come, first served basis, and requests to participate in this manner are due no later than Jan. 31. 

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