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March 12 2013 Issue

Tuesday, March 12, 2013
Sandler, Travis & Rosenberg Trade Report

Administration Moves Forward with Export Control Reform Process

President Obama took two actions on March 8 that seek to advance a comprehensive effort launched several years ago to reform U.S. export controls. The ultimate goal of the administration is to create a new export control system with a single licensing agency administering a single list of controlled items, operating on a single IT platform, and enforced by a single export enforcement coordination agency. The newly-announced initiatives include an executive order that updates delegated presidential authorities over the administration of certain export and import controls under the Arms Export Control Act of 1976 as well as the first in a series of notifications to Congress regarding certain changes to the U.S. Munitions List involving dual-use products that the president believes no longer warrant stricter military controls.

A White House fact sheet indicates that the executive order updates delegated authorities consistent with the upcoming changes to the U.S. export control lists by:

• consolidating and delegating to the secretary of State all statutory responsibility for maintaining registration and licensing requirements for brokering of defense articles and services in either the State or ATF lists, which both control defense articles and services under the Arms Export Control Act;

• eliminating possible “double licensing” requirements by allowing the State Department to authorize any spare parts, accessories and attachments accompanying items that may have moved to the Commerce Control List (items licensed or otherwise approved by State under this delegation will remain subject to DOC jurisdiction);

• directing the DOC to establish procedures for notifying Congress of approved export licenses for a certain subset of items that are moved or that may move from the USML to the CCL; and

• delegating to the attorney general the functions previously assigned by Executive Order 11958 to the secretary of the Treasury and making various other updates to ensure that the authorities to administer U.S. export controls are current.

Separately, the president has notified Congress of his intention to move to the CCL certain aircraft and gas turbine engines currently controlled under the USML. The White House indicates that once the congressional notification period concludes these changes will be published with an effective date of 180 days after publication. The remaining changes to the USML, which involve a broad range of products, will be published on a rolling basis throughout this year. The White House fact sheet notes that the ultimate goal of this process is to “update every category of defense articles to better meet current national security and economic challenges.” 

USTR Seeks Petitions to Accelerate Tariff Elimination and Modify Origin Rules under Colombia TPA

The Office of the U.S. Trade Representative is giving interested parties until May 13 to file petitions requesting accelerated tariff elimination and changes to the non-textile and non-apparel products rules of origin under the U.S.-Colombia Trade Promotion Agreement. Article 2.3.4 of the Colombia TPA provides that the United States and Colombia may agree to accelerate the elimination of customs duties set out in their respective tariff schedules, while Section 201(b) of the U.S.-Colombia TPA Implementation Act authorizes the president to proclaim modifications in the staging of duty treatment set out in the agreement subject to the act’s consultation and layover requirements. The TPA also allows the parties to amend the agreement’s rules of origin.

According to the USTR, the U.S. and Colombia expect to take into account several factors in considering whether to make such changes, including (i) the extent that any such changes may reduce transaction and manufacturing costs or increase trade between Colombia and the U.S.; (ii) the feasibility of devising, implementing and monitoring new rules of origin; and (iii) the level and breadth of interest that manufacturers, processors, traders and consumers in the U.S. and Colombia express for making particular changes. The U.S. and Colombia expect to make only those changes that are broadly supported by stakeholders in both countries. 

U.S. Proposes to Amend COOL Requirements for Muscle Cut Covered Commodities to Comply with WTO Ruling

The U.S. Department of Agriculture’s Agricultural Marketing Service is seeking comments by April 11 on a proposal to amend the country of origin labeling (COOL) requirements for muscle cut covered commodities to provide consumers with more specific information and modify the definition for “retailer” to include any person subject to be licensed as a retailer under the Perishable Agricultural Commodities Act. This change would adopt the recommendations of the World Trade Organization Appellate Body, which has given the United States until May 23, 2013, to make the COOL requirements consistent with U.S. multilateral obligations.

The 2008 Farm Bill revised previous mandatory COOL requirements to provide that in order for a commodity to be labeled as a product of the U.S. all production activities associated with the commodity have to occur on U.S. soil or in U.S. waters. For products produced in the integrated North American marketplace, the label must indicate every country in which a stage of production has taken place. The 2008 Farm Bill also imposed mandatory COOL requirements for muscle cuts of beef (including veal), lamb, chicken, goat and pork; ground beef, lamb, chicken, goat and pork; wild and farm-raised fish and shellfish; perishable agricultural commodities; macadamia nuts; pecans; ginseng; and peanuts. The COOL regulations require any person engaged in the business of supplying a covered commodity to a retailer to provide the retailer with the product’s country of origin information. For fish and shellfish, the method of production (wild or farm-raised) must be specified as well. The rule also sets forth the requirements for consumer notification and product marking as well as the recordkeeping responsibilities of both retailers and suppliers.

Certain aspects of the COOL requirements were challenged by Canada and Mexico at the WTO and the Appellate Body ruled in June 2012 that the provisions for muscle cut meat commodities were inconsistent with U.S. obligations under the Agreement on Technical Barriers to Trade. In particular, the Appellate Body affirmed the panel’s determination that the COOL requirements were inconsistent with the TBT Agreement’s national treatment obligation to accord imported products treatment no less favorable than that accorded to domestic products. The U.S. is now proposing to require origin designations for muscle cut covered commodities derived from animals slaughtered in the U.S. to specify the production steps of birth, raising and slaughter of the animal from which the meat is derived that took place in each country listed on the origin designation. In addition, the proposed rule would eliminate the allowance for any commingling of muscle cut covered commodities of different origins. 

New Policy Allowing Duty-Free Imports from All Manufacturers in Egyptian QIZs Effective March 12

As previously reported, the USTR announced last week its intention to liberalize the designation of the six existing qualifying industrial zones in Egypt to make all production facilities, present and future, located in these zones potentially eligible to export goods duty-free to the United States. The effective date of this policy change is March 12. The Greater Cairo, Alexandria, Suez Canal, Central Delta, Beni Suief and Al Minya QIZs will be subject to the new policy as of that date. 

CPSC Finalizes Requirements for Third-Party Conformity Assessment Bodies

The Consumer Product Safety Commission has issued a final rule establishing requirements pertaining to third-party conformity assessment bodies that are authorized to test children’s products in support of the certification required by the Consumer Product Safety Improvement Act. The requirements of the final rule are largely the same as those used by the CPSC since passage of the CPSIA in August 2008.

The CPSIA requires the manufacturer (including the importer) and/or private labeler of a product subject to an applicable consumer product safety rule or any similar rule, ban, standard or regulation to issue a certificate that certifies, based on a test of each product or upon a reasonable testing program, that the product complies with all applicable rules, bans, standards or regulations. The CPSC may designate third parties to issue these certificates.

The CPSIA also establishes a third-party testing requirement for children’s products that are subject to a children’s product safety rule. In general, every manufacturer or private labeler of such products must submit sufficient samples of the product, or samples that are identical in all material respects to the product, to an accredited third-party conformity assessment body to be tested for compliance with the applicable rule.

The CPSC has now issued a final rule that establishes the general requirements related to CPSC acceptance of the accreditation of a third-party conformity assessment body for purposes of testing children’s products. The rule also addresses adverse actions that may be imposed against CPSC-accepted third-party conformity assessment bodies and amends the audit requirements for these bodies and the CPSC’s regulation on inspections.

The final rule will enter into force on June 10 and will apply to products manufactured on or after that date. 

ITC Issues Report on U.S. Exports of Used Electronic Products

The International Trade Commission recently issued a report that shows that U.S. exports of used electronic products reached $1.45 billion in 2011 and accounted at $19.2 billion for seven percent of all used electronic product sales in the United States. According to an ITC press release, the report provides an overview of the U.S. UEP industry including information on domestic collection of these products, the share of goods that are refurbished compared to the share of goods that are recycled, and the characteristics of exported products. Highlights from the report include the following.

• UEPs are first collected from consumers and businesses and then sorted by value. They are then either refurbished and resold as working electronic equipment or are disassembled into working parts or scrap commodities (metals, plastics and glass) that are resold as manufacturing inputs in the U.S. and abroad.

• The top five destinations for U.S. UEP exports in 2011 were a group of Asia-Pacific countries (primarily South Korea and Japan), Mexico, India, Hong Kong and China, accounting for 74 percent of exports. Just over half of U.S. UEP exports were shipped to countries that are members of the Organization for Economic Cooperation and Development.

• Whole equipment for reuse accounted for the largest share of U.S. exports by value in 2011, and tested and working products represented the majority of U.S. exports of whole UEPs.

• Refurbishing and repair enterprises accounted for the largest share of U.S. exporters of UEPs by value, followed by enterprises involved in wholesaling, brokering or retailing.

• Measured by end-use of the products, commodity materials intended for smelting or refining accounted for the largest share of U.S. exports by weight (43 percent) in 2011.

• U.S. regulations in place in 25 states generally reduce exports by requiring electronics manufacturers to collect used products for recycling. Industry certification programs also likely serve to limit U.S. exports of UEPs. In contrast, limited U.S. capacity to process UEPs in two segments of the industry cathode ray tube glass and final smelting create incentives to export CRT monitors, CRT glass and circuit boards destined for smelting to retrieve precious metals.

• In developing countries, demand for UEPs exported from the U.S. is strong but the Basel Convention and some country regulations may limit such exports, since many developing countries agree not to import nonworking UEPs from OECD member countries. 

CPSC Proposes to Update Supplemental Definition of “Strong Sensitizer” under Federal Hazardous Substances Act

The CPSC is seeking comments by May 27 on a proposal to update the supplemental definition of “strong sensitizer” under the Federal Hazardous Substances Act. The proposed amendment would clarify or add language to eliminate redundancy; remove certain subjective factors; incorporate new and anticipated technology; rank the criteria for classification of strong sensitizers in order of importance; define criteria for “severity of reaction;” and indicate that a weight-of-evidence approach will be used to determine the strength of the sensitizer.

Under the proposed amendment, those substances that sensitize through atypical mechanisms rather than by inducing an obvious “immunologically-mediated response” will be captured by the assessment process. The proposed amendment also eliminates the last sentence of the current definition based on concerns that it may be misinterpreted such that substances that cause an irritant response only (the response that is noted after the first exposure to a substance is more frequently an irritant response and not an allergic response) could be erroneously included in the category of “strong sensitizers.”

In addition, the proposed revision (i) reiterates the statutory requirement that before designating any substance a strong sensitizer the CPSC must find that the substance has significant potential for causing hypersensitivity; (ii) adds qualifiers for susceptibility profiles - genetics, age, gender and atopic status - to the list of information or data that may be considered in determining whether a substance has a significant potential for causing hypersensitivity; (iii) replaces the term “normal” with “non-sensitized;” and (iv) incorporates a discussion of the factors to be considered in determining whether a substance is a strong sensitizer.

The CPSC has also announced the availability of a guidance document intended to clarify the “strong sensitizer” definition, assist manufacturers in understanding how CPSC staff would assess whether a substance and/or product containing that substance should be considered a “strong sensitizer,” and how the CPSC would make such a determination. 

DOE Proposes to Update Proposal to Establish New Energy Test Procedures for Television Sets

The Department of Energy is proposing to update certain provisions included in a Jan. 19, 2012, proposal to establish new minimum energy efficiency test procedures for television sets. Among other things, the input power requirements in this proposal would be revised by referencing International Electrotechnical Commission Standard 62301 Ed. 2.0, “Household electrical appliances – Measurement of standby power.” The DOE is also proposing to (i) include example accuracy tolerance calculations for light measuring devices; (ii) revise the video source input cable hierarchy in the test procedure; (iii) specify the TV input terminal for testing; (iv) clarify TV warm-up and stabilization prior to testing; (v) remove the standby-active, high mode test; (vi) include a test for standby-active, low mode; (vii) update the test order; (viii) provide details for testing TVs shipped with automatic brightness control enabled; and (ix) add certain rounding requirements to the test procedure.

The DOE will hold a public meeting on this proposal on April 4 and will accept comments, data and information by April 26. 

AD Notices: Frozen Shrimp, Preserved Mushrooms, Certain Steel Products, Low Enriched Uranium

Agency: ITA.
Commodity: Certain frozen warmwater shrimp.
Country: India.
Nature of Notice: Preliminary results in AD administrative review.
Details: The ITA has preliminarily calculated weighted-average dumping margins ranging from zero to 3.49% in this review, which covers the period Feb. 1, 2011, through Jan. 31, 2012. If these results are finalized, CBP will assess AD duties on all appropriate entries using these rates, which will also be used to determine new AD cash deposit requirements. CBP will not assess AD duties or impose cash deposit requirements on entries subject to a zero or a de minimis rate.

Agency: ITA.
Commodity: Certain frozen warmwater shrimp.
Country: Thailand.
Nature of Notice: Preliminary results in AD administrative review and intent to partially revoke order.
Details: The ITA has preliminarily calculated weighted-average dumping margins ranging from zero to 0.51% in this review, which covers the period Feb. 1, 2011, through Jan. 31, 2012. The ITA has also preliminarily determined to revoke this AD duty order with respect to shrimp produced and exported by one company. If the results of this review are finalized, CBP will assess AD duties on all appropriate entries using these rates, which will also be used to determine new AD cash deposit requirements. CBP will not assess AD duties or impose cash deposit requirements on entries subject to a zero or a de minimis rate.

Agency: ITA.
Commodity: Certain frozen warmwater shrimp.
Country: China.
Nature of Notice: Preliminary results in AD administrative review.
Details: The ITA has preliminarily calculated weighted-average dumping margins of zero and 112.81% in this review, which covers the period Feb. 1, 2011, through Jan. 31, 2012. If these results are finalized, CBP will assess AD duties on all appropriate entries using these rates, which will also be used to determine new AD cash deposit requirements. CBP will not assess AD duties or impose cash deposit requirements on entries subject to a zero or a de minimis rate.

Agency: ITA.
Commodity: Certain frozen warmwater shrimp.
Country: Vietnam.
Nature of Notice: Preliminary results in AD administrative review.
Details: The ITA has preliminarily calculated weighted-average dumping margins of zero and 25.76% in this review, which covers the period Feb. 1, 2011, through Jan. 31, 2012. If these results are finalized, CBP will assess AD duties on all appropriate entries using these rates, which will also be used to determine new AD cash deposit requirements. CBP will not assess AD duties or impose cash deposit requirements on entries subject to a zero or a de minimis rate.

Agency: ITA.
Commodity: Certain preserved mushrooms.
Country: China.
Nature of Notice: Preliminary results in AD administrative review.
Details: The ITA has preliminarily calculated weighted-average dumping margins of 102.11% and 308.33% in this review, which covers the period Feb. 1, 2011, through Jan. 31, 2012. If these results are finalized, CBP will assess AD duties on all appropriate entries using these rates, which will also be used to determine new AD cash deposit requirements.

Agency: ITA.
Commodity: Certain hot-rolled carbon steel flat products.
Countries: China, India, Indonesia, Taiwan, Thailand and Ukraine.
Nature of Notice: Final results of expedited AD sunset review.
Details: The DOC has determined that revocation of these AD duty orders would likely lead to continuation or recurrence of dumping. The ITC will proceed with its own investigation to determine whether revocation would be likely to lead to continuation or recurrence of material injury within a reasonably foreseeable time. These orders will be extended for an additional five years if the ITC issues an affirmative determination but will be rescinded if the USITC issues a negative determination.

Agency: ITC.
Commodity: Low enriched uranium.
Country: France.
Nature of Notice: Full sunset review of AD duty order.
Details: The ITC has decided to conduct a full sunset review of this AD duty order. The review will seek to determine whether revocation of this order would be likely to lead to continuation or recurrence of material injury to a domestic industry within a reasonably foreseeable time. As opposed to expedited reviews, full reviews include a public hearing and the issuance of questionnaires. 

FTZ Actions for Various Production Facilities, Texas Zones

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

FTZ Authority Requested for Electromechanical and Circuit Protection Device Plant. The FTZ Board is accepting through April 22 comments on a notification from TTI Inc., operator of Subzone 196A, of proposed production activity for its facilities located in Fort Worth, Texas. The facilities are used for electromechanical and circuit protection device production/kitting for a variety of commercial, aerospace and military applications.

Production under FTZ procedures could exempt TTI from customs duty payments on the foreign status components used in export production. On its domestic sales, TTI would be able to choose the duty rates during customs entry procedures that apply to resistors, capacitors, connectors, discretes, potentiometers, trimmers, magnetic and circuit protection components, wire and cable, wire and cable identification markers, application tools for crimping, insertion/extraction, and terminal removal and electromechanical devices (duty rates range from free to 3.5%) for certain foreign status inputs. These inputs include rubber and plastic gaskets, washers and seals; circuit protection devices (including connectors); molded parts for connector assemblies; metal contacts; plastic fittings; insulators (including, quartz, Teflon, silicon and ceramic); base metal insulating materials (including electrical conduit tubing); electrical circuit switching and protection components; and iron and steel wire components (duty rates range from free to 5.3%). Customs duties also could possibly be deferred or reduced on foreign status production equipment.

FTZ Authority Approved for Forklift Truck Plant. The FTZ Board has approved a request by the Port of Houston Authority, grantee of FTZ 84, for a proposed production activity at the Mitsubishi Caterpillar Forklift America Inc. facilities in Houston, Texas, which are used for the production of forklift trucks powered by gasoline, propane or electric motors. Production under FTZ procedures could exempt MCFA from customs duty payments on the foreign status components used in export production. On its domestic sales, MCFA will be able to choose the duty rate during customs entry procedures that applies to forklift trucks (free) for a range of foreign status inputs. All foreign steel products subject to an AD/CV duty order will be admitted in domestic (duty-paid) status.

Reorganization and Expansion Application by Texas FTZ Approved. The FTZ Board has approved an application by the Liberty County Economic Development Corporation, grantee of FTZ 171, requesting authority to reorganize and expand the zone under the alternative site framework. The ASF is an option for grantees for the establishment or reorganization of general-purpose zones and can permit significantly greater flexibility in the designation of new subzones or “usage-driven” FTZ sites for operators/users located within a grantee’s service area in the context of the FTZB’s standard 2,000-acre activation limit for zone. The grantee’s service area will be the counties of Liberty and Chambers, Texas. The grantee will be able to serve sites throughout the service area based on companies’ needs for FTZ designation. The service area is within and adjacent to the Houston Customs and Border Protection port of entry. The grantee will also retain its existing sites located in Walker County.

Application for Special-Purpose Subzone Status by Texas FTZ Approved. The FTZ Board has approved an application by the City of El Paso, grantee of FTZ 68, requesting special-purpose subzone status for the Expeditors International of Washington Inc. facilities in El Paso, Texas. No authorization for production activity has been requested at this time. 

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