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December 24 2012 Issue

Monday, December 24, 2012
Sandler, Travis & Rosenberg Trade Report

Confusion on FDA Registration Requirement Could Put Companies Across Supply Chain at Risk

Companies involved in the manufacture, processing, packaging or storage of food products, including dietary supplements, alcoholic beverages and some agricultural products, must register with the Food and Drug Administration by Jan. 31, 2013, or face the consequences of being in violation of the Food Safety Modernization Act. But many of the companies affected by the new law may be unaware that the requirements apply to them.

“We are finding that a lot of businesses affected by the new registration renewal requirement are unaware of their obligations,” explains Ann Marie Gaitan, managing director of FDA Solutions Group, a company that specializes in helping businesses meet FSMA requirements. “The confusion arises because there are so many laws that overlap. The danger is a company will inadvertently fail to renew under the FSMA and face a denial of entry of its goods into the U.S.,” she adds. “That could be catastrophic for businesses across the supply chain.”

Under FSMA Section 102, all domestic and foreign facilities that manufacture, process, pack or store food, beverages, food ingredients, pet foods or dietary supplements are required to renew their current registration with the FDA before Jan. 31, 2013. FSMA Section102 changes the registration requirement for food facilities originally established in 2002 under the Bioterrorism Act. FSMA also requires registration renewal every two years in even-numbered years.

“Many producers of dietary supplements could falsely believe that they are not covered by the renewal requirement since those products are excluded from many provisions of the FSMA,” Gaitan says. “However, since the passage of the Bioterrorism Act in 2002, facilities engaged in the manufacturing, processing, packaging or holding of dietary supplements have been required to register with the FDA. The FSMA did not change this requirement. Dietary supplement producers must re-register.”

Similarly, companies involved in the alcoholic beverage trade could be unaware that they too must register, Gaitan says, pointing out that the requirement stands regardless of the fact that other agencies regulate that industry. “Generally speaking, companies involved with the manufacture, processing, storage or packaging of alcoholic beverages that contain more than 7% alcohol are not covered under the FSMA,” she says. “But the exception—and it’s an important exception—is the FDA registration requirement. All facilities where alcoholic beverages are manufactured, processed, stored or packaged must register. In fact, this has been the case since 2003, when the FDA’s food facility registration requirement first went into effect.”

The greatest confusion over FSMA registration seems to be within the agricultural industry. According to Gaitan, agricultural products are primarily regulated by the U.S. Department of Agriculture and farms are explicitly exempt from the FDA registration requirement. However, if an agricultural product undergoes any processing at the farm, including a post-harvest pesticide treatment, waxing or other preservation treatment, the farm is subject to the registration requirement, unless otherwise exempt.

“If your company is involved in any industry that manufactures, produces, packs or stores a consumable product, you should thoroughly research the FSMA requirements. Don’t just assume you are not covered because your industry is regulated by agencies other than the FDA,” Gaitan says.

Further information about the requirements for registration can be found on FDA Solutions Group’s Web site. The company offers a simple online process that allows companies to submit their food facility registration renewal electronically, at any time of the day and from anywhere around the world.

Along with registration services, FDA Solutions Group also acts as U.S. agent for its clients, allowing them to both register and designate an agent through its Web site.

The FDA Solutions Group Web site can be accessed in English, Spanish, Portuguese, Italian and Japanese.

More information about FDA Solutions Group and its services can be found online or by calling 305.702.3161. 

U.S.-China Trade Meeting Sees Little New Progress

The U.S. and China concluded Dec. 19 the annual meeting of their Joint Commission on Commerce and Trade. U.S. officials announced “meaningful progress” on key elements of the bilateral trade relationship but underscored that “much more work remains to be done to open China’s market to U.S. exports and investment.” The lack of significant forward movement is perhaps not surprising given that both the U.S. and China are in the middle of political transitions.

A fact sheet from the Office of the U.S. Trade Representative indicates that the results from this year’s meeting include the following.

- Building on an existing JCCT commitment to develop a judicial interpretation making clear that those who facilitate online infringement will be jointly liable for such infringement, China announced that its Supreme People’s Court will publish a judicial interpretation on Internet intermediary liability before the end of 2012.

- China will conduct a process to revise a 2007measure establishing an indigenous intellectual property requirement for the selection of information security products for level three and above and will seek the views of all parties, including through dialogue with the U.S.

- China agreed to not mandate any particular encryption standard for commercial 4G LTE telecommunications equipment.

- China agreed to give the U.S. more time to comment on a proposal to limit the central government’s ability to purchase U.S. cars

- China plans to invest $1.5 trillion in strategic emerging sectors in the next five years and has set a target for strategic emerging industries to account for 8% of GDP by 2015 and 15% by 2020. China will provide foreign enterprises fair and equitable participation in the development of SEIs and committed that policies supporting SEI development will comply with the World Trade Organization’s national treatment rules.

- China committed that any measures affecting the pricing of medical devices will treat foreign and domestic manufacturers equally.

- The U.S. Department of Agriculture and China’s Ministry of Agriculture made a commitment to a biotechnology pilot program that could provide greater cooperation in the approval process for new products.

- China agreed to define “new chemical entity” in a manner consistent with international research and development practices in order to ensure that regulatory data of pharmaceutical products are protected against unfair commercial use and unauthorized disclosure.

On the Chinese side, a senior official noted U.S. commitments on export control reform and openness to investment by Chinese companies. While the official gave few details, it appears that the U.S. merely reiterated prior pledges to continue work in these areas and did not make any new concessions. 

Drug Company Charged with Repeated Violations of Anti-Bribery Law

The Securities and Exchange Commission announced Dec. 20 that a major pharmaceutical company has agreed to pay $29 million to settle charges that it violated the Foreign Corrupt Practices Act by making improper payments from its subsidiaries to foreign government officials in Russia, Brazil, China and Poland. This figure includes disgorgement of $13.9 million, prejudgment interest of $6.7 million and a penalty of $8.7 million. The company also agreed to comply with certain undertakings, including the retention of an independent consultant to review and make recommendations about its foreign corruption policies and procedures.

According to an agency press release, the SEC alleges that the company’s subsidiary in Russia used offshore “marketing agreements” to pay millions of dollars to third parties chosen by government customers or distributors despite knowing little or nothing about the third parties beyond their offshore address and bank account information. These offshore entities rarely provided any services and in some instances were used to funnel money to government officials in order to obtain business. Transactions with offshore or government-affiliated entities did not receive specialized or closer review for possible FCPA violations. Paperwork was accepted at face value and little was done to assess whether the terms or circumstances surrounding a transaction suggested the possibility of foreign bribery.

Moreover, the SEC says, when the company did become aware of possible FCPA violations in Russia it did not curtail the subsidiary’s use of the marketing agreements for more than five years. In addition, company subsidiaries in Brazil, China and Poland also made improper payments to government officials or third-party entities associated with government officials.

An SEC official said this case highlights the need for companies to pay close attention to the activities of their business units in order to avoid impropriety. “[This company] and its subsidiaries possessed a ‘check the box’ mentality when it came to third-party due diligence,” said Kara Novaco Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit. “Companies can’t simply rely on paper-thin assurances by employees, distributors or customers. They need to look at the surrounding circumstances of any payment to adequately assess whether it could wind up in a government official’s pocket.” 

Application Period Reopened for New Air Cargo Pilot Program Participants

U.S. Customs and Border Protection is reopening through Jan. 8, 2013, the deadline for applications from those wishing to participate in the Air Cargo Advance Screening pilot program. CBP expanded this pilot in October so that it now includes express consignment air courier companies, passenger carriers, all-cargo carriers and freight forwarders.

The ACAS pilot is a voluntary test in which participants submit a subset of the required advance air cargo data to CBP at the earliest point practicable prior to loading of the cargo onto the aircraft destined to or transiting through the United States. The data elements submitted as part of this pilot include air waybill number, total quantity based on the smallest external packing unit, total weight, cargo description, shipper name and address, and consignee name and address.

ACAS pilot participants must also (1) mitigate, according to Transportation Security Administration screening protocols, any threat identified by the National Targeting Center; (2) respond promptly with complete and accurate information when contacted by the NTC with questions regarding the data submitted; (3) follow any Do Not Load instructions; and (4) partake in regular teleconferences or meetings established by CBP, when necessary, to ensure that any issues or challenges regarding the pilot are communicated and addressed.

CBP has said that this pilot program will run for another six months and could be extended again. When sufficient analysis and evaluation of the pilot has been conducted CBP intends to begin the process of developing regulations that will make the advance submission of ACAS data mandatory. The results of the ACAS pilot will help determine the relevant data elements, the timeframe within which data should be submitted to permit CBP to effectively target, identify and mitigate any risk with the least impact practicable on trade operations, and any other related procedures and policies. 

PNTR for Russia and Moldova Effective as of Dec. 20

President Obama issued Dec. 20 a proclamation formally extending permanent normal trade relations status to goods imported from Russia and Moldova as of that date. This step will allow the U.S. to take full advantage of all the trade liberalization measures associated with the World Trade Organization accessions of these countries, which became effective as of Aug. 22, 2012, and July 26, 2001, respectively.

A Reuters article indicates that one immediate result of this proclamation could be the filing of WTO dispute settlement cases by the U.S. and Russia against each other. The article notes that the U.S. recently complained about Russia’s ban on imports of meat treated with the feed additive ractopamine while Moscow could protest Washington’s antidumping and countervailing duties on Russian steel products.

In the News: Port Strike Looms, Satellite Exports Eased

“Container cliff” confronts U.S. economy as contract talks between ILA, management collapse

Defense bill lifts barrier on satellite exports

$100,000 Fine, Prison Sentence for Illegal Exports to Pakistan

The former managing director of a wholly-owned Chinese subsidiary of a U.S.-based company will pay a $100,000 fine and serve a one-year prison sentence for conspiring to illegally export high-performance epoxy coatings to a nuclear reactor in Pakistan that is on the BIS Entity List. A Bureau of Industry and Security press release notes that as part of a November 2011 plea agreement this woman cooperated with a BIS investigation and that this cooperation led to what is believed to be the first time a Chinese corporate entity has pleaded guilty in a U.S. criminal export matter. Also last year the woman settled a related administrative proceeding by agreeing to a $200,000 civil penalty and placement on the Denied Persons list for five years, which will prohibit her involvement in exports or reexports of commodities, technology or software subject to the Export Administration Regulations.

AD Notice: Ball Bearings from Three Countries

Agency: International Trade Administration.
Commodity: Ball bearings and parts thereof.
Country: France, Germany and Italy.
Nature of Notice: Corrected notice of final results of administrative reviews of antidumping duty orders.
Details: Weighted average dumping margins of zero for all reviewed companies. 

New IPR Infringement Petitions on Paper Shredders, Mobile Handsets

The International Trade Commission received Dec. 20 petitions requesting that it institute separate Section 337 investigations regarding the following products.

- paper shredders, processes for manufacturing or relating to same and certain products containing same (complaint filed on behalf of Fellowes Inc. and Fellowes Office Products (Suzhou) Co. Ltd.; respondents located in China and the U.S.)

- mobile handset devices and related touch keyboard software technology (complained filed on behalf of Nuance Communications Inc.; respondents located in China 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. 

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