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January 7 2013 Issue

Monday, January 07, 2013
Sandler, Travis & Rosenberg Trade Report

New FTC Policy Eases Retailers’ Liability for Mislabeling of Imported Textiles

The Federal Trade Commission announced Jan. 3 a new policy that eases retailers’ liability for mislabeling or false advertising of imported textile, wool and fur products. This policy is reflected in a proposed settlement of charges that four national retailers falsely labeled and advertised textile products made of rayon as being made of bamboo.

New Enforcement Policy. Under the Textile Fiber Products Identification Act, the Wool Products Labeling Act and the Fur Products Labeling Act, retailers can avoid liability for mislabeling or false advertising if they rely in good faith on a guaranty from a U.S. supplier certifying that products the supplier provides are not mislabeled, falsely invoiced or falsely advertised. Because these laws provide that guaranties may only be obtained from a person residing in the U.S. they do not allow retailers to obtain guaranties for directly imported textile, wool and fur products.

Based on its enforcement experience, however, the FTC now finds that it is in the public interest to provide greater consistency for retailers regardless of whether they directly import products or use third-party domestic importers. As a result, the FTC will not initiate an enforcement action for falsely marketing a textile, wool or fur product if the retailer cannot legally obtain a continuing or separate guaranty, does not embellish or misrepresent claims the manufacturer provides, and does not market the product as a private-label product. This policy will not apply if the retailer knew or should have known that the marketing claim was false.

Four Retailers Fined $1.26 Million. Also on Jan. 3 the FTC announced that four national retailers will pay a combined $1.26 million in penalties to settle charges that they violated the Textile Act and the FTC’s Textile Rules by labeling and advertising textile products as made of bamboo when they actually were made of rayon. The FTC states that these penalties reflect how long the companies continued to sell mislabeled textiles after receiving an FTC warning letter as well as the volume of products sold.

The proposed settlement orders prohibit the companies from failing to properly identify the fiber content when labeling and advertising the “bamboo” textiles they sell. This includes any products marketed or sold as made of bamboo or bamboo fiber as well as products marketed as anti-microbial, anti-bacterial or anti-fungal.

Consistent with the FTC’s new enforcement policy the proposed settlement orders will generally allow the four companies to obtain good faith guaranties that a product was not mislabeled before it was sold. When the companies cannot obtain a good faith guaranty because the products are imported directly from a foreign supplier they will only be liable if they knew or should have known of the violation, did not modify or embellish the claims the supplier provided, and did not market the product as a private-label product.

The FTC has a publication entitled “Avoid Bamboo-zling Your Buyers” that is designed to help businesses selling clothing and textile products that are purportedly made from bamboo to comply with the Textile Act and Rules and market their products in ways that are truthful and non-deceptive. 

Textile and Apparel Enforcement Actions Continued General Downward Trend in FY 2012

U.S. Customs and Border Protection has posted to its Web site statistics on its textile and apparel enforcement efforts in fiscal year 2012. These statistics show a decline in most categories compared to FY 2011.

Seizures. There were 95 total smuggling seizures valued at $7.48 million, a significant increase from 50 seizures totaling $1.03 million from a year before. Quarterly figures ranged from a high of 40 seizures in the first quarter to a low of 11 in the third quarter.

CBP also registered 7,174 intellectual property seizures valued at $14.44 million, compared to 7,711 seizures valued at $14.47 million in FY 2011. Since FY 2008 the number of IPR seizures has increased by nearly 50% while the total value has dropped by about the same percentage.

Commercial Fraud. CBP imposed 21 commercial fraud penalties totaling $23.37 million, compared to 48 penalties totaling $27.32 million the previous year. Both FY 2012 figures are down significantly from their historical highs of 91 penalties in FY 2005 and $50.1 million in FY 2007. The annual averages over the last ten years have been 50 penalties and $16.9 million.

Liquidated Damages. There were 835 liquidated damages claims associated with textiles (compared to 746 in FY 2011): 798 related to entry, 36 related to redelivery, and one related to temporary importations under bond.

Transshipment/Trade Preferences. CBP textile production verification teams visited 174 factories in nine countries (virtually the same as in FY 2011) to investigate concerns about illegal transshipment and trade preference claims. No visits were conducted in the first quarter and roughly equal numbers were completed in the second, third and fourth quarters. The percentage of discrepant factories was 26% for illegal transshipment and 39% for trade preference claims, compared to 22% and 27% the prior year.

The number of factories visited for illegal transshipment has seen a mostly steady decline since a high of 712 in FY 2004, which also saw the high discrepancy rate of 65%. There has been a particularly sharp drop in both categories since FY 2008, when 472 factories in 15 countries were visited and 56% were found discrepant.

The number of factories visited for trade preference claims has been more variable, from 235 in FY 2005 down to 97 in FY 2008 and then up to 223 in FY 2009. The discrepancy rate has been inconsistent as well, from 45% in FY 2003 to 23% in FY 2008 and back to 45% in FY 2009.

Examinations. CBP conducted 10,055 examinations, down from 10,444 in FY 2011, with 1,108 discrepant (11%, down from 13%). Quarterly figures ranged from 1,510 exams in the second quarter to 3,197 in the fourth, although the discrepancy rate was largely the same each quarter. Since CBP began keeping statistics in FY 2006 the number of exams has fallen from 16,898 and the discrepancy rate has declined from 17% (after a brief spike at 19% in FY 2008).

Audits. There were 39 audits initiated and 40 completed, with recommended recoveries of $1.36 million, compared to 36, 40 and $6.5 million for FY 2011. The workload was fairly steady across quarters but 71% of the recommended recoveries came in the first half of the year. The FY 2012 recovery total was well below the $4.17 million annual average over the last seven years.

Lab Analyses. CBP labs tested 1,014 samples, down from 1,363 the year before. The 56.4% discrepancy rate was the highest since CBP started tracking this statistic in FY 2008 and well above the previous 46.3% average. The total number of samples tested, however, continues to fall from a high of 2,449 in FY 2006.

Special Enforcement. CBP initiated four special enforcement operations (all in the first half of the year) and completed six, compared to eight and seven in FY 2011 and highs of 11 and 9 in FY 2008. 

Andean Trade Preferences Have No Adverse Effect on U.S. Employment, Labor Dept. Says

In its 19th annual report on the topic, the Department of Labor’s Bureau of International Labor Affairs again determined that the preferential tariff treatment provided under the Andean Trade Preferences Act (including the subsequent Andean Trade Promotion and Drug Eradication Act) has neither had an adverse impact on nor posed a significant threat to overall levels of U.S. employment. Because just one country (Ecuador) continues to be eligible for ATPA benefits, the program’s negligible employment effects are becoming even more so.

The report states that the narrowing scope of country coverage and the erosion of the margin of preference are the main factors limiting the effect that the ATPA could have on U.S. employment. While the program applied to Bolivia, Colombia, Ecuador and Peru when it was implemented in 1992, only Ecuador remains a beneficiary after Bolivia was suspended because of its failure to meet eligibility criteria related to counternarcotics cooperation and both Peru and Colombia lost their eligibility after implementing bilateral free trade agreements with the U.S. In addition, the report states, the margin of preference available to ATPA beneficiary countries vis-à-vis others has been reduced as the U.S. has granted unilateral trade preferences to Caribbean nations, expanded benefits to sub-Saharan African nations and concluded a number of other FTAs.

Previous reports have found that increased imports of certain fresh cut flowers and asparagus due to ATPA trade preferences may have displaced some U.S. growers and workers. However, imports of asparagus under the ATPA were dominated by Peru and imports of fresh cut flowers under the ATPA were dominated by Colombia, and because both are no longer beneficiary countries any related effects have now ceased. 

New York Company Fined Nearly $200,000 for Exports to Iran

The Treasury Department’s Office of Foreign Assets Control announced Jan. 2 that a New York company has agreed to pay $191,700 to settle potential civil liability for apparent violations of the Iranian Transactions Regulations. Under its prior ownership and management this company sold and exported medical equipment to Iran and engaged the services of a physician in that country.

Upon discovering the company’s violations after acquiring it the new owners and management self-reported the matter to OFAC. However, this submission was determined not to be a voluntary disclosure because OFAC had previously been notified of a rejected transaction between the company and a customer in Iran, although it did not learn the full scope of the activity at that time because the company’s prior owners failed to properly respond to OFAC’s inquiry.

OFAC states that the base penalty amount for the apparent violations was $426,000 and that the settlement amount reflects its consideration of various facts and circumstances. On the one hand, the transactions appear to have been undertaken willfully with knowledge that they likely constituted violations of U.S. law, the company’s prior senior management actively participated in the conduct giving rise to the apparent violations, and the company did not have a sanctions compliance program in place at the time of the apparent violations. On the other hand, the transactions likely would have been eligible for an OFAC license, the company’s purchasers and new owners substantially cooperated with the investigation (e.g., by promptly bringing to OFAC’s attention the full scope of the prohibited conduct) and undertook significant remedial measures (including implementing a sanctions and export compliance program), and OFAC has no record of prior sanctions enforcement matters involving the company at issue. 

In the News: Joint Border Inspection Stations, Vietnam Textile Exports

U.S., Mexico to open joint inspection stations

Vietnam aims to become one of the top five textile and clothing exporters by 2020

DR-CAFTA Short Supply Request on Fleece Fabric

The Committee for the Implementation of Textile Agreements is seeking comments by Jan. 16 on a short supply request alleging that certain cotton/polyester three thread circular knit fleece fabric, classified under HTSUS 6001.21, is not available in commercial quantities in a timely manner from a supplier in the DR-CAFTA countries. The petitioner is therefore requesting that this fabric be added to the short supply list in Annex 3.25 of DR-CAFTA.

IPR Enforcement Actions on Electronic and Wireless Devices

New IPR Infringement Investigation of Electronic Devices. The International Trade Commission has voted to institute investigation 337-TA-862 to determine whether imports of certain electronic devices are violating Section 337 of the 1930 Tariff Act by reason of patent infringement. The products at issue in this investigation are various smartphones along with base stations, 802.11-compliant televisions and Blu-ray players, and tablet computers.

Complainants Ericsson Inc. and Telefonaktiebolaget LM Ericsson request that after this 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. The respondents in this investigation are located in Korea and the U.S.

Potential IPR Probe of Wireless Devices Evaluated for Public Interest Issues. The International Trade Commission is requesting comments no later than Jan. 15 on any public interest issues raised by a Section 337 intellectual property rights infringement complaint filed on behalf of InterDigital Communications Inc., InterDigital Technology Corporation, IPR Licensing Inc. and InterDigital Holdings Inc. against certain wireless devices with 3G and/or 4G capabilities and components thereof. Comments should address whether the issuance of exclusion orders and/or cease and desist orders pursuant to this complaint would affect the public health and welfare in the U.S., competitive conditions in the U.S. economy, the production of like or directly competitive articles in the U.S., or U.S. consumers. In particular, the ITC is interested in comments that:

- explain how the articles potentially subject to the orders are used in the U.S.;

- identify any public health, safety or welfare concerns in the U.S. relating to the potential orders;

- identify like or directly competitive articles that the complainant, its licensees or third parties make in the U.S. that could replace the subject articles if they were to be excluded;

- indicate whether the complainant, the complainant’s licensees and/or third-party suppliers have the capacity to replace the volume of articles potentially subject to the requested orders within a commercially reasonable time; and

- explain how the requested orders would impact U.S. consumers.

Monthly Surface Trade with Canada and Mexico Up Nearly 10% in October

U.S. monthly surface transportation trade in goods with NAFTA partners Canada and Mexico jumped 9.8% in October, according to statistics released by the Department of Transportation. The $85.3 billion total was also up 7.9% from a year before. Over the last ten years total surface transportation trade with Canada and Mexico has risen 71.8%, including an 87.2% gain for exports and a 60.1% increase for imports.

Surface transportation includes freight movements by truck, rail, pipeline, mail and other modes, as well as goods moving into foreign-trade zones, and in October accounted for 86.5% of U.S. trade by value with Canada and Mexico. Surface trade between the U.S. and Canada totaled $48.4 billion, up 6.0% from September and 4.3% from the year before. Exports rose 5.3% for the month and 4.6% from the previous September, while imports saw a 6.6% monthly increase and a 3.9% gain year-on-year. U.S.-Mexico surface transportation trade totaled $36.9 billion, up 15.3% from September and 13.1% from the previous year. Exports shot up 17.8% and imports increased 13.2% for the month and both categories saw increases from October 2011 as well (16.2% and 10.6%, respectively). 

State Dept. Proposes to Extend Import Restrictions on Archaeological Material from Cambodia

The State Department is proposing to extend a memorandum of understanding that imposes import restrictions on archaeological material from Cambodia from the Bronze Age through the Khmer era. A copy of the existing MOU, the designated list of restricted categories of material, and related information can be found here.

Clarification on Import/Export Requirements for Chinese Hamster Ovary Cell Specimens

The U.S. Fish and Wildlife Service recently issued a notice responding to questions about whether or not Chinese hamster (Cricetulus griseus) ovary cell specimens require an FWS declaration and clearance. The notice states that while hamsters are considered wildlife and are therefore regulated by the FWS, if the CHO specimens have been processed to the extent that animal material no longer remains in the specimen, an FWS declaration and clearance is not required.

In order for a shipment to be exempted from FWS requirements, documents must be submitted that specifically describe the process that the CHO specimens have gone through. If any statement on the documents indicates that the product, such as antibodies or recombinant proteins, was extracted from CHO cells, cell cultures or cell lines and was purified to remove all cell material, DNA or animal material, then it is not considered wildlife and FWS clearance is not required. However, if the CHO specimens are the actual cells, cell cultures or cell lines, an FWS declaration, import/export license, user fees and clearance are required. 

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