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January 10 2013 Issue

Thursday, January 10, 2013
Sandler, Travis & Rosenberg Trade Report

Importer Security Filing, IPR Disclosure, In-Bond Merchandise Among Subjects of Forthcoming Rules

The departments of Homeland Security and the Treasury recently issued their semiannual regulatory agendas.

Regulations Possible in 2013. The following proposed and final regulations affecting international trade could be issued within the next year.

- U.S. Customs and Border Protection anticipates issuing by the end of May a proposed rule that would make various changes to increase the accuracy and reliability of the advance information submitted under the importer security filing, or 10+2, rule. CBP still has not finalized its interim ISF regulations but now hopes to do so by the end of February.

- CBP could issue by the end of February a final rule allowing for the publication of seizure/intent-to-forfeit notices on an official government forfeiture Web site.

- The Coast Guard is planning to issue by June a rule proposing updates to its regulations on licensing, construction, design, equipment and operation of deepwater ports.

- Treasury is hoping to issue by the end of March a final rule providing that CBP will refuse admission to consumer products that are noncompliant with energy conservation standards.

- A Treasury final rule setting forth the prohibitions and conditions applicable to the importation and exportation of rough diamonds pursuant to the Clean Diamond Trade Act is anticipated by the end of April.

- Treasury is working to publish by the end of June a final rule allowing CBP to disclose to an intellectual property right holder information appearing on merchandise or its retail packaging that may comprise information otherwise protected by the Trade Secrets At for the purpose of assisting CBP in determining whether the merchandise bears a counterfeit mark.

- A Treasury final rule to enhance CBP’s ability to regulate and track in-bond merchandise and ensure that it is exported or properly entered, with duties paid, could be issued by the end of June.

Regulations in Process. The agendas also list a number of regulatory proceedings that have been in process for some time and are not as likely to see further progress in the next year, including the following.

- a Transportation Security Administration proposed rule to improve the security of freight and passenger railroads by, among other things, requiring vulnerability assessments and security plans for owners and operators of those railroads

- a Treasury proposed rule that would amend the condition in international carrier bonds regarding the unlawful disposition of merchandise

- a Treasury proposed rule that would amend the customs regulations pertaining to prior disclosure and the procedure for demanding payment of duties, taxes, fees or revenue for violations of 19 USC sections 1592 or 1593a when a penalty claim is not issued

- a Treasury proposal that would amend the list of records required for the entry of merchandise (the (a)(1)(A) list) to add certain documentation required under the Generalized System of Preferences and the Andean Trade Preference Act

- a Treasury final rule that would reflect CBP’s planned centralization of the continuous bond program at its Revenue Division

Regulations No Longer Listed. The following rulemaking proceedings were published in previous editions of the DHS and Treasury regulatory agendas but are not included in the latest editions.

- a final rule providing for the use of sampling methods by CBP auditors and for offsetting of overpayments and over-declarations when an audit involves a calculation of lost revenue or monetary penalty under 19 USC 1592

- a final rule regarding the customs broker recordkeeping requirements as they pertain to the location and method of record retention

- a final rule pertaining to the obligations of customs brokers to keep clients’ information confidential

- a proposed rule to implement the administrative rulings process as well as the filing and administrative review of protests against specific CBP decisions 

Trade Court Upholds Constitutionality of Law Allowing CV Duties on NME Goods

The Court of International Trade issued Jan. 7 a decision in GPX International Tire Corporation et al. v. U.S. et al. upholding the constitutionality of a 2012 law that explicitly allows the federal government to impose countervailing duties on goods imported from non-market economy countries like China and Vietnam. That law reversed the Court of Appeals for the Federal Circuit’s December 2011 ruling against this practice and allowed about two dozen CV duty orders, mostly on goods from China, to remain in place. It is unclear whether the CIT’s decision may be appealed.

GPX argued that the law is unconstitutional because it “improperly creates a special rule applicable only to this case (or perhaps a few others) due to the different effective dates” in two of its key provisions. Specifically, the provision allowing CV duties to be imposed on NME goods was retroactive to Nov. 20, 2006, while the provision prohibiting the concurrent imposition of antidumping and countervailing duties on the same product from an NME country (i.e., double counting) in accordance with World Trade Organization rules only applied to proceedings initiated on or after March 13, 2012 (the date the law was enacted). GPX argued that these provisions violate the Ex Post Facto Clause by effectively penalizing certain importers for past conduct, the Fifth Amendment’s due process guarantees by retrospectively altering legitimate expectations of the level of duties that would be imposed on imports, and the right to equal protection under the law by applying a different law to a single class of respondents based on the timing of their imports.

The CIT rejected all of these arguments. The Ex Post Facto Clause only prohibits the imposition of retrospective penal legislation, the court said, whereas the courts have consistently held trade remedy laws like this one to be remedial. The court further pointed out that while GPX and others “understandably may have assumed that the CV duty law would not be applied to their imports from China while Commerce continued to treat the country as an NME, they also knew at the time of entry into the United States of the goods at issue here that China’s status was in a state of flux, and they should have known that their imports might be subject to increased remedial duties.” Finally, the CIT stated that the law’s provision of two different effective dates is “rationally related” to the government’s interest in conserving limited administrative resources and is also consistent with the general statutory approach of prospective implementation of changes based on an adverse ruling in a WTO dispute. 

EU Proposes Strategy to Strengthen Supply Chain Security

The European Commission proposed Jan. 8 a new strategy to enable customs agencies to better tackle risks associated with goods being traded in international supply chains. A Commission press release states that the proposed strategy involves more rational use of resources, better quality and availability of trade data, and deeper partnership with trade and international partners.

The Commission states that the current system “doesn’t uniformly address security and safety risks across the [European Union’s] external border.” For example, while it is “critically important” that data on the goods being shipped, the real parties behind transactions and the movement of goods through the supply chain “be available as early as possible, be relevant and be of high quality,” it appears that in many cases the information currently available in the entry summary declaration is not precise enough to conduct effective risk analysis. Another problem is that while the EU now has a robust Authorized Economic Operator program in which AEOs take significant measures to secure their supply chains, these measures are not always recognized by non-customs authorities and regulators in the EU that are concerned with supply chain risk evaluation and mitigation. In addition, the exchange of information between customs at first point of entry and other relevant member states “is not working properly,” meaning that information relevant to risk assessment at the EU level is being overlooked.

The proposed strategy therefore identifies the following principles.

Data Quality. EU legislation and advance cargo information systems should be adapted to ensure that the data required for effective risk analysis is made available. This includes details of the real parties behind transactions and goods movements and an adequate description of the goods for the purposes of identification and electronic risk analysis. The introduction of a mandatory HS code is needed at least for commercial consignments.

The filing arrangements required to obtain this range of data from carriers and other parties must be put in place as a matter of urgency. Some degree of differentiation to take account of different trade business models (e.g., maritime container shipping, air express cargo, mail) is called for. Rulemaking should consider the administrative burden on economic operators and small and medium enterprises and also must take account of the need to develop and promote international standards.

Data Availability. Trade data must be recorded as soon as possible in a way that facilitates effective risk analysis and management. Data need to be accessible at the same time to multiple member states to support flexible use, management and exploitation. Cost-effective methods of achieving this should be explored.

Engagement with AEOs. Recognition of AEO status within the EU by non-customs authorities and regulators concerned with supply chain risk evaluation and mitigation could be an important source of economies and benefits for operators. Likewise, customs recognition (full or partial) of similar EU status in other spheres (e.g., regulated agent in the air transport legislation) could improve the effectiveness of risk targeting. Broadening the benefits accruing to EU AEOs internationally and the mutual recognition of similar programs established by third countries should be a priority.

Risk Management Capacity. It is necessary to build up capacity to address the gaps in risk management capacity existing in each EU member state. This involves adjusting national electronic risk engines to common technical specifications in order to ensure implementation of the required standards.

At the EU level, the deployment in real time of an electronic risk engine to supplement national technical capacity and the development of a resource capability to address threats and risks that are common to member states should be considered. An EU-level capability would enable common risk criteria or EU-level risk profiles to be applied directly to EU-level data, rather than via 27 national systems, in crisis and other situations; ensure that common risks are treated in the same way across the external border; increase the visibility of international supply chains and ensure that important risk information is not overlooked at the external border level; improve the capacity to address the risks of diversion and port shopping more systematically; and create a platform for information-sharing with other authorities and third countries.

Improved Cooperation. There is a need to streamline risk information and intelligence from specific agencies on serious threats related to cargo movements, make it available and have it acted upon immediately using the advance cargo information system. The type of information, and procedures for its transmission in a way that optimizes the results for common risk management, need to be determined and agreed together with relevant authorities. The added value of such arrangements would be magnified if such information were applied uniformly and instantly at EU level in real time.

In addition, the EU should pursue initiatives to develop information exchange with major trading partners and neighboring countries, promote mutual recognition of trade partnership programs and support joint training of staff through exchanges of officials and developing common standards, complete ongoing work on a common framework for risk management with partners participating in the EU customs security area, and continue to support international work on standards in multilateral organizations with regard to risk management and supply chain security, including pre-departure information for all cargo, exchanges of information, trade partnership programs and detection technologies. 

CBP Rulings on MP3 Player Docking Stations, Goods Returned for Repair or Exchange

In the Jan. 9, 2013, Customs Bulletin and Decisions, U.S. Customs and Border Protection proposed to revoke classification rulings on the following products. Comments are due by Feb. 8.

Product: MP3 player docking stations with built-in radios.
Proposed action: Revocation of rulings NY R02550, NY R03835, NY M84663, NY N010738, NY N015651, NY N024500, NY N047842, NY N092825, NY N092831, NY N092834, NY N021097, NY M86676, NY R04615 and NY N007861.
Current classification: HTSUS 8527.91.60, other radiobroadcast receivers combined with sound recording or reproducing apparatus.
Proposed classification: HTSUS 8527.19.10 (duty-free) or 8527.19.50 (3% duty), radiobroadcast receivers capable of operating without an external source of power, or HTSUS 8527.92.10 (duty-free) or 8527.92.50 (3% duty), other reception apparatus for radio broadcasting, not combined with sound recording or reproducing apparatus but combined with a clock.
Explanation: The docking stations do not contain sound recording or reproducing apparatus.

Also in the Jan. 9, 2013, Customs Bulletin and Decisions, CBP revoked the following rulings, effective for merchandise entered or withdrawn from warehouse for consumption on or after March 11.

Product: New pneumatic radial and bias tires, cameras and camera accessories, including lithium batteries, battery chargers, battery packs and battery plates, that are reimported for repair, upgrade or exchange.
Action: Revocation of NY N163660 and N069900.
New ruling: HQ H173817 and H209471.
New duty treatment: Not eligible for duty-free treatment under HTSUS 9801.00.25.
Explanation: Tires reimported for upgrade are not eligible for duty-free treatment and tires, cameras and camera accessories reimported for repair or exchange are only eligible if they are delivered not conforming to sample or specifications. The importer must establish such lack of conformance and the documentary requirements in 19 CFR 10.8 must be satisfied. 

Role of Digital Trade to be Studied in Two ITC Investigations

The International Trade Commission announced Jan. 9 the institution of the first of two investigations into the role of digital trade in the U.S. and global economies. For the purposes of these reports, digital trade encompasses commerce in products and services delivered over digital networks, such as software, digital media files (e.g., e-books and digital audio files) and services such as data processing and hosting.

The ITC’s first report will describe U.S. digital trade in the context of the broader economy, examine cross-border digital trade and its relationship to other cross-border transactions (e.g., foreign direct investment), describe notable barriers and impediments to digital trade, and outline potential approaches for assessing the linkages and contributions of digital trade to the U.S. economy, noting any challenges associated with data gaps and limitations. This report is due to be delivered to the Senate Finance Committee by July 14.

The second report will build on the first to estimate the value of U.S. digital trade and the potential growth of this trade, examine the broader linkages and contributions of digital trade to the U.S. economy, present case studies that examine the importance of digital trade to selected U.S. industries that use or produce such goods and services, and examine the effect of notable barriers to digital trade on selected industries and the broader U.S. economy. The ITC anticipates submitting this report by July 2014.

The ITC will hold a public hearing in connection with these investigations on March 7. Requests to appear at this hearing should be filed no later than Feb. 21. Written submissions for the record are due no later than March 14. 

AD/CV Notices: Steel Plate, Garment Hangers, Wind Towers

Agency: International Trade Commission.
Commodity: Clad steel plate.
Country: Japan.
Nature of Notice: Jan. 15 open meeting for vote in sunset review of antidumping duty order.

Agency: International Trade Commission.
Commodity: Steel wire garment hangers.
Country: Vietnam.
Nature of Notice: Jan. 16 open meeting for final votes in antidumping and countervailing injury investigations.

Agency: International Trade Commission.
Commodity: Utility scale wind towers.
Country: China and Vietnam.
Nature of Notice: Jan. 18 open meeting for final votes in antidumping and countervailing injury investigations. 

IPR Enforcement Actions on Dental Appliances, Robotic Toys

No Violation of Consent Order on Dental Appliances. In investigation 337-TA-562 of certain incremental dental positioning adjustment appliances and methods of producing same the International Trade Commission has determined that a November 2006 consent order has not been violated. That order prohibits the importation, sale for importation and sale within the U.S. after importation of the subject products and any other articles manufactured in violation of the asserted patents or trade secrets. Complainant Align Technology Inc. alleged that the successors and bound officers of the original respondents had violated this consent order by continuing to engage in prohibited activities with respect to digital datasets, which are used to manufacture dental appliances. However, the ITC states that the consent order did not contain an express provision prohibiting the electronic transmission of data

Potential IPR Probe of Robotic Toys Evaluated for Public Interest Issues. The International Trade Commission is requesting comments no later than Jan. 18 on any public interest issues raised by a Section 337 intellectual property rights infringement complaint filed on behalf of Innovation First International Inc., Innovation First Inc. and Innovation First Labs Inc. against certain robotic toys 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. 

New Jersey Foreign-Trade Zone Expanded

The Foreign-Trade Zones Board has approved the expansion of FTZ 44 in Morris County, N.J., to include a warehouse facility (site 7) in Flanders, N.J., within and adjacent to the New York/Newark U.S. Customs and Border Protection port of entry.

Ex-Im Bank Asked to Finance Exports of Airliners to Luxembourg

The Export-Import Bank of the United States has received an application for final commitment for a long-term loan or financial guarantee to support the export of Boeing 747 aircraft to Luxembourg, where they will be used to provide cargo services globally. These aircraft are not expected to be used to produce exports or provide services in competition with the exportation of goods or provision of services by a U.S. industry. Comments on this transaction are due no later than Feb. 4.

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