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March 4 2013 Issue

Monday, March 04, 2013
Sandler, Travis & Rosenberg Trade Report

Federal Customs and Trade Functions to Take Hit from Budget Cuts

Massive spending cuts across the federal government began to take effect March 1 and officials say that within the next 30 days there could be drastic effects on a broad range of customs and trade functions, from longer cargo processing times to delays in trade negotiations. There appears to be no imminent solution to the budget impasse that led to the so-called sequester, raising questions about how long it might take for things to get back to normal.

Tim Reif, general counsel at the Office of the U.S. Trade Representative, told an annual trade conference at the Georgetown University Law Center in Washington, D.C., Feb. 28 that the sequester will require USTR to cut staff. Fewer people will mean a “reduced ability to engage with our trading partners” in negotiations such as the Trans-Pacific Partnership, a bilateral free trade agreement with the European Union, and plurilateral pacts to further liberalize trade in services and high-tech goods. Reif added that USTR also “may no longer have the funding to initiate new legal disputes, which would result in reduced enforcement of trade agreements.”

Homeland Security Secretary Janet Napolitano said last week that the sequester would also have “serious consequences to the flow of trade and travel at our nation’s ports of entry.” Napolitano said DHS “will have to begin to furlough” the U.S. Customs and Border Protection officers who staff those ports, reduce overtime and eliminate hiring to backfill positions. As a result, on the U.S.-Mexico border “our biggest land ports could face waits of up to five hours, functionally closing these ports during core hours.” Seaports will see delays in container examinations increase to up to five days, resulting in increased costs to the trade community and reduced availability of consumer goods and raw materials, and mid-sized and smaller ports will experience constrained hours of operation.

Other federal agencies with trade-related functions have previously said the sequester will have a major impact on them as well by limiting their ability to conduct export license verification checks, engage in trade enforcement, compliance and market access activities, inspect foreign and domestic food facilities, and handle large volumes of air cargo traffic.

Economists Say Facilitating Imports a Bigger Help to Manufacturers Than Boosting Exports

In an article published in the January/February 2013 issue of the Federal Reserve Bank of St. Louis Review, two economists argue that government policies to bolster exports at the expense of imports would significantly harm U.S. manufacturing. The authors assert that imports of intermediate materials contribute significantly to the “outstanding performance” of manufacturing output and productivity and that “exports alone do not exert such a positive influence.” These findings suggest that the federal government’s National Export Initiative may be misplaced and that efforts such as lowering tariffs and expediting customs processing would do more to aid economic recovery.

According to the article, the public and economic commentators often gauge the strength of the U.S. economy by the quantity of manufactured goods produced. As a result, the increasingly smaller share of U.S. employees engaged in manufacturing – e.g., the percentage of workers engaged in manufacturing has dropped from just over 50% in the late 1940s to about 11% today, and the number of such workers fell from about 20 million in 1979 to about 11 million in 2010 – is seen as a cause for concern. The authors note that in recent years “such concern may have been exacerbated by the large-scale movement of domestic production of certain goods to lower-wage countries such as China or Mexico.” In this view “imports are bad because they represent the offshoring of domestic jobs and the death of U.S. manufacturing.”

The article adds that the most recent recession reinforced this view for many analysts. Manufacturing employment peaked in December 2007 and fell by over two million jobs by January 2010. Industrial production declined by about 21%, a much larger drop than average, and economic growth during the subsequent recovery has been weaker than normal. While the manufacturing sector has enjoyed a fairly robust recovery since the recession ended, the same cannot be said for manufacturing employment, rekindling fears about the “hollowing out” of the United States’ industrial capacity and leading critics to again target imports as the culprit. In addition, with exports having played a key role in manufacturing’s “impressive comeback,” many policymakers have advanced the idea that exports are one of the best elixirs for this sector.

“Surprisingly,” however, the article finds that “imports have played a critical positive role in boosting manufacturing output in the United States—much more so, in fact, than exports.” While neither imports nor exports cause manufacturing growth, reliance on imports of intermediate goods and capital goods has been “a strong positive influence on manufacturing output and productivity,” to the extent that the authors characterize such imports as “the lifeblood of U.S. output.”

By contrast, exports account for a much smaller share of manufacturing value added and there is “no discernible gain to manufacturing growth that could arise from new policies proposed to boost exports.” While the development of foreign markets offers an opportunity for outsized growth, the authors conclude, the success of manufacturing has not been as critically dependent on new markets for sales as for new markets for materials and capital goods. 

Customs Issues, GSP Among Priority Topics in U.S.-Afghanistan Trade Dialogue

The Office of the U.S. Trade Representative reports that in the next few weeks the U.S. and Afghanistan will develop action plans for joint working groups on customs issues and Generalized System of Preferences outreach to pursue over the next year. The two sides have also agreed to work together to promote greater awareness of GSP and to increase Afghanistan’s exports of products eligible for preferential treatment under this program.

These and other issues were discussed by senior officials at a Feb. 28 meeting of the U.S.-Afghanistan Trade and Investment Framework Agreement Council in Washington, D.C. Other topics included market access, Afghanistan’s efforts to accede to the World Trade Organization by the end of 2014, joint efforts to improve the efficiency of the transit of Afghan goods to export markets, intellectual property rights, agriculture, and sector-specific investment challenges. Afghan officials announced the preliminary approval of a new mining law by the Afghan Cabinet on Feb. 23, which USTR said “will hopefully serve as a catalyst for international investment.” The delegations also reviewed trade promotion efforts and agreed to continue collaborating on support for Afghan exhibitors to participate in major U.S. trade shows as well as outreach to U.S. communities to provide information on Afghan goods. 

$400,000 Penalty for Delay in Reporting Defective Play Yards

The Consumer Product Safety Commission has provisionally accepted a settlement agreement under which an Illinois-based company will pay a $400,000 civil penalty to settle charges that it knowingly failed to timely report defects in its imported play yards. From 2000 through July 2009 the company received about 350 reports of the play yards collapsing unexpectedly, which experts linked to the fact that the side rails can fail to latch properly. In 2006 the company made improvements to the warning labels, instruction sheets and the side-rail latch to remedy the problem in future production, but the CPSC notes that these improvements did not address the potential for false latching that existed in the more than 880,000 play yards in commerce at the time. Further, the company waited until January 2009 to report the matter to the CPSC.

As part of this settlement agreement the company will be required to maintain and enforce a system of internal controls and procedures designed to ensure that (i) information required to be disclosed to the CPSC is recorded, processed and reported in accordance with applicable law, (ii) all reporting made to the CPSC is timely, truthful, complete and accurate, and (iii) prompt disclosure is made to company management of any significant deficiencies or material weaknesses in the design or operation of such internal controls that are reasonably likely to adversely affect in any material respect the company’s ability to record, process and report to the CPSC in accordance with applicable law.

The company will also have to implement and maintain a compliance program designed to ensure compliance with the safety laws and regulations enforced by the CPSC that, at a minimum, contains the following elements: (i) written standards and policies, (ii) a mechanism for confidential employee reporting of compliance-related questions or concerns to either a compliance officer or another senior manager with authority to act as necessary, (iii) effective communication of company compliance-related policies and procedures to all employees through training programs or otherwise, (iv) senior manager responsibility for compliance, (v) board oversight of compliance (if applicable), and (vi) retention of all compliance-related records for at least five years and availability of such records to the CPSC upon request.

Any interested person may ask the CPSC not to accept this agreement or otherwise comment on its contents by filing a written request no later than March 19. 

AD/CV Notices: Steel Threaded Rod, Orange Juice

Agency: International Trade Administration.
Commodity: Steel threaded rod.
Country: China.
Nature of Notice: Amended final results of administrative review of antidumping duty order for the period Oct. 8, 2008, through March 31, 2010, due to court decision.
Details: Gem-Year Industrial Co. Ltd. entitled to separate dumping margin of 55.16%. AD cash deposits at this rate will be required for entries of subject merchandise from this exporter.

Agency: International Trade Administration.
Commodity: Orange juice.
Country: Brazil.
Nature of Notice: Amended final results of administrative review of antidumping duty order for the period Aug. 24, 2005, through Feb. 28, 2007.
Details: Weighted average dumping margin of 1.63% for Fischer S.A. Comercio, Industria and
Agricultura. Entries of subject merchandise made during the period of review will be liquidated at this rate. AD cash deposits are no longer required because this order was revoked effective March 9, 2011. 

FTZ Authority Sought for Electric Motor Plant, Printing Plate Facility

The Foreign-Trade Zones Board is accepting through April 10 comments on a notification from the Port of Houston Authority, grantee of FTZ 84, of proposed production activity at the Toshiba International Corporation facility in Houston, which is used for the production of electric motors and generators for hybrid electric vehicles. A separate application for subzone status at this facility is planned.

FTZ activity would be limited to the following foreign-status materials and components: plastic film, strips and sheets, synthetic textile cord, cloth for technical uses, steel nuts and washers, parts of motors and generators, permanent magnets, variable resistors, electric terminals and couplings, and electric synchros and transducers (duty rates from zero to 4.2%). Toshiba has indicated that the textile cord would be admitted to the proposed subzone in privileged foreign status.

The FTZ Board has also received a notification of proposed production activity for the Southern Lithoplate Inc. facility in Grand Rapids, Mich., within site 10 of FTZ 189. This facility is used for the production of aluminum offset printing plates for the printing industry. FTZ activity would be limited to the following foreign-status materials and components: acrylate monomers, unsensitized emulsions and surfectants for photographic purposes; acrylic polymers; and aluminum coils (duty rates from zero to 6.5%). Comments on this proposal are due no later than April 15. 

Export Regulations and Procedures Committee to Meet March 19

The Bureau of Industry and Security’s Regulations and Procedures Technical Advisory Committee will hold a partially open meeting March 19 at Commerce Department headquarters in Washington, D.C. The open session of this meeting will include updates on export enforcement, regulations and the Automated Export system as well as working group reports. This session will be accessible via teleconference to 25 participants on a first come, first served basis, and requests to participate in this manner are due no later than March 12. In addition, a limited number of seats will be available at the public session, but reservations are not accepted.

Monthly Surface Trade with Canada and Mexico Down Sharply in December

U.S. monthly surface transportation trade in goods with NAFTA partners Canada and Mexico sank 11.7% in December, according to Department of Transportation statistics. The $71.9 billion total was also down 3.2% from a year before.

Surface transportation includes freight movements by truck, rail, pipeline, mail and other modes, as well as goods moving into foreign-trade zones. In December surface transportation trade with Canada and Mexico accounted for 17% of total U.S. foreign trade and primarily consisted of goods moved by truck ($48.0 billion, down 14.5%), rail ($13.7 billion, down 7.8%) and pipeline ($5.7 billion, down 4.1%).

Surface trade between the U.S. and Canada totaled $42.1 billion in December, down 9.9% from November after a 3.5% drop in October, and was led by shipments of vehicles and parts ($7.8 billion). U.S.-Mexico surface transportation trade totaled $29.8 billion, a 14.4% decline after a 5.7% drop in October, and was led by shipments of electrical machinery ($6.3 billion). 

Foreign Regulatory Changes Could Affect Exports of Vehicles, Engines, Magnets

According to the National Institute of Standards and Technology, the World Trade Organization has been notified of regulatory changes that may affect exports of specific products to the following countries. For information on how these restrictions may affect your business, contact ST&R.

Canada – Jan. 1, 2014, effective date of amended regulations on on-road vehicle and engine emissions

New Zealand – unsafe goods notice on small high-powered magnets (in effect until July 24, 2014) 

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