Industry News

Last updated on 08/25/08

Export Restrictions Can Now be Imposed on a Broader Range of Entities
A broader range of entities is now subject to U.S. export restrictions under a Bureau of Industry and Security final rule that, effective Aug. 21, expands the scope of reasons for which parties may be added to the Entity List. The rule also amends the Export Administration Regulations to state explicitly that a party on the Entity List has a right to request that its listing be removed or modified and to establish procedures for addressing such requests.

Exports and re-exports of items subject to the EAR to parties identified on the Entity List may require a license from the BIS for various reasons. In addition to the reasons already set forth in the regulations, this rule creates a new provision that authorizes the BIS to add to the Entity List those entities (or those acting on their behalf) that it has reasonable cause to believe, based on specific and articulable facts, have been, are or pose a risk of being involved in activities that are contrary to U.S. national security or foreign policy interests. These activities include:

  • supporting persons engaged in acts of terror;
  • actions that could enhance the military capability, or the ability to support terrorism, of governments designated by the State Department as having repeatedly provided support for acts of terrorism;
  • transferring, developing, servicing, repairing or producing conventional weapons in a manner contrary to U.S. national security or foreign policy interests or enabling such activities by supplying parts, components, technology or financing;
  • preventing the accomplishment of an end-use check conducted by or on behalf of the BIS or State's Directorate of Defense Trade Controls by precluding access to, refusing to provide information about or providing false or misleading information about parties to the transaction or the item to be checked (a nexus between the conduct of the party to be listed and the failure to produce a complete, accurate and useful check is required, even though an express refusal by the party to be listed is not required); and
  • engaging in conduct that poses a risk of violating the EAR when such conduct raises sufficient concern that prior review of exports or re-exports involving the party and the possible imposition of license conditions or license denial enhances the BIS' ability to prevent EAR violations.

It is important to note that an entity may be added to the Entity List for any of these actions even if they do not involve items or activities subject to the EAR. Under this final rule, the BIS can modify the license requirements, license exception availability or license application review policy that applies to any entity on the Entity List.

As export controls continue to focus not just on countries but also on individual customers or entities, the BIS believes this rule will allow it to focus its export control efforts more closely on problematic recipients of regulated items who do not meet the previous criteria for designation on the Entity List. This will enable the BIS to tailor license requirements and the availability of license exceptions for shipments to specific entities without imposing additional requirements that apply broadly to entire destinations or items, thus minimizing costs and avoiding the disruption of legitimate trade. The rule will also reduce the need to issue general orders that impose license requirements on specific parties, which will decrease the number of provisions that exporters must review to determine license requirements under the EAR.
Source Document 1

Copyright 2008, Sandler, Travis & Rosenberg, P.A. Originally published in the Aug 21, 2008 issue of ST&R's WorldTrade\Interactive http://edocket.access.gpo.gov/2008/E8-19102.htm (www.strtrade.com/wti/register.asp). Reprinted by permission.

OCEANAIR Inc note: An opportunity to screen more and more data prior to export. A link to the Federal Register is http://edocket.access.gpo.gov/2008/E8-19102.htm

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Container Seals Mandatory for ALL Import Containers Oct 15, 2008
Container Seal Requirement Takes Effect Oct. 15. U.S. Customs and Border Protection has announced that all loaded containers, including foreign cargo remaining on board, arriving by vessel at a port of entry in the U.S. on or after Oct. 15 are required to be sealed with a seal meeting the International Organization for Standardization Publicly Available Specification 17712 standard. This standard is being imposed pursuant to the Implementing Recommendations of the 9/11 Commission Act of 2007 because the Department of Homeland Security did not issue by April 1, 2008, an interim final rule establishing minimum standards and procedures for securing containers in transit to the U.S.

Generally, ISO/PAS 17712 requires container freight seals to meet or exceed certain standards for strength and durability so as to prevent accidental breakage, early deterioration (due to weather conditions, chemical action, etc.) or undetectable tampering under normal usage. It also requires each seal to be clearly and legibly marked with a unique identification number. However, CBP recognizes that there are types of containers that cannot be readily secured by use of a seal meeting the ISO/PAS 17712 standard, including tanks, non-standard containers (e.g., open top containers) or containers that simply cannot accommodate such a seal (e.g., custom-built containers). These types of containers are not subject to the statutory requirement.

CBP will consider loaded containers subject to the sealing requirements to be in violation of the 9/11 Act if they arrive by vessel at a port of entry in the U.S. on or after Oct. 15 with either no seal or a seal that does not meet the ISO/PAS 17712 standard. In such cases CBP may assess a civil penalty against the party responsible for the violation for the attempted introduction of merchandise into the U.S. contrary to law. However, CBP states that it will phase in penalty assessments for such violations.

CBP is also reminding vessel carriers that they must transmit all seal numbers via the Vessel Automated Manifest System 24 hours before cargo is laden aboard a vessel at a foreign port.

Copyright 2008, Sandler, Travis & Rosenberg, P.A. Originally published in the August 7, 2008 issue of ST&R's "WorldTrade/Interactive" (http://www.strtrade.com/wti/register.asp). Reprinted by permission.

OCEANAIR comments:

The regulation was published in the Federal Register August 7, 2008 (Volume 73, Number 153)[page 46029-46030]. The link is as follows:
http://edocket.access.gpo.gov/2008/e8-18174.htm

For information regarding available seals, you may check with E. J. Brooks Company at http://www.brookseals.com. Look for Catalog, then C-TPAT.

For technical specifications of ISO/PAS seals, see E. J. Brooks Company at http://brookseals.com/catalog/iso-astm.pdf.

The above does not constitute an endorsement of E.J. Brooks Company or its products by OCEANAIR Inc.

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New Requirements for Importers of Goods Made from Wood or Plants
Declarations to be Required at Entry Beginning Dec. 15

As of Dec. 15 importers of any plant or plant product, including wood and wood products, must comply with a sweeping new requirement to bring their goods into the U.S. The Farm Bill enacted on July 15 includes a provision requiring such importers to submit upon entry a declaration that includes the genus and species of the plant(s) used, the value and quantity of the importation, and the country of origin of the imported product.

The scope of this new requirement is extraordinarily broad, as it applies to "any wild member of the plant kingdom, including roots, seeds, parts, and products thereof." Although the scope has not been precisely defined, based on the language of the law it appears that covered products will include furniture (of wood, particle board, etc.), textile and apparel products of rayon, cookware with wooden handles, items of clothing with wooden buttons, paper, toothpicks and many others.

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EPA Imposes Fine for Unreported Export of Cathode Ray Tubes
The Environmental Protection Agency announced July 31 that it has filed a $32,500 complaint against a California company for violating federal hazardous waste laws by failing to notify the EPA of a cathode ray tube export shipment. According to an EPA press release, regulations that took effect in January 2007 require exporters shipping broken or unbroken CRTs to another country for recycling to notify the EPA and receive written consent from the receiving country before shipments can be made. This is because the glass in CRTs typically contains enough lead to require managing it as hazardous waste under certain circumstances. In this case, U.S. Customs and Border Protection discovered that the company had shipped 441 CRT computer monitors without the proper notification to Hong Kong, where it was rejected by customs authorities.

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U.S. Customs Proposes Uniform Rules of Origin for Imported Merchandise
(73 Fed. Reg. 43385) — The U.S. Department of Homeland Security's U.S. Customs and Border Protection (CBP) is proposing to amend Parts 4, 7, 10, 102, 134, and 177 of the CBP Regulations to establish uniform rules governing CBP determinations of the country of origin of imported merchandise. This proposal would extend application of the country of origin rules codified in 19 C.F.R. Part 102. Those rules have proven to be more objective and transparent and provide greater predictability in determining the country of origin of imported merchandise than the system of case-by-case adjudication they would replace. The proposed change also will aid an importer's exercise of reasonable care. In addition, this document proposes to amend the country of origin rules applicable to pipe fittings and flanges, printed greeting cards, glass optical fiber, and rice preparations. Finally, this document proposes amendments to the textile regulations set forth in Sec. 102.21 to make corrections so that the regulations reflect the language of section 334(b)(5) of the Uruguay Round Agreement Act. Interested persons have until September 23, 2008, to submit comments.

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Antiboycott Compliance Training Now Available at BIS Online Training Room
The U.S. Department of Commerce's Bureau of Industry and Security (BIS) yesterday unveiled the latest addition to its BISOnline Training Room with a presentation aimed at helping exporters better understand the antiboycott provisions of the Export Administration Regulations. The antiboycott training module is the latest in a series which includes the basics of U.S. dual-use export controls and deemed exports. More than twenty thousand visitors have used the training room since it was unveiled in March.

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Treasury/OFAC Amends OFAC Rules to Increase Civil and Criminal Penalties
06/10/08 - OFAC today published a final rule in the Federal Register amending civil penalty provisions in 17 parts of the regulations OFAC administers, specifically those for which the International Emergency Economic Powers Act ("IEEPA") provides civil penalty authority. The amendments modify the regulatory language regarding the civil penalties for violations of the sanctions to indicate that the applicable penalties may be found at 50 U.S.C. 1705. A note to the amended regulation in each part indicates that the current maximum civil penalty is the greater of $250,000 or twice the amount of the transaction that is the basis of the violation with respect to which the penalty is imposed.

These amendments represent technical changes to the regulations in light of the substantial increase in civil penalty authority resulting from the International Emergency Economic Powers Enhancement Act of 2007 (the "Act"), Pub. L. 110-96, signed into law in October 2007. Following the passage of the Act, OFAC indicated that it would publish substantive revisions to the enforcement guidelines it currently uses to administer its enforcement and civil penalty programs. Those revisions remain in progress, and OFAC hopes to publish them in the near future.

Note: The criminal penalties are also substantial:
"A person who willfully commits, willfully attempts to commit, or willfully conspires to commit, or aids or abets in the commission of a violation of any license, order, regulation, or prohibition shall, upon conviction, be fined not more than $1,000,000, or if a natural person, may be imprisoned for not more than 20 years, or both."

For questions, please contact Harvey Waite at Oceanair, phone 781-560-1298 (direct) or cell 617-335-7790.

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Importer Penalized $1.4 Million for not Using Reasonable Care
In a June 9 decision, the Court of International Trade ruled that an importer of certain liquid crystal display glass panels is liable for civil penalties under 19 USC 1592(c) because it did not exercise reasonable care with respect to their classification. The company's counsel had advised it to seek a binding classification ruling from U.S. Customs and Border Protection in light of a court decision classifying other types of LCD glass panels under HTSUS 9013.80.70. No such request was made, however, and the company continued to classify its goods under HTSUS 8531, which carries a lower duty rate.

In determining whether reasonable care was exercised, the CIT said it was particularly influenced by the company's failure to act in accordance with the well-informed advice of its attorneys. The court pointed out that the company's counsel was its "only source of credible advice regarding the classification of LCDs" because the company did not rely on its customs broker for classification advice and apparently had no employees of its own who were sufficiently knowledgeable to determine proper classification. "While the act of consulting with an attorney, in itself, does not establish reasonable care under these circumstances," the court said, "surely after receiving the formal advice of its attorneys [the company] was under an obligation to actively pursue the issues raised, which it failed to do." According to the court, the continued misclassification that resulted constitutes negligence.

The court awarded CBP $913,572.79 in lost tariff revenue. The court also assessed a civil penalty of about $1.4 million, which reflects aggravating factors such as the lack of a good faith effort to comply and the economic benefit gained from the violation as well as a partial mitigation for the defendant's otherwise clean record. Source Document 1

Copyright 2008. Sandler, Travis & Rosenberg, P.A. Originally published in the June 12, 2008 issue of ST&R's WorldTrade\Interactive. Reprinted by Permission

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BIS Announces Second Phase of Innovative Online Training Program for Exporters
The U.S. Department of Commerce's Bureau of Industry and Security (BIS) yesterday an unveiled additional training module on deemed exports to complete its series on the basics of export control available at the BIS Online Training Room training room. Click here for the BIS Online Training Room.

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New Bureau of Census Regulations Finally Published
At long last the Bureau of the Census major revision has been published. It will appear in the Federal Register of Monday June 02, 2008. Here is a link for those anxious for some leisure reading, consisting of two hundred and two pages. It appears the rule will be effective 30 days from the date of publication in the Federal Register and will be implemented 120 days after the date of publication in the Federal Register. Remember, it is 202 pages. The link follows: http://federalregister.gov/OFRUpload/OFRData/2008-12133_PI.pdf

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Census Bureau Issues Final Rule Requiring Mandatory AES Filings
(73 Fed. Reg. 31547) – The U.S. Department of Commerce's Bureau of the Census has issued a final rule to amend its regulations at 15 C.F.R. Part 30 to implement provisions in the Foreign Relations Authorization Act. Specifically, the Census Bureau is requiring mandatory filing of export information through the Automated Export System (AES) or through AESDirect for all shipments where a Shipper's Export Declaration (SED) is required. The Census Bureau will implement provisions of this rule on September 30, 2008. Among the changes this rule will implement are:

  • Rename the FTSR to "Part 30--Foreign Trade Regulations'' to more accurately reflect the scope of the revised regulations implementing full mandatory AES filing, such as the inclusion of Department of State requirements and the advanced filing requirement implemented by CBP.
  • Remove requirements for filing a paper SED (Option 1), Commerce Form 7525-V, from Title 15 CFR 30, so that the AES will be the only mode for filing information previously required by the SED.
  • Remove requirements for filing the in-transit SED, ENG Form 7513, from 15 CFR 30. Responsibility for ENG Form 7513 was transferred to the U.S. Department of the Army, U.S. Army Corps of Engineers.
  • In Sec. 30.2(a)(2), language was included to specify the four optional means for filing EEI. Two of those methods require the development of AES software using the Automated Export System Trade Interface Requirements (AESTIR).
  • Section 30.2(d), lists types of export transactions outside the scope of the FTR. The list of out-of-scope transactions included in Sec. 30.2(d) is not all-inclusive, but includes those types of shipments about which the Census Bureau receives frequent inquiries. These types of shipments are to be excluded from EEI filing.
  • In Sec. 30.3, language was included to specify that in a "routed'' transaction, the USPPI can compile and transmit export information on behalf of the FPPI when agreed upon by the FPPI. This language is consistent with the language of Sec. 758.3 of the EAR and permits the USPPI to act as an agent of the FPPI upon the written authorization by the FPPI.
  • In Sec. 30.4, the time and place-of-filing requirements for presenting proof of filing citations, postdeparture filing citations, and/or exemption legends are specified. Specific time and place-of-filing requirements are included in the FTR in accordance with provisions of Sec. 341(a) of Public Law 107-210, the Trade Act of 2002. With the exception of the State Department, USML shipments under the control of the ITAR and shipments approved for postdeparture filing, the appropriate proof of filing citations and/or exemption legends are required to be provided to the exporting carrier within specified time frames depending on the mode of transportation used. For example, proof of filing citations for vessel cargo shall be provided to the exporting carrier no later than 24 hours prior to departure of the vessel from the U.S. port where the cargo is laden. Time and place-of-filing requirements for other modes of transportation also are presented in Sec. 30.4 of the FTR.
  • In Sec. 30.4(b)(1) and Sec. 30.4(b)(3) specify how to file EEI and acquire an ITN when AES, AESDirect or the participant's AES is unavailable for filing.
  • In Sec. 30.5(c), the postdeparture (formerly Option 4) approval procedures were removed. Certification and approval requirements for postdeparture filing of EEI were strengthened to address U.S. national security concerns and interests. Applications submitted by USPPIs for postdeparture filing will be subjected to closer scrutiny by the Census Bureau and other federal government partnership agencies participating in the AES postdeparture filing review process. Under the revised postdeparture filing requirements: (1) Authorized agents may no longer apply for postdeparture filing status on behalf of individual USPPIs. Only USPPIs may apply; (2) USPPIs must demonstrate the ability to meet the AES predeparture filing requirements by filing EEI through the AES before being approved for the postdeparture filing privilege; (3) USPPIs must meet a minimum number of shipments requirement before being authorized to file postdeparture; and (4) partnership agencies of the U.S. government shall determine whether or not a USPPI poses a significant threat to U.S. national security before granting the applicant postdeparture filing status.
  • In Sec. 30.6, language was added delineating the specific procedure for reporting the value of goods to the AES when inland freight and insurance charges are not known at the time of exportation. When goods are sold at a point other than the port of export, freight, insurance, and other charges required to move the goods from their U.S. point of origin to the carrier at the port of export must be added to the selling price (or cost, if not sold) of the goods. Where the actual amount of freight, insurance, and other domestic charges are not available, an estimate of the domestic cost must be made and added to the cost or selling price of the goods to obtain the value to be reported to the AES.
  • In Sec. 30.6, a Routed Export Transaction Indicator and a Vehicle Identification Qualifier were added to the list of data elements to be reported through the AES. Both the Routed Export Transaction Indicator and the Vehicle Identification Qualifier indicate the conditions of other data elements reported to the AES. The Routed Export Transaction Indicator gives an indication of whether or not the EEI reported represents a routed export transaction. The Vehicle Identification Qualifier, when reported, identifies the type of vehicle number reported.
  • In Sec. 30.6, the Date of Arrival and the Waiver of Prior Notice Indicator were removed from the list of data elements that should be reported through the AES. These data elements were previously required to overcome disparities in reporting requirements for certain export shipments sent between the United States and Puerto Rico. With mandatory AES reporting, the Date of Arrival and Waiver of Prior Notice Indicator are no longer required, since shipments sent between the United States and Puerto Rico will no longer be reported differently from other export shipments.
  • Subpart B sets forth export control and export licensing issues relevant to 15 CFR 30. This subpart adds references to export control and licensing requirements of the Department of State and other federal agencies. General guidelines for obtaining export control and licensing information also are presented for use by preparers and filers of EEI. The purpose of this subpart is to consolidate references to export control issues. No new requirements are introduced.
  • In Sec. 30.29, the language that describes the proper manner for reporting cost of repairs and/or alterations to goods, and the reporting of the value of replacement parts exported was revised. The FTSR did not specifically describe the manner in which these export transactions should be reported. Goods previously imported for repair and alteration only, and reexported, shall only include the value for parts and labor. Goods exported as replacement parts shall only include the value of the replacement part. No new requirements are specified in Sec. 30.29.
  • Subpart E sets forth carrier and manifest issues pertaining to provisions relevant to 15 CFR 30. Carrier and manifest issues are consolidated in Subpart E. Requirements for SEDs being attached to the manifest are replaced with requirements for proof of filing citations and/or exemption legends to be shown on the bill of lading, air waybill, or other commercial loading documents attached to the manifest. Specific requirements for annotating the bill of lading, air waybill, or other commercial loading documents are included in Sec. 30.7, Subpart A of Part 30.
  • Subpart F sets forth requirements for import shipments relevant to 15 CFR 30, including requirements for the electronic filing of statistical data for shipments imported into FTZs. Currently, requirements for electronically reporting FTZ admissions are included in the Census Bureau's "Automated Foreign Trade Zone Reporting Program'' manual. Instructions to import filers on where to obtain information on reporting import data are added to Subpart F. Requirements for information on imports of goods into Guam are excluded from the FTR since Guam collects its own information on goods entering and leaving the area.
  • A new Subpart H was created to cover the FTR penalty provisions formerly addressed in Sec. 30.95 of the FTSR. New penalty provisions addressed in Subpart H of this part describe the increase in penalties imposed for violations from $100 to $1,000 for each day of delinquency, to a maximum from $1,100 to $10,000 per violation. In addition, the penalty provisions provide for situations when the filer knowingly fails to file, files false and/or misleading information and other violations of the FTR where a civil penalty shall not exceed $10,000 per violation and a criminal penalty shall not exceed $10,000 or imprisonment for no more than five years, or both, per violation.

Finally, Subpart H provides for the enforcement of these penalty provisions by the BIS' Office of Export Enforcement (OEE) and the DHS's CBP, and ICE.

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Reminder: Violation of Foreign law is a Violation of U.S. Law
15CFR734.12 EFFECT OF FOREIGN LAWS AND REGULATIONS:
Any person who complies with any of the license or other requirements of the Export Administration Regulations (EAR) is not relieved of the responsibility of complying with applicable foreign laws and regulations. Conversely, any person who complies with the license or other requirements of a foreign law or regulation is not relieved of the responsibility of complying with U.S. law and regulations, including the EAR.

Exporters please be aware of this regulation when asked by a foreign party to undervalue, misclassify or declare improper terms of sale. It is ILLEGAL!

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State Dept. Publishes List of Countries Not Cooperating with U.S. Antiterrorism Efforts, Adds Caveat for N. Korea
(73 Fed. Reg. 29172) – Pursuant to Section 40A of the Arms Export Control Act (22 U.S.C. 2781), and Executive Order 11958, as amended, Deputy Secretary of State John Negroponte has determined and certified to the Congress that the following countries are not cooperating fully with United States antiterrorism efforts: Cuba; Eritrea; Iran; North Korea; Syria; Venezuela. Mr. Negroponte added that that the decision to retain the certification of North Korea pursuant to Section 40A of the Arms Export Control Act comes during an ongoing review of the designation of North Korea as a state sponsor of terrorism. The outcome of this review may warrant a re-assessment of whether North Korea should be included among the Countries certified as not cooperating fully with United States antiterrorism efforts.

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Bond Insufficiency Letters on the Rise for TIB Activity
CBP's Revenue Division is increasing its analysis of continuous bond insufficiency as relates to TIB activity. The analysis process appears to focus on importers with open TIB entries, and determining what the "average duty rate" would have been if the goods had been imported. The average duty rate is based on all TIB activity under the continuous bond over the past 12 months, even activity already closed. An importer's closure rate and compliance do not seem to factor into the determination of the bond amount. Therefore, bond sufficiency is determined based on 10% of annual duties, the TIB exposure or the $50,000 minimum, whichever is greatest.

How You and Your Clients Could be Affected
As an example, an importer recently experienced a situation where their continuous bond was $100,000. This was an adequate amount based on the CBP rule that 10% of duties must be posted for consumption entries. However, it turned out that goods valued at $10,000,000 were TIB activity. CBP, under their increased scrutiny of TIB activity, determined that the duty rate of these goods would average 5% if they were to be entered for consumption. 5% of $10,000,000 equals $500,000, and bond amounts for TIB activity are required to be double the potential duties owed. CBP therefore issued a bond insufficiency notice to the importer requiring that they increase their bond from $100,000 to $1,000,000 within 30 days of the date of notice.

Possible Relief Remedies
CBP will entertain requests to waive or reduce bond increases related to TIB activity if the importer can prove that they have significantly reduced or stopped such activity (for example, if the importer had a special project during the year and it is completed). CBP may grant exceptions in limited circumstances, although there are no guarantees so it is suggested that importers be prompt in closing out their TIB activity to minimize bond amount scrutiny. In addition to lessening the chances of being targeted for bond insufficiency analysis related to TIB activity, it might also provide greater leverage if requesting CBP to waive or reduce a bond increase.

Proactive Measures to Take
We recommend examining your clients' Entry Type 23 (TIB) activity. Is most of the TIB activity open? Can it be closed? What would the duty rates of those open entries be if they were changed to consumption?

Your Roanoke Trade service representative can run a report of all Entry Type 23 activity under your continuous bonds on file with us. We can also walk you through the bond amount determination process. Please contact us if we may answer any questions or be of further assistance. In the meantime, Roanoke Trade is advocating on behalf of its clients for more reasonable bond determinations on TIB activity. Thank you for your continued business.

Roanoke Trade Services, Inc.
web: http://www.roanoketrade.com

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Transfer Pricing — New Chinese Corporate Tax Laws
Note: China is not unique in their increased review of Transfer Pricing. Due to a countries continuing scrutiny on revenue sources, there is focus on the issue of transfer pricing and how it is determined. If this is an issue for your company, please consult a qualified professional organization. The following was distributed by Sandler, Travis & Rosenberg, P.A.

With China's implementation of a new corporate tax law and administrative regulations on Jan. 1, 2008, Chinese tax authorities (the State Administration of Taxation) have been developing agency regulations and rules that will increase the scrutiny applied to transfer pricing between related parties in China. This development presents an ideal opportunity for multinational companies operating in China to coordinate their customs valuation and tax transfer pricing policies to reduce their tariff and tax exposure and liability.

China Transfer Pricing Rules
Along with the inter-company pricing rules for tax administration that China issued on Oct. 12, 2004, the new regulations and rules will:

  1. highlight the criteria for transfer pricing audits;
  2. effectively demand detailed supporting transfer pricing documentation before submission of a tax return;
  3. increase the scrutiny of related party transactions for tax purposes; and
  4. encourage the use of advance pricing agreements.

Coordination with Customs Valuation Rules
With these new tools, the SAT has begun to increase its scrutiny of related party transactions. At the same time, with customs revenue currently representing approximately one-fourth of total government revenue, China Customs is increasingly looking at the valuations relied upon in related party transactions for customs declaration purposes. As the objective of China Customs from a pricing perspective is often contrary to that of the SAT (since lower import values generally lead to higher internal taxes whereas higher import values usually lead to increased tariff revenue), changes in Chinese tax laws only promise to increase the complexity of conducting business in China. Moreover, while the SAT is more focused on the process, methods and comparability analysis relied upon to support the "arm's length" nature of a company's transfer pricing policies, China Customs is more focused on individual transactions and the circumstances surrounding the individual sale into China. The consequences these different approaches can have on a company's exposure to pricing policy challenges are often inadvertently shielded until they come to light during an SAT tax audit and/or China Customs audit or review.

Ironically, one example of the potential impact these policies could have arises out of the expansion of trading rights resulting from China's accession to the WTO in 2001. Since that time, more China-based operations of multinational companies have become "buyers" of commodities into China for consumption or resale and "importers of record" for customs transactions. These related party transactions in and of themselves are now more likely to trigger customs valuation scrutiny, as the values declared for related party transactions are often lower than the ones declared for independent transactions due to factors such as commercial level, quantity, costs and other distinctions. Without advance planning and consultation with China's customs and tax authorities, these differences could be lost on the Chinese government, thereby leading to increased costs and oversight of such transactions.

Similarly, most companies operating in China focus solely on the valuation of tangible goods for customs appraisement purposes while devoting substantial attention to both tangible and intangible goods (royalties, intellectual property rights, etc.) in determining their tax liability. This dichotomy can have ramifications, particularly as China Customs officials focus on the potential dutiability of intangible property and property rights.

Given these changes, it is critical for multinational companies to act now to review their tax and customs positions to ensure that they are taking full advantage of the opportunities presented by operating in the Chinese market while also protecting their interests against unwanted reviews and challenges of their transfer pricing policies. For additional information concerning these developments and how Sandler, Travis & Rosenberg, P.A., can support companies in this area, please contact:

Zhaokang Jiang
Beijing, China
Tel: +86 (10) 6505-9900
Fax: +86 (10) 6505-7390
Washington, D.C.
Tel: (202) 216-9307
Fax: (202) 842-2247
zjiang@strtrade.com

Charles Crowley
New York, New York
Tel: (212) 883-1300
Fax: (212) 883-0068
ccrowley@strtrade.com

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Congress Moves to Halt Elimination of First Sale Rule
In a significant victory for U.S. consumers and businesses, Congress has moved to stop U.S. Customs and Border Protection from revoking the First Sale Rule. CBP proposed to eliminate this favorable import valuation methodology in January, a move that ignores 20 years of federal judicial precedent and could raise import tariffs by as much as 15 percent. CBP has been inundated with opposition from the private sector, including an industry coalition spearheaded by Sandler, Travis & Rosenberg, P.A., but lawmakers concerned about the lack of transparency in the process CBP used to develop this proposal and how it could affect a struggling domestic economy are acting to make sure that CBP does not go ahead with it.

The conference version of the five-year farm bill, which was agreed by House and Senate negotiators last week but has yet to be signed into law by the president, includes several provisions that forestall any immediate action to revoke the First Sale Rule and impose a number of roadblocks to any such action in the future. Perhaps the most important section of the bill is a "sense of Congress" provision indicating that the two committees that authorize CBP's budget will not support a revocation of the First Sale Rule on their watch. Specifically, the provision advises CBP to drop the issue until at least Jan. 1, 2011, giving the agency time to carefully review its proposal and its potential effects. If CBP still wants to proceed after that date, it will have to clear a number of hurdles to do so, as the provision urges the agency to consult with Congress and the trade community and receive the explicit approval of the Treasury Secretary. This is strong and clear direction from Congress, and while it is non-binding, CBP would ignore it at its peril.

The "sense of Congress" provision also urges CBP to consider a report created by the International Trade Commission should it decide to move forward after Jan. 1, 2011. This report would be based on entry data submitted by importers to CBP over a one-year period indicating whether the transaction value of their merchandise is based on the first sale. Each month during that period CBP would have to report to the ITC on the number of importers using the First Sale Rule, the tariff numbers of the goods so valued and the transaction value of those imports. The ITC would then submit to Congress a report aggregating and analyzing the information supplied by CBP.

This reporting requirement reflects Congress' disapproval of the approach CBP has taken on this issue. Both the House and Senate have previously sent letters to Homeland Security Secretary Michael Chertoff raising numerous concerns with CBP's proposal, including that it would improperly use an administrative action to unilaterally and arbitrarily undermine decades of federal court jurisprudence on the basis of a non-binding commentary from the World Customs Organization. The farm bill provision, however, highlights the fact that CBP went forward with its proposal without having done any sort of analysis on what its economic effects might be. The bill makes clear that Congress wants a thorough review of this information by an outside agency before any further action is taken.

Given the overwhelming opposition that has been expressed in public comments, as well as the congressional direction in the farm bill, it remains a possibility that CBP could simply withdraw the proposal. Any such action is not likely to occur in the near term, however, as an agency official told an industry advisory panel last week that CBP is still in the early stages of reviewing the comments received and does not expect to conclude this process for several months. In the meantime, the Save First Sale Coalition headed by ST&R will continue to aggressively challenge this proposal through regulatory, legislative and any other means necessary. For more information, please visit the coalition web site or contact Larry Ordet at (305) 267-9200 or David Cohen at (202) 216-9307.

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State Department/DDTC Updates FAQs on Commodity Jurisdiction
(Source: http://pmddtc.state.gov/faqs_defense_trade.htm)

The website page has links to documents containing answers to frequently asked questions. The documents are thematically-based (Commodity Jurisdiction FAQs are found below - others, such as Registration, Licensing, and Compliance FAQs, are to follow). The content of the documents is based on questions that the DDTC Response Team has been answering most frequently. Expectations are that the information to be found here will provide consistent guidance to the defense export community. Should you need further assistance, please contact the Response Team at http://pmddtc.state.gov/response_team.htm.

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REACH European Union Chemicals Regulations Effective June 01, 2008
The European Union had previously approved legislation regarding all chemicals over one metric ton being produced in the EU or imported into the EU requiring chemical pre-registration effective June 1, 2008. If this is not done, you will not be able to market your chemicals in the EU countries as of December 1008.

The program is called REACH which stands for "Registration, Evaluation, Authorization and Restriction of Chemicals". The regulation is designed to control the use of potentially dangerous chemicals within the European Union by a registration and testing process.

I you are shipping chemicals to the European Union and plan to do so after December 2008, be certain you are prepared for these new regulations. As this is an extremely lengthy and complex piece of legislation, please consult the EU REACH website directly at: http://ec.europa.eu/environment/chemicals/reach/reach_intro.htm

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Laptops May be Searched by Customs
Due to ever increasing security concerns, Customs and Border Protection (CBP) has been challenging the doctrine of "border search exception" to allow the detention and possible seizure of laptops for a thorough examination of the contents. Although this action has been challenged in the courts, it has recently been determined that Customs has the right to conduct such searches and seizures without cause. For more detailed information on this subject, Google "border search exception."

If your company's single copy of a software program is on your laptop which you are taking overseas, what happens if your laptop is detained or the data is lost or corrupted during a Customs search? Do you have personal information on your laptop which you prefer to remain confidential? Just as with import or export documentation, certain buzzwords can trigger red flags, the same applies to files or folders in your laptop.

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U.S. Exporters Battle Delays, Container Shortages
R.G. Edmonson, The Journal of Commerce Online
Orlando, Fla. — The National Customs Brokers and Forwarders Association of America will publish a white paper to explain to exporters why they are having difficulty shipping cargo at a time when U.S. exports are booming.

Forwarders attending the group's 34th annual conference Tuesday said they have been taking heat from their customers over delays and equipment shortages, but the problem is not theirs to solve, if it can be solved at all.

Billy App, president of J.W. Allen Co. in Kenner, La., said that the combination of high volumes of export cargo and ocean carriers' decreased capacity in the United States trades has reduced the amount of space available for export containers.

"It used to be you could book a vessel on Monday, and ship on Friday," App said. Now, carriers are booking space three to four weeks in advance. Before, if a shipper missed a sailing, the carrier would reschedule him on the next ship . "Now you get sent to the back of the line."

Peter Keller, chief executive of NYK Line North America, told an audience that recession and lower demand in the U.S. resulted in growth of only 2 percent in the trans-Pacific trade in 2007, compared with 13 percent to 18 percent between Europe and China, and 12 percent among Asian nations.

He said that the annual round of service contract negotiations with shippers will end by May, "then we will know how much tonnage will be allocated to the trans-Pacific versus the China-Europe trade."

App observed that exporters also are facing a shortage of empty containers. Keller said that even though 40 percent of imported boxes are shipped out empty, the cost of rail transport did not make it economically feasible to move empty boxes to inland sites in the U.S. for stuffing.

Joseph Meunier, general manager of North American Terminals in Holbrook, Mass., and chairman of the NCBFAA committee for non-vessel-operating common carriers, said that the white paper will be an attempt to explain the existing conditions to shippers.

Given that transportation supply will not likely change in the near future, Meunier said that exporters will have to learn to make longer-range plans to ship goods than they have been used to in the past.

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BIS Posts PowerPoint Presentation on Principles of Effective Compliance Programs
The U.S. Department of Commerce's Bureau of Industry and Security (BIS) has posted on its website a PowerPoint presentation entitled Principles of Effective Compliance Programs for Great Weight Mitigation in BIS's Administrative Cases. Along with this presentation, BIS has posted a speech by Assistant Secretary of Commerce for Export Enforcement Darryl Jackson on BIS enforcement policies and a matrix for determining enforcement mitigation. Click here for the PowerPoint presentation, here for Mr. Jackson's speech, and here for the matrix.

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Import Safety Designated a Priority Trade Issue (PTI)
The priority mission of Customs and Border Protection (CBP) is to prevent terrorists and terrorist weapons from entering the United States while facilitating the flow of legitimate trade and travel. To support this mission, the Import Safety Priority Trade Issue is designed to ensure that unsafe products do not enter the commerce of the United States by working collaboratively and collectively with other government agencies, other foreign governments and the trade to better define and assess risk through increased automation and the sharing of information to encourage greater use of partnership and best practices to protect the U.S. consumer.

The key participants in the import safety trade strategy include all parties within the production and supply chain, domestic and foreign governments and the international trade community, involved in the product lifecycle. The Import Safety Priority Trade Issue (PTI) will focus on safeguarding the public health and safety from unsafe importations. This will be accomplished through more refined risk analysis; further developments in the Automated Commercial Environment (ACE), enhanced targeting and tracking, improved inter-agency and intra-agency communication and coordination as well as continued partnerships with the trade community. As CBP and our other agency and trade partners work with this initiative, the overall effect will allow for the continued flow of legitimate trade in products that safer and healthier.

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BIS Seeks Public Comment on Competitive Enhancement Needs Assessment Survey Program
(73 Fed. Reg. 17950) — The U.S. Department of Commerce's Bureau of Industry and Security (BIS) is seeking public comment on its proposed Competitive Enhancement Needs Assessment Survey Program. The Defense Production Act of 1950, as amended, and Executive Order 12919, authorizes the Secretary of Commerce to assess the capabilities of the defense industrial base to support the national defense. They also develop policy alternatives to improve the international competitiveness of specific domestic industries and their abilities to meet defense program needs. BIS will use the information collected from these voluntary surveys to assist small- and medium-sized firms in defense transition and in gaining access to advanced technologies and manufacturing processes available from Federal Laboratories. The goal is to improve regions of the country adversely affected by cutbacks in defense spending and military base closures. Interested parties have until June 2, 2008, to submit their comments.

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CPB Importer Alert: New Requirment for Payments by Check
Please note the new requirements from U.S. Customs & Border Protection concerning the indication of a Tax ID number for business or social security numbers (or similar) on checks payable to U.S Customs and Border Protection. See attachment.

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China & U.S. Join Forces on Trade Security Pilot Program
WASHINGTON — Cooperation between U.S. Customs and Border Protection and the General Administration of China Customs to enhance global supply chain security took a step forward last week with the start of a pilot validation program in China. The pilot involved three Customs-Trade Partnership Against Terrorism importer partners whose supply chains predominately originate in China.

The U.S. companies were invited to participate in the pilot based upon several factors including volume, product type and location of their supply chains in China. They voluntarily agreed to participate in the pilot with the concurrence of both administrations.

China Customs headed the validation initiative using the C-TPAT minimum security criteria as a guide and with CBP supply chain specialists providing technical assistance.

The companies had been receiving minimum program benefits due to C-TPAT's previous inability to validate the security procedures they have in place. Now C-TPAT will use the information gathered to decide whether they can receive a higher level of benefits.

Both agencies will jointly evaluate the pilot and determine next steps.

"It took several months of intense discussions to get to this point and we look forward to continuing this effort as we explore future cooperation," said C-TPAT Director Bradd Skinner. "It is a win-win for all. CBP and China Customs have the knowledge that all parties involved have good security practices in place and the companies can benefit by receiving fewer exams."

C-TPAT is an important layer in CBP's cargo enforcement strategy. Through this initiative, CBP is asking businesses to ensure the integrity of their security practices and communicate and verify the security guidelines of their business partners within the supply chain.

Since 2003, C-TPAT has performed more than 7,200 total validations. In 2007, C-TPAT visited manufacturing and logistics facilities in 79 countries, validated 3,011 supply chains and certified 2,601 new members.

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10+2 Filings Cause a Stir
On Tuesday, March 18, CBP faced a flood of filings commenting on their Notice of Proposed Rulemaking relating to 10+2. There was 100 percent participation from the major private sector import organizations, most criticizing the NPRM and suggesting a wide range of alternatives. As many of were notified during the week, we submitted our comments as well and you may review them here. The American Association of Importers and Exporters were most emphatic — calling for CBP to withdraw the rulemaking. For members interested, go to http://www.regulations.gov/, and paste USCBP-2007-0077 into the search field in order to review filed comments.

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BIS Temporarily Suspends for 180 Days Export Privileges of Balli Group plc and Several Affiliates
(73 Fed. Reg. 15130) – The U.S. Department of Commerce's Bureau of Industry and Security (BIS) has announced an administrative judge has temporarily suspended the export privileges of Balli Group plc in London and several of its affiliates in London, Armenia, and Iran and placed them on the Denied Persons List for 180 days. BIS has charged that these companies knowingly engaged in conduct prohibited by BIS' Export Administration Regulations (EAR) by reexporting three U.S. origin aircraft to Iran and that Respondents are preparing to reexport three additional U.S. origin aircraft to Iran without the U.S. Government authorization required by Section 746.7 of the EAR. Additionally, Respondents have made false statements to BIS regarding the ultimate destination and end-user of the aircraft, and have failed to comply with a BIS order to return three aircraft to the U.S. False statements made to BIS directly or indirectly constitute violations of the EAR.

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BIS Establishes Online Export Control Training for Exporters
The U.S. Department of Commerce's Bureau of Industry and Security (BIS) has announced the creation of the BIS Online Training Room, an innovative new resource for companies interested in learning about U.S. dual-use export control regulations. The Training Room will act as an organized, online repository of training modules and webinars, amplifying and augmenting current BIS exporter outreach programs. The initial launch includes the first half of the Essentials of Export Controls seminar that BIS currently offers around the country, as well as five pre-recorded webinars covering a variety of topics. The training modules are presented in a video streaming format. The pre-recorded BIS webinars were conducted over the past year and focus on specific export control issues. The BIS Online Training Room can be found at: http://www.bis.doc.gov/seminarsandtraining/seminar-training.htm.

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Government Contractors Beware: FAR Section 890 Proposal
SEC. 890. PREVENTION OF EXPORT CONTROL VIOLATIONS

(a) Prevention of Export Control Violations - Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall prescribe regulations requiring any contractor under a contract with the Department of Defense to provide goods or technology that is subject to export controls under the Arms Export Control Act or the Export Administration of 1979 (as continued in effect under the International Emergency Economic Powers Act) to comply with those Acts and applicable regulations with respect to such goods and technology, including the International Traffic in Arms Regulations and the Export Administration Regulations. Regulations prescribed under this subsection shall include a contract clause enforcing such requirement.

(b) Training on Export Controls - The Secretary of Defense shall ensure that any contractor under a contract with the Department of Defense to provide goods or technology that is subject to export controls under the Arms Export Control Act or the Export Administration of 1979 (as continued in effect under the International Emergency Economic Powers Act) is made aware of any relevant resources made available by the Department of State and the Department of Commerce to assist in compliance with the requirement established by subsection (a) and the need for a corporate compliance plan and periodic internal audits of corporate performance under such plan.

(c) Report - Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall submit to the Committee on Armed Services of the Senate and the Committee on Armed Services of the House of Representatives a report assessing the utility of--

  1. requiring defense contractors (or subcontractors at any tier) to periodically report on measures taken to ensure compliance with the International Traffic in Arms Regulations and the Export Administration Regulations;
  2. requiring periodic audits of defense contractors (or subcontractors at any tier) to ensure compliance with all provisions of the International Traffic in Arms Regulations and the Export Administration Regulations;
  3. requiring defense contractors to maintain a corporate training plan to disseminate information to appropriate contractor personnel regarding the applicability of the Arms Export Control Act and the Export Administration Act of 1979; and
  4. requiring a designated corporate liaison, available for training provided by the United States Government, whose primary responsibility would be contractor compliance with the Arms Export Control Act and the Export Administration Act of 1979.

(d) Definitions- In this section:

  1. EXPORT ADMINISTRATION REGULATIONS- The term "Export Administration Regulations" means those regulations contained in sections 730 through 774 of title 15, Code of Federal Regulations (or successor regulations).
  2. INTERNATIONAL TRAFFIC IN ARMS REGULATIONS- The term "International Traffic in Arms Regulations" means those regulations contained in sections 120 through 130 of title 22, Code of Federal Regulations (or successor regulations).

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CBP Grants Only 30 Extra Days to Comment on Proposal to Eliminate First Sale Rule
U.S. Customs and Border Protection (CBP) will conduct the Customs Broker License Examination on Monday, April 7, 2008. The examination will be given at various locations. Contact your local CBP service port for more details. The purpose of the examination, as authorized by 19 CFR 111.13(a), is to "determine the individual's knowledge of Customs and related laws, regulations and procedures, bookkeeping, accounting, and all other appropriate matters, necessary to render valuable service to importers and exporters." All exam applications and exam fees ($200) must be received and accepted by CBP at the service port where the applicant intends to take the examination on or before the close of business (COB) Friday, March 7, 2008 to be considered. Applications received by CBP after COB Friday, March 7, 2008 will not be accepted - NO EXCEPTIONS. Applications and fees submitted to CBP Headquarters will be returned. To obtain a copy of the examination application form, click on the form number CBP 3124E ( CBP Form 3124E - Application for Customs Broker License Exam ) or contact your local service port. CBP accepts cash, checks, and money orders only. CBP does not accept payment by credit card. Any applicant who files an application and subsequently wishes to withdraw from the exam, must submit a written notice of withdrawal to the CBP service port where the application was originally tendered, by COB Wednesday, April 2, 2008. Click here for previous exams and answer keys.

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U.S. Customs Schedules Next Customs Broker License Examination for April 7
(Source: www.strtrade.com/wti/register.asp; Copyright 2008, Sandler, Travis & Rosenberg, P.A. Originally published in the 7 Feb 08, issue of ST&R's WorldTrade\Interactive. Reprinted by permission.)

U.S. Customs and Border Protection has extended from March 24 to April 28 the comment period on its proposal to eliminate the favorable import valuation methodology available under the First Sale Rule. The implementation of this change will result in a tariff increase of between 8 percent and 15 percent for those importers using the First Sale Rule. An industry coalition organized by Sandler, Travis & Rosenberg, P.A., had requested an additional 180 days to respond to CBP's proposal.

The First Sale Rule has been available for almost 20 years as a result of a 1988 decision by the U.S. Court of Appeals for the Federal Circuit in E.C. McAfee v. U.S., which was successfully argued by ST&R's Len Rosenberg. CBP's proposed action, which is based on an April 2007 finding by the World Trade Organization's Technical Committee on Customs Valuation, would revoke this rule and thus eliminate the ability of importers to use the price paid in the first sale in a multi-sale transaction as the value for duty purposes.

Under U.S. customs law, transaction value is the primary method of appraising imported merchandise and is defined as "the price actually paid or payable for merchandise when sold for exportation to the United States." CBP is proposing to revise its interpretation of the phrase "sold for exportation to the U.S." so that in a transaction involving a series of sales the price actually paid or payable is the price paid in the last sale occurring prior to the introduction of the goods into the U.S. instead of the first (or earlier) sale. As a result, transaction value will normally be determined on the basis of the higher price paid by the U.S. buyer.

The First Sale Coalition is pursuing a number of legislative, regulatory and other initiatives to oppose the elimination of the First Sale Rule, which would increase costs for U.S. businesses and consumers. For more information, please contact Larry Ordet at (305) 267-9200 or David Cohen at (202) 216-9307.

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