International Trade Law News

Today the Commerce Department's Bureau of Industry and Security (BIS) published in the Federal Register the long-awaited regulation revising the Export Administration Regulations by removing Libya from the list of terrorist supporting countries in Country Group E:1. The PDF version of the interim final rule, which takes effect today, can be found here.

Among other things, this rule changes U.S. licensing policy towards Libya by significantly reducing the level of U.S. Government controls over commercial exports to Libya. As expected, items controlled only for anti-terrorism (AT) reasons on the Commerce Control List will no longer be subject to a licensing requirement for export or reexport to Libya (subject to end-use and end-user requirements). As a result of the lifting of AT controls on Libya, BIS has amended the EAR to removed License Exception USPL (EAR section 740.19) that was established to permit the reexport of certain items controlled for AT reasons only to U.S. persons in Libya.

BIS also amended the de minimis rules applicable to Libya to note that reexports of items to Libya from abroad are subject to the EAR only when U.S.-origin controlled content in such items exceeds 25% instead of the 10% that applies to Country Group E:1 countries.

This interim final rule retains license requirements for the export or reexport to Libya of items on the multilateral export control regime lists (the Wassenaar Arrangement, the Nuclear Suppliers’ Group, the Australia Group and the Missile Technology Control Regime) and items controlled for Crime Control or Regional Stability reasons.

However, the rule will permit licensed exports and reexports of items controlled for Chemical and Biological Weapons (CB), Nuclear Nonproliferation (NP), National Security (NS), Missile Technology (MT) , Regional Stability (RS) and Crime Control (CC) reasons to Libya, although such licenses will be reviewed on a case-by-case basis to ensure they are consistent with BIS licensing policies.

By removing Libya from Country Group E:1 and adding Libya to Country Group D:1, a number of License Exceptions may be available for exports to Libya.

This interim final rule also adds Libya to Computer Tier 3 for exports or reexports of high performance computers under License Exception Computers (APP) in section 740.7 of the EAR.

BIS also took this opportunity to amend the EAR to reflect the fact that in October 2004 the U.S. rescinded Iraq’s designation as a state sponsor of terrorism.

Because this regulation was issued as an interim final rule, BIS will review public comments before issuing a final rule. Public comments must be submitted by October 2, 2006.

Labels: BIS, Export Controls

The Bureau of Industry and Security's Regulations and Procedures Technical Advisory Committee will hold a public meeting on September 12, 2006 at 9 a.m. in Washington, DC. See the following link for details on how to attend this meeting.

The next open meeting of the Defense Trade Advisory Group (DTAG) will be held in Washington, DC at 9 a.m. on September 21, 2006. Further information on this meeting can be found here.

Today's China Daily reports that China's Ministry of Commerce (MOFCOM) said that the Bureau of Industry and Security's (BIS) proposed rule to expand licence requirements for high-technology companies exporting to China will "stifle business and increase uncertainty over bilateral trade." A MOFCOM spokesperson said that the proposed rule would "set 'unreasonable obstacles' to trade and harm the interests of firms in both countries."

The article notes that U.S. Trade Representative Susan Schwab argued during her recent visit to Beijing that the products affected by the new rules account for only a small proportion of China-U.S. trade and would not have a serious impact on overall trade. Not surprisingly, the military-catch all proposed rule was not even mentioned in USTR Schwab's speech to the AmCham China – US China Business Council event that was held in Beijing earlier this week.

Labels: BIS, Export Controls

Under Secretary of Commerce for Industry and Security David McCormick has been nominated by President Bush to serve as Deputy National Security Advisor for International Economic Affairs and is leaving the Bureau of Industry and Security. Deputy Under Secretary Mark Foulon will serve as Acting Under Secretary until a new Under Secretary is nominated.

David McCormick will be replacing Faryar Shirzad, who served as Deputy National Security Advisor for International Economic Affairs from 2004 until July 2006 when he left to serve as Goldman Sachs' Director of International Public Policy.

Update: The White House and Commerce Department issued separate announcements on this move which can be found here and here.

Labels: BIS, Export Controls

As a result of the recent U.N. Security Council resolution on the situation in Lebanon (UNSCR 1701), the State Department's Directorate of Defenense Trade Controls (DDTC) has announced that no new license applications will be accepted for the export of defense articles and defense services to Lebanon and existing licenses will be suspended (except for exports permitted under the U.N. resolution). The complete text of DDTC's announcement is as follows:

On August 11, 2006, the United Nations Security Council voted unanimously to impose an embargo on the export of arms and related material, as well as defense services, to Lebanon. The resolution establishing the embargo (UNSCR 1701) enjoins all states to “take the necessary measures to prevent, by their nationals or from their territories or using their flag vessels or aircraft: (a) the sale or supply to any entity or individual in Lebanon of arms and related materiel of all types, including weapons and ammunition, military vehicles and equipment, paramilitary equipment, and spare parts for the aforementioned, whether or not originating in their territories; and (b) the provision to any entity or individual in Lebanon of any technical training or assistance related to the provision, manufacture, maintenance or use of [such] items.” The resolution establishes that “these prohibitions shall not apply to arms, related material, training or assistance authorized by the Government of Lebanon or by UNIFIL.” U.S. exporters are advised that, effective August 11, 2006, no application for the export to Lebanon of defense articles or services covered by the International Traffic in Arms Regulations (ITAR) will be approved except as provided for in UNSCR 1701. Any existing license or authorization for the export to Lebanon of ITAR-controlled defense articles or services is hereby suspended unless the end-user is the Government of Lebanon or UNIFIL. Holders of other existing licenses or authorizations, including exemptions, must submit documentation for review by the Directorate of Defense Trade Controls (DDTC) supporting the authorization of the transaction by the Government of Lebanon or UNIFIL. For future authorizations, exceptions to this policy of denial will be made, in accordance with the ITAR, on a case-by-case basis to determine whether they conform to UNSCR 1701. A formal acknowledgement of the arms embargo against Lebanon, along with an amendment to Section 126.1 of the ITAR to reflect the fact of the embargo, will be published shortly in the Federal Register.

Labels: DDTC, Export Controls

By Juli C. Schwartz, Guest Contributor*

The Commerce Department's Bureau of Industry and Security (BIS) recently released a trio of administrative settlements involving technology giant, Varian, Inc., and two of its European affiliates. In exchange for voluntary self-disclosures, BIS assessed relatively modest sums of $26,400, $39,600 and $8,800 in penalties for multiple alleged violations of the Export Administration Regulations (EAR). The three settlement agreements were executed in late July, and BIS issued the final orders on August 2, 2006.

The charges arose out of three separate transactions that occurred during 2001 and 2003. According to the first two charging letters, Varian, Inc., the Palo Alto based parent, exported computers and associated software classified under export control classification numbers (ECCN) 4A003 and 5D002 to its Dutch affiliate, Varian B.V., for transshipment to Syria in 2001, without a validated export license. BIS brought additional counts against Varian, Inc., for making false declarations about the shipments' “no license required” (NLR) status on the Shippers Export Declarations, and for failing to disclose the goods' final destination. Varian B.V., the sister company, was similarly charged with aiding and abetting the exportation of said items, unlawfully reexporting the items to Syria and knowingly contravening relevant EAR provisions. The second charging letter also cited Varian B.V. for reexporting ethernet switches classified as 5A991 to Syria in a subsequent transaction two years later. The third and final charging letter alleged two violations against a Varian subsidiary in Switzerland, Varian A.G., for reexporting computers and associated software to North Korea in 2002.

These settlements all involved shipments to Syria before the comprehensive sanctions imposed by the Syria Accountability Act were imposed in May 2004. These settlements follow the recent announcement of a robust third quarter for Varian. These settlements also demonstrate that BIS will settle cases involving a voluntary disclosure for a fraction (40%, in this instance) of the maximum penalty permitted in civil cases.

The charging letters, settlement agreements and orders issued in these cases can be found at the following link: http://efoia.bis.doc.gov/ExportControlViolations/TOCExportViolations.htm.

* Ms. Schwartz is a recent graduate of the Rutgers University School of Law.

Labels: BIS, Export Controls

The North Texas District Export Council is sponsoring a one-day conference on Deemed Exports and International Technology Transfers on September 19, 2006 in Dallas, Texas.

The program, which will focus on technology transfer issues under the Export Adminstration Regulations and International Traffic in Arms Regulations, will feature a number of experienced export compliance professionals from Flowserve Corporation, Hanover Compressor, EFW Inc., Texas Instruments, NEC USA, ACS, National Instruments and Nokia. The keynote speaker will be George Richardson, Special Agent in Charge of the Dallas Field Office, BIS Office of Export Enforcement.

The following topics will be covered in the program:

• Setting the Stage: Technology Export Controls 2006
• The Trickle Down Effect: Learning from the Defense Industry
• Tchnology Transfer/Deemed Export Challenges for US subsidiaries owned by foreign companies and foreign subsidiaries of US companies
• Setting the Stage:Deemed Exports/Reexports 2006
• How to Practically Manage the Deemed Export Challenge
• Technology Transfer/Deemed Export Challenges for US subsidiaries owned by foreign companies and foreign subsidiaries of US companies

Labels: BIS, Export Controls

Textile World reports:

"Although the Senate Finance Committee voted 18-0 to send legislation [S. 3495] granting Vietnam permanent normal trade relations (PNTR) to the full Senate for a vote, the process has been placed on hold as a result of efforts by two textile state senators. Sens. Elizabeth Dole, R-N.C., and Lindsey Graham, R-S.C., have put a hold on the legislation until they can get some concession that they believe will protect the interests of the US textile industry. PNTR is a necessary step leading to Vietnam’s admission into the World Trade Organization (WTO)"

The National Foreign Trade Council yesterday filed a lawsuit in the U.S. District Court for the Northern District of Illinois seeking to declare unconstitutional an Illinois law requiring state pension funds to divest from companies with ties to Sudan.

The suit contends that the "Act to End Atrocities and Terrorism in the Sudan" is unconstitutional because the federal government already has enacted sanctions against Sudan, thereby preempting state and local sanctions. The case relies on the precedent set forth by the U.S. Supreme Court in Crosby v. NFTC, in which the Supreme Court in 2000 unanimously held that sanctions enacted by Massachusetts on Burma (Myanmar) violated the Constitution's Supremacy Clause (Article VI, clause 2).

California, Maine, New Jersey, Ohio and Oregon have also enacted similar Sudan sanctions laws .

The Bureau of Industry and Security (BIS) announced in today's Federal Register that the agency will hold additional meetings public meeetings to discuss the recently published China military catch-all regulation that was published in the Federal Register on July 6, 2006. The meeting dates are:

1. August 15, 2006, 12:00 noon, Boston, Massachusetts
2. August 17, 2006, 10:30 a.m., Chicago, Illinois
3. August 21, 2006, 9:00 a.m., Houston, Texas
4. August 22, 2006, 8:30 a.m., La Jolla, California.

Labels: BIS, Export Controls

The U.S. Trade Representative (USTR) today announced it will begin the second phase of its review of the Generalized System of Preferences (GSP) program, which provides duty-free treatment for goods from 133 beneficiary developing countries. The USTR will review whether to limit, suspend, or withdraw the eligibility of the following GSP beneficiaries that have been deemed by the World Bank to be "upper-middle-inccome" economies: Argentina, Brazil, Croatia, India, Indonesia, Kazakhstan, Philippines, Romania, Russia, South Africa, Thailand, Turkey and Venezuela. In addition, the USTR will also review the 83 current waivers to the GSP program’s competitive need limitations (CNL). CNL waivers allow certain products from specific countries to enter duty-free into the U.S. without being subject to GSP statutory market share and annual import caps.

In announcing these reviews, USTR Schwab said:

"One of the concerns that Congress has raised is that GSP benefits go largely to a few countries, while many developing countries are not trading much under the program. We want to ensure that we are operating the program as Congress intended. The review I am announcing today, the first in twenty years, will help make certain that we are administering the program consistent with statutory criteria. Our goal is for more countries to benefit from the program and use trade in support of their economic development."

A translator employed by the Titan Corporation in Iraq today pleaded guilty to violating the Foreign Corrupt Practices Act (FCPA) by offering to bribe an Iraqi police official. The suspect was arrested at Dulles International Airport on Thursday upon returning from Iraq. During today's guilty plea hearing in the U.S. District Court for the District of Columbia, the defendant admitted that in January 2006 he offered a senior Iraqi police official approximately $60,000 in exchange for the official's assistance with a sale of approximately 1,000 armored vests and a sophisticated map printer worth $1 million. The defendant requested the official use his position with the Iraqi police force to coordinate the sale of the materiel to the multinational Civilian Police Assistance Training Team (CPATT), an organization designed to train the Iraqi police and border guard in Iraq. The defendant also admitted that he later made final arrangements with an undercover agent of the Office of the Special Inspector General for Iraq Reconstruction who was posing as a procurement officer for CPATT. The defendant admitted that during the subsequent discussions with the undercover agent he offered a separate $28,000 to $35,000 "gift" to the agent to process the contracts. The maximum sentence for a charge of violating the FCPA is five years in prison plus a $100,000 fine or twice the gross gain, whichever is greater.

AdvaMed, the Advanced Medical Technology Association, is holding a conference entitled "International Trade Compliance for Medical Technology Companies" on September 19-20, 2006 at the Hilton Embassy Row Hotel in Washington, DC.

The program features numerous industry and government experts on international trade compliance issues, including Mike Turner, Director of the Bureau of Industry and Security's (BIS) Office of Export Enforcement, and William G. Bostic, Jr., Chief of the Census Bureau's Foreign Trade Division.
The topics at the program will include:

• Overview of BIS and Office of Export Enforcement
• Screening export transactions to prevent dealings with unauthorized parties
• Complying with U.S. antiboycott regulations
• Understanding reexport controls
• Spotting red flags in export transactions
• Discussion of current export control enforcement environment and a presentation of case studies involving enforcement actions involving medical device companies
• Understanding "deemed exports"
• Understanding and complying with the Foreign Corrupt Practices Act
• What medical device companies need to know about AES, the Automated Export System
  
• Understanding the new mandatory AES regulation
• Applying for OFAC licenses to export medical devices to Iran and Sudan
• Applying for BIS licenses to export medical devices to Cuba and Syria
• Establishing and implementing an effective export compliance program
• Understanding, obtaining and complying with overseas medical device certifications
• Understanding and complying with foreign customs regulations and procedures

Labels: BIS, Export Controls, OFAC

The President has issued a notice extending the legal authority for the Export Administration Regulations under the International Emergency Economic Powers Act (50 U.S.C. 1701-1706 (2000)) ("IEEPA") for another year. The notice, which was published in today's Federal Register, is reprinted below:

On Friday, the State Department published a notice in the Federal Register announcing that the U.S. Government has imposed sanctions pursuant to the Iran
Nonproliferation Act of 2000 (Pub. L. 106-178) on the following compoanies and their affiliates:

• Korean Mining and Industrial Development Corporation (KOMID) (North Korea)
• Korea Pugang Trading Corporation (North Korea)
  
• Center for Genetic Engineering and Biotechnology (Cuba)
• Balaji Amines (India)
• Prachi Poly Products (India)
• Rosoboronexport (Russia)
• Sukhoy (Russia) (also known as Sukhoi).
  

"The imposition of sanctions by the US on our firms, which in our view have not acted in violation of our laws or regulations, is not justified."

Labels: OFAC

The U.K. Parliament's Quadripartite Committee, which consists of members of parliament from the defense, foreign affairs, international development and trade and industry committees, has released a report containing their most recent examination of the U.K. Government's strategic export control system, including the roes of the Export Control Organisation (ECO) and HM Revenue and Customs (HMRC).

While the Committee concluded that "much has been achieved in the area of strategic export control" the Committee notes that "there is still a great deal to do." The following is a brief summary of some of the conclusions and recommendation made by the Quadripartite Committee in their report:

• Recommends that the U.K. Government work within the EU to maintain the arms embargo on the People's Republic of China.
• The Committe was "concerned to discover" that no U.K. agency appears to enforce the intangible transfer of technical information which may be in breach of strategic export controls. The Committee recommends that a review of the operation of such controls be included as part of the government's review of the operation of export control legislation in 2007.
• Citing specfic evidence, the report concludes that the U.K. Government's response to the challenge of the Internet as an arms emporium is too passive and fails to take account of the role it now plays in promoting and facilitating commerce and exports across the world. The report recommends that the U.K. Government produce a strategy for policing and monitoring potential breaches of export control by companies using the Internet to advertise and facilitate transactions.
• Concluded that within the defence industry there are contractors who, either through ignorance or deliberate intent, breach the rules on strategic exports and that the authorities need to seek out these breaches and the perpetrators. The Committee recommend that, as well as providing guidance and attending arms fairs, the U.K. Government actively seeks out breaches of export controls at arms fairs.
• Recommends that the U.K. Government publish details of the amounts paid for breaches of strategic export controls, with details of those who have agreed to pay.
  

Congress last week passed pension legislation that also included a number of significant international trade-related provisions, including passage of a number of duty suspensions. The bill will be sent to the President for signature. H.R. 4, the Pension Protection Act of 2006, which the Senate August 3rd and House on July 28th, included the following trade-related provisions:

Section 1632 suspends the availability of bonds to new shippers in antidumping cases. This provision requires that through June 30, 2009 U.S. importers of any merchandise subject to antidumping duties from new shipper must post a cash deposit to cover the total estimated duties instead of a bond. This provision was added because collecting antidumping duties on agriculture and aquaculture products from China has become a special challenge for U.S. customs officials since final antidumping duties are not calculated for 18 months or more after the import date.

Section 1634 makes several change to CAFTA-DR by giving duty-free access through 2007 to imports of certain clothing from El Salvador, Guatemala, Honduras and Nicaragua not included in the original agreement, including apparel made with fabric from third countries.

Section 1635 makes several technical changes to U.S. customs law.
The bill also includes a number of duty suspension provisions, which, among other things, extended through 2009 the suspension of duties on ceiling fans, for certain fabrics made from worsted wool and for liquid crystal device panel assemblies for use in televisions. The bill also extended the suspension of duties through 2010 for nuclear steam generators, reactor vessel heads and pressurizers purchased under contract on or before July 31, 2006. H.R. 4 also suspends certain other miscellaneous tariffs that were passed in a different House bill and introduced but not passed in the Senate.

In case you missed it, the Bureau of Industry and Security (BIS) earlier this week published a final rule in the Federal Register amending the Export Administration Regulations (EAR) to reflect changes to the Missile Technology Control Regime (MTCR) Annex that were agreed to by MTCR member countries at the September 2005 Plenary in Madrid, Spain.

Among other thing, the rule amended the EAR by making the MT controlled commodities of ECCN 2A001 (certain ball bearings) available for license exceptions TMP and RPL when those items are exported or reexported as one-for-one replacement for equipment previously legally exported or reexported. The rule also makes a number of changes to the Commerce Control List to reflect changes to the MTCR Annex, including changes to ECCNs 1C101, 1C107, 7A101, 7A102 and 7A103.b and c and 9A120 and 9B106.

The rule adds ECCN 9A103, which covers "Liquid Propellant Tanks Specially Designed for the Propellants Controlled in ECCNs 1C011, 1C111 or Other Liquid Propellants Used in 'Missiles.'" However, commodities covered in this ECCN will be controlled by the Department of State under the International Traffic in Arms Regulations (ITAR). The rule notes that this item was added in the EAR "to make the public aware that these liquid propellant tanks are ITAR controlled." In addition, the rule states that "these liquid propellant tanks are being added to the EAR and also to the ITAR to diminish opportunities by countries involved in missile proliferation activities from acquiring these types of tanks for their missile programs."

Labels: BIS, Export Controls

In defense trade news, the Turkish Daily News reports that Turkey is planning to buy a new squadron of F-16 Block 52 Plus fighter jets worth at least $1.5 billion as a "stop-gap" measure until the next generation of fighter aircraft join its Air Force in the future. The article notes that the sale may be concluded by the end of this year. Turkey is a participant in the Joint Strike Fighter program, which was recently named the F-35 Lightning II.

The U.S. International Trade Commission (ITC) today announced its determinations in two sunset reviews:

Bearings

The ITC determined that revoking the existing orders on tapered roller bearings from China and ball bearings from France, Germany, Italy, Japan, and the United Kingdom would be likely to lead to continuation or recurrence of material injury within a reasonably foreseeable time, but that revoking the existing orders on spherical plain bearings from France and ball bearings from Singapore would not. As a result, the existing antidumping orders on imports of tapered roller bearings from China and ball bearings from France, Germany, Italy, Japan and the United Kingdom will remain in place. The existing antidumping orders on imports of spherical plain bearings from France and ball bearings from Singapore will be revoked.

Welded Stainless Steel Pipe

The ITC also found that revoking the existing antidumping duty orders on certain welded stainless steel pipe from Korea and Taiwan would be likely to lead to continuation or recurrence of material injury within a reasonably foreseeable time. As a result, the existing antidumping orders on imports of certain welded stainless steel pipe from Korea and Taiwan will remain in place.

In other antidumping news, a Standard & Poor's reports that "the rapid expansion of China's steel capacity and output along with comparatively higher selling prices overseas are encouraging China's steelmakers to increase exports, especially to the U.S." Of course, "any attempt by China to swamp the US market with surplus steel would be met with demands for protectionist measures and the filing of antidumping suits."

Labels: Antidumping

The Office of the United States Trade Representative (USTR) today announced the allocations for the increased Fiscal Year (FY) 2006 tariff-rate quotas for refined sugar and specialty sugar. In addition, USTR announced the country-by-country allocations of the in-quota quantity of the tariff-rate quotas for imported raw cane sugar, refined sugar, specialty sugar and sugar-containing products for FY 2007 (Oct. 1, 2006 and Sept. 30, 2007). USTR also formally announced the recentl agreement between the U.S. and Mexico on market access for sweeteners.

Jacob Weisberg, editor of the online magazine Slate has written a thought-provoking article entitled "Thanks for the Sanctions" which contends that the U.S. of economic sanctions actually helps dictators. After briefly examining the recent history of the use of sanctions, including those imposed on Cuba, Weisberg writes that:

America's sanctions policy is largely consistent, and in a certain sense, admirable. By applying economic restraints, we label the most oppressive and dangerous governments in the world pariahs. We wash our hands of evil, declining to help despots finance their depredations, even at a cost to ourselves of some economic growth. We wincingly accept the collateral damage that falls on civilian populations in the nations we target. But as the above list of countries suggests, sanctions have one serious drawback. They don't work. Though there are some debatable exceptions, sanctions rarely play a significant role in dislodging or constraining the behavior of despicable regimes.

The Bureau of Industry and Security (BIS) has issued an order denying the export privileges of Asher Karni, the South African businessman that participated in the scheme to sell oscilloscopes and triggered spark gaps from the U.S. to Pakistan, until August 4, 2015. The order also covers Pakland PME Corporation and Humayun Khan, both of Islamabad Pakistan, both of which participate in the scheme to obtain the oscilloscopes and triggered spark gaps. Pakland and Khan have appeared on BIS's Denied Persons List since early 2005, having been covered by temporary denial orders. The recent denial order extends their inclusion on the Denied Persons List until August 4, 2015.

In this well-known case, Karni, who currently resides in the Federal Correctional Institution at Fort Dix, NJ, pleaded guilty in September 2004 to willfully exporting and attempting to export oscilloscopes and triggered spark gaps from the U.S. to Pakistan via South Africa without having first obtained the required export licenses from the Department of Commerce. On August 4, 2005, Karni was sentenced to three years imprisonment and two years of supervised release following imprisonment. He is scheduled to be released from prison on August 12, 2006.

According to the indictment in this case, Khan was the owner and chief executive officer of an Islamabad, Pakistan, business known as Pakland PME Corporation. In 2002, Khan approached Asher Karni, then residing in Cape Town, South Africa, and inquired whether Karni would help him acquire certain models of oscilloscopes manufactured by Tektronix, Inc., of Beaverton, Oregon. Because these particular models of oscilloscopes have applications in the testing and development of nuclear weapons and missile delivery systems, the Department of Commerce requires anyone seeking to export them to certain countries, including Pakistan, to obtain a license. The indictment claimed that Khan, who was an authorized distributor for Tektronix in Pakistan, was aware of that licensing requirement. Karni was the owner of a firm in Cape Town, South Africa, known as Top-Cape Technology. The indictment claimed that Karni agreed to assist Khan in obtaining the Tektronix oscilloscopes, even though Khan told him that they were subject to U.S. export controls and warned him not to disclose the true destination of the products.