International Trade Law News

Chairman Sander M. Levin (D-MI) and Ranking Member Wally Herger (R-CA) of the House Ways and Means Subcommittee on Trade today announced that the Trade Subcommittee is requesting written comments on the 806 miscellaneous tariff and duty suspension bills that have been introduced in this session of Congress.

The deadline for the submission of public comments is April 10, 2008. After the comment period, the Subcommittee will review all comments and determine which bills should be included in a miscellaneous tariff bill package. The Subcommittee will consider the extent to which the bills create a revenue loss, operate retroactively, attract controversy or are not administrable.

Public comments must be submitted to the Subcommittee in PDF format by e-mail. Click here for details on how to submit comments.

An Excel file containing a summary of the 806 miscellaneous tariff and duty suspension bills can be found here.

Labels: Congress, Customs

The Treasury Department's Office of Foreign Assets Control (OFAC) has issued its monthly report of civil penalties imposed on companies and individuals for allegedly violating the sanctions regimes administered by OFAC.

OFAC's monthly penalty report indicates that the agency settled five cases involving corporations and six cases against persons. The following is a summary of the settlements:

Entities:

• Key Bank N.A., Cleveland, Ohio paid $200,000 to settle allegations of violations of the Iranian Transaction Regulations occurring between 2002 and August 2004. OFAC alleged that Key Bank acted without an OFAC license or outside the scope of its license by operating accounts for an entity and a person located in Iran. Key Bank did not voluntarily disclose this matter to OFAC.

• BankAtlantic of Fort Lauderdale, Florida remitted $7,500 to settle allegations of possible violations of the Cuban Assets Control Regulations occurring in July 2004. OFAC alleged that BankAtlantic failed to block a payment in which the Government of Cuba had an interest. OFAC noted that BankAtlantic Bank voluntarily disclosed this matter, cooperated in the investigation and has implemented corrective measures and improvements to its OFAC compliance program.

• Buehler Ltd., a Lake Bluff, Illinois manufacturer of scientific equipment and supplies for use in materials analysis, has remitted $20,000 to settle allegations of violations of the Iranian Transactions Regulations occurring between September 2002 and November 2003. OFAC alleged that Buehler acted without an OFAC license or outside the scope of its license by exporting technological equipment to entities in Iran. OFAC indicated that Buehler did not voluntarily disclose the matter to OFAC, but cooperated in the investigation.

• La Salle Bank Midwest, N.A. of Chicago, Illinois remitted $5,500 on behalf of its affiliate Standard Federal Bank to settle allegations of violations of the Iranian Transactions Regulations occurring February 2002. OFAC alleged that Standard Bank acted without an OFAC license or outside the scope of its license by initiating a funds transfers destined for a bank owned or controlled by the Government of Iran. Standard Bank did not voluntarily disclose this matter to OFAC.

• OFAC imposed a $941 civil penalty on RMO, Inc., a Denver, Colorado based manufacturer of orthodontic equipment, for violating the Cuban Assets Control Regulations. OFAC alleged that in June 2005 RMO, Inc. dealt in property in which a Cuba or a Cuban national had an interest by initiating a funds transfer involving travel to Cuba. OFAC originally proposed a $1,711 penalty on RMO, but the penalty amount was reduced after the company advised OFAC that the employee responsible for the violation was terminated , the company is instituting a compliance program for its employees and that this was RMO's first offense. RMO, Inc. did not voluntarily disclose this matter to OFAC.
  

• OFAC settled five cases involving the purchase of Cuban-cigars offered for sale on the internet for amounts ranging from $456 to $5,213. The average settlement amount was $1,848.
  

• OFAC also settled a case for $1,000 against an individual for travel-related transactions incident to Travel with Cuba that involved the receipt of and payment for goods and services. According to OFAC, the individual traveled to and from Cuba via third countries.

Labels: Cuba, OFAC, Sanctions; Iran

Reprinted from Strasburger & Price's February 22, 2008 Transportation/Logistics Newsletter:

U.S. Census Bureau is Close to Issuing Final Rule On Mandatory AES Filings and Penalties

Exporters, freight forwarders, carriers and other parties involved in exportation of goods from the United States should be aware that the long-awaited regulation mandating electronic filing of Shipper’s Export Declarations (SEDs) through the Automated Export System (AES), and increasing penalties for inaccurate export filings, is now being finalized. Reliable sources indicate that the Census Bureau, after more than two years of reviewing public comments and consulting with U.S. Customs and Border Protection (CBP), the Bureau of Industry and Security (BIS) and other government agencies on various points of inter-agency disagreement, expects to publish its final rule in the Federal Register during the coming weeks.

The final rule, like the proposed rule published in the Federal Register on February 17, 2005 (70 Fed. Reg. 8200), will completely phase out the paper version of the SED (Form 7525-V) and will refer to the data filed through AES as Electronic Export Information or EEI. As a result, U.S. exporters and freight forwarders should automate their export operations and procedures, if they have not done so already, to prepare for AES filing.

The new rule also will raise penalties for inaccurate or late filed EEI to $1,000 to $10,000 per violation. The increased penalties, coupled with the universal requirement for electronic filing, complete the evolution of U.S. export reporting requirements from primarily a statistical tool to a mechanism for enforcement of export controls.

Both exporters and freight forwarders can be held liable for inaccurately filed EEI. Exporters are encouraged to audit entities that have been filing SED/AES data on their behalf, and forwarders may need to increase their due diligence regarding information supplied by customers for AES purposes.

The final rule will also affect carriers. Under current regulations, carriers must attach SEDs to the manifest. As a result of the final rule, carriers will be required to show proof of filing (i.e., a citation to an Internal Transaction Number or ITN assigned in the AES filing process) and/or an exemption legend. The ITN or legend will have to appear on the bill of lading, air waybill, or other shipping document attached to the manifest.

The following is a summary of additional major provisions of the proposed rule that we expect to see in the final rule:

• The name of the Foreign Trade Statistics Regulations at 15 CFR Part 30 will be changed to the Foreign Trade Regulations (FTR). The new name will more accurately reflect the scope of the revised regulations, such as the inclusion of Department of State requirements and the advanced filing requirements previously implemented by CBP.
• The rule will allow four optional means for the required electronic filing of EEI: (1) Using AESDirect (a free service offered by Census); (2) purchasing AES filing software from certified vendors; (3) developing software using the Automated Export System Trade Interface Requirements (AESTIR); or (4) using an authorized agent (such as a freight forwarder -- many of whom charge a fee for filing AES data on an exporter’s behalf).
• The final regulation will include the current language specifying that in "routed" transactions (where a foreign party authorizes a U.S. agent to facilitate exports on its behalf), the U.S. principal party in interest (USPPI) must compile and transmit export information on behalf of the foreign principal party in interest (FPPI) when it receives written authorization from the FPPI to do so.
• The rule will specify when and where EEI must be filed. With some exceptions, EEI with the appropriate ITN citations and/or exemption legends will have to be transmitted to the exporting carrier within specified time frames depending on the mode of transportation used. For example, transmissions for vessel cargo will need to 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. Currently, the required export information need only be presented to the exporting carrier prior to exportation.
• A procedure will be set forth for reporting the value of goods through AES when inland freight and insurance charges are not known at the time of exportation.
• The rule will indicate that EEI is used for statistical and export control purposes, and will warn that “[a]ll parties to an export transaction must comply with all relevant export control regulations, including the requirements of the statistical regulations of this part.” The rule also will require the retention of documents or records pertaining to a shipment for five years from the date of export, and in the format required by the regulations of the controlling agency.
• The limited exemptions available for the filing of EEI will remain largely unchanged from current law. For example, exports of commodities with a value of $2500 or less per Schedule B line item will be exempt from the EEI filing requirements.
• The rule will provide that penalties may be remitted or mitigated if they were incurred without willful negligence or fraud, or if other circumstances exist that justify a remission or mitigation.

Labels: AES

Today's Birmingham News contains a detailed story on the saga and aftermath of the failed prosecution of Alexander Latifi, owner of Huntsville, Alabama-based Axion Corporation. The article notes:

Once lauded by defense procurement officers for going above and beyond contract specifications, Axion Corp. is now a silent hulk of sheet metal buildings in what was once a cotton field on Huntsville's northeast side. Legal fees have drained Latifi's bank account.

It all began to disappear - the $4 million in annual sales, the 60 employees - in 2003. That's when the U.S. attorney's office for the Northern District of Alabama showed up and accused Latifi, an Iranian-born U.S. citizen, of crimes that included violating the Arms Export Control Act.

His main alleged offense: sending a schematic drawing of the Army's Black Hawk utility helicopter to a prospective subcontractor in China. His main accuser: a disgruntled employee who began informing on him only after she had stolen thousands of dollars and was facing prosecution for forging checks.

After four years of investigation and two raids by federal agents, none of the charges against Axion or Latifi stuck. U.S. District Judge Inge Johnson said the main witness lacked credibility. The Black Hawk drawings Latifi was accused of sending to China weren't marked as classified, and his lawyers argued they were readily available for viewing on the Internet. And the technology is hardly a secret to China, which already owns more than 20 of the freight and troop transporters made by Stratford, Conn.-based Sikorsky Aircraft Corp.

In October [2007], after a seven-day trial in U.S. District Court in Birmingham, the judge dismissed the case. Johnson ruled there was no way federal prosecutors from Alice Martin's U.S. attorney's office in Birmingham, were going to meet their burden of proof in the criminal trial.

Labels: Export Controls

The U.S.-China Economic and Security Review Commission (USCC) will hold a public hearing in Washington, DC on March 18, 2008 to address "China's Expanding Global Influence: Foreign Policy Goals, Practices, and Tools." This hearing is the third in a series of public hearings the Commission will hold during its 2008 report cycle to collect input from leading academic, industry, and government experts on the impact of the economic and national security implications of the U.S. bilateral trade and economic relationship with China. Further details on the USCC hearing can be found here.

The U.S.-China Economic and Security Review Commission was created by Congress in 2000 in order to monitor, investigate, and submit to congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China, and to provide recommendations, where appropriate, to Congress for legislative and administrative action. The USCC focuses its work and study on the following eight areas: proliferation practices, economic transfers, energy, U.S. capital markets, regional economic and security impacts, U.S.-China bilateral programs, WTO compliance, and the implications of restrictions on speech and access to information in China.

The USCC is composed of 12 members, three of whom are selected by each of the Majority and Minority Leaders of the Senate, and the Speaker and the Minority Leader of the House. The Commissioners serve two-year terms.

Labels: China

Note: The following article appeared in the Winter 2008 edition of the American Bar Association Section of International Law's International Trade Committee Newsletter and has been reprinted with permission.

By: Jordan Collins, Esq.*

Transshipment Concerns Aggressively Pursued

Towards the end of 2007, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) reached two civil settlements with U.S. companies that allegedly violated the Export Administration Regulations (EAR). In addition to the two settlement agreements, BIS issued a Temporary Order denying export privileges to a Dutch company. In a parallel proceeding, a criminal complaint was filed against the Dutch company by the Department of Justice (DOJ) for violating US embargoes and making false statements on export control documents.

What makes these cases noteworthy is the common theme - in all three cases, the exporting company tried to disguise prohibited exports to Iran by transshipping the goods through an intermediate destination prior to reaching their ultimate end-user. While transshipment is a commonly used practice in legitimate trade, transshipment can also serve as a strategy to disguise exported goods intended country of destination.

Commerce’s Civil Export Enforcement Initiatives

To help combat transshipment violations, both the Department’s Commerce and Justice have made export control enforcement a growing priority. In 2003, BIS launched the Transshipment Country Export Control Initiative (TECI). According to BIS, TECI was established because:

“The illicit transshipment, re-export, and diversion of goods and technologies in international commerce compromise the effectiveness of U.S. trade agreements and export control laws. In so doing, such illicit transshipments harm U.S. industry, threaten U.S. security, weaken confidence in the international trading regime, and undermine international efforts to liberalize trade.”

BIS has identified a number of countries that are common transshipment hubs, including the United Arab Emirates (UAE), Singapore, Hong Kong, Thailand, Malaysia, Cyprus, Malta, and Panama. A primary country exporters use to illegally transship goods in the Middle East is the UAE. While the UAE is a growing market for legitimate trade, because of its proximity to embargoed countries, the UAE is commonly used by exporters seeking to circumvent U.S. sanctions on Iran, Sudan and Syria.

Over the past few years, the U.S. government has increased pressure on the UAE and other common transshipment countries to clamp down on prohibited transshipments by adopting domestic export control laws. One method the U.S. applied this pressure was by proposing amendments to the EAR in early 2007 that would designate countries as “Destinations of Diversion Concern” in Country Group C. The proposal stated that countries in Country Group C would potentially result in: (1) more license applications required for exports to such countries, (2) more stringent license review policies, (3) delays in authorizations due to increased end-use checks, and (4) decline of authorizations.

As a result of U.S. pressure, UAE’s government subsequently passed a “stringent new export control laws that included stiffer penalties for parties involved in the diversion of controlled shipments.”[1]

Department of Justices’ Criminal Export Control Initiatives

The Department of Justice (DOJ) handles all export-related criminal cases. In June 2007, DOJ appointed Steven W. Pelak, an 18-year veteran federal prosecutor, to serve as the Justice Department’s first-ever National Export Control Coordinator (NECC) to improve the investigation and prosecution of illegal exports of U.S. arms and sensitive technology. The NECC is detailed to the Counter-Intelligence Section of Justice’s National Security Division. Mr. Pelak is also responsible for ensuring full coordination between the Justice Department and the many other U.S. law enforcement, licensing and intelligence agencies that play a role in export enforcement.

The creation of the NECC underscores a trend towards heightened export control enforcement. The U.S. government views export controls as vital tools to protect national security, the last several years witnessed a consistent increase in government resources focused on export enforcement.

U.S. Sanctions on Iran

Exports and re-exports of U.S. origin goods to Iran are subject to comprehensive export controls, due to the nation’s status as an embargoed country since 1977.[2] Such restrictions are governed by regulations issued by both the Treasury Department’s Office of Foreign Assets Control (OFAC) and Commerce’s Bureau of Industry and Security (BIS).

As a general rule, pursuant to OFAC’s Iranian Transactions Regulations[3], U.S companies and individuals are prohibited from exporting all U.S.-origin goods, technology or services directly or indirectly to Iran.[4] However, exceptions have been carved out of the regulations for certain types of humanitarian products, including medicines, medical devices and agricultural commodities which can be exported to Iran upon the receipt of a one-year specific license issued by OFAC pursuant to the Trade Sanctions Export Reform and Enhancement Act of 2000 (TSRA).[5]

The International Emergency Economic Powers Act (IEEPA) is the implementing legislation for most of the economic sanctions programs administered by OFAC.[6] IEEPA was recently amended by the IEEPA Enhancement Act (Enhancement Act), which was signed into law by President Bush in October 2007.[7] The Enhancement Act increased the maximum civil and criminal penalties for violations of economic sanctions imposed under IEEPA, raising the civil penalties to $250,000 or twice the value of the underlying transaction. The criminal penalties have risen from $50,000 and ten years of imprisonment to $1,000,000 and twenty years. This is the second such increase in IEEPA penalties in two years. In March 2006, the maximum civil penalty for violations of IEEPA-based economic sanctions increased from $11,000 to $50,000.[8]

Concurrently, BIS governs the re-export of U.S. origin goods to Iran. Under 15 C.F.R. §764.7 of the EAR, an exporter must obtain a license from the BIS to legally export goods to Iran. However, 15 C.F.R. 742.8(b)(1) states:

“BIS is required to deny licenses for items controlled to Iran for national security or foreign policy reasons absent contract sanctity or a Presidential waiver. License applications for which contract sanctity is established may be considered under policies in effect prior to the enactment of that Act. Otherwise, licenses for such items to Iran are subject to a general policy of denial (Emphasis Added).”

Recent Domestic Enforcement Proceedings

Turning to the recent cases, Jennifer L. Reul-Marr, a resident of Ridgefield, Connecticut, was alleged by BIS to be a co-conspirator involving the re-export of dental equipment (classified as EAR99 under the EAR regulations) to Iran. Ms. Reul-Marr allegedly conspired to export the dental equipment by transshipping the goods to the UAE, an illegal export activity without a proper license.

According to BIS, Ms. Reul-Marr failed to obtain the proper license for such an export, as required by law. Subsequently, BIS brought an enforcement case against Ms. Reul-Marr and issued a proposed charging letter. Ms. Reul-Marr agreed to pay $7,700 to settle this matter. Because Ms. Reul-Marr’s proceeding was instituted before the IEEPA Enhancement Act was signed into law, it was not applicable to her proceeding.

Within the same industry, Centerpulse Dental, Inc. engaged in similar conduct on a larger scale. Centerpulse was charged with 52 counts of exporting dental equipment without the prerequisite governmental licensing required pursuant to both the EAR and OFAC regulations. Zimmer Dental, Inc. was held liable for Centerpulse’s actions as successor-in-interest, and therefore assumed liability for Centerpulse’s alleged export violations.

Like Ms. Reul-Marr, Centerpulse allegedly attempted to export dental equipment to Iran by transshipping the goods through the UAE. Centerpulse/Zimmer Dental received a $175,000 civil penalty under the terms of the settlement agreement. A $75,000 portion of that penalty was suspended for one year, and will be waived if Zimmer Dental commits no further violations of the EAR. Failure to comply with the terms of the settlement agreement would result in the full enforcement of the penalty and the denial of all export privileges for one year.

Although it is not clear whether Ms. Reul-Marr and Centerpulse knew that obtaining a TSRA license from OFAC would have allowed them to legally export dental equipment to Iran, both Ms. Reul-Marr and Centerpulse could have avoided the significant expense, time, and the negative publicity associated with their cases if a specific license had been obtained.

Foreign Entities & Export Proceedings

BIS took a different tactical approach to thwarting a third company from exporting goods to Iran via transshipment through UAE and Cyprus. Aviation Services International, B.V. , a Dutch company located in Heerhugowaard, Netherlands, as well as its subsidiaries and owners individually, were criminally charged with five counts of willful export and attempted transshipment of U.S. origin products to Iran via Poland. Aviation Services allegedly employed elaborate schemes that involved several distinct transactions.

One transaction involved controlled receivers and video transmitters. The respondents claimed that the end-user was the Polish Border Control Agency (PBCA), and the goods were to be used in unmanned aircraft vehicles operated by the PBCA. BIS ultimately determined the end-user was not in fact Poland, but rather Iran. Such a determination was made obvious by fact that the PBCA did not have any unmanned aircraft vehicles in its arsenal, nor had it ever contracted with Aviation Services. Instead, Aviation Services provided false information to the U.S. government, stating that the end-user was Lavantia, Ltd., a Cyprus-based company, known as a transshipment intermediary for Iranian businesses.

Even more covertly, Aviation Services used a shell corporation, Delta Logistics, to facilitate the exportation of polyamide from the U.S to Iran. Again, Aviation Services provided false information to the U.S. in their efforts to illegally transship goods subject to the EAR and ITR to Iran. The Aviation Services case is an excellent example at different techniques employed by a company to circumvent U.S. export law. An ex parte adjudicatory proceeding conducted by BIS determined that the issuance of a Temporary Denial Order (TDO) was warranted pursuant to 15 C.F.R § 764.6(c) of the EAR.[9]

Based on the evidence provided, the TDO was granted by the administrative law judge and Aviation Services had its export privileges denied for 180 days.[10] The criminal enforcement case appears to remain pending as of this writing.

Conclusion

The recent string of cases prosecuted by BIS and DOJ highlights the ongoing attention given to transshipment practices by companies attempting to export goods to Iran without proper governmental approval and licenses. Based upon BIS, OFAC, and DOJ’s efforts, the U.S. government is making it evident that they will continue to pursue transshipment violations to the full extent of the law, regardless of the daunting task enforcement of these complex transactions pose.
_____________________________________

*Jordan Collins is with the Overseas Private Investment Corporation. Please contact Jordan Collins at jordan.collins@gmail.com with comments or questions regarding this article.

[1] For an overview of the new UAE Regulations, see www.wam.org.ae/servlet/Satellite?c=WamLocEnews&cid=1188290221292&p=1135099400295&pagename=WAM%2FWamLocEnews%2FW-T-LEN-FullNews. The law authorizes penalties of up to imprisonment for one year and/or fines totaling over US$270,000 for violating the UAE’s export control law.

[2] On May 6, 1995, President Clinton signed Executive Order 12959, pursuant to the International Emergency Economic Powers Act (50 USC § 1705) as well as the International Security and Development Cooperation Act of 1985 ("ISDCA"), substantially tightening sanctions against Iran.

[3] See 31 C.F.R. § 560. President Reagan, on October 29, 1987, issued Executive Order 12613 imposing a new import embargo on Iranian-origin goods and services. Section 505 of the ISDCA was utilized as the statutory authority for the embargo giving rise to the Iranian Transactions Regulations.

[4] For an overview of OFAC Regulations involving sanctions against Iran, see http://treas.gov/offices/enforcement/ofac/programs/iran/iran.pdf.

[5] Pub. L. No.106 387. (October 28, 2000).

[6] 50 USC § 1701, et al.

[7] Pub. L. No. 110-96 (October 17, 2007).

[8] Pub. L. No. 109-177 (March 9, 2006).

[9] BIS may issue an order temporarily denying to a person any or all of the export privileges described in part 764 of the EAR maybe issued upon a showing by BIS that the order is necessary in the public interest to prevent an imminent violation of the EAA, the EAR, or any order, license or authorization issued thereunder. A violation may be "imminent" either in time or in degree of likelihood. To establish grounds for the temporary denial order, BIS may show either that a violation is about to occur, or that the general circumstances of the matter under investigation or case under criminal or administrative charges demonstrate a likelihood of future violations. 15 C.F.R. § 766.24(a),(c).

[10] 15 C.F.R. § 764(b)(4).

Labels: BIS, Export Controls

On March 6, 2008, the American Association of Exporters and Importers (AAEI) will hold a seminar in Washington, DC on the Deemed Export Advisory Committee's Report. The speakers at the program will include representatives of the Bureau of Industry and Security, the Deemed Export Advisory Committee (DEAC), the private sector and the legal community.

For more information and to register, click here.

The full text of the Deemed Export Advisory Committee's report, entitled "The Deemed Export Rule in the Era of Globalization" can be found here.

AAEI's Annual Conference will take place in New York City from June 1-3, 2008. Registration for the conference will begin in mid-March.

Labels: Deemed Exports, Export Controls

The Treasury Department's Office of Foreign Assets (OFAC) control today issued the first designation pursuant to Executive Order 13460, which was issued on February 13, 2008.

The individual designated by OFAC is Rami Makhluf, Syrian President Bashar al-Asad's first cousin and brother of Syrian General Intelligence Directorate official Hafiz Makhluf (who already appears on OFAC's SDN List). According to OFAC, Makhluf is:

is a powerful Syrian businessman who amassed his commercial empire by exploiting his relationships with Syrian regime members. Makhluf has manipulated the Syrian judicial system and used Syrian intelligence officials to intimidate his business rivals. He employed these techniques when trying to acquire exclusive licenses to represent foreign companies in Syria and to obtain contract awards.

Makhluf's influence with certain Syrian government officials has led to his being able to control the issuance of certain types of profitable commodities contracts. His close business associations with some Syrian cabinet ministers have enabled him to gain access to lucrative oil exploration and power plant projects.

Labels: OFAC, Sanctions; Syria

Today the Washington, DC-based Heritage Foundation held a program entitled "Technology Leadership, Economic Power and National Security: Dual-Use Export Controls to China". The program featured a speech by Mario Mancuso, Undersecretary of Commerce for Industry and Security, followed by a lively panel discussion with critics and proponents of current U.S. policies on export controls to China.

The full text of Undersecretary Mancuso's speech on U.S. dual-use export controls and trade with China can be found on the BIS website.

A good summary of today's program can be found on the CNET news blog.

The video of the entire program will soon be posted on the Heritage Foundation's website.

The most newsworthy aspect of today's program was that Undersecretary Mancuso confirmed that BIS and other U.S. government agencies carefully reviewed, but ultimately rejected, the claims recently made by the Wisconsin Project on Nuclear Arms Control criticizing the selection of two of the five Chinese companies named as Validated End Users (VEUs). In its report, the Wisconsin Project stated that Shanghai Hua Hong NEC Electronics Company, Ltd. and BHA Aerocomposite Parts Co., Ltd. "are affiliated closely to China’s military industrial complex and to companies that have been punished by the U.S. government for proliferation or other improper export behavior."

Undersecretary Mancuso indicated that BIS is still reviewing a number of other applications for the China VEU program.

Labels: China, Export Controls

The Center for Strategic and International Studies is holding a program on State Department export control reform efforts on February 26, 2008 in Washington, DC.

The program will feature an opening address by John Rood, Under Secretary of State for Arms Control and International Security, followed by a question and answer period with Frank Ruggiero, Assistant Secretary of State for Defense Trade and Regional Security and Beth McCormick, Deputy Under Secretary of Defense for Technology Security Policy and National Disclosure Policy and Director of the Defense Technology Security Administration.

For more information or to register see the following link on the CSIS website.

Speaking of State Department export controls, the CSIS issued a report today entitled "Smart Power Through Space", which examines ways for the U.S. to frame its space activities and provides recommendations for the next administration on the space sector. One of the report's recommendations relates to space-related export controls. Specifically, the recommendation states:

Recommendation 5: The United States must reassess the application of the International Trade in Arms Regulations (ITAR) as it is applied to space. Not only have these requirements harmed our domestic technological and manufacturing base, but they have had a drastic negative effect on both the hard and soft power utilization of space. Currently, ITAR dramatically increases the transactional costs of cooperation with the United States and therefore introduces a strong systemic global bias toward isolation. This encourages other nations to independently develop indigenous dual-use infrastructure and technology, potentially increasing their hard power capabilities, while reducing our ability to monitor new developments first hand.

Labels: DDTC, Export Controls

The Working Group on the Health of the U.S. Space Industrial Base and the Impact of Export Controls, which was tasked to assess the health of the U.S. space industrial base and determine the impact of export controls on the U.S. satellite and space industry, held a briefing today at the Center for Strategic and International Studies (CSIS) in Washington, DC to report on their key findings and recommendations.

The Working Group, which was co-chaired by Mr. Tom Young (former EVP, Lockheed Martin Corporation), Dr. William Ballhaus (The Aerospace Corporation) and Mr. Pierre Chao (Senior Associate, CSIS), announced the following findings and recommendations:

Findings:

1. Overall financial health of the top tier manufacturers in the space industrial base is “good”, but there are areas of concern within the broader health of the industry.

2. As earlier studies have documented, the ability of the government and industry to meet program execution commitments remains inadequate.

3. The U.S. space industrial base is largely dependent on the U.S. defense/national security budget.

4. There are rapidly emerging foreign space capabilities and the U.S. does not control their proliferation.

5. U.S. preeminence in space is under challenge in many areas.

6. The current export control policy has not prevented the rise of foreign space capabilities and in some cases has encouraged it (ITAR-free space products).

7. U.S. leadership in space benefits significantly from access to foreign innovation and human capital. That access is becoming increasingly difficult.

8. The current export control policy is constricting U.S. engagement and partnership with the rest of the global space community, and is feeding a growing separation between the U.S. space community and an emerging non-U.S. space community.

9. Some elements of the export controls laws are in conflict with U.S. National Space Policy, which has as one of its goals to “encourage international cooperation with foreign nations on space activities that are of mutual benefit” and states that “space-related exports that are currently available or are planned to be available in the global marketplace shall be considered favorably”.

10. The U.S. share of the global space markets is steadily declining, and U.S. companies are finding it increasingly difficult to participate in foreign space markets.

11. Export controls are adversely affecting U.S. companies’ ability to compete for foreign space business, particularly the 2nd and 3rd tier. And it is the 2nd/3rd tier of the industry that is the source of much innovation, and is normally the most engaged in the global market place in the aerospace/defense sector.

12. A U.S. export control policy that protects sensitive security space capabilities is important.

13. There is unanimous agreement that the export control process can be improved without adversely affecting national security.

Recommendations:

1. The Administration and Congress should review and reconcile the strategic intent of space export controls.

2. Critical space technologies should be identified and should remain on the Munitions List and under the State Department ITAR process.

3. Remove from the Munitions List commercial communications satellite systems, dedicated subsystems, and components specifically designed for commercial use; provide safeguards by having Defense Department identify critical space components and technologies that should always require licensing and referral. Have the appropriate executive branch departments conduct a study to see if other space technologies should be removed from the USML (e.g., weather satellites).

4. Annually review the appropriateness of designating specific satellite and other space systems, components, and capabilities as Munitions List items based on criticality of items and on their availability outside the U.S.

5. Additionally, Congress could amend the legislation related to satellite export licensing and adopt some of the best practices being used in other processes – set timelines, technology thresholds, de minimus rules, and special licensing vehicles.

6. The Secretary of Defense and NASA Administrator, in addition to the Secretary of State, should have the authority to grant real-time, case-by-case, specific time period exemptions for anomaly resolutions deemed to be in the national interest based on criteria from the National Space Policy.

7. Create a special program authority to permit timely engagement of U.S. participants in multinational space projects.

8. Increase the dollar threshold for satellite exports Congressional notification and establish a mechanism to allow the threshold to adjust with inflation.

9. Relevant space-related government agencies should collaboratively undertake an annual assessment of their industrial base.

The PDF version of the Working Group's briefing can be found here. The document contains a wide range of data and useful information.

The audio recording of today's briefing held at CSIS can be found here (interestingly, it was pointed out during the briefing that there are currently 18 different export control reform-related studies underway in Washington, DC right now).

The statement by the Aerospace Industries Association (AIA) on the Working Group's study can be found here.

Labels: Export Controls

As has been widely reported, Fidel Castro announced today that he will not seek reelection to serve as president and commander-in-chief of Cuba, after serving for nearly 50 years as the country's leader. The English translation of Castro's resignation letter that was published in Cuba's Granma newspaper can be found here.

As the Miami Herald points out Castro's decision to step down is unlikely to change U.S. policy towards Cuba in the short term and any significant policy changes are unlikely to occur until Castro's death.

Meanwhile, Reuters recently reported that U.S. producers sold $437.5 million in food to Cuba in 2007, after falling the previous two years. Although the article notes that "Alimport president Pedro Alvarez said the increased value of Cuban purchases last year reflect higher world food prices, not greater volume" and that Cuba's trade with the U.S. is "is flat."

Update: Not surprisingly, Deputy Secretary of State John Negroponte said this morning said that the U.S. will not lift the embargo on Cuba "anytime soon".

Update 2: The statement by Secretary of Commerce Carlos Gutierrez, who was born in Cuba and serves as Co-Chair of the Commission for Assistance to a Free Cuba, can be found here.

Update 3: The Miami Herald's "Preparing for Cuba" series, which examines prospective post-Cuba embargo business possibilities can be found here.

Update 4: New York Times Wednesday: Castro Circle Likely to Hold Power After His Resignation.

Labels: Cuba

The University of Georgia's well-respected Center for International Trade and Security (CITS) has launched a redesigned version of its website. The site contains a wide range of resources on the export controls and nonproliferation publications and programs offered by CITS. The site also contains archives of The Monitor, CITS' quarterly publication.

Labels: Export Controls

U.S. Customs and Border Protection (CBP) has announced that applicants for the U.S./Mexico Free and Secure Trade (FAST) Commercial Driver Program will be permitted to enroll online at the CBP website starting on April 1, 2008.

The online enrollment program is the first step in a phased migration to full online account management.

FAST account updates, card replacements, conditional approval notifications and interview scheduling will remain manual until the second half of 2008, when CBP is scheduled to roll out the online application and fee payment program for U.S./Canada FAST drivers.

The current paper application process for southern border FAST will become invalid on April 1, 2008.

CBP announced that there are currently 92,604 drivers enrolled in the FAST program on both borders.

Labels: CBP, FAST

The Heritage Foundation is hosting a program on dual-use export controls to China in Washington, DC on February 20, 2008. The program will feature a keynote address by Mario Mancuso, Undersecretary of Commerce for Industry and Security, followed by a panel discussion with the following individuals:

• Peter Leitner, Ph.D., President, MaxWell USA, LLC and former Senior Strategic Trade Advisor, Office of the Secretary of Defense

• John Tkacik, Senior Research Fellow for China, Mongolia, and Taiwan, Asian Studies Center, The Heritage Foundation

• Edmund B. Rice, President, Coalition of Employment Through Exports

• Mark Groombridge, Ph.D., Senior Advisor for Policy Planning, Office of the Under Secretary for Industry and Security

Labels: China, Export Controls

Twelve trade-related business organizations today sent a letter to U.S. Secretary of Commerce Carlos Gutierrez expressing their concerns with several recommendations contained in the Deemed Export Advisory Committee's (DEAC) December 20, 2007 report. The letter also warned of the significant negative impact on U.S. technological leadership if certain recommendations contained in the DEAC's report were adopted.

The organizations agreed with the DEAC report findings regarding the difficulty of controlling the global flow of technological knowledge, particularly through the use of unilateral U.S. export control regulations. The organizations also endorsed the report's call for limiting the scope of deemed exports. However, the letter criticized the DEAC report for a lack of guidance in addressing either of these issues.

Labels: BIS, Deemed Exports

Yesterday the Cato Institute unveiled "Free Trade, Free Markets: Rating the Congress", a web site that allows users to examine how Congress and its individual members have voted on bills and amendments affecting trade and investment during the past five sessions of Congress.

The site contains a "free trade matrix" that classifies a member of Congress' voting record into one of four broad categories rather than on the more common one-dimensional scale with free trade at one pole and protectionism at the other. According to the matrix, members of Congress can be classified in one of four categories:

Free Traders-Free traders consistently vote against both trade barriers and international economic subsidies.

Internationalists-Members of this group generally vote for trade liberalization but also support subsidies that they believe promote the same end.

Isolationists-This category includes members of Congress who tend to vote against reducing trade barriers and also oppose international economic subsidies.

Interventionists-Members of this group consistently support government intervention at the expense of the free market, favoring both subsidies and trade barriers.

The Free Trade, Free Markets: Rating the Congress website can be found at the following link: www.freetrade.org/congress.

Labels: Congress

The Wall Street Journal published an interesting article today entitled "Two U.S. Goals Collide: Free Trade, Security". The article describes how the stepped-up enforcement of laws restricting the release of sensitive technology exports to China and Iran can conflict with efforts to reform and streamline export controls.

Labels: BIS, China, Export Controls, Sanctions; Iran

The Treasury Department's Office of Foreign Assets Control (OFAC) today issued a document entitled "Guidance on Entities Owned By Persons Whose Property And Interests In Property Are Blocked." While this guidance applies to most of OFAC's sanctions programs, this guidance was sought by banks, exporters and importers as a result of numerous questions raised after OFAC issued a blocking order on November 13, 2007 against Belarus' Belneftekhim (commonly known as Belarusian State Concern for Oil and Chemistry) and its U.S. representative office, Belneftekhim USA.

Belneftekhim is the largest enterprise in Belarus and is the largest exporter of Belarusian products to the United States. Belneftekhim also manages operations for a large number of companies in Belarus.

OFAC's guidance states:

A person whose property and interests in propert are blocked pursuant to an Executive order or regulations administered by OFAC (a "block person" is considered to have an interest in all property and interests in property of an entity in which it owns, directly or indirectly, a 50% or greater interest. The property and interests of such an entity are blocked regardless of whether the entity itself is listed in the annex to an Executive order or other placed on OFAC's list of Specially Designated Nationals ("SDNs"). Accordingly, a U.S. person generally may not engage in any transactions with such an entity, unless authorized by OFAC. In certain OFAC sanctions programs (e.g. Cuba and Sudan), there is a broader category of entities whose property and interests in property are blocked based on, for example, ownership and control.

Labels: Belarus, OFAC

Today's mark-up of H.R. 5264, the Trade Preference Extension Act of 2008, by the House Ways and Committee took an interesting last-minute twist. Rather than extending the Andean Trade Preference Act (ATPA), Caribbean Basin Initiative (CBI) and Generalized System of Preferences (GSP) programs until September 30, 2010 as originally proposed, Chairman Rangel (D-NY) agreed to amend the bill by extending only the Andean Trade Preference Act until the end of this year. ATPA expires on February 28th.

The Ways and Means Committee subsequently agreed to approve the amended language of H.R. 5254 by a voice vote. The bill is expected to be considered by the full House during the week of February 25th.

House Republicans balked at the proposed two-year extension of ATPA since they want the House to vote on the U.S.-Colombia Free Trade Agreement as soon as possible.

As a result of this compromise, the extension of the CBI and GSP programs will have to wait until new legislation is introduced or is included in some other legislative vehicle later this year.

The text of the amended version of H.R. 5264 can be found here.

Labels: ATPA, GSP

President Bush today issued an Executive Order (EO) expanding sanctions on Syria by blocking the property of certain senior Syrian Government officials and their associates who have engaged in or benefited from public corruption. The EO also revises a provision in Executive Order 13338 to block the property of persons determined to be responsible for actions or decisions of the Syrian regime that undermine efforts to stabilize Iraq.

While the EO targets officials deemed "to be responsible for, to have engaged in, to have facilitated, or to have secured improper advantage as a result of, public corruption by senior officials within the Government of Syria", it does not identify any specific names. The EO provides that the names of the persons subject to blocking will be determined by the Secretary of the Treasury, after consultation with the Secretary of State.

Labels: Sanctions; Syria

Today's Wall Street Journal contains a good overview of the effect of U.S. and multilateral economic sanctions on Iran, the methods used by Iranian business to elude such sanctions and the resulting problems that are created. The article notes that the sanctions:

. . . are rerouting money flows between Iranian businesses and their overseas customers and suppliers, pushing them outside of the regulated global banking system. Businesses are using cash, informal money transfers and banks that aren't monitored by international authorities. That has some economists, banking experts and businessmen wondering whether sanctions are making it more difficult to trace money laundering, drug smuggling and terror financing in the region.

Labels: Sanctions; Iran

The House Ways and Means Committee will meet at 11 a.m. on February 14, 2008 to mark-up H.R. 5264, the Trade Preference Extension Act of 2008. As previously reported, H.R. 5264 would extend the Andean Trade Preference, Caribbean Basin Initiative and Generalized System of Preferences programs, all of which are scheduled to expire this year, until September 30, 2010.

Update: The hearing has been changed to 9 a.m. on February 14th.

Labels: Congress, GSP

In what could be the wave of the future in export compliance by producers of export controlled products, Mazak Corporation, the North American manufacturing, sales and support arm of Japan-based Yamazaki Mazak Corporation recently announced that it has begun installing relocation detectors on all of its products to prevent the unauthorized export of the products to unauthorized destinations and to comply with U.S. and Japanese export control laws.

According to the company, the relocation detector is a permanent device that resides in the electrical cabinet of the machine. The device will signal an alarm and completely shut down the machine upon any repositioning and/or relocation of the machine. A new password is required each time a machine is relocated to verify the location. While the technology to do this has been available for some time, this is the first implementation designed to prevent violation of U.S. and Japanese export laws.

The initiative to include relocation detectors on its products was launched by Mr. Tomohisa Yamazaki, president of Yamazaki Mazak Corporation, and will apply to every machine shipped by any Mazak plant to any location throughout the world.

During the past few years, a number of Japanese companies have been involved in export control violations. For example, in 2006 Japanese precision measurement instrument maker Mitutoyo Corporation admitted that it violated Japan's Foreign Exchange and Foreign Trade Acts in exporting sophisticated measuring devices that can be used to produce nuclear weapons.

In mid-2007, a Japanese court sentenced four former Mitutoyo executives to multi-year jail sentences and fined the company ¥45 million (approximately US$350,000). Japan's Ministry of Economy, Trade and Industry (METI) subsequently imposed a two-phased, three-year export penalty on Mitutoyo. The first phase of the penalty prohibited Mitutoyo from exporting any products for six months (until January 3, 2008). In addition to the six-month ban on all exports, Mitutoyo remains prohibited from exporting Computer Numerical Control (CNC) coordinate measuring machines and their components for a further period of two years and six months (except for direct exports to specified end users).

Labels: Export Controls, Japan

The Justice Department today announced arrests in two separate cases involving in economic espionage charges involving China.

In the first case, Tai Shen Kuo, age 58, and Yu Xin Kang, age 33, both of New Orleans, Louisiana, and Gregg William Bergersen, age 51, of Alexandria, Virginia, were arrested on espionage charges related to the passage of classified U.S. government documents and information to the government of the People’s Republic of China (PRC).

Both Kuo and Kang were charged by criminal complaint with conspiracy to disclose national defense information to a foreign government, in violation of 18 U.S.C., Section 794(a) and (c). Bergersen was charged in a separate complaint with conspiracy to disclose national defense information to persons not entitled to receive it, in violation of 18 U.S.C., Section 793(d) and (g).

According to the Justice Department, the criminal conduct spanned a two-year period from January 2006 to February 2008. Kuo, a naturalized U.S. citizen and New Orleans businessman, gathered national defense information on behalf of the government of the PRC.

Working under the direction of an individual identified in the complaint affidavit only as “PRC Official A,” Kuo cultivated friendships with Bergersen and others within the U.S. government and obtained from them sensitive U.S. government information, including classified national defense information. Much of the information pertained to U.S. military sales to Taiwan.

Bergersen, a Weapons Systems Policy Analyst at the Arlington, Va.-based Defense Security Cooperation Agency, an agency within the Department of Defense, was charged with being the source of the classified information collected by Kuo. Kang, a citizen of the PRC and a Lawful Permanent Resident of the United States, served as a conduit of information between PRC Official A and Kuo.

The indictment accuses Chung of eight counts of economic espionage, one count of conspiracy to commit economic espionage, one count of acting as an unregistered foreign agent without prior notification to the Attorney General, one count of obstruction of justice, and three counts of making false statements to FBI investigators.

Chung, a native of China who is a naturalized U.S. citizen, held a Secret security clearance when he worked at Rockwell and Boeing on the Space Shuttle program. He retired from the company in 2002, but the next year he returned to Boeing as a contractor, a position he held until September 2006. The indictment alleges that he took and concealed Boeing trade secrets relating to the Space Shuttle, the C-17 military transport aircraft and the Delta IV rocket. Chung allegedly obtained the materials for the benefit of the PRC.

The case against Chung is related to the Chi Mak case. The indictment alleges that Chung and PRC officials exchanged letters that discussed cover stories for Chung’s travel to China and recommended methods for passing information, including suggestions that Chung use Chi Mak to transmit information.

Labels: China, Export Controls

The Heritage Foundation, a Washington, DC-based think tank, recently issued policy papers analyzing the Defense Trade Cooperation Treaties that the U.S. signed with Australia and the United Kingdom and President Bush's recently issued Export Controls Directive.

In a Backgrounder issued last Friday, Baker Spring, Heritage's F.M. Kirby Research Fellow in National Security Policy, analyzes the various provisions and implementing arrangements of the treaties and concludes that because the treaties would benefit U.S. security interests that the Senate should ratify the treaties.

In a Web Memo issued last week, Mr. Spring compares President Bush's January 22, 2008 Export Control Directive to the export control reforms proposed by the Coalition for Security and Competitiveness last March. Mr. Spring concludes his analysis by noting that:

President Bush's January 22 Directive adopts most of the reforms proposed by the Coalition for Security and Competitiveness last March. Thus, it represents a significant step forward in reforming the processes used by the State Department and other executive branch agencies to administer arms export laws and policies. While the Directive is not the ultimate strategy for adapting to the post-Cold War world, it will make the arms export system more effective and efficient.

The new security environment, however, requires fundamental policy and legislative changes. The Directive addresses only how the executive branch operates the machinery of the arms export control system. It does not address how to achieve more fundamental goals, including targeting arms export restrictions, bringing U.S. friends and allies into the system in order to facilitate joint actions in the fight against terrorists, and accounting for the fact that defense procurements are increasingly dependent on an industrial base that cuts across national borders. While it works to implement the new Directive, the Bush Administration should start laying the groundwork for more fundamental changes in U.S. arms export control policies.

Labels: Export Controls

House Foreign Affairs Committee Chairman Tom Lantos (D-CA) passed away this morning due to complications from cancer at Bethesda Naval Medical Center. Congressman Lantos, who was born in Hungary and is the only Holocaust survivor to serve in Congress, was first elected to the U.S. Congress in November 1980.

The House Foreign Affairs Committee has jurisdiction over U.S. export controls and economic sanctions, including those administered by BIS and DDTC. Chairman Lantos' remarks made at the July 26, 2007 hearing entitled ”Export Controls: Are We Protecting Security and Facilitating Exports?” can be found here.

Labels: Congress, Export Controls

President Bush's recently proposed budget for fiscal year (FY) 2009 would restore funding to the Commerce Department's Bureau of Industry and Security (BIS) that Congress reduced for FY 2008.

The President's FY 2009 budget requests $83,676,000 million for BIS. In H.R. 2764, the 2008 Consolidated Appropriations Act passed by Congress in late December 2007, Congress appropriated $72,855,000 million to BIS, a $2 million decrease from FY 2007.

The FY 2009 budget includes $14,767,000 for inspections and other activities related to national security and $2.4 million in initiatives to upgrade export enforcement and to ensure compliance through end-user checks in foreign countries. The increased funds in FY 2009 would be used by BIS to increase the number of criminal investigators working on counter-proliferation issues and enhance efforts to stop transshipments of sensitive technologies in Southeast Asia. The 2009 budget also includes funding for the Validated End-User (VEU) initiative.

The proposed FY 2009 budget would permit BIS to hire up to 392 full-time equivalent (FTE) employees, up from 364 FTEs in 2007 and 2008.

The detailed budget proposals for each of the Commerce Department's 12 bureaus or agencies can be found here: www.whitehouse.gov/omb/budget/fy2009/pdf/appendix/com.pdf.

Labels: BIS

House Ways and Means Committee Chairman Charles B. Rangel (D-NY) last week introduced H.R. 5264, the Trade Preference Extension Act of 2008, a bill that would extend three trade preference programs scheduled to expire this year.

H.R. 5264 would would extend the following trade preference programs until September 30, 2010:

• Andean Trade Preference Act (ATPA) – Expires on February 29, 2008. ATPA was enacted in 1991 to combat drug production and trafficking in the Andean countries of Bolivia, Colombia, Ecuador and Peru. The program offers trade benefits to help these countries develop and strengthen legitimate industries. ATPA was expanded under the Trade Act of 2002 and is now called the Trade Promotion and Drug Eradication Act. ATPA provides duty-free access to U.S. markets for approximately 5,600 products.

• Caribbean Basin Initiative (CBI) – Expires on September 30, 2008. The following nineteen countries benefit from Caribbean Basin Initiative (CBI) : Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, British Virgin Islands, Costa Rica, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Netherlands Antilles,Panama, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago.

• Generalized System of Preferences (GSP) – Expires on December 31, 2008. GSP provides preferential duty-free entry for more than 4,650 products from 143 designated beneficiary countries and territories. H.R. 5264 also addresses a number of issues with the textile provisions of the African Growth and Opportunity Act (AGOA) and the competitive need limitation waiver provisions of GSP.
  

Labels: Free Trade Agreements, GSP

Reuters reports today that the Treasury Department's Office of Foreign Assets Control (OFAC) will soon bring a number of civil enforcement actions against companies that have violated U.S. sanctions on Sudan. The article quotes OFAC Director Adam Szubin as saying that:

"Agents had built up a 'queue' of enforcement actions against violators that will be rolled out in as early as a month's time" and that "Sudan is at the top of our list, among our most serious concerns. We are investigating a number of significant Sudanese violations."

Labels: Sanctions; Sudan