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Greetings!
Happy Spring!
This month's import/export news highlights include: President Obama's Executive Order establishing the National Export Initiative; BIS Amends EAR to enhance U.S. homeland security; BAES pleads guilty to conspiracy to defraud the U.S. government and will pay a $400M fine; VA man convicted of theft of trade secrets; CBP proposes rule on Customs broker recordkeeping; CBP issues ruling inching closer to accepting APA transfer prices as valid transaction values; and CBP proposes ceasing issuance of paper courtesy liquidation notices. As always, we would appreciate any comments or suggestions you may have to improve this newsletter either by email or via our feedback survey link in our left column.Thank you for reading! Jennifer Kessinger & Tammie Goldstein Krauskopf
globaltradeexpertise
info@globaltradeexpertise.com
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President Obama Signs Executive Order on National Export Initiative
President Indicates Export Control Reform is Pending
 On March 11, 2010, President Obama signed an executive order launching a single, comprehensive strategy to promote American exports called National Export Initiative (NEI). That same day, President Obama spoke about NEI at the Export-Import Bank's (Ex-Im) Annual Conference in Washington, DC.
In the executive order, Obama states that the NEI will help meet his Administration's goal of doubling exports over the next 5 years by working to remove trade barriers abroad, by helping firms to overcome obstacles to enter new export markets, by increasing trade financing, and by pursuing a general, Government-wide approach to promote U.S. exports abroad.
Particular focus of NEI will fall on the following areas:
a) Exports by small and medium-sized corporations (SMEs). EPC members will develop programs designed to enhance export assistance to SMEs, including developing programs to improve technical assistance to first-time exporters and assisting current exporters in identifying new export opportunities in international markets;
b) Federal Export Assistance. Members of the EPC will promote Federal resources currently available to assist U.S. exports;
c) Trade Missions and Commercial Advocacy. U.S. Government-led trade missions will effectively promote exports by U.S. companies;
d) Increasing Trade Financing. The President of Ex-Im will work on increasing the availability of credits to SMEs. In his speech, the President noted that in 2009, Ex-Im authorized $21 billion in loans in support of U.S. exports, almost a 50% increase from the previous year. Under the NEI, the amount of trade financing available to SMEs is expected to increase further;
e) Macroeconomic Rebalancing. A balanced and strong growth in the global economy will be promoted through the G20 or other appropriate mechanisms;
f) Reducing Barriers to Trade. The U.S. Trade Representative together with members of EPC will take steps to improve market access overseas for U.S. manufacturers, farmers, and service providers. To ensure that that U.S. companies have free and fair access to the overseas markets, in his speech at Ex-Im President Obama called for enforcement of trade agreements that U.S. already has on books; and
g) Export Promotion of Services. Pursuant to NEI, a framework for promoting services trade, including the necessary policy and export promotion tools, will be developed.
President Obama also stated that one of the major goals of NEI is aggressive protection of intellectual property in the U.S., achieved by negotiating proper protections with foreign countries and enforcing existing U.S. agreements overseas.
With regard to export controls, President Obama stated:
Finally, we're working to reform our Export Control System for our strategic, high-tech industries, which will strengthen our national security. What we want to do is concentrate our efforts on enforcing controls on the export of our most critical technologies, making America safer while enhancing the competitiveness of key American industries. We've conducted a broad review of the Export Control System, and Secretary Gates will outline our reform proposal within the next couple of weeks. But today, I'd like to announce two steps that we're prepared to take.
First, we're going to streamline the process certain companies need to go through to get their products to market -- products with encryption capabilities like cell phone and network storage devices. Right now, they endure a technical review that can take between 30 and 60 days, and that puts that company at a distinct disadvantage to foreign competitors who don't face those same delays. So a new one-time online process will shorten that review time from 30 days to 30 minutes, and that makes it quicker and easier for our businesses to compete while meeting our national security requirements.
And second, we're going to eliminate unnecessary obstacles for exporting products to companies with dual-national and third-country-national employees. Currently, our exporters and foreign consumers of these goods have to comply with two different, conflicting set of standards. They're running on two tracks, when they could be running just on one. So we're moving towards harmonizing those standards and making it easier for American and foreign companies to comply with our requirements without diminishing our security. And I look forward to consulting with Congress on these reforms, as well as broader export control reform efforts.
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BIS Amends the EAR to Enhance U.S. Homeland Security
 On March 25, 2010, the Bureau of Industry and Security (BIS) issued a final rule amending the Export Administration Regulations (EAR) by revising controls to advance U.S. homeland security and foreign policy interests. The revisions include language that should facilitate public understanding of how concealed object detection equipment is treated for purposes of U.S. Government export controls, in particular by detailing the technical parameters of concealed object detection equipment that is subject to the Export Administration Regulations.
These amendments reflect issues identified by an interagency working group that is reviewing export control issues related to homeland security. The interagency working group is made up of representatives from the Departments of Commerce, Defense, Homeland Security and State. The purpose of the interagency working group is to ensure that appropriate export controls are in place to protect U.S. export control interests for homeland security related items, while at the same time facilitating the development, production and use of items that will enhance U.S. homeland security and the homeland security of key U.S. allies.
To help accomplish these objectives, this rule adds three new entries to the Commerce Control List (CCL) to control certain concealed object detection equipment operating in the frequency range from 30 GHz to 3000 GHz and related software and technology. In addition, to facilitate the export and reexport of these items to certain trusted destinations and end-users, this rule adds new license review criteria to the EAR to create a presumption of approval for certain cooperating countries provided the items are being made to a government end-user or to a person designated by the government end-user pursuant to contract.
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U.K. Co. Pleads Guilty to Conspiracy to Defraud U.S. Government Agencies
BAE Systems plc to Pay $400M Fine
On March 1, 2010, Department of Justice (DOJ) issued a press release announcing that BAE Systems plc (BAES) pleaded guilty in U.S. District Court in the District of Columbia to conspiracy to defraud the U.S. by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act (FCPA) compliance program, and to violate the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR). BAES was sentenced to pay $400 million criminal fine.
Headquartered in the U.K., BAES is a multinational defense contractor. The company also has a U.S. subsidiary, BAE Systems, Inc., headquartered in Rockville, Maryland. None of the criminal conduct described in the case is attributable to the American company.
According to court documents, from approximately 2000 to 2002, despite its promises to create mechanisms to ensure compliance with the legal prohibitions on foreign bribery stemming from FCPA, as well as foreign laws implementing the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention, BAES knowingly and willfully failed to do so.
Instead, BAES made a series of substantial payments to shell companies and third party intermediaries that were not subject to the degree of scrutiny and review to which BAES told the U.S. government the payments would be subjected. BAES admitted it regularly retained what it referred to as "marketing advisors" to assist in securing sales of defense items without scrutinizing those relationships.
BAES also encouraged the advisors to establish their own offshore shell companies to receive payments from BAES while disguising the origins and recipients of these payments. BAES set up a company in the British Virgin Islands (BVI) to conceal its marketing advisor relationships and to circumvent laws in countries that did not allow such relationships, to create obstacles for investigators to penetrate the arrangements, and to assist advisors in avoiding tax liability for payment from BAES.
BAES used this BVI entity to make payments totaling more than £135 million in addition to $14 million, although being aware, in some cases, that there was a high probability that part of the payment would be used to ensure that BAES was favored in foreign government contracts regarding purchase of defense articles.
BAES also served as the prime contractor to the U.K. government in the mid-1980s, after the U.K. and the Kingdom of Saudi Arabia (KSA) entered into a formal understanding. There, BAES provided "support services" resulting in substantial benefits to a foreign public official of KSA, who was in position to influence sales of fighter jets, and other defense materials and related support services. BAES did not review or verify benefits provided to the KSA official, including it did not perform adequate review of more than $5 million in invoices submitted by a BAES employees from May 2001 to early 2002 to establish whether the listed expenses were in compliance with previous statements made by BAES to the U.S. government regarding its anti-corruption compliance measures.
As part of its guilty plea, BAES has agreed to maintain a compliance program designed to detect and deter violations of the FCPA, other foreign laws implementing the OECD Anti-bribery Convention, and any other applicable anti-corruption laws, and that is designed to detect and deter violations of the AECA and ITAR, as well as similar export control laws.
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Virginia Man Convicted of Theft of DuPont Trade Secrets
Man Sentenced to 18-Month Imprisonment
On March 18, 2010, the Department of Justice (DOJ) issued a press release regarding the sentencing of Michael David Mitchell, a Virginia man, to 18 months imprisonment for theft of trade secrets and obstruction of justice. Mitchell was employed as an engineer and salesperson for DuPont for over 25 years. During his last two years of employment, Mitchell worked in the sales and marketing of Kevlar,® DuPont's registered trademark for a very light, very strong synthetic fiber that is spun into ropes or fabric sheets that can be used as such, or as an ingredient in composite material components.
After DuPont terminated his employment, Mitchell began work as a consultant for Kolon Industries, Inc. (Kolon), a DuPont competitor. In 2007, DuPont officials became aware that Mitchell had been contacting current and former employees of DuPont seeking technical information on behalf of Kolon. DuPont officials raised their concerns with FBI and Department of Commerce (DoC) investigators, who launched a joint investigation. On March 12, 2008, FBI and DoC special agents executed a federal search warrant on Mitchell's house, seizing documents and multiple computers. Forensic analysis of the defendant's computers revealed hundreds of pages of DuPont proprietary documents, along with the evidence of the above-referenced Denier Economics email.
Following the execution of the search warrant, Mitchell agreed to become a cooperator for the government during its ongoing investigation relating to possible attempted theft of trade secrets and violations of export control laws. Under the direction and supervision of federal investigators, Mitchell made numerous recorded telephone conversations and exchanged emails with Kolon employees.
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CBP Publishes Proposed Rule re: Customs Broker Recordkeeping Requirements
Comments must be received on or before May 24, 2010.
On March 23, 2010, Customs and Border Protection (CBP) published a notice of proposed amendments to title 19 of the Code of Federal Regulations (CFR) regarding customs broker recordkeeping requirements as they pertain to the location and method of record retention.
Specifically, CBP proposes to amend the regulations to permit a licensed customs broker to store records relating to his customs transactions at any location within the customs territory of the United States, so long as the broker's designated recordkeeping contact, identified in the broker's permit application, makes all records available to CBP within a reasonable period of time from request at the broker district that covers the CBP port to which the records relate.
This proposed rule also intends to remove the requirement, as it currently applies to brokers who maintain separate electronic records, that certain entry records must be retained in their original format for the 120-day period after the release or conditional release of imported merchandise. The changes proposed in the notice are intended to conform CBP's recordkeeping requirements to reflect modern business practices whereby documents are often generated, stored and transmitted in an electronic format. The proposed changes serve to remove duplicative recordkeeping requirements and streamline recordkeeping procedures for brokers who maintain electronic recordkeeping systems without compromising the agency's ability to monitor and enforce recordkeeping compliance.
Comments must be received on or before May 24, 2010.
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CBP Inches Closer to Accepting APA-Approved Transfer Prices
1st Ruling on Transfer Prices in Seven Years
On December 8, 2009, U.S. Customs and Border Protection (CBP) issued an Internal Advice Ruling (Headquarters Ruling Letter ("HQ") H029658) approving the use of import values based on prices set pursuant to a bilateral Advance Pricing Agreement (APA).
In HQ H029658, the importer was an exclusive distributor of motor vehicles and parts imported from a foreign parent company and the affiliate of the parent company. To establish the proper basis of appraisement for motor vehicles and parts, the importer provided CBP with a detailed description of its sales process. In 2003, the importer applied for and received a bilateral APA that was approved by the Internal Revenue Service (IRS) the foreign tax authorities that covered all of its imported items for 5 years.
In its APA, the importer selected the comparable profits method (CPM) as the best method for evaluating its related party, or controlled, transactions. Pursuant to the CPM, an arms' length price range was selected by comparing the profitability of the importer (or "tested party") to that of a set of unrelated companies that performed similar functions and assumed similar risks as the importer. However, none of the 21 selected companies were automobile distributors or manufacturers because pricing data for sales from such companies to unrelated distributors did not exist.
In considering whether or not the import values declared to CBP based on the APA-approved transfer prices were acceptable transaction values under the Customs Regulations, CBP first considered whether the prices were based on bona fide sales. After determining that the underlying transactions were based on bona fide sales, CBP considered whether or not the price actually paid or payable by the buyer to the seller was influenced by the relationship between the parties. CBP did so by examining the circumstances of sales (COS) between the parties.
Under the COS test, CBP focused on:
1 Whether the sales prices of the transactions were settled in a similar manner to the way the seller settled prices with unrelated parties or with the normal pricing practices of the industry;
2 Whether the sales prices were adequate to ensure the recovery of all costs plus a profit equivalent to the company's overall profit realized over a representative period of time; and
3 Whether there were any other factors that indicated that the relationship between the buyer and seller did not influence the sales prices.
CBP found that pricing data for independent distributors of the same vehicles in other regions of the world was not helpful due to differing volumes, consumer preferences, and government regulations. CBP then looked to whether the sales prices were set in a manner consistent with the normal pricing practices of the automotive industry. CBP stated that the importer had submitted evidence that the sales prices were set in a manner consistent with the automotive industry, but CBP would not address the validity of the CPM selected and approved by the IRS and the foreign tax authority.
CBP next examined whether the sales prices were adequate to ensure the recovery of all costs plus a profit equivalent to the company's overall profit realized over a representative period of time. To prove that the sales prices were adequate in this regard, the importer relied on the approved bilateral APA and claimed that the IRS' approval of its profitability range would ensure that the company recovered all costs plus a profit as required by the Customs regulations.
While CBP acknowledged that the APA's comparison between the importer's profitability and that of other companies "may provide some evidence that the price is adequate to ensure recovery of all costs plus a profit," CBP found this kind of information to be "less valuable since the companies are not engaged in the sale of the same class or kind of merchandise." HQ H029658 at 9.
Finally, CBP looked to whether any other factors indicated that the relationship between the parties did not influence the sales price. CBP noted that whether IRS reviewed and approved importer's transfer pricing methodology was a significant factor. Here, he importer's transfer pricing analysis was reviewed and accepted by the IRS and the foreign tax authority. In addition, all of the buyer's imports were covered by the APA, thus reducing the possibility of profit manipulation.
The importer also provided CBP with a waiver that enabled CBP to access the documents that were submitted to the IRS in the APA process. The fact that foreign tax authorities had approved the APA mandated profit levels was another factor in establishing that the relationship between the parties did not affect the price. Finally, CBP made note of the negotiations between the buyer and seller to determine an FOB price that permitted the importer's operating profit to fall within the interquartile range established by a reference to unrelated comparables.
Thus, although CBP did not allow the importer to rely solely on the bilateral APA transfer pricing agreement, CBP held that the importer had showed that the sales price was not influenced by the relationship for the purposes of circumstances of sale test, and, as a result, transaction value was the proper method of appraisement for the related-party import transaction.
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CBP Proposes to Cease Paper Courtesy Notices of Liquidation
Comments on the proposed rule are due May 17, 2010.
On March 16, 2010, U.S. Customs and Border Protection (CBP) issued a notice in the Federal Register proposing to amend Title 19 of the Code of Federal Regulations (CFR) pertaining to the distribution of courtesy notices of liquidation. Specifically, CBP proposes to amend 19 CFR 159 by removing any reference to Customs Form 4333-A when used in connection with courtesy notices.
Currently, CBP's Technology Center transmits electronic courtesy notices to all Automated Broker Interface (ABI) filers and mails paper courtesy notices, on CBP Form 4333-A, to all importers of record whose entry summaries are set to liquidate by each port of entry. As a result, importers of record who are also ABI filers receive two notices: a paper notice and an electronic notice that the ABI filer receives on behalf of the importer of record.
CBP is proposing to discontinue mailing paper courtesy notices to importers of record whose entry summaries are filed in ABI because the ABI filer, who is either the importer of record or a customs broker, already receives an electronic courtesy notice of liquidation. CBP estimates that this amendment will save the agency $3.8 million annually by eliminating 90% of the paper courtesy notices currently sent to importers.
The proposed changes will not affect CBP's obligation to post the official bulletin notice of liquidation in the customhouse at all ports of entry pursuant to 19 CFR 159.9(b). In addition, CBP Form 4333-A will continue to be used as a notice of extension and suspension.
Comments on the proposed rule are due May 17, 2010.
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Who's Hiring?
A Summary of Current Trade Job Opportunities
 As a service to the international trade community, Global Trade Expertise compiles links to trade job opportunities from many different sources. New trade job listings are posted frequently on our website.
To sort the job opportunities by region, fields, or levels, click on the appropriate category or tag in the right column on our Trade Jobs webpage. |
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Calendar of Events
Upcoming Trade Events & Seminars
 Our website has a comprehensive listing of import and export conferences held throughout the country, as well as Customs training, EAR training, ITAR training, and other training. Below is a small sampling of what's available in the coming months:
Complying with U.S. Export Controls - Bureau of Industry and Security
April 7 - 8, 2010 - Denver, CO - $450
Advanced ITAR Workshop - Federal Publications Seminar
April 15 - 16, 2010 - Denver, CO - $995
U.S. Export Controls Seminar - Export Compliance Training Institute
April 19 - 20, 2010 - Denver, CO - $1050
Complying with the ITAR - Directorate of Defense Trade Controls (DDTC)
April 22, 2010 - Portsmouth, NH - $200
Complying with U.S. Export Controls - Bureau of Industry and Security
April 22, 2010 - Santa Clara, CA - $380
Complying with U.S. Export Controls - Bureau of Industry and Security
April 20-21, 2010 - Portsmouth, NH - $325
Complying with the ITAR - Directorate of Defense Trade Controls (DDTC)
April 22, 2010 - Portsmouth, NH - $200
2010 Spring Conference - Society for International Affairs
April 26 - 27, 2010 - Las Vegas, NV - $700-800
ITAR Compliance and Audits - Federal Publications Seminar
April 28 - 29, 2010 - Huntsville, AL - $995
Complying with U.S. Export Controls - Bureau of Industry and Security
May 5 - 6, 2010 - Newport Beach, CA - $325
Complying with U.S. Export Controls - Bureau of Industry and Security
May 20 - 21, 2010 - Las Vegas, NV - $355
U.S. Export Controls on Non-US Transactions: Commercial Export Controls & Embargoes Seminar - Export Compliance Training Institute
May 10 - 11, 2010 - Montreal, Canada
Complying with U.S. Export Controls - Bureau of Industry and Security
May 25 - 26, 2010 - Witchita, KS - $400
Export Control of Equipment, Technology and Services - Federal Publications Seminar
May 25 - 26, 2010 - Arlington, VA - $995
ITAR Compliance and Audits - Federal Publications Seminar
May 5 - 6, 2010 - San Diego, CA - $995
Defense Trade Controls Seminar - Export Compliance Training Institute
May 12 - 13, 2010 - Montreal, Canada
Basic ITAR Workshop - Federal Publications Seminar
May 21, 2010 - Chicago, IL- $595
Export Control of Equipment, Technology and Services - Federal Publications Seminar
May 25 - 26, 2010 - Arlington, VA - $995
Establishing Import/Export Compliance Procedures - The World Academy
May 17 - 19, 2010 - Newark, NJ - $1195
Best Practices in Managing Transactions: A Workshop for Brokers & Forwarders - The World Academy
May 14, 2010 - Newark, NJ - $495
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Thanks again for your interest in our newsletter!
Sincerely,
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Jennifer Kessinger & Tammie Krauskopf
Attorneys & Consultants
jk@globaltradeexpertise.com
Tel. 925.876.1381 (Jennifer Kessinger)
tk@globaltradeexpertise.com
Tel. 708.707.4087 (Tammie Krauskopf)
www.globaltradeexpertise.com
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