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Greetings!
We hope you are all enjoying your summer! We have been extremely busy with business travel and hope you'll excuse the lateness of this month's Global Trader Newsletter. Highlights of July's import/export news are: BIS publishes clarification of grace period for new encryption registration requirements; BIS seeks comments on SCL forms, recent OFAC enforcement actions; Congo minerals provision signed into law; BIS revises the CCL to update and clarify crime control license requirements; Commerce Dept. and USPS launch new initiative to increase U.S. exports; new charges filed against Irish firm for illegal exports of military aircraft to Iran; 2010 annual GSP product review and deadline for filing petitions announced; and 100% air cargo screening goes into effect on August 1, 2010. Thank you for reading! Jennifer Kessinger, Tammie Krauskopf
& Ruta Riley
globaltradeexpertise
info@globaltradeexpertise.com
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BIS Publishes Clarification of Grace Period for New Encryption Registration Requirement
Grace Period Ends August 24, 2010
 On July 27, 2010, the U.S. Department of Commerce's Bureau of Industry and Security (BIS) published a final rule in the Federal Register to clarify the intent of the encryption registration requirement that appeared in the new encryption rules published on June 25, 2010.
The June 25, 2010 final rule established, inter alia, an encryption registration requirement for authorization under provisions of License Exception ENC, as codified in § 740.17(b)(1), (b)(2) and (b)(3) of the EAR, and for transactions in connection with mass market encryption transaction, as codified in §§ 742.15(b)(1) and (b)(3) of the EAR. In § 740.17(d)(1)(i)(A) and (d)(1)(i)(B), the rule specified that an encryption registration was required to be filed the first time that a party submits an encryption classification request under § 740.17(b)(2) and (b)(3) or performs an encryption self-classification under § 740.17(b)(1) on or after August 24, 2010. The rule also stated that an encryption registration was required to be submitted in support of an encryption classification or in circumstances where a party is making a mass market encryption item eligible for export and reexport (including the definition at § 734.2(b)(9) for encryption software) under § 742.15(b)(1) for the first time on or after August 24, 2010. Although the rule was issued in final form on June 25, the rule intended to establish a grace period permitting parties to wait until August 24 to submit their registration requirements.
In the clarification, BIS states:
The intent of this grace period was to allow industry time to gather information necessary to accurately submit the information required in the encryption registration (Supplement No. 5 to part 742), to change internal procedures, and to train personnel before submitting the encryption registration. However, the rule inadvertently omitted language that clarifies that parties may self-classify or seek classifications between June 25, 2010 and August 24, 2010 without first submitting a registration. It also inadvertently omitted language that clarifies the post-classification registration requirement for parties that self-classified or sought classifications between June 25, 2010 and August 24, 2010, but did not self-classify or seek a classification again on or after August 24, 2010. This rule corrects the regulations to include language that clarifies the intent of the grace period.
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BIS Seeks Comments on Special Comprehensive License Forms
Comments are due by September 24, 2010
On July 25, 2010, Bureau of Industry and Security (BIS) published a notice in Federal Register requesting comments on Special Comprehensive License forms BIS-752P and BIS-752P-A.
The Special Comprehensive License (SCL) procedure authorizes multiple shipments of items from the U.S. or from approved consignees abroad who are approved in advance by the BIS to conduct servicing, support services, stocking spare parts, maintenance, capital expansion, manufacturing, support scientific data acquisition, reselling and reexporting in the form received, and other activities as approved on a case-by-case basis.
An application for an SCL requires submission of additional supporting documentation, such as the company's internal control program.
Comments are due on September 24, 2010.
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Recent OFAC Enforcement Actions
On July 28, 2010, Treasury Department's Office of Foreign Assets Control (OFAC) published information on recent enforcement actions:
Maersk Line, Ltd., a Delaware corporation, and its wholly owned U.S. subsidiaries, Farrell Lines Incorporated, and E-Ships, Inc. (collectively, MLL), have remitted $3,088,400 to settle allegations of violations of the Sudanese Sanctions Regulations (SSR) and of the Iranian Transactions Regulations (ITR).
OFAC alleged that MLL violated the SSR and the ITR by providing unlicensed shipping services for 4,714 shipments of cargo originating in or bound for Sudan and Iran, including the transportation of such cargo on vessels owned, operated and/or chartered by MLL, but also chartered by MLL's parent, A.P. Moller-Maersk A/S, on at least one leg of the cargo's journey to or from Sudan and Iran.
MLL did not voluntarily self-disclose the matter to OFAC. OFAC concluded that the alleged violations constituted a non-egregious case. The base penalty amount for the apparent violations - which was calculated based on gross freight charges from origination to destination - was $61,768,000. OFAC stated that the settlement amount reflected OFAC's consideration of the General Factors, such as that MLL is part of a commercially sophisticated world-wide shipping conglomerate with significant experience operating under licenses issued by OFAC and other U.S. Government agencies; the activities conducted by MLL resulted in actual harm to sanctions program objectives by conferring an economic benefit on Sudan and Iran; MLL has not been found to have violated OFAC sanctions in the past five years; MLL substantially and fully cooperated with OFAC's investigation of the alleged violations; and MLL and its parent have undertaken substantial remediation to ensure that such alleged violations do not recur.
3M Imtec Corporation of Ardmore, OK (3M Imtec), successor in interest to Imtec Corporation (Imtec), has remitted $125,000 to settle allegations of violations of the Iranian Transactions Regulations (ITR), and the Export Administration Regulations (EAR). This settlement agreement was reached between 3M Imtec, the U.S. Department of Commerce's Bureau of Industry and Security (BIS), and the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC).
Imtec voluntary disclosed information to OFAC detailing that it had engaged in unlicensed transactions that appeared to have violated the ITR and the EAR. Imtec was acquired by another company in July 2008 and its name was changed to 3M Imtec Corporation. In connection with the acquisition, a due diligence review was conducted which disclosed that, prior to its acquisition, Imtec engaged in unlicensed transactions with Iran. A full investigation of the apparent Iran violations was conducted and a disclosure of those findings was made to OFAC and BIS.
During the period of June 2004 to April 2007, Imtec appears to have violated the ITR by selling and shipping implants and related dental equipment to purchasers in a third country for delivery to Iran. ITR authorizes OFAC to issue licenses for the sale of agricultural commodities, medicines, and medical devices for use in Iran, provided that those agricultural commodities, medicines, and medical devices are not listed on the Commerce Control List (CCL). A proposed charging letter issued by BIS to 3M Imtec states that the items sold were classified as EAR99.
Although Imtec had previously requested and obtained separate licenses from OFAC authorizing the sale of dental equipment to Iran, the sales that are the subject of the settlement agreement were made outside of the effective dates of those licenses. Imtec did not have a trade compliance program in place at the time that the apparent violations occurred. Although Imtec management was aware of the need to obtain OFAC licenses authorizing sales to Iran as evidenced by its prior OFAC licenses, Imtec's apparent lack of a comprehensive trade compliance program resulted in the lapse of those licenses.
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Congo Conflict Minerals Provisions Signed into Law
Legislation requires manufacturers to account for use of minerals coming from mines funding war in the DRC
On July 21, 2010, President Obama signed into law The Wall Street Reform Bill which, at §1502, contains provisions requiring publicly-traded and electronic companies such as Apple, Intel, and HP to annually report to the Securities and Exchange Commission (SEC) on whether the columbite-tantalite, casserite, gold, or wolframite minerals used in companies' manufacture operations originated in the Democratic Republic of the Congo (DRC) or an adjoining country. Companies using potential conflict minerals in their production will be required to certify whether their products contain minerals form conflict mines.
In cases where such conflict minerals do originate in DRC or adjoining country, companies will have to report on the measures taken to exercise due diligence on the source and chain of custody of such minerals. The bill requires that industry use outside auditors to determine where refiners are conflict-free.
The legislation mandates the Secretary of State to annually compile a map of mineral-rich zones, trade routes, and areas under the control of armed groups in the Democratic Republic of the Congo and adjoining countries based on data from local and national governments and local and international non-governmental organizations.
These provisions were originally introduced on November 19, 2009, by Rep. Jim McDermott as The Conflict Minerals Trade Act of 2009. Commenting the passage the bill, Rep. McDermott's office stated that the goal of this bill was to "hold accountable American companies that use minerals in their products from mines that help fund the war in the Democratic Republic of the Congo (DRC)." The bill provides for one-year period prior to implementation of these provisions to enable industries to adequately prepare for these requirements.
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BIS Revises the CCL to Update and Clarify Crime Control License Requirements
On July 15, 2010, the U.S. Department of Commerce's Bureau of Industry and Security published a final rule in the Federal Register to revise the Commerce Control List (CCL) to update and clarify crime control license requirements under the Export Administration Regulations (EAR). The rule updates and clarifies export and reexport license requirements on striking weapons, restraint devices, shotguns and parts, optical sighting devices, and electric shock devices. It also adds equipment designed for the execution of humans to the Commerce Control List. This rule makes no changes to the longstanding policy of denial of applications to export or reexport specially designed implements of torture. The rule provides additional illustrative examples of such items and adopts a definition of torture used in a U.S. statute that implements the United Nations Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment.
BIS published the rule as part of an ongoing review of crime control license requirements and policy. As part of the ongoing review, BIS received public comments on whether the scope of the items and destinations that are subject to crime control license requirements should be changed. After reviewing the comments and conducting its own internal deliberations, BIS decided to proceed in stages. This final rule is the culmination of the first stage that addresses relatively simple extensions, modifications or removals of items currently on the CCL or additions to the CCL of items that have an easily identified crime control or law enforcement nexus.
BIS plans to publish a subsequent proposed rule that will identify potential expansion of certain Export Control Classification Numbers (ECCNs) as suggested in the comments to the proposed rule; whether, and if so, the extent to which biometric measuring devices, integrated data systems, simulators, and communications equipment should be added to the Commerce Control List; the degree to which software and technology related to commodities on the Commerce Control List should be listed and how such software and technology should be described; and general policy issues such as whether the range of destinations to which crime control license requirements apply should be modified. |
Commerce Department and USPS Launch New Initiative to Increase U.S. Exports
In response to President Obama's plan to double U.S. exports in the next five years, U.S. Commerce Department and the United States Postal Service (USPS) announced launch of a new initiative on July 12, 2010. The New Market Exporter Initiative (NMEI) will help increase U.S. exports by identifying small and medium-sized businesses that export their goods and services via USPS and notifying those customers of government sources that can help them in finding new overseas markets.
Commerce and USPS intend to work with such businesses to identify key markets, build market entry strategies and provide guidance to the U.S. exporters searching to expand their markets. Free resources and tools will be made available through a nationwide network of international trade experts and global shipping specialists. U.S. Commerce Department has trade specialists posted in 109 U.S. cities and U.S. embassies and consulates in 77 countries, and will make those resources available to the companies, connecting them with potential international buyers.
President Obama announced the National Export Initiative (NEI) earlier this year, during his State of the Union address. The goal of the NEI is to double U.S. exports in the next five years, which would support several million jobs in the U.S. The NEI will provide more funding and more centralized, cabinet-level coordination to increase U.S. exports. The initiative represents a first government-wide export promotion strategy with focused attention from the President and his cabinet.
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New Charges Filed Against Irish Firm for Exporting Military Aircraft Parts to Iran
 On July 7, 2010, a federal grand jury in Washington, D.C., has charged Mac Aviation Group, an Irish trading company, and its officers Thomas and Sean McGuinn of Ireland, in a superseding indictment with purchasing F-5 fighter aircraft parts, helicopter engines and other aircraft components from U.S. firms and illegally exporting them to Iran.
Originally, defendants were changed in July 2008 with 2 counts of conspiracy, 19 counts of violating the International Emergency Economic Powers Act (IEEPA) and Iranian Transactions Regulations, four counts of false statements, and forfeiture allegations.
The superseding indictment added two additional counts that pertain to Mac Aviation and Tom McGuinn's procurement of military items, specifically F-5 fighter aircraft parts, from a U.S. company and export of those parts to Iran, in violation of the Arms Export Control Act (AECA).
The indictment alleges that from August 2005 to July 2008, the defendants solicited purchase orders from customers in Iran for U.S.-origin aircraft engines and parts and then sent requests for aircraft components to U.S. companies. Among those parts were helicopter engines, aircraft bolts and vanes, and canopy panels for the F-5 fighter aircraft. The defendants wired money to banks in the U.S. as payment for these parts and concealed from U.S. sellers the ultimate end-use and end-users of the purchased parts. The defendants then exported these parts from the U.S. to Iran by transshipping them through third countries like Malaysia.
In addition, the superseding indictment alleges that from 2005 to 2006, the defendants exported canopy panels designed for the F-5 fighter aircraft from the U.S. to Iran. The defendants falsely claimed that the end user for the F-5 parts was the Republic of Nigeria. Instead, the parts were sold by the defendants to customers in Iran. The transaction was arranged through the Iran Aircraft Manufacturing Industrial Company, also known by its acronym HESA. HESA was one of several entities that U.S. Treasury Department designated as proliferator of weapons of mass destruction in September 2008.
If convicted, the defendants face a maximum sentence of 10-20 years in prison for each of the IEEPA counts, 10 years for the AECA charge, 5-20 years in prison for each of the conspiracy counts, and 5 years in prison for each of the false statement counts.
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2010 Annual GSP Product Review and Deadlines for Filing Petitions Announced
 On July 15, 2010, Office of the U.S. Trade Representative (USTR) published a notice in the Federal Register announcing the initiation of the 2010 annual Generalized System of Preferences (GSP) product review and deadlines for filing petitions.
Interested parties, including foreign governments, may submit petitions to:
1 Designate additional articles as eligible for GSP treatment;
2 Withdraw, suspend or limit the application of duty-free treatment accorded under the GSP with respect to any article, either for all beneficiary developing countries, least-developed beneficiary developing countries or beneficiary sub-Saharan African countries, or for any of these countries individually;
3 Waive the "competitive need limitations" for individual beneficiary developing countries with respect to specific GSP-eligible articles (these limits do not apply to either least-developed beneficiary developing countries or AGOA beneficiary sub-Saharan African countries); and
4 Otherwise modify GSP coverage.
All petitions to modify the list of articles eligible for duty-free treatment under GSP must be received by the GSP Subcommittee of the Trade Policy Staff Committee no later than 5 PM on August 3, 2010.
Petitions requesting competitive need limitation (CNL) waivers for GSP-eligible articles from beneficiary developing countries that exceed the CNLs in 2010 must be filed in the 2010 Annual Review. To be considered in the 2010 Annual Review, petitions requesting CNL waivers must be received by the GSP Subcommittee of the Trade Policy Staff Committee by 5 PM on November 16, 2010.
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100% Air Cargo Screening Goes into Effect August 1, 2010
 The Transportation Security Administration's (TSA) mandate requiring 100 percent of cargo transported on a passenger aircraft be screened went into effect on August 2, 2010. The law requires that "all air cargo must be screened at the piece level prior to transport on a passenger aircraft for flights originating in the United States."
While, initially, passenger airlines and their handling agents were the only facilities approved to screen passenger cargo, TSA created the Certified Cargo Screening Program (CCSP) to help industry deal with the screening requirements. CCSP enables Indirect Air Carriers (IAC's), shippers and Independent Cargo Screening Facilities (ICFs) to screen cargo for flights originating in the U.S. Participating facilities are fully regulated and inspected for compliance. There are about 740 locations that have been certified to screen cargo and are currently handling over 40 percent of the screen cargo volume by weight.
The August 1 deadline applies to U.S. originating cargo only and not to cargo inbound to the U.S. TSA recognizes that 100 percent screening of U.S.-inbound cargo by the August deadline was not attainable, however, TSA stated it seeks to achieve such level of cargo security as soon as possible.
As of August 1, 2010, cargo that is not screened will not be permitted to be transported on a passenger aircraft for flights originating in the U.S. Some airlines have noted that cargo that is not screened in the CCSP program may be subject to delays and face earlier acceptance cut-off times.
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Appeals Court Denies Request to Review HTSUS Modifications by Presidential Proclamations
 On June 18, 2010, U.S. Court of Appeals for the Federal Circuit ("CAFC") affirmed the Court of International Trade's ("CIT") decision to deny request for judicial review of the Harmonized Tariff Schedule of the United States ("HTSUS") in Michael Simon Design, Inc. et al. v. U.S..
Three importers filed action in the CIT challenging modifications to the U.S. tariff schedule made by Presidential proclamation. In June 2004, the World Customs Organization (WCO) proposed several amendments to the international harmonized system, including changes to Chapter 95, which covers "toys, games and sports equipment; parts and accessories thereof." Note 1(v) was added to Chapter 95 excluding apparel and other similar "articles having a utilitarian function" from duty-free classification under Chapter 95.
In response to comments that Note 1(v) conflicted with recent decisions of CAFC holding that certain utilitarian articles were entitled to duty-free classification as "festive articles," the U.S. International Trade Commission ("ITC") proposed the creation of two subheadings to maintain substantial rate neutrality for two categories of festive articles: (1) "utilitarian articles of a kind used in the home in the performance of specific religious or cultural ritual celebrations for religious or cultural holidays" and (2) "utilitarian articles in the form of a three-dimensional representation of a symbol or motif clearly associated with a specific holiday in the United States." Those duty-free carve-outs did not encompass festive apparel of the type imported by the appellants. In April 2006, the ITC issued its final report to the President recommending the addition of Note 1(v) and the subheadings for festive articles. Soon after, the President issued Proclamation 8097 adopting all of the Commission's recommended modifications; they became effective in February 2007.
The appellants filed separate but substantially identical complaints in the CIT challenging the modifications to the HTSUS. Appellants invoked the Administrative Procedure Act (APA) and alleged that they had been "adversely affected or aggrieved b the CIT's decision to implement" the 2007 HTSUS modifications, and that the modifications were implemented in violation of law.
The CIT consolidated the cases and then dismissed the consolidated action explaining that when a party invokes the general-review provisions of the APA, and no other statute provides for a cause of action, the contested agency action must be "final" in order to be subject to judicial review. The CIT stated that the final action in this case was not the ITC's recommendation but, rather, the President's proclamation adopting the proposed HTSUS modifications. The CIT also stated that the President's proclamation was unreviewable under the APA, because the President is not an "agency," and his actions do not constitute "agency action" within the meaning of the APA. Finally, the CIT noted that because the President has "complete discretion" in deciding whether to adopt the ITC's recommended modifications under 19 U.S.C. §3006, and because the ITC's recommendations "carry no direct consequences," the court lacked authority to review the lawfulness of the agency's recommendations to the President.
After the case was dismissed, the Appellants filed an appeal with CAFC. On appeal, the CAFC stated that the APA, which the appellants invoked as the basis for their claim, authorizes suit by a party who is "adversely affected or aggrieved by agency action within the meaning of the relevant statute." When, like in the case at hand, agency action is not "made reviewable by statute," the agency action in question must be "final" in order to be subject to judicial review under the APA."
The CAFC held that because the acts that the appellants complained of were either non-final or not agency actions, and because judicial review was precluded even outside the APA framework due to the discretionary nature of the President's authority under §3006(a), the CIT's decision to dismiss the actions was affirmed.
In support of its decision, the CAFC stated that judicial review of the ITC's recommending modification of the HTSUS was unavailable because ITC actions were not "final" for purposes of the APA. Specifically, the ITC's actions served as non-final recommendations that did not directly affect tariffs or bind importers. As such, they were not judicially reviewable under the APA.
Appellants argued that the ITC's recommendations were "final" because the proposed modifications had the legal effect of overturning this court's precedents regarding classification of festive articles. The CAFC held that the ITC's recommendations did not alter the legal regime to which the decision maker was subject and did not have any binding legal effect on the relevant actions. The CAFC pointed out that the ITC's report under 19 U.S.C. §3005 was purely advisory: it did not contain terms or conditions that circumscribed the President's authority to act; it did not limited the President's potential responses; and it did not directly modify the HTSUS. Under 19 U.S.C. §3006(a), the President was not bound by the ITC's recommendations, so those recommendations did not have any impact on the President's exercise of discretion. Because the President's discretionary action was required to effect modifications to the HTSUS under §3006, the ITC's report could not directly impact legal rights or alter any legal regime in such a way that it would have a legal effect on President' s exercise of discretion.
Therefore, the CAFC held that the ITC's recommendations under §3005 were not "final" and consequently not subject to judicial review under the APA. The CAFC also held that "the President's actions [of proclaiming modifications to the HTSUS] [were] not reviewable under the APA because the President is not an "agency" within the meaning of the APA."
In addition, CAFC stated that §3006 did not in any way limit the President's discretion in a way that would render the President's actions in this case judicially reviewable for exceeding his authority. On the contrary, "under section 3006(a), the President's authority [was] not constrained in any way by the Commission's recommendations. The statement in section 3006 that the President "may proclaim modifications, based on the recommendation by the Commission under section 3005 of this title, to the Harmonized Tariff Schedule" therefore does not restrict the President's discretion or render the President's actions judicially reviewable."
The CAFC said that the only language in § 3006 that limited the President's discretion to proclaim HTSUS modifications was the requirement that the President "determine that the modifications (1) are in conformity with the U.S. obligations under the Convention; and (2) do not run counter to the national economic interest of the United States." In this case, the statute contained no language that expressly mandated substantial rate neutrality as a prerequisite to the President's authority to proclaim HTSUS modifications. Nor did the statue require any independent predicate to President's action. The President's authority under section 3006 turns solely on his assessment of whether the ITC's recommendations were in conformity with the U.S.'s obligations under the Convention and did not run counter to the nation's economic interests. Because those determinations were committed to the President's discretion and because the President's compliance with pars. 1 and 2 of section 3006(a) was not at issue in this case, the President's exercise of his discretion was not subject to judicial review.
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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
August 11 - 12, 2010 - Universal City, CA - $450
2nd Annual "Partnering for Compliance™" West Coast Training and Education Program - Partnering for Compliance
August 25 - 27, 2010 - San Jose, CA - $450
Update 2010 - Bureau of Industry and Security
August 31 - Sept. 2,
2010 - Washington, DC
Complying with U.S. Export Controls - Bureau of Industry and Security
September 14 - 15, 2010 - Hoover, AL - $375
Complying with the ITAR - DDTC
September 16, 2010 - Hoover, AL - $150
U.S. Export Controls Seminar - Export Compliance Training Institute
September
20-21, 2010 - Chicago, IL - $1050
Complying with U.S. Export Controls - Bureau of Industry and Security
September 22 - 23, 2010 - Salt Lake City, UT - $325
Complying with U.S. Export Controls - Bureau of Industry and Security
September 29 - 30, 2010 - Santa Clara, CA - $425
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Thanks again for your interest in our newsletter!
Sincerely,
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Jennifer Kessinger, Tammie Krauskopf & Ruta Riley
Attorneys & Consultants
jk@globaltradeexpertise.com
Tel. 925.876.1381 (Jennifer Kessinger)
tk@globaltradeexpertise.com
Tel. 708.707.4087 (Tammie Krauskopf)
rr@globaltradexpertise.com
Tel. (630) 862-8123
www.globaltradeexpertise.com
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