House Foreign Affairs Subcommittee Holds Hearing on Transshipment and Diversion Issues

The House Foreign Affairs Committee's Subcommittee on Terrorism, Nonproliferation and Trade held a hearing today on transhipment issues. The witnesses at the hearing, entitled "Transshipment and Diversion: Are U.S. Trading Partners Doing Enough to Prevent the Spread of Dangerous Technologies?" included Assistant Secretary for Export Administration Kevin Wolf and Vann H. Van Diepen, Acting Assistant Secretary at the State Department's Bureau of International Security and Nonproliferation.

The following are some highlights included in the prepared testimony of the witnesses:

• In Fiscal Year 2009, the Bureau of Industry and Security (BIS) processed 20,351 export license applications valued at approximately $62.4 billion for items subject to the EAR.
• In Fiscal Year 2009, BIS conducted 42 domestic export control outreach seminars in 18 states to provide new and experienced exporters about the requirements of the EAR and how they should deal with “Red Flags”.
• BIS led or participated with the Department of State in 28 meetings with foreign governments in Fiscal Year 2009.
• State Department recognizes diversion "as a major weakness in trade security and therefore have been working for many years--and on many fronts--to properly address this problem and minimize the risk. We have had some success, but more work is necessary."
• "Part of the challenge is a lack of political will to implement and enforce export and transshipment controls. This is due to the misperception that such controls are bad for legitimate business and this is particularly common in countries reliant on revenue from port operations."

The complete written testimony of Messrs. Wolf and Van Diepen can be found here and here.

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Today's News and Notes

Miscellaneous Tariff Bill - The House of Representatives is expected to consider the Miscellaneous Tariff Bill (now known as the U.S. Manufacturing Enhancement Act) (HR 4380) today. The bill will be considered under the suspension of the rules provision, which means that the bill may not be amended and requires a two-thirds vote for passage. The National Association of Manufacturers has sent a Key Vote letter to House members urging passage of the bill.

AM Update: After 40 minutes of debate this morning, the final vote on HR 4380 was postponed due to request for recorded vote. Under the suspension rules, any request for the yeas and nays results in a postponement of the final vote.

PM Update: In a surprise move the House passed the Miscellaneous Tariff Bill (HR 4380) this afternoon by a vote of 378 to 43. AP story here. NAM statement on passage here.

Iran Sanctions - The Washington Post reports that Iran's ability to ship vital goods has been significantly curtailed due to the insurance and other sanctions contained in the recently enacted Comprehensive Iran Sanctions, Accountability, and Divestment Act (CISADA) of 2010 (H.R. 2194).

North Korea Sanctions - While no details have been released, Secretary Gates and Secretary Clinton announced today that the U.S. will impose additional sanctions on North Korea. The sanctions are likely aimed at disrupting North Korea's weapons and contraband trade and targeting the finances of the Pyongyang regime.

Update: The State Department announced that the additional sanctions will include:

• Further State and Treasury designations of North Korean entities and individuals supporting proliferation, subjecting them to an asset freeze; 
• New efforts with key governments to stop North Korean trading companies engaged in illicit activities from operating in those countries and prevent their banks from facilitating these companies’ illicit transactions; 
• Expanding cooperation to prevent the travel of individuals designated under the Security Council resolutions, as well as other key North Korea proliferators; 
• Greater emphasis on North Korea’s repeated abuse of its diplomatic privileges in order to engage in activities banned by the Security Council, and expanding cooperation with countries so that they will not choose to purchase banned items from North Korea or to sell North Korea proliferation-related goods.

Export Controls/Diversion Hearing - The House Foreign Affairs Committee's Subcommittee on Terrorism, Nonproliferation and Trade will hold a hearing tomorrow on "Transshipment and Diversion: Are U.S. Trading Partners Doing Enough to Prevent the Spread of Dangerous Technologies?"  The witnesses include Assistant Secretary for Export Administration Kevin Wolf and Vann H. Van Diepen, Acting Assistant Secretary at the State Department's Bureau of International Security and Nonproliferation.
  
Foreign Manufacturers Legal Accountability Act of 2010 - The House Committee on Energy and Commerce reported favorably an amended version of H.R. 4678 by a vote of 31 to 22. The bill requires foreign manufacturers of certain products imported into the U.S. to establish registered agents to accept service of process. While the amendments passed today addressed a number of industry concerns with the bill, the bill is likely to be opposed by a number of trade associations. The full text of the amended version of the bill can be found here.

Conflict Minerals Disclosure and Certification - Section 1502 of the the financial reform bill (H.R. 4173) signed into law by President Obama today included a provision aimed at trying to reduce the use of conflict minerals mined in the Democratic Republic of the Congo. The provision states that the SEC must issue regulations requiring publicly traded companies to disclose annually whether conflict minerals are necessary to the functionality or production of their product and to certify that the measures taken by the company to verify the source of those minerals is not the Democratic Republic of the Congo or adjoining countries. The provision defines "conflict minerals" as columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives. This provision will impact a wide range of publicly traded manufacturing companies, including those using Congolese tantulum to produce electronics products, and those using tin and gold.

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ITC Issues Report on Export Barriers Encountered by U.S. Small and Medium Sized Businesses

At the request of the U.S. Trade Representative, the U.S. International Trade Commission has published a report entitled "Small and Medium Sized Enterprises: U.S. and EU Export Activities, and Barriers and Opportunities Experienced by U.S. Firms".

The 300 plus page report summarizing the results of the ITC's investigation compares the exporting activities of SMEs in the United States with those of SMEs in the EU. The report also describes the barriers and trade costs associated with exporting, including strategies to reduce these barriers and costs. The ITC's report identifies the benefits to U.S. SMEs from improvements to the exporting environment resulting from free trade agreements and other trade arrangements.
Some of the ITC's major findings included:

*The share of SMEs in U.S. manufacturing activity—and total U.S. exports—is smaller than the share of SMEs in EU manufacturing activity and exports.

*According to U.S. SMEs, the top barriers to exporting include: insufficient access to finance, complex and sometimes nontransparent domestic and foreign regulations, rising and unpredictable transportation costs, the small scale of SME production, tariff and nontariff barriers, time consuming foreign customs procedures, language and cultural differences, and lack of knowledge of foreign markets.

*With respect to U.S. government regulations, SMEs reported that domestic regulations maintained by the U.S. federal and state governments—particularly export controls and visas for foreign nationals to visit the United States—also serve as barriers to exporting.

*Regarding export controls, although U.S. companies generally agree that such controls are necessary, they consider the paperwork and logistics associated with such controls to be cumbersome, and many companies are concerned about accidentally violating the regulations. Companies also expressed concern that too many
federal government agencies are involved and that the lines of authority between them are not clear. In addition, they stated that the U.S. practice of requiring licenses for particular components, rather than for integrated weapons systems or other final products, makes U.S. producers less competitive vis-à-vis foreign companies subject to export. SMEs noted that the cumbersome nature of the process and the list of products subject to export control regulations are poorly adapted to changing technologies, so that it takes too long for items to be removed from the lists when they no longer pose a threat. Some companies also reported losing sales to foreign competitors due to export licensing delays.

*Regarding foreign government regulations SME representatives reported that the costs of understanding and complying with foreign government regulations can be significant barriers to exporting. Factors that raise costs include the lack of standardized regulations across countries and the administrative costs of compliance.

* U.S. SMEs have developed a number of strategies to overcome some of the domestic and foreign barriers to exporting they identified. These include combining resources with other firms in the same industry, working with larger companies, brokers, or agents, and taking advantage of U.S. federal and state government support programs.

*Suggested policy changes to enhance the ability of SMEs to export include: (1) increase focus on free trade agreements and other trade agreements; (2) assist more with market access, particularly in India and China; and (3) offer more information, outreach, and educational opportunities related to exporting.

The PDF version of the ITC's report can be found here.

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U.K. Postpones Implementation of Bribery Act for Six Months

In order to provide businesses with more time to prepare for the implementation of the recently passed Bribery Act, the U.K. Ministry of Justice announced today that implementation of the Bribery Act will be postponed for six months and will now go into effect in April 2011.

The Ministry of Justice also announced that in September 2010 it will launch a consultation exercise to draft guidance regarding the procedures that companies can put in place to prevent bribery. The guidance will be published in early 2011 and will be followed by a series of awareness-raising events to ensure affected companies are prepared for the changes to current law.

The Bribery Act, which received Royal Assent on April 8, 2010, will make the following changes to U.K. law:

• Introduce a corporate offense of failure to prevent bribery by persons working on behalf of a business. A business can avoid conviction if it can show that it has adequate procedures in place to prevent bribery.

• Make it a criminal offense to give, promise or offer a bribe and to request, agree to receive or accept a bribe either at home or abroad. The measures cover bribery of a foreign public official.

• Increase the maximum penalty for bribery from seven to 10 years imprisonment, with an unlimited fine.

The full text of the U.K. Bribery Act can be found here.

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Updated Information on Incoterms 2010

As indicated in previous posts, Incoterms®2010 will be released in September and will go into effect on January 1, 2011. The following is some additional information on Incoterms 2010 provided by Frank Reynolds, the U.S. delegate to the Incoterms 2010 drafting committee:

1. There will be eleven Incoterms 2010 rules (see below for complete list). Four rules have been deleted while two new rules have been created.

2. Many National Committees (including the U.S.) reported being asked the same questions time after time – such as where Incoterms rules address ownership (note that Incoterms do not address transfer of title/ownership). Since these were covered in the Introduction to Incoterms 2000, it became obvious that many people didn’t bother reading it. Thus, the Introduction to Incoterms 2010 has been reduced and guidance notes have been provided for each rule.

3. Key terminology is now defined in relation to its use in Incoterms rules in the now-abbreviated Introduction.

4. There will be illustrations along with the rules themselves.

5. The delivery point for three rules has been changed.

6. One of the new rules specifically remedies a potential problem with the use of Incoterms 2000 in domestic trade.

Persons located in the U.S. can preorder and purchase the Incoterms 2010 book at the ICC USA's website found here. Persons located in Europe can order the Incoterms 2010 book at the ICC's website.

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Summary of Incoterms 2010

Incoterms for any Mode or Modes of Transport:

EXW - Ex Works

FCA -  Free Carrier

CPT - Carriage Paid To

CIP - Carriage and Insurance Paid

DAT - Delivered At Terminal (new)

DAP - Delivered At Place (new)

DDP - Delivered Duty Paid

Incoterms for Sea and Inland Waterway Transport Only:

FAS - Free Alongside Ship

FOB - Free On Board

CFR - Cost and Freight

CIF - Cost, Insurance and Freight

The reduction in Incoterms from 13 to 11 different terms was accomplished by substituting two new Incoterms, DAT (Delivered at Place) and DAP (Delivered at Place) for DAF (Delivered at Frontier), DES (Delivered Ex-Ship), DEQ (Delivered Ex-Quay) and DDU (Delivered Duty Unpaid).

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Today's News and Notes

• McCarthy Tétrault Newsletter: Sanctions Alert: The Brave New World of Doing Business with Iran by Canadian attorney John Boscariol (very good information from the Canadian export controls perspective).

• Indo-Asian News Service - U.S. Expects India to Enforce Iran Sanctions.

• Compliance Week: Audit Committee Checklist - FCPA Compliance.

• Peter M. Perez named as U.S. Department of Commerce's Deputy Assistant Secretary for Manufacturing. 

• July issue of Commerce Department's International Trade Administration's Update publication can be found here.

• U.S. Exporters should be aware that the processing fees to obtain an ATA Carnet increased on July 1st. Further information on the new fee schedule can be found here.

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CBP Issues Report on Import Activity During First Half of Fiscal Year 2010

U.S. Customs and Border Protection (CBP) recently issued its Import Trade Trends report for the first six months of fiscal year 2010. A copy of the complete report can be found below.

Some of the highlights of the report include: 

• After a decline in imports in 2009, imports are now at levels last seen in fiscal year 2006. 
• Total value of imports processed by U.S. Customs and Border Protection was slightly more than $1.7 trillion in fiscal year 2009, a 25 percent decrease from the previous year. 
• By year end 2010, it is projected that the value of imports will increase 6 percent, totaling $1.8 trillion.
• Consistent with recent years, only 29 percent of imported goods were dutiable. The remaining goods were duty free or free under tariff preference programs.
• During the first six months of fiscal year 2010, CBP collected $15 billion in revenue for the U.S. government. It is projected that $31 billion will be collected by year end, an increase from FY 2009.
• A total of $130 million in antidumping/countervailing duties were collected during the first half of fiscal year 2010, down slightly from the same period last year.
• Based on a random sampling, 98.6 percent of the fiscal year 2010 imports were materially compliant with all U.S. trade laws and regulations. This compliance rate is slightly higher than recent years.
• During the first six months of fiscal year 2010, approximately $30 million in penalties have been assessed against non-compliant importers (CBP assessed more than $120 million in penalties to non-compliant importers in FY 2009).
• Entry volume at the mid-point of fiscal year 2010 is 13 million. By year end, 27 million entries are expected, an increase of 5 percent from fiscal year 2009.
• China surpassed Canada as the United States’ top source of imports in fiscal year 2009, and is projected to maintain its lead through fiscal year 2011.
• Participants in CBP’s trade and security partnership programs (C-TPAT and ISA) account for
  more than 50 percent of the value of all imports that are shipped to the U.S. Sixty-five percent of the importers who ship goods to the U.S. do not participate in C-TPAT or ISA.
• The top 100 importers account for 30 percent of the overall dollar value of both imports and duties and top 1000 importers account for 60 percent of overall dollar value of imports and duties.

U.S. Customs Import Trends FY 2010 Mid-Year Report

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