A. N. Deringer Trade ALERT 1/18/06 (00147786.DOC;1)

This bulletin has been prepared especially for clients of A. N. Deringer, Inc. by:

SERKO & SIMON LLP – Customs & International Trade Law

January 18, 2006

CUSTOMS and BORDER PROTECTION ("CBP")

GSP Yearly Review: The U.S. Trade Representative (USTR) recently issued a Federal Register Notice regarding possible changes in eligibility of certain tariff numbers under the Generalized System of Preferences (GSP) program; comments are due by January 27, 2006. In its yearly review, the USTR lists those tariff numbers which may lose GSP benefits on July 1, 2006 because they have reached the Competitive Needs Limitations (CNL) threshold. Imports from specific beneficiary countries may lose their eligibility in one of two ways: 1) reach the CNL through value, if exports exceed $120 million; or 2) if exports from a particular country total more than 50% of total U.S. imports of that particular merchandise. Even if a particular item reaches the CNL because of the 50% threshold, the President may waive the GSP restriction, if the total U.S. imports of that item are deemed to be de minimis, i.e., $17.5 million in 2005. The list of GSP eligible goods which may be affected on July 1, 2006 can be found at: http://www.ustr.gov/Trade_Development/Preference_Programs/GSP/Interim_2005_Import_Statistics_Relating_to_Competitive_Need_Limitations.html.

NAFTA Imports Require New Certificates of Origin: Importers claiming NAFTA duty-free preference and who use blanket certificates of origin should note that new certificates of origin must be issued for 2006. Blanket certificates are valid on a calendar year-to-year basis. New blanket certificates must be in the possession of the importer at the time of import and must be made available to CBP upon request. While imports into the U.S. and Canada do not require the actual presentation of the NAFTA certificate of origin for each entry, imports into Mexico do require the actual certificates.

Continued Enforcement of New Wood Packaging Material Rules: The U.S. Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS) is reminding the importing community that February 1, 2006 is the start of Phase 2 enforcement of the new rules for wood packaging materials (WPM). Imports containing WPM must be appropriately treated and marked under the international standard ISPM- 15. While the new rules became effective September 16, 2005, CBP will start requiring the re-export of violative WPM crates and pallets starting February 1, 2006. Full enforcement (Phase 3) and denial of entry to the U.S. will begin July 5, 2006. Meanwhile, Mexico’s enforcement mirrors that of the U.S., while Canada will only start denying non-compliant WPM starting on July 5, 2006.

Sapphire Wafers: Synthetic sapphire rods, "grown" in a lab and subsequently sliced into wafers for use in producing LED’s for semiconductors, are being reclassified by CBP from the previous classification in heading 7104.90.50, HTSUS, the provision for "Synthetic…precious or semi-precious stones…:Other: Other" (6.4% duty); because the finished sapphire wafers have been advanced beyond a sapphire to become a unique article of commerce, the proper classification is under the duty-free provision of heading 7116.20.50, HTSUS, providing for "Articles of…precious or semi-precious stones…Other: Other."

TRADE TALK

U.S. Free Trade Developments: 1) The U.S.-Morocco Free Trade Agreement (FTA) went into effect on January 1, 2006; 2) President Bush recently signed the U.S.-Bahrain FTA Implementation Act. As soon as diplomatic notes are exchanged, the President will be able to issue a Proclamation implementing the FTA; 3) Uruguay recently ratified a Bilateral Investment Treaty (BIT) with the U.S. BIT’s are used to assist countries in upgrading their laws to the point where an eventual FTA may be possible with that country; 4) sources indicate that the U.S. may soon announce the start of negotiations with Egypt toward reaching a FTA; 5) the USTR is considering whether to designate Liberia as a least-developed beneficiary country eligible for GSP preferential benefits; 6) Burundi was designated as a lesser developed beneficiary sub-Saharan African country eligible for trade benefits under the African Growth and Opportunity Act (AGOA); 7) the President terminated the designation of Mauritania as a beneficiary AGOA country.

New EU GSP Scheme: Effective January 1, 2006, the EU’s new GSP scheme came into effect. Instead of the previous five different GSP schemes, the EU’s GSP program now consists of the "General Scheme", "GSP Plus", and "Everything but Arms." The General Scheme now covers roughly 7,200 products, up from the previous 6,900. The GSP Plus program, designed for countries facing specific trade needs, now covers the following 15 additional countries: Bolivia, Colombia, Costa Rica, Ecuador, El Salvador, Georgia, Guatemala, Honduras, Moldova, Mongolia, Nicaragua, Panama, Peru, Sri Lanka, and Venezuela. The Everything but Arms program covers the world’s 50 poorest nations and remains unchanged.

AD/CVD Developments: The U.S. International Trade Commission (ITC) recently: 1) issued a preliminary affirmative antidumping (AD) determination on diamond sawblades and parts thereof from China (10.07%-164.09%) and Korea (6.15%-11.25%); 2) revoked its AD order on internal combustion industrial forklift trucks from Japan; and 3) determined to end its AD investigation of certain carbon and alloy steel wire rod from China, Germany, and Turkey.

The ITC recently initiated a Section 337 investigation into: 1) alleged violations of patents covering certain automotive parts used in certain pickup trucks; 2) of certain personal computers/consumer electronic convergent devices, components thereof, and products containing same; 3) certain digital processors, components thereof, and products containing same. The ITC also terminated its Section 337 investigation of certain NAND memory circuits.

While the ITC proposed special annual trade quota relief under Section 421 for imports of certain circular welded non-alloy steel pipe from China, President Bush declined to follow, asserting that greater harm to consumers will result from any remedies granted to producers.

WORLD TRADE ORGANIZATION ("WTO")

WTO Members Reach Agreement: Following much debate, WTO members meeting in Hong Kong hashed out an agreement furthering the Doha Round of negotiations toward reaching a comprehensive global trade agreement. Broad agreement was reached to: 1) provide duty-free and quota-free treatment for exports of the 32 least developed country members (certain products which are deemed to be globally competitive may not be subject to these benefits); 2) end all agricultural export subsidies by 2013; 3) end cotton export subsidies by developed countries in 2006 and help improve the production and marketing of West African cotton; and 4) work toward further reductions of high tariffs and trade barriers on other merchandise.

Challenge to Shrimp AD: Ecuador is seeking WTO consultations on the "zeroing" calculations the U.S. used in its AD order on frozen warm-water shrimp from Ecuador. Additional countries have previously challenged the use of "zeroing" by the U.S.

BUSINESS BRIEFS

Japan Trade Recommendations: Under the annual Reform and Recommendation Forum between the U.S. and Japan, the USTR urged Japan to reform its reimbursement pricing and regulatory environment for medical devices and pharmaceuticals to ease and speed access to new products and drugs. The recommendations can be accessed at: http://www.ustr.gov/assets/World_Regions/North_Asia/Japan/Regulatory_Reform_Initiative/asset_upload_file168_8516.pdf.

China Currency Developments: As the U.S. administration indicated that it is "hopeful" that China will soon take further action to liberalize its currency exchange rate policies, the sponsor of a U.S. Senate bill which would levy a 27.5% duty on all imported good from China in retaliation for its unfair currency practices, has agreed to postpone the bill until after the holiday recess, while noting that he will be forced to bring the bill to a vote should no progress be forthcoming.

China Drops Export Textile Tariffs: Following the signing of separate Textile Agreements with the U.S. and China, effective January 1, 2006, China dropped all textile tariffs on exports to the U.S. and EU.

EAR Penalties: The U.S. Bureau of Industry and Security (BIS) recently announced the following agreements with companies for EAR violations: 1) an Ohio company agreed to a $42,000 civil penalty for the unauthorized exports of fluid control valves to China and Taiwan; 2) denial of export privileges to a medical supplier for unauthorized exports of physical therapy equipment to Iran via Australia; 3) the conviction of two companies and their officers for illegally exporting certain machinery to India allowing for improved missile accuracy; 4) the conspiracy conviction of a Kentucky resident for exporting embargoed forklift and tow tractor parts to Iran.

Wal-Mart Promotes Social Issues through its Sourcing: In a recent speech titled "Twenty First Century Leadership", Wal-Mart’s President and CEO outlined action the company is already taking and further plans for reducing greenhouse gasses, reducing waste, increasing sales of organic products, and extending social and ethical standards of its product sourcing. Wal-Mart’s goal is to use 100% renewable energy, and to reach that goal, it is creating a green company program in China and will show preference to suppliers who set their own goals to reduce greenhouse gas emissions. Wal-Mart also plans to greatly reduce the packaging materials of the products it sells and to increase product package recycling of all post-consumer materials. It will also increase the availability of organic merchandise within its apparel, paper, food, and electronic products. The company will continue its program of dropping any factory that does not meet its ethical standards for worker protection and will work for greater transparency and independent monitoring of this program.

TRANSPORTATION TIDBITS

CSI: The port of Lisbon, Portugal has become operational under the Container Security Initiative (CSI) program. In addition, the port of Cortes, Honduras is slated to join the CSI program shortly.

LEGISLATIVE DEVELOPMENTS

Byrd Amendment Repeal: The U.S. Senate joined the U.S. Congress in voting to repeal the Continued Dumping and Subsidy Offset Act (CDSOA), better known as the Byrd Amendment. Several U.S. trading partners, including the EU and Canada, have imposed sanctions on certain U.S. exports after the WTO found the U.S. law to be inconsistent with its own laws. The repeal would be phased-in over a two-year period, which would allow domestic petitioners to received collected duties for goods entered prior to October 1, 2007. The repeal must still be approved in conference and signed by the President.

COURT CASES

Rainwear: In deciding the correct tariff classification of PVC imitation-leather jackets, the U.S. Court of International Trade (CIT) once again took up the issue of when jackets, which provide some protection from rain, can be classified under HTSUS 3926.20.60, the duty-free provision for rainwear. In Essex Manufacturing, Inc. v. U.S., the importer argued that its jackets are entitled to the duty-free rate, as they are below-waist-length stadium jackets and have an outside shell of heavy PVC to keep the wearer dry in rainy weather. Following a trial, the court found that although there is no dispute that the jackets are waterproof or water-resistant and shelter the wearer from the rain, this use is incidental to the actual purpose and "principal" use of the jackets, which is to keep the wearer warm. In addition, the court noted that consumer’s expectations, the channels of trade, and marketing of the jackets indicate that the primary use is not as rainwear but rather, to provide warmth to wearer. The proper classification is under HTSUS, 3926.20.90, the provision for "Other articles of plastic…Articles of apparel and clothing accessories" (5% duty).

Epoxy Molding Compounds: The CIT recently ruled on the proper classification of various epoxy molding compounds (EMC)’s used to protect delicate integrated circuits through encapsulation. Silica and quartz are added to the epoxy resins to complement and enhance its protective features. The epoxy resin powders typically range between 15%-20% by weight while the silica and quartz "fillers" from 60%-85% in weight. In Amoco Corporation v. U.S., the importer argued for classification under heading 3907.30.00, HTSUS, as "epoxide resins of primary form," with a tariff rate of 6.1% ad valorem, while Customs argued that due to the quantity and importance of the silica and quartz fillers, the EMC’s are "products engineered from resins of primary form" and are not themselves of "primary form," and should be classified under heading 3824.90.28, HTSUS, as "mixtures…of one or more…aromatic substances," with a duty rate of 12.9% ad valorem plus 3.3¢ per kilogram, at the time of first entry. Ruling in favor of the importer for classification in Chapter 39 and the lower duty rate, the CIT explained that the Explanatory Notes to Chapter 39 expressly contemplate that "primary forms" may include "fillers" which may impart special desirable characteristics. In addition, while the Notes do set a qualitative limit for additions to the primary forms (when the additions result in a product more specifically described elsewhere), no quantitative limit is set.

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This Trade Alert has been prepared by Chaim Appel, Technical Advisor.