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

• Wood Packaging Material: The new wood packing material (WPM) requirements are effective as of September 16, 2005, albeit allowing for a three-step phase in period. The new governing standards, ISPM 15, require affected WPM to be either heat treated or fumigated with methyl bromide including a required certified mark. Wine crates with a vintage prior to 2006 and WPM which is part of a bundle of lumber imports are exempt from the new rules. In addition, WPM made entirely of U.S. or Canadian wood are exempt so long as the shipment is accompanied with a document attesting to the fact that the wood came from trees in these two countries. From September 15, 2005- January 31, 2006, CBP will use informed compliance on non-compliant shipments by attaching a Notice of Violation without taking further action; February 1, 2006- July 4, 2006, CBP will reject those WPM materials which are not compliant; full enforcement, with the possible rejection of entire shipments, commences on July 5, 2006;
• 2) Regarding the new WPM rules, the states of California, Connecticut, Illinois, and New York filed a lawsuit asserting that the new rules do not go far enough to completely phase out the use of susceptible wood packaging materials. The lawsuit states that APHIS didn’t consider alternatives to wood; did not consider the effect on the environment from the increased use of methyl bromide; and did not address the possibility of fraudulent certification marks.
• China Trade Developments: 1) A third round of meetings between U.S. and Chinese officials to reach a broad agreement regarding the rapid increase of Chinese textile and apparel exports to the U.S. has failed to produce any agreement. In seeking a long-term solution, the Committee for the Implementation of Textile Agreements (CITA) announced that it is extending until November 30, 2005, its determination of safeguard measures for certain cotton and MMF knit fabric (cat. 222), cotton and MMF sweaters (cat. 345/645/646), cotton and MMF dressing gowns and robes (cat. 350/650), and wool trousers, breeches and shorts (cat. 447); 2) the U.S. domestic industry recently filed additional safeguard petitions with CITA covering: cotton and MMF cheesecloth, batiste, and lawns/voile (cat. 226); men’s and boy’s wool suits (443); MMF light weight polyester filament fiber (cat. 619); and MMF coats (cat. 634/635).
• Periodic Monthly Payments: Sources indicate that CBP will soon allow companies to make use of the periodic monthly payment option regardless of whether or not they set up an Automated Commercial Environment (ACE) account. These sources expect CBP to soon issue a Federal Register Notice to this effect.
• CBP Commissioner Resigns: CBP Commissioner, Robert Bonner, has announced his resignation. The Commissioner has not announced an effective date for his resignation.

• U.S. Concludes FTA with Oman: The USTR has notified the U.S. Congress that it completed a bilateral free trade agreement (FTA) with Oman. Congress must be notified 60 days prior to the signing of a FTA.
• Fair Trade Developments: The U.S. International Trade Commission (ITC) recently: 1) initiated an antidumping (AD) investigation of certain lined paper school supplies from China, India, and Indonesia, and a countervailing (CV) investigation from India and Indonesia; 2) initiated a sunset review on pure magnesium (ingots) from China; 3) made an affirmative decision in its Section 421 safeguard investigation of circular welded non-alloy steel pipe from China; 4) scheduled a sunset review of its AD order on synthetic indigo from China; 5) instituted a sunset review of its AD order on gray Portland cement and cement clinker from Japan and Mexico; 6) voted to keep in place the AD order for top-of-the-stove stainless steel cooking ware from Korea and Taiwan; 7) the U.S. International Trade Administration (ITA) issued the final results of its AD administrative review of automotive replacement glass windshields from China.
• International Trade Briefs: 1) The EU announced that it reached an agreement to start membership talks with Turkey. Should Turkey eventually become an EU member, it will automatically lose its Generalized System of Preferences (GSP) eligibility; 2) following Brazil’s lead, an Italian footwear association asked the European Commission (EC) to initiate an AD investigation into leather shoes from China.

• Ruling Against U.S. Export Benefits Affirmed: The WTO recently ruled that the transition and grandfathering clause approved by the U.S. Congress when it voted to eliminate the Foreign Sales Corporation (FSC) tax benefits violated WTO rules. The EU may ask the WTO for approval to impose sanctions against the U.S., although at this time it is not known if they intend to. The U.S. announced it will appeal the ruling.
• Aircraft Subsidies: The dispute between the U.S. and the EU over unfair subsidies granted to its mutual aircraft manufacturers, Boeing and Airbus, took a step forward at the WTO upon the appointment of a senior Mexican trade official to gather the necessary information on financial support to the two companies.

• Drug Import Developments: 1) A U.S. District Judge in Vermont ruled against that state’s bid to force the U.S. administration to allow Vermont’s employees and retirees to import prescription drugs from Canada. Although agreeing with the merit of Vermont’s drug import bid, in ruling on the legality of the lawsuit, the judge found that Vermont did not prove that the FDA has a "duty to perform" (responsibility) to approve the state’s proposed drug import plan; 2) FDA Deputy Commissioner Scott Gottlieb recently reiterated the U.S. administration’s opposition to legislation that would allow imports of prescription drugs. The Deputy Commissioner reiterated the FDA’s stance that it could not ensure the safety of imported drugs, noting that import channels are already being exploited by drug counterfeiters. The U.S. administration also threatened to veto any bill containing a provision allowing the importation of prescription drugs.
• Lawsuit Filed For Poor Labor Conditions: A Washington D.C. based labor rights group recently filed a lawsuit against Wal-Mart under California’s Unfair Business Practices Act, alleging that Wal-Mart failed to monitor labor conditions at overseas factories supplying it with some of its products. The suit was filed on behalf of two classes of plaintiffs: 1) overseas workers who were allegedly denied minimum wage, overtime wages, and denied their freedom to freely associate; and 2) certain California grocery workers who lost wages and benefits due to increased competition from Wal-Mart Stores.
• Recent CPSC Actions: The U.S. Consumer Products Safety Commission (CPSC) recently announced recalls of the following items: 1) certain grout sealer, as overexposure to its fumes may cause respiratory illness; 3) certain cordless drills/drivers, as the battery pack may overheat or rupture.
• Recent Innovations: Researchers at the University of Idaho’s College of Natural Resources developed a process to turn certain wood products into bio-oil, a substance similar to crude oil. Sawdust and methanol were heated to about 900˚ Fahrenheit and produced bio-oil, which was then separated by grade. With only about a 2% loss of mass resulting from the heating process, and a product that could be a substitute for gasoline, glues, resins, and tar, the research is already drawing interest from energy companies. However, currently, the process is not yet competitive with standard oil products.

• Gulf Ports Update: In an update on the operability of the Gulf ports affected by Hurricane Katrina, CBP advised that it designated the Atlanta Field Office to oversee all cargo clearance and related import processing for the entire region. The Port of Memphis has been designated to receive all entry related items and correspondence concerning fines, penalties & forfeitures, while protests are to be filed with CBP’s Atlanta office.
• CSI: CBP announced that the ports of Kaohsiung, Taiwan, Santos, Brazil, and Colombo, Sri Lanka have recently become operational under the Container Security Initiative (CSI).

• "Process" and "Materials" Relating to a Coolant Distribution Unit: In Fujitsu America Inc. v. U.S., the U.S. Court of Appeals for the Federal Circuit (CAFC) affirmed a U.S. Court of International Trade (CIT) ruling, which held that the proper classification of Fujitsu’s coolant distribution system (CDU), used to cool integrated computer circuits, is under subheading 8419.89 (4.2% duty), the provision for "Machinery,… for treatment of materials by a process involving a change of temperature such as…condensing or cooling" (emphasis added). The CDU, designed to keep a mainframe computer at a "constant temperature", circulates coolant past the hot circuits, drawing the heat away from them, and releasing the heat into the ambient air. The importer argued that: 1) because the circuits are kept at a "constant temperature", no "change of temperature" occurs; 2) the circuits are not "materials", as they are already fully manufactured; and 3) the mere dissipation of heat, not involving sequential steps, does not rise to the level of a "process." The CAFC ruled that by examining the operation of the CDU itself, not the combined effect of the CDU along with the computer (its goal), it is clear that as the coolant draws the heat from the circuits and is subsequently dissipated, a change of temperature occurs. In rejecting the importer’s contention that fully manufactured circuits can’t be considered "materials", the court ruled that nothing in heading 8419 suggests the term "materials" to necessitate a differentiation between unprocessed goods and goods at a more processed stage. Finally, the court found that although the process employed by the CDU is relatively simple, nothing in the heading suggests that the term "process" requires complex technology. Further, the court found that the CDU involves a two-step process, drawing energy away from the circuits into the coolant, followed by dissipation into ambient air.
• Box-Top License May Further Protect Patents: In a ruling with vast ramifications for patented products, the U.S. Court of Appeals for the Ninth Circuit recently reinforced the right of companies to limit a consumer’s use of its product if conditions or restrictions are posted on the product package, known as a box-top license. In Arizona Cartridge Remanufacturers Association v. Lexmark International Inc., the plaintiffs argued that Lexmark’s Cartridge Rebate, promising price discounts on its laser cartridges if the consumer returned the empty cartridge to the company: 1) deceptively suggests that an enforceable agreement has been entered requiring the return of empty cartridges to the manufacturer; 2) that the price discount promise was false because Lexmark could not control prices charged by retailers; and 3) Lexmark’s printers containing a chip to thwart the printer’s use with cartridges from other manufacturer’s was an unfair business practice. The court however ruled that if the consumer is properly notified, a manufacturer may limit the use of its product after sale. In addition, the court stated that Lexmark’s pricing claim was accurate, and that the chips inserted in the printers to thwart other cartridges failed to constitute an unfair competition (in an unrelated case, Lexmark International Inc. v. Static Control Components, a court allowed Static to engineer cartridges from other manufacturers to circumvent Lexmark’s cartridge chip).

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