May 2005

• PHMSA Corrects Hazmat Final Rule: The Pipeline and Hazardous Materials Safety Administration ("PHMSA") issued several clarifications and amendments to the Hazardous Materials Regulations' final rule, which becomes effective on June 1, 2005. The clarifications consist of technical definitions relating to "transloading," "unloading," and "storage." The amendments also delegated responsibility for hazmat transportation security to the U.S. Department of Transportation, in addition to its safety authority.
• U.S. May Ban the "Dirty Dozen": The United States is considering joining the Stockholm Convention by 2006. The Stockholm Convention calls for the phase-out of a dozen of the world's most hazardous chemicals and pesticides. Called the "dirty dozen", they include aldrin, chlordane, dieldrin, dioxins, DDT, endrin, furans, heptachlor, hexachlorobenzene, mirex, toxaphere, and polychlorinated biphenyls ("PCB").
• MEK Off EPA's Toxic Inventory List: Finding in favor of the American Chemical Council, the U.S. Court of Appeals for the District of Colombia Circuit ordered the U.S. Environmental Protection Agency ("EPA") to remove methyl ethyl ketone ("MEK") from the annual Toxic Release Inventory List (List"). The list requires chemical makers and users to account for and track the amount of MEK released into the environment each year. While acknowledging that MEK is an irritant, the court found that it does not cause harm to people through exposure, and thus, does not belong on the List according to the EPA's own guidelines.
• Motor Support Bearings, Oil Filler Caps, and Felt Wick Lubricators: Motor support bearings, oil filler caps, and felt wick lubricators packaged together and sold as a set to support motor traction were classified under subheading 8302.30.30, HTSUS (2% duty), the provision for "Base metal mountings,…: other mountings, fittings and similar articles suitable for motor vehicles; and parts thereof…; CBP now claims that the set is more properly classified under subheading 8483.30.80, HTSUS (4.5% duty), the provision for "transmission shafts…bearing housing…,parts thereof: bearing housing; plain shaft bearings: Other.

• Countries Impose Retaliatory Sanctions on U.S. Exports: Effective May 1, 2005, the EU and Canada imposed retaliatory tariffs of 15% on certain U.S. exports over the Continued Dumping and Subsidy Offset Act, also known as the Byrd Amendment, which was ruled illegal by the World Trade Organization ("WTO"). The EU levied additional 15% tariffs on a variety of U.S. agricultural, machinery, paper and textile products, while Canada imposed tariffs on U.S. cigarettes, oysters, and live swine exports. Other countries are expected to announce similar tariffs shortly.
• Free Trade Developments: 1) The U.S. and Morocco agreed to amend and postpone the effective date of the U.S.-Morocco Free Trade Agreement ("FTA") from January 1, 2005 until July 1, 2005; 2) India and Japan took a first step toward a FTA, which will be the first FTA for India with a developed country and only the third FTA for Japan; 3) following Australia's recognition of China as a "market economy", China and Australia signed a memorandum of understanding toward establishing a FTA; 4) the EU, Israel, and Jordan signed a declaration updating the Pan Euro-Med rules of origin for joint Israeli-Jordanian exports from free trade zones to the EU.
• New USTR: The U.S. Senate confirmed Robert Portman as the new U.S. Trade Representative ("USTR"). In his testimony before the Senate Finance Committee, Mr. Portman indicated he will take a tougher approach to trade with China and order "an immediate top to bottom review" of various trade complaints against China.
• Fair Trade Developments: The International Trade Commission ("ITC") recently: 1) issued a final negative determination in its antidumping ("AD") and countervailing ("CV") investigation of polyethylene terephthalate ("PET") resin from India, Indonesia, and Thailand; and 2) revoked its AD order on sebacic acid from China.

• President Seeks Extension of Fast Track Trade Authority: The U.S. administration recently asked Congress to extend Trade Promotion Authority ("TPA"), also known as "Fast Track" legislation, until July 1, 2007; TPA is currently set to expire on July 1, 2005. TPA gives the President greater authority to negotiate FTA's and was used in negotiating FTA's with Chile, Singapore, Australia, Morocco, and the proposed FA with Central America-Dominican Republic, and Bahrain.
• New North America Pact: At their recent meeting, President Bush, the Prime Minister of Canada, and the President of Mexico launched the Security and Prosperity Partnership of North America, an initiative to compliment and expand existing treaties between the three countries. The initiative calls for closer integration of security measures as well as expanding economic cooperation. NAFTA itself won't be altered, however, the pact calls for increasing productivity, standardizing business regulations, and harmonizing export requirements and tariffs, to be more competitive with the EU and China.
• Intellectual Property Rights Report: The USTR released the results of its annual report of intellectual property rights ("IPR") protection around the world. Ukraine, currently subject to $75 million in sanctions, will remain the only country subject to sanctions. China, along with thirteen other countries, has been put on the "Priority Watch List" and faces the threat of possible sanctions should their IPR protections not improve.
• National Emergencies: President Bush continued the national emergency with regard to Burma and Syria for an additional year.

• Final Rule Against EU Sugar Subsidies: The WTO's appellate court upheld a WTO lower body decision which found the EU's sugar subsidy regime to be illegal under WTO rules. In a case brought by Brazil, the WTO found that the EU sugar subsidies encouraged overproduction of sugar, which was subsequently dumped around the world. The EU has 180 days to bring its sugar subsidies into compliance with WTO rules.
• U.S. to Comply with WTO Cotton Ruling: The U.S. administration notified the WTO of its intent to fully comply with the recent WTO Dispute Settlement Body ("DSB") finding against the U.S.' cotton subsidies.
• Saudi Arabia Seeks WTO Membership: Saudi Arabia is finalizing a WTO trade deal with the U.S. which should increase its chances of joining the WTO in the near future.
• New WTO Chief: Pascal Lamy, the former EU Trade Commissioner, was elected as the next Director General of the WTO.

• Chinese Monetary Policy: In its semiannual report to Congress on foreign exchange rate policies, the U.S. Treasury Department warned China over its continued refusal to move its currency to a more flexible exchange rate. The Treasury Department found that China's current currency policies "are highly distortionary and pose a risk to China's economy, its trading partners and global economic growth." "If current trends continue without substantial alteration, China's policies will likely meet the technical requirements of the statute for designation," referring to designation as a currency manipulator, which automatically triggers required negotiations, and eventually sanctions, if unsuccessful. The U.S. administration clarified that it does not seek an immediate move to a full flexible monetary policy but is seeking intermediate steps which will lead to a more flexible exchange rate.
• BIS Announces Settlements and Penalties: The Bureau of Industry and Security ("BIS") announced the following penalties for companies violating the Export Administration Regulations ("EAR"): 1) a $16,500 civil penalty to a company that exported power plant technical data to an organization on the BIS' Entity List; 2) a $17,500 penalty to a U.K. company for failure to comply with recordkeeping requirements; 3) a $10,000 civil penalty for exportation of optical devices to Canada in violation of the EAR; 4) a $10,000 civil penalty for exportation of an aluminum plate to an entity on the BIS' Entity List without the proper export permits; 5) a Pennsylvania company was sentenced to five years probation and was fined over $550,000 for violating the EAR and the Iranian Transactions Regulations by knowingly exporting banned miniature photo labs to Iran and making false statements on the Shipper's Export Declarations; and 6) denied export privileges for three years to a company who allegedly aided the exportation of gas compression spare parts to Iran in violation of the EAR.
• Cold Medicine Sales Restricted: With 45 states having imposed or considering restrictions on the sale of cold medicines containing pseudoephedrine as an active ingredient, and pending legislation in the U.S. Senate, some of the nation's largest retailers and drug store chains are taking steps to restrict access to these medicines. Retailers are moving these medicines behind the counter and are in discussions with drug manufacturers to possibly reformulate cold medicine ingredients in an effort to restrict the use of pseudoephedrine, which is used as a precursor in producing methamphetamine.
• EU Votes for 48-Hour Maximum Work Week: The EU Parliament recently voted to scrap an "opt-out" option and make the 48-hour maximum work week obligatory. The new EU Working Time Directive will be phased in over a three year period.
• Recent Innovations: 1) Researchers in Israel have developed a flexible needle which guides it to its objective target. The needle, attached to a robot guided by sensors, maneuvers around obstacles in the body and negates any patient movement in order to reach its intended target; 2) a major retailer has redesigned the standard medication pill box, the first in about 40 years. Target Corp's redesign encompasses a flatter bottle which rests on its cap, easy to read labels wrapped over the top, and color coded ring options to help identify the medication between different family members. The flattened bottle has a card slot for additional important medical information and bottles for liquid medicines contain a receptacle for oral syringes; 3) using advances in photovoltaic technology, the U.S. army is ordering flexible plastic sheeting that converts light into energy in order to replace the need for disposable batteries and recharging devices that soldiers need to carry. The sheeting can also be woven into sunlight-absorbing tents and reduce the need for diesel fuel for noisy, polluting generators.

• Denied Ports Update: The U.S. Coast Guard announced that effective May 23, 2005, absent certain security measures, ineffective anti-terrorism procedures in certain countries will result in denial of entry to U.S. ports to ships calling in the following countries during their last five port calls: Democratic Republic of Congo, Guinea-Bissau, Liberia, Mauritania, and Nauru.
• CSI Ports: The ports of Dubai, Shanghai, and Buenos Aires have recently become operational under the Container Security Initiative ("CSI") program.

• Drug Imports: Proposed legislation to allow drug imports recently introduced in the U.S. Senate by Senators Dorgan (D-N.D.) and Snowe (R-Maine) reportedly has the greatest chance of passage and approval, as it addresses some of the shortcoming of others drug import proposals. Addressing safeguard concerns, the proposed legislation would only allow the importation of drugs on an FDA approved list, would require pharmacists and drug wholesalers to register with the FDA to participate in the program, would give FDA inspectors access to foreign production and distribution facilities, and impose a 1% sales fee on wholesalers to fund the program.
• House Passes MTBE Liability Waiver: The U.S. House of Representatives recently passed an energy bill to help the U.S. cope with increased energy demand. Some of the provisions passed include: the extension of daylight savings time by two months, the opening of additional ports to liquefied natural gas imports, and a partial liability waiver for oil refiners and manufacturers of the gasoline additive methyl tertiary butyl ether ("MTBE"). The U.S. Senate is expected to take up a similar energy bill soon, and differences with the House version will have to be worked out in a conference committee.

• Chondroitin Sulfate is Duty Free: In Inabata Specialty Chemicals v. United States, the Court of International Trade ("CIT") considered whether there must be "conclusive proof" of efficacy for a substance to be considered as a "therapeutic" treatment of Chapter 30 (duty free), HTSUS. Inabata involved the classification of chondroitin sulfate, imported in bulk powder form and packaged for retail sale as a dietary supplement. CBP classified the merchandise under subheading 3913.90.20 (5.8%), HTSUS, the provision for "Natural polymers…Other:...Polysaccharides and their derivatives," while the importer claimed that the proper classification is under subheading 3001.90.00 (duty free), HTSUS, the provision for "other human or animal substances prepared for therapeutic or prophylactic uses…Other." At trial, the importer provided expert testimony, scientific and market evidence showing that chondroitin sulfate is prepared for and used to alleviate symptoms of Osteoporosis ("OA"), while CBP claimed that although chondroitin sulfate is used in the marketplace to alleviate OA symptoms, it is not yet "proven" to work as claimed. The court found that for classification purposes it is not required to determine how effective a reliever the merchandise is so long as the marketplace recognizes use of the merchandise as therapeutic. Should it be shown in the future that the merchandise does not have the relieving properties it claims to have, its market as a therapeutic substance will cease to exist, and with it, its classification as a therapeutic substance. As a result of the court's ruling, importers of chondroitin sulfate should consult customs counsel to safeguard their rights to any potential duty refunds.
• Dental Hygiene Products: In Warner-Lambert Company v. U.S., the U.S. Court of Appeals for the Federal Circuit ("CAFC") reversed the CIT's ruling with regard to the proper classification of Warner-Lambert's Certs® Powerful Mints. CBP classified the mints under subheading 2106.90.99 (6.4% duty), HTSUS, as a "food preparation not elsewhere specified or included." Warner-Lambert contended that as the mints are used to freshen breath and eliminate oral malodor, they should be classified under subheading 3306.90.00, HTSUS, as "Preparations for oral or dental hygiene…Other" (duty free). The CIT, relying on a U.S. Food & Drug Administration ("FDA") monograph on oral health care which stated that "hygienic measures" to control malodor contain antimicrobial active ingredients, concluded that because the mints do not contain any antimicrobial active ingredients they can't be classified as preparation for oral hygiene under HTSUS 33.06. However, the CAFC disagreed and found that although antimicrobial agents are linked to hygienic measures, "preparation for oral or dental hygiene" is not defined in any standard and hygienic activity may take place without the use of antimicrobial agents. In the case at issue, testimony was offered that Certs® Powerful Mints stimulate salivary flow which controls malodor by purging, while the flavoring masks the malodor as well. In addition, the CAFC noted that because Customs' prior rulings on this merchandise neglected to analyze the chemical composition of the mints, which help achieve the cleansing effect and purging activity, Customs' position does not merit Skidmore deference.
• Phosphorescent Coatings: In USR Optonix, Inc. v. U.S., the CIT reviewed the classification of two products used in producing phosphorescent coating applied to cathode ray tubes. The first product, a white powder of at least 99% by weight of yttrium oxide mixed with europium oxide (also known as Yttrium Oxide: Europium Doped) was classified by CBP under subheading 2846.90.50, HTSUS, the provision for "Compounds…of rare earth metals, of yttrium or of scandium, or of mixtures of these metals: Other: Other" (duty 3.7% at time of entry). Plaintiff argued that the proper classification is under subheading 3206.50.00, HTSUS (duty free), the provision pertaining to "mixtures of two or more inorganic compounds," as the yttrium/europium mixture in itself is not a "compound" but a "mixture" of two rare earth metals. The court ruled in favor of CBP and found that "the term 'compounds' as used in heading 2846 is intended to have a broader meaning….and is intended to include certain products that also could be described as 'mixtures'." As to the second product, a red powder consisting of at least 90% yttrium oxygen sulfate, 10% or less europium oxygen sulfide, and 1% or less ferrous sulfide, the court found that genuine issues of material fact remain and scheduled a trial to determine the proper classification of this product.

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