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

May 31, 2005

• Textile Developments:

• Commercial Porcelain Tableware or Kitchenware: Various porcelain tableware and kitchenware imported for exclusive use on airliners were previously classified by CBP under heading 6911, HTSUS, the provision for porcelain household articles (under the following duty rates: 8%, 14%, 20.8%); CBP is proposing to reclassify the merchandise under subheading 6911.10.1000 (duty 25%), HTSUS, the provision for "Hotel or restaurant ware and other ware not household ware", as use of this merchandise on a commercial airliner is not of the same class or kind of those used in a household.
• Wood Packaging Materials: The U.S. Department of Agriculture's Animal and Plant Health Inspection Service ("APHIS") is reminding the importing community that its new rules for imports of wood packaging materials ("WPM") are due to take effect on September 16, 2005. Pallets, crates, boxes, etc. must either be heat treated or fumigated with methyl bromide, with the addition of an approved mark certifying proper treatment.

• Additional Senegal AGOA Benefits: CITA announced that effective June 6, 2005, Senegal will be eligible for enhanced duty free treatment for handloomed, handmade, or folklore articles under the African Growth and Opportunity Act ("AGOA").
• Japanese Beef Imports: The U.S. is asking Japan to resume imports of U.S. beef banned since December 2003 after the first case of mad cow disease was detected in the U.S.

• U.S. and EU File Counter Complaints Over Airline Subsidies: The U.S. and EU filed counter complaints with the WTO over alleged subsidies to their respective airplane manufacturers, Airbus and Boeing. The dispute is expected to be the biggest, costliest, and most difficult case in the WTO's history.
• U.S. Drops Case Against Egypt: The U.S. notified the WTO that it is dropping a case it filed against Egypt, as it settled the dispute over increased duties Egypt levied on U.S. textile and apparel.
• Iran Starts WTO Membership Process: WTO members agreed by consensus to allow Iran to open negotiations to join the WTO.

• China's 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 Developments: 1) The Bureau of Industry and Security ("BIS") is seeking comments by June 23, 2005 regarding a proposed rule that would amend the Export Administration Regulations ("EAR") and require an export license for any missile technology controlled goods exported to Canada, which until now was exempt of the license requirements; 2) the BIS recently announced guilty pleas of two individuals who violated the EAR's by illegally shipping dual-use semiconductors to China without the required license and falsifying and undervaluing illegally exported shipments to avoid scrutiny or inspection.
• EU to Require Seatbelts in Commercial Vehicles: The European Commission adapted a directive to make mandatory the fitting of seat belts in commercial vehicles beginning in the last quarter of 2005.
• Recent Innovations: 1) A clothier recently started offering tailored wool clothing which adjusts to the wearer's body-heat and maintains the wearer's comfort level regardless of either hot or cold surroundings. The fabric contains patented Thermocules® that absorb, store, and release heat, thus maintaining temperature balance; 2) a commercial carpet manufacturer recently developed a process for creating high quality commercial carpet from waste yarn. Post production yarn was successfully merged using different dye lots to create a product with rich hues and subtle tones.

• Ports to Cut Free Time: In an effort to cut port congestion, the ports of Los Angeles and Long Beach are preparing to reduce container storage time beginning July 1, 2005. Imported containers will be allowed four days free storage instead of five and containers waiting to be exported will be allowed five days free time instead of six. The calculation of free time will begin from the day after a particular container has been unloaded and not from the time the entire ship has been unloaded.
• Cargo Security Provisions: The recently passed Department of Homeland Security Authorization bill (H.R. 1817) included provisions requiring the establishment of standards and procedures for cargo container seals and locks. The bill also requires the Secretary of Homeland Security to consolidate the various security programs relating to cargo containers in order to achieve maximum security and efficiency.

• Legislation Strengthening Counterfeit Laws: Two bills were recently introduced in the U.S. Congress that will strengthen laws and increase fines for the handling of counterfeit merchandise. A bill introduced in the U.S. House of Representatives (H.R. 32) calls for the destruction of equipment used in the manufacture of counterfeit merchandise and toughens counterfeit laws to include the trading in counterfeit marks. Currently it is only illegal to trade in counterfeit merchandise when a counterfeit mark is attached to the merchandise. The U.S. Senate version (S. 1095) increases penalties for trafficking in counterfeit goods to $2 million and/or 10 years in prison and up to $5 million and/or 20 years in prison for repeat convictions. The bill also expands the definition of "traffic" and includes penalties for trafficking of electronic media.
• 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.
• Miscellaneous Tariff Bills Introduced in Congress: In preparation for the annual Miscellaneous Tariff Bill, members of Congress are introducing legislation to reduce or temporarily suspend tariff rates on a host of imported merchandise. Some of the recently introduced legislation covers: automotive catalytic converter mats; low expansion laboratory glass; air freshener electric devices; certain photo sensitizers, organic pigments, and other dyes; and certain cathode ray tubes.
• PVC Cosmetic Cases: A bill (H.R. 2128) was recently introduced in the House calling for the suspension of duties for cosmetic bags with a flexible outer surface of reinforced or laminated PVC. Under the bill, duties will be suspended until December 31, 2009.

• Supreme Court Upholds Beef Checkoff Program: In a closely watched decision, the U.S. Supreme Court ruled that the beef checkoff program is constitutional. The beef checkoff program (a research and promotion program) is a targeted tax assessing a $1 per head on each cattle sold, imported, or exported and used to fund a marketing campaign to increase awareness and sales of beef products. Opponents of the program argued that the mandatory nature of the tax assessment is akin to "compelled speech" which is a violation of their first amendment right of free speech. Several lower courts agreed with the "compelled speech" argument and ruled that the beef checkoff program violated the petitioner's free speech and was unconstitutional. Similarly, the Supreme Court previously found that the mandatory mushroom checkoff program was unconstitutional, comparing it with the ability of union and association members being able to withhold their dues from advocacy they disagree with. However, in Johanns v. Livestock Marketing Association, the Supreme Court used a new analysis in finding that the beef marketing campaign, run by the government, is essentially "government speech", and thus, is not subject to ordinary first amendment review. The court stated that "citizens may challenge compelled support of private speech, but have no First Amendment right not to fund government speech." This ruling throws into question similar checkoff programs assessed on pork, soybeans, lamb, wool, cotton, dairy, eggs, fruits, vegetables, and specialty crops.
• 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 in 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 the use of the merchandise as a therapeutic substance. Should it be shown in the future that the merchandise does not have the relieving propertied 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 in order to safeguard their rights to any potential duty refunds.

Serko & Simon LLP

1700 Broadway, 31^st Floor

New York, New York 10019

Phone (212) 775-0055 Fax (212) 839-9103

Outside of New York State: 1-800-46-TRADE

E-mail address: serko-simon@customs-law.com On the internet at: http://www.customs-law.com