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

SERKO & SIMON LLP – Customs & International Trade Law

August 8, 2005

CUSTOMS and BORDER PROTECTION ("CBP")

Recent China Developments:

Safeguards – 1) The Committee for the Implementation of Textile Agreements ("CITA") announced that it is extending the period for making determinations on six pending China textile safeguard petitions until August 31, 2005. The extension is a result of CITA's request to consult with the domestic industry and members of Congress on whether to pursue a broader agreement with China over its exports of textile and apparel articles, much like the agreement recently reached between China and the EU; 2) irrespective of possible negotiations toward a broader textile and apparel agreement, CITA announced it is accepting for deliberations safeguard petitions on the following Chinese exports: cotton, wool, and MMF socks (cat. 332/432/632pt.), cotton and MMF woven shirts and blouses (cat. 341/641), cotton and MMF skirts (cat. 342/642), cotton and MMF nightwear (cat. 351/651), and cotton and MMF swimwear (cat. 359S/659S).

Export Tariffs – Commensurate with the agreement between China and the EU regarding the re-imposition of quota on certain textile and apparel articles, China announced it is removing the export tariffs it imposed on those categories. In an effort to head off a sharp rise in exports, China imposed export tariffs on sensitive categories beginning January 1, 2005. China has now decided that it will withdraw these export tariffs for any goods that are subject to safeguards or other import restrictions.

U.S.-China Meet Over Trade Issues – The U.S. and China recently concluded a meeting of the Joint Commission on Commerce and Trade at which agreement was reached on several issues relating to U.S. trade concerns. China agreed to increase criminal prosecutions of intellectual property rights (IPR) violators, implement regulations to reduce exports of infringing merchandise, cooperate with other law enforcement agencies, establish an IPR Ombudsman at its Washington D.C. embassy, and facilitate increased U.S. exports to China.

Enforcement of WPM to Begin: Beginning September 16, 2005, the U.S. Department of Agriculture's Animal and Plant Health Inspection Service (APHIS) will start enforcing the new wood packing material (WPM) import regulations. The new regulations require all WPM to be either heat treated or fumigated according to international standards and marked with a specific authorized mark. Noncompliance may lead to the immediate re-export of the non-compliant WPM as well as the accompanying merchandise.

Stud Sensors: Certain stud sensors designed to detect and alert a user to the location of studs or joints behind a wall were originally classified at time of entry under HTSUS 9031.80.80 (1.7% duty), the provision for "non-optical measuring or checking instruments." CBP then liquidated the sensors under HTSUS 9031.49.90 (3.5% duty), the provision for "optical measuring or checking instruments." CBP has now determined that as the sensors do not determine the measurements of anything, nor inspect and ascertain the condition of anything, it does not perform a measuring or checking function, and thus, not properly classified under Heading 9031. CBP notes that the proper classification of the sensors is under HTSUS 8531.80.00 (1.3% duty), the provision for "Electric sound or visual signaling apparatus…Other apparatus."

TRADE TALK

CAFTA FTA Approved: The U.S. House of Representatives joined the U.S. Senate in approving the Dominican Republic-Central America-U.S. ("CAFTA-DR") Free Trade Agreement (FTA). After last minute concessions to skeptics on textiles, sugar, and labor laws, CAFTA squeezed by Congress by a 217-215 vote. Although President Bush has signed the agreement, Costa Rica, the Dominican Republic, and Nicaragua still must ratify it before it can come into effect. Upon implementation, 80% of CAFTA imports will be duty free immediately, with the remainder phased in over a period of 10 years.

Comments Sought on China's WTO Commitments: The U.S. Trade Representative (USTR) is seeking comments by September 6, 2005 on China's compliance to its WTO commitments. Comments are sought regarding China's import and export regulations, IPR enforcement, and on any of its other commitments.

Free Trade Developments: 1) Japan and Thailand agreed to forge ahead with negotiations toward signing a FTA by next year. It is envisioned that tariffs on steel and automotive parts will be phased in over a long period; 2) President Bush continued for another year the national emergency with regard to Liberia; 3) Taiwan and Guatemala recently concluded and signed a FTA. As a member of CAFTA, Taiwan hopes to use Guatemala as a valuable access point to the U.S. market; 4) according to reports, Russia is allowing the creation of special economic zones which will provide a five year exemption of land and property taxes, duty free treatment for goods used in the zones, and liberalization of other economic restrictions; 5) India recently enacted its own special economic zone legislation to attract foreign investment and increase exports. Although India's labor laws have not been relaxed in the economic zones, the program will give zone developers and tenants huge income tax breaks over 15 years and reduces bureaucratic barriers to business.

Fair Trade Developments: The U.S. Commerce Department recently: 1) issued an antidumping ("AD") order on certain metal calendar slides from Japan; 2) revoked the AD order on mechanical transfer presses from Japan; 3) reached an affirmative determination in its five-year sunset review of petroleum wax candles from China; 4) terminated its five-year sunset review of its AD order on electroluminescent flat panel displays from Japan; 5) recently instituted special Section 337 investigations into alleged patent and trademark infringements of the following articles: certain laminated interlocking floor panels; certain hand-held mobile computing devices, components thereof, and its cradle; certain tissue converting machinery.

WORLD TRADE ORGANIZATION ("WTO")

Japan Imposes Sanctions On U.S. Steel: Following similar moves by the EU and Canada, Japan will impose 15% retaliatory tariffs on U.S. exports, starting September 1, 2005. These tariffs, the first ever by Japan, are in retaliation for the U.S.' failure to repeal the Continued Dumping and Subsidy Offset Act, otherwise known as the Byrd Amendment. The tariffs will be imposed on the following: bearings, steel products, machinery accessories, printing machines, forklift trucks, navigational instruments, and industrial belts.

Proposal for AD/CV Comment Period at Beginning of Investigation: The WTO's Negotiating Group on Rules recently received a proposal from China to establish a 20-day comment period at the beginning of any AD/CV proceedings. Currently, respondents have only 30 days to decide whether to respond, make technical arrangements, do research, gather all documents, prepare, and submit their response. By providing interested parties with a comment period at the commencement of proceedings, respondents will be able to better defend themselves by allowing more time to review the accuracy and evidence presented in the complaint.

Hormone-Treated Beef Talks to be Open: The U.S. is applauding a WTO decision to open, for the first time, the hormone-treated beef dispute talks to the public. The U.S. and Canada imposed retaliatory tariffs against the EU for its refusal to remove its ban on hormone-treated beef. The EU is asking the WTO to allow it to keep the ban in place.

BUSINESS BRIEFS

EU Fines Pharmaceutical Company Over Patent Extension: The EU recently fined a large pharmaceutical company over $70 million for providing it with misleading information in an effort to extend its patent protection on one of its best selling drugs.

Canada to Ban Bulk Drug Exports: Canada's Health Minister announced that he will seek to introduce legislation that would ban bulk pharmaceutical exports, at least during times when supplies run low in Canada, and will work to provide comprehensive data on Canada's prescription drug supply.

Social Responsibility Report: Gap Inc. recently released its second annual social responsibility report highlighting labor abuses uncovered at overseas factories doing business with the company. The report identified hundreds of factories who abuse worker rights by requiring excessive overtime, paying low wages, and fining workers who seek to quit. The company rejected 15% of new factories seeking its business, and severed ties with 70 other factories. By publicizing the reports findings, the company hopes to prod the industry to establish reforms and improve work related standards.

CPSC Developments: Noting that a majority of recalled consumer products originate from China, the Consumer Product Safety Commission (CPSC) has developed a draft plan to help China improve the quality of some of its exports. The plan calls for: CPSC's Chinese counterparts to familiarize themselves with U.S. standards to help Chinese manufacturers incorporate those standards into their products; the recommendation of possible changes to China's consumer safety regulations; study how to synchronize each other's standards; and work with other U.S. agencies in enforcing consumer safety standards.

The CPSC recently issued the following recalls: 1) certain treadmills, as their spring/shock may be damaged upon assembly and may propel shock parts out; 2) certain bicycles, as the wheels may collapse and/or the rear axle may crack; 3) certain slow cookers, as the handles may break and cause the hot contents to spill; 4) certain children's folding chairs, as their folding locks may fail, causing the chair to collapse; 5) certain baby denim and knit jackets, as their metal buttons may detach and pose a choking hazard; 6) certain industrial fire extinguishers, as the valves may separate and cause a safety hazard to handlers.

Recent Innovations: 1) A Colorado company recently developed the "Glow-lux" fluorescent lamp which shines normally when plugged in and glows dimly when the power is cut. The light is useful in emergency situations, as its glow is strong enough to be used as emergency lighting, and even the broken shards keep on emitting a glow. The company also developed a shatter-proof version; 2) a textile company recently debuted textile fabrics infused with conductive ink, which allows comforters to twinkle and emit sounds, accent rugs to switch a lamp on or off, and a deco-pillow to be activated by remote control. The company is seeking to expand the applications of its "disruptive technology" by, for instance, allowing a towel to be warmed just by the touch of the hand; 3) a researcher at Auburn University is developing a heart stent made of polyester fabric which may be cheaper, more effective, more flexible, and stronger than traditional metal stents.

TRANSPORTATION TIDBITS

Vancouver Port Strike: Striking truckers, agreeing to a temporary mediated settlement, are back at work at the Port of Vancouver after a weeks-long strike. However, additional strikes are still possible, should a permanent agreement not be reached.

Indian Ports Back to Normal: Several Indian ports, which stopped operations due to the recent monsoon rainstorms, have resumed normal operations, although scattered disruptions are being reported.

U.S. LEGISLATIVE DEVELOPMENTS

Miscellaneous Trade Bills: The U.S. House of Representative's Subcommittee on Trade is requesting comments by September 2, 2005 on the close to 700 miscellaneous duty suspension and technical corrections bills it received. Those bills that do not create a revenue loss and neither retroactive nor controversial, will be included in this year's miscellaneous trade bill. Examples of some of the goods covered by the miscellaneous tariff bills seeking preferential duty treatment are: chemicals, electronics, textiles, steel, machinery, and medical equipment.

Senate Approves Centralized Drug Re-exports: The U.S. Senate recently approved a bill (S. 1395) which amends the Controlled Substances Import and Export Act to allow for the re-export of drugs to a centralized site for further distribution to other countries. The U.S. is currently the only country which requires that the export of a controlled substance go only to the country where it will be consumed.

COURT CASES

Value and Assists Leads to Severe Penalties: In two cases recently decided by the U.S. Court of International Trade ("CIT"), the court found an importer grossly negligent and negligent respectively with regard to reporting the correct value of its imports and assists, and levied total penalties in excess of $20 million. 1) In the first case, United States v. Ford Motor Co., the CIT considered the importer's failure to notify Customs of upward adjustment values for its automotive tool dies at the time of or subsequent to importation. The court found that as the importer knew its different units had communication problems, its lack of a post entry mechanism to ascertain the correct dutiable value of its imports, and repeatedly missed opportunities to advise Customs of the increased value, illustrated gross negligence and reckless disregard for its Customs obligations. In deciding on the proper penalty amount, the court weighed factors relating to deterrence, public policy, and harm to society, as well as the importance of maintaining Customs' agency authority. In noting that "the penalty must be high enough to deter others from committing these customs violations," the CIT found that $3 million represented a just penalty regarding the facts of this case;

2) In a second case against the same importer, the CIT reviewed the importer's failure to properly report the value of vehicles and components it imported, as well as the effect of assists and other lump sum payments on the actual transaction value. In finding that the importer failed to exercise reasonable care, failed to make a good faith effort to meet its obligations pursuant to its own Reconciliation Agreement, and its employees failed to follow its own customs compliance measures, the court found the importer guilty of negligence. In weighing the severity of the importer's culpability and the significant public interest in favor of the imposition of a heavy penalty, the CIT found that's that the importer's actions did not warrant any mitigation and assessed the statutory maximum penalty for negligence in this case, which totals over $17 million. Both cases may be appealed to the U.S. Court of Appeals for the Federal Circuit.

CIT to Dismiss Remaining HMT Claims: In granting the government's motion to dismiss all pending export Harbor Maintenance Tax ("HMT") claims, the CIT established procedures for the disposition of all remaining HMT claims. Parties who believe their action should not be dismissed must file an electronic Motion to Stay by September 26, 2005. The government must answer each claim by October 28, 2005, with all other pending HMT actions automatically dismissed after December 1, 2005.

Court Lifts Ban on Canadian Beef Imports: On July 14, 2005, the Ninth Circuit Court of Appeals lifted the temporary injunction imposed by the U.S. District Court for the District of Montana which prohibited imports of Canadian cattle. As a result, the U.S. Department of Agriculture's final minimal risk rule is effective from July 15, 2005 and imports of Canadian beef and certain products thereof have resumed for cattle under the age of 30 months.

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