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17-0221 Tuesday “The Daily Bugle”

17-0221 Tuesday “The Daily Bugle”

Tuesday, 21 February 2017

TOPThe Daily Bugle is a free daily newsletter from Full Circle Compliance, containing changes to export/import regulations (ATF, Customs, NISPOM, EAR, FACR/OFAC, FTR/AES, HTSUS, and ITAR), plus news and events. Subscribe 
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  1. Commerce/BIS: ETRAC to Meet on Mar 23-24 in Wash DC 
  2. Commerce/BIS: MPETAC to Meet on Mar 7 in Wash DC 
  3. Commerce/BIS: MTAC to Meet on Mar 9 in Wash DC 
  4. Commerce/BIS: TransTAC to Meet on Mar 8 in Wash DC 
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.) 
  3. DHS/CBP Announces Rescheduled ACE Certification Outage at 1700 ET to 2000 ET Today 
  4. State/DDTC: (No new postings.)
  5. EU Amends Certain Restrictive Measures Concerning the ISIL (Da’esh) and Al-Qaeda Organizations
  1. B. Gevers, Y. El Bojaddaini & M. Gajewski Barnhill: “Opposites Attract: Linking HS and ECN Classification” 
  2. M. Volkov: “The ‘New’ Face of Corporate Misconduct” 
  3. R.H. Huey & G. Husisian: “U.S. Customs and the New Administration: Your Top Ten Questions Answered” (Part 1 of 2) 
  1. Bartlett’s Unfamiliar Quotations 
  2. Are Your Copies of Regulations Up to Date? Latest Changes: ATF (15 Jan 2016), Customs (27 Jan 2017), DOD/NISPOM (18 May 2016), EAR (1 Feb 2017), FACR/OFAC (10 Feb 2017), FTR (15 May 2015), HTSUS (10 Feb 2017), ITAR (11 Jan 2017) 

EXIMEX/IM ITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a1
1.

Commerce/BIS: ETRAC to Meet on Mar 23-24 in Wash DC

 
82 FR 11177: Emerging Technology and Research Advisory Committee; Notice of Partially Closed Meeting
  The Emerging Technology and Research Advisory Committee (ETRAC) will meet on March 23-24, 2017, 8:30 a.m., Room 3884, at the Herbert C. Hoover Building, 14th Street between Pennsylvania and Constitution Avenues NW., Washington, DC. The Committee advises the Office of the Assistant Secretary for Export Administration on emerging technology and research activities, including those related to deemed exports. …
  Discussion of matters determined to be exempt from the provisions relating to public meetings found in 5 U.S.C. app. 2 §§ 10(a)(1) and l0(a)(3).
  The open sessions will be accessible via teleconference to 25 participants on a first come, first serve basis. To join the conference, submit inquiries to Ms. Yvette Springer at
Yvette.Springer@bis.doc.gov no later than, March 16, 2017.
  A limited number of seats will be available for the public session. Reservations are not accepted. To the extent that time permits, members of the public may present oral statements to the Committee. The public may submit written statements at any time before or after the meeting. However, to facilitate the distribution of public presentation materials to the Committee members, the Committee suggests that presenters forward the public presentation materials prior to the meeting to Ms. Springer via email. 
  For more information, call Yvette Springer at (202) 482-2813.
 
Yvette Springer, Committee Liaison Officer.

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EXIM_a2
2.

Commerce/BIS: MPETAC to Meet on Mar 7 in Wash DC

 
82 FR 11176-11177: Materials Processing Equipment Technical Advisory Committee: Notice of Partially Closed Meeting
  The Materials Processing Equipment Technical Advisory Committee (MPETAC) will meet on March 7, 2017, 9:00 a.m., Room 3884, in the Herbert C. Hoover Building, 14th Street between Pennsylvania and Constitution Avenues NW., Washington, DC. The Committee advises the Office of the Assistant Secretary for Export Administration with respect to technical questions that affect the level of export controls applicable to materials processing equipment and related technology. …
  Discussion of matters determined to be exempt from the provisions relating to public meetings found in 5 U.S.C. app. 2 sections 10 (a)(1) and 10(a)(3).
  The open session will be accessible via teleconference to 20 participants on a first come, first serve basis. To join the conference, submit inquiries to Ms. Yvette Springer at
Yvette.Springer@bis.doc.gov, no later than February 28, 2017. …
  A limited number of seats will be available for the public session. Reservations are not accepted. To the extent that time permits, members of the public may present oral statements to the Committee. The public may submit written statements at any time before or after the meeting. However, to facilitate the distribution of public presentation materials to the Committee members, the Committee suggests that presenters forward the public presentation materials prior to the meeting to Ms. Springer via 
email. …
  For more information, call Yvette Springer at (202) 482-2813.
 
  Dated: February 15, 2017.
Yvette Springer, Committee Liaison Officer.

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EXIM_a3
3.

Commerce/BIS: MTAC to Meet on Mar 9 in Wash DC

 
82 FR 11177-11178: Materials Technical Advisory Committee; Notice of Partially Closed Meeting
  The Materials Technical Advisory Committee (MTAC) will meet on March 9, 2017, 10:00 a.m., Herbert C. Hoover Building, Room 3884, 14th Street between Constitution & Pennsylvania Avenues NW., Washington, DC. The Committee advises the Office of the Assistant Secretary for Export Administration with respect to technical questions that affect the level of export controls applicable to materials and related technology. …
  Discussion of matters determined to be exempt from the provisions relating to public meetings found in 5 U.S.C. app. 2 Sec. Sec.  10(a)(1) and 10(a)(3).
  The open session will be accessible via teleconference to 20 participants on a first come, first serve basis. To join the conference, submit inquiries to Ms. Yvette Springer at
Yvette.Springer@bis.doc.gov, no later than March 2, 2017.
  A limited number of seats will be available during the public session of the meeting. Reservations are not accepted. To the extent time permits, members of the public may present oral statements to the Committee. Written statements may be submitted at any time before or after the meeting. However, to facilitate distribution of public presentation materials to Committee members, the materials should be forwarded prior to the meeting to Ms. Springer via email. …
  For more information, call Yvette Springer at (202) 482-2813.
 
  Dated: February 15,2017.
Yvette Springer, Committee Liaison Officer.

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EXIM_a4
4.

Commerce/BIS: TransTAC to Meet on Mar 8 in Wash DC

 
82 FR 11176: Transportation and Related Equipment Technical Advisory Committee: Notice of Partially Closed Meeting
  The Transportation and Related Equipment Technical Advisory Committee (TransTAC) will meet on March 8, 2017, 9:30 a.m., in the Herbert C. Hoover Building, Room 3884, 14th Street between Constitution & Pennsylvania Avenues NW., Washington, DC. The Committee advises the Office of the Assistant Secretary for Export Administration with respect to technical questions that affect the level of export controls applicable to transportation and related equipment or technology. …
  Discussion of matters determined to be exempt from the provisions relating to public meetings found in 5 U.S.C. app. 2 sections 10(a)(1) and 10(a)(3).
  The open session will be accessible via teleconference to 20 participants on a first come, first serve basis. To join the conference, submit inquiries to Ms. Yvette Springer at
Yvette.Springer@bis.doc.gov no later than March 1, 2017.
  A limited number of seats will be available during the public session of the meeting. Reservations are not accepted. To the extent time permits, members of the public may present oral statements to the Committee. The public may submit written statements at any time before or after the meeting. However, to facilitate distribution of public presentation materials to Committee members, the Committee suggests that presenters forward the public presentation materials prior to the meeting to Ms. Springer via email. …
  For more information, call Yvette Springer at (202) 482-2813.
 
  Dated: February 15, 2017.
Yvette Springer, Committee Liaison Officer.

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OGS
OTHER GOVERNMENT SOURCES

OGS_a15. Ex/Im Items Scheduled for Publication in Future Federal Register Editions

(Source: Federal Register)
 
* U.S. Customs and Border Protection; NOTICES; Meetings: User Fee Advisory Committee [Publication Date: 22 February 2017.]
* * * * * * * * * * * * * * * * * * * *

OGS_a26. Commerce/BIS: (No new postings.)

(Source:
Commerce/BIS)

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OGS_a37. DHS/CBP Announces Rescheduled ACE Certification Outage at 1700 ET to 2000 ET Today

(Source:
CSMS# 17-000090, 21 Feb 2017.)
 
There will be an ACE CERTIFICATION Outage at 1700 ET to 2000 ET today, Tuesday evening, February 21st, 2017, only (and Not Wednesday, February 22nd, evening, as previously announced in CSMS# 17-000089).
 
The ACE Manifest, Accounts and Reports systems will perform Infrastructure Maintenance which may also impact ACE Cargo Release and ACE Entry Summary processing in the ACE CERTIFICATION environment.
 
  – Related
CSMS No. 17-000089

* * * * * * * * * * * * * * * * * * * *

OGS_a48. State/DDTC: (No new postings.)

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OGS_a59.

EU Amends Certain Restrictive Measures Concerning the ISIL (Da’esh) and Al-Qaeda Organizations

 
Regulations:
  – Commission Implementing
Regulation (EU) 2017/296 of 20 February 2017 amending for the 260th time Council Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with the ISIL (Da’esh) and Al-Qaeda organizations. 

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COMMCOMMENTARY

COMM_a110. 
B. Gevers, Y. El Bojaddaini & M. Gajewski Barnhill: “Opposites Attract: Linking HS and ECN Classification”
 
* Authors: Bert Gevers, Esq., Loyens & Loeff Brussels,
bert.gevers@loyensloeff.com, +32-2-743-4343; Yassine El Bojaddaini, Esq., Loyens & Loeff Rotterdam,
yassine.el.bojaddaini@loyensloeff.com; and Megan Gajewski Barnhill, Esq., Bryan Cave LLP Washington DC,
megan.gajewskibarnhill@bryancave.com, 202-508-6302.
 
On 16 January 2017, the European Commission published its latest update of the
TARIC CN-DU Correlation Table which establishes links between the customs classification codes (HS/CN) and export control classification codes (ECN).
 
As this correlation table sometimes confuses exporters when determining whether an item is controlled for export, we thought this a good occasion to remind readers of the mechanics of the respective systems. Although the correlation table generally gives a useful ‘indication’ that a certain item could be subject to export control licensing, it should be noted that the two classification systems are in fact very different in scope and objectives.
 
Customs Classification
 
The Customs Harmonized Commodity Description and Coding System generally referred to as “Harmonized System” (“HS”) is a product nomenclature which aims to categorize traded items on the basis of their objective characteristics. The system is developed and maintained by the World Customs Organization (WCO) and governed by “The International Convention on the Harmonized Commodity Description and Coding System”. This Convention ensures that each contracting party undertakes to ensure that its customs tariff and statistical nomenclatures will be in conformity with the HS. It is currently used by more than 200 countries and over 98 % of the merchandise in international trade is classified in terms of the
HS.
 
The system identifies (groups of) goods by a 6-digit code, of which the first four digits correspond to the relevant heading, while the fifth and sixth digits identify the subheadings. As the number of digits increases, the description of the characteristics of a particular item is further specified.
Heading
85.17
Telephone sets, including telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), other than transmission or reception apparatus of heading 84.43, 85.25, 85.27 or 85.28.
Subheading 85.17.62 Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus

The HS is not only a universal, but also comprehensive system which aims at classifying all commodities that are traded internationally. Items which are not mentioned explicitly in a subheading are covered by residual codes, which often include “not elsewhere specified” or “other” and which refer to a (sub)heading that covers every possible commodity under a particular heading which is not described by another subheading. If parties to the HS want to further fine-tune the classifications, they can do so by adding more detail (e.g. digits). The EU has for example implemented
TARIC which provides up to 10 digits. (TARIC: 8517.62.0000)
 
Export Control Classifications (‘ECN’ or ‘ECCN’)
 
ECN’s are used solely to identify items which are subject to export control requirements. Unlike HS classifications they are, as a rule, neither universal nor comprehensive. Although there is to a certain extent harmonization among the control lists of various countries based on their participation in multilateral export control regimes like the Wassenaar Arrangement or the Australia Group, export controls remain in essence national controls targeting a limited number of items. Commodities that are traded at high volumes world-wide are generally not controlled. After all, the desired effect of such controls is minimal as such goods can easily be obtained elsewhere.
 
The European Union has gone to great efforts to integrate the separate multilateral control lists in its common EU list of controlled items (Annex I of Dual Use Regulation 428/2009). A similar consolidated list approach is also used by many other jurisdictions, including the United States. However, certain differences exist between the lists. For instance, the U.S. Commerce Control List (“CCL”) includes certain items which are not listed on the EU common control list.
 
Each entry on the EU common control list consists of a 5-character ECN. The first character corresponds to the topical category for the item. The EU common control list is divided into 10 topical categories (likely extended to 11 categories if the
new EU Dual Use Regulation is adopted). The second character corresponds to the type of item (for example, D corresponds to software), while the third character identifies the multilateral regime pursuant to which the item is controlled (for example 0= Wassenaar Arrangement). The remaining two characters correspond to the particular description of the controlled item.

Topical Category 
Subcategory
Regime Origin
0 = nuclear materials
A = systems, equipment and components
0 = Wassenaar Arrangement (WA)
1 = materials, chemicals, ‘micro-organisms’ and ‘toxins’

 

B = test, inspection and production equipment 1 = Missile Technology Control Regime
2 = materials processing
C = materials 2 = Nuclear Suppliers Group
3 = electronics
D = software 3 = Australia Group
4 = computers
E = technology  4 = Chemical Weapons Convention
5 = telecommunications and information security
6 = sensors and lasers
7 = navigation and avionics
8 = marine
9 = aerospace and propulsion 

Controlled items can be further specified beyond this 5 character code through the addition of further subheadings within each ECN. If we take the example of routers, the ECN is 5A002 (i.e. “Information security systems, equipment and components therefor, as follows”).
Topical Category
Subcategory
Regime Origin
Specification
Specification
Further Specifications
 

5
(Telecommun
ications and 
information security)

(Systems, equipment and components)

(WA)
0 0 a….

The HS/ECN correlation table: Sense or no(n)sense
 
While a single item will only have one corresponding HS classification and one ECN, using the correlation table may not always provide clear guidance for a particular item. As explained above, because the scope and purpose of both classification systems are different, the two systems do not always correlate directly with one another. If we take our example of routers you will see in the correlation table that ECN 5A002 is linked to 79 different HS/CN classifications. On the other hand, one HS/CN classification can relate to several ECNs. HS/CN 85.17.62.0000 relates for example to 8 different ECN’s in the correlation table (limiting to 5 digits). On top of that an HS/CN classification under 85.17.62.0000 does not automatically result in an ECN classification since the use (and user) of the item will also be a decisive factor to determine whether an item is controlled or not. Hence, it remains important for exporters to review the specific HS and ECN codes for their items to ensure that the correct codes are being identified.
 
HS/
CN
ECN
Comprehensive
Targeted
Universal National (Limited Harmonization)
Tangibles Tangible + intangibles (software, technical assistance, …)
General Rules of Interpretation
Classification predominately on the basis of technical features
Only new 6 digit heading if trade volume exceeds a certain treshold 
Classification based on technical features that are deemed sensitive enough to warrant controls

Conclusion
 
Although some dream of an automatic link between the two systems, this is certainly not (yet) the case and implementing such a link would require substantial changes in the current mechanics of the HS system. In order to avoid ‘correlation errors’, exporters will have to continue their ECN homework. Readers who want to learn more about the links between ECN and HS are certainly recommended to consult two recently published contributions in the most recent issue of Strategic Trade Review. [FN/1] [FN/2]
_______
 
  [FN/1] H. Kim,
Enhancing the Interface between the Harmonized System and Strategic Trade Controls, STR Volume 2, Issue 3, Autumn 2016.
  [FN/2] R. Chatelus & P. Heine,
Rating Correlations Between Customs Codes and Export Control Lists: Assessing the Needs and Challenges, STR Volume 2, Issue 3, Autumn 2016.

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COMM_a211M. Volkov: “The ‘New’ Face of Corporate Misconduct”

(Source:
Volkov Law Group. Reprinted by permission.)
 
* Author: Michael Volkov, Esq., Volkov Law Group,
mvolkov@volkovlaw.com, 240-505-1992. 
 
As we look across the corporate governance landscape and focus on the spikes of corporate scandals, I started to wonder if there was any pattern or trend to the nature of corporate scandals.
 
In the early 2000s, the country was rocked by financial accounting scandals and massive fraud in corporate reporting. In response, the Sarbanes-Oxley reforms were enacted, transforming the auditing and financial reporting requirements. Sarbanes-Oxley had a dramatic impact on corporate reporting, corporate governance and implementation of internal controls.
 
In the late 2000s, the financial scandal centered on the sale of questionable security products that were based on questionable loan documents. Financial institutions did not accurately disclose the known risk of these products, and failed to maintain adequate reserves in the case of massive losses from these documents. In response, Dodd-Frank reforms were enacted to require increased regulatory review and disclosures related to risky securities and financial institutions were subject to increased capital reserve requirements.
 
The new iteration of corporate misconduct is exemplified in General Motors, Wells Fargo, Volkswagen, VimpelCom and Takata (and numerous other incidents). Of course, there are continuing accounting scandals linked to SOX violations, and there continue to be fraud schemes focused on the sale of risky securities and failure to disclose.
 
Every corporate scandal boils down to greed – but greed can manifest itself in a variety of contexts. GM, Takata, Wells Fargo and Volkswagen reflect a failure of corporate governance, internal controls and corporate compliance programs, including safety issues, to promote ethical and compliance with the law. Wells Fargo stands alone with its avoidance of any ethical consideration of the new sales incentive program, and a complete failure to promote a speak up culture. In fact, when internal concerns were raised, the employees who voiced those concerns were fired.
 
Similarly in the GM and Takata, profit concerns outweighed the need to address serious safety concerns. Again, when internal concerns were raised, the lawyers and senior engineers failed to address those concerns. Similarly, in Volkswagen, when internal concerns were raised to senior engineers who designed the cheating software, they quickly shut down the issues raised by staff engineers.
 
VimpelCom, one of the most important FCPA prosecutions over the last five years, confirmed failures in basic corporate governance operations, from the board, to the legal staff, and to the internal auditors. AT the heart of the breakdown, was the failure of the board to consider and resolve the basic issue of who was the own of the shell companies through which VimpelCom was acquiring cellular licenses in Uzbekistan.
 
In sum, the new face of corporate misconduct can be described as a failure of corporate governance and critical functions such as board oversight and supervision, ethical business decision making, lack of a speak up culture and failures of critical compliance functions such as legal and audit to carry out their responsibilities. It may be a large trend but at bottom corporate governance is a requirement that begins at the top of the organization and is consistently carried out through the rest of the company.
 
In response to this trend, and assuming it continues along this path, legislative and regulatory pressures will increase to address these concerns. Congress will seek simple solutions to a complex set of problems, and I expect that we may witness another set of legislative mandates around the corporate governance and compliance function, building on a historical record of solutions and tools that have been used by various enforcement agencies.

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COMM_a312R.H. Huey & G. Husisian: “U.S. Customs and the New Administration: Your Top Ten Questions Answered” (Part 1 of 2)

 
* Authors: Robert H. Huey, Esq.,
rhuey@foley.com, 202-295-4043; and Gregory Husisian, Esq.,
ghusisian@foley.com, 202-945-6149. Both of Foley & Lardner LLP.
 
[Editor’s Note:  This is the first part of an item concerning this subject; part two will be published in The Daily Bugle of Wednesday, 22 February 2017.]
 
Introduction
 
During the campaign, U.S. Customs & Border Protection (CBP) was mostly mentioned by President Trump in the context of illegal immigration. Controlling the flow of people, however, is only one of the jobs of CBP, which is part of the Department of Homeland Security. CBP also regulates what goods come into the United States, while ensuring that the goods pay the appropriate tariff (basically, a form of tax paid as a percentage of the value of the goods entered). As both the gatekeeper to the United States as well as the second-largest source of U.S. government revenue, the agency is a key regulator for many importers.
 
Many of President Trump’s campaign proposals, while not explicitly directed at CBP, would either impact how it operates or would require implementation by the agency. Further, CBP continues to juggle its dual roles as gatekeeper to the United States with its long-standing role as a revenue collection agency. CBP also is tasked under new legislation with implementing the largest change in its method of operation in two decades, including a move from the port-centric model that has governed its operations to a more industry-focused model centered on Centers of Excellence and Expertise. Adapting to a new political agenda will require agency action when CBP already has its regulatory hands full.
 
To help navigate this uncertain future, this client alert presents the “Top Ten” questions that every company that imports goods into the United States should be thinking about. This client alert is part of a series of “Top Ten” articles on the future of key international trade and regulatory issues expected to change under the Trump administration. Previously issued client alerts discuss the future of
NAFTA [FN/1] and
international trade litigation (including antidumping and countervailing duty actions) under the Trump administration, as well as the top ten questions regarding the future of the CFIUS review process (available
here). [FN/2] Future client alerts will deal comprehensively with all international trade and regulatory areas where significant change could occur under the new administration.
 
The Top Ten CBP Questions Answered (or, Will the Customs Change With the Times?)
 
(1) “So what are the roles played by Customs?”
 
As the primary gatekeeper into the United States, Customs has a great many roles, including:
 
  – Regulating who enters the United States
  – Interdicting the flow of illegal goods into the United States
  – Collecting tariffs
  – Regulating exports
  – Collecting statistical data regarding imports
  – Enforcing directives of other agencies that impact the transit of goods into and out of the United States
 
For U.S. importers, CBP regulates each product entering the United States. Ever since passage of the Customs Modernization Act in 1993, CBP has operated on the twin principles of “informed compliance” and “shared responsibility,” thereby placing primary responsibility on the importer of record to make entries correctly, but as informed by Customs outreach and educational efforts. Failure to import goods properly can result in seized entries, lost import privileges, and civil and criminal penalties.
 
(2) “What has the new President promised?”
 
Although President Trump did not focus on CBP explicitly, many of his international trade and immigration proposals run straight through CBP. These proposals include:
 
  – Changes to U.S. immigration laws and an increased focus on border security (CBP controls entry of persons into the United States).
  – The revision or elimination of NAFTA (the terms under which NAFTA-country imports enter the United States are administered by CBP).
  – Any crackdown on imports from Mexico and China in their roles as two of the three largest trading partners of the United States (tariff collection and how/whether entry occurs are controlled by CBP).
  – The implementation of the expected increase in antidumping, countervailing duty, and safeguard actions in the new administration (although other agencies determine the duty levels, collection is managed by CBP).
 
Addressing President Trump’s frequent criticism of China as stealing U.S. intellectual property to advance its manufacturing interests would also require substantial efforts by CBP to block infringing goods from entry into the United States. Thus, the election of President Trump likely will have a major impact on how the gatekeeper to the territorial United States operates, impacting every company that imports goods.
 
(3) “Isn’t Customs law pretty static? Have there been any recent changes to Customs law?”
 
Congress enacted the
Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) (signed into law on February 24, 2016), which represents the largest change in Customs rules since the Customs Mod Act in 1993. [FN/3] Among other changes, TFTEA improves intellectual property rights protection rules and establishes a new Intellectual Property Rights Coordination Center to consolidate oversight of IP-related Customs issues and to coordinate IP investigations to identify producers, smugglers, or distributors of infringing merchandise; expands substitution drawback of duties, while increasing the time periods for claiming drawback; and mandates increased cooperation among agencies and consultation with Congress on the progress made by the agency in implementing the law and improving CBP transparency, accountability, and coordination in enforcement efforts. CBP has published interim final regulations implementing a new structure that contains Centers of Excellence and Expertise, which moves certain responsibilities from port directors to a more industry-specific structure as a means of harmonizing treatment of imports at different ports. [FN/4]
 
TFTEA also includes the Enforce Act and Protect Act within Title IV, Section 421 of the TFTEA. The Enforce Act and Protect Act establishes a formal process for CBP to investigate allegations of evasion of anti-dumping and countervailing duty (AD/CVD) orders. As developed in detail below, these provisions offer an opportunity for U.S. companies to combat evasion of AD/CVD orders, while creating risks of investigation and penalties for importers of record.
 
(4) “What is the likely trend in penalties under the new administration? Is this another area where fines are expected to increase?”

As will be discussed in Foley’s forthcoming client alert regarding anticipated white collar developments in the new administration, penalties have sharply risen for many regulatory regimes. This is also true with regard to CBP penalties, which (while primarily civil) have more than doubled over the last three years (approaching $1 billion annually). It is our expectation that this increase will continue.
 
Further, the DOJ increasingly has brought actions seeking criminal penalties for Customs matters. The DOJ has done so both by using statutory provisions related to Customs matters (entering goods into the United States via fraud, gross negligence or negligence, [FN/5] entry of goods that are falsely classified, [FN/6] and entry of goods by means of false statements) [FN/7] and through non-Customs provisions as well (the use of federal provisions regarding the obstruction of justice, [FN/8] the federal conspiracy statute, [FN/9] money laundering, [FN/10] smuggling, [FN/11] and aiding and abetting). [FN/12] Further, as explored in detail below, the U.S. government increasingly has been relying on the False Claims Act (FCA) to address shortfalls in duty collections. [FN/13] The use of these non-Customs provisions is notable for supporting higher criminal penalties. For example, while each count of falsely classifying goods under 18 U.S.C. § 541 is punishable by up to two years in prison, violations of the smuggling provisions in 18 U.S.C. § 545, obstructions of justice pursuant to 18 U.S.C. § 1519, and money laundering pursuant to 18 U.S.C. § 1956 can be punished by up to twenty years in prison.
 
The net result is both increasingly broad tools to combat willful Customs violations and higher potential penalties. Notably, the U.S. government has become willing to pursue liability for individuals as well. It is our expectation that the increasing use of criminal penalties and hefty civil penalties, including for individuals, will continue under the new administration.
 
(5) “I heard a lot about imports from Mexico and China during the election. Are there likely to be changes at Customs with regard to these countries?”
 
The potential changes regarding Mexican and Chinese imports are so great that we have devoted entire client alerts to potential changes in
NAFTA [FN/14] and to the likely explosion in AD/CVD and
safeguard trade remedies. [FN/15] Further information regarding these topics are just a mouse click away.
 
In addition to these developments, we expect that CBP will also take the following changes that impact goods traded with these countries:
 
  – Increasing border security, including potential changes to the C-TPAT (trusted importer) program (primarily impacting Mexico, but potentially imports from other countries as well).
  – Potentially imposing some form of a border tax as a means of discouraging imports that compete with U.S. manufacturing and to take away any advantage offered to non-U.S. companies that allow the rebate of value-added taxes for exports.
  – Increasing vigilance with regard to intellectual property, such as through the enforcement of an expected increase in section 337 actions.
  – Increasing the rigor of the enforcement of intellectual property infringement, including through the measures described below.
  – Increasing the enforcement of antidumping and countervailing duty orders, as detailed below.
  – Increasing the enforcement of prohibitions on the importation of goods produced using forced (slave) labor.
  – Increasing the scrutiny given to claims that goods meet NAFTA regional content requirements and are originating goods entitled to diminished NAFTA duty rates.
 
(6) “I believe I have been hurt by unfairly traded imports. Will CBP under the new administration have the tools to help me with these concerns?”
 
The ability to file antidumping, countervailing duty, safeguard, and other trade remedy actions to address imports perceived to be unfairly traded is addressed in a previously issued Foley client alert. [FN/16] These remedies, while powerful, are not the end of the story regarding how to fight unfair imports. Two other remedies, both available at CBP, also merit special discussion.
 
Fighting evasion of AD/CVD orders. CBP always has possessed the ability to investigate the potential evasion of antidumping and countervailing duty orders. Yet the system clearly was not working: a
General Accounting Office study titled “Antidumping and Countervailing Duties: CBP Action Needed to Reduce Duty Processing Errors and Mitigate Nonpayment Risk” found that between 2001 and 2014 CBP failed to collect $2.3 billion in AD/CVD duties. [FN/17]
 
Further, the perception has long existed that certain importers (often from China, but from other countries as well) are gaming the system by misdeclaring the country of origin of goods, transshipping the goods to hide the country of origin, misclassifying goods as non-subject merchandise when it actually fell under the scope of an order, and other tactics designed to avoid paying antidumping and countervailing duties. Further, the process of CBP’s investigation often was viewed as being opaque, giving no insight to interested parties regarding the conduct or outcome of any investigation. With CBP not being subject to any deadlines, and with its results not being subject to judicial review, companies believing they were being victimized by the circumvention of antidumping and countervailing duty orders pressed Congress for change.
 
The result was the enactment of the TFTEA and the issuance of regulations establishing a formal process for investigations into possible AD/CVD evasion. Interim regulations (effective as of August 22, 2016, but still subject to change in the final regulations) now allow private parties to make AD/CVD evasion allegations and participate in CBP’s investigation, which now must be completed on a set deadline. Under the new procedures, CBP can investigate:
 
  – Transshipping merchandise through third countries for purposes of changing the country of origin, even where the merchandise was not substantially transformed in the third country.
  – Falsely or incorrectly reporting shipping and entry documentation or engaging in false sales to underpay duties.
  – Falsely labeling or reporting the merchandise’s physical characteristics, or misclassifying it as non-subject merchandise. [FN/18]
 
CBP must determine whether to initiate an investigation within 15 business days of receiving an allegation that entries, made within one year of the allegation, have been evading antidumping or countervailing duties. Suspension of liquidation of entries can occur within 90 days of initiation, if CBP determines there is a reasonable suspicion of evasion. The full investigation occurs over 300 days (360 for complicated cases) and includes the right of parties on both sides of the issue to provide factual information, rebut information put on the record, and submit written briefing.
 
Where evasion is found, CBP can take action to remedy the evasion, including by:
 
  – Identifying the applicable duty assessment rate or cash deposit rate.
  – Extending the period for liquidating the unliquidated entries of covered merchandise that entered before the initiation of the investigation.
  – Requiring importers of covered merchandise to post enhanced cash deposits and assess duties on the covered merchandise.
  – Taking such additional enforcement measures as CBP deems appropriate.
 
CBP can refer the matter to U.S. Immigration and Customs Enforcement (ICE) for possible civil or criminal investigation.
 
If an interested party disagrees with CBP’s determination, the party may request an internal review by the CBP commissioner, followed by a potential appeal to the U.S. Court of International Trade (CIT), which will determine whether CBP followed the proper procedures, whether its actions are consistent with the statutory and regulatory procedures, and whether its determination was arbitrary, capricious, or an abuse of discretion. CBP has stated, however, that judicial review is unavailable for any decision to not initiate an investigation – a position that eventually will be challenged in court.
 
While these new procedures offer enhanced protections for companies that believe they are being victimized by AD/CVD evasion, they also could prove problematic for importers, who could be accused of duty evasion. Some of the steps that importers can take to minimize the risk include:
 
  – Requesting that foreign suppliers act as importers of record.
  – Putting in place contractual provisions regarding the responsibility for paying any duties.
  – Carefully evaluating the classification of goods imported, not just against the presumed HTS classification, but also against the physical descriptions of potentially applicable subject merchandise covered by antidumping and countervailing duty orders.
  – Verifying that import records are accurate.
  – Keeping all appropriate import documentation, including any information relating to the physical attributes of all entries.
 
Importers should also promptly respond to any CBP Form 29 Notice of Action regarding an increase in duties owed, as the underpayment of duties can be quite substantial when antidumping and countervailing duty tariffs are involved.
 
Intellectual property protections. Another area where CBP can be used to fight unfairly traded imports is with regard to trademarks and copyrights. Many U.S. companies are unaware that it is possible to register these IP protections with CBP at a low cost, which covers a twenty-year term. Registration requires that the brand owner provide information regarding how authorized shipments generally occur, including the place of manufacture, the name and address of each foreign entity authorized or licensed to use the trademark, a brief description regarding the authorized use, and information regarding affiliates authorized to use the mark abroad.
 
Once registration occurs, CBP will flag shipments of counterfeit products that fall outside the expected import profile. This has the twin advantages of allowing ready entry for authorized goods while allowing CBP to hold goods that appear to be unauthorized, until such time as CBP can contact the owner of the recorded intellectual property to confirm whether the entry is authorized. Unauthorized goods are destroyed by CBP or released to the authorized owner of the intellectual property for an additional fee. Through this process the authorized owner not only can bar infringing goods, but can also gain valuable information regarding which retailers and distributors are selling counterfeit goods.
 
(7) “What about the False Claims Act (FCA)? Is it also a tool that is likely to see increasing use in the next few years?”
 
Another tool that can be used to fight the underpayment of duties is the FCA. Since the passage of the 1986 amendments to the law, the FCA (codified at 31 U.S.C. §§ 3729 33) has become a vigorous tool to fight lost government revenue, as shown by the fact that in 2014 the DOJ recovered nearly $6 billion from FCA cases. Each successful prosecution of an FCA claim enables the potential collection of treble damages, plus penalties and an additional fine of up to $11,000 per false claim.
 
The FCA provides a mechanism whereby individuals can file lawsuits regarding claims that persons and companies have defrauded governmental programs. Since the law includes a qui tam provision that allows persons who are not affiliated with the government (relators) to bring cases on behalf of the U.S. government, and to receive a portion of any recovered damages, activity under the FCA largely is driven by private actors bringing cases, with the DOJ becoming involved thereafter.
 
The FCA increasingly is being used in the Customs area. The Third Circuit Court of Appeals, among other courts, has confirmed the FCA appropriately can be used for the knowing evasion of Customs duties. For example, in United States v. Toyo Ink Manufacturing, the president of a domestic producer of a violet pigment brought an FCA action against a Japanese competitor, alleging the evasion of antidumping and countervailing duties through false claims that Japan and Mexico were the countries of origin, when China and India (two countries under orders) were appropriate. Toyo settled the matter, agreeing to pay $45 million, plus interest, without admitting fault, resulting in a payment to the original relator of almost $8 million (as well as a likely commercial benefit to the U.S. business). In addition to securing favorable outcomes like this, the use of the FCA process also potentially brings Customs issues to the attention of CBP, which can assess its own penalties for the same conduct. For these reasons, the use of FCA claims for Customs violations is expected to continue to rise with the new administration, making FCA claims a regular part of Customs enforcement.
________
 
  [FN/1] See Gregory Husisian and Robert Huey, “NAFTA and the New Trump Administration: Your Top Ten Questions Answered,” available at
here
.
  [FN/2] See Gregory Husisian and Robert Huey, “International Trade Litigation and the New Trump Administration: Your Top Ten Questions Answered,” available at
here.
  [FN/3] See H.R. 644,114th Cong. (2016), available at
here.
  [FN/4] See U.S. Customs and Border Protection, Regulatory Implementation of the Centers of Excellence and Expertise, 81 Fed. Reg. 92,978 (Dec. 20, 2016).
  [FN/5] 19 U.S.C. § 1592 (2011).
  [FN/6] 18 U.S.C. § 541 (1994).
  [FN/7] 18 U.S.C. § 542 (1996).
  [FN/8] 18 U.S.C. § 1519 (2002) (“Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, … any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States … or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.”).
  [FN/9] 18 U.S.C. § 371 (1994).
  [FN/10] 18 U.S.C. § 1956 (2016), 18 U.S.C. § 1957 (2012).
  [FN/11] 18 U.S.C. § 545 (2006).
  [FN/12] 18 U.S.C. § 2 (1951).
  [FN/13] 31 U.S.C. §§ 3729-33 (2009-2010).
  [FN/14] See Gregory Husisian and Robert Huey, “NAFTA and the New Trump Administration: Your Top Ten Questions Answered,” available at
here.
  [FN/15] See Gregory Husisian and Robert Huey, “International Trade Litigation and the New Trump Administration: Your Top Ten Questions Answered,” available at
here.
  [FN/16] Id.
  [FN/17] See U.S. Gov’t Accountability Off., GAO-08751, Antidumping and Countervailing Duties: CBP Action Needed to Reduce Processing Errors and Mitigate Nonpayment Risk (2016), available at
here.
  [FN/18] See U.S. Customs and Boarder Protection, “Investigation of Claims of Evasion of Antidumping and Countervailing Duties,” 81 Fed. Reg. 56,477 (Aug. 22, 2016).

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ENEDITOR’S NOTES

(Source: Editor)

*
Erma Bombeck (Erma Louise Bombeck (née Fiste), 21 Feb 1927 – 22 April 1996, who published 15 bestseller books, including
The Grass Is Always Greener over the Septic Tank, and
If Life Is a Bowl of Cherries,
What Am I Doing in the Pits?  She wrote over 4,000 newspaper columns chronicling the ordinary life of a Midwestern suburban housewife. Her columns were read twice-weekly by 30 million readers of over 900 newspapers in the U.S. and Canada.)

  – “Housework, if you do it right, will kill you.”

  – “A grandmother pretends she doesn’t know who you are on Halloween.”

 

*
W.H. Auden (Wystan Hugh Auden, 21 Feb 1907 – 29 Sep 1973, was an English poet, who later became an American citizen.  He won the Pulitzer Prize in Poetry for his 1947 book-length poem,
The Age of Anxiety, the title of which became a popular phrase describing the modern era.)

  – “Death is the sound of distant thunder at a picnic.”

  – “In times of joy, all of us wished we possessed a tail we could wag.” 

* * * * * * * * * * * * * * * * * * * *

EN_a214
. Are Your Copies of Regulations Up to Date?
(Source: Editor)

The official versions of the following regulations are published annually in the U.S. Code of Federal Regulations (C.F.R.), but are updated as amended in the Federal Register.  Changes to applicable regulations are listed below.
 
*
ATF ARMS IMPORT REGULATIONS
: 27 CFR Part 447-Importation of Arms, Ammunition, and Implements of War
  – Last Amendment: 15 Jan 2016: 81 FR 2657-2723: Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm 
 
*
CUSTOMS REGULATIONS
: 19 CFR, Ch. 1, Pts. 0-199
  – Last Amendment: 27 Jan 2017: 82 FR 8589-8590: Delay of Effective Date for Importations of Certain Vehicles and Engines Subject to Federal Antipollution Emission Standards; and 82 FR 8590: Delay of Effective Date for Toxic Substance Control Act Chemical Substance Import Certification Process Revisions 

* DOD NATIONAL INDUSTRIAL SECURITY PROGRAM OPERATING MANUAL (NISPOM): DoD 5220.22-M
  – Last Amendment: 18 May 2016: Change 2: Implement an insider threat program; reporting requirements for Cleared Defense Contractors; alignment with Federal standards for classified information systems; incorporated and canceled Supp. 1 to the NISPOM  (Summary here.)

* EXPORT ADMINISTRATION REGULATIONS (EAR): 15 CFR Subtit. B, Ch. VII, Pts. 730-774 
  – Last Amendment: 1 Feb 2017: 82 FR 8893-8894: Commerce Control List: Removal of Certain Nuclear Nonproliferation (NP) Column 2 Controls

  
*
FOREIGN ASSETS CONTROL REGULATIONS (OFAC FACR)
: 31 CFR, Parts 500-599, Embargoes, Sanctions, Executive Orders
  – Last Amendment: 10 Feb 2017: 82 FR 10434-10440: Inflation Adjustment of Civil Monetary Penalties.  
 
*
FOREIGN TRADE REGULATIONS (FTR)
: 15 CFR Part 30
  – Last Amendment: 15 May 2015; 80 FR 27853-27854: Foreign Trade Regulations (FTR): Reinstatement of Exemptions Related to Temporary Exports, Carnets, and Shipments Under a Temporary Import Bond 
  – HTS codes that are not valid for AES are available
here.
  – The latest edition (9 Mar 2016) of Bartlett’s Annotated FTR (“BAFTR”), by James E. Bartlett III, is available for downloading in Word format. The BAFTR contains all FTR amendments, FTR Letters and Notices, a large Index, and footnotes containing case annotations, practice tips, and Census/AES guidance.  Subscribers receive revised copies every time the FTR is amended. The BAFTR is available by annual subscription from the Full Circle Compliance website.  BITAR subscribers are entitled to a 25% discount on subscriptions to the BAFTR.
 
*
HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES (HTS, HTSA or HTSUSA)

, 1 Jan 2017: 19 USC 1202 Annex. (“HTS” and “HTSA” are often seen as abbreviations for the Harmonized Tariff Schedule of the United States Annotated, shortened versions of “HTSUSA”.)
  – Last Amendment: 10 Feb 2017: Harmonized System Update 1701, containing 1,295 ABI records and 293 harmonized tariff records.   

  – HTS codes for AES are available
here
.
  – HTS codes that are not valid for AES are available
here.
 
INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR): 22 C.F.R. Ch. I, Subch. M, Pts. 120-130.
  – Latest Amendment: 11 Jan 2017: 82 FR 3168-3170: 2017 Civil Monetary Penalties Inflationary Adjustment
 – The only available fully updated copy (latest edition 24 Jan 2017) of the ITAR with all amendments is contained in Bartlett’s Annotated ITAR (“BITAR”), by James E. Bartlett III.  The BITAR contains all ITAR amendments to date, plus a large Index, over 750 footnotes containing case annotations, practice tips, DDTC guidance, and explanations of errors in the official ITAR text.  Subscribers receive updated copies of the BITAR in Word by email, usually revised within 24 hours after every ITAR amendment.  The BITAR is available by annual subscription from the Full Circle Compliance
website
.  BAFTR subscribers receive a 25% discount on subscriptions to the BITAR, please
contact us
to receive your discount code.  

* * * * * * * * * * * * * * * * * * * *

EPEDITORIAL POLICY

* The Ex/Im Daily Update is a publication of FCC Advisory B.V., edited by James E. Bartlett III and Alexander Bosch, and emailed every business day to approximately 8,000 subscribers to inform readers of changes to defense and high-tech trade laws and regulations. We check the following sources daily: Federal Register, Congressional Record, Commerce/AES, Commerce/BIS, DHS/CBP, DOJ/ATF, DoD/DSS, DoD/DTSA, State/DDTC, Treasury/OFAC, White House, and similar websites of Australia, Canada, U.K., and other countries and international organizations.  Due to space limitations, we do not post Arms Sales notifications, Denied Party listings, or Customs AD/CVD items.

* RIGHTS & RESTRICTIONS: This email contains no proprietary, classified, or export-controlled information. All items are obtained from public sources or are published with permission of private contributors, and may be freely circulated without further permission. Any further use of contributors’ material, however, must comply with applicable copyright laws.

* CAVEAT: The contents cannot be relied upon as legal or expert advice.  Consult your own legal counsel or compliance specialists before taking actions based upon news items or opinions from this or other unofficial sources.  If any U.S. federal tax issue is discussed in this communication, it was not intended or written by the author or sender for tax or legal advice, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any transaction or tax-related matter.

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