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17-0525 Thursday “Daily Bugle”

17-0525 Thursday “Daily Bugle”

Thursday, 25 May 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. Justice/ATF Seeks Comments on ATF F 3310.11, Federal Firearms Licensee Firearms Inventory Theft/Loss Report 
  2. Justice/ATF Seeks Comments on ATF F 8 (5310.11) Part 11, Federal Firearms License RENEWAL Application 
  1. Ex/Im Items Scheduled for Publication in Future Federal Register Editions
  2. Commerce/BIS: (No new postings.) 
  3. Commerce/Census Posts Notice on DEA Response Messaging in AES Certification Environment 
  4. Justice: “Seven People Charged with Conspiring to Steal Trade Secrets For Benefit of Chinese Manufacturing Company” 
  5. OMB/OIRA Reviews of Proposed Ex/Im Regulations 
  6. State/DDTC Announces DTAS Information Systems will be Unavailable 25 May 
  7. EU Amends Restrictive Measures Concerning the Central African Republic 
  1. Reuters: “Wilbur Ross Seeks Bigger Budget for Trade Enforcement” 
  2. ST&R Trade Report: “”Made in USA” Labeling Bill Advances in Senate 
  3. ST&R Trade Report: “More Self-Initiated AD/CV Cases, Export Enforcement Under Budget Proposal” 
  4. WorldECR News Alert, 25 May 
  1. A. Ahanchian and E. Shingler: “How Trek Leather and the False Claims Act may Re-shape the Importing Environment” 
  2. G.C. Ravitz, S.A. Cohn & T.M. Polino: “Senate Commerce Committee Passes ‘Made in USA’ Legislation” 
  3. Global Trade News: “Determining Country of Origin: The Rules, The Challenges, and The Solutions”  
  4. I.A. Laird, J. Laird & C. De Jager: “Update: Legal Considerations for U.K. and EU Investment and Trade Treaties after Brexit” 
  5. Gary Stanley’s ECR Tip of the Day 
  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 (18 Apr 2017), FACR/OFAC (10 Feb 2017), FTR (19 Apr 2017), HTSUS (26 Apr 2017), ITAR (11 Jan 2017) 
  3. Weekly Highlights of the Daily Bugle Top Stories 

EXIMEX/IM ITEMS FROM TODAY’S FEDERAL REGISTER

EXIM_a11
. Justice/ATF Seeks Comments on ATF F 3310.11, Federal Firearms Licensee Firearms Inventory Theft/Loss Report

 
82 FR 24145: Agency Information Collection Activities; Proposed eCollection eComments Requested; Extension Without Change of a Currently Approved Collection; Federal Firearms Licensee Firearms Inventory Theft/Loss Report–ATF F 3310.11
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 60-Day notice. …
* DATES: Comments are encouraged and will be accepted for 60 days until July 24, 2017.
* FOR FURTHER INFORMATION CONTACT: Larry Penninger Federal Fir, Chief, National Tracing Center, either by mail at 244 Needy Road, Martinsburg, WV 25405, by email at Larry.Penninger@atf.gov.
* SUPPLEMENTARY INFORMATION: …
  – The Title of the Form/Collection: Federal Firearms Licensee
Firearms Inventory Theft/Loss Report.
  – Form number (if applicable): ATF F 3310.11.
  – Component: Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Department of Justice.
  – Abstract: This form requires that licensees report the theft or
loss of firearms to the Attorney General and the appropriate
authorities. …
 
   Dated: May 22, 2017.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.

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EXIM_a2
2. Justice/ATF Seeks Comments on ATF F 8 (5310.11) Part 11, Federal Firearms License RENEWAL Application

(Source: Federal Register) [Excerpts.]
 
82 Fr 24146: Agency Information Collection Activities; Proposed eCollection eComments Requested; Extension Without Change of a Currently Approved Collection; Federal Firearms License (FFL) RENEWAL Application–ATF F 8 (5310.11) Part 11
* AGENCY: Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
* ACTION: 60-Day notice. …
* DATES: Comments are encouraged and will be accepted for 60 days until July 24, 2017.
* FOR FURTHER INFORMATION CONTACT: Tracey Robertson, Chief, Federal Firearms Licensing Center either by mail at 244 Needy Road, Martinsburg, WV 20226, by email at Tracey.Robertson@atf.gov, or by telephone at.
* SUPPLEMENTARY INFORMATION: …
  – The Title of the Form/Collection: Federal Firearms License (FFL) RENEWAL Application.
  – Form number (if applicable): ATF F 8 (5310.11) Part 11.
  – Component: Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Department of Justice. …
  – Abstract: The form is filed by the licensee desiring to renew a Federal firearms license. It is used to identify the applicant, locate the business/collection premises, identify the type of business/collection activity, and determine the eligibility of the applicant. …
 
   Dated: May 22, 2017.
Melody Braswell, Department Clearance Officer for PRA, U.S. Department of Justice.

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OGS
OTHER GOVERNMENT SOURCES

OGS_a13. Ex/Im Items Scheduled for Publication in Future Federal Register Editions

(Source: Federal Register)

 

* Commerce; Industry and Security Bureau; RULES; Addition of Certain Persons and Revisions to Entries on the Entity List [Publication Date: 26 May 2017.]
 
* HHS; Food and Drug Administration; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Import Trade Auxiliary Communication System [Publication Date: 26 May 2017.]

* State; NOTICES; Agency Information Collection Activities; Proposals, Submissions, and Approvals: Request for Advisory Opinion [Publication Date: 26 May 2017.]

* State; NOTICES; Designations as Global Terrorists [Publication Date: 26 May 2017.]:
  – Hashem Safieddine, aka Hashem Safi al-Din, aka Hashem Safi a-Din, aka Hashim Safi al Din, aka Hashim Safi Al-Din, aka Hashim Safieddine
  – Muhammad Ahmad ‘Ali al-Isawi, aka Abu Osama al-Masri, aka Abu Usamah al-Masri

* State; NOTICES; Determination and Certification Under Section 40A of the Arms Export Control Act [Publication Date: 26 May 2017.]

* U.S. Customs and Border Protection; NOTICES; Quarterly IRS Interest Rates Used in Calculating Interest on Overdue Accounts and Refunds on Customs Duties [Publication Date: 26 May 2017.]

 

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OGS_a24. Commerce/BIS: (No new postings.)

(Source: Commerce/BIS)

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OGS_a35
. Commerce/Census Posts Notice on DEA Response Messaging in AES Certification Environment

 
In anticipation of the Drug Enforcement Administration’s Federal Register Notice 96992.
 
In the AES CERTIFICATION environment only, all Export Commodity Filing Response Messages for DEA have been set as indicated in the AESTIR Appendix A.
 
Please contact your respective U.S. Customs and Border Protection Client Representative if you have any questions concerning Fatal response messages.

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OGS_a46
. Justice: “Seven People Charged With Conspiring to Steal Trade Secrets For Benefit of Chinese Manufacturing Company”

(Source:
Justice) [Excerpts.]
 
Case Involves Dual-Use Technology With Military Applications
 
A criminal complaint was unsealed today charging seven individuals with conspiring to steal trade secrets from a business in the U.S. on behalf of a company in China that was engaged in manufacturing a high-performance, naval-grade product for military and civilian uses.
 
On May 23, 2017, two defendants were arrested in Washington, D.C., three in the Southern District of Texas, and one in the District of Massachusetts. All are charged in the U.S. District Court for the District of Columbia with conspiracy to commit theft of trade secrets. The government also filed a related civil forfeiture complaint in the District of Columbia for two pieces of real property which were involved in, and are traceable to, the alleged illegal conduct.
 
Those arrested and charged include four U.S. citizens: Shan Shi, 52, of Houston, Texas; Uka Kalu Uche, 35, of Spring, Texas; Samuel Abotar Ogoe, 74, of Missouri City, Texas; and Johnny Wade Randall, 48, of Conroe, Texas. Also charged were Kui Bo, 40, a Canadian citizen who has been residing in Houston, and Gang Liu, 31, a Chinese national who has been residing in Houston as a permanent resident.
 
Additionally, charges were filed against one Chinese national living in China, Hui Huang, 32, an employee of the Chinese manufacturing firm allegedly involved in tasking employees of the Houston company. …
 
According to an affidavit filed in support of the criminal complaint, the trade secrets were stolen in order to benefit a manufacturer located in China; this manufacturer was the only shareholder for a company that had been incorporated in Houston. Between in or about 2012 and the present, the affidavit alleges that the Chinese manufacturer and employees of its Houston-based company engaged in a systematic campaign to steal the trade secrets of a global engineering firm, referred to in the affidavit as “Company A,” that was a leader in marine technology.
 
The case involves the development of a technical product called syntactic foam, a strong, light material that can be tailored for commercial and military uses, such as oil exploration; aerospace; underwater vehicles, such as submarines; and stealth technology. According to the affidavit, the Chinese manufacturer intended to sell syntactic foam to both military and civilian, state-owned enterprises in China – part of a push toward meeting China’s national goals of developing its marine engineering industry.
 
The affidavit alleges that the conspirators took part in the theft of trade secrets from Company A, a multi-national company with a subsidiary in Houston that is among the major producers of syntactic foam. The affidavit identifies a number of trade secrets allegedly taken from the company between January and June of 2015, including secrets that allegedly were passed to people associated with the Chinese manufacturer and Houston-based company.
 
Defendant Shi was hired by the Chinese company on a contract basis in March 2014 in order to bring in experts, set up a design team, and push forward marine buoyancy technology. That same month, Shi incorporated the new company in Houston that was owned by the Chinese manufacturer.
 
The affidavit alleges that defendants Shi and Bo then began to systematically target U.S. employees with experience in the production of syntactic foam. Between late 2014 and early 2015, the new company in Houston hired two former Company A employees, defendants Ogoe and Liu, by offering a combination of cash incentives and high paying positions. Uche, who was at the time a current employee of Company A, provided trade secrets to Ogoe, the affidavit alleges. Defendant Randall, who was at the time a current employee of Company A, allegedly provided at least one stolen trade secret to Ogoe.
 
Ogoe provided these trade secrets as well as additional information to the company owned by the Chinese manufacturer in Houston shortly after being hired, the affidavit alleges. Liu also provided Company A trade secrets shortly after being hired.
 
Some of these trade secrets were sent by Shi and Bo and others to defendant Huang, an employee of the manufacturer in China, so that the Chinese manufacturer could create a functional syntactic foam manufacturing facility, the affidavit states.
 
The maximum penalty for a person convicted of conspiring to commit theft of trade secrets is 10 years in prison and potential financial penalties. … 
 
The defendants are expected to make their initial court appearances today: Shi and Liu in the District of Columbia; Bo in the District of Massachusetts; and Ogoe, Uche and Randall in the Southern District of Texas. Huang remains at large. …

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OGS_a57
. OMB/OIRA Reviews of Proposed Ex/Im Regulations

(Source:
OMB/OIRA
)     
 
* Revisions to the Export Administration Regulations Based on the 2016 Missile Technology Control Regime Plenary Agreements
  – AGENCY: DOC-BIS
  – STAGE: Final Rule
  – RECEIVED DATE: 24 May 2017
  – RIN: 0694-AH33
  – STATUS: Pending Review

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OGS_a68
. State/DDTC Announces DTAS Information Systems will be Unavailable 25 May

 
The DTAS information systems will be unavailable from 6:00PM through 10:00PM on Thursday 25 May 2017 due to scheduled routine maintenance.

 

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OGS_a79
. EU Amends Restrictive Measures Concerning the Central African Republic

 
Regulations:
  – Council Implementing Regulation (EU) 2017/890 of 24 May 2017 implementing Article 17(1) of Regulation (EU) No 224/2014 concerning restrictive measures in view of the situation in the Central African Republic
 
Decisions:
  – Council Implementing Decision (CFSP) 2017/901 of 24 May 2017 implementing Decision 2013/798/CFSP concerning restrictive measures against the Central African Republic

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NWSNEWS

NWS_a110. Reuters: “Wilbur Ross Seeks Bigger Budget for Trade Enforcement”

 
U.S. Commerce Secretary Wilbur Ross said on Thursday that a $5.5 million increase requested for the agency’s enforcement budget this year will have a “real impact” in cracking down on unfair trade practices and export security violations.
 
Ross told a House Appropriations subcommittee that an additional $4.5 million requested by the Trump Administration for the International Trade Administration’s enforcement and compliance section will fund 29 new positions whose primary focus will be the self-initiation of antidumping and antisubsidy investigations.
 
Ross has pledged to have the Commerce Department take the lead in launching trade cases on behalf of industries that lack the resources or the organization to pursue them.
 
  “We will ensure that no country or foreign corporation can take unfair advantage of U.S. markets,” Ross said.
 
The enforcement increases are contained in the Trump administration’s fiscal 2018 budget requests, which propose deep cuts to food assistance, health care and other social programs along with increases in military spending.
 
Commerce also would get a $1 million increase in funding for the Bureau of Industry and Security (BIS), the division that enforces export controls on sensitive technologies. Ross said this would fund 19 new special agents at the division that took the lead in an investigation that led to a criminal fine of $1.19 billion against China’s ZTE (000063.SZ) for violating trade sanctions on Iran and North Korea.
 
  “BIS took the lead in cracking this case open. So I am confident that these 19 additional agents, and the bandwidth they represent, will have real impact,” Ross said.
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NWS_a211. ST&R Trade Report: “‘Made in USA’ Labeling Bill Advances in Senate”

 
The Senate Commerce Committee approved May 18 the Reinforcing American-Made Products Act (S. 118) concerning the labeling of products as having been made in the U.S.
 
Under this bill federal law would supersede any state law provisions expressly relating to the extent to which a product is introduced, delivered for introduction, sold, advertised, or offered for sale in interstate or foreign commerce with a “Made in the USA” or “Made in America” label, or equivalent thereof, to represent that the product is of domestic origin in whole or in part. However, the bill would also allow the enforcement of applicable state laws with respect to the use of labels not in compliance with federal “made in USA” standards.
 
Like a similar measure the committee approved in 2016, S. 118 aims to ensure that the federal government maintains authority in setting country-of-origin labeling standards and that states do not create a patchwork of different standards governing interstate and exported goods. These bills appear to be a response to a California law that imposed stricter “made in USA” labeling requirements than those imposed by the Federal Trade Commission and was the basis of a number of lawsuits that cost targeted companies substantial sums to either settle or fight in court. In September 2015 the law was revised to align the state’s labeling standards more closely with those of the FTC.
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NWS_a0312. ST&R Trade Report: “More Self-Initiated AD/CV Cases, Export Enforcement Under Budget Proposal”

 
President Trump’s fiscal year 2018 budget proposal includes additional resources for the International Trade Administration that would be focused on self-initiating antidumping and countervailing duty cases. The Bureau of Industry and Security would also see a funding increase to boost its enforcement capabilities.
 
The ITA has the authority to self-initiate AD and CV duty investigations whenever it determines, based on the information available to it, that a formal investigation is warranted and that special circumstances exist to justify a self-initiation. However, U.S. law requires evidence of dumping or the necessary legal elements of a countervailable subsidy as well as evidence that the U.S. industry is suffering injury caused by the dumped or subsidized imports, requirements that can take substantial resources to meet. The ITA’s enforcement and compliance division is therefore working to build capacity to more fully utilize self-initiation when it may be appropriate; e.g., when shifting production sources, duty evasion or circumvention, fragmented domestic industry, or the threat of retaliation by the exporting country might make it more difficult for U.S. companies to bring AD or CV duty cases on their own.
 
The proposed budget would aid this effort by giving E&C an additional $4.5 million to fund 22 new full-time equivalent positions dedicated to identifying potential industries and products on which AD and CV duty investigations could be self-initiated as well as gathering, analyzing, and developing the required factual information and legal justification. The additional funding would also help E&C increase the number of individual companies it may examine and conduct more, and more vigorous, on-site verifications, thus increasing the division’s ability to “detect and expose” practices foreign companies employ to circumvent or evade AD and CV duties.
 
In addition, the proposed budget would increase funding for the BIS to enhance its export control investigations and enforcement capabilities. This would include an additional $3.8 million and 19 special agents to increase export enforcement operations to “make certain that that sensitive U.S.-owned technology does not fall into the wrong hands.” Additional funding would also allow the BIS to handle the additional workload resulting from the transfer of tens of thousands of items from the U.S. Munitions List to the Commerce Control List. For example, Commerce Secretary Wilbur Ross said, the volume of BIS processed export licenses increased 42 percent between FY 2013 and FY 2017.
 
On the other hand, the ITA’s overall budget would be reduced from $483 million to $442.5 million and 157 FTE positions would be eliminated. The global markets program would see a loss of $43.5 million and 136 FTE positions as about 35 smaller international posts and ten U.S. Export Assistance Centers are closed and headquarters staff is reduced to rescale export promotion, investment, and trade analysis efforts. The industry and analysis program would lose $3.7 million and 17 FTE positions as the Office of Trade Promotion Programs is eliminated and other offices and functions are streamlined.

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NWS_a413. WorldECR News Alert, 25 May

 
  (1) OFAC Designates Eight Venezuelan Supreme Court Judges
  (2) Iran Imposes Retaliatory Sanctions on US Companies and Execs
  (3) OFAC Designates Pakistani Terrorist Groups and Supporters
  (4) EU Rejects EAC Leaders’ Request to Lift Sanctions on Burundi
  (5) US Renews JCPOA Waivers, Imposes Sanctions over Ballistic Missile Programme
 
[Editor’s Note: To subscribe to WorldECR, the journal of export controls and sanctions, please visit http://worldecr.com/.]
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COMMCOMMENTARY

COMM_a114
. A. Ahanchian and E. Shingler: “How Trek Leather and the False Claims Act may Re-shape the Importing Environment”


* Authors: Amie Ahanchian, 

aahanchian@kpmg.com, 202-533-3247, KPMG LLP; Elizabeth Shingler, eshingler@kpmg.com, 267-256-2691, KPMG LLP

“How Trek Leather and the False Claims Act may Re-shape the Importing Environment” addresses how companies engaging in U.S. import and export activity should understand that trade activity carries with it certain compliance responsibilities for individuals and companies involved in the importation process.  The article further addresses how companies may reduce potential exposure through the development of a robust trade compliance program. The entire article can be read here.

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* Authors: Georgia C. Ravitz, Esq., georgia.ravitz@arentfox.com, 202-857-8939; Scott A. Cohn, Esq., scott.cohn@arentfox.com, 212-484-3984; and Teresa M. Polino, Esq., Teresa.Polino@arentfox.com, 202-350-3745. All of Arent Fox LLP.
 
On May 18, 2017, the US Senate Committee on Commerce, Science, and Transportation passed a proposed bill (S. 118) entitled the “Reinforcing American Made Products Act of 2017,” and moved the measure to the Senate floor. If passed by Congress and signed into law by the President, it would allow the Federal Trade Commission’s regulation of “Made in USA” labeling to supersede any state laws relating to a product that is introduced, delivered for introduction, sold, advertised, or offered for sale in interstate or foreign commerce with a “Made in USA” (or “Made in America”) label, or any equivalent thereof, in order to represent that such product was in whole or substantial part of domestic origin. As California is currently the only state with specific “Made in USA” labeling laws, this proposed legislation would likely have the most impact on products sold in California. However, S. 118 contains a clause that did not appear in prior versions of the Reinforcing American Made Products Act that allows enforcement of state law relating to the use of labels when such labels are not in compliance with the FTC regulations governing “Made in America” labeling. It remains to be seen whether this clause was intended to be a nod to California because of recent flexibility added to that state’s “Made in USA” laws.

The bill was introduced on January 12, 2017 by Sens. Mike Lee (R-Utah), Shelley Moore Capito (R-W.V.), Susan Collins (R-Maine), Deb Fischer (R-Neb.) and Angus King (I-Maine). The bill’s May 18 mark-up by the Senate Commerce Committee signals support for moving the legislation forward towards eventual passage by Congress. Further, passage of the bill out of committee will likely be well-received by members of industry that utilize “Made in USA” labeling and advertising claims for products marketed in the US and abroad, as industry is generally supportive of legislation establishing national regulatory requirements, as opposed to having to comply with a hodge-podge of state labeling requirements. The measure will now be taken up by the full Senate and House for further consideration.

The FTC remains committed to enforcement of its “Made in USA” advertising and labeling policies, as evidenced by the Commission’s ongoing issuance of investigatory “closing letters.” Between 2014 and 2016, the FTC issued approximately 57 closing letters, and has already issued eleven closing letters thus far in 2017 regarding “Made in USA” claims made by companies selling a variety of consumer goods, including, in part, pillows, water filters, and furniture. Such enforcement activity, as well as the 2016 election of the domestic-industry-friendly Trump administration, has many companies wondering whether they can market their products as “Made in USA,” as well as whether they can sell such products to the government under the provisions of the Buy American Act.

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How much do today’s importers really perceive about Country of Origin (COO)? In an ever-changing global economy, manufacturers are sourcing materials and components from around the world. Importers may be certain they have COO clarified and down to an exact science, however, it may be more difficult now than ever to determine COO to satisfy the U.S. Customs and Border Protection’s explicit rules.
 
Why is country of origin important?
 
COO refers to the country of manufacture, production or growth where an article or product comes from. Country of origin is also important for marking purposes. Import regulations put an emphasis on informing the end user of the country of origin of imported articles.
 
Duty rates, preferential trade agreements, trade sanctions and import quotas are regulated according to COO-and, as always, play a large role. Because of revenue and admissibility issues involved, CBP is more vigilant than ever about verifying accurate COO.
 
The impact of Non-Preferential vs. Preferential rules
 
Each country has its own rules of origin. For example in the Unites States, there is one set of rules for goods imported from a NAFTA country, and then another for imports from anywhere else in the world. Importers must analyze against these multiple rule sets by using sourcing, processing and assembly information to determine an accurate country of origin, and the results could potentially produce different requirement– even for a single Bill of Material (BOM).
 
As more countries compete in the marketplace, more rules and regulations are created and/or updated.
 
There are two main types of Rules of Origin to maintain company compliance. Preferential Rules of Origin such as Free Trade Agreements/Generalized System of Preferences are trade agreement-based, and Non-Preferential Rules of Origin, determining COO for marking purposes. The rules of origin for Preferential and Non-Preferential are different based on the country of import and trade agreement and can vary widely. Importers need to carefully assess the appropriate rules for COO marking purposes and/or if their company is looking to claim FTA privileges.
 
Consider non-preferential (marking) Rules of Origin into Canada and the U.S. How does an importer determine if the COO is different if you import from a NAFTA Country (US, MX, CA) versus if you import from any other country in the world.
 
This example shows how COO is determined using both non-preferential and preferential agreements, mainly from Canada — U.S. and Canada:
 
Although components for a desk chair come from Mexico, Canada, China, India and the U.S., the table below-showing HS numbers, description and item-help determine that theCOO is indeed the U.S., where the desk chair is assembled.
 
The COO challenge
 
As noted previously, COO marking has become a requirement in most countries over the last few decades. With this requirement, companies are finding that many countries require imported items to be marked with a single country of origin, and, with sourcing, processing and assembly happening all over the world, it becomes difficult to determine country of origin accurately.
 
Managing the country of origin marking process is tedious and consists of manually analyzing BOMs to determine origin. The accuracy of determining the country of origin information can result in delays, detentions, monetary penalties or even criminal sanctions.
 
Errors in origin determination or marking can incur fines of up to $500,000 USD per violation. Habitual errors can result in increased costs to administer detection and correction programs and, ultimately, the loss of your company’s reputation with CB. The most severe penalty is the loss of importing and/or exporting privileges.
 
The solution
 
Automating origin determination, whether preferential or non-preferential, alleviates the challenges of manually reviewing BOMs against the eligibility criteria, which will, in turn, significantly reduce the time needed to qualify for preferential programs or determine non-preferential origin. Solutions can automate the decision-making process based on the appropriate Marking Rules of Origin for each importing country as well as bundle the pertinent regulations and rulings for reference
 
For more information on Country of Origin Determination, please go here.

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COMM_a417. I.A. Laird, J. Laird & C. De Jager: “Update: Legal Considerations for U.K. and EU Investment and Trade Treaties after Brexit”

 
* Authors: Ian A. Laird, Esq., ilaird@crowell.com, 202-624-2879; John Laird, Esq., jlaird@crowell.com, +44-20-7413-1324; and Charles De Jager, Esq., cdejager@crowell.com, +32-2-214-2822. All of Crowell & Moring LLP.
 
In this alert, we provide updates on recent headlines:
 
* European Court of Justice (ECJ) opines on scope of EU’s supremacy over the EU-Singapore Free Trade Agreement. The highlights include:
  – Investor-State Dispute Settlement (ISDS) requires unanimous Member States approval.
  – The possibilities for a U.K. trade treaty with the EU separate from any withdrawal agreement.

* U.K. Conservative Party champions ratification of EU-Canada Comprehensive Economic and Trade Agreement (CETA), the EU-Singapore FTA, and other trade treaties in the U.K. parliamentary election due on 8 June 2017.
 
This article follows our previous alert, Legal Considerations for the U.K.’s Investment and Trade Treaties After Brexit, following the notification under Article 50 of the Treaty on the European Union (TEU) regarding the United Kingdom’s intent to leave the European Union.
 
THE SCOPE OF EUROPEAN UNION COMMON COMMERCIAL POLICY PRIMACY
 
As noted in our previous update, in 2016 the European Commission sought an opinion from the ECJ regarding the exact scope of the EU’s supremacy regarding the common commercial policy (see Treaty on the Functioning of the European Union (TFEU) Article 3(1)(e) and Article 207(1) and (3)) as part of the finalization of the EU-Singapore FTA. That opinion was released on 16 May 2017.
 
In reviewing the various topics of the Singapore FTA, the ECJ decided that the EU had sole competence to enter into treaties under the common commercial policy on the subjects of:
 
  – Access to the respective markets for goods and services.
  – Direct foreign investment.
  – Intellectual property rights.
  – Anti-competitive conduct.
  – Sustainable development.
  – A bundle of cooperation requirements including notification, verification, mediation, transparency, and dispute settlement between the treaty contracting parties.
 
UNANIMOUS MEMBER STATES APPROVAL OF ISDS REQUIRED
 
The ECJ decided that non-direct foreign investment was outside the scope of the common commercial policy. The ECJ also concluded that ISDS provisions for direct enforcement of an investor’s rights against the EU or a Member State by the investor itself fell outside the exclusive competence regime. Accordingly, a treaty which contains an investment chapter with ISDS provisions would fall to unanimous approval by the Member States under TFEU Article 207(4). In the particular case of the Singapore FTA, because the treaty contains both of these aspects beyond the scope of exclusive competence, the treaty will require unanimous Member State ratification.
 
The ECJ’s opinion does not impact the ratification of CETA, the Canada-European Union treaty signed on 30 October 2016, which has already been treated as a mixed competence agreement and was approved by the European Parliament on 15 February 2017. Ratification by the Member States is pending.
 
The ISDS mechanisms in these two treaties replicate the existing approach in the EU-South Korea FTA, which involves a new Investment Court System (ICS) discussed in our prior alert that would replace the traditional arbitration model with a panel of publicly-appointed judges from among the Parties and third country appointees, as well as an appellate mechanism. ICS would also involve transparency measures that are finding currency elsewhere in the investment arbitration sphere, such as the Mauritius Convention on Transparency, which will enter into force on 18 October 2017 for those States which have ratified it. Of EU Member States, the following are signatories: Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Sweden and the U.K. However, at this time none of these EU signatories have ratified the Convention (only three States have ratified as of the date of this note: Canada, Mauritius, and Switzerland). A current list of States that have signed and ratified the Convention is available here.
 
Although the European Commission has indicated that it intends to pursue ICS in all its future investment treaty negotiations, the opinion of the ECJ confirms that any future treaties with ISDS mechanisms will require the consent of the EU’s membership. The concerns raised at the Member State level during the process of completion of CETA indicate that this could create significant challenges to the finalization of future treaties with ISDS features. Please see our 3 March 2017 Podcast on this topic: “PODCAST: CETA, ISDS, and the Belgian Veto – A Warning of Failure for Future Trade Agreements with the EU?

IMPLICATIONS OF ECJ OPINION FOR BREXIT
 
There are also potential implications in the ECJ opinion for Brexit more generally. Under Article 50 TEU, a departing member leaves after notification under one of two conditions: (i) upon entry into force of a withdrawal agreement; or (ii) 2 years after the notification was given (unless extended by unanimous agreement of the remaining Member States) if no withdrawal agreement has yet been ratified. Such withdrawal agreement is approved by the European Parliament and ratified by qualified vote of the European Council (i.e., by 55 percent of Member States representing 65 percent of the EU population – a minimum of 20 of the remaining 27 members).
 
It is therefore theoretically possible that the U.K. will leave the EU without a withdrawal agreement but – given the scope of common commercial policy defined by the ECJ’s decision – could thereafter enter into an agreement as a third-party state within that scope which is solely within the purview of the EU itself to conclude, and not its Member States. Nevertheless, it would seem politically unlikely such an outcome could happen swiftly.
 
THE TRAJECTORY OF UNITED KINGDOM GOVERNMENT POLICY ON TRADE TREATIES
 
The recent announcement of a U.K. general election due to take place on 8 June 2017 raises another point from our previous alert: the intentions of the U.K. as to the future bilateral status of the EU’s agreements after Brexit. As we previously discussed, the EU has an extensive existing list of trade treaties with third party states. See here for lists of the EU’s current trade treaties.
 
The presently governing Conservative Party is expected to be returned with a continuing majority in the Westminster Parliament after the election. Its recently published manifesto states a policy to “seek to replicate all existing EU free trade agreements and support the ratification of trade agreements entered into during our EU membership.” The United Kingdom can therefore be expected to champion ratification of CETA and the EU-Singapore FTA, as well as to approach the EU’s existing trade partners to extend the scope of the existing treaties bilaterally, as we suggested could be practically possible. We note that the two other main national parties, Labour and the Liberal Democrats, do not have such express policy goals for the coming parliamentary term in their manifestos.

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COMM_a518. Gary Stanley’s ECR Tip of the Day

(Source: Defense and Export-Import Update; available by subscription from
gstanley@glstrade.com
)
 
* Author: Gary Stanley, Esq., Global Legal Services, PC, (202) 352-3059,
gstanley@glstrade.com
 
“Fundamental research” is performed in industry, federal laboratories, or other types of institutions, as well as in universities. It remains the type of research, and particularly the intent and freedom to publish it that identifies “fundamental research,” not the institutional locus.

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ENEDITOR’S NOTES

(Source: Editor)

 
* Ralph Waldo Emerson (25 May 1803 – 27 Apr 1882, was an American essayist, lecturer, and poet who led the Transcendentalism movement of the mid-19th century.  He was seen as a champion of and a prescient critic of the countervailing pressures of society, and he disseminated his thoughts through dozens of published essays and more than 1,500 public lectures across the United States.)
  – “Wit makes its own welcome, and levels all distinctions. No dignity, no learning, no force of character, can make any stand against good wit.”

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EN_a220
. 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 [New effective date: 21 March 2017.]; and 82 FR 8590: Delay of Effective Date for Toxic Substance Control Act Chemical Substance Import Certification Process Revisions [New effective date: 21 March 2017.]

* 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:
18 Apr 2017: 82 FR 18217-18220: Revision to an Entry on the Entity List

  
*
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: 19 Apr 2017: 82 FR 18383-18393: Foreign Trade Regulations: Clarification on Filing Requirements 
  – HTS codes that are not valid for AES are available
here.
  – The latest edition (19 Apr 2017) 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: 26 Apr 2017: Harmonized System Update 1703, containing 2,512 ABI records and 395 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 8 Mar 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.  

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EN_a321
. Weekly Highlights of the Daily Bugle Top Stories
(Source: Editor)

Review last week’s top Ex/Im stories in “Weekly Highlights of the Daily Bugle Top Stories” published 
here
. 

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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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