INTERNATIONAL TRADE AND CUSTOMS LAW NEWSLETTER PREPARED FOR THE CLIENTS AND FRIENDS OF THE FIRM, FOR VIEWING ON THE WORLD WIDE WEB.

Volume XI, Number 6
August, 1997

CUSTOMS MUST PAY
INTEREST ON OLDER
ENTRIES, CAFC SAYS

The "interest" provisions of the Customs Informed Compliance and Modernization Act apply to entries made before the December 8, 1993 effective date of that Act, provided their final "liquidation" came after that date, the U.S. Court of Appeals for the Federal Circuit (CAFC) recently held. In Travenol Laboratories, Inc. v. United States, No. 96-1534 (July 2, 1997) the CAFC held that Customs was obligated to pay interest on duty refunds owed in respect of pre-"Mod Act" entries, where subsequent liquidation confirmed the existence of a duty "overpayment". The CAFC reversed a 1996 U.S. Court of International Trade decision which held that the new interest provisions only affected entries made on or after the Mod Act's effective date. Prior to the "Mod Act" amendments, Customs was only required to pay interest on refunds of "additional duties" which were exacted from the importer at the time the entry was liquidated. No interest was paid on refunds of duties deposited at the time of entry.

While the CAFC's Travenol ruling may provide a windfall for importers expecting refunds on older entries, it may be a two-edged sword. The decision also authorizes Customs to assess interest on underpayments of duties on pre-Mod Act entries. However, virtually all such entries have been liquidated and made final, so few importers are likely to receive interest bills.

The Government is expected to vigorously dispute the latest Travenol decision, arguing that, as a matter of sovereign immunity, interest may be assessed against the government only pursuant to a clear and precise legislative mandate. Customs, believing no such mandate exists, may ask the full CAFC to reconsider the Travenol decision, and may even appeal the decision to the U.S. Supreme Court.

Copies of the Travenol decision are available from our offices [GTR #97- 601].

CUSTOMS CONSIDERS
"ADMINISTRATIVE
PROBATION" PROGRAM

Importers who have been assessed civil penalties under Section 592 of the Tariff Act may be able to obtain extraordinary mitigation of those assessments under a proposed "Administrative Probation" program being considered by the U.S. Customs Service. Under a draft proposal circulated by Customs for public comment, importers who have been assessed a mitigated Section 592 penalty would have the option to enter into a "probation" program of between 6 months and 2 years' duration, during which the importer would undertake measures to correct the problem which led to the assessment of the penalty in the first place.

Activities which would reduce (but generally not eliminate) the mitigated penalty would include participation in educational programs (10-25% penalty reduction), internal process redesign and establishment of Customs compliance functions (25-50%) and investment in technology to increase Customs compliance (50-75%). The importer's entries would also be subject to increased Customs scrutiny during the probation period, to permit assessment of compliance levels.

Customs' proposal does not appear to address the fact that years may pass between the time an importer becomes aware of a problem, and the time it receives a mitigated penalty. Customs' program does not appear to give importers credit for remedial actions undertaken before the "probation" period. Copies of Customs' draft proposal are available from our offices [GTR #97-602].

MARKING: DOMESTIC
FOOD MANUFACTURE
NOT "SUBSTANTIAL
TRANSFORMATION": CIT

Peanut butter manufactured in the U.S. with as little as 10% imported material is a "foreign" product subject to country of origin marking requirements, according to a recent decision by the U.S. Court of International Trade (CIT). In CPC International, Inc. v. United States, Slip Op, 97-97 (July 14, 1997), the CIT had previously ruled that Customs must use the traditional "substantial transformation" test of a change in name, character or use, rather than its tariff-shift NAFTA Marking Rules, to determine whether the peanut butter is a "foreign" article subject to marking under Section 304 of the Tariff Act. On remand, Customs applied its "substantial transformation" test and concluded that, as the 10% imported Canadian material did not, in the agency's view, undergo "substantial transformation", the finished peanut butter -- even though made in Arkansas -- should be considered a "foreign" good, subject to marking.

Reviewing this decision, the CIT agreed with Customs. Relying heavily on its 1986 decision in National Juice Products Association v. United States, the CIT held that the finished peanut butter derived its "essence" from the 10% Canadian peanut slurry used in its manufacture. The Court also suggested that the test of a "substantial transformation" should be measured not merely with reference to the imported material, but with reference to the combined mass of domestic and foreign material used in making the peanut butter. In effect, the CIT's decision treated the peanut butter's domestic materials (up to 90% of the total content) as "foreign" for marking purposes.

Copies of the CPC International decision are available from our offices [GTR #97-603].

U.S., EUROPEAN UNION
SETTLE TEXTILE ORIGIN
RULES DISPUTE

The U.S. and the European Union have tentatively settled their dispute concerning the controversial U.S. rules of origin for textile and apparel articles, enacted as Section 334 of the Uruguay Round Agreements Act. The E.U. complained that the U.S. rules unfairly restricted U.S. market access for such European products as Italian silk scarves, Germany bedding, and English specialty fabrics, all made from "greige" fabric formed in Asian nations.

The U.S. negotiators offered both an interim and a permanent solution to the EU complaint. For its interim solution, the U.S. agreed to amend Section 304 of the Tariff Act, to provide that silk scarves and silk fabrics no longer need be marked to show country of origin. This will please E.U. scarf makers, who will no longer need to mark their high fashion goods as "Made in China" under the new rules. The U.S. has also agreed to eliminate immediately its quotas on cotton and man-made fiber printed discharge fabric from several countries, easing market access for European fabric converters.

For a permanent solution, the U.S. has agreed to make a proposal in the Uruguay Round Rules of Origin Study to reinstate its "old" country of origin rule for fabrics. This rule recognized a change in origin when a "greige" fabric was subjected to printing and dyeing, plus at least two subsidiary finishing operations. The U.S. has agreed to introduce legislation to effect this change no later than September 20, 1998.

The agreement seems to satisfy the complaints of Europe's scarf makers and fabric converters, but provides nothing for producers of bedding and home textiles. However, as the U.S. prepares to abandon some of its Section 334 textile origin rules in the Uruguay Round Study, it may make other concessions in those areas. A memorandum analyzing the settlement of the textiles dispute is available from our offices [GTR #97-604].

ITC TO STUDY
SIMPLIFYING TARIFF
SCHEDULE

Rep. Bill Archer (R-TX), Chairman of the House Ways & Means Committee, has directed the U.S. International Trade Commission (ITC) to conduct an investigation, under Section 332 of the Tariff Act of 1930, concerning methods for simplifying the Harmonized Tariff Schedule (HTS). In recent years, amendments to the HTS mandated by NAFTA and other legislation, and the proliferation of statistical reporting subheadings, have caused the tariff to swell to nearly twice its former size, making it cumbersome to use (not to mention hard to carry). In conducting its three- year simplification study, the ITC has been instructed by Congress to suggest ways to simplify the tariff without effecting duty-rate changes, try and eliminate tariff items which exist solely to establish "Column 2" rates of duty, and to consider converting all compound, specific, and complex rates of duty to ad valorem equivalents. Streamlined statistical reporting will also be considered.

Congress has urged the ITC to hold a public hearing in conjunction with this investigation, and to solicit input from other trade-related Federal agencies.

DIVE SUIT IS
APPAREL, CIT HOLDS

Components of neoprene "wet suits", specially designed for use in scuba diving, are classifiable as wearing apparel, according to a recent U.S. Court of International Trade (CIT) decision. In H.I.M./Fathom, Inc. v. United States, Slip Op. 97-96 (July 14, 1997), Judge Nicholas Tsoucalas sustained Customs' determination that the wet suits were properly classifiable as garments, while their accompanying gloves, headgear and shoes were classifiable under the tariff headings provided for such accessories and footwear. The Court rejected the importer's claim that the wet suits should be classified under HTS Subheading 9506.29, as "other water-sport equipment".

Although the Court acknowledged that the wet suit components were designed for use in the sport of diving, it held that the Explanatory Notes to the HTS apparel headings specifically mentioned "diving suits" as being among the articles classified therein. The Court also noted that the provisions of HTS Chapter 65 covering sporting equipment were intended to cover items in the nature of apparatus and appliances, and not to include wearing apparel articles and accessories. The Court did, however, find that imported "weight belts" for the suits were classified as sporting equipment.

Copies of the H.I.M./Fathom decision are available from our offices [GTR #97-605].

COMMERCE SETS NEW
ANTIDUMPING REGS

The U.S. Department of Commerce, International Trade Administration (ITA) has published a comprehensive final revision of its regulations governing antidumping investigations and reviews. The new regulations, which embody the changes to the antidumping law resulting from the Uruguay Round trade agreements and other administrative changes. The new regulations provide directions for formatting and filing antidumping submissions with ITA, the issuance of Administrative Protective Orders (APOs) governing treatment of confidential data and substantive antidumping calculation rules. The regulations expand antidumping procedures to include formal participation by industrial users and by consumers, in addition to "interested parties", and change certain rules used in non-market economy antidumping cases. The ITA recently conducted a briefing to familiarize the trade community with the new regulations. Call our offices for copies of the new regulations [GTR #97-606] and ITA briefing materials [GTR #97-607].

U.S. INDUSTRIES
TO PETITION FOR
TRADE RELIEF

Several U.S. manufacturing industries are considering petitions to secure relief from what they claim are unfair trade practices. The American Automobile Manufacturers Association (AAMA), representing the "Big Three" auto makers, has urged the U.S. Trade Representative (USTR) to consider possible trade sanctions against South Korea, based on that country's alleged failure to live up to the terms of a 1995 agreement promising free access to the Korean market for U.S. vehicles. The AAMA also criticized Japan's adherence to its own 1995 agreement to provide greater market access for U.S. auto dealerships and auto parts. While Japan had promised that there would be 200 U.S. auto dealerships by 1997, that goal has been only about 60% attained, and U.S. auto makers' sales in Japan have declined during the past year.

Domestic manufacturers of specialty steel plate and strip are also gearing up to file antidumping or countervailing duty complaints against imports from selected (and as yet unidentified) countries. The specialty steel makers complain that year-to-date imports in 1997 are exceeding imports for 1996, in which a record amount of stainless steel was imported into the U.S.

CBI PARITY, GSP
RENEWAL MEASURES
FOUNDER IN CONGRESS

Efforts to secure NAFTA parity for Caribbean Basin Initiative (CBI) beneficiary countries and to renew the Generalized System of Preferences (GSP) have apparently fallen short for now. The House of Representatives' budget reconciliation bill included both CBI parity and GSP renewal provisions, but the Senate Parliamentarian ruled that the measures did not belong in a budget bill. [The measures were not included in the Senate's budget bill]. Supporters of the bills are hoping to find new legislative vehicles for both measures later this year.

There is intense interest in the CBI-NAFTA parity provision, as it would pave the way for duty-free entry of a wide range of goods produced in Caribbean Basin countries, which goods are currently ineligible for CBI treatment. Such goods include textile and apparel articles, canned tuna, petroleum and petroleum products, footwear, handbags, luggage, flat goods, work gloves, leather wearing apparel and certain watches. Under the House bill, the NAFTA parity would be phased in gradually, as the beneficiary countries conform their policies in preparation for entry into the Free Trade Area of the Americas, which is expected to be concluded in 2005.

Textile producers have an especially large stake in CBI parity, since Caribbean countries have been steadily losing ground to Mexico as a source of textiles for the U.S. market.

HOUSE SEEKS COMMENTS
ON CUSTOMS LEGISLATION

The House Ways & Means Trade Subcommittee is seeking public comment through August 15, 1997, on a wide range of miscellaneous tariff bills. In addition to comments on duty suspension bills for a wide range of chemicals, vitamins, vaccines, and other imported goods, the Subcommittee is also seeking input on proposals regarding post- importation claims for NAFTA duty treatment, duty drawback for packaging materials filled prior to exportation, and other proposed changes to Customs laws. Copies of the Subcommittee's press release are available from our offices [GTR 97-609].

CIT TURNS DOWN
IMPORTER'S HMT
CHALLENGE

An importer who cannot make a specific claim of prejudice or harm lacks standing to challenge the Harbor Maintenance Tax (HMT) as applied to imports, the U.S. Court of International Trade recently held. In Sarne Corporation v. United States, Slip Op. 97-103 (July 24, 1997), an importer sought to challenge the entire HMT statute on the ground that Congress has failed to properly spend the more-than-$800 million surplus in the Harbor Maintenance Trust Fund -- thereby frustrating the importer's "legitimate expectations".

However, the Court ruled that because the plaintiff had not alleged any specific harm relating to the failure to spend the funds -- no lack of access to ports, denial of a request for port maintenance, etc. -- it did not have a cause of action upon which the Court could properly render judgment. The Court dismissed the importer's case. Copies of the Sarne Corporation decision are available from our offices. [GTR #97-610].

WATCHMAKER NOT
ENTITLED TO PIC
CERTIFICATE: COURT

A Virgin Islands watch producer who shut its plant at the end of one year was not entitled to a Production Incentive Certificate (PIC) for the next year, the U.S. Court of International Trade recently determined. In Timex V.I v. United States, Slip Op. 97-85 (June 30, 1997), a watch producer closed its Virgin Islands plant at the end of 1995, but applied for a PIC for 1996. A PIC provides transferable U.S. tax credits based on a Virgin Islands manufacturer's imports of watches and payroll expenditures. The Secretary of the Interior denied the certificate, asserting that a company which was no longer a producer was not entitled to the certificate. The CIT upheld this decision, finding the Secretary's interpretation of the law to be "reasonable", and thus entitled to judicial deference. Copies of the Timex V.I decision are available from our offices [GTR #97-611].

NPW LIVE ON THE
WORLDWIDE WEB

Neville Peterson LLP is expanding its reach on the World Wide Web. The firm's WWW Homepage [http//:www.npwtradelaw.com] features expanded information and links to research resources for international trade, and features current and past issues of the Global Trade Report online. In addition, the firm is featured on the "Ask the Experts" feature of the new Import/Export Bulletin Board (IEBB) page. In addition to fielding inquiries at any time, George Thompson of the firm's Washington, D.C. office hosts a live on-line question and answer forum every Tuesday morning from 11:00 A.M. to Noon, Eastern Time, at [http\\:www.iebb.com].

EUROPEAN UNION
NEWSLETTER NOW
AVAILABLE

We are happy to make available to readers of the Global Trade Report a new newsletter concerning Law and Developments in the European Union. The quarterly newsletter is produced by the Brussels law office of Terry Broderick, and covers major European Union developments relating to trade law, Customs, competition law and standards, among other topics. To be placed on the mailing list for this free Newsletter, please contact our offices and reference [GTR #97-612].