Volume XII, Number 1
January/February, 1998

KELLY TAPPED AS
NEW COMMISSIONER
OF CUSTOMS

President Clinton has designated Raymond W. Kelly, currently serving as Undersecretary of the Treasury for Enforcement, to serve as Commissioner of Customs. Upon Senate confirmation, Kelly would replace George Weise, who retired as Commissioner last year. Sam Banks has served as Acting Commissioner of Customs since Weise's retirement.

Kelly, 56, has pursued a lifelong career in law enforcement with the New York City Police Department, serving as the City's Police Commissioner from 1992 until 1994. President Clinton tapped Kelly as a special envoy to Haiti, to assist in the restoration of that country's elected government. Kelly has pledged to renew Customs' efforts to interdict illegal narcotics, gaining the favor of politicians such as Sen. Dianne Feinstein (D-CA), who had criticized the agency's emphasis on expediting commercial transactions.

Kelly is a graduate of Manhattan College and St. John's University School of Law. He is expected to easily gain Senate confirmation.

WTO: TARIFF
CLASSIFICATION
CAN VIOLATE GATT

An unwarranted change in an article's tariff classification can constitute a violation of world trading rules, according to an important new decision from a World Trade Organization (WTO) dispute resolution panel. In an important victory for the United States, the WTO held that the European Union had nullified a Uruguay Round tariff concession commitment when it changed the tariff classification of Local Area Network (LAN) boards under its Common Customs Tariff, dramatically increasing the rate of duty applied to these goods.

The decision is particularly significant, since it rejected the EU's argument that tariff classification disputes can only be referred to the Brussels-based World Customs Organization (WCO), which has no power to enforce its decisions. The EU argued that it had reduced its tariff on automatic data processing units, and that its decision to reclassify LAN boards as telecommunications equipment did not detract from that commitment. The WTO panel found otherwise, holding that the reclassification nullified and impaired the tariff reduction.

The WTO's decision is potentially of extreme importance, as it furnishes the U.S. and its trading partners with a powerful new weapon to ensure proper implementation of international tariff-cutting arrangements, such as the Information Technology Agreement (ITA). Information concerning the WTO panel decision is available from our offices [GTR # 98-101].

ITC LAUNCHES
STUDY ON PROPOSED
"ITA II" PACT

At the request of U.S. Trade Representative Charlene Barshefsky, the U.S. International Trade Commission (ITC) has launched an investigation, under Section 332 of the Tariff Act, concerning the probable economic effects of tariff reductions under the proposed "Information Technology Agreement II", currently being negotiated under WTO auspices. The USTR has asked the ITC to consider requests by U.S. manufacturers for the elimination of tariffs on a wide array of computer components, semiconductor materials, business machines and electromedical devices. In addition, the ITC has been asked to give advice on the economic effect of eliminating tariffs on technology products, pursuant to requests tabled by the U.S.'s trading partners.

Public comments in the ITC's study are due by March 29, 1998. The ITC will hold a public hearing concerning its investigation on March 24, 1998; requests to appear at the hearing must be submitted by March 19.

Copies of USTR's request for the Section 332 investigation, and the ITC's initiation notice, are available from our offices [GTR # 98-102].

CUSTOMS PROPOSES
OVERHAUL OF PENALTY
RULES, PROCEDURES

The U.S. Customs Service has proposed a significant and controversial overhaul of its procedures for issuance and disposition of administrative claims for penalties and liquidated damages. Under the agency's proposal, Part 171 of the Customs Regulations would be revised to cover only procedures for dealing with Customs penalties which are not secured by a bond, while Part 172 of the agency's regulations would deal with claims for liquidated damages and other penalties brought against bonds.

The proposed regulations would authorize the Secretary of the Treasury to delegate to port directors of Customs increased responsibility to hear and decide penalty cases which are now handled by Customs Headquarters. The proposal for increased delegation has generated controversy among importers, who fear that some port directors will be biased, or will lack expertise to handle certain sophisticated cases. The proposed regulations would allow either Customs officers or penalized importers to request internal advice from Customs Headquarters concerning any legal issues involved in penalty cases.

Other significant changes in Customs' regulatory proposal include the elimination of second supplemental petitions in penalty cases, the treatment of all mitigated penalty payments as an "accord and satisfaction" (blocking the importer from suing to recover the payment), and the allowance of supplemental petitions in broker penalty cases. The rules would also change the rules pertaining to disposition of low-value seized property, and the time for filing petitions in cases where the statute of limitations is about to run.

Customs is seeking comments on its proposed rules through April 3, 1998. Copies of the proposal are available from our offices [GTR # 98-103].

CUSTOMS PROPOSES
RULES FOR ANDEAN
TRADE PACT

More than six years after President Bush signed the Andean Trade Preference Act (ATPA) into law, the U.S. Customs Service has finally proposed regulations governing the duty free entry of eligible goods from ATPA beneficiaries (Bolivia, Colombia, Ecuador and Peru). Customs' proposed regulations closely track those under the Caribbean Basin Economic Recovery Act (CBERA), and reflect the fact that the two programs have similar substantive requirements.

The regulations differ from those under CBERA in that they cross-reference statutory requirements for duty-free treatment, rather than restate them fully. Customs is accepting comments on the proposed ATPA regulations through March 31, 1998; copies of the proposal are available from our offices [GTR # 98-104].

EXPORTS; COMMERCE
REGS IMPLEMENT
WASSENAAR PACT

In a surprising move, the Commerce Department on January 15, 1998 published an interim regulation conforming U.S. export control rules to the requirements of the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies. The interim rule establishes new reporting requirements for companies exporting certain products and technologies to countries which are not members of the 33-nation Wassenaar Group, formed in 1996 to replace the old Coordinating Committee on Multilateral Export Controls (COCOM).

While the U.S. had expressed dissatisfaction with the advisory nature of certain Wassenaar Group export determinations, and questioned the effectiveness of the Arrangement's export notification procedures and other controls, the Administration apparently gave up any hope of changing the rules, and decided rather abruptly to implement them. There is also widespread concerning that other members of the Wassenaar Group do not monitor controlled exports as closely as the U.S., thereby placing American exporters at a competitive disadvantage.

The new rules are expected to help some U.S. industries, such as makers of machine tools, for which export controls are eliminated. However, U.S. companies will be required to submit semiannual reports to the Commerce Department's Bureau of Export Administration, reporting transactions involving computers, telecommunications equipment, and other technologies controlled under the Agreement. The first report, covering exports made during the first half of calendar 1998, is due on August 1, 1998.

The Commerce Department has also announced a grace period, through April 15, 1998, for shipments removed from Licensing Exemption authorizations or the designator "NLR" (no license required) as the result of the adoption of the Wassenaar Arrangement Interim Rule.

Copies of the new interim Commerce regulation implementing the Wassenaar Arrangement are available from our offices [GTR #98-105].

ATTORNEYS' FEES
AWARDED IN CUSTOMS
PENALTY CASE

A government attempt to block discovery in a civil penalty lawsuit was not "substantially justified", entitling an importer to recover its attorneys' fees from the government, the U.S. Court of International Trade recently held. In United States v. Hi-Temp Specialty Metals, Inc., et al., Slip Op. 98-12 (February 6, 1998), Customs sued an importer to recover a civil penalty under Section 592 of the Tariff Act, alleging that the importer had falsely entered Russian titanium sponge as Swedish titanium "scrap". The importer sought to take depositions from three San Francisco Customs officials who had been involved in the liquidation of the entry which was the subject of the penalty case. The government sought a protective order to block the depositions, claiming that, since the liquidated entry was final, the officials' testimony would not be relevant to the penalty case, and would only aid a "collateral attack" on the liquidation.

The CIT disagreed, finding that the officials' deposition testimony would be potentially relevant, in that it would shed light on the importer's motives for entering the goods as titanium "scrap", as well as the government's motives in bringing the penalty case. Moreover, the Court found that Customs lacked "substantial justification" in seeking the protective order, and that reasonable minds could not question that the depositions were proper. The Court ruled that, under the Equal Access to Justice Act, the government must pay more than $9000 in legal fees which the importer incurred in challenging the government's "protective order" motion.

Copies of the Hi-Temp Specialty Metals decision are available from our offices [GTR # 98-106].

GOVERNMENT STILL
PONDERS "INTEREST"
APPEAL TO SUPREME
COURT

The U.S. Department of Justice still has not decided whether to seek U.S. Supreme Court review of the Federal Circuit's controversial decision in Travenol Laboratories, Inc. v. United States, which applied the "interest" provisions of the Customs Informed Compliance and Modernization Act to certain entries made before the Act's December 8, 1993 effective date. The government recently sought and received an extension of time in which to decide whether to ask the U.S. Supreme Court to grant a petition for certiorari to hear the case.

Justice has blocked the settlement of many U.S. Court of International Trade lawsuits involving pre-"Mod Act" entries, pending the final resolution of the Travenol Laboratories case. However, the Court recently fashioned an interim remedy to address such cases. In Marubeni America, Inc. v. United States, Slip Op. 98-5, the Court entered an "interim order", directing Customs to pay duty refunds and undisputed interest on certain pre-"Mod Act" entries, while reserving decision on payment of disputed "Travenol" interest.

Copies of the Marubeni America decision are available from our offices [GTR # 98-107].

EU CHALLENGES
HARBOR TAX BEFORE
WORLD TRADE
ORGANIZATION

The European Union has filed a complaint with the World Trade Organization (WTO), charging that the United States' Harbor Maintenance Tax (HMT) violates various WTO rules governing trade in goods. The EU complaint asserts, among other things, that the HMT, as applied to imports, constitutes a disguised tariff, in that the amount of the fee (currently 0.125% ad valorem) exceeds the cost of the services provided.

A similar complaint filed years ago resulted in a GATT panel report striking down the United States' Merchandise Processing User Fee (MPF) as excessive in relation to the costs of processing commercial import transactions. The U.S. responded to that decision by establishing a per-entry "cap" on MPF assessments.

The timing of the EU complaint is interesting, as the U.S. Supreme Court is scheduled to hear oral arguments on March 4, 1998 in the case of United States Shoe Corp. v. United States, which challenges the constitutionality of the HMT as applied to exports. It is widely acknowledged that if the export HMT is struck down, any continuation of the tax on imports would constitute an unfair discrimination against foreign goods, and violate WTO rules.

Our firm filed an amicus curiae brief with the Supreme Court in the United States Shoe case, urging that the export HMT be struck down as unconstitutional. Copies of the amicus brief are available from our offices [GTR # 98-108].

CUSTOMS REVISES
NCAP REST FOR
"RECONCILIATIONS"

The U.S. Customs Service has published a notice in the Federal Register revising its proposed National Customs Automation Program (NCAP) test of the new "reconciliation" procedure for import entries. The new proposal indicates that the new NCAP proposal is available for reconciliation of all Customs valuation issues, as well as valuation issues for HTS subheading 9802.00.80 (offshore assembly) operations, post-importation claims for NAFTA preferential treatment, and certain tariff classification issues. However, the reconciliation procedure may only be used for classification disputes when the issues have been formally established as the subject of a pending administrative ruling request, (including preclassification rulings), protest or court action.

The "reconciliation" procedure is intended to allow import entries to "liquidate" and become final with respect to most legal issues, while setting aside selected issues for future resolution.

To utilize the "reconciliation" procedure, an importer will be required to file with Customs a Notice of Intent, identifying the issue which will be "transferred" from the import entry to the "reconciliation". The importer must "flag" its import entries for inclusion in the "reconciliation" procedure, using an electronically-transmitted Special Program Indicator, which qualifies as the "notice of intent". A "blanket" application, covering multiple entries, may be filed in appropriate circumstances.

Copies of Customs' notice announcing its new NCAP prototype are available from our offices [GTR #98-109].

FTC AMENDS TEXTILE
REGULATIONS

The Federal Trade Commission (FTC) has issued final regulations amending the agency's rules for administering the Textile Fiber Products Identification Act, the Wool Products Labeling Act, and the Fur Products Labeling Act. The agency's final rule, which becomes effective March 16, 1998, makes several changes to the textile and fur regulations. It allows the listing of generic fiber names for fibers that have a functional significance and constitute less than 5% of a product's total fiber weight, without requiring disclosure of the fiber's functional significance. The rule also eliminates the requirement that the front side of a label bear the words "Fiber Content on Reverse Side" when the fiber content is listed on the back of a label, and streamlines procedures for placing other required information on labels.

The new FTC rule also incorporates by reference the International Standards Organization (ISO) standard 2076/1989, which establishes generic fiber names and definitions for manufactured fibers. The FTC is extending its regulatory reach over "mail order" and similar transactions to include advertisements disseminated electronically through the Internet or e-mail.

Copies of the new FTC final rule, and a memorandum analyzing it, are available from our offices [GTR #98-110].

Neville Peterson LLP is proud to announce that two new attorneys have joined our firm, resident in the Washington, D.C. office.

Michael K. Tomenga has more than 20 years' experience in Customs, international trade and export control law. He is a graduate of St. Lawrence University and the Catholic University of America School of Law. He formerly served as an attorney with Customs' Headquarters' Office of Rules and Regulations. Before joining NPW, Mike was a partner in the Washington D.C. office of the law firm McKenna & Cuneo. Mike will continue to practice in the Customs, trade law and export control areas.

Lawrence J. Bogard also has two decades' experience in Customs and international trade matters, with an emphasis on antidumping and countervailing duty proceedings and litigation. Larry is a graduate of Vassar College, and of Georgetown University Law School. Before joining NPW, Larry was a partner in the Washington, D.C. office of the law firm McKenna & Cuneo. At NPW, Larry will carry on his practice in Customs, trade law and related disciplines.

NPW is extremely pleased that these two talented and experienced lawyers have joined our firm, and hope that all of our clients and friends will join us in welcoming them aboard.

For additional information concerning matters discussed in the Global Trade Report, please call Martin Neville, John Peterson, Maggie Polito or Arthur Purcell at (212) 635-2730, or George Thompson, Mike Tomenga or Larry Bogard at (202) 861-2959.