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Practical Trade & Customs Strategies Thomson Reuters/WorldTrade Executive 2013

FTA, continued on page 14

Anti-Dumping, continued on page 2

WTE

PRACTICAL

TRADE & CUSTOMS STRATEGIESWTE

TRADE & CUSTOMS STRATEGIES

In ThIs Issue

May 31, 201Volume 2, Number 1

eu Ati-DmpigIvtigatioEU investigating authorities havefound that certain methodologiesinate the normal value of goods,an important factor in forming thebasis for launching anti-dumpinginvestigations.Page 1

Aditig Mxico FTA OrigiQualicationThe Mexican tax authority has initi-ated an ambitious FTA audit programthat includes the traditional originqualication reviews, plus focus onnew areas such as compliance withduty deferral restrictions and directshipment requirements.Page 1

nw u.s. export CotrolRform RlThis article details the importantimplications of the new export con-trol rules which will have massiveconsequences for export compliancesystems and managers involved withaerospace and defense companies aswell as commercial companies.Page 3

Pacic Alliance Membershold Tt ngotiatig

RodIn a tenth round of Pacic Alliancediscussions, trade representativesfrom Mexico, Colombia, Peru, andChile made progress in several im-portant international trade areasincluding market access, rules oforigin, technical barriers to trade, andregulatory improvement.Page 5

(Ab)normal Values in EUAnti-dumping Investigations

By Renato Antonini (Jones Day) 1

IntroductionIn order to adopt anti-dumping measures, investigating authorities must

conclude, inter alia, that sales are made at dumped prices. In order to assesswhether sales are dumped, investigating authorities will calculate the dump-

ing margin by comparing the export prices with the so-called normal val-ue.

The normal value should in principle be the comparable domestic pricein the ordinary course of trade for the like product in the exporting country. 2However, when there are no sales of the like product in the ordinary course oftrade in the domestic market of the exporting country or when the domesticsales do not permit a proper comparison due to the particular market situationor the low volume of the sales in the domestic market, the normal value can

Mexico Launches Audits on FTAOrigin Qualifcation

By Armando Beteta and Sergio Moreno (Ernst & Young)

Mexican Free Trade Agreements (FTAs) grant the reduction or waiverof duties for products imported into Mexico which meet the rule of origin ofthe specic FTA. The rules of origin for each FTA establish criteria that must bemet to obtain a duty preference, typically establishing that sufcient process-ing or content was added in the FTA area. Goods which do not meet the ruleof origin do not qualify for the FTA duty preference.

Additionally, subject to certain exceptions noted below, goods must gen-erally be shipped directly from one FTA partner to another to qualify for thepreference. Goods which are shipped rst to an intermediate third countrynot part of the FTA typically lose FTA originating status. FTA claims must besupported by proper documentation of both originating status of the goodsand direct shipment.

Under new leadership, the Mexican tax authority (SAT) has initiatedan ambitious FTA audit program that includes the traditional origin qualica-tion reviews, plus focus on new areas such as compliance with duty deferralrestrictions (e.g. NAFTA Article 303) and direct shipment requirements. Fol-lowing is a brief description of this new audit program being implemented bythe SAT.


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Thomson Reuters/WorldTrade Executive May 31, 2013

Practical trade & customs strategies

Published by WorldTrade Executive, a part of Thomson ReutersEditorial Staff

Publisher: Gary A. Brown, Esq.; senior editor: Matthew Nolan (Arent Fox LLP)develoPment editor: Linda Zhang; AssistAnt editor: Dana Pierce

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Ati-Dmpig

Anti-Dumping from page 1

Anti-Dumping continued on page 11

either be a comparable price for the like productfor export to any third country in the ordinarycourse of trade or the cost of production of theproduct in the country of origin plus a reason-able addition for administrative, selling and gen-eral costs and prot (the so-called constructed

normal value).3

In concrete terms, investigating authoritieswill normally have to compute the normal valueusing protable domestic sales. If domestic salesare not protable, not made in sufcient quan-tities, or do not allow a proper comparison dueto a particular market situation, investigatingauthorities can resort to the alternative method-ologies. Namely, they can either use protableexport sales to other countries or constructednormal value.

In any event, the methodology used by in-vestigating authorities should ensure that the do-

mestic value used to compute dumping is nor-mal, thus as close as possible to the selling pricethat the exporting producer could be expected tocharge for the like product. 4 In the words of theAppellate Body, investigating authorities mustensure that normal value is, indeed, the normalprice of the like product, in the home market of the ex-porter. Where a sales transaction is concluded onterms and conditions that are incompatible with

normal commercial practice for sales of the likeproduct, in the market in question, at the rele-vant time, the transaction is not an appropriatebasis for calculating normal value(emphasisadded).5

However, the practice reveals that, in certain

cases, investigating authorities use methodolo-gies which inate the normal value, thus lead-ing to (ab)normal values. This article will ad-dress one of these cases, namely instances wherethe EU investigating authorities decided that thevolume of domestic sales was not sufcient touse domestic prices and nevertheless used theprots generated by such domestic sales to com-pute the constructed normal value.6

The Normal ValueAs briey touched upon in the introduction,

the concept of normal value is spelled out in Ar-

ticle VI of the GATT 1994 and in Article 2.1 and2.2 of the AD Agreement.

The basic rule is that the normal value shouldbe the comparable price, in the ordinary courseof trade, for the like product when destined forconsumption in the exporting country.7 Inves-tigating authorities can, however, disregard thedomestic prices if the domestic sales are not


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export Cotrol

Publication of the First Final U.S. Export Control

Reform Rules: Dont Be Surprised, Be Prepared

By Wendy Wysong (Clifford Chance)

The new rules begin a massive shake up of the

xitig cotrol for u.s. xport. T impactwill be profound on aerospace and defensecompai.

Export Control Rules, continued on page 4

The rst set of nal Export Control Reformrules should have caught no one by surprise giventhe steady drumbeat since 2009 announcing theU.S. governments intent to rethink its entire ap-proach to protecting sensitive U.S. technology.1These new rules, published in nal form on April16, 2013, by the U.S. Departments of Commerce2and State3, have been previously published inve proposal notices, commented on extensivelyby interested parties, and discussed via weeklyteleconferences with the ofcials involved. Andyet, they promise a shock, pleasant or unpleas-ant, to export compliance systems and managers

who have not experienced reforms on this scalein decades.

The new rules begin a massive shake up ofthe existing controls for U.S. exports. The Reformeffort boils down to this: only the most sensitiveor strategic items will be covered by the strictestcontrols and those items will be enumerated ina positive list; the rest, that had been capturedwith catch-all provisions and other bucketclassications, will move to a different list andwill be subject to less strict controls. In order toaccommodate the move, both regulatory regimeswere substantially modied by the new rules and

the entire process was kicked off by transferringcertain aircraft parts and engines, effective in 180days, to be followed by additional transfers incoming months.

The impact will be profound on aerospaceand defense companies. However, there will alsobe a ripple effect on other companies, both in thedefense sector and in the commercial sector, inindustries such as electronics, chemical, satelliteand military vehicles.

BackgroundAfter interagency review and industry

consultation, certain items were deemed to nolonger warrant the strict controls on exports, re-export or transfers imposed on defense articlesby the International Trafc in Arms Regulations(ITAR, 22 CFR 120-130), administered by theU.S. Department of State Directorate of DefenseTrade Controls (DDTC). Those items are to bemoved from the U.S. Munitions List (USML) tothe Commerce Control List (CCL). The CCL is ad-ministered by the U.S. Department of Commerce,Bureau of Industry & Security (BIS), pursuant to

the Export Administration Regulations (EAR,15 CFR 730-744), which govern the export,re-export, and transfer of virtually all items notcovered under ITAR.

Commodities TransferredThe rst set of items moved to the CCL in-

cludes certain aircraft and associated equipment(USML Category VIII) and certain gas turbineengines (USML Category XIX). The USML Catego-ries are reserved now for enumerated items thatprovide the United States with a critical militaryor intelligence advantage. This will now trigger

a massive effort to convert ITAR compliancemanagers to EAR experts, as companies will ndthat millions of their old parts will be caught up

in this shift to an entirely new and at least initiallymore complicated licensing regime, with licenseexceptions and new classications.

New ClassicationIn order to quell fears that the formerly tightly

controlled USML items would not be appropri-ately controlled when moved to the traditionallyless-strict CCL, BIS created a new category ofExport Control Classication Numbers (ECCNs),the 600 series, to govern the level of licens -ing requirements, exemptions, and restrictionsthat would apply. For example, certain licenseexceptions applicable to other ECCNs will notbe available to items classied in the 600 series,and BIS proposed amendments to exceptions fortemporary exports and imports (TMP), servicingand replacement of parts (RPL), exports to variousgovernment entities (GOV), release of unrestrictedtechnology and software (TSU), and intracompanytransfers (STA).

Moreover, while the 25 percent EAR thresholdfor foreign-made items incorporating less thande minimis levels of U.S. content will apply for


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export Cotrol

Export Control Rules from page 3

exports abroad to non-arms embargoed countries,there will be no 10 percent threshold for countriessubject to arms embargoes as referenced in a newcountry group D:5; for those countries, it is a 0percent de minimis threshold. Part in the 600 serieswhich are incorporated in a foreign-made item

cannot be exported, re-exported or transferred tothose countries in any amount without a license.All 600 series items are subject to the China

Military End Use provision, which prohibits ex-ports to China of these items without a license.Because the items were previously defense ar-ticles on the USML, they were presumptively formilitary use. There is, as yet, no change in thatpresumption.

Other ChangesThe movement of these items to the CCL, and

the revision of the USML Categories, triggered

corresponding revisions throughout both theEAR and ITAR. BIS, in particular, used the op-portunity for a major retrospective regulatory re-

specially designed and (b) identifying whichparts, components, accessories, attachments andsoftware are excluded. An item is caught if one ofthe subparagraphs of (a) applies and released ifthey do not, or if one of the (b) exclusions applies.To determine whether a commodity is specially

designed, three questions should be asked 1)does the commodity, as a result of development, haveproperties peculiarly responsible for achieving orexceeding controlled performance levels, char-acteristics or functions described in the relevantUSML category, (2) is the part or component, as aresult of development, necessary for an enumerateddefense article to function as designed, and (3) isthe accessory or attachment, as a result of develop-ment, used with an enumerated defense article toenhance its usefulness or effectiveness.

Including the qualifying phrase as a result ofdevelopment means that there must be an objec-

tive nexus between the commoditys developmentand its ultimate use. Development means all ofthe stages prior to serial production such as design(including research, analyses, concepts, data andthe process of transforming design data into aproduct), assembly and testing of prototypes, pilotproduction schemes, conguration and integra-tion design, and layouts, with respect to the item.Thus, even if an item is used in a defense article,it is not specially designed and thus, covered byITAR, unless someone did something during itsdevelopment to ensure that one of the answersto the above questions is yes. If the answer to the

questions above is no, the item is not speciallydesigned.

If one of the (a) subparagraphs does apply,then, the applicability of the (b) exclusions must bedetermined. The exclusions boil down to the prin-ciple that an item should not be ITAR controlledif it is for a predominantly civilian applicationor has performance equivalent to a commodityused for civilian application. If an item providesthe United States with a critical military or intel-ligence advantage, it should be enumerated to becovered by the ITAR. BIS created a new process forconrming whether an item is specially designedby consensus of the Departments of Commerce,State, and Defense, which replicates the processused formerly by the latter two agencies. More-over, BIS afrmatively stated that if State issueda determination that an item was not subject toa catch-all provision of ITAR, i.e. not speciallydesigned, then, Commerce would issue a similarclassication that the item was not within thescope of the 600 series as being specially designed,after interagency consultation.

I ordr to armoiz t eAR wit t ITAR,

t validity priod of BIs lic wa xtddfrom two to for yar, wit om xcptio.

view, streamlining and amending its regulations,in ways only tangentially related to the ExportControl Reforms. For example, BIS added newred ags and expanded its Know Your CustomerGuidance, and amended the Country Groups listto, among other changes, add a new column toCountry Group A to address the intracompanylicense exception applicable to only 36 countriesand a new column to Country Group D to incor-porate the list of countries subject to a U.S. armsembargo. BIS also removed obsolete references toShippers Export Declarations (SEDs) at last.

New Denition of Specially DesignedOf particular note is the revision by joint

agency action of the denition of specially de-signed for military use. The former denitionhad caught and covered --to great industry con-sternationsimple or multi-use parts, militarilyobsolete items, and items for which the designintent was in dispute. As opposed to a catch-alleffect, it is now based on an objective catch andrelease principle. It is a two paragraph rule: (a)identifying which commodities and software are


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export Cotrol

Pacic Alliance, continued on page 6

Licensing ChangesIn order to harmonize the EAR with the ITAR,

the validity period of BIS licenses was extendedfrom two to four years, with some exceptions.During the transition, license applications shouldbe submitted to DDTC until the effective date of

the move from the USML to the CCL (October15, 2013, for this rule). Licenses issued by DDTCduring the 180-day transition period will be validfor two years unless otherwise indicated on thelicense. Finally, if an item has both ITAR and EARcomponents, a DDTC license will be sufcient tocover the entire product.

Transition RecommendationsDuring the 180-day transition period, com-

panies are advised to begin the process of revis-ing their compliance programs and systems. Insome instances, it will be clear that an item has

moved from the USML to the CCL, in which casethe process can begin. But in other cases, it willnot be clear and a mistake is deadly. Commodityjurisdictions and licensing determinations taketime, 30-60 days at a minimum and over a year fora complicated situation. Those who are rst in thedoor at the relevant agency with a complete ap-plication requesting clarity will not face the delaysthat other applicants will see as more companiesjoin in seeking help from the agencies. The processof re-classifying and marking controlled prod-ucts takes time. New licenses must be obtained,

although valid licenses remain so for a speciedperiod. Internal procedures will need to be evalu-ated and adjusted, and training on the new regimemust be implemented. And as each new nal ruleis published--72 are expected by the end of theyear--the process will need to be repeated.The

State Department characterized the publicationof the rst set of rules as a major milestone inthe U.S. governments efforts to overhaul andredene the U.S. export control system. Compa-nies should not look at this as a minor tweak, butshould adopt a process now to address the fullertransition over the coming year.o

1 An earlier version of this article was published inCorporate Compliance Insights.2 The nal rule by the Department of Commerce can

be found at http://www.gpo.gov/fdsys/pkg/FR-2013-04-16/html/2013-08352.ht m.3 The nal rule by the Department of State can befound at http://www.gpo.gov/fdsys/pkg/FR-2013-04-16/html/2013-08351.ht m.

Wendy L. Wysong ([email protected]), a litigation partner with Clifford Chance, main-tains ofces in Hong Kong and Washington D.C. Sheoffers clients advice and representation on complianceand enforcement under the Arms Export Control Act,International Trafc in Arms Regulations, Export Ad-ministration Regulations, and OFAC Economic Sanc-tions, as well as the Foreign Corrupt Practices Act.

Trad Partrip

Trade Ofcials from Mexico, Colombia, Peruand Chile held from May 6-10, 2013 the tenthround of negotiations toward the Pacic Alliance(PA). The Pacic Alliance members Vice Minis-ters of Foreign Trade and Commerce subsequentlyheld in Santiago from May 8-10 the XV Meeting ofthe Pacic Alliance High-Level Group.

During the tenth PA negotiating round, mem-bers groups, technical subgroups and expert com-mittees made progress in the following areas: (i)market access; (ii) rules of origin (ROOs); (iii) tech-nical barriers to trade (TBTs); (iv) regulatory im-provement; (v) intellectual property rights (IPR);(vi) government procurement; (vii) sanitary and

phytosanitary (SPS) measures; (viii) cross-borderinvestment and trade in services; (ix) movement ofpersons; (x) cooperation; (xi) institutional issues;and (xii) the blocs unied communication strat-egy. In regard to (xii), PA members aim to forma common trading position among its memberstoward the world, particularly toward the Asia-Pacic region.

The XV Meeting of the Pacic Alliance High-Level Group allowed the Vice Ministers to takestock of progress made in areas identied duringthe January 27, 2013 VI Pacic Alliance Presiden-tial Summit, namely (i) market access; (ii) TBTs;

Pacifc Alliance Members Hold Tenth Negotiating

Round; Vice Ministers Meet to Push Initiative Forward

By Justin S. Miller (White & Case LLP) 1


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Trad Partrip

Pacic Alliance from page 5

and (iii) customs cooperation and trade facilita-tion, which are disciplines in which PA membersaim to have reached agreement by mid-2013. TheVice Ministers also nalized work needed for theMay 21-23 VII Pacic Alliance Presidential Sum-mit, which is the rst Summit observer countries

Panama, Costa Rica, Canada, Guatemala, Uru-guay, Spain, Australia, New Zealand and Japanwill be allowed to attend. Panama and CostaRica have also requested full PA membership, al-though it is unclear whether current PA memberswill grant these requests at the VII PresidentialSummit.

PA negotiating members launched efforts to-ward concluding the Agreement in August 2011.The PA aims to promote the free circulation ofgoods, services, capital and people between its

members, and to be a platform for regional politi-cal and economic integration.

According to a Mexican Secretary of Economy(Secretara de Economa (SE)) press release, the PAcountries together constitute the tenth largesteconomy in the world, and the seventh largest

in regard to export volume. The SE press releasealso notes that PA countries represent 35 percentof Latin American GDP. o

1 Due to the general nature of its content, thisinformation is not and should not be regarded aslegal advice. No specic action is to be taken on theinformation provided without prior consultation withWhite & Case LLP.

Justin Miller ([email protected]) is a SeniorInternational Trade Analyst with White & Case LLP,in Washington, DC.

Import Tariff

On May 14, 2013, the Brazilian Chamberof Foreign Trade (Cmara de Comrcio Exterior(CAMEX)) published Resolutions No. 33 and34, reducing the import duty levied on certainimports into Brazil of information technology,telecommunications and capital goods under theex-tarifrio mechanism. The ex-tarifrio mecha-nism aims to lower investment costs and fosterinfrastructure improvements through a temporaryreduction in import tariffs - provided there is nodomestic production of the goods for which theimport tariffs are reduced - in response to specicrequests by interested parties. With Resolutions

No. 33 and 34, the number ofex-tarifrios grantedin 2013 rises to 1,282.

According to a Brazilian Ministry of Devel-opment, Industry and Foreign Trade (Ministriodo Desenvolvimento, Indstria e Comrcio (MDIC))press release, the reduction in import duties con-templated in CAMEX Resolutions Nos. 33 and34 will principally benet the automobile parts,railway, services, oil, telecommunications, paperand pulp sectors. Specically, these measures aim

to benet major projects, such as (i) the expansionof a factory that produces tires for both passengercars and commercial vehicles, with investmentsof approximately $314 million; (ii) the improve-ment of railway infrastructure to better transportagricultural products, with investments of ap-proximately $276 million; and (iii) the reductionof sulfur in gasoline and diesel produced in Brazil,with investments of approximately $250 million.

The ex-tarifrios created will principally ben-et goods imported from the United States (28.81percent), China (18.95 percent), Singapore (11.37percent), Germany (10.25 percent) and Italy (6.49

percent). o

1 Due to the general nature of its content, this informa-tion is not and should not be regarded as legal advice.No specic action is to be taken on the informationprovided without prior consultation with White &Case LLP.

Justin Miller ([email protected]) is a SeniorInternational Trade Analyst with White & Case LLP,in Washington, DC.

CAMEX Reduces Import Tariffs on Several Information

Technology and Capital Goods

By Justin S. Miller and Staff (White & Case) 1


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Trade & Customs Round Up

By Linda Zhang (Thomson Reuters)

France Secures Support to Limit Scope ofEU-U.S. Trade TalksIn mid-May, about a dozen EU member states

backed Frances call for a cultural exceptionof its movie and television industries from theproposed EU-U.S. free trade pact talks in fearthat the deal could threaten European culture,according to Reuters. Other EU member statesworry that the exception may spark the U.S. toimpose other restrictions in retaliation which maydelay and worse, dampen, an otherwise powerfulfree trade pact. France originally brought up thedemand in April; trade negotiations are expected

to start in July.

UKs Cameron Urges Everything on Table inU.S.-EU Trade Talks

In contrast to Frances plea to exempt sensitivecultural industries, British Prime Minister DavidCameron urged that talks on the U.S.-EU free tradepact cover all sectors, according to Reuters. TheEuropean Parliament has voted to grant Francesrequest, but, in comments to the USTR, the MotionPicture Association of America advised the UnitedStates not to agree to up-front, blanket sectoralexclusions. In June, Britain will host the annual

G8 summit, allowing Cameron an opportunityto shape how transatlantic free trade talks willproceed.

Trade in Services Agreement onU.S. Congressional Agenda

By late May, the U.S. Senate Finance Com-mittee will hold a roundtable on internationaltrade in services, according to the Sandler, Travis& Rosenberg Trade Report. The United Statesalong with 20 trading partners have proposed anInternational Services Agreement which wouldeliminate or reduce trade barriers in services. TheU.S. hopes that the agreement will help ensure thatU.S. service suppliers can fare better in interna-tional markets based on quality, not nationality,and also want to improve regulatory transparencyof trading partners.

Turkey Seeks Seat at U.S.-EU Trade TableWhile the European Union and the United

States prepare for upcoming free trade pact talks,

Turkey is seeking ways to get involved, accord-ing to Reuters. U.S. President Barack Obama andTurkish Prime Minister Tayyip Erdogan met inmid-May to discuss the issue. Various optionsexist to quell concerns, including a bilateral agree-ment with the U.S. or allowing Turkey to joinU.S.-EU negotiations.

To date, the U.S. and Turkey have created anew high-level committee to focus on increasingmutual trade and investment between the twotrading partners. In addition, the nation alreadyhas a customs agreement with the EU which statesthat a third country forming a trade deal with the

EU would automatically gain access to Turkishmarkets; however, Turkey does not receive thesame benets for its own exports.

U.S. Ends Freeze on NewNatural Gas Exports

In mid-May, the Obama administration ap-proved the rst liqueed natural gas project sincethe contentions over how to deal with the shaleenergy boom, lifting a two-year freeze on newnatural gas exports, according to Reuters. Duringthe freeze, no export applications were reviewedwhile the administration remained concerned

about the negative effect on domestic manufactur-ers of exporting unlimited amounts of domesticgas out of the country. The rst phase of the ap-proval will allow about two percent of current U.S.gas production to go abroad, yet the fate of otherprojects are still unclear and awaiting directionfrom the Department of Energy.

Canada Prepares to Target U.S. Goodsin Meat-label Spat

In response to the U.S. country-of-originlabeling requirements which have allegedlycaused a decline in Canadian imports of cattleand pigs, Canada will release a retaliatory listof U.S. products that it will target if satisfactorychanges are not made, according to Reuters. Thelist is expected to extend beyond U.S. beef andpork products.

In addition to Mexico, Canada has com-plained the rules led to a slowdown of imports oftheir cattle and pigs. The complaints have causedthe World Trade Organization to order the U.S. to

Round Up, continued on page 8


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Rod up

make changes by the end of the May. If the changesdo not sufce, Canada has threatened to submitthe list to the WTO; however, a representativefrom the USTR has said the U.S. expects to makesufcient changes so that the retaliatory actionsare not needed.

China Says EU Solar Duties to SeriouslyHarm Trade Ties

China has warned the European Union thatthe move to enact punitive import duties on solarpanels will result in serious harm to China-E.Utrade ties, intensifying its tone of criticism afterhearing of the news, according to Reuters.

To date, the EU has 31 trade investigations,nearly two-thirds of them involving China. TheEuropean Commission also planned to start an-other investigation into the dumping behavior ofChinese manufacturers of mobile telecoms prod-

ucts. By June, China will likely decide whetherto impose its own duties on European, U.S. andSouth Korean solar-grade polysilicon, a materialused in producing solar panels.

China Probes Dumping of Steel Pipesby U.S., EU, Japan

In May, China began an investigation intothe dumping of seamless steel tubes and pipersin the country from the U.S., Europe and Japan,stemming from a complaint from a Chinese com-pany, according to Reuters. The statement, listedon the Chinese Ministry of Commerces website,

did not name which companies will be targeted.Previously, the European Commission launchedan investigation of alleged dumping by Chinesemanufacturers of solar panels, the largest case ofits kind. The EU has since agreed to impose importduties of 47 percent on solar panels from China.

EU Imposes Punitive Duties to PreventChinese Ceramics Dumping

In ongoing dumping disputes, the EuropeanUnion has agreed to impose punitive duties onceramic tableware and kitchenware from China,which it claims is priced articially low to threatenlocal counterparts, according to Reuters. The Chi-nese manufacturers will face tariffs of between13.1 and 36.1 percent starting in late May. Thesetariffs are usually valid for ve years, and subjectto extension.

U.S. Urged to Take Tougher Line on IndianTrade Practices

In the latest fight against Indian policiesthat block U.S. exports and violate intellectualproperty, a U.S. think tank in May urged the U.S.to suspend trade benets for India, according to

Reuters.One of the proposals is to remove India fromthe U.S. Generalized System of Preferences (GSP)program, which allows for most goods fromdeveloping countries to enter the U.S. duty-free.India currently benets from about $4.5 billionworth of imports into the U.S. without duties. Theprogram as a whole is scheduled to end in July,subject to renewal, allowing lawmakers in the U.S.to reconsider Indias membership and adjust theprogram as they see is appropriate to inuenceIndian policies.

CBP Claries Policy Change Easing Claims forDrawback on Unused Merchandise

In late May, the U.S. Customs and BorderProtection claried an April policy adjustmentregarding waivers of prior notice requirementfor unused merchandise drawback, confirm-ing that the policy change is applicable to bothretroactive and future waivers, according to theSandler, Travis & Rosenberg Trade Report. Ap-plicants for waivers must also comply with thethree-year statutory time period for exports, andno claims can be submitted once this time periodhas passed.

New U.S. Legislation on Cybertheft,Foreign Manufacturers, Outsourcing,

Exports, AgricultureSeveral bills affecting international trade have

been introduced recently in the U.S. House and/orSenate, according to the Sandler, Travis & Rosen-berg Trade Report. The Deter Cyber Theft Act (S.884) would require that national intelligence writean annual report to monitor foreign countries andcompanies engaging in economic or industrialespionage in cyberspace against U.S. rms orindividuals. The Foreign Manufacturers Legal Ac-countability Act (H.R. 1910) would require foreignmanufacturers of imports into the U.S. to secureregistered agents in the U.S. who are approved toaccept services of process on behalf of foreign com-panies. The Export Coordination Act (H.R. 1909)would adjust an existing Act to improve federaltrade promotion policies and programs. o

Round Up from page 7


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Trad Promotio Atority

Major trade legislation appears increas-ingly likely to clear Congress in 2013 despite an

intensely partisan atmosphere made worse byscandals plaguing President Barack Obamasadministration.

Business groups are preparing to push forthe bill, which would give the White House en-hanced ability to negotiate trade deals and setout U.S. negotiating goals on issues ranging fromcross-border electronic data ows to global sup-ply chains and potentially even foreign currencypractices.

I really think Congress is about ready to dosomething on trade, said Scott Miller, a tradepolicy specialist at the Center for Strategic andInternational Studies, referring to a bill known astrade promotion authority, or TPA.

Bill Reinsch, president of the National ForeignTrade Council, which represents major exporterslike Boeing and Caterpillar, said he was optimisticthat Congress could pass a bipartisan TPA bill bythe end of 2013.

They all know they have to do it. You cantbe a modern country in todays trading systemand not have authority to negotiate these things,Reinsch said.

Bipartisan legislation could emerge soon from

talks between the top Democrats and Republicanson the Senate Finance Committee and the Houseof Representatives Ways and Means Committee,which have jurisdiction over trade laws.

The action is driven by White House effortsto strike major trade deals with 11 other countriesin the Asia-Pacic region and the 27 nations of theEuropean Union.

The legislation would allow Obama to submittrade agreements to Congress for straight up-or-down votes without amendments, giving othercountries the assurance that any deal they reachwith the United States will not be changed by the

House or Senate.(Countries) dont want to make the hard

and nal decisions, where they put their bestoffers on the line, if they think theyre going tobe undermined by an amendment, said formerRepresentative Jim Kolbe, a Republican.

A TPA bill would also give lawmakers achance to shape U.S. trade policy by setting ne-gotiating objectives for trade deals.

Those instructions are expected to includehow to address issues such as state-owned enter-

prises, digital data ows, supply chains, invest-ment, labor, the environment and intellectual

property in trade agreements.

Negotiating PointsSenate Finance Committee Chairman Max

Baucus, a Montana Democrat, hopes to unveil abipartisan bill by June.

His team is in talks with staff for SenatorOrrin Hatch, the top Republican on the FinanceCommittee, and Representatives Dave Camp and

Amid Rancor, A Chance for U.S. Action on Trade Bill

By Doug Palmer (Reuters)

A TPA bill would give lawmakers a chance to

shape U.S. trade policy by setting negotiatingobjectives for trade deals.

Sander Levin, the Republican chairman and topDemocrat, respectively, on the House Ways andMeans Committee.

A bill backed by all four lawmakers would

have a good chance of becoming law, althoughopposition from labor groups that see trade pro-tection authority as a license to move jobs overseascould make the job tough. The four also have dif-ferences on trade that could snarl their efforts.

Levin, a Michigan Democrat closely alignedwith Detroit-based auto producers, is pushing fora broad bill to address the overall issue of U.S.competitiveness and wants future trade dealsto include rules against currency manipulation,a controversial area not included in prior tradedeals.

Hatch, a Utah Republican, has been critical of

a retraining program for workers who have losttheir jobs because of foreign competition. Demo-crats insist the provision must be renewed.

With the White House looking to clinch dealson two trade agreements covering about 60 per-cent of world economic output, U.S. lawmakershave plenty of incentive to craft the legislation andlay out their negotiating priorities, even if Obamais reluctant to lead the ght for the bill.

Those deals include the proposed Trans-Pacic Partnership agreement, which the White

Trade Bill, continued on page 10


10/16

0 Thomson Reuters/WorldTrade Executive May 31, 2013

Trad Promotio Atority

Trade Bill from page 9

House hopes to reach by the end of 2013. Manytrade experts doubt that the deal can be closedunless Congress passes the TPA bill.

The Obama administration also plans to be-gin free trade negotiations in July with EuropeanUnion, providing another motivation for Congress

to act.But one question is how forcefully Obama willpush for the trade bill, given Democratic divisionson the issue.

During the 2002 battle over trade promotionauthority, many House Democrats did not wantto give Republican President George W. Bushthe authority and voted 183 to 25 against the bill,which barely passed by a 215 to 212 margin.

Now that Obama is in the White House, thepolitics appear to have changed, with Democratsless inclined to ght a president from their ownparty and most Republicans eager to pass the bill

even if they oppose Obama on other issues.

While Republicans are attacking Obama onthe Internal Revenue Services scrutiny of conser-vative groups seeking tax-exempt status and theadministrations explanation of 2012s Benghaziattack, they are likely to be his allies on TPA, whichmany see as a tool all presidents should have.

Representative Devin Nunes, Republicanchairman of a House trade subcommittee, calledon the White House to intensify its efforts to passTPA, which expired in 2007.

If you had told me 10 years ago that one ofthe few things that could get done in Washingtonis trade policy, my head would have exploded.But it seems to be the case that trade is actuallysomething we can get done, said Edward Gerwin,a senior fellow at Third Way, a Democratic policythink tank.

TPA legislation, which typically is extendedfor ve years at time, could also cover additional

pacts, such as an international services tradeagreement being negotiated in Geneva and newnegotiations not yet contemplated. o

Trad Partrip

The European Union wants to exempt statecontrol of utilities and support for creative indus-tries from free trade talks with the United Statesdue to start in June, the latest draft of Brusselsnegotiating mandate showed in late May.

The draft outlines several exceptions thatpreserve EU states control over sensitive sectors,including the power and water industries andgovernment controlled infrastructure and arelikely to be the main areas it seeks to cordon offfrom negotiations.

Senior officials including EU trade chiefKarel De Gucht and British Prime Minister DavidCameron have called for the bloc to come to thetable with a completely open mind and ofcialssay it is unlikely further substantial exemptionswill be added.

Unlike in the United States, many nationalEuropean electricity grids and power generatorsare state-controlled, and governments fear that adeal supporting the free ow of U.S. companiesand money into the sector would erode their

inuence over assets seen as vital to nationalinfrastructure.

The high quality of the EUs public utilitiesshould be preserved, said the draft, seen byReuters, which sought in particular to excludeservices supplied in exercise of governmentauthorities.

An EU ofcial familiar with the documentssaid the documents language was intended to en-sure member states were able to regulate utilitiesand maintain their ability to control investmentin these sectors.

Another EU source conrmed this.France had also threatened to block the start

of the talks unless the audio-visual industry isexcluded.

The agreement shall not contain provisionsthat would risk prejudicing the Unions or itsmember states cultural and linguistic diversity,namely in the audio-visual sector, nor limit thosemember states from maintaining existing policiesand measures in support of the audio-visual sector

EU Wants to Exclude Utilities from U.S. Trade Talks

By Ethan Bilby (Reuters)


11/16


Trad Partrip

Anti-Dumping continued on page 12

given its special status within EU law, the draftmandate said.

EU sources said that France has been ght-ing for a stronger text that not only commits tomaintaining the status quo but also giving statesthe ability to strengthen such policies.

Decades of WaitingAfter the long drawn-out failure of the Doha

talks on a world trade deal, ofcials have turnedback to bilateral agreements in a bid to boostgrowth.

Brussels estimates a U.S. deal could increaseEuropes economic output by 86 billion euros ayear, or 0.5 percent of gross domestic product, andthe U.S. economy by 65 billion euros or 0.4 percentby 2027. Trade barriers between the two sides arealready quite limited and the talks are expected tofocus on harmonizing regulations, so that a prod-

uct or service approved in Europe can be readilysold in the United States and vice versa.

The latest draft follows talks with memberstates after the European Commission proposed

a negotiating mandate in March. Some EU mem-ber states are also concerned about a procedureincluded in the mandate to allow for resolvingdisputes between investors and states.

While such dispute mechanisms are increas-ingly common in free trade agreements, some

EU diplomats say they are not necessary for twoparties with strong legal systems already.Campaigners warn creating a dispute mecha-

nism would open EU members to lawsuits fromrms seeking to weaken environmental and publichealth provisions and that the mere threat of a dis-pute could force states to give in to big business.

The updated draft includes language de-signed to calm such fears.

Investor-to-state dispute settlement mecha-nism should contain safeguards against frivolousclaims, the draft said.

The inclusion of investment protection and

investor-to-state dispute settlement will dependon whether a satisfactory solution meeting EUinterests... is achieved. o

Ati-Dmpig

protable.8 In concrete terms, the protabilityanalysis is normally carried out both on a global

basis (all domestic sales compared to total cost)and on a per-type basis (domestic sales of a par-ticular type compared to the cost attributable tosuch type). Normally, investigating authoritieswill disregard all domestic sales when they arenot protable on a global basis. They will onlydisregard specic sales if they do not meet theper-type protability test.9

The AD Agreement provides for other cas-es when domestic sales should be disregarded,namely when the domestic sales do not permita proper comparison because the volume ofdomestic sales is too low because of a particularmarket situation.10 The key element is that suchdomestic sales do not permit a proper compari-son and are, therefore, not normal.

Among the two cases of sales that do notpermit a proper comparison, the case most com-monly faced by investigating authorities is whenthe volume of domestic sales is too low. TheAD Agreement species that normally domes-tic sales should be considered representative if

they amount to at least 5 percent of export sales.A lower ratio can however be acceptable when

the evidence demonstrates that domestic sales


I ordr to adopt ati-dmpig mar,ivtigatig atoriti mt cocld, interalia, tat al ar mad at dmpd pric.

at such lower ratio are nonetheless of sufcientmagnitude to provide for a proper comparison.11

The rule established by the AD Agreementis therefore that investigating authorities shoulduse domestic sales when the volume is equal orabove 5 percent of export sales and disregarddomestic sales when this threshold is not met.However, sales below 5 percent can still be used


12/16


Ati-Dmpig


if they are sufcient to provide for a proper com-parison.

The (Ab)normal ValueIn recent anti-dumping investigations, the

EU investigating authority applied a quite un-

usual, and in the authors view illegal, method-ology in cases were domestic sales were found tobe not representative (that is, not made in suf-cient quantities). In a nutshell, the EU investigat-ing authority concluded, on the one hand, thatthe volume of domestic sales was not sufcientto permit a proper comparison and, on the oth-er hand, that the prot generated by such salescould be used as a reasonable domestic prot tocompute the constructed normal value. In oth-er words, what the EU investigating authority

means that if an investigating authority uses theprot generated by non-representative sales, theresult will be identical to the domestic price ofthe non-representative sales.

In other words, the EU investigating authori-ty concluded that the domestic price could not be

used because the volume of domestic sales wasnot sufcient but at the same time, on the basisof a different legal ground, the EU investigatingauthority actually used such domestic prices tocompute normal value. The author considersthat this approach is manifestly contradictoryand, more importantly, contrary to WTO law.

The legal ground relied upon by the EU in-vestigating authority is that the amounts for prof-its should be based on actual data pertaining toproduction and sales in the ordinary course oftrade of the like product by the exporter or pro-ducer under investigation.16 The EU investigat-

ing authority concluded that, since the domesticnon-representative sales of the like product weremade in the ordinary course of trade, the protsgenerated by such sales could be validly used tocompute constructed normal value.

While it is true that Article 2.2.2 of the ADAgreement allows the use of prots generated bydomestic sales in the ordinary course of trade, itcannot be overlooked that low-volume non-rep-resentative domestic sales ought to be excludedfrom the dumping assessment because they donot permit a proper comparison.As discussed,the methodology used by the EU investigating

authority is tantamount to using non-represen-tative domestic sales prices. This approach ismanifestly contrary to the principle of fair com-parison.

In accordance with Article 2.4 of the ADAgreement, [a] fair comparison shall be madebetween the export price and the normal value.This comparison shall be made at the same levelof trade, normally at the ex-factory level, and inrespect of sales made at as nearly as possible thesame time. Due allowance shall be made in eachcase, on its merits, for differences which affectprice comparability, including differences in con-ditions and terms of sale, taxation, levels of trade,quantities, physical characteristics, and any otherdifferences which are also demonstrated to affectprice comparability.

A methodology which uses prots fromdomestic sales which, although made in the or-dinary course of sales, were excluded from thedumping analysis because they, in view of thelow volume of sales, do not permit a propercomparison manifestly violates Article 2.4 of

W low-volm domtic al do otpermit a proper comparison, WTO law prohibitsivtigatig atoriti from ig t

domtic al to compt ormal val.

pushed out through the door was eventually letin through the window.

The methodology in question was used, for

instance, in two EU anti-dumping investiga-tions carried out in 2011. In the rst investiga-tion, Glass Fibers from China12, domestic sales ofcertain product types were found to be not rep-resentative and were therefore disregarded (per-type analysis). In the second investigation, Zeo-lite from Bosnia and Erzegovina,13 since the totalvolume of domestic sales was only 1.9 percent ofthe export sales to the EU, all domestic sales weredisregarded (global analysis). 14

In both cases, the EU investigating author-ity resorted to the determination of a constructednormal value. Normal value was thus comput-ed on the basis of the cost of production of theproduct in the country of origin plus an additionfor domestic administrative, selling and generalcosts and prot. However, the prot used by theEU investigating authority to compute the nor-mal value was the prot generated by the non-representative domestic sales (the prices of whichwere, therefore, not used as normal value). 15

Math tells us that the domestic price amountsto domestic costs plus domestic prot. This


13/16


Ati-Dmpig

the AD Agreement. Investigating authorities canonly validly use prots from non-representativedomestic sales (which are considered not to al-low a proper comparison) if they make appropri-ate adjustments to ensure a fair comparison. Inparticular, if the prots of such sales are unrea-

sonably high (or low), appropriate adjustmentsto the prot margin should be made. 17

ConclusionWhen low-volume domestic sales do not

permit a proper comparison, WTO law prohibitsinvestigating authorities from using these do-mestic sales to compute normal value. The au-thor considers that, by the same token, WTO lawdoes not allow investigating authorities to usethe prots generated by such sales to computeconstructed normal value, unless appropriate ad-justments to the level of prot are made. Indeed,

without such adjustments, using the prots fromnon-representative sales would be tantamountto using the prices of such sales, which do notpermit a proper comparison and would thereforeviolate the principle of fair comparison. o

1 Any views adopted in the present article representthe personal opinions of the author and not necessar-ily the position of Jones Day.2 Different methodologies can apply in case of non-market economy countries.3 See Article VI(1) of the General Agreement on Tariffsand Trade 1994 (GATT 1994) and Article 2.1 and 2.2of the Agreement on Implementation of Article VI ofthe General Agreement on Tariffs and Trade 1994 (theAD Agreement) of the World Trade Organization(WTO).4 See Case C-178/87 Judgment of the Court of Justice(Fifth Chamber) of 10 March 1992, Minolta Camera vCouncil.5 Appellate Body Report, US -Hot -Rolled Steel, para.140.6 In the present article the methodology will be anal-ysed exclusively from a WTO viewpoint.7 Art. 2.1 of the AD Agreement.8 The protability test will generally be carried out ona global basis and on a per-type basis.9 Footnote 5 of the AD Agreement species that: sales

below per unit costs are made in substantial quantities whenthe authorities establish that the weighted average selling

price of the transactions under consideration for the deter-mination of the normal value is below the weighted average

per unit costs, or that the volume of sales below per unitcosts represents not less than 20 per cent of the volume sold

in transactions under consideration for the determination ofthe normal value.10 Art. 2.2 of the AD Agreement.11 Footnote 2 of the AD Agreement.12 Council Implementing Regulation (EU) No 248/2011of 9 March 2011imposing a denitive anti-dumpingduty and collecting denitively the provisional duty

imposed on imports of certain continuous lamentglass bre products originating in the Peoples Repub-lic of China, OJEU L 67/1 (the Glass Fibre Regulation).13 Council Implementing Regulation (EU) No 464/2011of 11 May 2011imposing a denitive anti-dumpingduty and collecting denitively the provisional dutyimposed on imports of zeolite A powder originatingin Bosnia and Herzegovina, OJEU L 125/1 (the ZeoliteRegulation).14 The Zeolite Regulation was recently annulled by theEU Courts in Case C-178/87 Judgment of the GeneralCourt (Second Chamber) of 30 April 2013, Alumina vCouncil. In the Zeolite investigation, the prot marginof non-representative sales was 58.89% in relation to

cost of production. This exceptionally high prot mar-gin was due to the fact that the only customer in thecountry of origin had nancial problems and, for thisreason, domestic sales included a premium of 25%.The Court annulled the Regulation since the EU inves-tigating authority used the prot margin without mak-ing any adjustment to reect the fact that it included aspecial premium.15 In the Glass Fibre investigation, the prot marginused was higher than the average prot margin forthe like product. In the Zeolite investigation, the protmargin was exceptionally high due to the specic -nancial situation of the only customer in the countryof origin.

16 Article 2.2.2 of the AD Agreement, as implement-ed in the EU legal system (Article 2.6 of the EU anti-Dumping Regulation, Council Regulation (EC) No1225/2009 of 30 November 2009 on protection againstdumped imports from countries not members of theEuropean Community, OJEC L 343/51). See recital 46of the Glass Fibre Regulation and recital 19 of the Zeo-lite Regulation.17 A similar reasoning can be developed on the basisof the fair comparison requirement laid down in EUlaw (Article 2(10) of the EU Anti-Dumping Regula-tion, which corresponds to Article 2.4 of the AD Agree-ment).

Renato Antonini ([email protected]) is a Part-ner in the Brussels ofce of Jones Day. Mr. Antoninifocuses on EU trade and WTO laws relating to tradeprotection measures and dispute settlements. He hasextensive experience in EU and Italian customs andexport control law, including tariff classication, cus-toms valuation, dual-use goods, and sanctions.


14/16


FTA

FTA from page 1

Origin Qualication ReviewsSince the entry into force of NAFTA in 1994,

the SAT has performed audits on origin quali-cation procedures applied by importers, export-ers and producers to determine whether theirproducts qualify as originating. While NAFTA

was the initial focus, today, SAT has expandedfocus to include each FTA in the broad networkof Mexican FTAs, which now involve more than40 countries.

During 2013, the SAT will increase theiraudit efforts related to FTA origin qualication.Historically, they have focused on sensitive in-dustries such as steel, textile, electronics andfootwear, which usually entail high duties andcomplex rules of origin. Although it is unlikelythat the industry focus will change, the most re-cent audit effort is likely to expand to include

ferral programs (e.g. NAFTAs Article 303 andEU-Mexico FTA Annex III, article 14), explainedbelow.

Direct Shipment RequirementAs stated above, FTAs provide preferential

duty treatment to imported goods that meet therequirements established by the rules of origin ofeach FTA and which are directly shipped betweenthe country of origin and the destination market.Originating goods that are not directly shippedto the destination markets may lose their dutypreference if they are transshipped or tempo-rarily warehoused in a third country. Neverthe-less, most FTAs usually include an exception forgoods transported through other territories withtransshipment or temporary warehousing in athird country as long as the goods remain underthe supervision of the customs authorities, and

do not undergo operations other than unloading,reloading or any operation designed to preservethem in good condition.

Additionally, strict adherence to the excep-tion permitted under a particular FTA must alsobe properly documented. If met, the FTAs di-rect shipment exception will allow the goods tomaintain their originating status, making themeligible for the corresponding tariff preferencenegotiated under each FTA.

Compliance with the direct shipment re-quirement has not been an area regularly re-viewed by the SAT. However, as part of recent

audit efforts, SAT will begin to review import-ers supporting documentation to conrm thatgoods that are being imported into Mexico havenot lost their FTA tariff preference eligibility dueto transshipment or temporary warehousing ina third country. For example, the SAT may re-view whether imports applying preferential du-ties under the Mexico-European Union FTA thathave been shipped via the US through a ForeignTrade Zone (FTZ) are supported by the appro-priate documentation showing that the goods re-mained under the supervision of the US customsauthorities and no further processing took place.In rulings previously issued on the topic by SAT,detailed supporting documentation has been re-quired beyond simple FTZ admission documen-tation.

In light of this new audit approach to importoperations, importers may need to review or de-velop internal controls and processes to ensurethat the necessary supporting documentation isin place to show compliance with the direct ship-ment exception.

Prat to articl 0, importr may paythe applicable import duty on non-NAFTAorigiatig good dr a dty dfrral program

i Mxico.

other products from industries that may followa similar pattern, high duties with complex rulesof origin. Importers may also experience a differ-

ent audit approach, as auditors from the SAT aredeveloping new sampling procedures whichwill try to minimize the impact and workload forimporters, exporters and producers that are be-ing audited while at the same time allowing theauthorities to increase the number of audits.

Because the new approach is expected toproduce a record number of audits in 2013 and2014, it is important for importers in Mexico, andexporters and producers in the US and Canada(which are subject to NAFTA extraterritorial au-dit rules), to be aware of these new procedures.With proper preparation, the new processes willbe substantially less burdensome on prepared,compliant businesses.

In addition to the new methodology exer-cised by the Mexican authorities; the scope of theaudits is also changing. Unlike the traditional ap-proach which primarily focused on questioningpreferential duty claims on imported products,the SAT is now also looking at non-traditionalaudit areas such as compliance with direct ship-ment requirements and restrictions to duty de-


15/16


FTA

FTA, continued on page 16

In This IssueAti-Dmpig

(Ab)normal Values in EU Anti-dumping InvestigationsBy Renato Antonini (Jones Day)........................................................................................................................page 1

FTA

Mexico Launches Audits on FTA Origin QualicationBy Armando Beteta and Sergio Moreno (Ernst & Young)..................................................................................page 1

export Cotrol

Publication of the First Final U.S. Export Control Reform Rules: Dont Be Surprised, Be Prepared By Wendy Wysong (Clifford Chance).................................................................................................................page 3

Trad Partrip

Pacic Alliance Members Hold Tenth Negotiating Round; Vice Ministers Meet to PushInitiative Forward

By Justin S. Miller (White & Case LLP).............................................................................................................page 5

EU Wants to Exclude Utilities from U.S. Trade Talks By Ethan Bilby (Reuters)...................................................................................................................................page 10

Import Tariff CAMEX Reduces Import Tariffs on Several Information Technology and Capital Goods

By Justin S. Miller and Staff (White & Case LLP)..............................................................................................page 6

Rod up

Trade & Customs Round Up By Linda Zhang (Thomson Reuters)....................................................................................................................page 7

Trad Promotio Atority Amid Rancor, A Chance for U.S. Action on Trade Bill By Doug Palmer (Reuters)...................................................................................................................................page 9

NAFTA 303 AuditsThe IMMEX or Maquila program in Mexico

is a special customs program which allows forthe importation of materials and components, aswell as machinery and equipment, under a tem-porary importation regime in order to assemble

and/or manufacture goods for their subsequentexport. Goods imported into Mexico under thetemporary importation regime may be subject toa duty deferral or waiver.

After the entry into force of NAFTAs article303 on January 1, 2001, raw materials and com-ponents imported on a temporary basis under anIMMEX Program which are not originating fromthe NAFTA region are subject to payment of du-ties in Mexico when exported or incorporatedinto a product that is subsequently exported toCanada or the US.

In order to reduce or eliminate the duty im-

pact of NAFTAs article 303 on non-NAFTA orig-inating raw materials and components, import-ers usually apply for preferential duty treatment

via any of the applicable FTAs implemented byMexico or via preferential PROSEC duty rates.These special programs apply to many, but notall imports of into Mexico of components neededfor manufacturing. In those cases where FTAsand PROSEC programs do not provide for pref-

erential duty benets, however, importers mustcomply with NAFTAs article 303 provisionsthrough any of the mechanisms established un-der the NAFTA Uniform Regulations.

Pursuant to article 303, importers may paythe applicable import duty on non-NAFTA origi-nating goods under a duty deferral programin Mexico. The corresponding import entry orpedimento will reect the payment of dutiesupon entry and compliance with NAFTAs article303. Alternatively, the importer may pay througha complementary entry or pedimento the ap-plicable duties on non-NAFTA originating goods

which were exported to Canada or the US. Underthis mechanism, the importer must le the com-plementary entry or pedimento no later than


16/16

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FTA

FTA from page 15

60 days after the exportation took place. If the importerdoes not pay the duties on non-NAFTA originating goodsupon entry or outside the 60 day term, penalties and nesmay be assessed by the Mexican customs authorities.

While compliance with NAFTAs article 303 has notgenerally been an area that has received much attention

from the SAT, earlier this year SAT initiated a vigorousaudit program to review importers compliance withNAFTAs article 303 provisions. As such, it is importantfor Maquilas and other Mexican producers to review theirprocesses in order to ensure compliance with NAFTAsarticle 303 prior to being audited and avoid nes and pen-alties.

Based on the ambitious audit approach outlined bythe SAT, any importer, producer or exporter who is takingadvantage of any Mexican FTA should expect increasedscrutiny by SAT. In this regard, companies should not de-

lay in reviewing whether their current FTA controls andprocesses comply with minimum requirements. If alreadyunder audit, companies should understand the processesbeing questioned and take timely action to respond to theSAT with proper arguments. o

Armando Beteta ([email protected]) is the executive di-rector in Ernst & Youngs National Indirect Tax practice basedin Dallas, Texas. He provides services to clients with a focuson Latin American customs issues. Sergio Moreno ([email protected]) is a member of Ernst & Youngs Indirect TaxServices practice based in Dallas, Texas. He practices in the areaof customs and international trade, providing solutions regard-ing customs valuation, tariff classication, compliance and pro-cesses reviews, and customs and duty saving strategies, with aparticular emphasis on Mexican and Latin American customsissues.

Abnormal Values in the EU 1

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