The first weeks of 2010 already have presented some potentially significant changes in the political dynamics here in Washington, DC, as the Obama Administration continues to grapple with a weak economy and opposition to some of its "transformational" initiatives, such as health care reform. The attention paid to these issues may overlook other developments and trends that will continue to impact the international regulatory and trade environment in which Miller & Chevalier's clients operate.
Irrespective of the state of the economy, international regulatory enforcement agencies continue to increase compliance expectations in many areas, such as the FCPA, export controls, sanctions, customs, and intellectual property ("IP") enforcement. Many of the agencies established enforcement records in 2009. The Department of Justice and the agencies enforcing export controls and sanctions are targeting individuals in FCPA and exports cases to maximize the deterrent effects of prosecutions. Concerns about corporate fraud (related to the FCPA), national security (related to export controls and sanctions), and the need for increased revenue (related to customs and taxation) will continue to drive enforcement priorities in 2010.
The early stages of economic recovery may lead to an upswing in companies' consideration of litigation as a means to address important strategic goals. China's policies and economic position will continue to feed concerns about IP protection and the impacts of Chinese imports on the U.S. market. Companies likely will continue to petition for U.S. government action (through, for example, Section 337 investigations or Section 421 safeguard actions) to address these challenges.
Finally, although the trade agenda likely will continue to be affected by Administration attention elsewhere and the current political challenges associated with trade liberalization initiatives (most importantly as they affect the WTO's Doha Round), 2010 will see a number of specific trade-related actions that could impact international business. These include some potentially significant WTO dispute settlement cases, a push on bilateral investment treaty negotiations using texts, and potential changes to long-established embargoes on Cuba and Iran.
As we prepare to address these and other issues of urgent concern to our clients, all of us from Miller & Chevalier's International Department extend our best wishes for the New Year.
FCPA Enforcement and Compliance
Enforcement Agencies Will Focus on Individuals While Re-Tooling for 2010. Ramped up enforcement of the Foreign Corrupt Practices Act ("FCPA") continued in 2009, and, as emphasized by mid-January's high profile "sting" operation against 22 executives and employees of 19 armaments companies (discussed in detail in our January 20, 2010 Alert), is likely to proceed at a high rate in 2010. According to top law enforcement officials from the Department of Justice ("DOJ") and Securities and Exchange Commission ("SEC"), both agencies remain committed to actively prosecuting FCPA violations in the coming year. In a November 2009 speech at the American Conference Institute's ("ACI") 22nd National Conference on the FCPA (chaired by Miller & Chevalier's Homer E. Moyer), Assistant Attorney General Lanny A. Breuer announced that he expects continued increases in the number of FCPA prosecutions, both of corporations and individual violators.
The DOJ Anticipates More Court Cases. Of the 35 enforcement actions resolved with the DOJ and the SEC in 2009, 18 were brought against corporations and 17 against individuals. Of the 17 dispositions involving individuals, four were convictions handed down in three jury trials, signifying a record number of FCPA trials in a single year. In addition to resolved matters, in 2009 the agency brought unresolved indictments against 14 individuals. These numbers reflect an increased emphasis on prosecution of individuals. In his ACI address, Mr. Breuer highlighted the deterrent effect of such prosecutions, and stated that they will be a "cornerstone" of DOJ's FCPA enforcement policy in the future. He added that the Department is "ready, willing, and able to try FCPA cases in any district court in the country," indicating that the three FCPA jury trials concluded in 2009, while unprecedented, could mark the beginning of a trend.
In describing other DOJ enforcement priorities, Mr. Breuer noted that the Department will continue and expand cooperation with other agencies (the Federal Bureau of Investigation ("FBI"), the Internal Revenue Service, the Department of Commerce and the Department of State), and with foreign enforcement authorities. The January 2010 "sting" operation, which involved at least 150 FBI agents and the City of London Police, underscored this commitment. Mr. Breuer added that DOJ would continue to pursue enforcement cases through pro-active investigations and responses to information from whistleblower tips, newspaper stories and other sources. Mr. Breuer also asserted that voluntary disclosures were a basis for only a minority of DOJ's cases. Nevertheless, he encouraged companies to disclose misconduct voluntarily and to cooperate with the Department's investigations (Mr. Breuer cited the penalty reductions in the Siemens and the Helmerich & Payne cases as examples of rewards for cooperation). Mr. Breuer also noted that, going forward, the DOJ increasingly will seek asset forfeiture and recovery. Finally, Mr. Breuer singled out the pharmaceutical industry as a focus of future FCPA enforcement efforts at the DOJ. The January 2010 "sting" operation also put the armaments and law enforcement supply sectors into the agency's enforcement spotlight. Thus, despite the expected departure of the current Deputy Chief of the DOJ's Fraud Section, Mark Mendelsohn, the DOJ will continue to aggressively pursue FCPA cases.
The SEC Aligns Some of Its Enforcement Practices With DOJ's. On the SEC side, a high level of enforcement activity is likely to continue as well. In the wake of criticism following the $50 billion Madoff Ponzi scheme, SEC Enforcement Director Robert Khuzami is eager to restore the image of the Commission. In an effort to do so, he has announced a number of initiatives, some of which will have a direct bearing on FCPA enforcement. On January 13, 2010, the SEC issued a press release announcing the creation of five specialized units in the SEC Enforcement Division, one of which will deal specifically with FCPA enforcement. Cheryl Scarboro, previously an Associate Director at the division, will head the FCPA unit.
In addition, the SEC recently announced that it is pursuing several avenues to encourage cooperation of witnesses in its investigations. The SEC will reward such cooperation by reducing charges, deferring prosecution, or foregoing it altogether. These rewards will be formalized in cooperation agreements, deferred prosecution agreements, and non-prosecution agreements -- instruments that the DOJ already uses extensively in criminal FCPA resolutions, but that have not yet been used by the SEC, which focuses on civil enforcement. The SEC has also issued a list of criteria it will use to evaluate an individual's cooperation, and to decide on the level of the lenient treatment by the agency (parallel to the "Seaboard" factors, which incentivize cooperation by corporations). The agency will consider the following major factors: (1) the assistance that the cooperating individual will provide; (2) the importance of the matter under the investigation; (3) the "societal interest" in holding the individual accountable for misconduct; and (4) the "risk profile" of the individual. Mr. Khuzami noted in an August 2009 speech that those who simply comply with "routine or expected requests" should not expect a reward; rather, leniency is reserved for those displaying an "extraordinary" level of cooperation. In applying these rewards, the SEC has stated that it will coordinate with the DOJ to ensure that enforcement interests of both agencies are protected.
Finally, Mr. Khuzami promised faster turn-around of enforcement actions by the agency. Because the DOJ has not made similar claims, entities and individuals that typically have been able to settle FCPA matters with both agencies at the same time may no longer be able to do so. The effect of these planned changes remains to be seen, but it is reasonable to expect that the FCPA will remain at the forefront of the SEC's enforcement priorities.
For more details on cases and trends in 2009, please refer to our series of FCPA Reviews (including our recent FCPA Winter Review dated January 12, 2010).
ITC Section 337 Litigation
The U.S. International Trade Commission Continues to Be a Popular Venue for Resolving International Intellectual Property Disputes. Notwithstanding the economic crisis of 2009, the ITC instituted 35 Section 337 investigations -- the third most investigations instituted in a single year since the statute took its current form in 1974. We believe even more investigations will be instituted in 2010, as several recent ITC trends and decisions continue to make the ITC a desirable and powerful forum for owners of U.S. intellectual property rights.
Section 337 Is Not Limited to Patent Infringement. Most complaints under Section 337 are directed at patent infringement. But Section 337 also broadly prohibits unfair acts and unfair trade practices related to the importation of goods into the United States, and the sale of imported goods in the Unites States, including trademark and copyright infringement, misappropriation of trade secrets, false advertising, unfair competition, antitrust violations, etc. In fact, one in every seven complaints filed at the ITC in 2009 -- nearly 15% -- involved allegations of trademark or copyright infringement, misappropriation of trade secrets, false advertising, or a combination of such claims. There are a number of reasons for this increase.
First, non-patent cases have been successful. In 2009, the ITC issued three general exclusion orders -- two directed to the importation and sale of gray market goods and one directed to goods that infringed certain trademarks. Second, the ITC issues final decisions much faster than district courts do. Third, in some instances, a company can obtain relief from the ITC that may not otherwise be available in a U.S. federal or state court. For example, the ITC has jurisdiction to investigate and issue an exclusion order against goods that are completely made abroad using a trade secret that was misappropriated abroad. Finally, the ITC's decisions in non-patent investigations are binding on district courts. Thus, companies can come to the ITC to obtain a quick injunction against imported goods, and then use that decision to quickly obtain damages in district court, often without even needing a trial.
Foreign Complainants and Non-Practicing Entities Are Finding a Home at the ITC. As we discussed in our April 2009 Client Alert, more and more companies, especially foreign-based businesses, are taking advantage of Section 337 to block competitors from selling infringing imported products in the U.S. market. In addition to an increase in complaints filed by foreign-based companies, in the last year the ITC has seen a significant increase in the number of complaints filed by non-practicing entities ("NPE"). NPEs do not practice their IP in the form of a commercial product that they make themselves but, rather, exploit their IP through contract manufacturing, research and development and/or licensing. In fact, more than half of the Section 337 investigations instituted in 2009 were based on complaints filed by either foreign-based companies (13 investigations) or NPEs (7 investigations).
As more foreign companies are becoming multinational and obtaining a presence in the United States, more are able to, and will, qualify as a domestic industry under Section 337. Similarly, NPEs are capitalizing on recent ITC decisions concerning what constitutes a licensing activity for domestic industry purposes and choosing to file their patent infringement complaint at the ITC. We expect this trend to continue and to see more and more foreign companies and NPEs use Section 337 and its powerful remedies against the imports of their competitors.
The Breadth of Section 337 Relief Post-Kyocera. As we expected, the Kyocera Wireless Corp. v. U.S. Int'l Trade Comm'n, 545 F.3d 1340 (Fed. Cir. 2008) ("Kyocera") decision is affecting the scope and form of relief available in some Section 337 investigations. Prior to Kyocera, limited exclusion orders ("LEO") often covered "downstream" products (that is, products incorporating an infringing product) of any company, whether named as a party or not. For example, the LEO would block an imported display monitor manufactured by a non-party that contained an infringing integrated circuit. In Kyocera, the Federal Circuit held that an LEO can only exclude infringing products of a company that was actually named as a respondent in the investigation. In order to reach "downstream" products of a non-party, a complainant must satisfy the heightened requirements in the statute for a general exclusion order ("GEO").
Complainants have been adapting to Kyocera in a variety of ways, including naming more companies than under past practice. Naming more parties may help satisfy the heightened GEO requirement but, in the event that complainants do not meet the GEO burden, they will at least receive the benefit that the imports of the named "downstream" companies would be subject directly to an LEO. Meanwhile, in the wake of Kyocera, the ITC has re-evaluated its requirements for all remedy determinations as a whole; not just "downstream" relief. With respect to GEOs, for example, the ITC has revisited its precedent and has been returning its focus to the statutory language itself.
In several pending cases, a complainant has sought either a GEO and/or downstream relief against non-parties, and we expect rulings in 2010 to clarify this evolving area of Section 337 law. Additionally, several bar associations and trade groups are considering a legislative effort to return to the ITC the authority to issue downstream exclusion orders, in appropriate circumstances, against third parties that are not named in an ITC investigation.
Public Interest. Before issuing any remedy, the ITC must consider the public interest, specifically the effect the proposed remedial order would have on the "public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers." Historically, the ITC has limited relief (denying it altogether) due to public interest concerns in only three investigations -- the last time occurring in 1984. In the investigation that led to the Kyocera decision, however, the Commission for the first time relied on public interest considerations to limit the form of relief.
We anticipate that the ITC will be forced to wrestle with this issue more often in the future. For example, currently pending before the ITC is a patent infringement complaint seeking to exclude from entry into the U.S. all imported hybrid automobiles manufactured by or for Toyota Motor Company. In addition to the obvious environmental concerns that would surround an exclusion order precluding the most popular hybrid cars from entering and being sold in the U.S., the Toyota hybrid case is also worth following in that the complainant is an NPE that develops hybrid technology but does not have a commercial product.
Export Controls, Sanctions, and Direct Investment
Increased Enforcement May Be Tied to Potential Relaxation of Some Controls. Export enforcement efforts will likely increase in 2010, both in number and scope. The previous year witnessed a watershed in the enforcement environment, with a significant increase in the number of enforcement cases by all U.S. export agencies, a substantial increase in the penalties imposed, and an expansion in the type of violations pursued by the agencies.
Enforcers Focus on Forwarders' and Individuals' Liability. Of significant note in 2009 was DHL's settlement with the U.S. Department of Commerce, Bureau of Industry and Security ("BIS") and the U.S. Department of Treasury, Office of Foreign Assets Control ("OFAC") for alleged recordkeeping and unlicensed export violations. Given a forwarder's unique role within the shipment process as a gatekeeper to the global marketplace, the agencies have an incentive to target them and likely will continue doing so, given their usual resource constraints and the success achieved in the DHL settlement. As a sign of that likelihood -- and perhaps a not-so-subtle warning to forwarders -- BIS just released "Freight Forwarder Guidance" on its website that outlines a forwarder's compliance responsibilities.
The DHL settlement and other enforcement cases in 2009 also prove that no type of violation is too trivial for the U.S. Government to pursue, whether they involve large or small firms. U.S. export agencies have demonstrated their willingness to charge exporters with even procedural violations, such as those involving recordkeeping, temporary imports, or hand-carrying of technical data. In the same vein, export enforcement officials have expressed a renewed willingness to refer even seemingly small matters to the U.S. Department of Justice for criminal prosecution.
Enforcement cases in recent years have also been a stark reminder that export managers may be held personally liable for their employers' export control violations. Export enforcement officials have also suggested that they would closely examine the roles of officers and directors in enforcement cases, potentially leading to charges against higher-ranked company officials in their personal capacity. Export agencies regularly charge the top officer of small companies, and we predict charges in 2010 against officers and directors of large firms as well.
Record Penalties Likely Will Continue. The last year also witnessed record penalties for export control and sanctions violations, including Lloyd's of London's $217 million settlement with OFAC for alleged sanctions violations and, more recently, Credit Suisse's $536 million settlement with OFAC for similar allegations. The continued focus on export enforcement is likely to keep penalties at a high, if not higher, level, reminding companies that the costs of an effective export compliance program far outweigh the costs of not having one.
National Security Concerns and Stakeholder Priorities May Drive Real Reform. Another reason for the continued focus on enforcement is reform. Any reform effort that attempts to loosen controls is likely to highlight the need for increased enforcement of the controls that remain. The Christmas Day 2009 attempted airliner bombing, along with press reports that U.S. companies continue to do business with prohibited parties, will ensure that national security concerns are central to the reform process. Most immediately, for example, there will likely be renewed enforcement attention on the restricted lists maintained by the various export agencies.
Any reform efforts in 2010 likely will derive from the ongoing comprehensive review by the Obama Administration of U.S. export controls and embargo policies announced in August 2009. The National Security Council staff has requested industry suggestions on how the export control system can be changed to enhance national security, and Chairman Berman of the House Foreign Affairs Committee is also drafting reform legislation to renew the Export Administration Act with private sector input. Informal industry groups and trade associations have developed recommendations for the Administration and for Chairman Berman's staff, and Miller & Chevalier has participated actively in these exercises.
The major concerns of the private sector center on ineffective interagency processes and the lack of an appeals process for industry to challenge commodity jurisdiction determinations and classifications. The guiding principles that shaped the resulting industry recommendations were: accountability in the decision-making process, modification of control lists to keep list-based controls relevant and current, taking account of globalization, achieving multilateral consensus with allies on export controls, and maintaining a strong industrial base to achieve leadership in advanced technologies. The vast majority of the industry recommendations to the Administration could be implemented by rulemaking and/or executive order.
One of the key things to look for during 2010 is whether the Administration will adopt some or all of these recommendations. There is still time to engage the Administration directly or to urge trade association support. To request a complete copy of the draft recommendations, please send an email to email@example.com.
New Iran Sanctions Are Likely. In early 2010, the U.S. Congress likely will enact new sanctions related to Iran's nuclear program that would have significant impact on both U.S. and non-U.S. firms. The pending discussions on Capitol Hill could result in the expansion of existing U.S. sanctions on Iran under the Iran Sanctions Act (ISA) in several areas. The House of Representatives has already passed legislation, and the Senate will soon take up a similar bill already approved by the Senate Banking Committee.
Blocking Refined Petroleum Products and Support For Refinery Capacity. First, the ISA amendment legislation would prohibit the provision of refined petroleum products to Iran from any country and would prohibit oil field companies from providing services or products that would expand Iran's capacity to produce refined petroleum products. Proponents favor this as an effective sanction, reasoning that Iran has limited refining capability and depends upon imports of refined products even though it is rich in crude oil. Critics of expanded sanctions, including the U.S. State Department, believe that the prohibition will offend U.S. allies, threaten their support of the U.S. in the negotiations, and otherwise prove counterproductive in negotiating nuclear restraint by Iran. We believe the reach of the proposed sanctions may implicate constitutional theories recently embraced by the U.S. Supreme Court.
Expanding ISA Financial Restrictions. Second, new sanctions for the ISA would prohibit sanctioned entities with direct or indirect interests in Iran's energy sector from using the U.S. banking system for dollar exchanges, owning or acquiring property in the United States, and entering certain foreign trade transactions. This provision would expand the current ISA, which sanctions foreign entities investing certain amounts in the Iranian petroleum industry, but which leaves the President discretion as to whether to investigate violations of these requirements. In response to what critics of the current ISA view as weak enforcement mechanisms, the pending legislation would require the President to investigate potential sanctions violations and make the findings public.
Extending U.S. Jurisdictional Reach Over Non-U.S. Parents and Affiliates. Third, the existing ISA and pending legislation extend to non-U.S. parents of U.S. subsidiaries and to non-U.S. affiliates of U.S. firms; however, the proposed sanctions would likely be imposed. Thus, the proposed sanctions would cover a non-U.S. corporation solely because it was the parent of a U.S. firm. It could also create U.S. jurisdiction over a non-U.S. firm that is an affiliate of a U.S. corporation; for example, over a German subsidiary of a U.K. corporation, which also owns a U.S. subsidiary. This dramatic increase in extraterritorial reach would be controversial, and likely would implicate a number of existing sanctions blocking statutes in other countries.
Imposing Vicarious Liability on U.S. Companies for Violations of Non-U.S. Subsidiaries. The version of the legislation passed by the Senate Banking Committee could make U.S. corporations directly liable for the acts of their non-U.S. subsidiaries in dealing with Iran if the subsidiary was created or maintained for the purpose of "circumventing" the Iranian Transaction Regulations and/or the ISA. While it is difficult in practice to achieve, current law allows a U.S. corporation to leave sufficient independence of its foreign subsidiaries such that the U.S. corporation does not run afoul of restrictions on facilitation or approval by a U.S. person of foreign trade between another country and Iran.
Other important provisions in the proposed legislation beyond those discussed above include an expansion of re-export controls on destinations of diversion concern. On a related note, on January 11, 2010, Secretary of State Hillary Clinton reportedly said the Administration is considering its own increase in sanctions targeted at decision-makers in Iran in a joint effort with various other countries. News reports suggest that these likely would target commercial and political relationships of the Iranian Revolutionary Guard Corps. Since elements of the Guard Corps and entities supporting or financing the Iranian nuclear weapons program are already blacklisted by OFAC, the shape of any such new sanctions remains unclear.
As of this writing, the House, the Senate, and the Administration are actively engaged in the legislative process. Interested corporations should move promptly to comment on the legislation directly or through industry groups or counsel.
2010 promises to be an active year for the importing community, as Congressional and regulatory initiatives are likely to impose new import compliance obligations (and, in some cases, costs) on importers, customs brokers and freight forwarders.
Congressional Initiatives. Two key Customs-related legislative initiatives are likely in 2010: (1) continuing debate on, and possible passage of, S. 1631, the Customs Facilitation and Trade Enforcement Reauthorization Act, and (2) at least one and perhaps two Miscellaneous Tariff Bills ("MTB") to replace the MTB that expired on December 31, 2009.
The Senate Finance Committee began debate on S. 1631 last year and additional hearings are likely this spring. The House Ways and Means Trade Subcommittee is also expected to take up a companion Customs bill. Despite an end-of-year push, Congress adjourned in 2009 without extending or renewing the MTB, leaving its path ahead in 2010 uncertain. Congress may pass a scaled-back MTB early this year based on a package of House and Senate extensions and modifications and, later in the year, they may take-up a broader MTB. Congress also must decide whether to allow importers to recover the duties paid on goods whose duty suspensions expired last year and will be renewed or extended.
Administrative and Regulatory Initiatives. The importing community will face new administrative and regulatory compliance requirements in 2010, including the expiration of the grace period to comply with the Importer Security Filing ("ISF" a.k.a. "10+2") rule, expanded Lacey Act declaration requirements, heightened attention to consumer-product safety import compliance, greater emphasis on revenue-based enforcement including audits, compliance assessments, and classification disputes with revenue implications.
The ISF Requirement Takes Effect. On January 26, 2010, the grace-period expires for compliance with the ISF requirement, and importers who do not submit an ISF form risk CBP assessment of liquidated damages of $5,000 per violation for the submission of an inaccurate, incomplete or untimely filing. If goods for which an ISF has not been filed arrive in the United States, CBP may withhold their release until the information is provided. Non-compliant importations could also be subject to "no load" orders in the port of export. CBP has recently clarified that importers will be able to use either a single-entry or continuous-entry bond.
Lacey Act Enforcement Will Increase. The fourth and final phase-in period for the Lacey Act declarations begins on April 1, 2010, for wood products including furniture, tools and musical instruments. As we recently reported, U.S. authorities have stepped-up Lacey Act enforcement efforts with the recent raid of Gibson Guitars of Nashville, Tennessee. Increased Lacey Act enforcement efforts focused in other sectors are likely this year, and one particularly vulnerable sector could be wooden furniture from Southeast Asia, which has been known to use CITES-protected timber.
Most Consumer Product Safety Certifications Will Be Delayed Until 2011. The Consumer Product Safety Improvement Act of 2008 ("CPSIA") introduced sweeping changes to U.S. consumer product safety laws and has important implications on import compliance. Importantly, the CPSIA requires importers of products regulated by the Consumer Products Safety Commission ("CPSC") to certify that their products comply with all rules, bans, standards, and regulations applicable to the product under the CPSIA or any other law enforced by the CPSC, including lead content in the substrates of some children's products.
Although it has been stayed since February 2009, on February 20, 2010, the certification requirement goes into effect for child-resistant portable gas containers, special packaging required under the Poison Prevention Packaging Act, and refrigerator door latches. However, the stay of the certification requirement will remain in effect through February 10, 2011, for a variety of other products, including certain toys, child-care articles, and children's sleepwear.
2009 saw a pronounced downgrading of the importance of trade issues by the new Obama Administration and Congress. Enforcement of existing trade remedies, especially against China, was the only trade issue to garner any noteworthy attention in the White House and Congress, with the first ever imposition of safeguard tariffs under the Section 421 special safeguard on imports of tires and several WTO cases.
The Obama Administration enters its second year in office without a clearly defined trade policy, juggling both enforcement and trade liberalization goals, while important U.S. trading partners are aggressively pursuing trade liberalization policies that could leave U.S. exports at a competitive disadvantage. In addition, as Congress heads into the mid-term elections in 2010, it likely will continue to cast a wary look on trade liberalization, favoring initiatives to strengthen the U.S. trade enforcement laws and other autonomous reforms of the U.S. trade regime.
While we expect the business community to mobilize this year to seek passage of the pending free trade agreements, and push USTR to advance bilateral investment treaty ("BIT") negotiations with China, India and Vietnam, because of low popular support for free trade initiatives and the upcoming mid-term elections, we expect the Democratic Congressional leadership and the Administration will avoid politically risky votes on trade (e.g. the pending FTAs).
In sum, there are few hopeful signs that trade will be a higher priority for the Administration or Congress in 2010, with the notable exception of U.S. participation in the Trans-Pacific Partnership negotiations which are scheduled to begin in March in Australia.
Congressional Trade Initiatives Likely Will Focus on Trade Enforcement and Preference Programs. The Congressional outlook for any meaningful action on trade legislation in 2010 is uncertain at best, especially as political support for free trade initiatives continues to decline while support grows for legislation in the House to review and renegotiate existing trade agreements to include higher labor, environmental, market access, and other standards. That said, there are several key trade policy items for Congress to consider when the time and political will permit.
As part of an effort to address anxiety about trade, jobs, and the perceived China juggernaut, Congress is likely to consider legislation to bolster trade enforcement, which could include, for example, requiring USTR to identify and act on priority foreign trade barriers ("Super 301") and establishing a Senate-confirmed chief-of-enforcement position within USTR. Efforts to "upgrade" enforcement may extend to consideration of proposals to give Congress a role in decisions about "graduation" from non-market to market economy status under the U.S. antidumping law, and to restrict the President's ability to deny ITC-recommended safeguard relief against imports from China under Section 421.
A "must do" from last year that was bucked to this year is reauthorization, and possible reform of the key U.S. trade preference programs. The Andean Trade Preferences and Drug Eradication Act and the Generalized System of Preferences ("GSP") were extended for one year and are now scheduled to expire on December 31, 2010. The relevant committees may make major changes in the reauthorization context, including graduating certain advanced developing countries and streamlining eligibility criteria and rules of origin.
Pending FTAs Are Unlikely to Pass, But Other Negotiations May Advance. Prospects in 2010 for Congressional passage of the concluded FTAs with Colombia, Panama, and South Korea appear bleak. Congressional leaders as well as President Obama insist that Colombia must make more progress on curbing violence against union organizers before implementing legislation on its FTA can move forward. On the U.S. - Panama FTA, Congress is concerned about Panama's tax haven and banking secrecy laws that allow U.S. depositors to hide their assets and avoid paying U.S. income tax. The U.S. - Korea FTA faces the staunchest opposition and longest odds of being approved by Congress this year, mostly over concerns about market access for U.S. automobiles and about the FTA's limited progress towards eliminating Korea's web of regulatory barriers.
On the other hand, after a long review, the Administration has decided to join the Trans-Pacific Partnership ("TPP") negotiation that includes the P-4 countries (Brunei, Chile, New Zealand and Singapore), as well as Australia, Peru and Vietnam. The first round of negotiations is scheduled for March in Australia. Among the questions to be resolved will be whether the TPP will supplant existing bilateral FTAs or exist in parallel with them; issues raised by Vietnam's status as a non-market economy and concerns about labor rights and intellectual property protections; and whether Australia will accept investor-state dispute settlement provisions that were not included in the U.S. - Australia FTA.
During mid-2009, the Subcommittee on Investment of the State Department Advisory Committee on International Economic Policy ("ACIEP") made recommendations to USTR and the State Department on improvements to the 2004 model BIT text. Among the major issues addressed were whether provisions on labor and environment should be subject to investor-state arbitration, whether to impose new disciplines on the investment activities of state-owned enterprises that utilize non-market or subsidized financing when purchasing assets, and whether an investor must exhaust its domestic remedies before resorting to BIT investor-state arbitration. USTR and the State Department could release a revised model BIT text as soon as early February. We expect the BIT negotiations with China, India and Vietnam to advance this year as key parts of the Administration's commercial diplomacy and trade negotiation agenda.
Finally, negotiations on the proposed plurilateral Anti-Counterfeit Trade Agreement Negotiations ("ACTA"), which would establish disciplines in intellectual property enforcement, in response to increase in trade of counterfeit goods and pirated copyright-protected works, are scheduled to conclude this year.
Heightened U.S. Engagement in APEC. During 2010, we expect the Administration to step-up U.S. engagement in the Asia Pacific Economic Cooperation ("APEC") forum on economic development, trade, trade facilitation, and investment issues among APEC's 21 members. Looking ahead to 2011, the U.S. will host APEC, which should further the long-term goal of regional economic integration and U.S. economic and trade ties among APEC members.
Possible Changes to the Embargo of Cuba. Liberalizing changes to the U.S. economic embargo of Cuba are possible this year. Substantial Congressional support exists for changes involving travel and agriculture trade building on changes enacted in 2009. Although no one should expect to see even a vote on a full reopening with Cuba, there are clearly some U.S. sectors potentially open to reform, including tourism, financial services, agriculture, and aerospace.
The WTO's Doha Round Impasse Will Continue, Though Significant Dispute Settlement Cases Will Move Forward. Now entering its ninth year, the Doha Round is no closer to conclusion, despite months of bilateral meetings between the U.S. and key advanced developing countries, and an end-of-the-year push at the December WTO Ministerial in Geneva that produced little progress on the most intractable issues in the major negotiating groups -- agriculture, non-agricultural market access ("NAMA"), services and rules (antidumping, subsidies and fisheries subsidies). While there will be a stock-taking meeting in March, and while the key negotiating groups are expected to continue meeting, any meaningful advance in the Doha Round talks during 2010 is unlikely. The political will to compromise even on negotiating modalities is in short supply. Senior trade officials, therefore, will likely devote some time during 2010 assessing the potential costs of the Round's failure, the availability of palatable exit strategies, and other plausible means to advance multilateral trade liberalization.
In contrast, we expect 2010 to be a busy year for WTO litigation. Interim or final panel decisions are expected in several high-profile cases, involving, for example, European and American subsidies in the large civil aircraft sector, the EU's scheduled commitments under the Information Technology Agreement, U.S. complaints involving China's market access restraints for entertainment products, and a U.S. challenge of an EU ban on poultry imports treated with antimicrobial washes. USTR will also seek compliance with recent WTO decisions against Chinese measures in the auto parts and IP sectors, and with MOUs announced to settle WTO disputes involving certain export subsidies and China's restrictions on distribution of financial information. Meanwhile, China is pursuing a blockbuster case challenging the way U.S. antidumping and CVD laws are applied to Chinese products, China's WTO challenge of U.S. imposition of Section 421 safeguard relief, as well as challenges to a U.S. country of origin labeling law ("COOL") for meat, and a challenge from Mexico against U.S. laws on labeling for imported tuna, and continuing cases challenging the United States' use of "zeroing" in antidumping calculations.
The WTO will also continue to monitor and publicize the trade impacts of "anti-crisis measures", some of which have or could have trade effects, and other measures implemented by WTO Members in response to the current economic downturn. Similar efforts will continue to apply the WTO's unique assets to the solution of other current problems, such as shortfalls in the amount of available trade finance and the potential trade effects of national-level carbon control measures.
2009 saw a very low level of new trade remedy filings. We expect a modest rebound in 2010. While the poor operating results now recorded in several consecutive quarters by many U.S. industries might seem to foreshadow more widespread resort to trade remedy complaints, imports have declined dramatically in many of the relevant product categories. This complicates the task of proving that the "injury" experienced by domestic producers is attributable to imports.
Cases Will Continue to Focus on Asia. Both new cases and ongoing trade remedy proceedings are likely to continue, or even intensify, several important trends. One, of course, is the focus of this part of the U.S. trade regime on Asia and, in particular, on China. The special non-market economy ("NME") methodology used to estimate the normal value of Chinese goods will continue to evolve, both in agency investigations and through input from reviewing courts. In addition, the appetite for relief against imports from China has fueled a resurgence in CVD complaints since the Commerce Department decided, in 2007, to apply the CVD law to Chinese products. 2010 will see further evolution of the rules that apply when the Department simultaneously conducts CVD investigations, on the one hand, and antidumping investigations of the same imports using the NME methodology, on the other. Moreover, this debate is no longer China-specific, as the CVD law has now been declared applicable to products from a second country classified as an NME for antidumping purposes: Vietnam. The first simultaneous AD-CVD investigation involving Vietnam targeted polyethylene retail carrier bags; other cases could follow on successful Vietnamese export categories such as apparel, wooden furniture or aquaculture.
The use of the Section 421 China safeguard will continue to be a trade irritant between the United States and China, with the Obama Administration likely to face pressure from traditionally import-sensitive industries (e.g. textile and apparel) to use Section 421 to impose import relief to stem the torrent of imports from China. Other important bilateral issues that have been taken into WTO dispute settlement may require political resolution later in the year.
Another trend likely to continue involves Chinese trade remedy actions, which, while principally aimed at imports from within Asia, have begun in recent years to affect U.S. exporters as well. High-profile cases are pending now on U.S.-origin passenger vehicles and chicken parts; the vehicles case includes examination of subsidies recently provided to the U.S. auto sector.
Another controversial issue will continue to be how to handle the longstanding struggle over China's administratively-determined yuan-to-dollar exchange rate, and whether to cite China as a currency manipulator. Pressure on this and the other issues noted may cause the two governments to adjust the structural framework for the top level of their economic diplomacy -- in the first instance, whether to continue to use the Strategic Economic Dialogue and the Joint Commission on Commerce and Trade as the main bilateral consultative mechanisms.
Multilateral Dispute Resolution Will Focus on Trade Remedies. As noted above, we expect that challenges of trade remedy measures will continue to account for a very high proportion of WTO dispute settlement cases -- even more so as new users of the trade remedy instruments impose AD/CVD relief in a less-than-careful manner or on the basis of "marginal" fact patterns. Based on the current state of play in the Doha Round as a whole and within its "Rules" thread, where reforms that would scale back the use of antidumping measures are under discussion, the prospect of significant new constraints on antidumping enforcement seems remote indeed.
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