Some U.S. Sanctions Against North Korea Lifted But Not Really

President Bush's decision last week to lift some U.S. sanctions against North Korea in response to its nuclear disclosures will not significantly reduce barriers to doing business with that country contrary to what many news stories have suggested.

The President's decision will lift sanctions only on
(1) the involvement of persons located in the United States with military- and nuclear related exports from a foreign country to North Korea, and
(2) the importation of products from North Korea.

The United States, however, will still require a license for most U.S. exports and reexports to North Korea of military- and nuclear-related products and for any other item subject to the Export Administration Regulations. Furthermore, it is still U.S. policy to deny most applications for U.S. exports or reexports to North Korea of military- and nuclear-related products and of luxury goods. The limited reprieve President Bush gave North Korea last week shows North Korea will have to reveal much more information about its nuclear program before the United States removes any significant restrictions on North Korean trade.

(Reference: BIS Q&A for North Korea Export License: http://www.bis.doc.gov/policiesandregulations/regionalconsiderations/north_korea_questions.pdf )


No Further Action on First Sale Rule

At a June 24 hearing before the Senate Finance Committee, U.S. Customs and Border Protection Commissioner Ralph Basham said that his agency is not going forward with any further action to implement its proposal to revoke the First Sale Rule (FSR) or otherwise change the interpretation of the rule before 2011. Basham’s remarks are consistent with a provision in the recently-passed Farm Bill that forestalled any immediate CBP action on the rule. The committee hearing also addressed a range of issues related to the oversight of trade functions at CBP and other agencies.

The FSR allows import duties to be assessed on the value of the first sale when an import transaction involves a series of sales (e.g., from the factory to the middleman and then to the buyer). In late January, however, CBP proposed to eliminate the FSR and trade groups actively fought this proposal, arguing that it would increase consumer costs and raise concerns on issues such as supply chain security, business predictability, agency authority and trade policy.

Ranking member Charles Grassley, R-Iowa, also expressed concern over CBP’s recent steps to change longstanding practices, such as the First Sale Rule, without first consulting the Finance Committee. Basham acknowledged that CBP did not conduct the proper consultation with the committee for its interpretation of the rule and stated that CBP could have done a much better job in consulting with stakeholders before it published the proposal.

(Source: http://www.strtrade.com/wti/wti.asp?pub=0&story=31181&date=6%2F26%2F2008&company=)


Treasury/OFAC Lifts Sanctions on China Great Wall Industry Corporation

June 19, 2008 Washington - The U.S. Treasury Department's Office of Foreign Assets Control (OFAC) today removed the China Great Wall Industry Corporation (CGWIC), and its U.S. subsidiary, G.W. Aerospace, from the list of Specially Designated Nationals. CGWIC, a Chinese entity, was designated on June 13, 2006, pursuant to Executive Order 13382, for providing material support to Iran's missile program. G.W.Aerospace, which is located in Torrance, California, was designated for being owned or controlled by CGWIC.

"Removing China Great Wall Industry Corporation from our sanctions list marks a great success for our counter-proliferation sanctions program,"said OFAC Director Adam J. Szubin.
"A company that once supported Iran's missile program has implemented a rigorous and thorough compliance program to prevent future dealings with Iran."
OFAC has determined that CGWIC and its U.S. subsidiary no longer meet the criteria for designation pursuant to E.O. 13382.

E.O. 13382, signed by the President on June 28, 2005, authorizes the U.S. Treasury to freeze the assets of proliferators of weapons of mass destruction and their supporters and to isolate them from the U.S.financial and commercial systems. Designations under E.O. 13382 prohibit all transactions between the designees and any U.S. person, and freeze any assets the designees may have under U.S. jurisdiction.

Since the President issued E.O. 13382 and identified eight entities in the Annex to the Order, a total of 49 entities and 12 individuals have been designated as proliferators of WMD or for supporting WMD proliferators.

Specifically, the Treasury Department has designated:
* 34 entities and 11 individuals tied to Iranian proliferation activity;
* Nine entities and one individual tied to North Korean proliferation activity;
* Three entities tied to Syrian proliferation activity.

Additionally, the State Department has designated three Iranian entities under E.O. 13382.
Identifying information on entities being removed:
* CHINA GREAT WALL INDUSTRY CORPORATION (a.k.a. CGWIC; a.k.a.ZHONGGUO CHANGCHENG GONGYE ZONGGONGSI), No. 30 Haidian Nanlu, Beijing, China; Moscow, Russia; and all other locations worldwide
* G.W. AEROSPACE, INC. (a.k.a. GREAT WALL AEROSPACE, INC.),21515 Hawthorne Blvd., Suite 670, Torrance, CA 90503; California Corporate Number C1458237 (United States)


Export Violaton of Vacuum Pump shipped to North Korea

Export violation incident is reported in Japan on June 12th. Let me summarize this violation case.

Ship-to: North Korea via Taiwan in 2003
Item: Vacuum Pomp, which is listed as export license required item in Export Trade Control Order Attachment List No. 1, Category 2 (35), as (xxxv) Vacuum pumps used in separators for uraniumisotopes.
Manufacturer: Tokyo Vacuum (日本語社名:東京真空), machine manufacturing, established on 1992, the capital is 10 millions yen, number of employees: 15 persons.
Exporter: Nakano Corp. (日本語社名:ナカノ・コーポレーション) , small trading house, established on 1975, the capital is 10 millions yen, number of employees: 2 persons.

Both manufacture and exporter seem that they are not aware of export control law. However, vacuum pomp is clearly mentioned as export license required item in Export Trade Control Order. It is required to apply export license to METI in exporting to ALL countries. "Oh, we didn't know that" cannot be accepted as excuse. In addition, it is doubtful (probably NOT done) whether exporter, Nakano Corporation, fully screened their Taiwan distributor and its end-use.
The investigation is on-going and the facts are unknown yet.

=== Quotation by Japan Times on June 13, 2008 ===

IAEA found Japan-made pump in N. Korean nuke facility

YOKOHAMA (Kyodo) Police have raided a manufacturing company in Kanagawa Prefecture after the International Atomic Energy Agency said it found a Japanese-made vacuum pump at a nuclear facility in North Korea last year, sources said Thursday.

Kanagawa police searched Tokyo Vacuum, the maker of the pump, and trade agent Nakano Corp. of Minato Ward, Tokyo, in early June on suspicion that the pump, used in a uranium enrichment device, was shipped to North Korea via Taiwan, the sources said.

Following the U.N. nuclear watchdog's report of its finding to the Japanese government, police raided the two firms on suspicion of unauthorized export in violation of the foreign trade law, they said.

By law, exports of devices that can be diverted for use in making weapons of mass destruction must be approved in advance by the Ministry of Economy, Trade and Industry. But the two firms exported several vacuum pumps to Taiwan in
summer 2003 without approval.
Police suspect the Taiwanese trading firm that imported the pumps shipped at least one of them to North Korea. They have dispatched officers to Taiwan to investigate. The firm was not identified.

A Tokyo Vacuum spokesman claimed the company did not know the device would be used in North Korea's nuclear facility, without adding further comment on the illegal export. Nakano Corp. confirmed it was searched by police and also said it had no knowledge the device would be exported to North Korea.

(Source: The Japan Times: http://search.japantimes.co.jp/cgi-bin/nn20080613a3.html )


End User List updated on June 10

Japanese METI updated the End User List on their web site on June 10, 2008. The End User List is a list of organizaiton that may have relationships with WMD and/or missile activities. METI basically renew this list once a year. With this update, total entities listed are 223, increased from 207 last year. Total 38 entites are newly added, and 22 entities are deleted. New entities added are from Iran, North Korea, Syria, Chian, and Pakistan. (Actually, No Japanese entities in this list, so we call it, aka "Foreign User list".) Please find the list in below web site of METI.

I have many similar questions from my clients, "Is this list embargo list by Japanese government?" Actually, not. These entites listed are just "may have concern for WMD or proliferation". If the items are apparently used for a purpose other than WMD related activities, the export license is NOT required. Well, in real operational world, it is sometimes difficult to judge the end-user and end-purpose. In such a case, METI encourage business to contact their consultation desk. METI may advise license application is required or not.


Anti-Dumping Duty for Electrolytic Manganese Dioxide

According to MOF on June 6th, Japan is likely to impose anti-dumping duty to Electrolytic Manganese Dioxide (EMD). This is advice (諮問) under the name of MOF, and temporarily anti-dumping duty, not the decision to impose. The affected countries are Australia, Spain, China and South Africa.

The duty rate would be as below.

  • Australia 29.3%

  • Spain 14.0%

  • China 46.5%
    (34.3% for Guizhou Redstar Developping Dalong Manganse Industry Co., Ltd.)

  • South Africa 14.5%

Period: 4 months

On June 13, Japanese Customs announced this ADD will be implemented effective from June 14 to Oct. 13.

(Source: http://www.mof.go.jp/singikai/kanzegaita/siryou/kanb200606.htm
http://www.customs.go.jp/news/movement.htm#200613 )



Quite often, I see people who confuse ITAR and EAR. Both of them are treated as US export control, but they are different. Focusing into ITAR, some tips for understanding ITAR.

Definition of ITAR
International Traffic in Arms Regulations (ITAR) is a set of United States government regulations that control the export and import of defense-related articles and services on the United States Munititions List.

Difference between ITAR and EAR
ITAR covers military items or defense articles, EAR covers dual use items.

ITAR regulates goods and technology designed to kill or defend against death in a military setting, EAR regulates items designed for commercial purpose but which could have military applications (computers, civilian aircraft, pathogens).

ITAR is strict regulatory regime. EAR is licensing regime encourages balancing competing interests.

ITAR's purpose of regulations is to ensure U.S. security and No balancing of commercial or research objectives. EAR is balance foreign availability, commercial and research objectives with national security.

Scope of ITAR
  • Munitions List includes items with NO clear military application, e.g. commercial satellites.
  • Brokering of US and Non-US items
  • Most ITAR controlled exports requires licenses, which take 60+ days, and arms embargoes include China.

Commodity Jurisdiction Process

If there is any question as to whether the product is controlled by the ITAR Munitions List or the EAR commerce control list, consider filing a "Commodity Jurisdiction Request" with DDTC, with a copy to BIS, to obtain a formal determination as to whether the product is controlled by the ITAR or the commerce control list.

Limited Re-export Exemption

Unlike the EAR, the ITAR has very few exemptions for re-export.

>>> ITAR section 123.9(d) -- Written approval of DDTC must be obtained prior to reselling, transferring, transshipping, or otherwise disposing of Defense Articles to any destination, end-user, or end-use other than as stated on the license.

Unlike the EAR, the ITAR does not contain any de-minimis rule

Items covered by the ITAR are not "subject to the EAR", so the EAR De-Minimis rule does not apply to USML items.

Thus, if a Non-US company receive USML articles, there is no de-minimis authority under ITAR to incorporate them into Non-US items and re-export.

Interesting Controversy of ITAR (quotation from wikipedia)

There is an open debate between the Department of State and the industries and academia regulated by ITAR concerning how harmful the regulatory restrictions are for U.S. businesses and higher education institutions. The Department of State insists that ITAR has limited effect and provides a security benefit to the nation that these sectors must bear. Every year the Department of State can cite multiple arrests of ITAR violators by U.S. Immigration and Customs Enforcement agents. However, many companies and institutions within the affected areas argue that ITAR is stifling U.S. trade and science. Companies argue that ITAR is a significant trade barrier that acts as a substantial negative subsidy, weakening U.S. industries' ability to compete. U.S. companies point to announcements in Europe by EADS and Alcatel promoting their "ITAR-free" satellites and defense items. Higher education institutions argue that ITAR prevents the best international students from studying and contributing in the U.S. and prevents cooperation on international scientific projects.
Currently, officials at the Department of State dismiss the burden on industry and educational institutions as minor compared to the security provided by ITAR. They also view the announcements of "ITAR-free" items as anecdotal and not systemic.


U.S. to Tighten Visa-Waiver Program

Japan is one of the visa-waiver countries when visiting US, but pre-entry registration will be required from January 2009. I will need to do it next year for US business trip!!

(Source: Wall Street Journal: http://online.wsj.com/article/SB121246184786840497.html )

By SIOBHAN GORMAN, June 3, 2008.
WASHINGTON -- Starting in January, travelers to the U.S. from countries whose citizens aren't required to obtain visas will have to register with the Department of Homeland Security at least three days before their arrival.

The new electronic system for travel authorization will collect the same information now required from passengers on a form upon their arrival in the country, the Homeland Security official said. The information includes basic data such as name, date of birth and passport number.
"It's a 21st-century version of the 20th-century paper version that exists today," the official said. "We're not asking for new information.We're just getting it earlier."

The department for years has sought to tighten its visa-waiver program, and some Capitol Hill lawmakers have proposed shutting it down because of concerns that would-be terrorists will fly in from one of the 27 countries, especially because Islamic extremism has taken hold in Britain. Other countries in the program include Singapore, Japan and Australia.


EU's unfair duty classification issue, Japan bring the case to WTO

According to the press release by METI on May 28, 2008, Japan bring the case to WTO together with US.

EU have been imposed high duty to foreign IT products which is considered to be zero duty based on WTO・ITA (Information Technology Agreement). This is significantly unfavorable issue for Japanese companies who do business in EU. These high duty by EU is against WTO agreement, and US Government have also same view as Japan's.

EU have zero duty to IT products such as computer, its peripherals, semiconductor, etc. These IT products should be zero duty based on WTO・ITA.
On the other hand, EU have imposed high duty to electrical appliances such as TV and Video, which are out of scope of WTO・ITA.
In recent years, EU have imposed duty to multifunction IT products, which they consider out of focus of ITA.

Targeted Products
EU have imposed below duty rate as below, but Japan insist they are IT products and should be zero duty:

  1. Multifunction printer: 6% (same as copy machine)
    Japan's view: Multifunction printer is essentially printer/fax. Copy function is just supplemental, therefore it should be classified as IT products and zero duty.

  2. Computer Monitor with DVI terminal: 14% (same as TV)
    Japan's view: Even with DVI terminal and possible to be used as TV, the original main function is for computer monitor, therefore it should be classified as computer monitor.

  3. Set Top Box: 13.9% (same as video machine)
    Japan's view: Set Top Box with HDD satisfy the product characteristic of Set Top Box, therefore it should not be classified as Video machine.

Japan and US regard these products should be zero duty based on ITA, and EU's classification as arbitrary interpretation. With such unfair treatment by EU, Japanese IT industries have been damaged with duty payment which is normally NOT necessary.
Japan requested with US Government to WTO to treat this case with dispute settlement procedure.

(Source: METI web site http://www.meti.go.jp/press/20080529001/20080529001.html)


Mandatory Automated Export System Filing for All Shipments Requiring Shipper’s Export Declaration Information

The U.S. Census Bureau(Census Bureau) issues this final rule to amend its regulations to implement provisions in the Foreign Relations Authorization Act.
Specifically, the Census Bureau is requiring mandatory filing of export information through the Automated Export System (AES) or through AESDirect for all shipments where a Shipper’s Export Declaration(SED) is required.

Effective Date: This rule is effective July 2, 2008.

Implementation Date: The CensusBureau will implement provisions of this rule on September 30, 2008. This will allow all affected entities sufficient time to come into compliance with this rule.

(Source: Federal Register / Vol. 73, No. 106 / Monday, June 2, 2008 / Rules and Regulations)


AJCEP coming soon!

AJCEP, its official name is "Agreement on Comprehensive Economic Partnership among Japan and Member States of the Association of Southeast Asian Nations". It is agreement with 11 countries in ASEAN.

Outline of AJCEP
ASEAN is indeed quite an important trade parter for Japan. For ASEAN, Japan is the second biggest trade counter part, the position is the next to US. From April 2005, the negotiation of Japan-ASEAN EPA started, and reached its agreement on November 2007. The signing is also completed in April 2008 with total 11 countries in ASEAN. After necessary procedure of ratification in each country, this agreement will be effective, hopefully within 2008.
ASEAN already have FTA with China (ACFTA) and Korea (AKFTA), so this AJCEP will be great help to Japanese companies to compete with Chinese and Korean companies.

What will be changed in trade?
For Japan, the duty will be eliminated for 93% of trade amount within 10 years, and will reduce duty to certain low level for other products. For Brunei, Indonesia, Malaysia, Phillippine, Singapore, and Thailand, they will eliminate duty for 90% of both trade amount and number of items. As for Cambodia, Laos, Myanmar, and Vietnam, they will also reduce or eliminate of duty within 15 to 18 years time line.
Each 11 countries have each Concessions and the schedule is based on HS2002. For details of each countries' Concessions and note, please find in Annex 1 of below web site of MOFA.

Specifically for Japan's attitude to Concessions, although most of industrial products will be in zero duty rate, sensitive food and agricultural products are still protected and out of focus in this agreement such as rice, meat, dairy goods, etc. This attitude is consistent to other FTA of Japan. For ASEAN's import (export from Japan), the trade amount of 91% will have zero duty within 10 years. For example as typical cases, duty of flat TV and its module will be eliminated in seven of ASEAN countries.

Accumulation country or origing rule
The most significant essence in AJCEP is the merit of country of origin rule, Accumulation.
(Accumulation rule is, if a product is manufactured in country A, the raw material from country B used for the production is also regarded as country A's origin.)
Japan will be able to use more flexible accumulation rule for country of origin, and this will enable supply chain to enjoy reduced duty in ASEAN.
For example in flat panel TV's case, currently it has been like this. Japan will export essential panel part to Thailand, and the manufacture assemble the flat TV in the factory there, but the panel part is very expensive and consists more than 40% of value in Finished Products. In such as case, the flat TV is not regarded as Thailand origin because the additional value must be more than 40% in order to be regarded as Thailand origin. So, if the flat TV is exported from Thailand to some other ASEAN countries, they are NOT applied to AFTA duty rate, but to MFN (Most Favor ate Nation) rate. (Generally, the duty rate is higher in MFN, and AFTA is cheaper.)
After AJCEP, this will be changed. By using Accumulation rule, the flat TV will be regarded as Thailand origin, even if the value level is unchanged, and will be applied to cheaper duty rate or free in AFTA. This will enable supply chain planning more flexible and can save cost. Also the manufacturing planning in the region can be easier than before.

Bilateral EPA and AJCEP
Japan have bilateral EPA with Singapore, Malaysia, Thailand etc. What is the mutual relations with such bilateral EPA and AJCEP? Actually, no relation and no legally superiority. AJCEP and bilateral FTA is completely different another agreement. That means, the importer can select which rule (bilateral EPA or AJCEP) they apply. The Certificate of Origin form is different, so the importer and exporter need to select which rule they use beforehand. Generally, bilateral EPA have more attractive duty rate, for example, the banana's import to Japan, bilateral EPA with Philippine offer cheaper duty rate than AJCEP. That is because bilateral EPA reflect more through government attitude in the negotiation to be beneficial to own country than group negotiation.

How soon the AJCEP will be effective?
In Japan, the Diet need to approve for ratification. It will enter into force on the first day of the following month after the date of notification made by Japan and at least one ASEAN Member State. In the latest estimation, the Diet is in session now until June 15th in Japan. If it is approved in this session, and one of the ASEAN countries noticed as approve, the fastest will be 1st August. However, it is estimated as rather tough schedule.