While Japan’s government policy is changed accordingly, the export related law and regulations such as Foreign Export and Foreign Trade Law and following Orders and Notifications are not expected to be amended. The basic policy to authorize export license of military items continue to be denial, and only for exceptional cases such as co-development of arms with U.S. and allies, the license may be granted with strict end-use review by Ministry of Economy, Trade and Industry (“METI”) which is export licensing government authority in Japan. In order to prevent proliferation and diversion risk to concerned countries, very strict license review by METI is likely to be conducted. From trader’s point of view, relax of prohibiting export of military item is likely to be limited effect only to the government involved transactions.
(Resource - Japanese: http://www.kantei.go.jp/jp/tyokan/noda/20111227DANWA.pdf )
(Resource - English: http://www.kantei.go.jp/foreign/noda/topics/201112/20111227DANWA_e.pdf )
On Dec 19, Tokyo District Court sentenced as illegal that Tokyo Institute of Technology ("TIT" or locally called "Tokyo Koudai") rejected the admission of Iranian national to TIT's nuclear reactor engineering research center because of concern in nuclear related technology transfer to Iran.
Tokyo District Court mentioned TIT's refusal of the entrance is "against Constitution and discriminating treatment to nationality".
For export control professional, this is dilemma and very touchy issue, technology transfer concern vs nationality discrimination. From TIT's point of view, nuclear related technology education to Iranian national may lead to violation of FEFTL and TIT insist "to prevent nuclear proliferation concern, we follow UNSCR".
Above is university's case, but industry increasingly try to hire foreign nationals than ever, nationality and export control is sensitive issue, as this court case shows.
This is the second update of this year following September 1st, 2011.
METI added 18 Iranian entities, and 2 entities in UAE, making it total 374 entities. This is to reflect UNSCR 1929 which is against Iran's missile and WMD activities.
Unique point is the entity of UAE have never been in this list. Below UAE entities are first UAE entities in this list.
- Modern Technologies FZC (MTFZC)
- Qualitest FZE
The point of this violation case study is wrong use of low value license exemption. In order to shorten shipment lead time (by skipping the METI license application), the company falsely declared the value of the export items under JYP 50,000. We can know from this article what was the item category number.
I will make more analysis on this case study later.
The company web site who is supposed to make violation is here: http://www.krefine.com/en/guidance/index.html
The news paper report the company exported semiconductor manufacturing equipment with controlled software to China without required export license. It seems (simply my guess from limited news article) the items are likely to be controlled under Category 7 (16) and its related technology of Japanese export control list (or equivalent to Category 3B001 and 3D001 in US ECCN).
Also, the news article imply the goods and technology might be used for development of missile technology in China. If this is true, the case is also the violation of WMD catch-all control.
I find on Intertec's company web site they mainly sell "used" semiconductor equipment. As many of export control professionals know, the classification whether the used equipment is controlled or not is difficult and require special knowledge and skill. This operational challenge may be behind this violation case.
The announcement is available here: http://www.stc.tid.gov.hk/english/circular_pub/2011_stc07.html
I quickly looked through the Annex, which indicates the full details of amendment. I come to know it included the WA's latest list update (in December 2010) in Category 3 and Category 5 part 2, which means in link with US EAR and Japan's export control list.
After Ukraine, former Soviet Union country, joined WTO in May 2008, Russia has been "last big one" of non-WTO country.
The major interest for traders would be how tariff will be reduced.
See below URL, and "Market access for goods — tariff and quota commitments" provide the summary information how tariff will be changed.
In short, this is another important step in US Export Control Reform, following by July 15 proposed rule this year, which was integration of USML Category VII with EAR's Commerce Control List ("CCL").
This time, it is USML Category VIII (aircraft and related items) into CCL, in new ECCN 9A610, 9B610, 9C610, 9D610, and 9E610. The third digit of ECCN ("600 series) are for ex-USML items after incorporated into CCL.
Public comments will be accepted until December 22, 2011.
In Japan, the definition of "Use" is not defined in controlled item's list, but in METI notification called "役務通達 or Ekimu Tsutatsu". Currently, the definition is described as below.
Use is defined as "Operation, installation (including on-site installation), maintenance (inspection), repair, overhaul, refurbishing etc which are stages other than development and manufacturing.
In new notification draft, it will be changed as below, specifically limiting the words:
Use is defined as "Operation, installation (including on-site installation), maintenance (inspection), repair, overhaul, and refurbishing" (Please be noted the 'and' here is not same as the definition of US EAR. Perhaps 'or' may be better in Japan, as all six activities are not necessary to trigger a license requirement. Any one of them is fine to be recognized as sufficient. )
The difference is that the new definition is narrowed by removing "etc., stages other than development and manufacturing". At this point of time, with this phrase, Japan's definition of "Use" tend to be interpreted more broadly and to cover more "use" technology than other countries who follow Wassenaar Arrangement.
This change is to reflect and to follow the Wassenaar's definition which will make Japanese export control practice same as other WA countries.
The schedule when this draft will be in effect is still unknown.
Update: METI officially updated the notification and announced this new definition of "use" is effective on December 26, 2011.
(Source: http://search.e-gov.go.jp/servlet/Public?CLASSNAME=PCMMSTDETAIL&id=595111066 )
The proposed change is to add Libya into restricted country list (UN arms embargo list) under conventional weapon catch-all rule, while removing Sierra Leone from this list
The tentative enforcement date is February 1st, 2012. This proposal is to follow United Nations Security Council Resolution ("UNSCR") 1970 which impose more strict export control of arms to Libya.
As for relax of control to Sierra Leona, it is to follow the UNSCR 1940 which clear the arms embargo to Sierra Leone.
What would be the impact to trader? This change does not affect to license management of WA dual-use controlled items, because this is under conventional weapon catch-all scheme. A trader who export industrial goods (nearly all goods except food or wooden product) to Libya need to conduct end-use screening to check whether the goods are used for development, manufacturing or use of conventional weapon items. (In other words, the end-use screening for conventional weapon to Libya have not been not required so far. Only WMD end-use check.) As for Sierra Leone, the obligation of the above mentioned end-use screening will not be required.
This is to impose more strict end-use control to export operation to Libya, while relaxing it to Sierra Leone. I don't think so many Japanese companies have big business with Sierra Leone, while Libya may be attractive emerging market especially for energy industry.
Japan Customs announced the implementation of mutual recognition with Korea will be in place on Nov. 01, 2011. The procedures how the AEO operations will make use of the benefits in customs declaration can be found in following Customs web site.
The new protocol is expected to promote trade liberalization, and main topics are as follows.
- Further improvement of market accesss conditions related to trade in goods:
- Acceleration of the elimination of tariffs imposed on certain auto parts and paper for ink-jet printers (They will be eliminated in 2012, two years earlier than the original schedule).
- Elimination of tariffs on mandarin oranges and the establishment of tariff rate quotas for apples and green tea.
- Expansion of tariff rate quotas and reductions of in-quota tariffs applied to beef, pork, chicken, orange and orange juice
- Establishment of a tariff rate quota for agave syrup: Fructose syrup from Agave (Negotiations regarding pineapples, durum wheat, cane sugar, etc. will take place in 2014.)
- The application of most-favored nation (MFN) applied tariff rates on particular goods in case these rates are lower than those under the EPA:
- A provision has been added to apply MFN applied tariff rates under the WTO on particular goods in case the MFN rates are lower than the corresponding tariff rates under the EPA.
- Introduction of the Approved Exporter System:
- In order to facilitate procedures for certification of origin, the rules on the Approved Exporter System will be introduced.
This update is not significant change, but slight words addition in order to prevent evasion of the law or abuse in license exception under "publicly available" technology.
The regulation change is the Article 9 (2) (ix) of "Ministerial Ordinance on Trade Relation Invisible Trade, etc." which define various license exceptions of technology transfer. Like any other countries, Japan also define the licence exception of publicly available technology, currently as below.
Article 9 (2)
(ix) transactions through which technology in the public domain is provided or technology is provided to make said technology known to the public, and which fall under any of (a) to (e) below:
As of September 30, 2011, following new additional provision is added and effective immediately.
(Except the transaction which aim to provide specific technology to specific person by making it in public domain)
What does it mean? Well, let me give one example case.
One Japanese company aims to provide license required technology to a foreign company. But, as the license application is troublesome and takes time, they try to make use of the license exception of publicly available technology. For example, a Japanese company upload the licensed technology into their web site (making it publicly available) and the upload time onto the web was actually informed to the partner foreign company beforehand. Just after the foreign company download the specific information, the Japanese company immediately delete the information on their web site.
This transaction was not illegal (but seems evasion of the law), but not any more.
The company name is Shin Toyo Kikai Kogyo Co., Ltd, medium size pump manufacturer, located in Saitama in Kanto region. They allegedly exported pump for chemical use to a company in China. The end-user is Japanese company's subsidiary, which is auto manufacturing and one of subsidiaries of JFE Steel, steel manufacturing giant in Japan.
Not sure what category the chemical pump is classified. My guess is Japanese Category 3 (2) (or US ECCN 2B350). Because the end-use is auto-manufacturing site of Japanese subsidiary, it is not likely this case is violation of WMD catch-all control. (The detail of the product is not disclosed, this is my guess.)
The president of Shin Toyo Kikai Kogyo admit they prioritized lead time and quick delivery, rather than applying export license to METI which they considered time loss. The lead time of export licens by METI is typically about 1 week, but METI tend to require several supporting documents or end-use statement etc., case by case, the preparation of export license require significant time, energy and cost, especially to an exporter who is not familiar with export control system.
However, they will pay much more time loss (and also credibility loss & money loss!) by this violation.
Unfortunately for most of global traders, this FAQ is written only in Japanese and no English translation.
What is written in this FAQ is about the procedure of supporting documents and post-license management in exporting Japanese control item Category 4 (18) - Batch mixers and Continuous mixers - or equivalent to US ECCN 1B117 and 1B118.
In exporting such goods, the export license is required with various supporting documents. The supporting documents include (in case by case) the statement of end-user, factory layout plan where the equipments are installed, the oath of NOT relocating the equipment to another location even in another floor in the same property, etc. etc.
What is written here is guideline of such supporting documents and METI's policy of post-license management. As long as the license applicant follow up to clear the diversion risk and non proliferation concern and report to METI in advance if required so, METI don't prohibit relocation of the equipments.
When I talk with non-Japanese export control specialist, some of them complaint about Japanese METI's extra-territorial control. In principle, Japanese export control law is NOT extra-territorial, but some believe the METI's post-license management is substantially extra-territorial effect. That may be partly true from operator's point of view. Why foreign end-users need to have approval of METI when they relocate the controlled equipments which were exported legally under METI license? In order to mitigate such Japan extra-territorial license management practice, METI try to refine the FAQ by providing much guidance with details. Hope this FAQ is provided in English.
(Resource from below URL - in Japanese.)
Q＆A「６．連続式の混合機関連 別表第1の4の項(8)」 ttp://www.meti.go.jp/policy/anpo/qanda065.html
This list is similar to Entity List of US BIS. The listed entities are considered as have been involved in development, manufacturing, use or storage of weapon of massive destruction ("WMD"). Please be noted this list is not embargo list. Although trader needs to have close attention to WMD proliferation concern when doing trade with listed entities, if it is obviously clear the item is not used for WMD purpose, the trade is not denied. This list have been updated in practice once a year, last update was September 2010.
The new list can be found here: http://www.meti.go.jp/policy/anpo/law_document/tutatu/t08kaisei/110901EUL/t08kaisei_userlist_kohyo.pdf
In total, the number of entities are increased to 354. I didn't closely check the entity name, but most of the increased entities are in Iran and in North Korea. Indian entities are decreased much.
For global traders, what entity is decontolled, especially in India & China, would be point of interest. The entity names which are removed from the list are as follows.
・【India】Armament Research and Development Establishment (ARDE), DRDO
・【India】Bharat Dynamics Ltd. (BDL)
・【India】Indian Rare Earths Ltd. (IRE), DAE
・【India】Liquid Propulsion Systems Centre (LPSC), Indian Space Research Organisation (ISRO)
・【India】Satish Dhawan Space Centre (SDSC), ISRO
・【India】Solid State Physics Laboratory, DRDO
・【India】United Phosphorous Limited
・【China】China Electronic Product Reliability Environmental Testing Research Institute (CEPREI)
Above entity names are no longer in the list as WMD proliferation concerned parties of Japanese METI.
However, for traders who handles US origin items, it is important to note Indian Rare Earths Ltd. (IRE), Department of Atomic Energy, is still listed on Entity List of US EAR. It is encouraged to double check with other restricted parties list issued by US government.
The export Prohibition sanction to First Shokai K.K. is for six months (from August 3, 2011 to February 2, 2012) of all goods to all destinations. This export prohibition is applied also to the transaction by third parties.
First Shokai K.K. exported piano and candies etc to North Korea without METI approval via Dalian in China. I believe export control expert easily understand the difference of export "permission" and export "approval" under Foreign Trade and Foreign Exchange Law ("FEFTL"). Obviously, First Shokai K.K. did not export dual-use items which may contribute to the development, manufacturing, and use of Weapon of Massive Destruction ("WMD"), they exported piano and candies which are luxury goods or commodities.
- Export Permission = for weapon, dual-use goods, non-controlled items under catch-all based on Article 48 (1) of FEFTL. The items list is in Appendix 1 of Export Trade Control Order ("ETCO")
- Export Approval = for luxury goods or commodities, in this particular case, North Korea trade sanction due to UNSCR and Japanese government policy based on Article 48 (3) of FEFTL. The items list is in Appendix 2 (and 2-2) of ETCO.
- Export prohibition sanction in violation of without permission = not more than 3 years based on Article 53 (1) of FEFTL.
- Export (or import) prohibition sanction in violation of without approval = not more than 1 year based on Article 53 (2) of FEFTL.
(Source: http://www.meti.go.jp/press/2011/07/20110728006/20110728006.html )
Update: By the way, apart from METI sanction, it is worth while noticing this violation case is the first criminal prosecution that the offender got imprisonment sentence (1 year and 4 months) without suspended period. This is the first case in the history of export control violation in Japan. In other words, all other export violation cases in Japan have been with suspended sentence.
The tariff concession schedule is available in METI web site as “Annex 1: Schedules in relation to Article 19” which shows preferential tariff rate of applicable item agreed in this EPA. Traders are encouraged to examine whether the HS code of trading goods are covered in this EPA. We would like to give caution some operational aspects in making use of this Japan-India EPA in following points.
Rule of Origin (“ROO”) requirement in General Rule
In verification of eligibility of origin of goods, the Japan-India EPA ROO have General Rule and Product Specific Rules (“PSR”). The goods except those in the PSR list must satisfy the General Rule in order to qualify for the Japan-India EPA preferential tariffs. Under the general rule, the qualification of origin is described as "CTSH (change in HS code at the 6-digit level) and local content of not less than 35%”. The “and” indicates that both criteria must be satisfied for the goods to qualify for preferential tariff. This ROO may be operational challenge for traders, as all other EPAs Japan have implemented have rule of “either” HS code change or local value content percentage.
GSP tariff is no longer available in importing Indian items into Japan
Under the Generalized System of Preferences (“GSP”), GSP preferential tariff has been available to use to Indian origin items in importing into Japan. Upon implementation of Japan-India EPA, basically GSP tariff is not applied to Indian origin items except the case GAP tariff is lower than EPA tariff. Traders who have made use of GSP tariff in trade with India need to take care of the lose of validity of GAP scheme with India upon August 1, 2011. In addition, type of Certificate of Origin (“CO”) is different, GSP require form A, but the Japan-India EPA require the designated CO format called “IJCEPA”. In import declaration in Japan, CO type form A cannot be used for claiming the preferential tariff of EPA.
Other technical notes in Japan-India EPA.
- HS code: HS2007 version
- Third Country Invoice: Available to use. Need to fill in Field 7 and 8 on CO form IJCEPA.
- For the import of the goods which value are under JPY200,000 into Japan, the CO submission to Customs can be exempted in claiming EPA preferential tariff.
As administrative sanction by METI to this trader, export prohibition (both to a company and to a individual who run this company) for One year and one month (from July 27, 2011 through August 26, 2012) is imposed. According to Article 53 of FEFTL, the maximum penalty is for a period of not more than three years. (So, 13 months are not so bad?)
As for criminal penalty, METI already prosecuted Seibukosan in July 2009 in violation of FEFTL, the judgment in Fukuoka District Court was monetary penalty JPY 1,200,000 and the imprisonment for one year and half. (but with suspended sentence for 3 years)
I hear recently lots of FEFTL violations to North Korea. Not only WMD catch-all violation, but Japanese government have embargo stance to North Korea, even export of luxury item or commodity items are basically prohibited. Most of violations are by small companies who seek easy profit without compliance mind.
(Reference source: http://www.meti.go.jp/press/2011/07/20110720003/20110720003.pdf )
Recently I find "Slides for STA 2010" in Malaysia MITI web site. It is presentation material concisely summarizing the STA rule and implementation. Most of information in this slide is not new, but good reference material for briefing how the regulation works.
But I find interesting topics as below which imply the full implementation is practically not on July 1, but will be on August 1. Belows are page number 28 and 29 of the slides. Yes, the rule is from July 1st, but still the customs declaration & online permit application is under trial basis until July 31.
- Effective 1 July 2011, there will be a compulsory field in the K2 and K8 forms (*) to declare whether the products being exported are strategic items or non-strategic items.
(*) These forms are customs declaration forms in exporting out of Malaysia.
- If your product is ticked as strategic item, the system will then prompt for the STA export permit license number to be entered.
- This system will be on a trial period of one month until end of 31 July 2011 and fully enforced on 1 August 2011. (Highlighted by blog author)
ONLINE PERMIT APPLICATIONS
- Effective 1 July 2011 and export permit applications under the STA will go online.
- Every permit application should be accompanied with end-user statements from all end-users that the product is being exported to.
- This system will be on a trial period of one month until end of 31 July 2011 and fully enforced on 1 August 2011. (Highlighted by blog author)
(Sourece: http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_356e3af1-c0a81573-272f272f-b7977e99 )
(source : Times of India local news paper)
As the Nuclear Suppliers Group (NSG) meets for a plenary session in The Hague next week, India said it was opposed to any move to restrict enrichment and reprocessing technology (ENR) by the 45-nation body. This would have the effect of negating the nuclear exemption given to India in September 2008, government sources said.
"We have expressed deep reservations with the move to withhold transfer of ENR technology (to India) which would dilute the whole message of exemption given to us in September 2008," they said. This came even after foreign secretary Nirupama Rao reportedly had a positive meeting with the NSG troika recently, as well as the US' Ellen Tauscher, in charge of non-proliferation and arms control.
However, India is continuing to work on countries to build its case for membership to the NSG. "Our outreach programme is going on. We don't believe the next NSG meeting will decide on India's membership but would like timelines so that a positive decision is there for the four processes," a source said. India wants a "package deal" for membership to all four international non-proliferation bodies -- Wassenaar Arrangement, Australia Group, NSG and MTCR.
This rule is part of the Administration's Export Control Reform Initiative, undertaken as a result of the fundamental review of the U.S. export control system that the President announced in August 2009.
Tariffs on about 99% of total trade will be abolished between the two countries within 10 years after implementation of the EPA. Peru’s import duty on certain industrial items, currently 9% for most of items such as cars, automotive parts, steel products, machinery, and electrical items will be reduced either progressively or immediately to 0% in the 10th year. On the other hand, Japan’s import duties on almost all industrial items will immediately be duty free upon implementation of the EPA. Import duties on some agricultural products will be reduced with tariff quota system or progressively reduced in 10 years, such as pork, chicken, asparagus, and corn. Some of Japan’s sensitive agricultural products are excluded in the duty reduction schedule, such as rice, wheat, and beef.
Compared with most of other EPAs Japan have concluded, the EPA with Peru has practical facilitation measure for traders with regard to origin certification. A Certificate of Origin can be issued by approved exporter’s self-declaration. (Article 58 in Chapter 3 Rules of Origin of the main text of the Agreement) The ordinary certificate of origin issued by designated authority is also available as used to be as other EPAs. Among the EPAs Japan have concluded, this self-declaration method by approved exporter has been adopted first in Japan – Swiss EPA since September 2009. Peru is the second country Japan will introduce self-certification by approved exporter. In addition, among existing EPA, Japan-Mexico EPA will also adopt self-declaration method by amending the Agreement. This self-declaration system helps exporters to minimize administrative cost and lead time in export transaction.
Peru has recently enacted FTAs with the United States, China, Singapore and Canada, and in March 2011, signed an FTA with South Korea, which will reduce tariffs for TVs and certain automobiles once it is implemented. Considering the competition with Korean rivals in electronics and cars industries, the EPA with Peru gives competitive edge to Japanese industries. As for Peru side, they can expect investments from Japan in manufacturing and technological products. Peru have FTAs with the rest of South America and is located in middle of pacific coast of South America. As being in the process of building more ports, airports and highways, Peru may become a hub for Japanese, Korean or Chinese business in South America in future.
MOFA announcement: http://www.mofa.go.jp/announce/announce/2011/5/0530_01.html
Overview of EPA: http://www.meti.go.jp/press/2011/05/20110531002/20110531002-2.pdf
We can already see the amended CCL in web site.
As posted in blog, Japan also updated the control items list to accomodate Wassenaar 2010 list and will implement it on July 02, 2011. This quick change of the list both US and Japan will positively affect both US and Japan exporters. Operational concern for traders are the disparities with other EU list following countries such as Singapore, Malaysia, and Taiwan.
As for AEO operators, 370 companies are registered in Japan such as Toyota or Nippon Express, while Korea has 141 companies. Ministry of Finance expect the trade between Japan and Korea increase in area of steel industry or semiconductor industry.
Japan have had AEO mutual recognition with New Zealand, US. Signed with EU and Canada. On progress with Singapore, China and Malaysia.
This news was officially annoucned on May 20 by MOF press release.
On May 13, 2011, METI announced the list update will be officially issued on May 18, and be forced in place on July 1, 2011. I will analyze the list change after May 18.
(Reference: http://www.meti.go.jp/press/2011/05/20110513001/20110513001.html )
Now, Japanese MOF and Customs jointly announced that Japan-EU AEO mutual recognition will be implemented on May 24, 2011.
AEO trader in Japan will be treated as good compliance trader in EU by informing JPN-EU mutual recognition code to their trade counter part in EU. The benefits would be their goods will go through a so called "green lane" in customs clearance.
Likewise, in order to have mutual recognition benefits in Japan in trade with EU porters, Japanese trader request their JPN-EU mutual recognition code to EU partners, and input the code into NACCS system in customs declaration, will be treated accordingly. The code is 12 digits number like A1B34567NL00.
(Reference: http://www.customs.go.jp/zeikan/seido/aeo/leaflet_23-05.pdf )
My part is page 17 to 21, total 5 pages of article, outlining key elements of Japan's export control summary, such as Legal structure, Reasons for control, Framework of control, License management, ICP, Recent update, and FAQ for traders.
The article can be found here: http://www.bryancavetrade.com/sitebranches/publications/docs/Japan%20-%20Bryan%20Cave.pdf
(reference: www.worldecr.com )
METI announced one interesting statistics to answer this question. It is the number of Certificate of Origin ("CO") in Japan. Please be noted this number shows the FTA utilization in export from Japan, so import into Japan is different.
In March 2011, total 10,305 COs for FTA were issued in Japan. Among them, the top is for Thailand (4,785 issued), and the second is for Indonesia (2,504 issued). The combination of Thailand and Indonesia consists of 71% of FTA COs. Then, following countries are:
3rd: Malaysia (788)
4th: Chile (523)
5th: Mexico (462)
6th: Asean (429)
Although this is the result of the latest one month record, but representing comprehensive picture what FTAs are popularly used for Japanese exporters.
(Reference: http://www.meti.go.jp/policy/trade_policy/epa/file/co_issuance.pdf )
Additional obligation in General Bulk License and new benefit as return exemption in export of dual-use items
The additional obligations are following two points, and only applicable to the export transaction to non-white country only. In other words, if the export transaction under GBL is to white country, there is no new obligations at all.
1. To make sure the possible end-user and final destination is compliant in “stock sales”.
If an export transaction is for “stock sales” which is defined as “no end-user is specified at the time of export” or “movement of goods for inventory accumulation”, the GBL holder needs to make sure the possible end-user name, and to confirm an item will not be re-exported to third country where the GBL does not cover as eligible destination. For example, the exporter under GBL needs to keep in record like, “This item is for that industry, possible end-user would be ABC company in XYZ country”. This is the a kind of diversion risk management so that the item is not re-exported to Iran, North Korea, or Iraq etc., which are non-eligible countries of GBL under stock sales operation. In addition, METI impose to GBL holder that this stock sales screening “should be conducted by designated internal procedure”, therefore GBL holder may need to amend Internal Compliance Program (“ICP”) and relevant operational procedures accordingly. There is no requirement to report this stock sales screening each time of the transaction to government authority, but should be kept in record for anticipated audit by METI
2. If the end-user is military entity or relevant to army, police, or intelligence organization, the report to METI is required in advance to the export transaction.
There has been restriction in GBL if an eligible item is likely to be used for Weapon of Massive Destruction (“WMD”) or conventional weapon purpose, the GBL lose its validity or report to METI is required depending on the destination country and the sensitivity of the situation. In addition to the current restriction, if an end-user is military entity, the report to METI is required before the export transaction as additional requirement.
The amendment of GBL obligation is “carrot and stick” to exporter. As benefit to GBL holder, return shipment in free of charge basis is added as new eligible transaction. Although there has been return export exemption in Japan based on Export Trade Control Order Article 4, but the exemption was limited to an item which was originally exported from Japan, thus could not cover the return of foreign origin item. Now for GBL holder with relevant documents stating the reason of return, the import declaration copy, and Bill of Lading in importing, it is possible to export dual-use items without individual license and without classification of items, as long as it is not arms or weapons.
The additional exemption benefit may not be relevant to all exporters, but new requirements are possibly applicable to all GBL holders, because amendment of ICP and operational procedure may be required according to each exporter’s status, regardless of the frequency of the transaction under GBL. In case an exporter amend ICP, it should be submitted to METI within one month. Also, ICP holder must submit annual compliance “check list” to METI in July every year as obligation. The reporting form of this check list is also updated to reflect this GBL obligation amendment, ICP holder is encouraged to review whether these new obligations are relevant to the export operation.
(Reference: http://www.meti.go.jp/policy/anpo/law09.html#015 )
1. Over-the-counter transactions;
2. Mail order transactions;
3. Electronic transactions; or
4. Telephone call transactions;
b. The cryptographic functionality cannot easily be changed by the user;
c. Designed for installation by the user without further substantial support by the supplier; and
e. When necessary, details of the items are accessible and will be provided, upon request, to the appropriate authority in the exporter's country in order to ascertain compliance with conditions described in paragraphs a. to c. above. (*)
If you closely read the FEFTL, you may find Article 5 define the scope of application of FEFTL, and it gives impression that Japan's FEFTL has extra-territorial provision.
(Scope of Application)
Article 5: This Act shall also apply to acts committed in a foreign state by a representative, agent, employee or other worker of a juridical person having its principal office in Japan in regard to the property or business of the juridical person. The same shall apply to acts committed in a foreign state by a person having his/her domicile in Japan, or an agent, employee or other worker of that person in regard to the property or business of the person.
People may have question, hey, Japan's export control is extra-territorial effect in its implementation?
The answer is mostly No under export control.
The Article 5 provides the exception of the "principle of territorial jurisdiction". FEFTL may be applied to Japanese company's employee or subsidiary overseas regardless of its residency. Because the entity who is under influence of Japanese company and represent its interest should be restricted under the FEFTL for its strict enforcement.
However, in its interpretation and practice in this FEFTL Article 5, it is considered this provision is not applied to export of goods, but only to the transactions with non-resident such as international payment prescribed in Article 16.
Also, it is important to note there is no Order, Ordinance, or Notification regarding re-export of Japan origin goods. Japan don't regulate re-export of items from one foreign country to another foreign country.
What coming to my mind about this FEFTL Article 5 is that Malaysia Strategic Trade Act ("STA") which have extra-territorial clause in the STA. STA Clause 4 is clearly titled as "Extra-territorial application", but it is very short and general, and the re-export (like US EAR) is not in scope of STA. No regulation about re-export is found in Malaysia's export control scheme. I'm wondering Malaysia STA's Clause 4 is just expected similar effect and with intention like Japan's FEFTL Article 5?
Singapore, Malaysia, and Brunei conduct pilot program of ASEAN Self-Certification Scheme since 1st November 2010 for a one year period. It is expected to roll out in all ASEAN member states by 2012.
Trade professionals who have business with EU countries are perhaps familiar with self-certification of origin, as most of EU's FTA have this self-certification system. In Japan's FTA, only Japan-Switzerland FTA adopt this scheme since 2009.
This pilot program is applicable only to intra-ASEAN trade, it means that trader make use of self-certification instead of apply for Form D. Exporter can simply self-declare the country of origin for their goods on the commercial invoice, or if the invoice is not available at the time of export, on a billing statement or delivery order. Currently, 22 certified traders in Singapore participate in this project.
Although the registration to Singapore Customs are required in advance, the exporter can enjoy benefits of self-declaration, e.g. eliminating the Form D application cost which is about S$15, simplifying the administrative operation, and flexible in operational timeline.
(Reference: Singapore Customs News Letter http://www.customs.gov.sg/insync/Issue11/article_5.html )
On April 12, 2011, Office of Foreign Assets Control ("OFAC") in Department of the Treasury announced as a guidance that the sanction to (current) Sudan will continue to be applied, but Southern Sudan will NOT be subject to the sanction. The new state of Southern Sudan will no longer be directly subject to OFAC sanctions.
However, tricky thing is that the guidance indicates that "the sanction will continue to prohibit U.S. persons from dealing in property and interests in property of the Government of Sudan, from performing services that benefit Sudan or the Government of Sudan, from engaging in transactions relating to the petroleum or petrochemical industry in Sudan, and from participating in exports to or imports from the new state that transit through Sudan."
As the map shows, Southern Sudan does not face ocean, surrounded by land boarders, so they have no sea ports for export/import. For international trade with other countries, Southern Sudan may need to rely (current) Sudan in some cases.
Traders should be cautious with this point in interpretation of this OFAC guideline.
(Reference: OFAC guidance http://www.treasury.gov/resource-center/sanctions/Programs/Documents/sudan_secede_guide.pdf )
Japan’s Export Trade Control Order (“ETCO”) have exemption of license requirement in one of the provision in Article 4 for exporting free of charge goods.
“Goods imported without charge for the purpose of export without charge, which are specified by the METI in public notice.” This case is subject to license exemption.
As noted in Article 4, the applicable case is specified in METI notification, such as re-export of repaired or replacement of goods, re-export after the exhibition in Japan, or re-export by ATA Carnet etc.
On March 16, 2011, one additional case was announced in METI notification and implemented immediately upon the announcement. The summary of this additional case is that:
“Re-export of the goods used for nuclear disaster relief by foreign government or international organization after the rescue completed.”
OK, this is great. Nobody have objection under such disaster emergency and appreciate immediate action by METI.
However, it is irony. Actually similar case has been exempted under ETCO Article 4 since long time ago in opposite case for nuclear disaster relief in:
“Goods to be exported without charge for the purpose of import without charge, which are specified by the METI in public notice.”
In notification, this exemption case is stated, in summary like, “Export of goods which are requested by foreign government who suffered nuclear disaster, and being returned & imported into Japan after the rescue complete.”
This means, Japanese government have expected Japan help foreign country in nuclear disaster, but did NOT expect Japan is rescued by foreign government, therefore the such case was not included in the exemption notification.
Now Japan definitely needs the assistance of US and France in Fukushima Dai-Ichi nuclear plant accident, so METI quickly issued new notification after 5 days earthquake happened. This apparently shows the nuclear disaster in Japan and rescue by foreign government was “out of assumption” for METI.
"The BIS supports all efforts for Japan involving items subject to the EAR. However, most shipments of dual-use items extended to Japan do not require a Commerce license. If you plan to export items in support of current relief efforts in Japan and you think that a license may be required, you should contact BIS for guidance. If a license is required, expedited processing may be requested."
Outline of the measure
1. Prohibition of export of all items to North Korea by imposing an approval by METI. (Implying the denial of all approval) - FEFTL Article 48 (3)
2. Prohibition of import of all items from North Korea or originating items of North Korea by imposing an approval by METI (implying the denial of all approval) - FEFTL Article 52.
3. Prohibition of brokering between third country and North Korea (including buy/sell, lease and donation of all items) - FEFTL Article 25 (6).
4. Prohibition of payment for importing goods from North Korea or North Korea origin item (without approval by METI) - FEFTL Article 16 (5).
However, an exemption of above restriction may apply to humanitarian purpose aid. This notice is valid from April 14, 2011 until April 13, 2012 for one year.
Tips for legal professional:
It is important to know the difference between "permission" and "approval" of export license under FEFTL. Here is quick comparison below.
- Permission （許可） is under FEFTL Article 48 (1) which is used for trade control of national security, international peace, or trade of dual-use controlled items, such as NSG, AG, MTCR, and Wassenaar Arrangement.
- Approval （承認） is under FEFTL Article 48 (3) which is used for equilibrium of international balance of trade or for achievement of sound development of foreign trade, such as for CITES Washington Convention or Hazardous wastes under Basel Convention.
The difference of this license type leads to the different window of license application to METI, different procedure, different penalty and sanction in case of violation. As for penalty under FEFTL, the violation "without permission" is much severer than "without approval". For example, the sanction of export prohibition to offender is not more than 3 years for "without permission" of FEETL Article 48 (1), but for offender of "without approval" of Article 48 (3), it is not more than 1 year.
In other words, if a guy sends WA dual-use items illegally to North Korea, it is "without permission".
If a guy sends Gucci handbag to North Korea illegally, it is "without approval" and the penalty is less severe than dual-use items export.
The law prescribe the sanction is for a period of not more than one year, therefore the 1 month sanction is not so severe one. The violation of this individual was to import bird's feather from United States which is restricted under CITES without import approval. (Violation of Article 52 of FEFTL). The bird's feather is in CITES Appendix I, that are threatened with extinction and the trade in wild-caught specimens of these species is illegal (permitted only in exceptional licenced circumstances).
So, why this guy imported the feather into Japan? What purpose? If you search this guy's name in google, you can easily find his profile and web site. He sold the bird's feather as fishing imitation bait through online sales! I'm not so familiar with fishing technique, but the CITES Appendix I bird's feather is worth while violating FEFTL?
(Source: http://www.meti.go.jp/press/2011/04/20110401012/20110401012.html )
The payments and asset transactions to these sanctioned entities are subject to approval by Japanese government. The asset transactions include a contract of deposit, a contract of trust, and money lease contract etc.
The names of additional 5 sanctioned organizations are as follows:
1. Central Bank of Libya
2. Libyan Investment Authority
3. Libyan Foreign Bank
4. Libyan Africa Investment Portfolio
5. Libyan National Oil Corporation
(Source: METI News Release on March 23, 2011 http://www.meti.go.jp/press/20110323010/20110323010.html )
As Japanese government and TEPCO's PR presentation was very poor and not comprehensive, it is natural response that many foreigner left Japan for the time being.
I also had impression from their announcement that it is difficult to get reliable, truthful, concrete information about the situation, true risks, short term and longer term assessments, etc.
Although I'm not scientist, not familiar with nuclear technology, what I learned so far is that radiation level in Tokyo is pretty much safe level, we don't have to be panic, not necessary to rush out of Tokyo to evade from radiation.
First, what we need to understand is the radiation measure unit, what Sievert ("Sv") means, and the difference of micro SV, mille Sv, and Sv.
- Micro Sv x 1,000 = Mille Sv.
- Mille Sv x 1,000 = Sv
So, from what level is harmful to human? It is said as above 200 mille Sv. This means 200K micro Sv.
So far, radiation in east Japan is reported as micro Sv level, e.g. Tokyo Shinjuku area's radiation level as of March 20 is 0.0452 micro Sv per hour. If a guy stands out of building most of a day (10 hours), it means this guy receive 0.452 micro Sv. (But as you imagine, this is unlikely behavior.) As long as TV or news report "micro Sv" level, there is no concern at all in human health. Just for comparison, CT scan health check is 6,900 micro Sv.
Tokyo is 200-300km far from Fukushima Daiichi plant. As IAEA reported recently on their web site, "Tokyo and other areas outside the 30-kilometre zone remain below levels which would require any protective action. In other words, they are not dangerous to human health." IAEA verified Japanese government announcement was not lie.
Also, compared with Hiroshima atomic bomb in 1945, my grandparents and parents lived in a city just 100km away from Hiroshima. Atomic bomb radiation level was estimated as about 30 Sv (please be noted this means 30 millions micro Sv!) in 500meter from the ground zero point. This radiation level leads to immediate death or die within 1 month. But even in this extremely high radiation level, the people living 100km away from Hiroshima, they didn't have any health concern and my parents still live healthy, never suffered from cancer in 70 years time. I know it is not scientific analysis to refer the atomic bomb more than 60 years ago, but this idea personally relieve myself.
- Financial sanction: Frozen assets of Qadhafi and his family and relatives
Based on the Notification issued by Ministry of Foreign Affairs in Japan ("MOFA"), the payment to Qadhafi and his relevant persons is required permission. Asset transactions (including deposit contract, trust contract, and loan contract) are also required permission. The Qadhafi and his relevant persons are listed in http://www.mofa.go.jp/mofaj/press/release/23/3/PDF/0308_01_01.pdf
- Prohibition of import of arms from Libya
By issuing the Notification based on Foreign Exchange and Foreign Trade Law ("FEFTL"), the import of arms originating in Libya and being shipped from Libya are prohibited.
(Source: METI web site http://www.meti.go.jp/press/20110308001/20110308001.pdf )
The list update is to reflect the list change of international regimes, such as Wassenaar Arrangement ("WA") December 2010 list update. For example, in electronics items (3A001) and encryption items (5A002), below are the examples of list change summary which is in line with the WA December 2010 list update.
Category 3 IC chip: Relax of technical parameter in Integrated Circuit Analogue-to-digital and digital-to-analogue converter integrated circuits, Category 3A001.a.5.a. (Please be noted the ordinance is written in Japanese and below ECCN should be converted to Japanese numbering system in its ordinance article 6.)
3.A.1.a.5.a.2. - output rate parameter increased (from current 200 million) to greater than 300 million words per second
3.A.1.a.5.a.3. - output rate parameter increased (from 105 million) to greater than 200 million words per second
3.A.1.a.5.a.4. - output rate parameter increased (from current 10 million) to greater than 125 million words per second
3.A.1.a.5.a.5. - output rate parameter increased (from current 2.5 million) to greater than 20 million words per second
Category 5 part 2 “Information Security”:
Add new exemption provision to 5A002 encryption item (Please be noted the ordinance is written in Japanese and the exemption "J" is written as "ヨ" in its Japanese document.)
j. Equipment, having no functionality specified by 5.A.2.a.2., 5.A.2.a.4., 5.A.2.a.7., or 5.A.2.a.8., where all cryptographic capability specified by 5.A.2.a. meets any of the following:
1. It cannot be used; or
2. It can only be made useable by means of ″cryptographic activation″.
Add new restricted item’s provision as 5A002.b (Please be noted the ordinance is written in Japanese and the 5A002.b is written as Ordinance Article 8, paragraph 1, item 9-2.)
5A002.b: Systems, equipment, application specific "electronic assemblies", modules and integrated circuits, designed or modified to enable an item to achieve or exceed the controlled performance levels for functionality specified by 5A002.a that would not otherwise be enabled.
Above are just examples of changes in IT industries. There are many other changes in most of WA categories, through Category 1 to 9. Traders are encouraged to review the items where applicable. In addition, as Japanese export control list quickly reflect the WA list update, this causes some disparities with other WA list adopted countries and its list update is behind the Japan’s pace. For example, Singapore and Malaysia adopt the EU list and its update follow the EU list, which only reflect WA 2008 version currently. For global traders, even if the item has same technical parameter, the classification result may vary depending on the timing of export control list update in each country.
As the due date of public comment is on April 03, 2011, the new list implementation in Japan is likely to be sometime after couple of months later on after April 2011.
The talk of EPA Japan - India was started in January 2007 and the negotiation was agreed in October 2010. The implementation is expected in sometime in 2011.
One noteworthy point in this JPN-India ETA would be rule of origin. This EPA have both general rule and PSR (Product Specific Rule) in origin rule. In general rule, the qualification of origin is described as, "CTSH (6 digits level change of HS code) AND Value add 35%".
This "AND" is big one, because this means "cover both". I remember Japan - Asean EPA general rule is "either" HS code change or value add.
Japan - India EPA require much more challenging in rule of origin qualification. Actually, Asean - India FTA have same general rule, which is likely to be the request by India side.
(Source: MOFA web site: http://www.mofa.go.jp/region/asia-paci/india/epa201102/index.html
METI web site: http://www.meti.go.jp/policy/trade_policy/epa/html2/2-torikumi3-india.html )
In Japan, the ancillary cryptography has been implemented since April 01, 2010, and in U.S., it has been implemented June 25, 2010.
(Please be noted some countries don't implement yet, such as EU, Singapore and Malaysia (from July 2011).)
How's actual practice in ancillary cryptography in classification work in Japanese companies?
Belows are something I have heard so far.
Ancillary cryptography Note 4 is translated in Tsutatsu （通達）level (Notification level). The legal words are almost same as original English words. As the legal words are short and concise, that makes various interpretations in actual implementation, then some companies are very cautious about applying and removing their items from controlled items of Category 5 part 2.
For example, how Multi Functions Printers ("MFP") should be considered?
Generally, it is considered an ordinal uni-function printer can be exempted from controlled items by applying ancillary cryptography. But MFP have multiple functions such as printing, scanning, faxing, and copying etc. In this case, the suggested practice in Japan is to "review all functions one by one" in ancillary point of view. This means, if all functions (print, scan, fax, and copy) are exempted from ancillary point of view, the MFP can be exempted. However, if any one of functions cannot be exempted in terms of ancillary, the whole MFP should not be applied ancillary exemption.
Other cases I have heard:
IC chip (5A002) embedded with encryption? - Not exempted as ancillary
Internet browser such as IE? - Not exempted as ancillary
Server, PC, VPN, router, network switch, wireless LAN, storage, HDD, - all of them are off course, No, No, and No.
It is generally considered Japanese companies are reluctant to adopt new idea and avoid the risk to be "first" runner. But once some major companies aggressively adopt the new ideas, the rest will follow soon. I'm not so sure this principle apply to implementation of ancillary exemption implementation in classification work, but hope to see more actual cases and discussion in industries and METI.
I don't fully read the details yet, but looks quite fascinating program, including and mixed the concept of AEO, export bulk license (STS), and tax privilege.
One impressive point is that Singapore Customs assign Account Manager to the companies who participate in this program. The Account Manager is Singapore Customs officer and acts as contacting point or adviser, and help to answer various kinds of inquires regardless of its jurisdictions.
Also, the companies' privilege is divided into 5 categories, from Basic (for all traders) to the highest status is Premium. (Basic, Standard, Intermediate, Enhanced, then Premium)
The higher the status, the more the benefits.
Currently, 29 companies in Singapore are in Premium status, they looks like combination of mostly subsidiaries of US or European firm, and local companies.
I'm impressed Singapore Customs' smart and pro-business approach. They fully understand the importance of regional hub role, being competitive in trade facilitation, and drawing business by setting up attractive scheme.
(P.S.: As for export control perspective, I find the STS Handbook was update as of January 25, 2011. The Trade FIRST element was added into this handbook. For example as below.
What are the basic qualifying criteria to be eligible for a permit under the STS?
2.5.1 You have to meet the following basic criteria in order to qualify for a permit under the STS:
(a) You are a registered trader with Singapore Customs; and
(b) In the case of applications for Tier 2 and Tier 3 Permits, you must:
(i) maintain a good trade compliance record with Singapore Customs;
(ii) implement an effective Internal (Export Control) Compliance Programme; and
(iii) Achieve at least the “Enhanced” band under TradeFIRST. (added)
- Remove Indian entities from Entity List
- Remove India from country group D
I took a look Entity List today, and find it has been updated as of January 25, 2011. As for Indian entities, only remaining entities are the following Department of Atomic Energy entities:
Bhabha Atomic Research Center (BARC)
Indira Gandhi Atomic Research Center (IGCAR)
Indian Rare Earths
This means all other entities such as subsidiaries of India’s Defense Research and Development Organization (“DRDO”) and subsidiaries of the Indian Space Research Organization (“ISRO”) are no longer restricted in Entity List.
Other main change is removing from country group D. I took a look Part 740Spir - Supplement No. 1 to Part 740, Country Groups, and find India is in Group A:2 and Group B. This will change the applicable license exceptions.
However, please be noted it is only for export permit application of Category 0 (Nuclear items) which will be exported from April 1st, 2011 onward. Exporters have a period of 3 months preparation of export permit of this category and the application for the export permits must be submitted to the Atomic Energy Licensing Board (AELB) for category 0. Details on the application procedures are available on http://www.aelb.gov.my/ .
(I don't think Malaysia companies have many nuclear related items, though. In other word, it is good grace period in starting phase for improving the procedures in government authorities and industries by evaluating how implementation going on in real operational world.)
The export permit requirement for all other strategic items under the STA i.e., Military
Items and Dual Use Items (Category 1-9), will be enforced on 1st July 2011 and
companies are required to apply for the export permits from 1st April 2011.
Good news for exporters are the controlled items list is finally available on Malaysia MITI web site.
It can be downloaded in MS-Word file. As it was announced previously, the list is in link with EU list. I find their control list is, yes, same as EU list Annex I to Regulation 428/2009. The noteworthy point is that the list have conversion column with HS code, and relevant government authority is indicated in the right side column. I think HS code conversion is useful only for "first time" traders who have no idea of equivalent ECCN of their items. Please be noted export control code and HS code have totally different criteria in classification, HS code should be only for reference purpose to narrow down the possible export code.
Ministry of Finance (“MOF”) in Japan review the rule to what items are applicable to Generalized System of Preferences (“GSP”) tariff, and consequently 462 items of Chinese origin items will be not eligible to GSP tariff. GSP is a system to impose lower import duty to encourage import from developing countries and aim to help their economic development. The new policy by MOF is basically to terminate the GSP tariff to certain items which import amount occupy more than 50% from specific one country or region in consecutive three years. With applying this new policy, many Chinese origin items such as vegetables and variety of consumer items will be in target of the new rule, because import of such items are mostly occupied by China. The import duty rate for such items will increase 2.4% ~ 5.2% by applying MFN rate instead of GSP, and the increased trade cost will affect importers, or will be reflected into retail price in Japan.
MOF plan to amend the Temporary Tariff Measures Law and to implement the new tariff rule from April 2011. As Chinese commodities are gaining competitiveness internationally, it aims to terminate preferential measure to China to help other developing countries. The examples are vegetables from China such as Burdock (HS 0706.90), Matsutake mushroom (HS 0709.59), or consumer items such as Fireworks (HS 3604), Pearls (HS 7116), Fishing rods (HS 9507), or Thermos bottle (HS 9617) etc. All of them have been 0% import duty under GSP, but MFP rate ranges from 2.5% to 5.2%. Other examples are prepared fish such as Mackerel (HS 1604.11) and Eel (HS 1604.19), the GSP duty of them are 7.2%, while MFN rate is 9.6%.
In fiscal year 2009, the 86% of import amount under GSP was occupied by Chinese origin items. The background of this decision is that Chinese products are almost competitive internationally and treated well too much under GSP. system On the other hand, after 462 items are excluded from GSP treatment, still 3090 items are eligible to GSP and most of them are actually imported from China.
The list of HS code of Chinese origin items which will be excluded from GSP on April 2011 is already available in Customs web site. Traders who have business with China and made use of GSP should investigate whether your items are included in the list for assessing the trade cost impact to business in fiscal year 2011.
(Source and list of items: 平成23年度税制改正大綱 内閣府ホームページ)