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PRACTICAL TRADE & CUSTOMS STRATEGIES

September 30, 2012 Volume 1, Number 2

Stepping Back: Bridging Customs Valuation Strategies

By Kristine Price (Ernst & Young LLP) Much attention is often spent by customs professionals considering if, when, and how their companies will need to present documented support to customs authorities of related party transfer prices as qualifying transaction values. As enforcement by both customs and income tax authorities is reportedly increasing worldwide, some countries doing so in an integrated fashion, it is growing ever necessary for customs professionals to recognize inconsistent treatment and to understand the linkages and barriers. Evolving Nature of Customs Authority Positions Interpretations of the WTO Valuation Agreement continue to evolve and vary within and among WTO member countries throughout the world. Publicprivate efforts to leverage or reconcile transfer pricing and custom approaches continue to present a less than clear picture. The World Customs Organization
Customs Valuation, continued on page 5

In This Issue
Corporate Profit Allocation and Customs Valuation
What are the transfer pricing approaches that support the division of profits? What should be considered when determining the best approaches for supporting customs values? Though the application of customs valuation rules may remain vague in the future, customs professionals will nonetheless need knowledge of transfer pricing and corporate profit allocation in order to conduct effective party valuation planning for customs purposes. Page 1

Origin of Anti-dumping Proceedings in the EU

EU Rules of Origin of Anti-dumping Proceedings

By Renato Antonini and Eva Monard (Jones Day) The globalization of production processes creates complexities for accessing the origin of imports. 1 In particular, the concept of origin in trade remedy investigations should be nuanced. The application of trade defense remedies will depend, inter alia, on the origin of the imported products. In addition, in a trade remedy proceeding, an investigating authority must determine who qualifies as a domestic producer. 2 Should the rules of origin play a role in these determinations and, if so, which rules of origin should be applied? Recent developments in the trade defense field in the European Union (EU) illustrate the various ways investigating authorities may address these matters. Imposition of Trade Remedies on Products Originating in a Particular Country In early September, the EU announced its anti-dumping proceeding concerning imports of crystalline silicon photovoltaic modules and key components (i.e. cells and wafers) originating in the Peoples Republic of China. The notice of initiation3 of this proceeding is notable for several reasons. This anti-dumpRules of Origin, continued on page 2 Practical Trade & Customs Strategies

Should the rules of origin play a role in trade remedy proceedings and, if so, which rules of origin should be applied? Recent developments in the trade defense field in the EU illustrate the various ways investigating authorities may address these matters. Page 1

Navigating Global Trade Pressures

The current economic climate poses a challenge to tax authorities who are aggressively pursuing multinational companies on customs and indirect tax positions to meet their revenue collection targets. Page 3

Trademark Protection at the Border

Branding an item does not come easy, and counterfeit insults the work of an IP owner if certain precautions are not taken. A little-known provision of the customs law allows for a greater level of IP protection. Page 14

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ing investigation, according to some, may be the highest valued trade defense investigation carried out by the EU Institutions in history. The launch of the investigation heightened tensions between the EU and China in the field of trade, especially after Chinas numerous warnings about possible retaliation if this case was initiated. Moreover, this is the first notice initiating an anti-dumping investigation against China that no longer includes a reference to the EUs individual treatment regime (which follows the findings of the World Trade Organization (WTO)s Dispute Settlement Body4). Beyond the above concerns, however, we will focus on what sets this case apart from other notices of initiation, namely it references a provision of the EUs Basic Anti-Dumping Regulation5 relating to the rules of origin applicable in antidumping proceedings: The origin of the product under investigation exported from the country concerned will be examined in the light of that and other information gathered in this investigation. If appropriate, special provisions may be adopted, for instance, on the basis of Article 14(3) of the basic Regulation.6

Article 14(3) of the EUs Basic Anti-Dumping Regulation provides for the possibility to adopt [s]pecial provisions, in particular with regard to the common definition of the concept of origin. The EU thus opens the possibility to adopt special rules of origin for determining the origin of products covered by any anti-dumping measures imposed as a result of the investigation. Such rules of origin would differ from the normally applicable non-preferential rules of origin. A similar provision is included in the EUs Basic Anti-Subsidy Regulation7 (Article 24(3)). It is the EUs well-established practice to impose trade defense measures on products originating in (a) particular country/countries.8 The EU, for instance, dismissed a request to impose anti-dumping measures on the basis of the country of provenance, stating that it is the consistent practice of the Community to impose anti-dumping measures solely on products originating in a third country.9 Other users of trade defense measures generally take a similar approach. As a result, identifying the origin of imported products is important in assessing whether the import of such products will be subject to trade defense measures.
Rules of Origin, continued on page 17

Published by WorldTrade Executive, a part of Thomson Reuters

Editorial Staff Publisher: Gary A. Brown, Esq.; Senior Editor: Matthew Nolan (Arent Fox LLP) Development Editor: Linda Zhang; Assistant Editor: Dana Pierce
Renato Antonini (Jones Day-Brussels) Jim Bartlett (Northrop Grumman) Steven Becker (Becker Law Offices) Lisa Crosby (Sidley Austin LLP) Justin Miller (White & Case LLP) Mark Neville (International Trade Counselors) Matthew Nolan (Arent Fox LLP) Suzanne Offerman (Thomson Reuters) Kristine Price (Ernst & Young) Laura Siegel Rabinowitz (Sandler, Travis & Rosenberg)

Practical Trade & Customs Strategies

Advisory Board

Practical Trade & Customs Strategies is published twice monthly, except in August and December, by WorldTrade Executive, a part of Thomson Reuters, P.O. Box 761, Concord, MA 01742 USA, Tel: (978) 287-0391, Fax: (978) 287-0302. Email: jay.stanley@thomsonreuters.com. www.wtexecutive.com. Subscriptions: $600 per year. Unauthorized reproduction in any form, including photocopying, faxing, image scanning, or electronic distribution is prohibited by law. Copyright 2012 by Thomson Reuters/WorldTrade Executive
 Thomson Reuters/WorldTrade Executive September 30, 2012

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Such determination is made on the basis of rules of origin. But which rules of origin? Are these rules of origin identical to the rules that are being applied for other purposes? The principles laid down in the WTO Agreement on Rules of Origin apply to rules of origin used in non-preferential commercial policy instruments, including for the purpose of applying trade defense measures.10 Article 3(a) of the WTO Agreement on Rules of Origin provides that, upon the implementation of the results of the harmonization work program, WTO Members must apply rules of origin equally for all purposes covered by the Agreement. However, currently, the harmonization work program, originally intended to be completed by 1998, still is being developed under the auspices of the World Customs Organization (the WCO Technical Committee) and the WTO (the WTO Committee on Rules of Origin). Thus, the requirement to apply rules of origin equally for all purposes has not yet materialized. Furthermore, if countries managed to obtain a consensus in relation to harmonized rules of origin, it is unclear whether the provision requiring an equal application for all purposes would remain the same. The application of the harmonized rules for all non-preferential purposes, in particular trade remedies, is one of the most contentious issues within the WTO Committee on Rules of Origin. Nevertheless, the EU in principle applies its general non-preferential rules of origin in determining the origin of imported products when assessing whether trade remedy duties are due.11 Practitioners have often forgotten Article 14(3) of the EUs Basic Anti-Dumping Regulation and its corresponding provision in the EUs Basic AntiSubsidy Regulation which allow for the adoption of special rules of origin for the purposes of antidumping measures. The notice of initiation of the solar panels proceeding suggests, however, that this provision might become very well known to most practitioners in the near future. It will be quite interesting to see if, and, eventually to what extent, the EU will divert from its normal non-preferential rules of origin. Any special rules of origin must comply with the requirements laid down in Article 2 of the WTO Agreement on Rules of Origin. If the EU adopts special rules of origin for the imposition of antidumping measures on solar panels, this will likely play a part in the evolution of EU trade remedies law.

Rules of Origin and the Concept of the Domestic Industry Determination of the domestic industry (for the EU, the Union industry) is another field in trade remedy investigations where rules of origin could play a crucial role. A complaint, which requests the initiation of a trade defense investigation, can only be accepted if it has been lodged on behalf of the Union industry. The assessment of the existence of injury, an element that must be present before a decision to impose trade defense duties can be made, is conducted with respect to the domestic industry. In determining whether an investigation can move forward, as well as whether or not injury has occurred, it is necessary to establish who is a domestic producer, or, in other words, which production activities are sufficient to qualify as a domestic producer. It may seem that the rules of origin that would apply to make this determination would be similar to those used to determine the scope of application of the possible measures. However, investigating authorities are reluctant to engage in such practice and tend to make the determination of the domestic industry on rather vague grounds. The WTO Agreement on Rules of Origin allows for this dual-sided approach by providing that the determinations made for the purposes of defining domestic industry or like products of domestic industry or similar terms, wherever they apply, are not covered by the concept of rules of origin. As a result, the WTO Agreement on Rules of Origin does not provide for any obligations in this respect. Also the WTO Anti-Dumping and Anti-Subsidy Regulation do not specify on which basis this assessment should be made, thereby leaving investigating authorities with a fair amount of discretion. In 2010, the EU Institutions initiated an antidumping, an anti-subsidy, and a safeguard proceeding concerning imports of WWAN modems from China. The anti-dumping and anti-subsidy complaints were lodged by one EU company, which was considered to constitute the entire Union production of WWAN modems. Throughout the investigations, several arguments were presented in relation to the status of this complaining company. Several interested parties questioned whether this company could be considered as a Union producer in view of the companys allegedly limited production activities in the EU itself, given the outsourcing of significant parts of its production to China.
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Eventually, the EU company was taken over by one of the Chinese exporting producers and withdrew its complaints. In turn, the investigations were terminated without the EU Institutions taking any position on this line of argument. However, it can be expected that in the near future, other trade remedy investigations by the EU, possibly even those already ongoing, will give rise to similar questions. In such case, it remains to be seen whether the EU will also provide the necessary answers. The interaction between trade remedy investigations and the concept of origin is certainly something to be followed up on in the EU and in other countries that are using the anti-dumping, anti-subsidy, or safeguard instruments. o
1 The views adopted in this article represent the personal opinions of the authors and not the position of Jones Day. 2 Additionally, rules of origin also play a role in assessing whether or not circumvention of trade defense measures is taking place. This aspect will not be addressed in this article. 3 OJ 2012, C 269, 6.9.2012, p.5 4 DS397, European Communities Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China. 5 Council Regulation (EC) No 1225/2009 of 30 November 2009 on protection against dumped imports from countries not members of the European Community. 6 See note 5.

7 Council Regulation (EC) No 597/2009 of 11 June 2009 on protection against subsidized imports from countries not members of the European Community 8 Although a recent judgment of the EUs General Court dismissed the arguments relied upon by the applicant to claim that an anti-dumping investigation cannot be opened against a simple producer, see General Court, Since Hardware (Guangzhou) v Council, case T-156/11, 18 September 2012. 9 See Commission Decision of 28 September 2001 terminating the anti-dumping proceeding concerning imports of colour television receivers originating in Turkey, OJ 2001, L272, p. 37, recital 15. 10 See Article 1.2 of the WTO Agreement on Rules of Origin. 11 The EUs anti-circumvention provisions will not be discussed here.

Renato Antonini (rantonini@jonesday.com) is a Partner and Eva Monard (emonard@jonesday.com) is an Associate in the Brussels office of Jones Day. Mr. Antonini focuses on EU trade and WTO laws relating to trade protection measures and dispute settlements. He has extensive experience in EU and Italian customs and export control law, including tariff classification, customs valuation, dual-use goods, and sanctions. Ms. Monards practice focuses on WTO law and EU trade, export controls, and customs law. She has assisted clients in EU trade defense investigations involving antidumping, anti-subsidy, safeguard, and anti-circumvention issues as well as in a full range of other trade matters. She also has successfully defended clients interests before EU institutions and EU courts.

Trade EU, China Leaders Avoid Protectionism After Trade Rows

By Sebastian Moffett and Kevin Yao (Reuters) European Union and Chinese leaders agreed on Thursday to avoid trade protectionist measures following months of increasing tensions between the global partners with China undertaking to continue to invest in European debt. At a summit in Brussels, the 15th between the worlds largest trading bloc and China, the second largest economy, Premier Wen Jiabao sought to play down a dispute with Europe over Beijings export policies and trade practices.
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We both (China and the European Union) follow free and open economic and trade policies, reject trade protectionism and work to advance economic globalization, Wen told a business conference on the sidelines of the summit. Wen and EU leaders Herman Van Rompuy and Jose Manuel Barroso emphasized the size and interdependence of their relationship which has seen trade double in size over the past eight years.
September 30, 2012