International Trade Law News

Published by Jacobson Burton Kelley PLLC

The long-running saga over the illegal sale of water purification resins to Cuba has finally come to an end. Stefan E. Brodie, president of Bala Cynwyd, Pennsylvania-based of Bro-Tech Corp., which trades under the name "The Purolite Company" pleaded guilty on Friday for engaging in illegal trade with Cuba. Under the plea agreement, Brodie plead guilty to a single charge relating to the payment of travel expenses for Bro-Tech's sales manager to travel to Cuba in the mid-1990s. Brodie was fined $10,000 and sentenced to one year of probation.

Brodie's plea agreement brought to an end a lengthy and convoluted case that began in October 2000 when the U.S. Attorney for the Eastern District of Pennsylvania indicted Bro-Tech Corp. of making illegal sales of ion exchange resins to Cuba. Ion exchange resins are used for water and waste water treatment. Also indicted at that time were Stefan Brodie, the company's co-owner, president and CEO, Stefan's brother Don Brodie, the company's co-owner and executive vice-president and James Sabzali, a Canadian citizen and the company's sales manager and director of marketing. The company and individuals were indicted on one count of conspiracy to violate the provisions of the Trading with the Enemy Act of 1917 ("TWEA") and the Cuban Assets Control Regulations ("CACRs") and 75 counts of substantive violations of TWEA and the CACRs.See Forbidden Trade, The U.S. Hard Line on Exports to Cuba (The Export Practitioner Nov. 2002).

The indictments alleged that during much of the 1990s, Bro-Tech sold ion exchange resins to Cuba through intermediary companies in Canada, Mexico and Europe. The indictment also alleged that several U.S. based employees of Bro-Tech were aware of and facilitated such sales and that several Canadian Bro-Tech employees, including James Sabzali, were reimbursed for their business-related travel to Cuba by staff located in the company's Pennsylvania headquarters. During the three-week trial held in Philadelphia before Federal District Judge Mary A. McLaughlin in 2002, the prosecution and defense focused on whether the defendants had "knowingly" and "willingly" violated the provisions of U.S. law that prohibits U.S. persons from engaging in or facilitating the unlicensed sales of goods to Cuba.

The jury agreed with much of the government's case and convicted Bro-Tech of 45 counts of violating TWEA, Sabzali of 21 counts, Donald Brodie of 34 counts and Stefan Brodie of one count of conspiracy to violate TWEA. Sabzali's convictions were on counts relating to his role in certain sales to Cuba and his approval of reimbursements to a Canadian salesman for travel expenses to, from, and within Cuba. Donald Brodie's convictions arose from his "causing" and "approving" certain Cuban sales, and reimbursing employees for travel to Cuba, while in the United States.

As detailed in New Trials Ordered for Defendants Convicted for Illegal Sales to Cuba (The Export Practitioner August 2003), the trial judge granted all four defendants a new trial on the ground that the government had made certain improper and inflammatory comments and argument during its opening and closing statements which prejudiced the jury. The U.S. Government subsequently entered into a plea bargain with three of the defendants. Don Brodie pleaded guilty to one count of the indictment (involving his approval of expenditures in the amount of $4,187 for Mr. Sabzali's Cuba-related travel) and was sentenced to one year probation and fined $10,000. The Bro-Tech Corporation also pleaded guilty to one count, and was fined $250,000. Mr. Sabzali pleaded guilty to a superceding information charging a violation of 18 U.S.C. section 2 (aiding and abetting) and 18 U.S.C. section 545 (smuggling goods into the United States), and was sentenced to one year probation and fined $10,000.

Meanwhile, the U.S. government appealed the trial judge's decision to grant Stefan Brodie's motion for judgment of acquittal to the U.S. Court of Appeals for the Third Circuit. After reviewing the evidence presented during the trial in detail, in April 2005 the Third Circuit reinstated Stefan Brodie's conviction. Among other things, the Third Circuit stated in its opinion that "we are satisfied that a reasonable jury could conclude beyond a reasonable doubt that [Brodie] had actual knowledge of the law violated, the facts constituting the offense and the illicit purpose of the conspiracy" and that the evidence presented during the trial "paint[ed] a convincing picture of [Brodie] as a company president who deliberately stuck his head in the sand regarding the involvement of the U.S. entity in the prohibited transactions."

On Friday, July 29, 2005, the Treasury Department issued the following announcement:

"The U.S. Department of the Treasury today confirmed that under the Cuban Assets Control Regulations, U.S. sellers or their agents are permitted to settle accounts for overpayment by the buyer, in accordance with standard shipping tolerances.

Treasury also confirmed that under cash in advance, goods may be shipped once the seller or the seller's agent receives payment from Cuba. The agent may be anyone legally designated by the seller to receive payment for the seller's goods, including a third country financial institution. This confirms to exporters that the above-mentioned practices are presently permissible under existing regulations. For more information on the February 22, 2005 clarification of cash in advance, please visit: http://www.treasury.gov/press/releases/js2268.htm."

Following Treasury's announcement, Senator Max Baucus (D-MT) agreed to remove his hold on the confirmation of several senior Treasury Department nominees. Baucus announced in December 2004 that he would block Treasury Department nominations "until [the Cuba cash-in-advance payment issue] gets resolved." Baucus issued a statement following Treasury's announcementindicating that "this kind of transaction is far from ideal" and "sales will still be lost." But given the burdensome retractions imposed by Treasury and the resultingplummet in agricultural sales to Cuba, something had to be done."

U.S. Customs and Border Protection (CBP) has issued a document providing various e-mail addresses and telephone numbers to assisit importers and brokers with questions about the Automated Commercial Environment (ACE). The "ACE Resource Contact Guide" can be found at CBP's web site at the following link:
www.cbp.gov/linkhandler/cgov/toolbox/about/modernization/
ace_resource_guide.ctt/ace_resource_guide.doc
.

Bloomberg today published a comprehensive overview on the gathering storm over the Bureau of Industry and Security's (BIS) plan to impose new restrictions on the export of civilian products and technology to China that can be used for military purposes. BIS is expected to issue proposed regulations on this subject later this year.

By a vote of 217-215, the House of Representatives early this morning narrowly passed H.R. 3045, the implementing legislation for the Dominican Republic-Central America-United States Free Trade Agreement (DR-CAFTA). The vote lasted more than one hour as the House leadership rounded up votes. The USTR's statement on the vote can be found here. The Senate approved DR-CAFTA last month 54-45, and it now goes to the president for his signature.

Tonight the House of Representatives began two hours of debate on H.R. 3045 the implementing legislation for the Dominican Republic-Central America-United States Free Trade Agreement (DR-CAFTA). The vote is expected to be very close, but the House leadership predicts that they will have enough votes to pass the measure. The Senate approved the DR-CAFTA implementing legislation last month by a vote of 54-45.

Following yesterday's defeat of the U.S. Trade Rights Enforcement Act on the suspension calendar, the U.S. House of Representatives reconsidered the measure under the normal rules where only a simple majority was required. After one hour of debate the bill passed by a vote of 255 - 168. Among other things, the bill would apply the U.S. countervailing duty law to exports from China and other non-market economies.

There are no significant international trade-related notices in today's Federal Register.

Today the U.S. Senate held two important sanctions-related votes on amendments offered during consideration of S.1042, the National Defense Authorization Act for Fiscal Year 2006.

Senator Frank Lautenberg (D-N J) reintroduced his amendment (SA 1351) to apply U.S. sanctions to foreign subsidiaries of U.S. companies, a provision that was twice defeated by narrow margins in the last session of Congress. Because the State Department had expressed strong concerns about the effect such an extraterritorial extension of U.S. law, Senator Susan Collins (R-ME) offered an alternative to the Lautenberg amendment (SA 1377) that would penalize individuals or entities that "avoid or evade" U.S. sanctions "if they are "subject to the jurisdiction of the United States."

The Collins Amendment would prohibit any action by a U.S. firm that would avoid or evade U.S. sanctions. Second, the Collins Amendment would prohibit U.S. companies from "approving, facilitating or financing" actions that would violate U.S. sanctions laws if undertaken by a U.S. firm. This would prohibit any involvement by a U.S. parent firm with an existing subsidiary that was engaged in a transaction that violated the International Emergency Economic Powers Act. In order to comply with the law, the U.S. parent firm would need to be totally passive in any transaction. Third, the Collins Amendment would increase the maximum civil penalties for violating sanctions from $10,000 to $250,000 per violation and increase the criminal penalties to $500,000 for "willful" violations. Finally, the Collins Amendment would provide explicit subpoena authority to the government to obtain records related to the prohibited transactions.

Upon consideration of the two amendments, the Senate passed the Collins Amendment by a by a vote of 98-0. Shortly thereafter, the Senate rejected the Lautenberg Amendment by a vote of 47-51.

After the vote, Senator Lautenberg issued a strongly worded press release denouncing the defeat of his amendment.

The U.S. House of Representatives today failed to pass H.R. 3283, the U.S. Trade Rights Enforcement Act, legislation that includes a number of U.S.-China trade-related provisions. House leaders tried to pass the measure using the suspension of rules procedure, which is normally used for noncontroversial measures. However, the final vote of 240 in favor and 186 against was not enough to achieve the two-thirds vote required under the suspension calendar. House Ways and Means Committee Chairman Bill Thomas (R-CA) indicated that the bill could be brought to the House floor again tomorrow on the regular calendar, where it will only need a majority to win approval.

The House Ways and Means Subcommittee on Trade announced yesterday is requesting written public comments on the numerous miscellaneous duty suspension and reduction bills that have been introduced in the House. The deadline for the public to submit written comments to the Committee is Friday, September 2, 2005. After the comment period, the Subcommittee will review all comments and determine which bills should be included in a miscellaneous trade package. The Subcommittee will consider the extent to which the bills create a revenue loss, operate retroactively, attract controversy, or are not administrable.

The Commerce Department today published in the Federal Register the notice of initiation of an antidumping investigation on Metal Calendar Slides from Japan. The petition was filed on June 29, 2005 by Stuebing Automatic Machine Company.

The Bureau of Industry and Security (BIS) today published in the Federal Register a "fix-it" rule correcting two errors in the July 15, 2005 (70 Fed. Reg. 41,094) final rule to implement changes to the Export Administration Regulations resulting from the 2004 Wassenaar Arrangement Plenary Meeting. Today's notice corrects a typographical error in Export Control Classification Number (ECCN) 3A002 and corrects a statement of the license requirements for deemed export license applications found in the Background section of the July 15 final rule.

The U.S. House of Representatives is expected to vote tomorrow (Tuesday) on H.R. 3283, the U.S. Trade Rights Enforcement Act, a bill that includes a number of U.S.-China trade-related provisions. Among other things, H.R. 3283 would:

--Authorize the application of the U.S. countervailing duty law to exports from non-market economies(including China);

--Suspend for three years the requirement that the Commerce Department direct Customs and Border Protection to allow, at the option of the importer of such merchandise, the posting, until completion of the review, of a bond or security in lieu of a cash deposit for each entry of the subject merchandise;

--Require the U.S. Trade Representative and the Secretary of Commerce to ensure that specified steps are taken by the PRC to ensure its compliance with its international trade obligations regarding: (1) intellectual property rights; (2) access for exports of U.S. goods, services, and agriculture; and (3) a required detailed accounting of its subsidies to the World Trade Organization (WTO) by the end of 2005;

--Require the Secretary of the Treasury to report to specified congressional committees on: (1) the definition of currency manipulation; (2) actions of foreign countries that will be considered to be such; and (3) how statutory provisions addressing it by U.S. trading partners contained in, and relating to, the Bretton Woods Agreements Act and the Exchange Rates and International Economic Policy Coordination Act of 1988 can be better clarified administratively to provide for improved and more predictable evaluation;

--Require the U.S. International Trade Commission to study and report on trade and economic relations between the United States and China.

U.S. Trade Representative Rob Portman today held a press conference and issued a press release announcing that Representatives Spencer Bachus of Alabama, Bob Inglis of South Carolina and Mike Rogers of Alabama will support the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA). The House is expected to vote on H.R. 3045, the Dominican Republic-Central America-United States Free Trade Agreement Implementation Act, later this week.

Last week was an expensive one for Ford Motor Company as the U.S. Court of International Trade (CIT) issued two decisions that led to the imposition of more than $20 million in penalties on the company for violating U.S. customs laws.

In U.S. v. Ford Motor Co., Slip Op. 05-86 (July 20, 2005), Customs and Border Protection ("Customs") sought collection of a civil penalty and customs duties concerning entries of automotive dies made by Ford in 1989. Customs claimed that Ford committed fraud, or was grossly negligent or negligent by making material false statements and/or omissions in connection with the entry of the merchandise at issue. Customs sought $184,495 in unpaid duties from Ford. In addition Customs asked the CIT to impose civil penalties in the amount of $21,314,111 if Ford’s conduct was found to be fraudulent; $3,497,080 if Ford was grossly negligent; or $1,748,540 if Ford was negligent. Ford responded by claiming that the merchandise at issue was entered at the value known at the time of entry and thus the company did not violate any customs laws. Ford also counterclaimed that it was entitled to recoup any overpayment in duties it had tendered.

Senior Judge Tsoucalas disagreed with Ford and held that the company's conduct was grossly negligent in its entry of the merchandise since it had failed to include the engineering changes in price of the dies that it imported and failed to notify Customs that the price listed on the entry documents was not the full and final price of the dies through its provisional value policy. The Court also stated that Ford had demonstrated "a reckless disregard for its Customs obligations." As a result, the Court ordered Ford to pay $184,495 for unpaid duties and assessed a penalty of $3,000,000, plus interest.

In U.S. v. Ford Motor Co., Slip Op. 05-87 (July 21, 2005), Customs sought collection of a civil penalty and customs duties from Ford for entries of vehicles and vehicle components made between 1987 and 1992. Customs alleged that Ford was grossly negligent or negligent in making false statements or omissions in connection with the entry of the merchandise and sought civil penalties in the amount of $34,576,559 if Ford's conduct was found to be grossly negligent or $17,288,279 if such conduct was found to be negligent. Customs also requested the CIT to award it $68,178 for unpaid duties. Ford filed a counterclaime for a refund of all or part of the $8,575,961.80 it tendered for duties in connection with this matter plus interest.

After reviewing the evidence, Judge Tsoucalas found that Ford negligently violated various provisions of U.S. law by failing to advise Customs that the transaction values in the entry documents were not final. The judge also found that Ford violated U.S. law by failing to adhere to the requirements of the Reconciliation Agreement of reporting lump sum payments. As a result, Judge Tsoucalas assessed a civil penalty against Ford in the amount of $17,151,923.60, plus interest from the date of judgment. He also denied Customs' request for $68,178 for unpaid duties and dismissed Ford's counterclaim.

In a prospectus filed on July 20, 2005 with the U.S. Securities and Exchange Commission, Royal Dutch Shell PLC said that the company's investments in Iran and Syria could result in the imposition of sanctions by the U.S. government. The following is the language included in the prospectus:

"The Group currently has investments in Iran and Syria. U.S. law currently imposes economic sanctions with the objective of denying certain countries, including Iran and Syria, the ability to support state-sponsored terrorism. In the case of both countries, there are prohibitions on certain activities and transactions and penalties for violation of these prohibitions include criminal and civil fines and imprisonment. In addition, in the case of Iran, U.S. legislation includes a limit of $20 million in any twelve-month period on certain investments knowingly made in that country and authorizes the imposition of sanctions (from a list that includes denial of financings by the U.S. export-import bank, denial of certain export licenses, denial of certain government contracts and limits on loans or credits from U.S. financial institutions). However, compliance with this investment limit by European companies is prohibited by Council Regulation No. 2271/96 adopted by the Council of the European Union, so that the statutes conflict with each other in certain respects. The Group has exceeded and expects to exceed in the future the U.S. imposed investment limits in Iran. While the Group seeks to comply with applicable legal requirements in its dealings in Iran and Syria, it is possible that the Group or persons employed by the Group could be found to be subject to sanctions or other penalties under this legislation in connection with their activities in Iran and Syria. Considering both the likelihood of the imposition of sanctions on the Group and the possible effects thereof, the Group does not believe that there will be a material negative effect on its results of operations or financial condition resulting from its investments and activities in Iran and Syria."

U.S. importers are reminded that they have until August 1, 2005 to apply for 2005 Byrd Amendment payments. This will be the first time that shrimpers and shrimp processors are eligible for Byrd Amendment funds from the antidumping investigation on shrimp from six countries. The Consuming Industries Trade Action Coalition (CITAC) estimates that the annual payouts under the Byrd Amendment to the petitioners in the shrimp antidumping case will be approximately $180 million or nearly $829,493 per petitioner.

The House International Relations Subcommittee on Oversight and Investigations and Subcommittee on the Middle East and Central Asia will hold a joint hearing on Syria and the United Nations Oil-for-Food Program at 10:30 a.m. on July 27, 2005 in Room 2172 of the Rayburn House Office Building.

The House International Relations Subcommittee on Oversight and Investigations will also hold a hearing entitled "Chinese AK-47s and Iraqi Security Forces: A Procurement Case Study" at 1:30 p.m. on July 28, 2005 in room 2255 of the Rayburn House Office Building. The witnesses for this hearing have not yet been announced.

The U.S. International Trade Commission has released the 2004 version of "Shifts in U.S. Merchandise Trade", an annual compendium of data and analysis examining changes in trade with key U.S. partners and in crucial U.S. industries. The ITC publication, which was released in a web-based format at www.usitc.gov/tradeshifts/default.htm, contains a review of U.S. trade performance in 2004, focusing on changes in U.S. exports, imports and trade balances of key natural resource, agricultural and manufacturing industries. The publication also provides information on changes in U.S. trade with major partners and groups. Also available are profiles of the U.S. industry and market for over 250 industry/commodity groups and subgroups, offering data for 2000-2004 on consumption, production, employment, and trade.

In a speech to the Hispanic Alliance for Free Trade at the Organization of American States headquarters building in Washington, DC, President Bush yesterday called on the U.S. House of Representatives to pass the Central American – Dominican Republic Free Trade Agreement (CAFTA) next week. The House leadership expects to hold a vote on CAFTA during the middle of next week, but is still rounding up votes.

Effective July 15, 2005, U.S. Customs and Border Protection (CBP) has implemented an online Customs-Trade Partnership Against Terrorism (C-TPAT) application process for all C-TPAT membership enrollment categories. Companies must now apply for C-TPAT membership via the online C-TPAT application process at https://apps.cbp.gov/ctpat/. C-TPAT will not accept paper membership applications postmarked after July 15th, 2005.

The Bureau of Industry and Security (BIS) published in today's Federal Register a request for comments on the economic impact of the Chemical Weapons Convention Regulations (CWCR) on small business entities. Comments must be submitted to BIS by August 22, 2005.

The Bureau of Industry and Security (BIS) today published in the Federal Register a final rule to make nuclear grade graphite intended for non-nuclear end uses subject to the Export Administration Regulations (EAR) licensing jurisdiction. The final rule also imposes a license requirement for exports and reexports to destinations of concern for nuclear proliferation reasons. The Nuclear Regulatory Commission (NRC) announced the discontinuance of its jurisdictional authority for these items in a corresponding final rule also published in today's Federal Register. BIS stated that this transfer of jurisdiction and the imposition of license requirements to destinations of concern for nuclear proliferation reasons are intended to remove the licensing burden on exporters of nuclear grade graphite intended for non-nuclear end uses to most destinations. Although there is no formal comment period, BIS indicated that public comments on this regulation are welcome on a continuing basis.

On the same day that China abandoned its 11-year-old peg of the yuan to the U.S. dollar, Senator Susan Collins (D-ME) today introduced the "United States Trade Rights Enforcement Act," legislation that would provide the U.S. government with "tools to help ensure that China engages in fair trade." Senator Collins's bill is the Senate companion to H.R. 3283 that was recently introduced in the House by Representative Phil English (R-PA).

Collins' legislation, which has not yet been assigned a bill number, includes the language of the Stopping Overseas Subsidies (SOS) Act, which would authorizes the application of the U.S. countervailing duty law to exports from non-market economies such as China and the following other provisions: