Friday, June 30, 2006

Anti-Boycott Considerations

A reader from Israel sent me an interesting article about the apparent Saudi position on the long-standing Arab League boycott of Israel.

By way of background, U.S. law prohibits U.S. entities from engaging in activity that supports foreign-based boycotts not sanctioned by the United States. The primary objective of these laws is to prohibit compliance with the Arab League boycott, limit tax advantages for persons complying with the boycott, and requires the quarterly reporting of requests for compliance.

The kinds of activities that run afoul of the anti-boycott laws are:
  • Agreements to refuse or actual refusal to do business with or in Israel or with blacklisted companies.
  • Agreements to discriminate or actual discrimination against other persons based on race, religion, sex, national origin or nationality.
  • Agreements to furnish or actual furnishing of information about business relationships with or in Israel or with blacklisted companies.
  • Agreements to furnish or actual furnishing of information about the race, religion, sex, or national origin of another person.
  • Implementing letters of credit containing prohibited boycott terms or conditions.
There are big time penalties for violations including prison time for willful violations.

Coincidental to my receiving the above-referenced article [gee, that sounds lawyerly], the Bureau of Industry and Security published today a proposal relating to boycott compliance and enforcement. The proposed rule attempts to do two things:
  • Formalize the process for making voluntary disclosures of violations
  • Establish factors BIS will use in the mitigation of penalties (one of which will be voluntary dislcosures)
Which brings me back to Saudi Arabia. According to the article, the Saudi Ambassador to the U.S. acknowledged that it is continuing to abide by the boycott with respect to its own primary activities. According to the statement, Saudi Arabia is no longer enforcing the "secondary" and "tertiary" boycotts, which prohibited business with business that had contacts with Israel. This is the kind of thing U.S. companies might see buried in a contract, for example, requiring that the U.S. seller not use an insurance company that does business in Israel. However, the Ambassador reportedly continues, the primary boycott on goods and services originating in Israel continues in force in Saudi Arabia.

This position is apparently in contrast to U.S. understandings of the Saudi position. That understanding was apparently part of the deal for U.S. support for Saudi admission to the WTO. All of which will lead to a round of activity at the White House and USTR to get this clarified. If the Saudi's do not back down, it could get sticky for the administration which has been dogged by a perception of an unusually close relationship with the Saudi royal family.

The politics and economics of boycotts in general are interesting. What we may view as a politically responsible boycott (think the Cuba embargo) is often viewed as a moral or political affront to the next guy. Is the U.S. better off in a geopolitical sense because we make it difficult for the average Cuban to secure the necessities of life? The average Cuban is in worse shape today than in 1990 due to the loss of Soviet funding. Rather than fill that void and show the average Cuban the benefits of free enterprise and democracy, we continue the embargo.

Other boycotts are purely symbolic. Did the U.S. gain some political, economic, or even athletic advantage by boycotting the 1980 Olympics after the Soviets invaded Afghanistan. No, but it was a good opportunity to make a moral stand. Are Catholics accomplishing anything by boycotting the DaVinci Code? Probably not, but they are doing what they think is right.

I am not for a minute defending the Saudi boycott of Israel. It is wrong. The fact that the boycott is morally wrong headed and inherently anti-Semitic is just part of the story. Commercial, cultural, and educational ties between countries and people are what bind the world into peace and stability. We don't fight with Canada and Europe because it would be against our own interests. Creating market skewing separations that don't let individual countries benefit from their comparative advantages will, in the long, run fail. Saudi Arabia has oil, financial services, and other industries. Israel has high-tech entrepreneurs, agriculture, and other advantages. Separating the two countries with a boycott is not, from a purely trade perspective, doing any good.

Wednesday, June 28, 2006

Thwarting Dr. No


Always fighting the last war, CBP has announced a U.S.-Jamaica Declaration of Principals to prevent the smuggling of radioactive and nuclear materials. As everyone of a certain age knows, the British Secret Service took care of this potential problem back in 1962 when an Agent by the name of James Bond foiled a Jamaica-based plot to interfere with American rocket launches. Assisted by CIA-Agent Felix Leiter and in the company of one Honey Rider, Bond succeeded in securing the island and preventing world domination by the evil Dr. No. Many men in matching jumpsuits were found shot to death in a multistory industrial complex conveniently hidden under a volcano.

What's next? Is the government worried that Auric Goldfinger is plotting to irradiate all the gold in Fort Knox? Calling Pussy Galore!

Just to be clear, this remains a NetNanny-safe site. Go ahead, click the link.

On the serious side, the Container Security Initiative and related programs such as this are expanding and covering more foreign ports. That is a good thing and should logically result in a net gain in overall maritime supply chain security. So, to my friends at CBP, remember, I am just kidding.

Tuesday, June 27, 2006

More Celebrity News

Rush Limbaugh has been detained by CBP for carrying Viagra into the US from the Dominican Republic without a prescription. See the news item from Forbes. Rush Limbaugh, the self- important and self-appointed leader of America's shameful brigade of ditto heads was on vacation in the Dominican Republic armed with a supply of Viagra. Apparently, he over estimated his need for what he appears to be treating as yet another recreational drug. Perhaps the female population of the DR has reasonably high standards in men.

Sunday, June 25, 2006

David Pogue, You Better be Right

I have had half a Treo 650 for the past 9 months or so. The keyboard got marinated in a skim latte with sugar. Don't ask; I covered this before. So, I have been stuck mostly with Graffiti to enter text. It has been a major pain. But, I have been unable to purchase a replacement. I did not want to waste $150 to cancel my Sprint contract. But, I could get a new 650 for more than $150 less as a new customer at another carrier. Then, I thought, maybe a Blackberry. They are generally cheaper but I don't like the form factor on some and I really like my Treo. The Motorola Q got my attention for a while, then I played with some phones using Windows Mobile 5.0 and decided I like the Palm OS better.

Finally, Sprint came out with the 700p. The price was enough to give me pause.

Then, I watched David Pogue's video review of the 700p. I like Mr. Pogue. In fact, he is my hero. With the possible exception of CIT Judge, I can't imagine a job more fun than his. My side gig as tech columnist for the Chicago Bar Association's magazine, The Record, is fun. But, it is not the New York Times. I don't have every major and minor tech company begging me to review their latest gizmo. Rather, I beg them to loan me stuff for review. I also don't get to go to trade shows (other than the ABA's Tech Show). I don't work from home. When Jim Coates retires from the Tribune, I am hoping for a call. But, I am not holding my breath.

So, David Pogue. I listened to you and I put my trust in you. I went out and renewed my Sprint contract for two years to get a very small break on a very expensive phone. Tomorrow, I will synch it up with my office computer and, hopefully, be as bowled over as you were.

Sprint, I have a question for you. Why is it that you treat me, a long-term customer in mid-contract, like a pariah? Why do I get the worst possible deal on a new phone? A person walking in off the street would have paid $150 less than me for the same phone. Is there a class action lawyer out there looking into price discrimination in the mobile phone industry? I had a couple crazy options to buy the phone cheaper including creating a new line (which meant giving up my phone number for at least 30 days) or canceling and coming back without a contract (which would net out at no savings). In the end, I felt trapped by my contract with Sprint. I told them so on the phone and in person. No one would budge. I threatened to cancel and get a 700w from Verizon. No one cared. In the end, I did exactly what they knew I would do--I renewed my crazy contract because I need a phone and want this one.

I may be a sap regarding my contract. If so, I have no one to blame but myself. But if this phone is less than perfect, I have David Pogue to blame. You hear me, Mr. Pogue?

Monday, June 19, 2006

NAFTA Drawback on Trial

One of my hobbies is trying to explain NAFTA drawback in 50 words or less. It goes something like this:

No drawback for duty paid imports exported to Mexico or Canada in excess of the lesser amount of duties paid the U.S. or the other country. That's amount, not the rate of duty. This prevents non-NAFTA goods from moving among the NAFTA countries duty free. Exceptions apply.

That's 47 words. Not bad.


The recent decision in Merck & Co., Inc. v. United States, is all about that "exceptions apply" caveat. Under the NAFTA, the U.S. eliminated, with certain exceptions, substitution unused merchandise drawback for exports to Canada or Mexico. Merck imported a chemical with a really long name which will hereinafter be called "stuff." It paid duty on the stuff. Later, it imported more stuff. This time, it was duty free. It then exported some of the duty-free stuff to Mexico and Canada and claimed substitution unused merchandise drawback for duties paid on the dutiable stuff. Customs said no because, after all, substitution unused merchandise drawback was eliminated.


But, Merck said an exception applies under sec. 3333(a). According to Merck, the exception applies because the drawback was claimed not on the imported goods but on the substituted exported goods. Is this at all clear? You might need to read the opinion a couple times. The opinion focuses whether a dependent clause modifies the reference to the imported merchandise or the exported merchandise. Customs reads the exception to refer to "imported merchandise." Applying the "last antecedent rule," the Court found that the exception focuses on the "imported merchandise." Thus, the drawback is not allowed.

Could that be more complicated?

The analysis is clearer when it turns to the legislative history, which makes it clear that the intent was to eliminate the right to a refund of duties paid on imported merchandise upon the shipment to a NAFTA country of other merchandise substituted for the imports. Similarly, the implementing regulations make this relatively clear. Thus, no drawback.

Good try, though. Gotta give Merck that much.

Monday, June 12, 2006

Crazy, Stupid Science

Usually I have no interest in passing on little internet memes. This is an exception. Watch this. No comment necessary.

Saturday, June 10, 2006

Speaking of Sweatshops . . .

I need more exercise, but that is not what I had in mind.

On June 8, Senator Dorgan (D-ND) introduced a bill (S. 3485) to bar the importation of goods produced in sweatshops. Apparently trying to stay location neutral (and thus not offend the WTO), the bill also bans selling, transporting, advertising, or otherwise trafficking in sweatshop goods and the product of forced labor. It does this by making a those activities a violation of the Federal Trade Commission Act. In other words, this bill treats the issue as one of consumer protection, not international trade. Well, OK. I guess there might be sweatshops in the U.S., but don't we already have plenty of laws and enforcement mechanisms to address that problem?

Interestingly, the bill gives competitors and investors in offending retailers a private right of action. In other words, every shareholder of every publicly held retailer has a right to sue. And the damages that shareholder might suffer? Well, probably none. Probably, the share price increased as a result of any alleged sweatshop merchandise being purchased because it likely increased the retailer's profits. To get around this, the bill includes a statutory damages provision of $10,000 per violation or the fair market value of the goods, whichever is greater. Wow. All you need to be deputized as an Associate Attorney General is to buy one share of stock in your favorite retailer. After that, it is happy hunting. Just be sure that you have some real evidence.

The jurisdiction over these actions is set as the district courts. Why? This is a perfectly good example of a cause of action, at least as it relates to imports that could be given to the U.S. Court of International Trade. The CIT is chock full of good judges with the available capacity to handle more trade-related work. The Congress needs to take a look at the CIT and the various proposals that have been floated to give that Court jurisdiction over more things. Examples include:
  • Export control-related cases including penalties and OFAC sanctions
  • Seizure and forfeiture cases (maybe excluding criminal and narcotics cases)
  • Enforcement of foreign arbitral awards
My personal favorite is giving the CIT the initial review of 337 cases rather than the ITC. I know the patent bar goes nuts when this comes up but it makes sense to me. Here is a perfectly competent Article III bench with time to kill. Plus, the appeals already feed into the Federal Circuit, so there is a natural flow.

The counter argument (and I hear this about arbitral awards) is that the CIT has no experience in these areas, so why force the bar to educate them. My response is that for either of these issue in a district court, there is a decent chance that the judge assigned will have little or no substantive experience. So, the CIT would be no different. Also, because the cases would be concentrated at the CIT, the judges would quickly get up to speed and rapidly become the best informed bench in the country on arbitral awards and possibly on patent exclusion cases.

The other argument I hear is that no one should have to come to NY to deal with the CIT. Guess what people, Customs and trade lawyers have been doing it for 25 years. It works fine. And, if there is a trial to be held, the CIT can sit anywhere in the country (and theoretically outside the country).

As best I can tell, this is just resistance to change. But what do I know? I am just a customs lawyer.

Friday, June 09, 2006

Trade, Labor, & Capt. Kirk

China is the trade bogey man du jour. It used to be non-union shops, then the rural south, then Mexico and the giant sucking sound that turned out to be more of a gurgle. Now, labor's big issue is China. And, it has every right to be worried. Manufacturing and retailing in America is looking for low cost suppliers of parts and merchandise because that is what rational business people do. It is almost unavoidable that in a free market sales will go to the low cost provider of products of equal quality and availability. It is the result of comparative advantages. I sell my plumber legal services because he can't write a will. He fixes my drain because I would kill myself trying to do it. It all works out for everyone's advantage. As long as we play by the rules.

On Thursday, the AFL-CIO filed a petition with the U.S. International Trade Commission alleging that China keeps its prices the lowest in the world not through comparative advantage but through a system of officially sanctioned labor abuses. According to the petition summary "The Chinese government's labor repression lowers manufacturing wages by 47.4 percent to 85.6 percent and it reduces the price (or overall cost) of Chinese manufactured exports by 10.6 percent to 43.6 percent."

The AFL-CIO petition is based on Section 301 of the Trade Act of 1974 and asserts that China's labor abuses amount to unfair trade practices, which the President has the power to offset with an appropriate trade remedy. Usually, the remedy is an offsetting duty on goods from the offending country.

Under the terms of the law, the AFL-CIO needs to show that China has engaged in unreasonable trade practices that burden the U.S. economy. The failure to provide internationally recognized labor rights is stated in the law to be an unreasonable trade practrice.

According to the petition, China fails to meet its obligations by:
  • Denying freedom of association and collective bargaining
  • Exploiting child labor
  • Exploiting forced labor
  • Failing to enforce wage standards
  • Failing to enforce occupational safety standards
The Petition further alleges that these actions burden U.S. commerce by suppressing Chinese manufacturing costs and, therefore, creating an unfair advantage to Chinese goods.

The AFL-CIO filed a similar petition two years ago. At that time, ITC failed to commence an investigation because the Bush Administration position that it would work to improve these conditions through active engagement with the Chinese. According to the AFL-CIO, that has not happened and U.S. jobs have been lost.

Can you tell I am torn about this? No one should want to save a couple bucks by buying jeans from prisoners or children. I would gladly pay a reasonable cost increase if I knew that the differential flowed to the workers. But, maybe it does. There are contrarian economic views on globalization and even on the so-called "sweatshop."

For example, in this article posted by Mark Thoma at Economist's View provides some of the upside. Mainly, the arguments are that the factories owned by foreign companies or those that sell to foreign buyers tend to have higher paid workers who may receive better training, better health care, and safer working conditions. There are lots of reasons for this including the fact that big multinationals invest in technology to produce efficient and safe plants. Also, multinationals simply don't want the bad publicity of being caught withyoungg girls chained to sewing machines making their t-shirts.

That is not to defend China in particular. It is more a statement on the issue of globalization in general. The question is whether the Chinese are not meeting their obligations with respect to labor standards, or failing to meet those standards our law demands, and, as a result, having a negative impact on the U.S. economy.

I would not place any bets on the government initiating an investigation. The ITC has 45 days in which to make a decision.

And that relates to Capt. Kirk how? It doesn't. But this funny article from the New York Times does. It seems that someone lost track of a shipment of Star Trek props that were traveling as part of a museum exhibit. As a result, it got held up in Customs and, as these things do, ended up on the auction block. Paramount Pictures, the mothership for Star Trek, tried to get the stuff back but was too late. The 84 containers of unidentified missing objects sold for $4,700. I'd pay that much just for the mugato suit.

Wednesday, June 07, 2006

Holy Babelfish!

I keep receiving this e-mail. Obviously, I am not endorsing the products being offered. Moreover, I am certainly not endorsing the English-language school the author attended. That school may soon be a defendant in a malpractice case.

Actually, I suspect this is a machine translation. Here is the message verbatim; although, I have disabled the links.

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Monday, June 05, 2006

Thanks to Columbia

Columbia University, that is. Columbia's web site includes the helpful bit of information that Columbia University is "In the City of New York." Thanks. I am sure a lot of people have been confused by that and likely disappointed when, after securing housing in Medellin or Arauca, they realized that all their classes would be "in the City of New York."

The reason I am thanking Columbia (which, by the way, is not Colombia) is that an anonymous web surfer from that fine institution was visitor 4,000 to this site. Interestingly, to me at least, the Google search that brought the visitor was "'none of this is legal advice' disclaimer." So, this person may be the first visitor to reach my site affirmatively looking for ways to avoid getting free legal advice.

Friday, June 02, 2006

I Don't Do Politics

But, my blogging colleague and linker (for which I thank her), Debbie Schlussel does. For someone outside the trade, Ms. Schlussel has a keen interest in CBP and, in particular, ICE. No doubt Ms. Schlussel and I disagree on many things political. But, I feel compelled to link to this post regarding Assistant Secretary Julie Myers of Immigration and Customs Enforcement. It is not that I agree with Debbie. In fact, I am affirmatively saying that I have no opinion on the topic. When pressed, I will generally confirm that I believe everyone working in both CBP and ICE, along with the USTR, ITC and ITA, and while we are at it, the CIT and CAFC are diligent, hard-working, and smart public servants.

But . . . the picture is hysterical.

Thursday, June 01, 2006

New Commissioner a Done Deal

As of today, there is a new Commissioner of Customs. He is W. Ralph Basham, former Director of the United States Secret Service and a 28-year veteran of that agency. Clearly, he is an important figure as he has his own Wikipedia entry. You can read his statement on the vote here.