Archive for October, 2006

Oct

17

VEU, or Very Extremely Unlikely

Posted by at 3:11 pm on October 17, 2006
Category: BIS

BIS Assistant Secretary Christopher A. PadillaAt yesterday’s Export Update Conference conducted by BIS, Christopher Padilla, Assistant Secretary for Export Administration, announced that BIS was planning to expand its new concept of Validated End Users, or VEUs, beyond the proposed China catch-all regulations to other countries. Mr. Padilla suggested that the first such country might be India. While Mr. Padilla’s enthusiasm, as a newly-minted Assistant Secretary, is understandable, it still seems hard to see why BIS is talking about expanding the VEU process this early in the game.

A number of obstacles to the VEU program are apparent on its face, particularly as further elaborated last Friday when BIS posted on its website a “Supplemental Guidance” to the proposed China rules. That Supplemental Guidance reiterates that any company seeking to be accredited as a VEU will need to agree “to on-site compliance reviews by representatives of the U.S. Government.”

It is far from certain that China, India or other countries will countenance these on-site compliance checks by U.S. government officials. Some countries are often a little touchy about this sovereignty business. Other countries may not really care to assist the U.S. enforce its own export laws. China, for example, has not permitted either Commerce’s in-country post-shipment verifications for individual shipments by Commerce or the analogous “Blue Lantern” checks conducted by State.

The Supplemental Guidance also indicates that a VEU application would need to list all ECCNs down to the subcategory level that would be exported to the VEU . The VEU application would also be required to provide a description of the intended use of each particular item. To the extent that the VEU application requires such detail, it is not demonstrably easier than an individual license application, and thus it is unlikely that this would be an attractive option to exporters or end-users.

My (unsolicited) advice to BIS: you might want to get the VEU program working in China (or anywhere else for that matter) before revealing grandiose plans to expand it throughout the world.

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Copyright © 2006 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Oct

16

BIS Tries to Shed Light on Night Vision

Posted by at 12:55 pm on October 16, 2006
Category: BIS • Night Vision

Pooch in Night VisionBIS released today a document entitled “Defense Industrial Base Assessment: U.S. Imaging and Sensor’s Industry.” This report, requested by the Army in May 2005, comes almost a year late from the delivery date of December 2005 originally requested by the Army. Notwithstanding the lengthy delay in issuing the report, it contains few surprises.

The report is based on a survey sent out by BIS to 106 participants in the imaging and sensor industry. That survey data was augmented with site visits, attendance at industry conferences, interviews with industry participants and consultation of other studies of this industry.

According to the report, global demand for imaging and sensing products has been increasing, including demand for uncooled thermal imaging devices. Uncooled devices are smaller, less expensive and less susceptible to damage but offer lower resolution than their cooled counterparts. The uncooled devices are more often used in civilian applications.

Notwithstanding the increase in demand for uncooled devices, U.S. industry’s share of these exports has been declining. The report notes that industry participants attribute this decline to less robust export controls imposed on uncooled thermal imaging devices by other countries. The report further noted that 13 of the survey respondents had export licenses denied for imaging equipments and that other respondents indicated that certain contracts were not bid on given the likely denial of an export license.

As a result, the report concludes that U.S. export controls on uncooled thermal imaging devices should be modified. No specific recommendation is made for how they should be modified. However, the Report, in describing changes proposed by survey respondents, stated:

A consensus among U.S. companies producing or considering the production of uncooled products offshore is that changing the controls of uncooled cameras from Regional Stability 1 (RS1) to Regional Stability 2 (RS2) would likely result in bringing back current production or foregoing future offshore production plans.

Changing the controls on uncooled thermal imaging devices from RS1 to RS2 would permit unlicensed exports to a number of countries including countries in the European Union, most Eastern European countries, Turkey, Japan, New Zealand and Australia. Even if BIS does loosen controls in such a fashion, second and third generation uncooled thermal imaging devices will still need a DDTC license if they are not part of a commercial system.

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Copyright © 2006 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Oct

13

The Lady (Almost) Vanishes

Posted by at 2:29 pm on October 13, 2006
Category: DDTC

The Expanding Universe Fountain, Courtyard, Harry Truman Building, State DepartmentIn the continuing D-Trade saga at DDTC, part of ELLIE vanished yesterday. ELLIE was the electronic predecessor to D-Trade. DDTC announced that, effective October 12, 2006, ELLIE may no longer be used to file DSP-5, DSP-61 and DSP-73 license applications. ELLIE may now only be used for Form DSP-119 used to amend licenses.

On the same date, DDTC issued updated downloadable versions of forms DSP-5, DSP-61 and DSP-73. By doing so, DDTC implicitly acknowledged that many, if not most, ELLIE users will now download those applications and file them on dead trees rather than through the unnecessarily burdensome and problem-plagued D-Trade system.

The three new license forms, which can be found here, are in Microsoft Word format, rather than in the Fillable PDF format which is used by most federal agencies for downloadable forms. Completed Word forms are more easily saved on computers than their PDF counterparts; on the other hand, Word forms can be harder to fill out properly and allow for more user error than PDF forms.

These new downloadable forms supersede their antiquated carbonless NCR paper versions. DDTC indicates that only one copy of these applications must be filed as opposed to the prior requirement of an original and 7 copies.

Now that DDTC has gotten rid of the last of its carbonless NCR paper forms, it may well be that the only federal agency still using NCR paper forms is BIS, DDTC’s counterpart and arch-rival at the Department of Commerce. BIS’s Form 748P is only available in a non-downloadable version on NCR paper. One wonders why agencies that deal with high-tech licensing issues seem so wedded to antiquated technologies.

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Copyright © 2006 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Oct

12

Court Whacks OFAC on the “Rule of the Silent Disjunctive”

Posted by at 5:28 pm on October 12, 2006
Category: OFAC

Ouch!!!This week the U.S. Court of Appeals for the Ninth Circuit released its opinion in Sacks v. OFAC, upholding the right of OFAC to adopt rules prohibiting travel to Iraq. Additionally, the court dismissed, in unusually harsh language, OFAC’s argument that it could use collection agencies to collect penalties imposed by OFAC for violation of the travel rules.

Bertram Sacks, the plaintiff in the case, travelled to Iraq nine times between 1990 and 2003 to provide medicine and toys to Iraqi civilians and children. Following a 1997 trip, OFAC fined Sacks $10,000. When Sacks did not pay the penalty, OFAC assigned the debt to a collection agency. The collection agency then sent a letter to Sacks demanding the payment of $10,000 plus $3,767.08 in interest and late fees. Sacks challenged the right of OFAC to use a collection agency to collect the penalty. Both the district court and the appeals court agreed with Sacks.

In agreeing with Sacks, the Ninth Circuit quoted OFAC’s own regulations which provided, in 31 C.F.R. §575.705 that

In the event that the person named does not pay the penalty imposed . . . the matter shall be referred to the United States Department of Justice for appropriate action to recover the penalty in a civil suit in a Federal district court.

The Court rather sensibly informed OFAC that “shall” means “shall” not “might” or “may” or “can.”

OFAC’s efforts to slither around the word “shall” were not convincing to the court. First, OFAC tried to rely on its amendment of the rule in 2005 to add language permitting the use of collection agencies. The opinion dismissed this argument, noting that the amendment had been adopted in response to the earlier decision of the district court in this case holding that collection agencies weren’t authorized by the rule. The court termed efforts to cite the amended rule as nothing more than a “post hoc rationalization.”

But the harshest language from the Court was reserved for a bizarre argument from OFAC which it called the “Rule of the Silent Disjunctive.” Under this argument, according to OFAC, all remedies are permitted unless explicitly forbidden by a rule. To which the court retorted:

In other words, a regulation or statute mandating that an agency “shall” do x in fact means that it “shall” do x or y, unless the statute or regulation explicitly states that it “shall not” do y. This proposed “rule of the silent disjunctive” is patently absurd.

To drive the point home, the Court, with more than a hint of sarcasm, gives these examples:

By OFAC’s rationale, the Endangered Species Act’s requirement that the final determination of whether a species is threatened “shall be published in the Federal Register” could also be satisfied by publishing that information in USA Today. Though the Mandatory Victims Restitution Act requires that the sentencing court shall order the defendant to pay restitution, applying OFAC’s proposed interpretive rule, the sentencing court could also comply with the statute by ordering the defendant to make a public apology.

Ouch.

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Copyright © 2006 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
Oct

11

Catfish Row

Posted by at 2:06 pm on October 11, 2006
Category: Criminal Penalties

Vietnamese CatfishFalse labelling of exported goods can land exporters in a world of trouble and sometimes in places they don’t expect. We previously posted on a shrimp exporter prosecuted in the United States for misrepresentations made to Mexican authorities. Today we have a new development in the case of a Vietnamese exporter indicted in Florida for mislabeling exports from Vietnam to the United States.

At issue were exports of catfish from Vietnam to the United States. Because catfish from Vietnam is subject to anti-dumping duties in the United States, the exporter in question labelled the catfish as grouper to avoid the dumping duties. In May 2006, the U.S. Attorney for the Northern District of Florida obtained a criminal indictment against both domestic importers and foreign exporters of the mislabelled catfish. An Giang Agricultural and Food Import Export Company (“AFIEX”) and Mr. Buu Huy, its Deputy Director, were included among the indicted Vietnamese exporters.

Several days after the indictment Mr. Huy traveled to Brussels to attend the European Aquatic Product Fair and was promptly arrested by Belgian officials at the request of the U.S. Attorney who had obtained the indictment. The Belgians held Mr. Huy in custody while U.S. officials sought to extradite Mr. Huy to Florida. Mr. Huy spent 133 days in custody in Belgium before Belgian officials refused, on September 20, to allow the extradition. On Monday, Mr. Huy finally returned to Hanoi. It is perhaps safe to assume that if he had plans to visit Disneyland, they have been indefinitely postponed.

The Vietnamese Association of Seafood Exporters and Processors (“VASEP”) had intervened with the Belgian government to secure Mr. Huy’s release. One of the arguments that they presented to the Belgian officials is that the Vietnamese exporters were not liable to pay the U.S. duties that were being evaded and that liability should rest solely with the U.S. importers who were obliged to pay the evaded duties. Although this explains why an exporter might believe that its actions shouldn’t lead to penalties for it in the importing country, it neglects that the conspiracy to help the importer evade duties is equally criminal. Furthermore, the fact that Mr. Huy was involved in exporting goods to the United States arguably gave the U.S. courts criminal jurisdiction.

I could find no record as to why the Belgian government finally released Mr. Huy. In addition to the argument that VASEP made to the government, Mr. Huy’s lawyer also argued that AFIEX stopped exporting to the United States prior to the imposition of the anti-dumping duties and that the shipments had the correct Latin name for the fish. The important point here, however, is that exporters should understand that unlawful exports can result in liability in both their home country and in the country to which the goods are shipped.

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Copyright © 2006 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

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