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Health and Personal Care ConferenceOctober 13, 2010
Lynda Westerfield
Alcon Laboratories, Inc.
INTERNATIONAL TRADE REGULATORY DEVELOPMENTS
2010:HEALTH CARE PRODUCTS
October 2010
Matthew T. McGrathBarnes, Richardson & Colburn
mmcgrath@barnesrichardson.com202-628-4700
International Trade Environment
Security programs – US and global Increased focus on revenue protection Gathering more information earlier in the supply
chain Increased focus on US export requirements and
enforcement Companies moving to “global” compliance Information sharing between government agencies,
countries More robust databases/data mining Rapidly changing export environment
Customs Priority Trade Issues
High-risk areas that can cause significant revenue loss, hurt the U.S. economy, or threaten the health and safety of the American people.– Agriculture– Antidumping (ADD) and Countervailing (CVD) Duties– Import Safety– Intellectual Property Rights (IPR)– Penalties– Revenue– Textiles
You can add security and audits to that list
Foreign Customs Priority Trade Issues
> EU:> Modernised Customs Code, Regulation 450/2008> “Protect the financial interests of the Community and its
member states” – direct and indirect taxes> Protect from “unfair and illegal trade”> Ensure security and safety, and protect the environment> Balance customs controls with trade facilitation
Foreign Customs Priority Trade Issues
> China> Export promotion> Cooperative efforts to promote export market
access (eg, Joint US-China consultations) > Protection of domestic markets through both
import and export controls
Foreign Customs Priority Issues
> Brazil> Revenue enhancement> Industry and market protection> Security and IP protection a lower priority than in US
Security – To Join or Not Join?
C-TPAT – 10,000 members– Increasing requirements– Business Partner Requirements– Value
Importer Security Filing (ISF) – ocean shipments TSA Certified Cargo Screening Program (CCSP) Automated Economic Operator (AEO)
Customs has considered using security data for enforcement purposes
Foreign Security Programs
> EU> Regulation 1875/2006 – pre-arrival and pre-departure declarations
similar to 10+2> Updated in 273/2009 – reliable traders provisions, uniform EC-wide
risk-selection criteria, EU database> Authorized Economic Operator program> Mutual recognition of CTPAT and coordination with trading partners,
including CSI
Foreign Security Programs
> China> Brazil> WCO – SAFE Framework standards
> Focuses on risk detection and formal cooperation> 17 standards balanced between security and trade
facilitation
Government Programs
Lacey Act PREDICT Importer Self Assessment (ISA) – other agencies
joining Customs Joint Strategic Plan on Intellectual Property Rights Free Trade Agreements Focused Assessment/Quick Response Audits
Government Programs
> EU – Authorized Economic Operator> Member states can grant special status to companies
meeting compliance, record-keeping, financial solvency, and security criteria
> SASP – single authorization for simplified procedures> AEO status granted by national authorities> DGTaxud proposed EU-wide AEO self assessment
criteria for adoption by member states by end of 2010
Government Programs
> EU> Administrative tariff suspensions, latest in June
2010> Pharmaceutical zero-for-zero tariff agreement
and periodic updates
Government Programs
> China> Drug and food safety authorization for export> Variable VAT export refunds> Export licensing restrictions on strategic materials:
> Medical devices – ultrasound equipment, syringes, needles and sutures, kidney dialysis, blood transfusion apparatus, x-ray tomography, similar equipment
> Chemicals – fumazone, PCBs, hexadrin, benzidine, dioxin, PCDE
Government Programs
> China> Indigenous industry procurement preferences
Brazil> Tax credits under PIS social integration taxes for certain sectors
to offset stronger Real – export perfromance requirements> Exemption of jet fuel from PIS tax
Government Programs
> India > Special Economic Zones> Excise taxes on imports cut from 14 to 16% as part
of stimulus
Import Compliance Challenges for Companies
Valuation– Samples– R&D– Assists
Tariff Classification Free Trade Agreements - NAFTA Audits Express Carrier Shipments Communication
– Finance– Tax– Manufacturing– Marketing
Doing more with less
Import Challenges for Companies
> EU> Valuation – Considering elimination of “first
sale” option> Valuation of Samples and R&D – bonded
entry; inward or outward processing> REACh > Excise Movement and Control System – 4/10
Import Challenges for Companies
> China> Tariff rates average 9.8%; Lower for
medicaments, higher for cosmetics at 10-20%> Approval for Medicines at both provincial and
federal level> Drug Business Certificate by SFDA> Importation through approved port> Registration with Regional FDA
Import Challenges for Companies
> China> Cosmetics importation
> Separate licenses required for listed “special use” and for “general use”
> Approval by one of 3 centers> Medical devices importation
> SFDA approval> Marketing approval from home country
Import Challenges for Companies
> China> Labeling idiosyncracies > Samples – bonded entry GAC Dir. 179; 5
years, valuation depreciates over 60 months> Some ports value at reference price rather
than Transaction Value > Port clearance delays
Import Challenges for Companies
> China> Tariff classification – 4 centres, depending on
product (HS 29, 30, 33 in Guangzhou; HS 90 in Shanghai)
> Port classif decisions – lack of uniformity> Classification rulings – 45 days before; 3 years
after entry
Import Challenges for Companies
> Brazil> Retaliatory cotton tariffs against US exports> Samples and promotional materials – duty free
simplified entry form; 3 month + extension; registration with Commerce ministry
> Prohibited imports: blood products, used goods, some remanufactured goods
> 60% flat tariff on retail goods entered by mail
Import Challenges For Companies
> Brazil> Import licensing system for commodities otherwise
regulated, like pharmaceuticals and beverages> Application of retail value in place of TV> Lower standard of IP protection – inadequate data
exclusivity for pharmaceuticals; extended time for patent registration
Import Challenges for Companies
> Brazil> ANVISA Import licenses for pharmaceuticals, medical
devices and cosmetics – 3-6 months for new versions of existing products; over six months for new products, pharmaceuticals over a year
Import Challenges for Companies
> India> Avg applied tariff rates 14.5%> Restricted imports> Samples and clinical trial materials> State VAT on imports – refunds on export slow> Some pharmaceuticals and other imports restricted to
state trading companies> Licenses for remanufactured goods
Import Challenges for Companies
> India> Periodic rejection of transaction value if
deemed to reflect reduction from normal competitive price
> Addition of royalties contrary to Valuation Code> Insufficient protection of data exclusivity
Export
Export control and requirements – if you thought import compliance was
tough……..stay tuned.
Export – Who’s Who at the Zoo?
Department of Commerce - Bureau of Industry & Security (BIS)
Department of State – Directorate of Defense Trade Controls (DDTC)
Department of Homeland Security - Customs & Border Protection (CBP)
U.S. Census Bureau - Foreign Trade Division Department of Treasury - Office of Foreign Assets
Control (OFAC) Department of Justice – Foreign Corrupt Practices Act
(FCPA)
Export – Who’s Who at the Zoo?
Food and Drug Administration (FDA) Environmental Protection Agency (EPA) Nuclear Regulatory Commission Department of the Interior Department of Energy, Office of Arms Controls
and Nonproliferation Department of Defense (DoD), Defense Technology
Security Administration (DTSA) Drug Enforcement Administration (DEA) Patent and Trademark Office US Department of Agriculture (USDA)
US Export Priorities
Protect National Security Implement Foreign Policy Protect Economic Interests
Lynda’s List – All of the above plus:Increased audits
Increased enforcementIncreased penaltiesBIS audit module
Export control reform
Export Regimes
> Brazil> Defense Ministry licenses exports of military
goods> Department of Nuclear Goods and Sensitive
Assets licenses exports of dual use goods – most are chemicals
> Foreign contracts may be subject to approval by the Foreign Ministry
Export Regimes
> Brazil> Enforcement: warning; fine of 2X value;
expropriation of the goods; suspension of export rights for 6 months – 5 years; suspension of privileges to engage in foreign trade
> Military goods and dual use goods periodically listed in the Gazette
Export Regimes
> EU> Control of dual use exports resides with
member states under common direction of EU Regulation 428/2009
> Community General Export Lic (CGEA)> Transit Controls – new; brokering controls> National licensing authorities
Export Regimes
> Germany – BAFA > licenses dual use, embargoes, verification
agreements for chemicals
Export Regimes
> UK – ECO issues trade control licenses> Military goods and strategic goods> Dual use list> Open General license, Standard Individual license> Medicine and Health Products Regulatory Agency
– 4 types of certificates depending on status.> Food & Environmental Research Agency – certain
agricultural products
Export Regimes
> China> MOFCOM licenses sensitive exports, with assistance
of provincial DOFCOMs> Customs and Ministry of Foreign Affairs> 2009 list of dual use items – chemicals, drug
precursors, electronics, radioisotopes, nuclear mat’l> State Encryption Management Commission> Transaction license vs General Permit
Export Regimes
> China – enforcement> Criminal prosecution> Administrative penalties, including fines,
potential confiscation of proceeds, de-certification
> Recent increase in enforcement activity
Export Penalties
Pre-Mar 06
BISPenalties $11,000 *
Recent Export ActionsRecent Export Actions
Jul 08
New Census
Regs
Sept 08
Census Penalties$10,000*
Mar 06
BISPenalties $50,000*
Oct 07
BISPenalties $250,000*
Bureau of Industry & Security (BIS) penalties recently increased from $50,000 to $250,000 per violation
Possible denial of export privileges and/or jail time BIS seeks to increase audits and enforcement – Oct 08 No compliance program – no penalty mitigation
*penalty amounts are per violation
What’s an Export?....Pretty Much Anything
Export: Actual shipment or transmission of items Re-export: An item that is of U.S. origin or that has a
U.S. connection, exported between two foreign countries
Deemed Export: Any release of technology or source code subject to EAR to a foreign national in the U.S.
Method of transportation doesn’t matter– Mail– Hand-carried by air– Via fax– Internet download– Conversation
Items leaving the U.S. temporarily Items not for sale – gifts
Export Challenges for Companies
Commodity Jurisdiction Deemed Exports Departments
– R&D– IT– Marketing– Mail Room
Re-exports Denied Party Screening – how and when? Automated Export System (AES) filing
Customs recently held a webinar on their role in exports
Items to Consider
Laptops including software Pumps Valves Precursor chemicals Lasers (depending on specs could be considered
Military use) Routers
Export Transaction Questions
1. Which agency? (Commodity Jurisdiction)2. What is the item being exported?3. Where is it going? (ultimate destination)4. What will it be used for? (end use) – some end
uses are prohibited (e.g. item will be used in nuclear reactor)
5. Who will use it? (end user) - The person abroad that receives and ultimately uses the exported or reexported items.
Antiboycott Laws
U.S. companies are forbidden to participate in any unauthorized foreign boycott and required to report any request to cooperate with a boycott
Especially important when doing business in the Middle East but other areas can be affected Departments– Usually products from Israel
Prevents U.S. firms from being used to implement foreign policies of other nations which run counter to U.S. policy
Covers U.S. exports and imports, financing, forwarding and shipping, and certain other transactions that may take place offshore
Foreign Corrupt Practices Act (FCPA)
Law prohibiting exporters and agents from paying money to a foreign government agency, official, or political party for the purpose of retaining business or securing an improper advantage
Includes activity inside and outside US borders The US government broadly interprets the FCPA Even an unsuccessful offer to make a bribe violates
the FCPA
Foreign Anti-bribery Laws
> China> Civil and criminal sanctions under Company
Law on Bribery> Applies to “director, supervisor or manager”> Authorizes fines, jail, asset loss> Anti-Unfair Competition Law
Office of Foreign Assets and Control (OFAC)
Administers and enforces economic and trade sanctions based on US foreign policy and national security goals
Restricts or prohibits trade and financial transactions with targeted foreign countries, terrorists,
narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction
Imposes controls on transactions and freezes foreign assets under US jurisdiction
Export Control Reform – Is Help on the Way?
Proposal designed to reduce the number of controlled items and make it easier for exporters to do
license determinations and reduce the need for licenses
Proposal would include:– a single export control list of items;– a single licensing agency;– a single enforcement coordination agency and– a single information technology system.
Single export control list would make it clear to companies which items require a license and which ones don’t.
Export Control Reform – Is Help on the Way?
Proposal designed to reduce the number of controlled items and make it easier for exporters to do license determinations and reduce the need for licenses
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