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