On August 29, 2018, the United States circulated a request for consultations to the World Trade Organization (WTO) members. The US has requested that the WTO help resolve a dispute between the US and Russia concerning additional duties imposed by Russia on certain US goods.

A request for consultations is similar to other forms of dispute resolution. The request for consultations formally initiates a dispute in the WTO. If after 60 days of consultations, the parties have not been able to resolve the dispute, the complainant may request adjudication by a panel.

In its claim initiated earlier this week, the US claims that the additional duties imposed by Russia are inconsistent with provisions of the WTO’s General Agreement on Tariffs and Trade (GATT) 1994, and appear to impair the benefits accruing to the US under GATT 1994. The US claims that Russia is imposing duties on US goods, and that it is not imposing comparable duties on similar products originating in the territory of other WTO members.

The claim also includes a statement that Russia appears to be applying duty rates that are greater than those in Russia’s WTO schedule of concessions. The “schedules of concessions” is a document that reflects specific tariff concessions and other commitments a member gives in the context of trade negotiations.


In a May 22, 2018 Opinion and Order, the U.S. Court of International Trade (“CIT) upheld the U.S. Department of Commerce’s (“Commerce”) use of a Thai nail producer, rather than a Dubai producer, as a surrogate for the calculation of anti-dumping duties to be assessed on two nail producers from the United Arab Eremites (“UAE”).  As a result, the nails will be assessed an 0.87% duty rate, not the 7.8% rate that the nails had been preliminary assigned.

In determining the appropriate anti-dumping duty to be assessed, Commerce had considered using, among others, the financial statements of Overseas International Steel Industry LLC (“OISI”), a Dubai-based subsidiary of one of the UAE nail producers at issue.  Commerce determined, however, that the subsidiary acted as “toll processor,” meaning that it was a service provider that used subcontractors to convert raw materials to finished products, but did not actually produce nails itself.  Accordingly, because OISI was not a producer, Commerce found that its financial records lacked some significant line items, including for material costs and inventory.  Therefore, Commerce determined that the financial records of a Thai nail producer, L.S. Industry Co. Ltd. (“LSI”), were a more fitting basis for its calculation of a constructed value profit on which the anti-dumping duties were based. As a result of using LSI’s financial statements, the anti-dumping duty calculation fell from the 7.8% rate contained in Commerce’s preliminary determination to 0.87%.

Before the CIT, a domestic nail producer argued that Commerce had erred in its determination that OISI was not the proper analog because OISI uses the same raw materials and production process as the UAE producer and that the financial statements sufficiently reflect all necessary information, such as material costs and inventory.

The CIT determined that, even if the domestic producer’s arguments were true, there was still not a sufficient basis to overcome “the presumption of administrative regularity” that insulates Commerce’s decision making.  The CIT found that Commerce had concluded that OISI was a toll producer and, therefore, did not consider its financial statements.  Instead, Commerce determined that LSI’s was the best surrogate and based its well-supported analysis on LSI’s financials.  Ultimately, the CIT found that there was no clear error demonstrated in the record which would warrant the Court’s substitution of its judgment for that of Commerce.


On January 12, 2018, President Trump issued a statement announcing that he will approve certain sanctions waivers necessary in order to preserve the Iran nuclear deal. At the same time, he called on the U.S.’s European allies to work with the U.S. to fix the flaws of the Iran nuclear deal (the Joint Comprehensive Plan of Action or the JCPOA), or he would terminate the deal.

President Trump began his statement by condemning the Iranian regime as the world’s leading state sponsor of terror. He also added 14 more Iranian individuals and entities to the Specially Designated Nationals and Blocked Persons List.

In his statement, President Trump explained that he is open to working with Congress on bipartisan legislation dealing with Iran. However, any bill must include four critical components. First, the bill must allow immediate inspection by international inspectors at all nuclear sites. Second, it must demand that Iran not come close to possessing nuclear weapons. Third, there must be no expiration date on these requirements. Finally, the bill must subject Iran’s long-range missile program to the same sanctions imposed on its nuclear weapons program.

Although President Trump waived the application of certain nuclear sanctions, he stated that “this is a last chance.” He called on the U.S.’s European allies to fix the Iran deal and made it clear that if the allies cannot agree on a new supplemental JCPOA, President Trump will not waive sanctions again to stay in the deal. The President also reserved the right to withdraw from the deal immediately if he determines that an agreement is not within reach.

The President’s full statement can be found here.

In an attempt to become a modern hub in Southern China for domestic and international arbitration, the Government of Shenzhen announced at the end of December 2017 that it was combining two arbitration centers. The previous Shenzhen Court of International Arbitration (“SCIA”) and the Shenzhen Arbitration Commission will be combined into one center called the Shenzhen Court of International Arbitration.

The merger of the two institutions will help integrate the resources of both institutions and further build the Shenzhen arbitration platform.

This is part of China’s One Belt, One Road Initiative, which calls for investment in and development of trade routes in that region. The One Belt, One Road Initiative is part of the growth of Chinese exports and a push by China to expand its trading network.

Both the SCIA and the Shenzhen Arbitration Commission had jurisdiction to handle contract disputes and various types of commercial disputes. In December 2016, the SCIA promulgated new arbitration rules relying heavily on the UNCITRAL Arbitration Rules, which made the SCIA the first Chinese institution to make this move.

The UNCITRAL Arbitration Rules provide comprehensive procedural rules regarding arbitral proceedings arising out of commercial relationships. The UNCITRAL Arbitration Rules provide a model arbitration clause, set out rules regarding appointing arbitrators, and establish rules related to the effect and interpretation of the awards.

Once the combination is effective, cases submitted to either of the institutions will be handled by the SCIA. It is still unclear what rules will apply to cases that the parties had agreed to submit to the Shenzhen Arbitration Commission and which panel of arbitrators will be used to arbitrate those cases. The combination into one arbitration body does mean that arbitration rules consistent with international standards, like the UNCITRAL Arbitration Rules, will likely be applied to more cases in China.

In a recently filed complaint, battery giant Duracell brought Lanham Act claims against wholesaler JRS Ventures, Inc. (JRS) for importing and reselling batteries bearing the Duracell’s iconic “copper top” mark.  The wrinkle, as is the case in all “gray market goods” (or “parallel import”) cases is that the batteries are genuine Duracell batteries, produced with Duracell’s authorization in China.  Duracell, however, intended to sell the batteries to electronics manufacturers to be included with remote controls and other devices that come out of the box with batteries already installed, not to US consumers at retail stores.

Copyright: rakim / 123RF Stock Photo
Copyright: rakim / 123RF Stock Photo

The goods are “gray market” because they are not stolen goods or counterfeits.  They are however, being sold in a manner that intellectual property owner did not intend.  At its root,  the gray market grows out of a tension between the need to protect the intellectual property inherent in a product and the need to promote free trade of physical goods without the strings of lingering ownership rights.

Generally, the first sale doctrine operates to sever intellectual property rights when a good reaches the market and is sold.  For example, once you buy a DVD containing a copyrighted movie you can sell that DVD or give it away, you own the physical DVD.  You cannot, however, make copies of the content, because the copyright owner still controls the artistic expression that is the film.

First sales in different countries, however, make the gray market even grayer.  Where goods are sold outside the US, US intellectual property holders can use their ownership rights to stop unauthorized goods at the border if those goods are “materially different” from the goods offered to consumers within the US.  In recent years, world-wide producers have taken increased steps to insure that the packaging, instructions, and warranties offered with their products around the world differ so that they can meet the “materially different” standard and stop importation of gray market goods. Critics argue that being able to use intellectual property rights to control importation allows corporations to manipulate prices around the world by keeping goods (at their set individual market price) where suppliers want them.  In the context of pharmaceuticals, which may be donated to developing countries but which sell at a significant cost in more developed countries, the debate about uninhibited trade is an interesting one.

To prevail on its Lanham Act claims, Duracell must demonstrate that the goods are materially different.  As a key material difference, Duracell has argued that the warranty it offers to US consumers is ten times longer than the warranty offered on the batteries sold to electronics manufacturers.

In addition to the Lanham Act, however, one of the strongest mechanisms for fighting the importation of gray market goods comes from contract law.  Gray market goods are often a product of global supply chains in which original producers lose contact with the goods before a ‘genuine’ sale on the market.  Therefore, contracts throughout the supply chain should contain provisions requiring that downstream distributors report and account for all goods and, potentially, impose indemnification or other liability if those goods end up somewhere that the producer did not intend.

From distribution and supply chain contracts to Lanham Act litigation, any producer who sells products abroad should be prepared for the day when their own goods start appearing the domestic market and should take steps now to make sure that they prevail.

SCS Corporation, Ltd. (SCS), a unit of Houston oil and gas drilling company Hyperdynamics Corporation (“Hyperdynamics”), has filed parallel actions in the Southern District of Texas (4:16-cv-00076) and before the American Arbitration Association against two partners who SCS alleges used an FCPA investigation into Hyperdynamics as a pretext for breaching their joint exploration agreement.

SCS and its partners, Tullow Guinea Ltd. (“Tullow”) and Dana Petroleum (E&P) Limited (“Dana”), have been engaged under a joint operating agreement to explore deposits off the coast of Guinea.  In 2013, the U.S. Securities and Exchange Commission began an FCPA investigation into Hyperdynamics, which was eventually settled in the fall of 2015.  Nevertheless, in 2014, while the FCPA investigation was open, Tullow declared force majeure and halted all work on the exploration project. Tullow eventually withdrew its declaration of force majure, but, according to SCS, has not resumed sufficient activity to meet the drilling timelines required by the Guinean government which expire in the fall of 2016.  The Complaint alleges that Tullow does not have the funds to fulfil its portion of the exploration and that its declaration of force majure and subsequent delays are merely a diversion designed to stall the enterprise. Dana is similarly alleged to have undertaken a dilatory course of conduct.

The parallel actions seek (1) a determination that Tullow and Dana are in breach of the joint operating agreement, (2) orders requiring Tullow and Dana to move forward with their exploration and drilling activities, and (3) damages stemming from the delays.

According to the Complaint, Tullow had ulterior motives when it declared force majure based on the ongoing FCPA investigation.  If Tullow truly believed that force majure applied, however, then its declaration may have bell that could not be unrung.  Although Tullow eventually withdrew its declaration, it has, at least by SCS’s account, not commenced work since the declaration and may now be in breach of contract.

Of course, corporations must be concerned when their partners become the subject of FCPA investigations. They should not, however, take any unnecessarily drastic steps.  Independent counsel can investigate and assess a corporation’s potential liability for the acts of its partner and should be consulted whenever a concern arises. Taking the time to evaluate one’s own potential liability may save the working relationship and avoid litigation tangential such as this.

Copyright: vectora / 123RF Stock Photo

In U.S. v. Nitek Electronics, Inc., the Federal Circuit constrained the Department of Justice’s ability to seek import penalties based on a culpability level different than the level alleged by the Customs and Border Protection during the administrative penalty process.

Generally, when pursing penalties for lost import duties due to misclassification of goods under 19 U.S.C. § 1592, the Government must demonstrate a material false statement or omission amounting to fraud, gross negligence, or negligence.  Based on the level of culpability alleged by the Government, the burden of proof for the Government shifts significantly from clear and convincing evidence for fraud, proving the elements for gross negligence, and the mere burden of proving the act or admission (with the burden shifting the the importer to show that the act was not negligent) under a negligence theory.

In Nitek, the importer of gas valves disputed the CBP’s allegations of grossly negligent conduct during the course of the administrative penalty proceeding.  The matter was subsequently referred to the DOJ which pursued an enforcement action based on a negligence theory.  The Court of International Trade held that the  DOJ could not pursue penalties against an importer based on a different level of culpability than the level alleged by the CBP during the administrative proceeding.  The Federal Circuit affirmed the Court of International Trade’s decision, finding that the Government had not exhausted administrative remedies when it pursued an ‘independent’ claim based on negligence which was not present in the administrative proceeding.

Those close to the case are hailing the decision as a significant victory for importers who, in the past, have been unfairly forced to defend penalty actions brought under multiple theories by multiple agencies.  As the CBP is now likely to take additional care when investigating and selecting the theory which the government will pursue during the administrative proceeding, mounting a robust defense from the very outset of any administrative action is now an absolute imperative for importers.

The First Circuit Court of Appeals recently upheld the five-year prison sentence of former Sea Star Line LLC president, Frank Peake, following his conviction as part a massive shipping price-fixing scheme centered in Puerto Rico. See the First Circuit’s opinion here.

Cargo ship with shipping containers
Copyright: alexmit / 123RF Stock Photo

The Government alleged that Peake, along with the heads of several other carriers, conspired to artificially inflate shipping rates and surcharges and rigged bids submitted to corporations and government entities for freight services. Following a two week trial, Peake was convicted and his sentence was calculated based on the $565 million in revenue that Sea Star generated between 2005 and 2008.

On appeal, Peake’s counsel raised various challenges including that: the juror pool had been tainted by the prosecution’s references to the effect of the scheme on the price of consumer goods; the judge improperly directed the jury to continue deliberations when it appeared to be hung; and the sentence had not been properly calculated because at least some portion of Sea Star’s revenue was not the result of the price-fixing scheme, and therefore, the sentence calculation should be reduced.

The First Circuit rejected these arguments and found that the District Court had properly instructed the jury regarding the basis for the sentence calculation and had not erred when instructing the jury to continue its deliberations after it was unable to come to a resolution within a single day.

This case underscores just how high the stakes for individual actors can be when the federal sentencing guidelines are applied to full extent.  When potential violations arise and possible resolutions are considered, individuals and their counsel must appreciate that “worst-case-scenario” prison sentences are indeed possible even if they appear disproportionate to the actual gains from the violation.  Well-versed counsel is the best resource to evaluate potential personal liability and navigate the nuances of resolution prior to trial (and the possible application of the sentencing guidelines).