Volume 22, No. 10 -- March 11, 2002

Posted Monday, March 11, 2002 12:00 am

DEFENSE MAKES NEW GRAB FOR SPACE QUALIFIED PRODUCTS

Defense appears to be reneging on an interagency deal last August on how to divide jurisdiction for "space-qualified" products between the Commerce Control List (CCL) and the Munitions List (ML) (see WTTL, Sept. 3, page 1). As part of the interagency process of drafting regulations to implement that decision, the Pentagon now is seeking to move more items to the ML, Bureau of Export Administration (BXA) staffers complain.

In addition, State is asking to have all space-qualified entries that stayed on the CCL controlled for Regional Stability (RS) reasons so it will maintain its veto power over these exports. The new demands from State and Defense have held up publication of the new rules and may require new political-level interagency negotiations to resolve.

To defend its turf, BXA has sent the other agencies a nine-page memo explaining why these products should stay under its control. It has also asked NASA for advice on the definitions of some of these items, especially satellite array products.

Defense claims that where last year's interagency agreement placed one subcategory on the ML, then all items below that category should also move to the ML. BXAers argue the selection of items for transfer was very precise and carefully defined. The say Defense's request would move an enormous number of items to the ML from the CCL, including products that weren't part of the original discussions over space-qualified goods.

STATE WANTS WAITING PERIOD AFTER AES FILING OF ML ITEMS

State wants to require exporters of items subject to the International Traffic in Arms Regulation to wait 72 hours after submitting export documentation under the Automated Export System (AES) before they can ship those products. The Census Bureau is writing this waiting-period requirement into a draft proposal that will implement mandatory AES filing requirements for ITAR and CCL items. State also wants to preclude the use of AES Options 3 and 4, which allow certain exporters to file AES data five or 10 days after shipment, for ITAR items.

Mandatory filing of Shipper's Export Declarations (SED) through AES for ITAR and CCL items was required by the Proliferation Prevention Enhancement Act of 1999. The requirement was to go into effect 270 days after Census notified Congress that AES was capable of handling these filings. That notice was made in June 2001. Implementing regulations have been delayed, however, by the extensive data elements State has requested and the slow approval of the draft proposal. Harvey Monk Jr., chief of Census's Foreign Trade Division, told BXA's Regulations and Procedures

Technical Advisory Committee March 5 that his agency is aiming to publish the proposal by the end of March. There will be a 60-day comment period. He said his goal is to have the system ready for testing by users in August, with mandatory filing starting at the end of September.

Monk met on March 4 with 12 industry representatives who have been pressing Census to amend AES Direct, the Internet version of AES, to allow use of the same procedures firms follow when filing manual SEDs. Low-volume shippers in particular want to be able to complete and submit just those parts of the SED on which they have information and let their freight forwarder add the final details about shipping date, vessel or air carrier, and port or airport of departure. Monk said he is considering industry's request and may create an Option 5 for these situations. He stressed, however, that the idea is just being weighed and no final decision has been made.

HOUSE PANEL WOULD GIVE DEFENSE VETO POWER OVER EXPORTS

The business community is blaming the Bush administration for dropping the ball on Export Administration Act (EAA) legislation (H.R. 2581) and not trying to head off a package of export-restricting amendments the House Armed Services Committee added to the bill March 6. Unless the White House uses its political clout to prevent House adoption of the amendments, industry sources warn they may walk away from the bill and seek its defeat.

In January, Presidential Special Assistant Gary Edson told exporters and key law-makers, including Sen. Mike Enzi (R-Wyo.), co-sponsor to the Senate's EAA bill (S. 149), that he would lead an administration effort to move the measure through the House. Subsequently, Edson was pulled off EAA and given responsibility for chairing the White House action group working on the Section 201 steel case. No one from the administration took his place.

On a vote of 44-6, Armed Services approved the bill with an en bloc amendment offered by Chair-man Bob Strump (R-Ariz.). Among the changes it added to H.R. 2581 are provisions to require interagency licensing disputes to be resolved by unanimous vote, thus giving Defense veto power over decisions. It also would drop language that would transfer jurisdiction for commercial satellites back to BXA from State. Other changes would require Defense concurrence before items are decontrolled under the measure's "mass market" provisions and tighten the conditions for such rulings. In addition, it would retain current rules for foreign availability findings.

Another amendment sponsored by Rep. Duncan Hunter (R-Calif.) would require exporters of computers worth more than $250,000 to file a notice with BXA ten days before export to give U.S. intelligence agencies a chance to determine if the end user is on the any secret denied-parties lists. Within those ten days, BXA would notify the exporter if there were a problem with the customer.

Given the political power of the Armed Services panel, industry representatives don't believe the administration can stop the amendment from getting House consideration. The only alternative is a strong White House and export community lobbying effort to get lawmakers to reject the amendment and support an alternative one that Rules Committee Chairman David Dreier (R-Calif.) and the House International Relations Committee are expected to draft (see WTTL, March 4, page 1).

BUSH'S STEEL DECISION RISKS CONGRESSIONAL SUPPORT FOR WTO

The clear political victory President Bush won with his March 5 Section 201 decision to impose tariffs of 8% to 30% on most imported steel may come back to haunt his trade agenda a year from now when the World Trade Organization (WTO) is likely to rule his action was inconsistent with WTO safeguard rules. The congressional backlash to another WTO ruling against U.S. trade laws could create an even greater political dilemma for the administration than the steel case. "Those guys should have thought about that before they acted," charged one attorney on the losing end of the 201 fight. Retaliation in one form or another by other countries, especially the European Union (EU), won't have to wait the year or more that the WTO process will take.

The EU's angry reaction to the 201 ruling will make it more difficult to convince Europe to hold off on invoking its right to retaliate against the U.S. for its Foreign Sales Corp. (FSC) tax rules. Other WTO members are likely to use the 201 decision and the antidumping and countervailing duty orders that remain in place on steel imports as a rallying point to press harder and demand more changes in WTO antidumping, subsidy and safeguard rules in the Doha Development Round.

While U.S. officials defended the 201 decision as consistent with WTO rules, trade lawyers in Washington point out that the U.S. has lost three WTO disputes over three earlier 201 actions. The EU moved quickly to test that batting average March 7, asking the U.S. to begin WTO dispute-settlement consultations immediately.

The scope of the WTO challenge was spelled out in two letters EU Ambassador to the WTO Carlo Trojan sent to Deputy U.S. Trade Representative Linnet Daily requesting talks. In addition to objecting to the inadequacy of consultations prior to the 201 decision, Trojan cited 10 provisions of WTO rules, including the Agreement on Safeguards, that the EU claims were violated.

The EU contends the U.S. action was based on a deficient determination of "like or directly competitive" products; the absence of "increased quantities" of subject goods; the failure to show increased imports were the result of "unforeseen developments"; the lack of serious injury or threat of injury; inadequate finding of causality; and the lack of parallelism between products under investigation and the application of measures. The EU also claims the remedy President Bush imposed goes beyond what is needed to remedy serious injury, goes beyond the period necessary to facilitate adjustment and discrimination against EU exports (see WTTL, March 4, page 1).

While the 201 action drew angry reactions from the EU and other major steel producers, including Japan, South Korea, Brazil and Russia, it was welcomed by countries excluded from the restrictions, including Canada, Mexico and 100 developing countries. One developing country noticeably not excluded was Malaysia. The president also excluded a 44-page list of specific products. These exclusions may dampen the adverse effect of sanctions on the U.S. economy and foreign producers.

PRESSURE AND DIVISIONS MOUNT OVER SOFTWOOD LUMBER DEAL

As Washington awaits the arrival of Canadian Prime Minister Chretien March 14 for talks with President Bush, U.S. and Canadian trade officials intensified efforts to settle the antidumping and countervailing duty complaints against softwood lumber from Canada. Both sides want to have something for the leaders to announce at their meeting.

Talks were expected to go into the March 9-10 weekend, but conflicting pressures and a deep split among Canadian provinces over proposals for an interim accord have made chances for a deal a long shot. Canada March 1 rejected a U.S. proposal for a suspension agreement to avoid final orders in the two cases.

The negotiations continue to be led by Deputy USTR Peter Allgeier and Canadian Deputy Trade Minister Len Edwards. Commerce Under Secretary Grant Aldonas reportedly has also joined the discussions. His participation has raised questions among some trade lawyers, because he represented British Columbian interests when he was in private law practice.

Negotiators are trying to devise a transition plan or standstill agreement that would allow ITA to suspend the CVD and AD cases while Canadian provinces implement proposed reforms to bring sales of government-owned timber closer to market-based prices. Discussions have focused on a possible export tax, which could be phased out as the Canadian system became more market-oriented. The phase out, however, would require U.S. agreement that the reforms are working.

The export tax idea has sparked a sharp debate within Canada, pitting British Columbia and Quebec against other provinces. Some provinces don't believe they should be subject to any levy. The level of the tax -- proposals have ranged from 12% to 25% -- also has stirred debate.

Resistance to a deal is strong in some sectors in Canada, where many participants in the case want to take their chances waiting for a final International Trade Administration (ITA) ruling on March 21 and a final injury determination from the International Trade Commission (ITC) May 8. Lawyers for respondents in the case claim ITA will have difficulty finding high AD and CVD margins. They note that ITA hasn't yet issued a final scope determination and is delaying the drafting of a final order because it hopes it will be taken off the hook by a suspension agreement.

A March 6 ITA hearing on the CVD case raised new issues that will further complicate the agency's ability to write a defendable final order (see WTTL, Feb. 25, page 2). At the hearing, speakers for Canadian respondents challenged the use of cross-border price comparisons and the small sample of lumber auctions in the U.S. Any ITA ruling will be immediately challenged to a NAFTA binational panel. Separately, Canada March 6 asked the U.S. for WTO consultations on the preliminary AD order.

Some Canadians are upbeat about their odds at the ITC. They note that trade-hawk Dennis Devaney left the Commission in December when his one-year appointment expired and that co-trade hawk Lynn Bragg has recused herself. They claim Commissioner Deanna Okun also should recluse herself because she represented lumber interests in private practice. That would leave the final injury ruling up to Chairman Stephen Koplan and Commissioners Marcia Miller and Jennifer Hillman. Moreover, they point to the decline in lumber imports and absence of the "wall of wood" some had predicted when the old Softwood Lumber Agreement expired.

* * * BRIEFS * * *

COMPUTERS: BXA in March 8 Federal Register issued final rules increasing MTOPS threshold for exports of high-performance computers and implementing December 2000 changes in Wassenaar list provisions for HPCs.

NATO: BXA plans to publish change in EAR to drop Czech Republic, Hungary and Poland from countries subject to Regional Stability controls, because they are now members of NATO.

EX-IM: Bank has begun implementing its new economic review policy for financing exports that might lead to production of goods that will be exported back to U.S. or take business from other U.S. exporters. In March 4 Federal Register it asked for public comments on proposed $35 million in lending to support sale of equipment to Mexico that would help produce 700,000 crankshafts annually, some of which will be exported to U.S. Another notice sought comments on loan $12.5 million loan to help export of equipment to South Africa that would increase phosphoric acid production by 330,000 tons, of which 257,000 tons will be exported to Australia, Brazil, India and other countries in Africa.

ITC: Marilyn Abbott named ITC secretary March 4. She has been deputy secretary since 1998.

STATE: March 5 publish list of nine firms and individuals who have been debarred from ITAR licensing privileges because of convictions -- mostly dating from 1999 -- for violating Arms Export Control Act.

POULTRY: U.S. has stepped up complaints against Russia's Feb. 28 ban on imports of U.S. poultry, supposedly for health reasons. At press briefing on steel March 5, USTR Robert Zoellick warned that continuation of ban will hurt chances of getting permanent exemption of Russia from Jackson-Vanik Amendment. "I've been trying to work with Congress to help deal with the repeal of Jackson-Vanik," Zoellick said. "But if this stays on, I don't see it getting repealed; it's just a fact of life. I talked to [Republican Minority] Leader Lott of our party and he certainly made that point clear to us," he added.

UPDATE WEST: BXA has announced that this year's conference will be in Pasadena April 15-17.

TRIPS: EU March 5 presented two options to WTO TRIPS Council to allow developing countries that don't have drug manufacturing industry to import products made in other countries. TRIPS agreement at Doha Ministerial had left unresolved issue of how countries invoking compulsory licensing rules for patented drugs will be able to obtain them, if they don't produce such medicines themselves (see WTTL, Nov. 19, page 3). EU suggested two alternatives: amend TRIPS to allow production elsewhere for export to these countries or interpret TRIPS Article 30 to permit such production and export.

MEXICO: U.S. has praised Mexico's decision to drop tax on soft drinks with high-fructose corn sweeteners at least temporarily. "I am disappointed the tax was not permanently repealed," said USTR Robert Zoellick.