Volume 23 No. 26 -- June 30, 2003

IN THIS ISSUE

* Source of "Tip Sheet" In Steel Investigation Revealed
* Research Drug Firms Offer New Proposals for TRIPS Talks
* U.S. Has Cautious Reaction to EU's CAP Reforms
* ITA May Look at "Sales Process" in CVD Privatization Rulings
* NAFTA Panel Rules Against Canadian Firm in Investment Case
* BRIEFS: Export Enforcement, Antiboycott, Pakistan, Alcohol, Bags

SOURCE OF "TIP SHEET" IN STEEL INVESTIGATION REVEALED

A lawyer representing auto parts manufacturers has told the International Trade Commission (ITC) that he created what has become a controversial "tip sheet" to help his clients complete the Commission's questionnaire in its Section 332 study of the impact of steel restraints on steel-consuming industries (see WTTL, June 23, page 2).  But in a June 25 letter to the Commission, Sanford Ring of the DC law firm of Dykema Gossett said the advice was "intended to assist respondents in presenting their data in a manner which would prevent [the industry's] unique conditions of competition from masking the impact of the safeguard tariffs on the sector."

The tip sheet came to light at the ITC's June 19-20 hearing on the effect of the steel Section 201 action on steel users.  At the opening of the hearing, Chairman Deanna Okun raised questions about the tip sheet.  During the hearing, Commissioner Stephen Koplan asked witnesses if they had seen the tip sheet or had any part in it.

"Certain advice contained in the tip sheet appears to recommend that questionnaire respondents should exaggerate their responses," Okun said. "The Commission is concerned that these instructions may have affected its fact finding," she added.  Okun said the ITC would continue to investigate the source and impact of the tip sheet.  After the hearing, Okun sent letters to several witnesses, including Ring and the National Electrical Manufacturers Association, asking them whether they had received the sheet and if so, from whom and if they distributed it to others.

In his letter, Ring explained that many of the auto parts firms responding to the ITC questionnaire in the fact-finding study had never participated before in a Commission case of any kind and had little experience on how to answer ITC questions.  He said the tip sheet was sent to "a small universe of automotive parts suppliers" and also discussed in a conference call.  Ring claimed he told the companies that what they submit had to be complete and correct and would be verified by the Commission.  The tip sheet advised companies that "estimates are allowed if exact data is not available."  It said respondents could "be creative and extrapolative."  It suggested: "Similarly, even if only anecdotal, multiply the impact of a particular adverse development."
 

RESEARCH DRUG FIRMS OFFER NEW PROPOSALS FOR TRIPS TALKS

To help unblock the deadlocked WTO talks on the use of compulsory licensing for patented drugs by least developed countries, the pharmaceutical industry has offered a new proposal that would return the negotiations to the original focus on the definition of which countries qualify for special exemption from the Agreement on Trade-Related Intellectual Property Rights (TRIPs). The drug industry has suggested that if the list of countries eligible for special treatment were carefully restricted to really poor countries, it would be willing to agree to rules that would exempt drugs for a broader number of diseases beyond HIV/AIDS, malaria and tuberculosis from TRIPS rules.

U.S. Trade Representative (USTR) Robert Zoellick has held talks with representatives of  U.S. and foreign drug companies, most recently on June 16, on ways to overcome differences in the TRIPS talks.  He presented some of these ideas to other trade ministers during their recent meeting in Sharm El-Sheik, Egypt.

 Industry's "key focus is on the change being discussed now in the TRIPS regime to allow an export provision," he noted.  "They want to be sure that the export provision is not used by some developing countries with healthy pharmaceutical industries to expand production globally without respect for patents," Zoellick told reporters June 25.  "They are also concerned about the antidiversion rules," he said
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"I think those are both important concerns and I urged my colleagues [at Sharm El-Sheik] when the companies came to present them to members of the TRIPS Council and others to take them seriously and see if we can try to find solutions for those," he added.  The issues are difficult, he admitted.  "I don't want to suggest that it is on its way to imminent solution, but I think it is a positive step forward, and I am going to keep working with the companies to move it forward," he said.  "I think the sense from other countries in the room was of the same nature," he reported.

Two issues have kept WTO negotiators from implementing an agreement reached at the Doha Ministerial to make it easier for poor countries to issue compulsory licenses for drugs to deal with health emergencies.  One was an attempt by some middle-income countries, such as Mexico, India and Korea, to qualify for the special rules.  The other was a set of proposals that would broadly expand the meaning of health emergency to deal with almost every major disease category from cancer, infections and heart disease to birth control and impotence.  The world's major pharmaceutical companies, backed almost solely by the U.S., refused to swallow such a big pill.

The industry now says it might agree to allow more diseases and drugs to be covered by the eased rules, if the list of eligible countries were restricted and a set of conditions were applied. Among the conditions it is requesting are: a system for notifying both the WTO and the patent holder of the compulsory license; a process for challenging a country's claim that it lacks pharmaceutical production capability; transparency in the issuing of licenses; establishment of an independent group to review the circumstances of the compulsory license annually; and assurances that the changes won't open TRIPS up for broader weakening of patent rules.
 

U.S. HAS CAUTIOUS REACTION TO EU'S CAP REFORMS

The meaning of the reforms the European Union (EU) adopted June 26 to its Common Agriculture Policy (CAP) for the Doha Round probably won't be known until the EU presents a new offer in the agriculture talks.  What is clear, however, is Europe's intention to use the CAP reforms as a weapon to attack U.S. farm programs and especially the 2001 Farm Bill.  After two years of being on the defensive in the World Trade Organization (WTO) negotiations, the EU is ready to put the blame on everyone else if the talks continue to remain blocked (see WTTL, June 9, page 1).

"Without new EU agriculture proposals in the WTO, the world cannot fully assess the impact of CAP reform, said USTR Robert Zoellick and Agriculture Secretary Ann Veneman in a joint statement.  Australia's ambassador to the WTO, David Spencer, said the CAP package "was a significantly watered down version of the commission's initial proposal."  Moreover, it doesn't address other Doha mandates on market access and export subsidies, he added.

One reason for Washington's mild reaction to the CAP reforms is the sheer complexity of the changes adopted.  Even agriculture cognoscenti admit they cannot gauge the overall effects of the reforms because of the many exceptions, partial measures and extended implementation periods.

The plan calls for decoupling most EU domestic farm support from production, but a significant amount of linkage remains for beef, cereals and dairy products, with member states having discretion in allocations.  A big shift will come through the direction of more funds toward environmental, rural development, food safety and animal health programs [Editor's Note: WTTL will send the EU's own 9-page outline of CAP reform plan to subscribers on request.].

Most sources agree the move toward the decoupling of domestic farm supports from production, even if it's not a complete break, is a major shift in European policies. Finance Committee Chairman Charles Grassley (R-Iowa) called it "a good first step."

Nonetheless, they also say the level of support, which will stay at current levels, probably would not meet the goals in the draft WTO agriculture modalities text prepared by the chairman of those talks, Stuart Harbinson of Hong Kong.  Harbinson will issue a revised draft of his paper before the WTO Ministerial Meeting in Cancun in September.  WTO observers say they are waiting to learn whether the EU will make an offer soon enough to have its views reflected in that next draft.

EU Trade Commissioner Pascal Lamy signaled Europe's attack on the Farm Bill June 26, saying CAP reform gives him a "very useful line of credit" to use in the WTO negotiations.  "It gives me a new margin to maneuver," he said.  "But the Council of Member States will not allow me to use that flexibility unless others are willing to put similar concessions on the table," he added.  He questioned what the U.S. is willing to put on the table.  The U.S. will also have to cut domestic supports, he suggested. "The Farm Bill cannot remain untouched in this process," he declared.

The 2001 Farm Bill significantly boosted domestic support.  Some lawmakers and the White House claimed the increase was intended to counteract the high supports and export subsidies EU pro-vides its farmers.  They claimed the increases would be reduced if the WTO round led to major reforms in Europe.  But trade sources say those arguments were just posturing, and many members will want to keep that support indefinitely.  The current law expires in 2006, supposedly after the Doha Round is completed.  A strong WTO agriculture deal on domestic supports, export subsidies and market access will test whether Congress really intended this help to be temporary.
 

ITA MAY LOOK AT "SALES PROCESS" IN CVD PRIVATIZATION RULINGS

A foreign government's privatization of a state-owned industry -- even in an "arm's-length" transaction and at a "fair-market" price --  might not mean the entity's new owners will escape existing countervailing duties (CVD) on its exports to the U.S., according to new rules the International Trade Administration (ITA) issued June 23 in the Federal Register.  The final regulation attempts to bring the U.S. into compliance with a WTO ruling which found ITA's previous treatment of privatization to be inconsistent with the WTO Agreement on Subsidies and Countervailing Measures (see WTTL, March 24, page 4).

Under its old rules, ITA used to continue CVD orders on privatized foreign enti- ties, if the recipient of the original subsidy was the "same person" as the current producer/exporter even after privatization.  The WTO said such a policy was inconsistent with the SCM, but agreed there could be a rebuttable presumption that a benefit ceases after privatization.

In the rule, which drew sharply opposing comments from lawyers for petitioners and respondents, ITA has tried to lay out a methodology that will look at the arm's-length, fair market price of a privatization, but also allow parties to open the door to an examination of the circumstances of the sale.  Its "baseline presumption" will be that the subsidy continues, but respondents can try to demonstrate that there was an arm's-length, fair-market privatization of the entity.

At the same time, ITA said there may be factors, such as government laws, regulations or other market-distorting restrictions, that prevent the marketplace from operating in a totally fair way.   In modifying its final rule, ITA dropped language which would have allowed it to consider the motivations or intent of the government in privatizing an entity.

"If we determine that the evidence presented does not demonstrate that the privatization was at arm's length for the fair-market value, the baseline presumption will not be rebutted and we will find that the unamortized amount of any pre-sale subsidy benefit continues to be countervailable,"  ITA explained.  If the arm's length sale is the fair-market value, then the pre-sale subsidy will not be countervailable, it continued.

Nevertheless, a party can challenge this decision.  Parties could still try to argue that "the broader market conditions were severely distorted by the government and that the transaction price was meaningfully different from what it would otherwise have been absent the distortive government actions," it stated in the preamble to the regulation.
 

NAFTA PANEL RULES AGAINST CANADIAN FIRM IN INVESTMENT CASE

A major potential source of public resentment against NAFTA was averted June 26 when a three-judge arbitration panel ruled against a Canadian firm seeking to overturn a Mississippi jury's $500 million ruling against it in a breach of contract suit.  Loewen Group, a conglomerate in the funeral home industry, sought to use Chapter 11 of NAFTA to claim its rights to fair treatment as a foreign investor were violated.  NAFTA critics had charged the case showed how Canadian and Mexican firms could used the trade pact to overturn U.S. courts and laws.

After detailing the treatment Loewen and its president Raymond Loewen received in the Mississippi courts, the arbiters concluded, "There was unfairness here towards the foreign investor."  Nonetheless, they said it was not their role to step into "an international wrong that was a local error."

One legal problem Loewen had, however, was the fact that it was acquired by a U.S. company in the midst of its Chapter 11 suit and therefore lost its status as a Canadian investor.  The panel suggested the firm had not fully used its appeals rights within the U.S. court system.  The ruling declared that "Chapter Eleven of NAFTA represents a progressive development in international law whereby the individual investor may make a claim on its own behalf and submit the claim to international arbitration."  But it was not intended to protect American investors from U.S. practices.  Reaching the decision on a jurisdictional issue, may still leave Chapter 11 open to future criticism, since Loewen might have prevailed, if it had stayed Canadian-owned.

* * * BRIEFS * * *

EXPORT ENFORCEMENT: Bio Check, Burlington, Calif., maker of medical tests, agreed to pay $22,500 civil fine to BIS and $32,000 civil fine to OFAC to settle charges that on 15 occasions from 1998 to 2002 it shipped test kits to United Arab Emirates and Italy knowing they were going to Iran and not obtaining export license.  Charges also claim it failed to file Shipper's Export Declarations for shipments.  Company voluntarily disclosed these violations to both BIS and OFAC and cooperated with investigation, BIS said.

 ANTIBOYCOTT: Jargo Customs Brokers and Freight Forwards of Irvington, N.J., agreed to pay $5,700 civil fine to settle BIS charges that it provided prohibited boycott information about its non-relationship to Israel to customer in Bahrain.  It also failed to report request.

PAKISTAN: U.S. and Pakistan signed Trade and Investment Framework Agreement June 25.

ALCOHOL: Penn Specialty Chemicals filed antidumping complaints at ITA and ITC June 23 against tetrahydrofurfuryl alcohol from China.

BAGS: Polyethylene Retail Carrier Bag Committee June 20 filed antidumping petitions at ITA and ITC against imports of polyethylene retail carrier bags from China, Malaysia and Thailand.

RUSSIA: Ranking Finance Committee Democrat Max Baucus (D-Mont.) told USTR Robert Zoellick that Bush administration plans for asking Congress to repeal Jackson-Vanik restrictions on Russia are "premature."  In June 27 letter, he said: "Graduating Russia from Jackson-Vanik would confer no trade benefits on Russia.  Instead, it would only serve to impede Congress's oversight regarding Russia's eventual accession to the World Trade Organization."

IRAQ: Zooma Enterprises of San Diego, was fined $8,000 and its president, Issa Salomi, $24,000 for attempting to ship medical ampul machine to Jordan although it was intended for Iraq.  They were charged with making false statements to Customs.  Salomi will pay fine in four payments over next 12 months.

Copyright 2003 by Gilston Communications Group.  Reproduction or retransmission in any form is prohibited. Washington Tariff & Trade Letter is published weekly 50 times a year.  E-mail: Info@WTTLonline.com