Volume 23 No. 38 -- September 29, 2003

IN THIS ISSUE:

* Juster Calls for Greater Chinese Cooperation on Export Controls
* ITA Has Reopened Record in Softwood Lumber Case
* Bush Not Likely to Decide on Steel 201 Until November -- If Then
* U.S. Steps Up Complaints Against Mexican Agriculture Barriers
* Senate Ready to Move Quickly on FSC/ETI Legislation
* WTO Heading Toward Record Number of Panels
* CAFTA Talks Could Miss December Deadline
* BRIEFS: FAST, Denial Order, Antidumping Act, FREETAC
 

JUSTER CALLS FOR GREATER CHINESE COOPERATION ON EXPORT CONTROLS

Before the Bureau of Industry and Security (BIS) can ease export controls on semiconductor manufacturing equipment to China, it "must see great openness and greater cooperation by the Chinese government on export control issues, especially on such issues as end-use verification vists," BIS Under Secretary Kenneth Juster told the U.S.-Taiwan Business Council.  He warned Taiwanese firms that their growing exports of semiconductor equipment, software and technology to China may face U.S. licensing requirements, if they have more than 25% U.S. content.

Although the Bush administration has attempted to maintain a balanced relationship with Beijing, "China's performance in the area of nonproliferation and export controls has been less than satisfactory," he said in his prepared remarks.  He noted that the U.S. has imposed sanctions on Chinese firms for exporting sensitive items to countries of concern.

Focusing on the semiconductor equipment sector, Juster acknowledged that "the process for seeking approval for exports to China's semiconductor industry is sometimes prolonged and frustrating."  He said BIS is studying measures that might ease the process by pre-screening the commercial bona fides of a small number of Chinese entities and developing standard licensing conditions for these products.  BIS is also seeking more information from industry to get a better understanding of China's emerging semiconductor sector.

"Some commentators have asserted that the U.S. government should try to keep China two generations behind the state-of-the-art developments in the semiconductor industry," Juster noted.  "Some members of industry argue that we should decontrol semiconductor equipment entirely," he continued.  "Our policy is at neither extreme," Juster said.

"We do not take the Cold War stance that all exports to the PRC should be evaluated as exports that will be diverted to a hostile military," he claimed.  "But because of the security issues I have outlined, we also are not prepared to treat China as we would a partner in our export control regimes.  Nor are we prepared to treat China as we do Taiwan," Juster declared.
 

ITA HAS REOPENED RECORD ON SOFTWOOD LUMBER CASE

As expected, the International Trade Administration (ITA) Sept. 25 notified the U.S. and Canadian lumber industries that it has reopened the administrative record in the countervailing duty (CVD) case against Canadian softwood lumber to collect new information on whether Canadian provinces are subsidizing their industry and by how much (see WTTL, Aug. 18, page 3).  The agency has issued new questionnaires to Canadian respondents, who were given until Oct. 9 to respond.

At the same time, ITA asked a NAFTA dispute panel for a 90-day extension of the panel's remand order, which originally set Oct. 13 as the deadline for the agency to issue a revised CVD order in line with the panel's Aug. 13 decision.  The panel said ITA's use of cross-border price comparisons to find lumber subsidies in Canada was not supported by the evidence in the record and contrary to law.

 ITA staffers Sept. 23 met separately with representatives of the U.S. Coalition for Fair Lumber Imports and the Canadian government to discuss agency plans for responding to the NAFTA panel's ruling.  Sources say ITA gave few details explaining why it was reopening the record or what it hoped to get from new questionnaires, which reportedly are much shorter than the questionnaires issued in the initial investigation.

Lawyers on both sides of the case have disagreed over whether there was sufficient evidence in the record on which to establish a baseline price for lumber sold at market prices in Canada.  Canadian sources have claimed there is extensive information on the record showing free market sales in Canada and that this information shows that provincial stumpage fees don't provide a subsidy to Canadian lumber producers.  ITA had rejected that argument in its initial ruling.

Both Canadian and Coalition representatives have submitted proposals to ITA for new methods of weighing the existence of subsidies in the provinces.  The new questionnaires reportedly ask for more information on log prices, indicating that ITA may use log prices as the new methodology for finding a baseline price upon which to judge provincial stumpage fees.
 

BUSH NOT LIKELY TO DECIDE ON STEEL 201 UNTIL NOVEMBER -- IF THEN

The White House is expected to wait until at least November -- and perhaps longer -- before doing anything with the results of two International Trade Commission (ITC) reports released late on Sept. 19 on the economic impact of the current Section 201 import tariffs imposed on foreign steel.  With no legal requirement to change, amend or revoke the safeguard measure, the U.S. is likely to wait until a WTO Appellate Body issues its final report on the legality of the relief before taking any actions, supporters and opponents of the 201 sanctions say.

While U.S. steel producers are urging the administration to maintain the Section 201 relief, they may be willing to accept minor modifications.  Wilbur Ross, head of International Steel Group, which has played a significant role in consolidating the U.S. steel industry in the last year, told WTTL that he wants the tariffs to stay "pretty much the way they are."

But Ross, who said he doesn't expect the president "to be pushed into any instantaneous decision," also indicated that he could accept the granting of additional waivers for steel products that may be in short supply.  "There may be stray exceptions that should be granted," Ross said.  "When you do a broad brush thing, it was never the purpose to create shortages in individual little categories.  It may be when we hear from some of the auto after-market people that there may be some little categories that need a little bit of tinkering," he added.
 

U.S. STEPS UP COMPLAINTS AGAINST MEXICAN AGRICULTURE BARRIERS

Washington's complaint at the WTO Sept. 19 against Mexico's antidumping duties on U.S. rice  goes beyond the treatment of U.S. farm goods and seeks to overturn how the Mexican anti-dumping law treats foreign respondents.  The U.S. claims the law doesn't give foreign suppliers an adequate chance to participate in investigations and penalizes firms that don't participate by imposing higher antidumping duties than those imposed on firms that do participate.

Although U.S. law also allows Commerce to use "best available information" or take an "adverse" view of foreign firms that don't cooperate in antidumping cases, U.S. trade officials claim the Mexican law is different.

Rather than contacting all importers as the Commerce does, Mexico merely posts the notice of its investigations on its government website.  Importers that don't respond to that notice get adverse treatment and face a higher tariff.  New shippers also have difficulty getting a new review, U.S. officials contend.

In the rice case, Mexico in 2002 imposed a zero rate on two U.S. suppliers of long-grained milled rice and a 3.93% tariff on another firm, all three of which participated in the case.  For all other suppliers, it imposed a 10% duty.

Under pressure from Congress, the Bush administration is starting to take a harder line against Mexican import restrictions on U.S. farm goods.  In addition to the WTO complaint on rice, the USTR's office is considering a complaint against Mexico's antidumping order on U.S. beef, Chief Agriculture Negotiator Allen Johnson told the Sentate Finance Committee Sept. 23.  WTO consultations this summer failed to resolve the issue, he reported.  The U.S. is also showing less patience with Mexican barriers to U.S. dry beans, poultry and apples.  A new dispute has arisen over a proposed Mexican regulation that would bar exports of bulk tequila.

As part of a long running dispute over NAFTA's treatment of sugar and non-sugar sweeteners, the U.S. has protested Mexico's tax on soft drinks containing high-fructose corn syrup.  The U.S. will hold talks with Mexico on the dispute in the coming weeks, Johnson reported.
 

SENATE READY TO MOVE QUICKLY ON FSC/ETI LEGISLATION

The Senate Finance Committee is expected to markup legislation on Oct. 1 to repeal the Foreign Sales Corporation/Extraterritorial Income (FSC/ETI) tax rules and replace it with new tax breaks for U.S.-based manufacturers.  Republican and Democratic members of the committee reportedly agreed on Sept. 25 to move the legislation to the Senate floor as soon as possible.

On the committee's agenda at the markup will be a "chairman's mark," which will be offered by Chairman Charles Grassley (R-Iowa) to amend the FSC/ETI bill (S. 1637) that he and Ranking Member Max Baucus (D-Mont.) introduced Sept. 18 (see WTTL, Sept. 22, page 1).  Grassley's amendment, which was released Sept. 26, and others that are expected at the session would expand S. 1637 to include additional changes in the tax code to address international taxation rules.

If Finance reports out a new FSC/ETI bill, lawmakers will try to attach it to the next available revenue measure sent to the Senate from the House.  That is expected to put pressure on House Ways and Means Committee Chairman Bill Thomas (R-Calif.), who is still trying to muster support for his FSC/ETI bill (H.R. 2896).

While industry sources say Thomas has the votes to report his bill out of Ways and Means, they don't think he has enough to get it passed by the full House.  The majority of House members appear to back an alternative FSC/ETI measure (H.R. 1769) sponsored by Reps. Phil Crane (R-Ill.) and Charles Rangel (D-N.Y.).
 

WTO HEADING TOWARD RECORD NUMBER OF PANELS

By the end of 2003, the World Trade Organization (WTO) will have a record number of dispute-settlement panels in operation simultaneously.  There are already 10 panels underway with seven more in the process of being formed.  In addition, five more are about to be authorized.  Compared to the 22 panels that could be hearing disputes by the end of the year, the WTO has averaged just nine panels a year since its creation in 1995.  The previous high number of panels was 19 in 1999.

The number of panels could increase further in 2004 with the expiration of the so-called "Peace Clause" in the Uruguay Round agreement.  The clause suspended the right of WTO members to bring complaints against trade-distorting agriculture subsidies until 2004.

The draft ministerial declaration that WTO members were debating in Cancun included a proposal to extend the Peace Clause with an extension date still in brackets.  With the collapse of the Cancun meeting, some trade observers say countries could begin to exert their rights, specially targeting subsidies in the European Union (EU) and U.S.

The heavy panel schedule means the WTO Appellate Body also is likely to face a record load as the panel rulings get appealed in 2004.  With the current panel caseload, more than 300 disputes have been taken to the WTO dispute-settlement process since 1995, the WTO reports.

The current chairman of the Appellate Body, former U.S. Representative James Baccus, is coming to the end of his term, having served the two-term limit.  The U.S. has nominated Robert Lighthizer, a partner in the law firm of Skadden Arps in Washington and Columbia University law professor Merit Janow to fill the vacancy.

Lighthizer was a deputy USTR in the Reagan administration and has represented U.S. steel firms in numerous trade cases.  Janow, who worked at Skadden in the 1980s, was a deputy assistant USTR in the Bush I administration.
 

CAFTA TALKS COULD MISS DECEMBER DEADLINE

It is increasingly doubtful that negotiators will complete talks on a free trade agreement between the U.S. and five Central American countries and the Dominican Republic by their December deadline.  With a long list of unresolved issues left and less than 90 days to finish negotiations, the parties may announce an agreement in principle in December, but continue talks on the details into 2004.  To give the talks a boost, U.S. Trade Representative (USTR) Robert Zoellick will visit the region Sept. 30-Oct. 3.

The U.S. has completed seven of nine scheduled rounds of talks with the Central Americans and "on the level of the text negotiations, discussions are going quite well," Assistant USTR for Latin America Regina Vargo said Sept. 24.  Agreement has been reached on the texts covering customs administration, electronic commerce, trade capacity building, and general safeguards, she reported.

Although she detailed numerous other areas where no agreement has been reached yet, Vargo would not concede that the talks will miss their December deadline.  "That objective is not out of reach," she declared.  To meet the deadline, however, negotiators will embark on numerous sector specific talks in addition to the two formal rounds already scheduled.

"The real challenge for the negotiations over the coming months has to do with the market access area and only for the sheer volume of the details in dealing with this topic not only for the United States but for these five countries," she said.  Much work remains on services and investment, Vargo reported.  While progress is good on market access for consumer and industrial goods, talks on textiles and apparel will need several more sets of talks.  "Agriculture is turning out to be difficult, but not impossible by any means," she said.
 

 * * * BRIEFS * * *

FAST: Customs in Sept. 25 Federal Register revised eligibility requirements for truckers and shippers participating in Free and Secure Trade (FAST) program, which is intended to speed land entry into U.S.  It also announced opening of Mexican border crossings that will now be participating in program and additional Canadian entry points (see WTTL, May 5, page 3).

DENIAL ORDER: BIS Sept. 5 issued 10-year denial of export privileges for Gunter Kohlke, who is now resident of Allenwood federal prison.  Formerly from Jestetten, Germany, he is serving time for violating Arms Export Control Act for attempting to export Munitions List items to Switzerland without  licenses.

ANTIDUMPING ACT: EU has reopened WTO arbitration case against 1916 U.S. Antidumping Act because Congress has failed to revise law as U.S. promised after WTO found act inconsistent with WTO rules.

FREETAC: Wilbur Ross, whose International Steel Group has almost single-handily restructured U.S. steel industry and is now seeking to consolidate textile industry, is key sponsor of new group, Free Trade For America Coalition, which has brought together firms and unions in steel, textile, citrus, sugar, cotton, cattle, and beekeeping industries to fight against new trade agreements and unfair foreign trade practices.

Copyright 2003 by Gilston-Kalin Communications, LLC.  Reproduction or retransmission in any form is prohibited.  Washington Tariff & Trade Letter is published weekly 50 times a year. 
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