Volume 22, No. 1 -- January 7, 2002

Posted Monday, January 7, 2002 12:00 am

BXA PUTS FOCUS ON TRANSIT SHIPMENT COUNTRIES

Exports destined for countries that are major transshipment locations or entrepot are likely to get increased attention from the Bureau of Export Administration (BXA) as the agency reaches out to these countries to strengthen their export control regimes. Since the Sept. 11 attacks, BXA representatives have visited Cyprus, Malta, Singapore and the United Arab Emirates (UAE) as part of a program to help those countries increase their controls and to spot potential diversion of weapons of mass destruction.

"We want to work with transshipment countries to improve their export control systems," BXA Under Secretary Kenneth Juster told WTTL in an exclusive interview Jan. 3 (see story below). "While one cannot stop the way these countries do business, if we work effectively with them, we may be able to have some influence on the process," he said.

"When you read stories about Bin Laden and al Qaeda, you see the names of certain countries popping up as to where money and goods get funneled through," Juster told WTTL. "We are trying to work effectively with them to enhance their export controls regimes," he said.

While these destinations aren't an automatic red flag for exporters, Juster advises companies to be aware of the need for heightened scrutiny in doing business in these countries. Companies "have to try to know as much as they can about their customers," Juster said.

BXA's JUSTER SEES POSITIVE RESULTS FROM INTERAGENCY COMITY

Seven months after taking office, Commerce Under Secretary for Export Administration Kenneth Juster has seen progress on many of the goals he set when he took over leadership of the Bureau of Export Administration (BXA), but he also is disappointed in the roadblocks still delaying action in other areas. Overshadowing all the activities of the agency, however, is the impact of the Sept. 11 terrorist attacks and the renewed importance being given to export controls as part of national security.

In an exclusive interview with WTTL on Jan. 3, Juster noted the success of his effort to improve interagency relations on control issues, while conceding that similar progress has not been made on his goal of strengthening multilateral export regimes. Enactment of a new Ex-port Administration Act (EAA) remains one of his top priorities, and he said he is "cautiously optimistic" that a measure would be passed and signed into law this year.

The events of Sept. 11 have added extra burdens on BXA and the entire national security system, not because of any new export controls that have been imposed but because of new responsibilities and assignments given to license reviewing agencies. "In that sense, Sept. 11 has overloaded the circuits of important players who deal with export controls," Juster told WTTL.

BXA has stepped up contacts with firms in the chemical and biological industries to make sure they are aware of the heightened security needed for their exports. Agency staffers have also been assigned to Justice to help with recovering data from seized computers. Juster himself has been given extra duties as part of the Bush administration's homeland security initiative. He chairs a new committee on private sector and local and state government critical infrastructure protection

One area that has seen progress delayed because of these new tasks is the development of a new deemed export policy. Although BXA has established an internal task force to address this issue, it has not been able to get the attention of other agencies. "This is the kind of issue that the events of Sept. 11 affected somewhat, because the people you want to consult with, such as the intelligence community, are preoccupied with more pressing events," he said.

While some sources have complained that BXA has been too willing to give in to State and Defense in interagency disputes since he took office, Juster defends his approach to dealing with other agencies. "I think the interagency process is working effectively," he told WTTL. "We don't have a policy of being deferential to any particular agency. We have a policy of looking at the issues on the merits, and trying to represent industry as vigorously as we can, given the merits of the issues," he said.

"We think industry will enhance its credibility and we will enhance our credibility in the interagency process if we address the national security issues. I think that has been borne out by the events of Sept. 11," he continued. Juster pointed to several decisions that have come out of the interagency process and show this approach is working. These include resolution of the jurisdiction dispute over space-qualified parts, recent resolution of night vision licensing cases, the Jan. 2 announcement of higher control limits on high-performance computers and microprocessors and approval of licenses for food sales to Cuba.

"Generally, we've been able to reach consensus with other parts of the U.S. government on a range of issues rather than having the interagency process paralyzed by everyone taking positions that are diametrically opposed," Juster said. "When I was nominated, I heard a lot of frustration from industry that often the interagency process had broken down; that issues languished for a long time without getting resolved," he continued. "I have, therefore, made a concerted effort with my counterparts at the State Department and Defense Department to get together to resolve issues," he noted.

"My advice to industry from the outset has been, Let's not dodge the national security issues. Let's address them and respond to them.' I think that approach will be more effective in the interagency process and make Commerce a more credible advocate on their behalf," Juster said.

JUSTER DISAPPOINTED WITH EFFORTS TO STRENGTHEN WASSENAAR

BXA Under Secretary Kenneth Juster admits he has seen limited progress, despite the events of Sept. 11, in strengthening multilateral export control regimes, and particularly the Wassenaar Arrangement. "Quite frankly I was disappointed at the results of the last [Wassenaar] plenary session," he told WTTL in an exclusive interview Jan. 3. "The United States wants to act multilaterally and that's what our partners abroad want us to do. But multilateralism should not mean lowest common denominatorism," he declared. "I've been disappointed that a number of countries have made procedural, tactical or rhetorical responses on important national security issues, rather than meritorious responses," he complained.

Juster is cautious about discussing the possibility of establishing a smaller core group of like-minded countries that would be willing to accept tighter controls. Even the suggestion of this idea ruffles countries that might not be included in the group. "In terms of whether there should be an alternative to Wassenaar, my hope is that Wassenaar will itself become a more disciplined arrangement," Juster said. "If Wassenaar over time turns out not to have the utility that we think is necessary, then we may to have to consider potential alternatives," he added.

"This administration inherited the Wassenaar Arrangement," he noted. "I don't want to be unfair to the previous administration because I wasn't part of the internal decision-making process, but I think the ball may have been dropped somewhat in creating the Wassenaar Arrangement because it was set up in such a loose manner with complete national discretion. Others, of course, would say that there was no alternative to that arrangement," he added.

USTR's QUESTIONS ON STEEL 201 LOOK TOWARD LIKELY WTO CHALLENGE

With a World Trade Organization (WTO) dispute certain over the coming Section 201 relief for the U.S. steel industry, U.S. Trade Representative (USTR) Robert Zoellick Jan. 3 asked the International Trade Commission (ITC) for additional information to clarify the Commission's Dec. 19 recommendations to President Bush. Zoellick's request appeared to be aimed in part at bolstering the ITC's findings in anticipation of questions a WTO dispute-settlement panel is likely to raise based on previous WTO disputes that found fault with other Section 201 actions.

In particular, Zoellick asked the ITC to "identify any unforeseen developments that led to the relevant steel products being imported into the United States in such increased quantities as to be a substantial cause of serious injury or threat." Foreign complaints about Section 201 relief are likely to claim the injury to U.S. industry isn't from a surge in imports but rather is from a long-term trend.

Zoellick also is seeking more information on the various economic models the ITC used to weigh the relationship of imports to other conditions that might be contributing to the industry's injury. In addition, he asked for more data to support the "market linkages among the different types of imported certain carbon flat-rolled steel." Since ITC members considered all flat steel products to be "like products," this information may be useful in defending the Section 201 action against complaints that the ITC didn't meet WTO standards for determining what are "like or directly competitive" products.

Other questions sought more details on the economic impact of relief options, including potential costs to consumers. Zoellick also requested additional information to justify the potential exclusion of Canada, Mexico, Israel and Jordan from some import restrictions.

LIMITED IMPACT ON TRADE EXPECTED FROM ARGENTINA CRISIS

Argentina isn't Mexico. That sums up the Bush administration position, although only stated privately, regarding the economic and political crisis in Argentina. Few of the political, economic, trade, social and immigration concerns that led the U.S. to back a major economic relief package for Mexico during its crisis in 1995 exist in the current problems in Argentina. No one, however, is so sanguine as to say there will be no fallout from Argentina's problems. But most of the pain will be in Latin America and among some companies in Spain and Italy that have large investments in the country.

Any U.S. effort to help the new government in Buenos Aires is likely to contain at least a small trade element. But the U.S. will be limited in what it can do for Argentina on trade because "what we do for one country we have to do for everyone," one trade official told WTTL. "Our hands are tied to the degree you can't give one country unilateral benefits," he added.

Although U.S. trade officials reportedly have participated in the daily meetings held at the White House on the situation in Argentina, most of Washington's help and policy direction for Argentina will come from Treasury, which is the lead agency on International Monetary Fund matters. "Keep in mind that Argentina was the poster child for economic reforms in Latin America," one official said. "A lot is riding on the success of those reforms. If they backtrack, it doesn't send the right message," he said.

In a year of declining trade globally, U.S. exports to Argentina have dropped 10% in the 10 months from January to October to $3.5 billion, compared to the same period last year. That shift masks large increases in exports of chemicals, drugs, transmitter-receivers and fertilizers. Imports over that time are off just 2% to $2.5 billion. Imports have been held up by strong growth in U.S. imports of leather seats for cars and leather for furniture.

New U.S. trade benefits would not necessarily help Argentina much anyway. Trade accounts for only 11% of its GDP and U.S. trade is just 20% of that. Argentina's exports have been hampered by the country's link to the high-valued dollar, its higher labor costs compared to such neighbors as Brazil and low prices for its major exports, agriculture products and oil.

Even fellow Latin American countries are trying to separate themselves from being linked to the trouble in Buenos Aires. "The Brazilians think they have insulated themselves from the spill over," one U.S. official told WTTL. "Nothing operates in a vacuum," the official added. "There is always a cause and effect. My gut feeling is that it will have an impact on them."

Privately, U.S. officials admit the Argentine crisis is likely to affect progress on a Free Trade Area of the Americas (FTAA), although not drastically. The FTAA process still has three more years of talks ahead and many other hurdles to overcome. Nonetheless, movement toward an FTAA could be delayed, one U.S. official told WTTL. "The possibility is there. You have to be realistic," he said. At the same time, the crisis could have the opposite effect and spur countries to reach a deal. "Argentina's crisis may make the FTAA more important because countries will want to cement reforms to facilitate the flow of goods," he added.

BUSH RAISES CONTROL LEVELS ON COMPUTERS AND MICROPROCESSORS

The Bush administration Jan. 2 demonstrated that it is prepared to keep to the same schedule of regular liberalization of computer controls that the Clinton administration established. The White House announced that President Bush notified Congress Dec. 28 that he will raise the threshold for requiring individual export licenses for Tier 3 countries to 190,000 Million Theoretical Operations Per Second (MTOPS) from 85,000 MTOPS. Subject to congressional review and objections, the change will take place 60 days after the notice.

Bush also said he will raise the license exception level for microprocessors to 12,000 MTOPS from 6,500 MTOPS. That change will become effective upon publications of revised rules in the Export Administration Regulation (EAR). He also will move Latvia from Tier 3 to Tier 1 status in 120 days.

New microprocessor rules will especially benefit companies making chips for cell phones, said Greg Delagi, vice president of the digital signal processors for Texas Instruments. Digital signal processors "are critical components in 2.5 and 3G wireless infrastructures," he said.

* * * BRIEFS * * *

ANTIBOYCOTT: BXA has issued alert to exporters to expect possible increase in boycott requests in wake of October meeting of Arab League Boycott Office.

WASSENAAR: BXA finally published rules implementing December 2000 Wassenaar Arrangement changes in control list in Federal Register Jan.3.

CHINA/TAIWAN: Taiwan became 144th member of WTO Jan. 1. President Bush has granted China permanent-normal-trade-relations status effective Jan. 1 following its full accession to WTO Dec. 11.