Volume 22, No. 12 -- March 25, 2002

CHINA RESISTS U.S. EFFORTS TO INCREASE END-USER INSPECTIONS

Political and practical factors are likely to keep China from helping the U.S. relieve the grow-ing backlog of post-shipment verifications (PSV) for high-performance computers (HPC) and other controlled items.  Bureau of Export Administration (BXA) officials, including Under Secretary Kenneth Juster, have held discussions with the Chinese in recent weeks to address the backlog but have not resolved the problem.   "We are discussing this.  We have begun to make some progress.  We'd like to see more progress being made," Juster told WTTL.

Juster talked with Chinese officials during a trip to Japan, China and Hong Kong in late February.  "We presented the Chinese with some ideas to try to deal with the priority items for which we would like to have end-use visits and made some progress in that area," Juster said.  "Also on a long-term basis, we presented some ideas on how to improve the modus operandi for dealing with these visits."

The justification the Chinese give for not allowing more end-use visits is that this "is an issue of state sovereignty," Juster explained.  "They don't think it is appropriate for U.S. officials to be checking on what goes on in companies in China."  Beijing also claims it doesn't have the personnel to escort U.S. inspectors to the sites that have received HPCs or other licensed goods.  These products have been shipped all over China.  "On a practical basis, the Chinese are concerned that the limited number of people they have available -- three or four people in the Ministry of Foreign Trade and Economic Cooperation in Beijing -- presents practical problems for doing inspections in various locations around the country," Juster told WTTL.

BXA Assistant Secretary for Export Enforcement Michael Garcia followed Juster to Beijing and conducted further discussions on end-use visits.  Juster has also met with the Chinese ambassador in Washington.  The U.S. and China agreed to increase the number of PSVs during President Clinton's visit to Beijing in June 1998.  Garcia told a hearing in January that only 42 PSVs were conducted in 2001 and 700 PSVs are waiting action (see WTTL, Jan. 21, page 1).
 

U.S. OPEN TO COMPENSATION FOR STEEL, ZOELLICK CLAIMS

The U.S. is willing to consider reasonable proposals for compensating countries whose steel exports are being hurt by the Section 201 relief President Bush has impose on steel, U.S. Trade Representative (USTR) Robert Zoellick said March 20.  A compensation proposal made by Japan falls more within that scope than the demands made by the European Union (EU), he indicated.

As expected, however, compensation talks between the U.S. and EU March 19 in Geneva made no progress (see WTTL, March 18, page 3).  "The Japanese have come up with compensation numbers that take a different approach than the EU took," Zoellick told reporters.   "I think their numbers were $130-140 million," he added.  "I wish the EU took a similar approach."

Washington would prefer to offer compensation through reduced tariffs on other imports rather than higher tariffs on U.S. exports.  But the president's tariff-cutting authority expired with fast-track negotiating authority.  "We have to look at what authority we have in terms of being able to reduce tariffs," Zoellick said.

Zoellick urged the EU to "wait and see" the actual impact of the Section 201 action before imposing a safeguard action of its own or taking retaliatory action against U.S. exports.   "With the strong dollar and the U.S. economy growing, they may not have the diversion of steel" they expect, he said.  EU trade officials have circulated a list of $2 billion-worth of potential U.S. exports that they might hit with retaliation, if a deal on compensation isn't reached.

In balancing the economic impact of the Section 201 action, the White House has bet that increased U.S. production would at least partially offset the threat of rising prices and supply shortages on steel-consuming industries.  That projected relief may not materialize.  Latest production and capacity utilization figures issued by the American Iron and Steel Institute show capacity use up to 89.6% at the end of the week of March 16 and 86.4% year to date.  This compares to a utilization rate of 77.6% in the same year-to-date period in 2001.

Although the utilization rate has increased, net production is down nearly 3%.  The diverging numbers reflect the closing of plants due to bankruptcies and other restructuring.  For domes-tic steel to replace imports fully, U.S. industry might have to reopen some shutdown facilities.  That would be counter to the goals the administration has declared in the multilateral steel talks at the Organization for Economic Cooperation and Development (OECD).

Zoellick told a House hearing March 20 that the administration is reviewing about 1,000 requests for product exemptions from the 201 tariffs.  "I don't expect a great number of these," he said.  "Our inclination is to do this very conservatively," he added.
 

WTO WORKING PARTY READY TO RELEASE DRAFT REPORT ON RUSSIA

The pace of negotiations on Russia's accession to the World Trade Organization (WTO) is moving faster than many people predicted and is about to take a significant step forward with the expected circulation by the end of March of a draft Working Party report on its proposed WTO membership.  The draft report will include large portions of bracketed text, which indicate no final agreement, but it sets the stage for serious end-game negotiations that could lead to Russia's accession in 2003, sources in Geneva say.

"Now we are talking serious business," he said.  The draft will be circulated to WTO members, who will be asked to comment on it before the next Working Party meeting planned for April 23-24.

During bilateral and pluralateral meetings in Geneva, Russian officials, led by Deputy Minister for Trade Maxim Medvekov, presented new proposals for Moscow's commitments on services.  The Russians raised concerns about the need to exclude certain service sectors for national security reasons.  Other countries tried to explain to them that the General Agreement on Tariffs & Trade (GATT) already includes a blanket provision allowing nations to diverge from WTO rules based on national security justifications.

Moscow also wants a waiver of GATT most-favored-nation (MFN) rules to allow it to continue to comply with about 240 special agreements it has with other former Soviet republics that made up the Commonwealth of Independent States (CIS).  This has raised objections from some countries, which argue that MFN treatment is a cornerstone of WTO obligations.  During the talks, the Russians were asked to provide more details on these arrangements.

The latest talks reportedly didn't touch on Moscow's commitments in agriculture, which were the subject of separate negotiations in January (see WTTL, Jan. 28, page 1).  Russia still insists on being allowed to continue transportation subsidies for farmers in remote regions of the country.  The subject will be taken up again at a future meeting, one source said.

Separately, in the bilateral dispute over Russia's import ban on U.S. poultry, two weeks of technical-level talks haven't resolved the problem.  The Russians have claimed that there are health problems with U.S. poultry.  The U.S. Agriculture Department is trying to address Moscow's complaints.  "We have thoroughly investigated Russia's complaints and determined they do not warrant this ban," said USDA Secretary Ann Veneman.  "Nevertheless, we've taken some steps to address some of their concerns," she told a conference in Washington.

Although Moscow has justified its ban on sanitary and phytosanitary reasons, its real concern may be the surge in U.S. poultry exports to Russia.  From 1999 to 2001, U.S. poultry exports to Russia increased almost 500% to $656.5 million.  Poultry now accounts for 20% of U.S. exports to Russia, which takes about half of all U.S. poultry exports.

U.S. officials say the Russians haven't complained about this surge, which probably would be eligible for safeguard action under WTO rules, if Russia were in the WTO.  "I haven't heard them use that argument," USTR Robert Zoellick said.  "They have used the argument of sanitary-phytosanitary standards, which we found to be totally bogus."
 

U.S. MAY SEEK SPECIAL FRAMEWORK' TRADE DEAL WITH CENTRAL AMERICA

A proposed free trade agreement (FTA) between the U.S. and five Central American nations may look different than previous FTAs because of economic differences among those nations, USTR Robert Zoellick told a House Appropriations subcommittee hearing March 20.  As an example, Zoellick pointed to the economic differences between Costa Rica and Nicaragua.  "We may look at a framework for all five with individual modules for each one," he said.

President Bush was expected to give plans for talks with Central America a boost during his March 24 visit to El Salvador.  The formal launching of negotiations, however, still may be put off until after Congress enacts fast-track legislation, because the administration wants to consult with lawmakers and give them advance notice of the talks, Zoellick indicated (see WTTL, March 4, page 4).

LUMBER RULING DISREGARDS COMPLAINTS ABOUT SHIFT IN METHODOLOGY

The International Trade Administration (ITA) March 21 brushed aside the arguments of Canadian lumber producers and provinces and stuck to the same pricing methodologies in its final countervailing duty (CVD) decision on softwood lumber from Canada as it used in its preliminary ruling.  The result was a final CVD margin of 19.34%, which was almost identical to the 19.31% margin at the preliminary stage.  Respondent attorneys claimed this pricing method differed from the approach taken in softwood lumber cases in the 1980s.  These methods will be grist for the coming WTO and NAFTA panels that will review the decisions.

In the CVD case, one key issue "was our decision to use U.S. prices as a benchmark," a senior administration trade official explained.  "We looked carefully at the arguments that were made and decided that under the circumstances we were compelled to use the U.S. benchmark because under our WTO obligations and U.S. law we are required to find an appropriate market benchmark to determine the level of subsidy and the only appropriate benchmark available to us for comparison was the U.S. market," he said.

ITA's antidumping decision, on the other hand, accepted some Canadian arguments and reduced final margins for several firms.  "On the dumping side, a key issue raised by respondents was how we allocated costs," the administration official explained.  "We actually agreed with the respondents regarding how these allocations should be made and that is reflected in our decision," he said.  The agency increased margins on three Canadian producers and lowered them on three.  It reduced the "all other" margin to 9.67% from 12.58%.

Ironically, the producer hit with the highest dumping margin was the Canadian subsidiary of Weyerhaeuser -- a point noted gleefully by disappointed lawyers for other respondents.  Its final rate was raised to 15.83% from the preliminary rate of 11.93%.  Other margin changes were: Abitibi 14.6% from 13.64%; Tembec, 12.04% from 10.76%; Slocan, 7.55% from 19.24%; Canfor, 5.96% from 12.98%; and West Fraser, 2.26% from 12.58%.

The level of animosity over the case was strong throughout the preliminary and final stages, but got an extra fillip by ITA's handling of its final scope, class and kind determinations.  The agency released a draft decision late on Tuesday, March 12 and requested briefs to be filed by Friday, March 15.  Rebuttle briefs were due by Monday, March 18, and a hearing was held on March 19.  ITA's final determination rejected most Canadian requests for exclusion.  In particular, it refused to exclude western red cedar and several other lumber species.

In its final order, it did exempt lumber from Canada's Maritime Provinces -- New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland.  It also excluded 20 producers, mostly from Quebec, who were found to export de minimis levels of lumber to the U.S.

Negotiations, which had been going on almost steadily for two weeks to settle the cases before the final ruling, broke down near midnight on March 21 because both sides were too far apart in their offers (see WTTL, March 18, page 3).  They also failed because many saw the final ITA ruling as a phony deadline and were waiting to see the final margins before making new offers.  The International Trade Commission's final injury determination, which is due May 6, will offer another deadline for talks, because the result will be less certain.

 * * * BRIEFS * * *

MICROPROCESSORS: BXA March 21 published final rule revising CIV eligibility for microprocessors operating at 6,500 to 12,000 MTOPS. Change implements President Bush's Jan. 2 decision.

INDONESIA: In talks on Singapore FTA, U.S. has suggested allowing products covered by WTO Information Technology Agreement from Indonesia to be included in deal, USTR Robert Zoellick told hearing March 20. Provision would help struggling Indonesian economy and recognize Singapore=s use of Indonesia as assembly location.

FAST TRACK: Senate Republicans continue to press Majority Leader Tom Daschle (D-S.D.) to set date for vote, although GOP and Democrats remain divided over adding heath insurance benefits to TAA bill.  "There will be no serious negotiations until there is a date certain for a vote," one source said.

NATO: As expected, BXA March 18 removed Czech Republic, Hungary and Poland from list of countries subject to regional stability controls (see WTTL, March 11, page 4).

LIBERIA: At House appropriations subcommittee hearing March 20, Chairman Frank Wolf (R-Va.) signaled new push in Congress to block use of Liberian registration as flag of convenience for U.S. ships.

EAA: House staff have been told to use two-week congressional spring recess, which started March 22, to seek compromise among committees and GOP leaders on EAA bill to bring to floor.

TRADE FIGURES: U.S. goods exports in January plunged 16% from January 2001 to $54.8 billion.  Merchandise imports also dived, dropping 15% to $88.9 billion.  Services exports were off 6% to $23.1 billion, while services import declined 8% to $17.6 billion, Commerce reported March 19.

WINDSHIELDS: ITC, on split 3-2 vote, made final determination March 19 that imports of dumped automotive replacement glass windshields from China are injuring U.S. industry.

EX-IM BANK: Chairman John Robson, 71, died March 20.

Copyright 2002 by Gilston Communications Group. Reproduction or retransmission in any form is prohibited. Washington Tariff & Trade Letter is published weekly 50 times a year.