Volume 22, No. 13 -- April 1, 2002


Mid-level officials at the U.S. Trade Representative's (USTR) office and at Commerce are voicing private concerns about getting overloaded by a growing list of potential candidates for bilateral free trade agreements (FTAs).  Even as current FTA talks with Chile and Singapore remain stalled, another country or regional group gets identified daily as a possible FTA partner.  During her visit to Washington March 26-27, New Zealand Prime Minister Helen Clark was the latest head of state to lobby for getting her country on the applicant's list.

USTR Robert Zoellick has said Morocco is a potential FTA target.  During his trip to southern Africa in February, Zoellick said he was ready explore the idea of FTA talks with the South African Customs Union (see WTTL, Feb. 25, page 4).
Australia is pressing for FTA negotiations, and Uruguay thinks it has gotten positive signs of Washington's interest in an FTA.  Members of Congress are pushing for FTAs with South Korea, the Philippines and Taiwan.  A Central American FTA (CAFTA) with five nations in that region has already reached the preliminary discussions stage.

Zoellick is encouraging this race for FTAs as part of a general strategy to foster "competition for free trade."  During his recent visit to Brazil, he cited the exclusion of Canada and Mexico from Section 201 steel restrictions as the kind of benefits South Americans could gain from belonging to the Free Trade Area of the Americas (FTAA) with the U.S.

But the push for bilateral and sub-regional trade deals also reflects the doubts some trade officials have about the likelihood of completing the FTAA by 2005 and achieving U.S. aims in the new WTO Doha Round.   They see the need for maintaining momentum on trade liberalization, if those broader negotiations slog on beyond their deadlines.  At the same time, they raise concerns about entering FTA talks with countries whose political, economic and judicial systems are still weak and not up to the standards of major industrialized nations.


The Bureau of Export Administration's (BXA) Material Processing Equipment Technical Advisory Committee (MPETAC) plans to try a new approach to reviving the failed effort to get a common definition for the phrase "specially designed" across all multilateral export regimes.  At its March 26 meeting, the committee agreed to begin the process of reviewing each item in Commerce Control List (CCL) Category 2 to see if specific specifications can be written to differentiate machine tools and components specially designed for military use.

If such specs can be written, it will draft them and ask BXA to seek Wassenaar Arrangement agreement to revise the international control.  MPETAC is taking the product-by-product approach because Commerce failed in its effort to get multilateral support for a more sweeping proposal for all export regimes to adopt the definition of "specially designed" that is used by the Missile Technology Control Regime (MTCR) (see WTTL, May 14, 2001, page 2).
Wassenaar members rejected the idea because several countries weren't prepared or capable of doing the administrative work needed to revise some 200 controlled items where the phrase appears.  An earlier try by BXA to draft a common definition also was abandoned after it sought industry comments on the idea.

Committee members complained that the phrase continues to confuse exporters, since it is not clearly defined for non-MTCR items and captures products that have only commercial uses.  In many cases, the CCL item is an "empty box" but still requires an export license.  Committee members conceded their effort would have to get interagency agreement, which was not certain. Nonetheless, it was "one way to get off the dime" on the issue, one committee member said.


At a March 27 ITA hearing on Russia's nonmarket economy (NME) status, questions by agency officials revealed their concern about the difference between written Russian laws and regulations and how those policies are actually implemented.  In particular, their questions focused on Moscow's continuing controls on energy prices, remaining government-controlled monopolies and the independence of the Russian judiciary (see WTTL, Feb. 25, page 1).  The testimony by those supporting and opposing the ending of Russia's NME designation also showed a selective use of statistics to make their arguments stronger.

ITA Assistant Secretary for Import Administration Faryar Shirzad repeatedly raised questions about the "gap" between Russian laws and de facto practices.  Regarding government price controls in the energy sector, Russia's Deputy Minister of Economic Development and Trade Andrei Sharonov claimed electric monopolies operate on a cost-plus basis and have been raising their rates.  He said Russia is moving toward 100% deregulation of the electricity-generating sector and would maintain controls only on distribution prices.
Sharonov also claimed that the private sector contributed almost 86% of gross domestic product in 2001.  He defined a private sector company as one that has from zero to 49% government ownership.  The level of privatization in Russia is greater than in France where government-owned business accounts for 30% of GDP, he pointed out.  Sharonov also defended recent changes in Russian labor laws, which gave employers more rights without sacrificing the rights of workers.

Andrew Somers, president of the American Chamber of Commerce in Russia, backed the change in Russia's status, noting that 650 U.S. companies now operate in Russia and are thriving. "They know what's really going on there," he said

Opponents of changing Russia's status raised concern that the decision has already been made at the political level to drop the NME designation.  Bradford Ward of Dewey Ballantine, which represents U.S. steel firms, noted press reports that there may be a political deal with Moscow to change its status.  "We know Commerce wouldn't do that," he stated.  Ward also claimed that Russian economic and privatization statistics are unreliable and contradictory.

Brent Barlett, an economist with the law firm, questioned Russia's privatization claims.  He provided a chart showing only a few firms are actually 100% privatized, with most major companies having a large share, although less than 50%, of their equity still in government hands.  "Such partial privatization is not really indicative of true privatization," he testified.

Representatives of several individual industries and firms also testified against the change.  Valerie Slater of Akin, Gump Strauss, speaking for U.S. nitrogen fertilizer producers, claimed none of the criteria for ending NME status has been met.  Moscow's control and below cost pricing of natural gas gives the country's nitrogen fertilizer producers an unfair advantage because natural gas represents 50%-80% of the cost of the product.  Clifford Stevens of Verner. Liipfert, Bernhard, which represents silicon metal firms that recently filed antidumping complaints against Russian imports, claimed Moscow also sells electricity below cost.


ITA's March 26 decision to declare Kazakhstan a market-oriented economy in pending and future antidumping cases may be a harbinger of how the agency intends to rule in its pending review of Russia's NME status (see story above).  The ITA staff memorandum recommending the change in Kazakhstan's status acknowledges that "some problems remain" but said the country "has completed the transition to a market economy."  The immediate impact of the decision will be on a pending antidumping case on siliconmanganese from Kazakhstan.

The 29-page memorandum examined each of the statutory requirement for declaring a country a market economy and concluded Kazakhstan now has a freely convertible currency, provides adequate labor rights, allows foreign investment, allocates resources according to market forces, while limiting price regulation to natural monopolies.  It recommended dating the change in status to Oct. 1, 2001.
The memorandum's test for whether a country is a market economy fits into the arguments of supporters for a similar change in Russia's designation.  It states:

"The test does not require that countries be judged against a theoretical model or a perfectly competitive laissez-faire economy.  Instead, the department must evaluate the totality of facts in determining whether a country has met the standard of a market economy.  The department's determination is based on comparing economic reforms in the country to how other market economies operate, recognizing that market economies around the world have many different forms and features.  Although it is not necessary that the country fully meet every factor relative to other market economies, the department must determine that economic reforms have reached a threshold level such that the country can be considered to have a functioning market economy in which prices and costs exist that can be tied to the U.S. antidumping law."


Court of International Trade (CIT) Judge Thomas Aquilino has given up sitting on the still-pending appeal of ITA's decision not to initiate an antidumping case against oil imports, but not before one more slap at government lawyers whom he tried to hold in contempt of court.  Acting on a motion from an intervenor-defendant to disqualify himself, Aquilino ruled that his disqualification is not required by law (Slip. Op. 02-31).  Nonetheless, he asked Chief Judge Gregory Carman to reassign the case, and Carman March 26 assigned it to Judge Donald Pogue.

Lawyers for Petroleos de Venezuela asked Aquilino to disqualify himself after the CIT filed a writ of certiorari with the Supreme Court, seeking to overturn a Court of Appeals for the Federal Circuit (CAFC) writ of mandamus blocking the judge=s attempt to hold government lawyers and officials in contempt (see WTTL, Oct. 22, page 2).  Aquilino was weighing contempt charges for the International Trade Administration's (ITA) failure to comply with his earlier order to reconsider the antidumping petition of Save Domestic Oil (SDO), a coalition of small U.S. oil producers.  The Supreme Court declined to hear the CIT appeal.
"Denial of Venezuela's motion as presented does not necessarily keep the above-captioned case on the best track to final judgment," Aquilino conceded.  "The concern of this court, on the other hand, remains the parties, in particular the defendant [government], which has not dispelled its apparent contempt," he added.  Aquilino claimed the Solicitor General's opposition to the CIT appeal prevented "any attempt to even discover the details of that dereliction of proper practice and orderly procedure."  Washington's action underscores how important lawyers are to justice, Aquilino argued.  "The more they themselves become the partisans, the less they are genuinely and reliably officers of a court and their worthy process."


Despite the negative international reaction to President Bush's Section 201 action against foreign steel, U.S. officials say they continue to see progress in the multilateral steel talks being held under the auspices of the Organization for Economic Cooperation and Development (OECD).  At working level talks after the 201 announcement March 5, the U.S. delegation initially faced harsh harangues by other participants, but after a series of formal statements, the meeting got back to serious discussions about capacity reduction forecasts and new work aimed at identifying trade-distorting practices in the steel sector, one source reported (see WTTL, Feb. 11, page 1).  Another high-level meeting on steel is scheduled for April 18-19 in Paris.

Two OECD working groups are addressing the capacity-reduction issue and government intervention in the steel market.  Talks on capacity reduction are trying to gain more transparency in the forecasts that individual countries made about the closing of steel production facilities in their markets.  Without seeking to divulge proprietary information, OECD negotiators are asking countries to provide more details on the types of production facilities that are being closed down and what product lines.
Meanwhile, the European Union (EU) March 27 followed through on threats to take its own safeguard action to prevent a surge of steel imports from nations whose products will be blocked from the U.S.  The EU adopted a tariff-rate-quota that allows imports of 15 product lines to still come in, but would impose tariffs of 14.9% to 26%, if they go over a formula amount.  The quota has been set at 10% above the average of imports from 1999 to 2001.  Just as the U.S. did in its 201 action, the EU excludes imports from developing countries that account for less than 3% of imports in any covered category.  Russia, Ukraine and Kazakhstan also get separate treatment, since they are covered by previous quantitative restrictions.

 * * * BRIEFS * * *

EXPORT ENFORCEMENT: Waters International of Minneapolis was hit with $186,000 civil fine to settle BXA charges against firm it merged with in 2001.  In proposed 31-count Charging Letter, BXA alleged its merger partner, North Central Plastics, on 19 occasions from 1996 to 2000 exported electric cattle prods without approved licenses.  Shipments went to Argentina, Colombia, Ecuador, Honduras, Ireland, Mexico, Switzerland, and Taiwan.  Waters will pay $160,000 of fine and balance of $26,000 will be suspended and waived, if it continues to comply with export regulations.  Firm neither admitted or denied BXA charges.

ITAR: State in March 29 Federal Register issued interim final rule trying to clarify when institutions of higher learning are exempt from licensing requirements for items and services, including technical data transfer, related to research, experimental and scientific satellites.  Schools have been concerned about coming under State controls since shift of licensing jurisdiction for commercial satellites to State from Commerce.

ARMENIA/AZERBAIJAN: State March 29 removed two former Soviet republics from list of proscribed destinations for export and import of defense articles.

COMMERCE: Several promotions and new job assignments have been made in ITA's Office of Western Hemisphere in recent weeks.  Walter Bastian has been named deputy assistant secretary for Western Hemisphere.  John Andersen has been promoted to director office of Latin America and Caribbean.  Valerie Dees has been named director of Andean/Caribbean divisions. Anne Driscoll remains head of Southern Cone division, and Juliet Bender stays chief of NAFTA/Inter-American Affairs office.

WTO: Agriculture negotiators March 26 agreed on schedule and negotiating objectives for next year. Talks will aim to establish "modalities" and specific targets for market access and reduction of export subsidies.

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.