Volume 22, No. 15 -- April 15, 2002

MORE NIGHT VISION LICENSES CLEARED OVER DEFENSE OBJECTIONS

The interagency Assistant Secretary Advisory Committee on Export Policy (ASEP) has stepped in again to override Defense objections to the export of night vision products.  At an April 4 meeting, the ASEP ordered the approval of about a dozen licenses for thermal infrared imaging products intended for scientific uses.  Defense had caused the cases to be elevated to the ASEP after it objected to the interagency Operating Committee's (OC) decision to clear them.

Although the ASEP in December approved another batch of licenses for night vision products for use by firefighters and rescue squads, Defense has continued to fight to block other approvals.  It has also sought commodity jurisdiction (CJ) rulings to move control of many of these items to State's Munition List from the Bureau of Export Administration (BXA) (see WTTL, Feb. 18, page 1).

BXA officials have voiced their concern about the continuing, ad hoc disputes over night vision products found in Category Six of the Commerce Control List (CCL) and the resulting backlog of licenses they create.  The agency is drafting a position paper it intends to send to other license-reviewing agencies, proposing a broad policy decision on all items in the category to guide future licensing decisions.  "BXA is nearly ready to send the paper to the other agencies," BXA Deputy Assistant Secretary for Export Administration Matthew Borman told WTTL.  The paper could be ready by the end of April, he indicated.

The proposed paper will address the continuing jurisdiction debate over whether night vision products should be on the ML or CCL, as well as the standardization of conditions that are attached to approved licenses.  BXA has also asked manufacturers of night vision products for more information on the foreign availability and marketing of these items, Borman said.  BXA's goal is the establishment of a single policy that would preclude the need for the ASEP to decide on the licensing of each different type of imaging product, he explained.
 

ADMINISTRATION SPLIT OVER HOW TO DEAL WITH CHANGING FSC

With the April 29 deadline approaching rapidly for a World Trade Organization (WTO) Appellate Body ruling on the level of retaliation the European Union (EU) can take against the U.S. Foreign Sales Corp. (FSC) and the Extraterritorial Income (ETI) tax laws, the Bush administration remains split over whether to fix the law by legislation or to seek a negotiated settlement with the EU.  Until that internal dispute is settled, Treasury is telling Congress not to take any action to amend the tax code.  Treasury's call for delay fits just fine with the reluctance of lawmakers to touch the tax law again in this session of Congress.

At a Ways and Means select revenue subcommittee hearing April 10, Treasury tax counsel Barbara Angus limited her testimony to reading a letter to the panel from Treasury Assistant Secretary for Tax Policy Mark Weinberger.  "Given the analysis of the current WTO rules reflected in the decisions in the FSC/ETI case, we do not believe legislation that simply replicates FSC or ETI benefits will pass muster in the WTO," Weinberger wrote.

Privately, Treasury is pressing the USTR's office to seek a negotiated settlement of the EU's complaint against the FSC or at least a continuation of the current cease fire.  USTR officials say changing the tax law is the only way to resolve the dispute.  There is agreement, however, that nothing can be done before April 29 and an alternative way needs to be found to show the EU that Washington is making a good faith effort to address the WTO ruling.

The subcommittee's hearing is certain to be used by USTR Robert Zoellick in his effort to convince EU Trade Commissioner Pascal Lamy that the U.S. is serious about fixing the law.  Lamy is expected to come under increasing pressure from some EU members to retaliate against the FSC/ETI because of their anger over President Bush's Section 201 tariffs on steel.

The hearing revealed support in Congress for coming into compliance with WTO rules, but also bafflement about how to do that without disadvantaging U.S. companies.  "We fervently hope the Europeans will not immediately exercise their right to impose sanctions and recognize the strong commitment of the Congress and the president to making the necessary changes in the tax code as soon as practicable," said subcommittee chairman Jim McCrery (R-La.).

Testifying on behalf of the National Foreign Trade Council, LaBrenda Garrett-Nelson, a partner with accountants Ernst & Young, said the WTO Appellate Body ruling on FSC/ETI left two ways the law could be changed to be compatible with the Agreement on Subsidies and Countervailing Measures (SCM).  One way would rely on SCM Footnote 59 to exclude from taxation foreign-source income that might be subject to double taxation in another country.

Another way would be adopting a general rule excluding a class of taxpayers, such as small firms, without regard to exporting, she indicated.  These changes wouldn't benefit all current FSC/FTI users, she admitted.   "It seems clear, however, that any of these possible legislative responses would take time to develop and implement," she said in her prepared testimony.
 

CHANGE IN RUSSIA'S JACKSON-VANIK STATUS HITS SNAG

Russia isn't likely to get permanent-normal-trade-relations (PNTR) status until it is closer to its accession to the World Trade Organization (WTO), and that won't happen until the summer of 2003 at the earliest.  Hopes are fading for passage before then of legislation (H.R. 3553) that would graduate Moscow from the provisions of the Jackson-Vanik Amendment (see WTTL, April 8, page 3).  Signs of trouble for the measure emerged at a House hearing April 11 and in comments the same day from Senate Finance Committee Chairman Max Baucus (D-Mont.).

Part of the trouble for the legislation in the House stems from the refusal of its sponsor, Ways and Means Chairman Bill Thomas (R-Calif.), to hold talks with other lawmakers who want to amend the bill.  Rep. Tom Lantos (D-Calif.), whom the White House asked to lead the effort to repeal Russia's Jackson-Vanik treatment, wants to add provisions requiring the continued monitoring of and reporting on Moscow's human and labor rights practices.  Lantos told the hearing he would oppose the bill, if those changes aren't adopted.

Other lawmakers want to add provisions identifying U.S. negotiating goals in Russia's WTO accession process.  At the hearing, committee members also raised questions about Russia's continuing refusal to allow in U.S. poultry products, its subsidies for civil aircraft exports and its steel and nitrogen fertilizer exports.  Rep. Sander Levin (D-Mich.) said he was concerned that ending Moscow's Jackson-Vanik treatment would eliminate Washington's ability to use the anti-surge mechanism of Section 406 of the amendment to block a sudden rise in Russian exports of any product.

Deputy U.S. Trade Representative (USTR) Peter Allgeier tried to convince Levin that Section 125 of the 1974 Trade Act still gives the president the power to impose safeguard relief even without Section 406.  Congress rejected a similar argument during the debate over China PNTR and insisted on enacting special safeguard rules for China.  The International Trade Commission (ITC) is now receiving comments on implementing those rules.  Allgeier said the WTO Working Party on Russia's accession is discussing the possibility of including selective safeguard rules in Russia's accession protocol.  If such safeguard conditions are adopted, the U.S. may need legislation to enforce them.

A congressional source suggested Thomas' refusal to discuss changes in his bill may be tied to his interest in amending a U.S.-Israel accord on farm trade under the U.S.-Israeli Free Trade Agreement.  Thomas may want leverage to get support for opening the Israeli market from lawmakers concerned about protecting the Jewish population in Russia, the source said.

At the House hearing, Harold Luks, chairman of NCSJ, which advocates on behalf of Jews in Russia, said his group supports graduating Russia from Jackson-Vanik, because the law has succeeded in its goal of gaining free emigration and religious rights for Jews in Russia.  NCSJ, however, opposes any similar gradation for several other former-Soviet republics, he said.  NCSJ wants the Thomas bill amended to include language specifically identifying Russia's promised protection of human and religious rights in the Afindings@ section of the measure and to say Congress considers letters exchanged between the U.S. and Russia in November on religious and minority issues to be binding on Russia.

Baucus, meanwhile, reiterated his view that the time isn't right for granting Russia PNTR.  "It is true that Jackson-Vanik is dated, but it is also true that if you repeal it, the United States is not going to have quite the same influence on Russia entering the WTO," he told a business luncheon.  "Russia is much farther behind China's position when PNTR for China's admission to the WTO was discussed," he added.  "I think it makes sense to encourage Russia to join the WTO, and Jackson Vanik is one way to achieve that result," Baucus said.
 

JOCKEYING INTENSIFIES OVER SENATE FAST-TRACK BILL

Business representatives left an April 9 meeting with Senate Majority Leader Tom Daschle (D-S.D.) feeling upbeat about the chances for fast-track legislation getting to the Senate floor before Memorial Day.   Daschle used the session to emphasize his past support for trade legislation but also to stress the importance of linking Trade Adjustment Assistance (TAA) to fast track.  Two days later, Senate Finance Committee Chairman Max Baucus (D-Mont.) offered a more sobering prospect for the legislation, suggesting the only way it will pass both the Senate and the House is by getting more Democratic votes for a legislative package that includes TAA and fast track.

One industry source suggested Baucus was raising the stakes on TAA to put more pressure on the administration and Senate Republicans to accept Democratic demands for strengthening and expanding the program, especially through the addition of health care benefits for dislocated workers (see WTTL, April 8, page 1). "He's using all of us to amplify his voice," the source said.

Speaking to a business luncheon April 10, Baucus said he was concerned by reports that some administration officials oppose including TAA in the fast-track package.  "It think that is a fatal mistake," he warned.  He noted that a couple of House Republicans, who voted for fast track in December, have said publicly "that they will change their votes from yes to no."  Several other members who were absent on the day of the vote also have said they would vote no on the conference report, he added.

"The math is pretty simple.  Almost every House Republican who is going to vote for the bill did and some have now changed their minds," Baucus said.   "The only way to assure this bill passes the House is to bring on some additional Democrats.  And only an improved and expanded TAA has the ability to do that."   Some sources suggest 10 to 20 New Democrats, who voted against fast track, would switch their votes if stronger worker assistance was attached.

Baucus also warned the White House not to exclude the labor and environment enforcement provisions that were in the U.S.- Jordan FTA from the trade pacts being negotiated with Chile and Singapore.  "The administration should commit to the labor and environment provisions of the Jordan agreement," he said.  Excluding labor and environment from those accords "would be inconsistent with the fast-track legislation" in the House and Senate and "clearly would run counter to the legislation's instructions to treat these objectives equally," Baucus declared.
 

CONGRESSIONAL COMMISSIONS PUT FOCUS ON CHINA

The U.S. has a one-China policy.  But Congress has a two China commissions policy.  Created by separate legislation, the commissions reflect the two major areas of congressional concern about China -- human rights and national security.  Both panels are now in the midst of collecting information for reports to be released this summer and fall.  The reports of the U.S.-China Security Review Commission and the Congressional-Executive Commission on China are likely to set the tone for Washington's attitude toward China for years to come, and there have been concerns they are likely to be negative toward Beijing (see WTTL, Jan. 21, page 1).

If their report "were to plop down on one side or the other, the commission would be a failure," said Richard D'Amato, chairman of the Security Commission and a member of the Maryland House of Delegates.  He said the commission's report will be based on days of hearings, thousands of pages of testimony and independent review of the literature coming out of China.  The commission's goal is determining  "what's in the best interest of the United States," he said.

The Congressional-Executive Commission has had a slow start in its work, partly due to the anthrax attack in the Senate, which delayed the hiring of staff, said its co-chairman, Rep. Doug Bereuter (R-Neb.).  Comprising lawmakers and administration officials, the commission will provide a comprehensive review of China's compliance with international human rights norms and a list of victims of religious and political persecution.  Bereuter noted the ideological split among members of the commission, which he claimed would prevent its report from being either "ridiculously critical" of China or a white wash of Chinese practices.

 * * * BRIEFS * * *

EXPORT ENFORCEMENT: Don Yamaguchi and his company, Kaiyo, of Houston, Texas, have agreed to pay $10,000 civil fine to settle BXA charges that he caused another firm to file false statement on export documentation, claiming export of satellite modems was going to Japan when he knew they were going to different destination.  BXA would not reveal where that other destination was.

FITTINGS: Non-malleable cast-iron pipe fittings from China that are allegedly dumped may be injuring U.S. industry, ITC ruled in preliminary decision April 8 on 5-0 vote.

SANCTIONS: Pace of new legislation imposing unilateral U.S. trade sanctions on foreign countries slowed since end of 1990s compared to mid-1990s, says report issued by National Foreign Trade Council (NFTC) April 13.  One reason for decline was "the fact that the United States already had many sanctions in place by 1996," report observes.  Another reason is "considerable public debate that occurred since 1996 about the appropriate role of unilateral U.S. economic sanctions," it claims.

STEEL: EU, Japan, Korea, China, Switzerland and Norway issued joint statement April 13 saying two days of talks with U.S. on compensation for Section 201 steel tariffs failed to reach agreement.  They called on Washington to terminate safeguards without delay.  If consultations fail to resolve dispute in 60 days, they said they will request WTO dispute-settlement.  Since EU was first complainant, it will be ready to request panel by May 6, they said.

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.