Volume 22, No. 18 -- May 6, 2002

Posted Monday, May 6, 2002 12:00 am

REPORT SUPPORTS RETURN OF SATELLITE CONTROLS TO COMMERCE

Legislation to return export licensing jurisdiction for commercial satellites to Commerce from State got a boost April 30 in a new report that claims "restrictions on satellite technology transfers have backfired in the new global economic and security environment." The report from the Center for Strategic and International Studies (CSIS) said current controls do more to damage the U.S. satellite industry than to block foreign space programs. "State has over broad restrictions that damage U.S. national security," the report argued.

Since Congress in 1998 moved export controls for commercial satellites to State from Commerce in the wake of alleged leaks of missile technology to China, U.S. exports of space products have declined and imports have risen sharply. The report admits that other factors besides export controls contributed to what it called the hollowing out of the U.S. industry, but it cited analysis that claimed this was the industry's biggest problem.

The toughening of satellite controls came just as many countries were enhancing their own satellite capabilities as a matter of national pride, to support their own indigenous industries or to reduce reliance on American suppliers. "The result is that many countries now have the technical skills to manufacture satellites and their components and to have independent national programs," said the report, "Preserving America's Strength in Satellite Technology."

Although the industry needs a broad aid program, including changes in State's licensing system, in Defense procurement programs and in the Pentagon's use of commercial satellites, these reforms would take too long to help the industry. Waiting for these changes "will lead to further shrinkage in America's satellite industry," the report said. "Legislation currently pending in Congress to return jurisdiction to Commerce for communications satellites, which includes extensive technology safeguards, would go far to repair the damage," it asserted.

WTO APPELLATE BODY MEMBER DEFENDS TRADE RULINGS

The World Trade Organization's (WTO) Appellate Body has no choice in selecting the legal issues it must address in its rulings or the standards of review it uses, argues Appellate Body Chairman James Bacchus, who is the only American serving on the seven-member body. Speaking at the Woodrow Wilson Center in Washington May 1, Bacchus disagreed with critics who contend the body has gone too far in some of its rulings. "Under the WTO treaty we must rule on every issue that is raised on appeal," he said. "We have no discretion not to do so,"

Bacchus also disagreed with critics who claim the body has added new obligations that are not part of the WTO treaty. He noted that the agreement prevents the Appellate Body from adding or diminishing the rights and obligations of members. Moreover, the "standard of review" used by the body in some 50 ruling is consistent with WTO rules, Bacchus claimed. He invited critics to read the treaty. "They will find that we have been true, consistently, to all that the WTO treaty says about the standard of review," he said.

While he agreed that some cases should not have been brought to dispute-settlement panels or the Appellate Body, he argued that the decision to bring a case is up to each WTO member. "It is not up to me to decide which cases should be brought before the WTO," said Bacchus, who was a congressman from Florida for two terms and on the USTR's staff in the Carter administration.

The Appellate Body doesn't apply stare decisis, the legal principle in common law, which relies on previous court rulings to set the precedent on future rulings, he noted. "The lawyers in the room will tell you there is no stare decisis in international law," Bacchus said. "There is precedent in international law, contrasting with common law in the United States," he added. Nonetheless, past Appellate Body rulings are considered. "Each appeal, increasingly, involves issues that require an abundance of reading and reflection on other appeals, other rulings and other relevant considerations," Bacchus stated. In reading briefs, he said he finds: "when the WTO case law is on a party's side, they will argue the case law. When the case law is not on their side, they will remind us that there is no stare decisis under international law."

U.S.-EU TALKS MAY HAVE COOLED TRADE DISPUTES -- FOR NOW

The value of the semi-annual summit of U.S. and European Union (EU) presidents has shrunk over the years, and the latest meeting May 2 demonstrated the continuing decline of their importance. Lasting less than two hours, President Bush's talks with European Commission President Romano Prodi and Spanish Prime Minister Aznar, the EU's rotating president, barely merited being called a summit. Intended originally to elevate transatlantic issues to the political level for resolution, the summits have become bland photo opportunities for the assertion of friendship and cooperation but with few decisions on underlying problems.

But EU officials were pleased they could get a public statement from Bush confirming Washington's intent to bring the Foreign Sales Corporation (FSC) tax law into compliance with a WTO ruling that found the statute in violation of the agreement on subsidies. "I informed President Aznar and President Prodi that I will work with our Congress to fully comply with the WTO decision on our tax rules for international corporations," Bush said at joint press conference.

The EU's reaction to Bush's statement, along with talks EU Trade Commissioner Pascal Lamy had with House Ways and Means Committee Chairman Bill Thomas (R-Calif.), signaled Europe's willingness to hold off retaliation against FSC. "The president made a statement on what we will try to do on FSC," USTR Robert Zoellick told WTTL. "Pascal and I went up to see Chairman Thomas who has the key role in moving legislation. He told Pascal he was trying to do so. Our view has been we want to try to comply with the WTO, and we expect others to as well,," Zoellick said.

Talks on steel made less progress, but Prodi indicated a possible shift away from proposals for invoking unilateral retaliation against the U.S. Section 201 safeguard action. "We have agreed that discussions should continue without any prejudice to our respective rights under WTO," he said, describing the talks with Bush. "We both intend to play it by WTO rules," he said.

At a separate press conference later, Prodi expressed concerns about the pending farm bill in Congress, which will significantly increase U.S. farm subsidies. "Politically, I am worried about this kind of bill," Prodi said. The legislation "is going in a different direction than I hoped would go both European and American farm industries," he said. He noted that the EU is in the midst of reshaping its farm programs to reduce subsidies and open markets, and the U.S. legislation will make that effort more difficult. Prodi said he raised his concerns with Bush. In response, Bush "said that he will respect all WTO rules," Prodi reported.

CANADIANS TURN TO NAFTA CHAPTER 11 TO FIGHT LUMBER RULING

Toronto-based Tembec May 3 became the second Canadian lumber producer to announce plans to seek monetary compensation from the U.S. government under NAFTA's Chapter 11 investment provisions for what it claims was the violation of its rights by the International Trade Administration (ITA) in the antidumping and countervailing duty cases on softwood lumber. The Tembec action follows a similar effort by Camfor, another Canadian firm, to use an international arbitration panel to protect its investment in the U.S.

Tembec announced its Chapter 11 suit the day after the International Trade Commission (ITC) made its 4-0 final ruling that imports of dumped and subsidized softwood lumber from Canada "threaten" to injury the U.S. lumber industry. The unanimous decision confounded speculation that the commission might issue a split opinion, but the finding of only threat was seen as a partial victory by Canadian producers (see WTTL, April 29, page 1).

The threat determination will save Canadian lumber firms more than $1 billion in potential duties, because a threat determination means duties will be collected only prospectively after ITA issues its final orders to Custom around May 23. All bonds posted by importers since ITA's preliminary rulings last August will be vacated, as well as the possibility of additional duties dating to the filing of the petitions due to ITA's "critical circumstances" decision. Importers will have to post cash duty deposits averaging around 27% once ITA issues its orders. Those deposits, however, won't be liquidated until after ITA completes its first administrative review of the import relief, which may be three years away.

The vacating of bonds and the long delay before final liquidation of duties are two reasons many Canadian lumber producers are willing to take their chances litigating the antidumping and countervailing duty decisions before a NAFTA binational panel and a WTO panel. A ruling from the NAFTA panel could come within 14 months. The WTO panel hearing Canada's complaint against ITA's preliminary decisions could rule by this summer. If the Canadians prevail before the binational panel, they would get all their deposits refunded plus interest.

In its Chapter 11 complaint, Tembec is asking for $200 million in compensation, claiming it is entitled to the money "when international norms are not respected and Canadian companies are not treated fairly and equitably," a company statement said. The ITA's ruling "is tantamount to expropriation of our market," claimed Tembec President Frank Dottori.

O'NEILL KEEPS FINGER IN HIGH-DOLLAR DYKE

Treasury secretaries apparently believe even the slightest hint that the dollar is overvalued will lead to its immediate devaluation, the flight of foreign investment out of the U.S., a surge of inflation and higher interest costs for government bonds. In his May 1 testimony at a Senate hearing, Treasury Secretary Paul O'Neill defended the dollar's current value and followed the precedent of his predecessors who argued that its value is based on the fundamental soundness of the U.S. economy and the attractiveness of investment in the U.S. for foreign investors.

Business and union representatives and economists at the hearing offered a sharply different view of the exchange rate picture. They claimed the dollar's overvaluation is hurting exports and causing the trade deficit and current account deficit to rise to unsustainable levels. "The dollar is overvalued in trade terms by 20-25%," testified C. Fred Bergsten, director of the Institute for International Economics. He warned that the current account deficit as a percentage of GDP is nearing 5%, a traditional "danger zone."

O'Neill anticipated this warning. "We have all heard the view that this is a threat to America's economic fortunes and global financial stability," he said in his prepared testimony. "I believe this view ignores forces that are working in the market," he said. The key factor in the dollar's value is the attractiveness of the U.S. to foreign investors even during the economic slowdown of the last two years. "This is a clear demonstration that foreigners regard investment in the United States as continuing to offer extremely attractive rates of return," he stated.

Jerry Jasinowsky, president of the National Association of Manufacturers, said the dollar's overvaluation "has exactly the same effect as the sudden imposition of a new 30% tariff against U.S.-made goods." In his written testimony, he criticized O'Neil's "strong-dollar-no-matter-what" policy and suggested it is artificially propping up the dollar. "We believe the Treasury's policy is in effect distorting the market and preventing market forces from working," he argued.

Jasinowsky called for a coordinate effort by G-8 countries to intervene to rebalance the dollar. "The experience of the 1985 Plaza Accord is instructive." he testified, referring to the last multilateral effort to bring down an overvalued dollar. Economic research "makes it plain that highly visible coordinated action, including intervention, does work," he stated.

* * * BRIEFS * * *

TRADE LEGISLATION: Senate April 29 finally cleared cloture hurdle and began debate on trade legislation. In key procedural move, Senate Majority Leader Tom Daschle (D-S.D.) amended pending Andean Trade Preference Act (ATPA) (H.R. 3009) by striking House-passed version and substituting package of bills, including Finance Committee version of Trade Promotion Authority, ATPA, and Trade Adjustment Assistance (TAA), along with Customs authorization amendment. Customs measure includes controversial provision giving agency authority to open and inspect U.S. mailing going out of country. Work on trade package will be interrupted for three days week of May 6 by consideration of farm bill conference committee report. Although dozens of possible amendments have been floated to revise trade measures, main battle remains over TAA provisions on level of health insurance benefits to give dislocated workers and expansion of program to secondary workers (see WTTL, April 15, page 3).

WORLD TRADE: Global value of merchandise exports in 2001 dropped 4% to $6 trillion, as services exports declined 1.5% to $1.4 trillion, WTO reported May 2 . Goods volume dipped 1%. WTO projects only 1% growth in value of exports in 2002.

EX-IM BANK: House May 1 passed bill (H.R. 2871) to reauthorize Export-Import Bank until 2005 with new provisions prohibiting loans to firms subject to antidumping, countervailing duty or Section 201 actions; requiring development of guidelines for using tied aid; and creating new office of Africa. During floor action, House adopted amendments clarifying Treasury's role in tied-aid actions; requiring applicants to disclose whether they have violated Foreign Corrupt Practices Act; and expressing sense of Congress that Bank should consider human rights impact of loans over $10 million. It rejected amendment that would have required borrowers to report annually on employment numbers and barred loans to applicants who lay off greater percentage of U.S. workers than foreign workers.

SPECIAL 301: USTR's annual report on foreign enforcement of intellectual property rights listed 51 countries: 1 Priority Foreign Country (PFC), 15 Priority Watch countries, 33 Watch List countries, with China and Paraguay still under separate Section 306 review. Ukraine is sole PFC and remains subject to $75 million in sanctions. Korea's improved IPR protection allowed it to be moved to Watch List from Priority Watch List. Macau=s enforcement effort got it off Special 301 lists altogether. Not on list but being monitored is Bulgaria. Out of cycles reviews will be conducted for Bahamas, Costa Rica, Indonesia, Israel, the Philippines, Poland and Thailand.

FENCES: Steel City Corp. May 1 filed antidumping complaints at ITC and ITA against imports of lawn and garden steel fence posts from China.

BALL BEARINGS: On split 3-2 vote April 29, ITC made preliminary ruling that allegedly dumped ball bearings from China may be injuring U.S. industry.

SILICONMANGANESE: Dumped siliconmanganese from India, Kazakhstan and Venezuela is injuring U.S. industry, ITC ruled in 5-0 final determination April 29.