Volume 22, No. 2 -- January 14, 2002

Posted Monday, January 14, 2002 12:00 am

MEETING WILL SEEK BACKING FOR CODE OF CONDUCT ON MISSILE CONTROLS

Dozens of countries that are not members of the Missile Technology Control Regime (MTCR) are expected to attend a meeting in Paris Feb. 7-8 at which they will be asked to sign on to an International Code of Conduct (ICOC) against missile proliferation. MTCR members called the meeting as part of a "universalization" effort aimed at getting nonmembers to agree to abide by a set of "norms" for preventing the proliferation of ballistic missile technology and products.

MTCR members began work on the code over a year ago at the regime's plenary session in Helsinki (see WTTL, Oct. 30, 2000, page 1). Between then and the group's plenary in Ottawa in late September, MTCR members consulted among themselves on a draft code and also held extensive discussions with nonmembers.

In Ottawa, all 33 MTCR members agreed on an "augment draft text." The draft hasn't been released publicly because it is still "a work in progress," one State source told WTTL. More negotiations on the draft will be conducted in Paris. Agreement on a final text is not likely and further talks will be held in the future. "This meeting is to see if countries want to join the ICOC but is not intended to launch the code," the source explained.

The ICOC would complement the more stringent requirements of the MTCR but will be an independent document. ICOC signers won't be bound by the same export control requirements as MTCR members, but they would agree to restrict the release of missile technology and items that might intensify regional conflicts or enlarge the arsenal of missiles around the world. There would be no inspection system to assure compliance with the code or sanctions for violating it. Countries such as China, India and Pakistan, plus several ex-Soviet republics are among the non-MTCR members that the regime would like to see signing the code.

A country's willingness to sign the code won't formally provide it with any better treatment in State or Commerce export licensing decisions, one State source said. "When licensing decisions are made, we review a number of factors, including a country's nonproliferation credentials," the source added. "Signing up to the code will be one of a myriad of factors we will examine. We look at not just what a country signs but what it is actually doing," the State official added.

RACICOT WILL KEEP LUMBER ENVOY ROLE WHEN HE BECOMES GOP CHAIRMAN

Former Montana Gov. Marc Racicot will continue to serve as Washington's "special representative" in the U.S.-Canada dispute over softwood lumber even though he will give up all private lobbying work when he becomes chairman of the Republican National Committee (RNC) the week of Jan. 14, a USTR spokesperson confirmed. Racicot's decision to remain active in the lumber negotiations has drawn complaints from lawyers for Canadian respondents who claim he will have a conflict of interest trying to get financial support from the U.S. lumber industry for the GOP while also seeking a long-term settlement of the lumber fight.

Under pressure from some Republican lawmakers and party activists, Racicot said he would give up lobbying work at Bracewell & Patterson, the DC law firm with which he is now affiliated, once he becomes RNC chairman. There had been complaints that Racicot might get lobbying business from clients who want to curry favor with the Bush administration.

Keeping the special envoy post in the lumber talks creates the same problem, one source complained. "There's a serious problem," one lawyer for Canadian interests told WTTL. "He's very compromised," the lawyer added. Racicot volunteered for the lumber assignment and isn't being paid for his work. Nonetheless, some Canadians are afraid he won't be willing to take a strong position to force the U.S. industry to accept a deal that is less than its full demands.

Racicot has been in meetings USTR and Commerce officials have held with the Coalition for Fair Lumber Imports, as well as in talks those officials have had with their counterparts in Ottawa and the Canadian provinces. He has also met with senior officials in Canada in an effort to get political-level backing for a compromise to settle the pending countervailing duty and antidumping cases against Canadian softwood lumber (see WTTL, Dec. 10, page 1).

So far, those talks have remained deadlocked over Canadian rejection of U.S. proposals for preventing new trade complaints in the future if a deal were reached and by Coalition rejection of proposals from Canadian provinces for bringing their stumpage fees for government-owned timber closer to private-sector prices. A new round of bilateral talks were to be held Jan. 9, but they were postponed until the end of January. The U.S. delayed the meeting to wait for the latest response from the Coalition to the last offers from the Canadians.

Lawyers involved in the cases don't expect any agreement until they get closer to the March 24 deadline for the International Trade Administration (ITA) to issue its final rulings in the antidumping and CVD cases or until May when the International Trade Commission (ITC) must make its final injury decision. While the Canadians expect the ITA to find subsidies and dumping at some level, they still hope the ITC won't find injury. If they lose at both agencies, they are certain to appeal the cases to a NAFTA bilateral dispute panel and to the WTO.

LORAL MUST HIRE OUTSIDE OFFICIAL TO OVERSEE EXPORT COMPLIANCE

As part of the consent agreement Loral Space and Communications signed with State Jan. 9 to settle the department's charges that the firm violated the Arms Export Control Act, Loral must hire an outside Special Compliance Officer to implement a remedial export control program. This outsider, who State must approve, will serve in this post for two years and will be replaced by a Loral executive who must hold the job for another two years, the deal stipulates.

The detailed agreement, which covers both Loral and its Space Systems Loral (SSL) subsidiary, mandates extensive changes in the firms' export control systems and gives State and Defense almost unhindered access to their internal records and systems. State reached a separate consent agreement with Dr. Wah Lim, a Loral vice president who chaired the Independent Review Committee (IRC) whose activities were the cause of charges against the company (see story page 3).

The agreement also requires Loral to pay $20 million in civil fines, of which $14 million will go to State over a seven-year period, while the remaining $6 million must be used by the companies over a four-year period to improve their export control management. The deal acknowledges that Loral has already spent $2 million of that money. Lim was fined $100,000, but had $50,000 of the penalty suspended on the condition he does not violate export controls again. He also was barred from export license activities for three years. That three-year period, however, started on Feb. 22, 2001, when he began cooperating with State in its investigation, and the last two years were suspended on the same conditions as the fine.

The complaints against Loral, detailed in a 64-count charging letter issued to the firm, stemmed from its sale of communications satellites and launch services to Chinese firms from 1992 to 1996. The government alleged that Loral violated the terms of its approved Munitions List licenses by helping the Chinese conduct an investigation of the failure on Feb. 15, 1996 of a Long March 3B rocket carrying an Intelsat 708 satellite made by SSL. Such assistance had been expressly prohibited under the terms of the license. The Chinese undertook the launch-failure investigation under pressure from international insurance companies that refused to insure future launches unless the cause of the failure were determined.

Loral's activities triggered an uproar in Congress against the Clinton administration's licensing policies for satellite sales to China, sparked extensive hearings and lead to formation of the Cox Committee, which issued a damning report on China's efforts to obtain U.S. missile technology. The congressional reaction also prompted legislation that moved jurisdiction for commercial satellite licensing, which Clinton had shifted to Commerce, back to State.

Under the terms of the consent accord, Loral and SSL agreed to improve their export control management systems within 120 days of the signing of the agreement. They agreed to:

    * Strengthen corporate export compliance procedures to ensure that all employees, including management, are trained and knowledgeable about export control requirements;
    * Establish a comprehensive computerized document control system that ensures prior U.S. government review of documents that are subject to controls under export licenses. "This system will cover all technical data and technical assistance in any form to all foreign persons and will be accessible for a period of four years by remote computer access to ODTC [State's Office of Defense Trade Controls] and DTSA [Defense's Defense Technology Security Administration], the Special Compliance Official and Loral's General Counsel=s office," the agreement said;
     * Establish procedures for Loral's general counsel to have oversight of all of the firm's space and missile related export activities;
     * Institute a confidential "hotline" system to allow employees to report violations of the export control laws and regulations without fear of recrimination or retaliation;
     * Within 18 months, audit implementation of these measures and report to ODTC.

While Loral conceded "the nature and seriousness of the offenses" that State cited in its draft charging letter, it neither admitted nor denied violating export control laws. Editor's Note: A copy of the consent agreements, charging letters, orders and attachments, 42 pages in all, issued by State to Loral and Lim will be sent free to WTTL subscribers on request.

POOR EXPORT CONTROL BRIEFING CONTRIBUTED TO LORAL VIOLATIONS

One of the root causes of Loral's alleged violations of export control rules was the inadequacy of the briefing its export licensing staff gave company officials who were dealing with Chinese communications companies. That, at least, is part of the excuse Loral Vice President Wah Lim gave for why he violated the conditions of State Munitions List licenses the company held when he chaired the Independent Review Committee (IRC) that help the Chinese investigate the failure of a Long March rocket to launch one of the firm's satellites (see story above).

Lim, who cooperated with State in the investigation of the Loral case, reach a separate consent agreement with the department to settle its charges against him. In that agreement, Lim said he "accepted appropriate responsibility and expressed due remorse for violations of the Act and regulations which may have resulted from his personal conduct." In a statement attached to the consent agreement, Lim said he received a "technology export briefing," which lasted less than an hour, from SSL's export compliance staff when he became chairman of the IRC, which comprised experts on satellite launches who were asked to help review results of the launch failure investigation conducted by the China Aerospace Corp. (CASC). "That briefing advised the IRC that SSL did not have an export license for the failure review but did not require one for it to engage in certain activities," he wrote.

Lim claimed he was not aware of restrictions on the release of even publicly available technology to the Chinese or of the specific prohibition in the firm's export licenses against participating in failure investigations. "This information was not included in the technology export briefing provided by SSL. No one from SSL ever showed me these export licenses or made me aware of any specific prohibitions and requirements in them," he asserted. He received no further help from SSL on export compliance, he said.

* * * BRIEFS * * *

GMOs: European Commission will ask EU heads of state at their March summit in Barcelona to order end to current moratorium on approval of genetically modified organisms (GMOs) and not to further delay action while waiting for development of new labeling and traceability requirements, EU sources report. There are two or three GMO licenses that could be approved this year out of the 14 licenses pending, one source said. Labeling requirements, which would indicate presence of GMO in ultimate consumer product, could be condition of approval, he said.

TAJIKISTAN: State in Jan. 9 Federal Register announced end of its license denial policy for ML exports to Tajikistan. Licenses will now be considered on case-by-case basis. Notice also lifted denial policy for exports to Yugoslavia (Serbia and Montenegro) and start of case-by-case review policy.

CUSTOMS: Andrew Maner has been appointed director of new office of trade relations, post formerly known as office of trade ombudsman. Maner worked in White House advance travel office in Bush I administration and handled press for former president after he left office.

TOOLS: At request of House Ways and Means Committee Chairman Bill Thomas (R-Calif.), ITC Jan. 11 instituted Section 332 fact-finding investigation into domestic and international competitive factors affecting U.S. tool, dies and industrial mold industry.

CAMBODIA: U.S. will increase import quotas for textiles and apparel from Cambodia in 2002 by extra 9% above 6% normal growth adjustment from 2001 levels -- for 15% total growth -- as reward for country's progress in reforming labor conditions in textile factories. Increase was part of agreement to extend for three more years bilateral accord that offers Cambodia greater access to U.S. market in return for improvements in labor conditions in garment industry.

MEDICAL DEVICES: U.S. industry is protesting new health insurance reimbursement rules that Japanese health agency issued Dec. 10, claiming they discriminate against American technology. Advamed, industry trade association, contends regulation violates 1986 U.S.-Japan MOSS agreement.

COOKWARE: On remand from CIT ruling, ITC Jan. 10 on 3-2 vote reaffirmed its earlier "Sunset Review" finding that U.S. industry would face injury if CVD and antidumping orders on top-of-the-stove stainless steel cooking ware from Korea were revoked.

FERROVANADIUM: Allegedly dumped imports of ferrovanadium from China and South Africa may be injuring U.S. industry, ITC ruled on 5-0 vote in preliminary injury finding Jan. 10.

STEEL: Imports of iron ore and semifinished steel don't threaten national security and no remedial action is needed, Commerce has told President Bush in final report on Section 232 investigation requested by members of Congress. Report went to Bush in October, but BXA made it public Jan. 9. Investigation concluded that iron ore and semifinished steel are important to national security but found no evidence that level of imports raise defense concerns. BXA found domestic supplies adequate to meet defense needs and foreign sources secure and diverse enough to pose no threat.

NAFTA: U.S., Canada and Mexico effective Jan. 1 accelerated elimination of tariffs on some $25 billion in trade. Mexico will drop tariffs on motor vehicles, electric and electronic goods, toys and chemicals. U.S. is lifting tariffs on plastic and rubber footwear. Most of cuts affect Mexico-Canada trade.