Volume 22, No. 20 -- May 20, 2002

Posted Monday, May 20, 2002 12:00 am

EUROPEANS WANT TO TIE ARMS CONTROLS TO DUAL-USE CONTROLS

European members of the Wassenaar Arrangement want to see more consultations on arms sales before they will support adopting a policy on denial consultations for dual-use items, according to Bureau of Industry and Security (BIS) Under Secretary Kenneth Juster, who just returned from a week in Europe. Juster visited eight European cities in five days for senior-level talks to get backing for U.S. proposals to change current Wassenaar rules (see WTTL, April 22, page 3). "It is not an explicit linkage, but there's a desire to keep some balance in the overall objectives of Wassenaar," he told WTTL in an exclusive interview.

For several years the U.S. has pushed without success to get Wassenaar to establish a procedure requiring consultations when one member has denied a license for a certain item and end user and another member has a pending license for the same product and customer. Washington has argued that such a "no-undercut" policy exists in other multilateral export control regimes and should be adopted by Wassenaar. The issue will come up again in December at the next high-level plenary session of Wassenaar members.

"The Europeans are concerned that, in general, there has been more progress in the dual-use pillar of Wassenaar than the arms pillar," Juster noted. "They say it is politically difficult for them within their countries and with their parliaments to continue to present proposals that strengthen the dual-use pillar in Wassenaar without strengthening the arms pillar at the same time," he added. "In particular, the Russians have refused to go along with certain proposals the United States has put forward,," Juster said. "We have a proposal for reporting transfers of small arms and light weapons to non-Wassenaar countries. The Russians have refused to support that proposal," he added.

Juster also sought support for adoption of a "catch-all" licensing policy to require export licenses for items not on the control list when the goods may go to military end users or end uses. This proposal is co-sponsored by the European Union (EU), and Juster said he got a very positive reaction to the idea from European officials. "I am more optimistic in the short term about making progress on that proposal," he told WTTL.

WASSENAAR SET TO MAKE MACHINE TOOL CONTROLS PERMANENT

A recent deal among members of the Wassenaar Arrangement will keep multilateral controls on five-axes and other advance machine tools but put the U.S. equipment industry at an even greater disadvantage than it now faces against its foreign competition. During technical-level talks in Vienna in April, Wassenaar representatives ended a four-year fight over a validity note that originally called for machine tool controls to be dropped in 1998 (see WTTL, June 25, 2001, page 1).

After a lengthy debate, they tentatively agreed on a compromise to eliminate the note and make the controls permanent. They also agreed to move machine tools from the group's "super sensitive" list of products needing the tightest controls to the "sensitive" list, which gives members more discretion in licensing. The change, which won't become final until a political-level meeting of Wassenaar members in the fall, means members would no longer need to report licensing approvals and denials for these items.

During Wassenaar's annual technical meeting April 4-18, the U.S. proposed tighter controls on machine tools but couldn't get other countries to agree, according to one BIS source. "Defense wanted significant increases in controls with additional parameters," the source reported.

Washington, however, faced strong opposition from several countries, particularly Switzerland, which has led the fight to have the controls dropped. "Everybody was pushing in different directions," he said. In the end, with some minor changes, "there was agreement that controls will stay just about where they are right now," the source told WTTL.

Wassenaar has been split over the controls since its founding. In 1996 it adopted a validity note that called for the controls to end in two years unless there was consensus on making them permanent. Starting in 1998, the Swiss tried to invoke the validity note by threatening to block consensus. Unable to settle the dispute, Wassenaar just kept extending the note year by year. "The problem they had, if they didn't do something, was that all the controls would disappear," the BIS source explained. "There were quite a few countries that just wanted the controls to go away completely, but a fair number wanted to keep them," he added.

Once adopted, the new rules won't have much effect on U.S. exporters, who are likely to face the same restrictive licensing policy they already encounter, particularly on sales to China. For firms in other Wassenaar countries, however, the change will make exports even easier, while ending Washington's ability to track licensing decisions in those countries.

"What you end up with is a recognition in Wassenaar that machine tools aren't as important or critical as they were in 1996," said Paul Freedenberg, government relations director for the Association for Manufacturing Technology. "Europeans are happy to keep a tight list because it eliminates our competition," he said. The new policy "will mean more unilateralism by the U.S.," Freedenberg added. "The change makes an already strong disparity even worse."

BIS ISSUES WARNING ABOUT INCREASED BOYCOTT REQUESTS

BIS officials are concerned the current crisis in the Middle East may trigger new boycotts of Israel from non-Arab countries, while reigniting the Arab League's old boycott. In reaction to recent Israeli actions, some groups and political leaders, especially in Europe, have proposed trade action against Israel.

"We have received some information informally that there may be some countries that are considering urging companies to boycott Israel," BIS Under Secretary Kenneth Juster told WTTL. "There is nothing definitive, but enough to make us feel that we should be doing our job of letting companies know in no uncertain terms that the antiboycott regulations are an issue we take seriously as part of our overall mission," he said.

BIS issued a press release May 14 to warn companies that it intends to "vigorously enforce" the antiboycott law, which applies to all countries, not just members of the Arab League. "BIS is closely monitoring recent reports of renewed calls by certain foreign governments for boycotts of Israeli businesses and U.S. companies that do business with Israel," the agency said.

Over the last 10 years the number of companies reporting boycott-related requests and the number of requests made has declined sharply. A large decline came after Israel and Palestinians signed the Oslo Peace Accord and then-Commerce Secretary Ron Brown launched an effort to get key Arab countries to end participation in the boycott. From 11,075 requests reported by 1,152 companies in fiscal 1992, the numbers dropped to 1,482 requests reported by 319 companies in fiscal 2001, a BIS spokesman reported. In the last quarter of 2001, however, the numbers increased about 5%. "The numbers have not yet spiked up, but there is a lag time in reporting," Juster told WTTL.

DAYTON-CRAIG ADDS TO RISK OF FAST TRACK FAILING THIS YEAR

Some Democrats and Republicans contend the Dayton-Craig amendment, which the Senate attached to fast-track legislation (H.R. 3009) May 14, won't survive in its current form in the House-Senate Conference Committee on the trade package (see story below). But before fast track gets to a conference, it still risks getting killed if additional amendments are added before the Senate completes action on the trade package the week of May 20.

"It's almost dead," warned Sen. Phil Gramm (R-Texas), who said adding more amendments, particularly one providing insurance tax credits for retired steelworkers, would doom fast track. "There are 30-35 people who are against trade promotion authority. I believe there are another 20 or 25 people, who, if we get one more killer amendment, will say the price is just too high," Gramm said.

About a dozen amendments are pending, with the steelworker insurance plan the most contentious. Faced with a Republican filibuster of the steel proposal, Assistant Majority Leader Harry Reid (D-Nev.) filed a cloture motion May 17 to force a vote on the amendment on Tuesday, May 21. Majority Leader Tom Daschle (D-S.C.) said he plans to file a cloture motion on May 20 to end debate on the entire trade package and have a cloture vote on May 22.

Except on the Dayton-Craig amendment, Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Charles Grassley (R-Iowa) were able to hold together a floating coalition of 52 to 60 senators who were willing to vote against any additional changes to the legislative deal they reached May 9 (see WTTL, May 13, page 1). Whether that coalition can hold together against the steel amendment will be tested on the cloture vote. If it does block the steel proposal, several pending amendments may be withdrawn and final action on fast track could come by the end of the week.

MANEUVERING STARTS ON HOUSE-SENATE CONFERENCE ON FAST TRACK

Sen. Phil Gramm (R-Texas) and other Senate Republicans are already looking ahead to the House-Senate Conference Committee on fast-track legislation to kill provisions they had to swallow in the compromise to get fast-track approved by the Senate. Gramm said he has spoken to House members about the bill. "I told them we hope help is on the way," he said.

House sources say Ways and Means Committee Chairman Bill Thomas (R-Calif.) is prepared to demand the elimination of several amendments added in the Senate, including the Dayton-Craig Amendment. In addition to dropping Dayton-Craig, Republicans will seek changes in the Trade Adjustment Assistance (TAA) portions of the package, especially its wage-insurance provisions. An amendment offered by Sen. Judd Gregg (R-N.H.) to cut the wage insurance pilot test from the Senate bill was tabled on a 58-38 vote May 16.

Rep. Charles Rangel (D-N.Y.), ranking Democrat on Ways and Means, conceded that Dayton-Craig isn't likely to remain in final fast-track legislation even though he supports it. "I don't think there is much of a chance it will stay in conference," he told WTTL. He also admitted that the Senate's TAA bill will help fast track's approval in the House. "It all depends what happens in conference," he said. "Yes, for some Democrats it has given them a reason to change their votes and vote for the bill," he added.

The amendment, co-sponsored by Sens. Mark Dayton (D-Minn.) and Larry Craig (R-Idaho), would allow any senator to raise a point of order to block the provisions of any implementing legislation sent with a trade agreement, if the lawmaker thinks the changes would weakened U.S. trade laws. In an attempt to gain support for their amendment, Dayton and Craig revised their original proposal, which would have required 60 votes to override the point of order, and substituted wording requiring a simple majority. Their amendment was adopted on a voice vote after the Senate rejected a motion to table it on a 61-38 vote.

Senate approval came despite a letter from U.S. Trade Representative (USTR) Robert Zoellick, Commerce Secretary Don Evans and Treasury Secretary Ann Veneman, threatening to recommend that the president veto the legislation if Dayton-Craig were adopted. After the Senate acted anyway, one administration official told WTTL the letter still is valuable because it will add support to lawmakers in the conference committee who want to strip the amendment from the package. On other legislation, he noted, lawmakers have not been certain the White House would stick to its positions in final negotiations. The letter is intended to give them that assurance on this amendment, he explained.

Bill managers decided to let the amendment pass on a voice vote when they realized they could not defeat it and would do better fighting it in conference. "I came to the conclusion -- with those 61 votes and losing 16 Republicans -- that there might be a possibility of offering a secondary amendment and maybe winning it, but I didn't think it was worth the chance and that we could deal with it in conference," Sen. Charles Grassley told WTTL.

"My judgment is that we would be able to modify it in conference," he said, suggesting the conference might adopt an alternative that adds stronger language on the need to preserve U.S. trade laws in any negotiations and strengthens consultation requirements. In conference, opponents of Dayton-Craig will argue the voice vote means they are not locked into supporting the amendment. The voice vote gives them "maximum leeway," Grassley told WTTL.

* * * BRIEFS * * *

STEEL: EU May 15 notified WTO of its intent to go ahead with trade sanction against U.S. exports in retaliation for Section 201 import tariffs on steel. Japan says it will also invoke WTO rights. U.S. officials say talks with EU on compensation collapsed because Washington decided any agreement might undermine its claim in future dispute-settlement process that safeguard action complied with WTO rules and no compensation or retaliation is warranted.

BIS: Jon Dyke is new Commerce chief counsel for export administration, succeeding Karan Bhatia, who is temporarily serving as senior advisor to BIS Under Secretary Kenneth Juster. Bhatia is expected to be named deputy under secretary to fill vacancy created when Scott Bunton left BIS to join Woodrow Wilson Center. Before joining Commerce, Dyke headed his own firm, eLaw, Inc. Previously, he was with law firm of Baker & Botts.

TIED AID: Annual export strategy, released May 14 by interagency Trade Promotion Coordinating Committee (TPCC), was based on recommendations from private sector. Noting resurgence of untied aid that is really tied aid, particularly by Japanese, report says U.S. intends to use Ex-Im War Chest to counter these practices. Since there are no funds in War Chest, main goal is forcing other governments to negotiate new disciplines on export aid under Organization for Economic Cooperation and Development.

TRADE FIGURES: March 2002 trade remained far off levels of 2001. Merchandise exports of $55 billion were down 13.6% from last March. Services exports declined 2% from last year to $24 billion. Goods imports were also anemic, declining 10% to $92 billion, as services imports slipped 1.6% to $18.6 billion.

SUNSET: CIT Judge Jane Restani (Slip Op.02-39) has remanded ITC's 1999 "sunset review" decisions on antidumping and countervailing duty orders on certain carbon steel products from 17 countries back to commission. "On remand, the Commission must apply the common meaning of likely' -- that is probable -- in conducting the relevant sunset review analyses," she wrote. "In support of any affirmative determination, the Commission must cite to substantial evidence showing that its predictions are not only possible, but probable," Restani ordered.