Volume 22, No. 25 -- June 24, 2002

Posted Monday, June 24, 2002 12:00 am

EU SQUEEZING MORE STEEL EXCLUSIONS OUT OF U.S.

The European Union (EU) is playing cat and mouse with Washington over whether or when it will retaliate against the U.S. Section 201 tariffs on steel. After talks June 20 with U.S. steel company representatives and June 21 with U.S. Trade Representative (USTR) Robert Zoellick, EU Trade Commissioner Pascal Lamy suggested additional exclusions of EU steel from the sanctions may determine the EU's action. "The bigger number of exemptions that EU steel companies will get, the better for them," Lamy said.

Although it notified the WTO formally June 18 that it intends to retaliate against the U.S. for the 201 sanctions, the EU keeps postponing the countermeasures. Separately, the WTO Dispute-Settlement Body has decided to establish one panel to hear EU, Japanese and other complaints against the 201 action.

In addition to the exclusion process, Lamy said he is trying to gauge whether the U.S. steel industry will really use the period of safeguard relief to restructure. "The real problem is a problem of substance, which we discussed today together and which I discussed yesterday with a number of people in the steel industry," Lamy said. That issue is "whether the theory -- that there is a window of breathing space which will result in the U.S. industry addressing its problems -- is valid or not," Lamy said at a joint press conference with Zoellick. "We discussed this. I am trying to make up my own mind. I'm not there yet," he added.

Meanwhile, the Bush administration June 18 announced the second batch of product exclusions from the 201 tariffs. It added 46 product categories to the 61 it excluded two weeks earlier (see WTTL, June 17, page 4). More exclusions will be announced before July 3. While the number of categories that have been excluded so far from 201 tariffs remains small, the products named are important to European and Japanese steel producers. This has prompted complaints from U.S. unions, steel firms and their allies in Congress that the exclusion process has been driven by the desire to appease the EU and Japan and may be undermining the relief.

WARNING RAISED ABOUT LATIN AMERICA'S ECONOMIC FUTURE

Government economists and Latin America watchers are raising warnings about economic and political prospects for most of Latin America, even suggesting the region could fall back into the financial quagmire that marked the "lost decade" of the 1980s. If these predictions come true, they could significantly hurt chances for negotiating a Free Trade Area of the Americas (FTAA), they say.

Only Mexico, Chile and El Salvador have been singled out as likely to avoid the area's coming problems. Mexico will be protected because of its growing integration into the U.S. economy and the benefits of NAFTA, one source said. Chile may escape them because of the fuller implementation of its economic reforms. El Salvador is benefiting from continuing foreign investment.

Countries in the region are facing a backlash from the failure of the economic reforms of the 1990s to correct the underlying causes of the problems of the 1980s and to extend the benefits of the reform to large sectors of the population.

"They had a decade to make it work and they didn't," one source told WTTL. Region observers see the economic troubles in Argentina and the political crisis in Venezuela spilling into other countries in Latin America. "The U.S. thought it could contain the contagion of Argentina," a diplomat at the Organization of American States (OAS) told WTTL. "That is not proving to be the case."

Argentina is having an impact on the economies of other Mercosur countries, including Brazil and Paraguay, he noted. The coming election in Brazil could see the election of a government that might rollback some of the economic changes adopted by the current administration. Political and economic problems have also become more acute recently in Bolivia and Peru.

In addition to the perceived failure of economic reforms, other factors dimming the region's future include a shift of foreign investment to China and Asia, wages that aren't as competitive as Asia's and doubts about the area's political stability. Just as important, corruption and racism in the region have not been corrected with the adoption of new economic models.

CONCERNS RAISED ABOUT IMPACT OF HOMELAND SECURITY PLANS ON TRADE

Homeland security chief Tom Ridge and Customs Commissioner John Bonner met with trade community representatives June 19 in an effort to calm business concerns that the creation of a new Department of Homeland Security will hurt commercial operations at U.S. borders (see WTTL, June 10, page 4). Importers and exporters have been worried about the growing emphasis on security at U.S. ports ever since Sept. 11, and the proposal to create the new department, which President Bush formally sent to Congress June 18, raised new questions about a further reduction of focus on the commercial side of Customs operations.

After the meeting, some business attendees told WTTL they were pleased by the assurances Bonner and Ridge gave them but were still skeptical about the actual implementation of plans for the new department. In addition, they said they were uncertain about how Congress would sort out the committee jurisdiction conflicts the department would create.

One of the main goals of Bonner and Ridge was to emphasize the administration's opposition to proposals to split the security and trade functions of Customs and leave its trade responsibilities outside of the new department. The idea of splitting the agency reportedly has come from some members of the Customs trade bar and from lawmakers, who are worried that their committees will lose jurisdiction over the agency.

"There's not going to be any challenge in this administration about dividing the two functions. We see them as inseparable," Ridge told the business representatives who were at the White House meeting or joined the session via a teleconference call. "We may need your help on the Hill," he added. "There are some folks up there...who think there is a line that can be drawn between security and trade," Ridge said. Bonner expressed the same position. "It seems to me that to separate them would actually be the trade's worst nightmare," Bonner declared.

Bonner acknowledged trade community concerns that its views will get lost in an agency devoted mostly to security. "I'm here and Governor Ridge is here to assure you that you will continue to be heard," he said. He tried to assure the business representatives that the creation of the new department and merger of many agencies won't interrupt the Customs modernization program or the implementation of the Automated Customs Environment (ACE). "If anything the modernization process is going to be completed more quickly," he asserted.

Business executives at the meeting told Bonner and Ridge that they need to make sure their statements are reflected in legislation and conveyed to Customs agents in the field. "While we feel this administration recognizes [the importance of trade], we would like to see in the authorizing legislation that might be proposed a clear recognition of the trade issue," said Kevin Smith of General Motors. Implementing legislation should state that it would be a department-level responsibility "to insure that issues like the more effective, better and efficient use of borders and ports of entry was provided for," Smith said.

Industry representatives also questioned the future of Treasury's Advisory Committee on the Commercial Operations of the U.S. Customs (COAC). The proposed legislation calls for transferring all Treasury functions related to Customs, but COAC isn't mentioned. "They haven't gotten to that level of detail," one Treasury source told WTTL. The trade community wants COAC or a similar body to continue advising the new Homeland Security secretary. Bonner attended COAC's June 14 meeting and heard many of these concerns expressed in detail. The meeting Bonner and Ridge had with the business representatives was partly in reaction to the comments voiced at the COAC meeting, one source indicated.

CHINA PLAYING CONSTRUCTIVE ROLE AT WTO, OFFICIAL SAYS

Contrary to concerns that China would change the WTO after it became a member, "it has been the WTO that has changed China," contends Andy Stoler, WTO deputy director general. Before China joined the trade body there were worries that it might disrupt trade negotiations or lead developing nations against the trade liberalization goals of industrialized countries. "There are no indications at this stage that the Chinese are planning on playing anything but a constructive role in the WTO," Stoler told the Washington International Trade Association (WITA) June 19.

China now has the fourth largest mission to the WTO, including some 22 lawyers and economists. It has just constructed of a new building in Geneva to house its delegation. Chinese representatives participate actively in various WTO negotiating groups and in consultations, Stoler reported. "I think there is every reason to conclude that so far China has been a good citizen at the WTO and is playing the game according to how we hoped they would," he said.

Beijing's main concern at the WTO appears to be the annual review process that was built into its accession agreement and requires an examination of its implementation of its commitments in the protocol. That review mechanism will begin in the September. The process will be divided up among 16 different WTO committees and councils, which deal with various parts of the General Agreement on Tariffs and Trade. Each of these groups will prepare an assessment of China's progress and submit their reports to the WTO General Council in December.

POLITICAL MANEUVERING BLOCKS HOUSE ACTION ON FAST TRACK

Is everyone out to kill fast-track legislation? Both House Republicans and Democrats seemed bent on derailing the legislation the week of June 17, as the usually simple procedure of naming House members to a House-Senate Conference Committee became a finger-pointing, name-calling fight that blocked action on a rule to name the conferees. House leaders say they will try again the week of June 24 to get the rule (H.Res 450), which the House Rules Committee adopted June 19, to the floor for a vote. Further delays are possible.

The rule became contentious because Ways and Means Committee Chairman Bill Thomas (R-Calif.) insisted it include all trade bills the House has past, including Trade Promotion Authority (H.R. 3005), Andean Trade Preferences (H.R. 3009), Customs Security (H.R. 3129), as well as the Generalized System of Preferences and Trade Adjustment Assistance (TAA). "This rule establishes the best and most recent House positions for conference and is necessary to prevent the Senate from having an advantage over the House in conference," Thomas said in a "Dear Colleague" letter.

But the rule included numerous changes to these bills, most importantly new language on TAA and new provisions on a WTO dispute-settlement fund. Democrats came out strongly against Thomas' maneuver. "Inexplicably, Chairman Thomas has taken a bad situation and made it even worse," protested Ways and Means Ranking Member Charles Rangel (D-N.Y.). "He has now offered in the guise of this so-called procedural' rule to go to conference a new and even more partisan fast-track bill," he added.

House leaders were forced to withdraw consideration of the rule on June 20 when it became clear they didn't have the votes to pass it. The partisan bickering caused most Democrats who backed fast track to say they would vote against the rule. GOP ranks shriveled when textile-state Republicans said they would also oppose it due to changes in the so-called DeMint Amendment in the rule.

Rep. Jim DeMint (R-S.C.) claimed the revised amendment, which would impose U.S. dying, printing and finishing requirements on apparel produced in the Caribbean and Andean regions, differed from the version attached to an appropriations bill in May (see WTTL, May 27, page 2). He said the change undercuts his proposal by creating a loophole that exempts "hybrid" apparel that is cut partially in the U.S. and partially in the Caribbean.

ADVISORS QUESTIONS EX-IM BANK'S DOMESTIC CONTENT REQUIREMENTS

On paper, the Export-Import Bank appears competitive with other export credit agencies, but in the real world it isn't matching the support they give their industries, members of the Bank's advisory committee suggested June 19. Commenting on Ex-Im's draft annual report to Congress on its competitiveness, committee members suggested the report may be using the wrong measures of competitiveness to compare Ex-Im with other government financing agencies.

One area cited by committee members is Ex-Im's stricter requirements for U.S. content in exports supported by Bank financing. "The world is changing," said committee member Jean-Pierre Russo, chairman of Case New Holland. Because of globalization, companies increasingly use local production for sales in foreign countries or mix the source of content for exports, he noted.

David Drysdale, director of Ex-Im's international policy and planning division, said there are wide policy differences on local content requirements among export credit agencies in different countries. Canada's Export Bank Canada (EBC) is the most liberal because Canada cannot provide as much local content for its exports. "The EBC is pushing the envelope further and further," and becoming more like a private-sector bank than a government bank, he noted.

* * * BRIEFS * * *

RUSSIA: ITA June 12 signed addendum to U.S.-Russia Agreement on steel to account for Russia's share of tariff-rate quotas established for semifinished steel in Section 201 action.

BIS: As expected, White House legislation sent to Congress June 18 to create Department of Homeland Security calls for moving BIS's Critical Infrastructure Assurance Office (CIAO), as well as NIST's computer security division (see WTTL, June 10, page 4).

TRADE FIGURES: April goods exports of $56.9 billion were 8% down from last April, Commerce said June 20. Goods imports surged to $96.8 billion but were still down 2.4% from year ago. Services exports of $23.2 billion were 4.6% below last April, while services imports of $19.2 billion were down 1%.

OIL SERVICES: USTR Robert Zoellick June 18 requested ITC fact-finding study of international competition factors in oil and gas field services.

FTAs: USTR Robert Zoellick asked ITC June 19 to conduct two studies examining potential impact of eliminating tariffs on agriculture products from Chile and Singapore under planned FTAs.

ITC: As required by statute biennially, President Bush June 17 rotated leadership of ITC, naming Republican Deanna Tanner Okun chairman and Democrat Jennifer Hillman vice chairman.