Volume 22, No. 27 -- July 8, 2002

Posted Monday, July 8, 2002 12:00 am

U.S. EXTENDS STEEL EXCLUSION DECISIONS FOR TWO MORE MONTHS

Washington is showing it can play the cat-and-mouse game as well as the European Union (EU), announcing that it will continue to issue exclusions from Section 201 steel tariffs beyond the original July 3 deadline it had set in March. With decisions reached on only 20% of the 1,200 exclusion requests that have been submitted, U.S. trade agencies will trickle out more rulings over the next two months. President Bush July 4 revised his 201 decision, extending the deadline for exclusion decisions to Aug. 31 and giving U.S. Trade Representative (USTR) Robert Zoellick authority to exempt more developing countries from the tariffs

The extension of time will allow U.S. and EU negotiators to keep talking in an effort to avert EU retaliation against the 201 sanctions (see WTTL, June 24, page 1). The extra time also may blunt mounting criticism from the steel industry and steel-state lawmakers about the decisions being made. If the exclusion process can move slow enough and congressional action on fast-track legislation can move fast enough, the Bush administration may be able to hold on to the votes of steel-district, House Republicans who have supported the trade bill twice already.

The delay also will give Zoellick and Commerce Secretary Don Evans leverage to apply to U.S. steel companies to make sure they live up to proposals they made last November to use the 201 relief period to restructure the industry. Zoellick and Evans sent letters to steel industry executives in June asking them to file an interim report on their restructuring progress by Sept. 5 and a follow-up report by March 5, 2003. There has been concern that some firms are using the stronger steel market to reopen closed facilities rather than continue with mergers, consolidation and the closing of capacity.

The conflicting pressures on the industry -- the long-term need to cut capacity versus the desire to benefit from current demand -- are seen in steel production figures issued by the American Iron and Steel Institute. For the week ending June 29, raw steel production was 1.9 million metric tons, 3.7% more than the same period a year ago. But capacity utilization surged to 90.6% from 75.8%. Extrapolated annually, that represents about 16.9 million tons of reduced capacity. For the first half of 2002, production was actually down just under 1% to 48.8 million tons, while capacity utilization was up to 88.8% from 78%, AISI reported.

VIETNAM HIT WITH FIRST ANTIDUMPING COMPLAINT

Welcome to capitalism, Vietnam. Less than seven months after the U.S.-Vietnam trade pact became effective, Hanoi has become the target of its first antidumping complaint. The Catfish Farmers of America (CFA), which has been fighting catfish imports from Vietnam on the legislative and regulatory fronts for three years, filed antidumping petitions at the International Trade Administration (ITA) and International Trade Commission (ITC) June 28. It claimed Vietnam is dumping frozen fillets of catfish at margins of 191% below fair value.

The petition represents, "to the best of the petitioner's knowledge, the first U.S. antidumping petition filed against a product from the Socialist Republic of Vietnam," wrote CFA's lawyers at Akin, Gump, Strauss. "It is clear that Vietnam must be treated under U.S. antidumping law as a nonmarket economy country," they added. They proposed the use of India as a surrogate country.

To win its case, CFA first will have to convince ITA and ITC that its members produce the "like product" to those named in its complaint. That's unclear because the industry succeeded in enacting legislation to block Vietnamese imports from claiming they are "catfish." As a result of its lobbying, the 2002 Agriculture Appropriations Act included a section barring the Food & Drug Administration (FDA) from allowing the import of any product "labeled wholly or in part as catfish' unless the products are taxonomically from the family Ictaluridae."

CFA's complaint, however, is against two species: basa (Pangasius bocourti) and tra (Pangasius Hypophthalmus), which cannot be labeled as catfish under the new law. The petition said it is filed on behalf of processors of frozen catfish fillets and farmers of foodsize catfish of the species Ictalurus Punctatus, which it claims is also the domestic like product.

In a letter to the seafood industry in January, FDA warned importers that food labeled as catfish that isn't of the species Ictaluridae would be considered misbranded. It listed 20 types of fish that use the word catfish in their common market names. FDA urged producers and marketers of those fish to develop new names for their products. The shift in names and Harmonized Tariff Schedule numbers has made it appear that tra and basa imports have declined when they haven't, CFA noted its petition. Despite different names, Vietnamese imports still compete with domestic catfish because of their physical characteristics, interchangeability, channels of distribution and customer perceptions, CFA argued.

SUNSET REVIEWS FACE CHALLENGE AFTER WTO PANEL RULING

Scores of "sunset" review decisions that have kept countervailing duty (CVD) orders in place beyond the five years allowed by World Trade Organization (WTO) rules could be challenged if a WTO dispute-settlement panel ruling released July 3 isn't overturned. The impact of the decision is one reason the U.S. is certain to ask the WTO Appellate Body to reverse key parts of the ruling, which found the International Trade Administration's (ITA) sunset review decision on corrosion-resistant carbon steel from Germany to be inconsistent with the WTO's Subsidies and Countervailing Measures (SCM) Agreement. The European Union (EU) is likely to appeal the parts of the ruling it lost.

The panel's opinion was a mixture of good and bad news for both the U.S. and the EU. It found U.S. trade law to be consistent with the sunset review pro-visions of Article 21.3 of the SCM in regard to the standard for initiating a review but inconsistent in the application of the accord's de minimis standard. It also found the statute consistent with the SCM in its requirements for making a determination of the likelihood of a continuation or recurrence of a subsidy, but faulted ITA's application of the law.

The ruling is the latest in a series of assaults on the sunset process in U.S. courts and at the WTO (see WTTL, May 20, page 4). While the statute and regulations establishing the sunset procedures appear to be holding up in these cases, the rulings are creating the grounds for other importers to ask to have their past sunset cases reopened and to force ITA and the International Trade Commission (ITC) to provide better justifications for their decisions.

On the good news side, the panel found U.S. law and regulations, which allow ITA to self-initiate sunset reviews with little justification, to be consistent with the SCM. It found that "no evidentiary standards are applicable to the self-initiation of sunset reviews." In addition, the panel said U.S. law satisfactorily complies with the SCM requirement to justify continuation of a CVD order, because it didn't mandate any inconsistent behavior.

On the bad news side, however, the panel, in a rare split decision, declared the de minimis provisions of the Trade Act and ITA regulations to be inconsistent with the SCM. Although Article 21.3 doesn't specifically include a de minimis requirement, two members of the panel said the 1% de minimis requirement that applies to original CVD determinations applies to sunset decisions as well. One dissenting panelist sided with the U.S. and said the absence of specific de minimis language in the article means the requirement doesn't apply.

"Having found that the de minimis standard set out in Article 11.9 is applicable to sunset reviews and that the U.S. CVD law is inconsistent with the SCM Agreement in this respect, we find that the United States violated the SCM Agreement by failing to apply such a de minimis standard to the instant sunset review," two panelist wrote. The U.S. statute sets a 0.5% de minimis level in CVD cases. In the German steel case, ITA found a 0.53% subsidy.

Moreover, the panel said ITA failed to quantify sufficiently the level of subsidy that is likely to continue or recur so it could determine whether a subsidy is above or below the de minimis point. "We consider that, because there is an obligation to apply a de minimis standard and this cannot be done unless subsidization is quantified, there is a consequential obligation to quantify the likely future rate of subsidization," the panel stated.

The panel said its position on the de minimis issue was based on its understanding of the intent of the drafters of the SCM accord, namely that trade should not be disrupted when the level of subsidy is too small to be considered injurious. The panel argued that the 1% cut off point for injury in initial CVD cases has to be the same for sunset reviews. "Finding otherwise would compromise the very object and purpose of the SCM Agreement and the disciplinary framework that the drafters sought to create through the agreement," it stated.

Furthermore, the panel agreed with the EU that the SCM Agreement requires reviewing authorities in sunset cases to provide a "sufficient factual basis" for a determination that a subsidy is likely to continue or recur. While U.S. law is consistent with that requirement, ITA's ruling was insufficient, the panel found. "In our view, the DOC's likelihood determination, which did not go beyond simple arithmetic calculation, lacks sufficient factual basis," it ruled.

U.S., EU SUBMIT REQUESTS AT WTO TO OPEN SERVICES MARKETS

In addition to seeking the opening of foreign services markets as part of the WTO negotiations on revising the General Agreement on Trade in Services (GATS), the U.S. and EU are trying to confront growing complaints from anti-globalization forces who are targeting the services talks as one of the areas where trade liberalization may hurt public health and welfare. Anti-trade groups have claimed the GATS talks could force privatization or higher costs for public services such as water, health care, education, and transportation.

In an effort to counter these protests, WTO Director General Mike Moore issued a statement before the start of the WTO Services Council July 1, emphasizing that governments won't be forced to open these markets. "The GATS explicitly excludes government services from its scope and there is no question of changing those rules," Moore declared.

In announcing its July 1 submission of individual, specific services liberalization requests to 143 WTO members, the USTR's office also stressed that the talks "do not apply to services supplied in the exercise of governmental authority." It noted that the GATS "does not force or require any government to privatize any publicly provided service."

The EU announcement July 4 carried similar words aimed at placating civil society concerns. "The EU fully shares the importance citizens in Europe and elsewhere attach to maintaining and developing public services," it said. But EU Trade Commissioner Pascal Lamy rejected an effort by European civil organizations to get more transparency in the GATS negotiations. In response to a request to reveal the specific market-opening requests it submitted to other countries, Lamy said the EU is "playing a one-hundred-and-forty-plus game in Geneva." Some sections of civil society "are asking me to overturn the method of negotiations that most of our partners find best most of the time. I cannot do that," Lamy stated. U.S. Deputy USTR Peter Allgeier told reporters July 1 that the U.S. won't make its specific requests public either.

The U.S. and EU, which together account for more than 45% of global exports of services, have asked other WTO members to open of a wide range of services markets, including telecommunications, audiovisual, express delivery, environmental, distribution, banking, finance, tourism, insurance and the temporary entry of professional workers. No offers were made regarding maritime trade or air transport, which aren't being addressed in the talks.

Washington presented requests to 126 countries plus the EU. The EU made requests to 109 countries, excluding countries belonging to the European Economic Area. Over the next year, WTO countries are supposed to make offers in response to these requests, although there is no obligation to offer something in every sector. At the end of the process, negotiations should produce a schedule of commitments from each country, declaring which specific services sectors it will open and under what conditions, including the granting of national treatment, most-favored-nation status, the right of establishment and transparency.

* * * BRIEFS * * *

AFGHANISTAN: State July 2 amended ITAR rules on Afghanistan, lifting blanket embargo on exports of Munitions List items and establishing case-by-case review policy that will allow exports to government of Afghanistan or the Afghan Interim Authority, as well as International Security Assistance Force (ISAF).

FSC: House Ways and Means Committee Chairman Bill Thomas' (R-Calif.) outline of pro-posed changes in FSC/ETI law has started to draw negative reaction from elements of trade community who are complaining its tax-reducing provisions won't offset lost FSC/ETI benefits for firms with little or no foreign income (see WTTL, July 1, page 1). Level of industry concern is underscored by new report issued by National Foreign Trade Council, which claims $310 billion out of nation's $990 billion in exports of goods and services benefit from FSC/ETI, along with one million jobs directly and 2.5 million jobs indirectly.

BYRD AMENDMENT: Customs in July 3 Federal Register announced list of firms and organizations eligible to receive part of 2002 distribution of collected antidumping and countervailing duties.

RUSSIA: U.S. Agriculture negotiators were back in Moscow July 3 attempting to set up system for U.S. poultry producers to provide certificates demonstrating they meet Russian health requirements. USDA team "reported significant progress," said Agriculture Under Secretary J.B. Penn.