Volume 22, No. 30 -- July 29, 2002

CANADA CLAIMS WIN AT WTO ON SOFTWOOD LUMBER

Canadian officials say an interim World Trade Organization (WTO) panel ruling distributed to the parties July 26 backs their complaint that the International Trade Administration (ITA) improperly used cross-border reference prices in its preliminary ruling in the countervailing duty case against softwood lumber from Canada (see WTTL, April 22, page 4).   "The WTO panel finding is a fundamental win for Canada," said Canadian Trade Minister Pierre Pettigrew.

While the panel reportedly agreed with the U.S. that sales of timber can be considered a "good" that could be subject to subsidization, it found fault with the methodology ITA used in determining the level of that subsidization.  ITA's use of cross-border benchmark prices, justified by the agency on the basis that there wasn't a large enough sample of open-market sales in Canada to use Canadian prices, has been a point of argument throughout the trade case.

The interim ruling only applies to ITA's preliminary ruling and won=t be issued in final form until the end of August.  It is certain to be subject to lengthy appeals.  Canada has a separate complaint pending at the WTO against the final CVD order and also has asked a NAFTA bilateral panel to examine the U.S. order.
 

EASING OF CONTROLS SOUGHT FOR SECURE NETWORK SYSTEMS

Firms producing software and hardware for secure network management systems are seeking liberalization of Export Administration Regulations (EAR) encryption rules to eliminate licensing requirements for their products.  While the licensing process is not yet a heavy burden for these products, industry executives predict significant growth in the use of encryption in these systems with a resulting increase in product classification requests to the Bureau of Industry and Security (BIS) and license applications.

"Right now, the U.S. is dominant in the market place," said one member of BIS's Information Systems Technical Advisory Committee (ISTAC) July 24.  "If we don't do something soon we will foster foreign competition," he added.  Even a leading U.S. software firm, SSH Communications Security, is a subsidiary of a Finnish company.  Other competitors are expected to emerge in Israel and India.

As customers demand stronger security for their networks, Cisco Systems expects encryption protection to become a standard element of the products it sells, Cisco senior engineer Steve Bird told the committee.  In a presentation to the ISTAC, Bird urged BIS to remove national security controls on secure network management systems for products that are only controlled because of their encryption capabilities.  Bird said he had one license that took five months to get approved, although the average review time for his applications is six weeks.  Classifica-tions are taking from one to two months, he said.

At issue are secure shell (SSH) and secure socket layer (SSL) security technologies.  Similar concerns about controls on this technology in remote network monitoring systems were raised at the last ISTAC meeting (see WTTL, April 29, page 1).  The ISTAC intends to form a working group to examine the issue and to prepare recommendations for BIS.

Current controls are making it difficult to design products for major multinational corporations that want to control networks linking them to branches around the world, including in countries subject to U.S. trade restrictions, according to David Precopio, marketing director for SSH.  He noted problems his firm has had designing a system that would not face export control limits for McDonalds, which wants to tie together its franchisees and units all around the world.
 

BIS HITS TWO FIRMS WITH $643,000 IN FINES FOR EXPORT VIOLATIONS

Recent BIS enforcement actions, which imposed $643,000 in civil fines on two firms, included charges that the companies had filed false Shipper's Export Declarations (SEDs) in addition to allegedly violating export administration regulations.  In a settlement agreement with Printrak, a division of Motorola, BIS fined the firm $135,000 for 37 counts of exporting automated fingerprint identification equipment without approved licenses and eight counts of making false or misleading statements on its SEDs.  Printrak voluntarily disclosed its actions and cooperated with BIS officials in the investigation of the case.

The charging letter to EOTT Energy Corp. of Houston, Texas, included 60 counts -- 14 charges of exporting crude oil to Canada in excess of the amount allowed in its export license and 46 counts of filing false or misleading SEDs.  In the settlement agreement with BIS, EOTT agreed to pay a $508,000 civil fine, which will be paid in five installments over the next 15 months.

BUSH ON TRACK TO GET FAST-TRACK NEGOTIATING AUTHORITY

President Bush will soon be able to boast that he won a legislative victory that eluded his predecessor, President Clinton, for almost six year: getting congressional approval for fast-track negotiating authority.  By a 215-212 vote after 3:00 AM, July 27, the House passed a House-Senate Conference Committee Report on H.R. 3009, which Finance Committee Chairman Max Baucus (D-Mont.) and Ways and Means Chairman Bill Thomas (R-Calif.) -- and committee staffers -- ironed out over two days and nights of negotiations.

Although the two lawmakers said they had a deal close to midnight on July 25, action of the conference report was delayed by last-minute differences over what was agreed to.  Objections of some Democrats to the agreement also delayed getting the report to the House Rules Committee until after midnight July 26.  But the final vote even got the support of textile-state Rep. Jim DeMint (R-S.C.).

With House action, the Senate is expected to take up the bill the week of July 29.  The Senate may first have to invoke cloture, needing 60 votes, to overcome procedural objections to the measure.  Senate fast-track supports said they have the needed votes to get cloture and final approval of the bill.

"President Clinton tried valiantly in a bipartisan fashion to get trade promotion authority repeatedly throughout his term, and he was not able to," White House Press Secretary Ari Fleisher pointed out.  "The president thinks that the agreement that has been reached by the conference is a strong agreement, a good agreement," Fleisher said.  President Bush went to Capitol Hill the afternoon of July 26 to meet with Republican members to urge their support for final passage of the fast-track legislation, as well as the pending homeland security bill.

The conference committee report includes a package of trade measures providing trade negotiating objectives for future trade talks, extension and enlargement of Trade Adjustment Assistance (TAA), renewal of the Andean Trade Preferences Act (ATPA) with new access for certain regionally produced apparel that meets content and finishing requirements, renewal of the Generalized System of Preferences (GSP) through 2006, and the Customs budget authorization, with new provisions giving Customs the right to open but not read unsealed outbound mail and outbound mail exceeding 16 oz without a warrant.

The deal extends TAA for five years, with new health care benefits for displaced workers and new coverage of secondary and downstream workers.  It splits the difference between House and Senate bills on health insurance tax credits, setting the limit at 65%.  "That was decided early," Thomas told reporters before the deal was wrapped up.  "I mean, throw a dart at it.  You couldn't telegraph something plainer than that," he said.

On the key issue of extending NAFTA-type benefits to workers who lose their jobs when their firms shift production abroad, the bill enlarges the pool of eligible workers but still limits its coverage.  Under the deal, the shift in production has to be to a country that has a bilateral free trade agreement with the U.S. or to countries eligible for Caribbean, African and Andean trade preferences.  This avoids opening TAA to workers whose jobs go to China, South and South East Asia or other Latin American countries.

As expected, the conference dropped the Senate's Dayton-Craig Amendment, which would have allowed lawmakers to block a trade deal that weakened U.S. trade laws.  In its place, the report makes the maintaining of U.S. trade laws a new principle negotiating objective.  The difference between the House and Senate on Dayton-Craig "was not much of a problem," Baucus said.  "There was just a basic feeling of how that had to be resolved to pass the Senate," he said.

The substitute language adds stronger requirements for U.S. trade negotiators to consult with Congress 180 days before any trade agreement is concluded.  It also would allow a member to introduce a nonbinding resolution claiming the proposed agreement isn't consistent with the fast-track negotiating objectives.  "It's many steps better than in previous fast-track," Baucus said.  "It's all evolutionary."

Thomas agreed.  "Underlying both bills, written independent of each other, was a concern about a degree of lack of key consultation with the folks who constitutionally owned the subject matter," Thomas said.  "They were concerned about some additional ways to deal with that and we were able to pull the whole together," he said.  Thomas and Baucus said they were sure U.S. Trade Representative (USTR) Robert Zoellick would consult with them.  "We are confident that if he doesn't, we have ways that will focus his attention and his need to do so," Thomas said.
 

VERIFICATION VISIT SHOWS UKRAINE STILL MOVING TO MARKET ECONOMY

An International Trade Administration (ITA) staff report July 19 on a verification visit to a Ukrainian steel plant shows how one firm, at least, is making the transition from operating in a communist nonmarket economy (NME) to competing in an open market.  While the report isn't part of ITA's current review of Ukraine's NME status, it provides insights into currency policies, energy and raw material procurement and export pricing (see WTTL, July 1, page 2).

The visit to the Krivorozhstal steel plant in early July was part of a pending antidumping investigation into carbon and alloy steel wire rod from Ukraine.  The ITA staff found the company was owned by its workers and management, with management elected at the annual trade union meeting.

Company officials tried to explain why the firm is considered a "public owned company" and not an "exclusive state enterprise," noting that its Ukraine name indicates that it is not a state enterprise and that the government doesn't control its operations.  "We reviewed Krivorozhstal's business plan and noted no indication of government approval of it," the ITA report stated.   The company was preparing to be privatized in 1997 when other Ukrainian steel firms were privatized but "was unable to locate a buyer," the report said.  "A company official stated that they are no longer actively seeking a buyer, but would entertain bids should a prospective buyer be interest in Krivorozhstal," it added.

One issue in dispute in the pending ITA review of Ukraine's NME status is the government's mandatory requirements for converting 50% of export earnings into the Ukraine currency, the hryvnia.   "Company officials stated that this law does not influence Krivorozhstal's business activities because the company often keeps the majority of its currency in hryvnia by choice in order to pay its local obligations," the ITA team reported.

The ITAers also collected data showing the purchase of raw materials. They found that the firm self-produces most of the electricity it uses but purchases the rest.  The report also noted that Ukraine has established "indicative prices" for steel exports to the U.S. to prevent dumping. Krivorozhstal sold below that price for some period, but then the government lowered the price.
 

ENCRYPTION MASS-MARKET STATUS DOESN'T APPLY TO COMPONENTS

Just because items are classified as mass-market products doesn't mean the components in them will get mass-market classification under EAR encryption rules, according to BIS staffers.  In particular, integrated circuits with encryption capabilities that are sold for use in cell phones are not mass-market, BISers told the ISTAC meeting July 24.  "Selling to a big manufacturer does not make a mass-market product," said BIS licensing officer Joe Young.

"You would very likely be eligible for retail treatment and possibly de minimis treatment," noted Judith Currie of BIS' information technology controls division.  "We need to stick fairly strictly to the [Wassenaar Arrangement] cryptography note, which says products must be generally available to the public" to be deemed mass-market, she added.  "It's a stretch to say chips are generally available."  But chips could get favorable consideration for de minimis status, Currie said.

U.S. AGRICULTURE PROPOSAL TO WTO AIMS AT EU PRACTICES

The clash between the U.S. and the European Union (EU) over WTO agriculture trade rules, which was left unresolved by the Uruguay Round, will become the dominating issue in the Doha Round.   Washington's July 25 announcement of its negotiating goals in the Doha farm talks took direct aim at EU agriculture policies and drew a quick negative reaction from EU farm officials.  By setting the bar high on agriculture, the U.S. is sending a signal that other countries will have to pay a lot for any concessions they want from the Washington.

"I do not see these proposals as a basis for compromise," said EU Farm Commissioner Franz Fischler.  "The U.S. proposal is in sharp contrast to the EU position," he added.  He said he was disappointed by the lack of concern for developing countries or for legitimate nontrade concerns.

The U.S. proposal, which will be presented to WTO negotiators the week of July 29, would eliminate all farm export subsidies over five years, harmonize and cut tariffs on imports to a level not exceeding 25% for any product and reduce allowable domestic supports to 5% of total domestic production.  The proposal would allow developing countries to provide support up to 10% of production.  These cuts would reduce EU domestic supports to $12 billion from $60 billion and U.S. aid to $10 billion from $19 billion.  It also calls for reducing the complexity of WTO rules by allowing only two boxes' for trade distorting and non-trade distorting farm support.  It also calls for greater discipline on the implementation of tariff-rate-quotas.

Copyright 2002 by Gilston Communications Group. Reproduction or retransmission in any form is prohibited. Washington Tariff & Trade Letter is published weekly 50 times a year.