Volume 22, No. 31 -- August 5, 2002

APPROVAL OF FAST TRACK PUTS PRESSURE ON TRADE TALKS

U.S. Trade Representative (USTR) Robert Zoellick won't have the lack of fast-track negotiating authority to blame anymore for lack of progress in trade negotiations.  With the Senate's approval of fast track Aug. 1 and House passage July 27, Zoellick is under pressure to deliver on long-stalled free trade agreement talks with Chile and Singapore and resuscitate the Free Trade Area of the Americas (FTAA).  President Bush is expected to sign the measure Aug. 6.

The Senate approved the House-Senate Conference Committee Report on fast-track (H.R. 3009) by a comfortable, bipartisan vote of 64-34.  House action came near 3:30 A.M. on July 27 on a 215-212 vote (see WTTL, July 29, page 1).

 Despite the close House vote, Zoellick said future trade deals will have an easier time passing Congress.  "It's been my experience that in some ways this is the toughest phase," Zoellick argued.  "Once you bring back the agreements, you have a stronger hand because you can show the benefits.  What we had to go through, particularly in the House, is have all the protectionists attack trade without being able to have the concrete benefits to show," he said.

The U.S. now must decide if it really wants to get involved in more bilateral FTA talks at the same time it puts its energies into the FTAA and the just launched World Trade Organization (WTO) Doha Round.  Decisions need to be made about talks with Australia, five Central American countries, Morocco, the South African Customs Union and Egypt.  Members of Congress have also proposed FTA talks with such countries as Taiwan and South Korea.

The vote showed that many Democrats were bluffing when they claimed they would support fast track, if stronger Trade Adjustment Assistance (TAA) provisions were added.  The final bill included most of the Senate's increase in benefits for trade-dislocated workers, but only 25 House Democrats voted for the measure, compares to the 21 in December.  Even so-called New Democrats, such as Reps. Anna Eshoo (Calif.), who pressed for better TAA provisions, failed to back the bill.  Several Democrats, however, did switch to support the conference report, including Reps. Jane Harman (Calif.), Harold Ford (Tenn.) and Ellen Tauscher (Calif.).
 

COMPLAINTS GROW ABOUT BIS EXPORT LICENSE HANDLING

At first, the slowdown in export license reviews and the increased imposition of conditions on approvals at the Bureau of Industry and Security (BIS) was blamed on the transition from the Clinton administration to the Bush administration.  Then the attacks of Sept. 11, 2001 became the justification for greater scrutiny of applications.  Now the excuse for licensing problems at BIS is the fear of its managers that fighting Defense and State on cases may hurt chances for renewing the Export Administration Act (EAA) or trigger the addition of tighten controls.

"They clearly are laying low on certain issues while EAA is pending," one industry source told WTTL.  "They're afraid of tipping the scales and giving ammunition to critics on Capitol Hill," he added.  "They won't say that out loud, but industry knows that," he said.

The main complaint heard from export managers is BIS's unwillingness to fight for exporters in the interagency process, particularly at the Operating Committee (OC) and at the Assistant Secretary Advisory Committee on Export Policy (ASEP).  Although industry sources give BIS managers credit for breaking the logjam on "deemed export" and night vision licenses, they say the agency is too willing to bow to the other departments by imposing restrictive and burdensome conditions on license approvals (see WTTL, July 22, page 1).  The agency's reticence comes as the Pentagon's Defense Technology Security Administration (DTSA) is becoming more assertive with the backing of top department officials.

The slow reviews and extra conditions particularly hit licenses for China, another source said.  Although most cases eventually get approved, U.S. exporters face an unlevel playing field against foreign competitors who can get approvals in weeks or days from their export licensing agencies, another exporter noted.  Firms are willing to accept tougher conditions "because it is better than getting no decision," a different industry representative said.  "We accept the conditions and hope we can go back to our customers to see if they will accept them," he explained.

The closer scrutiny of China cases is giving European firms an advantage, one source complained.  He warned that American companies may get locked out of China's big plans for the 2008 Olympics, including major spending on infrastructure and facilities, as well as on communications and computer systems for the games.  In addition, to tighter licensing restrictions, sales for the Olympics might be hurt by Beijing's insistence that suppliers have Chinese partners and do co-production in China -- two conditions U.S. licensing agencies may oppose.
 
Even the name change to BIS from the Bureau of Export Administration (BXA) raised concerns in the trade community that the agency was moving away from its primary export-licensing role.  The new name was a sign that agency managers "have a different focus," one industry executive said.  Another signal is the fact that the President's Export Council Subcommittee on Export Administration (PECSEA) hasn't met in 18 months, another executive noted.

To counter such fears, BIS Under Secretary Kenneth Juster has appeared before several technical advisory committees to explain the name change and the agency's broader mission.  Juster has tried to assure industry representatives that BIS is still committed to its export administration function and that nothing has diminished the importance of that responsibility.

BIS managers say some of the delays and problems with license handling has been due to a shortage of staff.  One manger noted the difficulty of keeping key licensing officers because of lack of promotion opportunities and the better salaries offered by private industry.  BIS is in the process of hiring several new staffers, including an electrical engineer and personnel trained in missile technology and nuclear products, one BIS official told WTTL.

Other sources, however, say BIS has a morale problem that's not related to positions or money.  They note that some BISers have left to work in other parts of Commerce and some have even gone to work for DTSA.  "It's a talent management issue," one former BIS employee said.
 

DEFENSE SEEKS TO TIGHTEN CONTROLS ON LASER PRODUCTS

Makers of some laser-based medical devices and fiber-optic test equipment could face tougher export controls if Defense succeeds in its goal of revising and enlarging the Militarily Critical Technologies List (MCTL).  The prospects of new controls also are arising from the Pentagon's push to have the Wassenaar Arrangement this fall close a gap in current laser controls for systems operating at wavelengths between 950 and 2,000 nanometers.

It has been over 10 years since the MCTL, which forms the basis for the Munitions List (ML) and some items on the Commerce Control List (CCL), has been updated.  Defense officials contend that many new technologies developed since then are not reflected on the MCTL.

The department has asked the Institute for Defense Analyses (IDA) to examine the MCTL and propose revisions to the list.  IDA analysts met with industry representatives July 29.  The MCTL review is expected to be completed by the end of the year.  Based on its results, there may be an effort to revise the ML and CCL, as well as to seek changes in Wassenaar controls, one source said.

The gap in Wassenaar controls was created because the 950 nanometer to 2 micron part of the spectrum had been reserved for telecommunications products, although no controls were imposed on these products.  Now Defense argues there are laser products at those wavelengths that could be used to blind combatants on the battlefield.  The Pentagon, however, has not identified any of them publicly.  It also is concerned about new wavelength shift technologies that can move operating wavelengths above 2 microns and up to 3 or 6 microns.

Last year, at Defense's insistence, the U.S. tried without success to get Wassenaar to control lasers operating in the 950-2000 nanometer wavelength ban.  Washington is expected to try again to get support for controls at Wassenaar technical-level meetings in the fall and at the high-level plenary meeting in December.  This time "they are likely to get it," one source said.
 

GOVERNMENT RENEWS CLAIM THAT IEEPA PROTECTS 12(c) DATA

Justice lawyers have revived the same legal argument they used successfully before to block the public release of export licensing information under the Freedom of Information Act (FoIA).  In a July 19 brief in the D.C. U.S. Circuit Court (case No. 01-5356), the government claims the International Emergency Economic Powers Act (IEEPA) not only can be used to maintain export licensing controls after the expiration of the Export Administration Act (EAA) but also to keep the EAA Section 12(c) exemption from FoIA for license information.

The brief opposes an appeal filed by the Wisconsin Project on Nuclear Arms Controls, which seeks to overturn a Sept. 4, 2001 summary judgment ruling by DC U.S. District Court Judge Gladys Kessler.  In an unpublished and mostly overlooked ruling, Kessler had dismissed the group's suit seeking to reverse a Commerce decision to reject its FoIA request for licensing application and approval information on some 10,000 cases reviewed between 1995 and 1999 for exports to China, Hong Kong, Russia, Israel, India and Pakistan.

The legal battle is a replay of a similar suit the government won in early 2001 in the 11th Circuit.  That court, in the Times Publishing case, agreed that IEEPA could be used as the basis for maintaining the 12(c) exemption (see WTTL, Jan. 15, 2001, page 4).  Most people in the trade community thought that ruling had put the 12(c) fight to bed and were surprised the Wisconsin Project had appealed Kessler's ruling.

Under FoIA, information can be exempt from release if there is a specific statutory exemption such as 12(c).  The Wisconsin Project argues that since EAA expired in 1994 there is no statutory exemption.  Kessler agreed, but said Congress in 2000 renewed EAA from 1994 to August 20, 2001 and that covered the period of information the group was seeking.

As in the Times Publishing case, the government in Wisconsin Project argues that EAA has lapsed repeatedly over the last 50 years.  The EAA of 1969 lapsed four times and EAA of 1979 lapsed six times, it notes.  Congress enacted IEEPA to ensure a "seamless web of legislation" during those lapsed periods, the government brief asserts.  "The actions of all concerned parties, including potential export licensees, Congress, Commerce and the courts during periods of lapse of the EAA further establish that IEEPA was designed to continue the protection of export license application information by statute," it contends.

An amicus brief filed July 29 by seven trade associations and coalitions avoids the issue of IEEPA's role in maintaining EAA provisions and stresses instead the decision of Congress to renew EAA temporarily.  "By changing the expiration date from August 20, 1994 to August 20, 2001, Congress manifested its intention that Section 12(c)(1) continue in force, uninterrupted, from 1994 to 2001," says the brief, written by Eric Hirschhorn of Winston & Strawn.  The renewed law protects "all records at issue here and is dispositive of this appeal," the brief claims.
 

BAUCUS BACKS GRASSLEY CALL FOR WORKING GROUP TO ADDRESS FSC/ETI

Senate Finance Committee Chairman Max Baucus (D-Mont.) July 30 was quick to adopt Sen. Charles Grassley's (R-Iowa) proposal for the creation of a working group of representatives from the Bush administration, Congress and the business community to develop a legislative plan from revising the tax code to replace the Foreign Sales Corporation/Extraterritorial Income (ETI) tax rules.  The idea of a working group, similar to one that drafted the ETI legislation, comes as opposition is growing to a broad international tax bill (H.R. 5095), that Ways and Means Chairman Bill Thomas (R-Calif.) has introduced (see WTTL, July 22, Page 3).

At a Finance hearing at which USTR Robert Zoellick and Treasury Deputy Secretary Kenneth Dam testified, Baucus complained that the administration "has been a little bit derelict" in coming up with a common administration position on how to fix FSC/ETI to meet WTO objections and in working with Congress.  Baucus urged Zoellick to address the conflicting WTO rules on direct and indirect taxes in the Doha Round, noting that the issue was included as a negotiating objective in the final fast-track legislation.

Baucus splashed cold water on hopes for legislation this year on foreign tax rules. "Whether the ultimate answer lies in legislation or negotiations, or a combination of the two, it is likely to take several years to finalize," Baucus declared.  Zoellick, however, warned that the U.S. has to come into compliance with the WTO ruling quicker than that. "There is real time issue here," he told the committee.  "I don't believe there is a chance to get Doha negotiations done in time to avoid retaliation," he said.

The hearing also heard from a panel of industry representatives who described the potential tax increases many exporters will face if FSC/ETI is repealed without a suitable alternative.  Executives from Boeing, Caterpillar, Hewlett-Packard and Wal-Mart urged Congress to take its time amending the tax code to avoid changes that would disadvantage U.S.-based exporters.

 * * * BRIEFS * * *

WTO: Former Ways and Means Chief Democratic Trade Counsel Bruce Wilson, who is now with Akin, Gump Strauss law firm in Washington, will become new director of WTO legal affairs division starting Sept. 16.  Position is comparable to general counsel of WTO.

STEEL: U.S. and Korea have resolve WTO dispute over Section 201 action against imports of circular line pipe, which WTO has found in violation of safeguard agreement.  Deal headed off arbitration panel ruling on amount of compensation Korea was entitled to.  U.S. agreed to replace tariff on pipe with tariff-rate-quota that allows in 17,500 tons per quarter before 201 tariffs kick in.  Separately, WTO July 31 adopted two previously released panel reports backing EU complaints against U.S. treatment of privatized steel firms and application of "sunset" rules (see WTTL, July 8, page 2).

ITC: Finance Committee Aug. 1 by voice vote approved nomination of Charlotte Lane to be ITC commissioner, but there is "hold" blocking Senate floor action on her confirmation.  Meanwhile, White House has not yet sent committee nomination of Daniel Pearson to fill seat now held by Lynn Bragg, whose term expired June 16.  Bragg can remain in post until her replacement is confirmed.  President Bush July 2 said he intends to nominate Pearson, who is now assistant vice president for public affairs at farm giant Cargill, for nine-year term ending 2011.  White House has been under pressure from Congress to name commissioner with agriculture background.

SODA ASH: USTR's office Aug. 1 reported that Indian Supreme Court had issued order overturning decision of Indian Monopolies and Restrict Trade Practices Commission which had block import of U.S. soda ash based on allegations of predatory pricing.  "This action should resolve a six-year-old trade dispute between the United States and India," USTR Robert Zoellick said.

BUILDING STRUCTURES: Senate Finance Committee July 31 asked ITC to conduct fact-finding study into competitive conditions in U.S. structural building components industry.

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.