Volume 22, No. 34 -- September 2, 2002

Posted Monday, September 2, 2002 12:00 am

BUSH ADMINISTRATION CAUTIOUS ABOUT NEW CHINESE EXPORT RULES

Don't look for quick resumption of U.S. satellite sales to China just because Beijing has issued rules to restrict missile-technology exports. Although China, at U.S. urging, issued the regulations Aug. 25, State officials say they want to talk to the Chinese about implementation of the new controls before any decision is made on easing restrictions on satellite exports.

Deputy Secretary of State Richard Armitage, who was in Beijing when the rules were issued, said Assistant Secretary for Non-Proliferation John Wolf would hold talks with the Chinese "to not only fully understand the regulations and enforcement mechanism, but to talk about a way forward." He said he hopes the talks will "lead to the undoing of some of those licenses which have been held up."

The three-page regulation, which is based on Missile-Technology Control Regime (MTCR) guidelines, establishes a licensing system that requires approval to export items identified in an accompanying Control List. As with U.S. export controls, China has divided licensing authority, giving the licensing job for munitions items in Part I of the list to its Administration for Arms Exports and for dual-use items in Part II of the list to State Council of the Ministry of Foreign Trade and Economic Cooperation (MOFTEC).

Beijing has included a "catch-all" provision that requires licenses for missile-related product if the exporter "knows or should know" the item will be used for developing missiles or delivery systems "even if the items or technologies are not listed on the Control List." Violators face the same punishments imposed under Chinese customs laws, as well as fines up to five times the value of the export. Chinese export licensing officials also can be subject to punishment if they "abuse their powers, neglect their duties or export or accept money or properties from others by taking advantage of their positions." [Editor's Note: A free copy of the new Chinese MTCR rules will be sent or faxed to WTTL subscribers upon request.]

WTO PANEL SAYS FSC RETALIATION CAN EQUAL $4 BILLION

A WTO arbitration panel Aug. 30 rejected Washington's arguments for putting a lower price tag on the value of U.S. export tax rules and ruled that the European Union (EU) is entitled to $4.043 billion in compensation or retaliation for the illegal export subsidies provided by the Foreign Sales Corporation/Extraterritorial Income (FSC/ETI) tax laws. The long-delayed decision will shift congressional consideration of tax-law reforms into high gear, since it moves potential EU retaliation against U.S. exports out of the speculation realm and into a real threat.

"The WTO arbitration panel decision should not come as a surprise, but rather as a reminder that the fundamental problems in our tax code need to be addressed now," said House Ways and Means Committee Chairman Bill Thomas (R-Calif.) in a statement after the ruling was issued. "The longer we wait to reform our uncompetitive tax code, the more jobs we lose to our foreign competitors," added Thomas, who has proposed a major package of legislation (H.R. 5095) to repeal FSC/ETI and revised rules on foreign corporate earnings

The ruling gives the EU the green light to retaliate against the U.S., but EU Trade Commissioner Pascal Lamy signaled his continuing willingness to give Washington a chance to revise its tax rules. "We need to see compliance in a series of steps," he said. Some of those steps have been taken, including introduction of the Thomas bill, Lamy noted.

"We call on the U.S. Congress to act quickly so that legislation will move forward and enable repeal of the FSC/ETI within a short period of time," he said. Nonetheless, Lamy said the EU will go ahead with promulgating the list of American exports that could be hit with retaliatory tariffs of 100%, if the U.S. fails to comply the WTO ruling. "Before any countermeasures are taken, we will carefully evaluate progress made on U.S. implementation," he said.

U.S. Trade Representative (USTR) Robert Zoellick said he was disappointed by the panel's decision to adopt the EU figure for the value of FSC/ETI rather than the $1 billion number the U.S. proposed. "I believe that today's findings will ultimately be rendered moot by U.S. compliance with the WTO's recommendations and rulings in this dispute," he said in a statement. "One of the ironies of this case is that when the dust has settled, we hope to find that the competitiveness of U.S. firms has been strengthened, rather than diminished," he added.

U.S. RAISES CONCERNS ABOUT LIFE INSURANCE MARKET IN JAPAN

American life insurance companies are concerned that plans for privatizing the life insurance functions of Japan's Postal Services Agency could lock in special privileges that give the government-backed agency advantages over other domestic and foreign private-sector competition. U.S. trade officials conveyed those concerns to their Japanese counterparts Aug. 23 during annual consultations in Washington on the implementation of two U.S.-Japan agreements aimed at opening the Japan's insurance market.

The U.S. industry claims the special benefits given to Kampo, the Postal Agency's life insurance branch, represent a denial of national treatment under the World Trade Organization's (WTO) General Agreement on Trade in Services (GATS). Kampo enjoys special treatment from Japanese insurance regulators, government guarantees, separate prudential requirements and doesn't have to contribute to the national Policyholder Protection Corporation.

While Kampo has long benefited from special treatment, competitors claim the issue has become more time sensitive because of legislation in the Japanese Diet to change its legal status to a quasi-independent corporation. This is supposed to lead ultimately to its complete privatization. U.S. insurers, who claim they have the backing of Japanese private-sector insurance firms, say they are concerned this special treatment could become codified in the legislation. U.S. also pressed Tokyo to keep funding Policyholder Protection Corporation.

NEW EFFORT LAUNCHED TO NEGOTIATE DEAL ON SOFTWOOD LUMBER

Just as it has with its exclusion decisions on steel imports, the Bush administration appears ready to take a softer line with Canada on the softwood lumber dispute. The U.S. Aug. 26-27 opened talks with British Columbia and plans to meet with Quebec in a few weeks to explore options that might lead to a lifting of countervailing duties on imports from those provinces in return for their agreement to reform their timber stumpage and tenure programs.

With fast-track legislation enacted, the administration has more flexibility to reach a deal than it had in the spring. Also encouraging negotiations is the uncertain outcome of pending reviews of the softwood case by a WTO dispute-settlement panel and a NAFTA tribunal.

Although the first round of talks was preliminary and didn't reach any agreements, it represents a key shift in the U.S. approach to the lumber dispute. Instead of trying to reach a Canada-wide deal with the government in Ottawa, Washington will now try to negotiate province-by-province agreements.

Before Commerce issued its final antidumping and CVD orders, the U.S. tried to negotiate a deal covering all Canadian lumber. "That didn't get us anywhere," one Commerce source said. If individual deals could be reached with each province, Commerce would invite the filing of "changed circumstances" petitions that would give it the opportunity to recalculate the CVD margin for each province or drop the duties entirely.

U.S. producers say any agreement would have to require implementation of reforms in the current provincial stumpage and land-tenure programs to create a more free-market system for the pricing of Canadian lumber. Industry sources say they are willing to agree on a set of written conditions that could be used to judge whether that goal was met. They also say they would support a price-comparison system that would judge the openness of the market by comparing prices for government-sourced lumber against private-sector lumber.

CUSTOMS LOOKING TO EXPAND SECURITY MEASURES TO AIR CARGO

Air cargo shipments that have escaped the tighter scrutiny given to trucks and sea containers entering the U.S. since Sept. 11 will be the next target of Customs security measures, according to Customs Commissioner Robert Bonner. The agency has begun talks with the Transportation Department and the Transpiration Security Administration (TSA) on how to extend the current Container Security Initiative (CSI) for sea containers to air cargoes, Bonner said Aug. 26.

An Air Cargo Security Initiative or Air CSI is the "next logical extension of CSI," Bonner said. Bonner wouldn't predict when the initiative would be launched, but acknowledged that air cargo, especially for overnight shipments, presents issues that don't apply to slower moving sea containers. For example, air shippers may not be able to submit manifest information 24 hours in advance, as Customs has proposed for sea containers (see WTTL, Aug. 12, page 3).

"There definitely are different issue imposed with respect to air cargo, including the speed with which air cargo moves as opposed to ocean-going sea containers," Bonner said. "There are any number of conceptual details that have to be worked out," he added. Despite these differences, some inspection methods might be applied to both environments. "It makes a lot of sense to me to take the same kind of targeting principles and apply those targeting principles to identify high-risk air cargos just as we are doing in the sea container security environment," Bonner noted. Another goal would be a system that "would permit us to screen that air cargo that is identified as high risk before it is loaded on board an air carrier," he continued.

FIRST ANTI-SURGE CASE INITIATED AGAINST CHINESE IMPORTS

The International Trade Commission (ITC) has initiated the first trade case invoking the special anti-surge provision that was included in legislation granting China permanent-normal-trade-relations (PNTR) status. Motion Systems of Eatontown, N.J., filed the Section 421 complaint against imports of Chinese pedestal actuators, an electronic mechanism used in mobile scooters for the handicapped and dentists' chairs to raise and lower the seat.

As part of the U.S.-China bilateral trade agreement that cleared the way for China's accession to the WTO, Beijing agreed to accept a special safeguard provision that was exempt from the usual WTO restrictions on safeguard actions. The safeguard portion of the agreement was implemented as Section 421 of the Trade Act in the PNTR legislation.

Motion Systems chose the expedited Section 421 route rather than a normal antidumping complaint because anti-surge cases under the new law require only an injury determination by the ITC and a presidential decision similar to action under Section 201, explained the company's trade attorney, Richard King, of Fitch, King and Caffentzi of New York. This procedure skips the need for a dumping decision from the International Trade Administration (ITA). The company also believes it can get more relief from Section 421 than from an antidumping ruling. Imports of Chinese pedestal actuators surged in the second half of 2001 and have taken 50% of the U.S. market, King noted. The ITC will hold a hearing on the case Oct. 1.

* * * BRIEFS * * *

EXPORT ENFORCEMENT: In settlement agreement announced Aug. 16, BIS hit Mercator, Englewood, N.J. plastics and chemicals supplier, with triple set of fines totaling $30,000. Agency charged firm with shipping ethylene vinyl acetate to Dubai, United Arab Emirates, with knowledge that shipment was intended for export to Iran without getting OFAC approval, for not reporting request for antiboycott information and for providing antiboycott information.

CUBA: Amid complaints from exporters over delays in getting licenses approved for agriculture exports to Cuba, BIS in Aug. 21 Federal Register asked for public comments on effectiveness of licensing system to help it prepare required biennial report to Congress.

NUCLEAR CONTROLS: BIS in Aug. 29 Federal Register amended Nuclear Supplier Group controls in EAR and to add new NSG members Belarus, Cyprus, Slovenia and Turkey to Country Group A:4.

STEEL: There was no August vacation for steel. USTR and ITA Aug. 22 announced exclusion of 178 more steel products from Section 201 tariffs, bringing total product exclusions to 727... ITC Aug. 27 in final determination voted 4-1 that imports of dumped cold-rolled steel from Australia, India, Japan, Sweden and Thailand are not injuring U.S. industry...And CIT Judge Jane Restani Aug. 8 ruled (Slip Op. 02-87) that ITC and President Bush acted within their discretion to find injury from imports of tin mill products in Section 201 case. She also denied motion for preliminary injunction to disallow votes of then-ITC Commissioner Dennis Devaney in 201 rulings because his commission was not properly signed. "The court finds that plaintiffs have not shown that they are highly likely to prevail on this issue," she ruled.

FAST-TRACK: In letters to Congress Aug. 22 outlining negotiating goals for proposed FTA talks with Morocco and five Central American countries, USTR Robert Zoellick urged lawmakers to establish Congressional Oversight Group, which is mandated by fast-track legislation signed into law Aug. 6. He asked Congress to form group so administration in September can meet with it and begin consultations, which will lead to formal initiation of talks. No date set for when notice of talks will be sent Congress.

USTR: USTR Robert Zoellick has named Harry Clark to be office counselor. Clark was partner in lobbying firm, Clark and Weinstock, until retiring at end of 2001.

SACCHARIN: On 4-0 vote ITC made preliminary decision Aug. 22 that allegedly dumped imports of saccharin from China may be injuring domestic industry.

WTO: Supachai Panitchpakdi, new WTO director general as of Sept. 1, named former Deputy USTR Rufus Yerxa to be one of his four deputies. Also named are long-time trade negotiators: former EC official Roderick Abbott, Kenyan Kipkorir Aly Azad Rana and Brazilian diplomat Francisco Thompson-Flores.

GSP: USTR has initiated special GSP review to respond to request for competitive need waiver for 17 products from Argentina, Philippines and Turkey. It also asked for ITC review.

VIETNAM: ITA Aug. 27 declared investigation of fish fillets from Vietnam to be "extraordinarily complicated" and postponed preliminary ruling until Jan. 24, 2003. Extra time will be taken to determine whether Vietnam should be consider market or nonmarket economy (see WTTL, Aug. 12, page 4).

KOREAN PIPE: President Bush Aug. 28 signed executive order implementing U.S. deal with Korea to convert Section 201 tariffs on circular welded line pipe to tariff-rate quota (see WTTL, Aug. 5, page 4).

DENIED PERSONS LIST: BIS in Aug. 27 Federal Register removed reference to "denied persons list" in EAR because list isn't published in Federal Register. It will just refer to persons subject to denied orders.