Volume 22, No. 35 -- September 9, 2002

WTO'S SUPACHAI WILL SEEK BUSINESS CODES OF CONDUCT

New World Trade Organization (WTO) Director General Supachai Panitchpakdi wants to establish a private-sector Business Advisory Group, which might be asked to develop codes of conduct for firms conducting international trade activities.  At his first press conference Sept. 2, he emphasized that he is not calling for the WTO to develop the codes but rather for business representatives to draft the documents, which the WTO might endorse later.

"What I wish to do is set up sort of an advisory forum for representatives of the private sector, as I do wish also to set up advisory fora for NGOs [nongovernment organizations] in various capacities, because I think business corporate society does have something to contribute towards our understanding of the world trading system," Supachai said.  He has already met with some corporate chief executive officers who have supported the creation of the group.

These executives indicated they would like to construct their own codes of conduct, Supachai reported.  "This is not for [WTO] members to be negotiating," he noted.  The WTO could look at the codes and endorse them, if it wishes, he explained.  "I would certainly like to ask for support from the member countries for the secretariat to endorse them," Supachai said.  In this way, when the WTO talks about good governance and trade rules, "we know the players, the real players, will be playing by the rules," he said.

Supachai said he will actively push Doha Development Agenda negotiating groups to meet their deadlines.  "We have actually no time to waste," he said.  Supachai also mapped out specific assignments for his four new deputies (see WTTL, Sept. 2, page 4).  One deputy will be given the task of helping members better use the consultative mechanism of the dispute-settlement process to reduce the number of cases that go to panels for resolution.  The others will work on strengthening WTO operations, providing technical assistance to developing countries and relations with international organizations such as the International Labor Organization.
 

DOHA ROUND EXPECTED TO ADDRESS EXPORT CREDIT RULES

There is growing concern among companies that rely on Export-Import Bank financing that Doha Round negotiations will reopen existing WTO subsidy rules that apply to government-backed export loans, guarantees and insurance.  A position paper that Brazil submitted on the subject to the Doha negotiating group on rules in the spring has gained support from other developing countries, and industry sources say they expect the topic to become part of the group's agenda.  U.S. exporters are afraid the talks might lead to a change in WTO rules that would give developing countries greater freedom to subsidize exports, while restricting financing by industrialized countries.

Brazil claims the current WTO Agreement on Subsidies and Countervailing Measures (SCM) gives developed countries an advantage over developing countries.  It also complains that the SCM's credit rules are based on the export credit arrangement of the Organization for Economic Cooperation and Development (OECD) and could be changed without the approval of WTO members if the OECD changes its arrangement.

Among the prohibited export subsidies in the SCM are items j and k of Annex 1 which cite export credit guarantees or insurance that don't cover long-term costs and export credit at rates below the rate paid by the government for the funds, if the lending provides a material advantage to the exporter.  A safe harbor is provided for governments that adhere to the OECD subsidy arrangement.

Brazil says the "current disciplines, mostly negotiated by a few countries outside the GATT/ WTO system, do not take into account the contrasts among WTO members and, in so doing, introduce asymmetries in the capacity of members to compete on equal footing in the field of export credits."   The rules expect governments to "break even" in financing exports, it notes.

The asymmetry comes from the fact that sovereign credit ratings are lower for developing countries and the cost of borrowing funds is higher than for developed countries.  In effect, a developing country that lends funds to an exporter at the same rate as a developed country offers one of its exporters could be guilty of providing an illegal subsidy since its cost for the funds was higher than the developed country's.  "In a membership so diverse as the WTO's, the break even' requirement of item (j) falls quite short of ensuring a level playing field among members, with a clear disadvantage to those that enjoy lower credit ratings," Brazil protests.

"Another question that needs to be addressed is the interpretation by panels that the reference to the OECD Consensus gives a permanent carte blanche' to the participants of that arrangement to alter WTO rules," Brazil writes.  It contends non-OECD countries could face a situation where "their legislations, once in perfect compliance with WTO obligations, become vulnerable to action under the DSU [dispute-settlement understanding] for the simple reason that OECD participants without warning changed some provision of their arrangement."
 

OBJECTIONS RAISED TO PROPOSED CHANGE IN ANTIDUMPING METHODOLOGY

Neither lawyers for petitioners nor for respondents are entirely happy with an International Trade Administration (ITA) proposal to revise the way it treats foreign sales to affiliated parties in antidumping cases.  ITA has been forced to propose the change in the method for calculating home-market normal values as a result of a WTO Appellate Body ruling in 2001, which found the current procedures fail to treat high- and low-priced sales evenhandedly.

In the ruling on hot-rolled steel from Japan, the Appellate Body said the U.S. violated the WTO Antidumping Agreement because the ITA methodology excluded low-priced sales that were below 99.5% of average sales prices to unaffiliated parties but didn't exclude sales 0.5% above customary price.  In the Aug. 15, Federal Register, ITA proposed a new method that would exclude affiliated-party sales that were beyond a range of 98% to 102% of customary prices.

While supporting the ITA proposal as a "defensible option" for implementing the WTO ruling, lawyers at Skadden Arps said the agency should apply a 99.5% to 100.5% band in administrative reviews because 0.5% is the de minimis level in reviews.  This change won't increase the need to use constructed values, they contended.  "Where affiliated party sales fail the test, the department can perform price-to-price comparisons using downstream sales of the affiliate."

ITA's proposal still fails to meet WTO rules and the Appellate Body's decision, argued Gary Horlick of O=Melveny & Myers.  "For the department to declare that only sales that are within 2 percentage points (plus or minus) of the average unaffiliated price are >comparable= is unduly restrictive and counter to the common-sense notion of the term comparable'," wrote Horlick, a former Commerce deputy assistant secretary for import administration. He proposed a wider band of 95% to 105%.  Horlick also objected to ITA's decision to continue requiring reporting of downstream sales of affiliated parties, calling it an "onerous reporting requirement on affiliates" and likely to increase the use of "facts available" in ITA rulings.

Attorneys at Collier, Shannon Scott said the proposed band was too wide on the low-price side and not wide enough on the high-price side.  They prefer excluding all foreign affiliated- party sales just as affiliated sales are excluded on U.S. sales prices.  Nonetheless, they proposed a band ranging from 99.5% to 125%.

"Reliance upon the 99.5% percent benchmark for the low end of the test's range is needed, because the potential for manipulation and the unnatural quality of below-cost sales are so pronounced," they argued.  The 125% limit is appropriate because the danger of manipulation isn't present since higher sales prices would trigger higher normal values and dumping margins.

Members of the Sidley Austin law firm didn't like any range of numbers.  The ITA proposal "is overly simplistic and fails to address the primary principle that should underlie an analysis of whether sales to an affiliated party are in the ordinary course of trade'," they told the agency.  The key issue to be determined is whether the sales reflect normal commercial practices, they wrote.   "Recognition of this principle would necessitate a more sophisticated method of analyzing sales to affiliates, including, for example, a study of normal commercial practices in the industries involved in individual proceedings, combined with statistical testing to compare an individual respondent's affiliate sales prices to normal commercial practices," said the firm.
 

CARICOM NATIONS TO GET SPECIAL TREATMENT ON TARIFFS IN FTAA

Negotiators working on the Free Trade Area of the Americas (FTAA) have agreed that members of the Caribbean Common Market (Caricom) should have more flexibility in the amount and speed at which they will have to reduce certain tariffs as part of the market access concessions in the final agreement.  Although FTAA participants have agreed that market access talks on tariff reductions will use each country's applied most-favored-nation (MFN) rate as the "base rate" for future cuts, Caricom will be able to use its higher WTO "bound rate" as its base.

Caricom, which has a Common External Tariff, "made the argument effectively that in a certain limited number of areas, industries or sectors it would be extremely difficult for them to start liberalizing immediately from their applied rate," Deputy USTR Peter Allgeier told reporters Sept. 6.  "So the rest of the countries, only in the case of Caricom, were willing to allow for a limited number of products to start the negotiations at their bound rate," he explained.

This waiver won't preclude other countries from asking for reductions of these tariffs, but it will give Caribbean countries the ability to say that asking for extra time to cut those tariffs "is a reasonable thing," Allgeier said.  Caricom will identify the products it intends to cover by this waiver when it notifies the FTAA talks of the base rates it applies.   USTR Robert Zoellick will meet with Caricom trade ministers in Trinidad on Sept. 11 to discuss the region's role in the FTAA talks and its need for technical assistance to participate in the talks.

Allgeier noted progress the FTAA Trade Negotiating Group made during talks in Santo Domingo, Dominican Republic, the week of Aug. 26.  The group agreed on a schedule for the request-offer phase of the market access talks.  Countries will submit their market-opening offers from Dec. 15 to Feb. 15 and other countries will be able to make requests for market access to those countries from Feb. 15 to June 16.  The TNC also received a second draft of the basic FTAA text, which will be presented to Western Hemisphere trade ministers at their next ministerial in Quito, Ecuador, Nov. 1.  He said the new draft will be made public after the meeting.

Meanwhile, the International Trade Commission (ITC), at the request of the USTR's office has initiated a Section 332 fact-finding study to determine the economic impact of eliminating tariffs on certain agriculture products for FTAA participants and reducing them 50% as part of the Doha Round talks.  The report is due to the USTR by Nov. 15.
 

U.S. HITS JAPAN, EU IN WTO AGRICULTURE NEGOTIATIONS

American negotiators are beginning to show an early frustration with what they claim is the lack of proposals from Japan and the European Union (EU) in the WTO talks on agriculture.  During the latest session of negotiations in Geneva Sept. 2-6, U.S. officials say they were gaining increasing support for their proposals on export subsidies, market access and domestic supports.  At the same time, they complain that the EU and Japan are among the countries that have not offered specific numbers on what the want in these three areas.  "We've yet to see any specifics from a number of members, including the EU and Japan," says Ambassador Allen Johnson, the chief U.S. agriculture negotiator.

"It's clear that there are two camps developing -- those that want to address the inequities of the Uruguay Round results, consistent with the Doha mandate, and those that don't," Johnson said . "We are on the side of addressing these inequities," he told reporters on a teleconference call from Geneva.

Although WTO agriculture negotiators have set a March 31, 2003 deadline for completing talks on the "modalities" phase of negotiations, it appears that substantive progress has been slow.  "We are moving forward, but not as far and as fast as we think we should," Johnson said.

The lack of specific reaction from the EU and Japan to U.S. proposals is one of the things that is frustrating American negotiators.  "We don't know how far they want to go.  We don't know how fast they want to go. And we don't know over what time frame they want to go," Johnson complained.  "We've been hearing for years from members that they are concerned about the inequities that have been left in place by the Uruguay Round," he added.  "There is a number of countries, with the EU and Japan being two of them, that want to stick to the Uruguay Round approach.  That is what lead us to the inequities. That is unacceptable," he declared.

 * * * BRIEFS * * *

HIGH-TECH EXPORTS: Trade group, AeA, reports that exports of high-tech goods dropped 20% in first half of 2002 compared to year earlier, declining to $82.4 billion from $105.5 billion.  Its survey covers computers, office equipment, consumer electronics, electronic components, semiconductors, industrial electronics, electro-medical equipment and photonics.

FTAs: USTR's office Aug. 30 asked ITC to study of economic impact of providing duty-free treatment to imports from five Central American countries with which U.S. intends to negotiate free trade agreement and from Morocco, which is also candidate for FTA.

EXPORT ENFORCEMENT: In settlement agreement with BIS, Hans Wrage & Co. of Hamburg, Germany, agreed to pay $30,000 civil fine for exporting 1,550 U.S.-origin shotguns to Poland between 1996 and 1998 without approved reexport license.  Controls no longer apply since Warsaw joined NATO.

HARBOR TAX: CIT Judge Musgrave, on remand from Federal Circuit, ruled (Slip Op. 02-99) Aug. 29 that cruise ships must pay Harbor Maintenance Tax (HMT) for passengers that disembark at layover ports subject to tax after Jan. 27, 1993.  He said Customs' method for calculating tax on passenger fares was mostly correct but should exclude certain taxes and fees, and interest was due on underpaid tax.

OFAC: Office of Foreign Assets Controls in Sept. 6 Federal Register asked for comment on effectiveness and implementation of its policies for approving agriculture exports to Sudan, Libya and Iran.

POLYVINYL ALCOHOL: Celanese and DuPont asked ITA and ITC Sept. 5 to launch antidumping investigations into imports of polyvinyl alcohol from China, Germany, Japan, Korea and Singapore.

CUSTOMS: William Heffelfinger named deputy assistant commissioner for field operations.

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.