Volume 22, No. 36 -- September 16, 2002

INDUSTRY FAILS TO JUSTIFY CHANGE IN TECHNOLOGY CONTROLS

Bureau of Industry and Security (BIS) staffers are disappointed with the failure of industry to provide the information they were seeking to support the liberalization of current License Exception TSR controls on exports of technology and software for the development, production and use of computers.  The lack of adequate data from exporters probably means chances are slim to nought for any significant change in the controls for some time, BIS sources predict. While no major change is TSR is now likely, staffers hold open the possibility that controls might be eased on intra-company transfers of technology to foreign facilities.

At the urging of industry, BIS in June published a call for comments on the problems exporters face because of the different level of controls imposed on computer technology and hardware and for information on how other countries control these exports (see WTTL, June 17, page 1).  Only four sets of comments were submitted and "most comments were not really helpful," one BISer told WTTL.  "Everyone had the same arguments we have heard raised forever," the staffer added.  "Someone should have put in more effort," the source said.

BIS sought comments on whether the current TSR limit of 33,000 million theoretical operations per second (MTOPS) for exports to Country Group B should be raised to bring it closer to 190,000 MTOPS limit for computers.  It asked for specific information on where research was being conducted and the economic effect of current controls.

"No one produced figures on the business impact" of the controls, one source said.  Nor was information provided on how companies need to shift research to accommodate the restrictions, especially on foreign workers.  The requested information is needed to give BIS ammunition to use in the interagency process where any potential change in controls will be debated, a BIS staffer explained.
 

U.S., CHILE PREPARING COMPROMISES TO FINISH FTA TALKS

U.S. and Chilean negotiators are ready to offer new proposals that could assure completion of free trade area (FTA) talks by the end of this year.  Ahead of the next round of bilateral negotiations in Atlanta, Sept. 26-Oct. 3, both sides are preparing compromises for discussion at the meeting.  New positions are expected to be unveiled on agriculture and financial services, two of the main sticking points in the talks.

Although the FTA talks started almost two years ago, they have been in a virtual hiatus for almost a year.  The talks stalled because officials at the U.S. Trade Representative's (USTR) office were reluctant to make any substantive offers that might ignite congressional opposition and threaten passage of trade-promotion authority (TPA).  Progress was deferred on a whole list of "TPA-sensitive issues."

With fast-track enacted, that restraint has been eased.  U.S. officials say they still must defend any proposals that might trigger the special consultation requirements for import-sensitive agriculture products.  While the new proposals they will bring to the talks will try to incorporate other negotiating goals that were in the fast-track bill, including language of labor and environment and investor-state relations, they claim they have flexibility in how to interpret the legislation.

A Chilean source indicated that Santiago may be able to offer greater concessions on its current import price band system, which acts as a variable tariff on agriculture products of concern to the U.S., including wheat, vegetable oils and sugar.  Chile has already opened its market partially to wheat from Argentina and oil seeds from Bolivia, and reports from Chile suggest that farmers there may be more willing to accept changes in the system.  In addition, Argentina has complained about the bands at the World Trade Organization (WTO), and Chile may be forced to revise its system if that dispute goes against it.

The U.S. may be prepared to back away from its demands for opening the Chilean pension system to American investment managers.  The decline of the stock market over the last two years, as well as the raft of financial and accounting scandals, has cooled Washington's interest in the privatization of government-controlled pension plans. There is also recognition that Chile's relatively small economy will need to maintain some controls on capital, including restrictions on repatriation of profits and outward flows of money.

Discussions about the sanitary and phytosanitary (SPS) controls both countries impose on farm imports appear to have been helped by a bilateral technical group that has been developing an inventory of these practices and their justifications.  In some cases, the group has found the controls are not as onerous as some complaints had suggested.  This work is expected to lead to compromises on dealing with SPS issues, both U.S. and Chilean sources agreed.
 

COMMENTS SEEK CHANGES IN CUSTOMS' PROPOSED MANIFEST RULES

Customs Commissioner Robert Bonner wants his staff to issue final rules in the next few weeks to require 24-hours-in-advance filing of manifests for seabound containers.  Quick agency action, however, would fly in the face of comments on the proposed regulation from a range of industries and foreign governments involved in sea cargo trade (see WTTL, Aug. 12, page 3).

The Customs proposal has drawn some 70 comments, most of which express understanding of the security concerns that have driven the increased scrutiny of containers entering U.S. ports.  Nonetheless, they question the practical impact of requiring shippers to file manifest information on containers 24 hours before they are laden on board a ship and the potential that Customs might bar a container's unloading, if the manifest information wasn't filed on time.

The International Mass Retail Association (IMRA) said it has "serious concerns" about the proposal and called it "extremely premature."  The association is afraid that early release of manifest information, which is a public document, may lead to increased theft and tampering, as will any delay in loading.  Containers are most secure when they are moving and "when containers go to ground' they are at risk," it told Customs.

Separate comments from Wal-Mart noted that it imports goods from 100 ports in 48 countries, files some 50,000 entries annually on containers with a volume of 157,172 FEUs.  It called for Customs to repropose the rule with more protection of business confidential information and more details on the actual operation of the requirements and the consequences for failing to file manifests on time.  Wal-Mart questioned whether all foreign ports will be able to provide the advance inspection of containers that Customs might demand for shipments that raise red flags.

Maersk Sealand, a major carrier, said the proposal needs many administrative and technical changes to clarify its actual operations.  In particular, it called for Customs to explain how and to whom Customs will provide notification that a container has triggered a "red light" that would bar its entry to the U.S.  Maersk also asked Customs to clarify how it would treat "foreign cargo remaining on board" and to maintain current requirements on reporting.

The legal authority of Customs to issue the regulation was challenged by the National Customs Brokers & Forwarders Association of America (NCBFAA), which filed its comments on behalf of itself and six other trade groups.  The authority Customs claimed it had to issue the rule "simply does not exist under current law," NCBFAA argued.  It said current law in 19 USC 1434(a) only authorizes manifest filing within 24 hours after goods arrive at a U.S. port.

The American Petroleum Institute noted the practices of the oil and gas industry, where the exact description of an oil cargo depends on independent inspection companies whose reports often aren't available until a tanker is at sea.  Moreover, the destination and final customer of a shipment may change several times before it arrives.  Shippers of fresh fruits and vegetables, including bananas, objected to the 24-hour rule, raising concerns about perishable commodities.

Canada asked for an exemption for cargo entering ports where it and the U.S. have established special targeting programs.  Ottawa said it has been advised informally that the rule won't apply to U.S.-bound shipments arriving at Canadian ports.  Norway commented for the Consultative Shipping Group, which represents Norway, the EU and Japan.  It said the proposal will "create severe difficulties due to congestion at ports and on access routes" and make "just-in-time" deliveries impossible.  Groups in Japan, Chile and Hong Kong voiced similar concerns.
 

BIS TO STEP UP ENFORCEMENT OF DEEMED EXPORT CONDITIONS

BIS has told the General Accounting Office (GAO) that it intends to develop "a more extensive monitoring program for firms that have been issued deemed export licenses."  The agency's pledge came in reply to a GAO report that criticized it for not visiting licensees to make sure they are complying with the conditions attached to their deemed export licenses.  In a report (GAO-02-972) released Sept. 9, the GAO, the investigatory arm of Congress, said the deemed export system doesn't provide adequate assurance that U.S. national security is protected.

While the GAO's view of deemed export licensing varies sharply from industry's, it carries more weight at BIS.  The report is likely to dampen any agency efforts to reform the system to ease its burden on firms that must obtain these licenses.

In the fiscal year that ended Sept. 30, 2001, BIS approved 822 deemed export licenses and denied only 3, the GAO report noted. The number of foreign nationals licensed is greater than that, because licenses often cover 10 or more people.  Of the approved licenses, 73% (602) were for Chinese nationals and 14% were for nationals of other countries of concern, including Russia (77), Iran (19), India (11), Syria (3), Israel (1), Iraq (1) and Pakistan (1).

BIS told the GAO that enforcement of deemed export conditions has been difficult because the agency lacks the resources and expertise to determine whether licensed foreign nationals are doing anything beyond what the license permits.  The GAO recommended that the interagency process develop conditions that are enforceable or find some other method of protecting national security.  It also recommended better scrutiny of H-1B visa applications, which BIS has the opportunity to review.  BIS said it was creating a Management Information System to track better investigations of visa cases referred to BIS field offices.
 

BUSINESS ARGUES FOR PATIENCE WITH CHINA'S WTO COMPLIANCE

U.S. business executives are adopting the philosophical approach of Zen masters in their effort to open the Chinese market and get Beijing to meet its World Trade Organization (WTO) commitments.  In a series of reports and comments filed with the USTR's office as part of its review of China's first year in the WTO, business groups eschewed tough enforcement action against China or WTO complaints for Beijing's delayed compliance and instead advocated patience and consultations to help the Chinese adopt transparent and WTO-compatible rules.

Reports issued by the National Association of Manufacturers (NAM) and the U.S. Chamber of Commerce focused mostly on the process of China's WTO compliance rather than specific complaints.  With only nine months having passed since China's accession to the WTO, "it is too early to make sweeping judgments about China's overall compliance with its WTO obligations, many of which are due to be phased in over a period of years," the Chamber's report said.

While identifying general concerns in such areas as agriculture, distribution, insurance, information technology, intellectual property rights, services and transportation, the Chamber emphasized the need for more transparency in Chinese rulemaking, consultations and establishment of independent regulatory agencies.  It also complained about the continuing politicalization of decisions in China, where favoritism is shown to friends and families of political leaders.  In addition, it contended that some officials have too much discretion in the implementation of the rules Beijing has already issued.

NAM also stressed the need for greater transparency in developing and implementing new trade rules.  "Many companies are simply uncertain about the extent to which policies and practices have actually changed and the effectiveness of implementation at all levels of government," it reported.  Companies have complained about the differences in regulation at the national, provincial and municipal levels.  "The most frequently voice problem by far is abuse of intellectual property rights," it noted.  Moreover, while China has met its obligations to cut tariffs on certain goods, U.S. firms are encountering new tariff or non-tariff restrictions.
 

U.S. STILL OPTIMISTIC ABOUT OECD STEEL TALKS

Despite continuing global criticism of the Section 201 safeguard tariffs imposed on steel imports, U.S. officials said they were pleased with progress made at Sept. 11-13 multilateral steel talks in Paris at the Organization for Economic Cooperation and Development (OECD).  "I thought the meeting went very well," said Commerce Assistant Secretary for Import Administration Faryar Shirzad, who led the U.S delegation.  "There appeared to be particularly strong agreement regarding the importance of addressing and eliminating subsidies in the steel sector," he said.  "We welcome that reaction," he added.

At the meeting, the U.S. offered a four-point plan for the future direction of the OECD talks.  It called for clarifying objectives of the talks, addressing as many trade-distorting practices as possible, melding the OECD agreement into any future WTO accord and establishing an ongoing mechanism to consult on steel.

Shirzad stressed that the Paris meeting was not intended to make any decision on the U.S. proposal, but Washington does hope it will be adopted at a high-level meeting of OECD participants in December.  The latest meeting included sessions of the Capacity Working Group, which is review data countries submitted on their current and future steel capacity, and the Disciplines Group, which is considering proposals for an agreement to restrict steel subsidies and other trade-distorting practices in the sector.

 * * * BRIEFS * * *

FSC/ETI: EU Sept.13 published for comment proposed list of 95 categories of U.S. exports that could be hit with retaliation if U.S. doesn't come into compliance with WTO ruling against FSC/ETI tax rules. [Editor's Note: Copy of EU notice will be sent free to WTTL subscribers on request.]

TRADE AGREEMENTS: ITC has launched study of economic impact of five trade agreements reached over 25 years, including Tokyo Round and Uruguay Round deals, Canada and Israel FTAs and NAFTA.

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.