Volume 22, No. 37 -- September 23, 2002

Posted Monday, September 23, 2002 12:00 am

EXPORTERS VOICE CONCERNS ABOUT UNVERIFIED END-USER LIST

Exporters aren't being comforted by Bureau of Industry and Security (BIS) assertions that its new "unverified list" of end-users isn't a presumption-of-denial list. At least one exporter has formally asked BIS to remove one of the firms from the list, but so far it has not gotten a response from the agency (see WTTL, June 17, page 2). The initial list released by BIS of unverified end-users identified 11 firms, nine of which were Chinese.

Entities were placed on the list because their governments haven't cooperated with BIS in conducting post-shipment verifications (PSVs) or pre-license checks (PLC). This is particularly a problem with China where BIS in January reported a backlog of some 700 PSVs. BISers say more names will be added to the list.

BIS officials contend the listing of a firm on the unverified list is only a "red flag" which should prompt an exporter to do more due-diligence screening of the prospective customer to determine whether a license is needed. An application will trigger a BIS request for a PLC, if a previous PSV hasn't been conducted, Eileen Albanese, director of BIS's exporter services office, told the Regulations and Procedures Technical Advisory Committee (RAPTAC) Sept. 17. "If that can't be accomplished, the license will probably be denied," she stated.

"There's no new licensing requirement," Albanese asserted. "You need to verify that the entity exists; that they are going to use the commodity in a way they told you they are going to use it," she said. "If you can satisfy yourself that that's appropriate, then you can go ahead and ship. If there are questions that are unresolved, then you can call Tom Andrukonis," she continued. Andrukonis is overseeing application of the list in the BIS enforcement office.

At least one exporter has applied for a license for a firm on the list for a controlled item that would have already required a license, Carol Kalinoski, head of the BIS Operating Committee (OC) told the RAPTAC meeting. As with most export policies, Defense is taking a different view of the list than BIS. "There's been some vigorous interagency discussion as to whether or not this is a policy of denial or whether it is an enhanced due-diligence requirement," she said. The case has raised questions and confusion, she noted, because the exporter has a long relationship with the listed customer and has had a monitoring program in place.

MANY EXPORTERS FACE LOSE OF OPTION 4 FILING FOR SEDs

Nearly 40 percent of exporters who are now approved to use Option 4 procedures for filing complete Shipper's Export Declaration (SED) data up to 10 days after their cargoes have been shipped will lose that benefit when and if federal agencies can figure out how to implement a provision of the Trade Act of 2002, which included fast-track negotiating authority. Section 431A of the act requires shippers to file all export documentation for waterborne cargoes with their carriers or agents no later than 24 hours before a vessel's departure.

An informal Census survey of export documentation from May, 2002, found that 938 of 2,470 approved Option 4 shippers would lose that privilege and have to provide advance documentation. That involves some 40,000 shipments a month.

But lawmakers apparently didn't understand that SED requirements are imposed by the Federal Trade Statistics Regulation (FTSR) issued by the Census Bureau, which is in Commerce. The new law gives only the Treasury secretary and Customs the responsibility for implementing the requirement. Implementation will get even more complicated when the Department of Homeland Security is created and Customs moves to the new department.

For now, Census doesn't intend to revise the FTSR until Congress gives it clearer guidance about what it should do. The new law also mandates electronic filing of all import and export documentation. Previous legislation imposed that requirement on military and dual-use exports, but Census still can't get State approval for a proposal to amend the FTSR to implement that policy. Meanwhile, Census is preparing another proposal to eliminate Option 3 filing, which allows a mix of advance and five-day delayed filing of SED documentation. The agency says few exporters use this option, its administration is burdensome, and late filings are delaying the collection of trade statistics, Census sources say.

CANADIANS EXPECT TO HAVE INPUT INTO ITA LUMBER POLICY

Canadian Trade Minister Pierre Pettigrew Sept. 19 praised Commerce's plans for developing new guidelines for calculating the value of subsidies Canadian provinces provide their softwood lumber producers and said he expects Canada to have a say in what the new methodology will be. After meeting with Commerce Secretary Don Evans, Pettigrew told reporters, "I expressed to Secretary Evans my satisfaction at the process the Commerce Department is now working on, consulting with Canadian provinces for identifying a long-term policy solution."

Evans and International Trade Administration (ITA) Under Secretary Grant Aldonas "have insisted that Canadian input is very welcomed," Pettigrew said. The Canadian official said he told the Commerce officials that the provinces and Ottawa will provide that input.

ITA officials will hold their second round of talks with Canadians provinces on Sept. 24, meeting this time with officials in Quebec. They held talks with British Columbia at the end of August (see WTTL, Sept. 2, page 2). The officials have presented plans for a draft ITA policy bulletin which would spell out a new methodology for determining what is a subsidy and how to calculate its value. The new methodology would replace the cross-border price-comparison method ITA used in the final countervailing duty (CVD) order against softwood lumber from Canada. The bulletin also would describe what a province has to do to demonstrate it no longer provides subsidies and the process for seeking "changed circumstances" relief from the current CVD order.

A World Trade Organization (WTO) panel has ruled that the cross-border methodology used in the preliminary CVD decision doesn't meet WTO requirements, and Canadian sources expect a NAFTA dispute panel to make a similar finding. If the U.S. loses both the WTO and NAFTA cases, ITA will have difficulty coming up with a new subsidy determination because it has no administrative record for calculating prices except for the cross-border data, one trade lawyer noted. Thus, Commerce is under pressure to get a new methodology in place quickly.

While stopping short of saying the Canadian provinces will have to agree to any new methodology, a senior Commerce official said the U.S. wants "consensus" on the new rules. ITA will also consult with the U.S. lumber industry. The agency will publish a draft bulletin for public comment before issuing the guidance in final form, he promised. With the WTO and NAFTA panel decisions looming, ITA hopes to publish the proposal this fall and have the final bulletin in place by the end of the year, he said.

Meanwhile, Canada separately has complained to ITA about the agency's announced plans for recalculating the amount of cash deposits importers have to pay under the current CVD order after it decides on the expedited CVD review requests it has received from 104 Canadian lumber producers. When ITA waives or reduces the CVDs on these firms, the agency has said it will redivide the total amount of subsidies it found among the remaining lumber producers.

The proposed recalculation of the country-wide rate by subtracting both the subsidies and sales of firms granted changes is unlawful, claimed Canada in comments filed with ITA. The federal courts that review ITA cases "have repeatedly held that the calculation of a country-wide rate must include sales by all producers and exporters of subject merchandise in the country under investigation," Canada's lawyers, Weil, Gotshal and Manges, argued. If ITA does recalculate the deposit rates, it should set an "all-others" rate, not a country-wide rate, they said.

TRADE BILL WOULD BOOST ISRAEL-TURKEY RELATIONS

Trade relations between Israel and Turkey could be strengthened by a last-minute amendment the House Ways and Means Committee Sept. 18 added to this year's pending miscellaneous tariff bill (H.R. 5385). The provision, part of an en bloc amendment offered by Chairman William Thomas (R-Calif.), would give Turkey the same privilege Jordan has to establish Qualifying Industrial Zones (QIZ) that can produce tariff-free goods with Israeli components. The legislation would exclude textiles and apparel from the program.

The QIZ provision has drawn complaints from congressional supporters of Armenia, which has had a long-running dispute with Turkey over Istanbul's closing of the Armenian-Turkish border. Ways and Means members expect the Bush administration to try to placate Armenia over the trade bill provisions.

The committee adopted the en bloc amendment and the final version of the bill by a voice vote. The measure could go to the House floor for a vote by the end of September, congressional sources predict. A Senate version is still pending in the Senate Finance Committee. Unless there is a lame-duck session of Congress this year, it is uncertain whether both houses and a House-Senate Conference can complete work on the legislation this year.

The House version of this year's miscellaneous tariff bill, which Congress usually enacts biennially to suspend duties on scores of noncontroversial imports, also includes a provision to allow the president to restore Yugoslavia's normal-trade-relations (NTR) status, which was withdrawn in 1992. In addition, it attempts again to settle the dispute with Customs over the interpretation of Caribbean and African trade legislation and to insist that duty-free treatment applies to certain knit-to-shape apparel produced in those regions.

TREASURY SAY INDUSTRY FSC/ETI PROPOSAL STILL VIOLATES WTO RULES

A Senate-sponsored bipartisan group that will try to devise compromise legislation to revise the WTO-illegal Foreign Sales Corporation (FSC)/Extraterritorial Income (ETI) tax rules will meet Sept. 24 amidst continued division in the business community over how to fix the tax code. While exporters with little foreign production are opposing a bill (H.R. 5095) sponsored by Ways and Means Chairman Bill Thomas (R-Calif.), nearly two dozen multinational firms ranging from Agilent and Texas Instruments to General Motors and Wal-Mart have formed the International Tax Working Group to support the measure.

The group's position got a boost from a Sept. 13 letter to Thomas from Treasury Assistant Secretary Pamela Olson, criticizing a proposal from the National Foreign Trade Council (NFTC). The NFTC has proposed an alternative to the Thomas bill, calling for invocation of Footnote 59 in the WTO Subsidies and Countervailing Measures (SCM) agreement, which allows countries to enact laws to prevent double taxation. "We believe that this element of the NFTC proposal would, if enacted, attract an immediate challenge in the WTO and that the challenge would be successful," Olson wrote.

* * * BRIEFS * * *

COMMERCE: New ITA Deputy Assistant Secretary for Europe is Henry (Hank) Levine, 20-year Foreign Service veteran, who was U.S. counsel general in Shanghai. He previously served in State's Chinese affairs office, the U.S. embassy in China and as director of APEC affairs at USTR's office.

MISSILE TECHNOLOGY: BIS published final rule in Sept. 17 Federal Register amending ECCNs 1B115, 1B117, 9B115 and 9B116 to clarify that Missile Technology (MT) production equipment and facilities are controlled under EAR not ITAR.

MUNITIONS LIST: State in Sept. 19 Federal Register issued final rule amending ITAR Categories II, III, VII, and XVI to provide more comprehensive coverage of products in those areas. Category XVIII, which was reserved, was redesignated as new category to control "emerging technology" for directed-energy weapons that can be used to burn out radar receivers, disable electro-optical sensors or intercept missiles.

TEXTILES: U.S. continues to reject demands from apparel exporting countries to accelerate end of textile and apparel quotas, Commerce Deputy Assistant Secretary Jim Leonard said Sept. 17 after release of Bush administration Textile Working Group report. "We are not going to do that," he declared. But Leonard admitted cutting textile and apparel duties, which is new demand in Doha Round, may be part of broader market access package. "Certainly tariffs will be on the table," he said. "We're not saying that tariffs will not be reduced. The point the Working Group is taking is that a lot of countries will have to do a lot more about their tariff schedules before the U.S. is going to do any more about ours," Leonard added.

TRADE PEOPLE: Washington attorneys Gary Horlick and Peggy Clarke have moved their international trade law practice to Wilmer, Cutler & Pickering from O=Melveny & Myers.

CANADIAN WHEAT: North Dakota Wheat Commission and U.S. Durum Growers Association have taken USTR's advice to take their fate into their own hands and not wait for U.S. to launch complaint against Canadian Wheat Board (see WTTL, Feb. 18, page 4). Two organizations Sept. 13 filed antidumping and countervailing duty complaints at ITA and ITC against certain Canadian Wheat Board wheats (durum and hard spring) from Canada. In Washington Sept. 19, Canadian Trade Minister Pierre Pettigrew said he was "not too worried about" complaint, citing Canada's ability to defend its policies in previous disputes. "Of course, we regret the timing of this, because of the very difficult season there has been," he said.

COG: USTR Robert Zoellick provided update on U.S. plans for trade negotiations Sept. 19 to first meeting of Congressional Oversight Group (COG), which was created by Trade Act of 2002. Fast-track legislation requires Zoellick to consult with bicameral group before launching new FTA talks.

TRADE FIGURES: Though barely registerable, goods exports in July inched up fraction of percentage to $59.1 billion from year ago. Services exports gained 2% to $24.1 billion. Goods imports, however, remained strong, growing 4% from year ago to $98 billion, as service imports rose 5% to $19.8 billion.

SYRIA: At House hearing Sept. 18, business community objected to proposed Syria Accountability Act (H.R. 4483), which would ban exports of Munitions List and CCL items to Syria unless president could certify Damascus has stopped developing and procuring weapons of mass destruction, has ended support for terrorist groups and withdrawn from Lebanon. Introduced in April by Majority Leader Richard Armey (R-Texas) and Rep. Elliot Engel (D-N.Y.), measure has 155 co-sponsors. Bush administration opposes it.

GEOGRAPHIC INDICATIONS: Another area of U.S.-EU disagreement in Doha Round became clearer Sept. 20 when U.S. and 16 other WTO members proposed voluntary notification system to strength current WTO rules on geographic indications for wines and spirits. EU has called for expanding GI rules to other products, such as rice and cheese, along with extended procedures for protection names (see WTTL, July 1, page 4). "For GIs other than wines and spirits, the Doha mandate does not call for negotiations," USTR Robert Zoellick said in statement. "We believe the current system works well, and we share the concerns of many in the developing world that we don't want to burden everyone with a large and costly new framework, as some have suggested," he added.