Volume 22, No. 38 -- September 30, 2002

BIS REVOKES LICENSE EXCEPTIONS FOR "SPACE QUALIFIED" EXPORTS

As part of a deal to settle a three-year jurisdiction dispute with State over "space qualified" equipment and technology, the Bureau of Industry and Security (BIS) has agreed to revoke the license exception eligibility for several products that will remain on the Commerce Control List (CCL).  For some of these items and technologies, it also agreed to impose regional stability and antiterrorist controls.  Even without moving the items to the Munitions List (ML), these changes will extend State's de facto control through the interagency license review process.

The need to clarify jurisdiction over space-qualified items arose after Congress in 1999 moved licensing authority for communications satellites back to State from Commerce.  The legislation left in limbo products that weren't directly considered satellites or components but were designed for use in space.  An interagency deal on resolving the dispute was almost reached at the end of the Clinton administration, but it fell apart after the election in 2000.  BIS and State issued final rules implementing their agreement in the Sept. 23 Federal Register.

Among products that will lose eligibility for License Exception TSR are certain focal plane arrays, laser radar and traveling wave tubes.  Certain light detection and ranging (LIDAR) products will lose eligibility for License Exception LVS.  Focal plane arrays and LIDAR equipment, software and technology also will become subject to regional stability controls.

Products shifted from the CCL to the ML include, certain atomic frequency standards, solid state detectors, imaging sensors, cryocoolers, optical systems and optical control equipment.  Staying on the CCL with additional conditions are certain tape recorders, data recorders, laser radar and focal plane arrays.  Jurisdiction, depending on certain conditions set in the new rules, will be split for certain traveling wave tubes, photovoltaic arrays, telecommunications equipment, and technology to develop and produce telecommunications equipment.
 

ZOELLICK LAUNCHING PUBLIC DIPLOMACY' PROGRAM TO BACK TRADE

With fast-track legislation enacted and tough trade talks lying ahead, U.S. Trade Representative (USTR) Robert Zoellick plans to initiate a "public diplomacy" program to solidify business community support for future trade agreements and to reach out to labor, environment and human rights groups to soften their opposition to them.  A key role in this program is likely to go to Harry Clark, who joined the USTR's office as counselor in August.  Clark is a veteran public relations executive and lobbyist with strong ties to leading companies (see WTTL, Sept. 2, page 4).

As part of this effort, Zoellick will try to get senior corporate executives more involved in supporting trade negotiations.  He will try to move trade "from K Street to Main Street." one source explained, citing the Washington street known for its lobbying and business offices.  He also is expected to cultivate closer ties with business and investment firms in New York City and to seek help from New York Mayor Michael Bloomberg in doing that.

The outreach to labor, environment and human rights groups may pose a tougher challenge, but the USTR's office will take the initiative in trying to get develop programs to address their concerns, one source said.  One approach will involve working more closely with business groups that are trying to get U.S. companies operating overseas to comply with labor and environment standards.
 

FSC WORKING GROUP IS MORE PARTING THAN BIPARTISAN

The first meeting Sept. 24 of the House-Senate working group, which is supposed to develop a replacement for the Foreign Sales Corporation (FSC)/Extraterritorial Income (ETI) tax laws, revealed such a wide division of views that chances for legislation this year are dead.  One business community source even predicted Congress won't do anything on FSC/ETI for another year.  "FSC is safer today than it was two years ago," he said.

Congressional reluctance to act on the tax law is fueled in part by resentment of the World Trade Organization (WTO) ruling, which ruled the law to be an illegal export subsidy, and the fact the European Union (EU) brought the complaint in the first place.  Moreover, with the business community divided over how to fix the code, there isn't a solid block of lawmakers supporting any specific solution.

Sources also suggest Congress may not feel it is under pressure anymore to act quickly to change the law.  There are growing doubts that the EU will actually use its WTO-granted authority to impose more than $4 billion in retaliation on U.S. exports, one business community source noted.  Although the EU has released a list of potential U.S. goods that could be hit with retaliation, trade watchers say the European Commission won't be able to reach an agreement on a final list until sometime next year.  After that, some question whether EU member states will approve retaliation.  European business groups, especially in Germany, oppose retaliation because it would hit their subsidiaries in the U.S.

An attempt by House Ways and Means Committee Chairman Bill Thomas (R-Calif.) to build momentum for his already introduced tax bill (H.R. 5095) drew resistance from Senate Finance Committee Chairman Max Baucus (D-Mont.).  Before the working group meeting, Thomas released a letter he received from Treasury Deputy Secretary Kenneth Dam, who endorsed the Thomas measure.  The Thomas bill "would satisfy our dual goals by bringing our laws into compliance with our WTO obligations, while at the same time, more closely aligning them with those of our major trading partners," Dam wrote (see WTTL, Sept. 23, page 3).

Dam's letter angered Baucus.  Later in the week he told reporters: "We have a challenge ahead of us to look at all options and not prejudge any particular option at this point, as long as the options we are looking at are in good faith and are realistic," Baucus still is urging the administration to seek a negotiated settlement of the dispute.  "I think we should look at both a negotiated solution and a legislative solution," he told a luncheon meeting Sept. 26.
 

CHINESE THUMB NOSE AT WTO TRANSITION REVIEW

China is proving that a highly touted annual review mechanism, which was part of its accession protocol for joining the WTO is a toothless showpiece.  During a series of transition review meetings in Geneva, Beijing has refused to provide written answers to complaints members have raised about its progress in fulfilling its accession commitments.  The Chinese claim the annual review mechanism doesn't require them to give written replies or to hold extended negotiations on these complaints.  Although other WTO members are frustrated by Beijing's attitude, they concede there is nothing they can do about it.

China's accession protocol requires an annual review of its compliance with the agreement for 10 years.  While many WTO members, especially the U.S., Japan and the EU, have complained about Beijing's progress during these meetings, there is no provision in the protocol to force China to improve its implementation, and there is no sanction available to punish China, if the review finds it in violation of its commitments.  Any action against China would have to be initiated by individual countries through the dispute-settlement process.

Starting the week of Sept. 16, various WTO committees have been meeting to review China's compliance with its accession commitments on intellectual property rights, market access, import licensing and agriculture.  Future sessions will be held throughout October on services, technical barriers to trade, investment, safeguards, rules of origin, and dumping and countervailing measures.  A final report assessing its first year of compliance with all these provisions will be presented at a WTO General Council meeting Dec. 10-11.

Ahead of the meetings, WTO members have submitted written questions to the Chinese about specific areas of noncompliance.  These complaints include claims that Beijing isn't living up to its commitments on tariff bindings, is using a tariff-rate quota to restrict car imports, has illegal import taxes on fertilizer, hasn't been transparent in the promulgation of new trade rules, especially on bioengineered foods, and hasn't met obligations on opening its insurance market (see WTTL, Sept. 16, page 3).

The Chinese argue that the protocol doesn't require them to provide written responses to these inquiries.  During the review meetings, they provided oral explanations of what they are doing.  Most of their statements contended the government is moving as fast and as best as it can. The Chinese have asked WTO members to take a long-term view of its transition to full compliance and have offered to hold bilateral meetings with any countries with specific objections.  They have refused, however, to hold ongoing consultations as part of the review mechanism, claiming that is another demand not required by the protocol.
 

COMMERCE WILLING TO REOPEN SOME STEEL EXCLUSION DECISIONS

Some denied requests for exclusion from President Bush's Section 201 steel tariffs may be revisited, if steel consumers can show that steel producers misled Commerce in claiming they could produce subject steel products in sufficient quantities to meet domestic needs.  Commerce Under Secretary Grant Aldonas offered to hear such complaints during a Sept. 25 House Small Business Committee hearing where Chairman Donald Manzullo (R-Ill.) quoted letters from small steel users who claim their suppliers have limited their steel shipments because of short supply.  The letters claimed requests for exclusion from the safeguard measure were denied based on objections from steel producers who said they could meet demand.

"I've said to a number of users that I've met with that where there is real evidence that the objection was not one that was based on fact, we'll want to take a hard look at that," Aldonas told the hearing.  "Where there are instances where there was an objection registered and, in fact, that objection didn't prove to be accurate, we want to go back and look at them," he added.  "I've invited users to get in touch with us directly," he said.

Aldonas told the committee such requests don't have to wait until the next annual review of exclusion requests.  Commerce, however, won't accelerate the review of new exclusion requests.  Those will be heard as part of a second round of reviews that will start in November.

Manzullo, a free-trade advocate, criticized the way exclusion decisions were made.    "What's bothered me about the exclusionary process is that the decisions to exclude were as political as the decision to impose the tariffs in the first place," Manzullo charged.  He also complained that U.S. steel producers obtained half the exclusions.  Aldonas defended those decisions and the whole process, arguing that steel producers need to import slab steel, for which there is no merchant market in the U.S.  In addition, he said these imports will help the industry restructure.  "We've seen a higher demand for slab than we expected," he admitted.

Aldonas also gave a less optimistic assessment of recent multilateral steel talks being held under the auspices of the Organization for Economic Cooperation and Development (OECD).  Several major steel producing trading partners rejected U.S. proposals for bringing disciplines to the steel market and reducing government-created distortions, he reported (see WTTL, Sept. 16, page 4).

"The steel industry in Paris at the last round of talks were unanimous about wanting to go forward with market reforms.  It was only when the governments came to the table later that we started to have trouble," he said.  "We have accomplished a lot in the OECD negotiations, but we are nowhere near our goal," Aldonas said.  The steel tariffs will need to stay in place to give the U.S. leverage in those talks, he argued.
 

SOFTWOOD LUMBER TALKS PASSED TO ECONOMISTS FOR NOW

Officials from the U.S. and Canadian provinces have handed their working-level economists the job of taking the next step in trying to develop an acceptable methodology for calculating the value of government-owned timber in Canada.  At talks between Commerce Under Secretary Grant Aldonas and Quebec officials Sept. 24, both sides agreed to have their economists work together on guidance the International Trade Administration (ITA) wants to issue on how it will determine the value of Canadian subsidies in the future (see WTTL, Sept. 23, page 2).

The need for a new method for calculating lumber subsidies was given an extra boost Sept. 27 when the WTO released a previously reported dispute-settlement panel report which said ITA's preliminary countervailing duty decision on softwood lumber "failed to determine the existence and amount of benefits to the producers of the subject merchandise on the basis of the prevailing market conditions in Canada."  ITA had used a cross-border price comparison method which the panel found to be inconsistent with WTO rules.

 The talks with Quebec "went well," Aldonas said. "We had a good conversation with them about the market structure," he added.  ITA wants to issue new CVD guidance on how it will determine "how much rent is on the table and how much the resource holder ought to be taking off," Aldonas explained.  The difference between those two values would constitute a subsidy.

Commerce economists have said that formula may differ from province to province based on their market structure and the type of lumber produced.  "Even within the provinces, the variations of how the mills either buy from private markets or off public lands vary considerably and those are things you have to take into account," Aldonas noted.  "We're working hard with each province to get a better grip on that and feed it back into our system," he said.  "The next step will be for our group of economists to sit down with a group from the Canadian side and with the folks from our industry to talk about what the appropriate measure is of the value of the wood," he noted. More talks will be held in October and November.

 * * * BRIEFS * * *

CIT: Court of International Trade has new website address. It's www.cit.uscourts.gov.

CHILE: As U.S. and Chilean negotiators resumed talks in Atlanta on FTA, WTO released Appellate Body ruling which found Santiago's import price band tariff system for vegetable oils, wheat and sugar to be inconsistent with WTO Agriculture Agreement (see WTTL, Sept. 16, page 1).

ANDES: U.S. Sept. 25 implemented Trade Act of 2002 and restored Andean Trade Preferences for Colombia, Bolivia and Peru.  Talks are still underway with Ecuador.

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.