Volume 22, No. 44 -- November 11, 2002

In This Issue:

* Judges Question Confidentiality of Export License Information
* BIS Seeks to Impose Liability on Firms That Acquire Exporters
* Election Boosts Bush Administration Trade Agenda
* Pro-Trade Votes Didn't Hurt Lawmakers in Tough Races
* Election Could Portend Tougher Export Control Legislation
* BRIEFS: Antiboycott, ITA, Tariffs, Export Enforcement, DRAMS, Lumber
 

JUDGES QUESTION CONFIDENTIALITY OF EXPORT LICENSE INFORMATION

Tough questions from three U.S. appellate judges Nov. 7 may portend trouble for government efforts to protect export license information from public disclosure under the Freedom of Information Act (FoIA).  While it's impossible to predict how courts will rule, the judges hearing the FoIA suit seemed skeptical of government claims that Section 12(c) of the Export Administration Act (EAA) protects licensing information submitted to the Bureau of Industry and Security (BIS) even though the law expired Aug. 20, 2001 (see WTTL, Aug. 5, page 3).

The oral arguments at the Court of Appeals for the DC Circuit were for an appeal by the Wisconsin Project on Nuclear Arms Control, which is seeking release of information on licenses BIS issued between 1995 and 1999 when EAA had expired.  The group contends 12(c) protection expired with EAA.

Justice attorney Steve Frank tried to convince the judges that there is "a statutory scheme in place," including the International Emergency Economic Powers Act (IEEPA), that protects licensing information.  "The one thing that has been constant over 50 years is that there should be confidentiality," Frank told the court.  This has been a "settled expectation" by exporters who submit export license applications, he said.

"I don't understand a statutory system without a statute," said Judge A. Raymond Randolph.  That argument is "a Cheshire cat with a smile and no body," he stated from the bench.  As far as the expectation of confidentiality is concerned, FoIA upset that assumption when it was enacted in the 1960s, he added.  Randolph pointed to the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), which was amended to repeal FoIA protection for information submitted under that law.  "EPA is releasing that information left and right," Randolph said.

Judge Judith Rogers questioned the use of IEEPA, noting that the president's use of the law was discretionary.  She called the current system "a legislative result without legislation."  Senior Judge Stephen Williams pressed Scott Nelson, an attorney for Public Citizen, which represents the Wisconsin Project, to justify his contention that EAA had specific expiration dates and should not be read to protect everything after its enactment.  The issue is not what law was in effect in 2000 but "what law is in effect now," Nelson argued.
 

BIS SEEKS TO IMPOSE LIABILITY ON FIRMS THAT ACQUIRE EXPORTERS

The importance of doing adequate "due diligence" investigations before the merger or acquisition of firms that export under the Export Administration Regulation (EAR) is underscored by an agreement BIS announced Nov. 4 with Sigma Aldrich Corp. (SAC).  Under the settlement, SAC will pay a $1,760,000 civil fine to resolve charges that a firm it acquired in 1997 had exported various toxins and biochemicals without licenses before and after the acquisition.  BIS claims the settlement is a precedent on the issue of successor liability.  "Corporations will be held accountable for violations of U.S. export control laws committed by companies that they acquire," BIS Under Secretary Kenneth Juster said in a statement.

BIS contends a ruling in the case by Administrative Law Judge Peter Fitzpatrick supports its authority to impose fines on acquiring firms.  Stanley Marcuss, of Bryan Cave, SAC's attorney, disagreed.  Fitzpatrick's order "was in no way a dispositive ruling on the successor liability issue," Marcuss told WTTL.  The ALJ only ruled on an SAC motion for summary judgment, which was denied because there was still disagreement over issues of fact and law, Marcuss explained.

He also said SAC, which had sales of $1.1 billion in 2001, thought it had conducted adequate due diligence before acquiring Research Biochemicals Limited Partnership (RBLP), which made the disputed exports.  In addition to its own investigation, SAC received representations from RBLP that "its regulatory house was in order," he said.  The acquisition was for only $18 million, so the level of investigation seemed appropriate for the size of the transaction, he said.
 
SAC first made the BIS complaint public in a July press release on its quarterly sales and earnings.  At that time, it said the agency was demanding $3,760,000 to settle the charges.  It reported the proposed settlement in another release in September.  "While the company disagrees with the [Commerce] contention, it believes that settlement rather than further litigation is in its best interests," it said.

Although the charging letters that BIS sent to SAC and two subsidiaries, Sigma-Aldrich Business Holdings (SABH) and Sigma-Aldrich Research Biochemicals (SARB), cited 1,751 separate charges, many of these violations were overlapping and involved the same shipments.  When the duplicates were eliminated, the charges involved 1,019 separate actions. The final settlement agreement reduced the number of charges to 318.  The complaints included exporting without licenses, filing false or misleading statements and not maintaining required records.  Most of the exports were small shipments of materials to research laboratories in countries belonging to the Wassenaar Arrangement or the Australia Group, the charging letters indicated.

Marcuss said RBLP failed to obtain required licenses because it was unaware of EAR changes in 1994, which required licenses for these toxins.  After SAC acquired the firm and imposed its own export management system, it discovered the problem and began filing applications.  All those licenses have been and continue to be approved by BIS, the company stated.

SAC said the exports at issue were valued at $200,000, about one-tenth of the fine it agreed to pay.  When SAC and SABH acquired RBLP, they claim they bought the assets of the firm but not its liabilities.  The ALJ's ruling indicates that there was confusion over what was bought by whom.  "The issue remains whether RBLP gratuitously transferred its assets and business to respondents SARB or whether RBLP's assets and liabilities were first acquired by respondents SAC and SABH before being transferred to SARB," Fitzpatrick wrote.  "Applying all the rules of successor liability and its exemptions, respondent SARB shows all the hallmark signs of substantial continuity in the present case," he ruled.
 

ELECTION BOOSTS BUSH ADMINISTRATION TRADE AGENDA

President Bush will be have a friendlier, more pro-trade Congress to deal with over the next two years as a result of the Nov. 5 elections which saw Republicans regain control of the Senate and expand their majority in the House.  Although no major trade legislation looms on the congressional calendar, the stronger GOP grip on power will make it easier for the administration to get approval for pending bilateral free trade area (FTAs) deals with Chile and Singapore and support for its goals in other current and future trade negotiations.

In the House, Ways and Means Chairman Bill Thomas (R-Calif.), who mostly ignored Democrats in his successful push for trade legislation in the 107th Congress, will have fewer Democrats to ignore in the 108th.  In the Senate, the GOP majority will return free-trade supporter Chuck Grassley (R-Iowa) to the chairmanship of the trade-law-writing Finance Committee.

Grassley is likely to support a broad tax reform plan the Bush administration is expected to sponsor next year.  The tax benefits for business in such legislation could make it easier to overcome the divisions in the business community and lead to a compromise to reform the Foreign Sales Corporation (FSC) rules that have been found illegal by the WTO.  "I'll continue to work toward a bipartisan solution to the foreign sales corporation dispute so American companies can better function in the global marketplace," Grassley said after the election.

Aside from FSC and the FTAs, the major tasks Finance and Ways and Means will have over the next two years will be the oversight of U.S. trade policies and consulting on the Doha Round and the Free Trade Area of the Americas.  In both these areas, Grassley and Thomas are likely to offer U.S. Trade Representative (USTR) Robert Zoellick a friendly venue to explain his positions.  Zoellick can look forward to "a more balanced set of hearings than would otherwise be the case," said Calman Cohen, president of the Emergency Committee for American Trade.

With the enactment of fast track, "the heavy lifting has already been done," Cohen noted.  The eight-year fight over that legislation resulted in a compromise on negotiating goals that U.S. trade officials will have to follow in pending talks and must bring back in any final agreements, he suggested.  "I don't see the administration deviating from that," Cohen said.
 

PRO-TRADE VOTES DIDN'T HURT LAWMAKERS IN TOUGH RACES

The Nov. 5 elections proved again that voting for sensitive trade legislation, such as fast-track negotiating authority, is not detrimental to the political health of lawmakers.  In fact, those who voted against the final fast-track bill in July did worse in the elections than those who voted for it.  "The trade vote wasn't a killer," said Bernadette Budde, VP of the Business-Industry Political Action Committee (BIPAC).  A key test of the political sensitivity of trade was seen in four races where redistricting threw two incumbents against each other.

In three of those contests, the member who voted for fast track won.  Rep. Nancy Johnson (R-Conn.), a pro-trade member of the House Ways and Means Commit-tee, defeated Rep. Jim Maloney (D-Conn.), who co-sponsored a bill (H.R. 3884) to restrict firms from moving their headquarters offshore for tax reasons.  Rep. Chip Pickering (R-Miss) beat Rep. Ronnie Shows (D-Miss.), and Rep. John Shimkus (R-Ill.) overcame Rep. David Phelps (D-Ill.).  The only race that saw a pro-fast  track lawmaker lose to an opponent was in Pennsylvania where Democrat Tim Holden defeated Republican George Gekas.

Two other incumbents who voted against fast-track, Rep. Karen Thurman (D-Fla.) and Bill Luther (D-Minn.), were defeated in their reelection bids.  Pro-fast-track Rep. Felix Grucci (R-N.Y.), however, lost to a Democratic challenger.  Democrats Bud Carson of Oklahoma and Ken Lucus of Kentucky, who faced election criticism for their votes for fast track and China PNTR, both won reelection.  Rep. Robin Hayes (R-N.C.), whose dramatic last-minute vote for fast-track made him a primary target for defeat by unions, also was victorious.

The weakening strength of the trade issue in North Carolina was also seen in the victory of Elizabeth Dole, who defended fast-track legislation, over Erskine Bowles, President Clinton's former chief of staff, who abandoned the pro-trade position he espoused when he was in the White House.  Dole will succeed fast-track opponent Jesse Helms (R-N.C.).  The death of Sen. Paul Wellstone (D-Minn.) and the defeat of Walter Mondale, will bring a more moderate Norm Coleman to the Senate.  Rep. Saxby Chambliss (R-Ga.), who voted for fast-track, defeated Sen. Max Cleland (D-Ga.), who also voted for the legislation. Sen. Jean Carnahan (D-Mo.), who voted against the bill, lost her reelection bid, and Sen. Tim Johnson (D-S.D.), who also voted against it was winning by just over 500 votes at press time and facing a recount.
 

ELECTION COULD PORTEND TOUGHER EXPORT CONTROL LEGISLATION

Unless Congress enacts a short-term extension of the Export Administration Act (EAA) when it comes back for a lame-duck session Nov. 12, a possibility that still remains alive, the chances for the legislation in the newly elected Congress are even dimmer than they were in the session now ending.  With Republicans regaining control of the Senate, Sen. Richard Shelby (R-Ala.) is expected to become chairman of the Banking Committee, which has jurisdiction over EAA.

Shelby was one of five conservative senators who led the opposition to the Senate-passed EAA bill (S. 149) sponsored by Sens. Phil Gramm (R-Texas) and Mike Enzi (R-Wyo.).  While Shelby may not get the normally pro-business Banking Committee to back his views on export controls, he could block any new EAA bill he doesn't like.  Gramm's retirement leaves Enzi as the only member of the committee with a strong interest in and knowledge of export control legislation.

If EAA remains stalled, there is growing concern in the export community that the House Armed Services Committee will try to expand its role in export control legislation.  Led by Rep. Duncan Hunter (R-Calif.), Armed Services may try to attach export control provisions to various defense appropriations bills that it adopts.  Shelby is likely to acquiesce to such juris-diction grabs more readily than current chairman Paul Sarbanes (D-Md.), one source suggested.

 * * * BRIEFS * * *

ANTIBOYCOTT: BIS Under Secretary Kenneth Juster Nov. 4 reminded exporters of prohibition against participation in Arab League boycott of Israel (see WTTL, Oct. 21, page 1).  Commerce "is closely monitoring efforts that appear to be made to reinvigorate the Arab League boycott of Israel and will use all of its resources to vigorously enforce U.S. antiboycott regulations," he declared.

ITA: Deputy Assistant Secretary for Import Administration Richard Moreland retired Nov. 8 after 30 years in government, including 22 years at Commerce.  He will become trade consultant with law firm of Shearman and Sterling in Washington.

TARIFFS: EU Nov. 6 presented proposal to Doha Round group negotiating on non-agriculture market access, calling for compression of high tariffs and tariff peaks into flatter range and reducing tariff escalations on goods of interest to developing countries.

EXPORT ENFORCEMENT: Gunmaker Sturm Ruger of Southport, Conn. agreed to pay $11,000 civil fine to settle BIS charge that it exported 12 rifle scopes to Oman without approved license.

VENEZUELA: U.S. Nov. 7 initiated WTO dispute-settlement consultations with Venezuela over import licensing requirements that allegedly restrict U.S. farm exports to Latin American country.

FTAs: USTR Robert Zoellick Nov. 4 notified Congress that U.S. intends to begin talks in 90 days with South African Customs Union on FTA.  Union comprises Botswana, Lesotho, Namibia, South Africa and Swaziland. He also asked ITC to do economic impact analysis of FTA with SACU.  U.S. had $7.9 billion in two-way trade with SACU in 2001.   Separately, U.S. has said it is beginning process that could lead to opening of FTA talks with individual members of Association of Southeast Asian Nations (ASEAN).

DRAMs: Micron Technology has filed countervailing duty complaints at ITA and ITC against imports of dynamic random access memory semiconductors from Korea.

SOFTWOOD LUMBER: Several groups, including U.S. building contractors' associations and Forest Products Association of Canada, have formed U.S.-Canada Partnership for Growth.  Coalition has launched $10 million TV, Internet and lobbying effort to foster public opposition to U.S. tariffs on softwood lumber from Canada.  Former USTR Bill Brock and ex-Michigan Governor James Blanchard are spokesmen for partnership.  Before U.S. election "there was no possibility of getting anything settled," Brock told WTTL.  "Now is the appropriate time" for U.S. and Canada to reach deal to resolve dispute, he said.

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.