Volume 22, No. 48 -- December 9, 2002

Posted Monday, December 9, 2002 12:00 am

In This Issue:

* Customs Will Wait to Decide On Future of Option 4
* U.S. Proposal Unites WTO In Support of Tariffs
* Effort Will be Made to Simplify Encrytion Control
* BIS Plans to Limit Reexport License Exception APR
* Plan for Speeding Deemed Export Licenses Draws Concerns
* Coming Rule Will Define Military End-Use, End-User
* Briefs: Aircraft, BIS, Sunset, Export Enforcement, Hangers, Facts Available

CUSTOMS WILL WAIT TO DECIDE ON FUTURE OF OPTION 4

Customs officials intend to wait until they have a couple of months of experience with the 24-hour-in-advance manifest rule for container imports before making a recommendation on the future of Option 4, which allows qualified exporters to submit complete Shipper's Export Declarations (SEDs) 10 days after cargo has been shipped, according to Charles Bartoldus, the director of Customs' office of border targeting and analysis. Clearly, however, Customs is leaning toward the elimination of Option 4 for all exporters, he acknowledged.

"We're going to use the first 60 days of [the 24-hour rule] to evaluate when we get the information for things coming to the United States, what we do with it, and how we massage it," he told the BIS' Regulations and Procedures Technical Advisory Committee (RAPTAC) Dec. 3. "We will have a universe of data to deal with, and then we are going to look back at the way we think about Option 4," Bartoldus added. The 24-hour rules went into effect Dec. 2.

"There has been a push at Customs in the past to get rid of Option 4 in the post 9/11 environment," he conceded. Other government officials have suggested that changes in import and export reporting requirements in recent trade and security legislation essentially mandate the end of Option 4 (see WTTL, Sept. 23, page 1). While Customs staffers have supported doing away with Option 4, "we are now reevaluating that to make sure that is the right decision," said Bartoldus, who had only been in his job for two days before attending the RAPTAC meeting.

Option 4 will remain available for non-vessel exporters, noted Harvey Monk, director of the foreign trade division at Census. For waterborne cargo, however, Option 4 is clearly eliminated under provisions in the 2002 Trade Act, Monk told the committee. Census, which has authority to implement Option 4, will follow whatever policy Customs decides, he suggested. "Being realistic, whatever Customs decides they want to do about Option 4 we will probably go along with, because we can't get any regulation approved without their approval," Monk said.

U.S. PROPOSAL UNITES WTO IN SUPPORT OF TARIFFS

Washington's proposal to the World Trade Organization (WTO) to eliminate tariffs on all consumer and industrial products by 2015 has created a quick consensus among its members, but not in support of the idea. At the Dec. 2-3 meeting of the WTO's Doha Round negotiating group on non-agriculture market access, there was almost unanimous opposition to the idea. Only Australia, Singapore and New Zealand spoke in favor of the proposal.

Speakers at the meeting offered a wide range of reasons for why the U.S. proposal wasn't acceptable. The most common complaint was that it was "unrealistic," but negotiators also pointed to the continuing need for tariffs in developing countries to protect small domestic industries and as a source of government revenue (see WTTL, Dec. 2, page 3).

Developing countries also objected to the proposal's failure to provide the traditional "special and differential" treatment they claim they are entitled to under WTO rules. India argued that the U.S. proposal was "clearly unfair to developing countries because it didn't take into account their developmental and fiscal needs, one source who attended the meeting reported.

Brazil's representative suggested that developed countries must make deeper concessions to developing countries. He also pointed out that a zero-tariff option was not included in the negotiating mandate ministers adopted for the Doha Development Agenda. The Mexican delegate questioned whether Washington could resist opposition to the plan from its own domestic industries. Uruguay complained that the U.S. proposal in agriculture wasn't as bold.

The reaction from developed countries, which already have low tariffs, wasn't much more encouraging. Japan claimed the idea was too idealistic and not realistic and said more flexibility was needed. The Swiss delegate said the time isn't ripe for such an initiative. The European Union also questioned the realism of the proposal.

EFFORT WILL BE MADE TO SIMPLIFY ENCRYPTION CONTROLS

Having made it easier with new regulations last June for exporters to avoid licensing requirements for retail and mass-market encryption products, the Bureau of Industry and Security (BIS) is now looking at ways to simplify the regulation. One downside to the new rules was the increase in the possible regulatory outcomes that exporters might face when they submit their products to BIS for a one-time technical review, said Norman LaCroix, the head of BISs encryption staff. "Our first priority is to prune that decision tree," he said Dec. 3.

Although 76% of encryption products that undergo BIS technical reviews have been classified as retail or mass-market products that are eligible for License Exception ENC, there is still too much complexity in the regulation, he conceded. "It is a desire of ours to see what we can do to simplify the regulatory provisions of License Exception ENC," LaCroix told BIS' RAPTAC.

Other possible changes include streamlining the process for reviewing requests for retail or mass-market classifications, as well as keeping up with technology changes to avoid falling behind the market as government rules had in the past. In particular, BIS will look at what policy changes might be needed to ease requirements for network security management software, which are not eligible for retail or mass-market treatment.

Of the network infrastructure products, including routers, switches and virtual private network systems, that BIS reviewed in the fiscal year that ended Sept. 30, 64% were not eligible for retail classifications and required licenses for certain government end users, LaCroix reported. The other 36% were eligible for retail treatment.

On the other hand, BIS reviews of products and software for network security management, particularly secure shell or secure socket layer encryption, found 72% eligible for retail export and License Exception ENC. "As we look ahead we expect a further influx of mass-market products. We hope to keep pace with streamlined processing, and in these areas of infra-structure and network security management, we want to make sure we anticipate industry trends that might change the complexion of what we've been accustomed to," he said.

Although BIS has significantly changed encryption controls, the number of export licenses submitted during the first 11 months of 2002 reached 316. This was nearly double the number in 2001 but far below the nearly 2,000 licenses filed in 1999. Of those reviewed, 246 (78%) were approved, 65 (20%) returned without action and 5 (2%) denied. There was also a 12% increase in the number of technical reviews submitted. Of the 2,164 technology reviews BIS completed, 1,524 were deemed to be retail or mass-market products eligible for ENC. Despite this level of technology reviews, it received only 419 post-export reports from some 200 firms.

BIS PLANS TO LIMIT REEXPORT LICENSE EXCEPTION APR

The campaign to tighten trade controls to fight terrorism and stem proliferation of weapons of mass destruction could see more restrictions placed on reexports from NATO allies and cooperating countries. BIS plans to publish a "notice of inquiry" to get public reaction to a possible change in its regulations to limit further the use of License Exception APR, for permissive reexports. The agency wants to add Regional Stability to nuclear, missile and crime controls as an exclusionary condition that prevents a product's eligibility for this exception

The push for this change is coming from State, and one of the main product categories that would be affected is night vision, according to a BIS staffer. State also reportedly is opposing the idea of expanding the list of Category A1 countries, which includes NATO members and other close allies, to include the new countries entering NATO, such as Romania and the Balkan nations.

The restrictions on APR may be the first step toward total elimination of the exception. "There has been talk about removing APR altogether," the BIS staffer said. "The agencies hate APR. They consider it a major loophole to transfer goods to D1 countries," she said. D1 countries are those listed as national security concerns, including China, Vietnam, Russia and Bulgaria.

PLAN FOR SPEEDING DEEMED EXPORT LICENSES DRAWS CONCERN

BIS consideration of a plan for speeding the approval of "deemed export" licenses by narrowing the scope of applications has drawn objections from members of an agency advisory committee. Firms that file deemed export applications are concerned the narrowing of products and technology in their licenses will reduce the benefit of hiring these workers.

"We are looking at the degree to which there could be more specificity in deemed export license applications," Bernie Kritzer, director of BIS's office of strategic trade and foreign policy controls, told Raptac Dec. 3. BISers contend limiting the scope of technology covered in applications may help overcome objections from State and Defense, which often delay approval when they consider a request too broad or insist on adding extra conditions on the license.

"What we are trying to do here is strike a balance," said BIS Deputy Assistant Secretary for Export Administration Matt Borman. "It is difficult for the Department of Defense to easily sign off on an application that to their mind has a huge scope of technology, especially when it is not keyed with some level of precision to what the person is really going to be working on."

BIS may require applicants to define more specifically the technology or equipment to which they want to give foreign nationals access by making them limit their requests to particular sublevels of any Export Commodity Control Number (ECCN). Kritzer acknowledged that becoming too specific to the ECCN sub-paragraph level might "make it very difficult for foreign nationals to be employed by a company." BIS wants to find a "reasonable level" that would ease the interagency review process but keep these licenses useable to industry, he said.

BIS is still locked in a debate with State and Defense over its proposals for clarifying the conditions attached to deemed export licenses. While there has been some progress, the conclusion of the talks is not in sight. In addition, BIS is attempting to block other agencies, particularly Defense, from adding conditions to licenses that force companies to give up their right to use License Exceptions or No License Required rules when they are available for the foreign nationals they hire. "Clearly, there can be unique situations where you have something come up that is a showstopper, but generally you would need to have a major basis to take away a license exception. Otherwise, you are acting extra-regulatorily," Kritzer told Raptac.

COMING RULE WILL DEFINE MILITARY END-USER, END-USE FOR EXPORTS

A coming change in the Export Administration Regulation (EAR) to eliminate export controls on certain types of microprocessors is expected to include for the first time a definition of who is a military end-user and what is a military end-use. The new definition would replace the use of the phrase "specially designed" for military use as the condition that makes a product a Munitions List (ML) item instead of a dual-use item on the Commerce Control List (CCL). State and Defense have already given their tentative approval to the new regulation, but BIS is still waiting for their formal clearance, according to a BIS staffer.

The scope of the new definition in the EAR will be broader than the definition for defense articles found in the International Traffic in Arms Regulation (ITAR). Added to the rule will be a knowledge standard, which would require that an exporter must know that its foreign buyer meets the definition of a military end user in order for a license to be needed.

The decision was made to come up with a definition of military end use because there was no interagency agreement on the definition of "specially designed." An acceptable definition of "specially designed" has long alluded export regulators. The new definition "will be the foundation of controls for years to come," the BIS staffer said.

* * * BRIEFS * * *

AIRCRAFT: Expected change in ML controls on aircraft products may move some military cargo planes to BIS control. Industry, however, claims planes to be moved are mostly old types, some of which aren't made anymore. Nonetheless, shift could help parts exports and reexports of used planes.

BIS: President Bush has named BIS Assistant Secretary for Export Enforcement Michael Garcia to be new Commissioner of Immigration and Naturalization Service.

SUNSET: After enduring string of loses at WTO dispute-settlement panels and Appellate Body, U.S. trade officials were exuberant in praise of Nov. 28 Appellate Body ruling in favor of U.S. implementation of "sunset review" provisions of Uruguay Round rules. Body overturned panel ruling, which could have forced Washington to reopen or withdraw many previous sunset decisions (see WTTL, July 8, page 2).

EXPORT ENFORCEMENT: BIS has reached settlement with Jet Info Systems of Dallas, Texas, which will pay $40,000 civil fine to settle charges that it exported computers from Germany to Federal Nuclear Center of the Russian Research Institute of Experimental Physics (Arzamas-16) without approved licenses in 1996. Although items were made outside U.S., they were built with U.S.-origin technology, BIS claimed. Agency imposed, but suspended, two-year denial of export privileges. In related case, BIS settled complaint against Alexander Zisman for his role in shipment of computer from Germany through Netherlands to Arzamas-16. He will pay $20,000 civil fine and lose export privileges for five years.

HANGERS: ITC has initiated second case under Section 421 into alleged surge of imports from China. In response to petition from CHC Industries, M&B Metal Products and United Wire Hanger, Commission will determine whether imports of wire garment hangers from China have surged and injured U.S. industry.

FACTS AVAILABLE: Complying with WTO ruling that found its initial decision against hot-rolled carbon steel from Japan to be inconsistent with WTO rules, ITA in Dec. 3 Federal Register issued revised anti-dumping order at USTR's instruction. WTO said ITA incorrectly used facts available" to reach decision. Revised order still found margins of 17.7% to 40.26%. New order only applies to imports entered after Nov. 22. Separate appeal of ruling is pending in Court of Appeals for Federal Circuit.

CANADA: Ottawa has completed preliminary environmental assessment of Doha Round negotiations and concluded expected deal will have "minimal" effect on Canadian environment, because it will cover only small portion of country's trade and existing environmental laws will mitigate against any adverse effect.

WTO: Trade body subcommittee Dec. 2 agreed on new guidelines that would make it easier for poorest countries in become members. New policy, which will be adopted formally by WTO General Council week of Dec. 9, deals with treatment of least developed countries in regard to market access, rules, process and technical assistance and capacity building.