Volume 22, No. 49 -- December 16, 2002


In This Issue:

* Provisions of Terrorism Insurance Law Put Export Payments at Risk
* Enzi Will Scrap Old EAA and Introduce New Version
* WTO Ruling on Privatization Could Overturn Dozens of Cases
* Industry Pressing Agencies to Curb Licensing Conditions
* U.S. Will Let Chile Keep Some Capital Controls in FTA Deal
* New Definition of Military End-User Will Be Broad
* Briefs: Armenia, China, DRAMS, Pipe


Payments from foreign customers could get caught in new banking restrictions included in anti-terrorism insurance legislation Congress enacted just before it adjourned, warns Serena Moe, senior compliance counsel at Citigroup.  The new law may allow terrorism victims to get a court order to attach funds held in bank accounts the government has blocked under various trade sanctions, she told a conference in Washington Dec. 9.  Banks are waiting for guidance from Treasury to learn what blocked accounts can be attached and under what circumstances.

Blocked accounts could include funds that are intended to pay for exported goods or services.  Banks are now holding blocked money from numerous sources that have been cited by State or Treasury, including funds from Iran, Iraq, Libya and Yugoslavia.  One set of pending lawsuits, which were filed by people who were held by Iraq as human shields at the start of the Persian Gulf War, is seeking money from blocked Iraqi accounts, Moe noted.
Moe also urged exporters to provide banks with detailed information, including government identification numbers if available, on foreign customers whose names may be similar to those Treasury has placed on its list of Specially Designated Nationals (SDN).  Many of these names, particularly in Arabic countries, are very common and popular.  "Mohammed Tufail is every Pakistani mother's favorite name," she said.  If one of these names pops up during screening, a bank may have to delay payments until it can verify the identity of the individual, she said.


Sen. Mike Enzi (R-Wyo.) intends to throw the Export Administration Act (EAA) legislation (S. 149) he sponsored in the 107th Congress with Sen. Phil Gramm (R-Texas) on the "trash heap" with other failed attempts to renew the law and will introduce a "revamped bill" next year, according to his legislative director, Katherine McGuire.  The decision to abandon S. 149 recognizes the failure of a companion bill to get through the House and the fact that one of the bill's major Senate opponents, Sen. Richard Shelby (R-Ala.), will become chairman of the Banking Committee, which has jurisdiction over the legislation (see WTTL, Nov. 11, page 4).

The failure to enact S. 149 wasn't the fault of the bill itself, McGuire contended.  Its problems were a matter of timing.  It passed the Senate on Sept. 4, 2001, just before the attacks of Sept. 11, she noted.  Although the legislation addressed terrorism, House members thought it didn't do enough.  "Sept. 11 gave our House colleagues an excuse not to take up the bill," she told a Practicing Law Institute conference Dec. 10.  The Senate, the White House and industry failed to educate House members well enough, McGuire insisted.
As he did in drafting S. 149, Enzi will talk with all stakeholders involved in export controls, including industry, the administration and other lawmakers, McGuire said.  Enzi recognizes Shelby's opposition to parts of S. 149 and the need to have his support to get any new EAA bill out of Banking, McGuire indicated.  "We will be meeting with him early on as one of the stakeholders, and we believe we can address those concerns," she said.

One area of S. 149 that is likely see changes is the section on foreign availability and mass-market designation.  "We will be looking at incorporating those pro-visions and criteria into the actual Commerce Control List up front rather than leaving them as a means to decontrol," McGuire offered.  The new approach would make foreign availability and mass-marketing two of the factors to be considered in the initial classification of goods and technology, she explained.

Another possible change would put more emphasis on strengthening the role of multilateral export control regimes, such as the Wassenaar Arrangement and the Australia Group, McGuire stated.  In addition to his seat on the Banking Committee, Enzi is expected to become chairman of the Foreign Relations subcommittee on international operations and terrorism.


If the U.S. agrees to comply with a Dec. 9 World Trade Organization (WTO) ruling on the privatization of government-owned enterprises in countervailing duty (CVD) cases, as many as two-thirds of current CVD orders could face revocation, according to one trade lawyer.  The WTO Appellate Body ruling, which directly addressed 12 CVD cases, "was a pretty fundamental loss," one U.S. trade official told WTTL.

As read by some lawyers, the decision means that the fair-market-value privatization of any company that received government subsidies in the past wipes out those benefits.  This interpretation applies whether privatization was through the sale of assets or equity and covers both administrative and sunset reviews.
While the cases at issue involved steel from six European Union (EU) countries, the ruling could apply to privatization in other parts of the world, particularly in Latin America and Asia, and to other industries, including chemicals and pasta.  The trade impact on these steel cases may be small, however, since the CVD orders on them are nearing their end and most of the imports are also subject to antidumping orders that are not affected.  There are currently 58 active CVD orders in place, of which 34 cover various steel imports.

As in previous rulings, the Appellate Body carefully avoided declaring U.S. trade law to be inconsistent with the WTO agreement on subsidies and countervailing measures (SCM).  It overruled the portion of a dispute-settlement panel decision which said the Uruguay Round Agreements Act (URAA) violated the accord.  Instead, it sustained those portions of the ruling which said the International Trade Administration (ITA) had erred in its application of the law.

The WTO body reaffirmed its position from a case involving British Steel that "following privatization at arm's length and for fair market value, a benefit' no longer exists for the private firm unless the investigating authority finds other evidence to the contrary."   In rejecting ITA's "same person" methodology for determining the continuation of a subsidy, it said this approach establishes "an irrebuttable presumption" that is contrary to the SCM obligation because the agency conducts no further analysis after it finds no new legal person is created.

The SCM, the judges argued, says "the investigating authority must take into account in an administrative review >positive information substantiating the need for a review'."  One trade lawyer said the ruling "slammed the door" on the continuation of CVD orders once the foreign producer has been privatized.  Although the Appellate Body said the benefit still has to be assessed after privatization, it also asserted that after a fair market price is paid for its equipment "its market value is redeemed" and no benefit remains.   A U.S. trade official agreed that the chance of finding a benefit under the wording of the ruling would be difficult.  "The door may be opened a crack, but not very wide," he said.

One U.S. objection to the Appellate Body ruling is its attempt to create rules on the treatment of privatization and the change of ownership of companies when the SCM doesn't specifically addresses these issues.  "They read into it obligations that are not there," the official told WTTL.  "I don't see where the WTO has any business saying the U.S. interpretation is not permissible," he complained.

An interagency review of the ruling has begun, he noted.  No decision has been made yet about whether Washington will announce its intention to comply with the findings or how it would implement them if it did.  ITA's interpretation of the URAA rules on privatization is also under review by the Court of Appeals for the Federal Circuit, which is considering three appeals from conflicting decisions from the Court of International Trade (see WTTL, Oct. 7, page 4).


Representatives of the electronics and computer industries have launched an effort to get the Bureau of Industry and Security (BIS), State and Defense, to adopt seven principles in the writing of conditions they attach to export licenses.  The attempt comes as the agencies are adding more and more conditions, many of which impose broad restrictions on exports or take away previously granted exporting rights (see WTTL, Dec. 9, page 3).

Industry has just begun to hold talks with agency officials to present these principles, explained Randy Williams, manager of customs and export policy for Hewlett-Packard Compaq.  The goal is not to eliminate the use of conditions but in some cases to reduce the number from 31 to 17, he told a conference Dec. 10.
The proposed principles would: (1) Make conditions germane to the license requested, while not imposing duplicate conditions from different agencies; (2) Preclude conditions that eliminate preexisting export exceptions or authorizations; (3) Use established technical parameters from the Export Administration Regulation (EAR) and avoid restrictions based measurements not normally used in industry; (4) Not impose conditions that are unenforceable, especially on access to design and development technology that is changing; (5) Be mindful of the administrative burdens of recordkeeping and reporting; (6) Apply conditions consistently to avoid creating competitive disadvantages; and (7) Assure that the license system works, decisions can be made, and interagency disputes are escalated to political levels for resolution.


The maintenance of capital controls, one of Chile's major concerns through nine years of talks with Washington about a free trade area (FTA) agreement, was one of the last items resolved before the U.S. and Chile announced the conclusion of talks on Dec. 11.  In the end, the U.S. bowed to Santiago's insistence on keeping controls, but won a provision that would create a dispute-settlement mechanism to allow U.S. investors to protest the imposition of any controls. Watching years of economic volatility in Latin America and cycles of capital flight in their neighbors, Chileans have worried that their relatively small economy could be vulnerable if they lifted their system of capital controls.

Similar controls also are the last unresolved issue in U.S. talks with Singapore on an FTA, and Treasury officials will present the Chilean compromise to Singapore as a model.  "I hope it will provide the basis [for concluding those talks], but I can't presume," U.S. Trade Representative (USTR) Robert Zoellick said.
The agreement with Chile on capital controls appears to have been part of a compromise that will allow U.S. investment firms to offer asset management services to Chile's privatized voluntary savings plans and to establish affiliates in Chile to offer services to Chile's mandatory social security system on a limited basis.  The U.S. decided in September to back away from a demand for full opening of these sectors (see WTTL, Sept. 16, page 2).  The proposed deal will also let U.S. firms provide portfolio management services to Chilean mutual funds.

The proposed FTA would remove tariffs on 85% of industrial and consumer goods immediately upon implementation.  Tariffs would be phased out on other goods, mostly in the agriculture area, within four years or 12 years.  The U.S. will adopt a tariff-rate quota for copper cathode for two years and then eliminate its tariff.  Textiles and apparel trade would be subject to NAFTA's "yarn-forward" rule, with quotas established for goods not meeting that requirement.

Chile has accepted a U.S. scheme for using monetary fines to settle labor and environment disputes.  In the e-commerce sector, the deal calls for nondiscrimination for digital products and no tariffs.  Digital products delivered on hard media will be subject to duties on the value of the media and not the value of the content.  The dispute-settlement provisions of the accord cover trade, labor, environment and investment disputes and require transparency in the proceedings of panels, including open hearings and public release of legal submissions.

Zoellick conceded the Chilean deal may not set the precedent for the Free Trade Area of the Americas (FTAA).  The FTAA "certainly will be a different type of agreement there is no doubt with 34 countries at different stages of development," he said.  Although some people in Latin America think the U.S. will try to force the Chilean accord onto the FTAA, "that is not the way we are approaching the negotiations," he claimed.


Military end-user and military end-use will be defined broadly in a coming BIS proposal to liberalized controls on microprocessors, according to BIS regulations writer Sharron Cook (see WTTL, Dec. 9, page 4).  Explaining the expected proposal to a conference Dec. 9, Cook said a military end user will include the national armed services of a country, as well as its national guard, national police, intelligence agencies or anyone that supports these organizations.

Military end use will apply to any item "incorporated into" a product on the U.S. Munitions List (ML) or the International ML, as well as technology for the design, production and use of these products.  BIS will publish a supplement containing examples of such products, Cook promised.
The new U.S. rules will move most microprocessors to a new Export Control Classification Number (ECCN), 3A991.  The new rules will come with a "knowledge standard" which will require exporters to seek a license for any item that meets the military end-user or end-use definition, if they know, have reason to know or have been informed that their exports are going to such destinations.  Such licenses will face a "presumption of denial," she said.


 * * * BRIEFS * * *

ARMENIA: WTO General Council Dec. 10 approved Armenia's accession to membership.

CHINA: USTR's report to Congress Dec. 11 on China's compliance with WTO obligations during its first year of membership in trade body tried to take balanced and calm approach to assessment.  "China has made significant progress in implementing its WTO commitments, although much is left to do," it said.

DRAMS: ITC Dec. 13 made preliminary finding, on 4-0 vote, that allegedly dumped imports of DRAMS and DRAM modules from Korea may be injuring U.S. industry.

PIPE: Allegedly dumped malleable iron pipe fittings from China may be injuring U.S. industry, ITC voted 5-0 in preliminary determination Dec. 13.

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. 


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