Volume 22, No. 50 -- December 23, 2002

Posted Monday, December 23, 2002 12:00 am

In This Issue

* Wassenaar Agrees to Establish Antiterorism Controls
* Commerce Ready to Release Softwood Lumber Policy for Comment
* U.S. Puts Trade Laws on Table as Part of OECD Steel Talks
* Wassenaar List Review Decontrols Computers Under 190,000 MTOPS
* Russia Again Foils Effort to Tighten Wassenaar Controls
* Briefs: Export Enforcement, Japan, Canada, WTO, Ferrovanadium

WASSENAAR AGREES TO ESTABLISH ANTITERRORISM CONTROLS

Members of the Wassenaar Arrangement have agreed to identify specific products and conditions that should trigger export licensing requirements as part of an effort to put flesh on last year's decision to add antiterrorism to the regime's control goals (see WTTL, Dec. 17, 2001, page 4). Over the next year, expert groups will develop a list of products that might be useful in terrorist attacks, as well as criteria for identifying potential terrorists.

At the regime's annual plenary meeting Dec. 11-12 in Vienna, members agreed to look at products already under controls, as well as items not considered dual-use, that might be used by terrorists. One example might include flight simulators for large multi-engine aircraft, one source noted. The regime will also consider new controls on man-portable air defense systems (see story page 3).

In addition to goods that might be added to the list or given extra attention, the review will draft guidance for identifying potential terrorists or persons requiring additional scrutiny. "When you're dealing with terrorism, you are looking at the end user. For national security and regional stability the end users are usually governments," one administration official explained.

The regime probably won't create a single definition for a terrorist, since terrorists would just avoid falling into that definition. Nor will it necessarily make its guidance public. For advice to exporters on who might be a terrorist, the regime is likely to adopt suggestions similar to the "Red Flag" guidance the Bureau of Industry and Security (BIS) has published.

COMMERCE READY TO RELEASE SOFTWOOD LUMBER POLICY FOR COMMENT

Commerce Under Secretary for International Trade Grant Aldonas may put a gift under the softwood lumber Christmas tree of U.S. industry before the end of the year. Sources expect the International Trade Administration (ITA) to release soon a draft policy bulletin, which will explain the methodology it proposes to use to determine if changes Canadian provinces make in the sales of government-owned timber will eliminate the subsidy element from those sales. The expected key to that policy, according to one source, is the word "auction."

Canadian timber sales will be considered to be at fair value prices, if they are determined by open public auctions, the bulletin is expected to say. While provinces such as British Columbia have raised this as a potential direction they may take, there appears to be little support elsewhere in Canada for a full auction system, and other provinces may not back even an increase in auction sales. The auction approach would replace the current stumpage-fee system the provinces use.

ITA was unable to follow its original plan for developing a methodology determining the residual value of timber on government lands. It had sough advice from the White House Council of Economic Advisors, but Council economists reportedly couldn't confirm that the ITA method would work. Moreover, the plan drew opposition from U.S. industry and members of Congress. U.S. lumber producers want ITA to wait and see more details from the provinces on their reform plans before it issues a bulletin.

The release of the draft will come as informal talks continue between U.S. and Canadian officials, as well as between the U.S. industry's Coalition for Fair Lumber Imports and Canadians. BC officials have floated the idea of an export tax, which would serve the dual goals of raising lumber prices and providing the province with needed revenue. That proposal is opposed by other provinces.

The idea of establishing a quota on Canadian imports has also been raised and is getting more support from U.S. producers. Dick Bennett, vice chairman of the Coalition, was quoted in the Vancouver Sun as saying the idea of a volume restraint "is starting to look pretty good." The Coalition, however, quickly issued a statement to stress that its long-term goal is the creation of "fully open and competitive timber and lumber markets" in Canada.

There is general agreement on both sides of the border that any new system of timber sales in Canada would have to be phased in and interim measures would be needed to manage lumber trade during that transition. Those interim measures may be in the form of a provincial export tax or a quota. The dividing point, however, is over how long those interim measures would stay in place. Many parties in Canada and their lawyers are afraid interim measures will be imposed indefinitely and put them at a long-term disadvantage in the U.S. market.

U.S. PUTS TRADE LAWS ON TABLE AS PART OF OECD STEEL TALKS

Although U.S. officials claim they made no commitment to change U.S. trade laws as part of a multilateral deal Dec. 19 to develop new disciplines on trade-distorting subsidies to world steel industries, they admit the trade statute will have to be revised to implement any final agreement that comes out of the newly launched process. "There was no explicit trade off here," said Commerce Under Secretary Grant Aldonas. Nonetheless, any agreement that is reached in the process may require a change in the countervailing duty (CVD) law, he admitted. "The truth is you can't actually get through this discussion in a way that encourages the restructuring we all want to see without touching on the issue of trade remedies," he told a teleconference.

A multilateral agreement to end steel subsidies is likely to identify specific measures that will be considered prohibited and others that would be allowed, Aldonas explained. Such "green lighted" subsidies might follow a European Union model, which permits subsidies to facilitate the closing of excess capacity, for environmental clean up and worker adjustment.

If this approach were adopted, the U.S. would have to amend the CVD law to "make sure those things that are green lighted weren't countervailable in the future," Aldonas said. He also noted that if a steel accord is added to the Doha Round agenda, where the U.S. has agreed to discuss trade remedy laws, there will be more issues to trade off on.

After talks in Paris under the auspices of the Organization for Economic Cooperation and Development (OECD), representatives of all the world's major steel producing nations agreed to negotiate a new multilateral agreement to curb subsidies to their steel industries; to establish a peer review mechanism to monitor the closing of excess steel production capacity; to explore new ways to help finance the closing of excess capacity; and to seek to have any agreement on steel subsidies added to the negotiating agenda of the World Trade Organization's Doha Round.

The OECD process, which aims to complete talks on a subsidies pact in 2003, is seen as having a better chance at success than the ill-fated effort to negotiate a Multilateral Steel Agreement (MSA) in the mid-1990s. "The MSA failed in large part because governments didn't give it their seal of approval and marching orders," said David Phelps, executive director of the American Institute for International Steel (AIIS), which represents foreign steel firms that export to the U.S. Now negotiators "have been given marching orders not to come back with a failure," he said. "This is what was missing during the MSA negotiations," Phelps said.

The work on a subsidies accord will "absolutely" play a role in President Bush's mid-point review, due in September 2003, of the current Section 201 safeguard quotas, Aldonas promised. "There is not a doubt in the president's mind that the OECD process will be instrumental in alleviating the problems our steel industry faces," he said. "To that extent, it could be a contributing factor to any review," Aldonas said; noting that the president also will examine the industry's adjustment progress. If an OECD deal helps the industry adjust and become healthier, "it will play a very important role" in the 18-month review, he added.

Aldonas also confirmed that the U.S. will comply with a Dec. 9 WTO Appellate Body ruling which struck down ITA's treatment of the privatization of government-owned entities in CVD cases (see WTTL, Dec. 16, page 2). "The one thing I can assure you is that we will comply with the WTO rules," he said. "This is no time for acting as a scofflaw in respect to our obligations," Aldonas added. He said he saw the decision as an issue of methodology on valuing privatized assets from the viewpoint of an equity investor.

"It may be what they are telling us is that you have to go to a more rational, in their view, methodology. It's not simply saying that you can't explore the sorts of issues that are at play in the context of a privatization," Aldonas said. "We are going to have to face that in terms of the ruling and go through our own law to make sure we are compliant," he said.

WASSENAAR LIST REVIEW DECONTROLS COMPUTERS UNDER 190,000 MTOPS

The latest round of control list changes approved by the Wassenaar Arrangement at its 2002 plenary meeting was mostly a matter of catch-up with U.S. control revisions. Following Washington's lead, members agreed to decontrol computers that operate up to 190,000 million theoretical operations per second (MTOPS), but decided to maintain the control level for computer technology at 28,000 MTOPS. They also affirmed an earlier decision to decontrol general purpose microprocessors.

In addition, members approved a liberalization of controls on analogue-to-digital converters. Moving in the other direction, however, they tightened controls on certain small unmanned aerial vehicles that fall below the level of controls imposed by the Missile Technology Control Regime. They also approved stronger controls on radiation hardened integrated circuits.

Compared to past delays in implementing Wassenaar decisions, BIS intends to publish the change in microprocessor rules as early as the week of Dec. 23. Rather than fully decontrolling microprocessors, however, the U.S. regulation will maintain controls on exports to military end users and for military end uses in countries controlled for national security reasons, which are identified as D1 countries in the Export Administration Regulation (see WTTL, Dec. 16, page 4). The new rules will include for first time definitions of military end user and end use.

The regime adopted a Statement of Understanding which urges members to require the registration and licensing of arms brokers, to limit their number, and to disclose export and import license approvals. Some firms involved in Missile List (ML) exports have been concerned that controls on arms brokers might extend to brokers in non-weapon ML items. An administration official stressed that the statement isn't intended to affect such trade and applies "to guys really brokering weapons systems."

Although expert-level discussions before the plenary had raised the issue of expanding controls on certain amorphous silicon materials used in night vision products, no consensus could be reached and the subject wasn't placed on the plenary's agenda, an administration official reported. Talks on the proposal will continue in the new year, he said.

RUSSIA AGAIN FOILS EFFORT TO TIGHTEN WASSENAAR CONTROLS

Opposition from Russia blocked the Wassenaar Arrangement High-Level Plenary Meeting Dec. 11-12 from adopting new rules that would require members to notify and consult other members at least 10 days in advance of approving a license for any item or technology that has been the subject of a license denial to the same party by any other member in the previous three years. Moscow also prevented the regime from approving a European Union (EU) proposal to establish a "catch-all" category of controls for items going to end users of concern. Russia was the only member opposing the EU proposal, sources report (see story page 1).

One administration official admitted he was "disappointed" with the results of the meeting and Russia's blocking of efforts to strengthen the regime. Nonetheless, he claimed there was progress at the meeting.

The U.S. has been trying to get Wassenaar support for a "no undercut" policy for several years and each attempt has been derailed by Moscow's opposition. During the plenary, 14 countries spoke in favor of the U.S. plan, but on this issue "the Russians dug in their heels the most, one U.S. official told WTTL. "The Russians see this as the first Wassenaar requirement that allows one country into another country's export licensing system," he added. But the lack of a no-undercut mechanism apparently has not been a big problem. There have been only six cases in Wassenaar's history where one country approved a license another member denied for items on the regime's sensitive and very sensitive control lists.

* * * BRIEFS * * *

EXPORT ENFORCEMENT: BIS was ahead of enforcement curve with its 2001 denial of licensing privileges for Infocom of Richardson, Texas, and extension of order this year (see WTTL, March 18, page 4). On Dec. 18, Justice announced indictment of firm and five employees for allegedly conspiring to transfer funds to designated terrorist organization, Hamas, illegally exporting computers to Libya and Syria, and making false statements on export declarations. BIS agents were part of federal task force working case.

JAPAN: During telephone talks Dec. 20, U.S. and Japan failed to reach agreement on new telecommunication interconnection rates Tokyo promised to establish as part of 2000 bilateral agreement. Instead of offering to cut rates in 2003 and 2004, Japan proposed increase in fees for private telecommunications companies to gain access to NTT circuits.

CANADIAN WHEAT: USTR Robert Zoellick Dec. 17 said U.S. will seek dispute-settlement consultations with Canada at WTO to challenge Canadian Wheat Board's monopolistic practices, its discriminatory policies and its violation of WTO rules for state trading enterprises.

CANADIAN DAIRY: In dispute dating back to 1997, WTO Appellate Body Dec. 20 released ruling which said changes Canada made in its dairy subsidy program still fail to bring its program into compliance with WTO rules. U.S. claims subsidies cost U.S. dairy processors $35 million annually. Earlier dispute-settlement panel and Appellate Body rulings found subsidies to be illegal. Ottawa revised program, but new decision says changes still don't bring practice into compliance with subsidies rules.

WTO: U.S. and Chile offered proposals in Doha Round talks to amend dispute-settlement procedures to give parties chance to comment on draft Appellate Body rulings, to oppose parts of panel rulings, to have more flexibility to suspend proceedings and to require panelists to have expertise in issues under dispute.

FERROVANADIUM: In final determination Dec. 19, ITC voted 5-0 that dumped imports of ferrovanadium from China and South Africa are injuring U.S. industry.

EDITOR'S NOTE: In keeping with our regular schedule, there will be no issue of Washington Tariff & Trade Letter on Dec. 30, 2002. Our next issue will be Jan. 6, 2003. Until then, we wish all our subscribers a HAPPY HOLIDAY and a HEALTHY and PROSPEROUS NEW YEAR.