Volume 22, No. 6 -- February 11, 2002

HOMELAND SECURITY CONCERNS BOOST BXA ENFORCEMENT BUDGET

The Bureau of Export Administration (BXA) has become one of the prime beneficiaries of Washington's new enthrallment with homeland security, and tougher enforcement of export control regulations will be a central focus of the agency's increased budget.  BXA's export enforcement staff could get an 8.5% increase in staff and an 18% jump in funds under the budget proposal the Bush administration released Feb. 4 for the year that starts Oct. 1, 2002.

Overall, the administration's request for BXA calls for an 8% increase in staffing to 519 full-time equivalent (FTE) positions and a 34% surge in spending to $109 million.  A big chunk of the added bodies (15) and money ($20 million) will go to new homeland security assignments, including a review of all available sources of government and private information on individuals and companies.

But export enforcement gets the biggest increase in resources for BXA's traditional operations. If Congress approves the White House budget request, the enforcement staff would get 17 extra FTEs for a total of 217, with a budget increase of 18%.  The export license reviewing staff also gets more people, growing by 5 (2%) to 211, with a 3% increase in funding.

BXA intends to use the extra enforcement staff to increase the number of pre-approval inspections and post-shipment verifications (PSV) it conducts and to put more people in overseas assignments to monitor potential diversion of exports through countries that are major transhipment ports (see WTTL, Jan. 7, page 1).  It plans to put attaches on short-term or long-term assignments in China, Russia, United Arab Emirates, India, Singapore and Egypt, the agency said.  It also will open enforcement offices in Houston and Seattle.
 

SHORT-SUPPLY MECHANISM TO BE ESTABLISHED FOR STEEL RESTRAINTS
 
The Bush administration probably will set up a short-supply mechanism similar to the one created during the steel Voluntary Restraint Arrangement (VRA) of the 1980s to handle petitions for exclusions from the quotas President Bush is likely to impose on steel imports under the pending Section 201 case, sources tell WTTL.  Until Commerce rules on these short-supply requests, restrictions will apply to all categories covered by Bush's final decision.

Commerce reportedly has already received some 1,000 requests for exclusion from any 201 action.  Sources concede the department won't be able to rule on them by March 6 when the president is schedule to issue his 201 decision.  Although only 33 lines of steel were covered in the ITC's 201 investigation and recommendations, each of those lines can have hundreds of separate Harmonize Tariff Schedule (HTS) subcategories that could be eligible for exclusion.

Meanwhile, in Paris Feb. 7-8 at the Organization for Economic Cooperation and Development (OECD), representatives from 37 steel producing nations held their third high-level meeting to review commitments to reduce government intervention in the steel market and to reduce global overcapacity.  Going into the meeting, U.S. officials were disappointed that only half of the nations involved submitted more detailed proposals for meeting the goals of the negotiations.

The communique issued at the end of the meeting endorsed a European Union (EU) proposal which would allow countries to impose levies to cover the cost of meeting social and environmental adjustment costs.  The EU had urged the U.S. to adopt such a fee approach, which would be paid on both domestic and imported steel, to pick up the pension and healthcare legacy costs of retired steel workers, instead on imposing import restrictions.  The U.S. rejected that proposal.

Based on revised projections submitted by countries, the communique included new estimates for how much steel capacity will be reduced over then next seven years.  During the 2003-2005 period, the reduction will range from 24.9 to 34.9 million tons, it reported.  For 2006 to 2010, the projected reduction will be 18.8 to 20.8 million tons.  Sen. Jay Rockefeller (D-W.Va.) criticized the outcome of the meeting, claiming the projected reductions don't match the real level of global overcapacity.  "These aren't commitments, these are just projections based on what they think will happen in their economy," he said.
 

SENATE MAY BLOCK HOPE FOR CEASE FIRE ON FSC

USTR Robert Zoellick's neat plan for avoiding EU retaliation for Foreign Sales Corporation (FSC) tax rules, which the WTO found to be an illegal export subsidy, got a reality check Feb. 6 with a warning from Senate Finance Committee Chairman Max Baucus (D-Mont.) that a rewrite of the U.S. tax laws isn't likely.  The next day, House Ways and Means Chairman Bill Thomas (R-Calif.) also cautioned him that revising the law "is not a three week or six month effort."  Congressional action on FSC was one of the good faith efforts that Zoellick offered EU Trade Commissioner Pascal Lamy to justify a delay in EU action (see WTTL, Jan. 28, page 1).

"I sense from my perspective too much emphasis on a tax solution," Baucus told Zoellick.  "A tax solution just isn't going to happen," he said.  "I urge you to look for alternatives," Baucus added.

Meanwhile, the U.S. Feb. 7 provided a preliminary response to the EU's request to a WTO Arbitration Panel for permission to take $4.043 billion in retaliation for FSC.  The U.S. said the EU demand was too high, covered trade not subject to WTO subsidy rules and did not reflect the actual impact on EU trade.  A fuller response will be submitted on Feb. 14.
 

WTO SERVICES TALKS HIT SNAG OVER DEMANDS FOR SAFEGUARD PROVISION

Up until now, World Trade Organization (WTO) talks on expanding the General Agreement on Trade in Services (GATS) have gone fairly smoothly.  That's all about to change.  As negotiators in Geneva prepare for the start in June of the "request-offer" phase of talks, developing countries have stepped up demands for including an emergency safeguard provision in the GATS to allow countries to reimpose restrictions on service sectors that are opened, if a surge in foreign competition starts to hurt domestic providers.  Similar rules already exist for trade in goods and are implemented in the U.S. under Section 201 of the Trade Act.

Incoming WTO Director General Supachai Panitchpakdi told the Services 2002 conference in Washington Feb. 5 that a number of developing countries have told him inclusion of an escape clause mechanism will be required to get their participation in service negotiations.  Speaking to reporters afterward, he said many developing countries see the services talks as a benefit mainly for the developed world.  While developed countries will be push for opening more service sectors to foreign investment, developing countries will emphasize the need for liberalizing rules covering the temporary movement of workers, Supachia noted.

"Some countries have deep inside fear that their own domestic corporations will be out-competed and key sectors taken over by foreign investment," if their service sectors are opened, Supachai said.  As a result, they have resisted participating in the GATS process.  "In order to overcome this skepticism and reluctance, I have been told several times there need to be some comforting measures and emergency safeguard measures is one of them," he said.

Service firms oppose including safeguards in the GATS.  "We are concerned about the effect on foreign investment that commits substantial capital and resources to build a viable business in a developing country when that developing country obtains the right to rollback that investment as part of a safeguard action," said Robert Vastine, president of the Coalition of Services Industries.  Brant Free, VP of Chubb, a major insurance firm, said the approach taken in NAFTA might offer a solution.  "The phase-in of obligations is one way to approach the safeguard issue," he suggested.  Such a mechanism with specific criteria would allow countries to delay the pace of liberalization but not restrict business that is already established.
 

U.S. BROADENING ATTACK ON CANADIAN LUMBER PRACTICES

Testifying before the Senate Finance Committee Feb. 6, USTR Robert Zoellick sounded ready to adopt the U.S. lumber industry's call for broader changes in Canada's system for pricing and selling government-owned timber.  Zoellick's more expansive view came as Ottawa and the Canadian provinces in the pending countervailing duty and antidumping cases on softwood lumber canceled plans for meeting with U.S. negotiators for another round of talks Feb. 6-7.

Zoellick indicated that Canadian offers for selling some lumber through public auctions was not satisfactory.  "I think we can't just look at the auction.  We have to look at the mandated requirements and minimum pricing and how the whole thing fits together," Zoellick told the committee.

The canceled meeting had been only tentatively scheduled, so some sources play down its cancellation.  The Canadians, however, decided not to meet with their American counterparts because they claim they have not yet received a formal response from the U.S. to proposals several provinces made in December for auctioning off a small share of government timber to create a semblance of a private market for the wood.  The U.S. Coalition for Fair Lumber Imports provided USTR officials with its reaction to these proposals at a Jan. 22 meeting, but the U.S. has not shared that response with the Canadians (see WTTL, Jan. 28, page 3).
 

ZOELLICK WANTS CANADIAN WHEAT CASE OFF HIS HANDS

U.S. Trade Representative (USTR) Robert Zoellick doesn't want to get into another no-win trade fight with Canada.  Rather than address complaints against the Canadian Wheat Board (CWB) under a pending Section 301 investigation, he has urged U.S. wheat producers to file antidumping (AD) and countervailing duty (CVD) cases against Canadian imports (see WTTL, Jan. 21, Page 3).  Although the industry rejected that route when it filed the 301 petition, Zoellick says new information gained through the 301 investigation makes it worthwhile to look at that option again.  He is supposed to rule on the 301 investigation by Feb. 15.

Testifying in the House Feb. 7, Zoellick, conceded the U.S. could face retaliation if it agreed to the request of the North Dakota Wheat Commission (NDWC) to impose a tariff-rate quota on imports from Canada.  "The problem with a tariff-rate quota is there is really no doubt that there are NAFTA obligations...and WTO obligations and we=d be in violation," Zoellick said.

A TRQ is certain to lead to retaliation, he warned.  "If it's a violation, it won't last," he said.  Zoellick said he is considering WTO dispute-settlement consultations with Canada but admitted the chances of wining a WTO case are not good.  "This is a very uncertain area of WTO rules," he said.  "We may or may not be successful," he added.  A WTO case may still be valuable, he suggested, because it would bring attention to the problem of state trading companies such as the CWB and set the stage for addressing the issue in the Doha Development Agenda.

Based mostly on research funded by the NDWC, the Section 301 investigation and a report from the International Trade Commission (ITC) found off-budget assistance that the Canadian government gives to the CWB.  U.S. producers claim this aid constitutes subsidies to the board and helps to distort prices.

Wheat producers, however, are likely to reject Zoellick's appeal because the AD/CVD route will delay action against Canadian imports and the outcome is uncertain, one source involved in the case noted.  "He's not going to be let off the hook," the source said.
 

SUPACHAI WANTS TO AVOID ALL-NIGHT END TO FUTURE TRADE TALKS

Having observed the WTO trade ministerial in Doha in November and watched two or three countries block an agreement for nearly 24 hours, incoming WTO Director General Supachai Panitchpakdi has started work on a process that might avoid a repeat situation when the next ministerial is held in Mexico in 2003.  Supachai, who will take the WTO helm in September, says he has already met with Mexican Trade Minister Luis Derbez Bautista, who will chair the Mexico meeting, to discuss ways of addressing issues before the ministerial even starts.

Curbing the habits of trade negotiators won't be easy.  All-night negotiations near a deadline are often seen as the normal end game for talks, a right of passage similar to fraternity hazing.  For the WTO, however, this practice has put the organization at risk.  With 144 members and a policy of reaching agreements only by consensus, the WTO's progress could be brought to a halt by a few countries.

Supachai said he has suggested to Derbez the institutionalizing of the drafting committees that were established in Doha to bring together various positions on the major sections of the final ministerial declaration.  He also said further improvements are needed in the final "Green Room" meetings, where the final deals are made, so more countries will have access to the negotiations.  "This will eliminate a lot of ill will," he said.  Supachai also will push for more preparatory work before the Mexico meeting.  "We need ministers' involvement and capitals' involvement quite early in the day," he said.  It will be most important for the U.S. and EU to show flexibility as they did in Doha, Supachi suggested.

 * * * BRIEFS * * *

EXPORT ENFORCEMENT: Nearly $1 million in civil and criminal fines were imposed on BS&B Process Systems of Houston and its London affiliate Black, Sivalls and Bryson for exporting oil production equipment to Iran through United Kingdom without approved export license.  U.S. firm agreed to pay $86,000 civil fine and British unit paid $32,000 civil penalty.  In separate criminal case, BS&B paid $414,000 criminal final and Black paid $448,000 criminal fine.

MORE ENFORCEMENT: BXA has imposed $10,000 civil fine on Eli Cohen of Haifa, Israel for providing false information to BXA enforcement agent who was conducting post-shipment end-use verification of infrared camera shipped to Israel.

FAST TRACK:  With estimated date for Senate consideration of fast-track legislation moved into March, bill has hit new bumps created by Republican opposition to attaching Senate Finance Committee's version of Trade Adjustment Assistance (TAA) to measure.  Democrats have made inclusion of TAA with fast track key condition for supporting trade bill.

TEXTILES: Apparel and retailing industry ask Commerce to include their views in just-established inter- agency Textile Working Group, which was set up to meet administration's commitments to textile-state lawmakers in December as condition for getting their votes for fast track (see WTTL, Dec. 10, page 4).

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.