Volume 22, No. 7 -- February 18, 2002

DEFENSE TRIES END RUN TO BLOCK EXPORTS OF NIGHT VISION PRODUCTS

Elements at the Pentagon refuse to accept an interagency decision to approve the exports of night vision products and have asked State to issue a commodity jurisdiction (CJ) ruling to transfer the items from the Commerce Control List (CCL) to the Munitions List (ML).  The Joint Chiefs of Staff (JCS) filed the CJ petition Dec. 14, one day after the Assistant Secretary Advisory Committee on Export Policy (ASEP), which includes a Pentagon representative, approved 15 export licenses for night visions products (see WTTL, Dec. 24, page 1).

The CJ request, reportedly drafted with help from the Defense Technology Security Agency (DTSA), targets one product, the Viper Hand Held Thermal Imaging System model 53-1000, which is distributed by Cairns Advanced Technologies and made by its parent firm, Diversified Optical Products.  The Viper is sold to firefighters and rescue squads.  The request has raised concerns about the competitive disadvantage facing one of many makers of these cameras, while also portending tougher controls for other so-called firecams (see story below).

Apparently reacting to this Defense end run of the Clinton-era executive order that was supposed to settle interagency licensing disputes, the Bureau of Export Administration (BXA) intends to escalate the fight over night vision exports up the political ladder.  "The time is really ripe for us to engage the State and Defense departments at the policy-level and not just deal with it through the licensing process," BXA Deputy Assistant Secretary Matthew Borman told the Sensors and Instrumentation Technical Advisory Committee (SITAC) Feb. 12.

"There have been a number of complications in the processing of night vision and thermal imaging export license applications going on several years, but in the last year, it has been exacerbated," Borman explained.   Over the next few weeks, BXA will draft a policy paper to take to the other agencies to address the issues of jurisdiction and licensing, he indicated.

The CJ request for the Viper came about the same time State issued a separate CJ on another thermal imaging device used for performing metal stress analysis of aircraft components.  BXA staffers at the SITAC meeting said they weren't aware of item's shift to ML from CCL.
 

MAKER OF NIGHT VISION PRODUCT FIGHTS PENTAGON OVER JURISDICTION

Cairns Advance Technologies isn't ready to bow without a fight to a Defense effort to have its night vision product reclassified as a Munitions List (ML) item.  Cairns has mounted a campaign to get BXA to defend its turf and may also seek congressional intervention (see story above).  Cairns is reacting to a Commodity Jurisdiction (CJ) request the Pentagon's Joint Chiefs of Staff (JCS) filed in December with State, asking for the firm's Viper Hand Held Thermal Imaging system to be moved from the CCL to the ML.  Thermal imaging products were moved to the CCL from the ML in September 1994 as part of an effort to harmonize U.S. export control lists with the Wassenaar Arrangement list (see WTTL, Sept. 19, 1994, page 4).

"We believe that this action raises a wealth of critical procedural issues in addition to the clear technical issues which have mandated BXA jurisdiction over the Viper for so many years," wrote Donald Weadon of Weadon & Associates, attorneys for Cairns, in a letter to BXA Assistant Secretary James Jochum.  The request was an improper attempt to set aside the ASEP decision to approve the export of the Viper, Weadon argued.  He claimed Cairns was never informed officially of the request and has been deprived of its due process rights.

"The Viper is state-of-the art in uncooled thermal imaging and has substantial military utility for special forces applications," argued Air Force Brig. General Kevin Chilton, the JCS deputy director for politico-military affairs, in the request to State's Office of Defense Trade Controls.  "DoD is concerned that militarily significant technology, developed and refined in the U.S. is finding its way to foreign actors that can use the technology against U.S. forces," he wrote.

Weadon rebutted the JCS arguments.  "The claim of substantial military utility is an unsubstantiated claim," he told Jochum.  Moreover, mere military utility isn't a reason for classifying a product on the ML, he argued, noting that any suggestion that BXA licensing controls aren't sufficient "needs to be debunked."  Weadon also contended that the JCS position doesn't represent the Pentagon view, since a Defense official supported the ASEP decision.  As far as diversion of the products is concern, the JCS has offered "no evidence or proffer of any evidence that this has or will happen under the unique technical facts of the Viper," he wrote.
 

REAL PRODUCT CHALLENGES BXA ON FOREIGN AVAILABILITY

Don't confuse BXA with evidence when it has legal theory on its side.  The agency's decision in November to reject a foreign availability certification for night vision products, because it failed to meet legal criteria, looked kind of foolish when an executive of a night vision firm brought an operating, made-in-China thermal imaging camera to BXA's Sensors and Instrumentation Technical Advisory Committee (SITAC) meeting Feb. 12.  The camera was passed around and used by SITAC members, as well as officials from BXA, State and Defense.

A representative of FLIR Systems said he acquired the camera in November from China's Guangzhou SAT Infrared Technology Co.  The SAT HY 6000 uses a French-made uncooled focal plane array and is distributed outside of China by an Australian firm, he told WTTL.  The camera is used to inspect power lines, but also may be used by firefighters, according to Guangzhou marketing material.  The Chinese claim their device is comparable to FLIR's Thermovision camera.

EU IS DUE MILLIONS NOT BILLIONS FOR FSC, U.S. SAYS

The U.S. and European Union (EU) have presented a World Trade Organization (WTO) arbitration panel with two opposing theories of how to evaluate the amount of retaliation the EU is entitled to take against the U.S. for WTO-violating Foreign Sales Corporation (FSC) tax rules.  They also submitted different sets of numbers to which those theories should be applied.  Depending on which argument the panel adopts, the decision could be the difference between a tremendous problem for the U.S. versus just a big one.

The bottom-line difference between the two submissions is an American claim that the EU is entitled to only $956 million in countermeasures, while the EU contends that figure is $4.043 billion (see WTTL, Feb. 11, page 2).  The U.S. gets to its number by starting with a different baseline calculation of the entire value of the FSC.  It extrapolates Internal Revenue Service numbers from 1996, the last year for which FSC data are available, and comes up with a total of $3.89 billion v. the EU estimate of $4.043 billion.  Then it subtracts all trade not subject to WTO subsidy rules, including services, and reaches a value of $3.567 billion.

Washington's proposed model for calculating retaliation, spelled out in a brief submitted to the panel Feb. 14, claims the "appropriate" level of counter-measures is limited to the European Communities' (EC) share of global trade and not the entire amount of subsidy attributed to FSC.  Since it is not possible, the U.S. argues, to calculate all the trade effects of the FSC subsidy on domestic business in the EC and on EC exports to third countries, it proposes a novel approach.  "A logical proxy for the EC's share of the global trade effect of the subsidy is the EC's share of global goods production," the U.S. brief contends.

Furthermore, the total amount of EC goods production worldwide needs to be adjusted to subtract EC exports to the U.S., since that trade doesn't compete with U.S. exports, the U.S. asserts.  In addition, the denominator of global production needs to be reduced by the level of all other exports to the U.S. and U.S. production.  Using World Bank data, the U.S. thus determined that EC's share of affected global production is 26.8%.  Pressing the equal button on their calculators, USTR economists then reached the $956 million number.

In addition to this massaging of data, the U.S. brief reveals the extent to which parties in WTO disputes are now turning to the "negotiating history" of the Uruguay Round, just as U.S. courts turn to the legislative history of American laws, to interpret the black-letter text of the agreement.

The brief notes several proposals and counter proposals submitted during negotiations on Subsidies and Countervailing Measures (SCM) agreement.  It cites submissions from Switzerland and Australia as establishing the premise that retaliation should be proportional to the amount of trade lost by the complaining party and not the total amount of the subsidy.

Simon Lester of WorldTradeLaw.Net notes that WTO panels tend to relay on precedents set by other panels in reaching their decisions.  But the issue of retaliation for an illegal subsidy has been address only once before in a WTO case involving a Canadian complaint against Brazil's export subsidies for commuter-line airplanes, Lester pointed out.  The panel in that case allowed Canada to take retaliation for the full amount of the subsidy.  That situation may have been unique, since Brazil and Canada are the only two countries that produce those planes.
 

PANEL BLASTS DELAY IN MUNITIONS LIST LICENSING REFORMS

State, Defense and Commerce officials got a liplashing Feb. 12 from members of a congressionally established commission examining the future of the U.S. aerospace industry.  The explanations given by the officials for the delay in implementing State's 2000 Defense Trade Security Initiative (DTSI) was called a "dog-ate-my-homework" excuse by commission member John Douglass, who is president of the Aerospace Industry Association.

The problem of export controls is just one of the issues the commission is examining, but it drew the most heat during its one-day hearing.  Commission members have proposed several long- and short-term solutions to the export issue.

Commission member John Hamre, who was deputy secretary of Defense in the Clinton administration, said a long-term solution would be to do away with case-by-case licensing and adopt  an auditing process that would inspect export control systems of companies.  Such an approach would be modeled on the quality assurance methods used to build airplanes, he suggested.  Hamre, who is now president of the Center for Strategic and International Studies, questioned the efficiency of the current approach where 3,000 people prepare 45,000 ML license applications a year for review by 30 State employees who deny only 1% of the cases.

William Schneider Jr., who was under secretary of State in the Reagan administration and now chairs the Defense Science Board, recommended several short-term steps to get DTSI back on track.  He urged State to revive talks with Australia and the United Kingdom on an agreement to exempt them from ML licensing requirements; update country risk surveys that are more than a decade old; accelerate implementation of an electronic licensing system and implement the global/project license proposed in DTSI.  Commissioners also called for the agencies to speed up their ML review, which was supposed to lead to the shift of nonsensitive products to the CCL.  Some candidates for a move have already been identified but the change has been held up by continuing interagency turf fights, commissioners complained.
 

 * * * BRIEFS * * *

CANADIAN WHEAT: As expected (see WTTL, Feb. 11, page 3), USTR Robert Zoellick Feb. 15 rejected North Dakota Wheat Commission's (NDWC) request for imposition of tariff-rate quota on wheat from Canada.  In ruling on Section 301 investigation, Zoellick said he found Canadian Wheat Board to be monopoly that "undermines the integrity of our trading system."   Instead of trade sanctions, Zoellick said he will "examine the possibilities" of seeking WTO dispute-settlement and will talk to industry about filing antidumping and countervailing duty complaints.  USTR officials have already spoken to Canadians about holding bilateral talks on issue.  NDWC tried to put good face on disappointing ruling, saying Zoellick's support "is an important milestone."   But North Dakota lawmakers, all Democrats, Sens. Kent Conrad and Bryan Dorgan and Rep Earl Pomeroy criticized ruling. "Today's announcement is unacceptable. We don't need more investigations, we need action," Conrad said.

ANDEAN DUTIES: Customs in Feb. 15 Federal Register said importers of goods that were duty free under Andean Trade Preferences Act, which expired Dec. 4, may defer payment of estimated duties until May 16, by which time it is hoped law will be restored.

SPECIAL 301: USTR's office Feb. 12 announced results of "out-of-cycle" review of intellectual property rights protection in Bahamas and Slovenia.  Bahamas was placed on "Watch List" for its failure to improve copyright protections.  Slovenia stays off Watch List because it has restored protection for confidential test data submitted by pharmaceutical companies seeking marketing approval.

URUGUAY: U.S. and Uruguay have agreed to establish Joint Commission on Trade and Investment.

BEARINGS: American Bearing Manufacturers Association Feb. 13 filed antidumping complaints at ITC and ITA against imports of ball bearings and parts from China.

SOFTWOOD LUMBER: U.S. and Canada will make another attempt to hold talks week of Feb. 18.

MEXICO: U.S. Feb. 13 reinstituted its WTO complaint against Mexico's failure to open its cross-border telecommunications market as required under WTO's Basic Telecommunications Agreement.  U.S. had withdrawn complaint filed in 2000 because there seemed to be progress in bilateral talks.

SINGAPORE: USTR Robert Zoellick has asked ITC to conduct fact-finding investigation to determine economic impact of free trade agreement with Singapore.

TARIFFS: Looking ahead to Doha Round and FTAA, USTR Zoellick Feb. 11 asked ITC to conduct two studies to evaluate economic impact of eliminating U.S. tariffs that are 5% or less and reducing all other tariffs by 50% and benefits for U.S. exporters if other countries dropped their tariffs.

ENRON: In reply to Senate Finance Committee request, Export-Import Bank said it made $650 million in loans to Enron-related business between 1993 and 2000.  U.S. Trade and Development Agency told committee it provided $1 million in aid to Enron activities from 1992 to 2001 (see WTTL, Feb. 4, page 3).

ITC REPRIMAND: ITC in Feb. 15 Federal Register issued public reprimand of Morrison & Foerster law firm for breaching administrative protective order in handling of business confidential materials in Section 337 patent-infringement case involving plasma liquid display panels.

EXPORT ENFORCEMENT: BXA has reached settlement agreement with Federal Parts International of Norcross, Ga., to settle allegations that on four occasions in 1996 firm made false statements of material fact in exporting or attempting to export auto parts to Iran.  Company agreed to pay $50,000 civil fine and have its export licensing privileges suspended for 10 years.

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.