Volume 22, No. 8 -- February 25, 2002

Posted Monday, February 25, 2002 12:00 am

STATE MAKES MORE PROMISES OF MUNITIONS LICENSING REFORM

A State official has outlined a list of reforms the department is weighing to improve the processing of the 47,000 Munitions List (ML) export applications it receives annually, but offered no specific changes being made immediately to ease the licensing burden. "My staff and I are examining a large and growing list of specific ideas relating to our export licensing procedures," Assistant Secretary of State Lincoln Bloomfield Jr. told a conference in Washington.

Most of the improvements made in State's handling of licenses under the Inter-national Traffic in Arms Regulations (ITAR) has come from an infusion of people and funds Congress has appropriated in the last three years, he admitted. That extra support has helped speed the median processing time for licenses reviewed only at State to eight days in 2001 v. 15 days in 1999. For cases requiring interagency review, the median time has dropped to 58 days from 76 days.

One goal of State's Office of Defense Trade Controls (ODTC) is to improve the information technology (IT) element of the licensing system, said Bloomfield, who heads State's Bureau of Political-Military Affairs. "We have to validate our process before enabling them with IT systems," he said in his prepared speech. Other steps being considered include improvements in end-use monitoring, a review of the commodity jurisdiction process, a change in the dollar value of exports requiring congressional notification and closer work with Customs.

Bloomfield conceded the Defense Trade Security Initiative (DTSI) has had "mixed results." He said he favors a suggestion to narrow DTSI's focus to facilitate transfers to NATO allies of war-related items. DTSI will get tested as work goes forward on the Joint Strike Fighter. Responding to criticism of the slowness in updating the ML, Bloomfield said he expects "to move the whole process more expeditiously from here on" (see WTTL, Feb. 18, page 3).

VIEWS SPLIT ON RUSSIA'S TRANSITION TO CAPITALISM

Like the proverbial elephant and 10 blind men, observers of Russia's shift from communism to capitalism have widely differing views of how far those changes have gone. In a second round of comments to Commerce, supporters and opponents of dropping Russia's status as a non-market economy (NME) under U.S. trade law present conflicting opinions about that shift (see WTTL, Jan. 28, page 2). Both sides, however, appear to have given the department enough ammunition to support a decision in either direction.

Lockheed Martin contends its experience in the commercial satellite launch business in Russia demonstrates the progress the country has made toward free enterprise. "In almost a decade of work with our partners in Russia, we have witnessed a remarkable transformation: a wholesale change from a state instrumentality that existed for the sole purpose of providing aerospace products...exclusively for the use of the government of Russia, to a commercially managed and market-oriented business operating successfully in an intensely competitive global market," the firm argues.

A joint filing by several Russian steel manufacturers and the Russian Economics Ministry attached a four-inch stack of new Russian laws and regulations, along with commentary on the Russian system by non-Russian sources. The Russians claim these legal changes meet the criteria in U.S. trade law for shifting a country from NME status to market-oriented status, a major factor in how Commerce's International Trade Administration (ITA) makes its findings in antidumping and countervailing duty cases for such countries.

They also assert that argument raised by opponents to the change "are marred by frequent and pervasive factual inaccuracy." In some cases, that information was outdated and does not reflect legislation adopted since Vladimir Putin became Russia's president, they contend. In other instances, the facts "while accurate, are taken out of context," they write.

The U.S.-Russia Business Council echoes these arguments, while noting real business changes in Russia that support a modification of its status. For example, regarding the convertibility of the ruble, it notes that it is "precisely because of the lack of exchange-rate volatility in the past two years that there no longer exists a black market for currency in Russia."

Opposition to ending Russia's NME status comes mainly from steel firms and industries that have antidumping orders against Russian imports. Making progress toward becoming a market-oriented economy doesn't meet the six-criteria in the law for being a market-oriented economy, claim lawyers for these sectors from Dewey Ballantine and Skadden Arps. "The department itself has recognized that the statutory issue when examining an NME is whether functioning markets are in place, not whether substantial reform has occurred," they argue.

SUSPENSION OPTION RAISED IN SOFTWOOD LUMBER TALKS

The U.S. lumber industry is sending favorable signals in reaction to trial balloons that have been floated about a possible interim suspension agreement to maintain price levels on softwood lumber from Canada as talks continue on a long-term settlement of the pending antidumping and countervailing duty cases on those imports. Such an approach is getting a weary eye from lawyers for Canadian exporters because of questions about its statutory basis as well as fears that it would put the U.S. Coalition for Fair Lumber Imports in an even stronger position to dictate the resolution of the bilateral dispute.

U.S. and Canadian officials held more talks on lumber Feb. 19, with little progress reported. Industries on both sides of the border, however, were pleased the talks were elevated up the political ladder, with Deputy U.S. Trade Representative Peter Allgeier and Canadian Deputy Trade Minister Len Edwards leading them.

The statutory deadline for proposing a suspension agreement, which is 30 days before Commerce's final order is issued, came and passed on Feb. 19. But a Coalition attorney said a suspension agreement could still be reached with shorter advance notice if the domestic petitioners don't object. A suspension agreement would probably require establishment of a trigger-price mechanism to be sure import prices don't fall below an agreed level, as well as some sort of export tax to recoup the alleged subsidies given to the Canadian lumber industry.

While an interim suspension deal may not be the route chosen, negotiators will need to find some way to manage cross border lumber trade, if an agreement is reached on long-term reforms of the Canadian lumber system. A solution would need to control Canadian lumber prices and volume at levels that would give relief to U.S. producers, while not cutting off the U.S. market for the Canadians. Some elements in Canada, however, want to take their chances with the final International Trade Administration ruling on dumping and countervailing margins and the final International Trade Commission ruling on injury and then fight the case through a NAFTA binational dispute panel and World Trade Organization (WTO) dispute settlement.

TRADE FIGURES REFLECT SLOW ECONOMY IN U.S. AND ABROAD

China was the only bright spot for U.S. exporters in a sea of negative trade figures in 2001, as foreign markets followed the U.S. economy into a broad slowdown, according to preliminary 2001 trade data released by Commerce Feb. 21. Exports to China were up nearly 19%, while shipments to other major trading partners declined across the board. The trade figures mirror the business and stock market headlines for the whole year: Japan and Asian economies hurt by slower exports; high tech and telecommunications industries crash; U.S. consumer markets hold up despite industrial decline; oil prices plunge.

While U.S. merchandise exports overall declined almost 7% from 2000, exports to Latin and Central America held up better than expected, declining less than 2%. Trade with Germany also remained strong, running counter to the rest of the European Union (EU).

Trade in services didn't escape the damage suffered by the goods sector. Services exports for 2001 were $289.9 billion, down nearly 4% from 2000. Services imports declined almost 7% from the year earlier to $202.6 billion.

Trade figures may support the arguments of foreign steel producers that U.S. imports have already declined substantially and don't need further restrictions. Steel imports dropped 21%, Commerce reported. The preliminary duties imposed on Canadian lumber imports didn't seem to cut as much wood trade as expected, with imports for the year off only 3% from the year before While both imports and exports declined last year, the import drop was bigger in total dollars, so the deficit in goods and services declined to 3.4% of GDP from the record 3.8% the year before. The smaller deficit in the last quarter of the year is expected to lead to an upward revision of U.S. GDP for the period.

MISSILE TECH CODE DRAWS BROAD INTERNATIONAL INTEREST

Any proposal that can bring India and Pakistan to the same meeting to discuss controls on missile proliferation has to be considered positive. It could also mean the proposed Code of Conduct (ICOC) Against Ballistic Missile Proliferation, drafted by members of the Missile Technology Control Regime (MTCR), is so watered down that it poses no threat to the missile activities of those countries or any of the other non-MTCR members who met in Paris Feb. 7-8.

India and Pakistan were among 78 countries that came to the meeting to discuss the draft code, which is intended as a baseline commitment -- less stringent than the MTCR -- from countries to prevent the proliferation of missiles and missile technology to countries that don't already possess such capabilities. In addition to the 33 MTCR countries that attended the meeting, there were 45 non-MTCR nations represented. Also attending were officials from China, Cuba, Belarus, Bulgaria, Iran, Indonesia, the Philippines.

MTCR members drafted the ICOC with the hope of "universalizing" certain principles related to missile proliferation without requiring signatories to adopt the same level of export controls as MTCR countries (see WTTL, Jan. 14, page 1). In addition to these broad principles, the draft ICOC includes general commitments against proliferation and "modest confidence building measures," a State spokesman said. French officials who hosted the meeting are suppose to consolidate the comments presented at the session and propose any changes that might be needed and what should happen next. U.S. officials say they are waiting for this French report. Representatives from the European Union (EU) offered to host the next set of talks on the ICOC, but no date has been set for that session.

* * * BRIEFS * * *

AFRICA: With eye on Democrats in House who might swing their votes in favor of fast track, USTR Robert Zoellick picked up pace of discussions about possible free trade agreement with South African Customs Union during his visit to Botswana, Kenya and South Africa week of Feb. 18. After talks with trade ministers from SACU countries, Zoellick told reporters: "All parties agreed over the past days that we would explore an FTA further." Talks are still in exploration stage, he said. SADU trade ministers will hold talks among themselves first on proposal. "Then we'll meet together and, if warranted, begin technical discussions," Zoellick said.

CIT: Court of International Trade will hold special session March 5 to honor late judges James Watson and Herbert Maletz. Details from CIT at 212-264-2800.

JAPANESE STEEL: WTO arbitrator has ruled that Nov. 23, 2002 is reasonable period by which U.S. must comply with earlier dispute-settlement panel decision that said U.S. violated WTO rules in antidumping order on hot-rolled steel from Japan. U.S. claimed it needs time to amend antidumping law provisions on calculation of "all other" rate in such cases and also to have ITA issue new ruling. Meanwhile, USTR Feb. 22 published notice calling for public comment on separate request Japan has made for dispute-settlement consultations over "sunset review" ruling on corrosion-resistant carbon steel from Japan.

FITTINGS: Anvil International and Ward Manufacturing filed antidumping petitions at ITA and ITC Feb. 21 against imports of nonmalleable cast iron pipe fittings from China.

STAINLESS BARS: ITC Feb. 20 made final determination on 5-0 vote that dumped imports of stainless steel bar from France, Germany, Italy, Korea and United Kingdom are injuring U.S. industry, as well as subsidized imports from Italy.