Volume 23 No. 1 -- January 6, 2003

Posted Monday, January 6, 2003 12:00 am

In This Issue:

* U.S.-Mexico Seeking Safeguard Deal to Limit U.S. Poultry Exports
* Hughes, Boeing Take Hard Stand Against State's Charges
* Exporters Want Assurances on Deemed Export Investigations
* Two CIT Judges Agree "Likely" Means "Probable" in Sunset Reviews
* U.S. Acts to By-Pass Deadlocked WTO TRIPS Talks on Drug Patents
* Briefs: Export Enforcement, CSI, Textiles, WTO, Oil, Insulators

U.S.-MEXICO SEEKING SAFEGUARD DEAL TO LIMIT U.S. POULTRY EXPORTS

After a New Year's week break, U.S. and Mexican officials are expected to resume consultations on Mexico's possible imposition of safeguard restrictions on imports of certain cuts of U.S. poultry. The talks, which began in October, have been spurred by protests conducted by Mexican chicken farmers who fear that the elimination of all tariffs on poultry Jan. 1 will lead to a surge in cheap imports from the U.S.

"As the tariffs go to zero under NAFTA, Mexico has some options to protect its industry which they can invoke," said a statement by U.S. Trade Representative (USTR) press secretary Richard Mills. "At the urging of our domestic industry, we are discussing with Mexico ways to keep American poultry exports to Mexico at current or improved levels," he added.

The talks have carefully avoided proposals to suspend the NAFTA tariff-cutting schedule for this one product category. Such a deal that would "suggest NAFTA wasn't perfect," one source noted. Moreover, Mexico has developed a trade surplus with the U.S. in agriculture goods since NAFTA went into effect and would be hard pressed to demand relief for one product while some U.S. farmers have similar complaints against Mexican goods.

U.S. officials would prefer to have Mexico use a safeguard measure instead of going the anti-dumping route, because antidumping decisions lack certainty, reduce trade and can be imposed for longer periods, the source explained. A safeguard action must meet both WTO and NAFTA rules, would have a limited duration and would require an increase in trade during its term. In addition, the U.S. can seek immediate compensation under NAFTA rules for any lost trade.

The talks are aimed at limiting the safeguard action to "dark meat" cuts of chicken, which appear to be the main concern of Mexican farmers. U.S. consumers prefer light meat cuts, so there is a surplus of dark meat for export. The more narrow the product category can be defined, the smaller will be the impact of any trade action, one source explained.

HUGHES, BOEING TAKE HARD STAND AGAINST STATE'S CHARGES

Hughes Electronics and Boeing apparently are tired of being political footballs in the Washington anti-China trade game and are fighting charges that they illegally transferred missile technology to Beijing in the 1990s. Rather than reaching a consent decree with State, as Loral did early in 2002, Hughes and Boeing continue to claim they are innocent of the charges after four years of negotiations with the department (see WTTL, Jan. 14, 2002, page 3).

As a result, State Dec. 26 formally charged the two firms with 123 counts of violating the International Traffic In Arms Regulation (ITAR), and they will now go through an administrative hearing process. Boeing was dragged into the case in October 2000 when it acquired Hughes Space and Communications from Hughes Electronics, a subsidiary of General Motors.

Hughes Space was involved in several launches of commercial communications satellites in China during the 1990s and particularly the investigation of launch failures. Cooperating with the Chinese in these investigations and providing them with the results are the heart of State's charges against the companies.

The two firms may be willing to fight State because "Hughes and Boeing have more political clout than Loral," one trade observer noted. "They are too big and too important to shut down," he added. Moreover, Boeing probably doesn't want to accept the intrusive conditions, including the hiring of an outside special compliance officer to oversee its exports, as Loral did, the trade expert speculated.

The companies are jointly fighting the charges, but as part of the acquisition deal, Hughes Electronics retained responsibility for resolving the dispute and liability for any fines that might come if they lose their battle. The imposition of any export sanctions, if they lose, would be up to State, but are likely to hit Boeing's satellite division harder, since Hughes Electronics is out of that business.

The facts behind the launch-failure investigations and the alleged injury to national security they caused were well documented in a 1999 congressional report by the so-called Cox Commission. Even before the report came out, congressional hearings on the technology transfers had prompted Congress to mandate the transfer of licensing authority for commercial satellites to State. But throughout the 1990s, licensing jurisdiction shifted in varying increments between State and Commerce, causing some of the confusion that led to the violations.

As late as Dec. 3, 2002, Randall Turk of Baker & Botts, lawyers for Hughes and Boeing, was writing to State to argue that Hughes Space didn't violate export controls because no license was required for the investigation into the failure of the APSTAR II satellite launch. The Cox Committee report had detailed how Commerce licensing officer Gene Christiansen had issued a commodity classification letter to Hughes saying the information in the failure report contained no design or production data, which would have required a license.

"The respondents have repeatedly asserted throughout this investigation that none of their conduct in any of the matters touched on in this charging letter qualifies as a ‘defense service' either because it excluded technical data (in their opinion) or because it is constitutionally protected speech," State's letter noted. The firms argued that Commerce was "well within its authority" to approve release of the launch failure material, State reported.

"However, the record indicates the respondents knew that the APSTAR II launch failure investigation was properly within the coverage of the ITAR and, hence, required Department of State approval; in any case, the Department of Commerce has said it erred in that matter," State said. [Editor's Note: A copy of State's 32-page charging letter will be sent to WTTL subscribers on request.]

EXPORTERS WANT ASSURANCES ON DEEMED EXPORT INVESTIGATIONS

Among the continuing concerns of exporters about "deemed export" licensing requirements, the latest industry worry has focused on plans by the Bureau of Industry & Security (BIS) to begin conducting post-licensing inspections of license holders to make sure they are complying with the conditions in their licenses. In recent meetings and correspondence with BIS officials, industry representatives have questioned whether the BIS investigators who will conduct these audits have the technical expertise to determine whether licensed foreign nationals are working within the parameters set as conditions for the license approvals.

After a General Accounting Office (GAO) report criticized BIS for not adequately checking on exporter compliance with deemed export conditions, the agency promised to step up such inspections. BIS officials have recently told industry groups that they are planning audits to examine company technical control plans and to determine how firms are complying with license conditions.

In addition to the issues BIS would normally examine during such audits, BISers say they will be looking at things that other licensing agencies also want reviewed. There is speculation that BIS may speed up these inspections in anticipation of hearings Congress likely to hold in 2003 on the GAO report, as well as the full gamut of export control issues, as part of its attempt to write a new Export Administration Act (EAA).

Exporters are concerned that these inspections will be conducted by staff from the BIS office of export enforcement (OEE) or field offices. These staffers often don't have the technical expertise that licensing officers in the Office of Export Administration (OEA) have, one executive noted.

Even if licensing officers can't conduct the audits, industry representatives have asked BIS for assurance that OEE investigators will get training on the technology they will be inspecting. "What we are urging is that whoever they send out has some technical background or briefing from OEA," one executive told WTTL (see WTTL, Dec. 9, page 3).

TWO CIT JUDGES AGREE "LIKELY" MEANS "PROBABLE" IN SUNSET REVIEWS

A host of International Trade Commission (ITC) "sunset" review determinations on old antidumping and countervailing duty orders remain susceptible to challenge because of the commission's continuing loose interpretation of the word "likely." Two Court of International Trade (CIT) judges, Jane Restani and Richard Eaton, in December issued opinions remanding cases back to the ITC for reconsideration, in part, because the commission didn't follow previous court rulings that have tried to establish the standard for determining if injury is likely to recur when a trade order is revoked in a sunset review case.

Eaton's decision (Slip Op. 02-153) -- on an ITC remand determination from an earlier challenge of its sunset review of grain-oriented silicon steel from Italy and Japan -- faulted the commission for continuing to claim likely could mean "possible." "The court finds that likely means probable within the context" of the Uruguay Round Agreements Act (URAA), Eaton wrote. "Although the word likely is not defined in the statute, its meaning is not ambiguous," he stated.

Restani has previously ruled on the definition of likely and reaffirmed her position in another challenge of an ITC remand determination (Slip Op. 2-152). The ITC interpretation also has been criticized by WTO panels (see WTTL, July 8, page 2). In a case involving steel imports from 17 countries, Restani recalled, "The court determined that the statute was clear and that the term should be given its ordinary meaning, i.e., probable, upon remand." In another part of her ruling, she upheld the ITC's determination that creation of the European Union's "single market" was not likely to change significantly the pattern of steel exporting by EU members.

U.S. ACTS TO BY-PASS DEADLOCKED WTO TRIPS TALKS ON DRUG PATENTS

The U.S. has offered the developing world a hefty incentive to back Washington's position in World Trade Organization (WTO) negotiations on new rules for the use of compulsory licenses for patented pharmaceuticals. On Dec. 20, as the WTO talks collapsed in Geneva, the U.S. announced a unilateral plan to allow the world's poorest nations to issue compulsory licenses for patented drugs to treat major health epidemics without the U.S. taking them to the WTO.

Most of these countries already are exempt until 2016 from WTO rules on Trade Related Intellectual Property Rights (TRIPS) for patented drugs, so the U.S. gesture provides only limited new benefits to them. Its most important provision will allow poor countries without any drug production capability to import needed drugs from third countries.

The U.S. move appears to be aimed to undercutting the arguments of WTO critics who claim the TRIPS rules block poor nations, especially in Africa, from obtaining drugs for HIV/AIDs. By addressing this lightening rod issue, Washington can go back to the talks less vulnerable to charges that it is defending rich drug companies against poor AIDS victims.

Ever since the Doha Ministerial, WTO negotiators have been trying to reach a deal to implement the ministers' decision to make it easier for developing countries to use the compulsory licensing provisions of TRIPS for major diseases (see WTTL, Nov. 18, page 3). The talks have been deadlocked by demands from countries such as Brazil, China and India, which want to expand the medical conditions covered by the new rules and to broaden the list of countries eligible to apply them.

At Doha, ministers identified HIV/AIDS, tuberculosis, malaria and other types of infectious epidemics that might arise in the future as examples of diseases the new rules should cover. The U.S. had argued that the new agreement should be limited to these types of epidemics, although not just these illnesses. The claim that the U.S. only wanted to cover three diseases was a "misimpression," argues Shannon Herzfeld, vice president of Pharma, the drug industry trade association. "That was never the intention," she says.

Countries with large generic drug industries, which would be likely suppliers of drugs under compulsory licenses, claimed the list should include other major health conditions, including heart disease, cancer, and even impotence. Leading up to the last round of talks, the U.S. agreed to support expanding the list to include ebola, African trypanosomiasis, cholera, dengue, typhoid and typhus fever. The new U.S. policy covers these additional diseases.

The WTO talks were supposed to conclude by the end of 2002, but the last negotiating session, which ended Dec.20, saw the gap in positions unbridged. The chairman of the talks, Jamaica's WTO Ambassador Ransford Smith, suspended negotiations, which may resume in February.

* * * BRIEFS * * *

EXPORT ENFORCEMENT: BIS has reached consent agreement with Realtek of Hsinchu, Taiwan, under which firm will pay $44,000 civil fine to settle charges that it attempted to purchase U.S.-origin air conditioning equipment and computer software despite being subject to 1995 export denial order. BIS also imposed but suspended two-year denial of export privileges.

CSI: In response to European Commission complaint against U.S. negotiating Container Security Initiative (CSI) agreements with selected ports in EU, Customs says it will expand arrangement to 11 more European ports.

TEXTILES: USTR Robert Zoellick has asked ITC to conduct Section 332 "umbrella" study to examine how it applies "commercial availability" standard in petitions to CITA for exemptions from quota rules.

WTO DECISIONS: In mandatory report to Congress Dec. 30 on WTO dispute-settlement process, Commerce provided score card on 60 cases Washington has brought against other countries and 70 complaints against U.S. trade actions. It also cited cases where it has disagreed with panel and Appellate Body decisions. "In particular, the executive branch views with concern the manner in which WTO panels and the Appellate Body have applied the applicable standard of review in disputes involving U.S. trade remedy and safeguard matters," report declared.

DOMESTIC OIL: Acrimonious court battle over ITA decision not to initiate antidumping and countervailing duty cases against oil imports may be near end. CIT Judge Donald Pogue Dec. 17 upheld ITA's remand determination, which better justified finding that petition wasn't supported by most of domestic industry (Slip Op. 02-150). In case brought by Save Domestic Oil coalition, Pogue also sustained ITA's decision not to exclude firms that opposed petition because they import oil (see WTTL, April 1, page 3).

POST INSULATORS: Three U.S. producers and IUE division of Communications Workers of America filed antidumping complaints Dec. 31 at ITC and ITA against imports of post insulators from Japan.

FAST: Joint U.S.-Canada Free and Secure Trade (FAST) program, which is intended to speed border crossing for shippers participating in C-TPAT, went into operation Dec. 23 at three border ports: Detroit/ Windsor, Ont.; Port Huron, Mich./Sarnia, Ont.; and Buffalo/Fort Erie, Ont.

EDITOR'S NOTE: All back issues of Washington Tariff & Trade Letter for 2002 (Volume 22) are now available in electronic form without charge at www.WTTLonline.com.