Volume 23 No. 16 -- April 21, 2003

IN THIS ISSUE:

* Effort to End Iraq Sanctions Faces European Opposition
* Bushnell Paying $873,000 in Fines for Night Vision Exports
* U.S. Will Look to Canadian Experience to Weigh FSC Proposal
* House Staff Hold Up Safeguard Rules for Chinese Imports
* Accord Will Limit Vietnamese Textile Exports to U.S.
* Briefs: Export Enforcement, OFAC, Irish Music, WTO
 

EFFORT TO END IRAQI SANCTIONS FACES EUROPEAN OPPOSITION

In one of the ironies of the Iraqi War, three countries often accused of lax enforcement of export controls on Iraq in the past are trying to block a U.S. call for quick removal of sanctions on Baghdad.  France, Germany and Russia, with European Union (EU) backing, have said they want to delay lifting the sanctions until the U.N.'s role in Iraqi reconstruction efforts is clarified.  They expressed their position after President Bush April 16 said, "Now that Iraq is liberated, the United Nations should lift economic sanctions on that country" (see WTTL, April 14, page 1).

The U.S. wants to end current restrictions that require all trade with Iraq to go through the U.N.'s Oil-for-Food, program, explained State spokesman Richard Boucher.  Sanctions "that prohibit countries from buying or selling goods to Iraq other than through the Oil-for-Food program will not be needed," he said.  State April 15 issued new rules easing passport restrictions for travel to Iraq.

In the supplemental war-funding bill (H.R. 1559) passed by Congress April 12 and already signed by the president, lawmakers authorized the president to suspend the Iraq Sanctions Act of 1990 through Sept. 30, 2004.  The new authority doesn't apply to the Iran-Iraq Arms Non-Proliferation Act of 1992.  With his new authority, President Bush could -- after notifying Congress in advance --  allow BIS licensing of items on the Commerce Control List (CCL) and State licensing of nonlethal military items subject to the International Trafficking in Arms Regulation (ITAR).

BIS will have to provide a report to Congress every 90 days containing a summary of all licenses approved under this waiver, including the identification of the end users of such items.  State will have to notify Congress five days before any approved export of nonlethal Munitions List items to Iraq.  The secretary of State also will be authorized to identify other, specific ML items that could be approved for sale to a reconstituted or interim Iraqi military or police force.
 

BUSHNELL PAYING $873,000 IN FINES FOR ILLEGAL NIGHT VISION EXPORTS

Ignoring legal and government advice on licensing requirements for night vision products has cost Bushnell $873,000 in criminal and civil fines in a plea agreement it reached with the U.S. Attorney's Office.  Under the deal in the D.C. U.S. District Court, Bushnell, which is the trading name for Worldwide Sports & Recreation, Inc., pled guilty April 16 to a two-count information, charging it with exporting 500 Night Ranger night vision products to 15 countries without approved licenses from 1995 to 1997.  It will pay a $650,000 criminal fine, and in a separate agreement with the Bureau of Industry and Security (BIS), it agreed to pay a $223,000 civil fine.
The firm will be on probation for five years.

A Justice Department release claims Bushnell in 1994 was informed by the supplier of the night vision components for its binoculars that the equipment was subject to comprehensive licensing requirements.  It received the same advice from its own lawyers.  In 1996, Commerce also told Bushnell the products required validated licenses and weren't eligible for License Exception General License Value for low-value shipments.

Bushnell did obtain licenses for five of 11 shipments it made directly to customers overseas, but not for the others, including shipments directly to Japan and to a "friend company" of the Japanese firm in the U.S. Justice said Bushnell made 11 shipments of 471 Night Ranger binoculars and minoculars to Japan, with a value of $300,000, without validated licenses.

"With regard to shipments made to other countries, a Bushnell mid-level manager in the international sales department told her staff that low-value shipments of Night Rangers under $3,000 could be shipped internationally without an export license," Justice said.  "Even after the Commodity Classification was received and distributed to the international sales department, which classification explicitly stated that an export license was required for all shipments and that no exception applied, Bushnell continued to ship Night Rangers without an export license," it stated.

As part of the plea agreement, the U.S. Attorney agreed not to seek criminal charges against any individuals in the company, including any former or current corporate directors, officers or employees.  The plea agreement notes that under U.S. Sentencing Guidelines, Bushnell's actions could have been classified as either a Level 22 offense, which could have brought a $1.2 million fine for each count, or Level 14, which carries an $85.000 penalty. [Editor's Note: A copy of the Justice release and the plea agreement will be sent to WTTL subscribers on request.]
 

U.S. WILL LOOK TO CANADIAN EXPERIENCE TO WEIGH FSC PROPOSAL

U.S. trade officials intend to examine Canada's experience with favorable tax rates for domestic manufacturers to see how similar provisions proposed in legislation (H.R. 1769) introduced by Reps. Phil Crane (R-Ill.) and Charles Rangel (D-N.Y.) might affect the U.S. tax system and international trade obligations (see WTTL, April 14, page 2).   Ottawa reportedly has found some problems with the tax scheme and may be planning to revise it, according to Commerce Under Secretary for International Trade Grant Aldonas.  Administration officials want to understand how the Canadian system has worked before they comment on the Crane-Rangel proposal, he said.

Aldonas stressed that Treasury, which has the lead administration role on the legislation, has not yet taken an official position on the Crane-Rangel bill.  "They're looking at it now," he said April 16.   H.R. 1769 would repeal the current Foreign Sales Corporation (FSC)/Extraterritorial Income Tax (ETI) tax law, and establish new, lower tax rates for firms manufacturing in the U.S. to offset the increase in taxes that FSC/ETI repeal would trigger.

Aldonas indicated that the administration still favors the FSC/ETI legislation that Ways and Means Chairman Bill Thomas (R-Calif.) introduced in the last Congress and is expected to reintroduce in the near future.  The Thomas bill also would have repealed the current FSC/ETI law, which the WTO declared to be an illegal export subsidy, and would have balanced the lost tax breaks by giving new benefits to U.S.-based multinational companies.  His approach, however, doesn't include benefits for firms, such as Boeing and Microsoft, that do most of their manufacturing in the U.S. and used the FSC/ETI rules to reduce taxes on export income.  Boeing and Microsoft reportedly proposed the tax structure in the Crane-Rangel measure.

One of the main attractions of the Thomas bill for the White House is its reform of current Subpart F tax code rules, which multinational companies claim disadvantage them.  The Crane-Rangel bill doesn't address Subpart F problems, Aldonas noted.  "To the extent that this manufacturing tax credit does penalize those companies that are trying to succeed by being globally distributed and therefore succeeding on behalf of manufacturing in the United States, you're going to have serious problems," he said.  "So you have to look at the specifics and say, ‘Does it actually work?'" he added.  Aldonas said he wants to sit down with Canadians to see how similar provisions worked for them; whether they accomplished their goal; and if not, why not.

Aldonas noted that Commerce is working on ways to help the U.S. manufacturing sector but recognizes that global investment may be one way for American firms to succeed.  "You do want to do as much as you can for manufacturing in the United States, but at the same time, you don't want to do it in a way that penalizes those companies that, because their customers have gone global, have to go global as well, which means investment abroad," he said.
 

HOUSE STAFF HOLD UP SAFEGUARD RULES FOR CHINESE IMPORTS

Questions raised by Republican House members and their staffs have forced Commerce to delay publication of rules that would allow the government to take safeguard action against a surge of textile imports from China.  While the lawmakers have some substantive objections to the procedures Commerce wants to publish, their main problem apparently was the department's failure to consult them before it announced plans for publishing an interim final regulation.

Congressional staffers asked Commerce to hold off publication of the rules until members could have a chance to review them.  With the House on its spring recess and not scheduled to return until April 29, publication of the safeguard guidance may be delayed until early May (see WTTL, April 7, page 1).

House Republicans were alerted to possible problems with the anti-surge rules by retailers and importers who have objected to the lack of due process protections in the guidance.  Importers complain that the expected rules follow the current procedures applied by the Committee for the Implementation of Textile Agreements (CITA) to issue "calls" against textile and apparel imports and to tighten quota restrictions.

They claim those procedures are nontransparent and overly favorable to domestic manufacturers.  The procedures in the anti-surge rules don't provide enough time for public comment on petitions seeking the imposition of new quotas on Chinese goods, don't require the details of the petitions to be made public or for an administrative record to be created, and don't allow for judicial review of any safeguard decisions, they contend.

Commerce told the House staffers that "the choices that we made in this are consistent with the treatment of textiles in the past," Commerce Under Secretary for International Trade Grant Aldonas told reporters April 16.  "They wanted to make sure our story was consistent," he added.

"The problem when we go up and talk about this, including the safeguards and how it was envisioned by the people who negotiated it, which wasn't us, was something that mirrored practice on the textile side.  And, of course, when you say safeguard, what everyone thinks about is the [WTO] Safeguards Agreement, which is a very different animal and involves very different standards," he explained.  "The Chinese understand that," Aldonas added.

Despite the last-minute hold up in the publication of the rules, retailers and importers don't expect any major changes to be made in the procedures.  They say they recognize that the safeguard provisions included in the legislation granting China permanent normal-trade-relations status didn't give any specific guidance on how the rules were to be imposed and gave Commerce great flexibility in implementing the safeguard mechanism.  Although there might be a basis for a suit under the Administrative Procedure Act to have the regulation provide more due process to opponents of petitions, one industry source said he didn't expect anyone to be willing to pay for such a challenge because of the cost and the low likelihood of prevailing in court.
 

ACCORD WILL LIMIT VIETNAMESE TEXTILE EXPORTS TO U.S.

At press time April 18, U.S. and Vietnamese negotiators reportedly had reached agreement in principle on a bilateral agreement to impose quotas on textile and apparel imports from Vietnam, but they apparently remained split over when the new quotas would go into effect.  Before the final accord was announced, importers and retailers were voicing concern that the U.S. was seeking to impose the quota effective Jan.1, 2003, instead of allowing for a transition period. They also were objecting to expected provisions that would keep quotas on Vietnamese goods past the end of the global quota system under the Multifiber Arrangement on Dec. 31, 2004 (see WTTL, March 3, page 1).

Importers complain that a Jan. 1 start to quotas would mean the quotas are already half filled and will completely fill shortly.  They wanted a Jan. 1, 2004, start to the restrictions but would compromise with a July 1 launch.  They contend the quota is too small because it is based on February 2002 to February 2003 import data.  That is not a representative period of the trade, because imports started from zero were growing each month, they contend.

One main area of concern for importers and retailers was the expected quotas on two product groups, knit tops (categories 338/339) and cotton trousers (categories 347/348), which account for about half of all apparel imports from Vietnam.  The quotas on the categories will be 14 million dozen and seven million dozen, respectively, one source reported.

There are also objections to the open-end date for termination of the quotas.  The restrictions on imports will stay in place until Vietnam becomes a member of the World Trade Organization (WTO).  This is likely to be beyond December 2004, leaving Vietnam and Cambodia as the only two major apparel suppliers remaining under quotas.

The continuation of the quotas will limit Vietnam's ability to become an alternative to China as a source of apparel imports, one source argued.  He said U.S. officials admit the continuation of quotas on Vietnam after 2004 is intended to protect suppliers in the Caribbean and Mexico rather than U.S. manufacturers.  "That is pretty disturbing in itself," he said.
 

 * * * BRIEFS * * *

EXPORT ENFORCEMENT: Industrial Scientific Corp. of Oakdale, Pa., has agreed to pay $30,000 civil fine to settle BIS complaints that firm exported two gas monitors to United Arab Emirates in 1998 without approved license, knowing they were destined for transshipment to Iran.  Charging letter accused company of acting with knowledge that license was required and in conspiracy with others, including Pars Company.  Industrial Scientific neither admitted or denied charges.

OFAC: Agency has begun weekly publication on its website of settlements it has reached with firms for violations of various trade sanction.  Disclosures are part of new OFAC rules promulgated after it lost FoI suit requiring release of information on fines paid in settlement cases.  In first two releases, 59 companies were identified, including Amazom.com. Cargill, Caterpillar, Chevron/Texaco, Citibank, Exxon Mobil, New York Yankees and Wal-Mart. Largest fine of $250,000 was paid by Zim American Israeli Shipping.  IGI paid $225,000 fine.  Only general information on violations is given.  Twelve cases involved voluntary disclosures, including Exxon Mobil disclosure that cost firm $50,000 to settle.

IRISH MUSIC: Included in supplemental wartime appropriations bill (H.R. 1559) signed by President Bush was $3.3 million for lump-sum, one-time only compensation payment to European Commission to settle WTO ruling which found Section 110(5) of U.S. Copyright Act to violate TRIPS rules.  Law barred royalties for certain Irish music.  Payment figure was set by WTO arbitrator for value of lost benefits.  Money will go into European fund for performing artists.  Failure of Washington to ante up money until now has been one of EU's long-running complaints about U.S. noncompliance with WTO rulings.  Other provisions of bill added money for Customs, including  Container Security Initiative, maritime port security and $50,000 to upgrade security system at CIT.

ALLURA RED: In preliminary ruling April 17, ITC voted 4-0 that allegedly dumped imports of allura red coloring from India are not injuring U.S. industry.

WTO: USTR Robert Zoellick has stepped efforts to get Doha Round negotiations back on track after negotiators failed to meet March 31 deadline for agreement on modalities in agriculture talks.  On April 5 he met in Washington with WTO Director General Supachai, and then flew to Brussels for day and half of talks with EU Trade Commissioner Pascal Lamy.  While no major breakthroughs were reached, USTR sources say meetings "showed U.S. interest in the success of Cancun."  Talks with Lamy were also aimed at finding "how to put pieces of [transatlantic] relationship together again."

CIRCUIT BREAKER: Airpax Corp. April 14 filed antidumping petitions at ITC and ITA against imports of hydraulic magnetic circuit breakers from South Africa.

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