Volume 23 No. 17 -- April 28, 2003

IN THIS ISSUE:

* Customs Ready to Expand 24-Hour Rule Enforcement
* BIS Trying to Reduce Deemed Export License Conditions
* Changes at BIS Cut Processing Time for Deemed Export Licenses
* Customs Aiming for June Proposal of Advance Notice Rules
* Vietnam Textile Deal Hung Up by Interagency Dispute
* Briefs:  Information technology, semiconductor equipment, NAFTA
 

CUSTOMS READY TO EXPAND 24-HOUR RULE ENFORCEMENT

Customs will begin the next stage of enforcement of its 24-hour-in-advance sea container notifi-cation requirements in two steps May 4 and 15, as it continues its phased enforcement of the rules.  Since the rules went into effect in February, the renamed Bureau of Customs and Border Protection has only been enforcing the requirement that complete and accurate cargo descriptions be included on advance manifests before containers are laden in foreign ports for shipment to the U.S.  The bureau has issued relatively few "do not load" orders for containers lacking adequate descriptions.

Starting on May 4, Customs will begin to enforce the requirement that the cargo descriptions must appear in the correct fields, which are the cargo description or Harmonized Tariff Schedule (HTS) fields.  It will no longer accept descriptions appearing elsewhere, such as in the "marks and numbers" field, bureau officials are informing the trade community (see WTTL, Feb. 17, page 4).

On May 15 the agency will begin to enforce the requirement for complete and accurate informa-tion in the consignee field, including correct names and addresses.  It also will begin to apply the 24-hour rules to "freight remaining on board" (FROB).  In addition, Customs will start to enforce the timeliness requirement.  Advance notices will have to be filed close to 24 hours in advance, although there may be a little leniency if the notice is given just 21 or 22 hours ahead of lading.

From the time it issued the final 24-hour regulation, Customs has promised to phase-in enforce-ment of the requirements to give the trade community time to come into compliance.  As it begins to enforce each of the data elements that must be included in the advance notices, it may issue more "do not load" orders to carriers or in some cases seek civil penalties against violators. So far, Customs officials say they have been pleased with the level of compliance with the new require-ments and have found the information they are getting to be useful in screening and targeting cargoes that may require inspection or the collection of additional information.
 

BIS TRYING TO REDUCE DEEMED EXPORT LICENSE CONDITIONS

Bureau of Industry and Security (BIS) officials say they are getting a positive response from other export license reviewing agencies to Commerce proposals that might streamline the number of conditions attached to the approval of "deemed export" licenses.  At the same time, they say they have opened interagency discussions that could lead to expedited review of the growing number applications for the renewal of existing licenses for the same foreign national or for an increase in the level of technology to which previously approved individuals will have access.  These changes would be in addition to other improvements BIS has already made in the processing of these applications (see story below).

An interagency agreement on the new conditions for deemed export licenses could come by this summer, said Bernard Kritzer, director of BIS's office of strategic trade and foreign policy.  "Instead of 18 conditions, I see it shrinking to somewhere between five and eight and occasionally more, if it involves more ECCNs," he told the Information Systems Technical Advisory Committee (ISTAC) April 23.

The heart of the new conditions would be a clearer definition of the technology that could be released to the foreign national and what can't be released.   "With that we are envisioning three or four very general conditions, such as maintaining technology control plans, maintaining reports on when a foreign national gets a green card and informing the foreign national of the conditions," Kritzer explained.  Another con-dition would require foreign nationals to report any change in their status.

Two to four additional conditions would be based on the type of technology involved, such as electronics, computers, telecom and aerospace.  "We are working those details out with the other agencies right now," Kritzer added.  An agreement might have been reached already, except for the intervention of the Iraq War and the work on the annual Wassenaar list review, he suggested.

BIS is also seeking an agreement to expedite applications merely seeking to renewal current licenses or to upgrade the technology to which a foreign national has access.  "We are exploring with the agencies, that when we have a tremendous amount of data about a foreign national, really good information on his or her background, how to come up with a vehicle to expedite the renewal or increase the licensing period," he reported.  Among the ideas being discussed are a license exception for such individuals or the delegation of authority to BIS to approve the licenses without interagency referral.  "I am convinced there will be reduce processing time," he said.

One reason for the increased number of license renewals is the slowdown in "green card" pro-cessing for foreign nationals who would normally no longer need a license after two years, Kritzer noted.  Another cause is the continuing pace of innovation in the electronics and computer fields which is causing covered technology to become outdated quicker.
 

CHANGES AT BIS CUT PROCESSING TIME FOR DEEMED EXPORT LICENSES

A shift in the types of "deemed export" applications processed by BIS along with procedural and staff changes at the agency have combined to reduce the average time it takes for such applications to be approved, reported Bernard Kritzer, director of BIS's office strategic trade and foreign policy controls.  So far in fiscal 2003, BIS has processed 430 applications with an average processing time of 53-54 days, Kritzer told the Information Systems Technical Advisory Committee April 23.  This compares to 2002 when the average was 65 days.

These times could be cut another 8-10 days, as BIS works more closely with law enforcement agencies that do the background checks on application subjects, he suggested.  This improved cooperation has already reduced the share of applications that are more than 30 days late to 10-12% compared to 20% to 30% in the past.

One factor speeding processing is the type of license being submitted.  An increasing share of applications are for the renewal of existing licenses or for upgrades in the technology accessible by an approved foreign national (see story above).  In fiscal year 2002, which ended Sept. 30, 2002, about 16% of the deemed export license applications fell into this category, Kritzer noted.  In fiscal 2003, BIS expects this number to raise to between 25% and 30% of all applications.

Also helping the processing were changes BIS made in its deemed export reviewing staff and pro-cedures.  BIS increased the number of engineers in the office that reviews these applications.  With the additional staff, the agency has done a better job classifying the technology in the applications, Kritzer explained.  As a result, fewer questions or requests for more information are coming from the interagency review process.  The success of this effort is seen in the fact that there have been few escalations of interagency disagreements over deemed export licenses since December, he reported.  Most of those that have been escalated were left over from last year's backlog and from before the new approach went into place, he added.

In fiscal 2002, BIS processed 715 deemed export applications.  This year, if current trends continue, it will handle 800-850, Kritzer forecast.  Foreign students hired by U.S. firms account for the largest share of applications.  Chinese account for 60% of the applications and Russians for about 20%.  The remaining 20% is spread over several countries.  Most non-student applications are for currently employed foreign employees who are moving or coming temporarily to the U.S.

About two dozen U.S. firms account for 80% to 85% of all applications.  This small number has prompted BIS to begin planning for an outreach program to explain the deemed export requirements to companies that aren't seeking applications when they should, he indicated.
 

CUSTOMS AIMING FOR JUNE PROPOSAL OF ADVANCE NOTICE RULES

Customs officials are telling the trade community that they are aiming for June 1 publication of a formal proposal for imposing advance notice requirements for imports and exports moving by air, rail, truck and sea containers.  They are also setting Oct. 1 as the goal for a final rule, with implementation to be phased-in to meet new statutory requirements (see WTTL, March 24, page 1).  The officials are indicating that the advance-notice requirements for the four transport modes will be considerably shorter than the long lead times suggested in the "straw man" proposals the agency released in January but probably not as short as industry advisors have recommended.

Customs officials say they have found the recommendations of Treasury's Advisory Committee on Commercial Operations (COAC) to be extremely useful and will consider them closely in drafting their proposed implementing rules.  Some of the committee's proposals, however, particularly on air shipments from Canada and Mexico, were too short.  Customs is likely to insist that all notices be received prior to arrival at U.S. destinations and probably won't accept the idea of allowing cargo to remain in quarantine on the tarmac before release as an alternative.

COAC revised its final recommendations to Customs to propose additional rules covering trade to and from Puerto Rico.  Customs officials privately admitted they had forgotten to consider Puerto Rico in the drafting of the straw-man proposals.  COAC called for shipments between Puerto Rico and the U.S. to be exempt from advance security notifications even though such trade is subject to requirements for Shipper's Export Declarations (SED).  Notice would be needed for shipments to and from outside the U.S.  This is the way Puerto Rico is treated under the 24-hour rule.

COAC also asked Customs to clarify that the transmission of all required information pertaining to ocean cargo coming into the U.S. is the responsibility of the carrier or the agent.  "However, the importer, at its discretion, may choose to transmit some or all of the data," it suggested.
 

VIETNAM TEXTILE DEAL HUNG UP BY INTERAGENCY DISPUTE

A squabble between the U.S. Trade Representative's office and Commerce's Committee on Imple-mentation of Textile Agreement (CITA) threw a last-minute wrench into a U.S.-Vietnam agreement on textile quotas, but an interagency conference call reportedly cleared the way for the signing of the deal late on April 25 (see WTTL, April 21, page 3).  Earlier in the week, just as USTR Chief Textile Negotiator David Spooner was close to a final pact with the Vietnamese, CITA threatened to issue a "call" to impose unilateral quotas on 41 categories of textiles and apparel from Vietnam.  Only intervention by House Ways and Means Committee Chairman Bill Thomas (R-Calif.), Sen. John McCain (R-Ariz.) and several other lawmakers blocked publication of the call.

CITA's draft call responded to pressure from U.S. textile manufacturers who were trying to derail the deal with Vietnam because they feel the proposed quota levels are too high.  Washington and Hanoi had reach agreement in principle on quotas based on trade from February 2002 to February 2003.  Textile interests wanted the quotas set on the lower level of trade up to November 2002.

The agreement was first delayed after Customs gave the USTR's office a report claiming that the Customs trade data being used to set the quotas may be wrong.  Customs said it has suspicions that there had been transshipments -- probably from China -- of textiles and apparel through Vietnam, inflating the amount of imports from Vietnam.

While no hard evidence reportedly was available, USTR negotiators asked Vietnam to include new language in the deal, allowing the U.S. to lower the quota if the trade data later proved to be in error.  Hanoi initially balked at this request but later agreed to accept it.  Vietnam also agreed to U.S. demands to lower tariffs and trade restrictions on U.S.-made fabric and yarn.  Despite the Vietnamese willingness to swallow these additional conditions, Spooner didn't have interagency approval to sign the deal when the Vietnamese showed up April 23 at his office ready to sign it.

Meanwhile, as a final deal alluded negotiators, CITA was preparing to issue its call on April 25.  Congressional intervention blocked publication of the call, which would have been based on data up through November 2002.  One retailing source claimed Vietnamese imports are already near that level and the call would quickly cut off all imports from Vietnam.  "It would kill the Vietnamese industry and cost U.S. retailers millions of dollars," the source argued.  Finding new Asian suppliers will be hard now because of travel interruption due to the SARS scare, he added.

U.S. and Vietnamese officials were still huddled in final talks at press time April 25, but most elements of the pact were already agreed upon, industry sources say.  The accord would impose quotas on 38 categories of textiles and apparel from Vietnam, starting May 1.  There would be a 7% annual growth rate for cotton and man-made fiber items.  Visa requirements would begin on July 1.  The agreement would run until Dec,. 31, 2004, which is also the end of the global quota system under the Multifiber Agreement.  It would rollover automatically until Vietnam joins the WTO unless the two countries reached a new agreement to end or modify it.
 

* * * BRIEFS * * *

INFORMATION TECHNOLOGY: China and Egypt April 24 joined WTO's Information Technology Agreement, pledging to cut tariffs on such items as computers and telecommunications equipment.

SEMICONDUCTOR EQUIPMENT: Makers of semiconductor manufacturing equipment are calling for series of industry-government meetings over next 12 months to review existing export controls on equipment and materials and to prepare proposals for 2004 Wassenaar list review.

WORLD TRADE: Volume of world trade is likely to grow less than 3% in 2003, WTO forecast April 22, with release of its annual traded data report.  In 2002, merchandise trade rose 2.5% from 2001 when there was 1% decline in trade.  China and transition economies showed best growth rates.

OSCILLOSCOPES: U.S. should end agreement it has with United Kingdom and Switzerland to restrict export of oscilloscopes to India, Israel and Pakistan, because foreign availability has made controls ineffective, Agilent's Jonathan Wise told BIS Information Systems TAC April 23.  Trilateral agreement was established in 1997 when Nuclear Suppliers' Group dropped controls on equipment.  Since then, sole Swiss maker of devices stopped production and new suppliers, who don't face controls, have started production in Canada, Japan and Netherlands, he argued.  If controls aren't dropped, alternative would be to establish higher LVS license exception level or bring other countries into agreement, he recommended.

LOW-K CONTROLS: Industry is trying to head off Defense effort to have Wassenaar tighten controls on insulator materials used in making semiconductor wafers.  Pentagon reportedly wants new controls on so-called low-K dielectric materials to keep China at least one generation behind U.S. chip production technology.  Christopher Moran of Applied Materials told BIS advisory committee April 23 that proposed controls would discriminate against chemical vapor method for applying insulator materials, since spin methods would not be affected by proposed controls.

NAFTA: U.S. and Canadian Customs officials April 22 signed MOU agreeing to share information their agencies collect on NAFTA-related rules of origins.  Such information may include results of origin determinations, audit reports, advance rulings and their annual audit plans.

Copyright 2003 by Gilston Communications Group.  Reproduction or retransmission in any form is prohibited. Washington Tariff & Trade Letter is published weekly 50 times a year.  E-mail: Info@WTTLonline.com