Volume 23 No. 19 -- May 12, 2003

IN THIS ISSUE:

* Option 4 Will Remain Available But With Tighter Rules
* OFAC Issues General Licenses Covering Trade With Iraq
* Latin America Is Stabilizing But Growth Will Still Slow, Analyst Says
* Report Warns of Challenge Facing FTAA Talks
* U.S. to Present Market Access Proposals to Central America
* Bush Offers Promise of Middle-East Free Trade Deal with U.S.
* Administration Officials Remain Coy on Chile FTA
* BRIEFS: Transshipments, FoIA Suit, FSC, Color TVs, Canada
 

OPTION 4 WILL REMAIN AVAILABLE BUT WITH TIGHTER RULES

Eligible exporters will still be able to use Option 4 rules for post-export filing of complete Shipper's Export Declarations (SED), but will face closer scrutiny of their trade compliance records under an agreement between Census and Customs.  Although Customs earlier in the year floated the idea of terminating the program as part of its coming advance-notice requirements, the two agencies have agreed to keep Option 4 but with stricter requirements for eligibility.  Customs has also dropped the idea of eliminating the $2,500 threshold for requiring the filing of SEDs.

The new policy for Option 4 will be spelled out in final Census regulations which will make the use of the Automated Export System (AES) mandatory for filing SEDs for goods on the Commerce Control List (CCL) and Munitions List (ML).  Although publication of the final regulation has been delayed, it is now expected within a month, a Customs official said (see WTTL, Feb. 17, page 1).

Once the new Census rules go into effect in Spring 2004, there will be a phased review of current Option 4 participants to see if they should remain eligible for the program.  New applicants will get this review before being approved.  Firms won't face immediate termination of their Option 4 status, Charles Bartoldus, head of Customs' import notification program, told WTTL.  "It's not like you're on it March 30 and off it April 1," he said.  "There will be a reasonable phase-in period," he added.  The consideration of compliance records also will be reasonable, he promised.
 

OFAC ISSUES GENERAL LICENSES COVERING TRADE WITH IRAQ

Treasury's Office of Foreign Assets Control (OFAC) moved quickly May 8 to publish four general licenses that put flesh on President Bush's decision to invoke his new authority to suspend U.S. sanctions on trade with Iraq (see WTTL, April 21, page 1).   Until the United Nations lifts multilateral sanctions on Iraq, however, the new rules will allow only trade and financing that is tied to U.S. and nongovernment organization reconstruction and humanitarian aid programs.

Even if UN sanctions are lifted, as the U.S. and Britain are requesting, OFAC is likely to remain the main licensing agency for several months for all Iraq-related export and financial transactions, including for items on the Commerce Control List (CCL).  The Bureau of Industry and Security (BIS) won't be able to take over that job until it issues new regulations covering Iraq.  Promulgating such rules could take months, administration officials admit.

"We are just about ready at Commerce to send out [for interagency review] in the next couple of days a proposed licensing policy for Iraq to be able to begin the normal rulemaking process for this eventuality," BIS Deputy Assistant Secretary Matthew Borman told a conference in Washington May 8.  "The point I would make to my colleagues is that it behooves us to have an interagency licensing policy and related agreements on the EAR all set, so if and when the decision is made to lift the embargo, it's not held up by the regulatory process," he added.

For now, the OFAC general licenses cover private remittances to persons in Iraq, exports and financial transactions related to U.S. government contracts, and private humanitarian transactions, as well as exports still subject to the UN Oil-for-Food Program and review by the UN's 661 Committee.  Even after UN sanctions are lifted, exports of CCL items are likely to face tough licensing hurdles whether they are reviewed by OFAC or BIS because of conditions in the country and the region.
 

LATIN AMERICA IS STABILIZING BUT GROWTH STILL SLOW, ANALYST SAYS

Most of Latin America, except for Venezuela, will see a return to economic and foreign direct investment (FDI) growth in 2003, but the expansion will be below levels of the late 1990s, according to Joyce Chang, head of global emerging market research for JP Morgan.  While the region will be importing more than in 2002, including from the U.S., trade and economic growth won't fully recover until the U.S. economy begins to grow at a stronger pace, she told a Chamber of Commerce conference in Washington.  Most currencies in Latin America are undervalued, which also will dampen U.S. exports, she suggested.

Compared to historic patterns, when foreign investment often drove the economies of Latin America, the region is seeing more internally sourced growth, as domestic demand has grown and local banks have sought to increase their market share.  Self sufficiency is becoming more important because U.S. companies are still in a retrenching mode and are not expanding in the region, Change pointed out.

In Brazil, new President Lula de Silva is getting high marks for the job he is doing managing the economy.  "But the market has to be more realistic about the pace at which he can deliver reforms," Chang cautioned.  She said she sees the Brazilian economy growing 2.5% in 2003 and 3% in 2004.   She has lowered her growth forecast for Mexico to 2.1% primarily because it is tied so closely to the U.S. economy.

Chile has "the best story in the region," Chang noted, predicting 3.5% growth in the country in 2003.  Argentina, driven by domestic consumption, should grow 5% this year, which will be the highest rate in Latin America.  The political crisis in Venezuela is still not resolved and will contribute to a 15% contraction of its economy this year, Chang said.
 

REPORT WARNS OF CHALLENGES FACING FTAA TALKS

Chances for the successful conclusion of a Free Trade Area of the Americas (FTAA) pact by 2005 could be in doubt unless the U.S. intensifies its efforts and gets more personnel and resources, the General Accounting Office (GAO) warned in a report released May 8.  A major problem for the FTAA is the link of its agriculture talks to progress in World Trade Organization (WTO) negotiations in the Doha Round.  The stalemate in WTO farm talks could cause FTAA negotiations "to slow down or deadlock." the GAO said (report number GAO-03-560).

Moreover, the co-chairmanship of FTAA talks by the U.S. and Brazil in the final phase of the negotiations is a "novel situation" that "could involve additional time and effort for the U.S. Trade Representative," said the report.  USTR Robert Zoellick will try to address that issue with a trip to Brazil at the end of May to discuss the co-chairmanship arrangement with Brazilian officials and to get political-level support for pushing the talks forward.

One immediate, logistical problem is the apparently inadequate preparations for the FTAA ministerial meeting in Miami in November, including financing and security.  "Failure to mitigate similar risks ultimately caused serious logistical and security problems at the last major trade ministerial hosted by the United States, the 1999 Seattle World Trade Organization ministerial," the GAO cautioned.  "The USTR is likely to encounter protestors at the November ministerial," said the GAO, the investigatory arm of Congress.  "Factoring security for the invited participants into the logistical arrangements for the ministerial is a prime concern," the agency stated.

"I'm concerned about a number of findings in the report," said Senate Finance Committee Chairman Charles Grassley (R-Iowa), who requested the GAO study.  "Unfortunately, the GAO report raises many questions about the administration's readiness to assume its important responsibilities," he said in a statement.
 

U.S. TO PRESENT MARKET ACCESS PROPOSALS TO CENTRAL AMERICA

The U.S. will propose the broad elimination of tariff on industrial and agriculture products during the next round of negotiations on a U.S.- Central American Free Trade Agreement (CAFTA) in Guatemala the week of May 12.  The proposal will offer to eliminate tariffs along the same four-basket model submitted in the Free Trade Area of the Americas (FTAA) talks (see WTTL, Feb. 17, page 3).   The talks also will continue to address the labor provisions of any deal, a subject that has been discussed at every round of CAFTA talks, noted Assistant USTR Regina Vargo.

Most tariffs in the first basket would go to zero immediately, while those in the second and third baskets would see duties ended in five and ten years, respectively.  The fourth basket of more import-sensitive goods could see various, longer periods for phasing out their tariffs, explained Vargo, the lead U.S. negotiator in the talks.

Vargo also reported that year-long talks with the Dominican Republic have helped clarify some of the bilateral differences that kept it out of the original line up for the CAFTA.  In particular, the U.S. had been upset that the Dominicans had taken positions in the FTAA and Doha Round that were opposite from Washington's stands.  "We've been able to have a very candid dialogue on that subject," she told reporters May 8.  Nonetheless, there are still "a number of issues that need to be cleaned up before we undertake a comprehensive negotiation" with them, she added.

Vargo said the U.S. has talked to the Central American countries about a proposal that would see a Dominican Republic accord "docking" onto the CAFTA.  "I don't think that saying we would consider a docking option would rule out any other option, but docking is the most pragmatic," the U.S. official said.  Docking talks would use fewer USTR resources, build on existing ties between the Dominican Republic and Central America, allow for the cumulation of components under rules of origin, and could move faster than negotiations on a separate accord, she suggested.
 

BUSH OFFERS PROMISE OF MIDDLE-EAST FREE TRADE DEAL WITH U.S.

President Bush's May 9 call for the establishment of a U.S.-Middle East free trade area (MEFTA) within a decade was more a reflection of his administration's post-Iraqi War foreign policy goals for the region than a realistic trade strategy.  Immediately after the president unveiled his proposal, a senior administration official outlined a long-term plan that will require many steps and will proceed at a different pace for each country in the area.  An accord covering all the Middle East will only come after there is a "critical mass" of bilateral free trade agreements with countries in the region, the official said.  Only Israel and Jordan have such deals now, and Morocco is at the beginning of negotiations of an FTA of its own.

The proposal for a U.S. trade initiative for the Middle East was first raised by former USTR Charlene Barshefsky last October.  USTR Robert Zoellick has talked about enhancing trade with the region in recent talks with Morocco and Bahrain.

Long before a MEFTA will be ripe for negotiations, several different steps will have to be taken.  For several key nations, such as Algeria, Saudi Arabia, Lebanon, and Yemen, WTO accession is still required.  Saudi Arabia's accession remains tied up because of its failure to give up partici-pation in the Arab League boycott of Israel, which is a WTO member.  The administration official denied that the U.S. is blocking Saudi accession because of the boycott issue.  Nonetheless, he noted that "for a country to be within the WTO, it cannot engage in such a government boycott," and countries that want to be part of the U.S. pact would have to be members of the WTO.

Before reaching the stage for a bilateral FTA, countries will be approached to enter into Trade and Investment Framework Agreements (TIFAs), such as the one Bahrain has entered, to discuss bilateral issues.  Another step might be a Bilateral Investment Treaty (BIT).  While focusing on a wide range of economic, legal, educational and political reforms, a White House fact sheet did not make the establishment of democracy in the region a condition for establishing a MEFTA.
 

ADMINISTRATION OFFICIALS REMAIN COY ON CHILE FTA

Even as the White House rolled out the carpet for President Bush's signing of the U.S.-Singapore FTA May 6, U.S. officials still won't say when Washington will sign trade pact with Chile.  "We intend to sign this agreement soon," Phillip Chicola, acting deputy assistant secretary of State for the Western Hemisphere, told a conference May 7.  But he said no date has been set for signing.

Repeating Bush administration statements about U.S. "irritation" at Chile's lack of support for U.S. stand in UN Security Council before the Iraqi war, he said it would "be foolhardy to proceed" until there was assurance of congressional approval of the deal.  Assistant USTR Regina Vargo told the meeting that the final Chile accord was still being held up by translation problems. "I am not being disingenuous when I say we are continuing to work with Chile on the translation," she said.

* * * BRIEFS * * *

EXPORT TRANSSHIPMENTS: BIS will publish proposed "best practices" guidance in Federal Register week of May 12, advising exporters on steps they can take to prevent illegal diversion of goods through foreign transshipment hubs that have been identified as high-risk ports.  Compliance with best practices would be considered "significant mitigating factor" in any enforcement investigation, BIS Deputy Under Secretary Karan Bhatia told conference May 8.  There will be 30 day period for public comment.

12(c) CONFIDENTIALITY: Justice May 7 submitted brief in DC U.S. Court of Appeals, opposing Wisconsin Project request for en banc rehearing of organization's FoIA suit seeking release of export licensing information that was confidential under lapsed EAA Section 12(c) (see WTTL, March 17, page 1).  Original panel's ruling, which supported BIS rejection of FoIA request, "neither conflicts with any decision of this court nor the decision of any other court of appeals," government argued.  In fact, it claimed, decision followed 11th Circuit ruling in similar suit.  Although EAA has lapsed, IEEPA provides authority for nondisclosure, Justice said.  "The panel understood that this statutory framework has maintained the confidentiality of export license application information for over fifty years," brief declared.

FSC: Fight among members of Ways and Means Committee over FSC/ETI is getting more raucous than U.S.-EU dispute.  After WTO May 7 approved EU's proposed list of American goods that could face retaliatory tariffs if FSC/ETI isn't repealed, Ways and Means members Charles Rangel (D-N.Y.) and Phil Crane (R-Ill.) issued release touting their FSC-replacement bill (H.R.1769) as way to solve dispute.  Then Ways and Means Chairman Bill Thomas (R-Calif.) put out statement claiming EU's reaction to WTO ruling "cast doubt on legislative efforts to phase out illegal U.S. tax regime."  Phase-out plan is in Rangel-Crane bill. Day later, Rangel issued another statement saying it was "outrageous" for member of Congress [Thomas] to take European position.  Sources say Thomas will soon introduce new version of his FSC/ETI bill with major changes aimed at addressing complaints against his last proposal.  EU Trade Commissioner Pascal Lamy said he was encouraged by U.S. determination to fix tax rule.  "The commission will review the situation in the autumn, and if there is no sign that compliance is on the way at that time, it would then start the legislative process for the adoption of countermeasures by 1 January 2004," Lamy declared.

COLOR TVS: Five Rivers Electronic Innovations and International Electrical Workers Union May 2 filed antidumping complaints at ITA and ITC against color television receivers from Malaysia and China.

CANADA: U.S. and Canada May 9 announced deal under which Ottawa will end export subsidies and  programs that helped Canadian dairy exporters.  WTO had ruled aid to be illegal export subsidies.

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