Volume 23 No. 20 -- May 19, 2003

IN THIS ISSUE:

* Exporters Can Report Discovery of Illegal Goods In Iraq
* GMO Complaint Reflects Deterioration of U.S.-EU Relations
* BIS Promises Quick Action on SARS-Related Equipment Export
* Steel Talks Put Off Tough Issue on Enforcement
* BIS May Allow Special Licenses for Night Vision Products
* U.S. Presents Canada With Market-Sharing Plan for Lumber
* BRIEFS: Best Practices, Bosnia, Vietnam, Milk Protein, Doha Round
 

EXPORTERS CAN REPORT DISCOVERY OF ILLEGAL GOODS IN IRAQ

Firms that are worried that their controlled but unlicensed products may start being found in Iraq may avoid legal trouble, Bureau of Industry and Security (BIS) officials say.  Companies should contact the Office of Exporter Services (OES) and the Office of Export Enforcement (OEE) when they discover these unauthorized items in Iraq, they advise.  Exporters can "take advantage of the provisions in our regulations that allow you to make a disclosure, not even a self-disclosure, that you've discovered that your equipment is in Iraq," said OEE Director Mark Menefee.

Companies may learn about these products when they get orders for repairs or replacement parts.  A similar situation arose after the fall of the Soviet Union and when trade re-opened with South Africa, Menefee noted.

When these discoveries are made, "you can request authorization from OES to service, upgrade, relocate or retransfer the equipment that somehow got there illegally," he advised.  "Under the regulation, OES has the power to give you that authorization to take the new step in respect to that illegally exported equipment," Menefee explained.  After consulting with OEE,  OES "will give you a letter that authorizes you to take action with respect to that piece of equipment," he added.

Menefee said Defense has separate procedures in place to control what happens to dual-use items the U.S. military brings into Iraq as part of its post-war peacekeeping efforts.  These procedures were in place to handle disposal or return of equipment brought into Bosnia and Kosovo.  There is already a huge amount of controlled and uncontrolled U.S. goods in Iraq that were approved for export under the U.N. Oil For Food Program.  As of August 2002, Treasury's Office of Foreign Assets Control had licensed $38.6 billion under the program (see WTTL, May 12, page 1).

Separately, on May 16, the Bush administration established an Iraq Reconstruction Task Force in Commerce's International Trade Administration (ITA) to help U.S. firms participate in Iraq reconstruction.  Task force is at 866-352-IRAQ.  Its website is http://trade.gov/iraq/.
 

GMO COMPLAINT RELECTS DETERIORATION OF U.S.-EU RELATIONS

Washington's decision to file a complaint at the World Trade Organization (WTO) against the European Union's (EU) ban on the import of genetically modified organisms (GMOs) is another sign the U.S. has given up trying to mend the chasm in transatlantic relations.  It also seals the fate of the WTO Cancun Ministerial, which is now certain to be a poorly disguised failure.  The move makes it almost certain the Doha Round won't be completed as schedule by 2005 and will go on until July 2007, when current fast-track negotiating authority expires.

Given the more realistic timetable for the WTO talks, the greatest risk facing the U.S. from the GMO complaint is EU retaliation against the Foreign Sales Corporation/Extraterritorial Income (FSC/ETI) tax law, if Congress fails to bring the statute into compliance with WTO rules.  But Bush administration officials appear willing to call the EU's bluff based on their perception that the EU is divided over FSC/ETI retaliation and the possible damage such action would cause EU firms with American investments.

The long-delayed decision to file the GMO case has drawn nearly unanimous raves from Congress and the U.S. farm community, a key constituency for the administration's trade policies.  The positive reaction may give U.S. Trade Representative (USTR) Robert Zoellick more flexibility in trying to save the Cancun meeting.

But some trade observers don't see the action as a strategy for Cancun.  "I don't see this as a negotiating ploy for the administration," said former Commerce Deputy Assistant Secretary for Europe Charles Ludolph, who is now senior vice president of Stonebridge International.  The U.S. "is taking the moral high ground" to defend the principle of science-based regulation, he said.

The importance of a U.S. victory at the WTO may not be the opening of the European market for GMO foods, but the opening of the rest of the world market for GMO grains and seeds, Ludolph suggested.  With expanded use of GMO products, the EU, which is a major food importer, will eventually have to import such foods.  Regardless of the outcome of the WTO case, agriculture exporters will still face a fight over proposed EU GMO-food labeling regulations.
 

BIS PROMISES QUICK ACTION ON SARS-RELATED EQUIPMENT EXPORTS

BIS is trying to speed the review and approval of export licenses for equipment used to detect severe acute respiratory syndrome (SARS), reported Matthew Borman, BIS deputy assistant secretary for export administration.  "We have already had discussions with the other agencies, noting that these licenses were likely to come in, and as long as they are identified to us by the applicant ahead of time, we will get the agencies to really move them quicker than the normal process,." he told the Sensors and Instrumentation Technical Advisory Committee (SITAC) May 13.

Some SARS-related licenses have already come in and are being handled under the expedited procedures, BIS staffers reported.  The main products getting this special treatment are thermal imaging devices used at airports and hospitals to screen people for elevated temperatures.  "We will refer them to the agencies as quickly as we can with a note to the agencies that this is what these are for, and then work with the agencies so they will come back in less than their allotted time," Borman said.

There has been a sharp need for these products because the Chinese have cleaned the shelves of existing supplies in the wake of the SARS outbreak, one industry participant noted.  In addition to the imaging products, makers of respirator equipment say they have also seen a jump in exports.
 

STEEL TALKS PUT OFF TOUGH ISSUE ON ENFORCEMENT

International negotiators meeting in Paris May 12-15 neared an agreement on what government subsidies for steel producers would be prohibited or permitted under a global accord, but delayed a decision on the toughest issue -- how will proposed disciplines on steel subsidies be enforced.  The talks at the Organization for Economic Cooperation and Development (OECD) tentatively agreed that all actions defined as subsidies in the WTO Agreement on Subsidies and Countermeasures (SCM) would be prohibited, with exceptions allowed for aid to close of excess capacity, to pay for environmental remediation after a closing, and to help workers who have lost their jobs.

Disagreement remains, however, over whether allowed subsidies would still be subject to a countervailing duty (CVD) action.  Most countries want exempted aid to be nonactionable in the final steel accord.  The U.S., which hopes to avoid having to change the current CVD and antidumping law, is insisting that countries should have the discretion to take action, if they deem it appropriate.

A decision on the enforcement mechanism probably won't be made until participants decide where the final agreement will be housed.  A report on the accord will be presented at the WTO Cancun Ministerial in September, with a request for advice on whether ministers want the agreement to come under the WTO rules.  In that case, compliance disagreements would go through the WTO dispute-settlement system.  If the pact remains under the OECD, countries would probably have to enforce the provisions under their national trade laws.

The Paris meeting reviewed trends in global steel-making capacity and found reductions meeting expectations, according to Commerce Acting Assistant Secretary for Import Administration Joseph Spetrini.  A near-final text on the core components of an accord will be ready for OECD meetings June 10-12 and July 16-18, Spetrini reported.   Meanwhile, the OECD staff will go to Beijing to brief the Chinese on the talks and to help determine how China will participate in any final deal.
 

BIS MAY ALLOW SPECIAL LICENSES FOR NIGHT VISION PRODUCTS

Night vision products could become eligible for Special Comprehensive Licenses (SCL) to ease the licensing load for the growing number exports to foreign distributors and manufacturers, BIS officials say.  An interagency memorandum of understanding which had blocked the use of SCLs for night vision products has been rescinded, reported BIS Deputy Assistant Secretary for Export Administration Matthew Borman.  At the current pace, BIS expects license applications for night vision products to jump over 78% to 2,500 this fiscal year, he reported.

"Clearly, a lot of the licenses that come in to us are for distribution-type transactions,," Borman said.  These take a lot of interagency review time and are a big source of discussion at the Assistant Secretary-level Advisory Committee on Export Policy (ACEP), he indicated.

At the request of BIS, the Sensors and Instrumentation Technical Advisory Committee (SITAC) filed comments with the agency on the proposal.  "The possibility of applying the SCL is intriguing because it addresses the most problematic area in current export policy," SITAC commented.  Because of the lengthy conditions imposed on current night vision licenses, most exporters of these products already have some of the required elements of an SCL in place, including Internal Control Plans (ICPs), the panel noted.  Industry would support the SCL idea, if licenses allowed adequate volumes and durations and had a "presumption of approval," it wrote.
 

U.S. PRESENTS CANADA WITH MARKET-SHARING PLAN FOR LUMBER

The never ending U.S.- Canada dispute over softwood lumber isn't close to resolution and is likely to last until current dispute-settlement cases at the WTO and before NAFTA binational panels are resolved in the next 18 months.  A new proposal by the Coalition for Fair Lumber Imports, which would base an interim agreement on the Canadian share of the U.S. lumber market, has been rejected by much of the Canadian industry, and there is little expectation that a Commerce policy bulletin aimed at lifting countervailing duties (CVD) on Canadian goods will achieve its goal.

Commerce Under Secretary Grant Aldonas met May 15 with a delegation of officials from Ottawa to discuss the Coalition plan and the last remaining disagreements over the proposed policy bulletin.  The Canadians reportedly raised questions about the proposal, and Aldonas asked the Coalition May 16 to respond to those questions, a Commerce source reported.  But a Canadian source called the plan "not acceptable."

The Coalition proposed two options for imposing an export tax on Canadian lumber.  One would impose a 25% tax when the Canadian share of the market is 29% or above, with the tax dropping to 15% if the share goes below that level.  There would no exceptions or exclusions, all provinces would be covered, there would be no refund of cash deposits already posted and the CVD deposits would go to the U.S. industry under the Byrd Amendment.

The second option would be for an 18% tax when the market share is 29%, with the fee rising 3% for each 1% of additional share and going down 4% for each 1% below 29% until it reached 14%.  Canadian industry sources complain that their share of the U.S. market hasn't been near 29% for years.  The current share is about 34%, meaning the tax could be 33% under option two.

Commerce sources say Aldonas will publish the policy bulletin for public comment in the next few weeks, despite continuing objections from Quebec and Ontario.  Quebec officials will be in Washington the week of May 19 for what are being called "technical talks" on the bulletin, which is supposed to explain how Commerce will conduct a "changed circumstances" review of current CVD orders, if Canadian provinces eliminate their stumpage-fee system for lumber.

Meanwhile, distribution to the parties of a preliminary WTO panel ruling on the CVD order has been postponed until May 27.  The panel is expected to rule against Washington's use of cross-border price comparisons in the case, since another panel reached a similar conclusion regarding Commerce's preliminary finding.  NAFTA panel decisions are due in June, July and August.

While those cases proceed, requests for the first administrative reviews of the antidumping and CVD orders are due by the end of May, and Canadian producers are expected to start the process the week of May 19.  In addition, two Canadian firms, Canfor and Tembec, have filed NAFTA Chapter 11 suits against the U.S.  They are seeking reimbursement for lost sales in the U.S. due to what they claim was a discriminatory action based on a CVD process the WTO has declared to violate international trade rules.  If the panel report on the final CVD order reaches the same conclusion, more Canadian manufacturers are expected to file Chapter 11 suits to get money from Washington.

 * * * BRIEFS * * *

BEST PRACTICES: BIS in May 16 Federal Register asked for public comments on draft 12-point "best practices" guidance that exporters, reexporters and freight-forwarders can use to help prevent diversion of dual-use goods, especially through transshipment hubs

BOSNIA/MONTENEGRO: President Bush May 6 signed executive order making Serbia and Montenegro eligible for exports of Munitions List items and services under Arms Export Control Act.

VIETNAM: Hanoi will need to make "quantum jump" in economic and trade reforms, if it expects to join  WTO by 2005, said Seung Ho, Korea's ambassador to WTO and chairman of working group on Vietnam's accession.  At May 12 meeting of working group, Vietnamese officials reported on steps country is taking to comply with WTO requirements, but several countries complained about difficulty in getting information from Hanoi on trade rules and responses to market access requests.

MILK PROTEIN: Finance Committee Chairman Charles Grassley (R-Iowa) May 13 asked ITC to conduct Section 332 study into competitive conditions domestically and internationally for producers of milk protein, including whole and skim milk, casein and whey.

DOHA ROUND: Chairman of WTO negotiating group on non-agriculture market access released draft proposal May 16 on elements of "modalities" for conducting tariff-cutting talks in Doha Round.  Elements include traditional formula-based reductions of bound rates and zero-for-zero cuts in selected sectors.

TRADE FIGURES: U.S. goods exports in March rose 6% from year ago to $58 billion, as services exports also gained 6% compared to last March to $24.8 billion.  Goods import, however, surged 15% to $105.2 billion and services imports jumped 9% to $21.1 billion.

CAFTA: Group of House Democrats May 14 wrote to USTR Robert Zoellick to complain that proposal U.S. was offering on labor in FTA talks with Central Americans week of May 12 "does not adequately address the economic and individual impact of egregious conditions for workers in the region, and should not be starting point for consideration of these issues" (see WTTL, May 12, page 3).

UNVERIFIED LIST: BIS in May 16 Federal Register added three firms to Unverified List.

DIAMINO STILBENEDISULFONIC ACID: Ciba Specialty Chemicals May 14 filed antdumping and countervailing duty petitions at ITA and ITC against imports from China, India and Germany.

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