Volume 23 No. 21 -- May 26, 2003

IN THIS ISSUE:

* BIS Claims License Review Times Are Shrinking
* Exporters Will Have to Wait For Benefit From Weaker Dollar
* Surge Rules on Chinese Apparel Could Face WTO Challenge
* Thermal Imaging Industry Wants New License Standards
* Defense Reviewing Conditions It Places On Export Licenses
* Legal Advice on North Korea Leads to OFAC Sanction for Law Firm
* BRIEFS: Colombia, Middle East, Lawn Fences, Enforcement
 

BIS CLAIMS LICENSE REVIEW TIMES ARE SHRINKING

Export license review times at the Bureau of Industry & Security (BIS) have been reduced slightly in the last six months, agency officials report.  Matthew Borman, BIS deputy assistant secretary for export administration, recently said the average licensing time for cases going through the agency in the first six months of fiscal 2003, which ran from Oct. 1, 2002 to March 31, 2003, was 42 days compared to 44 days during the same period a year earlier.

What those numbers don't reflect, exporters argue, is the "time out" periods when licenses are "voluntarily" withdrawn so applicants can respond to requests from the government for more information.   The time needed to provide the information can run into weeks or more, trade community sources complain.

Borman said improvements in the interagency license review process have sped up cases, with fewer being elevated up the political ladder for resolution.  For example, only 2% of the license applications submitted in the first half of 2003 have been referred to the Operating Committee (OC), the interagency body that is suppose to resolve differences of opinion on license approvals and conditions.  This compares to 4% in the same period a year ago.  With BIS expected to receive about 11,000 applications this year, that means just over 200 cases will go to the OC.

There also has been a drop in the number of cases elevated for resolution to the assistant secretary-level Advisory Committee on Export Policy (ACEP).  In the first half of 2002, less than 1% of all licenses got pushed up to the ACEP for a decision.  This year the number is even smaller, and if the current pace continues, about one-third fewer cases will be sent to the ACEP, Borman reported.  "This reflects a significant effort by us and the other agencies to work cases more and more at the initial levels," he said.

He also noted progress in handling "license determinations," which advise the Office of Export Enforcement (OEE) on whether an export it is investigating needed a license.  In the last six months, BIS gave its advice in an average of 37 days compared to 62 days in the first half of 2002, Borman stated.  Although these determinations don't involve the export of an item, they are important to exporters because they help resolve potential enforcement actions more quickly.
 

EXPORTERS WILL HAVE TO WAIT FOR BENEFIT FROM WEAKER DOLLAR

The Bush administration's decision, led by Treasury Secretary John Snow, to instigate a unilateral Plaza Accord and allow the dollar's value to decline isn't likely to produce an immediate jump in U.S. exporters, if history is a guide.  The last time there was an abrupt shift in the dollar's value, it took almost three years for exports of U.S. manufactured goods to show significant growth.  Just as in 1985, Washington's current willingness to accept a lower-valued dollar is mostly a recognition of the inevitable change in exchange rates caused by trade and investment flows.

In September 1985, when then-U.S. Treasury Secretary James Baker met at the Plaza Hotel in New York City with finance ministers from France, Germany, Japan and the United Kingdom, the trade and economic picture looked almost exactly as it looks today.  The U.S. then was just coming out of a deep recession, the dollar's value had risen dramatically, and U.S. manufacturers were complaining about the lose of foreign markets because of what they claimed was an overvalued dollar.

Then as now, there were several years that saw exports either decline or grow anemically and the trade deficit expand sharply.  For five years starting in 1980, the dollar had risen steadily in value relative to other major currencies.  In 1982, exports dropped 9.5% from the previous year and in 1983, they declined another 4.4%.  Some American firms said they were closing foreign sales offices because of the difficulty in selling abroad with a high-priced dollar.  There was a little rebound of 10.2% in 1984, but growth slowed to 2.7% in 1985.

In the agreement that became known as the Plaza Accord, the finance ministers agreed to intervene in currency markets to assure that exchange rates "better reflect fundamental economic conditions" (see WTTL, Sept. 30, 1985, page 2).  That coordinated agreement allowed the dollar to decline.  Nonetheless, in 1986, the first full year after the accord, exports grew just 7%.  They started gathering momentum in 1987 with an 11% increase.  Exports, however, exploded in 1988, surging 27.9%, followed in 1989 with a 12.3% jump.  In total, in the five years after the Plaza Accord, exports expanded over 68%.

The rise of the dollar in the early 1980s triggered an International Trade Commission (ITC) study in 1983 on the impact of the currency's value on selected commodities (ITC Pub. No. 1423).  The commission's report played down the role of exchange rates in trade.  "The generalization that exchange-rate movements are the principle cause of trade shifts may overstate their importance relative to other causes influencing trade flows," it said.  Other factors include supply and demand, prices, substitute products and consumer preferences.  "The results also suggest that price adjustments in response to exchange-rate changes may explain why the exchange rate had little effect on trade flows," the ITC opined.
 

SURGE RULES ON CHINESE APPAREL COULD FACE WTO CHALLENGE

Commerce May 21 disregard the objections of some House Republicans, as well as the retailing and apparel industry, and issued final rules in the Federal Register setting the procedures for imposing anti-surge import restrictions on Chinese textiles and apparel (see WTTL, April 21, page 3).  But before the ink was dry on the new regulations, attorneys for importers were warning that China is likely to challenge the rules at the World Trade Organization (WTO).

The procedures, which will be implemented by the Committee on Implementation of Textile Agreements (CITA), apply the anti-surge safeguard rules Beijing accepted as part of its accession protocol to the WTO.  Some trade lawyers contend that China will have the right to challenge the procedures at the WTO, if it believes they don't comply with the agreement or other binding WTO requirements.

A main legal point that may become the subject of a WTO complaint is the issue of "standing" and which parties have the right to file a petition seeking the imposition of textile or apparel quotas based on a surge of Chinese imports.  China could claim the new rules, which would allow trade associations to file complaints even for products their members don't make, is a violation of WTO rules, one lawyer told WTTL.

International Trade Administration (ITA) officials have brushed aside such arguments, claiming the anti-surge provisions in China's accession agreement are not comparable to requirements under normal WTO agreements on safeguard actions or anti-dumping and countervailing duty cases.  Under those rules, petitions have to be filed "on behalf" of the industry making like products.

Another potential cause of a WTO complaint may not arise for a year or more after CITA has applied safeguard restrictions.  Apparel industry lawyers claim China's accession agreement allows an anti-surge safeguard action to be taken only once and doesn't allow the restrictions to be renewed.  If CITA attempts to extend any action beyond a year, China will have a justification for a complaint, one attorney argued.
 

THERMAL IMAGING INDUSTRY WANTS NEW LICENSING STANDARDS

Makers of thermal imaging products, including night vision cameras and goggles, are asking BIS and Defense to establish new, published standards for reviewing and approving export licenses.  Industry executives claim Defense has stopped using Figure of Merit calculations as the sole basis for its recommendations on applications but hasn't revealed what criteria it is using.  The  industry is calling for a standard based on the pixel count of the images produced by these cameras.

The Defense Technology Security Administration (DTSA) is using a wide range of factors to review applications, Steve Tribble, director of business systems for Indigo Systems of Goleta, Calif., told BIS's Sensors and Instrumentation Technical Advisory Committee.  DTSA is examining the military applicability of the product, whether it was developed for military applications, if Defense funded its development, and whether the equipment can be easily converted to military applications, Tribble told the committee.

The Pentagon is also looking at the end use of the devices.  That has helped make it easier to get approval for equipment going to municipal firefighting organizations and government agencies of  U.S. allies, as well as to countries that don't pose a diversion risk, he noted.  The industry is developing a formal proposal to submit to BIS and DTSA.  Meanwhile, a Wassenaar Arrangement working group is considering a Swedish proposal that would decontrol thermal imaging products with a 160 x 120 pixel count.  Industry executives speculate that Stockholm may have made the proposal at the recommendation of Sweden-based FLIR Systems. The Swedish proposal is being prepared for a plenary meeting of Wassenaar members in December 2003.
 

DEFENSE REVIEWING CONDITIONS IT PLACES ON EXPORT LICENSES

The Pentagon's Defense Technology Security Administration (DTSA) is undertaking several internal reforms that should help speed up the agency's review of Commerce Control List (CCL) and Munitions List (ML) licenses, according to DTSA's Director Lisa Bronson.  DTSA has already corrected "the horror stories" of three years ago when licenses languished for 160-180 days, she said.  It now completes CCL cases in 15-17 days on average and ML cases in 22-23 days.

One of DTSA's main initiatives is a complete review of all provisos it places on ML and CCL licenses, Bronson told a conference in Washington.  "Some provisos, frankly, don't make sense," she admitted.  "Some of them are difficult, if not impossible, to understand. Some of them don't seem quite applicable to the technology being licensed," she added.

The addition of provisos to licenses may have stemmed from an attempt to speed up clearances when there is pressure to approve licenses, she suggested.  To address the issue, DTSA has created a proviso review team.  Over the last two months, the group has begun reviewing every proviso to ask if it makes sense and if there is a better way of resolving concerns, she reported.  The agency has established a quality control system to check if provisos on licenses make sense.  "This is going to take a little bit of time and may tack on an extra two or three days to the processing time," Bronson said.

She suggested exporters have the burden of making sure their applications have enough detail and are clear.  There is an "inverse relationship" between that detail and clarity and the amount of provisos and conditions placed on license approvals, she said.

Another change at DTSA will be a reorganization of its technical branch, which is now divided by whether the case it is reviewing is a CCL or ML product.  The new organization will be arranged by technology so that similar products will get similar treatment regardless of the list it is on, she said.  DTSA is also sending its staff out to visit factories and firms to see the real life situations in which the products it reviews are produced and how business operates, Bronson added.
 

LEGAL ADVICE ON NORTH KOREA LEADS TO OFAC SANCTION FOR LAW FIRM

The provision of legal advice to a bank in Europe in 1997 on issues related to North Korean debt has cost the law firm of Dewey Ballantine a $13,750 civil fine to settle a complaint by Treasury's Office of Foreign Assets Control (OFAC).  OFAC, in its weekly release of enforcement actions, said the firm paid the fine to resolve allegations involving the "provision of services and dealing in property in which North Korea had an interest."  Sources close to the case said the firm neither admitted nor denied the charge and reached the settlement to close the case.

The alleged incident involved a European bank that was restructuring debts it was holding.  Among the instruments in its portfolio were debts for a North Korean entity.  A Dewey Ballantine lawyer was advising the bank on the application of U.S. laws to the transaction, but did not deal directly with any North Korea party and did not benefit from the North Korean business, one source explained.

OFAC had been investigating the firm's role in the financial restructuring but no action was being taken and no hearing was held on the allegations, according to one source.  In return for payment of the fine, Treasury issued a letter to Dewey Ballantine, saying the agreement represented full and final settlement of the case.   While OFAC is just beginning to release information on the settlement of cases, there apparently have been previous unreported cases of law firms being fined for work involving sanctioned activities.  Although these cases have raised constitutional issues relating to the right to have legal counsel, no firms have challenged OFAC in court.

 * * * BRIEFS * * *

COLOMBIA: Colombian officials say they believe USTR Robert Zoellick's visit, tentatively set for early July, to their country, will set stage for Colombia to be among next candidates for FTA talks with U.S.  Negotiations could begin before end of 2003, they contend.

MIDDLE EAST: U.S. and Bahrain May 21 announced intention to enter FTA talks, but gave no date for when White House would formally notify Congress of beginning of talks. U.S. exports to Bahrain in 2002 were just $419.2 million, of which $146.7 million were defense related.  Imports from Bahrain were $395 million, including $172 million in cotton apparel and $63.5 million in bauxite.  Separately, Sens. John McCain (R-Ariz.) and Max Baucus (D-Mont.) introduced legislation May 22 to establish trade preference program for Middle Eastern countries modeled on African and Andean programs.

LAWN FENCES: In final antidumping ruling May 20, ITC split 2-2 on whether U.S. industry is being injured by imports of lawn and garden steel fences from China.  Tie goes in favor of domestic petitioner.

TRADE PEOPLE: Assistant USTR Regina Vargo May 21 was awarded 2003 Woman of the Year in Trade by Association of Women in International Trade.

EXPORT ENFORCEMENT: Versa-Matic Pump of Export, Pa., has agreed to pay $55,000 civil fine to settle BIS complaints that on 10 occasions between 1997 and 2000 it exported controlled diaphragm pumps to China, Egypt and Israel without approved licenses and on three SEDs provided false information.

MORE EXPORT ENFORCEMENT: BIS imposed $10,000 civil fine on Howmet of Darien, Conn., for sending controlled ceramic core technology three times in 1997 to its own affiliates in Japan and United Kingdom without approved license.

JAPAN: Following meeting of President Bush and Japanese Prime Minister Koizumi in Crawford, Texas, May 23, two countries released second annual report on regulatory reform in Japan. USTR Robert Zoellick praised Tokyo's approval of 117 "deregulation zones" where firms can operate free on many regulatory requirements.  Establishment of zones at seven Japanese air and sea ports has resulted in 50% reduction in overtime fees for customs operations, Zoellick reported.

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