Volume 23 No. 22 -- June 2, 2003

IN THIS ISSUE:

* Defeat of MTOPS Amendment Bodes Ill for EAA Legislation
* Supreme Court Rejects Appeal of Harbor Tax Interest Case
* Canadian Proposal May Be Basis For Softwood Lumber Deal
* FDA Revises Advance Notification Proposal for Food Imports'
* Defense Bill Tries to Strengthen "Buy-America" Requirements
* OFAC Gives Okay to Iraq Trade, But Controls Still Remain
* BRIEFS: Middle East, Chile, EU Medicine, Coke, Antidumping Act
 

DEFEAT OF MTOPS AMENDMENT BODES ILL FOR EAA LEGISLATION

The House's refusal to repeal obsolete export controls on computers makes it more unlikely that Congress will enact a new Export Administration Act (EAA) the exporting community can accept.  By a 217 to 207 vote May 22, the House rejected an amendment offered by Reps. David Dreier (R-Calif.) and Zoe Lofgren (D-Calif.) to the 2004 National Defense Authorization Act (H.R. 1588) to repeal existing export licensing requirements for computers based on million theoretical opera-tions per second (MTOPS), including requirements for post-shipment verifications.

The failure to get such a modest change in export rules is an indication that lawmakers still support tough controls, administration officials acknowledge.   Nonetheless, they are trying to find a glimmer of hope in the narrowness of the vote, the fact that the proposal was raised only late in the NDAA's consideration, and there was little time to muster a full lobbying effort.

While repealing current MTOPS requirements imposed in the 1998 NDAA, the amendment would have required the president to develop a new metric to control computers within 120 days after the law's enactment.   During the debate on his amendment, Dreier called the current system "a very outdated structure."  He said he worked closely with the administration in drafting the amendment.

The amendment faced strong opposition from House Armed Services Committee Chairman Duncan Hunter (R-Calif.), who is proving to be the staunchest proponent of export controls in Congress.  "This amendment guts a very important aspect of national security, and that aspect is knowledge," Hunter said on the House floor.  "The idea that we want to take away notice when a supercom-puter is sold to one of these third-tier countries so that we do not know if we are transferring a supercomputer to Osama Ben Laden Construction Corporation...makes no sense," he declared.

Bush administration efforts to support the bill didn't bring in enough votes.  Presidential National Security Advisory Condoleezza Rice and Commerce Secretary Don Evans sent letters to Drier backing the amendment.  "Eliminating this requirement...would provide the executive branch the flexibility to design export controls for high-performance computers that more effectively promote nationals security while keeping pace with rapid technological changes," Evans wrote.
 

SUPREME COURT REJECTS APPEAL OF HARBOR TAX INTEREST CASE

The Supreme Court May 27 dashed exporting community hopes for a $700 million windfall in government payment of interest on money paid for the unconstitutional Harbor Maintenance Tax (HMT).  Without comment, the Court denied a writ of certiorari filed by a group of exporters and associations, who were appealing a circuit court ruling in the U.S. Shoe case (see WTTL, May 5, page 2).  The appellate court had said exporters were not entitled to interest on their HMT payments.  The Supreme Court also reject a companion writ petition filed in the Hohenberg case.

"It was a very major disappointment," said Bob Stack, of the New York law firm of Tompkins & Davidson, which was one of the firms representing exporters in the case.   The petitioners thought they had a good chance of winning a review of the case, because they had brought in constitutional experts Laurence Tribe and Charles Fried to assist in drafting the brief, he noted.

With the Supreme Court's decision, exporters may have one last long shot at getting the Court to hear their case.  A possible appeal of another HMT test case, brought by IBM, could get accepted by the Court, Stack suggested.  The success of an IBM appeal may depend on whether it could narrow the issue down to one the Supreme Court might be willing to hear, he noted. At the same time, "it may be an exercise in futility," Stack admitted.  Of all the suits attacking the HMT, only participants in the Swisher case have succeeded in winning interest on their payments.  If U.S. Shoe had prevailed in getting and winning a Supreme Court review, as many as 3,500 additional exporters could have been eligible for interest on their HMT refunds.
 

CANADIAN PROPOSAL MAY BE BASIS FOR SOFTWOOD LUMBER DEAL

A new Canadian plan for an interim agreement to resolve the U.S.-Canada softwood lumber dispute appears to getting a more positive reaction on both sides of the border than previous proposals.  The Canadians are now waiting for a counterproposal from the U.S. Coalition for Fair Lumber Imports, which is expected to give its response by the end of the week of June 2.

The new proposal, which is a form of tariff-rate quota, comes as a preliminary report by a World Trade Organization (WTO) dispute-settlement panel has found the U.S. violated WTO rules by using a cross-border price comparison methodology to determine the level of the subsidy Canadian provinces gave their forestry industries through the stumpage fees they charged for cutting government-owned timber.  The panel, however, supported Washington's contention that the provision of natural resources to a specific industry can be considered a countervailable subsidy.

The Canadian industry previously had rejected a Coalition proposal for an interim deal based on the Canadian share of the U.S. lumber market (see WTTL, May 19, page 3).  The new Canadian plan, according to Canadian sources, would allow duty-free imports of Canadian lumber up to a level equal to 90% of Canada's current share of the U.S. market, which is about 34%.

For the first 5% (90-95%) above that level, a Canadian export tax of $25 per million board feet would be imposed.  For the next 5% (95-100%), the tax would go up to $50 per MBF.  The Canadians also want their cash deposits on the current countervailing duty (CVD) order returned, while having some of their antidumping duty deposits returned and the rest given to a fund to promote lumber sales.

Canadian sources say they already expected the Coalition to argue that the proposed tariff levels aren't high enough.  Coalition sources, however, haven't rejected the Canadian plan yet, which is a positive sign in itself.  Asked whether the Canadian proposal might be the basis of an interim deal, one U.S. industry source gave the cryptic response, "We'll see."  The plan, he noted, raises many technical questions, including how it will be monitored and enforced, and how quota shares will be divided among Canadian producers.

Meanwhile, the preliminary WTO ruling on the final U.S. CVD order on Canadian lumber, which won't be officially released for another month, surprised no one.  A previous panel had reached essentially the same conclusion on the earlier challenge of Commerce's preliminary CVD decision.  Rather than affecting talks on an interim agreement, the ruling is likely to have a greater impact on the binational NAFTA panels hearing parallel complaints against the U.S. actions on lumber, one source noted.

While Washington decided not to appeal the ruling on the preliminary order, because it considered the dispute moot, it is certain to appeal the latest panel findings.  If the U.S. loses the appeal, it will likely have another 12-15 months to come into compliance with the panel decision.  Any effort to come into compliance with the WTO rulings could interfere with actions to comply with the NAFTA panel rulings, if the U.S. loses those cases as well, a source observed.

A legal dispute is already brewing over whether the International Trade Administration (ITA) would have to use the existing record in the CVD case to calculate a new subsidy rate or if it would be able to reopen the record to collect more data and more comments from the parties.  Coalition sources say they expect ITA will want to reopen the record or open a new case.

Canadian interests, however, claim ITA can't do that and will have to use the existing record.  While the record includes data on Canadian market-based prices to compare against the stumpage fees, the information is not complete for all provinces, one source explained.
 

FDA REVISES ADVANCE NOTIFICATION PROPOSAL FOR FOOD IMPORTS

The food and agriculture industries will get a little relief from the overlapping advance import notification requirements they will face due to an agreement between the Food & Drug Administration and the Customs Bureau on filing requirements.  The two agencies May 27 announced that they have agreed that electronic "prior notice" filings by food importers will be made through the bureau's Automated Commercial System (ACS).

Initially, FDA officials said they were developing their own electronic filing system because ACS wasn't able to accommodate the advance filing requirements imposed by the Bioterrorism Act (see WTTL, Feb. 10, page 1).  That sparked complaints from the trade community, which is facing a myriad of advance import and export filing requirements under several pieces of legislation enacted after Sept. 11, 2001.

FDA and Customs staffers have been trying to resolve the problems in ACS system since FDA proposed its advance filing rules in February.  "As a result of this collaboration, importers, in most circumstances, will be able to provide the required information to FDA using this existing system, making it easier for them to comply with the new law," the two agencies stated.  FDA is reviewing comments on its prior-notice rules and expects to publish a final order in early October.  The Bioterrorism Act requires the rules to be in place no later than Dec. 12, 2003.
 

DEFENSE BILL TRIES TO STRENGTHEN "BUY-AMERICA" REQUIREMENTS

The Pentagon is mounting a lobbying campaign to strip out sections of the House-passed 2004 National Defense Authorization Act (NDAA) (H.R. 1588) which would limit the department's ability to waive "Buy-America" rules in Defense procurement and would require the creation of several new lists of critical military and civilian products and technology that should be sourced solely in the U.S.  The battle against the provisions is expected to take place in the House-Senate Conference Committee, which will try to reconcile the bill the House passed on May 22 with a version (S. 1050) passed by the Senate as an alternative measure on May 23.

The provisions in the House bill have the backing of Armed Services Committee Chairman Duncan Hunter (R-Calif.), who reportedly is upset with the Pentagon's over use of its waiver authority under Buy America laws.  "The committee believes that the waiver authority in existing law is overly broad and should be limited to a more narrow set of conditions," the committee report on H.R. 1588 declared.

Among the elements in the House bill are requirements for Defense to assess the ability of the U.S. industrial base to produce needed military systems, to identify military items and components that are critical to the U.S. industrial base but are made outside the U.S., and to purchase "certain critical items only if they are entirely produced in the United States."  The bill authorizes Treasury to establish a Defense Industrial Base Capabilities Fund of $100 million to help American firms manufacturer these military products.

Bill would require Defense to establish a Goods and Technologies Critical for Military Superiority List (GTCMS), which would comprise a catalog of products and know-how that "could enhance a potential adversary's military capabilities or are critical to the United States maintaining its military superiority," the report noted.  The list would use the Commerce Control List (CCL) numbering system and "should use an updated version of the Militarily Critical Technologies List as a starting point," it added.  A controversial provision would prohibit Defense from buying items or components of military systems from any country that restricted military sales to the U.S. or failed to support U.S. operations in Iraq after Sept. 12, 2002.
 

OFAC GIVES OKAY TO IRAQ TRADE, BUT CONTROLS STILL REMAIN

"It is no longer a crime for U.S. companies and individuals to do business with Iraq," declared Treasury Secretary John Snow May 27.  But that doesn't mean it will be easy.  Snow's declaration came as he announced publication of a new Office of Foreign Assets Control (OFAC) general license May 23 which said, "Except as provided in paragraph (b) of this section, on or after the effective date [May 23, 2003] of this section, all transactions that are otherwise prohibited by subpart B of 31 CFR part 575 are authorized."

It's the except in "paragraph (b)" proviso that will keep export managers busy.  While most trade and financial transactions with Iraq will now be permitted, restrictions remain on Munitions List exports, dealings with blocked parties, Commerce Control List (CCL) items, persons on State and UN watch lists, specially designated nationals, and trade in cultural items (see WTTL, May 12, page 1).

The general license advises exporters to consult the Bureau of Industry and Security (BIS) to determine which items remain "controlled" under Export Administration Regulations (EAR) Section 746.3.  It also notes that controls under Section 744, which apply Enhanced Proliferation Control Initiative (EPCI) restrictions on exports to certain end users and end uses, continue to apply.
 

 * * * BRIEFS * * *

MIDDLE EAST: Discussion of President Bush's proposal for U.S.-Middle East Free Trade Agreement will be on agenda for his talks with Arab leaders in Sharm el-Sheik after he attends G-8 Summit in Evian, France, according to National Security Advisory Condoleezza Rice.  Following Bush's visit to region, USTR Robert Zoellick is scheduled to travel to Jordan to continue talks, she said.

CHILE: All's forgiven, if not forgotten.  USTR Robert Zoellick will sign U.S.-Chile FTA in Miami June 6, but without White House hoopla given Singapore FTA (see WTTL, May 12, page 4).

EU MEDICINES: EU Council of Ministers May 26 adopted regulations banning re-import of certain drugs for HIV/AIDS, malaria and tuberculosis from 76 poor countries.  Measure is intended to encourage European drug makers to sell products for these three disease to poor nations at significantly discounted prices without fear that medicines would be diverted back to EU for sale.

COKE: CIT Judge Richard Eaton has remanded back to ITC (Slip Op. 03-56) its negative preliminary determination in antidumping case against blast furnace coke from China and Japan. Eaton told ITC to reexamine or restate with specificity 12 specific issues in its original decision.

ANTIDUMPING ACT: Before leaving Washington for Memorial Day recess, Senate Finance Committee Chairman Charles Grassley (R-Iowa) introduced bill to repeal Antidumping Act of 1916, which WTO panel has ruled violates WTO trade rules.  Provisions of that law allow private parties to sue importers of dumped goods and imposes criminal liability on dumping.

CIRCUIT BREAKERS: U.S. industry is not being injured by allegedly dumped imports of hydraulic magnetic circuit breakers from South Africa, ITC determined on 4-0 vote in preliminary ruling May 29.

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