Volume 23 No. 24 -- June 16, 2003

IN THIS ISSUE:

*  EU Failure To Reform CAP Dims Prospects for WTO Meeting
*  Trade Bar Weighs Next Moves to Win HMT Interest for Exporters
*  Chile, Singapore FTAs Could Get Could Caught in House Bickering
*  U.S., Canada Move Closer to Deal on Softwood Lumber
*  BRIEFS: Australia Group, Terrorists, AGOA III, China, Burma, Byrd
 

EU'S WATERED DOWN FARM REFORMS DIM PROSPECTS FOR WTO MINISTERIAL

The modest hope that the European Union (EU) would revise its Common Agriculture Policy  enough to save the World Trade Organization (WTO) ministerial in Cancun was dashed June 13.  An ambitious plan pushed by EU Farm Commissioner Franz Fischler for reforming the CAP was trimmed in a compromise text presented to the EU Council of Agriculture Ministers, which was still unable to agree on the changes.  Their meeting was suspended and will resume June 17.

Before the meeting, France and Germany reportedly were working together to derail Fischler's proposals.  The compromise text reflects some of their demands for maintaining domestic support and not decoupling support and production.

The text would keep support for young farmers and rotational set-asides.  It also would maintain support for sheep and goats in less favorable or mountainous areas, for drying cereals and direct payments to outermost regions.  The new plan would delay any decision on dairy quotas until after 2008 and allow decoupling only after other CAP reforms are fully implemented.

The French and German efforts to block CAP reform drew harsh reactions from U.S. lawmakers.  "I'm very disappointed by press reports that France and Germany this week agreed to ally with one another to block substantial reforms of the EU Common Agriculture Policy," said Finance Committee Chairman Charles Grassley (R-Iowa) in a statement. "Without the adoption of a more market-oriented approach by the EU, it will be much more difficult to succeed in further liberalization of agriculture at the WTO," he added.

Separately, Chief U.S. Agriculture Negotiator Allen Johnson didn't hear much more encouraging news from the Japanese during June 12 talks in Tokyo.  The U.S. has had concerns about Japan's lack of initiative in the WTO talks and those concerns continue, he said after his meeting.

Meanwhile, in Geneva June 10, Director General Supachai warned negotiators that "time is running out" in preparation for the Cancun ministerial.  Only 90 days remain before the meeting, he noted.  "We cannot afford to transmit too many unresolved issues to ministers," he said.
 

TRADE BAR WEIGHS NEXT MOVES TO WIN HMT INTEREST FOR EXPORTERS

Having lost at the Supreme Court, the trade community is exploring alternative ways to get the government to pay exporters interest on the money they paid for the unconstitutional Harbor Maintenance Tax (HMT).  At a June 9 meeting, about a score of trade lawyers and industry representatives discussed the options they may still have for getting more than $700 million in accrued interest on HMT payments (see WTTL, June 2, page 1).  The two main options being considered are further litigation or legislation.  Two subcommittees have been formed to investigate both approaches and to report back in the next couple of weeks on proposed steps.

Although the Supreme Court did not explain why it denied the writ of certiorari filed on behalf of firms backing the U.S. Shoe case, trade lawyers believe a main issue was Justice's successful argument that the government cannot be sued for the payment of interest on any refunds, unless Congress has specifically waived sovereign immunity and provided for such payments.  Since the HMT was not covered by such statutory language, some lawyers are recommending that Congress be asked to enact a new law specifically approving interest payments on HMT money.

Participants in the HMT Steering Committee plan to contact lawmakers and congressional staffers to determine the feasibility of seeking legislation authorizing interest payments and whether Congress would be receptive to giving business a shot at claiming such money after the recent fight over tax legislation.  A main arguments being used to support legislation is the likelihood that many small to medium size exporters across the country would be eligible to get some of the money.   On the other hand, just as exports are dominated by a relatively small number of large firms, the bulk of the interest payments probably would go to those firms.

Continuing litigation has several drawbacks, including the record of previous losses at the Court of Appeals for the Federal Circuit (CAFC), as well as the High Court's recent decision.  A key factor may be whether supporters of the IBM suit, which is a designated test case on the interest issue, decide to file their own writ of certiorari with the Supreme Court.  The deadline for filing the writ is June 17, and as of press time, no decision had yet been made, sources told WTTL.

Combined with the IBM appeal, other pending suits could be pursued at the CAFC, including cases in which parties may seek an en banc hearing by the full bench.  The IBM case, though, would be a linchpin, because of previous proceedings at the Court of International Trade (CIT), in which some exporters waived the right to sue the government for interest unless IBM prevailed.

Separate from the legal and legislative questions, several law firms are trying to determine whether they have clients who would be willing to pay to continue the litigation or to launch a costly lobbying campaign in Congress for a new law.  Attorneys are preparing numbers on the price tag for a legislative effort compared to the potential interest individual companies might get paid.
 

CHILE, SINGAPORE FTAs COULD GET CAUGHT IN HOUSE BICKERING

At first, it seemed like it would be clear sailing for congressional approval of the U.S. free trade agreements (FTAs) with Chile and Singapore, with few constituencies raising objections to the deals.  Now, however, the legislative process is getting rougher because of a procedural fight brewing between Democrats on the House Ways and Means Committee and Chairman Bill Thomas (R-Calif.).  Absent a fight, trade subcommittee chairman Phil Crane (R-Ill.) said he looked forward to House passage of the two implementing bills before Congress's August recess.

Statements reportedly made by Thomas have given the Democrats the impression that he won't follow the traditional fast-track procedure of holding "nonmark-up mark-ups" of proposed implementing legislation the Bush administration will send to Congress.  Under procedures used for previous trade agreements, lawmakers get a chance to review and amend the legislation before it is formally introduced, after which it is not amendable under fast-track rules.  At press time, the White House was ready to submit the advance legislation, sources told WTTL.

Thomas apparently has indicated that he intends to gather the views of other lawmakers but not necessarily through a mark-up process.  "Simple assurances by the chairman that members will be given the opportunity to raise concerns with USTR is no substitute for a structured, public, long-standing process," said Rep. Sander Levin (D-Mich.) in a statement releasing a letter 17 Democrats
sent to Thomas.

The letter noted that the Senate Finance Committee has already indicated it intends to hold a nonmark-up mark-up.  "We are writing to express our hope that the Ways and Means Committee will do so as well," the Democrats wrote.  "Failure to proceed in this manner will only fuel suspicion about provisions in this legislation," they warned.

The Democratic protest came after a June 10 Ways and Means trade subcommittee hearing on the two FTAs.  Deputy U.S. Trade Representative (USTR) Peter Allgeier faced mostly mild questions from the panel.  The key concern raised by Levin, the subcommittee's ranking Democrat, was administration plans for using the labor and environment provisions of the Chile and Singapore accords as the template for provisions in a deal for a Central American Free Trade Area (CAFTA).

"One of the biggest threats to smooth passage of the Chile and Singapore FTAs is a concern that the administration is beginning to use some of the provisions as a model for other FTAs," he told the hearing.  The "enforce-your-own-law" standard in the two agreements won't work in deals such as the one with Central America "when a country's laws do not reflect international standards and when there is a history, not only of nonenforcement, but a hostile environment towards the rights of workers to organize and bargain collectively," Levin declared.

The Michigan Democrat challenged Allgeier's explanation of how the Integrated Sourcing Initiative (ISI) within the Singapore accord is supposed to work.  Levin suggested the provision might allow components, specifically for machine tools, from China and Japan to be counted toward Singaporean content in the pact's rule of origin.   The provision covers only certain identified information technology products and would not apply to Japan or countries "other than those processing zones in Indonesia that are part of the ISI," Allgeier asserted.  "Ambassador, I think that's not correct," Levin injected.  ‘It is a concern. We need a straight answer from you," he added, suggesting any misinterpretation could be taken care of in the implementation legislation.
 

U.S., CANADA MOVING CLOSER TO DEAL ON SOFTWOOD LUMBER

A Canadian proposal for an export tax on its own softwood lumber based on a tariff-rate quota (TRQ) has become the basis for talks that may lead to a U.S.-Canada agreement that could lift  countervailing (CVD) and antidumping duties on Canadian lumber (see WTTL, June 2, page 2).  While the structure for the tax appears to be acceptable to the U.S. Coalition for Fair Lumber Imports, the Coalition and Canadian industry remain far apart on the exact numbers that would be plugged into the TRQ, which means several more weeks of negotiations lie ahead.

A deal to suspend the duties while Canadian provinces implement long-term changes in their stumpage programs will need both a structure and the right numbers, a Coalition source said.  "This gets us over the first hurdle," he said. The Coalition was preparing to give U.S. officials a counteroffer to discuss with Canadian trade officials the week of June 16.  One of the Coalition's objections to the proposed Canadian figures is that they are based on 2002 trade data and not historical data.

Although Canadian officials proposed the TRQ based on suggestions from segments of their industry, not all Canadian producers support it.  Some parties are urging the Canadian industry to hang tough and wait for the WTO and NAFTA dispute-settlement processes to produce rulings against Washington's actions.  Others want a deal because the combination of U.S. duties and poor business conditions are seriously hurting many Canadian firms. They see an interim agreement as a way to restore some certainty to the market.

Some of the objections to the plan in Canada stem from concerns about the treatment of non-subsidized lumber in the Maritime Provinces and about how Ottawa would collect the export tax.  A Coalition source said these issues can be addressed by Canada through a preferential allocation for the Maritimes and by other government actions.

Meanwhile, as details emerge about the supposedly confidential WTO dispute-settlement panel's interim ruling against the U.S. CVD decision, Canadian sources claim the win was even better than first reported.  They discount the importance of the panel's finding that the provision of a right to use a natural resource, such as Canada's stumpage fee system for harvesting government-owned timber, can be considered a "financial contribution" like a grant for a good.  The panel said the right must still provide a benefit to be considered countervailable and a benefit only accrues when the payment for that right is not equal to its value, one source explained.

In rejecting Commerce's use of cross-border price comparisons to determine if the payments were adequate, the panel said the U.S. has to use Canadian private-sector sales as the basis for finding a subsidy.  Canadians contend those numbers will show their industry paying more than private-sector prices for some stumpage fees.  In some cases, the provinces make a profit on the fees, one source claimed.  In the last softwood lumber dispute in the mid-1990s, Commerce found only a 3.1% subsidy.
 

 * * * BRIEFS * * *

AUSTRALIA GROUP: BIS in June 10 Federal Register updated EAR provisions to implement  changes in chemical controls that Australia Group adopted at June 2002 plenary meeting.  Final rule clarifies BIS policies for reviewing license applications for chemicals, including circumstances likely to lead to denial of licenses.  Other revisions lower size of fermenters controlled by AG to 20 liters from 100 liters and amend rules for cross (tangential) flow filtration equipment.

 DESIGNATED TERRORISTS: BIS and OFAC issued parallel rules in Federal Register June 6 shifting jurisdiction for foreign persons exporting or reexporting to specially designated global terrorists and foreign terrorist organizations (see WTTL, March 10, page 3).  Separately OFAC also issued final rule amending global terrorism sanctions regulation.

AGOA III: Business and NGOs joined June 10 to launch AGOA III Action Coalition. Among group's goal is getting legislation to extend African Growth and Opportunity Act to 2015 from 2008 and to extend rule-of-origin exemptions for use of third-country fabric beyond 2004.  Ex-HUD Secretary Jack Kemp, former Assistant USTR Rosa Whitaker and Coca-Cola's Care Ware are co-chairs.  Long-term extension of current law is needed because global economic slowdown of last three years prevented sub-Sahara Africa from getting full advantage of current law, participants in Coalition contend.  They also say foreign investors, mostly from Asia, need assurance of multi-year access to U.S. market to warrant investment in Africa,.

SACCHARIN: In final antidumping ruling June 12, ITC voted 4-0 that dumped imports of saccharin from China are injuring U.S. industry.

CHINA: Beijing may have averted -- at least for now -- U.S. complaint at WTO against its implementation of TRQs on soybeans and other agriculture products.  After talks in China, Chief USTR Agriculture Negotiator Allen Johnson said he "would not claim we've resolved every issue."  But Chinese have promised to improve fairness of TRQ implementation.  Johnson said no determination has been made on WTO complaint. U.S. will wait to see how TRQs are filled, he said.

BURMA: On 97-1 voted, Senate June 11 passed bill (S. 1215) to ban U.S. imports from certain identified Burmese companies in reaction to ruling military's stepped up violation of human rights. Although apparel industry came out several weeks ago in support of banning textile imports from Burma, other business groups say the ban is WTO-illegal and could be challenged by Burmese government.  Industry representatives were pleased, however, that Senate bill requires annual renewal of sanction, which could allow for lifting restrictions, if situation changes.  Similar bill (H.R. 2330) is pending in House, making enactment of sanctions very likely.

AFGHANISTAN: In speech in Chicago June 9, Commerce Under Secretary for International Trade Grant Aldonas reaffirm Bush administration's commitment to rebuilding Afghanistan and expanding trade with it.  He said he will lead business development mission there in fall.

BYRD AMENDMENT: WTO arbiter has ruled U.S. can have up until Dec. 27, 2003, to repeal so-called Byrd Amendment, which dispute-settlement panel has found to violate WTO rules.

TRADE FIGURES: Merchandise exports in April of $57.2 billion were up less than 1% from April 2002, while goods imports increased 7.4% to $103.8 billion.  Services exports of $23.8 billion were unchanged from last year, as services imports rose 5.3% to $19.2 billion.

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