Volume 23 No. 25 -- June 23, 2003

IN THIS ISSUE:

* IBM Makes Another Try to Get Supreme Court to Review HMT Issue
* Thomas Working to Strengthen Coalition for His FSC/ETI Bill
* Steel Users Get Chance to Object to Continued Safeguard Relief
* U.S., Brazil Seek to Build Ties, But Trade Friction Remains
* Work on Chile, Singapore FTAs Begins In Congress
* U.S., EU Summit Will Aim To Calm Transatlantic Fights
* BRIEFS: Iraq, Encryption, Antiboycott, China, TVs, India, Pakistan
 

IBM MAKES ANOTHER TRY TO GET SUPREME COURT TO REVIEW HMT ISSUE

With highly sophisticated legal arguments having failed before, IBM has turned to common sense to persuade the Supreme Court to hear its plea that exporters are entitled to interest on the fees they paid for the unconstitutional Harbor Maintenance Tax (HMT).  IBM filed its writ of certiorari with the High Court June 17, despite the Court's refusal just a few weeks earlier to hear a similar plea filed in the U.S. Shoe case (see WTTL, June 16, page 1).

Although the Supreme Court gave no explanation for why it refused to grant certiorari to U.S. Shoe, IBM argued that the court's decision was wrong.  "With respect, IBM believes the Court's recent denial of certiorari was ill-conceived," wrote its counsel, William Outman of Baker & McKenzie.

The initial ruling of the Court of Appeals for the Federal Circuit (CAFC) and Justice's arguments against certiorari in the U.S. Shoe case were based on the premise that there was no statutory provision specifically granting interest on the HMT refunds.  IBM's common sense argument turns the government's position upside down.  Since Congress has explicitly provided for interest on refunds of taxes and duties, then the government must pay interest on HMT fees, which the Supreme Court declared to be an unconstitutional export duty, IBM argued.

Just as U.S. Shoe had claimed the HMT was a "taking" of property that was entitled to interest payments, IBM argued that exporters are entitled to the "time-value of the money held in trust" by the government.  The writ noted previous rulings which have held that the repayment of funds should be based on the amount of the property owner's loss and not the government's gain.  If all other arguments fail, the Court should agree to approve the interest payments based on the equitable doctrine of restitution, which several appellate courts have supported, IBM contended.
 

THOMAS WORKING TO STRENGTHEN COALITION FOR HIS FSC/ETI BILL

The staff of House Ways and Means Committee Chairman Bill Thomas (R-Calif.) in recent days have stepped up a month-long effort to gain business community support for a bill Thomas intends to introduce to repeal the Foreign Sales Corporation/Extraterritorial Income Tax (FSC/ETI).  So far, however, it appears they are failing to win the backing the legislation needs to pass the House (see WTTL, May 12, page 4).

While a core of some 50 companies have indicated support for the Thomas bill, his staff reportedly has not been able to enlarge that base much.  GOP leaders reportedly have told Thomas his bill won't get to the floor unless it is amended to appeal to more of the industries that will be hurt by FSC/ETI repeal.

One roadblock to floor action is House Speaker Dennis Hastert's (R-Ill.) apparent tilt toward an opposing FSC/ETI bill (H.R. 1769) sponsored by Reps. Charles Rangel (D-N.Y.) and Phil Crane (R-Ill.).  The Illinois congressional delegation is strongly influence by Illinois-based Caterpillar, which helped draft the Crane-Rangel measure.  But Thomas staffers reportedly have told industry representatives that committee won't consider Crane-Rangel bill.  If that happens, there is speculation that the House Rules Committee might modify the Thomas bill before it allows the measure to go to the floor for a vote.

Thomas's new draft bill, which sources say changes daily, offers more benefits to exporters than the legislation he introduced last year.  He has amended the measure to bring in more support and to peel away backers from the Crane-Rangel bill.

According to those who have been briefed on its content, the new proposal would shield some old FSC/ETI income from full taxation, providing a 5.25% tax rate on repatriated foreign profits and revising Subpart F rules.  It would include special provisions favorable to the film industry, grandfather foreign leases and extend the research and development tax credit 30 months.

But the measure's greatest benefits would go to large multinational companies with large foreign source income.  This contrasts with H.R. 1769, which would phase-in the repeal FSC/ETI over five years, but would replace it with new tax benefits for domestic manufacturers.  The introduction of the Thomas measure has been anticipated for weeks, but has been delayed by congressional consideration of tax and Medicare bills, as well as the desire to build more business community support.  It is now expected shortly after lawmakers return from the July Fourth recess.

As with most tax bills, the House and Senate versions of FSC/ETI reform are likely to grow in size with more tax breaks for more industries as they move toward passage.  "There will be a lot of candy on the table," one industry representative told WTTL.  Lawmakers could have more flexibility to give away these goodies because the full value of FSC/ETI may be much larger than previous estimates of $4-5 billion.  Congressional offices have intentionally not asked for new revenue estimates to avoid giving the European Union (EU) a higher target for retaliation.  Some sources, however, put the current value of FSC/ETI in the $7-8 billion range.
 

STEEL USERS GET CHANCE TO OBJECT TO CONTINUED SAFEGUARD RELIEF

A clever congressional maneuver has given steel-consuming industries a chance to get their opposition to Section 201 import restrictions on steel into the report that will go to President Bush Sept. 19 on the economic impact of the safeguard measure.  Rather than getting just a Section 204 report from the International Trade Commission (ITC) examining the effect of relief primarily on domestic steel producers, Bush will also receive an ITC Section 332 fact-finding study on how the Section 201 action is affecting competitive conditions in steel-consuming industries.

"The commission will transmit to the president and the Congress these two separate reports simultaneously as one document," stated ITC Chairman Deanna Okun June 19 at the start of a two-day hearing in the 332 investigation.  She said combining the two reports was requested by House Ways and Means Chairman Bill Thomas (R-Calif.) and the U.S. Trade Representative's office "had no objection."

Normally, consuming industries are given little attention in Section 204 reports, which examine safeguard actions at their mid-point and help the president decide whether to terminate, maintain or modify the relief.  By requesting the Section 332 study, Ways and Means created a way to get around those limitations.  Meanwhile, the fate of the 201 relief is further complicated by a World Trade Organization (WTO) dispute-settlement panel's ruling that the steel action violates WTO safeguard rules and will have to be terminated.  The EU has threatened to retaliate, if Washington doesn't end the measure once the WTO makes its final determination.

At the ITC hearing, steel producers and their customers presented deeply divided views of the impact of relief.  A long line of executives from the auto parts, electrical, machinery and metal-forming industries complained about higher prices, shortages and increased competition from foreign firms with lower steel costs.  In some cases, firms are shifting production to foreign locations to take advantage of lower priced steel, because they can't pass their higher costs on to the customers.  The American Iron and Steel Institute (AISI), which represents domestic producers, rebutted those arguments.  "The 201 critics are distorting the truth about the tariffs," said AISI President Andrew Sharkey in his prepared testimony.  A report prepared for the steel industry by Charles River Associates stressed the need to revise standard economic models to consider the longer-term benefits of import relief and also to weigh the global affect on the safeguard action.
 

U.S., BRAZIL SEEK TO BUILD TIES, BUT TRADE FRICTION REMAINS

Bush administration officials are so pleasantly surprised by the moderation and effectiveness of Brazilian President Luiz Lula da Silva's new government that they can't find enough ways to praise him and his new cabinet.  But all the nice words can't mask U.S. concerns that Brazil's effort to strengthen its role in Latin America will make it more difficult to reach agreement on a Free Trade Area of the Americas (FTAA) by the end of 2004.

But during a meeting in Washington June 20, Lula and President Bush reaffirmed their goal of completing FTAA by January 2005.  The U.S. and Brazil co-chair those negotiations, which some critics contend are stalled.  In addition to the presidential statement, U.S. and Brazilian officials announced several initiatives aimed at increasing cooperation between the two countries.  Joint initiatives were announced on agriculture, energy, finance and HIV/AIDs in Portuguese-speaking Africa.

WORK ON CHILE, SINGAPORE FTAs BEGINS IN CONGRESS

The House Ways and Means Committee as early as the week of June 23 could be ready to conduct a "nonmark-up mark-up" of legislation and the Statements of Administrative Action (SAA) on measures to implement the U.S. Free Trade Agreements (FTAs) with Chile and Singapore.  House and Senate trade staffers have begun the informal review of the draft texts with Bush administra-tion trade staffers.  The Senate Finance Committee probably won't get to the two accords until after Congress returns from its Fourth of July recess (see WTTL, June 16, page 2).

After initially signaling that he might not hold a "nonmark-up mark-up," Ways and Means Chairman Bill Thomas (R-Ill.) has bowed to Democratic complaints and agreed to hold the informal mark-up session. Since most of the potential changes in the measures are being worked out at the staff level with the administration, no major changes are likely to be made during the mark-up session.

Once Ways and Means and Finance complete this informal mark-up process, the White House will formally send Congress the two implementing bills and SAAs.  Under fast-track rules, that legislation will not be amendable either in committee or on the floors of the House or Senate.  On their submission, a time clock starts ticking with specific deadlines for action by the key committees and the two chambers.  Congressional sources say they don't expect the full time to be needed and passage could come by the end of July or early August.  The lack of controversy or maybe interest in the two agreements may have been reflected in the fact that only two senators showed up to hear Deputy USTR Peter Allegeier testify on the accords June 17.
 

U.S., EU SUMMIT WILL AIM TO CALM TRANSATLANTIC FIGHTS

A sign of the poor shape of U.S.-European Union (EU) relations is the claim that trade holds the relationship together.  Ahead of the semi-annual U.S.-EU Summit in Washington June 25, EU Trade Commissioner Pascal Lamy said trade "was the most stable part of the transatlantic relationship."  Although there are "a few disputes," he said the relationship "is pretty solid."

To calm the friction over the Iraqi War, the summit will focus on "deliverables," EU officials said.  These are likely to include the opening of talks on a transatlantic aviation agreement, an extra-dition treaty and cooperation on combating weapons of mass destruction.

But as these steps are taken, trade disputes continue to multiple and become more contentious. On June 19, the U.S. said WTO consultations on Washington's complaint against the EU moratorium of the approval of genetically modified organisms (GMOs) have failed.  It will now ask for the formal convening of a dispute-settlement panel to hear the case.  At the same time, the EU said it would ask for WTO dispute-settlement consultations with the U.S. to raise complaints about Commerce's policy of "zeroing" margins in antidumping investigations.  This methodology unfairly raises the dumping margin when negative margins of dumping are found, the EU contends.
 

 * * * BRIEFS * * *

IRAQ: Ex-Im Bank June 19 said it is prepared to consider loan applications for exports to Iraq that involve buyers or letters of credit from banks in third countries.  It also will consider working capital loans for subcontractors participating in USAID-funded contracts.

ENCRYPTION: BIS is June 17 Federal Register issued final "housekeeping" rule amending numerous portions of encryption regulation (see WTTL, June 9, page 1).

ANTIBOYCOTT: BIS June 20 announced agreement with Cook Composites and Polymers of North Kansas City, Mo., which agreed to pay $6,000 civil penalty to settle BIS charges that it told customer in Bahrain that its goods weren't Israeli origin.

CHINA: Government Accounting Office has posted searchable database on its website, www.gao.gov, with all major commitments China made as part of its accession to WTO.

COLOR TVS: There is reasonable indications U.S. industry is being injured by allegedly dumped color television receivers from China and Malaysia, ITC voted 3-0 in preliminary ruling June 16.

EXPORT ENFORCEMENT: BIS June 10 imposed $5,000 civil fine on freight-forwarder Kamino International Transport of Valley Stream, N.Y., because of its "misrepresentation of facts" in BIS investigation.  Firm had told investigators records it was required to maintain and produce on request had been disposed of.  "In fact, Kamino was in possession of the records," BIS said in charging letter.

INDIA-PAKISTAN: State in June 20 Federal Register said it was revising licensing policy on export of defense articles to India and Pakistan to consider applications on case-by-case basis, implementing new, higher thresholds for reporting sales to Congress and ending denial policy on exports to Pakistan's MOD and SUPARCO based on expiration of MTCR sanctions.

BYRD AMENDMENT: Sen. Olympia Snowe (R-Maine) June 19 introduced bill (S.1299) to repeal Byrd Amendment and replace it with program that would give aid to communities hurt by trade.

TEXTILES: U.S. June 20 won rare victory from WTO dispute-settlement panel which ruled U.S. rules of origin on certain cotton fabrics didn't violate WTO rules and didn't discriminate against India.  Complaint focused on so-called Breaux-Cardin legislation which imposed certain dying and finishing requirements on cotton and silk.  Law was revised to resolve EU complaint about high-priced French and Italian silks being required to carry Made-in-China label.  While fixing that problem, Congress didn't change rules on cotton. Ruling is first panel interpretation of WTO Rules of Origin agreement and could set precedent for future cases even beyond textiles and apparel, U.S. trade officials contend.

SOFTWOOD LUMBER: After several delays and multiple reaction, Commerce June 18 released proposed policy bulletin that will determine when Canadian provinces have made adequate changes in their stumpage fee systems for softwood lumber to have pricing considered market-based (see WTTL, June 16, page 2).  Policy will guide ITA in making "changed circumstances" rulings to lift countervailing duties on lumber.

MEXICO: USTR Robert Zoellick June 16 announced U.S. intention to seek WTO dispute-settlement consultations with Mexico to complain about dumping orders imposed on U.S. beef and rice and recent changes in Mexico's antidumping and countervailing duty laws.

JACKSON-VANIK: President Bush May 29 extended NTR waivers for Belarus and Vietnam.

BAHRAIN: Visiting Middle East June 20, USTR Robert Zoellick said he expect White House to notify Congress in month or two of intent to begin FTA talks with Bahrain.  Formal talks are likely to start in early 2004, with negotiations completed in one year, he told press conference.

Copyright 2003 by Gilston-Kalin Communications, LLC.  Reproduction or retransmission in any form is prohibited. Washington Tariff & Trade Letter is published weekly 50 times a year.  E-mail: Info@WTTLonline.com