Volume 23 No. 28 -- July 14, 2003

IN THIS ISSUE:

* OFAC Clarifies Rules on Internet Connections with Iran
* Senate Leans Toward Crane-Rangel Proposal for FSC/ETI
* U.S. Will Appeal WTO Ruling Against Steel Safeguard Action
* Lawmakers Warn of Need for Progress on Agriculture in WTO Talks
* Senate, House Panels Give Okay to Draft Chile, Singapore Bills
* Group Will Try to Reverse Denial of License for Cuba Trade Show
* BRIEFS: OFAC, Visas, Environmental Services, Waste, Trade Figures
 

OFAC CLARIFIES RULES ON INTERNET CONNECTIONS WITH IRAN

In two separate policy guidance statements recently, Treasury's Office of Foreign Assets Controls (OFAC) has slightly opened the door to Internet connections between the U.S. and Iran, but kept the door closed on the provision of related goods, technology or services.  The agency indicated that it would allow a U.S. person to provide international connectivity services to Iran, but in another advisory opinion it said it would not approve the provision of online database services.

"Following interagency consultations, OFAC has determined that the provision by U.S. persons of international Internet connectivity services to civilians in Iran can be authorized on a case-by-case basis," it said in a June 3 advisory.  Such approvals, however, would not allow the U.S. party to provide any of the hardware or software or services needed at the Iranian end of the connection, it said.

In a July 7 opinion, OFAC said it would not approve a license for a U.S. firm to include information on Iranian companies in its online database of companies seeking business.  The advisory came in response to a request from a company that was seeking to enter into an agreement with a third-country party that would provide the information on the Iranian firms.  "The exemption for information and informational materials set forth in the ITR [Iranian Transactions Regulation] does not apply to the U.S. company's provision of enhanced listings for customers in Iran," it said.  The proposed deal "would appear to constitute the substantive enhancement of information," OFAC explained.
 

SENATE LEANS TOWARD CRANE-RANGEL PROPOSAL FOR FSC/ETI

Any Senate legislation to repeal the Foreign Sales Corporation/Extraterritorial Income Tax (FSC/ETI) law is almost certain to include a tax cut for U.S. -based manufacturers.  That was the clear signal sent by a Senate Finance Committee hearing July 8 on the FSC/ETI law and by statements from Chairman Charles Grassley (R-Iowa) and Ranking Member Max Baucus (D-Mont.).

Senators are tilting toward a House measure (H.R. 1769) sponsored by Reps. Phillip Crane (R-Ill.) and Charles Rangel (D-N.Y.).  "Most members of the committee support the Crane-Rangel approach," Baucus said after the hearing.

Following the hearing, Grassley said he plans "a month of intensive negotiations with Senator Baucus, to introduce a bill before the month's out, and try to move it in September."  Without identifying a specific bill, Grassley said, "It is very clear the detrimental impact some legislation around the Hill can have on domestic manufacturers, and not putting our manufacturing sector in greater jeopardy would be a goal of mine."

When pressed to explain what he meant, Grassley said, "I want to do something on domestic taxation that has the same effect or a better effect that FSC had prior to it being ruled out of order."  Finance will hold another hearing on July 15.

The unnamed legislation of concern is a new FSC/ETI bill House Ways and Means Committee Chairman Bill Thomas (R-Calif.) plans to introduce (see WTTL, June 23, page 1).  His staff is working on the measure, which is expected to favor multi-national firms with foreign source income.

"It's getting better, moving forward and we'll be dealing with it soon," Thomas told reporters July 10.  "It's getting close to ready," he added, saying he hopes to introduce the bill before the August recess.

Baucus said he expects any final bill on FSC/ETI to include a combination of Crane-Rangel and  Thomas.  "We'll have to do something for domestic manufacturing and international taxation," he said.  The legislation is likely to include something for everyone, "because that's the way this place works," he added.  He was less optimistic about the time for the introduction of a bill with Grassley, saying he doesn't expecting one until after Congress returns from its August recess

At the hearing, there appeared to be some miscommunication between Baucus and USTR General Counsel John Veroneau.  Baucus questioned Veroneau on why the Bush administration had not sought to resolve the FSC/ETI dispute through negotiations rather than agreeing to change U.S. law.  "We have identified FSC/ETI as an issue that we want to address" in the "issue-identification" phase of WTO Doha Round negotiations on rules,  Veroneau said.

"Frankly, that's news to me," Baucus responded.  "I'm almost astounded to hear what you just said," he added.  But one industry FSC expert said Veroneau misspoke.  The U.S. has raised the subject of direct v. indirect taxation in the WTO talks, he noted.  Addressing "border taxes" was a principle negotiating objective Congress set in the 2002 Trade Act, he pointed out.

Veroneau admitted the U.S. has not pushed the issue in the rules talks because that forum has mainly been used by other WTO members to seek changes in U.S. trade laws.  Preserving U.S. trade remedy laws has been a higher priority, which Congress has also mandated, Veroneau explained.  This "is an area where we are playing more defense than offense," he said.
 

U.S. WILL APPEAL WTO RULING AGAINST STEEL SAFEGUARD ACTION

Not only will the U.S. appeal a July 11 World Trade Organization (WTO) panel ruling, which found most of the Section 201 safeguard action on steel to be inconsistent with international rules, but it seems to be encouraging new safeguard requests.   U.S. Trade Representative (USTR) Robert Zoellick was able to take an assertive stand on the ruling, because the panel's decision, which was leaked three months ago, focused more on the adequacy of the International Trade Commission's (ITC) advice than on the U.S. safeguard law itself.

As the appeal goes forward, "the steel safeguard measures will remain in place," Zoellick declared.  "We will continue to consider requests for safeguard measures from domestic producers," he added (see WTTL, March 31, page 1).

While sustaining the ITC's approach on many issues in the Section 201 injury investigation, the panel repeatedly claimed the commission's final report failed to provide "a reasoned and adequate explanation" of how the facts in the case fit WTO requirements.  The panel also admitted the WTO Safeguard Agreement is silent on the interpretation of many of the issues raised in the complaints against the U.S. action.  The panel's attempt to fill in the blanks where no WTO language exists could be one of the arguments in the U.S. appeal of the decision.

The WTO ruling read very much like an opinion from the Court of International Trade (CIT).  The CIT often remands cases back to the ITC for better explanations of its decisions.  While the WTO process doesn't include a remand mechanism, the U.S. could use Section 129 of the Uruguay Round Agreements Act to ask the ITC to provide a report on how the Commission's decision could be made consistent with WTO requirements.

Opponents of the Section 201 ruling contend the facts in the case didn't support the ITC's decisions, which is why its explanations were inadequate.  To defend its opinions, the ITC would have to provide better explanations for why it found imports a cause of injury to the domestic injury separate from other causes of injury, how it determined that imports had increased, and why the surge in imports was unexpected.

It would also have to recalculate its determination with imports from excluded countries taken out of its calculations.  The WTO panel issued separate reports for each of the eight complaining countries.

Meanwhile, the ITC July 10 held the first of a series of hearing its will hold as part of the mid-term review of the Section 201 action.  It will provide advice to Presi-dent Bush by mid-September on whether the relief should remain in place.  The first hearing focused on the state of the stainless steel products industry.

The stainless industry has made positive adjustments since the 201 action was imposed but needs the full three years of relief, argued Skip Hartquist of Collier Shannon Scott, lawyers for the Specialty Steel Industry of North America.  The industry hasn't fully recovered because it didn't get as much relief as carbon steel and low-priced steel is still coming in from countries, especially India, not covered by the safeguard measures, he argued.

The European Confederation of Iron and Steel Industries agreed that the U.S. industry has adjusted.  But "further relief will only serve to sustain marginal producers to the detriment of the stronger firms within the industry," said its consultant, Charles Blum of the IAS Group.
 

LAWMAKERS WARN OF NEED FOR PROGRESS ON AGRICULTURE IN WTO TALKS

At a July 10 meeting with Stuart Harbinson, who chairs the WTO talks on agriculture, Senate Finance Committee members urged him to press for greater reforms in the European Union's (EU) agriculture policies (see WTTL, June 30, page 2).  "In order to gain the strong support of the U.S. Senate, it's important that negotiators come out of the Cancun Ministerial with an ambitious reform program for agriculture," Finance Chairman Charles Grassley (R-Iowa) told Harbinson.

Grassley said the EU must harmonize its level of domestic support to the U.S. level to gain the committee's support.  Ranking Member Max Baucus echoed Grassley's admonition.  "We cannot allow these unfair advantages to remain in place," he said.

Harbinson's visit to Washington came days after he released a report on the status of the WTO farm talks.  In his report, he reminded WTO members that the "peace clause" from the Uruguay Round, which has imposed a moratorium on complaints against many forms of unfair agriculture trade, expires at the end of 2003.  Many trade observers have noted that the expiration of the peace clause and the launching of new trade complaints may become the catalyst for a WTO deal on agriculture.  Harbinson reported that, despite intensified talks from April to June, "achieving the objective of establishing modalities as soon as possible has continued to remain elusive."
 

SENATE, HOUSE PANELS GIVE OKAY TO DRAFT CHILE, SINGAPORE BILLS

Congress will probably pass legislation to implement the U.S. free trade agreements (FTAs) with Chile and Singapore before lawmakers leave for their August recess.  The House Ways and Means and Judiciary Committees and Senate Finance Committee gave their informal approval to the draft legislation July 10 during non-markup-markups (see WTTL, June 23, page 3).

The timing for final approval of the deals will depend on how quickly the Bush administration formally submits the two measures to Congress under fast-track rules.

With most of the technical changes to the draft legislation negotiated between congressional staffers and USTR officials before the markups, the main purpose of the sessions was a chance for lawmakers to grill USTR Robert Zoellick on whether these accords, including the labor and environment provisions, would be the model for future FTA deals.  His answer was yes.

The House Judiciary Committee did agree on amendments restricting the special visa programs established for professional workers from Chile and Singapore under the two pacts.  The panel added language to assure the visas would be treated as H1(B) visas, be counted toward the 60,000 limit on such visas and also be subject to the same employer fees.

Ahead of the Ways and Means and Finance sessions, the administration agreed to clarify the treatment of the Integrated Sourcing Initiatives (ISI) in the Singapore FTA to assure that any changes in its treatment of non-Singapore components beyond those identified in the agreement would need congressional approval.
 

GROUP WILL TRY TO REVERSE DENIAL OF LICENSE FOR CUBA TRADE SHOW

The organization that sponsored the highly publicized food and agriculture trade show in Havana, Cuba, in September 2002, will try to appeal the Office of Foreign Assets Control (OFAC) decision to deny its license application for another show next January.  PWN Exhibition International is also considering legal action to overturn the ruling, the firm's president, Peter Nathan, told WTTL.

In its June 2 letter denying the license, OFAC said its decision was based on policy guidance from the Department of State.  No additional explanation was given, but Nathan said he believes the decision was based on U.S. reaction to the Castro regime's recent crackdown on dissidents.

Nathan also suggested the success of last year's show, which generated $92 million in contracts on site, plus the coming 2004 elections played a role in the government's denial.  Based on last year's results, he estimates U.S. exporters will lose more than $100 million in sales, if the show can't be staged.  Nathan said he expects to get help in seeking a reversal of the OFAC ruling from some of the state agriculture and development agencies that participated in the 2002 show.

Separately, nine trade associations belonging to the TSRA Coalition wrote to OFAC Director Richard Newcomb to protest the time the agency is taking to review licenses for Cuba.  Although the Trade Sanctions Reform Act (TSRA) requires expedited handling of licenses, OFAC has told Congress the average review time for TSRA licenses is 102.7 days.

"Based upon the information received from our members, the TSRA Coalition believes that the data provided to Congress in the quarterly reports underestimates the extent of the licensing delays, since the vast majority of licenses are taking much longer than 102 days to be issued," the group complained.  It said it was aware of licenses for medical and agriculture products taking more than 12 months to be issued.

* * * BRIEFS * * *

OFAC: Ingersoll-Rand has agreed to pay $137,500 civil fine to settle OFAC charges that it violated U.S. trade restrictions on trade with Iraq in 1999, agency reported July 11.

VISAS: In July 10 letter to President Bush, 33 trade groups complained that U.S. visa policies for foreign visitors are hurting U.S. business.  They urged him "to initiate an immediate major review to identify and implement measures to streamline the current system to make it more predictable, timely and transparent."

ENVIRONMENTAL SERVICES: USTR Robert Zoellick asked ITC July 1 to conduct Section 332 study of remediation and landscape protection industry.

WASTE: USTR Robert Zoellick July 1 also asked ITC to do fact-finding study of solid and hazardous waste management services industry.

TRADE FIGURES: U.S. goods exports in May edged up 1% to $57.6 billion from May 2002, as services exports also barely budged up 1% to $24.5 billion.  Goods imports in May, however, jumped 6.8% from last May to $104.4 billion, with services imports rising 5.7% to $19.5 billion.

ROLLER BEARINGS: On remand from CIT, ITC July 9 voted 2-1 to reaffirm it negative "sunset" review determination that revoking antidumping order on tapered roller bearings from Japan would not likely lead to continuation or recurrence of injury to U.S. industry.

WAX: ITC July 11 voted 3-1 in preliminary antidumping decision that imports of wax and wax resin thermal transfer ribbons from France, Japan and Korea may be injuring U.S. industry.

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