Volume 23 No. 29 -- July 21, 2003

IN THIS ISSUE:

* Freight Forwarder Fined $600,000 for Illegal Exports to India
* NAFTA Panel Tells U.S. to Redo Softwood Lumber Ruling
* Textile Industry Calls for Action Against China
* OECD Steel Talks Hit Roadblock on Exceptions
* Treasury Takes More Cautious Stand on FSC/ETI Legislation
* FTAA Negotiators Still Unclear About "Vision" for Talks
* BRIEFS: Trade Law, Byrd Amendment, Apples, Burma, WTO
 

FREIGHT FORWARDER FINED $650,000 FOR ILLEGAL EXPORTS TO INDIA

DSV Samson Transport of Clark, N.J., ignored three warnings from Bureau of Industry and Security (BIS) enforcement officers about licensing requirements for exports to India.  Ignoring that advice resulted in the firm being hit with a $250,000 criminal fine, an $800 special assessment and a $399,000 civil fine. It was also put on five years of probation.

The firm pleaded guilty July 17 in D.C., U.S. District Court to a two-count indictment for violating the International Emergency Economic Powers Act and the Export Administration Act.  It also reached a settlement agreement with BIS the same day.

According to the Justice Department, the freight forwarder from December 1998 to June 1999 caused six [BIS claims seven] illegal exports to be made to India's Department of Atomic Energy after the U.S. had imposed sanctions on India for testing nuclear weapons in 1998.  These shipments included radio frequency test equipment and oscilloscopes.  In June 1999, a BIS export enforcement officer told DSV Samson that Bharat Heavy Electricals was on the Commerce Entity List and also provided the firm information on licensing requirements. DSV Samson's sales manager claimed to have shared this information with other company employees.

Another enforcement officer gave the firm's California office additional information of export requirements in August 1999.  More information was given to the firm in October by an Office of Export Enforcement (OEE) special agent investigating another potentially illegal export.  Despite these warnings, DSV Samson made additional exports to India from November 1999 to May 2001.  These exports went to India's Atomic Energy Department and to Bharat.

In all, 35 shipments were made with a value of about $102,000.  The draft BIS Charging Letter to the firm included 59 counts, covering the causing of the illegal export, acting with knowledge, and making false statements on Shipper's Export Declarations by claiming the goods were NLR, No License Required.  Of the two customers for which the shipments were made, one is under indictment and one is under investigation, according to BIS sources.  Justice said DSV Samson shipped the items "with the knowledge that its customers, who were exporting the items, had not obtained the required export licenses."
 

NAFTA PANEL TELLS U.S. TO REDO SOFTWOOD LUMBER RULING

A NAFTA dispute-settlement panel's July 18 ruling on the U.S. antidumping order on softwood lumber from Canada is likely to make Canadian lumber firms less willing to accept an interim agreement that would limit their share of the U.S. market to 29% and impose a minimum 13% tax on their exports (see WTTL, July 7, page 4).

While upholding key elements of Commerce's final ruling, the panel remanded the case back with instructions to recalculate the margins for several key Canadian companies.  Canadian representatives claim these recalculations could cut the current margins by 2-3% and produce de minimis levels for some exporters.

If those changes are made, the "all other" rate could fall to 5-6% from 8.6% and the top margin to 9-10% from 12.4%, one source said.  Canadians also hold out hope of winning their complaint at the World Trade Organization (WTO), which could re-quire further changes in the Commerce calculations and produce even lower margins.

The U.S. Coalition for Fair Lumber Imports, however, looked at the Commerce decisions which the panel upheld as a positive result.  "The NAFTA ruling confirms that Canadian producers dump lumber into the U.S. market," said Coalition chairman Rusty Wood.  Nonetheless, the Coalition reportedly has called for the quick restart of talks on an interim agreement.

The panel supported the decision of Commerce's International Trade Administration (ITA) to initiate the antidumping investigation and how it treated the impact of the Softwood Lumber Agreement (SLA) on prices in the U.S.   It also said ITA did not err in its treatment of Canada's export tax or its practice of "zeroing" in calculating margins.

The panel, however, remanded to ITA several key issues that could produce lower dumping margins, if the agency accepts the arguments of Canadian respondents.  It told ITA to explain better its "constructed value" profit determination and to readjust calculations based on different lumber dimensions and "like product" determinations.  ITA was told to exclude the exports of Scieries Saguenat Ltd., and recalculate margins for Abitibi, Tembec and West Fraser Mills. The panel said ITA will have to revise all its dumping margin calculations, including its "all other" rate, based on the changes it was told to make.
 

TEXTILE INDUSTRY CALLS FOR ACTION AGAINST CHINA

A group of 14 textile, yarn and fabric trade associations have written to President Bush asking him to self-initiate a special safeguard action against Chinese textile and apparel imports.  In their July 7 letter, they also urged the U.S. to reject the inclusion of any tariff Trade Preference Levels (TPL) that would benefit China in a future free trade agreement with Central America.

The groups also backed away from their position in favor of tariff elimination in the WTO Doha Round.  "With zero-tariff access to the U.S. market, China would crush any competition that might otherwise develop from trade preference areas in the Western Hemisphere, Africa and elsewhere," they told Bush.

Citing a recent report by the American Textile Manufacturers Institute (ATMI), the letter claimed China could seize from 65% to 70% of the U.S. textile and apparel market once global quotas are removed in 2005.  "To avoid further devastating plant closings and job losses, the U.S. government must move immediately to self-initiate the special China textile safeguard on sensitive textile and apparel categories where Chinese imports are surging into the U.S. market," the groups wrote.

They also called on Bush to self-initiate "comprehensive quota restraints" when China's current quotas are lifted in January 2005. The textile industry was originally expected to file complaints itself under the new textile safeguard rules that Commerce issued.  The shift in strategy will put pressure on the Bush administration to act before the 2004 presidential election.
 

OECD STEEL TALKS HIT ROADBLOCK ON EXCEPTIONS

The good news for multilateral talks on an agreement to discipline domestic subsidies for steel producers is the fact that China is now participating in the negotiations.  The bad news is that China is participating.  Beijing's entry into the talks, along with more participation by India and Brazil, has slowed the momentum that could have seen the negotiations shifted into the World Trade Organization's (WTO) Doha Round talks.

After a high-level meeting of political level ministers at the Organization for Economic Cooperation and Development (OECD) in Paris July 18, a final steel agreement isn't expected for another year.  The HLM agreed only to "inform" the WTO about the steel talks and not ask for steel disciplines to be added to the Agreement on Subsidies and Countervailing Measures (SCM).

The trade officials at the talks tried to put a positive spin on progress in the meeting, boasting of how much has been accomplished in six months.  They also stressed their agreement on three essential elements for any final accord.

These are: (1) a blanket prohibition on specific subsidies to the steel industry; (2) a limited number of carefully circumscribed exceptions to the blanket prohibition; and (3) special and differential treatment for developing economies and "possibly" for economies in transition.

The U.S. and European Union (EU) remain divided over what exceptions should be allowed to the subsidy prohibition. The EU wants to adopt the model it used to support the reorganization of the European steel industry in the 1980s and 1990s.  U.S. officials aren't prepared to accept such a broad waiver.  Washington also isn't ready to accept a policy that would allow permitted subsidies to be exempt from countervailing duty action.

While accepting the need for giving special and differential treatment to developing countries, both the U.S. and EU are cautious about what that means. The U.S. wants to make sure any exception "does not undercut" the goal of an agreement, said Commerce Under Secretary Grant Aldonas.

The Chinese delegate to the talks told a July 18 press conference that China is concerned about the current draft OECD agreement and will need more time to consider it.  She indicated that there are at least two preconditions for Chinese acceptance of a deal: China must be treated as a market economy in antidumping investigations by OECD members and be given developing country status that will exempt it from many of the disciplines being proposed.
 

TREASURY TAKES MORE CAUTIOUS STAND ON FSC/ETI LEGISLATION

The Bush administration apparently is less willing than it was last year to go out on a limb to support legislation sponsored by Ways and Means Committee Chairman Bill Thomas (R-Calif.) to replace the Foreign Sales Corporation/Extraterritorial Income Tax (FSC/ETI) tax laws.  Although Thomas is expected to introduce a revised bill at any moment, his approach reportedly faces opposition from Republican leaders in the House, as well as other key GOP members.

Instead of taking sides on any specific FSC/ETI bill, Treasury Assistant Secretary for Tax Policy Pamela Olson told the Senate Finance Committee July 15 that the administration is willing to work with Congress to rewrite the international tax rules.  Agreeing that changes in the code are needed, she said the U.S. has adopted policies "that tax our competitive advantage" (see WTTL, July 14, page 1).

Olson said Treasury has three main goals for revising the tax law.  Changes need to be made in Subpart F of the tax code to change rules dealing with passive income.  The way the rules are written now, they extend to some active business activities, "an extension no other country has undertaken," she said.  In particular, the rules work against U.S. firms that set up centralized sales and distribution centers abroad, as well as certain service transactions, she noted.

The administration also wants changes in rules on foreign tax credit limitations.  The detailed and complex rules can cause U.S. companies to be subject to double taxation of income earned abroad, she explained.

The requirements for establishing separate categories or "baskets" of income and expenses are a special problem, Olson argued.  In addition, "interest expense is allocated pursuant to an arbitrary formula that results in an over-allocation of foreign income," she added.

She also called for simplifying the complexity of international tax rules, citing critics who have said it takes more brains to figure out the taxes on foreign income than to earn it.  "As we go forward, simplifying our international tax rules should be a paramount goal," she stated.
 

FTAA NEGOTIATORS STILL UNCLEAR ABOUT "VISION" FOR TALKS

After nearly nine years of talks on a Free Trade Area of the Americas, negotiators still haven't decided what the "overall vision" of the final agreement should be.  U.S. Trade Representative (USTR) Robert Zoellick tried without success to get agreement on a common view of the talks during a meeting near Washington in June. Vice ministers attending the FTAA Trade Negotiating Committee July 7-11 in El Salvador also failed to agree on the final structure of the accord.

The vision issue has become complicated by Brazilian proposals to narrow the scope of the FTAA, leaving some market access issues to bilateral agreements and other broader trade issues to the WTO.  This would leave the FTAA with only broad general trade principles and tariff cuts.  The U.S. has objected to this approach, with one senior trade officials saying, "we don't want to Balkanize the FTAA."

In addition to throwing the broad scope of the FTAA into doubt, Brazil and its other Mercosur partners apparently have decided to play "slow ball" in the talks.  Mercosur members have still not submitted offers on services, investment and government procurement.  Brazilians have explained their delay by saying they have concerns about progress in other areas, one source noted.
 

* * * BRIEF * * *

TRADE LAW: Bipartisan group of House members July 16 introduced bill (H.R. 2365) to revamp trade law to counter WTO panel decisions against trade actions.  Backed by domestic industries and unions that have criticized rulings, measure would toughen U.S. antidumping and countervailing duty and Section 201 safeguard law and create congressional commission to review operation of WTO dispute-settlement system.

 BYRD AMENDMENT: Customs issued notice in July 14 Federal Register of next round of distributions of CVD and dumping duties under Byrd Amendment.

APPLES: U.S. doesn't always lose at WTO.  On July 15, dispute-settlement panel agreed with Washing-ton's complaint that Japan's restrictions on apple imports violate WTO Sanitary and Phytosanitary Agreement.  It said restrictions that are intended to prevent import of fire blight contaminated apples are not based on sufficient scientific evidence.  Although U.S. apple growers export some $390 million in apples annually, they shipped only $377,000 to Japan in 2001.

BURMA: House and Senate July 16 approved bill (H.R. 2330) which would prohibit imports from Burma and impose other sanctions.  President Bush applauded its passage and said he will sign it into law.

CRAWFISH: ITC July 15 on 4-0 "sunset" review vote decided that revoking antidumping order on catfish tail meat from China would lead to recurrence of injury to domestic industry.

INK: By 4-0 preliminary vote, ITC July 18 ruled that imports of allegedly dumped and subsidized colored synthetic organic oleoresinous pigment dispersions from India are not injuring U.S. industry.

WTO: Last round of WTO talks July 16-18 on agriculture before ministerial in Cancun showed no pro-gress.  This puts resolution of agriculture issues squarely on shoulders of ministers (see WTTL, July 14, page 3). Major portion of talks focused on proposals by four African nations for elimination of subsidies for cotton production -- subject which is putting U.S. on defensive.  Latest proposals call for U.S., EU and China to pay poor cotton-growing countries $1 billion compensation for these subsidies.

CHILE/SINGAPORE: House Ways and Means Committee and Senate Finance Committee July 17 formally approved implementing legislation for U.S. FTAs with Chile and Singapore.  Measures expected to be on House and Senate floors for final passage week of July 21.

CORRECTION: TSRA Coalition complaints about OFAC license handling were directed at exports to Iran, Libya and Sudan and not to Cuba, as stated in WTTL, July 14, page 4.

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