Volume 23 No. 3 -- January 20, 2003

In This Issue:

* New Rules For Microprocessors Clarify Military End Uses
* Customs Floats Plan for Advance Filing for Air, Truck Cargoes
* Food Importers Concerned About Dual Reporting Requirements
* Ruling on Byrd Amendment Stirs More Anti-WTO Sentiment
* Singapore Accord Sets Template for Dealing with Capital Controls
* Briefs: South Africa, Morocco, Afghanistan, Russia, Customs
 

NEW RULES FOR MICROPROCESSORS CLARIFY MILITARY END USES

As Bureau of Industry and Security (BIS) officials promised in December, the agency has moved quickly to implement new Wassenaar Arrangement rules on microprocessors, publishing a final rule in the Jan. 14 Federal Register decontrolling most general purpose chips (see WTTL, Dec. 23, page 3).  Also as promised, the rule restricts exports of such microprocessors to military end-users and for military end-uses in countries of concern, as listed in column D1 of the Export Administration Regulation (EAR).  For the first time, BIS defines military end-users and end uses.

While most general purpose chips will be moved to Export Control Classification Number (ECCN) 3A991 and become license exempt, license applications will still be needed if an exporter knows, has reason to know or is informed that the proposed foreign customer in a D1 country meets the definitions of military end user or end use.  Any application for such exports will face a presumption of denial, BIS says. An exception will be granted when the export is tied to "official use" work by U.S. government agency in such a country.

The regulation, which became effective Jan. 14, removes and reserves ECCN 3A001.a.3.a and creates ECCN 3A991 to control microprocessor microcircuits, microcomputer microcircuits and microcontroller microcircuits operating at 6,500 million theoretical operations per second (MTOPS) or more and an arithmetic logic unit with an access width of 32 bit or more to countries controlled for terrorism reasons, including Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria.

A military end use is defined in the rule as incorporation of the microprocessor into any item listed on the U.S. Munitions Lists, Wassenaar's International Munitions List or on the Commerce Control List (CCL) under any category ending in A018, or if the chip is intended for the use, development, production or deployment of any item on those lists.  A military end user means the national armed services (army, navy, marines, air force or coast guard) of a country, plus the national guard and national police, government intelligence or reconnaissance organizations, or "any person or entity whose actions or functions are intended to support military end uses."
 

CUSTOMS FLOATS PLAN FOR ADVANCE FILING OF AIR, TRUCK CARGOES

Customs officials say a "straw man" plan they have released for advance filing requirements for cargo manifests for imports and exports moving by air, rail and truck was intentionally provocative to generate comments from the trade community.  The proposal, released at meetings in Washing-ton Jan. 14 and 16, succeeded in that goal, triggering emotional warnings that the proposed advance reporting requirements could shut down cross-border production with Mexico and Canada and cost the U.S. economy billions of dollars.

To comply with new requirements imposed by the Maritime Port Security Act of 2002, Customs is drafting a regulation that would impose advance reporting requirements on air, truck and rail cargo similar to those that will be required for seaborne containers coming to the U.S. starting Feb. 2 (see WTTL, Nov. 4, page 2).  The law, which covers both inbound and outbound trade, requires regulations to be in place by Oct. 1, with full implementation in early 2004.  The statutorily required public meetings sought early industry reaction to various ways of complying with the law.

The advanced reporting requirement is intended to give Customs time to review manifests through its Automated Targeting System (ATS) to determine which cargoes can enter and leave the U.S. without stopping, which shipments should be stopped and which shipments may require additional information.  For imports, the Customs straw man calls for advance electronic filing of cargo manifests for air shipments 12 hours before lading, for air courier shipments eight hours before lading and for truck transfers four hours before lading.  For exports, it proposes 24-hour in advance filing through the Automated Export System (AS) for all modes of shipment.

The 24-hour rule for outbound shipments is a straw man, emphasized Charles Bartoldus, director of Customs' border targeting and analysis office.  "The idea was to come in, listen to you and then make changes," he told the meeting.  "Twenty-four hours was put in by me on purpose because I knew that was wrong, and I wanted to hear from you what was right," he added.  "Do not assume that 24 hours on the outbound is the real number the Customs Service is looking for.  We want to make it much shorter.  It will not be 24 hours; it will not even be 11 hours," he stated.

Bartoldus declined to tell the meetings how much time his office needs to run ATS screens on cargo manifests.  While the computer program that examines cargo and shipper information runs very quickly, almost instantaneously, delays can arise when the system identifies submissions that lack key information and Customs has to go back to a carrier to obtain it, Bartoldus explained.  While major carriers and shippers face a very low risk of getting their cargoes stopped or delayed because of their good compliance records and automated systems, the problem for Customs is the "mom and pop companies out there that give us bad data or insufficient data," he said.

The four-hour-in-advance proposal for trucks entering the U.S. drew the strongest protest from industry representatives at the Customs meetings.  One participant said the Customs proposal would be acceptable if the agency changed the words hours to minutes and lading to crossing.  Industry executives also urged Customs to give special treatment to shipments for firms that participate in the Customs-Trade Partnership Against Terrorism (C-TPAT) and similar programs.

Firms operating across the border in Mexico and Canada said a four-hour rule for trucks would have serious consequences.  It would "destroy the just-in-time industry across the border," said a representative of the American Trucking Association.  One attendee called on Customs to conduct an economic impact assessment of its plan.  A General Motors representative said some items used in its Michigan plants are ordered, produced and shipped from Canada in less than four hours.

A Sony executive said his operations in Tijuana take finished products off the assembly line and load them directly onto trucks for transfer to the U.S. within hours.  Sony maintains no storage or staging area in the plant to hold cargo.  A representative of Thomson Consumer Products, which makes GE and RCA TVs, said his firm sends 200 trucks a day across the border.  Both firms have established security programs aimed at preventing hijacking and drug smuggling and making sure trucks reach the border by set deadlines.  [Editor's Note: Copy of Customs proposals for air and truck shipments will be sent to WTTL subscribers on request.]
 

FOOD IMPORTERS CONCERNED ABOUT DUAL REPORTING REQUIREMENTS

Firms that import food products subject to Food & Drug Administration (FDA) regulations are worried they might face dual advance reporting requirements imposed by both FDA and Customs.  While Customs is preparing to promulgate advance filing requirements for all imports and exports, FDA is drafting rules to implement the 2002 Bioterrorism Act (Public Law 107-188), which requires food importers to give FDA advance notice of incoming products.

The Bioterrorism Act also requires U.S. and foreign food processors to register with FDA.  In the Jan. 13 Federal Register, FDA issued a notice of its intent to propose implementing regulations "shortly" and announced a public satellite downlink conference for Jan. 29 to explain the coming rules.

The Bioterrorism Act requires FDA to impose advance notification rules by Dec. 12, 2003.  If it hasn't issued regulations by then, the law automatically would require advance notification no less than eight hours and more than five days before import.

Elizabeth Durant, executive director of the Customs Trade Compliance and Facilitation Office, told a Custom meeting with industry Jan. 16 that Customs is working with FDA on advance notification requirements, but gave no assurance that firms won't face dual reporting requirements.  "We are joined at the hip with FDA" on this issue, Durant said.  The two agencies are holding weekly meetings on the issue, she told industry representatives.  Customs and FDA computer systems are already interlinked to allow the sharing of information, she also said, noting that 30% of the goods Customs handles is regulated by FDA.
 

RULING ON BYRD AMENDMENTS STIRS MORE ANTI-WTO SENTIMENT

The list of provisions that Congress may have to include in legislation to bring the U.S. into compliance with World Trade Organization (WTO) rulings got longer Jan. 16 with an Appellate Body ruling that claimed the so-called Byrd Amendment, which distributes antidumping and countervailing duties to U.S. firms, violates WTO antidumping and countervailing duty agreements.  The legislation won't be easy.  Congress already has had a hard time deciding how to deal with WTO rulings against the 1916 Antidumping Act and the Foreign Sales Corporation law.

As the number of WTO rulings against U.S. trade laws and cases grows, congressional opposition to the world trade body is also growing, making it more difficult for the U.S. to meet its obligation to come into compliance with these dispute-settlement rulings. The backlash against WTO decisions has been mounting for more than a year, but it is still unclear how Congress will express its discontentment.

There has been widespread expectation in the trade community that the Appellate Body would uphold key provisions of the dispute-settlement panel ruling which found the Byrd Amendment inconsistent with WTO rules (see WTTL, July 22, page 4).  The Appellate Body, however, issued a split decision.  It upheld the panel's position that the law is a nonpermissible specific action against dumping and subsidies and therefore nullifies or impairs the benefits of other WTO members.  But it reversed the panel's opinion that the law violated other parts of the accord, as well as the panel's claim that the U.S. acted in bad faith.

Since the Byrd Amendment was part of an agriculture appropriations bill in 2000, it did not directly amend U.S. trade law.  This legal nicety allowed the U.S. Trade Representative's office to claim the WTO ruling "did not involve the underlying U.S. antidumping and countervailing duty laws."  The office also pledged that "in this case, as in others, the United States will seek to comply with its WTO obligations."

Sen. Charles Grassley (R-Iowa), who resumed the chairmanship of the Senate Finance Committee with the GOP regaining control of the Senate, said he was disappointed with the ruling but noted that the amendment "was slipped into an appropriations conference report" without full debate in the Senate.  "I'm not surprised that a bill that was never considered by the committee of expertise or even the full Senate is found to violate our international commitments," he said in a statement.  Grassley said he would work with the White House and other lawmakers to decide how to come into compliance with the ruling.

Rep. Sander Levin (D-Mich.) complained that the WTO has no authority to dictate how the U.S. or any member spends its money.  "Regardless of one's view of the policy behind the legislation, the Appellate Body's decision has absolutely no basis in the text of any WTO agreement," he said in a statement.  Levin also said the Bush administration's report in December on the impact of WTO rulings did not respond adequately to the "systematic bias" shown by WTO panels against the U.S.  "Later this winter, I will introduce a package of bills to update U.S. trade laws and to begin a vigorous campaign to respond to erroneous WTO decisions," Levin declared.
 

SINGAPORE ACCORD SETS TEMPLATE FOR DEALING WITH CAPITAL CONTROLS

In working out agreements with both Chile and Singapore on how to protect American investors when a country imposes capital controls, the U.S. has decided that it won't oppose these controls as long as governments provide a way for compensating investors injured by such restrictions.  In a deal worked out with Singapore and announced Jan. 15, Treasury officials agreed to adopt provisions that are similar to the investment protections included in the earlier free trade area (FTA) agreement with Chile (see WTTL, Dec. 16, page 3).  The agreement on capital controls was the last unresolved issue in the Singapore FTA talks.

Treasury officials said the U.S. will seek to impose the same rules on capital controls in future FTA pacts with other countries and regions. "This is the template," said Treasury Assistant Secretary Randy Quarles.  "Having gone through details discussions with two countries that have done a fair bit of thinking about the issues and having worked out an approach that works for both of them and that works for us, this is the bottom line," he declared.

The agreement would allow Singapore to impose capital controls under certain conditions, but any restrictions "that substantially impede transfers" would be subject to a claim by a U.S. investor.  Even if the control didn't impede transfers, claims for damages could be made if the control is in place for more than a year.  Depending on the type of investment, six-month or one-year "cooling off" periods would delay the filing of a claim through the dispute-resolution mechanism.

While the U.S. continues to believe capital controls are not justified in any circumstances, it agreed to the compensation package as a way to break the deadlock in the talks.  "This avoids the need to discuss if and when countries agree that capital flow restrictions would be necessary," a Treasury fact sheet explained.
 

 * * * BRIEFS * * *

SOUTH AFRICA: USTR Robert Zoellick and representatives of South African Customs Union (SACU) Jan. 13 agreed on "roadmap" for FTA talks that are scheduled to begin in February.  Members of SACU are Botswana, Lesotho, Namibia, South Africa, and Swaziland. Although no timetable has been set yet, Zoellick told press conference he would try to complete talks by end of 2004.  That schedule would allow final FTA deal to be brought to Congress under fast-track approval rules before they expire in 2005.

MOROCCO: U.S. and Morocco set to announce launch of FTA talks Jan. 21.

AFGHANISTAN: President Bush Jan. 10 issued proclamation granting Afghanistan GSP benefits as least-developed country.  GSP will give tariff-free treatment to some 5,700 Afghan goods.

RUSSIA: Sen. Max Baucus (D-Mont.) and Reps. Charles Rangel (D-N.Y.) and Sander Levin (D-Mich.) announced plans Jan. 17 to introduce legislation to grant Russia permanent-normal-trade-relations (PNTR) status before it completes its WTO accession process.  To maintain leverage on Moscow to reach acceptable WTO accession accord, proposed bill would allow Congress to vote on resolution of disapproval that would bar U.S. approval of Russia's accession.  Bill also would include safeguard mechanisms to deal with potential surge of imports from Russia.  Meanwhile, latest round of meetings in December of WTO working group developing Russia's accession protocol showed progress, but also stressed need for Moscow to make further concessions to open its market.  Group has been aiming to complete work in time for Russia to sign WTO protocol at Cancun ministerial meeting in September.

CUSTOMS: Sandra Bell named director of office of regulations and rulings.

Copyright 2003 by Gilston Communications Group.  All Rights Reserved.  Reprinting or retransmission in any form without permission is prohibited.  Washington Tariff & Trade Letter is printed weekly, 50 times a year except last week in August and December.