Volume 23 No. 33 -- August 18, 2003

IN THIS ISSUE:

* Defense Seeks Temporary Unilateral Controls on Materials
* U.S., EU Try to Breathe Air Into WTO Cancun Meeting
* U.S. Abandons Ambition of Eliminating All Non-Farm Tariffs
* Agriculture Proposal Gets WTO Talks Moving
* Lumber Ruling Raises Questions of "How" and "How Much"
* Commerce Accepts Petitions on Chinese Apparel
* BRIEFS: BIS, Export Controls, Customs, Sunset Reviews
 

DEFENSE SEEKS TEMPORARY UNILATERAL CONTROLS ON MATERIALS

Defense has sent a proposal to the Bureau of Industry and Security (BIS) to impose unilateral export controls on amorphous silicon materials used in the production of some thermal imaging products.  Although Wassenaar Arrangement members have been discussing the imposition of multilateral controls on this material for almost a year, the Pentagon doesn't want to wait for the trade regime to act (see WTTL, Nov. 18, page 1).

BIS officials say they have not yet responded to the Defense proposal.  At the Aug. 12 meeting of the BIS Sensors and Instrumentation Technical Advisory Committee (SITAC), Deputy Assistant Secretary for Export Administration Matthew Borman ask for industry comments on the proposal.

"One of the things that is very important to us is to get whatever data we can get from the TAC or from individual companies that gives us some ideas about whether all products with amorphous silicon should be caught or there is some way to draw a line between the higher end and the lower end," Borman told the committee.  "As a practical matter, we are hard pressed to say to DoD these things shouldn't be controlled at all because clearly there is a fairly large product market for these materials and it has been called a loophole that needs to be controlled," Borman said.

If a decision is made to go ahead with unilateral controls, BIS will have to decide whether it should invoke Export Administration Act (EAA) rules to control the materials for national security reasons or for foreign policy reasons.  Unilateral national security controls can only remain in place for six months with some leeway for extensions.

Last year France proposed the extension of Wassenaar controls to all amorphous silicon and six other materials used in making focal plane arrays and infrared products.  A Wassenaar working group will review the proposals in September, with the goal of having a final position ready for the annual political-level plenary session of the regime in December.  Participants at the SITAC meeting voiced concern about unilateral controls and the disadvantages American firms might face.  Even if multilateral controls are adopted, U.S. exporters will still be disadvantaged, several attendees argued, because other Wassenaar members approve licenses in a matter of days, while the U.S. takes weeks or months to approve thermal imaging licenses.
 

U.S., EU TRY TO BREATHE AIR INTO WTO CANCUN MEETING

U.S. Trade Representative (USTR) Robert Zoellick and European Union (EU) Trade Commissioner Pascal Lamy have used their personal friendship to paste together a group of proposals aimed at saving the World Trade Organization's (WTO) Cancun Ministerial from disaster.  So far, their effort seems to be working.  Sources in Geneva say the joint proposals on agriculture and tariff cutting have gotten preparations for the Cancun meeting moving again after weeks of stalemate (see stories below).

The new energy in the negotiations doesn't mean Cancun will be a success, they caution.  Trade officials have still not made much progress on the draft ministerial declaration that is supposed to be issued at the meeting.  Nonetheless, there is less concern that the Doha Round talks will "breakdown" at the September ministerial.

The latest maneuvers appear similar to a July 1990 meeting in Geneva ahead of what was supposed to be the end of the Uruguay Round.  U.S. and EU officials then also announced a major breakthrough in agriculture negotiations, which they claimed would lead to the completion of the round (see WTTL. July 30, 1990, page 2).  Those hopes collapsed during a damp and chilly week in Brussels five months later, and it wasn't until December 1993 that the Uruguay Round was finally concluded.
 

U.S. ABANDONS AMBITION OF ELIMINATING ALL NON-FARM TARIFFS

In an effort to rescue the WTO Doha Round, the U.S. has agreed to give up its call for the total elimination of all non-agriculture tariffs.  In a joint paper presented to negotiators in Geneva Aug. 11, the U.S., EU and Canada offered a plan for reducing industrial tariffs on a formula basis, while allowing developing and least developed countries to reduce their tariffs by lower percentage.

The joint proposal leaves empty brackets where key numbers needed to be filled in.  "We agree that modalities should be finished by [dd mm yyyy] and shall include a simple, ambitious, harmonizing formula applied on a line-by-line basis (e.g., Swiss Formula), with a single coefficient [x]," the paper stated.

The three trading partners continued to call for sectoral initiatives that would seek to harmonize or eliminate tariffs for certain groups of products, but they only identified textiles and apparel and environmental goods as potential candidates for such treatment.  "Product coverage of and participation in such initiatives will need to be defined," their joint paper said.

The proposal recognizes developing-country resistance to the U.S. call for the total elimination of tariffs.  For many of these countries, tariffs remain a primary source of income, as well as a means to protect weak or new industries.  The joint paper provides for special and differential treatment of developing countries, allowing them to offer "less than full reciprocity" in tariff cutting, to get credit for binding more of their tariffs and to use a formula that would require a lower percentage cut in tariffs.  It also offers to give new WTO members, such as China, more time to reduce tariffs since they may have made large cuts already as a condition for accession.
 

AGRICULTURE PROPOSAL GETS WTO TALKS MOVING

There was a mixed reaction among WTO negotiators Aug. 13 to a U.S.-EU paper proposing a formula for a new agriculture agreement as part of Doha Round.  Most diplomats welcomed the plan as a necessary step to get the stalled talks moving, but almost everyone had something critical to say as well.  Most of the negative comments may have reflected an effort by other countries to put down their own "markers" on changes they want in the proposal, one Geneva source suggested.

The proposal's success may not be known until the week of Aug. 25.  The head of the Trade Negotiations Committee, Perez del Castillo, and the chairman of farm talks, Stuart Harbinson, planned to hold talks with delegations over the weekend to see how the U.S.-EU plan might be molded into a paper that could be presented to trade ministers at the WTO Ministerial Meeting in Cancun in September.  "Whether it is sufficient to lead to modalities before or during the Cancun Ministerial Conference remains to be seen, but at least the ball is rolling," said WTO spokesman Keith Rockwell.

The joint paper attempts to outline a formula for addressing the Doha mandate for reducing trade-distorting domestic supports, improving market access and reducing export subsidies.  The U.S. and EU have agreed to reduce export subsidies in a "parallel manner" that would require Washing-ton to limit its export commodity credit program while the EU agreed to reduce "trade-distorting" export subsidies.  Missing, however, is a commitment to phasing out all export subsidies as called for in the Doha Declaration.  The U.S. also dropped its call for broad reductions in market access barriers, agreeing instead to a series of formulas that are still missing numbers.

 As presented to negotiators, the proposal was missing the key numbers that would dictate the exact changes countries would be required to make in export subsidies, domestic support and market access barriers.  It is uncertain whether those blank brackets could be filled in before or at the Cancun meeting or if they would remain the subject of negotiations for the rest of the round.

It was the vagueness of the paper and the completely missing sections that drew the most comment from members at an Aug. 14 session of the agriculture negotiating committee.  Officials of developing countries complained about the lack of details on the "special and differential" treatment they might get in a new Doha agreement.  They also objected to the lack of information on the availability of special safeguards for special products raised in developing countries.  Developed countries with high trade barriers, such as Switzerland, Norway, Japan, and Korea, criticized the lack of mention of their non-trade concerns.  They questioned the "too ambitious" proposals for providing more market access through tariff cuts and enlarged tariff-rate quotas.

A key decision negotiators must make before Cancun is whether to prepare a new paper to present to the ministers in Cancun based on the U.S.-EU paper or to use the proposal to amend the draft modalities plan that Harbinson has already circulated.  Some negotiators are calling for "weaving elements of the two papers together" to come up with a new proposal to take to the ministerial.
 

LUMBER RULING RAISES QUESTIONS OF "HOW" AND "HOW MUCH"

There is little doubt that Commerce will again find Canadian provinces subsidizing their softwood lumber industries when it responds to an Aug. 13 remand order from a NAFTA binational panel which said its final countervailing duty (CVD) order on the imports is not supported by substantial evidence and is contrary to law.  The unanswered question is how the International Trade Administration (ITA) will come up with a new subsidy number and how much it will be.  Also unknown is the impact the ruling will have on efforts to negotiate an interim agreement to settle the dispute.

ITA has only 60 days to issue a new determination that meets the panel's objections. There is disagreement over whether there is sufficient evidence in the record to make a new determination or if the agency will need to reopen the record to seek additional data.  If the record is reopened, ITA may not be able to complete its work in 60 days and may need to ask the panel for a time extension.

On many of the complaints raised by the Canadian provinces and federal government and lumber producers, the NAFTA panel sided with Commerce.  While not agreeing with all positions ITA took, the panel repeatedly deferred to the agency's expertise and judgment.  For example, on the key issue of "specificity," it said ITA's determination "is essentially of a factual nature and must be afforded deference."  It took the same position on other important disputes, including the scope of the investigation, species of trees covered and company exclusions.

Despite this deference, the panel ruled against ITA on the most important part of the dispute, saying it erred in using "cross-border" U.S. lumber prices as the world prices in judging whether Canadian stumpage fees constituted a countervailable subsidy.  The panel agreed that ITA can use prices outside of Canada to determine if a subsidy exists, if it found insufficient market-based lumber sales in Canada upon which to base the value of timber in the country.

But it rejected ITA's contention that U.S. prices could be used as the benchmark for world market prices.  "Commerce has not presented substantial evidence to support that market conditions in Canada and the United States are comparable, nor that its attempted adjustments adequately account for such conditions," the panel stated.  "Stumpage prices vary widely within and between locales, even within the United States. Commerce's use of different U.S. prices as benchmarks for different provinces demonstrates that there is not even a single U.S. price, let alone a world price," it added.

 Lawyers for the Coalition for Fair Lumber Imports say they are confident ITA has enough data to develop an alternative benchmark price that will show the Canadians are subsidizing their lumber mills.  They also contend the new subsidy finding will be as high as the current level.  Nonetheless, one attorney admitted that if ITA found a significantly lower subsidy "that would put the Canadian in a better position" in the negotiations aimed at settling the dispute with an interim agreement to impose an export tax on Canadian lumber (see WTTL, Aug. 4, page 1).
 

COMMERCE ACCEPTS PETITIONS ON CHINESE APPAREL

In a prelude to the expected fight to maintain restrictions on textile and apparel imports after 2004, Commerce has accepted three of four petitions the textile industry filed under the special safeguard provisions China accepted as part of its WTO accession.  The department will publish a notice in the Federal Register Aug. 18 asking for comment on the industry's request for quotas on Chinese knit fabrics, dressing gowns and bras (see WTTL, July 28, page 4).  It rejected a complaint against Chinese gloves.

The U.S. is expected to seek consultations with Beijing before any quotas are imposed.  Apparel industry representatives see the safeguard action as a stalking horse for a broader campaign next year to find an alternative to quotas.  With a presidential election ahead, the textile industry may seek pledges of help from the candidates, they say.
 

 * * * BRIEFS * * *

BIS: Agency officials are asking exporters to have patience trying to reach licensing officers in next couple of weeks as renovations are made in BIS offices on second floor of Commerce building.  Some staff will be moved temporarily to third floor.  Most of staff of office of strategic industries will move permanently across Potomac River to new offices in Rosslyn, Va.

EXPORT CONTROLS: With EAA still lapsed, President Bush Aug. 7 renewed order maintaining export controls under International Emergency Economic Powers Act.

CUSTOMS: Citing "clear lack of consensus" in trade community, Customs Aug. 13 withdrew proposal, first published in January, which would have established confidentiality policy for treatment of cargo manifest information (see WTTL, Jan. 13, page 4).  Separately, in Aug. 11, Federal Register, bureau published interim rule adopting same policy on protecting confidentiality of commercial information as it had when it was part of Treasury.  Customs said it has decided to maintain same policy instead of adopting rules of Department of Homeland Security, of which it is now part.

SUNSET: WTO dispute-settlement panel issued report Aug. 14, saying ITA and ITC acted correctly in reaching "sunset review" determination on corrosion-resistant carbon steel from China.  Panel sided with U.S. on self-initiation, de minimis, cumulation, and likelihood of continued dumping.

IRONING TABLES: On 4-0 preliminary decision Aug. 13, ITC found that allegedly dumped ironing tables and parts from China may be "threatening" U.S. industry with injury.

TRADE FIGURES: Goods exports in June hit highest level since June 2001, as they rose to $59 billion, up 2.3% from last June.  Services exports increased 5.3% from year ago to $25.6 billion.  But goods imports remained strong, rising 5.8% to $104 billion, as services import gained 5.3% to $20.2 billion.

WORLD BANK SANCTIONS: World Bank Aug. 12 said it sanctioned Schlumberger Industries of France and its Hungarian subsidiary Ganz Meter for allegedly engaging in fraudulent practices as part of work on contract to supply water meters for bank-funded water project in Bulgaria.  Sanction was public letter of reprimand and request that companies implement "best international practices" compliance program.

EDITOR'S NOTE: In keeping with our regular publication schedule, there will be no issue of the Washington Tariff & Trade Letter on Aug. 25, 2003.  Our next issue will be Sept. 1.
 

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