Volume 23 No. 4 -- January 27, 2003


In This Issue:

* Industry Complains About Changed Attitude at Customs
* Customs Proposes Advance Notice for Rail Shipments
* U.S. Finally Appoints Last Member of NAFTA Panel on Lumber
* Mexico Imposes Tariff-Rate Quota on U.S. Poultry Parts
* Shift in Apparel Sourcing Foreshadows Post-Quota World
* Bush Rejects Relief for Surge of Imports from China
* Briefs: Morocco, FTAs, Productivity


Even before it made its official move from Treasury to the new Department of Homeland Security (DHS), Customs began changing its relationship with the trade community, industry source complain.  The shift from an attitude of cooperation and consultation to one of confrontation and tougher compliance is especially being seen in the agency's draft plans for requiring advance notification of imports and exports moving by sea, air, rail and truck (see story below).

The "straw man" proposals released by Customs have drawn universal opposition from all elements of the trade community, despite claims by agency officials that the long advance reporting deadlines were only intended to provoke dialogue.  Industry is afraid Customs won't modify the proposals enough to make them acceptable.
One of industry's complaints is the agency's rush to issue and implement reporting requirements.  Customs officials claim they are under a statutory deadline to get the rules in place (see WTTL, Jan. 20, page 1).  But one industry source notes that studies of the intermodal system initiated by the Transportation Security Agency (TSA) could force Customs to change its rules within a year.

In addition, industry isn't convinced Customs can use all the data it wants shippers to provide in notifications.  The agency's Automated Commercial Environment (ACE) isn't fully functional, while its current computer system is operating at capacity and has been subject to "brown outs," one source argued.  The rush to implement the advance reporting system without adequate computers and study of other trade issues will prove "costly and inefficient," he declared.


Intermodal trade could become slower and more complicated when Customs imposes new advance reporting requirements for rail shipments arriving and departing from the U.S.   In the third leg of its plans for implementing mandatory reporting requirements, the agency Jan. 21 said it is considering a rule that would require information on rail cargo entering the U.S. to be submitted 24 hours before the cargo departs its foreign point of origin.  For exports by rail, it ultimately will want information to be submitted before export, but during an initial transition period, it will want the information eight hours before the goods are laden on rail carriers.

An example of potential problems for intermodal trade may be seen in how Customs reportedly responded to a request from a mid-West broker who brings goods from Europe through Halifax, Nova Scotia.  According to one source, Customs rejected the firm's request to be allowed to file cargo information 24-hours in advance of lading in Rotterdam.  Customs insisted the information has to be filed eight hours before lading onto rails in Halifax, the source reported.  If this policy is adopted for all shippers, a serious backup could be created in Halifax, the source warned.
As with previously floated advance reporting rules for air and truck cargoes entering and leaving the U.S., the plan for rail transportation was released as a "straw man" intended to provoke a reaction from the trade community (see WTTL, Jan. 20, page 1).  And as with the earlier proposals, industry reaction at the public meeting Customs held Jan. 21 was harsh.

Customs said it recognizes the special concerns of the growing intermodal transportation sector.  "The work done by the Multi-Modal Manifest Subcommittee under the auspices of the Trade Support Network and the data elements negotiated therein will be the basis for new reporting requirements proposed by Customs," the agency promised.  It also acknowledged that its proposal will require the "reprogramming of automated systems, establishing new time lines along supply chains and transmitting data for all shipments to be reported."

For exported cargo, it will require all information to be submitted via the Automated Export System (AES).  "Customs will require all rail cargo information for exports to be electronically reported to Customs prior to export," it stated in its straw man proposal.  In a two-step process, the U.S. Principle Party in Interest (USPPI) or its authorized agent will be responsible for reporting commodity data and the rail carrier will be responsible for submitting the consist or manifest data.  While the AES system is being modified to respond quickly to submissions, Customs wants to impose an interim requirement for export data to be transmitted to and accepted by AES no later than eight hours "prior to lading for rail carriers."

Rail cargo entering the U.S. would face a slightly different rule than Customs has already imposed on seaborne containers destined for the U.S. "U.S. Customs will require transmission of data 24-hours in advance, prior to the train's departure from its foreign point of origin," the straw man stated.  Information on seaborne cargo must be submitted 24-hours prior to lading.  "All carriers or other knowledgeable parties will be required to provide advanced electronic paperless transmissions via the Rail Automated Manifest System (AMS) at all direct U.S. rail crossings," it said.  The agency noted that most high-volume rail carriers are currently on Rail AMS.


The U.S. has finally named the last member of the NAFTA dispute-settlement panel that will hear Canada's complaint against the International Trade Commission's (ITC) threat-of-injury determination in the softwood lumber antidumping and countervailing duty cases.  Nearly two months had lapsed since a vacancy occurred in the panel, delaying the start of the panel's investigation of the case.  The U.S. named American lawyer Daniel Pinkus to fill the last seat on the five-member panel, which now has three Americans and two Canadians.

Some Canadian lumber industry sources had complained that the U.S. was deliberately dragging its feet in naming the last panelist to put pressure on Canada to reach a negotiated settlement of the bilateral trade dispute.  Ontario lumber firms had even written to Prime Minister Jean Chretien urging him to raise the issue with President Bush.  Three NAFTA panels are now examining U.S. action against Canadian lumber, including the injury determination and the rulings on dumping and subsidies.  World Trade Organization (WTO) panels are also reviewing the cases.
The naming of the panelist comes as Canadian lumber producers have weighed in against a draft policy bulletin Commerce's International Trade Administration (ITA) has released, explaining how Canadian provinces would have to change their timber-selling methods in order for the agency to lift its countervailing duty order on softwood lumber (see WTTL, Jan. 13, page 3).  In a meeting with Commerce Under Secretary Grant Aldonas Jan. 16, Canadian industry representatives voiced strong opposition to the proposal for handling a "changed circumstances" request from any province.  Aldonas is expected to hold a follow up meeting with the Canadians Jan. 29 to get more specific reactions.

At the first meeting, the ITA draft "was lacerated around the table," one source reported.  Industry representatives not only objected to Commerce's position that only an auction of public timber rights would eliminate the subsidy from provincial sales, but they also insisted the department would have to deal with the parallel antidumping case to make any deal acceptable.

While British Columbia is considering an auction system for its government-owned timber, Eastern provinces strongly oppose the idea.  Aldonas reportedly suggested the Canadian and U.S. industry should meet to discuss a common solution to the lumber dispute.  That idea raised antitrust alarms among lawyers, one source told WTTL.

Aldonas reportedly told the Canadians he wants to issue a final bulletin before Feb. 14 when he is scheduled to depart on a trip to Japan.  Those participating in the talks contend the future course of negotiations is unclear because there are so many different participants on both sides of the border and so many different positions being taken.


As expected, the U.S. and Mexico have reached an agreement to allow Mexico to take temporary safeguard action against imports of U.S. poultry parts while it continues to investigate whether longer-term relief is needed for its poultry industry (see WTTL, Jan. 6, page 1).  Mexico Jan. 22 announced that it is imposing a tariff-rate quota for six months, effective Jan. 1.  The measure will allow up to 50,000 metric tons of U.S. chicken leg quarters to enter Mexico tariff free during that period but would impose a 98.8% tariff on imports above that level.

U.S. Trade Representative (USTR) Robert Zoellick said the level of imports under the TRQ would be comparable to import levels over the last few years.  The U.S. succeeded in limiting the restrictions to leg parts.  Mexican poultry farmers had petitioned their government for import relief out of fear that the end of tariffs under NAFTA as of Jan. 1 would lead to a surge of cheap imports from the U.S.
The 98.8% tariff is still way below the 240% rate Mexico charges on poultry from all other sources and is the same rate that applied until 2001.  In what the USTR's office calls an unrelated action, Mexico Jan. 21 banned the import of poultry from California and Nevada, because of the outbreak of Exotic Newcastle Disease in those states.


A preview of the trade picture after December 2004, when the global quota system for textiles and apparel is supposed to end, might be seen in the trade shifts that have occurred in products that were the subject of the early stages of liberalization, textile industry officials told a Jan. 22 ITC hearing on future competition in the textile and apparel industry.  During early 2002 when quota restrictions were lifted on such items as fiber luggage, infants' apparel and print cloth, imports from China surged while they declined from almost every other major supplier, including Hong Kong, Taiwan, India, Bangladesh and Sri Lanka, Jerry Rowland, chief executive of National Textiles, told the commission.  "What impressed me was the speed of the shift," Rowland said.

China's looming domination of the global textile and apparel market is supported by its low wages, huge work force and the fact that its nonconvertible currency is 30-40% under valued, argued Carlos Moore, senior vice president of the American Textile Manufacturers Institute (ATMI).  The under valuing of the Chinese currency is a problem "that has to be dealt with," he stressed.
The potential changes in the post-quota world are already being felt by the Dominican Republic, representatives of its apparel industry told the ITC.  After enjoying steady growth in apparel trade after adoption of the Caribbean Basin Initiative (CBI), the Dominican Republic has seen its trade level off, as foreign apparel firms put new investments into Mexico and Central America.  That is one reason the Dominicans are pressing Washington to open talks on a free trade area agreement similar the one the U.S. plans with Central America.

"Without the benefit of a free trade agreement with the U.S., the elimination of quotas under the ATC [Agreement on Textiles and Clothing] will serve a devastating blow to the already suffering Dominican apparel industry and the Dominican economy," said Chandra Navarro-Bowman of Sandler, Travis and Rosenberg, which represents the Dominican Association of Free Zones.  In an effort to become more price competitive with Central America and Mexico, Dominican apparel companies are starting to enter into cross-border production arrangements with producers in Haiti, where wages are lower, she said.

Contrary to ATMI's view of China, members of the U.S. Association of Importers of Textiles and Apparel (USA-ITA) don't think China will capture virtually all the business after 2004, said Peter McGrath, president of J.C. Penney Purchasing Corp.  "As a practical matter, the major importers in the United States will limit the amount of business they place in China.  Some companies, like J.C. Penney, have a specific percentage in mind," McGrath told the ITC.

"Given the possibility of special textile safeguard measures being taken against Chinese goods under rules that are still not decided upon, added to the threat of antidumping measures and broader safeguard actions, companies have no choice but to be concerned and to limit their exposure," he added.  While importers will source goods from fewer countries after quotas end, McGrath said he expects them to use several different suppliers.  Countries that can produce both raw materials and finished products will remain competitive, he suggested.  "Importers certainly will continue to diversify their portfolios of countries," he testified.  "Given the risks involved, no company can afford to put too large a portion of its business in a single country," he said.


With little stretching of the economic imagination, steel consuming industries could use President Bush's decision to reject import relief for U.S. manufacturers of pedal actuators as an argument against steel import restrictions.  The president rejected the advice of the International Trade Commission (ITC), which recommended that a quota should be established under Section 421 of the Trade Act to limit pedal actuator imports from China based on the commission's finding that imports of the device had surged and were injuring the U.S. industry (see WTTL, Nov. 4, page 4).

Imposing import quotas on pedal actuators, which are the mechanisms used to raise and lower seats on electric wheelchairs and mobility scooters, "is not in the national economic interest of the United States," Bush said in an order signed Jan. 17.  "In particular, I find that the import relief would have an adverse impact on the United States economy clearly greater than the benefits of such action," he declared.
The president said relief probably wouldn't help domestic manufacturers and "instead would cause imports to shift from China to other offshore sources."  Even if the quota did help the U.S. industry, the cost to downstream buyers of the product would "substantially outweigh any benefits to producers' income," he added.  "In addition, downstream industries are already under pressure to migrate production offshore to compete with lower-cost imports of finished products.  Higher component costs resulting from import relief would add to this pressure," Bush stated.

 * * * BRIEFS * * *

MOROCCO: U.S. and Morocco started first round of FTA talks Jan. 24.

FTAs: USTR Robert Zoellick has asked ITC to prepare reports on potential economic impacts of just completed FTA pacts with Chile and Singapore.

PRODUCTIVITY: Increasing global trade in information and technology industries was key factor in improving productivity at end of 1990s, according to study released Jan. 22 by ECAT.

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


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