Volume 23 No. 42 -- October 27, 2003

IN THIS ISSUE:

* Proposal Would Raise Control Level for Technology Exports
* Grand Jury Information May Be Given to Export Licensing Agencies
* Comments Take Opposing Sides on Antidumping Duties
* BIS Adopts Measures to Ease Deemed Export License Process
* Multilateral Regimes Stuggle with "Catch-All" Policy
* BRIEFS: SCL for China, Aerospace Exports, BIS, FSC, CAFTA
 

PROPOSAL WOULD RAISE CONTROL LEVEL FOR TECHNOLOGY EXPORTS

A Bureau of Industry and Security (BIS) proposal published in the Federal Register Oct. 24 would significantly increase the level of technology and software that could be exported for the development and production of computers and microprocessors without a license or shared with foreign nationals without a deemed export license.  The proposal responds to industry criticism that current controls inhibit globalized sourcing of these products.

For computers in Export Control Classification Numbers (ECCNs) 4D001 and 4E001, the proposal would raise the licensing threshold under License Exception CTP for countries in Computer Tier 1 to 150,000 million theoretical operations per second (MTOPS) and for countries in Computer Tier 3 to 75,000 MTOPS.   Unlimited CTP levels would continue to apply for exports to 22 close U.S. allies.

For microprocessors in ECCN 3E002, the proposal would make technology for these products eligible for License Exception CIV in addition to License Exception TSR.  This would allow exports to civil end-users for civil end-uses in Country Group D:1.  BIS still hasn't decided what level of technology to include under this rule.  "The threshold for eligibility would be limited by CTP at a level that is yet to be determined," it said in its notice.  To help it set the new level, BIS asked industry to provide extensive information on the research and develop-ment it is doing for products that will be marketed in three to five years.

Industry has been urging the change in the Export Administration Regulation (EAR), claiming current restrictions impede its ability to use foreign workers and overseas subsidiaries to develop the next generation of computers and chips and new production methods (see WTTL, Aug. 11, page 1).  Company representatives were disappointed BIS didn't propose a specific number for new microprocessor controls.

They said the agency has received suggestions that would set the level no lower than the CTP for chips currently in production.  That would be close to 25,000 MTOPS.  Industry also has asked BIS to revise the EAR to ease intra-company transfers of technology, and the agency is working on such a proposal, one source said.
 

GRAND JURY INFORMATION MAY BE GIVEN EXPORT LICENSING AGENCIES

Previously confidential information received by grand juries could be given to Commerce or State to use in export violation investigations or in licensing decisions under provisions of the Patriot Act, according to Ron Roos, deputy section chief in Justice's criminal division.  The controversial law, which was enacted in the wake of the Sept. 11, 2001 terrorist attacks, breaches the previous secrecy of the grand jury process to allow Justice to share foreign intelligence information regarding defense or national security with other agencies.

Information about illegal exports comes under this provision, according to the Justice interpretation of the law, Roos told BIS Update 2003 in Washington Oct. 21.  While Justice has decided such information can be shared with State, it has not yet had an opportunity to consider whether the same policy applies to BIS.  "I suspect that the same analysis will apply to them as well," he said.

Roos also noted that provisions of the Sarbanes-Oxley Act (18 USC Section 1519), which was enacted to tighten corporate governance rules following the Enron scandal, also can be used in export enforcement cases.  A new obstruction of justice provision in the law would apply to any concealment or destruction of records required under the Export Administration Regulations with the intent to impede Commerce enforcement of the rules whether or not an active investi-gation was underway.  The law provides up to 20 year in prison for this violation, but Federal Sentencing Guidelines call for only 18 months in prison, Roos said.

Roos noted that a recent change to the Federal Sentencing Guideline, which judges use to determine penalties for convicted defendants, has increased the recommended jail time for first-time offenders of the export control regulations.  Under Guideline 2M5.2, export violations are subject to level 26 penalties that translate into 51/2 to 61/2 years in jail for offenders.

In deciding whether to launch a criminal case against an export violation, Justice considers several factors, Roos explained.  Among them are whether action involve a "core activity" covered by the controls, criminal intent, willful actions with knowledge of wrongdoing, and concealment.  If Justice wants to charge a corporation as well as an individual and it can show the individual acted willfully regarding a core activity, then it will "impute liability to the corporation under the theory of respondeat superior," he said.

To charge the corporation, Justice must demonstrate the illegal activity benefitted the company and the individual acted within the scope of his or her employment.  "It doesn't matter what the level of the individual engaged in the activity.  It could even be a clerk in the company," he stated.  Even when no individual can be charged, the corporation may stlll be charged if Justice finds "collective knowledge of a group of individuals in a company," he said.
 

COMMENTS TAKE OPPOSING SIDES ON ANTIDUMPING DUTIES

Lawyers and parties who have been on opposing sides of trade disputes over steel and lumber have taken sharply different sides again, this time over a Commerce proposal for revising the way it determines export prices (EP) in antidumping investigations.  The International Trade Administration (ITA) called for comments on the idea of deducting Section 201 duties and countervailing duties (CVDs) from the EP or constructed export price (CEP).  The change would likely increase the dumping margins found in these cases (see WTTL, Sept. 8, page 4).

Lawyers at Baker & Hostetler, commenting on behalf of Canadian lumber groups and firms, argued that WTO rules bar members from imposing antidumping and CVDs on the same product "to compensate for the same situation of dumping or export subsidization."  In addition, deducting 201 duties "would require legislation to change current law," they told ITA.

The European Commission said it was "surprised" ITA was revisiting an issue debated and decided in the Uruguay Round.  Deducting 201 duties, which are imposed on "perfectly legitimate pricing...would constitute an unacceptable perversion of the WTO rules," it declared.

Joint comments from Dewey Ballantine and Skadden Arps on behalf of U.S. Steel pointed to a 1986, pre-Uruguay Round, ITA ruling on fuel ethanol from Brazil.  In that case, Commerce deducted a special tariff imposed on these imports.  Those duties "are indistinguishable in their operation from Section 201 duties," they wrote.

The lawyers also pointed to a ITA staff memorandum in a 2002 antidumping case against wire rod from Trinidad and Tobago, which recommended not deducting 201 duties from the EP and CEP in that case.  "Significantly, this memorandum was not adopted for the department's final determination," they noted.
 

BIS ADOPTS MEASURES TO EASE DEEMED EXPORT LICENSE PROCESS

BIS will issue "deemed export" licenses for longer than two- year periods to match the length of time on visas given to foreign nationals working in the U.S.  The change in agency policy is part of several initiatives it is taking to speed up the review times for deemed export licenses and to reduce the growing volume of applications for extensions of previously issued licenses.

BIS also plans to publish "best practices" guidance on the internal controls it will expect firms to establish to limit the access of foreign nationals to technology specifically identified in their deemed export licenses.  The guidance is being drawn from technology control plans BIS officials have seen during site visits they've conducted of firms holding deemed export licenses.

The BIS deemed export staff plans to conduct more visits to license holders in the next month or so.  For previous visits, only licensing staff participated.  For the coming field trips, representatives of the Office of Export Enforcement (OEE) will also be included, according to Alexander Lopes, who became director of the deemed export division in September.

The number of deemed export cases closed by the BIS staff in fiscal 2003, which ended Sept. 30, increased 20% from the year before, rising to 849 from 706, Lopes reported.  Of those handled, BIS approved 779 (92%), rejected 9 (1%) and returned with action 61 (7%).  It took on average 58 days to complete its reviews compared to 62 days last year.

Five companies filed 60% of the cases BIS completed, he noted.  Cases involving Chinese and Russian nationals made up 70% of the cases.  Applications for extensions or upgrades of previous licenses accounted for 30% of the cases handled.  In the coming year, as part of its outreach program, BIS will focus more attention on getting smaller companies and educational institutions to comply with deemed export requirements, Lopes told BIS Update 2003 Oct. 20.
 

MULTILATERAL REGIMES STRUGGLE WITH "CATCH-ALL" POLICY

As some multilateral export control regimes have adopted a "catch-all" policy to restrict exports to end-users and end-uses of concern, others are still struggling over the legal standard for apply these controls.  Last year, the Australia Group on chemical and biological controls adopted catch-all rules and recently the Missile Technology Control Regime (MTCR) meeting in Buenos Aires adopted such controls for items not on its control lists.

The Nuclear Suppliers Group (NSG) is considering these controls as well.  The U.S. will make another attempt to get the Wassenaar Arrangement to adopt them at the December plenary meeting of the group.  Some Wassenaar members, particularly Russia, have resisted American efforts so far.

"In some of the regimes, there is a debate over whether the catch-all control should include a knowledge standard or not, and whether you should have certainty that you knew an item was going to be misused," BIS Under Secretary Kenneth Juster told reporters Oct. 20.  "When you are dealing with these multilateral regimes, which are consensus regimes where you need all members to agree, obtaining support for a catch-all provision is not the easiest process."

The movement of the multilateral regimes toward catch-all restrictions "involves a broader trend that you'll see over time of export controls moving from being purely list based to being more targeted and focused on end users of concerns and end uses of concern," he said.  "The point of a catch-all control is to say that if you know or should know that a particular item is going to be used in a weapons program or for some illicit purpose, then whether it is on a list or not, there needs to be a license application and there might, in fact, be a license denial."
 
 

 * * * BRIEFS * * *

SPECIAL COMPREHENSIVE LICENSE: Applied Materials has become first U.S. company to receive Special Comprehensive License (SCL) from BIS to export semiconductor manufacturing equipment and components to China.  License will allow it to export to China's Semiconductor Manufacturing Inter-national Corp. (SMIC).  BIS officials and Applied Materials' spokesperson refused to comment on license, but industry sources have confirmed its issuance.  SMIC is also working with Lam Research, which is seeking to obtain SCL.  Even with SCL, Applied Materials will need to get individual licenses for each shipment, although it will need to provide less information and licenses supposedly will move quickly.

AEROSPACE EXPORTS: BIS and Justice are screening firms in aerospace industry to uncover illegal exports of aircraft parts and components to Iran.  Officials say Tehran has intensified its search for parts to service its aging fleet of U.S. planes and is paying high prices for these items and using third-country fronts to obtain them.

BIS: After WTTL went to press Oct. 17, Senate confirmed Peter Lichtenbaum to be assistant secretary for export administration and Julie Myers to be assistant secretary for export enforcement.

FSC: Ways and Means Chairman Bill Thomas (R-Calif.) Oct. 24 released "chairman's mark" he will introduce as substitute amendment for his FSC bill (H.R. 2896) during markup Oct. 28.

CAFTA: Latest round of talks in Houston week of Oct. 20 made progress in all areas, but details remain unresolved in agriculture, services, textiles and labor, negotiators reported.

THAILAND: During visit to Bangkok Oct. 19, President Bush announced that he intends to inform Congress that he wants to begin bilateral FTA talks with Thailand next year.

ALUMINUM OXIDE: On 5-0 vote Oct. 22, ITC made final determination that dumped imports of refined brown aluminum oxide from China is injuring U.S. industry.

PIPE AND TUBE: ITC reached preliminary decision Oct. 24 on 5-0 vote that imports of allegedly dumped light-walled rectangular pipe and tube from Mexico and Turkey may be injuring U.S. industry.

WTO: Trade organization has accepted Hong Kong's invitation to host next ministerial meeting, but has set no date for meeting.  WTO ministerials have generally been held every two years, but meeting could be held in December 2004, if Doha Round talks surprisingly were to conclude on time.

SAUDI ARABIA: After three-year lull working party on Saudi Arabia's accession to WTO resumed work in Geneva Oct. 23-24.  Meeting reportedly showed good progress, and WTO officials say kingdom may be able to join trade group early in 2004.  Another meeting of working group is expected in January, along with special session to discuss unresolved agriculture provisions of its accession commitments.  How Riyadh will treat Israel as part of Arab League boycott is another issue that hasn't been addressed yet.  Saudi Arabia has completed bilateral agreements with only 16 countries, including EU and Japan, but not with U.S.

HAZELNUTS: Six hazelnut growers and processors filed antidumping complaints at ITC and ITA Oct. 21 against imports of processed hazelnuts from Turkey.

MANDATORY AES: Census in Oct. 22 Federal Register issued call for comments on plans to implement law requiring mandatory AES filing of SEDs for all exports subject to filing requirement.  Mandatory AES already applies to CCL and ML exports. Notice also seeks comments on plans for major rewrite of Foreign Trade Statistics Regulation and new rules on Option 4 post-departure filing.  Census says it won't implement AES Filer Licensing and Permit program it was considering, but it hasn't given up idea either.  Separately, in Oct. 20 Register, agency issued final rules requiring mandatory AES for diamond exports.

KAZAKHSTAN: BIS Oct. 22 published revision of EAR to add Kazakhstan to Country Group A to reflect former Soviet republic's membership in Nuclear Supplier's Group.

CUSTOMS: Keith Thomson, formerly with Sterling Group, named director of office of trade relations, agency's key liaison office with industry.  Earlier, he was with Fluor and British Petroleum.

IRAQ: OFAC Oct. 23 published revised General License covering financial transactions with Iraq to bar any judgments, liens or judicial action aimed at Jewish documents, Torah scrolls and other papers found in basement of Iraqi secret policy in Baghdad but now in U.S. for restoration and exhibition.

ANTIDUMPING: Number of antidumping cases launched by members of WTO in first half of 2003 was down significantly from same period in 2002.  WTO Oct. 24 reported that 18 members initiated 79 investigations in first half compared to 149 from January to June 2003.  U.S. initiated most, 16.  China was most common target with 12, followed by Korea (8) and India (6).

HONG KONG: Officials of Special Administrative Region (SAR) are concerned by U.S. push to get China to allow its currency to float toward higher value.  Hong Kong also maintains fixed exchange rate for HK dollar pegged to U.S. dollar. Change in China's exchange rate would put pressure on HK, which has taken extraordinary steps over years to maintain stability of its currency.
 

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