Volume 23 No. 43 -- November 3, 2003

                                        * Defense Take New Approach to Imposing Licensing Conditions
                                        * Jump in Export License Cases Comes with Longer Review Times
                                        * Administration Sticks to Jawboning China on Trade and Currency
                                        * Time Running Out on FSC/ETI Fix This Year
                                        * U.S., China Form Consultative Group on Textile Issues
                                        * EU's Lamy Skeptical about Quick Restart of Doha Round Talks
                                        * BRIEFS: Export Enforcement, ITAR, OFAC Penalties, Steel
 

DEFENSE TAKES NEW APPROACH TO IMPOSING LICENSING CONDITIONS

A change in how the Defense Technology Security Administration (DTSA) decides what conditions to impose on dual-use and munitions licenses it reviews from Commerce and State could reduce the restrictions placed on these licenses but also lengthen the time it takes the agency to review applications, according to DTSA Director Lisa Bronson.  The process will produce more relevant conditions, but also cause license review times "to go up just a little bit at the start," she told the Bureau of Industry and Security (BIS) Update 2003 conference.

In addition to taking more time to draft conditions, DTSA will return without action more cases, if the applications are "unclear or vague," she warned.  "We are not going to revert back to old habits of putting conditions on something we don't clearly understand," she said.

About five months ago, DTSA began a review of the conditions and provisos it places on licenses and even obtained comments from industry on the conditions "it loves to hate," she explained.  "We found in some cases the conditions and provisos put on licenses restricted behavior that was not contemplated by the license application," she said.   "In the attempt to reduce processing times and to make heads or tails out of a vague license application, the practice of slapping on 20 standard conditions became a way to protect security and to move the license through the system," she admitted.
 

JUMP IN EXPORT LICENSE CASES COMES WITH LONGER REVIEW TIMES

If the number of license applications handled by the Bureau of Industry and Security (BIS) were a leading economic indicator, which some suggest it is, business prospects for exporters are improving.  The agency completed action on 12,446 cases in the fiscal year that ended Sept. 30.

That was 15.6% more than last year and the highest case load since 1999 when applications surged due to sanctions on India and Pakistan.  Before then, such numbers were not reached since the early 1990s, said Eileen Albanese, BIS director of exporter services.

Cases not referred to other agencies got cleared in an average of 15 days compared to 11 days in 2002.  Licenses needing interagency approval took on average 46 days v. 44 days last year.   These averages mask the longer times for tougher cases.  For example, China cases took an average of 72 days in 2002.

The longer processing time "is a direct result of the increased number of referrals that we've had to make our sister agencies," Albanese reported.  Over 84% of licenses get referred to other agencies.  The average review times reported by BIS don't include time while BIS is waiting for a pre-license check, foreign govern-ment assurances or while licenses are in "hold-without-action" status waiting for additional information to be submitted by the exporter, BIS staff admit.

Processing times may "go up a little bit more" this year, Albanese predicted because other agencies have taken back their delegations of authority, which allowed BIS to approve cases without interagency review.  A main part of this increase is due to the Energy Department's decision to expand its license reviewing staff and mission in response the post-9/11 concerns about nuclear proliferation.  Energy has withdrawn most of its delegations to BIS.

Despite the slight increase in review times, fewer cases are being escalated for resolution of interagency disagreements.  Officials of all the agencies involved in export license reviews have repeatedly remarked on the greater cooperation and reduced friction among the agencies.  At BIS Update, DTSA Director Lisa Bronson gave credit to BIS Under Secretary Kenneth Juster, ex-Assistant Secretary Jim Jochum and Deputy Assistant Secretary Matthew Borman for this improved relationship.  "There is a decidedly different tone in the U.S. government interagency, and it is largely the result of the attitude of these three men," Bronson said.

Borman also noted this change.  "One of the testaments to the improved work with our agency colleagues on processing of licensing applications is the successively smaller number of cases that actually go to the Operating Committee," he said, referring to the BIS staff that attempts to resolve interagency differences.  The number of cases going to the OC  has dropped by 50% in the last two years, going from about 600 annually to less than 300, he reported.
 

ADMINISTRATION STICKS TO JAWBONING CHINA ON TRADE AND CURRENCY

The Bush administration's emerging policy toward China appears to be a combination of tough talk aimed at mollifying domestic criticism of Beijing and no punitive action to correct Chinese behavior that has drawn these complaints.  Washington's policy direction is seen in the refusal of Treasury to cite China for currency manipulation and by U.S. Trade Representative (USTR) Robert Zoellick's mild rebuke of Chinese trade policies during his trip to China Oct. 22.  A similar mixed message is being sent on export controls.

Treasury's latest report on international exchange rate policies, released Oct. 30, found no foreign country in violation of the 1988 Trade Act provisions aimed at sanctioning nations that manipulate their currencies to attain an unfair trade advantage.  Testifying before the Senate Banking Committee the same day, Treasury Secretary John Snow said "a currency peg or intervention does not in and of itself satisfy the statutory test."

Both Democrats and Republicans on the Banking Committee made it clear a policy that leads to the eventual floating of the Chinese currency will take too long to correct the current imbalance in trade.  Senators urged the administration to push for an immediate revaluation of the renminbi to help reduce the ballooning trade deficit and the flood of jobs to China.

But Treasury's report may take the wind out of the sails of industry plans for filing a Section 301 complaint against China for manipulating its currency.  An industry coalition is still raising money to fund the case and a decision to file could be made in a few weeks, one source said.

Meanwhile, Beijing is taking a page from the history of U.S.-Japan trade relations in the 1980s.  During his visit to China Oct. 26-29, Commerce Secretary Don Evans was told the Chinese would send a buying mission to the U.S.  "We hold that a basically balanced trade relationship between China and the United States should be pursued in the course of development," Chinese Premier Wen Jiabao told Evans, according to a Chinese statement.  Wen will visit U.S. in December.

Whether these steps will reduce the traded deficit is unknown, but they have at least calmed lawmakers in the House.  On Oct. 29, the House voted 411-1 to passed a non-binding resolution urging China to open its markets, float its currency and reform its banking system.  The measure also commended President Bush and the administration for "continued efforts to engage the People's Republic of China directly."
 

TIMING RUNNING OUT ON FSC/ETI FIX THIS YEAR

House Ways and Means Committee approval Oct. 28 of legislation (H.R. 2896) to replace the Foreign Sales Corporation/Extraterritorial Income Tax (FSC/ETI) law probably came too late for Congress to enact a new statute this year.  Congress is aiming to adjourn for the year in early November.  Even if it stays in until Thanksgiving, there is little likelihood both houses could pass FSC bills and get a House-Senate Conference agreement in four weeks.

Failure to enact a replacement law will test the veracity of the European Union's (EU) threat to retaliate against the tax law, which the World Trade Organization (WTO) has declared to be an illegal export subsidy.  EU Trade Commissioner Pascal Lamy will be in Washington the week of Nov. 3, and his statements here will be watched carefully to gauge the EU's intentions.

Rep. Phil Crane (R-Ill.) dropped support for his own FSC/ETI bill (H.R. 1769), which he co-sponsored with Rep. Charlie Rangel (D-N.Y.), in favor of the Thomas measure.  Other Republicans, however, including Rep. Don Manzullo (R-Ill.), still object to the bill, making House passage uncertain.  The bill also faces opposition from budget hawks in both parties, because it will produce a net tax cut of nearly $60 billion over 10 years.
 

U.S., CHINA FORM CONSULTATIVE GROUP ON TEXTILE ISSUES

The U.S. and China have agreed to move the informal talks they have been holding on textile and apparel trade after the end of the Multifiber Arrangement into a formal consultative mechanism that will address a broader range of trade and marketing issues (see WTTL, Oct. 20, page 1).  During his visit to China Oct. 29, Commerce Secretary Don Evans reached an agreement with the Chinese to form the working group, which "will be actively talking about the issues regarding textile trade between our two countries," Evans told reporters in Beijing.

"We will have active dialogue and be working on the trade differences we have in the textile area," he said.  The working group will help arrange industry-to-industry discussions "so our respective industries can work together on resolving these trade disputes and trade problems," Evans noted.

He noted that almost half of the textile enterprises in China are state owned.  "China is directly subsidizing state-owned textile factories and the rest of the textile industry through a VAT export rebate," Evans stated.  "China has, indeed, dropped the export rebate tax a couple of points.  That's progress.  But, it needs to go to zero," he declared.

Announcement of the working group came as 139 representatives and 26 senators wrote to President Bush, urging him to take safeguard action against Chinese apparel and to oppose the inclusion of tariff preference levels in the U.S.-Central American Free Trade Agreement.  The lawmakers also asked him to oppose proposals in the Doha Round talks for zero tariffs on textile goods. They recommended that the U.S. seek support from countries with which it already has FTAs for a plan to bring tariffs in other countries down to the U.S. level.

Separately, the European Commission Oct. 29 proposed a plan to help EU textile and apparel industries prepare for the end of the MFA in 2005.  Among its proposals is use of "Made In Europe" labeling to foster EU goods, speeding free trade talks with the Mediterranean region, financing development of new materials and aiding regions that will be especially hurt.
 

EU'S LAMY SKEPTICAL ABOUT QUICK RESTART OF DOHA ROUND TALKS

EU Trade Commissioner Pascal Lamy is resisting calls for a quick re-launch of the Doha Round negotiations which were derailed in Cancun in September.  "I suggest to you that some serious thinking is needed post-Cancun, and that all sides would benefit from some reflection," he said in a speech in London Oct. 28.  Lamy questioned proposals to use the ministerial declaration drafted by Mexican Trade Minister Ernesto Derbez as the basis for restarting the talks.

In Thailand in mid-October for the Asia-Pacific Economic Cooperation Forum (APEC), USTR Robert Zoellick said trade ministers in the region "agreed to work off the text that was developed in Cancun."  Even some of the so-called G-20 who objected to the Derbez proposal endorsed the APEC position.  "I am left to wonder what magic dust has been shaken over a text so roundly rejected in September to find it so roundly endorsed in October," Lamy said.

EXPORT ENFORCEMENT: World Control International of Orlando, Fla., has agreed to pay $3,000 civil fine as part of settlement of BIS charge that it misrepresented facts on SED it filed in August 1998.  On SED it claimed shipment was going to Germany when its ultimate destination was Iraq.

ITAR: State in Oct. 27 Federal Register issued final rule amending ITAR to require mandatory use of AES for filing SEDs for Munitions List exports.

STEEL: Senior CIT Judge Richard Goldberg (Slip Op. 03-143) remanded back to ITC its negative injury determinations in antidumping and CVD cases against cold-rolled steel from several countries.  He told ITC to redefine "internal transfers" and reconsider how it applied "facts otherwise available."

OFAC PENALTIES: Using authority to adjust civil monetary penalties to keep up with inflation, OFAC in Oct. 28 Federal Register raised maximum level of fines it can impose under laws under its jurisdiction.

IRAQ: OFAC in Oct. 28 Federal Register amended rules allowing U.S. persons to trade in Iraqi commercial or sovereign debt on condition person didn't hold debt before May 23, 2003, when U.S. sanctions were lifted and deal doesn't involve sanctioned party.  Notice also amends definitions under old Iraq rules which are no longer applicable.

AUSTRALIA: U.S. and Australian negotiators Oct. 30 said they made progress after week of talks on FTA, but differences remain over opening of agriculture market, sanitary and phytosanitary rules and investment.

MAIL:   Customs won't be allowed to inspect foreign mail transiting U.S., State has ruled.  In order published in Oct. 29 Federal Register, Deputy Secretary of State Richard Armitage said provision in 2002 Trade Act, which gave Customs authority to conduct such inspections "without a warrant is not consistent with international law and the international obligations of the United States."  Provision had raised complaints from civil liberty community.
 

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