Volume 23 No. 44 -- November 10, 2003

IN THIS ISSUE:

* New BIS Top Cop Making Tougher Enforcement Her Goal
* Zoellick Trying to Rescue FTAA Ministerial from Failure
* EU Extends Deadline for U.S. to Revise FSC/ETI Tax Law
* BIS Plans to Clarify "Knowledge" Standard for Red Flags
* David Flynn Named To Be New BIS OC Chairman
* ITA Revises Rulings on Privatization of European Steel Firms
* BIS Arrests Engineer for Alleged Attempt to Export EAR 99 Item
* BRIEFS:  OFAC, Color TVs, Furniture, WTO, Lumber, Cement
 

NEW BIS TOP COP MAKING TOUGHER ENFORCEMENT HER GOAL

Julie Myers, the new assistant secretary for export enforcement in the Bureau of Industry and Security (BIS), Nov. 5 outlined an ambitious plan for increasing the agency's enforcement of export controls and the "strategic targeting" of significant violations.  High on her agenda is enforcement of conditions placed on export licenses, as well as potential diversion gaps in the global supply chain, including freight forwarders and transshipment ports.

Speaking to the President's Export Council Subcommittee on Export Administra-tion (PECSEA), Myers boasted that in the last 12 months, "Export enforcement had a great year!"  In the fiscal year that ended Sept. 30, BIS saw more than $3.5 million imposed in criminal penalties v. $93,000 in fiscal 2002, she reported.  It also won 20 criminal convictions.  BIS extracted about $4 million in civil penalties as part of almost 40 administrative settlements, she said.

"In the coming year, we will seek to build on these success and work toward more strategic targeting of the most significant violations," she told the PECSEA.  These targets will include exports of biotoxins, terrorist countries and terrorist end users.

"We are going to place increased emphasis on enforcement of license conditions," she said. "For too long and too often these license conditions have been a bit ad hoc in coordination with export enforcement agencies and on some occasions has been lax," she said.  Her office is creating a task force to look at license conditions and to work with export administration to make sure compliance officials are looking at the right cases.  "There have already been some great cases...but we think there can be more," she said.  Not coincidentally, a General Account-ing Office report is expected soon which will criticize BIS handling of licensing conditions.
 

ZOELLICK TRYING TO RESCUE FTAA MINISTERIAL FROM FAILURE

Less than two weeks away from a ministerial meeting of Western hemisphere trade officials in Miami, U.S. Trade Representative (USTR) Robert Zoellick was scrambling to save the talks on a Free Trade Area of the Americas (FTAA) from following the same fate as the WTO's Doha Round.  Over the Nov. 8-9 weekend, Zoellick was set to meet near Washington with about a dozen other trade ministers from the region in an effort to keep the scope of the proposed trade accord as ambitious as originally planned and to reject a Brazilian proposal for narrowing the goals for negotiations.

Before the "mini-ministerial," Deputy USTR Peter Allgeier emphasized Washington's desire to achieve a comprehensive agreement in the FTAA talks and for ministers in Miami to reaffirm that goal.   "We do currently face the challenge of convincing some of our major trading partners that this vision is both feasible and desireable," he said Nov. 4.

In the weekend talks, Zoellick was expected to press ministers to continue support for a trade accord covering market access, services, investment, agriculture, government procurement, intellectual property rights, competition, trade facilitation and dispute settlement.  "This is at variance with the current model that is being put forward by a number of countries in the negotiations, most notably some of the Mercosur countries," Allgeier noted.
 

EU EXTENDS DEADLINE FOR U.S. TO REVISE FSC/ETI TAX LAW

The European Union (EU) has flinched in its threat to retaliate against the U.S. for Washing-ton's failure to bring the Foreign Sales Corporation/Extraterritorial Income Tax (FSC/ETI) law into compliance with World Trade Organization (WTO) rules.  Rather than imposing sanctions on some $4 billion of U.S. trade as of Jan. 1, 2004, if FSC/ETI weren't fixed, the European Commission (EC), the EU's executive branch, proposed a plan to delay sanctions until March 1.

Under the proposal the EU would impose a retaliatory tariff of 5% as of March 1 on a previously identified list of U.S. goods and raising the tariff 1% each month until the law is changed.  A cap of 17% was placed on the total tariff to be imposed.

With Congress not expected to finish work this year on a new FSC/ETI law, the EU plan gives lawmakers an extra two months to complete the task when they return from their winter recess.  Congress could take longer, if the slow, incre-mental increase in the tariff isn't seen as seriously hurting U.S. exporters.

In Washington Nov. 3-4, EU Trade Commissioner met with members of Congress and the Bush administration and repeated Europe's insistence that the U.S. come into compliance not only with the WTO ruling on FSC/ETI, but also the decision against the U.S. Section 201 safeguard tariffs on steel.  If the WTO Appellate Body sustains a dispute-settlement panel ruling against the steel tariffs, the EU will give Washington until Dec. 15 to revoke them, Lamy said.  EU ministers have already authorized retaliation against U.S. exports if the tariffs aren't lifted.
 

BIS PLANS TO CLARIFY "KNOWLEDGE" STANDARD FOR RED FLAGS

BIS intends to seek interagency comment on a proposal to update the Red Flags guidance in the Know Your Customer part of the Export Administration Regulation (EAR), newly appointed Assistant Secretary for Export Administration Peter Lichtenbaum told the PECSEA Nov. 5.  "We are completing work on a proposed rule to clarify the ‘knowledge standard' in the Export Administration Regulation in this area of ‘reason to know' and proliferation," he reported.

As part of the examination of knowledge controls, BIS has undertaken a comprehensive interagency review of deemed exports and technology controls, Lichtenbaum noted, pointing to a recent BIS proposal to revise controls on microprocessor technology (see WTTL, Oct. 27, page 1).  "We are actively seeking to address the issue of intra-company transfers of technology in a manner that will facilitate the appropriate transfer of such technology while ensuring that companies have in place the proper mechanism to protect it," he said.

The proposal will not address questions industry has raised about what has to be done about entities on the BIS Unverified List and how BIS will handle licenses for these entities.  The Red Flags guidance and Unverified List address separate problems, BIS Under Secretary Kenneth Juster told the PECSEA.  "What the list is saying is, ‘You better be darn sure, if you're shipping something to them, you know how it is going to be used and if it is to be used appropriately', because we are unable to verify that things being sent there are, in fact, arriving there and being used for the purpose they are intended," Juster said.

Nor will the proposal offer advice on e-commerce transactions.  "We recognize that, in general, it may be useful to provide additional guidance to high-technology firms in the e-commerce area," Lichtenbaum said.  "That is something we will probably be looking at separately."
 

BIS NAMES DAVID FLYNN TO BE NEW OC CHAIRMAN

BIS management has named David Flynn to be the new chairman of the agency's Operating Committee (OC), the office charged with resolving differences between BIS and other agencies over licensing decisions.  Flynn, who served as acting OC chairman on a rotating basis, pre-viously worked in the agency's licensing office for nuclear and missile products.  He succeeds Carol Kalinoski, who was removed from the post in July (see WTTL, July 28, page 1).

BIS officials had asked Kalinoski to take a research post in the Office of Exporter Services, but she declined the new assignment.  She also reapplied for her old job when BIS opened it through the Civil Service process, but she was not selected.

Before Flynn's selection, BIS Under Secretary Kenneth Juster defended  the decision to move Kalinoski as an effort to find "the best fit for different individuals" in the agency.  "It doesn't imply anything more than the fact that management over time might move resources to address new tasks or different needs," he told reporters.  "It doesn't imply that something wasn't working or that it would work differently.  People in an organization don't necessarily do the same task forever," he added.  "There isn't anymore one should read into it," Juster declared.

On Nov. 7, Kalinoski submitted her resignation from the government to Commerce Secretary Donald Evans.   The BIS management "surprisingly and summarily dismissed me from the OC chairmanship and reassigned me without justification, cause or explanation to a staff position not commensurate with my education, skills and record of outstanding federal government service," she wrote to Evans.   She also questioned the selection of someone with less exper-ience to replace her.  "For these reasons, I am compelled to resign my employment with the Department, because I believe BIS management has forced me out of the federal civil service for discriminatory reasons and without retirement benefits," she wrote.
 

ITA  REVISES RULINGS ON PRIVATIZATION OF EUROPEAN STEEL FIRMS

In an effort to come into compliance with a WTO ruling against how it treated the privatization of the EU steel industry, the International Trade Administration (ITA) Nov. 5 issued revised findings in 12 countervailing duty (CVD) cases.  In only four of the cases, did it propose to revoke the CVD orders.  Under Section 129 of the Uruguay Round Agreements Act, ITA reexamined its original CVD rulings and sent the USTR's office its newest determinations.  USTR concurrence is needed for the new CVD rulings to go into effect.

In June, ITA revised its methodology for determining whether the privatization of a state-owned company eliminated subsidies provided before privatization.  In its new rulings, the agency mostly agreed with respondents that the privatization of steel companies in France, Germany, Italy, Spain and the United Kingdom were at arm's length, fair-market value.  But it still found some remaining subsidies.

ITA found de minimis subsidies on cut-to-length (CTL) plate from Sweden, stainless wire rod from Italy, sheet from France and plate from France.  It reduced but maintained CVD orders on stainless sheet in coils from Italy (1.62%), stainless plate in coils from Italy (1.62%), grain-oriented electrical steel from Italy (1.07%) and CTL plate from Italy (3.44%).  In four sunset review cases, it found subsidies likely to continue or recur for CTL plate from Germany, Spain and the United Kingdom, and for corrosion-resistant steel from France.
 

BIS ARRESTS ENGINEER FOR ALLEGED ATTEMPT TO EXPORT EAR 99 ITEM

Using the authority of the International Emergency Economic Powers Act (IEEPA), a BIS special agent obtained search and arrest warrants for a New Jersey engineer who was allegedly attempting to transfer valve "blueprints" classified as EAR 99 items to North Korea without an approved license.  Before his arrest on Oct. 31, Ravi Mahadevan, had claimed the material was merely "catalog drawings" that could not be used to manufacture the valves and not technical data, but a BIS licensing officer who examined them said they contained sufficient data to produce the items, according to the Justice complaint filed against Mahadevan.

Mahadevan is the manager of the nuclear business unit of Valcor Engineering of Springfield, N.J.  A woman who answered the phone at Valcor, and who refused to give her name, said, "We are not offering comment."

The materials sent to Mitsubishi Heavy Engineering in New York were part of a contract to build pressure and selenoid valves for installation at a nuclear power plant being built in North Korea by the Korean Peninsula Energy Development Organization (KEDO). Under the contract with Mitsubishi, Valcor would have been responsible for obtaining any necessary export licenses, the government's complaint said.  BIS also noted that Valcor had a license denied in 2002 for the export of similar valves to a nuclear facility in India.

KEDO is a U.S.-led consortium that was building two plants in North Korea as part of a deal for Pyongyang to stop its own nuclear development.  When North Korea threw out international monitors at the plant in December, the facility became an "unsafeguarded nuclear facility."  The U.S. has asked KEDO to cease construction of the two plants in Kumho, North Korea.

The search and arrest of Mahadevan have raised questions among export trade lawyers.  BIS agents had the authority under the expired Export Administration Act (EAA) to take such police action, but don't have it under IEEPA.  To execute warrants, BIS agents must be deputized as U.S. Marshals.  The complaint didn't indicate if this technicality were followed.
 

* * * BRIEFS: * * *

OFAC: In Nov. 7 announcement of latest civil penalty settlements, OFAC reported that Bank of America paid $158,038 fine for transferring funds to Iran and $4,308 fine for transferring funds to Sudan in violation of U.S. sanction regulations.  It said Betz Dearborn of Trevose, Pa., paid $45,000 fine for role in arranging travel of Hercules of Canada to Cuba.  Disarm Education Fund also paid $13,750 fine for allowing parties to be involved in activities in Cuba not covered by license.

COLOR: TVs: Petitioners in pending antidumping case against color television receivers from Malaysia and China have asked ITA to find "critical circumstances" in case and to have any potential duties assessed from time of filing of complaint.

FURNITURE: American Furniture Manufacturers Committee for Fair Trade and Cabinet Makers Union have filed antidumping complaints at ITA and ITC against imports of wooden bedroom furniture from China.  Petition claims imports are being dumped at rates ranging from 158.74% to 440.96% below fair value.  Chinese furniture captured 30% of domestic market in first half of 2003 compared to 16% in same period in 2002, petitioners reported.  Imports increased 54% during that period.

WTO: Dispute-Settlement Body has selected Columbia University law professor Merit Janow to succeed James Bacchus on WTO Appellate Body (see WTTL, Sept. 29, page 3).

DOHA ROUND: Stuart Harbinson, Hong Kong diplomat who has chaired Doha Round agriculture talks, is giving up assignment to devote more time to position as chief of staff for WTO Director General Supachi.

SERBIA: Secretary of State Colin Powell certified Nov. 3 that Serbia and Montenegro have met the criteria needed to have their normal-trade-relations status restored.  Change in status will take place in 30 days.

SOFTWOOD LUMBER: ITA has told Canadian Maritime Provinces, which were excluded from original CVD investigation, that they are not being included in administrative review.  Nonetheless, ITA has asked them to complete questionnaires regarding private prices and log exports and imports.

CEMENT: NAFTA Extraordinary Challenge Committee Oct. 30, in first ruling ever under NAFTA rules, has upheld decision of binational panel which had rejected parts of ITA's findings in its administrative review of antidumping order on gray portland cement and clinker from Mexico.  U.S. had sought challenge. ECC said U.S. failed to show that panel had met criteria necessary under NAFTA to have its ruling overturned. "The ECC fails to find evidence of ‘gross misconduct,' ‘serious conflict of interest,' or other wrongdoing that might justify invoking the ECC process and reversing the panel's decision," ECC ruled.

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