Volume 23 No. 46 -- November 24, 2003

IN THIS ISSUE:

* Customs Will Phase-In New Advance Notice Rules
* WTO Negotiating Proposal to Enlarge Textile Quotas in 2004
* Failure of FTAA Ministerial Will Accelerate Bilateral Deals
* Apparel Price War After Quotas Will Fuel Trade Complaints
* U.S. May Drop State-Investor Rules in Australian FTA
* BRIEFS: Syria, Angola, Smart Boxes, China Safeguards
 

CUSTOMS WILL PHASE-IN NEW ADVANCE NOTICE RULES

Customs and Border Protection will apply the same policy it used for enforcing advance notice requirements for inbound cargo containers to the final rules requiring advance notification of imports and exports by air, rail and truck.  While not eliminating the extra burden the trade community will face complying with the new rules, which Customs sent to Congress Nov. 20 for pre-publication review, it will give firms a couple of extra months to meet the requirements.

Customs Commissioner Robert Bonner told reporters Nov. 20 that he intends to use the container compliance model with the new rules, which will be published in the Federal Register the first week in December.  "We essentially build on that rule," he said.  "It will vary depending upon which mode you are talking about, but we will take a very thoughtful phased-in approach working closely with the appropriate mode of transportation," Bonner promised.

Bonner would not say when the rules would be fully in force and enforced.  "We're going to move as quickly as we can to get compliance," he asserted.  "It will be a matter of working closely with the trade," he said.  "There are some things that have to be done to bring auto-mated systems in line to transmit that information, and lot of what we are doing here relies on existing automated systems that are out there," he acknowledged

Information on air cargo and courier exports must be notified to Customs two hours before departure from the U.S.  Exports by truck must be reported one hour before arrival at the border.  Rail export information must be submitted two hours before arrival at the border, and seabound container exports must be notified 24 hours before they are laden at a U.S. port.

On the import side, the new advance notice rules will require filing of manifest information by air cargo carriers and couriers four hours in advance of arrival in the U.S., except for ship-ments coming from North America above the equator, which can give notice when they are "wheels up."  Rail shipments must be notified two hours ahead of entry at a U.S. port, and truck cargo must be reported one hour before arrival at the border except for participants in the Free and Secure Trade (FAST) program, who can submit data 30 minutes before arrival.
 

WTO NEGOTIATING PROPOSAL TO ENLARGE TEXTILE QUOTAS IN 2004

Textile and apparel exporting nations are pushing the World Trade Organization (WTO) to endorse a proposal that would allow countries to invoke the "flexibility" provisions of the Agreement on Textiles and Clothing (ATC) to use "carry-forward" rules in 2004 to "borrow" apparel quota that would have been available from 2005, if the Multifiber Arrangement (MFA) were still in place.  WTO members are aiming to reach agreement on the request by Dec. 15, according to Chiedu Osakwe, director of the WTO textile division.

Because global quotas will end Dec. 31, 2004, apparel importers say they will be caught in a supply squeeze next year.  Because they have already used carry-forward rules to borrow from 2004 quotas and won't have 2005 quota to borrow from, their 2004 quota levels will be significantly reduced, they contend.

The International Textile and Clothing Bureau (ITCB) which represents exporting countries, asked the WTO General Council in August to "recommend" that developed countries ensure quota access isn't diminished in 2004 because of the lack of carry-forward from 2005.  The U.S. and European Union (EU) have been opposing the proposal so far.  Negotiations on the proposal are "still alive, still controversial and quite sensitive," Osakwe noted.

Although the Doha Round isn't re-opening the ATC, trade officials have recognized that developing countries that will be hurt by the loss of textile and apparel exports after 2005 will demand some compensation as a condition for agreeing to any new multilateral trade accord.  One proposal being suggested would provide these countries with a tariff-reduction formula that would require them to make only nominal duty cuts compared to the larger cuts being proposed for developed countries as part of the non-agriculture market access (NAMA) talks.

The MFA's end is expected to hurt many apparel-exporting countries.  Textiles and apparel trade accounts for 6% of global trade and 14% of world employment, Osakwe noted.  The WTO expects an increase in disputes over trade cases, tariffs and rules of origin, he said.

The State Department is drafting a report on what foreign governments are doing to prepare for the end of quotas, Deborah Malac, chief of State's biotechnology and textile trade division, told the group.  "The bad news is that most of these governments have not a clue what they are going to do," she stated.  "It's rather a bleak picture."  As trade diminishes and investment in the sector pulls out, "these particular countries are going to have a rude awakening," she added.  "When you look at how many countries are producing textiles or apparel, there really is no logical reason for many of them doing so," she said. "Clearly, it is a quota chase," she added.
 

FAILURE OF FTAA MINISTERIAL WILL ACCELERATE BILATERAL DEALS

Brazilian Trade Minister Celso Amorim has become the nemesis of U.S. Trade Representative (USTR) Robert Zoellick.  As he did at the WTO's Doha Round  talks in Cancun in September, Amorim succeeded in thwarting Zoellick's ambitions for a Free Trade Area of the Americas (FTAA) Nov. 20 at the Western Hemisphere trade ministerial in Miami.  As a result, the U.S. has already shifted its focus away from the FTAA and will accelerate efforts to achieve bilateral agreements with individual countries and trade blocks in Latin America.

With no chance of getting a stronger ministerial declaration and facing clashes between protestors and police in the streets, the trade ministers cut their meeting short by a day.  In their final declaration, they paid lip service to the need for a comprehensive and balanced trade pact covering all the original elements sought in the FTAA, but most of the text stressed the right of countries to "assume different levels of commitment."  That language reflects Amorim's goal of giving nations the right to "opt out" of specific parts of the final accord.

Rather than spelling out the scope of the final FTAA they want, ministers sent the process back to vice ministers to work out the details in the Trade Negotiations Committee (TNC).  With no progress made in bridging the gap between the U.S. and Brazil over how comprehensive and mandatory the FTAA should be, the chances for completing the talks by their December 2004 deadline seem nil.  "We instruct the Trade Negotiations Committee to develop a common and balanced set of rights and obligations applicable to all countries," the declaration stated.

In a gesture recognizing Washington's determination to seek bilateral deals outside the FTAA, the ministers also told the TNC to develop procedures to allow countries to negotiate such separate pacts.  "On a plurilateral basis, interested parties may choose to develop additional liberaliza-tion and disciplines," the declaration said (see WTTL, Nov. 17, page 4).

The U.S. underscored its shift away from the FTAA and toward bilateral deals Nov. 18 with its notification to Congress that it intends to begin free trade agreement (FTA) talks with Colombia, Panama and Peru and then with Bolivia and Ecuador.  Zoellick Nov. 21 also announced plans to negotiate a bilateral investment treaty with Uruguay.

FTAA critics cheered the failure in Miami.  "The FTAA is in such a state of crisis that at the Miami Ministerial the U.S. was forced to choose between no FTAA and FTAA-lite," said Lori Wallach director of Public Citizen's Global Trade Watch.  "All that was agreed was to scale back the FTAA's scope and punt all the of the hard decisions to an undefined future venue so as to not make Miami the Waterloo of FTAA," she said in a statement.

Even the business community held its nose in praising the outcome of the ministerial. "This is not what we wanted, and we have serious concerns," said Frank Vargo, vice president of the National Association of Manufacturers.  Before the declaration was released, Sen. Charles Grassley (R-Iowa) said he was "skeptical" about an FTAA with minimum commitments.  After the text was released, he said: "While I'm disappointed that the degree of ambition reflected in the FTAA Ministerial Declaration isn't more clearly defined, it still represents progress."
 

APPAREL PRICE WAR AFTER QUOTAS WILL FUEL TRADE COMPLAINTS

U.S. apparel manufacturers and retailers expect a price war to break out among apparel pro-ducing countries after the Multifiber Arrangement (MFA) terminates at the end of 2004 and exporters fight to compete against low-cost, quota-free goods from China.  The sharp price drop will be grist for U.S. textile firms that are likely to use the lower prices and surge in imports to bolster a wave of antidumping cases and possibly a Section 201 safeguard petition.

"The competitive forces unleashed by the elimination of quotas in 2005 will be unprecedented in the history of our industry," said Peter McGrath, president of JC Penney Purchasing Corp.  The  price of imports from China alone will drop by $1 billion without "quota charges" and there will be a glut of Chinese goods, he told the U.S. Association of Importers of Textiles and Apparel Nov. 18.

The end of quotas also will produce a cut in freight on board (FOB) prices.  "When quotas are phased out in 2005, we can expect Chinese prices to fall 40% to 57%," he asserted.  He predicted China could increase its market share in the U.S. to over 50%.

Commerce's Nov. 17 decision to impose special safeguard relief on imports of bras, knit fabric and dressing gowns and robes from China was the leading edge of similar actions and trade complaints expected in the coming 18 months.  The U.S. is still required to seek negotiations with China to curb the imports before any relief is imposed (see WTTL, Nov. 3, page 3).  Although the safeguard ruling came as no surprise, China reacted angrily.  "As a WTO member, China reserves the right to lodge lawsuits with organizations of the WTO to safeguard the interests of Chinese industries," said a spokesman for the Chinese Commerce ministry.

Separately, the Bureau of Industry and Security (BIS) Nov. 17 released a report on the national security implications of a declining U.S. textile and apparel industry.  While recognizing the decline in some portions of the industry, it found "the industries as a whole appear to be increasingly competitive in the global market vis-a-vis foreign competitors."  This is especially the case in certain niche, value-added markets, home furnishings and industrial products.  As far as national security is concerned, BIS said the industry has ample capacity to meet any surge in defense needs especially for items on the Pentagon's "critical" list.
 

U.S. MAY DROP STATE-INVESTOR RULES IN AUSTRALIAN FTA

Because Australia has a judicial system comparable to the American court system, Washington may agree to drop the standard provisions it has demanded in other free trade agreements for a bilateral dispute-settlement mechanism for investor-state investment disputes.  A decision has not yet been made, however, on whether the U.S. will eliminate the dispute-settlement system from a new model Bilateral Investment Treaty it is drafting, according to a State officials.

Industry advisors to the department have voiced serious concerns about reports that the U.S. would eliminate the dispute-settlement process from the Australian accord and from a new model BIT that is being drafted to replace the model developed in the early 1980s.  Dozens of BITs have been negotiated and ratified using the old model in the last 20 years.

"There is not a proposal to take the investor-state dispute-settlement out of the model BIT," a  senior State official, who asked not to be identified, told industry representatives Nov. 17.  "There has been a big debate over how we handle Australia, which has a First-World legal system," he added.  "You have a lot of discussion over that because they have a court system where investors can get fair treatment," the official noted.

Australia's foreign investment rules and the dispute-settlement issue are two of the sticking points that have made it problematic that talks on an FTA will finish as scheduled by the end of the year.  The arguments against including a dispute-settlement process similar to the one in Chapter 11 of NAFTA, include concern about Australian investment in the U.S.  "We recognize they are going to be investing a lot in our country," the State official observed.

The choice facing the U.S. is between using "arbitration as a way to by-pass our court system" or keeping the current mechanism, which "has been a good thing for us in past investment treaties," the official said.  "That is the debate that is going on in the administration," he conceded. That debate reportedly pits State, which wants to keep the current mechanism, against the USTR's office, which wants to drop it.

 * * * BRIEFS * * *

SYRIA: House Nov. 20 passed Senate version of Syria sanctions bill (H.R. 1828) by 408-8 vote.

ANGOLA: State in Nov. 21 Federal Register revised licensing policy for Angola, shifting to case-by-case review from presumption of denial.  It also lifted some sanctions on Iraq.

SMART BOXES: Customs plans pilot test of new bolt-and-sensor system to detect tampering with cargo containers.  Half dozen C-TPAT firms will do first test before full rollout.

PIPE FITTINGS: ITC Nov. 21 on 6-0 vote made final determination that dumped malleable iron pipe fittings from China "threaten" to injure U.S. industry.  Threat ruling ends critical circumstances request.

MISCELLANEOUS TARIFF BILL: As part of bill (H.R. 3521) to extend numerous expiring tax laws, House Nov. 20 included provisions from Miscellaneous Tariff measure (H.R. 1047).  Legislation includes provisions on GSP, Africa, Harbor Maintenance Tax, Special 301, and NTR for Armenia.

CHINA SAFEGUARDS: ITC in Nov. 19 Federal Register issued emergency interim rules with request for comment on changed  requirements for petitioners seeking special Section 421 anti-surge relief from Chinese imports.  ITC will require more information on industry seeking relief and data on imports.

VIOLET PIGMENT: Nation Ford Chemical Nov. 21 filed antidumping and countervailing duty complaints at ITC and ITA against imports of carbazole violet pigment 23 from China and India.

BEARINGS: Acting on remand from CIT, ITC Nov. 17 reaffirmed its "sunset review" determination that injury is likely to continue or recur, if current antidumping orders on ball bearings from France, Germany, Italy, Japan, Singapore, and United Kingdo were revoked.

CSI: U.S. and EU Nov. 18 reached deal to allow more European ports to join Customs container initiative.

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. 
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