Volume 23 No. 49 -- December 15, 2003

IN THIS ISSUE:

* IRAQIS BEGIN TO RE-INTRODUCE BOYCOTT OF ISRAEL
* BIS CIRCULATING PLAN TO ALLOW INTRA-COMPANY TECH TRANSFERS
* CONGRESS WON'T MEET FSC/ETI DEADLINE, EX-CHAIRMAN ARCHER PREDICTS
* PETTIGREW SAYS DIVISION IN CANADA MAKES LUMBER DEAL UNLIKELY
* STATE WILL TRY TO REDUCE CONTROLS ON AVIONICS PRODUCTS
* WTO COUNCIL CHAIR OFFERS PLAN FOR RESUMING DOHA TALKS
* SCRAP INDUSTRY COMPLAINS ABOUT CHINESE PURCHASES
* BRIEFS: CAFTA, COUNTRY GROUPS, WASSENAAR, DEEMED EXPORTS
 

IRAQIS BEGIN TO RE-INTRODUCE BOYCOTT OF ISRAEL

American officials, so far, have refrained from blocking Iraqi plans for re-imposing compliance with the Arab League boycott of Israel once the government returns to Iraqi control.  Requests for boycott-related assurances against Israeli ownership or products are beginning to appear on some contracts and legal documents issued by Iraqi entities and agents.  The Bureau of Industry and Security (BIS) Office of Antiboycott Compliance has received requests for advice from U.S. firms that have received such requests, according to Dexter Price, the office's director.

Although the Coalition Provisional Authority (CPA) has issued dozens of orders and rules covering Iraqi laws, including trade and foreign investment, it hasn't issued anything regarding the boycott.  On boycott issues, the CPA website has merely referred to an order it issued imposing new bank regulations.

"The Coalition said it was going to work with the Iraqis to keep them from enforcing the boycott," Price said.  "There isn't any Coalition order or repeal of any Iraqi practices or regulations regarding the boycott.  So the area is unsettled," he added.

"We are getting some information from official sources that say they do, in fact, plan to enforce the boycott when they take over governing the country," Price told a conference in Washington Dec. 9.  While boycott questions have appeared on some documents, particularly from the trademark office, Iraqis have said the questions don't need to be answered.  "We have received some official documents saying that you don't have to fill out the eight-point questionnaire in order to register to do business there or to register a trademark," he reported.

Price's office has advised U.S. firms to cross out the questions and sign whatever documents they have received.  Some lawyers have advised clients to cut off the questionnaire from these documents before signing and returning them.  "That has worked for the powers of attorney and trademark registration," Price said. The Iraqis apparently have accepted documents with the questions crossed out.  "Just last week I received a copy of correspondence between a company and officials in the patent and trademark office where they say it is not required," he noted.
 

BIS CIRCULATING PLAN TO ALLOW INTRA-COMPANY TECH TRANSFERS

The Bureau of Industry and Security (BIS) intends to propose the creation of a special comprehensive technology license that would make it easier for companies to share controlled technologies with foreign nationals and with their overseas subsidiaries.  The concept, which has been sent out for interagency review, is part of a broader agency plan for addressing what it calls "knowledge controls" covered either by technology licensing requirements or deemed export policies.

The key requirements for receiving a special license would be the imple-mentation of a strong internal technology control plan and the vetting of foreign individuals who would be eligible to have access to the technology, according to BIS Deputy Assistant Secretary Matthew Borman.  Also likely to be required is an annual audit mechanism.

BIS officials say they want to propose the new license in the Federal Register early in 2004.  They say it is a top priority in the agency.  Industry representa-tives have been calling for a new policy to cover the intra-company transfer of technology to make it easier for multinational companies to do research and development around the world and to do global production and sourcing.
 

CONGRESS WON'T MEET FSC/ETI DEADLINE, EX-CHAIRMAN ARCHER PREDICTS

The crisis between the European Union (EU) and the U.S. over the Foreign Sales Corporation/ Extraterritorial Income Tax (FSC/ETI) law is likely to erupt again next year because Congress is not likely to amend the law before the new March 1 deadline the EU has set for retaliation to kick in.  "Frankly, I don't see how [the bills] get passed in final form before March 1," said Bill Archer, the former chairman of the House Ways and Means Committee.

Both houses may pass FSC/ETI measures before then, but it is unlikely a House-Senate Conference Committee can complete its work by then, Archer told reporters Dec. 8.  The big problem in passing a FSC/ETI bill is the split in the business community, Archer observed.

Moreover, there is a split between the House and Senate over whether the final legislation should be revenue-neutral, which the Senate favors, or should include an overall tax cut for business, which the House backs.  "The House bill is $60 billion in deficit or revenue loss, and as I listen to the senators and the staff of the senators, they don't believe they can get the votes for any revenue loser," said Archer, who is now a senior policy advisor to the accounting firm of Price Waterhouse Coopers.

"If that's true, then in conference, $60 billion in the House bill has to be off-loaded," he continued.  "There is going to be wailing and gnashing of teeth by those who expected they were going to get some benefit from the bill," Archer predicted.  "By the same token, the Senate has a revenue neutral bill only because they have a large number of revenue raisers, which according to the House leadership, is being portrayed as tax increases and which I believe will be unacceptable to the House," he said.

"If I am correct in that regard, then there has to be $30 billion that has to come out of the Senate bill in the way of tax relief," he said.  The cost of House and Senate bills will increase because both had counted on an extension of Customs user fees to offset tax cuts.  But a military tax relief bill signed into law Nov. 11 already used much of the fee to offset its cost.
 

PETTIGREW SAYS DIVISION IN CANADA MAKES LUMBER DEAL UNLIKELY

Canadian Trade Minister Pierre Pettigrew ended an hour and a half teleconference call with Canadian lumber executives Dec. 10 with a frustrated concession that he could not recommend acceptance of a proposal to settle the U.S.-Canada softwood lumber dispute because of the split in the Canadian industry.  Opponents of the proposed deal, which reportedly was ironed out by representatives of the U.S. Coalition for Fair Lumber Imports and several large Canadian lumber firms Dec. 6, claim the strong objections to the plan have left the proposal dead on the table.

Pettigrew's call came two days before he moved from the trade post to become Minister of Health under the new government of new Canadian Prime Minister Paul Martin, who took office Dec. 12.  The long-running lumber dispute is now the dossier of newly appointed Trade Minister James Scott Peterson.

Although on a volume basis the major lumber producers in Canada, particularly those in British Columbia, support the deal, many small producers and several larger firms oppose it.  More important, the governments of Quebec and Ontario, whose support is essential to an agreement, oppose it (see WTTL, Dec. 8, page 2).

Of particular concern to lumber producers in Quebec is a proposal released by the Canadian federal government on how it would allocate the proposed quota on Canadian exports among Canadian lumber producers.  The proposed U.S.-Canada deal would limit Canadian lumber to 31.5% of the U.S. market

Many producers complained  that the time period upon which the allocation would be based, April 1, 2001 to Sept. 30, 2003, includes the time during which U.S. sanctions were in place and trade was distorted by firms that increased production or received better stumpage prices to offset U.S. countervailing and dumping duties.
 

STATE WILL TRY TO REDUCE CONTROLS ON AVIONICS PRODUCTS

State's Directorate of Defense Trade Controls (DDTC) plans to work with makers of com-mercial avionics products to develop a mechanism to avoid bringing commercial items for civilian aircraft under International Traffic in Arms (ITAR) regulations just because the items contain components that are on the Munitions List (ML).  The possible amendment to State's "see-through" policy, which currently considers products containing ML components to be defense items, has been prompted by proposals that could make the installation of defense items, such as anti-missile devices, a requirement on civil airliners.

The immediate trigger to the new the policy shift was a licensing dispute over a gyroscope chip known as the QSR-11, which is an ML item that is a component of backup navigation equipment on commercial aircraft.  The U.S.-made chip is installed in the French-made equipment.

After several weeks of extensive internal debate at State, the department has decided to keep the chip under ITAR controls but to transfer licensing jurisdiction for the navigation unit to Commerce.   On Dec. 8, State sent Congress formal notification that it will transfer licensing jurisdiction for these navigation units from the ML to the Commerce Control List (CCL).  The change would go into effect around Jan. 8 unless Congress raises objections.

"This is basically a temporary ruling on our part," said DDTC Deputy Assistant Secretary Greg Suchan.  "We are looking over the course of the next 18 months to have the manufacturers of these units tamper proof them so the ITAR-controlled components cannot be removed without damage," he told a conference in Washington Dec. 9.

The new approach shows "ITAR controls can be compatible with general civil items and particularly civil air craft," he asserted.  "We hope there won't be more cases like this, but I strongly suspect there will be," he continued. "Certainly in the future we are going to have bigger issues, as it become required, for example, to put military-type anti-missile systems on certain airliners," Suchan said.
 

WTO COUNCIL CHAIR OFFERS PLAN FOR RESUMING DOHA TALKS

The chairman of the World Trade Organization (WTO) General Council, Ecuador Ambassador Carlos Perez del Castillo admitted Dec. 9 that he has seen "little real negotiation or movement" since the Cancun ministerial meeting in September but recommended restarting Doha Round negotiations anyway (see WTTL, Dec. 8, page 4).  In an informal meeting with heads of delegations in Geneva, he said he would urge a formal meeting of the General Council on Dec. 15 to approve the restart of talks based on the draft ministerial declaration that  was left unapproved in Cancun.

"On the issues of agriculture and non-agriculture market access, I will suggest that the negotiating groups should continue to build on our consultations since Cancun, which have taken as their effective starting point the Derbez text," he said, referring to the draft declaration prepared by Mexican Foreign Relations Secretary Luis Ernesto Derbez.  "With regard to the Singapore Issues, we can build on the general acceptance of unbundling these issues, that is, treating each of them on its own merits," he advised.

"At a practical level, all of the DDA [Doha Development Agenda] bodies should be encouraged to resume their work early next year -- presumably once the chairmanship issues are settled  -- and to build on the elements that have emerged in our work, both at and since Cancun," Castillo told the trade representatives.

In addition, the Trade Negotiations Committee "should be reactivated to carry out its Doha mandate to supervise the progress and overall conduct of the negotiations," he recommended.  Castillo also urged continued talks on the issue of cotton subsidies and help for cotton-producing countries in Africa without "getting bogged down" on procedural issues.
 

SCRAP INDUSTRY COMPLAINS ABOUT CHINESE PURCHASES

While most U.S. industries are complaining that China isn't buying enough American goods, the scrap metals industry and its customers say heavy buying by the Chinese is driving up used metal prices and causing shortages.  The latest complaint comes from the aluminum industry in comments filed with BIS in response to its annual review of U.S. foreign policy controls.

Jupiter Aluminum told the agency that continuation of this pattern could hurt U.S. national security, if secondary aluminum suppliers can't meet defense needs.  It urged BIS to use its authority under export controls and short-supply laws to "take whatever actions are necessary to stop it right now."

The concerns about China's buying of U.S. scrap came as Federal Reserve Chairman Alan Greenspan debunked criticism of Chinese exchange rate controls on the renminbi as causing the loss of American manufacturing jobs.  "The story on trade and jobs, in my judgment is a bit more complex," he said in widely quoted speech Dec. 11. "A rise in the value of the renminbi would be unlikely to have much, if any, effect on aggregate employment in the United States," he said.  The change in the exchange rate would just shift sourcing to other foreign countries.
 

 * * * BRIEFS * * *

CAFTA: U.S. official were giving upbeat assessment of chances for successful conclusion of talks by Dec. 16, while acknowledging many remaining stumbling blocks, especially on textiles and agriculture.

COUNTRY GROUPS: As part of proposal BIS is developing to revise Country Groups lists in EAR, agency is also considering total elimination of Country Groups, which many consider Cold War relic.

WASSENAAR RULES: In Dec. 10 Federal Register, BIS finally issued revisions to EAR to implement policy changes that Wassenaar Arrangement adopted in December 2002

HAZELNUTS: In preliminary antidumping determination Dec. 10, ITC on 6-0 vote ruled that imports of hazelnuts from Turkey may be injuring U.S. industry.

DEEMED EXPORTS: As previously promised, BIS has posted on its website new policy for expediting review of extensions of deemed-export licenses and upgrades of technology accessible by foreign nationals.

EXPORT ENFORCEMENT: Reliance Steel and Aluminum has agreed to pay $95,850 civil fine as part of settlement of BIS complaint that its Bralco Metals division exported aluminum alloy rods, which are controlled for nuclear reasons, to China, Taiwan, Malaysia and Singapore without approved licenses.

FTAs: USTR's office Dec. 9 asked ITC to conduct studies to determine potential economic impact on U.S. from duty-free treatment of imports from four Andean countries, Colombia, Bolivia, Ecuador, and Peru and from Panama, as result of proposed negotiations for free trade agreements.

SEDs: Customs has announced that it will only accept new version SED forms starting Jan. 18, 2004.

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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