Volume 23 No. 5 -- February 3, 2003


In this Issue:

* Court Rules to Protect License Applications from Disclosure
* Food Importers Will Face Duplicate Prior Notice Requirements
* BIS Report Shows Boom in Exports to Cuba
* Southeast Asia Wants to Become the Un-China
* FSC Legislation Moves onto Slow Track in Congress
* U.S., Canadian Lumber Industries Meet with Aldonas
* Thomas Wants Limited Extension of African Textile Rules


The Court of Appeals for the DC Circuit ruled Jan. 31 that the Bureau of Industry & Security (BIS) has the authority under the Freedom of Information Act (FoIA) to refuse to release export license application information even though the Export Administration Act (EAA) has expired (see WTTL, Nov. 11, page 1).  By a split 2-1 decision, the court upheld a district court ruling which said the FoIA exemption in Section 12(c) of the act remains in place even though the law has lapsed.  The ruling rejected the suit of the Wisconsin Project on Nuclear Arms Control.

Writing for herself and Senior Judge Stephen Williams, Judge Judith Rogers agreed with government lawyers that the enactment of the International Emergency Economic Powers Act (IEEPA) provides the statutory basis to invoke FoIA's Exemption 3, which allows the federal agencies to deny the release of information that is specifically excluded from disclosure by statute.  Although IEEPA doesn't specifically mention EAA, its legislative history does state that one of its goals is to keep EAA in place when the export control statute lapses.
"The Wisconsin Project's formalistic logic misses the bigger picture," Rogers wrote. "The touchstone of the Exemption 3 inquiry is whether the statute ‘is the product of congressional appreciation of the dangers inherent in airing particular data' and incorporates a formula" for an administrator to determine whether disclosure would pose the hazard that Congress foresaw, Rogers explained.  "Congress's actions throughout the long history of the EAA evince a clear appreciation of the danger inherent in exposing export application data to public view," she said.


Food importers will have to submit separate prior import notifications to both the Food & Drug Administration and to Customs until Customs can get its Automated Customs Environment (ACE) computer system up and running, FDA officials said Jan. 29 when they unveiled FDA's proposed advance notification and food establishment registration regulations.  FDA is developing its own electronic reporting system that importers will have to use for filing advance notice of all food products subject to FDA's jurisdiction (see WTTL, Jan. 20, page 2).

"Until those two systems come together at some future time, they [importers] are going to have to submit both," said FDA Food Center Director Joseph Levitt.  FDA is working with Customs to develop ACE so the system will be able to accept food import notifications at the same time it accepts advance notices required by Customs.  "That doesn't exist right now, and they are unable to modify their system," he said.
FDA's regulations, which are to be proposed in the Federal Register on Feb. 3, would implement the requirements of the 2002 Bioterrorism Act.  One rule will require the registration of all U.S. and foreign food processing and warehousing establishments.  FDA expects 200,000 U.S. and 200,000 foreign establishments to register by Dec. 12, the deadline set in the law.  The other mandated rule will require importers to notify FDA no sooner than five days and no later than noon before the arrival of a food shipment at a U.S. port.

Advance notices will be required for each FDA and Customs line entry, which can cover only one type of product and manufacturer.  In fiscal year 2001, FDA handled 2.5 million line entries for sea and air shipments and 2.2 million for truck and rail.  It anticipates receiving some six million entries annually and 20,000 entries daily when the rules go into effect in December.

A single shipment, container or truckload may contain several line entries, depending on the make up of the cargo and its sources.  If an importer fails to provide advance or adequate notice, FDA investigators at the ports can deny the entry of the shipment and direct it to a secure storage area.  The importer would be liable for the transportation and storage of any held shipments.

FDA claims much of the data it will require in advance is already submitted to Customs on entry, so the rules will only require extra planning.  The proposed regulation recognizes that the advance notice requirement will have a significant impact on importers of fresh food and fish products from Canada and Mexico.  It provides special rules that will allow importers under certain conditions to revise their notifications up to two hours before a shipment reaches the U.S. port.

About one-third of the goods coming through U.S. ports are subject to FDA regulation, including foods, drugs, medical devices and radiation-emitting products.  Before Sept. 11, 2001, FDA had only 150 staffers assigned to port operations and laboratories.  Since then, it has begun adding 800 more.  In the fiscal year that ended September 2001, FDA conducted only 12,000 wharf examinations of goods coming into U.S. ports. In the following year, it examined 34,000 and in the current year ending September 2003, it expects to examine 48,000 shipments.


The liberalization in 2000 of U.S. export controls on food and medicines destined for Cuba has generated a surge in trade with the communist island, according to statistics BIS just published.  In the fiscal year that ended Sept. 30, 2002, BIS reviewed and cleared over $2.5 billion in exports to Cuba, including 389 approved individual license applications with a value of $1.6 billion and 193 advance notifications under License Exception AGR with a value of $927 million, BIS revealed in its annual foreign policy report to Congress.

The license approvals included 170 that were for participants in an agriculture trade show in Havana last summer.  In the past, BIS staffers have noted that approval of licenses doesn't necessarily mean an item was actually shipped. The approved trade in 2002 was up sharply from the $455 million in approved trade in 2001.  In the five previous years, license approvals averaged around $500 million annually.  The increase in trade occurred despite the complexities created by the 2000 Trade Sanctions Reform and Export Enhancement Act, which opened agriculture trade with Cuba under strict conditions.
Cuba wasn't the only terrorist-designated country for which licenses were granted, although in value terms it was the bulk of such trade (see table).  BIS approved 95 licenses for Syria, nine for North Korea and six for Libya.  It granted 10 deemed export licenses for Iranian nationals.  All this trade was worth less than $200 million.

Shotguns and shells were the subject of 734 of 1,914 licenses BIS approved for crime control reasons.  Most of these were the subject of small-arms trade controls adopted by the Organization of American States.  There were also 374 licenses in this category for optical sighting devices.

BIS approved licenses for 1,344 imaging cameras incorporating image intensifier tubes or focal plane arrays with a total value of $51 million under regional stability controls. Military trainer aircraft represented most of the value ($384 million) in this category, although they counted for only 246 licenses.

BIS said it intends to impose new regional stability controls on explosive detection equipment use for airline and structure security.  "These controls may substantially increase the number of license applications for these items," it said.  The controls will cover a greater range of detection products to most destinations and "will have an impact on industry," the agency declared.   Rather than limiting controls to anti-terrorist destinations, as now, the new regulation will impose RS controls on these items to all destinations except NATO members, Japan, Australia and New Zealand, the report declared.

The report shows how effective industry was in arguing against controls on high-performance computers.  Bowing to computer industry lobbying over the years, the U.S. systematically liberalized controls on computers over the years.  As a result in FY 2002, BIS needed to approve only three licenses, including one that was a deemed export license and one for Syria.

BIS Foreign Policy Export Licensing in FY 2002

Control Type                                 Approved             Value             Denied             Value

Crime Control/Human Rights             1,914         $171 million             32             $2.1 million

Regional Stability                             1,664         $441 million               13               $0.4 million

Anti-Terrorism                                   509         $1.7 billion                 11                $51 million

Missile Technology                             775         $1.57 billion               93                 $9.2 million


Remember those commercials in the 1970s where 7-Up advertised itself as the Un-Cola.  That appears to be the promotional theme of Southeast Asia and Africa that want to be alternative production sources to China.  While there is worldwide concern that China's low-cost, government-controlled economy will dominate many manufacturing sectors, there is also the claim that buyers won't want to depend only on China, because of the political risks that still exist in the country, as well as the likelihood that it will be the target of more trade actions.

"No one wants to put all their eggs in one basket," said Singapore's Ambassador to the U.S. Chan Heng-Chee.  "We are a second basket," she said Jan. 29 at a program on the recently concluded U.S.-Singapore Free Trade Agreement (FTA).  Chan spoke the same day President Bush was sending formal notification to Congress of his intent to sign the Singapore and Chile FTA deals in 90 days.
The same desire that drove Singapore to solidify trade relations with U.S. is also pushing other members of the Association of Southeast Asian Nations (ASEAN) to begin talks with Washington.  President Bush laid the groundwork for such negotiations at the last APEC meeting in Los Cabos, Mexico, where he announced his Enterprise for ASEAN Initiative. Similarly, members of the South Africa Customs Union (SACU), which will start FTA talks with Washington soon, also hope to enhance their textile and apparel industries before the end of global quotas at the end of 2004.

Chan noted that the flow for foreign direct investment in Asia, not counting Japan, has shifted in recent years.  Whereas 70% of that FDI had been going to Southeast Asia and 30% to China, the percentages have now shifted, she told the Washington International Trade Association.   Because of this shift "there was great concern in my region and some anxiety," she said.  "There was the sense that China was a threat. Now they use the word challenge," Chan continued.

"Southeast Asia and ASEAN has now settled into understanding what the Chinese challenge is.  All the countries say they are, and they sincerely believe this, that China's growth is good for Southeast Asia.  It is a challenge, because we have to compete with China, but trade with China has already increased."    In addition Singapore is seeing an increase in Chinese tourists, who are following in the footsteps of tourists from Britain, Japan and Korea.

 Frank Lavin, the U.S. Ambassador to Singapore, cautioned against linking the rise of investment in China and the decline in investment in Southeast Asia.  Other factors are at play, he suggested. "If China were to disappear tomorrow that $50 billion would not go to Southeast Asia," Lavin said.  "There is competition for investment, and anything Southeast Asia can do to attract investment they ought to take those initiatives," he added.


The heads of the congressional committees that must revise the Foreign Sales Corporation (FSC)/ Extraterritorial Income Tax (ETI) laws have signaled that they are in no rush to enact a bill to bring the tax statute into compliance with World Trade Organization (WTO) rules.  In separate appearances Jan. 27, Ways and Means Committee Chairman Bill Thomas (R-Calif.) and Finance Committee Chairman Chuck Grassley (R-Iowa) suggested why legislation will be delayed.

A prime delaying factor will be the time the committees will spend on new tax proposals President Bush will be sending Congress soon.  In addition, Congress feels it can't move on FSC until there is consensus on the issue in the business community.  Some members are also are waiting to see what happens in the WTO Doha Round talks where key milestones in the agriculture talks are approaching at the end of March. Lawmakers are just plain annoyed at the European Union's (EU) agriculture policies.
Congress doesn't feel compelled to act on FSC until the EU ends its refusal to approve new genetically modified organisms (GMOs) and complies with the WTO beef-hormone decision.  Several lawmakers have written to President Bush and U.S. Trade Representative (USTR) Robert Zoellick urging them to launch a WTO complaint against the EU's GMO policies.

Just returning from a trip to Africa, Thomas cited allegations that the EU blocked the donation of U.S. food to Zambia because it contained GMO grains.  Although the EU has denied this, Thomas said he hopes "Zambia may provide us with some concrete evidence."

Grassley said he expects a proposal on FSC/ETI from the joint House-Senate working group on the issue in May.   A proposal won't come before then because "there's a tremendous difference of opinion between companies that export from the United States as opposed to those who manufacturer elsewhere in the world," he said.  Given the current state of the economy, "we want to make sure there is ample consideration of the harm done to some companies versus to others," he said.

Both Grassley and Thomas agreed the U.S. has an obligation to bring its laws into compliance with WTO obligations. "Once we have public policy, then the best thing to do is live within the rule of law," Grassley said.  But Thomas noted the difficulty he expects to face getting other lawmakers to agree to changing U.S. laws to meet WTO requirements. "Frankly, the European Union has not created a very positive environment for me trying to get my colleagues to respond to the WTO when they continue to throw up roadblocks in settling issues that are quite important to us," Thomas said.


Commerce Under Secretary Grant Aldonas spent almost all day Jan. 31 in meetings with U.S. and Canadian lumber industry executives and with Canadian federal and provincial officials but reportedly reached no agreement on how to resolved the bilateral dispute over softwood lumber (see WTTL, Jan. 27, page 2).  At press time, additional meetings between Commerce and Canadian officials were expected to be held over the weekend, and Commerce Secretary Don Evans will be meeting with Canadian Trade Minister Pierre Pettigrew during the week of Feb. 3.

During a morning session where both Canadian and American industry representatives sat in the same room with Aldonas, discussions reportedly focused on how to set the agenda for resolving the dispute but not on the specifics of what an agreement would look like.  Both sides remained split over whether to seek an interim agreement in the form of a Canadian export tax, as well as over the standard Commerce has proposed a changed circumstances decision that could revoke the current countervailing duty order on Canadian softwood lumber.
The wide-ranging discussions covered such issues as what will happen to some billion dollars in deposits the U.S. has already collected in CVD and antidumping duties since the orders went into place.  Most Canadian firms want their money back, while the U.S. Coalition for Fair Lumber Imports wants the money to stay in U.S. coffers and eventually distributed to U.S. firms under the Byrd Amendment. A proposal offered by Weyerhaeuser has called for an "equitable distribution" of the funds.  One source suggested the money could become part of side deal that would help facilitate agreement among the parties.

The talks also addressed the dilemma Canadians will face because the details of any changes they agree to make in the timber sales programs won't be available when the agreement is reached on an interim accord.  As a result, they are uncertain whether the changes they'll make will be acceptable to Commerce, and if they aren't, whether they will face a perpetual export tax.

Although some parties claim they are being rushed to make a deal, one source argued that now is the best time for an agreement before WTO and NAFTA panels issue ruling on the dispute.  Once those decisions come out, regardless of who wins, "the sides will harden," the source said.


House Ways and Means Committee Chairman Bill Thomas (R-Calif.) says he is willing to support extension of provisions of Africa Growth and Opportunity Act to give some African garment-making countries more time to use fabric from third countries, but he opposes unlimited extension of law.  Special exception that allows for use of regional fabric from other sub-Sahara African countries was included in 2002 Trade Act, but it expires on Sept. 30, 2004.  The apparel and retailing industries are already pressing for an extension of that deadline.

Thomas, who just returned from a visit to Africa, told reporters Jan. 27 that the deadline was intended to put pressure of firms to move quickly into the region.  During his trip to several countries, such as Lesotho and Mauritius, he said he found companies taking advantage of the provision, while countries such as Nigeria have not.
"The last thing you want to do is leave it open-ended, so if there was a deal that was going to be made, people will back away from it because it is open-ended," Thomas explained.  "The whole purpose of it was to create a time line to get you to do certain things in a fixed time," he said.  "If you remove the fixed time, you lose the incentive of getting it done."

Countries such as Lesotho are trying to get an integrated textile and apparel industry into place before 2005 when global textile quotas end (see WTTL, Jan. 27, page 3).  "The last thing we really want to do is turn south Africa into a cut-and-sew operation in which the only advantage the countries get is cheap labor, because you know the garment industry has moved all over the world in search of cheap labor and will move on, if that is all they have," Thomas noted.  "We are going to look at what we can do to ease that shift," he promised.  But he admitted he is "ambivalent" about what to do with regional-fabric rule.  "We are looking at how we can extend, but not extend, the ‘04 provision," he said.

Copyright 2003 by Gilston Communications Group.  Reproduction or retransmission in any form is prohibited.  Washington Tariff & Trade Letter is published weekly 50 times a year.  Email: Info@WTTLonline.com


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