Volume 23 No. 6 -- February 10, 2003


In This Issue:

*  BIS Budget Adds Enforcement Staff, New Technology Office
*  Industry Will Turn to Congress for Help on Advance Notices
*  Commerce Hopeful on Lumber Deal, But Details Still Elusive
*  Apparel Importers Oppose Tough Quotas on Vietnamese Goods
*  Europeans Warn U.S. Against Taking WTO Action on GMOs
*  Congress Rejects White House Call to Drop Byrd Amendment
*  Briefs: Hangers, PC Strand, ITC


More than half of the small increase the Bush administration has proposed in the Bureau of Industry and Security's (BIS) budget for next year will go to increase enforcement activities, with the remainder earmarked for the creation of a new office of technology evaluation (OTA).  In its proposed budget for the fiscal year starting Oct. 1, 2003, the White House Feb. 4 asked for a $2.3 million increase in direct spending for BIS to $78.2 million.  These funds would add nine positions for enforcement efforts and five for the new OTA.  In addition, five current staffers would be shifted from other assignments to the new office.

OTA "will play a key role in bringing to fruition the president's vision of a system of ‘smart export controls' --  those that are narrowly focused on items and technologies that pose the greatest threats to U.S. national security without unnecessarily burdening U.S. exporters," a Commerce statement explained.  The office will reconstitute BIS's long-dormant foreign availability review process, as well as consider claims of mass-market status for products.
Some of the extra enforcement personnel will be assigned to BIS's Special Computer Evidence Recovery program.  "Evidence seized from computers and other electronic storage media are an increasingly important part of export enforcement activities where violations often are the result of business transactions conducted or documented electronically," Commerce said.  The other enforcement staff would be placed in field intelligence work and in offices in New York and Chicago.


Importers and exporters are considering asking Congress to revisit several pieces of legislation that were enacted in the last two years to tighten border security but instead have set the stage for a major disruption of trade.  Trade community representatives say the overlapping laws will create a confusing maze of mandated advance notification requirements for imports and exports, with at least five different agencies sharing some jurisdiction over their enforcement.  "This problem is of Congress's making and Congress will have to fix it," one attorney told WTTL.

Customs, Census, the Food & Drug Administration (FDA), BIS and Defense will all have a role in implementing the legislation, but communication and coordination among the agencies have been limited, sources claim.  As a result, business is seeing the emergence of different sets of reporting rules, using different electronic systems and requiring different data (see WTTL, Feb. 3, page 1).
The different statutory mandates came out of different congressional committees, so lawmakers may not be aware of the confusion they have created.  One of industry's first goals will be to increase Capitol Hill awareness of the problem and perhaps get a hearing by at least one committee.  Unless Congress acts, government officials say they have little discretion in imposing the advance notification requirements and must implement them by the deadlines set in the legislation.

The proposed rules with the broadest implications for trade are the "straw man" proposals Customs has released for inbound and outbound cargoes traveling by rail, truck and air.  While Customs has not formally withdrawn its draft texts, it has extended the deadline for public comments to Feb. 18.  It also has agreed to wait until it hears the recommendations of Treasury's Advisory Committee on Commercial Operations (COAC), which has established four subcommittees to examine each of the modes of transportation covered by the Customs plans.

The advice from the subcommittees on air, truck, rail and sea is due by March 14.  One of the recommendations that could come from the COAC might be a call for legislation to consolidate and simplify all cargo notification requirements, one source noted.  Even before the report is issued the trade community "is likely to see more push in the legislative direction," the source added.  Customs also asked the committee to provide advice on how the trade community would like to see many of the technical problems created by the straw man proposals resolved.

COAC, which was created by statute to advise Treasury on Customs matters, has been caught in limbo by the transfer of Customs to the new Homeland Security Department (HSD).  Committee sources say they have been told the Bush administration will seek legislation to amend its charter to be an advisor to both Treasury and HSD, but remain under Treasury's administration.


After a week of talks with U.S. and Canadian lumber companies and Canadian federal and provincial officials on how to resolve the softwood lumber dispute, Commerce Under Secretary Grant Aldonas said "we are well on our way to reaching an agreement."   But he admitted "we are going to have a lot of hard bargaining ahead."   His statement reflected the differences revealed during those talks and the realization that the goal of reaching a deal by mid-February is no longer likely (see WTTL, Feb. 3, page 4). Aldonas said he is now looking to conclude talks in three weeks.

Aldonas used some of the advice he heard in those meetings to revise a draft policy bulletin, which will provide guidance on what steps Canadian provinces could take to have the International Trade Administration (ITA) rule they were no longer subsidizing their lumber industry.  He circulated what his staff calls "a refined" version of the draft to participants Feb. 5.  While Canadian sources say they were pleased with the changes made, they emphasized that further revisions are needed.  "If this is the final document, I don't know if it would do the trick," one source said.
The revised draft backs away from the original version's nearly total reliance on auctions as the only way provinces could sell lumber at fair value prices and get a changed circumstances ruling that would end the CVD order on imports.  It also dropped a monitoring provision that annoyed the Canadians.  It now says market-based pricing can be determined by auction or "a system that ensures an equivalent result."   The new text includes examples of acceptable alternatives that were design specifically to address practices in Ontario and Quebec where there is a larger share of privately owned timber and other methods of selling government-owned timber compared to British Columbia, which is moving toward an auction system.

The alternatives would allow prices to be set administratively based on private-sector sales in the province or based on private-sector reference prices in another province.  This latter alternative could adopt the cross-border price comparison method ITA favors, since Canadian provinces could use sales prices in adjoining U.S. states as the basis for their administered prices.  The new text attempts to close potential loopholes in auction and administrative pricing by promising to examine whether there is an adequate number of buyers and sellers in any sale, adequate information about the sale, no barriers to participation, transparency, and no collusive behavior.

While progress is being made on the policy bulletin, wide gaps remain over the terms of an interim agreement that would impose a temporary export tax on Canadian lumber while provinces move toward a system that provides them with "adequate remuneration" for their timber.  Talks on both the bulletin and interim deal have been going on simultaneously.  "The tracks aren't running exactly parallel at the moment, but they are going to have to meet in the same place eventually," Aldonas said.

"The heart of the deal for the Canadians is greater security of market access," he explained.  Canadian lumber producers want assurances that changes made by the provinces will result in a changed circumstance ruling and that U.S. industry won't file another trade complaint sometime in the future.  U.S. firms say they want assurances that reforms will be implemented in Canada.  Any final deal will have to provide "a sufficient invitation to the provinces" and assurance to U.S. industry that Canada "will have a functioning market at the end the day" so there is "enough to encourage people to go ahead with an interim agreement," Aldonas said.

A key sticking point in the talks on an interim agreement, however, is how to administer the export tax Canada would impose on its lumber shipments and at what level to set that tax.  There appears to be accord on the idea of a sliding tax based on the fluctuation of lumber prices.

The U.S. Coalition for Fair Lumber Imports, however, has reportedly rejected a Canadian proposal that would set the tax at its maximum when lumber prices reach $260 per thousand board feet or lower and go to zero when they reach $340 per TBF.  The Coalition wants the tax to be equivalent to no less than the 27.2% duties Canadian lumber pays now in CVD and dumping duties and would prefer a higher level to offset the surge in lumber sales since these duties went into place.  Some Canadians have argued for a level below the current 18% CVD order.


U.S. apparel manufacturers and retailers have mounted lobbying effort to dissuade the Bush administration from negotiating restrictive import quotas on textiles and apparel from Vietnam.  Chief U.S. Textile Negotiator David Spooner is scheduled to travel to Vietnam for the start of talks Feb. 19 on a bilateral agreement that could limit imports from the last major supplier that is not covered by quota restrictions.

Vietnamese goods have entered the U.S. free of quotas ever since the trade embargo on the Southeast nation was ended.  Since the U.S.-Vietnam trade agreement was reached in 2000, Vietnam has grown to become the 22nd largest supplier of textiles and apparel to the U.S., accounting for 1.6% of all U.S. clothing imports.
In a Feb. 6 letter to U.S. Trade Representative (USTR) Robert Zoellick, chief executives of 30 apparel manufacturing and retailing companies urged the U.S. not to curb apparel imports from Vietnam.  With the expiration of global quotas in 2005, "Vietnam will be an important alternative to China," they wrote.

"Vietnam constitutes an extremely important opportunity for us, especially in light of the continuing uncertain economy, shifting security conditions and the upcoming termination of the international quota system," wrote such firms as Sears, K-Mart, Liz Claiborne and Perry Ellis.  The letter said Vietnamese imports aren't replacing U.S. production but are "largely a reflection of business transplanted from other Asian and Middle Eastern suppliers, including Myanmar."


A parade of European trade and agriculture officials visiting Washington the week of Feb. 3 warned U.S. officials that launching a World Trade Organization (WTO) complaint against EU policies on genetically modified organisms (GMOs) could cause a serious backlash in Europe.  Starting the dispute-settlement process would not only cause European consumers to harden their opposition to GMO-containing foods, but also would threaten support for the WTO, if the EU were to lose the case, they said.  Their visits came as the Bush administration is still conducting an  internal debate over whether to take the Europeans to the WTO on the issue or not.

"It would be most unfortunate if the disagreement between the U.S. and Europe on the issue of GMOs would deteriorate into a bitter dispute resulting from taking this issue to the WTO," said Annemie Neyts-Uyttebroeck, Belgium's foreign affairs and agriculture minister.
She noted public concern in Europe about food products based on the bad experience with mad-cow disease and the opposition to GMOs from nongovernment organizations (NGOs).  "A WTO panel on GMOs would surely alarm NGOs and public opinion in Europe and could have an adverse effect on their perception of GMO-products," she said in a Feb. 3 speech in Washington.

EU Agriculture Commissioner Franz Fischler carried the same message to U.S. trade officials and members of Congress during his visit.  He urged the U.S. to wait until recent GMO-review policies in Europe have been implemented.  "It's a bit of a question of timing," Fischler told reporters Feb. 4.  Although the U.S. has complained about EU policies on GMOs for three years, "wouldn't it be worthwhile to wait for another three or four months to see how our new system works," he said.

Fischler was quick to emphasize that this was not an invitation to go to the WTO if no GMOs are approved in that time.  He said the U.S. should do a cost-benefit analysis of a WTO complaint, comparing "the cost of waiting three or four months with the risks if you start action."   The benefit, he said, "is the chance that they would get approved."


The Bush administration got a quick rejection from the Senate Feb. 4 to its proposal to repeal the Byrd Amendment as part of its fiscal 2004 budget request.  On the same day the White House called for changing the law that has been declared inconsistent with WTO rules, 70 senators wrote to President Bush objecting to the WTO Appellate Body ruling and urging the administration to make the continuation of the Byrd Amendment one of the U.S. negotiating objectives in Doha Round talks (see WTTL, Jan. 20, page 3).

In his budget message, which may have crossed in the mail with the senators' letter, the president proposed repeal of the Byrd Amendment, which distributes about $230 million of countervailing and antidumping duties annually to complainants in those cases.  "These corporate subsidies effectively provide a significant ‘double-dip' benefit to industries that already gain protection from the increased import prices provided by countervailing tariffs," the administration statement said.
The WTO Appellate Body "acted beyond the scope of its mandate," the senators told Bush.  In coming trade talks, they urged him to seek "express recognition" of the right to distribute duties and to include this position in ongoing WTO talks on improving the dispute-settlement process.

 * * * BRIEFS * * *

HANGERS: Despite President Bush's rejection of their past advice on imposing Section 421 trade restrictions on surging imports from China, ITC members Feb. 5 again recommended relief, this time on steel wire garment hangers from China.  They voted 5-0 on Jan. 27 that imports were disrupting U.S. market.  Commissioners Okun, Hillman and Miller recommended three years of relief in form of tariff starting at 25% and declining to 20% and 15% subsequently.  Commissioner Bragg recommended two years of relief at 20% and 15%.  Commissioner Koplan urged Bush to impose 30% tariff for three years.

PC STRAND: In response to request from three producers, ITC has initiated antidumping and countervailing duty investigations of imports of prestressed concrete steel wire and strand from Brazil, India, Korea, Mexico, and Thailand.  ITA is still weighing request.

ITC: Senate Finance Committee Chairman Charles Grassley (R-Iowa) is keeping promise to move President Bush's nominations for ITC seats quickly.  Committee will hold hearing Feb. 12 on nominations of West Virginia lawyer Charlotte Lane and Cargill Assistant VP Public Affairs Daniel Pearson to Commission.

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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