Volume 23 No. 7 -- February 17, 2003


In This Issue:

* State to Require Advance Notice for Munitions List Exports
* Interagency Debate Brews Over Future of Option 4
* Labor Rights Loom As Stumbling Block to CAFTA
* Washington's FTAA Proposal Seeks to Divide and Conquer
* WTO Agriculture Proposal Puts Pain into Rhetoric
* Briefs: Senate, 24-Hour Rule, Post Insulators


Add State to the list of agencies and departments requiring advance notice of exports.  The department plans to publish new rules that will require exporters of goods on the Munitions List (ML) to provide prior notice before export electronically via the Automated Export System (AES).  For goods going by ocean container or rail, notice will be required 24 hours before export.  For export by air or truck, eight-hour advance notice will be required, sources report.

The amendment to the International Traffic in Arms (ITAR) regulation will be published as an interim final rule after Census issues its final regulation for mandatory filing of Shipper's Export Declarations (SEDs) via AES of all ML exports and goods subject to Commerce Control List (CCL) licensing.  The Census regulation, man-dated by the 1999 Proliferation Prevention Enhancement Act, is now expected around mid-March, with implementation delayed for 90 days until mid-June.
State had originally floated the idea of requiring notification 72 hours in advance of export for ML items, but that proposal drew strong criticism from the defense-trade community (see WTTL, March 11, page 1).  The department worked with its Defense Trade Advisory Group (DTAG) to come up with the rules it is expected to issue.  The advance filing requirement for ML items is in addition to advance notice rules Customs is planning to propose.

When the new ITAR rules go into effect, ML exporters will no longer be able to use post-export filing procedures under AES Option 4, which allows qualified and pre-approved exporters to file complete SED data up to 15 days after departure.  The future availability of Option 4 for CCL items is the subject of an interagency debate, but its prospects are not bright (see story below).


High-volume exporters who use AES Option 4 to file SED information up to 15 days after their goods are exported will have to wait for the outcome of an interagency debate over this filing option before they will know whether it will continue to exist.  The Census Bureau is trying to convince Customs to allow this filing method to continue even after Customs issues final prior notification requirements for all exports (see WTTL, Jan. 27, page 1).

While Customs officials say they haven't made up their minds on the future of Option 4, the draft "straw man" proposals they released for advance notice appear to sound the death knell for this option.  Customs officials claim they have little discretion under the statutory mandate for requiring prior notifications of exports, but their colleagues at Census argue that Customs has more discretion in the writing of these rules than it admits, particularly for non-vessel shipments.  Census, whose Foreign Trade Statistics Regulations (FTSR) rules provide for Option 4 filing, has suggested that adding more stringent eligibility conditions for Option 4 users would be one way to increase the trust Customs would have that Option 4 exports do not pose a risk.
In addition to the debate over Option 4, interagency discussions have also been held on an idea Customs has floated for eliminating the SED exception for low-value exports under $2,500 and for all non-ML, non-CCL exports to Canada.  Census has estimated that elimination of these exceptions could triple the number of SEDs filed from some 2 million per month to 6 million per month.

More than the collection of unneeded data, Census is concerned about the burden such a change in the rules would impose, especially on small exporters who irregularly make shipments of $500 to $1,000 in value.  It would also affect exporters on the northern border who mostly have been exempt from filing requirements for about 14 years under a reciprocal U.S.-Canadian agreement to exchange import data to avoid duplicate filing requirements.

While the debate over the "straw man" proposals comes to a head, Census is drafting the final regulation for imposing mandatory AES filing for all exports of goods subject to ML and CCL licensing.  Sources say the final rule will have few major changes from the version proposed in October.  For example, the agency is expected to go ahead with the proposed elimination of Option 3 post-shipment filing.  But it will continue to permit Option 4 filing for CCL items.

Census received only 14 comments on the proposal, many citing the same problems. The most significant change will clarify the required wording that must accompany export documentation to indicate that the AES filing has been made.  Several comments complained the proposed wording of this proof-of-filing statement, which would have required carriers to attest to the accuracy of all filed information, placed an undue legal liability on carriers who could not guarantee information provided by the exporter.  Census is expected to modify the requirement to offer several wording options, including a statement merely saying the information was submitted properly.


Long-standing complaints about the violation of workers' rights in Central America could significantly increase the difficulty of negotiating and getting congressional approval for a U.S.-Central American Free Trade Agreement (CAFTA).  The labor issue in a CAFTA could test whether unions and anti-trade organizations, who couldn't block fast-track legislation last year, have any clout left on Capitol Hill.  The Bush administration and U.S. Trade Representative (USTR) Robert Zoellick are betting they don't.

CAFTA critics contend the labor provisions in previous FTAs, such as proposed deals with Chile and Singapore, aren't adequate because their standard of compliance is based on each country's enforcement of existing labor laws.  The labor laws in most of Central America do not even meet the minimum standards of the International Labor Organization (ILO), said Sandra Polaski of the Carnegie Endowment for International Peace.
Polaski, who supports a CAFTA deal as the best opportunity to bolster reforms in the region, cited a history of complaints against the governments of several Central American countries, including the suppression of workers' rights in export processing zones, child labor, and discrimination against women and indigenous peoples.  "These problems are deep; they are pervasive, and they run throughout all five Central American countries," she told a program sponsored by the Washington International Trade Association.  Unless these issues are addressed, the battle in Congress to ratify a CAFTA deal "would be as difficult as any since NAFTA," she argued.

Polaski, a former State official who prepared its annual report on human rights, urged the U.S. to include four goals in talks with Central America on labor.  These are: (1) Assure that benefits rely on the same level of workers' rights required under the Generalized System of Preferences (GSP) and other preference programs; (2) Require Central American countries to upgrade their existing inadequate labor laws; (3) Require them to strengthen their labor law enforcement; and (4) Include provisions for verifying that labor law improvements are made and maintained.

To encourage countries in the region to make these changes, she recommended phasing in trade benefits based on improvements in labor rights.  This would create a competition for better workers' rights among the CAFTA participants, she claimed.   Since the U.S. is expected to force the Central Americans to improve their protection of intellectual property rights, both through new laws and better enforcement, it would be appropriate to seek similar changes for labor, Polaski argued.


The U.S. negotiating position for a Free Trade Area of the Americas (FTAA), released Feb. 11, may provide more free trade for some Western Hemisphere countries than for others.  Washington's offer would put all industrial and consumer goods and agriculture products on the table in the talks, as well as almost all services, but would sculpture trade opening on a country-by-country basis determined by each country's willingness to offer reciprocal concessions to U.S. exports.  The benefits to each country also may be shaped by their level of development and size.

Washington's divide-and-conquer strategy reportedly has already raised hackles among several Latin American countries.  The U.S. reportedly is not sharing the offers and discussions it is having with each country with other countries.
In effect, the FTAA could become 30 separate trade deals based on each participant's willingness to open its market to U.S. goods and services or because it is too small and poor to pose any threat to American industry.  The announced approach could allow the U.S. to by-pass the obstacles to a deal raised by countries such as Brazil.

"The United States is putting all consumer and industrial goods on the table and is ready to move forward with others willing to do the same," a USTR fact sheet stated.  It will offer immediate tariff elimination on a reciprocal basis in such sectors as chemicals, construction and mining equipment, electrical equipment, energy products, information technology, medical equipment, nonwoven fiber, paper, steel and wood, it noted.

Because many imports from Latin America already do or soon will come into the U.S. duty free under free trade agreements or preferential programs with Caribbean and Andean regions, the full impact of these tariff cuts is hard to gauge.   Even for countries without preferences, tariffs on many of these goods are in the 2-3% range.

The U.S. is also willing to talk about lifting tariffs on all agriculture products, with 56% eligible for immediate duty-free status.  For countries belonging to the Caribbean Common Market, 85% of their agriculture exports to the U.S. would become tariff-free immediately, said USTR Robert Zoellick.  But for other unidentified farms goods, tariff cutting "would fall into staging categories of five years, 10 years or longer, tailored to individual countries," the USTR fact sheet explained.

The longer phase-in periods are likely to cover traditionally sensitive crops.  "I suspect that would include sugar and some orange citrus," said Zoellick.  "But the key point is they are on the table to be negotiated," he added quickly.

For textiles and apparel, Zoellick said the U.S. is willing to negotiate the total elimination of tariffs by 2010 but only on a reciprocal basis.  This phase-out period would be five years ahead of the U.S. proposal to the World Trade Organization's Doha Round talks for a tariff-free world by 2015.  This is a position some firms in the textile industry have supported, partly on the belief that other countries wouldn't accept the zero-zero deal anyway.

The U.S. announcement didn't provide details on the rule-of-origin the U.S. would demand in such a deal, but it is likely Washington would insist on the same "yarn-forward" rules that have been adopted in other FTAs, including NAFTA, Chile and Singapore.  Zoellick suggested one goal of the textile proposal is to give Western Hemisphere apparel producers an advantage in global competition when global textile and apparel quotas are eliminated at the end of 2004.  "I think most of the people in the apparel industry expect China to be a very fierce competitor, so part of the reason we're trying to move on this, in a way, is to help create a more integrated Americas market in the apparel and textile industry," he explained.


The war of words between the U.S. and European Union (EU) over agriculture trade and support policies is finally moving into the phase where the real potential pain of reform can be calculated.  A new draft paper proposing the terms for negotiating an agriculture agreement in the WTO Doha Round underscores why agriculture has been the hardest issue to resolve in two rounds of world trade talks.  Prepared by Stuart Harbinson, the chairman of the WTO negotiating committee on agriculture, the paper has drawn lukewarm support from Washington and opposition from Brussels.

Under the mandate for the Doha Round, negotiators are supposed to reach agreement by March 31 on the "modalities" for treating export subsidies, domestic support and market access.  Once this framework is agreed to, members will spend the rest of the round debating how much these trade distortions are to be reduced and over what period.
The paper was expected to be a lightening rod to move the talks into the real negotiating period, but there is concern that too many objections could deadlock negotiations.  "If they kill it completely, it will be very difficult to meet the March 31 deadline," one source in Geneva said.

Harbinson has proposed cutting tariffs by specific percentages over a defined period, a formula for calculating and reducing export subsidies down to zero and a fixed percentage plan for reducing domestic support.  His paper, which will be formally released Feb. 17, also called for addressing distortions caused by state-trading companies, tariff-rate quotas, safeguard measures, export credits, food aid and export restrictions.  Few details are provided for some of these proposals.  The draft  also provides special and differential treatment for developing countries.

U.S. Agriculture Secretary Ann Veneman said Harbinson's plan "should be the basis for establishing the appropriate balance of commitments."  Nonetheless, she complained that it wasn't ambitious enough in its market access proposal.  "We have serious concerns that Harbinson's paper lacks harmonization and equity in both market access and domestic support areas," she said in a statement. "The perpetuation of inequities regarding the allowed levels of trade-distorting domestic support is particularly problematic," she added.

A harsher assessment came from EU Farm Commissioner Franz Fischler.  He complained that the time periods Harbinson proposed ignore the reforms the EU has made in its Common Agriculture Policy (CAP), while not addressing the increased farm supports the U.S. adopted in the Farm Bill.  "In the developed world, those that moved in a direction that is consistent with what was agreed in the previous round are penalized, while those that reversed direction get rewarded," he said.  He objected to being asked to end export subsidies completely, while the draft paper doesn't demand the end of the export credits and food aid, the main U.S. way to support exports.

 * * * BRIEFS * * *

SENATE: Tim Punke name chief Democratic trade counsel on Senate Finance Committee. He succeeds Greg Mastel, who has joined D.C. law firm of Miller & Chevalier.

24-HOUR RULE: Customs says it issued 13 "no-load" orders to carriers during first week of implementation of its 24-hour-in-advance notification rules Feb. 2-9.  It reviewed 142,000 bills of lading.  Rejected bills were for shipments headed to 15 ports, including L.A. and New York.  Denials were based on inadequate cargo descriptions, such as "freight of all kinds,"  "said to contain," and "general merchandise."

POST INSULATORS: In preliminary ruling Feb. 13, ITC voted 5-0 that imports of allegedly dumped imports of ceramic station post insulators from Japan may injuring domestic industry.

Copyright 2003 by Gilston Communications Group.  Reproduction or retransmission in any form is prohibited.  Washington
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