Volume 23 No. 9 -- March 3, 2003


In This Issue:

* Comments Warn Customs About Damage From Advance Notice Rules
* U.S. Wants Vietnam to Cut Tariffs As Part of Textile Deal
* OECD Steel Talks Show Signs of Optimism on Agreement
* Level of Interim Export Tax Stymies Softwood Lumber Talks
* BRIEFS: CAFTA, Software VAT, Miscellaneous Tariffs, Bulgaria, Japan


Formal written comments that Customs has received on its "straw man" proposals for advance filing of import and export data warn that such requirements could disrupt current business practices and put U.S. firms at a competitive disadvantage in global trade.  Echoing many of the comments made orally during public meetings Customs held in January, the written comments also object to ideas Customs has floated to eliminate Option 4 post-shipment opportunities for approved exporters and to require Shipper's Export Declarations (SEDs) for non-licensed low-value ship-ments as well as for exports to Canada (see WTTL, Feb. 17, page 1).

"Option 4 must be retained for all approved exporters," argued the Joint Industry Group (JIG), which represents 160 companies and trade associations involved in trade.  "Customs does not possess unlimited resources, and sifting through repetitive filings from known shippers will hamper the process," the JIG wrote.
It raised concern about the impact the proposed advance notice rules could have on "just-in-time" supply chain operations.  "The proposed requirement to notify Customs several hours prior to lading would effectively add another full day to the shipping cycle," the JIG stated.  It also called for special treatment for firms participating in the Customs-Trade Partnership Against Terrorism (C-TPAT) and the U.S.-Canada Free and Secure Trade (FAST) program.  "If companies complying with these programs are not exempted from the advance manifest requirements, they forfeit any legitimate incentive to continue their participation in these programs," it wrote.

Trade along northern and southern U.S. borders could be hit especially hard, the agency has been told. "Approximately 50 percent of the trucks and trailers arriving on the Mexican border are loaded on the same day they arrive at the U.S. Customs port of entry," the JIG noted. "This percentage is even greater on the northern border," it said.

Comments from the Customs Brokers and Forwarders Association of America said it was pleased that Customs Commissioner Robert Bonner has given assurances that the straw man proposals were only intended to draw comments from industry.  The group supports the agency's decision to seek advice from the Advisory Committee on Commercial Operations (COAC), which has already begun to hold public meetings on the impact of the proposals.


The U.S. reportedly has asked Vietnam to cut its tariffs on imports of U.S. textiles and fabrics as part of a proposed bilateral agreement to establish quotas on Vietnamese textile and apparel exports to the U.S.  Although the requested reciprocity is unusual in textile agreements, the European Union (EU) won similar concessions as part of a trade pact it reached with Hanoi on Feb. 15.  The EU package, which includes non-textile goods as well, would require Vietnam to reduce tariffs of clothing, fabrics, yarns and fibers over a three-year period.

The U.S. proposal was made during the first round of talks with Vietnam Feb. 20-21 on a textile accord (see WTTL, Feb. 10, page 3).  The negotiations reportedly made little progress because they were abbreviated by the late arrival of Chief U.S. Textile Negotiator David Spooner, whose trip was delayed by a snow storm in Washington.  More talks are expected at the end of March in Washington.
Although the details of the U.S. proposal have not been released, industry sources say they understand that Washington is seeking to limit imports of some 20 different apparel categories from Vietnam and opened the talks with proposed quota levels "that were surprisingly low."  Industry representatives complain that these proposed limits were based on partial 2002 trade figures, so they don't fully reflect the growth of trade since Vietnam gained normal-trade-relations (NTR) status in December 2001 and also don't count Christmas 2002 trade.  They acknowledge, however, that the low-ball numbers are just a negotiating position for the U.S., and Hanoi is expected to make a counter-proposal at the next round of talks.

Despite a Feb. 25 letter from 14 House Democrats to U.S. Trade Representative (USTR) Robert Zoellick calling for the U.S. to add labor provisions to the textile agreement similar to those reached with Cambodia, the U.S. reportedly won't seek the same deal.  The Cambodian textile accord provides for an increase in textile quotas as Cambodia shows improvements in labor laws and conditions. While recognizing the differences between Vietnam and Cambodia, the Democrats said they were concerned that "the failure to include a labor provision in a U.S.-Vietnam textile and apparel agreement could have the unanticipated and unintended consequence of undermining the positive results of the Cambodia agreement."

Since Vietnam's labor laws are closer to international norms, the U.S. is seeking labor provisions similar to those in the U.S.-Jordan Free Trade Agreement.  Under that approach, Hanoi would pledge to enforce its existing labor laws.  The U.S. Labor Department already has a memo of understanding with Vietnam providing help on improving worker rights.  U.S. apparel importers say they hope the U.S. will build on that relationship rather than tie quotas to labor conditions.


Talks at the Organization for Economic Cooperation and Development (OECD) on a global agreement to impose disciplines on the subsidization of steel industries are beginning to sound a lot like World Trade Organization (WTO) discussions on agriculture.  The framework for a global steel accord began to come into focus during a Feb. 24-25 meeting in Paris of the Disciplines Study Group, which was formed by high-level officials of steel producing countries in December.

Although the jargon isn't exactly the same, a potential steel agreement is likely to identify government subsidies that are permitted, prohibited or limited.  In the WTO agriculture agreement, those distinctions were called blue, red and amber boxes.   Like the farm accord, a steel deal may require participating countries to notify each other of the subsidies they provide in each category.  Notified "blue box" steel subsidies might be exempt from countervailing (CVD) action, under some proposals.
Extensive negotiations remain over which subsidies that will go into each box.  For example, subsidies to facilitate the closing of steel capacity may be permitted, while aid to build new plants or attract investment would be prohibited.  The treatment of funds for improving the environment or for research and development may be limited.  The end goal, however, is to close the spigot of government money.  In essence, an agreement to restrict future subsidies would be like the "lock box" proposed a couple of years ago for U.S. Social Security funds.

In addition to a day and a half of government-only talks, the study group spent half a day meeting with steel industry representatives from around the world.  Assistant Secretary of Commerce Faryar Shirzad, who chairs the study group and heads the U.S. delegation, said he was "very pleased with the progress made today."  The pace of the talks appears likely to allow participants to complete their work before the December deadline set by the high-level ministers (see WTTL, Dec. 23, page 2).

The main topic of those sessions was a paper outlining 17 potential elements of a steel accord, including provisions on the scope of any deal, the definitions of per-mitted and prohibited subsidies, notification requirements, enforcement provisions, potential penalties for violating the agreement, and special and differential treatment for less developed countries.  Based on both industry and government talks, the OECD secretariat has been asked to prepare the first draft of an agreement for review at the group's next meeting on May 10.

A key deadline is likely to be the WTO Ministerial Meeting in Cancun, Mexico, in September.  Countries participating in the OECD process will have to decide whether they want the steel talks to become part of the WTO Doha Round.  If participants agree to bring the steel negotiations into the round, they will probably ask the WTO ministers to include the terms of such a shift in the ministerial declaration that comes out of Cancun.  Although some countries, such as Japan, are reluctant to make a commitment to bring the steel accord under the WTO, others say the WTO's blessings are necessary because the steel pact may include trade sanctions for violators.

The enforcement of any agreement and the potential penalties a country would risk if it failed to comply are two of the toughest issues negotiators are encountering.  This is another reason the steel accord might become subsumed under WTO rules.  A dispute-settlement mechanism may be required to determine violations of the agreement and to authorize sanctions.  One possible remedy might be a requirement that would force a firm that receives an illegal subsidy to pay it back.

At the same time, industry sources say it is important that any steel accord be accepted in toto and not be reopened for further negotiation in the Doha Round.  They want the steel deal to stand alone, just as the aircraft subsidy agreement within WTO rules, and not be traded off for other concessions.  Since an OECD accord is likely to require a change in U.S. trade law to provide for the CVD exemption for permitted subsidies, as well as rules extending the agreement's disciplines to state and local governments, industry is concerned some countries might use the steel talks as a wedge to open broader negotiations to weaken U.S. trade rules.

Despite the large number of unresolved issues and potential pitfalls in a global steel agreement, some industry sources are optimistic an accord can be reached.  Industry sources say conditions today are different from 1997 when efforts to reach a Multilateral Steel Agreement (MSA) collapsed.  In particular, since then, the level of subsidies in major industrialized countries has dropped off to nearly nothing and the residual of past subsidies has been amortized down to low levels.  As a result, U.S. industry is less concerned about maintaining the right to use CVD laws against old or existing subsidies and is more concerned about blocking the reintroduction of such funding.  While subsidies remain in some developing countries, they aren't as large as the historic subsidy levels in developed countries and they also would face constraints in the future.


Canadian lumber producers have begun huddling together to determine if they can come up with a common position to bring back to the stalled U.S.-Canada talks aimed at settling the long-running trade dispute over softwood lumber.  The divisions among producers in different Canadian pro-vinces have prevented such a unified approach so far, but bilateral negotiations reportedly have reached a stage where a single Canadian posture will be crucial to a final solution to the dispute, sources say.  "Quite a bit of work needs to be done in Canada," one Canadian source admitted.

Nearly two weeks of talks between Commerce Under Secretary Grant Aldonas and Canadian and U.S. lumber producers, as well as Canadian provincial and federal officials, were making progress but stalled Feb. 25.  Things were going well during discussion of a proposed International Trade Administration (ITA) policy bulletin, but they hit a wall on the last day as talks turned to an interim agreement, one source reported.
The recess was also needed because Aldonas had to leave for a trip to Romania, Bulgaria and Estonia with Commerce Secretary Don Evans.  He is expected to be back in Washington on March 3.  Talks may resume by week's end, sources say.  "We're waiting for both parties to come in with meaningful proposals," a Commerce source reported.

Industries on both sides of the border failed to narrow their differences over the export tax Canada would impose as part of an interim agreement and on the range of lumber market prices that would determine the level of the tax (see WTTL, Feb. 10, page 2).  The U.S. Coalition for Fair Lumber Imports reportedly wants an export tax that could go up to 25% or 26%.  Canadians say their upper limit would be 10% to 14%.  Some Canadians contend U.S. import penalties could drop to as low as 5%, if Canada wins complaints being heard by NAFTA and WTO dispute-settlement panels and administrative reviews wipe out any antidumping duties they owe.

There was also disagreement over what to do with countervailing duty (CVD) and antidumping deposits already posted with U.S. Customs.  The Coalition wants that money to stay in the U.S. and be available for distribution to American petitioners under the Byrd Amendment.  The Canadians want the money back.  As of Sept. 30, 2002, Customs reported collecting $382 million in deposits.  Another unsolved dispute is the continuation of those NAFTA and WTO cases.  The Coalition insists Canada must withdraw them as part of any interim agreement.

Although progress was made on proposed ITA policy bulletin that would set the conditions under which ITA would make a "changed circumstances" ruling and lift the CVD order on Canadian imports, several specific sections remain roadblocks, sources report.  Ontario officials complained that the draft provides "no exit ramp" for the province to end its reliance on U.S. lumber prices as the benchmark for its selling prices.  Quebec raised new objections to provisions dealing with provincial appurtenancy rules that require Canadian producers to process lumber at certain mills.  British Columbia still has problems with propose limits on its log export restrictions.

 * * * BRIEFS * * *

CAFTA: U.S. presented comprehensive draft text to second round of talks with Central Americans on FTA in Cincinnati week of Feb. 24.  Paper was based on NAFTA plus Chile and Singapore accords, but didn't got into specific market access proposals.  Talks also focused on labor laws and conditions in Central America.  "We've heard some of the concerns" about workers' rights in region, Assistant USTR Regina Vargo told reporters at end of talks.

SOFTWARE VAT: Senate Finance Committee Chairman Charles Grassley (R-Iowa) Feb. 27 criticized recent EU rules which require EU citizens to pay value-added tax on digital products downloaded from U.S. business Websites.  "This is a disturbing development," he said.  "This is an unjust rule and I would like to see it challenged," he added.

MISCELLANEOUS TARIFF ACT: Senate Finance Committee Feb. 27 reported out miscellaneous tariff act after amending it with nonbinding resolution criticizing draft WTO modalities agreement offered by agriculture negotiating group chairman, Stuart Harbinson (see WTTL, Feb. 17, page 4).  Other provisions would make Harbor Maintenance Tax subject to drawback, restore NTR for Serbia and Montenegro, and amend AGOA and CBI to allow use of U.S.-formed or shaped fabrics.

BULGARIA: During visit to Bulgaria Feb. 28, Commerce Secretary Don Evans announced that department will treat former communist country as market economy in antidumping cases.

JAPAN: Japanese told Deputy USTR Jon Huntsman Feb. 28 that Tokyo plans to provide 24-hour, seven-day customs operations at some ports and airports starting probably in April.  Specific ports not identified.  Information came during talks on U.S.-Japan Regulatory Reform Initiative.  Huntsman praised general reforms being made in Japan but criticized NTT proposal to raise interconnection fees for wire lines 12%.

HAITI: Rep. Clay Shaw (R-Fla.) and Sen. Mike DeWine (R-Ohio) introduced bills (H.R. 1031) in House and Senate to grant duty-free status to apparel imports from Haiti made with fabrics and yarn from any country with which U.S. has FTA.

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.  E-mail: Info@WTTLonline.com


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