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Trade Publications [Fast Track] [1]
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1
Inside U.S. Trade
An
Inside
Washington
Publication
exclusive weekly report on major government and industry trade action
Vol. 15, No. 39 - September 26, 1997
HOUSE, SENATE COMMITTEES PREPARE FOR QUICK ACTION ON FAST-TRACK BILLS
The House and Senate this week moved toward legislative action on bills renewing fast-track negotiating
authority that are likely to give U.S. negotiators less flexibility than a bill proposed by the Administration earlier
this month. Republicans in both chambers seem united in their goal of limiting the scope of labor and environmen-
tal issues that can be covered by fast-track rules.
U.S. Trade Representative Charlene Barshefsky told reporters yesterday (Sept. 25) that the Senate Finance
Committee has tentatively scheduled a markup for Oct. 1. A committee source said this date was "likely." On the
House side, Ways & Means Committee Chairman Bill Archer (R-TX) this week announced that the full committee
will mark up fast-track legislation on Oct. 8 based on a chairman's mark now being prepared by staff.
Barshefsky told reporters yesterday (Sept. 25) that the Administration is "in discussion" with members on the
continued on page 25
BARSHEFSKY CRITICIZES GROWING JAPAN DEFICIT, CALLS FOR NEW ACTIONS
U.S. Trade Representative Charlene Barshefsky yesterday (Sept. 24) expressed increasing alarm over a
deteriorating trade balance with Japan characterized by a sharp increase in Japanese exports to the U.S. and a
"significant slowing" of U.S. exports to that market. She said Japan could demonstrate its commitment to deregula-
tion and market opening by concluding a new telecommunications agreement, and better implementing two
bilateral deals in the flat glass and automotive sectors.
"We have a growing concern," she told the Advisory Committee on Trade Policy and Negotiations (ACTPN).
"Our concerns, rather than subsiding over time, have increased over time, and that is not a tolerable situation."
She emphasized that the U.S. is demanding what Japanese leaders have publicly said they want to achieve, but
that Japan has failed to act on its pronouncements. "We do not see Japan moving thus far toward meaningful
continued on page 25
CONGRESSMEN REJECT BRITTAN APPEAL TO SOFTEN STANCE ON HELMS-BURTON
Members of Congress this week rejected a plea from European Union External Relations Commissioner Leon
Brittan to relax their position in the ongoing bilateral efforts to settle a dispute over the Helms-Burton law, accord-
ing to congressional sources. Brittan met Sept. 23 -Washington with members of Congress who support the law,
including House International Relations Committee Chairman Ben Gilman (R-NY) and Rep. Robert Menendez (D-
NJ).
"The message that I sought to give is that in order to reach an agreement there has to be give and take,"
Brittan told reporters Sept. 24. "There has to be an understanding of the European resentment of extraterritorial
legislation, there has to be understanding on the part of Europe of the deep feelings of the American people."
Helms-Burton is aimed at punishing foreign companies that invest in expropriated U.S. property in Cuba.
continued on page 23
FISCHLER SAYS U.S. WILL NOT WIN BSE-FREE DESIGNATION FROM EU
European Union Commissioner for Agriculture Franz Fischler this week dealt a serious blow to U.S. efforts to
ensure the continued export of billions of dollars worth of animal products to the EU by announcing that Europe
will not designate the U.S. as free of Bovine Spongiform Encephalopathy (BSE), according to EU officials.
The U.S. has pressed for BSE-free status as a way to circumvent a pending ban on products made with animal
parts the EU fears could carry BSE. As the U.S. does not take steps to remove these so-called specified risk
materials (SRMs) from the rendering process, the ban would affect U.S. tallow and tallow-containing products such
as cosmetics, as well as U.S. gelatin and items made with gelatin, such as pharmaceuticals.
Fischler said his analysis was based on a Sept. 17 opinion by the European Commission's Scientific Veteri-
nary Committee, which could not recommend that the U.S. be granted BSE-free status even though no evidence of
continued on next page
BSE has been found in the U.S. Sources said last week that this opinion was a significant setback in its push for
BSE-free status (Inside U.S. Trade, Sept. 19, p. 6)
At the same time, Fischler added that he "could see a situation" in which New Zealand and Australia are both
granted BSE-free status, according to an EU official. But the official said the details of a general derogation for
these countries are still unclear.
The U.S. is assuming that Fischler's assessment on its BSE status is not the final judgment of the EU Commis-
sion, and that a further analysis by the entire Commission and its Scientific Steering Committee in October might
still allow room for a different opinion.
The U.S. needs BSE-free status to combat a July 30 EU Decision that would ban products that could contain
SRMs, such as brains and spinal cords, which could be carrying BSE. Sources have said once it takes effect Jan. 1,
1998, this Decision could block the sale of billions of dollars worth of U.S. pharmaceuticals made with gelatin and
tallow, as well as exports of raw tallow and cosmetics.
The U.S. is also seeking an exemption for tallow derivatives, since they are produced under heat and pressure
conditions that kill BSE. This exemption should negate a narrower measure known as the cosmetics directive,
which has already taken effect and focuses only on the sale of tallow and cosmetics.
EU External Relations Commissioner Leon Brittan this week told U.S. Trade Representative Charlene
Barshefsky that while he hoped the tallow and gelatin dispute is resolved quickly, he could not assure her that it
would be.
"The concern over the tallow issue was certainly raised, and I made clear that I hope, I cannot promise, but I
hope that it will be possible to find a way to deal with at least the tallow derivatives issue over the coming months,"
Brittan told reporters one day after his Sept. 23 meeting in Washington. In response, Barshefsky warned that the
issue is "extremely serious," and needs to be resolved before the SRM Decision takes effect next year.
Meanwhile, a Sept. 17 opinion of senior public health experts from all 15 EU member states known as
the Pharmaceutical Committee blasted the so-called SRM ban for not considering relevant scientific opinions and
for its potential to seriously disrupt the EU pharmaceuticals market.
"The Committee regrets that the decision did not take account of scientific opinions in regard to tallow and
tallow derivatives, whereby established manufacturing processes have been demonstrated not to present a real
hazard," the Committee said in its conclusions. This complaint is in reference to a June 24 opinion by the Scientific
Committee on Cosmetology, which agreed with the U.S. argument that tallow derivatives should not be blocked by
the ban because they were processed in a way that kills BSE.
Despite finding that it is "sensible" to remove SRMs from the rendering process, it found that "the Commis-
sion has to have regard to Community international trade obligations and can only ban imports that do not have the
necessary SRM free certification if there are compelling public health reasons."
In addition, the Committee said a prohibition on U.S. pharmaceuticals would "result in a shortage of supply of
medicines in the marketplace." The conclusions added that even if derogations can be found for suppliers in the
long term, the short-term supply would not be able to be compensated just from production in the EU.
As a result, the Committee appealed to the European Commission to exempt from the SRM ban stocks of
finished pharmaceuticals in the EU made before Jan. 1, 1998.
"Should an alternative interpretation be proposed the consequences for public health in terms of availability of
medicinal products (up to 80% of which incorporate gelatin and tallow derivatives) could be serious for patients
and would undermine confidence in medicines," the conclusions said. "In these circumstances, the Decision would
have to be amended immediately."
In the least, the Committee suggested a derogation for a small group of products for which there are no likely
substitutes.
A Sept. 23 meeting of Agricultural Ministers from the EU member states noted that the Commission's legal
service is examining how to deal with stocks of pharmaceuticals that could have been made with SRMs before the
ban takes effect next year. The Pharmaceutical Research and Manufacturers of America (PhRMA) similarly noted
that the ban could have serious health effects for EU citizens in a letter to Barshefsky earlier this month (Inside
U.S. Trade, Sept. 5, p. 14).
In a related development, sources this week said U.S. Food and Drug Administration officials are
expected to meet with European officials in Brussels during the second week of October to stress the U.S. position
that the SRM ban could have devastating effects on the EU pharmaceuticals market, as well as EU patients.
In addition, FDA officials will explore issues related to how the U.S. could comply with the ban in the event it
does take effect next year. Problems related to this issue include which body or bodies would be responsible for
ensuring that products going to the EU are certified free of SRMs, what programs are needed to put this monitoring
program in place, and what its cost would be, informed sources said.
2
INSIDE U.S.TRADE - September 26, 1997
BARSHEFSKY, BRITTAN FOCUS ON CHINA WTO, FINANCIAL SERVICES
U.S. Trade Representative Charlene Barshefsky and European Union External Relations Commissioner Leon
Brittan used their Sept. 23 meeting mostly to focus on China's accession to the World Trade Organization and the
negotiations to reach a financial services agreement in the WTO, according to informed sources
Barshefsky and Brittan reaffirmed their commitment not to lower their demands for commercially viable
concessions from China for its WTO entry even though Japan seems to have settled for less in a bilateral market
access package for goods struck earlier this month. That deal, as now understood, is completely unacceptable to the
U.S. and EU, an EU official said.
Brittan told reporters Sept. 24 that the two sides do not expect China to refuse their demands because of the
agreement with Japan.
"I do not think that that is a realistic fear because the Chinese are very knowledgeable and very experienced in
these matters," Brittan said. "And they know very well that they have to deal with negotiations with Europe and
with the United States, and that we have objectives which are separate but parallel, and that those objectives have
not yet been met."
At the same time, Brittan said it would be "useful" to see what Japan and China agreed to, since the details of
their agreement have not been disclosed. For that reason, Brittan said he would travel to Japan today (Sept. 26) to
meet with Japanese officials on the results of their talks with China. In addition, informed sources said that the true
impact of the Japan-China agreement on China's negotiating stance will only be known after the EU reengages
with China and Assistant U.S. Trade Representative for China Robert Cassidy concludes his talks with China this
month.
At this point, it appears likely that the next meeting of the WTO working party will be held in November, not
in October as tentatively planned, officials said. On going negotiations and U.S. preparations for the summit of
President Jiang Zemin and President Clinton in October make that a better date, they said.
At the summit, there may be some mention of progress the two sides have achieved in the WTO negotiations.
After meeting with her Chinese counterpart on the Jiang-Clinton summit, Secretary of State Madeleine Albright
said this week the U.S. has "no illusions about the difficulty" of achieving China WTO accession.
The EU understands that the Japan-China deal would reduce tariffs on over 3,600 items and agricultural
products from 47 percent to about 18 percent, and that the deal would not require China to sign onto the Informa-
tion Technology Agreement (ITA), which would eliminate tariffs on information products by 2000. The deal also
phases out non-tariff barriers over a period of two to eight years (Inside U.S. Trade, Sept. 10, p. 10).
Brittan said he and Barshefsky are both of the view that some progress has been made in China's bid to join
the WTO, but that there is still "some way to go," and that the U.S. and EU will be united in pressing for more
liberalization than that found in the Japan-China agreement.
On WTO financial services talks, Brittan said the EU is working with the U.S. to get WTO members to
table good offers and to complete the negotiations by the December deadline. Brittan said the two sides are
stressing that the agreement will not exacerbate financial crises in Asian and Latin American countries. Instead, a
deal to open their markets would strengthen their position in the long term, he said.
Barshefsky conveyed to Brittan a pessimistic assessment for the financial services talks, officials said. Based on
information received by Treasury Dept. officials at the World Bank and International Monetary Fund meeting in Hong
Kong, the U.S. believes that Asian countries are unlikely to make improved offers in the near future, they said.
This assessment differs from that of the EU, which is under the impression that Asian countries will table
improved offers in the near future. The EU opinion is shared by WTO Director General Renato Ruggiero, an EU
official said.
On other trade issues, Brittan said the EU is not intervening in the current U.S. debate over whether to grant
President Clinton fast-track trade negotiating authority. But he said he did get an update on the situation from
Barshefsky.
In addition, the two discussed the long-standing disputes over the Helms-Burton law. and recent EU measures
that the U.S. says would effectively block billions of dollars worth of U.S. animal products (see separate stories).
On the recent WTO Appellate Body ruling that upheld the U.S. complaint over the EU banana import regime,
Brittan said in his Sept. 24 press conference that the EU "will comply" with its WTO obligations. The two officials
did not discuss bananas in detail, partially because Barshefsky proposed new staff-level negotiations to Brittan in a
Sept. 22 letter (see separate story).
A U.S. trade official added that other trade issues were raised briefly, such as EU policy on labeling agricul-
tural products containing or derived from genetically modified organisms (GMOs) and efforts to reach a bilateral
agreement on fur trapping standards. Sources said disputes over U.S. imports of wheat gluten from the EU and an
EU request for WTO consultations on a U.S. ban on $1 million worth of European poultry were not brought up by
Barshefsky and Brittan.
continued on next page
INSIDE U.S.TRADE - September 26, 1997
3
Finally, Brittan this week reiterated his support for a new trade round, and said the idea is gaining
support around the world. But he said he did not ask Barshefsky to support this idea because "the time is not ripe."
Sources said Barshefsky and other officials rejected this idea when Brittan presented it during a meeting of Quad
countries in Toronto (Inside U.S. Trade, May 9, p. 21).
Despite this resistance, Brittan said future trade liberalization will depend on the ability to package several
sectors together, and that therefore a new all-encompassing round is needed.
"There are more and more new issues that are accumulating on the world trade agenda, some of which
may well be ripe for negotiations at the time a new round may start," Brittan said. "All our experience has
shown that for anyone to make progress in a situation of that kind, it is necessary to have enough subjects on
the table for there to be room for tradeoffs." He also said that the recent agreement to reduce tariffs in the
ITA was a "special situation," and that another such negotiation covering only one sector is "not likely to be
repeated."
In May, Barshefsky argued that planning a new round would effectively stop all trade liberalization until the
conclusion of the round. But Brittan rejected that analysis, and said there is "not much left to be delayed" by
calling for a new trade round.
In addition to these comments, Brittan also defended the WTO dispute settlement system even though the EU
lost two recent panel decisions dealing with the EU ban on hormone-raised beef and the EU banana licensing
regime. Brittan noted that the system is better than "the law of the jungle," and added that the system is helpful
beyond the cases it hears because its binding nature encourages the settlement of disputes through consultation.
ADMINISTRATION TO SEEK APPROVAL OF OECD INVESTMENT PACT AS TREATY
A senior Clinton Administration this week confirmed that the Administration proposal for the renewal of fast-
track negotiating authority would not cover the Multilateral Agreement on Investment. Instead, Assistant Secretary
of State for Economic and Business Affairs Alan Larson said that the Administration believes it can secure ratifica-
tion of the agreement in the Senate as a treaty.
Larson said during Sept. 15-19 MAI meetings at the Organization for Economic Cooperation & Development
in Paris that there are good prospects for Senate ratification of the MAI if it includes solid provisions addressing
the use of expropriated property and conflicting jurisdictions, informed sources said. The U.S.-European Union are
trying to agree on such rules in order to settle a dispute over the Helms-Burton Act.
Senate Foreign Relations Committee Chairman Jesse Helms (R-NC) has previously called on the Administra-
tion to bring the MAI to the Senate for approval as a treaty, rather than to both houses of Congress as a trade
agreement. U.S. officials said that rules on expropriation and conflicting rules could help make Helms an MAI
supporter, and pointed out that the senator has previously supported bilateral investment treaties, informed sources
said.
U.S. Trade Representative Charlene Barshefsky said at the Brookings Institution on Sept. 23 that the Adminis-
tration has consulted with the Senate on the MAI. "Many congressmen take the view that as an investment agree-
ment it should be subject to treaty ratification as our bilateral investment treaties are," she said.
Larson sought to use the opportunity last week to reassure OECD members that the U.S. commitment to the
MAI has not waned, even though the Administration proposal for fast-track negotiating authority would not cover
the MAI, informed sources said. Larson said that including the MAI would "overload" the fast-track debate, and
said that approving the deal as a trade agreement would make issues such as labor and environment the focus of the
MAI debate, one source said.
But the question of whether the Administration would seek implementing legislation to complement the
ratification of the MAI as a treaty remains open, a U.S. official said. The Constitution makes treaties the supreme
law of the land, ensuring that U.S. states would be bound under an MAI ratified by the Senate, the official said.
But the states have called for a provision in U.S. law analogous to Section 102 of the Uruguay Round imple-
menting bill which would spell out the relationship between the federal and state governments, and especially how
disputes under the MAI would be handled, informed sources said. "It almost all comes down to dispute resolution
issues," one source said.
Such a provision would have to be passed by both houses of Congress, raising the possibility that members
could attach provisions to it which conflict with the MAI, informed sources noted.
States are also likely to raise with the Administration their concerns about investment policy issues
peculiar to state jurisdiction, one informed source said. Language in international agreements is often "quite
loose" compared to laws already on the books, so states would want to be clear on how MAI rules would
apply, the source said
At last week's negotiating session, OECD members failed to make any substantive progress on the
outstanding issues in the area of MAI dispute settlement, which several officials said would ultimately become a
4
INSIDE U.S.TRADE - September 26, 1997
political decision made near the end of the negotiations in May 1998. The key issues include the role of the
European Commission and EU member states in MAI disputes, the scope of state-state dispute settlement, the
consultations which must take place prior to binding arbitration, and the countermeasures a country can invoke if
another MAI signatory does not comply with a ruling.
The U.S. is strongly pressing to ensure that both the Commission and the member states are liable for dispute
settlement rulings against EU-level measures, informed sources said. In addition, Canada has sought language on
state-state dispute settlement which would allow an MAI signatory to challenge a measure which is on its face
inconsistent with the agreement, but has not been enforced.
Other countries, including the U.S., have said that state-state dispute settlement should cover only "acts
inconsistent with the agreement," informed sources said.
Another key issue relates to the nature of consultations which take place prior to the beginning of the binding
arbitration process that constitutes MAI dispute settlement, informed sources said. France has called for a process
which would allow one party to a dispute to request multilateral consultations involving all MAI signatories.
The U.S. has argued that multilateral consultations should come only if both parties to a dispute agree,
informed sources said. The U.S. feels that multilateral consultations could "politicize" disputes even before they
reach the arbitration phase, one source said.
The final, and most contentious issue on dispute settlement, concerns whether a country can do more
than withdraw benefits under the MAI in retaliation for non-compliance with a dispute ruling, informed sources
said. The U.S. has led a group of countries who have argued that MAI signatories should be allowed to go beyond
the agreement itself into other areas of international economic activity, a position which has been opposed by
countries including Canada, these sources said.
The U.S. has argued that the existence of other international rules, such as those in the World Trade
Organization agreements, would adequately limit what could be seen as broad authority to retaliate, informed
sources said.
OECD members also finalized a previously informal agreement that will effectively exempt tax mea-
sures from all but a few MAI rules, informed sources said. But the text will specify that taxes cannot be used
to circumvent MAI rules on expropriation, and that they must be applied in a transparent manner, these
sources said.
In addition, the preamble to the section of the MAI on taxation will call for adherence to the general principle
of non-discrimination in levying taxes, compliance with bilateral tax treaties, and the negotiation of such treaties
with non-OECD members who join the MAI, informed sources said.
A "very few" of the 29 OECD members negotiating the MAI sought a broader inclusion of taxes in the
agreement, while 21 opposed such a solution. "This was a reasonable compromise," one official said.
Negotiators also had an inconclusive discussion about the specific reservations from MAI disciplines
which individual countries will include in annexes to the agreement, informed sources said. The annexes will
include both "List A" and "List B" reservations. List A reservations specify a particular measure exempt from
challenge under the MAI, while the "precautionary" reservations in List B would allow additional but unspecified
measures inconsistent with the MAI.
The U.S. has said that the more open-ended List B reservations are necessary for measures such as minority
set-asides, and has been supported by Canada, informed sources said.
Canada and France have also called for a general exception in the text of the MAI itself for measures
related to the protection of culture and national heritage, these sources pointed out. The U.S. has argued
against general exceptions in the MAI text in favor of the List B approach by arguing that these reservations
can be narrowly tailored to specify that a particular measure is only exempt from some MAI rules, these
sources said.
Some European countries have opposed the inclusion of List B reservations, while other OECD members have
opposed both List B and proposed general exceptions.
Because both the reservations and the general exceptions will be provisions of the MAI which "poke holes" in
its rules, the chairman of the talks scheduled a discussion of both for the next session, one source said. Officials
said seemingly entrenched positions in this area mask a general political necessity of finding agreement on what
exemptions countries will be allowed from the MAI
"Positions are far apart, but the dynamics definitely suggest the possibility of compromise," one official said.
At the next negotiating session on Oct. 29-30, OECD members will take up the reservation/exception issue
again, as well as what labor and environmental provisions the MAI will include. They will also discuss expropria-
tions and conflicting requirements, an issue one official said would likely be largely devoted to a status report on
U.S.-EU progress in the Helms-Burton talks.
INSIDE U.S.TRADE - September 26, 1997
5
EU ACCEPTS BANANA RULING BUT REVEALS LITTLE ABOUT FUTURE RESPONSE
The European Union yesterday (Sept. 25) did little to reveal its plans for dealing with a World Trade Organi-
zation ruling that its import system for bananas violates international rules and should be changed. In a meeting of
the Dispute Settlement Body, which approved the report, an EU official said only that the panel and Appellate
Body report on bananas were "complex and rich in interpretation," and that the EU would have to examine them
before deciding how to implement them.
The EU pledged to report on its plans to implement the ruling at the next DSB meeting on Oct. 16, but
informed sources said that session may not reveal much. If the EU announces it will comply with the ruling, it
would not reveal how and when, informed sources said. This strategy of revealing as little as possible is consistent
with that taken by the U.S. in similar cases, sources said.
Following the appellate body report, senior EU officials said they can comply with the ruling by making the
regime conform to WTO rules or by compensating trading partners for losses they have suffered under the regime.
In contrast, the U.S. government acknowledges that WTO rules allow for compensation of trading partners in a
dispute, but insists that this is a separate option from compliance.
U.S. Trade Representative Charlene Barshefsky this week reiterated the U.S. demand for EU compliance in a
reasonable time period with the ruling in a letter transmitted to EU Commissioner Leon Brittan on Sept. 22.
Barshefsky asked that staff-level officials meet to discuss each sides' views on possible solutions, they said. She
praised Brittan for his recent public comments defending the WTO's dispute settlement process, these sources said.
If the EU opts for compliance, it may make changes that would not benefit the complainants in Latin
America or Chiquita International Brands very much, informed sources said. The requirement that the regime
comply with the WTO may well lead to a solution that would not leave USTR or Chiquita very happy, they said.
For example, the EU could opt to keep a quota and licensing system, which in themselves are not violations of
the WTO, according to these sources. Another way to make the regime conform but bestow few benefits on the
complainants would be to allocate the overall quota for Latin American bananas in different shares for various
Latin American countries based on their representative market share, sources said.
The least favorable option for Chiquita would be if the EU kept in place a modified arrangement for Latin American
bananas that regulated the trade of bananas with import licenses and export certificates, one source speculated. This would
prevent Chiquita from easily shifting its exports of bananas to the lowest cost Latin American country.
Such a strategy would give the EU more leverage in negotiating a final deal with the U.S., which now feels it
has painted the EU into a corner based on the appellate body report, sources said.
The WTO ruling on bananas was welcomed at the DSB meeting by the U.S., Guatemala, Ecuador, Mexico and
Honduras. But the results were criticized by Jamaica and Cote d'Ivoire, which said the ruling would eliminate ten
percent of the 300,000 jobs that the banana industry supports there.
Also at the DSB, the EU requested an appeal of a World Trade Organization dispute panel ruling which
found that an EU ban on beef raised with growth hormones violates WTO rules. The Sept. 24 request effectively
postponed the scheduled Sept. 25 adoption by the DSB of the hormone, sources said.
While the details of the EU appeal had not been circulated at press time, an EU source said it will mostly
focus on the "four or five" instances in which the panel interpreted WTO rules to limit the ability of members to set
safety standards higher than those in the Codex Alimentarius, an international food standards body. The EU will
likely argue that higher standards are allowed if they can be scientifically shown to be necessary, he said.
Regarding other disputes, Venezuela and Brazil said they would request a new update at the Oct. 16 DSB
on the implementation of the WTO ruling that U.S. air quality rules unfairly discriminated against imports of
foreign gasoline. U.S. officials said they consider their obligations under the ruling to be implemented since they
issued regulations in August, but said they would not be opposed to giving an update in October.
Japan also informed the DSB that it had passed a law to change its tax system for distilled spirits in the wake of a
finding that its existing system discriminated against imports. But the Japanese representative said the law would implement
the ruling over a period of five years. This announcement could reopen a dispute between Japan and the U.S., which had
pressed for Japan to implement the ruling within 15 months (Inside U.S. Trade, Feb. 21, p. 8).
Korea also blocked two panel requests from the U.S. and EU to examine whether its liquor tax regime
discriminates against imports. Sources noted that second requests by the U.S. and EU at the Oct. 16 DSB could not
be blocked by Korea.
Finally, the EU requested a panel to examine whether India's patent protection regime complies with the
Agreement on Trade Related Aspects of Intellectual Property Rights in the WTO. While a panel requested by the
U.S. has already ruled on this matter, the EU argued that it needs its own panel in order to be compensated by India
in the event it cannot comply with the ruling immediately (Inside U.S. Trade, Sept. 19, p. 24).
India said at the DSB that the idea that separate panels should be formed for this reason should be examined
further by the WTO.
6
INSIDE U.S.TRADE - September 26, 1997
U.S. MAY HIGHLIGHT FLAT GLASS DISPUTE WITH JAPAN UNDER SUPER 301
The Clinton Administration may highlight lack of market access for U.S. flat glass under a bilateral agreement
with Japan in its upcoming announcement under the Super 301 of U.S. trade law, according to private-sector
sources. The U.S. may cite what it terms Japan's failure to live up to the 1995 flat-glass agreement in a so-called
watch list established under the Super 301 process by Sept. 30, they said.
"The agreement is totally unsatisfactory," one industry source said. "Some steps have to be taken to raise this
agreement on the Japanese radar screen."
The U.S. sales of flat glass from companies not affiliated with Japanese producers have been hovering around
one percent of the total Japanese market, industry sources said.
Efforts by the two major U.S. flat glass producers and their congressional supporters to pressure Japan
through extraordinary consultations under the bilateral agreement have not yet produced the desired results,
according to government and industry sources. The U.S. asked for the consultations last month, and is now propos-
ing a mid-October date for talks.
The agreement stipulates that consultations can be held when one side requests them, but Japan has been
unwilling to agree to a specific date until the U.S. has justified its request by presenting a substantive agenda,
informed sources said. "Japan has no intention of having a political meeting," one official said. The annual review
of the bilateral agreement in May 1997 discussed the official data and import statistics, which raises questions
about what substantive issues the U.S. wants to discuss in the new meeting, the official said.
U.S. Ambassador to Japan-designate Thomas Foley raised the flat glass issue in his Sept. 24 confirmation
hearing before the Senate Foreign Relations Committee. Foley emphasized that the U.S. firms faced problems with
the distribution of flat glass, and that these problems have been documented by the Japan Fair Trade Commission
"I think we have to have further discussions with the Japanese government on how to improve the opportuni-
ties for flat glass manufacturers in the United States to have a better opportunity in the Japanese market," he said.
"And I hope we can be successful in improving it."
Foley also said he would press Japan to curb its surplus with the U.S. by promoting domestic growth and by
deregulating its economy.
Japan has noted that the ratio of U.S. flat-glass sales to total domestic demand has been increasing from 1994
when it was at 1.7 percent to 3.98 percent in 1996, and to 5.15 for the first six months of 1997. U.S. imports in the
first six months of this year have increased by 59 percent compared to the first half of 1996, according to Japan.
Imports of flat glass overall have increased 35 percent in the first half of 1997 compared to the same time last year,
according to Japan.
U.S. sources concede that foreign market share overall is increasing, but that is largely due to more
shipments from off-shore Japanese plants to the Japanese market, one U.S. source charged. For example, data
compiled by the Ministry of International Industry and Trade show that imports of flat glass in 1994 were 11.1
million square meters, of which Japanese firms shipped 1.4 million square meters or 12.8 percent from offshore, he
said.
In 1995, the imports increased to 16.3 million square meters, of which Japanese firms shipped 4.6 million or
28.3 percent from offshore sources, he said.
The non-Japanese share of the imports has remained "basically flat" under the agreement, hovering around
one percent of the market. Japanese companies have been consolidating their hold over large distributors, who then
fail to handle foreign glass for fear of offending major Japanese producers. These producers may then not supply
them quickly and at a competitive price for products foreign companies do not sell.
In addition, a March 1997 MITI survey showed that the vast majority of distributors either plan to maintain
the status quo in terms of imports or decrease their handling, he said.
The Administration is "extremely concerned" with the current situation, which shows U.S. flat glass imports
essentially unchanged after an initial period of encouraging results under the 1995 deal, a U.S. official said. Major
distributors are no more inclined to handle substantial quantities of foreign glass than they were in 1995 for fear of
damaging their relationship with Japanese producers, the official charged
The delay in the meeting comes at a time when the two major U.S. manufacturers are pressing for quick
action. Guardian International Corp. and PPG Industries Inc. asked USTR in a Sept. 10 letter to seek a quick
meeting under the bilateral agreement, arguing that time for fixing the problem is "quickly.running out.
The agreement is at the mid-point of its five year term, and failure to achieve additional results would allow
Japan to dismiss the deal entirely, the companies said. "Delayed action is Japan's ally,' the letter said. "Anearly
meeting [under the bilateral agreement] presents a real opportunity for correcting Japan's poor implementation of
this bilateral trade agreement.
Dowanst
511
A delayed or unproductive meeting would run the risk that Japan dismisses the agreement for the remaining
to
ashind
INSIDE U.S.TRADE - September 26, 1997
7x
two years of its existence, the companies said. "In the event that the upcoming discussions prove unsuccessful, we
ask that the President be prepared to escalate the means employed to obtain Japanese compliance, using all appro-
priate authority." The Sept. 10 letter does not specify what action this would entail, and company officials would
not say whether this is a request to cite Japan under the Super 301 provision.
USTR has focused its efforts on implementation of existing trade agreements this fall on the flat glass and
auto agreements, although this is not an exhaustive list, according to an Administration official. Before the end of
the year, the U.S. wants to consult with Japan over the telecommunications, computer, supercomputer and insur-
ance agreements (Inside U.S. Trade, Sept. 12, p. 1).
Members of Congress see the flat-glass agreement as one that will affect the broader U.S. effort to
overcome Japanese market access barriers. In a July 31 letter, 26 senators said they believe Japan's "poor perfor-
mance" under the flat glass agreement must be addressed not only for the benefit of the industry but for the sake of
the broader trade policy (Inside U.S. Trade, Aug. 15, p. 6).
The same message was delivered by 53 House members in an Aug. 1 letter.
Industry Letter on Flat Glass
September 10, 1997
now have passed the agreement's midpoint. With last May's
meeting between your staff and Japanese officials establishing a
The Honorable Charlene Barshefsky
clear record of major concern and with ample Congressional
United States Trade Representative
support for action, it is important that the upcoming meeting be
Winder Building
held as soon as possible. Delayed action is Japan's ally. An early
600 17th Street, NW
meeting presents a real opportunity for correcting Japan's poor
Washington, DC 20508
implementation of this bilateral trade agreement. A delayed or
unproductive meeting would run the risk that Japan will dismiss
Dear Ambassador Barshefsky:
the agreement for the remaining two years of its existence.
In the event that the upcoming discussions prove unsuc-
As major manufacturers of flat glass in the United States,
cessful, we ask that the President be prepared to escalate the
we write to thank you for your continuing efforts to insist that
means employed to obtain Japanese compliance, using all appro-
Japan faithfully implement the U.S.-Japan agreement on flat
priate authorities.
glass. Upcoming consultations with the Government of Japan
Thank you again for your strong efforts on behalf of our
will, we hope, achieve some progress which is now lacking.
industry. If we can be of any assistance to you in this or any other
We are encouraged by the overwhelming show of Con-
matter, please do not hesitate to contact us.
gressional support for opening Japan's glass market to U.S.
manufacturers. The 26 Senators and 53 Representatives who
Sincerely,
recently signed the attached letters clearly understand the con-
tinuation of anticompetitive practices in Japan's flat glass sector
Ralph J. Gerson
and the need for greatly improved Japanese compliance with the
President and CEO
1995 bilateral agreement.
Guardian International Corp.
Guardian Industries Corp. and PPG Industries, Inc. sup-
port the message you have received from Congress, but we are
Frank A. Archinaco
concerned that the time for fixing this problem is quickly run-
Executive Vice President
ning out. The flat glass agreement covers a five-year term. We
PPG Industries, Inc.
U.S., KOREA SEEK DEAL ON AUTOS AS SUPER 301 DETERMINATION LOOMS
The U.S. and Korean officials met yesterday and today (Sept. 25-26) in an attempt to head off a potential
conflict when the Clinton Administration makes its annual determinations under the Super 301 provision of U.S.
trade law. The two sides made little progress during consultations earlier this month, and members of Congress and
the Big Three U.S. automakers have stepped up the pressure to target Korea for action under 301.
"Intensive discussions" on Sept. 10-12 reviewed auto issues "not limited" to the 1995 U.S.-Korea Memoran-
dum of Understanding, a U.S. official said. The consultations netted "some progress" but "much more" needs to be
done to address U.S. concerns, the official said.
Korea is "showing some flexibility" on all the key issues in an effort to narrow the gaps between both sides, a
Korean official said
The U.S. auto industry renewed its calls for a Super 301 designation this week with a strong attack on Korean
policies. American Automobile Manufacturers Assn. President Andrew Card said in a Sept. 22 press conference in
Washington that "all of the burden of responsibility rests on the Koreans" to come to the table with suggestions of
8
INSIDE U.S.TRADE - September 26, 1997
how it can improve market access.
In addition, Card and the heads of the Big Three all reiterated their July call for Korea to be targeted under
301. "Failure by the Administration to insist that Korea adopt responsible and fair automotive trade policies will
make it more difficult to expand access for U.S. automobiles in that market and will encourage Korea to continue a
pattern of irresponsible trade practices," they wrote President Clinton in a Sept. 9 letter.
In the Sept. 10-12 consultations, Korea explained to the U.S. the scope of a financial reform package passed
by the Korean National Assembly in July. Now dealers, in addition to banks, can provide financing of new vehicle
sales, a Korean official said.
But a U.S. industry source said that the financial reform package does not address the "one big issue" which the Big
Three have with the financial system in Korea, namely that Korean law does not allow a bank to hold the title of a car as
collateral for the loan, which in turn requires banks to offer personal loans. As a result, many owners have sold their cars
with the titles and defaulted on their personal loans, which makes many banks reluctant to offer these loans in the first
place. The Big Three believe that moving away from this limitation would allow more U.S. autos to be financed in Korea.
The U.S. complaints about the Korean auto market have been largely consistent over the past six months. The
U.S. has charged that the tax imposed on sport utility vehicles violates the MOU's standstill provisions, that the so-
called "frugality campaign" has impeded import sales, and that Korean tax officials have harassed citizens who buy
or lease foreign cars (Inside U.S. Trade, Aug. 29, p. 1).
Korea offered "nothing of substance" in the Sept. 10-12 consultations, an informed source said.
Members from both houses of Congress also urged the Administration to cite Korea on its auto regime
under the Super 301 process at the end of the month. In a Sept. 22 letter to Clinton, 13 senators called for a "prior-
ity foreign country" designation because of Korea's alleged failure to open its market. They specifically cited tax
and tariff policies, as well as "harassment" of Koreans who buy or lease imported cars.
"The 1995 MOU was a minimal first step toward opening Korea's automotive market, but the government has
also shown little willingness to negotiate further market opening initiatives or even abide by its 1995 commit-
ments," the senators wrote in the letter, reprinted below.
In a Sept. 23 letter, House members acknowledged that the Korean government implemented "some of the
provisions" of the auto agreement, but charged that "most of its actions" have served to restrict imports even
further. They also cited tax and tariff issues in calling for a 301 determination.
"Even without a trade agreement, these actions would merit serious consideration under Super 301, the House
members wrote. "But because we have already negotiated an agreement with these actions clearly violate, we
believe designation under Super 301 is unavoidable."
The Administration also came under pressure from the organization representing dealers of imported
automobiles not to target Korea under Super 301. The American International Automobile Dealers Assn. (AIADA)
told Clinton that naming Korea "will do more harm than good in successfully resolving outstanding trade issue."
"As we have seen in the past, the threat of trade sanctions hardens each country's position and makes it more
difficult to achieve further progress," AIADA wrote.
House Letter on Korea Autos
The Honorable William Jefferson Clinton
ment implemented some of the provisions of the agreement,
President of the United States
such as a small reduction in the enormous tax/tariff burden on
The White House
imported autos, most of its actions actually have served to
Washington, D.C. 20500
restrict the market yet further. The government repeatedly has
taken steps, such as the threat of special tax audits, to offi-
Dear Mr. President:
cially discourage the purchase of imports. Moreover, Korea
We are writing to urge you to designate the Republic of
continues to levy an array of nine separate taxes, in addition to
Korea's automotive trade policies as "priority practices" un-
an import tariff, that disadvantage imports.
der the Super 301 provision of U.S. trade law.
The express purpose of the 1995 agreement was to
Korea's market for automobiles is one of the fastest
"substantially increase market access for foreign passenger
growing in the world and could be an important destination
vehicles" in Korea. However, the Korean government's un-
for U.S. exports. Despite the efforts of the U.S. government
willingness to change its policies has undermined this goal.
and the world's automakers, however, the Korean market
Even without a trade agreement, these actions would merit
remains closed to non-Korean cars and trucks.
serious consideration under Super 301. But because we have
Two years ago, your Administration negotiated an agree-
already negotiated an agreement which these actions clearly vio-
ment with the Korean government to provide new access to
late, we believe that designation under Super 301 is unavoidable.
that country's automotive market. While the Korean govern-
It is our understanding that the Korean government has been less
INSIDE U.S.TRADE - September 26, 1997
9
than willing to negotiate further market-opening initiatives, de-
Peter DeFazio (D-OR)
spite the continued low level of auto imports in Korea. We urge
Jim Maloney (D-CT)
you to take strong action under U.S. law to gain Korea's coopera-
Nancy Johnson (R-CT)
tion in opening its market to U.S. auto exports.
Frank Pallone, Jr. (D-NJ)
Fred Upton (R-MI)
Sincerely,
David Bonior (D-MI)
Lane Evans (D-IL)
Sander Levin (D-MI)
Ron Dellums (D-CA)
Amo Houghton (R-NY)
Phil English (R-PA)
John Dingell (D-MI)
Jim McGovern (D-MA)
Dale Kildee (D-MI)
Howard Berman (D-CA)
Martin Frost (D-TX)
Louise Slaughter (D-NY)
John Conyers (D-MI)
John Peterson (R-PA)
Sue Kelly (R-NY)
David McIntosh (R-IN)
John Lewis (D-GA)
Debbie Stabenow (D-MI)
Jim Barcia (D-MI)
Sherry Boehlert (R-NY)
Richard Neal (D-MA)
Marcy Kaptur (D-OH)
Ron Klink (D-PA)
Dick Gephardt (D-MO)
Dick Lipinski (D-IL)
Joe Knollenberg (R-MI)
Donald Payne (D-NJ)
Dave Camp (R-MI)
James Walsh (R-NY)
Ralph Regula (R-OH)
Sidney Yates (D-IL)
Jerry Soloman (R-NY)
J.C. Watts, Jr. (R-OK)
Tom Sawyer (D-OH)
Lynn Rivers (D-MI)
Jack Quinn (R-NY)
John LaFalce (D-NY)
Steve LaTourette (R-OH)
Senate Letter on Korea Autos
September 22, 1997
tive policies create for future U.S. negotiations with Ko-
rea. We question whether American companies can rely
The President
on agreements to be productive and long-lasting if U.S.
The White House
automobiles cannot enter the Korean market on fair terms
Washington, D.C. 20500
as already negotiated.
The 1995 MOU was a minimal first step toward open-
Dear Mr. President,
ing Korea's automotive market, but the government has shown
In 1995, the United States and the Republic of Korea
little willingness to negotiate further market opening initia-
signed a Memorandum of Understanding (MOU) to provide
tives or even abide by its 1995 commitments. While Korea is
U.S. automobile manufacturers access to one of the largest
ultimately accountable for remedying the market barriers it
markets in the world and one of the fastest-growing markets
has erected unilaterally, the United States must atke an active
in Asia. We have been monitoring Korea's implementation of
role in requiring Korea to implement market remedies to
the 1995 MOU, and it concerns us greatly that automotive
which is has agreed. Therefore, we urge you to name Korea's
imports in Korea remain at lesss than one percent adn that the
automotive trade policies as "priority practices" under the
Korean government has violated the 1995 agreement.
Super 301 unfair trade provision and to seek further commit-
Trade barriers premised on Korean laws and policies
ments from Korea to provide real market access.
designed to undermine trade concessions deny U.S. automo-
bile manufacturers and Korean consumers the benefits they
Sincerely,
had expected under the 1995 MOU and the WTO agreements.
Furthermore, these barriers allow Korea to enjoy a "free ride"
Carl Levin (D-MI)
on U.S. concessions.
Sam Brownback (R-KS)
Since the 1995 Agreement, government-sanctioned poli-
Mike DeWine (R-OH)
cies, including harassment of citizens who buy or lease im-
Joseph Lieberman (D-CT)
ported cars, have escalated. Korea has reclassified minivans
Jack Reed (D-RI)
and sport utility vehicles, effectively boosting import taxes on
John Ashcroft (R-MO)
these vehicles by as much as $1,500. Also, Korea's discrimi-
Jay Rockefeller (D-WV)
natory automotive taxation regime has not improved overall
Richard Bryan (D-NV)
and still may effectively double the price consumers pay for
Byron Dorgan D-ND)
an imported vehicle.
Richard Lugar (R-IN)
Of equal concern is the uncertainty Korea's restric-
Rick Santorum (R-PA)
10
INSIDE U.S.TRADE - September 26, 1997
Big Three Letter on Korea Autos
September 9, 1997
units annually by 2000. Allowing Korea to maintain a closed
market while building huge auto assembly capacity poten-
tially will result in the permanent loss of billions of dollars in
The President
U.S. automotive exports.
The White House
This irrational buildup of excess capacity has led to
Washington, D.C. 20500
Korean companies engaging in business arrangements which
violate international trade rules. The United States govern-
Dear Mr. President:
ment has now joined the European Community and Japan at
the World Trade Organization in objecting to a discrimina-
The American Automobile Manufacturers Association
tory national car program in Indonesia that benefits a single
(AAMA) and its member companies - Chrysler Corpora-
Korean auto company.
tion, Ford Motor Company, and General Motors Corporation
Chrysler, Ford and General Motors are not alone in express-
- wish to express our growing frustration with the Republic
ing growing exasperation with Korea's behavior as a trading
of Korea's failure to honor its market opening commitments
partner. Korea's unfair auto trade practices have also been widely
under Korea's 1995 automotive trade agreement with the
criticized by other nations at recent meetings of the Organization
United States. Closed domestic markets are troubling under
for Economic Cooperation and Development and in a joint visit to
any circumstances. But the situation is particularly unaccept-
Seoul in July with representatives of the European Automobile
able when it is combined, as is the case in Korea, with
Manufacturers Association. All efforts to have the Korean gov-
government directed policies to promote an extraordinary
ernment honor its commitments to fair, open trade practices-
expansion of excess automobile capacity for export to open
only with the U.S. but with other trading partners as well have
markets in the U.S. and around the world. We urge the
been met with complete intransigence.
Administration to respond to Korea's trade distorting prac-
We believe that the Korean government's actions un-
tices with serious and meaningful action.
questionably deserve to be identified as priority practices that
In 1995, after almost two years of negotiations, the
unfairly limit U.S. market access under Super 301. Failure by
Administration achieved the U.S. Korea Automotive Memo-
the Administration to insist that Korea adopt responsible and
randum of Understanding to Increase Market Access for
fair automotive trade policies will make it more difficult to
Foreign Passenger Vehicles in the Republic of Korea (MOU).
expand access for U.S. automobiles in that market and will
We welcomed the agreement as a modest effort by the Korean
encourage Korea to continue a pattern of irresponsible trade
government to begin reversing its long standing policy of
practices.
excluding imports from its automobile market. On the basis
We look forward to working with the Administration to
of that 1995 agreement, AAMA's member companies sub-
increase market opportunities for auto exports to Korea and to
stantially expanded their investments in Korea with a view to
other markets around the world.
increasing U.S. exports to that country.
However, despite a promising beginning under this
Sincerely,
new trade agreement, Korea has not lived up to its market
opening commitments. Import sales remain far below expec-
Robert J. Eaton
tations. In all of 1996, Chrysler, Ford and General Motors
Chairman & CEO
imported less than 3900 vehicles into a total Korean market of
Chrysler Corporation
1.6 million vehicles. During 1997, the Korean government
has not taken any positive action to promote imports. Instead,
Alex Trotman
there has been a host of continuing violations of the 1995
Chairman & CEO
MOU.
Ford Motor Company
AAMA believes that the Korean government's mainte-
nance of a sanctuary automobile market is directly fueling the
John F. Smith, Jr.
Korean auto industry's aggressive international expansion.
Chairman, President, & CEO
In the face of mounting global overcapacity in automotive
General Motors Corporation
production and despite the precarious financial position of the
Korean manufacturers, Korean producers have continued to
Andrew H. Card, Jr.
add capacity - reaching over 3.6 million units in 1996 - and
President & CEO
have announced plans to increase production to over 6 million
American Automobile Manufacturers Association
INSIDE U.S.TRADE - September 26, 1997
11
COMMERCE STRIKES STEEL SUSPENSION DEALS WITH RUSSIA, UKRAINE, CHINA
The Commerce Dept. this week struck a deal suspending an antidumping case on carbon cut-to-length steel
plate imports from Russia, Ukraine and China by restricting their access and setting different floor prices tagged to
U.S. prices. The deal as initialled on Sept. 24 would cut Ukraine's shipments in 1996 by almost three-quarters, and
cut Russia's access to less than one-half of its 1995 shipments.
China would be limited to 150,000 tons which would have to be sold at a minimum price of $365 per metric
ton for the most basic cut-to-length plate classified as A-36. That level is down from its peak shipments of 300,000
tons in 1996 and from 177,000 tons in 1995, informed sources said.
But the Chinese government is signalling that it may still withdraw from the initialled agreement if it does not
receive an allocation of 250,000 tons at a floor price of $345 for A-36 steel. Russia would be permitted to ship
100,000 tons of steel with a floor price of $300 per ton of A-36 steel and a $325 floor price per ton of steel classi-
fied as A-572.
South Africa also initialled a suspension agreement with the U.S. this week that sets a floor price for its plate,
but does not set a quota since it is considered a market economy.
The deal would suspend a case against Russia, Ukraine, China and South Africa that would have imposed
dumping margins on these countries, and could have shut off any cut-to-length plate steel shipments to the U.S.
from Russia and Ukraine. Commerce cleared the deal with the officials from U.S. steel companies, who informed
sources said would be unlikely to file suit against the suspension agreement notwithstanding any public criticism
they may express publicly. The deal is within the parameters U.S. producers had presented to the Commerce Dept.,
informed sources said.
Under the agreement as initialled, Ukraine, the biggest shipper of the four suppliers named in the case, will be
permitted to ship 158,000 tons at specified prices to be adjusted quarterly according to the Bureau of Labor
Statistics Producer Price Index. If the index goes up one percent, the floor price would go up by that percentage.
For Ukraine, the initial price for ordinary plate specified as A-36 would be $367 per metric ton, not including
freight, handling and duties, according to a Sept. 25 announcement by the Commerce Dept. But lawyers close to
the case insist the final suspension agreement sets the price two dollars lower at $365 per ton.
The deal foresees the possibility of a five percent increase in shipments of A-36 steel, which is thicker than
0.375 inches if the weighted average price for A-36 steel exceeds the floor price by more than five percent. The
deal also limits the sale of plate thinner than 0.375 inches to 20,000 tons within the overall 158,000 tons.
Also for Ukraine, the final floor price for A-572, a higher grade of steel, is $387. For A-516 the floor price is
$390 per ton. The price for steel used for building oil drilling platforms classified as API-2H is $530, while the
price of steel classified as API-2Y will be determined later.
The floor prices were calculated by deducting duties as well as freight and insurance cost from U.S.
prices on relevant steel categories, sources said. In addition, the calculation included a safety margin of about $10-
20. The final prices for imports would be marginally below the U.S. prices, these sources said.
The deal presumes that favorable market conditions for sellers will prevail in the U.S. market, informed
sources said. One source said that the prices which Ukrainian producers can charge are "on the edge" of what
would allow them to sell their products in the U.S.
The final arrangement with Russia was a hard-fought arrangement whose terms shifted repeatedly on Sept. 24
from having Russia ship 100,000 tons of cut-to-length plate without any price restraints to having a 150,000 ton
quota tied to price restraints similar to those established for Ukraine. At the beginning of the negotiations in June,
Russia demanded an agreement based only on quotas (Inside U.S. Trade, June 6, p. 26).
Commerce initially offered both Russia and Ukraine 135,000 tons, but later increased that to 150,000.
The agreement would end a case brought by Geneva Steel and Gulf States Steel Inc., which had initially
opposed any suspension agreement and sought congressional support for their position. The opposition also
included Bethlehem Steel, whose lawyers fought hard against the suspension deal, sources said.
Five senators on Sept. 8 urged President Clinton to reject any suspension agreement on cut-to-length
steel plate because it would allow considerable importation below the prevailing U.S. price. The imports would
hurt U.S. mills making plate in Alabama, Indiana, Iowa, Oregon and Utah, which have invested in new or modern-
ized plants, the letter said.
It was signed by Sens. Chuck Grassley (R-IA), Orrin Hatch (R-UT), Robert Bennett (R-UT), Dan Coats (R-
IN) and Richard Shelby (R-AL).
Under U.S. law, Commerce can strike a suspension agreement if it is in the national interest, allows for
effective monitoring by the U.S. government, and will prevent the suppression or undercutting of price levels in the
domestic U.S. market.
Antidumping rules for non-market economies such as Russia and Ukraine stipulate that suspension agree-
ments could be based on quotas alone, but Commerce has insisted on coupling it with a floor price. This link is
12
INSIDE U.S.TRADE - September 26, 1997
thought to make the deal more acceptable to domestic producers, who would have a harder time arguing that the
suspension agreement undercut or suppressed U.S. prices.
The price arrangement proposed for cut-to-length plate differs from one Commerce struck several years ago in
a uranium suspension agreement, which allowed Russian exports only if the price in the U.S. market reached a
specified level. Since the market price stipulated in the agreement was never reached, Russia could not sell any
uranium in the U.S. until the agreement was renegotiated.
The suspension agreement cuts Russia's steel shipments from 225,000 tons in 1996 and Ukraine's
shipments from 563,000 tons in the same year, industry sources said. The average unit price in 1996 for basic cut to
length plate from Ukraine was $330 with freight and insurance, $298 from Russia and $339 from China, industry
sources said.
Preliminary dumping margins had been set between 61.23 percent and 185 percent for Russian producers.
Preliminary dumping margins for Ukraine had been set between 99.59 percent and 237.91 percent. U.S. producers
were allowed to proceed with the case on a "threat of injury" finding from the International Trade Commission,
and were not assured of a final injury finding, sources said.
The agreement would not restrain exports of plate in coil, which lawyers for U.S. steel producers say would
make Russia and Ukraine vulnerable to future antidumping cases. In 1994, Russia shipped 155,000 tons of plate in
coil compared to 418,000 tons in the first six months of 1997, according to U.S. industry sources. Ukraine has
emerged as the biggest single foreign source of plate in coil in the first six months of 1997.
Such a case would most likely be brought as part of a large series of cases on hot-rolled steel, industry sources
said.
Senate Letter on Steel Negotiations
September 8, 1997
U.S. plate mills in Alabama, Indiana, Iowa, Oregon and
Utah have invested heavily in new or modernized plants to meet
The President
expanded market demand with better quality products at lower
The White House
cost. The surge of dumped imports has placed these investments
1600 Pennsylvania Avenue, N.W.
at substantial risk.
Washington, D.C. 20006
As we draw closer to the October 24, 1997, deadline for
the final Commerce injury determinations, the Russian and
Dear Mr. President:
Ukrainian governments will undoubtedly push vigorously for
The Department of Commerce is currently engaged in
suspension agreements. We now understand that Commerce is
suspension agreement negotiations with the Governments of
seriously considering awards of several hundred thousand tons
Russia and Ukraine. We find these negotiations to be inherently
of plate imports to Russian and Ukrainian industries which
contrary to the public interest. Further, a suspension agreement
would inevitably sell their plate below U.S. market prices.
risks nullifying a December 1996 unanimous, preliminary deci-
We join with the steel producers and the United Steel-
sion by the U.S. International Trade Commission. ITC found
workers in urging you to reject any suspension agreement op-
that the U.S. plate steel sector had suffered injury from dumped
posed by the plate steel sector.
imports originating in these countries as well as China and South
Africa.
Sincerely,
In June of this year, the Commerce Department issued prelimi-
nary determinations that Russian and Ukrainian steel plate was
Chuck Grassley (R-IA)
dumped in the U.S. at margins of 61-185 and 100-238 percent,
Orrin Hatch (R-UT)
respectively. Plate imports from China, Russia and Ukraine alone
Robert F. Bennett (R-UT)
controlled 25 percent of the U.S. market by the first quarter of 1997.
Dan Coats (R-IN)
This is up from a near-zero import level in 1993.
Richard Shelby (R-AL)
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13
COURT STRENGTHENS EU IN FIGHT WITH U.S. OVER 1916 DUMPING LAW
A federal court last week strengthened the European Union's position in a fight with the U.S. government
over a 1916 law that the EU says violates U.S. obligations under World Trade Organization dumping rules. The
law allows private suits for damages against importers of products sold below market value with the intent to injure
a U.S. industry.
The EU has argued that the law acts as a remedy for dumping and must therefore comply with WTO antidumping
rules. In contrast, the U.S. has said the law is not in conflict with these rules because it is only used to fight anticompetitive
behavior, such as when an importer intends to drive competitors out of business by undercutting their price.
But the court sided with the EU argument when it found that the 1916 law can in fact be used to offset
damages from dumping. The Sept. 19 court ruling said the law can be used as a "protectionist statute" that prohibits
price undercutting by importers designed to injure the domestic steel industry even without predatory intent.
Proving predatory intent is required for action under U.S. antitrust law, which also asks that plaintiffs demon-
strate that an offender was in the position to recoup his losses after becoming a dominant supplier.
The court ruling undermines the argument by U.S. Trade Representative Charlene Barshefsky that the 1916
law has been interpreted by U.S. courts consistent solely with antitrust statutes. She told the EU in a Sept. 5
response that no U.S. court has ever interpreted the 1916 act in a way inconsistent with the WTO, sources said.
Barshefsky said there is no statutory linkage between the 1916 law and antidumping rules, informed sources said.
Her argument was laid out in response to an EU questionnaire sent to the U.S. as part of the Commission's
investigation of the 1916 Act under its Trade Barrier Regulation. The EU is likely to decide to pursue formal WTO
consultations on the 1916 law next month as a result of the Sept. 19 court ruling, informed sources said.
The investigation was initiated at the request of EU steel producers represented by Eurofer. Eurofer charged
that the law falls short of the "substantive and procedural" requirements of the antidumping agreement and at least
seven counts, and violates the fundamental WTO obligations of non-discrimination and most-favored nation
treatment (Inside U.S. Trade, Jan. 24, p. 7).
The U.S. case decided by the U.S. District Court in Utah was brought by Geneva Steel and Gulf States Steel
under the 1916 law against Thyssen Steel and Ranger Steel Supply Corp. for allegedly dumping steel from Russia,
Ukraine and China. The companies are seeking $180 million in damages. The companies subsequently filed
antidumping cases on cut to length plate from these countries and South Africa, which this week ended in a
suspension agreements (see related story).
The Utah court rejected a motion for dismissal by the defendants, who had argued that the lawsuit did
not meet the threshold for action under the 1916 law. The defendants said the Geneva-Gulf petition should be
dismissed because the plaintiffs had not alleged a predatory pricing scheme.
The judge said the plaintiffs did not need to allege such behavior to invoke the law, which he said is not limited to
antitrust injury or predatory price discrimination. Based on the express language of the law, it is also meant to protect U.S.
industry as Geneva had claimed, the court said. The statutory language indicates that the law is meant to fight sales
substantially below the actual market value or wholesale price in the country where they were produced with the intent to
injure the U.S. steel industry. The language does not state that the intent has to be "predatory."
"In addition to its antitrust prohibitions, the Act has a protectionist component that prohibits dumping de-
signed to injure the domestic steel industry," the court said. "If Geneva can prove that these Defendants acted as
importers for the systematic dumping of Chinese, Ukrainian and Russian steel in this country, with the intent of
injuring, by any means, the domestic steel industry, Geneva will be entitled to the damages allowed by the act."
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14
INSIDE U.S.TRADE - September 26, 1997
APPAREL, TEXTILE & RETAILER GROUPS NEAR CBI PARITY CONSENSUS
U.S. textile, apparel and retailer interests are nearing final agreement on a new set of "essential provisions"
which they will recommend be reflected in any Caribbean Basin Initiative parity bill that Congress might consider,
informed industry sources said.
According to a Sept. 19 draft of the provisions, reprinted below, the principal remaining issue to be resolved is
the extent to which textiles and apparel made from fabrics produced in the CBI can benefit from treatment similar
to that enjoyed by apparel made in Mexico without the use of U.S. fabric under the North American Free Trade
Agreement.
The American Textile Manufacturers Institute wants to limit NAFTA-like treatment for so-called regional
apparel not made of U.S. fabric to 1996 levels, plus a 10 percent growth factor. In contrast, the American Apparel
Manufacturers Assn. does not favor such a limit, according to an informed industry source.
Among the other groups which have been participating in the intra-industry association talks have been the
U.S. Assn. of Textile & Apparel Importers and the National Retail Federation.
The emerging industry consensus paper was delivered to Senate Finance Committee staff late last week
as the staff was crafting a version of the bill, which is scheduled to be considered with fast-track negotiating
authority. Chairman Bill Roth (R-DE) this week said he intends to mark up both bills, but that he has not decided
on whether they will be packaged together. The Senate Finance Committee is tentatively scheduled to mark up both
bills on Sept. 30.
At press time, industry sources said they were expecting the Senate Finance Committee bill to release a draft
of its CBI parity bill on Sept. 25 to allow a short period for public comment prior to the markup.
The draft industry consensus marks a continuation of intra-industry negotiations which produced an earlier
consensus during July's House-Senate conference committee of the budget reconciliation tax bill (Inside U.S.
Trade, July 25, p. 29).
Draft Industry Consensus on CBI Trade Package
ESSENTIAL PROVISIONS OF THE UNITED STATES-
that undergoes bleaching, dyeing, stone-washing, oven-baking,
CARIBBEAN BASIN TRADE PARTNERSHIP ACT
perma-pressing, acid-washing, enzyme-washing and other simi-
lar processes and embroidery qualify for duty-free treatment.
(September 19, 1997 - 5:00 PM)
INAFTA Duties on Regional Textiles and Apparel: NAFTA
Rule of Origin: Based on the NAFTA yarn-forward rule of
duties would apply to 1996 levels of U.S. imports by country,
origin with exceptions as in NAFTA plus yarn and thread
plus 10% annual growth, of regional yarns, fabrics and other
requirements as noted below.
non-apparel textile products and apparel, if the NAFTA rule of
origin is followed.]
Tariff Treatment: The tariff treatment accorded to an article
that originates in a partnership country shall be identical to the
Quantitative Restrictions: No quantitative restrictions may be
tariff treatment that is accorded to the same article at the same
applied to the importation of apparel that:
time as an article that is an originating good of Mexico and is
(a) originates in a partnership country; or
imported into the U.S.
(b) qualifies for duty-free treatment
Existing quotas shall not be reduced because of apparel that may
Duty-Free Treatment: Duty-free treatment shall apply to ap-
become eligible for duty-free/quota-free treatment.
parel articles imported into the United States from a partnership
country that are:
Tariff Preference Levels (TPLs): Tariff Preference Levels
(a) Wholly assembled in a partnership country wholly of
permitting the use of non-qualifying fabric will be established
fabrics formed and cut in the United States from yarns formed in
and will be equivalent to those granted to Mexico in NAFTA -
the United States (with exceptions as noted in the NAFTA);
71.5 million square meters equivalent (SME) annually:
(807A)
(a) 25 million SME for cotton and man-made fiber apparel
(b) Cut in a partnership country wholly of fabric formed in
imported under 9802.00.80;
the United States and assembled in a partnership country wholly
(b) 45 million for all other cotton and man-made fiber
with sewing thread formed in the United States; (809)
apparel; and
(c) Knit-to-shape and wholly of fabric formed in the
(c) 1.5 million SME for wool apparel
United States from yarns formed in the United States (e.g.
hosiery, full-fashion sweaters). (Knit-to-shape)
The above amounts will be allocated by country and cat-
(d) Made from fabric knit in a partnership country wholly
egory. Ninety-five percent (95%) will be allocated propor-
of yarns formed in the United States. (Local Knit Fabric)
tionately among the seven largest exporting countries, the
balance going to the remaining countries. Imports under the
Special Processing: Apparel entered under 9802.00.80.15 (807A)
25 million SME TPL for cotton and man-made fiber would be
INSIDE U.S.TRADE - September 26, 1997
15
subject to a safeguard action if found to be damaging or
Customs Procedures: Partnership countries are subject to the
threatening damage.
obligations contained in Chapter 5 of NAFTA regarding cus-
toms procedures.
Safeguard Provisions: The President may take bilateral emer-
gency tariff or quantitative restriction actions described in Sec-
Transshipment Penalties: Exporters found to be engaging in
tions 4 and 5 of the Annex with respect to apparel imported from
willful illegal transshipments or willful customs fraud would be
a partnership country. The requirement in paragraph 5 of Section
denied program benefits for two years.
4 of the Annex relating to compensation shall not apply to a
bilateral emergency action taken under this legislation. The
Customs Entries: Preferential tariff treatment will apply to
requirement and timetable for consultations contained in Sec-
articles entered or withdrawn from warehouse for consumption
tions 4 and 5 shall apply. Because of the lack of accurate data
on or after January 1, 1998.
during the first 8 months after a country is designated a partner-
ship country, the U.S. shall not impose emergency quantitative
Commercially Unavailable Yarns and Fabrics Eligible to
restrictions. After the first 8 months, emergency quantitative
Receive Duty-Free, Quota-Free Treatment: In addition to the
restrictions may be imposed in accordance with Section 5 of
list of fabrics and bras exempted in NAFTA, additional yarns
Annex. If the U.S. initiates an emergency action, the quantity of
and fabrics not commercially available in the U.S. will be
apparel articles subject to the quantitative restriction shall be
developed in consultation with, and mutually agreed upon by,
determined by using and extrapolating data for the first 6 months
domestic textile and apparel manufacturers, retailers and import-
after implementation of the Act to a full 12 month period. After
ers. Apparel made from yarns and fabrics on this list shall receive
the first 14 months this Act is in effect, any apparel subject to
immediate duty-free treatment and are exempt from any limita-
quantitative restrictions shall be determined under Paragraph 7
tions imposed by this act. Apparel formed from such yam and
of Section 5 of the Annex.
fabric will not be subject to quantitative restrictions.
AAMA HINTS AT MORE ACTION AGAINST JAPAN IF NO SUPER 301 DESIGNATION
The top lobbyist for the Big Three automobile manufacturers this week hinted that the U.S. auto industry
would push for further action under U.S. trade law if, in its judgment, Japan does not improve conditions for
imported vehicles. American Automobile Manufacturers Assn. President Andrew Card said that the Big Three
could move beyond this year's request to place Japan on the Super 301 "watch list."
"The watch list implies that if we do not see sufficient progress we will come back next year," Card said in a
Sept. 22 speech in Washington.
AAMA asked the Clinton Administration to name Japan to the Super 301 watch list to "remind Japan of its
commitment under the 1995 agreement to a five-year process of market opening," Card said. The Big Three
requested watch list status in late July (Inside U.S. Trade, July 18, p. 1).
Card also said that the auto industry would "certainly consider" filing a Section 301 petition if the Administra-
tion did not adequately respond to its concerns under Super 301. Filing a 301 case would force the Administration
to explicitly accept or reject the petition.
In a related development, a Japanese official this week denied published reports that the Minister of Interna-
tional Trade and Industry Mitsuo Horiuchi suggested he would ask Japanese companies to limit their exports to the
U.S. Horiuchi said that auto firms should "closely monitor" their exports, and that he expects the situation on
imports to improve, the official said.
At the same time, the minister knows that export restraints violate the General Agreement on Tariffs & Trade,
the official said. Horiuchi has also noted that Japan's imports of vehicles has declined, and that the auto agreement
states that the U.S. and Japan should cooperate to increase imports, the Japanese official said.
Card emphasized that AAMA "does not believe that the [1995] agreement should be torn up," and did not
charge that Japan is violating its explicit obligations under the agreement. But he also admitted that AAMA is
seeking Japanese measures which go beyond the auto deal.
"We need positive leadership within the Japanese government," Card said. "We are asking Japan to take
responsibility for opening its market."
Card made the comments during a press conference in which he renewed AAMA's well-known complaints
about the openness of the Japanese market. Foreign market share in Japan was six percent in 1996, but has aver-
aged just over five percent this year, Card said. In addition, the dollar-yen relationship has hit U.S. auto exports, he
said. "By nearly every measure, the evidence of progress has disappeared," Card said.
The Japan Automobile Manufacturers Assn. this week fought back with its equally well-known arguments
that the Big Three have not been as successful as Japanese firms because they do not offer vehicles with the
qualities that Japanese buyers value. JAMA also pointed out that European companies have had greater success in
Japan by offering smaller, fuel-efficient autos.
16
INSIDE U.S.TRADE September 26, 1997
Card also reiterated that the auto agreement has not lived up to the U.S. expectations that 400 new
dealerships agree to sell U.S.-made vehicles by the end of 1997. In response to a question that this target is ac-
cepted only by the U.S. side, Card said that if one reads the "legislative history" of the auto negotiations, there is
"no doubt" that these expectations exist, Card said.
"We knew it, the Japanese knew it," he said.
Card also argued that the letters which Japanese car companies wrote to dealers in Japan saying that dealers
were free to carry foreign-made vehicles have been ineffective in addressing U.S. concerns. The Japanese govern-
ment has not shown the "level of commitment" in the Japanese market shown by the U.S. Justice Dept. in the U.S.
market to ensure that imported vehicles can be sold.
He pointed out that Justice once sent a letter to the Big Three and dealerships telling them that they risked
antitrust action if they sought to prevent imported autos from getting into U.S. showrooms.
Card also repeated previous charges that alleged intervention by the Bank of Japan in currency markets
beginning two-and-a-half years ago has had a lasting effect on the yen-dollar relationship. Card said his "personal
view" is that the two currencies should trade at the 100 yen per dollar range.
U.S., JAPAN SEEKING LAST MINUTE DEAL OVER NTT PROCUREMENT AGREEMENT
U.S. and Japanese negotiators were meeting this week in an effort to hammer out details of an agreement to
improve the possibilities for foreign companies to sell telecommunications equipment to NTT, Japan's largest
telecommunications company. Ongoing talks this week followed negotiations the week of Sept. 15 in which the
U.S. made an initial proposal for renewal, informed sources said.
The U.S. team headed by the Office of the U.S. Trade Representative, along with the Depts. of State and
Commerce, met in Washington with a Japanese delegation chaired by the Ministry of Foreign Affairs and including
the Ministry of Post and Telecommunications and NTT, a U.S. official said. A Japanese official said the two sides
could wrap up negotiations as early as today (Sept. 26).
U.S. Trade Representative Charlene Barshefsky said yesterday (Sept. 25) that negotiators had made progress
this week but that it was not sufficient to strike a deal.
The principal area in which the U.S. is seeking improvements is the transparency of NTT procurement practices,
according to a U.S. official. In particular, the agreement needs to ensure that foreign suppliers have timely and complete
information about procurement opportunities in order to build and design products for NTT, the official said.
Japan has said it is willing to consider U.S. proposals but that ideas for improving transparency should be
"practical" and lead to the procurement of the best products, a Japanese official said. NTT has previously been
"disappointed" at the extent to which foreign companies have taken advantage of procurement "seminars" to help
their sales, the official said.
Beyond transparency both in the announcement of procurement opportunities and in the awarding of
contracts, the U.S. also wants a larger role for U.S. firms in developing technical standards, the U.S. official said.
In particular, there needs to be a move away from NTT-specific standards which make it difficult for U.S. firms to
sell products in which the U.S. is most competitive, such as fiber optics and software.
The use of technical standards similar to those used in the U.S. or other countries would allow U.S. firms to sell "off-
the-shelf' equipment, instead of having to design new equipment, one official said. The official emphasized that NTT uses
appropriate international technical standards for consumer-to-network connections and between the Japanese and other
networks, but that the company uses its own standards within the NTT network itself.
The standardization of interfaces between telecommunications companies is another point which the U.S. wants to
address in the renewal of the procurement deal, a U.S. official said. Japan, however, has argued that interconnection issues
between telecom carriers are not proper in an agreement about procurement practices, a Japanese official said.
The U.S. is not asking for a particular market share "target," but is looking for procedures which lead to an
increase in market share, a U.S. official said. Existing market shares "still do not adequately reflect the competi-
tiveness of U.S. and other foreign firms," the official said.
The U.S. is seeking a three-year renewal, as it has in past renewals since 1980, a U.S. official said. The
U.S. has rejected the notion that the agreement should simply be extended until 1999 because NTT is being
restructured, the official said. In addition, Japan has not made the case that restructuring would fundamentally alter
NTT's status as a major government-owned company a monopoly power, he said.
-
The extent to which subsidiaries of NTT would be covered by the agreement has not yet been resolved, the
U.S. official said. Three subsidiaries have denied that they are covered by the current agreement, but have voluntar-
ily abided by it, while a fourth has not done so (Inside U.S. Trade, March 14, p. 3).
Japan had refused to talk about renewing the agreement, but the two sides earlier this month reached an
understanding that allowed the negotiations to go forward (Inside U.S. Trade, Sept. 12, p. 16).
INSIDE U.S.TRADE - September 26, 1997
17
FISCHLER ASKS INDUSTRY TO MAKE CASE FOR GENETICALLY ALTERED GOODS
European Union Agriculture Commissioner Franz Fischler last week called on the agriculture industry to
better present its case that foods containing or derived from genetically modified organisms (GMOs) are safe. Even
as he praised the many important uses of genetically modified agricultural products, Fischler warned in a Sept. 19
address that failure to provide consumers with more information on these products could threaten future progress in
the development of bioengineered crops.
"[T]o make an informed judgment [consumers] must be aware of the possible risks and benefits of such a
technology," Fischler said in his prepared remarks. "If industry and the media do not explain the subject of biotech-
nology in a comprehensive way, if a certain lack of knowledge continues to contribute to fears and concerns which
are not justified by any real threat, then progress in this area will soon be jeopardized."
At the same time, Fischler warned that it should be a "top priority" of the industry, producers and exporters to
ensure the safety of GMO products. This is required because confidence in food safety was "profoundly shaken" in
the wake of evidence that beef from the United Kingdom was contaminated with Bovine Spongiform
Encephalopathy (BSE).
"It has not been easy to win back confidence and to convince the consumers that all necessary actions are
taken in order to guarantee safe food," Fischler said in his remarks. "It is up to scientists, the biotechnological
industry and public authorities to fully take into account the rightful concerns of consumers."
Fischler said EU actions have been and will be taken in response to this "urgent demand" for information on
bioengineered agricultural products. For example, he pointed out that the Commission will be discussing how to
amend EU Directive 90/220, which regulates the admission of products into the environment. The EU wants to
address problems companies have raised regarding the speed at which GMO products can be approved for sale in
the EU.
"Companies complain that authorization procedures take too long, and perhaps even more important, tend to
become unpredictable because of political considerations inserted into the decision taking process by a growing
number of [EU] member states," Fischler said in his prepared statement. "On the other hand, European citizens
demand authorization procedures which guarantee the highest safety standards in a broad sense are transparent and
provide useful information."
So far, genetically modified corn and oilseeds produced in the U.S. has been allowed entry into the EU under
90/220.
In addition to examining that issue, the directive will also likely be amended in several broad ways, among
them ensuring that it is consistent with recently developed guidelines on how to label products made from or
containing GMOs (Inside U.S. Trade, Aug. 1, p. 5). The directive 90/220 was amended earlier this year to require
that GMO products are specified as such on their labels (Inside U.S. Trade, April 4, p. 13).
Fischler again reiterated the EU position that the GMO labeling guidelines of July should be used to label
all products consisting of, containing or derived from GMOs, as well as to limit the possibility of fraudulently
claiming the presence or absence of GMOs.
"The approach will be based on scientific knowledge," he said in his remarks. "Whenever a GMO origin can
be scientifically proven, labeling should be obligatory." He also added that these guidelines will be in accordance
with the EU's international obligations. The guidelines will eventually be reflected in directives such as 90/220 and
the Novel Foods rule, which covers products ready for human consumption.
At the same time, he said the guidelines "should not stigmatize modern biotechnology or raise unjustified
doubts about the safety of the products." And while he said the regime should not impose undue costs on produc-
ers, Fischler also warned that the legislation resulting from the guidelines will have to be respected in order to sell
in the EU.
"Producers of novel foods and other genetically modified products will have to adapt to consumer concerns
which have been expressed in the EU legislation," he said. "This holds not only for European products, it also
holds for products imported from other countries."
Finally, Fischler noted that the European Commission has recently approved a proposal for a directive
that would guarantee patent protection for biotechnological developments. Fischler said this proposal is important
because it will result in decisions by companies to build plants in Europe, where their intellectual property rights in
this area can be protected.
"Harmonization of patent protection has been identified as one of the most important factors influencing
investment decisions in biotechnology," he said. "The European Commission will continue to consolidate
Europe as an attractive location for research and development, and for knowledge based industries such as
biotechnology."
Sources said this proposal is slated to be taken up by the member states, although it is unclear when this might
happen.
18
INSIDE U.S.TRADE - September 26, 1997
EX-IM RECHARTERING PASSES SENATE, WAITS FOR HOUSE AS DEADLINE NEARS
The Senate last week unanimously approved the reauthorization of the Export-Import Bank with minor
changes to its charter only two weeks before its current charter expires. Ex-Im's reauthorization is now awaiting
action in the House, where sources said the bill will have to be squeezed into the floor schedule.
Ex-Im will be forced to shut its doors if its charter is not renewed before it expires on September 30. How-
ever, an informed source said it is possible that a short-term extension of the current charter could be granted in the
event a reauthorization bill is not passed by the end of the month.
According to an informed source, placing the reauthorization bill on the House floor calendar has been
discussed and recommended by the leadership, but it has not been scheduled yet. "Everyone professes to be
supportive of getting it done soon, [however]," an informed source said.
However, a noted critic of the Bank, House Majority Leader Richard Armey (R-TX), is in charge of schedul-
ing bills for floor action. One source said Armey could be holding the bill up as leverage to gain only a one-year
reauthorization for Ex-Im, the source said.
Both Senate and House bills would recharter the Bank for four years and introduce a requirement that the Bank
promote the use of its services by small and medium-size businesses. The full Senate did not amend the version of the bill
which cleared the Banking Committee just before the August recess (Inside U.S. Trade, Aug. 8, p. 12).
In a September 17 floor statement, Rep. Robert Menendez (D-NJ) called for the rechartering bill to be placed
on the calendar. "I am here today with. the chief deputy Republican whip [Dennis Hastert (IL)], because this is
not a partisan issue, it is an American issue, it is a jobs issue," Menendez said. "For these reasons, it is an issue that
should move to the top of the agenda and on to the House floor."
On the issue of Ex-Im appropriations, Armey said earlier this month that a continuing resolution may be
required to give the House a few more days after October 1 to wrap up the remaining appropriations bills. These
currently include the Foreign Operations and Export Financing bill.
According to congressional and private sector sources, House conferees appeared likely to accept funding for
Ex-Im and the Overseas Private Investment Corporation (OPIC) at levels close to those approved by the Senate.
House conferees also appeared ready to accept a provision of the Senate bill added during floor consideration that
would reauthorize OPIC for two years, the sources said.
In July, the Senate authorized $700 million for Ex-Im's FY-98 program budget, while the House allocated the
Administration's request of $632 million. The Senate approved the Administration's request for $60 million for
OPIC's programs, while the House, in a legislative maneuver, did not specify funds for the agency.
The conference to reconcile the House and Senate versions of the Foreign Operations and Export Financing
bill was scheduled to begin yesterday (September 25). The full Appropriations subcommittees on foreign opera-
tions and export financing of both Houses have been appointed conferees. Two additional Senate members of the
conference are Thad Cochran (R-MS) and Robert Byrd (D-WV).
Separately this week, as the House began floor consideration of the Commerce, State, Justice Appropriations bill
for FY-98, Rep. Bernard Sanders (I-VT) was planning to offer an amendment that would transfer $1 million for the
Commerce Dept.'s discretionary funds allocation to the Office of the United States Trade Representative.
According to a Sanders staffer, the amendment was intended as a way to "open up and add to the debate
between national sovereignty and fast track trade agreements [and] about the undemocratic way in which trade
policy is set."
The staffer said Sanders intends to use the legislative history of the amendment to send a message to USTR
that it needs to keep Congress better informed about trade negotiations and do a better job of defending U.S. laws
at the World Trade Organization. The transfer of $1 million would provide USTR additional resources to meet this
goal, he said, although he acknowledged that the legislative history is more important.
"No one is under the delusion that the $1 million will be more than a wake up call to USTR," he said.
Cosponsors of the Sanders amendment included: Dana Rohrabacher (R-CA), Peter DeFazio (D-OR), Cliff
Stearns (R-FL), Sherrod Brown (D-OH), Ronald Dellums (D-CA), Robert Ney (R-OH), James McGovern (D-MA),
Karen Thurman (D-FL).
In a related development, Budget Committee Chairman John Kasich (R-OH) this week renewed his call
for the elimination of Commerce According to a Sept. 24 Budget Committee press release, Rep. Ed Royce (R-CA)
was set to introduce the Commerce Dismantling Act as early as this week.
Kasich attacked Commerce's utility for promoting trade and said that the bill would streamline the department
and eliminate waste.
"You couldn't design a cabinet level agency with more wasteful programs, more unrelated functions and more
overlap with other government agencies if you tried," Kasich said in the release. "While proponents constantly tout
its importance in promoting trade, estimates are that as little as five percent of the Commerce Department's budget
actually goes to trade-related functions."
INSIDE U.S.TRADE - September 26, 1997
19
HOUSE PANEL CALLS FOR WORK ON FARM DISPUTES TO SUPPORT FAST TRACK
Members of the House Agriculture Committee told senior Clinton Administration officials this week that they
want assurances that the U.S. will address outstanding agricultural disputes before they support the renewal of fast-
track negotiating authority. During a Sept. 23 hearing of the General Farm Commodities subcommittee, members
raised individual trade disputes, but also called for strong language in fast-track legislation which would establish
agriculture as a priority for U.S. negotiators.
"Serious attention to this language will go a long way to reassure our farmers that this Administration means
business when it comes to dispute resolution, state trading enterprises, restrictions affecting biotechnology and
phytosanitary restrictions," Subcommittee Chairman Bill Barrett (R-NE) said.
Full committee Chairman Bob Smith (R-OR) argued that the U.S. needs fast track so that it can take part in
agricultural negotiations in the World Trade Organization in the year 2000. He noted that the Administration's fast-
track proposal contains broad consultative procedures with Congress.
The bill also includes a "comprehensive list of agricultural issues related to trade and should go a long way in
beginning to address the issues raised by United States farmers and ranchers," Smith said.
But Smith also said that he has "reservations" about the provisions in the Administration bill on labor,
environmental and "sustainable development" issues and their effects on agricultural trade issues. Smith said he
would "seek clarification" on these and other issues during the fast-track debate.
Full committee Ranking Member Charlie Stenholm (D-TX) said at the hearing that he shares Smith's views
about the need for fast track.
Republican Conference Chairman John Boehner (R-OH) emphasized at the hearing that the White House
would need to demonstrate "presidential leadership" in order to pass fast track. He also predicted that the fast-track debate
would focus on "the inadequacies and softer spots" in the North American Free Trade Agreement and Uruguay Round.
Smith raised the issues of Canadian grain imports and high-fructose corn syrup exports to Mexico as two
issues which, despite the importance of fast track, need to be addressed. Smith charged that Canadian officials are
violating a promise made to him and other members to limit wheat imports to 1.5 million metric tons.
But a Canadian official said this week that Smith never received such a promise, and that Canada has had "no
intention to even entertain" the possibility of new export curbs on wheat since the U.S.-Canada memorandum of
understanding on this issue expired.
The official also questioned statistics cited by Undersecretary of Agriculture for Farm and Foreign Agricul-
tural Services August Shumacher at the hearing. Shumacher stated that Canada agreed in the MOU to limit exports
to 1.05 million tons of spring wheat and 0.3 million of durum wheat. Current shipments are 350,000 and 60,000
tons over these levels, respectively.
The Canadian official said that U.S. imports of Canadian wheat for Sept. 1996-97 are 1.56 million tons,
though the discrepency between these and Shumacher's figures could be accounted for by the shipment of Cana-
dian wheat through the U.S. to third markets.
The official added that while the MOU allowed exports of 1.05 million tons of spring wheat, it provided for
exports of 450,000 tons of durum wheat in two separate tranches.
Deputy U.S. Trade Representative Jeff Lang acknowledged in the hearing that Canada has no "obligation" under its
trade agreements with the U.S. to limit its exports. Rep. Earl Pomeroy (D-ND) also raised the Canadian grain imports issue.
Smith also commended USTR for initiating consultations in the World Trade Organization on plans by
Mexico to impose antidumping duties on HFCS. "It is my hope that the Administration continues to keep pressure
on our NAFTA partners regarding both of these concerns," he said.
But Smith also cautioned that the U.S. has yet to definitively win trade disputes with the European Union over
bananas and hormone-treated beef, even though WTO panels have found in favor of the U.S.
In response to a question from Barrett, Lang said that the U.S. would seek "more specific rules" on state
trading enterprises (STEs) when WTO agriculture talks resume. But before then, other countries need to comply
with Article XVII of the General Agreement on Tariffs & Trade, which requires STEs to operate according to
commercial considerations.
Rep. Larry Combest (R-TX) said that it is difficult to oppose fast track in light of the dependence of U.S.
agriculture on international trade. At the same time, Combest said that the congressional role in fast track of having
a single up-or-down vote is "not very satisfying."
Rep. Saxby Chambliss (R-GA) said that he wants to expand agricultural trade but is also concerned about a
number of issues. U.S. exporters of pecans and peaches are having difficulties in getting their products into Mexico
due to phytosanitary restrictions there. Rep. Sanford Bishop (D-GA) added that he has "serious reservations" about
voting for fast track before these issues are settled.
Near the end of the hearing, Rep. Cal Dooley (D-CA) argued that members should recognize that fast track
allowed the negotiation of agreements which made addressing their particular problems easier. "Some people have
lost sight of what the world was prior to the Uruguay Round of the GATT," he said.
20
INSIDE U.S.TRADE - September 26, 1997
WTO PRAISES CHILE'S TRADE REGIME, SEES PROBLEMS WITH REGIONAL DEALS
A new World Trade Organization report praises Chile for its generally open trade and investment regime, but
warns that its multilateral tariff concessions are diminished by various bilateral and regional trade agreements and
by policies aimed at protecting selected industries. These agreements have led to differential treatment of Chile's
trading partners and to discrimination between various sectors of its economy.
"The negotiation of the various bilateral agreements has led to growing differences in treatment of domestic
industries, since tariffs are being phased out over varying period for different goods, and under different time-
frames overall, under each agreement," the WTO said in a Trade Policy Review released this week. "The resulting
complexity is reinforced by the fact that rules of origin also differ among agreements and by sector."
Chile maintains bilateral trade agreements with Canada, Mexico, Colombia, Ecuador and Venezuela, as well
as an associate membership with the Southern Cone Common Market (Mercosur). It is also a member of the Asia-
Pacific Economic Cooperation forum (APEC), and is negotiating a framework with the European Union. In
addition, it hopes to join the North American Free Trade Agreement (NAFTA).
The benefits of Chile's uniform tariff are eroded by policies meant to protect certain sectors ranging from
automobiles to agriculture, according to the WTO.
Chile shows a "limited degree of liberalization" in the textile and clothing sector, and extends production
subsidies to the forestry industry for deforested areas, according to the report. It also requires the use of local parts
in the production of autos, and sets export performance requirements, according to the WTO. The auto program is a
remnant of the old import substitution regime and is due to be phased out in a matter of years, but there is some
confusion over exactly when. The WTO report says the program is to be phased out in 1998, but the Chilean
ambassador told a WTO meeting this week that it would be phased out Jan. 1, 2000.
The report highlighted Chile's use of a variable levy for imports of wheat, wheat flour, edible oils and sugar,
which is applied within a price band that does not exceed its applicable WTO tariff binding of 31.5 percent.
Trading partners questioned Chile closely regarding its price band mechanism on agricultural goods. In
defense of this policy, the Ambassador responded that the price band mechanism "was established to buffer
domestic prices against international price fluctuations."
With the exception of wheat, wheat flour, edible oils and sugar, agricultural commodity imports face a WTO
bound ceiling tariff of 25 percent, as do industrial goods. But Chile has unilaterally lowered its applied tariff to a
uniform 11 percent, and is considering a further decrease to 8 percent, according to the WTO.
Its criticisms notwithstanding, the WTO report was largely positive in its assessment of Chile's trade regime.
"Chile has now maintained a liberal, transparent trade regime for almost two decades, coupled with sound
macroeconomic policies and structural reforms," the review stated. "The benefits, in terms of strong economic
growth and reduced inflation, have become increasingly evident."
The WTO report emphasizes that Chile's focus has been on "open regionalism" that seeks to avoid
creation of new obstacles to trading partners outside the regional and bilateral trade agreements.
"The authorities [of Chile] stated that a fundamental element of this policy is that regional and/or bilateral
agreements should become a stepping stone towards a more open and transparent trade system; they consider trade
liberalization within the multilateral trading system as their first priority," the WTO said.
While Chile seeks out free-trade agreements that do not curb its ability to enact further unilateral reforms,
locking in these reforms on a Most Favored Nation (MFN) basis depends on the willingness of other WTO mem-
bers to engage in a new round of trade negotiations, the WTO said.
During the meeting of the Trade Policy Review Body on Sept. 23 & 24, Chilean Ambassador Alejandro Jara
stated that multilateralism remains his country's top priority. But he pointed out that the bilateral and regional
agreements Chile has entered are essential to opening new markets, as well as its own economy. He also stressed
the political impact of these agreements on Latin America, particularly the relationship between open economies
and the development of democracy.
The WTO said that Chile has weak discipline for implementing antidumping measures because its
national legislation differs from WTO rules in three major aspects. Chile lacks a judicial review for administrative
decisions, a system for prompt refunds of duties paid in excess of antidumping margins and accelerated investiga-
tions for new exporters that need to find out how they would be covered by an existing antidumping order, the
WTO said. But the report emphasized that the Chilean Congress is now discussing a draft law that would institute
such measures.
The report also highlights five inconsistencies between Chilean intellectual property legislation and the WTO
Agreement on Trade Related Intellectual Property Rights (TRIPS). These include the fact that the duration of a
patent is 15 years from the granting date and not 20 from the filing date as stipulated in the TRIPS rules
However, the full implementation of the TRIPS agreement will require more than amending existing Chilean
INSIDE U.S.TRADE - September 26, 1997
21
laws and the enactment of new laws, the WTO said. It must involve a strengthening of enforcement and the training
of additional personnel, which will be "a major undertaking" for Chile, according to the report.
But the report notes that Chile's IPR regime has been strengthened over the past 10 years because of the
country's interest in joining the North American Free Trade Agreement and in entering a free-trade agreement with
the European Union.
This week's debate in the Trade Policy Review Body focused primarily on three issues: Chile's balancing
of multilateral, regional and bilateral approaches; discussion of specific trade-related measures; and sectoral
components of trade policies.
The U.S. pressed Chile on its stated plan to cut its uniform applied tariff rate, asking whether these tariffs
would be bound in the WTO. Ambassador Jara responded that his country would not consider such a move
unilaterally, but only in the context of a new round of multilateral trade negotiations.
The U.S. also took issue with Chile's sanitary and phytosanitary regulations for poultry regarding salmonella
contamination, questioning whether domestic products had to meet the same standards as imports. But Ambassador
Jara insisted that the imports of these products were treated no less favorably than domestic ones.
On wheat, the U.S. accused Chile of being too restrictive in its health requirements guarding against wheat
infected with the fungus Karnal bunt. The U.S. said that Chile is refusing to import U.S. wheat even when accom-
panied by certification that such shipments are free of the fungus Karnal bunt.
BARSHEFSKY WARNS OF FALLOUT FROM FAILURE TO PASS FAST TRACK
The top U.S. trade official this week warned of "serious and immediate consequences" if the Clinton Adminis-
tration is denied fast-track trade negotiating authority. Lack of fast track has already led to lost commercial
opportunities for U.S. firms, and its renewal is crucial to planned multilateral, sectoral and bilateral trade talks as
well as to continued U.S. global leadership, U.S. Trade Representative Charlene Barshefsky told a Brookings
Institution forum on Sept. 23.
"In every region of the world, but particularly Latin America and Asia, the two fastest growing regions,
governments are pursuing strategic trade policies and, in some cases, preferential trade arrangements, forming
relationships around us, rather than with us, creating new exclusive trade alliances to the detriment of U.S. inter-
ests," she said.
In the last four years, 20 trade pacts have been negotiated in the Western Hemisphere without U.S. participa-
tion, Barshefsky said. Of the 30 trade accords operating in the hemisphere, she noted, the U.S. is signatory to only
one -- the North American Free Trade Agreement. She noted threats to U.S. interests from the continued expansion
of trade pacts involving the Brazil-led Southern Cone Common Market (Mercosur), Chile and Canada, as well as
active negotiations and other commercial efforts by the European Union, China and Japan with Latin American
nations.
According to Barshefsky, China has "highlighted" Brazil, Argentina, Venezuela, Chile and Colombia as
"strategic priorities."
Barshefsky also cited five examples in which U.S. producers are currently disadvantaged vis-a-vis others in
regional trade because of "agreements being reached without us."
In one instance, a U.S. fabric maker lost a $1.8 million per year sale in Chile to a Mexican company because
of an 11 percent tariff preference given to Mexican firms. In other cases, she noted existing tariff disadvantages to
U.S. apple and fresh-fruit producers vis-a-vis Chilean growers, and to U.S. corn and wheat producers compared to
Argentinean farmers as a result of recent trade pacts.
The Administration intends to use fast track in three ways, Barshefsky said. Multilaterally, the Adminis-
tration needs it to pursue the World Trade Organization's so-called "built-in" agenda, she said. That includes the
resumption of government procurement market access negotiations this year, renewed intellectual property rights
talks next year, agriculture market access discussions slated to begin in 1999, and additional services talks thereaf-
ter, she noted.
Fast track also is essential to the Administration's desire to undertake sector-specific market-opening initia-
tives, according to the USTR. Future sectoral accords would seek to target sectors where U.S. industry is competi-
tive and where global trade barriers are high and U.S. barriers are low, she said.
These sectoral initiatives would likely be patterned after this year's Information Technology Agreement to
eliminate duties on computers, semiconductors and telecom equipment by the year 2000. They include the negotia-
tion of an ITA-II beginning next month, which would "expand product coverage, address non-tariff barriers and
steer Internet commerce toward free and open trade," she added.
Other "promising" sectors which could be targeted because "global barriers to U.S. exports are high" are
chemicals, environmental equipment and services, and medical equipment and services, she said.
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INSIDE U.S.TRADE - September 26, 1997
The third part of the Administration's trade agenda that requires fast track is its effort to negotiate "more
comprehensive market access agreements with individual countries," the USTR noted. Chile is the one country
which "appears in all respects" to be ready to enter into accords that meet U.S. economic, labor and environmental
objectives, she said. Before identifying other countries, the Administration would consult with Congress and all
interested parties in order to clearly define U.S. negotiating objectives, she pledged.
The fast-track bill which the Administration presented to Congress this month provides a "sensible
approach" for pursuing the objectives of expanded market access, advancing worker rights and core labor stan-
dards, and promoting environmental protection and sustainable development, Barshefsky said (see separate story).
"We are committed to a strong strategy of pursuing our goals, but maintaining flexibility rather than pretend-
ing that one prescription would fit all countries or all cases," she said.
DOLE TO HELP CHILE FIGHT SALMON AD ORDER; CHEMTOB TO LEAVE JUSTICE
Verner, Liipfert, Bernhard, MacPherson and Hand said this week it has been retained by the government of
Chile to help it fight a preliminary U.S. antidumping determination against imports of its salmon. Former Senate
Majority Leader Robert Dole (R-KS) is a member of the firm and will travel to Chile within a matter of weeks,
according to a spokesman for the law firm.
Chile notified the World Trade Organization last month of its intention to request consultations with the U.S.
on the salmon case after the U.S. International Trade Commission made a preliminary determination of injury
(Inside U.S. Trade, Aug. 8. p.21).
The Verner, Liipfert spokesman denied charges from a member of Congress that the firm will also provide
political and strategic advice for Chile in the upcoming debate on fast-track negotiating authority. Rep. Sherrod
Brown (D-OH) charged this week that the Chilean Embassy in Washington had confirmed its "hope and expecta-
tion" that Dole would advise the Chilean government on its political strategy for fast track.
Brown urged Dole to reconsider the decision in a speech on the House floor. "This is business as usual, and it
underscores how bad trade agreements get through the Congress," he said. "This is a perfect example of how things
like fast track get approved, even when the American people are against them."
Separately, Justice Dept. Special Trade Counsel Stuart Chemtob will leave his position at the end of this
month to begin a two-year Mike Mansfield Fellowship. In the first year, Chemtob will study Japanese and in the
second, he will work in various Japanese government ministries such as the Ministry of International Trade &
Industry or the Japan Fair Trade Commission.
Chemtob has been with the Justice Dept. for 17 years and will be replaced by attorney David Boling.
CONGRESS REBUFFS BRITTAN ON HELMS-BURTON
begins page one
Brittan added that his meetings with Gilman and Menendez were "useful," and that "it would be wrong" to
say their views were changed.
However, congressional sources said the meetings were very confrontational.
"Brittan came out firing, and Gilman and Menendez fired right back," one congressional source said. In the
end, these members stressed to Brittan the importance of negotiating a settlement to Helms-Burton that Congress
can accept, the source said. The ultimate aim of the EU in the talks is to convince Congress to amend Helms-
Burton so that one of its primary sanctions can be waived.
Sources said last week that these two members, in addition to Senate Foreign Relations Committee Chairman
Jesse Helms (R-NC) and Rep. Dan Burton (R-IN), are among a handful of members that must be satisfied with the
final result before Congress as a whole decides on the issue.
The U.S. and EU have still not found a way to develop disciplines on investment in expropriated property, the
use of secondary boycotts, and disputes over conflicting jurisdiction of law. The two sides are hoping a deal will
allow the EU to drop its World Trade Organization challenge of Helms-Burton, and allow Congress to amend Title
IV of Helms-Burton so it can be waived. Title IV requires the U.S. to deny foreign executives that traffic in
expropriated U.S. property in Cuba entry to the U.S.
Brittan this week also noted that the April 11 joint understanding, under which the current U.S.-EU negotia-
tions are taking place, also calls on the U.S. to work toward waiving European companies from elements of the
Iran-Libya Sanctions Act (ILSA). The so-called Amato law seeks to punish foreign companies that invest in Iran
and Libya in a way that enhances the ability of those countries to produce oil and gas.
One congressional source said Brittan this week seemed as concerned with a waiver of ILSA as he was with
resolving the Helms-Burton dispute, since ILSA threatens to restrict a much higher value of EU investment than
INSIDE U.S.TRADE - September 26, 1997
23
Helms-Burton. This source added that after Brittan's visit, it seems more unlikely that either side will move
significantly from its position in the Helms-Burton talks.
Brittan also noted that he met with Undersecretary of State for Economics, Business and Agricultural Affairs
Stuart Eizenstat on Sept. 23 to discuss the status of the Helms-Burton negotiations.
Some sources have speculated that it will not be possible to reach an agreement by the October 15
deadline, but Brittan and others said the U.S. and EU have not begun to openly discuss the possibility of extending
the talks.
"We haven't talked about extending the talks," Brittan said this week. "I can't think of anything that is less
likely to lead to a conclusion than talking about extending the period." Brittan added that he has not talked about
the possibility of extending the talks with EU member states, but acknowledged that reaching a final agreement
will not be easy.
"It is important to put this dispute behind us," he said. "But it is not going to be easy. I am not saying that an
agreement on Helms-Burton and D'Amato is even within sight as yet."
Brittan added that if no deal is reached by Oct. 15, the EU could be left with no choice but to abide by the
terms of the April understanding, under which the EU could resume their WTO challenge.
"If we don't make it, all I can say is repeat what is in the words of the understanding which is that we reserve
the right to go back to the WTO," Brittan said. "I say that not in any contentious way, but just to repeat what is on a
piece of paper that you already have."
Another informed source agreed that extending the talks is not openly being considered, but said an extension
is a definite possibility. "It is entirely possible that if we get a deal in principle and we can identify avenues that are
fruitful that we could somehow register the progress made by the fifteenth and continue," he said.
However, he added that a handful of EU member states led by France would be likely to strongly oppose an
extension and would press for a renewed WTO challenge of Helms-Burton. Sources added that it is unclear where
Congress stands on extending the deadline.
Specifically, Brittan's request for more "give and take" is a reflection of the fact that the two sides are
still far from agreeing to disciplines on the use of secondary boycotts and rules that provide guidance when the
laws of two nations make conflicting demands of companies.
In last week's talks in Paris, according to informed sources, the EU proposed that language restricting the use
of secondary boycotts be included under the Multilateral Agreement on Investment (MAI), which is now being
negotiated in the Organization for Economic Cooperation & Development. In addition, the EU has proposed that in
disputes over conflicting jurisdiction, companies be guided solely by the laws of their home country.
But the U.S. last week said it could not accept the idea of binding restrictions that would inhibit its
ability to enact laws to sanction foreign companies that invest in third countries. Instead, the U.S. proposed
only that officials meet in the context of the MAI and in other forums to consult on these matters when they
arise. In addition, congressional sources have said Congress is also highly unlikely to agree to language in
the MAI that restricts the use of secondary boycotts, and that such language would undermine U.S. support
for the MAI.
Sources said this week that this is the most difficult issue facing the two sides as they continue to try to reach
an agreement by their Oct. 15 deadline. "This is the main issue for Europe, and there is quite a lot of distance" to
go before the two sides can agree on it, one international trade source said.
In addition, sources said it is clear after Brittan's visit that the two sides are still split in their effort to
agree upon negotiated disciplines that deter investment in expropriated property. Congressional sources said Brittan
told members of Congress this week that the EU is unwilling to agree to negotiated disciplines unless they apply
only to future investment in these properties. Brittan also told reporters this week that the EU wants the disciplines
to apply only to "future acquisitions."
However, Congress is unlikely to accept this demand because it would ignore the possibility of sanctioning
foreign companies that have already invested in expropriated property in Cuba, which is the point of the Helms-
Burton law. The EU proposal "doesn't address what we're negotiating for," one congressional source said.
This source said Congress would likely accept disciplines that, for example, require foreign companies to
divest in property in Cuba or settle with the previous U.S. owner. Other sources have said the disciplines could, at a
minimum, deter the resale or significant improvement of expropriated property in Cuba that is now owned by a
foreign company.
An informed source this week agreed that the U.S. needs to be able to somehow target investment in property
in Cuba that is now owned by foreign companies, but acknowledged that this is a very sensitive issue in the talks.
"It is very important [for the U.S.] to ensure that disciplines developed in the talks have a real impact on U.S.
claims in Cuba," this source said. He added that while dealing with expropriated property in Cuba already owned
by foreign companies may require special treatment, the U.S. cannot accept an agreement in which no disciplines
24
INSIDE U.S.TRADE - September 26, 1997
apply to these property claims.
In the Paris talks, the U.S. tackled the issue by proposing that countries exhibiting a pattern of expropriating
property, which the U.S. proposes should include Cuba, be designated as "problem states." The U.S. would want to
ban all future investment in these countries. The U.S. also proposed that countries register expropriated property,
and that countries choosing to invest in those properties would be denied government financing and other support
(Inside U.S. Trade, Sept. 19, p. 1).
BARSHEFSKY HIGHLIGHTS TRADE DEFICIT WITH JAPAN
begins page one
deregulation that promotes market access and we are concerned with respect also to our aggregate export perfor-
mance to Japan," she said.
"They must proceed on a course commensurate with their own public pronouncements, which is to say,
opening their market through deregulation and other means."
Barshefsky said Japan faces several early tests of its commitment to market access. These include "renegotia-
tion and improvement" of the NTT telecommunications procurement agreement, a review of the 1995 U.S.-Japan
Auto Agreement to be held next month, and movement by Japan under the new deregulation initiative agreed upon
by President Clinton and Prime Minister Hashimoto at the Denver Summit of the Eight.
Barshefsky also cited an agreement on flat glass as one of several bilateral agreements whose implementation
is problematic. "We have a very substantial agenda that we are looking at," she said.
She said progress had been made in the meetings held this week on the NTT agreement, but added that it was
not enough.
She said enforcement of agreements is a top priority for the U.S. and that the U.S. public cannot be expected
to have confidence in trade agreements if countries will not fulfill their obligations under them. "If they're not
going to be enforced, we might as well not negotiate them to begin with," she said.
Separately, Jane Bradley, head of USTR's enforcement unit, told the ACTPN that USTR "expects to have a
few more [WTO] cases coming up before Christmas."
ACTPN members asked Bradley and the other USTR officials at the meeting to inform them if the agency
finds it has insufficient resources to accomplish its stated goals, such as new WTO cases. One member of the
committee said private-sector representatives are prepared to do what they can to ensure that USTR gets more
resources if needed.
Committee members mentioned the proliferation of unilateral sanctions measures to the state and local level
and the issue of global climate change as likely topics for discussion at the next meeting set for December 12.
CONGRESS POISED FOR ACTION ON FAST TRACK
begins page one
fast-track issue but has not discussed "specific language" yet.
Archer decided on the markup date after a Sept. 24 meeting with Barshefsky, also attended by Reps. Phil
Crane (R-IL) and David Dreier (R-CA). Archer emphasized to Barshefsky that the House Republican leadership
has told him that the votes to pass fast track are not there, a congressional source said. He also told her that Presi-
dent Clinton must become personally engaged in the fast-track debate.
The Ways & Means trade subcommittee will hold a hearing on Sept. 30 on the general topic of fast track, but
a congressional source predicted that it would focus on the Administration's own proposal.
Finance Committee Chairman William Roth (R-DE) said on Sept. 23 that he would seek to mark up both a
fast-track bill and a bill to extend the benefits of the North American Free Trade Agreement to Caribbean basin
countries. But he said he had not decided whether the two bills would be packaged together.
Senate Majority Leader Trent Lott (R-MS) said this week that fast track will be the last matter which the
Senate takes up before it recesses this year, congressional sources said.
Senate Republican criticism of the Administration bill has centered on the extent to which labor and
environmental provisions which change U.S. law could be included in legislation covered by fast track, congres-
sional sources said. Republicans want to draft a bill which more firmly links the negotiating objectives to what can
be included in implementing legislation and by narrowing labor- and environment-related objectives, especially
those related to the International Labor Organization.
In particular, Republicans have "real concerns" about including references to the ILO in fast-track legislation,
one source said. The provision in the Administration bill on the ILO was included as a result of discussions with
Finance Committee Ranking Member Pat Moynihan (D-NY).
The criticism of Sen. Phil Gramm (R-TX) last week that the Administration's bill could allow ILO agreements
INSIDE U.S.TRADE - September 26, 1997
25
to be covered under fast track is shared by other members, congressional sources said. One source said that "not a
single Republican" supports mentioning the ILO in the fast track bill.
On environmental issues, Senate Republicans object to a provision in the Administration bill which requires
U.S. negotiators to "take into account United States domestic objectives including, but not limited to" health and
safety, environmental, consumer and employment opportunities issues. They think this language could compel the
President to seek trade agreements which require countries to adopt U.S. standards, one source said.
Related to the labor issue in particular is Senate Republican concern over what provisions can be included in
agreements covered by fast track, congressional sources said. Many Republicans believe the negotiating objectives
must be tied directly in the bill to what can be including in implementing legislation.
Most Senate Republicans also support language which would restrict the contents of implementing bills
more than the "necessary or appropriate" language of the 1998 trade act, congressional sources said. The Adminis-
tration proposal adopted the "necessary or appropriate" language of the 1988 fast-track authority, though it did add
language to qualify this apparently broad provision.
One source said that most Republicans would prefer using simply the term "necessary." But another source
cautioned that, regardless of the specific phrase in the bill, the key issue would be how Congress defines the phrase.
The source added that there is also a recognition among senators of the need for "some elements of flexibility"
in this respect in order to get trade legislation passed.
The Administration request for fast-track authority through 2005 has attracted little opposition in the Senate,
congressional sources said. One source said senators would be "happy" to deal with the issue definitively for the
next eight years. Another added that the request for a three-year extension followed by an additional four if
Congress does not object is "a well-known and familiar formula" for legislators.
Senate Minority Leader Tom Daschle (D-SD) said on Sept. 23 that his negotiations with the Administra-
tion for a Statement of Administrative Action (SAA) are proceeding "productively." Daschle said he is seeking
both better implementation of North American Free Trade Agreement rules on labor and environment and new
steps that the President could take in those areas.
"We want to make sure that the priorities expressed with regard to labor, the environment and agriculture [in
the proposed bill] are not just rhetoric but true intentions of this government with regard to making substantive
change," Daschle said. "But we have not seen that yet."
An SAA constitutes a stronger political commitment than report language that accompanies regular bills
because Congress votes on it along with the legislation, according to private-sector lawyers.
Daschle and Moynihan last week outlined initiatives on labor and environment which Senate Democrats want
from the Administration in order to support fast track (Inside U.S. Trade, Special Report, Sept. 17, p. S-15).
Late last week, House Democrats met with senior Administration officials and briefly discussed the idea of
having House Democrats introduce their own fast-track bill, congressional sources said. The Administration
offered to work with them on such a bill during the Sept. 18 meeting when Democrats raised the possibility of
developing alternative legislation, these sources said.
But congressional sources said a "more Democratic bill" than the Administration proposal would do little to
push the content of legislation in a Democratic direction. The Administration bill has effectively placed a "ceiling"
on how much the eventual bill can reflect Democratic priorities, one source said.
In a related development, the America Leads on Trade coalition this week distributed to its members
another round of target lists of House members to lobby on fast track. The list, which is reprinted below, includes
86 Democrats and 66 Republicans.
Industry sources said this week that as lobbying has geared up following the introduction of the Administra-
tion's fast-track proposal, many companies have found that labor groups have already contacted many members.
President Clinton this week took the case for fast track before the annual convention of the AFL-CIO, a group
which has launched a media campaign to defeat fast track. In a Sept. 24 speech, he emphasized the need for fast-
track authority to sustain economic expansion and the creation of high-paying jobs.
White House Spokesman Mike McCurry said the same day that Clinton's speech served to remind labor of
"what the potential consequences" are of targeting Democrats that cast a vote for fast track. Such a strategy may
open the door to more Republican members in the House, he said.
Vice-President Gore, Daschle and House Minority Leader Richard Gephardt (D-MO) also spoke to the
convention. Gore did not mention fast track, while Daschle said he would fight to ensure that labor and environ-
mental issues can be a part of trade negotiations. Gephardt reiterated his argument that fast track should include
core labor and environmental provisions.
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INSIDE U.S.TRADE - September 26, 1997
ALOT Target Lists
Democratic Fast Track Target List
Ackerman (NY)
Etheridge (NC)
Kennelly (CT)
Pickett (VA)
Allen (ME)
Farr (CA)
Kind (WI)
Pomeroy (ND)
Baesler (KY)
Fattah (PA)
LaFalce (NY)
Poshard (IL)
Baldacci (ME)
Filner (CA)
Levin (MI)
Price (NC)
Barrett (WI)
Flake (NY)
Lofgren (CA)
Reyes (TX)
Becerra (CA)
Foglietta (PA)
Lowey (NY)
Rodriguez (TX)
Bishop (GA)
Ford (TN)
Luther (MN)
Sandlin (TX)
Boswell (IA)
Goode (VA)
Maloney (NY)
Sawyer (OH)
Boucher (VA)
Gordon (TN)
Manton (NY)
Schumer (NY)
Brown (FL)
Green (TX)
Markey (MA)
Scott (VA)
Cardin (MD)
Hall (TX)
Mascara (PA)
Sherman (CA)
Clay (MO)
Harman (CA)
McCarthy (MO)
Sisisky (VA)
Clement (TN)
Hefner (NC)
McDermott (WA)
Skelton (MO)
Costello (IL)
Hinojosa (TX)
McHale (PA)
Slaughter (NY)
Cramer (AL)
Holden (PA)
McNulty (NY)
Smith (WA)
DeGette (CO)
Hooley (OR)
Meehan (MA)
Snyder (AR)
Deutsch (FL)
Hoyer (MD)
Meek (FL)
Towns (NY)
Dingell (MI)
Jackson-Lee (TX)
Menendez (NJ)
Turner (TX)
Doggett (TX)
Jefferson (LA)
Millender-McD. (CA)
Wexler (FL)
Doyle (PA)
John (LA)
Ortiz (TX)
Weygand (RI)
Edwards (TX)
Johnson, E. (TX)
Pastor (AZ)
Eshoo (CA)
Kanjorski (PA)
Pelosi (CA)
*Freshman in Italics
Republican Fast Track Target List
Bob Riley (AL)
Nathan Deal (GA)
Kenny Hulshof (MO)
J.C. Watts (OK)
Robert Aderholt (AL)
John Shimkus (IL)
Rick Hill (MT)
Ernest Istook (OK)
Spencer Bachus (AL)
Steve Buyer (IN)
Jon Christensen (NE)
Curt Weldon (PA)
J.D. Hayworth (AZ)
Edward Pease (IN)
Jim Gibbons (NV)
Jon Fox (PA)
Jay Dickey (AR)
John Hostettler (IN)
John E. Sununu (NH)
Phil English (PA)
George Radanovich (CA)
Jim Ryun (KS)
Charles Bass (NH)
John Duncan (TN)
Christopher Cox (CA)
Vince Snowbarger (KS)
Jim Saxton (NJ)
Van Hilleary (TN)
Brian Bilbray (CA)
Todd Tiahrt (KS)
Joe Skeen (NM)
Ed Bryant (TN)
Scott McInnis (CO)
Edward Whitfield (KY)
Bill Redmond (NM)
Tom D. DeLay (TX)
Joel Hefley (CO)
Jim Bunning (KY)
Sue Kelly (NY)
Dick Armey (TX)
Tillie Fowler (FL)
Roscoe Bartlett (MD)
James T. Walsh (NY)
Chris Cannon (UT)
Bill McCollum (FL)
Gil Gutknecht (MN)
Howard Coble (NC)
Jack Metcalf (WA)
Charles Canady (FL)
Charles Pickering (MS)
Steve Chabot (OH)
Doc Hastings (WA)
Dan Miller (FL)
James M. Talent (MO)
John Boehner (OH)
Jennifer Dunn (WA)
Dave Weldon (FL)
Roy Blunt (MO)
Deborah Pryce (OH)
Mark Neumann (WI)
Newt Gingrich (GA)
JoAnn Emerson (MO)
Ralph Regula (OH)
Jim Sensenbrenner (WI)
Bob Ney (OH)
Barbara Cubin (WY)
INSIDE U.S.TRADE - September 26, 1997
27
In This Issue
House, Senate committees prepare for quick
Court strengthens EU in fight with U.S. over
action on fast-track bills
p.1
1916 dumping law
p.14
Barshefsky criticizes growing Japan deficit, calls
Apparel, textile & retailer groups near CBI
for new actions
p.1
parity consensus
p.15
Congressment reject Brittan appeal to soften
AAMA hints at more action against Japan if no
stance on Helms-Burton
p.1
Super 301 designation
p.16
Fischler says U.S. will not win BSE-free
U.S., Japan seeking last minute deal over NTT
designation from EU
p.1
procurement agreement
p.17
Barshefsky, Brittan focus on China WTO,
Fischler asks industry to make case for
financial services
p.3
genetically altered goods
p.18
Administration to seek approval of OECD
Ex-Im rechartering passes Senate, waits for
investment pact as treaty
p.4
House as deadline nears
p.19
EU accepts banana ruling but reveals little about
House panel calls for work on farm disputes to
future response
p.6
support fast track
p.20
U.S. may highlight flat glass dispute with Japan
WTO praises Chile's trade regime, sees
under Super 301
p.7
problems with regional deals
p.21
U.S., Korea seek deal on autos as Super 301
Barshefsky warns of fallout from failure to pass
determination looms
p.8
fast track
p.22
Commerce strikes steel suspension deal with
Dole to help Chile fight salmon AD order;
Russia, Ukraine, China
p.12
Chemtob to leave Justice
p.23
28
INSIDE U.S.TRADE - September 26, 1997
An
Inside U.S. Trade
Inside
Washington
Publication
Anexclusive weekly reporto major government and industry trade action
Vol. 15, No. 38 - September 19, 1997
HOUSE REPUBLICANS PREPARING NEW VERSION OF FAST-TRACK LEGISLATION
House Ways & Means Committee staff late this week was preparing a chairman's mark of legislation to renew
fast-track negotiating authority that is likely to significantly change the Clinton Administration proposal floated on
Sept. 16, according to congressional sources. House Republicans believe that the Administration draft gives the
President too much flexibility to decide what to include in trade agreements and their implementing legislation,
these sources said.
Leaving intact the Administration's proposal could give the President the ability to negotiate trade agreements
with provisions unacceptable to Republicans, such as labor and environment rules. "The Administration bill could
never even be brought to a vote in the House," one congressional source said.
The source argued that Republican efforts to develop another bill should be expected because the Administra-
continued on page 27
U.S. EXPECTED TO PROPOSE SPECIFIC SOLUTION TO HELMS-BURTON FIGHT
U.S. negotiators this week were expected to unveil a proposal for ending a contentious dispute with the
European Union over the Helms-Burton law that is likely to garner the support of key members of Congress,
according to informed sources. The proposal hinges on the creation of a list of "problem states," which the U.S.
says should include Cuba, in which signatories to the deal would ban all future investment, these sources said.
The U.S. proposal would also create a system in which companies are discouraged from investing in expropri-
ated properties that are registered internationally, they said.
"The Administration has laid out a fairly reasonable approach for cracking down on dealings with stolen
property around the world," one congressional source said this week. "[The U.S. has] an ambitious opening
position."
continued on page 25
U.S. INDUSTRY TO FILE 201 PETITION TODAY AGAINST WHEAT GLUTEN IMPORTS
The U.S. wheat gluten industry is expected today (Sept. 19) to file a Section 201 petition in an effort to reduce
wheat gluten imports to the U.S., which they charge are injuring the industry. These sources said a decision to file
the petition was made Sept. 18 because the industry has been left with "no other alternative," since recent efforts to
curb imports of wheat gluten through a Section 301 petition and government consultations have failed to yield any
results.
Section 201 is aimed at providing relief from imports that are not necessarily dumped or subsidized in order to
allow the industry time to adapt to changing trade conditions. These cases have been historically difficult to win,
since the President has the option of not granting import relief even if the industry has met all the statutory require-
ments of demonstrating injury.
continued on page 27
U.S. OFFICIALS PRESSING FOR CONCRETE DEREGULATION RESULTS BY MAY
The Clinton Administration last week told the Japanese government that it wants to achieve "concrete solu-
tions" in bilateral deregulation talks by the next meeting of the world's seven most industrialized nations in May
1998, according to U.S. officials. To this end, the U.S. wants to hold a meeting of subcabinet-level officials under
the Enhanced Deregulation Initiative this year, and a second one before the G-7 summit, they said.
Japanese efforts on deregulation over the past three years have had only modest results, and have fallen "far
short" of the Government of Japan's stated objectives to remove all unnecessary regulations in Japan, the U.S.
embassy in Tokyo said in a Sept. 10 statement. The statement was issued as U.S. and Japanese officials began their
meetings in the Working Group on Deregulation and Competition and its subgroup on structural issues.
The meeting followed a high-level Administration decision to pressure Japan for more actions that would curb
continued on next page
Inside U.S. Trade published a Special Report dated Sept. 17
on the Administration's fast-track proposal
its burgeoning trade deficit (Inside U.S. Trade, Sept. 12, p. 1).
Following the meeting with the U.S., a senior Japanese official said the call for concrete results was a "private
message" rather than one officially presented on behalf of the U.S. government. Japan is waiting for the U.S. to
clarify what it considers "concrete results," he said. It is unclear whether this means recommendations by the
Administrative Reform Council to the Japanese cabinet or action by the cabinet on a deregulation issue, according
to the official.
In addition, Japan is likely to insist in ongoing discussions with the U.S. that the results of deregulation are
not felt immediately, but that business and consumer reaction to an issue are contingent on the state of the Japanese
economy, he said.
The senior-level meeting under the Enhanced Initiative will likely occur in mid-November before President
Clinton and Prime Minister Hashimoto meet at the summit of the Asia Pacific Economic Cooperation forum,
sources said. Both sides anticipate that the experts groups on telecommunications and financial services will meet
before that summit, so that all five groups covered by the Enhanced Initiative, which includes the Deregulation and
Competition group, will have held initial meetings.
The group on housing and structural issues met last week, and the group on medical equipment and pharma-
ceuticals is meeting this week in Tokyo, a Japanese official said.
Last week's meeting of the subgroup on structural issues under the Deregulation and Competition group
was focused on laying out an agenda rather than on negotiating specific issues, according to U.S. and Japanese
officials. The U.S. is expecting to make more specific proposals for deregulation at the next meeting, according to
a U.S. official.
Japan last week rejected U.S. demands that the structural issues group address autos and auto parts because it
is already being discussed in the context of reviewing the implementation of a bilateral agreement on that sector,
officials said. Not raising it in the structural issues subgroup would avoid duplication of discussion, Japanese
officials said.
Japan also questioned the U.S. demand to consider its current rules for trucking and warehousing, according
to U.S. and Japanese officials. The U.S. has charged that these rules restrict entry of new firms and curb pricing
competition, but Japanese officials said they were puzzled by these charges, and asked for additional information
from the U.S.
The U.S. in turn rejected a Japanese demand that the two sides discuss the transparency of U.S. procedures
applied in antidumping cases, particularly the one involving supercomputers made by NEC Corp. of Japan,
according to officials. Japan wanted to explore the administrative procedures used in handling the case, in which
the Commerce Dept. warned a U.S. government-funded agency that a Japanese supercomputer it was considering
leasing was unfairly priced before an antidumping petition had been filed, they said.
Japan does not contest the principle of antidumping cases, but wants to ensure that procedures applied are
"fully transparent and absolutely fair," a Japanese official said.
The U.S. argued that the particular case was still pending and should therefore not be discussed in the deregu-
lation context, officials said.
Japan also raised the U.S. measure that allows only U.S. ships to transport Alaska crude oil exports, which
Japan considers a violation of U.S. obligations under the World Trade Organization and a bilateral treaty on
friendship, commerce and navigation. Similarly, the U.S. maintains a continued reservation on the use of U.S. built
ships for coastal trade in the U.S., a Japanese official said.
Japan also pointed to state and federal Buy America provisions that discriminate against imports, as well as
the visa problems posed by new U.S. immigration laws for Japanese business people.
On structural issues, the U.S. identified several Japanese policies and practices it wants to raise. These
include structural problems and business practices that pose problems for wholesale distribution. These barriers
affect imports of glass, paper, film and construction materials, but the U.S. is seeking to address them without a
particular sectoral emphasis, a U.S. official said. The barriers in question are the subject of the "most often heard"
complaints about doing business in Japan, the official said.
The U.S. also asked for the phaseout of the Large Scale Retail Store law, which is a repeat of its November
1996 demand that the law be eliminated by the year 2000. The Japanese law conditions the ability of large stores to
open on whether surrounding businesses accept it.
The U.S. also sought the elimination of a separate law called Bunyaho that deals with the adjustment of retail
outlets, U.S. officials said. This law has recently been invoked to curb the ability of U.S. firms to set up multiplex
movie theaters, they said. The law affects both the establishment and operation of these theaters as new entrants
have to adjust their plans to demands from existing theater owners, a U.S. official said.
The third issue the U.S. raised was a "fairly new one" regarding customs procedures for the processing of bulk
mail and catalogue sales. These procedures pose a lot of holdups for bulk shippers, whether they are private firms
or the U.S. postal service, a U.S. official said.
2
INSIDE U.S.TRADE - September 19, 1997
There are now about $5 billion in sales through catalogues to Japan, and the market is growing in Japan, he
said.
The U.S. also wants to discuss the Business Reform Law, which extends subsidies to firms seeking to adjust to
competition, a U.S. official said. Japanese firms can prepare an adjustment plan that is then approved by the
Ministry for International Trade and Industry, he said. If a group of firms file a joint adjustment plan, MITI could
consult the Japan Fair Trade Commission but seldom does so, he said. In fourteen cases of joint adjustment plans
approved by Japanese ministries, JFTC was not consulted, the official said.
Under the rubric of competition issues, the U.S. raised four problems last week, according to a U.S.
official. These include the elimination of antitrust exemptions, which allow firms to form cartels that restrict supply
and set prices in times of recession, he said. The U.S. asked Japan to review all exemptions with the goal to
eliminate them as much as possible.
The second issue the U.S. pressed is related to the ability of Japanese individuals to seek an injunction against
anticompetitive behavior, an official said. Individuals in Japan do not now have the ability to sue for an injunction,
and can only sue for damages that arise from antitrust violations, he said. But MITI is now considering a proposal
to allow injunction suits, and may make a proposal for a bill in the spring, sources said.
The U.S. also asked Japan to step up its fight against rigging procurement bids by taking more action against
public corporations and their officials that facilitate the practice by providing information to specific companies. In
these cases, the JFTC acts against the bidding companies, but not the officials who helped them, the U.S. charged.
In addition, the JFTC has imposed light penalties such as a 15-day suspension on bidding on contracts against
offending firms, a U.S. official said. There need to be stronger administrative penalties such as debarring bidders,
he said.
The fourth issue the U.S. raised was the need for more staff and money for the JFTC. Separately, the U.S.
Justice Dept. also raised the need for sufficient JFTC resources and personnel in its Sept. 4 submission on JFTC
guidelines on holding companies. In light of its increasing responsibilities, the agency should have at least 700 staff
people, Justice said.
In its submission, Justice criticized a Japanese proposal that would allow financial holding companies to
control other firms via their subsidiaries. Under existing Japanese regulations, financial holding companies can
have no more than five percent ownership of other companies, a U.S. official said. Under the proposed regulations,
each subsidiary of a financial holding company could also own such a share. In light of previous bank-centered
Keiretsu ties, the U.S. opposes the proposal, he said.
ALBRIGHT SAYS FAST TRACK VITAL TO BROAD U.S. FOREIGN POLICY GOALS
Secretary of State Madeleine Albright yesterday (Sept. 18) said that approval of fast-track negotiating authori-
ty is vital the ability of the United States to exert leadership in the trade and economic sphere, which in turn is
critical to U.S. global leadership on broader foreign policy and security issues. U.S. efforts to raise global living
standards and keep the peace are inseparable from presidential authority to submit trade agreements to Congress for
an up-or-down vote, Albright said.
"[F]ast track is about more than dollars and cents, it's a foreign policy imperative," Albright told the Institute
for International Economics and the American Business Conference. "It is indispensable to U.S. economic leader-
ship and that leadership is indispensable to U.S. influence around the globe."
Albright argued that encouraging prosperity through the negotiation of new trade agreements will serve U.S.
goals of reducing conflict and promoting democracy. "A world that is busy growing will be less prone to conflict
and more likely to cooperate," Albright said. "Nations that have embraced economic reform are more likely to
move ahead with political reform."
Albright also called on the business community to join her and the Administration in fighting for fast-track
authority, and made a personal commitment to work for congressional approval. "[A]s Secretary of State, I will do
everything I possibly can to persuade members of Congress to be true to America's philosophy, to say 'yes' to
restoring the President's traditional trade negotiating authority and 'yes' to continuing America's prosperity at
home and leadership abroad," she said.
Albright said that the Administration's fast-track proposal submitted this week reflects President Clinton's
commitment to promote worker rights and responsible environmental protection. However, she noted that labor and
environment concerns can be addressed in spheres other than trade agreements.
"It is vital to bear in mind that trade is but one very limited instrument for promoting higher environmental
and labor standards," she said. "The Administration can and is pursuing these goals through other avenues such as
the International Labor Organization, the WTO, the international banks, the Commission on Sustainable Develop-
ment and the Montreal Protocol."
In the broader context, Albright stressed that continued absence of fast-track authority could hamper overall
INSIDE U.S.TRADE - September 19, 1997
3
U.S. diplomacy. "In many capitals, if we have nothing to say on trade, we will find it harder to have productive
discussions on other issues of direct importance to American interests," she said. "In contrast, strong economic ties
can be a foundation for cooperation across the board."
The U.S. cannot sit on the sidelines and let other countries set the trade and investment trends for the next
century, she said. If Congress does not grant the President fast-track negotiating authority, other countries will
move forward and push the U.S. further away from its goals, according to Albright.
"[I]f we choose to hide behind walls rather than tear them down, our products will face higher tariffs, our
services will be harder to sell, our businesses will find it more difficult to win contracts, our economy will create
fewer jobs, and -- because we are absent from the bargaining table we will have no success at all in promoting
higher environmental and labor standards," she said.
Asked to reconcile U.S. use of unilateral sanctions with the open world view she had presented in her speech,
Albright replied that the U.S. has global responsibilities, which include taking action to ensure that the people of
the world are able to prosper. "This means that we need some kind of a tool to deal with rogue states," she said. "I
think that, while sanctions may be an imperfect tool in many ways, it is a useful tool and what we try to do, when
we have sanctions imposed, is to deal in some way with the problems caused for the people [by the sanctions]."
Albright highlighted specific areas in which trade ties could be strengthened and for which the Administration
needs fast track authority. These include lowering tariff and non-tariff barriers to U.S. agricultural exports, opening
government procurement markets, protecting intellectual property rights, achieving tariff-lowering agreements in
Latin America, and striking more sectoral deals like the Information Technology Agreement, which will amount to
a $5 billion reduction in tariffs.
"[In Washington] we could call that five billion good reasons why restoring traditional negotiating authority
deserves bipartisan support," she said.
Albright added that the U.S. should do all it can to build the solidarity of the Americas. However, the U.S.
must work to ensure that this solidarity translates into interaction with other parts of the world. "What I think
would be difficult to live with at the moment, is if in fact we do create various regional economic partnerships and
that those then turn inward rather than turning outward," she said.
The U.S. needs to develop its regional partnerships into building blocks for a secure global economic system,
just as it built a security partnerships after World War II, she concluded.
ROTH SEES SCANT SENATE SUPPORT FOR ADMINISTRATION FAST-TRACK BILL
Republican members of the Senate Finance Committee this week strongly criticized the Clinton Administra-
tion's proposal for the renewal of fast-track negotiating authority as being both unacceptably vague and too
expansive in its treatment of labor and environmental issues. Following criticism from five Republican senators of
the proposal, Chairman William Roth (R-DE) warned that the Administration bill will not garner adequate support
in the Senate in its current form.
"It has to be very clear [from the hearing] that the President's legislation is in deep trouble," Roth said during
a Sept. 17 hearing. "What we have before us will not develop the kind of coalition we need to enact legislation."
Roth said following the hearing that "the ball is very much in [the Administration's] court" to improve its
proposal as soon as possible.
Senate Majority Leader Trent Lott (R-MS) said that the proposal is "disturbing" because it "clearly introduces
brand new environmental and labor elements into the fast track process." The proposal also "seems to lack suffi-
cient regard, in my opinion, for existing trade laws" which guard against "unscrupulous and unfair trade practices,"
Lott said. "These laws need to be strengthened and utilized, and not ignored."
Lott stressed that the Administration proposal is "only the kickoff" and noted that he has cited fast track as
one of his "must-do" items before the end of the year, along with transportation reform and appropriations issues.
The fact that it is a must-do issue does not mean that Republicans will agree to do it at all costs, he said.
Following the hearing, U.S. Trade Representative Charlene Barshefsky dismissed suggestions that the senators'
comments indicated a lack of support for fast track. "This is exactly as we would have expected the hearing to go,"
Barshefsky said. "All the members evidenced a desire to work with the Administration, they all evidenced a desire to
ensure that the Administration has fast track authority, they all indicated the importance of fast track."
"This hearing is indicative of the fact that members on both sides of the aisle will have issues," she said. "We
have started the process and we are exactly where we thought we would be."
Barshefsky added that "step one" of the process will be to build a consensus that the President should have
fast track, a consensus which did not exist in 1995. "Step two will be to work out the bounds of the bill in an
appropriate manner," she said.
She declined to specify on which provisions the Administration can be flexible, except to say that it is "on the
table" for discussion.
4
INSIDE U.S.TRADE - September 19, 1997
Republican senators criticized the Administration proposal on a number of counts, but generally ex-
pressed either opposition to the labor and environment provisions or said they did not understand the implications
of the Administration language for future negotiations. Roth opened the questioning by asking Barshefsky whether
the basic purpose of fast track is to help remove trade barriers, a point she never directly answered.
"There are limits to the notion that all a trade agreement can do is reduce trade barriers," Barshefsky said.
Previous agreements have addressed health and safety issues, environmental standards, two areas of policy which
speak to the viability of the rule of law and a country's ability to enforce it, she said.
Barshefsky also emphasized that the Administration "does not intend to use fast track to amend U.S. labor and
environmental law." She noted that the 1984 and 1988 trade acts contained language on these areas, but Roth cautioned that
"the mere fact" that it was in earlier legislation does not guarantee it a place in new fast-track legislation.
Roth also said that the mention of "sustainable development" in the bill "seems to open the door very wide" to
changes in U.S. law. Barshefsky countered that there are existing mechanisms to which the U.S. has committed
itself in this area, such as the World Trade Organization Committee on Trade and Environment.
Despite Barshefsky's answers, Roth stressed that it is "absolutely essential" that there are "no misinterpreta-
tions" that trade agreements affect U.S. domestic labor and environmental laws. "We have to take a careful look at
the language to ensure that it does not allow other interpretations you and I might not intend," he said.
Sen. Charles Grassley (R-IA), who chairs the trade subcommittee, raised three specific issues regarding
the bill: how it handles non-trade issues, the role of Congress in negotiating new agreements and the priority
accorded agriculture. He directed his strongest remarks toward the alleged vagueness of the provision in the
Administration bill outlining what can go into legislation which implements future trade agreements.
The Administration bill would allow provisions which are "necessary or appropriate to implement such trade
agreements and which are related to trade." Grassley questioned why the proposal does not use the phrase
"directly related to trade" in this part of the bill since it is used in other sections related to labor and environment.
He also called for a specific definition of whatever phrase is used.
Barshefsky responded that the Administration would consider Grassley's suggestion of using the word
"directly" in the phrase decribing the contents of an implementing bill and defining the phrase.
Grassley also noted that the Administration bill does not provide for disapproval by the committees of
jurisdiction of specific trade agreements being covered under fast track, a power included in the 1988 act. The
Administration proposed that Congress as a whole has this power.
The harshest criticism of the Administration proposal came from Sen. Phil Gramm (R-TX), who called
the bill "totally and absolutely unacceptable" and said it represents "a very bad start." He emphasized that he would
"never vote" to limit congressional power to consider labor and environmental issues.
"As I read your proposal, it is totally and absolutely unacceptable," Gramm said. "It will never be approved
by the United States Senate as written."
In particular, he criticized Section 5 of the overall negotiating objectives, which covers "practices regarding
labor, environment, and other matters that are directly related to trade and decrease market opportunities." Gramm
expressed the general fear that this language could be used to change U.S. labor and environmental law, and
questioned its general clarity.
"I don't know what this means and I don't think you do either," he said. Throughout the hearing, Barshefsky
did not explicitly define what issues the Administration considers "directly related to trade."
Gramm also derided the provisions of the bill calling for work in the International Labor Organization, saying
the group "has never been taken very seriously."
Gramm raised two examples to question whether the Administration bill would allow fast-track treatment for
labor and environmental issues. First, he outlined a scenario in which the President signs an agreement which
commits countries to implement provisions on labor standards, and questioned whether fast track could then be
used to repeal right-to-work laws passed by 21 states. Second, he asked whether the fast track could be used to pass
a tax on polluting industries in order to implement an international sustainable development agreement.
Barshefsky countered by stressing that the U.S. already has high labor and environmental standards, and
emphasized that other countries standards are the subject of U.S. efforts.
Gramm asked Barshefsky and her staff for an analysis of what "technical changes" would need to be made to
the 1988 fast track authority to form the basis for renewal this year. A congressional source said this idea is
"counterintuitive" because the 1988 fast track imposed minimal restrictions on what could be in a trade agreement
and Republicans want to constrain the use of fast track.
Sen. Connie Mack (R-FL) emphasized in his opening statement that Republicans are only willing to support
fast track if it is "narrowly defined to trade issues." He also said that the "necessary or appropriate" provision of the
Administration bill is unclear, and said that Gramm's idea of basing fast track renewal on the 1988 act is "a pretty
good point."
Sen. Alfonse 'Amato (R-NY) also said he has not decided whether he can support fast track because of
INSIDE U.S.TRADE - September 19, 1997
5
persistent trade deficits with countries which he declined to name.
Democrats on the committee did not offer a concerted defense of the Administration proposal, but
instead addressed narrower issues covered by the bill. Ranking Member Pat Moynihan (D-NY) noted that the
Senate voted overwhelmingly in the 1980s to approve successive ILO conventions. He called on members to
support the organization's activities, and said that the ILO could help "open up a little room in what has been an
unrewarding debate."
Sen. Jay Rockefeller (D-WV) noted that labor and environment remains the key to the fast track debate, and
said that some Democrats may oppose fast track "based on this single issue." Rockefeller also emphasized his
support for including the "necessary or appropriate" phrase in the fast track bill.
Barshefsky noted that the Administration added a limitation to this language in its proposal, and noted that
some members have felt the provision was abused in previous years. But she said flexibility on this issue is
required in order to ensure that implementing bills have the broadest possible support.
Sen. Bob Kerrey (D-NE) called on the Administration to incorporate provisions into the bill which would
provide for reports on trade agreements, just as the North American Free Trade Agreement implementing legisla-
tion did. He added that these reports should be more "objective" than the NAFTA report.
NEW EU SCIENCE OPINION OFFERS LITTLE HOPE FOR U.S. BSE-FREE STATUS
U.S. efforts to be declared free of Bovine Spongiform Encephalopathy (BSE) this week suffered a setback in a
new opinion from a European Union scientific body. The U.S. has been pressing for this designation so that it can
avoid a pending EU ban on U.S. products made with animal parts that the EU fears could carry BSE, a ban which
could threaten billions of dollars in trade.
In its Sept. 17 opinion, the Scientific Veterinary Committee agreed that BSE has never been found in the U.S.
and that the U.S. has a BSE monitoring program in place that exceeds international standards, but added that it
could still not recommend that the U.S. be designated as BSE-free. The SVC is a body under the European Com-
mission's Scientific Steering Committee (SSC).
"Whereas [the U.S. monitoring system] has probably been effective in detecting BSE should it have occurred,
it is indicative of a historical absence of BSE and is not an absolute guarantee for the present situation," the SVC
opinion said in its conclusion. "This is because several endemic risk factors have existed, in particular those
resulting from feeding of cattle with meat and bone meal, deliberately or accidentally, until 4 August 1997 when a
Federal Rule came into force."
This reference is to a Food and Drug Administration rule that took effect last month, which bans meat and
bone meal products derived from mammalians, excluding pigs and horses, to be fed to cattle. While the SVC
welcomed this rule, it said the FDA rule has not been in effect long enough to ensure that BSE does not develop in
U.S. cattle.
"Whether or not the risk will result in BSE will not be known until the incubation period (mean 60 months)
resulting from any effective exposure is complete and brains have been examined," the opinion said. "Thus at
present the committee cannot guarantee that cattle from the US have not been exposed to and thus do not carry
BSE infectivity, though there is not positive evidence that they do so."
Despite this opinion, EU sources this week pointed out that it is not binding, and that the Commission will
have the final say over whether to grant the U.S. BSE-free status. One source said it is unclear when the Commis-
sion might discuss the opinion, but that it will do so in the "next few days or weeks."
At issue is an EU ban on animal products that could contain specified risk materials (SRMs) that the EU fears
are susceptible to carrying BSE. The so-called SRM ban, scheduled to take effect Jan. 1, 1998, would effectively
ban U.S. tallow and gelatin, as well as products made of these items such as cosmetics and pharmaceuticals,
because the U.S. could not certify that these products are free of SRMs.
The U.S. is seeking BSE-free status because gelatin is not produced in a way that would kill any BSE element
present. The U.S. is also pressing the EU to exempt U.S. tallow from the SRM ban because tallow is processed into
products under heat and pressure conditions that kill BSE. The U.S. is hoping an exemption for tallow would also
resolve a dispute over the EU cosmetics directive, a separate but similar EU ban on tallow and tallow-containing
products that is already in effect.
Meanwhile, senior U.S. Department of Agriculture officials last week were in Brussels to press the
EU to treat the U.S. as a BSE-free area. One informed source said the EU seems "reluctant" to do this
because it cannot grant EU member states BSE-free status, and does not want to treat the U.S. better than its
own member states.
Other sources said the U.S. is also exploring the possibility of at least having the U.S. designated as a "low
risk" area for BSE, but said the details of this option are still unclear. Despite this possibility, U.S. Trade Represen-
6
INSIDE U.S.TRADE - September 19, 1997
tative Charlene Barshefsky last week urged EU External Relations Commissioner Leon Brittan to ensure that the
Commission give the U.S. BSE-free status.
"Of course, our concerns over the SRM Directive will not be fully resolved until the Commission recognizes
our BSE-free status," Barshefsky told Brittan in the letter, reprinted below. "We hope the Commission will be able
to render a decision acknowledging our BSE-free status as quickly as possible."
In addition, Undersecretary of State for Economic, Business and Agricultural Affairs Stuart Eizenstat said
during a trip to Brussels last week that the SRM ban is one of the most serious trade issues facing the U.S. and EU.
Eizenstat discussed the matter with Brittan and EU Agriculture Commissioner Franz Fischler last week, according
to informed sources.
"We are very troubled by the proposed SRM ban, for example, which has no scientific foundation and could
affect billions of dollars of U.S. exports to Europe," Eizenstat said in a Sept. 11 speech in Brussels. "Once we turn
our back on this fundamental principle, we open the door not only to all sorts of trade protection measures on both
sides of the Atlantic, but we also run the risk of scientific improvements that can improve our health, reduce costs,
and generally benefit the quality of our lives."
Barshefsky also said in her letter that U.S. officials have been told that a scientific opinion given by the
SSC last week is being interpreted to mean that tallow derivatives could be exempted from the two EU measures if
they are processed a certain way. "We would be pleased with this interpretation, especially as it would address all
products of concern which contain tallow derivatives," she wrote.
However, sources said last week that the SSC's opinion is unclear, and that it is not known how the Commis-
sion might interpret it (Inside U.S. Trade, Sept. 12, p. 1).
Barshefsky Letter on SRM Ban
The Honorable Sir Leon Brittan
decision as quickly as possible in order to remove the uncer-
Vice-President of the European Commission
tainty that now threatens our tallow exports.
Rue de la Loi 200
The trade and health problems associated with the SRM
1049 Brussels, Belgium
Directive, however, are not limited to tallow derivatives. For
example, many medicines contain other bovine materials:
Dear Leon:
Gelatin (all hard and soft gelatin capsules, gelatin
On July 30, the Commission passed a decision prohibiting
coatings for caplets/tablets, gelatin used in tablet formulation).
the use of material presenting risks as regards transmissible
Some biotechnology fermentation products
spongiform encephalopathies (TSEs), the so called "SRM Direc-
(Many products rely on the use of protein hydrolysates in the
tive." We share your concerns regarding the transmission of
culture medium to enhance growth.)
TSEs, and understand the necessity of adopting measures to
Consequently, the United States remains deeply concerned
protect public health. However, it is just as important to adopt
about the effects of the SRM Directive and urges the EC to take
measures that are science based. For this reason, we have been
further steps, in accordance with WTO obligations, to ensure
actively seeking a derogation from both the earlier Cosmetics
that any measures taken with respect to the Directive are scientif-
Directive and the SRM Directive for U.S. tallow used in tallow
ically justified. This will be crucial to maintaining trade in
derivatives on the basis of the June 24 opinion of the EC
medicinal products, food (including petfood) and many other
Scientific Committee on Cosmetology (SCC) which found that
consumer products after January 1, 1998. Of course, our con-
tallow derivatives when obtained by certain processes are re-
cerns over the SRM Directive will not be fully resolved until the
garded as safe.
Commission recognizes our BSE-free status. We have recently
We have received a copy of the opinion of the
provided extensive material to the EC Scientific Veterinary
Multidisciplinary Scientific Committee/Scientific Steering
Committee which documents that our surveillance and monitor-
Committee (SSC) issued on September 8. During conversa-
ing system exceeds the guidelines of the International Office of
tions between officials of DG XXIV and our USEU Mission
Epizootics for freedom from BSE. We hope the Commission
we were advised that this is likely to be interpreted to mean
will be able to render a decision acknowledging our BSE-free
that tallow used to produce tallow derivatives will not need to
status as quickly as possible.
be subjected to any of the sourcing parameters mentioned in
this opinion as long as the derivatives are obtained using one
Sincerely,
of the specified processes. We would be pleased with this
interpretation, especially as it would address all products of
Charlene Barshefsky
concern which contain tallow derivatives. We would view
this as a positive development which would permit the Com-
cc:
The Honorable Jacques Santer
mission to accept the findings of the SCC and produce
The Honorable Martin Bangemann
regulations that will allow our tallow exports to continue. It
The Honorable Emma Bonino
is critical that the Commission produce a new regulatory
The Honorable Franz Fischler
INSIDE U.S.TRADE - September 19, 1997
7
KEY DEVELOPING COUNTRIES FAIL TO TABLE WTO FINANCIAL SERVICES OFFERS
Key developing countries this week failed to table new offers in World Trade Organization negotiations on
the liberalization of financial services markets. During talks this week in Geneva, major Asian and Latin American
countries did not present new offers, as the U.S. and other WTO members warned that there are only three months
left to conclude the negotiation.
At a Sept. 18 meeting of the formal negotiating group, WTO members said that the 33 offers currently on the
table represent improvements over concessions covered by the agreement reached in December 1995, but that more
progress is needed. At the meeting, the U.S. and the European Union repeated previous statements that they would
consider proposals to phase-in liberalization.
A U.S. official said that many countries explained during bilateral consultations that they would not be able to
make offers at this time, but that the U.S. did get a sense of what some countries might offer in the future. "[T]hey
were able to at least give us a preliminary indication of what may be in their offers and what may not be in their
offers," the official said.
"We are encouraged that countries appear to be working hard on their offers even those countries that are
experiencing financial difficulties," the official said. The official added that there was a "large turnout" this week
in Geneva of finance, central bank, securities and insurance officials.
Thailand said in the formal financial services WTO meeting that it remains concerned about its ongoing
financial crisis and the implementation of an International Monetary Fund rescue package. Thailand said that it still
wants to liberalize its financial services regime, but gave no indication as to when it would table an offer.
A number of key countries also raised their domestic financial situations as one reason why they have not
been able to make offers, a U.S. official said.
The U.S. official admitted that the U.S. "would have hoped to be in a more intensive negotiating phase at this
time," but argued that other negotiations have faced such "challenges."
Korea this week offered to bind on a most-favored nation basis significant improvements over its 1995
offer. The new offer, which reflects domestic reform and liberalization since then, would undertake a standstill
commitment for market access limitations as of Aug. 31, 1997.
Specifically, it would relax foreign portfolio investment restrictions in particular stocks as well as limitations
on certain bonds. It would allow banks to issue stocks and bonds and loosen rules on the issuance of certificates of
deposit. Companies could also establish subsidiaries to offer credit card services, and could use a wide variety of
types of commercial presence to offer leasing services.
The new offer also eliminates ceilings on foreign investment in existing securities companies, trust companies
and investment advisory companies. It would also allow the establishment of branches and joint ventures in this
area.
In addition, foreign securities, trust and investment advisory firms would no longer have to obtain official
approval to establish representative offices.
The offer also eliminates a number of restrictions in the provision of insurance services, and relaxes rules on
credit rating services.
The Czech Republic also tabled an offer reflecting substantial improvement over commitments made in
1995. Macau, New Zealand and Ecuador also submitted offers which improved upon already very liberal commit-
ments made in the Uruguay Round. Hong Kong (China) tabled revisions to its offer made in July.
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INSIDE U.S.TRADE September 19, 1997
FINANCE MOVES ON OECD SHIPBUILDING BILL DESPITE LOTT OPPOSITION
The Senate Finance Committee late last week approved the outline of a bill that would implement an interna-
tional agreement to reduce shipbuilding subsidies, despite criticism by Senate Majority Leader Trent Lott (R-MS).
But the committee has not reported the legislative language of its bill, which is expected to include some of the
controversial changes demanded by members of the House.
In a statement released on Sept. 11, Lott labeled the Senate Finance markup as "premature," since no final
consensus on the bill has been reached between the House and Senate. The U.S. is the only signatory that has not
ratified the deal, which was struck in the Organization for Economic Cooperation & Development.
"Let me start out by saying that it is clearly premature for the Finance Committee to mark up the OECD
Shipbuilding Agreement bill today," Lott's statement said. "First, we need to recognize that in order to avoid
another protracted and unproductive struggle with the House of Representatives over this implementing legislation,
we need to do a better job of consulting with key House members before we can assume that we have adequately
addressed the House's concerns."
Lott said the committee moved ahead before it was ready to do so to demonstrate progress on implementing
the agreement, but warned that the move may do more to demonstrate that more work is needed.
"I understand that the Administration and several Senators are concerned that if we do not demonstrate some
progress on enacting implementing legislation soon, other signatories of the OECD Shipbuilding Agreement may
walk away from the agreement," Lott said. "I say to them that demonstrating that the House and Senate are still at
odds on this legislation is not a sign of progress."
The House, led by Rep. Herbert Bateman (R-VA), has generally pressed for changes from the negotiated
agreement in areas such as military subsidies, termination of loan programs, and the ability to withdraw if the deal
threatens certain U.S. laws. However, Lott added that the final bill is unlikely to be changed exactly the way the
House wants.
"Now, I recognize that we are not going to be able to address all of the difficult issues in this bill exactly as
Representative Bateman requested," he said. "I believe Representative Bateman understands this as well."
Despite these problems, ensuring agreement between the relevant House and Senate committees first would
avoid the appearance that Congress is still divided about the bill. But with the Finance markup, any further negotia-
tions on how to amend the Finance bill to address House concerns will likely have to be done in the open either
when the Senate Commerce Committee takes up the legislation or when the bill makes it to the Senate floor,
congressional sources said this week.
Aside from those complaints, Lott said he does not want the legislation to "become embroiled in a jurisdic-
tional dispute" between the Finance and Commerce committees. One congressional source said this could be a
reference to a dispute over how the U.S. could decide to walk away from the OECD agreement in the future. While
the Finance bill is likely to contain a provision allowing that Committee to draw up a resolution to withdraw from
the deal in certain circumstances, the Commerce Committee has said it also wants the ability to introduce such a
resolution.
Other sources added that part of Lott's statement was a reaction to his desire to not move ahead with the
shipbuilding agreement until he was garnered support on another unrelated shipping bill and a bill that would
reform Amtrak.
Meanwhile, supporters and opponents of the OECD agreement this week were still waiting for the
legislation Finance marked up last week. Finance approved a chairman's mark on Sept. 11, but had still not
reported or released the legislative language at press time, according to congressional and industry sources.
These sources added that Finance was expected to release the legislation by the end of this week or early next
week.
But while congressional sources said the Finance bill would address the longstanding concerns by congres-
sional and industry opponents of the deal, others said it is unlikely that the bill will satisfy them.
"I'm sure the main issues have not been addressed by the Finance Committee," one industry source said.
Specifically, informed sources said the Finance bill will address demands by members of the House National
Security Committee, led by Bateman, that the deal allow U.S. Title XI loan guarantees to be extended in their
current form for three years after the agreement goes into effect.
Additionally, sources said the Finance bill will make changes toward requiring the U.S. to withdraw from the
agreement after a Presidential determination that the agreement undermines the Jones Act, a U.S. law that requires
ships used between U.S. ports be built in the U.S. But opponents have pressed for a requirement that the U.S.
automatically withdraw from the agreement if another OECD signatory challenges the Jones Act.
The Finance bill is also expected to explicitly allow the continuation of certain subsidies to commercial ships
built with defense features. Finally, it is said to require the U.S. to request that other signatories to the deal begin
injurious pricing investigations under the guidelines in the agreement if the U.S. believes a third country has sold
INSIDE U.S.TRADE - September 19, 1997
9
ships at less than fair value in those countries. Other signatories to the deal include Japan, Korea, Norway and the
European Union.
Bateman reiterated these demands to Lott in a July 10 letter, in which he said he was encouraged by Lott's
verbal commitment to seek these changes (Inside U.S. Trade, Aug. 8, p. 10).
Congressional sources this week said that once the legislation is released by Finance, the Commerce
Committee will probably have about two weeks in which to consider the bill. If House members continue to
demand changes to the bill, they could be made there or on the Senate floor, they said. Once the Senate has passed
it, it will go to the House, where it will have to be attached to a revenue measure.
Meanwhile, these sources said it is still possible to pass the bill this year, although time is becoming scarce in
Congress given the current debate on fast-track trade negotiating authority, various appropriations bills, and the
fact that Congress is seeking to adjourn as early as possible this year.
CLINTON ADMINISTRATION PROVIDES AID TO CARIBBEAN BANANA PRODUCERS
The Clinton Administration has agreed to provide $3 million to help accelerate the diversification of small
Windward Island countries' economies away from dependency on banana exports and to help prepare all members
of the Caribbean Community (Caricom) for participation in a Free Trade Area of the Americas, according to a draft
memorandum of understanding signed earlier this month.
The agreement would create a Caribbean Economic Diversification program financed with $1.5 million in
U.S. Agency for International Development assistance and $1.5 million in Economic Support Fund (ESF) monies
over fiscal years 1997-1999, the draft MOU says. It would fulfill several commitments made by President Clinton
during his visit with Caribbean leaders last May in Barbados.
The ESF funds would be targeted at the four banana-dependent Windward Island countries of Dominica,
Grenada, St. Lucia and St. Vincent and the Grenadines to help wean them off their over-reliance on banana exports,
Caribbean officials said.
The program is designed to offset the impact of the likely decline of the EU's banana regime in the wake of an
unfavorable World Trade Organization decision this month. The EU is under pressure from the U.S. to change its
system, which gives preferential access to banana producers from member states' former colonies in Africa, the
Caribbean and the Pacific.
Under the U.S. plan, the Windward Islands would also receive $500,000 from the USAID funds, which are
designed to finance loans to "deserving entrepreneurs" in an effort to spur the development of microenterprises
other than banana production, according to Caribbean officials and a U.S. non-paper describing the Windward
Islands portion of the assistance.
Copies of the U.S. non-paper, which was circulated to the Dominican government for wider distribution
throughout Caricom by the U.S. embassy in Dominica, and of the draft MOU outlining the new program are
reprinted below.
But the small nations in Caricom continue to believe that the U.S. package being offered is too small to
compensate for the damage that will occur to their economies if they lose the preferential access to the EU market,
an informed Caricom official said. Moreover, there is dissatisfaction over the way some of the proposed funding
would apparently be channeled back into the pockets of U.S. consulting firms who would provide advice on how to
diversify the economies, one Caricom official said.
Caricom is prepared to press the U.S. not to insist on full implementation by the EU of the WTO decision at a
Sept. 22 Caricom-U.S. Trade and Investment Council (TIC) meeting in Miami, officials said. Caricom officials
agreed to that tact at a Sept. 15-16 Caricom preparatory meeting in Trinidad & Tobago, they said.
"The EU will be forced to implement immediately the recommendations or pay compensation" as a result of
the WTO decision, according to an internal Caricom document prepared for the Sept. 15-16 meeting. "Increased
room for maneuvering can only be made available by political determination by the victors led by the USA."
It said Caricom plans to press the U.S. on how it plans to fulfill the joint pledge made by Clinton and the
Caribbean leaders last May in Barbados "to continue to work with all concerned parties to achieve mutually
satisfactory marketing arrangements for Caribbean bananas, recognizing the critical importance to Caribbean
countries of the continued access of Caribbean bananas to the traditional markets of the European Union."
In particular, Caricom will seek information from the U.S. on any proposals it intends to make to the EU for a
possible settlement of the case.
The U.S. had been pressing for a Sept. 19 meeting with Caricom on the bananas issue at the technical level,
but Caricom responded that it would prefer to address the issue at the political level at the TIC session, they noted.
Caricom's TIC delegation will be led by Jamaican Ambassador to the U.S. Richard Bernal, while the U.S.
team will be headed by Associate U.S. Trade Representative for the Western Hemisphere Peter Allgeier.
10
INSIDE U.S.TRADE September 19, 1997
Draft MOU on Bananas
MEMORANDUM OF UNDERSTANDING BETWEEN THE
aimed at economic diversification or preparation for participa-
CARIBBEAN COMMUNITY AND THE U.S. AGENCY FOR
tion in the FTAA. These potential activities include: (1) provi-
INTERNATIONAL DEVELOPMENT (USAID) REGARDING
sion of technical assistance from U.S. Government agencies and
COOPERATION FOR CARIBBEAN ECONOMIC DIVERSI-
other appropriate sources to assist Caribbean national govern-
FICATION
ments in making FTAA-consistent trade reforms to comply with
the obligations that all countries are required to meet as members
The United States Agency for International Development
of the World Trade Organization; and (2) implementing such
("USAID"), and its predecessors, has over the years provided a
other economic diversification activities as may be agreed to by
broad program of economic and development assistance to the
the USAID and CARICOM within the limitations of the avail-
countries located in the Caribbean. With the pending creation of
able funding.
the Free Trade Area of the Americas (FTAA) by the year 2005,
The implementation of the various activities to be funded
the Caribbean is given the opportunity to achieve sustainable,
under this package of DA and ESF support for Caribbean Eco-
broad based economic growth through trade-led economic di-
nomic Diversification will be coordinated by USAID through
versification, growth, and integration with the other economies
the Office of Regional Sustainable Development of the Bureau
in the Western Hemisphere.
for Latin America and the Caribbean (LAC/RSD) in close coor-
Accordingly, under the terms of this Memorandum of
dination with the Department of State and the Office of the
Understanding (MOU), USAID and the Caribbean Community
United States Trade Representative, working closely with the
(CARICOM) agree to undertake a three-year (FY97-FY99) pro-
CARICOM Secretariat and other appropriate partners in the
gram to assist in accelerating Caribbean economic diversifica-
Caribbean. The specific details for implementing Caribbean
tion. This program will be jointly supported by the USG and
Economic Diversification activities to be funded under this
CARICOM, with the understanding that the contributions of
program will be worked out by USAID (LAC/RSD) and
USAID are subject to the availability of funds to USAID for this
CARICOM on an activity-by-activity basis. USAID funds for
purpose, and to the mutual agreement of USAID and CARICOM
the agreed activities will be obligated by subsequent agreements.
to proceed with any activity to be implemented under the fund-
This document reflects the commitment of the USAID and
ing to be provided for this program.
CARICOM to work collaboratively to facilitate a successful
USAID plans to support this Caribbean Economic Diver-
Caribbean Economic Diversification program that will benefit
sification program with a total of $3 million over the period
all Caribbean citizens.
FY97-FY99, with $1.5 Million from Development Assistance
Signed this second day of September 1997 in Bridgetown,
(DA) funding under USAID's Hemispheric Free Trade Expan-
Barbados by the undersigned representatives of CARICOM and
sion project to be jointly programmed by USAID and CARICOM
the United States of America.
for Caribbean-wide impact, and with $1.5 million from Econom-
ic Support Funds (ESF) funding to be jointly programmed by
FOR CARICOM:
USAID and CARICOM to support Eastern Caribbean economic
diversification in the four Windward Island countries (i.e.,
FOR THE UNITED STATES OF AMERICA:
Dominica, Grenada, St. Lucia, and St. Vincent and the Grena-
dines) that are also members of the Organization of Eastern
Jeanette W. Hyde
Caribbean States (OECS). CARICOM will coordinate with the
Ambassador
OECS on programming the $1.5 million of ESF funds for
economic diversification in the four Windward Island countries
Sally A. Shelton-Colby
of the OECS.
Assistant Administrator
The program will support or assist a variety of activities
Bureau for Global Programs, Field Support and Research
U.S. Non-Paper on Bananas
USAID Grants $2 Million to Assist Windward Islands in
to the Windward Islands of Dominica, St. Vincent, St. Lucia and
U.S.-Caribbean Summit Follow-Up.
Grenada.
With the signing September 2, 1997 of two agreements
Caribbean Development Bank (CDB) Grants: $1,100,000
the Government of the United States has made good on a number
As part of the CDB Grant, USAID has awarded $500,000
of commitments pledged by President Clinton during his May
to the four nations of the Windward Islands, for microenterprise
Summit in Bridgetown with Caribbean leaders. The U.S. gov-
development assistance. This grant will provide technical assis-
ernment pledged US$2 million in grants to the Windward Is-
tance and training as well as lending to the National Develop-
lands Diversification Project (WIDP), the goals of which are to
ment Foundations in each country. The foundations, in turn, will
improve the economic and social conditions on the Windward
make loans to deserving entrepreneurs.
Islands of the Eastern Caribbean by creating employment oppor-
The U.S. Agency for International Development has been
tunities and alleviating poverty. The grants awarded cover
the lead donor for microenterprise programs since the early
microenterprise, small infrastructure and training, technical as-
1980s. The funding currently provides support for more than
sistance, and trade liberalization activities which will be signed
150 institutions in 40 countries. Between 1986 and 1995, USAID
in the next three weeks. The funds from these grants are targeted
microenterprise projects funded about $22 million in the Eastern
INSIDE U.S.TRADE - September 19, 1997
11
Caribbean, which helped establish and strengthen the National
regional training institutions.
Development Foundations. In all, the projects assisted with the
An additional $200,000 will create a competitive and
start-up and strengthening of more than 5,400 micro and small
needs-based program to assist young scholars from the Caribbe-
enterprises and provided training to more than 4,700 entrepre-
an to attend America's finest educational institutions and to
neurs.
receive technical training in the United States.
In order to provide additional support for economic and social
The agreement continues twenty years of successful edu-
programs while the Windward Islands undergo economic change,
cation programs provided by USAID and other donors to the
USAID will contribute $350,000 to the Basic Human Needs Trust
Windward Island countries, programs, which have trained well
Fund of the Caribbean Development Bank to augment contributions
over 12,000 teachers, principals, primary and secondary stu-
already being made by the Eastern Caribbean member states. These
dents, and public and private sector officials. Subjects included
funds will be used to support community-based projects such as basic
education, non-formal skills training, business and management.
community health clinics, schools, maintenance of social infrastruc-
Trade Liberalization (CARICOM) Grant: $500,000
ture, rural water systems, roads, drainage and footpaths in poor rural
As the Hemisphere moves toward free trade under the
communities.
Free Trade Area of the Americas (FTAA) by 2005, the small
An additional $250,000 in funding will be provided in
Caribbean nations of the Windward Islands have expressed
technical assistance which will help strengthen the ability of
concerns that they will not be fully prepared to meet conditions
Eastern Caribbean countries to access multilateral development
for membership. In order to help these nations take full advan-
bank resources and other bilateral financing.
tage of the opportunities that will be available to members of
Caribbean Scholars Program: $400,000
FTAA, USAID will [send] in the coming weeks $500,000 in
Education is the key to succeeding in economic diver-
assistance to facilitate trade liberalization. The agreement will
sification in the Eastern Caribbean. To this end, USAID has
assist the Windward Islands states to continue the diversification
awarded $200,000 to the University of the West Indies in an
of their economies and become more competitive in the regional
agreement to promote academic and technical training pro-
and global markets. The $500,000 [unintelligible] will be pro-
grams. The grant will support short-term, in- country training
vided to the Caribbean Common Markets (CARICOM) to en-
and one year certificate level training through local and
hance international trade and commerce.
BARSHEFSKY, BRITTAN TO FOCUS ON AGRICULTURE, CHINA NEXT WEEK
The U.S. and European Union are expected to focus on issues ranging from bilateral trade in agriculture products to
China's bid to join the World Trade Organization at a meeting between EU External Relations Commissioner Leon Brittan
and U.S. Trade Representative Charlene Barshefsky in Washington next week, according to informed sources.
China's WTO accession process will be discussed "very prominently" in their meeting next week, according
to an EU official. The official said the two sides are "both concerned" at a recent announcement that China and
Japan have made significant steps toward completing talks on a bilateral market access package on goods. Both
sides want to ensure that China understands that the U.S. and EU may seek more liberalization from China.
A U.S. trade official added that next week's meeting will likely be "dominated" by trade in agriculture products. The
two officials will most likely discuss the U.S. request that it be recognized as free of Bovine Spongiform Encephalopathy
(BSE), which would allow certain U.S. animal products to be exempted from EU certification requirements. These
requirements would effectively ban these U.S. products and are aimed at preventing the spread of the disease.
The U.S. also wants its exports of tallow and tallow-containing products. to be exempted from an EU ban on
these products that are not certified as being free of specified risk materials (see separate story).
An EU source said Barshefsky will almost certainly raise the BSE issue, but that Brittan "may not have much
to say" since the issue is mostly being handled by EU Agriculture Commissioner Franz Fischler.
Other agriculture disputes that Brittan and Barshefsky could discuss include U.S. efforts to curb imports of
EU wheat gluten (see separate story), and efforts to settle their dispute over the EU banana import regime, which
the WTO has ruled is a violation of international trade rules (Inside U.S. Trade, Sept. 12, p. 4).
State Dept. Undersecretary Stuart Eizenstat emphasized to Brittan last week that the U.S. wants the EU to
comply with the ruling, not offer compensation.
Brittan and Barshefsky might also discuss the development of an EU system for labeling genetically modified
crops, as well as a recent EU request for WTO consultations over a U.S. ban on $1 million worth of EU poultry
exports (Inside U.S. Trade, Aug. 29, p. 5).
In addition to these issues, sources said the two could also discuss the ongoing dispute over the U.S. Helms-
Burton law (see separate story), and efforts in the WTO to reach a multilateral agreement on financial services.
During his Sept. 22-24 visit to Washington, Brittan is also scheduled to meet with a number of congress-
men, including several that are interested in the negotiations to resolve the Helms-Burton dispute, sources said. He
will have a Sept. 23 breakfast meeting with Chairman of the House International Relations Committee Ben Gilman
(R-NY), and will have meetings later that day with Sens. Sam Brownback (R-KS), Richard Lugar (R-IN), and Rep.
Robert Menendez (D-NJ), sources said.
12
INSIDE U.S.TRADE September 19, 1997
HOUSE INTELLIGENCE PANEL APPROVES BROAD CHANGES TO ENCRYPTION BILL
The House Permanent Select Committee on Intelligence late last week approved broad changes to a bill that
would have effectively removed all export controls on encryption technology. In a Sept. 11 markup, the committee
replaced the bill sponsored by Rep. Bob Goodlatte (R-VA) with a substitute which explicitly confirms the ability of
the President to regulate encryption exports.
The substitute, sponsored by Chairman Porter Goss (R-FL) and Ranking Member Norman Dicks (D-WA),
would allow the Secretary of Commerce to regulate encryption exports "in close coordination with the Secretary of
Defense" and other agencies which protect U.S. national security.
The move appears to further complicate efforts by the high-technology industry to secure a relaxation of
export controls on encryption technology. Last week, the House leadership directed the five committees with
jurisdiction over the Goodlatte bill to spend an additional two weeks to hammer out a compromise version (Inside
U.S. Trade, Sept. 12, p. 1).
Commerce is now planning to mark up the Goodlatte bill next week, and Reps. Michael Oxley (R-OH) and
Thomas Manton (D-NY) will likely offer an amendment which provides for domestic restrictions on what types of
encryption products can be sold. The amendment would require companies to produce after Jan. 1, 1999 only
encryption products which include features that allow the unscrambling of encrypted data "without the knowledge
or cooperation of the person using such product or service," according to the amendment.
The Business Software Alliance this week signalled that this provision would represent an unacceptable
change to the Goodlatte bill for the high-technology industry. "The amendment is so bad that supporters of the
[Goodlatte bill] across the political spectrum would rather have no legislation than a bill which includes the
amendment," BSA said in a Sept. 18 statement.
The House International Relations and Judiciary Committees passed the Goodlatte bill without changes, while
the Intelligence and National Security panels made sweeping changes to it. House Commerce Committee Chairman
Thomas Bliley (R-VA) has said that he would like to find some common ground between the two positions (Inside
U.S. Trade, Sept. 5, p. 10).
Although the Intelligence panel bill establishes a statutory presumption in favor of encryption exports, it
also clearly gives the Executive Branch the power to regulate those exports. The bill would only allow the export of
products of any strength of encryption after Jan. 31, 2000, following a one-time review by Commerce, provided the
product does not include features that would otherwise require export licenses.
Encryption exports would also have to include functions that would allow "immediate access" to information
in decrypted form. This feature would be designed to allow a "lawful authority" to obtain the encryption key,
which is necessary to decode information encrypted by the product.
The bill would also allow Commerce, after consulting with other agencies, to allow the export of voice
encryption products which do not include key recovery features after a one-time review. But the Secretary would
first have to determine that not allowing exports of these products would disadvantage U.S. exporters and that these
exports would not "create a risk to the foreign policy, non-proliferation, or national security" interests, according to
the bill.
The bill also provides for a measure of domestic control on the use of encryption. It would require that
encryption products sold in the U.S. after Jan. 31, 2000 to include key recovery features that would allow law
enforcement authorities to obtain the key with a court order. But products in use before that date that do not have
key recovery features could still be used afterward.
BUSINESS REJECTS RELIGIOUS PERSECUTION BILL, AWAITS SENATE ACTION
Business groups opposing a bill that would impose sanctions on countries that conduct or tolerate religious
persecution are holding back on negotiations for a more acceptable version of the bill until it passes the House. At
that point, the business groups are likely to insist that the bill exclude its sanctions provisions, which now would
deny these countries certain financing by the Export-Import Bank or activities by the Overseas Private Investment
Corp., private-sector sources said.
In addition, the groups are likely to press for the elimination of the proposed White House Office of Religious
Persecution, these sources said.
The bill, H.R. 2431, is sponsored by Rep. Frank Wolf (R-VA) and would target China, Saudi Arabia and a
range of other countries in South Asia. The measure is pending before the House International Relations Commit-
tee, where it faced considerable controversy over its impact on U.S. asylum and refugee policy. Opponents charged
that the bill would give members of persecuted religious groups preferential access to the U.S. compared to persons
persecuted for political reasons.
The bill's implications for U.S. refugee and asylum policy is one of the reasons that a coalition of human
INSIDE U.S.TRADE - September 19, 1997
13
rights groups is expressing opposition. The groups also said in a Sept. 9 letter to Congress that the sanctions
provisions are not strong enough to have a "serious impact" on abusive governments.
The letter was signed by Human Rights Watch, Physicians for Human Rights, Minnesota Advocates for
Human Rights, Amnesty International, the Robert F. Kennedy Center, and the Jacob Blaustein Institute for the
Advancement of Human Rights.
H.R. 2431 would deny countries that engage in religious persecution U.S. assistance, which is defined as
activities of the Overseas Private Investment Corporation, and financing under the Ex-Im Bank Act. The prohibi-
tion to extend Ex-Im financing "to the government of any country" would most likely impair the bank's ability to
do public sector financing, according to a government official.
In addition, the bill would urge the U.S. to oppose financing to the identified countries from multilateral
development banks, and would prohibit U.S. exports facilitating persecution to such countries. One private-sector
source insisted that could lead to a prohibition of computer exports to police agencies in an offending country.
The bill does contain stricter sanctions on Sudan.
The Clinton Administration opposes the measure as undermining its goal of promoting religious freedom,
but Assistant Secretary of State for Democracy, Human Rights and Labor John Shattuck earlier this month stated a
willingness to work with the House in reinforcing existing structures and policies. The White House has signalled a
willingness to cut a deal, but business representatives have warned it not to do that too early in the process, one
informed source said.
The controversy over the asylum provisions held up a markup scheduled for last week before International
Relations, even though Wolf had already revised his original version of the bill, H.R. 1685, to address some of the
problems. The modified version was also meant to address some of the problems flagged by the House Judiciary
Committee, which has primary jurisdiction over U.S. immigration policy, a congressional source said.
That effort failed, and at press time, the bill was scheduled for a markup yesterday (Sept. 18) in the Interna-
tional Operations and Human Rights subcommittee of International Relations. Opponents of the bill are likely to
propose a number of amendments in the upcoming full committee markup, a private-sector source said.
The revised version also dropped a provision related to China's entry into the World Trade Organization in
the hope of getting the Ways & Means Committee to waive its jurisdiction over the matter. The original bill stated
that the President should consider a country's record on religious persecution a "significant factor" for its entry into
the WTO. But the committee may still want to consider the bill because of other provisions, private-sector sources
said.
International Relations Chairman Ben Gilman (R-NY) said in a Sept. 9 hearing that he would ask other
committees to waive their jurisdiction, after his panel has acted on it. Fighting religious persecution has the backing
of the House and Senate Leadership, which seems to favor the Wolf bill over other bills targeting China specifical-
ly for its human rights violations.
A number of business groups have expressed their opposition to the Wolf bill as imposing unilateral economic
sanctions without regard to their cost to U.S. national strategic interests, the loss of energy security and the conse-
quences for U.S. trade, ten business groups said in a Sept. 9 letter to Gilman.
In addition, the European-American Business Council urged Gilman in a Sept. 11 letter to oppose the bill.
"Although the legislation has admirable objectives, unilateral attempts to influence the actions of foreign govern-
ments through economic sanctions have been consistently ineffective," the council said.
Business Letter on H.R. 1685
September 9, 1997
religious believers. According to some missionaries who have
been present overseas in countries where religious persecution is
Dear
being carried out, this sort of activity will trigger a dangerous
HR 1685, "The Freedom From Religious Persecution
backlash against public and private American efforts to promote
Act" has been referred to the International Relations, Judiciary,
religious freedom and undermine their work.
Rules, and Ways and Means committees for consideration.
Another troubling aspect of this legislation is that unilater-
While the legislation's goal is one that all Americans can strong-
al sanctions could be put in place without regard for the cost to
ly support, we are concerned that HR 1685 will not accomplish
US national strategic interests, the loss of energy security, the
its intended purpose. Instead, the bill will increase conflicts
consequences to US trade or even the negative impact these
among religions, and worsen relations between the US and its
sanctions might have on human rights. Section 5 of HR 1685
strategic and trading partners.
gives an unelected official the authority to trigger unilateral
Our principal concern is that the imposition of unilateral
sanctions against countries where he or she determines that
economic sanctions against certain countries for religious perse-
religious persecution is being practiced. The bill's definition of
cution reasons could easily lead to more, not less, persecution of
"religious persecution" is broad enough to bring about sanctions
14
INSIDE U.S.TRADE - September 19, 1997
on long-standing US allies and trading partners such as Israel,
U.S. Chamber of Commerce
Saudi Arabia, Turkey, Mexico and Germany. In essence, this bill
offers a "one size fits all" solution to very complex world
Willard M. Berry
problems.
President
The religious persecution targeted by HR 1685 will not be
European American Business Council
solved by the withdrawal of Americans and American business
from other countries. Time and again studies show that the best
Frank D. Kittridge
tool for advancing American values has been our continued
President
engagement with other countries. Just as missionaries cannot
National Foreign Trade Council
accomplish their goals by withdrawing from the mission field,
America cannot expect to be an influence for religious freedom
Charles J. DiBona
and human rights by removing itself from a country. Internation-
President
al ties are growing, more countries are interacting with each
American Petroleum Institute
other, and communications between countries is improving ev-
ery day. Our stepping out of this increasingly interconnected
Edward J. Black
world and erecting sanctions will have little or no impact on
President and CEO
those who wish to persecute others. It will, however, have a
Computer and Communications Industry Association
significantly negative impact on the United States.
Eugene J. Milosh
Howard K. Lewis III
President
Vice President, Trade and Technology Policy
American Association of Exporters and Importers
National Association of Manufacturers
Calman J. Cohen
Abraham Katz
President
President
Emergency Committee for American Trade
United States Council for International Business
Robert M. Kapp
Willard A. Workman
President
Vice President, International
U.S.-China Business Council
LANG OUTLINES CONDITIONS FOR GRANTING NAFTA PARITY BENEFITS
Deputy U.S. Trade Representative Jeff Lang this week insisted that expanded trade benefits to Caribbean
Basin Initiative countries should be tied to a series of conditions related to compliance with key Clinton Adminis-
tration trade goals, including investment, intellectual property rights, labor and environmental rules. Lang outlined
these conditions in Sept. 17 testimony before the Senate Finance Committee.
"These criteria were carefully constructed to ensure they were consistent with U.S. trade policy, that they
encourage fair treatment of U.S. exports and investment, and that they would expand economic development to
encourage citizens in beneficiary countries to direct their energies toward opportunities available in a growing
formal economy," Lang said.
Finance Committee Chairman Bill Roth (R-DE) said last week that he wants to mark up a NAFTA parity
proposal along with the anticipated renewal of fast-track negotiating authority (Inside U.S. Trade, Sept. 12, p. 3).
During the House-Senate budget reconciliation tax bill conference earlier this year, Senate staff negoti-
ated a CBI parity bill with the Administration that would have imposed conditions similar to those described
by Lang. In contrast, the parity proposal included in the House version of the tax bill would have simply
extended to CBI countries benefits in the textile and apparel sector comparable to those Mexico receives
under NAFTA.
Lang told the committee that the Administration regrets that a NAFTA parity bill could not be included
in the tax bill which implemented the budget agreement, but said it "stand[s] ready to work with you again on
a compromise."
Countries would be judged on their compliance with the rules of the World Trade Organization
when being considered for a NAFTA parity program, Lang said. WTO compliance would allow western
hemisphere countries to move forward to a higher level of liberalization in the Free Trade Area of the
Americas process, he said.
CBI countries would also need to provide adéquate protection for intellectual property rights, Lang said. In
particular they would need to comply with the Uruguay Round Trade-Related Aspects of Intellectual Property
agreement, and NAFTA IPR rules. They would also need to implement protections against the importation of
INSIDE U.S.TRADE - September 19, 1997
15
goods which infringe on established rights, he said.
Eligibility would also be based on a country's compliance with the "substantive provisions" of NAFTA
investment rules, Lang said. These include nondiscrimination and arbitration for investor-state disputes. Countries
would also have to provide "equitable and reasonable market access" in areas for which they are receiving new
benefits.
The President would also take into consideration the level of preferential access which CBI nations grant other
countries, and whether they are prepared to give the U.S. similar access for "commercially important products,"
Lang said.
The Administration's bill would also draw from the Generalized System of Preferences program a require-
ment that countries protect internationally recognized worker rights. It would also draw on NAFTA to review the
extent to which countries have adopted and enforce environmental protection laws and regulations.
The granting of NAFTA parity benefits would also be based on whether a country has met U.S. statutory
requirements for cooperation to fight narcotics trafficking. And the President would also consider whether a
country has ratified and is enforcing the Inter-American Convention Against Corruption in designating new
beneficiaries.
In the area of government procurement, the bill would take into account a CBI country's support for U.S.
efforts in the WTO and in the FTAA process. It will also assess a country's own procurement rules on the basis of
the principles in the plurilateral WTO Government Procurement Agreement.
The bill would encourage countries which have not already done so to conclude agreements with the U.S. for
the exchange of tax information. CBI countries will also be judged on the basis of how scrupulously they adhere to
the WTO customs valuation agreement.
U.S. SEEKS INCREASED OPENNESS IN JAPANESE GOVERNMENT PRACTICES
U.S. officials last week raised four areas where they want to increase the transparency of Japanese govern-
ment practices as part of a bilateral Enhanced Deregulation Initiative, according to U.S. and Japanese officials. The
discussion took place in the Working Group on Deregulation and Competition, which met in a special session on
transparency.
In the transparency area the U.S. does not expect a negotiation, but rather a discussion of the issues, according
to a U.S. official.
The U.S. first raised the need for an effective information disclosure law, which would allow citizens to obtain
information about government rules and actions, according to the official. In addition, the U.S. asked Japan to
adopt more transparency in the rulemaking process, greater transparency in the work of the advisory councils, and
administrative practices relating to the application of licenses, the official said.
Regarding the information disclosure law, the U.S. urged Japan to adopt an "effective and comprehensive
law" that does not leave a lot of discretion to decide which documents can be released to the Japanese bureaucracy,
the official said. The Japanese government is now studying such a law, and is expected to prepare a draft by March
1998, the official said.
On the rulemaking process, the U.S. wants to ensure that Japanese regulations are not developed in a "black
box" with input from only a few selected parties, the official said. Instead, Japan should allow the public to
participate in the process through advance notice and public comments.
Regarding advisory councils, the U.S. wants to ensure that Japan offers an "objective and independent"
review of proposed ministry rules instead of largely rubber stamping them as they appear to be doing now,
the official said. The Japanese government is now reviewing a proposal to substantial revise the advisory
council structure, the official said. In the interim, Japan should make their work more transparent, according
to the official.
Finally, on administrative practices, the U.S. raised prior consultation requirements, which companies have to
follow before Japanese ministries will accept an application for a license, the U.S. official said. These consultations
can take between six months and a year, and add an element of unpredictability to the licensing process, the official
said.
The U.S. also touched on the issue of how Japan delegates public policy functions, such as standards develop-
ment, to private sector groups, and hopes to address administrative guidance in the future, the official said.
Separately, the U.S. also asked Japan to establish an independent body to promote and monitor deregula-
tion as a replacement for the Administrative Reform Council, whose term expires in December, according to a
Sept. 10 announcement by the U.S. embassy in Tokyo. The new body should generate new deregulation commit-
ments with the participation of all interested parties, and ensure the implementation of the commitments, the
announcement said.
16
INSIDE U.S.TRADE September 19, 1997
ATMI CALLS FOR ADDITIONAL WTO CONCESSIONS FROM CHINA ON TEXTILES
The American Textile Manufacturers Institute has called on the U.S. government to tighten the rules it
negotiated earlier this year to govern textile and apparel trade once China enters the World Trade Organization, and
to demand more market access as a condition of joining. In a joint statement with Canadian and Mexican textile
producers, ATMI called for a 10-year phaseout of textile and apparel quotas beginning after China enters the WTO.
"It is imperative that there be a 10-year phaseout of China's textile and apparel quotas as a condition of WTO
membership," the three industry groups said in a Sept. 17 statement. "We urge our respective governments to make
this an essential part of the WTO accession protocol that is currently being negotiated."
The statement was issued by the North American Textile Council (NATC) which approved it at a Sept. 9
meeting held in Canada. NATC consists of ATMI, the Canadian Textiles Institute (CTI) and the Mexican textile
chamber (CANAINTEX). The policy statement was issued after ATMI pressed the issue at the meeting, according
to a Canadian industry source.
In July, ATMI and the European Textile and Apparel Organization issued a statement calling for a 10-year
phaseout, and special safeguards against Chinese exports.
NATC members also called on their respective governments to demand that China provide effective market
access for textile and apparel products as part of its WTO deal. "We cannot rely on promises that China will make
these changes in the future," the statement said. "China must implement them as a condition of joining the WTO."
The industry groups plan to lobby this issue with their respective governments, and ATMI has already raised
the issue with Assistant U.S. Trade Representative Robert Cassidy, according to one informed source. Cassidy is in
China this week to hold talks on services and other WTO accession issues.
On the eve of the talks, China announced it would cut more than 4000 tariffs effective Oct. 1 from a simple
average of 23 percent tariffs to 17 percent. Business sources said this week they had not assessed the trade value of
these concessions, which do not offer a trade-weighted average. In addition, they did not know at what level China
had set "peak" tariffs under the offer, they said.
A Chinese tariff offer to Japan, for example, retained tariffs for cars at 50 percent in a bilateral market access
package on goods that is to pave the way for China's WTO accession. This would be unacceptable to U.S. produc-
ers, according to U.S. sources.
The U.S. and the European Union have been critical of Japan's decision to strike a preliminary deal with
China as weakening their hand. "Clearly, all of us had a stronger position when we all said the same thing," one
senior negotiator said.
But at the same time, he insisted that the new development would not materially undercut U.S. and EU
demands on China, particularly in the services sector. "We are quite big enough to look after ourselves," he said.
Pursuing the new ATMI demands would mean changes to a 1997 textile deal struck by U.S. Chief Textile
Negotiator Rita Hayes. That deal agreed to give China the benefits of the Uruguay Round textile liberalization
upon its entry into the WTO, so that China would benefit immediately from the restrictions that have already been
lifted since the phaseout began in 1995 for other WTO members. If China had to follow a ten-year phaseout, it
would begin in the first year of the liberalization schedule upon WTO entry.
U.S. retailers sought a shorter phase-in for China as one of their primary goals in the negotiations.
The deal also allows the U.S. to impose special bilateral trade restraints four years after the scheduled phase-
out of all quotas in 2005 (Inside U.S. Trade, Feb. 7, p. 7).
In February, Hayes also negotiated a market access deal effective Jan. 1, 1998 under which China would
reduce tariffs for selected priority textile and apparel products over three years. At the time, Hayes refused to say
whether China's concessions constituted its market access commitments to the U.S. for WTO entry. Instead, she
said nothing "prohibited" the U.S. from demanding more in the context of the WTO negotiations (Inside U.S.
Trade, Feb. 7, p. 9).
In the wake of the agreement, Hayes has denied press reports that she negotiated China's WTO accession as
part of the bilateral talks without the knowledge of the U.S. textile industry.
An ATMI source insisted that the new demands do not signal that the U.S. industry is dissatisfied with
the deal that Hayes negotiated. He insisted that the industry is "extremely satisfied" with the agreement, which he
said was negotiated as a bilateral deal.
"We appreciate and accept the agreement she reached, but within the context of the WTO negotiations, we can
take a second bite of the apple," the source said.
The source pointed out that China is the country that wants to join and must meet conditions set out by WTO
members. He also pointed out that the market access deal is a bilateral one that covers only priority items for the
U.S. industry, and that the WTO talks offer an additional opportunity for market access concessions and agreeing
to rules on state trading.
continued on next page
INSIDE U.S.TRADE - September 19, 1997
17
U.S. negotiators are pressing for as much progress as possible on the trade front and other bilateral issues
in time for the fall summit of President Clinton and Chinese President Jiang Zemin, according to Assistant Secre-
tary of State for East Asia and the Pacific Stanley Roth.
Announcing progress in the trade negotiations at the summit would create momentum for the WTO negotia-
tions and could pave the way for concluding the deal next year when Clinton visits Beijing, private-sector sources
said.
Beijing is expecting to address trade issues at the summit along with human rights, weapons proliferation, and
Taiwan, according to a Sept. 12 memo prepared by the Congressional Research Service. The memo emphasizes
that China wants to improve relations with the U.S. as one of three priorities for 1997. China seeks a "strategic
partnership," with the U.S., which would minimize differences between the two powers in the years ahead, accord-
ing to the memo.
The memo says that Chinese officials believe the U.S. is too focused on bilateral issues to pursue the strategic
relationship, according to a copy reprinted below. But Roth said in a Sept. 13 press conference in Tokyo that the
U.S. wants to achieve a "strategic partnership."
Such a partnership would mean that the relationship has a "broader framework to it, one in which we identify
areas where we can work and cooperate together," he said.
CRS Memo on China
Memorandum
particularly important in increasing the likelihood of a success-
ful Sino-U.S. summit in October. Thus, the Congress will strength-
September 12, 1997
en Jiang Zemin's political position as the "core" of the collective
leadership governing China after the passing of senior leader
To: Congressional China Watchers
Deng Xiaoping in February 1997. This presumably will improve
his ability to interact effectively and make needed compromises
From: Bob Sutter (tel 7-4257)
with President Clinton. The Congress will solidify the leader-
Senior Specialist
ship's commitment to continue and expand the reforms of recent
Foreign Affairs and National Defense Division
years. Notably, Beijing is determined to carry out over the next
several years the de facto privatization of most of the tens of
Subject: Sino-U.S. Summit Watch: Chinese Specialists' Perceptions
thousands money-losing State Owned Enterprises (SOEs). They
of Issues and Trends in the Lead-up to the U.S.-China Summit
still dominate China's industrial production and severely com-
plicate China's trade and other economic relations with major
Lengthy interviews with 10 Chinese government special-
market economies. According to the officials interviewed, Beijing
ists' on relations with the United States over the last three weeks
is expected to signal at the Congress renewed emphasis on the
provide the following perceptions regarding China's approach
"rule of law," particularly greater efforts to curb Communist
to the Sino-U.S. summit meeting scheduled for late October
party control of day-to-day administrative operations. And they
1997 in Washington, D.C..
say that Beijing is actively considering broadening the use of
Importance of U.S.-China Relations
local level elections prevalent in some parts of China in recent
The Chinese specialists acknowledge that President Clinton
years. The Chinese specialists judge that these changes are likely
and senior Administration officials are working hard to find
to be well received in the United States and will improve the
ways to improve U.S.-China relations at the October summit.
atmosphere surrounding President Jiang's visit to Washington.
They advise, however, that Chinese leaders place more impor-
Goals for the Summit
tance on improving bilateral relations than do U.S. officials.
The Chinese specialists duly acknowledge that PRC lead-
According to the specialists, People's Republic of China (PRC)
ers have taken account of the goals for the October summit set
leaders headed by President Jiang Zemin seek to establish a long
forth by such U.S. leaders as National Security Adviser Sandy
lasting, stable relationship with the United States--a "strategic
Berger during a visit to Beijing last month. They state the view
partnership" that would emphasize common ground and mini-
that U.S. leaders are too focused on efforts to resolve the differ-
mize differences between the two powers in the years ahead.
ences between China and the United States over human rights,
Improving relations with the United States at the October
weapons proliferation, trade and other issues, and are not giving
summit is the third of three major Chinese government priorities
enough attention to the Chinese emphasis on achieving a longer
for 1997. The others are the transition of Hong Kong to Chinese
lasting cooperative relationship based on common interests and
rule, begun in July 1997, and the 15th congress of the Chinese
minimizing attention to bilateral disputes. They complain that
Communist Party (CCP), begun in September 1997. Beijing
the U.S. approach seems to emphasize how China must compro-
officials judge that the first two goals have been achieved or are
mise in order to meet U.S. concerns on these subjects. They
within reach, and they are now focused on relations with the
counter that success will be reached only when the negotiations
United States.
take place on an "equal footing" where compromises are made
Importance of the CCP's 15th Congress
equally by both sides. One Chinese specialist did note approv-
Chinese leaders have been working for months to insure
ingly that President Clinton in recent communications with
that a smooth transition of power occurs at the 15th Congress now
Chinese leaders allegedly declared his interest in reaching a
underway in Beijing. The results of the Congress are seen as
"strategic partnership" with China.
18
INSIDE U.S.TRADE - September 19, 1997
In general, Chinese specialists say that Beijing sees four
Zemin will seek assurances from President Clinton that the
sets of specific issues to be dealt with at the summit and they note
United States will continue to abide by past U.S. understandings
possible Chinese approaches toward those issues:
with Beijing over Taiwan. The Chinese government specifically
Human Rights. Some Chinese specialists advise that
will be looking for assurances that the United States will not take
Beijing is considering only relatively small steps such as an-
actions that will upgrade U.S. arms transfers to Taiwan; allow
nouncing its decision to sign the UN covenant on economic and
senior Taiwan leaders to carry out activities during private visits
social rights, the opening of a dialogue with U.S. officials and
to the United States that can be seen as boosting Taiwan's
non-government advocates on human rights, and moving toward
international profile; or support efforts to allow Taiwan to gain
allowing the Red Cross to inspect some Chinese prisons. Other
entry into international organizations like the International Mon-
Chinese specialists say that Beijing might go further and release
etary Fund or the World Bank.
a prominent dissident like Wang Dan, provided the dissident
Some of the Chinese specialists have taken note of the
would agree to leave China.
more conciliatory statements on relations with the mainland
Weapons Proliferation. Some Chinese specialists be-
coming from senior Taiwan leaders, notably the new Prime
lieve that Beijing has provided recently or is close to providing
Minister Vincent Siew.² They are aware of Siew's background
sufficient assurances to the United States to allow the Clinton
as one of the most flexible senior officials in Taiwan in regard to
Administration to give the certification necessary to allow the
policy toward mainland China, and they speculate that Chinese
United States to sell nuclear equipment and technology to China.
leaders are now carefully deliberating as to what response to
They say this would open up a market for big U.S. sales in China
make to his recent initiatives from Taiwan. They also wonder if
and would have a significant positive effect on the U.S. trade
this week's visit to Washington D.C. of a senior Taiwan official
deficit with China. They play down the significance of the
in charge of mainland affairs is designed to encourage U.S.
longstanding Chinese involvement with questionable or illicit
administration and congressional officials to support Taiwan's
nuclear activities in Pakistan and Iran, saying that China is in
current approach to the mainland, and to use meetings with Jiang
conformity with international norms.
Zemin in October to encourage the mainland to respond posi-
Trade. Chinese specialists do not anticipate a formal
tively to Taiwan's apparent flexibility.
U.S.-PRC agreement on China's entry into the World Trade
Organization (WTO) at the October summit, but they are hopeful
I The specialists included Chinese officials visiting from Beijing
for compromises on an agenda that would allow for a formal
and Chinese representatives in the United States. The meetings
agreement by the time President Clinton reciprocates President
took place at the Library of Congress during late August and the
Jiang's visit with travel to Beijing in the first half of 1998. They
first two weeks of September, 1997.
anticipate that such an accord would pave the way for the
Clinton Administration to support legislation in 1998 allowing
2 For background on the recent statements by Taiwan leaders
China to receive permanent most-favored-nation (MFN) tariff
showing greater flexibility in policy toward mainland China, see
treatment from the United States.
speeches of President Lee Teng-hui and Prime Minister Siew
Taiwan. Chinese specialists say that President Jiang
carried by Taiwan's Central News Agency, September 1, 1997.
BUSINESS GROUP, LABOR UNIONS LAUNCH CAMPAIGNS IN FAST-TRACK DEBATE
The largest U.S. labor group and a major business coalition this week both launched their campaigns on the
renewal of fast-track negotiating authority. The AFL-CIO open its effort with a $1 million advertising campaign
aimed at defeating fast track, while the American Leads on Trade coalition began a similar push in support of fast-
track renewal.
"We are committed to waging this campaign [against fast track] for as long as it takes with as many resources
as we have," AFL-CIO President John Sweeney said on Sept. 16. Members of Congress "can expect an angry
group of constituents if they vote the wrong way," he said.
An initial $1 million worth of television and radio advertisements by the AFL-CIO will target the entire
California congressional delegation and 13 other House members: David Skaggs (D-CO), Nancy Johnson (R-CT),
Karen Thurman (D-FL), Peter Deutsch (D-FL), John Shimkus (R-IL), Bill Luther (D-MN), Michael Pappas (R-NJ),
Rick Lazio (R-NY), Nita Lowey (D-NY), Thomas Sawyer (D-OH), Jon Fox (R-PA), Phil English (R-PA) and
Virgil Goode (D-VA).
The AFL-CIO currently has an "unlimited budget" that it is prepared to commit to the fast-track fight,
Sweeney said. The initial purchase of advertising represents the first round of its campaign and will continue as the
fast-track bill moves through Congress, he said.
Sweeney said the choice of these congressional districts reflects the AFL-CIO's perception that these mem-
bers are either uncommitted in the fast-track debate or could be persuaded to support its position. He emphasized
that the organization would not be limiting its efforts to members of only one party.
The America Leads on Trade (ALOT) coalition also unveiled a new advertising offensive that will target
13 metropolitan areas: Los Angeles, Denver, Little Rock, Tulsa, Seattle, Phoenix, Dallas, Indianapolis, Tampa,
Columbus, OH, Mississippi and the Washington, DC area. ALOT Chairman Jim Christy of TRW, Inc. said on Sept.
INSIDE U.S.TRADE - September 19, 1997
19
17 that these areas were selected because they would reach voters in at least two congressional districts each, or
include junior members who have never cast a major trade vote.
ALOT is current "75 percent toward its goal" of raising funds to fight for fast track, Christy said. In a July
solicitation to its members, ALOT asked for contributions totaling $3 million (Inside U.S. Trade, Aug. 8, p. 3).
ALOT plans to stay out of the fight between the Administration and Congress on fast track, and will not
"interpose ourselves between the President and Congress" during the effort to hammer out legislation with broad
support, Christy said. ALOT will step up its lobbying efforts once the Administration and the congressional
leadership decide it wants to move forward with a particular bill, he added.
Christy declined to specify what labor and environment-related provisions ALOT members could support in
the fast track bill, or whether they supported the proposal submitted by the Clinton Administration this week. He
noted that Ways & Means Committee Chairman Bill Archer (R-TX) has said the proposal is a good first step, but
needs changes (see related story).
The group supports the "basic concepts" in the Administration bill but recognizes that it is an "opening salvo,"
Christy said. He did argue that the International Labor Organization is the appropriate forum for labor issues, but
said that the ILO could be treated in "acceptable and unacceptable" ways in a fast-track bill.
A congressional source strongly criticized this approach as a way to ensure that "the game will be lost"
before business lobbying has an impact on the fast track debate. The source argued that the business commu-
nity, by appearing to hold out for a bill devoid of any labor and environment provisions, will doom the
initiative.
The source compared the business attitude to the position of House Minority Leader Richard Gephardt (D-
MO), who has said that he supports fast track only if labor and environment issues are included in the core of trade
agreements. "The business community is not committed to fast track, they are committed to their version of fast
track," the source said.
One member of ALOT, the U.S. Council for International Business yesterday (Sept. 18) strongly
criticized the labor provisions of the Administration bill, and called for clarification to ensure that fast track
cannot be used to "establish labor and environmental standards and the use of trade sanctions to enforce
those standards."
It also criticized the inclusion of worker rights as a negotiating objectives in the WTO, and called for focusing
labor issues on the ILO. At the same time, USCIB criticized the inclusion of a provision on the ILO in the Admin-
istration fast track bill because it is "unrelated to trade" and "extraneous and unnecessary."
"If it remains in the bill, it should not be subject to fast track procedures," USCIB wrote.
Because the business community places such a high priority on fast track, it will judge whether a bill is
acceptable bill on the basis of both its substantive provisions, as well as its support in Congress, Christy said. "A
good bill will get 218 votes in the House and 60 plus in the Senate," he said.
JAPANESE MINISTER REJECTS U.S. DEMANDS ON AUTO PARTS DEREGULATION
Japanese Minister of Transport Makota Koga has told the Clinton Administration that it is up to the U.S. auto
parts industry, not the Japanese government, to increase exports to Japan. The Japanese government has imple-
mented its obligations under a bilateral trade agreement on automobiles and auto parts, Koga said in a Sept. 8
letter, reprinted below.
"The most important factor in expanding the sales of U.S. auto parts are the efforts of the U.S. auto parts
suppliers," Koga said his letter to Commerce Secretary Bill Daley. "MOT is prepared to cooperate actively with
their efforts."
For example, Koga said MOT is cooperating to provide data on vehicle models sold in Japan to the U.S.
industry. In addition, the Japan Automobile Service Promotion Assn. is working to provide data on foreign-made
automobile parts that may be used in Japan, he said. Insufficient information regarding the types of foreign-made
parts used in Japan is "one of the main reasons" why foreign parts are not sold in Japan, according to Koga.
Koga also rejected U.S. demands made by Daley and U.S. Trade Representative Charlene Barshefsky to
further deregulate the auto parts sector in Japan (Inside U.S. Trade, Sept. 12, p. 1). Daley and Barshefsky had asked
that brakes be removed from the critical parts list and that requirements be eased for the certification of Japanese
mechanics (Inside U.S. Trade, Aug. 29, p. 12).
"[Y]our request to remove brakes from the critical parts list, covered under the definition of disassembling
repair was found to be unacceptable, as has already been explained in the letters sent to you in February and March
of this year," the letter said.
Koga also said he did not recognize the need for easing certification requirements on mechanics. This would
complicate the qualifications system, and make life more difficult for examiners, he said.
20
INSIDE U.S.TRADE September 19, 1997
Japanese Letter on Auto Parts
Tentative Translation
tions in certain specialized areas make the qualification system
September 8, 1997
complicated, and there is a possibility that the examination will
be difficult for the examinees. Presently, we believe there is no
The Honorable William M. Daley
shortage in the employment of mechanics, about 30,000 me-
U.S. Secretary of Commerce
chanics become newly qualified annually.
The repair service industry in Japan has expressed to the
Dear Mr. Secretary:
U.S. auto parts industry its position for the procurement of auto-
I received your letter dated August 15 on August 25.
parts that are competitive in terms of quality, price, and supply;
The Ministry of Transport (MOT) has been strictly imple-
regardless of whether the parts are domestic or foreign-made, or
menting all the measures contained in the document, "U.S./
whether they are genuine or non-genuine. I believe that the
Japan Trade Talks on Automobiles and Auto Parts".
members of the mission from the U.S. auto parts industry associ-
More specifically, MOT created a Specialized Certified
ations in June have come to a thorough understanding regarding
Garage System in February. Under this system, retail auto stores
this point and all 10 company members of this mission member
and gas stations can easily obtain the certification to carry out,
have returned to the U.S. with the hope of increasing their
for example, repairs exclusively of brakes. A certain number of
business chances in Japan because of their business talks.
retail auto stores and gas stations which have expressed interest
I believe that it will be essential to continue efforts, such as
in carrying out brake and other repairs, announced their intention
that of the U.S. replacement parts mission, which gained this
of obtaining certification, which you see as a welcoming trend.
particular success.
In addition, I have received two letters from you concern-
The most important factor in expanding the sales of U.S.
ing the petition submitted by the U.S. auto parts industry to MOT
auto parts are the efforts of the U.S. auto parts suppliers. MOT is
in January 1997. I have replied to each of these letters. Concern-
prepared to cooperate actively with their efforts.
ing the measures mentioned in my letters, I have been imple-
For example, the provision of vehicle model data on
menting all measures with sincerity. For example, it has been
motor vehicle registration in Japan will be useful to the U.S. auto
decided, in keeping with the report of the Transport Technology
parts industry. MOT recognizes the importance of this informa-
Council, to repeal the disassembling repair inspection. This
tion, and is actively cooperating to facilitate the availability of
measure will bring the system in Japan in line with the systems in
the information.
Europe and the United States.
In addition, there is insufficient information in Japan
By the way, your request to remove brakes from the
regarding the types of foreign-made parts that may be used, and
critical parts list, covered under the definition of disassembling
this is one of the main reasons why foreign-made parts are not
repair was found to be unacceptable, as has already been ex-
purchased. To improve this situation, the Japan Automobile
plained in the letters sent to you in February and March of this
Service Promotion Association (JASPA) is building an informa-
year. Your request would render a situation in which unqualified
tion network system to provide data on foreign-made automo-
mechanics without proper facilities, would be able to attempt the
bile parts. If U.S. auto parts industries utilize this system, business
business of brake maintenance and repair services. In addition,
chances will expand for your industries. I would like you to
as I mention above, Specialized Certified Garage System en-
encourage your industries to participate in this system.
ables retail auto stores or gas stations to obtain certification
Finally, our annual talks are the discussion of matters
easily and repair brake systems under the certification. Of course,
within the scope of the final document "U.S./Japan Trade Talks
Certified Garage Systems do not discriminate in their choice of
on Automobiles and Auto Parts". I do not believe that it is
auto-parts, whether the parts be foreign or made in Japan.
appropriate to discuss other matters at these talks.
A new proposal has been made regarding the system of
qualifications of repair mechanics, which covers a limited num-
Sincerely yours,
ber of specialized areas. I myself will learn more about the back
ground of the new proposal. I do not recognize a need for
Makoto Koga
specialized certified mechanics at the moment. The examina-
Minister of Transport
Publisher: Joe Burey
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INSIDE U.S.TRADE - September 19, 1997
21
GINGRICH, GEPHARDT EXPRESS SUPPORT FOR U.S. FILM CASE AGAINST JAPAN
The Speaker of the House and the House Minority Leader late last week expressed strong support for the U.S.
case in the World Trade Organization alleging that Japan has effectively closed its film and photographic paper
sector to foreign competition. Reps. Newt Gingrich (R-GA) and Richard Gephardt (D-MO) called on the Clinton
Administration to use "all appropriate means" to improve market access for U.S. firms in Japan, and emphasized
that the case is important for many U.S. industries.
"[T]he WTO's decision will have far-reaching implications, since many other U.S. industries face the same
subtle yet powerful barriers being considered in the film case," they wrote in a Sept. 11 letter. "To that end, we
trust that you will insist on meaningful remedies that will eradicate barriers in the Japanese distribution system, that
will open up Japan's large scale retail sector, and that will permit promotions and truly competitive market pricing
by U.S. firms."
The Gingrich-Gephardt letter comes on the heels of a similar letter by eight senators who warned that the
Administration must be prepared to go beyond WTO dispute settlement procedures (Inside U.S. Trade, Aug. 29, p.
12).
The Eastman Kodak Co. has spent considerable time lobbying Congress in order to build support for the
WTO case, according to an informed source. In particular, the company has made a "strategic choice" to emphasize
that the case, though important to Kodak, has broad implications for other industries which feel they are shut out of
the Japanese market, the source said.
Kodak also felt that the case has been portrayed too long as a dispute between itself and Fujifilm, rather than a
issue of Japanese government measures which the U.S. is fighting, an informed source said.
"All the indications" so far are that the Administration remains strongly supportive of the case, which origi-
nated as a Section 301 petition by Kodak, one source said. President Clinton, in an Aug. 15 letter to Rep. Dan
Schaefer (R-CO), emphasized his backing for the case and noted that it has the potential to address "structural
barriers confronting other U.S. industries," according to a copy of the letter.
In addition, Kodak has begun discussing with the Administration a "detailed package" of remedies which
would be necessary to dismantle what the U.S. has charged is a pernicious system of formal and informal trade
barriers, one source said. Remedies would be focused on breaking down specific Japanese government measures
which have been the focus of the U.S. complaint, the source said.
The WTO panel considering the U.S. challenge is scheduled to deliver its interim report in mid-October. A
final decision is expected by the end of the year.
Gingrich, Gephardt Letter on Film
September 11, 1997
tions, since many other U.S. industries face the same subtle yet
powerful barriers being considered in the film case. To that end,
President Bill Clinton
we trust that you will insist on meaningful remedies that will
The White House
eradicate barriers in the Japanese distribution system, that will
1600 Pennsylvania Avenue NW
open up Japan's large scale retail sector, and that will permit
Washington, D.C. 20500
promotions and truly competitive market pricing by U.S. firms
in Japan.
Dear Mr. President,
It is important that the WTO dispute settlement system
Very shortly, the World Trade Organization will issue
deal effectively with these Japanese government measures that
an important and precedent-setting decision with regard to
are more complex - and often more damaging - than tariffs or
Japan, when it issues a ruling in the photographic film case
quotas. While we believe that the United States should maintain
filed by the United States last year against Japanese govern-
the ability to safeguard its own economic interests, we call on
ment measures. In one of the best-documented market access
you to use all appropriate means to bring about full access to the
cases ever brought against Japanese trade barriers, the U.S.
Japanese market for U.S. products, and urge you to give this
presented compelling evidence of how Japan undermined its
matter your very close attention.
international commitments by erecting new, more subtle
barriers to imported goods. This evidence helps to explain
Sincerely,
why the United States has such a large trade deficit with
Japan, despite Japanese tariffs that are among the lowest in
Rep. Newt Gingrich (R-GA)
the world.
Speaker
We view this case as an important test of the ability of the
WTO to address systemic Japanese protectionism. Moreover,
Rep. Richard A. Gephardt (D-MO)
we believe the WTO's decision will have far-reaching implica-
Democrat Leader
22
INSIDE U.S.TRADE - September 19, 1997
OUTLINE OF PROPOSED SANCTIONS BILL STRESSES REPORTING, TRANSPARENCY
A draft concept paper reveals that new legislation on unilateral sanctions, which will ultimately be based on
this paper, will likely focus on requiring the Executive Branch to comment on whether it thinks proposed unilateral
sanctions will work properly, as well as on the sanction's likely impact on U.S. companies. In addition, the paper
calls for all unilateral sanctions to allow the continuation of existing contracts, provide the President a national
interest waiver option, and expire after two years unless reauthorized by Congress or the President.
These requirements would apply to sanctions policies regardless of whether they originate in the Executive
Branch or the Congress, according to an August 11 draft of the paper. Congressional sources said the most recent
version of the paper is very similar to this version, and has undergone only some small changes.
Legislation based on this paper, which congressional sources said Sen. Richard Lugar (R-IN) and Rep. Lee
Hamilton (D-IN) hope to introduce by the end of September, has been pushed by members of USA Engage. This
group was formed earlier this year to protest the use of unilateral U.S. trade sanctions, and has argued that unilater-
al sanctions cost U.S. jobs and are rarely effective in achieving their foreign policy goals.
For sanctions bills or joint resolutions originating in Congress, a bill based on the August draft would, except
in the case of a national emergency, require the relevant congressional committee to request reports from the
President and from the International Trade Commission, which would be included in the report accompanying the
measure. The ITC report would have to detail the short- and long-term costs of the sanctions measure, including
harm to U.S. companies' export performance, competitive position, reputation as a reliable supplier of goods and
services, and overall economic well-being.
Presidential reports accompanying congressional sanctions measures would have to be made up of several
parts. First, the President would have to assess the likelihood that the measure would achieve its stated objective,
which must be clearly identified. Second, the report would have to judge the impact of the sanction on humanitari-
an interests in the target country, relations with third countries, and other U.S. foreign policy interests.
The President's report would then have to describe and assess steps taken to try to accomplish the sanction's
objectives in other ways, including through diplomacy, multilateral cooperation, measures taken by other countries,
and other alternative measures. Finally, the report would have to assess the extent to which the sanctions proposal
would conflict with existing U.S. obligations, and, similar to the ITC report, would have to give a detailed assess-
ment on likely costs and benefits of the measure, including whether the benefits of the sanction outweigh the likely
costs to U.S. companies.
In addition to these requirements, if the sanctions measure does not provide contract sanctity or does not expire two
years after its effective date, the congressional report on the measure would have to explain why it does not.
For Executive Branch actions, a Presidential announcement of an intent to implement a sanctions
measure would start a 60 day period in which he must consult with the relevant congressional committees. Intent to
implement the proposed sanction must also be notified in the Federal Register for the purpose of providing
interested parties an opportunity to comment on the measure. These requirements would be waived in the case of a
national emergency, the draft paper said.
Under the draft paper, intent to implement a sanctions bill would lead to the creation of a Sanctions Review Commit-
tee, which would advise the President prior to implementing the sanction. This committee would be made up of the U.S.
Trade Representative, the secretaries of State, Treasury, Defense, Agriculture, Commerce and Energy, the Director of the
Office of Management of Budget, the Chairman of the Council of Economic Advisors, the Assistant to the President for
National Security Affairs, and the Director of the National Economic Council, the paper said.
Sanctions proposals from the President would also have to include a clear finding that the sanction is likely to
achieve a specified U.S. goal and that the benefits of the sanction outweigh its costs. The President would also have
to provide for contract sanctity and ensure the expiration of the sanction after two years unless explicitly extended
by the President.
The draft paper also proposes detailed reporting requirements for the President and the ITC similar to those listed
above, and notes that each of the above requirements could be waived for 60 days in the case of a national emergency.
Finally, the draft paper would require reports from the President and the ITC on the effectiveness of
sanctions policies six months after they are enacted and annually after that. These reports would discuss the extent
to which U.S. policy objectives have been achieved, U.S. companies have been hurt, and U.S. relations have been
affected by the policy.
In addition to these measures, supporters of the pending bill are considering whether to include special
reporting requirements if a sanctions measure affects U.S. agricultural exports, according to the August draft paper.
These requirements could include a report from the Agriculture Secretary which discusses the likely negative
effects of the sanction on exports and possible contingency plans to alleviate these effects. The bill could also
require that the Secretary work to expand agricultural exports under the Export Enhancement Program to offset lost
sales to sanctioned countries.
INSIDE U.S.TRADE - September 19, 1997
23
STATE DEPT. OFFICIAL WARNS OF FALLOUT FROM GROWING JAPAN TRADE DEFICIT
Assistant Secretary of State for East Asian and Pacific Affairs Stanley Roth late last week warned that Japan's
rising trade deficit with the U.S. could lead to congressional calls for dramatic action comparable to those heard in
the 1980s. He pointed out that the trade deficit has increased dramatically in recent months.
"And this does have the potential to get us back to where we were before, which is making this [the bilateral
trade deficit] a major political issue in the United States as well as an economic issue," he said during a Sept. 13
press conference in Tokyo. "In that context, it will lead to calls once again for dramatic steps, will make it an issue
with the Congress and the media, and we could see a return to Japan bashing, which was not so uncommon not all
that long ago."
To avoid such a problem, the two sides have to work together to achieve progress in several different ways, Roth
said. One of these is for Japan to pursue "vigorously" the things that it has promised to do on deregulation. This is "over the
long term, probably the most promising means of reducing their surplus and our deficit," he said.
In the short-term, Japan must vigorously implement existing agreements, like the auto agreement, he
said. It also must extend agreements when they expire, such as the Nippon Telegraph and Telephone procurement
agreement, according to Roth. He said the two sides hope to reach an agreement before the existing NTT procure-
ment deal expires at the end of the month.
In addition, solving the problem means a willingness on Japan's part to negotiate sectoral disputes, he said.
Recently, there have been difficulties in tackling these issues, according to Roth.
He also raised the issue of macroeconomic problems, on which Treasury Secretary Robert Rubin and Deputy
Treasury Secretary Larry Summers have spoken out in recent weeks.
Roth's comments echo those of Administration officials following an internal decision to step up pressure on
Japan in light of the burgeoning trade deficit and the increased scrutiny trade issues may receive as part of the fast-
track debate (Inside U.S. Trade, Sept. 12, p. 1).
In a related development, the Commerce Dept. announced on Sept. 18 that the trade deficit with Japan rose to
$5.2 billion in July, up from $4.1 billion.
WTO DISPUTE BODY EXPECTED TO TAKE UP EU APPEAL ON HORMONES
The European Union is expected next week to request a formal appeal of a World Trade Organization ruling
that its ban on beef raised with growth hormones violates international trade rules. The request is expected to be
made at a Sept. 25 Dispute Settlement Body meeting in Geneva, sources said.
The EU said in early July that it would appeal the WTO ruling because it said the EU failed to take science
into account before implementing the ban. The U.S. and Canada both challenged the ban, and the panels made the
exact same findings in the case (Inside U.S. Trade, July 4, p. 20).
Also on the agenda for next week's DSB meeting is the adoption of the Appellate Body report which found
the EU system for regulating banana imports violates the WTO. The Appellate Body report issued last week largely
upheld the initial panel report (Inside U.S. Trade, Sept. 12, p. 4).
The DSB will also hear an update from the U.S. on its implementation of a WTO finding that U.S. rules
regarding pollutants in gasoline violate the WTO (Inside U.S. Trade, Aug. 22, p. 3). And it will hear a report on
Japan's implementation of a finding earlier this year that Japanese taxes levied on imported distilled spirits also
violate WTO rules.
The DSB is also scheduled to hear three new requests for dispute panels. First, the U.S. and EU will each
request a panel on Korea's tax regime on alcoholic beverages. Sources said these requests mirror the case the
Appellate Body decided against Japan earlier this year.
Second, the EU will request a panel against India over that country's failure to provide a means of filing
patent applications for pharmaceuticals and agricultural chemicals. While a WTO panel found in favor of the U.S.
earlier this month on the exact same issue with India, sources said the EU is requesting its own panel over fears that
India may not be able to adhere to that ruling, and may instead have to offer compensation. But India was not a
party to that panel, and under Art. 22 of the WTO's Understanding on the Rules and Procedures Governing the
Settlement of Disputes, only members that are party to a panel can be offered compensation.
Several WTO members have requested their own panels to hear cases similar to those that have already been
decided to ensure that they can also benefit from compensation, according to an international trade source.
Like the EU request for a panel, the U.S. argued that India's informal mechanism for receiving patent applica-
tions is not in conformity with its obligations under the WTO Agreement on Trade Related Aspects of Intellectual
Property Rights (Inside U.S. Trade, Sept. 12, p. 17).
In the third request scheduled for next week, the EU will ask that a panel be established to hear its arguments
over Argentina's textiles, clothing and footwear regime, according to informed sources.
24
INSIDE U.S.TRADE - September 19, 1997
U.S. TO UNVEIL HELMS-BURTON PROPOSAL
begins page one
This possible congressional support for the U.S. proposal is the first sign that the U.S. and EU could be closer
to resolving their dispute over the Helms-Burton law, as Congress has previously indicated its opposition to
anything other than a hardline position in the talks. However, the source also added that the U.S. proposal "won't
fly" in Congress unless it specifically targets Cuba, and warned that the U.S. would "have to get everything" it is
proposing in order for Congress to eventually sign on to the deal.
This could present a problem for negotiators because the EU has signalled in previous negotiating sessions
that it will agree to investment disciplines only if Cuba is not explicitly mentioned. Another big problem facing
negotiators is whether the EU will "ever agree to anything at all" in the Helms-Burton negotiations, the congres-
sional source said.
The U.S. and EU met again this week in an effort to agree on disciplines that deter investment in
expropriated property, as well as guidelines that can be used to resolve future disputes that arise when the
laws of two different countries conflict. The two sides met in Paris Sept. 16-17, on the fringes of negotiations
on the Multilateral Agreement on Investment (MAI) in the Organization for Economic Cooperation &
Development.
The U.S. and EU are hoping an agreement in these areas would allow the U.S. to amend Helms-Burton so that
one of its key provisions, Title IV, could be waived by the President. Title IV requires the U.S. to ban foreign
executives of companies that traffic in expropriated property in Cuba.
An agreement would also allow the EU to withdraw its suspended World Trade Organization challenge of
Helms-Burton. Under an April understanding, the two sides have until Oct. 15 to reach a settlement, after which
EU member states have said they would resume their WTO challenge.
Specifically, the U.S. was expected this week to propose that certain countries be designated as "problem
states." The U.S. is suggesting that a country should be named on this list if property there is subject to a "pattern
of discriminatory expropriation," one informed source said.
Under the U.S. proposal, signatories to the investment disciplines would discourage their nationals from
investing in any property in a "problem state." Further, the U.S. is suggesting that governments should refuse to
provide government financing programs and other support anywhere in the world to companies that ignore that
advice.
The U.S. also was expected to suggest that Cuba be placed on this list. Congressional sources reiterated that
Cuba must be targeted this way in order to win congressional support for the proposed disciplines. "Cuba is the
poster child of problem states," one congressional source said.
In addition, the U.S. was expected to propose that expropriated properties be registered in the MAI,
sources said. Once this list is activated, a company investing in property abroad would have to certify that the
property in question is not on the list, and barring that, would have to show that no other viable alternatives
were available. If these criteria were not met, the company might not be eligible for government support in
financing the purchase of the property.
These disciplines would be triggered if any "dealings" in properties on this list occurs, according to the U.S.
proposal. But sources said this term still has to be defined. The U.S. was expected to propose that existing invest-
ments in any expropriated property would be untouched by the disciplines, but that any move to improve or resell
these properties would trigger the disciplines.
In contrast to this proposal, the EU has previously argued that only investment in property expropriated after
the disciplines take effect should trigger the disciplines.
On conflicting jurisdiction, the U.S. was expected to propose that countries whose laws impose different
requirements on companies meet in the context of the MAI for consultations. In contrast, the EU has argued
previously that companies should follow the laws of their home country only (Inside U.S. Trade, Aug. 1, p. 1).
Sources noted that the goal of the U.S. and EU is to multilateralize any agreed-upon disciplines by having
other countries sign on to them under the MAI.
The U.S. proposal must be agreed to by the EU without major changes in order for Congress to
accept the deal, congressional sources stressed this week. By doing so, the Administration can "raise the
comfort level" of certain members of Congress, whose support is critical to getting the deal passed in
Congress.
These members include Senate Foreign Relations Jesse Helms (R-NC), House International Relations Com-
mittee Chairman Ben Gilman (R-NY), committee member Dan Burton (R-IN), and Reps. Ileana Ros-Lehtinen (R-
FL), Lincoln Diaz-Balart (R-FL), Robert Menendez (D-NJ), and Sen. Robert Torricelli (D-NJ). Ros-Lehtinen,
Diaz-Balart and Menendez in particular must be satisfied with the agreement before Congress can consider amend-
ing Helms-Burton so that Title IV can be waived, one congressional source said.
"They have the right to be the most skeptical and the most satisfied," he said. "It is the Cuba issue that got us
INSIDE U.S.TRADE - September 19, 1997
25
here, and it would be a betrayal to let Cuba slide." He said Gilman "in particular" will not support the deal unless
all of these members accept it together.
He also noted that these members recognize that the fight is about U.S. Cuba policy and Helms-Burton, and
that the disciplines are not being negotiated in a vacuum. "It's not just something for international law pinheads,"
he said.
The source also noted that the initial U.S. proposal "meets that test." One specific concern is that Cuba must
be designated a "problem state," which would prevent foreign investment in property claimed by Cuban-Ameri-
cans. If this can be agreed to, the U.S. is "in the ballpark," he said.
If this cannot be agreed to, he said Congress could assess the possibility of simply registering most Cuban-
American property claims in the MAI. But he said it would be "much stronger" to simply include Cuba on the list
of "problem states."
Despite the fact that Congress could accept the U.S. proposal as it currently stands, sources said Con-
gress has not begun drafting a Title IV waiver yet. He added that this will be done when the two sides are much
closer to reaching an agreement, he said. At press time, officials in Paris could not be reached for comment on how
the talks were proceeding this week.
Informed sources added that the U.S. and EU are tentatively scheduled to meet again at the end of September
in Washington to continue the negotiations.
COMMERCE OFFICIAL SEES BIOTECH, FOOD SAFETY AS NEW PROBLEMS FOR U.S., EU
A Commerce Dept. official said last week that the U.S. and EU face new trade problems in an otherwise stable
relationship from their different regulatory approaches to genetically modified products and issues of food safety.
Acting Assistant Secretary of Commerce for Market Access and Compliance Franklin Vargo charged that the EU
has an unnecessarily cumbersome process for approving GMO products for sale in its market, and is imposing rules
to prevent the spread of Bovine Spongiform Encephalopathy (BSE) for U.S. exports even though the U.S. consid-
ers itself BSE free.
"We have a whole new area that is very, very difficult [in] genetically engineered crops, where the Europeans
have a very cumbersome process for approval in which there is something verging on hysteria."
He also professed to understand the EU's desire to prevent the spread of BSE. "We certainly understand the
need to protect health and safety and ensure safety from BSE in Europe," Vargo said. "But the United States is BSE
free."
The EU has insisted that the U.S. must provide scientific proof of being BSE free, and plans to ban all
products that have not been scientifically proven safe from BSE.
Vargo emphasized that the EU measures, which have the effect of restricting trade, are not driven by a desire
to shield its markets.
"These differences stem not from a desire to build protective devices against imports, but from genuine
differences in approaches to health and safety and other questions of public interest," he said.
In a Sept. 10 hearing before a House International Relations subcommittee, Vargo cited EU measures aimed at
banning imports of products which contain parts of a cow that could carry BSE as a significant problem. The ban
could effectively block $20 billion in U.S. cosmetic and pharmaceutical exports, Vargo told the subcommittee on
International Economic Policy and Trade.
Vargo urged committee members to relate U.S. alarm over the EU BSE-related measures in meetings with
members of the European Parliament scheduled for the week of September 22.
"When you get together I do hope that you will raise the EU Cosmetics Directive and the so-called
SRM, the Specified Restricted [sic] Materials Directive, with them," he said. "I think you could be very
helpful."
On GMOs, Vargo added that the Transatlantic Business Dialogue has begun to address biotechnology issues
and that they will also be raised by the U.S. in multilateral negotiations on agriculture trade set to begin in 2000.
Other food safety issues which divide the U.S. and EU include mutual acceptance of methods for processing
poultry and the EU's ban on hormone-treated beef, Vargo noted.
The U.S. and EU face many other challenges, according to Vargo, including reaching a WTO agreement
on financial services, implementing the Mutual Recognition Agreements (MRAs) reached this summer,
expanding the MRAs to other sectors, reducing tariffs in sectors such as paper, and promoting electronic
commerce.
Europe is by far the most important partner for the U.S. in opening world markets, Vargo said. "Europe comes
closest in the world to sharing our ideals to want to open markets, and if we can't agree with the Europeans in the
WTO, nothing's going to happen," he said.
26
INSIDE U.S.TRADE September 19, 1997
WHEAT GLUTEN INDUSTRY TO FILE 201 PETITION
begins page one
But U.S. industry sources this week were optimistic that a 201 petition could be successful, and said U.S.
officials in the U.S. Trade Representative's office and the Agriculture Department told the industry that a 201
petition is its "best alternative" for combatting imports of wheat gluten.
"We clearly have solid factual evidence" with which they could prove injury, one industry source said, who
added that the Clinton Administration has said the industry has "an excellent shot of succeeding." However, he did
acknowledge that the Presidential decision in a Section 201 case means a higher hurdle to obtain relief than that
posed by other trade actions.
Industry sources also said that an antidumping or countervailing duty petition may not be as effective as a
Section 201 case because what they term the EU's subsidies and dumping practices are used intermittently.
Therefore, an AD or CVD remedy would be unlikely to result in a large enough margin to effectively block EU
imports, they said.
The industry failed in its effort to pursue a Section 301 case when the Office of the U.S. Trade Representative
rejected the petition to pursue alleged increased imports of EU wheat gluten to the U.S. under a bilateral grains
agreement. USTR suggested the industry use measures other than Section 301 to pursue its complaint (Inside U.S.
Trade, June 13, p. 3 & March 14, p. 1).
These sources said the lack of progress in government consultations on EU wheat gluten imports is
another reason why a Section 201 petition might be filed. The U.S. and EU met under the grains agreement in
August, when the EU presented a paper detailing the wheat gluten and corn gluten feed markets in both countries.
Industry sources said the last round was "unsatisfactory" for the U.S. because the EU paper acknowledges that
its share of the U.S. market has grown in the last few years, and that U.S. producer's share has been reduced. But
the paper fails to say that EU imports have directly led to reduced U.S. production.
"The EU is denying a causal link," one source said. "But I think we could prove a causal link." He also added
that the EU simply wants to monitor the situation "until we're out of business."
EU sources this week declined to comment on the contents of the paper that was submitted to the U.S. last
month. Sources also said another round of talks under the agreement has not been scheduled.
The U.S. is pursuing talks with the EU under a bilateral grains agreement, which calls for formal
consultations in which both sides must try to arrive at a solution when EU share of the U.S. wheat gluten market
exceeds 17 percent.
REPUBLICANS TO ALTER ADMINISTRATION FAST-TRACK BILL
begins page one
tion effectively excluded Republicans from the process of developing the specifics of its proposal.
Republican criticism of the bill stems from the fact that the Administration's bill does not obligate the
President to bring back trade agreements and implementing bills which reflect only the negotiating objectives
stated in the fast-track authority, according to congressional sources. Such an obligation would be established if the
bill explicitly linked negotiating objectives to fast-track treatment.
In addition, Republicans have criticized what they term the undue vagueness of the proposed bill's labor and
environment provisions, according to congressional sources. They have charged that the bill could allow the
application of fast-track procedures to agreements reached in the International Labor Organization, they said.
Some sources also suggested that the Administration proposal for fast track through 2005 could come under
attack, because it could be politically impossible to convince enough members to vote for authority this far out. But
one source argued that while the duration is likely to be shortened, it is "not an emotional issue."
Ranking Member Charles Rangel (D-NY) has called for a hearing on fast track in general, which is likely to
include Administration, congressional and private-sector witnesses, a congressional source said. House Republi-
cans have generally agreed to such requests, the source said. The House requires a 10-day notice for hearings,
although this rule can be waived, the source said.
"A hearing will definitely slow the process," the source added.
The overriding problem for Republicans with the Administration proposal is what they view as the
unacceptably loose relationship between the specific negotiating objectives to the use of fast-track authority,
numerous congressional sources said. This problem, though related to the labor and environment controversy, also
touches on the question of how much authority Congress delegates to the President, one congressional source said.
To the extent that the negotiating objectives and the content of implementing bills are not closely linked, Congress
could end up delegating more authority than it had anticipated, the source said.
"This is probably the single most important issue," one source said. "It's the only thing that puts limits on the
President."
continued on next page
INSIDE U.S.TRADE - September 19, 1997
27
A bill introduced by Ways & Means Chairman Bill Archer (R-TX) in 1995 specified that fast-track procedures
would apply to parts of the trade agreement, as well as implementing legislation, which were linked to the specific
negotiating objectives outlined in the bill. "The tie-in flows from the negotiating objectives through to the imple-
menting bill," one source said.
However, the Administration bill includes sections on "overall" and "principal" negotiating objectives which
the Administration's own analysis of the bill describes as "guidance," congressional sources noted. The bill is not
structured so that these objectives are directly linked to the section of the bill which identifies what can be covered
under fast-track procedures, these sources pointed out.
Consequently, the bill appears to give the President relatively unrestrained authority to determine the content
of trade agreements, even though the Administration bill states that future trade deals contain provisions "directly
related to trade," congressional sources argued. This phrase was proposed by House Republicans in an effort to
limit the consideration of labor and environmental issues.
Republicans insist on establishing a direct and explicit linkage between negotiating objectives, and the content
of both trade agreements and implementing legislation which has the force of U.S. law. This demand stems from
their general mistrust of how the Clinton Administration has conducted trade negotiations.
Previous fast-track legislation included negotiating objectives as "hortatory objectives of policy" that were not
legally linked to the legislation to be covered by fast track, one congressional source said.
In addition, the Administration proposal also faces opposition in its use of the phrase "necessary or
appropriate" to describe what can go into implementing legislation, congressional sources said. The Archer bill
would allow only provisions "necessary" to implement the agreement, while the Administration bill still includes a
qualified version of "necessary or appropriate."
The Administration bill is clearly designed to ensure a degree of flexibility on what can be in implementing
legislation, and one congressional source argued that any Administration would seek such flexibility. The phrase
"necessary or appropriate" has allowed the inclusion of "sweeteners" which solidify support for implementing bills,
the source pointed out.
Finally, the Administration proposal also contains specific language naming labor and environment as
principal negotiating objectives, including provisions on "sustainable development" and internationally-recognized
labor rights. The "vagueness" of the phrase "sustainable development" is particularly difficult for many Republi-
cans as well, one source said.
The inclusion of a provision on the International Labor Organization has also raised questions among many
members as to whether ILO conventions would be covered by fast track, a congressional source said. The source
argued that this section of the bill "largely just needs some tightening," and agreement on it between the Adminis-
tration and Republicans is "not out of the ballpark."
The Administration proposal immediately drew a highly negative reaction from a number of House
Democrats. Minority Leader Richard Gephardt (D-MO) said that "this fast track would put us on the wrong track,"
and criticized in particular the marginal treatment of labor and environment issues.
"What I and others are arguing for is that U.S. workers and the environment be treated and enforced the same
as copyrights and investment," he said. The Administration's bill would cover intellectual property and investment
rules as part of future trade agreements.
An analysis of the bill issued by Gephardt called the bill "worse than the fast track authority President Bush
received" because it does not include labor and environment as negotiating objectives which could be included in
the core of a trade agreement. Gephardt charged that the Administration proposal would not even permit side
accords such as those negotiated to the North American Free Trade Agreement to be covered by fast-track.
In addition, Gephardt criticized the Administration proposal to move consideration of these issues into the
WTO. "[N]o real action has occurred on these issues at the WTO despite preexisting authority for the U.S. to
proceed," the analysis stated.
The Gephardt analysis also criticized the Administration proposal for not mentioning food safety, drugs and
worker retraining. It also noted the exclusion of "trade and monetary coordination" and addressing unfair trade
practices as negotiating objectives.
In addition to Gephardt, four members of the Hispanic Caucus also expressed their "disappointment"
with the Administration proposal in a Sept. 16 proposal. Rep. Esteban Torres (D-CA) said that the legislation did
not heed recommendations that the Administration commit to improving the implementation of NAFTA, nor did it
include enforceable labor and environment provisions.
Reps. Nydia Velasquez (D-NY), Ciro Rodriguez (D-TX) and Loretta Sanchez (D-CA) offered similar criti-
cisms of the bill. Sanchez added that the bill would do nothing to mitigate the negative impact of NAFTA on
working women and families.
Rep. Sander Levin (D-MI), who serves on Ways & Means, announced on Sept. 17 that he would oppose the
fast-track as proposed by President Clinton. By Carter Dougherty
28
INSIDE U.S.TRADE - September 19, 1997
INSIDE U.S.TRADE - September 19, 1997
29
In This Issue
House Republicans preparing new version of
Business rejects religious persecution bill,
fast-track legislation
p.1
awaits Senate action
p.13
U.S. expected to propose specific solution to
Lang outlines conditions for granting NAFTA
Helms-Burton fight
p.1
parity benefits
p.15
U.S. industry to file 201 petition today against
U.S. seeks increase openness in Japanese
wheat gluten imports
p.1
government practices
p.16
U.S. officials pressing for concrete deregulation
ATMI calls for additional WTO concessions
results by May
p.1
from China on textiles
p.17
Albright says fast track vital to broad U.S.
Business group, labor unions launch campaigns
foreign policy goals
p.3
in fast-track debate
p.19
Roth sees scant Senate support for
Japanese minister rejects U.S. demands on
Administration fast-track bill
p.4
auto parts deregulation
p.20
New EU science opinion offers little hope for
Gingrich, Gephardt express support for U.S.
U.S. BSE-free status
p.6
film case against Japan
p.22
Key developing countries fail to table WTO
Outline of proposed sanctions bill stresses
financial services offers
p.8
reporting, transparency
p.23
Finance moves on OECD shipbuilding bill
State Dept. official warns of fallout from
despite Lott opposition
p.9
growing Japan trade deficit
p.24
Clinton Administration provides aid to
WTO dispute body expected to take up EU
Caribbean banana producers
p.10
appeal on hormones
p.24
Barshefsky, Brittan to focus on agriculture,
Commerce official sees biotech, food safety
China next week
p.12
as new problems for U.S., EU
p.26
House intelligence panel approves broad
changes to encryption bill
p.13
30
INSIDE U.S.TRADE - September 19, 1997
Jul 30,97 1:41 No 014 P.01/04
Washington Trade Daily
Volume 6, Number 151
Wednesday, July 30, 1997
Trade Reports International Group
GSP In, CBI Parity Out of Budget Bill
House and Senale conferees working on a big tax and spending bill (HR 2014), in close
contact with the White House, agreed to extend the US Generalized System of Preferences
program for two years - retroactive to May 31 - but did not go along with inclusion of a new
Caribbean Basin Initative parity provision (WTD, 7/24/97).
Details of the tax and spending package were announced yesterday after Congressional
Republicans and the White House reached an agreement Tuesday night.
White House officials who briefed the press yesterday morning said the President attempted
in the final hours to maintain a version of the House-passed CBI Parity provision. But Republican
staffers told WTD yesterday that the White House was partially to blame for its demise.
The CBI parity provision would have increased duty-free access to the US market for a
range of apparel products manufactured in the Caribbean region, giving them the same benefits as
Mexico enjoys under the North American Free Trade Agreement.
Alone at the Altar - Again
Sen. Bob Graham (D-Fla) - a long-time backer of the CBI - said it was the "fourth or fifth
time that the Caribbean was left standing alone at the altar by the United States." He agreed with
House Ways and Means trade subcommittee Chairman Rep. Philip M. Crane (R-III) that the
reconciliation bill was the most appropriate vehicle for the preferential trade bill. Trying to move it
later in the session, both told WTD yesterday in separate interviews, would be complicated by the
fact that Congress would have to find offsetting revenue to justify it under current budget
procedures. The Congressional Budget Office scored the cost of the CBI parity bill at some $217
million, for a single year of operation.
Although President Clinton promised Caribbean leaders during a recent trip there that he
would fight for the measure, Congressional staff involved in the negotiating process suggested
yesterday that the word never filtered down to his staff.
Sen. Graham said its defeat was a combintation of strong opposition by a hardcore of CBI
opponents and only luke-warn support from senators who generally back free trade initiatives. The
debate was complicated by the fact that the CBI provision contained in the reconciliation bill was
drafted by Ways and Means' Mr. Crane and differ significantly from those proposed by the Clinton
Administration and a temporary coalition of textile, apparel, import and retail groups.
Others suggested that time simply ran out to finish the complicated task of finding a
resolution.
The GSP program was extended until June 30, 1999, rather than the May 31, 1999, date
recommended by the House.
Also dropped from the measure was a provision exempting import duties for repairs done
abroad on US ships.
Fast Track Offer Still Unanswered Says Rep. Crane
The inclusion of broad environmental and labor language in legislation extending the
President's trade negotiating authority will simply not be accepted by House Republicans (WTD,
7/25/97), House Ways and Means trade subcommittee chairman Rep. Philip M. Crane (R-III) told a
c 1997 by Trade Reports International Group, 2104 National Press Building, Washington, D.C. 20045.
E-mail address: [email protected]
Telephone: (301) 946-0817, fax: (301) 946-2631. Published 260 times a year. Subscription price: $550/year.
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Editor/Publisher: Jim Berger.
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Washington Trade Daily also is available electronically from NewsNet. For online access call 1-800-345-1301.
Jul 30,97 1:43 No 014 P.02/04
page 2
Washington Trade Daily
gathering at the Cato Institute yesterday.
There is an offer to the White House to which the Administration has yet to respond, Mr.
Crane went on. It would allow environmental and labor language in fast track only to the extent
either are "immediately and directly related to trade." Giving the President broader authority would
set the precedent for extending trade deals well beyond trade matters. Why stop at labor and the
environment, he quipped. Why should not the Administration also include human rights, equal
opportunities for women, freedom of the press and the right to assemble as well. Those objectives
are admirable, he said, but do not belong in trade agreements.
Mr. Crane predicted a heated debate on fast track in September after Congress returns
from a month-long summer recess.
The trade panel chairman said he wants the President to have broad negotiating authority
at least for a period of five years. He also suggested yesterday that he would like to attach an
Africa Economic Growth bill (HR 1432) to the fast track package in hopes of moving it through
Congress this year (WTD, 7/16/97).
Business Hits Latest Financial Encryption Plan
Commerce Department officials heard yesterday from business that it is backpedaling from
a promise made in May to allow unfettered exports of strong encryption to US financial institutions
abroad (WTD, 7/22/97).
According to a Commerce official involved in writing perfecting regulations, a no-license
policy will apply only to strict encrypted financial software. US firms selling software that also
allows the interchange of messages to banks and other financial institutions will have to follow
current US policy - allowing an export license only after the manufacturer submits a plan to
develop a similar recoverable product in two years time. One difference, the official pointed out to
an export controls advisory committee yesterday, is that the department will allow the export of 128-
bit software; current provisions apply generally to 56-bit products.
Draft regulations are getting ready to go interagency, with comments expected back to
Commerce by August 11. After that the regulations will be circulated for business and public
comment.
No Conditions
Business officials at the advisory meeting said that when the original announcement was
made on May 8 to the American Bankers Association by White House special advisor Ira Magaziner
there were no conditions put on the overseas sale of encrypted software to US financial institutions.
The new regulations also define what is meant by "financial institution" and will address the
temporary export of encryption software for personal use.
Commerce, the official said, has reviewed 1,050 export license applications for encryption
products, approved 725 and denied only 30.
Commerce Undersecretary for Export Administration William Reinsch today will face a
generally friendly House National Security Committee hearing on the topic. Two committees - the
House Judiciary Committee and the House International Relations Committee - have approved
legislation (HR 695) that would overturn the Administration policy of controlling encryption product
exports.
Around the Globe
STET, the Italian telecommunications group which last week struck a deal to
continue doing business in Cuba but avoid US sanctions, may have breached a European blocking
law (WTD, 7/24/97), the European Union Commission acknowledged yesterday according to an
Agence France-Presse report from Brussels. Several EU states have questioned whether Stel's
© 1997 by Trade Reports International Group, Washington, D.C.
July 30, 1997
An
Inside U.S. Trade
Inside
Washington
Publication
Anexclusive weekly report on major government and industry trade action
Vol. 15, No. 32 - August 8, 1997
BARSHEFSKY HINTS AT SOLUTION TO FAST TRACK LABOR-ENVIRONMENT FIGHT
U.S. Trade Representative Charlene Barshefsky this week hinted at a possible solution to the question of how
to treat labor and environment issues in the context of a bill to extend fast-track negotiating authority. Barshefsky
said that language proposed by House Ways & Means trade subcommittee chairman Phil Crane (R-IL), which
would allow only "directly trade-related" environment and labor provisions, is similar to language advocated by
the Clinton Administration in 1995.
During the 1995 fast track debate, Barshefsky and then-U.S. Trade Representative Mickey Kantor were
pressing for similar language, she said during an Aug. 6 press conference. Though congressional sources specu-
lated that this formulation offers a possible basis for compromise between the Administration and House Republi-
cans, Barshefsky cautioned that the Administration is also considering other options.
continued on page 23
CHINA WTO NEGOTIATIONS MAINTAIN MINIMAL MOMENTUM TOWARD AGREEMENT
Negotiations on China's accession to the World Trade Organization last week fell short of expectations that
China would make new offers to reduce tariffs and improve market access, but maintained enough momentum to
avoid a new deadlock in the talks, trade officials said this week. Additional progress now hinges on offers in these
areas, which China has promised to make this month or next, these officials said.
"The momentum has been maintained, though it was never great to begin with," one negotiator said.
Pierre-Louis Girard, chairman of the WTO working party on China's accession, said at the formal meeting on
Aug. 1 that "some good progress was reported -- albeit uneven as to sectors and countries." Girard added that WTO
members reiterated the need for "substantial progress" in the area of market access before the negotiation can be
completed.
continued on page 27
U.S., JAPANESE OPENING POSITIONS IN AVIATION TALKS REVEAL WIDE GAPS
The opening proposals from the U.S. and Japan in the first set of formal negotiations aimed at liberalizing the
civil aviation sector reveal that the two sides are still far from reaching an agreement. During the Aug. 4-6 meeting
in Tokyo. Japan tabled a proposal that rejected the possibility of a fully liberalized "open skies" regime even after
the expiration of an interim arrangement, while the U.S. tabled a proposal calling for open skies after a three year
transition period.
In addition, Japan's initial proposal, reprinted below, did not specify how long an interim agreement should
last, and was unclear what should happen after it expires, except to say that it should not lead to an open skies
arrangement.
"The [transitional] agreement shall be effective for certain years," Japan's proposal said. "The aeronautical
continued on page 28
U.S., EUROPEAN UNION STILL FAR APART IN HELMS-BURTON NEGOTIATIONS
After their fifth formal meeting last week, U.S. and European Union negotiators are still far from
resolving their dispute over the Helms-Burton law, which seeks to punish foreign companies that traffic in
former U.S. property in Cuba. Despite the approaching October 15 deadline for an agreement, the two sides
remain split in efforts to negotiate disciplines governing investment in expropriated property and conflicting
national laws.
"It is still too early to tell what the basic outlines of a solution might be," one source close to the negotiation
said this week.
In their July 31 meeting in Washington, the U.S. and EU each tabled proposals on how the dispute might be
settled. But informed sources said those proposals mostly reiterated their previous opposing views. "Some progress
continued on next page
was made, but the same issues still persist," one source said.
For example, the two sides last week exchanged proposals on language aimed at discouraging investment in
expropriated property, informed sources said. The U.S. proposal was more of a "concept" paper, while the EU
proposal was closer to draft language on investment disciplines, these sources said.
But in order for the U.S. and EU to make some progress on investment discipline language, negotiators have
decided for the time being not to discuss the key issue of how retroactive these disciplines should be, an area in
which there is no agreement.
The U.S. has insisted that the disciplines should apply to properties expropriated in the past, so that they can
in effect apply to properties in Cuba. But the EU has so far argued that the disciplines should only apply to proper-
ties expropriated after the disciplines take effect, and has rejected language that would specifically reference
properties in Cuba.
One source said the strategy of not discussing retroactivity does not mean that either side has agreed to the
other side's view on the matter, and that the decision to postpone this fight has allowed the two sides to make some
progress on the disciplines themselves.
"You can talk about these issues without running afoul of problems related to when [the disciplines] take
effect," an informed source said this week. "We're taking the practical approach of looking at the concrete issues
first."
Another issue that has yet to be resolved is how companies should respond when facing conflicting laws from
two different countries, as they do under Helms-Burton. The law requires foreign companies to comply with U.S.
investigations into allegations of trafficking, but the EU and Canada have passed legislation barring their domestic
companies from complying with Helms-Burton.
The U.S. last week tabled a "concept" paper on conflicting jurisdiction, but it only reiterated the U.S. position
that countries should consult with each other when their laws make opposing demands of companies. The EU did
not table a paper on this issue last week, but has previously proposed strict rules under which the law in a
company's home country would automatically prevail over another nation's laws when the two conflict with each
other (Inside U.S. Trade, Aug. 1, p. 1).
The two sides agreed last week to meet again the week of September 15 in Paris, on the fringes of
negotiations on the Multilateral Agreement on Investment (MAI) in the Organization for Economic Cooperation &
Development. The U.S. and EU have agreed to try to fold their bilateral disciplines into the MAI once they are
completed.
Next month's meeting will give the two sides less than one month to finalize these disciplines by the October
15 deadline. The U.S. and EU are hoping an agreement by then will allow the EU to permanently withdraw its
World Trade Organization challenge of the law, and convince Congress to let Title IV of the law to be waived by
the President. Title IV requires the U.S. to deny visas to foreign executives that traffic in expropriated U.S. prop-
erty in Cuba.
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INSIDE U.S.TRADE - August 8, 1997
BUSINESS GROUP PREPARES BROAD $3 MILLION CAMPAIGN TO WIN FAST TRACK
The business coalition that will support the Clinton Administration's upcoming fall push for fast-track
negotiating authority called on its members late last month to contribute "a minimum of $3 million" to support a
broad lobbying campaign that will include paid media, grassroots organizing and Washington-based lobbying. The
Business Roundtable warned that gaining approval of fast track will be an uphill battle because many members of
Congress are not solid fast-track backers because the bill will come under heavy criticism from a wide range of
other groups.
"Reports from Capitol Hill by congressional allies indicate that prospects for enactment of fast-track authority
this year are uncertain," the BRT wrote in a July 24 letter to corporate members of its international trade and
investment task force. "With the substantial turnover in the U.S. House of Representatives in the last two elections,
many members of Congress will be facing this issue for the first time."
The BRT letter, reprinted below, also warned that criticism on various fronts has weakened the coalition
supporting new trade agreements. "In addition, opposition by organized labor, human rights groups, protectionists,
isolationists and environmental groups has taken its toll," it said. "Many members view fast-track as a referendum
on NAFTA, which is remembered on Capitol Hill for the strong views expressed by proponents and opponents,
leading to a difficult vote for members of Congress."
The group warned that without the "active participation" of U.S. exporters, the Administration will lose its
battle for fast track. "Our goal will be to help persuade undecided members of Congress or those new to this issue
about the critical importance of fast-track to our nation's future," the BRT said.
Private-sector sources noted that the letter was slightly negative about the prospects for getting fast track,
though they cautioned that it is primarily a letter designed to convince members to contribute money to the effort.
The letter outlined a lobbying effort on several fronts. One element will be paid advertising in selected
congressional districts, "especially where an incumbent member of Congress is undecided," it noted. The publicity
campaign will also seek to build on Administration activities and use mailings to news media, "periodic news
conferences as required," visits to local editorial boards and op-ed pieces "in key states and districts throughout the
country," according to the letter.
As part of efforts to create a grassroots campaign, the business groups will make "[a]ggressive use of [a]
1-800 number to generate Congressional communications from company employees, suppliers and constituents,"
according to the letter. The group will also recruit "opinion leaders in select Congressional districts" to support
business lobbying and distribute "lobbying kits" to companies and trade associations involved in the effort.
The group will mount an "[a]ggressive Washington campaign relying on the use of corporate offices of
Roundtable companies and CEO communications with legislators," according to the letter.
The BRT letter was signed by the heads of Caterpillar Inc., TRW Inc., The Boeing Company, Chrysler
Corporation, The Proctor & Gamble Company, and General Motors Corporation. Each of these companies have
pledged $100,000 for the effort, according to the letter.
In a related development, the America Leads on Trade Alliance this week circulated to its members an
initial list of House members to contact on the fast-track issue. On the list, which is reprinted below, members who
have been assigned to a specific coalition member are indicated with a pound sign.
The BRT earlier this year helped found America Leads on Trade, which is a coalition of trade associations and
companies dedicated to gaining the passage of fast track. An informed industry source said last month that the BRT
has taken the "financial lead" itself while expecting other groups to gain funds or involvement from their member
companies as they see fit.
Fast Track Coalition Funding Letter
July 24, 1997
dent has announced his intention to send to Congress this
autumn a proposal that reinstates his authority to negotiate
Dear:
new market-opening trade and investment agreements under
As you know, the Business Roundtable has lead the
"fast-track" authority. Without this other Congressionally-
business community for many years in promoting the growth
granted authority, there can be no expansion of NAFTA to
of the U.S. economy through trade agreements. The
include Chile or other Central and South American countries.
Roundtable's leadership on NAFTA in 1993 was absolutely
There can be no Free Trade Agreement of the Americas. There
critical to passage of that landmark free trade agreement.
can be no new sectoral trade agreements such as the recently
Similarly, the Roundtable took the lead in organizing the
concluded information technology and telecommunications
Alliance for GATT NOW in 1994-1995 when Congress en-
agreements. There can be no new multilateral agreements to
acted the Uruguay Round implementing legislation.
cover, for example, agriculture, or to expand intellectual prop-
Today, we are faced with a similar challenge. The presi-
erty protection under the auspices of the WTO. In short,
INSIDE U.S.TRADE - August 8, 1997
3
without new fast-track authority, America's global trade lead-
sum. In any event, your participation is important. En-
ership will be irreparably harmed.
closed is a fax-back pledge sheet. Please respond as quickly
Perhaps more unsettling is the political backdrop we
as you can. With resources in hand, we will gear up for our
face on Capitol Hill. Despite current economic growth, histori-
efforts to counter the ads already being run by opponents of
cally low unemployment, growing exports and the increasing
trade in key Congressional Districts around the country.
percentage of our nation's GDP that is attributable to interna-
Your checks can be made payable to The Business
tional trade, the political climate for new trade agreements is
Roundtable and sent to the Roundtable at 1615 L Street,
not good. Organized labor, human-rights groups, protection-
NW, Suite 1100, Washington, DC 20036.
ists, isolationists and some environmental organizations are
Thank you in advance for your support of this critical
questioning the benefits of trade and investment to the United
initiative.
States. This is why the Roundtable has undertaken its trade
communications initiative, seeking to inform our stakeholders
Sincerely,
about the importance of trade and investment to the growth of
our own companies and to our nation's future.
Donald V. Fites
With the Congress scheduled to debate and vote on fast-
Chairman & CEO, Caterpillar Inc.
track authority this fall, it is imperative that the Roundtable's
Chairman, The Business Roundtable
member companies step forward to make our collective voices
heard. Without our active participation, fast-track authority for
Joseph T. Gorman
the president will not be enacted.
Chairman & CEO, TRW Inc.
We have pledged to work with the President and with
Chairman, The Business Roundtable
the Congressional leadership to achieve passage. Our goal will
International Trade and Investment Task Force
be to help persuade undecided members of Congress or those
new to this issue about the critical importance of fast-track to
Philip M. Condit
our nation's economic future.
Chairman, President & CEO
With our participation and support, we will be fighting
The Boeing Company
this campaign on three fronts: direct lobbying in Washington,
a fifty-state grassroots campaign, and a media program of
Robert J. Eaton
advertising and public relations directed at key, targeted Con-
President, Chairman & CEO
gressional districts. All of these communications will be de-
Chrysler Corporation
signed to demonstrate the importance of fast-track to our
nation's economic future and to correct misleading and inac-
John E. Pepper, Jr.
curate objections raised by its opponents.
Chairman & CEO
In order to conduct this critical campaign, we need your
The Procter & Gamble Company
immediate financial assistance. Each of us has pledged $100,000
to this effort. We believe we need to raise a minimum of $3
John F. Smith, Jr.
million in order to insure that the voice of the business commu-
Chairman, CEO & President
nity is heard. Of course, each of us is called on frequently to
General Motors Corporation
make pledges of corporate resources for a variety of worth-
while causes. This cause, however, is tied directly to our
cc:
Washington Representatives
business future, the economic growth of our country, the
opportunities and job security of our employees, and a grow-
Enclosures
ing standard of living for the United States.
Maintaining U.S. global leadership on trade is at stake in
this battle. If fast-track is not passed by Congress, U.S. global
leadership on trade will surely be a thing of the past. While the
Proposed Strategy
United States remains on the sidelines, new trade agreements
are already being forged by our trading partners with the
Reports from Capitol Hill by Congressional allies indi-
economically growing countries of South America and South-
cate that the prospects for enactment of fast-track authority
east Asia.
this year are uncertain. With the substantial turnover in the
With or without U.S. participation, such agreements will
U.S. House of Representatives in the last two elections, many
continue to be forged. In possession of fast-track authority,
members of Congress will be facing this issue for the first time.
U.S. negotiators have the power to lead negotiations and shape
In addition, opposition by organized labor, human rights groups,
these agreements to better suit the trade and investment liber-
protectionists, isolationists and environmental groups has taken
alization needs of U.S. firms and workers. Without fast-track,
its toll. many members view fast-track as a referendum on
the U.S. merely watches from the sidelines while other nations
NAFTA, which is remembered on Capitol Hill for the strong
craft rules to the detriment of U.S. interests. We simply must
views expressed by proponents and opponents, leading to a
do our part to get fast-track approved.
difficult vote for members of Congress.
As a member of the International Trade and Invest-
The Business Roundtable proposes a multi-pronged strat-
ment Task Force, we are asking you to make a special
egy to secure support for enactment of new trade negotiating
commitment. We hope that you will contribute at the
authority for the President, leading to continued U.S. leader-
$100,000 level. If you are unable to do so, we hope that you
ship on global trade.
will contribute $50,000, $25,000 or some other appropriate
continued on next page
4
INSIDE U.S.TRADE - August 8, 1997
Media
*
Recruiting opinion leaders in select Congressional
* Selective advertising in targeted Congressional dis-
districts to support the fast-track effort.
tricts and, as appropriate, in Washington in support of fast-
*
Distribution of fast-track lobbying kits to companies
track.
for use in Congressional visits.
*
Radio and television advertising in selected Congres-
*
Grassroots lobbying by BRT-member companies and
sional districts, especially where an incumbent member of
other business trade associations.
Congress is undecided.
*
Expand breadth of support through interaction with
*
Aggressive use of earned media, leveraging Adminis-
other business organizations.
tration activity as much as possible. Conduct mailings to news
media, periodic news conferences as required, editorial board
Washington Lobbying
visits, and production and placement of op-eds in key states
*
Aggressive Washington campaign relying on use of
and districts throughout the country.
corporate offices of Roundtable companies and CEO commu-
nications with legislators.
Grassroots
* Aggressive use of 1-800 number to generate Congres-
Other
sional communications from company employees, suppliers
*
Development and distribution of other promotional
and constituents.
materials on fast-track.
Business Contact List on Fast Track
Representatives To Contact
Maxine Waters (D-CA)
Allee Hastings (D-FL)
Jane Harman (D-CA)#
Bob Riley (R-AL)
Juanita Millender-McDonald (D-CA)#
Sanford Bishop (D-GA)#
Robert Aderholt (R-AL)#
Stephen Horn (R-CA)#
Bob Barr (R-GA)#
Robert "Bub" Cramer (D-AL)
Edward Royce (R-CA)#
Saxby Chambliss (R-GA)
Spencer Bachus (R-AL)
George Brown (D-CA)
Nathan Deal (R-GA)
Sonny Bono (R-CA)
Charlie Norwood (R-GA)
Don Young (R-AK)
Dana Rohrabacher (R-CA)#
Loretta Sanchez (D-CA)#
Neil Abercrombie (D-HI)
Matt Salmon (R-AZ)#
Christopher Cox (R-CA)#
Bob Stump (R-AZ)
Brian Bilbray (R-CA)#
Helen Chenoweth (R-ID)
John Shadegg (R-AZ)
Bob Filner (D-CA)#
J.D. Hayworth (R-AZ)#
Randy "Duke" Cunningham (R-CA)#
Jesse Jackson, Jr. (D-IL)
Rod Blagojevich (D-IL)
Marion Berry (D-AR)#
Diana DeGette (D-CO)
Henry Hyde (R-IL)
Vic Snyder (D-AR)#
Scott McInnis (R-CO)
Danny Davis (D-IL)
Asa Hutchinson (R-AR)#
Bob Schaffer (R-CO)#
Sidney Yates (D-IL)
Jay Dickey (R-AR)#
Joel Hefley (R-CO)
Jerry Weller (R-IL)
Dan Schaefer (R-CO)
Ray LaHood (R-IL)
Frank Riggs (R-CA)#
Glenn Poshard (D-IL)#
Vic Fazio (D-CA)#
Barbara Kennelly (D-CT)#
John Shimkus (R-IL)#
John Doolittle (R-CA)
Sam Gejdenson (D-CT)
Nancy Pelosi (D-CA)#
Rosa DeLauro (D-CT)
Peter Visclosky (D-IN)#
Ellen Tauscher (D-CA)#
Christopher Shays (R-CT)
Dan McIntosh (R-IN)
Anna Eshoo (D-CA)#
Jim Maloney (D-CT)#
Tim Roemer (D-IN)
Tom Campbell (R-CA)
Nancy Johnson (R-CT)
Mark Souder (R-IN)
Zoe Lofgren (D-CA)#
Dan Burton (R-IN)
Sam Farr (D-CA)
Joe Scarborough (R-FL)
Edward Pease (R-IN)
Gary Condit (D-CA)#
Allen Boyd (D-FL)
John Hostettler (R-IN)
George Radanovich (R-CA)
Corrine Brown (D-FL)#
Julia Carson (D-IN)
Walter Capps (D-CA)#
John Mica (R-FL)
Elton Gallegly (R-CA)
Michael Bilirakis (R-FL)
Leonard Boswell (D-IA)#
Brad Sherman (D-CA)#
Jim Davis (D-FL)
Greg Ganske (R-IA)
Howard Berman (D-CA)#
Charles Canady (R-FL)
Tom Latham (R-IA)
James Rogan (R-CA)#
Dave Weldon (R-FL)
Xavier Becerra (D-CA)#
Mark Foley (R-FL)
Jerry Moran (R-KS)#
Mathew Martinez (D-CA)#
Ileana Ros-Lehtinen (R-FL)
Jim Ryun (R-KS)
Julian Dixon (D-CA)#
Robert Wexler (D-FL)
Vince Snowbarger (R-KS)#
Esteban Torres (D-CA)#
Peter Deutsch (D-FL)
Todd Tiahrt (R-KS)
INSIDE U.S.TRADE - August 8, 1997
5
Ed Whitfield (R-KY)
Frank LoBiondo (R-NJ)
Ernest Istook (R-OK)
Anne Northup (R-KY)#
Jim Saxton (R-NJ)
Frank Lucas (R-OK)#
Jim Bunning (R-KY)#
Bob Franks (R-NJ)
Harold Rogers (R-KY)
Bill Pascrell (D-NJ)#
Elizabeth Furse (D-OR)
Scotty Baesler (D-KY)#
Steven Rothman (D-NJ)#
Earl Blumenauer (D-OR)
Rodney Frelinghuysen (R-NJ)
Darlene Hooley (D-OR)
Bob Livingston (R-LA)
Michael Pappas (R-NJ)
Billy Tauzin (R-LA)
Robert Menendez (D-NJ)
Tom Foglietta (D-PA)
John Cooksey (R-LA)#
Chaka Fattah (D-PA)
Chris John (D-LA)#
Steven Schiff (R-NM)
Robert Borski (D-PA)#
Joe Skeen (R-NM)
John Peterson (R-PA)
Thomas Allen (D-ME)
Bill Redmond (R-NM)
Curt Weldon (R-PA)
John Baldacci (D-ME)
Bud Shuster (R-PA)
Mike Forbes (R-NY)#
Joe McDade (R-PA)
Robert Ehrlich (R-MD)#
Carolyn McCarthy (D-NY)#
John Murtha (D-PA)#
Ben Cardin (D-MD)#
Gary Ackerman (D-NY)#
John Fox (R-PA)#
Al Wynn (D-MD)
Floyd Flake (D-NY)
William Coyne (D-PA)
Steny Hoyer (D-MD)
Thomas Manton (D-NY)#
Paul McHale (D-PA)#
Roscoe Bartlett (R-MD)
Charlie Schumer (D-NY)#
Joseph Pitts (R-PA)
Elijah Cummings (D-MD)
Carolyn Maloney (D-NY)#
Michael Doyle (D-PA)#
Charlie Rangel (D-NY)#
Frank Mascara (D-PA)
John Olver (D-MA)
Jose Serrano (D-NY)#
Phil English (R-PA)#
Richard Neal (D-MA)
Nita Lowey (D-NY)#
James McGovern (D-MA)
Ben Gilman (R-NY)#
Patrick Kennedy (D-RI)
Marty Meehan (D-MA)
Michael McNulty (D-NY)#
Robert Weygand (D-RI)
John Tierney (D-MA)
Sherwood Boehlert (R-NY)#
Ed Markey (D-MA)
John McHugh (R-NY)#
Mark Sanford (R-SC)
Joe Kennedy (D-MA)
James Walsh (R-NY)
Lindsey Graham (R-SC)#
William Delahunt (D-MA)
Bill Paxon (R-NY)
John Spratt (D-SC)
Louise Slaughter (D-NY)#
James Clyburn (D-SC)
Fred Upton (R-MI)
John LaFalce (D-NY)#
Debbie Stabenow (D-MI)
John Thune (R-SD)#
Sander Levin (D-MI)#
Eva Clayton (D-NC)
Lynn Rivers (D-MI)
Bob Etheridge (D-NC)#
William Jenkins (R-TN)#
Carolyn Kilpatrick (D-MI)
Walter Jones (R-NC)
John Duncan (R-TN)
John Dingell (D-MI)#
Deborah Pryce (D-NC)
Zach Wamp (R-TN)#
Richard Burr (R-NC)
Van Hilleary (R-TN)#
Gil Gutknecht (R-MN)
Howard Coble (R-NC)#
Bob Clement (D-TN)
David Minge (D-MN)
Mike McIntyre (D-NC)
Ed Bryant (R-TN)#
Bruce Vento (D-MI)
Bill Hefner (D-NC)
Harold Ford (D-TN)#
Bill Luther (D-MN)
Sue Myrick (R-NC)
Cass Ballenger (R-NC)
Max Sandlin (D-TX)
Roger Wicker (R-MS)
Jim Turner (D-TX)
Chip Pickering (R-MS)
Earl Pomeroy (D-ND)#
Sam Johnson (R-TX)#
Ralph Hall (D-TX)
Jim Talent (R-MO)
Steve Chabot (R-OH)#
Pete Sessions (R-TX)
Karen McCarthy (D-MO)#
Tony Hall (D-OH)#
Joe Barton (R-TX)
Pat Danner (D-MO)#
Paul Gillmor (R-OH)
Kevin Brady (R-TX)
Roy Blunt (R-MO)#
Ted Strickland (D-OH)
Nick Lampson (D-TX)
Jo Ann Emerson (R-MO)#
Dave Hobson (R-OH)
Lloyd Doggett (D-TX)#
Kenny Hulshof (R-MO)
Dennis Kucinich (D-OH)
Kay Granger (R-TX)#
John Kasich (R-OH)#
William "Mac" Thronberry (R-TX)#
Rick Hill (R-MT)
Sherrod Brown (D-OH)
Ron Paul (R-TX)
Thomas Sawyer (D-OH)
Ruben Hinojosa (D-TX)
Jon Christensen (R-NE)
Ralph Regula (R-OH)
Silvestre Reyes (D-TX)
Bob Ney (R-OH)#
Charlie Stenholm (D-TX)
John Ensign (R-NV)
Steven LaTourette (R-OH)#
Shelia Jackson Lee (D-TX)
Jim Gibbons (R-NV)
Larry Combest (R-TX)
Steve Largent (R-OK)#
Martin Frost (D-TX)#
John Sununu (R-NH)
Tom Coburn (R-OK)
Ken Bentsen (D-TX)
Charles Bass (R-NH)
Wes Watkins (R-OK)#
C. Rodriguez (D-TX)
J.C. Watts (R-OK)
Gene Green (D-TX)
6
INSIDE U.S.TRADE - August 8, 1997
Merrill Cook (R-UT)#
Tom Davis (R-VA)#
Mark Neumann (R-WI)
Chris Cannon (R-UT)#
Scott Klug (R-WI)
Rick White (R-WA)
Ron Kind (D-WI)
Roger Scott (D-VA)#
Jack Metcalf (R-WA)
Gerald Kleczka (D-WI)
Virgil Goode (D-VA)
Linda Smith (R-WA)
Thomas Barrett (D-WI)
Jim Moran (D-VA)#
Doc Hastings (R-WA)
Jay Johnson (D-WI)
Rick Boucher (D-VA)
George Nethercutt (R-WA)
James Sensenbrenner (R-WI)
Frank Wolf (R-VA)#
Adam Smith (D-WA)
Barbara Cubin (R-WY)#
COMMERCE AGREES TO EXAMINE WHETHER CANADA IS DUMPING WHEAT
The Commerce Dept. last week agreed to examine whether Canadian wheat is being dumped into the U.S.
market, U.S. officials said this week. But despite public statements from representatives from wheat-growing
states, Commerce has only agreed to "review information" submitted by U.S. wheat growers, and that it has made
no commitment to self-initiate a dumping case, sources cautioned.
"It is absolutely premature to say we'll be initiating a case, and it is extremely premature to be talking about
options, including self-initiation," a Commerce spokesman said.
In addition, Commerce Secretary William Daley said in an Aug. 7 interview that Commerce has "a lot of
information gathering to do," and that no decision has been made on whether to self-initiate a case. He also warned
that self-initiated cases have "only been done on rare occasions."
"There has to be information gathered before you'd make a determination to begin an investigation which
could lead to a self-initiated case," Daley said. "Now, I remind you that there's only been three self-initiated cases,
so these are very serious steps when they're taken.
So we don't approach either the information gathering or obviously the investigatory process lightly."
U.S. Trade Representative Charlene Barshefsky this week also indicated that while Commerce would
examine the industry's dumping claim, the U.S. has made no decisions so far. Instead, Barshefsky reiterated
the U.S. position that USTR is continuing to focus on ways to increase market access for U.S. wheat in
Canada.
"There is great concern certainly on our part with respect to the volumes [of Canadian wheat] coming in,
which are really at quite extraordinarily high levels," Barshefsky said in an August 6 press conference. "Two
questions to be asked are: one, are those imports fairly traded, and second, do we have comparable market access
going into Canada. The answer to the first, that's something the Commerce Department is looking at."
And despite U.S. concern over increasing imports of Canadian wheat, Barshefsky said the U.S. would not try
to block those imports simply because they are increasing. "Our goal is to ensure that trade is fair," she told
reporters. "The goal of the U.S. government is not to stop imports simply because they are imports."
Barshefsky's comments came the week after she, U.S. Agriculture Secretary Dan Glickman, and
Assistant Secretary of Commerce for Import Administration Robert LaRussa met with North Dakota's
congressional delegation on what to do about increased imports of Canadian wheat. In that July 31 meeting,
LaRussa pledged to examine the industry's dumping complaint, but did not commit to initiate a full-scale
investigation, sources said.
After the meeting, Sens. Byron Dorgan (D-ND), Kent Conrad (D-ND) and Rep. Earl Pomeroy (D-ND)
released a statement the same day in which they indicated that a self-initiation decision might come soon. The
statement said they had won a commitment from Commerce to meet with North Dakota farmers, which is the "first
step in beginning a 'self-initiated' antidumping investigation."
"In our lengthy discussions today, I was told that the Administration would work with North Dakota farmers
to develop an anti-dumping case against the Canadians," Conrad said in the statement. "If the Canadian govern-
ment refuses to step up to the plate and do the right thing, then our government must take action. It is simply the
right thing to do."
One congressional source said the North Dakota delegation is "confident Canada wouldn't be selling so much
wheat in the U.S. if it weren't underselling." But the source added that it is too early to determine how U.S. wheat
growers might demonstrate that Canada is dumping wheat in the U.S.
Sources pointed out this week that in order to succeed, the industry will have to show that Canada is either
selling wheat in the U.S. at below its cost of production, or that it is selling wheat in the U.S. at a price less than
what wheat fetches in Canada.
But these sources, as well as a Canadian embassy spokesman, argued that an investigation will show that
INSIDE U.S.TRADE - August 8, 1997
7
neither of these conditions can be met. Instead, the investigation will show that U.S. processors need Canadian
wheat due to a relative U.S. shortage, they said. The Canadian spokesman added that all prior U.S. attempts to
show that Canada dumps wheat in the U.S. have failed.
Congressional sources said at press time that U.S. wheat growers have not yet been consulted on how to
attempt to show that Canada is dumping.
Also in the meeting, Dorgan urged the Administration to impose a "moratorium" on Canadian wheat imports,
and asked about the "prospects for renewal" of the now expired tariff-rate quota on Canadian wheat, congressional
sources said. But a U.S. official said Administration officials all but rejected that proposal, as indicated by
Barshefsky's Aug. 6 comments.
"We expressed our reservations [about Dorgan's proposal], and pointed out that it would be a potential
problem," the U.S. official said. "We can't afford to engage in any bilateral or multilateral trade friction."
Dorgan also suggested that the U.S. use the Export Enhancement Program (EEP) to help get U.S. wheat
exports to third countries in which Canada is competitive in, congressional sources said. In addition, the North
Dakota delegation requested to meet with President Clinton after the meeting, although no meeting has been
scheduled.
The North Dakota delegation pointed out last week that the import levels under the expired 1994-1995
TRQ were exceeded in the 1996-1997 year. While the TRQ limited Canadian wheat to 49.6 million bushels per
year, Canada has exported 62.6 million bushels over the last year.
But while the delegation insisted that Canada voluntarily agreed to abide by the TRQ limits, a Canadian
official pointed out that Canada made no such commitment, and that the U.S. has simply been using those figures
as a basis to monitor imports. And despite recent U.S. efforts to engage Canada on the issue, Canada has steadfastly
refused to entertain the idea of setting up another TRQ.
Given that hurdle, USTR's recent strategy has been to focus on ways to get U.S. wheat into Canada.
"[W]e plainly do not have comparable access for our grain shipments into Canada, and the Canadians don't
dispute that," Barshefsky said Aug. 6. "So we are working with Canada with respect to market access issues on
grains, wheat and barley for example, in the hope to see improvements of a significant type."
Specifically, the U.S. has begun to examine whether Canada's end-use certificate requirements are an obstacle
to U.S. wheat in Canada, and whether U.S. growers have access to the same, low-cost pesticides as Canadian
farmers (Inside U.S. Trade, May 9, p. 18).
EU HINTS AT WTO CHALLENGE OF U.S. USE OF SEMI-GENERIC NAMES FOR WINE
The European Union this week hinted that it could launch a World Trade Organization challenge against a
new U.S. law that codifies the ability of U.S. winemakers to label their wine using names which the EU believes
should be reserved for specific geographical regions. In a July 29 letter to U.S. Trade Representative Charlene
Barshefsky, EU Agriculture Commissioner Franz Fischler also warned that the law could complicate efforts to
address this issue in ongoing bilateral discussions.
Fischler strongly criticized the amendment sponsored by Senate Banking Committee Chairman Alfonse
D'Amato (R-NY), which was subsequently included in the budget agreement which President Clinton signed into
law on Aug. 5. Fischler warned that the new law could violate two separate provisions of the Uruguay Round
Trade-Related Aspects of Intellectual Property agreement.
"The EC considers that the adoption of the d'Amato amendment would significantly hinder our bilateral wine
relationship, and would have a very negative influence on the ongoing bilateral wine talks," Fischler wrote in the
letter, reprinted below. "Such an amendment would have serious implications in terms of the United States'
existing obligations under the EC/U.S. wine agreement, and would create a new legal situation which appears
inconsistent with U.S. obligations under TRIPS articles 24.1 and 24.3."
TRIPs Article 24.1 obligates signatories to enter into negotiations to increase the protection of geographical
indications for wines and spirits. And under Article 24.3, members agreed to "not diminish the protection of
geographical indications" that existed prior to the date the WTO agreement took effect.
The new law allows U.S. wines to employ so-called "semi-generic" names, such as Burgundy and Chablis, as
long as the label also indicates the true place of origin of the wine. The law also gives the Secretary of the Treasury
the authority to determine what wine names are semi-generic. Until the D'Amato amendment, a U.S. regulation had
allowed U.S. wine-makers to use these names, and was monitored and enforced by the Bureau of Alcohol, Tobacco
and Firearms (ATF).
The law lists over a dozen names that are immediately to be treated as semi-generic: Angelica, Burgundy,
Claret, Chablis, Champagne, Chianti, Malaga, Marsala, Madeira, Moselle, Port, Rhine Wine or Hock, Sauterne,
Haut Sauterne, Sherry, and Tokay. U.S. wine-makers have used all of these semi-generic names before, and none
of them are new, informed sources said.
8
INSIDE U.S.TRADE - August 8, 1997
Clinton has until August 11 to use the line item veto on the budget deal he signed, and that the tool could be
used to strike D'Amato's language, sources noted. While the European Commission and EU member states
including France, Italy, Spain and Portugal were lobbying the White House to do so, sources said at press time that
there were no indications that Clinton was considering this step.
Fischler's letter said the EU is trusting that the U.S. will do "all possible" to avoid allowing the language to
become law.
U.S. importers and industry sources said this week that the EU thinks the law will disrupt the bilateral
wine relationship because the EU has been pressing the U.S. for years in talks under a 1983 bilateral wine agree-
ment to stop the use of semi-generic names altogether.
As part of the 1983 deal, the U.S. wine industry gave up the use of some semi-generic names in return for
what it thought would be permanent EU acceptance of certain winemaking processes that the U.S. industry uses but
the EU industry does not. Instead, the EU has accepted U.S. processes for one-year periods under a derogation
from EU regulations, and has pressed the U.S. each year to stop using semi-generic names in exchange for a
permanent acceptance of U.S. practices, a U.S. industry source said.
The D'Amato language will likely make it much more difficult for U.S. negotiators to strike such an agree-
ment, because U.S. law would have to be changed by Congress in order to ban the use of any semi-generic names,
the source said. In contrast, the U.S. had more flexibility to negotiate when the use of these names was only
covered under a U.S. regulation.
"I think the bilateral talks are done now," a U.S. importer said. "I suspect they will not be a hospitable
environment anymore." The two sides are expected to meet before the current one-year extension for U.S. wine
expires this December, sources added.
U.S. importers, which would derive a greater commercial benefit if U.S. winemakers stopped using semi-
generic names, have criticized the D'Amato provision because they
However, a U.S. industry source said the U.S.-EU wine talks have generally "gone nowhere" over the last
several years, and that the law would therefore make little difference. The U.S. has generally rejected EU pressure
to cease the use of semi-generic names, and the EU has continued to accept U.S. wine each year under derogations
of its regulation. The regulation generally requires non-EU wine to be produced only by practices that are autho-
rized for the production of EU wine before it can be imported.
Despite the EU threat not to admit exports of U.S. wine, the EU has not followed up on that warning because
the U.S. has threatened to take the EU to the WTO, and because the EU likely fears that the U.S. would cut off EU
wine exports to the U.S.
Meanwhile, the U.S. has used the bilateral talks to try to secure a "mutual recognition" agreement in which the
EU would accept as equivalent and allow the importation of U.S. wine made in certain ways. For example, some
U.S. wineries put their wines through an ion exchange process, which the industry claims improves the taste of the
wine but otherwise poses no health risks. But the EU has thus far refused to permanently accept this process and
others until a deal on semi-generic names can be reached.
Sources said the Gallo Winery of California and the Canandaigua Wine Company of New York, the
largest and second largest U.S. wineries, respectively, urged D'Amato to introduce the language on semi-generic
names.
Fischler Letter on Wine
July 29, 1997
wine have been discussed by the EC and the U.S. on many
occasions. The U.S. took obligations under the bilateral EC/
Ms. Charlene Barshefsky
U.S. wine agreement of 1983 to prevent further erosion of
United States Trade Representative
geographical indications for wines into semi-generic names,
Office of the United States Trade Representative
an obligation which was confirmed and clarified in a letter
Washington, D.C.
from the Director of the Bureau of Alcohol, Tobacco and
Firearms in 1991. Currently, talks are proceeding between
Dear Charlene,
our officials to explore the scope for an overall wine agree-
ment of mutual benefit.
We understand that an amendment proposed by Sena-
The EC considers that the adoption of the d'Amato
tor d'Amato to codify the semi-generic uses of geographical
amendment would significantly hinder our bilateral wine
indications for wine into U.S. law has been introduced into
relationship, and would have a very negative influence on the
the Revenue Reconciliation Act of 1997.
ongoing bilateral wine talks. Such an amendment would have
The use and protection of geographical indications for
serious implications in terms of the United States' existing
INSIDE U.S.TRADE - August 8, 1997
9
obligations under the EC/U.S. wine agreement, and would
unfortunate situation developing.
create a new legal situation which appears inconsistent with
U.S. obligations under TRIPS articles 24.1 and 24.3.
Yours sincerely,
We trust you will do all possible to avoid such an
F. Fischler.
ROTH URGES OECD SHIPBUILDING SIGNATORIES TO WAIT FOR U.S. RATIFICATION
Senate Finance Committee Chairman William Roth (R-DE) last week urged foreign signatories to an agree-
ment that would reduce shipbuilding subsidies to give the U.S. additional time to ratify the agreement. Roth said in
a July 30 statement on the Senate floor that the U.S. is "close" to approving the deal, and warned signatories
against taking steps that might shift the momentum away from ratification.
"I strongly urge other signatory countries not to take any action that might forever compromise our long-held
goal of achieving free and fair trade in the global shipbuilding sector," Roth said. "It is my view that the United
States is very close -- closer than it has ever been -- to enacting the legislation necessary for completion of U.S.
ratification of the agreement."
Roth said he hoped that other signatories to the agreement, which was negotiated among some members of the
Organization for Economic Cooperation & Development, understand that the delay in Congress on passing the
required legislation was "unavoidable" due to the need to pass the budget bill. The U.S. is the only signatory that
has not ratified the agreement.
"This delay should in no way be interpreted as a lack of resolve to bring the OECD Shipbuilding Agreement
implementing legislation to closure," Roth said. "It would be terribly counterproductive and inappropriate for other
signatory countries to abandon this important agreement at this juncture in reaction to this relatively minor and
unavoidable delay."
Congressional supporters of the OECD agreement have worried that the long U.S. delay in ratifying the deal
may prompt other signatories to begin considering increasing subsidies to their shipbuilding industries. As this
move would violate a standstill provision that signatories agreed to while the deal was being ratified, supporters
fear it could lead to a breakdown in the agreement. Other signatories include Japan, Korea, Norway, and the
European Union.
Roth said he expects that Congress will be able to pass the implementing legislation soon after it returns from
August recess due to the progress made by Senate Majority Leader and Finance Committee member Trent Lott (R-
MS) and John Breaux (D-LA), who is also a member of the committee.
"I expect that their work on the implementing legislation and the resolution of certain procedural issues will
be concluded shortly to that we can complete committee consideration and congressional passage of this bill as
soon as possible after we return in September," Roth said.
U.S. Trade Representative Charlene Barshefsky also was pleased with recent progress, and urged Congress in
an August 1 statement to pass the legislation "as soon as possible to avoid an unraveling of the agreement."
But Congress has not yet drafted specific language that reflects the spoken compromise between sup-
porters of the current bill and those who want to ensure that it does not in any way jeopardize U.S. national
security. Also, scheduled markups of the current legislation, S. 629, have been postponed.
Instead, members and staff from Finance, the Senate Commerce Committee, and the House National
Security Committee have continued to negotiate changes to the bill, according to U.S. industry sources.
These sources said the goal is to agree on language before a markup is scheduled so that the markup can be
completed quickly.
Sources said one reason why the implementing language has been postponed is because Lott has linked the
bill to the passage of another maritime bill, S. 414. This bill would amend the Shipping Act of 1984 by eliminating
the Federal Maritime Commission and by deregulating the industry in other ways in order to reduce costs and
requirements for U.S. shippers.
As Breaux has sided with union representatives who oppose S. 414, Lott has warned that the bill must be
passed before the OECD implementing language can be considered, industry sources said.
Rep. Herbert Bateman (R-VA), chairman of the House National Security subcommittee on military
readiness, told Lott last month that certain specific changes must be made in order to win the support of those who
want to toughen the bill.
These members have repeatedly warned that the implementing bill must not prevent the U.S. government
from awarding subsidies to makers of commercial vessels with defense features. Failing to meet this criteria would
10
INSIDE U.S.TRADE - August 8, 1997
threaten U.S. national security by allowing other countries to challenge these subsidies once the agreement takes
effect, Bateman argued in his July 10 letter to Lott, reprinted below.
"No trade organization should be granted the right to challenge what is in our national security interests or to
order changes in U.S. naval construction programs," Bateman said.
Bateman also recalled that the World Trade Organization has ruled that U.S. regulations on imported gasoline
are a "disguised restriction on international trade," and that the shipbuilding agreement should not leave the U.S.
open to a similar attack in the area of subsidies to these military-capability vessels. While the letter warns that weak
language could lead signatories to challenge these U.S. programs in the WTO, U.S. industry sources pointed out
that signatories could only raise disputes to the OECD dispute settlement body that would be created by the
agreement.
Bateman also warned that S. 629 needs to explicitly state that the U.S. will withdraw from the agreement
if it threatens the Jones Act. The Jones Act requires ships used between U.S. ports to be built by U.S. ship-
yards.
Bateman said he was "encouraged" by verbal commitments to change the bill to ensure that the Title XI loan
guarantee program to U.S. shipbuilders is extended for three years after the deal is enacted, and that it continue to
be made available for Jones Act ships. And he reiterated the importance of requiring the U.S. government to take
steps against ships dumped into third countries by pursuing complaints under the injurious pricing provisions under
the agreement, as opposed to the provisions in the country in question.
Similar letters were also sent to Lott on June 17 by Sens. Olympia Snowe (R-ME) and Susan Collins (R-ME),
as well as by Sen. John Warner (R-VA) on July 22.
Bateman also warned that even though these changes are "clearly steps in the right direction," substantial
additional changes are "clearly warranted" in order to address the concerns of members who last year voted for a
series of similar amendments to the bill that were sponsored by Bateman.
While the letter did not explain what other changes might be required, Bateman warned that "[t]he House
spoke very clearly on this agreement when it voted 278 to 149 to adopt my national security amendments."
Industry supporters of the OECD agreement have complained that opponents have continued to request additional
changes to the bill as soon as other changes have been made.
Meanwhile, industry representatives who have opposed the OECD agreement have said they would support
the deal if the changes that Bateman outlined and that Lott and Breaux have agreed to were made. But they have
warned that they would need to examine the compromise language before making a final commitment (Inside U.S.
Trade, June 13, p. 1).
Bateman Letter on Shipbuilding
July 10, 1997
provides that the President shall give notice of intent to
withdraw from the agreement if it is determined "that the
The Honorable Trent Lott
implementation of the Agreement is significantly under-
Senate Majority Leader
mining the administration or operation of the statutes or
United States Senate
significantly impeding them from achieving their objec-
Washington D.C. 20510
tives." Although I personally believe that the House passed
language on this same subject is clearer and more precise,
Dear Trent:
I would respectfully suggest that the application section,
section 118 in S.629 should be amended to include a
It is my understanding that the Senate Commerce,
mandatory withdrawal mechanism should trade counter-
Science, and Transportation Committee as well as the
measures be authorized against U.S. shipbuilders who
Senate Finance Committee will shortly markup S.629,
continue to build for the domestic market. To make it clear
legislation to implement the OECD Shipbuilding Agree-
that the Jones Act is not affected by this agreement, S.629
ment. While this legislation attempts to address a number
should further be amended to clarify that the favorable
of deficiencies in previous versions, I would like to urge
terms of the current title XI loan guarantee program will
you to consider and push for adoption of several provi-
continue to be available to vessels constructed for the
sions which I believe are necessary to ensure the future
Jones Act after the enactment of implementing legislation.
viability of the U.S. shipbuilding industrial base and our
Such provisions are essential to preserving the integrity of
national security.
the Jones Act, and should in no way threaten implementa-
Consistent with representations made by USTR, I
tion of this agreement or approval by the foreign signato-
strongly believe that S.629 must be amended to ensure the
ries.
complete exemption of the Jones Act from the application
The House also included a provision to clarify that
of the Agreement's terms. As currently drafted, S.629
nothing in the Agreement should be construed as prevent-
INSIDE U.S.TRADE - August 8, 1997
11
ing the United States from taking any action which it
while the USTR has attempted to resolve this issue, it is clear
considers necessary for the protection of its essential secu-
to me that the several versions being discussed are still inad-
rity interests. This House-passed provision would ensure
equate.
that the Department of Defense could not be challenged
Finally, I am encouraged by representations made
before the World Trade Organization, made up of foreign
on the floor of the Senate that you will seek to have S.629
judges, by giving the Secretary of Defense the authority to
allow for the continuation of the title XI Loan Guarantee
invoke national sovereign authority to define for purposes
program under the current favorable terms and conditions
of exclusion from the agreement the terms "military ves-
for three years for export vessels and to allow for incorpo-
sel", "military reserve vessel", or "essential security inter-
ration of the House passed "Third Country" antidumping
est." No trade organization should be granted the right to
provision S.629. I note that S.629 also incorporates a
challenge what is in our national security interests or to
number of the other changes which were adopted by the
order changes in U.S.naval construction programs.
House last year.
We have been down this road before. Last year, the
These changes are clearly steps in the right direction,
World Trade Organization declared a regulation of the Envi-
however I believe that substantial additional changes are
ronmental Protection Agency on reformulated gasoline im-
clearly warranted to address the concerns of the House of
ports and Clean Air Act standards to be a "disguised restriction
Representatives last year. The House spoke very clearly on
on international trade." Though the WTO accepted the goals
this agreement when it voted 278 to 149 to adopt my national
being pursued by U.S. environmental policy and regulations
security amendments. Thank you for your consideration of
were legitimate, it still ruled that the U.S. had used "a dis-
these national security concerns with the agreement and the
guised restriction on international trade" to carry out a policy
underlying concerns that I have with S.629. I look forward to
against the interests of refiners in Venezuela and Brazil. One
speaking with you further on these issues of vital interest to
can only imagine the same kind of ruling, substituting "secu-
our nation and its shipbuilders.
rity interests" for "environmental objectives." I do not believe
that we should leave the door open for foreign challenges to
Sincerely,
DOD's acquisition of non-combatant reserve and auxiliary
vessels or support for commercial designs with national de-
Herbert H. Bateman (R-VA)
fense futures. It is my understanding that the Navy fully
Chairman
supports the House passed definitions on this subject and, that
Special Oversight Panel on the Merchant Marine
EX-IM BANK SURVIVES FUNDING ELIMINATION VOTE, AWAITS FINAL HOUSE VOTE
The Export-Import Bank last week survived a House vote on an amendment that would have eliminated its
funding, along with funding for other export promotion programs such as the Overseas Private Investment Corpo-
ration (OPIC). During House debate last week on Title I of the foreign operations appropriations bill, which deals
with export promotion, House Banking and Financial Services committee member Ron Paul (R-TX) introduced the
amendment, which was ultimately voted down 387-40.
Among the 37 Republicans who voted for the measure were Majority Whip Tom DeLay (R-TX) and Govern-
ment Reform and Oversight Committee Chairman Dan Burton (R-IN). Democrats supporting the measure were
Edward Markey (D-MA), Gene Taylor (D-MS) and James Traficant (D-OH).
As the House was unable to finish debate on the entire bill, the House was not able to vote on the appropria-
tions bill in July, and will now do so after the August recess.
Earlier in July, the House Appropriations Committee approved an Ex-Im appropriation of $632 million for its
program budget. That amount is $94 million less than last year's level, but matches the Administration's request
for FY-98.
Meanwhile, the full Senate on July 17 authorized $700 million for Ex-Im's program budget and $46.6 million
for administrative expenses.
On Ex-Im's reauthorization, the Senate Banking committee last week marked up a bill that would keep Ex-Im
running until 2001. The Senate bill was amended in committee to include a provision that would require the bank
to promote use of its services by small and medium-size businesses. Following the July 31 markup, Committee
Chairman Alfonse D'Amato (R-NY) said he would seek floor time for the Ex-Im reauthorization as soon as the
Senate returns, sources said.
On July 9, the House Banking Committee marked up its Ex-Im reauthorization bill, which includes a similar
provision on small and medium-sized businesses and also would reauthorize Ex-Im until 2001. The House bill was
reported with other amendments: one that would require Ex-Im to include two labor representatives to be appointed
to its Advisory Committee and one that would ensure that a preference be shown by the Bank to U.S. companies
12
INSIDE U.S.TRADE August 8, 1997
that are committed to the creation of jobs in the U.S.
Congressional supporters of OPIC also had to fend off efforts last week to cut funding for the agency,
which provides loans, loan guarantees, political risk insurance and project finance to U.S. companies hoping to
invest overseas.
Specifically, OPIC survived an attempt by Budget Committee Chairman John Kasich (R-OH) and Rep.
Edward Royce (R-CA) to cut its administrative allotment by 35%, from $32 million to $20.8 million. The amend-
ment was rejected July 30 by a vote of 272 to 156.
A similar amendment was defeated in the Senate July 16. The Senate last month granted OPIC $60 million for
its program account and $32 million for administrative expenses.
Regarding reauthorization of OPIC, two legislative options are available, according to informed sources.
In the Senate, a rider attached to the foreign operations and export promotion appropriations bill last month
by Sen. Mitch McConnell (R-KY) would reauthorize the agency for two years. However, if the amendment
does not become part of the conference agreement, the agency could still be reauthorized by a free-standing
bill.
A free-standing bill has begun to move in the House, where it was reported amended to the full House
International Relations Committee last month. In the International Economic Policy and Trade subcommittee
markup, the bill was amended to include a provision that would prohibit OPIC from providing support for
any projects in countries that do not meet certain standards for human rights practices and political develop-
ment.
But a congressional source, said this amendment would cripple OPIC's activities, which by their nature are
primarily involved in developing countries, few of which meet all of the amendment's criteria for democratic
freedoms and economic liberalization.
In a related development, the Senate late last week confirmed George Munoz to be the new President and
CEO of OPIC. Munoz previously served as the Chief Financial Officer and Assistant Secretary for Management for
the Treasury Dept.
REPUBLICAN FAST TRACK STAND MAY BE POLITICAL HANDICAP, DUNN SAYS
A Republican member of the House Ways & Means trade subcommittee late last week acknowledged
that her party's stance in favor of largely excluding labor and environmental provisions from future trade
agreements could backfire electorally. Rep. Jennifer Dunn (R-WA) defended the position that such provi-
sions should only be directed related to trade, but noted that this stance could leave Republicans vulnerable
to being portrayed by Democrats in the upcoming mid-term congressional elections as anti-environment and
anti-labor.
"We don't want ever to be put in that position, so there's a little paranoia attached," Dunn told the Washing-
ton International Trade Association July 31. "We are at this time willing to take few chances even though we
appreciate how important fast track is."
The current Republican stance is that labor and environmental measures must be directly related to trade in
order to be included under the expedited approval procedures provided for trade agreements under fast track. Dunn
said Republicans hoped Democrats would not use labor and environmental issues against them in the 1998 elec-
tions in the same way the issue of Medicare was used in the 1994 congressional races.
"Republicans continue to be a bit fearful that, if we do go along with the Administration and are where we are
now on labor and environment, that we will be portrayed by Democrats in various elections next year as anti-
environment, anti-union," Dunn said.
In addition to partisan differences, efforts to renew fast track authority must overcome divisions within both
parties, according to Dunn. For example, fast track faces opposition within the Republican party from the support-
ers of former presidential candidates Ross Perot and commentator Patrick Buchanan, she said.
"Folks from the Perot side are very strong with certain members of Congress, as are the folks from the
Buchanan point of view," Dunn said.
On the Democratic side, labor union opposition and the rivalry over the party's presidential nomination
present problems for the Administration in its fight for fast track, according to Dunn.
"You have two obvious nominees, [House Minority Leader Richard] Gephardt [(D-MO)] and [Vice President
Albert] Gore, who are battling each other over trade, among many, many other issues," Dunn said. "There is some
sense, certainly on the part of Gephardt, that fast track is not as important. Presidential politics does play a role."
Dunn added that she was heartened to see the President getting involved in the fast track campaign. "I'm
very pleased to see the President finally putting his weight and the weight of the Administration behind this
effort," Dunn said.
INSIDE U.S.TRADE August 8, 1997
13
She emphasized, however, that Republicans have done all they can to strike a compromise with the Adminis-
tration on how to include labor and environment concerns in a fast track bill.
"You get to a point where it is not worth moving any farther," Dunn said. "We want fast track, but we believe
we have negotiated, and been negotiated with, as far as you can go, and so we are pretty much at the point of no
more movement."
But Dunn said fast track supporters must take advantage of timing, and that their greatest opportunity will
come in September, when the Administration has promised to present its legislative proposal.
"[T]he bottom line is for the President to come to Congress, demonstrate his good faith [and] ask for our
help," she said. "So we are very interested in moving ahead with this, if we can come to a satisfactory conclusion."
U.S. GUN MAKER FILES SECTION 301 PETITION TO BOOST EXPORTS TO BRAZIL
A major U.S. gun manufacturer has called on the Clinton Administration in a Section 301 petition to help
open the Brazilian market for the import of small firearms and their parts by pursuing, if necessary, a dispute
settlement case in the World Trade Organization. In its petition, Smith & Wesson charged that the Brazilian
government is maintaining discriminatory taxation and distribution requirements, as well as licensing procedures,
which insulate the domestic industry from foreign competition.
The "cumulative effect" of these policies is driving up the cost of U.S. firearms in Brazil to a level "substan-
tially higher" than domestic equipment, a private-sector source said. In addition, imports are further blocked by a
partial embargo on certain firearms enforced by the Brazilian government, the petition said.
"Smith & Wesson urges the United States to investigate this matter, consult with the Government of Brazil,
and proceed with dispute settlement as necessary under the GATT [General Agreement on Tariffs & Trade]...," the
July 17 petition said. "Above all, Smith & Wesson's goal is that the government of Brazil accord national treatment
to all imports into Brazil of small firearms and parts thereof from the United States in every regard."
The company filed the complaint after trying for several years to work with the Brazilian government to
improve access to the Brazilian market, which was the second-largest worldwide last year behind the U.S., accord-
ing to a U.S. industry source. But he held out the possibility that the problem could be settled without a formal
dispute settlement proceeding. "If there is another way to approach this to open the market, we would consider it,"
he said. But given that all previous efforts have been fruitless, the Section 301 route is the "best approach" now, he
said.
The source dismissed the notion that USTR may shy away from pressing a case for increased exports of
firearms. "This is a legal product in the U.S. and in Brazil," he said. There has not been "any reaction" from the
U.S. government regarding the nature of the product, he said.
The source pointed out that the facts of the petition have been prepared in close consultations with the U.S.
government. "There has been a good deal of back and forth with USTR and other agencies" in the preparation, he
said. "It is my impression that there is not great disagreement" on the substantive issues raised.
Under Section 301 of U.S. trade law, the Office of the U.S. Trade Representative is required to act in this case
because the Brazilian policies in question violate the rights of the United States under existing trade agreements,
the petition pointed out. But even without this breach, Brazil's barriers to imports are actionable under Section 301
as "unreasonable acts, policies, or practices" that burden or restrict U.S. commerce, the petition said.
Smith & Wesson wants Brazil to terminate the embargo and amend its discriminatory application of
taxation rules and regulations, which drive up the cost of Smith & Wesson guns in Brazil, according to the petition.
It wants U.S. imports of the specified guns to be treated equally with those made in Brazil, the petition said. If
Brazil agrees to do so, the U.S. government should closely monitor the country's compliance with its commit-
ments, the petition said.
None of the Brazilian policies identified can be justified by the exemptions that the GATT allows for coun-
tries that need to safeguard their balance of payments, bolster an infant industry or protect their essential security
interests, according to the petition.
For example, Brazil cannot claim it needs the restrictions for balance of payments reasons because it is not in
the early stages of development. Based on its per capita gross national product, Brazil has been classified as an
"upper middle income" country by the World Bank, according to the petition. In addition, the country ran a $13
billion balance-of-payments surplus in 1995, the last year for which official data are available, the petition said.
Brazil maintains a partial embargo on certain small firearms and imposes restrictions on the financing of such
imports in violation of Article XI, which prohibits trading partners from imposing prohibitions or restrictions other
than duties, taxes or other charges, according to the petitioners. A U.S. private sector source said that he knew of
no public defense of the embargo and other restrictions ever made by Brazil.
The petition also says Brazil's certification and licensing for imports of small firearms is a restriction imper-
missible under the same article. The import licensing and administrative procedures applied to the guns in question
14
INSIDE U.S.TRADE - August 8, 1997
are also a violation of Article 3 of the licensing agreement because they restrict and distort trade, the petition said.
They also violate Article 5 and 6 of the agreement because they are not as simple as they could be, it said.
In addition, Brazil's system of taxation and the requirement that imported small firearms for the civilian
market cannot be sold directly from the importer to the retailer violates Article III of the GATT, according to the
petition. Under this national treatment provision, Brazil must treat imports no less favorable than domestic prod-
ucts. This additional level of distribution increases the cost of guns early in the process, a difference which is then
compounded by the subsequent application of tax rules, the petition charged.
Brazil has also required since March that importers provide immediate payment for goods, including firearms,
by depositing Brazilian currency in specified banks, the petition said. This means importers must transfer their
payments "far ahead" of the time specified in regular commercial contracts, thereby making products more expen-
sive for importers, the petition said. This obligation violates Article XI and the national treatment provision of
GATT Article III.
Brazil also implements the provision in a way that favors its trading partners in Latin America by setting a
higher value of imports at which it is triggered, the petition charged. This violates Article I of the GATT, which
obligates Brazil to extend the same treatment to all its trading partners, according to the petition.
The petition defines small firearms as pistols and revolvers ranging in caliber from .22 to .45 inches.
While Brazil's volume of exports of small firearms to the U.S. has risen dramatically to about 250,000 units
yearly since 1997, total U.S. exports to Brazil have been 5,766 units during that same time period, according to
petition. Last year, 180,000 small firearms were purchased in Brazil, it said.
TUNA-DOLPHIN LAW DELAYS LABEL CHANGE UNTIL COMMERCE STUDY IS DONE
The Clinton Administration and other proponents of altering U.S. law to allow more imported tuna to be
labelled "dolphin-safe" were forced last week to delay that change, and instead negotiated compromise
legislation that passed the Senate. The language would immediately lift the U.S. embargo on dolphin-unsafe
tuna and set in motion a process that could allow the definition of "dolphin-safe" tuna to be expanded in the
future.
The Senate approved the compromise in a 99-0 vote on July 30. The House, which earlier had passed a
version that would have altered the label in accordance with the Administration's wishes, is expected to
adopt the Senate version upon its return from the August recess. This move would avoid the need for a
House-Senate conference, which could threaten to undo the delicate compromise reached in the Senate, a
Senate source said.
The compromise legislation would immediately lift the ban on imports of tuna from countries including
Mexico and Colombia, but would keep in place the current definition of "dolphin-safe" tuna for labeling purposes
until at least March 1999, pending the preliminary findings of a study on whether the chasing and encirclement of
dolphins in the Eastern Tropical Pacific Ocean (ETP) has a "significant adverse impact" on two species of dol-
phins.
Current U.S. law does not allow tuna caught using purse seine nets that are set on schools of dolphins, under
which mature tuna tend to congregate, to be labeled "dolphin-safe." The proposed new definition would allow tuna
caught by setting nets on dolphins to be labeled "dolphin-safe" as long as no dolphins are observed killed or
seriously injured during the process.
Under the compromise, which was based on proposals made by Sen. John Kerry (D-MA), the new definition
would go into effect if the Secretary of Commerce makes a preliminary determination in March 1999, based on the
initial findings of a National Marine Fisheries Service study, that setting nets on dolphins does not harm the
northeastern offshore spotted dolphin and eastern spinner dolphin populations.
The Commerce chief would also make a final determination between July 2001 and December 2002 based on
a separate, broader study that involves more dolphin species. This study also takes into account the potential role
that "stress" from being chased plays on dolphins' population levels, as well as the effect that alternative ways of
fishing has on the levels of bycatch, a Senate source said.
Until the positive Commerce determination, all tuna caught during an entire months-long fishing
expedition could not be labeled "dolphin-safe" if dolphins are purposely encircled at any point during the trip. If,
on the other hand, dolphins are observed killed or seriously injured during any particular setting of nets during a
trip that does not purposely target the marine mammal, only the catch from that particular set could not be labeled
"dolphin-safe."
The deal in principle was struck between senators on both sides of the issue and the Administration as the
scheduled vote to end Senate debate approached on July 25, but only after a communication from National Security
Advisor Sandy Berger was delivered to Sen. John McCain (R-AZ), the chairman of the Senate Commerce Commit-
INSIDE U.S.TRADE - August 8, 1997
15
tee. Berger told McCain that high-level Mexican officials had provided assurances that Mexico, the main Latin
American nation affected by the tuna embargo, would not object to provisions of the Senate compromise as
violating the Panama Declaration, according to informed sources.
The Panama Declaration is a 1995 agreement of intent signed between the U.S., nine Latin American fishing
nations, France and Vanuatu to create a legally binding international treaty to protect all marine species in the
Eastern Tropical Pacific Ocean fishery. Under the declaration, the legally binding international treaty would be
negotiated once the U.S. lifts its embargo and implements the "dolphin-safe" label change, although it would now
appear that the other countries have agreed to move forward to do that even though the label change has been
delayed.
Upon seeing the legislative draft of the compromise, however, Mexican Undersecretary for Fishing
Carlos Camacho subsequently tried to insist, in a July 29 letter to McCain, that the interim labeling standard be
implemented on a per-set rather than on a per-trip basis. This would have allowed fishermen to encircle dolphins
on one set and yet still label tuna caught in other sets on the same trip as "dolphin-safe," without having to exclude
all tuna caught on the trip from the label.
Camacho's letter, reprinted below, threatened not to begin negotiations toward creating a legally binding
instrument for the Panama Declaration if the per-set designation was not allowed for all labeling purposes. Al-
though Camacho's eleventh-hour demand for changes was largely rebuffed, Mexico nonetheless intends to press
for those talks to begin early this fall, informed sources said.
Mexico's acceptance of the deal was confirmed this week by an environment ministry official based in its
embassy in Washington, DC.
"Given the circumstances, it was the best available outcome in the short term," Mario Aguilar of Mexico's
ministry of environment, natural resources and fisheries said in an interview. "However, I feel very disappointed
that the environmental considerations were probably the single-most absent considerations of this process, particu-
larly among the opponents" of the label change.
"Although this result is basically a delay," he said, "I did not hear any argument as to why the ecosystem
should continue suffering for another two years." In Mexico's view, harm to immature tuna, sharks, sea turtles and
other forms of marine life is encouraged by the current definition of the "dolphin-safe" label used in the U.S., he
said. The definition prohibits setting nets on schools of dolphins, where mature tuna often congregate, thereby
promoting "predatory fishing practices," such as setting on logs, which increase the bycatch of other marine
species, according to Aguilar.
Serious negotiations in the Senate on a potential delay in the labeling change ensued after a cloture
motion was filed on July 23, and it became apparent that the proponents did not have a clear-cut super-
majority of 60-plus votes on which to override a filibuster threat by opponent Sen. Barbara Boxer (D-CA),
congressional sources said (AT, July 24, p. 1). At the same time, Boxer and her allies were forced toward a
serious compromise by the fear that a breakdown in the negotiations followed by charges of bad-faith from
the pro-label-change side could peel enough votes away that the cloture motion could not be defeated, a
Senate source said.
Until the compromise was struck, the proponents - which included the Administration, co-sponsors of the
original bill, S. 39, John Breaux (D-LA) and Ted Stevens (R-AK), the U.S. tuna fishing industry, and five U.S.
environmental groups - had steadfastly refused to delay the labeling change. They had argued that such a delay
would not faithfully implement the Panama Declaration.
In addition to Boxer, opponents of changing the label included Sens. Joseph Biden (D-DE) and Bob Smith (R-
NH) and a range of other U.S. environmental and conservation groups.
Proponents and opponents of the labeling change this week put forward strikingly different interpreta-
tions of the implications of the compromise. The proponents emphasized that the new law shifts the burden of
producing a 60-vote, filibuster-proof super-majority in the Senate to those who want to preserve the current
labeling standards. The shift to the new standard will be automatic once the Commerce Secretary makes a determi-
nation that setting nets does not harm two species of dolphins, they noted. The proponents said "existing scientific
studies" indicate that this determination should be made without any problem.
But opponents stressed that a previous study carried out by the National Marine Fisheries Service had sig-
nalled severe depletions of the two dolphin species at issue, and they questioned whether NMFS could legitimately
produce a new study contradicting those findings in such a short time frame.
Because the new law now allows sale in the U.S. of tuna caught in "dolphin-safe" ways under the current
definition, one opponent predicted that it could encourage Mexican fishers, one third of whom already fish without
setting nets on dolphins, to switch to that method in order to enter the U.S. market with that label. Prices for tuna in
the U.S. are higher than in alternative markets.
Opponents were also preparing to reinvigorate a consumer boycott against any dolphin-unsafe tuna
16
INSIDE U.S.TRADE - August 8, 1997
which enters the U.S. market now that the embargo has been lifted. Such a boycott could easily be expanded
to all tuna if the Commerce Secretary makes a determination that dolphins are not being harmed by chase and
encirclement, because that action would, in their view, call into question the "dolphin-safe" label, opponents
said.
Mexican Letter on Tuna-Dolphin Compromise
safe" labeling standards would be determined on a per-set basis,
Washington D.C.
not a per-trip basis during the period after regulatory implemen-
July 29, 1997
tation and before the March 1999 finding on significant adverse
impact. This was the only condition the countries placed on
The Honorable John McCain
acceptance of the compromise. Such a determination is crucial to
Chairman
the countries not only for effective market access reasons, but
Committee on Commerce, Science and Transportation
also for bycatch reduction efforts. Once tracking and verification
United State Senate
regulations are in place, there is absolutely no logical reason why
Washington D.C. 20510
this per-set tracking should be delayed.
If, during this intervening time, the standard for dol-
Dear Mr. Chairman:
phin safe remains on a per-trip basis, there is absolutely no
It is with particular concern that I find it necessary to write
motivation for the countries to seek full and prompt imple-
this letter on behalf of Ambassador Silva-Herzog and myself, in
mentation of the Declaration of Panama until just before the
relation to the work that has been taking place over the past
March 1999 decision. This adjustment to the labeling stan-
several days by Senate staff to draft legislative language for S.39
dard would be consistent with other changes included by
consistent with the agreement reached among interested Sena-
staff, including immediate inclusion of mortality and serious
tors last Thursday. It is in this regard and considering the
injury standards. Conversely, if the standard will be on a per-
preoccupation previously expressed by Mexico and other coun-
set basis, Mexico will call for a special meeting of the
tries parties to the Panama Declaration that I would like to share
intergovernmental body of the end of August to begin work
with you substantial concerns regarding the apparent results of
on prompt implementation of the Declaration including ne-
those staff drafting meetings.
gotiation of the binding legal instrument.
The resulting legislative draft presented to us at 5:00 p.m.
I am hopeful that the transfer of the compromise agree-
yesterday (identified as the 3:20 p.m draft) includes numerous
ment into legislative language can be made consistent with the
substantial changes that go well outside of what we understand
agreement as it was presented to the nations last Friday.
was the compromise reached among yourself and the other
Once again, please accept my appreciation and respect for
Senators. Furthermore, and most important, the language di-
your continued support of our effort to effectively manage all of
rectly implementing the compromise is significantly inconsis-
the living marine resources of the eastern Tropical Pacific Ocean.
tent with the compromise principles we agreed to on Friday
With warm regards.
morning, and is inconsistent with clarification commitments
made directly to us at the time we accepted points one through
Sincerely,
four of the "compromise".
Specifically, we were assured on Friday that "dolphin
Carlos Camacho
COSTA RICA GIVEN GO-AHEAD TO PREPARE DRAFT FTAA LAUNCH DOCUMENT
Western Hemisphere trade negotiators last week authorized Costa Rica to draft by October an initial version
of the ministerial declaration which will be used to launch the formal negotiations for a Free Trade Area of the
Americas. In a July 29-31 meeting in San Jose, FTAA vice ministers from 28 countries agreed that Costa Rica,
which is chairing this round of the FTAA process, should use an "annotated outline" of the Declaration of San Jose
as a basis for its drafting effort.
The annotated outline explains on a point-by-point basis why specific topics should be included in the
declaration. According to its introduction, the outline "only represents a point of reference for an ordered dialogue
to aide in the drafting of the Declaration of San Jose and is entirely subject to the consideration of the Preparatory
Committee," which is made up of the FTAA vice ministers.
The outline says that the document used to launch the FTAA talks should be patterned in large measure after
the 1986 Punta del Este Declaration, which kicked off the Uruguay Round negotiations of the General Agreement
on Tariffs and Trade. The launch document should outline the general principles which have already been agreed
upon by the 34 nations participating in the process, it says. And the launch document should also state the specific
issues to be negotiated in each of the 12 subject areas on which an FTAA working group has been formed, accord-
ing to the outline.
In addition, the document should make clear how the formal talks would be managed and organized, and
where they would be held, it says. One of the key questions to be answered in the document is whether the talks
INSIDE U.S.TRADE - August 8, 1997
17
"will be conducted in stages or simultaneously," according to the annotated outline.
The final launch document will be approved by FTAA trade ministers at a ministerial in San Jose now
tentatively scheduled for March 1998, sources said. Costa Rica is expected to draft the initial version of the
Declaration of San Jose in time for the next meeting of the FTAA vice ministers, which is tentatively scheduled to
take place Oct. 28-30 in Puntarenas, Costa Rica.
The outline calls for references to be made in a separate section to the roles to be played by the business
sector, and by the labor and environmental sectors. But this way of organizing the declaration was called into
question by a number of delegations at the last month's vice ministerial, and Costa Rica indicated it would rethink
the proposal.
The delegations argued that the established participation of the private sector through the Americas Business
Forum (ABF) is more broadly accepted, and should not be placed alongside the less-mature and more-controversial
participation of labor and environmental sectors in the FTAA process. The ABF has participated in each of the
three FTAA ministerials thus far, and its private-sector recommendations have been taken into consideration by the
governments.
The Uruguay Round's Punta del Este Declaration is a "valid" point of reference for the FTAA launch
document because both negotiating exercises have addressed complex issues and involved a large number of
participants with important differences in size and development levels, the outline says.
Similar to the Uruguay Round, the FTAA will go beyond traditional tariff and non-tariff negotiations to
provide disciplines in the areas of subsidies, countervailing duties and antidumping, standards and technical
barriers to trade, it notes. And the hemispheric talks will also address the so-called "new issues," such as intellec-
tual property, trade in services and investment, which were addressed in international trade talks for the first time
during the Uruguay Round, it adds.
One section of the outline, which called for the inclusion of commitments on "status quo and dismantling,"
also known as standstill and rollback commitments, spurred significant debate at last week's vice ministerial.
The Southern Cone Common Market (Mercosur) delegation, among others, argued that such commitments
were not needed because all members of the FTAA negotiation are members of the World Trade Organization, and
thereby already obliged not to raise tariffs beyond their bound WTO rates or to otherwise violate WTO disciplines.
But the U.S. and Canada appeared unwilling to relinquish the idea of including such commitments, which have
been a standard, though oft-violated, part of most bilateral or regional trade negotiations.
EU TO INCLUDE GENETICALLY MODIFIED SOY, CORN IN NOVEL FOODS RULE
European Union member states last week unanimously approved a European Commission proposal to expand
its Novel Foods regulation, which outlines labelling requirements for foods containing genetically-modified
organisms (GMOs), to cover products derived from genetically altered corn and soybeans, according to EU
officials.
Following the July 31 decision, the Commission now has until November 1 to make a specific proposal on
how to expand Novel Foods to cover these products. The Commission will likely develop either a list of food
products that will have to be labeled as genetically modified, or a set of criteria against which products will be
measured to determine if they should be labeled, these officials said.
"Before November 1, we'll have another round to define the rules more clearly," one EU official said. "We've
said the principle of Novel Foods applies [to products derived from GMO corn and soy], and we'll go into detail
later."
While it is still unclear which corn and soy products will have to be labeled as containing GMOs and which
will not, products that are highly processed are generally less likely to require labeling, the official added. Pro-
cessed products are less likely to contain live genetically-altered material, he said.
The details of the decision will be worked out according to the Commission's recently announced guidelines
on labeling requirements for GMO products, which were released late last month and apply to all agriculture
products containing GMOs, sources said. Among other things, those guidelines do not foresee requiring trading
partners to segregate GMO and non-GMO agricultural exports to the EU, and instead will call for products to be
tested and labeled according to whether they "contain" or "may contain" GMO material.
The EU last year accepted the release into the environment of genetically modified corn and soybeans under
directive 90/220, which covers only environmental release and does not apply to products ready for human con-
sumption.
In a related development, European Commission President Jacques Santer assured U.S. Trade Represen-
tative Charlene Barshefsky and U.S. Agriculture Secretary Dan Glickman in a July 30 letter that the EU will not
require the U.S. to segregate its GMO products under its new labeling guidelines. The U.S. had feared that requir-
18
INSIDE U.S.TRADE - August 8, 1997
ing segregation would effectively block U.S. exports to Europe, since the U.S. does not now and has refused to
segregate GMO and non-GMO products.
"The approach is non-discriminatory and fully in accordance with the EU's international obligations," Santer
said in the letter, reprinted below. "It does not impose mandatory segregation, only proportionate labelling require-
ments, providing certainty for operators while avoiding undue costs."
Santer also noted that the guidelines only foresee actual testing for the presence of GMOs by public authori-
ties for "control purposes" or by companies on a voluntary basis.
"It is my firm belief that such a transparent labelling strategy will help overcome concerns and apprehensions
toward modern biotechnology," he wrote. Sources said last week that the letter was also meant to convey to the
U.S. that the EU took U.S. reservations about mandatory segregation into account when drafting the guidelines
(Inside U.S. Trade, Aug. 1, p. 5).
Santer Letter on GMO Rules
Brussels, 30 July 1997
approach is non-discriminatory and fully in accordance with the
EU's international obligations. It does not impose mandatory
Dear Ms Barshefsky, dear Mr. Glickman,
segregation, only proportionate labelling requirements, provid-
Thank you for your letter, dated 17 July 1997, concern-
ing certainty for operators while avoiding undue costs. Although
ing the labelling of genetically modified products. I am
our approach is science-based, it only foresees actual testing for
pleased to inform you that, on 23 July the European Commis-
control purposes by public authorities or testing on a voluntary
sion agreed on a general orientation on the labelling of
basis by companies.
products containing or derived from genetically modified
It is my firm belief that such a transparent labelling
organisms (GMOs). In defining this labelling strategy, the
strategy will help overcome concerns and apprehensions to-
Commission responds to the widespread request in Europe
wards modern biotechnology. It is therefore in the interest of all
for more consumer information as well as calls from industry
those who can be expected to benefit from products that have
for a transparent and level playing field. With this initiative,
been improved by the means of those new technologies.
the Commission also intends to address a major obstacle in
With this in mind, I hope I can count on your co-operation
obtaining the necessary Member State support for product
when elaborating and implementing the relevant legislation in
approvals.
order to ensure a smooth functioning of this labelling strategy.
Our proposed labelling strategy aims to satisfy this con-
cern by establishing a coherent and transparent labelling frame-
Yours sincerely,
work, giving consumers clear, honest and neutral information
about the GMO origin of products in the food chain. The
Jacques Santer
USTR OFFICIAL SEES BROAD SUPPORT FOR LABOR-ENVIRONMENT RULES IN MAI
A senior official from the Office of the U.S. Trade Representative this week said there is broad support among
members of the Organization for Economic Cooperation & Development for U.S. proposals on labor and environ-
ment rules in the Multilateral Agreement on Investment.
"We received a very favorable response" to informal U.S. proposals at the last negotiating session, Assistant
U.S. Trade Representative for Environment and Natural Resources Jennifer Haverkamp told the Washington
International Trade Association on Aug. 6.
Countries opposing any MAI provisions on labor and the environment are "very much in the minority,"
Haverkamp said. Many others have privately expressed their support for new U.S. proposals, while others have
called for stronger, binding provisions, she said.
For example, Germany has said that the MAI should include a beefed-up version of the non-binding Article
1114(2) of the North American Free Trade Agreement, Haverkamp said. That provision states that signatories
should not weaken environmental standards, and provides for consultations on the subject. Germany has said the
provision should be binding and subject to dispute settlement.
At the July negotiating session of the MAI, the U.S. informally floated several new provisions that would
complement the three already in the draft text of the agreement. The first is modelled on NAFTA Article 1114(1)
and moves in the direction of creating an exception from MAI disciplines for measures taken to protect the envi-
ronment. A second would be modelled on provisions of the NAFTA environment side accord, which calls for
strong environmental protection laws. A third provision, based on the Rio Declaration, would call for environmen-
tal impact studies of investment and effective procedures to dispose of hazardous waste (Inside U.S. Trade, July 4,
p. 9).
It is unclear when the U.S. will formally propose these measures, Haverkamp said. The Clinton Administration is
INSIDE U.S.TRADE - August 8, 1997
19
planning to continue its consultations with environment and business groups on the substance of the proposals, she said.
Timothy Deal, senior vice president at the U.S. Council for International Business, argued at the same Aug. 6
meeting that environmental provisions in the MAI should be as limited as possible, and contended that the MAI is
not detrimental to the environment. He also argued that pressure from the environmental community has "slowed
the momentum [of the negotiations] somewhat."
Deal outlined what labor and environment provisions the business community could support in the MAI, and
largely repeated points made by USCIB in a July letter to the Administration (Inside U.S. Trade, July 18, p. 13).
John Audley, program coordinator for trade and environment at the National Wildlife Federation, countered
that to the extent that the MAI creates rights for multinational corporations, the MAI should extend similar rights to
other entities for investment-related issues.
The MAI is aimed at banning measures detrimental to investment, and will subject these rules to dispute settlement,
it should also allow environmental groups to challenge investment-related measures that affect the environment.
Haverkamp also said that the Committee on Trade and Environment in the World Trade Organization
would focus this year on studying key issues on trade-environment linkages and would not make proposals for new
disciplines. "There is no expectation of deliverables in terms of changes to [WTO] rules" from the CTE, she said.
WTO members held this year's first meeting of the CTE in May, at which point countries agreed to spent this
year's meeting discussing positions in greater detail (Inside U.S. Trade, May 30, p. 15). Haverkamp said the next
meeting of the Committee in the fall will focus on subsidies and multilateral environmental agreements.
Haverkamp also pointed out that the Asia-Pacific Economic Cooperation forum is currently considering a
3.auts
U.S. proposal, backed by Canada, to liberalize trade in environmental goods and services. It is one of roughly 50
separate proposals for sectoral liberalization, of which the U.S. proposed eight.
APEC members agreed at a May ministerial to submit proposals for sectoral liberalization by the middle of
July. The proposals will be considered by senior officials at a late August meeting with a view to launching
MRN
substantive work on them by the end of November (Inside U.S. Trade, July 18, p. 10).
EUROPEAN UNION WARNS U.S. ON IMPLEMENTATION OF WTO TELECOM DEAL
The European Union this week warned the Clinton Administration that a new regulation being considered by the
Federal Communications Commission risks violating commitments the U.S. made in World Trade Organization negotia-
tions on basic telecommunications services. In a demarche delivered on Aug. 5, the EU told the State Dept. that the
regulation allows the FCC undue discretion to block license applications on vague and undefined grounds.
"The European Community and its Member States are concerned that the FCC would maintain the right to
deny access to the U.S. market for applicants from WTO Member countries, on the grounds of unclear and broad
concepts," the EU wrote in the demarche.
The EU also emphasized that it reserves the right to challenge any measures which it believes are inconsistent
with U.S. commitments under the General Agreement on Trade in Services.
In June, the FCC issued a Notice of Proposed Rulemaking which outlined a public interest test that would be
used in determining whether to grant U.S. licenses to foreign firms. The agency also proposed a regulatory pre-
sumption in favor of granting such licenses unless petitioners can prove a "very high risk to competition" in
granting the license (Inside U.S. Trade, June 13, p. 11).
But the EU argued that the continuation of a public interest test would contradict "the aim and spirit" of the
WTO agreement by granting the agency undefined discretion to reject license applications. "Furthermore, it would
not provide the legal certainty and predictability required to allow foreign telecommunications industries to define
their commercial strategies for access to the U.S. market," the EU wrote.
The EU welcomed the FCC's proposed elimination of the "effective competitive opportunities" (ECO)
test. This reciprocity-based test conditions the approval of licenses for foreign carriers in the U.S. on the existence
of competitive conditions in a given carriers' home country, and has been criticized by WTO members as contrary
to the most-favored nation principle.
But the proposed replacement for the ECO test, which would grant licenses in the absence of a proven "very high risk
to competition," does not go far enough in guaranteeing access to the U.S. market, the EU argued. "Such an approach
would erect additional burdens on foreign companies wishing to enter the U.S. market, which would be subject to chal-
lenges by their competitors based on unclear conditions and criteria," the EU wrote.
The EU also charged that the FCC proposal for granting licenses for aeronautical communications services
directly violates U.S. commitments in the WTO. The FCC approach of granting these licenses on an ad hoc, case-
by-case basis "is not compatible with the U.S. commitments on mobile data communications services."
The WTO agreement "prevent[s] the retention of discretionary powers in the granting of licenses, and instead
require the guarantee of legally binding market access rights," the EU wrote.
20
INSIDE U.S.TRADE - August 8, 1997
CHILE TO TARGET U.S. TRADE REMEDY REGIME FOR WTO CONSULTATIONS
Chile last week notified the World Trade Organization that it is planning to request formal WTO consultations
over charges that the U.S investigation on whether Chilean salmon has been subsidized or dumped in the U.S. is
inconsistent with international trade rules.
"There is some consensus in lawyers' circles in Washington that deal in trade and WTO, that there are
provisions in anti-dumping and subsidies of the U.S. that can be challenged with quite an option of success," a
Chilean trade official said. The official in Santiago now spearheading the challenge is Ricardo Lagos, who directs
WTO-related matters for Chile, sources said.
But a U.S. trade official disagreed with that assessment. "We are confident that we are handling this complaint
in a manner completely consistent with our WTO obligations and U.S. domestic law," he said July 30. But U.S. and
Chilean officials have acknowledged that Commerce's investigation into imports of Chilean salmon has prompted
an unusually large outcry in Chile.
But while the U.S. trade case is an "unfortunate development," the countries continue to maintain a healthy
dialogue on overall trade matters, the U.S. official said. "It's certainly not a stake through the heart," he said.
Chile's notification to the WTO was sparked by, but will not focus exclusively on, a July 28 U.S. International Trade
Commission affirmative preliminary determination that there is a reasonable indication that imports of fresh Atlantic
salmon from the South American nation are causing material injury or are threatening to cause material injury to U.S.
salmon producers. That initial finding made evident that the probe would consider all imports of fresh, farmed Atlantic
salmon to be like products competing with U.S. salmon sales, regardless of whether the import arrived as a "dressed" whole
fish or was shipped as a fillet. Chile had argued to the ITC that its shipments, which are primarily fillets, should be consid-
ered distinct products from U.S. salmon, which are mainly sold as whole fish.
A negative ITC determination would have resulted in the termination of the investigation. By Aug. 4, the ITC's views
were slated to be sent to Commerce, which will calculate whether subsidization or dumping has occurred.
The investigation was instituted in response to a petition filed June 12 by a group of U.S. salmon farmers, the
Coalition for Fair Atlantic Salmon Trade. The case has placed under scrutiny a range of more than a dozen Chilean
programs which the petitioners say provide unfair subsidies to their Chilean competitors.
Chilean Director General Juan Gabriel Valdes raised Chilean concerns about the salmon investigation in
meetings with WTO Director-General Renato Ruggiero and with U.S. trade officials during a mid-July visit to
Geneva.
In a related development, Sen. Richard Lugar (R-IL), in a July 24 letter to ITC Commissioner Marcia
Miller, highlighted the need for the U.S. to use its trade remedy laws carefully. Lugar had met a few days earlier
with a delegation of Chilean officials who had traveled to Washington to protest the U.S. salmon industry's petition
to members of Congress and Clinton Administration officials.
"At a time when the U.S. is considering expansion of NAFTA to Chile, we should be sure to apply our
antidumping laws in a consistent and fair manner," Lugar wrote Miller.
Among the lawmakers with whom the Chilean delegation met were Sens. Chris Dodd (D-CT), John McCain (R-AZ),
Paul Coverdell (R-GA) and Bob Graham (D-FL), and Reps. Jack Metcalf (R-WA) and E. Clay Shaw (R-FL).
In addition, members of the Chilean delegation met with Counselor to the President Thomas "Mack"
McLarty, National Economic Council Deputy Asst. to the President for Economic Policy Daniel Tarullo, National
Security Council Special Asst. to the President and Senior Director of Inter-American Affairs James Dobbins, and
Commerce Secretary Bill Daley, sources said.
FINANCE COMMITTEE MEMBERS CRITICIZE DRAFT COMMERCE CVD REGULATIONS
Twelve members of the Senate Finance Committee and eighteen other senators last week criticized draft
Commerce Dept. regulations on countervailing duties, which they said would not faithfully implement congres-
sional intent as expressed in the Uruguay Round implementing legislation.
"The draft countervailing duty (CVD) regulations published by the Commerce Department earlier this year do
not appear to implement the strict and effective remedy against subsidized imports expected by Congress and
promised by the Administration," the senators wrote in a July 28 letter to Secretary of Commerce William Daley.
"The regulations should be a high-water mark for strict CVD enforcement, not an occasion for temporizing and
retreat."
Specifically, the senators called on Commerce to exclude from regulations a methodology which could result
in the calculation of lower countervailing duties. Commerce has proposed to incorporate the so-called "cost-to-
government" methodology into the regulations. Under this methodology, which reflects existing practice, Com-
merce calculates the subsidies granted via government equity infusions as the difference between what the
government puts into a company minus what it gets back for the equity.
INSIDE U.S.TRADE - August 8, 1997
21
But during the Uruguay Round, the U.S. successfully pressed for the inclusion of the so-called "cost-to-
recipient" methodology, which makes the entire subsidy countervailable regardless of what the government gets
back. This provision was included in the Agreement on Subsidies (Article 14) and Countervailing Measures and the
U.S. implementing legislation (19 U.S.C. Section 1677(5)E).
The senators argued that incorporating the "cost-to-government" methodology in the CVD regulations would
"needlessly and unwisely weaken the CVD remedy."
The senators also objected to hints in the regulations that Commerce might continue its existing practices
regarding how it calculates subsidies granted before a company was privatized. Commerce currently assumes that
part of the purchase price for a company which is privatized includes the repayment of subsidies, a method that
lowers the overall value of a CVD duty.
Any move by Congress to go even further, and include in the regulations a provision that the privatization of a
company extinguishes the value of a subsidy and eliminates the need for duties, would be "contradicting clearly
expressed congressional intent," the senators wrote. While Commerce did not actually propose changes to the
principle that privatization does not extinguish otherwise countervailable subsidies, it did seek public comment on
the issue earlier this year (Inside U.S. Trade, July 11, p. 22).
Finally, the senators criticized the regulations for not codifying "key commitments from the [Uruguay Round
implementing legislation] Statement of Administrative Action and recent CVD cases," according to the letter. The
statement includes congressional guidance to Commerce to codify into regulations the results of a number of recent
CVD cases.
Commerce has scheduled a public hearing on the proposed regulations for Sept. 9 and its likely to complete its
consideration of the regulations this fall, according to informed sources.
The letter was signed by Senate Majority Leader Trent Lott (R-MS), as well as the following senators: Jay
Rockefeller (D-WV), Orrin Hatch (R-UT), Bob Kerrey (D-NE) Carol Moseley Braun (D-IL), Alfonse D'Amato (R-NY),
Max Baucus (D-MT), Jeff Bingaman (D-NM), Joe Lieberman (D-CT), Charles Grassley (R-IA), Arlen Specter (R-PA),
John Glenn (D-OH), John Breaux (D-LA), Bob Graham (D-FL), Byron Dorgan (D-ND), Barbara Mikulski (D-MD),
Connie Mack (R-FL), Carl Levin (D-MI), Ernest Hollings (D-SC), Patty Murray (D-WA), Kent Conrad (D-ND), Paul
Sarbanes (D-MD), Olympia Snowe (R-ME), Rick Santorum (R-PA), Mike DeWine (R-OH), Robert Bennett (R-UT), Slade
Gorton (R-WA), Robert Byrd (D-WV), Susan Collins (R-ME) and Larry Craig (R-IA).
Senate Letter on CVD Regulations
July 28, 1997
able "cost-to-government" calculation methodology, and pre-
privatization subsidies. Additionally, Commerce suggests it may
The Honorable William Daley
begin excusing pre-privatization subsidies in many instances,
Secretary of Commerce
contradicting clearly expressed congressional intent. Weaken-
U.S. Department of Commerce
ing changes in these areas is in no way required or even encour-
14th Street and Constitution Avenue, NW
aged by the statute. Commerce's draft also creates a significant
Washington, D.C. 20230
risk of loopholes or wasteful re-litigation by failing to codify key
commitments from the URAA Statement of Administrative Ac-
Dear Mr. Secretary:
tion and results from recent CVD cases.
The draft countervailing duty (CVD) regulations pub-
The regulations should be a high-water mark for strict
lished by the Commerce Department earlier this year do not
CVD enforcement, not an occasion for temporizing and retreat.
appear to implement the strict and effective remedy against
We therefore urge you to reconsider and delete the weakening
subsidized imports expected by Congress and promised by the
changes proposed in the draft regulations. We stand ready to
Administration. U.S. industries millions of firms and workers,
work with you to ensure that the final regulations provide the
in virtually every industrial and agricultural sector of the economy
strictest possible discipline and reflect sound trade policy and
need and deserve something better.
congressional intent.
The rulemaking process should codify current CVD prac-
tices and implement only those changes required by the Uruguay
Sincerely,
Round Agreements Act (URAA). The Administration commit-
ted itself to a stronger anti-subsidy remedy during debate over
Sen. Jay Rockerfeller (D-WV)
the URAA, implementing the Uruguay Round, and agreed only
Sen. Orrin Hatch (R-UT)
to lessen the effect of those (such as so-called greenlighted
Sen. Bob Kerrey (D-NE)
subsidies) which are unambiguously required by the URAA.
Sen. Carol Moseley Braun (D-IL)
The current draft, however, proposes several changes to
Sen. Alfonse D'Amato (R-NY)
current practice that would needlessly and unwisely weaken the
Sen. Max Baucus (D-MT)
CVD remedy. For example, Commerce proposes to begin sharply
Sen. Jeff Bingaman (D-NM)
undervaluing equity subsidies pursuant to a new and unjustifi-
Sen. Joe Lieberman (D-CT)
22
INSIDE U.S.TRADE August 8, 1997
Sen. Charles Grassley (R-IA)
Sen. Kent Conrad (D-ND)
Sen. Arlen Specter (R-PA)
Sen. Paul Sarbanes (D-MD)
Sen. John Glenn (D-OH)
Sen. Olympia Snowe (R-ME)
Sen. John Breaux (D-LA)
Sen. Trent Lott (R-MS)
Sen. Bob Graham (D-FL)
Sen. Rick Santorum (R-PA)
Sen. Byron Dorgan (D-ND)
Sen. Mike DeWine (R-OH)
Sen. Barbara Mikulski (D-MD)
Sen. Robert Bennett (R-UT)
Sen. Connie Mack (R-FL)
Sen. Slade Gorton (R-WA)
Sen. Carl Levin (D-MI)
Sen. Robert Byrd (D-WV)
Sen. Ernest Hollings (D-SC)
Sen. Susan Collins (R-ME)
Sen. Patty Murray (D-WA)
Sen. Larry Craig (R-ID)
SENATE CONFIRMS LARUSSA, SCHUMACHER BEFORE AUGUST RECESS
As part of a mass-approval of Administration appointees late last week, the Senate unanimously confirmed
Robert LaRussa as Assistant Secretary of Commerce for Import Administration. LaRussa's nomination had been
approved by the Senate Finance Committee in early June, and he had held the post in an acting capacity for over a
year.
The Senate also allowed Secretary of Agriculture Dan Glickman to swear in four new under secretaries this
week. August Schumacher, Jr., was sworn in as Under Secretary for Farm and Foreign Agricultural Services, and
will oversee the Farm Service Agency, the Risk Management Agency and the Foreign Agriculture Service, which
he headed previously.
Catherine Wotecki was also sworn in as Under Secretary for Food Safety, a newly created position. Wotecki
will oversee implementation of a new science-based meat and poultry inspection system, as well as the reorganiza-
tion of the Food Safety and Inspection Service, according to a USDA release. She served most recently as acting
undersecretary for research, education and economics at Agriculture.
Glickman's other two new under secretaries are Miley Gonzalez, under secretary for research, education and
economics, and Shirley Robinson Watkins, under secretary for food, nutrition and consumer services.
BARSHEFSKY HINTS AT FAST TRACK COMPROMISE
begins page one
"Our formulation at that point was something rather akin to what Mr. Crane was talking about now,"
Barshefsky said. "But we are looking at a number of options."
Barshefsky on Aug. 6 repeatedly refused to be more specific about how the Administration bill would
treat labor and environment issues, and how many Democratic votes she believes could support a compro-
mise proposal. She stressed that the Administration wants a bill with broad support, but that the key goal is to
pass a bill.
"The goal is to achieve fast track," Barshefsky said. "We want the broadest possible support."
Crane told reporters on July 29 that he had not heard back from the Administration regarding his proposed
language. In May, House Republicans presented this language to the Administration as they considered moving
more quickly on fast track. The Administration did not reject it outright but objected at the time to being presented
with what it viewed as an "ultimatum."
At that time and since then, congressional staff have informally discussed possible formulations based on the
"trade-related" phrase, but possibly including the words "specifically" or "directly" to narrow the scope of what
could be included in trade agreements utilizing a fast track bill with this formulation, a congressional source said.
Committee staff have discussed internally, though not with the Administration, what would be covered
under "directly trade-related" language, a congressional source said. This formulation would likely cover labor and
environment matters "directly related to imports and exports and therefore our ability to trade," the source said.
But, for example, this language would not allow provisions which seek to erode countries' comparative advantage
from low labor costs, the source said. Other legislative tools beyond the specific language of the bill, such as
committee report language, could further clarify what any language would allow in a trade agreement, congres-
sional sources said.
Trade subcommittee Ranking Member Bob Matsui (D-CA) has warned that tighter language would make it
more difficult to attract enough House Democrats to pass such a bill (Inside U.S. Trade, May 16, p. 1).
INSIDE U.S.TRADE - August 8, 1997
23
The comment on labor and environment was the closest Barshefsky came to characterizing the substance
of how the Administration bill, which is expected to be delivered to Congress in early September, will address key
contentious issues. She declined to comment on how the bill might treat the question of whether legislation can
include measures "necessary" or "appropriate" to implement trade agreements.
She did say that talks on a free-trade agreement with Chile would be grandfathered into any fast track bill,
since consultations began before the 1994 Miami summit. She declined to specify whether such a provision would
then result in Chile formally acceding to NAFTA or whether the U.S. would seek a bilateral FTA with Chile.
Canada has a NAFTA-equivalent agreement with Chile, and Mexico is updating its agreement with Chile to reflect
that standard, she pointed out.
More generally, the Administration is considering the precise nature of the "procedural mechanisms" which
the fast track bill will outline for consultations with Congress on other negotiations besides those with Chile.
"Plainly, Congress would be involved [from the outset] with respect to countries beyond Chile," Barshefsky said.
"The bill takes care of the Chile issue."
A congressional source noted that the Administration has already signalled its support for the enhanced
consultation procedures in Crane's bill from 1995 (Inside U.S. Trade, Special Report, July 31, 1995, p. S-3). The
source suggested that Barshefsky was emphasizing this point "to address the perception that fast track shuts
Congress out of the process."
The Administration is still discussing whether the Multilateral Agreement on Investment, whose negotia-
tion has already begun, would be grandfathered so that it could be implemented using fast track, Barshefsky said.
She added that it is "not clear" whether the MAI would change U.S. law, and therefore it is unclear whether it
would need implementing legislation.
Crane would be willing to consider grandfathering the MAI into fast-track legislation if the Administration
sought such a provision, a congressional source said.
Barshefsky said that "over the course of the next two to three weeks" the Administration will consult with
members of both parties in both houses of Congress. This process will also bring in business, labor and environ-
mental groups, she said. The goal of the consultations is to allow the introduction of a bill that will be broadly
supported from the outset and need not be changed substantially, she said.
White House fast track coordinator Jay Berman told business representatives on August 5 that the
Administration would decide on the key issues related to the substance of legislation within the next week to ten
days, according to informed sources. Berman said the bill would then be presented informally to members in the
week before its formal introduction, informed sources said. Ways & Means Chairman Bill Archer (R-TX) has told
the Administration that the bill would take two weeks to go through committee, and that a full House vote could
come at the end of September or early October, Berman said.
Berman said this week that the President urged members not to commit to one side or another, and to give the
Administration the chance to make its case on fast track. Clinton met with over 60 House members last week and
the week before to make the Administration case for fast track (Inside U.S. Trade, Aug. 1, p. 1).
"The message was: give us a shot before you commit," one informed source said. The source added the
Administration was most likely trying to prevent members from joining the anti-fast track camp during the August
recess.
Clinton cited fast track as one of his key priorities for the rest of the year in an Aug. 6 press conference. The
President also met with additional House Democrats yesterday (Aug. 7), a White House spokesman said.
In a related development, Senate Minority Leader Tom Daschle (D-SD) late last week called on the
Administration to conduct "a more complete public airing" of issues related to the extension of fast-track authority.
But Daschle also told Barshefsky in an Aug. 1 letter reprinted below that he looks forward to working with her as
the Administration seeks trade negotiating authority.
Daschle first called for an explanation of how the Administration intends to use any new fast-track authority.
He cautioned that "the ultimate test of success" is not how many trade agreements are reached but whether they
improve U.S. living standards. "Thus, the pace of trade liberalization can influence not only its economic payoff
but also its political sustainability," Daschle wrote.
He noted that the 1988 fast track bill allowed Congress to disapprove fast track treatment under certain
circumstances. "I believe we should consider building similar features into a renewal of fast-track authority,"
Daschle wrote.
The Administration should also outline "its overall strategy for achieving upward harmonization" of food
safety and environmental standards in regional and multilateral negotiations.
Daschle also requested an outline of the steps the Administration is taking to "systematically dismantle
foreign agricultural trade barriers." He said one step in this direction would be enactment of a bill he introduced
with Sen. Charles Grassley (R-IA) to create an annual review process for agriculture similar to the Special 301
24
INSIDE U.S.TRADE - August 8, 1997
process for intellectual property. "Reactivation of the Export Enhancement Program would serve a similar pur-
pose," he wrote.
Assistance to U.S. workers dislocated by trade agreements is also crucial, Daschle said. "[T]rade agreements
have not been accompanied by sufficient resources for domestic adjustment assistance," he wrote.
Finally, Daschle asked for an explanation of how the Administration intends to involve Congress in the
development of new trade agreements. "Any new fast-track authority should carve out a meaningful role for
Congressional advisers, including full and timely disclosure of all relevant documents and formal procedures for
the full participation of Members and staff in negotiations," he said.
Also on fast track, Reps. Sherrod Brown (D-OH) and Bart Stupak (D-MI) last week circulated a "dear
colleague" letter calling for the renegotiation of NAFTA and several other steps designed to guarantee the safety of
the U.S. food supply. They also called for provisions on food safety to be included in any new fast track bill.
The letter prompted a quick reply "dear colleague" from Rep. Jim Kolbe (R-AZ), who criticized the accuracy
of the case which Brown and Stupak made on the food safety issue.
Daschle Letter on Fast Track
August 1, 1997
agreement. However, a number of policy questions remain about
NAFTA and the World Trade Organization (WTO) as well as the
The Honorable Charlene Barshefsky
Administration's future negotiating agenda. These merit a more
United States Trade Representative
complete public airing.
Winder Building
First, how would you use a renewed grant of fast-track
600 17th Street, NW
authority? Which trade agreements do you expect to negotiate
Washington, DC 20506
and when would you anticipate submitting them to Congress for
approval? History teaches that it is important to maintain for-
Dear Madam Ambassador:
ward momentum in the process of global trade liberalization.
As the Administration develops its request for a renewal
However, the ultimate test of success is not how rapidly new
of fast-track negotiating authority, I would like to bring to your
agreements are concluded but how much they lift U.S. living
attention several issues that I believe are of considerable interest
standards. Like other economic policy changes, trade agree-
to South Dakotans and the public at large. I raise them in the
ments produce winners and losers in the short run. The win-win
spirit of deepening the diálogue and strengthening the traditional
results predicted by trade theory in the long run depend upon the
partnership between Congress and the Executive Branch on
redeployment of people and assets to more productive pursuits -
international trade policy.
- a process which takes time. The more change that is com-
The President's negotiating team has accomplished much
pressed into a given period, the greater the potential for losers to
so far. It has spearheaded several successful negotiations to craft
outweigh winners, undermining public support for the kind of
new rules for global commerce and investment, and it has
open trading system that has contributed so much to American
worked hard to enforce the obligations of our trading partners
agriculture's success. Thus, the pace of trade liberalization can
under existing rules. These accomplishments have enhanced the
influence not only its economic payoff but also its political
level and fairness of international trade and investment, improv-
sustainablity.
ing the world economy's capacity to promote rising living
Congress has traditionally exercised oversight of the pace
standards for developed and developing countries alike. Through-
and content of trade liberalization by extending fast-track au-
out, you and your colleagues have endeavored to consult closely
thority in stages, subject to Congressional votes of disapproval.
with Members of Congress. I appreciate your efforts and look
For example, in 1988 Congress provided the Reagan Adminis-
forward to working with you as you seek additional trade nego-
tration with three years of general fast-track authority with an
tiating authority.
optional two year extension subject to a vote of disapproval.
The rapid pace of economic change, the recent completion
Also, the 1988 legislation reserved the right for Congress to
of the Uruguay Round and North American Free Trade Agree-
disapprove fast-track treatment later for individual negotiations
ment (NAFTA) accords, and USTR's crowded negotiating agenda
under certain circumstances. I believe we should consider build-
combine to raise important questions about how the Administra-
ing similar features into a renewal of fast-track authority.
tion plans to utilize a renewal of fast-track authority. Above all,
Second, what is the Administration's strategy to ensure
what would new fast-track authority mean for American con-
that U.S. food safety and environmental standards are not weak-
sumers, farmers, and businesses? In my view, a useful first step
ened by trade agreements? American farmers, ranchers, and
in answering this question would be to conduct a thorough
consumers all have a direct interest in ensuring that these stan-
assessment of the Uruguay Round and NAFTA. We ought to
dards are harmonized upward rather than reduced to least-com-
make a point of knowing what is working well and where there
mon-denominator international levels over time. As you know,
is room for improvement before proceeding too far on additional
questions have been raised about the treatment of these issues in
comprehensive trade negotiations, such as regional free trade
the World Trade Organization and NAFTA. If the public is to
agreements. Your recently released study on the operation and
retain confidence in decisions by international institutions af-
effects of the NAFTA was a useful contribution to our under-
fecting their health, environmental, and commercial interests,
standing of these issues, particularly the economic effects of that
these bodies will need to do a better job of embracing the
INSIDE U.S.TRADE - August 8, 1997
25
fundamental principles of transparency and public participation
Export Enhancement Program would serve a similar purpose.
that Americans have come to expect from administrative pro-
Fourth, how is the Administration planning to assist U.S.
ceedings in U.S. government agencies.
workers dislocated by trade agreements and ensure that their
2
In my view, these issues lie at the heart of public concerns
counterparts in emerging markets have an opportunity to claim a
about global economic integration and fast-track negotiating
fair share of their country's economic success and become
authority. For this reason, the Administration ought to share with
bigger consumers of American exports by exercising interna-
Congress its overall strategy for achieving upward harmoniza-
tionally-recognized labor rights? For trade agreements to deliver
tion of these standards. Among the issues that it ought to address
fully on their promise of higher living standards, they must be
are: 1) the extent to which procedures for setting and enforcing
accompanied by adequate adjustment assistance for dislocated
standards differ under the Administrative Procedures Act and
American workers and improvement in labor market standards
relevant international organizations (e.g., Codex Alimintarius,
for workers in developing countries. Previous fast-track legisla-
NAFTA Free Trade Commission, NAFTA Committee on Sani-
tion addressed these topics; however, trade agreements have not
tary and Phytosanitary Measures, and WTO); 2) the extent to
been accompanied by sufficient resources for domestic adjust-
which U.S. criteria in determining equivalence in the context of
ment assistance. Nor have they made much progress in ensuring
food safety and health regulations differ from those of our major
that core labor standards in emerging markets will improve in
trading partners; and 3) the status of efforts to harmonize food
step with labor productivity and overall living standards, a
safety and environmental standards in the NAFTA Free Trade
process that is necessary for our exports to these countries to rise
Commission. In addition, the Administration should be prepared
in line with our imports from them over the long run. As the pace
to convey to Congress at an appropriate time its specific strategy
of global economic integration accelerates, we downplay the
for achieving upward harmonization of agricultural and environ-
importance of these issues at the peril of reducing the economic
mental standards for each regional free trade agreement and
benefits from and public support for trade agreements.
multilateral WTO round it plans to negotiate under fast-track
Finally, how does the Administration propose to involve
procedures, including the Free Trade in the Americas Agreement
Congress and the public in the development and execution of its
talks scheduled to begin next year.
negotiating agenda under fast-track? In my view, Congressional
Third, what steps is the Administration taking to system-
support for the trade policies of this and future Administrations
atically dismantle foreign agricultural trade barriers? As you
would be bolstered by a rejuvenation of the trade policy advisory
know, these barriers constitute a large proportion of the total
procedures written into the first fast-track legislation twenty-
listed in your annual National Trade Estimates survey. A grow-
three years ago. In theory, our trade laws provide for the active
ing number involve complex and relatively untransparent regu-
participation of Members of Congress in trade negotiations;
latory issues, including sanitary and phytosanitary measures as
Congressional trade advisors are appointed each Congress to
well as the practices of state trading enterprises, such as the
give advice on specific negotiations and to serve as accredited
Canadian Wheat Board. Earlier this year, you announced the
official advisers to U.S. delegations. In practice, this has not
creation of an Ambassador-level post for agriculture within the
worked well. Any new fast-track authority should carve out a
Office of the United States Trade Representative. I applaud you
meaningful role for Congressional advisors, including full and
for taking this important initiative, which will bring greater
timely disclosure of all relevant documents and formal proce-
focus to U.S. negotiating efforts. As you know, I have intro-
dures for the full participation of Members and staff in negotia-
duced legislation with Senator Grassley designed to institution-
tions.
alize procedures for setting agricultural trade priorities. The
Again, I raise these issues in the spirit of strengthening the
legislation, S. 219, is patterned after the successful "Special
partnership between the Executive Branch and Congress on
301" legislation for intellectual property rights enacted in the
international trade policy and improving the climate for consid-
Omnibus Trade and Competitiveness Act of 1988. Enactment of
eration of fast-track legislation. I look forward to working with
this bill would strengthen USTR's hand in market access nego-
you after the August Congressional recess.
tiations with individual countries. It would also increase our
leverage in the WTO follow-on agriculture negotiations that are
Sincerely,
scheduled to begin in 1999 in the same way that "Special 301"
facilitated attainment of our intellectual property rights negoti-
Tom Daschle (D-SD)
ated objectives in the Uruguay Round. Reactivation of the
United States Senate
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INSIDE U.S.TRADE - August 8, 1997
CHINA WTO TALKS MAKE MINIMAL HEADWAY
begins page one
Several officials complained that Chinese offers of "piecemeal" tariff cuts to different countries have made it
very difficult to get an overall picture of how well the negotiation is proceeding. The absence of the promised
improvement in tariff offers and the lack of an initial services offer largely defined last week's session of the
working party, these officials said.
Girard said he foresees a need for "a new series of broad-based and detailed market access bilaterals" in the
goods and services areas. "Members are clearly anxious to enter into substantive discussions in the services sector
on the basis of the expected offer," he said. "Multilaterally, we should also endeavor to make further progress on
the annexes to the draft protocol."
China has promised to make an offer on market access for goods and services in late August or early
September. Once this step takes place, another meeting of the working party could be scheduled for the first half of
October, Girard said. Chief Chinese negotiator Long Yongtu told the working party that China would "immediately
enter into serious negotiations" after its offer is tabled.
The U.S. would likely have a bilateral with China as soon as its offer is tabled, possibly in the context of a
working party meeting, a U.S. official said.
Long said it was "understandable" that WTO members were disappointed that China did not table a services
offer. But he argued that market access negotiations cannot be expected to make progress as quickly as talks on the
draft protocol, which outlines how China will comply with WTO rules.
"[I]t is not realistic to expect any negotiation to make parallel progress in all areas at the same time, let along
the negotiation on China's accession to the WTO, which involves wide-ranging subjects and complicated issues,"
Long said. "It is thus unfair to accuse China on such grounds."
Long also said that China's accession will not be the final opportunity to improve market access in China.
"[A]fter becoming a WTO member, China will continue to participate in multilateral trade negotiations and
improve the extent of its market liberalization," he said. "In this sense, the market access negotiation of China's
accession talks is just the beginning of China's future participation in the multilateral trading system as well as of
historical process of continued market liberalization."
The late October visit of Chinese President Jiang Zemin to Washington is not driving the timetable of the
negotiation, U.S. Trade Representative Charlene Barshefsky said in an Aug. 6 press conference. "There is no race
here," she said. "From my point of view, what is agreed to will have to be very, very good." She also added that
China needs to demonstrate a will to make better offers in the talks.
But White House Spokesman Mike McCurry said that the Clinton Administration has not ruled out the
possibility of reaching some sort of agreement with the Chinese on WTO accession by the time of the summit, and
emphasized that the U.S. would continue "good-faith negotiations with the Chinese to achieve commercially viable
terms."
Barshefsky held out the possibility that she would still visit Beijing in the near future to discuss China's
accession if its offers improve substantially, and said the negotiation would not necessarily need to be in its final
phase for her to go to China. "It is not an endgame scenario," Barshefsky said. "But there would definitely have to
be more on the table than there is now."
Assistant to the President for National Security Affairs Sandy Berger will visit China on Aug. 10-13 to
continue the "high-level strategic dialogue," which his predecessor initiated last year, according to an Aug. 6 press
release. Berger will meet with Jiang and other senior Chinese officials and will also discuss preparations for the fall
summit.
During informal working party meetings, the U.S. emphasized the importance of an offer on services,
given the importance of distribution services and after sales services for exploiting improved market access in the
goods area, according to a U.S. official. The U.S. also welcomed promised cuts on textiles and chemicals products,
but believes the phase-in periods are too long, and that the chemical tariffs are "still too high," the official said.
For a number of countries, China offered additional tariff cuts but then extended the phase-in periods, in-
formed sources said.
Long told the working party that the tariff cuts China offered included "over two-thousand chemical and
textile products" and further cuts in the areas of autos and auto parts, paper and paper products, "some electrical
home appliances," and agricultural products.
The European Union was "comparatively negative" about last week's negotiating session, and identified the
lack of a services offer as a real problem, one informed source said. The EU also said that tariff cuts in key sectors
were also inadequate, the source said.
Trade officials offered varying theories about why China has not tabled a services offer. One official said the
absence of an offer suggests that the Ministry of Foreign Trade and Economic Cooperation cannot wrest control of
INSIDE U.S.TRADE - August 8, 1997
27
this area from a number of other powerful agencies, and that it "points to MOFTEC's vain hope" that they can
placate WTO members with additional goods concessions instead.
Another official suggested that MOFTEC may be seeking to progress far enough on the goods side so that it
can argue internally that making a services offer is unavoidable.
Much of the discussions last week centered on new annexes which China tabled last week, trade officials
said. The main document outlined the planned elimination of 395 non-tariff measures, the phase-out periods of
which have been reduced for a maximum of eight years. China also outlined a formula allowing an eight to twelve
percent growth rate for products that are now subject to quantitative restraints, depending on the product. Many of
the NTMs will also be eliminated immediately upon accession.
But the EU argued that since Chinese exports to Europe have grown 15 percent over the last ten years, the
growth factors should be at least that much, informed sources said. China countered that growth in the last few
years has not been nearly that much, and that the Chinese formula is actually very generous, these sources said.
Long told the working party that concessions in this area are "the most difficult and most sensitive sectors" for
China to make. "By making this decision, we have fully demonstrated our determination in eliminating market
access barriers."
There were slight changes last week to a previously tabled annex on domestic agricultural supports, informed
sources said. One official said that the Chinese "seem to be arguing" that the price for its commitment last week not
to use agricultural export subsidies is treatment as a developing country in the area of internal subsidies.
Under the Uruguay Round agriculture agreement, if a developing country's aggregate measure of support is
ten percent of production or less, it is not subject to any reduction commitments. To the extent that a developing
country subsidizes above that level, it can phase in the required reductions over ten years.
China made the commitment on agricultural export subsidies early last week in bilaterals (Inside U.S. Trade,
Aug. 1, p. 1). Barshefsky noted that China has not used such subsidies recently, but could have done so in the
future to break into new markets.
China also tabled annexes which detailed subsidies to state-owned enterprises and subsidies it will phase out.
Another outlined statutory inspection requirements for a broad range of products.
A final annex removed no products from a list of goods subject to state trading, and instead included a few
additional tobacco products, informed sources said.
Long also responded sharply to perceived criticism that China must reduce or eliminate its use of so-
called "greenbox" subsidies, which are subsidies allowed under the agriculture agreement. Trade officials said this
statement was likely a response to inquiries about the precise nature of these subsidies.
"Nobody is challenging their greenbox, but we want to know whether [the subsidies] are green," one official
said.
U.S., JAPAN TABLE INITIAL PROPOSALS ON AVIATION
begins page one
authorities of Japan and the United States shall resume consultations to amend or review the agreement prior to
expiration of this agreement, aiming at another new regime other than Open Skies."
While U.S. officials have said their main goal is to negotiate an agreement that would lead to open skies, an
informed source reiterated this week that the U.S. will likely have to abandon that goal given Japan's strong
opposition.
As it is, the two sides agreed to enter into formal negotiations only because Japan hinted that it could be
flexible in certain areas. Sources said last month that the U.S. would have to use the talks to discover the areas in
which Japan might be flexible. For example, Japan said last month that it would consider a "fully liberalized
market," but refused to define the term.
The initial U.S. proposal, also reprinted below, is different from Japan's proposal in almost every area to be
covered by the talks. Nevertheless, the two sides agreed to meet again in Washington from Aug. 27-29, and are still
committed to making an effort to conclude the talks by September (Inside U.S. Trade, July 18, p. 8).
Specifically, the Japanese proposal would allow two passenger airlines from each country to be consid-
ered "incumbent" carriers under a 1952 bilateral aviation agreement. Under the deal currently, only one of Japan's
passenger airlines, Japan Airlines (JAL), is an incumbent carrier, while All Nippon Airways (ANA) is not. Two
U.S. passenger airlines enjoy this status, Northwest Airlines and United Airlines.
Incumbent carriers under Japan's proposals would be allowed to land freely in either country, but would have
their "beyond rights" capped at an unspecified level. Japan also proposed a formula for increasing these rights
every year based on the increase in their use in the previous year. Beyond rights allow airlines to land in a country,
pick up passengers there, and continue to a destination in a third country.
In talks leading up to the formal negotiations, Japan had proposed cutting back U.S. beyond rights, which the
28
INSIDE U.S.TRADE - August 8, 1997
U.S. has argued are unrestricted under the 1952 deal, in exchange for more direct flights to Japan.
Japan also insisted last week on an arrangement in which beyond rights are controlled in a way that ensures
that U.S. airlines do carry more than a certain percentage of Japanese passengers to third country destinations.
Japan has argued that Article 12 of the 1952 agreement indicates that its main purpose is to allow direct landing
rights between countries, but the U.S. has rejected the use of this argument as a way to limit U.S. beyond rights
under the pact.
Japan's proposal would also grant airlines other than the four U.S. and Japanese incumbent carriers "a
considerable amount of weekly frequencies" for direct routes to the U.S. and Japan. Finally, Japan would not limit
the ability of U.S. and Japanese airlines to collaborate in providing service on certain routes, known as code
sharing, as long as one of the airlines involved has the right to the route in question.
For cargo, the Japanese proposal would allow two Japanese airlines and three U.S. airlines to operate without
any limitations between the two countries. But, again under Article 12, Japan proposed limiting the beyond rights
of cargo carriers to an unspecified limit. Japan also proposed limiting beyond rights for cargo based on such factors
as weight and final destination.
Finally, Japan's proposal said that a "considerable number of slots at [Tokyo's] Narita [airport] will be
transferred from U.S. airlines to Japanese airlines." A U.S. official said last month that the U.S. would not accept
this demand under any circumstances.
The U.S. has warned previously that these Japanese proposals would be unacceptable. In contrast to
Japan's paper, the U.S. paper proposed that two U.S. passenger airlines and only one Japanese passenger airline be
designated as incumbent carriers under the 1952 agreement. Under the U.S. proposal, a second Japanese carrier
could be designated as an incumbent "in the context of a transition to Open Skies."
An open skies regime would remove all restrictions, including on landing rights, beyond rights, and code
sharing rights. The U.S. calls for all restrictions to be removed under its proposal after a three year period, after
which an open skies regime would be achieved.
The U.S. also proposed that non-incumbent carriers would be allowed a total of 91 weekly direct flights
between the U.S. and Japan, and would allow them to operate between certain non-major cities between the two
countries without restrictions.
Regarding beyond rights, the U.S. proposed that these be unrestricted for incumbent carriers, and that seven
weekly beyond rights would be granted to non-incumbent carriers. In addition, a second Japanese passenger carrier
would be granted unrestricted beyond rights in the context of moving to an open skies regime.
For cargo, the U.S. would grant unrestricted rights for three U.S. carriers and one Japanese carriers. North-
west, United, and Federal Express currently enjoy incumbent status for cargo. The U.S. also said there should be no
"Article 12 formula", which would allow U.S. carriers to take only a certain percentage of cargo from Japan to
third countries, as Japan has proposed. And the U.S. is also seeking additional routes and frequencies for non-
incumbent cargo carriers.
U.S. Proposal on Civil Aviation
U.S.-Japan Aviation Negotiations
I.A.2. above would be permitted to operate the following ser-
The United States advocates a three-year transitional agree-
vices, which would be in addition to any frequencies already
ment. When the three-year period is concluded, all existing
authorized under existing agreements:
restrictions on entry, routes and capacity would be eliminated.
A total of 91 weekly roundtrips between any points
During the transition to an Open Skies regime there would be
in the United States and any points in Japan.
significant new opportunities for air services. A specific pro-
Effective January 1, 2001, no limitations on weekly
posal reflecting this concept is presented below. (Note: The end
roundtrips.
of the initial 3 year period, and the date January 1, 2001, used
4. Any and all airlines of each country would be permitted
throughout this document, are assumed to be equivalent.)
to operate between any cities in the United States, except New
York, Los Angeles, and San Francisco, and any cities in Japan,
I. Combination Services
except Tokyo and Osaka, without frequency or capacity limita-
A. Between the United States and Japan
tions. (This would apply to all United States-Japan city pairs,
1. Two carriers of the United States and one carrier of
including those between Guam/Saipan and Japan and would be
Japan would be permitted to operate between any points in the
in addition to existing Guam/Saipan-Japan route authority.)
United States and any points in Japan without frequency or
capacity limitations.
B. Intermediate Stops and Beyond the Other Country
2. An additional carrier of Japan would have the rights
1. Upon signature, two carriers of the United States and
provided in I.A.1. above in the content of a transition to Open
one carrier of Japan would be permitted to operate with full
Skies.
flexibility beyond the other country's territory to any points.
3. In addition, all carriers not authorized under I.A.1. or
2. An additional carrier of Japan would have the rights
INSIDE U.S.TRADE - August 8, 1997
29
provided in I.B.1. above in the context of a transition to Open
service during the initial 3 year period following signature. Such
Skies.
designated carrier may operate up to daily service to one point in
3. Carriers not authorized under I.B.1. or I.B.2. above
the other country and beyond to one point with full fifth freedom
would be permitted to operate up to seven weekly flights in each
traffic rights.
direction beyond the other country's territory to one point with
2. Effective January 1, 2001, all incumbent and
full local fifth freedom traffic rights. This restriction on beyond
nonincumbent carriers of each side would be permitted to oper-
services would expire January 1, 2001.
ate between any points in the United States and any points in
4. There would be no limitations on the carriage of sixth
Japan and beyond to any points with full traffic rights and
freedom traffic.
without frequency limitations.
II. Cargo Services
III. Combination and All-Cargo Services
A. Incumbents
A. Change of Gauge
1. No restrictions on third, fourth, and fifth freedom points
Unlimited change of gauge permitted at any point on an
or on frequencies for three incumbents for the United States and
authorized route.
one incumbent for Japan.
2. An additional carrier of Japan would have the rights pro-
B. Pricing
vided in II.A.1. above in the context of a transition to Open Skies.
Double disapproval pricing upon signature.
B. Regional Services
C. Charters
Unlimited designations and frequencies for services oper-
No limitation on the number of charters that may be
ated between any points in the United States except Los Angeles,
operated between any points in the United States and any points
San Francisco, and New York, and any points in Japan except
in Japan, except Tokyo where 400 one-way charters per charter
Tokyo and Osaka.
year would be permitted. Improved slot allocation procedures
would be negotiated.
C. Article 12
No application of an Article 12 formula. Freedom compo-
D. Code Sharing
sition of traffic on flights operated between the other country and
1. Any designated airlines could code share with any
a third country should not be regulated.
airlines of the other country on services operated between Japan
and the United States.
D. Nonincumbents
2. Any designated airlines could code share with any
For the initial 3 year period, improvements in routes and
airlines of the other country on route segments between any
frequencies, including fifth freedom beyond services.
gateway point and (1) any points in the other country, and (2)
any points beyond in third countries. No limitations would apply
E. Additional Designations
to the number of such segments.
1. In addition to the operations provide for pursuant to the
3. Third country carrier code sharing would be permitted,
Regional Services opportunity described in paragraph II.B. above,
provided the third country authorizes the other country compa-
each side may designate one additional carrier for all-cargo
rable arrangements.
Japanese Proposal on Civil Aviation
A new framework of civil aviation relationships between Japan
the US without any limitation as to the number of frequencies or
and the United States
type of aircraft.
2) A certain number of airlines other than the airlines
I. Duration of a new Agreement
above may operate between any point or points in Japan and any
point or points in the US, except certain routes, with a consider-
The agreement shall be effective for certain years. The
able amount of the weekly frequencies for each side in addition
aeronautical authorities of Japan and the United States shall
to the rights available under the authorization granted to these
resume consultations to amend or review the agreement prior to
airlines.
expiration of this agreement, aiming at another new regime other
3) There will be, in principle, no restriction on co-
than Open Skies.
terminalization and change of gauge.
Both sides may also agree to resume consultations to
4) Any designated airline of either side may enter into a
amend or review the agreement at any time, aiming at another
code sharing arrangement with a designated airline of the other
new regime other than Open Skies.
side on the route between any point or points in Japan and any
point or points in the US including a domestic segment or
II. Combination Services
segments, provided that either of the airlines involved holds the
traffic right.
1. Services between Japan and the US
Services under such a code sharing arrangement
1) Two designated airlines of each side may operate
shall be limited to the total number of frequencies prescribed by
between any point or points in Japan and any point or points in
limitations, if any, imposed on both airlines involved. (In case
30
INSIDE U.S.TRADE - August 8, 1997
either of the airlines involved is entitled to operate on the route
side on the route between any point or points in Japan and any
without frequencies limitation, no frequency limitation is im-
point or points in the US including a domestic segment or
posed on the services under such a code sharing arrangement.)
segments, provided that either of the airlines involved holds the
5) A code sharing arrangement with an airline of a third
traffic right.
country will not be allowed.
Services under such a code sharing arrangement will
be limited to the total number of frequencies prescribed by
2. Fifth freedom services on beyond and intermediate segments
limitations, if any, imposed on both airlines involved. (In
(hereinafter referred to as " fifth freedom services")
case either of the airlines involved is entitled to operate on
1) The two designated airlines of each side referred to in
the route without frequency limitation, no frequency limita-
paragraph 1.1) may operate fifth freedom services without any
tion is imposed on the services under such a code sharing
limitation as to type of aircraft up to a certain number of weekly
arrangement.)
frequencies in total for each side for 1997.
4) A code sharing arrangement with an airline of a third
2) From 1998, the annual number of the frequencies
country will not be allowed.
referred to in paragraph 2.1) may be increased each year by a
percentage equal to whichever higher increase in the fifth free-
2. Fifth freedom services on beyond and intermediate seg-
dom traffic to or from Japan or that to and from the US over the
ment (hereinafter referred to as "fifth freedom services".)
preceeding year. The number will not be required to be reduced
1) The five designated airlines referred to in paragraph
even in case that the fifth freedom traffic decreased.
1.1) may operate fifth freedom services without any limitation as
3) There will be no restriction on co-terminalization and
to point or type of aircraft up to a certain number of weekly
change of gauge for the two designated airlines of each side
frequencies in total for each side for 1997.
referred to in paragraph 1.1).
2) From 1998, the annual number of the frequencies
4) Any designated airline of either side may enter into a
referred to in paragraph 2.1) may be increased each year by a
code sharing arrangement with a designated airline of the other
percentage change equal to whichever higher increase in the
side without any limitation as to routes and the number of
fifth freedom traffic to and from Japan or that to and from the
frequencies, notwithstanding paragraph 2.1) and 2.2), provided
US over the preceding year. The number will not be required
that the airline of the other side holds the traffic right.
to be reduced even in case that the fifth freedom traffic
5) A code sharing arrangement with an airline of a third
decreased.
country will not be allowed.
3) There will be no restriction on the co-terminalization
6) Article 12 shall be operated based on the common
and change of gauge for the five designated airlines referred to in
understanding with regards to the number of passenger.
paragraph 1.1).
4) Any designated airline of either side may enter into a
III. All-Cargo Services
code sharing arrangement with a designated airline of the other
side without limitation as to routes and the number of frequen-
1. Services between Japan and the US
cies, notwithstanding paragraph 2.1) and 2.2), provided that the
1) Two designated airlines of Japan and three designated
airline of the other side holds the traffic right.
airlines of the US may operate between any point or points in
5) A code sharing arrangement with an airline of a third
Japan and any point or points in the US without any limitation as
country will not be allowed.
to the number of frequencies or type of aircraft.
6) Article 12 shall be operated based on a common under-
2) There will be no restriction on co-terminalization and
standing with regard to weight of cargo.
change of gauge for the five designated airlines referred to in
1.1).
IV. Slots
3) Any designated airline of either side may enter into a
A considerable number of slots at Narita will be trans-
code sharing arrangement with a designated airline of the other
ferred from US airlines to Japanese airlines.
INSIDE U.S.TRADE - August 8, 1997
31
Available Now on World Trade Online:
Chinese proposals on conditions for WTO accession
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detail you can get about the specific rules that China would accept to obtain WTO membership. If the outcome has
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to in, order to gain WTO membership.
The document available today details what, under China's proposals, would happen to specific products currently
subject to "non-tariff measures" such as quantitative import restrictions and import licenses. China proposes that many
of the specific restrictions disappear immediately upon accession and that others be phased out. The report added today
provides a category-by-category list.
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In This Issue
Barshefsky hints at solution to fast track labor-
U.S. gun maker files Section 301 petition to
environment fight
p.1
boost exports to Brazil
p.14
China WTO negotiations maintain minimal
Tuna-dolphin law delays label change until
momentum toward agreement
p.1
Commerce study is done
p.15
U.S., Japanese opening positions in aviation
Costa Rica given go-ahead to prepare draft
talks reveal wide gaps
p.1
FTAA launch document
p.17
U.S., European Union still far apart in
EU to include genetically modified soy, corn
Helms-Burton negotiations
p.1
in novel foods rule
p.18
Business group prepares broad $3 million
USTR official sees broad support for
campaign to win fast track
p.3
labor-environment rules in MAI
p.19
Commerce agrees to examine whether Canada
European Union warns U.S. on implementation
is dumping wheat
p.7
of WTO telecom deal
p.20
EU hints at WTO challenge of U.S. use of
Chile to target U.S. trade remedy regime for
semi-generic names for wine
p.8
WTO consultations
p.21
Roth urges OECD shipbuilding signatories to
Finance Committee members criticize draft
wait for U.S. ratification
p.10
Commerce CVD regulations
p.21
Ex-Im Bank survives funding elimination vote,
Senate confirms LaRussa, Schumacher before
awaits final House vote
p.12
August recess
p.23
Republican fast track stand may be political
handicap, Dunn says
p.13
32
INSIDE U.S.TRADE - August 8, 1997
JSB
a biweekly report on
AmericasTrade
NAFTA, Mercosur,
the FTAA and
trade policy in
formerly Inside NAFTA
the Americas
Vol. 4, No. 16 - August 7, 1997
BUSINESS GROUP PREPARES BROAD $3 MILLION CAMPAIGN TO WIN FAST TRACK
The business coalition that will support the Clinton Administration's upcoming fall push for fast-track negotiating
authority called on its members late last month to contribute "a minimum of $3 million" to support a broad lobbying
campaign that will include paid media, grassroots organizing and Washington-based lobbying. The Business
Roundtable warned that gaining approval of fast track will be an uphill battle because many members of Congress are
not solid fast-track backers and the bill will come under heavy criticism from a wide range of other groups.
"Reports from Capitol Hill by congressional allies indicate that prospects for enactment of fast-track authority this
year are uncertain," the BRT wrote in a July 24 letter to corporate members of its international trade and investment
task force. "With the substantial turnover in the U.S. House of Representatives in the last two elections, many mem-
continued on page 21
U.S., OTHERS OPPOSE MERCOSUR PLAN TO BRING LAWMAKERS TO FTAA TALKS
The U.S. and several other Western Hemisphere nations last week strongly opposed a Southern Cone Common
Market (Mercosur) proposal that its member countries be allowed to include "parliamentarians" as observers in its
future delegations to talks on the Free Trade Area of the Americas.
Mercosur declared its intention to include legislators as observers on its delegation to the region-wide talks at a
July 29-31 meeting of the FTAA trade vice ministers in San Jose, Costa Rica. But countries including the U.S.,
Canada, Colombia and Barbados protested the idea, noting that "opening the negotiations to additional groups" would
merely make it harder to reach consensus among the 34 participating governments, a U.S. trade official said.
"The U.S. has never been in favor of including anyone other than the executive branch at the negotiating table
continued on page 16
BARSHEFSKY HINTS AT SOLUTION TO FAST TRACK LABOR-ENVIRONMENT FIGHT
U.S. Trade Representative Charlene Barshefsky yesterday (Aug. 6) hinted at a possible solution to the question of
how to treat labor and environment issues in the context of a bill to extend fast-track negotiating authority. Barshefsky
said that language proposed by House Ways & Means trade subcommittee chairman Phil Crane (R-IL), which would
allow only "directly trade-related" environment and labor provisions, is similar to language advocated by the Clinton
Administration in 1995.
During the 1995 fast track debate, Barshefsky and then-U.S. Trade Representative Mickey Kantor were pressing
for similar language, she said. But she cautioned that the Administration is also considering other options.
"Our formulation at that point was something rather akin to what Mr. Crane was talking about now," Barshefsky
continued on page 23
TUNA-DOLPHIN LAW DELAYS LABEL CHANGE UNTIL COMMERCE STUDY IS DONE
The Clinton Administration and other proponents of altering U.S. law to allow more imported tuna to be labelled
"dolphin-safe" were forced last week to delay that change, and instead negotiated compromise legislation that passed
the Senate. The language would immediately lift the U.S. embargo on dolphin-unsafe tuna and set in motion a process
that could allow the definition of "dolphin-safe" tuna to be expanded in the future.
The Senate approved the compromise in a 99-0 vote on July 30. The House, which earlier had passed a version
that would have altered the label in accordance with the Administration's wishes, is expected to adopt the Senate
version upon its return from the August recess, so as to avoid having to hold a House-Senate conference, which could
threaten to undo the delicate compromise reached in the Senate, a Senate source said.
continued on next page
The compromise legislation would immediately lift the ban on imports of tuna from countries including Mexico
and Colombia, but would keep in place the current definition of "dolphin-safe" tuna for labeling purposes until at least
March 1999, pending the preliminary findings of a study on whether the chasing and encirclement of dolphins in the
Eastern Tropical Pacific Ocean (ETP) has a "significant adverse impact" on two species of dolphins.
Current U.S. law does not allow tuna caught using purse seine nets that are set on schools of dolphins, under
which mature tuna tend to congregate, to be labeled "dolphin-safe." The proposed new definition would allow tuna
caught by setting nets on dolphins to be labeled "dolphin-safe" as long as no dolphins are observed killed or seriously
injured during the process.
Under the eventually-adopted compromise, which was based on proposals made by Sen. John Kerry (D-
MA), the new definition would go into effect if the Secretary of Commerce makes a preliminary determination
in March 1999, based on the initial findings of a National Marine Fisheries Service study, that setting nets on
dolphins does not harm the northeastern offshore spotted dolphin and eastern spinner dolphin populations. The
Commerce chief would also make a final determination between July 2001 and December 2002 based on a
separate, broader study that involves more dolphin species and also takes into account the potential role that
"stress" from being chased plays on dolphins' population levels as well as the effect that alternative ways of
fishing has on the levels of bycatch, a Senate source said.
Until the positive Commerce determination, all tuna caught during an entire months-long fishing expedition
could not be labeled "dolphin-safe" if dolphins are purposely encircled at any point during the trip. If, on the other
hand, dolphins are observed killed or seriously injured during any particular setting of nets during a trip that does not
purposely target the marine mammal, only the catch from that particular set could not be labeled "dolphin-safe."
The deal in principle was struck between senators on both sides of the issue and the Administration as the sched-
uled vote to end Senate debate approached on July 25, but only after a communication from National Security Advisor
Sandy Berger was delivered to Sen. John McCain (R-AZ), the chairman of the Senate Commerce Committee. Berger
told McCain that high-level Mexican officials had provided assurances that Mexico, the main Latin American nation
affected by the tuna embargo, would not object to provisions of the Senate compromise as violating the Panama
Declaration, according to informed sources.
The Panama Declaration is a 1995 agreement of intent signed between the U.S., nine Latin American fishing
nations, France and Vanuatu to create a legally binding international treaty to protect all marine species in the Eastern
Tropical Pacific Ocean fishery. Under the declaration, the legally binding international treaty would be negotiated
once the U.S. lifts its embargo and implements the "dolphin-safe" label change, although it would now appear that the
other countries have agreed to move forward to do that even though the label change has been delayed.
Upon seeing the legislative draft of the compromise, however, Mexican Undersecretary for Fishing Carlos
Camacho subsequently tried to insist, in a July 29 letter to McCain, that the interim labeling standard be implemented
on a per-set rather than on a per-trip basis. This would have allowed fishermen to encircle dolphins on one set and yet
still label tuna caught in other sets on the same trip as "dolphin-safe," without having to exclude all tuna caught on the
trip from the label.
Camacho's letter, reprinted below, threatened not to begin negotiations toward creating a legally binding instru-
ment for the Panama Declaration if the per-set designation was not allowed for all labeling purposes. Although
Camacho's eleventh-hour demand for changes was largely rebuffed, Mexico nonetheless intends to press for those
talks to begin early this fall, informed sources said.
Mexico's acceptance of the deal was confirmed this week by an environment ministry official based in its em-
bassy in Washington, DC.
"Given the circumstances, it was the best available outcome in the short term," Mario Aguilar of Mexico's
ministry of environment, natural resources and fisheries said in an interview. "However, I feel very disappointed that
the environmental considerations were probably the single-most absent considerations of this process, particularly
among the opponents" of the label change.
"Although this result is basically a delay," he said, "I did not hear any argument as to why the ecosystem should
continue suffering for another two years." In Mexico's view, harm to immature tuna, sharks, sea turtles and other
forms of marine life is encouraged by the current definition of the "dolphin-safe" label used in the U.S., he said. The
definition prohibits setting nets on schools of dolphins, where mature tuna often congregate, thereby promoting
"predatory fishing practices," such as setting on logs, which increase the bycatch of other marine species, according to
Aguilar.
Serious negotiations in the Senate on a potential delay in the labeling change ensued after a cloture motion
was filed on July 23, and it became apparent that the proponents did not have a clear-cut super-majority of 60-plus
votes on which to override a filibuster threat by opponent Sen. Barbara Boxer (D-CA), congressional sources said (AT,
July 24, p. 1). At the same time, Boxer and her allies were forced toward a serious compromise by the fear that a
breakdown in the negotiations followed by charges of bad-faith from the pro-label-change side could peel enough
2
Americas Trade August 7, 1997
votes away that the cloture motion could not be defeated, a Senate source said.
Until the compromise was struck, the proponents -- which included the Administration, co-sponsors of the original
bill, S. 39, John Breaux (D-LA) and Ted Stevens (R-AK), the U.S. tuna fishing industry, and five U.S. environmental
groups -- had steadfastly refused to delay the labeling change. They had argued that such a delay would not faithfully
implement the Panama Declaration.
In addition to Boxer, opponents of changing the label included Sens. Joseph Biden (D-DE) and Bob Smith (R-
NH) and a range of other U.S. environmental and conservation groups.
Proponents and opponents of the labeling change this week put forward strikingly different interpretations of
the implications of the compromise. The proponents emphasized that the new law shifts the burden of producing a 60-
vote, filibuster-proof super-majority in the Senate to those who want to preserve the current labeling standards. The
shift to the new standard will be automatic once the Commerce Secretary makes a determination that setting nets does
not harm two species of dolphins, they noted. The proponents said "existing scientific studies" indicate that this
determination should be made without any problem.
But opponents stressed that a previous study carried out by the National Marine Fisheries Service had signalled
severe depletions of the two dolphin species at issue, and they questioned whether NMFS could legitimately produce a
new study contradicting those findings in such a short time frame.
Because the new law now allows sale in the U.S. of tuna caught in "dolphin-safe" ways under the current defini-
tion, one opponent predicted that it could encourage Mexican fishers, one third of whom already fish without setting
nets on dolphins, to switch to that method in order to enter the U.S. market with that label. Prices for tuna in the U.S.
are higher than in alternative markets.
Opponents were also preparing to reinvigorate a consumer boycott against any dolphin-unsafe tuna which enters
the U.S. market now that the embargo has been lifted. Such a boycott could easily be expanded to all tuna if the
Commerce Secretary makes a determination that dolphins are not being harmed by chase and encirclement, because
that action would, in their view, call into question the "dolphin-safe" label, opponents said.
Mexican Letter on Tuna-Dolphin Compromise
Washington D.C.
safe" labeling standards would be determined on a per-set basis,
July 29, 1997.
not a per-trip basis during the period after regulatory implemen-
tation and before the March 1999 finding on significant adverse
The Honorable John McCain
impact. This was the only condition the countries placed on
Chairman
acceptance of the compromise. Such a determination is crucial to
Committee on Commerce, Science and Transportation
the countries not only for effective market access reasons, but
United State Senate
also for bycatch reduction efforts. Once tracking and verification
Washington D.C.205 10
regulations are in place, there is absolutely no logical reason why
this per-set tracking should be delayed.
Dear Mr. Chairman:
If, during this intervening time, the standard for dolphin
It is with particular concern that I find necessary to write
safe remains on a per-trip basis, there is absolutely no motivation
this letter on behalf of Ambassador Silva-Herzog and myself, in
for the countries to seek full and prompt implementation of the
relation to the work that has been taking place over the past
Declaration of Panama until just before the March 1999 decision.
several days by Senate staff to draft legislative language for S.39
This adjustment to the labeling standard would be consistent with
consistent with the agreement reached among interested Senators
other changes included by staff, including immediate inclusion
last Thursday. It is in this regard and considering the preoccupa-
of mortality and serious injury standards. Conversely, if the
tion previously expressed by Mexico and other countries parties
standard will be on a per-set basis, Mexico will call for a special
to the Panama Declaration that I would like to share with you
meeting of the intergovernmental body of the end of August to
substantial concerns regarding the apparent results of those staff
begin work on prompt implementation of the Declaration includ-
drafting meetings.
ing negotiation of the binding legal instrument.
The resulting legislative draft presented to us at 5:00 p.m.
I am hopeful that the transfer of the compromise agreement
yesterday (identified as the 3:20 p.m draft) includes numerous
into legislative language can be made consistent with the agree-
substantial changes that go well outside of what we understand
ment as it was presented to the nations last Friday.
was the compromise reached among yourself and the other
Once again, please accept my appreciation and respect for
Senators. Furthermore, and most important, the language di-
your continued support of our effort to effectively manage all of
rectly implementing the compromise is significantly inconsistent
the living marine resources of the eastern Tropical Pacific Ocean.
with the compromise principles we agreed to on Friday morning,
With warm regards.
and is inconsistent with clarification commitments made directly
to us at the time we accepted points one through four of the
Sincerely,
"compromise".
Specifically, we were assured on Friday that "dolphin
Carlos Camacho
Americas Trade - August 7, 1997
3
REPUBLICAN FAST TRACK STAND MAY BE POLITICAL HANDICAP, DUNN SAYS
A Republican member of the House Ways & Means trade subcommittee late last week acknowledged that her
party's stance in favor of largely excluding labor and environmental provisions from future trade agreements could
backfire electorally. Rep. Jennifer Dunn (R-WA) defended the position that such provisions should only be directed
related to trade, but noted that this stance could leave Republicans vulnerable to being portrayed by Democrats in the
upcoming mid-term congressional elections as anti-environment and anti-labor.
"We don't want ever to be put in that position, so there's a little paranoia attached," Dunn told the Washington
International Trade Association July 31. "We are at this time willing to take few chances even though we appreciate
how important fast track is."
The current Republican stance is that labor and environmental measures must be directly related to trade in order
to be included under the expedited approval procedures provided for trade agreements under fast track. Dunn said
Republicans hoped Democrats would not use labor and environmental issues against them in the 1998 elections in the
same way the issue of Medicare was used in the 1994 congressional races.
"Republicans continue to be a bit fearful that, if we do go along with the Administration and are where we are
now on labor and environment, that we will be portrayed by Democrats in various elections next year as anti-environ-
ment, anti-union," Dunn said.
In addition to partisan differences, efforts to renew fast track authority must overcome divisions within both
parties, according to Dunn. For example, fast track faces opposition within the Republican party from the supporters
of former presidential candidates Ross Perot and commentator Patrick Buchanan, she said.
"Folks from the Perot side are very strong with certain members of Congress, as are the folks from the Buchanan
point of view," Dunn said.
On the Democratic side, labor union opposition and the rivalry over the party's presidential nomination present
problems for the Administration in its fight for fast track, according to Dunn.
"You have two obvious nominees, [House Minority Leader Richard] Gephardt [(D-MO)] and [Vice President
Albert] Gore, who are battling each other over trade, among many, many other issues," Dunn said. "There is some
sense, certainly on the part of Gephardt, that fast track is not as important. Presidential politics does play a role."
Dunn added that she was heartened to see the President getting involved in the fast track campaign.
"I'm very pleased to see the President finally putting his weight and the weight of the Administration behind
this effort," Dunn said.
She emphasized, however, that Republicans have done all they can to strike a compromise with the Administra-
tion on how to include labor and environment concerns in a fast track bill.
"You get to a point where it is not worth moving any farther," Dunn said. "We want fast track, but we believe we
have negotiated, and been negotiated with, as far as you can go, and so we are pretty much at the point of no more
movement."
But Dunn said fast track supporters must take advantage of timing, and that their greatest opportunity will come in
September, when the Administration has promised to present its legislative proposal.
"[T]he bottom line is for the President to come to Congress, demonstrate his good faith [and] ask for our help,"
she said. "So we are very interested in moving ahead with this, if we can come to a satisfactory conclusion."
COSTA RICA GIVEN GO-AHEAD TO PREPARE DRAFT FTAA LAUNCH DOCUMENT
Western Hemisphere trade negotiators last week authorized Costa Rica to draft by October an initial version of the
ministerial declaration which will be used to launch the formal negotiations for a Free Trade Area of the Americas. In
a July 29-31 meeting in San Jose, FTAA vice ministers from 28 countries agreed that Costa Rica, which is chairing
this round of the FTAA process, should use an "annotated outline" of the Declaration of San Jose as a basis for its
drafting effort.
The annotated outline, reprinted below, explains on a point-by-point basis why specific topics should be included
in the declaration. According to its introduction, the outline "only represents a point of reference for an ordered
dialogue to aide in the drafting of the Declaration of San Jose and is entirely subject to the consideration of the
Preparatory Committee," which is made up of the FTAA vice ministers.
The outline says that the document used to launch the FTAA talks should be patterned in large measure after
the 1986 Punta del Este Declaration, which kicked off the Uruguay Round negotiations of the General Agree-
ment on Tariffs and Trade. The launch document should outline the general principles which have already been
agreed upon by the 34 nations participating in the process, it says. And the launch document should also state
the specific issues to be negotiated in each of the 12 subject areas on which an FTAA working group has been
formed, according to the outline.
In addition, the document should make clear how the formal talks would be managed and organized, and where
they would be held, it says. One of the key questions to be answered in the document is whether the talks "will be
4
Americas Trade - August 7, 1997
conducted in stages or simultaneously," according to the annotated outline.
The final launch document will be approved by FTAA trade ministers at a ministerial in San Jose now tentatively
scheduled for March 1998, sources said. Costa Rica is expected to draft the initial version of the Declaration of San
Jose in time for the next meeting of the FTAA vice ministers, which is tentatively scheduled to take place Oct. 28-30
in Puntarenas, Costa Rica.
The outline calls for references to be made in a separate section to the roles to be played by the business
sector, and by the labor and environmental sectors. But this way of organizing the declaration was called into question
by a number of delegations at the last month's vice ministerial, and Costa Rica indicated it would rethink the proposal.
The delegations argued that the established participation of the private sector through the Americas Business
Forum (ABF) is more broadly accepted, and should not be placed alongside the less-mature and more-contro-
versial participation of labor and environmental sectors in the FTAA process. The ABF has participated in each
of the three FTAA ministerials thus far, and its private-sector recommendations have been taken into consider-
ation by the governments.
The Uruguay Round's Punta del Este Declaration is a "valid" point of reference for the FTAA launch
document because both negotiating exercises have addressed complex issues and involved a large number of
participants with important differences in size and development levels, the outline says.
Similar to the Uruguay Round, the FTAA will go beyond traditional tariff and non-tariff negotiations to provide
disciplines in the areas of subsidies, countervailing duties and antidumping, standards and technical barriers to trade, it
notes. And the hemispheric talks will also address the so-called "new issues," such as intellectual property and trade in
services and investment, which were addressed in international trade talks for the first time during the Uruguay
Round, it adds.
One section of the outline, which called for the inclusion of commitments on "status quo and dismantling," also
known as standstill and rollback commitments, spurred significant debate at last week's vice ministerial.
The Southern Cone Common Market (Mercosur) delegation, among others, argued that such commitments were
not needed because all members of the FTAA negotiation are members of the World Trade Organization, and thereby
already obliged not to raise tariffs beyond their bound WTO rates or to otherwise violate WTO disciplines. But the
U.S. and Canada appeared indisposed to relinquish the idea of including such commitments, which have been a
standard, though oft-violated, part of most bilateral or regional trade negotiations.
Costa Rican Annotated Outline of FTAA Launch Document
Commented Outline of the Declaration of San Jose
facilitating the initial discussion of the Preparatory Committee
Costa Rica's Pro Tempore Presidency
during its First Meeting in Costa Rica, developing the final
July 28-31, 1997
Declaration during the three preparatory meetings. The Declara-
ALCA/FTAA
tion will have to be adopted by the Ministers at their meeting in
March of 1998. Also, the Declaration of San Jose should consti-
Introduction
tute the framework for the negotiations for these to launched by
In accordance with the mandate of the Ministerial Meeting
the Heads of State and Government at the II Summit of the
of Belo Horizonte, the objectives, approaches, structure and site
Americas in Santiago de Chile in April of 1998.
of the negotiations should be defined in San Jose. With this
The commented outline of the Declaration of San Jose
purpose, the Chair has prepared a commented outline, which has
covers the subjects of consensus and makes reference to some
the following objectives:
general issues which might be of interest at this stage. The outline
1. Start the elaboration of the outcome (Declaration of
being presented is inspired in part by the Declaration of Punta del
San Jose) which will allow to launch negotiations in Santiago,
Este of 1986, which established the framework for the Uruguay
Chile in April of 1998.
Round of Multilateral Trade Negotiations of the GATT. At the
2. Achieve consensus - as result of this first meeting
same time, the suggestions obtained during the consultation held
regarding the structure which would constitute the outline of the
by the Pro - Tempore Presidency with several countries of the
Declaration; sections, subsections and substantive issues to be
Hemisphere prior to the I Preparatory Meeting of Costa Rica,
included.
were considered.
3. Start deliberations on the contents of each one of the
The reference to the Declaration of Punta del Este is valid
sections of the commented outline.
due to several reasons:
4. Facilitate an agreement in order for the Chair to
a) The complexity of the issues. The negotiations of
present a draft, based on the commented outline, which includes
the FTAA, as well as the Uruguay Round will not only cover
the observations and comments of all of the countries after the
areas which traditionally were tied to trade liberalization, mean-
second preparatory meeting. This draft will serve as basis for the
ing tariff and non-tariff negotiations, but will also extend to other
countries to work on interactively with the Chair and to be
aspects of trade liberalization referring to "disciplines", such as
presented as a working document to the Third Preparatory
those relating to subsidies, countervailing duties and antidumping,
Meeting.
standards and technical barriers, sanitary and phytosanitary mea-
Therefore, the commented outline has the purpose of
sures. Also, as during the Uruguay Round, the FTAA negotia-
Americas Trade - August 7, 1997
5
tions will cover the so-called "new issues" (intellectual property,
terial meetings, such as:
trade in services, investment) which for the first time appear as
*
Maximize market openness through high levels of
part of a multilateral trade negotiations in the Declaration of
discipline based on the existing agreements in the Hemisphere.
Punta del Este.'
(Declarations of Denver and Cartagena)
b) A large number of participants. The FTAA nego-
Promote prosperity through economic integration
tiations will take place among the 34 countries that participated
and free trade as key factors for raising standards of living,
in the Summit of the Americas in December of 1994. Even
improving working conditions of people in the Americas and
though the number is smaller than that of the participants in the
better protecting the environment. (Summit of the Americas)
Uruguay Round, the numerous group of countries participating
*
Promote active participation of the smaller econo-
in the FTAA grants these negotiations a "quasi-multilateral"
mies in the Free Trade Area of the Americas and increase their
character.
level of development. (All of the Declarations)
c) Difference in the level of development of the
Foment the creation of a hemispheric infrastructure,
participants. Finally, as in the Uruguay Round, the FTAA
with the cooperation and financing from the private sector and
negotiations will be held among countries with important differ-
international financial institutions, in fields such as telecommu-
ences in size and level of development.
nications, energy and transportation, which will permit the effi-
Finally, this proposals only represents a point of reference
cient movement of the goods, services, capital, information and
for a ordered dialog to aid in the drafting of the Declaration of San
technology, that are the foundations of prosperity. (Summit of
Jose and is entirely subject to the consideration of the Preparatory
the Americas)
Committee.
2. General Principles that will guide the negotiations
Commented Outline of the Declaration of San Jose
a) Consensus as fundamental principle of decision
Content
making
It would be convenient to divide the content of the Decla-
The Declaration of Belo Horizonte points out that "Con-
ration of San Jose into two sections:
sensus constitutes the fundamental principle of decision making
I. The Objectives
in the FTAA process, which seeks to preserve and promote the
II. General principles which will guide the negotiations
essential interests of our 34 countries in a balanced and compre-
III. Status quo and dismantling
hensive manner."
IV. Issues of negotiation
Effective implementation of this principle is closely tied to
V. Participation
the need to conduct the negotiations in a transparent manner, so
VI. Management, organization and site of the negotia-
that all countries be aware of the pace of the process and none be
tions,
excluded from the decision-making.
In the second section, references to the following issues
b) The outcome of the negotiations will constitute a
could be included:
single undertaking
I. Participation of the private sector
In Belo Horizonte, it was pointed out that "The outcome of
II. Participation of the labor sector
the negotiations of the Free trade Area of the Americas will
III. Participation of the environmental sector
constitute a comprehensive single undertaking which embodies
IV. Treatment of the business facilitation recommen-
the rights and obligations mutually agreed upon."
dations
c) Coexistence with bilateral and sub-regional agree-
ment
A. Section I
The Declaration of Belo Horizonte also pointed out that
1. Objectives
"The FTAA can coexist with bilateral and sub-regional agree-
The objective of the negotiations was established by the
ments, to the extent that the rights and obligations under these
Heads of State and Government when they resolved during the
agreements are not covered by or go beyond the rights and
Summit of the Americas "to begin immediately to construct the
obligations of the FTAA".
"Free Trade Area of the Americas" (FTAA) in which barriers to
This principle does not imply that special measures cannot
trade and investment will be progressively eliminated" and to
be considered for the implementation of some agreements or for
conclude the corresponding negotiations "no later than 2005".
countries or groups of countries, like the ones that would be
In that opportunity, they also identified the issues that would be
related for example to small economies. Neither does it imply
object of "balanced and comprehensive agreements" tariffs and
that countries cannot agree to implement, before the end of the
non-tariffbarriers affecting trade in goods and services, agricul-
negotiations, some agreements that could be reached at in early
ture, subsidies, investment, intellectual property rights, govern-
stages.
ment procurement, technical barriers to trade, safeguards, rules
d) Consistency with WTO
of origin, antidumping and countervailing duties sanitary and
The Declaration of Belo Horizonte says that "The FTAA
phytosanitary standards and procedures, dispute resolution and
will be consistent with the WTO agreements."
competition policy. The following declaration resultant from the
One of the most important implications of this principle
three trade ministerial meetings Denver, Cartagena and Belo
refers to the consistency with disciplines established in the
Horizonte, reiterated this objective.
Agreements of the WTO, particularly with the Article XXIV of
Additionally, this part of the declaration would probably
the GATT 1994 and its Uruguay Round Understanding, and with
have to make reference to other more general objectives, which
the Article V of the GATS. In addition, the principle of consis-
would serve as framework to the negotiations and which are
tency requires that the countries ensure the implementation of the
already insinuated in the Declaration of Principles of the Summit
obligations acquired in the WTO, for which it would be conve-
of the Americas and in the declarations resultant from the minis-
nient to identify ways to facilitate the accomplishment of this
6
Americas Trade August 7, 1997
objective.
reflected on a country level.
e) Full participation of smaller economies and treat-
ment of asymmetries in the FTAA process
6. Management, organization and sites of the negotiations.
In Belo Horizonte it was pointed out that "Special attention
The Declaration of San Jose will have to include definition
should be given to the needs, economic conditions and opportu-
on various aspects regarding management and organization of
nities of the smaller economies to ensure their full participation
the negotiations:
in the FTAA process".
Negotiation Committee. The Declaration of San Jose will
In the Declaration of Punta del Este, it was foreseen that
have to contemplate the creation of a body in charge of supervis-
"in order to ensure effective application of differential and
ing the negotiations and will have to assign tasks to it. Up to date
more favorable treatment the GNG shall, before the formal
the issue has not been discussed, although some reference to it
completion of the negotiations, conduct an evaluation of the
has been made in some countries' proposals. The Negotiation
results attained therein in terms of the Objectives and General
Committee could be integrated by the Viceministers Responsible
Principles Governing Negotiations (...) taking into account
for Trade and could meet once a year.
all issues of interest to less developed contracting parties." In
Negotiating Groups. For the II Preparatory Meeting the
the Declaration of San Jose, the commitment of the countries
countries will have to define which hemispheric working groups
to conduct an assessment of the results of the FTAA negotia-
will transform into negotiating groups; how will the issues be
tions from the point of view of the smaller economies could be
distributed among them; and which groups, if it is the case, will
included in a similar way to the Declaration of Punta Del Este,
be created to address new issues.
to ensure that the objectives and principles of the negotiations
Periodicity, It will have to be clear in the Declaration of
that would have been agreed upon in this regard be effectively
San Jose if the negotiations will be conducted in stages or
implemented.
simultaneously.
Procedural Aspects. Procedural aspects like the follow-
3. Status quo and dismantling
ing will have to be explicit:
Status quo. It is essential that in the moment negotiations
i) Determine the way to elect the chair of the negotiat-
are launched, the countries commit firmly to not increment their
ing groups;
protection level or apply measures that distort trade in the
ii) Determine the objectives and timetables after the
hemisphere, with the purpose of improving their negotiating
launching of the negotiations in Santiago;
position. This commitment would give stability and foreseeability
iii) Determine the establishment of the minimum of
to the negotiating process.
meetings necessary and other mechanisms of organization and
Dismantling. At the beginning of the Uruguay Round,
necessary procedures to conclude the negotiations in the year
participant countries agreed that "all trade restrictive or distorting
2005.
measures inconsistent with the provisions of the General Agree-
Midperiod evaluation. Considering that at the Summit
ment or Instruments negotiated within the framework of the
of the Americas, the Heads of State and Government commit-
GATT or under its auspices, shall be phased out or brought into
ted to "make concrete progress toward the attainment of this
conformity within an agreed timetable
In
the
case
of
the
objective (the creation of the FTAA) by the end of this
FTAA, this commitment could be tied with the commitments
century" the Declaration of San Jose could contemplate a
acquired in the framework of the WTO and, in this sense, would
midperiod evaluation, which considers the progress achieved
include opportune elimination of trade restrictive measures, not
in this respect.
in agreement with WTO disciplines, in the terms not consistent
Secretariat. In the Declaration of Belo Horizonte a sig-
with the Uruguay Round.
nificant degree of commonality is recognized with regard to the
Surveillance mechanism. It would also be necessary to
"need for establishing a temporary administrative Secretariat to
consider the establishment of a surveillance mechanism to peri-
support negotiations."
odically verify the countries respect of the commitments of
Site. Various countries have offered themselves as site for
Status Quo and dismantling.
the Secretariat. It is not clear if this includes also the site for the
negotiations. Some countries have emphasized that pragmatic
4. Issues of negotiation
criteria should prevail, such as cost-benefit, easy accessibility
The Summit of the Americas defined the issues that would
and infrastructure support.
be object of negotiations and these have been assessed by the
twelve established hemispheric working groups, whose progress
B. Section II
and activities will be assessed during the first meeting of the
The second part of the Declaration could make reference to
Preparatory Committee and whose recommendations for nego-
other related issues mentioned in the Declaration of Belo
tiations will be assessed in the second preparatory meeting. The
Horizonte, such as:
Declaration of San Jose will have to include the objectives of the
1. Participation of the business sector and civil society
negotiations in each area and the distribution of issues in negoti-
"We acknowledge and appreciate the importance of the
ating tables.
private sector' role and its participation in the FTAA process. In
this sense, we consider the inputs from stakeholders of our civil
5. Participation.
societies to be important to our deliberations, including those
In Belo Horizonte, it was established that "Countries may
from the labor sectors."
negotiate and join the FTAA individually or as members of a sub-
2. Participation of the labor sector
regional integration group negotiating as a unit". Maybe this
"We reaffirm our commitment to the Declaration of Miami
will have to be complemented with a commitment of the coun-
and with/to paragraph 4 of the Singapore Ministerial Declara-
tries that the obligations acquired as a group can be effectively
tion of the WTO."
continued on next page
Americas Trade - August 7, 1997
7
3. Participation of the environmental sector
4. Recommendation for business facilitation. The HWGs
"We will keep this issue under consideration, in light of
[Hemispheric Working Groups] have elaborated recommenda-
further developments in the work of the WTO Committee on
tions for business facilitation as can be observed in the matrix on
Trade and Environment."
business facilitation.
U.S. GUN MAKER FILES SECTION 301 PETITION TO BOOST EXPORTS TO BRAZIL
A major U.S. gun manufacturer has called on the Clinton Administration in a section 301 petition to help open the
Brazilian market for the import of small firearms and their parts by pursuing, if necessary, a dispute settlement panel
in the World Trade Organization. In its petition, Smith & Wesson charges that the Brazilian government is maintain-
ing discriminatory taxation and distribution requirements as well as licensing procedures which insulate the domestic
industry from foreign competition.
The "cumulative effect" of these policies is driving up the cost of U.S. firearms in Brazil to a level "substantially
higher" than domestic equipment, a private-sector source said. In addition, imports are further blocked by a partial
embargo on certain firearms enforced by the Brazilian government, the petition said.
"Smith & Wesson urges the United States to investigate this matter, consult with the Government of Brazil, and
proceed with dispute settlement as necessary under the GATT [General Agreement on Tariffs & Trade]...," the July 17
petition said. "Above all, Smith & Wesson's goal is that the government of Brazil accord national treatment to all
imports into Brazil of small firearms and parts thereof from the United States in every regard."
The company filed the complaint after trying for several years to work with the Brazilian government to improve
access to the Brazilian market, which was the second-largest worldwide last year behind the U.S., according to a U.S.
industry source. But he held out the possibility that the problem could be settled without a formal dispute settlement
proceeding. "If there is another way to approach this to open the market, we would consider it," he said. But given that
all previous efforts have been fruitless, the section 301 route is the "best approach" now, he said.
The sources dismissed the notion that USTR may shy away from pressing a case for increased exports of firearms.
"This is a legal product in the U.S. and in Brazil," he said. There has not been "any reaction" from the U.S. govern-
ment regarding the nature of the product, he said.
The source pointed out that the facts of the petition have been prepared in close consultations with the U.S.
government. "There has been a good deal of back and forth with USTR and other agencies" in the preparation, he
said. "It is my impression that there is not great disagreement" on the substantive issues raised.
Under section 301 of U.S. trade law, the Office of the U.S. Trade Representative is required to act in this case
because the Brazilian policies in question violate the rights of the United States under existing trade agreements, the
petition pointed out. But even without this breach, Brazil's barriers to imports are actionable under section 301 as
"unreasonable acts, policies, or practices" that burden or restrict U.S. commerce, the petition said.
Smith & Wesson wants Brazil to terminate the embargo and amend its discriminatory application of
taxation rules and regulations, which drive up the cost of Smith & Wesson guns in Brazil, according to the petition. It
wants U.S. imports of the specified guns to be treated equally with those made in Brazil, the petition said. If Brazil
agrees to do so, the U.S. government should closely monitor the country's compliance with its commitments, the
petition said.
None of the Brazilian policies identified can be justified by the exemptions that the GATT allows for countries
that need to safeguard their balance of payments, bolster an infant industry or protect their essential security interests,
according to the petition.
For example, Brazil cannot claim it needs the restrictions for balance of payments reasons because it is not in the
early stages of development. Based on its per capita Gross National Product, Brazil has been classified as an "upper
middle income" country by the World Bank, according to the petition. In addition, the country ran a $13-billion
balance-of-payments surplus in 1995, the last year for which official data are available, the petition said.
Brazil maintains a partial embargo on certain small firearms and imposes restrictions on the financing of such
imports in violation of Article XI, which prohibits trading partners from imposing prohibitions or restrictions other
than duties, taxes or other charges, according to the petitioners. A U.S. private sector said that he knew of no public
defense of the embargo and other restrictions ever made by Brazil.
The petition also says Brazil's certification and licensing for imports of small firearms goes against the same article
because it is an impermissible restriction. The import licensing and administrative procedures applied to the guns in question
are also a violation of Article 3 of the licensing agreement because they restrict and distort trade, the petition said. They also
violate Article 5 and 6 of the agreement because they are not as simple as they could be, it said.
In addition, Brazil's system of taxation and the requirement that imported small firearms for the civilian
market cannot be sold directly from the importer to the retailer violates Article III of the GATT, according to the
petition. Under this national treatment provision, Brazil must treat imports no less favorable than domestic products.
8
Americas Trade - August 7, 1997
This additional level of distribution increases the cost of guns early in the process, a difference which is then
compounded by the subsequent application of tax rules, the petition charged.
Brazil also requires since March that importers provide immediate payment for goods, including firearms, by
depositing Brazilian currency in specified banks, the petition said. This means importers must transfer their payments
"far ahead" of the time specified in regular commercial contracts, thereby making products more expensive for
importers, the petition said. This obligation violates Article XI and Article III of the GATT, which states that signato-
ries must treat foreign products no less favorably than domestic ones.
Brazil also implements the provision in a way that favors its trading partners in Latin America by setting a higher
value of imports at which it is triggered, the petition charged. This violates Article I of the GATT, which obligates
Brazil to extend the same treatment to all its trading partners, according to the petition.
The petition defines small firearms as pistols and revolvers ranging in caliber from .22 to .45 inches.
While Brazil's volume of exports of small firearms to the U.S. has risen dramatically to about 250,000 units yearly
since 1997, total U.S. exports to Brazil have been 5,766 units during that same time period, according to petition. Last
year, 180,000 small firearms were purchased in Brazil, it said.
CRANE SAYS NAFTA PARITY COULD BE ATTACHED TO FAST-TRACK LEGISLATION
House Ways & Means trade subcommitee Chairman Phil Crane (R-IL) last week said that a bill to extend the
benefits of the North American Free Trade Agreement to countries of the Caribbean Basin Initiative could be attached
to legislation extending fast-track negotiating authority this fall. But the Clinton Administration believes it is unlikely
that such a legislative strategy would improve the prospect for passage of a NAFTA parity measure, an informed
source said.
"[A]t the end of the day that is not going to happen," the source said. "That combination has no vote-
gathering potential."
The source pointed out that some elements of the textile and apparel industry, which had worked out a
compromise on NAFTA parity, are likely to oppose fast track itself. The source also noted the skepticism of key
members of the Republican leadership towards NAFTA parity, an apparent reference to Senate Majority Leader
Trent Lott (R-MS).
A congressional source confirmed this interpretation, pointing out that combining the weak support for NAFTA
parity with fast track, which divides both Republicans and Democrats, would doom both bills. "Two negatives do not
make a right," the source said.
In addition, last month's experience with NAFTA parity has shown that the politics of the measure make it
entirely a liability with regard to fast track, another congressional source argued. "We had the broadest possible
coalition of the textile industry, except for Fruit of the Loom, and it still died," the source said.
Crane told reporters on July 29 that fast track represented "the next window of opportunity" for NAFTA parity, though he
admitted that funding the plan, which would cost $217 million per year, would present a tough obstacle to its passage. But he
argued that once authorized, it would be easier to secure extension of the program in future years.
"If you get [NAFTA parity] in the [fast-track] bill, then it's easier to extend it next year than to originate it," Crane
said. "But the problem, even in September, is where you come up with the funding offsets."
Crane also said that he would seek to attach his bill on trade with sub-Saharan Africa to the fast-track legislation, a
move that has been opposed by several members of the Congressional Black Caucus. But Crane has promised Rep.
Charles Rangel (D-NY) that he would move the Africa measure separately if the fast-track bill would stall, one
congressional source said.
The exact cost of the Africa bill is not known because it has not been scored yet, an informed source said.
A congressional source said as well that combining NAFTA parity with other trade bills, such as most-favored
nation status for Mongolia or a bill implementing an international agreement to curb shipbuilding subsidies would not
significantly reduce parity's political liability or make funding the program easier.
Crane made the comments following the apparent demise of efforts to include NAFTA parity in the omnibus tax
bill that will implement the budget deal between the White House and the Republican leadership. The tax bill did
include another short-term extension of the Generalized System of Preferences, which will now run retroactively from
May 31, 1997 through June 30, 1998 at a cost of $376 million.
There was nevertheless a concerted effort by President Clinton and White House officials to resurrect
NAFTA parity after it was excluded from the deal reached on the last weekend of July. But a congressional source
involved in the process questioned the Administration's strategy of lobbying very late for the NAFTA parity bill
instead of declaring it a priority earlier in the process.
Senate Finance Committee Chairman Bill Roth (R-DE) had sought to trade off NAFTA parity for Administration
consent to an amendment that would have changed the labor and financial practices of Amtrak, which was legally
necessary in order to release $2.3 billion in Amtrak funds. Clinton and Roth spoke on July 29 to try to hammer out a
Americas Trade - August 7, 1997
9
solution but were ultimately successful, a Finance committee source said.
The next step for NAFTA parity in the Senate will likely be "the normal legislative process," the committee
source said. "No one is focused" on the idea that fast track might serve as the next vehicle for this legislation,
the source added.
The negotiations between Roth and the White House followed discussions which in the end left intact with
minor modifications an intra-industry agreement on how NAFTA parity would be structured, Administration and
industry sources said. One industry source argued that this agreement proved that there is support for NAFTA parity,
and that it was only defeated by an issue that was not trade-related.
The industry agreement had been based on a detailed proposal hammered out by industry associations last month
and forwarded to congressional negotiators (AT, July 24, p.1).
But one congressional source argued that there was never really a firm agreement on NAFTA parity. As soon as a tentative
agreement was reached, individual companies sought to "gain just a little bit more" by petitioning individual members of
Congress and the industry associations did not rally around the original deal, the source said.
"All of the industry associations and companies thought they could get one more thing," the source said. "Maybe
the fact that they lost it all will settle them down."
U.S. INFORMALLY FLOATS IDEAS FOR SETTLEMENT OF BANANA DISPUTE WITH EU
The Clinton Administration has asked the European Union to give direct payments to some Caribbean
banana producers to offset the trade losses they will suffer when the EU is forced by a World Trade Organiza-
tion ruling to abandon some of the preferences it now extends to Caribbean bananas, according to informed
government sources. These aid payments to some producers on the basis of need would be in addition to a tariff
preference that Caribbean bananas would enjoy compared to Latin American products under a U.S. proposed
settlement of the dispute, they said.
While the U.S. has not offered a formal proposal, Deputy Assistant U.S. Trade Representative for Europe Ralph
Ives raised these ideas informally in a meeting with EU officials in Geneva last month. It was held after a hearing
before the WTO appellate body on the banana dispute.
"Ives floated only suggestions in case the EU would substantially lose [the WTO case]," one official said. "The
ideas [raised] were already familiar to the EU."
The U.S. characterized the aid payments as "deficiency payments" that would make up the difference between the
price of bananas Caribbean producers could get in the EU market and a set return linked to their production price,
officials said. The U.S. has proposed the payments could go to banana producers in the Windward Islands, such as St.
Vincent and the Grenadines, Dominica, St. Lucia, and Grenada, which are the least competitive producers, sources
said. In a December 1996 fact sheet, USTR argued the EU should give aid to the Windwards because they are the least
competitive producers.
Some EU officials at the meeting pointed out that it was "astonishing" for the U.S. to ask them to dismantle
preferences for Caribbean producers and then finance an aid program, one official said. These officials pointed out
that the Caribbean countries most hurt by a change in the EU banana regime are closer geographically to the U.S. than
to the EU, he said. This is an apparent reference to the fact that the U.S. would face more of the fallout from destabi-
lized Caribbean economies than the EU.
Ives presented these ideas as ways to create a "WTO consistent" regime, which the U.S. has interpreted to
mean changes in the current licensing regime, and elimination of the banana framework agreement that allocates the
EU quota for Latin American banana imports to specific countries. The U.S. has long argued that the EU can extend
tariff preferences to Caribbean bananas, but did not specify any numbers for such tariff differences in the Geneva
meeting. But informed sources said the U.S. wants to increase the tariff on Latin American bananas by 10 percent over
the bound 20 percent duty rate, sources said.
Informed sources said Ives acknowledged that changes in the banana regime would hurt Caribbean producers, and
generally seemed less strident and more interested in working out a compromise than he had previously been. Some
sources have speculated that there is a strong White House interest in getting the case settled after President Clinton
met with Caribbean leaders in May.
Ives also made it clear that the U.S. is not seeking to eliminate the current tariff-rate quota for Latin American
bananas, the access of which is restricted in favor of African, Caribbean and Pacific bananas, officials said. Separately,
USTR officials have made it clear that they would seek an increase in the TRQ for Latin American bananas, informed
sources said.
The U.S.-EU meeting, which was also attended by the USTR lawyer in the case, was a followup to a
commitment made by EU External Affairs Commissioner Leon Brittan to U.S. Trade Representative Charlene
Barshefsky at the Denver summit of the world's most industrialized nations.
The U.S. hopes to begin talks about a possible settlement after the appellate body issues its ruling, which will
10
Americas Trade - August 7, 1997
happen no later than Sept. 11, officials said. The EU has made it clear from the senior-official-level on down that it
will not begin exploring a possible settlement until the appellate body has issued its ruling.
Barshefsky emphasized her commitment to a negotiated solution in June letters to members of the House
Black Caucus.
The U.S.-EU meeting followed a three-day session of the appeals body, where the EU challenged every point
in the original panel report that went against the regime. The U.S. and the other complainants limited themselves to
three key objections to the panel's original ruling.
This included the charge that the panel erred when it found that the waiver the EU obtained for the Lome Conven-
tion allowed it allocate market access for ACP banana producers under a discriminatory quota system, according to a
June 26 submission released by the Office of the U.S. Trade Representative. The U.S. argued that the waiver allows
the EU only to extend tariff preferences to ACP banana producers, according to the submission.
CHILE TO TARGET U.S. TRADE REMEDY REGIME FOR WTO CONSULTATIONS
Chile last week notified the World Trade Organization that it is planning to request formal WTO consultations on
its charges that the U.S trade remedy regime currently examining whether Chilean salmon has been subsidized or
dumped in the U.S. is inconsistent with international trade rules.
"There is some consensus in lawyers' circles in Washington that deal in trade and WTO, that there are provisions
in anti-dumping and subsidies of the U.S. that can be challenged with quite an option of success," a Chilean trade
official said.
But a U.S. trade official disagreed. "We are confident that we are handling this complaint in a manner completely
consistent with our WTO obligations and U.S. domestic law," he said July 30.
The official in Santiago now spearheading the initiative is Ricardo Lagos, who directs WTO-related matters for
Chile, sources said.
The U.S. Commerce Dept.'s investigation on imports of Chilean salmon has prompted an unusually large outcry
in Chile, U.S. and Chilean officials have acknowledged.
"It's just a culmination of frustration" over the inability of the U.S., in the absence of securing fast-track authority,
to move forward on trade negotiations, one U.S. official said. "Everything has boiled over."
Another factor, he said, is that several investors in the Chilean salmon industry are "well-financed and well-
educated," and have clout in government circles.
But while the U.S. trade case is an "unfortunate development," the countries continue to maintain a healthy
dialogue on overall trade matters, the U.S. official said. "It's certainly not a stake through the heart," he said.
The notification to the WTO was sparked by, but will not focus exclusively on, a July 28 U.S. International Trade
Commission affirmative preliminary determination that there is a reasonable indication that imports of fresh Atlantic
salmon from the South American nation are causing material injury, or threatening to cause material injury to U.S.
salmon producers. That initial finding made evident that the probe would consider all imports of fresh, farmed Atlantic
salmon to be like products competing with U.S. salmon sales, regardless of whether the import arrived as a "dressed"
whole fish or was shipped as a fillet. Chile had argued to the ITC that its shipments, which are primarily fillets, should
be considered distinct products from U.S. salmon, which are mainly sold as whole fish.
A negative ITC determination would have resulted in the termination of the investigation. By Aug. 4, the
ITC's views were slated to be sent to the Commerce Dept., which will calculate whether subsidization or
dumping has occurred.
The investigation was instituted in response to a petition filed June 12 by a group of U.S. salmon farmers, the
Coalition for Fair Atlantic Salmon Trade.
Under scrutiny are a range of more than a dozen Chilean programs which the petitioners say provide unfair
subsidies to their Chilean competitors.
"It opens the door for any other law firm to pick their commodity and start a petition," one source noted. "It is
definitely a bad precedent."
Chilean Director General Juan Gabriel Valdes raised Chilean concerns about the salmon matter in meetings with
WTO Director-General Renato Ruggiero and with U.S. trade officials during a mid-July visit to Geneva.
In a related development, Sen. Richard Lugar (R-IL) highlighted the need for the U.S. to use its trade remedy laws
carefully in a July 24 letter to ITC Commissioner Marcia Miller. Lugar had met a few days earlier with a delegation of
Chilean officials who had traveled to Washington to protest the U.S. salmon industry's petition to members of
Congress and Clinton Administration officials.
"At a time when the U.S. is considering expansion of NAFTA to Chile, we should be sure to apply our
antidumping laws in a consistent and fair manner," Lugar wrote Miller.
Among the lawmakers with whom the Chilean delegation met were Sens. Chris Dodd (D-CT), John McCain (R-
AZ), Paul Coverdell (R-GA) and Bob Graham (D-FL), and Reps. Jack Metcalf (R-WA) and E. Clay Shaw (R-FL).
continued on next page
Americas Trade - August 7, 1997
11
In addition, members of the Chilean delegation met with Counselor to the President Thomas "Mack" McLarty,
National Economic Council Deputy Asst. to the President for Economic Policy Daniel Tarullo, National Security
Council Special Asst. to the President and Senior Director of Inter-American Affairs James Dobbins and Commerce
Secretary Bill Daley, sources said.
CUSTOMS LAWYERS CHARGE NAFTA CHAPTER 19 PANELS ARE UNCONSTITUTIONAL
The Customs and International Trade Bar Assn. (CITBA) last month charged in federal appeals court that
NAFTA's system that reviews antidumping and countervailing duty cases is unconstitutional because it prohibits
review by U.S. courts of government decisions that assess import duties.
AD/CVD duties are a form of federal taxation, the review of which, under Article III of the U.S. Constitution, can
only be conducted by U.S. courts, CITBA argued. "The system of binational panel review under NAFTA is unconsti-
tutional because, in contravention of Article III of the Constitution, it precludes Article III judicial review of govern-
ment decisions assessing import duties, a form of federal taxation," according to a July 22 amicus brief filed by
CITBA with the U.S. Court of Appeals for the D.C. Circuit.
"The drafting history of the Constitution shows that the federal judicial power under Article III was intended to
cover import duty cases," the group wrote.
But under the NAFTA system, the "government can assess taxes without having the lawfulness of its tax-assess-
ment decisions judicially reviewed by an Article III court," CITBA argued.
CITBA also argued that the system, established under NAFTA's Chapter 19, violates the Appointments Clause of
Article II of the Constitution, which requires that judicial officials be appointed with the advice and consent of the
Senate. The group specifically argued that traditional jurisprudence which suggests that Chapter 19 panelists need not
receive Senate confirmation should not apply in this case.
In the 1890 case Auffmordt V. Hedden, the Supreme Court concluded that independent merchants used to help resolve
contested customs valuation decisions qualified as one of the "inferior officers" which the Appointments Clause allows
Congress to create, CITBA pointed out. But Chapter 19 panelists, unlike these independent merchants, "perform a judicial-
type function by adjudicating questions of law based on an underlying administrative record," CITBA argued.
In addition, Chapter 19 panelists make decisions which are not subject to judicial review "at all," while the
decisions which independent merchants helped make were subject to court challenges, the group argued.
The New York-based group lodged its amicus brief in support of a lawsuit filed against the NAFTA panel system last
January by a coalition of 21 citizen groups and corporations. The American Coalition for Competitive Trade (ACCT) also
charged that the NAFTA violates Articles II & III of the Constitution.
Oral arguments in the case (Docket Number 97-1036) have been scheduled for October 21. One informed source
said the court could issue a ruling no sooner than 60 days after the oral hearing.
The Canadian government is slated to file its brief on Sept. 5, according to a court schedule. Mexico and the
province of Quebec are expected to submit amicus briefs in support of the U.S. on that same date, it said.
CITBA's brief is the latest salvo fired at NAFTA's Chapter 19, which has prompted opposition by several
members of Congress and an ad-hoc coalition of private-sector organizations. The coalition has urged the
Administration to include in any new fast-track bill an explicit prohibition on extending the Chapter 19 panel
system to new countries.
Some members of Congress are "keeping a very close eye on the lawsuit as to its impact on issues of fast track,"
one informed source said. If the lawsuit succeeds, it "will obviate the necessity of keeping Chapter 19 out of fast
track," the source contended. "It will remove a lot of current objections to fast track."
But if the lawsuit fails, "it may spur congressional opponents [of Chapter 19] to greater action," according to the
informed source.
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U.S. KEEPS DUTIES ON LIMES DESPITE CONSULTATIONS WITH MEXICO
The Clinton Administration stood firm during bilateral consultations with Mexico last month on its decision to
restore a duty on lime imports into the U.S., U.S. officials said.
The talks, held July 17 in Washington, were in response to Mexico's request last month to hold formal
consultations about the move under NAFTA's Chapter 20 dispute settlement provisions. Mexico alleges that the
U.S. action violated the free-trade pact's rules, which say that no NAFTA nation may hike an existing tariff on a
NAFTA-originating good.
"We think we did nothing out of the ordinary and it is fully justified," the U.S. official said. "There are no grounds
for complaint." Until the change, Mexico had been enjoying a "windfall," he said.
At the center of the controversy is a mid-June U.S. decision to modify a measure taken a year ago to provide for a
separate tariff subheading, or statistical breakout, for certain kinds of limes of the citrus latifolia variety. The breakout
resulted in the diversion of trade from one tariff classification to another, allowing most Mexican limes to enter the
U.S. under duty-free categories.
During the consultations, U.S. officials also laid out the regulatory timetable leading up to a final rule which
would allow entry of Mexican wheat from the Mexicali Valley into the U.S., the official said. Mexico had asked in
April for Chapter 20 consultations regarding its request that the Mexicali Valley be designated a disease-free area for
purposes of wheat exports.
Meanwhile, a five-member panel was constituted July 18 under NAFTA's Chapter 20 regarding the U.S.-
Mexican broomcom broom skirmish, an official said. Last March, the U.S. requested consultations with Mexico
regarding its tariff hikes on certain products in response to the U.S. safeguard action on broomcorn brooms. For its
part, the U.S. continues to argue that Mexico's retaliatory tariff increases appear to exceed those permitted by
NAFTA, according to informed sources. Consultations were last held in early April.
By July 31, Mexico was expected to lay out its arguments to the U.S. that the U.S. International Trade
Commission used an inaccurate definition of the broomcorn broom industry, a Mexican official said, and the
U.S. plans to submit its brief Aug. 25. A hearing will likely be held in September, a U.S. official said. At issue
is the ITC's finding that the product "like or directly competitive with" these imports was broomcorn brooms
and did not include plastic ones.
The U.S. is a defendant in another proceeding relating to a request by Mexico earlier this year for the establish-
ment of a Chapter 20 panel based on Mexico's charges related to the ITC's use of an inaccurate definition of what
constituted the U.S. broomcorn broom industry.
In a third case, Colombia and the U.S. held consultations last May regarding the Andean nation's launch of a case
at the World Trade Organization under the General Agreement on Tariffs & Trade Art. XXII and the safeguards
accord about the U.S. safeguard measure on broomcorn brooms.
ADMINISTRATION DIRECTED TO FIX DUTY-EXEMPTION LIMITS IN PENDING BILL
A bipartisan group of senators who represent U.S. border states last month attached an amendment to the
1998 Treasury appropriations bill (S. 1023) directing the Clinton Administration to take concrete steps to
achieve "parity" in the monthly duty-free allowances on merchandise purchased in all three NAFTA countries,
Capitol Hill sources said.
The amendment, which was approved by voice vote July 21, was spearheaded by Sen. Kay Bailey Hutchison (R-
TX) to address longstanding complaints by U.S. retailers with operations along the U.S.-Mexico border that current
Mexican rules make it too costly for Mexican residents to buy certain items in the U.S. as compared to the U.S. rules
governing purchases by U.S. citizens in Mexico.
The measure directs the U.S. Trade Representative and the Treasury Secretary to report within 90 days after the
Treasury appropriations measure is enacted on the "progress" made in talks between the U.S., Mexico and Canada to
"correct any disparity" between the three NAFTA countries on the matter.
If parity is not achieved within another 90 days, the two U.S. officials "shall submit recommendations to Congress
for appropriate legislation and action" to bring the U.S. allowance into conformity with the allowance levels estab-
lished by Mexico and Canada, according to the language of the amendment.
Among those U.S. products which have been made too costly under the current arrangement are appliances,
electronics, furniture and any other item costing more than $50 in the U.S., argued Hutchison when she introduced the
amendment July 17. The co-sponsors are Sens. John McCain (R-AZ), Jeff Bingaman (D-NM), Barbara Boxer (D-CA),
Phil Gramm (R-TX) and Ron Kyl (R-AZ).
Mexico and the U.S. each now levy distinct duty-exemption limits for tourists returning from a NAFTA
country. Mexico partly harmonized its personal-duty exemptions for returning residents in late 1995, raising its
monthly limit from $350 to the U.S. level of $400 and permitting pooling by family members. But Mexico's
Americas Trade - August 7, 1997
13
per-crossing limit is $50 for land crossings and $300 for air/sea crossings, which in particular limits the ability
of Mexican residents to purchase big-ticket items on the U.S. side of the border. For U.S. residents returning to
the U.S., the limit is $200 per crossing, with one $400 entry allowed each 30-day period. Canadian residents are
limited to $35 worth of duty-free goods.
Last spring, a bipartisan group of lawmakers urged President Clinton during his visit to Mexico to press Mexican
President Ernesto Zedillo to jumpstart talks among the NAFTA nations on the issue (IN, April 3, p. 22).
The U.S. specifically seeks broader product coverage for Mexico's duty exemptions, a U.S. official said.
IPR GROUP MINUTES SHOW TABLING OF U.S. PROPOSAL FOR FTAA TALKS
The U.S. last month tabled a proposal on how to negotiate intellectual property issues in upcoming Free Trade
Area of the Americas talks (AT, July 24, p. 8). At the same time, the Southern Cone Common Market (Mercosur) and
Andean Group countries said they would soon present their own proposals.
This exchange took place at a July 10-11 meeting in Washington, DC of the FTAA working group on IPRs. A
copy of the minutes of the meeting is reprinted below.
Minutes of July 10-11 FTAA Meeting on Intellectual Property
REPORT
1997 their suggestions and comments on methods to promote the
FTAA WORKING GROUP ON INTELLECTUAL
understanding and effective implementation of the WTO Agreement
PROPERTY RIGHTS
on Trade-Related Aspects of Intellectual Property Rights (TRIPs). It
OAS HEADQUARTERS, WASHINGTON, D.C.,
was also agreed that countries would identify the issues for which they
JULY 10-11, 1997
would require assistance and topics which could be addressed in a
1. The Working Group on Intellectual Property Rights held its
workshop that could be organized in the future with the support of the
fifth meeting at OAS Headquarters in Washington, D.C., on July 10-
WTO. Finally, countries were invited to indicate the possibility of
11, 1997. Delegates from 23 countries attended, as well as represen-
providing expertise in specific areas to other Members. The OAS
tatives from the OAS Trade Unit, the latter as observers. The list of
Trade Unit will compile these submissions in a document to be
participants is attached (see Annex 1.) A Seminar/Workshop on the
distributed before the next meeting.
Implications of Emerging Technologies with respect to the Protection
6. With respect to the fifth point of the agenda "Analysis of the
of Intellectual Property Rights was held on July 9.
implications of emerging technologies with respect to the protection
2. Following opening remarks by the Coordinator of the
of intellectual property rights," the Working Group held a seminar/
Working Group, Dacio Castillo, the Working Group approved
workshop the day prior to the meeting, which allowed for an exchange
the Agenda of the meeting (see Annex 2).
of views and information on these issues among countries. Costa Rica,
3. In relation to the second point of the agenda, the
Jamaica, Mercosur, Mexico and the United States made contributions
Coordinator informed the Group about the instructions to the
on biotechnology; and Colombia and the United States on the
working groups approved by the Ministers responsible for trade
implications of new technologies on copyrights. The program of the
at their meeting in Belo Horizonte, Brazil, on May 16, 1997.
seminar is attached as Annex 3. The Group thanked the speakers for
4. Regarding the third point of the agenda, the OAS Trade Unit
their presentations.
presented the updated version of the "Draft Inventory of International
As agreed at the last meeting of the Working Group,
Conventions and Intellectual Property Agreements Treaties and Ar-
Mexico will compile information on how these issues have been
rangements in the Western Hemisphere (SG/TU/WG.IPR/DOC.1/
addressed in recent seminars and workshops. Such information
96/Rev.4)." It also informed the Working Group that it was reorganiz-
will be distributed to countries before the sixth meeting of the
ing the documents "Draft Inventory of Intellectual Property Protec-
Working Group. Mexico invited countries to send any type of
tion Laws and Enforcement Measures in the Western Hemisphere
information that could be useful in preparing this compilation.
(SG/TU/WG.IPR/DOC.2/96/Rev2)". and "Draft Inventory of Intel-
7. Regarding the sixth point of the agenda on formulating
lectual Property Provisions in the Trade and Integration Arrange-
specific recommendations on the steps to follow for the construction
ments in the Western Hemisphere (SG/TU/WG.IPR/DOC.3/97/
of the FTAA in the area of intellectual property taking into account the
Rev.1)" on the basis of revised frameworks approved by the countries
results of the Belo Horizonte Ministerial Meeting, the United States
at their last meeting held in Cuernavaca. These documents will be
presented a proposal which is attached as Annex 4. Observations were
presented before the next meeting of the Group.
made by other participants and further explanations were provided by
With respect to the questionnaire prepared to complement
the United States. The Andean Community and Mercosur indicated
the "Inventory of Intellectual Property Protection Laws and
their intention to present proposals on this issue. The United States
Enforcement Measures in the Western Hemisphere," answers
invited other delegations to conduct informal discussions of these
received from countries were distributed to Members of the
proposals to further the work on this agenda item at this meeting. Other
Working Group. Countries that have not yet submitted their
delegations suggested that such discussions be held when their
answers were invited to send them to the OAS Trade Unit. These
proposals are formally submitted. In order to provide countries with
answers will be distributed to all Members of the Working Group
enough time to review all these proposals before the next meeting of
before the next meeting.
the Working Group, it was agreed that countries should submit
5. Concerning the fourth point of the agenda, it was agreed that
proposals to the Coordinator no later than August 15, 1997. The
countries will send to the OAS Trade Unit no later than August 15,
proposals should be distributed before August 30, 1997 to allow for
their analysis before the next meeting. This will allow the Group to
14
Americas Trade - August 7, 1997
comply with the Belo Horizonte mandate, i.e. to submit to the
(SG/TU/WG.IPR/DOC.1/96/Rev.4)." The Working Group agreed
PrepCom at its second meeting in October of 1997 different technical
that in order to prepare the final version of this document
alternatives and negotiating approaches with respect to intellectual
countries would submit their comments to the OAS Trade Unit as
property.
soon as possible. It was also agreed that references will be made
8. In relation to the seventh point of the agenda "Analysis
to investment treaties that mention references to intellectual
of the ways to provide opportunities to facilitate the integration
property as a separate section under each country's entry.
of small economies through technical assistance," the Chairman
The Coordinator will prepare a progress report to the
of the FTAA Working Group on Small Economies, Ambassador
PrepCom at its meeting in Costa Rica updating the report pre-
Richard Bernal, made a presentation to the Group on the chal-
sented to Vice Ministers in Recife. Also, as requested by Costa
lenges related to the participation of the smaller economies in the
Rica, the current Chair of the FTAA process, the Coordinator
FTAA process, and invited the Group to take into consideration
shall present a document that will summarize the work of the
these issues in its work. The Group expressed its appreciation to
Group based on the reports of the meetings held until now. These
Ambassador Bernal for his contribution.
documents will be sent to countries no later than July 16, 1997.
9. When considering the eighth point of the agenda, the
Mercosur requested that best efforts be made to include
recommendations of the Belo Horizonte Business Forum Workshop
Portuguese as a working language of this Group.
on Technology and Intellectual Property Rights were distributed. The
11. On July 9, following an invitation of the Working
Working Group acknowledged the importance of the need to take into
Group, the Assistant Director General of the World Intellectual
account the views of the private sector. Some countries shared their
Property Organization (WIPO), Carlos Fernandez Ballesteros,
experience on mechanisms for consulting the private sector. It was
made a presentation on the cooperation program that WIPO
agreed that this item should remain on the agenda of the next meetings
could offer to members of this Working Group upon request.
and countries were invited to share their experience in this matter.
12. The next meeting of the Working Group will be held on
10. Under point nine of the agenda, "other matters,"
October 2-4, 1997. Following a request by the Coordinator,
consideration was given to the publication of the "Draft Inven-
Colombia agreed to consult with the relevant authorities about
tory of International Conventions and Intellectual Property Agree-
the possibility of hosting this meeting. Mexico also offered to
ments, Treaties and Arrangements in the Western Hemisphere
host the meeting in Mexico City.
BOXER UNVEILS BILL TO SNIP FLOWERS FROM ANDEAN PREFERENTIAL PROGRAM
Sen. Barbara Boxer (D-CA) unveiled late last month a bill which would withdraw the duty-free treatment ac-
corded fresh-cut flowers under the Andean Trade Preference Act (ATPA).
"Fresh-cut flowers should be considered a sensitive domestic product, and thus also exempted from the ATPA,"
Boxer argued July 22 upon introduction of the legislation.
Other products, she noted, including textiles and apparel, watches and watch parts, and petroleum products, were
exempted from the program since it began in 1991, she noted.
The bill (S.1052), which would amend the ATPA to bar the provision of duty-free treatment for live plants and
fresh-cut flowers, was referred to the Senate Finance Committee.
In particular, Boxer charged that the ATPA's inclusion of such flowers has been "devastating" to California
growers while providing the most benefits to Colombia, she said, which controls more than 50 percent of the U.S.
market for roses and 80 percent of the carnation market.
The preferential program also has failed to serve its intended purpose of slowing coca cultivation in the Andean
region, she charged.
The ATPA provides for duty-free treatment or reduced duties on various goods, including fresh-cut flowers from
Bolivia, Colombia, Ecuador and Peru, and aims to encourage Andean farmers to grow products other than coca.
Identical legislation in the House has garnered 39 co-sponsors, including 16 Republicans and 24 Democrats. It
was introduced by Rep. Sam Farr (D-CA).
SENATE THREATENS WTO ACTION AGAINST MEXICO ON ANTI-DUMPING DUTIES
The Senate last week unanimously passed a non-binding resolution threatening Mexico with World Trade
Organization dispute settlement measures if Mexico refuses to end its antidumping action against U.S. corn sweeten-
ers. In addition, the House approved a similar resolution on July 31 by unanimous consent.
"Resolved, by the Senate (the House of Representatives concurring), that it is the sense of the Congress that (1) the
Government of Mexico should review carefully whether it properly initiated this antidumping investigation in
conformity with the standards set forth in the World Trade Organization Agreement on Antidumping, and should
terminate this investigation immediately; (2) if the United States Trade Representative considers that Mexico initiated
this antidumping investigation in violation of World Trade Organization standards, and if the Government of Mexico
does not terminate the antidumping investigation, then the United States Trade Representative should immediately
undertake appropriate measures, including actions pursuant to the dispute settlement provisions of the World Trade
Americas Trade - August 7, 1997
15
Organization," the Senate resolution said.
At issue are preliminary antidumping duties imposed by Mexico on imports of U.S. high fructose com syrup
(HFCS) following a complaint by the Mexican sugar industry. U.S. producers of HFCS claim that under multilateral
rules the Mexican sugar industry does not have legal standing to request the antidumping action. U.S. corn refiners
also claim the Mexican Dept. of Commerce used improper procedures in calculating the preliminary antidumping
duties imposed June 25.
As a ton of HFCS generally sells for between $250 to $350, the Mexican duties amount to an additional charge
ranging from roughly 20 to 60 percent, industry sources said.
"The duties now in effect because of this decision are as much as four to five times the pre-NAFTA levels,"
Agriculture Committee Chair Richard Lugar (R-IN) told the Senate July 25. The pre-NAFTA tariff level for HFCS
was 15%, according to a U.S. industry source.
The Senate resolution was introduced by Sen. Charles Grassley (R-IA), and was cosponsored by Lugar,
Agriculture Committee Ranking Member Tom Harkin (D-IA), Minority Leader Tom Daschle (D-SD) and
Robert Kerrey (D-NE).
House Ways & Means subcommittee on trade chairman Phil Crane (R-IL), Rep. Thomas Ewing (R-IL), and Glenn
Poshard (D-IL) worked to get the resolution passed in the House, according to congressional staff.
The Office of the U.S. Trade Representative is currently donating significant resources to an in-depth
analysis of the WTO and NAFTA rules potentially violated by the Mexican action, according to Chuck Conner,
President of the Com Refiners Association (CRA).
Conner also noted that the deadline for submission of CRA's reply brief to the Mexican government on the
duties has been pushed back by Mexico to Aug. 17 from Aug. 6. Conner indicated that Aug. 17 was not firm,
however.
MERCOSUR PLAN TO INSERT LEGISLATORS INTO FTAA SPARKS REACTION
begins page 1
except for rare exceptions," the U.S. official said.
He said it appeared that the proposal emanated from Brazil, the largest Mercosur member. Brazilian negotiators
believe the proposal would help the government of President Fernando Henrique Cardoso build support for proceed-
ing forward with the hemisphere-wide trade talks if members of Brazil's legislative branch better understood "what is
really going on in the FTAA negotiations," the official said.
Mercosur's delegate stressed that trade agreements ultimately must receive legislative approval, and therefore
inclusion of parliamentarians could aid in gaining that approval. But at least one other delegation pointed out that
elaborate domestic processes can and have been set up to ensure that other country's legislative branches are fully
consulted during trade negotiations.
A point made by the Barbadian representative at last week's FTAA meeting received wide support, officials
said. He noted that, although Mercosur could name as a member of its delegation anyone it desired, to create an
additional level of "observers" beyond the three regional bodies which provide technical support to the process would
require a consensus decision by the entire group of vice ministers, according to participants.
For her part, the Canadian delegate noted that participation by its legislators in international negotiations is at the
very least reserved to minister-level meetings rather than lower levels, and that it does not involve anyone but execu-
tive branch officials directly in trade negotiations, they said. One official noted that the Canadian vice minister made
the point that Canadian legislative delegations always include opposition parties as well as the governing party, and
that Canada viewed the inclusion at the level of officials rather than ministers to be "extremely dangerous."
"The Mercosur delegation raised the issue of the composition of individual country delegations," says the final,
approved minutes of the July 29-31 meeting. "It was recognized as a sensitive issue."
But an earlier draft of the minutes reveals more fully the extent of opposition to the move. "Despite recognizing
each country's sovereign right to appoint delegates, the various delegations expressed their concerns regarding the
possible implications of this decision," it says.
A copy of the final meeting minutes is reprinted below.
Besides the exchange over delegation composition, participants agreed that there were few fireworks at last
month's FTAA vice-ministerial, which was the first of three scheduled to take place between last May's ministerial in
Brazil and the next minister's meeting, now expected to take place in March 1998 in Costa Rica.
Because the second Summit of the Americas in Santiago, Chile has been pushed back to April, current FTAA
chair Costa Rica proposed changes in the dates for the preceding FTAA ministerial meeting and vice-ministerial
preparatory sessions. The proposed dates are Oct. 28-30 for the next vice-ministerial in Puntarenas, Costa Rica; Feb.
10-12, 1998 for the third vice-ministerial in San Jose; March 16-18, 1998 for the Americas Business Forum in San
Jose; and March 19-20, 1998 for the FTAA ministerial in San Jose.
16
Americas Trade - August 7, 1997
The vice ministers approved a set of guidelines to be followed by 11 of the 12 FTAA working groups in preparing
recommendations on the technical alternatives on possible issues and negotiating approaches in their respective
disciplines for the next vice-ministerial meeting.
Approval of the specific, detailed guidelines, which are reprinted below as annex 3 to the meeting minutes, were
the "major accomplishment" of the meeting, several officials confirmed. Those guidelines instruct the working groups,
with the exception of the recently formed dispute settlement panel, to give priority to preparing those recommenda-
tions and providing them to FTAA chair Costa Rica no later than Oct. 14.
If working-group delegates cannot reconcile their differing positions controversial issues despite making "diligent
efforts," those differing positions should be reported to the vice ministers, according to the guidelines.
Minutes of July 29-31 FTAA Vice-Ministerial in Costa Rica
Minute
disciplines...") and 10 ("to take into account, in their delibera-
First Meeting of the FTAA Preparatory Committee
tions, the findings and recommendations of the Working Group
San Jose, Costa Rica
on Smaller Economies in order to realize the opportunity of the
July 29-31, 1996
economies in the FTAA and to increase their level of develop-
ment").
1. The Preparatory Committee (PrepCom) held its first
7. The Chair suggested that before approving the reports of
meeting in San Jose, Cost Rica, on July 29-31, 1997. Delegates
the Working Groups, the PrepCom should clarify what is under-
from 28 countries attended, as well as representatives of the
stood by "approval" of these reports. It was agreed that "ap-
Tripartite Committee (OAS-IDB-ECLAC), the latter as observ-
proval" of these reports means the satisfaction with the work
ers.
done and their consent for the Working Groups to continue with
2. Costa Rica's Trade Vice Minister and PrepCom's Chair-
the pending tasks, as well as acknowledgment of the recommen-
man, Carlos Murillo, welcomed delegates and thanked the Gov-
dations, the work program, the business facilitation measures and
ernment of Brazil for the work done between the Cartagena and
the areas for immediate action.
Belo Horizonte Ministerial Meetings, as well as for its coopera-
8. The PrepCom proceeded to approve the reports accord-
tion with Costa Rica, in its capacity as Chair of the FTAA
ing to the following methodology suggested by the Chair: regard-
process. Following these openings remarks, the Agenda of the
ing reports not considered in previous meetings (Smaller Econo-
meeting was approved (see Annex 1).
mies; Customs Procedures and Rules of Origin; and Sanitary and
3. In relation with the second item of the Agenda "Report
Phytosanitary Measures), the delegation of the country that
of the Presidency Regarding the Organization of the IV Trade
chairs the Group made a brief presentation of the report. With
Ministerial Meeting and IV Business Forum of the Americas" to
respect to those that had already been considered by the Vice
be held in San Jose, the Chairman proposed a new date, March
Ministers (Market Access; Investment; Standards and Technical
19, 1998, to hold the next Trade Ministerial Meeting. This date
Barriers to Trade; Subsidies, Antidumping and Countervailing
takes into account that the Santiago Summit will be held in mid-
Duties; Government Procurement; Intellectual Property Rights;
April. Some delegations indicated that they would have to
Services; and Competition Policy), they were submitted to the
consult with their capital before confirming the availability of
approval of the PrepCom. The report of the Sanitary and
their Trade Minister. In view of this new development, the
Phytosanitary Measures Working Group is pending for approval
Mercosur delegation suggested that the date of the Third Meeting
since it does not fully represent the Group discussions. The status
of the PrepCom should also be changed to February 1998. The
of all these reports is included in Annex 2.
Chair made the commitment to analyze the possibility of deter-
9. The delegation of Peru, which chairs the Working
mining another date and submitting it to the consideration of Vice
Group on Competition Policy, informed that said Group ap-
Ministers at their Second Meeting.
proved the documents "Inventory of Domestic Laws and Regu-
4. The Chairman also informed the participants that the
lations Relating to Competition Policy in the Western Hemi-
Executive Director of the San Jose Business Forum, Marco
sphere" and "Inventory of Competition Policy Agreements,
Vinicio Ruiz, will conduct discussions with countries to prepare
Treaties and Other Arrangements Existing in the Western Hemi-
the program of this event.
sphere," and asked the PrepCom to approve their publication at
5. Regarding the third point of the Agenda "Analysis of the
its next meeting.
Work Done by the Hemispheric Working Groups and Instruc-
10. The PrepCom approved a "General Guide from
tions for Future Work," the Chair made a brief presentation of the
Viceministers to the Working Groups" (see Annex 3) to facilitate
documents that were distributed to delegations with the objective
the future tasks of the Working Groups.
of fostering the discussions on this issue.
11. Regarding the discussion on the instructions for future
6. After an exchange of views, the PrepCom agreed that
work of the Hemispheric Working Groups, the PrepCom agreed
this item should be divided into two parts: 1) to analyze and
that no new mandates would be given to these Groups, and that
approve the reports presented by the Hemispheric Working
they should focus on those mandates in paragraphs 7 and 10 of
Groups up to Belo Horizonte; and 2) to give instructions to
the Belo Horizonte Ministerial Declaration, without prejudice to
Working Groups regarding their tasks to comply with the man-
continue their other tasks.
dates of the Belo Horizonte Ministerial Declaration, paragraphs
12. Concerning point four on the Agenda, the Chair pre-
7 ("to submit to Vice Ministers at the Second Meeting under
sented a draft Annotated Outline of the Declaration of San Jose.
Costa Rica's Chairmanship different technical alternatives on
The delegations expressed comments that were gathered by the
possible issues and negotiating approaches in their respective
Chair, which in turn committed itself to prepare a draft text of the
Americas Trade - August 7, 1997
17
Declaration of San Jose for the next meeting.
as a sensitive issue.
13. Regarding point five of the Agenda, "Treatment of
c) Given the infrequent use of the Internet discussion
Business Facilitation Measures", the Working Groups were
room set up by the United States, which was created to provide
instructed to review and analyze the recommendations arising
a better flow of information at the level of Vice Ministers and
from the different Belo Horizonte Business Forum Workshops
Working Group Chairs the Chair offered to explore mechanisms
dealing with this subject, and include those relevant for their
for its more efficient use.
tasks as appropriate in compliance with their mandates. Also, the
PrepCom agreed to ask the forthcoming Business Forum to
Annex 1
include Business Facilitation in its Agenda to complement the
I Meeting of the Preparatory Committee of the FTAA.
work done.
July 29-31, 1997
14. The Chair was charged with preparing a technical note
on Business Facilitation, based on the consultations with the
Agenda for the meeting
delegations, which will serve as a basis for discussion during the
1. Approval of the Agenda
next meeting.
2. Report of the Presidency regarding the organization of
15. Concerning "Other Issues" on the Agenda, the follow-
the IV Trade Ministerial Meeting and the IV Business Forum of
ing were mentioned:
the Americas to be held in San Jose
a) Definition of a mechanism of response to the Busi-
3. Analysis of the work done by the Hemispheric Working
ness Forum - After exchanging points of view, the Chair was
Groups and instructions for future work.
requested to prepare a general response to the Forum.
4. Discussion of the Declaration of San Jose commented
b) The Mercosur delegation raised the issue of the
outline
composition of individual country delegations. It was recognized
5. Treatment of Business Facilitation Measures
6. Other issues
ANNEX No. 2
STATUS OF THE REPORTS PRESENTED BY THE HWGS TO THE VICE MINISTERS
REPORT
Approved by
Not approved by
Presented
Viceministers
Viceministers
at
Market Access
Recife
Customs Procedures and Rules of Origin
Investment
Rio de Janeiro
Standards and Technical Barriers to Trade
Recife
Sanitary and Phytosanitary Measures
Subsidies, Anti-dumping and Countervailing Duties
Recife
Small Economies
Recife
Government Procurement
Recife
Intellectual Property Rights
Recife
Services
Recife
Competition Policy
Rio de Janeiro
jects and issues, each Working Group defines them specifically)
General Guide From the Vice Ministers to the Working
4. Relevance of other international/regional
Groups (Annex 3)
agreements, negotiations and fora related to the issues of the
The Vice Ministers wish to remind the Working Groups about
Negotiating Group
the specific instructions to these Groups contained in paragraphs 7
B) Possible negotiating approaches
and 10 of the Belo Horizonte Declaration. The instructions agreed to
5. To consider the linkage with the disciplines
during the First Meeting of the Preparatory Committee are as follows:
from the other Working Groups to determine whether the issue
* Priority is to be given to preparing recommendations for
area requires a single negotiating group, coordination with other
the October meeting of the PrepCom regarding different techni-
Negotiating Groups or inclusion in a broader Negotiating Group
cal alternatives on possible issues and negotiating approaches in
6. Different options to achieve the objectives
their respective disciplines. Recommendations are expected from
presented
all Working Groups, with the exception of the Dispute Settle-
* The mandate in paragraph 10 of the Belo Horizonte
ment Working Group, who shall present an updated report.
Declaration shall be taken into consideration so that the Working
* The following format is suggested to fulfill this mandate:
Groups develop specific recommendations in their area, explic-
A) Possible technical issues
itly considering the objectives of the Miami Declaration; as well
1. Objectives of the negotiation in the issue area
as the recommendation of the Working Group on Smaller Econo-
2. Principles of the negotiation in the issue area
mies, regarding the Smaller Economies, and present these during
3. Possible subjects and issues (Open sub-
the next PrepCom meeting in October.
18
Americas Trade August 7, 1997
*
As pointed out in paragraph 9 of the Belo Horizonte
Group and not solely to participants in the meetings.
Declaration, after dilegent efforts to reach agreements on contro-
*
The Working Groups shall review and analyze the
versial issues, the Working Groups shall report the different
recommendations arising from the different Belo Horizonte
positions to Vice Ministers.
Forum Workshops and include the relevant ones in their tasks as
* All Working Groups shall meet sufficiently in advance of the
appropriate in compliance with their mandates.
October PrepCom meeting so as to advance as much as possible in
Each Working Group Chair shall inform the Group of
fulfilling their mandates. The recommendations on technical alterna-
decisions made by the PrepCom, e.g. by sending the minutes and
tives, on possible issues and negotiating approaches shall be provided
guidance suggested by this Committee.
to the Pro Tempore Presidency for distribution to the Preparatory
Working Groups are urged, as long as there is consensus,
Committee no later than Oct. 14. The Working Groups should post
to hold seminars and conferences with the private sector to
these reports in the Internet Discussion Room for Vice Ministers.
request views and possible business facilitation measures.
All Working Group Chairs shall participate in the
* The Working Group Chairpersons shall send the Tripar-
PrepCom meeting in October.
tite Committee all information regarding seminars, conferences
The Working Groups shall ensure that reports and
and contact points to be placed on the official FTAA Website,
minutes of meetings are provided to all members of the Working
when consensus exists.
U.S.-EU OFFICIALS STILL FAR APART IN HELMS-BURTON NEGOTIATIONS
After their fifth formal meeting last week, U.S. and European Union negotiators remained far from resolving their
dispute over the Helms-Burton law, which seeks to punish foreign companies that traffic in former U.S. property in
Cuba. In their July 31 meeting in Washington, the U.S. and EU each tabled proposals on how the dispute might be
settled, but sources said those proposals mostly reiterated their opposing views.
"Some progress was made," an informed source said this week, "but the same issues still persist."
For example, the two sides last week exchanged proposals on language aimed at discouraging investment in
expropriated property, one of two areas in which the two sides are trying to agree in order to settle the Helms-Burton
dispute, informed sources said. Sources said the U.S. proposal was more of a "concept" paper, while the EU proposal
was closer to draft language on investment disciplines.
But in order for the U.S. and EU to make progress, negotiators have decided for the time being not to discuss the
key issue of how retroactive these disciplines should be, an area in which there is no agreement.
The U.S. has insisted that the disciplines should apply to properties expropriated in the past, so that they can in
effect apply to properties in Cuba. But the EU has argued that the disciplines should only apply to properties expropri-
ated after the disciplines take effect, and has rejected specific references to properties in Cuba.
Sources said that the decision to postpone this fight has allowed the two sides to make some progress on the
disciplines themselves. However, the source said this strategy does not mean that either side has agreed to the other
side's view on retroactivity.
"You can talk about these issues without running afoul of problems related to when [the disciplines] take effect,"
an informed source said this week. "We're taking the practical approach of looking at the concrete issues."
In addition, the U.S. last week also tabled a "concept" paper on the second issue the two sides are trying to
resolve: how companies should respond when facing conflicting laws from two different countries, as they do under
Helms-Burton. The law requires foreign companies to comply with U.S. investigations into allegations of trafficking,
but the EU and Canada have passed legislation barring their domestic companies from complying with Helms-Burton.
The U.S. paper reiterated the U.S. position that countries should consult with each other when their laws make
opposing demands of companies. In contrast, the EU has previously proposed strict rules under which the law in a
company's home country would automatically prevail over another nation's laws when the two conflict with each
other, according to an informed source.
The two sides agreed last week to meet again the week of Sept. 15 in Paris, on the fringes of meetings to
negotiate a Multilateral Agreement on Investment (MAI) in the Organization for Economic Cooperation &
Development. The U.S. and EU have agreed to try to fold their bilateral disciplines into the MAI once they are
completed.
Next month's meeting will give the two sides less than one month to finalize these disciplines, as they decided on
a deadline of October 15 in their April 11 agreement. The U.S. and EU are hoping that a successful conclusion to the
talks will allow the EU to withdraw its World Trade Organization challenge of the law, and convince Congress to
allow Title IV of the law to be waived by the president. Title IV requires the U.S. to deny visas to foreign executives
that traffic in expropriated U.S. property in Cuba.
Sources close to the negotiation added last week that the U.S. is now more optimistic about the prospects for a
successful conclusion of the talks because the new EU lead negotiator, Deputy Director General for External Relations
Gerard Depayre, seems more determined to move the talks forward. The U.S. side was led by Assistant Secretary of
State for Economic and Business Affairs Alan Larson, sources said.
continued on next page
Americas Trade - August 7, 1997
19
In a related development, Senate Foreign Relations Committee Chairman Jesse Helms (R-NC) last month
publicly accused the Clinton Administration of purposefully failing to enforce Title IV of the Helms-Burton Act.
"Mr. President, it is increasingly obvious that your Administration has decided - unilaterally -- not to enforce that
provision of the Helms-Burton law," Helms wrote to Clinton in a July 16 letter, reprinted below. "Indeed, through its
failure to enforce this provision, the Administration has issued what amounts to an effective (and, in fact, an unlawful)
waiver of Title IV."
In addition, Helms warned that not enforcing Title IV leaves the impression that the Administration has promised
the European Union that Title IV would not take effect while the two sides try to settle their dispute over the law. EU
member states have in fact warned that if Title IV is applied against an EU company, they would demand that the
WTO challenge of Helms-Burton be resumed.
Helms' questions to the Administration in his July 16 letter mirrored those asked in a June letter to the State
Department from House International Relations Chairman Ben Gilman (R-NY). In response, State insisted that it is
fully enforcing Title IV, and that delaying its enforcement in order to provide companies such as STET and ITT time
to settle disputes over expropriated property is "fully consistent" with Title IV.
Gilman said in a July 23 statement that while he welcomes the agreement, his committee would be reviewing it to
ensure it is "consistent with the U.S. embargo on Cuba."
Meanwhile, a House amendment that would require the Administration to report to Congress on the status of
Title IV's implementation was included in the State Department authorization bill that emerged from a House-Senate
conference committee last week, according to congressional sources.
The measure would require periodic reports to Congress on the number of companies that have and have not been
cited under the law, and explanations of how and why those decisions were made. The amendment does not require
State to submit the names of specific companies to Congress.
A congressional source added that while the language in the final amendment also does not require State to
provide a sector-by-sector breakdown of companies being investigated under Title IV, State has made a "verbal
commitment" to provide this analysis. Rep. Ileana Ros-Lehtinen (R-FL), who chairs the House International Relations
subcommittee on international economic policy and trade, last week introduced legislation to this effect in case State
does not keep to that commitment, the source said.
Also surviving the conference committee was a Senate amendment that would deny visas to foreign executives
that traffic in expropriated property anywhere in the world. However, the amendment does not apply to property
claims resulting from disputes between United Nations members in which an ultimate resolution has not been reached.
For example, the amendment does not apply to lands in dispute as a result of the Peru-Ecuador conflict, the 1969
"Soccer War" between El Salvador and Honduras, and Middle East conflicts between UN member states, according to
House report language explaining the amendment. In contrast, the report said the measure could be used to target
property claims in Nicaragua, Costa Rica, Honduras, and the Dominican Republic.
A congressional source said both of these measures were "not a matter of great controversy." A conference report
on the authorization bill will likely be assembled after the August recess, after which it will be voted on by the House
and Senate and then go to the president for signing.
The broad aim of the bill is to consolidate international affairs agencies, reform foreign assistance programs, and
authorize appropriations of foreign assistance programs for 1998 and 1999.
Finally, congressional sources said that Ros-Lehtinen and Rep. Lincoln Diaz-Balart (R-FL) introduced
legislation last week that would require the U.S. to withhold non-humanitarian assistance to members of the Caribbean
Community (Caricom) and the Central American Common Market (CACM) if Cuba is allowed to join either of those
organizations. The bill would also deny Caribbean Basin Initiative tariff benefits to those countries.
Helms Letter on Title IV Enforcement
July 16, 1997
authority to waive Title III. However, I must remind you, Mr. President,
The President
that Congress explicitly refused to grant any waiver for Title IV of the
The White House
Helms-Burton law - the provision denying visas to foreign business
Washington, D.C.
executives trafficking in stolen American property in Cuba.
Mr. President, it is increasingly obvious that your Adminis-
Dear Mr. President:
tration has decided - unilaterally - not to enforce that provision of
I am dismayed by your decision today to issue, without
the Helms-Burton law. Indeed, through its failure to enforce this
consultation, another waiver of Title III of the Helms-Burton law, a
provision, the Administration has issued what amounts to an effec-
decision that will allow foreign businesses to continue trafficking in
tive (and, in fact, an unlawful) waiver of Title IV.
stolen U.S. property with impunity - while denying the rightful
Mr. President, with all due respect, I find it difficult to fathom
American owners any legal recourse whatsoever to seek compensa-
how, since Helms-Burton was signed into law on March 12, 1996,
tion from those traffickers.
the State Department has seen fit to issue Title IV letters (denying
I am aware, of course, that the law does provide you with the legal
entry to the U.S.) to the executives of just two companies Sherritt
20
Americas Trade August 7, 1997
of Canada, and Grupo Domos of Mexico.
Allow me to emphasize respectfully, Mr. President, that you
Surely after 16 months of research, your Administration has
and your Administration do not have the legal authority to waive
uncovered sufficient evidence of other Canadian, Latin American and
Title IV. It is the law of the land, and your Administration is legally
European companies that are in violation of Title IV. Or does the
bound to enforce it.
Administration seriously believe that Sherritt and Grupo Domos are the
I will appreciate your explaining to me the reasons behind
only companies trafficking in stolen American property in Cuba?
your Administration's failure to enforce Title IV of the Helms-
It is obvious, for example, that the Italian telecommunications
Burton law. Further, has there been any agreement, oral or
monopoly STET (a partner in Cuba with Grupo Domos) is in clear
written, with the European Union, or with any European Union
violation of Title IV. Indeed, it is my understanding that the State
government, that Title IV will not be enforced during the period
Department sent STET a "warning" letter in March, 1996. Thirteen
of negotiations over the WTO case? What is the Administration's
months have passed since that letter was sent, yet no action has been taken
legal justification for such an unauthorized waiver of the law?
against STET. Why, Mr. President, have their executives not been
And, is your Administration planning to take any actions during
declared persona non grata in the United States?
the coming months against executives in violation of Title IV?
Mr. President, there is a growing suspicion in Congress that
I will be genuinely grateful for an early response to these
your Administration has promised the European Union it will not
questions.
enforce Title IV against European companies, as a quid pro quo for
European agreement to suspend their WTO suit. Your failure to
Sincerely,
enforce this provision of the law reinforces that impression.
Jesse Helms
BRT SEEKS TO BUILD $3 MILLION FAST-TRACK CAMPAIGN
begins page 1
bers of Congress will be facing this issue for the first time."
The BRT letter, reprinted below, also warned that criticism on various fronts has weakened the coalition support-
ing new trade agreements. "In addition, opposition by organized labor, human rights groups, protectionists, isolation-
ists and environmental groups has taken its toll," it said. "Many members view fast-track as a referendum on NAFTA,
which is remembered on Capitol Hill for the strong views expressed by proponents and opponents, leading to a
difficult vote for members of Congress."
The group warned that without the "active participation" of U.S. exporters, the Administration will lose its battle
for fast track. "Our goal will be to help persuade undecided members of Congress or those new to this issue about the
critical importance of fast-track to our nation's future," the BRT said.
Private-sector sources noted that the letter was slightly negative about the prospects for getting fast track, though
they cautioned that it is primarily a letter designed to convince members to contribute money to the effort.
The letter outlined a lobbying effort on several fronts. One element will be paid advertising in selected congressional
districts, "especially where an incumbent member of Congress is undecided," it noted. The publicity campaign will also seek to
build on Administration activities and use mailings to news media, "periodic news conferences as required," visits to local
editorial boards and op-ed pieces "in key states and districts throughout the country," according to the letter.
As part of efforts to create a grassroots campaign, the business groups will make "[a]ggressive use of [a] 1-
800 number to generate Congressional communications from company employees, suppliers and constituents,"
according to the letter. The group will also recruit "opinion leaders in select Congressional districts" to support
business lobbying and distribute "lobbying kits" to companies and trade associations involved in the effort.
The group will also mount an "[a]ggressive Washington campaign relying on the use of corporate offices of
Roundtable companies and CEO communications with legislators," according to the letter.
The letter was signed by the heads of Caterpillar Inc., TRW Inc., The Boeing Company, Chrysler Corporation,
The Proctor & Gamble Company, and General Motors Corporation. Each of these companies have pledged $100,000
for the effort, according to the letter.
The BRT earlier this year helped found the American Leads on Trade Alliance, which is a coalition of trade
associations and companies dedicated to gaining the passage of fast track. An informed industry source said last
month that the BRT has not sought to raise funds from other alliance members, but instead has taken the "financial
lead" itself while expecting other groups to gain funds or involvement from their member companies as they see fit.
BRT Funding Letter, Proposed Strategy for Fast Track
July 24, 1997
took the lead in organizing the Alliance for GATT NOW in 1994-
1995 when Congress enacted the Uruguay Round implementing
Dear:
legislation.
As you know, the Business Roundtable has lead the
Today, we are faced with a similar challenge. The presi-
business community for many years in promoting the growth of
dent has announced his intention to send to Congress this autumn
the U.S. economy through trade agreements. The Roundtable's
a proposal that reinstates his authority to negotiate new market-
leadership on NAFTA in 1993 was absolutely critical to passage
opening trade and investment agreements under "fast-track"
of that landmark free trade agreement. Similarly, the Roundtable
authority. Without this other Congressionally-granted authority,
Americas Trade - August 7, 1997
21
there can be no expansion of NAFTA to include Chile or other
get fast-track approved.
Central and South American countries. There can be no Free
As a member of the International Trade and Investment
Trade Agreement of the Americas. There can be no new sectoral
Task Force, we are asking you to make a special commitment.
trade agreements such as the recently concluded information
We hope that you will contribute at the $100,000 level. If you are
technology and telecommunications agreements. There can be
unable to do so, we hope that you will contribute $50,000,
no new multilateral agreements to cover, for example, agricul-
$25,000 or some other appropriate sum. In any event, your
ture, or to expand intellectual property protection under the
participation is important. Enclosed is a fax-back pledge sheet.
auspices of the WTO. In short, without new fast-track authority,
Please respond as quickly as you can. With resources in hand, we
America's global trade leadership will be irreparably harmed.
will gear up for our efforts to counter the ads already being run by
Perhaps more unsettling is the political backdrop we face
opponents of trade in key Congressional Districts around the
on Capitol Hill. Despite current economic growth, historically
country. Your checks can be made payable to The Business
low unemployment, growing exports and the increasing percent-
Roundtable and sent to the Roundtable at 1615 L Street, NW,
age of our nation's GDP that is attributable to international trade,
Suite 1100, Washington, DC 20036.
the political climate for new trade agreements is not good.
Thank you in advance for your support of this critical
Organized labor, human-rights groups, protectionists, isolation-
initiative.
ists and some environmental organizations are questioning the
benefits of trade and investment to the United States. This is why
Sincerely,
the Roundtable has undertaken its trade communications initia-
tive, seeking to inform our stakeholders about the importance of
Donald V. Fites
trade and investment to the growth of our own companies and to
Chairman & CEO, Caterpillar Inc.
our nation's future.
Chairman, The Business Roundtable
With the Congress scheduled to debate and vote on fast-
track authority this fall, it is imperative that the Roundtable's
Joseph T. Gorman
member companies step forward to make our collective voices
Chairman & CEO, TRW Inc.
heard. Without our active participation, fast-track authority for
Chairman, The Business Roundtable
the president will not be enacted.
International Trade and Investment Task Force
We have pledged to work with the President and with the
Congressional leadership to achieve passage. Our goal will be to
Philip M. Condit
help persuade undecided members of Congress or those new to
Chairman, President & CEO
this issue about the critical importance of fast-track to our
The Boeing Company
nation's economic future.
With our participation and support, we will be fighting this
Robert J. Eaton
campaign on three fronts: direct lobbying in Washington, a fifty-
President, Chairman & CEO
state grassroots campaign, and a media program of advertising
Chrysler Corporation
and public relations directed at key, targeted Congressional
districts. All of these communications will be designed to dem-
John E. Pepper, Jr.
onstrate the importance of fast-track to our nation's economic
Chairman & CEO
future and to correct misleading and inaccurate objections raised
The Procter & Gamble Company
by its opponents.
In order to conduct this critical campaign, we need your
John F. Smith, Jr.
immediate financial assistance. Each of us has pledged $100,000
Chairman, CEO & President
to this effort. We believe we need to raise a minimum of $3
General Motors Corporation
million in order to insure that the voice of the business commu-
nity is heard. Of course, each of us is called on frequently to make
cc:
Washington Representatives
pledges of corporate resources for a variety of worthwhile causes.
This cause, however, is tied directly to our business future, the
Enclosures
economic growth of our country, the opportunities and job
security of our employees, and a growing standard of living for
the United States.
Maintaining U.S. global leadership on trade is at stake in
Proposed Strategy
this battle. If fast-track is not passed by Congress, U.S. global
leadership on trade will surely be a thing of the past. While the
Reports from Capitol Hill by Congressional allies indicate
United States remains on the sidelines, new trade agreements are
that the prospects for enactment of fast-track authority this year
already being forged by our trading partners with the economi-
are uncertain. With the substantial turnover in the U.S. House of
cally growing countries of South America and Southeast Asia.
Representatives in the last two elections, many members of
With or without U.S. participation, such agreements will
Congress will be facing this issue for the first time. In addition,
continue to be forged. In possession of fast-track authority, U.S.
opposition by organized labor, human rights groups, protection-
negotiators have the power to lead negotiations and shape these
ists, isolationists and environmental groups has taken its toll.
agreements to better suit the trade and investment liberalization
many members view fast-track as a referendum on NAFTA,
needs of U.S. firms and workers. Without fast-track, the U.S.
which is remembered on Capitol Hill for the strong views
merely watches from the sidelines while other nations craft rules
expressed by proponents and opponents, leading to a difficult
to the detriment of U.S. interests. We simply must do our part to
vote for members of Congress.
22
Americas Trade - August 7, 1997
The Business Roundtable proposes a multi-pronged strat-
sional communications from company employees, suppliers and
egy to secure support for enactment of new trade negotiating
constituents.
authority for the President, leading to continued U.S. leadership
Recruiting opinion leaders in select Congressional dis-
on global trade.
tricts to support the fast-track effort.
*
Distribution of fast-track lobbying kits to companies for
Media
use in Congressional visits.
* Selective advertising in targeted Congressional districts
*
Grassroots lobbying by BRT-member companies and
and, as appropriate, in Washington in support of fast-track.
other business trade associations.
*
Radio and television advertising in selected Congres-
* Expand breadth of support through interaction with other
sional districts, especially where an incumbent member of Con-
business organizations.
gress is undecided.
*
Aggressive use of earned media, leveraging Administra-
Washington Lobbying
tion activity as much as possible. Conduct mailings to news
* Aggressive Washington campaign relying on use of
media, periodic news conferences as required, editorial board
corporate offices of Roundtable companies and CEO communi-
visits, and production and placement of op-eds in key states and
cations with legislators.
districts throughout the country.
Other
Grassroots
* Development and distribution of other promotional
* Aggressive use of 1-800 number to generate Congres-
materials on fast-track.
BARSHEFSKY HINTS AT COMPATIBILITY OF FAST-TRACK PLANS
begins page 1
said in an Aug. 6 press conference. "But we are looking at a number of options."
Crane told reporters on July 29 that he had not heard back from the Administration regarding his proposed
language. In May, House Republicans presented this language to the Administration as they considered moving more
quickly on fast track. The Administration did not reject it outright but objected at the time to being presented with
what it viewed as an "ultimatum."
At that time and since then, congressional staff have informally discussed possible formulations based on the
"trade-related" phrase, but possibly including the words "specifically" or "directly" to narrow the scope of what could
be included in trade agreements which would utilize a fast track bill with this formulation, a congressional source said.
The source suggested that other legislative tools, such as committee report language, could further clarify what any
language would allow in a trade agreement.
Trade subcommittee Ranking Member Bob Matsui (D-CA) has warned that tighter language would make it more
difficult to attract enough House Democrats to pass such a bill.
Barshefsky on Aug. 6 repeatedly refused to be more specific about how the Administration bill would treat labor
and environment issues, and how many Democratic votes she believes could support a compromise proposal. She
stressed that the Administration wants a bill with broad support, but that the key goal is to pass a bill.
"The goal is to achieve fast track," Barshefsky said. "We want the broadest possible support."
The comment on labor and environment was the closest Barshefsky came to characterizing the substance of how
the Administration bill, which is expected to be delivered to the Congress in early September, will address key
contentious issues. She declined to comment on how the bill might treat the question of whether legislation can
include measures "necessary" or "appropriate" to implement trade agreements.
She did say that talks on a free trade agreement with Chile would be grandfathered into any fast track bill, since consulta-
tions began before the 1994 Miami summit. She declined to specify whether such a provision would then result in Chile
formally acceding to NAFTA or whether the U.S. would seek a bilateral FTA with Chile. Canada has a NAFTA-equivalent
agreement with Chile, and Mexico is updating its agreement with Chile to reflect that standard, she pointed out.
More generally, the Administration is considering the precise nature of the "procedural mechanisms" which the
fast track bill will outline for consultations with Congress on other negotiations besides those with Chile. "Plainly,
Congress would be involved [from the outset] with respect to countries beyond Chile," Barshefsky said. "The bill
takes care of the Chile issue."
A congressional source noted that the Administration has already signalled its support for the enhanced consulta-
tion procedures in Crane's bill from 1995. The source suggested that Barshefsky was emphasizing this point "to
address the perception that fast track shuts Congress out of the process."
The Administration is still discussing whether the Multilateral Agreement on Investment, whose negotiation has already
begun, would be grandfathered so that it could be implemented using fast track, Barshefsky said. Barshefsky said "it is not
clear" whether the MAI would change U.S. law, and therefore whether it would need implementing legislation.
She argued that the absence of fast track for the MAI would not necessarily hamper the negotiation because other
countries could not be sure the U.S. could follow through on its commitments. The absence of fast track "didn't hurt
us" in World Trade Organization negotiations on basic telecommunications, Barshefsky said.
continued on next page
Americas Trade - August 7, 1997
23
Barshefsky said that "over the course of the next two to three weeks" the Administration will consult with
members of both parties in both houses of Congress. This process will also bring in business, labor and environmental
groups, she said. The goal of the consultations is to allow the introduction of a bill that will be broadly supported from
the outset and need not be changed substantially, she said.
Meanwhile, Jay Berman, the recently named White House coordinator on fast track, told business groups on July 5
that the Administration would decide on the key issues related to the substance of legislation within the next week to ten days,
according to informed sources. The bill would then be presented informally to members in the week before its formal
introduction. Ways & Means Chairman Bill Archer (R-TX) has told the Administration that the bill would take two weeks to
go through committee, and that a full House vote could come at the end of September or early October, Berman said.
He spoke to the America Leads on Trade Alliance, a coalition of business associations organized specifically to
campaign in favor of fast track (see separate story).
The Administration was seeking to obtain a baseline vote count before Congress adjourned last week, according to
informed sources. The vote count is not based on members' response to a specific fast-track proposal but to the
general idea of extending new negotiating authority to the President, these sources said.
In addition, the Administration is working with members of Congress to pull together a whip group in the House which
would champion fast track and reach out to other members, according to a congressional source. This group will likely include
trade subcommittee Ranking Member Bob Matsui (D-CA) and as many as 15 to 20 other members, according to the source.
At the same time, President Clinton continued his outreach to House Democrats on fast track with a July 31
meeting before members left town. The meeting was scheduled to be attended by Clinton, Vice President Al Gore,
Treasury Secretary Bob Rubin, Agriculture Secretary Dan Glickman, Commerce Secretary Bill Daley, U.S. Trade
Representative Charlene Barshefsky, Labor Secretary Alexis Herman, Environmental Protection Agency Administra-
tor Carol Browner and Undersecretary of State for Economic, Business and Agricultural Affairs Stuart Eizenstat. It
follows a July 24 White House meeting with a group of Democrats who told Clinton that they expect to take a "lot of
heat" if they support fast track, according to a congressional source.
White House Spokesman Mike McCurry highlighted the problems members had raised to the President in
the July 24 meeting in his briefing that day. Berman said this week that the President urged members not to commit to
one side or another and give the Administration the chance to make its case on fast track.
"The message was: give us a shot before you commit," one informed source said. The source added the Adminis-
tration was most likely trying to prevent members from joining the anti-fast track camp during the August recess.
Members told Clinton that there needs to be "sufficient protection" for U.S. workers as well as attention to the
needs of workers in other countries and to the environment, according to McCurry. The group raised "all issues that
we are very well familiar with, and the President thought it was very useful to hear from House Democrats about some
of the concerns they're hearing in their districts," he said.
Clinton told House Democrats that competing globally is one element in his plan to ensure a dynamic U.S.
economy, McCurry said. The President expressed an understanding of members' difficulties, but emphasized that the
more that members of Congress and the public understand the issues in the fast-track debate, the more they will
support it, an Administration official said. Clinton emphasized that it was important to communicate what the fast-
track debate is about, and promised to do that personally in the coming weeks, the official said.
House Minority Leader Richard Gephardt (D-MO) was not invited to the July 24 meeting, nor were other Demo-
crats who oppose the extension of any fast-track negotiating authority which would not include labor and environmen-
tal issues in the core provisions of a trade agreement. But Administration officials spoke to Gephardt after the July 24
White House meeting to convey their desire to speak to him, a congressional source said.
Berman said in an interview last week that the Administration's effort on fast track will try to "walk a fine line" to
avoid deepening conflicts in the House Democratic Caucus. President Clinton has instructed his officials to achieve passage of
the fast-track bill in a way that does not "exacerbate" the split on trade in the Democratic party, Berman said.
Berman emphasized that the President wants to obtain fast track this year in both the House and the Senate. "We
are now at a point where we do not have the luxury of deferring the decision," he said. Another Administration official
said that the need to act this year largely stems from the fact that fast track would be even more controversial in 1998,
a congressional election year.
Berman said he will coordinate the Administration's activities on the fast track, as well as efforts outside Washing-
ton, which could include a grass-roots campaign. These efforts could include having the states "bear witness" that
expanded trade has contributed to their economic health, and would counteract the anecdotal evidence presented by
opponents of fast track on the problems caused by NAFTA.
Berman said there would be daily briefings among Administration officials on fast-track-related activities, but was
reluctant to talk about a "war room" as the command center of the initiative. "We are trying to make peace" and
expand the prosperity the U.S. has experienced in peace time, he said.
But other Administration officials say the fast-track effort will use a "virtual" war room in which officials will
24
Americas Trade August 7, 1997
carry out their responsibilities without leaving their regular positions.
Berman conceded that obtaining fast track is made "more challenging" by the absence of a major trade initiative,
such as the Uruguay Round, that must be passed. "The Uruguay Round did not end the trade agenda," Berman said.
He pointed out that there is a large trade agenda to be fulfilled, even though it may not have the "glamour" of the
Uruguay Round. This includes the built-in World Trade Organization agenda, with its commitment to hold agricul-
tural negotiations after 1999, the Free Trade Area of the Americas, and initiatives in the Asia-Pacific Economic
Cooperation forum, he said.
ADMINISTRATION DEVELOPS FAST-TRACK STRATEGY
begins page 26
With the fast-track bill, the Administration will submit to Congress a report required under Section 108 of
NAFTA's implementing bill identifying future candidates for FTAs.
One way to assess a country's adherence to core labor standards that has been discussed is their membership in the
International Labor Organization, informed sources said. According to this idea, no commitments on core labor
standards would be sought in agreements with countries that are already members of the ILO, they said.
This proposal suffers one major problem, which is that the U.S. itself is not a signatory to all ILO conven-
tions, one source pointed out. The source predicted that it would ultimately not be pursued by the
Administration.
The Administration is likely to decide on key issues related to the substance of fast-track legislation within the
next week to ten days. This timetable is intended to secure committee consideration and passage of a bill through the
House in September or early October (see related story).
That would be in time for President Clinton's scheduled mid-October trip to Argentina, Brazil and Venezuela.
Those countries and other Latin American and Caribbean governments view progress by the Administration toward
obtaining fast track as a key to its negotiating credibility in the Free Trade Area of the America talks that are expected
to be launched next April in Santiago, Chile.
UPCOMING CONFERENCES ON WESTERN HEMISPHERE TRADE POLICY
Sept. 8-9, Washington, DC - "The Brazil-U.S. Trade Agenda: Impact on Business," Brazil-U.S. Business
Council; Tel. 202-463-5485; Fax. 202-463-3126.
Sept. 18-22, Quebec City, Canada - "Parliamentary Conference of the Americas," Quebec National Assembly;
Tel. 418-643-7391; Fax. 418-643-7391.
Sept. 25-27, Santa Fe, NM - "6th Annual Conference," The United States-Mexico Law Institute, Inc.; Tel. 505-
277-7825/0080; Fax. 505-277-0068.
Sept. 30-Oct. 2, Santiago, Chile - "Transpacific Partnership: Implementing Trade and Investment
Opportunities," Pacific Economic Cooperation Council 12th International General Meeting.
Oct. 8-10, New Orleans, LA - "Encuentro Las Americas 97," City of New Orleans et al.; Tel. 888-529-4398;
Fax. 504-524-4303.
Oct. 25-28, Acapulco, Mexico - "International Conference on Trade and Investment," Border Trade Alliance,
Tel. 800-333-5523; Fax. 602-250-3360.
Oct. 29-Nov. 2, Acapulco, Mexico - "The Present and Future of the Maquiladora Industry in Mexico," Consejo
Nacional de la Industria de Exportacion (CNIME); Tel. 011-525-611-3366.
Nov. 14-19, Guatemala City, Guatemala - "The Business of the Future of the Americas," Assn. of American
Chambers of Commerce in Latin America; Tel. 202-463-5485; Fax. 202-463-3126.
Dec. 7-11, Miami, FL - "The Americas 1997 - A New World for Business," Miami Conference on the
Caribbean and Latin America, Caribbean/Latin American Action; Tel. 202-466-7464; Fax. 202-822-0075; FaxBack.
202-776-9010.
March 16-20, 1998, San Jose, Costa Rica - Americas Business Forum and IV FTAA Ministerial
April 1998, Santiago, Chile - "Foro Ciudadano Hemisferico Frente a la Globalizacion," Red Chile de Accion
Para una Iniciativa de los Pueblos, Tel./Fax. 011-526-341-6597.
April 1998, Santiago, Chile - Second Summit of the Americas.
Americas Trade - August 7, 1997
25
ADMINISTRATION CONSIDERING NEW POLICIES TO WIN PASSAGE OF FAST TRACK
The Clinton Administration is planning to use the next few weeks to decide "critical policy issues" which would
help pave the way for the passage of fast-track negotiating authority, according to an Administration official. In
addition, the Administration is doing this work with a view to introducing fast-track legislation soon after Congress
returns in September in the hope to have a House vote that same month, informed sources said.
Policy issues facing the Administration include the possible expansion of programs to retrain workers
adversely affected by trade agreements, and finding an approach to demonstrate the Administration's commit-
ment to core labor standards without explicitly including them in fast-track legislation, informed sources said.
This is part of an effort to develop a bill that would attract sufficient Democratic votes, an Administration
official said.
The Administration is currently split over whether to pursue additional retraining programs as a way of demon-
strating its commitment to U.S. workers. Some Administration officials are arguing against such initiatives because
they will not blunt the opposition of organized labor to fast track, but others say that it would be helpful in securing
support among House Democrats, an Administration official said.
"The politics of these that say do not do anything on [retraining] is perhaps shortsighted," the official argued.
The worker retraining initiatives would not necessarily have to move as part of a fast-track bill, but could
move simultaneously or in the "margins" of the bill, the Administration official said. The need for retraining programs
to help U.S. workers hurt by global competition has been raised by a number of Democrats, including Ways & Means
Committee Ranking Member Charles Rangel (D-NY). It may also help to win over some of the Hispanic House
members, who told President Clinton in a letter earlier this month that NAFTA has cost more jobs than it has created
for Latinos, African Americans and women.
The Administration's debate is also focusing on how to finesse handling the relationship between labor and
trade, informed sources said. One way of demonstrating that the Administration cares about promoting core
labor standards would be to limit candidates for potential free trade agreements to countries that also promote
these standards, they said.
"There are a lot of different thoughts that are being discussed under the umbrella of country criteria" that would
define the countries with which the U.S. would seek free trade agreements, an Administration official said. The rule of
law would be another criterion the Administration would consider in its selection of potential free-trade agreement
candidates.
continued on page 25
Inside This Issue
Customs Lawyers Charge NAFTA Chapter 19 Panels
Are Unconstitutional
12
Business Group Prepares Broad $3 Million Campaign
U.S. Keeps Duties on Limes Despite Consultations
to Win Fast Track
1
with Mexico
13
U.S., Others Oppose Mercosur Plan to Bring
Administration Directed to Fix Duty-Exemption Limits
Lawmakers to FTAA Talks
1
in Pending Bill
13
Barshefsky Hints at Solution to Fast Track Labor-
IPR Group Minutes Show Tabling of U.S. Proposal for
Environment Fight
1
FTAA Talks
14
Tuna-Dolphin Law Delays Label Change Until
TEXT: Minutes of July 10-11 FTAA Meeting on
Commerce Study is Done
1
Intellectual Property
14
TEXT: Mexican Letter on Tuna-Dolphin Compromise
3
Boxer Unveils Bill to Snip Flowers From Andean
Republican Fast Track Stand May be Political Handicap,
Preferential Program
15
Dunn Says
4
Senate Threatens WTO Action Against Mexico on Anti-
Costa Rica Given Go-Ahead to Prepare Draft FTAA
Dumping Duties
15
Launch Document
4
TEXT: Minutes of July 29-31 FTAA Vice-Ministerial
TEXT: Costa Rican Draft Outline of FTAA Launch
in Costa Rica
17
Document
5
U.S.-EU Officials Still Far Apart in Helms-Burton
U.S. Gun Maker Files Section 301 Petition to Boost
Negotiations
19
Exports to Brazil
8
TEXT: Helms Letter on Title IV Enforcement
20
Crane Says NAFTA Parity Could be Attached to Fast-
TEXT: BRT Funding Letter, Proposed Strategy for Fast
Track Legislation
9
Track
21
U.S. Informally Floats Ideas for Settlement of Banana
Administration Considering New Policies to Win
Dispute With EU
10
Passage of Fast Track
26
Chile to Target U.S. Trade Remedy Regime for WTO
Consultations
11
UPCOMING CONFERENCES ON WESTERN
HEMISPHERE TRADE POLICY
25
26
Americas Trade - August 7, 1997
Thile
Pusluation
An
Inside U.S. Trade
Inside
Washington
Publication
Anexclusive weekly report on major government and industry trade action
Vol. 15, No. 31 - August 1, 1997
ADMINISTRATION CONSIDERING NEW POLICIES TO WIN PASSAGE OF FAST TRACK
The Clinton Administration is planning to use the next few weeks to decide "critical policy issues" which
would help pave the way for the passage of fast-track negotiating authority, according to an Administration
official. In addition, the Administration is doing this work with a view to introducing fast-track legislation soon
after Congress returns in September in the hope to have a House vote that same month, informed sources said.
Policy issues facing the Administration include the possible expansion of programs to retrain workers ad-
versely affected by trade agreements, and finding an approach to demonstrate the Administration's commitment to
core labor standards without explicitly including them in fast-track legislation, informed sources said. This is part
of an effort to develop a bill that would attract sufficient Democratic votes, an Administration official said.
The Administration is currently split over whether to pursue additional retraining programs as a way of
continued on page 18
CHINA OFFERS TARIFF CUTS FALLING SHORT OF DEMANDS BY QUAD MEMBERS
China has offered key members of the World Trade Organization, including the U.S., Japan, and the European
Union, selected tariff cuts which failed to meet their demands in terms of the number of products covered and the
extent of the reductions, according to informed government sources. Chinese negotiators also indicated in advance
of a formal meeting of the WTO working party today (Aug. 1) that it would be "difficult" for them to sign on to the
Information Technology Agreement, which would eliminate tariffs by the year 2000, these sources said.
"The tariff offers constitute improvements, but they fall well short of what people are asking for," one
negotiator said. "They are continuing to make improvements in market access, but it is rather slower than people
had hoped."
For example, the Chinese offer to the U.S. covered 400 items, while the one to the EU covered 900 items,
continued on page 19
U.S., EU WRESTLE WITH CONFLICTING JURISDICTION IN HELMS-BURTON TALKS
European Union and U.S. negotiators met in Washington yesterday (July 31) to take another stab at resolving
their dispute over the Helms-Burton law, which is aimed at punishing foreign companies and executives that traffic
in expropriated U.S. property in Cuba. Negotiators were expected to cover all aspects of the dispute in the meeting,
but one source said they were expectedto focus on the controversial issue of conflicting jurisdiction.
But sources said that the two sides are still far apart on this issue, which centers on how companies should
respond when facing conflicting laws from two different countries, as they do under Helms-Burton. The U.S. law
seeks to limit foreign investment in Cuba in certain circumstances, which conflicts with EU and Canadian law.
The EU has so far proposed rules under which the law in a company's home country would automatically
prevail over another nation's laws when the two conflict with each other, according to an informed source.
continued on page 20
BOEING DEAL INCLUDES ARBITRATION PROCESS ON PATENT LICENSING DISPUTES
The deal struck between Boeing Co. and the European Union to clear the way for the company's merger with
McDonnell Douglas Corp. (MDC) contains a commitment by Boeing to use arbitration to settle disputes with the
EU over the licensing of patents derived from U.S. government research and development, informed sources said
this week. As part of the deal, Boeing agreed to license patents to other aircraft manufacturers that cover commer-
cial aircraft innovations derived from U.S. government funded research.
The arbitration provisions of the Boeing-EU agreement do not create a body in which disputes over patent
licensing would be settled, but instead commits the two parties to seek "independent arbitration." The agreement
envisions using arbitration to settle fights concerning how much Boeing should charge for licensing its patents,
informed sources said. Another source added that arbitration may also be used in disputes over whether or not a
continued on next page
patent in question was actually derived from U.S.-government funded R&D.
Disputes over what innovations stem from government funded research could arise easily because the
EU believes that much of the U.S. commercial industry's technology is derived from R&D done by the
National Aeronautics and Space Administration (NASA), the Federal Aviation Administration (FAA), and
the Defense Department. But a U.S. industry source said this week that Boeing believes that it will have to
license only very few of its patents under the merger agreement with the EU. That assessment reflects U.S.
government and industry claims that the commercial aircraft industry gains little benefit from government
R&D.
Specifically, Boeing last week agreed to license "patents obtained under U.S. government-funded contracts to
commercial aircraft manufacturers on a non-exclusive, reasonable royalty basis." Sources said this week that
Boeing's commitment covers all past and future non-expired patents held by Boeing and MDC, and is not limited
to certain technologies or in any other way.
One industry source said the EU is not obligated under this agreement to provide similar access to patents
derived from EU government R&D that benefit Europe's commercial aircraft industry. But the source said it is
likely that few of these patents exist anyway.
In addition, Boeing agreed to annual reports to the European Commission for ten years on its current patents
derived from government R&D. The EU made that demand so that it would know which patents exist that Boeing
could potentially license, an industry source said.
But again, the source said Boeing anticipates that the number of patents it will make public to the EU is "not a
big list," and that it is only required to provide information on patents with a commercial application that were
derived from government R&D.
A U.S. official said this week that "there is a chance" that Boeing has made commitments that go beyond what
the company has previously agreed to under the 1992 bilateral aircraft subsidies agreement in terms of providing
information to the EU. But the official said Boeing has not yet briefed the Clinton Administration on the exact
details of the agreement.
Sources this week were undecided on the significance of other concessions that Boeing made to the
EU last week. For example, Boeing agreed to cross-license blocking patents, which are patents that are so
broad that they cannot be designed around by Boeing's competitors. But one informed source said Boeing
and Airbus were discussing the possibility of cross-licensing these patents before the EU's merger review
took place.
In addition, Boeing agreed to not enforce provisions of its contracts with three U.S. airlines that prohibit those
airlines from buying planes from any company other than Boeing. But an industry source said two of those three
companies, Continental Airlines and American Airlines, have already announced that they do not expect to deviate
from those contracts. And while Boeing did agree to not enter any other exclusive-supplier arrangements until
2007, the Federal Trade Commission (FTC) had already warned Boeing in its approval of the merger that it would
likely have to examine any future sole-supplier deals for anticompetitive effects.
Boeing also committed to not leverage the existing MDC customer base for the purpose of obtaining an
advantage in selling Boeing aircraft. As part of this commitment, Boeing agreed to have an independent
auditor confirm to the EU that Douglas Aircraft Co., the division of MDC that makes commercial aircraft,
remains a separate legal entity from Boeing. This commitment should demonstrate to the EU that Boeing is
treating the companies separately in terms of selling Boeing and MDC commercial aircraft, an industry
source said.
Aside from this structural commitment, Boeing also committed itself separately to not seek to use its position
to increase Boeing's sales (Inside U.S. Trade, July 25, p. 1).
Meanwhile, the European Commission this week formally approved the merger in a July 30 meet-
ing, according to EU sources. Commissioners agreed that Boeing's commitments are "adequate" in resolving
the competition problems identified by the EU, but warned that it would be monitoring Boeing to ensure it
meets its obligations.
"The Commission will strictly monitor Boeing's compliance with these commitments," the Commission said
in a July 30 statement. "The EU Merger Regulation allows for appropriate measures to be taken by the Commission
in the event of non-compliance by Boeing."
In addition, the House Transportation subcommittee on aviation has postponed a hearing on the merger that
was initially scheduled for today (Aug. 1). Scheduled witnesses included Director of the FTC's Bureau of Competi-
tion William Baer, Assistant Secretary of State for Economic and Business Affairs Alan Larson, Boeing Chairman
and CEO Phil Condit, and President and CEO of MDC Harry Stonecipher.
2
INSIDE U.S.TRADE August 1, 1997
CRANE SAYS NAFTA PARITY COULD BE ATTACHED TO FAST-TRACK LEGISLATION
House Ways & Means trade subcommitee Chairman Phil Crane (R-IL) this week said that a bill to extend the
benefits of the North American Free Trade Agreement to countries of the Caribbean Basin Initiative could be
attached to legislation extending fast-track negotiating authority this fall. But the Clinton Administration believes it
is unlikely that such a legislative strategy would improve the prospect for passage of a NAFTA parity measure, an
informed source said.
"[A]t the end of the day that is not going to happen," the source said. "That combination has no vote-gather-
ing potential."
The source pointed out that some elements of the textile and apparel industry, which had worked out a
compromise on NAFTA parity, are likely to oppose fast track itself. The source also noted the skepticism of key
members of the Republican leadership towards NAFTA parity, an apparent reference to Senate Majority Leader
Trent Lott (R-MS).
A congressional source confirmed this interpretation, pointing out that combining the weak support for
NAFTA parity with fast track, which divides both Republicans and Democrats, would doom both bills. "Two
negatives do not make a right," the source said.
In addition, the last week's experience with NAFTA parity has shown that the politics of the measure make it
entirely a liability with regard to fast track, another congressional source argued. "We had the broadest possible
coalition of the textile industry, except for Fruit of the Loom, and it still died," the source said.
Crane told reporters on July 29 that fast track represented "the next window of opportunity" for NAFTA parity,
though he admitted that funding the plan, which would cost $217 million per year, would present a tough obstacle to its
passage. But he argued that once authorized, it would be easier to secure extension of the program in future years.
"If you get [NAFTA parity] in the [fast-track] bill, then it's easier to extend it next year than to originate it,"
Crane said. "But the problem, even in September, is where you come up with the funding offsets."
Crane also said that he would seek to attach his bill on trade with sub-Saharan Africa to the fast-track legisla-
tion, a move that has been opposed by several members of the Congressional Black Caucus. But Crane has prom-
ised Rep. Charles Rangel (D-NY) that he would move the Africa measure separately if the fast-track bill would
stall, one congressional source said.
The exact cost of the Africa bill is not known because it has not been scored yet, an informed source said.
A congressional source said as well that combining NAFTA parity with other trade bills, such as most-favored
nation status for Mongolia or a bill implementing an international agreement to curb shipbuilding subsidies would
not significantly reduce parity's political liability or make funding the program easier:
Crane made the comments following the apparent demise of efforts to include NAFTA parity in the omnibus
tax bill that will implement the budget deal between the White House and the Republican leadership. The tax bill
did include another short-term extension of the Generalized System of Preferences, which will now run retroac-
tively from May 31, 1997 through June 30, 1998 at a cost of $376 million.
There was nevertheless a concerted effort by President Clinton and White House officials to resurrect
NAFTA parity after it was excluded from the deal reached last weekend. But a congressional source involved in the
process questioned the Administration's strategy of lobbying very late for the NAFTA parity bill instead of
declaring it a priority earlier in the process.
Senate Finance Committee Chairman Bill Roth (R-DE) had sought to trade off NAFTA parity for Administra-
tion consent to an amendment that would have changed the labor and financial practices of Amtrak, which was
legally necessary in order to release $2.3 billion in Amtrak funds. Clinton and Roth spoke on Tuesday night (July
29) to try to hammer out a solution but were ultimately successful, a Finance committee source said.
The next step for NAFTA parity in the Senate will likely be "the normal legislative process," the committee
source said. "No one is focused" on the idea that fast track might serve as the next vehicle for this legislation, the
source added.
The negotiations between Roth and the White House followed discussions which in the end left intact
with minor modifications an intra-industry agreement on how NAFTA parity would be structured, Administration
and industry sources said. One industry source argued that this agreement proved that there is support for NAFTA
parity, and that it was only defeated by an issue that was not trade-related.
The industry agreement had been based on a detailed proposal hammered out by industry associations last
week and forwarded to congressional negotiators (Inside U.S. Trade, July 25, p. 29).
But one congressional source argued that there was never really a firm agreement on NAFTA parity. As soon as a
tentative agreement was reached, individual companies sought to "gain just a little bit more" by petitioning individual
members of Congress and the industry associations did not rally around the original deal, the source said.
"All of the industry associations and companies thought they could get one more thing," the source said.
"Maybe the fact that they lost it all will settle them down."
INSIDE U.S.TRADE - August 1, 1997
3
U.S. INFORMALLY FLOATS IDEAS FOR SETTLEMENT OF BANANA DISPUTE WITH EU
The Clinton Administration has asked the European Union to give direct payments to some Caribbean banana
producers to offset the trade losses they will suffer when the EU is forced by a World Trade Organization ruling to
abandon some of the preferences it now extends to Caribbean bananas, according to informed government sources.
These aid payments to some producers on the basis of need would be in addition to a tariff preference that Carib-
bean bananas would enjoy compared to Latin American products under a U.S. proposed settlement of the dispute,
they said.
While the U.S. has not offered a formal proposal, Deputy Assistant U.S. Trade Representative for Europe
Ralph Ives raised these ideas informally in a meeting with EU officials in Geneva last week. It was held after a
hearing before the WTO appellate body on the banana dispute.
"Ives floated only suggestions in case the EU would substantially lose [the WTO case]," one official said.
"The ideas [raised] were already familiar to the EU."
The U.S. characterized the aid payments as "deficiency payments" that would make up the difference between
the price of bananas Caribbean producers could get in the EU market and a set return linked to their production
price, officials said. The U.S. has proposed the payments could go to banana producers in the Windward Islands,
such as St. Vincent and the Grenadines, Dominica, St. Lucia, and Grenada, which are the least competitive produc-
ers, sources said. In a December 1996 fact sheet, USTR argued the EU should give aid to the Windwards because
they are the least competitive producers.
Some EU officials at the meeting pointed out that it was "astonishing" for the U.S. to ask them to dismantle
preferences for Caribbean producers and then finance an aid program, one official said. These officials pointed out
that the Caribbean countries most hurt by a change in the EU banana regime are closer geographically to the U.S.
than to the EU, he said. This is an apparent reference to the fact that the U.S. would face more of the fallout from
destabilized Caribbean economies than the EU.
Ives presented these ideas as ways to create a "WTO consistent" regime, which the U.S. has interpreted
to mean changes in the current licensing regime, and elimination of banana framework agreement that allocates the
EU quota for Latin American banana imports to specific countries. The U.S. has long argued that the EU can
extend tariff preferences to Caribbean bananas, but did not specify any numbers for such a tariff differences in the
Geneva meeting. But informed sources said the U.S. wants to increase the tariff on Latin American bananas by 10
percent over the bound 20 percent tariff, sources said.
Informed sources said that Ives acknowledged that changes in the banana regime would hurt Caribbean
producers, and generally seemed less strident and more interested in working out a compromise than he had
previously been. Some sources have speculated that there is a strong White House interest in getting the case
settled after President Clinton met with Caribbean leaders in May.
Ives also made it clear that the U.S. is not seeking to eliminate the current tariff-rate quota for Latin American
bananas, the access of which is restricted in favor of African, Caribbean and Pacific bananas, officials said.
Separately, USTR officials have made it clear that they would seek an increase in the TRQ for Latin American
bananas, informed sources said.
The U.S.-EU meeting, which was also attended by the USTR lawyer in the case, was a followup to a
commitment made by EU External Affairs Commissioner Leon Brittan to U.S. Trade Representative Charlene
Barshefsky at the Denver summit of the world's most industrialized nations (Inside U.S. Trade,
June 27, p. 3).
The U.S. hopes to begin talks about a possible settlement after the appellate body issues its ruling, which will
happen no later than September 11, officials said. The EU has made it clear from a senior official level down that it
will not begin exploring a possible settlement until the appellate body has issued its ruling.
Barshefsky emphasized her commitment to a negotiated solution in June letters to members of the House
Black Caucus.
The U.S.-EU meeting followed a three-day session of the appeals body, where the EU challenged every
point in the original panel report that went against the regime. The U.S. and the other complainants limited them-
selves to three key objections to the panel's original ruling.
This included the charge that the panel erred when it found that the waiver the EU obtained for the
Lome Convention allowed it allocate market access for ACP banana producers under a discriminatory quota
system, according to a June 26 submission released by the Office of the U.S. Trade Representative. The U.S.
argued that the waiver allows the EU only to extend tariff preferences to ACP banana producers, according to
the submission.
4
INSIDE U.S.TRADE - August 1, 1997
EU COMMISSION FORMALLY DECIDES AGAINST MANDATORY SEGREGATION OF GMOs
The European Commission this week informed the U.S. that it has decided against requiring the segregation
of agriculture products containing genetically modified organisms (GMOs) from traditionally produced products
for export to Europe, according to informed sources. Commissioners formally made this decision in a July 23
meeting, which also resulted in broad guidelines that will be used by the various directorates to draft labeling
requirements for GMO products, EU officials said.
"We will not ask for mandatory segregation [of GMO products], that much is clear," a EU official said of the
commissioners meeting. Another official added that the idea to require segregation was already "gone" earlier this
month, and that commissioners used last week's meeting to formally reject it.
That message was reiterated in a July 30 letter from EU Agriculture Commissioner Franz Fischler to
U.S. Trade Representative Charlene Barshefsky and Agriculture Secretary Dan Glickman, in which he said
U.S. companies would not be required to separate their GMO and non-GMO crops. Instead, Fischler's letter
described the guidelines for GMO labeling, which call for the labeling of products based on the results of
testing done by EU authorities.
The letter also stressed that the purpose of the guidelines is to give EU consumers "clear, honest and neutral"
information about the presence of GMOs in products, and is not aimed at stigmatizing products containing GMOs,
an informed source said. And the letter indicated that the EU took U.S. reservations about mandatory segregation
into consideration in its decision, the source said.
Specifically, EU commissioners last week agreed to labeling guidelines that would require GMO products to
be labeled at all stages, whether in the form of seeds, food ingredients, or products ready for consumption. For
GMO products, the guidelines provide two labeling options.
First, a label such as "contains material of GMO origin" would be required for products for which it can
be scientifically shown that GMO material is present. It is also possible that this requirement could involve
mandatory labeling to indicate that a product is made up of less or more than a certain percentage of GMO
material, sources said.
Second, labels indicating that products "may contain" GMO material would be required for products for
which the presence of GMOs cannot be excluded but where no evidence of such material is available. An EU
official said the EU is hoping that this label will be much less prevalent than the "contains" label. He said the
EU hoped that this label would mostly be used for products that are made up of several ingredients, some of
which might have a GMO origin, that cannot be accurately traced. As with the "contains" label, the "may
contain" label could be allowed to indicate that a certain proportion of the product may be of GMO origin,
sources said.
Aside from these mandatory labels, the EU guidelines would allow voluntary labels indicating that products
are free of GMOs. But sources said it is unclear whether testing would be required for this kind of labeling.
EU officials stressed that these guidelines are in a "quite primitive state," and it is still unclear how final EU
rules will turn out. The guidelines are meant to help the EU directorates for environment, agriculture, industry and
consumer safety draft consistent labeling rules. These directorates are expected to table legislation this fall.
One EU official speculated that the guidelines could prompt a change in the Novel Foods regulation,
which is handled under the EU's industry directorate and governs approval and labeling for products ready con-
sumption. There are no rules under Novel Foods for labeling of food ingredients, although those rules might be
developed under the guidelines, he said.
Another official said the guidelines will affect Fischler's proposal for labeling of seeds and animal feeds, as
Fischler had initially suggested segregating GMOs from non-GMOs for these products. Under the guidelines,
mixed animal feed could potentially be labeled as "may contain" GMOs, while seeds would be simple to label as
GMO or non-GMO because they are a "pure" product, and because farmers will generally want to identify GMO
seeds in order to get a higher price for them.
Sources said the guidelines would also affect the environmental directorate's efforts to revise Directive 90/
220, which governs the release of GMOs into the environment. But sources said the possible effects of the guide-
lines on 90/220 are still unclear.
Finally, sources were skeptical on how much testing the EU could actually do on imported food products.
One informed source said the EU is likely to discuss the possibility of developing lists of products that must be
labeled in certain ways. It could then require those labels on those products without testing them as they enter
Europe, he said.
A July 25 Commission statement said the EU is hoping that the guidelines result in rules that are "not
unduly costly" for exporters to comply with and that "minimize uncertainty." The statement said the rules
should be "in accordance with the EU's international obligations," and should not raise doubts about the
safety of GMO products.
INSIDE U.S.TRADE - August 1, 1997
5
EU PASSES NEW BAN ON ANIMAL PARTS OVER U.S. OBJECTIONS, WTO THREAT
Over U.S. objections, the European Commission this week approved a new policy that the U.S. says endangers about
$100 million of its beef tallow exports to the European Union, according to government and private-sector sources. The EU
ban on the use of animal materials that pose a risk for Bovine Spongiform Encephalopathy (BSE) would cut off U.S. tallow
exports sent to the EU for further processing into derivatives used in the production of cosmetics and pharmaceuticals.
The ban prohibits the use of the specified risk material, such as spinal cords, in animal feed, food, cosmetics
and pharmaceuticals. It is scheduled to go into effect on Jan. 1, 1998.
The problem for U.S. tallow exports stems from the fact that U.S. authorities say they would not be able to
certify as being free of these specified risk materials banned by the EU in the July 30 decision. But U.S. sources
point out that U.S. tallow is further processed in the EU into components such as glycerol under heat and pressure
conditions that kill the Spongiform Encephalopathy element in these risk materials.
The EU's Scientific Committee on Cosmetology on June 24, 1997 found that tallow derivatives processed in
this way are safe materials.
Senior U.S. officials and staff unsuccessfully lobbied the Commission before its July 30 decision to include a
specific exemption from the ban for tallow derivatives processed in a way that eliminates the BSE risk, sources
said. Commerce Secretary Bill Daley called EU Commissioner Martin Bangemann and State Dept. Undersecretary
Stuart Eizenstat spoke to EU Commissioner Leon Brittan to urge them not to take this action. In addition, staff-
level U.S. officials from USDA and the Office of the U.S. Trade Representative spoke to their EU counterparts,
and some of them warned of a possible U.S. challenge in the WTO to the new policy.
At press time, U.S. sources believed that the wording of the ban does not exempt tallow derivatives, but some
held out the hope that such a derogation may be included in accompanying documents. The U.S. government was
still evaluating its response to the EU decision at press time, according to an Administration official.
Under the EU ban, a country could also seek a total exemption by proving on the basis of scientific data that it
is BSE-free even though the final wording approved by the Commission does not contain an explicit reference to
such a derogation, according to a Commission spokesman.
The explicit reference was struck when EU member states complained to the Commission in a July 21
agriculture council meeting that the Commission was more inclined to grant derogations to third countries than to
member states. As a result, the final language only states that the EU will honor its international commitments with
regards to the ban, the spokesman said.
The EU ban defines specified risk material as brains, spinal cords, and heads, with the exception of tongues,
from cattle and sheep older than 12 months, a Commission spokesman said. In addition, it also bans the use of
spleens from all sheep, he said.
The Cosmetology Committee ruled that tallow derivatives used in the manufacture of cosmetic products,
such as fatty acids, glycerol, and esters, are safe if they are processed with certified heat and pressure treatments.
That ruling was meant to clarify the application of the EU's cosmetic directive 97/1, which went into effect on July
1, 1997, and ruled out the use of specified risk materials in the production of cosmetics. By finding tallow deriva-
tives safe, their use would have been allowed under the cosmetics directive.
But that possibility is foreclosed if the July 30 ban, which is effective across the board, does not provide for a
tallow derivative exemption, U.S. sources said.
The U.S. rendering industry affected by the new ban has the support of the EU oleo chemicals industry, which
is also urging the Commission to allow an exemption from the ban for tallow derivatives. Not do so would be to act
against the EU's own scientific finding, these industry sources said.
U.S. FACES POTENTIAL EU FUR BAN THIS WINTER AFTER EU COUNCIL DECISION
A vote by European Union member states last week will result in a ban on all U.S. fur caught in leghold traps
by this winter unless the two sides can first conclude stalled efforts to negotiate a bilateral fur trapping agreement,
EU officials said this week.
In a July 22 meeting, the EU's General Affairs Council voted to take steps toward implementing the fur ban
by publishing a list of countries, which does not include the U.S., that will be exempt from the ban because they
conform to acceptable trapping standards. EU sources said the list will likely be published in September, after
which about three months must pass before ban takes effect for countries that are not on that list, sources said.
With the ban scheduled to take effect about four months from now, EU member states urged the European
Commission in a July 22 declaration to conclude a trapping agreement with the U.S. before that time. But at the
same time, the Council also urged the Commission to reach a deal with the U.S. that is "at least equivalent" to the
ones finalized between Canada and Russia.
"The Council cannot thus take into consideration the conclusion of agreements with other States or the
accession of other States to the sought-after accord with Russia and Canada unless the results obtained are equiva-
6
INSIDE U.S.TRADE - August 1, 1997
lent to those attained with Russia and Canada, in particular that which concerns the question of banning steel jaw
leghold traps," the Council's declaration said.
Canada and Russia have each agreed to end the use of steel jaw leghold traps, which the EU considers
"inhumane," in the next few years regardless of whether they meet a set of negotiated "humane" trapping standards
in the agreement.
But the U.S. seems unlikely to agree to similar terms. The U.S. has so far rejected EU demands that the use of
all steel-jawed leghold traps be automatically phased out. In addition, U.S. Trade Representative Charlene
Barshefsky has warned that this EU demand will "likely lead to a breakdown" of the negotiation (Inside U.S.
Trade, July 11, p. 6).
Sources said the U.S. and EU may get another chance to sort out their differences in late September, when EU
External Relations Commissioner Leon Brittan is expected to travel to Washington. The U.S. has previously
warned that an EU ban of U.S. fur would likely prompt it to take its complaints to the World Trade Organization.
In addition, the General Affairs Council asked the Commission to begin studying "the implementation of a
system of labeling furs indicating that the animals were captured in non cruel traps." U.S. officials could not be
reached to comment on whether the U.S. would challenge such a system.
At last week's Council meeting, France agreed to back the Canadian and Russian agreements, a decision
that broke up a blocking minority and allowed the implementation of the ban to move forward. The French and
Belgian environmental ministers had opposed the deals in June because they did not include the U.S., and because
implementing the ban against the U.S. would likely lead to a WTO challenge.
France and Belgium were part of a blocking minority with the United Kingdom and Austria that forced the
Council to delay a scheduled June vote until last week.
The United Kingdom, Austria and Belgium continued their opposition to the agreements last week, and
complained that the agreements with Canada and Russia would not go far enough in banning inhumane traps. The
United Kingdom also issued its own declaration, in which it strongly criticized the two agreements.
"The Agreement does not guarantee a ban on padded leghold traps nor on leghold drowning traps, but could
have the effect of giving some leghold traps an international seal of approval," the UK statement said. The Cana-
dian and Russian agreements would allow those traps to be tested against negotiated injury criteria, and be banned
only if they don't meet that threshold.
The UK also said the agreement contains a "loophole" in that it would allow steel jaw traps to be used if there
were no viable alternatives. As a result, UK officials believe that the agreement "does not constitute a humane
trapping standard," and said that other countries wishing to be exempt from the fur ban, such as the U.S., should
agree to ban steel jaw traps altogether in a specified time period.
WTO PANEL FORMED TO HEAR U.S. COMPLAINT ON INDONESIA AUTO REGIME
Members of the World Trade Organization this week formed a dispute settlement panel to hear a U.S. com-
plaint that Indonesia's tax and tariff regime for automobiles violates international trade rules, according to a WTO
official. At a July 30 meeting of the WTO Dispute Settlement Body, the U.S. formally requested a panel for the
second time, a move Indonesia could not block.
No countries requested third-party status to the dispute, even though Korea and India had done so when a
separate panel against Indonesia was formed at the request of Japan and the European Union.
The U.S. has been seeking a bilateral solution to the fight over the national car regime which would improve
market access for U.S. vehicles and eliminate many trade-related investment measures the U.S. has said violate
WTO rules. Although the U.S. and Indonesia had been discussing the issue for weeks, the U.S. held out the
possibility of making a second request if no solution was reached (Inside U.S. Trade, July 4, p. 1).
The DSB also formally adopted the report of the WTO Appellate Body on Canada's magazine policies.
Canada told the meeting that it would circulate a communication on Aug. 29 indicating its intentions regarding
compliance with the report. The final ruling supported virtually the entire U.S. complaint regarding so-called "split
run" magazines and preferential postal rates.
Two Canadian ministers strongly hinted early last month that Canada would seek other ways to promote its
magazine industry that are consistent with WTO rules (Inside U.S. Trade, July 4, p. 4).
At the meeting, Canadian Ambassador to the WTO John Weekes delivered a lengthy critique of the Appellate
Body ruling but reiterated Canada's commitment to the WTO dispute settlement system. He also noted that the
original dispute settlemetn panel stressed that it was not passing judgement on a country's ability to take measures
to protect its cultural identity, and hinted that Canada would seek to abide by WTO rules while seeking other ways
to promote Canadian culture.
"For its part, Canada is commited to policies and measures to strengthen the viability of Canadian cultural
industries, bearing in mind the need to ensure that Canada's rights and obligations as a WTO member are re-
INSIDE U.S.TRADE - August 1, 1997
7
spected," Weekes said.
Under the Uruguay Round Dispute Settlement Understanding, Canada has 15 months from the date of adoption of the
panel report to implement changes that bring its policies into conformity with the Appellate Body ruling.
The U.S. gave a report on the progress it has made in implementing an Appellate Body report which found
that U.S. regulations on conventional and reformulated gasoline violate the General Agreement on Tariffs & Trade.
The deadline for implementation is Aug. 19. The U.S. said that the Environmental Protection Agency is currently
considering public comments on the rule EPA proposed earlier this year to eliminate the discrimination.
Also at the DSB meeting, eight countries complained that the U.S. and EU have not yet notified to the
WTO the outcome of their negotiations on a dispute resulting from a change in U.S. textile and apparel rules of
origin. Hong Kong-China, India, Pakistan, Switzerland, the Dominican Republic, Honduras, Japan and Argentina
all noted that WTO members have not been notified of the bilateral solution to a problem which has drawn com-
plaints from other WTO members as well.
The EU had planned to solicit opinions about the tentative agreement, which was concluded in mid-July,
before formally approving the deal. The U.S. agreed to partially roll back the 1996 rules of origin change as it
relates to fabric (Inside U.S. Trade, July 18, p. 1).
The U.S., Canada, Australia, Argentina, New Zealand and Thailand also announced that they had reached a solution
to a dispute over Hungary's agricultural export subsidies which would require Hungary to seek a WTO waiver for the
measures. Until the waiver is granted, these countries indicated they will continue the dispute settlement process.
EU SAYS IT MUST REQUEST WTO CONSULTATIONS ON U.S. POULTRY BAN
European Union Agriculture Commissioner Franz Fischler last week told U.S. Agriculture Secretary Dan Glickman
that he is taking the first step towards a World Trade Organization challenge of a U.S. decision to ban about $1 million
worth of EU poultry product exports to the U.S. Fischler told Glickman in a July 22 letter that the EU will go to the WTO
because it is apparent that U.S. inspections of French plants are unlikely to lead to a quick resumption of poultry shipments.
"I am glad to hear that these inspections are about to begin but understand that the programme which is
proposed is not scheduled to end before 30th August and that the [inspector] has just now requested a large amount
of additional information from the French veterinary authorities," Fischler said in the letter, reprinted below. The
inspection is unlikely to lead to an "immediate solution," Fischler said.
"In the circumstances you will understand that I have no alternative to initiating formal consultations on this
issue in Geneva," Fischler said.
At the same time, Fischler said he hoped that the issue could be resolved bilaterally "before this process has
advanced very far." In addition, informed sources said at press time that the EU had not yet requested formal
consultations in the WTO.
Fischler said he was "glad to hear" that a U.S. inspector was sent to examine the affected EU poultry plants,
which are mostly located in France, with one located in the United Kingdom. The inspector, who arrived on July
22, is to examine whether the plants comply with U.S. law, particularly new rules regarding pathogen reduction.
But an EU official said the two sides have not agreed which standards must be met in inspecting plants that
process goose and duck, which makes up a large part of France's poultry product exports to the U.S. Therefore, it
is unclear whether the U.S. will decide to approve these plants for export to the U.S., he said.
The U.S. decided to cut off EU poultry products after a veterinary equivalency agreement with the EU
failed to resolve a dispute over acceptable poultry processing methods. The U.S. argued it was unsure if the plants
met U.S. sanitary requirements after the EU cut off U.S. poultry exports to its market worth about $50 million.
Immediately following the U.S. decision, Fischler held out the possibility of challenging it in the WTO,
particularly since the exports had been cut off without an inspection that found EU plants did not meet U.S.
sanitary requirements (Inside U.S. Trade, May 23, p. 3).
Fischler Letter on Poultry Ban
July 22, 1997
ington, you said that veterinary missions would be sent to those
E.C. member countries who were previously able to export
Dear Dan,
poultry meat to the United States with a view to confirming their
In my letter of 2nd June I warned you of the very strong
capacity to fulfil your requirements.
reaction which your decision to ban imports of poultry and
I am glad to hear that these inspections are about to
poultry products had provoked amongst our member states and
begin but understand that the programme which is proposed
the way in which this action had influenced reactions to the draft
is not scheduled to end before 30th August and that the F.I.S.
veterinary agreement.
has just now requested a large amount of additional informa-
When we discussed this issue on my recent visit to Wash-
tion from the French veterinary authorities. It seems clear,
8
INSIDE U.S.TRADE - August 1, 1997
therefore, that this mission will not provide an immediate
advanced very far the issue can be resolved bilaterally.
solution.
In the circumstances you will understand that I have no
Yours sincerely,
alternative to initiating formal consultations on this issue in
Geneva. Naturally I continue to hope that before this process has
F. Fischler
WTO MEMBERS LAUNCH WORK ON IMPROVED TRANSPARENCY IN PROCUREMENT
Members of the World Trade Organization last week launched the first substantive work aimed at developing an
agreement to ensure transparency in government procurement, according to informed government sources. WTO members
are now likely to spend the coming months studying the transparency issue before hammering out specific elements of a
procurement regime that could be included in an agreement covering all WTO members, these sources said.
At a July 22 meeting in Geneva, WTO members took an initial step by discussing a secretariat paper which
outlined possible elements of a definition of transparency and analyzed a number of existing international procure-
ment instruments. The U.S. and Canada also tabled initial papers on procurement which proposed a process for
negotiating a procurement pact and outlined substantive issues for that process, respectively.
The U.S. and Canadian papers sought to "move away from study to [negotiating] the elements of an agree-
ment," one trade official said.
WTO members agreed at the Singapore ministerial to form a working group that would conduct a study on
transparency in government procurement "taking into account national policies" and "based on this study, to
develop elements for inclusion in an appropriate agreement." The establishment of the group was the outcome of
an initial U.S. proposal to negotiate an interim procurement pact to combat corruption (Inside U.S. Trade, Dec. 16,
Special Report, p. S-1).
WTO members "did not contest" the list of items relevant to transparency that was presented in the secretariat
paper last week, one trade official said. The list included: information on national legislation, information on
tendering and procurement opportunities, transparency of decisions on qualifications of suppliers and on the
awarding of contracts, appeals processes following initial decisions, the maintenance of records, and the applica-
tion of information technology to improve transparency.
The secretariat paper also outlined the provisions of three existing procurement agreements: the model
procurement law of the United Nations Commission for International Trade Law, the World Bank Guidelines on
Government Procurement, and the plurilateral WTO Government Procurement Agreement.
The U.S. paper outlines six "guiding principles" which could guide the group's work, according to the
copy reprinted below. The U.S. argued that it should take into account "the wide variety of procurement systems
which exist in member countries" and consider transparency "in the broadest sense to include concepts such as
access to information, meaningful opportunities to participate in the procurement process without prejudice to
national preferences, and means for seeking reviews of procurement decisions," according to the paper.
The group should also consider how improved transparency can enhance market access, the U.S. said.
WTO members should also consider how innovations in information technology and existing international
agreements on procurement can help the group's work, the U.S. said. And it should study ways to improve the
understanding of developing countries regarding transparency in procurement.
Finally, the U.S. cautioned that the development of an agreement limited to transparency "may be for many countries
only the first step in a longer term process of liberalizing international procurement markets," according to the paper.
The Canadian paper outlined in some detail the elements of a transparency procurement regime, according to
the copy reprinted below. Those elements include the publication of procurement procedures, knowledge of
national policies, publication of procurement opportunities, publication of contracts awarded via reliable media and
an independent tribunal which can review contested awards.
A paper tabled by the European Union offered details about the procurement regime established by EU
treaties and European Commission directives.
There was minimal discussion of the papers, which were tabled shortly before the meeting, informed
sources said. There was a brief discussion on the extent to which the group considers improved market access the
eventual goal of its work, or whether it should stay focused on transparency, these sources said.
WTO members who are not one of the 26 signatories to the GPA have generally been more cautious about the
group's work, trade officials said. The U.S. in particular has argued that its work can contribute to improved
market access and government efficiency, these officials said.
The next meeting of the group is scheduled for Nov. 3-4, according to informed sources. At that meeting,
WTO members will likely discuss a secretariat paper on international procurement agreements and national
regimes, and gauge support for various elements of a definition of transparency, these sources said.
INSIDE U.S.TRADE - August 1, 1997
9
U.S. Paper on Procurement
U.S. NON-PAPER
organization of the discussions.
1) Examination of various elements of transparency should
The initiation of the Transparency in Government Pro-
take into account the wide variety of procurement systems that
curement Working Group's efforts and the realization of its
exists in member countries, including both centralized and de-
mandate, as set forth in the Singapore Ministerial Declara-
centralized systems.
tion, have the potential to enable governments to develop
2) Transparency should be considered in the broadest
more transparent procurement systems and contribute to a
sense to include concepts such as access to information, mean-
more efficient allocation of resources in the pursuit of eco-
ingful opportunities to participate in the procurement process
nomic growth.
without prejudice to national preferences, and means for seeking
The United States welcomes the constructive approaches
reviews of procurement decisions.
that all WTO Members have taken in the commencement of
3) The study should be forward looking by giving special
the Working Group, the contributions made so far by the
consideration to innovative procurement practices, such as use
representatives of the World Bank and UNCITRAL and the
of information technology (e.g., electronic publication of pro-
submission by Japan of its non-paper. The resulting discus-
curement information over the Internet), and how these might
sions at the first formal meeting of the Working Group were
contribute to increasing market access.
instructive on the elements of transparency found in two
4) Wherever possible, advantage should be taken of exist-
existing international instruments on government procure-
ing sources of information on transparency in procurement,
ment. The United States also views the WTO Secretariat
including work undertaken in the GATS Rules Group and in
paper entitled "Transparency-Related Provisions in Existing
other fora, such as APEC and the FTAA.
International Instruments on Government Procurement" (WT/
5) While the Singapore Ministerial mandate is specifi-
WGTGP/W/3) as an important contribution to the Working
cally limited to transparency and does not include the con-
Group that will allow participants to begin to identify those
cept of national preferences, participants should seek to
principles and procedures that commonly are perceived to be
identify how transparency elements by themselves can en-
essential to transparency.
hance market access in international procurement markets.
In view of the fact that the subject matter under discussion
The OECD Trade Committee is already undertaking research
in the Working Group is new to many of the participants and that
in this area, and APEC and the FTAA may be in positions to
the WTO itself has only just initiated multilateral work on
undertake similar work on commercial opportunities in pro-
developing trade disciplines in this area, the United States sug-
curement, particularly infrastructure, in their respective re-
gests that it may be helpful to establish some guiding principles
gions.
to assist participants in conducting discussions and deciding
5) The Working Group, during both the study and negoti-
how to develop a multilateral agreement on transparency in
ating phases, should identify and promote means for increasing
government procurement practices.
understanding of developing countries regarding transparent
procurement practices and procedures, particularly by utilizing
Guiding Principles
the resources of the International Trade Centre in providing
The following principles are not proposed with the inten-
technical assistance to these countries.
tion that they be agreed as an approach for continuing discus-
6) Participants should also keep in mind that the eventual
sions and eventually commencing negotiations in the Working
completion of the Singapore Ministerial mandate, including the
Group. Instead, they are intended to assist participants in devel-
study and development of an agreement, may be for many
oping their own individual priorities in this work and to suggest
countries only a first step in a longer term process of liberalizing
approaches for maximizing efficiency and effectiveness in the
international procurement markets.
Canadian Paper on Procurement
Elements of Transparency
intended as an exhaustive compilation, nor is it intended to
prejudge the outcome of the WTO discussion on transparency.
Non-Paper from Canada
The following non-paper from the Permanent Mission of Canada
Publication of procedures
has been received with the request that it be circulated to Members.
Publication of information on the environment in which
government procurement takes place is arguably the first aspect
At the WTO Ministerial Conference in Singapore last
of transparency. In the absence of this information, suppliers will
December, Trade Ministers agreed to "establish a working
not know how and where to submit proposals, and what proce-
group to conduct a study on transparency in government pro-
dures to follow in order to obtain consideration of these propos-
curement practices, taking into account national policies, and,
als. Publication provides a clear road map for potential suppliers
based on this study, to develop elements for inclusion in an
and a check against arbitrary practices. The resulting procedural
appropriate agreement". In accordance with this mandate, and
certainty also will reduce costs in the procurement cycle.
with a view to advancing discussion on elements of transparency
Members should publish all laws, regulations,
in government procurement, Canada submits the following views
administrative guidelines and other measures related to govern-
for the consideration of the Working Group on Transparency in
ment procurement (herein referred to as "procedures") in printed
Government Procurement (WGTGP). This non-paper is not
or electronic media, in a form accessible to interested parties,
10
INSIDE U.S.TRADE - August 1, 1997
including suppliers and other Members.
- Technical specifications should be drawn up in terms of
Members should provide a listing of government
performance requirements rather than design characteristics, and
departments, agencies and enterprises subject to these proce-
should be based on internationally-agreed or other relevant standards.
dures. Alternatively, a listing of those not subject to these
- Tender documentation should be supplied on request.
procedures may be provided.
Where changes are made during a particular procurement, this
Members should ensure that changes to govern-
information should be communicated to all suppliers participat-
ment procurement procedures are published.
ing in the process and should be published in the publication
where the original notice appeared.
National policies
- Open and competitive tendering should be the preferred
Acknowledging that Members posses different procurement
method for tendering. Where other types of tendering are to be used,
regimes with different objectives, it is nevertheless possible to take
procurement notices should clearly indicate the intended method and
steps to increase transparency to provide for competition and economy,
provide information concerning qualification procedures.
without compromising existing regimes or objectives for which the
- Qualification of suppliers should be limited to neces-
regimes are designed. National policies (including discriminatory
sary requirements only. These could include financial, com-
measures in the form of laws, regulations and administrative guide-
mercial and technical capacities of suppliers. Suppliers
lines) can be taken into account, even in open, competitive bidding.
meeting qualification criteria should be recognized and al-
Prior knowledge of national policies can assist suppliers in under-
lowed to participate. In procurement notices requiring quali-
standing procurement requirements and in determining XXXXX
fication, time-limits should be adequate to accommodate the
XXXX the procurement process.
qualification procedure.
- Where national policies (including discriminatory measures
- Tender documentation should describe the intended bid
in the form of laws, regulations and administrative guidelines) exist,
evaluation criteria. Upon closing, bids should be evaluated
Members should inform prospective suppliers in both the publication
according to these criteria in a fair and equitable manner.
of procedures and procurement opportunities.
- In the context of an eventual agreement on transparency
Publication of awards
in government procurement, Members should review their na-
Suppliers who have expended resources in conforming to
tional policies from time to time to determine the continued
procurement requirements will wish to be informed of the results
compatibility of these policies with the goals of value, efficiency
of the procurement process. Unsuccessful suppliers will wish to
and competitiveness.
learn the name of the successful supplier and the value of the
winning bid. Disclosure also provides a "check" against unfair
Publication of procurement notices
practices and reinforces government accountability respecting
Competition engendered through transparency will result in
procurement practices to suppliers and to the public.
savings to the purchaser and to the public. However, competition is
- The award of contracts should be published and include
only possible if suppliers are aware of procurement opportunities.
information regarding the name of the successful supplier and
Effective competition among suppliers requires a broad dissemina-
the value of the winning bid.
tion of information regarding procurement opportunities.
- Procurement opportunities should be published regu-
Media of publication
larly in a recognized publication readily accessible to suppliers.
As described in the various sections above, suppliers need to
Publication may be in printed or electronic media (e.g., official
know where to find information on procedures, opportunities, speci-
journals, large-circulation newspapers, specialized trade jour-
fications, and so on, in order to compete in government procurement
nals, Internet, etc.).
markets. The vehicle for that knowledge is consistent and regular
publication in recognized printed or electronic media, in a form
Requirements for transparency of procurement notices
accessible to interested parties, and in a timely manner.
Procurement notices and related documentation inform the
- Transparency in government procurement requires con-
potential supplier of, inter alia, the good or service to be procured, the
sistent and regular publication in recognized printed or elec-
quantity required, technical specifications to be met, time-frames for
tronic media, in a form accessible to interested parties, and in a
delivering the good or services, and other criteria, as well as where to
timely manner.
submit related bids. A transparent procurement regime will not only
ensure that potential suppliers can obtain all relevant criteria, it will
Due process
also ensure that bids are evaluated according to these criteria in a fair
An essential element of fair, open and impartial procure-
and equitable manner.
ment procedures is the provision of a timely remedy or bid
- With a view to allowing suppliers to submit responsive
challenge system available equally to domestic and foreign
bids, procurement notices should include, at a minimum, the
suppliers. This system should include a reviewing authority
following information: the nature and quantity of the good or
(e.g., independent tribunal, agency or judicial body) which has
service to be procured; where to obtain tender documentation;
no interest in the outcome of the procurement.
closing times and dates; where to obtain procedures related to the
- Members should establish or designate a reviewing
procurement; and where to submit bids.
authority and provide information on its procedures as part of its
- Members should specify time-limits for the preparation
publication of procedures.
and submission of bids which are adequate and reasonable, and
- Access to reviewing authorities should be available
which take into account the complexity of the intended procure-
equally to domestic and foreign suppliers.
ment. Changes in time-limits should be notified to all suppliers
- In cases where complaints are found to be valid,
participating in the tendering process and should be published in
reviewing authorities should have powers to provide relief to
the publication where the original notice appeared.
complainants.
INSIDE U.S.TRADE - August 1, 1997
11
GOODLATTE ENCRYPTION BILL FACING TOUGH FIGHT IN NATIONAL SECURITY PANEL
Members of the House National Security Committee this week signalled that they would mount a strong effort
to derail the passage of a bill sponsored by Rep. Bob Goodlatte (R-VA) that would decontrol exports of encryption
technology. In a July 30 hearing on the Goodlatte bill, several members of the committee declared their outright
opposition to the measure, and the chairman of the committee indicated his intent to make unspecified changes
before reporting the bill next month.
"It is my intention, working in concert with [the Ranking Member] and members on both sides of the aisle, to
use the weeks ahead to better understand these issues in order to arrive at recommended changes to [the Goodlatte
bill] that we can report to the House in early September," Chairman Floyd Spence (R-SC) said in his opening
statement. "While I personally have not reached any final conclusions, I should state that I do hold several concerns
with the changes being proposed by this bill that could have serious national security implications."
Spence's comments came at the beginning of a hearing in which members present overwhelmingly criticized
the Goodlatte bill for being detrimental to national security. Even though 25 members of the committee are co-
sponsors of the legislation, none of them presented a concerted defense.
Ranking Member Ronald Dellums (D-CA), though he did not offer a specific opinion on the Goodlatte bill,
urged other members in his opening statement not to "go along with the actions of the previous committees of
jurisdiction, rather than to delve into these matters and try to reformulate policy in a better balanced fashion." The
committee should "take up the more difficult task of producing a U.S. government policy on encryption software
that makes the best balance between security, commerce and privacy," Dellums argued.
Dellums posed a series of basic questions about the encryption issue to the Clinton Administration
witnesses at the hearing, Undersecretary of Commerce for Export Administration William Reinsch and
Deputy Director of the National Security Agency William Crowell. Specifically, Dellums sought information
on the military applications of commercial encryption technology, the difficulty in decrypting strong encryp-
tion technology without the key, the effect of export decontrol on U.S. military and intelligence capabilities,
and Administration plans for a so-called "key recovery" system to ensure law enforcement access to en-
crypted information.
Dellums also asked Reinsch and Crowell about other countries' plans for dealing with encryption technology
and the extent to which it is available from non-U.S. sources.
After Dellums' initial set of questions, Rep. Bob Stump (R-AZ) criticized the Goodlatte bill as doing "far too
much far too quickly," and said he would make a "personal effort" to "educate members" about the dangers of its
passage. "This bill does not take us in the right direction," he argued. Rep. Duncan Hunter (R-CA), a longtime
advocate of tighter export controls, harshly criticized the bill as "terrible" and "beyond the pale."
Rep. Neil Abercrombie (D-HI) also made clear his opposition to the bill but said that opponents face an
"uphill fight" to stop it given its large number of co-sponsors. He also criticized the bill for what he called
unclear drafting.
A number of other members hinted at their opposition to the Goodlatte bill but did not state it outright. Rep.
Bill Redman (R-NM) argued that commercial issues are generally "very minor" compared to possible adverse
effects on national security. Rep. Silvestre Reyes (D-TX) noted his extensive experience in law enforcement and
questioned how the bill advanced as far as it has. Rep. Vic Snyder (D-AR) inquired as to what alternative legisla-
tion might be available to deal with the encryption issue, and Rep. Jane Harman (D-CA) explicitly noted that she
has refused to co-sponsor the Goodlatte bill.
Supporters of the Goodlatte bill this week succeeded in raising the number of co-sponsors of the bill to 249.
The support for the bill foreshadows passage if the measure came to a vote on the House floor. But one private-
sector source pointed out that National Security and a subsequent referral to the Intelligence Committee could
result in substantial alterations to the bill.
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INSIDE U.S.TRADE August 1, 1997
ALBRIGHT PRESSES ASEAN COUNTRIES ON WTO FINANCIAL SERVICES TALKS
Secretary of State Madeleine Albright this week called on members of the Assn. of Southeast Asian Nations
(ASEAN) to significantly improve their offers in World Trade Organization negotiations on liberalizing financial
services markets. Albright argued that their offers in this sector should mirror contributions made in this year's
agreements on information technology and telecommunications.
"No country can have a world class, high-tech economy without a world-class, properly regulated financial
services sector to allocate capital efficiently," Albright said in a July 28 speech before ASEAN foreign ministers.
"Significantly improved offers from all ASEAN states will help generate the momentum needed to reach a global
agreement by the Dec. 12 deadline."
ASEAN offers in the Information Technology Agreement and the agreement on basic telecommunications
services "helped shape a critical mass of newly-industrialized economies willing to make bold liberalizing offers,"
Albright argued. "By doing so, ASEAN members showed they are ready and able to assume greater responsibility
for the open trading system that has enabled them to prosper and grow."
Albright cited four specific goals for the November meeting of the Asia-Pacific Economic Cooperation forum
in Vancouver, Canada: garnering support for the financial services talks, improving Individual Action Plans,
"voluntary offers to liberalize quickly in key sectors," and "pushing for concrete, focused outcomes that offer
immediate benefits to our businesses and workers."
She also called ASEAN "a dynamic force" within APEC, and noted that an ASEAN country has hosted APEC
meetings every other year. "Next year, Malaysia will lead APEC at a pivotal point in our drive for liberalization
across the Pacific Basin."
Albright also lauded the improved enforcement of intellectual property rights in ASEAN countries,
noting specific changes in the Philippines, Thailand, Malaysia and Vietnam. "We now face the challenge of
ensuring these new provisions are carried out fully," she said.
EU LIKELY TO BE OVER WHEAT GLUTEN LIMITS DESPITE DISPUTE OVER NUMBERS
Sources on both sides of a dispute over European Union wheat gluten shipments to the U.S. this month
acknowledged that the EU has reached a share of the U.S. market that triggers consultations, even though the EU
has continued to dispute the market share figures presented by the U.S. in recent talks.
The U.S. and EU met July 10-11 for formal consultations under a bilateral grains agreement in Brussels,
where sources said the EU argued that the U.S. market share figures for 1995 were inaccurate. The agreement calls
for formal talks with a view towards finding a mutually acceptable solution when EU exports of wheat gluten
exceed 17 percent of the U.S. market.
Despite the EU's claim that U.S. figures are off, and the fact that the EU has previously argued that its exports
have not exceeded that limit, sources said the two sides now seem to agree that EU wheat gluten makes up more
than 17 percent of the U.S. market.
"In a general way, even without precise numbers, it seems likely the EU is over the limit," one informed
source said. A U.S. Administration official added that it is now "absolutely indisputable" that EU exports have
exceed their limit under the grains agreement.
The U.S. and EU have not yet decided what a solution might be, and have not scheduled any follow-up
consultations, sources said. A new meeting may not take place until after August. But the U.S. official
warned that the EU "owes us consultations" leading to a resolution of the wheat gluten dispute without
preconditions.
The EU is planning to provide the U.S. with a paper that explains the market factors that are leading to an
increase in EU wheat gluten exports to the U.S., according to a senior U.S. official. But a U.S. official said at press
time that the paper had not been delivered yet. One informed source said the paper would likely highlight the fact
that the EU market encourages wheat processing, which leads to an increase of wheat gluten that can be exported.
In contrast, the U.S. market encourages corn processing, which results in more corn gluten feed that can be
exported to the EU, the source said.
The EU accepted formal consultations under the grains agreement in June (Inside U.S. Trade,
July 4, p. 5).
In a related development, the two sides met July 11 in Brussels to examine whether U.S. corn gluten feed
exports to the EU have exceeded levels set up under a separate bilateral agreement. The two sides agreed that the
specified level has not yet been exceeded, according to an Administration official.
While the EU has linked the wheat gluten and corn gluten feed talks, the U.S. official said the U.S. expects an
"independent review of the problem" (Inside U.S. Trade, June 20, p. 10).
INSIDE U.S.TRADE - August 1, 1997
13
CUSTOMS LAWYERS CHARGE NAFTA CHAPTER 19 PANELS ARE UNCONSTITUTIONAL
The Customs and International Trade Bar Assn. (CITBA) last week charged in federal appeals court that the
North American Free Trade Agreement system that reviews antidumping and countervailing duty cases is unconsti-
tutional because it prohibits review by U.S. courts of government decisions that assess import duties.
AD/CVD duties are a form of federal taxation, the review of which, under Article III of the U.S. Constitution,
can only be conducted by U.S. courts, CITBA argued. "The system of binational panel review under NAFTA is
unconstitutional because, in contravention of Article III of the Constitution, it precludes Article III judicial review
of government decisions assessing import duties, a form of federal taxation," according to a July 22 amicus brief
filed by CITBA with the U.S. Court of Appeals for the D.C. Circuit.
"The drafting history of the Constitution shows that the federal judicial power under Article III was intended
to cover import duty cases," the group wrote.
But under the NAFTA system, the "government can assess taxes without having the lawfulness of its tax-
assessment decisions judicially reviewed by an Article III court," CITBA argued.
CITBA also argued that the system, established under NAFTA's Chapter 19, violates the Appointments
Clause of Article II of the Constitution, which requires that judicial officials be appointed with the advice and
consent of the Senate. The group specifically argued that traditional jurisprudence which suggests that Chapter 19
panelists need not receive Senate confirmation should not apply in this case.
In the 1890 case Auffmordt V. Hedden, the Supreme Court concluded that independent merchants used to help
resolve contested customs valuation decisions qualified as one of the "inferior officers" which the Appointments
Clause allows Congress to create, CITBA pointed out. But Chapter 19 panelists, unlike these independent mer-
chants, "perform a judicial-type function by adjudicating questions of law based on an underlying administrative
record," CITBA argued.
In addition, Chapter 19 panelists make decisions which are not subject to judicial review "at all," while the
decisions which independent merchants helped make were subject to court challenges, the group argued.
The New York-based group lodged its amicus brief in support of a lawsuit filed last January with the
court by a coalition of 21 citizen groups and corporations against the NAFTA panel system. The American Coali-
tion for Competitive Trade (ACCT) also charged that the NAFTA violates Articles II & III of the
Constitution(Inside U.S. Trade, Jan. 17, p. 5).
Oral arguments in the case (Docket Number 97-1036) have been scheduled for October 21. One informed
source said the court could issue a ruling no sooner than 60 days after the oral hearing.
The Canadian government is slated to file its brief on Sept. 5, according to a court schedule. Mexico and the
province of Quebec are expected to submit amicus briefs in support of the U.S. on that same date, it said.
CITBA's brief is the latest salvo fired at NAFTA's Chapter 19 which has prompted opposition by several
members of Congress and an ad-hoc coalition of private-sector organizations. The coalition has urged the Adminis-
tration to include in any new fast-track bill an explicit prohibition on extending the Chapter 19 panel system to new
countries (Inside U.S. Trade, May 23, p. 7).
Some members of Congress are "keeping a very close eye on the lawsuit as to its impact on issues of fast
track," one informed source said. If the lawsuit succeeds, it "will obviate the necessity of keeping Chapter 19 out of
fast track," the source contended. "It will remove a lot of current objections to fast track."
But if the lawsuit fails, "it may spur congressional opponents [of Chapter 19] to greater action," according to
the informed source.
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14
INSIDE U.S.TRADE - August 1, 1997
SPECIALTY STEEL INDUSTRY TARGETS EU, ASIAN PRODUCERS IN TRADE CASES
The U.S. specialty steel industry, backed by the U.S. steelworkers union, this week filed dumping cases
against wire rod imports from four European Union member states, Korea, Japan and Taiwan. The industry group
also filed a separate countervailing duty petition against imports of wire rod from Italy and announced it would
seek an annual administrative review for an existing case against Spanish stainless steel rod.
The long-awaited filings make good on a threat issued by the Specialty Steel Industry of North America
(SSINA) earlier this year when efforts to strike a multilateral specialty steel accord with the EU failed. SSINA
pointed out that a number of subsidies cited in the Italian petition would not have been subject to a case if there had
been an agreement.
"Under a draft MSSA developed by Eurofer (the European steel industry trade association) and SSINA, a
number of subsidies covered in the petition would have been 'grandfathered' and therefore not subject to a
countervailing duty petition," the SSINA said in a July 30 statement.
Efforts with the EU to reach an MSSA broke down when the EU Commission wanted to use the disciplines of
its state aids code for steel in the MSSA, which SSINA considered too lenient (Inside U.S. Trade, June 6, p. 25).
But a source close to the EU steel industry disputed SSINA's assessment of the code given its current filings.
He questioned whether the EU state aids code is as inefficient a discipline as SSINA has claimed given that it only
filed one new cvd case against an EU member state.
The dumping cases target Italy, Germany, Spain and Sweden as EU member states. If successful, the
seven cases together would cover almost 90 percent of imports to the U.S., one private-sector source said.
The filing will likely meet with opposition from U.S. wire producers, who use steel rod for their production,
he said.
In the antidumping cases, SSINA alleges dumping margins as high as 46 percent, according to its announce-
ment. The announcement also said that there has been a "dramatic" 28 percent increase in rod imports from the
target countries in the past three years.
SSINA is preparing additional antidumping and CVD cases on a number of additional products,
including stainless steel bar and stainless sheet and strip, according to the announcement.
U.S., JAPAN REVIEW KEY ISSUES ON DEREGULATION OF CONSTRUCTION SECTOR
U.S. and Japanese officials last month reviewed the key contentious issues regarding the deregulation of
the Japanese construction sector but made little headway in developing concrete steps to be taken in this area,
according to informed government sources. In July 14-15 meetings in Washington, officials discussed
Japanese plans to move toward building standards based on the performance of materials rather than their
physical characteristics.
The meetings were a combination of the Wood Products Subcommittee, which is part of the Market-
Oriented Sector Specific (MOSS) initiative, as well as the housing sector subgroup of the Enhanced Initiative
on deregulation of the Japanese economy developed in June. The chief issue of the talks concerned the "main
direction" of a Japanese plan to revise its Building Standards Law sometime next year, a government official
said.
The new law, which is currently being developed by the Ministry of Construction and will come before the
Diet in mid-1998, will embrace so-called "performance-based standards," a Japanese official said. The U.S. has
long argued that such standards, which base building regulations on, for example, the ability of a particular
material to hold a certain weight rather than physical characteristics, would be more favorable to U.S. building
materials manufacturers.
Japanese officials also told their U.S. counterparts that the shift to such standards will require the development
of "extensive testing safeguards," one official said. In order to avoid having to increase government expeditures,
this testing will likely be conducted by "private institutions" recognized by the Ministry of Construction, the
official said.
The U.S. also raised two specific issues regarding Japanese construction regulations, one of which appears
likely to change under the new Building Stadards Law, a Japanese official said. The U.S. criticized a rule which
does not allow the construction of wood buildings of three stories or higher in so-called "quasi-fire protection
areas," essentially Japan's most densly populated urban areas. This rule is "under review" and could be modified or
eliminated by changes to the law, the official said.
The U.S. also criticized a Japanese ban on a type of nail gun which used firearms technology instead of
compressed air to drive in nails. Japan would have to modify its gun control measures to allow this product,
something it is "unwilling" to do, a Japanese official said.
Under the rubric of the MOSS subcommittee, U.S. and Japanese officials discussed generally Japan's Agricul-
INSIDE U.S.TRADE - August 1, 1997
15
tural Standards Law, which governs the import and export of wood products, a Japanese official said. The two
sides agreed to exchange data on wood products trade, the official said.
Other deregulation efforts under the June Enhanced Initiative are likely to gear up sometime this fall,
government officials predicted. Japan is still awaiting a proposed agenda from the U.S., and expects that the U.S.
will want to focus on regulations which have long been the target of U.S. government and industry criticism. As
agreed in June, the new initiative will focus on the telecommunications, housing, medical devices/pharmaceuticals
and financial services sector (Inside U.S. Trade, June 27, p. 1).
The overall U.S.-Japan talks will also likely move in concert with internal Japanese efforts to complete a
dregulation package by the end of the year, a Japanese official said. A subcommittee of Japan's Administrative
Reform Committee is compiling recommendations of various agencies this summer and will forward a final report
for cabinet approval by the end of the year, the official said.
DEFENSE, FBI EXPRESS OPPOSITION TO FCC RULE ON WTO TELECOM AGREEMENT
The Dept. of Defense and the Federal Bureau of Investigation last month expressed their opposition to a
proposed regulation implementing the World Trade Organization agreement on basic telecommunications services,
which they charge would not sufficiently protect national security and law enforcement exemptions. In public
comments to the Federal Communications Commission, Defense and the FBI strongly argued against an FCC
proposal to establish a strong regulatory presumption in favor of granting licenses to telecom firms from WTO
member countries.
Both agencies strongly criticized the FCC for not considering in a June 4 Notice of Proposed Rulemaking that
Executive Branch agencies should be allowed to invoke national security or law enforcement reasons to deny a
license. "Nowhere in the NPRM does the Commission even acknowledge that the NPRM would alter the way the
Commission has historically evaluated the national security and law enforcement components of the [foreign
ownership] public interest test," the FBI wrote in its comments.
"No presumption in favor of approval should be applied with respect to a public interest review for national
security," Defense wrote in its comment to the FCC.
In the NPRM, the FCC proposed to replace the so-called "effective competitive opportunities" (ECO) test
with a public interest test based on a "rebuttable presumption" that telecom firms from WTO member countries can
enter the U.S. market. It also proposed a high burden of proof on petitioners who would seek to block a company's
entry (Inside U.S. Trade, June 13, p. 11).
The FBI comments also revisited the issue of whether the FCC can allow full foreign ownership of telecom
licenses. It argued that Congress has explicitly stated its opposition to full foreign ownership in Section 310 of the
Communications Act of 1934. The FBI pointed to an earlier FCC rule of November 1995 on foreign ownership and
a 1996 letter from former FCC International Bureau Chief Scott Blake Harris which explicitly noted deference to
the Executive Branch in matters of law enforcement or national security.
The only other U.S. government agency to comment on the rule was the Office of the U.S. Trade Representa-
tive, which had nothing but praise for the WTO telecom agreement and expressed its approval of the proposed FCC
rule. The public interest test, which will focus not on reciprocal market access opportunities but on the possibility
of competitive distortions in the U.S. market, represents the best way to implement U.S. market access commit-
ments, according to USTR.
USTR also called for continued deference to the Executive Branch "in matters concerning the interpretation of
U.S. international commitments, such as our most-favored nation obligations."
Within the U.S. telecommunications industry, AT&T offered the most extensive critique of the proposed
rule. Generally, AT&T called on the FCC to lower the threshold which petitioners must reach in order to persuade
the agency to block the entry of a foreign carrier into the U.S. market, and argued that the proposal goes beyond
what is strictly required by the WTO agreement.
"U.S. practice has been not to make sweeping changes in U.S. regulatory rules in response to new trade
agreements unless it has been clear that those agreements have strictly required them," AT&T wrote.
In particular, AT&T suggested that a lower threshold of harm, such as the "risk of substantial harm to
competition" (instead of the FCC's proposed "very high risk of harm") or a neutral presumption which places
no burden of proof on any petitioner in order to deny a license for U.S. operations. AT&T stressed that the
post-entry conditions on U.S. licenses may not be enough to protect competition in the U.S. market, and
argued that the General Agreement on Trade in Services does not require the FCC to use the "very high risk
of harm" standard."
The company also argued that the ECO test could continue to provide the "necessary elements" to determine
whether a foreign firm could distort competition in the U.S. But it suggested that the test be modified to consider
16
INSIDE U.S.TRADE August 1, 1997
whether a country has implemented WTO commitments to "provide unrestricted market access for the provision of
the relevant service," allow foreign ownership of carriers for this service and meet the requirements of the Refer-
ence Paper on pro-competitive regulatory principles.
MCI and Sprint were generally supportive of the FCC approach, though Sprint offered a number of sugges-
tions for improving its administration and conformity to WTO rules. Most notably, it criticized the FCC for
continuing to defer to the Executive Branch on license applications which have implications beyond telecommuni-
cations issues.
"The use of national security, law enforcement, or foreign policy grounds as a basis for denying applications
also leaves the Commission open to charges that applications are being denied on the basis of national origin
without explicitly saying so," Sprint wrote.
Japanese telecommunications giants NTT and KDD also weighed in with the FCC about the rule, but only
KDD used the opportunity to criticize the FCC's delay in approving their applications to provide international
services from the U.S. to some European countries. The FCC delayed the applications as a result of pressure from
the Clinton Administration, which wanted to use the applications as leverage to ensure the renewal of the NTT
Procurement Agreement (Inside U.S. Trade, March 14, p. 3).
KDD also argued that the FCC proposal raised "serious concerns" about U.S. compliance with the transpar-
ency requirements of the GATS. "The proposed public interest tests are subjective, vague, undefined, and thus give
the FCC the ability to act in an arbitrary manner that would disadvantage foreign providers of telecommunications
services," KDD wrote.
Other comments on the FCC rule came from France Telecom, Deutsche Telekom, the International Brother-
hood of Electrical Workers, Nynex, and Ameritech.
SENATE THREATENS WTO ACTION AGAINST MEXICO ON ANTI-DUMPING DUTIES
2810
The Senate last week unanimously passed a non-binding resolution threatening Mexico with World Trade
Organization dispute settlement measures if Mexico refuses to end its antidumping action against U.S. corn
All
sweeteners. In addition, House members that support U.S. corn growers were working to get a similar resolution
passed by today (Aug. 1) before Congress adjourns.
"Resolved, by the Senate (the House of Representatives concurring), that it is the sense of the Congress that
(1) the Government of Mexico should review carefully whether it properly initiated this antidumping investigation
in conformity with the standards set forth in the World Trade Organization Agreement on Antidumping, and should
terminate this investigation immediately; (2) if the United States Trade Representative considers that Mexico
initiated this antidumping investigation in violation of World Trade Organization standards, and if the Government
of Mexico does not terminate the antidumping investigation, then the United States Trade Representative should
immediately undertake appropriate measures, including actions pursuant to the dispute settlement provisions of the
World Trade Organization," the Senate resolution said.
At issue are preliminary antidumping duties imposed by Mexico on imports of U.S. high fructose corn syrup
(HFCS) following a complaint by the Mexican sugar industry. U.S. producers of HFCS claim that under multilat-
eral rules the Mexican sugar industry does not have legal standing to request the antidumping action. U.S. corn
refiners also claim the Mexican Dept. of Commerce used improper procedures in calculating the preliminary
antidumping duties imposed June 25 (Inside U.S. Trade, July 11, p. 29).
As a ton of HFCS generally sells for between $250 to $350, the Mexican duties amount to an additional
charge ranging from roughly 20 to 60 percent, industry sources said.
"The duties now in effect because of this decision are as much as four to five times the pre-NAFTA levels,"
Agriculture Committee Chair Richard Lugar (R-IN) told the Senate July 25. The pre-NAFTA tariff level for HFCS
was 15%, according to a U.S. industry source.
The Senate resolution was introduced by Sen. Charles Grassley (R-IA), and was cosponsored by Lugar,
Agriculture Committee Ranking Member Tom Harkin (D-IA), Minority Leader Tom Daschle (D-SD) and Robert
Kerrey (D-NE).
House Ways & Means subcommittee on trade chairman Phil Crane (R-IL), Rep. Thomas Ewing (R-IL), and
Glenn Poshard (D-IL) were working to get the resolution passed in the House before the August recess, according
to congressional staff.
The Office of the U.S. Trade Representative is currently donating significant resources to an in-depth
analysis of the WTO and NAFTA rules potentially violated by the Mexican action, according to Chuck Conner,
President of the Corn Refiners Association (CFA).
Conner also noted that the deadline for submission of CFA's reply brief to the Mexican government on the
duties has been pushed back by Mexico to August 17 from August 6. Conner indicated that August 17 was not
firm, however.
INSIDE U.S.TRADE - August 1, 1997
17
ADMINISTRATION GEARING UP FOR FAST TRACK FIGHT
begins page one
demonstrating its commitment to U.S. workers. Some Administration officials are arguing against such initiatives
because they will not blunt the opposition of organized labor to fast track, but others say that it would be helpful in
securing support among House Democrats, an Administration official said.
"The politics of these that say do not do anything on [retraining] is perhaps shortsighted," the official argued.
The worker retraining initiatives would not necessarily have to move as part of a fast-track bill, but could
move simultaneously or in the "margins" of the bill, the Administration official said. The need for retraining
programs to help U.S. workers hurt by global competition has been raised by a number of Democrats, including
Ways & Means Committee Ranking Member Charles Rangel (D-NY). It may also help to win over some of the
Hispanic House members, who told President Clinton in a letter earlier this month that the North American Free
Trade Agreement has cost more jobs than it has created for Latinos, African Americans and women (Inside U.S.
Trade, July 18, p.6)
The Administration's debate is also focusing on how to finesse handling the relationship between labor and
trade, informed sources said. One way of demonstrating that the Administration cares about promoting core labor
standards would be to limit candidates for potential free trade agreements to countries that also promote these
standards, they said.
"There are a lot of different thoughts that are being discussed under the umbrella of country criteria" that
would define the countries with which the U.S. would seek free trade agreements, an Administration official said.
The rule of law would be another criterion the Administration would consider in its selection of potential FTA
candidates.
With the fast track bill, the U.S. will submit to Congress a report required under Section 108 of the North
American Free Trade Agreement identifying future candidates for FTAs (Inside U.S. Trade, July 4, p. 4).
One way to assess a country's adherence to core labor standards that has been discussed is their membership
in the International Labor Organization, they said. According to this idea, no commitments on core labor standards
would be sought in agreements with countries that are already members of the ILO, they said.
This proposal suffers one major problem, which is that the U.S. itself is not a signatory to all ILO conven-
tions, one source pointed out. The source predicted that it would ultimately not be pursued by the Administration.
The Administration has been trying to obtain a baseline vote count before Congress adjourns today
(Aug. 1), according to informed sources. The vote count, which was begun last week, is not based on members'
response to a specific fast-track proposal but to the general idea of extending new negotiating authority to the
President, they said.
In addition, the Administration is working with members of Congress to pull together a whip group in the
House which would champion fast track and reach out to other members, according to a congressional source. This
group will likely include trade subcommittee Ranking Member Bob Matsui (D-CA) and as many as 15 to 20 other
members, according to the source.
At the same time, President Clinton is continuing his outreach to House Democrats on fast track with a
meeting scheduled for July 31 at the White House before members leave town today. The meeting will be attended
by Clinton, Vice President Al Gore, Treasury Secretary Bob Rubin, Agriculture Secretary Dan Glickman, Com-
merce Secretary Bill Daley, U.S. Trade Representative Charlene Barshefsky, Labor Secretary Alexis Herman,
Environmental Protection Agency administrator Carol Browner and State Dept. Undersecretary Stuart Eizenstat.
This follows a July 24 White House meeting with a group of Democrats who told Clinton that they expected
to take a "lot of heat" if they supported fast track, according to a congressional source.
White House Spokesman Mike McCurry highlighted the problems members had raised to the President in the
July 24 meeting in his briefing that day. Members said that there needs to be "sufficient protection" for U.S.
workers as well as attention to the needs of workers in other countries and to the environment, according to
McCurry. The group raised "all issues that we are very well familiar with and the President thought it was very
useful to hear from House Democrats about some of the concerns they're hearing in their districts," he said.
Clinton told House Democrats that they competing globally is one element in his plan to ensure a dy-
namic U.S. economy, McCurry said. The President expressed an understanding of members' difficulties, but
emphasized that the more members of Congress and the public understand the issues in the fast-track debate, the
more they will support it, an Administration official said. Clinton emphasized that it was important to communicate
what the fast-track debate is about, and promised to do that personally in the coming weeks, the official said.
In addition to the meeting with Clinton, the Administration also planned this week a meeting with Barshefsky
and Democratic members of the House. But the meeting was cancelled this week because of conflicting activities
related to the release of the budget deal, informed sources said.
House Minority Leader Richard Gephardt (D-MO) was not invited to the July 24 meeting, nor were other
Democrats who oppose fast-track negotiating authority that would not include labor and environmental issues in
18
INSIDE U.S.TRADE - August 1, 1997
the core provisions of a trade agreement. But Administration officials spoke to Gephardt after the July 24 White
House meeting to convey their desire to speak to him, a congressional source said.
The Administration's effort on fast-track will try to "walk a fine line" to avoid deepening conflicts in the
House Democratic Caucus, according to Jay Berman, the Administration's coordinator on the fast-track issue.
Berman took a leave of absence from his position as Chairman and Chief Executive Officer of the Recording
Industry Assn. of America (Inside U.S. Trade, July 25, p. 3).
President Clinton has instructed his officials to achieve passage of the fast-track bill in a way that does not
"exacerbate" the split on trade in the Democratic party, Berman said.
Berman emphasized that the President wants to obtain fast-track negotiating authority this year in both the
House and the Senate. "We are now at a point where we do not have the luxury of deferring the decision," he said.
Another Administration official said that the need to act this year largely stems from the fact that fast track would
be even more controversial in 1998, a congressional election year.
Berman said he will coordinate the Administration's activities on the fast-track, as well as efforts outside
Washington, which could include a grass-roots campaign. These efforts could include having the states "to bear
witness" that expanded trade has contributed to their economic health, and would counteract the anecdotal evidence
presented by opponents of fast track on the problems caused by the North American Free Trade Agreement.
Berman said there would be daily briefings among Administration officials on fast track activities, but was
reluctant to talk about a "war room" as the command center of the initiative. "We are trying to make peace" and
expand the prosperity the U.S. has experienced in peace time, he said.
But other Administration officials say the fast-track effort will use a "virtual" war room in which officials will
carry out their responsibilities without leaving their regular position.
Berman conceded that obtaining fast-track authority is made "more challenging" by the absence of a
major trade initiative such as the Uruguay Round that must be passed. "The Uruguay Round did not end the trade
agenda," Berman said. He pointed out that there is a large trade agenda to be fulfilled, even though it may not have
the "glamour" of the Uruguay Round. This includes the built-in agenda, with its commitment to hold agricultural
negotiations after 1999, the Free Trade Area of the Americas, and initiatives in the Asia-Pacific Economic Coop-
eration forum, he said.
CHINA OFFERS SELECTED TARIFF CONCESSIONS
begins page one
which compare with request lists that cover thousands of items, officials said.
The cuts offered would leave Chinese tariffs higher than trading partners consider acceptable, in the case of
the EU almost double the rate it has called on China to accept, these officials said. The EU has requested an
average weighted tariff of about eight percent or twice the average of industrialized countries, but the Chinese offer
amounted to an average tariff rate of 15 percent, one official said.
But one negotiator warned that even if China offers an attractive tariff rate, it may mean little improvement
over the currently applied rate. The starting point of the proposed cuts is the base tariff rate in 1992, not the
currently applied rate, and China is offering to stage the cuts over a period as long as ten or 15 years, the negotiator
said. Even if China frontloads the cuts as it is promising to do, the commercial benefit of a given cut may be less
than the applied current rate.
On non-tariff barriers, Chinese negotiators offered to shorten the time for phasing out quotas and licensing
arrangements for selected industrial products, these officials said. In the automotive sector, China offered to cut the
phaseout period for quotas and licenses from twelve to eight years, which WTO members say is too long, they said.
For motorcycles, China offered to cut the phase-out period from eight to six years, and for electrical appliances, the
new phaseout period has been reduced from six to five years, the officials said.
China also offered to phase out non-tariff measures for a specified list of products immediately upon acces-
sion, officials said. Regarding these improvements, Chinese negotiators indicated they had little flexibility to make
additional concessions, one negotiator said. Another official said that Chinese negotiators did not present their
NTM list as a "take it or leave it" offer. But he said that Chinese negotiators take the position that they have "done
so much" that it is up to the trading partners to offer more flexibility, the official said.
Chinese Foreign Minister Qian Qichen delivered a similar message at a press conference in Malaysia
with Secretary of State Madeleine Albright. "We have already made tremendous effort for China to join WTO, and
we will continue our efforts," he said. "We hope that the U.S. side will also demonstrate pragmatism and flexibil-
ity, so as to push forward substantive progress in the talks as soon as possible."
In their meetings, Albright and Qian were discussing the upcoming summit of President Clinton and Chinese
President Jiang Zemin, which is now tentatively scheduled for Oct. 28, informed sources said. In addition, White
House advisor Sandra Kristoff and her deputy Jeff Bader met with officials in Beijing earlier this month to prepare
INSIDE U.S.TRADE - August 1, 1997
19
the summit, these sources said.
The tariff and non-tariff barriers concessions were offered by Chinese officials in a series of bilateral meetings
with trading partners, including the EU, U.S., and Japan in advance of today's (Aug. 1) formal session of the
working party. The new NTM phaseout periods are laid out in a paper presented to trading partners, but China has
not submitted a new annex to the draft protocol on them, informed sources said. But China tabled new versions of
three annexes to be attached to the draft accession protocol covering state trading, statutory inspections and internal
subsidies, officials said.
WTO members had hoped that the market access negotiations in July would catch up to the work done on the
draft protocol, but early indications were that would not be the case (Inside U.S. Trade, July 25, p. 4).
Bilateral talks produced little movement in agriculture, except a promise by China that it will commit to
not using export subsidies in the future, officials said. But China failed to concede on the size of tariff-rate quotas
to be established for agricultural commodities, officials said. Chinese negotiators continued to insist that TRQs
should be based on the average of imports over the preceding five years with the ability to shift quantities from one
year to the other for certain sensitive commodities, they said.
Officials this week expressed some disappointment over China's concessions because they fell short of a
promise to present a comprehensive market access offer for goods at the July meetings. One negotiator expressed
the hope that China would show enough flexibility during the working party meeting on Aug. 1 to ensure that the
whole process will keep going.
China has now promised to make an offer on market access for goods in mid-September, and there may be a
{
services offer at that time, officials said. But it is very likely that a services offer would fall short of the concessions
the trading partners are seeking, one official said. China is clearly hoping that an acceptable accession package
could be developed with only minor changes to its trade rules governing services, officials said.
But other sources cautioned that China may make bigger concessions only after the Chinese Party Congress
meets in September or October.
Japan may be the earliest of the Quad trading partners to develop a market access package with China,
according to a Japanese official. Prime Minister Ryutaro Hashimoto will visit China in the first half of September,
and both sides are committed to making a "maximum effort to reach some sort of understanding" on WTO acces-
sion concessions, he said. But he said the two sides cannot conclude an accession package because China will not
be ready to conclude a services deal.
In the annexes China tabled, it outlined out statutory inspections it requires for 127 categories of
products, officials said. The annex breaks out inspections according to the Technical Barriers to Trade agreement
and the Sanitary and Phytosanitary standards agreement, but appears to largely justify existing mandatory standards
that China imposes, one official said.
China also tabled a new version of Annex Five on subsidies, with section A listing the subsidies the govern-
ment extended to state-owned enterprises from 1990 to 1994, and section B identifying the subsidies China plans to
phase out, officials said.
U.S., EU SEEK HELMS-BURTON DEAL
begins page one
In contrast, the U.S. has argued that this proposal is not the right "starting point" for negotiations, he said.
Instead, the U.S. is pushing for what it terms is a more flexible approach that would allow countries to consult with
each other and negotiate disputes over conflicting laws.
"[U.S. negotiators] don't think the solution is to establish new jurisdictional rules," the source said. "The U.S.
feels that current approaches on consultation, self-restraint and comity have worked effectively."
The U.S. and EU are also far apart in efforts to negotiate disciplines covering investment in expropriated
property. While the EU has argued that the end result should be to deter investment in property expropriated after
the disciplines take effect, the U.S. has argued that past expropriations must be covered. The two sides also
disagree on whether expropriated properties in Cuba should be explicitly covered by the disciplines (Inside U.S.
Trade, July 11, p. 3).
The U.S. and EU agreed in April to try to agree to disciplines in these two areas by October 15 as a way of
resolving their dispute over the Helms-Burton law. The two sides are hoping that a successful conclusion to the
talks will allow the EU to withdraw its World Trade Organization challenge of the law, and convince the Congress
to allow Title IV of the law to be waived by the president. Title IV requires the U.S. to deny visas to foreign
executives that traffic in expropriated U.S. property in Cuba.
Sources close to the negotiation said the U.S. is now more optimistic about the prospects for a successful
conclusion of the talks because the new EU lead negotiator, Deputy Director General for External Relations Gerard
Depayre, seems more determined to move the talks forward. The U.S. side was led this week by Assistant Secretary
20
INSIDE U.S.TRADE August 1, 1997
of State for Economic and Business Affairs Alan Larson, sources said.
In a related development, Senate Foreign Relations Committee Chairman Jesse Helms (R-NC) last
month publicly accused the Clinton Administration of purposefully failing to enforce Title IV of the Helms-Burton
Act.
"Mr. President, it is increasingly obvious that your Administration has decided -- unilaterally -- not to enforce
that provision of the Helms-Burton law," Helms wrote to Clinton in a July 16 letter, reprinted below. "Indeed,
through its failure to enforce this provision, the Administration has issued what amounts to an effective (and, in
fact, an unlawful) waiver of Title IV."
In addition, Helms warned that not enforcing Title IV leaves the impression that the Administration has
promised the European Union that Title IV would not take effect while the two sides try to settle their dispute over
the law. EU member states have in fact warned that if Title IV is applied against an EU company, they would
demand that the WTO challenge of Helms-Burton be resumed.
"Mr. President, there is a growing suspicion in Congress that your Administration has promised the European
Union it will not enforce Title IV against European companies, as a quid pro quo for European agreement to
suspend their WTO suit," Helms wrote.
As a result, Helms asked Clinton whether any such agreement with the EU exists, what the Administration's
"legal justification" is for failing to enforce Helms-Burton, and whether the Administration plans on taking further
action against foreign companies through Title IV in the coming months. Congressional sources said at press time
that Helms had not received a response.
Helms also asked why the U.S. hasn't invoked Title IV against STET, an Italian telecommunications com-
pany, even though 13 months have passed since the State Department's initial warning letter was sent to the
company. But State last week announced that STET and ITT, whose property was nationalized in Cuba and was
subsequently acquired by STET, reached an agreement under which STET will lease the property in question for a
ten year period in return for a lump sum payment to ITT.
While Helms credited Helms-Burton last week for prompting the settlement, he also warned that the deal does
not ease his concerns that Title IV is not being enforced properly.
"Despite these welcome developments, I remain dismayed by the Clinton Administration's utter failure to
enforce Title IV of the Helms-Burton law," he said in a July 23 statement. "This deal in no way justifies their
failure to enforce the law."
Helms' questions to the Administration in his July 16 letter mirrored those asked in a June letter to the
State Department from House International Relations Chairman Benjamin Gilman (R-NY). In response, State
insisted that it is fully enforcing Title IV, and that delaying its enforcement in order to provide companies such as
STET and ITT time to settle disputes over expropriated property is "fully consistent" with Title IV (Inside U.S.
Trade, July 18, p. 1).
Gilman said in a July 23 statement that while he welcomes the agreement, his committee would be reviewing
it to ensure it is "consistent with the U.S. embargo on Cuba."
Meanwhile, a House amendment that would require the Administration to report to Congress on the
status of Title IV's implementation was included in the State Department authorization bill that emerged from a
House-Senate conference committee this week, according to congressional sources.
The measure would require periodic reports to Congress on the number of companies that have and have not
been cited under the law, and explanations of how and why those decisions were made. The amendment does not
require State to submit the names of specific companies to Congress.
A congressional source added that while the language in the final amendment also does not require State to
provide a sector-by-sector breakdown of companies being investigated under Title IV, State has made a "verbal
commitment" to provide this analysis. Rep. Ileana Ros-Lehtinen (R-FL), who chairs the House International
Relations subcommittee on international economic policy and trade, this week introduced legislation to this effect
in case State does not keep to that commitment, the source said.
Also surviving the conference committee was a Senate amendment that would deny visas to foreign execu-
tives that traffic in expropriated property anywhere in the world. However, the amendment does not apply to
property claims resulting from disputes between United Nations members in which an ultimate resolution has not
been reached.
For example, the amendment does not apply to lands in dispute as a result of the Peru-Ecuador conflict, the
"Soccer War" between El Salvador and Honduras, and Middle East conflicts between UN member states, according
to House report language explaining the amendment. In contrast, the report said the measure could be used to target
property claims in Nicaragua, Costa Rica, Honduras, and the Dominican Republic.
A congressional source said both of these measures were "not a matter of great controversy." A conference
report on the authorization bill will likely be assembled after the August recess, after which it will be voted on by
INSIDE U.S.TRADE - August 1, 1997
21
the House and Senate and then go to the president for signing.
The broad aim of the bill is to consolidate international affairs agencies, reform foreign assistance programs,
and authorize appropriations of foreign assistance programs for 1998 and 1999.
Finally, congressional sources said that Ros-Lehtinen and Rep. Lincoln Diaz-Balart (R-FL) introduced
legislation this week that would require the U.S. to withhold non-humanitarian assistance to members of the
Caribbean Community (Caricom) and the Central American Common Market (CACM) that allow Cuba to join
either of those organizations. The bill would also deny Caribbean Basin Initiative tariff benefits to these countries.
Helms Letter on Title IV Enforcement
July 16, 1997
only companies trafficking in stolen American property in Cuba?
The President
It is obvious, for example, that the Italian telecommunica-
The White House
tions monopoly STET (a partner in Cuba with Grupo Domos) is in
Washington, D.C.
clear violation of Title IV. Indeed, it is my understanding that the
State Department sent STET a "warning" letter in March, 1996.
Dear Mr. President:
Thirteen months have passed since that letter was sent, yet no action
I am dismayed by your decision today to issue, without
has been taken against STET. Why, Mr. President, have their
consultation, another waiver of Title III of the Helms-Burton law, a
executives not been declared persona non grata in the United
decision that will allow foreign businesses to continue trafficking in
States?
stolen U.S. property with impunity -- while denying the rightful
Mr. President, there is a growing suspicion in Congress that
American owners any legal recourse whatsoever to seek compensa-
your Administration has promised the European Union it will not
tion from those traffickers.
enforce Title IV against European companies, as a quid pro quo for
I am aware, of course, that the law does provide you with the
European agreement to suspend their WTO suit. Your failure to
legal authority to waive Title III. However, I must remind you, Mr.
enforce this provision of the law reinforces that impression.
President, that Congress explicitly refused to grant any waiver for
Allow me to emphasize respectfully, Mr. President, that you
Title IV of the Helms-Burton law -- the provision denying visas to
and your Administration do not have the legal authority to waive
foreign business executives trafficking in stolen American property
Title IV. It is the law of the land, and your Administration is legally
in Cuba.
bound to enforce it.
Mr. President, it is increasingly obvious that your Adminis-
I will appreciate your explaining to me the reasons behind
tration has decided -- unilaterally -- not to enforce that provision of
your Administration's failure to enforce Title IV of the Helms-
the Helms-Burton law. Indeed, through its failure to enforce this
Burton law. Further, has there been any agreement, oral or
provision, the Administration has issued what amounts to an effec-
written, with the European Union, or with any European Union
tive (and, in fact, an unlawful) waiver of Title IV.
government, that Title IV will not be enforced during the period
Mr. President, with all due respect, I find it difficult to fathom
of negotiations over the WTO case? What is the Administration's
how, since Helms-Burton was signed into law on March 12, 1996,
legal justification for such an unauthorized waiver of the law?
the State Department has seen fit to issue Title IV letters (denying
And, is your Administration planning to take any actions during
entry to the U.S.) to the executives of just two companies -- Sherritt
the coming months against executives in violation of Title IV?
of Canada, and Grupo Domos of Mexico.
I will be genuinely grateful for an early response to these
Surely after 16 months of research, your Administration has
questions.
uncovered sufficient evidence of other Canadian, Latin American and
European companies that are in violation of Title IV. Or does the
Sincerely,
Administration seriously believe that Sherritt and Grupo Domos are the
Jesse Helms
EU REPORT BLASTS U.S. EXTRATERRITORIAL, UNILATERAL TRADE MEASURES
The European Commission this week lashed out at U.S. extraterritorial and unilateral trade measures in its
annual comprehensive assessment of U.S. barriers to trade and investment, and cited them as the most troubling
features of U.S. trade policy today. In its report on U.S. barriers to trade and investment, the Commission also
highlighted a new trend of U.S. states aimed at regulating trade beyond the territory of the U.S.
"The European Union remains concerned about the tendency of the United States to enact domestic legislation
with extraterritorial application," the EU said in a July 29 announcement. The EU cited the Helms-Burton law and
the Iran-Libya sanctions law as the most prominent examples of U.S. efforts to hamper international trade and
investment by regulating EU trade with third countries.
Additional U.S. extraterritorial measures include environmentally driven embargoes, export control legisla-
tion, and state- and city-level selective purchasing laws, the EU said. The report cited the Massachusetts law that
penalizes firms doing business in Burma from bidding on certain state contracts, on which the EU has requested
consultations in the World Trade Organization as a violation of the Government Procurement Agreement.
But the EU warned that selective purchasing laws have been passed in Connecticut, California and Texas and
in several cities, including New York. "[T]he multiplication of such initiatives seems indicative of a worrying trend
22
INSIDE U.S.TRADE - August 1, 1997
in U.S. subfederal policy-making aimed at regulating the behaviour of economic agents beyond U.S. territorial
jurisdiction," the EU said in its announcement. "Quite apart from the strict legality of these actions, they are clearly
disturbing the conduct of normal economic relations."
The Commission's 50-page Report on United States Barriers to Trade and Investment was released July 29.
The Commission also cited the U.S. Section 301 legislation as a "striking example" of unilateral measures,
which "casts doubt on U.S. support for a multilateral rules-based trading system." But the Commission conceded
that the U.S has made extensive use of the WTO dispute settlement system instead of opting for unilateral mea-
sures.
The report also cited specific obstacles in the areas of tariffs, non-tariff measures, investment, intellectual
property rights, and services.
The charged that high U.S. tariffs in several sectors, including ceramics and glass, chemicals, textiles and
leather goods, and jewelry pose trade barriers for EU exports. On non-tariff barriers, the report criticized U.S. rules
of origin determinations, excessive invoice requirements, customs user fees, national security based import prohibi-
tions, import bans for tuna caught with fishing methods that hurt dolphins, complex standards and technical
regulations for protection of consumers and the environment categories and federal Buy American procurement
laws. The Commission also accused the U.S. of violating through indirect support its bilateral commitment on
subsidies for large civil aircraft.
Limitations on foreign direct investment, foreign ownership restrictions, and tax discrimination against
foreign owned corporations were also cited by the Commission in its report as troublesome barriers to transatlantic
investment flows. In addition, while U.S. patent laws are used to keep infringing foreign products out, U.S.
copyright and designation laws do not provide adequate protection and compensation for foreign authors, perform-
ers, and wine and spirit producers, the Commission claimed.
The EU also faces U.S. barriers in the fields of radio licenses, mobile satellite communication services,
financial services, air transport computer reservation systems, and maritime transport services, according to the
report.
CLINTON ANNOUNCES INTENT TO NOMINATE SCHER TO RANK OF AMBASSADOR
President Clinton this week announced his intent to nominate Peter Scher to the rank of ambassador to serve
as the Special Trade Negotiator for Agriculture at the Office of the U.S. Trade Representative. In that role, Scher
will conduct trade negotiations and assist the U.S. Trade Representative in developing and coordinating U.S. trade
policy as it relates to agriculture, Clinton said in a July 28 announcement.
Scher came to USTR after serving as Chief of Staff to former Secretary of Commerce Mickey Kantor, a role
he also had when Kantor was the U.S. Trade Representative. Before joining the Clinton Administration, Scher was
the staff director at the Senate Committee on Environment and Public Works, the announcement said.
U.S., EU SEEKING NEW WAYS TO REDUCE BILATERAL TRADE BARRIERS
Senior Administration officials said last week that the U.S. and European Union are actively pursuing a joint
government study that will identify new ways to remove trade and investment barriers as early as the end of the
year. In addition, the U.S. and EU are committed to expanding existing agreements on mutual recognition of
standards and manufacturing practices to new sectors, Deputy U.S. Trade Representative Jeff Lang and Acting
Commerce Undersecretary for International Trade Timothy Hauser told a congressional panel on July 23.
"We intend to pursue actively the joint study on eliminating barriers to trade and investment and expect to
have preliminary recommendations for government action available by the end of this year," Lang said in testi-
mony prepared for the House Ways and Means Trade Subcommittee.
Hauser told the subcommittee that key priorities for U.S.-EU trade in the near term include the implementa-
tion of the recently agreed mutual recognition agreement (MRA) -- on pharmaceuticals, medical devices, recre-
ational craft, telecommunications equipment and certain information technology products -- and the broadening of
the agreement to include more types of products.
"[W]e look forward to broadening the scope of the MRAs by expanding them into new sectors determined to
be of priority by the business community and to be of mutual interest to U.S. and European regulators," Hauser
said.
Neither Hauser nor Lang listed the sectors that would be included in the MRAs, but the U.S. and EU signed a
letter of intent in June identifying industrial fasteners and veterinary biologics as possible additions (Inside U.S.
Trade, June 27, p. 20). Informed private-sector sources said the chemical sector is also an area for potential
inclusion.
Both officials said they expected a November meeting of the Transatlantic Business Dialogue in Rome to
INSIDE U.S.TRADE - August 1, 1997
23
identify new areas for trade liberalization.
Hauser told the subcommittee that other near-term priorities for the U.S. and EU include the successful
negotiation of a World Trade Organization agreement on financial services, promotion of electronic commerce,
harmonization of standards in the automobile sector, and sectoral tariff reductions.
"[T]here are still product sectors in which European tariffs are keeping out U.S. products -- including paper
products," Hauser said. "Tariff reductions in areas like paper and other important sectors that were not fully
liberalized in the Uruguay Round are other areas where we expect progress could be made rapidly."
He noted that the U.S. still has residual authority to cut or accelerate reductions in tariffs in the paper and
paper products sectors, as well as in the wood products, electronics, and medical equipment sectors. In the automo-
bile sector, the U.S. hopes that a sufficient consensus will develop in the EU auto industry to convince the Com-
mission to join the U.S. in the pursuit of a new global forum to develop common standards.
Hauser told the panel that other countries have expressed an interest in MRAs with the U.S. "Other
countries have raised the possibility of bilateral MRAs -- Switzerland and Norway have asked us about it," Hauser
said. "We have had soundings from Asian countries like Taiwan, Japan, Australia." The Food and Drug Adminis-
tration has already begun talks with its Canadian counterpart, Health Canada, on an MRA in the pharmaceuticals
area.
Hauser noted that a broader approach to MRA negotiations could be helpful in addressing these requests, and
should be explored. "I think the thing would be, one, to look at where the opportunities are; two, because of the
complexity of doing these things, it would be useful to look at whether there's some broader way to address this
than a series of very intensive bilateral talks," he said.
Lang offered a sober assessment of the New Transatlantic Agenda (NTA), a year-and-a half old U.S.-EU
initiative to strengthen cooperation. "From USTR's point of view, I would say the results are mixed, but then, we
always suspected they would be by this point in the process," he said.
Under the NTA, the U.S. and EU have worked together to achieve "notable successes" multilaterally, Lang
said. A landmark WTO agreement on eliminating tariffs for information technology products by the year 2000, and
an agreement on basic telecommunications services could not have been achieved without the participation of the
EU, Lang said. The U.S. and EU appear to be working well together in the WTO negotiations on financial services,
he said.
"We have what appear to be many common objectives, if not almost identical objectives, and I think we can
work well together in the coming months," Lang said.
But the NTA has not settled many bilateral U.S.-EU disputes, some of which are serious, he said. "Sometimes,
as with certain EU attitudes toward the regulation of trade in bioengineered foodstuffs, tens or hundreds of millions
of dollars in trade can be at stake," he said.
Some of the bilateral agreements are long-standing and connected to the EU's common agricultural policy, he
said. Other agricultural disputes stem from "popular attitudes" in Europe toward protection of the environment and
of human health, he said. Europe also has strong views on animal welfare, which has led to threats to cut off U.S.
fur exports from animals caught in leghold traps, he said (see related story).
In addition, a new dispute is arising over the U.S. practice of using European regional designations as generic
wine categories, which the EU has long opposed as infringing on its producers' rights, an EU official said. In the
budget legislation that passed Congress this week, Sen. Alfonse D'Amato (R-NY) included an amendment that will
make these U.S. designations, which are now stipulated in U.S. regulations, allowable under federal law, according
to the official.
Hauser told the subcommittee that "regulatory differences remain the most significant barriers to
transatlantic trade" and noted continued U.S. concern regarding the EU's approach to labelling of environmentally
friendly products, so-called eco-labelling. The U.S. sees eco-labelling as a fruitful area for discussion and coopera-
tion to see that environmental objectives are met without negatively affecting trade, Hauser said.
Lang also reiterated U.S. concern over the EU's use of the WTO dispute settlement to address "political
issues", including the Helms-Burton Act, "rather than the kinds of commercial issues that the dispute settlement
system was designed for."
24
INSIDE U.S.TRADE - August 1, 1997
INSIDE U.S.TRADE - August 1, 1997
25
In This Issue
Administration considering new policies to win
Goodlatte encryption bill facing tough fight in
passage of fast track
p.1
National Security panel
p.12
China offers tariff cuts falling short of demands
Albright presses ASEAN countries on WTO
by Quad members
p.1
financial services talks
p.13
U.S.-EU officials wrestle with conflicting
EU likely to be over wheat gluten limits
jurisdiction in Helms-Burton talks
p.1
despite dispute over numbers
p.13
Boeing deal includes arbitration process on
Customs lawyers charge NAFTA Chapter 19
patent licensing disputes
p.1
panels are unconstitutional
p.14
Crane says NAFTA parity could be attached to
Specialty steel industry targets EU, Asian
fast-track legislation
p.3
producers in trade cases
p.15
U.S. informally floats ideas for settlement of
U.S., Japan review key issues on deregulation
banana dispute with EU
p.4
of construction sector
p.15
EU Commission formally decides against
Defense, FBI express opposition to FCC rule
mandatory segregation of GMOs
p.5
on WTO telecom agreement
p.16
EU passes new ban on animal parts over U.S.
Senate threatens WTO action against Mexico
objections, WTO threat
p.6
on anti-dumping duties
p.17
U.S. faces potential EU fur ban this winter
EU report blasts U.S. extraterritorial, unilateral
after EU Council decision
p.6
trade measures
p.22
WTO panel formed to hear U.S. complaint on
Clinton announces intent to nominate Scher to
Indonesia auto regime
p.7
rank of ambassador
p.23
EU says it must request WTO consultations on
U.S., EU seeking new ways to reduce
U.S. poultry ban
p.8
bilateral trade barriers
p.23
WTO members launch work on improved
transparency in procurement
p.9
26
INSIDE U.S.TRADE - August 1, 1997
Inside U.S. Trade
An
Inside
Washington
Publication
nexclusive weekly report major government and industry trade action
Vol. 15, No. 30 - July 25, 1997
BOEING MERGER LIKELY TO ALTER IMPLEMENTATION OF U.S.-EU AIRCRAFT PACT
A deal struck between the Boeing Company and the European Commission this week to clear the way for a
merger with McDonnell Douglas shows that the EU extracted concessions it has up to now failed to win under a
bilateral agreement on civil aircraft subsidies. As part of the deal, Boeing agreed to provide information to the EU
for ten years about the indirect subsidies it gains from government-sponsored research and to license some patents
obtained from government contracts to European companies, according to a July 23 announcement.
These commitments are meant to offset the benefits Boeing would reap from a "spillover" of benefits from
defense and aeronautics contracts to the commercial business, Boeing Chairman and Chief Executive Officer Phil
Condit said in a July 23 press conference. Spillover is the "relationship between your defense business, [National
Aeronautics and Space Administration] business and the commercial business, which is the subject covered in a
continued on page 21
EU CAP REFORM AIMED AT ELIMINATING ACCORD ON OILSEEDS WITH U.S.
A new proposal presented by the European Commission last week for a reform of the common agricultural
policy is partially aimed at invalidating an agreement with the U.S. negotiated to curb EU oilseeds production. The
agreement, which was included in the Uruguay Round, limited the acreage of EU farmers who received specific
subsidies to grow oilseeds after a ruling of two international dispute settlement panels that these EU payments
unfairly undermined U.S. exports.
In its proposal labeled Agenda 2000, the EU is aiming to invalidate the so-called Blair House accord by doing
away with oilseeds specific subsidy payments to farmers. Instead, the EU is proposing to pay a general subsidy to
all its producers that would force them to produce at prices close to world market levels, which in turn would mean
no routine use of export subsidies.
continued on page 23
U.S., KOREA REACH DEAL TO END TELECOMMUNICATIONS PROCUREMENT FIGHT
The U.S. and Korea this week finalized a deal aimed at addressing U.S. complaints about discriminatory
procurement practices in the telecommunications sector and ending a case under Section 1374 of U.S. trade law.
The agreement, which consists of a unilateral statement by the Korean Ministry of Information and Communica-
tions (MIC), outlines measures Korea will take to ensure nondiscrimination in the areas of procurement, technical
standards, services and intellectual property.
U.S. Trade Representative Charlene Barshefsky welcomed the agreement and emphasized that it is fully
reviewable under U.S. trade law, and open to action in the World Trade Organization. "The United States will
continue to monitor closely Korean adherence to its commitments and will make use of U.S. trade laws and WTO
procedures, if appropriate, to ensure effective implementation," Barshefsky said in a July 23 statement.
continued on page 26
U.S. GROUPS LIKELY TO FILE 301 CASE ON CANADIAN DAIRY PRACTICES
Members of the U.S. dairy industry are likely to file a petition under Section 301 of U.S. trade law against
Canada next month for its failure to open its market to selected dairy products, such as fluid milk, and its effort to
unfairly gain market share in third countries by circumventing its Uruguay Round export subsidy commitments.
Canada operates a two-tier price system for the sale of milk that the U.S. industry charges acts as an export subsidy
by setting a lower price for milk processed into goods for export than for milk sold for domestic production.
The return from both types of sales are pooled by marketing boards into one payment to Canadian producers.
"We are very, very unhappy with the state of dairy trade relations between the U.S. and Canada, and believe
that special pooling classes are, at best, questionable under the [General Agreement on Tariffs & Trade]," one
industry source said.
continued on next page
"It's likely we'll file a formal 301 in the next 60 days, possibly by mid-August," one industry source said. One U.S.
official said that dairy industry representatives are telling Administration officials to "self-initiate or we'll file."
He said the U.S. was "close to deciding" what, if any, action it will take in the World Trade Organization. The
U.S., he said, is "looking at this very carefully and deciding whether or not to make a formal challenge in the
WTO."
Agriculture Undersecretary for Farm & Foreign Agricultural Services nominee Gus Schumacher referred to
the upcoming case in his July 23 confirmation hearing, according to government and industry sources. At the July
23 hearing, Schumacher said an industry section 301 submission against Canada "may be forthcoming," they said.
Legal counsel for the National Milk Producers Federation and U.S. Dairy Export Council is currently prepar-
ing an analysis on the approach to use in a submission to the Office of the U.S. Trade Representative regarding the
Canadian dairy scheme, according to sources.
If filed, the industry's request would likely charge that the Canadian pooling arrangement violates the export
subsidies commitments in Article 9 of the Uruguay Round agreement on agriculture as well as the commitments
under Article 10 not to circumvent them.
The two dairy groups claim they have received some favorable input from senior Administration officials about
a possible filing, and its ultimate consideration at the WTO, according to an industry background paper.
"Cabinet level administration responses have been encouraging that relief through a WTO dispute panel is
very viable," it said. One industry source said that USTR officials have given "assurances" that Canada's practices
are "objectionable."
According to the backgrounder, dairy industry representatives have raised their problems with both U.S. farm
and trade officials.
U.S. officials have already raised objections to the Canadian price-pooling system in the WTO Committee on
Agriculture. The USDA official noted this week that the U.S. was "encouraging its trade partners to do
something like New Zealand." New Zealand held out the possibility of a WTO case against Canada last month
(Inside U.S. Trade, July 4, p. 19).
According to a dairy industry background paper, one argument against the Canadian dairy scheme is
that it could used by other countries to get around export subsidy constraints. " It could well become the instru-
ment used by agricultural sectors from a host of countries to circumvent all export subsidy constraints," it said.
For its part, Canada has maintained that exports under the pooling arrangement are not subsidies under the
terms of the Uruguay Round agricultural agreement, and thus are not bound by its constraints.
The complaint, if filed, will likely raise allegations that Canada has failed to implement a tariff-rate quota for
fluid milk it negotiated in the Uruguay Round, according to sources. In addition, it could target Canada's failure to
implement a General Agreement on Tariffs & Trade ruling against its import quotas on ice cream and yogurt. It
would not try to reopen the fight on Canada's right to impose tariff rate quotas in the dairy and poultry sector,
which the U.S. lost in a North American Free Trade Agreement dispute settlement system.
U.S. dairy industry organizations earlier this month raised complaints against Canada in a July 10
submission to USTR under the Super 301 process. They also criticized a number of practices by Mexico, Brazil
and several other countries.
In that filing, they specifically targeted the "monopolistic" Canadian Dairy Commission, saying it "provides
fluid to processors to manufacture exportable dairy products at prices below those prevailing in Canada."
"Otherwise, the resulting manufactured dairy products will not be competitive anywhere in the world,"
according to the submission. "This system provides direct subsidies to dairy processors, and simultaneously
circumvents Canada's WTO subsidy commitments."
In addition, Mexico also has erected barriers to trade in the form of state trading enterprises, the two
groups charged in the same submission. Mexico's state trading enterprise, CONASUPO, "restrains" the potential
expansion of dairy product sales directly into the country, they claimed.
CONASUPO, the sole authorized importer of skim milk power, buys the powder at the world price, which is
artificially reduced by European export subsidies, and then sells the U.S. product to the Mexican processing
industry at a marked-up price equivalent to the U.S. price for the same product, they said.
Under this arrangement, the U.S. is required to use the Dairy Export Incentive Program so as to export U.S.
dairy products to Mexico. The result is a government-to-government transfer of some $25 million a year, they
charged. "This cannot be defended nor can it be changed until the United States obtains the rights for dairy export-
ers to sell directly to the ultimate customer," according to the submission. It also criticized Mexico's excessively
high tariffs on certain types of milk powder.
Brazil also came under fire by the two groups for its 30-percent tariffs on most dairy products, including butter and
dairy spreads, evaporated and condensed milk and powdered milk. For its part, Venezuela was criticized for its system of
variable tariffs on dairy and other farm goods, that allow tariffs to fluctuate depending on the price of the import.
2
INSIDE U.S.TRADE - July 25, 1997
CLINTON UNVEILS NEW FAST-TRACK TEAM, MEETS WITH HOUSE DEMS
President Clinton yesterday (July 24) announced the appointment of Recording Industry Assn. of America
(RIAA) Chairman and CEO Jason Berman to coordinate the Administration's effort to pass fast-track trade negoti-
ating authority this fall. The naming of Berman "makes clear my determination to fight for passage of this impor-
tant legislation," Clinton said.
At the same time, Clinton revealed that Victoria Radd, chief of staff to White House Chief of Staff Erskine
Bowles, has been tapped to join Berman in coordinating the campaign. During the last four years, Radd has also
served as associate counsel to the president and as deputy director of communications at the White House. Previ-
ously she was a partner in the Williams & Connolly law firm.
Berman will take a leave of absence from RIAA to serve as Special Counselor to the president, according to
Clinton. Berman's "extensive knowledge of trade policy and unparalleled experience on the Hill will be invaluable
to our effort," Clinton said.
"I am calling on Congress to enact fast track legislation so we can continue our aggressive drive to open
markets to our goods and services and create more high skilled jobs for the American people," he added.
Clinton also met July 24 with about 30 House Democrats to discuss fast track, private-sector sources said. The
original idea was to meet with a bipartisan group of legislators, they said, but congressional Republicans declined
to attend in light of the lack of an agreed-on fast-track approach with regards to environmental and labor issues.
"Presumably he will tell [House Democrats] to keep their powder dry and urge them to support the
Administration's [fast-track] proposal when it comes out," one private-sector source said.
Another source said the purpose of the meeting was for the President to let the Democratic caucus know now,
before the August recess, that he is prepared to lead them on the fast-track issue." In addition to moderate, pro-
trade Democrats, one official expected the meeting to be attended by "labor-leaning pro-traders and Bill
Richardson wanna-be's." Current U.S. United Nations Representative Bill Richardson played a key role in passage
of NAFTA and other trade matters when he was in the House prior to this year.
A congressional source said House Minority Leader Richard Gephardt (D-MO), who has opposed the
Administration's trade policy and has advocated inclusion of labor and environmental provisions in trade agree-
ments, was not invited to the session.
According to U.S. officials, the White House fast-track effort is likely to be partitioned into four compo-
nents: communications; legislative strategy; policy; and outreach. These areas of activity would be co-chaired by
cabinet-level officials, they noted.
The increasing White House activity on fast track has been noticed by Republican congressional leaders and
private-sector fast-track advocates, industry sources said.
"It suggests a very elaborate and multi-faceted effort the President has used for high profile and high visibility
legislative battles" in the past, one industry source said.
Congressional Republicans "are obviously still waiting to see the Administration's [fast-track] proposal," he
said, but they also are beginning to be reassured by some of the White House actions."
TUNA-DOLPHIN MEASURE TO FACE CRITICAL SENATE PROCEDURAL VOTE TODAY
The fate of controversial legislation aimed at lifting the U.S. ban on tuna imports and altering the definition of
"dolphin-safe" tuna for labeling purposes is likely to be determined by a procedural vote slated to take place on the
Senate floor today (July 25), according to private-sector, congressional and environmental sources.
After receiving a request for action on S. 39 from President Clinton, Senate Majority Leader Trent Lott (R-
MS) committed to holding a July 25 cloture vote on a motion to proceed with consideration of the bill. S. 39,
whose companion measure in the House has already been approved, would allow tuna caught in the Eastern
Tropical Pacific Ocean (ETP) by setting purse seine nets on schools of dolphins to be labeled "dolphin-safe" as
long as no dolphins are killed or seriously injured.
Sixteen senators submitted a cloture petition on the evening of July 23, although several pro-bill sources said
that the bill's original co-sponsors, Sens. John Breaux (D-LA) and Ted Stevens (R-AK) did not yet have clear
commitments from the 60 senators required to win a vote on cloture. Democratic support for the bill began to
soften last week after Senate Minority Leader Thomas Daschle (D-SD) told his caucus that the vote should be a
"party-line" vote against cloture, even though Clinton wants to proceed.
Current U.S. labelling law, whose alteration is opposed by Sens. Barbara Boxer (D-CA), Joseph Biden (D-
DE) and Bob Smith (R-NH), does not permit tuna caught by setting nets on dolphins from being labeled "dolphin-
safe." Boxer and her allies have threatened to filibuster rather than allow the bill to come to a vote.
If the cloture vote garners 60 votes or more, debate can proceed on the bill under rules that allow 30 total
hours of debate and no more than one hour per senator. Boxer would subsequently have a second opportunity to
INSIDE U.S.TRADE - July 25, 1997
3
filibuster the actual vote itself, but if the first vote indicates she does not have the 40 votes required to sustain a
filibuster it is unclear why she would attempt one.
One backer of S. 39 claimed this week to have a five-vote margin of victory beyond the necessary 60 votes
based on direct polling of senators rather than their staffs, but Administration and Senate sources said this was no
longer the case in light of Daschle's comments last week.
In a related development, Sen. John Kerry (D-MA) was floating a compromise proposal on July 23 that would
delay the labelling change for three years until completion of a study on the effects of encirclement of dolphins on
their mortality.
S. 39 is backed by President Clinton, who personally has urged both Lott and Daschle to allow the measure to
be voted on before the August recess. Its passage is required in order to fulfill a U.S. commitment made to Latin
American fishing nations in the 1995 Panama Declaration to lift its tuna ban and allow net-setting on dolphins in
return for the creation of a binding international marine-species conservation treaty in the ETP. It also is supported
by five environmental groups, including Greenpeace and the National Wildlife Federation, but is opposed by a
coalition of 85 conservation, environmental and citizen action groups, including Earth Island Institute and the
Humane Society.
The tuna-dolphin bill is one of two top Administration Latin America-focused trade priorities that are at a key
juncture this week. The other is the four-year-old effort to make good on Clinton's pledge to provide NAFTA-type
benefits to the Caribbean and Central American countries.
Numerous efforts at compromise between the two sides of the tuna-dolphin debate have failed, with the main
sticking point being whether the labeling change should take effect immediately, as S. 39's backers believe is
required to meet the commitment made in the Panama Declaration, or whether it would be put off until after a
study on the long-term mortality effects of setting nets on dolphins.
U.S., JAPAN TO DISCUSS EXTENSION OF NTT PROCUREMENT DEAL NEXT MONTH
The U.S. and Japan plan to meet in the second week of August to discuss implementation and extension of the
bilateral accord governing the procurement of telecommunications equipment by Nippon Telephone and Tele-
graph. The U.S. "intends to discuss the renewal" of the agreement, and the Japanese government has informally
agreed to do so on the second day of the talks, according to informed sources.
An Administration official said the talks are scheduled for August 5 & 6 in San Francisco, but that "nothing is
finalized."
Japan had proposed talks for the week of July 28 or Aug. 4, initially insisting that they could only deal with
the implementation of the agreement in fiscal year 1996 as long as the Office of the U.S. Trade Representative
maintains its position that the Federal Communications Commission should hold up two licenses for NTT and
KDD to provide service from the U.S. to Europe and other points outside Japan (Inside U.S. Trade, July 18, p. 11).
CHINA UNLIKELY TO MAKE KEY MARKET ACCESS OFFER IN JULY WTO MEETING
China is unlikely to make good on its promise to present a major market access offer for goods later this
month in the negotiations on its accession to the World Trade Organization, according to informed government
sources. Instead, China is likely offer minor concessions, such as cutting the time for phasing out quotas and
licensing restrictions, in Geneva sessions culminating in an Aug. 1 working party meeting, these sources said.
"There are some problems on the Chinese side on tariffs," one government official said. "But there might be
something [offered] on non-tariff measures." Sources close to the WTO negotiations are speculating that China's
market access offer could slip to August or September.
Another official said that China will likely offer some concessions to prevent the WTO talks from stalling
completely. "If they do not put something on the table, it will send a message that China is not serious about the
negotiations," he said.
China is likely to offer reducing the phaseout period by a few years from the current offer of 12 years,
according to informed sources.
In a July 16-18 bilateral session with the U.S., China offered some tariff concessions for industrial goods
and agricultural commodities, informed sources said. The meeting was initially billed as a session on services, but
turned out to be more general preparation for the working party meeting, according to U.S. and Chinese officials. A
bilateral session on agriculture earlier in the month left U.S. officials disappointed, one informed source said.
Regarding market access, the U.S. has emphasized to China since June the importance of increasing imports
progressively by increasing the size of quotas, for example, informed sources said. Representatives of the agricul-
ture industry have told the U.S. government that growth in tariff rate quotas is critical for major commodities in
which the market can grow dynamically in a short time, these sources said.
4
INSIDE U.S.TRADE July 25, 1997
The U.S. plans to meet with China in a bilateral session on July 29-30 just prior to the working party meeting,
and following a July 25-26 session between China and the European Union. The EU hopes to discuss services,
tariffs, non-tariff measures as well as national treatment issues, according to one official. On national treatment, the
EU will urge that China remove rules that require government licenses for foreign firms to offer maintenance for
imported equipment.
The working party meeting was called by chairman Pierre-Louis Girard of Switzerland as a way to anchor a
series of bilaterals aimed at making progress in the market access negotiations, government sources said.
None of the WTO members are interested in doing more work on the protocol without having further progress
on market access, these sources said. Girard warned at the end of the last working party that failure by China to
offer new concessions on goods and services could lead to a deadlock in the negotiations (Inside U.S. Trade, May
30, p. 1).
Failure to make major progress on the market access side would set back the talks, but not necessarily ruin
their chances for completion in 1998, some foreign diplomats said. If China makes a serious offer in September, a
deal may still be possible next year, one private-sector source said. If market access talks are dislodged, there are
three to four major protocol issues that must still be settled, he said. These include a transitional safeguards,
China's treatment under antidumping law, and its use of balance of payments trade restrictions, he said.
Government officials this week warned against interpreting the delay as a clear sign that the Ministry of Foreign Trade
and Economic Cooperation is unable to bring other Chinese ministries into the accession negotiations.
A better indication of whether MOFTEC can deliver the other ministries will be the services offer, which
trading partners expect in September, officials said. For example, to present a services offer, MOFTEC will need
the support of the Ministry of Finance for banking issues and the Ministry of Internal Trade on distribution ser-
vices, they pointed out.
Separately, House Minority Leader Richard Gephardt (D-MO) this week reiterated his call for legisla-
tion requiring congressional approval of China's WTO accession. In a July 23 "dear colleague" letter, Gephardt
warned that the upcoming U.S.-China summit could create pressure to complete an agreement quickly.
"With a summit between President Clinton and Chinese President Jiang Zemin being planned for later this
year, there is a very real concern that our negotiators will be pressured to rush to complete a deal," Gephardt wrote.
"Congress must have a voice and role in these negotiations."
Some congressional sources said that the Administration still hopes to work out a framework or outline of a
WTO deal in time for the summit.
The legislation, H.R. 1140, currently has 50 cosponsors, Gephardt pointed out.
In a separate letter dated July 23, Gephardt asked U.S. Trade Representative Charlene Barshefsky to respond
to his request for an analysis by the International Trade Commission on U.S. negotiating objectives in the China
accession talks. Gephardt said that the U.S. will be under pressure to complete a deal with China in light of the
upcoming summit. "Rather than rush to meet an arbitrary deadline, our negotiating strategy should be guided by
concrete analysis and objectives," he said. "A comprehensive study along these lines would help ensure that our
negotiators are armed with the information necessary to reach an agreement that advances our long-term economic
interests."
KOREA PRESSURES U.S. ON COLOR TV AD DECISION, THREATENS ON DRAMS
The Korean government has taken steps against what could be its first challenge in the World Trade Organiza-
tion by requesting formal consultations on a U.S. decision to keep in place an antidumping order on color televi-
sion receivers (CTRs). The U.S. decision violates WTO antidumping rules because the Korean suppliers have
received minimal margins for six years and ceased exporting CTRs to the U.S. in 1991, according to a July 16
WTO notification on Korea's consultation request.
The U.S. has not examined the necessity for continuing the duties, and rejected four petitions by Samsung
Electronics Co. Ltd. for revocation on procedural grounds such as timing of the requests, rather than address their
substance, Korea charged in the notification. "The fifth application for revocation review filed by Samsung on 20
July 1995 was not acted upon for 11 months with no legitimate justification given for the delay," according to the
notification.
The department initiated the review in June 1996, but has argued its conclusion must await the outcome of an
investigation of whether Korea circumvented the CTR antidumping duties with shipments of CTRs from a factory
it established in Mexico. Korea has rejected this argument by pointing out that the CTRs made in Mexico are
produced by a factory established there and are therefore North American products that meet the content require-
ments of the North American Free Trade Agreement.
Korean Trade Minister Chang Yuei Lim had raised the CTR dispute to Secretary of Commerce Bill Daley last
month as a "matter of considerable and growing concern to the overall health of our close bilateral relationship,"
INSIDE U.S.TRADE - July 25, 1997
5
according to a June 25 letter reprinted below.
Kim also raised objections to a then expected Commerce ruling not to end an antidumping order for
dynamic random access memory chips (DRAMs). Commerce issued that ruling on July 16, but at press time the
Korean government had not requested WTO consultations on the issue. The July 16 finding showed a zero percent
margin for Hyundai Electronic Industries, Inc. and a 0.01 margin for L.G. Semicon Co., Ltd.
The department decided to keep in place the order even though Korean producers had met two of three
requirements for ending a case. They had zero margins for the first three annual reviews in the case covering the
period of Oct. 92 to April 30, 1996, according to an Administration official. In addition, Korean producers had
agreed to reinstate the dumping case at some point in the future if dumping recurred, he said. But producers did not
meet the third hurdle because Commerce did not find that Korean dumping of DRAMs is not likely in the future, he
said.
The department rejected arguments from the Korean producers that a proposal they had made to the U.S.
industry for a data collection system allowing an accelerated submission of price and cost information to Com-
merce should be considered as meeting the third criterion. That proposal, which was made very late in the review
process, and was not accepted by the U.S. industry, has "no bearing" on the likelihood finding, Commerce said in
its notice of the decision.
In making the likelihood determination, Commerce looked at a range of issues, and found the pricing
behavior of petitioners in the 1996 downturn in the DRAM market most relevant, a U.S. official said. The DRAM
market is cyclical and future downturns are likely, the official said.
If Korean producers had reached a deal on the data collection with Micron Technology Inc., the petitioner in
the case, the dumping case would have been dropped. Micron rejected such a settlement in a July 3 letter to
Commerce, saying that there is "no basis" for a data collection agreement and added that the Korean firms'
"purported willingness to enter into such an agreement" is not relevant to the margin determination.
Korean Request for Consultations with U.S.
World Trade Organization
been assessed on CTVs made in Korea by Samsung Electronics
WT/DS89/1
Co. Ltd (Samsung) for the six year period from April 1985 until
G/ADP/D5/1
the time when the product ceased to be imported into the United
G/L/171
States in early 1991.
16 July 1997
2. Thus, for the past twelve years (from April 1985 to the
Original: English
present), the United States has maintained an A-D order on
Samsung's CTVs despite the absence of dumping and the cessa-
UNITED STATES - IMPOSITION OF ANTI-DUMPING
tion of exports from Korea, but it has never examined the
DUTIES ON IMPORTS OF COLOUR TELEVISION
necessity of continuing to impose those duties. Samsung's four
RECEIVERS FROM KOREA
applications for revocation review based on its history of no
dumping were all rejected on mere procedural, rather than
Request for Consultations by Korea
substantive, grounds concerning the timing of such applica-
The following communication, dated 10 July 1997, from
tions. The fifth application for revocation review filed by Samsung
the Permanent Mission of Korea to the Permanent Mission of
on 20 July 1995 was not acted upon for 11 months with no
the United States and to the Dispute Settlement Body, is circu-
legitimate justification given for the delay. Since the United
lated in accordance with Article 4.4 of the DSU.
States' eventual decision on 24 June 1996 to initiate the review,
My authorities have instructed me to request consultations
over one year has elapsed without any definitive result. The
with the Government of the United States pursuant to Article
Government of the United States has explained that the result of
17.3 of the Agreement on Implementation of Article VI of
this review must await the outcome of circumvention proceed-
GATT 1994 (A-D Agreement), Article 4 of the Understanding
ings initiated in 1996.
on Rules and Procedures Governing the Settlement of Disputes
3. Apart from this failure to review the need for the
(DSU) and Article XXII of GATT 1994, regarding the imposi-
continued imposition of the A-D duties, the United States
tion of anti-dumping duties by the United States on imports of
decided, on 19 January 1996, to initiate a circumvention investi-
colour television receivers (CTVs) from the Republic of Korea.
gation by receiving a petition from certain US labour unions.
Eighteen months have since passed without a determination on
Factual Summary
this matter.
1. The United States has levied A-D duties on imports of
Korean CTVs from April 1984 to the present. During this
A-D measures and reviews
period, Korean CTV makers moved much of their production
4. In principle, maintaining A-D duties on imports which
abroad and, since 1991, exports of Korean-made CTVs to the
cause no material injury (in this case, due to the absence of
United States have ceased. Furthermore, a de minimis dumping
dumping and the cessation of exports) contravenes Article VI.6(a)
margin of less than 0.5%, as defined in the US Tariff Act, had
of GATT 1994 and Article 11.1 of the A-D Agreement. In
6
INSIDE U.S.TRADE - July 25, 1997
addition, certain other actions by the United States violate
Samsung's repeated requests for revocation, insisting on strict
various provisions of the A-D Agreement, including Articles
adherence to procedural provisions of US domestic regulations
3.1, 3.2, 5.8 and 11.4.
(missing in the A-D Agreement), and has also failed to act on
5. Articles VI.1 and VI.6(a) of GATT 1994 and Articles 1
Samsung's request for a changed circumstances review for
and 11.1 of the A-D Agreement stipulate that A-D measures
eleven months - acts that all violate the second sentence of
shall be applied only if there is dumping and if it causes or
Article 11.2 by unduly restricting the right of interested parties
threatens material injury. They also establish the important
to request a review for the purpose of obtaining revocation.
principle that A-D measures shall be applied to the minimum
12. By failing to self-initiate a revocation review and by
extent necessary, specifying that A-D duties shall remain in
restricting Samsung's right to request a review, the United
force only as long as and to the extent necessary.
States has evaded its Article 11.2 obligations. As a consequence,
6. Therefore, it is a contravention of Article VI of GATT
it still maintains A-D duties, which, if reviewed, should have
1994 and Article 11.1 of the A-D Agreement that the United
been revoked pursuant to the third sentence of Article 11.2. All
States has maintained A-D duties for the past twelve years. The
of these actions also constitute a violation of Article 11.1 of the
order should have been revoked in light of the absence of
A-D Agreement.
Samsung's dumping and its subsequent cessation of exports of
13. In addition, the failure to reach a determination thus
CTVs to the United States from Korea. Under these circum-
far in the Commerce Department's revocation review initiated
stances, there is no conceivable possibility of dumping and
on 24 June 1996 also violates Article 11.4, which provides for
material injury.
expeditious conclusion of such reviews within the normal 12
7. The lack of material injury is clear when the circum-
months of their initiation.
stances are assessed under the A-D Agreement's guidelines to
determine the effect of imports on the domestic industry, pro-
Circumvention investigation
vided for in Articles 3.1 and 3.2 of the Agreement. Article 3.1
14. The circumvention investigation initiated on 19 Janu-
states that a determination of injury shall involve an objective
ary 1996 is in contravention of Article VI of GATT 1994 and
examination of both (a) the volume of the dumped imports and
Article 1 of the A-D Agreement, and should thus be immediately
the effect of the dumped imports on prices, and (b) the conse-
terminated.
quent impact on domestic producers of the like product. Article
15. Article VI.1 of GATT 1994 defines dumping as the
3.2 provides that with regard to the volume of the dumped
introduction of products of one country into the commerce of
imports, the investigating authorities shall consider whether
another country at less than normal value, and Article 2.1 of the
there has been a significant increase in dumped imports. Conse-
A-D Agreement defines it as a situation in which the export
quently, the absence of dumping for six years and the cessation
price of the product exported from one country to another is less
of exports for the subsequent six years fully demonstrate that,
than the comparable price for the like product in the exporting
under the standards set out in Articles 3.1 and 3.2, there can be
country.
no injury. In this regard, the United States is in violation of
16. It is clear from these provisions that if another country
Articles 3.1 and 3.2 of the A-D Agreement.
becomes the exporting country, dumping should be separately
8. With regard to CTVs manufactured by Samsung, the
determined because this change would result in a consequent
existence of dumping cannot be substantiated since the com-
change of the two basic parameters in determining whether there
pany has been assessed di minimis margins for six consecutive
is dumping: an export price and a normal price in the exporting
years through the US Department of Commerce's annual ad-
country. Nonetheless, by effectively considering exports from
ministrative reviews.
Korea and exports from Mexico and Thailand as identical through
9. Article 5.8 of the A-D Agreement, which demands
its circumvention concept, the United States misinterpreted the
immediate termination of an investigation in the case of de
basic concept of dumping established throughout the GATT and
minimis dumping margins, is relevant to the application of
the A-D Agreement, thus apparently violating, in particular,
Article 11.2, which provides for revocation of an A-D order if it
Article VI.1 of GATT 1994 and Article 2 of the A-D Agreement.
is no longer necessary to counteract dumping. Having found de
17. It is, therefore a violation of Article VI of GATT 1994
minimis margins for Samsung for six consecutive years through
and Article 1 of the A-D Agreement to initiate a circumvention
its annual reviews, the United States should have immediately
investigation as an extension of existing A-D measures without
initiated a revocation review on its own initiative under Article
initiating a new dumping (and injury) investigation under the
11.2 and, consequently, terminated its A-D order pursuant to
GATT and the A-D Agreement.
Articles 5.8 and 11.2 upon the completion of this review.
18. Setting aside issues of principle, the US circumvention
10. The provision of the US Tariff Act which defines a de
investigation violates many provisions of the A-D Agreement,
minimis margin of less than 0.5% as eligible for revocation is in
including Articles 3.1, 3.6, 4.1, 5.4 and 5.10.
contravention of Article 5.8 of the A-D Agreement which stipu-
19. Labour unions such as the International Brotherhood
lates a de minimis margin of less than 2%.
of Electrical Workers and others, the petitioners of the circum-
11. In order to implement Article 11.1 of the A-D Agree-
vention investigation in question, are composed of employees of
ment, Article 11.2 of the same agreement specifies that the
assemblers and producers of a diverse variety of electric or
authorities shall review the need for the continued imposition of
electronic products. Therefore, they cannot be said to represent
A-D duties on their own initiative, or upon request by any
employees of the domestic industry of the like product, namely,
interested party. Thus, despite the fact that there is no material
CTVs.
injury and (in Samsung's case) no history of dumping, the
20. The US authorities neglected to examine the petitioners'
United States has neglected its obligation to self-initiate a
representativeness of the domestic industry, and further refused
revocation review, as required in the first sentence of Article
Korean companies' request for such an examination, thus violating
11.2. Moreover, the United States has refused to consider
Articles 3.1, 3.6, 4.1 and 5.4 of the A-D Agreement.
INSIDE U.S.TRADE - July 25, 1997
7
21. Failure to make a determination in the ongoing inves-
authorities to revoke the A-D order against the Korean CTVs would
tigation after 18 months also violates Article 5.10 of the A-D
remove the legal basis for the anti-circumvention investigation,
Agreement.
which would need to be terminated forthwith.
Link between the revocation review and the circumven-
24. Thus, extending the review period by making the
tion investigation
above-mentioned linkage constitutes a violation of Article 11.1
22. It was arbitrary and illogical for the United States to
of the A-D Agreement. This Article is interpreted to require the
quickly respond to the request for a circumvention investigation
immediate termination of the A-D order in the absence of dump-
while delaying for one year its response to Samsung's request for
ing which is causing injury.
a revocation review. This action is all the more questionable,
In light of the above, the Government of Korea considers
given that a circumvention investigation, even if it were to be
that the benefits accruing to it under GATT 1994 and the A-D
justified under the WTO Agreement, can only be undertaken if
Agreement are being nullified or impaired by the US actions
there is an A-D order to circumvent.
regarding the A-D and related measures against imports of
23. Furthermore, the Korean Government believes that it is
CTVs from Korea.
unreasonable for the United States to investigate the alleged circum-
The Government of Korea reserves its rights to raise any
vention without first verifying the justification of the A-D order.
additional factual or legal points concerning this issue during
Similarly, the attempt to link the results of the circumvention investi-
the consultations.
gation with the revocation determination constitutes a further breach
I look forward to receiving your reply to this request and
of the proper procedural sequence. Indeed, a decision by the US
to fixing a mutually convenient date for consultations.
Korea Letter to Daley on Dumping Cases
Ministry of Trade Industry and Energy
layed. This too, would seem to contradict the U.S. Tariff Act and
June 25, 1997
the WTO Agreements. I should also like to remind you that April
1996, Ms. Susan Esserman, then Assistant Secretary for Import
The Honorable William M. Daley
Administration sent a letter to the Korean Government providing
Secretary of Commerce
the DOC's commitment to full compliance with the U.S. Tariff Act
Department of Commerce
by issuing final results in the anticircumvention investigation by
Herbert C. Hoover Building
the end of November 1996. This commitment has not been fulfilled.
14th Street & Constitution Ave. N.W.
With regard to the antidumping duty order on DRAMs,
Korean firms have received de minimis margin determinations
Dear Mr. Secretary:
for three consecutive years in the annual administrative reviews
Allow me to present my compliments and to bring to your
and they have submitted a written agreement to the immediate
attention a matter of considerable and growing concern to the
reinstatement of antidumping duties in case of the recurrence of
overall health of our close bilateral relationship.
dumping. Nevertheless, the DOC interpreted the "likelihood"
As you are doubtless aware, the current antidumping issues
criterion of its regulation in too strict and arbitrary a manner
involving Korean color television receivers (CTVs) and DRAMs
and, in March 1997, made a preliminary determination not to
have been a source of contention between our countries for some
revoke the antidumping duty order. This action contravenes the
years. It is highly regrettable that a mutually acceptable resolution
WTO Antidumping Agreement, which stipulates that
of the persistent problems raised by the continued existence of
antidumping duty orders should be imposed only "to the extent
antidumping duty orders in both cases still appears to be beyond our
necessary to counteract dumping."
reach.
Several Korean officials, including myself, have requested
For six consecutive years (from April 1985 through March
revocation of the antidumping duty orders on Korean CTVs and
1991), CTVs exported by Samsung Electronics Company received
DRAMs through various channels, including my meeting with you
de minimis antidumping margin determinations from the Depart-
at the OECD Ministerial Council in May. We regret, however, that
ment of Commerce (DOC). Moreover, Samsung's direct exports of
we have received no reply to date.
Korean CTVs to the U.S. market, ceased altogether by April 1991.
At this juncture, our government would like to notify you
In light of these facts, the DOC's decision not to review the
that we have no choice but to bring the matter of Korean CTVs
continuing need for the antidumping duty order due to purely
before the WTO Dispute Settlement Mechanism. With respect to
procedural reasons is inconsistent with WTO Antidumping Agree-
the investigation concerning revocation of antidumping duties on
ments. Also the DOC has not reached a decision on Samsung's
DRAMs, if a determination to revoke the duty is not made by July
pending "changed circumstances" review for over one year. Since
16, the Korean Government will be similarly forced to react to the
this review was initiated on June 24, 1996, we are of the opinion
WTO Dispute Settlement Mechanism.
that the DOC's failure to make a determination within a one year
It is unfortunate that these matters have reached such a
period is in contravention of the WTO Antidumping Agreements as
serious stage. However, I sincerely hope that this will be an
well as the DOC's own regulations.
opportunity for both countries to put these difficulties behind us,
Since January 1996, the DOC has also been conducting a
and then move to a more positive trade partnership. In closing,
circumvention investigation against Korean CTVs exported from
please accept the assurances of my highest consideration and
Mexico. This investigation is not allowed under the WTO
regard.
Antidumping Agreement. Moreover, your Department's linking of
the conduct of circumvention investigation to Samsung's "changed
Sincerely,
circumstances" review is a clear violation of the WTO Agreements.
Chang Yuei Lim
In addition, the circumvention investigation has been unduly de-
Minister
8
INSIDE U.S.TRADE - July 25, 1997
COMMERCE SECRETARY DALEY SELECTS TWO BXA ASSISTANT SECRETARIES
Commerce Secretary Bill Daley has hired Roger Majak of Powell, Goldstein, Frazier and Murphy and
Amanda DeBusk of O'Melveny and Myers as advisors in the hope of having them nomimated to assistant secretar-
ies in the Bureau of Export Administration. DeBusk, who was a partner at her law firm, is slated to become
assistant secretary for export enforcement.
Majak, who held the position of legislative director at Powell from 1990 to 1996, is slated to become assistant
secretary for export administration. Both have been at the Commerce Dept. since May.
If confirmed, DeBusk would replace John Despres and Majak would replace Sue Eckert.
Separately, the Senate Agriculture Committee this week held a hearing on the nomination of August Schumacher, Jr.
to serve as Under Secretary for Farm and Foreign Agriculture Services for the U.S. Dept. of Agriculture. Schumacher, who
was nominated by President Clinton on July 10, headed USDA's Foreign Agriculture Service. If confirmed, Schumacher
would oversee FAS, the Farm Service Agency and the Risk Management Agency.
Separately, Clinton announced last week his intention to appoint two corporate chairmen as new members of
the Advisory Committee on Trade Policy and Negotiations (ACTPN).
William J. Hudson, President and CEO of AMP Inc., and Terry Watanabe, President and CEO of the Oriental
Trading Company, Inc., were tapped July 17 to join the group.
Clinton also announced that he would reappoint two current members, Maurice Greenberg, Chairman and
CEO of American International Group, and San Jose Mayor Susan Hammer, to the body. The ACTPN provides
advice on all aspects of U.S. trade policy.
Hudson currently chairs the U.S. Pacific Basin Economic Council and the International Economic Policy
Committee of the National Association of Manufacturers, according to the White House announcement. He also co-
chaired the Transatlantic Business Dialogue in 1995 and 1996.
Oriental Trading Co. is a leader in sales of "value-priced toys, novelties, party goods, and giftware through
mail order and other distribution channels," the White House said in its announcement.
Greenberg is a member of the Board of Directors of the New York Stock Exchange and a former Chairman of
the New York Federal Reserve Bank. Hammer was initially appointed to the ACTPN for her ability to develop
consensus on complicated issues within a diverse population, according to the White House announcement.
Separately, Paul L. Joffe, former Acting General Counsel at the Dept. of Commerce, joined the Washington,
DC law firm of Wiley, Rein & Fielding last week as a partner. Joffe began work at the firm's international trade
law and policy practice July 14, according to the firm. As Deputy Assistant Secretary, Joffe was involved in
negotiating the 1996 U.S.-Canada Lumber Agreement. Before heading to Commerce, Joffe worked in Congress as
Counsel to the House Energy and Commerce Committee and then to Senator Jay Rockefeller (D-WV).
OECD MEMBERS LAUNCH NEGOTIATION OF PACT ON COMMERCIAL BRIBERY
Members of the Organization for Economic Cooperation & Development this month kicked off the negotiation of a
convention aimed at making foreign commercial bribery a criminal offense, according to informed government sources.
Although the OECD secretariat is already preparing an initial draft of the pact, OECD members will have to resolve a
number of difficult issues in order to reach agreement by the end of the year, these sources said.
Nevertheless, following a July 7-9 negotiating session in Paris, OECD member government officials were
generally upbeat about the prospects the pact, and emphasized that no countries are backpedaling on their commit-
ment to finish the agreement by the original deadline.
"Everyone seems to be thoroughly engaged in the process of negotiation," a U.S. official said. "Most people
considered [this month's session] a fairly good start to the process," another official added.
OECD ministers agreed in May to negotiate an international convention on the criminalization of foreign
commercial bribery. The agreement commits members to submit legislation to national legislatures by April 1998
after finishing the pact by the end of 1997. The May deal also included agreement on a set of "Common Elements"
laying out what should be included in national legislation (Inside U.S. Trade, May 30, p. 9).
At this month's session, OECD members discussed a newly tabled convention proposal by the U.S., as well as
one by France and Germany, according to informed sources. The OECD secretariat also prepared a text which
reflects the Common Elements in the language of an international treaty, these sources said.
OECD members still have to resolve two issues in particular in order to hammer out convention language,
informed sources said. The proposed U.S. text is consistent with the existing Foreign Corrupt Practices Act
(FCPA), while the French-German proposal has a different definition of the foreign officials covered by national
laws and the conditions of entry into force of the convention.
The U.S. is pressing for a convention that covers a broad range of foreign officials, in particular officials
of political parties and "parastatals" persons associated with state-owned enterprises. This latter group is particu-
INSIDE U.S.TRADE - July 25, 1997
9
larly important because it accounts for a large number of procurement decisions on infrastructure projects, which
have long been the subject of anti-corruption efforts, one informed source pointed out.
The inclusion of officials of political parties is likely to be the "single toughest issue" in hammering out an
acceptable definition, a U.S. official said. Another source pointed out that, apart from possible objections from
some OECD members, this point presents special difficulties in separating, for example, bribes from campaign
contributions.
The U.S. will also likely press for a provision allowing the entry into force of the convention as early as
possible, a U.S. official said. The U.S. wants to frame the convention so that it enters into force by the end of 1998,
and a U.S. official pointed out that a recent agreement by the Organization of American States was written to enter
into force as soon as two countries ratified it.
In contrast, France, Germany and Japan have called for some assurance that a "critical mass" of countries
ratify it before entry into force, informed sources said.
The U.S. and some European countries could also lock horns over how differing legal systems affect the
coverage and enforcement of the convention, informed sources said. The U.S. legal system requires the existence
of a "territorial nexus" -- such as the use of the mails, telephone system -- in order to prosecute U.S. nationals for
foreign commercial bribery. Other countries, such as Germany, have systems which allow them to prosecute their
nationals regardless of where in the world they are.
Some countries have suggested that the U.S. system would not be as thorough as other countries' systems,
informed sources pointed out. But a U.S. official argued that it is possible to work around this requirement of U.S.
law, and said that the convention cannot force "fundamental legal changes" on OECD members if it is to be viable.
The official also pointed out that the U.S. is showing flexibility in the area of enforcement, in which the U.S.
system is arguably more effective. The U.S., unlike some European countries, can levy criminal penalties on
individuals based on corporate conduct, but the U.S. has not insisted on this "fundamental change" in their systems.
It is "possible" that the Clinton Administration would have to send implementing legislation to Congress
in order to change the FCPA, according to a U.S. official. For example, the Common Elements call for
criminalizing the bribery of any foreign official within one's own territory. A national of a European country who
bribed a Latin American official in the U.S. would not be subject to federal prosecution, though he or she could run
afoul of state laws.
The convention's provisions on the definition of a foreign official and penalties for violating the law could
also require U.S. legislative changes, the U.S. official.
The next negotiating session is scheduled for Oct. 6-10, and will be important in determining how much time
political-level officials will need to put into the agreement, a U.S. official said. In November, high-level meetings
could be necessary in order to ensure that it is completed by late November. If it is not completed by then, the U.S.
and other countries may not have enough time to complete procedural requirements for signing on by the end of
the year, the official said.
JFTC REPORT FINDS JAPAN FILM MARKET FREE OF ANTICOMPETITIVE PRACTICES
The Japan Fair Trade Commission this week released a report concluding that the Japanese market for film
and photographic paper is largely free of the anticompetitive practices which the U.S. has claimed restrict trade in
these products.
Fujifilm and the Japanese Ministry of International Trade and Industry praised the report as the most thorough
study of the issue that has ever been made. The report drew strong condemnation from the Eastman Kodak Co. and
the Clinton Administration, which charged that the report is a whitewash of the issues now before a World Trade
Organization dispute settlement panel, especially those related to the distribution of film.
"[T]he survey findings whitewash the significant distribution problems that exist in this sector," U.S. Trade
Representative Charlene Barshefsky said in a July 23 statement. "While the survey asserts that the marketplace is
evolving, foreign firms remain unable to gain access to the wholesale channels necessary to be competitive in the
Japanese film and photographic paper market."
MITI argued in a statement the same day that the survey, though not "by itself" related to the WTO case, "can
be regarded as additional proof for the arguments of the Government of Japan at the WTO." The survey "found that
all manufacturers, both domestic and foreign, have adequate channels to distribute their products to retailers
throughout Japan," MITI wrote.
Barshefsky also said that the survey found that the "dominant Japanese film manufacturer's use of such
exclusionary business practices as rebates, security deposits, horizontal and vertical price restraints, tying arrange-
ments and refusals to deal are thwarting foreign competition in this sector."
The Barshefsky statement on this point prompted a sharp response from the JFTC itself, which charged
in a July 24 press release that USTR "totally misunderstood the nature of the Commission's suggestions." The
10
INSIDE U.S.TRADE - July 25, 1997
JFTC did not offer a blanket indictment of the practices cited by Barshefsky, but it did admit to possible
anticompetitive effects of some of the measures when combined with others, according to the survey. The agency
then suggested minor measures that could be taken in some areas to enhance competition, but none in the distribu-
tion sector.
The report also "reinforces the reluctance of the United States" to rely on the JFTC to address "the array of
informal market barriers faced by foreign firms in the Japanese market," Barshefsky said. "While the Japanese
government has sought to strengthen the JFTC over the past several years, it clearly has not yet developed into the
type of strong and independent agency capable of effectively dealing with these issues."
This statement as well prompted a sharp reply from the JFTC. "Rejecting, without any ground, the findings of
the survey simply because they are not convenient for one's own contentions is unacceptable," the JFTC wrote.
The JFTC concluded in the survey that Fuji does not exert exclusive control over the tokuyakuten -- the seven
major distributors of Fuji products in Japan. "Fujifilm has confirmed to the JFTC that in the past it has never
coerced any Fujifilm-related tokuyakuten into an exclusive business relationship and it will never engage in such
acts in the future as well," the JFTC wrote.
In its conclusions to the report, the JFTC said it would take steps to enhance competition in the film sector but
announced no major initiative. "The JFTC has decided to issue a number of suggestions from the view point of
competition policy, with regard to the business practices of manufactures with a focus on Fujifilm, the market
leader, as well as those of wholesalers," the agency wrote. "The JFTC believes that improvements to be realized in
response to these suggestions will make the business practices in the color film and photographic color paper
markets in Japan more transparent and will promote further competition."
Kodak Director for International Trade Relations Chris Padilla blasted the report as a "whitewash" of
restrictions in the film sector. He said that 85% of the primary wholesalers have not carried Kodak or Agfa film for
22 years. "This is an exclusive relationship, and it's that way because the government made it that way," he said in
an interview.
Padilla also criticized the JFTC for ignoring evidence which Kodak filed over a year ago which showed
"explicit price-fixing" by local retailers so that Kodak could not engage in price competition. "Neither this evi-
dence nor the practices have been addressed in this report," Padilla said.
A Fujifilm source argued that the JFTC could not be expected to take up Kodak's evidence in this survey
because the evidence was part of Kodak's confidential filing to the JFTC which has no bearing on the survey.
Padilla countered that the JFTC "should spend less time doing surveys and more time enforcing antitrust laws."
Kodak made the JFTC filing when the U.S. government launched the WTO case last year, but the agency has
yet to issue a ruling (Inside U.S. Trade, June 21, 1996, p. 8).
Fujifilm sources argued that the survey painted a basically sound picture of the Japanese film market. They
pointed out that a survey of over 100 retail outlets showed they "always" handle Kodak products. "Are they in the
distribution channel? The answer is an emphatic yes," one source said.
The survey also notes that Fuji's share of the Japanese market declined from 71.8 percent in 1989 to 65.7
percent in 1995, and that retail prices have fallen by "12 percent on average" over the last three years. These
figures are "proof" of robust competition in Japan, a Fuji source argued.
Padilla also pointed out that MITI has handled much of the public relations effort related to the survey
and called the JFTC "a rubber-stamp agency for MITI," which "predetermined" the outcome. A Fujifilm source
argued that MITI took an interest in the report because it has "some factual connection" to the WTO case.
MITI distributed an English-language summary of the JFTC report and briefed reporters in Tokyo earlier this
week. The full version is currently only available in Japanese and includes comparisons with the film and photo-
graphic paper markets in other countries, according to informed sources.
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INSIDE U.S.TRADE - July 25, 1997
11
INTERNATIONAL RELATIONS DEFEATS ATTEMPT TO WEAKEN ENCRYPTION BILL
The House International Relations Committee this week soundly defeated an attempt backed by Chairman
Benjamin Gilman (R-NY) and Ranking Member Lee Hamilton (D-IN) to thwart the liberalization of encryption
export controls proposed in a bill sponsored by Rep. Bob Goodlatte (R-VA) and 200 other House members. The
bill now moves to the National Security Committee, which will hold a hearing on the measure on July 30 and mark
it up in early September under a sequential referral arrangement.
A private-sector source predicted that National Security's consideration of the bill will be its first real test,
since the co-sponsors only compose 17 of the 55-member commitee. The bill will also go before the Intelligence
Committee.
"There will be trouble for the bill in both of these committees," the source said.
The Gilman amendment would have effectively granted the President the authority to circumvent the main
provision of the Goodlatte bill, an outright decontrol on the export of encryption products. The Gilman provision
would have allowed restrictions on exports of hardware and software encryption products if the President found
that exports of these items would adversely affect national security.
The International Relations committee voted down the provision by a 22-13 margin on July 22. The passage
of the Goodlatte bill was widely expected because the cosponsors composed 34 of the 47 members of the commit-
tee.
The Gilman amendment provoked a heated exchange on the encryption issue between members and Clinton
Administration witnesses in a repeat of previous debates. Rep. Donald Manzullo (R-IL) raised a point of order
immediately after the introduction of the amendment, which Gilman overruled. Rep. Sam Gejdensen (R-CT) was
especially outspoken in fighting the Gilman provision.
The bill passed despite a concerted letter-writing campaign by the Administration and law enforcement groups
urging members of Congress not to support the elimination of export controls on encryption products and urging
support for the Senate encryption bill sponsored by Sens. John McCain (R-AZ) and Bob Kerrey (D-NE). Attorney
General Janet Reno and other officials wrote members a long letter on July 18 outlining the dangers of allowing the
proliferation of unbreakable encryption products.
Secretary of Defense William Cohen also weighed in against a broad export decontrol, as did the International
Assn. of Chiefs of Police, the National Sheriffs' Assn., the National Assn. of Attorneys General and the National
District Attorneys Assn.
Industry officials are considering what would be the best legislative strategy now that the Goodlatte bill
could be facing an uphill fight after a string of victories. The Senate Judiciary Committee could further tighten
rules on encryption when it takes up the McCain-Kerrey bill, private-sector sources said. One source predicted that
industry associations would likely hold out for "maximum relief" on export controls since this goal is something
"everyone can agree on," but that individual companies would pursue various tracks.
One possibility would be to continue to press for the Goodlatte bill in the House and some version of bills
sponsored by Sens. Conrad Burns (R-MT) and Patrick Leahy (D-VT) in the Senate, private-sector sources said.
This might force the Administration's hand and possibly result in export control relief through administrative
measures.
The source added that there are "still some people" who think that legislation similar to the Goodlatte bill
could be forced on the Administration by attaching it to a bill the President would not veto.
Another option would be to push legislation as favorable as possible to industry with the expectation that
nothing will pass this year and "set up the debate" for next year" on favorable terms, one private-sector source said.
LANG HINTS AT BRAZILIAN SUPPORT FOR LAUNCHING FTAA TALKS IN ALL AREAS
Deputy U.S. Trade Representative Jeffrey Lang hinted this week that the U.S. has been assured by Brazil
that it will eventually back the idea of launching formal Free Trade Area of the Americas talks simulta-
neously in all areas early next year rather than in separate stages, which has been a major sticking point in
FTAA preparations.
"I think this [concept of a simultaneous FTAA launch] will gradually be accepted as the way to move for-
ward," including by Brazil, Lang told the House Ways & Means trade subcommittee, citing conversations he had
with a Brazilian trade official last week in Geneva.
Up until now, Brazil and its partners in the Southern Cone Common Market (Mercosur) have publicly
continued to advocate a three-stage negotiating approach. It would begin with so-called "business facilitation"
measures, move to the negotiation of "non-market access" issues, and conclude with market access talks which
would only begin in 2003.
The chief Brazilian FTAA negotiator, Jose Botafogo, has suggested previously that there may be some
12
INSIDE U.S.TRADE - July 25, 1997
flexibility in Mercosur's position on this matter, but Lang's comments to the House panel on July 22 marked the
first time a U.S. official has acknowledged in public a potential shift by Mercosur. In particular, Botafogo indicated
last May that an Uruguay-Round-like approach that ensures that "nothing is agreed until everything is agreed" -
in accordance with the agreed-upon principle that the FTAA is a single undertaking - could win some level of
Mercosur support.
Lang told trade subcommittee Chairman Phil Crane (R-IL) that last May's FTAA ministerial in Belo
Horizonte, Brazil made it clear that "a consensus was developing to move everything forward at once." At
that session, which was attended by USTR Charlene Barshefsky and her counterparts from the rest of the
Americas, "everyone saw that [a simultaneous launch] was a practical negotiating strategy," according to
Lang.
Similarly, Argentine Economy Minister Roque Fernandez appeared to confirm an evolution in Mercosur's
stance toward launching the FTAA in comments he made last week during a visit to Washington.
Mercosur is insisting on the concept of a "single undertaking," i.e. that nothing is agreed until everything is
agreed, but it will not demand that the FTAA negotiations be launched in separate stages, Fernandez said in a July
14 press conference at the Argentine embassy.
"We are going to negotiate on all fronts, but we will not close any of them until everything is good...," he
said. "All the necessary working groups can be established for every sector and every product, but the idea is that
when we agree it will be on all of them and not only on one."
This approach is being adopted by Mercosur because a FTAA negotiation that focuses initially or exclusively
on tariff cuts puts its members, whose main instrument of existing protection is their common external tariff, at a
disadvantage vis-a-vis trading partners such as the U.S., which uses quantitative restrictions more than tariffs to
protect its industries, according to Fernandez.
" We talk about free trade, but Argentina cannot sell any more than $8-million worth of peanuts to the U.S.
because there is a quantitative restriction," he noted. "These types of quantitative restrictions exist for a quantity
of products for which if we say we will remove all their tariffs and trade freely, the result is that the quantitative
restrictions don't allow access to the markets of the U.S. or Europe."
Lang and Assistant Secretary of State for Inter-American Affairs Jeffrey Davidow testified on July 22 on the
Administration's behalf before the subcommittee on U.S. objectives in the FTAA negotiations. Three House
lawmakers and two panels of private-sector witnesses also presented testimony.
Prompted by Rep. Robert Matsui (D-CA), Davidow said the FTAA was crucial to U.S. national security
if that term is defined in its "broadest context" so as to include economic prosperity and the ability to take
collective action against transnational threats such as narcotics trafficking, "illegal alien smuggling" and
terrorism.
The FTAA is part of a "coherent, comprehensive approach" that is required if the U.S. wants to gain from its
hemispheric neighbors cooperation on those types of threats, the State Dept. official said.
Matsui urged that Secretary of State Madeline Albright "play a significant role" in the upcoming fall debate
over fast-track negotiating authority so as to articulate the broader security arguments in favor granting the Presi-
dent the ability to negotiate trade pacts.
Davidow assured Matsui that Albright was likely to take a "very, very active role" on fast track, and he noted
that she will be traveling with President Clinton when he visits Venezuela, Brazil and Argentina in October.
Fast track is important primarily because it represents the decision of the Congress that the U.S. should move
in the direction of trying to protect U.S. access to foreign markets, Lang said. The boost to U.S. negotiating
credibility that a grant of fast track would provide outweighs its "parliamentary significance" with respect to the
mechanics of moving a trade accord through the Congress, he said.
"Until we achieve consensus, our leverage and ability to be persuasive is reduced," he said.
Without fast track, there may be some areas in the FTAA working groups where work could nonetheless
proceed, Lang said. Although he would not predict "Armageddon" if fast track is not obtained, he did warn that the
U.S. would be "significantly sidelined" in a number of areas which are "absolutely crucial" to the development of
markets for U.S. goods in the Americas.
In addition, Lang said he raised with some Latin American nations last week the possibility that they
join the Information Technology Agreement (ITA) this upcoming fall "in the context of ITA II." Most Latin
American nations did not sign on to the ITA when it was first negotiated earlier this year.
Lang said that some of those nations have argued that they do not see the need to lower their tariffs on ITA-
related products because they do not export those goods and therefore would not benefit. But the U.S. has argued,
he said, that lowering tariffs under the ITA, similar to liberalization under the World Trade Organization telecom-
munications services agreement, would spur more rapid economic development in those nations regardless of
whether they export such goods.
INSIDE U.S.TRADE - July 25, 1997
13
U.S., EU MAKE NO HEADWAY IN DISPUTE OVER MASSACHUSETTS BURMA LAW
The U.S. and the European Union this week failed to make any headway whatsoever in their dispute over a
Massachusetts law which penalizes companies that do business in Burma, according to informed sources. In July
22 consultations under the auspices of the World Trade Organization, the U.S. declined to answer any questions on
the law's consistency with WTO rules, these sources said.
"The U.S. managed to construct a pretty good stone wall," one official close to the talks said.
The EU had sought the talks in order to clarify the U.S. federal government's position on the Massachusetts
Burma law, but "further consultation will be necessary in order to clarify the U.S. response," according to a July 22
EU statement. The EU also "confirmed its recognition of the efforts undertaken by the US Administration to find a
satisfactory solution," according to the statement.
"In effect, we put some factual questions to the U.S. on what the Massachusetts legislation does, and what the
[WTO] Government Procurement Agreement requires," an EU official said. "And the U.S. confirmed that the law
exists."
The U.S. indicated that it would respond to questions raised in the consultations "in the next few weeks," one
source said. The U.S. "definitely did not" defend the Massachusetts law as consistent with WTO rules.
The U.S. and the EU, as well as Japan, which participated in the consultations as a third party, also
reviewed their respective efforts to encourage democratic change in Burma, informed sources said. The EU agreed
with the U.S. that the three all have similar Burma policies, but emphasized that the issue at hand is the consistency
of the Massachusetts law with U.S. obligations as a WTO member, one source said.
Although USTR had invited Massachusetts to send an official to the consultations, no one was present from
the state government, informed sources said. Attendance by a state official was "not an obligatory matter" for
"almost a pro forma meeting," one source said.
The failure of diplomatic efforts to find a solution prompted Japan to initiate its own separate WTO dispute
settlement process on July 18. Japan formally requested consultations with the U.S., citing Articles 3:2, 8(b), 10:4
and 13 of the government procurement pact. Japan took this step because it wants to elicit "more information" from
the U.S. about its position on the Massachusetts law, a Japanese official said.
Japan has sought answers to a number of questions on the issue since March but has not received a response
from the U.S., the official said. The official added that the Japanese consultations could be combined with the EU's
case, but this decision has not been made yet.
In a related development, nine members of the Massachusetts House delegation this week called on U.S.
Trade Representative Charlene Barshefsky to oppose European and Japanese efforts to force a change in the Burma
law but did not argue that the law is consistent with WTO obligations.
"We ask the U.S. Trade Representative to weigh the support for the Massachusetts Burma law from the
peoples of Europe, Japan, Massachusetts and, most importantly, Burma itself," the members, who are all Demo-
crats, wrote Barshefsky in the July 22 letter reprinted below. "We strongly urge the U.S. Trade Representative to
oppose the unfair and inappropriate efforts by the European Union and Japan to force Massachusetts to amend its
Burma law."
The members noted the strong support for the law from the people of Massachusetts, as well as the leader of
the Burmese democracy movement. They also argued that the EU and Japan "risk undermining their principled
stand against the Burmese junta" by challenging the Massachusetts law.
Massachusetts Letter on WTO Challenge
July 22, 1998
between Europe, Japan and the United States. However, we
strongly believe that it is highly inappropriate for the European
Charlene Barshefsky
Union and Japan to involve themselves in the internal affairs of
U.S. Trade Representative
Massachusetts. It is not the place of the European Union and
Winder Building, Room 201
Japan to dictate how the Massachusetts legislature and state
600 17th Street, NW
government should spend its own taxpayers' money. The people
Washington, D.C. 20508
of Massachusetts have long vested the power to levy taxes and
spend public money with our elected representatives, not Euro-
Dear Ambassador Barshefsky,
pean and Japanese bureaucrats.
As Members of the U.S. Congress from the State of
We also note that the Massachusetts Burma selective
Massachusetts, we are deeply disturbed by the decision by the
purchasing law is strongly supported by the legitimate leader of
European Union and Japan to formally challenge the Massachu-
the Burmese democracy movement, Aung San Suu Kyi. The
setts Burma selective purchasing law at the World Trade Organi-
leader of the party that won the 1990 Burmese elections, Aung
zation (WTO).
San Suu Kyi remarked in a recent interview that selective pur-
We are wholly supportive of fostering good relations
chasing laws are very effective means of restoring democracy in
14
INSIDE U.S.TRADE - July 25, 1997
Burma. She also specifically praised the Massachusetts Burma
Massachusetts Burma law under the WTO dispute settlement
law.
procedures.
We fear that, by placing European and Japanese corporate
We ask the U.S. Trade Representative to weigh the sup-
interests first, the European Union and Japan risk undermining
port for the Massachusetts Burma law from the peoples of
their principled stand against the Burmese military junta. In
Europe, Japan, Massachusetts and, most importantly, Burma
March, the European Commission revoked Burma's tariff pref-
itself. We strongly urge the U.S. Trade Representative to oppose
erences because of the military junta's pervasive use of forced
the unfair and inappropriate efforts by the European Union and
labor. The new British government recently cut its support for
Japan to force Massachusetts to amend its Burma law.
trade promotion in Burma and has "not ruled out the possibility
of further measures, including economic sanctions" against the
Rep. Barney Frank
illegal military junta. Japan has called for dialogue between the
Rep. Richard Neal
military junta and the democracy movement.
Rep. Edward Markey
Opinion in Europe in particular towards business in Burma
Rep. Joseph Moakley
is best typified by the recent and unanimous resolution on Burma
Rep. Joseph Kennedy
passed by the European Parliament. The resolution called on the
Rep. John Olver
European Union to enact economic sanctions on Burma. More-
Rep. Martin Meehan
over, in its resolution, the European Parliament specifically
Rep. James McGovern
urged the European Commission not to take action against the
Rep. John Tierney
EU PRESSURES COMMERCE OVER AD/CVD STEEL CIRCUMVENTION INQUIRY
The European Union last week stepped up its pressure on the Commerce Dept. for its handling of an investi-
gation on whether certain steel products used to make steel bar circumvent existing antidumping and countervailing
duty orders on this product. In a July 17 letter, EU Ambassador Hugo Paemen charged that the U.S. has violated its
obligations under World Trade Organization rules for not notifying the EU of its decision to launch an investiga-
tion, and in accepting a petition without the necessary support of industry.
"The European Commission would like to express its deep concerns about certain procedural and substantive
aspects of the proceedings, notably the lack of compliance with notification requirements under the WTO Agree-
ments on Anti-Dumping (AAD) and on Subsidies and Countervailing Measures (ASCM) and the apparent lack of
standing of the petitioners," Paemen said.
The letter charged that the U.S. should not have accepted the petition by USS/Kobe Steel and Inland Steel Bar
Company to launch the anticircumvention investigation given that certain members of the U.S. industry oppose the
proceeding. This includes "petitioners in the original investigation" on dumping and subsidies, the letter said.
The letter was sent after Commerce announced on June 25 that it is investigating whether imports of lead and
bismuth carbon steel billets from Germany and the United Kingdom are circumventing the existing ad/cvd orders.
The EU and the U.S. did not hold formal consultations on the circumvention claims but informally discussed them,
according to EU officials.
In their petition for the circumvention investigation, Inland and USS/Kobe charged that producers of finished
steel bar and rods from Germany and U.K. shifted their imports to semi-finished billets after the original orders
went into effect in 1993. By 1996, these billet imports had replaced the bar and rod imports forced out of the
market by the cases, according to the petitioners.
In its notice, Commerce rejected the EU arguments that an anticircumvention injury must be supported by the
majority of an industry. It said that there is "no statutory requirement" to assess industry support for a circumven-
tion investigation, which is different for the initiation of an antidumping or countervailing duty case.
A circumvention inquiry is focused on the enforcement of existing orders by determining whether merchan-
dise is properly within the scope of an order that has been issued. "Significantly, neither the statute nor prior
department practice requires that an interested party requesting a scope determination make such a showing of
industry support," the department announced.
The anticircumvention investigation is opposed by several companies, including Birmingham Steel Corpora-
tion, Nucor Steel, Bar Technologies, and Sheffield Steel, who filed comments with the Commerce Dept. Represen-
tatives for these companies and for Republic Engineered and American Steel Wire met on July 10 meeting with
Jeff Bialos, the principal deputy assistant secretary of Import Administration, to ask for a speeded up process. They
argued that the billets in question should are a separate, not a like, product, according to participants.
They pointed out that the International Trade Commission in the original steel bar cases specifically deter-
mined that leaded steel billets are excluded from the product definition and were not subject to the injury findings,
they said. They urged Bialos not to proceed with the anticircumvention investigation, and to have the ITC decide
INSIDE U.S.TRADE - July 25, 1997
15
whether the billets and steel bar are distinct products. However, Bialos rejected their request by telling the group
that he is "committed to the process," participants said.
The July 17 letter by Paemen followed a separate May 23 letter he sent to Commerce Secretary Daley that
raised a number of substantive and procedural problems with the anticircumvention petition. But the letter does not
challenge the U.S. right to conduct anticircumvention measures, which are not explicitly authorized under WTO
rules, according to the copy reprinted below.
Paemen Letters on Circumvention Case
July 17, 1997
the view that anti-circumvention investigations are essentially
The Honorable William M. Daley
an issue of scope, this does not affect its responsibility to respect
Secretary of Commerce
the procedural requirements concerning investigations under the
U.S. Department of Commerce
above-mentioned WTO Agreements, and especially those con-
Room 5854
cerning transparency and the communication of information.
Pennsylvania Avenue & 14th Street, N.W.
With regard to the issue of the standing of the complain-
Washington, D.C. 20230
ants, the European Commission cannot agree with the position
taken by the Department of Commerce: the fact that U.S. law
Dear Mr. Secretary,
remains silent on the issue (i.e., it does not require that an
Further to my letter of 23 May 1997 concerning Anti-
examination of the standing of the industry is carried out before,
circumvention inquiry into Certain Low Carbon Billets from
during or after initiation of an anti-circumvention investigation)
Germany and the U.K., we have now noticed that the inquiry has
does not justify a departure from the relevant requirements of the
been formally initiated on 25 June 1997. In this respect, the
WTO Agreements, concerning the initiation of investigations.
European Commission would like to express its deep concerns
Trade defence measures including anti-circumvention measures
about certain procedural and substantive aspects of the proceed-
exist to protect a domestic industry which has been found to be
ings, notably the lack of compliance with notification require-
injured by dumped/subsidized imports; the industry which can
ments under the WTO Agreements on Anti-Dumping (AAD)
request such protection is clearly defined in both the above-
and on Subsidies and Countervailing Measures (ASCM) and the
mentioned WTO Agreements. There is no basis for imposing or
apparent lack of standing of the petitioners.
extending trade measures to protect only part of a domestic
Firstly, under both the AAD and the ASCM, there is an
industry especially where other parts of the same industry,
obligation on the part of the investigating authorities to
including petitioners in the original investigation which led to
inform the authorities of the exporting Member concerns of
the allegedly circumvented measures, fiercely oppose such an
the initiation of any investigation, as well as to communicate
extention, without examining the complainant's standing in the
a copy of the relevant notice of initiation published. More-
normal way.
over, the European Commission has already, in its previous
The European Commission considers that the U.S. au-
letter, raised the concerns of the Community about the failure
thorities should review these issues as a matter of urgency and
by the Department of Commerce, to formally notify the
looks forward to a prompt reply regarding its concerns.
existence of the complaint and offer the European Commu-
nity formal pre-initiation consultations as required by Art.
Yours Sincerely,
13.1 of the ASCM.
Hugo Paemen
Even if the Department of Commerce is correct in taking
Ambassador
May 23, 1997
please find attached comments by the European Community in
Case No. A-428-811; A-412-810
response to an Anticircumvention Petition on Certain Low Car-
C-428-812; C-412-811
bon Billets from Germany and the UK. The European Commu-
Anticircumvention Petition
nity respectfully requests the Department of Commerce to
Public Document
carefully scrutinize the Anticircumvention Petition in view of
The Honorable William M. Daley
the above comments before any decision on initiation is taken.
Secretary of Commerce
Import Administration
Sincerely,
Central Records Unit, Room B-099
Hugo Paemen
United States Department of Commerce
Head of Delegation
14th & Pennsylvania Ave, N.W.
Washington, D.C. 20230
CC: Jeffrey P. Bialos,
Principal Deputy Assistant Secretary
RE: Certain Low Carbon Billets from Germany and the UK
Comments by the European Community in Response to an
Dear Mr. Secretary:
Anticircumvention Petition on Certain Low Carbon Billets
Further to our meeting with Mr. Bialos on May 20, 1997,
from Germany and the UK
16
INSIDE U.S.TRADE - July 25, 1997
CVD Consultations
industry materially injured by lead bar imports was limited to lead bar
1. The Community shares the view that anti-circumven-
producers, and did not include billet producers.
tion measures are legitimate instruments of enforcement of anti-
8. It is significant that the two Petitioners in the original
dumping and CVD orders and that the absence of specific
investigations (Inland and Bethlehem Steel Corp. Bar, Rod and Wire
provisions on anti-circumvention in the ASCM (or in the Agree-
Division) had the opportunity to include billets within the scope of the
ment on Anti-Dumping - AAD) does not preclude the enactment
DOC and ITC investigations, but chose to treat lead bar and billets as
of anti-circumvention provisions in domestic (and AD) laws.
separate products, a position which was accepted by the DOC and
Nevertheless, such provisions must be otherwise in compliance
ITC. Thus, the DOC should ensure that the anticircumvention peti-
with the provisions of the ASCM (and of the AAD).
tion filed by one of the original Petitioners (Inland) is not an attempt
2. Article 32.1 of the ASCM clearly provide that no specific
to circumvent the scope of the original Order which was expressly
action against subsidised goods of another Member can be taken
limited to bars. This is especially important in this case where the
except in accordance with the provisions of GATT 1994 and of the
company which purchases the facilities of the other Petitioner
ASCM. This includes circumvention investigations which concern
(Bethlehem), and which now produces billets and bars at those
the extension of countervailing measures on imported products.
facilities clearly considers that the two products are different and that
3. Article 13.1 of the WTO Agreement on Subsidies and
the importation of billets does not in any way affect the original
Countervailing Measures (ASCM) provides for pre-initiation
measures against lead bar. Indeed any conclusion to the contrary
consultations between the investigating authorities and the au-
would immediately call into question the validity of the positive
thorities of the targeted countries before the initiation of "any"
injury findings made in the original investigations.
investigation. Although Article 13.1 normally applies to the
initiation of brand new countervailing investigations, consulta-
Sufficient Evidence
tions before the initiation of other types of investigation are quite
9. The European Community notes that the petition con-
clearly included in the scope of Article 13 ASCM. In view of the
tains no information on subsidization and injury thereof with
fact that circumvention rules have not been agreed upon under
regard to the investigated product (billets).
the WTO, the ASCM could not, of course, make a direct refer-
10. Under European Community law the extension of a
ence to consultations on circumvention. However, the purpose
countervailing measure is possible only on the basis of the ascer-
of this Article is to provide the authorities concerned with an
tained fact that the imported products still benefit from the subsidy
opportunity to clarify the situation and to attempt to arrive at a
established in the original investigation and that their importation
mutually agreed solution; this is only possible through consulta-
(because of their prices and/or quantities) undermines the remedial
tions before the initiation of any type of investigation including
effect of the previously adopted measures. The European Commu-
circumvention investigations.
nity therefore considers that such elements need to be examined in the
4. The European Community therefore considers that it has the
course of a circumvention investigation to limit any additional trade
right to consultations under Article 13.1 of the ASCM before the
measures to those really necessary to offset the injurious effect of the
initiation of the investigation. In the event that circumvention inves-
alleged circumvention.
tigations are merely considered by the U.S. authorities as an extension
of a previous investigation, the European Community considers it has
Economic Justification
the right to consultations under Article 13.2.
11. The European Community notes that U.S. law re-
5. The European Community reserves the right to request
quires the Department of Commerce to consider factors such as
consultations under Article 13 of the ASCM in the future.
the pattern of trade, including sourcing patterns. Similarly, under
European Community law, circumvention exists where there is
Standing of Complainants
insufficient due cause or economic justification for the alleged
6. It is the view of the European Community that the standard
practice, process or work other than the imposition of the duties.
of proof with regard to complaints in circumvention investigations
12. Examination of this factor is important in a case such
cannot be lower than the relevant standard in initiating countervailing
as the present one where no relationship appears to exist between
investigations. In that respect, the Department of Commerce (DOC)
the exporters and the U.S. processors of the imported carbon
is requested to ensure that the provisions (Article 11.4 of the ASCM)
billets. The alleged increase in imports of billets could well be
on the standing of the domestic industry are adhered to. This is even
due to market demand in the U.S. driven by the U.S. processors
more so where only a portion of the domestic industry of the original
of billets and not by low-priced, allegedly subsidized exports
investigations supports the circumvention petition, while another
from the UK and Germany. The fact that certain exporters of the
portion clearly objects to it - which is currently the case. The
product subject to countervailing order (i.e., leaded bars) con-
extension of anti-dumping and countervailing measures to protect an
tinue to export this product and therefore compete against U.S.
industry which is not injured is not acceptable.
processors of billets into bars in the U.S. market notwithstanding
their position as suppliers of the billets could be taken as an
Like Product
indication that this could indeed be the case.
7. The European Community urges DOC to examine with
particular circumspection the petition in view of the clear differences
Conclusion
between the two products concerned (billets and leaded bars) and the
13. The European Community therefore submits that this anti-
specific exclusion of billets from the scope of the original investiga-
circumvention petition complaint is carefully scrutinized in view of
tions. In the original CVD investigation, which led to the led bar CVD
the above comments before any decision on initiation is taken.
Order, DOC made an affirmative finding that the class or kind of
goods receiving subsidies did not include "semifinished steel". Simi-
Anti-dumping
larly, in the original injury investigation, the United States Interna-
14. Even though pre-initiation consultations can only refer to
tional Trade Commission (ITC) made an affirmative finding that lead
the CVD aspects of the circumvention investigation DOC may find
bar and billets were separate like products. Thus, the domestic
the above useful also with regard to the anti-dumping aspects.
INSIDE U.S.TRADE - July 25, 1997
17
U.S. OUTLINES PLAN FOR HEMISPHERIC INTELLECTUAL PROPERTY REGIME
The Clinton Administration this month put forward to Western Hemisphere trading partners its vision of a
region-wide agreement on intellectual property rights. Such a pact, which would be part of negotiations to create a
Free Trade Area of the Americas, should include at least five principal elements, according to a proposal tabled by
the U.S. at a July 10-11 meeting.
A FTAA IPR pact should reaffirm the Trade-Related Aspects of Intellectual Property Rights (TRIPs) agree-
ment and several other international IPR conventions, and should adopt the standards of protection contained in
other IPR-related treaties, the U.S. proposal says.
It also should include general disciplines and basic principles for application to IPR-related goods, according
to the U.S. plan. These would include provisions governing such concepts as national treatment, most-favored
nation treatment and basic definitions.
In addition, the regional agreement should set other standards on the availability, scope, use and enjoyment of
IPRs in relation to copyrights and neighboring rights, encrypted program-carrying satellite signals, trademarks,
patents, layout designs of integrated circuits, industrial secrets, protection of test data and industrial designs. Such
standards should include the provisions required to deal with technological change in areas such as copyright and
biotechnology, it says. Exceptions and limits in the application of those standards would also be spelled out in the
pact, under the U.S. proposal.
A fourth aspect of the region-wide pact would involve enforcement of IPRs, including provisions on re-
sources, provisional measures, procedures and criminal sanctions and requirements related to border measures, the
U.S. says.
Finally, the IPR accord should include provisions designed to prevent and to resolve disputes, according to the
U.S. proposal.
The U.S. made its proposal at a July 10-11 session of the FTAA working group on IPR in Washington, DC. At
the meeting, the Southern Cone Common Market (Mercosur) and the Andean Group each said they would circulate
their own plans on how to proceed in the area of IPR before the group's next meeting, which is set for Oct. 2-4 in
Washington.
The proposals are emerging in response to a mandate put forward by the FTAA trade ministers in the joint
declaration they issued last May in Belo Horizonte, Brazil. Under that mandate, the IPR work group and other 11
FTAA panels are supposed to provide recommendations by mid-October to the FTAA trade vice ministers on
"technical alternatives on issues and negotiating options" in their areas of expertise.
The need to hash out the different region- and country-specific views in order to produce a consensus set of
recommendations promises to make the working-group meetings in late September and early October some of the
most contentious to date, several trade officials said.
Before then, the working groups are likely to receive updated instructions on how to proceed toward develop-
ing their recommendations. The new instructions are expected to emerge from a July 29-30 meeting in San Jose,
Costa Rica of the FTAA vice ministers, who are supposed to review the panels' progress at that time.
The U.S. proposal also spells out Administration views on the level of obligations, and on the focus and
organization of the FTAA IPR talks.
With respect to the level of obligations, the U.S. calls on the agreement to reaffirm the region's commitment
to current standards and enforcement practices which promote adequate and effective protection of IPRs. It also
wants the FTAA to contain the highest levels of IPR protection found in regional trade accords. And, in cases
where technological advances demand, the U.S. wants the FTAA pact to go beyond existing practices and/or
agreements designed to facilitate trade and investment in the hemisphere so as to ensure that the FTAA is a
flexible, sensitive forward-looking instrument.
In this regard, the U.S. document notes that certain norms and enforcement practices have become obsolete
since the passage of TRIPs. As examples, it cites the areas of Global Information Infrastructure (GII), biotechnol-
ogy, and computer software. In such cases, current standards may have to be revised and/or new ones created. In
the case of GII, this has already occurred, it pointed out, with the completion in December 1996 by the World
Intellectual Property Organization of new treaties to improve the protection of copyrights for works and sound
recordings in cyberspace. The WIPO negotiation enjoyed the active support of many of the FTAA governments,
the U.S. proposal says.
The FTAA IPR talks should focus on the objective creating an accord that covers the entire hemisphere on the
basis of existing standards. The final product of the talks should be an exhaustive text which could include, by
reference, the disciplines of the World Trade Organization and WIPO in those cases in which it is considered
appropriate. The FTAA IPR talks should be conducted by a stand-alone IPR negotiating group, according to the
U.S. proposal.
18
INSIDE U.S.TRADE - July 25, 1997
McCAIN-DODD MEASURE TO SUSPEND DRUG DE-CERTIFICATION PROCESS FAILS
Bipartisan legislation which would have suspended for two years the controversial U.S. drug certification
process failed to pass the U.S. Senate last week.
The bill's demise occurred despite a flurry of letters by senior White House officials in support of the mea-
sure, saying it could ease "friction" between the U.S. and Latin America and the Caribbean and also allow for
nations in the region to try to craft better policies at the Summit of the Americas in Santiago next spring regarding
drug trafficking.
On July 16, the Senate voted 60-38 against the measure, which came in the form of an amendment to S. 955,
the Foreign Operations, Export Financing and Related Operations Appropriations Bill for FY 1998. It originally
was S.J. Res. 34.
The legislative bid, first unveiled last month by Sens. John McCain (R-AZ) and Chris Dodd (D-CT), would
have suspended the annual certification process under the Foreign Assistance Act of 1991 because of what the
lawmakers described as allegedly vague, inconsistently-applied provisions.
Over the last year, several U.S. lawmakers have vowed to revamp the process for those same reasons. Colom-
bia was one of six drug-producing or drug-transit nations to which the U.S. denied certification this year. And an
emotional, rhetorical debate took place on Capitol Hill over the Administration's decision to certify Mexico this
year.
The McCain-Dodd bill would have allowed the U.S. President to set up a high-level, interdisciplinary task
force under the White House's director of national drug control policy to develop a comprehensive strategy. It also
would have urged the President to encourage other nations to take similar actions.
"At a minimum, your bill promises to remove a major cause of foreign policy friction, especially with Latin
American and Caribbean countries," argued Office of National Drug Control Policy Director Barry McCaffrey in a
July 16 letter to Dodd.
"Timing for consideration of new ideas is fortunate because of the upcoming Summit of the Americas and
heightened interest in multilateral counter-drug cooperation following the President's travel to Mexico, Central
America and the Caribbean," he wrote.
Assistant to the President for National Security Affairs Sandy Berger also underscored the Administration's
support for the legislation.
An informed congressional aide predicted this week that "some movement" may occur in September on
Capitol Hill to try to revamp the certification process. President Clinton is due to report to Congress at that time
about the status of Mexico's cooperation in fighting drug trafficking, in response to concerns voiced in both the
Senate and House this past spring after he announced Mexico would be certified.
U.S., NORWAY CLASH WITH OTHER WTO MEMBERS OVER TRADE-LABOR WORK
The U.S. and Norway last week clashed with other members of the World Trade Organization when they
raised the issue of trade and labor standards during a meeting of the WTO General Council, according to informed
sources. An inquiry by Norway as to the status of cooperation between the WTO secretariat and the International
Labor Organization drew extensive criticism from other WTO members, who argued the issue need not come up in
formal meetings, these sources said.
In addition, WTO members rejected a proposal by the U.S. to include one small aspect of labor standards in
the WTO Trade Policy Review Mechanism (TPRM), informed sources said.
The discussion at the July 16 meeting was kicked off by Norway, which made an inquiry under the "other
business" section of the General Council agenda, which is generally reserved for minor issues. Norway asked for a
report on the status of cooperation between the WTO secretariat and the International Labor Organization staff.
The Norwegian request prompted strong responses from countries including Egypt, Pakistan, Brazil, Morocco
and India that Norway need not raise the issue in WTO meetings but should have gone to the secretariat. Japan,
Singapore, Cuba, Colombia and Hong Kong-China said the question was legitimate but that they were "concerned"
about taking up the labor issue, an informed source said.
WTO Director General Renato Ruggiero responded by making a "very factual" presentation on the
secretariat's work in this area, one source said. He noted that WTO representatives had taken part in a meeting of
the ILO Working Party on the Social Dimensions of the Liberalization of International Trade and the ILO annual
conference in June. The WTO secretariat also gave ILO staff members documents on statements made by trade
ministers at Singapore, and cooperated informally with the ILO as necessary, Ruggiero said.
Ruggiero stressed that the secretariat keeps "firmly in mind" the attitudes of all WTO ministers expressed at
Singapore, and that the cooperation between the WTO and ILO secretariat would continue, the source said.
The 1996 Singapore declaration designated the ILO as the primary organization to handle labor issues, but
INSIDE U.S.TRADE - July 25, 1997
19
emphasized that it would continue its cooperation with the WTO. The chairman of the ministerial and Ruggiero
emphasized that such cooperation could only cover continued information exchange between the WTO and ILO
secretariats (Inside U.S. Trade, Dec. 16, 1996, p. 1).
In the General Council meeting, the U.S. unsuccessfully sought to ensure that labor standards in so-called
"export processing zones" (EPZs) become part of the TPRM process, informed sources said. EPZs are areas in
which different tax and tariff policies can apply to products processed there, and which also sometimes have
different labor policies.
The U.S. has already sought to raise the labor issue in the TPRM process, most recently in the case of Fiji
(Inside U.S. Trade, May 9, p. 5). The U.S. and Norway have also raised the issue in TPRM meetings on Cyprus and
Paraguay, but the questions "have been ignored," an informed source said.
U.S., EU AT ODDS OVER ELECTRONIC DATA PROTECTION INITIATIVE
The U.S. and European Union are squaring off over the best approach to protect the privacy of data transmit-
ted electronically from the EU market to third countries, including the U.S. The Clinton Administration is urging
the EU not to implement privacy protection rules in a way that would cut off the flow of all personal data to the
U.S. because it refuses to create a government role in ensuring privacy, according to Ira Magaziner, the president's
special advisor on electronic commerce.
The U.S. approach, presented in President Clinton's framework for electronic commerce released earlier this
month, would rely primarily on the private sector to ensure data privacy.
By October, the EU must find that third countries afford adequate privacy protection for data to allow their
continued transmission, which is important for Internet or credit card business transactions. The EU approach of
creating a government board to carry out government regulations would make it impossible for companies to do
business, Magaziner told a July 9 Brussels press conference.
"I think it would be a great mistake for Europe to isolate itself from the rest of the world by not allowing its
citizens to do business with the rest of the world on the Internet," Magaziner said. He said he hoped the U.S. could
persuade the EU over time that such an approach is "unwise."
Magaziner emphasized that both the U.S. and EU have the same goal of wanting to protect consumers'
privacy.
The EU also sees the differences on data protection as a "potential flash point" with the U.S., according
to the author of the EU's blueprint for electronic commerce. Patrick Vittet-Philippe, an expert advisor to the
European Commission's telecommunications directorate, said this week that the EU has "a less radical view" of
self-regulation than the U.S.
"In the EU, we encourage self-regulation when it is appropriate," he said. "But self-regulation is not seen as
an absolute panacea because sometimes it doesn't work." Vittet-Philippe said that self-regulation has to be put in
conformity with and be backed by legislation. He spoke on July 23 to the Center for Strategic and International
Studies.
The U.S. and EU discussed the issue of privacy protection in meetings with Commission officials in Brussels
earlier this month. The meetings were not negotiating sessions, but rather a discussion of U.S and EU strategy
papers on electronic commerce, according to Magaziner.
The data privacy issue was also raised during the U.S.-EU Information Society Dialogue held in Washington,
DC, on July 21 & 22.
At issue in the debate is a European directive on the protection of individual personal data, including medical
and financial information. The 1995 directive, which must be implemented by EU members by October 1998,
would require EU countries to block exports of personal data to third countries which have not been certified as
providing adequate security protection. At present, in the EU view, the U.S. government does not ensure such
protection for personal data.
Officials from both sides indicated that the U.S. and EU agree on the substantive principles of data protection.
But the parties differ on how U.S. implementation of changes should be achieved, they said.
Magaziner said the U.S. preference on data protection is for industries that send customer data over the
Internet to cooperate with consumer groups to develop business conduct rules and technological solutions. Busi-
nesses that would follow these rules for protecting privacy would be identified with a "seal" of approval.
The code of conduct would spell out how companies will treat data when and once it has been transferred
from the EU market, a U.S. official said. Under such a code, which is allowed under the EU directive, companies
would commit to provide the same protection to data as provided by the source country, she said.
Magaziner said the U.S. system is more suited to the "far flung" and "decentralized" nature of the Internet. It
would set up the majority of companies that want to do business on the Internet as developers or enforcers of the
system, which is more effective than a government body trying to police the Internet, he said.
20
INSIDE U.S.TRADE - July 25, 1997
"What we prefer is something where you're empowering people to protect themselves, and giving them the
tools and means to do it, and we are creating a situation where the good actors in industry have an interest in
policing it as well, because that way you have a much more widely dispersed protection than you get with just a
government enforcement," Magaziner said.
But he conceded that the U.S would be willing to take a new look at self-regulation if it does not work. "[I]f
we are proven wrong, we will have to look at it," he said.
The EU is very concerned about binding enforcement of rules on protecting data, especially regarding
access of a European individual to his data and to information about how his data is being used, U.S. and EU
officials said.
An EU citizen must be ensured of the opportunity to exercise his rights in a third country, including the U.S.,
and industry self-regulation is not sufficient to do that, according to an EU official.
"There is consensus in Europe that one of the primary conditions for saying there is adequate protection is the
existence of a binding regulation in data protection," said the official. "But no one thinks it must exactly corre-
spond to the EU directive," he said.
The EU directive requires member states in close cooperation with the European Commission to determine
third countries' levels of protection for data. The EU is not demanding action at a specific level of government,
according to the EU official.
"It's not clear that the EU is saying national or state legislation is needed, but they are certainly concerned
about enforcement," a U.S. official said.
She added that the EU hasn't addressed all U.S. questions on data protection. "The Europeans haven't yet
defined how they will determine adequacy," she said. "A self-regulatory approach can work and should be given a
chance."
The official also noted that the EU position is not totally unified in support of government regulation. "Some
Europeans I've talked to are also concerned about the EU approach to data protection," she said.
U.S. and EU officials agreed that they will keep talking and working toward possible solutions on data
protection and indicated confidence that a prohibition of transatlantic data transfers after October 1998 can be
avoided.
"I have no reason to doubt that we will come achieve an acceptable resolution at the end of the day," said the
EU official.
BOEING CONCEDES ON INDIRECT SUBSIDIES, LICENSING
begins page one
1992 agreement between the U.S. and EU," he said.
In a July 23 press statement, Boeing announced that it had agreed to supply for a period of ten years an annual
report to the Commission on its "current unexpired patents arising from government funding contracts and on its
non-classified government funded aeronautics research and development projects."
A July 23 press release by EU stated that Boeing commitments on licensing would include "intellectual
property rights used in civilian aircraft which were derived from space and military research and develop-
ment."
The new information will give the EU "a little more detail in terms of where the money does go," Condit said.
But informed sources said that in the merger deal Boeing is willing to provide information that it had previously
pressured the U.S. government to withhold from the EU under the 1992 bilateral agreement.
Throughout the press conference, Condit sidestepped the question of whether this increased information
exchange had been cleared with the U.S. government, which is the signatory to the 1992 bilateral with the
EU. "This is information that is already in existence," he said. "We have said we will be willing to [provide
it]."
He defended the arrangement as being in line with the 1992 agreement. "We think the agreement we got is
well within the context of the 1992 bilateral," he said. It amounts to changes in the implementation of the agree-
ment, not a renegotiation, according to Condit.
The commitments relevant to the 1992 bilateral agreement were made by Boeing officials without consulting
with the U.S. government, informed sources said. Company officials only told the U.S. government that nothing
they agreed to in the merger deal "runs counter" to the 1992 agreement, they said.
Condit echoed the long-standing Boeing line that there are not "a lot" of benefits the commercial aircraft
sector reaps from defense contracts. There is no "overwhelming technology" move from one sector to the other, but
more a transfer of "skills" that employees develop, Condit said.
In the second element of the merger deal dealing with the spillover issue, Boeing agreed to license patents it
obtained under U.S. government funded contracts to commercial aircraft manufacturers on a non-exclusive,
reasonable royalty basis, and to cross license so-called "blocking patents" on the same basis. Blocking patents is a
INSIDE U.S.TRADE - July 25, 1997
21
term applied to patents so broad that failure to obtain a license from their owners prevents another aircraft company
from manufacturing a product because he cannot "design around" the patented invention.
Under the merger deal, Boeing could license such blocking patents for a royalty fee with the understanding
that the licensee would extend to Boeing any blocking patent he may own in the future.
In his press conference, Condit insisted that the licensing arrangements affect a "very limited set" of patents,
and that this arrangement is "typical" in the industry.
Licensing such technology will likely be subject to export controls under the jurisdiction of the Commerce
Dept., since the patents in question would likely cover dual-use technology, according to an informed source. For
example, there are strict controls on hot sections of engines to all destinations, and the department looks "closely"
at the export of avionics, electronics and advanced composite materials, he said.
Another source questioned how Boeing would defend a deal that licenses technology financed by U.S.
government money to the Airbus consortium, particularly when there is apparently no reciprocal arrange-
ment.
The information and licensing arrangements struck under the merger will partially meet new demands
the EU made this month to the U.S. in consultations under the 1992 bilateral agreement. EU officials de-
manded that EU companies gain access to the technology and know-how derived from military contracts and
then applied to commercial aircraft manufacturing. They also asked that subsidiaries of EU companies be
allowed to bid for U.S. government research, which U.S. officials say they are already permitted to do (Inside
U.S. Trade, July 18, p. 3).
The licensing arrangements and increased reporting requirements are one of four sets of concessions the
EU extracted from Boeing in an eleventh-hour deal on July 22 to approve the merger in principle. The last conces-
sion Boeing made on July 22 was renouncing its right to enforce the exclusive aircraft supply contracts with
American Airlines, Delta Airlines and Continental Airlines, according to U.S. and EU sources. The company also
agreed not to enter into any new exclusive supplier agreements until Aug. 1, 2007.
In addition, Boeing agreed to maintain the civil aircraft operations of McDonnell as a separate legal
entity, and to refrain from signing any exclusive contracts with Boeing's suppliers, the EU and Boeing
announced. Boeing also agreed to provide customer support for existing McDonnell commercial aircraft, and
promised not to use such customer support as leverage to obtain any advantage in sales of new Boeing
aircraft, the EU announced.
Boeing made its final offer as late as the evening of July 22, hours before an EU deadline. As a result, it was
not possible to complete all the legal procedures in time for a July 23 meeting of the Commission, the EU an-
nounced. The Commission will give its formal approval to the deal on July 30, the EU said.
Shareholders of Boeing and McDonnell Douglas will vote on the merger on July 25, according to officials for
both firms.
In its press release, Boeing criticized the EU for pressing the issue of the exclusive supply relationships.
"Boeing believes that the European Commission should have given greater deference to the U.S. Federal Trade
Commission, which has prime jurisdiction over the merger, and which had examined the same facts in its six-
month investigation, during which Boeing and McDonnell Douglas submitted more than five million pages of
documents and the FTC interviewed representatives from more than 40 airlines, as well as other industry partici-
pants," the statement said.
The deal was struck days after President Clinton warned publicly that the U.S. would take action unilaterally
or in the World Trade Organization should the EU block the merger (Inside U.S. Trade, July 18, p.1).
But informed sources said that making a case against the EU in the World Trade Organization would not have
been very easy.
If the EU had imposed a fee as a matter of a competition policy violation, the U.S. could have made the
argument of a national treatment violation. But it would have been very difficult to prove that the application of the
competition rules to foreign firms was made under a tougher standard than that applied to Airbus, one informed
source said.
The EU would have been able to collect this regulatory fine at the border, and would have been unlikely
to impose it as a tariff, he said. If it had imposed the fine in the form of a tariff on Boeing sales in the EU,
the U.S. could have argued that the EU broke its Uruguay Round commitment of a zero tariff in the sector, he
said.
In addition, the U.S. could have brought a subsidies case or an international subsidies dispute settlement case
against the EU on the argument that its government support caused "serious prejudice" to the U.S. manufacturer.
Under WTO subsidies rules, serious prejudice is defined by a number of criteria including that the subsidy amounts
to more than 5 percent of the product's value. That criterion does not apply to aircraft based on a footnote in the
agreement, but that does not rule out a subsidies complaint, an informed source said.
22
INSIDE U.S.TRADE - July 25, 1997
EU OUTLINES AGRICULTURE REFORMS
begins page one
The EU proposal argues that if EU farmers produced oilseeds at competitive prices, it would eliminate the
need to set production controls. Production controls through setting aside land were a second key element of the
Blair House accord.
"It's clear in Agenda 2000 what our objective is on oilseeds," an EU Commission spokesman said this week.
"[The] Blair House [agreement] was linked to crop-specific aid and now we have the intention to pay the same aid"
to oilseed and cereals producers.
The EU's paper also highlights that the strategy of reducing support to oilseed producers could allow the EU
to "overcome the Uruguay Round constraints for oilseeds."
U.S. officials said they were still analyzing the Agenda 2000 proposals and were not ready to comment. The
EU's Deputy Director General of Agriculture David Roberts briefed Paul Drazek, a senior advisor to Agriculture
Secretary Dan Glickman earlier this month.
U.S. soybean industry sources this week said they were surprised but not shocked by the EU proposal. A
soybean industry spokesman said that the U.S. industry intends to do "everything possible" to keep in place the
agreements that were established with the Uruguay Round.
"Some reports make it sound like we don't want European farmers to grow anything," he said. "We just don't
want them to expand their subsidized oilseed production."
The Commission's proposal on oilseeds is part of its overall CAP reform proposal that would cut EU agricul-
tural subsidies in general and would cut the connection between government support payments and production.
High EU price supports for producing crops have kept European internal prices artificially high.
The CAP reform proposal holds open that EU farmers could obtain some income from direct government
payments, which EU Agriculture Commissioner Franz Fischler has argued should be linked to management of
natural resources and landscape preservation. In addition, the Commission is proposing the creation of alternative
income and employment opportunities for rural areas in its paper.
A primary objective for the proposed reform of the CAP is "improving the competitiveness of Union agricul-
ture on both domestic and internal markets," according to Commission proposal. If farmers produced at competi-
tive prices, the EU could forgo its routine use of export subsidies.
Export subsidies for cereals, oilseeds and protein crops could be employed if world market prices did not
sustain a level sufficient to provide stable incomes to producers, an informed source said.
This is consistent with the EU's commitment to ensure fair and stable incomes for the agricultural community, he said.
The proposed agriculture reforms, which would cover cereals, dairy, beef and other sectors, are needed to
prepare for the proposed EU enlargement and for the new round of World Trade Organization negotiations on
agriculture set to begin in 1999, EU Ambassador Hugo Paemen said in a July 18 briefing.
In addition to the CAP reform proposal, Agenda 2000 contains the Commission's blueprint for reforming and
enlarging the EU. The two-volume Agenda includes proposals for internal EU reforms in the financial area and in
the use of funds for remedying regional disparities in economic development.
Agenda 2000 was released along with the Commission's recommendations that accession negotiations begin
with five of 10 applicants as soon as possible. The five countries named as potential new members are the Czech
Republic, Estonia, Hungary, Poland, and Slovenia.
European farm groups voiced strong opposition to the proposed reforms as giving away the EU's
bargaining power before the WTO negotiations even begin, sources said. These groups feel that "the Commission
should not put the result of the negotiations before the negotiations," one source said.
The direction, timing, scope, and need for the reforms were also roundly criticized by European farm minis-
ters earlier this week and are likely to face stiff resistance, sources said.
German Agriculture Minister Jochen Borchert told reporters July 17 that the Agenda 2000 reforms shed more
shadow than light on German farming.
A Commission spokesman noted that the CAP reform proposals will be debated by EU farm ministers over
the next few months before they are submitted for approval to EU leaders in December. Detailed proposals are
expected from Commissioner Fischler in late December or early January, he said.
Agenda 2000 CAP Reform Proposal
III. The common agricultural policy
ent rural policy to accompany this process. Direct payments will
[...]
be set at an appropriate level while avoiding any overcompensa-
4. New Reforms
tion.
The Commission confirms the policy choice expressed in
the "Agricultural Strategy Paper" of December 1995. It proposes
Crop sector: Cereals, Oilseeds and Protein crops
deepening and extending the 1992 reform through further shifts
Over the coming years, the areas devoted to the cultiva-
from price support to direct payments, and developing a coher-
tion of these crops and to set-aside are expected to stabilize at a
INSIDE U.S.TRADE - July 25, 1997
23
level of about 53.5 million hectares. In the present policy frame-
in the UK from the food and feed chain. The first will be felt
work, and supposing that the set-aside rate returns to its refer-
mainly in 1998 and 1999, whereas consequences of the second
ence level of 17.5 %, the areas devoted to each of the three crops
will continue until 2001. Beef consumption is expected to gradu-
would also be relatively stable over time.
ally recover from the 1996 shock and return to its long term
Cereals yields are forecast to resume their upward trend
(declining) trend.
and production is therefore expected to rise from 201 million
These factors add to a cyclical downswing of production
tons in 1996 to 214 million tons by 2005. Total consumption of
until 2000 and should lead to a substantial reduction in stocks
cereals is also forecast to further increase, though at a slower
over the next few years, from the levels built up during 1996 and
rhythm, in response to the development of white meat produc-
1997. After 2001 however, if the market policy remains un-
tion. Up to 2000, the situation is likely to remain relatively tight,
changed, production would return to its full potential
in particular for wheat. From 2001 onwards, the current GATT
whereas consumption would continue its long term decline.
commitments on subsidised exports become constraining for
Intervention stocks would tend to accumulate again (given the
both wheat and coarse grains, leading to a rapid increase in
GATT limited export possibilities) and could reach some 1.5
intervention stocks (some 58 million tons by 2005).
million tons by 2005.
Oilseed yields are expected to increase very modestly and
It is not acceptable in the long run to solve the problem of
the area cultivated is strictly limited by the outcome of the
over-production in this sector by the slaughtering of young
Uruguay Round Agreement. Production is expected to increase
calves a few days after birth. Nor can the surplus problem be
slightly, from 12.2 million tons in 1996 to 12.8 million tons in
solved efficiently by pure supply management (quotas on animal
2005. Trade deficits in oilseeds and oilseed meals would remain
number S or on production), as this would present major admin-
very substantial.
istrative complications.
In theory, it would be possible to react to new cereals
A more offensive strategy, on the other hand, could at the
surpluses by increasing the compulsory set-aside rate. But this
same time substantially reduce exportrefunds to traditional des-
could then risk gradually increasing to over 20 %. Furthermore,
tinations, help develop new export outlets without subsidies and
the Union could well fail to benefit from the positive develop-
rebalance internal meat consumption to the benefit of beef. More
ments expected on the world market, since internal prices could
over, it would reduce the incentive for higher carcass weights.
be expected to remain above world prices. A more offensive
The Commission therefore proposes to gradually estab-
strategy could simultaneously avoid the routine use of export
lish effective market support at a level of 1 950 ECU/ton (pres-
subsidies, reinforce the competitiveness of cereals on the Single
ently at 2 780 ECU/ton), over the period 2000-2002. It should be
Market, overcome the Uruguay Round constraints for oilseeds
possible to stabilize market prices around or above this level
and, last but not least, bring a good deal of simplification.
through b order protection, export measures and the introduction
of a private storage regime, as already exists for pigmeat.
The Commission therefore proposes the following mea-
Single Market prices can be expected to remain higher
sures:
than the new support price levels. In addition, as observed after
The cereals intervention price is fixed in one step
the 1992 reform, farmers are likely to adjust their production
(2000) at a safety net level of 95.35 ECU/ton, (presently 119.19
systems and investment behaviour to save costs, and some input
ECU/ton);
prices may well decrease. On the whole, the income loss farmers
A non crop specific area payment is established at 66
perceive due to the reform measures will probably be lower than
ECU/ton (multiplied by the regional cereals reference yields of
a simple static analysis would indicate. Nevertheless there will
the 1992 reform); this payment will be lowered if the market
be losses.
prices are sustained at a higher level than currently foreseen;
The Commission proposes to respond through direct in-
Set aside: the reference rate for compulsory set-aside
come payments, gradually increasing and still paid per head of
is fixed at 0 %, voluntary set-aside is allowed, extraordinary set-
cattle and while avoiding overcompensation. In permanent re-
aside is abolished; set-aside areas get the non crop specific
gime, they would reach the following level (the present level is
payment;
mentioned in brackets):
Silage cereals (mainly silage maize) are excluded
Suckler cow (yearly payment), 215 ECU (145 ECU)
from the regime;
Male bovine bull (one payment), 368 ECU (135
Special cases: for protein crops, a supplementary aid
ECU)
is established at a level of 6.5 ECU/ton in order to preserve their
steer (two payments), 232 ECU (109 ECU)
competitiveness with cereals; for durum wheat the present supple-
Dairy cow (yearly payment), 70 ECU (no pre-
ments are maintained.
mium)
As it already is the case in the beef and sheep sectors, the
The different mechanisms governing headage payments
Commission will table a proposal enabling Member States to
and favouring extensification (the density factor, individual and
make the granting of direct payments for arable crops and set-
regional ceilings) would be adapted in order to take into account
aside conditional on the respect of environmental provisions,
the termination of the silage maize regime. At the same time, the
allowing them to be increasingly used to pursue environmental
Commission will reflect on how incentives to extensify produc-
objectives.
tion can be strengthened with a view to improving their effec-
tiveness in relation to environmental objectives, without a major
Beef regime
change in the global level of support.
Over the coming years, beef production will be influenced
on the one hand by the short term measures adopted in 1996 (i.e.
Dairy regime
the calf processing and early marketing of veal calves schemes)
If milk quotas remain unchanged over the coming years,
and on the other by the elimination of adult cattle over 30 months
total milk production is forecast to decline slightly from 121.6
24
INSIDE U.S.TRADE - July 25, 1997
million tons in 1996 to 118.1 million tons in 2005, due to a small
extend the quota regime up to 2006;
increase in milk fat content and adjustment of production to the
improve flexibility and simplify the present com-
quota level. Global milk demand (in whole milk equivalent) is
mon market organization;
expected to decline from 112.2 million tons in 1995 to 108.7
gradually decrease support prices, by an average of
million tons in 2005. This is the net result of decreasing con-
10 in total over the period;
sumption of some dairy products, notably butter, and increasing
introduce a new yearly payment for dairy cows
demand for other products, such as cheese and fresh products.
adjusted to average yield, at a level of 145 ECU.
On-farm consumption (animal feed) should also drop in line
Together with the new payment introduced for dairy cows
with the expected decline in cattle numbers. The net surplus is
in the beef context, the total dairy cow premium would be 215
likely to vary between 9.0 and 9.5 million tons of milk equiva-
ECU, equal to the suckler cow premium.
lent in the 19 96-2005 period, with a tendency to increase by the
end of the period.
Mediterranean products
Turning to the different milk products, which are all
As a continuation of the 1992 reform process, the Com-
covered by GATT commitments, and supposing no policy
mission presented in December 1996 a report on the tobacco
changes, it appears that:
regime to the Council and the Parliament. This report gives a
further export growth in the cheese sector would
positive assessment of the 1992 tobacco reform and proposes
appear to be constrained by GATT limitations on subsidized
further strengthening the market orientation of the sector, while
exports;
recognising the important economic role it plays in some rural
intervention stocks of skimmed milk powder will
areas. In February 1997, the Commission presented a report on
tend to increase from 1998 onwards and reach some 200 000
the olive oil regime. It suggests as a possible option a further
tons in the first half of the next decade, as the GATT export
shift from price support to direct payments and a radical simpli-
commitments become binding;
fication of these payments. As soon as the necessary debates
for butter, GATT export commitments give suffi-
have taken place, the Commission will table detailed legislative
cient margin for subsidized exports, so that no accumulation of
proposals on these two sectors.
intervention stocks would necessarily be expected; it is however
For fruit and vegetables, a major reform was adopted by the
questionable whether real outlets exist on world markets for a
Council in July 1996: budgetary efforts were shifted from supporting
quantity as large as the expected surplus of around 300 tons.
prices to strengthening producer organisations and their competitive-
fter an in-depth examination of the different options, the
ness, and emphasis was placed on the structural adjustment of the
Commission discards radical solutions, such as drastic price cuts
sector and on its environmental dimension. The Commission will
and rapid abolition of the quota system. Expected market devel-
follow the implementation of this reform carefully.
opments do not justify such extreme measures. The Commission
For wine, a reform proposal has been pending at Council
see S no strong reason for introducing fresh quota cuts either,
level since 1994. In view of the latest developments, and in par-
since no major deterioration of the market balance is expected.
ticular the new context created in this sector by the Uruguay
Finally, the Commission also discards a double price - double
Round Agreement, the Commission intends to review the pend-
quota system, which would raise serious questions of WTO
ing proposal and to table a fresh one as soon as the 1997 situation
compatibility, could be quite distortive, depending on how it
has been fully analysed. The new proposal would take into
were shaped and implemented, and would add to current admin-
account the guidelines which have in the meantime been defined
istrative complexity and control problems.
in the 1995 "Agricultural Strategy Paper".
However, dairy farmers should not be given the impres-
sion that the present system, with its intrinsic rigidities, can last
Differentiation and ceilings for direct payments
for ever. The recent debate on long term prospects has revealed
The Commission intends to propose the introduction of an
factors of uncertainty; in particular, the results of the next WT O
individual ceiling covering all direct income payments granted under
Round could also affect the dairy sector.
the Common Market Organisations. In addition, while excluding
The Commission therefore recommends a cautious ap-
renationalization, Member States would be allowed to introduce
proach at this stage. It proposes to:
differentiation criteria according to commonly agreed rules.
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INSIDE U.S.TRADE - July 25, 1997
25
U.S., KOREA SETTLE TELECOM FIGHT
begins page one
She also praised Korea's recent moves to liberalize trade and investment in the telecommunications sector.
"Korea has made important commitments, including the elimination of tariffs on information technology products,
and an increase in limitations on foreign ownership of domestic telecommunications services companies, and taken
other steps which will promote competition and enhance transparency," Barshefsky said.
The agreement puts to rest a trade dispute which dragged on since last July, when Barshefsky cited Korea as a
"priority foreign country" (PFC) under Section 1374. The two sides have been wrangling for months over how
Korea would promulgate the statement and what assurances Korea could give that it would implement nondiscrimi-
natory procurement (Inside U.S. Trade, April 11, p. 15).
The PFC designation will be lifted effective Aug. 11, though USTR sought public comment by Aug. 8 on this
move in a July 23 Federal Register notice.
The Telecommunications Industry Assn. strongly supported the conclusion of the dispute, but stressed
the importance of assuring full implementation with bilateral and multilateral tools. "TIA believes that effective,
results-oriented agreements, coupled with aggressive implementation, are essential to creating a fair playing field in
the Korean telecom market," TIA President Matthew Flanigan said in a July 23 statement. "We will encourage
USTR to continue to review progress by using all appropriate tools."
The unilateral statement, which is reprinted below, consists largely of restatements that Korea will full
implement its international obligations, but emphasizes the commitment to national treatment in areas where U.S.
companies have complained of discrimination. In addition to being published in MIC's official gazette, it was
distributed to Korean and foreign telecom equipment firms and to the following Korean agencies:
The U.S. originally pressed for the deal at the behest of U.S. telecommunications equipment manufacturers,
who charged that the Korean.government pressured telecom carriers in Korea to buy Korean-made products as a
condition of obtaining licenses. Accordingly, the statement reiterates that private-sector companies are "free to
make procurement decisions independently, based solely on their commercial considerations," in accordance with
Article XVII:1(c) of the General Agreement on Tariffs & Trade.
"Ministry policies and regulations should not be interpreted as requiring the use of telecommunications
equipment or services of any particular national origin."
Korea also emphasized its intent to use performance-based technical standards to ensure that they do not
discriminate against foreign suppliers. MIC stated that it would describe technical specifications "in terms of
performance, rather than design or descriptive characteristics" and "based on international standards, where such
exist, rather than national technical regulations or standards" in accordance with the WTO Government Procure-
ment Agreement, which Korea joined this year.
The statement also outlines new procedures to improve the licensing process for telecommunications
services providers. It notes that new regulations provide information on time frames for awarding licenses, the
preparation of applications and "detailed licensing criteria." The statement also outlines an enhanced role for the
Korean Communications Commission. "KCC will be empowered to address a broad range of issues affecting the
preservation of fair competition in the telecommunications sector," according to the statement.
The new KCC role includes the power to intervene if a service provider cannot conclude an interconnection
agreement with the dominant provider, presumably Korea Telecom. If no agreement is reached between the two
companies within 90 days, then KCC would be obligated to make a decision within another 90 days after the
receipt of a request by one of the companies.
The statement contains similar provisions regarding the provision of satellite services and the licensing of
radio stations.
A section of the statement on intellectual property emphasizes the overall importance of maintaining the
confidentiality of business information, a response to U.S. complaints that the Korean government did not ad-
equately guard against the infringement of foreign patents.
It specifically directs purchasers of telecom equipment to avoid requesting "unnecessary proprietary informa-
tion." When the information is necessary, companies are "not permitted to disclose the information without the
consent of the party supplying the information or to use the information directly or indirectly for its commercial
benefit," according to the statement.
The statement also reiterates Korea's intent to comply with the WTO agreement on basic telecom-
munications services and the Information Technology Agreement to eliminate tariffs on high-tech products
by the year 2000, and notes Korea's obligations as a new member of the Organization for Economic Coop-
eration & Development. It also establishes an official MIC office for inquiries about the policies outlined in
the statement.
continued on next page
26
INSIDE U.S.TRADE - July 25, 1997
U.S.-Korea Telecom Agreement
Information and Communications Policy Statement for the Real-
based on international standards, where such exist, rather than
ization of an Information Society
national technical regulations or standards in accordance with
Article VI of the WTO Agreement on Government Procurement
1. In the wake of the establishment of the World Trade Organiza-
("WTO/GPA"). In the case of private sector companies, it is
tion ("WTO") multilateral trading system, the global market is
advisable that they adopt technical specifications that reflect
now embracing the trends of liberalization and deregulation. In
trends in technological developments in the international tele-
the area of telecommunications, many of the WTO signatories
communications market.
participated in the Group on Basic Telecommunications ("WTO/
A. 4. Within the scope of its commitments under the
GBT") negotiations to seek major liberalization of the basic
WTO, the Korean Government licenses telecommunications
telecommunications service markets in their countries and pur-
service providers, both for domestic and foreign firms, through a
sued a successful conclusion of the Information Technology
transparent process.
Agreement ("ITA"). As a signatory to the Agreement Establish-
A. 5. The previous licensing procedure for facilities-
ing the WTO, Korea also actively took part in these market-
based service providers, which allowed applicants for a license
opening trade negotiations. Additionally, as a result of Korea's
to file their applications only after a notice inviting applications
accession to the Organization for Economic Cooperation and
had been published, has been revised. For the purpose of the
Development ("OECD"), Korea's role and responsibilities in the
openness and transparency of the licensing procedures, the new
international market have increased substantially.
licensing regulations provide information regarding, among other
things, the preparation of applications, the time frames for
2. In view of these new developments, the Ministry of Informa-
awarding of licenses and detailed licensing criteria. Licensing
tion and Communication (the "Ministry") has recently revised
plans, including assigned spectrum bandwidth and licensing
its telecommunications laws, including the Telecommunications
criteria, as well as any subsequent revisions or modifications,
Business Act and the Radio Waves Act, in order to reflect the
will be published in the Official Gazette sufficiently in advance
developments in the international telecommunications markets
of the close of the licensing application period.
and to foster a telecommunications market environment that
A. 6. The licensing procedures have been stream-
facilitates the realization of an advanced information society in
lined in order to encourage broad participation and promote easy
Korea. In this connection, the Ministry would like to explain to
entry into the telecommunications market. The source of equip-
providers of telecommunications equipment and services its
ment described in a license application is not a factor in evaluat-
telecommunications policy embodied in the following policy
ing an application. Trade secrets and proprietary information
statement, and to request that such providers actively cooperate
contained in applications for licenses will be protected in accor-
to successfully implement the policy.
dance with relevant laws.
A. The Ministry will continue to: (1) aggressively intro-
A. 7. From January 1, 1998 until December 31,
duce market principles into the marketplace and increase the
2000, Korea will allow foreign ownership in facilities-based
competitiveness of the telecommunications industry; (2) expand
telecommunications service providers, other than Korea Telecom
the market in response to the demand for new and advanced
("KT"), up to a maximum of 33%; from January 1, 2001, the
telecommunications equipment and services; and (3) establish
Korean Government will allow foreign ownership in such ser-
and improve the competition rules ensuring fair competition
vice providers up to a maximum of 49%. However, no single
among various providers of telecommunications equipment and
person will be allowed to own more than 10% of a wireline
services and encouraging the entrepreneurship of the private
service providers or 33% of a wireless service provider.
sector.
A. 8. In order to promote fair competition in the
A. 1. Within the scope of its commitments and in
marketplace, the role and function of the Korean Communica-
accordance with its obligations under the WTO, Korea is com-
tions Commission ("KCC") will be strengthened. Among other
mitted to providing non-discriminatory treatment to foreign-
things, KCC will be empowered to address a broad range of
owned or foreign-origin suppliers of telecommunications
issues affecting the preservation of fair competition in the tele-
equipment and services and treatment no less favorable than that
communications sector. In addition, KCC's dispute resolution
provided to domestic-owned or domestic-origin suppliers of like
procedure will be improved and the scope of issues subject to the
equipment and services.
procedure will be expanded. Specifically:
A. 2. In accordance with Article XVII: of GATT
i. The Ministry's regulations require that, when
1994, private sector companies are free to make procurement
requested by another service provider, dominant facilities-based
decisions independently, based solely on their commercial con-
service providers should conclude an interconnection arrange-
siderations, such as price, quality, availability, marketability and
ment within 90 days of the request at any technically feasible
transportation and other conditions of purchase or sale, irrespec-
point in the network. If such an interconnection arrangement is
tive of the origin of the equipment or the nationality of the
not reached within the 90-day period, either of the parties
supplier. Ministry policies and regulations should not be inter-
involved may directly request KCC to resolve such a dispute,
preted as requiring the use of telecommunications equipment or
including disputes concerning the technical feasibility of the
services of any particular national origin.
requested interconnection and the sharing of the extra costs
A. 3. In adopting technical specifications, the Minis-
involved. KCC will be required to make a decision on such
try will adopt non-discriminatory specifications and describe
disputes within 90 days after receipt of a request from a party,
such specifications, where appropriate, (i) in terms of perfor-
thereby ensuring fair competition in the marketplace.
mance, rather than design or descriptive characteristics; and (ii)
ii. Pursuant to Ministry of Information and Com-
INSIDE U.S.TRADE - July 25, 1997
27
munication Ordinance No. 24 and Ministry of Information and
contracts involving goods and services in accordance with Korea's
Communication Notice No. 1996-47, facilities-based service
schedule to the WTO/GPA. In return for this market opening,
providers are required to establish and maintain separate ac-
Korean suppliers are allowed to participate in the government
counting systems for each of their services operations.
procurement markets of the other signatories to the WTO/GPA.
A. 9. The Korean Government permits facilities-
In this connection, it is the Ministry's belief that the Korean
based service providers to use satellite systems other than
suppliers will need to make preparations to effectively exploit
INTELSAT and Koreasat for either voice or data communica-
new market opportunities, and, upon request, the Ministry will
tions using their own facilities. The Ministry will authorize such
be available to provide the necessary information for such prepa-
use through appropriate transparent procedures, thereby provid-
rations.
ing additional choices of transmission facilities to Korean ser-
B. 3. The Ministry will revise its laws and regula-
vice providers and promoting the advancement of satellite services
tions governing foreign participation in the Korean basic tele-
in Korea. Beginning January 1, 1998, such use will be autho-
communications service market in accordance with the results of
rized based on a commercial arrangement with a foreign satellite
the WTO/GBT negotiations (which were concluded on February
service provider through a streamlined procedure. In this regard,
15, 1997).
in accordance with Korea's commitments under the WTO/GBT
B. 4. Proceeds from the "Research and Development
agreement, beginning January 1, 1998, foreigners will be al-
Funds for the Information Society" will be used in a manner
lowed to own up to 33% of a facilities-based service provider
consistent with the provisions of the relevant WTO agreements,
owning a radio station (in the case of KT, 20%), and beginning
including the Agreement on Subsidies and Countervailing Mea-
January 1, 2001, up to 49% (in the case of KT, 33%).
sures. For transparency, terms of contribution to research and
Facilities-based service providers will be allowed to es-
development funds as condition of a license are specified in the
tablish, own and operate on-premise receive-only transmit or
new licensing regulations. Funds donated in excess of the maxi-
transmit/receive satellite earth stations for provisions of domes-
mum level specified in the licensing regulations will not be
tic or international voice and data communications services
considered in evaluating an application.
through commercial satellites other than INTELSAT or Koreasat.
B. 5. Tariffs applicable to information technology
The establishment of a radio station, including transmit/
products will be amended in accordance with the results of the
receive earth stations, is subject of approval by the Ministry.
ITA negotiations.
However, in the event that the station's transmission power is
B. 6. In order to facilitate the benefits of the Informa-
limited or the station is for receive only, the station can be
tion Society, the Korean Government will ensure that there are
established only with notification to the Ministry (pursuant to
no unnecessary delays in the importation of telecommunications
Article 56 of the Radio Regulations) or without notification
products.
(pursuant to Article 56.2 of the same Regulations).
B. 7. For the convenience of users and the continu-
Paragraph 3 of Article 6 of the Radio Waves Act sets forth
ing growth of trade in terminal equipment, the Ministry will
the criteria for authorizing the establishment of a radio station,
streamline its type approval system and will grant approvals for
which include the following:
the use of equipment subject to type approval based only on the
(i) The construction plans must be compatible
equipment itself, and not on the service provider that intends to
with the relevant technical standards;
use the equipment. The scope of wireline telecommunications
(ii) An appropriate bandwidth of radio spec-
equipment subject to type approval includes any equipment
trum must be available to operate the radio station;
directly attached to the public switched network and certain of
(iii) The applicant must possess the necessary
the equipment not directly attached to the public network. The
financial resources; and
latter type of equipment includes: (i) accessories and compo-
(iv) The applicant must meet the requirements
nents of an integrated system which is subject to type approval;
for the construction and operation of a radio station.
(ii) terminal equipment used for ISDN; and (iii) digital transmis-
sion devices directly attached to a channel service unit ("CSU").
Once an applicant has constructed a radio station in a
Additionally, the Ministry will continue to pursue mutual recog-
manner satisfying the above requirements at the request of the
nition arrangements with foreign countries so that Korean sup-
applicant, the Ministry will inspect the station and notify the
pliers may not need separate type approvals from these foreign
applicant in writing of its decision on whether to approve the
countries in exporting their equipment.
station.
C. As the demand for advanced information/telecommu-
B. As a member country of the WTO and the OECD, the
nications equipment intensifies, the Ministry will strengthen the
Korean Government will ensure that Korea complies with the
protection of intellectual property rights in order to encourage
rules of these multilateral institutions. In this connection, the
the development and sales of advanced information technolo-
Ministry will continue its efforts to revise and update its laws and
gies.
regulations in accordance with the relevant international agree-
C. 1. In procuring telecommunications equipment,
ments.
government agencies and private sector companies are prohib-
B. 1. Korea participated actively in the WTO/GBT
ited from purchasing products that have been found to infringe a
negotiations and the ITA negotiations in an effort to contribute
third party's intellectual property rights.
to the additional liberalization and growth of the international
C. 2. It is important that intellectual property rights
telecommunications market and to enhance Korea's leadership
are adequately protected in order to maximize the creativity and
in the global telecommunications market.
entrepreneurship of the private sector. In this regard, it is advis-
B. 2. As a result of Korea's accession to the WTO/
able that a purchaser refrain from requesting a supplier to pro-
GPA, which took effect on January 1, 1997, foreign suppliers are
vide unnecessary proprietary information, and that, if the
permitted to participate in various government procurement
purchaser requests necessary proprietary information, the sup-
28
INSIDE U.S.TRADE July 25, 1997
plier make efforts to comply with such request. It is further
tition Prevention Act and the Computer Programs Protection
recommended that, if a purchaser receives proprietary informa-
Act.
tion, it take the necessary measures to maintain the confidential-
D. For the purpose of facilitating a better understanding of
ity of the information.
the Korean Government's policy stated above and for the pur-
C. 3. Private sector companies will independently
pose of obtaining comments and input from industry in order to
negotiate transfers of technology with foreign suppliers based on
implement the policy more effectively, the Ministry has estab-
their commercial considerations in connection with their pur-
lished a desk to work closely with all the parties interested in the
chase or lease of telecommunications products or services from
policy, regardless of their nationality. The Ministry expects and
the suppliers.
encourages all providers of goods and services to utilize the desk
C. 4. A facilities-based service provider that has
as much as possible. If you have any inquiry, comment or
received proprietary information regarding another service
suggestion on our policy, please contact the following office of
provider's network for interconnection of the networks will not
the Ministry.
be permitted to disclose the information without the consent of
the party supplying the information or to use the information
Name of the Office: International Policy Division,
directly or indirectly for its commercial benefit.
International Cooperation Bureau
C. 5. If anyone infringes on a third party's trade
secrets or other intellectual property rights, such infringement is
Telephone Number: (02) 750-1410
actionable under the relevant laws, including the Unfair Compe-
Fax Number:
(02) 750-1439
NAFTA PARITY CUT FROM CONFEREE TAX PACKAGE, BUT MAKES CLINTON LIST
Republican House and Senate conferees this week agreed on a tax-cut package to present to the Clinton
Administration which does not include an expansion of trade benefits for Caribbean and Central American coun-
tries. But the Administration's proposals for the tax bill still contain a call for including such enhanced trade
benefits, which means the fate of the measure will be decided in negotiations between Congress and the Adminis-
tration which began yesterday (July 24).
Senate conferees insisted on dropping the measure proposed by the House, which would give these countries
for one-year trade benefits comparable to those extended under the North American Free Trade Agreement in the
textile and apparel sector, congressional sources said.
One important conferee, Senate Finance Committee Chairman William Roth (R-DE), had indicated previously
that he does not believe trade provisions should be included on a tax vehicle. Another key participant, Senate
Majority Leader Trent Lott (R-MS), has procedural problems with CBI parity and is under pressure from his
constituent Fruit of the Loom, a long-standing opponent of the bill.
The Senate declined to negotiate a compromise version of the one-year NAFTA parity bill proposed by
the House even though U.S. textile, apparel, yarn, cotton, retail and importer associations this week delivered to the
conferees a long-awaited industry-wide compromise on the textile and apparel provisions of the parity bill.
The intra-industry deal would provide immediate duty-free treatment to four types of apparel that meet
NAFTA yarn-forward origin rules plus certain yarn and thread requirements. Those four categories are: (1) apparel
assembled in the Caribbean Basin Initiative countries from fabric cut in the U.S. and formed in the U.S. from yarn
formed in the U.S. (known as the old 807A program); (2) apparel cut and assembled in the region from fabric
formed in the U.S. from yarns formed in the U.S. and sewn with thread formed in the U.S. (known as the 809
program); (3) apparel knit-to-shape in the region, such as hosiery, and full-fashion sweaters, that use spun or
filament yarn that is formed in the U.S.; and (4) apparel made from fabric knitted in the CBI region that uses spun
or filament yarn formed in the U.S.
The agreement also would place a ten-percent annual cap on the growth of the amount of apparel assembled in
the CBI countries from fabric that originated from the region rather than from the U.S., an informed industry
source said. The cap would limit on a country-specific basis the amount of apparel assembled with regional fabric
that could receive the same preferential duties as similar items made in Mexico receive under NAFTA, according to
the source. This stipulation is contained on a list of consensus "essential provisions" sent to congressional confer-
ees and reprinted below.
Moreover, the compromise would lend a hand to U.S. wool fabric and apparel makers, the source said. It
gives U.S. apparel firms recourse to a standard safeguard measure if CBI apparel made of foreign cotton and man-
made fiber under the old 807 program damages or threatens to damage the U.S. industry. This type of safeguard is
a clause which U.S. textile and apparel firms have complained they lack under NAFTA vis-a-vis Canada with
respect to imports from Canada of wool apparel.
INSIDE U.S.TRADE - July 25, 1997
29
The seven industry associations who struck the last-minute consensus had urged House-Senate conferees
in a July 23 letter to incorporate into the final CBI trade package a consensus list of "essential provisions" which
are "necessary to ensure our broad support of the overall package." The essential provisions took the form of
principles to be included in the House version of the bill "subject to review of the actual legislative language,"
according to the letter reprinted below.
Signing the letter were the American Apparel Manufacturers Assn., the American Textile Manufacturers
Institute, the National Cotton Council, the U.S. Assn. of Importers of Textiles and Apparel, the American Fiber
Manufacturers Assn., the American Yarn Spinners Assn. and the National Retail Federation.
If a CBI trade provision were included in the conference report that emerges from the negotiations
between the Administration and Congress, it would still face other hurdles. Sen. Ernest Hollings (D-SC) and twelve
other senators have threatened to raise a point of order to the conference report as violating the so-called Byrd rule
because its budgetary effect is incidental to its policy implications (Inside U.S. Trade, July 18, p. 9).
To head off such a challenge, the policy-oriented implications of the bill would likely be toned down, one
industry source predicted.
ATMI wants to be able to review the legislative language that would be developed from the joint industry
position before a Byrd-rule challenge unfolds. The group could then petition Senators to agree to waive the Byrd
rule because the CBI enhancement bill would help their constituents "big time," a textile source said.
The goal of the growth cap on apparel made with regional fabric approved by the industry groups is to
ensure that non-U.S. fabric is not able to take undue advantage of the U.S. market under a program that is essen-
tially a unilateral grant to the CBI of duty reductions, an industry source said. ATMI had initially demanded be set
at an even smaller level, he said.
Retailers and importers initially did not want any growth cap, he noted. But a source close to importers
pointed out that the calculation that now has to be made to establish the base level of regional-fabric apparel trade
results in a much higher figure than the method initially proposed by ATMI.
The ten-percent growth allotment would be added annually to a base amount of regional fabric that each
participating country would be allowed to export, according to an informed source. The base amount would be
calculated under a formula that estimates current exports of regional-fabric apparel by looking at trade levels of the
first 12 months of the most recent 14-month period. That calculation is necessary because of the two-month lag
time in getting accurate export data, he said.
Once the amount of apparel exports sold by a country into the U.S. under the old 807A program and the old
807 program have been subtracted from the country's total apparel exports during that period, it is assumed that
half of the remaining amount of exports consist of those made from regional fabric and that the other half is exports
made from foreign fabric. The half attributed to regional-fabric exports is the base amount to which the growth
factor can be added to calculate the tariff-rate quota of regional-apparel exports which receive NAFTA-equivalent
duty rates. The half attributed to foreign fabric receives no benefits unless it is subject to a tariff-preference level
(TPL).
The industry consensus would permit the President, using his discretion and any criteria he chooses, to extend
TPLs, which are TRQs for fabric that does not meet NAFTA-type origin rules, to levels equivalent to those granted
Mexico in NAFTA. The agreed-on interpretation of this provision is that the President may or may not take into
consideration whether a type of fabric is commercially unavailable in the U.S. or the CBI region as a factor in
deciding whether to extend TPLs, an industry source said.
ATMI had been pressing for sublimits on the use of TPLs that would have prevented surges in particular
categories of wool apparel and other apparel that used foreign fabric, but it settled instead for the use of a standard
safeguard against surging imports, an industry source said.
The safeguard would allow the Administration to either restore duties or impose a quota if a surge of a certain
broad category of TPL imports occurred and damaged or threatened to damage U.S. firms. Because the CBI trade
package is a unilaterally-extended benefits program rather than a reciprocally-negotiated trade pact, the U.S. would
not have to provide the CBI nations with compensation if it imposes the safeguard, an industry source noted.
But if the deal goes through, U.S. apparel firms also will be able to assemble wool garments from U.S. wool
fabric similar to those made in Canada from foreign fabric and ship them into the U.S. duty-free. This would let
them take advantage of the CBI's lower labor costs while avoiding the sizeable U.S. duty on imported wool fabric
and to compete with Canadian makers of mid-range wool suits, slacks and sportcoats, sources noted.
The agreement among industry associations does not include certain provisions sought by Fruit of the
Loom and Milliken and Co., a source said. They had been seeking, for instance, assurances that no TPL would be
extended for blank t-shirts, which would have given Fruit of the Loom a competitive advantage over U.S. rival
Sarah Lee due to the different way their operations are structured. "If we had taken their t-shirt demand, they would
have come up with another issue," said an industry official.
30
INSIDE U.S.TRADE - July 25, 1997
Other interests whose opposition could still torpedo the CBI package include the textile and apparel labor
union UNITE and environmental organizations.
Textile & apparel union allies Reps. John Spratt (D-SC) and F. Allen Boyd (D-FL) also urged the budget
reconciliation conferees to drop NAFTA parity from the tax-cut bill earlier this month.
In a July 10 letter to the conferees, they said NAFTA parity should instead be fully debated by the committees
of jurisdiction and voted on as a separate bill by Congress. They also argued that the language passed by the House
"conceals the true cost of expanding CBI by assuming an unlikely termination of the program after one year."
That assumption, which allowed the cost of the program to be scored at $217 million, "allows the CBI
provision to be shoehorned into the budget without accounting for its cost over five or ten years as was required in
the budget agreement." The cost of the CBI program "significantly increases" after the first year once the TPLs are
implemented, they said.
"It is highly unlikely that Congress would allow this extension of CBI to lapse after one year, and its budget
impact over five and ten years is much greater than its scoring in the House," they said. Moreover, approval of the
program will cause further job loss in the U.S. textile industry, which has lost 220,000 jobs over the same period
since 1994 as the Caribbean share of total U.S. apparel imports has increased from 19 percent to 23 percent of total
imports, according to the legislators.
In a subsequent letter to Moynihan, Spratt noted that a Congressional Budget Office study shows that the true
five-year cost of NAFTA parity for the CBI would be $1.25 billion.
U.S. Industry Position on CBI Trade Package
July 21, 1997
region from fabric formed in the United States from yarns
formed in the United States and sewn with thread formed in the
Members of the Conference Committee
United States.
on Budget Reconciliation
(c) Knit-to-shape - Apparel that is knit-to-shape in the
211 Dirksen Senate Office Building
region (e.g., hosiery, full-fashion sweaters) would use spun or
Washington, D.C. 20510
filament yam that is formed in the United States.
(d) Apparel of Local Knit Fabric - Apparel that is made
This is to apprise you that organizations representing the
from fabric knitted in the region would use spun or filament yam
fiber, textile, apparel, retail and import industries, in a spirit of
that is formed in the United States.
cooperation and compromise and in order to enact a Caribbean
Basin Initiative trade package, are in agreement with the at-
NAFTA Duties on Regional Textiles and Apparel: NAFTA
tached principles to be include in CBI trade legislation, subject
duties would apply to 1996 levels of U.S. imports by country,
to review of the actual legislative language. We urge the budget
plus 10% annual growth, of regional yarns, fabrics, and other
reconciliation conference committee to adopt these provisions
non-apparel textile products and apparel, if the NAFTA rule of
which are necessary to ensure our broad support of the overall
origin is followed.
package.
Safeguard Provision: Bilateral emergency tariff or quanti-
tative restriction actions can be taken by the U.S. against imports
American Apparel Manufacturers Association
that damage or threaten to damage.
American Textile Manufacturers Institute
Tariff Preference Levels (TPLs): Tariff Preference Levels
National Cotton Council
permitting the use of non-qualifying fabric would be established
U.S. Association of Importers of Textiles and Apparel
and would be equivalent to those granted Mexico in NAFTA:
American Fiber Manufacturers Association
71.5 million square meters equivalent (SME) annually: 25 mil-
American Yarn Spinners Association
lion SME for cotton and man-made fiber apparel imported under
National Retail Federation
9802.00.80; 45 million for all other cotton and mad-made fiber
apparel; 1.5 million SME for wool apparel. Ninety-five percent
Essential Provisions
of this total would be allocated among the seven largest export-
Rule of Origin: Based on the NAFTA yarn-forward rule of
ing countries, the balance going to the remaining countries.
origin with exceptions as in NAFTA plus yam and thread
Imports under the 25 million SME TPL would be subject to a
requirements as noted below.
safeguard action if found to be damaging or threatening damage.
Product Coverage: Would apply to apparel only, as de-
Special Processing: Apparel entered under 9802.00.00
fined in Chapters 61 and 62 of the Harmonized Tariff Schedule
(807 or 807A) that undergoes bleaching, dyeing, stonewashing,
of the U.S., except as noted below.
oven-baking, enzyme-washing, embroidery and other similar
processes would qualify for duty-free treatment.
Duty Free Treatment:
Transshipment Penalties: Exporters found to be engaging
(a) 807A - Apparel would be assembled in the region from
in willful illegal transshipment or willful customs fraud would
fabric cut in the United States and formed in the United States,
be denied program benefits for two years.
from yarn formed in the United States.
Customs Entries: Would apply to articles entered or with-
(b) 809 - Apparel would be cut and assembled in the
drawn from warehouse for consumption on or after January 1, 1998.
INSIDE U.S.TRADE - July 25, 1997
31
In This Issue
Boeing merger likely to alter implementation of
JFTC report finds Japan film market free of
U.S.-EU aircraft pact
p,1
anticompetitive practices
p.10
EU CAP reform aimed at eliminating accord on
International Relations defeats attempt to
oilseeds with U.S.
p.1
weaken encryption bill
p.12
U.S., Korea deal to end telecommunications
Lang hints at Brazilian support for launching
procurement fight
p.1
FTAA talks in all areas
p.12
U.S. groups likely to file 301 case on Canadian
U.S., EU make no headway in dispute over
dairy practices
p.1
Massachusetts Burma law
p.14
Clinton unveils new fast-track team, meets with
EU pressures Commerce over AD/CVD steel
House Dems
p.3
circumvention inquiry
p.15
Tuna-dolphin measure to face critical Senate
U.S. outlines plan for hemispheric intellectual
procedural vote today
p.3
property regime
p.18
U.S., Japan to discuss extension of NTT
McCain-Dodd measure to suspend drug
procurement deal next month
p.4
de-certification process fails
p.19
China unlikely to make key market access offer
U.S., Norway clash with other WTO members
in July WTO meeting
p.5
over trade-labor work
p.19
Korea pressures U.S on color TV AD decision,
U.S., EU at odds over electronic data protection
threatens on DRAMs
p.5
initiative
p.20
Commerce Secretary Daley selects two BXA
NAFTA parity cut from conferee tax package,
assistant secretaries
p.9
but makes Clinton list
p.29
OECD members launch negotiation of pact on
commercial bribery
p.9
32
INSIDE U.S.TRADE - July 25, 1997
Jul 21,97 21:12 No 027 P.01/04
Washington Trade Daily
Volume 6, Number 144, pt 1
Monday, July 21, 1997
Trade Reports International Group
US Firms Unsuccessful in Japan Construction Market
Getting construction contracts for Japan's Chubu New International Airport has proven to be
less successful than US engineering and construction activity for the Kansal International Airport
nearly a decade ago (WTD, 7/8/97), the Commerce Department said Friday.
US and Japanese officials concluded two days of talks in Washington on progress under the
bilateral public works arrangement signed in 1994.
The potential for US business for big construction projects throughout Japan could reach
$100 million this year, Commerce said. Although the value of construction contracts awarded to US
firms is expected to be three times higher than last year, the figure falls far short of the success
firms experienced in the late 1980's, Commerce noted. US firms won some $300 million in contracts
in 1989, much of it for work on Kansai.
Chubu airport will be completed by 2005.
Ex-Im Now Open in Georgia
The US Export-Import Bank and Georgia on Friday signed a special project incentive
agreement that will allow the US official export financing agency to start activities in the former
Soviet republic.
The first beneficiary of the agreement is Baltimore-based Northrop Grumman Corporation
which will build a countrywide air traffic control system. Repayment, which is guaranteed by Ex-Im,
will come from overflight fees. Citicorp of New York will make the loan.
The Citicorp loan will be repaid from revenues Georgia receives from international aircraft
crossing its air space, Ex-Im said in a statement. The revenues will be deposited in an account with
the International Air Transport Association in Switzerland, from which repayments will be made.
Northrop Grumman will provide Georgia will radars, an airspace management system that
provides radar and flight data processing, microwave communications, generators and
uninterruptable power supplies.
At his first stop during a visit to Washington last week, Georgia President Eduard
Shevardnadze explained his country's economic reform efforts to US business executives gathered
at the Overseas Private Investment Corporation on Thursday. During the briefing, OPIC acting
President announced that the foreign investment promotion agency will likely participate in a $45
million Caucasus Investment Fund that will take equity stakes in Georgian ventures as well as in
Armenia and Azerbaijan.
OPIC is active in Georgia now, focusing on the communications and financial services
sectors. US investors have requested OPIC backing in Georgia for more than a dozen projects.
May Deficit Up to $10.2 Billion
Slowed exports and rising imports boosted the trade deficit in May to $10.2 billion - a
monthly rise of some $1.5 billion (WTD, 6/20/97), the Commerce Department reported on Friday.
Total exports of goods and services in May were of $77.2 billion and imports were $87.5
billion. The revised trade deficit in April was $8.7 billion, Commerce said. May exports were $700
© 1997 by Trade Reports International Group, 2104 National Press Building, Washington, D.C. 20045.
E-mail address: [email protected]
Telephone: (301) 946-0817, fax: (301) 946-2631. Published 260 times 8 year. Subscription price: $550/year.
Reproduction is prohibited without express permission of TRIG.
Editor/Publisher: Jim Berger
TRICI
Washington Trade Daily also is available electronically from NewsNet. For online access call 1-800-345-1301.
Jul 21,97 21:14 No 027 .02/04
page 2
Washington Trade Daily
million less than April exports of $77.9 billion. Imports for the month were $800 million more than
April imports of $86.6 billion.
In May, the goods deficit increased $1.5 billion from April to $17 billion, and the services
surplus was virtually unchanged at $6.8 billion. Exports of goods decreased to $56.3 billion from
$57.2 billion, and imports of goods increased to $73.4 billion from $72.7 billion. Exports of services
Increased to $20.9 billion from $20.7 billion, and services imports increased to $14.1 billion from
$13.9 billion.
A Clearing Horizon
Despite the poor showing, Commerce Secretary William Daley suggested to reporters that
strengthening economies in European and other parts of the world except Japan will boost US
export prospects in the months ahead. The trade deficit in manufactured goods has improved from
$114 billion at an annual rate for the first five months of 1996 to $106 billion SO far this year. The US
services surplus also keeps improving. He noted that falling prices have kept the agriculture trade
surplus lower - down 9 perdent for the year.
Mr. Daley noted that US exports to both Canada and Mexico are on the upswing. US
exports have expanded 12 percent this year to the North American Free Trade Agreement partners,
while imports are up only 9 percent. As a result, the US deficit with Canada has fallen from $8.1
billion in the first five months of 1996 to $7.1 billion today. US exports to Mexico - at 21 percent - are
outpacing US imports from that country, at 15 percent.
The weakness in Japanese domestic demand has brought a 4 percent drop in US exports
this year. Japanese exports to the United States also are down significantly, Mr. Daley noted. The
Commerce chief expressed concern with the US trade imbalance with China.
Mr. Daley announced a trip to China in the fall, where he will press for greater market
access. He said he had some specific sectors in mind, but did not give details.
The April to May change in exports of goods reflected decreases in capital goods of $300
million - primarily industrial machinery and telecommunications equipment. The monthly change
reflected increases in capital goods of $400 million - primarily civilian aircraft.
Services exports increased $200 million from April to May. Small increases occurred in
nearly all categories. Services imports increased $100 million from April to May.
China, Japan
The May figures showed surpluses with Australia and Hong Kong of $600 million
respectively; South Korea $500 million; Brazil, $400 million; and Egypt and Argentina $300 million
each. Deficits were recorded with China of $3.8 billion - - up from $3.5 billion in April; Japan, $3.6
billion, down from April's $4.8 billion; Canada, OPEC and Mexico, at $1.7 billion each; Western
Europe, $1.3 billion; Taiwan, $1.1 billion; and Singapore, $200 million.
Around the Globe
Chinese President Jiang Zemin's visit to the United States this year will help Beijing's
bid to join the World Trade Organization (WTD, 7/18/97), a senior US official said in an interview
published Sunday, reported Agence France-Presse from Tokyo. The Chinese President's scheduled
visit to the United States in autumn will become a springboard for China to push its bid for entry to
the WTO, Undersecretary of State Stuart Eizenstat told the Nihon Keizai Shimbun in Washington
Friday. The United States strongly hopes China will gain membership at the Geneva-based
Institution, as it would help increase US access to Chinese markets and reduce Washington's trade
deficit with Beijing, he was quoted as saying. But Mr. Eisenstat noted China needed to make
proposals on services, tariffs and nontariff trade barriers in seeking WTO membership.
China has launched an offensive to block Taiwan's participation in a high-level
meeting to be co-sponsored by the World Trade Organization and the United Nations Conference
on Trade and Development in Geneva in October, said a report from Taipei by China News.
Although Taiwan is not a United Nations member, it is a WTO observer, and under WTO
0 1997 by Trade Reports International Group, Washington, D.C.
July 21, 1997
Jul 21,97 21:17 No 027 .03/04
Washington Trade Daily
page 3
regulations, Taiwan is entitled to take part in any formal WTO meeting In its capacity as an
observer. The planned WTO-UNCTAD conference, initiated at a WTO ministerial-level meeting held
in Singapore late last year, is aimed at discussing international aid programs to assist less
developed countries (WTD, 5/20/97).
According to the report, diplomatic sources said Wu Jianmin, the Chinese envoy stationed in
Geneva, met with WTO Director General Renato Ruggiero and UNCTAD Secretary General Rubens
Ricupero last week, asking them to consider problems that might arise from Taiwan's participation
in the WTO-UNCTAD conference. Those meetings, according to the report, failed to work out a
solution to the issue.
The State Department also confirmed last Wednesday that China has asked the United
States not to support Taiwan's attendance at the WTO-UNCTAD conference. State, however, would
not give the Clinton Administration's stance on the issue.
The Boeing Company said Friday it hoped to continue contacts with the European
Union, which is threatening to contest its acquisition of McDonnell Douglas, despite the expiration
of a deadline earlier in the day (WTD, 7/18/97). according to an Agence France-Presse report from
Washington on Friday. "We don't feel that (the deadline) is the end of the process," Boeing
spokeswoman Sherry Nebel said. But she declined to say if the company planned to put forward a
new proposal on Friday.
Mexico and the European Union approved a framework agreement for a new trade
pact they will begin negotiating next year (WTD, 6/13/97), the Mexican commerce ministry said
according to a report from Mexico City by Agence France-Presse on Friday. The cooperation
agreement was finalized Thursday and will be initialed July 23, formally concluding the first stage of
negotiations to replace the current 1991 trade pact, the ministry said in a statement.
The EU ambassador to Mexico was quoted by Bridge news service as saying trade talks
with Mexico will start in the second half of 1998 instead of the beginning of next year, as predicted
by the Mexican government. He said he expects complications in reaching a trade accord,
especially in the area of agriculture. Last Thursday the EU approved the framework for the talks,
and the Mexican Commerce Secretariat said it expected to start trade negotiations in the
beginning of 1998.
The European Union on Friday presented a formal request for consultations with
India on its import restrictions following the breakdown of multilateral consultations in the World
Trade Organizatio (WTD, 7/16/97), said a report from Brussels by Xinhua news agency. The
request concerns the removal of import restrictions introduced for the purpose of balance of
payments. The EU expressed its regret that the balance of payments committee of the WTO had
failed to reach a consensus on the issue.
Russia wants to join the European Union, but it has to sort things out at home first,
visiting Russian Prime Minister Victor Chernomyrdin said in Brussels on Friday according to a
report by Xinhua news agency. Mr. Chernomyrdin made the remark at a press conference in
Brussels after lengthy talks with Jacques Santer, President of the European Commission. He told
reporters that what they were doing at the EU headquarters was "directed al one point" - making
preparations to join the EU, just as Russian President Boris Yeltsin once said. However, Mr.
Chernomyrdin said that the deep restructuring process underway in Russia's economy limited the
immediate scope for the Russian authorities to meet requests for commitments, either from the EU
or the World Trade Organization.
Canada's exports and imports dipped slightly in May, Statistics Canada reported on
Friday according to a report from Ottawa by Xinhua news agency. Canadian exports, extending
the flat trend since February, dipped 0.1 percent to $17.8 billion in May. While its exports in the
forestry and auto sectors moved ahead, lower shipments of energy products and Industrial goods
offset all gains, the federal statistics agency said. Canadian exports to the United States and
Europe increased, but declined to Japan and all other trading partners.
July 21, 1997
c 1997 by Trade Reports International Group, Washington, D.C.
Jul 21,97 21:19 No 027 P.04/04
page 4
Washington Trade Daily
In the meantime, Canada's imports slipped 1.6 percent to $16.3 billion after surging 3.8
percent in April. In May, Canadian imports from Japan and the European Union edged up, and its
imports from all other trading partners dropped. Canada's trade surplus rebounded to $1.5 billion
during the month, moving up from Its lowest level in nearly two and a half years, according to the
report.
---
TRIB
© 1997 by Trade Reports International Group, Washington, D.C.
July 21, 1997
CONG ESTEBAN E TORRES
002
07/16/97 WED 11:41 FAX 202 225 9711
Congress of the United States
Mashington, DC 20515
July 16, 1997
The Honorable William Jefferson Clinton
The White House
1600 Pennsylvania Avenue, N.W.
Washington, D.C. 20500
Dear Mr. President:
As you prepare to request that Congress grant new fast track trade negotiating authority, we are
writing to ask your support for future trade agreements that promote improved living standards, a
cleaner environment, and the protection of human rights in the U.S. and around the globe.
There is no question that international trade is increasingly important to the American economy.
The enhanced integration of the economies in this hemisphere is both inevitable and desirable for
the future prosperity of our nation. However, to ensure that the benefits of expanded hemispheric
trade are maximized and the harmful effects are minimized, it is imperative that we heed the
lessons from existing treaties, particularly as they relate to working families and the environment.
After carefully examining the impact of NAFTA, we have concluded that a number of changes
must be made to the basic structure and implementation of the Agreement before we can support
its expansion.
NAFTA Impact
While there is wide disagreement about the economic impact of NAFTA, it is generally accepted
that the treaty has produced both winners and losers. A recent study by a coalition of Latino
leaders reveals that NAFTA has produced more job loss than job gains. The study concludes that
over 315,000 jobs have been lost or threatened compared to 225,000 jobs gained or supported,
for a net labor market impact of 90,000 under NAFTA. Moreover, the Latino Coalition study
shows that these losses have been particularly severe in certain regions, industries and segments of
the workforce. Latinos, African Americans and women, who are more likely to be employed in
low-wage, import-sensitive industries, are particularly vulnerable to dislocation due to trade. For
example, El Paso, Texas has lost 6,000 jobs as a result of NAFTA, most of which were
concentrated in one industry, contributing to an increase in its unemployment rate from 9 to
almost 12 percent.
NAFTA Implementation
Unfortunately, the provisions adopted to mitigate the harmful effects of NAFTA have proven
deficient and their implementation grossly negligent. The Latino Coalition study shows that,
although Latinos have been disproportionately affected by NAFTA, their experience in the
training programs designed to assist NAFTA-dislocated workers has led to neither increased
07/16/97 WED 11:41 FAX 202 225 9711
CONG ESTEBAN E TORRES
003
employment prospects nor economic well-being. Latinos displaced by NAFTA are significantly
under-served by the NAFTA-TAA program and secondary workers are virtually absent.
Furthermore, the typical training offered fails to meet the needs of the most vulnerable displaced
Latino workers. In short, the NAFTA-TAA program is just a shadow of the program Latino
leaders insisted on as a condition of support for NAFTA.
The NAFTA-TAA program clearly requires improvement in its design and structure; but the
principal cause of its failure to adequately serve Latino workers is poor implementation by the
Department of Labor. As the Latino Coalition study documents, the program has been plagued
by the absence of clear regulations and guidance, inadequate outreach and a severe lack of focus.
The implementation of the North American Development Bank's (NADBank) Domestic Window
program by the Department of the Treasury has proven to be even more problematic.
The NADBank was created at the insistence of Latino leaders to mitigate the harmful effects of
NAFTA on American workers and the environment. It was designed to mobilize financing for
environmental infrastructure projects along the U.S.-Mexico Border, and to help create jobs in
communities that suffered significant job loss as a result of NAFTA. Yet, after three and a half
years, the NADBank's Domestic Window, the component designed to create jobs in communities
negatively impacted by NAFTA, has failed to issue a single loan or help to create a single job,
despite 315,000 jobs lost or threatened due to NAFTA This legacy of neglect has occurred
despite our consistent prodding, pressure and public criticism of the Domestic Window program.
The NADBank's border environmental infrastructure component has been slowed by limitations
in the Bank's Charter and the economic characteristics of the border region. For example, only
four loans have been approved to date. The Latino Coalition study reveals that many border
communities are too small and too poor to afford any interest rate that is not subsidized. The
NADBank's lending rates are market oriented, creating the perception that its rates are too high.
Further complicating lending in these communities is the Bank's own borrowing costs, which are
based on the taxable, not the tax exempt, market. Despite these problems, the NADBank can
actually provide financing at lower rates than U.S. commercial banks, and at much lower rates
than banks in Mexico. The economic conditions of these communities have also required
extensive technical assistance from the NADBank to produce project proposals that are
technically and financially feasible.
A serious lack of coordination between the NADBank and the Border Environment Cooperation
Commission (BECC) has also delayed the Bank's lending activity. The Latino Coaliton study
found that failure to integrate the NADBank into the initial stages of the BECC's project
development process has inhibited both institutions from working efficiently and effectively. This
lack of coordination has resulted in the certification of projects by the BECC that did not meet the
requirements of the Bank's loan and guaranty policies. Unlike the Domestic Window, however,
the NADBank's environmental infrastructure component has diligently worked to overcome these
obstacles and we are hopeful that the Bank's lending activity along the border will continue to
accelerate.
004
CONG ESTEBAN E TORRES
07/16/97 WED 11:42 FAX 202 225 9711
NAFTA's Structural Limitations
Perhaps the single biggest flaw in NAFTA was its failure to incorporate labor and environmental
issues as a chapter in the core agreement, rather than as side agreements. So far, the few
complaints that have been brought under the labor side agreement have made little or no impact.
Only five cases concerning Mexico have been brought under the labor side agreement, and none
of these cases has resulted in a union being recognized or noticeable changes being made in the
lives of the workers involved. Clearly, if the rights of workers are to be protected in future trade
agreements there must be strong mechanisms of enforcement - a mechanism that is not available
under NAFTA.
The environmental side agreement has also failed to provide adequate protection from increased
production resulting from NAFTA. The increase in post-NAFTA border economic activity has
increased cross-boundary population, industrial and toxic emissions and waste. In addition, the
North American Commission for Environmental Cooperation (NACEC), which was designed to
ensure enforcement of environmental laws under NAFTA has proven to be ineffective. Of the ten
complaints filed not a single one has led to either enforcement orders or economic sanctions
against any participating country. Yet, the promised improvements to the health and safety of
working families along the border has not occurred. The NAFTA environmental side agreement
has simply not been adequate to the task.
Conclusion
We continue to share your goal of expanding trade to Chile and ultimately the rest of Latin
America. Delegating fast track trade negotiating authority, however, is a responsibility we take
very seriously. Before we can support your request for such authority we must be certain that the
economic, safety and health interests of our constituents are not compromised by future trade
agreements. As the new Latino Coalition study SO vividly illustrates, these interests have not been
adequately protected under NAFTA. Therefore, until the flaws in the structure and
implementation of NAFTA are addressed, we simply cannot support its extension.
Sincerely,
SHIGT SILVESTRE REYES
ESTEBAN E. TORRES
Member of Congress
Member of Congress
EdPast ED PASTOR
LORETTA SANCHEZ
Member of Congress
Member of Congress
005
CONG ESTEBAN E TORRES
07/16/97 WED 11:42 FAX 202 225 9711
Vydia Member NYDIA M. VELAZQUEZ M MATTHEW M Martinez E. MARTINEZ
of
Congress
Member of Congress
JOSE E. SERRANO Seciand
Member of Congress
Rubin Member RUBEN HINOJOSA of Hingua Congress
Luis Member LUIS V. Sature of GUTIERREZ Congress
YAVIER BECERRA
Cive Member CIRO D. of RODRIGUEZ Congress Member ROBERT Member of MENENDEZ of Cangress
Sartan SOLOMON P. DRTIZ
Member of Congress
The The
SAM FARR
GENE GREEN
Member of Congress
Member of Congress
LUCILLE ROYBAL-ALLARD
Member of Congress