Print PDF

July 17 2012 Issue

Tuesday, July 17, 2012
Sandler, Travis & Rosenberg Trade Report

Senate Finance to Mark Up Bills on Russia PNTR, AGOA/CAFTA, Trade Enforcement

The Senate Finance Committee will meet July 18 to mark up legislation to extend permanent normal trade relations to Russia and Moldova. The committee will also mark up bills to tighten trade enforcement, create or renew trust funds for three commodities, renew sanctions on Burma, and amend certain provisions of trade programs benefiting Africa and Central America. 

Russia PNTR. PNTR would guarantee that Russian goods will be subject to the same tariffs upon importation into the U.S. as those from virtually every other country. The U.S. must repeal the so-called Jackson-Vanik Amendment and grant PNTR to Russia in order for U.S. companies doing business in and with that country to be able to take full advantage of the market access and other commitments Moscow made as part of its bid to join the World Trade Organization, which is expected to become official in August. 

Committee Chairman Max Baucus, D-Mont., emphasized this point, saying that the Russia PNTR bill will “create thousands of U.S. jobs across every sector of the American economy, including manufacturing, agriculture and services, by helping double U.S. exports to Russia within five years.” Annual U.S. exports to Russia already total $9 billion per year, he said, and with the possibility of Russia’s economy becoming larger than those of Germany and Japan by 2040, “the long-run gains of increased exports there would be even greater.” Baucus added that “this economic boost will come at no cost to us whatsoever” because the U.S. “will not have to change one single tariff or trade law.” 

Even so, some members of Congress are hesitant to grant PNTR to Russia because they are unhappy with the way things turned out after the U.S. approved PNTR for China in 2001. These lawmakers see a host of economic ills that have followed – including a ballooning trade deficit, widespread intellectual property rights violations and discriminatory industrial policies, to name a few – and feel the U.S. should have demanded tools that would have prevented or better addressed these problems as the price of granting PNTR to China. Although Russia and China are very different economies, these members want to ensure they don’t make the same mistake a second time. In light of these concerns, the bill to be taken up by the committee would impose a number of requirements, including regular reports on (1) Russia’s implementation of its WTO commitments and plans to address any situation where such implementation is deemed to be inadequate, (2) progress in promoting the rule of law and strengthening investor protections in Russia, and (3) efforts to combat bribery and corruption. 

In addition, some believe that by granting PNTR to Russia the U.S. would lose a certain amount of leverage that could otherwise be used to exert pressure for improvements in various areas, particularly human rights and the rule of law. The committee will thus consider a separate measure allowing the U.S. to impose certain restrictions on Russian individuals determined to have participated in human rights abuses. 

The Russia PNTR bill will also include provisions that establish PNTR with Moldova, which is already a WTO member. 

AGOA/DR-CAFTA/Burma. This bill would extend through September 2015 the third-country fabric provision under the African Growth and Opportunity Act, which provides duty-free treatment to apparel produced in AGOA beneficiary countries from fabric produced anywhere in the world and is slated to expire this fall, and add the Republic of South Sudan to the list of countries eligible for AGOA benefits. 

The bill would also make technical corrections and modifications to the DR-CAFTA rules of origin for certain textile and apparel products. These corrections include a change clarifying that certain monofilament sewing thread is required to be produced in the U.S. or the DR-CAFTA region in order for goods to qualify for preferential tariff treatment. The other modifications clarify or correct the language used in the text of the agreement and relate to the treatment of certain nightwear as well as several products under the short supply list, including elastomeric yarns, knit waistbands and knit-to-shape components. 

Finally, this bill would reauthorize import sanctions against Burma for three years and provide that these sanctions would remain in place until at least July 2013. 

Trade Remedy Enforcement. The committee will consider a modified version of the Enforcing Orders and Reducing Customs Evasion (ENFORCE) Act (S. 1133), which would create a set of procedures for U.S. Customs and Border Protection to investigate allegations of evasion of antidumping and countervailing duty orders. CBP would be required to initiate an evasion investigation within 10 business days of receipt of a proper allegation or referral and to issue a final determination within 270 calendar days of the date of initiation. If its determination is affirmative CBP would have to assess duties and require importers to post cash deposits at rates calculated by the Department of Commerce. 

The bill also establishes an “interim measures” mechanism under which CBP would determine within 90 calendar days of initiation whether there is a reasonable suspicion that the items at issue were entered through evasion. An affirmative determination would require CBP to suspend the liquidation of any unliquidated entries of covered merchandise entered after the date of initiation and take any additional measures necessary to protect its ability to collect appropriate duties, which may include requiring a single transaction bond or posting cash deposits with respect to entries of covered merchandise. 

Trust Funds. This bill would create a federal trust fund to support research on diseases affecting the citrus industry. The Citrus Disease Research and Development Trust Fund would be financed in amounts equal to a portion of tariff revenues on citrus and citrus products. The president would be required to notify leaders of the Senate Finance and House Ways and Means committees before entering into any trade agreement that could result in a decrease in the amount of duties collected on imports of citrus products. 

The bill would also reauthorize through 2015 the Cotton Trust Fund, which temporarily suspended duties on certain cotton shirting fabrics and provided duty refunds to cotton shirt makers that continue manufacturing in the U.S. 

Finally, the bill would fully restore wool trust fund payment levels in calendar years 2010 through 2012 and ensure that the Wool Trust Fund is fully funded through 2014 by tapping the tariff revenue from imports of apparel articles entering under HTSUS Chapter 62. 

Reasons for Use of Non-Tariff Trade Barriers Changing, WTO Says

The World Trade Organization released July 16 its annual World Trade Report, which this year focuses on the use of technical barriers to trade regarding standards for manufactured goods, sanitary and phytosanitary measures concerning food safety and animal and plant health, and domestic regulation in services. The report examines why and how governments use such non-tariff measures and reveals how the expansion of global production chains and the growing importance of consumer concerns in richer countries affect the use of NTMs. 

According to a WTO press release, there has been an increasing use of TBT/SPS measures since the mid-1990s, and in 2010 48% of the NTMs perceived as burdensome by exporting firms in developing countries were TBT/SPS measures. Agriculture was involved in 94% of specific trade concerns regarding SPS measures and 29% of those regarding TBT. Over the last five years, however, only 11% of WTO disputes cited the SPS Agreement and 12% cited the TBT Agreement. 

According to WTO Director-General Pascal Lamy, “a clear trend has emerged” in which NTMs “are less about shielding producers from import competition and more about the attainment of a broad range of public policy objectives.” A WTO press release notes that NTMs are often the first-best instruments to achieve public policy objectives, including correcting market failures arising from information asymmetries or imperfect competition, as well as pursuing non-economic objectives such as the protection of public health, safety and environmental quality. The challenge, the WTO states, is to manage a wider set of policy preferences without undermining those preferences or allowing them to become competitiveness concerns that unnecessarily frustrate trade. For example, economic, social and technological advances have resulted in higher consumer demand for food safety, resulting first in a proliferation of food safety measures and now greater attention on how to mitigate possible negative trade impacts from such measures, such as harmonization of standards, equivalence and commitment to a set of rules. 

The report identifies several challenges for international cooperation in this area. First, the transparency of NTMs needs to be improved, an effort likely to be aided by the newly-created WTO database I-TIP (Integrated Trade Intelligence Portal). Second, more effective criteria are needed to identify why an NTM is used, and better integration of economic and legal analysis may help achieve this goal. Third, the increase in global production chains calls for deeper integration and regulatory convergence. Fourth, capacity building could make a more significant contribution to improving international cooperation on public policies. 

FDA Bans Use of Polycarbonate Resins in Baby Bottles and Spill-Proof Cups

The Food and Drug Administration has issued a final rule that, effective July 17, amends its food additive regulations to no longer provide for the use of polycarbonate resins in baby bottles and sippy cups. This action responds to a petition from the American Chemistry Council, which claimed that these items manufactured from PC resins are no later being introduced in the U.S. market and that manufacturers have abandoned the use of PC resins in making these items. 

PC resins are formed by the condensation of bisphenol A and carbonyl chloride or diphenyl carbonate. The FDA states that PC resins may be safely used as articles or components of articles intended for use in producing, manufacturing, packing, processing, preparing, treating, packaging, transporting or holding food. 

Trade Facilitation Faces Varying Challenges in East African Community, ITC Finds

The International Trade Commission released July 13 its report on trade facilitation in the East African Community, which comprises Burundi, Kenya, Rwanda, Tanzania and Uganda. This report summarizes recent trade facilitation developments in the EAC and describes the potential benefits of trade facilitation to the EAC countries based on empirical studies and the experiences of other developing countries. Highlights of the report include the following. 

- Researchers studying the relationships between customs policy reforms, patterns of bilateral trade and trade costs have found that two improvements generate the largest benefits: streamlining import/export procedures, including the introduction of electronic single window systems, pre-arrival processing, fewer physical inspections and post-clearance audits; and advance rulings. Research suggests that these two measures could potentially reduce traders’ costs by 5.4% and 3.7%, respectively. 

- Compared to global best practices, EAC countries require large numbers of trade documents and inspections. Inspection issues include repeat inspections of products already certified by accredited laboratories, inspections of products originating within the EAC and bearing the certification mark issued by a national standards bureau, and non-standardized testing procedures across countries. The World Bank reports that clearance times in East Africa were seven times less predictable than for any other region of the world. EAC member states are aware that these problems are hampering trade and have targeted documentation and inspections for harmonization by the end of 2012. 

- Electronic customs data interchange systems are not yet in place at all EAC ports and border crossings, so paper customs forms are often still required. In 2005 Kenya began introducing its Simba system, moving customs data collection to an electronic format, and the remaining EAC members have all since adopted the ASYCUDA++ electronic data collection system in at least one port or border crossing. The EAC also intends to set up one-stop border posts at all border crossings within the Community and is currently collaborating with the U.S. Agency for International Development in developing a new regional platform (RADDEx 2.0) that will harmonize customs information sharing among the region’s members. 

- Demand for services at the port of Mombasa in Kenya, which is the origin of one of the two major travel routes in the region, runs well above capacity. In 2009, ships waited an average 2.3 days before coming into the port and containerized vessels spent 3.1 days on average at berth. Rail links in and around the port are generally in disrepair and less than 4% of cargo entering through Mombasa leaves the port by rail, leading to road congestion. Funding has been secured for a new container terminal with an annual capacity of 450,000 twenty-foot equivalent units and other supporting upgrades are envisioned, including dredging the channel, extending rail access to the new terminal and upgrading roads. In addition, a new, higher-capacity port is under construction to the north at Lamu, although its orientation toward South Sudan and Ethiopia will do little to enhance integration and trade efficiency of the current EAC. 

- The port of Dar es Salaam in Tanzania, where the region’s other main travel corridor originates, handles only about half as much cargo as Mombasa but also suffers from combined cargo and container traffic that exceed its capacity. Improvements are underway, particularly given growing import demand from dependent landlocked economies, and plans for a new terminal financed by China’s Exim Bank are being finalized. 

U.S., Ghana Considering Bilateral Investment Treaty

The Office of the U.S. Trade Representative reports that the U.S. and Ghana are considering the possibility of negotiating a bilateral investment treaty. A BIT was among the topics of discussion when USTR Ron Kirk visited Ghana last week for meetings with business leaders and government officials. Those talks also “focused on the importance of trade and investment in promoting economic growth in Africa,” a USTR press release states, as well as the Obama administration’s new presidential policy directive for sub-Saharan Africa

According to USTR, trade between the U.S. and Ghana totaled nearly $2 billion in 2011, a 56% increase over 2010. U.S. imports from Ghana were valued at $779 million, up nearly three-fold from $273 million in 2010. Imports from Ghana under the African Growth and Opportunity Act ($454 million in 2011) represented a substantial portion of total imports and consisted of oil, cocoa powder and paste, vegetables, fruits, precious metals, baskets and apparel. U.S. exports to Ghana topped $2 billion in 2011, up 25% from $963 million in 2010, and included petroleum products, machinery and vehicles. Ghana was chosen as one of four countries in President Obama’s Partnerships for Growth initiative, which is designed to promote broad-based economic growth through trade and investment. 

AD/CV Notices: Pipes and Tubes, Steel Bar

Agency: International Trade Administration. 
Commodity: Circular welded carbon steel pipes and tubes. 
Country: India, Thailand and Turkey. 
Nature of Notice: Continuation of antidumping and/or countervailing duty orders for another five years. 

Agency: International Trade Administration. 
Commodity: Circular welded non-alloy steel pipe. 
Country: Brazil, Mexico, South Korea and Taiwan. 
Nature of Notice: Continuation of antidumping duty orders for another five years. 

Agency: International Trade Administration. 
Commodity: Circular welded carbon steel pipes and tubes. 
Country: Taiwan. 
Nature of Notice: Continuation of antidumping duty order for another five years. 

Agency: International Trade Administration. 
Commodity: Stainless steel bar. 
Country: Japan. 
Nature of Notice: Rescission of administrative review of antidumping duty order for the period Feb. 1, 2010, through Jan. 31, 2011. 
Details: AD duties on entries of subject merchandise during this period will be assessed at rates equal to the AD cash deposit required at the time of entry or withdrawal from warehouse for consumption. 

To get news like this in your inbox daily, subscribe to the Sandler, Travis & Rosenberg Trade Report.

Customs & International Headlines