MAY 2006

Inside Washington by Janet Kopenhaver, AWPA Director of Government Affairs

TRADE

. President Bush Delivers Trade Report

The Bush Administration delivered to Congress the 2006 Trade Policy Agenda and the 2005 Annual Report on the Trade Agreements Program. The 2006 agenda details the many benefits of trade for US businesses, farmers and ranchers, service providers and consumers, reviews the Administration's accomplishments of 2005, and lays out its ambitious agenda for 2006.

One of the top priorities is the conclusion of the Doha Development Round by the end of the year - a feat that was made more difficult upon the transfer of USTR Ambassador Portman to OMB.

The report also emphasized the importance of successfully concluding bilateral and regional agreements in 2006. The Administration will move vigorously to negotiate new bilateral and regional trade agreements to create a host of new opportunities for US workers, farmers and businesses.

Finally, it stated that trade rules must be fair and aggressively enforced. The Administration pledged to continue to use all available tools to ensure that our trading partners live up to their obligations as WTO members and FTA partners.

. EC Imposes "Byrd Amendment" Sanctions on Eight Additional US Products

In response to US failure to immediately repeal the WTO-illegal Byrd Amendment (also known as the Continued Dumping and Subsidy Offset Act (CDSOA), the European Commission (EC) has added eight products to the list of US-originating products currently subject to 15% additional customs duties effective May 1, 2006.

In February 2006, the President signed into law S. 1932 which, among other things, repealed the Byrd Amendment. However, the bill allowed duties on entries of goods made and filed before October 1, 2007 to be distributed as if the Byrd Amendment was still on the books.

The additional retaliatory tariffs total $9.1 million and cover different types of blankets, paper products, photocopying apparatus and drills. EU Trade Commissioner Peter Mandelson's office said the new measures were justified because US government payments to American companies are scheduled to continue for two more years despite the disputed trade law being repealed in February. The new $9.1 million in EU sanctions, brings the total amount of penalties levied against the US in response to the disputed trade law to $36.9 million.

Undersecretary for International Trade Frank Lavin Speaks of US- China JCCT Frank Lavin, Undersecretary for International Trade at the U.S. Dept of Commerce, spoke to the International Trade Community on April 18th and summed up the US-China Joint Commission on Commerce and Trade (JCCT) meeting which took place last week. The US and China are still working to determine and shape the role of China in the international arena. The JCCT is the mechanism for resolving bilateral disputes with China.

The US has engaged the Chinese in a steel dialogue to prevent potential over-capacity in steel production in China. China is responsible for one-third of all global steel trade production, and currently the country has 70-80 million tons of excess capacity. In 2003, China was the largest importer of steel; in 2005 the country became a small net exporter.

The US is communicating to the Chinese that it is not in their interests to have too many steel production facilities, especially since they would be heavily subsidized. World demand should dictate the extent of steel mill development in China and steel disputes will be avoided 10 years down the road. The Chinese have been responsive so far.

In general, Lavin said the Chinese could be ambivalent about market economics or negotiating a "win-win" outcome. They tend to be very skeptical about liberalization, but it is important to persist and engage as broad a number of Chinese leaders as possible. Nevertheless Lavin predicts that US exports to China will increase in the coming year as a result of these talks.

As for the recent spate of anti-China bills in Congress, Lavin stated that those bills imposing tariff barriers on imports from China pose an enormous problem. Since tariffs risk punishing the larger US economy, he said it is better to file formal AD cases, use the 421 mechanism, or use the WTO Dispute Settlement Mechanism to resolve trade disputes.

. ENVIRONMENT

Air Quality Standards to Stay

EPA Administrator Stephen Johnson has decided to maintain the current annual standard for fine particulate matter, or soot, while reducing the daily soot limit from 65 micrograms per cubic meter of air to 35. The annual air standard would remain unchanged at 15 micrograms per cubic meter of air.

The proposal will not become final until September 2006, and in many eyes fell short of what the EPA's scientific advisory board proposed earlier this year. That group suggested lowering the annual fine particulate level to 13 or 14 micrograms per cubic meter, and setting daily exposure levels to between 30 and 35 micrograms.

In addition, EPA proposed a standard for reducing inhalable coarse particles, or PM10-2.5. For these particles, EPA is proposing a 24-hour standard of 70 micrograms per cubic meter. The standard would apply to airborne mixes of coarse particles that come from sources such as high-density traffic on paved roads and industry.

OSHA Announces New Chromium Exposure Limit

OSHA has announced a new permissible exposure limit for hexavalent chromium used in the steel and welding industries. The new limit reduces the permissible exposure for workers to five micrograms of hexavalent chromium per cubic meter of air over an average of eight hours, rather than the one-microgram limit that OSHA had proposed in 2004. The previous limit, established in 1971, was 52 micrograms. A federal appeals court in 2003 ordered the federal government to lower the limit. Most companies have until November to comply with the new limit. This new limit is about one-tenth the level that has been permitted since the 1940s. But it will allow exposures five times as high as the OSHA had initially proposed in 2004, and 20 times as high as the level that had been sought by activists who filed a lawsuit to force the agency to set a new standard.

More than 500,000 workers are exposed to hexavalent chromium and an estimated 88% of companies that use the metal currently comply with new limit.

. LEGISLATION

Rep. Cardin Introduces WTO Trade Bill

Rep. Benjamin Cardin (D-MD), ranking Member of the House Ways and Means Trade Subcommittee, introduced a bill that would direct the USTR to negotiate an end to World Trade Organization (WTO) rules that "discriminate against countries such as the United States that rely more heavily on direct than indirect taxation." If USTR is unable or unwilling to negotiate changes in these rules, the bill would authorize the application of countervailing duties (CVDs) after January 2008 on imports from countries like China, Brazil and France that are found to benefit from rebates of indirect taxes.

The legislation also calls for the creation of a commission of retired federal judges to review WTO dispute settlement decisions to ensure that they are consistent with the United States' WTO obligations.

This bill likely comes in response to the WTO Appellate Body's ruling that the US failed to adequately conform its tax laws on Foreign Sales Corporation in the Jobs Act.

. Rep. Rangel Introduces Legislation to Renew ATPA

On March 30, 2006, Representative Charles Rangel (D-NY), ranking Democrat on the House Ways and Means Committee, introduced legislation to extend for one year the Andean Trade Preference Act (ATPA) which provides duty-free benefits to certain developing countries and is set to expire on December 31, 2006. Rangel stated that "extending these benefits before they expire will send a signal to developing countries that [the United States] will stand with them as they grow," and that through the extension of the benefits, "developing countries and US businesses will be able to engage in long-term planning necessary to foster continued economic growth and stability."

. US Senate May Pass Anti-China Legislation

Following President Hu's recent visit to Washington, the Treasury Department declined to cite China - under a 1988 trade law - as a country that manipulates its currency to benefit its trade. Treasury's decision was sharply criticized on Capitol Hill, where lawmakers from both political parties threatened to take legislative action against China. In response to the Treasury Department decision, Sens. Lindsey Graham (R-SC) and Charles Schumer (D-NY) said they plan to move ahead with a floor vote on their legislation (S 295) imposing retaliatory trade sanctions against China unless there is "real movement" in the yuan by September 30. That legislation will pass the Senate with overwhelming support, they predicted. Sen. Graham said he wants to see the yuan appreciate by 7 percent to 10 percent by September 30. Such an appreciation would not undermine China's banking sector, he argued. Meanwhile, Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and ranking Democrat Max Baucus (Mont) said they plan to move their bill (S 2467) that would do away with the "currency manipulator" designation in the report and instead require Treasury to cite countries for having "fundamentally misaligned" currencies. It also increases the options available to the Administration to deal with currency problems.

Specifically this bill would apply to any country whose currency is not in line with the market, not just China. It would replace the current Treasury Department system for identifying exchange rate problems abroad, and provide specific consequences for countries that Treasury finds do not value their currencies fairly.

While Treasury now must determine whether a country is manipulating its currency to gain a trade advantage, this bill would require Treasury to determine if a currency is "fundamentally misaligned" and if that misalignment causes a material adverse impact to the US economy. That finding would trigger a negotiation with Treasury officials aimed at correcting the currency imbalance.

If negotiations were unsuccessful, the US would oppose new loans from international institutions like the International Monetary Fund, the country would become ineligible for Overseas Private Investment Corporation insurance, and the US would retain non-market economy status for the country in the application of antidumping laws. Deputy Secretary of State Robert Zoellick said on May 10th, that he believed the US should engage with China and encourage it to become a "responsible stakeholder" in the international system by using its rising influence to support global security and prosperity. Among other things, that means taking steps to enforce intellectual property rights, reform its inflexible currency regime, boost human rights, and be careful in its dealings with sketchy regimes like Sudan.

He praised China's plan to bring its current account surplus into balance, a strategy that includes boosting imports and reforming the exchange rate system. But he said the program needs to be implemented on a sustainable timeline or else face punitive action from Congress.

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