Emergency Committee For American Trade - Publications

ECAT 2008 AGENDA

SECTION III.2: TRADE LEGISLATION

Much of U.S. trade is governed by legislation, from tariffs to trade-remedy actions to rules on regulation of goods and services imports. This chapter covers several of the principal areas of trade legislation where there has been action over the last year or where action is likely, including:

Legislation on unilateral trade preferences;
Reform of the trade-remedy (antidumping, countervailing duty and safeguard) laws;
Legislative proposals to improve enforcement of U.S. trade agreements and trade laws; and
Customs reform and administration.

Other key legislative frameworks and proposals are discussed elsewhere as follows:

Approval of the U.S.-Peru Trade Promotion Agreement and consideration of trade agreements with Colombia, Panama and Korea in section II.2;
Renewal of Trade Promotion Authority in section II.3;
Permanent Normal Trade Relations with Russia in section II.4;
Modifications to the framework for national-security investment reviews in section III.1;
Sanctions legislation in section III.6;
International tax issues in section III.9;
Renewal of trade adjustment assistance programs and product-safety legislation in section III.10; and
Legislative proposals regarding China trade in section IV.1.

Trade Preference Legislation and Proposals

The United States maintains five "preference" programs providing duty-free access to many goods from developing countries that meet eligibility criteria defined by Congress. Several of these programs will expire in 2008:

Generalized System of Preferences (GSP). GSP provides duty-free treatment to products from 143 designated beneficiary countries and territories. Established in 1976 by the Trade Act of 1974 for a 10-year period, GSP has been renewed numerous times, most recently in December 2006. The current extension of GSP expires on December 31, 2008. The December 2006 extension also modified the program to limit benefits for products that constitute 150 percent of the competitive need limit or 75 percent of U.S. imports of that product.
Caribbean Basin Trade Partnership Act (CBTPA). Originally launched as the Caribbean Basin Initiative (CBI) in 1983, CBI was expanded by the Caribbean Basin Trade Partnership Act, as part of the Trade and Development Act of 2000. CBTPA expires on September 30, 2008.
Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act. Established in December 2006, the HOPE Act expands duty-free treatment for products from Haiti, particularly certain textile and apparel products. The HOPE Act expires on September 30, 2008.
Andean Trade Preferences Extension Act (ATPA). Established in 1991, ATPA provides duty-free treatment to certain products from Peru, Colombia, Ecuador, and Bolivia, as long as they meet certain eligibility requirements. ATPA was extended to December 31, 2008 by H.R. 5264 and is discussed in more depth in Section IV.3.
African Growth and Opportunity Act (AGOA). Established in the Trade and Development Act of 2000, AGOA provides duty-free and quota-free treatment to a wide variety of goods from eligible sub-Saharan African countries. Of particular note are provisions providing duty-free and quota-free treatment to certain apparel products. AGOA expires on September 30, 2015. AGOA is discussed in more depth in section IV.5.

In October 2007, Congressman McDermott (D-WA) introduced H.R. 3905, the New Partnership for Development Act of 2007, which would provide duty-free and quota-free treatment to all products from qualified least-developed countries. The legislation limits such benefits for certain apparel products from countries designated as significant apparel suppliers. It also provides for an agricultural safeguard in certain circumstances.

In December 2007, the HELP Commission issued its report, Beyond Assistance, proposing reforms to the foreign-assistance programs to spur greater growth and development throughout the world. Noting that many of the most reform-oriented countries pay more in tariffs than they receive in development assistance, the HELP Commission recommended better alignment of U.S. trade and development policies. In particular, the HELP Commission recommended authorizing duty-free treatment for countries eligible for Millennium Challenge Corporation support and for countries with GDP’s of less than $2,000. Beyond Assistance, HELP Commission Report on Foreign Assistance Reform (December 2007).

As work continues in 2008 to renew and extend GSP, CBI and the HOPE Act and to consider H.R. 3905 and other alternatives, ECAT believes that it is important that such legislation be developed to broaden its benefits for the United States and its effectiveness for eligible developing countries. The extension of these preference programs must be for a long-enough period of time to foster the investment and predictability that are required to have a positive concrete impact. As well, while ECAT recognizes and supports the GSP graduation provisions for higher-income countries, care must be taken not to graduate precipitously developing countries that are showing some improvement in per-capita income or overall levels of development and that are able to make continued use of the program. Indeed, for many of these countries (including many on the GSP Subcommittee’s list), GSP is showing the concrete benefits it was intended to produce, helping these developing countries improve economic opportunities within their countries, while also benefiting U.S. companies, workers and consumers. Withdrawing benefits to developing countries that are actually using the program for its purposes would seem to thwart the long-term objectives of the GSP program.

At the same time, ECAT welcomes and supports efforts to increase the use of the GSP program by least-developed countries. This goal, however, can likely best be accomplished not by denying benefits to current high users of the GSP program that remain classified as developing economies, but by expanding the products for which duty-free treatment is available for least-developed countries. In this context, comprehensive access for beneficiary agricultural exports is important since agriculture accounts for an estimated 70 percent of all jobs in developing countries. Similarly, expansion in the access of textile and apparel products is also a key component of promoting economic growth in these countries as proposed by H.R. 3905.

Similarly, with respect to the GSP competitive need limitations added in December 2006, ECAT urges Congress and the Administration to consider carefully the unintended impacts of these provisions on the United States.

ECAT POSITION: ECAT supports renewal of the Generalized System of Preferences, the Caribbean Basin Initiative, the Haitian Hemispheric Opportunity through Partnership Encouragement Act and other legislation to promote economic development in the developing world and expand trade and investment opportunities for U.S. farmers, manufacturers, service providers and their workers. To be effective, such legislation should provide clear rules on eligibility, including on investment and intellectual-property protections, and a lengthy renewal period to create the type of predictable environment that will foster the economic growth sought. ECAT recognizes and supports the GSP graduation provisions for higher-income countries, but care must be taken not to graduate precipitously developing countries that are just starting to show improvements in development levels. ECAT welcomes and supports efforts to increase the use of the GSP program by least-developed countries, including through expanding the products for which duty-free treatment is available for eligible least-developed countries.

Trade-Remedy Law Legislation and Issues

Attention will also continue to be focused in 2008 on a variety of trade-remedy law issues, including in WTO negotiations and dispute settlement cases involving trade-remedy rules, and, potentially, reforms to U.S. trade-remedy law.

WTO Rules Negotiations

As discussed in section II.2, the WTO Doha Development Agenda (Doha) negotiations include negotiations to clarify and improve trade-remedy disciplines, such as antidumping and countervailing duties. With increasing U.S. exports of farm and manufactured goods and growing U.S. imports of industrial inputs, major parts of the U.S. farm and business communities have a significant interest in the Doha negotiations clarifying and improving the trade-remedy rules from the export perspective.

Notably, the United States, while oftentimes viewed as the major user of trade remedy actions, is increasingly the target of antidumping actions by developed and developing countries. Since the WTO was established in 1995, U.S. exports have been subject to 169 antidumping actions, making the United States the third most targeted country in antidumping cases, after China and Korea. Such actions by foreign countries have restricted U.S. agricultural and non-agricultural exports, including beef, corn, poultry, chemicals, apples, metals, electrical equipment and other products.

At the same time, antidumping measures taken by the United States have slowed considerably in the last several years. As well, cases have become increasingly complicated where cases brought by one industry increasingly have negative effects on other U.S. industries. And in some cases, the petitioner is seeking not to protect domestic production, but rather U.S. imports from a third country.

Antidumping has long been justified as necessary to offset market-distorting government policies that create protected home markets, thus, allowing a country’s exporters to discriminate on price in foreign markets with an unfair competitive advantage. Yet, there is no requirement to prove such conditions. Nor are the rules to determine whether price discrimination is occurring based on normal business practices. As a result, antidumping actions can unnecessarily create their own artificial and unfair barriers.

At a time when the United States is increasingly facing stiff competition in global markets and seeking to eliminate market barriers through the Doha negotiations, it is important that improvements and clarifications in the trade-remedy area be made in the Doha negotiations that will restore balance and fairness to these rules and enhance the competitiveness of American industry. Such improvements and clarifications are vital to ensure that the market access being negotiated in the Doha negotiations will benefit U.S. farmers, manufacturers, service providers, workers, and consumers, and not be negated by the unfair and abusive use of these rules. The Doha negotiations, therefore, represent an important opportunity to improve the rules on trade remedies to ensure that they target appropriate behavior and price discrimination and do not result in protectionist or unfair barriers against U.S. farmers and manufacturers.

Congressional Trade-Remedy Proposals

Several bills have been introduced in the 110th Congress to amend U.S. trade remedy laws, including the following:

S. 364, Strengthening America’s Trade Law Act: Introduced by Senator Rockefeller (D-WV), S. 364 includes several major changes to antidumping, countervailing duty and safeguard laws that would likely increase tariffs under these rules on U.S. imports.
H.R. 708, Trade Law Reform Act: Introduced by Congressman English (R-PA), H.R. 708 includes several major changes to antidumping, countervailing duty and safeguard laws that would enhance the ability to place tariffs under these rules on U.S. imports.
H.R. 1127, American Manufacturing Competitiveness Act: Introduced by Representative Knollenberg (R-MI), H.R. 1127 would allow U.S. manufacturers that use products subject to countervailing or antidumping duty proceedings or the domestic counterpart (so-called like product) to participate in antidumping and countervailing duty investigations. It would also require the International Trade Commission (ITC) to weigh whether the imposition or continuation of antidumping or countervailing duty orders on products would benefit domestic producers more than it would harm industrial users of the products.
H.R. 1229, Nonmarket Economy Trade Remedy Act: Introduced by Congressmen Davis (D-AL) and English (R-PA), H.R. 1229 would amend U.S. countervailing duty law to make it explicitly applicable to non-market-economy countries. It also adds special rules for the calculation of countervailing duties for non-market-economy countries and requires Congressional approval before a country can graduate from non-market-economy to market-economy status.
S. 796/H.R. 782, Fair Currency Act: Introduced by Senators Bunning (R-KY) and Stabenow (D-MI) in the Senate and by Congressmen Ryan (D-OH) and Hunter (R-CA) in the House, this legislation would provide that, despite WTO rules, currency manipulation constitutes a countervailable subsidy.
S. 1919, Trade Enforcement Act. Introduced by Finance Committee Chairman Baucus (D-MT) and Senators Hatch (R-UT) and Stabenow (D-MI), this legislation would eliminate presidential discretion in section 421 China safeguard cases, require the application of countervailing duty law to non-market-economy countries and prohibit the International Trade Commission from considering certain market conditions when evaluating material injury in a trade-remedy case (discussed further below and in section IV.1).

As Congress considers modifying U.S. trade-remedy laws, ECAT urges that any modification:

be consistent with U.S. obligations, including the WTO, the North American Free Trade Agreement (NAFTA) and other trade agreements;
not undermine the U.S. negotiating position in the WTO or other international negotiations;
balance the interests of the industry seeking relief and other U.S. stakeholders that are affected by the application of these laws; and
establish a fair and proper comparison of prices that is based on commercially relevant considerations and normal business practices.

As described below, U.S. trade-remedy provisions and decisions have already been the subject of numerous challenges in the WTO. The enactment of WTO-inconsistent provisions, as have been proposed in the past several years, undermines U.S. leadership in the world trading system and our ability to convince other countries to honor their commitments. It also undermines U.S. competitiveness and subjects U.S. exporters to the risk of retaliation

WTO Dispute Settlement Cases Involving U.S. Trade-Remedy Laws

U.S. trading partners have sought several reviews of U.S. trade-remedy provisions since binding dispute settlement provisions were adopted with the establishment of the WTO in 1995. Other WTO members, particularly the EU, have similarly seen a significant number of WTO trade-remedy-related cases.

Continued Dumping and Subsidy Offset Act ("Byrd Amendment")

Senator Byrd (D-WV) successfully attached an amendment, the Continued Dumping and Subsidy Offset Act (CDSOA), to the FY 2001 agriculture appropriations bill approved in October 2000. This provision requires that antidumping and countervailing duties be distributed to affected domestic producers who supported the antidumping and countervailing duty actions in the first place, rather than deposited in the general treasury. Eleven parties -- the EU, Mexico, Australia, Brazil, Chile, Canada India, Indonesia, Japan, South Korea, and Thailand -- sought WTO dispute settlement consultations with the United States arguing that the legislation violates several WTO provisions.

In September 2002, the panel reviewing the case found that CDSOA is an impermissible action against dumping and subsidies under the WTO Antidumping and Subsidies Agreements, respectively, because it is a remedy in addition to what is already authorized under those agreements. The Appellate Body agreed with the panel in January 2003. Several countries developed retaliation lists, and the European Union imposed retaliatory measures.

With the strong support of ECAT, the House and Senate in December 2005 repealed CDSOA, which had been found to violate WTO rules as discussed below. The repeal was included in S. 1932, the Budget Reconciliation bill, and provides that CDSOA is repealed for entries "made and filed after October 1, 2007."

ECAT strongly opposed enactment of CDSOA because it undercuts U.S. leadership in the global trading system and is inconsistent with U.S. trade obligations. As well, it sets a precedent that we do not want other countries to follow by increasing the incentives for filing antidumping and countervailing duty cases. Through this provision, domestic companies that are successful in having antidumping and/or countervailing duties imposed on foreign competitors, receive a cash reward for their success. This is not in the interest of U.S. exporters who may face similar laws abroad.

Zeroing Methodology

Zeroing is a practice by which the United States and some other countries treat certain price comparisons as zero values in calculating the overall dumping margin when such comparisons do not show dumping. Use of this methodology during the investigation stage of an antidumping action has consistently been ruled as contrary to the United States’ WTO obligations in several cases, including softwood lumber imports from Canada and numerous products from the European Union. The Commerce Department eliminated the use of the zeroing methodology in investigations starting on February 22, 2007.

Japan is seeking full compliance from the United States on the zeroing issues with respect to administrative reviews as well, and is currently seeking a compliance panel.

Given commercial realities and international obligations, the United States should eliminate all zeroing in its calculation of antidumping duties not only in investigations, but also with respect to administrative reviews. This issue is discussed as well in the context of the Doha negotiations in section II.1.

Hot-Rolled Steel from Japan

On July 24, 2001, the WTO Appellate Body issued its report finding that the United States’ application of antidumping duties on imports of hot-rolled steel from Japan violated the WTO agreement on antidumping measures. In particular, the Appellate Body (and lower panel) found that the U.S. methodology for calculating the so-called “all-others rate” did not rely fully on actual company information, but included some calculations based on “facts available.” The Appellate Body also found fault with the ITC’s injury analysis. An arbitrator determined that the United States would have 15 months, until November 23, 2002, to comply with this ruling.

While the United States complied with the ruling on the investigation, there remains at issue its lack of implementation of the all-others rate. Japan has agreed to several extensions for the United States to come into compliance with this part of the decision. ECAT strongly supports the approval and implementation of legislation to bring the United States into compliance as soon as possible.

Privatization Methodology under the U.S. Countervailing Duty Law

U.S. trading partners have also brought several cases against the methodology used by the Commerce Department in determining whether government subsidies to a government-owned company continue after the company has changed ownership or been privatized (so-called privatization methodology). In May 2000, the WTO Appellate Body found that the U.S. privatization methodology used in the case of hot-rolled lead and bismuth carbon steel products (Leaded Bar decision) was inconsistent with the WTO Agreement on Subsidies and Countervailing Measures. The United States terminated the duties, but did not propose any legislative modifications as the EU had sought.

On November 13, 2000, the EU requested consultations in 14 separate U.S. countervailing duty proceedings (involving imports of steel and other products) with respect to the Commerce Department’s privatization methodology, arguing that this methodology was found to be inconsistent in the earlier Leaded Bar decision. Consultations were held in December 2000, and a panel was formed in September 2001. The panel ruled in July 2002 that the statutory provision on privatization (section 771(5) (F) of the Tariff Act of 1930) and the Commerce Department’s privatization methodology were inconsistent with the WTO Subsidies Agreement. In December 2002, the Appellate Body upheld the panel's finding that the Commerce Department’s methodology was inconsistent with the Subsidies Agreement. It rejected, however, the panel’s reasoning that an arm's length sale of a government-owned firm for fair market value always extinguishes prior subsidies; rather it creates a rebuttable presumption that prior subsidies are extinguished. The Appellate Body found that the statutory provision was not, therefore, inconsistent with WTO rules.

The Commerce Department modified its methodology on privatization and issued revised determinations, revoking two orders entirely and one order in part. In five additional cases, the Commerce Department recalculated the countervailing duty rates. On November 7, 2003, the United States informed the WTO that it had complied with the WTO rulings. On March 17, 2004, the EU informed the WTO that it found these actions insufficient and requested further consultations with the United States. The WTO panel formed to hear this case ruled in August 2005 that the United States had complied with WTO rules, except with respect to its failure to examine the privatization of British Steel and Aceralia and in the treatment of new evidence in the British Steel case.

Other Trade Remedy Cases

In addition to the cases discussed above, U.S. trading partners have challenged several U.S. antidumping and countervailing duty decisions and safeguard measures on many occasions, including

The United States’ application of section 201 of the Trade Act of 1974 (safeguard actions) with respect to wheat gluten, lamb meat, circular welded carbon line pipe, line pipe and wire rod, and steel products. In each of these cases, the WTO Appellate Body ruled against the United States, finding in particular flaws in the determination of whether dumped or subsidized imports caused injury or the threat thereof to the domestic industry.
Other specific cases, including steel plate from India, corrosion-resistant steel from Germany, oil country tubular goods from Argentina and Mexico, steel pipe from Italy, and cement from Mexico.

The Canadian complaints against U.S. antidumping and countervailing duties imposed in softwood lumber decisions are discussed in section IV.3.

ECAT POSITION: It is vitally important that U.S. unfair trade laws, including Section 201 and Section 421 safeguard provisions, maintain – in both the legal provisions and their application – a careful balance between the interests of the petitioning industry and the interests of other U.S. industries and consumers. It is critical that Congress and the Administration oppose any efforts to impose import restraints or amend U.S. antidumping, countervailing duty, or safeguards laws in ways that would invite foreign retaliation, encourage restrictive foreign mirror legislation, and/or violate the United States’ international-trade commitments.

Legislative Proposals on the Enforcement of Trade Agreements

Several legislative trade-policy proposals were introduced in 2007 that seek to expand the Administration’s enforcement efforts of trade agreements and, in some cases, Congress’ role in that effort. Additional legislation on these issues can be expected in 2008.

The most extensive of the pieces of legislation introduced is S. 1919, the Trade Enforcement Act. Introduced on August 1, 2007 by Senate Finance Committee Chairman Baucus (D-MT) and Senators Hatch (R-UT) and Stabenow (D-MI), this legislation would require the Office of the United States Trade Representative (USTR) to issue an annual report on enforcement reviewing actions taken and priority foreign country trade practices on which enforcement action will be focused. USTR is required to consult with the Senate Committee on Finance and the House Committee on Ways and Means, which can each vote to identify priority country practices to be identified in USTR’s report. Following issuance of the report, USTR is required to seek appropriate resolution of each priority country trade practice identified through a variety of possible actions, including dispute settlement procedures or the negotiation of an agreement that would eliminate the practice. USTR is required to report on the action taken and, in certain cases, to report on why dispute settlement or a negotiated agreement was not sought. USTR is then required to report on progress to the two committees every six months. This legislation would also establish the position of Chief Trade Enforcement Officer at USTR and mandates the creation of an inter-agency trade enforcement group. As well, this legislation eliminates presidential discretion in section 421 China safeguard cases and requires the application of the countervailing duty law to non-market-economy countries (both discussed in section IV.1) and modifies the material injury determination used in antidumping and countervailing duty cases.

ECAT strongly supports the need for the vigorous enforcement of trade agreements to which the United States is a party and other actions to address market-access barriers abroad. Indeed, the U.S. Government has multiple ways to help small, medium and large companies address trade problems from the “Trade Compliance Center” at the Department of Commerce, to professional staff at the Department of Agriculture, the Department of the Treasury, the Office of the United States Trade Representative and other agencies, as well as by U.S. foreign and commercial officers overseas and U.S. Embassy staff. Most enforcement issues raised before the U.S. government are successfully addressed by professional, non-political staff and never rise to a level requiring formal dispute settlement.

As recognized by S. 1919, not all issues can be resolved through the same process. For example, some issues may be best resolved through dispute settlement; in other cases, the legal arguments may not be as clear and other strategies, such as negotiated resolutions, may be more effective, timely and, therefore, appropriate. ECAT is concerned by proposals that would establish an independent authority to decide what cases should be brought, when that party has no responsibility for actually handling litigation and is not required to consider the seriousness of the issue or even the views of the companies whose commercial issues are involved. As discussed in section I.1, ECAT also does not believe the type of WTO review commission established by this legislation is either warranted or appropriate.

U.S. Customs and Border-Protection Issues

U.S. Customs and Border Protection, a unit of the Department of Homeland Security, represents a key element in the United States’ trade competitiveness. Its role has changed dramatically since it was first authorized to collect customs duties on goods in 1789. While duty collection remains important, Customs and Border Protection (CBP) plays an integral role in facilitating legitimate trade and protecting the nation’s borders, a role that was reemphasized with its transfer to the Department of Homeland Security in 2002. In order for U.S. farmers, manufacturers, service providers, and retailers to remain competitive, efforts must be made to help U.S. Customs and Border Protection keep pace with technological developments and the changing international economic environment.

Transfer of Customs Functions to Department of Homeland Security

In November 2002, Congress approved H.R. 5005, the Homeland Security Act of 2002. This legislation established the Department of Homeland Security (DHS), to prevent terrorist attacks within the United States and reduce the vulnerability of the United States to terrorism. As part of the consolidation of numerous U.S. Government functions, the U.S. Customs Service was moved from the Department of the Treasury to the DHS and renamed U.S. Customs and Border Protection (CBP). CBP was placed within the Directorate of Border and Transportation Security, along with the Transportation Administration of the Transportation Department, the Federal Protective Service of the General Services Administration, the Federal Law Enforcement Training Center of the Department of the Treasury, and the Office of Domestic Preparedness of the Office of Justice Programs. The Commissioner of Customs remains as head of CBP within DHS.

The Homeland Security Act provides that the customs-revenue functions are not transferred to the DHS and that the Secretary of DHS may not consolidate, discontinue or diminish the customs revenue functions of CBP or reduce staffing levels or resources attributable to these functions. Further, the Treasury Secretary is authorized to appoint up to 20 persons to work with the DHS in performing customs-revenue functions. No funds available to CBP or customs-user fees collected by CBP as part of the Consolidated Omnibus Budget Reconciliation Act may be transferred to any other agency or office of the DHS. The President is required to include a separate budget request for CBP.

Trade-Related Security Initiatives

Cargo Screening

ECAT supports legislative and executive branch actions that encourage and fund investment in technological solutions that will screen all cargo efficiently without the disruption of the flow of goods (e.g., Operation Safe Commerce or the Hong Kong Port Project).

Enacted on October 13, 2006, after many months of Congressional and Administration consideration, the Security and Accountability for Every (SAFE) Port Act (Pub. L. 109-347) includes the following key provisions:

Requires development of a pilot project for integrated scanning systems.
Requires 100-percent-cargo screening of cargo containers after the integrated scanning system is feasible, effective and meets certain requirements.
Enhances security requirements for U.S. facilities and vessels.
Authorizes funding for port-security grants based on risk.
Requires radiation scanning of containers entering high-volume U.S. ports by the end of 2007 and to all ports by the end of 2008 after the development of a plan.
Requires (1) development and implementation of a strategic plan to enhance the security of the international supply chain (defined as the end-to-end process for shipping goods to or from the United States, beginning at the point of origin through a point of distribution to the destination); and (2) submission of an interim and final report to Congress for the strategic plan. Also specifies requirements for the strategic plan.
Requires rulemaking to establish minimum standards and procedures for containers in transit to the United States.
Legislatively authorizes the Container Security Initiative (CSI) and requires Administration to report to Congress on its effectiveness.
Legislatively authorizes Customs-Trade Partnership Against Terrorism (C-TPAT).
Require the Secretary of the Treasury to establish an electronic trade data interchange system, to be known as the International Trade Data System (ITDS), to eliminate redundant information requirements, regulate the flow of commerce, and enforce laws relating to international trade by establishing a single portal system operated by CBP.
Congress debated and passed amendments to the SAFE Ports Act as part of H.R. 1, enacted on August 3, 2007. The key modifications include mandating:
All containers bound for the United States by sea be scanned in foreign ports prior to loading no later than July 2012. The Secretary of Homeland Security has the authority to grant two-year extensions (and renew such extensions) to individual ports or groups of ports if it can certify that at least two of six conditions exist: (1) systems to scan containers are not available for purchase and installation; (2) systems to scan containers do not have a sufficiently low false alarm rate for use in the supply chain; (3) systems to scan containers cannot be purchased, deployed, or operated at ports overseas, including, if applicable, because a port does not have the physical characteristics to install such a system; (4) systems to scan containers cannot be integrated with existing systems; (5) use of systems that are available to scan containers will significantly impact trade capacity and the flow of cargo; or (6) systems to scan containers do not adequately provide an automated notification of questionable or high-risk cargo as a trigger for further inspection by appropriately trained personnel.
A system to screen 50 percent of air cargo within 18 months of enactment (February 2009) and 100 percent of all air cargo within three years (August 2010).

While ECAT welcomes Congress’ continued efforts to enhance security, ECAT continues to be concerned by the final legislation that mandates the use of technology that does not currently exist and is not considered feasible to put into place within five years. This legislation is very likely going to have the unintended consequence of disrupting trade flows and inviting retaliatory action against shipments from the United States. While ECAT appreciates the extension authority built into the legislation, ECAT will continue to work with Congress and the Administration to promote a more technologically feasible approach that will more effectively focus on national security issues.

Customs-Trade Partnership Against Terrorism and the Container Security Initiative

Other key trade-related security measures developed by CBP include the Customs-Trade Partnership Against Terrorism (C-TPAT) and the Container Security Initiative (CSI):

Customs-Trade Partnership Against Terrorism (C-TPAT). C-TPAT is a voluntary government/private sector partnership to enhance security and expedite compliant cargo. C-TPAT is focused on enhancing international supply-chain security through building partnerships between CBP and businesses active in international trade. Through the partnership, businesses implement enhanced security procedures, while CBP helps ensure expedited processing. The success of C-TPAT has been in its cooperative, voluntary and flexible nature that maintains a focus on preventing terrorism and enhancing commerce.

Container Security Initiative (CSI). Through the CSI, CBP has negotiated agreements to improve container security with 58 foreign ports, covering 90 percent of containerized cargo shipped to the United States. In particular, the CSI creates a regime that identifies high-risk containers, which are prescreened before they are shipped. Containers are screened as early in the supply chain as possible, generally at the port of departure through state-of-the-art technology. CBP works with local customs officers to improve security screening and processes. CBP expects to expand the CSI to additional ports in 2008.

Recent changes to these programs have been made through administrative action and/or legislation, and others are being discussed. ECAT believes extensive discussions should take place between the business community and government at all levels prior to legislating or implementing any significant changes. Moreover, ECAT strongly believes these programs should remain cooperative, voluntary, focused on preventing terrorism and with defined benefits. Flexibility through collaboration is essential, as supply chains are global in nature and very different depending on industry and company. Discussions on the usefulness and impact of requiring additional advance-shipment data to Customs should continue at the Customs Operational Advisory Committee (COAC) and Customs Trade Support Network (TSN) Supply Chain Security Committee. Special care must be used in prescribing “standards” or solutions that might add little to increased security, while substantially disrupting the flow of shipments in foreign and U.S. ports.

Automation Modernization

CBP has sought to develop and implement the so-called Automated Commercial Environment (ACE) to enable CBP to process more efficiently and cost-effectively imports and exports and to better protect U.S. borders from threats from abroad.

Start-up on ACE began in earnest in the summer of 2003, with the establishment of an ACE secure data portal and an initial 41 account participants. Activities have since been expanded. In December 2004, CBP introduced in Blaine, Washington, its first port for “e-Manifest: Trucks” through which truck manifests are automated. CBP has expanded this work to additional ports and now uses an electronic manifest (e-Manifest) for trucks. By the end of 2007, there were more than 14,000 ACE Portals. Approximately 42 percent of all duties collected were collected by ACE in fiscal year 2007. Full ACE deployment is expected by the end of 2010.

ECAT continues to support full funding of the ACE program from general revenues and the modernization of Customs’ operations in order to promote more cost-efficient and effective commercial and enforcement programs.

Customs Modernization

The U.S. Customs Service also continues to be engaged in implementing the provisions of the Customs Procedural Reform and Simplification Act of 1978 (1978 Procedural Reform Act) and the Customs Modernization Act (the so-called Mod Act), which was enacted as title VI of the NAFTA Implementation Act of 1993. The 1993 Mod Act eliminated statutory requirements for paper documentation and provided authority for full electronic processing of customs-related transactions. In return for waiving paperwork requirements, the Mod Act imposed certain recordkeeping requirements on importers and required the production of some information after the fact. The Mod Act also authorized several automation initiatives based on the 1978 Procedural Reform Act, including remote-entry filing, periodic entry and duty payment. As well, the Mod Act required modifications in duty-drawback provisions and procedural safeguards.

Under Mod Act authority and prior authority provided by the 1978 Procedural Reform Act, the Customs Service has engaged in a significant reorganization of its activities and functions. While Customs’ reorganization has resulted in some greater efficiency, the importing and exporting communities remain very concerned that implementation and interpretation of authorized reforms are not yet complete, nor fully consistent with the goals and requirements of the 1978 Procedural Reform Act and the Mod Act. In particular, concerns have been raised regarding:

Customs’ Compliance Assessment and its Trade Compliance Risk Management processes, including Customs’ reliance on audit-based evidentiary standards (relying on the Generally Accepted Government Audit Standards (GAGAS) rather than the reasonable care standard of the Generally Accepted Accounting Principles (GAAP)).
Customs’ Compliance Measurement and its associated penalty processes (increased cargo inspections, etc.) which penalize otherwise compliant and unsuspecting importers for errors or omissions caused by licensed brokers and express couriers.

ECAT supports efforts to further modernize the Customs Service to promote greater trade facilitation and efficiency in a manner consistent with its mandate. In particular, ECAT believes that Customs could substantially improve its operations to better achieve border and economic security through adoption of the following proposals:

Eliminate reconciliation for all entries that provide statistical updates only and have no impact on revenue;
Simplify and reduce the Harmonized Tariff Schedule;
Provide a total electronic interface for all required data to eliminate paper documents;
Eliminate the release of confidential and trade-sensitive data to non-governmental agencies;
Operate ports 24 hours/7 days a week; and
Reduce the required data for exports and imports to a single set of data.

Recent Customs and Border-Protection Proposals

Proposed Advance Importer/Carrier Security Filing Requirements (10+2 Rule)

ECAT is very concerned by advance importer/carrier security-filing requirements proposed in a January 2, 2008, Federal Register notice. In that notice, CBP proposed new regulations to require importers and carriers to file additional documents prior to bringing the merchandise to the United States. Known as the “10 + 2” rule, this proposal would require importers to provide 10 pieces of data and shippers to provide two pieces of data into a new database for use in identifying security risks 24 hours before the cargo is laden at a foreign port, building on the 24-hour manifest rule adopted in December 2002. Failure to provide such information as required will result in hefty fines.

While ECAT recognizes the U.S. Government’s interest in having advance information to evaluate national-security risk, this rule and the proposed fines do not substantially advance that goal, but will more likely lead to a focus away from the most critical shipments and impede the legitimate commercial flow of goods into the United States to the detriment of U.S. companies, workers and their families. At the same time, it will do little to deter those who seek to evade U.S. laws who can continue to file fraudulent information.

With the increased use of just-in-time delivery and greatly expanded product-supply chains, adoption of the proposed 10+2 rule is likely to have substantial adverse impacts on supply chains, production and product delivery. The proposal requires information to be provided in a timeframe that is simply not realistic for many importers, including those U.S. manufacturers who require inputs from abroad, and will impose substantial additional costs. The proposal combined with existing requirements imposes duplicative requirements and unnecessarily places the same requirements on participants in the C-TPAT program discussed below as all other importers.

ECAT urges CBP to consult widely on this proposal and withdraw it or modify it in a manner that will more appropriately and effectively address national-security concerns. If CBP proceeds with even a modified proposal, it will be critical to conduct a pilot program to determine its feasibility and make changes based on that pilot program before implementing it industry-wide.

Proposed Elimination of First-Sale Rule

ECAT is very concerned by a recent CBP proposal that would change Customs’ calculation of the value of imported shipments, by overturning the so-called “first-sale” rule. This proposal would impact all importers who currently take advantage of the so-called "first-sale" rule, which bases a shipment’s dutiable cost on the price between a foreign factory and a middleman, rather than the price between the middleman and the U.S. buyer. In a January 24, 2008, Federal Register notice, CBP proposed to change its long-term interpretation of Customs law to interpret the phrase "sold for exportation to the United States" to mean the last sale in a series of transactions before the good enters the United States. The CBP proposal does not take into account U.S. court decisions that permit the use of the first-sale rule, and abandons its longstanding administrative practice. In the end, U.S. businesses will be negatively affected, as the known costs of this proposal are high and include increased duties and fees that will be passed to U.S. consumers. This proposal, its timing, and known and unknown costs to U.S. businesses and consumers seem contrary to the current focus on U.S. economic stimulus

ECAT POSITION: ECAT is committed to working with U.S. Customs and Border Protection (CBP), the Department of Homeland Security (DHS) and the Department of the Treasury to help ensure that the restructuring of Customs functions progresses in a manner that fulfills our national security and enforcement goals, while also facilitating the flow of legitimate commercial trade that provides enormous economic benefits to the United States. ECAT strongly supports implementation of the SAFE Ports Act and full funding of the Automated Commercial Environment (ACE) from general revenues. ECAT also strongly supports improvements in the operation of CBP, including through full and improved implementation of the Customs Modernization Act and the Customs Procedural Reform and Simplification Act of 1978 in a manner that facilitates trade. ECAT is concerned, however, by the imposition of a technologically infeasible 100-percent cargo-screening requirement by H.R. 1 and CBP’s proposed changes to expand importer/carrier security filings through the 10+2 rule and to overturn U.S. court cases and CBP practice regarding the first-sale rule.