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U.S. – EUROPE COMMERCE NEWS

A weekly service provided to the American Chambers of Commerce in Europe

US & EU ECONOMIC STATS

U.S. CONSUMER PRICES RISE, TRADE DEFICIT FALLS

According to a U.S. Department of Labor report issued on September 18, U.S. consumer prices rose last month at the fastest pace since April. The Labor Department’s consumer price index grew by 0.3 percent in August, slightly above expectations, after a 0.1 percent increase in July, led by a sharp rise in the cost of tobacco and clothing. Also, according to a Department of Commerce report issued on the same day, the U.S. trade deficit in goods and services was $34.6 billion in July (its lowest level since May), $2.2 billion less than the $36.8 billion deficit in June (revised). The July deficit comprised a goods deficit of $38.8 billion and a services surplus of $4.3 billion. July exports were up by $1.1 billion from June to a 13-month high of $83.2 billion, but July imports were down by $1.1 billion (the first decline since December) to $117.8 billion. In the same report, the U.S. goods deficit with the European Union increased from $6.5 billion in June to $10.3 billion in July. Exports decreased from $11.9 billion in June to $10.5 billion in July, while imports increased from $18.4 billion in June to $20.9 billion in July.

U.S. CONGRESS DEBATING ACTION AFTER WTO RULING

The U.S. Congress is considering its options after the European Union submitted a draft list of roughly $4 billion in annual sanctions against the U.S. in accordance with the recent WTO ruling against U.S. foreign tax credits. In July, House Ways and Means Committee Chairman Bill Thomas (R-CAL) introduced legislation (HR-5095) that would repeal the Extraterritorial Income Tax Exclusion Act of 2000 and replace it with a wide range of tax breaks that would primarily benefit companies with substantial operations overseas. U.S. companies are divided on the Thomas bill because the new assortment of proposed tax cuts would benefit some companies and significantly harm others. Three types of companies stand to lose the most: (1) beneficiaries of the export tax credit; (2) foreign companies with large U.S. operations; and (3) the aerospace/defense industry. As an alternative to the Thomas bill, beneficiaries of the current tax regime are hoping to keep the current export subsidy in place by making it comply with footnote No. 59 of a WTO accord on subsidies and countervailing measures, which permits some types of export subsidies. Another idea is to replace the export tax credit with an unrelated wage credit, giving selected industries a one percent credit of all wages they pay. Thus far, the Thomas bill has reportedly not picked up enough support to advance to the committee markup stage. The first meeting of a new legislative-executive working group to deal with issues surrounding the controversial export regime is scheduled to meet on Sept. 24 to discuss organizational issues.

ENVIRONMENTAL GROUP CALLS FOR EC SANCTIONS AGAINST U.S.

On September 16, the European-based environmental group Friends of the Earth called upon the European Commission (EC) to use $4 billion of the annual sanctions authorized by the WTO in the EU-U.S. foreign sales corporation (FSC) dispute to target U.S. genetically-modified products, as well as those that are energy intensive. Friends of the Earth said that targeting American manufacturers of cars and other energy-intensive products would also be justified because of U.S. government policies relating to biotechnology and climate change. The EC has stated that it will not impose any of the sanctions if it believes that Congress will ultimately replace the FSC laws with a new WTO-compliant regime.

NEW CONGRESSIONAL COMMITTEE DISCUSSES U.S. TRADE AGENDA

The first meeting of the newly organized Congressional Oversight Group (COG) took place on September 19. The COG is part of the trade consultation process set up by the new trade law (PL 107-210) that renewed the President's trade promotion authority (TPA). U.S. Trade Representative Robert Zoellick gave the key lawmakers (who are the leaders of committees having jurisdiction over trade issues) a summary of the administration's trade agenda priorities. Among other issues, Zoellick announced that the Office of the U.S. Trade Representative (USTR) will hold hearings starting next month to obtain public comments on the likely impact of reductions in tariff and non-tariff barriers to trade being negotiated in the Doha WTO round of talks. The Trade Act requires that the guidelines for consultation between the COG and the USTR be developed within 120 days of enactment (August 6). Senate Finance Committee Chairman Max Baucus (D-Montana) warned that the Congressional consensus on trade is "weak and uncertain" and that this will require a close partnership between the Bush Administration and the COG.

U.S. IMMIGRATION SERVICE TO IMPLEMENT NEW FOREIGN STUDENT VISA SYSTEM

The U.S. Immigration and Naturalization Service (INS) reported on September 18 that it will meet a January 2003 deadline to implement a new system for tracking and monitoring foreign students and exchange program visitors issued visas to the United States. According to INS representative Janis Sposato’s testimony before a House Judiciary subcommittee, the Student and Exchange Visitor Information System (SEVIS) is designed to “maintain critical, up-to-date information” about people entering the United States for study or professional exchanges by creating an Internet database that requires sharing, exchange, and updating of information about visa holders by all parties involved with them – the INS, academic institutions, technical training schools, and the Department of State. With SEVIS, which was authorized last May under the U.S. Patriot Act, the Department of State will only issue a visa upon evidence that a student has been accepted for study at an institution certified as legitimate by the INS. Also, more information about students must now be entered into the SEVIS system, such as the student’s date of entry, enrollment in school, establishment of a U.S. address, changes in course of study, employment information, and changes in student status. The U.S. Department of Justice Inspector General, Glenn A. Fine, agreed that SEVIS will be technically operational by January, but he also questioned whether the INS would be able to adequately train all of the employees who will be using the system, including those at thousands of colleges and universities, in time to meet the deadline.

U.S. HOUSE WAYS AND MEANS COMMITTEE VOTES ON TURKEY, YUGOSLAVIA

The U.S. House Ways and Means Committee tentatively approved legislation on September 18 that would expand trade benefits for certain imports from Turkey, but the provision could still be dropped because of controversy over Turkey’s blockade of Armenia. The provision, which was requested by the Bush administration, would amend existing law implementing the U.S.-Israel Free Trade Agreement to create “qualifying industrial zones” where certain goods produced jointly by Turkish and Israeli manufacturers could enter the U.S. market duty free. The committee also approved a provision that would restore most-favored-nation status to Yugoslavia, which was withdrawn in 1992. Both provisions are part of a larger bill that includes more than 300 uncontroversial provisions for tariff suspensions on imports of goods produced abroad and traded in small volume.

WTO PANEL ON EU STEEL RESTRICTIONS CREATED

At its meeting on September 16, the Dispute Settlement Body of the WTO established a panel to examine the European Union’s provisional safeguard measures on imports of certain steel products. The panel was established at the request of the U.S., which argues that the EU’s provisional safeguard measures are inconsistent with WTO rules because the EU imposed the measures without following the investigation process and without clear evidence that increased imports were causing or threatening to cause serious injury. The EU counters that the provisional safeguards were implemented as a safety net against the U.S. Section 201 protectionist action of March 5. The EU also notified the WTO on September 11 that it plans to impose a definitive safeguard on steel with tariff-rate quotas on seven steel products for three years, cutting in half the product coverage and tonnage that have been subject to a provisional safeguard for the past six months. This final safeguard would take effect on September 29.