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Border delays. Export restrictions. Trade sanctions. Overseas investment vulnerability. The international trade sector is bracing for the ripple effects of the Sept. 11 attacks and America’s unfolding war against terrorism. Already, businesses are reporting a slowdown in moving goods into the country, as the U.S. Customs Service remains on its highest level of alert. Trade experts anticipate there will be more repercussions still. “There’s going to be heightened scrutiny by all governments, not just on goods coming in and out of the U.S. It’s going to be global,” says George Weise, head of the U.S. Customs Service from 1993 to 1997 and now a vice president at Vastera, a Dulles, Va.-based global trade management company. In the United States, Weise notes, the pressure on the Customs Service is intense. The agency’s mission statement proclaims, “We are the guardians of our nation’s borders-America’s frontline.” In fact, the 19,000-employee agency historically has been pulled between the competing and sometimes contradictory demands of law enforcement and trade facilitation. Now, the balance has decisively tipped to law enforcement — even if it means shipments back up at the border while agents search passengers and cargo. “We are questioning more people and looking at more goods than ever before,” said former Acting Commissioner Charles Winwood at a Sept. 14 press conference. (Last week, the Senate confirmed the president’s nominee, Robert Bonner, an L.A.-based Gibson, Dunn & Crutcher partner, to head the agency). “We must ask for the public’s patience with the longer waits and processing times these security measures may entail.” But for businesses, delays in moving goods across the border mean higher costs. “Time is money,” notes Willard Workman, senior vice president of international affairs at the U.S. Chamber of Commerce. “For those companies that maintain no or minimal inventory and are heavily devoted to just-in-time manufacturing, it’s had a significant impact.” Affected industries include U.S. automakers, which rely on punctual delivery of parts from Canada. However, a Customs spokesman reports that delays have lessened in the past week. Customs is under strain in another way as well — the agency’s field office in the World Trade Center complex was destroyed. While no employees were killed, the agency lost case files on a variety of legal matters, such as disputes over how to value shipments of goods and questions about product categorization. Recreating the files is “a huge task,” says Sturgis Sobin, a Washington, D.C.-based trade specialist at Miller & Chevalier. ON THE WAY OUT In addition, goods flowing out of the country are also likely to receive heightened scrutiny. “There will be a closer review of national security-related exports,” predicts D.C.-based Arnold & Porter of counsel John Barker, who stepped down as deputy assistant secretary for nonproliferation controls at the State Department on Sept. 7. In particular, he says, chemical and biological products with the potential to be turned into weapons are likely to be most carefully examined. “Stronger [export] controls would not have prevented the attacks,” says Barker. “But as heartbreaking as the attacks were, they could have been much more severe if the terrorists had released a biological or chemical weapon.” Other trade lawyers agree. “There are already controls out there, but I’m quite certain people are going to take a look at the controls to see if they need to be tightened and broadened,” says Amanda DeBusk, a D.C.-based trade partner at Miller & Chevalier and, until last year, assistant secretary for export enforcement at the Department of Commerce. She adds, “We’re trying to be braced for a series of [government] activities on export control.” Still, her clients aren’t complaining — at least not yet. “I’ve already noticed clients are being more careful, more worried” about what they export, she says. “People are feeling very patriotic.” The attacks also seem to have knocked the wind out of the Senate version of the Export Administration Act of 2001, which passed by an 85-14 vote on Sept. 6 with the backing of the administration. The bill would ease restrictions on the export of powerful computers and other mass-market, high-tech goods that could have a commercial or military use. In July, the House International Relations Committee passed a version of the bill that is significantly stricter than the Senate’s. Barker of Arnold & Porter says he does not expect further House action anytime soon, and predicts lawmakers will want to take a closer look at the Senate provisions in light of recent events. But DeBusk points out that the bill also increases civil and criminal penalties for export control violators, which might have real appeal to lawmakers right now. “The penalty for a civil violation is $11,000,” she says. “If we want to get serious about [export control], we need serious deterrents.” But the prospect of heightened export control has Workman from the Chamber of Commerce up in arms. “Unilateral controls are virtually worthless,” he says. “In fact, they damage U.S. economic security by putting unfair and unique burdens on U.S. companies competing in a global environment.” Still, the crisis could play a role in promoting other aspects of the administration’s trade agenda. In a Sept. 20 op-ed article in The Washington Post, U.S. Trade Representative Robert Zoellick called on Congress to “complete action on the U.S. free trade agreement with Jordan, our first such commitment in the Arab world,” and to give the president trade promotion, or fast track, negotiating authority. “Trade and earnings on international investments now amount to one-third of our nation’s output,” he wrote. “America cannot lead effectively if it slips in international markets.” V. James Adduci II, a name partner at D.C. trade boutique Adduci, Mastriani & Schaumberg, predicts that Congress will move swiftly on the Jordan agreement. “I see the U.S. using its trade laws as a means of gaining leverage, of rewarding friends and not rewarding those who do not cooperate,” he says. Others agree and anticipate additional sanctions against countries that harbor terrorists — Afghanistan, for example, is not currently listed as one of the seven countries deemed state sponsors of terrorism by the United States. But the government is likely to go further. “The threat of trade sanctions will be used to help encourage countries to join the international coalition against terrorism,” says Barker. But he also notes that “generally, economic incentives are more effective than trade sanctions.” Two U.S. government agencies with a key role to play in this area are the Overseas Private Investment Corp. and the Export-Import Bank. The Overseas Private Investment Corp., or OPIC, operates in 140 developing countries, including Uzbekistan, Azerbaijan, Yemen, and Egypt. The agency insures private U.S. investments overseas against political risks, provides loans and loan guarantees, and finances private investment funds that provide equity to businesses overseas. The Ex-Im Bank was created to promote U.S. exports. The bank provides guarantees of working capital loans for U.S. exporters, guarantees the repayment of loans or makes loans to foreign purchasers of U.S. goods and services, and provides credit insurance against nonpayment by foreign buyers for political or commercial risk. Kenneth Hansen, a D.C.-based partner at Chadbourne & Parke and former general counsel of the Ex-Im Bank, predicts that in the wake of the attacks, the two agencies will “wind up with a bigger piece of a smaller pie.” That is, more businesses are apt to shy away from economic activity in developing countries, but the likelihood that they will want government involvement will increase, he says. At OPIC, spokesman Lawrence Spinelli says the agency is still assessing the impact of the attacks, but confirms that insurance offered through the agency would cover destruction of property due to terrorism. Should violence escalate overseas and American businesses become the target of hostile locals, OPIC could face exposure. But Jonathan Haddon, an OPIC lawyer until earlier this year and now D.C.-based of counsel at Orrick, Herrington & Sutcliffe, notes that the agency is in strong financial shape. OPIC, he says, has $4 billion in reserves before U.S. taxpayers would be on the hook to cover any losses. In the meantime, Spinelli says it’s too soon to tell whether OPIC insurance rates are likely to rise. “We underwrite by the project. We don’t do regional or countrywide underwriting. We are also, of course, affected by what goes on in the private insurance market,” he says. “The ripple that goes through the private insurance market will have an impact on what we do.” As an arm of U.S. foreign policy, OPIC offers insurance only before an investment is made, as an incentive for overseas development. If a business is already overseas and suddenly feeling vulnerable, private insurance is the only option. At the D.C. office of Zurich Emerging Markets Solutions, which provides such insurance, managing director Daniel Riordan says the firm has already seen an increase in inquiries about political risk insurance. He also says he wouldn’t be surprised to see the rates go up, although “it really depends on where this all goes next. But if there’s an escalation in military activity, sure.” In general, OPIC programs are “often viewed as a carrot and a stick to different countries,” says Charles Toy, a D.C.-based partner at Wilmer, Cutler & Pickering who served as general counsel of OPIC from 1993 to 2000. OPIC programs are not available in China, for example, but could be one way to reward China for support. Nor is OPIC currently in Pakistan, but, says Toy, “I could see how suddenly, OPIC would be open in Pakistan.” But the biggest role for OPIC and the Ex-Im Bank may come after the conflict is over. In Panama and Grenada after U.S. invasions, in Nicaragua after the Sandinistas, in Central America after hurricanes and earthquakes, OPIC and the Ex-Im Bank stepped in, says Hansen of Chadbourne & Parke. “Invariably, these agency programs are at the vanguard of efforts the U.S. government trots out in support after whatever kind of political or military” conflict has ended, he says. “They’re part of picking up the pieces.”

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