Emergency Committee For American Trade - Publications

World Trade Organization

WTO Framework

The WTO was created in 1995 under the Uruguay Round Agreements Act and is the only multilateral institution governing the conduct of trade between member nations. It is the successor organization to the General Agreement on Tariffs and Trade, which was founded in 1947 under the Bretton Woods Agreement. It is based on the fundamental principles of non-discrimination and most-favored-nation treatment. The legal framework of the WTO encompasses: 1) the rules of the multilateral trading system under the original GATT, set out under GATT Articles I through XXVIII; 2) the agreements negotiated during successive GATT negotiations to which all WTO members must subscribe, including the General Agreement on Trade in Services (GATS), the agreement on Trade Related Intellectual Property (TRIPs), and the agreement on Trade-Related Investment Measures (TRIMS); 3) plurilateral agreements on government procurement, aircraft, meat, and dairy in which membership is voluntary; and 4) dispute settlement and trade policy review mechanisms. The WTO Agreement is a "single-undertaking," under which member countries must adhere to the basic WTO rules and all agreements that have been negotiated under the GATT and the WTO.

The WTO is not a static institution and has kept the trading system in step with technological development through the negotiation of agreements on information technology, telecommunications, financial services, electronic commerce and other initiatives. The WTO rules also have promoted global economic stability by requiring WTO member countries to maintain open markets. The willingness of the United States and other WTO member countries to resist protectionist pressure to close their markets during the Asian financial crisis laid the foundation for the financial recovery that is now underway.

The WTO has grown from 90 members in 1986 to 135 members in 1999, and they account for 85 percent of world trade. An additional 30 countries are in the process of applying for WTO membership, including China, Russia, Taiwan, and Saudi Arabia. Since the early 1980s, WTO membership has grown increasingly diverse as developing countries now account for more than 80 percent of total WTO membership.

Although WTO dispute settlement is binding, compliance with WTO panel recommendations is voluntary. The WTO has no authority to force a member country to change its domestic laws or policies and therefore does not pose a threat to enforcement of U.S. health, safety, or environmental standards. In cases in which a WTO member chooses not to bring itself into conformity with a panel decision, the affected WTO member countries have the right to request compensation or to retaliate.

While the recent adverse WTO panel decision against the U.S. Foreign Sales Corporation (FSC) tax legislation is of great concern, it is important to remember that the binding dispute settlement process is the backbone of the WTO. While we may not agree with every WTO panel decision, overall the United States has been a major beneficiary of the WTO dispute settlement process, and has prevailed in nearly all of the WTO disputes that it has initiated. In the FSC case, the United States is appropriately seeking to negotiate a mutually agreeable resolution of the matter with the European Union (EU).

To encourage ongoing liberalization, the WTO framework established the so-called "built-in" agenda that sets out a timetable for the review of existing agreements and a schedule for new negotiations. The WTO agenda is also set through bi-annual ministerial meetings required under the WTO Agreement. The built-in agenda called for negotiations on agriculture to begin last year and negotiations on services to begin this year. The WTO built-in agenda is playing a very important role in maintaining the momentum for trade liberalization in the absence of a consensus on a broad new round of negotiations.

Critical Role of WTO in Promoting U.S. Economic Growth and Living

Standards

The trade liberalization shaped by the WTO and its GATT predecessor have been major engines of global economic growth. Since the founding of the multilateral trading system, the world economy has grown six-fold, per capita income worldwide has tripled, and hundreds of millions of families around the globe have risen from poverty. The liberalization under the Uruguay Round Agreements alone is expected to produce a $230 billion increase in world GDP and a $745 billion increase in world trade by 2005. This means an additional annual $100 to $200 billion in purchasing power for consumers worldwide. Since the Uruguay Round, the WTO has produced agreements on information technology, financial services, and telecommunications, thereby opening up market opportunities in new areas of commerce that will produce even greater global economic growth.

For the United States, this global economic growth has helped the U.S. economy grow from $7 trillion in 1992 to over $9 trillion last year. U.S. unemployment levels are now at their lowest point in 30 years, and U.S. poverty rates are the lowest in two decades. U.S. exports of goods and services, even with the advent of the Asian financial crisis, have grown by 55 percent since 1992.

A strong multilateral trading system is essential to maintain the historic growth in the world economy that has occurred over the last half-century. It is also vital that China, the emerging market that will be a major source of growth in the twenty-first century, be brought into the WTO.

Outcome of 1999 Seattle WTO Ministerial Meeting

The 1999 Seattle WTO Ministerial failed to produce the hoped for agreement to launch a major new round of trade negotiations. While the street protests and disruptions in Seattle complicated the logistics of the ministerial meetings, they did not determine the outcome of the meetings. Instead, deep divisions between the United States and its major trading partners, as well as between developed and developing countries, on the scope of the round and other major issues; the diversity of WTO membership; the heavily bracketed draft ministerial declaration; and the inexperience of the new WTO Director General, Mike Moore, combined to prevent trade ministers from reaching a consensus in Seattle.

With regard to the scope of the new round, the United States proposed a narrow agenda focused on market access and based on the built-in agenda negotiations on services and agriculture. The developing countries favored a narrow agenda, but also wanted the opportunity to renegotiate existing agreements in areas such as textiles and antidumping and to delay deadlines for implementation of the existing WTO agreements on intellectual property, investment, and other areas. The United States adamantly opposed efforts to reopen exiting agreements, particularly the antidumping and subsidies agreements. The EU and Japan promoted a broad agenda for the new round, including areas such as competition and investment. Developing countries opposed the inclusion of new issues such as investment and competition in the agenda.

Major divisions also existed with respect to key issues in substantive areas such as agriculture, on which the EU and Japan refused to accept proposals made by the United States and the Cairns Group countries, including major agricultural exporting nations such as Australia and New Zealand, to eliminate export subsidies and substantially reduce farm supports. Developing countries also strongly opposed the U.S. and EU proposal to include labor issues in the new round agenda, on the grounds they would be used as the pretext to impose trade restrictions. The United States and Canada were unable to convince the EU to support a working group on biotechnology. WTO dispute settlement reform proposals became stalled as a result of the continuing disagreement between the United States and the EU over the right of WTO members to engage in "carousel" or rotating retaliation in dispute settlement cases.

In light of these widely divergent views, trade ministers in Seattle were faced with the unmanageable task of trying to reach a consensus on a 32-page draft declaration containing nearly 400 bracketed sections reflecting areas of disagreement. This effort was clearly beyond the scope of the biannual ministerial which is intended to provide a forum for final discussion and approval of WTO initiatives at a political level and cannot substitute for the intensive working-level consultation and negotiation that is required to prepare a ministerial declaration for final approval. The process was also handicapped by the fact that WTO Director General Mike Moore was installed in September of last year and had only two months to try to shape the ministerial declaration into a workable document.

Despite the wide differences that remain, some progress was achieved in a number of areas during the Seattle ministerial. There is broad support for launching negotiations on services, which will include the financial, telecommunications, energy, and distribution sectors and promote non-discriminatory domestic regulations. WTO members also were prepared to agree to extend the moratorium on duties on electronic commerce for 18 to 24 months. Some hope remains that broader support can be built for negotiations on industrial tariffs, including the sectors covered by the Accelerated Tariff Liberalization (ATL) initiative, covering jewelry, toys, environmental goods and services, energy services, medical equipment and scientific instruments, forestry and fisheries products, and chemicals. The EU indicated some flexibility in accepting greater restriction of export subsidies and dropped its demand that agriculture negotiations include a reference to the "multi-functional" nature of agriculture, which the United States and other WTO members viewed as the pretext for circumventing WTO rules.

WTO members were also close to agreement on allowing some flexibility in extending implementation deadlines for developing countries to comply with the Customs Valuation and Trade-Related Investment Measures (TRIMS) agreements. The United States, the EU, Canada, and Japan indicated they were ready to expand market access for developing countries, subject to exceptions for sensitive products. Finally, WTO member countries were prepared to agree to faster publication of WTO documents.

Prospects for Future WTO Negotiations

Work in the WTO this year is likely to focus on four areas: 1) moving forward on the built-in agenda negotiations on agriculture and services; 2) working with developing countries to promote implementation of WTO agreements; 3) developing confidence-building measures to reinforce support for moving forward with WTO reform and addressing developing-country concerns; and 4) making progress in WTO accession negotiations, particularly with respect to China. In February of this year, WTO members reaffirmed their support for moving forward with the WTO agenda by agreeing to begin negotiations on agriculture and services, to enter into consultations on the request by developing countries to delay the implementation deadlines of certain WTO agreements, and to discuss reforms of the WTO decision-making process.

The United States supports the WTO focus on the built-in agenda and confidence-building measures as a way to build the foundation for a future launch of a trade round. While the EU supports efforts on confidence-building measures, it continues to promote a broad new round of trade negotiations, including new areas such as competition and investment. It is interesting to note, however, that there is dissension on this approach within the EU member states. The United Kingdom has begun to question the wisdom of continuing to press for the inclusion of investment and competition in a new round agenda. The ability of the United States and the EU to resolve differences on WTO agenda issues will also be affected by the outcome of efforts to reach a mutually satisfactory resolution of pending bilateral disputes on the FSC, hormone treated beef, and the EU banana import regime. The following paragraphs summarize the outlook for the WTO agenda in key areas.

Negotiations on Agriculture, Services, and Other Market-Access Initiatives

Agriculture

The WTO built-in agenda calls for the initiation of negotiations on agriculture by January 1 of this year. WTO members now have agreed to initiate the agriculture negotiations at the end of March of this year. The WTO Committee on Agriculture has carried out preparatory work for the negotiations over the last three years and identified general negotiating objectives covering: 1) elimination of export subsidies, 2) tariff reduction, 3) reduction of trade-distorting domestic support levels, 4) greater market orientation of agricultural state-trading entities, and 5) expanded market access opportunities for products subject to tariff-rate quotas. The United States also has continued to press for the inclusion of non-discriminatory access for biotechnology products in the negotiating objectives.

The Agriculture Committee must decide whether to create a special agriculture

negotiating group, to select a chairperson for the negotiations, and to adopt negotiating procedures. Once these decisions have been made, the negotiating group will meet and countries can begin to table specific proposals to achieve these objectives.

No timeframes have been set for concluding the agriculture negotiations. The United States previously has suggested that negotiations be concluded within three years and has noted that the expiration of the WTO provision barring action against certain agricultural export subsidies, the so-called "peace clause," which expires in 2003, should help move negotiations forward.

The United States continues to press the EU for greater flexibility on agricultural issues and to delink concessions on agriculture from progress on an agreement to include investment and competition issues in a new round agenda. To date, the EU, based on strong member state resistance, particularly from France, has been unwilling to agree to language providing for the progressive elimination of export subsidies.

ECAT supports the stated objective of the United States to secure substantial, progressive reductions in support and protection, including deep cuts in bound tariff rates and elimination of export subsidies. ECAT also supports Administration efforts to ensure that the world�s agricultural producers can use safe, scientifically-proven biotechnology, without fear of trade discrimination.

The agriculture negotiations should aim to reduce tariffs across the board, with the suggested goal of a reduction in average tariff bindings over six years by 50 percent from current levels. A special effort should be made to reduce the highest tariffs to levels that would not prohibit imports. The negotiations should clarify that tariff-rate quotas are only transitional measures and provide for their phase-out. Sectoral zero-for-zero tariff agreements should also be encouraged.

The negotiations should seek a reduction in the aggregate measure of support beyond that agreed in the Uruguay Round. The agreement on domestic support should be structured to provide incentives for market-oriented reform. In addition, the negotiations should strive for an immediate end to export subsidies.

The United States also should seek to eliminate the monopoly control of state trading entities (STEs) and discipline their non-market behavior. The monopoly powers of STEs should be ended in ways that ensure the rights of establishment, non-discrimination, and national treatment for foreign and domestic firms.

ECAT POSITION: ECAT supports the launch of comprehensive negotiations on agriculture that seek to secure the elimination of export subsidies, across-the-board tariff reductions, expanded market-access opportunities for products subject to tariff-rate quotas, reductions of trade-distorting domestic support levels, and the adoption of a market-oriented approach by agricultural state-trading entities. It is also important that the negotiations ensure that the world�s agricultural producers can use safe, scientifically-proven biotechnology, without fear of trade discrimination.

Services

WTO members agreed that beginning in mid-February of this year, the WTO Council for Trade in Services would hold special sessions to launch the services negotiations. The Services Council must approve procedures for the negotiations, decide whether negotiations will be conducted under the auspices of the Services Council or a negotiating group, and select a chairperson for the negotiations.

WTO members reached a consensus in Seattle on services negotiations, agreeing that such negotiations should be comprehensive and not exclude any sector. WTO members agreed that services market-access discussion would include financial services, telecommunications, professional services, energy services, and distribution. They also agreed to promote pro-competitive, non-discriminatory domestic regulatory regimes.

The services negotiations are mandated under the WTO built-in agenda pursuant to Article XIX of the General Agreement on Trade in Services (GATS). The GATS does not provide a deadline for the completion of the negotiations and instead simply provides that WTO members must submit their proposals by November 1, 2000, and initial offers by November 1, 2001.

The United States is developing proposals for a wide range of services sectors, including energy services, environmental services, audiovisual services, express delivery, financial services, telecommunications, professional services, education and training, private healthcare, and travel and tourism. Its overall objectives are to remove restrictions on services trade and to ensure non-discriminatory treatment.

In seeking to expand liberalization commitments under the GATS, the United States should adopt a negotiating strategy that aims to narrow reservations, as a means to secure broader, more meaningful market-access commitments. In addition, the United States should seek commitments to:

Ensure rights of establishment and ownership for U.S. foreign investors through wholly-owned entities or other business structures;
Secure national treatment for U.S. companies operating overseas to ensure that foreign investors have the same market access as domestic companies;
Eliminate unnecessary restrictions on cross-border transactions;
Promote pro-competitive, regulatory reform through the promulgation of adequate, consistent rules and the establishment of transparent, impartial regulatory administration; and
Remove obstacles to the free movement of people by allowing business personnel easy access to visas.

The establishment of transparent, impartial regulatory regimes in local markets is essential to make the existing GATS national treatment provisions and market-access commitments meaningful and to promote the international competitiveness of service providers.

ECAT POSITION: ECAT supports the launch of comprehensive services negotiations that seek to remove restrictions on services trade, ensure non-discriminatory treatment, and promote the establishment of pro-competitive domestic regulatory regimes. The establishment of transparent, impartial regulatory regimes in local markets is essential to make the existing GATS national treatment provisions and market-access commitments meaningful and to promote the international competitiveness of service providers.

Industrial Tariffs

While most WTO member countries support the inclusion of industrial tariffs in market-access negotiations in a new round, disagreements remain over the Accelerated Tariff Liberalization (ATL) initiative and efforts to conclude an agreement to remove non-tariff barriers to information technology products under an ITA II agreement. It is hoped that continued progress can be made on these initiatives this year as negotiations under the built-in agenda proceed.

ATL Negotiations

The ATL initiative covers chemicals, energy products, environmental products, fish, forest products, gems and jewelry, medical and scientific equipment, and toys. The sectoral liberalization originated in APEC in 1997 and was expanded to the WTO in 1998 with the goal of achieving the critical mass of participation necessary to conclude the agreements. The eight sectors represent a balanced package and reflect the interests of both developed and developing countries. These sectors accounted for nearly one-third of U.S. merchandise exports in 1998, totaling $197 billion in value.

The EU opposed the inclusion of the forest products sector in the ATL initiative, as well as the attempt to reach an early conclusion to the ATL negotiations. In an effort to reach a compromise, the United States, Canada, Australia, and New Zealand offered to agree to comprehensive tariff negotiations, beyond the eight ATL sectors, in exchange for an agreement to conclude the ATL sectoral initiative in 2000. There are indications of renewed efforts between the United States, the EU, Canada, and Japan to reach an agreement on the ATL negotiations and other new round issues.

ECAT Position: ECAT supports efforts to reach a final agreement in the ATL negotiations on toys, chemicals, forestry products, fish, energy, environmental goods and services, telecommunications products, medical equipment and scientific instruments, and jewelry.

ITA II Negotiations

In September 1997, WTO members from 43 countries launched the ITA II negotiations to extend the number of products covered under the original ITA agreement and to address non-tariff barriers to trade in information technology products. Implementation of the ITA II agreement was originally scheduled to begin in January of this year; however, disagreements over the list of products to be added to the new agreement have delayed the negotiations.

In December 1998, participating countries, with the exception of India and Malaysia, agreed on a list of roughly 200 products to be added to ITA coverage. The items covered under the list include manufacturing, testing, and measuring equipment used in printed circuit boards; radar navigation equipment; satellite equipment; and photocopying machines. Under the proposed ITA II agreement, participating countries were to agree to implement staged tariff cuts on the agreed list of 200 products starting last year and ending on July 1, 2002. A number of countries, including South Korea, Taiwan, Israel, and Australia, said that they would invoke provisions in the agreement allowing participating countries a delay of up to five years in implementing tariff cuts on sensitive items. Participating countries also are continuing their efforts to achieve the elimination of non-tariff barriers to information technology products in areas such as standards.

The United States was unsuccessful in its efforts to finalize the ITA II agreement during the Seattle Ministerial due to Malaysia�s refusal to sign on to the agreement. Once the agreement is final, the United States will be required to seek legislative authority to implement those tariff reductions not covered under its residual tariff-cutting authority under the Uruguay Round Agreements Act. The Administration also lacks authority to agree to the elimination of non-tariff barriers under ITA II and will need to be granted appropriate legislative authorization.

ECAT Position: ECAT supports the accelerated negotiation of ITA II and the enactment of necessary implementing legislation.

E-Commerce

E-commerce is an increasingly important venue for international trade that is now used in all sectors of the economy and will become increasingly important in the first decade of the millennium. Industry analysts estimate that e-commerce will generate more than $3 trillion in sales by 2003 and that in the next six years nearly half of the U.S. workforce will be employed by industries that sell their products online.

One of the biggest challenges for the WTO will be to ensure that the Internet economy is allowed to flourish and support the growth of the global economy. Conflicting national regulations on e-commerce regarding privacy standards, the imposition of duties on Internet commerce, and market-access barriers to various levels of the e-commerce value chain can impede the growth of e-commerce. As the work program continues, it is important that there is no premature classification of e-commerce as either a good or a service. It is important that the WTO, in close coordination with other relevant international institutions and the U.S. business community, be ready to address the potentially wide range of barriers to e-commerce. The WTO work program on e-commerce is an important venue for continuing the examination of the trade-related aspects of e-commerce. Also of key importance to the growth of e-commerce is the early ratification and implementation of the WIPO "Internet" treaties.

It is important that WTO members continue their efforts on e-commerce issues. WTO members generally agreed during the Seattle ministerial that the moratorium on customs duties on e-commerce should be extended until the next WTO ministerial. There was also general agreement that the WTO work program on e-commerce should be extended.

In addition to these important efforts, there is some discussion of the utility of addressing barriers to e-commerce that may arise at various levels of the e-commerce value chain from computer services, telecommunications, and distribution to financial and delivery services. One proposal suggests using the ITA agreement as the model for the negotiation of an e-commerce agreement consisting of a package of commitments to remove various sectoral barriers to the e-commerce value chain, such as market-access barriers to express delivery services. Negotiations on such an agreement could be initiated in the context of the WTO services negotiations or in APEC or other regional fora. This approach to the removal of e-commerce trade barriers, like ECAT�s Food Chain Coalition framework for removing barriers to food trade, could yield wide-ranging cross-sectoral liberalization, and provide a new approach to building alliances between developed and developing countries in services negotiations, a new round, or in a regional context.

ECAT POSITION: ECAT supports the extension of the moratorium on duties on e-commerce until the next WTO ministerial and the extension of the WTO Working Party on E-commerce. It is important that there is no premature classification of e-commerce as either a good or service by the working party. ECAT encourages WTO members to consider innovative new ways to eliminate barriers at all levels of the e-commerce value chain in the interest of promoting e-commerce growth and broad cross-sectoral liberalization.

Trade Facilitation

Efforts should also continue this year to seek a WTO agreement on trade facilitation. UNCTAD estimates that the average customs transaction involves 20 to 30 different parties, 40 documents, and the entry of 200 data elements. With the lowering of average tariffs around the globe, the cost of complying with customs requirements can exceed the cost of duties paid. The 1996 Singapore Ministerial declaration established a WTO work program to assess the scope of WTO rules concerning simplification of trade procedures. While WTO rules contain a number of provisions that require transparency and minimum procedural standards in trade administration, with the exception of customs valuation of goods, there are no specific WTO provisions governing customs procedures.

The United States, the EU, Korea, and Switzerland support the negotiation of a WTO agreement on trade facilitation aimed at reducing and simplifying administrative barriers to import and export transactions, and they proposed that trade facilitation negotiations be included in a new trade round. A number of developing country WTO members oppose a WTO agreement on trade facilitation on the grounds that they do not have the resources to modernize their customs operations to implement such an agreement. These countries have proposed that instead of a new WTO agreement, the WTO should establish a comprehensive technical assistance program in trade facilitation in coordination with other organizations such as the World Customs Organization.

ECAT supports the adoption of a binding WTO agreement on trade facilitation, based on the rules contained in the International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention), a work program on trade facilitation, and a commitment to simplify rules of origin. The United States should urge the WTO to support the efforts of the World Customs Organization to strengthen the Kyoto Convention. The United States should propose that the revised convention be used as a basis to develop a set of binding rules establishing high standards for customs procedures to be adopted by WTO members.

Transparency in Government Procurement

Another important initiative to expand market access and to combat corruption is to secure greater transparency in foreign government procurement practices. The 1996 Singapore Ministerial Declaration established a working group to conduct a study on transparency in government procurement practices and to develop elements for inclusion in an appropriate agreement. The United States had hoped to gain consensus on moving forward with an agreement on transparency in government procurement at the Seattle Ministerial. The effort was stalled when developing countries refused to agree to Japanese and European demands that the agreement include commitments to provide greater market access to foreign suppliers as well greater transparency in government procurement practices. WTO members generally have agreed to try to conclude a transparency agreement by the next WTO ministerial.

In continuing its effort to conclude negotiations on a government procurement transparency agreement, the United States should seek to include the following elements that have been developed through regional and WTO discussions on transparency in procurement:

The laws, regulations, and policies pertaining to any part of the government procurement process should be transparent and readily available to the public;
Adequate notice must be provided of bidding opportunities;
Bid specifications should be prepared based on neutral standards, and performance standards should be used to ensure that equivalent products are treated equally;
Objective criteria should be used in evaluating bids;
Bids should be opened in public in the presence of bidders to provide accountability;
Contracts should be awarded to the most highly-rated bidder, based on objective criteria;
Contracting agencies should provide bidders access to adequate dispute settlement procedures, including independent review of the bid process and remedies for non-compliance, including injunctive relief and monetary damages; and
Any preference levels or requirements must be notified to the WTO and made available to the public.

An agreement on transparency based on the principles outlined above is essential to promote predictable and competitive bidding environments within WTO member countries. ECAT also believes that efforts should continue to broaden the membership and coverage of the WTO Government Procurement Agreement and to harmonize its provisions on transparency with the text of any new transparency agreement.

The United States should also consider an alternative approach to removing barriers to procurement. Once a transparency agreement is negotiated and existing WTO member preferences, restrictions, and content requirements have been notified under the agreement, the United States could seek to initiate negotiations with WTO member countries to reduce domestic preference levels over time on an MFN basis, in the same manner that tariff rates have been reduced over time. This approach may be a way to broaden WTO member country compliance with transparency rules because, unlike the Government Procurement Agreement, it would not require a commitment to immediately eliminate all discriminatory procurement practices.

Implementation of WTO Agreements

The deadlines for full implementation of WTO agreements covering intellectual property, trade-related investment measures, customs valuation, and other areas fell at the end of last year and in January of this year. At the Seattle WTO Ministerial, major developing countries, such as Egypt, India, Indonesia, and Nigeria, demanded flexibility in the application of implementation deadlines and certain WTO rules as a pre-condition to their support for further WTO liberalization. These countries asked that the antidumping and subsidies rules be amended to allow more lenient standards for developing countries, that the moratorium on bringing certain cases against developing countries under the Trade Related Aspects of Intellectual Property (TRIPs) Agreement be extended, and that implementation deadlines under the Trade-Related Investment Measures (TRIMS) and Customs Valuation agreements also be extended.

As part of an overall agreement on a new round agenda discussed during the Seattle Ministerial, the United States, the EU, and other developed countries considered granting developing countries a blanket three-year extension of implementation deadlines for the TRIMS, TRIPs, and Customs Valuation agreements. This proposal was dropped when WTO members were unable to reach an agreement on the ministerial declaration and new round agenda. It was agreed in Seattle that no further action would be taken with regard to implementation deadlines until WTO members had the opportunity to discuss the issue early this year.

In January of this year, eight developing countries asked the WTO General Council for a blanket waiver of the implementation deadlines for the TRIPs, TRIMS, and Customs Valuation agreements. The eight countries are Argentina, China, Colombia, Malaysia, Mexico, Pakistan, the Philippines, and Romania. Most of the countries requesting the waiver want to preserve domestic content and other investment restrictions aimed at promoting local auto and auto parts manufacturing. WTO members have begun consultations on this issue.

The cost of implementing WTO agreements strains the resources of many developing countries. A World Bank study released last year stated that implementing the agreements on TRIPs, Customs Valuation, and on sanitary and phyto-sanitary measures could cost a developing country government as much as $130 million. The United States and other developed countries recognize the financial difficulties some nations may face in complying with WTO agreements, but they do not want lack of resources to become the pretext for a renegotiation of WTO agreements. As a result, the United States is supporting greater technical assistance to WTO member countries to assist in implementation of WTO agreements. It has indicated that it would be willing to consider some flexibility in the enforcement of implementation deadlines for developing countries on a case-by-case basis, but reserves the right to bring actions under WTO dispute settlement procedures to enforce implementation deadlines.

The most contentious implementation issues are the request to reopen the antidumping agreement and to extend the moratorium on certain dispute settlement cases under the TRIPs Agreement. Japan, Korea, Brazil, and a group of developing countries have proposed reopening the antidumping agreement as a part of a new round of trade negotiations, in order to tighten antidumping standards. Specifically, developing countries want to raise the 2 percent "de minimis" and 3 percent "negligible" margin rules (no antidumping duties can be imposed if antidumping margins are below these levels). The United States has said that it is willing to discuss specific implementation problems of WTO members, but it will not agree to a renegotiation of the WTO antidumping rules. The U. S. position reflects the strong opposition of the U.S. steel and textile industries and labor unions to any changes of the antidumping rules.

Full implementation of WTO agreements is the cornerstone of a strong multilateral trading system. The TRIPs Agreement, establishing minimum standards for both the protection and enforcement of a broad range of intellectual-property subject matter, represents a major advance in the protection of intellectual property around the globe. The U.S. refusal to consider a reopening of the TRIPs Agreement sent a clear message to other WTO member countries that the TRIPs Agreement provides a baseline for the protection and enforcement of intellectual property rights and that the United States will not be a party to any weakening of the agreement. The built-in agenda for the TRIPs Agreement provides an active program, in and of itself, for the timely and proper implementation of the agreement and for strengthening some of the protection currently found in the agreement.

The United States should ensure that full implementation of the TRIPs Agreement remains a priority under the built-in agenda. In light of the work that remains to be done on implementation of the TRIPs Agreement and the fact that the review of the agreement itself is yet to be conducted, it would be premature to launch new TRIPs negotiations at this time. The United States should oppose any extension of the moratorium on the application of the WTO dispute settlement provisions to intellectual property cases in which there is no direct violation of the TRIPs Agreement and that are based on a claim of nullification and impairment of WTO benefits. The moratorium expired in January of this year. At the same time, the United States should advocate increased technical assistance to WTO member developing countries to encourage their compliance with the TRIPs Agreement.

ECAT POSITION: Full implementation of WTO agreements is the cornerstone of the multilateral trading system and must remain a top priority on the WTO agenda. Developing country concerns regarding implementation should be addressed through increased technical assistance and should not become the pretext for renegotiating existing WTO agreements. ECAT urges the Administration to maintain its opposition to a reopening of the TRIPs Agreement or any delays in the full implementation of the agreement.

WTO Confidence-Building Measures

In an effort to address concerns raised by developing countries during the Seattle Ministerial concerning the lack of sufficient attention to their issues and the closed nature of the WTO process, WTO Director General Mike Moore is encouraging the United States and other developed WTO member countries to provide greater market access to the least-developed countries (LDCs). Together with institutional reform, these initiatives are viewed as essential to regaining developing country support for a new round of trade negotiations.

Programs for Developing Countries

Trade ministers at the 1996 Singapore Ministerial agreed to adopt a Comprehensive and Integrated Plan of Action for LDCs. As a result of that initiative, the secretariats of the WTO, UNCTAD, the World Bank, and the International Monetary Fund joined together to create the Integrated Framework for Trade-Related Technical Assistance for LDCs. The goal of the Integrated Framework is to help LDCs take full advantage of the global trading system. To date, over 40 LDCs have submitted requests for assistance to the Integrated Framework, covering problems with production of competitive products and transportation infrastructure, as well as inadequacies in legal and institutional frameworks. Trade ministers also pledged at the 1998 WTO Ministerial in Geneva to improve market-access conditions for LDC imports.

WTO Director General Mike Moore has made the removal of all trade barriers to LDC imports a priority. The United States, the EU, Canada, and Japan have all

indic* ated their willingness to expand market access for LDC imports, subject to certain exceptions for import-sensitive sectors. The United States has indicated it would exempt textiles; the EU would exempt bananas, beef, rice, and sugar, and Canada would exempt certain textiles and agricultural goods. The United States has said that it would provide improved market access for LDCs through the enactment of the Africa-CBI trade bill that expands U.S. duty-free treatment to imports from sub-Saharan African nations and Caribbean countries. The United States also has indicated that it will consider making the GSP tariff preference program for the LDCs permanent.

The United States is working with the EU to broaden support for the LDC market-access initiative among developed countries. The United States and the EU have also agreed to support Director General Moore�s effort to provide greater technical assistance to developing countries to help them comply with WTO commitments and improve capacity-building programs available through the Integrated Framework.

WTO Institutional Reforms

Director General Moore has been consulting with how to change the WTO decision-making process to allow greater participation by a larger number of WTO member countries and on how to make the institution more transparent to non-governmental organizations (NGOs). On the issue of allowing for wider participation of WTO member countries, the EU has mooted a review of WTO procedures by a group of eminent persons who would make recommendations for reform. Another alternative that may be considered is to recreate a version of the Consultative Group of Eighteen that was established in 1975 under the GATT, which would establish a group of 18 WTO members which could provide input on policy and procedural issues.

On the role of NGOs, the United States is continuing to urge earlier release of WTO documents and allowing greater public observation and input in the WTO dispute settlement process. It had proposed that by July of this year the WTO should revise its consultative mechanisms to provide greater information to the public. The WTO has held meetings with NGO representatives on labor and environment issues, as well as the ministerial agenda. Before a permanent process is created, however, the threshold question of the standing of NGOs groups must be addressed. Some NGO organizations have large memberships with elected representatives; others are small organizations that do not represent identifiable constituencies. Senate Finance Committee Chairman Roth has proposed creating a Standing Committee of Parliamentarians from WTO member countries that could meet periodically and provide input to the WTO. Chairman Roth�s alternative possibly could provide an effective venue for raising NGO concerns.

WTO Accession of China and Other Countries

Another important area of WTO activity this year will be achieving progress on the accession of the 31* countries that have applied to join the WTO. Accession negotiations involve a review of a country�s trade regime and its consistency with WTO obligations. WTO applicants must agree to abide by WTO rules and enter into commercially-viable, market-access commitments on goods, services, and agriculture that are negotiated both bilaterally and multilaterally. The terms of a country�s accession are set out in a protocol and in the schedule of market-access concessions that is included in the protocol. The protocol is negotiated with the working party

established to consider the country�s accession application. Once accession negotiations are completed, the working party issues a report that is sent along with the protocol to the WTO General Council. Accession applications are generally approved by consensus by the General Council.

Once accession negotiations are complete, the applicant country must be prepared to implement its WTO obligations and commitments. After the country formally accedes to the WTO, each current WTO member country must decide whether to sign the country�s protocol of accession and extend WTO benefits to the new WTO member. WTO members may choose not to apply WTO benefits to a new member pursuant to Article 13 of the WTO.

Jordan and Georgia are likely to become WTO members in the near future, and the United States has completed its bilateral WTO accession negotiations with China, Taiwan, Albania, and Croatia, as well as a number of other countries. Accession negotiations with Russia and Saudi Arabia have made little progress. Negotiations with Vietnam remain stalled, but it is hoped that further progress can be made once the United States finalizes its bilateral commercial agreement with Vietnam.

The completion of China�s accession negotiations and its formal admission to the WTO are priorities for WTO members this year. It is vital to have China, the world�s largest emerging economy, subject to WTO rules and disciplines. China�s WTO membership is widely supported and the Working Party on China�s WTO accession is being asked to expedite its efforts to complete negotiation of China�s protocol of accession. China is nearing completion of its negotiations with the EU, its last major bilateral accession negotiation.

Status of WTO Working Parties
Trade and Environment

The WTO Committee on Trade and Environment (CTE) was established in 1995. The committee�s mandate is to make recommendations on what changes should be made to WTO rules to encourage a positive interaction between trade and environment measures and to avoid protectionism. Since its formation, one of the main areas of the CTE�s focus has been the relationship between the WTO and trade measures applied pursuant to multilateral environmental agreements (MEAs). Discussions in the CTE have supported pursuing environmental problems through cooperative, multilateral action under MEAs. There is no consensus within the CTE on the use of trade sanctions in MEAs. There is agreement within the CTE that in the event a dispute arises between WTO members which are also signatories to a MEA, they should first try to resolve the dispute under the provisions of the MEA.

The CTE has continued its examination of market access and the linkages between trade and environment, with discussions on such issues as charges and taxes imposed for environmental purposes and product-labeling and packaging requirements with an environmental purpose. With regard to eco-labeling requirements, the CTE has said that such requirements must be non-discriminatory and that the processes for developing and adopting such requirements should be transparent. The CTE is also discussing services and the environment.

The CTE has discussed the call for greater transparency in the WTO�s relationship with "civil society," the term used by the United States to refer to labor, environment, and other non-governmental organizations. To this end, the CTE has held a number of sessions with representatives of civil society on trade and environment issues. The most recent meeting was the High-Level Symposium on Trade and Environment held in March of last year attended by 130 NGOs.

The CTE has determined that trade-related environmental measures should not be required to meet more burdensome transparency requirements than other measures that affect trade. The CTE also has stated that no modifications are needed in WTO rules to ensure adequate transparency for trade-related environmental measures. The CTE established a WTO Environmental Database available to WTO members, consisting of all trade-related environmental measures notified to the CTE.

At the CTE�s request, in 1998, the WTO Secretariat issued a paper on trade and the environment. It contends that none of the WTO dispute settlement panels examining trade and environment issues have undermined the environmental laws at issue. Instead, the report says that the panel decisions have been consistent with Article XX of the WTO and defined the circumstances in which trade-restrictive measures may be used to protect the environment. Article XX allows WTO members to adopt trade-restrictive measures to protect human, animal, and plant life and conserve natural resources, so long as the measures are not disguised restrictions on trade.

The CTE is continuing to examine the ways in which trade liberalization promotes sustainable development. Last year, the CTE discussed ways in which removal of trade barriers in the agriculture and fisheries, energy, forestry, non-ferrous metals, textiles and clothing, leather, and environmental services sectors would have environmental benefits. The CTE has noted that removal of trade barriers, particularly high tariffs and export restrictions and subsidies, can yield commercial as well as environmental benefits.

Trade and Competition Policy

The Working Group on Trade and Competition Policy was established under the Singapore Ministerial Declaration in 1996. It studies issues related to the interaction between trade and competition policy in order to determine if any of the issues should be raised in the WTO. The creation of the working group did not reflect a decision to initiate WTO negotiations to establish rules on competition. It was established as a compromise between the EU proposal to negotiate an agreement on competition policy within the WTO and the view of the United States and other WTO member countries that competition issues are not ripe for negotiation within the WTO. The United States has been concerned that WTO discussions on competition policy would be used by Japan, Canada, and other WTO countries to debate antidumping issues.

The trade and competition policy working group discussions were extended through 1999. The United States supported the continuation of discussions, provided the group focus only on trade-related, well-defined international competition policy issues and not on the review of antidumping issues. As a result, it was agreed that the working group would focus on the following three issues: 1) how basic trade principles such as national treatment can be reflected in competition policy; 2) ways to facilitate international cooperation on competition policy; and 3) how competition policy can promote trade.

At the Seattle Ministerial, the EU and Japan urged WTO members to give the working group on competition policy a mandate to begin negotiations. As a fallback, the EU and Japan urged members to support language calling for the initiation of negotiations on competition policy at the next WTO ministerial. WTO members rejected this proposal as well.

Trade and Investment

The WTO Working Group on Trade and Investment was established pursuant to the 1996 Singapore Ministerial Declaration to examine the relationship between trade and investment. The working group was scheduled to submit a report to the WTO General Council at the end of last year. The working party deadline had been extended in 1998. The EU expressed concern that an extension of the working group deadline could impede the EU�s efforts to include investment in the new round of negotiations. As a result, an extension of the working group�s discussions was agreed without prejudice to any future decisions to be taken by WTO members regarding investment. The working party discussions have generated a number of proposals for the possible scope of investment discussions including: 1) that an agreement on investment only should cover foreign direct investment; 2) that an agreement on investment must respect the ability of host governments to regulate the activity of investors; and 3) that WTO settlement rules should apply but should not include investor-state dispute settlement provisions.

The collapse of the negotiations on a Multilateral Agreement on Investment (MAI) within the OECD refueled the EU�s efforts to negotiate an agreement on investment in the WTO. The EU insists that a WTO agreement on investment would not look like the MAI and, at this stage, would only consist of a statement of general rules such as non-discrimination. While the United States opposes negotiations on investment in the WTO, it offered a compromise proposal in Seattle under which discussions on possible rules for investment would be held outside of the framework of a new round under a "forward work program." There is considerable opposition to a WTO agreement on investment within developing countries. India and Pakistan have said that discussions within the working group on trade and investment should be completed before the WTO initiates any negotiations on investment.

Treatment of Labor Issues in the WTO

The 1996 Singapore Ministerial Declaration did not establish a WTO working party on trade and labor. Instead, the declaration 1) renewed the WTO�s commitment to the observance of internationally-recognized core labor standards, 2) recognized the International Labor Organization (ILO) as the appropriate forum to deal with labor issues, and 3) endorsed the continued collaboration between the WTO and the ILO to support core labor rights.

Since the Singapore Ministerial, the Administration has maintained its efforts to broaden support for core labor rights within the ILO and the WTO. Core labor rights include freedom of association, collective bargaining, non-discrimination, and prohibition of forced labor and abusive child labor. The United States supported the ILO Declaration on Fundamental Rights and Principles at Work adopted in 1998, recognizing core labor rights and establishing a mechanism to monitor compliance. The United States increased funding for the ILO to improve its monitoring and enforcement capabilities.

The United States also has sought to build a consensus for greater action against child labor and worked for the adoption of the ILO Convention against the worst forms of child labor which the United States signed and ratified last year.

At the Seattle Ministerial, the United States proposed that the WTO establish a working party to examine the relationship between market-opening measures and the observance of internationally recognized workers rights. Developing countries led by India, Egypt, and Brazil, adamantly opposed the U.S. proposal on the grounds that it would open the door to protectionist measures and trade sanctions. The EU offered a compromise proposal under which a special standing committee would be created outside the WTO to study the ways in which global trade affects workers around the world. The committee would be comprised of representatives from the WTO, the ILO, the World Bank, the IMF, and other multilateral institutions. Angered by President Clinton�s statements in a news article that appeared in Seattle during the ministerial meetings, developing countries refused to consider any compromise on the labor issue.

Rules of Origin

The WTO began work on the development of harmonized global rules of origin in 1995, with the deadline of completing the work in three years. The new harmonized system would be based on the principle of substantial transformation, under which a product is considered to originate from the country in which substantial transformation takes place. The World Customs Organization (WCO) in Brussels is doing the technical work on the drafting of the new rules, which cover more than 5,500 tariff lines.

Progress in the Rules of Origin Committee has been slow, and the deadline for completion of the harmonized system has been extended several times. Committee members had agreed to make their best effort to reach a final agreement in November of last year. There are many outstanding issues concerning agricultural products, textiles and clothing, and other areas, as well as the overall framework for the agreement and the residual rules. The residual rules are miscellaneous rules of origin that are used in cases in which product-specific rules do not exist. The draft text of the Seattle Ministerial Declaration recommended that the Committee on Rules of Origin complete its work by December 31, 2000.

Dispute Settlement

While the United States may not agree with all WTO panel decisions, the WTO dispute settlement system on balance has been an effective mechanism in enforcing U.S. rights. The United States has made aggressive use of the dispute settlement process, bringing more complaints than any other WTO member. It has prevailed in the majority of the cases that it has filed. In addition, the WTO dispute settlement process has upheld America�s ability to enforce its rights under international trade agreements under Section 301 of the Trade Act of 1974 in a recent decision rejecting a challenge brought by the EU.

The WTO dispute settlement system is currently being tested in several disputes between United States and the EU on bananas, hormone-treated beef, and the U.S. Foreign Sales Corporation (FSC) legislation. The United States challenged the EU�s discriminatory banana import regime on the grounds that it discriminated against banana imports from Central and Latin America, as well as from U.S. distributors, Chiquita and Dole. A 1997 WTO dispute settlement panel found that the EU�s banana import regime was inconsistent with GATT Article XIII disciplines on import licensing, the Article I most-favored-nation obligation, provisions of the Agreement on Agriculture, and the General Agreement on Trade in Services (GATS). The WTO Appellate Body affirmed the panel�s decision. To date the EU has failed to bring its banana import regime into conformity with the WTO ruling. The United States has responded by imposing retaliatory tariffs on EU imports. The United States is seeking to resolve this dispute and has encouraged the EU to consider a proposal presented by Caribbean nations to bring the EU banana import regime into conformity with the panel decision.

The United States has challenged EU policies prohibiting imports of meat from cattle treated with hormones. In 1997, a WTO dispute settlement panel found that the EU beef-hormone ban is not based on sound science and violates the WTO Agreement on the Application of Sanitary and Phyto-sanitary Measures (SPS Agreement). In 1998, an appellate panel affirmed the original panel decision and the EU was given until last May to bring itself into compliance with the ruling. The EU stated that it did not intend to lift its hormone ban, and, in response, last July the United States imposed 100 percent tariffs on EU imports totaling $116 million in value. The EU is urging the United States to agree to accept compensation in order to resolve the case.

In 1997, the EU challenged the provisions of the US FSC legislation on the grounds that it created an export subsidy prohibited under the WTO Subsidies Code and the Agriculture Agreement. Last fall, a WTO panel upheld the EU challenge. At the end of February, the WTO Appellate Body upheld the dispute panel decision. The United States strongly disagrees with the Appellate Body ruling and contends that the FSC conforms to WTO rules.

The FSC legislation was enacted to replace the Domestic International Sales Corporation (DISC) that was found, along with certain European tax provisions, to be a prohibited export subsidy under the General Agreement on Tariffs and Trade subsidy rules. In adopting the GATT panel decision against the DISC and certain European tax provisions, the GATT Council issued an "Understanding" which contains a number of key principles to help guide the development of tax policies in a manner consistent with WTO subsidy rules. The principles included in the Understanding are that:

economic processes located outside the territorial limits of the exporting country need not be subject to taxation;
such processes should not be regarded as export activities;
arm�s length pricing rules should be observed for tax purposes in transactions between exporting enterprises and related foreign buyers; and
GATT (now WTO) subsidy disciplines do not prohibit the adoption of measures to avoid double taxation of foreign source income.

The FSC provisions were drafted based on these guidelines. The FSC provisions permit a portion of income earned outside U.S. territory to be exempt from U.S. tax. To qualify for this exemption, the FSC must have a foreign presence and meet specific management requirements, and certain economic process tests. If export property is sold to a FSC by a related person or a commission is paid to a FSC by a related person with regard to export property, the taxable income of the FSC and the related person is based on arm�s-length transfer pricing rules in conformity with the WTO/GATT Subsidies Agreement.

The United States has stated that it intends to seek a negotiated resolution to the FSC case. The stakes are high; as much as $2 billion worth of U.S. manufactured and agricultural exports to the EU could be at risk of retaliation if the case is not resolved. This amount of retaliation could even be higher as a result of a recent WTO panel decision against Australia in which the panel determined that Australia was liable for past damages.

It is critical that these three major disputes be resolved in a mutually agreeable manner. The EU�s reluctance to bring itself into compliance with the WTO panel decisions on bananas and hormone-treated beef has raised serious concerns in the United States about the ability of the dispute settlement process to enforce compliance with WTO rules. It is important that the EU display flexibility and support for the WTO process in working with the United States to resolve these matters.

WTO Dispute Settlement Reform

Under the WTO built-in agenda, discussions on reform of the WTO dispute settlement process that began in 1998 were to have been completed last July, but no agreement was reached due to lack of consensus. Efforts to reach a final agreement during the Seattle Ministerial were unsuccessful.

The reforms under consideration include shortening the time period for pre-panel consultations, allowing panels to be established on first request, and establishing a "compliance panel" to handle disagreements over implementation of panel reports. The United States has indicated its willingness to accept these reforms, but wants to include additional transparency measures, such as permitting early publication of non-confidential panel submissions and final panel rulings, opening panel proceedings to the public, and allowing NGOs to file "friends of the court" briefs in dispute settlement cases. The United States has argued that WTO members should have the right to apply a "carousel" retaliation approach, allowing them to periodically change retaliation targets. The EU and developing countries oppose the U.S. carousel retaliation position. Developing countries also oppose the proposed accelerated schedule for dispute settlement proceedings and the U.S. proposals for greater transparency. The EU also would not agree to open panel proceedings to the public.

Discussions of dispute settlement reforms will continue this year as part of the confidence-building effort being led by Director General Moore, the United States, and the EU.