Regional Trade Arrangements
and Country-Specific Issues
Western Hemisphere
Expansion of U.S. trade and investment in the Western Hemisphere strongly contributes to the growth of the U.S. economy. In 2000, U.S. trade with the 34 countries in the Western Hemisphere negotiating the Free Trade Area of the Americas (FTAA) equaled $778 billion, and the region accounted for 44 percent of U.S. goods exports. U.S. exports to the region are growing twice as fast as our exports to the EU. U.S. exports to the region are, however, at an increasing disadvantage due to the proliferation of preferential trading relationships among Mexico, other Latin American countries, Canada, and the EU.
The United States must, therefore, maintain its leadership role in promoting progress toward an integrated hemisphere as discussed in Section 2. In addition, the United States should build on the success of the NAFTA agreement by ensuring its full and effective implementation and seek to expand trade with the other countries of the region as negotiations for the FTAA and bilateral free trade agreements, such as with Chile, proceed.
North American Free Trade Agreement
The North American Free Trade Agreement (NAFTA), which entered into force in 1994, is the world’s most comprehensive free trade agreement, and covers a region with more than 400 million people who produce over $8 trillion worth of goods and services. Between 1994 and 2000, U.S. trade with Canada and Mexico grew from 29 to 33 percent of the total value of U.S. trade.
The NAFTA agreement phases out tariffs among the United States, Mexico, and Canada on goods produced in North America. The agreement provides for the elimination of tariffs on three-way trade by 2008. Tariffs on qualifying goods between the United States and Canada were eliminated on January 1, 1998. The NAFTA agreement includes broad disciplines providing for the elimination of non-tariff barriers on goods and services, increased access to government procurement, non-discriminatory treatment for investment, removal of foreign investment restrictions, and protection for intellectual property rights. In addition, it provides several dispute settlement mechanisms. As well, there are three side agreements to the NAFTA: the North American Agreement on Labor Cooperation, the North American Agreement on Environmental Cooperation and the Understanding Between the Parties to the North American Free Trade Agreement Concerning Chapter Eight – Emergency Action.
Success of NAFTA in Expanding Trade
Trade among NAFTA member countries has increased significantly during the first six years of the agreement. U.S. goods exports to NAFTA partners rose more than 75 percent to $253 billion during this period. U.S. goods exports to Canada have increased by nearly 66 percent since NAFTA entered into force. U.S. merchandise exports to Mexico have almost tripled from pre-NAFTA levels, rising from almost $42 billion in 1993 to $111.7 billion in 2000. As a result, Mexico is America’s second largest trading partner after Canada.
Since NAFTA went into force, average Mexican tariffs on U.S. products have fallen from 10.0 percent to less than 1.27 percent, while average U.S. tariffs on Mexican products have fallen from 4.0 percent to less than 0.35 percent. As a result, U.S. firms have gained more than an eight-percentage point margin of preference in NAFTA markets over non-NAFTA competitors. Virtually all goods traded between the United States and Canada are free of any tariffs. The U.S. auto, chemical, textiles, and electronics sectors have seen particular benefits from NAFTA. In January 2001, the Clinton Administration announced the third set of accelerated tariff reductions, which will eliminate tariffs on approximately $867 million in trade between the three countries, including on certain footwear, chemicals, pharmaceuticals, auto parts, and batteries.
NAFTA also has played a significant role in stemming the effects of the Mexican peso crisis of 1995 and the Asian financial crisis. NAFTA helped to make Mexico’s recession of the mid-90s shorter and less severe than its 1982 recession. NAFTA also helped Mexico withstand internal pressures to impose trade-restrictive measures in response to the recession. As a result, U.S. exports to Mexico recovered within 18 months of the 1995 crisis. In 1998, the significant drop in U.S. exports to Asia from the previous year’s levels was offset in part by the increase in U.S. exports to Mexico and Canada. On a state level, California was able to offset some of the decrease in its exports to Asian markets by boosting its exports to Mexico. Between 1993 and 1999, California increased its exports to Mexico by 139 percent, from $5 billion to over $12 billion.
NAFTA Dispute Settlement -- Chapter 20
Chapter 20 of the NAFTA addresses the avoidance and settlement of all disputes relating to the interpretation of the NAFTA, with the exception of matters covered in Chapter 11 (Investment), Chapter 14 (Financial Services) and Chapter 19 (Antidumping and Countervailing Duty final determinations). If disputes are not settled through consultation, either Party may refer the issue to a non-binding panel. Two cases have been completed under this process -- the United States’ challenge to Canadian agricultural tariffs and Mexico’s challenge to the U.S. safeguard on broomcorn brooms.
The final report in a third case, Mexico’s challenge to the United
States’ provision of cross-border trucking services, was issued on February 6,
2001. The Panel unanimously found that
the United States had not adequately implemented its commitment to open
cross-border trucking services to Mexico as required under the NAFTA. The NAFTA required the United States to
allow Mexican trucks in four border states by 1995 and the entire United States
by 2000. The Clinton Administration had
refused to implement this provision, arguing that Mexican trucks were unsafe. While the Panel decision upholds the
principle that the United States can impose its own safety requirements, the
Panel found that the blanket exclusion of Mexican trucks was unjustified. At the U.S.-Mexican summit on February 16,
2001, Presidents Bush and Fox issued a joint communiqué stating that the two
governments would begin “immediate discussions” to implement the NAFTA panel
decision. Even before the NAFTA panel
decision was final, the International Brotherhood of Teamsters approved a
resolution stating that they would prefer the imposition of retaliatory
sanctions, rather than implementation of the decision. Under NAFTA rules, Mexico is authorized to
retaliate if the United States does not implement the decision within one month
of the February 6th ruling; Mexican officials have indicated,
however, that they are unlikely to seek retaliation as long as the United
States makes progress in implementing the decision.
NAFTA Dispute Settlement -- Chapter 19
Chapter 19 of NAFTA provides a process for independent binational panels to review U.S. and Mexican determinations in antidumping and countervailing duty cases in lieu of judicial review in national courts. Chapter 19 did not require the United States to make any substantive changes in its antidumping or countervailing duty laws, but it did require Mexico to implement procedural reforms guaranteeing U.S. exporters effective judicial review. The Chapter 19 review process is based on a similar mechanism applied under the U.S.-Canada Free Trade Agreement. Forty-six cases have been completed since the NAFTA entered into force, involving 16 challenges to Canadian decisions, 22 challenges to U.S. decisions, and 10 challenges to Mexican decisions. An additional 24 cases are active, involving 5 challenges to Canadian decisions, 16 challenges to U.S. decisions and 3 challenges to Mexican decisions. One extraordinary challenge committee case is also active.
The NAFTA working group on dispute settlement is continuing to examine ways to improve the Chapter 19 dispute settlement process, including problems associated with delays in the Chapter 19 review process, arising from inadequate funding, problems in selecting panelists, transparency issues, and translation difficulties.
Investor-State Dispute Settlement -- Chapter 11
Chapter 11 of the NAFTA sets forth the Parties= obligations with respect to investment, services, and related issues. It requires Parties to eliminate barriers and adopt market-oriented domestic policies that treat investment fairly and in a non-discriminatory manner. The agreement covers both existing and future investments into a NAFTA country. Similar to bilateral investment treaties negotiated by the United States, Chapter 11 also establishes a dispute settlement system permitting private investors of one Party to challenge the actions of another Party which are inconsistent with the Party=s Chapter 11 obligations. Since 1994, 16 complaints have been filed under the Chapter 11 provision.
Canada continues to press other NAFTA member countries to narrow the definition of expropriation claims that can be filed under these provisions and to provide for greater transparency. Canada’s concern arises out of a number of challenges to Canadian laws, particularly in the environmental area. Both the United States and Mexico have indicated that they have little interest in reopening this part of the NAFTA agreement. Both Mexico and Canada have, however, filed court appeals in two chapter 11 cases where panels have awarded damages to private companies because of expropriation concerns.
NAFTA and the Environment
The North American Agreement on Environmental Cooperation (NAAEC) created the Commission for Environmental Cooperation (CEC) and aims to foster the protection and improvement of the environment in the United States, Canada, and Mexico through cooperative activities and the creation of a system for addressing environmental disputes. The agreement explicitly provides that each of the member countries retains the right to set its own environmental standards; it requires only that the three countries ensure that their environmental laws are adequately enforced and provide access, transparency, and due process. The NAAEC promotes cooperative activities to foster the protection and improvement of the North American environment. It also established two dispute resolution procedures to address allegations that a country has failed to enforce its environmental laws -- a government-to-government procedure (with the possibility of fines and trade sanctions) and a review of complaints submitted by non-governmental organizations (NGOs) (with no possibility of fines or sanctions).
The CEC, which oversees implementation of the agreement, is a trinational organization composed of a governing Council of the environmental ministers from each country and a Secretariat located in Montreal. Since its establishment, the CEC has engaged in a wide variety of cooperative activities focusing on environmental conservation, water use, human health, law enforcement and public outreach. It has developed trilateral action plans to eliminate toxic chemicals in the North American environment and promoted species and habitat protection. To help carry out its mandate, the CEC created the North American Fund for Environmental Cooperation (NAFEC) in 1995 to provide community-based grants. Since it was established in 1995, the NAFEC has issued 142 grants totaling $5.4 million. In 2000, the NAFEC received 400 grant proposals. For 2001, a total of $400,000 is available for projects that involve the conservation and sustainable use of biodiversity in Marine Protected Areas (MPAs) and projects that enhance community access to information and participation in addressing issues related to children's health and the environment
No Party has requested government-to-government consultations. There have been, however, 28 citizen submissions. Of these, nine involve Canada, 11 involve Mexico and eight involve the United States
The United States and Mexico also created the Border Environment Cooperation Commission (BECC) and the North American Development Bank (NADB) in 1993 to help border communities with environmental infrastructure projects. The BECC provides technical assistance and grants to border communities and certifies environmental infrastructure projects for financing consideration by the NADB. The NADB facilitates financing for the implementation of projects certified by the BECC, provides financial and managerial guidance, structures financial packages and provides loans to fill financing gaps. The NADB also administers the U.S. Environmental Protection Agency’s grant resources for the border region. Both the BECC and NADB focus on communities located within 100 miles of the U.S.-Mexico shared border. By the end of 2000, the BECC had allocated almost $19.5 million in technical assistance to aid in the development of 142 environmental infrastructure projects related to water, sewage, municipal waste in 98 communities. By the end of 2000, the BECC had certified 43 water, wastewater and municipal solid waste infrastructure project (25 in the United States and 18 in Mexico). The NADB is working with sponsors of 35 certified projects who are seeking financial assistance. Since its establishment, the NADB has authorized $276.6 million in loans or grant resources for 32 infrastructure protects which will represent a total investment of $871 million in the border region.
NAFTA and Labor
The North American Agreement on Labor Cooperation (NAALC) created the Commission for Labor Cooperation (CLC) and aims to improve working conditions in the three NAFTA countries and promote core labor standards. The NAALC explicitly provides that each country retains the right to set its own labor standards but commits the three NAFTA countries to ensure that their own labor laws are adequately enforced. The NAALC aims to promote cooperative activities between the three NAFTA countries to improve working conditions and promote core labor standards. It established two procedures for reviewing country’s compliance with their labor standards: (1) a government-to-government dispute settlement system that could result in fines or the suspension of NAFTA benefits for a country’s persistent failure to enforce its labor laws with respect to occupational safety and health, child labor, and minimum wage technical labor standards, and (2) a process for reviewing complaints by private parties (with no possibility of fines or sanctions). The CLC, which oversees implementation of the Agreement, is a trinational organization composed of a governing Council of the labor ministers from each country and a Secretariat based in Dallas, Texas. Each country has also set up a National Administrative Office (NAO) to coordinate participation in the Agreement and to review complaints.
Since its formation, the NAALC has engaged in a wide range of cooperative activities, including seminars, training sessions, exchanges of professional and technical delegations, and joint reports. No government-to-government consultations have been requested under the dispute settlement system. To date, 23 cases have been filed by private parties under the NAALC, covering issues ranging from freedom of associations and illegal use of child labor to allegations that manufacturers in Mexico discriminate against pregnant women.
In 2000, the CLC published the first in a series of Comparative Guides to Labor and Employment Laws in North America. These guides will describe how each member country addresses the NAALC obligations with respect to the 11 enumerated labor principles. The first guide covers basic labor and industrial relations: union organizing, collective bargaining, and the right to strike as set out in Labor Principles 1, 2 and 3 of the NAALC. Subsequent volumes will cover what the NAALC defines as "technical labor standards," contained in Labor Principles 4 to 11.
Mexico
U.S. trade with Mexico has grown significantly since the implementation of NAFTA. Mexico has surpassed Japan to become America’s second largest export market and second largest trading partner. Indeed, the United States exported $111.7 billion in goods to Mexico in 2000, almost double its exports to Japan in 2000 of $65 billion. As well, the United States remains the largest investor in Mexico, accounting for 60 percent of all foreign direct investment flows into Mexico between 1994 and 1998.
At the U.S.-Mexican summit on February 16, 2001,
newly-elected Presidents Bush and Fox reaffirmed their respective commitments
to free trade as “an engine for economic growth and development,” emphasized
the importance of the U.S.-Mexican trading relationship, and reaffirmed their
support for creating a Free Trade Area of the Americas “as soon as possible.”
As required by the NAFTA, Mexico issued an October 30, 2000 decree requiring its export-oriented manufacturing plants, so-called maquiladora operations, to pay duties on imports of intermediate goods from non-NAFTA countries that are re-exported to the United States or Canada. This decree is effective November 20, 2000 and applies to imports on or after that date that are re-exported to the United States or Canada after January 1, 2001. At the same time, Mexico published new rules lowering duties for imports of components and machinery for strategic manufacturing sectors, including textiles, automobiles and auto parts, steel, leather, wood, paper, transportation equipment, medicines, rubber, plastics, and chemicals, as well as components for the electronics, furniture, toy, shoe, mining, consumer goods, and photographic sectors. Mexico also issued another decree authorizing maquiladora operations to sell products into Mexico without limitations. It remains unclear how the new decrees will be implemented, particularly in relation to duty-drawback provisions.
Major
U.S.-Mexican Trade Issues
The
United States is likely to have continuing disputes with Mexico over the United
States’ delay in implementing its trucking services commitments under the NAFTA
(discussed above with regard to Chapter 20 dispute settlement cases). As well, the United States continues to have
disputes over Mexico’s imposition of antidumping duties on U.S. agricultural
products, such as high fructose corn syrup (HFCS), beef, and pork.
In 2000, the WTO
ruled against Mexico’s imposition of antidumping duties on HFCS, but Mexico
reimposed duties, which are now the subject of another WTO review. The United States also requested a NAFTA
review of this decision; the panel has delayed its decision in this case until
May 28, 2001.
On July 10, 2000, the United States also requested WTO consultations with Mexico regarding Mexico’s imposition of antidumping duties on live swine from the United States (which represented less than one percent of Mexican swine production), as well as sanitary and other restrictions imposed by Mexico on imports of swine weighing 110 kilograms or more. The United States has argued that Mexico’s threat of injury determination is inconsistent with the WTO Agreement on Antidumping and that the other restrictions are inconsistent with the Agreement on Agriculture, the SPS Agreement, the Agreement on Technical Barriers to Trade, and GATT 1994. Following consultations on September 7, 2000, Mexico initiated a review of the antidumping findings and issued a protocol, which aims to allow the resumption of U.S. shipments of swine weighing 110 kilograms or more. The United States will continue to monitor these developments.
A NAFTA Chapter 19 panel is currently reviewing Mexico’s imposition of antidumping duties on U.S. beef.
Mexico is also expected to continue to press the United States for increased access to the U.S. sugar market. Mexico is concerned about loss of market share for its sugar exports due to the increasing reliance of soft drink producers on HFCS instead of sugar. U.S. HFCS producers believe that Mexico’s decision to impose antidumping duties on HFCS was intended to create leverage to gain greater access to the U.S. sugar market.
On August 17, 2000, the United States also requested WTO consultations with Mexico regarding its implementation of telecommunications commitments under the General Agreement on Trade in Services. In particular, the United States is concerned that Mexico is (1) not maintaining adequate disciplines over Telmex, its former monopoly telecommunications provider; (2) not ensuring timely, cost-effective interconnection for completing carriers; and (3) continuing its practice of charging U.S. above-cost rates for international calls. On October 10, 2000, the Mexican Government issued new rules to regulate anti-competitive practices by Telmex and reduced long-distance interconnection rates for 2001. On November 10, 2000, the United States requested the establishment of a WTO dispute settlement panel. Consultations with Mexico were held in January 2001.
Mexican Trade Agreements and Negotiations
Mexico continued its efforts to negotiate free trade agreements in 2000, to build upon the NAFTA and free trade agreements that it had previously concluded with Chile, Venezuela, and other countries.
On November 24, 1999, the EU and Mexico concluded an FTA. The FTA was formally signed on March 23, 2000 and went into effect for industrial goods, dispute settlement, government procurement, and competition policy on July 1, 2000. The agreement is estimated to apply to 96 percent of EU-Mexican trade when the tariff reductions are phased in by 2003. Prior to the implementation of the agreement, about 67 percent of EU imports from Mexico entered duty-free under the EU Generalized System of Preferences program. As of July 1, 2000, 82 percent of Mexico’s industrial goods were able to enter the EU free of duty. Approximately half of the EU’s exports to Mexico are also duty-free. The agreement covers competition policy, technical standards, dispute resolution, safeguards, phytosanitary issues, intellectual property rights, government procurement, services, rules of origin, and market access. U.S. companies with Mexican operations may be able to increase their sales to the EU under the agreement. Nevertheless, EU-Mexican trade remains small, with less than one percent of EU exports going to Mexico.
After eight years of negotiations, Mexico completed free trade agreement negotiations with Guatemala, El Salvador, and Honduras in May 2000. The agreement covers market access, services, investment, intellectual property, and dispute resolution. Tariffs for industrial goods will be eliminated in 11 years and for agricultural goods in 12 years. The agreement is expected to enter into force in 2001.
On November 3, 2000, Mexico and the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland) concluded free trade agreement negotiations that will eliminate tariffs by 2007. The agreement covers trade in goods, services, intellectual property, procurement, competition policy, and intellectual property issues and includes a dispute settlement mechanism. It will provide substantially similar access to the Mexican market as provided under the NAFTA and the Mexican-EU FTA.
Building on Mexico’s existing free trade agreement with Uruguay, Mexican President Vincente Fox has indicated that he will seek to accelerate talks with Brazil, which began in early 2000, to reach a broad trade agreement. He also expressed willingness to extend any agreement reached with Brazil to the other MERCOSUR countries. Mexico is also engaged in discussions with Japan, Korea and Singapore.
Canada
Canada remains America’s largest trading partner, accounting for $176.5 billion in U.S. goods exports last year. The Canadian and U.S. economies are more integrated than ever, and bilateral trade has doubled over the last decade. Both countries also share common interests in pursuing FTAA negotiations and the launch of a WTO round. Bilateral relations with Canada are frustrated, however, by several major ongoing disputes over softwood lumber, agriculture, and other issues.
Major
U.S.-Canadian Trade Issues
Softwood lumber is likely to be a primary area of dispute between the United States and Canada in 2001. The 1996 U.S.-Canada Softwood Lumber Agreement expires in April 2001. Under that agreement, Canada has imposed fees on softwood lumber exports from four Canadian provinces in return for a commitment from the United States to refrain from initiating any unfair trade cases against the Canadian softwood lumber sector for five years. The U.S. lumber industry has argued for the last decade that Canadian stumpage prices and its log export ban represent unfair subsidies that have injured the U.S. industry. The Canadian industry and government adamantly disagree with the suggestion that their practices result in subsidies. The U.S. lumber industry, which brought the original unfair trade remedy cases, is seeking an end to what it views as Canadian subsidization of softwood lumber through government-to-government talks, but will likely bring a new set of unfair trade cases if a resolution is not achieved. In October 2000, the Clinton Administration requested detailed talks with Canadian forestry officials on provincial forestry practices. Canada rejected this request and reiterated an earlier Canadian proposal to form an “eminent persons” group (made up of one U.S. and one Canadian envoy) to propose non-binding recommendations to the two governments to resolve this issue. This issue was raised both by President Bush in his initial meeting with Prime Minister Chrétien and in meetings between U.S. Trade Representative Zoellick and Canadian Trade Minister Pettigrew. Members of Congress have weighed in on this issue, with 51 Senators asking President Bush to launch immediate government-to-government negotiations with Canada on a replacement for the Agreement. In the House, Congressmen Kolbe (R-AZ 5th) and Hoyer (D-MD 5th) and 47 additional members introduced a resolution calling for an end to the agreement.
In a related matter, Canada requested WTO dispute settlement consultations with the United States on May 19, 2000, arguing that its practice of treating export restraints (such as the log export ban) as countervailable subsidies conflicted with the United States’ WTO commitments. A panel was established on September 12, 2000 to hear this case. On January 17, 2001, Canada also challenged section 129(c)(1) of the Uruguay Round Agreements Act, which authorizes the prospective revision or elimination of antidumping or countervailing duties (after a WTO panel decision), but does not permit retroactive relief.
There are also a number of agricultural issues between the United States and Canada. While the 1998 U.S.-Canada understanding on farm trade issues is being implemented, concerns remain about the secrecy of the Canadian Wheat Board and Canadian regulations governing shipments of potatoes. On October 23, 2000, the Clinton Administration initiated a section 301 investigation into the trade practices of the Canadian Wheat Board. This investigation is ongoing. U.S. pork producers are also monitoring the implementation of Canada’s commitments to permit the United States to export live hogs for slaughter from states that are free from certain hog diseases.
In October 1997, the United States challenged Canadian subsidies to dairy products exports and its tariff-rate quotes on certain dairy products. The WTO Appellate Body found that the export subsidies were inconsistent with Canada’s WTO obligations. In attempting to implement the WTO’s findings, Canada has replaced the provisions at issue with substitute measures, which the United States continues to view as inconsistent with Canada’s commitments. At the request of the United States, the WTO asked the original panel to review whether Canada’s new provisions are compliant with its WTO commitments. The United States and New Zealand (which raised similar complaints) also requested WTO authorization to impose a total of $35 million in trade sanctions on imports from Canada, which a WTO panel is also reviewing.
The United States was also successful in its challenge to Canada’s Patent Act, which provides a patent term of 17 years for certain patents filed before October 1989. The Appellate Body found this provision to be inconsistent with the TRIPs’ requirement of a 20-year patent term. Canada is expected to comply with this ruling in the next year.
An additional issue that may arise in 2001 is the U.S. attempt to reclassify certain sugar syrup as a sugar-containing product subject to tariff-rate quotas. Canada brought a WTO dispute settlement challenge to a Customs Department ruling in September 1999, but has not pursued the case following a Court of International Appeals decision that struck down the Customs Department ruling as inconsistent with U.S. law. In 2000, several attempts were made by Senator Breaux (D-LA) and others to revise U.S. law to include this product under the tariff-rate quota. That legislation was not enacted.
Canadian
Trade Agreements and Negotiations
Canada is also continuing to seek out other countries with which to negotiate free trade agreements, to build on NAFTA, Canada’s free trade agreement with Israel, and its NAFTA-like agreement with Chile. In 2000, Canada began looking into possible free trade agreements with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Japan, and Singapore.
Caribbean Basin Countries
Two-way trade between the United States and the Caribbean Basin countries grew 14 percent between 1999 and 2000, to a total trade value of $26 billion in 2000. After years of negotiations between various parts of the textile and apparel industries and Members of the U.S. Congress, legislation was finally enacted to provide greater preferences to the Caribbean Basin countries, in part to provide parity to the preferential access accorded to Mexico as part of the NAFTA. This legislation, the United States-Caribbean Basin Trade Partnership Act of 2000 (CBTPA), was approved by the House and Senate as part of the Trade and Development Act of 2000 and enacted on May 18, 2000. As described below, this program substantially expands the duty-free and quota-free access for eligible Caribbean Basin countries that was first provided in the Caribbean Basin Initiative enacted in 1983.
The
United States-Caribbean Basin Trade Partnership Act of 2000
The
CBTPA provides duty-free,
quota-free treatment for certain apparel products from eligible Caribbean Basin
countries and provides duty-free treatment for products not currently eligible
for duty-free treatment under Caribbean Basin Economic Recovery Act
(CBERA). The primary provisions are as
follows:
q Eligibility
Criteria: In determining whether
Caribbean Basin countries will be eligible for the CBTPA benefits, the
President must find that a country has met the eligibility criteria under the
CBERA and must take into account several additional factors, including a
country’s commitment to undertake WTO obligations and participate in FTAA
negotiations, protection of intellectual property and internationally
recognized worker rights, participation
in the Inter-American Convention Against Corruption, and government procurement
practices.
q Textile and Apparel Provisions: The
CBTPA provides duty-free,
quota-free treatment for the following articles:
ú
apparel
assembled in a CBTPA country made from U.S. fabric that is made from U.S. yarn;
ú
apparel cut and
assembled in a CBTPA country from U.S. fabric that is formed from U.S. yarn, if
the articles are also assembled with U.S.-formed thread;
ú
certain apparel
knit-to-shape in a CBTPA country from U.S.-formed yarn and knit apparel
articles cut and wholly assembled in CBTPA countries from U.S. or regional
fabric that is made from U.S. yarn. Knit apparel products are capped at 250
million square meter equivalents and outerwear T-shirts are capped at 4.2
million dozen, with an annual increase of 16 percent for the first 4 years of
the program.
ú
certain
brassieres;
ú
certain apparel
that are both cut (or knit-to-shape) and sewn or otherwise assembled in a CBTPA
country from fibers, fabric, or yarn not available in commercial quantities in
the United States; and
ú
certain textile
luggage.
q
Safeguards against
Import Surges and Transshipment: The CBTPA provides for a snapback of the
tariff preferences on textiles and apparel if import surges cause serious
damage to the U.S. industry. The CBTPA
also authorizes the denial of trade benefits to exporters found to be involved
in transshipment and the reduction of benefits for countries that fail to
prevent transshipment.
q
Additional Tariff
Preferences: The CBTPA provides additional tariff
benefits to other products not currently eligible for tariff preferences under
the 1983 CBERA, including canned tuna, certain footwear, petroleum and
petroleum products, certain watches and parts, and certain leather goods. Tariffs on these products are reduced to the
rate that applies to imports from Mexico.
q Customs Procedures: Requires CBTPA beneficiary countries and
importers claiming CBTPA tariff benefits to comply with customs procedures,
including requirements for certificates of origin, equivalent to those required
under the NAFTA.
Implementation
of CBTPA
Following enactment of the CBTPA, the Clinton Administration reviewed the eligibility of each of the 24 Caribbean and Central American countries. In several cases, the United States extracted commitments from such countries to improve protections for intellectual property and worker rights and to improve their WTO and anti-corruption commitments. On October 2, 2000, the Clinton Administration announced that all 24 countries were eligible for CBTPA’s benefits: Antigua and Barbuda, Aruba, Bahamas, Barbados, Belize, Costa Rica, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Montserrat, Netherlands Antilles, Nicaragua, Panama, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago, and British Virgin Islands. In making the announcement, the Clinton Administration indicated that four countries -- Guatemala, El Salvador, Honduras and Nicaragua -- would be subject to further review and monitoring with respect to worker rights issues.
Designated Caribbean countries became eligible for most duty-free treatment effective December 21, 2000. Designated countries will only be eligible for the duty-free apparel benefits after the Administration determines that they have implemented provisions to comply with the certificate of origin requirements. The Clinton Administration determined that the following countries are eligible for the apparel benefits: Belize, Costa Rica, Dominican Republic, El Salvador, Guatemala, Guyana, Haiti, Honduras, Jamaica, Nicaragua, Panama and Trinidad and Tobago.
On October 5, 2000, the U.S. Customs Service published interim rules to implement the benefits of the CBTPA and the Africa trade bill discussed below. Several technical interpretation issues have arisen with respect to Customs’ interpretation of the CBTPA and the Africa trade bill. Particularly sensitive is the treatment of apparel knit-to-shape in the United States and assembled in the Caribbean or Africa. Customs believes such articles do not fall within the categories allowing for unlimited duty-free entry of apparel made from U.S. fabric. Several Members of Congress who authored the legislation, as well as importers and retailers, disagree with Customs interpretation. As the same time, some domestic industries are seeking to restrict the CBTPA’s benefits by adding an additional requirement that fabric must be dyed and finished in the United States to be eligible for the U.S fabric benefits. Congress may consider legislative amendments to the CBTPA (and the Africa bill) to address some of these issues. The Customs Service has yet to issue regulations addressing the provisions relating to brassieres and there are indications that the Customs Service may promulgate regulations that will narrow the benefits for those products.
Several
other issues have arisen with respect to the implementation of the CBTPA in
Customs’ interim regulations that should be corrected in the final
regulations. One such problem is that
the CBTPA HTS designations created by the Customs Service for CBTPA products
and the Customs Service’s interpretations of the legislation are severely
limiting the ability to use and the value of U.S. components. Another
such problem is the requirement that every importer provide sourcing and supply
chain detail on the CBTPA. This information is extremely confidential and
if disclosed to a competitor could be very harmful.
Because of the complexity of the regulations implementing the CBTPA legislation, entries have averaged longer approval times than a normal CBI entry, creating excessive delays and warehousing expenses. Finally, CBTPA post-entry claims are only being processed manually by the filing of a Supplemental Information Letter.
ECAT POSITION: ECAT supports U.S. efforts to promote
greater economic reform and growth in the Caribbean Basin. In particular, ECAT supports full
implementation of the Caribbean Basin Partnership Trade Act (CBTPA) in a manner
that will promote greater U.S. trade with the Caribbean Basin. ECAT is concerned that the U.S. Customs
Service is interpreting the CBTPA in a manner that is not consistent with the
legislative intent of the Act. The U.S.
Customs Service appears to be interpreting the Act in the narrowest sense,
which is contrary to the intent of the Congress as expressed in the preamble to
the legislation. ECAT supports efforts to
improve the implementation of the CBTPA to ensure that beneficiaries of these
provisions are not penalized for the use of U.S. components or required to
release business confidential information.
ECAT also supports efforts to expand the benefits provided by this
legislation.
MERCOSUR
Established in 1991, the Southern Cone Common Market (Mercado Comun de Sur, MERCOSUR), made up of Argentina, Brazil, Paraguay and Uruguay, is the largest economic grouping within Latin America, comprising over 210 million people. Following the creation of a free trade area in goods in 1995 (when most duties were phased out for inter-regional trade), the MERCOSUR countries continued work on creating a common market by establishing common external tariffs, ranging from zero to 20 percent on most goods. Some goods remain outside the common external tariff structure and will gradually be covered, including capital goods and certain information technology goods. The countries have a goal of consolidating the customs union by 2006. The common external tariff declined considerably (from 41 percent in 1986 to below 13 percent in 1999). In November 1997, MERCOSUR countries raised their common external tariff by three percentage points in an effort to offset impacts from the global financial crisis. Uruguay and Paraguay had expressed strong reservations about the increase and only implemented it selectively. This tariff increase expired in 2000.
In 1997, MERCOSUR countries signed an agreement on trade in services to provide most-favored nation treatment with respect to service providers. MERCOSUR has also attempted to expand, admitting Chile as an associate member in 1996 and Bolivia in 1997. MERCOSUR and the Andean Pact countries began free trade area negotiations in 1998.
In December 2000, at the MERCOSUR Presidential Summit, the four MERCOSUR members agreed to a six-year phase in of automobile trade into the common external tariff, with Argentina and Brazil agreeing to an immediate 35 percent common external tariff on passenger vehicles.
Trade within the MERCOSUR union has grown five-fold since its creation in 1991. In the past few years, however, trade disputes over textiles, pork, poultry, steel, and footwear products have strained relations among MERCOSUR members. In 1998-99, for example, the MERCOSUR countries relied upon a three-member Tribunal to resolve disputes over Brazil’s imposition of licensing restrictions on various imports. This was the first time that MERCOSUR countries resorted to this dispute settlement mechanism since its creation in 1994. U.S. trade with the MERCOSUR countries equaled $38 billion in 2000, up almost 15 percent from 1999. This represents approximately two percent of total U.S. trade.
Brazil
The outlook for the Brazilian economy is bright for the year ahead. After dire predictions for Brazil’s economy after the devaluation of the Brazilian real in 1999, lower than expected inflation and steady reductions in interest rates enabled the Brazilian economy to pull out of recession and attract a record $30 billion in foreign direct investment in 1999. Brazil’s economic situation continued to improve in 2000, with an estimated full-year GDP growth rate of 4 percent and strong growth in employment.
The Brazilian government attributes a large portion of its success in weathering its economic crisis to the fact that it has become increasingly committed to open trade and globalization. Brazil’s imports have risen dramatically since it lowered its tariffs in the early 1990s, increasing from just under $20 billion to a projected $56.8 billion in 2000. Brazil’s lowered tariff barriers have produced a significant increase in foreign direct investment that rose from less than $1 billion in 1991 to $30 billion in 1999 and a projected $26 billion in 2000.
While Brazil’s support for open trade policies has increased over the last decade, its share of world trade remains negligible. To increase its share of world markets, Brazil has joined with the United States in urging the EU and Japan to eliminate export subsidies and other barriers to agricultural trade, particularly for coffee and soybeans.
Brazil’s top priority in the trade arena is to revitalize the MERCOSUR arrangement by urging consideration of closer macro-economic coordination and the creation of an institutional framework.
The Brazilian market is important for the continued expansion of U.S. trade and investment. While Brazil only accounts for less than two percent of U.S. exports (equal to $15.4 billion in 2000), it has been the largest market in South America for U.S. foreign direct investment. Four-fifths of the U.S. Fortune 500 companies have operations in Brazil, and U.S. banks have substantial loan portfolios there.
Asia-Pacific Region
Asia Pacific Economic
Cooperation Forum
The Asia Pacific Economic Cooperation (APEC) forum has 21 members with a combined gross domestic product of over $18 trillion in 1999 and accounts for almost 44 percent of global trade. In addition to the United States, APEC members are Australia, Brunei, Darussalam, Canada, Chile, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, Taiwan, Thailand, and Vietnam.
Total U.S. trade with APEC members increased 78 percent between 1999 and 2000, reaching $1.3 billion and representing 66 percent of total U.S. trade in 2000.
Source:
U.S. Department of Commerce
The 1994 APEC Bogor Declaration established the goal of achieving free and open trade in the Asia-Pacific region by the year 2010 for developed countries and 2020 for developing countries. The 1995 Osaka Action Agenda established a plan for achieving liberalization consistent with the Bogor Declaration goals in 14 areas, including tariffs, non-tariff measures, services, investment, customs, intellectual property, and government procurement. APEC members have developed individual and collective action plans to implement liberalization in these areas.
At the 12th APEC Summit in Bandar Seri Begawan, Brunei Darussalam in 2000, APEC Ministers reaffirmed “their strong commitment to the launch of a new trade round of multilateral trade negotiations at the earliest opportunity.” The Ministers agreed that the launch of a WTO round requires a “balanced and sufficiently broad-based” agenda and reiterated support for the rapid completion of WTO accession negotiations by China and Taiwan. APEC Ministers also agreed to extend the APEC-wide moratorium on the imposition of customs duties on electronic transmissions until the next WTO Ministerial Conference. APEC Ministers also continued to support implementation of the APEC Food System, which the APEC Business Advisory Council (ABAC) had developed to ensure sustainable food supplies throughout the region. The Open Food System is based on APEC members agreeing to the following four principles: (1) to align their prices with world levels; (2) to support vibrant rural economies, based on available resources; (3) to reduce barriers to trade and investment in the agribusiness sector; and (4) to give foreign and domestic consumers the same treatment. Ministers also supported continued progress on early voluntary sectoral liberalization (EVSL) initiatives, including the APEC auto dialogue.
This year’s APEC ministerial summit will be held in November 2001 in Shanghai, China. Three Senior Officials meetings have been scheduled to prepare for the November summit: in Beijing, between February 11 and 19, in Shenzen, between May 23 and June 3, and in Dalian, between August 16 and 24. The ABEC held its first meeting of 2001 in Scottsdale, Arizona, February 14 and 17 to launch its theme, "Promoting Common Development through Capacity Building and Full Participation." As in previous years, ABEC will prepare and present recommendations to the APEC ministerial summit.
ECAT POSITION: ECAT supports the APEC process as a vital
part of expanding trade and investment in the Asia-Pacific region. ECAT supports ongoing efforts to achieve
early voluntary sectoral liberalization and to reach an agreement with all WTO
members on the eight sectors targeted for liberalization under the Accelerated
Tariff Liberalization (ATL) initiative.
ECAT also endorses the U.S. effort to reach an agreement to move forward
with liberalization in other sectors, including food and automotive products.
Association
of Southeast Nations
Formed in 1967, by Indonesia, Malaysia, the Philippines, Singapore and Thailand, the Association of Southeast Asian Nations (ASEAN) works to promote political and economic cooperation and regional stability. Membership in ASEAN now also includes, Brunei, Vietnam, Laos, Myanmar, and Cambodia
ASEAN economies are continuing their recovery from the Asian financial crisis, as GDP rates have recovered significantly. U.S. exports to the region reached $47 million in 2000, almost equal to their 1997 record level. World investment flows have remained low. In 1996, foreign direct investment in the five original ASEAN countries had reached $16.3 billion, by 2000, it was estimated at less than half that amount, $7.3 billion. (At the same time, investment has expanded from $44.2 billion to China, Japan and Korea in 1996 to $74.1 billion in 2000.)
At the fourth ASEAN summit, the members agreed to establish an ASEAN free trade area (AFTA) by 2008. At the 1999 ASEAN summit, members agreed to speed up AFTA efforts and conclude the agreement by 2002. The AFTA will require that tariff rates on certain goods will be reduced to between zero and five percent and that quantitative and other non-tariff barriers be eliminated. The ASEAN countries agreed to some tariff cuts by 2002, which were accelerated to 2000 as a result of the financial crisis. ASEAN agreed to allow some longer transition periods for some members in 2000.
ASEAN nations will hold their next annual meeting in Hanoi in July 2001. Led by Malaysia, ASEAN nations are interested in strengthening their association and creating a true ASEAN free trade area.
Japan
U.S. trade relations with Japan are likely to remain less contentious in 2001, despite a record $81 billion deficit in 2000, as Japan continues to take significant steps to open and deregulate its economy. Nevertheless, the Japanese economy continues to face significant difficulties as reports indicate that industrial output was at a near standstill for the last three months of 2000 and unemployment remains at a record-high of 4.8 percent in December 2000. A November 2000 trade policy review of Japan’s trade policies by the WTO found that Japan continued to have competitive distortions, particularly in its agriculture and services sectors. Japan’s efforts to undertake corporate restructuring or other difficult reforms will be complicated this year by the upcoming July elections for Japan’s upper house of parliament.
In addition to its macroeconomic and fiscal stimulus packages, Japan has taken significant steps to reform and deregulate its economy. The United States-Japan Framework for a New Economic Partnership (Framework Agreement) and the U.S.-Japan Enhanced Initiative on Deregulation and Competition Policy (Deregulation Initiative) have been important contributors to this reform.
In July 2000, Japan agreed to significant market deregulation in the telecommunications sector, as well as other reforms as part of the Deregulation Initiative. In particular, Japan agreed to lower by approximately 50 percent the rates for competitors to connect to NTT at the regional level and by 20 percent at the local level by 2001. Japan also agreed to conduct a thorough review of NTT’s interconnection rates in 2002, open new points of access to NTT’s network, and eliminate restrictions on the ability of competitor to develop their own networks. These measures will create new opportunities for U.S. businesses in Japan’s $130 billion telecommunications market, which is the second largest in the world. With regard to medical devices and pharmaceuticals, Japan agreed to establish, starting in October 2000, a transparent and unbiased appeal process to allow U.S. suppliers to challenge pricing decisions under Japan’s national health insurance system. Japan also agreed to measures to increase the availability of innovative pharmaceuticals in Japan’s marketplace through pricing reform and to improve the approval process for new devices and pharmaceuticals.
In March 2000, Japan opened nearly one-third of its $135 billion electricity market to competition. As part of the July Deregulation Initiative, Japan agreed to ensure non-discriminatory access to its electricity transmission grid, its natural gas sector (which will be liberalized this year), and other measures. Japan also agreed to market-opening deregulation initiatives in the insurance and housing sectors and to improve transparency, distribution, customs regulation, and its regulatory and antitrust policies.
The Bush Administration indicated in February 2001 that they would be taking a somewhat different approach to U.S.-Japan trade relations as Treasury Secretary O’Neill emphasized the importance of working with Japanese business executives on common objectives and of avoiding lecturing Japanese government officials.
It is expected, however, that deregulation issues will remain a top priority in U.S.-Japan bilateral trade relations in 2001. The fourth annual report on the status of the Deregulation Initiative will be issued at the end of March of this year. In October 2000, the United States presented Japan with its fourth annual submission, which focused on further deregulation of a number of sectors, including telecommunications and information technology, medical devices and pharmaceuticals, financial services, housing, energy, and distribution. The U.S. proposal also recommended specific reforms to Japan’s 50-year old commercial code, which Japan recently announced that it would be revising.
Improving access to Japan’s auto market will also remain an important issue for the United States. In 1995, the United States and Japan reached an Automotive Agreement intended to eliminate market-access barriers and expand sales opportunities for U.S. auto and auto parts exports in Japan. This agreement expired at the end of 2000. Prior to its expiration, the United States noted that progress has been made under the agreement, particularly in the areas of vehicle standards, certification and the deregulation of the auto parts after-market. However, the United States expressed serious concern that the overall market opening objectives had not been achieved. In particular, sales of U.S.-made vehicles to Japan have fallen dramatically since 1995 and sales of U.S.-made auto parts to Japanese firms and their transplants in the U.S. have also decreased. The Bush Administration may seek additional talks with Japan over auto and auto parts trade issues early in 2001 to promote improved access and competition in that market.
Japanese steel imports are also likely to remain an irritant in bilateral relations this year. In 1999, the United States initiated a high-level dialogue with Japan and other major steel-exporting nations to discuss steel trade patterns and to discourage the use of subsidies and unfair trade practices. Those talks are continuing, particularly given the impetus for greater restraints on steel imports coming from some members of Congress. In February 2001, the WTO panel reviewing Japan’s challenge to the United States’ imposition of antidumping duties on hot-rolled steel upheld many of the United States’ determinations regarding injury and antidumping, but found that the United States had misapplied several standards in the calculation of antidumping duties. Neither Japan nor the United States has indicated yet whether they will appeal this decision. Japan is also seeking a renegotiation of the WTO antidumping rules as part of a new trade round in order to tighten antidumping standards, which the United States has previously opposed.
In its annual consultations under the 1992 U.S.-Japan Computer Agreement, the United States will continue to urge Japan to improve its implementation of that agreement, which was intended to increase the sales of U.S. computers to Japan’s public sector. Japan has insisted that the 1992 agreement does not guarantee any market share and that its government purchases are conducted in a fair, transparent manner.
The U.S.-Japan bilateral agreement on flat glass expired at the end of 1999. The agreement required Japan to take market-opening steps, including providing foreign firms access to the distribution network controlled by Japan’s three major glass companies. Despite the agreement, the U.S. share of Japan’s flat glass market has remained less than two percent. The United States is concerned that Japanese flat-glass manufacturers are engaged in predatory pricing. Despite consultations in 2000, this issue remains unresolved. The United States is expected to continue to press these issues directly and as part of the broader Deregulation Initiative.
U.S. officials will also continue to monitor and enforce key agreements and trade with Japan in insurance, telecommunications, semiconductors, and other sectors. The United States will continue to press Japan to relax various restrictions that impede investment by, among other things, facilitating mergers and acquisitions, land reform and labor market mobility.
Korea
The Korean economy showed continued strength in 2000 and the International Monetary Fund estimates full-year GDP growth at 9½ percent, although growth was slowing down and expected to settle at 6 percent in the coming year. Unemployment averaged 4 percent and continued to fall in 2000 and inflation remained within the Government’s target. In its February 2001 review of Korea’s economy, following the end of the three-year IMF standby arrangement, the IMF found that Korea has made substantial progress in strengthening “corporate governance and financial supervision, liberalizing capital markets and foreign investment, fostering transparency, and enhancing the role of market discipline.” U.S. exports to and imports from Korea continued to grow, with total trade increasing 74 percent over 1999 levels to $68.2 billion.
Despite this progress, the IMF and others have noted that there remain structural problems in Korea’s economy, including a highly leveraged corporate sector and concerns over asset quality in the banking sector. The United States is also concerned over these issues and Korea’s corporate restructuring efforts in the auto, steel, and shipbuilding sectors. For example, the February 2001 decision of the Korea Exchange Bank to look favorably on new financing for the restructuring of Hyundai Engineering & Construction Co. has created concerns that Korea’s efforts to reform its economy have slowed down.
The United States has made progress in negotiating a bilateral investment treaty with Korea in the last two years, and it is expected that the Bush Administration will seek to complete negotiations this year. Two of the key issues in the negotiations are the U.S. request for greater access for U.S. investors in Korea’s telecommunications sector and Korea’s commitment to fully comply with the WTO TRIPs agreement.
The United States will also continue to press Korea to improve market access for autos under the 1998 U.S.-Korea Memorandum of Understanding. In August 2000 consultations, U.S. negotiators pressed Korea about the lack of any substantial increase in access for autos in the Korean market and continuing anti-import activity. They also pressed for meaningful restructuring of the Korean auto industry and a reduction in automobile tariffs and taxes on Korean car owners, and on standards and certification issues. Consultations are expected to continue this year.
Korean steel exports to the United States have been subject to antidumping complaints and petitions for Section 201 escape-clause relief in the last two years. The President granted relief to the U.S. industry in the Section 201 cases on steel wire rod and welded line pipe. Korea, the EU and other countries have challenged this relief and a WTO dispute settlement panel was formed in October 2000 to review this matter. The United States also began bilateral consultations with Korea over steel trade issues in 1999 and has urged the Korean government to stop subsidizing Korean steel producers and to privatize POSCO, Korea’s largest steel producer.
In 1999, the United States requested WTO dispute settlement consultations with Korea over its requirements that imported beef be sold in separate retail stores and other distribution restrictions. In December 2000, the WTO Appellate Body upheld the earlier panel ruling finding that Korea’s import regime discriminates against foreign beef. On February 1, 2001, Korea agreed to implement the Appellate Body and panel rulings, although no timetable has yet been established for implementation.
Korea also remains on the United States’ Special 301 “Priority Watch List” for its inadequate intellectual property regime, particularly in the areas of enforcement and copyright protection.
Indonesia
The United States has had a significant economic stake in Indonesia. Before the onset of the Asian financial crisis and the increase in political unrest in Indonesia, it was a regional economic power with an economy twice as large as Singapore’s. Indonesia was among America’s top 25 trading partners, accounting for $6 billion in U.S. exports and $7.6 billion in U.S. foreign direct investment in 1996. U.S. investment in Indonesia has been primarily in the oil and gas sector. Following the financial crisis and serious political unrest that brought down the corrupt regime of former President Suharto, Indonesia has faced the difficult challenge of rebuilding its government and economy. In 2000, Indonesia continued the process of stabilizing its economy. After unveiling a new economic agenda focused on privatization, Indonesian President Abdurrahman Wahid reached a February 2000 agreement with the IMF on a new economic reform plan that will provide Indonesia with $5 billion in new loans over a three-year period, of which $349 million was immediately available. In September 2000, another $398.9 million was disbursed. The United States has urged Indonesia to follow through with the economic reforms requested by the IMF and restructure the country’s financial and corporate sectors.
In 2000, Indonesia has increased GDP output (which is projected to surpass 4.8 percent for the full-year 2000), kept inflation relatively low and the rupiah stable, although market volatility remains. Indonesia exports increased by 27 percent, with non-oil and gas exports rising 22.9 percent. The United States was the largest export destination of Indonesian non-oil and gas exports and the second largest source of its imports. Two-way U.S.-Indonesian trade equaled $12.9 billion in 2000. While U.S. exports increased to $2.6 billion, they have yet to regain their earlier levels.
Indonesia has not, however, fully implemented the requirements of its IMF program, having deferred the imposition of a value added tax on the free trade zone of Batam Island until at least 2002. The Indonesian Government imposed new taxes on luxury and consumer goods effective January 1, 2001 to meet budgetary needs. The IMF has also expressed concern over fiscal decentralization and had not yet announced the third disbursement.
The United States remains concerned about continued piracy of U.S. software, books, videos, pharmaceuticals, and apparel trademarks in Indonesia. The Indonesian government remains on the Special 301 “Priority Watch List” for its inadequate intellectual property regime and failure to bring its laws into conformity with the WTO TRIPs Agreement.
The United States continues to monitor Indonesia’s efforts to revive its national automotive industrial policy. The United States successfully challenged the WTO consistency of Indonesia’s barriers to trade in automotive products. Indonesia modified its auto policies to bring them into conformity with the WTO panel decision, and the United States does not want Indonesia to reimpose barriers to auto trade. U.S. companies remain concerned about Indonesia’s services and other barriers.
India
The economic growth that India has enjoyed since it embarked on economic reforms in 1991 continues, as gross domestic product grew by 5.9 percent in Indian FY 1999-2000. The growth rate is down about one percent (from 6.8 percent in FY 1998-99) largely as a result of slower agriculture growth: however, Indian exports increased 12 percent after having fallen the previous year. India’s information technology sector, in particular, has grown enormously from $150 million 10 years ago to $5.7 billion in FY 1999-2000. In 2000, India enacted the Information Technology Act to facilitate e-commerce and provide a legal framework for electronic contracts. India’s population has now surpassed one billion and by 2016 its population will exceed that of Europe and the rest of the industrial world, excluding Russia. This tremendous market potential cannot be realized unless the Indian government accelerates the pace of economic reform and opens its market to foreign investment.
In March 2000, President Clinton visited
India and signed a vision statement with Prime Minister Vajpayee to improve
U.S.-Indian relations. The leaders
agreed to a regular summit meeting, annual foreign policy dialogue at the
secretary level, and a bilateral economic dialogue. In September 2000, Prime Minister Vajpayee visited the United
States and announced the formation of a strategic management group to
facilitate foreign investment in India, as well as the prospect for greater
investment liberalization to coincide with privatizations in various sectors,
including oil, telecommunications, and aviation. At that time, the Ex-Im Bank also committed to nearly $900
million in financing of U.S. exports to India.
The United States and India also reached agreement not to raise tariffs
or taxes beyond certain levels on textile and apparel goods.
As discussed in further detail in Section 6,
the United States continues to maintain sanctions following India’s nuclear
tests in May 1998 and its failure to sign the Comprehensive Test Ban
Treaty. In 2000, some of these
sanctions were lifted by the President and the Congress; however, several
sanctions remain, including:
termination of foreign assistance, sales of defense articles, and export
licenses for munitions list items, and a prohibition on the issuance of export
licenses for certain dual-use goods and technology.
In February 2000, India lifted quantitative restrictions on 714 items as part of India’s 1999 agreement with the United States to abolish all quantitative restrictions on agriculture, textile, and consumer products by April 1, 2001. India’s action came in response to a ruling by the WTO Appellate Body rejecting India’s claim that its balance-of-payments situation justifies import restrictions. The United States is monitoring India’s implementation of its commitment closely to ensure that it does not impose new restrictions on imports.
The United States remains India’s largest trading partner, with two-way trade equal to $14 billion in 2000. The United States remains concerned, however, about high Indian tariffs in several sectors, including on soda ash imports. The United States has stated that India may lose GSP tariff preferences if it refuses to lower its soda ash tariff. The United States also is concerned about barriers to greater investment. India also remains on the United States’ Special 301 “Priority Watch List” for its inadequate intellectual property regime and its failure to come into compliance with its TRIPs commitments
Sub-Saharan Africa
Two-way trade between the United States and sub-Saharan Africa totaled $28 billion in 2000, an increase of 47 percent of such trade in 1999, and continues to represent a small portion of total U.S. trade (1.4 percent in 2000). U.S. exports to sub-Saharan nations remain concentrated in a few countries, with 52 percent of U.S. exports going to South Africa and 12 percent going to Nigeria.
Source:
U.S. Department of Commerce
After years of negotiation, Congress reached
agreement on the African Growth and Opportunity Act (AGOA), which was enacted
on May 18, 2000, as part of the Trade and Development Act of 2000.
The African Growth and Opportunity Act
The AGOA provides duty-free, quota-free treatment for certain
apparel from eligible sub-Saharan African countries and provides duty-free access
to certain products not currently eligible for such treatment under the
Generalized System of Preferences program (GSP). The primary provisions are as follows:
q Eligibility Criteria: Sub-Saharan African countries eligible for the benefits of AGOA must meet the GSP’s eligibility requirements, as well as several new requirements, including making progress toward establishing or adopting (1) a market-based economy, (2) the rule of law and political pluralism, (3) economic policies to reduce poverty, (4) a system to combat corruption and bribery, and (4) the protection of internationally-recognized worker rights. Eligible countries must also be found to be making progress toward eliminating barriers to U.S. trade and investment. Countries may not be found to be eligible if they engage in activities that undermine U.S. national security or foreign policy interests or engage in gross violations of internationally recognized human rights.
q Textile
and Apparel Provisions: The AGOA
provides duty-free, quota-free
treatment through September 30, 2008 for the following articles:
ú
apparel
assembled in Sub-Saharan Africa from U.S. fabric made from U.S. yarn;
ú
apparel cut and
assembled or knit-to-shape in sub-Saharan Africa from U.S.-made fabric that is
made from U.S. yarn and assembled with U.S. thread;
ú
apparel wholly
assembled from regional fabric up to a cap of 1.5 percent of total U.S. apparel
imports in year one, growing to 3.5 percent of such imports in year eight;
lesser developed SSA countries may use third country fabric for the first 4
years of the program;
ú
knit-to-shape
sweaters made from cashmere or fine merino wool up to 18.5 microns;
ú
apparel cut and
assembled or knit-to shape in sub-Saharan Africa from fabric or yarns not
available in commercial quantities in the United States; and
ú
hand-loomed,
handmade, and folklore articles.
Eligible countries must also adopt effective visa systems and domestic laws and enforcement procedures to prevent unlawful transshipment; permit the U.S. Customs Service to verify information; and cooperate fully with the United States to prevent circumvention and transshipment.
The AGOA also establishes procedures to
monitor imports and investigate injurious import surges of articles made from
regional and/or third country fabric and authorizes a tariff snapback (to the
normal trade relations tariff rate) where an injurious import surge is found.
q Trade Benefits for Other Products:
The AGOA provides duty-free treatment for eligible sub-Saharan African
countries through September 30, 2008 for other import-sensitive articles
(except textiles and apparel) that are currently ineligible for such treatment
under GSP, including certain footwear, luggage. The legislation also eliminates
the restrictions under the GSP program that limit the quantity of imports that
can receive GSP benefits for eligible sub-Saharan African countries.
q
Economic Forum: The AGOA
directs the President to create a United States-Sub-Saharan Africa Trade and
Economic Cooperation Forum to hold annual high-level meetings with African
Ministers to discuss expanding trade and investment relations.
q Other Provisions: The AGOA directs the President to develop a plan for engaging in free trade agreement negotiations, where feasible, with sub-Saharan African countries and supports comprehensive debt relief and increased involvement by OPIC, Ex-Im and the U.S. Foreign and Commercial Service in Africa.
Implementation of the AGOA
On October 2, 2000, the Clinton Administration announced that 34 of the 48 sub-Saharan African countries met the eligibility requirements to receive AGOA benefits. These countries are: Benin, Botswana, Cape Verde, Cameroon, Central African Republic, Chad, Republic of Congo, Djibouti, Eritrea, Ethiopia, Gabon, Ghana, Guinea, Guinea, Guinea-Bissau, Kenya, Lesotho, Madagascar Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Sao Tome and Principe, Senegal, Seychelles, Sierra Leone, South Africa, Tanzania, Uganda and Zambia. On January 17, 2001, the Clinton Administration announced that Swaziland had also met the eligibility requirements.
Designated sub-Saharan African countries became eligible for most duty-free treatment effective December 21, 2000 or on the date they were determined to be eligible if after December 21st. Designated countries will be eligible for the duty-free apparel benefits only after the Administration determines that they adopted an effective visa system and enforcement mechanism to prevent illegal transshipment. Kenya and Mauritius were found by the Clinton Administration to have effective visa systems effective January 18, 2001. On March 12, 2001, South Africa was designated as eligible for the apparel benefits. The Bush Administration will continue to monitor other country’s efforts to adopt adequate visa systems.
As described with respect to the Caribbean Basin Trade Partnership Act (CBTPA), several technical implementation issues have arisen with respect to both the CBTPA and the AGOA. In February 2001, Customs denied duty-free treatment to what would have been the first shipment under the apparel provisions of the AGOA because the articles were knit-to-shape and not, in Customs’ view, eligible under any of the categories Congress created. Importers and retailers have disagreed, noting that the knit-to-shape sweaters are properly considered as apparel items made from regional fabric. This and similar issues may be addressed in court or by legislative amendments.
ECAT POSITION: ECAT supports U.S. efforts to promote
greater economic reform and growth in sub-Saharan Africa. In particular, ECAT supports full
implementation of the African Growth and Opportunity Act in a manner that will
promote greater U.S. trade with sub-Saharan Africa. ECAT also supports efforts to expand the benefits provided by
this legislation.
Russia
Since the dissolution of the USSR in
1992, Russia has been struggling with the challenges of ending state economic
control and establishing a stable democratic system. Russia had made some limited progress in reaching these goals
over the last several years, with a reduction in military spending and an
increase in private sector economic activity.
Nonetheless, a September 1999 study by McKinsey & Co. showed
Russia’s gross domestic product has declined by 40 percent since the break-up
of the Soviet Union and that unfair competition and widespread corruption have
decreased the incentive to invest in Russian industry and promote productivity.
Russia’s economy improved considerably in 2000, with increased political stability, continued economic growth (estimated at 7 percent), moderate inflation, the relative stability of the ruble, and increased investment. In its November 2000 consultation with Russia (which is mandated as part of Russia’s 1999 stand-by package of $4.5 billion), the IMF found that recent macroeconomic performance was strong, but that progress on structural and market-oriented reforms had been mixed. In particular, the IMF found that privatization, accounting reform, and bank restructuring have been delayed and that there was “backtracking” in the energy sector with the reintroduction of export restrictions. The IMF noted progress on fiscal reform and tax reform.
Russia’s sales of missile technology to Iran will remain an issue in U.S. relations with Russia this year. In July 1998, the United States suspended assistance to and prohibited trade with nine Russian entities believed to have attempted illegally to export missile-related services or technology to Iran. The Russian government agreed to launch an investigation into the sales and strengthen its efforts to halt the illegal sales of sensitive technology. In February 1999, the United States prohibited trade with three Russian research institutes, in respon