Emergency Committee For American Trade - Publications

SECTION 10: 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 2002, U.S. trade with the 34 countries in the Western Hemisphere negotiating the Free Trade Area of the Americas (FTAA) equaled $725 billion, and the region accounted for 45 percent of U.S. goods exports. U.S. exports to the region are growing twice as fast as our exports to the European Union (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 other regional and bilateral free trade agreements, as with Central America, 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 $11 trillion worth of goods and services. Between 1994 and 2002, U.S. trade with Canada and Mexico grew from 29 percent to 32.5 percent of the total value of U.S. trade, equal to almost $1.7 billion a day. Foreign investment within the three countries has also grown significantly, to $1.3 trillion in 2000 (representing 28 percent of worldwide investment inflows).

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. With the 2002 reductions, Mexico's average tariffs on U.S. goods equal one-half of one percent (compared to the pre-NAFTA average of 10 percent). 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 the NAFTA countries increased 70 percent since 1993, from $142 billion to $258 billion, much faster than the 44 percent growth in exports to the rest of the world. U.S. goods exports to Canada have increased more than 44 percent since NAFTA entered into force, while U.S. merchandise exports to Mexico more than doubled from pre-NAFTA levels, rising from almost $42 billion in 1993 to $97.5 billion in 2002. 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 NAFTA countries announced the third set of accelerated tariff reductions, which will eliminate tariffs on approximately $867 million in trade among the three countries, including on certain footwear, chemicals, pharmaceuticals, auto parts, and batteries. In January 2002, the NAFTA countries announced the fourth round of accelerated tariff reductions on $25 billion in trade, covering such goods as rubber and plastic footwear, motor vehicles, electrical and electronic goods, toys and chemicals.

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. Three cases have been completed under this process - the United States' challenge to Canadian agricultural tariffs, Mexico's challenge to the U.S. safeguard on broomcorn brooms, and, most recently, Mexico's challenge to U.S. restrictions on cross-border trucking services.

The final report in the 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. After extensive discussion between the Administration and Congress throughout 2001, House and Senate negotiators reached a compromise agreement on the imposition of safety measures to implement the NAFTA panel ruling in November 2001. Included as part of the conference report to the Transportation Appropriations Act (H.R. 2299), the compromise requires the Administration to carry out certain safety precautions before Mexican trucks can enter the United States, including safety inspections, a certification by the Secretary of Transportation that Mexican trucks do not pose an unacceptable safety risk, an electronic verification of the validity of Mexican licenses and the establishment of a system for giving each truck a unique Department of Transportation number. The legislation also requires physical inspections of trucks every 90 days. The Transportation Department Inspector General must also conduct an audit of the U.S. government's ability to enforce the safety standards on Mexican trucks before they can operate in the United States.

The Department of Transportation issued final rules to implement this legislation in November 2002 and the Administration lifted the U.S. ban. In January 2003, the U.S. Ninth Circuit Court of Appeals blocked the lifting of the ban, ruling that the Department of Transportation had failed to assess fully the effects of increased truck traffic as required by the Clean Air Act and the National Environmental Policy Act.

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 does 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. Eighty-seven Chapter 19 cases have been brought since the NAFTA entered into force, involving 19 challenges to Canadian decisions, 56 challenges to U.S. decisions, and 12 challenges to Mexican decisions.

The NAFTA working group on dispute settlement is continuing to examine ways to improve the Chapter 19 dispute settlement process, including addressing problems associated with delays in the Chapter 19 review process arising from inadequate funding, problems in selecting panelists, transparency issues, and translation difficulties.

NAFTA Chapter 11

Chapter 11 of the NAFTA sets forth the Parties' obligations with respect to investment and related issues. It requires the Parties to eliminate barriers and adopt market-oriented domestic policies that treat investment fairly and in a non-discriminatory manner. A full discussion of the NAFTA Chapter 11 commitments, recent cases and the basic investment protections is found in section 4.

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 the suspension of NAFTA benefits) and a review of complaints submitted by non-governmental organizations (NGOs) (with the possibility of a factual record being prepared on the issue, but 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. In December 2002, it adopted a 2003-2005 Program Plan, under which it will focus on four core areas: the environment, economy and trade; conservation of biodiversity; pollutants and health; and law and policy. 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 over 150 grants totaling more than $5 million.

No Party has requested government-to-government consultations. There have been, however, 36 citizen submissions, three of which have resulted in the CEC preparing factual records. Of these cases, 12 involve Canada, 16 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 2002, the BECC had allocated almost $28.17 million in technical assistance to aid in the development of 196 environmental infrastructure projects related to water, sewage, and municipal waste in 113 communities. The NADB has also authorized $10.9 million in grant funding to carry out 136 institutional strengthening and project development studies for 72 border communities. By the end of 2002, the BECC had certified 70 environmental infrastructure projects, with an estimated cost of $1.58 billion - 41 certified projects are located in the United States and 29 are in Mexico. By the end of 2002, the NADB had approved $474.25 million in loans and grants for 53 water, wastewater and municipal solid waste infrastructure projects, and other projects. In 2002 alone, the NADB approved $119.88 million in project loans and grants, nearly twice the amount approved in 2001.

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 among the three NAFTA countries to improve working conditions and promote core labor standards. It established two procedures for reviewing a country's compliance with its 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, minimum wage, and 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, over 20 cases have been filed by private parties under the NAALC, covering issues ranging from freedom of association 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 $97.5 billion in goods to Mexico in 2002, more than double its exports to Japan in 2002 of $48.2 billion. As well, the United States remains the largest investor in Mexico.

Major U.S.-Mexican Trade Issues

The United States and Mexico are continuing work to resolve several important trade disputes, including the United States' cross-border trucking restrictions (discussed above), Mexico's imposition of antidumping duties on high fructose corn syrup (HFCS), and discrimination in Mexico's telecommunications sector.

On October 22, 2001, the WTO Appellate Body affirmed the panel ruling that Mexico's continuing imposition of antidumping duties on imports of high fructose corn syrup (HFCS) from the United States was inconsistent with the WTO Antidumping Agreement and that Mexico had failed to comply with an earlier adverse WTO panel decision. The United States is continuing to press Mexico for the removal of this measure and full implementation of the Appellate Body ruling. The United States is also pressing Mexico on its January 2002 adoption of a tax on soft drinks produced with HFCS. A U.S. HFCS producer indicated in January 2003 that it may challenge Mexico under NAFTA Chapter 11 (Investment) if this issue is not resolved. The United States and Mexico are also continuing discussions about Mexico's NAFTA Chapter 20 complaint regarding 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 has been concerned that Mexico is (1) not maintaining adequate disciplines over Telmex, its former monopoly telecommunications provider; (2) not ensuring timely, cost-effective interconnection for competing carriers; and (3) continuing its practice of charging U.S. companies 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 and in March 2001. Some progress was made on this issue in late 2000 and 2001, after U.S. carrier WorldCom reached a rate agreement with Telmex and Mexico promised additional reform. On February 16, 2002, however, the United States again requested establishment of a WTO panel - this time only with respect to Mexico's discriminatory treatment with regard to above-cost rates for international service. The panel was established on April 17, 2002 and panelists were selected on August 26, 2002.

Mexican Trade Agreements and Negotiations

Mexico continued its efforts to negotiate free trade agreements in 2002, to build upon the NAFTA and free trade agreements and other bilateral agreements that it had previously concluded with the EU, Chile, El Salvador, Guatemala, Honduras, Venezuela, the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland), and Brazil.

In July 2002, Mexico and Japan announced that they would try to conclude a bilateral free trade agreement by the fall of 2003.

Canada

Canada remains America's largest trading partner, accounting for over $160 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 achieving a successful WTO round. Bilateral relations with Canada are frustrated, however, by several major ongoing disputes as discussed below.

Major U.S.-Canadian Trade Issues

Softwood lumber, wheat and a few WTO cases remain primary areas of dispute between the United States and Canada.

Softwood Lumber

Following the March 31, 2001 expiration of the 1996 U.S.-Canada Softwood Lumber Agreement, the U.S. timber industry filed antidumping and countervailing duty cases against softwood lumber imports from Canada. The Commerce Department announced final countervailing duties of 19.34 percent and final antidumping duties of 2.26 percent to 15.83 percent on March 22, 2002, and the U.S. International Trade Commission made affirmative determinations, allowing the imposition of final duties.

Under the Softwood Lumber Agreement, Canada had 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.

Following both the preliminary and final determinations in these cases, Canada filed WTO challenges. The WTO panel reviewing the preliminary countervailing determination issued its ruling in September 2002, finding that the U.S. methodology was contrary to its WTO obligations. Since the final determination had already been issued, the United States indicated that it had already implemented this ruling. In the WTO challenge to the final countervailing duty determination, a panel was established in October 2002. In the meantime, the U.S. and Canadian governments have engaged in extensive negotiations to resolve these longstanding issues.

Wheat

On February 15, 2002, the Bush Administration made an affirmative Section 301 finding that the Canadian Government grants the Canadian Wheat Board (CWB) special monopoly rights and privileges, which disadvantage U.S. wheat farmers and undermine the integrity of the trading system. In particular, USTR found that the CWB's monopoly has been able to take sales away from U.S. farmers because it is insulated from commercial risks, benefits from subsidies, has a protected domestic market, and has competitive advantages due to its monopoly control over a guaranteed supply of wheat. USTR announced a four-prong approach to resolve this problem, including: (1) examining whether to bring a WTO case against Canada and the CWB; (2) examining the possibility of initiating countervailing duty and antidumping cases; (3) working with the U.S. wheat industry to identify specific Canadian barriers to U.S. wheat; and (4) pursuing comprehensive and meaningful reform of monopoly state trading enterprises in the WTO agriculture negotiation.

On October 23, 2002, the Administration initiated antidumping and countervailing duty investigations into Canadian wheat as requested by the North Dakota Wheat Commission. In its preliminary determination in the countervailing duty case in March 2003, the Commerce Department imposed preliminary countervailing duties equal to 3.94 percent. The preliminary antidumping determination is expected later this spring.

In December 2002, the United States requested WTO consultations with Canada arguing that the export practices of the Canadian Wheat Board as well as Canada's handling and transporting of imported grain violate Canada's obligations under the WTO. In March 2003, the United States requested the formation of a WTO panel.

Dairy

The United States also successfully challenged Canada's export subsidies to dairy farmers in the WTO, where in an October 1999 Appellate Body ruling for the United States. Following Canada's implementation of reforms, the United States requested reestablishment of the panel to review Canada's compliance on February 16, 2001. The United States also sought authorization to retaliate. In July 2001, the panel found that Canada had failed to implement fully the earlier WTO rulings by continuing to provide export subsidies at levels inconsistent with its WTO commitments. On December 3, 2001, the Appellate Body concluded that it did not have enough information to make a ruling against Canada, and the United States requested that the panel be reconvened to present additional evidence. On June 24, 2002, the panel found that Canada's new measures were inconsistent with its WTO obligations. The Appellate Body made the same determination in December 2002. The United States is seeking Canada's full compliance with these decisions.

Canadian Trade Agreements and Negotiations

Canada is also continuing to seek out other countries with which to negotiate free trade agreements in order to build on NAFTA, Canada's free trade agreement with Israel, and its NAFTA-like agreement with Chile. In 2001, Canada concluded an FTA with Costa Rica and a trade and investment agreement with Nigeria. Canada has also formally initiated FTA negotiations with El Salvador, Guatemala, Honduras and Nicaragua and is consulting with Bolivia, Colombia, Ecuador, Peru, Venezuela, the Dominican Republic, Singapore and Japan.

Caribbean Basin Countries

Total U.S. trade with the Caribbean and Central America has more than doubled between 1990 and 2002. In particular, U.S. exports to the 24 countries of the region have grown from $7.7 billion in 1990 to $19.2 billion in 2002. Imports have followed a similar course. Critical in spurring this growth in trade has been the implementation of the Caribbean Basin Economic Recovery Act, providing duty-free treatment to a host of goods from these countries, and, most recently, the Caribbean Basin Trade Partnership Act, which substantially broadened the products to which duty-free treatment applies.

Implementation and Amendment of the United States-Caribbean Basin Trade Partnership Act

After years of negotiation, the Caribbean Basin Trade Partnership Act (CBTPA) was enacted in 2000 to provide duty-free, quota-free treatment for certain apparel products from eligible Caribbean Basin countries and to provide duty-free treatment for products not currently eligible for duty-free treatment under the Caribbean Basin Economic Recovery Act (CBERA). The primary provisions are as follows:

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.
Textile and Apparel Provisions: The CBTPA provides duty-free, quota-free treatment for the following articles:
- apparel assembled in a CBTPA country made from U.S. fabric that is made from U.S. yarn;
- 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;
- 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 four years of the program;
- certain brassieres;
- 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
- certain textile luggage.
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.
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.
Customs Procedures: The CBTPA requires 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.

As part of the Trade Act of 2002, Congress amended the CBTPA to provide that the benefits with respect to textile and apparel goods made from U.S. fabrics would only be available if the fabric were dyed and finished in the United States. This modification unfortunately narrows the benefits provide by the original legislation. Congress also amended the Act to clarify that knit-to-shape products are eligible for duty-free, quota-free treatment contrary to an earlier Customs Service interim ruling.

Following enactment of the CBTPA, all 24 countries were found to be eligible for CBTPA's benefits (following, in some cases, additional commitments regarding labor, anticorruption and other issues): 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.

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. At the end of 2002, the following fourteen countries were designated as eligible for the apparel benefits: Barbados, Belize, Costa Rica, Dominican Republic, El Salvador, Guatemala, Guyana, Haiti, Honduras, Jamaica, Nicaragua, Panama, Santa Lucia, 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. These rules have yet to be finalized, which has limited the full benefits available under the CBTPA. Several problems also exist in the regulations, including the exclusion of knit-to-shape apparel, which Congress corrected last year. In addition, CBTPA HTS designations created by the Customs Service for CBTPA products and the Customs Service's interpretations of the legislation are severely limiting both 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 details on the CBTPA. This information is extremely confidential and if disclosed to a competitor could be very harmful.

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 Trade Partnership Act in a manner that will promote greater U.S. trade with the Caribbean Basin. ECAT remains 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 continued efforts to expand the benefits provided by this legislation.

Andean Countries

In 2002, Congress passed and the President signed into law a renewal and expansion of the 10-year-old Andean Trade Preference Act as part of the Trade Act of 2002. Renamed the Andean Trade Promotion and Drug Eradication Act (ATPDEA), the new legislation aims to expand economic and trade incentives for four Andean countries - Bolivia, Ecuador, Colombia, and Peru - and to encourage the production of legitimate products by these countries in order to help them move out of the drug trade.

This legislation authorizes the President to grant duty-free treatment to ATPDEA beneficiary countries through December 31, 2006 for non-import sensitive items that were excluded from the original legislation, including specified footwear, petroleum products, watches and watch parts, handbags, luggage, flat goods, work gloves, leather wearing apparel, and certain tuna in foil or certain flexible containers (if harvested by U.S. vessels or ATPDEA beneficiary country vessels). The ATPDEA excludes from duty-free treatment certain textiles and apparel articles ineligible on January 1, 1994, including rum; tafia; sugars, syrups, and sugar-containing products subject to over-duty rates; and tuna prepared or preserved in any manner in airtight containers (except as otherwise provided).

The ATPDEA provides duty-free, quota-free treatment for apparel articles sewn or assembled in one or more ATPDEA countries or the United States from any combination of the following:

Fabrics wholly formed or knit-to-shape in the United States from yarns formed in the United States or ATPDEA beneficiary countries (with all dyeing and finishing in the United States).
Fabrics formed or knit-to-shape from yarns from ATPDEA beneficiary countries if such fabrics are in chief value from llama, alpaca, or vicuna.
Fabrics or yarn not produced in the United States or in the region, to the extent that apparel articles of such fabrics or yarn would be eligible for preferential treatment, without regard to the source of the fabrics or yarn, under Annex 401 of the NAFTA (short supply provisions).
Apparel articles sewn or otherwise assembled in one or more beneficiary countries from fabrics or fabric components formed or components knit-to-shape, in one or more beneficiary countries, from yarns formed in the United States or in one or more ATPDEA beneficiary countries, whether or not the apparel articles are also made from any of the fabrics, fabric components formed, or components knit-to-shape in the United States. Imports of apparel made from regional fabric and regional yarn would be capped at 3 percent of U.S. imports growing to 6 percent of U.S. imports in 2006, measured in square meter equivalents.
Certain textile luggage.

The ATPDEA directs the Commissioner of Customs to study and report to Congress on the extent to which each ATPDEA beneficiary country has cooperated fully with the United States with regard to circumvention of existing quotas on imports of textile and apparel goods.

In designating beneficiary countries, the President is directed to consider certain criteria, including: (1) whether the country has demonstrated a commitment to undertake its obligations under the WTO and to participate in negotiations toward a Free Trade Area for the Americas (FTAA); (2) the extent to which the country provides protection of intellectual property rights consistent with or greater than that required under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights; (3) the extent to which the country provides internationally recognized worker rights; (4) whether the country has implemented its commitment to eliminate the worst forms of child labor; (5) the extent to which the country cooperates with the United States in counter-narcotics efforts; (6) the extent to which the country has taken steps to become a party to and implement the Inter-American Convention Against Corruption; (7) the extent to which the country applies transparent, nondiscriminatory, and competitive procedures in government procurement and contributes to international efforts to enhance transparency in government procurement; and (8) the extent to which the country has taken steps to support U.S. efforts to combat terrorism.

On October 31, 2002, the President designated the four Andean countries as generally eligible for the benefits under the ATPDEA, as well as eligible for the textile and apparel benefits. The President authorized duty-free treatment for over 600 products and did not designate any products as import-sensitive.

Since the original Andean Trade Preference Act was enacted, U.S. trade with the Andean Pact countries has increased considerably, from $21 billion in 1991 to $35 billion in 2002.

In its September 2002 annual report, the Andean Trade Preference Act: Impact on U.S. Industries and Consumers and on Drug Crop Eradication and Crop Substitution (Inv. No. 332-353, Pub. 3538), the U.S. International Trade Commission (ITC) found that the ATPA has helped Andean countries increase exports of and employment by several nontraditional industries (e.g., cut flowers, pigments and articles of precious metal) to the United States, which has substantially boosted the standard of living in rural areas. The ITC report also found that the ATPA continues to have a positive effect on drug-crop eradication and crop substitution in the Andean region.

ECAT POSITION: ECAT supports full implementation of the Andean Trade Promotion and Drug Eradication Act in a manner that fosters greater trade and investment between the United States and the Andean countries and supports greater economic growth and opportunities for the Andean countries.

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 intra-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 each other 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.

In 2001, MERCOSUR faced significant pressure as a result of Argentina's deepening financial crisis. Argentina has considered whether to withdraw from MERCOSUR's common external tariff, but in an October 2001 agreement with Brazil, agreed not to do so in exchange for Brazil's willingness to discuss Argentina's proposed safeguard measure on Brazilian imports. Discussions are ongoing.

U.S. trade with the MERCOSUR countries has more than doubled since 1990, from $16 billion to $34 billion in 2002. This represents approximately two percent of total U.S. trade. As part of the so-called Four Plus One framework (initiated in 1991), the United States and MERCOSUR resumed meeting more regularly in September 2001. The Four Plus One met in April 2002 and continued its agenda of discussing multilateral trade and other issues, with working groups on agricultural trade, industrial trade, investment development and electronic commerce.

The EU also sought to accelerate FTA talks with MERCOSUR in 2002. MERCOSUR and Andean countries also agreed on the framework for their FTA talks in 2001.

Asia-Pacific Region

Asia Pacific Economic Cooperation Forum

The Asia Pacific Economic Cooperation (APEC) forum has 21 members and accounts for approximately 46 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 remained at $1.2 trillion in 2002, representing 65 percent of total U.S. trade in 2002.

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. In 1997, APEC members established the Accelerated Tariff Liberalization (ATL) initiative to seek to eliminate tariffs in eight sectors: chemicals, energy products, environmental products, fish, forest products, gems and jewelry, medical and scientific equipment, and toys. APEC sought its expansion 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 account for approximately one-third of total U.S. industrial exports in 2001. While not formally part of the Doha Declaration, efforts will continue to push for a WTO agreement to eliminate tariffs in these sectors.

At the 13^th APEC Summit in Shanghai, China in 2001, APEC Ministers "reaffirmed their strong commitment to launch the WTO new round of multilateral trade negotiations in 2001." The Ministers reiterated support for the WTO accession of China and Taiwan and the "advancement" of accession by Russia and Vietnam. 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.

At the 14^th APEC Summit in Los Cabos, Mexico, 2002, APEC leaders agreed to take a leading role in the multilateral trading system to pursue concrete negotiations across all areas of the Doha Development Agenda (DDA). In particular, APEC Trade Ministers agreed to adopt the specific transparency standards in the Shanghai Accord to bring about openness and predictability in governments, and to reduce trade obstacles crucial for the digital economy by creating cooperative settings among groups of countries called "Pathfinder Initiatives," in which 16 economies have agreed to participate. They also initiated a Trade Facilitation Action Plan that could decrease international business transactional costs by five percent over the course of five years within the APEC region. Ministers also reaffirmed the Doha Development Agenda deadlines discussed in section 2.

ECAT POSITION: ECAT supports the APEC forum 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. ECAT also strongly supports APEC's transparency and trade facilitation programs.

Association of Southeast Asian 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. U.S. exports to the region in 2002 equaled $42 billion, registering a 4.3 percent decline from 2001. World investment flows have remained low.

At the fourth ASEAN summit in 1993, 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, although tariffs will not be eliminated until 2010 for the group of six (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand) and 2018 for the group of four (Cambodia, Laos, Myanmar and Vietnam). The AFTA will require that tariff rates on certain goods 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.

At their annual meeting in Hanoi in September 2001, ASEAN countries agreed to eliminate tariffs on information and communication technology goods by 2005. The group of four will have until 2010 to eliminate such tariffs. ASEAN countries also moved up the deadlines for full implementation of the ASEAN Investment Area. Exceptions for investment in the manufacturing, agriculture, forestry, fisheries and mining sectors must now be eliminated by 2003 for the group of six and 2015 for the group of four.

In 2001, ASEAN also agreed to a Closer Economic Partnership with Australia and New Zealand to establish a broad framework to improve trade and economic ties.

In October 2002, President Bush announced a new trade initiative with ASEAN countries called the Enterprise for ASEAN Initiative (EAI). Under this initiative, individual countries will be allowed to pursue bilateral FTAs with the United States as long as potential FTA partners are members of the World Trade Organization and have concluded a Trade Investment Framework Agreement (TIFA), thereby laying the foundation for a future FTA. The United States already has TIFAs with Indonesia and the Philippines and recently concluded one with Thailand.

ASEAN countries have also begun to pursue a FTA with China, which could open up a $2 trillion market with 1.7 billion consumers.

China

The United States and China share a robust trade and investment relationship. In 2002, U.S. exports to China expanded by 14.6 percent, from $19.2 billion in 2001 to $22 billion in 2002. Imports from China also expanded significantly, from $102 billion in 2001 to $125 billion in 2002. Much of the focus in recent years on the U.S.-China economic relationship has centered around China's entry into the WTO (on December 11, 2001), and, recently, its implementation of those commitments. As well, the United States continues to pursue bilateral issues between the two countries.

Summary of China's WTO Commitments

Implementation of China's accession to the WTO will provide tremendous new opportunities for American goods, services, and agriculture in the world's largest and fastest growing market. The terms for China's accession are: (1) comprehensive, removing major trade barriers in all major sectors of the economy, (2) fully enforceable, and (3) designed to produce rapid results. Highlights of some of the major achievements are summarized below.

Agriculture: The bilateral agreement provides expanded market access for U.S. wheat, corn, soybeans, cotton, barley, and rice under a new system of tariff-rate quotas, reduces Chinese tariffs on priority products such as beef, citrus, and dairy from over 30 percent to 12 percent, and eliminates Chinese export subsidies. In a separate side agreement, the Chinese have agreed to eliminate non-science-based food safety measures that restrict entry of U.S. beef, pork, poultry, and wheat. The United States is currently working with the Chinese Government to implement fully that side agreement.
Trading and Distribution Rights: China agreed to provide full trading rights for U.S. and other foreign companies to import, export, and distribute products directly to Chinese customers, including after-sales service and repair, without going through a local trading company or distributor.
Tariffs: China agreed to cut tariffs to 9.4 percent by 2005, including major tariff reductions on the farm products noted above. In the auto sector, China agreed to reduce its tariffs on autos to 25 percent by 2006 and to reduce tariffs on auto parts to 10 percent. China also will join the WTO's Information Technology Agreement (ITA) that will require China to reduce its tariffs on computers, semiconductors, telecommunications, and other high-technology products to zero.
Services: China agreed to provide comprehensive market access for U.S. telecommunications and financial services under the WTO Telecommunications and Financial Services Agreements. China has made specific market-access commitments in all services industries of primary interest to the United States, including the Internet, audio-visual, banking, insurance, securities, and auto finance. U.S. publishing and information services also will benefit from China's commitment to remove restrictions on distribution and to reduce restrictions on investment.
Safeguards: China also agreed to a 12-year product-specific safeguard provision that ensures that the United States and other countries can take action against increased imports from China that cause market disruption in their economies. The agreement also guarantees the United States the right for the next 15 years to continue to use special non-market economy methodologies in antidumping cases brought against China.

U.S.-China Relations Act and Congressional-Executive Commission on China

In 2000, Congress passed and the President signed into law the U.S.-China Relations Act. In addition to authorizing the President to determine that Title IV of the Trade Act of 1974 should no longer apply to China, and to proclaim the extension of PNTR treatment to China (after certifying to Congress that the terms and conditions for China's accession to the WTO are at least equivalent to those agreed by the United States and China on November 15, 1999), it also included the following key provisions:

Import Surge Safeguard. Title II implements the product-specific safeguard included in the November 1999 U.S.-China bilateral WTO agreement and China's protocol of accession. The safeguard permits a WTO member to impose temporary import restrictions in cases where products from China are being imported into its territory in such increased quantities or under such conditions as to cause or threaten to cause market disruption to competing domestic producers. This special safeguard will apply to China for 12 years following China's accession to the WTO.
Congressional-Executive Commission on China: Title III establishes a Congressional-Executive Commission on China, modeled loosely after the Commission on Security and Cooperation in Europe (Helsinki Commission). The China Commission will consist of nine members of each House plus five Presidential appointees. It is charged with monitoring human rights and labor market issues, and monitoring and encouraging the development of the rule of law and democracy-building in China. The House Committee on International Relations is required to hold hearings on the Commission's annual reports, including any recommendations for legislation or executive action that the Commission makes.
Monitoring and Enforcement: Title IV requires the United States Trade Representative (USTR) to issue an annual report on China's compliance with its WTO obligations. It also instructs the President to press for a WTO mechanism to review China's compliance on an annual basis. Title IV also authorizes appropriations for the Departments of Agriculture, Commerce and State, as well as USTR, to monitor and enforce China's and other foreign governments' compliance with trade agreements.
Task force on prison labor: Title V instructs the President to establish an interagency task force, chaired by the Secretary of the Treasury, to monitor, investigate, and enforce the prohibition on imports made by prison labor as provided for in section 307 of the Tariff Act of 1930 (which bars imports of goods made with forced or indentured labor).
Technical assistance for China: Title V authorizes appropriations for the Departments of Commerce, State, and Labor to establish programs to provide training and technical assistance in China to develop the rule of law with respect to commercial and labor-market standards. These programs would assist China in bringing its domestic laws into compliance with WTO and International Labor Organization standards.
Broadcasting: Title VII authorizes additional appropriations for Radio Free Asia and Voice of America to expand and enhance U.S. international broadcasting operations throughout China and nearby countries.

Ensuring Implementation of China's WTO Commitments

Even more important perhaps than China's accession to the WTO will be China's implementation of its commitments and the overall transformation of its economy. ECAT members recognize that China will not magically be transformed overnight or in a year, yet want to continue to work with the Administration and the business community work on the ground in China in a constructive manner to promote the change that China's WTO accession promises. It will be most effective to help identify at an early stage potential or actual implementation concerns and work with Chinese officials and other governments to help avoid or rectify any problems. Successful implementation of China's commitments will also require capacity-building and technical assistance from the United States government and business community and from the WTO and its other members as well.

In December 2001, the Administration created a Trade Policy Staff Subcommittee on China to guide the Administration's multi-pronged monitoring approach on China, to include:

Using State Department economic officers, Foreign Commercial Service and Multilateral Agreements Compliance officers from the Commerce Department, and Foreign Agricultural Service officers to gather information and help companies address day-to-day concerns.
Using an inter-agency team of experts to monitor compliance and seek information from U.S. business, trade associations and other sources.
Educating and assisting Chinese officials to improve compliance with complicated WTO commitments in a constructive manner.
Actively participating in the WTO's annual Transitional Review Mechanism on China.
Taking action to resolve issues quickly, using bilateral means, the Transitional Review Mechanism, and WTO consultations under the Dispute Settlement Understanding where appropriate.

In 2000, the Senate Finance Committee and House Ways and Means Committee requested the General Accounting Office (GAO) to monitor China's compliance with its WTO commitments with a report one year after China's accession and yearly thereafter. The GAO has already issued a number of reports in 2002 and 2003 related to China's WTO compliance:

World Trade Organization: Observations on China's Rule of Law Reforms (June 6, 2002), finding that the U.S. private sector believes China's rule of law reforms are critical.
World Trade Organization: Analysis of China's Commitments to Other Members (October 3, 2002), examining the scope and type of China's commitments and the interrelationships of those commitments.
World Trade Organization: Selected U.S. Company Views about China's Membership (September 23, 2002), examining the private sector expectations, in which approximately 90 percent of companies surveyed expected China's accession to have a positive impact on their businesses.
World Trade Organization: First Year U.S. Efforts to Monitor China's Compliance (March 31, 2003), examining the complexity in monitoring fully China's implementation of its commitments.

The United States has continued to press for China's full implementation of its WTO commitments, as described by USTR's December 2002 report, required by the U.S.-China Relations Act of 2000. The report concluded that "Overall, during the first year of its WTO membership, China made significant progress in implementing its WTO commitments, although much is left to be done." In particular, China made progress in implementing such commitments as:

tariff reductions;
non-tariff barriers, where China eliminated hundreds of WTO-inconsistent requirements; and
expanded market access in the services sector, particularly with respect to financial, telecommunications, audio-visual, tourism and travel-related, construction and engineering, education and environmental services.

ECAT members remain concerned, however, by:

China's uneven implementation of its commitments on transparency;
China's uneven implementation of its WTO-related and bilateral commitments on agriculture (included in the U.S.-China Agriculture Cooperation Agreement), including its discriminatory regulation of biotechnology goods (discussed in section 3), its faulty implementation of a tariff-rate quota system for bulk agricultural goods, and its improper application of sanitary and phytosanitary measures;
China's failure to enforce adequately its intellectual property rights (IPR) commitments, while it did make important progress with respect to its IPR laws and regulations; and
China's implementation of its services commitments without adequate transparency and the misuse of prudential standards that exceed international norms and insurance regulations.

In February 2003, USTR launched the U.S.-China Trade Dialogue, a new bilateral forum focused on bringing U.S. and Chinese officials together to discuss bilateral and multilateral trade issues and to help resolve potential disputes.

ECAT POSITION: ECAT supports the full implementation of China's and other new WTO members' commitments. With respect to China, ECAT strongly supports full funding for the commercial, labor, legal system and civil society programs authorized by the U.S.-China Relations Act and for the efforts of the United States Trade Representative and the Department of Commerce and other parts of the U.S. government to monitor and work constructively to promote full implementation of China's WTO commitments.

Japan

The Japanese economy continues to face significant difficulties and is once again entering a recession, registering negative GDP growth of -0.5 in 2002. In recent years, unemployment continues at record levels, and industrial manufacturing has declined. In 2001, Japan began to modify its fiscal policy by capping its budget deficit and lowering interest rates.

On October 12, 2001, Japan and Singapore concluded an FTA to take effect in April 2002. This is the first FTA that Japan has concluded and represents a major change in Japan's trade policies. See section 3 for a discussion of the U.S.-Singapore FTA.

In 2002, the U.S. trade deficit with Japan equaled $70 billion. U.S. exports to Japan continued to decline for the second consecutive year, from $54 billion to $51 billion between 2001 and 2002, although Japan remains the United States' third largest export market. In June 2001, President Bush and Japanese Prime Minister Koizumi inaugurated the new U.S.-Japanese Economic Partnership for Growth. This Partnership will include an ongoing trade forum to examine trade issues related to the manufacturing, services, and agricultural sectors and to act as an "early warning system."

In addition to its macroeconomic and fiscal policy, 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. As part of the Economic Partnership for Growth, President Bush and Japanese Prime Minister Koizumi agreed to a new Regulatory Reform and Competition Policy Initiative, which will replace the earlier Deregulation Initiative. This initiative will include government officials and representatives from the private sector. During its first year, four working groups were established on telecommunications, information technology, energy, and medical devices/pharmaceuticals. A cross-sectoral group also considered economy-wide issues such as regulatory reform, competition policy and corporate restructuring. In October 2001, the United States made recommendations to Japan in the following ten areas at the first set of substantive meetings: telecommunications, information technology, energy, medical devices/pharmaceuticals, financial services, competition policy, transparency, the legal system, commercial law and distribution. In 2002, the United States and Japan issued their first report, stating that meaningful accomplishments were made in the areas mentioned above. Progress was also made in competition policy, transparency, legal system reform, government practices and Japan's Commercial Code. In October 2002, the United States submitted to Japan another set of extensive recommendations on regulatory reforms, which will serve as a basis for bilateral talks for the High-level Officials Group and, drawing on these talks, the second annual report to the President and Prime Minister in mid-2003.

Improving access to Japan's auto market will also remain an important issue for the United States in 2002. 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 had 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. After months of discussions in 2001, the United States and Japan established the new U.S.-Japan Automotive Consultative Group to assess trends in the automotive industry and market-access and regulatory reform issues in Japan. The Group is co-chaired by the Commerce Department and USTR and the Ministry of Economy, Trade and Industry and the Ministry of Land, Infrastructure and Transport. The Administration has indicated that it will seek to address cross-cutting issues, such as transparency, investment and corporate restructuring that affect the automotive sector as part of the Economic Partnership. The first meeting was held in January 2003

Japanese steel imports are also likely to remain an irritant in bilateral relations this year, particularly following the United States' safeguard action discussed in section 3. In addition, Japan is awaiting U.S. implementation of the WTO Appellate Body findings that the U.S. antidumping duty order on hot-rolled steel from Japan is inconsistent with WTO rules (discussed in section 3). Japan is also involved in the high-level OECD dialogue on steel trade.

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, this issue remains unresolved. The United States is expected to continue to press these issues.

U.S. officials will also continue to monitor trade 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. In March 2002, the United States also requested WTO dispute consultations with Japan over sanitary and phytosanitary restrictions imposed on imports of apples. Consultations were held on April 18, 2002, and a panel was created on June 3, 2002.

Mexico and Japan announced in July 2002 that they would try to conclude a bilateral free trade agreement by the fall of 2003.

Korea

In 2002, the Korean economy rebounded during the first half of the year. The economy grew in 2002 from 3 percent to about 6 percent, but growth still remained below the 8.8 percent as seen in 2000. Unemployment continued to decline to 3.1 percent, close to pre-financial-crisis levels and down from 3.8 percent the year before. Inflation stayed on target between 2-to-4 percent. The growth was attributed to Korea's overall consumption and robust residential construction at the end of 2001 along with a strong surge in exports through 2002. U.S. exports equaled $23 billion in 2002, with total U.S.-Korean trade amounting to $58 billion.

In its March 2003 review of Korea's economy, the IMF commended Korea for its excellent performance that reflects the economic reforms taken since the 1997-1998 crisis. A recovering banking system enabled domestic demand to lead and sustain strong growth in 2002. Substantial restructuring in the corporate sector also resulted in increased exports in 2002. In general, the Korean economy has outperformed other Asian countries by a significant margin in the recent years. The outlook for 2003 is positive, with a projected growth of 5.5 percent.

The United States is also continuing efforts to conclude a bilateral investment treaty with Korea. Among the remaining issues are the U.S. request for greater access for U.S. investors in Korea's telecommunications sector and for Korea's commitment to fully comply with the WTO TRIPs agreement.

The United States will continue to press Korea to improve market access for autos under the 1998 U.S.-Korea Memorandum of Understanding. During March 2001 meetings in Seoul, President Bush pressed Korean President Kim Dae Jung for greater market access in autos. In particular, the United States remains concerned about the lack of any substantial increase in access for autos in the Korean market and government policies (including tariffs and taxes and standards and certification issues) that discourage the purchase of foreign automobiles. Consultations are expected to continue this year.

The United States is also concerned about burdensome documentation requirements for GMO crops following Korea's adoption in July 2001 of more rigorous labeling requirements for food containing GMOs.

Korean steel exports to the United States have been subject to antidumping complaints and petitions for Section 201 escape-clause relief in the last three years. The President granted relief to the U.S. industry in the Section 201 cases on steel wire rod and welded line pipe and, in March 2002, on steel. As discussed in section 2, Korea challenged the line pipe decision before a WTO panel, and both the panel and the Appellate Body found that the safeguard action was inconsistent with WTO rules.

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.

Vietnam

U.S. trade with Vietnam has grown substantially since the resumption of economic relations between the two countries in 1994. U.S.-Vietnamese trade has grown considerably, from $223.3 million in 1994 to $3 billion in 2002. Major U.S. exports to Vietnam include industrial machinery, fertilizers, and semiconductors and major imports include crude oil, footwear, shrimp, and coffee.

Vietnam applied to become a member of the WTO in 1995, but did not submit the required information on its trade regime until 1998. Vietnam has asked that it be allowed to join the WTO as a developing country and be granted more lenient developing country terms in its protocol of accession. The United States has indicated that Vietnam must be held to rigorous standards in its protocol of accession, including agreeing to join the WTO Information Technology Agreement.

On June 12, 2001, President Bush transmitted the U.S.-Vietnam Bilateral Commercial Agreement to Congress. The House approved the agreement on September 6, 2001, by voice vote and the Senate approved it on October 3, 2001, by a vote of 88-to-12. Congressional approval of the trade agreement, combined with the Presidential waiver of the Jackson-Vanik freedom-of-emigration provisions, resulted in the extension of normal trade relations status to Vietnam (removing it from the column 2 schedule - enacted as part of the Smoot-Hawley Tariff Act of 1930 - averaging 40 percent, more than 10 times the applied tariffs for countries with an NTR relationship to the United States). Vietnam has also been eligible, since the first Jackson-Vanik waiver in 1998, for Overseas Private Investment Corporation (OPIC) and Export-Import Bank programs. Approval of the Bilateral Commercial Agreement and the extension of normal trade relations represent a major step in the normalization of U.S. trade relations with Vietnam, building on prior decisions to open some travel to Vietnam in 1991 and 1992, resume international lending and U.S. involvement in development projects in 1993, lift the economic embargo in 1994, open normal diplomatic relations in 1995, and waive the Jackson-Vanik freedom-of-emigration provisions since 1998.

Over the objections of many in retail industries, however, USTR began discussions in February 2002 to negotiate a textile agreement with Vietnam in order to cap textile exports. Since Vietnam is not a member of the WTO, the United States can impose textile and apparel quotas if no agreement is reached. These discussions are continuing.

Vietnam presents investment-related problems, such as a discriminatory and time-consuming investment-licensing process. Vietnam also faces widespread corruption throughout all aspects of business operations, a problem the Government of Vietnam has admitted to. Vietnam ranked 2.6 out of a scale of 10 on corruption in Transparency International's Corruption Perception Index.

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.

U.S. exports to Indonesia equaled $2.5 billion in 2002. Indonesia's total exports to the United States declined to $9.6 billion in 2002.

Indonesia's growth slowed to 2.9 percent for 2002, down from 3.3 percent in 2001. Inflationary pressures are increasing and reform has been complicated by ongoing governmental transitions. Indonesia has also been slow in implementing agreed-upon reforms under the IMF structural adjustment agreement and, as a result, has completed only three reviews under the program (which calls for quarterly reviews).

Under the bilateral Trade and Investment Framework Agreement, the United States and Indonesia held their fourth Trade and Investment Council meeting in Bali in November 2002. The U.S. stressed the need to lift the ban on poultry parts and new regulations hindering exports of textiles to Indonesia.

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. To help resolve these shortcomings, the U.S. Government provided Indonesia with an IPR Action Plan in May 2002. In July, the Indonesian government took some initial steps by passing a copyright law focusing on activities that seek to bypass technological protection measures, penalties in relation to corporate-end user piracy and regulations on optical disc production. However, the legislation fails to provide adequate enforcement.

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. Tariffs on SUVs, sedans and motorcycles remain high. As well, 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 5.1 percent in 2001. India's population has now surpassed one billion, and projections suggest that by 2016 its population will exceed that of Europe and the rest of the industrial world, excluding Russia. Nevertheless, India has over 22 percent unemployment and significant poverty, and there remain continuing concerns over bureaucratic controls and basic infrastructure needs, including roads, ports, power and drinking water. India's tremendous market potential cannot be realized unless the Indian government accelerates the pace of economic reform and opens its markets to foreign investment. U.S.-Indian trade grew to $16 billion in 2002 from $13.5 billion in 2001. India is ranked 28th as a U.S. export market - behind Ireland and Dominican Republic. The United States is India's largest trading partner.

In August 2001, the United States and India agreed to implement the 2000 agreement to establish a formal trade policy dialogue with consultations at regular intervals. At the same time, the United States expanded benefits under the Generalized System of Preferences for India, providing duty-free treatment to an additional 42 products (mostly jewelry), covering some $543 million in exports.

As discussed in section 7, in September 2001, the United States lifted the remaining sanctions that it imposed on India in 1998 as a result of its nuclear testing. To that end, the United States and India fulfilled a commitment made by President Bush and Prime Minister Vajpayee to boost high-technology trade by agreeing on a set of principles with respect to dual-use items that require export licenses. The principles provide for a review to ensure that all parties follow licensing requirements for dual-use goods and technologies and describe ways to deal with export control violations. The Hi-Tech Commerce Agreement was signed in February 5, 2003.

The United States continues to monitor India's implementation of its agreement to lift all quantitative restrictions on agriculture, textile, and consumer products. 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. In April 2000, India lifted quantitative restrictions on 714 items, including consumer goods and processed foods. It lifted restrictions on the remaining 715 items on April 1, 2002. In May 2001, however, India restricted the importation of 300 sensitive consumer goods through 11 points of entry (instead of the 215 normally available). These restrictions were lifted in early June 2001.

The United States remains concerned about high Indian tariffs in several sectors, including on soda ash imports. The United States also is concerned about barriers to greater investment. India 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.

India and the United States are involved in a number of WTO cases:

In January 2002, India appealed the WTO case brought by the United States and the EU over Indian automotive policy, which a WTO panel found violates India's most-favored nation commitments and rules against conditioning import licenses on exports. India initially appealed the panel's report but subsequently withdrew it in March 2002. The rulings and recommendations were implemented by India in November, 2002.
In January 2002, India requested WTO consultations on the United States' textile and apparel rules of origin, enacted as part of the Uruguay Round Agreements Implementation Act, which India argues are inconsistent with U.S. obligations. A panel was established in June 2002.
In June 2001, India requested the establishment of a WTO dispute settlement panel to challenge the United States' imposition of antidumping duties on Indian cut-to-length steel plate. The panel issued its report in June 2002 and rejected most of India's claims.

Sub-Saharan Africa

Economic growth continues in the countries of sub-Saharan Africa, but higher growth is needed to decrease poverty overall. Average per capita income remains lower now than at the end of the 1960s. Civil conflict, problems in governance, extensive state control of the economy, trade barriers and other economic problems continue to plague many of the countries of the region. Outdated and inadequate infrastructure, including ports, roads, and schools, also continues to slow growth and development. In countries such as Ghana that have undergone economic reform and liberalized trade and domestic markets, however, growth has been the strongest and poverty has declined.

Two-way trade between the United States and the 48 countries of sub-Saharan Africa totaled $24.2 billion in 2002. U.S. exports remained heavily concentrated in two countries, South Africa and Nigeria.

Implementation and Amendment of the African Growth and Opportunity Act

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 AGOA provides duty-free, quota-free treatment for certain apparel from eligible sub-Saharan African (SSA) 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:

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.
Textile and Apparel Provisions: The AGOA provides duty-free, quota-free treatment through September 30, 2008, for the following articles:
- apparel assembled in eligible SSA countries from U.S. fabric made from U.S. yarn;
- 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;
- 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 four years of the program;
- knit-to-shape sweaters made from cashmere or fine merino wool up to 18.5 microns;
- 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
- hand-loomed, handmade, and folklore articles.
Eligible countries must also adopt effective visa systems, 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.
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 and 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.
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.
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.
As part of the Trade Act of 2002, Congress amended AGOA to:
- Clarify that knit-to-shape products are covered by the duty-free, quota-free benefits of AGOA (contrary to Customs' interim ruling);
- Clarify that hybrid products (cut in the United States and SSA beneficiary countries) are eligible for the duty-free, quota-free benefits (contrary to Customs' interim ruling);
- Expand the eligibility of products from the least-developed countries to include apparel made from non-U.S. and non-regional yarn;
- Raise the cap on duty-free, quota-free apparel imports made from regional fabric and regional yarn to seven percent over the next eight years;
- Grant Namibia and Botswana the ability to utilize non-African fabric in apparel production as a "lesser developed beneficiary sub-Saharan African country;" and
- Make a technical correction to allow merino sweaters to be eligible for the duty-free, quota-free benefits.

On December 31, 2002, President Bush determined that 38 of the 48 sub-Saharan African countries met the eligibility requirements to receive AGOA benefits. These countries are: Benin, Botswana, Cameroon, Cape Verde, Central African Republic, Chad, Republic of the Congo, Cote d'Ivoire, Democratic Republic of the Congo, Djibouti, Eritrea; Ethiopia, Gabon, The Gambia, Ghana, 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, Swaziland, Tanzania, Uganda, and Zambia. These countries are eligible for the non-apparel trade benefits under AGOA.

To be eligible for the duty-free apparel benefits, the Administration must make a separate determination that the country has adopted an effective visa system and enforcement mechanism to prevent illegal transshipment. The following countries have been designated as eligible for the apparel benefits: Botswana, Cameroon, Ethiopia, Ghana, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Senegal, South Africa, Swaziland, Tanzania, Uganda and Zambia. The Bush Administration will continue to monitor other country's efforts to adopt adequate visa systems.

Overall imports from the SSA countries have increased since 1999, from $13.8 billion to $18.2 billion in 2002. Imports under the AGOA represented 46 percent of total SSA imports in 2002. U.S. exports increased moderately, from $5.6 billion in 1999 to $6 billion in 2002

It is estimated that the AGOA incentives have generated nearly $1 billion in investments in sub-Saharan Africa, which is very important given that this region receives the least amount of investment worldwide.

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.

As discussed in section 2, in 2003, the United States is beginning negotiations with the five countries that make up the Southern African Customs Union (SACU) (Botswana, Lesotho, Namibia, South Africa and Swaziland) to create a U.S.-SACU Free Trade Agreement.

ECAT POSITION: ECAT supports U.S. efforts to promote greater economic reform and growth in sub-Saharan Africa. In particular, ECAT supports the expansion of benefits under and the full implementation of the African Growth and Opportunity Act in a manner that will promote greater U.S. trade and investment with sub-Saharan Africa.

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, market economy structural reforms, and an increase in private sector economic activity. In 2002, Russia's GDP grew by 4.3 percent. Unemployment further declined from 8.2 percent in 2001 to 7.1 percent in 2002.

U.S. trade with Russia equaled almost $9 billion in 2002. U.S. foreign direct investment decreased significantly from $602 million in 2000 to $231 million in 2001. As discussed below, Russia remains subject to the Jackson-Vanik provisions of the Trade Act of 1974, from which the Bush Administration and some Members of Congress are seeking its graduation. Russia enjoys normal trade relations status, which is currently granted annually based on Presidential certification subject to a potential Congressional vote of disapproval. As discussed in section 6, Russia is also in the process of negotiating its terms of accession to the WTO.

On July 22, 2001, President Bush and Russian President Vladimir Putin announced support for a new initiative, the Russian-American Business Dialogue. Modeled after the Transatlantic Business Dialogue, the new initiative is aimed at promoting greater contact between the Russian and American business communities, identifying barriers to trade and promoting Russia's accession to the WTO.

After suspending financing in 1999, the State Department permitted in April 2000 the Ex-Im Bank to finance $498 million in loan guarantees to a Russian oil venture operated by Tyumen Oil Co., citing progress on rule of law issues with Russia. In 2002, Ex-Im authorized up to $20 million in short-term loans to the International Moscow Bank to finance U.S. imports into Russia.

On trade issues, the United States remains concerned over a wide range of issues, including corruption and the lack of transparency, customs regulations, export subsidies, services, and investment barriers.

In March 2002, Russia imposed a ban on poultry exports from the United States, citing sanitary and phytosanitary concerns. By the end of March 2002, Russia and the United States negotiated a protocol to establish improved cooperation among veterinary officials in both countries and create a framework for certifications that would eventually allow U.S. exports to resume. In August 2002, Russia and the United States negotiated a new veterinary certification for U.S. poultry exports. In January 2003, Russia announced the imposition of tariff rate-quotas for poultry and for pork, to become effective in April 2003.

Russia also remains on the United States' Special 301 "Priority Watch List" for its inadequate intellectual property regime, particularly in the areas of copyright, patent and data protection.

The United States also continues to limit the quantity of Russian steel that may be sold in the U.S. market as a result of two agreements reached in February 1999. Those agreements were renegotiated in November 2002 to expand Russia's imports. Effective April 1, 2002, the Commerce Department granted Russia market economy status for purposes of U.S. antidumping and countervailing duty laws. In March 2002, the President also imposed tariffs on steel imports under a global safeguard action (discussed in section 2), including imports from Russia.

Permanent Normal Trade Relations for Russia

Russia currently receives normal trade relations (NTR) treatment on an annual basis from the United States, pursuant to the Jackson-Vanik provisions of Title IV of the Trade Act of 1974, which governs the extension of NTR treatment to non-market economy countries. The Jackson-Vanik provisions condition the extension of NTR treatment to compliance with freedom of emigration criteria and require that NTR be renewed annually. Russia has been found to be in compliance with the freedom of emigration criteria since 1994.

The Bush Administration is seeking Congressional passage of permanent normal trade relations (PNTR) for Russia this year. Unlike the negotiations with China, the Administration is not seeking to link successful WTO negotiations (discussed in section 6) to the extension of PNTR to Russia, but rather is focusing on the fact that Russia satisfies the Act's underlying criteria and its trade status should no longer be conditional.

On March 10, 2003, Senate Foreign Relations Chairman Richard Lugar (R-IN) introduced, along with Senators Chuck Hagel (R-NE), Trent Lott (R-MS) and Jon Kyl (R-AZ), S. 580 to extend PNTR to Russia. House Ways and Means Chairman Bill Thomas (R-CA) had introduced similar legislation in the 107th Congress.

Concerns have been raised by some in the business community and by Members of Congress that granting PNTR prior to WTO accession will weaken the United States' ability to secure important trade liberalizing commitments as part of the accession process because the United States will be ceding leverage. The Administration has argued that this additional leverage is not necessary since Russia strongly desires to enter the WTO and the Administration will continue to seek its accession on commercially-meaningful terms.

Congressional debate on these issues is likely later this year.