(The "1996 National Trade Estimate Report on
Foreign Trade Barriers," the 11th annual report by the Office of
the U.S. Trade Representative surveying significant foreign
barriers to U.S. exports, was released on April 1. Below are
excerpts from the report focusing on trade in services.)
In accordance with section 181 of the Trade Act of 1974 (the 1974 Trade Act), as amended by section 303 of the Trade and Tariff Act of 1984 (the 1984 Trade Act), section 1304 of the Omnibus Trade and Competitiveness Act of 1988 (the 1988 Trade Act) and section 311 of the Uruguay Round Trade Agreements Act (1994 Trade Act), the Office of the U.S. Trade Representative is required to submit to the President, the Senate Finance Committee, and appropriate committees in the House of Representatives, an annual report on significant foreign trade barriers.
The statute requires an inventory of the most important foreign barriers affecting U.S. exports of goods and services, foreign direct investment by U.S. persons, and protection of intellectual property rights. Such an inventory facilitates negotiations aimed at reducing or eliminating these barriers. The report also provides a valuable tool in enforcing U.S. trade laws, with the goal of expanding global trade, which benefits all nations.
The report provides, if feasible, quantitative estimates of the impact of these foreign practices upon the value of U.S. exports. Information is also included on actions being taken to eliminate any act, policy, or practice identified in the report.
The NTE report covers significant barriers, whether they are consistent or inconsistent with international trading rules. Many barriers to U.S. exports are consistent with existing international trade agreements. Tariffs, for example, are an accepted method of protection under the General Agreement on Tariffs and Trade (GATT). Even a very high tariff does not violate international rules unless a country has made a "bound" commitment not to exceed a specific rate. On the other hand, where measures are not consistent with international rules, they are actionable under U.S. trade law and through the World Trade Organization (WTO).
This report discusses the largest export markets for the United States, including 42 nations, Taiwan, Hong Kong, and two regional bodies. Some countries were excluded from this report due primarily to the relatively small size of their markets or the absence of major trade complaints from representatives of U.S. goods and services sectors. However, the omission of particular countries and barriers does not imply that they are no longer of concern to the United States. ...
Fifty percent of the participants in the production of any broadcast advertisements must be Argentine, effectively barring use of foreign-based advertisements. Entry into the insurance sector, previously very limited, was liberalized in early 1992, allowing foreign firms established as local companies to compete on an equal footing with those owned by Argentines. However, foreign firms must have a subsidiary in Argentina in order to sell insurance locally. In order to speed the consolidation of the sector the Superintendent of Insurance is not issuing new licenses, except for pension funds, life insurance, burial services, and credit insurance. Since September 1993 foreign companies have been permitted to purchase existing life insurance licenses from Argentine companies, essentially establishing a new company with these acquired licenses. The state reinsurance firm, which was abolished by a decree promulgated on January 27, 1992, has been closed and is being liquidated. The decree also eliminated the requirement to reinsure 60 percent of each policy with the State and applied this retroactively to January 1, 1992. The privatization of pension funds has attracted a number of American firms.
In October 1994, Law 24.377 modified existing Argentine Film Law No. 17.741. Included in the new legislation is (1) a 10 percent tax on the rental and sale of all home video products; (2) a provision calling for the obligatory exhibition and remuneration of national short subject films; and (3) a provision authorizing the Argentine Film Institute to oversee obligatory local processing, dubbing and subtitling of foreign films. The second provision, however, has yet to be implemented.
The United States sought liberalization of services barriers in the Uruguay Round and will continue to do so on a bilateral basis when appropriate.
The Australian Broadcasting Authority (ABA), the broadcasting regulator for radio and television in Australia, liberalized rules governing local content in television advertising effective January 1, 1992. Under current rules, up to 20 percent of the time used annually for paid advertisement during the hours of 6:00 a.m. until midnight can be filled with messages produced by non-Australians. At present, those rules do not appear to have a serious effect on trade.
Fifty percent of a commercial television station's average annual broadcasts between the hours of 6:00 am and midnight must be dedicated to Australian programs. Programs are evaluated on a complex point system based on relevancy to Australia (setting, accent, etc., ranging from no Australian content to a 100 percent Australian production). Trade sources indicate that the content regulation does not have a substantial impact on the amount of U.S.-sourced programming sold to Australian broadcasters, as the mix of programming is driven by the market's preference for Australian themes. In 1994, an average of 44 percent of commercial stations' broadcasting time was devoted to imported programming. The U.S. Government has reiterated U.S. opposition to quotas in the context of the ABA's review of the Australian content standard. Nevertheless, the ABA decided at the conclusion of that review in September 1995 to increase the local content quota to 55 percent effective January 1, 1998.
The regulatory framework for pay television also contains a local content provision which mandates that channels carrying mostly drama programs (not sports or music channels) must allocate 10 percent of their program acquisition expenditures on new Australian dramas. There is substantial supporting the Australian Parliament for reexamining and potentially increasing the local content quota. A 1995 amendment to the Broadcasting Services act of 1992 provides for a Ministerial review of Australian content on pay TV by July 1, 1997, with this review to include consideration of the feasibility of increasing the Australian drama expenditure requirement to 20 percent.
Telecommunications
In recent years, the Australian Government has taken steps to partially privatize its telecommunications sector, Australian satellite (AUSSAT). For example, the previously government-owned telecommunications company, for example was recently sold to the Optus Consortium which has significant U.S. participation. Optus is allowed to compete with the government-owned Telstra Corporation. In addition, a third cellular telephone carrier, voda phone, was licensed in 1993. At present, it is 95 percent British-owned; it must, however, become majority Australian-owned by July 2003. The Australian Government has announced that the current restrictions on the number of licensed carriers will be removed from June 30, 1997. In addition to licensed carrier competition, resale of telecommunications capacity has been liberalized. Resellers, however, can be 100 percent foreign owned.
Australia is a participant in WTO negotiations on telecommunications services which are scheduled to end by April 30, 1996. Australia tabled a status quo offer in September 1995. The offer would bind the current limited level of market access and did not reflect the substance of a telecommunications policy reform plan announced by the government just a month before. The United States has requested that Australia revise its offer to allow unlimited entry for domestic and international services, as envisioned in the reform plan, and to exclude foreign investments in telecom facilities and services from its investment screening law (the Foreign Investment and Takeovers Act).
Foreign companies, particularly construction engineering firms, are prevented from providing technical services in government procurement contracts unless Brazilian firms are unable to perform them. INPI, which must approve all technical service contracts, has subjected foreign companies to substantial delays.
Restrictions exist on the use of foreign-produced advertising materials. These include limits on the use of foreign film footage (two-thirds must be produced in Brazil) and sound tracks (all must be produced in Brazil), limits on foreign capital participation, residence requirements and requirements that the majority of the directors of a company must be Brazilian. Furthermore, discriminatory government procurement practices exist.
Foreign legal, accounting, tax preparation, management consulting, architectural, engineering, and construction industries are hindered by various barriers. These include forced local partnerships, limits on foreign directorships and non-transparent registration procedures. The Government of Brazil reserves the right to refuse entry of managers or executives associated with the provision of a service if they do not provide new technology, increase productivity in Brazil, or attract new investment.
The Government of Brazil discriminates against foreign firms in the insurance sector through: (1) limitation on foreign capital to 50 percent equity participation, limitation on the voting stock that foreign firms can control in an existing insurance company, insurance brokerage, or private premium fund to no more than 30 percent; (2) limitations on the entry of new firms in the sector ostensibly due to market "saturation;" and (3) forced incorporation in Brazil. The amendment eliminating the distinction between national and foreign capital should correct this discriminatory treatment. However, implementing legislation may be required before non-discriminatory rules can take effect. In addition, the Government of Brazil restricts import insurance to Brazilian firms through Resolution Number 3/71. This denies U.S. marine cargo insurers an opportunity to compete for business. Resolution Number 3/71 also requires state companies doing business with insurance brokerage firms to use 100 percent Brazilian-owned brokerages.
Brazil also maintains a monopoly in the area of reinsurance, but has indicated its intention to eliminate the reinsurance monopoly in 1996. Furthermore, the Government has granted no new authorizations to transact insurance since 1966. Requirements for withholding insurance premiums and outstanding loss reserves also expose U.S. reinsurers to serious exchange losses. Brazilian regulatory policy precludes the issuance of new licenses.
Brazil is South America's largest potential insurance market. The United States continues to seek improved market access for trade in insurance and other service industries.
The broadcasting act sets out the broadcasting policy for Canada, which lists among its objectives, "to safeguard, enrich and strengthen the cultural, political, social and economic fabric of Canada." The federal broadcasting regulator, the Canadian Radio-television and Telecommunications Commission (CRTC), is charged with implementing this policy. Under current CRTC policy, in cases where a Canadian service is licensed in a format competitive with that of an authorized non-Canadian service, the commission can drop the non-Canadian service, if the new Canadian applicant requests it to do so. This policy has already led to one "de-listing" and deterred potential new entrants from attempting to enter the Canadian market.
Country Music Television
In June 1994, the CRTC de-listed a U.S. country music cable service, Country Music Television (CMT), when it licensed a new Canadian specialty channel, New Country Network (NCN). CMT subsequently filed a section 301 petition with USTR seeking relief from the CRTC decision, but U.S. action was averted when the commercial parties reached a resolution on March 6, 1996.
On March 7, USTR announced the commercial agreement but noted that while this particular dispute had been resolved, the Clinton Administration remains concerned about Canada's discriminatory broadcasting policies which remain in place. Under section 301 authority, USTR will closely monitor, not only the Canadian government's implementation of the CMT agreement, but will also closely monitor Canada's actions regarding other U.S.-owned television programming services that have, or may seek authorization for distribution in Canada.
Direct-to-Home Satellite Broadcasting
In August 1994, the CRTC issued an order that discriminated against U.S. associated providers of Direct-to-Home (DTH) satellite broadcasting services seeking to offer such service to Canadian consumers. The CRTC order exempted Canadian DTH providers from licensing requirements but subjected U.S. associated DTH providers to lengthy licensing procedures which effectively would have precluded entry into the Canadian market even where U.S. associated providers complied with existing CRTC ownership and content requirements.
In July 1995, the federal cabinet overturned the CRTC's DTH policy and ordered that all services be licensed under the same rules. On December 20, 1995, the CRTC issued two national DTH satellite tv licenses, one of which went to U.S.-associated Power DirecTV. Power DirecTV has since abandoned its plans to launch a Canadian service because of technological issues, some of which were associated with CRTC regulations.
Simultaneously with the licensing of the two DTH systems, a number of DTH Pay-Per-View (PPV) services were also licensed. The DTH licenses specify that the only PPV services the two DTH licensees may offer are those services licensed by the CRTC. The PPV licenses are further conditioned in two significant respects.
First, it is a condition of license that feature film rights must be acquired from Canadian distributors except where the film is offered by a foreign distributor who owns worldwide rights or who has provided not less than half of the cost of producing the film. The United States Government and the U.S. industry are concerned that this condition of license, in effect, gives Canadian companies monopoly distribution rights with respect to certain films. U.S. industry sources report that it is common practice for film distribution rights to be purchased by different companies for different parts of the world. Under this condition, only Canadian distributors will be allowed to license these films to the Canadian PPV services.
Second, it is a condition of license that 100% of revenues earned from the exhibition of Canadian feature films be paid to the producer/distributor. However, revenues earned from the exhibition of all non-Canadian feature films offered on English language services must be split, on a title by title basis, 1/3 to the DTH service, 1/3 to the programming undertaking, and 1/3 to the producer/distributor. U.S. industry sources report that the likely effect of this restriction will be to restrain competition.
The United States Government raised concerns with these apparently discriminatory conditions of license during a meeting between Ambassador Kantor and Trade Minister Art Eggleton in Washington on March 4, 1996. USTR will closely monitor the effect of these policies on U.S. interests.
Border Broadcasting
In 1976, Canada adopted a tax provision denying Canadian enterprises tax deductions for the cost of advertising in foreign print and broadcast media when the advertising is directed primarily at Canadians. The main targets of this legislation were ads placed on U.S. border television stations beaming programs into Canada, but the provision also applies to U.S. periodicals.
Government-to-government and industry-to-industry consultations have failed to provide a compromise solution to this problem. As a result of a 1980 section 301 determination that the Canadian law both injured and discriminated against U.S. commerce, the United States enacted mirror legislation in the 1984 trade act against Canada's broadcast media. However, U.S. legislation was never enacted against Canada's print media.
Temporary Entry of Goods
Under the temporary importation regulations, Revenue Canada allows the temporary entry, at free or reduced rates, of certain specialized equipment needed to perform short-term service contracts, if such equipment is not available from Canadian sources. Under the NAFTA, Canada has broadened the range of professional equipment allowed temporary duty-free entry, but it has not provided unrestricted access. In the context of a comprehensive review by the Canadian Government of ways to simplify the Canadian tariff system, it has been proposed that a single tariff item be introduced to replace a number of current provisions covering temporarily-imported goods. Essentially, the new item would provide conditional free entry, on a most-favored-nation basis, for temporarily-entered goods without regard for whether the goods are available from Canadian sources. Movement by the Canadian Government toward this tariff system revision is expected in 1997.
Banking and Insurance
The national treatment study published by the U.S. Department of the Treasury on December 1, 1994 provides recent, detailed information on the treatment of U.S. banks and securities dealers in Canada. U.S. banks and securities firms have a clear right of establishment and a guarantee of national treatment. The principal barrier of which U.S. banks complain is Canada's prohibition on the establishment of foreign bank branches; foreign banks can only enter Canada as separately organized and capitalized subsidiaries. Canada has agreed under Article 1403 of the NAFTA to review this restriction when Canadian banks are allowed to expand through subsidiaries or direct branches "into substantially all of the United States." The United States will be pressing Canada to honor this commitment as more states opt in to interstate branch banking under the provisions of the Interstate Banking Efficiency Act of 1994. U.S. insurance companies may enter Canada as branches, but some provinces bar foreign companies from buying provincially-chartered insurance companies.
China denies U.S. and other foreign companies national treatment, for example. U.S. services companies continue to face significant administrative restrictions when attempting to operate in China. U.S. financial institutions, law firms and accountants, among others, must largely limit their activities to serving foreign firms or joint ventures. U.S. companies still are not permitted to offer after-sales services, except in collaboration with a Chinese partner. Although some U.S. companies, such as those involved in joint-ventures, are allowed to hire and fire based on demand and performance and pay wages according to market rates, the representative offices of U.S. service suppliers are still required to hire, recruit or register all local staff through state labor services companies which collect large monthly fees for each employee hired. Access to distribution outlets remains severely restricted, with Chinese distributors often having an economic incentive to market products other than those offered by U.S. companies, even those based in China.
China has expressed an intention to liberalize its services markets eventually, and in some cases, has begun to do so on a trial basis. China has licensed some U.S. law firms, but limited their practice to a single city and forbids them from taking Chinese clients, appearing in Chinese courts or establishing joint-venture law firms. Travel and other tourist-related companies offering travel services are limited to 11 areas in China, and retailing firms are subject to vague guidelines that are restrictive and the implementation of which often varies considerably from locality to locality.
In areas such as financial services, restrictions continue to impede market access. U.S. and other foreign financial institutions require case-by-case approval for new representative offices and branches. As of the end of 1995, a total of 137 foreign bank branches and 519 representational offices had been approved. Foreign financial institutions may not engage in local currency business. In January 1996, however, the State Council announced it would give the go-ahead for some foreign banks in Shanghai's Pudong area to apply for a license to conduct RMB transactions on a restricted trial basis.
China has passed an insurance law and is taking steps to reform and develop its domestic insurance industry, but still blocks nearly all foreign companies from the market. While China has approved to date 119 representative offices opened by 77 different foreign insurance companies, including many large U.S. insurers, only one U.S. company and one Japanese company have been granted licenses to operate in China. However, the licenses granted the U.S. company, which allow it to operate only in Shanghai and Guangzhou, restrict the company to a narrow range of operations. Permission to compete directly with the state-run insurance company, the People's Insurance Company, or with other quasi-private Chinese companies such as Ping An or China Pacific, has not been granted. While U.S. companies suffer such restrictions, new Chinese insurance conglomerates have been given free rein to set up operations and take market share.
In other areas, such as information and telecommunications services, U.S. companies continue to be closed out of the market. Regulations governing providers of telecommunications services and value-added telecommunications services limit the management or ownership of these types of services to domestic companies. Yet while U.S. companies have abided by the rules, there is evidence that Hong Kong and other foreign companies have established revenue-sharing arrangements with provincial officials to offer information and telecommunication services. in addition, in early 1996 the State Council announced new regulations restricting foreign providers of financial news services, placing them under the control of the State-run Xinhua News Agency.
Colombia denies market access to foreign marine insurers and for the provision of legal advice by foreign lawyers and law firms. Foreign law firms are not permitted a commercial presence in Colombia unless the firm is headed by a Colombian attorney. Colombia requires a commercial presence to sell all insurance except international travel or reinsurance. Colombia permits 100 percent foreign ownership of insurance subsidiaries, but the establishment of branch offices of foreign insurance companies is not allowed.
Colombia also restricts the movement of personnel in several professional areas, such as architecture, engineering, law, and construction. Firms with more than ten employees can employ no more than 20 percent of specialists and 10 percent of unskilled laborers who are foreign nationals. In 1991 Colombia promulgated Resolution 51, which permits 100 percent foreign ownership in financial services, although the use of foreign personnel in the financial services sector remains limited to administrators, legal representatives, and technicians. For a full discussion of treatment of U.S. banking and securities firms, see the Department of Treasury's 1994 National Treatment Study.
Cargo reserve requirements have been eliminated. However, the Ministry of Foreign Trade reserves the right to impose restrictions on foreign vessels whose nations impose reserve requirements on Colombian vessels.
A law passed in 1995, allows foreign companies to take a minority stake in Egyptian insurance companies. At the same time, they are allowed to operate as majority share holders in the free trade zones and in reinsurance, neither of which is likely to prove attractive to foreign investors. Four public-sector companies (one of which is a reinsurance company) dominate the market, although three private-sector Egyptian companies exist. Two joint ventures, with 49 percent foreign ownership, operate in the free zones.
Other services barriers
Since March 1993, Egypt has allowed existing foreign bank branches to conduct local currency operations. Two U.S. bank branches have received licenses to do so. Foreign brokers are permitted to operate in the Egyptian stock exchange. Egypt maintains several other barriers to the provision of services by U.S. firms, including: maintaining a theatrical screen quota for foreign motion pictures; allowing only Egyptian nationals to become certified accountants; denying private and foreign air carriers from operating charter flights to/from Cairo, except those with the approval of the national carrier; and regularly censoring films and printed materials. Egypt has shown no interest in deregulating its state-owned telecommunications industry.
In 1989, the EU issued the Broadcast Directive which included a provision requiring that a majority of entertainment broadcast transmission time be reserved for European origin programs "where practicable" and "by appropriate means." By the end of 1993, all EU Member states had enacted legislation implementing the Broadcast Directive.
Since 1993, the Commission has worked, first, on a review of member state implementation of and compliance with the key provisions of the Directive, including quotas, and subsequently, on revisions to the Directive. In March 1995, the College of Commissioners approved strengthening quotas, but made it possible to end them in ten years time, and agreed not to expand the scope of the Directive to new services. In November 1995, the Council of Ministers, unable to agree on the quota issue, reached a political agreement that settled for keeping the quota provisions of the 1989 Directive intact, while tightening up the provision governing member state jurisdiction over broadcasters. The European parliament voted in February 1996 to tighten the quota provisions of the Broadcast Directive and to include video on demand and other on-line services under the scope of the Directive. If broad divisions remain between the Council and the Parliament, a conciliation procedure will take effect. This procedure could take a number of months before a final agreement is reached.
The United States has held consultations under GATT Article XXII with the EU concerning the Directive because the broadcast quotas appear to violate the member states' obligations under the GATT. The United States has reserved its right to take further action under WTO dispute settlement procedures and is closely monitoring implementation of these measures. While the EU did not make specific commitments to liberalize trade in the sector, the United States succeeded in preventing the exclusion of the audio-visual sector from coverage under the General Agreement on Trade in Services (GATS). Because of the Broadcast Directive, the EU remains on the Special 301 "priority watch list."
Several countries have specific legislation that hinders the free flow of broadcast materials. A summary of some of the more salient restrictive national practices follows:
France: The 1989 EU Broadcast Directive requiring a "majority proportion" of programming to be of European origin was transposed into French legislation in 1992. France, however, chose to specify a percentage of European programming (60 percent) and French programming (40 percent) which exceeded the requirements of the Broadcast Directive. Moreover, the 60 percent European / 40 percent French quotas apply to both the 24-hour day and to prime-time slots. (The definition of prime time differs from network to network according to a yearly assessment by France's broadcasting authority, the "Council superieur de l'audiovisuel," or CSA.) The prime time rules in particular limit the access of U.S. programs to the lucrative French prime time market. France's broadcasting quotas were approved by the EU Commission and became effective in July 1992.
In December 1993, the French Parliament approved a law imposing a 40 percent quota of French songs on almost all French private and public radio stations. The 40 percent quota will be applicable only during prime time and will go into effect beginning January 1, 1996. Some 1700 AM and FM stations will be affected. French songs are defined as "variety music" written or interpreted by French or Francophone writers and artists. In addition, half of the 40 percent radio quota will have to be either new French songs (songs released less than six months ago) or French songs interpreted by new French or Francophone singers (singers or groups who have not yet had two albums sell at least 100,000 copies each).
The effects of the French radio broadcast quota are hard to evaluate. The law may prove difficult to administer or enforce because of its scope and complexity. The potential exists, though, that it will reduce the broadcast of American music by as much as 30 percent from current levels.
Italy: In keeping with the 1989 EU Broadcast Directive, Italy's 1990 Broadcast Law requires that upon conclusion of three years from concession of a national broadcast license, a majority of TV broadcast time for feature films be reserved for EU-origin films. The Italian law also requires that half of the European quota be dedicated to Italian films. The Italian law is more narrowly focused than the Broadcast Directive, since it encompasses only films produced for cinema performance, and excludes TV films and series and other programming. The film sector decree-law enacted on January 18, 1994, calls for application of the Italian broadcast quotas proportionally during evening viewing hours, but its language is strictly hortatory.
A separate issue concerns films shown in Italian theaters. The film sector law approved by Parliament in February 1994 eliminated obligatory screen quotas for Italian films (heretofore 25 days per quarter subject to closing of the theater, under a 1965 law), and in their place substituted discretionary rebates on Italy's box office tax for theaters that show Italian films. The rebates and eligibility thresholds (percentages of screenings required to qualify) vary according to the category of the film. The United States continues its efforts both to obtain elimination of discriminatory laws and regulations in the audiovisual sector and to limit their impact in the interim.
Portugal: Television legislation passed in 1990 contains language taken from the EU's 1989 Broadcast Directive requiring a "majority proportion" of works broadcast be of "Community or European" origin. In practice, however, this rule has not been enforced because Portuguese television production is minimal and production from other EU countries is inadequate to satisfy the networks' broadcasting commitments. The United States will monitor closely the implementation of this restrictive legislation.
Spain: Program restrictions for private television are contained in a law authorizing private television in Spain. The law includes restrictions on non-EU programming to be shown on private TV, including movie quotas. Government-owned and private television networks meet their quota restrictions. These restrictions, which are intended to encourage Spanish language production, follow the EU's Broadcast Directive. In December 1993, the Government of Spain adopted legislation which transposes the Broadcast Directive.
While the principal government-owned television networks now show more U.S. programs than the quota restrictions on private channels would permit, private network licenses match the private TV program quotas. U.S. programs would have greater sales without the quota restrictions.
Spain requires a license for distributing each non-EU film dubbed domestically. Dubbing is deemed essential since dubbed movies account for about 95 percent of box office revenues for imported films; the rest is earned by sub-titled original language films. Until December 1993, to obtain the first dubbing license, distributors had to contract to distribute a Spanish film - up to three additional licenses per distributed film could be earned when box office earnings for that film reached 30, 60, and 100 million pesetas.
This requirement was significantly tightened in December 1993 by a decree law which cut the number of dubbing licenses per Spanish film from four to two (distribution of an EU film counts the same as a Spanish film in terms of qualifying for a dubbing license), and which grants the first license when box office receipts reach 20 million pesetas (about $140,000); the second license is granted when receipts reach 50 million pesetas and the film is dubbed and screened in a second officially-recognized regional language in Spain. Spain also continues to maintain screen quotas requiring movie theaters to show at least one day of new EU films for every two days of non-EU films shown. The December 1993 law slightly relaxed this requirement for rural areas, setting the ratio at one day of EU films for every three days of non-EU films. In response to protests by motion picture distributors and exhibitors, the Spanish Government is reviewing the law.
U.S. industry sources indicate that the dubbing license system increases film distributor costs by $100,000 to $200,000 per film. About 125 U.S. feature films are exported to Spain each year, so dubbing licenses cost U.S. firms more than $15 million. The U.S. industry believes that, based on historical performance of EU films in Spain, the new more restrictive rules will limit the number of licenses to fewer than fifty per year.
The United States has raised the dubbing license issue bilaterally and in the OECD Invisibles Committee and continues to seek elimination of this barrier. In addition, Spanish distributors have won a ruling from the EU Commission's Competition Directorate that part of the pre-December 1993 dubbing license system violates the Treaty of Rome.
Computer Reservation Services
U.S. Computer Reservation Services (CRS) companies have had difficulty cracking the EU market, as each member state market tends to be dominated by the CRS owned by that member state's carrier. The EU's 1993 CRS "Code of Conduct" compelled one U.S. CRS firm to establish subsidiaries in virtually every member state, at a cost of more than $10 million, and there are questions whether the Code may be used to establish "charging principles" which could further erode the ability of U.S. firms to gain market share. In addition, German Rail, which owns one-third of the largest European CRS firm in Germany, has thus far refused to deal on an equal basis with U.S. CRS firms, severely affecting their ability to expand in the German market. The German Competition Office has recently issued an injunction against German Rail over this, which may resolve the problem. U.S. CRS firms face similar problems in Spain and France.
Ground Handling
In December 1995, the Council agreed on a common position liberalizing the market to provide ground-handling services at EU airports above a certain size by January 1, 1998. While generally welcoming this move, U.S. airline companies and ground-handling service providers remain concerned that airports can continue to have a monopoly service provider through January 1, 2002 and can also limit the number of firms which can provide certain services on the airport tarmac (ramp, fuel, baggage and mail/freight handling) either for themselves or for other carriers. To some extent, these potential barriers are offset by more liberal provisions in bilateral air services agreements with the individual member states.
Postal Services
U.S. express package services like UPS and Federal Express remain concerned that the prevalence of postal monopolies in many EU countries restricts their market access and subjects them to unequal competitive conditions. Proposals to liberalize many postal services and to otherwise constrain the advantages enjoyed by the monopolies may not be sufficient to fully redress these problems.
Legal Services Barriers
France: Beginning in 1992, the French Government made significant changes in the legal services system, including eliminating the legal consultants category under which most American lawyers practiced in the past. Interpretations of these changes raised significant barriers to American (and other non-EU) law firms or lawyers wishing to establish in France or to offer advice on non-French law. Under GATS and in response to U.S. concerns, the government of France has been obliged to remove these barriers. New-to-market lawyers, from whatever country of origin, must now pass one of two exams: the French bar exam, which requires 200 hours of study and covers all aspects of French law, or the short form for foreign lawyers, which is more specialized but still time-consuming. Both exams have a large oral component and require substantial knowledge of French. Meaningful access now hinges on how implementing regulations are administered by local French bar associations, including the interpretation of granting access on a "reciprocal basis" and the nature of the test to be imposed on non-EU lawyers.
Auditing Barriers
Greek: In November 1994, the Government of Greece mandated that the government-controlled accountancy organization SOL must be the auditor for all state-owned enterprises, financial institutions, publicly listed companies, and companies over a certain size. While Greece did not bar other companies, including U.S. owned accounting firms, from providing auditing services, the law would effectively have denied them 70 percent of the auditing market in the country. The United States repeatedly emphasized to the Greek government, as well as in multilateral fora such as the OECD, that this action would be inconsistent with Greek commitments under the General Agreement on Trade in Services. In November 1995, the Greek Council of State (Supreme Administrative Court) ruled that the Greek legislation was unconstitutional because it violated EU Directives, and the status quo ante liberalization of the audit sector was reaffirmed.
Shipping Restrictions
Spain: In 1992, the EU established a calendar for liberalizing cabotage practice. While cabotage within peninsular Spain has been liberalized, the EU has allowed Spain to restrict merchant navigation to and within the Balearic Islands, the Canary Islands and Ceuta and Mililla to Spanish flag merchant vessels until January 1, 1999.
Saudi Arabia took steps to liberalize its business visa policy in 1993. Formerly, all persons coming for business had to be sponsored by a local citizen, and the Saudi embassy or consulate required approval from the Foreign Ministry in Riyadh to issue a visa, resulting in substantial delays. The new policy was aimed at improving upon the old system by eliminating the need for businessmen representing well-known U.S. firms to have a Saudi sponsor. The new policy allows businessmen whose firms are involved in joint ventures in the Kingdom to obtain multiple-entry visas valid for six months. Finally, in the above cases the Saudi embassy or consulate have the discretion to issue a visa without obtaining approval from the Foreign Ministry. The new policies have not yet been fully implemented, and few American executives have multiple entry visas.
Kuwait in 1995 significantly liberalized its visa policy for U.S. citizens. U.S. citizens no longer need a Kuwaiti sponsor for travel to Kuwait for business or personal reasons. Americans traveling to Kuwait receive 10 year multiple entry visas. Only in the case of extended visits (beyond 30 days) are residency visas and Kuwaiti sponsors required.
Oman continues to take steps to liberalize visa issuance. Oman reciprocally offers U.S. citizens two year multiple entry business or tourist visas; processing time can be up to two weeks. "No objection certificates" can be obtained on shorter notice with the assistance of any of the major hotels where visitors may be staying. In addition, businesses in Oman can request "NOC's" for their business contacts. Visa requirements are expected to be dropped entirely for U.S. citizens resident in the GCC countries beginning in the spring of 1996.
In addition to the multiple entry visit visas valid up to 10 years that the U.A.E. issues to American citizens through U.A.E. embassies and for which no sponsor is needed, the U.A.E. permits Americans with at least six months residence in other GCC countries to visit the U.A.E. without obtaining visas prior to initiation of travel. Such visitors receive U.A.E. visas in the airport upon arrival, upon payment of a 100 Dirham ($27.49).
The United States now has a reciprocity agreement with Qatar for 10 year visas of which many U.S. citizens are taking advantage in their commercial dealings with Qatar.
The United States now has a reciprocity agreement with Bahrain for five-year, multiple-entry visas, of which many U.S. citizens are taking advantage in their commercial dealings with Bahrain.
Insurance
With the exception of the U.A.E., all GCC countries discriminate against foreign insurance companies, generally by restricting foreign participation (Kuwait), discouraging new applications (Bahrain), or requiring operation through a local sponsor (Saudi Arabia, Oman and Qatar).
Banking
Banks are variously restricted from entering GCC markets. Saudi nationals must own 60 percent of any bank. In Kuwait, foreigners are permitted to own up to 40 percent of Kuwaiti banks. Bahrain has not issued licenses for new commercial banks since 1983, though the majority of commercial banks in Bahrain are foreign bank branches; Bahrain does encourage the establishment of offshore or representative offices of foreign banks. Oman, Qatar, and the U.A.E. technically allow foreign banks to operate, but have refused new foreign banks from establishing operations on the grounds that their countries are "over-banked". There are more foreign bank branches in the U.A.E. than domestic banks. The U.A.E. has banned the opening of any more foreign bank branches, although there are indications that the ban is not permanent. Foreign banks may open representative offices in the U.A.E. Offshore banking is not permitted in the U.A.E. Oman is considering permitting the opening of representative offices, possibly in 1996.
Shipping
In the past, Kuwait prevented access to government project cargo by U.S. shipping lines by giving the United Arab Shipping Company the right of first refusal on all government project cargoes. Bahrain also favors the United Arab Shipping Company on cargo contracts for government projects. Kuwait no longer applies this requirement to shipments from U.S. ports. Saudi Arabia follows GATT guidelines which allow a nation to give preferences to national carriers for up to 40 percent of government cargoes. Under these rules, the Saudi National Shipping Company and United Arab Shipping Company receive preferences.
While there are currently no film quotas for private television, private national and regional television must fill 15 to 20 percent of their air time with Hungarian-made productions, excluding films, advertising, news, sports, and game and quiz shows.
Hungarian film quotas in the 15 to 20 percent range apply to public television. Excluding advertising, news, sports, game, and quiz shows, after 1997, public television will also be required to fill 70 percent of its air time with European production, 51 percent of which must be Hungarian. If one were to assume that 30 to 40 percent of all broadcast time is spent on the excluded categories, then the maximum amount of time available for non-European, non-film programming on public television is in the 20 percent range. Although these quotas are not currently seen as cutting actual U.S. market share, they could hamper future U.S. market share growth in the public sector. Nonetheless, further privatization of the television industry should boost the overall U.S. market share.
Insurance
All insurance companies are government-owned, except for a number of private sector firms which provide reinsurance brokerage services. Foreign insurance companies have no direct access to the domestic insurance market except for surplus lines, some reinsurance, and some marine cargo insurance. A government appointed committee recommended in 1994 that the insurance sector be opened up to private sector competition, both domestic and foreign.
Following investigations initiated in 1989 under the "super 301" provision of the 1988 Trade Act, the USTR determined in June 1990 that India's insurance practices were unreasonable and burden or restrict U.S. commerce, but that retaliation was inappropriate at that time given the ongoing negotiations on services and investment in the Uruguay Round. India had offered in the Uruguay Round services negotiations to bind the limited range of insurance lines currently open to foreign participation but was unable to make a substantive offer during the 1995 Uruguay Round financial services negotiations.
Banking
Most Indian banks are government-owned and entry of foreign banks remains highly regulated. The Reserve Bank of India (RBI) issued in January 1993 guidelines under which new private sector banks may be established. Approval has been granted for operation of 17 new foreign banks or bank branches since June 1993.
Foreign bank branches and representative offices are permitted based upon reciprocity and India's estimated or perceived need for financial services. As a result, access for foreign banks has traditionally been quite limited. Four U.S. banks now have a total of 15 branches in India. They operate under restrictive conditions including tight limitations on their ability to add sub-branches. Operating ratios are determined based on foreign branches local capital, rather than global capital of the parent institution.
Securities
Foreign securities firms have established majority-owned joint ventures. Through registered brokers, foreign institutional investors (FII), such as foreign pension funds, mutual funds, and investment trusts, are permitted to invest in Indian primary and secondary markets. However, limits of FII holdings of issued capital in individual firms apply: total aggregate holdings of FII's cannot exceed 24 percent of issued capital, and holdings by a single FII are limited to five percent of issued capital. Foreign securities firms may now purchase seats on the major Indian Stock Exchange, subject to the approval of a regulatory authority.
Motion Pictures
In the past, restrictions imposed on the motion picture industry were quite burdensome, costing an estimated $80-300 million according to industry estimates. The United States pressed for removal of these restrictions, and received commitments from the Government of India (GOI) in February 1992 that addressed most industry concerns. Beginning in August 1992, the Indian Government began implementation of its commitments, introducing a number of significant changes in film import policy. The GOI has carried out its commitments in good faith.
A few minor issues of concern remain. For example, the pre-censorship "quality check" procedures also entail fees, and some Indian states apply high entertainment taxes, amounting to 100 percent of the price of admittance in certain cases.
More significant, however, are concerns regarding the six-million dollar annual ceiling applied to remittances by all foreign film producers for balance-of-payments reasons. In addition, India has continued to use a 1956 Cabinet resolution to bar foreign ownership of the media, preventing the approval even of joint ventures.
Telecommunications
India has taken partial steps towards introducing private investment and competition in the supply of basic telecommunications services. However, licensing delays, caps on the number of licenses per bidder, alleged irregularities, and new restrictions on investors in basic telecommunications services have limited the value of the liberalizing steps taken so far.
The National Telecommunications Policy announced in 1994 allows private participation in the provision of cellular as well as basic and value-added telephone services. Foreign equity is limited to 49 percent. Private operators will provide services within regional "circles" that correspond roughly to India's states. Private operators will not be permitted to operate long distance networks. The Policy limits changes in partners for existing joint ventures, reducing the value of existing foreign investment. Delays in implementing licensing for both cellular and basic service as well as the imposition of new rules, limits and restrictions, particularly for basic services, have slowed progress and created an environment that is likely to inhibit rapid growth in India's telecommunications infrastructure. Local production requirements remain an important factor in negotiations to establish service operations. The Government has still been unable to establish an independent regulatory authority to oversee the implementation of the new policy. An early January Cabinet ordinance provided legal sanction, but no action was taken and the authority lapsed with the termination of the March Parliament session. The Government has indicated its intention to re-issue the ordinance in the near future.
India is perhaps the most important participant in the WTO telecom services negotiations not yet to have made an offer as of mid-March 1996.
Distribution
Foreign firms and joint ventures with a majority foreign share are not allowed to distribute products in the domestic market unless the foreign company manufactures the product in Indonesia (and even then, only at wholesale level, and only the goods produced domestically). An Indonesian agent or distributor must be employed for wholesale distribution if the foreign company does not manufacture in Indonesia. All retail distribution and sales must be handled by Indonesian firms or individuals. A number of U.S. companies have expressed concern that these restrictions increase costs and impede their ability to effectively market and service their products in Indonesia. Analysis has also shown that distribution barriers in Indonesia (which are more stringent than virtually anywhere else in ASEAN) reduce the efficiency of the Indonesian economy and increase prices for Indonesian consumers.
Financial Services
Insurance: A December 1988 package of regulations opened several insurance subsectors to foreign participation. (Only the life insurance subsector was previously open. A moratorium had limited the number of general insurance companies to existing numbers.) All foreign investment must be made through joint ventures; the minimum Indonesian ownership is 20 percent. Foreign joint ventures in the insurance sector must be capitalized at up to five times the level of domestic operations. In ongoing WTO negotiations in financial services, Indonesia has offered to phase out the differential capital requirement over time.
In January 1992, Parliament approved a framework law on insurance. The new law stipulates that the insured is free to choose his or her insurer except in the case of social insurance programs. The workers Social Security Act of 1992 states that only state-owned enterprises may carry out the Act's social insurance program.
All insurance in Indonesia must be purchased from either a domestic or joint venture company. The only exceptions are unavailability of coverage in Indonesia and total foreign ownership of the insured entity.
Banking: Any new foreign bank must be a joint venture between an Indonesian bank and a foreign bank from a country that offers reciprocity, with the Indonesian partner supplying at least 15 percent of the capital. The capital requirement for new joint venture banks is now about $49 million, twice the requirement for domestic banks. However, the central bank has issued a regulation that requires all foreign exchange banks, whether 100 percent domestic or foreign joint ventures, to raise their capital to $66 million by the year 2001.
Securities: Foreign security firms may only enter the Indonesian securities market in a joint venture with an Indonesian firm (the Indonesian partner must have at least 15 percent equity participation). Foreign joint venture firms are also subject to discriminatory capital requirements: paid in capital required for a foreign joint venture to obtain a license as a securities broker dealer, underwriter/broker dealer, or investment manager is twice that for a local firm.
Motion Picture Market Access
Indonesia prohibits foreign film and videotape distributors from
establishing branches or subsidiaries. All importation and
distribution is restricted by the film law to 100 percent
Indonesian-owned companies. Importation and in-country
distribution of U.S. films must be handled through a single
organization, the European and American film importers'
association (AIFEA). Annual import quotas apply to foreign films
and videotapes. Duties, taxes, licensing and other necessary
payments also act as barriers to the film industry.
In 1990, the Motion Picture Association of America opened a representative office in Jakarta. In 1991, the Government of Indonesia agreed to increase from five to six the number of importers in AIFEA, and to allow technical assistance agreements between the members of AIFEA and U.S. film companies. In 1992, after negotiations with the United States, the Government of Indonesia agreed to increase the number of AIFEA members to eight, and to issue licenses to three more video importers, also for a total of eight. In March 1994, President Soeharto signed implementing regulations for Indonesia's film law. Finally, in November 1994, the Ministry of Information issued Ministerial Decrees that have made it possible for U.S. Motion Picture Companies to sign agreements with video importers and distributors. A remaining concern is the quota on video imports which limits the number of foreign titles that may be marketed.
For the past two years, the Government of Japan has made efforts to reform its public works bidding system in accordance with its 1994 "Action Plan on Reform of the Bidding and Contracting Procedures for Public Works." This Action Plan, coupled with additional understandings contained in an exchange of letters between Commerce Secretary Ron Brown and Japanese Ambassador Takazu Kuriyama, constitutes the 1994 U.S.-Japan Public Works Agreement.
Under the 1994 agreement, Japan must utilize open and competitive procurement procedures when making construction-related procurements that are valued at or above the WTO government procurement thresholds. Prior to this agreement, Japan had utilized a designated bidding system which unfairly favored Japanese domestic companies and effectively closed Japan's public works market to any foreign participation. As of April 1, 1995, central and quasi-governmental entities in Japan began utilizing the new open and competitive procedures.
In late July 1995, at the first annual review of the agreement to assess the impact of the reform measures on Japan's public works market, the U.S. Government acknowledged that 1994 had been a transition period, but expressed dissatisfaction with the limited business awarded to U.S. firms and voiced an expectation of increased future business for U.S. and other foreign firms. In addition, the United States offered a number of procedural recommendations with the aim of facilitating greater foreign participation in Japan's public works market at both the central and the local government levels.
Since this review, U.S. firms have enjoyed some success, but overall there has been little improvement in the participation of foreign firms in the Japanese public works market. The U.S. Government continues to be concerned over the implementation of the agreement. It is monitoring Japan's efforts intensively and pursuing aggressively U.S. interests in cases where implementation may be improved.
The existing Major Projects Arrangement (MPA) -- first negotiated in 1988 and broadened in 1991 -- will remain in effect until all 36 projects covered by the MPA are completed. The U.S. Government has followed closely the progress on these MPA projects, with special emphasis on up-coming procurements for the Chubu New International Airport and the Kansai International Airport. The Chubu New International Airport is an "if and when" MPA project. This obligates Japan to promptly designate the Chubu New International Airport as a full-fledged MPA project as soon as the Government of Japan decides to proceed with the development of the project. By doing so, both foreign and domestic companies will benefit from the use of open and competitive procedures on procurements of goods and services that meet the MPA thesholds.
The U.S. Government is very concerned about indications that Japanese airport authorities may be proceeding with airport development plans without first properly designating the Chubu New International Airport as an MPA project. Already four contracts have been awarded to Japanese companies through the use of the designated bidding system. It is at this early stage of planning that critical decisions affecting the final outcome of the project are made. By continuing to delay the designation of the Chubu New International Airport as an MPA project, Japan has severely limited the ability of foreign firms to make a contribution at the early planning stages of the airport project and, consequently, has handicapped foreign firms' ability to take on a meaningful role in the design and construction of the airport.
The U.S. Government is insisting that Japan honor its commitments under the MPA to designate the Chubu New International Airport as an MPA project as soon as it proceeds with airport development plans and to open procurements to foreign firms. The United States will continue to actively support U.S. firms and to maintain vigilance to ensure that U.S. and other foreign firms have ready access to market opportunities afforded by this agreement.
Financial Services
Japanese financial markets traditionally have been highly segmented and strictly regulated, and as such, have restricted the entry of foreign financial services firms and discouraged the introduction of innovative products, in which foreign firms may have enjoyed a competitive advantage. Some of the restrictions that have impeded access include the use of administrative guidance, keiretsu relationships, lack of transparency, inadequate disclosure, the use of a positive list to define a security, and lengthy processing of applications for new products. These restrictions have hindered the emergence of a fully competitive market for financial services in Japan.
With a view to eliminating or reducing these barriers, the United States and Japan on February 13, 1995, concluded a comprehensive financial services agreement, "Measures by the Government of Japan and the Government of the United States Regarding Financial Services." This agreement features an extensive package of market-opening actions in the key areas of asset management, corporate securities, and cross-border financial transactions.
In the area of asset management, Japan agreed to:
The agreement also features comprehensive obligations, building on the new Japanese Administrative Procedure Law, to provide transparency in financial regulations and protection from administrative abuse.
In the year since the agreement was signed, the Japanese Government has implemented the vast majority of the commitments made within the specified timeframe. In some instances, the timetable for implementation was accelerated. In a few other areas, additional actions either have been taken or announced for future implementation by the Japanese Government to improve the liberalization of Japanese financial markets.
The U.S. Government is currently monitoring the agreement to ensure that implementation remains on schedule and assessing the impact of the actions undertaken, using the qualitative and quantitative criteria included in the agreement. The U.S. and Japanese Governments have held two review meetings (in May 1995 and in February 1996) since the agreement was signed. At the most recent follow-up meeting in February 1996, the U.S. Government emphasized the need for further improvements in financial disclosure and transparency.
Insurance
Japan is the world's second largest market for insurance with more than $382 billion in total premiums in JFY 1994. While foreign share of other G-7 countries' domestic insurance markets ranges from 10 to 33 percent, foreign firms' share in Japan was only 3.3 percent. More specifically, foreign share in Japan was roughly 3.1 percent of life insurance premiums and 4.2 percent of non-life premiums. Unable to compete freely in the primary life and non-life sectors of the Japanese insurance market largely due to restrictive government regulations, foreign firms have developed a presence in the so-called "third sector" (e.g., personal accident, sickness, and nursing care insurance) which comprises only 4.7 percent of Japan's overall insurance market. Foreign share of the third sector market was 35.7 percent in JFY 1994. (The vast amount of insurance sold by the Japanese Ministry of Post and Telecommunications is not included in the calculation of these figures. Including premiums collected by Japan's postal service would significantly lower foreign market share.)
In consideration of the low market penetration by foreign firms and the Ministry of Finance's (MOF) plans to implement the first major reform of Japan's insurance business law in over 50 years, insurance was designated as a priority sector under the Framework in 1993. On October 11, 1994, U.S. and Japanese officials concluded the U.S.-Japan insurance agreement. The agreement commits Japan to enhance regulatory transparency, strengthen antitrust enforcement and undertake specific liberalization measures. With regard to the third sector, Japan agreed not to allow radical change in the business environment of the third sector until foreign, medium and small insurers were first given a reasonable period to fully compete in a deregulated environment in the primary life and non-life sectors. In addition, the agreement calls for the completion by March, 1995 of a study of insurance purchasing practices among keiretsu-affiliated firms and the role of case agents in these purchases. The agreement also sets forth MOF's intention to allow insurance brokers to operate in Japan and its commitment to institute a notification system for certain insurance products.
The Japanese Diet passed the new Insurance Business Law (IBL) in June, 1995. The IBL will likely come into force on April 1, 1996 and grants MOF sufficient authority to fully implement the measures contained in the insurance agreement, including measures relating to the third sector. MOF is currently in the final stages of drafting ordinances required to implement the IBL.
The first review of the insurance agreement was held in September 1995 at which the United States raised a number of concerns relating to MOF's implementation of the agreement. In particular, U.S. Government officials called for MOF to fully and faithfully implement the measures relating to the third sector and transparency, and to make utmost efforts to conclude the keiretsu study.
Despite receiving repeated assurances from MOF on these issues, the United States remains seriously concerned about MOF's implementation of this agreement. MOF does not appear to have fully and equally informed foreign insurers and intermediaries of planned actions, some of which will negatively impact foreign firms. Furthermore, the keiretsu study called for in the agreement has not begun despite its March 1995 deadline.
Finally, the U.S. is gravely concerned about MOF's intentions to permit certain activities of Japanese insurance subsidiaries in the third sector, without first fulfilling the conditions established in the agreement with respect to deregulation of the primary life and non-life sectors. This linkage, i.e., the implementation of meaningful broad-based deregulation of the primary sectors prior to allowing expanded entry into the third sector by the Japanese insurance subsidiaries, is a fundamental aspect of the insurance agreement. This linkage was agreed to by both governments to prevent immediate, discriminatory and selective deregulation of the third sector, while retaining protections for large Japanese insurance firms in the primary life and non-life sectors, which constitute roughly 90 percent of Japan's insurance market.
The U.S. Government believes that properly implemented deregulation of Japan's insurance markets will introduce much needed competition, and result in a costs savings and greater product choice for Japanese business and consumers. The U.S. Government spelled out in concrete terms a detailed vision, to be implemented in phases, of substantial deregulation of the Japan's primary life and non-life sectors. Specifically, the U.S. called on MOF to initially implement meaningful deregulation of Japan's large and sophisticated commercial fire market, and to allow for innovation in the marketing of automobile insurance. Later deregulation would eventually result in broad application of a notification system.
Despite our efforts, MOF has yet to put forward concrete and meaningful proposals for deregulation of the primary sectors. In fact, MOF appears determined to resist timely and meaningful deregulation. For example, a February 29 Kampo announcement sets forth a threshold of yen 30 billion insured risk for commercial fire insurance above which firms will be allowed to innovative based on price. Unfortunately, this "market opening" on the part of MOF applies to less than two percent of this important market segment.
U.S. and Japanese officials have met on numerous occasions, and at various levels, to ensure the Japanese Government's full implementation of the provisions of the agreement. The U.S. places resolution of these outstanding issues at the top of our trade agenda with Japan.
Legal Services
The United States remains concerned about a number of issues affecting the ability of foreign lawyers to practice law in Japan, including: (1) the prohibition against foreign lawyers employing or entering into partnerships or other fee-sharing arrangements with Japanese lawyers and quasi-legal professionals; (2) restrictions on the legal experience that is counted toward satisfying the five-year requirement; and (3) restrictions on foreign lawyers' ability to represent parties in arbitration proceedings under Japanese law.
Japanese commitments under the General Agreement on Trade in Services (GATS) and revisions to the Special Measures Law permitting limited forms of "joint enterprises" do not fully address these concerns. The Japanese Government has indicated that it will submit legislation to the Diet in the spring of 1996 that would permit foreign lawyers to represent parties without restrictions in international arbitration proceedings conducted in Japan.
Legal services was raised in January and February 1995, as well as during February 1996 deregulation and competition policy consultations with Japan. Legal services was also included in the 1995 U.S. Government deregulation submission to the Japanese Government.
Telecommunications Services
Several U.S. firms are preparing to enter the local telephone service market in conjunction with offering cable TV services (cable telephony). These firms face a major obstacle in obtaining fair interconnection to NTT's local network that would permit these new entrants to effectively serve cable telephony subscribers. NTT, the monopoly provider, has little incentive to negotiate competitive interconnection rates. The Japanese Ministry of Posts and Telecommunications (MPT) has limited authority over interconnection. The United States has urged MPT to facilitate expeditious, transparent, non-discriminatory and cost-based market entry by requiring NTT to adopt pro-competitive interconnection rules. MPT plans to introduce new rules by 1997.
The United States is currently negotiating with Japan and about 70 other countries to liberalize basic telecommunications services through the World Trade Organization's Negotiating Group on Basic Telecommunications (NGBT). In bilateral discussions in conjunction with both the NGBT and Japan's deregulation measures, the United States has requested that Japan permit 100 percent foreign investment in basic services. To date, Japan has offered 33 percent foreign investment in new common carriers, and 20 percent foreign investment in NTT and KDD. The NGBT oversees a drafting group preparing a text on regulatory principles in which the U.S. and Japan participate. In this drafting group, fair and economical interconnection, along with other competitive regulatory principles providing for transparent, cost-based and non-discriminatory access to the basic services market, is treated as a critical component for effective competition in basic services.
In addition, in bilateral discussions on deregulation of the Japanese telecommunications market, the United States has urged that Japan clarify and streamline licensing procedures for new telecommunications service entrants, such as through eliminating the requirement for new entrants to submit detailed business plans in their applications to the Ministry of Post and Telecommunications and eliminating MPT's role in granting or denying applications based on its estimates of market demand. Rather, MPT should rely on competitors to determine what, when and at what prices to bring services to the market.
Korean restrictions on the availability of television and radio advertising time limits the ability of companies especially new to market companies to make consumers aware of products.
Audiovisual
Foreign Content Quota for Free TV: Korea restricts foreign activities in the audiovisual sector by limiting the percentage of weekly broadcasting time that may be devoted to imported programs, not to exceed 20 percent.
Screen Quota: By requiring that domestic films be shown in each cinema a minimum number of days per year, Korea effectively imposes a screen quota on imported motion pictures. The quota acts as a deterrent to cinema construction, which is needed to expand theatrical distribution in Korea.
Foreign Content Quota for Cable TV: Cable channels may devote only 50 percent of air time to foreign sports, science and documentary programs. All other types of foreign programming, including movies, are subject to an even stricter quota of 30 percent. These quotas are applied on a per-channel basis. There are only two movie channels (one basic and one premium), which, together with strict content quota, severely limits the market for foreign products.
The United States will consult with Korea in light of its commitments under the WTO General Agreement on Trade in Services. Estimated losses due to services barriers alone are at $5 million annually.
Financial Services
Insurance: Korea is the second largest insurance market in Asia after Japan, and is the sixth largest in the world, with more than 38 billion dollars in premiums.
Korea has made some progress since its initial opening of the market in 1986 under a bilateral agreement with the United States. Guidelines effective in 1992 permit the issuance of non-par products and the acquisition of real estate by foreign firms, but only under highly restrictive conditions.
Korea plans to deregulate premium rates, but firms will not have the full freedom to set rates until the late 1990's. While Korea simplified the approval process for insurance products already available in the Korean market, U.S. life insurers are still not permitted to sell personal accident insurance. U.S. firms continue to experience delays in receiving approvals for new-to market products.
In 1995, Korea announced plans for liberalization in its effort to join the OECD in 1996 that will be implemented over time. However, the process of reform is far from complete for a country at Korea's advanced stage of economic development. The U.S. industry continues to cite as major problems an economic needs test, restrictive rate and form regulation, limitations on investment, lack of transparency and due process, distribution barriers, including broker restrictions, and reinsurance restrictions.
Banking: Foreign banks continue to face numerous obstacles which impede their operations in Korea. Foreign banks are permitted to establish branches, only after one year has passed following the establishment of a representative office and subject to onerous individual branch capitalization requirements. Foreign banks face issuance limits for certificates of deposit based on branch vs. global capital, limiting their ability to obtain local currency funding. Foreign banks also face discriminatory treatment in the interbank market. Foreign banks are disadvantaged by a relatively non transparent regulatory system, and must seek approval for introducing new products and services.
Securities: Foreign securities firms also face serious market access barriers in Korea. Subsidiaries of foreign securities firms are not allowed, although the scope of business for branches has recently been expanded. Foreign equity in joint ventures is limited to less than 50 percent. Only branch offices of foreign securities firms are permitted, subject to capitalization requirements that are high by international standards. Further, multi-branching is not allowed.
Foreign ownership of listed shares is restricted to a ceiling of 4 percent per foreign investor and 18 percent in aggregate. Foreign firms are not allowed to participate in the domestic securities over the counter (OTC) market, and brokering is limited to listed stocks. Membership on the Korea Stock exchange by foreign firms is permitted, but prohibitively expensive. With regard to securities investment trust enterprises (SITEs), only representative offices are allowed and foreign equity in existing domestic SITEs is limited to 50 percent. Similar restrictions apply to foreign equity in domestic investment advisory firms.
Korea's tightly controlled financial sector has a direct impact on trade and investment issues facing U.S. firms in other sectors of the Korean market. The United States is pursuing these issues through the U.S. Korea Financial Policy discussions between the U.S. Treasury Department and Korean Ministry of Finance, and through Korean's accession process to the OECD in 1996.
Foreign direct insurers cannot establish branches or subsidiaries in Malaysia. Moreover, no new insurance companies are being licensed. Equity participation by foreign companies in existing insurance companies is limited to a minority share, normally 30 percent, although the central bank sometimes grants exceptions. (Those with more than 30 percent equity face government calls to divest over time insurance for ships, aircraft and property must be placed with Malaysian registered insurers.)
Malaysian tax law ensures that insurance companies incorporated in Malaysia receive a marketing advantage over other firms in providing marine cargo coverage. Importers to Malaysia, irrespective of their residence, may claim a double deduction for marine cargo premiums provided they insure with a Malaysian incorporated company. This tax provision diverts from otherwise competitive U.S. firms approximately $2 million in premium income.
Banking
Under the banking and financial institutions act of 1989, all foreign banks were required to incorporate locally by the end of September 1994. The Malaysian Government implemented a new two-tiered banking regulatory system on December 1994, separating the institutions based largely on local net worth. Banks in tier 1 are allowed more autonomy than banks in tier 2 in offering financial products. In 1995, three commercial banks including Citibank and Standard Chartered Bank stepped up to tier 1. On January 1, 1996, two local merchant banks were designated for tier 1.
Currently the Malaysian Central Bank is not permitting new banks to open in Malaysia and is not allowing existing foreign banks to open additional branch offices. The Central Bank considers automated teller machines (ATMs) to be bank branches, so foreign banks are not permitted to set up ATMs separate from their existing branches. They also are not permitted to join local ATM networks.
Sixty percent of all domestic credit facilities to any foreign-controlled company in Malaysia must be provided by Malaysian owned banks, limiting business opportunities for foreign banks.
Securities brokering services: Entry is limited to equity participation in existing stockbroking companies or establishment of joint-venture companies with a local partner. In the latter case, an economic needs test is applied and foreign equity is limited to a maximum of 30 percent, unless special authorization is obtained for equity participation up to a maximum of 49 percent. In September 1995, the Deputy Prime Minister announced that foreigners may hold 100 percent equity in fund management companies in Malaysia if they manage only foreign funds. If Malaysian capital is involved, a foreign firm may hold up to 70 percent equity.
Legal Services
Legal services are subject to local equity restrictions (not more than 30 percent of equity may be held by foreigners), requiring the selection of a local partner. Foreign professionals are not permitted to work in Malaysia as foreign legal consultants. They cannot affiliate with local firms, form joint ventures, or use their international firm's name.
Advertising
Foreign film footage in television advertising is restricted. Currently, Malaysia actors must be used. The Government of Malaysia has an informal and vague guideline that television commercials cannot "promote a foreign lifestyle." In 1993, the broadcast of a commercial for U.S.-produced apples was delayed under the guideline.
Advertising of alcoholic beverages on television and radio is banned. Advertising of all types of hard liquor including wines will be prohibited in the print media and billboards under a new regulation. Tobacco advertising is also restricted; however, cigarette manufacturers manage to work around the regulations by advertising such things as clothing, travel agencies, and restaurants which use the brand names of their popular selling cigarettes.
Professional Services
Foreign architects and engineers must establish affiliations and joint ventures, respectively, with Malaysian firms and must receive "temporary licensing." The license is granted on a project-by-project basis, subject to an economic needs test and subject to criteria imposed by the licensing board. In the 1996 budget, Malaysia relaxed conditions for the recruitment of foreign engineers and scientists for the silicon wafer industry, but promised to tighten guidelines on foreign consultants working on infrastructure projects.
Television and Radio Broadcasts
Asian government restrictions limit the import broadcast quotas for television (30 percent local, 70 percent imported content) and radio (60 percent local, 40 percent imported content). The restrictions appeared to have relaxed with two new television channels which broadcast almost entirely imported programs in 1995.
NAFTA will eventually remove most operating and investment restrictions on land transportation services, thus facilitating the freer flow of goods and services across the border. Under the terms of the Agreement, U.S. and Mexican companies could begin applying for approval to begin providing cross border truck and bus services into U.S. and Mexican border states on December 18, 1995. However, on that date the United States announced it would accept applications from Mexican motor carriers to operate international services between Mexico and the states of California, Arizona, New Mexico, and Texas, but that final processing of applications would be postponed until continuing concerns about commercial vehicle safety and security were addressed.
U.S. small package delivery firms are experiencing significant difficulties in receiving the national treatment that Mexico is obligated to provide them under NAFTA. Despite numerous promises and an offer of U.S. reciprocity, contingent on Mexico's granting national treatment, Mexico has not yet granted full operating authority to U.S. firms in this sector. This issue has been the subject of on going bilateral consultations between the U.S. and Mexican Governments, including formal consultations at both the staff and ministerial level, pursuant to the dispute resolution procedures of Chapter 20 of the NAFTA.
Mexico also denies most favored nation treatment to U.S. trucking companies, which cannot obtain authorization allowing use of transportation terminals within 20 kilometers of the Mexican side of our common border. Mexico provides this capability to Canadian companies.
Telecommunications
Prior to NAFTA, Mexico had taken steps to reform its telecommunications sector, such as privatization of Telefonos de Mexico (Telmex), the national telephone company; liberalization of foreign investment rules in most telecommunications services; introduction of competition in some telecommunications service sectors; and restructuring the sector's regulatory entities. Mexico implemented a new telecommunications law codifying many of these changes in June 1995.
Mexico is scheduled to end Telmex's monopoly on the provision of basic long distance telecommunications services on January 1, 1997. The Secretariat for Communications and Transport published an interconnection plan describing the interconnection points for the Telmex network. Negotiations between Telmex and its eventual competitors are continuing on the terms of the interconnection. These should be finalized by April 30, 1996. Mexico allows 49% foreign investment in telecommunications networks and services, including basic telecommunications. An exception is provided in Mexico's new telecommunications law that allows consideration of a higher limit for foreign investment in cellular services. U.S. industry has complained about Mexico's delay in implementing its standards obligations under the Telecommunications Chapter of the North American Free Trade Agreement. Chapter 17 requires that Mexico have in place by January 1995 procedures to accept telecom test data. Mexico did so for test data relating to terminal attachment standards, but has not adopted procedures to accept test data relating to telecom product safety standards. Without both sets of accreditation procedures in place for both sets of data, U.S. suppliers cannot import their telecom equipment. In addition, Mexico's terminal attachment regime is not yet consistent with the telecom chapter requirements to limit equipment authorization criteria to that necessary to protect against network and user harm. In adopting standards and procedures to accept U.S. and Canadian terminal-attachment test data by January 1, 1995, Mexico adopted for the first time onerous, product-specific terminal attachment mandatory standards that go far beyond the minimalist regime required by the telecom chapter. The U.S. is working to resolve these problems.
NAFTA eliminated all investment and cross border service restrictions in enhanced or value added telecommunications services and private communications networks, most of them as of January 1, 1994, with the remainder, limited to enhanced packet switching services and videotext, eliminated on July 1, 1995. The principal remaining restriction in the telecommunications sector is the limitation to a 49 percent equity position for foreign investment in basic telecommunications services (basic telecommunications are excluded from most obligations in the NAFTA). However, the NAFTA contains language that would allow the U.S., Canada, and Mexico to negotiate an agreement on basic services in the future. Mexico has made an offer in the WTO basic telecommunications services negotiations to bind at less than currently permitted levels; the United States has requested that Mexico eliminate its foreign ownership restrictions and otherwise bind the status quo.
Norway's barriers to entry and operation for foreign financial service providers are in transition. Implementation of the EEA accord removed many such barriers for EU and EFTA member countries and recent deregulation of financial markets appears to have eliminated many of the barriers facing U.S. financial institutions seeking to operate in Norway. Norway has also adopted the EU's Second Banking directive which, among other provisions, allows financial institutions established in the EEA to open branches in Norway. Branch banking from the United States is still not permitted, although the Norwegian government has expressed its intention to introduce legislation which would permit it.
New foreign entrants to the general insurance market are effectively barred, and those to the life insurance market, while not barred, face severe obstacles. Meanwhile, those few foreign insurance companies operating in Pakistan face various tax problems, long delays in remitting profits, and problems associated with operating within a cartelized industry.
Foreign brokers are allowed to join one of the country's three stock exchanges only as part of a joint venture with a Pakistani firm. Basic telephony remains the monopoly of the majority state-owned Pakistan Telecommunications Corporation, but competition among private providers is now allowed in cellular telephony. If these barriers were eliminated, the U.S. Embassy estimates an increase in U.S. exports of $25-100 million.
After being closed for nearly 50 years, the insurance sector was opened to new, 100 percent foreign-owned companies for at least two years starting in October 1994. Under the new regulations, up to ten new companies may be allowed to operate in each of the three lines of insurance: life, nonlife and brokerage. Entry may be either through purchasing stock in an existing company, setting up a locally incorporated subsidiary or establishing a branch. Capital requirements vary depending on the mode of entry, line of business and degree of foreign ownership. After two years the local industry may petition to have the sector closed to further new companies. However, the criteria for such an action appear to be quite strict and legislative proposals being considered by the Congress seek to eliminate this option. Nevertheless, officials of the government's insurance commission have indicated that a provision in the insurance law permits refusal of further entry after the two-year window "in light of local economic requirements". Nine foreign life insurance firms, including five U.S. companies, are actively pursuing entry and a number have already received their respective licences to operate. Philippine authorities appear unlikely at this time to increase the current cap of ten new firms in the life insurance sector. So far, there has been little interest by foreign firms in the openings in nonlife insurance and brokerage.
Banking
A law signed in May 1994 relaxed restrictions in place since 1948. A foreign investor can now enter either on a wholly owned branch basis, or own up to 60 percent (up from 30 percent) of an existing or new locally incorporated banking subsidiary. There is no legal limit on the number of entrants by the latter two modes. However, the new law allows only ten new foreign banks entry on a full service, branch basis (in addition to the four foreign branch banks established before 1948). The new foreign banks are also limited to putting up six branches each. Ten foreign banks were selected in late 1994 out of approximately 25 applications for the 100 percent branch basis license. These banks have already entered the market. Some additional banks are considering entering under the majority ownership provisions.
Securities
Membership in the Philippine Stock Exchange is open to any company (foreign or domestic) incorporated in the Philippines, while foreign equity in mutual fund and trust management firms is limited to 40 percent. The revised banking law now allows a foreign branch bank to obtain a "universal banking" license (which was previously limited to Philippine-controlled commercial banks). This will allow a foreign branch bank to engage in the activities of an investment house (primarily securities underwriting for the domestic market), in addition to regular commercial banking functions. The current law governing investment houses continues to impose limitations on foreign equity in securities underwriting companies (i.e., less than 50 percent). A foreign-owned securities underwriting firm may underwrite Philippine issues for foreign markets, but not for the domestic market.
Advertising
The Philippine constitution limits foreign ownership of advertising agencies to 30 percent. All executive and managing officers of advertising agencies must be Philippine citizens.
Public utilities
The Philippine constitution also specifically limits the operation of public utilities to firms with at least 60 percent ownership by Philippine citizens. All executive and managing officers of such enterprises should be Philippine citizens.
Practice of professions
As a general rule, the Philippine constitution reserves the practice of licensed professions (i.e., law, medicine, nursing, accountancy, engineering, etc.) for Philippine citizens.
There is a draft proposal currently being considered which would effectively prevent foreigners from legally offering tax advice in Poland. Finance Ministry draft regulations would require advisers to be either partners or individual sole traders, yet the foreign investment law requires foreigners to organize as a corporation only.
In 1992, Singapore restructured the parastatal telecom authority
by separating the regulatory authority from the telephone company
and the post office. The Government of Singapore granted the
corporatized phone company a 15-year monopoly for basic services
and a 5-year monopoly on mobile services. In 1993, Singapore
also began privatizing the telephone company by floating 11
percent of its shares worth S$4 billion (US$2.5 billion).
Singapore's broad definition of basic telecommunication services, which only the national telephone company is permitted to provide, effectively restricts market access for firms seeking to sell value-added network services (e.g., enhanced fax services). In 1995 Singapore upgraded its participation in the WTO's Negotiating Group on Basic Telecommunications (NGBT) from observer to full member, and tabled an offer in the negotiations. As of March 1996, Singapore's offer retained monopoly or exclusive rights for basic telecommunications facilities, and did not eliminate limits on market access and national treatment until 2007, a period much longer than a number of other major international telecom operators.
Legal services
Foreign law firms may only set up offices in Singapore to advise clients on U.S. or international law. They can not hire or form partnerships with Singaporean lawyers to practice local law in Singapore.
Engineering services
Singapore law requires that two-thirds ownership of an engineering firm be in the hands of Singapore-registered professionals. This has forced some foreign firms to divest majority ownership and has placed limitations on the ability of new companies to enter the market. In 1994 Singapore amended its architects/engineers act to exempt one third of the board members of a company from requirements to be registered engineers or architects.
Financial services
Insurance: Singapore has determined that the local insurance market is saturated, and as a result has not issued any new licenses for foreign or domestic firms seeking access to Singapore's insurance market for several years. Singapore has stated that acquisition of a domestic company by a foreign company would be permitted only if the domestic company needed additional capital. The reinsurance market in Singapore is open to new entrants and captive insurance licenses are available to subsidiaries of multinationals to underwrite their own risk.
Banking and securities: Foreign penetration of the banking system of Singapore is high compared to most countries foreign banks account for almost half of all nonbank deposits from residents and more than half of all nonbank loans to residents.
The Government of Singapore does impose restrictions on foreign banks, however. In addition to a longstanding freeze on the number of full banking licenses granted to foreign as well as domestic banks, those banks that already have full licenses do not enjoy full market access. Foreign banks cannot open new branch offices, freely relocate existing branches, or freely operate off-premises automated teller machines (ATMs). In addition, foreign banks are restricted to an aggregate 40 percent equity share in domestic banks in the full license category. Offshore banking licenses for the Asian dollar market are available to new entrants; Singapore actively encourages foreign participation in the offshore market in which U.S. and other foreign banks have a substantial presence.
In the securities area, foreign equity ownership of members of the stock exchange of Singapore is limited to a minority stake, although foreign firms can join in the exchange with an international membership with 100 percent foreign equity. However, some restrictions apply to international members with respect to the size of the lots they may trade and when executing certain transactions with residents.
With a market controlled and regulated by a single parastatal, Telkom, the South African telecommunications market does not presently permit foreign firms access to the local loop or long-distance network for the provision of either enhanced or basic telecom services. Nonetheless, in an effort to address its pressing information technology needs, the Government of South Africa has moved to undertake widespread telecom reform through a draft white paper to be presented to Parliament in early 1996. Although the bill is presently being drafted, the white paper process indicates that the bill will mandate the creation of a regulatory authority by year-end and complete competition in the long-distance market and licensing of a second full-service carrier with seven years.
Audiovisual
In August 1995, the newly created Independent Broadcasting Authority issued a report containing broadcasting guidelines, including a 59 percent local content quota for public broadcasters and 30 percent quota for private broadcasters.
Telecommunications and information services are dominated by the Swiss Post Telephone and Telegram Administration's statutory monopoly over most of the telecommunications market. The government is consulting on a legislative proposal, adapted from current European Community initiatives, to end the monopoly and to rely more on private investment and competition. However, its offer in the ongoing WTO telecommunications services negotiations fails to reflect these plans or commit to an eventual opening of the market, and does not contribute to the need for high quality commitments to achieve an agreement.
Insurance: In 1995, Taiwan's Ministry of Finance (MOF) lifted a one-year representative office requirement that had been imposed on newcomers to the market. Also abolished was a requirement that representative offices first have five years of insurance business with Taiwan. These requirements had effectively kept U.S. firms without extensive prior experience in Taiwan from entering the market. The MOF also abolished in 1995 a requirement that an insurance firm be organized in the form of a company whose liability is limited to shares. Officially, a ban on foreign mutual insurance firms was also lifted.
In practice, foreign mutual insurance firms are still unable to establish in Taiwan because the MOF has not yet promulgated regulations for such firms. U.S. insurance branches are not permitted to hold real estate in their investment portfolio, a denial of national treatment.
The average time required for approval of standard products has been shortened from two months to one month. The approval process for new insurance products is still relatively time-consuming, however, discouraging the introduction of such products to the Taiwan market.
Taiwan regulations require that no more than ten percent of an insurance firm's working capital can be deposited in any one bank. Although beginning in 1995 insurance companies have been allowed a two-week adjustment period, the ten percent limit complicates accounting procedures for U.S. insurance firms and makes it difficult for them to obtain good service from local banks.
In the past, Taiwan's complicated procedures for bringing in skilled foreign personnel made it difficult for U.S. insurance firms to staff their operations adequately. Restrictions on employment for skilled foreign personnel have now been relaxed. Insurance companies are no longer required to produce a statement that they are unable to hire from the domestic labor market. They are also no longer required to advertise positions through the local media.
Taiwan imposes a fixed tariff schedule for insurance premiums and commissions. Domestic firms routinely ignore the tariff, placing U.S. branches that obey the law at a competitive disadvantage.
Banking: Taiwan has continued to make significant progress in liberalizing its banking sector. In 1994, the Taiwan authorities had lifted the ban on foreign investment in local banks, rescinded numerical and geographical limits on foreign bank branching, and removed the ceiling on NT dollar deposits that foreign banks can take. In 1995, the Taiwan authorities removed a requirement that a foreign bank's first branches could only be opened after a representative office had been open for two years. Additional branches may open after the first branch has been open for two years; previously, the minimum was five years. The authorities in 1995 raised the capital requirement for new branches to $6 million, a requirement that a number of U.S. branches find onerous although most have managed to meet it.
U.S. and other foreign and domestic banks are also subject to foreign exchange liability ceilings that are to be replaced with reserve requirements as soon as a new banking law is enacted. Pending passage of the new law, the Taiwan authorities have in practice raised the limits when foreign banks have reached or nearly reached their ceilings. Foreign and domestic banks are subject to oversold position and overbought position limits which are based on their business volumes. Oversold positions for U.S. banks, previously limited to $6 million for small banks to $10 million for large banks, were raised to the same levels as already-permitted overbought positions -- which range from $20 million for small foreign banks to 40 million for the largest ones. (Some larger local banks are permitted to have even greater overbought/oversold positions, based on their greater business volume.)
Securities: In 1994, the Taiwan authorities expanded national treatment for U.S. securities firms by lifting all restrictions on foreign ownership of domestic securities firms and shortening the two year representative office requirement to one year. The requirement to open a representative office first was abolished in 1995. U.S. securities firms can engage in the same activities as local securities firms. The Taiwan authorities, however, continue to ban foreign individuals from investing on the local stock market, although Taiwan's Securities Exchange Commission has said it plans to permit foreign individuals to make portfolio investments in early 1996. In 1995, Taiwan raised the amount foreign institutional investors can bring in from $200 million to $400 million each. A foreign institutional investor is permitted to exceed this limit by investing over 70 percent of his or her fund in equity shares and holding this investment for over one year. In 1995, Taiwan removed an overall ceiling of $7.5 billion for all foreign institutional investors. The limits on foreign ownership in a listed company were raised to 7.5 percent for each foreign investor and fifteen percent for all foreign investors together, up from 5 and 10 percent, respectively. In late December 1995, Taiwan removed all restrictions on capital flows by qualified foreign institutional investors (QFIIs). Prior to the change, a QFII could not remit the principal of its portfolio investment out of Taiwan within three months of its remittance into Taiwan; capital gains from such portfolio investments could only be remitted out of Taiwan once a year. With the implementation of the changes, a QFII can now remit in and out of its investment fund and capital gains any time it considers appropriate.
Telecommunications
New telecommunications legislation enacted in January 1996 represents a major step towards liberalization of the telecommunications sector and offers significant opportunities for U.S. business. The legislation (actually three related laws) strips the Directorate General of Telecommunications (DGT), current monopoly provider of services, of operating responsibilities and establishes a state-run operating company called China Telecommunications Company (CTC). The law also opens up the telecommunications sector to foreign investment for the first time. Implementing regulations for the law -- not yet issued as of the end of January 1996 --will clarify the management of issues such as licensing and the distribution of frequencies.
Under the new legislation, foreign investment will be allowed in the provision of certain type one services such as cellular, paging, trunking radio, and wireless data. Foreign investment shares in these services will be limited to no more than 20 percent. The new legislation allows 100 percent U.S.- and other foreign-owned firms to provide basic or type two value added network (VAN) services, i.e., voice services, information storage and retrieval, information processing, remote transactions, and electronic data interchange. The new law dropped provisions included in earlier draft legislation that would have required private international and domestic VAN providers to wait two and four years, respectively, to provide services. Also dropped from the new law were provisions which would have contained a "positive list" of allowed VAN services. The law instead allows companies to provide VANs not specifically restricted by the Ministry of Transportation and Communications (a "negative list"). The legislation prohibits a provider of type one services to use profits from such services to subsidize its VANs, a major concern of U.S. companies. The legislation does, however, allow cross-subsidization of type one services open to competition with revenues from monopoly type one services such as local, long distance, and international long distance telephone.
Passage of the telecommunications legislation opens up Taiwan's $5.34 billion market to U.S. and other foreign participation. Even more significantly, the legislation will create a vastly expanded market for all participants as consumers respond to improved services and lower prices. U.S. industry sources estimate that by the year 2000, the cellular telephone market will more than double to two million subscribers, while the paging market will double from 2.5 million to five million. The market for switching equipment and handsets for that period is estimated at $1.8 billion for cellular and $565 million for paging.
Maritime
In September 1989, Taiwan agreed to amend Article 35 of its Highway Law so that U.S. carriers would be able to own and operate trucking for land transportation of containers as part of the intermodal movement of cargo. To date legislation to this effect has not been implemented. The United States is seeking this action as part of Taiwan's schedule of service commitments under the GATS as part of its accession to the WTO.
Air Express Service
In the area of courier or air express services, U.S. industry reports that the air express facility recently established by the Taiwan authorities does not fully respond to the special requirements for the transportation and customs clearance of express shipments. U.S. companies are reluctant to use the new facility because of its high fees. Because of this obstacle, U.S. air express companies are forced to continue to operate much like the less efficient and outmoded Taiwan air freight forwarders. Other limitations listed by the U.S. industry as obstacles to expedited service include: the requirement of an original power of attorney, or a confirmed telefax of the original for all formal entries; restricted customs clearance hours; and a strictly enforced weight limit of 32 kilograms per package. U.S. industry believes that these limitations slow down and reduce business for U.S. air express companies.
Motion Pictures
Taiwan increased in June 1995 the number of prints per title which can be imported from 24 to 28, and the number of cinemas in Taipei and Kaoshiung which may show the same foreign film from 9 to 11. For all other cities and jurisdictions, the number of cinemas which may show a foreign film remains at six, according to Taiwan's information office.
Legal Services
Foreign law firms that wish to operate in Taiwan must either set up as a consulting firm or work with local law firms. Qualified foreign attorneys can, as consultants to Taiwan law firms, provide legal advice to their employers only.
Contracting
Taiwan took a positive step last year when its construction and planning administration announced that it would allow foreign construction firms to purchase more than 49 percent of an existing Taiwan "Class A" construction license holder. A new construction business law that would allow foreign contractors to use their foreign experience when applying for a new "Class A" license is pending. Contractors that are not "Class A" cannot bid on major projects. The United States is requesting that Taiwan undertake developed economy obligations and commitments under the GATS as part of Taiwan's accession to the WTO.
Professional services
Under current Thai regulation, only persons of Thai nationality may be licensed in many professional services, including accounting, architecture, engineering, construction management, brokerage services and legal services. However, the RTG is currently planning revisions to these regulations, and Thai services access commitments under the extended Uruguay round should also bring some positive changes.
Financial services
Insurance: Under laws enacted in 1992, foreign direct insurers are not allowed to establish branches in Thailand without special permission. In December 1995, the Thai Ministry of Commerce published the procedures for applying for a license to establish a branch of a foreign insurance company. Under the law, all foreign shareholders combined are limited to a maximum 25 percent shareholding in each Thai insurance company. The law grandfathered existing foreign participation exceeding 25 percent (including a long established U.S. company) in previously licensed Thai insurance companies. However, the RTG has not finally ruled on the applicability of this provision to the affected U.S. firm three years later. Moreover, the law provided that such foreign participation cannot be increased. Thai government policy is to place all government insurance with government-controlled companies.
Banking: For some time, foreign banks had been prohibited from entering Thailand through a moratorium on new offshore licensing. The RTG has announced that seven foreign banks will be granted branch licenses by 1997. Licenses may be awarded as early as April 1996. Generally, Thai authorities have limited foreign banks to a very small share of the total Thai banking market, largely by restricting foreign bank entry, branching, and acquisition of Thai banks.
Foreign bank branches are also legally precluded from establishing new sub-branches in Thailand. There are plans to allow foreign banks operating Bangkok International Banking Facility (BIBF) offshore banking units offices to upgrade those offices outside the Bangkok area to branches. Foreign banks are not allowed to operate automated teller machine networks, as ATMs are considered to be branches. Recently changed regulations now permit foreign banks to participate in the local ATM network with domestic banks. However, foreign banks have been unable to conclude an agreement with domestic banks for access to the system.
The Thai cabinet approved the creation of the BIBF in September 1992. Under the BIBF framework, designed to develop offshore banking units, the Bank of Thailand issued new restricted licenses to foreign and domestic banks. Seven American banks received such licenses. Under the new licenses, these offshore units have been able to make loans to Thailand and to third countries using funds from abroad, but they have not been permitted to take domestic deposits or to fund domestic lending from domestic sources. Forty-four banks now participate in the BIBF.
In early January 1994, Thai Finance officials announced a decision to allow foreign banks participating in the BIBF to establish branches (Provincial International Banking Facilities -- PIBFs) in provinces outside of the Bangkok metropolitan area. Thai officials describe this as the latest step in the long-term liberalization of the banking system.