*EPF209 05/01/01
Excerpts: USTR's "Super 301" Report on Trade Expansion Priorities
(USTR says Bush administration has ambitious trade agenda) (4270)

The Bush administration, reflecting the importance the President puts on trade, has "an ambitious trade agenda," according to the United States Trade Representative's (USTR) "Super 301" report released April 30.

Super 301 is a provision of the Trade Act of 1974 under which the U.S. Trade Representative identifies, in an annual report, those "priority foreign country practices" that, if eliminated, have the greatest potential for the expansion of U.S. exports. Besides identifying trade liberalization priorities, the USTR can initiate Section 301 investigations regarding those practices in countries where the liberalization priorities have not been met.

Where the foreign practices at issue constitute violations of trade agreements such as the GATT or the WTO, the United States can take those practices to the dispute-resolution process created in those agreements. At the end of an investigation, USTR determines if the practices are "actionable" under Section 301 and, if so, what the U.S. response should be.

In the 2001 annual report, USTR listed two goals for expanding trade: first to "reestablish a bipartisan consensus on free trade" and, second, to "move on multiple fronts to expand trade."

The USTR said the Bush administration would "continue to work with Congress and American businesses, farmers, workers and consumers to ensure effective monitoring of U.S. trade agreements and quick responses to non-compliance - including through the use of the WTO and other dispute settlement procedures, WTO oversight committees, and U.S. trade laws."

The report on "Super 301" included a run-down on disputes the United States has with its various trading partners, including Australia over export subsidies on leather; Korea on beef imports; and the Philippines on investment in the motor vehicle sector. Both Korea and Japan have been scrutinized for their import policies that limit the access of U.S. automakers to those countries while Japanese and Korean automobile companies enjoy substantial sales in the United States.

The report also cites the Korean government for arranging subsidies for large Korean companies experiencing cash flow problems, naming Hyundai Electronics Industries as one beneficiary of that policy.

The USTR says Taiwan uses telecommunications regulations to put up barriers that "impose serious limitations on the competitive offering of telecommunications services and undermine the ability of new entrants to compete in Taiwan's market."

The United States, the report said, "has continuing concerns about the treatment of foreign, research-based pharmaceuticals under the reimbursement pricing systems in place in Korea and Taiwan."

Similarly, the report faults Japan over the issue of flat glass because of "serious market access problems."

Following are excerpts from the USTR report, issued April 30, on Identification of Trade Expansion Priorities Pursuant to Executive Order 13116:

(begin excerpts)

A. Ensuring Compliance

Efforts to promote compliance with trade agreements have used three principal tools: (1) the WTO and NAFTA dispute settlement mechanisms; (2) the various WTO oversight bodies; and (3) enforcement of U.S. trade law. Vigorous enforcement enhances the ability of the United States to reap the benefits of trade agreements that USTR negotiates, ensures that we can continue to open markets, and builds confidence in the trading system.

1. WTO and NAFTA Dispute Settlement Results

WTO and NAFTA dispute settlement procedures have enabled the United States to resolve problems arising from the failure of trading partners to implement their international obligations, and to resolve disputes over interpretation of various provisions in the WTO or NAFTA agreements. Our hope in filing cases is, of course, to secure U.S. benefits rather than to engage in prolonged litigation. Therefore, whenever possible we have sought to reach favorable settlements that address U.S. concerns without having to resort to panel proceedings. We have been able to achieve this preferred result in 14 of the 32 cases concluded so far, and have prevailed through litigation in 15 cases. During the past year, we have achieved the following results: . . .

-- Australia-Prohibited Export Subsidies on Leather: On June 21, 2000, the United States resolved its dispute with Australia regarding subsidization of Australia's sole exporter of automotive leather. Under a bilateral settlement agreement, the subsidy recipient agreed to a partial repayment of the prohibited export subsidy it received, and the Australian Government committed that it will exclude this industry from current and future subsidy programs and provide no other direct or indirect subsidies. This agreement resulted from a WTO case brought by the United States in 1998. . . .

-- Korea-Beef Imports: The United States prevailed through litigation in this dispute, which challenged Korea's regulatory scheme that discriminates against imported beef by confining sales of imported beef to specialized stores, limiting the manner of its display, and otherwise constraining opportunities for the sale of imported beef. Korea is to comply with the adverse WTO rulings by September 10, 2001, and the United States will monitor Korea's implementation to ensure that it is consistent with these WTO rulings. . . .

2. WTO Oversight Bodies

Through WTO oversight bodies, the United States works to secure implementation of WTO commitments. These oversight bodies monitor implementation of the various WTO agreements, review WTO Members' laws and regulations, identify potential problems, and offer technical assistance or other expertise when necessary to help ensure compliance and implementation of commitments. The United States actively asserts its rights and pursues its interests through these mechanisms.

-- The WTO Committee on Agriculture oversees the implementation of the Agreement on Agriculture and provides a forum for WTO Members to consult on matters related to provisions of the Agreement. In many cases, the Committee resolves problems so that Members do not need to refer them to WTO dispute settlement. For example, U.S. pressure on Hungary regarding restrictive import policies for beef products resulted in Hungary's decision to open a special quota for high-quality North American beef. Questions directed to Korea regarding its annual rice import requirements led to improvements in that country's administration of its tariff rate quota commitments. The Committee also provided a forum for the United States to raise questions concerning the agricultural practices in many of our trading partners, including elements of Canada's domestic support programs, the export subsidy amounts associated with the European Communities' inward processing arrangements for dairy products, and the amount of product entered under tariff-rate quotas in Norway. The United States also raised extensive questions on the EU's support regime for horticultural products. . . .

-- Philippines-Measures Affecting Trade and Investment in the Motor Vehicles Sector: On November 17, 2000, a WTO panel was established to examine a U.S. challenge to certain measures in the Philippines automotive sector. Among other things, the measures require producers to incorporate specified amounts of locally produced inputs, precluding the purchase of U.S. parts. There is also a requirement that imports be balanced in an amount related to a company's foreign exchange earnings. Under the WTO TRIMs Agreement, the Philippines was required to remove these measures by January 1, 2000, unless the Philippines received an
extension. No such extension has been granted and therefore the Philippines appears to be in violation of its TRIMs obligations.

C. New Requests for Consultations

In addition to the disputes discussed above, the United States has invoked WTO dispute settlement procedures in three other disputes since last year's Super 301 report: . . .

Motor Vehicle Policies: Certain of our trading partners maintain restrictive motor vehicle policies which limit market access for U.S. exporters. For instance, lack of foreign access to the motor vehicle market of Korea remains of significant concern. The United States and Korea concluded a Memorandum of Understanding (MOU) in October 1998 according to which Korea agreed to undertake a number of specific actions. Although Korea has taken steps to implement specific provisions of the MOU, foreign access remains severely restricted, as evidenced by the tiny foreign share of the Korean auto market, which totaled 0.3 percent in 2000. Korea's high tariffs and cascading tax structure on motor vehicles continue to impair the competitiveness of imported motor vehicles. Moreover, Korean consumers continue to believe they will face public opprobrium for purchasing a foreign car, the legacy of years of government-sponsored anti-import campaigns. Although Korea recently acceded to the 1998 Global Agreement for the harmonization of world automotive standards, it continues to develop overly burden some standards that impede imports and are contrary to the spirit of global harmonization and the 1998 MOU. The United States will continue to push Korea to fulfill the objectives of the 1998 MOU and to develop a package of meaningful measures that will result in substantial increases in market access for foreign motor vehicles.

U.S. exporters are experiencing related problems in Japan. The 1995 U.S.-Japan Automotive Agreement, which sought to eliminate market access barriers and significantly expand sales opportunities in this sector, expired on December 31, 2000. Although some progress was made under the 1995 agreement, the overall objectives of the 1995 agreement were not met. There are a number of factors contributing to the disappointing results, one of which has been the weakness of the domestic Japanese economy over the past three years. However, the effects of the Japanese recession have been disproportionately felt by foreign firms. In addition, the pace of deregulation has slowed significantly. Lack of transparency in both procurement and rule-making persists, and keiretsu ties continue to impede full and fair competition in this market. Further, while investment opportunities in the vehicle market have increased notably, opportunities for automotive parts makers remain largely unchanged. This situation, coupled with recent trends in bilateral automotive trade, has underscored the need for further market-opening efforts by Japan. The United States hopes to work closely and cooperatively with Japan on this issue in the coming months.

C. Agricultural Practices and SPS Measures

... In addition, the United States has serious concerns that Japan, in an unprecedented manner, is taking actions affecting access to its markets for agricultural products. In early April 2001, Japan implemented a new quarantine inspection system for fresh vegetables, strawberries and melons, which limited the number of daily inspections at Japan's air and seaports. Japan took this action without prior consultation with trading partners or adequate explanation of a scientific rationale for the new system. Japan is also considering taking, for the first time, import safeguard actions on a wide range of agricultural and other products. It has announced that it will implement safeguard measures on three agricultural products -- fresh shiitake mushrooms, stone leeks (i.e., welsh onions) and tatami mat reeds -- beginning April 23, 2001. Among the other products Japan is investigating are lumber, onions, and tomatoes, which are of commercial interest to the United States. U.S. exports (CY 2000) of these products totaled over $240 million. The U.S. Government, at senior levels, has raised with the Japanese Government its serious concerns about these measures affecting imports. The United States will closely monitor Japan's import measures to ensure they comply with WTO obligations.

The United States also has serious concerns regarding the process of import risk assessment for SPS measures in Australia. SPS measures protect against risks associated with plant or animal borne pests and diseases, additives, contaminants, toxins, and disease-causing organisms in foods, beverages, or feedstuffs. The WTO SPS Agreement establishes rules and procedures to ensure that SPS measures address legitimate human, animal, and plant health concerns, do not arbitrarily or unjustifiably discriminate between Members' agricultural or food products, and are not disguised restrictions on international trade. Transparency is an integral aspect of the development of SPS measures and is often extremely useful in preventing trade problems associated with SPS measures. Although Australia revised and published its import risk assessment procedures in 2000, the process in Australia remains non-transparent and fraught with delays. Australia's continued ban on the importation of California table grapes illustrates problems encountered, and other countries have comparable complaints. The United States has been seeking entry into Australia's market, in some cases for more than a decade, for Florida citrus, pork, poultry, stone fruit, and apples in addition to California table grapes.

D. Government Procurement

The 2001 "Title VII" report, which USTR releases simultaneously with the Super 301 report on April 30 (available on the USTR web site (www.ustr.gov)), addresses a number of discriminatory government procurement practices, including implementation of the EU "Utilities Directive" by government telecommunications utilities, various discriminatory practices in the public works sector of Japan, discriminatory practices and procedural barriers to trade in Taiwan, discrimination in Canada against U.S. suppliers in provincial government procurement procedures, and the potential discriminatory effects of "sect filters" in Germany. The "Title VII" report provides background on these issues and the steps the Administration is taking to address them.

E. Subsidy Practices

Unfair government subsidies distort the free flow of goods and adversely affect U.S. business in the global marketplace. Rules covering industrial subsidies have evolved and are intended to prohibit or discourage the most distortive kinds of subsidies, and to allow governments to use less distortive subsidies in order to achieve the broader social or economic objectives of interest to them under certain circumstances. Provided below are representative examples of subsidy practices that the Administration is monitoring closely. . . .

In addition, the Government of Korea, through the Korean Development Bank (KDB), has initiated a program aimed at providing direct financial support to several large companies that are encountering severe cash flow problems. For example, the KDB purchased $200 million worth of newly issued Hyundai Electronics Industries (HEI) bonds in January 2001. The KDB made similar purchases of the newly issued bonds of five other cash-strapped, debt-burdened Korean companies, three of which are other Hyundai subsidiaries. The KDB reportedly plans to provide additional financing in the future to HEI and other companies to cover $15-20 billion in bonds coming due in 2001. The Korean Government maintains that only viable companies will benefit from temporary KDB support and that the KDB support will terminate at the end of 2001. The United States has expressed its concern to Korea about the negative implications of this type of government-directed lending for Korea's restructuring efforts and the Korean economy. The United States also has noted that a significant share of the benefits under this program has been provided thus far to companies that are largely export focused and has raised with Korea its concerns over the potential inconsistency of this intervention with the WTO Agreement on Subsidies and Countervailing Measures.

F. Services and Investment Barriers

Services are what most Americans do for a living. Service industries account for nearly 80 percent of both U.S. employment and GDP. U.S. cross-border exports of commercial services (i.e., excluding military and government) were $255 billion in 1999, supporting over 4 million services and manufacturing jobs in the United States. U.S. services exports have more than doubled over the last 10 years, increasing from $118 billion in 1989 to $255 billion last year. Likewise, foreign investment provides capital that fuels economic expansion, increases productivity, improves living standards, and provides links to the international marketplace. Access to overseas investment markets allows U.S. companies to remain competitive in a world of new and changing opportunities. U.S.-owned companies with affiliates abroad accounted for 64% of total U.S. goods exports in 1998.

These statistics reveal the importance of services and investment in promoting open markets. Continued liberalization in this area represents a "force multiplier" 'for structural reforms abroad and for economic growth domestically.

Unfortunately, as discussed below, we continue to encounter barriers to the supply of U.S. services and to investment by U.S. businesses, particularly with respect to telecommunications regulations, trade-related investment measures (TRIMs) in the automobile sector, and retail store laws. We therefore make it a priority to intensify our efforts to promote the dynamism of this sector and reduce trade barriers.

Telecommunications Trade Barriers: Since the WTO Basic Telecommunications Agreement came into force in February 1998, telecommunications markets overseas have rapidly opened to competition. U.S. companies have invested billions of dollars to build global networks, partner with foreign companies, and expand their commercial presence in foreign markets. However, as discussed in USTR's review of telecommunications trade agreements under "Section 1377", released on April 2, 2001 (see www.ustr.gov), practices of certain trading partners raise serious concern about compliance with their international telecommunications obligations.

For instance, in Taiwan, telecommunications regulations impose serious limitations on the competitive offering of telecommunications services and undermine the ability of new entrants to compete in Taiwan's market. These restrictions also appear to be inconsistent with the commitments undertaken by Taiwan as part of its bilateral WTO accession negotiations with the United States to liberalize its telecommunications market by July 1, 2001. USTR welcomes the ongoing regulatory review of Taiwan's telecom regulations and expects this review to result in the promised liberalization of its market. If Taiwan does not appear to be taking the necessary steps to liberalize its market consistent with its commitments, USTR win consider appropriate action, including under Section 1374 of the 1988 Trade Act. In addition, as discussed above, the United States remains seriously concerned that Mexico has not yet addressed the key issue of ensuring competition in the market for international calls or enforcing certain rules designed to address anti-competitive conduct in telecommunications services. Absent progress on these issues by June 1, the United States will determine whether additional action is necessary, including moving the pending WTO case forward.

Auto TRIMS: The WTO Agreement on Trade Related Investment Measures (TRIMs) limits the ability of foreign governments to develop programs that favor the purchase or use of goods produced locally. Such measures often reduce the export of U.S.-manufactured goods and also impede a company that operates in a market with TRIMs from acting in an economically efficient manner. The maintenance of TRIMs has been a particular problem in the motor vehicle sector. As discussed above, the United States currently has two pending WTO cases on this issue, challenging the maintenance by India and the Philippines of measures affecting trade and investment in the motor vehicle sector.

The United States also has serious concerns about local content requirements imposed by Malaysia on the production of motor vehicles. Under the TRIMs Agreement, Malaysia was required to remove these measures by January 1, 2000 unless additional time was granted by the WTO. On December 29, 1999, Malaysia made a formal request for an additional two years to bring these measures into compliance with its obligations under the Agreement. The United States has noted its willingness to agree to an extension, but is concerned by conflicting statements made by the Government of Malaysia with regard to its intentions. For this reason, the United States will continue to monitor Malaysia's compliance with its WTO obligations in the motor vehicle sector.

Retail Store Laws: Retail store laws that discriminate with regard to the country of origin of the goods that a retailer can sell harm not only the firms operating in this sector, but also harm consumers by limiting access to products that may be more competitive in terms of price and quality. The Philippines requires that certain foreign retailers source at least 30 percent of their inventory, by value, in the Philippines. Additionally, firms specializing in luxury goods must source at least 10 percent of their inventory, by value, in the Philippines. These requirements appear to violate the Philippines' commitments under several WTO agreements. The United States will monitor this issue to determine what action should be taken to address these concerns.

G. Lack of Intellectual Property Protection

The USTR is releasing the "Special 301" report today (see www.ustr.gov), which identifies those countries that deny adequate and effective intellectual property protection or that deny fair and equitable market access to U.S. intellectual property products. As discussed above, on March 13, 2001, the United States self-initiated a section 301 investigation following the identification of Ukraine as a Priority Foreign Country under Special 301 for Ukraine's persistent failure to take effective action against significant levels of optical media piracy and to implement adequate and effective intellectual property laws. In addition, this year's Special 301 report addresses a number of key issues, including (1) failure of numerous economies, including Brazil and Taiwan, to take effective enforcement action that provides adequate deterrence against commercial piracy and counterfeiting; (2) failure of the European Union to provide national treatment for the protection of geographical indications for agricultural products and foodstuffs; (3) failure by Argentina, Hungary and Israel, among others, to provide adequate protection for the confidential test data of pharmaceutical and agricultural chemical companies; (4) the insufficient term of protection for patents in trading partners such as the Dominican Republic and India; (5) the inadequate protection for pre-existing works in numerous trading partners, particularly in Armenia, Azerbaijan, Belarus, Kazakhstan, Tajikistan, Turkmenistan, and Uzbekistan; (6) the failure of the Philippines to provide adequate enforcement, including making available ex parte search remedies; and (7) lax border enforcement against pirate and counterfeit goods in many of our trading partners.

H. Barriers to Trade in Electronic Commerce

Barriers to electronic commerce can occur at various points in the e-commerce value chain, such as restrictions on basic telecommunications services, Internet access services, and services provided through the Internet. For example, Israel is pursuing a policy that would disadvantage U.S. companies wishing to offer Internet access services over the cable platform and would favor the state-owned telecommunications company (Bezeq). Although Israel has licensed Bezeq to enter the high-speed Internet access market without any licensing fees, it has introduced legislation that will require cable television companies seeking to enter this market to pay licensing fees (above their cable franchise fees). The United States is seriously concerned that regulatory favoritism undermines the investment environment in Internet services in Israel. We will closely monitor developments in Israel as well as in other markets.

I. Other barriers

Not all trade obstacles fit neatly into one category. There are many exporters facing conditions in overlapping categories that combine to limit market access to U.S. goods and services, and unfavorable treatment of a certain foreign industry by any given country often involves a multitude of overlapping barriers. One illustration of how numerous trade measures can affect the conditions for access to overseas markets can be found in the textile and apparel industries. U.S. industry has raised a series of concerns regarding a number of measures, often used in combination, that impede access to overseas markets, including: high tariffs, additional import taxes and charges, some of which may be forgiven for goods destined for the export market, excessive and impractical marking and labeling requirements, reference pricing and non-automatic licensing, burdensome certificates of origin requirements, lack of intellectual property protection, and pre-shipment inspection requirements. Ironically, some of the countries with the most protected internal markets are also the most significant beneficiaries of the WTO Agreement on Textiles and Clothing's liberalization and elimination provisions, as applied by the
United States. The United States will continue its efforts to work within the WTO and with our trading partners to ensure that A countries meet their WTO obligations to open their market to textile and apparel products.

The United States has continuing concerns about treatment of foreign, research-based pharmaceuticals under the reimbursement pricing systems in place in Korea and Taiwan. These reimbursement pricing systems lack transparency and appear arbitrary, raising questions about whether they are being implemented in a fair and non- discriminatory manner. These systems also create an uncertain business environment for pharmaceutical manufacturers. In addition, burdensome and non-science-based regulatory requirements are applied to pharmaceutical products in Korea and Taiwan, including requirements relating to the acceptance of foreign clinical test data, testing, and approval of new drugs. Korea and Taiwan need to undertake significant improvements in their systems to make them fair, non-discriminatory and transparent. Finally, while the Korean Government has been responsive to some U.S. concerns in the pharmaceutical sector, serious questions remain regarding the lack of IPR protection for these products. In particular, the lack of coordination between the Korea Food and Drug Administration and the Korea Intellectual Property Office concerning marketing approval for pharmaceuticals and inadequate data protection, discourage the introduction of innovative drugs. The U.S. Government will continue to pursue these issues with the Korean Government to ensure that foreign pharmaceuticals are provided fair and non-discriminatory treatment in the Korean market.

Finally, the U.S. flat glass industry continues to experience serious market access problems in Japan, owing mainly to the continued domination of the Japanese flat glass market by domestic flat glass manufacturers. Over the past year, U.S. industry has strengthened its business and marketing activities in Japan. However, despite better quality, technology and competitive prices, U.S. flat glass manufacturers have failed to gain access to the Japanese market commensurate with their level of access in the rest of the world. The domination by Japanese flat glass manufacturers of distributors is a key problem for U.S. firms. The leading Japanese flat glass producers exert tight control over flat glass distribution by majority ownership, equity and financing ties, employee exchanges, and purchasing quotas. The U.S. Government remains very concerned about the closed distribution channels in the oligopolistic flat glass sector. To address these concerns, the U.S. Government has proposed, under the bilateral Enhanced Initiative on Deregulation and Competition Policy, that the Japanese Government take further steps to promote competition in wholesale and retail distribution channels for a range of products, including flat glass. The U.S. Government will continue to monitor closely the flat glass industry and urges the Japanese Government to promote competition and eliminate unhealthy oligopolistic behavior in the flat glass sector.

(end excerpts)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

NNNN