Report on Trade Expansion Priorities Pursuant to Executive Order 13116 (``Super 301'')

OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

Report on Trade Expansion Priorities Pursuant to Executive Order

13116 (``Super 301'')

AGENCY: Office of the United States Trade Representative.

ACTION: Notice.

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SUMMARY: Notice if hereby given that the United States Trade

Representative (USTR) has submitted the report on United States trade

expansion priorities published herein to the Committee on Finance of

the United States Senate and Committee on Ways and Means of the United

States House of Representatives pursuant to the provisions (commonly

referred to as ``Super 301'') set forth in Executive Order No. 13116 of

March 31, 1999.

DATES: The report was submitted on April 30, 1999.

FOR FURTHER INFORMATION CONTACT: Demetrios Marantis, Assistant General

Counsel, Office of the U.S. Trade Representative, 600 17th Street,

N.W., Washington, DC 20508, 202-395-3581.

SUPPLEMENTARY INFORMATION: The text of the USTR report is as follows.

Identification of Trade Expansion Priorities Pursuant to Executive

Order 13116

Last month, the United States Trade Representative (USTR) released

the President's 1999 Trade Policy Agenda and the 1999 National Trade

Estimate Report on Foreign Trade Barriers (NTE Report). This report

builds on the prior two reports and is submitted pursuant to Executive

Order 13116 of March 31, 1999. The ``Super 301'' provisions of the

Executive Order direct the USTR to review U.S. trade expansion

priorities and identify priority foreign country practices, the

elimination of which is likely to have the most significant potential

to increase United States exports, either directly or through the

establishment of a beneficial precedent.

I. Trade Expansion Priorities and Priority Foreign Country

Practices

In preparing this report, USTR has reviewed the 1999 Trade Policy

Agenda to identify U.S. trade expansion priorities and the 1999 NTE

Report and public comments submitted to USTR to assess foreign country

practices that we seek to eliminate. Based on this review, USTR has

determined that the U.S. trade expansion priorities include the

launching of a new, multilateral round of global trade negotiations;

ensuring that WTO Members fully implement existing commitments; ongoing

strategic enforcement of U.S. rights under bilateral, regional, and

multilateral trade agreements and under U.S. trade laws; and

integrating China and other economies into the world trading system.

The USTR is not identifying any ``priority foreign country practices''

within the meaning of the Executive Order at this time, but does find

that a number of practices warrant the initiation of WTO dispute

settlement proceedings or other actions in the context of our bilateral

trade relationships.

A. The Third Ministerial Conference and the New Round

Ambassador Charlene Barshefsky, the United States Trade

Representative, will chair the WTO's Third Ministerial Conference in

Seattle, Washington, November 30--December 3, 1999. The event, which

will be the largest trade meeting ever held in the United States, will

set the agenda for the WTO for the next decade and launch a new round

of global trade negotiations. The Administration has engaged in an

extensive consultative process to develop this agenda, involving the

broadest range of citizens concerned about trade. Broadly speaking, the

agenda will: set a negotiating agenda and work program; provide for

institutional reform, including transparency, and ensure that the WTO

will continue to be a forum for on-going trade liberalization and

reform, by delivering results at Seattle.

At the meeting, Trade Ministers from around the world will focus on

the important issues facing the trading system and the new economy of

the 21st century. As a starting point, the United States joins other

nations in emphasizing the important issue of implementation of

existing agreements--from agriculture to textiles. As we approach

January 1, 2000, the majority of transition periods in the Agreements

on Trade-Related Aspects of Intellectual Property Rights (TRIPS),

Trade-Related Investment Measures (TRIMS), and Customs Valuation will

expire for most developing countries. Ensuring compliance with these

Agreements will be an important feature of our work as we shape the

WTO's forward agenda.

Beyond implementation, the negotiations, to begin in early 2000,

will be comprised of a new round of liberalization commitments in

services trade, a new phase in agriculture policy reform and market-

opening undertakings, and other negotiations on topics to be agreed at

the meeting, possibly a new round of industrial tariff and non-tariff

negotiations. Certain Members have also identified foreign direct

investment and competition policy as possible topics for negotiation.

The important relationship of trade and the environment, as identified

in President Clinton's May 1998 address before the WTO, is an area that

will require further work in the WTO, as will forging the consensus on

addressing trade and labor.

Launching the round will also require attention to institutional

improvements within the WTO to facilitate trade, to improve the

participation of less developed economies in the world economy, and to

coordinate effectively with other international bodies such as the IMF

and World Bank. The United States seeks to strengthen public confidence

in the WTO as an institution by improving its transparency and

openness, particularly in WTO dispute settlement proceedings, including

the review of the system that is to be completed before the Seattle

meeting. Civil society must be able to contribute to the work of the

WTO, to ensure both that the WTO hears many points of view including

those from business, labor, environmental, consumer and other groups,

and that its work will rest on the broadest possible consensus.

Finally, the U.S. vision for the new round requires that we set an

agenda that accommodates rapid technological developments and addresses

the broadest range of concerns. The Ministerial, and the time prior to

the meeting itself, provide the United States the opportunity to

showcase the relevance of the WTO to the information revolution, the

development of electronic commerce, and other rapidly changing, high-

technology fields. We seek to reach agreements expanding the product

coverage in the landmark Information Technology Agreement (ITA) and

expand on the 1998 Ministerial Declaration on Electronic Commerce which

calls on WTO Members to refrain from imposing customs duties on

electronic transmissions. We also intend to strengthen the system to

contribute to the Administration's wider policy of eradicating the

potential for bribery and corruption and promoting economic efficiency,

by completing an agreement on transparency in government

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procurement at the Seattle meeting. Expanding market access

opportunities, including through early agreements to liberalize tariffs

in sectors first identified in APEC (i.e., chemicals, energy and

environment-related goods, medical and scientific equipment, forest

products, fish, gems and jewelry, and toys), remains a priority.

B. Implementation of Existing WTO Commitments

Full implementation of existing WTO agreements is critical to

ensuring that the United States achieves the full benefit of what it

bargained for in the Uruguay Round of multilateral trade negotiations,

as well as to maintaining public confidence in an open trading system

and building public support for the new round of negotiations. There

are five critical aspects of WTO implementation: compliance with WTO

commitments that entered into effect in January 1995; compliance with

WTO commitments that are subject to transition periods or phase-in

provisions, many of which will enter into effect by January 1, 2000;

acceptance of the protocols on basic telecommunications services and

financial services and implementation of the corresponding commitments;

compliance with accession protocols; and compliance with the rulings

resulting from WTO dispute settlement proceedings in a timely and

complete manner.

The primary means of enforcing WTO commitments that have entered

into effect is the WTO dispute settlement mechanism, which is discussed

in further detail below. In the coming months, one of USTR's top

priorities will be to focus on Members' preparations for the phase-in

by January 1, 2000 of commitments in three critical areas:

Intellectual Property Protection--WTO developing country

members are required to implement most of their commitments under the

Agreement on Trade Related Aspects of Intellectual Property Rights

(TRIPS) by the end of this year. We are monitoring this closely and are

prepared to both assist countries in developing laws and enforcement

mechanisms at their request and invoke dispute settlement procedures in

the event members fail to meet their obligations.

Customs Valuation--More than 50 countries are required to

fully implement the obligations of the Agreement on Customs Valuation--

a critical obligation in realizing market access. Full and effective

implementation of this Agreement will head off disputes in the future.

The United States is also concerned about implementation of existing

customs valuation obligations, which is discussed in further detail

below.

Trade Related Investment Measures (TRIMs)--December 31,

1999, is the deadline established in the TRIMs Agreement for developing

countries to eliminate measures which they notified as inconsistent

with the TRIMs Agreement. Throughout the remainder of 1999, the United

States will be monitoring steps taken by those countries due to come

into compliance by this deadline, and will be prepared to bring dispute

settlement cases for measures which have not been removed by the agreed

deadline.

In addition, USTR will work bilaterally and within the Council for

Trade in Services to ensure the full implementation of Members'

commitments under the Fourth Protocol to the General Agreement on Trade

in Services (GATS), i.e., the Basic Telecom Agreement, which entered

into force on February 5, 1998, and the Fifth Protocol to the GATS,

i.e., the Financial Services Agreement, which entered into force on

March 1, 1999. The United States will continue to insist that all

countries that failed to meet the deadline for acceptance of these two

agreements bring their commitments into force as soon as possible. For

the Basic Telecom Agreement, those countries are: Brazil, Dominica,

Guatemala, Papua New Guinea, and the Philippines. For the Financial

Services Agreement, those countries are: Australia, Bolivia, Brazil,

Bulgaria, Costa Rica, Dominican Republic, El Salvador, Luxembourg,

Ghana, Honduras, Jamaica, Kenya, Nigeria, Nicaragua, the Philippines,

Poland, Slovenia, and Uruguay.

USTR will continue to use WTO committees and bilateral mechanisms

to address implementation issues. For example, the United States will

work through the WTO Committee on Agriculture to seek compliance with

the various obligations under the Agriculture Agreement, including

those on tariff-rate quotas, domestic support and export subsidies.

Likewise, the United States will be vigilant in its enforcement of

textile quotas and implementation of textile market access requirements

overseas. Preventing circumvention is a high priority as well. Last

year, we reached an important new agreement with Hong Kong on measures

to improve information-sharing and strengthen cooperation to prevent

circumvention, and we are working with Macau, China and others on

similar initiatives.

In addition, we will continue to work with other WTO Members under

the aegis of the Committee on Antidumping Practices and its Ad Hoc

Group on Implementation to secure better adherence to WTO rules and

procedures governing the conduct of antidumping investigations and

administrative reviews. The increased use of these remedies by a

growing number of WTO Members with different legal systems and levels

of experience poses special challenges to U.S. exporters. The United

States expects strict compliance with the WTO Antidumping Agreement's

substantive obligations, as well as its rules which guarantee

transparency and due process, so that these remedies can remain a fair

yet effective complement to ongoing trade liberalization.

C. Strategic Enforcement of WTO Rights and U.S. Trade Laws

One of this Administration's top trade expansion priorities is

vigorous monitoring and enforcement of trade agreements, which includes

the active use of the WTO dispute settlement process and strategic

application of U.S. trade laws.

1. WTO Dispute Settlement Process

Since the WTO's creation in 1995, the United States has filed more

complaints--44 to date--than any other WTO Member and has participated

as a third party in a number of other cases. Our overall record of

success is very strong. We have prevailed in 22 of the 24 U.S.

complaints acted upon so far, either by successful settlement or panel

victory. These favorable rulings and settlements have involved an array

of sectors within the fields of manufacturing, agriculture, services,

and intellectual property.

a. WTO Disputes

As a result of this year's review of its trade expansion

priorities, and its monitoring of compliance with U.S. trade

agreements, the Administration will take the following actions to

enforce U.S. rights under those agreements:

EU--Avionics. The United States will request WTO consultations with

the European Union (EU) on French government subsidies for avionics

equipment under the WTO Agreement on Subsidies and Countervailing

Measures. In an effort to displace U.S.-sourced flight management

systems, the French government, with European Commission approval, has

agreed to grant 140 million French francs (approximately 40 percent of

the projected costs) between 1997-1999 for a project involving Sextant

Avionique of France and Smiths Industries of the United Kingdom to

jointly develop a

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new flight management system adapted to Airbus aircraft. The aid takes

the form of a ``reimbursable advance payment'' to be repaid on a

percentage of sales of the new system; however no repayment is required

if the program is unsuccessful.

India--Auto TRIMs. The United States will request WTO consultations

with India on its new auto policy. Last year, India implemented new

measures governing investments in the automotive industry. All new and

existing firms wishing to operate auto manufacturing investments in

India are required to sign a standardized agreement with the Government

of India that contains local content and foreign exchange balancing

requirements. The Indian program would inhibit the free flow of trade

and investment and is inconsistent with India's obligations under the

WTO Agreement on Trade-Related Investment Measures (TRIMs). According

to the American Automobile Manufacturers Association (AAMA) the

approximate size of the vehicle market in India in 1998 was 604,000

units. A large portion of vehicles sold in India are produced locally.

Auto parts sales into India are also reduced by these measures.

Korea--Barriers to the Import and Distribution of Foreign Beef. In

response to a 1989 GATT panel ruling, Korea agreed to phase out its

import restrictions on beef. However, Korea simply replaced its ban

with a temporary quota and comprehensive restrictions on the ability to

import and distribute beef, including a requirement that imported beef

be sold in separate retail establishments. These and other barriers

prevented U.S. exporters from fully utilizing the 1997 and 1998 minimum

market access commitments Korea had made for beef. In 1998, the

underfill of Korea's beef import quota was approximately 60 percent.

The U.S. Government has worked to establish a market-driven beef

import system in Korea by seeking the elimination of Korean Government

measures that impede the entry and distribution of foreign beef. In

September and November 1998, the U.S. and Korean Governments held two

rounds of talks, and convened again in January 1999, in an attempt to

conclude an agreement providing for liberalized beef trade. In the

absence of an agreement, the United States requested WTO dispute

settlement consultations on February 1, 1999. On April 28, the United

States requested the establishment of a WTO dispute settlement panel on

Korea's beef import and distribution system after WTO consultations

held on March 11 and 12 failed to resolve the U.S. concerns.

Customs Practices: The benefits of market access commitments are

undermined when countries engage in certain customs practices, such as

the use of minimum reference prices to determine the customs value of

an imported good. The WTO Customs Valuation Agreement (CVA) stipulates

that the transaction price is the primary basis for customs valuation

determinations, and the U.S. Government is working to ensure that

countries comply fully with their obligations under the CVA. We are

actively pursuing the issue of reference prices in the WTO Committee on

Customs Valuation and are closely examining reports of non-compliance

with CVA commitments, particularly in those countries with current

obligations, such as Brazil, India and Mexico. We are soliciting

additional information on these practices and, as appropriate, will

subsequently pursue dispute settlement consultations with the relevant

countries that do not satisfactorily address these concerns.

b. Dispute Settlement Rules

USTR's review of trade expansion priorities has shown that, while

the WTO dispute settlement system generally works well, improvements in

the rules governing compliance with panel and Appellate Body reports

are necessary. The EU's failure to implement a WTO-consistent banana

regime following WTO dispute settlement proceedings, and its impending

failure to eliminate its import ban on meat produced with hormones,

illustrate how a Member that fails to implement WTO dispute settlement

rulings can continue causing harm to U.S. exporters for an extended

period of time. The United States is seeking improvements in the rules

governing implementation of panel and Appellate Body reports in the

context of this year's review of the WTO Dispute Settlement

Understanding (DSU), and there is ongoing review regarding other

possibilities for improvement.

In the interim, we will continue to exercise our rights to suspend

concessions with respect to the trade of a Member that fails to

implement WTO recommendations. On April 19, the United States suspended

concessions in the amount of $191.4 million against the EU because of

its failure to implement a WTO-consistent banana regime. USTR is now

preparing to take similar action against EU imports if the EU does not

implement WTO findings against its meat import ban by May 13, 1999,

which is the deadline for implementation in that dispute.

2. U.S. Trade Laws

The U.S. trade laws are a vitally important means of ensuring

respect for U.S. rights and interests in trade. We will continue to

challenge aggressively market access barriers abroad using Section 301,

Special 301, Section 1377, Super 301 and Title VII 1 to open

foreign markets and ensure fair treatment for our goods and services,

protect U.S. intellectual property rights, and ensure compliance with

telecommunications agreements. These provisions work in tandem with

dispute settlement procedures, and also assist us in completing and

enforcing agreements with trading partners that are not WTO Members or

in areas not covered by WTO rules. In addition, this Administration is

fully committed to using U.S. antidumping, countervailing duty, and

safeguards laws and will insist that America's trading partners play by

the rules.

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\1\ These provisions can be found in: Sections 301-310 of the

Trade Act of 1974 (``Section 301''); Section 182 of the Trade Act of

1974 (``Special 301''); and Section 1377 of the Omnibus Trade and

Competitiveness Act of 1988 (``Section 1377''). The procedures set

forth in Section 310 of the Trade Act of 1974 (``Super 301'') and

Title VII of the Omnibus Trade and Competitiveness Act of 1988

(``Title VII'') were re-instituted by Executive Order 13116 of March

31, 1999.

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Section 301: On April 29, USTR initiated an investigation under

Section 301 of the Trade Act of 1974, as amended, regarding Canadian

regulations affecting tourism in the U.S.-Canada border region.

Measures maintained by the Province of Ontario generally prohibit U.S.

fishermen from keeping the fish they catch on lakes lying across the

Minnesota-Ontario border if the U.S. fisherman does not spend the night

in an Ontario commercial establishment or otherwise contribute to the

Ontario tourist industry. Canadian federal measures impose work permit

requirements on U.S. fishing guides who conduct tours on those lakes.

These measures discriminate in favor of Canadian tourist

establishments.

Special 301: Through the Special 301 process, USTR systematically

monitors levels of intellectual property protection around the world.

Each year, USTR identifies those foreign countries that deny adequate

and effective protection of intellectual property rights or fair and

equitable market access for U.S. persons that rely on intellectual

property protection. As a result of the 1999 Special 301 review, USTR

placed 17 trading partners on the ``Priority Watch List'' and 37

trading partners on the ``Watch List'', and announced the initiation of

WTO dispute settlement

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proceedings involving Argentina, Canada and the European Union. See

USTR Announces Results of Special 301 Review, released April 30, 1999,

for further information concerning the protection of U.S. intellectual

property rights.

Section 1377: This year's review, which was completed on March 30,

1999, focused on compliance with the WTO Basic Telecommunications

Agreement by WTO Members, particularly the EU, Mexico, Japan and

Germany. The review indicated that the WTO agreement has increased

market access for U.S. telecommunications companies in foreign markets,

but that ongoing enforcement of the agreement is needed to ensure

continued growth in world-wide competition for telecommunications

services. See USTR Press Release 99-29, March 30, 1999 for further

information on this year's 1377 review.

Title VII: The Title VII report gives USTR the means to identify

foreign countries that have failed to comply with their obligations

under the WTO Agreement on Government Procurement (``GPA''), Chapter 10

of NAFTA, or other agreements relating to government procurement; or

otherwise discriminated against U.S. products and services when making

government purchases. In addition, USTR is directed to consider a

number of other factors in making its determination of whether to

identify a country in the Title VII report. The Title VII report,

released simultaneously with this report and the Special 301 report,

builds upon the information found in the President's 1999 Trade Policy

Agenda and the 1999 NTE Report on Foreign Trade Barriers so as to be

more flexible and effective in achieving its goal of eliminating unfair

procurement practices. In the past, Title VII has been a useful and

effective tool in challenging foreign governments' procurement

barriers. For details on this year's report, see Title VII report,

released on April 30, 1999.

Steel: It is critically important that we promote free and fair

trade abroad and that we effectively enforce our trade laws in order to

give Americans the confidence needed to keep our markets open. In

response to the substantial increase in U.S. steel imports beginning in

April 1998, the Administration responded with a comprehensive and

effective set of actions which were outlined in the President's Steel

Report to the Congress of January 7, 1999. Thanks to these measures,

steel imports began to drop after November 1998. The Administration is

committed to aggressively enforcing U.S. trade law to address the

adverse impact that unfairly traded steel imports have on U.S. steel

companies and U.S. jobs. In the report, the Administration stated its

willingness, if needed, to self-initiate trade cases with respect to

steel imports from Japan--the single largest source of the import

surge--if imports did not return to appropriate pre-crisis levels. With

respect to the antidumping cases filed by U.S. industry and workers

concerning imports of carbon flat-rolled products, the Commerce

Department expedited these investigations and, with respect to imports

from Japan and Russia, invoked the critical circumstances provision

with a view to retroactive application of the antidumping margins.

Additionally, the Administration invoked, for the first time, the

market disruption article of the 1992 U.S.-Russia Trade Agreement to

negotiate a restraint agreement on imports into the United States from

Russia of all steel products not already subject to restraints or

dumping orders.

The Administration also expanded discussions on steel issues with

Korea, the third largest source of the 1998 steel import surge, with

the objective of substantial progress toward eliminating Korean

government involvement in the steel sector. U.S. industry has long-

standing concerns with the Korean government's support for Korean steel

producers, for example, through directed lending, which has resulted in

uneconomic steel capacity expansions in Korea. For example, the U.S.

and Korean governments conducted an exchange of letters in August 1998

and April 1999 regarding steel.

These actions, grounded in U.S. trade law and fully consistent with

U.S. international obligations, resulted in a sharp reduction of

unfairly traded steel imports beginning in December 1998. Active import

monitoring is underway with a view to prompt application of U.S. trade

laws should injurious import growth resume.

D. Integrating Other Economies Into the WTO System

The WTO is engaged in accession negotiations with 30 separate

economies, including China, Chinese Taipei, Russia, Ukraine, and

Vietnam. Their accession to the WTO will make the trading system nearly

universal. It will remove a source of distortion and frustration in

trade for the United States and will give the newly-acceding members a

greater stake in stability and prosperity beyond their borders--thus

strengthening peace in the next century. To support both domestic

reform and the rules of the trading system, these countries must be

brought into the WTO on commercially meaningful terms. The result must

be enforceable commitments to open markets in goods, services and

agricultural products; transparent, non-discriminatory regulatory

systems; and effective national treatment at the border and in the

domestic economy.

In the months to come, we will negotiate intensely with all

acceding economies, including China--the largest prospective WTO

Member. We have made important progress with China in the past two

years, particularly during the visit of Premier Zhu Rongji in April

1999, and intensive negotiations are continuing.

E. Bilateral/Regional Trade Expansion Priorities and Trade Practices of

Concern

1. Africa

President Clinton's Partnership for Economic Growth and Opportunity

in Africa, announced and adopted in 1997, established a vigorous U.S.

trade policy approach toward sub-Saharan Africa. The key objectives of

the Partnership Initiative include: Support for economic reforms

underway in the region; enhanced U.S.-sub-Saharan African trade and

investment ties; support for Africa's full integration into the

multilateral trading system; and support for sustainable economic

development. The Partnership Initiative also aims to strengthen U.S.

economic engagement with countries of sub-Saharan Africa.

USTR is also committed to facilitating greater African integration

into the global economy by helping African nations and their regional

organizations develop greater capacity to expand trade and investment

protection. At the recently concluded U.S.-Africa Ministerial in

Washington D.C., the USTR underscored the resolve of the United States

and Africa to build capacity to promote broader participation by

African countries in the multilateral trading system. Specifically, the

United States agreed to continue technical assistance workshops in

Africa on the WTO. The United States and African participants also

agreed on the need for multilateral institutions to more effectively

coordinate and cooperate with the WTO on trade and investment issues

affecting African countries and to support African Economic Community

(AEC) permanent observer status in the WTO, pending the decision of the

WTO on modalities for observership. African and U.S. representatives

will establish a mechanism for regular consultations on WTO and related

matters, in Geneva and Washington, as preparation for the WTO

Ministerial advances.

[[Page 24443]]

USTR recently hosted roundtables with African Trade Ministers on

mechanisms to strengthen U.S.-Africa cooperation in the WTO and in the

GSP Program and U.S. market access requirements. In 1997, USTR enhanced

the Generalized System of Preferences Program (GSP) by adding over

1,700 new tariff lines for least developed countries, 29 of which are

in Africa. True to President Clinton's vision, USTR's unprecedented

engagement with African countries has resulted in trade agreements,

incentives for reform and regional integration, and initiatives to

enhance Africa's participation in the global trading system.

2. Asia--Pacific

The Clinton Administration has developed a wide-ranging program of

bilateral, regional and multilateral initiatives to reduce barriers to

U.S. exports of goods, services, and investment in the Asia-Pacific

region. The major trade policy priorities for this important economic

region are:

To harness the momentum for reform generated by the

financial crisis to promote economic recovery and the type of trade

policy changes that the United States has consistently advocated:

Enhanced market access, transparency, economic deregulation and

investment decisions based upon market disciplines. Such trade policies

complement firmly the goals of financial market stabilization, as

evidenced by the strong emphasis on structural reform in the

International Financial Institution (IFI)'s programs. The United States

is actively pursuing these objectives both through bilateral and

multilateral channels, in particular, the Asia Pacific Economic

Cooperation (APEC) forum;

To realize the commitment of APEC members to long-term

trade and investment liberalization through improved assessment and

implementation of individual and collective APEC action plans and

special initiatives such as EVSL (Early Voluntary Sectoral

Liberalization); and

To secure full implementation of WTO obligations by APEC

members. This aspect of USTR's work will assume heightened importance

over the coming year given the obligation of developing countries to

fully implement the WTO agreements on TRIPS, TRIMs, and Customs

Valuation as of January 1, 2000. This requirement should greatly

strengthen our efforts to address inadequate protection of intellectual

property rights, trade-distorting investment requirements, and

inefficient and corrupt customs practices which have been pervasive

problems throughout the region.

Priority issues for three of our largest trading partners in the

region--China, Japan, and Korea--are outlined in the relevant sections

below.

3. Canada

Agriculture: Even though Canada is our largest trading partner and

our second largest agricultural market, Canada continues to have

restrictive policies limiting market access to key U.S. agricultural

products. In 1998, the United States exported over $7 billion while

importing $7.7 billion of agricultural products. In December 1998, we

took an important step toward reducing these restrictions by concluding

an initial bilateral market access package opening opportunities for

American grain farmers, cattle ranchers and other agricultural

producers. We are closely monitoring implementation of the December

agreement and have already witnessed improved access for cattle and

rail shipments of wheat. For example, over 51,000 head of cattle moved

into Canada in the first three months of 1999, compared to only 1,000

head of cattle in all of 1998. In addition, over 225,000 tons of wheat

and barley were transshipped through Canada on the rail system.

Nevertheless, Canada still maintains a number of policies that restrict

access of U.S. agricultural products, including grain. We pressed the

government of Canada in March 1999 concerning unequal access to

Canadian grain handling facilities and the Canadian Wheat Board,

excessive monitoring by the Canadian Grains Commission on wheat

imports, and unequal access to rail cars and rail rates. We are

continuing frequent discussions with Canada on these and other related

issues to provide U.S. producers improved market access for

agricultural products. We hope these issues will be resolved in the

near term.

Magazines: USTR continues to seek a negotiated settlement with

Canada on its continued discriminatory practices against U.S.

magazines. In 1997, the United States successfully challenged Canada's

protectionist magazine regime in the World Trade Organization. By the

WTO deadline, October 1998, Canada terminated its longstanding ban on

split-run imports, eliminated the 1995 special excise tax on split-

runs, and modified its discriminatory postal rates and postal subsidies

for magazines. However, Canada introduced Bill C-55, which simply

accomplishes the same result as the import ban and excise tax--keeping

U.S. and other foreign-produced split run magazines from competing in

the Canadian market. If negotiators are unsuccessful in resolving this

dispute and Bill C-55 is enacted, the United States will take action of

an equivalent commercial effect to protect its interests.

4. China

China remains a major focus of our bilateral trade initiatives. We

are actively monitoring China's implementation of our trade agreements

on intellectual property rights, textiles, and market access. Obtaining

strengthened protection and enforcement of trademarks, copyrights and

other intellectual property rights (IPRs), enhanced market access and

national treatment for products that depend on intellectual property,

such as pharmaceuticals and motion pictures, are key objectives. In

addition, we are addressing issues relating to market access and

investment in the telecommunications and direct marketing sectors. We

will follow up on recent progress on resolving sanitary and

phytosanitary (SPS) issues with China to ensure that China's government

fully implements our market opening agreements, which will allow U.S.

exports of meat, citrus fruit, and Pacific Northwest wheat.

While we are working bilaterally to open up particular sectors of

China's market, we are also working in the multilateral context to

achieve broad-ranging reform of China's trade regime through

negotiations on China's accession to the WTO. Recently, we have made

significant progress on the market access aspects of these

negotiations, including on agriculture, services, and industrial goods.

Reaching agreement on these issues as well as on application of WTO

rules to China will mark an important step forward in China's overall

accession process.

5. Europe

With the U.S.-EU trade and investment relationship being the

largest and most complex in the world, the United States is very

committed to strengthening trade relations with the EU. USTR will

address problems in our trade relations both bilaterally and through

the new multilateral negotiating round President Clinton has proposed.

The United States hopes to make progress through the Transatlantic

Economic Partnership (TEP) initiative begun last year. The TEP Action

Plan calls for bilateral U.S.-EU consultations and/or negotiations in

several specific issue areas: technical trade barriers, agriculture

(including biotechnology and food safety), intellectual property,

government procurement, services, electronic commerce, environment,

labor and advancing shared values such

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as transparency, environmental protection, and participation for civil

society. The initiative also encompasses enhanced U.S.-EU cooperation

on multilateral trade issues. USTR also is working to ensure the

protection of U.S. interests as the EU expands to include Central and

Eastern European nations.

Nevertheless, the United States has a number of serious concerns

regarding certain EU activities related to trade. Our decision to

request WTO consultations with the EU on its action affecting U.S.

flight management systems (the ``avionics case'') underscores U.S.

determination to challenge the EU's use of those measures which

advance, in a manner inconsistent with trade rules, EU commercial

interests at the expense of those of its trading partners. The United

States also has serious concern with the continued lack of a

transparent and timely EU approval process for foodstuffs containing

genetically modified organisms (GMOs). The United States hopes to work

in coming weeks and months with the European Commission and EU Member

States to address this problem, but will take action if the uncertainty

and arbitrariness reflected in recent EU actions in this area continue

to undermine U.S. exports.

The United States also remains extremely concerned about the EU's

failure to implement WTO dispute settlement rulings regarding its

discriminatory bananas and beef hormones regimes. EU inaction

undermines the credibility of the WTO dispute settlement mechanism and

sends a disturbing message about the EU's willingness to abide by the

commitments it has undertaken. In light of the five rulings in the past

six years against the EU's banana import policy, most recently on April

6, the United States expects the EU to implement a WTO-consistent

banana program as soon as possible. The United States also expects the

EU to lift its WTO-inconsistent ban on meat produced with growth

hormones by the May 13 deadline granted to the EU to comply with the

WTO panel findings against its hormones policy. The United States has

engaged in discussions with the European Commission regarding

implementation of the EU's WTO obligations in both instances.

6. Japan

The United States attaches utmost importance to opening Japan's

markets to U.S. goods and services. To this end, the Clinton

Administration has consistently emphasized the need for major

structural reform and deregulation to open Japan's economy to

competition; monitoring and enforcing existing trade agreements

covering key sectors; the negotiation of new trade agreements; and

addressing concerns through regional and multilateral fora. The

Administration remains determined to press Japan to take the necessary

steps to dismantle the numerous trade and regulatory barriers that have

sheltered the Japanese economy from foreign competition for far too

long.

Insurance: The United States and Japan concluded bilateral

insurance agreements in 1994 and 1996 designed to open to competition

the world's second largest insurance market, with annual premium

revenues of $329 billion in JFY 1997. In December 1997, Japan agreed to

bind certain key commitments from these agreements under the WTO

Financial Services Agreement.

The bilateral agreements have had some positive impact. For

example, in September 1997 the Ministry of Finance granted the first

ever license for direct marketing of risk-differentiated automobile

insurance to a U.S. firm. Nevertheless, the Administration is seriously

concerned that Japan has not fully implemented all of the specific

deregulation actions called for under our bilateral insurance

agreements, including reform of its rating organizations and timely

approval of product applications. In addition, the United States is

extremely concerned with the diminution of the ``third sector''

safeguards caused by increased activity on the part of Japanese

insurance firms and subsidiaries in this market segment critical to

U.S. insurers. Since all of the primary sector deregulation criteria

had not yet been fulfilled, USTR announced on July 1, 1998, that the

United States does not support the initiation of the two-and-one-half

year clock regarding termination of the third sector safeguards. The

Administration is prepared to utilize all of the tools at our disposal

to ensure the full benefits to U.S. industry from our bilateral

Insurance Agreement.

The U.S. underscored its concerns regarding both primary and third

sector issues at consultations with Japan under the bilateral

agreements held on April 16 in Washington. These consultations also

included a constructive regulator-to-regulator exchange between

representatives of the National Association of Insurance Commissioners

and select state insurance commissioners, and Japan's Financial

Supervisory Agency. It is essential that both governments expeditiously

resolve outstanding issues. The U.S. has proposed that the next

insurance talks take place in Tokyo this summer.

Autos and Auto Parts: The United States and Japan concluded an

agreement in 1995 to eliminate market access barriers and significantly

expand sales opportunities in the automotive sector. Although initial

results in many areas were satisfactory, recent progress toward

achieving the Agreement's key objectives has been disappointing. Sales

in Japan of autos produced by the Big Three in North America declined

34.5 percent in 1998, after declining 20 percent in 1997. Exports of

U.S.-made auto parts to Japan fell 7.5 percent in 1998, the first drop

since 1991, and the continued fall off in new orders of U.S. auto parts

by Japanese manufacturers suggest that this decline is likely to

continue. These trends are the result of a variety of factors,

including Japan's recession, which has inhibited consumer spending and

business investment and weakened the yen, and continuing market access

and regulatory issues.

To address these concerns, the U.S. Government presented Japan at

the annual review of the Automotive Agreement in October 1998 with 11

proposals, including measures to strengthen and improve access to

dealerships, the main distribution channel to Japan's automotive

market. The U.S. Government also urged Japan to eliminate unnecessary

regulations in the auto parts aftermarket that limit the ability of

independent garages to compete for high-profit vehicle inspection and

repair business. While Japan has agreed to implement some of these

proposals, the U.S. Government will continue to urge Japan at all

levels to take concrete steps to achieve additional progress under the

Agreement. In addition, the United States will continue to monitor

developments regarding Japan's new fuel economy regulations to ensure

that this rulemaking process is fully transparent and that foreign

vehicle manufacturers receive treatment no less favorable than that

offered to domestic manufacturers, recognizing the important

environmental concerns that underlie these regulations.

Flat Glass: The 1995 U.S.-Japan Flat Glass Agreement has helped

American firms to a limited extent, but the basic problem remains the

same: U.S. glass manufacturers still have a minuscule share of the

Japanese flat glass market, despite the fact that Japanese companies

and distributors readily acknowledge the competitiveness of U.S. glass.

While Japan committed in the agreement to take measures to facilitate

access by foreign companies to the Japanese glass

[[Page 24445]]

distribution system, major Japanese distributors still do not carry

foreign glass in meaningful quantities. The three dominant Japanese

producers continue to exert tight control of the domestic glass

distribution system in many ways, including majority ownership of glass

distributors, equity and financing ties, employee exchanges, and

purchasing quotas. Indeed, there is evidence that their control is

increasing, as they use Japan's tight credit market to impose closer

financial ties on the most important glass distributors.

Japan recently agreed with the United States to examine these

issues in surveys of the sector by the Japan Fair Trade Commission

(JFTC) and the Ministry of International Trade and Industry. The former

will be particularly important in this regard, and it is therefore

imperative that the JFTC scrutinize the core problems in a thorough and

credible way. Japan has also agreed to U.S. proposals to hold

government-industry consultations on access to and the state of Japan's

flat glass market this Spring and to allow U.S. Government

representatives to attend the Japanese Government's periodic meetings

with flat glass distributors to remind them of the objectives and

provisions of the agreement. This progress notwithstanding, the

principal impediments to genuine market access in the flat glass sector

remain. The United States will continue to urge Japan to take actions

to remove these barriers.

7. Korea

Korea is one of the United States' major trading partners but has

been described as one of the toughest markets in the world for doing

business. In response to its financial crisis, the Kim Dae Jung

administration has implemented structural reforms aimed at putting the

Korean economy on a more open, market-oriented basis. Resistance to key

trade reforms remains, however, and many issues have arisen on Korea's

compliance with its international obligations.

The Administration is focused on eliminating Korean barriers to

entry and distribution of U.S. products using U.S. trade law, WTO

dispute settlement procedures, negotiation and enforcement of bilateral

trade agreements, and close coordination with other countries. In

addition, the Administration will, through an interagency process,

closely monitor Korea's implementation of its trade-related

stabilization commitments.

Over the past year, the Administration has made solid progress

toward opening the Korean market to U.S. goods. In October 1998, we

successfully concluded a Memorandum of Understanding (MOU) with the

Government of the Republic of Korea to improve market access for

foreign motor vehicles. Under this MOU, Korea agreed to (1) bind in the

WTO its 80 percent applied tariff rate at 8 percent; (2) lower some of

its motor-vehicle-related taxes and to eliminate others; (3) adopt a

self-certification system by 2002; (4) streamline its standards and

certification procedures; (5) establish a new financing mechanism to

make it easier to purchase motor vehicles in Korea; and (6) continue to

actively and expeditiously address instances of anti-import activity

and to promote actively a better understanding of free trade and open

competition. This MOU was negotiated after Korea's motor vehicle trade

barriers were named as a ``priority foreign country practice'' in the

1997 Super 301 report and USTR initiated a section 301 investigation of

such barriers. On October 20, 1998, with the conclusion of the MOU, the

USTR decided to terminate this investigation and to monitor Korea's

implementation of the measures in the MOU to eliminate those barriers.

The first formal review of Korea's implementation of the 1998 MOU was

held on April 29 and 30, 1999. The Administration will continue to work

closely with the Korean Government to ensure that the provisions in the

1998 MOU are fully and faithfully implemented in a manner that

substantially increases market access for foreign motor vehicles in

Korea and establishes conditions so that the Korean motor vehicle

sector operates according to market principles.

In addition, the Deputy U.S. Trade Representative concluded an

exchange of letters in August 1998 on the operation and sale of Hanbo

Steel, and the U.S. Government initiated comprehensive discussions with

Korea on broader steel issues of concern to U.S. industry. In April

1999, the Deputy U.S. Trade Representative concluded another letter

exchange with the Korean Government to address issues of concern and

interest to U.S. industry relating to POSCO, Hanbo, and competition in

the Korean steel sector generally.

In July 1998, a WTO dispute settlement panel ruled in favor of the

United States and the European Communities (EC) by finding Korea's

taxes on alcoholic beverages to be discriminatory. In January 1999, the

WTO Appellate Body upheld this panel decision, and the panel and

Appellate Body reports were adopted on February 17, 1999. The United

States and the EC have requested arbitration to determine the length of

the period within which Korea will come into compliance with the

reports.

Pharmaceuticals: One of the top trade expansion priorities on the

U.S.-Korea trade agenda is Korea's treatment of foreign, research-based

pharmaceuticals. Korea does not now provide imported drugs with

national treatment with respect to listing and pricing on the Korean

national health insurance reimbursement schedule, and the current

reimbursement system discourages hospitals and other large end-users

from buying imported drugs. Dispensers of imported products also must

comply with additional administrative procedures for reimbursement.

U.S. pharmaceutical producers face other market access barriers in

Korea including non-science-based requirements for clinical testing. In

addition, the United States has raised concerns about Korea's regime

for protecting test data against unfair commercial use. Finally, lack

of coordination between Korean health authorities and Korean IPR

authorities allows manufacturers of patent infringing products to gain

approval for the launch of their products into the Korean market to the

commercial detriment of the holders of the patents.

In response to high-level bilateral consultations and a letter from

the Deputy U.S. Trade Representative, the Korean Government has

indicated that it is taking steps to address some of the U.S.

Government's and industry's concerns about treatment of foreign

pharmaceuticals. The Administration will continue its active efforts to

further advance progress on our pharmaceuticals trade issues until U.S.

concerns are fully and satisfactorily addressed. Specifically, the U.S.

Government will engage the Korean Government on U.S.-Korea

pharmaceuticals-related trade issues and a Bilateral Investment Treaty

(BIT), in an out-of-cycle Special 301 review on TRIPS consistency, and

in other fora.

8. Mexico

Since 1994, trade with Mexico has largely been governed by the

North American Free Trade Agreement (NAFTA). Mexico is also a WTO

Member. As a result, U.S. trade and investment relations with Mexico

are subject to a set of comprehensive disciplines setting high

standards of openness and providing for effective resolution of

disputes covered by these agreements. By any measure, NAFTA has

contributed to the increased trade between the United States and

Mexico. During NAFTA's first five years, U.S.

[[Page 24446]]

merchandise exports to Mexico increased by 90 percent, with imports

from Mexico increasing by 137 percent. As is to be expected from such a

large trading relationship, the United States does continue to have

concerns about Mexico's trade practices in some areas. The most

important of these concern Mexico's enforcement of its intellectual

property laws, telecommunications policy, and market access for high

fructose corn syrup.

Mexico has committed to implement and enforce advanced levels of

intellectual property protection and has just enacted new legislation

to this effect. However, as noted in USTR's Special 301 Report issued

today, piracy and counterfeiting remain major problems, with current

enforcement action inadequate to deter piracy. Mexico has been added to

the Special 301 Watch List.

Regarding telecommunications, the United States is concerned that

ongoing regulatory processes are non-transparent and potentially

ineffective. USTR's Section 1377 Report, released on March 30,

expressed doubts about Mexico's implementation of its commitments under

the WTO agreement with respect to international services and

interconnection rates. The Mexican government has said it will review

its international service and interconnection/universal service

regulations in 1999. USTR will conduct an out-of-cycle examination by

July 30 regarding the progress of Mexico's ongoing regulatory process,

and expects that Mexico will respond favorably to the requests from all

the new entrants to permit International Simple Resale (ISR)

immediately. At that time USTR will take appropriate action including,

if warranted, the initiation of WTO dispute settlement proceedings, to

assure that new competitors in the market are treated fairly.

The United States continues to raise its concerns regarding the

Mexican Government's application of antidumping measures on U.S.

exports of high fructose corn syrup (HFCS). A dispute settlement panel

was established by the World Trade Organization in November 1998 and

hearings were held in April 1999. A decision is expected late this

year. U.S. exporters are also challenging Mexico's measure under the

Chapter 19 provisions of the NAFTA and last year filed a Section 301

petition with USTR, alleging that the policies and practices of the

Government of Mexico are unreasonable and deny fair and equitable

market opportunities for U.S. exporters. USTR accepted the petition for

review on May 15, 1998.

9. Middle East

Building upon our Free Trade Agreement with Israel, the United

States has inaugurated a program that aims to bolster the peace

process, while advancing American interests. Starting with a framework

of bilateral trade and investment consultations in the region and a

newly inaugurated industrial zones program, the United Sates will help

the Middle Eastern countries work toward a shared goal of increased

intra-regional trade. Most recently, the USTR expanded the first

Jordan-Israel Qualifying Industrial Zone, designated another, and

completed a Trade and Investment Framework Agreement with Jordan.

10. Western Hemisphere

The Miami and Santiago Summits of the Americas called on us to

complete work on a Free Trade Area of the Americas no later than the

year 2005. This year, also in accordance with Summit directions, the

United States intends to achieve concrete progress toward the FTAA in

the work of our nine Negotiating Groups (market access, agriculture,

services, investment, government procurement, intellectual property,

anti-dumping and countervailing duties, competition policy, and dispute

settlement) and through business facilitation measures. In addition,

the FTAA has initiated a private sector-public sector experts group on

electronic commerce to advise the ministers on how electronic commerce

can benefit the countries of this hemisphere, especially in the context

of the FTAA negotiations. The ministers also have established a

government committee on the participation of civil society, which has

solicited the views of the different sectors of society concerning the

FTAA and will analyze them for the consideration by the ministers at

the next FTAA ministerial in Toronto in November 1999.

At the same time, the Clinton Administration will seek approval

from Congress for an expanded and improved Caribbean Basin Initiative

with duty-free treatment for products currently excluded from the

program. The Administration seeks to use the program to promote the

adoption by beneficiary countries of sound trade and investment policy

reforms that will prepare them for the obligations and responsibilities

of the FTAA.

Demetrios J. Marantis,

Assistant General Counsel, Section 301 Committee.

[FR Doc. 99-11413 Filed 5-5-99; 8:45 am]

BILLING CODE 3190-01-P