[Federal Register: May 5, 2000 (Volume 65, Number 88)]
[Notices]               
[Page 26262-26268]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05my00-146]                         

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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: The United States Trade Representative (USTR) is providing 
notice that it submitted the report on U.S. 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 May 1, 2000.

FOR FURTHER INFORMATION CONTACT: Demetrios Marantis, Associate General 
Counsel, Office of the U.S. Trade Representative, 600 17th Street, NW, 
Washington, DC 20508, 202-395-9626.

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

Identification of Trade Expansion Priorities Pursuant to Executive 
Order 13116 April 30, 2000

    The United States Trade Representative (USTR) submits to Congress 
this year's ``Super 301'' report pursuant to Executive Order 13116 of 
March 31, 1999. The Executive Order directs 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. This 
report builds on the 2000 National Trade Estimate (NTE) Report on 
Foreign Trade Barriers (released on March 31, 2000) and complements the 
``Special 301'' (intellectual property rights) and ``Title VII'' 
(government procurement) reports.
    The USTR prepared this report in close consultation with other U.S. 
Government agencies. After reviewing the 2000 Trade Policy Agenda, the 
2000 NTE Report, public comments submitted to USTR, and information 
received from U.S. Embassies abroad, these agencies have identified the 
Administration's top U.S. trade expansion priorities for 2000. USTR has 
also determined that a number of countries have failed to fully 
implement certain multilateral commitments and, accordingly, has 
decided to pursue enforcement action in the World Trade Organization 
(WTO). Finally, although USTR is not identifying any ``priority foreign 
country practice'' in this Report, the Administration has focused on a 
number of practices which may warrant future enforcement action.

I. Trade Expansion Priorities for 2000

    Over the past eight years, this Administration has promoted a 
strong trade policy premised on open markets and the rule of law. The 
Administration's trade policy achievements have contributed to strong 
economic growth, rising living standards, increased investment, and 
industrial growth. Looking forward, further expansion of trade will 
remain crucial to continued growth and technological progress. In this 
regard, USTR identifies below its top trade expansion priorities for 
2000.

A. Complete China's Accession to the WTO

    This year's top trade expansion priority is to complete China's 
accession to the WTO and secure approval of permanent Normal Trade 
Relations (NTR) status for China. The economic liberalization and 
opening to the world

[[Page 26263]]

China will make as part of its WTO accession will support reform in 
China, create opportunities for China's trading partners, and 
ultimately help to stabilize peace in the Pacific. From the perspective 
of the trading system, a status quo in which the world's third-largest 
economy does not need to follow WTO rules is an enormous source of 
distortion and uncertainty.
    This Administration made a monumental step in the direction of 
China's accession last November by reaching a bilateral agreement with 
China on WTO accession. This Agreement secures broad-ranging, 
comprehensive concessions on China's part, granting the United States 
substantially greater market access across the spectrum of industrial 
goods, services, and farm products. The Agreement covers tariff and 
non-tariff barriers to U.S. exports of industrial goods, agricultural 
products and services. Specific rules address import surges, anti-
dumping and subsidies practices and requirements for export 
performance, local content, offsets, and technology transfer. These 
commitments are specific and enforceable through WTO dispute 
settlement, U.S. trade laws, and other special mechanisms, including 
periodic multilateral review of China's compliance with its 
commitments.
    Beyond our bilateral agreement, securing China's accession this 
year will require action, first by those WTO members which have yet to 
complete their own negotiations with China, and second by the entirety 
of the WTO's membership on WTO rules issues. As part of this process, 
the United States must grant China unconditional (e.g., permanent) NTR 
or risk losing the full benefits of the agreement that was negotiated, 
including special import protections, and the right to enforce China's 
commitments through WTO dispute settlement. All WTO members, including 
the United States, pledge to give one another unconditional NTR so that 
we may enjoy the WTO benefits available in one another's markets.
    Permanent NTR, in terms of our policy toward China, is no real 
change. NTR is simply the tariff status we have given China since the 
Carter Administration; and which every Administration and every 
Congress over the intervening 20 years has reviewed and found, even at 
the periods of greatest strain in our relationship, to be in our 
fundamental national interest. If Congress were to refuse to grant 
permanent NTR, our Asian and European competitors will reap the 
benefits of the agreement we negotiated with China, but American 
farmers and businesses may well be left behind.

B. Secure Enactment of Legislation Promoting Trade in Certain Regions

    Greater market access for the poorest countries remains essential 
to integrating less developed regions into the world economy on an 
equitable basis. As the President stressed in his State of the Union 
Address, the United States is prepared to do this unilaterally by 
securing passage this year of legislation further opening U.S. markets 
to goods from Africa and the Caribbean. This is of fundamental 
importance to growth and sustainable development for the people of 
these regions, and will also help these regions become better markets 
for U.S. products.
    In this regard, one of our principal policy goals for the year 2000 
is passage of the African Growth and Opportunity Act and Caribbean 
Trade Enhancement. This legislation has received bi-partisan 
Congressional support, and should see final action soon. Enactment of 
these measures would provide increased market access for products from 
reforming sub-Saharan African countries. This legislation would also 
institutionalize an annual U.S.-sub-Saharan Africa Trade and Economic 
Cooperation Forum and encourage the establishment of funds and 
guarantees to support private sector and infrastructure development in 
Africa.
    In the Caribbean and Central America, this legislation would 
strengthen the partnerships that exist between the U.S. and Caribbean 
Basin firms in the textile and apparel sector. It would also improve 
the competitiveness of apparel assemblers from the Caribbean and 
Central America vis-a-vis assembly operations in other parts of the 
world that do not use U.S. fabric and other inputs to the same extent.
    Offering additional trade benefits to Southeast Europe is also an 
important component of the Administration's efforts, in conjunction 
with the European Union (EU) and other multilateral institutions, to 
bring stability and economic development to Southeast Europe. The 
Administration has transmitted to Congress legislation that would 
provide the authority to establish duty-free treatment of certain 
imports from the countries and territories of Southeast Europe on the 
basis of specific criteria for a period of five years. Full utilization 
of the additional duty-free treatment would provide several of the 
countries of Southeast Europe with duty-free entry to the U.S. market 
for over 80 percent of their products. Serbia would be eligible for 
this treatment only if the President determined significant progress 
had been made in meeting several reform criteria and international 
obligations. This legislation has been introduced in the Senate, and 
the Administration supports its enactment this year.

C. Advance Negotiations for the Free Trade Area of the Americas

    The 34 democracies in the Western Hemisphere are currently engaged 
in the historic mission to create the Free Trade Area of the Americas 
(FTAA). This process will eliminate tariffs and non-tariff barriers to 
trade in goods and services throughout the Hemisphere and establish a 
single set of rules for liberalized trade in the region, and fulfill a 
two-century old dream of a hemisphere united by a shared commitment to 
democracy, prosperity and mutual benefit. This commitment has already 
led to agreement on the adoption of specific business facilitation 
measures in the area of customs procedures, with implementation 
beginning this year. In addition, in November 1999, the 34 trade 
ministers agreed in Toronto to an ambitious negotiating agenda for the 
following 15 months, namely for each of the nine negotiating groups to 
prepare draft texts.
    With the Third Summit of the Americas scheduled for April 2001 in 
Quebec, Canada, this year will be an intense year of negotiations. The 
agenda concentrates in four areas: Negotiating draft texts of the 
chapters of the Agreement by April 2001; carrying out a continuing 
program of business facilitation; addressing the views and concerns of 
civil society; and deepening the region's understanding of the 
implications and benefits of electronic commerce for our societies.
    Ensuring that trade liberalization and environmental protection 
policies are mutually supportive is a key priority of the 
Administration. One important means of ensuring this is through 
environmental reviews of trade agreements, as reflected in the 
Executive Order on Environmental Review of Trade Agreements. Thus, the 
Administration has initiated its environmental review of the FTAA. This 
will help inform both the public and negotiators of the environmental 
considerations that must be taken into account as the United States 
formulates its negotiating positions. As we implement the principles of 
the White House Declaration of Environmental Trade Policy, the United 
States will also work with other stakeholders to address concerns 
including issues of worker rights, transparency, and consumer 
protection.

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D. Pursue Multilateral Negotiations To Open World Markets to U.S. 
Exports

    Over the past eight years, the Administration has made great 
progress toward open and fair world markets. However, this work is not 
yet done, and WTO members must focus on the negotiating agenda of the 
next decade. Under existing commitments made in the Uruguay Round, WTO 
members have opened formal negotiations to undertake further reforms 
and liberalization in agriculture and services--sectors in which the 
most distortions and barriers remain. The Administration intends to 
pursue progress in these areas in close consultation with Members of 
Congress, the private sector and other interested Americans. In this 
regard, on March 28, USTR published in the Federal Register a notice 
seeking comments from all interested parties as the United States 
begins the process of developing proposals for these negotiations.
    The Administration has ambitious goals in these areas. In 
agriculture, the WTO Agreement on Agriculture provides the basis on 
which to pursue further meaningful reform. The United States is now 
working with other countries to ensure that negotiations focus on 
substantive reform proposals such as eliminating export subsidies; 
reducing tariffs; expanding market access opportunities for products 
subject to tariff rate quotas (TRQs), including better disciplines on 
the administration of those TRQs; reducing trade-distorting domestic 
support levels; and ensuring that the operation of agricultural state 
trading entities is more market-oriented.
    In services, the United States is developing negotiating proposals 
for a wide range of sectors, including energy services, environmental 
services, audiovisual services, express delivery, financial services, 
telecommunications, professional services, private education and 
training, private healthcare, travel and tourism, and other sectors of 
great importance to the U.S. economy in particular, its high-tech 
sectors. Broadly speaking, U.S. objectives include further removing 
restrictions on services trade and ensuring non-discriminatory 
treatment.
    Beyond these mandated negotiations, there is a host of other issues 
on the WTO's agenda which warrant attention. As examples, we must 
address market access concerns in non-agricultural products, electronic 
commerce, issues related to trade and the environment, trade and labor, 
trade facilitation, transparency in government procurement, and other 
topics as well. Thus, while there are a number of different options for 
proceeding with trade liberalization beyond agriculture and services, 
the United States is working to build consensus for a new Round. 
Building such a consensus is not a simple task. However, the goal can 
be achieved if WTO members prove willing to focus more fully on the 
shared benefits of success, and find the balance that allows us to move 
ahead.

E. Enhance Monitoring and Enforcement Efforts

    Ensuring full implementation of our trade agreements remains one of 
this Administration's strategic priorities. Vigorous enforcement 
enhances our ability to get the maximum benefit from our trade 
agreements, ensures that we can continue to open markets, and builds 
confidence in the trading system. The United States has respected its 
own commitments in this regard and expects the same of its trading 
partners. Consequently, this Administration has devoted more attention 
and resources than ever before to ensuring that these agreements yield 
the maximum advantage in terms of ensuring market access for Americans, 
advancing the rule of law internationally, and creating a fair, open 
and predictable trading environment.
    To carry out this work as effectively as possible, in particular 
with the prospect of enforcing our bilateral agreement with China on 
WTO accession, the Administration has added new personnel to carry out 
a larger enforcement workload, without compromising our efforts to 
negotiate further market access in key markets. The President has also 
announced a Trade Compliance Initiative, which would further strengthen 
the monitoring and enforcement capabilities of the Executive Branch and 
would add additional resources for those efforts.

II. Enforcing Trade Commitments and Resolving Disputes

    Since 1993, the Administration has vigorously enforced U.S. rights 
by deploying all available trade enforcement tools. Through application 
of U.S. trade laws, and active use of WTO dispute settlement 
procedures, the Administration has effectively opened foreign markets 
to U.S. goods and services. The President has also used the incentive 
of preferential access to the U.S. market to encourage improvements in 
workers' rights and reform of intellectual property laws and practices 
in other countries. These enforcement efforts have resulted in major 
benefits to U.S. firms, farmers and workers.
    In parallel with enforcement of U.S. trade laws, U.S. participation 
in the WTO has been instrumental to the progress made in enforcing the 
international commitments of our trading partners. By ratifying the 
Uruguay Round Agreements, which created the WTO on January 1, 1995, 
Congress took a step of immense significance: helping to expand the 
rule of law and strengthening our ability to enforce the commitments of 
U.S. trading partners. Since that time, the United States has been the 
world's most frequent user of WTO dispute settlement procedures, 
winning favorable settlements and panel victories in virtually all 
sectors, including manufacturing, intellectual property, agriculture, 
and services. Continued participation in the WTO by the United States 
therefore remains central to the efforts of this and future 
Administrations to ensure that Americans enjoy the full promise and 
benefit of international trade agreements.
    With the WTO now five years old, the obligations contained in most 
of the Uruguay Round agreements have already entered into force. In 
particular, January 1, 2000, marked the expiration of the five-year 
transition periods granted to certain WTO members (particularly in 
less-developed countries) to phase-in key rules agreed in the Uruguay 
Round, such as those in the area of intellectual property, trade-
related investment measures, customs valuation and industrial 
subsidies. There has been good progress in the implementation of and 
compliance with WTO commitments, particularly as a result of 
enforcement of U.S. trade law, activity in the various WTO oversight 
bodies, and successful dispute settlement activity. However, the United 
States remains concerned that certain trading partners are not yet 
fulfilling all of their WTO obligations.

A. Enforcement Successes

    Securing compliance with WTO and other trade obligations has been a 
major success of this Administration. Efforts to promote compliance 
with the WTO agreements have taken place using three tools: (1) 
Enforcement of U.S. trade law; (2) the various WTO oversight bodies and 
(3) the WTO dispute settlement mechanism.
    First, the panoply of U.S. trade tools (e.g., Section 301, Section 
1377, Special 301, Super 301, and Title VII) works in conjunction with 
bilateral and WTO mechanisms to promote compliance and to address 
problems that are outside the scope of the WTO and NAFTA. These tools 
have led to some important

[[Page 26265]]

implementation successes in the past year:
    <bullet> Pursuant to Section 301, USTR successfully investigated 
and resolved a petition filed by the Border Waters Coalition Against 
Discrimination in Service Trade of certain Canadian practices affecting 
tourism and sport fishing. This investigation was announced as part of 
last year's Super 301 report.
    <bullet> Section 1377 has produced enhanced implementation of WTO 
basic and value-added telecommunications commitments. For instance, as 
part of this year's Section 1377 process, Israel announced that it 
would terminate its discriminatory access charge on traffic between 
Israel and North America (see USTR News Release 00-25, April 4, 2000).
    <bullet> Special 301 has been used successfully by USTR to 
encourage many developing countries to make substantial progress toward 
full implementation of their TRIPS obligations. For details, see this 
year's Special 301 report on intellectual property rights.
    <bullet> The 1999 Super 301 Report provided the basis for WTO 
enforcement action against India (regarding automotive trade and 
investment measures) and for stepped-up enforcement activity in the 
area of customs valuation. The United States will pursue WTO 
consultations regarding the customs valuations practices of Brazil and 
Romania, consult bilaterally with Mexico, and closely monitor India's 
customs valuation practices.
    <bullet> Title VII has enabled USTR to challenge the discriminatory 
procurement barriers of foreign governments. For instance, after being 
identified under Title VII in 1996 for failing to provide an adequate 
remedies system to challenge procurement decisions in the heavy 
electrical sector, Germany has since passed and implemented new 
legislation to reform its bid challenge system.
    Second, WTO oversight bodies offer another important means of 
securing implementation of WTO commitments. WTO members have worked 
collectively in the array of WTO oversight bodies charged with 
monitoring implementation and surveillance of agreements and 
disciplines to monitor the commitments our trading partners have made, 
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. For example:
    <bullet> The Committee on Agriculture has remained an effective 
forum for raising agricultural trade issues of concern. The United 
States played a leading role in the Committee's activities, working 
with other countries to ensure broad-based compliance with WTO 
commitments on agriculture.
    <bullet> The Committee on Customs Valuation, where more than 50 
developing country members face individual deadlines for implementation 
of the Agreement on Customs Valuation. Some members have requested 
additional time to assume the Agreement's obligations in full. The 
United States and others, working through the Committee, have consulted 
with these members to craft individualized extension decisions which 
provide for benchmarked work programs toward full implementation, along 
with reporting requirements and specific commitments on other 
implementation issues important to U.S. export interests.
    <bullet> In the Committee on Technical Barriers to Trade, the 
United States has expressed concerns about a range of foreign measures 
which could adversely affect trade or pose unnecessary trade barriers, 
e.g., EU restrictions on the use of hushkitted and certain re-engined 
aircraft.
    <bullet> In the Committee on Balance of Payments (BOP) 
Restrictions, the effective use of consultation procedures resulted in 
Nigeria's elimination of all BOP-justified restrictions such that, now, 
only four members continue to retain such measures.
    <bullet> Finally, the Trade Policy Review process has been 
instrumental in the identification of potentially WTO-inconsistent 
practices in members' regimes, and provides a forum in which pressure 
can be brought to urge reform or elimination of such practices.
    Third, the United States has used the WTO dispute settlement 
mechanism to ensure implementation of WTO commitments. U.S. dispute 
settlement activity has aimed not only at challenging existing barriers 
but also at preventing the future adoption of similar barriers around 
the world. In this regard, the United States continues to be the most 
active user of the WTO dispute settlement process and, in 1999, filed 
eight new complaints. These cases involve a variety of WTO-inconsistent 
trade barriers maintained by several different governments.
    U.S. experience thus far indicates that the WTO dispute settlement 
process has been an effective tool in combating barriers to U.S. 
exports. Some key dispute settlement successes in the past year 
include:
    <bullet> Agreement on expeditious elimination of India's import 
bans and other quantitative restrictions on 2,700 tariff lines of 
goods. This ruling will open new markets for U.S. producers of consumer 
goods, textiles, agricultural products, petrochemicals, high technology 
products, and other industrial products;
    <bullet> Reduction of Canada's subsidized exports of dairy 
products. The WTO panel and Appellate Body rulings in this case prevent 
Canada from applying illegal export subsidies on dairy products, 
including butter and skimmed milk powder; stop Canada's evasion of its 
Uruguay Round agricultural trade obligations; and deter copycat 
subsidies in other countries;
    <bullet> WTO ruling requiring withdrawal of Australia's subsidies 
on exports of automotive leather. If the United States cannot 
satisfactorily resolve this matter with Australia, the WTO Dispute 
Settlement Body will authorize the United States to suspend concessions 
with respect to products of Australia;
    <bullet> Affirmation of the WTO right to suspend concessions with 
respect to certain products from the EU as a result of the EU's failure 
to lift its ban on imports of U.S. meat, as well as its adoption of a 
WTO-inconsistent banana-import policy;
    <bullet> Elimination of Japanese restrictions on the imports of 
certain varieties of fruit, including apples and cherries; and
    <bullet> Affirmation that Mexico's imposition of anti-dumping 
duties on the import of high fructose corn syrup from the United States 
was inconsistent with the requirements of the WTO Antidumping 
Agreement.
    As important as favorable WTO rulings are early settlements, 
achieved without having to pursue litigation to completion. Some 
notable settlements include full enforcement of intellectual property 
rights in Sweden, elimination of tax discrimination against imported 
movies in Turkey, and market access for U.S. agricultural products in 
the Philippines and the EU.

B. Resolving Disputes

    Despite these many successes, certain WTO members are not 
implementing their WTO obligations, including those that came due on 
January 1, 2000. The United States remains committed to engaging in 
discussions with its trading partners in a constructive spirit to find 
solutions to implementation problems, including in the respective WTO 
bodies charged with overseeing the rigorous technical aspects of 
implementation, and will use all multilateral tools

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available to resolve such problems. In this connection, initiating WTO 
dispute settlement procedures may be the most effective means of 
achieving a resolution on a multilateral basis of some of these 
difficult issues. Accordingly, USTR has decided to resort to these 
procedures in the following cases:
    <bullet> Brazil-Customs Valuation: The United States will request 
WTO consultations with Brazil regarding its system for verification of 
the declared values of imported goods, such as textile products. Brazil 
uses minimum reference prices both as a requirement to obtain import 
licenses and/or as a base requirement for import. In practice, this 
system works to prohibit the import of products with declared values 
below established minimum prices, and, as such, appears to violate 
provisions of the WTO Agreement on Customs Valuation, GATT 1994, and 
the WTO Agreement on Import Licensing Procedures. The United States has 
also actively participated as an interested third party in 
consultations requested by the EU on this issue.
    <bullet> India-Measures Affecting Trade and Investment in the Motor 
Vehicle Sector: The United States will take the next step in its 
dispute with India and will request the establishment of a WTO dispute 
settlement panel to challenge the WTO consistency of Indian measures 
that apply to investment in the automotive industry. In order to obtain 
import licenses for certain motor vehicle parts and components, India 
requires manufacturing firms in the motor vehicle sector to achieve 
specified levels of local content, neutralize foreign exchange by 
balancing the value of certain imports with the value of exports of 
cars and components over a stated period, and limit imports to a value 
based on the previous year's imports. Considering these requirements 
inconsistent with India's obligations under the GATT 1994 and the TRIMS 
Agreement, the United States requested WTO consultations on June 2, 
1999. These consultations--held on July 20, 1999--failed to resolve the 
dispute, and accordingly the United States intends to take the next 
step and litigate this issue before a WTO panel.
    <bullet> Philippines-Measures Affecting Trade and Investment in the 
Motor Vehicles Sector: The United States will request WTO consultations 
with the Philippines on its motor vehicle policies. The Philippines 
imposes local content requirements on producers of motorcycles, 
automobiles and commercial vehicles which range from 13 to 45 percent 
(certain automobiles face a 40 percent requirement). There are also 
foreign exchange balancing requirements which range from 5 to 75 
percent. The Philippines was required to remove these measures by 
January 1, 2000, unless additional time was granted by the WTO. On 
October 4, 1999, the Philippines made a formal request for an 
additional five years to bring these measures into compliance with its 
obligations under the Agreement. For these reasons, the Philippines 
appears to be in violation of the TRIMs Agreement. Additionally, other 
facets of the Philippines' motor vehicle policy will be reviewed to 
ensure their consistency with other WTO standards. The approximate size 
of the vehicle market in the Philippines in 1998 was 80,000 units 
(250,000 units including motorcycles). A large portion of the vehicles 
sold in the Philippines are produced locally. Motor vehicle parts sales 
into the Philippines are also reduced by these measures. The United 
States has actively pursued a resolution of this request through 
bilateral and multilateral meetings, and will continue to do so through 
the use of dispute settlement procedures.
    <bullet> Romania-Customs Valuation: The United States will request 
WTO consultations with Romania regarding measures which establish 
minimum and maximum prices for certain imported products (such as 
poultry, eggs, fruits and vegetables, clothing, footwear, and certain 
distilled spirits) and procedures for investigating import prices when 
the declared value falls below the minimum import price. In such 
situations, the importer is required to pay, in addition to the duty 
based on the declared value, a ``guarantee'' deposit that is the 
difference between the duties of the maximum established price and that 
of the declared value. These practices appear to violate Romania's 
obligations under the WTO Customs Valuation Agreement, GATT 1994, as 
well as the WTO Agreement on Agriculture.
    <bullet> Intellectual Property Rights: In addition, in the 
``Special 301'' report on intellectual property rights, the USTR 
announces that the United States will pursue WTO dispute settlement in 
three intellectual property rights cases. The United States will 
request WTO consultations with Argentina regarding significant 
deficiencies in its patent regime. The United States will also consult 
with Brazil in the WTO regarding a longstanding narrow difference of 
views on interpretation of the WTO Agreement on Trade-Related Aspects 
of Intellectual Property Rights (TRIPS) that can only be resolved 
through WTO dispute settlement. The United States will also proceed to 
a WTO panel in an existing dispute with Denmark regarding enforcement 
of its intellectual property laws unless imminent progress is made.

III. Continued Monitoring of Certain Trade Practices

    This report also identifies several trade practices of significant 
concern. While these practices do not yet warrant enforcement action, 
USTR will monitor closely developments with respect to these practices 
and could initiate bilateral or multilateral trade enforcement action 
as necessary.

EU-Airbus

    The United States is extremely concerned about the ongoing 
subsidization of the Airbus consortium by EU Member State governments. 
Since the inception of Airbus in 1967, the Airbus member governments 
have provided massive subsidies to their respective member companies to 
aid in the development, production and marketing of the Airbus family 
of large civil aircraft, enabling Airbus to garner, according to the 
Airbus Chief Executive Officer, ``a 55 percent market share in 1999, 
after almost 50 percent in 1998.'' The Airbus partner governments have 
borne 75 to 100 percent of the development costs for all major lines of 
Airbus aircraft and provided other forms of support, including equity 
infusions, debt forgiveness, debt rollovers and marketing assistance. 
They have also provided funds to support the development of derivative 
versions of earlier Airbus aircraft models, such as the A330-200 and 
the A340-500/600. Some loans for Airbus programs, repayable from 
royalties on aircraft sold, have been effectively forgiven because 
projected sales did not materialize.
    The Airbus governments continue to subsidize their member 
companies. The British government recently announced a commitment of 
$830 million to underwrite BAe System's participation in the 
development of a new Airbus project, the A3XX ``superjumbo'' aircraft. 
The French, German and Spanish governments are considering whether to 
extend A3XX funding to their producers as well. The recent announcement 
that the Italian company Finmeccanica may join both Airbus and the A3XX 
program raises new subsidy issues with regard to Italy, and the pending 
creation of a unified Airbus company creates serious concerns about 
possible debt forgiveness in all of the Airbus countries.
    The United States believes that government support of Airbus raises 
serious concerns about Member State compliance with their bilateral and

[[Page 26267]]

multilateral obligations in this sector. The United States will closely 
monitor developments and will consider all options to ensure that these 
obligations are fully met.

India-Textiles

    Under the December 31, 1994 U.S.-India Memorandum of Understanding 
(MOU) on Market Access for textile products, India committed to 
undertaking tariff bindings on a broad spectrum of such products. The 
United States also committed to provide India with ``relevant price 
information'' on products subject to the MOU. The United States has 
lived up to its commitments under the MOU. India, after a lengthy 
delay, has made some effort to bind textile tariffs. However, the items 
proposed to be bound generally are not items covered by the U.S.--India 
agreement, and the binding proposal is deficient in many respects. In 
addition, India has begun to apply alternative specific duties in the 
textile sector, which will have a significantly negative impact on 
potential U.S. exports. In so doing, India has apparently failed to 
take into account relevant data supplied by the United States. India's 
actions conflict with the objectives of the 1994 agreement, which 
called on both the United States and India to improve conditions for 
access into their markets for textile and apparel products. The United 
States will continue to work to ensure that India completes an 
acceptable, comprehensive tariff binding, in compliance with bilateral 
and WTO commitments, as soon as possible, and will take appropriate 
action as necessary.

Japan-Automotive Sector

    The U.S.-Japan Automotive Agreement achieved initial progress in 
opening Japan's auto and auto parts market to U.S. and other foreign 
suppliers, but results over the last few years have been disappointing. 
Japan introduced new categories of service garages, removed shock 
absorbers, struts, trailer hitches, and power steering from the 
critical parts list, deregulated 23 standards and certification 
requirements and streamlined the type designation system, improved 
access to vehicle registration data, and took steps to ensure auto 
dealers that they are free to carry the products of competing 
manufacturers. Since 1997, however, the Japanese Government has 
remained reluctant to take additional meaningful steps to actively 
deregulate and fully open its automotive sector, or to create an 
environment that would help promote a more competitive market in this 
sector. The United States has called upon Japan to take additional, 
concrete market-opening and deregulatory actions to achieve the 
Automotive Agreement's objectives of ensuring continuing improvements 
in market access and sales opportunities in the Japanese automotive 
market. The United States is also consulting with U.S. industry, labor, 
Congress, NGOs, and other interested parties to develop a position on 
what type of follow-on agreement it should seek in light of the 
December 2000 expiration date of the current Automotive Agreement. The 
Administration hopes to work closely and cooperatively with Japan on 
this issue in the coming months.

Japan-Flat Glass

    The U.S.-Japan Flat Glass Agreement, which expired on December 31, 
1999, achieved some progress in opening Japan's flat glass market. For 
example, it resulted in Japan's adoption of energy conservation 
standards in the housing sector, boosting demand for high-value-added 
insulating glass produced by both Japanese and U.S. manufacturers. 
However, the Agreement's principal objective, opening Japan's flat 
glass distribution to non-Japanese manufacturers, remains unfulfilled. 
The Japanese Government's own data show that most Japanese distributors 
believe that foreign flat glass manufacturers offer equal or better 
prices, quality and service than Japanese manufacturers. Yet the 
world's four leading non-Japanese flat glass manufacturers, including 
two U.S. firms, still sell an insignificant amount of glass to Japan, 
with market share stuck at about five percent. The highly oligopolistic 
market structure and the tight control exerted by three Japanese 
manufacturers over the domestic glass distribution system though 
majority ownership, equity and financing ties, employee exchanges, and 
purchasing quotas remain the key barriers to market access in this 
sector. Japan's Fair Trade Commission has recently taken action to curb 
some of these practices in niche glass markets, but has not taken 
action in the broader glass market.
    The United States continues to urge Japan to take concrete steps to 
open this market. Later this Spring, the United States and Japan are 
planning to hold a government/industry forum involving Japanese and 
U.S. industry representatives to share perspectives on the state of 
competition in Japan's flat glass market. Following this forum, the two 
governments will meet to discuss ways in which the two governments can 
work together to achieve an open and competitive flat glass market in 
Japan.

Korea-Motor Vehicle Policies

    In October 1998, the U.S. and Korean Governments concluded a 
Memorandum of Understanding (MOU) and exchange of letters to settle a 
section 301 investigation initiated after USTR named Korea's motor 
vehicle policies as a ``priority foreign country practice'' in the 1997 
Super 301 report. Under the 1998 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 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) actively 
and expeditiously address instances of anti-import activity and 
actively promote a better understanding of free trade and open 
competition.
    While Korea has taken steps to implement provisions in the MOU, 
after two sets of detailed consultations and numerous other government-
to-government exchanges, the U.S. Government and industry continue to 
have serious concerns about the lack of access to the Korean motor 
vehicle market, as demonstrated by unacceptably low foreign market 
share. The MOU provides for a significant increase in market access for 
foreign motor vehicles. In addition, there has not been meaningful 
restructuring of the Korean motor vehicle sector, i.e., changes have 
yet to yield efficient, market-driven firms. Also, anti-import activity 
continues, and negative perception of foreign motor vehicles persists, 
including, for example, the perception that buying a foreign car is an 
unpatriotic act that could lead to tax audits. While the Korean 
Government has taken some steps to address these problems, some Korean 
Government officials, as well as Korean individuals outside of the 
government, have demonstrated a return to the past practice of 
discouraging the purchase and consumption of imported goods, including 
foreign motor vehicles. Finally, the U.S. Government has put the Korean 
Government on notice that some of its plans or policies on standards 
and taxes do not conform with the provisions in the MOU. The U.S. 
Government will continue to aggressively push for full and faithful 
implementation of the 1998 MOU and side letter.

[[Page 26268]]

Korea-Treatment of Foreign, Research-Based Pharmaceuticals

    U.S. concerns about Korea's treatment of foreign, research-based 
pharmaceuticals have centered around (1) discrimination in the 
reimbursement pricing system; (2) lack of protection of intellectual 
property rights (IPR), particularly with respect to clinical data and 
patents; and (3) burdensome and non-science-based Korean regulatory 
requirements, particularly on the acceptance of foreign clinical test 
data, testing, and approval of new drugs. In response to multiple 
government-to-government exchanges, including at high levels, the 
Korean Government has made some changes to address U.S. concerns. 
Specifically, imported pharmaceuticals are now listed, as are domestic 
drugs, on Korea's national health insurance reimbursement schedule. 
Also, the Korean Government has introduced a new system to reimburse 
hospitals for drugs at actual transaction prices to eliminate the 
illegal hospital margins that were available only for domestic drugs. 
Finally, Korea has taken some minor steps to address U.S. concerns on 
data protection and regulatory issues.
    However, serious questions remain regarding how the new 
reimbursement pricing system in Korea will treat foreign innovative 
drugs, and regarding whether Korea provides TRIPS-consistent data 
protection. Korean authorities have resisted committing to a system of 
``linkage'' between health and IPR authorities that would prevent the 
launch into the Korean market of drugs that would infringe valid 
patents. Finally, new Korean regulations finalized in December 1999 do 
not conform to international guidelines on the acceptance of foreign 
clinical test data. Prior to December of last year, in communications 
with the U.S. Government, the Korean Government indicated that it would 
implement these guidelines. In fact, the final Korean regulations 
appear to perpetuate requirements for redundant clinical testing and 
fail to shorten and streamline Korea's drug approval process. The U.S. 
Government will continue discussions with the Korean Government until 
U.S. concerns are addressed.

Malaysia-Trade and Investment in Motor Vehicles

    The United States will continue to monitor Malaysia's compliance 
with its WTO obligations in the motor vehicle sector. Malaysia imposes 
local content requirements on producers of motorcycles, automobiles and 
commercial vehicles (45 to 60 percent for passenger and commercial 
vehicles and 60 percent for motorcycles). 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, but approval of this request has not been forthcoming. For 
these reasons, Malaysia appears to be in violation of the TRIMs 
Agreement. The approximate size of the automobile and commercial 
vehicle market in Malaysia in 1998 was 164,000 units. A large portion 
of the vehicles sold in Malaysia are produced locally. Motor vehicle 
parts sales into Malaysia are also reduced by these measures.
    The United States hopes to receive increased interest from Malaysia 
in resolving this issue in a timely fashion. It will be important to 
increase the dialogue regarding the extension request made by the 
Malaysians. A meaningful first step will be for Malaysia to provide 
answers to a series of questions posed by several WTO members. The 
United States provided its questions on February 8, 2000 and on several 
occasions encouraged Malaysia to respond. Absent progress toward 
resolving Malaysia's request, we will need to consider alternate action 
to resolve this apparent violation. Additionally, other facets of 
Malaysia's motor vehicle policies will be reviewed to ensure their 
consistency with WTO obligations.

Mexico-Customs Valuation

    The United States has requested bilateral consultations with the 
Government of Mexico regarding its use of reference prices for a wide 
range of imported products, including foods, distilled spirits, 
chemicals, paper, textiles, apparel, footwear, steel, hand tools, and 
appliances. Based on currently available information, effective May 1, 
2000, companies importing affected products below the Government's 
minimum reference price must deposit cash in a designated Mexican 
financial institution (or arrange one of two alternative guarantees) to 
cover the difference in duties and taxes. This cash deposit requirement 
is to replace a bond requirement that has been in place for several 
years. These practices appear to violate a number of WTO agreements, 
including the WTO Agreement on Customs Valuation, GATT 1994, the WTO 
Agreement on Import Licensing Procedures, the Agreement on Preshipment 
Inspection, and the Agreement on Textiles and Clothing. If 
consultations underway do not result, in a timely manner, in Mexican 
policies which are in compliance with its international agreements, the 
United States will initiate WTO consultations.

Mexico-Nutritional Products

    Mexican Health Ministry regulations require the inspection and 
approval of manufacturing facilities in order to sell nutritional 
products, such as low-dosage vitamins, in Mexico. However, Mexican 
authorities refuse to inspect U.S.-based manufacturing facilities. 
Denying U.S. exporters the ability to have their facilities inspected 
and approved on the same basis as their Mexican counterparts raises 
serious concerns about Mexico's adherence to its trade obligations 
under the NAFTA and the WTO. The United States has raised these 
concerns with Mexico and has requested further consultations with 
Mexico. If this problem is not resolved in a timely manner that will 
allow U.S. companies without Mexican-based production facilities to 
resume exporting nutritional products to Mexico, the United States will 
consider proceeding to dispute settlement.

A. Jane Bradley,
Assistant U.S. Trade Representative for Monitoring and Enforcement.
[FR Doc. 00-11289 Filed 5-4-00; 8:45 am]
BILLING CODE 3190-01-P