[JPRT 105-51]
[From the U.S. Government Printing Office]


105th Congress 
2nd Session              JOINT COMMITTEE PRINT                  S. Prt.
                                                        105-51
_______________________________________________________________________

                                     

 
                      COUNTRY REPORTS ON ECONOMIC
                       POLICY AND TRADE PRACTICES

                               __________

                              R E P O R T

                            SUBMITTED TO THE

                     COMMITTEE ON FOREIGN RELATIONS

                          COMMITTEE ON FINANCE

                                 OF THE

                              U.S. SENATE

                                AND THE

                              COMMITTEE ON

                        INTERNATIONAL RELATIONS

                      COMMITTEE ON WAYS AND MEANS

                                 OF THE

                     U.S. HOUSE OF REPRESENTATIVES

                                 BY THE

                          DEPARTMENT OF STATE

       IN ACCORDANCE WITH SECTION 2202 OF THE OMNIBUS TRADE AND 
                      COMPETITIVENESS ACT OF 1988

                                     




                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
PAUL COVERDELL, Georgia              PAUL S. SARBANES, Maryland
CHUCK HAGEL, Nebraska                CHRISTOPHER J. DODD, Connecticut
GORDON H. SMITH, Oregon              JOHN F. KERRY, Massachusetts
CRAIG THOMAS, Wyoming                CHARLES S. ROBB, Virginia
ROD GRAMS, Minnesota                 RUSSELL D. FEINGOLD, Wisconsin
JOHN ASHCROFT, Missouri              DIANNE FEINSTEIN, California
BILL FRIST, Tennessee                PAUL D. WELLSTONE, Minnesota
SAM BROWNBACK, Kansas
                     James W. Nance, Staff Director
                 Edwin K. Hall, Minority Staff Director
        
                              ----------                              


                          COMMITTEE ON FINANCE

                WILLIAM V. ROTH, Jr., Delaware, Chairman

JOHN H. CHAFEE, Rhode Island         DANIEL PATRICK MOYNIHAN, New York
CHARLES E. GRASSLEY, Iowa            MAX BAUCUS, Montana
ORRIN G. HATCH, Utah                 JOHN D. ROCKEFELLER IV, West 
ALFONSE M. D'AMATO, New York         Virginia
FRANK H. MURKOWSKI, Alaska           JOHN BREAUX, Louisiana
DON NICKLES, Oklahoma                KENT CONRAD, North Dakota
PHIL GRAMM, Texas                    BOB GRAHAM, Florida
TRENT LOTT, Mississippi              CAROL MOSELEY-BRAUN, Illinois
JAMES M. JEFFORDS, Vermont           RICHARD H. BRYAN, Nevada
CONNIE MACK, Florida                 J. ROBERT KERREY, Nebraska

           Franklin G. Polk, Staff Director and Chief Counsel

      Mark A. Patterson, Minority Staff Director and Chief Counsel

                                  (ii)

                                     


                  COMMITTEE ON INTERNATIONAL RELATIONS

  BENJAMIN A. GILMAN, New York, 
             Chairman

WILLIAM GOODLING, Pennsylvania             LEE HAMILTON, Indiana
JAMES A. LEACH, Iowa                       SAM GEJDENSON, Connecticut
HENRY J. HYDE, Illinois                    TOM LANTOS, California
DOUG BEREUTER, Nebraska                    HOWARD BERMAN, California
CHRISTOPHER SMITH, New Jersey              GARY ACKERMAN, New York
DAN BURTON, Indiana                        ENI F.H. FALEOMAVAEGA, American 
                                                 Samoa
ELTON GALLEGLY, California                 MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida               DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina             ROBERT ANDREWS, New Jersey
DANA ROHRABACHER, California               ROBERT MENENDEZ, New Jersey
DONALD A. MANZULLO, Illinois               SHERROD BROWN, Ohio
EDWARD R. ROYCE, California                CYNTHIA A. McKINNEY, Georgia
PETER T. KING, New York                    ALCEE L. HASTINGS, Florida
JAY KIM, California                        PAT DANNER, Missouri
STEVEN J. CHABOT, Ohio                     EARL HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South 
    Carolina                               WALTER CAPPS, California
MATT SALMON, Arizona                       BRAD SHERMAN, California
AMO HOUGHTON, New York                     ROBERT WEXLER, Florida
TOM CAMPBELL, California                   STEVE ROTHMAN, New Jersey
JON FOX, Pennsylvania                      BOB CLEMENT, Tennessee
JOHN McHUGH, New York                      BILL LUTHER, Minnesota
LINDSEY GRAHAM, South Carolina             JIM DAVIS, Florida
ROY BLUNT, Missouri
JERRY MORAN, Kansas
KEVIN BRADY, Texas      
                    
                  Richard J. Garon, Chief of Staff
           Michael H. Van Dusen, Democratic Chief of Staff

                              ----------                              


                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky                WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 (iii)

                                     




                            C O N T E N T S

                              ----------                              
                                                                   Page

Foreword.........................................................   vii

Letter of Transmittal............................................    ix

Introduction.....................................................    xi

Text of Section 2202 of the Omnibus Trade and Competitiveness Act 
  of 1988........................................................  xiii

Notes on Preparation of the Reports..............................    xv

Some Frequently Used Acronyms....................................  xvii

                            COUNTRY REPORTS*

Africa:

    Ghana........................................................     1
    Nigeria......................................................     5
    South Africa.................................................    11

East Asia and the Pacific:

    Australia....................................................    17
    China........................................................    22
    Hong Kong*...................................................    30
    Indonesia....................................................    34
    Japan........................................................    40
    Korea, Republic of...........................................    45
    Malaysia.....................................................    51
    Philippines..................................................    57
    Singapore....................................................    63
    Taiwan*......................................................    68
    Thailand.....................................................    73

Europe:

    The European Union...........................................    81
    Austria......................................................    91
    Belgium......................................................    95
    Bulgaria.....................................................   100
    Czech Republic...............................................   105
    Denmark......................................................   110
    Finland......................................................   115
    France.......................................................   122
    Germany......................................................   126
    Greece.......................................................   131
    Hungary......................................................   137
    Ireland......................................................   141
    Italy........................................................   146
    Netherlands..................................................   152
    Norway.......................................................   157
    Poland.......................................................   161
    Portugal.....................................................   166
    Romania......................................................   171
    Russia.......................................................   174
    Spain........................................................   180

                                  (v)

    Sweden.......................................................   186
    Switzerland..................................................   190
    Turkey.......................................................   194
    Ukraine......................................................   199
    United Kingdom...............................................   204

The Americas:

    Argentina....................................................   209
    Bahamas......................................................   214
    Bolivia......................................................   218
    Brazil.......................................................   223
    Canada.......................................................   230
    Chile........................................................   235
    Colombia.....................................................   241
    Costa Rica...................................................   247
    Dominican Republic...........................................   253
    Ecuador......................................................   259
    El Salvador..................................................   264
    Guatemala....................................................   268
    Haiti........................................................   273
    Honduras.....................................................   277
    Jamaica......................................................   283
    Mexico.......................................................   290
    Nicaragua....................................................   297
    Panama.......................................................   300
    Peru.........................................................   306
    Trinidad and Tobago..........................................   311
    Uruguay......................................................   316
    Venezuela....................................................   320

Near East and North Africa:

    Algeria......................................................   329
    Bahrain......................................................   333
    Egypt........................................................   338
    Israel.......................................................   345
    Jordan.......................................................   351
    Kuwait.......................................................   358
    Morocco......................................................   362
    Oman.........................................................   367
    Saudi Arabia.................................................   372
    Syria........................................................   377

South Asia:

    Bangladesh...................................................   383
    India........................................................   389
    Pakistan.....................................................   395

                               __________
*Reports also cover the following areas: Hong Kong and Taiwan.




                                FOREWORD

                              ----------                              

    The reports on individual country economic policy and trade 
practices contained herein were prepared by the Department of 
State in accordance with section 2202 of the Omnibus Trade and 
Competitiveness Act of 1988 (P.L. 100-418).
    Modeled on the State Department's annual reports on country 
human rights practices, the reports are intended to provide a 
single, comparative analysis of the economic policies and trade 
practices of countries with which the United States has 
significant economic or trade relationships. Because of the 
increasing importance of, and interest in, trade and economic 
issues, these reports are prepared to assist members in 
considering legislation in the areas of trade and economic 
policy.

                                               Jesse Helms,
                          Chairman, Committee on Foreign Relations.

                                      William V. Roth, Jr.,
                                    Chairman, Committee on Finance.

                                        Benjamin A. Gilman,
                    Chairman, Committee on International Relations.

                                               Bill Archer,
                             Chairman, Committee on Ways and Means.

                                 (vii)

                                     



                         LETTER OF TRANSMITTAL

                              ----------                              

                                       Department of State,
                                  Washington, DC, January 31, 1998.
Hon. Jesse Helms,
Chairman, Committee on Foreign Relations.

Hon. William V. Roth, Jr.,
Chairman, Committee on Finance.

Hon. Albert Gore, Jr.,
President, U.S. Senate.

Hon. Newt Gingrich,
Speaker, House of Representatives.

Hon. Benjamin A. Gilman,
Chairman, Committee on International Relations.

Hon. Bill Archer,
Chairman, Committee on Ways and Means.

    Dear Sirs: Section 2202 of the Omnibus Trade and 
Competitiveness Act of 1988 requires the Department of State to 
provide to the appropriate Committees of Congress a detailed 
report regarding the economic policy and trade practices of 
countries with which the U.S. has significant economic or trade 
relationships. In this regard, I am pleased to provide the 
enclosed report.

            Sincerely,
                                            Barbara Larkin,
                          Assistant Secretary, Legislative Affairs.
Enclosure

                                  (ix)

                                     




                              INTRODUCTION

                              ----------                              


         Country Reports on Economic Policy and Trade Practices

    The Department of State is submitting to the Congress its 
Country Reports on Economic Policy and Trade Practices in 
compliance with Section 2202 of the Omnibus Trade and 
Competitiveness Act of 1988. As the legislation requires, we 
have prepared detailed reports on the economic policy and trade 
practices of countries with which the United States has 
significant economic or trade relationships. This is the 
Department of State's ninth annual report. It now includes 
reports on 75 countries, customs territories and customs 
unions.
    Each report contains nine sections:

   Key Economic Indicators: Each report begins with a 
        table showing data for key economic indicators in the 
        national income, monetary, and trade accounts.
   General Policy Framework: This first narrative 
        section gives an overview of macroeconomic trends.
   Exchange Rate Policies: The second section describes 
        exchange rate policies and their impact on the price 
        competitiveness of U.S. exports.
   Structural Policies: The third section examines 
        structural policies, highlighting changes that may 
        affect U.S. exports to that country.
   Debt Management Policies: The fourth section 
        describes debt management policies and their 
        implications for trade with the United States.
   Significant Barriers to U.S. Exports and Investment: 
        The fifth section examines significant barriers, formal 
        and informal, to U.S. exports and investment.
   Export Subsidies Policies: The sixth section focuses 
        on government actions, policies, and practices that 
        support exports from that country, including exports by 
        small businesses.
   Protection of U.S. Intellectual Property: The 
        seventh section discusses the country's laws and 
        practices with respect to protection of intellectual 
        property rights.
   Worker Rights: The final section has three parts.
    --The first (subsections a through e) outlines the 
            country's laws and practices with respect to 
            internationally recognized worker rights.
    --The second (subsection f) highlights conditions of worker 
            rights in goods-producing sectors where U.S. 
            capital is invested.

                                  (xi)

    --Finally, a table cites the extent of such investment by 
            sector where information is available.
    The country reports are based on information supplied by 
U.S. Embassies, which is analyzed and reviewed by the 
Department of State in consultation with other U.S. Government 
agencies. The reports are intended to serve as general guides 
to economic conditions in specific countries. We have worked to 
standardize the reports, but there are unavoidable differences 
reflecting large variations in data availability. In some 
cases, access to reliable data is limited, particularly in 
countries making transitions to market economies. Nonetheless, 
each report incorporates the best information currently 
available. Because the reports were researched and compiled at/
by post and due at State in mid-November, the conclusions and 
analysis may not fully or accurately reflect recent changes 
brought about because of the Asian financial crisis.

                                   Vonya B. McCann,
                        Acting Assistant Secretary of State
                                 for Economic and Business Affairs.




 TEXT OF SECTION 2202 OF THE OMNIBUS TRADE AND COMPETITIVENESS ACT OF 
                                  1988

                              ----------                              

  ``The Secretary of State shall, not later than January 31 of 
    each year, prepare and transmit to the Committee on 
    [International Relations] *and the Committee on Ways and 
    Means of the House of Representatives, to the Committee on 
    Foreign Relations and the Committee on Finance of the 
    Senate, and to other appropriate committees of the 
    Congress, a detailed report regarding the economic policy 
    and trade practices of each country with which the United 
    States has an economic or trade relationship. The Secretary 
    may direct the appropriate officers of the Department of 
    State who are serving overseas, in consultation with 
    appropriate officers or employees of other departments and 
    agencies of the United States, including the Department of 
    Agriculture and the Department of Commerce, to coordinate 
    the preparation of such information in a country as is 
    necessary to prepare the report under this section. The 
    report shall identify and describe, with respect to each 
    country:

    1. The macroeconomic policies of the country and their 
impact on the overall growth in demand for United States 
exports;
    2. The impact of macroeconomic and other policies on the 
exchange rate of the country and the resulting impact on price 
competitiveness of United States exports;
    3. Any change in structural policies [including tax 
incentives, regulation governing financial institutions, 
production standards, and patterns of industrial ownership] 
that may affect the country's growth rate and its demand for 
United States exports;
    4. The management of the country's external debt and its 
implications for trade with the United States;
    5. Acts, policies, and practices that constitute 
significant trade barriers to United States exports or foreign 
direct investment in that country by United States persons, as 
identified under section 181(a)(1) of the Trade Act of 1974 (19 
U.S.C. 2241(a)(1));
    6. Acts, policies, and practices that provide direct or 
indirect government support for exports from that country, 
including exports by small businesses;
    7. The extent to which the country's laws and enforcement 
of those laws afford adequate protection to United States 
intellectual property, including patents, trademarks, 
copyrights, and mask works; and

                               __________
*In 1995, the Committee on Foreign Affairs changed its name to the 
Committee on International Relations.

                                 (xiii)

    8. The country's laws, enforcement of those laws, and 
practices with respect to internationally recognized worker 
rights (as defined in section 502(a)(4) of the Trade Act of 
1974), the conditions of worker rights in any sector which 
produces goods in which United States capital is invested, and 
the extent of such investment.''




                  NOTES ON PREPARATION OF THE REPORTS

                              ----------                              

    Subsections a. through e. of the Worker Rights section 
(section 8) are abridged versions of section 6 in the Country 
Reports on Human Rights Practices for 1998, submitted to the 
Committees on International Relations of the House of 
Representatives and on Foreign Relations of the U.S. Senate in 
January 1998. For a comprehensive and authoritative discussion 
of worker rights in each country please refer to that report.
    Subsection f. of the Worker Rights section highlights 
conditions of worker rights in goods-producing sectors where 
U.S. capital is invested. A table cites the extent of such 
investment by sector where information is available. The Bureau 
of Economic Analysis of the U.S. Department of Commerce has 
supplied information on the U.S. direct investment position at 
the end of 1995 for all countries for which foreign direct 
investment has been reported to it. Readers should note that 
``U.S. Direct Position Abroad'' is defined as ``the net book 
value of U.S. parent companies' equity in, and net outstanding 
loans to, their foreign affiliates'' (foreign business 
enterprises owned 10 percent or more by U.S. persons or 
companies). Where a figure is negative, the U.S. parent owes 
money to the affiliate. The table does not necessarily indicate 
total assets held in each country. In some instances, the 
narrative refers to investments for which figures may not 
appear in the table.

                                  (xv)

                                     




                     SOME FREQUENTLY USED ACRONYMS

                              ----------                              

ADB--Asian Development Bank
BIS--Bank for International Settlements
CACM--Central American Common Market
CARICOM--Caribbean Common Market
CAP--Common Agricultural Policy (of the EU)
CCC--Commodity Credit Corporation (Department of Agriculture)
EBRD--European Bank for Reconstruction and Development
EFTA--European Free Trade Association
EMS--European Monetary System (of the EU)
ERM--Exchange Rate Mechanism (of the EU)
ESAF--Enhanced Structural Adjustment Facility
EU--European Union
EXIMBANK-- U.S. Export-Import Bank
FOREX--foreign exchange
FY--fiscal year
GATS--General Agreement on Trade in Services
GATT--General Agreement on Tariffs and Trade
GDP--gross domestic product
GNP--gross national product
GSP--Generalized System of Preferences
IBRD--International Bank for Reconstruction and Development 
            (World Bank)
IFIs--international financial institutions (IMF, World Bank and 
            regional development banks)
ILO--International Labor Organization (of the United Nations)
IMF--International Monetary Fund
IDB--Inter-American Development Bank
IPR--intellectual property rights
LIBOR--London Interbank Offer Rate
MFN--most favored nation
NAFTA--North American Free Trade Agreement
NGOs--non-government organizations
NIS--Newly Independent States (of the former Soviet Union)
OECD--Organization for Economic Cooperation and Development
OPIC--U.S. Overseas Private Investment Corporation
PTT--Post, Telegraph and Telephone
SAP--Structural Adjustment Program (of the IMF/World Bank)
SDR--Special Drawing Rights (of the IMF)
STF--Structural Transformation Facility
TRIPs--WTO Agreement on Trade-Related Aspects of Intellectual 
            Property Rights
UR--Uruguay Round of trade negotiations in the GATT

                                 (xvii)

USD--U.S. dollar
VAT--value-added tax
WIPO--World Intellectual Property Organization
WTO--World Trade Organization


                                 AFRICA

                              ----------                              


                                 GHANA

                         Key Economic Indicators                        
          [Millions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                 1995    1996   1997 \1\
------------------------------------------------------------------------
Income, Production and Employment:                                      
  Nominal GDP \2\.............................   6,179   6,342     6,012
  Real GDP Growth (pct.) \3\..................     4.5     5.2       5.5
  GDP by Sector:                                                        
    Agriculture...............................   2,533   2,574     2,465
    Manufacturing.............................     525     539       511
    Services..................................   2,898   3,070     2,808
    Government................................     809     882       788
  Per Capita GDP..............................     370     375       340
  Labor Force (000)...........................   6,000   6,150     6,250
  Unemployment Rate (pct.)....................     N/A     N/A       N/A
Money and Prices (annual percentage growth):                            
  Money Supply Growth (M2)....................    37.5    34.2      40.0
  Consumer Price Inflation....................    70.8    32.7      27.5
  Exchange Rate (Cedis/USD-Annual Average)                              
    Official..................................   1,200   1,637     2,205
Balance of Payments and Trade:                                          
  Total Exports FOB \4\.......................   1,431   1,571     1,600
    Exports to U.S.\4\........................     196     171       166
  Total Imports CIF \4\.......................   1,687   1,937     1,903
    Imports from U.S.\4\......................     167     294       325
  Trade Balance \4\...........................   (256)    366)     (303)
    Balance with U.S..........................      29   (123)     (159)
  External Public Debt........................   5,074   5,347     5,400
  Fiscal Deficit/GDP (pct.)...................     0.9    -1.5       1.4
  Current Account Deficit/GDP (pct.)..........     2.0     5.0       5.0
  Debt Service Payments/GDP (pct.)............    10.6     8.0       N/A
  Gold and Foreign Exchange Reserves..........   592.9   709.9     700.0
  Aid from U.S................................      45      44        52
  Aid from All Other Sources..................     715     696       N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in   
  October 1997                                                          
\2\ GDP at factor cost                                                  
\3\ Percentage changes calculated in local currency                     
\4\ Merchandise trade                                                   

1. General Policy Framework

    Ghana operates in a free market environment under a popularly-
elected civilian government. In December, 1996, Ghana had its second 
experience in multiparty elections, since the inauguration of the 4th 
Republic in January, 1993, with the reelection of President Jerry John 
Rawlings for a second four-year term.

    Rawlings headed a ``provisional'' regime from the end of 1981 until 
January, 1993, when democratic government under a written constitution 
was restored. Unlike the previous parliament, the present has an 
opposition presence with 67 seats out of 200. An independent judiciary 
acts as the final arbiter of Ghanaian laws. The next presidential and 
parliamentary elections are scheduled for the year 2000.

    Since 1983 Ghana has pursued an economic reform agenda aimed 
generally at reducing government involvement in the economy and 
encouraging private sector development. Inflationary pressures due to 
government expenditure overruns prior to 1992 and 1996 presidential and 
parliamentary elections and other factors continue to be felt. 
Government has introduced measures to control and monitor its spending. 
Despite measures being implemented to avoid fiscal deficit, first 
quarter data of 1997 still show another sizable fiscal deficit 
requiring continued high levels of domestic borrowing from the banking 
system and the public. While Ghana has benefited from IMP programs in 
recent years the current ESAF is off track due to fiscal and inflation 
problems.

    The Bank of Ghana is currently pursuing a high interest rate policy 
in an attempt to absorb excess liquidity and contain inflationary 
pressures. Short-term interest rates are now in the 40-50 percent 
range. Inflation measured about 70 percent at year-end 1995 and has 
consistently declined to about 28 percent at the end of September, 
1997. Adequate rains and good harvests this year have moderated upward 
pressure on food prices. However, growth in the money supply was 5 
percent in the first quarter of 1997 which follows trends of the past 
years. This could have serious consequences for inflation and 
inflationary expectations in 1997.

    The government's economic program has focused on the development of 
Ghana's private sector, which historically has been weak. Privatization 
of state-owned enterprises continues, with about two-thirds of 300 
enterprises sold to private owners. Ghana achieved real economic growth 
of 5.2 percent in 1996, up from the 4.5 percent recorded in 1995. 
Growth in the mining sector has been particularly brisk in recent years 
while agriculture (which still accounts for about 40 percent of GDP) 
and manufacturing have recorded much slower growth. Other reforms 
adopted under the government's structural adjustment program include 
the elimination of exchange rate controls and the lifting of virtually 
all restrictions on imports. The establishment of an Interbank Foreign 
Exchange Market has greatly expanded access to foreign exchange. The 
elimination of virtually all local production subsidies is further 
indication of the government's intention to move toward a market 
orientation for the economy.
2. Exchange Rate Policy

    The foreign exchange value of the Ghanaian cedi is established 
through the mechanism of an Interbank Market and Foreign Exchange 
Bureaus, and currency conversion is easily obtained. As the demand for 
imports has risen steadily, the government has allowed the cedi to 
depreciate. During the past 12 months the value of the cedi relative to 
the dollar has fallen by 28 percent and stood at 2260 cedi to the 
dollar in November 1997. Nevertheless, Ghana's high rate of inflation 
has resulted in an appreciation of the cedi's real exchange rate. In 
general, the exchange rate regime in Ghana does not have any particular 
impact on the competitiveness of U.S. exports.
3. Structural Policies

    Ghana progressively wound down import quotas and surcharges as part 
of its structural adjustment program. Tariff structures are being 
adjusted in harmony with the ECOWAS Trade Liberalization Program. 
Importers now are required to sign a declaration that they will comply 
with Ghanaian tax and other laws. Imported goods currently enjoy 
generally unfettered access to the Ghanaian market.

    The government professes strong support for the principle of free 
trade. However, it is also committed to the development of competitive 
domestic industries with exporting capabilities. The government is 
expected to continue to support domestic private enterprise with 
various financial incentives. Ghanaian manufacturers seek stronger 
protective measures and complain that Ghana's tariff structure places 
local producers at a competitive disadvantage relative to imports from 
countries enjoying greater production and marketing economies of scale. 
High local production costs frequently boost the price of locally-
manufactured items above the landed cost of goods imported from Asia 
and elsewhere. Reductions in tariffs have increased competition for 
local producers and manufacturers while reducing the cost of imported 
raw materials.

    The government repealed a 17.5 percent value-added tax (VAT) 
shortly after it was introduced in March 1995. The implementation of 
the tax was handled badly and resulted in widespread public protests 
and some street violence. The government has reverted to several 
previously-imposed taxes, including a sales tax. Government has set in 
motion a program to reintroduce a VAT bill and begin implementation in 
1998,at a somewhat lower level than the previous proposed tax, after an 
extensive public education effort.
4. Debt Management Policies

    Persistent balance of payments deficits have resulted in a 
continuing increase in foreign indebtedness. Swings in commodity 
prices, especially gold and cocoa, have a dramatic impact on Ghana's 
export revenues. In 1996 gold accounted for about 39 percent of total 
export receipts, while cocoa accounted for 35 percent and timber for 9 
percent. On the import side capital goods are the largest category, 
followed by intermediate goods, fuel, and consumer goods.

    Ghana's total outstanding external debt, including obligations to 
the IMF, totaled approximately USD 5.4 billion at the end of the first 
quarter of 1997. Outstanding obligations to the IMF under medium-term 
facilities stood at USD 503 million at the end of the same period. At 
that time, outstanding long-term debt was about USD 4.2 billion (about 
78 percent of total debt), of which USD 1.2 billion and USD 3.0 billion 
were owed to bilateral creditors and multilateral institutions, 
respectively.

    During the last decade the stocks of both domestic and external 
debt have risen sharply. High domestic interest rates and the 
depreciation of the cedi on foreign exchange markets have caused the 
debt service burden in cedi terms to grow steadily. Nearly one-quarter 
of total government expenditures during the first half of 1997 were for 
the payment of interest on the public debt.
5. Significant Barriers to U.S. Exports

    Import licenses: Ghana eliminated its import licensing system in 
1989 but retains a ban on the importation of a narrow range of products 
that do not affect U.S. exports. Importers must simply sign a 
declaration that they will comply with the Ghanaian tax code and other 
laws. Ghana is a member of the WTO.

    Services barriers: The Ghanaian investment code proscribes foreign 
participation in the following sectors: small scale wholesale and 
retail sales, taxi and car rental services with fleets of fewer than 
ten vehicles, lotteries, and barber and beauty shops.

    Standards, testing, labeling, and certification: Ghana has 
promulgated its own standards for food and drugs. The Ghana standards 
board, the testing authority, subscribes to accepted international 
practices for the testing of imports for purity and efficacy. Under 
Ghanaian law, imports must bear markings identifying in English the 
type of product being imported, the country of origin, the ingredients 
or components, and the expiration date, if any. Non-complying goods are 
subject to government seizure. The thrust of this law is to regulate 
imported food and drugs; however, by its terms the law applies to non-
consumable imports as well. Locally-manufactured goods are subject to 
comparable testing, labeling, and certification requirements. Four pre-
shipment inspection agencies contracted by government also perform 
testing and price verification for some selected imports that are above 
USD 5,000.

    Investment barriers: The investment code guarantees free 
transferability of dividends, loan repayments, licensing fees and 
repatriation of capital; provides guarantees against expropriation or 
forced sale; and delineates dispute arbitration processes. Foreign 
investors are not subject to differential treatment on taxes, access to 
foreign exchange, imports or credit. Separate legislation covers 
investments in mining and petroleum and applies equally to foreign and 
Ghanaian investors. The investment code no longer requires prior 
project approval from the Ghana Investment Promotion Center (GIPC).

    Government procurement practices: Government purchases of equipment 
and supplies are usually handled by the Ghana Supply Commission (the 
official purchasing agency) through international bidding and, at 
times, through direct negotiations. Former government import monopolies 
have been abolished. However, parastatal entities continue to import 
some commodities. The parastatals no longer receive government 
subsidies to finance imports. There has been a recent government 
directive to centralize the purchase of government vehicles.
6. Export Subsidies Policies

    The Government of Ghana does not directly subsidize exports. 
Exporters are entitled to a 100 percent drawback of duty paid on 
imported inputs used in the processing of exported goods. Bonded 
warehouses have been established which allow importers to avoid duties 
on imported inputs used to produce merchandise for export. The Export 
Processing Zone (EPZ) Law, enacted in 1995, does not tax corporate 
profits for the first ten years of business operation.
7. Protection of U.S. Intellectual Property

    After independence in 1957, Ghana instituted separate legislation 
for copyright (1961) and trademark (1965) protection based on British 
law. Subsequently, the government passed modified copyright and patent 
legislation in 1985 and 1992, respectively. Prior to 1992 the patent 
laws of the United Kingdom applied in Ghana. Ghana is a member of the 
Universal Copyright Convention, the World Intellectual Property 
Organization, and the English-Speaking African Regional Intellectual 
Property Organization. IPR holders have access to local courts for 
redress of grievances. Few infringement cases have been filed in Ghana 
in recent years. Ghana has not been identified as a priority country in 
connection with either the Special 301 Watch List or Priority Watch 
List.

    Patent registration in Ghana presents no serious problems for 
foreign rights holders. Fees for registration vary according to the 
nature of the patent, but local and foreign applicants pay the same 
rate.

    Ghana has not yet become a popular location for imitation designer 
apparel and watches. In cases where trademarks have been 
misappropriated, the price and quality disparity would be apparent to 
all but the most unsuspecting buyer.

    Enforcement of foreign copyrights may be pursued in the Ghanaian 
courts, but few such cases have actually been filed in recent years. 
The bootlegging of computer software is an example of copyright 
infringement taking place locally. There are no data available to 
quantify the commercial impact of this practice. Pirating of videotapes 
is another local practice that affects U.S. exports, but the evidence 
suggests that this is not being done on a large scale. There is no 
evidence of a significant export market for Ghanaian-pirated books, 
cassettes, or videotapes.

    In summary, infringement of intellectual property rights has not 
had a significant impact on U.S. exports to Ghana. Pirated computer 
software may become a more significant problem in the future, however, 
as computer use grows.
8. Worker Rights

    a. The Right of Association.--Trade unions are governed by the 
Industrial Relations Act (IRA) of 1958, as amended in 1965 and 1972. 
Organized labor is represented by the Trades Union Congress (TUC), 
which was established in 1958. The IRA confers power on government to 
refuse to register a trade union, but this right has not been exercised 
by the current government or the previous military regime. No union 
leaders have been detained in recent years, nor has the right of 
workers to freely associate otherwise been circumscribed.

    b. The Right to Organize and Bargain Collectively.--The IRA 
provides a framework for collective bargaining and protection against 
anti-union discrimination. Civil servants are prohibited by law from 
joining or organizing a trade union. However, in December, 1992, the 
government enacted legislation which allows each branch of the civil 
service to establish a negotiating committee to engage in collective 
bargaining for wages and benefits in the same fashion as trade unions 
in the private sector. While the right to strike is recognized in law 
and in practice, the government has on occasion taken strong action to 
end strikes, especially in cases involving vital government interests 
or public order. The IRA provides a mechanism for conciliation and 
arbitration before unions can resort to industrial actions or strikes.

    c. Prohibition of Forced or Compulsory Labor.--Ghanaian law 
prohibits forced labor and it is not known to be practiced. The 
International Labor Organization (ILO) continues to urge the government 
to revise legislation that permits imprisonment with an obligation to 
perform labor for offenses that are not countenanced under ILO 
Convention 105, ratified by Ghana in 1958.

    d. Minimum Age of Employment of Children.--Labor legislation in 
Ghana sets a minimum employment age of 15 and prohibits night work and 
certain types of hazardous labor for those under 18. The violation of 
child labor laws is common and young children of school age can often 
be found during the day performing menial tasks in the agricultural 
sector or in the markets. Observance of minimum age laws is eroded by 
local custom and economic circumstances that compel children to become 
wage earners at an early age. Inspectors from the Ministry of Labor and 
Social Welfare are responsible for enforcement of child labor laws. 
Employers who violate laws prohibiting heavy labor and night work by 
children are occasionally prosecuted.

    e. Acceptable Conditions of Work.--In 1991 a Tripartite Commission 
composed of representatives from government, organized labor, and 
employers established minimum standards for wages and working 
conditions. The daily minimum wage combines wages with customary 
benefits such as a transportation allowance. The current daily minimum 
wage is Cedis 2,000, about 90 cents at the present rate of exchange. 
This sum does not permit a single wage earner to support a family and 
frequently results in multiple wage earners and other family-based 
commercial activity. By law the maximum work week is 45 hours, but 
collective bargaining has established a 40-hour week for most unionized 
workers.

    f. Rights in Sectors with U.S. Investment.--U.S. investment in 
Ghana is concentrated in the primary and fabricated metals sectors 
(aluminum smelting and gold mining), food and related products (tuna 
canning), petroleum marketing, and telecommunications. Labor conditions 
in these sectors do not differ significantly from the norm, save that 
wage scales in the metals and mining sectors are substantially higher 
than elsewhere in the Ghanaian economy. U.S. firms have a good record 
of compliance with Ghanaian labor laws.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
              Category                                          Amount  
------------------------------------------------------------------------
Petroleum..........................                                 \1\ 
Total Manufacturing................                                 \1\ 
  Food & Kindred Products..........                 0                   
  Chemicals & Allied Products......                 0                   
  Metals, Primary & Fabricated.....               \1\                   
  Machinery, except Electrical.....                 0                   
  Electric & Electronic Equipment..                 3                   
  Transportation Equipment.........                 0                   
  Other Manufacturing..............                 0                   
Wholesale Trade....................                                   0 
Banking............................                                   0 
Finance/Insurance/Real Estate......                                   0 
Services...........................                                   0 
Other Industries...................                                 \1\ 
TOTAL ALL INDUSTRIES...............                                 219 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                NIGERIA

                         Key Economic Indicators                        
          [Billions of U.S. dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                 1995    1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production, and Employment:                                     
  Nominal GDP \2\.............................    47.0    48.7       N/A
  Real GDP Growth (pct) \3\...................     2.2     3.3       1.4
  GDP by Sector (pct):                                                  
    Agriculture...............................    31.0    31.2      31.0
    Manufacturing.............................     6.9     6.5       6.0
    Services..................................    22.9    23.0      23.1
    Government................................    10.2     9.9       N/A
  Per Capita GDP (US$)........................     260     250       N/A
  Labor Force (millions)......................    42.8    43.0      40.0
  Unemployment Rate (pct).....................    30.0    27.0      30.0
                                                                        
Money and Prices (annual percentage growth:                             
  Money Supply Growth (M2)....................    10.3    25.7       N/A
  Consumer Price Inflation....................    73.0    28.0      12.5
  Exchange Rate (naira/ US$ - annual average):                          
    Official..................................      22      22        22
    Parallel..................................      83      84        87
    Weighted Average..........................      72      82        82
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB \4\.......................    11.7   13.95       N/A
    Exports to U.S.\5\........................     4.8     6.1       6.8
  Total Imports CIF \4\.......................     9.3     6.9       N/A
    Imports from U.S.\5\......................     0.6     0.8       0.6
  Trade Balance...............................     2.4     9.2       N/A
    Trade Balance with U.S.\5\................     4.2     5.2       6.2
  Current Account Deficit/GDP (pct)...........    -5.6     2.8       N/A
  External Public Debt........................    32.5    28.1       N/A
  Debt Service Payments/GDP (pct).............    16.4    15.3       N/A
  Fiscal Deficit/GDP (pct)....................    0.05    -1.6       N/A
  Gold and Foreign Exchange Reserves..........     1.4     4.1       8.0
  Aid from U.S. (US$ millions)................     N/A     N/A       N/A
  Aid from All Other Sources..................     N/A     N/A       N/A
------------------------------------------------------------------------
\1\ 1997 figures, except exchange rates, are all estimates based on     
  available monthly data in November 1997.                              
\2\ GDP at factor cost. Conversion to U.S. dollars done with official   
  exchange rate of 21.9 naira to the dollar.                            
\3\ Percentage changes calculated in local currency.                    
\4\ Merchandise trade                                                   
                                                                        
 Source: U.S. Department of Commerce and U.S. Census Bureau; exports    
  FAS, imports customs basis; 1997 figures are estimates based on data  
  available through November 1997.                                      

1. General Policy Framework

    Nigeria is Africa's most populous nation and the United States' 
fifth largest oil supplier. It offers investors a low-cost labor pool, 
abundant natural resources, and the largest domestic market in sub-
Saharan Africa. However, it also suffers from an autocratic military 
government, inadequate infrastructure, confusing and inconsistent 
regulations, and endemic corruption. Nigeria's crucial petroleum sector 
provides the government with over 90 percent of all foreign exchange 
earnings and about 60 percent of budgetary revenue. Agriculture, which 
accounts for about 31 percent of GDP and employs about two-thirds of 
the labor force is dominated by small-scale subsistence farming. 
Nigeria is a member of the World Trade Organization.

    After a period of relative fiscal austerity in the late 1980s, the 
Nigerian government ran budget deficits of up to 12 percent of GDP 
beginning in 1990. The deficit decreased to seven percent in 1994 and, 
by postponing government spending (including for debt service), in 1995 
shrank to negligible proportions. In 1996, the budget had a surplus of 
1.6 percent of GDP. For the majority of 1997, the budget ran a reported 
surplus. The deficit reduction and ensuing surplus came about primarily 
through austerity--e.g., foregoing government projects and 
infrastructure maintenance--as well as stronger-than-expected oil 
revenue and the simple failure to budget enough to cover scheduled debt 
service, resulting in arrears to foreign and domestic creditors. 
Priority recommendations by international financial institutions 
include unifying the dual exchange rate, greater budgetary 
transparency, reducing large government fuel price subsidies (the 
official price of gasoline was equivalent to about 55 cents per gallon 
in November 1997), shelving a number of government projects which are 
of doubtful economic value, and reducing leakages from government 
income due to corruption.

    In previous years, monetary policy had been driven by the need to 
accommodate the government's budget deficit and a desire to reduce the 
inflationary impact of the budget deficit on the economy. Deficits at 
the federal level had been financed primarily by borrowing from the 
Central Bank of Nigeria (CBN), which held 84 percent of the 
government's domestic debt at the end of 1995. Since the Central Bank 
monetizes much of the deficit, budgetary shortfalls have a direct 
impact on the money supply and on price levels, which had risen rapidly 
for several years but have since slowed. In 1996 the government also 
began releasing money from an extra-budgetary account called the 
Petroleum Trust Fund (PTF) for infrastructure and other projects.

    In 1997 Nigeria has continued the policy of ``guided deregulation'' 
instituted in the 1995 budget. In conjunction with his 1994 budget 
announcement, head of state General Sani Abacha announced the 
abandonment of most 1986 structural adjustment program reforms and 
instituted tight government control over key economic variables. In 
response to the economic downturn caused by those measures, Abacha's 
1995 budget abandoned the tightly regulated economic policies enacted 
in 1994. Under the new policy, the Nigerian government reopened the 
Autonomous Foreign Exchange Market (AFEM), loosened controls on foreign 
investment and reduced tariffs and bans on some imports. The 1997 
budget continued the trend of fiscal austerity and the slow 
deregulation of the economy. Although Minister of Finance Anthony Ani 
had announced that privatization of the telecommunications and 
electrical generating parastatals would commence in 1997, virtually no 
progress was made.
2. Exchange Rate Policy

    In 1997 Nigeria continued the liberalizing of the foreign exchange 
mechanism instituted in 1995. Under the foreign exchange decree of 
1995, the AFEM was reestablished, allowing private companies to source 
foreign exchange at the parallel market rate (about 85 naira to the 
dollar in November 1997). The exchange rate of 22 naira to the dollar 
has been retained for some official government transactions. Companies 
can now hold domiciliary accounts in private banks, with account 
holders having ``unfettered'' use of the funds. Foreign investors may 
bring capital into the country without prior Finance Ministry approval, 
and may service foreign loans and remit dividends. Currency exchange 
offices are functioning, albeit with a limitation of $2,500 per 
transaction. The Central Bank has continued to intervene in the AFEM at 
regular intervals, going from monthly interventions in 1995 to weekly 
interventions in 1996. The Nigerian Finance Minister pledged to end the 
dual rates in the future.
3. Structural Policies

    As stated in the December 1986 circular, ``Industrial Policy of 
Nigeria,'' the Nigerian government maintains a system of incentives to 
foster the development of particular industries, to encourage firms to 
locate in economically disadvantaged areas, to promote research and 
development in Nigeria, and to favor the use of domestic labor and raw 
materials. The Industrial Development (Income Tax Relief) Act of 1971 
provides incentives to ``pioneer'' industries deemed beneficial to 
Nigeria's economic development. Companies given ``pioneer'' status may 
enjoy a non-renewable tax holiday of five years, or seven years if the 
pioneer industry is located in an economically disadvantaged area.

    In 1995 Nigeria promulgated the Nigerian Investment Promotion 
Commission Decree to replace the Enterprises Promotion Act. This decree 
liberalized the foreign investment regime, allowing 100 percent foreign 
ownership of firms outside the petroleum sector. Investment in the 
petroleum sector is still limited to the existing joint-venture 
agreement or production-sharing contracts with the Nigerian government, 
though there has been discussion of the Nigerian government selling off 
some or all of its part of the joint ventures. A foreign enterprise may 
now buy shares of any Nigerian firm except those on the ``negative 
list'': production of firearms, ammunition, narcotics, military and 
paramilitary apparel. The Investment Promotion Decree provides for the 
creation of an Investment Promotion Commission that will register 
companies for foreigners after incorporation under the Companies and 
Allied Matters Decree of 1990. The decree also abolishes the expatriate 
quota system (except in the oil sector) and prohibits any 
nationalization or expropriation of a foreign enterprise by the 
Nigerian government except for such cases determined to be in the 
national interest.

    Nigeria has begun to implement the 1995 money laundering decree, 
which introduced procedures designed to inhibit this practice, as well 
as a decree against advance-fee fraud, called 419 fraud after the 
section of the Nigerian criminal code that deals with it. However, as 
of 1997, this implementation has exhibited only marginal success in 
reducing financial fraud. The scope of 419 business fraud has brought 
international notoriety to Nigeria and constitutes a serious 
disincentive to exporters, since any international transaction must be 
thoroughly vetted and confirmed.
4. Debt Management Policies

    Debt service due, including payment of arrearages, is projected to 
be over $8 billion annually for the next several years; the result of a 
ballooning debt incurred during the latter half of the 1980s. The 1997 
budget allowed only $2 billion for foreign debt payments, thus ensuring 
continued build-up of arrears.

    During the period 1986 to early 1992, on the basis of a 
comprehensive structural adjustment program, Nigeria reached three 
standby agreements with the IMF. The most recent of these was approved 
in January 1991 and lapsed in April 1992. Discussions with the IMF 
since then have shown some progress, as evidenced by the 1996 decapping 
of interest rates and removal of the mandatory sectoral credit 
allocations for banks, but have failed to result in a new agreement. No 
new rescheduling agreement will be reached until an IMF program is re-
implemented and a successful track record has been established. In the 
interim, Nigeria has initiated discussions with the multilateral 
institutions regarding a medium- term economic program and has made 
some progress at meeting their criteria.

    In January 1992 in an effort to reduce its external stock of debt, 
the Nigerian government concluded an agreement with the London Club 
that gave commercial banks a menu of options from which to choose in 
reducing Nigeria's commercial debt. The menu included debt buy backs 
(currently at 56 cents to the dollar), new money bonds, and 
collateralized par bonds. As a result of the agreement, Nigeria was 
able to reduce its external debt by $3.9 billion, but the accumulation 
of arrears and late interest on other debt, particularly Paris Club 
debt, has essentially negated the gains. Including arrears, official 
foreign obligations exceeded $34 billion as of November 1997.

    Nigeria's Paris Club debt repayment obligations have continued to 
grow while its record on debt repayment has deteriorated Nigeria's 
record on debt repayment, meanwhile, has also deteriorated. In 1992 
Nigeria made debt service payments of $2.7 billion against interest and 
principal payment obligations of $5 billion. Faced with similar 
obligations in the following years, external debt service payments were 
only $1.6 billion for 1993, $1.8 billion for 1994, $2 billion for 1995, 
and $2 billion for 1996, and $2 billion for 1997 as well.
5. Significant Barriers to U.S. Exports

    As of November 1997, the importation of approximately 20 different 
items, principally agricultural, is still banned. These bans were 
initially implemented to restore Nigeria's agricultural sector and to 
conserve foreign exchange. Although the bans are compromised by 
widespread smuggling, the reduced availability of grains has raised 
prices for both banned commodities and locally produced substitutes. 
The government also discontinued subsidizing fertilizer for farmers in 
1997.

    In 1995 Nigeria announced a new tariff structure to be operated for 
the next five years. The revision was aimed at narrowing the ranges of 
many custom duties, increasing rate coverage in line with WTO 
provisions, with fewer import prohibitions. The following previously 
banned commodities are now subject to the indicated duty rates: rice, 
50 percent; day old chicks and parent stock, 5 percent; sparkling wines 
and champagne, 100 percent plus 40 percent excise; fruits and fruit 
juices, 75 percent; jute bags, 45 percent; cigarettes, 200 percent; 
cotton, 60 percent; wheat, 10 percent; and passenger vehicles, from 30 
to 100 percent. However, a 25 percent across the board reduction in 
import tariffs became effective in January 1997, and is now being 
implemented, thus temporarily reducing the above listed duty rates. 
This action followed complaints of importers that customs duty was 
calculated on the basis of 80 naira to the dollar, rather than the 
official rate of 22 naira to the dollar used in 1994. Also, in October 
1995 the Nigerian ports authority reduced port charges by 60 percent in 
Lagos and 70 percent at the other delta ports.

    Other import restrictions apply to aircraft and ocean-going 
vessels. Guidelines mandate that all imported aircraft and ocean-going 
vessels be inspected by a government authorized inspection agent. In 
addition, performance bonds and off-shore guarantees must be arranged 
before either down payments or subsequent payments are authorized by 
the Ministry of Finance.

    In April 1996, in an effort to reduce congestion and corruption in 
Nigerian ports and following a reported shortfall in customs duties, 
the Nigerian government changed the procedures by which goods enter or 
leave the country. The new regulations require a preshipment inspection 
for all unaccompanied imports and exports regardless of value, 
certifying the price, quantity, and quality before shipment; and 
imports must be accompanied by an import duty report (IDR). Goods 
arriving without an IDR will be confiscated by the Nigerian government. 
In addition, all goods will be assessed a one percent surcharge to 
cover the cost of inspection by the port authorities.

    Nigeria generally uses an open tender system for awarding 
government contracts, and foreign companies incorporated in Nigeria 
receive national treatment. Approximately five percent of all 
government procurement contracts are awarded to U.S. companies.
6. Export Subsidy Policies

    In 1976, the government established the Nigerian Export Promotion 
Council (NEPC) to encourage development of non-oil exports from 
Nigeria. The Council administers various incentive programs including a 
duty drawback program, the export development fund, tax relief and 
capital assets depreciation allowances, and a foreign currency 
retention program. The duty drawback or manufacturing in-bond program 
is designed to allow the duty free importation of raw materials to 
produce goods for export, contingent on the issuance of a bank 
guaranteed bond. The performance bond is discharged upon evidence of 
exportation and repatriation of foreign exchange. Though meant to 
promote industry and exportation, these schemes have been burdened by 
inefficient administration, confusion, and corruption, causing great 
difficulty and in some cases losses to those manufacturers and 
exporters who opted to use them.

    The NEPC also administers the export expansion grant program, a 
fund which provides grants to exporters of manufactured and semi-
manufactured products. Grants are awarded on the basis of the value of 
goods exported, and the only requirement for participation is that the 
export proceeds be repatriated to Nigeria. Though the grant amounts are 
small, ranging from two to five percent of total export value, they may 
constitute subsidies as defined by the WTO and raise questions about 
compliance with WTO obligations.
7. Protection of U.S. Intellectual Property

    Nigeria is a signatory to the Universal Copyright Convention and 
the Berne Convention. In early 1993, Nigeria became a member of the 
World Intellectual Property Organization (WIPO). Cases involving 
infringement of non-Nigerian copyrights have been successfully 
prosecuted in Nigeria, but enforcement of existing laws remains weak, 
particularly in the patent and trademark areas. Despite active 
participation in international conventions and the apparent interest of 
the government in intellectual property rights issues, little has been 
done to stop the widespread production and sale of pirated tapes, 
videos, computer software, and books in Nigeria.

    The Patents and Design Decree of 1970 governs the registration of 
patents, and the Nigerian Standard Organization is responsible for 
issuing patents, trademarks, and copyrights. Once conferred, a patent 
gives the patentee the exclusive right to make, import, sell, or use 
the products or apply the process. The Trademarks Act of 1965 governs 
the registration of trademarks. Registering a trademark gives its 
holder the exclusive right to use the registered mark for a particular 
good or class of goods.

    The Copyright Decree of 1988, based on WIPO standards and U.S. 
copyright law, currently makes counterfeiting, exporting, importing, 
reproducing, exhibiting, performing, or selling any work without the 
permission of the copyright owner a criminal offense. Progress on 
enforcing the 1988 law has been slow. The expense and length of time 
necessary to pursue a copyright infringement case to its conclusion are 
detrimental to the prosecution of such cases.

    In the past, few companies have bothered to secure trademark or 
patent protection in Nigeria because it is generally considered 
ineffective. Losses from poor intellectual property rights protection 
are substantial, although the exact cost is difficult to estimate. The 
majority of the sound recordings sold in Nigeria are pirated copies and 
the entire video industry is based on the sale and rental of pirated 
tapes. Satellite signal piracy is common. Violation of patents on 
pharmaceuticals is also a problem. The International Intellectual 
Property Alliance estimated that U.S. companies lost $39 million in 
1997 due to copyright piracy, excluding losses from computer software.
8. Worker Rights

    a. The Right of Association.--Nigerian workers, except members of 
the armed forces and employees designated essential by the government, 
may join trade unions and may strike. Essential employees include 
firefighters, police, employees of the Central Bank, the security 
printers (printers of currency, passports, and government forms), and 
customs and excise staff. Nigeria has signed and ratified the 
International Labor Organization's (ILO) convention on freedom of 
association. However, the government has decreed a single central labor 
body, the Nigerian Labour Congress (NLC), and deregistered other 
unions. In 1994, the government dissolved the NLC executive council and 
imposed a sole administrator. Under Nigerian labor laws, any non-
agricultural enterprise that employs more than 50 employees is obliged 
to recognize trade unions and must pay or deduct a dues checkoff for 
employees who are members. However, in the past, the government has 
threatened to withdraw the dues checkoff provision and make payment of 
union dues completely voluntary if unions pursue strikes. Furthermore, 
the government continues to hold labor leaders in detention without 
charge. As a result of the government's failure to abide by ILO 
conventions to which it has subscribed concerning worker rights and 
freedom of association, it was the subject of an ILO ``special 
paragraph'' censuring the Nigerian government. The Nigerian government 
has yet to accept an ILO fact finding mission or take other steps to 
mitigate the adverse findings that led to the ILO censure.

    b. The Right to Organize and Bargain Collectively.--The labor laws 
of Nigeria permit the right to organize and the right to bargain 
collectively between management and trade unions. Collective bargaining 
is common in many sectors of the economy. Nigerian labor law further 
protects workers against retaliation by employers for labor activity 
through an independent arm of the judiciary, the Nigerian Industrial 
Court, which handles complaints of anti-union discrimination. Trade 
unionists have complained, however, that the Nigerian judicial system's 
slow handling of labor cases constitutes a denial of redress to those 
with legitimate complaints. The government retains broad authority over 
labor matters, and can intervene forcefully in labor disputes which it 
feels contravene its essential political or economic programs. It has 
taken such action in the case of the 1996 banning of the University 
Lecturers' Union to force an end to their strike, and in August 1994 
when it dismissed the executive councils of the NLC and the two leading 
petroleum sector unions and replaced them with ``sole administrators.'' 
The administrators remain in control pending national executive council 
elections that have yet to be held.

    c. Prohibition of Forced or Compulsory Labor.--The 1974 Labor 
Decree and the 1989 Constitution prohibit forced or compulsory labor. 
While this prohibition is generally observed in practice, forced labor 
has been ``employed'' in some community clean-up projects. The ILO has 
noted that, with the 1989 Constitution suspended, Nigeria may not be 
able to enforce the ILO convention against forced labor in the absence 
of constitutional guarantees.

    d. Minimum Age for Employment of Children.--Nigeria's 1974 labor 
decree prohibits employment of children under 15 years of age in 
commerce and industry and restricts other child labor to home-based 
agricultural or domestic work. The law further stipulates that no 
person under the age of 16 may be employed for more than eight hours 
per day. The decree allows the apprenticeship of youths aged 13 to 15 
under specific conditions. The government does not specifically 
regulate service of apprentices over the age of 15. Primary education 
is compulsory in Nigeria, though rarely enforced, and studies have 
reported declining enrollment due mainly to the continuing 
deterioration of public schools. The lack of sufficient public school 
infrastructure has forced more children into the employment market.

    e. Acceptable Conditions of Work.--Nigeria's 1974 labor decree 
established a 40 hour work week, prescribed 2 to 4 weeks of annual 
leave, set a minimum wage and stipulated that workers are to be paid 
extra for hours worked over the legal limit. The decree also states 
that workers who work on Sundays and legal public holidays must be paid 
a full day's pay in addition to their normal wages. There is no law 
prohibiting excessive compulsory overtime. The last government review 
of the minimum wage, undertaken in 1991, raised the monthly minimum 
wage from 250 naira to 450 naira ($20.45 in 1991 but only $5.60 in 
1996). The 1974 decree contains general health and safety provisions. 
Employers must compensate injured workers and dependent survivors of 
those killed in industrial accidents. Enforcement of these laws by the 
Ministry of Labor has been largely ineffective.

    f. Rights in Sectors with U.S. Investment.--Worker rights in 
petroleum, chemicals and related products, primary and fabricated 
metals, machinery, electric and electronic equipment, transportation 
equipment, and other manufacturing sectors are not significantly 
different from those in other major sectors of the economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                       61 
  Food & Kindred Products.....................         \1\              
  Chemicals & Allied Products.................          19              
  Metals, Primary & Fabricated................         \1\              
  Machinery, except Electrical................           0              
  Electric & Electronic Equipment.............           2              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................          -4              
Wholesale Trade...............................                      \2\ 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                        0 
Services......................................                        0 
Other Industries..............................                        0 
TOTAL ALL INDUSTRIES..........................                      978 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
\2\ Indicates a value between $-500,000 and $500,000.                   
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                              SOUTH AFRICA

                         Key Economic Indicators                        
          [Billions of U.S. dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                 1995    1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP (at factor cost)................   118.8   112.6     115.5
  Real GDP Growth (pct) \2\...................     3.5     3.0       2.0
  GDP by Sector:                                                        
    Agriculture...............................    5.18    5.46      5.22
    Mining....................................    9.30    9.11      9.03
    Manufacturing.............................   28.84   26.75     27.43
    Wholesale/Retail Trade....................   19.35   18.10     18.53
    Financial Service.........................   20.19   19.54     20.65
    Government................................   18.05   17.10     17.72
  Per Capita GDP (US$) \3\....................    2880    2659      3041
  Labor Force (millions) \3\..................   14.37   14.49       N/A
  Unemployment Rate (percent) \3\.............    31.2    29.3       N/A
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply (M2)...........................    13.9    15.8      16.0
  Consumer Price Index........................     8.7     7.4       8.6
  Exchange Rate (Rand/US$ - annual                                      
   average):\4\                                                         
    Official..................................     N/A     N/A       N/A
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB \5\.......................    28.6    29.1      22.9
  Exports to U.S \5\..........................     2.2     2.3       0.5
Total Imports CIF \5\.........................    27.0    27.0      21.4
  Imports from U.S............................     2.8     3.1       1.2
Trade Balance \5\.............................     1.6     2.1       1.5
  Trade Balance with U.S......................    -0.6    -0.8      -0.7
Current Account Deficit/GDP...................     2.1     1.6       1.1
External Public Debt \6\......................    33.0    32.9       N/A
Debt Service Payments/GDP (pct)...............     6.7     7.0       N/A
Fiscal Deficit/GDP (pct)......................     5.1     5.1       N/A
Gold and Foreign Exchange Reserves............     4.2     2.3       4.9
Aid from U.S. (US$ millions)..................     187     176       110
Aid from other Countries......................     N/A     N/A       N/A
------------------------------------------------------------------------
\1\ Estimates for 1997 are based on third quarter estimates, seasonally 
  adjusted at annual rates, unless otherwise noted. The source of the   
  data is the Reserve Bank Quarterly Bulletin for December 1997. The    
  rate used to convert Rand figures into dollars is the weighted average
  of the South African banks' daily rates based on their foreign        
  exchange transactions. The decline in the 1996 GDP estimate from the  
  1995 figure is due to the almost 23 percent drop in the value of the  
  South African rand against the U.S. dollar during 1996.               
\2\ Figure provided is a second quarter estimate.                       
\3\ Estimates of population and employment are speculative due to       
  incomplete censuses during the apartheid era. The increase in the per 
  capita GDP figure for the third quarter of 1997 is largely accounted  
  for by revised South African government numbers on total population   
  based on census statistics gathered in 1996.                          
\4\ Prior to 1995, South Africa maintained an exchange rate for non-    
  resident investment and another for other transactions. The dual      
  exchange rate was eliminated and a unified rand established in mid-   
  March 1995.                                                           
\5\ All South African trade statistics include export and import data   
  for the five member countries of the Southern African Customs Union   
  (SACU), i.e., Botswana, Lesotho, Namibia, South Africa, and Swaziland.
  Trade within the SACU is not included.                                
\6\ During the apartheid era, debt estimates were deflated by the South 
  African Government as a matter of policy. Since late 1994, the        
  accuracy of South African debt estimates released by the South African
  Reserve Bank has dramatically improved.                               

1. General Policy Framework

    South Africa is a middle-income developing country with an abundant 
supply of natural resources, relatively well-developed financial, 
legal, communications, energy, and transport sectors, a stock exchange 
which ranks among the twenty largest in the world, and a modern 
infrastructure supporting an efficient distribution of goods to major 
urban centers throughout the region. With over three years having 
passed since the historic election of President Nelson Mandela in the 
country's first multi-racial elections, South Africa remains the most 
advanced, broadly-based, and productive economy in Africa.

    After more than four years of negative real GDP growth from 1988-
1992, the South African economy responded in 1993 with 1.1 percent real 
growth. Since the election in early 1994 the economic has posted real 
growth rates of 2.5 percent in 1994, 2.8 percent in 1995 and 3.1 
percent in 1996. In 1997 the economic is estimated to have grown by 
1.5-1.8%. With the exception of the gold mining industry, most sectors 
of the economy have shared in the economic recovery, with manufacturing 
showing the strongest rate of growth.

    The new South African government demonstrated its commitment to 
open markets, privatization, and a favorable investment climate with 
the release of its macroeconomic strategy in June 1996. Called 
``Growth, Employment and Redistribution,'' this policy framework 
includes the introduction of tax incentives to stimulate new investment 
in labor-intensive projects, expansion of basic infrastructure 
services, the restructuring and partial privatization of state assets, 
and continued reduction of tariffs and subsidies to promote economy 
revitalization, improved services to the disadvantaged, and integration 
into the global economic. Together with its demonstrated commitment to 
its World Trade Organization (WTO) commitments, South Africa has moved 
slowly but steadily towards free market principles. Implicit in these 
policies is recognition of South Africa's daunting developmental 
problems resulting from decades of apartheid-era policies. Black 
economic empowerment, promotion of small, medium, and micro-enterprises 
(SMMES), the extension of telecommunications, transportation, and other 
infrastructure links to unserved rural areas, and extensive job 
creation to offset population growth estimated at 1.8 percent remain 
South Africa's highest governmental objectives.

    Recent economic news, however, has not all been rosy. In 1997, the 
South African Rand depreciated 4.0 percent against the U.S. dollar, 
with the exchange rate going from 4.68 to beyond 4.87. Economists have 
attributed the Rand's decline to turmoil in the Asian markets. The 
balance of payments has remained positive due largely to privatization 
receipts and international borrowing.

    The South African government has made steady progress in redressing 
many structural problems in the South African market. Over the last 
decade, quantitative credit controls and administrative control of 
deposit and lending rates have largely disappeared. In 1998, the South 
African Reserve Bank (SARB) plans to induce a repurchase agreement 
system to allocate Bank credit. Liquidity will be controlled through 
reverse purchase agreements and government paper. In the past four 
years, a restrictive monetary policy through the maintenance of 
relatively high central bank lending rates, has curbed domestic 
spending and reduced inflation to its lowest rate in over twenty years. 
The South African government primarily finances its domestic debt 
through the issuance of government bonds.
2. Exchange Control/Rate Policy

    Under South African exchange regulations, exchange controls are 
administered by the SARB's Exchange Control Department through 
commercial banks that are authorized to deal in foreign exchange. All 
international commercial transactions must be accounted for through 
these ``authorized foreign exchange dealers.'' This provides the SARB 
wide latitudes for determining short-term exchange rates. However, the 
SARB is no longer the sole marketing agent for gold, having begun to 
allow some private sales in 1997 and further liberalizing in early 
1998. Except for a period in 1987 when it followed an implicit policy 
of fixing the rand against the dollar, the SARB normally allows the 
Rand to float but intervenes as deemed necessary to smooth market 
adjustments and to ensure there is always a buyer in the market for 
Rand.

    The previous dual exchange rate in which a more favorable exchange 
rate applied to foreign investment flows and outflows (the financial 
rand) and a less favorable one to all other transactions (the 
commercial rand ) was not acceptable in the new dispensation. On July 
1, 1997, after more than three decades of strict controls, South Africa 
relaxed its exchange control regime on residents. Private citizens are 
now allowed a one-time investment of up to R200,000 in offshore 
accounts, and are free to hold foreign currency accounts in South 
African banks. Corporations can now transfer up to R30 million for new 
foreign ventures outside the Southern African Development Community 
(SADC) and R50 million for SADC investments. Institutional investors 
can now invest abroad 3% of net inflows, and unit trusts are now 
allowed to conclude asset swaps up to 10%. Dollar/Rand futures 
contracts have been introduced, but under Reserve Bank supervision. The 
ceiling on local borrowing by foreign-controlled resident entities has 
been raised to 50% of foreign capital invested, up from a previous 25%. 
However, foreign investments and assets swaps still require Reserve 
Bank approval, except as noted above. A cautious and gradual approach 
to further liberalization is the most likely scenario as current South 
African gold plus foreign exchange reserves provide for about only ten 
months coverage of imports.
3. Structural Policies

    Prices are generally market-determined with the exception of 
petroleum products and certain agricultural goods. Purchases by 
government agencies are by competitive tender for project or supply 
contracts. Bidders must pre-qualify, with some preferences allowed for 
local content. Parastatals and major private buyers, such as mining 
houses, follow similar practices, usually inviting only approved 
suppliers to bid.

    The main sources of government revenue in South Africa are income 
taxes (30%) and the Value-Added Tax (VAT- 30%). Both personal and 
corporate income tax rates are among the highest in the world. Although 
the government had wished to phase down both individual and corporate 
tax rates through year-end 1999, fiscal constraints have slowed plans 
to do so. While maintaining the maximum personal income tax rate at 45 
percent on incomes in excess of R100,000 (about $20,500), the 
government also imposed in 1994 a ``one-time'' levy of 5 percent on all 
income over R50,000 (about $10,250)--both corporate and individual--to 
finance overruns associated with the governmental transition.

    On a more positive note, the South African government has 
undertaken some measures in the past two years to ease the tax burden 
on foreign investors. It reduced the corporate primary income tax rate 
to 35 percent from its previous rate 40 percent in 1994. The Non-
resident Shareholders Tax on foreign investors was scrapped effective 
October 1, 1995. In addition, the Secondary Tax on Corporate Dividends 
was halved to 12.5 percent in March 1996. The effective rate for 
corporations is 42.2%.
4. Debt Management Policies

    During the apartheid era, actual debt estimates were considered 
state secrets of the South African government. Those debt estimates 
released by the government and reported by international financial 
authorities during the apartheid years must, therefore, be viewed with 
skepticism. With the election of the new government, the SARB has 
worked to redress this problem and issues revised estimates of foreign 
and domestic debt. Although these revisions reflect a significant 
upward adjustment of previous estimates, they, nonetheless, indicate 
relative debt stability in recent years. At the end of 1996, the SARB 
reported that total foreign debt, including Erobond borrowing, amounted 
to approximately $33 billion. The ratio of total foreign debt to GDP 
has remained steady at around 25-27 percent over the past four years, 
while interest payments as a percentage of total export earnings 
increase steadily declining slightly from 6.6 percent in 1993 to 6.8 
percent in 1996.

    South Africa is a member of the World Bank and International 
Monetary Fund (IMF) and continues Article IV consultations with the 
latter on a regular basis. In December 1993, after 27 years of economic 
isolation, South Africa became an IMF borrowing nation with an $850 
million drought relief loan, which South Africa subsequently repaid. 
South Africa receives some technical assistance and has a project loan 
with the World Bank.
5. Significant Barriers to U.S. Exports

    Under the terms of the Import and Export Control Act of 1963, South 
Africa's Minister of Trade and Industry may act in the national 
interest to prohibit, ration, or otherwise regulate imports. In recent 
years, the list of restricted goods requiring import permits has been 
reduced, but still includes such goods as foodstuffs, clothing, 
fabrics, wood and paper products, refined petroleum products and 
chemicals. Nonetheless, the South African Government remains committed 
to the simplification and eventual reduction of tariffs within the WTO 
framework, and maintains active discussions with that body and its 
major trading partners.
6. Export Subsidies Program

    The primary subsidy regime of the South African Government was the 
General Export Incentive Scheme (GEIS) through which South African 
exporting companies received direct non-discriminatory cash subsidies 
based on the value of exports, the degree of beneficiation or 
processing, and the local content of the exported product. The South 
African government has completely eliminated the GEIS program despite 
considerable opposition from local manufacturers. The Department of 
Trade and Industry ``revised'' the GEIS in early 1995, ``downsized'' it 
again in early 1996, and have now completely phased it out as of July 
11 1997. The stated reason for phasing out the scheme was that it was 
not WTO-consistent. Instead, the government has focused on other, more 
WTO-friendly means of promoting South African exports. The Export 
Marketing Assistance scheme (EMA) offers financial assistance for the 
development of new export markets, through financing for trade missions 
and market research. The Export Finance Guarantee Scheme for small 
exporters is the government's newest means of promoting small and 
medium exporters through credit guarantees by participating financial 
organizations. It commenced in November 1996, and to date 77 master 
guarantees to the value of R45 million have been issued. It has not 
been as successful as anticipated and concerted efforts to promote the 
scheme are required. Provisions of the Income Tax Act also permit 
accelerated write-offs of certain buildings and machinery associated 
with benefication processes carried on for export and deductions for 
the use of an export agent outside South Africa.
7. Protection of U.S. Intellectual Property Rights

    In May 1995, the new Trademarks Act of 1993 replaced the Trademarks 
Act of 1963, improving protection of internationally-known trademarks. 
Parliament also passed the Designs Act of 1993, which introduced a 
registration system providing protection for design proprietors for 10 
years from the date of registration or issue, whichever is earlier. In 
addition, the Patent Act of 1978 was most recently amended in 1988 to 
provide patent protection of inventions and innovations for a period of 
20 years from the date of filing, without extension. Other South 
African IPR laws include the Plant Breeder's Rights Act of 1976 and the 
Copyright Act of 1978 (amended in 1992).

    In 1996, the South African parliament passed the ``Intellectual 
Property Laws Rationalization Act, 1996,'' which integrated 
intellectual property rights in the former homelands into the South 
African system and extended South African intellectual property law to 
the former homelands.

    In 1997, two other intellectual property-related bills were passed 
by the parliament and became effective in November. The ``Intellectual 
Property Laws Amendment Bill'' amended the Patents Act of 1978, the 
Trademarks Act of 1993, the Copyright Act of 1978, the Designs Act of 
1993, the Merchandise Marks Act of 1941, and the Performers' Protection 
Act of 1967. It is intended to ensure, inter alia, complete compliance 
with the provisions of the WTO agreement on Trade-Related Aspects of 
Intellectual Property Rights (TRIPS) and Article 6 of the Paris 
Convention. The ``Counterfeit Goods Bill'' created for the first time 
in South Africa the offense of ``dealing in counterfeit goods.'' It 
conveys new powers to the police, Customs and Excise, and DTI 
inspectors to exercise powers of search and seizure of counterfeit 
goods and store them pending outcome of a trial.

    In recognition of progress made on the IPR front, United States 
Trade Representative Charlene Barshefsky announced on October 2, 1996, 
that South Africa would remain off the Special 301 Watch List, from 
which it was provisionally removed in April of the same year.

    South Africa is a member of international intellectual property 
treaties such as the Paris Convention for the Protection of Industrial 
Property, the Berne Convention for the Protection of Artistic and 
Literary Works, and the World Intellectual Property Rights Organization 
(WIPO).
8. Worker Rights

    a. The Right of Association.--Freedom of association is guaranteed 
by the constitution and given statutory effect by the recently-approved 
Labor Relations Act. All workers in the private sector and most in the 
public sector--with the exception of members of the National Defense 
Force, the National Intelligence Agency, and the South African Secret 
Service--are entitled to join a union. Moreover, no employee can be 
fired or prejudiced because of membership in or advocacy of a trade 
union. There are 201 registered trade unions and 47 unregistered trade 
unions, with a total approximate membership of 3.4 million or 44 
percent of the employed economically active population.

    South Africa's largest trade union federation, the Congress of 
South African Trade Unions (COSATU) is formally aligned with the 
African National Congress (ANC) and the South African Communist Party 
(SACP). Over 60 former COSATU members serve in national and provincial 
legislatures and administrations. The second largest trade union 
federation, the National Council of Trade Unions (NACTU), while 
officially independent of any political grouping, has close ties to the 
Pan Africanist Congress (PAC) and the Azanian Peoples Organization 
(AZAPO).

    The right to strike is also guaranteed in the constitution, and is 
given statutory effect by the new Labor Relations Act (LRA). The LRA 
has established a simple procedure for a protected strike, with the 
requirement that the dispute first be referred for conciliation. If 
conciliation fails to resolve the dispute, then a trade union is 
entitled to engage in a legal strike. Such a strike is not liable to 
criminal or civil action. The LRA does, however, permit employers to 
hire replacement labor for striking employees after giving seven days 
notice to the striking trade union.

    The International Labor Organization (ILO) readmitted South Africa 
in 1994. Originally an ILO member since its 1919 inception, South 
Africa withdrew from the ILO in 1964.

    b. The Right to Organize and Bargain Collectively.--South African 
law defines and protects the right to organize and bargain 
collectively. The government does not interfere with union organizing 
and generally has not interfered in the collective bargaining process. 
The new LRA statutorily entrenches ``organizational rights'', such as 
trade union access to work sites, deductions for trade union 
subscriptions, and leave for trade union officials, which will 
strengthen trade union ability to organize workers.

    The creation of the National Economic Development and Labor Council 
(NEDLAC), a tripartite negotiating forum, has served to solidify the 
role of trade unions as social partners with government and business in 
the in the formation of economic and labor policy. In addition, the new 
LRA creates workplace fora that will allow for better shop-floor 
communication between management and labor over issues of work 
organization and production. To receive statutory protection, these 
fora currently can only be initiated by trade unions is businesses with 
more than 100 employees.

    c. Prohibition of Forced or Compulsory Labor.--Forced labor is 
illegal under the constitution, and is not practiced.

    d. Minimum Age of Employment of Children.--Employment of minors 
under age 15 is prohibited by South Africa law. The LRA, however, 
grants the Minister of Welfare discretionary powers to permit 
employment of children under carefully described conditions in certain 
types of work, such as in the agricultural sector. Enforcement of child 
labor laws by the Ministries of Labor and Justice, however, are weak 
and reactive, depending largely upon complaints made against specific 
employers. As a result, use of child labor in the informal economy is 
quite common.

    e. Acceptable Conditions of Work.--There is no legally mandated 
national minimum wage in South Africa. Instead, the Labor Relations Act 
provides a mechanism for negotiations between labor and management to 
set minimum wage standards industry by industry. To date, over 100 
industries, including a majority of workers in the manufacturing 
sector, are protected by the provisions of the Act. In those sectors of 
the economy not sufficiently organized to engage in the collective 
bargaining processes which establish minimum wages, the Wage Act grants 
the Minister of Labor the authority to set minimum wages and 
conditions. The Wage Act, however, does not apply to farm or domestic 
workers.

    Occupational health and safety issues remain a top priority of 
trade unions, especially in the mining and heavy manufacturing 
industries. Although government focus on these issues has increased 
substantially (highlighted by the passage in 1993 of the Occupational 
Health and Safety Act), South African industrial and mining processes 
are still considered hazardous by international standards. Parliament 
is currently studying a mines commission of inquiry on health and 
safety issues in the mining sector, to determine ways to improve 
existing mine health and safety legislation.

    f. Worker Rights in Sectors with U.S. Investment.--The workers 
rights conditions described above do not differ from those conditions 
found in sectors with U.S. capital investment.

    g. South Africa does not as yet have any export processing zones.--
Labor practices in these zones usually present problems with the trade 
unions.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                      778 
  Food & Kindred Products.....................          66              
  Chemicals & Allied Products.................         204              
  Metals, Primary & Fabricated................          59              
  Machinery, except Electrical................          33              
  Electric & Electronic Equipment.............         \1\              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................         236              
Wholesale Trade...............................                      119 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                      \1\ 
Services......................................                       19 
Other Industries..............................                        1 
TOTAL ALL INDUSTRIES..........................                     1437 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


 
                       EAST ASIA AND THE PACIFIC

                              ----------                              


                               AUSTRALIA

                         Key Economic Indicators                        
      [Billions of U.S. Dollars unless otherwise indicated] \1\ \2\     
------------------------------------------------------------------------
                                                 1995    1996     1997  
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \3\.............................   314.2   346.4     343.5
  Real GDP Growth (pct).......................     3.2     2.5       3.5
  GDP by Sector: \4\                                                    
    Agriculture...............................    10.5    13.3      13.5
    Manufacturing.............................    99.9   109.3     106.8
    Services..................................   176.7   193.4     192.3
    Government................................    11.1    12.0      11.9
  Per Capita GDP ($000s)......................    17.5    19.2      19.1
  Labor Force (000s)..........................   9,001   9,127     9,217
  Unemployment Rate (pct).....................     8.5     8.6       8.7
                                                                        
Money and Prices (anual percentage growth):                             
  Money Supply (M3)...........................     9.2     9.5      10.0
  Consumer Price Inflation....................     5.1     1.5       1.0
  Exchange Rate (Aust Dols=US$ annual average)                          
    Official..................................     N/A     N/A       N/A
                                                                        
Balance Of Payments And Trade:                                          
  Total Exports FOB...........................    53.0    60.4      61.7
    Exports to U.S............................     3.4     3.9       4.3
  Total Imports CIF...........................    57.3    61.5      60.5
    Imports from U.S..........................    12.4    14.1      13.7
  Trade Balance...............................    -4.3    -1.1      -1.2
    Balance with U.S..........................    -9.0   -10.2      -9.4
  External Public Debt........................    74.4    79.0      72.1
  Fiscal Deficit/Gdp (pct)....................     2.9     2.1       1.3
  Current Account Deficit/GDP (pct)...........     5.2     4.1       3.9
  Debt Service................................                          
    Payments/GDP..............................     2.5     2.5       2.4
  Gold and Foreign Exchange Reserves..........    14.7    15.8      16.6
  Aid from U.S................................       0       0         0
  Aid from other countries....................       0       0         0
------------------------------------------------------------------------
\1\ Exchange rate fluctuations must be considered when analyzing data.  
  Percentage changes are calculated in Australian dollars.              
\2\ All figures based on data available in October 1997. 1997 figures   
  are estimates.                                                        
\3\ Income measure of GDP.                                              
\4\ Production measure of GDP. ``Manufacturing'' includes mining,       
  utilities and construction.                                           

1. General Policy Framework

    Australia's developed market economy is dominated by its services 
sector (65 percent of GDP), yet it is the agricultural and mining 
sectors (8 percent of GDP combined) that account for the bulk (57 pct) 
of Australia's goods and services exports. Australia's comparative 
advantage in primary products is a reflection of the natural wealth of 
the Australian continent and its small domestic market: just over 18 
million people occupy a continent the size of the contiguous United 
States. The relative size of the manufacturing sector has been 
declining for several decades, and now accounts for just under 14 
percent of GDP.

    The Australian economy has been experiencing a cyclical downturn 
over 1996-97, and has only just started responding to the cuts in 
official interest rates made by the Reserve Bank of Australia (RBA) 
between July 1996 and July 1997 (five cuts totaling 2.5 percent have 
left the official cash rate at 5 percent). With inflation well under 
control (Australia recorded annual price deflation for the first time 
in 35 years during 1997), the task for economic policy makers is to 
lower the unemployment rate, which remains stubbornly mired above 8.5 
percent.

    The Liberal/National coalition government continued its program of 
fiscal consolidation in its budget for the 1997-98 fiscal year, 
announcing an underlying budget deficit (which removes debt repayments 
and assets from the headline balance) of $2.9 billion and a substantial 
headline budget surplus. The government has stated its intention to 
return the federal budget to balance by the 1999-2000 fiscal year.
2. Exchange Rate Policy

    Australian Dollar exchange rates are determined by international 
currency markets. There is no official policy to defend any particular 
exchange rate level, although the RBA does operate in currency markets. 
The RBA is active in what it describes as ``smoothing and testing'' 
foreign exchange rates, in order to provide a generally stable 
environment for fundamental economic adjustment policies.

    Australia does not have any major foreign exchange controls beyond 
requiring RBA approval if more than A$5,000 in cash is to be taken out 
of Australia at any one time, or A$50,000 in any form in one year. The 
purpose of this regulation is to prevent tax evasion and money 
laundering; authorization is usually automatic.
3. Structural Policies

    The Government of Australia (GOA) is continuing a program of 
economic reform, begun in the mid-1980s, that includes the reduction of 
import protection and micro economic reform. Initially broad in scope, 
the GOA's program now focuses on industry-by-industry changes. The GOA 
is also continuing with the privatization of government assets, with 
the national air carrier Qantas and the Commonwealth Bank fully 
privatized, and one-third of the government telecommunications carrier 
Telstra floated in November 1997.

    The General Tariff Reduction Program, begun in March 1991, has 
reached its conclusion, with most existing tariffs now at 5 percent. 
However, the Passenger Motor Vehicles (PMV) and Textiles, Clothing and 
Footwear (TCF) industries are still protected by high tariffs (22.5 and 
34 percent respectively). These tariffs are scheduled to decline to 15 
and 25 percent respectively by 2000 (where they will remain, pending 
further review, until 2005).

    There have been no major changes to the Australian taxation system 
in recent years, with the only change of any note being a rise in the 
tax on corporate profits from 33 to 36 percent (announced in 1996).
4. Debt Management Policies

    Australia's net foreign debt has averaged between 30 and 40 pct of 
GDP for several decades, and at the end of 1996 totaled around $150 
billion (39.7 percent of GDP). Australia's gross external public debt 
at the end of 1996 was $78 billion, or 21 percent of GDP. The public 
sector accounts for 40 percent of Australia's gross external debt; 
theremainder is the responsibility of the private sector. The net debt-
service ratio (the ratio of net income payable to export earnings) has 
remained steady between 11 and 12 percent since 1994, down from 21 
percent in 1990. Australia's credit ratings, as determined by Standard 
and Poor's and Moody's, remained unchanged at AA and Aa2, respectively 
in 1997.
5. Aid

    Australia receives no foreign aid.
6. Significant Barriers to U.S. Exports

    Australia is a signatory to the WTO, but is not a member of the WTO 
Agreement on Government Procurement.

    Import Licenses: Import licenses are now required only for certain 
vehicles, textiles, clothing and footwear. Licensing had little impact 
on U.S. products except for a small market among importers of used 
automobiles.

    Services Barriers: The Australian services market is generally 
open, and many U.S. financial services, legal and travel firms are 
established there. The banking sector was liberalized in 1992, allowing 
foreign banks to be licensed as either branches or subsidiaries. 
Broadcast licensing rules were also liberalized in 1992, allowing up to 
20 percent of the time used for paid advertisements to be filled with 
foreign-sourced material (far greater than the percentage of non-
Australian messages actually broadcast). As of January 1988, local 
content regulations require that 55 percent of a commercial television 
station's weekly broadcasts between the hours of 6:00 a.m. and midnight 
must be dedicated to Australian-produced programs (The U.S. regrets 
that this requirement was recently increased from 50 percent.) 
Regulations governing Australia's pay-TV industry require that channels 
carrying drama programs devote at least 10 percent of their programming 
budget to new, locally-produced programs. State governments restrict 
the development of private hospitals as a means of limiting public 
health expenditures (medical expenses for private hospital care are 
paid through government health programs).

    Standards: Australia became a signatory to the GATT Standards Code 
in 1992. However, Australia still maintains restrictive standards 
requirements and design rules for automobile parts, electronic and 
medical equipment, and some machine parts andequipment. Currently, all 
Australian standards are being rewritten to harmonize them where 
possible to international standards, with the objective of fulfilling 
all obligations of the GATT Standards Code.

    Labeling: Australian federal law requires that the country of 
origin be clearly indicated on the front label of some types of 
products sold in Australia. Various other federal and state labeling 
requirements are being reconsidered in light of compliance with GATT 
obligations, utility and effect on trade.

    Commodity Boards: Several national and state commodity boards 
control the marketing and export of certain Australian agricultural 
products. Activities for these marketing authorities are financed by 
the producers, but some boards enjoy export monopoly powers conferred 
by the federal or state government. While some of the boards' domestic 
activities have been deregulated, the export of wheat and rice remains 
under the exclusive control of commodity boards. The Government of 
Australia has indicated that the Australian Wheat Board (which strictly 
regulates wheat marketing abroad) will retain its export monopoly until 
at least 1999. The export of barely from certain states likewise 
remains strictly regulated.

    Investment: The government requires notification of (but normally 
raises no objections to) investment proposals by foreign interests 
above certain notification thresholds, including: acquisitions of 
substantial interests in existing Australian businesses with assets of 
A$5 million or more (A$3 million for rural properties); new businesses 
involving an investment of A$10 million or more; portfolio investments 
in the media sector of 5 percent or more; all non-portfolio investments 
irrespective of size; takeovers of Australian companies valued of 
either A$ 20 million or more, or for more than 50 percent of the target 
company's total assets; and direct investments of foreign governments 
irrespective of size. Investment proposals for entities involving more 
than A$50 million in total assets are approved unless found contrary to 
the national interest. Special regulations apply to investments in the 
banking sector, the media sector, urban real estate and civil aviation.

    Divestment cannot be forced without due process of law. There is no 
record of forced divestment outside that stemming from investments or 
mergers that tend to create market dominance, contravene laws on equity 
participation, or result from unfulfilled contractual obligations.

    Government Procurement: Since 1991, foreign information technology 
companies with annual sales to the GOA of A$10-40 million (US$8-32 
million) have been required to enter into Fixed Term Arrangements 
(FTAs), and those with sales greater than A$40 million into 
Partnerships for Development (PFDs). Under an FTA, a foreign company 
commits to undertake to local industrial development activities worth 
15 percent of its projected amount of government sales over a four-year 
period. Under a PFD, a foreign firm agree to invest 5 percent of its 
annual local turnover on R&D in Australia; export goods and services 
worth 50 percent of imports (for hardware companies) or 20 percent of 
turnover (for software companies); and achieve 70 percent local content 
across all exports within the seven year life of the PFD.

    The Information Technology Services Common Use Contract Panel 
(ITSCUCP), established in 1995, is used by GOA agencies in planning and 
implementing Information Technology (IT) purchases. The ITSCUCP 
comprises a broad range of private companies (unlike its predecessor). 
Any company may join upon demonstrating acceptable levels of Australian 
product development, investment in capital equipment, skills 
development and/or services support, local sourcing, and Australian R&D 
activities.

    The GOA's 1994 Employment and Industry Policy Statement requires 
Industry Impact Statements to be drafted for government procurements of 
A$10 million (US$8 million) or more, and establishes a two-envelope 
system for such tenders. Bidders are required to submit detailed 
information regarding Australian industrial development separately (in 
the second envelope), and bids are judged both on price/product 
specifications and industrial development grounds.

    Sanitary and Phytosanitary Restrictions: Australia's geographic 
isolation has allowed it to remain relatively free of exotic diseases. 
Australia imposes extremely stringent animal and plant health 
restrictions. The GOA is still examining measures that would allow the 
lifting of phytosanitary barriers to the importation of U.S. cooked 
chicken, but after more than seven years, no decision has been reached. 
Other areas of concern include restrictions on the import of salmon, 
pork, grapes, citrus, stone fruit and apples.

    Motor Vehicles: The import of used vehicles manufactured after 1973 
for personal use is banned, except where the car was purchased and used 
overseas by the buyer for a minimum of three months. Commercial 
importers must apply for a ``compliance plate'' costing A$ 20,000 for 
each make of car imported. Left-hand drive cars must be converted to 
right-hand drive (only by licensed garages) before they may be driven 
in Australia.
7. Export Subsidies Policies

    Australia has signed the GATT Subsidies Code and joined with the 
U.S. in GATT negotiations to limit export subsidy use.

    The coalition government severely curtailed assistance schemes to 
Australian industry in its federal budget for the 1996-97 fiscal year. 
Under the Export Market Development Grants Scheme, the Australian 
government gives grants to qualifying firms of up to A$ 200,000, to 
assist in offsetting marketing costs incurred when establishing new 
export markets. There are also schemes available for drawbacks of 
tariffs, and sales and excise taxes paid on the imported components of 
exported products. Such schemes are available in the passenger motor 
vehicle and the textiles, clothing and footwear industries. Grants 
schemes and tariff concessions were subject to expenditure reductions 
in the 1996-97 federal budget. The Research and Development Tax 
Concession (available to firms undertaking eligible R&D) was also 
reduced from 150 percent to 125 percent. ``Bounties'' (i.e., production 
subsidies) were also cut heavily in the 1996-1997 budget. The only 
remaining bounties are those for computer components producers (due to 
expire on July 1, 1999) The bounty on shipbuilders expired on December 
31, 1997.

    The ``Factor (f)'' Scheme is designed to compensate manufacturers 
of pharmaceutical products for the effects of the federal government's 
intervention (through the National Health System) in the market for 
consumer pharmaceuticals. Under the scheme, approved producers receive 
payments (to raise returns received for selected pharmaceuticals) to 
assist domestic drug research and development.
8. Protection of U.S. Intellectual Property

    Australia provides comprehensive protection for intellectual 
property, patents, trademarks, designs and integrated circuits. 
Australia is a member of the World Intellectual Property Organization 
(WIPO), and most multilateral IPR agreements, including, the Paris 
Convention for the protection of industrial property, the Berne 
Convention for the protection of literary and artistic works, the 
Universal Copyright Convention, the Geneva Phonogram Convention, the 
Rome Convention for the protection of Performers, Producers of 
Phonograms, and Broadcasting Organizations, and the Patent Cooperation 
Treaty.

    Patents: Patents are available for inventions in all fields of 
technology (except for human beings and biological processes relating 
to artificial human reproduction). They are protected by the Patents 
Act of 1990, which offers coverage for 20 years, subject to renewal. 
Trade secrets are protected by common law, such as by contract. Design 
features can be protected from imitation by registration under the 
Designs Act for up to 16 years (upon application). In 1995, a 
disagreement surfaced between the United States and Australia regarding 
the application of the TRIPS Agreement's requirement to protect test 
data. USTR has placed Australia on the Special 301 Watch List because 
legislation introduced by the Australian government does not provide 
adequate protection for test data submitted to regulatory authorities 
for marketing approval of pharmaceutical and agricultural chemicals. 
Discussions on this issue continue.

    Trademarks and Copyrights: Australia provides TRIPs compatible 
protection for both registered and unregistered well known trademarks 
under the Trademark Act of 1995. The term of registration is ten years. 
Copyrights are protected under the Copyright Act of 1968 for a term of 
the life of the author plus 50 years. Computer programs can receive 
copyright protection. The Australian government continues to consider 
broadening the copyright fair use exemption to include the 
decompilation of computer software. The Australian Copyright Act 
provides protection regarding public performances in hotels and clubs. 
Australia has effective protection against copyright piracy.

    The government has introduced a bill into Parliament that would 
permit parallel importation of sound recordings. If this bill passes, 
parallel importation may be expanded to include toys, computer 
software, and other goods. The Australian government is considering 
recognizing moral rights for screenwriters, directors, and producers of 
cinematographic works. Australia is listed as a ``Watch List'' country 
under Special 301 in part for its failure to provide adequate 
protection for pharmaceutical and agricultural chemicals test data in 
addition to the copyright concerns listed above.


    New Technologies: Infringement of technology does not appear to be 
a significant problem. Australia has its own software industry and 
accords protection to foreign and domestic production. Australia 
manufactures only basic integrated circuits and semiconductor chips. 
Australian television networks, which pay for the rights to U.S. 
television programs, jealously guard against infringement. The 
fledgling Australian cable TV networks appear to be doing the same.
9. Worker Rights

    a. Right of Association.--Workers in Australia enjoy and practice 
the rights to associate, to organize and to bargain collectively. In 
general, industrial disputes are resolved either through direct 
employer-union negotiations or under the auspices of the various state 
and federal industrial relations commissions. Australia has ratified 
the major international labor organization conventions regarding worker 
rights.

    b. Right to Organize and Bargain Collectively.--Approximately 30 
percent of the Australian workforce belongs to a union. The industrial 
relations system operates through independent federal and state 
tribunals; unions are currently fully integrated into that process. 
Legislation designed to reduce the powers of unions to represent 
employees has been passed by federal parliament but remains to be 
tested in the courts and through industrial dispute mechanisms.

    c. Prohibition of Forced or Compulsory Labor.--Compulsory and 
forced labor are prohibited by ILO conventions which Australia has 
ratified, and are not practiced in Australia.

    d. Minimum Age for Employment of Children.--The minimum age for the 
employment of children varies in Australia according to industry 
apprenticeship programs, but the enforced requirement in every state 
that children attend school until age 15 maintains an effective floor 
on the age at which children may be employed full time.

    e. Acceptable Conditions of Work.--There is no legislatively 
determined minimum wage. An administratively determined minimum wage 
exists through minimum wage clauses contained in several federal awards 
and some state awards (these effect workers mainly in the hospitality, 
hotels and tourism sectors). For the most part however, minimum wages 
in individual industries are specified in industry ``awards'' approved 
by state or federal tribunals. Workers in Australian industries 
generally enjoy hours, conditions, wages and health and safety 
standards that are among the best and highest in the world.

    f. Rights in Sectors with U.S. Investment.--Most of Australia's 
industrial sectors benefit from some U.S. investment. Worker rights in 
all sectors are essentially identical in law and practice and do not 
differ between domestic and foreign ownership.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                     1609 
Total Manufacturing...........................                     9360 
  Food & Kindred Products.....................        2031              
  Chemicals & Allied Products.................        2524              
  Metals, Primary & Fabricated................         517              
  Machinery, except Electrical................         875              
  Electric & Electronic Equipment.............         282              
  Transportation Equipment....................         916              
  Other Manufacturing.........................        2215              
Wholesale Trade...............................                     2511 
Banking.......................................                     3742 
Finance/Insurance/Real Estate.................                     3395 
Services......................................                     1437 
Other Industries..............................                     6715 
TOTAL ALL INDUSTRIES..........................                   28,769 
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                       PEOPLE'S REPUBLIC OF CHINA

                         Key Economic Indicators                        
      [Billions of U.S. Dollars unless otherwise indicated]\1\ \2\      
------------------------------------------------------------------------
                                                1995    1996    1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP................................   701.9   816.9      892.5
  Real GDPGrowth (pct) \2\...................    10.5     9.6        9.0
  GDP by Sector:\3\                                                     
    Agriculture..............................   144.5   167.3      170.1
    Manufacturing............................   297.8   350.4      442.3
    Services.................................   259.6   299.2      228.5
    Government...............................     N/A     N/A        N/A
  Per Capita GDP.............................   584.8   678.8      721.7
  Labor Force (millions).....................     687     697        707
  Unemployment Rate (pct) \4\................     2.9     3.0        3.1
                                                                        
Money And Prices (annual percentage growth):                            
  Money Supply (M2)..........................      29      25         19
  Consumer Price Inflation...................    10.1     7.0        3.4
  Exchange Rate (Rmb/US$ annual average)                                
    Official.................................     8.3     8.3        8.3
                                                                        
Balance of Payments and Trade:                                          
  Total Exports (FOB) \5\....................   148.8   151.1      181.0
    Exports to US............................    45.6    51.5       60.0
  Total Imports (CIF) \5\....................   132.1   138.8      142.0
    Imports from U.S. (FAS)..................    11.8    12.0       13.0
  Trade Balance..............................    16.7    12.2       39.0
    Balance with U.S.........................    29.5    35.8       47.0
  External Public Debt.......................   106.9   116.3        N/A
  Fiscal Deficit/Gdp (pct)...................     2.2     0.8        0.3
  Current Account Surplus/GDP (pct)..........     0.2     0.9        1.6
  Debt Service                                                          
    Payments/Exports (pct)...................     7.3     6.7        N/A
    Payments/GDP (pct).......................     1.5     1.2        N/A
  Gold and Foreign Exchange Reserves.........    73.6   105.0      142.0
  Aid from United States.....................       0       0          0
  Aid from All Other Sources.................     0.4     0.3       N/A 
------------------------------------------------------------------------
\1\ Estimated from third quarter and end August 1997 data.              
\2\ Growth rate based on constant renminbi (RMB) prices using 1978      
  weights. All other income and production figures are converted into   
  dollars at the exchange rate.                                         
\3\ Production and net exports are calculated using different accounting
  methods and do not tally to total GDP. Agriculture includes forestry  
  and fishing; manufacturing includes mining.                           
\4\ ``Official'' urban unemployment rate; agricultural laborers are     
  assumed to be totally employed in China's official labor data.        
\5\ Source: U.S. Department of Commerce (United States-China bilateral  
  trade data) for U.S. trade; PRC Customs (Chinese global trade data and
  1997 estimates).                                                      
                                                                        
 Sources: State Statistical Bureau Yearbook, People's Bank of China     
  Quarterly Statistical Bulletin, and U.S. Department of Commerce Trade 
  Data.                                                                 

1. General Policy Framework

    The Chinese economy has grown at an average rate of nine percent 
per year since the 1979 economic reforms, with growth rates of 13 
percent in 1992-1993, according to official data. The 1997 growth rate 
may exceed 9 percent, according to official projections. (Though 
China's official GDP figures tend to overstate growth, official data, 
in general, reflect significant economic trends.) China appears to have 
achieved a ``soft landing'' of single-digit inflation and stable growth 
in 1996 and 1997. Retail price inflation, which exceeded 20 percent in 
1994, stood at only 3.4 percent in September 1997 compared to the year-
earlier period. Price increases for services have been running somewhat 
higher, however. China continues to attract large inflows of foreign 
direct investment based on tax incentives, policies generally focused 
on the use of market forces to sustain growth, and the economic 
dynamism of the rapidly growing private sector. China's direct 
investment inflows are expected to be about $42 billion in 1997, about 
the same as in 1996.

    The Five-Year Plan for 1996-2000 reaffirmed the importance of 
China's economic expansion and, by implication, its private sector, by 
calling for 8 percent annual GDP growth through 2000 and a further 
doubling of GDP during 2000-2010. Economic reform and China's opening 
to the outside world are central to China's development formula. 
However, the Five-Year Plan also reconfirmed the role of state-owned 
enterprises, which still directly account for 40 percent of total 
industrial output. About one-half of China's state-owned enterprises 
were reporting losses in 1997. The central government loudly endorsed 
further reform of the state-owned sector at the 15th Congress of the 
Chinese Communist Party (held in September 1997) but remains cautious 
about the effects of reform on social stability and unemployment. 
Underemployment (estimated at some 23 million persons in the state 
sector workforce) is not reflected in the official estimate of an urban 
unemployment rate of 3.1 percent. ``Triangular debt'' incurred by 
state-owned enterprises, their banks, and their suppliers remains large 
and inhibits economic and banking reform; many of these debts are 
unlikely to be paid with cash or goods.

    As China deepens its reforms, new challenges will include the 
establishment of legal and political structures to sustain high levels 
of foreign as well as private domestic investment. China must also 
develop capital markets and financial institutions to allocate more 
efficiently the large amounts of savings in the economy.

    A key national priority of the 1996-2000 Five-Year Plan is to deal 
with growing regional income disparities. This requires strengthening 
the government's fiscal capacity and its ability to redistribute wealth 
equitably. Tax reform has led to a more simplified code and has reduced 
the gap in tax rates between state-owned and other enterprises. Tax 
reforms and the new tax system began to reverse the declining share of 
revenues as a percent of GDP in mid-1996. (This does not take into 
account ``policy lending'' through the banking system, which ideally 
should be included in any analysis of the government's fiscal 
position.)

    China made significant and numerous adjustments to its import 
tariff schedule on April 1, 1996 and again on October 1, 1997. China's 
simple average import tariff had decreased from greater than 40 percent 
in 1995 to 17 percent in late 1997. However, nominal tariff rates on 
items which are frequently smuggled into China, with attendant revenue 
losses and rule of law problems, remain very high; such goods include 
but are not limited to automobiles, wine and spirits. Import tariffs on 
some items of great export interest to the United States and others of 
China's trading partners remain high; these include the aforementioned 
goods, capital equipment, and some vegetable oils and fresh fruits, for 
example. As of late 1997, China was preparing to reinstitute capital 
equipment tariff waivers for some types of equipment, in part to help 
attract new inflows of foreign direct investment. China's import tariff 
revenues climbed following the 1996 tariff reductions but import growth 
remained anemic through late 1997.

    China's undeveloped financial system remains small in comparison to 
China's economic ambitions and inhibits the efficient allocation of 
capital. However, China is moving forward with the legal framework 
needed to improve the banking sector. In 1995, new banking laws were 
adopted to facilitate the entry of foreign banks to China, although the 
operation of these laws are still not fully tested. China now has 135 
foreign bank branches, including 11 U.S. bank branches, concentrated in 
coastal areas and large inland cities, including Beijing and Chengdu. 
The entry of these banks reinforces China's efforts to carry out 
financial sector liberalization. Their presence in the market is an 
important channel for technology and know-how to drive further reform. 
Despite attempts to commercialize the banking sector, the overhang of 
previous debt in the form of policy loans to the state sector 
complicates attempts to segregate and to manage policy loans still on 
the books. China's large state banks are grappling with this problem, 
but liquidating state enterprise assets would further raise 
unemployment in the near term.
2. Exchange Rate Policies

    Foreign-invested enterprises and authorized Chinese firms generally 
have liberal access to foreign exchange in China for authorized trade-
related transactions. China maintains favorable rules for foreign 
invested enterprises (FIEs), which can have foreign currency deposits 
and keep their foreign exchange earnings. In 1997, the central bank 
(Peoples Bank of China) began implementing a new policy to allow 
Chinese enterprises earning more than more than 10 million dollars a 
year in foreign exchange receipts to keep up to 15 percent of such 
receipts. Previously, all Chinese firms were required to sell their 
foreign exchange earnings to Chinese banks. One effect of this 
continuing policy that mandates surrender of foreign exchange is an 
artificially high level of foreign exchange reserves held at the 
People's Bank of China, China's central bank.

    The People's Bank of China introduced full convertibility of the 
currency for current account (trade) transactions on December 1, 1996. 
The move marked an important step forward on currency convertibility, 
though China still restricts convertibility on its capital account. 
Current account liberalization clearly removes foreign exchange 
balancing from the agenda of China's financial authorities and places 
it squarely on its trade agencies and the State Planning Commission. In 
the past, balancing requirements placed on most foreign investors in 
China have been ``justified'' by China's perceived need to accumulate 
greater amounts of foreign exchange reserves. The new policy should 
obviate any need to impose new or audit old foreign exchange balancing 
requirements. Whether Chinese authorities will invalidate existing 
foreign exchange balancing requirements required in earlier approvals 
(and which remain as specific provisions in individual approval 
documents) is still uncertain.

    Chinese authorities describe the current exchange rate as a 
``managed float.'' Since January 1996, the RMB exchange rate has 
appreciated slightly against the U.S. dollar to just under 8.3:1. The 
exchange rate is permitted to fluctuate in a narrow band around central 
rates announced by the People's Bank of China. China uses the RMB/
dollar exchange rate as the basic rate, and RMB rates against other 
currencies are calculated by referring to international market rates of 
the previous day. This system is not particularly suited to exchange 
rate fluctuations; the gap, when present, between cross rates and 
international market rates provides arbitrage opportunities to dealers 
while rendering the central bank cross rates inoperative because no 
transactions occur at the central bank rate. China still lacks a 
foreign exchange market where foreign exchange dealers interact 
directly with international markets. China lacks market interest rates.
3. Structural Policies

    Chinese officials claim that prices have been freed for about 95 
percent of consumer goods and 85 percent of industrial inputs. As part 
of its effort to control inflation, however, the Chinese government has 
intervened in pricing for daily necessities, basic urban services, and 
key commodities. China continues to maintain discriminatory pricing 
practices with respect to some services and inputs offered to foreign 
investors in China. At the same time, foreign-invested enterprises 
often may use incentives, tax holidays, and grace periods to pay less 
than the 33 percent corporate income tax rate to which they would 
otherwise be subject. Chinese firms pay a corporate income tax of 30 
percent.

    In 1994, China issued a ``Framework Industrial Policy for the 
1990s'' which announced plans to issue policies for the automotive, 
telecommunications and transportation, machinery and electronics, and 
construction sectors. The automotive industrial policy, issued in July 
1994, contains import controls, local content and other performance 
requirements for foreign investors, and temporary price controls for 
sedans. Sectoral industrial policies for the chemicals and 
petrochemicals and machinery industries were reportedly issued by the 
State Planning Commission in 1997 but have not been published.

    In 1996 and 1997, the State Tax Administration implemented further 
reductions in the value-added tax rebate on exports begun in 1995 
(currently 9 percent of the total 17-percent tax). Progress in paying 
off past-due value-added rebates to many exporters may have contributed 
to the surge in exports in 1997.
4. Debt Management Policies

    At the end of 1996, China's external debt stood at about $116 
billion, or 77 percent of exports, according to official Chinese data. 
In the context of China's strong export performance and high foreign 
exchange reserve levels, its current external debt burden is medium-
term and long-term and remains within acceptable limits. China's 1996 
debt service ratio was 6.7 percent (ratio of repayment of principal and 
interest on foreign debt to foreign exchange receipts of exports plus 
services), down from 7.3 percent in 1995, according to Chinese data. 
China's ratio of foreign debt to GDP declined from 15 percent in 1995 
to 14 percent in 1996. The Asian Development Bank, the World Bank, and 
Japan are China's major creditors, providing approximately 60 percent 
of all China's governmental and commercial loans.

    In 1995, China began drafting a law to govern management of 
government debt to replace the 1992 ``Treasury Bond Regulations,'' 
which are deemed narrow-gauged and not sufficiently international in 
scope. Though there is no clear timetable, the enactment of the new law 
would formalize the legislative process of approving debt ceilings and 
more clearly regulate the activities of intermediaries and investors in 
the government bond market. The Fifth Party Plenum called for the 
Finance Ministry to unify the management of the government's internal 
and external debt. These objectives reflect official recognition of the 
need to upgrade further China's capital markets and improve debt 
management.

    China's government bond market is still in its infancy. China 
established a system of primary dealers in 1994 and there are 
officially about 50 dealers. The Ministry of Finance authorizes them to 
underwrite bonds on a contract basis for domestic customers. In July 
1995, China ``auctioned'' bonds on a very small scale, but financial 
experts do not regard these transactions as standard competitive 
bidding because priority was assigned not according to interest rates 
but to dealers who most quickly turned in their funds. Domestic 
interest rates on government bonds are fixed at about one percentage 
point above bank savings rates, which are ``policy,'' not market, 
rates. In the last several years, China has introduced a wider variety 
of maturities and instruments to manage its renminbi debt, but the 
trend is generally towards more short- and medium-term maturities (six 
months and 1-5 years). Some experts have observed that the continued 
sharp rise in government borrowing in 1995 and 1996 (about RMB 150 
billion and RMB 213 billion, respectively) reflects the decision of the 
Third Plenum of the 14th Communist Party Congress that fiscal deficits 
should be covered by bonds and not indiscriminate ``policy loans.''
5. Aid

    The United States has provided occasional disaster-relief 
assistance to the People's Republic of China to help flood-relief and 
other humanitarian efforts in recent years. These have taken the forms 
of occasional grants of no more than dollars 25,000 or donations of 
goods. In addition, the United States operates a Peace Corps-affiliated 
English-language training program in southwestern China's Sichuan 
Province. China is a major recipient of other nations' assistance 
programs and of multilateral assistance. Multilateral assistance 
includes but is not limited to programs operated by the World Bank; the 
World Food Program, United Nations Development Program, and other 
United Nations-affiliated agencies and programs; the Asian Development 
Bank; and other international financial institutions.
6. Significant Barriers to U.S. Exports

    China continues to impose barriers to U.S. exports, although 
reforms are liberalizing China's trade regime. Liberalization of 
China's import regime has not kept pace with liberalization of its 
export regime. In addition to prohibitively high tariffs which 
discourage many imports, China maintains several hundred formal 
nontariff measures (NTMs) to restrict imports, such as import licensing 
requirements; import quotas, restrictions, and controls; tendering 
requirements; and standards and certification requirements. China's 
restrictive system of trading rights, which severely limit domestic and 
foreign-invested enterprises' ability to directly import and export, 
raises the cost of imported goods in China by funneling imports through 
fee-collecting Chinese foreign trade companies. In most transactions, 
U.S. suppliers are unable to sell directly to their ultimate customer. 
Lack of regulatory transparency remains a problem, although China has 
made progress in publishing trade-related rules. Use of unscientific 
sanitary and phytosanitary measures is a barrier to exports of some 
U.S. agricultural goods, including meat, citrus and Pacific Northwest 
wheat. Nevertheless, industry has not noted significant improvement.

    On October 10, 1992, the United States and China signed a 
Memorandum of Understanding (MOU) on Market Access that commits China 
to dismantle most of these barriers and gradually open its markets to 
U.S. exports. The actions China has committed to take are consistent 
with World Trade Organization (WTO) Agreements, including the General 
Agreement on Tariffs and Trade (GATT).

    In implementing the 1992 Market Access MOU, China has published 
numerous previously ``confidential'' trade laws and regulations, both 
at the central and subnational levels. Publication of trade-related 
laws and regulations does not always precede implementation.

    Information on China's import quotas, crucial for foreign and 
domestic traders, has yet to be published on an itemized basis.

    As a direct result of the Market Access MOU, China has removed over 
1,000 quotas and licenses on a wide range of key U.S. exports such as 
telecommunications digital switching equipment, computers, many 
agricultural products, and medical equipment. As of late 1997, China 
currently retains NTMs on 385 tariff-line items, according to Chinese 
trade officials. The final NTM eliminations required under the MOU are 
scheduled to occur no later than January 1, 1998.

    Despite the removal of these quotas and licenses, there have been 
indications that China is erecting new barriers to restrict imports. 
Examples include new procedures regarding purchases of large-size 
medical equipment, registration requirements for imported (but not 
domestically manufactured) chemicals, and new industrial policies in 
such areas as automobiles and electronics. In addition, continuing 
restrictions on trading rights can act as a barrier for imports after 
quotas have been removed, as in the case of crude oil imports. In the 
context of China's World Trade Organization accession negotiations, 
China has committed to significantly expand trading rights within three 
years of its accession. U.S. and other foreign businesses have 
continuing concerns about their abilities in China to amend business 
licenses to broaden their scopes of permitted businesses and their 
abilities to engage in distribution and after-sales service activities, 
activities necessary to make China's promised trading rights 
liberalization commercially meaningful.

    High and unpredictable tariffs make importing into the Chinese 
market difficult. Tariffs on imports can run as high as 100 percent on 
goods such as automobiles. China announced plans in early 1996 to begin 
phasing out import tariff waivers on capital equipment previously 
available to foreign investors in China. Elimination of those waivers 
could mean multimillion-dollar investment project cost increases for 
foreign investors, and not surprisingly, contracted foreign investment 
in China in the first three quarters of 1997 had decreased 35 percent 
from the year-earlier period. China is preparing to reinstitute some 
form of import tariff reduction or waiver for foreign investors in 
1998, with high-technology equipment (yet to be defined by China) a 
likely beneficiary of those tariff changes. Under commitments in the 
1992 Market Access MOU, China lowered tariffs on several thousand items 
of interest to U.S. exporters. As part of China's effort to accede to 
the World Trade Organization Agreement, the United States is 
negotiating with China on the further reduction of tariffs of concern 
to U.S. companies. China had reduced its simple average import tariff 
rate from more than 40 percent in 1995 to 17 percent in October 1997.

    China announced in early 1996 that effective April 1, 1996, tariff-
rate quotas would apply to imports of wheat, corn, rice, soybeans, and 
vegetable oils. As of late 1997, China had not announced tariff-rate 
quota administration rules nor quota volumes. Out-of-quota tariff rates 
range as high as 121.6 percent. This unfortunate lack of clarity and 
information complicates trade in these goods.

    Under the Market Access MOU, China agreed to base standards for the 
import of agricultural products and livestock genetics on sound 
science. Since 1992, the United States has signed a number of protocols 
with China that have opened the door to U.S. exports of such products 
as apples (from Washington, Oregon, and Idaho), cherries (from 
Washington), grapes, live cattle, bovine embryos, bull semen, 
ostriches, poultry and birds, swine, rabbits, and horses. On some key 
agricultural products, however, China continues to use unscientific 
sanitary and phytosanitary measures to block U.S. exports, especially 
of meat, citrus fruit and Pacific Northwest wheat.

    For manufactured goods, China has required quality licenses before 
granting import approval, with testing based on standards and 
specifications often unknown or unavailable to foreigners and not 
applied equally to domestic products. In the Market Access MOU, China 
committed to applying the same standards and testing requirements to 
both foreign and domestic nonagricultural products.

    In the Market Access MOU, China agreed to eliminate the use of 
import substitution policies and measures, and promised that it would 
not subject any imported products to such measures in the future, nor 
deny approval for imports because an equivalent product is produced in 
China. Nonetheless, the Chinese Government has continued to place local 
content requirements on foreign investment in China, such as in the 
automotive industrial policy announced in 1994.

    China has made important reforms to its trade regime in recent 
years. In addition to the above-mentioned actions to improve 
transparency, lower tariffs, and remove nontariff measures, China has 
adopted legislation or issued regulations on unfair competition, 
foreign trade, labor, protection of intellectual property rights, 
import quotas, commodities subject to inspection, and other trade-
related issues. Implementing regulations often have not been published.

    China has only recently begun to reform and open its services 
sector, and in most areas severely restricts or prohibits access to the 
market. China has initiated limited experiments in such areas as 
insurance, retailing, legal services, and tourist resorts. In 
insurance, Guangzhou was added to Shanghai in 1995 as a second city 
with limited (one company) foreign participation. In retailing, joint 
venture department stores approved at the central level (with full 
trading rights) remain limited to 22 stores in 11 cities and special 
economic zones. China offered to increase that number to a total of 26 
stores in WTO accession negotiations in late 1997, but the offer fails 
to encompass an estimated more than 200 joint-venture department stores 
approved at the provincial or municipal level. Access in two key areas 
of interest to U.S. companies, telecommunications and financial 
services, remains severely restricted. Concerns about decreasing 
foreign investment in China is expected to prompt revision of foreign 
investment guidelines in early 1998, which may result in greater 
allowed foreign participation in some of China's services sectors.

    Many joint ventures are highly dependent on China's state-owned 
enterprises for downstream services. Some investors have been permitted 
to set up their own marketing and service organizations, but many have 
no choice but to rely on Chinese channels for support. Imports of audio 
and video recordings continue to be hampered by unofficial quotas and 
lax enforcement of intellectual property laws. China does not permit 
foreign membership on its stock exchanges, although foreigners may hold 
certain stock with restricted privileges. Representative offices of 
foreign companies must hire their local employees through a labor 
services company.

    Significant barriers to investment in China warrant further reform. 
Multiple, time-consuming approval procedures adversely affect 
establishment of investments. Depending on the locality, investments 
above dollars 30 million require national as well as local approval. 
Export requirements, local content requirements, and foreign exchange 
balancing requirements detract from China's investment climate. The 
foreign exchange balancing requirements have become less of a doing-
business issue as China's foreign exchange reserves have rapidly grown 
in the 1995-97 period, but such restrictions on existing investors have 
not been eliminated. China also encourages the development of favored 
domestic industries through tax incentives and tariff exemptions. China 
permits repatriation of profits when a joint venture has earned 
sufficient foreign exchange to cover the remitted amount. China 
published investment guidelines in June 1995 cataloguing those sectors 
in which foreign investment is encouraged, allowed, restricted, or 
prohibited. China does not provide national treatment to foreign 
investors on establishment or operation of investments. In some key 
areas, such as input costs, foreign investors are often treated less 
favorably than Chinese firms. Foreign investors may not own land in 
China, though long-term land use deals may be approved. In at least one 
case, a U.S. company has thus far been unable to have an international 
arbitration award enforced in China.

    Although open competitive bidding procedures are increasingly used 
for both domestic and foreign-invested projects, the great majority of 
government procurement contracts in China are handled through domestic 
tenders or direct negotiations with selected suppliers. Projects in 
certain fields require government approvals, usually from several 
different organizations and levels. Procedures can be opaque and 
foreign suppliers are routinely discriminated against in areas where 
domestic suppliers exist.

    Customs procedures are not applied uniformly throughout China. The 
same product may be dutied at different rates in different Chinese 
ports of entry. Some products are subject to different inspection or 
registration procedures than domestic products. For instance, China's 
chemical registration regulations are applied only to foreign-made 
chemicals.
7. Export Subsidies Policies

    China abolished direct subsidies for exports on January 1, 1991. 
Nonetheless, many of China's manufactured exports receive indirect 
subsidies through guaranteed provision of energy, raw materials or 
labor supplies. Other indirect subsidies are also available such as 
bank loans that need not be repaid or enjoy lengthy or preferential 
terms. Tax rebates are available for exporters as are duty exemptions 
on imported inputs for export production. China reduced the level of 
its value-added tax rebates to exporters in 1995 and 1996 and fell 
billions of dollars behind in making payments on the rebates. China 
appears to have made progress in 1997 in reducing its value-added tax 
rebate arrears.

    In its on-going negotiations to accede to the World Trade 
Organization (WTO), China announced in 1997 that it would not re-
introduce export subsidies for agricultural goods following its 
accession. The Chinese National People's Congress at its March 1997 
meeting released little public information about the central 
government's budget revenue and expenditures, making it difficult to 
verify that export subsidies are not still in place.
8. Protection of U.S. Intellectual Property

    Since the signing of the U.S.-bilateral agreement on the protection 
of intellectual property rights (IPR) in February 1995 and the 
agreement in June 1996 on procedures for ensuring its effective 
implementation, China has made significant progress in implementing IPR 
regulations, education, and enforcement. China was taken off the 
``Special 301 Watch List'' in 1996. However, its practices continue to 
be monitored under Section ``306''.

    Since 1995, China claims to have closed a total of 58 unauthorized 
compact disc (CD) production lines, primarily in the southern provinces 
of Guangdong and Fujian, and to have largely eliminated unauthorized CD 
production in China. China claims that unauthorized CDs still sold in 
China are imported from elsewhere, primarily Hong Kong and Macau. China 
has instituted verification procedures, including foils and other 
markings to identify authorized products and CD production equipment 
now requires an official import license to be brought into the PRC. 
China has offered cash rewards of up to some $35,000 for information 
leading to closure of unauthorized CD production lines and has revised 
its laws to provide criminal penalties for IPR violations.

    The U.S. remains concerned that penalties imposed by PRC courts are 
insufficient to act as a deterrent. Industry sources point out that 
unauthorized CDs are still being sold in China. The U.S. has reiterated 
requests for more detailed information, as per the terms of the 1996 
Agreement, regarding closed CD factories and specific penalties imposed 
on IPR violators.

    End-user piracy of computer software remains a serious problem in 
China, especially the sensitive issue of piracy within PRC government 
ministries. The lack of agents in China authorized to accept trademark 
applications from foreign companies makes it difficult for foreigners 
to get trademarks registered. The lack of clarity on procedures to 
protect well-known trademarks makes it overly difficult to oppose or 
seek cancellation of marks registered by someone else. The Ministry of 
Public Health has granted Chinese companies the right to manufacture a 
pharmaceutical product while an American company was awaiting action on 
its application for administrative protection on that product. 
Regulations on the use of copyright agents by foreign companies have 
not yet been finalized, effectively preventing the use of copyright 
agents in obtaining copyrights for transactions by foreign companies. 
The manufacture of counterfeit goods remains a serious, possibly 
growing problem.

    U.S. industry estimates of intellectual property losses in China 
due to counterfeiting, piracy, and exports to third countries have 
exceeded dollars 2 billion.
9. Worker Rights

    a. The Right of Association.--China's 1982 Constitution provides 
for ``freedom of association,'' but this right is subject to the 
interest of the state and the leadership of the Chinese Communist 
Party. China's sole officially recognized workers' organization, the 
All-China Federation of Trade Unions (ACFTU), is controlled by the 
Communist Party. Independent trade unions are illegal. The 1993 revised 
Trade Union Law required that the establishment of unions at any level 
be submitted to a higher level trade level organization. The ACFTU, the 
highest level trade organization, has not approved the establishment of 
independent unions. Workers in companies with foreign investors are 
guaranteed the right to form unions, which then must affiliate with the 
ACFTU.

    b. The Right to Organize and Bargain Collectively.--China's 
National Labor Law, which entered into force on January 1, 1995, 
permits workers in all types of enterprises in China to bargain 
collectively. The law supersedes a 1988 law that allowed collective 
bargaining only by workers in private enterprises. The National Labor 
Law provides for workers and employers at all types of enterprises to 
sign individual as well as collective contracts. Collective contracts 
should be worked out between ACFTU or worker representatives and 
management and specify such matters as working conditions, wage 
distribution, and hours of work. Individual contracts should then be 
drawn up in line with the terms of the collective contract. Collective 
contracts must be submitted to local government authorities for 
approval within 15 days. Through the early autumn of 1997, Chinese 
union and labor officials reported an increasing number of experiments 
in collective bargaining particularly at foreign-invested enterprises 
where capital interests are clearly delineated.

    c. Prohibition of Forced or Compulsory Labor.--In addition to 
prisons and reform through labor facilities, which contain inmates 
sentenced through judicial procedures, China also maintains a network 
of ``reeducation through labor'' camps, to which inmates are sentenced 
through nonjudicial procedures. Inmates of reeducation through labor 
facilities are generally required to work. Reports from international 
human rights organizations and foreign press indicate that at least 
some persons in pretrial detention are also required to work. Chinese 
justice officials have stated that in reeducation through labor 
facilities there is a much heavier emphasis on education than on labor. 
Most reports conclude that work conditions in the penal system's light 
manufacturing factories are similar to those in ordinary factories, but 
conditions on farms and in mines can be harsh.

    d. Minimum Age for Employment of Children.--China's National Labor 
Law forbids employers to hire workers under 16 years of age and 
specifies administrative review, fines and revocation of business 
licenses of those businesses that hire minors. The Chinese Constitution 
establishes the basic right of children to receive nine years of 
compulsory education and to receive their subsistence from parents and 
guardians. Laborers between the ages 16 and 18 are referred to as 
``juvenile workers'' and are prohibited from engaging in certain forms 
of physical work including labor in mines. In poorer isolated areas, 
child labor in agriculture is widespread. China's vast reserve of 
surplus adult labor minimizes incentives to employ children, and 
China's urban child labor problem is relatively minor. No specific 
Chinese industry is identifiable as a significant violator of child 
labor regulations.

    e. Acceptable Conditions of Work.--The National Labor Law codified 
many of the general principles of China's labor reform, setting out 
provisions on employment, labor contracts, working hours, wages, skill 
development and training, social insurance, dispute resolution, legal 
responsibility, supervision and inspection. The law does not set a 
national minimum wage, but allows local governments to determine their 
own standards on minimum wages. On May 1, 1995, China reduced the 
national standard work week from 44 hours to 40 hours excluding 
overtime. The National Labor Law mandates a 24-hour rest period per 
week and does not allow overtime work in excess of three hours a day or 
36 hours a month. The law also sets forth a required scale of overtime 
compensation. While unemployment insurance schemes cover a majority of 
urban workers (primarily state sector workers), it is impossible to 
determine how many laid-off workers in fact receive any compensation.

    Every work unit must designate a health and safety officer, and the 
International Labor Organization has established a training program for 
these officers. Moreover, while the right to strike is not provided for 
in the 1982 Constitution, the Trade Union Law explicitly recognizes the 
right of unions to ``suggest that staff and workers withdraw from sites 
of danger'' and to participate in accident investigations. According to 
Ministry of Labor statistics, released in November 1997, during the 
first eight months of 1997 there were 10,251 work-related accidents 
which claimed 10,434 lives. This represents a drop of approximately 10 
percent when compared with the same 1996 time frame. The Ministry of 
Labor cites failure to enforce and implement government safety 
regulations as the primary cause for the high rate of accidents.

    f. Rights in Sectors with U.S. Investment.--Worker rights practices 
do not appear to vary substantially among sectors, but safety standards 
are higher in U.S.-invested companies in general.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      904 
Total Manufacturing...........................                     1504 
  Food & Kindred Products.....................         133              
  Chemicals & Allied Products.................         249              
  Metals, Primary & Fabricated................          26              
  Machinery, except Electrical................         \1\              
  Electric & Electronic Equipment.............         736              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................         189              
Wholesale Trade...............................                      108 
Banking.......................................                       74 
Finance/Insurance/Real Estate.................                      \1\ 
Services......................................                      \1\ 
Other Industries..............................                      187 
TOTAL ALL INDUSTRIES..........................                    2,883 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                               HONG KONG

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                               1995     1996    1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\..........................    140.1    155.0      174.1
  Real GDP Growth (pct)....................      4.5      4.9        5.5
  GDP by Sector:                                                        
     Agriculture...........................      0.2      N/A        N/A
    Manufacturing..........................     11.0      N/A        N/A
    Services...............................    110.0      N/A        N/A
    Government.............................     12.3     13.7       15.4
  Per Capita GDP (US$).....................   21,617   23,086     25,432
  Labor Force (000s).......................    3,001    3,094      3,159
  Unemployment Rate (pct)..................      3.2      2.8        2.5
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
  Money Supply (M2) \3\....................     14.6     10.9       14.4
  Consumer Price Inflation (pct)...........      8.7      6.0        7.0
  Exchange Rate(HK$/US$):                                               
    Official...............................     7.73     7.73       7.75
                                                                        
Balance of Payments and Trade:                                          
  Total Exports (FOB) \4\..................    173.8    180.8      189.1
    Exports to U.S.\5\.....................     10.3      9.9        9.6
  Total Imports (CIF)......................    192.8    198.9      210.9
    Imports from U.S.\5\...................     14.2     14.0       15.4
  Trade Balance............................    -19.0     17.8      -21.8
    Balance with U.S.\5\...................      3.9      4.1        5.8
  External Public Debt.....................        0        0          0
  Fiscal Deficit/GDP (pct) \6\.............      2.3      0.3       -1.0
  Current Account Deficit/GDP (pct)........     -2.5     -1.0       -1.5
  Debt Service Payments/GDP (pct)..........        0        0          0
  Gold and Foreign Exchange Reserves (end                               
   of period) \7\                               55.4     62.1       89.4
  Aid from U.S.............................        0        0          0
  Aid from All Other Sources...............        0        0          0
------------------------------------------------------------------------
\1\ Estimates based on available monthly data in September 1996         
\2\ Expenditure-based GDP estimates                                     
\3\ Money supply of Hong Kong dollars and foreign currencies            
\4\ Of which domestic exports (as opposed to re-exports) constituted    
  17.2 percent (1995), 15.2 percent (1996) and 14.5 percent (1997       
  estimate based on data through August).                               
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports 
  FAS, imports customs basis; 1997 figures are estimates based on data  
  available through August 1997. Hong Kong merchandise trade includes   
  substantial re-exports (mainly from China) to the United States, which
  are not included in these figures.                                    
\6\ As of Q2 1997                                                       
\7\ As of Q2 1997; the Land Fund was included in the foreign exchange   
  reserves effective July 1, 1997                                       
                                                                        
 Sources: Census and Statistics Department                              

1. General Policy Framework

    The Hong Kong Government pursues economic policies of 
noninterference in commercial decisions, low and predictable taxation, 
government spending increases within the bounds of real economic 
growth, competition subject to transparent laws (albeit without 
antitrust legislation) and consistent application of the rule of law. 
With few exceptions, the government allows market forces to set wages 
and prices, and does not restrict foreign capital or investment. It 
does not impose export performance or local content requirements, and 
allows free repatriation of profits. Hong Kong is a duty-free port, 
with few barriers to trade in goods and services.

    The Government regularly runs budget surpluses, and has amassed 
large fiscal reserves. The corporate profits tax is 16.5 percent, and 
personal income is taxed at a maximum rate of 15 percent. Property is 
taxed. Interest, royalties, dividends, capital gains and sales are not. 
Government spending has grown from approximately 14 percent of GDP in 
the mid 1980s to about 19 percent by the early 1990s.

    Because monetary policy is tied to maintaining the nominal exchange 
rate linked to the U.S. dollar, Hong Kong's monetary aggregates have 
effectively been demand determined. The Hong Kong Monetary Authority, 
responding to market pressures, occasionally adjusts liquidity through 
interest rate changes and intervention in the foreign exchange and 
money markets.

    On July 1, 1997, Hong Kong became a Special Administrative Region 
of the PRC. China assumed responsibilities for Hong Kong's foreign 
affairs and defense, but Hong Kong remains a separate customs territory 
with a high degree of economic autonomy. It continues to manage its 
financial and economic affairs, to use its own currency, and to 
participate independently in international economic organizations and 
agreements.
2. Exchange Rate Policies

    The Hong Kong dollar is linked to the U.S. dollar at an exchange 
rate of HK$7.8 = US$1.00. The link was established in 1983 to encourage 
stability and investor confidence in the run-up to Hong Kong's 
reversion to Chinese sovereignty in 1997. PRC officials have said they 
support Hong Kong's policy of maintaining the link after 1997.

    There are no multiple exchange rates and no foreign exchange 
controls of any sort. Under the linked exchange rate, the overall 
exchange value of the Hong Kong dollar is influenced predominantly by 
the movement of the U.S. dollar against other major currencies. The 
price competitiveness of U.S. exports is affected in part by the value 
of the U.S. dollar in relation to third country currencies.
3. Structural Policies

    There has been no major change in Hong Kong's free market approach 
to economics. The government does not have pricing policies, except for 
in a few still-regulated sectors such as telecommunications. Its 
personal and corporate tax rates remain low, and it does not impose 
import or export taxes. Over the past three years, Hong Kong has 
completed its deregulation of interest rates covering almost 99 percent 
of deposits, removing interest rate caps for deposits of seven days or 
less. Consumption taxes on tobacco, alcoholic beverages, and some fuels 
probably restrict demand for some U.S. exports. Hong Kong generally 
adheres to international product standards.

    Hong Kong's lack of antitrust laws has allowed monopolies or 
cartels--some of which are government-regulated--to dominate certain 
sectors of the economy. These monopolies/cartels do not necessarily 
discriminate against U.S. goods or services, but they can use their 
market position to block effective competition.
4. Debt Management Policies

    The Hong Kong government has minuscule public debt. Repeated budget 
surpluses have meant the government has not had to borrow. To promote 
the development of Hong Kong's debt market, the government in March 
1990 launched an exchange fund bills program with the issuance of 91-
day bills. Maturities have gradually been extended. Five-year notes 
were issued in October 1993, extending maturities beyond Hong Kong's 
reversion to Chinese sovereignty, followed by 7-year notes in late 1995 
and 10-year notes in 1996. Under the Sino-British agreed minute on 
financing the new airport and related railway, total borrowing for 
these projects cannot exceed US$2.95 billion, and such borrowing ``will 
not need to be guaranteed or repaid by the government.'' Liability for 
repayment will rest with the two statutory bodies: the Mass Transit 
Railway Corporation and the future Airport Authority.
5. Significant Barriers to U.S. Exports

    Hong Kong is a member of the World Trade Organization, but is not a 
party to the WTO's plurilateral agreement on civil aircraft. As noted 
above, Hong Kong is a duty-free port with no quotas or dumping laws, 
and few barriers to the import of U.S. goods.

    Import licenses: Hong Kong requires import licenses for textiles, 
rice, meats, plants, and livestock. The stated rationale for most 
license requirements is to ensure health standards are met. The 
requirements do not have a major impact on U.S. exports.

    Services barriers: There are some barriers to entry in the services 
sector:

    Hong Kong has liberalized its telecommunications policy, but still 
maintains a government-regulated monopoly on international voice 
services.

    Foreign ownership of local broadcasting stations or cable operators 
cannot exceed 49 percent. Moreover, the government stipulates that 
broadcasters use the Hong Kong Telecom International satellite uplink 
rather than their own uplink.

    A new bilateral civil aviation agreement gives U.S. air carriers 
important new rights. However, the agreement does not permit code 
sharing or allow U.S. carriers new fifth freedom passenger rights to 
carry passengers beyond Hong Kong. These factors will limit expansion 
of U.S. passenger carriers in the Hong Kong market.

    Foreign law firms are barred from hiring local lawyers to advise 
clients on Hong Kong law, even though Hong Kong firms can hire foreign 
lawyers to advise clients on foreign law. Foreign law firms can become 
``local law firms'' and hire Hong Kong attorneys, but they must do so 
on a 1:1 ratio with foreign lawyers.

    Foreign banks established after 1978 are permitted to maintain only 
one branch (automated teller machines meet the definition of a branch). 
Since 1994, these banks have been allowed to open a regional and a back 
office at separate sites. Foreign banks can acquire local banks that 
have unlimited branching rights.
6. Export Subsidies Policies

    The Hong Kong government neither protects nor directly subsidizes 
manufacturers. It does not offer exporters preferential financing, 
special tax or duty exemptions on imported inputs, resource discounts, 
or discounted exchange rates.

    The Trade Development Council, a quasi-governmental statutory 
organization, engages in export promotion activities and promotes Hong 
Kong as a hub for trade services. The Hong Kong Export Credit and 
Insurance Corporation provides insurance protection to exporters.
7. Protection of U.S. Intellectual Property

    With respect to the legislative arena and international 
conventions, Hong Kong's framework is world class. Hong Kong has 
acceded to the Paris Convention on industrial property, the Berne 
copyright convention, and the Geneva and Paris Universal Copyright 
Conventions. For those conventions that only allow sovereign state 
participation, China is applying all of them to Hong Kong post-1997 (a 
continuation of the United Kingdom's practice). Hong Kong passed a 
solid new copyright law in June 1997. Enforcement of copyright and 
trademarks, however, remains a problem.

    Copyrights: Sale of pirated products at retail shopping arcades is 
widespread and blatant. The United States has urged the government at 
senior levels to crack down on this retail trade, and on the 
distributors/wholesalers behind them. Hong Kong has responded by 
beefing up enforcement manpower in the customs agency and by conducting 
more aggressive retail-level raids. Recent raids, using confiscatory 
powers in the new copyright bill, have had some impact on the 
operations of the largest and most notorious retail arcade, but pirated 
goods remain easily available at more than a dozen other arcades. The 
judiciary has slowly begun to increase sentences and fines on 
infringers. Still, there is no effective deterrent to piracy. In 1997, 
the number of compact disc production plants in Hong Kong rose 
dramatically. While many of the plants appear to be legitimate 
producers, a number are producing pirated discs, including for export 
to China. The United States has urged the government to take measures 
to detect and prevent production of pirated goods. The government has 
decided to develop a new anti-piracy legislative package which, if 
approved, should enable it to monitor and control production.

    Trademarks: Sale of counterfeit items, particularly handbags and 
apparel, is widespread in Hong Kong's outdoor markets. Customs 
officials have conducted numerous raids, but these actions have had 
little impact on the overall availability of counterfeit goods.

    New Technologies: Computer chip manufacturers say Hong Kong remains 
a major center for illicit chip ``re-marking,'' despite a number of 
successful raids by Hong Kong Customs on re-marking centers.

    There are no reliable figures on the total losses to U.S. firms 
from piracy in and through Hong Kong. The Business Software Alliance 
estimated in early 1997 that 62 percent of the business software sold 
in Hong Kong was pirated; it estimates the level of piracy is higher 
for non-business software. The U.S. music industry estimates that 
twenty percent of the recorded music sold in Hong Kong is pirated.
8. Workers Rights

    a. The Right of Association.--Local law provides for right of 
association and the right of workers to establish and join 
organizations of their own choosing. Trade unions must be registered 
with the government. The government does not discourage or impede union 
formation or discriminate against union members. Workers who allege 
anti-union discrimination have the right to have their cases heard by a 
government labor relations body. Work stoppage and strikes are 
permitted; however, in practice, most workers must sign employment 
contracts that state that walking off the job is a breach of contract 
and can lead to summary dismissal. A bill passed just before Hong 
Kong's July 1 reversion removed the longstanding requirement that 
unions obtain government approval prior to affiliating with foreign 
organizations. However, the Provisional Legislature subsequently 
amended the new law to require notification to the Labor Department and 
approval from a majority of union members prior to establishing links 
to foreign labor organizations.

    b. The Right to Organize and Bargain Collectively.--The 
International Convention on the Right to Organize and Bargain 
Collectively has been applied to Hong Kong without modification since 
1975. However, collective bargaining has not been widely practiced. A 
law passed by the pre-reversion legislature made collective bargaining 
and related practices mandatory for unions representing 15 percent or 
more of a company's total workforce in companies with over 50 
employees. The Provisional Legislature subsequently repealed the law.

    c. Prohibition of Forced or Compulsory Labor.--Compulsory labor is 
prohibited under existing legislation.

    d. Minimum Age for Employment of Children.--The ``Employment of 
Children'' regulations prohibit employment of children under age 15 in 
any industrial establishment. Children ages 13 and 14 may be employed 
in certain non-industrial establishments, subject to conditions aimed 
at ensuring a minimum of 9 years of education and protecting their 
safety, health, and welfare. The government continues inspections to 
safeguard against the employment of children. Few violations have been 
found in recent years.

    e. Acceptable Conditions of Work.--There is no minimum wage except 
for foreign domestic workers. Aside from a small number of trades and 
industries in which a uniform wage structure exists, wage levels are 
customarily fixed by individual agreement between employer and employee 
and are determined by supply and demand. Hours and conditions of work 
for women and young persons aged 15 to 17 in industry are regulated. 
There are no legal restrictions on hours of work for men. Overtime is 
restricted in the case of women and prohibited for all persons under 
age 18 in industrial establishments. In extending basic protection to 
its work force, the government has enacted industrial safety and 
compensation legislation. The Labor Department carries out inspections 
to enforce legislated standards and also carries out environmental 
testing and conducts medical examinations for complaints related to 
occupational hazards.

    f. Rights in Sectors with U.S. Investment.--U.S. direct investment 
in manufacturing is concentrated in the electronics and electrical 
products industries. Aside from hazards common to such operations, 
working conditions do not differ materially from those in other sectors 
of the economy. Relative labor market tightness and high job turnover 
have spurred continuing improvements in working conditions as employers 
compete for available workers.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      599 
Total Manufacturing...........................                      260 
  Food & Kindred Products.....................          15              
  Chemicals & Allied Products.................          68              
  Metals, Primary & Fabricated................         \1\              
  Machinery, except Electrical................         490              
  Electric & Electronic Equipment.............        1085              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................         767              
Wholesale Trade...............................                     5022 
Banking.......................................                     1506 
Finance/Insurance/Real Estate.................                     4656 
Services......................................                      815 
Other Industries..............................                      823 
TOTAL ALL INDUSTRIES..........................                   16,022 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                               INDONESIA

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                 1995    1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP.................................   198.1   221.1     211.2
  Real GDP Growth (pct).......................     8.1     7.6       5.0
  GDP by Sector: \2\                                                    
    Agriculture...............................    33.5    36.8       N/A
    Manufacturing.............................     50.    60.3       N/A
    Services..................................    71.0    80.5       N/A
    Government................................    10.4    10.5       N/A
  Per Capita GDP (US$)........................    1014    1116      1049
  Labor Force (millions)......................      82      85        88
  Unemployment Rate (pct).....................     4.4     4.6       N/A
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply (M2) \5\.......................    27.6    30.8      13.1
  Consumer Price Inflation (pct) \4\..........     9.0     8.0      10.0
  Exchange Rate (rupiah/US$):                                           
    (avg. for yr.)............................    2249    2335      2900
                                                                        
Balance of Payments and Trade:                                          
  Total Exports (FOB) \3\.....................    45.5    50.4      25.6
    Exports to US \3\.........................     7.4     8.2       3.3
  Total Imports (CIF) \3\.....................    39.8    44.9      21.4
    Imports from US \3\.......................     3.4     3.7       2.8
  Trade Balance \3\...........................     5.7     5.5       4.2
    Balance with US \3\.......................     4.0     4.5       0.5
  External Public Debt........................   108.5   116.5     117.3
  Debt Service Payments/GDP (pct).............     7.9     7.4       N/A
  Current Account Deficit/GDP(pct)............     3.6     3.9       3.0
  Fiscal Deficit/GDP (pct) \4\................    -1.0     0.1       0.8
  Gold and Foreign Exchange Reserves (end of                            
   period)                                        14.7    17.1      19.2
  Aid from U.S. (millions of US$).............    96.0    71.0      72.5
  Aid from All Other Sources..................     5.3     5.2       N/A
------------------------------------------------------------------------
\1\ Estimates based on preliminary data in November 1997.               
\2\ GDP at market prices. GDP figures for 1997 are preliminary          
  estimates.                                                            
\3\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports 
  FAS, imports customs basis; 1997 figures are estimates for January--  
  June 1997 from Indonesian Central Bureau of Statistics.               
\4\ Estimate for fiscal year 1997/98 (4/1/97-3/31/98)                   
\5\ 1997 figure is for January--September 1997                          
                                                                        
Sources: Government of Indonesia, U.S. Department of Commerce, IMF      

1. General Policy Framework

    Indonesia has made remarkable economic progress over the last 30 
years. In 1967, it was one of the world's poorest countries, with per 
capita GDP of $70 per person. Indonesia's estimated per capita GDP 
passed $1000 in 1995, life expectancy has risen to 63 years from 41 
years in 1965, and infant mortality and illiteracy rates have fallen 
dramatically. Real GDP growth averaged over 7 percent per year from 
1991-1996 with inflation confined to the 5-10 percent range. Slower 
growth and higher inflation are expected in 1997 as a result of the 
economic downturn sparked by sharp depreciations in mid-1997 of the 
currencies of Indonesia and other Southeast Asian countries and 
drought.

    The government maintains a balanced budget in the sense that on-
budget expenditures do not exceed domestic revenue plus foreign 
assistance receipts. The central bank controls the money supply through 
the purchase and sale of its own open market instruments, known as 
``Sertifikat Bank Indonesia'' (SBI's) and ``Surat Berharga Pasar Uang'' 
(SBPU's).

    The Indonesian government has made steady progress in trade and 
investment deregulation, usually by periodically implementing 
``deregulation packages'' of liberalization measures. Through these 
packages, the government has lowered investment barriers and instituted 
a program of comprehensive tariff reduction by staged cuts. Its goal is 
to reduce all tariffs in the 1-20 percent range to 5 percent or less by 
2000, and to reduce all tariffs in the 20 percent and higher range to 
10 percent or less by 2003. Although the deregulation packages have 
made comparatively less progress in reducing non-tariff barriers, the 
government's November 1997 package, prepared in collaboration with the 
International Monetary Fund (IMF), ended some monopolies on food items 
and pledged gradual opening of Indonesia's closed distribution system.

    Indonesia's economic development offers promise for U.S. business. 
U.S. exports to Indonesia have quadrupled since 1987. U.S. merchandise 
exports to Indonesia grew by nearly 16 percent in 1996 to $8.2 billion. 
The best prospects for U.S. exporters include equipment used in the 
construction of infrastructure, machinery, agricultural products for 
consumption and as manufacturing inputs, aviation equipment, and 
household consumer goods. However, the rupiah depreciation and economic 
downturn that characterized the second half of 1997 had an adverse 
impact on exports from the United States and other countries.
2. Exchange Rate Policies

    From late 1986 until August 1997, the rupiah was on a managed 
float, depreciating slowly against a basket of trading partners' 
currencies. Over the past several years, Bank Indonesia (the central 
bank) had steadily widened the band between its buying and selling rate 
on the rupiah in an effort to encourage the development of an interbank 
foreign exchange market and discourage speculative short-term capital 
flows. However, with pressure on the rupiah and the currencies of 
neighboring countries, Bank Indonesia decided on August 14 to eliminate 
its intervention band. Since then, the rupiah has essentially floated, 
although Bank Indonesia continues to intervene on occasion in an effort 
to stabilize the exchange rate; that support is an important element of 
the IMF package mentioned above. As of late November 1997, the exchange 
rate was 3,500 rupiah per U.S. dollar, amounting to an almost 50 
percent nominal devaluation since the beginning of the year.
3. Structural Policies

    In general, the government allows the market to determine price 
levels. The government enforces a system of floor and ceiling prices 
for certain ``strategic'' food products such as rice. The number of 
such products was reduced by the government as part of its November 
1997 economic reforms. In some cases, business associations, with 
government support, establish prices for their products. Direct 
government subsidies are confined to a few goods such as fertilizer and 
electricity.

    Individuals and businesses are subject to income taxes. In 1995, 
the government reduced the highest marginal income tax rate on firms as 
well as individuals to 30 percent for annual earnings in excess of 
Rupiah 50 million (US$ 14,300 at the November 1997 exchange rate). A 
value-added tax and import duties are other important sources of 
government revenue. Companies can apply for an exemption from or a 
rebate of import duties and VAT paid on inputs used to produce exports. 
A number of agricultural and resource based products remain subject to 
export taxes. They include sawn lumber, rattan, mineral ores, and palm 
oil.
4. Debt Management Policies

    Indonesia's foreign debt totals about $117 billion, with about $52 
billion owed by the state sector and $65 billion by the private sector. 
In 1997 Indonesia will devote the equivalent of approximately 34 
percent of total export earnings to principal and interest payments on 
its foreign debt. The government is fully committed to meeting official 
debt service obligations and has no plans to seek debt rescheduling.

    A Cabinet-level team was set up by the government in September 1991 
to oversee foreign borrowing. The team is charged with reviewing 
applications for foreign commercial credits to finance projects in 
which the government or a state owned enterprise is involved. Financing 
for purely private projects is not affected.
5. Significant Barriers to U.S. Exports

    Import licenses: The government has been reducing the number of 
items subject to import licenses and other non-tariff import barriers 
such as special licensing requirements. Such barriers are concentrated 
on agricultural commodities and selected strategic industries.

    Services barriers: Despite some loosening of restrictions, services 
trade entry barriers continue to exist in many sectors, particularly in 
the financial sector. Foreign banks, securities firms, and life and 
property insurance companies are permitted to form joint ventures with 
local companies, but in most cases the capitalization requirements are 
higher than for domestic firms, and there are legal requirements, 
albeit not yet enforced in practice, that require foreign-owned 
financial services firms to divest to a minority-level of ownership. 
Removal of those sorts of barriers was under intensive discussion in 
late 1997 within the framework of the World Trade Organization 
Financial Services negotiations in Geneva.

    Foreign accounting firms must operate through technical assistance 
arrangements with local firms, but Indonesian citizenship is no longer 
a requirement for licensing as an accountant. Foreign agents and 
auditors may act only as consultants and may not sign audit reports. 
Foreign law firms are not allowed to establish practices in Indonesia. 
Attorneys are admitted to the bar only if they have graduated from an 
Indonesian legal faculty or an institution recognized as the 
equivalent. Foreign companies incorporated in Indonesia may issue 
stocks and bonds through the capital market.

    Distribution in the domestic market has been quite restricted. The 
November 1997 deregulation package included a provision allowing 
foreign firms that produce in Indonesia to directly distribute their 
products domestically. Beginning in 2003, such firms may sell their 
products at the retail level. Indonesia imposes a quota on the number 
of foreign films which may be imported in a given year. Films may be 
imported and distributed only by fully Indonesian-owned companies.

    Standards, testing, labeling and certification: Despite a policy 
which states that the Department of Health must decide within one year 
of receipt of an application whether to grant registration for new 
foreign pharmaceutical products, registration can take longer in 
practice. Foreign pharmaceutical firms have seen copied products 
available on the local market before their products were registered. 
Through changes in its patent law, the government is addressing such 
problems.

    Investment barriers: The government is committed to increasing 
foreign investment and to reducing burdensome bureaucratic procedures 
and substantive requirements for foreign investors. The most 
substantial measure was taken in June 1994, when the government dropped 
initial foreign equity requirements and sharply reduced divestiture 
requirements. Indonesian law now provides for both 100 percent direct 
foreign investment projects and joint ventures with a minimum Indonesia 
equity of 5 percent. In addition, the government opened several 
previously restricted sectors to foreign investment, including harbors, 
electricity generation, telecommunications, shipping, airlines, 
railways, roads, and water supply. Some sectors remain restricted or 
closed to foreign investment and are carried on the so-called negative 
list. They include retail trade, some types of wood processing, 
television and radio broadcasting, local shipping and transportation, 
and logging.

    Most foreign investment proposals must be approved by the Capital 
Investment Coordinating Board (BKPM). Investments in the oil and gas, 
mining, banking, securities and insurance industries are covered by 
specific laws and regulations and handled by the relevant technical 
ministries.

    In a significant move, the government of Indonesia in September 
1997 removed all foreign ownership limitations on firms publicly traded 
on Indonesian stock markets (the Jakarta and Surabaya stock exchanges), 
with the exception of banks, where a 49 percent foreign-ownership limit 
remains.

    In March 1996, Indonesia announced a ``pioneer'' auto industry 
policy intended to promote the establishment of an indigenous 
Indonesian auto industry. The program grants import tariff and tax 
preferences to only one company which meets certain requirements, 
including that it be fully Indonesian owned and that it meet specified 
domestic content levels within three years. In addition, the company 
could import up to 45,000 completely built-up units duty free while it 
established production capacity. The United States, the European Union, 
and Japan are engaged in dispute settlement procedures with Indonesia 
on this matter under the World Trade Organization; Indonesia has 
pledged to abide by the ruling.

    Government procurement practices: In 1994, the government enacted a 
procurement law to regulate government procurement practices and 
strengthen the procurement oversight process. Most large government 
contracts are financed by bilateral or multilateral donors who specify 
procurement procedures. For large projects funded by the government, 
international competitive bidding practices are to be followed. The 
government seeks concessional financing which includes a 3.5-percent 
interest rate and a 25-year repayment period with 7 years' grace. Some 
projects do proceed on less concessional terms. Foreign firms bidding 
on certain government-sponsored construction or procurement projects 
may be asked to purchase and export the equivalent in selected 
Indonesia products. Government departments and institutes and state and 
regional government corporations are expected to utilize domestic goods 
and services to the maximum extent feasible, but this is not mandatory 
for foreign-aid-financed-goods and services procurement. State-owned 
enterprises which have offered shares to the public through the stock 
exchange are exempted from government procurement regulations.

    Customs procedures: On April 1, 1997, the Indonesian Customs 
Service resumed authority over inspections after a 12-year hiatus 
during which Indonesia operated a post-shipment inspection system by 
contract with Swiss firm Societe Generale de Surveillance (SGS). 
Despite some initial uncertainty over the new post-audit system and 
backlogs at the ports in the months following the switch, the 
transition to the new system appears to be complete. The government is 
now working to implement an electronic data interchange (EDI) system to 
link Customs with importers and banks to smooth the flow of trade.
6. Export Subsidies Policies

    Indonesia joined the GATT Subsides Code and eliminated export loan-
interest subsidies as of April 1, 1990. As part of its drive to 
increase non-oil and gas exports, the government permits restitution of 
VAT paid by a producing exporter on purchases of materials for use in 
manufacturing export products. Exemption from or drawbacks of import 
duties are available for goods incorporated into exports.
7. Protection of U.S. Intellectual Property

    Indonesia is a member of the World Intellectual Property 
Organization (WIPO) and in 1997 became full party to the Paris 
Convention for the Protection of Intellectual Property, the Bern 
Convention for the Protection of Literary and Artistic Works, the 
Patent Cooperation Treaty, the Trademark Law Treaty, and the WIPO 
Copyright Treaty.

    Indonesia is making progress in improving intellectual property 
protection. New patent, trademark, and copyright laws were enacted in 
May 1997 in order to bring Indonesia's laws into compliance with the 
WTO Agreement on Trade-Related Aspects of Intellectual Property. The 
laws addressed many of the remaining inadequate penalties but lax 
enforcement and a judicial system unfamiliar with intellectual property 
law still pose problems for U.S. companies. The government has turned 
its attention to improving enforcement of its IPR regime and public 
awareness of the issues. In April 1997, the U.S. Trade Representative 
cited Indonesia on its Special 301 Priority Watch List for IPR 
protection. The government often responds to U.S. companies which put 
forward specific complaints about pirated goods and trademark abuse, 
but the court system can be capricious, and punishment of pirates of 
intellectual property has been rare.


    --Patents: Indonesia's 1997 patent law addressed several areas of 
concern to U.S. companies, including compulsory licensing provisions, a 
relatively short term of protection, and a provision which allowed 
importation of 50 pharmaceutical products by non-patent holders.

    --Trademarks: The April 1993 trademark law provided for 
determination of trademark rights by registration rather than first 
use. The law provides protection for well-known marks but because the 
judicial process is time-consuming and unreliable, companies continue 
to find it difficult to protect well-known marks in Indonesia. After 
registration, marks must actually be used in commerce and cancellation 
actions must be lodged within five years of the trademark registration 
date.

    --Copyrights: The government has demonstrated that it wants to stop 
copyright piracy and that it is willing to work with copyright holders 
to this end. In late 1997, the government reinvigorated its efforts to 
combat pirated audio and video compact disks and software by 
demonstrating a commitment to more strenuous enforcement.

    --New technologies: Biotechnology and integrated circuits are not 
protected under Indonesia intellectual property laws. The government is 
in the process of preparing laws on trade secrets, industrial design, 
and integrated circuits.

    --Impact: U.S. industry has placed considerable emphasis on 
improvement of Indonesia's intellectual property regime, but it is 
difficult to estimate prospective losses incurred by current 
inadequacies in protection.
8. Worker Rights

    a. The Right of Association.--Private sector workers, including 
those in export processing zones, are by law free to form worker 
organizations without prior authorization. However, government policies 
and current numerical requirements for union recognition constitute a 
significant barrier to freedom of association and the right to engage 
in collective bargaining. The federation of all-Indonesia trade unions 
(FSPSI), the only trade union federation recognized by the government, 
and single company ``plant-level unions'' can legally bargain on behalf 
of employees or represent workers in the department of manpower's labor 
courts. The government may dissolve a union if it believes the union is 
acting against the national ideology, Pancasila, although it has never 
actually done so, and there are no laws or regulations specifying 
procedures for union dissolution.

    Two labor groups other than FSPSI are active but not recognized by 
the government: the Serikat Buruh Sejahtera Indonesia (SBSI, Indonesia 
Prosperity Trade Union), and the Alliance of Independent Journalists 
(AJI). The government considers the SBSI and AJI to be illegal and has 
harassed them by arrests, interrogations, and disbanding meetings, but 
has not formally banned them. As of November 1997, the leader of the 
SBSI, Muchtar Pakpahan, was being tried on subversion charges.

    Civil servants are not permitted to join unions and must belong to 
KORPRI, a nonunion association whose central development council is 
chaired by the Minister of Home Affairs. State enterprise employees, 
defined to include those working in enterprises in which the state has 
a 5-percent holding or greater, usually are required to join KORPRI, 
but a small number of state enterprises have FSPSI units. Teachers must 
belong to the teachers' association (PGRI). All organized workers 
except civil servants have the legal right to strike. While state 
enterprise employees and teachers rarely exercise this right, private 
sector strikes are frequent.

    b. The Right to Organize and Bargain Collectively.--Recognized 
trade unions and plant level unions can legally engage in collective 
bargaining and can collect dues from members through a checkoff system. 
In companies without unions, the government discourages workers from 
utilizing outside assistance, preferring that workers seek its 
assistance. By regulation, negotiations must be concluded within 30 
days or be submitted to the Department of Manpower for mediation and 
conciliation or arbitration. Agreements are for two years and can be 
extended for one year. According to NGOs involved in labor issues, the 
provisions of these agreements rarely go beyond the legal minimum 
standards established by the government, and the agreements are often 
merely presented to worker representatives for signing rather than 
being negotiated.

    Although government regulations prohibit employers from 
discriminating or harassing employees because of union membership, 
there are credible reports from union officials of employer retribution 
against union organizers, including firing, which is not effectively 
prevented or remedied in practice. Charges of antiunion discrimination 
are adjudicated by administrative tribunals. However, because many 
union members believe the tribunals generally side with employers, many 
workers reject or avoid the procedure and present their grievances 
directly to the national human rights commission, parliament and other 
agencies. Administrative decisions in favor of dismissed workers tend 
to be monetary awards; workers are rarely reinstated. The provisions of 
the law make it difficult to fire workers, but the law is often ignored 
in practice.

    The armed forces, which include the police, continue to involve 
themselves in labor issues, despite the Minister of Manpower's 
revocation in 1994 of a 1986 regulation allowing the military to 
intervene in strikes and other labor actions. A 1990 decree gives the 
agency for coordination of national stability (BAKORSTANAS) authority 
to intervene in strikes in the interest of political and social 
stability remains in effect.

    c. Prohibition of Forced or Compulsory Labor.--The law forbids 
forced labor, and the government generally enforces it. However, 
according to credible sources, there are several thousand children 
working on fishing platforms off the East coast of North Sumatra in 
conditions of bonded labor. Most are recruited from farming 
communities, and once they arrive at the work site, are not permitted 
to leave for at least three months and until a replacement worker can 
be found. Children receive average monthly wages of $17 to $32. They 
live in isolation on the sea, working 12 to 20 hours per day in often 
dangerous conditions, sleeping in the workspace with no access to 
sanitary facilities. There are reports of physical, verbal and sexual 
abuse of the children.

    d. Minimum Age for Employment of Children.--Child labor exists in 
both industrial and rural areas, and in both the formal and informal 
sectors. According to a 1995 report of the Indonesian Central Bureau of 
Statistics, four percent of Indonesian children between the ages of 10 
and 14 work full-time, and another four percent work in addition to 
going to school. Many observers believe that number to be significantly 
understated, because documents verifying age are easily falsified, and 
because children under 10 were not included. Indonesia was one of the 
first countries to be selected for participation in the ILO's 
international program on the elimination of child labor (IPEC). 
Although the ILO has sponsored training of labor inspectors on child 
labor matters under the IPEC program, enforcement remains lax.

    e. Acceptable Conditions of Work.--Indonesia does not have a 
national minimum wage. Rather, area wage councils working under the 
supervision of the national wage council establish minimum wages for 
regions and basic needs figures for each province--a monetary amount 
considered sufficient to enable a single worker to meet the basic needs 
of nutrition, clothing, and shelter. While Indonesia has succeeded in 
dramatically lowering the level of poverty throughout the country, the 
minimum wage rates until recently have usually lagged behind inflation 
and even the basic needs figures. The government raised minimum wage 
rates the last three years, and in 1996 required employers to pay 
workers for 30 days during a month. In Jakarta the minimum wage is 
about $57 (rp 172,500) per month. There are no reliable statistics on 
the number of employers paying at least the minimum wage. Independent 
observers' estimates range between 30 and 60 percent.

    Labor-law and ministerial regulations provide workers with a 
variety of other benefits, such as social security, and workers in more 
modern facilities often receive health benefits, free meals, and 
transportation. The law establishes 7-hour workdays and 40-hour work 
weeks, with one 30-minute rest period for each 4 hours of work. The law 
also requires 1 day of rest weekly. The daily overtime rate is 1\1/2\ 
times the normal hourly rate for the first hour, and twice the hourly 
rate for additional overtime. Observance of laws regulating benefits 
and labor standards varies from sector to sector and by region. 
Employer violations of legal requirements are fairly common and often 
result in strikes and employee protests. The Ministry of Manpower 
continues publicly to urge employers to comply with the law. However, 
in general, government enforcement and supervision of labor standards 
are weak.

    Both law and regulations provide for minimum standards of 
industrial health and safety. In the largely western-operated oil 
sector, safety and health programs function reasonably well. However, 
in the country's 100,000 larger registered companies in the nonoil 
sector, the quality of occupational health and safety programs varies 
greatly. The enforcement of health and safety standards is severely 
hampered by the limited number of qualified department of manpower 
inspectors as well as by the low level of employee appreciation for 
sound health and safety practices. Allegations of corruption on the 
part of inspectors are common. Workers are obligated to report 
hazardous working conditions. Employers are forbidden by law from 
retaliating against those who do, but the law is not effectively 
enforced.

    f. Rights in Sectors with U.S. Investment.--Working conditions in 
firms with U.S. ownership are widely recognized as better than the norm 
for Indonesia. Application of legislation and practice governing worker 
rights is largely dependent upon whether a particular business or 
investment is characterized as private or public. U.S. investment in 
Indonesia is concentrated in the petroleum and related industries, 
primary and fabricated metals (mining), and pharmaceutical sectors.

    Foreign participation in the petroleum sector is largely in the 
form of production sharing contracts between the foreign companies and 
the state oil and gas company, Pertamina, which retains controls over 
all activity. All employees of foreign companies under this arrangement 
are considered state employees and thus all legislation and practice 
regarding state employees generally applies to them. Employees of 
foreign companies operating in the petroleum sector are organized in 
KORPRI. Employees of these state enterprises enjoy most of the 
protection of Indonesia labor laws but, with some exceptions, they do 
not have the right to strike, join labor organizations, or negotiate 
collective agreements. Some companies operating under other contractual 
arrangements, such as contract or work and, in the case of the mining 
sector, cooperative coal contracts, do have unions and collective 
bargaining agreements.

    Regulations pertaining to child labor and child welfare are 
applicable to employers in all sectors. Employment of children and 
concerns regarding child welfare are not considered major problem areas 
in the petroleum and fabricated metals sectors. Legislation regarding 
minimum wages, hours of work, overtime, fringe benefits, health and 
safety applies to all sectors. The best industrial and safety record in 
Indonesia is found in the oil and gas sector.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                     4742 
Total Manufacturing...........................                      353 
  Food & Kindred Products.....................          32              
  Chemicals & Allied Products.................         199              
  Metals, Primary & Fabricated................          10              
  Machinery, except Electrical................           2              
  Electric & Electronic Equipment.............         \1\              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................         \1\              
Wholesale Trade...............................                       93 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                      431 
Services......................................                      \1\ 
Other Industries..............................                     1687 
TOTAL ALL INDUSTRIES..........................                     7571 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                 JAPAN

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                               1995     1996      1997  
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP..............................  5,143.0  4,623.1  \1\ 4,214
                                                                      .5
  Real GDP Growth (pct)....................      1.4      3.5    \2\ 1.2
  GDP by Sector:                                                        
    Agriculture............................     99.3      N/A           
    Manufacturing..........................  1,270.4      N/A           
    Services...............................    874.3      N/A           
    Government.............................    415.0      N/A           
  Per Capita Income (USD)..................   31,546      N/A           
  Labor Force (millions)...................     66.5     67.1   \3\ 67.9
  Unemployment Rate (pct)..................      3.2      3.4    \4\ 3.4
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
  Money Supply (M2 + CD)...................      3.2      3.3    \3\ 3.0
  Consumer Price Inflation.................      0.1      0.1    \3\ 1.6
  Exchange Rate: (yen/USD).................    93.90   108.81     120.40
                                                                        
Balance of Payments and Trade:                                          
  Total Exports (FOB)......................      N/A      N/A        N/A
    Exports to United States (FOB).........      N/A      N/A        N/A
  Total Imports (CIF)......................      N/A      N/A        N/A
    Imports from United States (CIF).......      N/A      N/A        N/A
  Trade Balance............................      N/A      N/A        N/A
    Trade Balance with United States.......      N/A      N/A        N/A
    Current Account Surplus/GDP (pct)......      N/A      N/A        N/A
    External Public Debt...................      N/A      N/A        N/A
    Debt Service Payments/GDP (pct)........      N/A      N/A        N/A
    Fiscal Deficit/GDP (pct)...............      3.7      N/A        N/A
  Gold and Foreign Exchange Reserves.......    182.8    217.9  \5\ 223.9
  Aid from United States...................        0        0          0
  Aid from All Other Sources...............        0        0          0
------------------------------------------------------------------------
\1\ January-June, seasonally adjusted, annualized.                      
\2\ January-June, year-over-year, non-seasonably adjusted               
\3\ January-September, non-seasonally adjusted average.                 
\4\ January-September, seasonally adjusted average.                     
\5\ As of end-August 1997.                                              
                                                                        
 Source: U.S. Department of Commerce and U.S. Census Bureau; exports    
  FAS, imports customs basis; 1996 figures are estimates based on data  
  available through November 1996.                                      

1. General Policy Framework

    The growth of Japan's economy, the world's second largest at 
roughly $4.7 trillion, has stalled in 1997 due to a number of factors 
(e.g., consumption tax increase, income tax breaks ended), after 
posting relatively strong real GDP growth of 3.6 percent in 1996. Most 
private sector forecasts now see growth in 1997 at below 1.0 percent.

    The current economic slowdown, which began in mid-1991, is the 
longest in Japan's postwar history. (Until 1992-3, Japan had never 
experienced two consecutive years of less than 3 percent real growth in 
the postwar period.) The surge in asset prices to unsustainable levels 
and high rates of capital investment and hiring in the late 1980's gave 
way by 1991 to sharply slower growth, corporate restructuring, and 
balance sheet adjustment by businesses. Consumer sentiment has also 
been noticeably weak.

    In recent years, the Japanese Government has used public spending 
to offset weak or negative private demand growth. Seven fiscal stimulus 
packages between August 1992 and January 1997 have boosted public 
investment spending substantially, while temporary tax cuts have 
supported private demand.

    Japan's 1996 external accounts posted global trade and current 
account surpluses of $83 billion (BOP basis) and $66 billion, 
respectively. Through the first 9 months of 1997, import volume 
remained nearly flat due to sluggish domestic demand growth, while 
exports rose by a robust 11.5 percent. The current account surplus 
through the first 8 months of 1997 grew to an annualized level of 
approximately $90 billion.

    In order to ease credit conditions to support the economy, the Bank 
of Japan lowered the official discount rate nine times between mid-1991 
and September 1995, from 6.0 percent per year to 0.5 percent. Nominal 
interest rates have set new record lows during 1997; still, bank 
lending has remained sluggish.
2. Exchange Rate Policy

    The yen has depreciated against the dollar in 1997. The average 
exchange rate through the first 9 months of 1997 was 120 yen per 
dollar, versus 109 yen per dollar in 1996. The United States-Japan 
Financial Services Agreement of February 1995 resulted in significant 
relaxation of foreign exchange controls, and Japanese authorities are 
considering adopting additional decontrols in the near future in line 
with Big Bang Financial Reform.
3. Structural Policies

    Pricing Policy: Japan is a market economy, with prices generally 
set in accordance with supply and demand. However, with very high gross 
retail margins (needed to cover high fixed and personnel costs) and a 
complex distribution system, Japan's retail prices exhibit greater 
downward stickiness than in other large market economies. Moreover, 
some sectors such as construction are susceptible to cartel-like 
pricing arrangements, and in many key sectors heavily regulated by the 
government (i.e., transport, warehousing) the government can still 
exert some limited temporary authority over pricing.

    Tax policy: Japanese corporate taxes are generally high by OECD 
standards. While there is some discussion of a cut in the corporate 
income tax rate in FY 98 from 37.5 percent to 34.5 percent. Income tax 
levels vary by income bracket; the scale is highly progressive. 
Temporary income tax cuts totaling 2 trillion yen per year expired at 
the end of 1996, while the consumption tax was increased from 3 to 5 
percent in April 1997. A one time two year tax cut has been proposed by 
Prime Minister Hashimoto for 1998.

    Regulatory and Deregulation Policy: Japan's economy remains highly 
regulated, and the Japanese Government and business community recognize 
that deregulation is a high priority issue. Still, opposition to change 
remains strong among vested-interest groups, and the economy remains 
burdened by numerous national and local government regulations, which 
have the effect of impeding market access by foreign firms. Official 
regulations also reinforce traditional Japanese business practices that 
restrict competition, help block new entrants (domestic or foreign) and 
raise costs. Examples of regulations that act as impediments include: 
the Large Scale Retail Store Law, designed to protect local merchants 
from large retail competition; severe restrictions on foreign lawyers; 
and the Japanese Government's tight regulation of all nongovernmental 
employment services, including job placement, executive search, 
recruitment, personnel counseling and training, and temporary worker 
services.

    In April 1995 the Japanese Government issued a 3-year deregulation 
action plan. The plan was revised in March 1996, and the final revision 
was instituted in March 1997. The government has not yet announced its 
plans to follow up this 3-year program. In June, 1996 the President and 
Prime Minister agreed on an Enhanced Initiative on Deregulation and 
Competition Policy under the United States-Japan Framework Agreement. 
This Initiative focuses bilateral efforts on achieving concrete 
deregulation in key sectoral and structural areas in Japan, such as 
telecommunications, housing, financial services, medical devices and 
pharmaceuticals, distribution and competition policy.
4. Debt Management Policies

    Japan is the world's largest net creditor. The Bank of Japan's 
foreign exchange reserves exceed $200 billion. It is an active 
participant together with the United States in international 
discussions of developing-country indebtedness issues in a variety of 
fora.
5. Significant Barriers to U.S. Exports

    Japan is the United State's third-largest export market. The U.S. 
is the largest market for Japanese exports. However, in many sectors 
U.S. exporters continue to enjoy incomplete access to the Japanese 
market. While Japan has reduced its formal tariff rates on most imports 
to relatively low levels, it has maintained non-tariff barriers--such 
as non-transparency, discriminatory standards, and exclusionary 
business practices--and tolerates a business environment that protects 
established companies and restricts the free flow of competitive 
foreign goods into the Japanese market. In October 1997 the 
Administration cited autos, flat glass, paper products, and variety-by-
variety testing of fruit (including apples) as sectors where Japanese 
trade practices give rise to particular concern, and noted bilateral 
civil aviation relations and Japanese port practices as areas 
warranting continued attention.

    Agricultural and Wood Products: Some progress has been achieved 
through continued U.S. pressure on Japan to liberalize its markets for 
imported agricultural and wood products. However, tariffs on some 
processed food products remain relatively high, and other barriers to a 
liberalized market remain. For example, Japan continues to restrict, 
for phyto-sanitary reasons, the entry of numerous fruits and 
vegetables, such as pears and potatoes. In some cases, such as 
cherries, nectarines and apples, phyto-sanitary protocols may include 
only specific limited product varieties, excluding other, almost 
identical varieties. Tariffs for wood products will be reduced under 
Japan's Uruguay Round commitments, but remaining high tariffs will 
continue to pose significant barriers to market access. Among 
structural barriers, non-transparent bidding procedures for procurement 
of building materials, including value-added wood products, 
disadvantage foreign wood suppliers.

    Telecom and Broadcast: Access to the telecommunications and 
broadcasting services market remains constrained by both regulatory and 
monopolistic practices. In recent years, Japan has adopted a series of 
significant measures to foster a more pro-competitive regime in the 
telecommunications sector. However, barriers remain. There are foreign 
investment limits on cable TV and direct-to-home (DTH) satellite 
broadcasting companies. A rigid and unnecessarily burdensome regulatory 
system exists for DTH. Gaining access to utility poles and other 
facilities needed to build competing infrastructure and in Nippon 
Telegraph and Telephone (NTT) is extremely difficult. Equipment testing 
and certification procedures are expensive and time-consuming. Even in 
areas like interconnection and international simple resale, where the 
Japanese government has proposed liberalizing measures, there is strong 
concern that they will not be sufficient to foster real competition. 
The planned restructuring of NTT is unlikely to go far enough in 
deterring possible anti-competitive cross-subsidization. NTT's 
continued use of proprietary standards makes it difficult for foreign 
companies to sell to Japan's major purchaser of telecommunications 
equipment.

    Standards, Testing, Labeling, and Certification: Standards, 
testing, labeling and certification problems hamper market access in 
Japan. In some cases, advances in technology, products or processing 
make Japanese standards outdated and restrictive. Domestic industry 
often supports standards that are unique and restrict competition, 
although in some areas external pressure has brought about the 
simplification or harmonization of standards to comply with 
international practices. Fresh agricultural products continue to be 
subject to extensive restrictions including phytosanitary restraints, 
required overseas production-site inspections, fumigation requirements 
and tariff rate or import quotas.

    Foreign direct investment (FDI): FDI into Japan has remained 
extremely small in scale relative to the size of the economy. In 1996, 
FDI totaled $6 billion, or 0.08 percent of GDP, as compared to $84 
billion, or 1.4 percent, in the United States. The low level of FDI 
reflects the high costs of doing business, the legacy of former 
investment restrictions, and a continuing environment of structural 
impediments to greater foreign investment. The challenges facing 
foreign investors seeking to establish or enhance a presence in Japan 
include laws and regulations that directly or indirectly restrict the 
establishment of business facilities, close ties between government and 
industry, informal exclusive buyer-supplier networks and alliances, 
taxation and accounting practices, and a difficult regulatory and 
opinion environment for foreign or domestic acquisitions of existing 
Japanese firms.

    Recently, the Japanese Government has implemented some potentially 
useful measures from the perspective of increasing foreign direct 
investment, including easing restrictions on foreign capital entry. 
Still, most Japanese Government investment promotion measures to date 
have been dictated by domestic priorities, and do not address the most 
important concerns of potential foreign investors. In addition, the 
acquisition of Japanese companies is difficult, due in part to cross 
holding of shares between allied companies and a resulting small 
publicly traded percentage of shares. This practice hinders the efforts 
of foreign firms wishing to acquire distribution or service networks 
through mergers or acquisitions.

    Government Procurement Practices: Japan is a WTO member and became 
a party to the WTO Government Procurement Agreement (GPA) which took 
effect in January 1996. While government procurement in Japan at the 
central, regional and local levels generally conforms to the letter of 
the WTO agreement, there are reports that at some procuring entities, 
established domestic competitors continue to enjoy informally 
preferential access to tender information. In some sectors, unfair low 
pricing remains a problem, preventing companies from winning based on 
fairly priced bids. Moreover, some entities continue to draw up tender 
specifications in a way that favors a preferred vendor, using design-
based specifications rather than more neutral performance-based 
specifications.

    Customs Procedures: Japanese customs has made progress in 
automating its own clearing procedures, and efforts are underway to 
integrate the procedures of other Japanese Government agencies over the 
next several years; however, U.S. exporters still face relatively slow 
and burdensome processing.
6. Export Subsidies Policies

    Of the $9.439 billion that Japan allotted for official development 
assistance in 1996, approximately 29.3 percent was earmarked for loan 
aid.Japan has eliminated tied aid credits and now extends about 98 
percent of its loan aid under officially untied terms. However, there 
is also a suspicion that tied feasibility studies (funded by grant aid) 
for untied loan aid projects may unfairly target specifications to 
Japanese bidders.
7. Protection of U.S. Intellectual Property Rights

    Japan is a party to the Berne and Universal Copyright Conventions, 
the Paris Convention on Industrial Property, the Patent Cooperation 
Treaty, and the WTO Agreement on Trade-Related Aspects of Intellectual 
Property Rights (TRIPS). Japan's intellectual property rights (IPR) 
regime affords national treatment to U.S. entities. Although Japan has 
reduced average patent dependency in recent years, average patent 
pendency in Japan is one of the longest among developed countries. This 
long period, coupled with a practice of opening all patent applications 
to public inspection 18 months after filing, exposes applications to 
lengthy public scrutiny with the potential of limited legal protection.

    Many Japanese companies use the patent filing system as a tool of 
corporate strategy, making many applications to cover slight variations 
in technology. Japanese courts have moved to accepting the doctrine of 
equivalence which may reduce this practice. The rights of U.S. 
subscribers in Japan can be circumscribed by filings of applications 
for similar inventions or processes.

    A United States-Japan IPR agreement, signed in August 1994, has 
provided some relief from problems posed by the lengthy pendency period 
and the practice of multiple opposition filing. In December 1994, the 
Japanese Diet passed legislation introduced by the Japanese Patent 
Office to revise the system effective January 1, 1996. The revised 
system allows opposition filings only after a patent is granted. 
Multiple opposition filings are consolidated and addressed in a single 
proceeding, minimizing time and costs. In addition, revised guidelines 
for patent examiners were introduced. These new guidelines directed 
them to grant patents based on prophetic as well as working examples 
(similar to U.S. and most other countries' practice) and importantly, 
applied these guidelines to the substantial backlog of outstanding 
applications.

    Trademark applications are also processed slowly, averaging 2 years 
and 3 months but sometime stretching to three or four years. Amendments 
to the Trademark Law became effective in April 1, 1997 which aim to 
provide better protection to well-known trademarks, reduce trademark 
processing time, and eliminate unused trademarks from the registry. 
End-user software primacy remains a major concern of U.S. software 
producers. A campaign has been undertaken by these companies to help 
ensure compliance in licensing arrangements. The process has met with 
limited success in the Japanese courts.

    In the area of copyright protection for sound recordings, the 
Japanese Government amended its copyright law in December, 1996, to 
extend retroactive protection of sound recordings to 50 years. This 
complied with its WTO TRIPs obligations.
8. Worker Rights

    a. The Right of Association.--The Constitution and Labor Laws of 
Japan provide for the right of workers to freely associate in unions. 
Approximately 23 percent of the labor force belongs to a union. The 
Japanese Trade Union Confederation, Rengo, which represents 7.8 million 
workers, is the largest labor organization. Both public and private 
sector workers may join a union, although members of the armed forces, 
police and firefighters may neither form unions nor strike. The right 
to strike, although implicit in the Constitution, is seldom exercised. 
The law prohibits retribution against strikers and is effectively 
enforced.

    b. The Right to Organize and Bargain Collectively.--The 
Constitution provides unions with the right to organize, bargain and 
act collectively. These rights are exercised freely, and collective 
bargaining is practiced widely, particularly during the annual ``Spring 
Wage Offensive'' of nationwide negotiations.

    c. Prohibition of Forced or Compulsory Labor.--Article 18 of the 
Constitution states that ``No person shall be held in bondage or any 
kind. Involuntary servitude, except as punishment for crime, is 
prohibited.'' This provision applies equally to adults and children, 
and there are presently no known cases of forced or bonded labor.

    d. Minimum Age for Employment and Status of Child Labor 
Practices.--By law, children under the age of 15 may not be employed 
and those under age 18 may not be employed in dangerous or harmful 
jobs. Child labor is virtually non-existent in Japan, as both societal 
values and the rigorous enforcement of the Labor Standards Law protect 
children from exploitation in the workplace.

    e. Acceptable Conditions of Work.--Minimum wages are set on both an 
industrial and regional (prefectural) level. Minimum wage rates in 
fiscal year 1997 ranged from $45 (5,368yen) per day in Tokyo to $38 
(4,625 yen) in Okinawa. The Labor Standards Law provides for a 40-hour 
work-week in most industries, and mandates premium pay for hours worked 
beyond 40 in a week or 8 in a day. However, labor unions criticize the 
Government for failing to enforce working hour regulations in smaller 
firms. The Government effectively administers various laws and 
regulations affecting workplace safety and health.

    f. Worker Rights in Sectors with U.S. Investment.--Labor 
regulations, working conditions and worker rights in sectors where U.S. 
capital is invested do not vary from those in other sectors of the 
economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                     4816 
Total Manufacturing...........................                   16,534 
  Food & Kindred Products.....................         620              
  Chemicals & Allied Products.................        2486              
  Metals, Primary & Fabricated................         327              
  Machinery, except Electrical................        4918              
  Electric & Electronic Equipment.............        2173              
  Transportation Equipment....................        2710              
  Other Manufacturing.........................        3301              
Wholesale Trade...............................                     7344 
Banking.......................................                      379 
Finance/Insurance/Real Estate.................                     9150 
Services......................................                      816 
Other Industries..............................                      555 
TOTAL ALL INDUSTRIES..........................                   39,593 
------------------------------------------------------------------------
 Source: U.S. Department of Commerce, Bureau of Economic Analysis       


                                 ______
                                 

                           REPUBLIC OF KOREA

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                               1995     1996    1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\..........................    457.1    483.3      476.0
  Real GDP Growth (percent) \3\............      8.9      7.1        6.2
  GDP by Sector:                                                        
    Agriculture............................     29.9     30.0       30.2
    Manufacturing..........................    122.7    124.8      123.0
    Services...............................    256.8    275.6      275.0
    Government.............................     35.9    39.01       38.0
  Per Capita GDP (US$).....................   10,037   10,548     10,530
  Size of Labor force (000's)..............   20,797   21,188     21,500
  Unemployment rate (pct)..................      2.0      2.0        2.2
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
  Money Supply (m2)........................     15.5     16.2       18.0
  Consumer Price Inflation (pct)...........      4.5      4.9        4.5
  Exchange Rate (won/usd)                                               
    official...............................      770      807        896
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB \4\....................    125.0    129.7      140.0
    Exports to U.S.\4\.....................     24.1     21.7       21.0
  Total Imports CIF.\4\....................    135.1    150.3      147.0
    Imports from U.S.\4\...................     30.4     33.3       33.2
  Trade Balance \4\........................    -10.1    -20.6       -7.0
    Balance with U.S.\4\...................     -6.3    -11.6      -12.2
  External Public Debt.....................      3.0      2.6        3.0
  Fiscal Deficit/GDP (pct).................  \5\ 0.4     -0.2       -0.5
  Current Account                                                       
    Deficit/GDP (pct)......................      2.0      4.9        2.8
  Debt Service                                                          
    Payments/GDP (pct) \6\.................      1.9      2.0        2.3
  Gold and Foreign Exchange Reserves.......     32.7     33.2       32.0
  Aid from U.S.............................      N/A      N/A        N/A
  Aid from all other sources...............      N/A      N/A        N/A
------------------------------------------------------------------------
\1\ 1997 annualized figures calculated based on available monthly data  
  as of October 1997.                                                   
\2\ GDP at market prices                                                
\3\ Percentage changes calculated in local currency.                    
\4\ Merchandise trade, Korean government statistics                     
\5\ Surplus                                                             
\6\ Gross debt; includes non-guaranteed private debt                    
                                                                        
Sources: Bank of Korea, Korea Customs Service, U.S. Embassy             

1. General Policy Framework

    The Korean economy has enjoyed a remarkable, sustained expansion 
over the last 30 years, averaging roughly nine percent real GDP growth 
per year. The GDP growth rate in 1997, however, is projected to decline 
to about 6.2 percent. Much of this downturn has been ascribed to a 
cyclic worsening in Korea's terms of trade, especially lower prices for 
some key exports (i.e., semiconductors, chemicals and steel) and the 
weakening of the Japanese yen. A string of bankruptcies of large 
business conglomerates in 1997 and the strains this has placed on the 
banking system have contributed to the slower economic growth rate. In 
the first 10 months of 1997, the Korean won and the Korean stock market 
have declined by roughly 12 percent and 24 percent, respectively.

    Exports accelerated in the third quarter posting 4.7 percent growth 
for the first eight months of 1997. Although total imports showed 
virtually no growth during the same eight-month period, capital goods 
imports jumped 14 percent, and non-durable consumer goods imports grew 
four percent, but grain imports dropped 21 percent compared to the 
first eight months of 1996.

    Price stability has generally been achieved through the 
government's stringent monetary policies, with adjustments in the 
reserve requirements and open market operations as its favored tools. 
The public sector's role in the economy is relatively small, with taxes 
and expenditures amounting to only 31 percent of GDP in 1997. Korea's 
public expenditure places greater emphasis on public education and 
investment than on transfer payments. The current administration, since 
its inception in 1992, has pursued a policy of liberalization, 
deregulation, and ``globalization,'' and today's Korea is significantly 
more open and less stifled by regulation than it was five years ago.
2. Exchange Rate Policy

    In 1997, the Bank of Korea regularly intervened in the market to 
defend the declining value of the won. Stringent foreign exchange and 
capital controls, which are only now being relaxed, continue to distort 
trade and investment flows, and exchange rate adjustments. Since 1990, 
the Bank of Korea (BOK) has used a weighted average of the prior day's 
transactions at local banks to set the exchange rate. The BOK allows 
the exchange rate to fluctuate on a daily basis within a band of plus/
minus 2.25 percent. However, the BOK did not maintain this band in 
October 1997 in the face of heavy selling of the won. In the twelve 
months ending October 31, 1997, the won depreciated by roughly 15 
percent against the U.S. dollar.
3. Structural Policies

    Korea's economy is based on private ownership of the means of 
production and distribution, with basic pricing decisions left to the 
private sector. The Government's past heavy-handed role in the economy 
is being gradually replaced by more subtle efforts to steer the 
direction of economic development such as through tax incentives and 
discretionary enforcement of regulations. Since the mid-1980s, the 
Government has eliminated most explicit import prohibitions, though a 
variety of non-tariff barriers continue to hinder imports.

    The Korean economy is notable for the high degree of concentration 
of capital and industrial output in a small number of conglomerates 
known locally as ``chaebols.'' The 30 largest chaebols account for 
about one-third of the total capital of the domestic financial sector, 
and about 35 percent of all manufacturing. Most chaebol are highly 
leveraged which, in this period of slower economic growth, has resulted 
in a number of bankruptcies.

    Today, Korea is the United States' seventh largest trading partner 
(fifth largest export market) and fourth largest recipient of U.S. 
agricultural products. Korea has made significant investments in the 
United States. In 1996, the United States replaced Japan as Korea's 
single largest source of imports for the first time since 1993. Also, 
in 1997, the United States, for the first time in three decades, will 
likely replace Japan as Korea's single largest source of direct 
investment.
4. Debt Management Policies

    Korea's total foreign debt exceeds $130 billion (net foreign debt 
of $45 billion) and interest rates on Korean debt in international 
markets rose in 1997. However, with the rise of Korea's exports 
beginning in the second half of 1997, its current account deficit has 
declined in comparison to the same period in 1996.
5. Aid

    The ROK does not receive bilateral or multilateral assistance.
6. Significant Barriers to U.S. Exports

    The typical trade barriers U.S. exporters experience today are 
mostly nontariff-related (Korea lowered its average tariff rate to 7.9 
percent) and are rooted in non-transparent regulations which give too 
much discretion to officials, but offer little recourse or 
compensation. These affect licensing, inspections, type approval, 
marking/labeling requirements and other standards. The United States 
has challenged some Korean government agricultural policies in the 
World Trade Organization (WTO). Trade restrictions effect a variety of 
U.S. exports, including automobiles, a sector which was designated in 
October 1997 as a Priority Foreign Country Practice (PFCP) under 
Section 301 of the U.S. Trade Act, owing to tariff and non-tariff 
market access barriers.

    Import licensing requirements were dropped on all goods effective 
January 1, 1997, except for roughly 80 items, mostly agricultural 
products, which appear on a ``negative list.'' Products with health and 
safety implications (such as pharmaceuticals, medical devices, 
cosmetics), typically require additional testing or certification from 
the relevant ministries before they can be sold in Korea, which can 
result in considerable delays and costs. Registration requirements for 
such products as chemicals, pharmaceuticals, processed food, medical 
devices and cosmetics hamper entry into the market as well. The 
registration process, in some cases, has resulted in the release of 
proprietary information to Korean trade associations and local 
competitors. Korea agreed to phase out its GATT Balance-of-Payments 
restrictions, and is committed to eliminate most of the remaining 
restrictions by 1997; some will not be liberalized, however, until the 
year 2000.

    Under the Uruguay Round, Korea will gradually expand its minimum 
import quota for beef to 225,000 metric tons by the year 2000, while at 
the same time expanding the proportion of the quota imported through 
the ``simultaneous buy/sell system.'' In January 2001, Korea will 
remove all non-tariff barriers to beef imports, including state 
trading.

    Effective January 1, 1993, a government decree outlined improved 
procedures for setting standards and rules-making, including a 
requirement for public notice, minimum comment periods and an 
adjustment period prior to implementation. A full-fledged 
Administrative Procedures Act was enacted in 1996. Effective 
implementation of these initiatives, however, has been slow, and 
government policy consultations with affected industries have often 
omitted foreign firms.

    The Korean government has implemented a number of financial sector 
reform measures since 1993, including: lifting most controls on 
interest rates, removing some documentation requirements on forward 
foreign exchange contracts and a slight easing of foreign banks' access 
to won currency funding. Additional financial reform, such as full won 
convertibility and freedom of capital movement, will likely not occur 
before 1998. Liberalization of foreign ownership of domestic shares and 
bonds will be phased in through 2000. Other controls affecting, inter 
alia, securities, credits and deposit accounts will be phased out 
through 2001.

    A significant barrier to growth in U.S. exports to Korea is the 
government's restriction on the use of credit to finance imports, which 
will be fully liberalized only for capital goods by 1998. Use of 
limited deferred payment terms (extended as of December 1, 1995, to a 
maximum of 180 days) is restricted to items with a tariff of ten 
percent or less, which are generally raw materials; these controls will 
be reduced (but not fully phased out) through 2001. Use of deferred 
payment terms for other goods requires a license from foreign exchange 
banks or permission from the Bank of Korea, which is rarely granted.

    Government restrictions continue to deny national treatment to 
foreign banks and securities firms in a number of areas. For example, 
foreign banks face significant impediments in the form of restricted 
access to local currency funding, difficulties in obtaining approval 
for new financial products and capitalization rules. Subsidiaries of 
foreign banks will not be allowed until the end of 1998. Foreign 
securities firms face restrictions on their ability to lead-manage 
security placements in overseas markets and they may not place orders 
for foreign securities on behalf of Korean clients.

    Recent regulatory changes have streamlined foreign investment 
application procedures and eased a number of barriers to foreign direct 
investment. As part of the Organization for Economic Cooperation and 
Development (OECD) accession process, which was completed at the end of 
1996, the government announced further liberalization of foreign 
investment in restricted sectors. Earlier changes to laws and 
regulations governing foreign purchases of land made it easier for 
foreign investors to purchase land for staff housing and business 
purposes, though there are still restrictions in place.

    Continuing restrictions on access to offshore funding (including 
offshore borrowing, intracompany transfers and intercompany loans), 
however, continue to be burdensome. Foreign equity participation limits 
remain in some sectors, and licensing requirements and other regulatory 
restrictions can limit foreign direct investment in sectors nominally 
open to foreigners. Foreign firms also face additional investment 
restrictions in most professional services.

    The Korean government has endorsed and supported periodic 
``frugality campaigns'' led by civic groups against ``over-
consumption'' and ``luxury'' goods, most recently in the spring of 
1997. Specific government targeting of imports has ceased for the most 
part--and the Korean government issued public instructions to all 
officials to this effect in the spring of 1997--but a residual anti-
import bias remains.

    The streamlining of Korea's complex import clearance procedures is 
a prime U.S. policy objective. Progress on this issue has been slow, 
however, as the Korean government, in a number of cases, has cited the 
need for legislation to make the necessary corrections. U.S. exporters 
of food and agricultural products experienced an upsurge in safety and 
sanitary inspections in October 1997 after Korean inspectors found e-
coli and lysteria bacteria in U.S. beef shipments.

    Korea acceded to the WTO Government Procurement Agreement on 
January 1, 1997. It has begun the process of bringing its laws and 
regulations into line with the new multilateral requirements. However, 
implementation will take time. In telecommunications, the Korean 
government provided assurances to the United States in July 1997 that 
it would not interfere in the equipment purchasing decisions of private 
Korean telecommunications service providers. In accordance with its 
obligations under the Information Technology Agreement, the Korean 
government will eliminate tariffs on 203 categories of 
telecommunication and information-related equipment by 1999; tariffs on 
remaining categories will be phased out by 2004.
7. Export Subsidies Policies

    Since the mid-1980's, Korea has been dismantling the once-prevalent 
system of subsidies used to promote industrialization. The real benefit 
of the few remaining subsidized lines of credit is insignificant in a 
macroeconomic sense. The relative size of direct grants is small and 
declining with regard to both the government budget and growing private 
investment. The use of tax exemptions, the main vehicle for export 
promotion, appears to be declining as well. However, the government 
does expend large amounts of money in research and development in key 
industrial sectors targeted for development, such as 
telecommunications.

    Other government programs directly support Korea's export 
industries, including: customs duty rebates for raw material imports 
used in the production of exports; short-term export loans for small-
and-medium sized enterprises (SMEs); rebates on the value-added tax; a 
special consumption tax for export products; corporate income tax 
benefits for costs related to the promotion of overseas markets; unit 
export financial loans; and, special depreciation allowances for SMEs 
which export. Korea also maintains a special loan program for SMEs to 
facilitate exports to Japan.
8. Protection of U.S. Intellectual Property

    Korean laws protecting intellectual property rights (IPR) are 
adequate in most areas and enforcement has improved in recent years. 
Under the U.S. Special 301, Korea's status was downgraded from 
``Priority Watch List'' to ``Watch List'' in April 1997 in recognition 
of the commitments made by the Korean government to improve its 
intellectual property protection regime in a number of sectors of 
concern to the United States. However, problem areas remain. The Korean 
Supreme Court recently overturned a decision by the Korean Industrial 
Property Office (KIPO) appellate trial board in favor of a U.S. 
claimant in a trademark dispute.

    Korea is a party to the World Intellectual Property Organization 
Agreements, the Universal Copyright Convention, the Budapest Treaty on 
the International Recognition of the Deposit of Microorganisms (1988), 
the Geneva Convention regarding sound recordings (1987), the Paris 
Convention for the Protection of Industrial Property (1980), and the 
Patent Cooperation Treaty (1984). Korea joined the Berne Convention in 
August 1996, and is a signatory to the ``New Treaties'' governing 
digital copyrights recently concluded under the auspices of the World 
Intellectual Property Organization.

    Korean patent law is fairly comprehensive, offering protection to 
most products and technologies. Yet the Korean Patent Office's 
recognition of international ownership of patents is inconsistent. The 
March 1998 start-up of an appellate court specializing in patent cases 
may provide greater consistency in patent dispute rulings. In addition, 
approved patents of foreign patent holders are vulnerable to 
infringement. In its procurement process, the Korean government lacks 
adequate controls effectively to prevent patent infringement, 
especially in the high technology sector. Korean law provides for 
compulsory licensing of patents when the invention is deemed necessary 
for the national defense, for the public interest, or for the 
protection of a dependent patent.

    The Korean government's protection of trademarks has improved since 
1991. A revised trademark law will come into effect on March 1, 1998. 
Earlier in 1997, the trademark law was amended to afford protection to 
3-dimensional trademarks. However, the law extends protection only to 
domestically registered trademarks. Although the Unfair Competition 
Prevention Act theoretically protects foreign trademarks and those not 
otherwise protected, narrowly-based court decisions have made the Act 
largely ineffective. The granting of a trademark under Korean law is 
based on a ``first-to-file'' basis, and preemptive filings are a 
problem. However, the new trademark law will contain provisions for 
invalidating preemptive registrations. While Korea has made progress in 
stemming the counterfeiting of goods in the domestic market, Korean 
producers are still able to export counterfeits.

    Korea's copyright law protects author's rights, but local 
prosecutors take no action unless the rights holder files a formal 
complaint. Korea is not in compliance with provisions of the WTO's 
Agreement on Trade-Related Aspects of Intellectual Property Rights 
(TRIPS), which stipulate that retroactive copyright protection should 
extend back to 1947. Korea now only provides protection back to 1957. 
Laws governing the protection of software copyright are expected to be 
revised in 1998. Enforcement against copyright piracy is improving, but 
such piracy is still prevalent, especially in educational and other 
public institutions.
9. Worker Rights

    a. The Right of Association.--With the exception of public sector 
employees and teachers, Korean workers enjoy the right to free 
association. White collar workers in the government sector cannot join 
unions, but blue collar employees in the postal service, railways, and 
telecommunications sectors, and the national medical center have formed 
labor organizations. Unions may be formed with as few as two members 
and without a vote of the full prospective membership. Until recently 
the Trade Union Law specified that only one union was permitted at a 
workplace, but labor law changes in 1997 authorize the formation of 
competing labor organizations beginning in the year 2002. Workers in 
government agencies and defense industries do not have the right to 
strike. Unions in enterprises determined to be of ``essential public 
interest,'' including utilities, public health, and telecommunications, 
may be ordered to submit to government-ordered arbitration in lieu of 
striking. In fact, work stoppages occur even in these sensitive 
sectors. The Labor Dispute Adjustment Act requires unions to notify the 
Labor Ministry of their intention to strike, and normally mandates a 
10-day ``cooling-off period'' before a work stoppage may legally begin.

    b. The Right to Organize and Bargain Collectively.--The 
Constitution and the Trade Union Law provide for the right of workers 
to bargain collectively and undertake collective action, but does not 
grant government employees, schoolteachers or workers in defense 
industries the right to strike. Collective bargaining is practiced 
extensively in virtually all sectors of the Korean economy. The central 
and local labor commissions form a semi-autonomous agency that 
adjudicates disputes in accordance with the Labor Dispute Adjustment 
Law. This law empowers workers to file complaints of unfair labor 
practices against employers who interfere with union organizing or 
practice discrimination against unionists. Labor-management antagonism 
remains a serious problem, and some major employers remain strongly 
anti-union.

    c. Prohibition of Forced or Compulsory Labor.--The Constitution 
provides that no person shall be punished, placed under preventive 
restrictions, or subjected to involuntary labor, except as provided by 
law and through lawful procedures. Forced or compulsory labor is not 
condoned by the Government and rarely occurs.

    d. Child Labor and Minimum Age for Employment of Children.--The 
Government prohibits forced and bonded child labor and enforces this 
prohibition effectively. The Labor Standards Law prohibits the 
employment of persons under the age of 15 without a special employment 
certificate from the Labor Ministry. Because education is compulsory 
through middle school (about age 14), few special employment 
certificates are issued for full-time employment. Some children are 
allowed to do part-time jobs such as selling newspapers. In order to 
obtain employment, children under 18 must have written approval from 
their parents or guardians. Employers may require minors to work only a 
limited number of overtime hours and are prohibited from employing them 
at night without special permission from the Labor Ministry.

    e. Acceptable Conditions of Work.--The government implemented a 
minimum wage in 1988 that is adjusted annually. In October 1997 the 
minimum wage was set at roughly $1.65 per hour. Companies with fewer 
than 10 employees are exempt from this law. In practice, most firms pay 
wages well above the minimum levels due to Korea's tight labor markets. 
The maximum regular work week is 44 hours, with provision for overtime 
to be compensated at a higher wage, but such rules are sometimes 
ignored, especially by small companies. The law also provides for a 
maximum 56-hour work week and a 24-hour rest period each week. Labor 
laws were revised in 1997 to establish a flexible hours system that 
allows employers to ask laborers to work up to 48 hours during certain 
weeks without paying overtime so long as average weekly hours do not 
exceed 44. The government's health and safety standards are not always 
effectively enforced, but the accident rate continues to decline. The 
number of work-related deaths remains high by international standards.

    f. Rights in Sectors with U.S. Investment.--U.S. investment in 
Korea is concentrated in petroleum, chemicals and related products, 
transportation equipment, processed food and manufacturing. Workers in 
these industrial sectors enjoy the same legal rights of association and 
collective bargaining as workers in other industries. Manpower 
shortages are forcing labor-intensive industries either to improve 
wages and working conditions or to move offshore. Alternatively, some 
firms are resorting to using ``illegal'' foreign workers in order to 
contain costs.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                     2107 
  Food & Kindred Products.....................         306              
  Chemicals & Allied Products.................         379              
  Metals, Primary & Fabricated................         \1\              
  Machinery, except Electrical................         \1\              
  Electric & Electronic Equipment.............         554              
  Transportation Equipment....................         100              
  Other Manufacturing.........................         673              
Wholesale Trade...............................                      452 
Banking.......................................                     1671 
Finance/Insurance/Real Estate.................                      228 
Services......................................                       96 
Other Industries..............................                      \1\ 
TOTAL ALL INDUSTRIES..........................                     5510 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                MALAYSIA

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                 1995    1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\.............................    85.5    99.5  \2\ 97.9
  RealGDP Growth (pct) \3\....................     9.5     8.2       8.0
  By Sector: (1978 Prices)                                              
    Agriculture...............................     6.5     6.6       6.1
    Manufacturing.............................    15.9    17.8      17.9
    Mining And Petroleum......................     3.6     3.7       3.4
    Construction..............................     2.2     2.4       2.4
    Services..................................    15.4    16.7      16.1
    Government Services.......................     4.6     4.7       4.4
  Per Capita GDP..............................     4.2     4.7       4.2
  Labor Force (000s)..........................   8,140   8,370     8,610
  Unemployment Rate (pct).....................     2.8     2.5       2.5
                                                                        
Money and Prices (annual pct growth):                                   
  Money Supply Growth (M2) (pct)..............    19.7    20.9  \4\ 21.3
  Consumer Inflation (pct)....................     3.4     3.5   \4\ 2.6
  Exchange Rate (Rm/US$ annual average).......     2.5    2.51       2.8
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB...........................    71.8    76.7      73.1
    Exports to U.S.\5\........................    17.5    17.8      18.5
  Total Imports FOB...........................    71.7    73.3      69.6
    Imports from U.S.\5\......................     8.8     8.5       9.5
  Trade Balance...............................     0.9     3.4       3.5
    Balance with U.S..........................     8.7     9.3       9.0
  External Public Debt........................    16.0    15.8      15.2
  Fiscal Surplus/GDP (pct)....................     2.9     3.7       2.0
  Current Account Def/GDP(pct)................      10     4.9       4.8
  Debt Srvc Payments/GDP (pct)................     7.0     5.3       4.6
  Gold & Foreign Exchange Reserves............    25.5    27.9      22.1
  Aid from U.S................................     0.5     0.5       0.6
  Aid from All Other Countries................     N/A     N/A       N/A
------------------------------------------------------------------------
\1\ Malaysian government estimates.                                     
\2\ Converted at annual avg. exchange rates.                            
\3\ Calculated in ringgit to avoid exchange rate changes.               
\4\ 1996 data to August only.                                           
\5\ U.S. Department of Commerce Data.                                   
\6\ Embassy estimates.                                                  

1. General Policy Framework

    Malaysia has a relatively open, market-oriented economy which since 
the country's independence in 1957 has exhibited sustained growth and 
increasing diversification. over thepast decade, the economy, led by 
strong performance in both foreign and domestic investment and 
manufactured exports, boomed with average annual real GDP growth rates 
of about 8 percent. Beginning in July 1997, however, Malaysian equity 
markets experienced sharp declines, and the Malaysian currency (the 
ringgit) depreciated sharply against the U.S.and other major 
currencies. The GOM has attributed these declines to regional financial 
turmoil. Between July 1 and December 12, for example, Malaysian equity 
markets fell by 53.6 percent and the ringgit depreciated 49.5 percent 
against the U.S. dollar. During his annual budget speech, the Deputy 
Prime Minister (who is also Finance Minister) cautioned that the 
economy is at a crossroads and fraught with uncertainties. The 
Malaysian Government has projected that 1997 real GDP growth will slow 
to 7 percent and that 1998 growth will be yet lower at 4-5 percent. 
While the government since 1986 has scaled back its role as a producer 
of goods and services, it continues to hold equity stakes and exerts 
considerable influence in a wide range of privatized domestic companies 
including in telecommunications, aviation, petroleum, shipping and 
seaports. Many of these privatized companies hold monopoly or near-
monopoly positions in their sectors.

    The construction of infrastructure projects has been increasingly 
delegated to the private sector. Major infrastructure projects 
currently under development include a multimedia super corridor and new 
international airport in Kuala Lumpur. However, in an austerity drive, 
the GOM recently deferred approximately $20 billion In other projects 
including the Bakun hydro-electric project, northern regional 
international airport, phase II of the Putrajaya administrative 
capital, Kuala Lumpur linear city, highlands road, Straits of Melaka 
bridge, and light rail projects for Penang and Johor.

    The government has consistently moved to reduce the overall tariff 
level over time for industries, such as motor vehicles. Malaysia has 
been an active participant in multilateral and regional trade fora such 
as the World Trade Organization and Asia-Pacific Economic Cooperation 
(APEC) and will be the APEC chairman in 1998.

    Fiscal policy: The government follows a conservative fiscal policy 
and has generated a surplus in its accounts, excluding public 
enterprises, for the last five years. The GOM indicated that it will 
pursue more stringent belt-tightening in 1998 in order to stabilize the 
economy, further reduce the current account deficit, and restore 
confidence in Malaysia's currency and stock markets. Among other 
measures, the GOM has announced it will cut government spending 18 
percent. As a result, the public sector surplus for 1998 is projected 
to triple to 6.2 billion ringgit (7.5 percent of GNP), up from 1.9 
billion ringgit (1.9 percent of GNP) in 1997.

    Monetary policy: Monetary aggregates are controlled by Bank Negara 
(the central bank) through open market operations, changes in reserve 
requirements, and influence over banking sector interest rates. The 
beginning of 1997 found high levels of monetary growth driven by rapid 
growth in credit. Fearful of inflationary pressures and channeling of 
credit to non-productive activities, the government acted in March to 
curb credit escalation, particularly for real estate development, and 
has progressively strengthened financial sector prudential 
requirements. The 1998 budget targets a reduction in credit expansion 
from 29 percent to 20 percent.
2. Exchange Rate Policy

    Malaysia maintains a flexible, substantially open foreign exchange 
regime. Most foreign transactions including repatriation of capital and 
remittance of profits are permitted, but some restrictions apply. 
Foreign currency accounts are not generally allowed except for 
exporters (who must hold their foreign currency accounts with ``tier-
1'' banks and maintain overnight balances of between usd 1 million and 
usd 5 million) and resident individuals who need foreign currency for 
educational or employment purposes (whose foreign currency accounts are 
limited to USD 100,000).

    The value of the ringgit has fallen consistently (from 2.5 rm/1 usd 
on 7/1 to 3.78 rm/1 USD on 12/12) throughout the last half of the year 
as markets perceived the Malaysian currency (as well as other 
currencies in the region) as overvalued and eroding export 
competitiveness and developed doubts about the country's economic 
management. Until early July, Bank Negara (the central bank) maintained 
its policy of managing the value of the ringgit against a basket of 
currencies of Malaysia's major trading partners. It used an estimated 
$4 billion in reserves (15% of the total) to defend the ringgit at 
2.525 ringgit/US$1. On July 10 when the Thai baht was floated, the 
Malaysian authorities opted to let the nominal rate fluctuate more 
widely in favor of keeping interest rates low. Since then Bank Negara 
has reportedly intervened to defend the ringgit in a limited number of 
circumstances. Between May 1 and December 31 the ringgit depreciated 
54.5%. At end of 1997 the three-month interbank interest rate was 9%.

    Malaysia maintains relatively low trade barriers in most sectors 
but uses tariffs and import licensing to protect some to maintain a 
stable exchange rate and is now largely allowing the ringgit to float.
3. Structural Policies

    Investment policies: The government encourages direct foreign 
investment particularly in export-oriented manufacturing and high-tech 
industries, but retains considerable discretionary authority over 
individual investments. Especially in the case of investments aimed at 
the domestic market, it has used this authority to restrict foreign 
equity (normally to 30 percent) and to require foreign firms to enter 
into joint ventures with local partners. Facing a tight labor supply 
situation, foreign companies have sometimes found it difficult to gain 
permission from the Malaysian Government to bring in sufficient workers 
from abroad to run their plants efficiently. Most foreign firms also 
face restrictions in the number of expatriate workers they are allowed 
to employ. In October 1996, the government announced that high-
technology and information-technology companies which establish in the 
multimedia super corridor will be allowed attractive tax incentives.

    Pricing policies: Most prices are market-determined but controls 
are maintained on some key goods, such as fuel, public utilities, 
cement, motor vehicles, rice, flour, cooking oil, sugar and chicken. 
The government has signaled that companies are not to pass to consumers 
the increased costs resulting from the ringgit's depreciation.

    Tax policies: tax policy is geared toward raising government 
revenue and discouraging consumption of ``luxury'' items. Income taxes, 
both corporate and individual, comprise 44 percent of government 
revenue with indirect taxes, export and import duties, excise taxes, 
sales taxes, service taxes and other taxes accounting for another 37.6 
percent. The remainder comes largely from dividends generated by state-
owned enterprises and petroleum taxes. To spur exports, the 1998 budget 
provides significant income tax exemptions, accelerated depreciation 
schedules, and special allowances for export-oriented companies. In the 
1998 budget, the overall corporate income tax rate for petroleum and 
other companies was cut by 2 percentage points.

    Regulatory policies: Malaysia maintains several regulatory agencies 
including the department of civil aviation and department of 
telecommunications. Most of these agencies fall under the jurisdiction 
of government ministries and have the dual mandate of both regulating 
and promoting the industries under their purview.

    Standards: Malaysia has extensive standards and labeling 
requirements, but these appear to be implemented in an objective, 
nondiscriminatory fashion. In many cases, the government is moving to 
adopt international standards. Food product labels must provide 
ingredients, expire dates and, if imported, the name of the importer. 
Electrical equipment must be approved by the Ministry of International 
Trade and Industry, telecommunications equipment must be ``type 
approved'' by the Department of Telecommunications and aviation 
equipment must be approved by the Department of Civil Aviation. 
Pharmaceuticals must be registered with the Ministry of Health. In 
addition, the Standards and Industrial Research Institute of Malaysia 
(SIRIM) provides quality and other standards approvals.
4. Debt Management Policies

    Malaysia has generally strong credit ratings in international 
financial markets. Malaysia's medium and long-term foreign debt (both 
public and private sector) is expected to stand at usd 28.4 billion at 
the end of 1997, about 29 percent of GDP. Malaysia's debt service ratio 
declined from a peak of 18.9 percent of gross export earnings in 1986 
to an estimated 6 percent in 1997.
5. Significant Barriers to U.S. Exports

    Introduction: Tariffs are the main instrument used to regulate 
goods imports, but import licenses are also used. Although duties on a 
trade-weighted basis average less than 10 percent, the rates for tariff 
lines where there is significant local production are often higher. 
Licenses are required for the import of goods in 51 product categories. 
In some cases, the licensing system is used to administer health and 
safety standards, in other cases to protect domestic industries. In 
order to reduce the current account deficit, Malaysian government 
recently increased tariff increases on certain items (below), said that 
non-essential construction projects would be eliminated, announced that 
``lumpy'' imports such as passenger aircraft and ships would be 
delayed, and called on Malaysian companies to exercise austerity.

    Import restrictions on motor vehicles: Malaysia maintains high 
tariffs, an import licensing system, and local content restrictions on 
imported motor vehicles and motor vehicle parts. These restrictions 
have severely hampered the ability of U.S. firms to penetrate the 
Malaysian market. The government has announced that local content 
restrictions will be phased out by the year 2000 to comply with WTO 
commitments. However, it recently increased tariffs dramatically on 
both completely built-up (cbu) and completely knocked-down (ckd) units.

                                                                        
------------------------------------------------------------------------
               product                   OldTariff        New Tariff    
------------------------------------------------------------------------
automobiles (cbu)...................     140-200 pct         140-300 pct
automobiles (ckd)...................          42 pct              80 pct
vans (cbu)..........................          35 pct          42-140 pct
vans (ckd)..........................           5 pct         40 pct 4wd/
multipurpose(cbu)...................          50 pct     60-200 pct 4wd/
multipurpose (ckd)..................           5 pct              40 pct
motorcycle (cbu)....................          60 pct          80-120 pct
motorcycle (ckd)....................           5 pct              30 pct
------------------------------------------------------------------------


In addition, excise duties on motorcycles, will increase from a maximum 
of 20 percent to a maximum of 50 percent. A 10 percent sales tax will 
be imposed on motorcycles with engines over 200 cc.

    Import restrictions on construction equipment: In October 1997, 
Malaysia imposed a restrictive licensing regime on imports of heavy 
construction equipment and raised import duties (detailed below) for 
the second year in a row; in October 1996, it had raised duties on 
construction equipment from 5 to 20 percent. In addition, depreciation 
rates for imported heavy equipment will be reduced from 20 to 10 
percent in the first year and annual allowances will be reduced from 
between 12 percent and 20 percent to 10 percent.

                                                                        
------------------------------------------------------------------------
               Product                  Old Tariff        New Tariff    
------------------------------------------------------------------------
heavy mach/equip....................           0 pct               5 pct
multi-purpose vehicles..............        0-30 pct              50 pct
special purpose vehicles............          35 pct              50 pct
construction materials..............        5-25 pct           10-30 pct
------------------------------------------------------------------------



    Import restrictions on tobacco and cigarettes: To encourage greater 
use of local tobacco in cigarettes and to maintain high domestic leaf 
prices, the government levies import duties of rm 50 (USD 13.5) per 
kilogram, plus five percent ad valorem on unprocessed tobacco. The 
quantities of flue-cured tobacco which may be imported are subject to 
government approval.

    Telecommunications: In the recently concluded WTO negotiations on 
basic telecommunications services, Malaysia made commitments on most 
basic telecommunications services and adopted the reference paper on 
regulatory commitments. Malaysia guaranteed market access and national 
treatment for these services only through acquisition of up to 30 
percent of the shares of existing licensed public telecommunications 
operators. It did not guarantee the ability to provide resale service.

    Duties on high value food products: Duties for processed and high 
value products, such as canned fruit, snack foods, and many other 
processed foods, range between 20 and 30 percent.

    Plastic resins: In December 1993, tariffs were increased for a five 
year period from 2 to 30 percent (for non-ASEAN countries) and from 1 
to 15 percent (for ASEAN countries) on plastic resins. In 1994, the 
government also instituted a five-year restrictive import licensing 
system.

    Tariff quota for chicken parts: Although the GOM applies a zero 
import duty on chicken parts, imports are regulated through licensing 
and sanitary controls and import levels well below the those called for 
in the tariff-rate quota agreed during the Uruguay Round but never 
implemented.

    Rice import policy: The sole authorized importer is a government 
corporation (BERNAS) with the responsibility of ensuring purchase of 
the domestic crop and wide power to regulate imports.

    Film and paper product tariffs: Malaysia applies a 25 percent 
tariff on imported instant print film that is estimated to cause an 
annual trade loss to U.S. industry of 10-25 million U.S. dollars. In 
August 1994, the Malaysian Government raised tariffs on several 
categories of imported kraft linerboard (used in making corrugated 
cardboard boxes) to between 20 and 30 percent, depending on the 
category. These tariff increases are to be phased out after five years 
and are subject to review every two years.

    Professional services: Foreign professional services providers are 
generally not allowed to practice in Malaysia. Foreign law firms may 
not operate in Malaysia except as minority partners with local law 
firms, and their stake in any partnership is limited to 30 percent. 
Foreign lawyers may not practice Malaysian law or operate as foreign 
legal consultants. They cannot affiliate with local firms or use their 
international firm's name. Foreign architecture firms may only operate 
as affiliates of Malaysian companies. Foreign architectural credentials 
are not always accepted. Foreign engineering companies must establish 
joint ventures with Malaysian firms and receive ``temporary 
licensing;'' this license is granted on a project-by-project basis and 
is subject to an economic needs test and other criteria imposed by the 
licensing board.

    Banking: No new licenses are being granted to either local or 
foreign banks; foreign banks must operate as locally-controlled 
subsidiaries. Foreign-controlled companies are required to obtain 60 
percent of their local credit from Malaysian banks.

    Insurance: Branches of foreign insurance companies are required to 
be locally incorporated by June 30, 1997, and foreign share holding not 
exceeding 51 percent is permitted. Foreign share holding not exceeding 
51 percent is also permitted for the existing foreign shareholders of 
locally incorporated insurance companies which were the original 
shareholders of the companies. New entry by foreign insurance companies 
is limited to equity participation in locally incorporated insurance 
companies and aggregate foreign share holding in such companies shall 
not exceed 30 percent.

    Securities: Foreigners may hold up to 49 percent of the equity in a 
stockbroking firm. currently there are 11 stockbroking firms which have 
foreign ownership and 20 representative offices of foreign brokerage 
firms. Fund management companies may be 100 percent foreign-owned if 
they provide services only to foreign investors, but are limited to 70 
percent foreign-ownership if they provide services to both foreign and 
local investors.

    Advertising: Foreign film footage is restricted to 20 percent per 
commercial, and only Malaysian actors may be used. The government of 
Malaysia has an informal and vague guideline that commercials cannot 
``promote a foreign lifestyle.'' Advertising of alcohol and tobacco 
products is severely restricted.

    Television and radio broadcasting: The Malaysian Government 
maintains broadcast quotas on both radio and television programming. 
Sixty percent of television programming is required to originate from 
local production companies owned by ethnic Malays. This share is 
scheduled to increase to 80 percent by the year 2000. Sixty percent of 
radio programming must be of local origin.

    Government procurement: Malaysian government policy calls for 
procurement to be used as leverage to support national objectives such 
as encouraging greater participation of ethnic Malays in trade and 
industry, transfer of technology to local industries, reducing the 
outflow of foreign exchange, creating opportunities for local companies 
in the services sector, and generating concessions that enhance 
Malaysia's export capabilities. As a result, foreign companies do not 
face a level playing field in competing for contracts and in most cases 
are required to take on a local partner before their bid will be 
considered. Some U.S. companies have voiced concerns about the 
transparency of decisions and decisionmaking processes.
6. Export Subsidy Policies

    Malaysia offers several export allowances. Under the export credit 
refinancing (ECR) scheme operated by the central bank, commercial banks 
and other lenders provide financing to exporters at an interest rate of 
6 percent for both post-shipment and pre-shipment credit. Malaysia also 
provides tax incentives to exporters, including double deduction of 
expenses for overseas advertising and travel, supply of free samples 
abroad, promotion of exports, maintaining sales offices overseas, and 
research on export markets.
7. Protection of U.S. Intellectual Property

    Malaysia is a member of the World Intellectual Property 
Organization (WIPO), and most multilateral IPR agreements, including 
the Berne Convention for the Protection of Literary and Artistic Works, 
and the Paris Convention. Police and legal authorities are responsive 
to requests from U.S. firms for investigation and prosecution of 
copyright infringement cases, though pirated videotapes and computer 
software continue to be widely available. Concerns have been raised 
that fines levied on convicted infringers may not have sufficient 
deterrent effect. A new problem is the establishment of a number of 
manufacturing plants reportedly producing pirated copyrighted material. 
The Malaysian Government is aware of the problem and has expressed its 
determination to move against illegal operations. Trademark 
infringement and patent protection have not been serious problem areas 
in Malaysia for U.S. companies.
8. Worker Rights

    a. The Right of Association.--By law most workers have the right to 
engage in trade union activity, and approximately 10 percent of the 
work force are members of trade unions. Exceptions are certain 
categories of workers labeled ``confidential'' and ``managerial and 
executives,'' as well as police and defense officials. Government 
policy places a de facto ban on the formation of national unions in the 
electronics sector, but allows in-house unions.

    b. The Right to Organize and Bargain Collectively.--Collective 
bargaining is the norm in Malaysian industries where workers are 
organized. However, collective bargaining rights are effectively 
restricted by compulsory arbitration requirements.

    c. Prohibition of Forced or Compulsory Labor.--There is no evidence 
that forced or compulsory labor occurs in Malaysia for either Malaysian 
or foreign workers.

    d. Minimum Age for Employment or Compulsory Labor.--No child under 
the age of 14 may be engaged in any employment except light work in a 
family enterprise or in public entertainment, work performed for the 
government in a school or training institution, or employment as an 
approved apprentice. In addition regulations prohibit children from 
working more than 6 hours per day, more than 6 days per week, or at 
night. However, there have been reports of widespread employment of 
children below the age of 14 working full-time on plantations.

    e. Acceptable Conditions of Work.--Working conditions are generally 
on a par with industrialized country standards. The Occupational Safety 
and Health Act covers all economic sectors except the maritime sector 
and the military. Other laws provide for retirement programs, 
disability and workman's compensation benefits. No comprehensive 
national minimum wage legislation exists, but certain classes of 
workers are covered by minimum wage laws. Plantation and construction 
work is increasingly being done by contract foreign workers whose 
working conditions are often inferior to those of direct hire workers.

    f. Rights in Sectors with U.S. Investment.--The largest 
concentration of U.S. investment in Malaysia is in the petroleum 
sector. Pay and benefits are considered excellent. The second largest 
concentration of U.S. investment is in the electronics sector, 
especially the manufacture of components, such as semiconductor chips. 
Many U.S. electronic component manufacturers operate plants in 
Malaysia, employing more than 50,000 Malaysian workers.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      733 
Total Manufacturing...........................                     3711 
  Food & Kindred Products.....................         \1\              
  Chemicals & Allied Products.................         \1\              
  Metals, Primary & Fabricated................         \2\              
  Machinery, except Electrical................         223              
  Electric & Electronic Equipment.............        2971              
  Transportation Equipment....................           0              
  Other Manufacturing.........................         336              
Wholesale Trade...............................                      172 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                      233 
Services......................................                        7 
Other Industries..............................                      \1\ 
TOTAL ALL INDUSTRIES..........................                     5277 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        

                              PHILIPPINES

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                               1995     1996    1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP..............................     74.1     83.8       83.6
  Real GDP Growth (pct) \2\................      4.8      5.7        4.8
  Nominal GDP By Sector:                                                
    Agriculture............................     16.0     17.9       17.3
    Manufacturing..........................     17.0     18.9       17.9
    Services...............................     34.3     39.3       40.2
    Government \3\.........................      7.7      8.9        9.4
  Per Capita GDP (US$).....................    1,081    1,193      1,165
  Labor Force (000s).......................   28,380   29,733     30,500
  Unemployment Rate (pct)..................      9.5      8.6        8.7
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
  Money Supply Growth (M2) \4\.............     25.2     15.8       20.0
  Consumer Price Inflation.................      8.1      8.4        6.0
  Exchange Rate (pesos/US$--annual average)                             
   Interbank Rate..........................    25.71    26.22      29.20
                                                                        
Balance of Payments and Trade:                                          
  Merchandise Exports, FOB.................     17.4     20.5       25.5
    Exports to U.S.\5\.....................      7.0      8.2       10.0
  Merchandise Imports, FOB.................     26.4     31.9       37.3
    Imports from U.S.\5\...................      5.3      6.1        7.5
  Trade Balance............................     -8.9    -11.3      -11.8
    Balance with U.S.\5\...................      1.7      2.1        2.5
  Current Account Deficit/GDP (pct)........      4.4      4.5        5.0
  External Public Sector Debt..............     30.1     27.4        N/A
  Debt Service Payments/GDP (pct)..........      6.8      5.9        6.5
  Fiscal Surplus/GDP (pct).................     20.6      0.3        0.4
  Gold and Foreign Exchange Reserves.......      7.8     11.7       10.5
  Aid from U.S. (US$ millions) \6\.........     89.0    164.0        N/A
  Aid from Other Bilateral Sources (US$                                 
   Millions)\6\............................  1,499.0  1,556.0        N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in   
  October 1997.                                                         
\2\ Percentage changes based on local currency.                         
\3\ Government construction and services gross value added.             
\4\ Growth rate of year-end M2 levels.                                  
\5\ Source: U.S. Department of Commerce; exports FAS, imports customs   
  basis; 1997 figures are estimates based on data available through     
  November 1997.                                                        
\6\ Inflows per balance of payments, net of inflows from the U.S.       
  Veterans Administration (USVA).                                       
                                                                        
Sources: National Economic and Development Authority, Bangko Sentral ng 
  Pilipinas, Department of Finance.                                     

1. General Policy Framework

    The Philippines, a founding member of the Association of Southeast 
Asian Nations (ASEAN) and the World Trade Organization (WTO), has a 
population of 70 million, growing at 2.3 percent yearly. Agriculture 
absorbs nearly half of the employed but contributes less than one-
fourth of GDP. Electronics and garments are the leading exports. 
Overseas workers remittances are a major source of capital inflows. The 
domestic savings rate, although improving, remains at a low 23 percent 
of GNP (1996 estimate).

    The administration of President Fidel Ramos (now serving a six-year 
term that ends in 1998) has pursued a wide-ranging program of economic 
liberalization. Significant progress have been made in liberalizing the 
trade, foreign exchange and investment regimes; privatizing state-owned 
enterprises; lowering entry barriers in such sectors as banking, 
insurance, aviation, telecommunications, and oil; and addressing 
infrastructure needs under a Build-Operate-Transfer (BOT) program. 
These reforms have underpinned sustained economic growth since 1993, 
have attracted investments and have led to strong export growth. GNP 
per capita first surpassed the equivalent of $1,000 in 1995. At the 
same time, poverty and a skewed income distribution remain serious 
concerns.

    The Philippines has posted fiscal surpluses since 1994 through a 
combination of revenue measures and expenditure cuts, but maintaining 
fiscal balance remains a challenge. Over half of the budget is 
earmarked for non-discretionary disbursements (such as personnel and 
debt service payments). Direct taxes constitute less than 40 percent of 
total tax collections. As privatization receipts taper and tariffs 
decline, weak tax collection/administration represents a threat to 
longer-term fiscal and macroeconomic stability. A package of tax 
reforms passed in late 1997 may begin to remedy this situation.

    The 1993 financial restructuring of the Central Bank (Bangko 
Sentral ng Pilipinas--BSP) restored the monetary authority's ability to 
conduct effective open market operations. As a result, reserve 
requirements have been reduced from their high pre-1993 levels. Since 
1993, foreign exchange flows (spurred by the acceleration of foreign 
exchange and investment liberalization) have played an increasingly 
major role in money supply growth, posing an additional challenge for 
the monetary authorities.
2. Exchange Rate Policy

    Reflecting major reforms phased in since 1992, current account 
transactions are fully convertible. Except for some restrictions on 
foreign debt and investments, the Philippines no longer maintains 
restrictions on capital account transactions. There are no barriers to 
full and immediate capital repatriation and profit remittances. In 
September 1995, the Philippines joined the ranks of ``Article VIII'' 
International Monetary Fund (IMF) member countries, underscoring its 
commitment to an open foreign exchange and payments regime. The 
Government phased out a forward foreign exchange cover scheme for oil 
imports between December 1994 and March 1997.

    Foreign exchange rates generally evolve freely in the interbank 
market, although the BSP imposes limits on banks' overbought and 
oversold foreign exchange positions. In mid-July 1997, as a regional 
currency turmoil escalated, the Bankers Association of the Philippines 
(BAP) abandoned a foreign ``volatility band'' (first adopted in late 
1994) in order to allow the Philippine peso to seek new, lower levels 
more freely. Responding to intermittent volatile episodes, the BAP re-
introduced a wider band on October 7, 1997, which limits interbank 
forex fluctuations to 4 percent above or below the previous trading 
afternoon's weighted average.
3. Structural Policies

    Prices are generally determined by free market forces, with the 
exception of basic public utilities. March 1996 legislation phased in 
the full deregulation of the downstream oil industry by February 1997, 
lifting controls over imports and new industry entrants. The last phase 
also abolished government-set ceilings on petroleum prices and oil 
firms' profit margins. A November 5 Supreme Court decision, however, 
ruled that the legislation violated the constitution's anti-monopoly 
provisions.

    March 1996 legislation lowered foreign investment barriers further 
by abolishing one of three negative lists (i.e., ``List C'', which 
protected ``adequately served'' sectors such as insurance, travel 
agencies, tourist lodging firms, and conference organizers) under the 
l991 Foreign Investment Act. The legislation also lowered the minimum 
capitalization requirement (from $500,000 to $200,000) at which 
majority foreign ownership would be allowed. Effective January 1997, 
the Government lifted limits on domestic borrowings by foreign firms. 
On October 21, 1997, President Ramos signed legislation increasing the 
maximum foreign ownership of securities underwriting firms from 49 
percent to 60 percent.

    The Philippines' Tariff Reform Program is gradually lowering 
applied duty rates on nearly all items, although the government is 
currently (November 1997) considering freezing or slowing down the 
staging of tariff reductions on some items. The major exception to the 
tariff reduction program is in agriculture. Quantitative restrictions 
(QRs) on ``sensitive'' agricultural products (except rice) were 
replaced with tariffs. Aside from zero-duty commitments under the WTO 
Information Technology Agreement, the Philippines is moving towards two 
rates by the year 2003 for raw materials, manufactured goods, and non-
sensitive agricultural products by the year 2003--three percent for raw 
materials and intermediate goods, and 10 percent for finished products 
by 2003--and a final uniform five percent applied tariff rate by 2004.

    The Philippines began implementing an ``expanded'' value added tax 
(EVAT) law in January 1996, extending coverage of the earlier 1988 law 
to additional goods and services. Reflecting concerns over sustainable 
revenue flows, the government launched in 1995 a ``Comprehensive Tax 
Reform Program'' (CTRP) to simplify the tax system and widen the tax 
base. The final phase of CTRP legislation, focusing on personal and 
corporate income taxes, was signed into law December 1997.
4. Debt Management Policies

    The Bangko Sentral ng Pilipinas (BSP) requires prior approval of 
certain types of foreign debt agreements: private sector loans to be 
serviced by foreign exchange purchases from the banking system; and 
loans either incurred or guaranteed by the public sector. The foreign 
debt level (estimated at $42.6 billion) has been growing, but debt 
servicing is no longer a major problem. The ratio of debt servicing to 
exports has fallen from 40 percent in the early 1980s to under 13 
percent. The Philippines reentered the voluntary international capital 
markets in 1993 after a decade's absence, and has succeeded in retiring 
or exchanging some of its earlier debt for instruments carrying longer 
maturities and more favorable terms. The Philippines has had four debt 
rescheduling rounds with official bilateral (Paris Club) creditors; the 
Government did not exercise a fifth Paris Club debt rescheduling 
agreement. The IMF approved a three-year extended arrangement in mid-
1994, which the Philippines intends to use as an exit program on or 
before the end of 1997, upon completion of the CTRP (see Section 3). 
The Philippines' exit is likely to be delayed because of the region's 
economic turmoil and a Supreme Court decision on oil price 
deregulation.
5. Significant Barriers to U.S. Exports

    Tariffs: In July 1995, the Philippines adopted a minimum access 
volume (MAV) system that licenses imports of some 85 ``sensitive'' 
agricultural products. Among those were products, such as pork and 
poultry, on which the government had undertaken minimum access 
commitments in the Uruguay Round (UR). The United States has sought 
consultations with the Philippines under the WTO regarding 
implementation of MAV's on these products. In some cases, products that 
had previously been imported without restriction, are now subject to 
the MAV system. This has resulted in the application of prohibitive 
tariff levels in cases where no MAV's (subject to in-quota rates) were 
established. Administrative requirements for import certificates under 
the MAV system for all products are burdensome. Imported automotive 
vehicles are subject to a 40 percent applied tariff rate (scheduled to 
fall to 30 percent in 2000), the highest applied duty rate currently in 
the Philippine tariff schedule, as part of an effort to encourage local 
assembly. The Philippines provides participants in its ``Motor Vehicle 
Development Program'' with a number of other incentives to encourage 
local assembly, such as a 3% duty rate on completely-knocked down (CKD) 
vehicle kits. The government has stated its intention to terminate 
certain provisions of these programs by the year 2000, in compliance 
with its WTO obligations. High excise taxes on larger engines 
significantly limit sales of vehicles imported from the United States.

    Import Licenses: Trade reforms have greatly reduced import 
restrictions. Certain items, including firearms, ammunition, and 
dangerous drugs, are still subject to import regulation for reasons of 
health, morals, and/or national security.

    State Trading: The National Food Authority remains the sole 
importer of rice and continues to be involved in imports of corn.

    Excise taxes: Excise taxes on distilled spirits have the effect of 
discriminating against imports by imposing a lower tax (eight pesos, or 
about $0.24 per proof liter) on products which use indigenously 
available materials (such as coconut, palm, cane, and certain root 
crops). Specific taxes on distilled spirits produced from other raw 
materials, which would apply to most imports, range from 75 pesos 
(about $2.20) to 300 pesos (about $8.80) per proof liter, depending on 
the retail price.

    Services Barriers: Banking--May 1994 banking legislation permitted 
10 foreign banks to open branches in the Philippines. Presently, 
foreign entry is limited to 60 percent ownership of either a new local 
subsidiary or an existing domestic bank. Foreign branch banks are 
limited to putting up six branches each. Four foreign banks that had 
been operating in the Philippines since before 1948 are allowed to add 
six branches each to their respective networks. Current regulations 
provide that majority Filipino-owned domestic banks should, at all 
times, control at least 70 percent of total banking system assets.

    Securities--Membership in the Philippine stock exchange is open to 
foreign-controlled stock brokerage firms, provided they are 
incorporated under Philippine laws. Foreign ownership in securities 
underwriting companies is limited to 60 percent. Companies not 
established under Philippine law are not allowed to underwrite 
securities for the Philippine market, but may underwrite Philippine 
issues for foreign markets. Financing companies must be at least 60 
percent Filipino-owned.

    Insurance--Although foreign entry has been liberalized, 
capitalization requirements vary according to the extent of foreign 
equity. As a general rule, only the Philippines' Government Service 
Insurance System may provide coverage for government-funded projects. A 
1994 administrative order extended this policy to BOT-funded projects. 
Current regulations require all insurance/professional reinsurance 
companies operating in the country to cede to the industry-owned 
National Reinsurance Corporation of the Philippines (NRCP) at least 10 
percent of outward reinsurance placements.

    Professional services--The Philippine Constitution (Section 14 of 
Article XII) reserves the practice of licensed professions to 
Philippine citizens. This includes, inter alia, law, engineering, 
medicine, accountancy, architecture, and customs brokerage. Philippine 
law (R.A. 8182) also requires that preference be given to Philippine 
citizens in the hiring of consultants and other professionals necessary 
for the implementation of projects funded by foreign assistance.

    Telecommunications--The Philippine Constitution (Section 10 of 
Article XII) limits foreign ownership in telecommunication firms to 40 
percent.

    Shipping--The Maritime Industry Authority prohibits foreign-flagged 
vessels from the carriage of domestic trade.

    Standards, Testing, Labeling, and Certification: Of the total 1,625 
Philippine National Standards, 15 percent are aligned with 
international norms. The government, for reasons of public health, 
safety and national security, implements regulations that affect U.S. 
exports of drugs, food, textiles and certain industrial goods. U.S. 
pharmaceutical firms believe that the ``Generic Act'' of 1988, which 
promotes the use of generic drugs and which requires that a drug's 
generic name must appear above its brand name on all packaging, 
represents a trade barrier. The Department of Agriculture has not 
established conditions of import in relation to plant health for a 
range of fresh fruits and vegetables; therefore, phytosanitary permits 
necessary for importing these products are not issued.

    Local inspection for standards compliance is required for imports 
of a range of industrial products including lighting fixtures, 
electrical wires and cables, sanitary wares and household appliances, 
medical equipment, cosmetics, portland cement and pneumatic tires. For 
other goods, however, the Philippines accepts U.S. manufacturers' self-
certification of conformance.

    Investment Barriers: The Foreign Investment Act of 1991 contains 
two categories of foreign investment ``negative lists''. ``List A'' 
covers activities in which foreign equity is excluded or limited by the 
Constitution and other laws. These include investments in mass media, 
practice of licensed professions (see above), retail trade, processing 
of corn and rice, small-scale mining and private security agencies, 
which are reserved for Filipinos. In addition to land ownership (where 
a 40 percent foreign-equity ceiling applies), varying foreign ownership 
limitations are imposed, among others, on companies engaged in 
advertising (30%), employee recruitment (25%), private construction 
(40%), financing (40%), public utilities (40%), education (40%), and 
the exploration and development of natural resources (40%). ``List B'' 
limits foreign ownership (generally to 40 percent) for reasons of 
public health, safety and morals, or to protect local small and medium-
sized firms. To protect smaller firms, a company must be capitalized at 
a minimum of $200,000 to be more than 40 percent foreign-owned.

    The Philippines generally imposes a foreign ownership ceiling of 40 
percent on firms seeking incentives with the Board of Investment (BOI) 
under the annual Investment Priorities Plan. While there are exceptions 
to the ceiling, divestment to reach the 40 percent level is required 
within 30 years. The BOI imposes industry-wide local-content 
requirements under its motor-vehicle development programs and requires 
participants to generate, via exports, a certain ratio of the foreign 
exchange needed for import requirements. The government intends to 
phase out these trade-related investment measures by the year 2000.

    Government Procurement Practices: Contracts for government 
procurement are awarded by competitive bidding and, in general, 
government procurement policies do not discriminate against foreign 
bidders. However, preferential treatment of local suppliers is 
practiced in government purchases of medicines, rice, corn, and iron/
steel materials for use in government projects. Contractors for 
infrastructure projects which require a public utility franchise (i.e., 
water and power distribution, public telephone and transportation 
systems) must be at least 60 percent Filipino-owned. For other major 
contracts (such as BOT projects) not involving a public utility 
franchise, a foreign constructor must be duly accredited by its 
government to undertake construction work. The Philippines is not a 
signatory of the WTO plurilateral Government Procurement Agreement.

    Customs Procedures: All imports valued at over $500 are permitted 
entry only when accompanied by a preshipment inspection report--``Clean 
Report of Findings''--issued by Societe Generale de Surveillance (SGS), 
the authorized, contracted, inspection firm. Refrigerated products are 
exempt. The preshipment inspection requirement extends to exports to 
certain operations in free-trade zones, such as those at Clark and 
Subic Bay, even though such zones are technically outside the customs 
territory of the Philippines. The SGS contract to perform preshipment 
inspection services expires in mid-1998, and is currently up for 
renewal.

    To assess import duty, the Bureau of Customs has shifted from 
``home consumption value'' to ``export value'' as an interim step 
towards a shift to ``transaction value'' before the year 2000. Many 
U.S. exporters assert that the use by the Bureau of Customs of the 
``export value'' method of valuation has resulted in unwarranted 
``uplifts'' in valuation (and in the assessed dutiable value).
6. Export Subsidies Policies

    Firms (including exporters) engaged in activities under the 
Investment Priorities Plan may register with the Board of Investment 
(BOI) for fiscal incentives under the 1987 Omnibus Investment Code. 
These incentives include income-tax holidays, preferential tax/duty 
treatment of imported capital equipment, tax credits for domestically 
purchased equipment, and income-tax deductions for incremental labor 
expenses. In addition to these general incentives, some benefits apply 
specifically to BOI-registered export firms (such as tax credits for 
raw-material imports, and tax/duty exemptions on imported spare parts). 
Export companies in government-designated export zones and industrial 
estates registered with the Philippine Economic Zone Authority enjoy 
basically the same incentives as BOI-registered firms.

    Enterprises accredited under the Export Development Act may also 
take advantage of time-bound incentives which include: duty-free 
importation of capital equipment and accompanying spare parts through 
1997; partial tax credit through 1997 for locally purchased raw 
materials, equipment and spare parts for exporters of nontraditional 
products; tax credit until 1999 for imported inputs and raw materials 
not readily available locally; and tax credit for increases in the 
current year's export revenues, contingent on performance and local 
content.
7. Protection of U.S. Intellectual Property

    On June 6, 1997, President Ramos signed into law a new Intellectual 
Property Code which, when it takes effect January 1, 1998, should 
significantly improve the legal framework for IPR protection. 
Implementing regulations, however, have yet to be promulgated. The new 
Code creates an Intellectual Property Office, with original 
jurisdiction to resolve certain disputes concerning licensing, and 
significantly increases penalties for infringement and counterfeiting. 
The Philippines is a party to the Paris Convention for the Protection 
of Industrial Property and the Patent Cooperation Treaty. It is also a 
member of the World Intellectual Property Organization (WIPO).

    Despite the creation in February 1993 of the Inter-agency Committee 
on Intellectual Property Rights as the body charged with recommending 
and coordinating enforcement oversight and program implementation, 
serious problems remain with IPR enforcement. Insufficient funding is a 
major problem. Joint government-private sector efforts have improved 
administrative enforcement; but when IPR owners must use the courts, 
enforcement is slower and less certain. The designation in 1995 of 48 
courts to handle IPR violations has done little to speed up the 
process, since these courts also continue to handle non-IPR cases, 
without the provision of additional resources. Because of the lengthy 
nature of court action, many cases are settled out of court.

    Patents: The new Code moves the Philippines to a ``first-to-file'' 
system, and increases the term of patent from 17 to 20 years. The 
holder of a patent is guaranteed an additional right of exclusive 
importation of his invention.

    Trademarks: The new IP Code no longer requires prior use of 
trademarks in the Philippines as a requirement for filing a trademark 
application. Also eliminated was the requirement that well-known marks 
be in actual use in Philippine commerce or registered with the Bureau 
of Patents, Trademarks, and Technology Transfer. Trademark 
counterfeiting is widespread, with many well-known international 
trademarks copied, including denim jeans, designer shirts, playing 
cards, sporting equipment and personal beauty and health care products. 
Some U.S. firms have had success in curbing piracy in cooperation with 
Philippine enforcement agencies, particularly the National Bureau of 
Investigation.

    Copyrights: The new Code expands IP protection by clarifying 
protection of computer software as literary works (although it includes 
a fair use provision on decompilation), repealing a long-standing 
compulsory reprint license for books, and establishing exclusive rental 
rights in several categories of works and sound recordings. It also 
provides terms of protection for sound recordings, audiovisual works, 
and newspapers and periodicals that are compatible with the WTO 
Agreement on Trade-related Intellectual Property Rights (TRIPs). 
However, a number of gaps and ambiguities remain; for example, the new 
Code fails to provide clearly an exclusive right for copyright owners 
over broadcast, rebroadcast, cable retransmission or satellite 
retransmission of their works.

    New Technologies: The new Code protects layout designs 
(topographies) of integrated circuits. The new Code provides for the 
patentability of micro-organisms and non-biological and microbiological 
processes.

    Software and video piracy remains widespread; according to the 
Business Software Alliance, the piracy rate for software is estimated 
at between 90-95%, while that for motion pictures is around 70%. 
Enforcement actions have not effectively reduced these figures. The 
illegal retransmission of copyrighted works by cable television 
stations, i.e. without authorization from or payment to the copyright 
owners, is also a significant problem, especially outside Manila. The 
U.S. IP industry estimates potential trade losses in 1996 due to piracy 
of software at $82 million; for motion pictures, $22 million; and for 
sound recordings, $3 million.
8. Worker Rights

    a. The Right of Association.--All workers (including public 
employees) have a right to form and join trade unions, a right which is 
exercised without government interference. Trade unions are independent 
of the government and generally free of political party control. Unions 
have the right to form or join federations or other labor groupings. 
Subject to certain procedural restrictions, strikes in the private 
sector are legal. Unions are required to provide strike notice, respect 
mandatory cooling-off periods, and obtain majority member approval 
before calling a strike.

    b. The Right To Organize and Bargain Collectively.--The Philippine 
Constitution guarantees the right to organize and bargain collectively. 
The Labor Code protects and promotes this right for employees in the 
private sector and in government-owned or controlled corporations. A 
similar but more limited right is afforded to employees in most areas 
of government service. Dismissal of a union official or worker trying 
to organize a union is considered an unfair labor practice. Labor law 
and practice are uniform throughout the country, although there have 
been complaints about some local attempts to maintain ``union free/
strike free'' policies in several of the export processing zones. In 
the garment industry, the widespread use of short-term, contract 
workers is an obstacle to workers forming unions or obtaining medical 
and retirement benefits.

    c. Prohibition of Forced or Compulsory Labor.--The Philippines 
prohibits forced labor.

    d. Minimum Age for Employment of Children.--Philippine law 
prohibits the employment of children below age 15, with some exceptions 
involving situations under the direct and sole responsibility of 
parents or guardians, or in the cinema, theater, radio and television 
in cases where a child's employment is essential. The Labor Code allows 
employment for those between the ages of 15 and 18 for such hours and 
periods of the day as are determined by the Secretary of Labor, but 
forbids employment of persons under 18 years in hazardous work. A 
significant number of children are employed in the informal sector of 
the urban economy or as unpaid family workers in rural areas.

     Acceptable Conditions of Work.--A comprehensive set of 
occupational safety and health standards exists in law. Statistics on 
actual work-related accidents and illnesses are incomplete, as 
incidents (especially in regard to agriculture) are underreported. 
Workers do not have a legally protected right to remove themselves from 
dangerous work situations without jeopardy to continued employment.

    f. Rights in Sectors with U.S. Investment.--U.S. investors in the 
Philippines generally apply U.S. standards of worker safety and health, 
in order to meet the requirements of their home-based insurance 
carriers. Some U.S. firms have resisted efforts by their employees to 
form unions, with local government support.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                     1530 
  Food & Kindred Products.....................         470              
  Chemicals & Allied Products.................         462              
  Metals, Primary & Fabricated................          35              
  Machinery, except Electrical................           0              
  Electric & Electronic Equipment.............         353              
  Transportation Equipment....................           0              
  Other Manufacturing.........................         209              
Wholesale Trade...............................                      259 
Banking.......................................                      371 
Finance/Insurance/Real Estate.................                      \1\ 
Services......................................                      \1\ 
Other Industries..............................                      395 
TOTAL ALL INDUSTRIES..........................                     3349 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                               SINGAPORE

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                               1995     1996    1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
                                                                        
Nominal GDP                                     85.3     94.0       98.7
  Real GDP (1990 prices)...................     72.3     77.7       80.1
  Real GDP Growth (pct) \2\................      8.8      7.0        6.5
  GDP By Sector:                                                        
    Agriculture............................      0.1     0.16       0.17
    Manufacturing..........................     22.4     24.5       25.7
    Services...............................     44.3     49.2       52.8
    Government.............................      7.0      8.4        8.9
  Per Capita GDP...........................   24,456   26,539     27,395
  Labor Force (000s).......................     1749     1802       1856
  Unemployment Rate (pct)..................      2.7      3.0        3.0
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
  Money Supply Growth (M2).................      8.5      9.8        9.7
  Consumer Price Inflation (pct)...........      1.7      1.4        1.8
  Exchange Rate (Sd/US$) annual average....     1.42     1.41       1.46
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB \3\....................     11.8     12.5       12.6
    Exports To U.S. CIF \3\................      1.9      2.0        2.1
  Total Imports CIF \3\....................     12.4     13.1       13.4
    Imports From U.S. FAS \3\..............      1.5      1.7        1.8
  Trade Balance \3\........................     -6.2     -6.3       -8.4
    Trade Balance With U.S. \3\............      3.2      3.6        2.8
  Fiscal Surplus/GDP (pct).................      6.3      3.6        3.2
  Current Account Surplus/GDP (pct)........     16.9     15.0       17.4
  Debt Service Payments/GDP (pct)..........        0        0          0
  Reserves.................................     68.5     76.4       81.2
  Aid from U.S.............................        0        0          0
  Aid from Other Sources...................        0        0          0
------------------------------------------------------------------------
\1\ 1997 Figures Are Projections Based On Most Recent Data Available.   
\2\ Percentage Changes Calculated In Local Currency.                    
\3\ Merchandise Trade. United States-Singapore Trade Data Was Taken From
  Usdoc Instead Of Gos sources, As The Latter Includes Transshipments To
  And From Regional Countries.                                          

1. General Policy Framework

    A city-state with a population of 3.5 million astride one of the 
major shipping lanes of the world, Singapore has long adopted economic 
policies that encourage open trade and investment. Singapore's annual 
trade is about three times the size of its GDP, and transshipments make 
up 40 percent of its merchandise exports. Foreign funds comprised 70 
percent of its total investment in manufacturing in 1996. These 
policies have allowed this small country to develop one of the world's 
most successful open trading and investment regimes. Singapore actively 
promotes trade liberalization in the region through APEC and ASEAN. It 
is a founding member of the World Trade Organization (WTO), and hosted 
the first WTO Ministerial in December of 1996.

    Internally, Singapore's free-market economic policies have created 
a climate conducive to economic growth, including a competitive 
business environment, and a transparent and corruption-free regulatory 
framework. At the same time, it has a sizable public sector in the form 
of government-linked companies (which have private shares as well) that 
account for nearly 60 percent of GDP. Over the past decade, Singapore's 
real GDP grew at an average annual rate of 9.0 percent; 1996's economic 
growth rate dropped to 7 percent. The financial and business services 
sector, in particular, has grown to eclipse manufacturing, with the 
former now contributing about 31 percent (to the latter's 26 percent) 
of GDP.

    The government pursues conservative fiscal policies designed to 
encourage high levels of savings and investment. For most of the years 
since the 1970's--and the past nine consecutive years--the Government 
has had a budget surplus. In 1996, its fiscal surplus amounted to 3.6 
percent of the country's GDP. The Central Provident Fund (CPF) 
compulsory savings program, which requires that 20 percent of an 
individual's income be placed in a tax-exempt account (with employer 
matching funds), is the basis for the national savings rate of nearly 
50 percent of GDP. Individual CPF accounts may be used only, in part, 
to finance public housing purchases and investment in government-
designated trustee stocks. The government invests heavily in the 
country's social and physical infrastructure, including education, 
transportation, public housing subsidies and CPF contributions.

    The Monetary Authority of Singapore (MAS), the country's central 
bank, engages in limited money-market operations to influence interest 
rates and ensure adequate liquidity in the banking system. Its key 
objective is to maintain stability and rarely to stimulate or reduce 
economic growth. Interest rates are low (currently 3.41 percent for 
three-month money and a 6.26 percent prime lending rate which has 
remained steady since 1995). There are no controls on capital 
movements, thus limiting the scope for an independent monetary policy. 
The exchange rate is the MAS's most important tool for controlling 
inflation. Although inflation is low by international standards (1.4 
percent based on C.P.I. numbers in 1996), an acute labor shortage and 
land scarcity have intensified inflationary pressures.

    Singapore has become a major center for electronics, chemicals, oil 
refining and financial services, acting as a hub for the growing 
Southeast Asian market. Singapore's sound economic policies which 
promote private investment have attracted about 1300 U.S. companies to 
Singapore, with cumulative investments of USD 15 billion in 1996. The 
U.S. moved up to become Singapore's largest trading partner, accounting 
for 17.3 percent of Singapore's total trade in 1996. U.S. exports to 
Singapore in 1996 were USD 16.7 billion and Singapore's exports to the 
U.S. were USD 20.3 billion.
2. Exchange Rate Policy

    Singapore has no exchange rate controls. Exchange rates are 
determined freely by daily cross rates in the international foreign 
exchange markets. At the same time, the MAS uses currency swaps and 
direct open market operations to keep the Singapore dollar within a 
desired trading range. It does impose restrictions on Singapore dollar 
lending (SGD 5 million) to non-residents, or to local residents for use 
abroad, as a check against the internationalization of the Singapore 
dollar. The MAS maintains a strong currency to check inflation, given 
Singapore's extreme exposure to international trade.

    The Singapore dollar appreciated about 54 percent against the U.S. 
dollar from 1986 to 1996, with its rise slowed somewhat in 1996 due to 
more moderate economic growth and less than two percent inflation. 
Since the beginning of 1997, it has depreciated by over ten percent 
against the U.S. dollar largely in connection with the region's 
currency crisis. This could have an impact on U.S. imports as prices of 
American products rise in the local market. On the other hand, the 
Singapore dollar has appreciated significantly against the other 
currencies in the region, thus minimizing the inflationary impact on 
its economy.
3. Structural Policies

    Singapore's prudent economic policies have allowed for steady 
economic growth and the development of a reliable market, to the 
benefit of U.S. exporters. Singapore was the eighth largest customer 
for U.S. products in 1996. Prices for virtually all products are 
determined by the market. The Government conducts its bids by open 
tender and encourages price competitionthroughout the economy.

    The Singapore government has gradually reduced corporate income tax 
levels from 40 percent in 1986 to the current 26 percent. It aims to 
bring the corporate tax rate down further to 25 percent in the next few 
years. Foreign firms are taxed on the same basis as local firms. There 
is no tax on capital gains. The Government implemented a three percent 
value-added Goods and Services Tax (GST) in 1994 but reduced corporate 
(by one percent)and personal (by three percent) taxes. It also began 
providing tax rebates of up to SGD 700 on individual income tax in 
1994. With these changes, it is estimated that three out of four 
Singaporeans will end up not having to pay personal income taxes, thus 
increasing the disposable incomes available to the average Singaporean 
consumer. In 1996, given continued budget surpluses, the Government 
also decided to make additional contributions to public housing and 
retirement schemes. At the same time, it raised stamp duties and 
imposed credit restrictions and a capital gains tax on short-term 
property sales to curb speculation in the real estate market.

    Many of Singapore's public policy measures are tailored to attract 
foreign investments and ensure an environment conducive to their 
efficient business operations and profitability. Investment policies 
are open and transparent. Although the Government seeks to develop more 
high-tech industries, it does not impose production standards, require 
purchases from local sources, or specify a percentage of output for 
export.
4. Debt Management Policies

    Singapore's external public debt was a negligible USD 3.1 million 
at the end of 1994 and was retired completely in 1995. This was one of 
the factors that enabled the country to weather the currency crisis 
which engulfed the region in the second half of 1997. Singapore's 
budget surpluses and mandatory savings have allowed the government wide 
latitude in supporting infrastructure, education, and other programs 
contributing significantly to national development.
5. Aid

    Singapore does not receive financial assistance from foreign 
governments.
6. Significant Barriers to U.S. Exports

    Singapore has one of the world's most liberal and open trade 
regimes. Approximately 98 percent of imports enter duty-free, with 
tariffs primarily levied on cigarettes and alcohol for social reasons. 
Excise taxes are levied on petroleum products and motor vehicles 
primarily to restrict motor vehicle use. There are no non-tariff 
barriers to foreign goods. Import licenses are not required, customs 
procedures are minimal and highly efficient, the standards code is 
reasonable and the government actively encourages foreign investment. 
All major government procurements are by international tender. The 
Government formally acceded to the WTO Government Procurement Agreement 
in September 1997.

    Singapore maintains some market access restrictions in the services 
sector. No new banking licenses for local retail banking have been 
issued for more than two decades (to either foreign or domestic 
institutions) because the Monetary Authority considers Singapore over-
banked. Foreign banks currently hold 22 of the 34 full (local retail) 
banking licenses. Full licensed foreign banks, however, are not allowed 
additional branches or ATM machines although local banks are allowed to 
expand. At the same time, the MAS continues to encourage the growth of 
the offshore banking industry in Singapore. It recently raised the 
Singapore dollar lending limit for offshore banks (to Singapore-based 
firms) from SGD 100 to SGD 200 million. No new licenses for direct 
(general) insurers are being issued, although reinsurance and captive 
insurance licenses are freely available. Foreign companies hold about 
three-quarters of the 59 direct insurance licenses.

    The telecommunications sector has been steadily liberalized since 
1989. Restrictions on the sale of telecommunication consumer goods and 
the provision of value-added network services (VANS) have been lifted. 
Singapore Telecom (Singtel) has been privatized and its regulatory 
functions assumed by the Telecommunications Authority of Singapore 
(TAS). Private investors now own up to 19 percent of shares in Singtel. 
In April 1996, MobileOne (a Singapore-foreign joint venture) became the 
second cellular phone service provider in Singapore, thus ending 
Singtel's monopoly in the telephone services market. Three new paging 
service providers also entered the market at the same time. TAS has 
also announced that it will issue new licenses for up to two new basic 
telephone service providers to begin operation in 2000, and additional 
ones in 2002. Worldcom, the fourth largest U.S. long-distance operator, 
has formed a joint venture to bid for a basic services license.
7. Export Subsidies Policies

    Singapore does not subsidize exports although it does actively 
promote them. The Government offers significant incentives to attract 
foreign investment, almost all of which is in export-oriented 
industries. It also offers tax incentives to exporters and reimburses 
firms for certain costs incurred in trade promotion, but it does not 
employ multiple exchange rates, preferential financing schemes, import-
cost-reduction measures or other trade-distorting policy tools.
8. Protection of U.S. Intellectual Property

    The Singapore government recognizes the importance of intellectual 
property rights (IPR), especially in connection with further 
investments--both foreign and domestic--in the technologically-advanced 
sectors of the economy. It has taken concrete measures to improve the 
protection of IPR over the years and, as a result, Singapore has one of 
the lowest rates of IPR piracy in Asia. Singapore is a member of the 
World Intellectual Property Organization (WIPO), and has ratified the 
Uruguay Round Accord including the TRIPS provisions. Singapore is not a 
party to the Berne Convention or the Universal Copyright Convention.

    In 1987, following close consultation with the U.S. Government, 
Singapore enacted strict, comprehensive copyright legislation which 
relaxed the burden of proof for copyright owners pressing charges, 
strengthened civil and criminal penalties and made unauthorized 
possession of copyrighted material an offense in certain cases. In 
January 1991 Singapore similarly strengthened its Trademark Law. In 
1994, Singapore enacted a new Patents Act. Although Singapore did not 
commit to implementing the TRIPS agreement by 1 January 1996, as 
required for developed countries, amendments making the Patent Law 
fully TRIPS consistent came into effect in January 1996. Singapore is 
now also drafting amendments to its Copyright Law, expecting to make it 
TRIPS consistent by the end of 1997.

    Singapore was placed on the Special 301 Watch List in 1997 partly 
because its Copyright Law was not TRIPS consistent. (Note: Singapore 
claimed ``developing country'' status under TRIPS, thus not binding 
itself to meet the 1 January 1996 deadline for a ``developed 
country.'') Other outstanding issues included the lack of rental rights 
for sound recordings and software, inadequate protection against making 
bootleg copies of musical performances, the limited scope of copyright 
protection for cinematographic works and overly broad exceptions from 
copyright protection.

    Copyrights: Despite government efforts, IP owners associations have 
reported an upsurge in pirated music CDs and CD ROMs available in the 
country since 1995, part of which were thought to have been smuggled in 
and others manufactured in Singapore. A successful series of raids 
conducted by the police, assisted by the International Federation of 
Phonographic Industries (IFPI), in July 1997 resulted in the 
confiscation of 78,000 pirated music CD's. In another case, however, 
the Chief Justice quashed a warrant used by BSA and the police in a 
raid on a local CD manufacturer. More generally, IP associations have 
cited the inadequacy of the current ``self-policing'' system, and are 
pressing the government to assume a more active and direct role in the 
investigation and prosecution of IPR cases. They have called for the 
enactment of even stronger laws and regulations to protect IPR. In 
response, government agencies have met with local CD manufacturers and 
IP owners associations to consider new measures to deal with the 
problem.

    Recent estimates by Business Software Alliance (BSA) show software 
piracy losses rising to USD 56.5 mil in 1996 from USD 40.4 mil in 1995 
and USD 37.3 mil in 1994. Singapore's piracy rate was estimated to have 
risen back up to 59 percent in 1996 from 53 percent (the lowest in 
Asia) in 1995 and 61 percent in 1994. In the area of music CDs, IFPI 
estimated Singapore's CD piracy level to have risen gradually from 12 
percent in 1994 to nearly 17 percent in 1996.
9. Worker Rights

    a. The Right of Association.--Article 14 of the Singapore's 
constitution gives all citizens the right to form associations, 
including trade unions. Parliament may, however, based on security, 
public order, or morality grounds impose restrictions. The right of 
association is delimited by the Societies Act and labor and education 
laws and regulations. In practice, communist labor unions are not 
permitted. Singapore's labor force numbered 1.8 million in 1996, with 
some 255,020 workers organized into 83 trade unions.

    b. The Right to Organize and Bargain Collectively.--Over ninety 
percent of these workers in unions are affiliated with an umbrella 
organization, the National Trades Union Congress (NTUC), which has a 
symbiotic relationship with the Government. The NTUC's leadership is 
made up mainly of Members of Parliament belonging to the ruling 
People's Action Party (PAP). The Secretary-General of the NTUC is also 
an elected Minister without portfolio in the Prime Minister's office.

    The Trades Union Act authorizes the formation of unions with broad 
rights. Collective bargaining is a normal part of labor-management 
relations in Singapore, particularly in the manufacturing sector. 
Collective bargaining agreements are renewed every two to three years, 
although wage increases are negotiated annually.

    c. Prohibition of Forced or Compulsory Labor.--Under sections of 
Singapore's Destitute Persons Act, any indigent person may be required 
to reside in a welfare home and engage in suitable work.

    d. Minimum Age for Employment of Children.--The Government enforces 
the Employment Act, which prohibits the employment of children under 12 
years and restricts children under 16 from certain categories of work.

    e. The Singapore labor market offers relatively high wage rates and 
working conditions consistent with international standards.--However, 
Singapore has no minimum wage or unemployment compensation. Because of 
labor shortages, wages have generally stayed high. The government 
enforces comprehensive occupational safety and health laws. Enforcement 
procedures, coupled with the promotion of educational and training 
programs, reduced the frequency of job-related accidents by one-third 
over the past decade. The average severity of occupational accidents 
has also been reduced.

    f. Rights in Sectors with U.S. Investment.--U.S. firms have 
substantial investments in several sectors of the economy, including 
petroleum, chemicals and related products, electric and electronic 
equipment, transportation equipment, and other manufacturing areas. 
Labor conditions in these sectors are the same as in other sectors. The 
growing labor shortage has forced employers, especially in the 
construction and electronics industries, to hire many unskilled foreign 
workers. Over 400,000 foreign workers are employed legally in 
Singapore, 22 percent of the total work force. The government controls 
the number of foreign workers through immigration regulation and 
through levies on firms hiring them. Foreign workers face no legal 
discrimination, but, because they are mostly unskilled workers, they 
are generally paid less than Singaporeans.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                     2799 
Total Manufacturing...........................                     5870 
  Food & Kindred Products.....................         \1\              
  Chemicals & Allied Products.................         360              
  Metals, Primary & Fabricated................         214              
  Machinery, except Electrical................        1590              
  Electric & Electronic Equipment.............        3226              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................         254              
Wholesale Trade...............................                     1777 
Banking.......................................                      507 
Finance/Insurance/Real Estate.................                     2521 
Services......................................                      487 
Other Industries..............................                      189 
TOTAL ALL INDUSTRIES..........................                    14150 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                 TAIWAN

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                               1995     1996    1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  GDP (at current prices)..................    260.2    272.3      288.2
  Real GDP Growth (percent)................      6.0      5.7        6.6
  GDP by Sector:                                                        
    Agriculture............................      9.2      8.9        8.2
    Manufacturing..........................     73.2     76.0       79.5
    Services...............................    129.3    138.0      149.7
    Government.............................     27.4     28.7       30.2
  Per Capita GDP (US$).....................   12,164   12,732     13,373
  Labor Force (000s).......................    9,210    9,310      9,400
  Unemployment Rate (percent)..............      1.8      2.6        2.6
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
  Money Supply (M2)........................      9.4      9.1        9.0
  Consumer Price Inflation.................      3.7      3.1        2.6
  Exchange Rate (NT$/US$) \2\                                           
    Official...............................    27.27    27.46      28.50
                                                                        
Balance of Payments and Trade:                                          
  Total Exports (FOB) \3\..................    111.7    115.9      123.7
    Exports to U.S. (CV) \4\...............     29.0     29.9       32.4
  Total Imports (CIF) \3\..................    103.6    102.4      113.5
    Imports from U.S. (FAS) \4\............     19.3     18.4       20.3
  Trade Balance \3\........................      8.1     13.5       10.2
    Trade Balance with U.S. \4\............      9.7     11.5       12.1
  External Public Debt.....................      0.3      0.1       0.05
  Fiscal Deficit/GDP (pct).................      7.4      7.4        6.3
  Current Account Deficit/GDP (pct)........      1.8      3.8        2.1
  Debt Service Payments/GDP (pct)..........      2.4      1.8        2.0
  Gold and Foreign Exchange Reserves.......     95.9     93.6       92.1
  Aid from U.S. \5\........................        0        0          0
  Aid from Other Countries.................        0        0          0
------------------------------------------------------------------------
\1\ 1997 figures are estimated based on data from the Directorate       
  General of Budget, Accounting and Statistics, or extrapolated from    
  data available as of September 1997.                                  
\2\ Average of figures at the end of each month.                        
\3\ Taiwan Ministry of Finance (MOF) figures for merchandise trade.     
\4\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports 
  FAS, imports customs basis; 1997 figures are estimates based on data  
  available through August 1997. Taiwan MOF figures for merchandise     
  exports (FOB) to and imports (CIF) from U.S. respectively were (US$   
  billions): (1995) 26.4/20.8, (1996) 26.9/20.0, (1997) 29.2/22.5.      
\5\ Aid disbursements stopped in 1965.                                  

1. General Policy Framework

    For four and a half decades, Taiwan has maintained rapid economic 
growth and macroeconomic stability. Annual economic growth during this 
period averaged 8.5 percent. In 1996, real gross domestic product (GDP) 
increased 5.7 percent; it is expected to grow by 6.6 percent in 1997. 
Per capita GDP was US$12,732 in 1996. As of August 1997, Taiwan held 
US$88 billion in foreign exchange reserves, the third largest in the 
world (after Japan and the PRC). Prices rose 3.1 percent in 1996 and 
are expected to rise 2.6 percent in 1997.

    Rising labor and land costs have led many manufacturers in labor 
intensive industries to move offshore, mainly to Southeast Asia and 
mainland China. The pace of relocation has now slowed, however, in 
large part because those intending to move have already done so. 
Industrial growth is now concentrated in capital and technology 
intensive industries such as petrochemicals, computers, and electronic 
components, as well as consumer goods industries. Services account for 
over sixty percent of GDP. Exports of goods and services account for 
nearly half of GDP.

    Falling official savings and growing public expenditures have 
caused domestic public debt to increase steadily. The Taiwan 
authorities now rely largely on domestic bonds and bank loans to 
finance major expenditures. In 1997, Taiwan adopted austerity measures 
to control the government budget deficit. As a result, outstanding 
public debt will decline from 21 percent of GNP in fiscal year 1997 
(July 1-June 30) to 20 percent in fiscal year 1998. During the same 
period, the central government's deficit will fall by half, from four 
percent of GNP to two percent. Defense spending still accounts for the 
largest share of public expenditures (about one quarter) but is falling 
in relative terms. The greatest pressure on the budget now comes from 
growing demands for improved infrastructure and social welfare 
spending, including a national health insurance plan initiated in early 
1995.

    Taiwan wishes to accede to the World Trade Organization (WTO) 
Agreement in the near future. It also aims to develop into an Asia 
Pacific regional operations center, and is an active member of the Asia 
Pacific Economic Cooperation (APEC) forum. Taiwan has in recent years 
accelerated liberalization of its trade and investment regime.
2. Exchange Rate Policies

    Taiwan has a floating exchange rate system in which banks set rates 
independently. The Taiwan authorities, however, control the largest 
banks authorized to deal in foreign exchange. The Central Bank of China 
(CBC) intervenes in the foreign exchange market when it feels that 
speculation or ``drastic fluctuations'' in the exchange rate may impair 
normal market adjustments. The CBC uses direct foreign exchange trading 
by its surrogate banks and public policy statements as its main tools 
to influence exchange rates. Beginning in July 1996, the CBC ceased to 
set banks' overbought and oversold positions; banks are now authorized 
to set these positions. In May 1997, the CBC lifted limits on banks' 
foreign liabilities. The CBC, however, still limits the use of 
derivative products denominated in New Taiwan Dollars.

    Trade-related funds flow freely into and out of Taiwan. Most 
restrictions on capital account flows have been removed since late 
1995. Laws restricting repatriation of principal and earnings from 
direct investment have been lifted in principle, but some necessary 
amendments are still pending in the Legislative Yuan. Despite 
significant easing of previous restrictions on foreign portfolio 
investment, some limits remain in place.
3. Structural Policies

    Six state-owned enterprises have been either totally or partially 
privatized in the past three years. Two more are targeted for 
privatization in 1998. State-owned enterprises account for ten percent 
of GDP, a proportion which shrinks annually. Taiwan's Fair Trade 
Commission (FTC) acts to thwart noncompetitive pricing by state-run 
monopolies. FTC exemptions granted five years ago to several state-run 
monopolies were not renewed in 1997, making such firms subject to anti-
monopoly laws.

    In July 1997, Taiwan began implementing tariff reductions on 289 
high-tech goods as part of its commitment to the multilateral 
Information Technology Agreement. It is expected that tariffs will be 
lowered on an additional 1,130 items in early 1998 (legislation is 
pending). Taiwan's current average nominal tariff rate is 8.6 percent; 
the trade-weighted rate is 3.6 percent. High tariffs and pricing 
structures on some goods--in particular on some agricultural products--
nevertheless hamper U.S. exports. Taiwan continues to ban imports of 
products such as peanuts, poultry products, and bellies and offal of 
hogs. The Taiwan Tobacco and Wine Monopoly Bureau (TTWMB) has a 
monopoly on domestic production of cigarettes and alcoholic beverages. 
The United States is seeking to improve market access for these and 
other products as part of Taiwan's WTO accession process.
4. Debt Management Policies

    Unofficial estimates put Taiwan's outstanding long- and short-term 
external debt at US$17.5 billion as of December 1996, equivalent to 6.4 
percent of GDP. Official figures show that Taiwan's long term 
outstanding external public debt totaled US$89 million, compared to 
gold and foreign exchange reserves of about US$93.6 billion. Taiwan's 
debt service payments in 1996 totaled US$3.0 billion, only two percent 
of exports of goods and services.

    Foreign loans committed by Taiwan authorities exceed US$1 billion. 
Taiwan offered low-interest loans to the Philippines, Eastern Europe, 
Vietnam, South Africa, and Latin America, mostly to build industrial 
zones and to foster development of small and medium enterprises (SME). 
Taiwan also contributes to the Asian Development Bank (ADB), one of the 
two multilateral development banks in which it has membership. Taiwan 
is also a member of the Central American Bank for Economic Integration 
(CABEI). The ADB, CABEI, and the European Bank for Reconstruction and 
Development (EBRD) have all floated bonds in Taiwan.
5. Significant Barriers to U.S. Exports

    Accession to the WTO Agreement by Taiwan will open markets for some 
U.S. goods and services. Currently more than 86 percent of all import 
categories are exempt from controls. Some 878 categories require 
approval from relevant authorities. Another 287 require import permits 
from the Board of Foreign Trade or pro forma notarization by banks. 
Imports of 264 categories are banned, including ammunition and some 
agricultural products. In June, 1997, Taiwan began implementing the HS 
system to bring its tariff schedule into line with international 
standards.

    Financial: Taiwan continues to liberalize steadily its financial 
sector. Taiwan enacted a Futures Exchange law in March 1997; a futures 
market will be established in late 1997 or early 1998. The Securities 
and Exchange Law was amended in May 1997 to remove restrictions on 
employment of foreigners by securities firms, effective upon Taiwan's 
accession to the WTO Agreement. Limits remain on foreign ownership in 
listed companies. Foreign investors, both individual and qualified 
foreign institutional investors, are subject to some limits on their 
portfolio investment and restrictions on their capital flows.

    Banking: In May 1997, banks' foreign liabilities limits were 
removed. In June 1997, the restriction that commercial paper guaranteed 
by a foreign bank could not exceed ten times the bank's local net worth 
was dropped. Also in June 1997, the annual limit on a company's trade-
related outward (or inward) remittances was raised from US$20 million 
to US$50 million. Inward/outward remittances unrelated to trade by 
individuals or companies are still subject to annual limits. NT-dollar-
related derivative contracts may not exceed one-third of a bank's 
foreign exchange position.

    Legal: Foreign lawyers may not operate legal practices in Taiwan 
but may set up consulting firms or work with local law firms. Qualified 
foreign attorneys may, as consultants to Taiwan law firms, provide 
legal advice to their employers only. Draft legislation is pending 
which would clarify the status and scope of work for foreign-licensed 
attorneys.

    Insurance: In May 1997, the financial authorities announced that in 
principle insurance companies would be allowed to set some premium 
rates and policy clauses without prior approval from regulators. 
Insurance companies are still required to report such rates and 
clauses. In July 1995, Taiwan removed a prohibition against mutual 
insurance companies; as of October 1997, however, authorities had not 
issued implementing regulations. In 1996, a U.S. mutual insurance firm 
was denied authorization to establish a branch in Taiwan.

    Transportation: The United States and Taiwan concluded an Open 
Skies Agreement in February 1997. An amendment to the Highway Law 
allowing branches of U.S. ocean and air freight carriers to truck 
containers and cargo in Taiwan went into effect on November 1, 1997.

    Telecommunications: As part of a long-term liberalization plan, 
authorities in early 1997 awarded 8 mobile telephone licenses, 8 paging 
licenses, 20 trunking radio licenses, and 8 mobile data licenses to 
private service providers. Maximum allowable direct and indirect 
foreign investment in these private service providers is limited to 
20%, although Taiwan has proposed increasing the limits to just below 
50%. Private service providers currently face excessively high 
interconnection fees imposed by monopoly wireline provider Chunghwa 
Telecom. Taiwan's Directorate General of Telecommunications has been 
unwilling to mediate the interconnection fee problem, putting U.S.-
invested mobile providers at a significant cost disadvantage to 
Chunghwa, with whom they also compete.

    Pharmaceuticals and Medical Devices: Under pricing principles 
adopted in late 1996, Taiwan's Bureau of National Health Insurance 
discriminates against imported drugs by setting prices for leading 
brand-name products at artificially low levels, while providing 
artificially high reimbursement prices for locally-made generics. 
Foreign drug makers also face long delays in seeking regulatory 
approval and pricing from relevant authorities for new drugs. In a 
similar way, imported medical devices are put at a competitive 
disadvantage by a reimbursement system which fails to account for 
significant quality differences between different brands of medical 
devices.

    Motion Pictures: Taiwan restricts the import of foreign film prints 
to 38 per title (up from 31 as of June 1997). No more than 11 theaters 
in any municipality may show the same foreign film simultaneously. 
Effective August 1997, multi-screen theaters are allowed to show a film 
on up to three screens simultaneously, up from the previous limit of 
one. Taiwan has pledged to abolish these restrictions upon accession to 
the WTO Agreement.

    Standards, Testing, Labeling, and Certification: Taiwan will bring 
its laws and practices into conformity with the WTO Agreement on 
Technical Barriers to Trade as part of its WTO accession. U.S. 
agricultural exports in particular suffer under existing requirements. 
These include a lack of an internationally-accepted set of pesticide 
tolerance levels for imported fruits and vegetables, stringent 
microbiological and chemical testing of imported food products, and 
standards on preservatives for soft drinks. Imported agricultural goods 
are routinely tested while local agricultural products usually are not. 
Industrial products such as air conditioning and refrigeration 
equipment, electric hand tools, and synthetic rubber gloves must 
undergo redundant and unnecessary testing requirements, which include 
destructive testing of samples. Imported autos face stringent noise, 
emissions, and fuel efficiency testing requirements. In 1997, Taiwan 
authorities promulgated new electromagnetic emissions standards for 
computer and other electronic goods. Discussions are underway on 
arrangements to avoid disrupting U.S. computer exports to Taiwan.

    Investment Barriers: Since 1996, Taiwan has relaxed investment 
restrictions in a host of areas, including petroleum refining, coal 
coking, office digital electronic switching systems, and a number of 
other value-added network services. Foreign investment remains 
prohibited in key industries such as agriculture, basic wire line 
telecommunications, broadcasting, and liquor and cigarette production. 
In October 1997, Taiwan streamlined foreign investment review 
procedures.

    Limits on foreign equity participation in a number of industries 
have been relaxed in the past year; for example, permissible 
participation in shipping companies was raised from 50 to 100 percent. 
Foreign ownership limits for securities investment trust companies were 
removed in 1996. Other limits--such as a 33-percent limit on holdings 
in airlines, air cargo forwarders and air cargo ground-handling--remain 
unchanged. However, an amendment to the Civil Aviation Law that would 
raise the holding limit to 50 percent is now pending legislative 
approval. In August 1997, Taiwan raised the cap on foreign investment 
in independent power projects from 30 percent to 49 percent. Local 
content requirements in the automobile and motorcycle industries will 
be lifted as part of Taiwan's WTO accession. Restrictions on employment 
of foreign administrative personnel in foreign-invested firms remain in 
place.

    Procurement Practices: Taiwan has committed to adhere to the WTO 
Agreement on Government Procurement (AGP) as part of its WTO accession 
process. The draft Government Procurement Law includes giving the 
Dispute Settlement Committee increased authority to arbitrate contract 
disputes, not just bid challenges. The law is expected to be passed in 
1997. The U.S. concluded its bilateral discussion on Government 
Procurement with Taiwan in December 1997.
6. Export Subsidies Policies

    There are few subsidy and tax policies to subsidize exports. 
Taiwan's small rice and sugar exports enjoy indirect subsidies through 
guaranteed purchase prices higher than world prices. Producers of some 
fruit, poultry, and livestock receive financial assistance with 
packaging, storage, and shipping via marketing cooperatives and 
farmers' associations. Taiwan's Tobacco and Wine Monopoly Bureau 
guarantees prices for products used in production of its products. 
Taiwan authorities also offer guaranty prices for a portion of rice and 
other cereal crops produced by farmers. Taiwan subsidizes the 
manufacture of fertilizer by offering lower fuel prices to domestic 
manufacturers.
7. Protection of U.S. Intellectual Property

    The United States removed Taiwan from the Special 301 list in 
November 1996 based on its implementation of a comprehensive, 18-point 
IPR action plan. Taiwan authorities implemented new regulations 
requiring Taiwan CD manufacturers to use source identification (SID) 
codes on their products. They plan to begin requiring SID's on video 
CD's as well. They stepped up enforcement actions and continued 
education efforts. Taiwan also opened an IPR service window to assist 
foreign firms facing IPR infringement.

    Taiwan is not a party to any major multilateral IPR conventions. In 
line with WTO Agreement accession efforts, Taiwan has passed laws to 
protect integrated circuit layouts, personal data, and trade secrets. 
Likewise, the Legislative Yuan in April 1997 passed an amended Patent 
and Trademark Law. As a result, Taiwan's IPR legal structure, with the 
exception of its Copyright Law, is consistent with the WTO Agreement on 
Trade-Related Aspects of Intellectual Property Rights (TRIPs).

    Copyrights: Export of counterfeit copyrighted goods has dropped 
markedly over the past few years, but unauthorized copying of computer 
software and manufacture of counterfeit video games remain problems. 
Taiwan currently protects copyrights dating from 1965. The revised 
Copyright Law now under review in the Legislative Yuan will bring 
Taiwan into TRIPs conformity by extending retroactive protection to 50 
years upon Taiwan's accession to the WTO.
8. Worker Rights

    a. The Right of Association.--The Labor Union Law (LUL) restricts 
the right of association of workers on Taiwan. It forbids civil 
servants, teachers, and defense industry workers to organize trade 
unions and forbids workers to form competing trade unions and 
confederations. However, as democratization has continued, workers have 
gradually established independent labor organizations, either legally 
or illegally. During 1997, the number of unions and their members 
declined slightly due to relatively slow economic growth and to jobs 
taken by foreign labor. As of June 1997, three million workers, or 32 
percent of Taiwan's labor force, belonged to 3,706 labor unions.

    b. The Right to Organize and Bargain Collectively.--With the 
exception of civil servants, teachers, and defense industry workers, 
the LUL, the Law Governing the Handling of Labor Disputes, and the 
Collective Agreement Law give workers the right to organize and bargain 
collectively. However, the laws also restrict workers' exercise of 
these rights. The LUL, for example, stipulates that workers shall not 
strike to demand an increase in wages exceeding standard wages. 
Collective bargaining agreements exist mainly in large-scale 
enterprises. As of June, 1997, there were 295 such collective 
agreements.

    c. Prohibition of Forced or Compulsory Labor.--The Labor Standards 
Law prohibits forced or compulsory labor. The maximum jail sentence for 
violation of the law is five years. Except for cases involving 
prostitution, there were no reports of such practices in 1997.

    d. Minimum Age for Employment of Children.--The Labor Standards Law 
stipulates age 15, after completion of the 9-year compulsory education 
required by law, as the minimum age for employment. County and city 
labor bureaus enforce minimum age laws. Child labor is rare in Taiwan.

    e. Acceptable Conditions of Work.--The Labor Standards Law (LSL) 
mandates basic labor standards. At present, the law covers 3.6 million 
of Taiwan's 6.4 million salaried workers. In October 1997, the minimum 
wage was raised by 3 percent from NT$15,360 to NT$15,840 (or about 
US$520) per month. During this period, the average wage in the 
manufacturing sector was over NT$37,000(or about US$1,320), more than 
twice the legal minimum wage. The LSL limits the work week to 48 hours 
(8 hours per day, 6 days per week) and requires one day off every 7 
days. In December 1996, the LSL was adjusted to give employers more 
flexibility in adhering to work hour limits. In addition to wages, 
employers typically provide workers with additional payments and 
benefits, including a portion of national health insurance and labor 
insurance premiums, the distribution of labor welfare funds, meals, and 
transportation allowances.

    f. Rights in Sectors with U.S. Investments.--U.S. firms and joint 
ventures generally abide by Taiwan's labor law regulations. In terms of 
wages and other benefits, workers rights do not vary significantly by 
industrial sector.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                     2778 
  Food & Kindred Products.....................         124              
  Chemicals & Allied Products.................        1222              
  Metals, Primary & Fabricated................         \1\              
  Maachinery, except Electrical...............         185              
  Electric & Electronic Equipment.............        1180              
  Transportation Equipment....................         \1\              
Otther Manufacturing..........................          87              
Wholesale Trade...............................                      540 
Banking.......................................                      575 
Finance/Insurance/Real Estate.................                      243 
Services......................................                      158 
Other Industries..............................                      \1\ 
TOTAL ALL INDUSTRIES..........................                     4509 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
 ASource: U.S. Department of Commerce, Bureau of Economic Analysis      

                                THAILAND

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                               1995    1996    1997(est)
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP...............................   167.3   185.9  \2\ \4\ 18
                                                                     8.7
  Real GDP growth (pct).....................     8.6     6.5     \2\ 1.5
  GDP by sector:                                                        
    Agriculture.............................    18.2   19. 6         N/A
    Manufacturing...........................    48.3    55.0         N/A
    Services................................    20.6    22.4         N/A
    Government..............................     6.2     6.6         N/A
  Per capita GDP............................   2,770   3,034  \2\ \4\ 3,
                                                                     100
  Labor force...............................    33.6    34.0        34.4
  Unemployment rate.........................     2.6     2.6     \2\ 5.0
                                                                        
Money and prices (annual percent of growth):                            
  Money supply growth.......................    17.0    12.0        14.3
  Consumer price inflation..................     5.8     6.0     \5\ 9.5
  Exchange rate (baht/US$, annual average)                              
    Official................................   24.92    25.3  \2\ \4\ 40
                                                                      .0
                                                                        
Balance of payments and trade:                                          
  Total exports FOB.........................    55.4    57.3        56.2
    Exports to U.S..........................    11.3    11.1        11.4
  Total imports CIF.........................    70.4    72.4        66.5
    Imports from U.S........................     6.4     6.9         7.2
  Trade balance.............................   -15.0   -15.1       -10.0
    Balance with U.S........................     4.9     4.1         4.2
  External public debt......................    16.4    16.5    \1\ 16.2
  Fiscal surplus/(pct)......................     2.7     2.2     \5\ 1.0
  Current account Deficit /GDP (pct)........    -8.1    -8.0     \5\ 5.0
  Debt service Payments /GDP (pct)..........     2.8     N/A         N/A
  Gold and Foreign Exchange Reserves........    37.0    39.5    \5\ 23.0
  Aid from U.S. (US$ millions)..............    31.2     N/A         N/A
  Aid from all other sources................     N/A     N/A         N/A
------------------------------------------------------------------------
\1\ Bank of Thailand                                                    
\2\ Various U.S. official sources, including U.S. Embassy estimates     
\3\ Thai Development Research Institute                                 
\4\ NOTE: The exchange rate on October 31, 1997 was 40 baht to $1.00.   
  However, GDP in 1997 is calculated at the 1996 exchange rate in order 
  to provide a better measure of real growth and per capita income in   
  the Thai economy for 1997. If the 1997 GDP were calculated at 40 baht 
  to the U.S. dollar, the Thai GDP would be approximately $119 billion, 
  and the per capita income approximately $1,960 (assuming a 1997       
  population of 60.8 million).                                          
\5\ IMF estimates.                                                      

1. General Policy Framework

    The government of Prime Minister Chavalit Yongchaiyut has generally 
continued the economic policies of previous governments, giving some 
additional attention to the redress of economic disparities and 
dislocations caused by rapid development in the Central regions of the 
country. The Northeast, particularly, has not shared in the country's 
rapid growth. However, the government is currently very unstable 
because it has failed to cope with a serious economic decline that has 
afflicted the country throughout 1997.

    Thailand's economy is export-oriented, bolstered by a free market 
philosophy. Within the last generation Thailand's economy has changed 
from one primarily based upon agriculture, with some light industries, 
to one dominated by manufacturing and services. While about 52 percent 
of the Thai labor force is still engaged in agriculture, at least on a 
part time basis, the growing service, manufacturing, and wholesale and 
retail trades now account for about two thirds of Thailand's GDP.

    After years of an overheated economy with rapid growth, in late 
1996 and into 1997 the Thai economy led a regional downturn. There are 
both long and short term causes for the current serious decline. Thai 
competitiveness in labor intensive industries (such as textiles) has 
been falling as its ASEAN neighbors take a greater share of those 
markets. There is a shortage of well educated management and workers 
capable of shifting smoothly into higher-tech industries, where 
Thailand's economic future lies. An inadequate infrastructure, 
especially in the overcrowded Bangkok area, is an ongoing problem.

    If those long term problems are worrying for future prospects, the 
short term problems are more critical. The Thai stock market, which had 
been declining for years, reached eight year lows in the last quarter 
of 1997. Over-building in the property sector, financed by a large 
number of questionable loans, resulted in the rapid collapse of booming 
property construction during 1997. Though sales have stagnated, prices 
do not yet reflect the debacle. The finance sector was severely shaken 
by the suspension of 58 troubled finance companies. In August 1997, the 
Thai Government agreed to accept the terms of an International Monetary 
Fund loan containing conditions that forbid a bail out of suspended 
finance firms.

    After months of speculation and denials by the government that any 
such move was being considered, the Baht began a ``managed float'' in 
July, 1997. The Baht immediately fell in value, and has continued to 
spiral downward since that time. Offshore debt quickly became onerous. 
Yet exports (except in textiles and agro-industries) have not reaped 
the usual gains of a cheaper currency because many of Thailand's 
products are assembled with components bought abroad which come at 
higher prices. Credit has been extremely tight, thereby denying the 
business sector the liquidity a recovery would require. Growth of 
Thailand's gross domestic product fell from 6.5 percent in 1996 to an 
estimated 1-2 percent in 1997.

    Thailand's current account deficit was a much-publicized factor in 
Thailand's economic slowdown during 1996, and a key reason for Moody's 
adjustment of Thailand's short term debt risk rating in September 1996. 
The current account deficit rose during 1995 to 13.5 billion dollars, 
equivalent to 8 percent of GDP, and 14.7 billion (7.9 percent of GDP) 
in 1997. However, the current account deficit problem has been 
alleviated by the falling demand for imports, and should fall to five 
percent of GDP this year.

    Although exports are down in many sectors, textiles are suddenly 
doing well again, as are agro-industries, primarily because they depend 
less upon imported inputs. By the end of the first quarter of 1997, 
exports were valued at 56.2 billion dollars. The government depends 
upon exports to bring the country through the current economic crisis, 
but with other ASEAN currencies also devaluing it is not likely that 
Thailand will long retain a dominant share of the region's textile 
exports.

    During 1996 Thailand continued to enjoy a budget surplus. However, 
in fiscal 1997 Thailand registered the first deficit in a decade. In 
fiscal 1998, the Thai Government's target is a budget surplus equal to 
one percent of G.D.P., which it will reach through a series of heavy 
spending cut-backs and tax increases.
2. Exchange Rate Policy

    From 1984 to 1997 the Baht was pegged to a basket of currencies of 
Thailand's principle trading partners, with the U.S. dollar 
representing the largest share. The exchange rate averaged about 25 
Baht to the dollar during most of that period. On July 2, 1997 the Baht 
was allowed to float, and began to lose value immediately. At the 
beginning of the last quarter an exchange rate of 35 Baht to the dollar 
was average, and is predicted to fall further by the end of the year. 
This has made American exports very expensive for the Thais.

    In May 1990 the Thai Government announced a series of measures to 
liberalize the exchange control regime. Thailand accepted the 
obligations of the IMF Article VIII which covers reduction of 
restrictions on international transactions. Commercial banks were given 
permission to process foreign exchange transactions, and substantial 
increases were allowed in the ceilings for money transfers to escape 
the requirement for Bank of Thailand pre-approval. Since 1992 banks in 
Thailand have offered foreign currency accounts. The Central Bank has 
also raised limits on Thai capital transfers abroad and allows free 
repatriation (net of taxes) of investment funds, profits, loan 
repayments, and dividends. Companies may transfer foreign exchange 
among subsidiaries without switching the funds into Baht.
3. Structural Policies

    In 1992 then Prime Minister Anand launched a series of economic 
reforms, and Thailand's obligations within the WTO and ASEAN have also 
prompted reforms in tariff rates, trade regulations, regulation of 
financial institutions, and currency policies.

    The Thai taxation code has undergone revision since 1992, when a 7 
percent value added tax (VAT) system was introduced. The previous tax 
regime was clumsy and complicated, with a multi-tiered structure for 
assessing business taxes. In September of 1997 the Thai Government 
announced an increase in the VAT, from seven to ten percent (most basic 
foodstuffs are excepted). This was necessary to raise revenues, and to 
meet IMF rescue package requirements. An exemption for businesses 
making less than $24,000 per annum remains in place. Firms grossing 
between $24,000 and $48,000 per annum pay a rate of 1.5 percent, up .5 
percent. Exporters are ``zero rated'' but must file VAT returns and 
apply for a rebate. The corporate tax rate is currently 30 percent of 
net profits for all firms. A proposal pending in Parliament would 
substitute a tax credit for the VAT rebate.

    A new tax treaty between the United States and Thailand was signed 
in November 1996, and ratified by the U.S. Senate in October, 1997. The 
treaty will enter into force after the exchange of the instruments of 
ratification. Smaller American firms, in particular, have been 
disadvantaged by the lack of a reciprocal tax agreement. The new treaty 
will provide for the elimination of double taxation and give American 
firms tax treatment equivalent to that enjoyed by Thailand's other tax 
treaty partners.
4. Debt Management Policies

    During 1997, as a result of lowered demand for imports, Thailand's 
current account deficit is projected to decline to about five percent 
of GDP, which is the IMF target. The prime rate has ranged between 10.5 
and 14 percent for over five years. It currently stands at 14.25 
percent.
5. Significant barriers to U.S. exports

    Moving to meet its WTO and ASEAN tariff reduction commitments, 
Thailand instituted tariff reductions beginning in January 1995. There 
were further reductions on 4,000 items at the beginning of 1997. 
However, the critical need for revenue has led to the imposition of 
higher duties, surcharges, and excise taxes on ``sin'' items and a 
range of luxury imports. These will affect American wine and beer 
exports, particularly. Items already slated for tariff reduction under 
AFTA and WTO agreements are not affected by the new exactions.

    At the beginning of 1997 the total number of tariff rate categories 
was reduced from 39 to six, with the following spread: zero percent on 
such goods as medical equipment and fertilizer, one percent for raw 
materials, electronics components, and vehicles for international 
transport, five percent for primary and capital goods, ten percent for 
intermediate goods; 20 percent for finished products, and 30 percent 
for goods needing ``special protection.'' This last category includes 
agricultural products, autos and auto parts, alcoholic beverages, and a 
few other ``sensitive'' items. Import tariff quotas are applied to a 
total of 23 categories of agricultural products.

    Thailand is in the aligning its import license procedures with its 
WTO obligations. Import licenses are still required for 26 categories 
of items, down from 42 categories in 1995-1996. Licenses are required 
for many raw materials, petroleum, industrial, textile, and 
agricultural items. Import licenses can sometimes be used to protect 
unproductive local industries and to encourage greater domestic 
production. Some items which do not require licenses must nevertheless 
comply with the regulations of concerned agencies, offer extra fees, or 
provide certificates of origin.

    The Thai Food and Drug Administration issues licenses for food and 
pharmaceutical imports. This process can be a barrier due to the cost, 
the length of the process, and occasional demands for proprietary 
information. Licenses cost about $600 and must be renewed every three 
years. Pharmaceutical import licenses cost about $480 and must be 
renewed every year. This is not exorbitant, but the costs mount in the 
requirements for laboratory analysis. Costs of between $40 to $120 per 
item are usual for sample food products imported in bulk. Sealed, 
packaged foods can cost about $200 per item. Pharmaceuticals must be 
registered for a fee of about $80, and pharmaceuticals must be 
inspected and analyzed for another fee of about $40 per item. The 
process can take more than three months to complete.

    The Thai Government is easing barriers to imports of farm products. 
Typically import-duty reductions are in line with WTO commitments, and 
this may be expected to improve market access for some American 
products. In some cases, the Thai measures go beyond their WTO 
commitments. For example, the lifting of quotas and the reduction of 
import duties on soybeans and soybean meal in October, 1996 boosted 
U.S. exports of both commodities. The Thai Government is currently 
considering whether these liberalization measures should be maintained 
in 1998, and whether access for corn should be further improved.

    Nevertheless, duties on many high-value fresh and processed foods 
remain high, even though rates are slated to decline between 35 and 50 
percent under WTO rules. Entry into Thailand is still expensive for 
most U.S. high-value fresh and value-added processed foods. There are 
no longer specific duties on most imported agricultural and food 
products, except wine and spirits, which will continue to have very 
high rates. In addition, the recently increased excise tax on wine will 
significantly constrain what had been a growing market for American 
wines. Rice will continue to be protected, but within WTO schedules.

    Arbitrary customs valuation procedures sometimes constitute a 
serious barrier to U.S. goods. The Department of Customs has used the 
highest previously declared invoice value as a benchmark for assessing 
subsequent shipments from the same country. That allowed Customs to 
disregard the invoice value of a shipment in favor of the benchmark 
amount. This practice has had a particularly damaging effect upon trade 
in agricultural products, which often have seasonally fluctuating 
values. However, the Thai Government is instituting a program of 
customs reform that, if adopted successfully, will remedy some of the 
problems at the ports of entry. These reforms include adoption of the 
World Customs Organization Harmonized Code and the use of an Electronic 
Data Interchange system. The pilot program for these reforms is slated 
to be operational by the first of January 1998.

    Customs duties are sometimes arbitrary in other ways. For example, 
import duties on unfinished materials are higher than those upon 
finished goods in some categories, which is a burden to American firms 
that manufacture or assemble in Thailand.

    In the past Thailand restricted the activities of foreign banks. 
The total of foreign banking assets in Thailand recently exceeded 7.5 
percent of the national total. Although there have been moves toward 
liberalization, foreign banks are still disadvantaged in a number of 
ways. They are limited in the number of branches they may open. The 
numbers of expatriate management personnel is limited to six in 
branches and two in Bangkok International Banking Facilities (BIBFs). 
Until recently, foreigners were limited to an aggregate maximum of 25 
percent share in any Thai Bank. However, in October 1997, the Thai 
Government ruled that foreigners may hold a majority share in Thai 
financial institutions for ten years, after which they must dilute 
ownership to 49 percent in the event that they increase capitalization.

    In order to be consistent with WTO requirements, Thailand is 
undertaking a liberalization of banking regulations. In late 1996 and 
early 1997 the Thai Government issued 7 more foreign bank and 7 more 
BIBF licenses.

    Thai law and regulations formerly limited foreign equity in new 
local insurance firms to 25 percent or less. In June of 1996 the 
cabinet approved raising this limit to 49 percent. This has yet to be 
written into law, and awaits the approval of the Council of State and 
the new Parliament.

    Under a 1979 Thai law aliens are forbidden to engage in the stock 
brokerage business. However, foreigners may own up to 49 percent of 
service companies. Foreign ownership of Thai finance and credit firms 
is limited to 25 percent for companies formed after the law was passed, 
and 40 percent for those formed before.

    Telecommunications services are a government monopoly in Thailand. 
The Thai Government expects to have the telecommunications master plan 
for privatization in place by the end of 1997. Implementation of this 
plan, which will involve the reorganization of the existing state 
enterprises into stock companies, is expected to take up to two years.
6. Export Subsidies

    Thailand ratified the Uruguay Round Agreements in December 1994. 
Thailand maintains several programs which benefit manufactured products 
or processed agricultural products and which may constitute export 
subsidies. These include subsidized credit on some government-to-
government sales of Thai rice (agreed on a case-by-case basis), 
preferential financing for exporters in the form of packing credits, 
tax certificates for rebates of packing credits, and rebates of taxes 
and import duties for products intended for re-export. In September 
1993 Thailand established an Export-Import Bank which has taken over 
administration of some of these programs, particularly that of packing 
credits, and in October 1997 the Ex-Im bank was authorized to offer an 
additional $500 million worth of packing credits through commercial 
banks. This was done to help liquidity levels for exporters during the 
current economic crisis, and the program will run for one year. The 
Thai Ex-Im Bank offers a 10 percent rate, about four points below the 
prime rate offered by other banks.
7. Protection of Intellectual Property

    Improved protection for U.S. copyright, patent, and trademark 
holders has been an important bilateral trade issue for several years. 
After passage of a revised copyright law in 1994, the U.S. moved 
Thailand from Special 301 ``priority watch list'' to ``watch list'' 
status. The Thai Government also agreed to provide ``pipeline 
protection'' through administrative means for certain pharmaceutical 
products not entitled to full patent protection under the 1992 patent 
law. In recognition of this progress the U.S. restored a number of GSP 
benefits that had been denied to Thailand under Special 301. Several 
other bills designed to bring Thailand into compliance with its TRIPS 
requirements, including an amendment to the Patent Act that would 
abolish the pharmaceutical review board, are currently under 
consideration. Thailand is a member of most international IPR treaties, 
including TRIPS.

    The Thai Government has also made some effort to improve 
enforcement, making about 7600 arrests and seizing three million 
pirated items under its intellectual property laws since 1993. A 
specialized Intellectual Property Department in the Ministry of 
Commerce has cooperated with U.S. industry associations to coordinate 
both legal reforms and enforcement efforts, including raids. In 1997, 
the Parliament passed legislation establishing a separate intellectual 
property court that should result in a more efficient judicial system 
and tougher sentencing. The court began operation in December 1997.

    Piracy remains a serious problem, however. The U.S. pharmaceutical, 
film, and software industries estimate lost sales at over $200 million 
annually. Despite new and improved laws, judicial proceedings remain 
slow and the fines actually imposed are light. To date, no one has 
served time in jail for copyright infringement. The police have not 
always been cooperative, let alone proactive, in combating piracy. 
Partly as a result, arrests and seizures of illicit goods have fallen 
sharply since 1994. In an October 1997 off-cycle review under Special 
301, the USTR determined that Thailand should remain on the Watch List.
8. Worker rights

    a. The Right of Association.--The Labor Relations Act of 1975 gives 
workers in the private sector most internationally recognized labor 
rights, including the freedom to associate. They may form and join 
unions and make policy without hindrance from the government and 
without reprisal or discrimination for union activity. Unions in 
Thailand may have relationships with unions in other countries, and 
with international labor organizations. In 1991 the Thai parliament 
enacted the state enterprise labor relations act (SELRA), denying state 
enterprise workers the rights other workers enjoyed under the 1975 law. 
The Thai Government has promised to amend the SELRA, and to restore 
those rights. The new legislation was approved by the cabinet, and 
separate versions of the bill were passed by the House and the Senate 
in September 1997. A joint scrutinizing committee is meeting to find 
compromise language for the bill.

    b. The Right to Organize and Bargain Collectively.--The 1995 act 
grants Thai workers the right to bargain collectively over wages, 
working conditions, and benefits. About 900 private sector unions are 
registered in Thailand. State enterprise employees and civil servants 
still may not form unions, but this will be addressed in the pending 
SELRA legislation. State enterprise employees, essential workers 
(transportation, education, and health care personnel), and civil 
servants may not strike. They may be members of employee associations, 
however. Collective bargaining is unusual in Thailand, and industry-
wide collective bargaining is all but unknown. However, representatives 
of public sector associations and private sector unions do sit on 
various government committees dealing with labor matters, and are 
influential in setting national labor policies, such as the minimum 
wage.

    c. Prohibition of forced or compulsory labor.--The Thai 
constitution prohibits forced or compulsory labor except in cases of 
national emergency, war, or martial law. However, Thailand remains the 
target of ILO actions under Convention 29 (forced labor) because child 
prostitution persists despite recent government moves to step up 
enforcement of the laws which prohibit it, and to cooperate with ILO 
programs.

    d. Minimum age for employment of children.--The minimum age for 
employment in Thailand is thirteen. Children between the ages of 13 and 
15 are restricted to light work in non-hazardous jobs, and must have 
department of labor permission to work. Night-time employment of 
children is prohibited. A bill to raise the minimum working age to 15 
has been passed by the house, but a competing bill passed by the senate 
does not raise it. A joint committee is now approaching a compromise on 
raising the age limit. The government has backtracked on its commitment 
to raise the years of compulsory education from six to nine years and 
has instead adopted a policy of improving the opportunities of students 
for study beyond the sixth grade. Recently the government has doubled 
the size of the corps of labor inspectors, but enforcement is not 
rigorous.

    e. Acceptable Conditions of Work.--Working conditions vary widely 
in Thailand. Large factories generally meet international health and 
safety standards, though there have been serious lapses involving loss 
of life. The Government has increased the number of inspectors and 
raised fines for violators. The usual work day in industry is eight 
hours. Wages in profitable export industries often exceed the legal 
minimum. However, in the large informal industrial sector wage, health, 
and safety standards are low and regulations are often ignored. Most 
industries have a legally mandated 48 hour maximum work week. The major 
exceptions are commercial establishments, where the maximum is 54 
hours. Transportation workers are restricted to 48 hours per week.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                     1830 
Total Manufacturing...........................                     1782 
  Food & Kindred Products.....................          67              
  Chemicals & Allied Products.................         380              
  Metals, Primary & Fabricated................         \1\              
  Machinery, except Electrical................         \1\              
  Electric & Electronic Equipment.............         505              
  Transportation Equipment....................           1              
  Other Manufacturing.........................         176              
Wholesale Trade...............................                      449 
Banking.......................................                      549 
Finance/Insurance/Real Estate.................                      222 
Services......................................                       40 
Other Industries..............................                      382 
TOTAL ALL INDUSTRIES..........................                     5254 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


 
                                 EUROPE

                              ----------                              


                             EUROPEAN UNION

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                1995     1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP...............................   7201.4   7318.9    7509.2
  Real GDP growth (pct).....................      2.4      1.8       2.6
  GDP by sector:                                                        
    Agriculture.............................      N/A      N/A       N/A
    Manufacturing...........................      N/A      N/A       N/A
    Services................................      N/A      N/A       N/A
    Government..............................      N/A      N/A       N/A
  Per Capita GDP (US$ Thous)................     21.1     20.0      20.6
  Labor force (0000)........................    155.4    155.0       N/A
  Unemployment rate (pct)...................     10.9     10.9      10.8
                                                                        
Money and Prices (annual percentage growth):                            
  Money supply growth (M2/M3)...............      4.5      5.2       N/A
  Consumer price inflation..................      3.0      2.6       2.1
  Exchange rate:                                                        
    (ECU/US$ annual average)................     0.76     0.78      0.87
                                                                        
Balance of payments and trade:                                          
  Total exports FOB.........................    743.7    764.2       N/A
    Exports to U.S..........................    132.4    150.4       N/A
  Total imports CIF.........................    717.7    740.1       N/A
    Imports from U.S........................    136.5    159.3       N/A
  Trade balance.............................     26.0     24.1       N/A
    Balance with U.S........................     -4.1     -8.9       N/A
  External public debt (pct of GDP).........     71.0     73.0      72.4
  Fiscal deficit/GDP (pct)..................      5.1      4.3       2.7
  Current balance/GDP (pct).................      0.5      0.8       1.1
  Debt Service Payments/GDP (pct)...........      N/A      N/A       N/A
  Gold and Foreign Exchange Reserves........      N/A      N/A       N/A
  Aid from U.S..............................      N/A      N/A       N/A
  Aid from Other Sources....................      N/A      N/A       N/A
------------------------------------------------------------------------
\1\ Estimates                                                           

1. General Policy Framework

    The European Union (EU), our largest trade and investment partner, 
is a supranational organization comprised of fifteen European 
countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, 
Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, 
and the United Kingdom. It is unique in that the Member States have 
ceded to it increasing authority over their domestic and external 
policies, especially with the 1986 ``Single Market'' and the 1993 
``Maastricht'' amendments to the 1958 Treaty of Rome (the Treaty). 
Individual Member State policies, however, may still present problems 
for U.S. trade, in addition to the occasional EU-wide problems.

    The EU's authority is clearest in the economic realm. A 
longstanding customs union, the EU--with the ratification by the Union 
and its fifteen Member States of the Uruguay Round Agreements--now 
represents the collective interest of the Member States in the WTO 
Committee on Trade in Goods. (The Member States retain some authority 
over intellectual property and services issues, and both the EU and the 
Member States are represented in the TRIPS and GATS Committees.) 
Internally, the Treaty guarantees the free movement of goods, services, 
capital and people among the Member States, and many of the ``Single 
Market'' program measures were intended to harmonize Member States' 
domestic laws in order to eliminate non-tariff barriers to these flows. 
In addition, the European Commission enforces Treaty provisions against 
anti-competitive practices throughout the EU. More recently, the 
Maastricht Treaty mandated an ``Economic and Monetary Union'' among the 
Member States no later than January 1, 1999 and gave the EU competence 
over investment from third countries, although Member State barriers to 
such investment existing on December 31, 1993 continue in force until 
superseded by EU law.

    The EU itself currently has only very limited fiscal and no 
monetary policy powers. The Union's budget is limited to 1.27 percent 
of EU GDP; by law, expenditures must be balanced by revenues from the 
Member States. (The EU has no independent taxing authority.) 
Expenditures, at less than $100 billion, are divided generally among 
agricultural support (50 percent), ``structural'' policies to promote 
growth in poorer regions (35 percent), other internal policies (five 
percent), external assistance (five percent) and administrative and 
miscellaneous (five percent).

    The EU's indirect influence over Member State fiscal and monetary 
policy, however, is considerable, and growing in the run-up to Economic 
and Monetary Union. The EU now adopts annual ``guidelines'' on Member 
State economic policy, and the Member States are striving to achieve 
the ``convergence criteria'' for monetary union: maximum deficits of 
three percent of GDP; gross national debt of 60 percent of GDP; 
inflation and interest rate levels no more than one and a half 
percentage points above the average of the three lowest rates among the 
Member States, and two years of relative exchange rate stability. These 
efforts to restrain fiscal policy may have dampened aggregate demand in 
the EU. Imports rose by 8% in 1996.
2. Exchange Rate Policy

    As noted, the EU intends to establish an Economic and Monetary 
Union (EMU) with a common monetary and exchange rate policy no later 
than 1999. During the second stage of EMU, which began on January 1, 
1994, the Member States continue to coordinate their exchange rate 
policies through the European Monetary System (EMS) and, specifically, 
its Exchange Rate Mechanism (ERM). The European Monetary Institute 
facilitates and monitors implementation of these arrangements. Member 
states retain full authority to set monetary policies during the second 
stage of EMU.

    The EMS and ERM aims are to promote monetary, price, and exchange 
rate stability in Europe by limiting the fluctuations of participating 
currencies within a certain range around bilateral central parity 
rates. Pressures in foreign exchange markets in September 1992 led the 
United Kingdom and Italy to suspend their participation in the ERM, and 
compelled adjustment of the parities for other currencies in subsequent 
months. In part to relieve these pressures, on August 2, 1993, the ERM 
fluctuation band was widened from 2.25 to 15 percent.

    The EMS and ERM are not aimed at influencing trade flows with the 
United States or other third countries and are consistent with the 
articles of agreement of the International Monetary Fund.
3. Structural Policies

    Single Market: The European Union's ``1992'' Single Market was 
officially inaugurated on January 1, 1993 with the disappearance of 
most intra-EU border controls on movement of goods, services, capital 
and people. The legislative program is largely complete, although there 
are delays in Member State implementation of Community rules in 
national law and national differences in interpretation of those rules. 
The net effect of the Single Market exercise has been freer movement, 
fewer Member State regulations for products and service providers to 
meet, and real consolidation of markets. Some aspects of the program, 
however, have created problems for U.S. exporters, such as Directives 
on procurement for utilities and on television broadcasting, and 
conditions for negotiation of mutual recognition agreements on testing 
and certification of regulated products (all discussed below). 
Disparate enforcement of single market measures within the EU and lack 
of sufficient monitoring resources to ensure consistent application of 
these measures are increasingly placing U.S. exporters at a 
disadvantage in some markets because enforcement and monitoring at the 
border are more vigorous. EU efforts to increase monitoring and 
enforcement efforts are notable in some areas, but resources remain 
severely limited.

    Tax Policy: Tax policy remains the prerogative of the Member 
States, who must approve by unanimity any EU legislation in this 
domain. EU legislation to date in this area has been aimed at 
eliminating tax-induced distortions of competition within the Union. As 
such, it has focused on harmonizing value-added and excise taxes; 
eliminating double taxation of corporate profits, interest, and 
dividends; and facilitating cross-border mergers and asset transfers.
4. Debt Management Policies

    The EU raises funds in international capital markets, but does so 
largely for cash management purposes and so does not have any 
significant international debt. The European Investment Bank, 
reportedly the world's largest multilateral development bank, also 
raises funds in international markets (with the implicit guarantee of 
the EU and its Member States), but it has an extremely favorable 
balance sheet and retains the highest credit rating. Finally, the EU 
has used its borrowing power to on-lend to key developing countries, 
especially in Central Europe and the newly independent states of the 
former Soviet Union; it traditionally refuses to reschedule such loans.
5. Significant Barriers to U.S. Exports
    A. Import Policies

    Import, Sale and Distribution of Bananas: On July 1, 1993, the EU 
implemented a new banana import regime to replace individual Member 
State rules for banana imports. Elements of the new regime have caused 
a significant erosion of U.S. companies' share of the EU banana market. 
A ``framework agreement,'' which the EU negotiated with four of the 
five countries that had challenged the regime in the GATT, did not 
commit the EU to reform those aspects of the regime which are most 
harmful to U.S. banana marketing firms and in fact led to further 
discrimination against U.S. banana companies in favor of EU firms. 
After a year of investigation and informal consultations with the EU 
failed to achieve a resolution of the issue, in October 1995 the United 
States, joined by Guatemala, Honduras and Mexico, held formal WTO 
consultations with the European Union in an effort to resolve the 
bananas dispute. Ecuador joined the United States and its other Latin 
American partners in another request for formal WTO consultations on 
the bananas issue in February 1996, followed by a panel request by the 
same complainants.

    On May 22, 1997, the panel ruled that the EU banana import regime 
violates both the General Agreement on Trade in Services and the 
General Agreement on Tariffs and Trade in Goods by depriving U.S. 
banana distribution services companies and Latin American banana 
producers of a fair share of the EU market. The panel's findings were 
confirmed by the WTO Appellate Body on September 9, 1997. The panel 
report and Appellate Body report were adopted at the Dispute Settlement 
Body meeting of September 25, 1997. WTO rules require that the findings 
of these reports be fully and promptly implemented within a 
``reasonable period of time.'' The maximum period of time for 
implementation that has been agreed thus far under the WTO's dispute 
settlement mechanism is 15 months. The EU and complacent countries are 
currently discussing the nature and timing of EU implementation of the 
WTO findings.

    Ban on Fur from Animals Caught in Leg-hold Traps: A 1991 community 
Regulation calls on the Member States to prohibit the importation of 
furs of certain species of animals from countries that either have not 
endorsed an internationally agreed standard on humane trapping or that 
have not prohibited the use of certain steel jaw leg hold restraining 
traps. During 1996, the United States participated in discussions with 
the EU Commission, Canada, and the Russian Federation to develop such a 
standard. As the trapping industry in the United States is regulated at 
the sub-dederal level, the United States did not take steps to become a 
party to an international agreement on this issue among the EU, Canada, 
and the Russian Federation. With the participation of the U.S. states, 
however, the United States Government in 1997 was able to negotiate 
with the EU Commission a non-legally binding ``Agreed Minute'', which 
included standards that were acceptable to U.S. competent authorities. 
In December, 1997, the U.S. and EU signed the Agreed Minute and the 
United States also communicated to the EU about a program by the U.S. 
states under which they were planning to phase out, subject to certain 
specified derogations and safeguards, certain jawed leg hold 
restraining traps. With the approval of the agreed minute by the EU 
Council, the EU did not impose its proposed ban on certain U.S. fur 
imports.

    Rice: As part of the concessions made to the United States as 
compensation for the accession of Austria, Finland, and Sweden to the 
EU, the EU agreed to implement tariff rate quotas for imports of 38,000 
metric tons of milled rice and 8,000 metric tons of brown rice from the 
United States. While progress has been made on implementation of these 
tariff rate quotas, they have yet to be made operational.

    EU Implementation of Uruguay Round Grain Tariff Commitments: On 
July 1, 1995, the EU implemented its Uruguay Round commitment for 
grains and rice using a reference price system. In adopting the 
reference price system, it appeared that the EU would exceed its 
binding for products valued above the applicable reference price. 
Through WTO Article XXIII consultations, the U.S. gained an agreement 
that helps improve access to the EU. In the agreement, the EU committed 
to implement, on a one-year trial basis, a system allowing importers of 
brown rice the possibility to cumulatively recover duty overages that 
might occur, which was implemented on July 1, 1997. The EU also agreed 
to future consultations if the reference price system results in duties 
greater than those committed to in the Uruguay Round.
    Service Barriers

    EU Broadcast Directive.--In 1989, the EU issued the Broadcast 
Directive which included a provision requiring that a majority of 
entertainment broadcast transmission time be reserved for European 
origin programs ``where practicable'' and ``by appropriate means.'' By 
the end of 1993, all EU Member States had enacted legislation 
implementing the Broadcast Directive. The United States has held 
consultations under GATT Article XXII with the EU concerning the 
Directive because the broadcast quotas appear to violate the Member 
States' obligations under the GATT. The United States has reserved its 
right to take further action under WTO dispute settlement procedures 
and is closely monitoring implementation of these measures. While the 
EU did not make specific commitments to liberalize trade in the sector, 
the United States succeeded in preventing the exclusion of the audio-
visual sector from coverage under the General Agreement on Trade in 
Services (GATS). The EU remains on the Special 301 ``Priority Watch 
List'' in part because of the Broadcast Directive.

    The process begun by the Commission in 1993 to revise the Broadcast 
Directive in an effort to strengthen quotas was finally concluded in 
April 1997 through a conciliation committee that resolved differences 
between the European Parliament and the Council. The final agreement on 
the revised Directive left the original quota language in place.

    Computer Reservation Services.--U.S. Computer Reservation Services 
(CRS) companies have had difficulty cracking the EU market, as each 
Member State market tends to be dominated by the CRS owned by that 
Member State's carrier. The EU's 1993 CRS ``Code of Conduct'' compelled 
one U.S. CRS firm to establish subsidiaries in virtually every Member 
State, at a cost of more than $10 million, and there are questions 
whether the Code may be used to establish ``charging principles'' which 
could further erode the ability of U.S. firms to gain market share. In 
addition, German Rail, which owns one-third of the largest European CRS 
firm in Germany, has thus far refused to deal on an equal basis with 
U.S. CRS firms, severely affecting their ability to expand in the 
German market. In 1995, the German Competition Office issued an 
injunction against German Rail over this, which has not yet fully 
resolved the problem. U.S. CRS firms face similar problems in Spain and 
France. In 1996, a U.S. CRS firm filed a complaint with the EU 
competition authority through the U.S. Department of Justice (DOJ) 
against possible anticompetitive practices by a European firm. This is 
the first case of its kind arising under the Positive Comity provision 
of the U.S-EC agreement regarding the application of their computer 
laws. The EU investigation is on track and, while the Commission cannot 
say when it will be complete, the final ruling may address some of the 
above concerns.

    Airport Ground-handling.--In December 1995, the Council agreed on a 
common position liberalizing the market to provide ground-handling 
services at EU airports above a certain size by January 1, 1998. While 
generally welcoming this, U.S. airline companies and ground-handling 
service providers remain concerned that airports can continue to have a 
monopoly service provider through January 1, 2002 and can also limit 
the number of firms which can provide certain services on the airport 
tarmac (ramp, fuel, baggage and mail/freight handling) either for 
themselves or for other carriers. To some extent, these potential 
barriers are offset by more liberal provisions in the bilateral air 
services agreements which the U.S. concluded with seven EU Member 
States (Germany, Belgium, the Netherlands, Luxembourg, Denmark, Sweden 
and Finland).

    Postal Services.--U.S. express package services like UPS and 
Federal Express remain concerned that state owned postal monopolies in 
many EU countries restrict their market access and subject them to 
unequal competitive conditions. Proposals to liberalize many postal 
services and to otherwise constrain the advantages enjoyed by the 
monopolies have been put on hold, and in any case may not be sufficient 
to fully redress these problems.
    C. Standards, Testing, Labeling and Certification

    Standardization.--EU Member States still have widely differing 
standards, testing and certification procedures in place for some 
products. Despite internal mutual recognition, these differences can 
serve as barriers to the free movement of these products within the EU 
and can cause lengthy delays in sales due to the need to have products 
tested and certified to account for differing national requirements. 
Nonetheless, the advent of the ``New Approach'' Directive, which 
streamlines technical harmonization and the development of standards 
for certain product groups, based on minimum health and safety 
requirements, generally points toward the harmonization of laws, 
regulations, standards, testing, quality and certification procedures 
in the EU. However, the European standardization process is still 
closed to U.S. firms' direct participation and in several instances 
discriminatory design based standards have been adopted.

    Standardization, testing, and certification continue to play an 
increasingly significant role in U.S.-EU trade relations, as evidenced 
by the Transatlantic Business Dialogue (TABD) having adopted the goal 
of ``approved once accepted everywhere in the Transatlantic 
marketplace.'' The U.S. Department of Commerce anticipates that EU 
legislation covering regulated products will eventually be applicable 
to 50 percent of U.S. exports to Europe. Given the enormity of U.S./EU 
trade, EU legislation and standardization work in the regulated areas 
is of considerable importance. Although there has been some progress in 
implementation, a number of problems related to this evolving EU-wide 
legislative environment have caused concerns to U.S. exporters. These 
include lags in the development of EU standards, lags in the drafting 
of harmonized legislation for regulated areas, inconsistent application 
and interpretation by Member States of the legislation that is in 
place, overlap among Directives dealing with specific product areas, 
gray areas between the scope of various Directives, and unclear marking 
and labeling requirements for these regulated products before they can 
be placed on the market. While many such problems are not deliberate 
trade barriers, their existence can impede U.S. exports to the European 
Union.

    Mutual Recognition Agreements.--The EU is implementing an internal 
harmonized approach to testing and certification, as well as providing 
for the mutual recognition of national laboratories designated by 
Member States to test and certify ``regulated'' products. The EU 
encourages mutual recognition agreements between private sector parties 
for the testing and certification of non-regulated products.

    One difficulty for U.S. exporters is that only ``notified bodies'' 
located in Europe are empowered to grant final product approvals of 
regulated products. While there are some laboratories in the U.S. which 
can test regulated products under subcontract to a notified body, the 
limited number of such labs means that such subcontracting procedures 
are unlikely to provide sufficient access for U.S. exporters. Moreover, 
these labs cannot issue the final product approval but must send test 
reports to their European affiliate for final review and approval, 
delaying the process and adding costs for U.S. exporters.

    The U.S. and the EU have negotiated a resolution to this hindrance 
to trans-Atlantic trade in several sectors through what are known as 
mutual recognition agreements (MRAs). MRAs will permit a U.S. exporter 
to test and certify his products to the requirements of the EU in the 
United States. They will similarly facilitate EU exports to the United 
States. Both sides have targeted early 1998 as the date for entering 
into the transition periods provided for in the MRAs.

    Approval of Biotechnology and Novel Food Products Uncertain in 
EU.--Both U.S. and European companies have encountered difficulties in 
EU approval of agricultural products developed with biotechnology. 
Existing EU Regulations and Directives for the approval of these 
products have not been applied in a predictable and transparent manner. 
A number of recent U.S. product approval requests have been subject to 
delays because of political opposition to biotechnology rather than 
legitimate health or safety concerns. This uncertain regulatory 
environment continues to generate problems for not only the companies 
developing products but also agricultural producers who might benefit 
from the products' release. In addition, the EU's novel foods 
Regulation contains provisions for mandatory labeling of biotech foods 
that--depending on how they are implemented--may serve to heighten 
consumer concerns rather than educating consumers.

    Ban on Growth Promoting Hormones in Meat Production.--The EU 
banned, effective January 1, 1988, the use of all growth promoting 
hormones, including natural and synthetic hormones, in livestock 
production. The ban also applies to meats and meat products imported by 
the EU on or after January 1, 1989. As a consequence, the United States 
launched a formal WTO dispute settlement procedure in May 1996 
challenging the EU's import ban. The initial WTO finding, released in 
August 1997, found in favor of the United States. However, this has 
been appealed by the EU. A ruling on the appeal is due in early 1998.

    Veterinary Equivalency.--The United States and the European 
Commission concluded negotiations on a veterinary equivalency agreement 
in April 1997 after over three years of often contentious negotiations. 
When implemented, the Agreement will establish the terms of trade for 
nearly all animal products between the U.S. and the EU, over $3.5 
billion annually. The agreement incorporates the principles on the 
recognition of equivalent systems set out in the Uruguay Round 
Agreement on sanitary and phytosanitary measures. It would allow for 
the recognition of U.S. sanitary measures as equivalent to, or 
providing an equal level of protection for human and animal health as 
EU measures, rather than require strict compliance with EU 
requirements.

    During the course of the negotiations the U.S. lost access to the 
EU market for several products because of new EU import requirements, 
most notably $50 million in poultry meat, but also some pet food and 
dairy products. Implementation of the agreement would reopen access for 
most of these products, except poultry, and would improve import 
conditions for many other products. In addition, the EU committed to 
study anti-contamination techniques used by U.S. poultry processors 
with the goal of resolving the outstanding poultry issue.

    The EU had not formally approved the agreement by October 1, 1997, 
the date to begin implementation envisioned at the conclusion of 
negotiations. If not approved by the EU by early 1998, significant U.S. 
trade could be disrupted by further changes to EU import requirements.

    Specified Risk Materials Ban: A ban published by the EU in July 
1997 was to have prohibited, as of January 1, 1998 the use of certain 
``specified risk materials'' (SRMs) in all products due to concerns 
over the transmission of BSE (Bovine Spongiform Encephalopathy, or 
``Mad Cow Disease''). SRMs are broadly defined as the head and spinal 
cord of bovine animals. At risk are billions of dollars in trade of 
pharmaceuticals, cosmetics, pet food, industrial products ranging from 
tires to film, tallow and tallow derivatives. The U.S. does not 
consider coverage of U.S. products under the EU ban as scientifically 
based because the U.S. is BSE-free. In December, the EU Commission 
decided to postpone implementation of the ban until April 1, 1998. The 
U.S. is continuing talks with the EU to help avoid unnecessary 
disruption in international trade as a result of the ban. The UK 
unilaterally implemented a more limited SRM ban as of January 1, 1998, 
which was expected to have minimal negative effect on U.S. exports.

    Beef Labeling.--Beginning January 1, 1998, any labeling on beef 
packaged for consumer sales must be approved by EU and Member State 
authorities. This Regulation is an attempt to provide consumers with 
information regarding the beef marketing chain due to the concerns 
about the transmission of BSE. While the upcoming system is voluntary, 
any claims on labels, such as country of origin or production method, 
must be verified. These requirements currently do not apply to sales of 
beef for use in hotels, restaurants or institutions in the EU. Member 
States may implement compulsory labeling of beef beginning January 1, 
1998 only for beef from animals born, raised and slaughtered on their 
national territory. An EU-wide compulsory beef labeling system is 
currently legislated to become operational on January 1, 2000. 
Additional details about exact application procedures are currently 
being proposed by he European Commission and should be released 
shortly. In the short run, this Regulation will affect over 20 percent 
of current U.S. beef shipments to the EU. In the long run, i.e., after 
January 1, 2000, all beef sold in the EU will be required to carry 
compulsory labels. While this EU system will not be identified until 
July 1999, all U.S. beef would likely be shut out of the EU market if 
labeling requirements are not met by that time.

    Voluntary Eco-Labeling Scheme.--On March 23, 1992, the European 
Council approved an EU-wide eco-labeling scheme. The scheme is a 
voluntary program which permits a manufacturer to obtain an eco-label 
for a product when its production and life-cycle meets general and 
specific criteria established for that particular product. U.S. and EU 
technical and policy officials met in three rounds of consultations in 
1995 and 1996 to discuss the EU process for developing criteria and to 
address specific U.S. industry concerns related to the fine paper and 
textile sectors.

    In early and mid-1996 Member State representatives voted to adopt 
eco-label criteria for bed linens and t-shirts and for the fine paper 
product sector. The U.S. Government is concerned that the process for 
developing criteria has been insufficiently transparent and failed to 
provide for adequate participation by non-EU interest groups, leading 
potentially to discriminatory criteria. The U.S. and EU have agreed to 
continue bilateral consultations. The U.S. has urged the Commission to 
participate in a regular dialogue on this issue as a way to mitigate 
potential misunderstandings and adverse trade consequences.

    Packaging Labeling Requirements.--In 1996, the Commission put 
forward a proposed Directive that would establish marking requirements 
for packaging to indicate recyclability and/or reusability. The United 
States has expressed two potential concerns with this Directive. First, 
to the extent that the EU's new marking requirements differ from other 
marks widely used in the United States and being developed in the 
International Standards Organization (ISO), the U.S. is concerned that 
packaging, marketing and distribution operations will become more 
complicated and costly for both U.S. and European firms wishing to sell 
their products abroad, without achieving any concomitant environmental 
benefit. The second concern is related to Article 4 of the proposed 
Directive, which would prohibit the application of other marks to 
indicate recyclable or reusable packaging. Based on U.S. experience, 
this requirement is likely to pose a particular problem for glass and 
plastic containers, as it would require companies to create new molds 
solely for use in the European market. Discussions underway in the ISO 
may go a long way to resolving the potential problems, especially as 
the Commission has indicated its willingness to review the proposed EU 
marks in light of an eventual ISO agreement.

    Metric Labeling.--In accordance with a 1980 Directive adopted to 
harmonize systems of measurement throughout the EU, metric-only 
labeling will be required on most products entering the European Union 
after December 31, 1999. Exporters, both European and American, have 
begun to focus on this deadline and are now openly voicing their 
objections, citing the costs of complying with conflicting EU metric-
only and U.S. mandatory dual-labeling requirements. There is some 
indication of European Commission willingness to study the trade 
implications of the 1980 Directive more thoroughly and to re-open the 
issue for industry input.
    D. Investment Barriers

    The European Union has a growing role in defining the way in which 
U.S. investments in the Member States are treated. Although Member 
State governments traditionally were responsible for policies governing 
non-EU investment, in 1993 the Maastricht Treaty shifted competence 
over third country investment from the Member States to the Union. In 
many cases,Member State practices remain of more direct relevance to 
U.S. investors. Member States negotiate their own bilateral investment 
protection and tax treaties, and retain general responsibility for 
their investment regimes. However, although Member State barriers 
existing on December 31, 1993 remain in effect, but these may now be 
superseded by EU law. In addition, branches of non-EU financial service 
institutions remain subject to individual member country authorization 
and regulation.

    In general, the EU supports the notion of national treatment for 
foreign investors, and the European Commission has traditionally argued 
that any company established under the laws of one Member State must as 
a ``Community company'' receive national treatment in all Member 
States, regardless of its ultimate ownership. However, some 
restrictions on U.S. investment do exist under EU law and others have 
been proposed:

    Ownership Restrictions.--The benefits of EU law in the aviation and 
maritime areas are reserved to firms majority-owned and controlled by 
EU nationals.

    Reciprocity Provisions.--EU banking, insurance and investment 
services Directives include ``reciprocal'' national treatment clauses, 
under which financial services firms from a third country may be denied 
the right to establish a new business in the EU if the EU determines 
that the investor's home country denies national treatment to EU 
service providers. In the recently adopted Hydrocarbons Directive, this 
notion may have been taken further to require ``mirror-image'' 
reciprocal treatment, under which an investor may be denied a license 
if its home country does not permit EU investors to engage in 
activities under circumstances ``comparable'' to those in the Union. It 
should be noted, however, that thus far no U.S.-owned firms have been 
affected by these reciprocity provisions.

    Access to Government Grant Programs.--The European Union does not 
preclude U.S. firms established in Europe from having non-
discriminatory access to EU funded research and development grant 
programs, although in practical terms association with a known 
``European'' firm helps win grant awards. In another area, the 
Commission in November 1995 proposed the establishment of a guarantee 
fund to promote European cinema and television production. Only firms 
majority-owned and effectively controlled by EU nationals would be 
eligible to receive loan guarantees from the fund. This proposal has 
not yet been adopted and we are not aware that any U.S. firm has 
complained about it.

    MAI Negotiation.--The EU and its Member States are participating 
actively in the OECD negotiations toward a Multilateral Agreement on 
Investment (MAI), which should help reduce existing and preclude any 
further discriminatory measures. The EU approach to the negotiations 
has been generally constructive, although in recent international 
negotiations the Union has argued for a ``regional economic 
integration'' provision that would allow it, and its Member States, to 
deny U.S. firms most favored nation treatment and potentially other 
rights and benefits under EU law.

    Anti-Corruption Conventions.--The EU has elaborated a common 
position for its Member States in the Council of Europe and OECD 
negotiations on anti-corruption conventions. The position would 
restrict the ability of Member States to agree to any convention that 
goes beyond the two relatively weak EU conventions agreed among the 
Member States, even though no Member State has yet ratified the EU 
conventions.
    E. Government Procurement

    In 1990, in an effort to open government procurement markets in the 
EU, the EU adopted a Utilities Directive covering purchases in the 
water, transportation, energy and telecommunications sectors. This 
Directive, which went into effect in January 1993, requires open, 
objective bidding procedures (a benefit for U.S. firms) but 
discriminates against non-EU bids absent an international or bilateral 
agreement. The Directive's discriminatory provisions were waived for 
the heavy electrical sector in a Memorandum of Understanding (MOU) 
between the U.S. and the EU, signed in May 1993.

    On April 15, 1994, the U.S. and the EU concluded a procurement 
agreement that expanded upon the 1993 MOU. The 1994 agreement extended 
non-discriminatory treatment to over $100 billion of procurement on 
each side, including all goods procurement by all EU subcentral 
governments, as well as to selected procurement by 37 U.S. states and 7 
U.S. cities. Much of the agreement is implemented through the WTO 
Government Procurement Agreement which took effect January 1, 1996. The 
1994 agreement, however, did not end the discrimination with respect to 
telecommunications procurement. Consequently the U.S. retained the 
sanctions it imposed against the EU in 1993.

    On April 30, 1996 USTR Barshefsky cited Germany under Title VII for 
its failure to implement its procurement obligations. On October 1, 
1996 she announced that agreement had been reached with Germany to 
reform its procurement system. The German Government's draft 
procurement reform legislation is under consideration in Parliament.
    F. Telecommunications Market Access

    U.S. telecommunications equipment industry access to EU member 
nations varies widely from relatively open to nearly closed. As 
described in the section on government procurement, most EU Member 
States discriminate against non-EU bids in the telecommunications 
sector. In addition, market access is impeded through standards and 
standard-setting procedures, testing, certification and attachment 
policies. However, those state-owned telecommunications firms that are 
losing monopoly are displaying a more open approach to procurement in 
an effort to lower costs.

    The situation in basic telecommunications services is evolving as 
the EU works to meet its obligation to permit competition in this area 
by January 1, 1998 as required by the GATS Basic Telecoms (GBT) 
agreement. Implementation of the GBT is proceeding unevenly among the 
15 EU Member States. 1998 will be a year of challenges as new firms 
test previously closed markets in Europe, and former telecoms 
monopolies react to the new competition. Close monitoring of this 
process will be necessary to ensure full implementation of the GBT by 
EU Member States and the introduction of free and fair competition to 
this formerly-closed market.
    G. Customs

    Reclassification of Information Technology Products: In June 1995, 
the EU adopted a Regulation reclassifying certain local area network 
(LAN) adapter cards from the tariff category for automatic data 
processing (ADP) equipment to the telecommunications apparatus 
category, resulting in increases in the tariffs on these products to a 
level above the rate provided for in the EU's schedules under the GATT 
1994. In addition, since the Uruguay Round, customs authorities in 
certain EU Member States have taken action to reclassify LAN adapter 
cards and multimedia-equipped personal computers from ADP equipment to 
other tariff categories. The reclassification has the effect or raising 
duty rates to levels above the bound rate for ADP equipment, thereby 
possibly impairing EU tariff concessions in contravention of Article II 
of the GATT 1994. After a number of rounds of technical talks in 1996 
failed to achieve progress on the issue, the U.S. in November 1996 
requested formal consultations with the EU in the WTO. A WTO dispute 
settlement panel was established on February 25, 1997. The panel 
report, released in October 1997, found the EU's reclassification 
actions inconsistent with its obligations under Article II of the GATT 
1994.
6. Export Subsidy Policies

    Agricultural Product Subsidies.--The EU grants direct export 
subsidies (restitutions) on a wide range of agricultural products 
including wheat, wheat flour, beef, dairy products, poultry, and 
certain fruits, as well as some manufactured products such as pasta. 
Payments are nominally based upon the difference between the EU price 
and the world price, usually calculated as the difference between the 
EU internal price and the lowest offered price by competing exporters. 
However, due to the complexities of EU law and the availability of non-
agricultural subsidies, such as preferential loans and structural 
funds, it is suspected that other subsidies exist that support EU 
export activities for agricultural products.

    The Uruguay Round agreement requires the EU to reduce direct export 
subsidies over six years by 21 percent in volume and 36 percent in 
value from a 1986-90 base period. Under the agreement, the EU is 
required to cut export subsidies by about $5-7 billion from recent 
levels.

    Processed Cheese Exports.--On October 1, 1997, Ambassador 
Barshefsky announced that USTR was invoking WTO dispute settlement 
procedures in the context of a Section 301 investigation to challenge 
practices by the EU that circumvent the EU's commitments under the WTO 
to limit subsidized exports of processed cheese. Under its inward 
processing system for dairy products, the EU produces cheese for export 
from dairy components such as nonfat dry milk and butter. The processor 
receives a subsidy upon the cheese being exported, but the EU counts 
these subsidies against its export subsidy-ceiling for the 
components,rather that that for cheese. The U.S. contends this is a 
breach of the EU's export subsidy obligations. WTO Article XXII 
consultations with the EU on these practices were held in November 
1997.

    Canned Fruit.--The United States and five other producing countries 
(Argentina, Australia, Brazil, Chile and South Africa) are continuing 
to exchange letters with the European Commission regarding the EU's 
internal support regime for canned fruit. These governments believe 
that the operation of the EU support regime for fresh peaches and pears 
has allowed EU fruit processors to unfairly undercut the domestic and 
export prices for canned fruit of the EU's trading partners. Despite 
the EU's claims of adherence to the letter of the 1985 U.S.-EC Canned 
Fruit Agreement, oversupply of the fresh fruit under the support regime 
may allow processors in certain Member States to ignore the minimum 
price requirements of the agreement. The industries in all five 
countries have been hurt by EU exports of cheap canned fruit. 
Modifications in the overall fruit and vegetable production scheme may 
improve the situation, but it is too early to tell. Consultations are 
scheduled for mid-November 1997.

    Shipbuilding Subsidies.--EU Member States provide subsidies and 
other forms of aid to their shipbuilding industries. The European 
Commission sets annual ceilings for subsidies for shipbuilding and ship 
conversions (but not ship repair) under its Seventh Directive. Until 
December 31, 1997, the ceiling is nine percent of gross investment for 
new ships and 4.5 percent for conversions and small vessels (under 10 
million ECU). In June 1989, the Shipbuilders Council of America (SCA) 
filed a Section 301 petition, seeking elimination of subsidies and 
trade distorting measures for the commercial shipbuilding and repair 
industry. In response, USTR undertook to negotiate a multilateral 
agreement in the OECD to eliminate all subsidies for shipbuilding by 
OECD member countries. An Agreement was reached in July 1994 and signed 
in December to take effect on January 1, 1996. The EU ratified it and 
adopted implementing legislation in December 1995. However, the Senate 
has not given its advice and consent to ratification of the Agreement. 
In October 1997, the Commission proposed that pending U.S. 
ratification, the Seventh Directive be extended through 1998. In 1999 
and 2000, contract-related aid would continue at current ceilings. From 
2001, the only contract-related aid allowed would be home and export 
credits under OECD rules on export credits for ships, operating aid 
would no longer be allowed, and permissible aid (e.g. for closures, 
R&D, the environment) would be subject to new rules. The Commission 
also suggested that Member States consider a ``home built'' requirement 
for tax benefits or state guarantees for the purchase of new ships. 
Discussions on the Agreement continue in the U.S. Congress.
7. Protection of U.S. Intellectual Property

    The EU and its Member States support strong protection for 
intellectual property rights. The Member States are members of all the 
relevant WIPO conventions, and they and the EU regularly join with the 
U.S. in encouraging other countries to sign up to and fully enforce 
high IPR standards, including those in the TRIPS agreement. The EU, 
like the United States, is now considering additional legislation in 
new areas of IPR protection, as shown in the Commission's recent 
Communication, Copyright and Related Rights in the Information Society. 
The Commission has designated four priorities for legislative action: 
reproduction right, communication to the public right, legal protection 
of anti-copying systems and distribution right. The Commission takes 
the position that digital technology and divergent Member State IPR 
laws require harmonization at the Community level.

    Trademarks: The U.S. Government has declined to join the Madrid 
Protocol, which concerns the international registration of trademarks, 
because the Protocol allows intergovernmental organizations to have a 
vote separate and independent from their member states. The U.S. 
Government continues to press the Commission to cooperate in finding a 
resolution to this impasse since the Protocol's system of trademark 
registration cannot be truly international without U.S. Government 
membership.
8. Worker Rights

    Labor legislation remains largely the purview of the individual 
Member States, although the EU has adopted a number of regulations 
related to occupational safety and health and with respect to employee 
participation in company decision making. In addition, the EU has 
decided that GSP beneficiaries may receive an extra margin of 
preference if they meet certain worker rights standards. This GSP 
incentive regime is expected to enter into force in 1998.

    Extent of U.S. Investment.--Composit figures for U.S. investment in 
the European Union are not available. See data for member countries.

                                 ______
                                 

                                AUSTRIA

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                         1995        1996      1997 \1\ 
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\...................   230,783.7   226,600.3   201,175.5
  Real GDP growth (pct.)............         1.5         1.3         1.6
  GDP by sector:                                                        
    Agriculture.....................     3,521.8         N/A         N/A
    Manufacturing...................    53,531.7         N/A         N/A
    Services........................   107,936.5         N/A         N/A
    Government......................    31,002.0         N/A         N/A
  Per capita GDP....................      28,998      28,281      24,100
  Labor force (000s)................       3,655       3,646       3,646
    Unemployment rate (pct) \3\.....         3.9         4.4         4.4
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
  Money supply (M2).................         9.4         2.8         0.0
  Consumer price index..............         2.2         1.9         1.5
  Exchange rate (AS/US$ annual                                          
   average \4\).....................       10.08       10.59       12.25
                                                                        
Balance of Payments and Trade:                                          
  Total exports (FOB)...............    57,541.1    57,808.3    53,991.8
    Exports to U.S..................     1,707.7     1,840.2     1,755.1
  Total imports (CIF)...............    66,272.9    67,305.0    62,604.1
    Imports from U.S................     2,780.7     3,000.9     2,775.5
  Trade balance.....................    -8,731.8    -9,496.7    -8,612.3
    Balance with U.S................    -1,073.0    -1,160.7    -1,020.4
  External public debt..............    30,912.0    29,405.0    26,122.4
  Fiscal deficit....................         5.0         3.7         2.7
  Current account deficit/GDP (pct).         2.0         1.8         2.2
  Debt service payments/GDP (pct)                                       
   \5\..............................         1.7         1.5         1.5
  Gold and foreign exchange reserves                                    
   (year-end).......................    23,627.5    24,473.6         N/A
  Aid from U.S......................           0           0           0
  Aid from all other sources........           0           0           0
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available data in October   
  1997 and latest available economic forecasts of September 1997.       
\2\ GDP at market prices.                                               
\3\ unemployment rate according to EU method.                           
\4\ there is only an official rate, no parallel rates.                  
\5\ debt service payments on external public debt.                      

1. General Policy Framework

    Austria, a member of the European Union (EU) since January 1, 1995, 
has a well developed market economy with a high standard of living. 
With exports of goods and services reaching over 40 percent of GDP, 
Austria's economy is closely integrated with other EU member countries, 
especially with Germany. Austria's entry into the EU has drawn an 
influx of foreign investors attracted by Austria's access to the single 
European market and by more liberal policies promoting competition and 
dismantling protectionism. Like many European countries, Austria has 
undergone a period of slow economic growth: in 1995, Austria's GDP grew 
by 1.5 percent, in 1996 by 1.3 percent and in 1997 by a projected 1.6 
percent. Economic prospects are expected to brighten in 1998 with 
expected growth of around 2.5 percent.

    Austria is well on its way to meeting all Maastricht convergence 
criteria for monetary union. While total public debt still stands at 70 
percent of GDP, its upward trend is expected to reverse in 1997 as a 
result of privatization efforts, the 1996 budget consolidation program 
and austerity measures. The total public sector deficit is expected to 
decline to 3 percent of GDP in 1997. The 1997/98 budget proposals 
presented to Parliament contain further measures to stabilize the 
deficit at a low level. Cuts mainly affect the civil service and 
Austria's generous social system, the two major causes of the 
government deficit. The deficit is mainly financed through issuance of 
government bonds.

    The European Union's single market, the economic transformation 
occurring in Central Europe and envisaged EU enlargement pose 
significant challenges to the Austrian economy. To meet increased 
competition from both the EU and Central European countries, less 
competitive, low-tech production will have to shift towards more 
specialized value-added manufacturing. To improve efficiency and 
resource allocation, the service sector, particularly 
telecommunications and the energy sector, will have to be further 
deregulated and liberalized. While wage-price rigidities, barriers to 
market entry and a complex regulatory environment remain, the 
government has taken decisive measures to foster more liberal policies 
to adapt to EU standards.
2. Exchange Rate Policies

    Over the last 15 years, the Austrian National Bank (ANB) has 
pursued a ``hard schilling'' policy, adjusting interest rates to peg 
the Austrian schilling (AS) to the German mark (DM), at an exchange 
rate of AS7 to DM1, instead of setting money supply and other monetary 
targets. Since Austria joined the EU, the ANB has reaffirmed publicly 
its determination to continue this policy, as well as its intention to 
participate in the ``hard core'' of the EMU, those countries expected 
to be included among the initial entrants to the EMU on January 1, 
1999.

    For the Austrian Government, EMU participation is the most 
important future project--a view agreed to by most political parties, 
bankers, economic chambers, associations of industrialists, business 
managers and economists. There is also wide agreement that non-
participation would be a disaster and mean failure of Austria's hard 
currency policy. The government is making a major effort to meet all 
EMU convergence criteria and has implemented austerity measures in 
1996/97, an approach it will continue in 1998.

    In 1996, the Austrian schilling (and the German mark) lost ground 
against the U.S. dollar and many other European currencies. This trend 
continued in the first half of 1997 as the dollar rose strongly against 
the schilling and the mark.
3. Structural Policies

    Austria's accession to the EU has required the government to 
accelerate structural reforms and to liberalize its economy. Most non-
tariff barriers to merchandise trade have been removed. Cross-border 
capital movements and market access for foreign bonds have been fully 
liberalized.

    In 1996, as part of its austerity program, the Austrian government 
implemented a number of changes to the tax code to raise revenues. 
Measures included the introduction of an energy tax on electricity and 
natural gas, cuts in personal income tax allowances and tax credits, as 
well as increases in the interest income tax rate from 22 to 25 percent 
and in the minimum corporate tax to about $4,700 annually (the 34 
percent corporate tax rate remains unchanged). Rules for the 
deductibility of losses have also been tightened. The economy was fully 
impacted by these measures in 1997.

    The Austrian government continues to be a major player in the 
national economy. However, the scope of government interventionist 
policies, a traditional feature of the Austrian economy, has been 
significantly reduced in recent years. The government continues to sell 
off state-owned enterprises in an effort to cut back its dominant 
economic role and to fulfill the Maastricht criteria for EMU. It no 
longer has majority ownership in formerly state-controlled companies 
such as OMV, VOEST or Elin. Subsidy programs have also been scaled back 
to conform to EU regulations.

    1997 saw the passage of a more liberal business code, which eases 
access to licensed professions and broadens the scope of their 
activity. Additionally, Austria's 1993 procurement law was amended to 
comply with EU regulations. A 1994 Environmental Impact Assessment Act 
regulates the environmental impact of large industrial and 
infrastructure projects. Licensing procedures under this and other 
environmental legislation are viewed by industry as costly and 
cumbersome.
4. Debt Management Policies

    Austria's external debt management has had no significant impact on 
U.S. trade. At the end of 1996, the Austrian federal government's 
external debt amounted to $28.0 billion (21 percent of the government's 
overall debt) and consisted of 92 percent bonds and 8 percent credits 
and loans. Debt service on the federal government's external debt 
amounted to $3.5 billion in 1996, or 1.5 percent of GDP and 3.7 percent 
of total exports of goods and services. In 1996, total public sector 
external debt amounted to $30.2 billion or 13 percent of GDP. Total 
gross public debt was 70 percent of GDP at the end of 1996. Republic of 
Austria bonds are rated AAA by recognized international credit rating 
agencies.
5. Significant Barriers to U.S. Exports

    On Austria's accession to the EU, approximately two thirds of 
existing tariffs were lowered or eliminated, while about one third was 
increased. Over half of all products from non-EU countries enter 
without any tariff. U.S. exports of chemicals, plastics, computers, 
photographic equipment, semiconductors and integrated circuits were 
affected adversely by Austria's EU entry.

    The EU's Common Agricultural Policy (CAP) also has had a negative 
impact on imports of U.S. agricultural goods into the Austrian market. 
Import duties for some key U.S. agricultural products such as tobacco, 
rice and raisins rose considerably. In 1995, The United States and the 
EU negotiated an agreement to compensate the United States for these 
tariff increases. The EU ban on imports of hormone-treated beef 
severely restricts U.S. exports of beef to Austria. This issue is 
currently before the WTO, which has ruled against the EU, and is not 
expected to be resolved before 1998.

    Austria's 1993 Banking Act presents a number of obstacles for 
market entry of U.S. banks. Branches of non-EU banks must be licensed, 
while EU banks may operate branches on the basis of their home country 
licenses. For bank branches or subsidiaries from a non-EU member 
country, the limits for single large loan exposures and open foreign 
exchange positions will shrink considerably on December 31, 1998, when 
the endowment capital from their parent companies may no longer be 
included in the capital base used for calculating these limits.

    Providers of financial services, such as accountants, tax 
consultants, and property consultants, must submit specific proof of 
their qualifications, such as university education or number of years 
of practice. Other service activities also require a business license, 
for which one of the preconditions is legal residence. Under the WTO 
General Agreement on Trade in Services, Austrian officials insist that 
Austria's commitments on trade in professional services extend only to 
intra-corporate transfers. U.S. service companies often form joint 
ventures with an Austrian firm to get around these restrictions.

    Austrian labeling and marking requirements are not as strict as 
those in the United States. Safety warnings are not mandated on 
electrical devices, nor is labeling in the German language required. A 
federal law requires that packaged food be marked with an expiration 
date. With regard to labeling of food and additives containing 
genetically modified organisms (GMO's), Austria is in full compliance 
with EU regulations, but the government may proceed with labeling 
requirements that may not conform to EU regulations.

    Harmonization of national legislation with EU labeling and marking 
requirements is well under way, along with quality and safety 
standards. Ultimately, as this process is completed, a ``CE'' mark will 
be required for most manufactured imports. Relevant EU directives are 
being implemented, with varying transition periods for different 
product categories. For instance, the EU directive for toys has already 
been implemented, while the transition period for explosives for civil 
use ends Dec. 31, 2002.

    The government welcomes foreign investment, particularly in the 
high technology and automotive sectors, with no formal sectoral or 
geographic restrictions. In most business activities, 100 percent 
ownership is permitted. Investment incentives are abundant, including 
EU structural subsidies in some locations. U.S. companies receive 
national treatment with the exception of property acquisition. However, 
while any company, including U.S. firms, must obtain approval from the 
land commission of the province in which it wishes to purchase land, 
very rarely do U.S. firms encounter problems, especially when they wish 
to locate in commercial zones or industrial parks.

    A 1997 U.S. Investor Confidence Survey compiled by the American 
Chamber of Commerce cites issues such as high labor, telecommunications 
and energy costs, the complex Austrian legal situation, and 
difficulties in obtaining work permits for key personnel as major 
obstacles. In a recent public statement, the Austrian economics 
minister committed to a maximum of 90 days turnaround time for property 
acquisition applications. Moreover, the reform of the Residence Law and 
the Foreign Workers Employment Law enacted in mid-1997 exempts skilled 
U.S. labor (e.g. managers and their dependents) from an increasingly 
restrictive quota system for residence permits.

    Austria is a party to the WTO Government Procurement Agreement. 
Austria does not have restrictive ``buy-national'' laws, and the 
principle of the best bidder is usually maintained. However, offset 
requirements are common in defense contracts. Austria's first federal 
procurement law was enacted in 1993. 1997 saw the passage of new 
procurement legislation in line with EU guidelines, particularly 
regarding the services sector.
6. Export Subsidies Policies

    The government provides export promotion loans and guarantees 
within the framework of the OECD export credit arrangement and the WTO 
Agreement on Subsidies and Countervailing Measures. The Austrian 
Kontrollbank (AKB), Austria's export financing agency, offers export 
financing programs for small and medium-sized companies with annual 
export sales of up to $9.5 million. Following Austria's accession to 
the EU, the AKB stopped providing economic risk guarantees for short 
term financing of exports to OECD countries. A 1995 amendment to 
Austria's Export Guarantees Act (AFG) enables the AKB to guarantee 
untied credits. In 1996, the AKB made its export guarantee system more 
transparent by publishing conditions and eligible country lists.
7. Protection of U.S. Intellectual Property

    Austria is a member of all principal multilateral intellectual 
property agreements and organizations, including the World Intellectual 
Property Organization (WIPO). Austrian laws are largely consistent with 
international standards. To implement EU directives on satellite 
broadcasting and copyright duration, Austria amended its copyright law 
in 1996. This amendment, which became effective April 1, 1996, states 
that ``tourist establishments'' (such as hotels, inns, etc.) may 
publicly perform cinematographic works (or other audiovisual works, 
including videos) for their guests in exchange for a compulsory license 
fee to the copyright holders, but without their authorization. The 
United States has urged the Austrian government to rescind this 
provision of the law, which is inconsistent with its international 
obligations.

    A levy on imports of home video cassettes and a compulsory license 
for cable transmission are required under Austrian copyright law. Of 
total revenues, 51 percent currently go to a special fund for social 
and cultural projects, not to the copyright owners. It is expected that 
as of 1998, cable transmission rights will be exclusive to the legal 
owner. Austrian copyright law requires that the owner of intellectual 
property prove the entire chain of rights up to the producer. In the 
case of films, this requirement has made prosecution of cases of video 
piracy difficult. The United States government continues to consult 
with Austria on this issue.
8. Worker Rights

    a. The Right of Association.--Workers in Austria have the 
constitutional right to associate freely and the de facto right to 
strike. Guarantees in the Austrian Constitution governing freedom of 
association cover the rights of workers to join unions and engage in 
union activities. Labor participates in the ``social partnership,'' in 
which the leaders of Austria's labor, business, and agricultural 
institutions give their concurrence to new economic legislation and 
influence overall economic policy.

    b. The Right to Organize and Bargain Collectively.--Austrian unions 
enjoy the right to organize and bargain collectively. The Austrian 
Trade Union Federation (OGB) is exclusively responsible for collective 
bargaining. All workers except civil servants are required to be 
members of the Austrian Chamber of Labor. Leaders of the OGB and labor 
chamber are democratically elected. Workers are legally entitled to 
elect one-third of the board of major companies.

    c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory 
labor is prohibited by law.

    d. Minimum Age of Employment of Children.--The minimum legal 
working age is 15. The law is effectively enforced by the labor 
inspectorate of the Ministry for Social Affairs.

    e. Acceptable Conditions of Work.--There is no legally-mandated 
minimum wage in Austria. Instead, minimum wage scales are set in annual 
collective bargaining agreements between employers and employee 
organizations. Workers whose incomes fall below the poverty line are 
eligible for social welfare benefits. Over half of the workforce works 
a maximum of either 38 or 38.5 hours per week, a result of collective 
bargaining agreements. The Labor Inspectorate ensures the effective 
protection of workers by requiring companies to meet Austria's 
extensive occupational health and safety standards.

    f. Rights in Sectors with U.S. Investment.--Labor laws tend to be 
consistently enforced in all sector, including the automotive sector, 
in which the majority of U.S. capital is invested.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                     1021 
  Food & Kindred Products.....................           5              
  Chemicals & Allied Products.................         \1\              
  Metals, Primary & Fabricated................           1              
  Machinery, except Electrical................          79              
  Electric & Electronic Equipment.............         399              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................          79              
Wholesale Trade...............................                      384 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                     1007 
Services......................................                      300 
Other Industries..............................                      -23 
TOTAL ALL INDUSTRIES..........................                     2902 
------------------------------------------------------------------------
\1\  Suppressed to avoid disclosing data of individual companies.       
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                BELGIUM

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                               1995     1996    1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  GDP (at current prices) \2\..............    268.9    263.5      245.7
  Real GDP Growth (pct) \3\................      1.9      1.4        2.3
  GDP by Sector (pct):                                                  
    Agriculture............................      1.7      N/A        N/A
    Construction...........................      5.4      N/A        N/A
    Energy.................................      4.3      N/A        N/A
    Industry...............................     19.6      N/A        N/A
    Services...............................     55.0      N/A        N/A
    Nontradable Services...................     13.9      N/A        N/A
  Real Per Capita GDP (US$) \4\............   27,684   25,651     24,512
  Labor Force (000s).......................    4,293    4,284      4,283
  Unemployment Rate (pct)..................      9.9      9.7        9.5
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
  Money Supply Growth (M2).................      6.1     -6.2        7.6
  Consumer Price Inflation.................      1.5      2.1        2.0
  Exchange Rate (BF/US$)...................     29.5    30.95      34.52
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB \5\....................      145      153        172
    Exports to U.S.\6\.....................     12.5     12.5       14.0
  Total Imports CIF \5\....................    154.9    151.8      158.5
    Imports from U.S.\6\...................     12.8     12.4       12.0
  Trade Balance \5\........................     -9.9      1.2       13.5
    Balance with U.S.\6\...................     -0.3     -0.1       -2.0
  Current Account/GDP (pct)................      5.1      5.0        5.5
  External Public Debt.....................     36.8     32.7       32.7
  Debt Service Payments/GDP................      N/A      N/A        N/A
  Fiscal Deficit/GDP (pct).................     -5.1     -4.1       -3.2
  Gold and Foreign Exchange Reserves.......     17.3     18.8       18.1
  Aid from U.S.............................        0        0          0
  Aid for All Other Sources................        0        0          0
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on monthly data available in   
  October 1997.                                                         
\2\ GDP at factor cost                                                  
\3\ Percentage changes calculated in local currency                     
\4\ At 1985 prices                                                      
\5\ Merchandise trade                                                   
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports 
  FAS, imports customs basis. 1995 and 1995 figures include trade with  
  Luxembourg under the customs union. 1997 figures are estimates for    
  Belgium only based on data available through October 1997.            

1. General Policy Framework

    Belgium possesses a highly developed market economy, the tenth 
largest among the OECD industrialized democracies. The service sector 
generates more than 70 percent of GDP, industry 25 percent and 
agriculture two percent. Belgium ranked as the ninth-largest trading 
country in the world in 1996, with exports and imports each equivalent 
to about 70 percent of GDP. Three-quarters of Belgium's trade is with 
other European Union (EU) members. Only five percent is with the United 
States. Belgium imports many basic or intermediate goods, adds value, 
and then exports final products. The country derives trade advantages 
from its central geographic location, and a highly skilled, 
multilingual and industrious workforce. Over the past 30 years, Belgium 
has enjoyed the second-highest average annual growth in productivity 
among OECD countries (after Japan).

    Throughout the late 1970s and the 1980s, Belgium ran chronic budget 
deficits, leading to a rapid accumulation of public sector debt. By 
1996, debt was equal to 127 percent of GDP. Because of the high Belgian 
savings rate, Belgium has largely financed its budget deficits from 
domestic savings. Foreign debt represents less than 10 percent of the 
total and Belgium is a net creditor on its external account.

    Belgium's macroeconomic policy since 1992 has aimed at reducing the 
deficit to 3.0 percent of GDP and reversing the growth of the debt/GDP 
ratio in order to meet the criteria for participation in Economic and 
Monetary Union (EMU) set out in the EU's Maastricht Treaty. Since 1992, 
the Belgian government has implemented budget austerity measures of 
more than $30 billion, or about 10 percent of GDP. Even though 75 
percent of these measures were revenue increases rather than 
expenditure cuts, they had the advantage of being mostly structural in 
nature, as opposed to one-time measures. The deficit declined to 3.2 
percent of GDP in 1996 and is estimated at 2.6 percent of GDP in 1997. 
The government's 1998 budget, presented in October 1997, projects a 2.3 
percent deficit and a reduction in the debt/GDP ratio to 122 percent. 
Belgium has no chance of reaching the Maastricht Treaty debt/GDP target 
of 60 percent, but expects to demonstrate sustained progress towards 
the target in order to qualify for early EMU membership.

    Economic growth, which on a quarter by quarter basis dropped in the 
second half of 1996, picked up in 1997 as net exports joined business 
investment as a source of growth. At 2.5 percent, average GDP growth 
remained relatively modest in 1997. For 1998, growth is expected to be 
near 3 percent. Business investment, driven by the improvement in 
profitability over the past few years, is also supported by low 
interest rates and a relatively high degree of capacity utilization in 
the manufacturing industry. Higher demand in the Netherlands, Germany 
and France is likely to pull Belgian exports up. Moreover, the 
appreciation of the dollar and some European currencies vis a vis the 
BF in 1996 and 1997 should also contribute to the growth of exports.

    Belgium's unemployment situation improved slightly over the past 
two years. Standardized EU data put Belgium's unemployment rate at 9 
percent in November 1997, one percent below the EU's average. A further 
reduction in unemployment will probably be very modest: efforts by 
business to neutralize high labor costs have increased productivity, 
but have also aggravated unemployment by reducing the labor component 
of economic growth.

    In 1993, Belgium completed its process of regionalization and 
became a federal state consisting of three regions: Brussels, Flanders 
and Wallonia. Each region was given substantial economic powers, 
including trade promotion, industrial development, research and 
environmental regulation.
2. Exchange Rate Policy

    Belgian monetary policy basically shadows German interest rates 
closely in order to keep the Belgian franc (BF) close to its central 
parity with the German mark (DM) within the European Monetary System's 
Exchange Rate Mechanism (ERM). The near collapse of the ERM in July 
1993 placed enormous pressures on this ``strong franc'' policy as 
currency traders focussed on Belgium's high debt and budget imbalance. 
The National Bank of Belgium and government used high short-term 
interest rates, jawboning and currency market interventions to support 
the BF. Although the BF briefly slipped by about seven percent against 
the central parity rate with the DM, it regained its parity by late 
1993. Since then, the BF has remained within two percent of its DM 
parity. The result has been low inflation (even below Germany's level) 
and a much-reduced interest rate premium over German bonds. It has also 
meant an appreciation of the BF against the weaker European currencies. 
Belgian manufacturers have complained about the impact of the BF's 
appreciation on their competitiveness, particularly compared to weak-
currency Europeans such as Spain and Italy.
3. Structural Policies

    Belgium is a very open economy, as witnessed by its high levels of 
exports and imports relative to GDP. Belgium generally discourages 
protectionism. The federal and regional governments actively encourage 
foreign investment on a national treatment basis.

    Tax policies: Belgium's tax structure was substantially revised in 
1989. The top marginal rate on wage and salary income is 55 percent. 
Corporations (including foreign-owned corporations) pay a standard 
income tax rate of 39 percent. Small companies pay a rate ranging from 
29 to 37 percent. Branches and foreign offices pay income tax at a rate 
of 43 percent, or at a lower rate in accordance with the provisions 
contained in a double taxation treaty. Under the present bilateral 
treaty between Belgium and the United States, that rate is 39 percent.

    Despite the reforms of the past five years, the Belgian tax system 
is still characterized by relatively high rates and a fairly narrow 
base resulting from numerous exemptions. While indirect taxes are lower 
than the EU average as a share of total government revenues, personal 
income taxation and social security contributions are particularly 
heavy. Total taxes as a percent of GDP are the fourth highest among 
OECD countries. Taxes on income from capital are by comparison quite 
low; since October 1995, the tax rate on interest income is 15 percent, 
and the tax rate on dividends is 25 percent for residents. There is no 
tax on capital gains.

    Belgium has instituted special corporate tax regimes for 
coordination centers, distribution centers and business service centers 
(including call centers) in recent years in order to attract foreign 
investment. These tax regimes provide for a ``cost-plus'' definition of 
income for intragroup activities and have proven very attractive to 
U.S. firms.

    Regulatory policies: The only areas where price controls are 
effectively in place concern energy, household leases and 
pharmaceuticals. With the exception of the latter, none of these has 
any serious impact on U.S. business in Belgium.
4. Debt Management Policies

    Belgium is a member of the G-10 group of leading financial nations, 
and participates actively in the IMF, the World Bank, the EBRD and the 
Paris Club. Belgium is also a significant foreign assistance donor 
nation. It closely follows development and debt issues, particularly 
with respect to the Congo and some other African nations.

    Belgium is a net external creditor, thanks to the household 
sector's foreign assets which exceed the external debts of the public 
and corporate sectors. Only about 10 percent of the Belgian 
government's overall debt is owed to foreign creditors. Moody's top Aa1 
rating for the country's bond issues in foreign currency reflects 
Belgium's integrated position in the EU, its significant improvements 
in fiscal and external balances over the past few years, its economic 
union with the financial powerhouse Luxembourg, and the reduction of 
its foreign currency debt. The Belgian government has no problems 
obtaining new loans on the local credit market. Because of the reform 
of monetary policy in 1991, as well as greater independence granted in 
1993 to the National Bank of Belgium, direct financing in Belgian 
francs by the central bank has become impossible.
5. Significant Barriers to U.S. Exports

    From the inception of the EU's single market, Belgium has 
implemented most, but not all, trade and investment rules necessary to 
harmonize with the rules of the other EU member countries. Thus, the 
potential for U.S. exporters to take advantage of the vastly expanded 
EU market through investments or sales in Belgium has grown 
significantly. Some barriers to services and commodity trade still 
exist, however, including:

    Telecommunications: The federal government is gradually opening up 
the previously monopolistic telecommunications sector. In 1996, the 
government sold 49 percent of Belgacom, the public telephone operator, 
to a consortium of Ameritech, Tele Danmark and Singapore Telecom. In 
September 1996, a second cellular operator started operations. On 
January 1, 1998, a second telephone operator, Telenet, will enter the 
telecoms market, using Belgium's extensive cabling network. Telenet is 
a joint-venture with 20 percent participation by U.S. West. To further 
open mobile telecommunication in Belgium, a third cellular license will 
be issued in 1998. The United States has taken issue with the 
regulation of the directory services market, but a solution appears 
likely. Begium has yet to sign the protocol that embodies the 
commitments made as part of the WTO Basic Telecommunications Agreement. 
The deadline for signing the protocol was December 1, 1997.

    Ecotaxes: The Belgian government has adopted a series of ecotaxes, 
in order to redirect consumer buying patterns towards materials seen as 
environmentally less damaging. These taxes will raise costs for some 
U.S. exporters, since U.S. companies selling into the Belgian market 
must adapt worldwide products to varying EU member state environmental 
standards.

    Retail service sector: Some U.S. retailers, including Toys'R' Us 
and McDonalds, have experienced considerable difficulties in obtaining 
permits for outlets in Belgium. Current legislation is designed to 
protect small shopkeepers, and its application is not transparent. 
Belgian retailers also suffer from the same restrictions, but their 
existing sites give them strong market share and power in local 
markets.

    Public procurement: In January 1996, the Belgian government 
implemented a new law on government procurement to bring Belgian 
legislation into conformity with European Union directives. The 
revision has incorporated some of the onerous provisions of EU 
legislation, while improving certain aspects of government procurement 
at the various governmental levels in Belgium. We will continue to 
monitor the implementation of the new law. Belgian public procurement 
still manifests instances of poor public notification and procedural 
enforcement, requirements for offsets in military procurement and 
nontransparency in the procurement process.

    Broadcasting and motion pictures: Belgium voted against the EU 
broadcasting directive (which requires a high percentage of European 
programs ``where practical'') because its provisions were not, in the 
country's view, strong enough to protect the fledgling film industry in 
Flanders. The Flemish (Dutch-speaking) region and the Francophone 
community of Belgium have local content broadcasting requirements for 
private television stations operating in those areas. The EU has taken 
the Walloon and Flemish communities to the European Court of Justice 
concerning these requirements. TNT has experienced considerable 
problems in arranging distribution of its signal on Belgian cable, 
while NBC and Viacom, via their majority interest in the TV 4 channel, 
face similar problems with broadcasting authorities in Flanders.
6. Export Subsidies Policies

    There are no direct export subsidies offered by the Belgian 
government to industrial and commercial entities in the country, but 
the government (both at the federal and the regional level) does 
conduct an active program of trade promotion, including subsidies for 
participation in foreign trade fairs and the compilation of market 
research reports. In addition, exporters are eligible for a reduction 
in social security contributions by employers and benefit from generous 
rules for cyclical layoffs. The latter programs come close to the 
definition of a subsidy in the case of a company engaged in exporting. 
All of these programs are offered to both domestic and foreign-owned 
exporters. The United States has raised with the Belgian government and 
the EU Commission concerns over subsidies via an exchange rate program 
to Belgian firms producing components for Airbus.
7. Protection of U.S. Intellectual Property.

    Belgium is party to the major intellectual property agreements, 
including the Paris, Berne and Universal Copyright Conventions, and the 
Patent Cooperation Treaty. Nevertheless, an estimated 20 percent of 
Belgium's video cassette and compact disc markets are composed of 
pirated products. For software, the share of pirated copies has dropped 
from 58 to 48 percent in one year, still representing a loss of $700 
million to the industry. (1995 figures, no estimates available yet for 
1996.)

    Copyright: On June 30, 1994, the Belgian Senate gave its final 
approval to the revised Belgian copyright law. National treatment 
standards were introduced in the blank tape levy provisions of the new 
law. Problems regarding first fixation and non-assignability were also 
solved. The final law states that authors will receive national 
treatment, and allows for sufficient manoeuvrability in neighbouring 
rights. However, if Belgian right holders benefit from less generous 
protection in a foreign country, the principle of reciprocity applies 
to the citizens of that country. This is the case for the U.S., which 
does not grant protection of neighboring rights to Belgian artists and 
performers, nor to Belgian producers of records and movies. As a 
consequence, U.S. citizens in Belgium are subject to the same 
restrictions.

    Patents: A Belgian patent can be obtained for a maximum period of 
twenty years and is issued only after the performance of a novelty 
examination.

    Trademarks: The Benelux Convention on Trademarks established a 
joint process for the registration of trademarks for Belgium, 
Luxembourg and the Netherlands. Product trademarks are available from 
the Benelux Trademark Office in The Hague. This trademark protection is 
valid for ten years, renewable for successive ten-year periods. The 
Benelux Office of Designs and Models will grant registration of 
industrial designs for 50 years of protection. International deposit of 
industrial designs under the auspices of the World Intellectual 
Property Organization (WIPO) is also available.
8. Worker Rights

    a. The Right of Association.--Under the Belgian constitution, 
workers have the right to associate freely. This includes freedom to 
organize and join unions of their own choosing. The government does not 
hamper such activities, and Belgian workers in fact fully and freely 
exercise their right of association. About 60 percent of Belgian 
workers are members of labor unions. This number includes employed, 
unemployed and workers on early pension. Unions are independent of the 
government, but have important links with major political parties. 
Unions have the right to strike and strikes by civil servants and 
workers in ``essential'' services are tolerated. Teachers, nurses, 
railway workers, air controllers and Sabena personnel have conducted 
strikes in recent years without government intimidation. Despite 
government protests over wildcat strikes by air traffic controllers, no 
strikers were prosecuted. Also, Belgian unions are free to form or join 
federations or confederations and are free to affiliate with 
international labor bodies. However, the International Confederation of 
Free Trade Unions (ICFTU) in 1996 noted with concern the increasingly 
common practice of using civil court rulings to end strikes. The IFCTU 
report states that the rulings include a threat of fines against 
strikers, and that such rulings call into question the free exercise of 
the right to strike. There was a sharp decrease in this kind of court 
rulings throughout 1996 and 1997.

     b. The Right to Organize and Bargain Collectively.--The right to 
organize and bargain collectively is recognized, protected and 
exercised freely. Every other year, the Belgian business federation and 
unions negotiate a nationwide collective bargaining agreement covering 
2.4 million private-sector workers, which establishes the framework for 
negotiations at plants and branches. Public sector workers also 
negotiate collective bargaining agreements. Collective bargaining 
agreements apply equally to union and non-union members, and over 90 
percent of Belgian workers are covered by collective bargaining 
agreements. Under legislation in force, wage increases are limited to a 
nominal 6.1 percent for the 1997-98 period. The law prohibits 
discrimination against organizers and members of unions, and protects 
against termination of contracts of members of workers' councils, 
members of health and safety committees, and shop stewards. Effective 
mechanisms such as the labor courts exist for adjudicating disputes 
between labor and management. There are no export processing zones.

    c. Prohibition of Forced and Compulsory Labor.--Forced or 
compulsory labor is illegal and does not occur. Domestic workers and 
all other workers have the same rights as non-domestic workers. The 
government enforces laws against those who seek to employ undocumented 
foreign workers.

    d. Minimum Age for Employment of Children.--The minimum age for 
employment of children is 15, but schooling is compulsory until the age 
of 18. Youth between the ages of 15 and 18 may participate in part-time 
work/part-time study programs and may work full-time during school 
vacations. The labor courts effectively monitor compliance with 
national laws and standards. There are no industries where any 
significant child labor exists.

    e. Acceptable Conditions of Work.--In May 1996, the monthly 
national minimum wage rate for workers over 21 was set at BF43,665 
($1,260); 18-year-olds can be paid 82 percent of the minimum, 19-year-
olds 88 percent and 20-year-olds 94 percent. The Ministry of Labor 
effectively enforces laws regarding minimum wages, overtime and worker 
safety. By law, the standard work week cannot exceed 40 hours and must 
have at least one 24-hour rest period. Comprehensive provisions for 
worker safety are mandated by law. Collective bargaining agreements can 
supplement these laws.

    f. Rights in Sectors with U.S. Investment.--U.S. capital is 
invested in many sectors in Belgium. Worker rights in these sectors do 
not differ from those in other areas.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      370 
Total Manufacturing...........................                     8425 
  Food & Kindred Products.....................         507              
  Chemicals & Allied Products.................        5757              
  Metals, Primary & Fabricated................         138              
  Machinery, except Electrical................         \1\              
  Electric & Electronic Equipment.............         492              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................        1027              
Wholesale Trade...............................                     2225 
Banking.......................................                      282 
Finance/Insurance/Real Estate.................                     4130 
Services......................................                     2274 
Other Industries..............................                      897 
TOTAL ALL INDUSTRIES..........................                   18604  
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                BULGARIA

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                 1995    1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
                                                                        
Nominal GDP                                       13.0     9.5       9.5
  Real GDP Growth (pct).......................     2.1   -10.9      -7.4
  GDP by Sector:                                                        
    Agriculture...............................     1.7     1.1       1.2
    Manufacturing.............................     4.1     3.0       2.9
    Services..................................     6.0     5.1       5.1
  Per Capita GDP..............................   1,543   1,129     1,130
  Labor Force (000s)..........................   3,575   3,570     3,535
  Unemployment Rate (pct) \2\.................    11.4    10.8      14.3
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply Growth (M2)....................    39.6   124.5     245.4
  Consumer Price Inflation....................    32.9     311       584
  Exchange Rate (Leva/US$ - annual average)                             
   \3\                                                                  
    Official..................................    67.2     175      1675
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB...........................     5.1     4.2       4.8
    Exports to U.S. (US$ mlns) \4\............     188     116       164
  Total Imports CIF...........................     4.7     4.0       4.3
    Imports from U.S. (US$ mlns) \4\..........     132     138       110
  Trade Balance...............................     0.4     0.2       0.5
    Balance with U.S. (US$ mlns) \4\..........      56     -22        54
  Currrent Account Balance/GDP (pct)..........    -0.5     0.9       1.8
  External Public Debt........................     9.4     9.6       9.7
  Debt Service Payments/GDP (pct).............     8.1    13.1       9.9
  Fiscal Deficit/GDP (pct)....................    -6.4   -13.4      -6.3
  Gross Foreign Exchange Reserves and Gold....     1.6     0.8       2.4
  Aid from U.S. (US$ mlns) \5\................    42.0    27.8      26.1
  Aid from All Other Sources..................     N/A     N/A       N/A
------------------------------------------------------------------------
\1\ 1997 figures are estimates based on available 6-10 month data       
\2\ Annual average                                                      
\3\ Rate depreciated from 32.1:1 to 66:0 from January to December 1994, 
  and from 70.7:1 to 487:1 from January to December 1996. The rate      
  subsequently declined to 2920:1 in mid-February 1997, and then was    
  fixed to the DM at 1000:1 on July 1, 1997.                            
\4\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports 
  FAS, imports customs basis; 1997 figures are estimates based on data  
  available through October 1997.                                       
\5\ USAID and DOD humanitarian assistance. DOD was $512,236 in FY95,    
  $314,692 in FY96 and $635,086 in FY97.                                

1. General Policy Framework

    Bulgaria is a parliamentary republic ruled by a democratically 
elected government. It has successfully conducted several rounds of 
democratic elections since 1989. A reform-minded coalition led by the 
center-right Union of Democratic Forces (UDF) won an outright majority 
in April 1997 pre-term parliamentary elections, called after a 
discredited socialist government elected in December 1994 voluntarily 
relinquished power. The current president, elected in November 1996, 
also came from the ranks of the UDF.

    The new government which took office in 1997 has made a firm 
commitment to undertaking the long-delayed reforms needed to transform 
Bulgaria into a market economy, and has won the support of 
international financial institutions for its efforts. The task is made 
more difficult by the legacy of delays and half-hearted reforms under 
previous governments with an uncertain underlying commitment to market 
principles. For years, quasi-fiscal deficits were allowed to 
accumulate, and the debts of loss-making state-owned enterprises led to 
systematic decapitalization of the banks. In 1996, Bulgaria entered 
into a deep economic crisis, triggered by recurring runs on bank 
deposits, which began in late 1995 and eventually affected most of the 
banking sector. The crisis of 1996 and early 1997 unified the country 
around the need to make changes. The situation stabilized when the new 
government made a credible commitment to reform, embodied in an 
agreement with the IMF to institute a currency board form of exchange 
regime, with the lev fixed to the German mark. The government has also 
made progress in implementing long-delayed reforms in the banking 
sector, privatizing state-owned assets, and liberalizing the economy. A 
World Bank Financial and Enterprise Sector Adjustment Loan was approved 
in October 1997.

    Bulgaria's association agreement with the European Union (EU) took 
effect January 1, 1994, and Bulgaria is actively pursuing its goal of 
EU membership. Bulgaria acceded to the World Trade Organization (WTO) 
at the end of 1996. The bilateral investment treaty with the United 
States took effect in June 1994. A bilateral treaty for avoidance of 
double taxation is under negotiation.
2. Exchange Rate Policy

    Under the new currency board arrangement, the Bulgarian lev (BGL) 
is fixed by law at BGL 1000/DM. The Bulgarian National Bank (BNB) sets 
an indicative daily U.S. dollar rate (based on the dollar/DM exchange 
rate in Frankfurt) for statistical and customs purposes, but commercial 
banks and others licensed to trade on the interbank market are free to 
set their own rates.

    Only some of the commercial banks are licensed to conduct currency 
operations abroad. Companies may freely buy foreign exchange for 
imports from the interbank market. Companies are required to 
repatriate, but no longer to surrender, earned foreign exchange to the 
central bank. Bulgarian citizens and foreign persons may also open 
foreign currency accounts with commercial banks. Foreign investors may 
repatriate 100 percent of profits and other earnings, except that 
profits and dividends derived from privatization transactions in which 
Brady bonds were used for half the purchase price may not be 
repatriated for four years, and initial capital for ten years. Capital 
gains transfers appear to be protected under the revised Foreign 
Investment Law; free and prompt transfers of capital gains are 
guaranteed in the bilateral investment treaty. A permit is required for 
hard currency payments to foreign persons for direct and indirect 
investments and free transfers unconnected with import of goods or 
services.
3. Structural Policies

    Bulgaria's legal structure does not inhibit U.S. exports, which are 
more affected by the domestic economic situation and Bulgaria's 
isolation from trade financing. In the past, implementation of reforms 
has been hindered by slow decision-making, parliamentary delays, and 
bureaucratic red tape. However, the new government has shown an ability 
to deliver needed legislative reforms and a willingness to listen to 
the views of those outside government, including international 
financial institutions, donors and the private sector. The new Foreign 
Investment Law adopted in October 1997 was drafted with input from 
foreign investors. One of the government's key priorities is 
accelerated privatization. A mass privatization program developed by 
the socialist government and patterned on the Czech voucher system was 
carried out in 1996-97, with somewhat disappointing results. The new 
government is preparing revisions to the program to make it more 
flexible and more effective. Market privatization, which stagnated 
under the socialists until the need for cash inflows forced them to 
close some large deals, is now increasingly being put in the hands of 
international intermediaries. This ``privatization of privatization'' 
is expected to increase transparency of the process and reduce the 
controversy which has tended to accompany major deals. In October 1996 
Bulgaria enacted a new Collateral Loan Law (with implementation in 
1997), setting out procedures for secured lending, and revised the 
Commercial Code.

    Bulgaria revised both its Income Tax and Profits Tax laws in 1996, 
and the current government is considering further changes to make the 
overall tax burden hopefully less onerous for business, provided that 
the government can improve overall tax collections. The VAT was raised 
from 18 to 22 percent in July 1996 as part of the IMF program. Poor tax 
collection is a problem for the budget, and there is a significant 
informal economy which goes largely unreported and untaxed.
4. Debt Management Policies

    Bulgaria's former Communist regime more than doubled the country's 
external debt from 1985 to 1990. With more than $10 billion 
outstanding, the government declared a debt service moratorium in March 
1990, then resumed partial servicing of the debt in late 1992. In April 
1994, Bulgaria rescheduled its official (``Paris Club'') debt for 1993 
and 1994. In June of that year, it concluded a Brady plan-type 
agreement to reschedule $8.1 billion of its debt to commercial 
creditors (``London Club''), reducing its commercial debt by 47 
percent. While debt servicing requirements will rise in absolute terms 
over the next 5-7 years, if reforms and foreign investment continue to 
take hold, debt servicing in relation to GDP should decline. In 
addition to its external debt (over $9 billion at the end of 1997), 
Bulgaria has a considerable domestic debt burden, of which 
approximately $950 million is dollar-denominated. Falling interest 
rates associated with the currency board have considerably eased the 
debt burden, and Bulgaria has plans to issue up to $300 million in 
Euro-obligations.

    In July 1996, the IMF approved a 20-month standby arrangement of 
approximately $580 million. However, because of failure to implement 
conditions, only one tranche was disbursed. A 14-month standby 
arrangement worth approximately $500 million was approved in April 
1997, together with a $150 million Compensatory and Contingency 
Financing Facility, and tranches have so far been disbursed on 
schedule. A long-delayed $100 million World Bank Financial and 
Enterprise Sector Adjustment Loan was approved in October 1997; a 
further $70 million loan is anticipated once further reforms in the 
banking sector have been implemented.
5. Significant Barriers to U.S. Exports

    Bulgaria acceded to the World Trade Organization in December 1996. 
Bulgaria also acceded to the WTO plurilateral Agreement on Civil 
Aircraft and committed to sign the Agreement on Government Procurement 
within a year. Bulgaria ``graduated'' from Jackson-Vanik requirements 
and was accorded unconditional MFN treatment by the United States in 
October 1996.

    Average Bulgarian import tariffs are relatively high, on top of 
which Bulgaria implemented a 5 percent import surcharge in July 1996 
(which declined to 4 percent in July 1997, and is scheduled to decline 
further over the next four years) as part of the 1996 IMF program. In 
previous years, some U.S. investors have reported that high import 
tariffs on products needed for the operation of their establishments in 
Bulgaria served as a significant barrier to investment. However, the 
new Foreign Investment Law exempts capital contributions in kind valued 
at over $100,000 from VAT and customs.

    Import licenses are required for a specific, limited list of goods 
which includes radioactive elements, rare and precious metals and 
stones, ready pharmaceutical products, and pesticides. The Bulgarian 
government has declared that it grants licenses within three days of 
application in a nondiscriminatory manner. The U.S. Embassy has no 
complaints on record from U.S. exporters that the import-license regime 
has negatively affected U.S. exports. Armaments and military-production 
technology and components also require import licenses and can only be 
imported by companies licensed by the government of Bulgaria to trade 
in arms (see below). Dual-use items are also controlled.

    The Bulgarian government states that its system of standardization 
is in line with internationally accepted principles and practices, but 
there were two cases in 1997 involving U.S. commodities held at 
Bulgarian ports for supposedly not meeting Bulgarian standards. 
Imported goods must meet Bulgarian standards, and in testing and 
procedures imported goods are accorded treatment no less favorable than 
that for domestic products. The testing and certification process 
generally requires at least two months. All imports of goods of plant 
or animal origin are subject to phytosanitary and veterinary control, 
and relevant certificates should accompany such goods.

    Foreign persons cannot own land in Bulgaria because of a 
constitutional prohibition, but foreign-owned companies with Bulgarian 
registration are considered to be Bulgarian persons. Foreign persons 
may acquire ownership of buildings and limited property rights, and may 
lease land. Local companies where foreign partners have controlling 
interests must obtain prior approval (licenses) to engage in certain 
activities: production and export of arms/ammunition (note that only 
firms with over 50 percent Bulgarian participation can be licensed for 
international trade in arms); banking and insurance; exploration, 
development and exploitation of natural resources; and acquisition of 
property in certain designated geographic areas/zones.

    There are no specific local content or export-performance 
requirements nor specific restrictions on hiring of expatriate 
personnel, but residence permits are often difficult to obtain. 
Bulgaria committed itself in the United States-Bulgarian Bilateral 
Investment Treaty to international arbitration in the event of 
expropriation, disinvestment, or compensation disputes.

    Foreign investors complain that massive tax evasion by private 
domestic firms combined with the failure of the authorities to enforce 
collection from large, often financially-precarious, state-owned 
enterprises places the foreign investor at a real disadvantage.

    The 1997 Law on Assignment of Government and Municipal Contracts is 
the first clear-cut procedure for government procurement to be 
introduced in Bulgaria. It is equally applicable to local and foreign 
potential providers, and, with few exceptions treats them both equally. 
Government procurement works mostly by competitively bid international 
tenders. Under the new law, participants in pre-contract procedures 
(tender, two-phase tender, silent auction, or negotiations with three 
or more potential contractors) may appeal against violations of the 
applicable procedures. General government supervision for compliance is 
exercised by the National Audit Chamber. Each ministry has a government 
procurement office which is responsible for overseeing the process. 
There have been problems of lack of clarity in many tendering 
procedures. U.S. investors are also finding that in general neither 
remaining state enterprises nor private firms are accustomed to 
competitive bidding procedures to supply goods and services to these 
investors within Bulgaria. However, tenders organized under projects 
financed by international donors have tended to be open and 
transparent.

    Bulgaria uses the single customs administrative document used by 
European Community members. A one percent customs clearance fee is 
assessed on all imports and exports.
6. Export Subsidies Policies

    The Bulgarian government applies no export subsidies at the 
present. However, the 1995 Law for the Protection of Agricultural 
Producers established a State Fund for Agriculture whose regulations 
give it the authority to stimulate the export of agricultural and food 
products through export subsidies or export guarantees.
7. Protection of U.S. Intellectual Property

    Bulgarian intellectual property legislation is generally adequate, 
with modern patent and copyright laws and criminal penalties for 
copyright infringement, but enforcement is seriously deficient, 
resulting in widespread piracy, particularly in music CDs and CD-ROMs. 
As a result, Bulgaria was placed on the U.S. Trade Representative's 
Special 301 Watch List in October 1996.

    In 1995, Bulgaria signed a government-to-government agreement with 
the United States to improve intellectual copyright protection. As a 
result, Bulgaria became a signatory to the Rome and Geneva Phonograms 
Conventions, added criminal penalties for copyright infringement, and, 
in April 1996, introduced a system of title verification for music and 
video recordings. The system was amended in April 1997 to include 
software on CD-ROM. Nevertheless, video, compact disk and computer 
program piracy remains a serious concern. Bulgaria is one of the 
world's top exporters of illegal CDs and CD-ROMs.

    Bulgaria's Trademark and Industrial Design Law is in need of 
updating; a revised law has been drafted. U.S. industries cite the 
illegal use of trademarks as a barrier to the Bulgarian market. A Law 
for the Protection of New Types of Plants and Animal Breeds was adopted 
in September 1996; a law on the topography of integrated circuits is in 
preparation.

    Bulgaria is a member of the World Intellectual Property 
Organization (WIPO) and a signatory to the following agreements: the 
Paris Convention for the Protection of Intellectual Property; the Rome 
Convention for the Protection of Performers, Producers of Phonograms 
and Broadcast Organizations; the Geneva Phonograms Convention; the 
Madrid Agreement for the Repression of False or Deceptive Indications 
of Source of Goods; the Madrid Agreement on the International 
Classification and Registration of Trademarks; the Patent Cooperation 
Treaty; the Universal Copyright Convention; the Berne Convention for 
the Protection of Literary and Artistic Works; the Lisbon Agreement for 
the Protection for Appellations of Origin and their International 
Registration; the Budapest Treaty on the International Recognition of 
the Deposit of Microorganisms for the Purpose of Patent Protection; and 
the Nairobi Treaty on the Protection of the Olympic Symbol. On acceding 
to the WTO, Bulgaria agreed to implement the Agreement on Trade-Related 
Aspects of Intellectual Property Rights (TRIPs) without a transitional 
period.

    In early 1997, the International Intellectual Property Association 
estimated trade losses in Bulgaria for U.S. companies due to piracy at 
$178.9 million. The chief damages were reportedly in sound recordings 
and musical compositions ($95 million), computer programs ($62 million 
for entertainment software alone, and $8.4 million for business 
software, an increasingly growing problem), and motion pictures ($13 
million from videocassettes and an unquantified amount from cable TV 
piracy).
8. Worker Rights

    a. The Right of Association.--The 1991 Constitution provides for 
the right of all workers to form or join trade unions of their own 
choice. This right appears to have been freely exercised in 1997. 
Estimates of the unionized share of the workforce range from 30 to 50 
percent. This share continues to shrink as large firms lay off workers, 
and most new positions appear in small, non-unionized businesses. 
Bulgaria has two large trade union confederations, the Confederation of 
Independent Trade Unions of Bulgaria (CITUB) and Podkrepa. CITUB, the 
successor to the trade union controlled by the former Communist regime, 
now operates as an independent entity. Podkrepa, an independent 
confederation created in 1989, was one of the earliest organizations 
within the Union of Democratic Forces, but is no longer a member of the 
UDF. In 1995 a third trade union confederation, the Community of Free 
Union Organizations in Bulgaria (CFUOB), was admitted to the National 
Tripartite Council (NTCC), which includes employers and the government. 
In October 1996, a new labor union/civic organization called 
``Promyana'' (``Change'') was founded with the explicit goal of 
removing the Bulgarian Socialist Party (BSP) from power via early 
elections. Although never officially registered as a labor union, 
Promyana attracted members of various professions and trades to its 
ranks and participated visibly in the anti-BSP demonstrations of 
January and early February 1997 which played a key role in convincing 
the BSP to relinquish power. The 1992 Labor Code recognizes the right 
to strike when other means of conflict resolution have been exhausted, 
but ``political strikes'' are forbidden, a prohibition widely ignored 
in January and early February 1997. Workers in essential services 
(including military, police, energy production and supply, and health 
sectors) are prohibited from striking, but common practice by such 
workers is to hold an ``effective strike'' in which they stop or slow 
their activities for an hour or two, a practice employed repeatedly in 
the politically-motivated popular unrest in January and early February. 
There was no evidence that the Government interfered with the right to 
strike and several work stoppages took place. The Labor Code's 
prohibitions against anti union discrimination include a 6-month period 
of protection against dismissal as a form of retribution. While these 
provisions appear to be within international norms, there is no 
mechanism other than the courts for resolving complaints, and the 
burden of proof in such a case rests entirely on the employee. There 
are no restrictions on affiliation or contact with international labor 
organizations, and unions actively exercise this right.

    b. The Right to Organize and Bargain Collectively.--The Labor Code 
institutes collective bargaining, which is practiced both nationally 
and on a local level. The legal prohibition against striking for key 
public sector employees weakens their bargaining position; however, 
these groups were able to influence negotiations by staging protests 
and engaging in other pressure activities without going on strike. Both 
CITUB and Podkrepa complained that while the legal structure for 
collective bargaining was adequate, many employers failed to bargain in 
good faith or to adhere to concluded agreements. Labor observers viewed 
the Government's enforcement of labor contracts as inadequate. There 
were several instances in which an employer was found guilty of anti-
union discrimination, but the employers appealed the decisions. The 
backlog of cases in the legal system delayed further action, 
effectively postponing, perhaps indefinitely, redress of workers' 
grievances.

    c. Prohibition of Forced or Compulsory Labor.--The constitution 
prohibits forced or compulsory labor. Many observers have argued that 
the practice of shunting minority and conscientious-objector military 
draftees into work units which often carry out commercial construction 
and maintenance projects is a form of compulsory labor.

    d. Minimum Age for Employment of Children.--The Labor Code sets the 
minimum age for employment of children at 16, and 18 for dangerous 
work. Employers and the Ministry of Labor and Social Welfare are 
responsible for enforcing these provisions. Child labor laws are 
enforced well in the formal sector. However, underage employment has 
increased in the informal and agricultural sectors as collective farms 
are broken up and the private sector continues to grow. In addition, 
children are known to work on family-owned tobacco farms.

    e. Acceptable Conditions of Work.--The national monthly minimum 
wage is approximately $26 (45,500 leva). The Labor Code provides for a 
standard work week of 40 hours, with at least one 24-hour rest period 
per week. The Ministry of Labor and Social Welfare is responsible for 
enforcing both the minimum wage and the standard work week. Enforcement 
has been generally effective in the state sector (although there are 
reports that state-run enterprises fall into arrears on salary payments 
to their employees if the firms incur losses), but weaker in the 
emerging private sector. Bulgaria has a national labor safety program 
with standards established by the Labor Code. The Constitution states 
that employees are entitled to healthy and nonhazardous working 
conditions. The Ministry of Labor and Social Welfare is responsible for 
enforcing these provisions. Under the Labor Code, employees have the 
right to remove themselves from work situations that present a serious 
or immediate danger to life or health without jeopardizing their 
continued employment. In practice, refusal to work in situations with 
relatively high accident rates or associated chronic health problems 
would result in loss of employment for many workers.

    f. Rights in Sectors with U.S. Investment.--Overall U.S. investment 
is relatively small according to official Bulgarian information. Few 
sectors have an active U.S. presence. Conditions do not significantly 
differ in these sectors from the rest of the economy. The same 
obligation of collective bargaining and adherence to labor standards 
prevails in the export processing zones, and unions may organize 
workers in these areas.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                        0 
Total Manufacturing...........................                        8 
  Food & Kindred Products.....................         \1\              
  Chhemicals & Allied Products................           0              
  Metals, Primary & Fabricated................           0              
  Machinery, except Electrical................         \1\              
  Electric & Electronic Equipment.............           0              
  Transportation Equipment....................           0              
  Other Manufacturing.........................           0              
Wholesale Trade...............................                        0 
Banking.......................................                        0 
Finance/Insurance/Real Estate.................                        0 
Services......................................                        0 
Other Industries..............................                        0 
TOTAL ALL INDUSTRIES..........................                        8 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                             CZECH REPUBLIC

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                 1995    1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\.............................    47.3    54.0      54.6
  Real GDP Growth (pct) \3\...................     4.8     4.1       1.8
  GDP by Sector (pct): \4\                                              
    Agriculture...............................     5.2     5.0       5.0
    Manufacturing.............................    26.6    26.6      26.6
    Services..................................    53.4    54.4      55.4
    Government \5\............................    31.8    31.2      30.9
  Per Capita GDP (US$)........................   4,592   5,314     5,285
  Labor Force (000s)..........................   4,777   5,107     5,000
  Unemployment (pct)..........................     2.9     3.5       5.2
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply Growth (M2) \6\................    19.8     9.2       7.7
  Consumer Price Inflation....................     9.1     8.8       8.7
  Exchange Rate (CKR/US$):                                              
    Official \7\..............................   26.55   27.14     31.76
                                                                        
Balance of Payments and Trade: \7\                                      
  Total Exports FOB \7\.......................    17.1    21.9      16.3
    Exports to U.S. (US$ millions)............     363     468       405
  Total imports CIF \7\.......................    20.9    27.7      19.7
    Imports from U.S. (US$ mlns)..............     363     945       774
  Trade Balance \8\...........................    -3.8    -5.8      -3.4
    Balance with U.S. (US$ mlns)..............       0    -477      -369
  Current Account Deficit/GDP (pct)...........    2.88     8.5         7
  External Public Debt........................    16.5    20.8      22.2
  Debt Service Payments/GDP (pct).............     5.5     6.0       8.9
  Fiscal Deficit/GDP (pct)....................       0       0         0
  Gold and Foreign Exchange Reserves..........    17.0    16.1      14.7
  Aid from U.S. (US$ millions) \8\............    19.9     6.0          
  Aid from All Other Sources \9\..............   140.1     N/A       N/A
------------------------------------------------------------------------
\1\ Unless stated otherwise, 1997 figures are based on the latest       
  estimates of the Czech Statistical Office dated Nov. 3, 1997, and/or  
  on the unofficial estimates from the Czech National Bank.             
\2\ GDP at factor cost.                                                 
\3\ Percentage changes calculated in local currency.                    
\4\ 1997 figures are for the first half year only.                      
\5\ Central government spending as pct of GDP.                          
\6\ Seven-month data for 1997. 5.1 pct growth over the same period in   
  1996.                                                                 
\7\ Nine-month data for 1997 exchange rate and trade. Official Czech    
  Statistical Office estimate of the trade deficit for 1997, based on   
  data available through September 1997, is 138.8 billion CZK ($4.2     
  billion at 33 CZK per $ rate). Czech imports do not include re-exports
  of U.S. goods through other countries.                                
\8\ U.S. assistance phased out by October 1, 1997. To that date, it     
  totalled approximately $145 million.                                  
\9\ Aggregate figure for EC-Phare program in 1990-1996 is 434 million   
  ECU.                                                                  

1. General Policy Framework

    The Czech Republic has largely consolidated its economic transition 
to a western market economy with most enterprises now in private hands. 
While facing problems with external imbalances and industrial 
restructuring, the country enjoys a smoothly functioning democracy with 
a favorable macroeconomic climate, a moderate national debt, a low 
budget deficit, strong foreign currency reserves, relatively low 
inflation and moderate unemployment. Preliminary data suggest GDP 
growth of 1.8 percent for 1997, following growth of 4.1 percent in 
1996. GDP growth in the range of 2.5-3.1 is forecast for 1998.

    Inflation in August 1997 was running at close to 10 percent on an 
annual basis because of increases in regulated prices in mid-1997. 
However, the Czech Statistical Office estimates inflation for the year 
at around 9 percent. Wages grew by 9.7 percent in nominal terms in the 
first nine months of 1997.

    The current government has pursued a balanced budget policy and the 
coalition and opposition parties have agreed in principle on a balanced 
budget for 1998. While the government had to trim expenditures in April 
and May of 1997 in order to minimize the budget deficit for 1997, 
projections for the next year indicate that it can likely achieve a 
balanced budget through continued tight fiscal control.

    At the same time, vital micro economic tasks remain important, such 
as completing the privatization of the steel, utilities, 
telecommunications and financial sectors, restructuring firms to 
maintain competitiveness, and strengthening the regulatory framework. 
The austerity packages announced in April and May also included 
proposals to address these structural problems. However, these 
initiatives, notably privatization of the major banks and enhanced 
capital markets regulation, are only now being implemented.

    Integrating the Czech economy into the West, and specifically into 
the European Union, remains a government priority. The Czech Republic 
continues to take steps to harmonize its legal system and standards and 
regulations with EU countries. The Czech Republic formally applied for 
EU membership in 1996 and is expected to be invited to begin 
negotiations with the EU in early 1998.

    Currently, over 70 percent of output is produced by nominally or 
wholly private firms. Overall unemployment rate for 1997 is predicted 
to be 5.2 percent. Projected levels for 1998 are in the range of 5.5-6 
percent.

    During the first nine months of 1997, the Czech Republic's trade 
deficit reached $3.4 billion, following a trade deficit of $5.8 billion 
for 1996. For the first nine months of 1997, imports increased by 11.6 
percent, while exports grew by 15.6 percent. This is the best result in 
the past two years. The Czech Statistical office estimates the 1997 
trade deficit will be $4.2 billion. Factors explaining the improved 
trade performance include the depreciation of the Czech crown in May, 
austerity measures announced by the Government in April and May as well 
as economic revival in western Europe. Austerity measures should 
continue to dampen current robust consumer demand for imported goods.

    The merchandise trade deficit is partially offset by surpluses in 
services, mainly tourism ($4 billion in 1996 and $1.7 in 1997 first 
half), and transportation. The Czech Republic's current account deficit 
remained high in the first half of 1997 at $2 billion and the Czech 
Statistical Office's latest estimate for the 1997 current account 
deficit is $3.1 billion, compared to $4.3 in 1996. Foreign capital 
inflows reached over $8 billion in 1995 and $4 billion in 1996 but 
slowed down to $540 million in the first half of 1997. Experts forecast 
a capital account surplus of $3-3.5 billion in 1997, compared to $4.3 
billion in 1996.
2. Exchange Rate Policy

    The Czech crown is fully convertible for most business purposes. 
The Foreign Exchange Act, providing for full current account 
convertibility, was enacted by the parliament in October 1995. The law 
made the Czech crown convertible for all trade transactions and many 
investment transactions. For example, Czechs are free to make direct 
investments and purchase real estate abroad. Under the law, the Central 
Bank and the Finance Ministry can take further steps toward capital 
account convertibility by removing controls on outflows of capital 
without additional legislation.

    In May, speculative pressure on the currency forced the central 
bank to float the Czech crown (which had previously moved in an 
exchange rate band of plus/minus 7.5 percent). As a result, the crown 
depreciated by 10-15 percent.
3. Structural Policies

    The Czech government sees full membership in the European Union 
(EU) as its highest priority. An EU association agreement came into 
effect in February 1995. The Czech Republic is to begin negotiations on 
joining the EU in early 1998 but membership is not expected before 
2000. The Czech Republic became the first post-communist member of the 
Organization of Economic Cooperation and Development (OECD) in December 
1995. As part of its accession to the OECD, the Czech government agreed 
to meet, with a small number of exceptions, OECD standards for equal 
treatment of foreign and domestic investors and restrictions on special 
investment incentives. The United States succeeded in using the 
membership process to encourage the Czech Republic to make several 
improvements to the business climate for U.S. firms.

    The Czech government continues its program of income tax 
reductions. For 1998, the corporate profit tax will go down from 39% to 
35%. The 1998 personal income tax changes are limited to adjusting tax 
brackets for inflation. As of 1997, expatriates no longer benefited 
from special tax relief equal to 25% of Czech taxable income.

    In 1995, the government started to provide for tax write-offs of 
bad debts, although with considerably less generous treatment of pre-
1995 debts, which had been a priority goal of U.S. business. Companies 
unable to collect debts due after Jan 1, 1995 will be able to write 
them off over three years. Companies will also be able to write off up 
to 10 percent per year of bad debts dating before Dec. 31, 1994. Both 
provisions allow a firm to write off the first year's share of a bad 
debt without filing suit against the debtor. However, in order to 
obtain the following years' write-offs, the creditor firm must prove 
that it tried to collect the due amount for 12 months without success.

    U.S. firms have complained that Czech tax legislation effectively 
penalizes use of holding company structures by leveling both corporate 
tax and dividend withholding tax on profit flows between group 
companies, thus creating double taxation on such profits. The tax 
changes for 1998 reduces but do not eliminate this burden. Czech law 
also does not permit intra-group use of losses (i.e., offsetting losses 
in one group entity against profits in another) and imposed corporate 
tax on dividends received from foreign holdings without allowing use of 
a foreign tax credit for the underlying tax suffered in the 
subsidiary's home jurisdiction.
4. Debt Management Policies

    The Czech Republic maintains a moderate foreign debt and has 
received investment grade ratings from the major international credit 
agencies. As of mid-1997, the gross foreign debt was approximately 
$21.2 billion. The Czech Republic repaid its entire debt with the IMF 
ahead of schedule.
5. Significant Barriers to U.S. Exports

    The Czech Republic is committed to a free market and maintains a 
generally open economy with few barriers to trade and investment. The 
Government has adopted a WTO tariff code with a trade-weighted average 
tariff of 5-6 percent. This is being reduced to close to 4 percent in 
accordance with Czech commitments in the Uruguay Round. Most EU exports 
enjoy lower tariffs under the Czech Republic's EU association 
agreement, moving to zero tariffs by 2000. In April 1997, the Czech 
Republic imposed an import deposit scheme for most products which 
required importers to deposit 20% of the value of the goods in an non-
interest bearing account for six months. This scheme was abolished, 
however, as of August 21.

    Trade in agricultural/food products is generally free of major 
trade barriers although technical barriers continue to hamper imports 
of certain products. In anticipation of EU membership, the Czech 
Republic is rewriting much of its legislation related to standards and 
trade in agricultural/food products. During this transition phase, it 
is not always clear which rules apply, a situation which has led to 
some delays in getting products approved for import. The harmonization 
of standards with the EU will ease the paperwork burden for those 
exporters already exporting to the EU. However, the alignment of the 
Czech food legislation with the EU also means that certain products 
currently prohibited in the EU are also prohibited in the Czech 
Republic.

    Other complaints expressed by American firms in the Czech Republic 
include: the continuing imposition of high taxes; instances of a lack 
of a transparent bidding process; general slowness of decision-making 
in the government; excessive red tape; and the maintenance of higher 
tariffs against non-European goods while gradually lowering those for 
European Union countries as specified in the EU association agreement. 
In addition, those firms which deal with privatization authorities have 
complained of long delays involved in the privatization process.

    The Czech government is required by law to hold tenders for major 
procurement. After two amendments, a 10 percent price advantage for 
domestic firms still remains. The Czech Republic is not a member of the 
WTO Government Procurement Agreement.

    Still, American business people often cite a convoluted--or in some 
cases corrupt--bureaucratic system at both national and local levels 
which can act as an impediment to market access. Often considerable 
time is spent by a potential investor to finalize a deal, or enforce 
the terms of a contract, and the U.S. Embassy is frequently asked to 
intercede on an investor's behalf. European companies have sought to 
use the Czech Republic's interest in EU membership to gain advantage in 
commercial competition.

    By law, the government does not differentiate between foreign and 
domestic investors, or between foreign investors from different 
countries. The Czech Republic committed not to discriminate against 
foreign investors in privatization sales, outside of a few excepted 
sectors, in joining the OECD. In some cases, the Czech government has 
had to overcome political resistance to foreign investment in certain 
sensitive sectors. This opposition has come from economic nationalists 
as well as managers with an interest in the status quo. Examples 
include the petrochemical, telecommunications and brewery sectors. The 
ban on foreign ownership of real estate remains another important 
exception, although foreign-owned Czech firms may purchase real estate 
freely.

    American investors interested in starting joint ventures with or 
acquiring Czech firms have experienced problems with unclear ownership 
and lack of information on company finances. Investors have complained 
about the difficulty of protecting their rights through legal means 
such as a secured interest. In particular, investors have been 
frustrated by the lack of effective recourse to the court system. The 
slow pace of the courts are often compounded by judges' limited 
understanding of complex commercial cases. Also, in 1995, the Czech 
Republic imposed a Czech language requirement for trade licenses needed 
for most forms of business. This requirement can be fulfilled by a 
Czech partner, but this can be burdensome and involve additional risks.

    The opaque nature of the stock market puts U.S. investors and 
financial services providers at a competitive disadvantage. While stock 
market reforms were enacted in 1996 to help protect small shareholders 
and increase transparency of transactions, the Finance Ministry 
enforcement of them has been uneven. As part of its April austerity 
package, the Government proposed stricter rules and an independent 
``Securities Commission'' to enforce them. Parliament recently approved 
a bill to create such a body and it may start operations in 1998.
6. Export Subsidies Policy

    In mid-1995, the Czech Export Bank started to provide export 
guarantees and credits to Czech exporters. The bank has a policy of 
following the OECD consensus on export credits. Additionally, the 
government maintains a fund through which it purchases domestic 
agricultural surpluses for resale on international markets. For some 
commodities, pricing is established at a level which includes a subsidy 
to local producers.
7. Protection of U.S. Intellectual Property

    The Czech Republic is bound to the Berne and Universal copyright 
conventions and the Paris Convention on industrial property. The 
government is working to ensure that Czech laws for the protection of 
intellectual property meet or exceed those of western Europe. Existing 
legislation guarantees protection of all forms of property rights, 
including patents, copyrights, trademarks, and semiconductor chip 
layout design. While the Czech authorities have made some strides in 
enforcement, problems with delays in indictments and prosecutions 
remain. The U.S. government, working with U.S. industry, pressed the 
Czech government to take specific steps to improve enforcement of IPR 
norms. Steps taken include creation of an inter ministerial committee 
on IPR enforcement and increased priority for police action against IPR 
crimes.

    The Czech government addressed certain key shortfalls in IPR laws 
of concern to the United States in amendments to the trademark law and 
the copyright law adopted by Parliament in June 1995 and April 1996. 
The trademark law change brings Czech law into compliance with relevant 
EU directives and the WTO TRIPs agreement. The change simplifies 
administrative steps concerning registration and sale of trademarks. It 
strictly defines trademark fraud and bans unauthorized registration and 
use in the Czech Republic of generally well-known trademarks not yet 
registered in this country. In addition, prior to registration of a 
trademark, the application will be made public to allow for protests by 
legitimate trademark owners in the case of a fraudulent application.

    The amendment to the copyright law is also designed to bring Czech 
law into full compliance with the WTO TRIPs agreement and EU standards. 
The amendment incorporates the EU software directive into Czech law, 
providing computer programs with the same protection as literary 
creations and narrowing the personal use provision. Extensive 
cooperation between the U.S. government and industry resulted in 
satisfactory language on the key issue of ownership of software. The 
amendment as enacted extends coverage to software created by an 
independent contractor as well as by an employee. Under previous Czech 
law, no author could transfer his rights to the software; an author was 
only allowed to license the software to an employer.
8. Worker Rights

    a. The Right of Association.--The law provides workers the right to 
form and join unions of their own choosing without prior authorization, 
and the government respects this right. The work force was 45 to 50 
percent unionized in 1996. Workers have the right to strike, except for 
those whose role in public order or public safety is deemed crucial. 
The law requires that labor disputes be subject first to mediation and 
that strikes take place only after mediation efforts fail. Unions are 
free to form or join federations and confederations and affiliate with 
and participate in international bodies. This freedom is fully 
exercised.

    b. The Right to Organize and Bargain Collectively.--Czech law 
provides for collective bargaining, which is generally carried out by 
unions and employees on a company basis. Wage regulation was abolished 
in 1995.

    c. Prohibition of Forced or Compulsory Labor.--The law prohibits 
forced or compulsory labor, and it is not practiced.

    d. Minimum Age for Employment for Children.--The Labor Code 
stipulates a minimum working age of 15 years, although children who 
have completed courses at special schools (schools for the severely 
disabled) may work at age 14.

    e. Acceptable Conditions of Work.--The government sets minimum wage 
standards. The current minimum wage is 2,500 crowns (about $95) per 
month. The minimum wage provides a sparse standard of living for an 
individual worker although, when combined with allowances available to 
families with children, provides an adequate standard of living for a 
worker and a family. The law mandates a standard work week of 42+ 
hours. It also requires paid rest of at least 30 minutes during the 
standard 8 to 8+ hour workday, as well as annual leave of 3 to 4 weeks. 
Overtime ordered by the employer may not exceed 150 hours per year or 8 
hours per week as a standard practice. Industrial accident rates are 
not unusually high. Workers have the right to refuse work endangering 
their life or health without risk of loss of employment.

    f. Rights in Sectors with U.S. Investment.--All of the above 
observations on worker rights apply to firms with foreign investment. 
Rights in these sectors do not differ from those in other sectors of 
the economy. Conditions in sectors with U.S. investment do not differ 
from those in other sectors of the economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                      180 
  Food & Kindred Products.....................         -23              
  Chemicals & Allied Products.................         113              
  Metals, Primary & Fabricated................           0              
  Machinery, except Electrical................         \1\              
  Electric & Electronic Equipment.............         \1\              
  Transportation Equipment....................           9              
  Other Manufacturing.........................          54              
Wholesale Trade...............................                       17 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                        2 
Services......................................                       -3 
Other Industries..............................                      \1\ 
TOTAL ALL INDUSTRIES..........................                      380 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                DENMARK

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                             1995      1996     1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\........................   148,143   148,998    136,200
  Real GDP Growth (pct.) \3\.............       2.8       2.5        3.0
  GDP by Sector:                                                        
    Agriculture..........................     6,196     6,166      5,600
    Manufacturing........................    29,786    29,206     27,200
    Services.............................    71,250    71,054     65,300
    Government...........................    32,821    33,402     30,000
  Per Capita GDP ($).....................    28,307    28,310     25,586
  Labor Force (000s).....................     2,809     2,793      2,825
  Unemployment Rate (pct.)...............      10.3       8.8        8.0
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
  Money Supply Growth (pct.).............       4.1       7.2        7.0
  Consumer Price Inflation (Pct.)........       2.1       2.1        2.2
  Exchange Rate: (DKK/$ annual average)                                 
    Official.............................      5.60      5.79       6.60
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB \4\..................    50,616    51,111     47,000
    Exports to U.S.\4\...................     2,002     2,067      2,000
  Total Imports CIF \4\..................    45,583    45,113     43,000
    Imports from U.S.\4\.................     1,998     2,166      2,200
  Trade Balance \4\......................     5,033     5,998      4,000
    Balance with U.S.\4\.................         4       -99       -200
  External Public Debt...................    47,500    45,078     38,600
  Fiscal Deficit/GDP (pct.)..............       1.9       1.4       -0.5
  Current Account Surplus/GDP (pct.).....       1.1       1.6        0.5
  Debt Service Payments/GDP (pct.).......       2.8       2.6        2.3
  Gold and Forex Reserves................    11,358    14,718     17,900
  Aid From U.S...........................       N/A       N/A        N/A
  Aid From Other Sources.................       N/A       N/A        N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available data as of October
  27, 1997.                                                             
\2\ GDP at factor cost.                                                 
\3\ Percentage changes calculated in local currency.                    
\4\ Merchandise trade (excluding EU Agricultural Export Subsidies).     

1. General Policy Framework

    Denmark is a small, highly industrialized ``value-added'' country 
with a long tradition of extensive foreign trade, free capital 
movement, and political stability. It is also endowed with an efficient 
and well-educated labor force and a modern infrastructure effectively 
linking Denmark with the rest of Europe. Denmark's natural resources 
are concentrated in oil and gas fields in the North Sea which have, 
together with renewable energy, made Denmark a net exporter of energy 
since 1996.

    The Danish economy is strong, with a balance of payments surplus, a 
small public budget surplus, and low inflation. The Danish Government 
has pursued a carefully monitored economic policy including a fiscal 
policy of minimum public expenditure increases and a tight monetary and 
exchange rate policy. However, its extensive foreign trade makes the 
economy vulnerable to foreign ``shocks''.

    Developments during 1997 in some key economic indicators--rising 
private consumption, reduced unemployment, and a declining surplus on 
the balance of payments--are warning signals for the otherwise strong 
economy. The balance of payments surplus has been particularly 
important in sustaining foreign confidence in the Danish economy. 
During 1997, the Government reacted promptly by introducing measures to 
curb private consumption, which included compulsory pension savings in 
order to reduce purchasing power. The 1997 public budget shifted from 
deficit into a small surplus as a result of higher revenues and lower 
expenditures for unemployment and other transfer income costs.

    Denmark welcomes foreign investment. Ambassador Edward E. Elson 
recently founded the Danish-American Business Forum, which promotes 
increased direct investment, exchanges of know-how, and U.S./Danish 
joint ventures. Roughly 75 of the leading Danish and American firms in 
Denmark are members of this elite organization.

    Danish monetary policy puts a high priority on price stability. 
Denmark has pursued a fixed exchange rate policy since the early 
1980's. This policy, and Denmark's full liberalization of capital 
movements in 1988, leaves the Danish Central Bank limited room to adopt 
independent interest rate and liquidity policies. Danish monetary 
policy is linked closely to that of Germany.

    Denmark has opted out of the European Monetary Union's (EMU) third 
phase (establishment of a single EU currency and relinquishment of 
jurisdiction over monetary policy), although the country's economic 
performance exceeds the established convergence criteria for 
membership.
2. Exchange Rate Policy

    Denmark is a member of the European Monetary System (EMS) and its 
Exchange Rate Mechanism (ERM). For more than a decade, the Government 
has successfully resisted solving Denmark's economic problems through 
exchange rate adjustments. In September 1997, the trade-weighted value 
of the krone was 3.7 percent lower than in September 1996, due mostly 
to the krone's depreciation against the pound, the dollar and the yen. 
Over the last year, the krone has fallen almost 15 percent against the 
dollar (from DKK 5.80 to DKK 6.81 to $1.00), but so far with limited 
impact on U.S. exports to Denmark.
3. Structural Policies

    Danish price policies are based on market forces. Entities with the 
ability to fix prices because of their market dominance are regulated 
by a Competition Agency. Denmark during 1997 changed its competition 
legislation from the former ``control'' principle to the 
internationally recognized ``prohibition'' principle.

    The highest marginal individual income tax rate is over 60 percent, 
and applies to all taxpayers with earnings in the ``middle income'' 
level or higher (in 1996, approximately $37,000). Foreign executives 
working in Denmark may benefit from more lenient income taxation (a 
flat 33 percent tax on gross income in 1997). Danish employers are 
almost alone in the EU in paying virtually no nonwage compensation. 
Most sick leave and unemployment insurance costs are paid by the 
Government. Employees pay their contribution to unemployment insurance 
out of their wages, while two-thirds of unemployment benefits are paid 
from general revenues.

    The Danish Value Added Tax (VAT), of 25 percent is the highest in 
the EU. As VAT revenues constitute more than one-quarter of total 
central government revenues, a reduction would have severe budgetary 
consequences. The Government therefore has no plans to reduce the VAT, 
and hopes that EU VAT rate harmonization will raise VAT rates of other 
EU countries. Environmental taxes are increasingly being imposed on 
industry (with some roll-back for antipollution efforts) and on 
consumers. The corporate tax rate is 34 percent and favorable 
depreciation rules and other deductions exist.
4. Debt Management Policies

    Denmark has run a balance of payments surplus since 1990. 
Consequently, foreign debt has gradually fallen from over 40 percent of 
GDP in 1990 to 26 percent in 1996. Net interest payments on the debt 
cost Denmark seven percent of its export earnings. Standard and Poor's 
and Moody's Investors Service rate Denmark AA+ and AA1, respectively. 
Denmark's public sector is a net external debtor, while the private 
sector is a net creditor. At the end of 1996, the government sector's 
net foreign debt, including foreign exchange reserves, totalled $40 
billion, almost equal to the value of krone-denominated government 
bonds held abroad.

    During 1996, central government debt denominated in foreign 
currencies fell slightly to $15 billion at the end of the year. Of the 
total debt, 74 percent is denominated in German marks, 7 percent in 
French francs, 6 percent in Swiss francs, and 5 percent in British 
pounds. Dollar-denominated debt comprises only two percent. The debt 
has an average term of 1.9 years.

    Denmark's central government deficits are not monetized, but 
instead financed through sale of government bonds and treasury bills on 
market terms. The monetary policy instruments used by the Central Bank 
to manage liquidity are certificates of deposit, repurchase agreements 
(so-called repos) and current account deposits. The Central Bank issues 
two-week deposit certificates each week to absorb liquidity and re-
purchases both treasury bills and deposit certificates in order to 
supply liquidity to commercial banks.

    For a number of years, the Central Bank has successfully used small 
discount rate adjustments of between 0.25 and 0.5 percent to control 
liquidity. On October 27, 1997, the official discount rate stood at 3.5 
percent. Low inflation (two percent during 1997) vis-a-vis higher 
market interest rates has produced higher real interest rates.
5. Significant Barriers to U.S. Exports

    Denmark imposes few restrictions on import of goods and services or 
on investment. Denmark adheres to all GATT/WTO codes and to all EU 
legislation which impacts on trade and investment. U.S. industrial 
product exporters face no special Danish import restrictions or 
licensing requirements. Agricultural goods must compete with domestic 
production, protected under the EU's Common Agricultural Policy.

    As standards are being harmonized within the EU Single Market, new 
nontariff trade barriers (NTBs) have surfaced in individual EU member 
countries. As Danish firms have found it difficult to win bids on 
government procurement contracts in other EU countries, Denmark has 
taken the lead within the EU to work with the European Commission to 
combat these problems. The Ministry of Business and Industry's National 
Agency for Trade and Industry and Danish Competition Authority assist 
Danish firms facing non-tariff trade barriers.

    Denmark provides national and, in most cases, nondiscriminatory 
treatment to all foreign investment. Ownership restrictions apply only 
in a few sectors: hydrocarbon exploration (which usually requires 
limited government participation, but not on a ``carried-interest'' 
basis); arms production (non-Danes may hold a maximum of 40 percent of 
equity and 20 percent of voting rights); aircraft (foreign citizens or 
airlines may not directly own or exercise control over aircraft 
registered in Denmark); and ships registered in the Danish 
International Ships Register (a Danish legal entity or physical person 
must own a significant share--about 20 percent--and exercise 
significant control over the ship or the ship must be on bareboat 
charter to a Danish firm).

    Danish law provides a reciprocity test for foreign direct 
investment in the financial sector, but that has not been an obstacle 
to U.S. investment. Two U.S. banks--Republic National Bank of New York 
and the State Street Bank Trust Company--have representative offices in 
Denmark. A number of other U.S. financial entities operate in Denmark 
through subsidiaries in other European countries, including Citicorp 
(through its U.K. subsidiary), GE Capital Equipment Finance (through 
Sweden), and Ford Credit Europe (through the U.K.).

    The Government liberalized the Danish telecommunications sector in 
1997. The large U.S. company Ameritech took over a controlling interest 
(42 percent) of the former government-controlled Tele Danmark A/S in 
October 1997. A number of foreign telecom operators, including Swedish 
Telia and French Mobilix, are making inroads into the Danish market, 
which has increased competition. Sonofon, a private cellular mobile 
telephone network (General Systeme Mobile-GSM) with U.S. Bell South 
participation, competes with Tele Danmark's GSM operation.

    Danish government procurement practices meet the requirements of 
the GATT/WTO Public Procurement Code and EU public procurement 
legislation. Denmark has implemented the EU's ``Supplies'' Directive 
93/36/EEC, ``Works'' Directive 93/37/EEC and ``Utilities'' Directive 
93/38/EEC. A 1993 administrative note advised the Danish central and 
local governments of the EU/U.S. agreement on reciprocal access to 
certain public procurement.

    In compliance with EU rules, the Government and its entities apply 
environmental and energy criteria on an equal basis with other--price, 
quality and delivery--terms in procurement of goods and services. This 
may eventually restrict U.S. companies' ability to compete in the 
Danish public procurement market. For example, the EU ``Ecolabel'' and 
EU ``Ecoaudit'' requirements may be difficult for U.S. companies to 
meet. Offsets are used by the Danish Government only in connection with 
military purchases not covered by the GATT/WTO code and EU legislation. 
Denmark has no ``Buy Danish'' laws.

    There is no record of any U.S. firm complaining about Danish 
customs procedures. Denmark has an effective, modern and swift customs 
administration.

    U.S. firms resident in Denmark generally receive national treatment 
regarding access to Danish R&D programs. In some programs, however, 
Denmark requires cooperation with a Danish company. There is no record 
of any complaints by U.S. companies in this area.
6. Export Subsidies Policies

    EU agricultural export restitutions (subsidies) to Denmark totalled 
$536 million (five percent of the value of total Danish agricultural 
exports) in 1996. Government support for agricultural export promotion 
programs is insignificant. Denmark has no direct subsidies for its 
nonagricultural exports except for shipbuilding. Denmark welcomed the 
1994 OECD agreement to phase out shipbuilding subsidies 
internationally.

    The Government does not directly subsidize exports by small and 
medium size companies. Denmark does, however, have programs which 
indirectly assist export promotion and establishment of export networks 
for small and medium sized companies, research and development, and 
regional development aimed at increasing exports. Denmark has one of 
the EU's lowest rates of state aid to industry (less than two percent 
of GDP). Danish subsidization of its shipbuilding industry is within 
the ceiling set in the EU Shipbuilding Directive (nine percent of the 
contract value) and accounts for about one-third of total Danish state 
aid to industry.

    Denmark also has a well-functioning export credit and insurance 
system. In its foreign development assistance, Denmark requires that 50 
percent of all bilateral assistance be used for Danish-produced goods 
and services. These programs apply equally to foreign firms which 
produce in and export from Denmark.
7. Protection of U.S. Intellectual Property

    Denmark is a party to and enforces a large number of international 
conventions and treaties concerning protection of intellectual property 
rights.

    Patents: Denmark is a member of the World Intellectual Property 
Organization, and adheres to the Paris Convention for the Protection of 
Industrial Property, the Patent Cooperation Treaty, the Strasbourg 
Convention and the Budapest Convention. Denmark has ratified the 
European Patent Convention and the EU Patent Convention.

    Trademarks: Denmark is a party to the 1957 Nice Arrangement and to 
this arrangement's 1967 revision. Denmark has implemented the EU 
trademark directive aimed at harmonizing EU member countries' 
legislation, but continues to apply the ``global consumption'' rather 
than ``regional consumption'' principle (see Impact on U.S. Trade 
below). Denmark strongly supports efforts to establish an EU-wide 
trademark system. Denmark has enacted legislation implementing EU 
regulations for the protection of the topography of semiconductor 
products, which also extends protection to legal U.S. persons.

    Copyrights: Denmark is a party to the 1886 Berne Convention and its 
subsequent revisions, the 1952 Universal Copyright Convention and its 
1971 revision, the 1961 International Convention for the Protection of 
Performers, and the 1971 Convention for the Producers of Phonograms. 
There is little piracy in Denmark of CDs or audio or video cassettes. 
However, computer software piracy is more widespread and estimated at 
over $100 million annually.

    Piracy of other intellectual property, including books, appears 
limited. However, U.S. authors are not receiving all royalties from 
Denmark for photocopies of their works used in Danish schools. There is 
no evidence of Danish import or export of pirated products.

    New Technologies: There are no reports of possible infringement of 
new technologies.

    Impact on U.S. Trade with Denmark: Trademark-protected U.S. 
products may be ``parallel imported'' (i.e, imported outside the normal 
contractual channels of distribution) for sale in Denmark, because 
Denmark continues to observe the ``global consumption'' principle. The 
German Supreme Court has ruled against the sale of parallel imported 
products from third countries without the approval of the trademark 
owner (Germany applies the ``regional consumption'' principle). Because 
of this ruling, a Danish company owned by a U.S. citizen has been 
stopped from selling parallel imported U.S.-made jeans to most other EU 
markets. This company alone, which accounts for some ten percent of 
total EU parallel imports of U.S.-produced jeans, claims to have lost 
sales worth some $25 million.

    Denmark is named on the Special 301 Watch List because of its 
failure to meet its TRIPS obligations to provide unannounced searches 
and provisional relief as required by TRIPS Article 50. The issue is 
the subject of bilateral U.S./Danish consultations. The United States 
is also concerned about Denmark's failure to protect, as required by 
article 39.3 of the TRIPS agreement, confidential test data submitted 
to the Danish Environmental Protection Agency for approval of certain 
chemical products.
8. Worker Rights

    a. Right of Association.--Workers in Denmark have the right to 
associate freely, and all (except those in essential services and civil 
servants) have the right to strike. Approximately 80 percent of Danish 
wage earners belong to unions. Trade unions operate free of government 
interference. They are an essential factor in political life and 
represent their members effectively. During 1996, 75,700 workdays were 
lost due to labor conflicts compared with 197,300 in 1995. Greenland 
and the Faroe Islands have the same respect for worker rights, 
including full freedom of association, as Denmark.

    b. Right to Organize and Bargain Collectively.--Workers and 
employers acknowledge each others' right to organize. Collective 
bargaining is widespread. The law prohibits anti union discrimination 
by employers against union members, and there are mechanisms to resolve 
disputes. Salaries, benefits, and working conditions are agreed in 
biennial or triennial (the industry sector) negotiations between the 
various employers' associations and their union counterparts. If 
negotiations fail, a national conciliation board mediates, and its 
proposal is voted on by both management and labor. If the proposal is 
turned down, the Government may force a legislated solution (usually 
based upon the mediator's proposal). In case of a disagreement during 
the life of a contract, the issue may be referred to the Labor Court. 
Decisions of that court are binding. Labor contracts which result from 
collective bargaining are, as a general rule, also used as guidelines 
in the nonunion sector. Labor relations in non EU parts of Denmark--
Greenland and the Faroe Islands--are generally conducted in the same 
manner as in Denmark.

    c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory 
labor is prohibited and does not exist in Denmark.

    d. Minimum Age for Employment of Children.--The minimum age for 
full-time employment is 15 years. A change in the work environment law, 
which implemented EU Council Directive 94/33/EU, entered into force in 
June 1996. This provides for tightening of employment rules for those 
under 18 years of age, setting a minimum of 13 years of age for any 
type of work. The law is enforced by the Danish Working Environment 
Service (DWES), an autonomous arm of the Ministry of Labor. Danish 
export industries do not use child labor.

    e. Acceptable Conditions of Work.--There is no legally mandated 
work week or national minimum wage. The work week set by labor 
contracts is 37 hours. The lowest wage in any national labor agreement 
is $11 per hour. Danish law provides for five weeks of paid vacation 
each year. Danish law also prescribes conditions of work, including 
safety and health; duties of employers, supervisors, and employees; 
work performance; rest periods and days off; medical examinations; and 
maternity leave. The DWES ensures compliance with work place 
legislation. Danish law provides for government-funded parental and 
educational leave programs.

    Similar conditions, except for leave programs, are found in 
Greenland and the Faroe Islands, but in these areas the work week is 40 
hours. Unemployment benefits in Greenland are either contained in labor 
contract agreements or come from the general social security system. A 
general unemployment insurance system in the Faroe Islands was 
established in August 1992. Sick pay and maternity pay, as in Denmark, 
fall under the social security system.

    f. Rights in Sectors with U.S. Investment.--Worker rights in those 
goods-producing sectors in which U.S. capital is invested do not differ 
from the conditions in other sectors.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      349 
Total Manufacturing...........................                      \1\ 
  Food & Kindred Products.....................         273              
  Chemicals & Allied Products.................          37              
  Metals, Primary & Fabricated................         \1\              
  Machinery, except Electrical................         -37              
  Electric & Electronic Equipment.............         -13              
  Transportation Equipment....................         (2)              
  Other Manufacturing.........................          74              
Wholesale Trade...............................                      249 
Banking.......................................                      (d) 
Finance/Insurance/Real Estate.................                      668 
Services......................................                      480 
Other Industries..............................                        8 
TOTAL ALL INDUSTRIES..........................                     2171 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                FINLAND

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                1995     1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP (at factor cost) \9\..........    110.5    108.8  \1\ 101.
                                                                       6
  Real GDP Growth (pct).....................      5.1      3.3   \1\ 4.5
  GDP by Sector: \9\                                                    
    Agriculture, forestry & logging.........      5.0      4.5   \1\ 4.2
    Manufacturing, construction mining &                                
     quarrying..............................     36.5     35.0  \1\ 33.4
    Electricity, gas & water supply.........      3.0      3.0   \1\ 2.5
    Services................................     45.9     46.2  \1\ 42.7
    Government..............................     21.0     20.8  \1\ 18.9
    Other activities........................      2.3      2.3   \1\ 2.1
  Per Capita GDP \9\........................   21,594   21,200  \1\ 19,7
                                                                      66
  Labor Force (000s)........................    2,526    2,532  \1\ 2,54
                                                                       8
  Unemployment Rate (pct) \10\..............     16.9     16.0  \1\ 15.0
                                                                        
Money and Prices:                                                       
  Money Supply Growth (M2) (annual                                      
   percentage growth).......................     5.96     -2.0   \2\ 1.0
  Consumer Price Inflation..................      1.0      0.6   \1\ 1.2
  Exchange Rate                                                         
    (FIM/US$ - annual average)..............     4.36     4.59  \3\ 5.16
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB.........................     40.4     40.5  \4\ 22.7
    Exports to U.S..........................      2.7      4.1   \4\ 1.7
  Total Imports CIF.........................     29.5     30.7  \4\ 17.1
    Imports from U.S........................      2.1      3.0   \4\ 1.2
  Trade Balance.............................     10.9      9.8   \4\ 5.6
    Balance with U.S........................      0.6      1.1   \4\ 0.5
  External Public Debt......................     39.5     38.1  \5\ 35.0
  Fiscal Deficit/GDP (pct) \7\..............      5.0      3.1   \1\ 1.3
  Current Account Surplus/GDP (pct).........      4.1      3.8   \1\ 3.5
  Debt Service Payments/GDP (pct)\6\........      5.4      5.8   \1\ 5.7
  Gold and Foreign Exchange Reserves........     11.2      7.9  \8\ 12.3
  Aid from U.S..............................      N/A      N/A       N/A
  Aid from All Other Sources................      N/A      N/A       N/A
------------------------------------------------------------------------
\1\ Estimate, Ministry of Finance                                       
\2\ August 1996 - August 1997                                           
\3\ January-September 1997, Bank of Finland middle rate                 
\4\ January-July 1997, Board of Customs                                 
\5\ August 1997, Ministry of Finance                                    
\6\ General Government Interest Expenditures                            
\7\ Public Sector's Budget Deficit (EMU)                                
\8\ August 1997, Bank of Finland                                        
\9\ Declines in Nominal and Per Capita GDP (despite positive growth     
  rates) are due to the depreciating value of the Finnish Markka.       
\10\ According to the New Labor Force Study                             

1. General Policy Framework

    At the beginning of the 1990's, the Finnish economy encountered a 
severe recession, after a period of rapid growth in the 1980s. GDP 
growth came to a standstill in 1990 and the following year declined by 
7 percent. Industrial output and exports bottomed out in 1991, and 
total industrial output did not start to grow again until 1993. 
Unemployment began decreasing in 1994 but remains persistently above 
European Union (EU) averages. EU membership, which took place on 
January 1, 1995, has helped spur structural change in several sectors.

    Economic growth accelerated in the latter half of 1996, and overall 
GDP growth for 1997 is expected to be 4.5 percent. Industrial output is 
showing strong growth, bouncing back up towards pre-1990 levels. 
Inflation remained subdued in the first half of 1997 and wage driven 
cost pressures are expected to be modest due to a two-year centralized 
wage settlement which expires on 31 January 1998. The economic recovery 
so far, however, has produced few new jobs. High unemployment, coupled 
with low levels of business investment, has resulted in flat government 
revenues and continued large budget deficits. The deficit is financed 
by foreign and (increasingly) domestic borrowing through the issuance 
of bonds.

    Slow but steady improvements in Finland's macro economic outlook 
should result in a public sector deficit-to-GDP ratio of 1.3 percent in 
1997. According to the Ministry of Finance convergence program, 
Finland's public sector deficit is projected to disappear in 1998, and 
in 2001 there should be a 1.9 per cent budget surplus with a debt/GDP 
ratio of 52 per cent. With pension funds purchasing increasing amounts 
of government bonds, it is expected that total public debt for 1997 
will amount to about 59.1 percent of GDP, just below the EMU criteria 
of 60 percent. A result of the recession of the early 1990s and the 
concomitant increase in public debt has been the fact that interest 
payments on debt are the fastest growing government expenditure. Debt 
servicing accounted for 11.6 percent of government expenditures in 1996 
and is estimated to rise to 14.1 percent of total expenditure in 1997. 
Modest cuts in government social programs and aid to municipalities are 
helping to keep the debt from rising even faster.

    In 1997 Finland's tax ratio (gross wage-earner taxation, including 
compulsory employment pension contributions, relative to GDP) was 48.3 
percent, third highest among OECD countries. This tax ratio is 
estimated to drop slightly in 1998, to 47.6 percent.

    Despite high levels of foreign debt servicing, Finland's balance of 
payments outlook remains good. Finland has maintained a current account 
surplus since 1994. The 1996 current account surplus of $4.8 billion is 
expected to fall to about $4.1 billion in 1997 (3.5 percent of total 
output). The surplus in merchandise trade in 1997 is expected to remain 
approximately at 1996 levels. As a result of current account surpluses, 
net foreign debt as a ratio of GDP is decreasing, and is expected to be 
45.5 percent by the end of 1997, compared to 54.1 percent in 1993.

    Finnish economic policy is determined to a large extent by 
consultation and coordination within the EU. EU membership, for 
example, has resulted in new competition legislation that could help to 
reduce the cartelized nature of many Finnish industries. Legislation 
which took effect at the beginning of 1993 liberalizing foreign 
investment restrictions has helped spur a sharp increase in foreign 
portfolio investment and hence has contributed to the 
internationalization of large Finnish companies. The rise in stock 
market activity is also due to lower domestic interest rates. 
Reflecting an improvement in the country's relative competitiveness 
within the EU, foreign direct investment, particularly from the U.S. 
and Sweden, has increased significantly in recent years. Finland is 
hoping to capitalize on its location and expertise to serve as a 
gateway for foreign investors in the former Soviet Union and the Baltic 
states. This effort has scored some successes as foreign firms 
establish production and warehousing facilities in eastern Finland, 
close to the major Russian markets.

    EU membership and budgetary constraints have brought about some 
reform in Finland's highly protected agricultural sector. Finland is 
slowly transitioning to the EU agricultural regime. The EU agreed to 
pay compensations totaling approximately $585 million through 1999 for 
the decrease in value of stocks and other costs associated with 
Finland's joining the EU. Finland was also granted permission to pay 
national adjustment support for five years until year 1999. However, 
these support mechanisms will not be adequate to prevent major 
structural changes in the agricultural sector. Over the long run, 
structural changes will entail a reduction in the number of farmers and 
consolidation of surviving farms into larger, more efficient units.

    In 1996 producer prices for agriculture fell more in Finland than 
in any other EU country. In 1997 food prices average 11.2 percent lower 
than in 1994 (prior to Finland's EU membership). This fall in prices 
has been caused by the reduction of producer prices to EU levels and by 
intensified competition from EU agricultural imports. So far, most 
Finnish producers have maintained their domestic market shares, but at 
the cost of significantly lower profits. Agricultural output is 
expected to expand by about one percent in 1997 but to decline in 1998.
2. Exchange Rate Policy

    A 1996 amendment to the Currency Act provides the legislative basis 
for Finland's participation in the Exchange Rate Mechanism (ERM) of the 
European Monetary System. Finland joined the ERM in October 1996, at 
the central rate of 1 ECU = 5.80661 FIM (currently 1 ECU = $1.12). As 
from 25 November 1996 the ECU central rate is FIM 5.85424.

    By joining the ERM, Finland hopes to position itself among the 
first countries to join Economic and Monetary Union (EMU), in which 
member countries will share a common currency. As a participant in the 
ERM, Finland also takes part in the mutual intervention arrangements 
coordinated between the various central banks, which contribute to 
essential economic policy goals by stabilizing the exchange rate. 1997 
is an especially important year for Finland because the eligibility in 
satisfying the EMU's convergence criteria will be gauged using 1997 
statistics. The current upswing of the economy all but guarantees that 
Finland is a viable candidate for participating in the third stage of 
the EMU. The first round of EMU participants, which will be selected in 
the Spring of 1998, almost certainly will include Finland.
3. Structural Policies

    Finland replaced its turnover tax with a value added tax (VAT) in 
June 1994. While the change has had little effect on overall revenues, 
several areas not previously taxed or taxed at a lower rate, including 
things such as corporate and consumer services and construction, are 
now subject to the new VAT. The government has kept the basic VAT rate 
at the same level as the old turnover tax (22 percent). Some goods and 
services, including movie tickets, medicines, use of sporting 
facilities, and books, are taxed at a 12 percent rate. Food stuffs are 
taxed at a 17 percent rate. Passenger transportation, accommodation, TV 
licenses, and admission fees to cultural and entertainment events are 
taxed at a 6 percent rate. Other services, including health care, 
education, insurance, newspaper & periodical subscriptions and rentals 
are not subject to VAT. According to the 1998 budget proposal, 
Finland's value added taxes will be harmonized with EU regulations so 
that there are only two VAT rates below the primary rate of 22 percent. 
Food stuffs will still be taxed at a rate of 17 percent rate. It has 
been proposed that the present 12 percent and 6 percent tax rates be 
combined at 8 percent.

    Agricultural and forestry products continue to be subject to 
different forms of non-VAT taxation. A uniform tax rate of 28 percent 
on capital gains took effect in 1996, which includes dividends, rental 
income, insurance, savings, forestry income, and corporate profits. The 
sole exception was bank interest, where the tax rate was increased from 
20 to 25 percent at the beginning of 1994.

    In March 1997, European Union commitments required the 
establishment of a tax border between the autonomously governed, but 
territorially Finnish, Aland Islands (Ahvenanmaa) and the rest of 
Finland. As a result, the trade of goods and services between the rest 
of Finland and Aland is now treated as if it were trade with a non-EU 
area. The trade effect of this treatment is minimal since the Aland 
Islands are part of the EFTA tariff area.

    The structure of taxation has been revised modestly to give greater 
incentives to work and to hire new labor. This had led to income tax 
reductions of FIM 8 billion for 1996 and 1997. Draft budgets for 1998 
include an additional 2 percent income tax reduction worth FIM 750 
million. Even with this reduction, however, the tax/GDP ratio will 
remain at historically high levels. Decisions concerning future levels 
of income taxation will be made in conjunction with the next round of 
centralized wage settlement negotiations, due to begin in the winter of 
1997. Trade unions publicly have affirmed the importance of keeping 
inflation under control (The Bank of Finland's target is 2 percent), as 
well as maintaining the competitiveness of Finnish industry. Given 
these goals, increases in labor costs over the next two years should be 
fairly low.

    To offset reductions in income tax the Finns have raised so-called 
``environmental taxes.'' The 1998 budget proposal includes increased 
taxes on petrol. There are also tax breaks for use of clean fuels. For 
example the draft budget proposes a permanent tax break of 50 percent 
for natural gas. Use of wood or wood-based fuels in the production of 
electricity will be promoted through the refund of electricity taxes 
paid for wood produced electricity.

    The sharp decline in interest rates and liberalization of foreign 
investment has resulted in a strong revival of the Finnish stock market 
and greater corporate use of equity markets. It has also substantially 
increased the percentage of foreign ownership of many of Finland's 
leading companies, and is the preferred vehicle for privatization or 
partial privatization of companies with significant state ownership. 
The previous Center - Conservative government initiated a program aimed 
at privatizing as much of the state-owned companies as the Finnish 
Parliament would permit and the market could absorb. The present 
government agrees that state ownership at its present level is no 
longer necessary in manufacturing and energy production. The basic 
strategy has been to reduce the government's stake through the issuance 
of stock, rather than by selling off companies to individual investors. 
In every case, however, the State has retained a substantial holding in 
majority privatized firms. This minority holding ensures that the State 
will remain the largest shareholder.

    Currently, four of Finland's ten largest companies are majority 
state-owned. The Government of Finland reduced its ownership in two 
state companies in 1996, Valmet (engineering) and Kemira (chemicals). 
The proportion of Valmet owned by the state declined by nearly 40 
percent (to 20.3 percent government owned) and of Kemira by nearly 20 
percent (to 53.8 percent government owned). The Government of Finland 
raised over FIM 3.2 billion from its sale of shares in Valmet and 
Kemira. In April 1997 the Ministry of Trade and Industry was authorized 
to sell shares of state-owned Rautaruukki (steel), after which the 
government's share of Rautaruukki will be no more than 41%. There are 
33 companies in Finland with varying degrees of state ownership.

    As a result of the recession of the early 1990s, industrial 
subsidies have increased by about 80 percent of GDP in real terms. The 
government has begun, however, to reduce subsidies in line with the 
need for greater fiscal discipline and Maastricht Treaty criteria for 
monetary union. General horizontal subsidies form the bulk of aid in 
Finland, including assistance for research and development, 
environmental protection, energy and investment. All companies 
registered in Finland have access to government assistance under 
special development programs. Foreign-owned companies are eligible for 
government incentives on an equal footing with Finnish owned companies. 
Government incentive programs are mainly aimed at investment in areas 
deemed to be in need of development. The support consists of cash 
grants, loans, tax benefits, investments in equity, guarantees and 
employee training.
4. Debt Management Policies

    Since the early 1990's Finland has rapidly accumulated external 
debt in order to finance recession-induced budget deficits. Under the 
government's EMU convergence program, the general government debt is 
projected to drop to 56.3 percent of GDP by 1999. Finnish corporations, 
formerly heavy users of foreign capital, are now reducing foreign 
obligations. However, financing requirements of the central government 
have not diminished significantly. In January 1997, Moody's upgraded 
its rating on Finnish long-term government bonds to their second best 
rating--Aa1. Standard & Poor's rating was upgraded in December 1996 to 
AA, which is the third best. Finnish debt issues continue to sell 
easily in international financial markets.

    Finland is an active participant in the Paris Club, the London Club 
and the Group of 24, providing assistance to East and Central Europe 
and the former Soviet Union. It has been a member of the IMF since 
1948. Finland's development cooperation programs channel assistance via 
international organizations and bilaterally to a number of African, 
Asian, and Latin American countries. In response to budgetary 
constraints and changing priorities, Finland has reduced foreign 
assistance from 0.78 percent of GDP in 1991 to 0.34 percent of GDP in 
1997.
5. Significant Barriers to U.S Exports

    Finland became a member of the EU in 1995, and, as a result, has 
had to adopt the EU's tariff schedules. The agricultural sector remains 
the most heavily protected area of the Finnish economy, with the bulk 
of official subsidies in this sector. The amount of these subsidies is 
determined by the difference between intervention and world prices for 
agricultural products. Since joining the EU, the difference between 
these two prices has decreased for most agricultural items, resulting 
in lower, albeit still significant, subsidy levels. As part of its 
terms of EU accession, Finland temporarily imposes higher tariffs than 
EU levels on the following items: footwear, rubber, plastic, metals, 
raw hides and skins and some electric machinery. This transition period 
ends in 1998.

    In mid-1996 the Finnish government's inter-ministerial licensing 
authority began to oppose within the EU U.S. company applications for 
commercialization of genetically modified organisms (GMOs) such as 
insect resistant corn. The Environmental Ministry appears to favor 
mandatory consumer-oriented labeling of GMOs. Other ministries are more 
supportive of GMO commercialization. In the absence of clear EU 
guidelines, the Government of Finland continues to take a case-by-case 
approach to GMO-related issues.

    The Finnish service sector is undergoing considerable 
liberalization in connection with EU membership. Legislation 
implementing EU insurance directives have gone into effect. Finland has 
exceptions in insurance covering medical and drug malpractice and 
nuclear power supply. Restrictions placed on statutory labor pension 
funds, which are administered by insurance companies, will in effect 
require that companies establish an office in Finland. In most cases 
such restrictions will cover workers' compensation as well. Auto 
insurance companies will not be required to establish a representative 
office, but will have to have a claims representative in Finland.

    1995 was the first year of fully open competition in the 
telecommunications sector in Finland. The Telecommunication Act of 
August 1996 allows both network operators and service operators to use 
competitor telecommunication networks in exchange for reasonable 
compensation. The Telecommunication Act was replaced by the 
Telecommunications Market Act of 1997, which improved the opportunities 
of telecommunication operators to profitably lease each other's 
telecommunications connections.

    The government requires that the Finnish broadcasting company 
devote a ``sufficient'' amount of broadcasting time to domestic 
production, although in practical terms this has not resulted in 
discrimination against foreign produced programs. Finland has adopted 
EU broadcasting directives, which recommend a 51 percent European 
programming target ``where practicable'' for non-news and sports 
programming. Finland does not intend to impose specific quotas and has 
voiced its opposition to such measures in the EU.

    With the end of the Restriction Act in January 1993, Finland 
removed most restrictions on foreign ownership of property in Finland. 
Only minor restrictions remain, such as requirements to obtain 
permission of the local government in order to purchase a vacation home 
in Finland. But even restrictions such as this will be abolished as by 
January 2000, bringing Finland fully in line with EU norms.

    Finland is a signatory to the WTO Government Procurement Agreement 
and has a good record in enforcing its requirements. In excluded 
sectors, particularly defense, counter trade is actively practiced. 
Finland is purchasing fighter aircraft and associated equipment valued 
at $3 billion from U.S. suppliers. One hundred percent offsets are 
required, as a condition of sale, by the year 2005. As of October 1997, 
$2.7 billion (or 80 per cent of the total) worth of offsets have been 
made.

    Finland has in most cases completed the process of harmonizing its 
technical standards to EU norms. It has streamlined customs procedures 
and harmonized its practices with those of the EU.
6. Export Subsidies Policy

    The only significant Finnish direct export subsidies are for 
agricultural products, such as grain, meat, butter, cheese and eggs as 
well as for some processed agricultural products. While Finland has 
advocated worldwide elimination of shipbuilding subsidies through the 
OECD Shipbuilding Agreement, in January 1996 Finland decided to 
temporarily provide subsidies (the 9 percent EU norm) to promote 
shipbuilding exports.
7. Protection of U.S. Intellectual Property

    The Finnish legal system protects property rights, including 
intellectual property, and Finland adheres to numerous international 
agreements and organizations concerning intellectual property. In 1996, 
Finland joined the European Patent Convention (EPC).

    Finland is a member of WIPO, and participates primarily via its 
membership in the EU. The idea of protection of intellectual property 
is well developed. For example, the incidence of software piracy is 
lower than in the U.S., and by some measures (e.g. BSA) is the lowest 
in the world.

    The Finnish Copyright Act, which traditionally also grants 
protection to authors, performing artists, record producers, 
broadcasting organizations and catalog producers, is being amended to 
comply with EU directives. As part of this harmonization, the period of 
copyright protection was extended from 50 years to 70 years. Protection 
for data base producers (currently a part of catalog producer rights) 
will be defined consistent with EU practice. The Finnish Copyright Act 
provides for sanctions ranging from fines to imprisonment for up to two 
years.

    Search and seizure are authorized in the case of criminal piracy, 
as is the forfeiture of financial gains. Computer software has been 
covered by the Copyright Act since 1991.

    Information on copying and copyright infringement is provided by 
several copyright holder interest organizations such as the Copyright 
Information and Anti-Piracy Center. The Business Software Alliance 
(BSA), a worldwide software anti-piracy organization, began operations 
in Finland in January 1994. According to a recent survey, the rate of 
software piracy in Finland (41% in 1996) is one of the lowest in 
Europe.
8. Worker Rights

    a. The Right of Association.--The Finnish Constitution contains 
specific guarantees for the right of workers to form trade unions and 
assemble peacefully. The right to strike is guaranteed by law, with 
some exceptions for provision of essential public sector services. 
These rights are honored in practice; trade unions are among the most 
powerful political forces in Finland. About 80 percent of the work 
force is unionized. These applies to employers as well. Unions are 
free, independent, democratic and associate in three federations as 
well as internationally.

    b. The Right to Organize and Bargain Collectively.--The right to 
organize and bargain collectively is protected both in law and in 
practice. While collective bargaining traditionally has been conducted 
according to national guidelines agreed among employers, the three 
central trade union organizations and the government, in the past two 
years wage negotiations have been more decentralized. Workers are 
legally protected against anti-union discrimination. Complaint 
resolution is governed by collective bargaining agreements as well as 
by labor laws, both of which are adequately enforced.

    c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory 
labor is prohibited by the constitution; this prohibition is honored in 
practice.

    d. Minimum Age For Employment of Children.--Sixteen is the minimum 
age for full-time employment (eight hours per day). Children that are 
fifteen years old may work up to six hours per day under certain 
restricted conditions. In Finland education is compulsory for children 
from 7 to 16 years of age. Child labor laws are effectively enforced. 
There are virtually no complaints of exploitation of children in the 
work force.

    e. Acceptable Conditions of Work.--Finland has no legislated 
minimum wage, but non-union employees are required to receive the 
minimum wage established by collective bargaining for unionized workers 
in each sector. These minimum wages generally afford a decent standard 
of living for workers and their families. The maximum standard legal 
work week is 5 days, not exceeding 40 hours. In practice most contracts 
call for standard work weeks of 37-38 hours. Employees working in 
shifts or during the weekend are entitled to a 24-hour rest period 
during the week. The law is effectively enforced as a minimum, and many 
workers enjoy even stronger benefits through well enforced collective 
bargaining agreements.

    Finland's health and safety laws are among the strictest in the 
world. They are enforced effectively by government inspectors and 
actively monitored by the unions. Workers can refuse to work under 
dangerous conditions without risk of penalty.

    f. Rights in Sectors with U.S. Investment.--There is no difference 
in the application of worker rights between sectors with U.S. 
investment and those without.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                      461 
  Food & Kindred Products.....................           1              
  Chemicals & Allied Products.................         219              
  Metals, Primary & Fabricated................         \1\              
  Machinery, except Electrical................          32              
  Electric & Electronic Equipment.............         \1\              
  Transportation Equipment....................          -1              
  Other Manufacturing.........................          79              
Wholesale Trade...............................                      358 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                        3 
Services......................................                       91 
Other Industries..............................                      \1\ 
TOTAL ALL INDUSTRIES..........................                     1033 
------------------------------------------------------------------------
\1\  Suppressed to avoid disclosing data of individual companies.       
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        

                                 FRANCE

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                1995     1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP...............................    1,535    1,539     1,376
  Real GDP growth...........................      2.1      1.5       2.3
  GDP by sector \2\                             1,985    1,980       N/A
    Ariculture..............................       36       36       N/A
    Manufacturing...........................      408      399       N/A
    Services................................    1,276    1,278       N/A
  Government and non-profit services........      264      268       N/A
  Per capita GDP............................   26,422   26,403    23,482
  Labor force...............................   25,378   25,613    25,630
  Unemployment rate.........................     11.6     12.3      12.5
                                                                        
Money and Prices (annual percentage growth):                            
  Money supply growth (M3) \3\..............      4.3     -3.4      -0.1
  Consumer Price Inflation..................      1.8      2.0       1.3
  Exchange rate (FF/US$-annual average).....      5.0      5.1       5.9
                                                                        
Balance of Payments and Trade:                                          
  Total Exports (FOB) \4\...................      284      215       186
    Exports to US \4\.......................       17       17        17
  Total Imports (CIF) \4\...................      271      198       172
    Imports from US \4\.....................       22       23        22
  Trade Balance (CIF/FOB)...................       13       17        15
    Balance with US \4\.....................       -5       -5        -4
  External public debt......................      N/A      N/A       N/A
  Fiscal Deficit/GDP (percentage)...........      5.0      4.1       3.1
  Current Account \5\.......................       11       21        22
  Surplus/GDP (percentage)..................      0.7      1.3       1.6
  Debt service..............................      N/A      N/A       N/A
  Payments as a percentage of GDP...........      N/A      N/A       N/A
  Gold and Foreign Exchange Reserves \6\....       58       59        56
  Aid from US...............................      N/A      N/A       N/A
  Aid from all other sources................      N/A      N/A       N/A
------------------------------------------------------------------------
\1\ Embassy estimates based on published French governmentdata unless   
  otherwise indicated.                                                  
\2\ GDP excludes value added tax and other taxes.                       
\3\ 1997 figure reflects M3 as of August 1997.                          
\4\ 1997 estimate based on seven months.                                
\5\ 1997 estimate based on seven months                                 
\6\ 1997 figure reflects reserves as of August 1997.                    

1. General Policy Framework

    France is the fourth largest industrial economy in the world, with 
annual Gross Domestic Product about one-fifth that of the United 
States. In terms of international trade, France is the fourth largest 
importer and exporter in the global market, and is a world leader in 
high technology, defense, agricultural products, and services. France 
is the tenth largest trading partner of the United States and the third 
largest in Europe (after the United Kingdom and Germany). Given the 
weak, 1.5% growth of the French economy in 1996, U.S. merchandise 
exports to France increased by only 1.2 percent to $14.4 billion, while 
merchandise imports from France grew 8 percent to $19.2 billion, 
according to U.S. Commerce Department data. This results in a U.S. 
merchandise trade deficit with France of about $5 billion. French trade 
data, which account differently for re-exports and transshipments via 
neighboring European countries, tell a different story: France believes 
that it had a trade deficit of about $5 billion with the U.S. in 1996. 
The different data can lead to different conclusions about trade policy 
approaches on both sides of the Atlantic. Trade in services adds around 
$12 billion more to the total volume of trade between the U.S. and 
France. The U.S. and France are the world's top two exporters in 
several important sectors: defense products, agricultural goods, and 
services.

    Promoting job-creating growth is the overarching economic policy 
objective of the French government. Stronger growth, led by export 
sectors, started to take hold in the second half of 1997, but this 
should not be sufficient to generate a significant reduction in 
France's current 12.5 percent unemployment rate in the near future. 
Expectations are for annual real GDP growth of approximately 2.3 
percent in 1997, followed by growth in the range of 3.0 percent in 
1998. While considerable progress has been made on structural reforms 
over the past decade, further efforts, including continued tax and 
fiscal deficit reduction, privatization, increasing the flexibility of 
labor markets, and financial sector deregulation, will be necessary if 
France is to achieve its full economic potential.

    With exports and imports each accounting for about 30 percent of 
GDP, France's open external sector is a key part of its economy. The 
French government has encouraged the development of new markets for 
French products, particularly in Asia and Latin America and has 
promoted exports by small and medium-sized firms. France has also 
actively sought to attract foreign investment. Restrictions on non-EU 
investors apply only in sensitive sectors, such as telecommunications, 
agriculture, defense, and aviation, and are generally applied on a 
reciprocal basis.
2. Exchange Rate Policies

    France is a member of the European Monetary System and a 
participant in the Exchange Rate Mechanism (ERM). The movement of the 
franc is limited to a narrow band around its ERM central parity. 
Central bank interventions are usually coordinated with those of other 
governments, both within the ERM and as part of broader international 
economic policy coordination efforts among industrialized countries, 
including the United States.

    French monetary, fiscal and exchange rate policy remains committed 
to the objective of implementing Economic and Monetary Union (EMU) as 
of January 1, 1999. The value of the franc depreciated by 12 percent 
against the dollar between January and the end of September 1997.
3. Structural Policies

    Over the past decade, the government has made considerable progress 
reducing its role in the economy through fiscal reform and 
privatization. The general government deficit as a share of GDP has 
fallen from 6 percent in 1994 to an estimated 3.0 to 3.2 percent in 
1997. The government has targeted a government deficit equivalent to 
3.0 percent of GDP for 1998. Deficit reduction by the central 
government and the social security system has been achieved both 
through spending restraint and tax increases. Yet, government receipts 
in France accounted for 50.4 percent of GDP in 1996 according to the 
OECD. This was the highest rate in the G-7 and among the highest in the 
industrialized world.

    The privatization policy of France's new Socialist government (in 
office since June 1997) is more restrained than that of its center-
right predecessor. Officials have said they will support partial sales 
of state interests in publicly owned corporations when it is in the 
public interest or necessary for the international competitiveness of 
the company. Thus, the government has gone ahead in selling 23.2 
percent of its 100 percent stake in France Telecom and said it will 
allow the sale of a minority stake in Air France. It is also planning 
to go ahead with the privatization of the insurance giant GAN and its 
CIC banking group subsidiary. The government has also announced that it 
plans to merge some of the activities of the government owned defense 
electronics firm Thomson CSF with the privately owned Alcatel-Alsthom 
group and aircraft manufacturer Dassault.

    Progress on regulatory reform has varied by sector. Substantial 
progress, for example, has been made in implementing the EU directive 
on telecommunications liberalization; with the end to France Telecom's 
monopoly on basic telephone services on January 1, 1998 and with a new 
independent telecommunications regulatory authority (l'Autorite de 
Regulation des Telecommunications--ART) beginning operation in 1997;. 
There has also been some progress in implementing domestic civil 
aviation deregulation in accordance with EU directives. The government 
has, however, resisted calls for deregulation of the electricity and 
postal sectors. Many observers see banking regulatory reform as a key 
priority area for the French economy in which progress so far has been 
slow. French-U.S. bilateral civil aviation relations have been based on 
``comity and reciprocity'' since the 1992 renunciation of the bilateral 
civil aviation agreement by France. Negotiations for an open-skies 
agreement continue, but progress has been slow.
4. Debt Management Policies

    The budget deficit is financed through the sale of government bonds 
at weekly and monthly auctions. As a member of the G-10 group of 
leading financial nations, France participates actively in the 
International Monetary Fund, the World Bank, and the Paris Club. France 
is a leading donor nation and is actively involved in development 
issues, particularly with its former colonies in North and Sub-Saharan 
Africa. France has also been a leading proponent of debt reduction and 
relief for the highly indebted poor countries.
5. Significant Barriers to U.S. Exports

    In general, France's trade policies are determined by European 
Union agreements and practices. These policies include preferential 
trade agreements with African, Caribbean, and Pacific countries under 
the Lome Convention, and agreements with the Maghreb countries. 
Although in most cases France follows import regulations as prescribed 
by the Common Agricultural Policy and various EU directives, there are 
a number of agricultural products for which France implements 
unilateral restrictions (irrespective of EU policy) that affect U.S. 
exports. For instance, French decrees and regulations currently 
prohibit the import of the following agricultural products: poultry, 
meat and egg products from countries (including the United States) that 
use certain feed compounds; products made with enriched flour; and 
exotic meats (e.g., ostrich, emu and alligator) unless authorized by 
special derogation. Also, current regulations discriminate against 
imports of bovine semen and embryos (from the United States) by 
strictly controlling their marketing in France.

    While the vast majority of bilateral trade occurs without 
controversy, U.S. companies sometimes complain about France's complex 
technical standards and unduly long testing procedures. Such procedures 
must usually be done in France and test requirements and standards 
sometimes appear to exceed reasonable requirements to ensure proper 
performance and safety. Most of the complaints have involved 
electronics, telecommunications equipment and agricultural 
phytosanitary standards.

    Since September 1996, the French government has banned imports of 
U.S. pet food because of technical veterinary policy differences on 
processing. This dispute, which has affected about $20 million in U.S. 
exports, remains under negotiation.

    France's implementation of the EU broadcast directive limits U.S. 
and other non-EU audiovisual exports. France applies quotas mandating 
local content. Nevertheless, U.S. products maintain a high market 
share. U.S. movies, with almost 60% of the French box office, face no 
government restrictions. The French government and industry are closely 
watching the development of new broadcast technologies. Continuation 
and growth of a strong French A/V sector is a government priority.

    The 1992 restructuring of the French legal services system has 
restricted the provision of legal services in France by U.S. and other 
non-EU law firms and lawyers. The elimination of the ``legal 
consultant'' category under which most American lawyers have practiced 
in the past has created substantial problems. New-to-market U.S. 
lawyers must currently pass the regular French bar exam, or an 
alternate short-form exam for non French nationals, in order to 
practice any type of law in France. Both exams require a strong command 
of French and French law. These tests remain, however, subjective and 
can be subject to the whim of a particular ``jury.''

    As noted above, the French government actively courts foreign 
investment and has progressively liberalized its investment approval 
regime since the mid-1980s. With unemployment high, and government 
officials well aware that U.S. companies can now gain access to the 
entire EU market by investing in any EU country, attracting foreign 
investment to France is a priority. Non-EU nationals may be denied 
national treatment in the following sectors: agriculture, financial 
services, accounting, legal services, air transport, maritime 
transport, road transport, publishing, telecommunications, and tourism. 
These restrictions are generally applied on a reciprocal basis. The 
U.S. and European countries are currently working within the World 
Trade Organization and OECD to eliminate many of these restrictions.

    France offers a variety of financial incentives to foreign 
investors and its investment promotion agency, DATAR, provides 
extensive assistance to potential investors both in France and through 
its agencies to the world. By book value, which underestimates its true 
size, the United States is currently the largest investor in France, 
with 20 percent of foreign investment.

    France is a party to all WTO agreements, including the Agreement on 
Government Procurement.
6. Export Subsidy Policy

    France is a party to the OECD guidelines on the arrangement for 
export credits, which includes provisions regarding the concessionality 
of foreign aid. To match U.S. export promotion policies that it regards 
as highly successful, the French government has begun examining ways to 
promote exports more aggressively, particularly to the emerging markets 
in East Asia and Latin America. These efforts include providing 
information and other services to potential exporters, particularly 
small and medium-sized enterprises.

    There are virtually no direct French government subsidies to 
agricultural production. Government support of agricultural production 
comes mainly from the budget of the European Union under the Common 
Agricultural Policy, whose subsidy reform has been blocked by the 
French. The French government also offers indirect assistance to French 
farmers in many forms, such as easy credit terms, start-up funds, and 
retirement funds.
7. Protection of U.S. Intellectual Property

    As a major innovator, France has a strong stake in defending 
intellectual property rights worldwide. Under the French intellectual 
property rights regime, industrial property is protected by patents and 
trademarks, while literary/artistic property and software are protected 
by the French civil law system of ``authors rights'' and ``neighboring 
rights.'' France is a party to the Berne Convention on copyrights, the 
Paris Convention on industrial property, the Universal Copyright 
Convention, the Patent Cooperation Treaty, and the Madrid Convention on 
trademarks. U.S. nationals are entitled to receive the same protection 
of industrial property rights in France as French nationals. In 
addition, U.S. nationals have a ``priority period'' after filing an 
application for a U.S. patent during which to file a corresponding 
application in France.

    The differences between the U.S. and French IPR systems regarding 
the work of performing artists and audiovisual productions can cause 
difficulties for American artists and producers. For example, the levy 
imposed on purchases of blank video tape to compensate rights holders' 
losses due to private copying of audiovisual works, is in part supposed 
to be redistributed to authors and producers. Because of the way 
``producers'' are defined under French law, only part of the funds that 
the United States believes should accrue to American entities have been 
paid to them. American artists whose works are performed on French 
radio and television also have not been paid royalties which French 
collecting societies have received on their behalf. There are lawsuits 
and multilateral negotiations in progress on these issues.
8. Worker Rights

    a. The Right of Association.--The French constitution guarantees 
the right of workers to form unions. Although union membership has 
declined to ten percent of the workforce, the institutional role of 
organized labor in France is far greater than its numerical strength. 
The French government regularly consults labor leaders on economic and 
social issues, and joint works councils play an important role even in 
industries that are only marginally unionized.

    b. The Right to Organize and Bargain Collectively.--The principle 
of free collective bargaining was established after World War II, and 
subsequent amendments to labor laws encourage collective bargaining at 
national, regional, local and plant levels.

    c. Prohibition of Forced or Compulsory Labor.--French law prohibits 
anti union discrimination and forced or compulsory labor.

    d. Minimum Age of Employment of Children.--With a few minor 
exceptions for those enrolled in apprenticeship programs, children 
under the age of 16 may not be employed in France.

    e. Acceptable Conditions of Work.--The minimum wage is currently FF 
37 per hour (about $6.43) and will be raised to FF 39 on January 1, 
1998. The legal work week currently stands at 39 hours, but is 
scheduled to be lowered to 35 hours with implementation beginning in 
2000. In general terms, French labor legislation and practice 
(including occupational safety and health standards) are fully 
comparable to those in other industrialized market economies. France 
has three small export processing zones, where regular French labor law 
and wage scales apply.

    f. Right in Sectors with U.S. Investment.--Labor law and practice 
are uniform throughout all industries, including those sectors and 
industries with significant U.S. investment.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                     1103 
Total Manufacturing...........................                   16,600 
  Food & Kindred Products.....................        2036              
  Chemicals & Allied Products.................        5584              
  Metals, Primary & Fabricated................        1645              
  Machinery, except Electrical................        2845              
  Electric & Electronic Equipment.............         607              
  Transportation Equipment....................        1138              
  Other Manufacturing.........................        2746              
Wholesale Trade...............................                     4141 
Banking.......................................                      739 
Finance/Insurance/Real Estate.................                     7392 
Services......................................                     2939 
Other Industries..............................                     1086 
TOTAL ALL INDUSTRIES..........................                   34,000 
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                GERMANY

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                            1995     1996   1997 \1\ \5\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
                                                                        
Nominal GDP \2\                             2,413    2,355        2,108 
  GDP Growth (pct) \3\..................      1.8      1.4          2.5 
  GDP By Sector (pct GDP):                                              
    Agriculture.........................      1.5      1.5          N/A 
    Manufacturing.......................     35.7     35.1          N/A 
    Services............................     48.9     49.8          N/A 
    Government..........................     13.8     13.6          N/A 
  Per Capita GDP ($)....................   29,572   28,729       25,780 
  Labor Force (000's)...................   34,871   34,460       34,050 
  Unemployment Rate (pct)...............      9.4     10.2         11.4 
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
Money Supply Growth (M2)................     -1.9      4.6          3.0 
Consumer Price Inflation................      1.8      1.5          1.8 
  Exchange Rate                                                         
    (DM/US$-Annual Average).............     1.43     1.50         1.73 
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB \4\.................    522.8    521.6        509.0 
    Exports to U.S.\4\..................     38.1     40.0          N/A 
  Total Imports CIF \4\.................    463.3    456.0        434.0 
    Imports from U.S.\4\................     31.6     32.6          N/A 
  Trade Balance \4\.....................     59.5     65.6         75.0 
    Balance with U.S....................      6.5      7.4          N/A 
  Current Account Deficit/GDP (pct).....      1.0      0.6          0.3 
  External Public Debt..................    393.1    410.8          N/A 
  Fiscal Deficit/GDP (pct)..............     -3.5     -3.5         -3.1 
  Debt Service Payments/GDP (pct).......      3.8      3.7          3.7 
  Gold and Foreign Exchange Reserves....     57.3     57.2         47.0 
  Aid from U.S..........................      N/A      N/A          N/A 
  Aid from all other Sources............      N/A      N/A         N/A  
------------------------------------------------------------------------
\1\ 1997 Figures are all estimates based on available monthly data in   
  October 1997 and consensus forecasts.                                 
\2\ GDP at factor cost.                                                 
\3\ Percentage changes calculated in national currency.                 
\4\ Merchandise trade.                                                  
\5\ Decline in dollar-denominated GDP due to foreign exchange           
  fluctuations.                                                         

1. General Policy Framework

    The German economy is the world's third largest, equivalent to just 
over two trillion dollars (in nominal terms). Real GDP growth, which 
reached 1.4 percent in 1996, is expected to continue to strengthen 
through 1998. Most German public and private forecasters estimate 
growth of around 2.5 percent for 1997 and a slightly higher growth rate 
in 1998. This expansion is largely fueled by higher exports and, to a 
lesser extent, by higher equipment investment. Consumer demand remained 
sluggish in 1997 and the construction sector was a drag on the overall 
economy.

    The leading private economic institutes, in a report issued in late 
October 1997, expect that for the first time since unification, growth 
in western Germany in 1997 will be stronger than that in the east. 
Unemployment remains high and, particularly in eastern Germany, the 
number of jobless is growing. Many experts estimate that German 
unemployment will set post-war records during the first quarter of 
1998, largely due to the continued sharp deterioration in the east. 
Even moderate growth of 2.5 percent a year or more, is unlikely to 
significantly reduce unemployment.

    The German ``social market'' economy is organized on free market 
principles and affords its citizenry a secure social safety net 
characterized by generous unemployment, health, educational and basic 
welfare benefits. In the 1990s, German fiscal policy has also been 
driven by the financial exigencies of the country's reunification. The 
country's generous social welfare system was extended as a whole to 
eastern Germany, and the government further committed itself to trying 
to quickly raise eastern German production potential via public 
investment and generous subsidies to attract private investment. 
However, overall unit labor costs in eastern Germany are still quite 
high as productivity growth has lagged behind wage increases. This has 
resulted in heavy job losses and greatly increased Germany's 
unemployment compensation costs. As a result, western Germany continues 
to transfer substantial sums to eastern Germany (more than DM 140 
billion annually, or almost five percent of German GDP). These 
transfers have accounted for the dramatic ballooning of public sector 
deficits and borrowing since 1990. In addition, high marginal tax rates 
along with generous allowances and loopholes have combined to increase 
incentives to utilize legal and other means of tax avoidance.

    This trend, along with declining employment, has led to a serious 
erosion of income and value added tax revenues. Total tax revenues in 
1997 may actually be lower than the DM 800 billion collected in 1996. 
While revenues have stagnated, unemployment and unification-related 
spending have pushed the expenditure side. In 1997 the government has 
twice resorted to freezes on discretionary expenditure, and is working 
hard to meet the Maastricht fiscal deficit criteria for European 
Monetary Union of three percent of GDP. Although government and other 
estimates indicate the deficit may fall to 2.5 percent in 1998, the 
above-mentioned problems (and perhaps even higher levels of 
unemployment) will make it difficult to further reduce the deficit in 
the short run.

    In the early part of the current decade, relatively high rates of 
inflation (the consumer price index rose an average 4.8 percent in 1992 
and 1993) and money growth, upward pressure on wages, and fiscal 
deficits preoccupied the German central bank (Bundesbank). The 
Bundesbank places overriding importance on price stability and thus 
responded to the rising inflation in 1991/92 by hiking short-term 
interest rates, which peaked in July 1992 at post-war highs. Since 
then, the central bank discount rate has declined by 6.25 percentage 
points, with the most recent cut, to a historic low of 2.5 percent, 
occurring in April 1996. While wage settlements in 1997 have been 
moderate, import price pressure due to a depreciation of the DM pushed 
inflation to above 2.0 percent during 1997 although inflation has since 
moderated somewhat.

    The growth of M3, a carefully watched indicator, has recently 
fallen, staying within the Bundesbank's target range for the fourth 
month in a row. The government's public sector deficits are financed 
primarily through sales of government bonds, the maximum maturity of 
which normally is ten years, although 30 year bonds are occasionally 
sold. The Bundesbank's primary monetary policy tool is short-term 
liquidity provided to the banking system via repurchasing operations, 
at a ``repurchasing'' rate which the Bundesbank largely determines. To 
preempt inflationary pressures the Bundesbank raised this rate by 30 
basis points in October 1997 to 3.30 percent.
2. Exchange Rate Policies

    The Deutsche Mark is a freely convertible currency, and the 
government does not maintain exchange controls. Germany participates in 
the exchange rate mechanism of the European Monetary System and has 
stated its firm intention to be one of the initial members of the 
European Monetary Union. The Bundesbank intervenes in the foreign 
exchange markets infrequently, usually in cooperation with other 
central banks in order to counter disorderly market conditions.
3. Structural Policies

    Since the end of the second World War, German economic policy has 
been based on a ``social-market'' model which is characterized by a 
substantially higher level of direct government participation in the 
production and services sector than in the United States. In addition, 
an extensive regulatory framework, which covers most facets of retail 
trade, service licensing and employment conditions, has worked to limit 
market entry by not only foreign firms but also German entrepreneurs.

    Although the continuation of the ``social market'' model remains 
the goal of all mainstream political parties, changes resulting from 
the integration of the German economy with those of its European Union 
partners, the shock of German unification, pressure from globalization 
on its traditional manufacturing industries, and record high 
unemployment have forced a rethinking of the German post-war economic 
consensus in the so-called ``Standort Deutschland'' debate (Germany as 
a location for business and investment). The government has declared a 
roll back of the State's role in the economy to pre-unification levels 
to be a principal objective of economic policy and is looking at other 
ways to restructure the economy and reduce the overall tax burden.

    Several structural impediments to the continued growth an 
diversification of the German economy have been identified. These can 
be broadly grouped as follows:

    (1) a rigid labor market;
    (2) a regulatory system that discourages new entrants;
    (3) high marginal tax rates and high social charges; and
    (4) inadequate access to risk and venture capital for start-up 
            firms.


    In recognition of the above problems, the German Government has 
been pursuing a program of tax reform, privatization, and deregulation 
since the mid-1980s. The governing coalition's 1997 proposal for major 
reform of income taxation was rejected by the opposition-controlled 
upper house. As a result, top marginal personal income tax rates remain 
at 53 percent of income and the threshold marginal income personal tax 
rate at 26 percent. Business tax rates also remain high. However, due 
to loopholes and generous allowances, effective business and personal 
tax rates are substantially below marginal rates and the tax base has 
eroded. Tax reform is expected to be an important issue in the fall 
1998 elections.

    In recent years, the government has carried out a reorganization of 
the German Federal Railroad and completed transforming the operating 
entities of the German Federal Post into stock companies. In 
conjunction with the liberalization of the telecommunications sector, 
the government-owned Deutsche Telekom was substantially privatized in 
what was one of the largest stock offerings in history. The revenue is 
being put back into Telekom. The German Government has fulfilled its 
commitment to open the telecommunications network monopoly to 
competition as of January 1, 1998, the date when its nes Post and 
Telecommunications Regulatory Authority began operation. The federal 
government also has sold its remaining stake in the national airline, 
Lufthansa.

    Despite the progress in recent years, lack of competition remains a 
problem in many protected sectors, which drives up business costs in 
Germany. Services which continue to be subject to excessive regulation 
and market access restrictions include communications, energy, banking 
and insurance. The government intends to review existing legislation 
which limits price competition between firms, as well as laws which 
reduce competition in the insurance, transport and telecommunication 
sectors. Despite opposition from small shop owners, on November 1, 1996 
legislation was implemented permitting stores to stay open longer on 
week nights and Saturdays, thereby mitigating a long-standing example 
of over regulation in the German economy. While retail revenues remain 
flat, the majority of consumers have lauded the expanded hours. 
Paralleling German Government efforts to deregulate the economy, the 
European Union is expected to continue to pressure its member states to 
reduce barriers to trade in services within the Community. U.S. firms, 
especially those with operations located in several European Union 
member states, should benefit from such market integration efforts over 
the long term.
4. Debt Management Policies

    Germany has recorded persistent current account deficits since 1991 
due to a dramatic drop in the country's traditionally strong trade 
surplus, related in part, to strong eastern German demand. These 
deficits are fairly small, however, in relation to GDP. With demand in 
eastern Germany slowing and exports strengthening, the trade surplus 
has increased steadily, reaching the high pre-unification level of some 
$75 billion in 1997. The strong deterioration of the services balance 
in recent years, caused principally by German tourism expenditures 
abroad, has also contributed to the persistent current account 
deficits. The factor income balance has also worsened in recent years 
due to government interest payments to foreigners holding increasing 
stocks of German debt. Nonetheless, due to large current account 
surpluses from the 1970's until the current decade, Germany remains the 
world's second-largest creditor, with net foreign assets estimated at 
roughly $150 billion by mid-1997.
5. Significant Barriers to U.S. Exports

     Germany is the United States' sixth-largest export market and its 
fifth-largest source of imports. During the first eight months of 1997, 
U.S. exports to Germany totaled $15.5 billion (FOB basis), while U.S. 
imports from Germany reached $25.6 billion (FOB basis). Other than 
E.U.-imposed restrictions, there are few formal barriers to U.S. trade 
and investment in Germany. However, ingrained consumer behavior and the 
intense competition prevailing in German product and services markets 
often makes gaining market share a difficult challenge, especially for 
new-to-market companies. Nevertheless, the Federal Republic of Germany 
is, on the whole, an excellent place for U.S. companies to do business.

    Import licenses: Germany has abolished almost all national import 
quotas. The country enforces, however, import license requirements 
placed on some products by the European Union, such as the tariff quota 
on Latin American bananas imposed by the EU's banana import regime. As 
a result of this discriminatory marketing arrangement, U.S. fruit 
trading companies have lost market share in Germany. Recent rulings by 
the World Trade Organization's dispute resolution panel and the WTO 
Appeals body, (finding the EU banana regime to violate both the General 
Agreement on Trade in Services and the General Agreement on Trade in 
Goods), will require EU members (including Germany) to reform this 
trading regime.

    Service Barriers: Foreign access to Germany's insurance market is 
still limited to some degree. All telecommunications services will be 
fully open to competition beginning in January 1998, when the EU's 
telecommunications market liberalization comes into effect. 
Liberalization is expected to open up opportunities for U.S. 
telecommunications service providers. Germany has no foreign ownership 
restrictions on telecommunications services.

    Standards, Testing, Labeling, and Certification: Germany's 
regulations and bureaucratic procedures are complex and can prove to be 
a hurdle for U.S. exporters unfamiliar with the local environment. 
Overly complex government regulations offer--intentionally or not--
local producers a degree of protection. Health and safety standards, 
for example, when overzealously applied, can unnecessarily complicate 
market access for many U.S. products (e.g., genetically modified 
organisms).

    Government Procurement Practices: German procurement procedures 
generally appear to comply with WTO Procurement Agreement (to which the 
E.U. is a signatory), and the United States-Germany Treaty of 
Friendship, Commerce, and Navigation. Germany has strict domestic anti-
corruption and anti-bribery laws, and is considered one of the least 
corruption countries of the 33 countries which signed the OECD Anti-
bribery Convention in December 1997.

    However, U.S. equipment makers have continued to express 
frustration about market access barriers in German power generation 
market, despite this formal agreement and there have been problems with 
some aspects of Germany's bid challenge system. As a result, in July 
1996, Germany was formally identified under Title VII of the 1988 Trade 
Act for discriminating against U.S. electrical equipment firms. The 
case was put on hold in the fall of 1996, following the German 
cabinet's approval of a proposal to reform German procurement law. A 
draft procurement reform bill which substantially addresses U.S. 
concerns was submitted to the upper Chamber of the parliament 
(Bundesrat) in September 1997, and is expected to be promulgated in the 
spring of 1998.

    Investment Barriers: The German Government and industry actively 
encourage foreign investment in Germany. Foreign companies with 
investment complaints in Germany generally list the same investment 
problems as domestic firms: high tax rates, expensive labor costs, and 
burdensome regulatory requirements.

    Customs Procedures: Administrative procedures at German ports of 
entry do not constitute a problem for U.S. suppliers.
6. Export Subsidies Policy

     Germany does not directly subsidizes exports outside the European 
Union's framework for export subsidies for agricultural goods. 
Governmental or quasi-governmental entities do provide export 
financing, but Germany subscribes to the OECD guidelines that restrict 
the terms and conditions of export finance.
7. Protection of Intellectual Property

    Intellectual property is generally well protected in Germany. 
Germany is a member or the World Intellectual Property Organization; a 
party to the Bern Convention for the Protection of Artistic and 
Literary Works, the Paris Convention for the Protection of Industrial 
Property, the Universal Copyright Convention, the Geneva Phonograms 
Convention, the Patent Cooperation Treaty, the Brussels Satellite 
Convention, and the Treaty of Rome on Neighboring Rights. U.S. citizens 
and firms are entitled to national treatment in Germany, with certain 
exceptions. Despite Germany's implementation of its commitment under 
the intellectual property rights portions (TRIPS) of the Uruguay round, 
some U.S. firms continue to have concerns about the level of software 
piracy in Germany. Germany's 1993 implementation of the EU's Software 
Copyright Directive, as well as an educational campaign by the software 
industry have helped improve Germany's performance in this area.
8. Worker Rights

    a. The Right of Association.--Article IX of the German Constitution 
guarantees full freedom of association. Workers' rights to strike and 
employers' rights to lock-out are also legally protected.

    b. The Right to Organize and Bargain Collectively.--The 
Constitution provides for the right to organize and bargain 
collectively, and this right is widely exercised. Due to a well-
developed system of autonomous contract negotiations, mediation is 
uncommon. Basic wages and working conditions are negotiated at the 
industry level and then are adapted, through local collective 
bargaining, to particular enterprises. Nonetheless, some firms in 
Eastern Germany have refused to join employer associations, or have 
withdrawn from them, and then bargained independently with workers. In 
other cases, associations are turning a ``blind eye'' to firm-level 
negotiations. Likewise, some large firms in the west withdrew at least 
part of their workforce from the jurisdiction of the employers 
association, complaining of rigidities in the centralized negotiating 
system. They have not, however, refused to bargain as individual 
enterprises. The law mandates a system of work councils and worker 
membership on supervisory boards, and thus workers participate in the 
management of the enterprises in which they work. The law thoroughly 
protects workers against anti-union discrimination.

    c. Prohibition of Forced or Compulsory Labor.--The German 
constitution guarantees every German the right to choose his own 
occupation and prohibits forced labor, although some prisoners are 
required to work.

    d. Minimum Age for Employment of Children.--German legislation in 
general bars child labor under age 15. There are exemptions for 
children employed in family farms, delivering newspapers or magazines, 
or involved in theater or sporting events.

    e. Acceptable Conditions of Work.--There is no legislated or 
administratively determined minimum wage. Wages and salaries are set 
either by collective bargaining agreements between industrial unions 
and employer federations, or by individual contracts. Covering about 90 
percent of all wage and salary earners, these agreements set minimum 
pay rates and are legally enforceable. These minimums provide an 
adequate standard of living for workers and their families.

    f. Rights in Sectors with U.S. Investment.--The enforcement of 
German labor and social legislation is strict, and applies to all firms 
and activities, including those in which U.S. capital is invested. 
Employers are required to contribute to the various mandatory social 
insurance programs and belong to and support chambers of industry and 
commerce which organize the dual (school/work) system of vocational 
education.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                   22,741 
    Food & Kindred Products...................        2460              
    Chemicals & Allied Products...............        4815              
    Metals, Primary & Fabricated..............        1476              
    Machinery, except Electrical..............        4163              
    Electric & Electronic Equipment...........        1492              
    Transportation Equipment..................        5501              
    Other Manufacturing.......................        2855              
Wholesale Trade...............................                     2886 
Banking.......................................                     1395 
Finance/Insurance/Real Estate.................                   11,597 
Services......................................                      \1\ 
Other Industries..............................                     2261 
TOTAL ALL INDUSTRIES..........................                   44,259 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                 GREECE

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                             1995      1996     1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\........................   100,595   103,834    103,618
  Real GDP growth (pct) \3\..............       2.0       2.6        3.5
  GDP by Sector:                                                        
    Agriculture..........................     9,820     9,658      8,876
    Manufacturing........................    22,334    24,374     23,465
    Services.............................    71,897    77,898     82,378
  -of which                                                             
    Government...........................    13,174    13,576     13,509
  Per Capita GDP (Dollars)...............    10,910    11,668     11,243
  Labor Force (000s).....................     4,249     4,327      4,381
  Unemployment Rate (pct)................      10.0      10.4       10.1
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
  Money Supply Growth (M3 Dec)...........      10.3        9.        8.5
  Consumer Price Inflation...............       8.8       8.3        5.7
  Exchange Rate (DRS/US$-annual average)                                
    Official.............................     231.7     240.7      275.0
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB \4\A.................     9,990    11,300     12,000
    \4\B.................................     5,783     5,770      6,000
    Exports to U.S.\4\C..................       397       506        N/A
  Total Imports CIF\4\A..................    22,325    27,222     28,000
    \4\B.................................    22,929    24,135     24,500
    Imports from U.S.\4\C................     1,519       825        N/A
  Trade Balance\4\A......................   -12,425   -15,922    -16,000
    \4\B.................................   -17,146   -18,365    -18,500
    Balance with U.S.....................    -1,121      -319        N/A
  External public debt...................    30,589    30,700     31,000
  Fiscal Deficit/GDP (General Government)                               
   (pct)                                        7.6       4.2        2.4
  Current Account                                                       
    Deficit/GDP (pct)....................       2.5       3.7        4.0
  Debt Service (Public Sector) Payments/                                
   GDP (pct).............................       5.2       5.5        6.9
  Gold and Foreign Exchange Reserves.....    15,376    19,177     15,000
  Aid from U.S...........................       N/A       N/A        N/A
  Aid from all Other Sources.............       N/A       N/A        N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in   
  October 1997.                                                         
\2\ GDP at factor cost.                                                 
\3\ Percentage changes calculated in local currency.                    
\4\A Merchandise Trade; National Statistical Service of Greece; Customs 
  Data.                                                                 
\4\B Trade; Bank of Greece data; on a settlement basis. The Bank of     
  Greece data, especially those on exports underestimate true trade     
  figures since exporters are no longer obliged to deposit their export 
  receipts in Greece. The Bank of Greece is preparing a new set of      
  accounts (to be ready in 1997) to be in line with other EU central    
  banks.                                                                
\4\C Merchandise Trade; U.S. Department of Commerce.                    

1. General Policy Framework

    Greece has been a member of the European Union (EU) since 1981. Its 
market economy is segmented into the state sector (estimated at 40 
percent of GDP) and the private sector (60 percent of GDP). It has a 
population of 10.6 million and a work force of about 4 million. Some of 
Greece's economic activity remains unrecorded. (Estimates of how much 
of the economy remains unrecorded vary, due, at least in part, to 
deficient data collection). The moderate level of development of 
Greece's basic infrastructure--road, rail, telecommunications--reflects 
its middle-income status. Per capita GDP is 11,243 dollars, the lowest 
in the EU.

    Services make up the largest and fastest growing sector of the 
Greek economy, accounting for about 71 percent of GDP (including 
government services). Tourism, shipping, trade, banking, 
transportation, communications, and construction are the largest 
service sub-sectors. Greece is an import-dependent country, importing 
more than it exports. In 1996, Greece had a trade deficit of 15.9 
billion dollars based on total trade of 38.5 billion dollars. A 
relatively small industrial base and lack of adequate investment in the 
last 15 years have restricted the export potential of the country. Over 
Valuation of the currency as a result of the anti-inflationary ``hard 
drachma'' policy, coupled with low public sector productivity, 
continues to erode the competitiveness of a large part of the Greek 
economy. Greece exports primarily light manufactured and agricultural 
products, and imports more sophisticated manufactured goods. Tourism 
receipts, emigrant remittances, shipping receipts, and transfers from 
the EU form the core of invisibles earnings. Substantial funds from the 
EU (about 20 billion dollars) are allocated for major infrastructure 
projects (road and rail networks, ports, airports, telecommunications 
etc.) being built over the period 1994-99. However, the Greek 
government has been slow in utilizing these funds. According to the 
Greek government, about 40 percent of the funds allocated under the 
1994-99 Delors II package have been utilized to date.

    The government is in its fourth year of an austerity program 
designed to meet the Maastricht Treaty's convergence criteria for the 
European Monetary Union (EMU) and has announced that this policy 
(convergence) will continue in 1998. The results of the austerity 
program on the economy have been positive. By September 1997, inflation 
has fallen to 4.9 percent, the lowest rate since 1965. Investment and 
consumer confidence remain strong and the growth of GDP in 1997 is 
projected to be around 3.5 percent, up from 2.6 percent in 1996. 
Unemployment, which stood at 10.4 percent in 1996 is projected to drop 
slightly to 10.1 percent in 1997. The chronic government budget deficit 
has also been reduced (4.2 percent for 1997) thanks mainly to higher 
taxes, a crack down on rampant tax evasion and lower interest payments 
on government debt. However, real progress in reducing public 
expenditures has been limited due to fierce opposition to structural 
reforms by labor unions, professional associations, politicians, and 
the media.

    Greece's huge government debt (111.8 percent of GDP or 133.9 
billion U.S. Dollars in 1996) stems to a great extent from government 
acquisition of failing enterprises and a bloated public sector. The 
government employs directly about 15 percent of the total labor force. 
Greece's social security program has also been a major drain on public 
spending. Deficits are financed primarily through issuance of 
government securities.

    Monetary policy is implemented by the Bank of Greece (the central 
bank). The Bank uses the discount and other interest rates in its 
transactions with commercial banks as tools to control the money 
supply. The State continues to retain privileged access to credit via 
the still low-taxed status accorded to government debt obligations 
(which includes the right of Greek residents to purchase government 
debt obligations without having to declare their source of income to 
the tax authorities). Treasury bills and state bonds are issued by the 
Ministry of Finance but they are expected to comply with the monetary 
targets set by the Bank of Greece.
2. Exchange Rate Policy

    Foreign exchange controls have been progressively relaxed since 
1985. Medium and long-term capital movements have been fully 
liberalized. Most restrictions on short-term capital movements were 
lifted in 1994. Remaining restrictions on short-term capital movements 
were lifted on August 1, 1997, although some controls still exist to 
facilitate enforcement of money laundering laws and tax collection. 
Greece's foreign exchange market is now in line with EU rules on free 
movement of capital.

    Despite recent exchange-rate liberalization, Greece retains a 
``crawling-peg'' system for fixing the value of the drachma. Informal 
mechanisms are also available to the Bank of Greece to help determine 
the currency's value. In order to combat the high rate of inflation 
(which, at triple the EU average is well above that of Greece's 
principal trading partners), the Bank of Greece has kept the drachma 
virtually pegged to the ECU. This has had an adverse impact on the 
country's export potential. There has been pressure from domestic 
industry for depreciation of the drachma, but the government has so far 
resisted this out of concern over inflation. The drachma depreciated 
only by one percent against the ECU in 1996. The 1994-99 economic 
convergence program provides for no change of the drachma parity 
against the ECU from 1997 onwards.
3. Structural Policies

    Greece's structural policies are largely dictated by the need to 
comply with the provisions of the EU Single Market and the Maastricht 
Treaty on Economic and Monetary Union. The 1994-99 Convergence Program, 
designed to enable Greece to comply with the Maastricht Treaty 
criteria, set targets that should encourage significant structural 
reforms, including privatizations. Progress in this area, however, has 
been very limited. After privatizing a few small banks and shipyards, 
the government raised capital for the telephone monopoly OTE through an 
April 1996 public flotation of new shares. A subsequent sale of 
existing shares in June 1997 reduced the government holding to 80 
percent of OTE. As part of its 1998 fiscal policy, the government has 
decided to proceed with the sale of minority stakes in several state 
owned organizations (Public Power Corporation, Duty Free Shops, Olympic 
Airways Catering); two small banks; assets (hotels) of the National 
Tourist Organization; and a few remaining industries currently under 
the supervision of the state Industrial Reconstruction Organization 
(IRO). It is unclear whether these ``privatizations'' will change the 
companies' management practices and commercial viability.

    Pricing Policies. The only remaining price controls are on 
pharmaceuticals. The last change in pharmaceutical prices in October 
1997 inhibited imports of some U.S. pharmaceuticals. The Greek 
government can also set maximum prices for fuel and private school 
tuition fees, and has done so several times in the last two years.

    About one quarter of the goods and services included in the 
consumer price index (CPI) are produced by state-controlled companies. 
As a result, the government retains considerable indirect control over 
pricing. While this distorts resource allocations in the domestic 
economy, it does not directly inhibit U.S. imports (with the exception 
of pharmaceuticals).

    Tax policies. Tax legislation passed in January 1997:

    --abolished the majority of income tax exemptions or deductions, 
            including the ability of multinational firms to deduct more 
            than token royalty and home office expenses without seeking 
            a waiver from a special interministerial committee;
    --imposed taxation on all categories of bank deposits which had 
            been exempted from the 15 percent tax withholding;
    --imposed a 7.5 percent tax rate on all government securities 
            issued or renewed as of 1/1/97;
    --increased tax rates on ships under the Greek flag;
    --introduced taxation on real property holdings, including those of 
            non-profit organizations;
    --raised the tax rate on profits of all banks to 40 percent. (This 
            benefited branches of foreign banks which for the previous 
            two years had been taxed at 40 percent while Greek banks 
            were taxed at a 35 percent rate.)


    Higher corporate and personal property taxes are planned for 1998. 
There are plans to index rates at least for lower income brackets to 
compensate for inflation.
4. Debt Management Policies

    Greece's ``General Government Debt'' (Maastricht definition) was 
133.9 billion dollars, or 111.8 percent of GDP (market prices) in 1996 
(end year). Foreign exchange reserves fluctuated in the first half of 
1997 between 16.3 and 20.5 billion dollars or 8 to 10 months of 
imports.

    Servicing of external debt (public sector) in 1997 (interest and 
amortization) is estimated to equal 59.6 percent of exports and 6.9 
percent of GDP. About 65 percent of the external debt is denominated in 
currencies other than the dollar. Foreign debt does not affect Greece's 
ability to import U.S. goods and services.

    Greece has regularly serviced its debts and has generally good 
relations with commercial banks and international financial 
institutions. Greece is not a recipient of World Bank loans or 
International Monetary Fund programs. In 1985, and again in 1991, 
Greece received a balance of payments loan from the EU.
5. Significant Barriers to U.S. Exports

    Greece has both EU-mandated and Greek government-initiated trade 
barriers. Greece maintains specific barriers in services such as law, 
aviation, and motion pictures:

    --Greece maintains nationality restrictions on a number of 
            professional and business services, including legal advice. 
            Restrictions on legal advice do not apply to EU citizens, 
            and U.S. companies can generally circumvent these barriers 
            by employing EU citizens.
    --The Greek flag air carrier, Olympic Airways, has a monopoly in 
            providing ground handling services to other airlines, who 
            must either contract from Olympic or self-handle. As of 
            January 1, 1998, airlines will be able to choose between 
            two ground handling agents, one of which will be Olympic. 
            This is part of an EU-directed liberalization of ground 
            handling.
    --Greece insists on testing U.S. wheat shipments for karnal bunt 
            disease; it will not accept U.S.D.A. certificates stating 
            that wheat comes from areas free from the disease. The 
            testing method used provides a high incidence of false 
            positive results. After one shipment was rejected late in 
            1996, Greek importers have been unwilling to risk importing 
            from the U.S.
    --Greece has not been responsive to applications for introduction 
            of bioengineered (genetically modified) seeds for field 
            tests despite support for such tests by Greek farmers.
    --Greek film production is subsidized by a 12 percent admissions 
            tax on all motion pictures. Moreover, enforcement of Greek 
            laws protecting intellectual property rights for film, 
            software, music, and books is problematic (see below).

      Investment barriers:

    Both local content and export performance are elements which are 
seriously taken into consideration by Greek authorities in evaluating 
applications for tax and investment incentives. However, they are not 
legally mandatory prerequisites for approving investments. New 
investment incentive legislation is under preparation.

    Greece restricts foreign and domestic private investment in public 
utilities. Private power production for sale to the national grid is 
limited to ``nontraditional'' energy sources (e.g. wind and solar).

    U.S. and other non-EU investors receive less advantageous treatment 
than domestic or other EU investors in the banking, mining, maritime, 
and air transport sectors, and in broadcasting. There are also 
restrictions for non-EU investors on land purchases in border regions 
and certain islands (on national security grounds).

    Greek laws and regulations concerning government procurement 
nominally guarantee nondiscriminatory treatment for foreign suppliers. 
Officially, Greece also adheres to EU procurement policy, and Greece 
has adhered to the GATT Government Procurement Code since 1992. 
Nevertheless, many of the following problems still exist: occasional 
sole-sourcing (explained as extensions of previous contracts); loosely 
written specifications which are subject to varying interpretations; 
and allegiance of tender evaluators to technologies offered by 
longtime, traditional suppliers. Firms from other EU member states have 
had a better track record than U.S. firms in winning Greek government 
tenders. It has been noted that U.S. companies submitting joint 
proposals with European companies are more likely to succeed in winning 
a contract. The real impact of Greece's ``buy national'' policy is felt 
in the government's offset policy (mostly for purchases of defense 
items) where local content, joint ventures, and other technology 
transfers are required.

    In December 1996, the Greek Parliament passed legislation (Law 
2446, article 16) which allows public utilities in the energy, water, 
transport, and telecommunications sectors to sign ``term agreements'' 
with local industry for procurement. ``Term agreements'' are contracts 
in which Greek suppliers are given significant preference. The reason 
for the signing of these agreements is to support the national 
manufacturing base. This was made possible as a result of Greece's 
receipt of an extension until January 1, 1998, to implement the EU's 
Utilities Directive 93/38.
6. Export Subsidies Policies

    The Greek Government does not use any form of national subsidies to 
support exports. Some agricultural products (most notably cotton, olive 
oil, tobacco, cereals, canned peaches, and certain other fruits and 
vegetables) receive production subsidies from the EU which enhance 
their export competitiveness.
7. Protection of U.S. Intellectual Property

    Greek laws extend protection of intellectual property rights to 
both foreign and Greek nationals. Greece is a party to the Paris 
Convention for the Protection of Industrial Property, the European 
Patent Organization, the World Intellectual Property Organization, the 
Washington Patent Cooperation Treaty, and the Bern Copyright 
Convention. As a member of the EU, Greece is in the process of 
harmonizing its legislation with EU rules and regulations. The WTO-
TRIPS agreement was incorporated into Greek legislation as of February 
28, 1995 (Law 2290/95).

    Despite Greece's legal framework for and voiced commitment to 
copyright protection, piracy of copyrighted material remains 
widespread. Greece took an important step toward addressing this 
problem by enacting a new copyright law in February 1993 (Law 2121/93), 
which offers a high standard of protection for all copyrighted works. 
Furthermore, Law 2328/95 (voted in the summer of 1995 and effective as 
of August 3, 1995) establishes a new systematic legal framework for the 
radio-television market, whose archaic development following 
termination of the state monopoly in 1989 encouraged piracy of 
copyrighted films and TV shows.

    Inability of rights holders to obtain effective action against TV 
stations pirating copyrighted works resulted in Greece being elevated 
in December 1994 to the USTR's ``Priority Watch List'' under the 
``Special 301'' provision of the 1988 Trade Act. Just prior to an out-
of-cycle review in December 1996, the Greek government presented an 
``Action Plan'' of specific steps it promised to take by April 1997 to 
enforce its 1995 media law to end piracy of copyrighted audio-visual 
products and to protect copyrighted software. The Greek government, 
however, has been slow in implementing the ``Action Plan,'' and the 
level of copyright piracy remained the same. In April 1997, the USTR 
gave Greece until July 1997 to reduce piracy or face a challenge in the 
World Trade Organization for failure to enforce its commitments under 
the TRIPS Agreement. Discussions with Greek officials continue in view 
of recent government steps to license television stations and control 
piracy at the local level.

    Although Greek trademark legislation is fully harmonized with that 
of the EU, another intellectual property protection problem is the lack 
of effective protection of trademarks, particularly in the apparel 
sector.

    Intellectual property appears to be adequately protected in the 
field of patents. Patents are available for all areas of technology. 
Compulsory licensing is not used. Patents and trade secrets are 
protected by law for a period of twenty years. There is a potential 
problem concerning the protection of test data relating to non-patented 
products. Violations of trade secrets and semiconductor chip layout 
design are not problems in Greece.
8. Worker Rights

    The Greek economy is characterized by significant labor-market 
rigidities. Greek labor law prohibits laying off more than two percent 
per month of total personnel employed by a firm. This restricts the 
flexibility of firms and the mobility of Greek labor and contributes to 
unemployment.

    a. The Right of Association.--Approximately 30 percent of Greek 
workers are organized in unions, most of which tend to be highly 
politicized. While unions show support for certain political parties, 
particularly on issues of direct concern to them, they are not 
controlled by political parties or the government in their day-to-day 
operations. The courts have the power to declare strikes illegal, 
although such decisions are seldom enforced. Employers are not 
permitted to lock out workers, or to replace striking workers (public 
sector employees under civil mobilization may be replaced on a 
temporary basis).

    b. The Right to Organize and Bargain Collectively.--The right to 
organize and bargain collectively was guaranteed in legislation passed 
in 1955 and amended in February 1990 to provide for mediation and 
reconciliation services prior to compulsory arbitration. Anti-union 
discrimination is prohibited, and complaints of discrimination against 
union members or organizers may be referred to the Labor Inspectorate 
or to the courts. However, litigation is lengthy and expensive, and 
penalties are seldom severe. There are no restrictions on collective 
bargaining for private workers. Social security benefits are legislated 
by parliament and are not won through bargaining. Although civil 
servants have no formal system of collective bargaining, they negotiate 
their demands with the Ministry for Public Administration.

    c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory 
labor is strictly prohibited by the Greek constitution and is not 
practiced. However, the government may declare ``civil mobilization'' 
of workers in case of danger to national security or to social and 
economic life of the country.

    d. Minimum Age of Employment of Children.--The minimum age for work 
in industry is 15, with higher limits for certain activities.

    e. Acceptable Conditions of Work.--Minimum standards of 
occupational health and safety are provided for by legislation. 
Although the Greek General Confederation of Labor (GSEE) has 
characterized health and safety legislation as satisfactory, it has 
also charged that enforcement of the legislation is inadequate, citing 
statistics indicating a relatively high number of job-related accidents 
in Greece. Inadequate inspection, outdated industrial plants and 
equipment, and poor safety training of employees contribute to the 
accident rate.

    f. Rights in Sectors with U.S. Investment.--Although labor/
management relations and overall working conditions within foreign 
business enterprises may be among the most progressive in Greece, 
worker rights do not vary according to the nationality of the company 
or the sector of the economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                      145 
  Food & Kindred Products.....................         \1\              
  Chemicals & Allied Products.................          78              
  Metals, Primary & Fabricated................           0              
  Machinery, except Electrical................           0              
  Electric & Electronic Equipment.............         \1\              
  Transportation Equipment....................           0              
  Other Manufacturing.........................          33              
Wholesale Trade...............................                       83 
Banking.......................................                       89 
Finance/Insurance/Real Estate.................                       66 
Services......................................                       61 
Other Industries..............................                      \1\ 
TOTAL ALL INDUSTRIES..........................                      506 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                HUNGARY

                       Key Economic Indicators \1\                      
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                 1995    1996     1997  
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP.................................    44.3    43.9  \2\ 43.5
  Real GDP growth (pct).......................     1.5     1.0       3.5
  GDP by Sector:\3\                                                     
    Agriculture...............................     2.8     3.0       3.1
    Manufacturing.............................     8.8     9.2       9.4
    Construction..............................     2.0     2.0       2.0
    Services..................................    24.0    23.6      23.1
    Government................................     7.5     6.9       6.6
  Per Capita GDP (US$)........................   4,273   4,351     4,290
  Labor Force (000s)..........................   6,252   6,215     6,200
  Unemployment Rate (pct).....................    11.1    10.8       8.6
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply Growth.........................    18.4    20.9  \4\ 20.4
  Avg. Consumer Price Inflation...............    28.2    23.6      18.0
  Official Exchange Rate......................   125.7   152.6       188
  (HUF/US$ - annual average)                                            
  Balance of Payments and Trade Total Exports                           
   FOB........................................    12.9    15.7      17.3
    Exports to U.S. (US$ mlns) \5\............     547     653     1,009
  Total Imports CIF...........................    15.5    18.1      19.9
    Imports from U.S. (US$ mlns) \5\..........     295     331       465
  Trade Balance...............................    -2.3    -2.4      -2.6
    Balance with U.S. (US$ mlns) \5\..........     252     322       543
  Current Account Deficit/GDP (pct)...........     5.3     4.0       3.7
  Net External Public Debt....................    11.0     9.5       5.0
  Debt Service Payments/GDP (pct).............    17.3      21     10-11
  Fiscal Deficit/GDP (pct)....................     6.7     3.2   \6\ 4.9
  Gold and Foreign Exchange Reserves..........    12.0     9.8   \7\ 8.2
  Aid from U.S. (US$ mlns)....................    27.2    17.0      15.0
  Aid from All Other Sources..................     N/A     N/A       N/A
------------------------------------------------------------------------
\1\ Source: Ministry of Finance and National Bank, except where         
  otherwise noted. 1997 projected figures based on data available       
  through October 1997                                                  
\2\ Apparent decrease is due to the ongoing Hungarian forint devaluation
  against the U.S. dollar                                               
\3\ GDP by sectors is higher than total GDP due to double counting      
\4\ January-June 1997                                                   
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports 
  FAS, imports customs basis; 1997 figures projected based on trade     
  through August                                                        
\6\ Increase in 1997 due solely to changed methodology for interest     
  payments                                                              
\7\ July 1997                                                           

1. General Policy Framework

    Starting in the late 1960s, Hungary's former communist regime began 
economic reforms along capitalist lines that continued until the end of 
communism in 1989. Some academics estimate that Hungary was one-third 
of the way to capitalism in 1989. The first democratic government 
(1990-94) began significant economic reform, particularly in trade and 
foreign investment, but did not complete social welfare and external 
debt rationalization. An austerity program implemented by the new 
government in 1995 in the face of rising fiscal and current account 
deficits brought economic stabilization. Concurrent and subsequent 
economic restructuring should provide for sustainable growth in the 
medium term. The current government has accelerated the pace of 
economic reform, particularly in privatization. Hungary leads Central 
Europe in relative and absolute inflows of foreign direct investment, 
with at least $16 billion since 1989. In 1997, Hungary continued to 
enjoy solid increases in industrial output, exports, and overall 
output, while continuing to reduce inflation.

    The revised Foreign Exchange Law, effective January 1, 1996, made 
the Hungarian forint essentially convertible for current account 
transactions. The government's stabilization and restructuring package 
introduced in March 1995 has led to lower fiscal and current account 
deficits. The government has also significantly lowered government 
expenditures as a percentage of GDP. A signatory to the Uruguay Round 
Agreement and a founding member of the World Trade Organization, 
Hungary joined the Organization for Economic Cooperation and 
Development (OECD) in May 1996 and, as a part of that process, is 
further liberalizing capital account transactions. Hungary seeks to 
harmonize its laws and regulations with European Union standards by 
1999 and hopes to join the EU as early as 2002.

    A new Law on Privatization, passed in May 1995, improved 
transparency and initiated a simplified process. Privatization has 
progressed dramatically since late 1995, particularly in the energy, 
telecommunication, and banking sectors. Currently about 80 percent of 
the country's GDP is derived from the private sector. The government 
hopes to complete the privatization process by 1998, by which time the 
private sector should account for about 85 percent of GDP.

    Hungary's per capita foreign debt decreased significantly in 1997. 
Foreign direct investment since 1989 exceeds net foreign debt. Hungary 
has an unblemished debt payments record and since late 1996 has been 
rated investment grade by all the major rating agencies. Foreign 
currency reserves stood at $8.2 billion through July 1997, enough for 
seven months of imports. The government finances the fiscal deficit 
primarily through government bonds, issued both domestically and 
abroad. The consolidated budget deficit in 1997 will equal about 4.9 
percent of GDP, down from 8.2 percent in 1994. The 1997 result will 
exceed the 1996 figure due solely to the now on-budget costs of public 
external debt service (which until 1997 were partially in the National 
Bank budget).

    The government continues to adhere to stabilization and 
restructuring efforts. A partial privatization of the pension system in 
July 1997 will broaden and deepen capital markets. Unfinished reform 
efforts include health care and local government financing. Following 
declines of 11 percent in 1995 and 6 percent in 1996, net real wages 
will increase by 3.5 to 4.5 percent in 1997. The government projects a 
$1.5 to 2 billion current account deficit for 1997, down from $2.5 
billion in 1995. Foreign direct investment will exceed the current 
account deficit, preventing an increase in net external debt.

    In accord with government policy to promote foreign direct 
investment, Hungarian law allows the establishment of companies in 
customs-free zones which are exempt from foreign-exchange requirements 
and indirect taxation tied to the turnover of goods. Tax exemptions for 
significant investments are also under consideration.

    The Hungarian National Bank (MNB) carries out monetary policy 
through open market operations focusing on an interest rate policy 
consistent with disinflation and within the constraints of the foreign 
exchange regime. Commercial banks can conclude foreign exchange swap 
transactions with the MNB.
2. Exchange Rate Policy

    As of January 1, 1996, the forint became fully convertible for 
almost all current account transactions within Hungary. Foreigners and 
Hungarians can maintain both hard currency and forint accounts. At the 
end of 1996 the German Mark replaced the 70 percent share of the ECU in 
the currency basket to which the forint is pegged (the dollar remains 
30 percent of the basket). In August 1997 the government reduced the 
monthly rate of devaluation from 1.1 to 1.0 percent. Improved 
macroeconomic performance has helped slow average annual inflation from 
28.3 percent in 1995 to a projected 18 percent for 1997.
3. Structural Policies

    Prices for most consumer product and services are freely set by the 
market. Nonetheless, prices for public transport, utilities such as 
gas, electricity and water, pharmaceuticals, and vehicle fuel continue 
to be partially set by the state. The government offers a wholesale 
floor price for unprocessed agricultural products. Privatized energy 
companies expected a cost-plus-eight percent price structure beginning 
January 1, 1997, as stipulated in the 1995 Law on Privatization. 
Despite quarterly price reviews by an independent regulatory office, 
prices are not quite at the market levels expected by foreign energy 
firms. Foreign investors are nonetheless working with the government to 
boost current and future production.

    Tax changes designed to cut inflation and release extra resources 
to the business sector took effect in 1997. Personal income taxes were 
lowered by an average 1.5 percent and the highest rate was cut from 48 
to 42 percent. Employer social security contributions have dropped from 
42 to 39 percent under changes effective in 1997. The flat company tax 
remains at 18 percent, while the current 23 percent supplementary 
profit tax on distributed net profit will be replaced by a 20 percent 
withholding tax. Investments of at least HUF 1 billion (about $5.2 
million as of October 1997) or that increase exports by more than HUF 
600 million ($3.1 million) receive a 50 percent tax preference for up 
to five years; investments of at least HUF 3 billion in less developed 
regions can receive up to 10 years full tax holiday. In the 1997-98 
budget, employer social insurance contributions will probably decrease 
by 1 to 2 percent, while corporate taxes on turnover will likely 
increase; overall taxation is unlikely to decrease.

    A new Competition Law which came into effect January 1, 1997, 
eliminated a provision that had allowed foreign firms registered 
outside Hungary to execute mergers through their parent companies 
abroad. This law conforms with EU regulations.

    Major legislation has been passed and further legislation is 
expected in the area of structural budget reform, including fiscal 
expenditure, health care, and local government financing. In July 1997 
Parliament approved a new Pension system which mandates private pension 
funds alongside (and eventually partially replacing) the current fully-
funded public system. The next government is likely to reform health 
care and local government financing, in order to further reduce state 
expenditures.
4. Debt Management

    Hungary has one of the highest per capita foreign debts in Europe, 
with gross foreign debt expected to be $25.5 billion at the end of 1997 
versus $26 billion in 1996. Through 1997, net foreign debt is projected 
to be $12.5 billion, down from $14 billion in 1996. Net public debt was 
$5.0 billion at the end of October 1997, slightly over half of the 
level at the end of 1996. The government has consistently met all 
external interest and principal payments on time. The government 
concluded a standby credit agreement with the International Monetary 
Fund in March 1996, and has complied with its provisions while avoiding 
any credit draw down. The agreement will expire in February 1998 and 
not be renewed. Hungary received an investment grade rating on long-
term debt from the two leading U.S. credit rating agencies in late 
1996. Hungary projects to have reserves of $8.2 billion by the end of 
1997.
5. Significant Barriers to U.S. Exports

    On July 1, 1997, as pledged, the government eliminated an import 
surcharge it had imposed as part of the March 1995 austerity package. 
Also as of that date, Hungary joined the Pan European Free Trade Zone 
and Cumulation System. Import duty must be paid on imports from outside 
the Pan-European Zone, which may then be exported duty-free to other 
countries within the Pan European Region. However, duty paid on 
intermediate goods processed and then exported outside the Pan-European 
Region is not refunded.

    Although 95 percent of imports (in value terms) no longer require 
prior government approval, some 20 product groups, mainly cars, 
textiles, and precious metals, are still affected by quotas. Hungary 
imposes a $750 million global quota on imports of consumer goods. Under 
WTO rules, Hungary will phase out quotas on textiles and apparel by 
2004. As a result of the Uruguay Round, quotas on agricultural products 
and processed foods have been replaced by tariffs.

    Importers must file a customs document (VAM 91 form) with a product 
declaration and code number, obtained from the Central Statistical 
Office. Upon importation, the importer must present Commercial Quality 
Control Institute (KERMI) certified documentation to clear customs. 
This permit may be replaced by other national certification and testing 
agency documents, such as those of the National Institute for Drugs. 
Hungary participates in the International Organization for 
Standardization (ISC) and the International Electro-Technical 
Commission (IEC).

    Foreign ownership is allowed in sectors open to private investment. 
Foreign investment is restricted or prohibited in civil aviation, 
defense, the media, and farmland.

    Under the November 1995 law on government procurement, public 
tenders must be invited for purchases of goods with a value over HUF 10 
million ($51,000), construction projects worth HUF 20 million 
($102,000), and designs and services worth over HUF 5 million 
($26,500). Bids containing more than 50 percent Hungarian content 
receive a 10 percent price preference. This procurement process does 
not apply to military purchases, gas, oil, and electricity contracts.
6. Export Subsidy Policies

    There are no direct export subsidies on industrial products, but 
some agricultural product groups receive export subsidies from the 
state. The Export-Import Bank and Export Credit Guarantee Ltd., both 
founded in 1994, provide credit and/or credit insurance for 8 to 10 
percent of total exports. Over the past several years, agricultural 
export subsidies exceeded Hungary's Uruguay Round commitments in the 
range and value of products subsidized; in October 1997, the WTO 
approved an agreement with Hungary to phase out excess subsidies in the 
coming years, in which the Hungarian Government also committed not to 
expand exports of subsidized products to new markets.
7. Protection of U.S. Intellectual Property

    Hungary belongs to the World Intellectual Property Organization, 
the Paris Convention on Industrial Property, the Nice Agreement on 
Classification and Registration of Trademarks, the Madrid Agreement 
Concerning Registration and Classification of Trademarks, the Patent 
Cooperation Treaty, and the Berne and the Universal Copyright 
Conventions.

    In 1993, the United States and Hungary signed a comprehensive 
bilateral intellectual property rights treaty. Law Number VII (1994) on 
the Amendment to Industrial Property and Copyright Legislation, 
effective July 1994, extended patent protection for pharmaceutical/
chemical products and addressed rights of intellectual property by 
providing the legal means to prevent proprietary information from being 
disclosed or acquired by other than ``honest commercial practices.'' A 
Media Law enacted in December 1995 requires firms in the electronic 
media to respect international copyrights and includes enforcement 
provisions against individual offenders as well as corporate violations 
that affect license renewals. Two laws protecting intellectual property 
entered into force in January 1992. Act XXXVIII of 1991 protects 
utility models, and Act XXXIX of 1991 protects the topography (layout 
design) of semiconductor chips.

    However, a complaint by DuPont Merck calls into question the 
effectiveness of Hungary's enforcement structure for IPR protection. 
The inability to resolve this case in more than seven years has sparked 
concerns about what appears to be persistent problems in the Hungarian 
judicial system which make it difficult to prevent patent infringement. 
Hungary was listed on the Other Observations portion of the 1997 
Special 301 review to encourage a speedy resolution to these concerns.
8. Worker Rights

    a. The Right of Association.--The 1992 Labor Code, as amended in 
1997, recognizes the right of unions to organize and bargain 
collectively and permits trade union pluralism. Workers have the right 
to associate freely, choose representatives, publish journals, and 
openly promote members' interests and views. With the exception of 
military personnel and the police, they also have the right to strike.

    b. The Right to Organize and Bargain Collectively.--Labor laws 
permit collective bargaining at the enterprise and industry levels. The 
Interest Reconciliation Council (ET), a forum of representatives from 
employers, employees, and the government, sets minimum and recommended 
wage levels in the public sector. Trade unions and management negotiate 
private wage levels. The Ministry of Labor drafts labor-related 
legislation, and special labor courts enforce labor laws. Affected 
parties may appeal labor court decisions in civil court. The 1992 
legislation prohibits employers from discriminating against unions and 
their organizers.

    c. Prohibition of Forced or Compulsory Labor.--The Labor Ministry 
enforces the legal prohibition of compulsory labor.

    d. Minimum Age for Employment of Children.--The Labor Code forbids 
work by minors under the age of 14, and regulates labor conditions for 
minors age 14 to 16 (e.g., in apprentices programs).

    e. Acceptable Conditions of Work.--The Labor Code specifies 
conditions of employment: termination procedures, severance pay, 
maternity leave, trade union consultation rights in management 
decisions, annual and sick leave entitlement, and conflict resolution 
procedures.

    f. Rights in Sectors with U.S. Investment.--Conditions in specific 
goods-producing sectors in which U.S. capital is invested do not differ 
from those in other sectors of the economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \2\ 
Total Manufacturing...........................                      655 
  Food & Kindred Products.....................          21              
  Chemicals & Allied Products.................          66              
  Metals, Primary & Fabricated................         \1\              
  Machinery, except Electrical................         \2\              
  Electric & Electronic Equipment.............         \1\              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................          52              
Wholesale Trade...............................                       85 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                        5 
Services......................................                      \1\ 
Other Industries..............................                     1081 
TOTAL ALL INDUSTRIES..........................                     1910 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
\2\ Indicates a value between $-500,000 and $500,000.                   
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                IRELAND

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                1995     1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\...........................   54,816   60,397    61,194
  Real GDP Growth (pct) \3\.................     10.4      7.7       8.1
  GDP by Sector:\2\                                                     
    Agriculture.............................    2,845    2,858       N/A
    Industry................................   21,286   23,168       N/A
    Services................................   26,176   29,565       N/A
    Government..............................    2,803    3,090       N/A
  Per Capita GDP (thousands)................   17,224   18,587    18,471
  Labor Force (000's).......................    1,430    1,475     1,514
  Unemployment Rate (pct) \4\...............     12.1     11.9      10.3
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply Growth (M3)..................     14.1     23.1      25.0
  Consumer Price Inflation..................      2.4      1.7       1.6
  Exchange Rate (Ip/usd)                                                
    official................................     0.62     0.62      0.67
                                                                        
Balance of Payments and Trade:                                          
  Total Exports (FOB) \5\...................     44.4     48.5      51.3
    Exports to U.S..........................      3.6      4.5       N/A
  Total Imports (CIF) \5\...................     32.5     35.0      37.2
    Imports from U.S........................      5.8      5.5       N/A
  Trade Balance.............................     12.0     13.5      14.1
    Balance with U.S........................     -2.2     -1.0       N/A
  External Public Debt \6\..................   17,465   13,949       N/A
  Fiscal Deficit/GDP (pct) \7\..............     -2.1     -0.9       0.6
  Current Account Balance/GDP (pct).........      2.8      2.0       1.6
  Debt Service Payments/GDP (pct)...........      6.2      5.9       N/A
  Gold And Foreign Exchange Reserves \6\....    8,757    7,936     9,500
  Aid from U.S.\8\..........................        5        5         5
  Aid from other sources \9\................    1,189    1,142     1,256
------------------------------------------------------------------------
\1\ US Embassy forecasts                                                
\2\ GDP at factor cost                                                  
\3\ GDP at constant market prices (local currency).                     
\4\ ILO definition (measured in april of each year)                     
\5\ Merchandise Trade                                                   
\6\ End Year                                                            
\7\ General Government.                                                 
\8\ Each year the United States contributed $19.6 million to the        
  International Fund to Ireland (IFI). A quarter of this amount is      
  estimated to be spent in the Republic of Ireland's border             
  constituencies.                                                       
\9\ These figures include transfers from the EU's European Social Fund, 
  Regional Development Fund, Cohesion Fund and Special Programme for    
  Northern Ireland and the border constituencies, as well as the        
  contributions from countries other than the United States to the IFI. 
                                                                        
Sources: Central Bank of Ireland (cbi); Central Statistics Office (CSO);
  Irish Trade Board (ITB); National Treasury Management Agency (NTMA).  

1. General Policy Framework

    Ireland is a small open economy on the periphery of Europe, with a 
population of 3.62 million. Despite its peripheral geographic location, 
Ireland has one of the greatest exposures to international trade of any 
country in the world, with total imports and exports equivalent to just 
under 147 percent of GDP in 1996. Increasing openness to trade has been 
accompanied by fast economic growth; In 1997 Ireland is expected to be 
the fastest growing OECD economy for the fourth consecutive year (total 
Irish output has increased by just over 50 percent in real terms since 
1990.) despite strong economic growth, inflation has been kept under 
tight control and the balance of payments has remained in surplus. 
Increased consumer confidence has resulted from rising disposable 
incomes, low interest rates, fast employment and strong growth in 
property prices. In recent years economic growth has been broadly 
based, with strong contributions from both domestic and foreign demand.

    Fiscal policy: After the runaway deficits of the mid 1980s, the 
Irish Government has maintained a relatively tight fiscal policy, 
keeping the general government deficit below 2.5 percent of GDP since 
1989. This is consistent with the provisions of the 1992 Maastricht 
Treaty, which require countries hoping to enter EMU in 1999 to, amongst 
other things, keep their fiscal deficits below three percent of GDP. 
furthermore, Ireland's debt/GDP ratio has fallen from over 125 percent 
in 1987 to just under 73 percent in 1996, and is expected to fall 
further to 67 percent by the end of 1997. In nominal terms, the debt 
amounted to just over $51 billion (using average 1996 exchange rates). 
Of this, 29 percent was denominated in a foreign currency, down from 41 
percent at end 1993. Most new government borrowing is made through the 
sale of Irish pound-denominated securities, although a large proportion 
of these are purchased by non-residents.

    Personal income and consumption taxes form the bulk of total 
government tax revenue. There are two personal tax rates; the standard 
26 percent rate and the higher 48 per cent rate. The higher rate kicks 
in at slightly below the median industrial wage (about $23,000). 
Emboldened by fast tax revenue growth, and as part of the current 
national wage agreement, the current administration has promised to 
make substantial cuts in the personal income tax rates over the next 
five years. The rate of value added tax (consumption tax), at 21 
percent is also high, but is the subject of some control at EU level. 
Corporate taxation makes a relatively modest contribution to the public 
finances. This is largely as a result of the special 10 percent rate 
available to companies producing internationally-traded manufactured 
goods and services, and to companies operating in certain industrial 
zones. The standard rate of corporate tax is 36 percent, although this 
is expected to fall rapidly towards the special rate over the next five 
years.

    Monetary policy: Monetary policy is operated by the central bank of 
Ireland, and is conducted without political interference. The goal of 
monetary policy is price stability. in the pursuit of this objective, 
the central bank gives priority to the maintenance of a firm exchange 
rate under the framework of the European Monetary System's exchange 
rate mechanism (ERM see below.) It has been largely successful in this 
regard; inflation has averaged only 2.2 percent in the five years to 
1996 and is expected to average 1.6 percent in 1997, which will almost 
certainly ensure that Ireland satisfies the Maastricht inflation 
criteria for EMU. The primary tool of monetary policy in Ireland is the 
adjustment of the discount rate (known as the short-term facility), 
although the central bank also frequently engages in open market 
operations. In making its assessment of future consumer price 
movements, the central bank takes account of trends in money supply, 
private sector credit and a range of intermediate price indicators. As 
the final stage of EMU approaches, Irish official interest rates will 
have to converge with those of the European core, and the ability of 
the Irish central bank to pursue a monetary stance appropriate for 
domestic conditions will be undermined.
2. Exchange Rate Policies

    The Irish pound is a freely convertible currency and the government 
does not maintain any exchange rate controls. Participation in the ERM 
since 1979 requires Ireland to maintain the Irish pound within 15 
percent of its central rate against the weakest and strongest of the 
other currencies in the grid. Compliance is achieved through central 
bank intervention in the foreign exchange markets and through the 
prevention of monetary policy divergence from the European core. In 
ratifying the 1992 Maastricht treaty, Ireland committed itself to 
participation in the third and final phase of EMU, which is scheduled 
to begin on January 1, 1999. Successive Irish governments have since 
reaffirmed this commitment, and Ireland is now highly likely to be 
among the first wave of EU countries to adopt the new currency, the 
euro, from 1999 onwards. The decision by the UK to remain outside of 
EMU for the foreseeable future has sparked a debate over the Irish 
pound's appropriate conversion rate into the euro, with farmers and 
exporters anxious to ensure that swings in the value of sterling after 
1999 do not damage the competitiveness of Irish goods in the UK, 
Ireland's largest trading partner. The Irish pound fell strongly 
against the dollar during late 1996 and the first half of 1997, and is 
expected to average ip 0.67:USD 1 in 1997, down from ip 0.62:USD 1 in 
1996.
3. Structural Policies

    Economic policy in Ireland is geared primarily towards lowering 
unemployment and raising average living standards, although income 
redistribution and social cohesion are also important goals. After the 
failure of expansionary fiscal policies of the late 1970s to stimulate 
growth, government policymakers have focused on creating an environment 
attractive to private enterprise, and in particular to inward direct 
investment by export-oriented multinationals. The most important 
policies in this regard have been the following:

    (a) tight control over the public finances in order to maintain 
macroeconomic stability--in 1997 the fiscal budget may be in balance 
for the first time in over 50 years; (b) the development of a social 
consensus on economic policy through national wage agreements 
negotiated by the government, employers and trade unions. the latest 
agreement, partnership 2000, took effect at the beginning of 1997 and 
trades off continued moderation by trade unions in wage demands against 
substantial cuts in personal taxation; (c) the availability of a 
special 10 percent rate of corporate taxation and generous grants to 
attract foreign investment; (d) a commitment to the single European 
market and to participation in EMU; (e) high levels of investment in 
education and training--of all OECD countries only the Japanese 
workforce has a higher proportion of trained engineers and scientists; 
(f) improvements in physical infrastructure--structural investment 
between 1993 and 1999 is expected to total around $16 billion (almost 
$4,500 per head). much of this will have been funded by generous EU 
transfers.

    The success of the above policies in attracting foreign investors 
and raising incomes has had two distinct effects on U.S. exports to 
Ireland; (a) approximately 500 U.S. firms are now located in Ireland. 
These companies import a large proportion of their capital equipment 
and operating inputs from parent companies and other suppliers in the 
United States. Accordingly, the largest component of U.S. exports to 
Ireland is office machinery and equipment, followed by electrical 
machinery and organic chemicals. Furthermore, as U.S. firms in Ireland 
become increasingly integrated with the local economy, sales by u.s. 
parent companies to local Irish enterprises are believed to have 
increased dramatically, although the data on this remains sketchy; (b) 
the fast growth in both personal incomes and corporate profitability in 
Ireland has led to a strong increase in demand for U.S. capital and 
consumer goods from Irish companies and workers. the combination of the 
above two effects has seen U.S. exports to Ireland quadruple between 
1983 to 1996. As a result, the United States has become Ireland's third 
largest source of imports, behind only the UK and Germany.
4. Debt Management Policies

    The National Treasury Management Agency (NTMA) is the state agency 
responsible of the management of the government debt. Ireland's general 
government debt at end 1996 amounted to just over $51 billion (using 
average 1996 exchange rates), equivalent to just under 73 percent of 
GDP. The bulk of the national debt was accumulated in the 1970's and 
early 1980's, partly as a result of high oil prices, but more generally 
as a result of expanding social welfare programs and public-sector 
employment. However, increased fiscal rectitude since the late 1980s 
means that Ireland is expected to be the only EU member state which 
will have a lower debt/GDP ratio in 1997 than it had in 1991. Foreign 
currency debt at end 1996 made up approximately 29 percent of the 
total, down from just over 41 percent at end 1993. Most new government 
borrowing is financed through the issuance of Irish pound securities, 
although a substantial proportion of these are purchased by non-
resident investors. The total debt servicing cost in 1996 was around $4 
billion, equivalent to 5.8 percent of GDP. Debt servicing costs are 
expected to continue falling as a proportion of national income and 
total government expenditure. This should pave the way for further 
reform of the personal taxation system, thus increasing consumer demand 
for U.S. exports of goods and services.
5. Aid

    Each year the United States contributes $19.6 million to the 
International Fund for Ireland, of which around 5 million is estimated 
to be spent in the border constituencies of the Republic of Ireland, 
with the balance being spent in the UK province of Northern Ireland.
6. Significant Barriers to U.S. Exports

    The United States is Ireland's third largest source of imports, 
behind only the UK and Germany. Total exports from the United States 
into Ireland in 1996 were valued at $5.5 billion (15.5 percent of total 
Irish imports), up from just over $3 billion in 1990. With Irish 
exports to the U.S. in 1996 standing at $4.5 billion, the trade balance 
between the two countries favors the U.S. by about $1.0 billion.

    As a member of the EU, Ireland administers tariff and non-tariff 
barriers in accordance with applicable EU policies. with regard to 
services trade, Ireland maintains some barriers in the aviation 
industry: airlines serving Ireland may provide their own ground 
handling services, but are prohibited from providing similar services 
to other airlines. The Irish banking and insurance sectors are slowly 
becoming deregulated. Full deregulation in insurance will not occur 
until 1998.

    The Irish Government liberalized the corporate market for telecom 
services on July 1, 1997 as directed by the European Commission. 
However, Telecom Eireann, the state telecom company, will retain its 
monopoly on providing voice telephony services to residential users 
until 2000, as opposed to most EU countries who must liberalize their 
markets by 1998. Ireland ratified the WTO telecoms agreement by the end 
of 1997. The deal will requires Ireland to end restrictions on 
international interconnection of mobile telephones by January 1, 1999, 
instead of 2001 as originally hoped for by the government. Ireland also 
dropped its restrictions to telex and telegraph services from January 
1, 2000 to January 1, 1998.

    Although some liberalization has taken place in recent years, 
Ireland still maintains some of the strictest animal and plant health 
import restrictions in the EU. These, together with EU import duties, 
effectively exclude many meat-based foods, fresh vegetables and other 
agricultural exports from the United States. Restrictions also apply to 
foods containing genetically modified organisms (GMOS), bananas from 
outside the Caribbean area, and cosmetics containing specified risk 
materials (SRMS), although as with other goods, these policies are 
determined at EU level.

    Ireland has been a member of the World Trade Organization (WTO) 
since it came into effect on January 1, 1995. The WTO agreement was 
ratified by the Irish Parliament in November 1994. As member of the EU, 
however, Ireland participates in a large number of EU regional trade 
agreements, which may distort trade away from countries with whom 
Ireland trades purely on an MFN, non-preferential WTO basis.

    7. Export Subsidies Policies

    The government generally does not provide direct or indirect 
support for local exports. However, companies located in designated 
industrial zones, namely the Shannon Duty Free Processing Zone (SDFPZ) 
and Ringaskiddy Port, receive exemptions from taxes and duties on 
imported inputs used in the manufacture of goods destined for non-EU 
countries. furthermore, Ireland applies a special 10 percent rate of 
corporation tax (the standard rate is 36 percent) to companies 
producing internationally traded manufactures and services and to 
companies operating out of the SDFPZ and the international financial 
service center in Dublin. Although Ireland is adamant that this is a 
purely national tax issue, the European Commission's competition 
authorities view the tax as a form of export subsidization and would 
like to see the preferential rate eliminated over the next few years.

    Since January 1992 the government has provided export credit 
insurance for political risk and medium-term commercial risk in 
accordance with OECD guidelines. As a participant in the EU's Common 
Agricultural Policy, the Irish Department of Agriculture, Food and 
Forestry administers CAP export refund and other subsidy programs on 
behalf of the EU Commission.
8. Protection of U.S. Intellectual Property

    Ireland is a member of the World Intellectual Property Organization 
and a party to the International Convention for the Protection of 
Intellectual Property. However, there are legislative deficiencies and 
the Department of Enterprise, Trade and Employment is now drafting new 
intellectual property legislation.

    Ireland's copyright law does not conform to the WTO's agreement on 
Trade Related Aspects of Intellectual Property (TRIPS) and does not 
adequately protect copyright holders. examples of TRIPS inconsistencies 
include absence of a rental right for sound recordings, no ``anti-
bootlegging'' provision, and very low criminal penalties, all of which 
have contributed to high rates of piracy in Ireland (it has been 
claimed that up to 70 percent of computer software used in Ireland is 
pirated. This is especially ironic given that Ireland is now the 
world's second largest exporter of packaged software.) In April the 
U.S. government initiated WTO dispute settlement proceedings against 
Ireland and has placed Ireland on its special 301 watch list, which 
identifies countries which do not adequately protect intellectual 
property. In order to correct these deficiencies the government is in 
the process of drafting a new copyright bill, which it expects to 
submit to parliament in the second half of 1998.

    Patents: Ireland's patent law also fails to conform to the TRIPS 
Agreement in at least two respects: (1) the compulsory licensing 
provisions of the 1992 patent law are inconsistent with the ``working'' 
requirement prohibition of TRIPS Articles 27.1 and the general 
compulsory licensing provisions of Article 31; and (2) compulsory 
licensing conditions provided for in the 1964 patent law, which 
continues to apply to some applications processed after December 20, 
1991, do not conform to the non-discrimination requirement of TRIPS 
Article 27.1. The Irish Government is expected to make a ministerial 
order in early 1998 which will bring Irish patent legislation into 
conformity with the TRIPS Agreement.

    Trademarks: In accordance with EU Council Directive 89/104/European 
Economic Community (EEC), the harmonization of trademark laws, EU 
Council Regulation (EC) no. 40/94, Community Trademark And The 
Registration Of Trademarks In Services Industries, among others, new 
legislation was required to replace the Trademarks Act of 1963. The 
Trademarks Act 1996 was signed into law in July 1996. As yet, there 
appear to be no problems with the new law.
9. Worker Rights

    a. The Right of Association.--The right to join a union is 
guaranteed by law, as is the right to refrain from joining. The 
industrial relations act of 1990 prohibits retribution against strikers 
and union leaders. About 55 percent of workers in the public sector and 
45 percent in the private sector are trade union members. Police and 
military personnel are prohibited from joining unions or striking, but 
they may form associations to represent them in matters of pay, working 
conditions, and general welfare. The right to strike is freely 
exercised in both the public and private sectors. The Irish Congress of 
Trade Unions (ICTU), which represents unions in both the Republic and 
Northern Ireland, has 65 member-unions with 682,211 members.

    b. The Right to Organize and Bargain Collectively.--Labor unions 
have full freedom to organize and to engage in free collective 
bargaining. Legislation prohibits anti-union discrimination. In recent 
years, most terms and conditions of employment in Ireland have been 
determined through collective bargaining in the context of a national 
economic pact. The current 3-year agreement, partnership 2000, which 
expires at the end of 1999, trades off continued moderation by trade 
unions in wage demands against cuts in personal taxation by the 
government. Employer interests in labor matters are generally 
represented by the Irish Business And Employers Confederation.

    The Labor Relations Commission, established by the Industrial 
Relations Act of 1990, provides advice and conciliation services in 
industrial disputes. The Commission may refer unresolved disputes to 
the Labor Court. The Labor Court, consisting of an employer 
representative, a trade union representative, and an independent 
chairman, may investigate trade union disputes, recommend the terms of 
settlement, engage in conciliation and arbitration, and set up joint 
committees to regulate conditions of employment and minimum rates of 
pay for workers in a given trade or industry.

    c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory 
labor is prohibited by law and does not exist in Ireland.

    d. Minimum Age of Employment of Children.--By law, children are 
required to attend school until the age of 15. the employment of 
children under 15 is generally prohibited by the 1977 Protection of 
Young Persons (Employment) Act, but 14-year-olds are allowed to do 
light, nonindustrial work during school holidays with the written 
permission of their parents. The law limits the number of hours which 
children under age 18 may work. These provisions are enforced 
effectively by the Department of Enterprise, Trade And Employment.

    e. Acceptable Conditions of Work.--At present no national hourly 
minimum wage exists in Ireland, although the current government has 
promised to abide by its electoral commitment to introduce a minimum 
wage during its term of office and has already established a commission 
to investigate the appropriate level. Minimum wages have been operating 
in certain low paid industries, such as textiles and cleaning, but 
these have applied to a relatively small proportion of the workforce. 
The standard work week is 39 hours. Working hours in the industrial 
sector are limited to 9 hours per day and 48 hours per week. Overtime 
is limited to 2 hours per day, 12 hours per week, and 240 hours in a 
year.

    f. Rights in Sectors with U.S. Investment.--Worker rights described 
above are applicable in all sectors of the economy, including those 
with significant U.S. investment.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                     7457 
  Food & Kindred Products.....................         348              
  Chemicals & Allied Products.................         290              
  Metals, Primary & Fabricated................         241              
  Machinery, except Electrical................         222              
  Electric & Electronic Equipment.............        1435              
  Transportation Equipment....................          -2              
  Other Manufacturing.........................        2312              
Wholesale Trade...............................                      470 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                     2780 
Services......................................                      863 
Other Industries..............................                       74 
TOTAL ALL INDUSTRIES..........................                   11,749 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.Source: 
  U.S. Department of Commerce, Bureau of Economic Analysis              


                                 ______
                                 

                                 ITALY

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                             1995      1996     1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\........................   1,087.0   1,214.2    1,139.7
  Real GDP Growth (pct) \3\..............       2.9       0.7        1.0
  GDP by Sector:                                                        
    Agriculture..........................      35.6      39.9        N/A
    Manufacturing........................     301.9     332.4        N/A
    Services.............................     544.2     608.0        N/A
    Government...........................     205.3     233.9        N/A
    Per Capita GDP (US$).................    18,959    21,131     19,834
    Labor Force (millions)...............      22.7      22.9       23.0
    Unemployment rate (pct)..............      12.0      12.2       12.2
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
  Money Supply (M2)......................       1.9       3.2        4.0
  Consumer Price Inflation...............       5.4       3.9        1.9
  Exchange Rate (Lira/US$ - annual                                      
   average)                                                             
    Official.............................      1629      1543       1700
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB \4\..................     234.0     250.8      138.9
    Exports to U.S.\4\...................      16.8      18.4       10.8
  Total Imports CIF \4\..................     206.1     207.0      119.3
    Imports from U.S.\4\.................       9.9      10.2        5.3
  Trade Balance \4\......................      27.9      43.8       46.8
    Balance with U.S.\4\.................       7.0       8.2        5.5
  Current Account Surplus/GDP (pct)......       2.5       3.4        3.0
  External Public Debt...................      51.6      65.2       76.0
  Debt Service Payments/GDP (pct) \5\....      11.8      11.1       11.0
  Fiscal Deficit/GDP (pct)...............       7.0       6.7        3.0
  Gold and Foreign Exchange Reserves.....      57.7      69.8       65.3
  Aid from U.S...........................       N/A       N/A        N/A
  Aid from All Other Sources.............       N/A       N/A        N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on data available through      
  October 1997.                                                         
\2\ GDP at factor cost                                                  
\3\ Percentage changes calculated in local currency                     
\4\ Merchandise trade. 1997 data through July                           
\5\ Represents total debt servicing costs; less than six percent of     
  total debt is foreign debt.                                           

1. General Policy Framework

    The Italian economy is the world's fifth largest, having undergone 
a dramatic transformation into an industrial power in the last 50 
years. Italy maintains an open economy, and is a member of major 
multilateral economic organizations such as the Group of Seven (G-7) 
industrialized countries, the Organization for Economic Cooperation and 
Development, the World Trade Organization, the International Monetary 
Fund, and the European Union.

    Italy has a dynamic private sector characterized primarily by a 
large number of small and medium-sized firms, although there are some 
large companies with well-known names and extensive overseas operations 
(Fiat, Pirelli and Olivetti for example). Economic activity is 
concentrated in northern Italy, resulting in a divergence of wealth 
between north and south that remains one of Italy's most difficult 
economic and social problems. The Italian government traditionally has 
played an active role in the economy through regulation and through 
ownership of several large industrial and financial companies; recent 
privatizations have reduced somewhat the government's presence.

    Italy's most pressing macroeconomic problems remain its public 
sector deficit and public debt. For years, government spending was 
boosted by generous social welfare programs, inefficiency and projects 
designed to achieve political objectives, creating large public sector 
deficits that were financed by incurring debt.

    In the last few years, Italy has begun to address these problems in 
order to qualify for first-round membership in European Monetary Union. 
The deficit, which was 6.76 percent of GDP in 1996, is expected to drop 
to 3.0 percent in 1997, the level required for monetary union. The 
stock of debt, almost all of it held domestically, represents about 124 
percent of GDP, but has been dropping. The government hopes to continue 
reducing it. Interest rates on Italian government securities have come 
down substantially as the government gets its financial house in order, 
and European rates converge in the run-up to monetary union.

    Price stability is the primary objective of the Bank of Italy's 
monetary policy; the Bank has carried out a restrictive monetary policy 
in an effort to defeat Italy's long-term inflation problem. It appears 
to be working. M-2 grew only 3.2 percent in 1996, well below the rate 
of nominal GDP growth (5.8 percent), and inflation is expected to 
average 1.9 percent in 1997. The Bank of Italy uses indirect 
instruments, primarily open market operations exercised through 
repurchase agreements with commercial banks, to implement its monetary 
policy. The central bank discount window is seldom used, although 
changes in the discount rate are used to signal policy shifts, as 
occurred in June, 1997, when the Bank of Italy reduced the discount 
rate.
2. Exchange Rate Policy

    The Italian lira re-entered the Exchange Rate Mechanism of the 
European Monetary System (EMS) in November 1996, after a four-year 
absence. Participation in EMS is a prerequisite for membership in the 
European Monetary Union (EMU) and obligates Italy to maintain the lira 
within a 15 percent band of fluctuation vis-a-vis central parities with 
other EMU currencies. Since re-entry to EMS, the lira has fluctuated 
closely around the new parities, an indication that financial markets 
think Italy's currency is priced about right.

    The government has been successful at avoiding undue pressure on 
the lira. It will continue this approach in the months leading up to 
May, 1998, when countries selected for monetary union will set exchange 
rates vis-a-vis one another, and January 1999, when monetary union 
actually begins and countries begin using the new joint currency, the 
euro.
3. Structural Policies

    Italy has not implemented any structural policies over the last two 
years which directly impede U.S. exports. Several long-standing 
irritants regarding access by U.S. banks and financial service firms to 
the Italian market have been resolved or are nearing resolution. 
Certain characteristics of the Italian economy impede growth and reduce 
import demand. These include rigid labor markets, underdeveloped 
financial markets, and a continued heavy state role in the production 
sector. There has been some progress at addressing these structural 
issues. Privatization is reducing the government's role in the economy. 
The 1993 ``single banking law'' removed a number of anachronistic 
restrictions on banking activity. Italy's implementation of EU 
financial service and capital market directives in 1996 has injected 
further competition into the sector.

    U.S. financial service firms are no longer subject to an 
incorporation requirement to operate in the Italian market, although 
they must receive permission to operate from the government's 
securities regulatory body. In August 1996, the Bank of Italy 
eliminated certain lending limits based on branch capital which had put 
non-EU banks at a disadvantage vis-a-vis EU banks. U.S. financial 
service firms and banks are active in Italy, in particular in the 
wholesale banking and bond markets. In general, U.S. and foreign firms 
can invest freely in Italy, subject to restrictions in sectors 
determined to be of national interest, or in cases which create anti-
trust concerns.
4. Debt Management Policy

    Although Italy has not had problems with external debt or balance 
of payments since the mid 1970's, its domestic public debt is extremely 
high at 124 percent of GDP. Public debt is financed primarily through 
domestic capital markets, with securities ranging from three months to 
thirty years. Italy's official external debt is relatively low, 
constituting roughly 5.9 percent of total debt. Italy maintains 
relatively steady foreign debt targets, and uses issuance of foreign-
denominated debt essentially as a source of diversification, rather 
than because of need.
5. Significant Barriers to U.S. Exports

    Import Licensing: With the exception of a small group of largely 
agricultural items, practically all goods originating in the U.S. and 
most other free-world countries can be imported without import licenses 
and free of quantitative restrictions. There are, however, monitoring 
measures applied to imports of certain sensitive products. The most 
important of these measures is the automatic import license for 
textiles. This license is granted to Italian importers when they 
provide the requisite forms.

    Service Barriers: Telecommunications services are still tightly 
regulated by the state, which essentially maintains a monopoly (aside 
from dedicated fixed-line networks owned by, i.e., the parastatal 
electricity company ENEL) on fixed-line voice telephony (but not on 
cellular service) and the telecommunications infrastructure, including 
all switching. Enhanced services must be offered over the public 
switched network or through dedicated leased circuits. Omnitel Pronto 
Italia, which is 43 percent U.S.-owned, began offering cellular service 
in December 1995 after winning the competition for the second cellular 
operating license--making it Telecom Italia's only competitor at 
present. Italy plans to award a third cellular license, for DCS-1800 
service, but the government's notional date for this competition has 
slipped from 1996 into 1997 and most recently to February 1998. Italy 
passed a law in 1997 to establish an independent regulatory 
``Authority'' for all communications, including telecoms and 
broadcasting; but the Authority is not expected to be established until 
mid-late 1998. U.S. and other observers will be watching closely to see 
how Italy respects the EU's January 1, 1998 deadline for full 
liberalization of its telecoms sector.

    In keeping with the 1989 EU Broadcast Directive, Italy's 1990 
Broadcast Law requires that upon conclusion of three years from 
concession of a national broadcast license, a majority of TV broadcast 
time for feature films be reserved for EU-origin films. The Italian law 
also requires that half of the European quota be dedicated to Italian 
films.

    The Government of Italy introduced a telecommunications reform bill 
in July 1996 that included a provision to make 51 percent European 
content mandatory during prime time. The bill remains before the 
Italian Parliament as of October 1997. If enacted, the bill would make 
Italy's TV broadcast quota stricter than the EU norm. (The European 
Parliament voted in November 1996 to let stand EU Broadcast Directive 
language that quotas will be applied ``where practicable . . . and 
using appropriate means.'' The European Parliament thereby rejected 
more restrictive language.)

    Standards: As a member of the EU, Italy applies the product 
standards and certification approval process developed by the European 
Community. Italy is required by the Treaty of Rome to incorporate 
approved EU directives into its national laws. However, there is 
frequently a long lag in implementing these directives at the national 
level. In addition, in some sectors such as pollution control, the 
uniformity in application of standards may vary according to region, 
further complicating the certification process. Italy has been slow in 
accepting test data from foreign sources, but is expected to adopt EU 
standards in this area.

    Most standards, labeling requirements, testing and certification 
for food products have been harmonized within the European Union. 
However, where EU standards do not exist, Italy can set its own 
national requirements and some of these have been known to hamper 
imports of game meat, processed meat products, frozen foods, alcoholic 
beverages, and snack foods/confectionery products. U.S. exporters of 
``health'' foods, weight loss/diet foods, baby foods and vitamins 
should work closely with an Italian importer, since Italy's labeling 
laws regarding health claims can be particularly stringent. Italy is 
still working on specific sectors of the food law to bring the 
regulations up to date scientifically in the areas of hygiene/
sanitation. In the case of food additives, coloring and modified 
starches, Italy's laws are considered to be close to current U.S. laws, 
albeit sometimes more restrictive.

    U.S. exporters should be aware that any food or agricultural 
product transshipped through Italian territory must meet Italian 
requirements, even if the product is transported in a sealed and bonded 
container and is not expected to enter Italian commerce.

    Some professional categories (e.g. engineers, architects, lawyers, 
accountants) face restrictions that limit their ability to practice in 
Italy without either possessing EU/Italian nationality, having received 
an Italian university degree, or having been authorized to practice by 
GOI institutions.

    Rulings by individual local customs authorities can be arbitrary or 
incorrect, resulting in denial or delays of entry of U.S. exports into 
the country. Considerable progress has been made in correcting these 
deficiencies, but problems do arise on a case-by-case basis.

    Investment Barriers: While official Italian policy is to encourage 
foreign investment, industrial projects require a multitude of 
approvals and permits, and foreign investments often receive close 
scrutiny. These lengthy procedures can present extensive difficulties 
for the uninitiated foreign investor. There are several industry 
sectors which are either closely regulated or prohibited outright to 
foreign investors, including domestic air transport, aircraft 
manufacturing, and the state monopolies (e.g., railways and tobacco 
manufacturing).

    Italian anti-trust law gives the government the right to review 
mergers and acquisitions over a certain threshold value. The government 
has the authority to block mergers involving foreign firms for 
``reasons essential to the national economy'' or if the home government 
of the foreign firm does not have a similar anti-trust law or applies 
discriminatory measures against Italian firms. A similar provision 
requires government approval for foreign entities' purchases of five or 
more percent of an Italian credit institution's equity.

    Government Procurement: In Italy, fragmented, often non-transparent 
government procurement practices and previous problems with corruption 
have created obstacles to U.S. firms' participation in Italian 
government procurement. Italy has, however, made some progress in 
making the laws and regulations on government procurement more 
transparent. Italy has not yet fully updated its government procurement 
code, nor has it completely implemented EU directives on government 
procurement. The pressure to reduce government expenditures while 
increasing efficiency is resulting in increased use of competitive 
procurement procedures and somewhat greater emphasis on best value 
rather than automatic reliance on traditional suppliers.
6. Export Subsidies Policies

    Italy subscribes to EU directives and Organization for Economic 
Cooperation and Development (OECD) and World Trade Organization (WTO) 
agreements on export subsidies. Through the EU, it is a member of the 
General Agreement on Tariffs and Trade (GATT) Subsidies Agreement, and 
as a WTO member, is subject to WTO rules. Italy also provides extensive 
export refunds under the Common Agricultural Policy (CAP), as well as 
an extensive array of export promotion programs. Grants range from 
funding of travel for trade fair participation to funding of export 
consortia and market penetration programs. Many programs are aimed at 
small-to-medium size firms. Italy provides some direct assistance to 
industry and business firms to improve their international 
competitiveness. This assistance includes export insurance through the 
state export credit insurance body, as well as interest rate subsidies 
under the OECD consensus agreement.

    The Italian peach processing sector receives subsidies to 
compensate them for having to pay the EU minimum grower price for their 
raw product. It is recognized that this grower price is above the world 
market price for peaches and a U.S.-E.U. agreement is in place to 
monitor the level of subsidies paid. However, there is concern that the 
processors may receive extra benefits from loopholes in the system.

    The Italian wheat processing sector (pasta) in the past received 
indirect subsidies to build plants and infrastructure. While these 
plants are still operating, there are no known programs similar to the 
initial subsidies operating at present.
7. Protection of U.S. Intellectual Property

    The Italian Government is a member of the World Intellectual 
Property Organization, and a party to the Bern and Universal Copyright 
conventions, the Paris Industrial Property and Brussels Satellite 
conventions, the Patent Cooperation Treaty, and the Madrid Agreement on 
International Registration of Trademarks.

    Since 1989, the U.S. Trade Representative has placed Italy on the 
Intellectual Property Rights (IPR) ``watch list'' under the Special 301 
provision of the United States Trade Act of 1988, primarily reflecting 
problems with protection of copyrights for computer software and film 
videos. Enactment in Italy (at the end of 1992) of the EU software 
directive making software copyright violations a criminal offense was a 
major step forward. In response to U.S. IPR concerns, the Italian 
authorities have created an Interministerial Anti-Piracy Committee, 
introduced IPR training courses for law enforcement officers, and 
created specialized ``pools'' of prosecutors charged with combating 
intellectual property crimes in major municipal centers (e.g., Milan, 
Rome, and Naples). Italian implementation of the EU Rental Rights 
Directive in November 1994 established explicit protections for rental, 
distribution, and lending rights, as well as penal sanctions against 
the bootleg recording of performances. A decree-law issued in June 1995 
(and subsequently passed by Parliament as a permanent law) extended 
copyright protection in Italy from 50 to 70 years in accordance with 
the EU Directive on Copyright Duration.

    Film, sound recording, and software piracy remains a serious 
problem, despite a significant increase in raids and confiscation of 
illegal product and reproduction equipment. In October 1996, the 
Italian government introduced in Parliament anti-piracy legislation 
that would impose administrative penalties and increase criminal 
sanctions. As of October 1997, the bill was still awaiting final 
Parliamentary approval. The U.S. will continue to monitor developments 
in this area closely.

    New Technologies: In the spring of 1997, the Italian Minister of 
Health signed a decree banning the cultivation of Ciba Geigy's Bt Corn 
in Italy, despite the fact that no Bt seed varieties are currently 
included in Italy's National Seed Register. This decision was taken on 
the advice of Italy's Interministerial Biotechnology Commission, 
ostensibly based on their opinion that there was a lack of a proper 
monitoring program regarding Bt corn's effect on the ecosystem. After 
the Biotech Commission reversed its decision, and following EC pressure 
to remove the ban, the Minister of Health signed the legislation 
removing the ban in late September.

    Intellectual property protection is generally not a problem for 
agricultural products with the exception of sluggish approval policies 
for genetically-modified organisms.
8. Worker Rights

    a. The Right of Association.--The law provides for the right to 
establish trade unions, join unions, and carry out union activities in 
any workplace employing more than 15 employees. Trade unions are free 
of government controls and no longer have formal ties with political 
parties. Workers are protected from discrimination based on union 
membership or activity. The right to strike is embodied in the 
Constitution, and is frequently exercised. Hiring workers to replace 
strikers is prohibited. A 1990 law restricts strikes affecting 
essential public services such as transport, sanitation, and health.

    The law prohibits discrimination by employers against union members 
and organizers. It requires employers who have more than 15 employees 
and are found guilty of anti-union discrimination to reinstate the 
workers affected. In firms with fewer than 15 workers, an employer must 
state the grounds for firing a union employee in writing. If a judge 
deems these grounds spurious, he can order the employer to reinstate or 
compensate the worker.

    b. The Right to Organize and Bargain Collectively.--The 
Constitution provides for the right of workers to organize and bargain 
collectively and these rights are respected in practice. In practice 
(though not by law), national collective bargaining agreements apply to 
all workers regardless of union affiliation. There are no export 
processing zones.

    c. Prohibition of Forced or Compulsory Labor.--The law prohibits 
forced or compulsory labor, and it does not occur.

    d. Minimum Age for Employment of Children.--The law forbids 
employment of children under 15 years of age (with some exceptions). 
There are also specific restrictions on employment in hazardous or 
unhealthy occupations of males under age 18 and females under age 21. 
Enforcement of the minimum age laws is effective only outside the 
extensive ``underground'' economy, which is mainly in Southern Italy.

    e. Acceptable Conditions of Work.--Minimum wages are set not by law 
but rather by national collective bargaining agreements. These specify 
minimum standards to which individual employment contracts must 
conform. In case of disputes, the courts may step in to determine fair 
wages on the basis of practice in comparable activities or agreements.

    A 1997 law reduced the work week from 48 hours to 40. The regular 
work week should not exceed six days, and the regular work day eight 
hours, with some exceptions. Most collective agreements provide for a 
36- to 38-hour work week. Overtime may not exceed two hours a day or an 
average of 12 hours per week.

    The law sets basic health and safety standards and guidelines for 
compensation for on-the-job injuries. European Union directives on 
health and safety have also been incorporated into domestic law; some 
have already taken effect and others will be phased in during 1997. 
Labor inspectors are from local health units or from the Ministry of 
Labor. They are few, given the scope of their responsibilities. Courts 
impose fines and sometimes prison terms for violation of health and 
safety laws. Workers have the right to remove themselves from dangerous 
work situations without jeopardy to their continued employment. Women 
are usually forbidden to work at night.

    f. Rights in Sectors with U.S. investment.--Conditions do not 
differ from those in other sectors of the economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      549 
Total Manufacturing...........................                   11,549 
  Food & Kindred Products.....................         849              
  Chemicals & Allied Products.................        3409              
  Metals, Primary & Fabricated................         539              
  Machinery, except Electrical................        2681              
  Electric & Electronic Equipment.............        1892              
  Transportation Equipment....................         395              
  Other Manufacturing.........................        1784              
Wholesale Trade...............................                     2537 
Banking.......................................                      320 
Finance/Insurance/Real Estate.................                     1900 
Services......................................                     1474 
Other Industries..............................                      358 
TOTAL ALL INDUSTRIES..........................                   18,687 
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                              NETHERLANDS

                         Key Economic Indicators                        
        [Billions of U.S. Dollars unless otherwise indicated] \1\       
------------------------------------------------------------------------
                                                1995     1996   1997 \2\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \3\...........................    394.4    395.0     362.3
  Real GDP Growth (pct) \4\.................      2.3      3.3      3.75
  GDP by Sector:                                                        
    Agriculture.............................     14.8     14.3      12.7
    Manufacturing...........................     61.3     59.3      52.9
    Services................................    224.1    220.4     196.7
    Government..............................     35.8     34.2      30.6
  Per Capita GDP (US$)......................   25,611   25,652    23,373
  Labor Force (000s)........................    6,394    6,471     6,557
  Unemployment Rate (percent)...............      8.3      7.6       6.9
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply (M2).........................      4.8      5.4       8.0
  Consumer Price Inflation..................      2.0      2.1      2.25
  Exchange Rate (guilders/US$ - annual                                  
   average)                                                             
    Official................................     1.61     1.69      1.95
                                                                        
Balance of Payments and Trade:                                          
  Total Exports (FOB) \5\...................    210.1    212.0     203.1
    Exports to U.S.\6\......................      6.4      6.6       7.0
  Total Imports (CIF) \5\...................    185.0    186.7     179.1
    Imports from U.S.\6\....................     16.6     16.6      19.0
  Trade Balance \5\.........................     15.6     15.0      12.3
    Balance with U.S.\6\....................    -10.2    -10.0     -12.0
  Current Account Surplus/GDP (pct).........      6.2      6.3       7.0
  External Public Debt \6\..................        0        0         0
  Debt Service Payments/GDP (pct) \7\.......      9.0      8.3       6.9
  Fiscal Deficit/GDP (pct)..................      4.0      2.3       2.0
  Gold and Foreign Exchange Reserves........     42.6     36.4      33.0
  Aid from U.S..............................        0        0         0
  Aid from All Other Sources................        0        0         0
------------------------------------------------------------------------
\1\ All figures have been converted at the average guilder exchange rate
  for each year.                                                        
\2\ 1997 figures are official forecasts or estimates based on available 
  monthly data in October 1997                                          
\3\ GDP at factor costs                                                 
\4\ Percentage changes calculated in local currency                     
\5\ Merchandise trade                                                   
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports 
  FAS, imports customs basis; 1997 figures are estimates based on data  
  available through October 1997.                                       
\7\ All public debt is domestic and denominated in guilders. Debt       
  service payments refers to domestic public debt.                      
                                                                        
Sources: Central Bureau of Statistics (CBS), Netherlands Central Bank   
  (NB), Central Planning Bureau (CPB)                                   

1. General Policy Framework

    The Netherlands is a prosperous and open economy, and depends 
heavily on foreign trade. It is noted for stable industrial relations; 
a large current account surplus from trade and overseas investments; 
net exports of natural gas; and a location as a European transportation 
hub with excellent ports, and air, road, rail, and inland waterway 
transport.

    Dutch trade and investment policy is among the most open in the 
world. The government has reduced its role in the economy since the 
1980s, and privatization and deregulation continue with little debate 
or opposition. Nevertheless, the state dominates the energy sector, and 
plays a large role in public transport, aviation, and 
telecommunications.

    Dutch economic policy is geared towards environmentally sustainable 
economic growth and development by way of economic restructuring, 
energy conservation, environmental protection, regional development, 
and other national goals. Policy is guided by a national environmental 
action plan.

    A three-party coalition in office since August 1994, is nearing the 
end of its term in office, and general elections are planed for May, 
1998. Helped by strong (by EU standards) economic growth, the coalition 
has achieved many of its policy targets agreed in the 1994 coalition 
accord. The Dutch economy continues as one of Europe's strongest, and 
can look forward to continued brisk GDP growth in 1997 (3.25 percent) 
and 1998 (3.75 percent), fueled predominantly by rising consumer 
demand, higher investment, and firming exports. This is the strongest 
economic growth performance in the 1990s. A swine fever epidemic which 
swept through the Netherlands in 1997 has reduced the growth outlook 
for that year by at least 0.6 percentage points. Consumer price 
inflation of slightly over two percent in 1997 and 1998 continues 
moderate, and unemployment of less than seven percent (EU definition) 
remains well below the EU average. A strong current account surplus of 
well over seven percent of GDP in 1997 and 1998 continues as one of the 
strong features of the Dutch economy.

    The Netherlands has been relatively successful in meeting the 
criteria for European Economic and Monetary Union (EMU). Fiscal policy 
aims at striking a balance between further reducing public spending, 
and lowering taxes and social security contributions. The budget 
deficit should fall from 2.3 percent of GDP in 1996 to 1.4 percent 
1998, which is well below the three percent EMU criterion. The stock of 
public debt will fall from a high of 77.2 percent of GDP in 1996 to 
70.4 percent in 1998, still well over the 60 percent EMU criterion. A 
falling budget deficit is expected to further reduce the debt to GDP 
ratio, and close the gap with the EMU debt criterion.

    The deficit is largely funded by government bonds. Since January 1, 
1994, financing has also been covered by Dutch Treasury Certificates 
(DTC). DTCs replace a standing credit facility for short-term deficit 
financing with the Central Bank which, under the Maastricht Treaty, was 
abolished in 1994.
2. Exchange Rate Policies

    Dutch monetary policy aims at exchange rate stability. This is 
regarded as a sine-qua-non for a small open economy like the 
Netherlands, which is heavily dependent on foreign trade. Since the 
European Monetary System (EMS) was introduced in 1979, the Netherlands 
Central Bank (NB) has maintained a stable exchange rate between the 
guilder and the German mark using interest rate policy. The guilder is 
one of Europe's strongest currencies and remains in the original EMS 
2.25 point fluctuation band. A strong guilder should encourage imports 
from the United States and reduce exchange rate risk for U.S. investors 
in the Netherlands. There are no multiple exchange rate mechanisms. 
There are no exchange controls, although Netherlands residents must 
obtain an NB exchange license for certain large international financial 
transactions.

    The NB controls money market rates by adjusting short term rates 
and by varying the terms of banks' access to NB financing. The NB's 
open market policy gives the bank a tool to influence short term rates.
3. Structural Policies

    Tax policies: The Dutch recently took the first step towards a 
fundamental reform of the tax system, partly with a view to further EU 
integration. The new tax regime for the 21st century entails a 
substantial reduction of wage and individual income taxes, and 
simultaneous broadening of the tax base as well as rising VAT rates. 
The highest marginal tax rate on wage and salary income will be reduced 
from 60 percent to 50 percent. When implemented, the new tax plan will 
yield a more transparent and equitable tax system and result in an 
appreciable shift from taxation of labor to taxation of consumption. 
The Dutch corporate income tax rate is among the lowest in the EU. As 
of January 1, 1997, corporations (including foreign-owned corporations) 
pay a standard corporate tax rate of 36 percent over the first 100,000 
guilders of profits, with the excess being taxed at 35 percent. 
Effective January 1, 1998, the 36 percent rate will be further reduced, 
resulting in a rate of 35 percent on all taxable profits. In recent 
years, Dutch and foreign multinationals have increasingly established 
their group finance activities outside the Netherlands due to 
attractive tax regimes elsewhere. In an attempt to reverse this trend, 
a bill became effective January 1, 1997, offering finance companies of 
multinationals a more friendly tax regime. Under certain conditions, 
companies conducting group financing activities will be allowed to 
establish an international financial services reserve for tax purposes 
of up to 80 percent of its annual profits. The reduced profits will 
then be subject to the standard corporate tax rate

    Regulatory Policies: Limited, targeted, transparent investment 
incentives are used to facilitate economic restructuring and to promote 
economic growth throughout the country. Measures blend tax incentives 
and subsidies and are available to foreign and domestic firms alike. 
There are also subsidies to stimulate R&D and to encourage development 
and use of new technology by small and medium sized firms.

    New Dutch competition legislation will become effective on January 
1, 1998, which will comply with EU competition legislation. The new law 
will include a provision for the supervision of company mergers by a 
new competition agency. The law is expected to boost competition, 
improve transparency, and provide greater de facto access to a number 
of sectors for foreign companies.
4. Debt Management Policies

    With a current account surplus of over seven percent of GDP and no 
external debt, the Netherlands is a major creditor nation. The Dutch 
have run a surplus on current account since the early 1980s. During 
that period, gross public sector debt (EMU criterion) grew sharply, to 
79.1 percent of GDP by 1995. Since the late 1980s, the Dutch fiscal 
balance has drastically improved. Most observers now predict a 
significant decline of the debt to GDP ratio towards the EMU 60 percent 
criterion over the next four years. Debt servicing and rollover has 
fallen to almost seven percent of GDP, with interest payments alone at 
four percent of GDP. All government debt is domestic and denominated in 
guilders. There are no difficulties in tapping the domestic capital 
market for loans, and public financing requirements are generally met 
before the end of each fiscal year. The Netherlands is a major foreign 
assistance donor nation with a bilateral and multilateral development 
assistance budget of 1.1 percent of GDP equal to $4.3 billion in 1998. 
Official Development Aid (ODA) amounts to 0.8 percent of GDP or $3.1 
billion. The Netherlands belongs to, and strongly supports, the IMF, 
the World Bank, EBRD, and other international financial institutions.
5. Significant Barriers to U.S. Exports

    The Dutch pride themselves on their open market 
economy,nondiscriminatory treatment of foreign investment, and a strong 
tradition of free trade. Foreign investors receive full national 
treatment, and the Netherlands adheres to the OECD investment codes and 
the international convention for dispute settlement. There are no 
significant Dutch barriers to U.S. exports, and relatively few trade 
complaints are registered by American firms against Dutch firms. The 
few trade barriers that do exist result from common EU policies. The 
following are areas of potential concern for U.S. exporters:

    Agricultural trade barriers: These result from the Common 
Agricultural Policy (CAP) and common external tariffs, which severely 
limit imports of U.S. agricultural products. Bilateral import barriers, 
although usually connected with EU-wide regulations, do arise in 
customs duties, grading, inspection and quarantine. Overzealous 
implementation of EU rules and procedures increasingly hinder commodity 
and product entry. Although only a few cases have been reported to 
date, an increasing pattern of delayed or rejected shipments of 
agricultural commodities, food and beverages appears to have developed. 
Also, in the absence of EU-wide regulations, tedious approval and 
administrative procedures hamper the import of some agricultural 
products, e.g., genetically modified organisms (GMOs). Some of these 
rejections or delays in clearance cause major financial and logistical 
problems to Dutch importers and U.S. exporters for particular products, 
thus dampening trade prospects and flows.

    Offsets for defense contracts: All foreign contractors must provide 
at least 100 percent offset/compensation for defense procurement over 
five million Dutch guilders (about $2.7 million). The seller must 
arrange for the purchase of Dutch goods or permit the Netherlands to 
domestically produce components or subsystems of the systems it is 
buying. A penalty system for noncompliance with offset obligations is 
under consideration.

    Broadcasting and media legislation: The Media Act was amended in 
1992 to admit local and foreign commercial broadcasters onto the cable 
network. The Dutch comply with the EU Broadcast Directive, but U.S. 
television shows and films are popular and readily available.

    Cartels: Although the export sector of the Dutch economy is open 
and free, cartels exist in the domestic sector of the economy. A new 
cartel law which took effect in 1996 bans cartels unless its proponents 
can conclusively demonstrate a public interest. The United States knows 
of only two complaints by U.S. firms of having been disadvantaged by 
cartels in the Netherlands, and neither involved U.S. exports.

    Public procurement: Dutch public procurement practices comply with 
the requirements of the GATT/WTO Agreement on Public Procurement and 
with EU public procurement legislation. The Netherlands has fully 
implemented the EU's Supplies Directive 93/36/EEC, Works Directive 93/
37/EEC, and the Utilities Directive 93/38/EEC. Implementation of EU and 
GATT public procurement obligations have contributed to greater 
transparency of the Dutch public procurement environment at central and 
local government level. Independent studies show that transparency and 
enforcement in this area can be deficient, especially at the local 
level, and procurement may be contingent on offset or local content 
requirements. The EU Utilities Directive may force more public 
notification and end the effective duopoly in Dutch power generation 
and distribution.
6. Export Subsidies Policies

    Under the Export Matching Facility, the Dutch government provides 
interest subsidies for Dutch export contracts competing with government 
subsidized export transactions in third countries. These subsidies 
bridge the interest cost gap between Dutch export contracts and foreign 
contracts which have benefited from interest subsidies. The government 
provides up to 10 million guilders (about $5.5 million) of interest 
subsidies per export contract, up to a maximum of 35 percent per export 
transaction. An export transaction must have at least 60 percent Dutch 
content to be eligible. For defense, aircraft and construction 
transactions, the minimum Dutch content is one-third.

    There is a local content requirement of 70 percent for exporters 
seeking to insure their export transactions through the Netherlands 
Export Insurance Company. The Dutch provide some subsidies for 
shipping. Under strict conditions, Dutch ship owners ordering new 
vessels or buying existing vessels not older than five years may be 
eligible for a premium of 10 percent of the contract price distributed 
over five years. The government may also guarantee loans to Dutch 
shipping companies for investment purposes. The present guideline is 
the seventh EU Directive. In conformity with the OECD understanding on 
subsidies, the government also grants interest rate subsidies (maximum 
two percent) to Dutch shipbuilders up to 80 percent of a vessel's cost 
with a maximum repayment period of 8.5 Years. This subsidy is only 
available when ``matched'' by similar offers by non-EU shipyards. As 
long as 1994 OECD agreement to phase out shipbuilding subsidies 
internationally has not been ratified by all parties, the Dutch will 
continue to support their shipbuilding industry. Despite termination of 
the EU shipbuilding subsidies regime in 1996, the shipbuilding 
subsidies budget earmarks 30 million guilders ($18 million) in 1997.
7. Protection of U.S. Intellectual Property

    The Netherlands has a generally good record on IPR protection, with 
the exception of the enforcement of antipiracy laws. It belongs to the 
World Intellectual Property Organization (WIPO), is a signatory of the 
Paris Convention on industrial property and the Bern copyright 
convention, and conforms to accepted international practice for 
protection of technology and trademarks. Patents for foreign investors 
are granted retroactively to the date of original filing in the home 
country, provided the application is made through a Dutch patent lawyer 
within one year of the original filing date. Patents are valid for 20 
years. Legal procedures exist for compulsory licensing if the patent is 
determined to be inadequately used after a period of three years, but 
these procedures have rarely been invoked. Since the Netherlands and 
the United States are both parties to the Patent Cooperation Treaty 
(PCT) of 1970, patent rights in the Netherlands may be obtained if PCT 
application is used.

    The Netherlands is a signatory of the European Patent Convention, 
which provides for a centralized Europe-wide patent protection system. 
This convention has simplified the process for obtaining patent 
protection in the member states. Infringement proceedings remain within 
the jurisdiction of the national courts, which could result in 
divergent interpretations detrimental to U.S. investors and exporters. 
The limited scope of resources devoted to enforcement of antipiracy 
laws is of concern to U.S. producers of software, audio and video 
tapes, and textbooks. Legislation was enacted in early 1994 to 
explicitly include computer software as intellectual property under the 
copyright statutes, and the government is working with industry on 
enforcement.
8. Worker Rights

    a. The Right of Association.--The right of Dutch workers to 
associate freely is well established. One quarter of the employed labor 
force belongs to unions, but union-negotiated collective bargaining 
agreements are usually extended to cover about three quarters of the 
workforce. Membership in labor unions is open to all workers including 
military, police, and civil service employees. Unions are entirely free 
of government and political party control and participate in political 
life. They also maintain relations with recognized international bodies 
and form domestic federations. The Dutch unions are active in promoting 
worker rights internationally. All union members, except most civil 
servants, have the legal right to strike. Civil servants have other 
means of protection and redress. There is no retribution against 
striking workers. In the European Union, the Netherlands has one of 
lowest percentages of days lost due to labor strikes. In 1996, seven 
days were lost due to industrial disputes compared with 691 days in 
1995.

    b. The Right to Organize and Bargain Collectively.--The right to 
organize and bargain collectively is recognized and well-established. 
There are no union shop requirements. Discrimination against union 
membership is illegal and does not exist. Dutch society has developed a 
social partnership among government, private employers, and trade 
unions. This tripartite system involves all three participants in 
negotiating guidelines for collective bargaining agreements which, once 
reached in a sector, are extended by law to cover the entire sector. 
Such generally binding agreements (AVVs) cover most Dutch workers.

    c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory 
labor is prohibited by the constitution and does not exist.

    d. Minimum Age for Employment of Children.--Child labor laws exist 
and are enforced. The minimum age for employment of young people is 16. 
Even at that age, youths may work full time only if they have completed 
the mandatory 10 years of schooling and only after obtaining a work 
permit (except for newspaper delivery). Those still in school at age 16 
may not work more than eight hours per week. Laws prohibit youths under 
the age of 18 from working at night, overtime, or in areas which could 
be dangerous to their physical or mental development. In order to 
promote the employment of young people who have finished formal 
schooling, the Netherlands has a reduced minimum wage for employees 
between ages 16 and 23.

    e. Acceptable Conditions of Work.--Dutch law and practice 
adequately protect the safety and health of workers. A forty hours work 
week is established by law, but collective bargaining agreements often 
set a shorter work week. The average work week for adults working full 
time is 38 hours, but collective bargaining negotiations are heading 
towards and eventual 36 hours work week. The high level of part-time 
work have lowered the estimated actual work week to 35.8 hours. 
Collective bargaining negotiations are heading towards an eventual 36 
hours work week for full-time employees. The legally-mandated minimum 
wage is subject to semiannual living cost adjustment. Working 
conditions are set by law, and regulations are actively monitored.

    f. Rights in Sectors with U.S. Investments.--The worker rights 
described above hold equally for sectors in which U.S. capital is 
invested.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                     2564 
Total Manufacturing...........................                   10,472 
  Food & Kindred Products.....................        1224              
  Chemicals & Allied Products.................        4058              
  Metals, Primary & Fabricated................         585              
  Machinery, except Electrical................        1029              
  Electric & Electronic Equipment.............         839              
  Transportation Equipment....................         548              
  Other Manufacturing.........................        2190              
Wholesale Trade...............................                     3910 
Banking.......................................                      134 
Finance/Insurance/Real Estate.................                   23,592 
Services......................................                     2424 
Other Industries..............................                     1571 
TOTAL ALL INDUSTRIES..........................                   44,667 
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                 NORWAY

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                              1995      1996    1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP.............................   146,531   157,533   159,000
  Real GDP Growth (pct)...................       3.6       5.3       3.9
  GDP By Sector:                                                        
    Agriculture...........................     3,604     3,476     3,450
    Oil and Gas Production................    16,713    23,268    24,000
    Manufacturing.........................    18,145    18,500    18,000
    Services..............................    84,854    87,845    88,550
    Government............................    23,215    24,444    25,000
  Per Capita GDP..........................    33,570    35,930    36,095
  Labor Force (000s)......................     2,131     2,246     2,303
  Unemployment Rate (percent).............       4.9       4.9       4.2
                                                                        
Money and Prices:                                                       
  Money Supply (M2) (pct. ch.)............       5.4       6.2       4.8
  Cons. Price inflation (pct. ch.)........       2.4       1.3       2.5
  Exchange Rate \2\ (NOK/US$).............      6.34      6.46      7.05
                                                                        
Balance of Payments And Trade:                                          
  Total Exports FOB.......................    42,151    49,796    48,500
    Exports to U.S.\3\....................     2,508     3,509     3,100
  Total Imports CIF.......................    34,214    36,896    36,500
    Imports from U.S.\3\..................     2,183     2,380     2,450
  Trade Balance...........................     7,937    12,900    12,000
    Balance with U.S......................       325     1,129       650
  External Public Debt....................     9,686     6,892     3,000
  Debt Service Payments...................       976     2,857     3,960
  Fiscal Surplus/GDP (pct)................       0.4       6.3       6.7
  Current Acc. Surplus/ GDP (pct).........       3.3       7.2       8.6
  Gold And Foreign Exchange Res...........    22,664    26,368    34,000
  Aid from U.S............................         0         0         0
  Aid from other Countries................         0         0         0
------------------------------------------------------------------------
\1\ 1997 Figures are all Estimates Based on Monthly Data in November    
  1997                                                                  
\2\ Central Bank overnight lending rate; Not annual percentage growth   
\3\ Norwegian foreign trade statistics. Exports exclude Norwegian oil   
  shipped to the U.S. from terminals overseas                           

1. General Policy Framework

    Exploitation of Norway's vast energy resources--including oil, gas, 
and hydropower--will continue to drive the country's economic growth 
for at least the next two decades. Offshore, Norway's remaining 
discovered oil reserves will last for another 16 years at current 
extraction rates, while the equivalent figure for natural gas is 108 
years. Energy-intensive industries such as metal processing and 
fertilizer production will remain prominent on the mainland due to the 
availability of abundant hydropower.

    Some constraints continue to limit Norway's economic flexibility 
and ability to maintain international competitiveness. Availability of 
labor is limited by Norway's small 4.3 million population and a 
restrictive immigration policy. Norway is also a high-cost country with 
a highly centralized collective bargaining process and the government 
providing generous social welfare benefits. Several inefficient 
sectors, including agriculture, survive largely through subsidies and 
protection from international competition. These sectors face a long 
period of adjustment as the government implements its obligations under 
the Uruguay Round and the European Economic Area (EEA) Accord, which is 
bringing Norway into the European Union's (EU's) ``Single Market.''

    State intervention in the economy remains significant. The 
government owns just over 50 percent of domestic businesses, including 
majority stakes in the two largest industrial conglomerates and the two 
largest commercial banks. While new legislation governing investment 
was implemented in 1995 to meet EEA and WTO obligations, screening of 
foreign investment and restrictions on foreign ownership remains.

    The government's dependence on petroleum revenue has increased 
substantially since the early 1970's, generating an estimated 22 
percent of total government 1997 revenue. Following the 1986 collapse 
of world oil prices, the government used oil revenue to cover 
shortfalls in the non-oil portion of the budget in the 1986-1994 
period. With overall budget posting a surplus in 1995, Norway has 
eliminated its net foreign debt; and the government is projecting a 
budget surplus of about USD nine billion (15 percent of the budget) for 
1997. The surplus is being set aside in an oil fund to supplement 
future budgets after 2015, when oil revenues may be substantially less.

    No general tax incentives exist to promote investment, although tax 
credits and government grants are offered to encourage investment in 
northern Norway. Several specialized state banks provide subsidized 
loans to sectors including agriculture and fishing. Transportation 
allowances and subsidized power are also available to industry.

    Although rejecting EU membership in November 1994 following a 
national referendum, Norway has preferential access to EU markets and 
theoretically is bound to nearly all EU directives (except regulating 
agriculture) through the EEA Accord which entered into force in January 
1994. The former Labor party government (which resigned October 13) had 
announced it did not plan to apply for EU membership in the 1997-2000 
period, The new centrist coalition government has no plans for EU 
membership.

    The government controls the growth of the money supply through 
reserve requirements imposed on banks, open market operations, and 
variations in the Central Bank overnight lending rate. Since the 
government's priority is to maintain a stable exchange rate, the 
Central Bank's flexibility is limited in using the money supply as an 
independent policy instrument.
2. Exchange Rate Policy

    The Norwegian Krone remains on a managed float with the central 
bank using open market operations and interest rate policy to keep the 
currency stable. While the Krone was unpegged from the ECU in December 
1992, Norway continues to keep the Norwegian Krone stable vis-a-vis 
European currencies included in the ECU. The New Coalition Government 
has announced that this policy will continue until further notice.

    Quantitative restrictions on credit flows from private financial 
institutions were abolished in the late 1980's. Norway dismantled most 
remaining foreign exchange controls in 1990. U.S. companies operating 
within Norway have never reported problems to the Embassy in remitting 
payments.
3. Structural Policies

    The government's highest economic priorities include maintaining 
high employment, generous welfare benefits, and rural job 
opportunities. Thus, parts of the mainland economy--particularly 
agriculture and rural industries--remain protected and cost inefficient 
from a global viewpoint with Norway's agricultural sector remaining the 
most heavily subsidized in the OECD. While some progress has been made 
in reducing subsidies in the manufacturing industry, support remains 
significant in areas including food processing and shipbuilding

    A revised legal framework for the functioning of the financial 
system was adopted in 1988, strengthening competitive forces in the 
market and bringing capital adequacy ratios more in line with those 
abroad. Further liberalization in the financial services sector 
occurred when Norway joined the EEA and accepted the EU's banking 
directives. The Norwegian banking industry has returned to 
profitability following reforms prompted by the banking crises in the 
early 1990's.

    Norway has taken some steps to deregulate the non-bank service 
sector. However, large parts of the transportation and 
telecommunications markets remain subject to restrictive regulations, 
including statutory barriers to entry. Looking ahead, the GON remains 
committed to an ambitious structural reform program which may gradually 
improve U.S. market access, but progress will likely be slow for 
political reasons.
4. Debt Management Policies

    Norway's prudent budgetary and foreign debt policies in recent 
years are limiting the state's exposure in foreign markets. The 
government's gross external debt (about USD seven billion at the end of 
1996) will likely decline through 1997 and 1998 thanks to the GON's 
strong financial position. Norway's overall public and private foreign 
debt (foreign liabilities less foreign assets) evaporated in mid-1995 
with rising foreign trade surpluses contributing to the improvement.

    Since 1990, the Government has allowed the private sector increased 
access to long-term foreign capital markets to facilitate improvements 
in the term structure of its foreign debt. Following the floating of 
the krone in December 1992, foreign capital inflows have contributed to 
falling Norwegian interest rates.
5. Aid

    There are no aid flows between Norway and the U.S.
6. Significant Barriers to U.S. Exports

    Norway supports the principles of free trade but significant 
barriers to trade remain in place. While Norway is in the process of 
reforming its agricultural support regime, the government maintains 
high agricultural tariffs which are administratively adjusted when 
internal market prices fall outside certain price limits. These 
unpredictable administrative tariff adjustments disrupt advance 
purchase orders and severely limit agricultural imports into Norway 
from the U.S. and other distant markets.

    State ownership in Norwegian industry continues to raise 
competitive issues in a number of sectors including telecommunications, 
financial services, oil and gas, and alcohol and pharmaceutical 
distribution. Despite some ongoing reforms, Norway still maintains 
regulatory practices, certification procedures and standards that limit 
market access for U.S. materials and equipment in a variety of sectors, 
including telecommunications and oil and gas materials and equipment.

    While there has been substantial banking reform, competition in 
this sector still remains distorted due to government ownership of the 
two largest commercial banks, and the existence of specialized state 
banks which offer subsidized loans in certain sectors and geographic 
locations.

    Restrictions also remain in the distribution of alcohol and medical 
drugs, which historically have been handled through state monopolies. 
Norway is obligated to terminate these monopolies under the EEA Accord 
but implementation is slow. The European Free Trade Association (EFTA) 
Surveillance Agency (ESA--the organization responsible for insuring EEA 
compliance) has been monitoring Norway's progress in these areas. While 
Norwegian policy clearly favors liberalization, progress has been 
limited due to opposition by Norwegian trade unions and other interest 
groups which are concerned about safeguarding national ownership.
7. Export Subsidy Policies

    As a general rule the Government of Norway does not subsidize 
exports, although some heavily subsidized goods, such as dairy 
products, may be exported. The Government indirectly subsidizes 
chemical and metal exports by subsidizing the electricity costs of 
manufacturers. In addition, the Government provides funds to Norwegian 
companies for export promotion purposes. Under its WTO obligations, 
Norway is reducing its agricultural subsidies in stages over six years. 
Norway has also ratified the OECD shipbuilding subsidy agreement and 
will eliminate shipbuilding subsidies as soon as the agreement is 
ratified by other major shipbuilders including the United States and 
Japan.
8. Protection of U.S. Intellectual Property

    The impact of Norwegian IPP practices on U.S. trade is negligible. 
Norway is a signatory of the main intellectual property accords, 
including the Bern Copyright and Universal Copyright Conventions, the 
Paris Convention for the Protection of Industrial Property, and the 
Patent Cooperation Treaty.

    Norwegian officials believe that counterfeiting and piracy are the 
most important aspects of intellectual property rights protection. They 
complain about the unauthorized reproduction of furniture and appliance 
designs and the sale of the resultant goods in other countries, with no 
compensation to the Norwegian innovator.

    Product patents for pharmaceuticals became available in Norway in 
January 1992. Previously, only process patent protection was provided 
to pharmaceuticals.
9. Worker Rights

    a. The Right of Association.--Workers have the right to associate 
freely and to strike. The Government can invoke compulsory arbitration 
under certain circumstances with the approval of Parliament.

    b. The Right to Organize and Bargain Collectively.--All workers, 
including government employees and the military, have the right to 
organize and to bargain collectively. Labor legislation and practice is 
uniform throughout Norway.

    c. Prohibition of Forced or Compulsory Labor.--Forced labor is 
prohibited by law and does not exist.

    d. Minimum Age for Employment of Children.--Children are not 
permitted to work full time before age 15. Minimum age rules are 
observed in practice.

    e. Acceptable Conditions of Work.--Ordinary working hours do not 
exceed 37.5 hours per week, and 25 working days of paid leave are 
granted per year (31 for those over 60). There is no minimum wage in 
Norway, but wages normally fall within a national wage scale negotiated 
by labor, employers, and the government. The Workers' Protection and 
Working Environment Act of 1977 assures all workers safe and physically 
acceptable working conditions.

    f. Rights in Sectors with U.S. Investment.--Norway has a tradition 
of protecting worker rights in all industries, and sectors where there 
is heavy U.S. investment are no exception.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                     3898 
Total Manufacturing...........................                      705 
  Food & Kindred Products.....................         \1\              
  Chemicals & Allied Products.................          16              
  Metals, Primary & Fabricated................           3              
  Machinery, except Electrical................          36              
  Electric & Electronic Equipment.............          -1              
  Transportation Equipment....................         \1\              
  Otther Manufacturing........................          19              
Wholesale Trade...............................                      353 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                      763 
Services......................................                      \1\ 
Other Industries..............................                       73 
TOTAL ALL INDUSTRIES..........................                     6103 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                 POLAND

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                              1995      1996    1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP.............................   119,100   134,500   137,000
  Real GDP Growth (pct)...................       7.0       6.1       5.5
  GDP by Sector (pct):                                                  
    Agriculture...........................       6.4       5.8       N/A
    Manufacturing.........................      21.7      20.6       N/A
    Services..............................       N/A       N/A       N/A
    Government............................       N/A       N/A       N/A
  Per Capita GDP (US$)....................     3,084     3,482     3,800
  Labor Force (000s)......................    17,597    17,847    17,550
  Unemployment Rate (pct).................      14.9      13.2      10.7
                                                                        
Money and Prices (annual percentage                                     
 growth):                                                               
  Money Supply Growth (M2)................      34.9      29.3      25.3
  Consumer Price Inflation................      21.6      18.5      13.0
  Exchange Rate (PZL/US$ - annual average)                              
    Official..............................      2.42      2.70      3.30
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB \2\...................      22.9      24.4      26.4
    Exports to U.S.\3\....................       0.6       0.6       0.7
  Total Imports CIF.......................      29.1      37.1      44.5
    Imports from U.S.\3\..................      0.77      0.97       1.2
  Trade Balance...........................      -6.2     -12.7     -18.1
    Balance with U.S.\3\..................     -0.11      0.34     -0.52
  External Public Debt....................      44.0      40.6      38.4
  Fiscal Deficit/GDP (pct)................       2.6       2.5       2.2
  Current Account Surplus/Deficit/GDP                                   
   (pct) \4\..............................       4.6      -1.0       N/A
  Debt Service Payments/GDP (pct)\5\......       2.9       1.9       1.8
  Gold and Foreign Exchange Reserves......      15.0      18.0      20.1
  Aid from U.S. (USD millions) \6\........      90.4        66      52.7
  Aid from Other Sources (USD millions)...       390       419       N/A
------------------------------------------------------------------------
\1\ 1997 figures are Polish Government predictions as of Oct. 1997,     
  unless otherwise noted                                                
\2\ Source: Polish Government trade figures, which include direct trade 
  only. U.S. data includes transshipments via third countries           
\3\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports 
  FAS, imports customs basis; 1997 figures are Embassy estimates based  
  on data available through August 1997.                                
\4\ Including estimated unrecorded trade                                
\5\ Debt service includes paid interest and principal.                  
\6\ Source: U.S. Government estimate.                                   

1. General Policy Framework

    Introduction: Since 1989, Poland has steadfastly pursued a policy 
of liberalizing trade, investment and capital flow measures; it stands 
out as one of the most successful and open transition economies. In 
1997, Poland is expected to post its fourth year of GDP growth above 5 
percent and is expected to maintain this pace through the year 2000. 
The privatization of small and medium state-owned companies and a 
liberal law on establishment allowed for the rapid development of a 
vibrant private sector responsible for at least two-thirds of economic 
activity. In contrast, Poland's large agriculture sector remains 
handicapped by structural problems, surplus labor, inefficient small 
farms, and lack of investment. A shadow ``grey economy'' is estimated 
at 15--20 percent of GDP.

    Government Priorities: The government's determination to enter the 
EU affects all parts of its economic policies. The chair of the 
Committee for European Integration is a position of cabinet level rank. 
Each ministry has an EU integration department. The Poland--EU 
Association Agreement has resulted in growing tariff differentials some 
U.S. exporters have said will disadvantage them.

    Improving Poland's worsening current account deficit is a priority. 
To date, the government has resisted pressure for protectionist 
solutions and continues to support regional free trade initiatives. 
Poland is an active member of the Central European Free Trade Agreement 
(CEFTA). In 1997 Poland also signed free trade agreements with Croatia, 
Israel and Lithuania. The government approved an export strategy which 
emphasizes promotion and a more aggressive export assistance program.

    Fiscal Policy: The government continues to hold the budget deficit 
to less than three percent of GDP (if privatization revenues are 
included and certain unfunded liabilities are excluded). Domestic 
commercial banks finance most of the deficit. Further progress on 
public finance depends mainly on comprehensive reform of the social 
welfare system and privatization of Poland's remaining state sector. 
The social welfare system consumes around 16 percent of GDP, funded in 
part by a 48 percent payroll tax. Poland implemented a limited mass 
privatization plan through national investment funds in which over 90 
percent of those eligible participated. However, restructuring and 
privatization of ``sensitive sectors'' (eg. coal, steel) has been 
delayed; the government has also postponed long-awaited privatizations 
in aviation, energy, and telecommunications.

    Monetary Policy: The President of the independent National Bank of 
Poland (NBP) sets monetary policy and has had considerable success at 
reducing inflation through control of the money supply. Starting in 
1998, monetary policy will be set by an independent committee selected 
by the President and the parliament. The NBP's principal tools have 
been reserve requirements, basic interest rates, and open market 
operations. The NBP's tight money policies have contributed to a 
reduction in inflation from 600 percent in 1990 to 13 percent in 1997. 
In an effort to slow the growth in domestic demand for credits, the NBP 
significantly tightened monetary policy. In 1997 it raised interest 
rates, increased reserve requirements and even began taking retail 
deposits. Real deposit interest rates rose from 0 percent in 1996 to 5 
percent in mid-1997.
2. Exchange Rate Policies

    In 1991 the NBP began managing the exchange rate through a crawling 
peg mechanism against a basket of reserve currencies (in percentage 
terms: Dollar--45; D-Mark--35; Sterling--10; and French and Swiss 
Francs--5 each). Since mid-1995, the zloty has been allowed to float 
within a seven percent band of the peg. The zloty depreciated against 
the dollar in real terms about ten percent in 1995 and 1996, which 
should benefit U.S. exporters.

    Poland has consistently followed a policy of liberalizing exchange 
rate controls, achieving IMF Article VIII current account 
convertibility in 1995. In 1996, the government eliminated the 
requirement for Polish firms to convert their foreign currency earnings 
into zloty. As part of the OECD accession process, Poland liberalized 
rules governing capital account transactions and in 1997 removed nearly 
all limits on capital account outflows by Polish citizens.

    In 1998, the Polish zloty is to become fully convertible in current 
account transactions, payments and transfers. The new regulations will 
also liberalize capital flow to and out of Poland, although certain 
restrictions will remain as regards Polish investments in countries 
which are not members of OECD and with which Poland has not concluded 
relevant bilateral agreements (permits will be required from the 
central bank). There will also be restrictions concerning deposits by 
foreign nationals in Polish banks.
3. Structural Policies

    Prices Most subsidies and controls on the prices of consumer goods 
were eliminated in Poland's 1990 ``big bang'' shock therapy. Price 
controls on fuel (especially coal), and electricity continue, though 
the Polish government has pledged to the EU to deregulate prices and 
start to privatize both sectors in the next several years.

    Taxes: Poland introduced a value added tax in 1993. In 1996 the 
Polish Parliament voted to reduce corporate tax from 40 percent in 1996 
to 32 percent by 2000. Poland continues to establish special economic 
zones which provide foreign investors with substantial tax holidays. 
Personal income tax rates range from 20 to 44 percent, though the 
Ministry of Finance would like to lower the highest rate to 40 percent 
in 1998. U.S. investors often complain about inconsistent tax 
administration. The lowering of tariffs in line with WTO, EU and CEFTA 
commitments and the elimination of the three percent import surcharge 
in 1997 has diminished customs receipts.

    Regulatory Policies: The primary difficulties concern product 
certification standards (below) and regulation of telecommunications in 
favor of the state-owned telephone company. New products/technology 
never before sold in Poland require Ministry of Industry approval.
4. Debt Management Policies

    Poland's foreign debt situation has dramatically improved since its 
default in the 1980s. The agreements with the Paris Club (1991) and the 
London Club of commercial banks (1994), reduced debt by nearly half 
($23 billion in net present value terms). At the end of 1997, Poland's 
total foreign debt was estimated at $38.4 billion, including $27.5 
billion to the Paris Club, $7.7 billion Brady bonds, $1.9 billion to 
the World Bank, and $0.72 billion Eurobonds. Total repayments for 1997 
total $2.4 billion ($1.0 billion in principal, $1.4 billion in 
interest), amounting to 9.0 percent of exports and 1.8 percent of GDP. 
Flush with soaring foreign exchange reserves, Poland fully repaid its 
IMF drawings in July 1995. In 1995 it also received an investment grade 
rating from various rating agencies and returned to international 
capital markets with a $250 million Eurobond flotation. Total state 
debt (foreign and domestic) shrank to 51.3 percent of GDP by 1997. The 
new constitution prohibits the NBP from financing the budget deficit 
(as of 1 January 1999).
5. Aid

    The U.S. provided Poland with $52.7 million in aid in 1997. Of this 
sum, $40.13 million was SEED Act funds to help Poland's transition to a 
free market democracy. The remaining $12.5 million was military aid.
6. Significant Barriers to U.S. Exports

    Import Licenses: Poland is a member of the WTO. Import licenses are 
required for strategic goods on the Wassenaar dual use and munitions 
lists. It also issues licenses for beer and wine, fuel, tobacco, dairy 
and poultry. The plant quarantine inspection service issues a mandatory 
phytosanitary import permit for all imports of live plants, fresh 
fruits, and vegetables into Poland. Several common weed seeds have 
quarantine status, which hampers U.S. grain exports to Poland. 
Certificates from the Veterinary Department in the Ministry of 
Agriculture are also required for meat, dairy and live animal products. 
U.S. bovine genetics have only limited access to the Polish market. In 
1997, Polish parliament passed a new animal breeding law which will 
affect future access for livestock genetics products. The law will 
become effective in April 1998.

    Services Barriers: The situation in this area has improved, but 
many barriers remain, especially in telecommunications, financial 
services, and legal services. The government has announced a 
privatization plan for the state telecommunications monopoly starting 
in 1998 and agreed to open domestic long-distance service to 
competition in 1999 and international services in 2003. Local service 
licenses are being awarded, but interconnectability remains the domain 
of the state monopoly. As a condition of its accession to the OECD, 
Poland agreed to allow firms from OECD countries to open branches and 
representative offices in the insurance and banking sector starting in 
1999. The government allows foreign banks to open subsidiaries. 
Beginning January 1998 a new banking law and a new law on the central 
bank will come into force. A new law giving preferential treatment to 
EU citizen lawyers was passed but has not yet gone into effect.

    Standards, Testing, Labeling, and Certification: The primary Polish 
regulation which may adversely affect U.S. exports is a requirement for 
some 1400 products sold in Poland to obtain a safety ``B'' certificate 
from a Polish test center. This regulation was initially set to go into 
effect in 1995, but has been postponed and should go into effect in 
1998. Under the ``B'' rule, the EU ``CE'' mark and ISO 9000 will 
accelerate the certification process. New laws allowing for self-
certification may be implemented in 1998. U.S. companies have 
complained about the complexity and slowness of the testing process as 
well as vague information on fees and procedures.

    Investment Barriers: Polish law permits 100 percent foreign 
ownership of most corporations (sole proprietorships and partnerships 
not allowed; the legal form requirement will remain through January 1, 
1999). However, the outgoing government coalition declared that the 
state should retain a key role in certain ``strategic sectors'': 
mining, steel, defense, transportation, energy, banking, and 
telecommunications. It is too early to tell how the new government will 
deal with those sectors.

    The Polish State Treasury often retains a significant stake in 
enterprises being privatized. Foreign companies owning a large minority 
stake are meant to have managerial control of the enterprise, but in at 
least one joint venture, Centertel, the supposedly passive Polish 
majority stake holder seized control and prevented additional 
investment, leading the U.S. partner to file for arbitration. A 
settlement was later reached in this case.

    Certain controls remain on foreign investment. Broadcasting 
legislation restricts foreign ownership to a 33 percent stake. Foreign 
stakes in air and maritime transport, fisheries, and long-distance 
telecommunications are capped at 49 percent. No foreign investment is 
currently allowed in international telecommunications or gambling. The 
government continues to work on auto assembly/manufacturing regulatory 
changes which would encourage operators to increase domestic content 
and move towards full manufacturing operations.

    As a result of OECD accession, Poland allows foreign entities to 
purchase up to 4000 square meters of urban land or up to one hectare of 
agricultural land without a permit. Larger purchases, or the purchase 
of a controlling stake in a Polish company owning real estate, require 
approval from the Ministry of Interior and the consent of both the 
Defense and Agriculture Ministries.

    Government Procurement Practices: Poland's new government 
procurement law is modelled on the UN model procurement code and based 
on competition, transparency, and public announcement. It does not, 
however, cover most purchases by state-owned enterprises. The only 
single source breaches of the stated preference for unlimited tender 
come for reasons of state security or national emergency. There have 
been several complaints alleging lack of transparency and impartiality 
in regard to the Huzar helicopter armament tender. The domestic 
performance section in the law requires 50 percent domestic content and 
gives domestic bidders a 20 percent price preference. Companies with 
foreign participation organized under the Joint Ventures Act of 1991 
may qualify for ``domestic'' status. There is also a protest/appeals 
process for tenders viewed to be unfairly awarded. Since September 
1997, Poland has the status of an observer to the WTO's Government 
Procurement Agreement (GPA).

    Customs Procedures: Poland has a harmonized tariff system, having 
signed the GATT customs valuation code in 1989. The customs duty code 
currently binding in Poland has different rates for the same 
commodities, depending on the point of export. Poland's Association 
Agreement with the EU, the CEFTA agreement and the FTA with Israel, 
Croatia and Lithuania grants firms from these areas certain tariff 
preferences over U.S. competitors.

    Some American companies have been critical of Polish Customs' 
performance, citing long delays, indifferent and incompetent officials, 
and inconsistent application of customs rules. The Polish government 
acknowledges the problems that developed since the opening of Poland's 
economy in 1989 have overwhelmed border and port facilities and 
personnel. In response, the Parliament overhauled customs law and 
procedures. The new Customs Law will come into effect January 1998.
7. Export Subsidies Policies

    With its 1995 accession to the WTO, Poland ratified the Uruguay 
Round Subsidies Code. Poland has eliminated past practices of tax 
incentives for exporters, but it provides for drawback levies on raw 
material imports from EU and CEFTA countries which are processed and 
reexported into finished products within thirty days. The sugar 
refining industry, coal, and a number of politically powerful state-
owned enterprises continue to directly or indirectly receive production 
subsidies which result in lower export prices. Poland's policy of 
rolling-over unused WTO sugar subsidy allowances to be used in 
combination with current year allowances has been protested by the U.S. 
and others within the WTO.

    Polish industry and exporters are critical of the government for 
not providing more support for export promotion. The one existing 
export insurance scheme has very limited resources and rarely 
guarantees contracts to high-risk countries such as Russia, placing 
Polish firms at a disadvantage to most western counterparts. It covers 
only one percent of Polish exports.
8. Protection Of U.S. Intellectual Property

    The Polish government has made major strides in improving 
protection of intellectual property rights. The United States-Polish 
Bilateral Business and Economic Treaty contains provisions for the 
protection of U.S. intellectual property. It came into force in 1994, 
once Poland passed a new copyright law which offers strong criminal and 
civil enforcement provisions and covers literary, musical, graphical, 
software, audio-visual works, and industrial patterns. Poland also 
adheres to the Berne Convention (Paris Text, 1971), the Rome Convention 
on Sound Recordings, and TRIPS provisions within the WTO. Poland's 1993 
Patent Law, in all other ways adequate, did not provide 20 year 
pipeline protection favored by the pharmaceutical industry.

    Much of the pirated or fake items available in Poland are imported 
from abroad (CDs from Bulgaria and Russia; hosiery from Italy) rather 
than being manufactured in Poland. Industry associations estimate 1996 
levels of piracy in Poland to be: 20 percent in sound recordings; 10 
percent in books and video, and 80 percent in software.
    While enforcement has improved noticeably, remaining difficulties, 
particularly in the prosecution of IPR cases, allow for continuing, if 
reduced, levels of piracy and trademark infringement. Due to a lack of 
manpower and resources, Polish authorities often rely on rights holders 
to provide preliminary evidence of violations. In one important 1996 
case, a large U.S.-based firm successfully defended several trademarks 
by employing local counsel.
9. Worker Rights
    The Labor Code, which became effective June 1996, thoroughly 
redefined the rights and duties of employers and employees in more 
modern, free-market terms.
    a. The Right of Association.--Polish law guarantees all civilian 
workers, including military employees, police and frontier guards, the 
right to establish and join trade unions of their own choosing, the 
right to join labor federations and confederations, and the right to 
affiliate with international labor organizations. Independent labor 
leaders have reported that these rights are largely observed in 
practice.
    b. The Right to Organize and Bargain Collectively.--The laws on 
trade unions and resolution of collective disputes generally create a 
favorable environment to conduct trade union activity. Labor leaders, 
however, reported numerous cases of employer discrimination against 
workers seeking to organize or join unions in the growing private 
sector.
    c. Prohibition of Forced or Compulsory Labor.--Compulsory labor, 
except for prisoners convicted of criminal offenses does not exist.
    d. Minimum Age for Employment of Children.--Polish law contains 
strict legal prescriptions over the conditions in which children may 
work. The State Labor Inspectorate has reported that increasing numbers 
of Polish children now work and that many employers violate labor rules 
by underpaying or paying them late.
    e. Acceptable Conditions of Work.--The large size of the grey 
economy, along with the insufficient number of labor inspectors, 
complicate enforcement of minimum wage requirements and minimum 
workers' health and safety standards. Enforcement is a problem of 
unclear jurisdiction.
    f. Rights in Sectors with U.S. Investment.--Observance of the five 
worker rights conditions in firms which have U.S. investment generally 
meets and can exceed those in comparable Polish firms. Over the last 
several years, there have been relatively few cases where Polish unions 
have charged managers of U.S.-based firms of violating Polish labor 
law; those that have arisen have been largely resolved. In cases where 
American companies purchase an existing Polish enterprise, unions 
usually continue to operate. There tend to be no unions, however, where 
U.S. firms build new facilities.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                        0 
Total Manufacturing...........................                      639 
  Food & Kindred Products.....................         267              
  Chemicals & Allied Products.................          38              
  Metals, Primary & Fabricated................         \1\              
  Machinery, except Electrical................          -4              
  Electric & Electronic Equipment.............          -1              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................         \1\              
Wholesale Trade...............................                       95 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                       20 
Services......................................                      \1\ 
Other Industries..............................                       40 
TOTAL ALL INDUSTRIES..........................                      933 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        

                                PORTUGAL

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                1995     1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\...........................    103.5    108.0     101.5
  Real GDP Growth (pct) \3\.................      2.3      3.3       3.5
  GDP by Sector:                                                        
    Agriculture.............................      4.9      5.0       5.1
    Industry................................     35.6     36.2      36.8
    Services................................     59.5     58.8      58.1
  Per Capita GDP............................   10,452   10,914    10,251
  Labor Force (000s)........................    4,551    4,583     4,622
  Unemployment Rate (pct)...................      7.2      7.3       6.9
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply (M2).........................      8.1      9.3       3.0
  Consumer Price Inflation (pct)............      4.1      3.1       2.2
  Exchange Rate (PTE/USD - annual average)..    150.0      154     175.0
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB \4\.....................     24.1     25.3      24.1
    Exports to U.S.\4\......................      1.1      1.1       1.1
    Total Imports CIF \4\...................     32.6     34.9      33.2
    Imports from U.S.\5\....................      0.9      1.1       1.2
  Trade Balance \4\.........................     -8.5     -9.6      -9.1
    Balance with U.S.\5\....................      0.2      0.0      -0.1
  Current Account Deficit/GDP (pct).........     -0.7     -2.5      -2.0
  External Public Debt......................     12.3     12.6      12.7
  Debt Service Payments/GDP (pct)...........     13.1     10.1       9.4
  Fiscal Deficit/GDP (pct)..................      5.8      3.2       2.9
  Gold and Foreign Exchange Reserves........     21.7     21.4      18.7
  Aid from U.S..............................        0        0         0
  Aid from All Other Sources................      N/A      N/A       N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in   
  October 1997.                                                         
\2\ GDP at factor cost                                                  
\3\ Percentage changes calculated in local currency                     
\4\ Merchandise trade                                                   
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports 
  FAS, imports customs basis; 1997 figures are estimates based on data  
  available through November 1997.                                      

1. General Policy Framework

    The government seeks to modernize Portuguese markets, industry, 
infrastructure, and workforce in order to match the productivity and 
income levels of its more advanced European Union (EU) partners. 
Portugal's per capita GDP (on a purchasing power parity basis) rose to 
close to 69.4 percent of the EU average in 1996 from 52.9 percent in 
1985.

    The government aims to be in the first round of EU countries to 
join the European Economic and Monetary Union (EMU) on January 1, 1999. 
Portugal currently meets three of the EMU convergence criteria--the 
exchange rate, long-term interest rates, and inflation--and is on track 
to satisfy the remaining two--the general government deficit and debt. 
The current policy mix to ensure first-round EMU membership includes 
continued budget discipline and tight monetary policy in support of a 
stable exchange rate; wage moderation to support the disinflation 
process; and privatization and free trade policies to increase the 
efficiency and productivity of the economy.

    Portuguese agriculture accounts for about 5 percent of GDP, 
industry for 35 percent, and services for 60 percent. Portuguese 
exports are based on both traditional industries--textiles, clothing, 
footwear, cork/wood products, beverages (wine), porcelain/earthenware, 
and glass/glassware--and burgeoning modern ones--machinery, transport 
equipment (autos and components), minerals/metals, and chemicals. Sales 
of the two year-old AutoEuropa (Ford/VW) plant amounted to 2.2 percent 
of GDP
and 12 percent of merchandise exports in 1996. The tourism industry 
continues to expand: some 23.3 million tourists visited Portugal in 
1996 from Spain, the United Kingdom, Germany, France, the Netherlands, 
Belgium, and the United States.

    Portugal traditionally runs a large merchandise trade deficit, 
which is made possible by net receipts from tourism, remittances from 
Portuguese workers abroad, and net transfers from the EU. Net EU 
transfers averaged over 3 percent of GDP during 1995-1997 and are 
expected to be 2.6 billion dollars or 2.5 percent of GDP in 1998. 
During 1989-1996, Portugal's current account was broadly in balance and 
foreign direct investment averaged 2 percent of GDP.

    Fiscal Policy: The government finances its deficit through issuance 
of medium-term escudo and foreign currency-denominated treasury 
obligations. The risk premium on 10-year escudo-denominated bonds 
versus equivalent German bonds declined from over 400 basis points in 
October 1995 to about 35 basis points in October 1997. The GOP enjoys a 
solid international credit rating (AAA on long-term debt in escudos, AA 
on long-term debt in foreign currency) and has ready access to 
international financial markets. Three kinds of government spending put 
pressure on the deficit: government personnel outlays, including 
pensions; current transfers for social programs; and domestic 
counterpart funding for major public investment projects co-financed 
with the EU. As in other EU countries, value-added taxes (17 percent in 
Portugal's case) raise prices to consumers. Other direct taxes, such as 
the stamp tax on financial transactions, and the cylinder-based 
automobile tax, affect product demand in specific markets.

    Monetary Policy: The government subordinates monetary policy to the 
need to maintain a stable exchange rate. Interest rates and the 
monetary aggregates generally reflect market conditions. The Bank of 
Portugal intervenes as necessary--through liquidity absorption/
provision and foreign exchange operations--to smooth market exchange 
rate fluctuations and ensure medium-term price stability.
2. Exchange Rate Policy

    Portugal participates in the Exchange Rate and Intervention 
Mechanism (ERM) of the European Monetary System (EMS). In accordance 
with this agreement, Portugal maintains the spot exchange rates between 
the Portuguese escudo and the currencies of the other participants 
within margins of 15 percent above or below the cross rates based on 
the central rates expressed in European Currency Units (ECUs).

    The monetary authorities have kept the escudo within a narrow band 
around its central rate against the German mark for the past two years. 
Strong dollar appreciation against the escudo in 1997 reduced the price 
competitiveness of U.S. products in Portugal, but U.S. exports have 
continued to grow in line with increased economic growth/import demand 
in Portugal.
3. Structural Policies

    The Portuguese government continues to liberalize the economy to 
stimulate growth and convergence with EU standards. Investment in new 
public infrastructure, privatization and foreign direct investment are 
changing the face of the economy and creating demand for U.S. exports.

    Portugal is rapidly improving its road, energy, health, and 
environmental infrastructure. The government has earmarked a large 
portion of its 20 billion dollar EU-backed regional development 
financing package for 1997-2000 for new infrastructure projects. Site 
construction and associated urban renewal for the Lisbon World 
Exposition in 1998 involves investment of 5 billion dollars in the 
Lisbon area, of which 3 billion dollars will have been made by 1998. A 
4.5 billion dollar natural gas pipeline from Algeria through Morocco to 
Spain and Portugal involves investment of 2 billion dollars in Portugal 
and will supply 2.5 billion cubic metres of natural gas per year for 25 
years on a take-or-pay basis. The northern rail modernization, subways, 
dams, water treatment facilities, and environmental projects offer 
numerous additional opportunities for U.S. exporters of equipment and 
services.

    The government has steadily rolled back the state presence in the 
economy since joining the European Community in 1986. Full or partial 
privatization of over 100 companies since 1989 (including major 
banking, insurance, energy, telecommunications, cement, and steel 
companies) has reduced the weight of the state-held sector in the 
economy from 20 percent to 10 percent. By the end of 1997, 
privatization will have yielded over 15 billion dollars in cumulative 
receipts, equivalent to an average of almost 2 percent of GDP per year, 
one of the highest ratios in the OECD. Privatization has helped to 
reduce public debt, increased the efficiency of Portuguese industry, 
promoted the development of the local equity market, and contributed to 
the development of more sophisticated Portuguese industrial and 
financial groups. Formerly state-owned companies will be streamlining 
and upgrading operations under private management and thereby creating 
new markets for U.S. goods and services.

    Foreign investments in the automotive, electronics and financial 
sectors are steadily integrating Portugal's economy with those of 
Europe and other developed countries. These investments have direct 
spiller effects for U.S. exports.
4. Debt Management Policies

    Portugal's external public debt is relatively small and can be 
serviced comfortably. Direct state external debt stands at about 12.7 
billion dollars--12.5 percent of GDP and 68 percent of international 
reserves. In July 1997, the debt service ratio stood at 9.4 percent, 
with long-term principal and interest payments amounting to 6.9 percent 
and 2.5 percent, respectively, of current account receipts. Large gold 
and foreign exchange reserves (amounting to 18 percent of GDP), and the 
ability to tap international financial markets on favorable terms, 
enable Portugal to manage balance of payments pressures and maintain 
financial stability.

    Portugal is an aid donor nation and a Member of the OECD 
Development Assistance Committee. Portugal closely follows development 
issues in its former African colonies. Portugal's official development 
assistance as a proportion of GDP peaked at 0.36 percent in 1992 and 
fell to 0.25 percent in 1996. A large proportion of Portugal's aid is 
in the form of debt forgiveness and refinancing on concessional terms 
of private sector loans to Lusophone African countries, principally 
Angola and Mozambique.
5. Significant Barriers to U.S. Exports

    As of January 1, 1993, all barriers to trade, capital flows and 
labor mobility between Portugal and its EU partners were eliminated. 
Most barriers to U.S. exports, therefore, are common to all EU member 
states.

    Quantitative import restrictions remain for the following products: 
automobiles, fabrics and nets, fuses, parts of footwear, iron and steel 
tubes and pipes, and weaving machines for certain countries. Textiles 
are covered by the Multi-Fiber Arrangement (MFA) and protected by EU-
wide quotas that are being phased out over 10 years under the Uruguay 
Round Agreement.

    Portugal follows EU directives for standards, testing, labeling, 
and certification. The Portuguese Quality Institute establishes 
national standards and implements EU directives. Portugal has already 
adopted most EU directives into Portuguese law. The Portuguese 
Telecommunications Institute sets standards for telecommunication 
products, and the National Laboratory of Civil Engineering sets 
construction standards.

    Low voltage electrical and electronic equipment must meet the 
requirements of EC directive 73/23/EEC. Imported textiles, apparel, and 
leather goods must carry a label indicating country of origin and 
composition by percentage of the fabric.

    EU-funded Projects: Portuguese law does not discriminate against 
foreign firms in bidding on EU-funded projects. Nevertheless, as a 
practical matter, foreign firms bidding on EU-funded projects have 
found that having an EU or a Portuguese partner (depending on the 
project) enhances their prospects. For certain high-profile direct 
imports (i.e., aircraft), the GOP has shown a political preference for 
EU products (i.e., Airbus).

    Value-Added Tax: Value-added tax (IVA) is collected at the time of 
import on products coming from outside the EU. Portuguese importers and 
distributors therefore have an incentive to import U.S. products 
through another EU country, rather than directly from the United 
States, in order to defer paying IVA until the product has been sold. 
In some instances, however, the need to take a circuitous route to 
obtain U.S. products without up-front IVA payment encourages Portuguese 
importers/distributors to buy European products instead.

    The government offers a generous package of incentives to foreign 
investors, including 100 percent foreign-owned subsidiaries. The 
package of incentives ranges from 25 to 35 percent of the total 
investment but can go higher to attract certain desired investments.

    Portugal's 1990 privatization law limits non-EU participation in 
state-owned enterprises being privatized. Portugal limits non-EU 
investment to 15 percent in television broadcasting and 25 percent in 
complementary telecommunications. It limits foreign investment in the 
capital of public service telecommunications operators to 25 percent. 
Non-EU investment in financial services is subject to an economic needs 
test. Only companies headquartered in Portugal and whose majority of 
capital and management control belongs to Portuguese national entities 
can receive licenses to operate marine and air transport. Air transport 
between the Azores and Madeira and mainland Portugal remains a public 
monopoly.

    Government procurement legislation makes no distinction as to 
country of origin. The only exception is for purchases of items 
manufactured in Indonesia. In July 1993, the GATT accepted Portugal's 
list of entities covered by the Government Procurement Code.
6. Export Subsidies Program

    Portugal instituted the Special Program of Support for the Export 
Sector (PEASE) to promote diversification of Portugal's export markets. 
Under this program, the government contracts with a private insurance 
firm, COSEC, to provide political risk coverage for interbank credit 
lines to support Portuguese exports to ``non-traditional'' (high-risk) 
markets. In addition, Portugal recently announced a new package of 
direct financial support (mainly credit subsidies) for Portuguese firms 
expanding their international operations.
7. Protection of U.S. Intellectual Property

    The Portuguese Industrial Code largely conforms with the trademark 
and patent provisions of the TRIPs agreement and additional revisions 
are currently being considered to bring it into full compliance. 
Portugal's current substantive law on copyright protection, promulgated 
in 1985, is also largely in accordance with TRIPs. EU directives on 
rental and broadcasting have been transposed into law. Portugal is a 
member of the World Intellectual Property Organization and is party to 
the Berne and Universal Copyright Conventions and the Paris Industrial 
Property Convention.

    Portuguese software law explicitly offers copyright protection for 
computer programs and stipulates stiff fines for software piracy. 
Business and software organizations have taken a proactive role in the 
fight against piracy, and industry sources indicate that the piracy 
rate, while above the EU average, continues to decline. Enforcement 
action against unauthorized copying of software and audio and video 
cassettes also improved significantly last year.
8. Worker Rights

    a. The Right of Association.--Workers in both the private and 
public sectors have the constitutional right to associate freely and 
establish unions in the workplace ``to defend their interests.'' Unions 
may be established by profession or industry. Strikes are permitted for 
any reason, including political causes; they are not common, usually of 
short duration, and generally are resolved through direct negotiations. 
Two principal labor federations exist and are closely affiliated with 
political parties. There are no restrictions on formation of additional 
labor unions. Unions function without hindrance by the government. 
There are no restrictions on unions' ability to join federations or on 
federations' ability to affiliate with international labor bodies.

    b. The Right to Organize and Bargain Collectively.--Unions are free 
to organize without interference by the government or by employers. 
Collective bargaining is provided for in the Constitution and is 
practiced extensively in the public and private sectors. Collective 
bargaining disputes rarely lead to prolonged strikes. If a long strike 
occurs in an essential sector such as health, energy, or 
transportation, the government may order the workers back to work for a 
specific period. This did not occur in 1997.

    c. Prohibition of Forced or Compulsory Labor.--Forced labor is 
prohibited and does not occur. This prohibition is enforced by the 
General Labor Inspectorate (IGT).

    d. Minimum Age for Employment of Children.--The minimum employment 
age is 16 years. The two main labor federations and observers from 
other European countries have charged that a number of ``clandestine'' 
companies in the textile, shoe, and construction industries exploit 
child labor. The IGT confirms that hundreds of children under the age 
of 16 are employed illegally, mainly in the northern cities of Porto 
and Braga, but believes the number is declining. In 1996, the 
government created the National Inter-Ministerial Commission to Combat 
Child Labor (CNCTI) with the aim of eradicating child labor in 
Portugal. In 1997, the CNCTI, the Ministry of Employment, and one of 
the unions undertook a public education campaign targeted at high-risk 
communities to convince parents to keep their children in school. The 
Ministry of Education required teachers to inform the IGT in the event 
of continued absences or declines in productivity on the part of 
students. The Ministry of Employment published a ``blacklist'' of 
companies caught illegally employing child labor and denied those 
companies access to EU funding or benefits. Nevertheless, one union 
maintains that the CNCTI has too little independent funding to be able 
carry out its functions.

    e. Acceptable Conditions of Work.--Minimum wage legislation covers 
full-time workers, as well as rural workers and domestic employees age 
18 or over. The monthly minimum wage of about 315 dollars (56,700 
escudos), which came into effect on January 1, is generally enforced. 
Along with widespread rent controls, basic food and utility subsidies, 
and a guaranteed minimum income that is steadily expanding to cover the 
most needy communities, the minimum wage affords a basic standard of 
living for a worker and family. Average monthly earnings range from 
about 460 dollars (83,469 escudos) for skilled low-level personnel to 
about 1,580 dollars (284,263 escudos) for higher management personnel.

    The maximum legal working day is 8 hours and maximum working week 
is 40 hours. For public sector employees, the maximum working week is 
39 hours. Current law permits a maximum of 2 hours of paid overtime per 
day and 200 hours per year, with a minimum interval of 12 hours between 
normal working days. The Ministry of Employment monitors compliance 
through its regional inspectors and working hour limits are respected 
in practice. Employees receive 22 days of paid annual leave, plus 
vacation and Christmas (``13th month'') bonuses. Employers are legally 
responsible for accidents at work and are required by law to carry 
accident insurance. Although an existing body of law regulates safety 
and health, unions continue to argue for stiffer laws. The General 
Directorate for Hygiene and Labor Safety develops safety standards and 
the IGT is responsible for enforcing them. A relatively large 
proportion of accidents occurs in the construction industry, where 
unions claim many foreign workers are hired illegally and work under 
unregulated conditions. Major accidents involving loss of life on some 
high-profile public and private projects have focused the government's 
attention on improving worker safety in the construction sector in 
particular. There is also considerable concern about poor environmental 
controls in the textile industry.

    f. Worker Rights in Sectors with U.S. Investment.--Legally, worker 
rights apply equally to all sectors of the economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                      689 
  Food & Kindred Products.....................         181              
  Chemicals & Allied Products.................         235              
  Metals, Primary & Fabricated................         \1\              
  Machinery, except Electrical................         \1\              
  Electric & Electronic Equipment.............         \1\              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................          45              
Wholesale Trade...............................                      451 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                      148 
Services......................................                      331 
Other Industries..............................                      \1\ 
TOTAL ALL INDUSTRIES..........................                     1854 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        

                                 ______
                                 

                                ROMANIA

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                1995     1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\...........................     35.3    35.52      31.4
  Real GDP Growth (pct) \3\.................      7.1      4.1      -2.0
  GDP by Sector:                                                        
    Agriculture.............................      7.0      6.9       6.8
    Industry................................     12.3     12.7      10.6
    Services \4\............................     16.2     15.9      14.0
  Per Capita GDP (US$)......................    1,565    1,564     1,389
  Labor Force (millions)....................     10.5     10.4      10.4
  Unemployment (pct)........................      9.5      6.3       9.0
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply Growth (M2)..................     71.6     66.0     111.8
  Consumer Price Inflation..................     27.8     56.9     151.4
  Exchange Rate (Leu/US$ - annual average)                              
    Official................................    2,033    3,082     7,161
                                                                        
Balance of Payments and Trade:                                          
Total Exports FOB \5\.......................      7.9      8.1       8.8
    Exports to U.S. (US$ mlns) \6\..........    200.8      180       300
Total Imports CIF \5\.......................      9.5     10.6      10.5
    Imports from U.S. (US$ mlns) \6\........    419.4    375.8     347.6
  Trade Balance \5\.........................     -1.6     -2.5      -1.7
    Balance with U.S. (US$ mlns) \6\........   -218.6   -195.8     -47.6
  Current Account Deficit/GDP (pct).........      4.9      7.3       5.1
  External Public Debt......................      6.8      9.1      10.4
  Debt Service Payments/GDP.................      3.8      5.6       8.0
  Fiscal Deficit/GDP (pct)..................     -2.6     -3.9      -3.7
  Gold and Foreign Exchange Reserves \7\....     2.27     2.54      4.41
  Aid from U.S. (US$ millions) \8\..........     39.0     26.0      33.1
  Aid from All Other Sources \8\ (US$                                   
   millions)................................    200.7    142.6      76.9
------------------------------------------------------------------------
\1\ All figures for 1997 are estimates extrapolated from dataavailable  
  in October, 1997.                                                     
\2\ GDP at factor cost.                                                 
\3\ Percentage changes calculated in local currency.                    
\4\ Government expenditure is included in services.                     
\5\ Merchandise trade.                                                  
\6\ Source: Romanian National Statistics Commission.                    
\7\ Total banking system net international reserves; end of period.     
\8\ Does not include military aid.                                      

1. General Policy Framework

    In early 1997, Romania's newly elected government adopted an 
economic reform program, backed by a stand-by agreement with the IMF. 
The Government of Romania has seen some success in implementing the 
macroeconomic stabilization program: inflation has dropped, the current 
account deficit has been reduced, foreign exchange reserves have 
increased, and the exchange rate has stabilized. The government deficit 
is within the IMF-target of 4.5 percent of GDP. The government has been 
less successful, however, in its restructuring and privatization 
efforts. More than half of industrial production remains in state 
hands.

    Romania is committed to becoming a member of the European Union, 
which is by far Romania's largest trading partner. In the first seven 
months of 1997, the EU received 57.3 percent of Romania's total 
merchandise exports and provided 51.7 percent of its merchandise 
imports. In contrast, the United States accounted for only 3.95 percent 
of Romania's exports and 3.92 percent of its imports during the same 
period.
2. Exchange Rate Policy

    The foreign exchange market was liberalized in February, 1997 and 
has been functioning effectively since that time. Romania has passed 
legislation to implement full leu-convertibility by the end of January, 
1998, which will increase domestic confidence in the economic reform 
program.
3. Structural Policies

    Economic reform has entailed creating new laws in virtually every 
sphere: commerce, privatization, intellectual property, banking, labor, 
foreign investment, environment, and taxation. While new legislation is 
necessary to create a basis for a market economy, the rate of change of 
legislation has also served as a brake on trade and investment. For 
example, an emergency law on foreign investment was issued in June, 
1997, but the necessaryimplementing regulations were not put in place 
until October. In the interim, Parliament decided to redraft the 
legislation to provide a level playing field for domestic as well as 
foreign investors. The result has been to significantly slow the inflow 
of investment until the legal framework is clarified.

    In the agricultural sector, Romania has made significant progress 
in its reform program. Prices for almost all products have been 
liberalized, export quotas have been lifted, and tariffs have been 
reduced. Privatization and liquidation of state-owned farms is on 
track.

    In contrast, Romania has moved slowly to privatize and reform 
state-owned banks or to restructure heavy industry, which remains 
largely in state hands. In August, 1997 the government announced plans 
to close 16 energy-intensive industries which cannot pay their bills. 
Implementation of the plan has been uneven.
4. Debt Management Policies

    At the end of 1996, Romania's medium and long-term external debt 
amounted to $6.9 billion. At the same time, the short-term debt 
amounted to $1.2 billion. The National Bank's foreign exchange reserves 
amounted to $550.7 million, and the commercial banks' reserves reached 
$1.6 billion. At the same time, Romania had claims against foreign 
countries worth $3 billion, stemming from economic transactions prior 
to December, 1989.

    Romania's foreign indebtedness and external debt service ratio 
remain relatively low and manageable. The ceiling for 1997 foreign 
borrowing has been set at $3.2 billion by law.
5. Significant Barriers to U.S. Exports

    Traditionally defined trade and investment barriers are not a 
significant problem in Romania. There are no laws which directly 
prejudice foreign trade or business operations, although EU and members 
of the Central European Free Trade Area (CEFTA) enjoy tariff 
preferences for some goods as a result of Romania's Association 
Agreement with the European Union and membership in CEFTA as of July, 
1997.

    Bureaucratic red tape and uncertainties in the legal framework can 
make doing business in Romania difficult. There is little experience in 
Western methods of negotiating contracts and, once concluded, there is 
no effective means to enforce contracts. In addition, title insurance 
is not available for property acquisitions and purchasers are 
potentially subject to legal challenge by former owners or managers. 
The absence of effective legal means for pressing claims against 
debtors is a further complication for foreign investors.

    The cost of doing business in Romania is high, particularly for 
office rentals, transportation, and telecommunication services. Lack of 
an efficient, modern payments system further delays transactions in 
Romania. The capital requirements for foreign investors are not 
onerous, but income taxes are steep. Foreign companies investing over 
certain amounts qualify for some tax exemptions.

    Investment barriers are few in Romania. The Foreign Investment Law 
allows up to 100 percent foreign ownership of an investment project 
(including land), and there are no legal restrictions on the 
repatriation of profits and equity capital. Governmental approval of 
joint ventures requires extensive documentation. U.S. investment in 
Romania is increasing and by November, 1997, totaled $254.5 million, 
ranking the United States second among foreign investors after the 
Netherlands.

    Romania is a member of the World Trade Organization, but not a 
signatory to the agreement on government procurement or civil aircraft.
6. Export Subsidies Policies

    The Romanian government does not provide export subsidies but does 
attempt to make exporting attractive to Romanian companies. For 
example, the government provides for the total or partial refund of 
import duties for goods that are processed for export or are 
incorporated into exported products. The Romanian Export-Import Bank 
engages in trade promotion activities on behalf of Romanian exporters 
of goods produced in Romania.

    There are no general licensing requirements for exports from 
Romania, but the government does prohibit or control the export of 
certain strategic goods and technologies. For example, the government 
has on occasion banned the export of various commodities due to 
domestic shortages. There are also export controls on imported or 
domestically produced goods of proliferation concern.
7. Protection of U.S. Intellectual Property

    Romania has made significant progress in the area of intellectual 
property protection since the end of the communist era. Patent and 
trademark laws are in place and legislation on pipeline protection for 
pharmaceuticals is expected to be passed by the Parliament early in 
1998. Copyright legislation, which was enacted in 1996, has sparked new 
interest among American technology firms in investing and marketing 
their products in Romania. The Romanian government has proven receptive 
to offers of international assistance in enforcement, but has yet to 
establish a strong enforcement record in the copyright area.

    Pirated copies of audio and video cassette recordings are 
available, but not openly displayed. In a few cases, pirated films are 
broadcast via local cable television stations. Illegal compact discs 
sold in Romania are imported, but there are no known exports of pirated 
products from Romania. An industry association representing U.S. 
companies estimated annual losses due to piracy of intellectual 
property at roughly $45 million in 1996.

    Romania is member of Berne (the Stockholm Convention of (1968), 
World Intellectual Property Organization, the Paris Industrial Property 
Convention, the Patents Cooperation Treaty, the Madrid Convention, and 
the Hague Convention on Industrial Design, Drawings and Models. As a 
country in transition, Romania will implement the WTO agreement on 
intellectual property on January 1, 2000.
8. Worker Rights

    a. The Right of Association.--All workers except public employees, 
police, and military personnel, have the right to associate freely and 
to form and join labor unions without prior authorization. Labor unions 
are free from government or political party control but may engage in 
political activity. Labor unions may join federations and affiliate 
with international bodies, and representatives of foreign and 
international organizations may freely visit and advise Romanian trade 
unionists.

    b. The Right to Organize and Bargain Collectively.--Workers have 
the right to bargain collectively. Basic wage scales for employees of 
state-owned enterprises are established through collective bargaining 
with the state. There are legal limitations on the right to strike only 
in industries such as defense, health care, transportation, and 
telecommunications, which the government considers critical to the 
public interest.

    c. Prohibition of Forced or Compulsory Labor.--The Constitution 
prohibits forced or compulsory labor. The Ministry of Labor and Social 
Protection effectively enforces this prohibition.

    d. Minimum Age for Employment of Children.--The minimum age for 
employment is 16. Children as young as 14 may work with the consent of 
their parents or guardians but only ``according to their physical 
development, aptitude, and knowledge.'' Working children under 16 have 
the right to continue their education, and employers are obliged to 
assist in this regard.

    e. Acceptable Conditions of Work.--Minimum wage rates are generally 
observed and enforced. The Labor Code provides for a standard work week 
of 40 hours, with overtime for work in excess of 40 hours, and paid 
vacations of 18 to 24 days annually. Employers are required to pay 
additional benefits and allowances to workers engaged in dangerous 
occupations. Nevertheless, some labor organizations press for 
healthier, safer working conditions. The Ministry of Labor and Social 
Protection has established safety standards for most industries, but 
enforcement is inadequate and employers generally ignore the Ministry's 
recommendations. On average, women experience a higher rate of 
unemployment than men and earn lower wages despite educational 
equality. The average gross monthly wage in September 1997 was around 
$100.

    f. Rights in Sectors with U.S. Investment.--Conditions do not 
appear to differ in goods-producing sectors in which U.S. capital is 
invested. Extent of U.S. Investment in Selected Industries--U.S. Direct 
Investment Position Abroad on an Historical Cost Basis--1995

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                        0 
Total Manufacturing...........................                      \1\ 
  Food & Kindred Products.....................         \1\              
  Chemicals & Allied Products.................         \1\              
  Metals, Primary & Fabricated................           0              
  Machinery, except Electrical................           0              
  Electric & Electronic Equipment.............           0              
  Transportation Equipment....................           0              
  Other Manufacturing.........................           1              
Wholesale Trade...............................                       -1 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                        0 
Services......................................                        0 
Other Industries..............................                      \1\ 
TOTAL ALL INDUSTRIES..........................                       63 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                 RUSSIA

                       Key Economic Indicators \1\                      
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                1995     1996     1997  
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\...........................    1,630    2,256     2,678
  Real GDP Growth (pct).....................       -4     -2.8       0.3
  GDP by Sector:                                                        
    Manufacturing \2\.......................     75.0     97.4      97.6
    Services \2\............................     76.4    109.3     124.2
  Per Capita GDP \3\........................    2,711    2,581     2,485
  Labor Force (000s)........................   73,000   73,000    72,000
  Unemployment Rate (pct)...................      8.2      9.3       9.2
                                                                        
Money and Prices (annual percent growth):                               
Money Supply Growth (M2)....................      126       34        25
Consumer Price Index........................      131       22        15
  Exchange Rate:                                                        
    (ruble/US$ - annual average)............     4557     5775      5780
                                                                        
Balance of Payments and Trade:                                          
  Total Exports (FOB) \4\...................     78.2     85.0      84.0
    Exports to U.S.\4\......................      4.3      4.8       4.1
    Total Imports (CIF) \4\.................     46.7     45.9      42.8
    Imports from U.S.\4\....................      2.6      2.9       3.0
  Trade Balance \4\.........................     31.5     39.1      41.2
    Balance with U.S.\4\....................      1.7      1.9       1.1
  Current Account \4\.......................     17.0     19.4      18.1
  External Public Debt \4\..................      728    1,069     1,289
  Debt Service Payments/GDP (pct)...........      1.9      2.1       1.4
  Fiscal Deficit/GDP (pct)..................      5.4      8.0       6.5
  Gold and Foreign Exchange \5\.............     17.1     15.3      24.5
  Aid from U.S. (US$ millions) \6\..........      286      182       150
  Aid from All Other Sources................      N/A      N/A       N/A
------------------------------------------------------------------------
\1\ Figures are from the Russian Statistics Committee (Roskomstat) and  
  U.S. Embassy estimates.                                               
\2\ In trillions of Russian rubles. Reliable dollar figures can not be  
  developed due to quality of the data, high inflation and rapid        
  depreciation of the ruble against the dollar.                         
\3\ In rubles, 1990 prices. Reliable dollar figures can not be          
  developed.                                                            
\4\ Source: State Customs Committee 1997 trade data are estimates based 
  on first six months.                                                  
\5\ Source: International Monetary Fund. 1997 data as of June.          
\6\ USAID, total obligations for the year.                              

1. General Policy Framework

    At the start of 1996, Russia embarked on a three-year economic 
stabilization program characterized by tight monetary and fiscal 
policy. This program formed the basis for a three-year $10.2 billion 
Extended Fund Facility (EFF) credit from the IMF. While performance has 
generally been deemed satisfactory, the IMF delayed disbursements in 
July, October, and December 1996 due to poor government revenue 
collections, a problem that persists.

    Despite the revenue shortfalls, the Government has held the line on 
spending, and the Central Bank has maintained a tight monetary policy. 
The fiscal deficit is largely financed by domestic bond issues. As a 
result, inflation has continued to decline, from an annual rate of 131% 
in 1995 to 14.9% in August, 1997. However, compressed government 
spending has led to a build-up of arrears, creating a ripple effect 
throughout the economy. The Government has moved to address the 
problem, eliminating pension arrears and the bulk of wage arrears to 
military servicemen, with a pledge to bring all public sector wages 
current by January 1, 1998. The Government is pursuing tax reform to 
widen the tax base and increase revenues. At the same time, the draft 
1998 budget attempts to reduce the expenditure side of the equation to 
bring revenues and expenditures closer in line.

    There are very preliminary indications that, after five straight 
years of decline, the economy may be recovering. Overall industrial 
production in July 1997 was 1.2% higher than the comparable 1996 
period. Virtually all of this increase is due to increased estimates of 
the activity of small businesses and the shadow economy, the accuracy 
of which is difficult to measure. Production at large and medium firms 
in July was down 2.8% versus the year earlier level. Freight haulage, 
an often used secondary indicator of economic activity, was also down 
6.5% in July over the same period last year. Early data for July 
indicates a 5.6% decline in exports over the same period in 1996. 
Imports, including estimates for informal shuttle trade are essentially 
flat for the seven months ending in July.
2. Exchange Rate Policy

    Russia has been an IMF Article VIII signatory since July 1, 1996, 
removing all restrictions from current account transactions. Since that 
time, the Central Bank has employed a ``crawling band'' mechanism to 
manage the currency, generally pursuing a policy of gradual nominal 
depreciation. Exchange rates have remained at the upper level of the 
band parameters of 5500-6100 in January to 5750-6350 at year's end. 
Tight monetary and fiscal policy, together with a healthy trade surplus 
and increasing capital inflows has created pressure to appreciate the 
ruble and, in real terms, the ruble has appreciated very slightly since 
the beginning of 1997. 1998 exchange rate policy will be announced at 
the end of November.
3. Structural Policies

    The pace of economic liberalization was renewed in March 1997 
following sluggish progress in 1996. The GOR moved forward on a program 
to restructure the ``natural monopolies'' in Russia's electricity, rail 
and gas sectors, starting with reasserting its own influence on the 
boards of directors. There has been early progress on rationalizing 
pricing, to help lower costs of these key inputs for manufacturing 
enterprises and plans to continue in this direction are on track. The 
GOR has also managed to reduce subsidization of housing services, 
though this remains a heavy burden for municipal budgets. To attack the 
problem of weak management skills among Russian entrepreneurs, 
President Yeltsin has proposed an initiative to increase business and 
management training for Russians domestically and abroad.

    Approximately 70 percent of GDP is now produced by private 
companies. The July 1997 auction of a portion of the state 
telecommunications holding company, Svyazinvest, indicated that the 
government was shifting away from the non-competitive practices that 
characterized the controversial loans-for-shares program. The GOR has 
promised more openness and transparency in future privatizations, and 
to increase the revenues from the program. By October, actual 1997 
privatization proceeds exceeded the year's target by 85%--a real 
turnaround from years of under-performance.

    Taxes in Russia are confusing, subject to constant revision and 
inconsistently applied. The Government submitted a revised draft tax 
code, designed to streamline and rationalize the tax system, to the 
Duma in April. Legislators approved the code in its first reading 
(three are required for legislation to become law) in June, but 
signaled that they still had major concerns with the Government's 
draft. Discussion about how best to pursue tax reform is on-going. 
However, implementation of any new approved provisions, whether 
encapsulated in a unified code or submitted as separate legislation, 
will be gradually phased-in.
4. Debt Management Policies

    After rescheduling, Russia has an external debt servicing to 
exports ratio of 5.8%. In 1996, the Paris Club of official creditors 
rescheduled Russia's outstanding stock of debt (more than $40 billion, 
including debt inherited from the former Soviet Union) over 25 years. 
The agreement is subject to periodic reviews which are tied to 
performance under the IMF EFF program. In October 1997, Russia 
concluded an agreement with the London Club of commercial creditors to 
reschedule $24 billion of commercial debt. Russia will commence 
payments under the rescheduling agreement in December, 1997. In 
September 1997, Russia also joined the Paris Club as a creditor, in an 
effort to recoup some of the estimated $52 billion in debt owed to it 
by Paris Club debtor nations. Russia re-entered international capital 
markets in November 1996 and has successfully placed two Eurobond 
issues (for $2 billion and DM2 billion) to date. Such international 
borrowings are expected to become a standard feature of government 
financing in 1998 and beyond.
5. Significant Barriers to U.S. Exports

    In general, Russia relies on tariff barriers for protection of 
domestic industry. Russia raised import tariffs in several stages 
beginning from zero when the Soviet Union split up. In March 1995, by 
presidential decree, these rates were revised to raise the floor 
(except for a small list of zero-duty goods) to five percent and lower 
the ceiling (except for a few luxury goods) to 30 percent. In the 
spring of 1996, the Government raised tariffs on alcoholic beverages, 
chicken and some other food products, resulting in an average weighted 
tariff of 14 percent. In addition, excise taxes and value added taxes 
(VAT) are applied to selected imported goods. Excise taxes vary from 20 
percent to 570 percent on a price exclusive basis. The VAT rate is 
currently 20 percent with the exception of selected food products, 
where it is 10 percent and VAT is applied to the import price plus 
tariff plus excise tax.

    Import licenses are required for importation of various goods, 
including ethyl alcohol and vodka, combat and sporting weapons, self-
defense articles, explosives, military and ciphering equipment, 
encryption software and related equipment, radioactive materials and 
waste including uranium, strong poisons and narcotics, and precious 
metals, alloys and stones. In October 1997, the Committee on Defensive 
Trade Measures proposed licensing of color TV imports, to go into 
effect in 1998; this proposal awaits decision by the Council of 
Ministers. Most import licenses are issued by the Russian Ministry of 
Foreign Economic Relations (MINFER) or its regional branches, and 
controlled by the State Customs Committee. Import licenses for sporting 
weapons and self-defense articles are issued by the Ministry of 
Internal Affairs.

    The June 1993 Customs Code standardized Russian customs procedure 
in accordance with international norms. However, customs regulations 
change frequently, (often without sufficient notice), are subject to 
arbitrary application, and can be quite burdensome.

    Based on Russia's July 1993 Consumer Protection law, many products 
imported for sale into the Russian Federation are required to have a 
certificate of conformity issued by the Russian State Committee on 
Standards (Gosstandart). Gosstandart tests and certifies products 
according to a combination of international (notably European Union and 
Russian Government) standards. Certificates are required for each food 
import shipment, as well as additional sanitary and phytosanitary 
certificates as necessary. Manufactured items can receive certificates 
allowing import of a good over a three-year period. U.S. companies have 
complained of costly procedures and arbitrary certification 
requirements. The Russian Federation is considering the establishment 
of reciprocal standardization with the United States and other 
countries and acceptance of foreign certification by accredited 
institutions.

    In July 1997, the Russian government announced the current food 
labeling law, which requires that imported food have labels in the 
Russian language containing information on content, nutritional value, 
shelf life, conditions of storage, and use of the product. The Russian 
importer is responsible for complying with the import labeling 
requirements, not the U.S. exporter or supplier. The new law 
strengthens the role of the State Committee for Standards (Gosstandart) 
in managing these requirements by providing instructions and other 
details. Gosstandart also proposed in 1997 use of a new holographic 
mark of conformity with Russian regulations for a few goods, but this 
requirement, which is considered by foreign investors to be costly and 
unnecessary, has not been finalized.

    Although under current law little of Russia's legislation in the 
services sector is overtly protectionist, the domestic banking, 
securities and insurance industries have secured concessions in the 
form of presidential decrees. Foreign participation in banking, for 
example, is limited to 12 percent of total banking capital. In 
practice, because of latent protectionism and nontransparent 
requirements, foreign companies are often disadvantaged vis-a-vis 
Russian counterparts in obtaining contracts, approvals, licenses, 
registration, and certification, and in paying taxes and fees. 
Negotiation of greater market access for foreign firms is complicated 
by the fact that service industries are not yet well developed and the 
Russian government still needs to decide the degree of foreign 
participation it will permit. Many service industries still lack 
comprehensive regulatory legislation.

    Although there are no current, significant legal barriers to doing 
business in Russia, Russian foreign investment regulations and 
notification requirements are confusing and contradictory. The Ministry 
of Finance, local authorities and/or various central government bodies 
all register foreign investments. Prior approval is required for 
investment in new enterprises using assets of existing Russian 
enterprises, foreign investment in defense industries (which may be 
prohibited in some cases), investment in the exploitation of natural 
resources, all investments over 50 million rubles, investment ventures 
in which the foreign share exceeds 50 percent, or investment to take 
over incomplete housing and construction projects. Additional 
registration requirements exist for investments exceeding 100 million 
rubles. Projects involving large scale construction or modernization 
may also be subject to expert examination for environmental 
considerations. Although the situation has improved over the past few 
years, foreigners encounter significant restrictions on ownership of 
real estate in some cities and regions in Russia.

    The 1991 Investment Code guarantees foreign investors rights equal 
to those enjoyed by Russian investors. Senior GOR officials have 
reconfirmed many times Russia's desire to attract foreign participation 
in privatization, but in practice the bounds of the foreign role varies 
by sector and region. For example, foreign participation is sharply 
limited in some ``strategic'' sectors. In the 1995 loans-for-shares 
privatization program, foreign investors were banned from the oil, gas, 
and precious metals sectors.

    The government maintains a monopoly on the sale of precious and 
several rare-earth metals and conducts centralized sales of diamonds, 
and conducts centralized purchases for export of military technology. 
In September and October, gold and diamond trading were liberalized 
slightly, but state control is still intact. In August 1997, a series 
of presidential decrees were enacted which established tighter control 
over military exports by the state enterprise Rosvooruzheniye, enabled 
two additional state firms to sell military goods and technology, and 
opened the door to future direct sales by arms manufacturers, if 
licensed and approved by the Ministry of Foreign Economic Relations.

    The Russian legislature is currently considering amendments to the 
Russian Law on Foreign Investments; the first version of this bill, 
considered in February 1997, was more restrictive than current 
legislation and likely to discourage foreign investment and trade. 
Proposals in the draft legislation would restrict or ban foreign 
investment in numerous industries and services; impose new barriers to 
the import of capital equipment; introduce ambiguities into Russia's 
legal protection of intellectual property rights, and reduce investment 
climate stability by limiting grandfathering provisions.

    Most of these issues are the subject of discussion, as Russia 
continues negotiations on its accession to the World Trade Organization 
(WTO). By the end of 1997, the Government had completed seven WTO 
working party meetings. Russia has indicated that its initial WTO 
market access offer for goods could be tabled in early 1998; the 
services offer is expected to take more time. Russia is not yet a 
signatory of the WTO Government Procurement or Civil Aircraft 
agreements.
6. Export Subsidies Policies

    The Government of the Russian Federation has not instituted export 
subsidies, although a 1996 executive decree allows for provision of 
soft credits for exporters and government guarantees for foreign loans. 
The government does provide some subsidies for the production of coal. 
Soft credits are at times provided to small enterprises for specific 
projects.
7. Protection of U.S. Intellectual Property

    In 1992-93, Russia enacted laws strengthening the protection of 
patents, trademarks and appellations of origins, and copyright of 
semiconductors, computer programs, literary, artistic and scientific 
works, and audio/visual recordings. Legal enforcement of intellectual 
property rights (IPR) improved somewhat in 1997 with a series of raids 
on pirates and some seizures of CD's at the border by Russian Customs. 
A new criminal code took effect January 1, 1997, that contains 
considerably stronger penalties for IPR infringements. By presidential 
decree, a higher patent chamber is to be established at the Russian 
Patent and Trademark Agency (Rospatent) which should bring greater 
expertise and efficiency to the resolution of patent and trademark 
disputes. Rospatent is also seeking to establish a Russian Trademark 
Owners Association to represent the concerns of trademark holders. 
Nevertheless, widespread sales of pirated U.S. video cassettes, 
recordings, books, computer software, clothes, toys, foods and 
beverages continues and several U.S. industry groups have charged that 
losses from violation of intellectual property rights in Russia are 
exceeded only by those in China. This lack of enforcement resulted in 
Russia being placed on the Priority 301 watch list in 1997. The lack of 
sufficient retroactive copyright protection for U.S. works in Russia 
remains a key issue of concern for the United States.

    The patent law includes a grace period, procedures for deferred 
examination, protection for chemical and pharmaceutical products, and 
national treatment for foreign patent holders. Inventions are protected 
for 20 years, industrial designs for ten years, and utility models for 
five years. The law on trademarks and appellation of origins introduces 
for the first time in Russia protection of appellation of origins. The 
law on copyright and associated rights, enacted in August 1993, 
protects all forms of artistic creation, including audio/visual 
recordings and computer programs as literary works for the lifetime of 
the author plus 50 years. The September 1992 law on topography of 
integrated microcircuits, which also protects computer programs, 
protects semiconductor topographies for ten years from the date of 
registration.

    Russia has succeeded to the obligations of the former Soviet Union 
under the Universal Copyright Convention, the Paris Convention, the 
Patent Cooperation Treaty, and the Madrid Agreement. In March 1995 
Russia acceded to the Berne Convention and the Geneva Phonograms 
Convention. Under the United States-Russian bilateral investment treaty 
(signed in 1992 but not yet ratified by the Russian Parliament) Russia 
has undertaken to protect investors' intellectual property rights. The 
bilateral trade agreement stipulates protection of the normal range of 
literary, scientific and artistic works through legislation and 
enforcement.
8. Worker Rights

    a. The Right of Association.--Legally, workers enjoy the right to 
join and form trade unions. Roughly 55 percent of the labor force is 
organized. The Federation of Independent Trade Unions of Russia (FNPR), 
the successor organization to the communist trade unions, dominates the 
trade union movement. FNPR unions frequently include management as part 
of the bargaining unit. Employee benefits can vary depending on union 
affiliation, and can discourage the formation of new unions.

    b. The Right to Organize and Bargain Collectively.--Collective 
bargaining is protected under the law. Most strikes, however, are 
considered technically illegal since often the labor dispute at issue 
was not first reviewed by an arbitration court. The court has the right 
to order the confiscation of union property to settle damages and 
losses to an employer if a strike is found to be illegal. An increasing 
number of strikes are therefore organized by strike committees, rather 
than unions.

    Various employers have refused to negotiate collective bargaining 
agreements. Management also frequently refuses to provide the financial 
information demanded by trade unions. If trade unions ask for such 
information, enterprise management is legally required to provide it. 
There have been incidences of reprisals for organizing, protesting and 
strike activity.

    Russia has no export processing zones. Worker rights in the special 
economic zones/free trade zones are fully covered by the Labor Code.

    c. Prohibition of Forced or Compulsory Labor.--The Labor Code 
prohibits forced or compulsory labor.

    d. Minimum Age for Employment of Children.--Regular employment for 
children under the age of 16 is prohibited under the Labor Code. The 
Code also regulates the working conditions of children under the age of 
18, including banning dangerous, nighttime and overtime work. Children 
may, under certain specific conditions, work in apprenticeship or 
internship programs at age 14 and 15. Although, in some instances, 
children can be found selling consumer goods on street corners, 
accepted social prohibitions against employment of children and the 
availability of adult workers at low wage rates combine to prevent 
widespread abuse of child labor.

    e. Acceptable Conditions of Work.--Non-payment of wages continues 
to be the most widespread abuse of the Labor Code experienced by 
Russian workers. As of July 1997, official government statistics showed 
that workers were owed 54.6 trillion rubles or roughly 9.4 billion 
dollars in accumulated wage arrears. About 80-90 percent of all arrears 
are due to failure to pay by enterprises. Wage arrears are the primary 
reason for the over 5000 enterprises and organizations that were struck 
in January and February 1997, and the over 4000 that were struck in 
March 1997. Wage arrears affect all manner of workers, from air traffic 
controllers to draftees in the military and are especially prevalent in 
the education, medicine, industry and energy/coal sectors. Wage arrears 
across industries range between three and nine months. The government 
in 1997 succeeded in paying off pension arrears and the bulk of wage 
arrears for the military and was working to complete elimination of 
arrears for all other workers paid out of the budget.

    Although a small but increasing percentage (perhaps 6 percent) of 
workers owed back wages have sought relief through the court system, 
this has proved to be a lengthy process. Indexation of back wages is 
not automatic.

    Many enterprises, because of systemic non-payments and debts owed 
them, are not in a position to pay their employees. Elsewhere, poor 
management and corruption have meant that workers are not paid even 
though managers control sufficient funds to do so. Neither enforcement 
actions by the labor ministry and court judgments against enterprises 
have been sufficient to stem wage arrears. A presidential spokesman 
said that illegal non-payment of wages continues because there is a 
minimum of disciplinary measures specified in the Civil Code and no 
criminal liability. Criminal liability for administrative violations of 
labor legislation was annulled in January 1997. In order to draw public 
and federal government attention to their plight, and place political 
pressure on the enterprises to resolve their wage arrears, many workers 
resorted to mass hunger strikes, demonstrations, picketing, blocking 
roads and rail lines, hostage-taking, and, in individual instances, 
suicide.

    Wage arrears are a very significant problem for workers because of 
the relative lack of labor mobility, due to both lack of a developed 
real estate market and the system of residency permits Still in effect 
in some cities, such as Moscow. The minimum wage in Russia in 1997 was 
83,490 rubles (roughly 14 dollars) per month.

    Workers were also at high levels of risk of industrial accidents or 
death. In 1995, the leading cause of death for Russians of working age 
was accidents and traumas, which caused 39 percent of deaths in this 
age group versus 16 percent for all age groups. In 1996, work-related 
deaths and injuries increased over 1995, to 6.1 injuries per 1000 
workers, up from 5.5.in 1995.

    f. Rights in Sectors with U.S. Investment.--Observance of worker 
rights in sectors with significant U.S. investment (petroleum, 
telecommunications, food) did not significantly differ from other 
sectors.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      258 
Total Manufacturing...........................                      298 
  Food & Kindred Products.....................         \1\              
  Chemicals & Allied Products.................          16              
  Metals, Primary & Fabricated................         \1\              
  Machinery, except Electrical................           1              
  Electric & Electronic Equipment.............          -1              
  Transportation Equipment....................         (2)              
  Other Manufacturing.........................           4              
Wholesale Trade...............................                      \1\ 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                      503 
Services......................................                       -3 
Other Industries..............................                      204 
TOTAL ALL INDUSTRIES..........................                     1311 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                 SPAIN

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                1995     1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Real GDP (1986 prices) \2\................    334.4    336.7  \3\ 300.
                                                                       0
  Real GDP growth (pct) \4\.................      2.7      2.3       3.2
  GDP (at current prices)...................    559.6    580.9     527.0
  By sector:                                                            
    Agriculture.............................     16.4     20.1      17.5
    Industry................................    135.0    136.2     122.0
    Construction............................     46.0     45.2      40.0
    Services................................    330.7    344.8     310.0
    Government..............................     93.4     95.7      83.5
  Per capita GDP............................   14,239   14,595    13,165
  Labor Force (000s)........................   15,878   15,936    16,100
  Unemployment Rate (pct)...................     22.8     21.7      21.0
                                                                        
Money and Prices (annual percentage growth):                            
Money supply (M2)...........................      3.1      7.0      10.0
  Consumer Price Inflation..................      4.7      3.6       2.2
  Exchange rate                                                         
    (Pta/US dol - Annual Average)...........    124.7    126.6     147.0
                                                                        
Balance of Payments and Trade:                                          
  Total exports FOB \5\.....................     90.7    102.8      90.0
    Exports to U.S.\5\......................      3.8      4.3       4.2
  Total imports CIF \5\.....................    113.6    122.5     106.0
    Imports from U.S.\5\....................      7.4      8.0       7.1
  Trade Balance \5\.........................    -22.9    -19.7     -16.0
    Balance with U.S.\5\....................     -3.6     -3.7      -2.9
  Fiscal deficit/GDP (pct)..................      6.6      4.4       3.0
  External Public debt......................      N/A      N/A       N/A
  Debt service payments (paid)..............      N/A      N/A       N/A
  Gold and foreign exchange reserves........     38.2     61.8      75.0
------------------------------------------------------------------------
\1\ 1997 Figures are all estimates based on available monthly data in   
  August 1997.                                                          
\2\ GDP at factor cost.                                                 
\3\ Devaluation                                                         
\4\ Percentage changes calculated in local currency.                    
\5\ Merchandise trade.                                                  

1. General Policy Framework

    Spain's economy is growing well, even better than expected for 1997 
(originally expected growth was 3.0 percent, but latest projections 
show 3.2 percent). This growth is expected to continue at similar 
levels through 1998. Growth is broadly based and enjoys major support 
from agricultural exports, capital goods investment, and finally, after 
a slight fall off in 1996, private consumption.

    Increases in private consumption offset declines on construction 
investment and public sector consumption as the current government (led 
by the Partido Popular since March 1996) continues to maintain a tight 
fiscal policy.

    The stock market has reached new highs throughout the year and 
weathered well the gyrations of late October 1997. Due to substantial 
investment inflows Spain enjoys an increasingly positive current 
account and a narrowing trade deficit with the United States.

    Much of Spain's economic policy has focused on meeting Maastricht 
Treaty targets which set out criteria for consideration to join the 
European Monetary Union. These policies have already reaped benefits in 
the form of lower interest rates and low inflation rates which have 
helped Spain promote investment and spur consumer demand. These latter 
activities have provided greater than anticipated tax receipts which in 
turn have allowed Spain to meet handily government deficit/GDP targets. 
Annual inflation, at 2.1 percent, is at its lowest level in over thirty 
years. Past government budget cuts, higher than expected tax receipts, 
and lower than expected payments for servicing government debt will 
allow this government's deficit/GDP ratio to fall below 3 percent in 
1997. However, the government debt/GDP ratio is expected to reach 69.6 
percent in 1997 (above the Maastricht target of 60 percent).

    Unemployment remains the one area in which structural policies have 
not yet made significant inroads. The present government encouraged 
direct negotiations between employers and unions on employment terms in 
1996 instead of looking to the government to make changes through 
legislation. Earlier this year the two sides agreed on changes in 
hiring practices that would lessen somewhat the high fixed cost of 
permanent new hires. This step in the right direction, combined with a 
buoyant economy, have succeeded in lowering the unemployment rate to 
below 20 percent for the first time since 1992. Continuing rigidities 
in the labor market, if unaddressed, will affect Spain's 
competitiveness in a single currency area.
2. Exchange Rate Policy

    Spain's major interest is in staying within a very close margin 
with the DM to prepare for the fixing of exchange rates. The rate has 
remained at 84-85 pesetas to the DM throughout 1997. We believe the 
Bank of Spain has intervened on various occasions to forestall a rise 
in the peseta/DM rate. Foreign currency reserves stand at 72.1 billion 
dollars as of October 1997, up from 61.8 billion dollars in 1996.
3. Structural Policies

    As a member of the European Union, Spain has eliminated tariff 
barriers for imports from other EU countries and applies common EU 
external tariffs to imports from non-EU countries. Similarly Spain will 
be bound to the mutual recognition agreements in its application of 
certain non-tariff regulations applied to eight categories of goods 
from the United States.

    In 1989, as part of the investment sector reforms necessary to 
comply with EU membership, Spain made stock market rules and operations 
more transparent and provided for the licensing of investment banking 
services. The reform also eased conditions for obtaining a broker's 
license. A 1992 investment law removed many administrative requirements 
for foreign investments. EU resident companies (i.e. companies deemed 
European under Article 58 of the Treaty of Rome) are free from almost 
all restrictions. Non-EU resident investors must obtain Spanish 
government authorization to invest in broadcasting, gaming, air 
transport, or defense. Restrictions on broadcasting and in transport 
are facing increasing pressure as the government looks to privatizing 
its national airline (perhaps in 1999), and completes the privatization 
of its telephone company.

    Faced with the loss of the Spanish feed grain market as a result of 
Spain's membership in the EU, the United States negotiated an 
Enlargement Agreement with the EU in 1987 which established a 2.3 
million ton annual quota for Spanish imports of corn, specified non-
grain feed ingredients and sorghum from non-EU countries. The Uruguay 
Round agreement had the effect of extending this agreement 
indefinitely. The United States remains interested in maintaining 
access to the Spanish feed grain market and will continue to press the 
EU on this issue. U.S. exports of corn and sorghum, valued at about 500 
million dollars annually, are an important part of U.S. trade with 
Spain.

    Under its EU accession agreement, Spain was forced to transform its 
structure of formal and informal import restrictions for industrial 
products into a formal system of import licenses and quotas. While 
Spain does not enforce any quotas on U.S.-origin manufactured products, 
it still requires import documents for some goods, which are described 
below. Neither of the following documents constitute a trade barrier 
for U.S.-origin goods.

    Import Authorization, (Autorizacion Administrativa de Importacion, 
AAI) is used to control imports which are subject to quotas. Although 
there are no quotas against U.S. goods, this document may still be 
required if part of the shipment contains products or goods produced or 
manufactured in a third country. In essence, for U.S.-origin goods, the 
document is used for statistical purposes only or for national security 
reasons.

    Prior notice of imports (Notificacion previa de importacion) is 
used for merchandise that circulates in the EU Customs Union Area, but 
is documented for statistical purposes only. The importer must obtain 
the document and present it to the General Register.

    Importers apply for import licenses at the Spanish General Register 
of Spain's Secretariat of Commerce or any of its regional offices. The 
license application must be accompanied by a commercial invoice that 
includes freight and insurance, the C.I.F. price, net and gross weight, 
and invoices number. License application has a minimum charge. Customs 
accepts commercial invoices by fax. The license, once granted, is 
normally valid for six months but may be extended if adequate 
justification is provided.

    Goods that are shipped to a Spanish customs area without proper 
import licenses or declarations are usually subject to considerable 
delay and may run up substantial demurrage charges. U.S. exporters 
should ensure, prior to making shipments, that the necessary licenses 
have been obtained by the importing party. Also, U.S. exporters should 
have their importer confirm with Spanish customs whether any product 
approvals or other special certificates will be required for the 
shipment to pass customs.

    The Government of Spain has signed and ratified the Marrakech 
Agreement which concluded the Uruguay Round of multilateral trade 
negotiations and established the World Trade Organization.
4. Debt Management Policy

    Twenty percent of Spanish medium and long-term debt is held by non-
residents. The Spanish government has standby loan arrangements in 
foreign currency with a consortia of foreign banks and has an agreement 
with several investment banks to float bonds in foreign markets as an 
alternative to domestic financing. Approximately one-third of Spanish 
government debt is short-term (less than one year) and less than one 
quarter is long-term (i.e. maturities greater than five years).

    At the end of October 1997, international reserves at the Bank of 
Spain totaled 72.1 billion dollars.
5. Significant Barriers to U.S. Exports

    Import Restrictions: Under the EU's Common Agricultural Policy 
(CAP), Spanish farm incomes are protected by direct payments and 
guaranteed farm prices that are higher than world prices. One of the 
mechanisms for maintaining this internal support are high external 
tariffs that effectively keep lower priced imports from entering the 
domestic market to compete with domestic production. However, the 
Uruguay Round agreement has required that all import duties on 
agricultural products be reduced by an average of 36 percent during the 
six year period beginning in 2000.

    In addition to these mechanisms, the EU employs a variety of strict 
animal and plant health standards which act as barriers to trade. These 
regulations end up severely restricting or prohibiting Spanish imports 
of certain plant and livestock products. One of the most glaring 
examples of these policies is the EU ban on imports of hormone treated 
beef, imposed in 1989 with the stated objective of protecting consumer 
health. Despite a growing and widespread use of illegal hormones in 
Spanish beef production, the EU continues to ban U.S. beef originating 
from feed lots where growth promotants have been used safely and under 
strict regulation for many years. In August 1997, the WTO ruled that 
the ban was illegal and must be removed. The WTO is expected to rule on 
the EU's appeal of that decision in early 1998.

    One important aspect of Spain's EU membership is how EU-wide 
phytosanitary regulations, and regulations that govern food 
ingredients, labeling and packaging impact on the Spanish market for 
imports of U.S. agricultural products. The majority of these 
regulations took effect on January 1, 1993 when EU ``single market'' 
legislation became fully implemented in Spain, and now agricultural and 
food product imports into Spain are subject to the same regulations as 
in other EU countries.

    While many restrictions that had been in operation in Spain before 
the transition have now been lifted, for certain products the new 
regulations impose additional import requirements. For example, Spain 
now requires any foodstuff that has been treated with ionizing 
radiation to carry an advisory label. In addition, a lot marking is now 
required for any packaged food items. Spain, in adhering to EU-wide 
standards, continues to impose strict requirements on product labeling, 
composition, and ingredients. Like the rest of the EU, Spain prohibits 
imports which do not meet a variety of unusually strict product 
standards. Food producers must conform to these standards, and 
importers of these products must register with government health 
authorities prior to importation.

    Telecommunications: While most of the EU member countries will 
liberalize their telecommunications markets beginning January 1, 1998, 
Spain has obtained a derogation from the EU Commission to delay 
complete liberalization of its telecommunications sector until December 
1998. Prior to this date, the Spanish Government plans to phase in 
competition in basic telephony through a duopoly comprised of recently 
privatized monopoly operator Telefonica, and (also recently privatized) 
second operator Retevision. Cable operators could also provide basic 
telephony beginning January 1, 1998, but only using their own networks; 
that is, they cannot provide basic telephony by interconnecting with 
the Telefonica or Retevision networks. This, in combination with 
several other mitigating factors, has resulted in a slow start for the 
establishment of the cable sector in Spain. The Spanish Government has 
also announced plans for a third fixed telephony license to be issued 
sometime in 1998.

    On the other hand, digital television, especially via satellite, 
has emerged as a promising industry in the Spanish market. There are 
two digital television platforms, Via Digital and Canal Satellite 
Digital, which currently offer digital television programming. 
Retevision has announced plans to offer a competing digital TV package 
provided over a terrestrial network. Spain's mobile telephony market 
has also experienced a very rapid growth in subscribers. Bidding for a 
third mobile license is scheduled for sometime in early 1998. New 
opportunities are emerging in advanced telecommunications services, 
including the Internet and high-speed data transmission. Finally, the 
Spanish Government recently established the Telecommunications Market 
Commission as an independent regulatory authority to oversee all 
activity in this sector.

    Government Procurement: Spain's Uruguay Round government 
procurement obligations took effect on January 1, 1996. Under the 
bilateral U.S.-EU government procurement agreement, Spain's obligations 
took effect also on January 1, 1996, except those for services which 
took effect on January 1, 1997. Offset requirements are common in 
defense contracts and some large non-defense related and public sector 
purchases (e.g. commercial aircraft and satellites).

    Television Broadcasting Content Requirements : The EU revision of 
the 1989 ``Television Without Frontiers'' Broadcast Directive was 
completed in 1997, without significant change. It left intact the 
flexible language of the original version as regards the quota regime 
which mandates that 51 percent of broadcast time be allocated to 
European content and avoided extending its scope to the new 
technologies. Therefore, insofar as it was affected by this directive, 
the market in Spain for U.S. audiovisual products remains the same.

    Motion Picture Dubbing Licenses and Screen Quotas: In January 1997, 
the Spanish Government adopted the implementing regulations for the 
1994 Cinema Law, which had provoked a strong reaction from U.S. 
industry because of protectionist provisions that sought to reserve a 
portion of the theatrical market for EU-produced films. Thanks to 
successful industry-government negotiations, the new regulations 
significantly ease the impact of the 1994 law on non-EU producers and 
distributors as it applies to screen quotas and dubbing licenses. For 
screen quotas the new required ratio for exhibitors is changed from one 
day of EU-produced film for every two days of non-EU-produced film to 
one day for every three days. The incentive provision for films dubbed 
into a minority language film such as Catalan is more generous than the 
original version.

    For dubbing licenses, the regulations established a three-tiered 
system. Up to three licenses may be earned by showing a single EU-
produced film--the first when the film's box office receipts exceed 10 
million pesetas, the second when they exceed 20 million pesetas, and a 
third when they exceed 30 million pesetas. If a film is dubbed, it must 
be dubbed into a minority language and earn at least 5 million pesetas 
in the minority language version to qualify for the third license. 
Despite these protectionist elements, Spain's theatrical film system 
has been modified sufficiently so that it is no longer a major source 
of trade friction as it was in recent years.

    Product Standards and Certification Requirements: Product 
certification requirements (homologation) have been liberalized 
considerably since Spain's entry into the EU. After several years in 
which telecommunications equipment faced difficulties, Spain adapted 
its national regulations in this area to conform to EU directives. For 
example, now all telecom equipment must carry the CE mark, which 
certifies that it complies with all applicable EU directives. This 
process may take three to four months after all tests have been 
performed and necessary documents are submitted. However, recognition 
from other EU countries and an early presentation of all documentation 
can speed up the process considerably. There is still some uncertainty 
as to whether the earlier exemption from homologation and certification 
requirements for equipment imported for military use is still valid.

    In general there has been improved transparency of process. For 
example, the CE registration for medical equipment from any of the EU 
member states is considered valid here. Thus, the product registration 
procedure is shortened (to about six months) and no longer must be 
initiated by a Spanish distributor. Pharmaceuticals and drugs still 
must go through an approval and registration process with the Ministry 
of Health requiring several years unless previously registered in an EU 
member state or with the London-based EU Pharmaceutical Agency, in 
which case the process is shortened to a few months. Vitamins are 
covered under this procedure; however, import of other nutritional 
supplements is prohibited, and they are dispensed only at pharmacies. 
Spanish authorities have been cooperative in resolving specific trade 
problems relating to standards and certifications brought to their 
attention. The United States has been negotiating with the EU for 
mutual recognition of product standards and acceptance of testing 
laboratory results.
6. Export Subsidies Policies

    Spain aggressively uses ``tied aid'' credits to promote exports, 
especially in Latin America, the Maghreb, and more recently, China. 
Such credits reportedly are consistent with the OECD arrangement on 
officially supported export credits.

    As a member of the EU, Spain benefits from EU export subsidies 
which are applied to many agricultural products when exported to 
destinations outside the Union. Total EU subsidies of Spanish 
agricultural exports amounted to about 220 million dollars in 1996. 
Spanish exports of grains, olive oil, other oils, tobacco, wine, sugar, 
dairy products, beef, and fruits and vegetables benefited most from 
these subsidies in 1996.
7. Protection of U.S. Intellectual Property

    Spain adopted new patent, copyright, and trademark laws, as agreed 
at the time of its EU accession in 1986. It enacted a new patent law in 
March of 1986, a new copyright law in November 1987, and a new 
trademark law in November of 1988. All approximate or exceed EU levels 
of intellectual property protection. Spain is a party to the Paris, 
Berne, and Universal copyright conventions and the Madrid Accord on 
Trademarks. Spanish government officials have said that their laws 
reflect genuine concern for the protection of intellectual property.

    In October 1992, Spain enacted a modernization patent law which 
increases the protection afforded patent holders. At that time, Spain's 
pharmaceutical process patent protection regime expired and product 
protection took effect. However, given the long (10 to 12 year) 
research and development period required to introduce a new medicine 
into the market, industry sources point out that the effect of the new 
law will not be felt until after the turn of the century. U.S. 
pharmaceutical manufacturers in Spain complain that this limits 
effective patent protection to approximately eight years and would like 
to see the patent term lengthened. Of at least equal concern to the 
U.S. industry is the issue of parallel imports, i.e. lower-priced 
products manufactured in Spain that are diverted to northern European 
markets where they are sold at higher prices. U.S. companies have 
suffered significant losses as a result. While the pharmaceutical 
sector would like the Spanish government to intervene, it looks to the 
EU Commission to resolve this Single Market problem.

    The copyright law is designed to redress historically weak 
protection accorded movies, video cassettes, sound recordings and 
software. It includes computer software as intellectual property, 
unlike the prior law. In December 1993, legislation was enacted which 
transposed the EU software directive. It includes provisions that allow 
for unannounced searches in civil lawsuits. Some searches have taken 
place under these provisions.

    According to industry sources, Spain has a relatively high level of 
computer software piracy despite estimated declines in the last two 
years. Industry estimates for 1996 show a drop to 63 percent from 74 
percent in 1995. Therefore, concerned groups have focused increasingly 
on enforcement, with industry and government cooperating on a series of 
problems aimed at educating the judiciary, police and customs officials 
to be more rigorous in their pursuit of this problem.

    Motion picture (i.e. video) and audio cassette piracy also remains 
a problem. However, thanks to the Spanish government prohibition on 
running cable across public thoroughfares and strict enforcement of the 
copyright law that holds that no motion picture can be shown without 
authorization of the copyright holder, the incidence of ``community'' 
video piracy has declined.

    Spain's trademark law incorporates by reference the enforcement 
procedures of the patent law, defines trademark infringements as unfair 
competition and creates civil and criminal penalties for violations. 
The government has drafted a new trademark law which will incorporate 
TRIPs, the EU Community Trademark Directive, and the Trademark Law 
Treaty, and which it anticipates will be enacted in 1998. National 
authorities seem committed to serious enforcement efforts and there 
continue to be numerous civil and criminal actions to curb the problem 
of trademark infringement. To combat this problem in the textile and 
leather goods sector, the Spanish government had begun to promote the 
creation and sale of devices to protect trademark goods and to train 
police and customs officials to cope more effectively. Despite these 
efforts, industry estimates rank Spain as the country with the second 
highest incidence of trademark fraud in the clothing sector in Europe.
8. Worker Rights

    a. The Right of Association.--All workers except military 
personnel, judges, magistrates and prosecutors are entitled to form or 
join unions of their own choosing without previous authorization. Self-
employed, unemployed and retired persons may join but may not form 
unions of their own. There are no limitations on the right of 
association for workers in special economic zones. Under the 
constitution, trade unions are free to choose their own 
representatives, determine their own policies, represent their members' 
interests, and strike. They are not restricted or harassed by the 
government and maintain ties with recognized international 
organizations.

    b. The Right to Organize and Bargain Collectively.--The right to 
organize and bargain collectively was established by the Workers 
Statute of 1980. Trade union and collective bargaining rights were 
extended to all workers in the public sector, except the military 
services, in 1986. Public sector collective bargaining in 1989 was 
broadened to include salaries and employment levels. Collective 
bargaining is widespread in both the private and public sectors. Sixty 
percent of the working population is covered by collective bargaining 
agreements although only a minority are actually union members. Labor 
regulations in free trade zones and export processing zones are the 
same as in the rest of the country. There are no restrictions on the 
right to organize or on collective bargaining in such areas.

    c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory 
labor is outlawed and is not practiced. Legislation is effectively 
enforced.

    d. Minimum Age for Employment of Children.--The legal minimum age 
for employment as established by the Workers Statute is 16. The 
Ministry of Labor and Social Security is primarily responsible for 
enforcement. The minimum age is effectively enforced in major 
industries and in the service sector. It is more difficult to control 
on small farms and in family-owned businesses. Legislation prohibiting 
child labor is effectively enforced in the special economic zones. The 
Workers Statute also prohibits the employment of persons under 18 years 
of age at night, for overtime work, or for work in sectors considered 
hazardous by the Ministry of Labor and Social Security and the unions.

    e. Acceptable Conditions of Work.--Workers in general have 
substantial, well defined rights. A 40 hour work week is established by 
law. Spanish workers enjoy 12 paid holidays a year and a month's paid 
vacation. The employee receives his annual salary in 14 payments--one 
paycheck each month and an ``extra'' check in June and in December. The 
minimum wage is revised every year in accordance with the consumer 
price index. Government mechanisms exist for enforcing working 
conditions and occupational health and safety conditions, but 
bureaucratic procedures are cumbersome.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      191 
Total Manufacturing...........................                     7109 
  Food & Kindred Products.....................        1689              
  Chemicals & Allied Products.................         990              
  Metals, Primary & Fabricated................         203              
  Machinery, except Electrical................         579              
  Electric & Electronic Equipment.............         954              
  Transportation Equipment....................        1736              
  Other Manufacturing.........................         958              
Wholesale Trade...............................                     1023 
Banking.......................................                     1572 
Finance/Insurance/Real Estate.................                      733 
Services......................................                      517 
Other Industries..............................                      248 
TOTAL ALL INDUSTRIES..........................                   11,393 
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                 SWEDEN

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                1995     1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP \2\...........................    231.4    252.0     233.6
  Real GDP Growth (pct) \3\.................      3.6      1.1       2.3
  By sector:                                                            
    Agriculture.............................      1.5      1.6       1.5
    Manufacturing...........................     49.2     51.2      47.5
    Services................................     98.9    106.1      98.4
    Government..............................     43.5     48.5      45.0
  Per Capita GDP (US$) \2\..................   24,647   28,319    26,377
  Labor Force (000's).......................    4,319    4,310     4,340
  Unemployment Rate (pct)...................      7.7      8.1       8.4
                                                                        
Money and Prices (annual percentage growth):                            
Money Supply (M3) \4\.......................      2.7     11.5       2.2
  Consumer Price Inflation..................      2.8      0.8       1.0
  Exchange Rate (SEK/US$)...................     7.13     6.70      7.69
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB \5\.....................     79.8     84.5      90.1
    Exports to U.S.\6\......................      6.2      7.0       7.5
  Total Imports CIF \5\.....................     64.9     66.6      69.9
    Imports from U.S.\6\....................      3.4      3.9       4.0
  Trade Balance \5\.........................     14.9     17.9      20.2
    Balance with U.S.\6\....................      2.8      3.1       3.4
  External Public Debt \7\..................     54.9     59.5      52.4
  Fiscal Deficit/GDP (pct)..................      7.9      2.5       1.4
  Current Account Surplus/GDP (pct).........      2.1      2.4       3.1
  Debt Service Payments/GDP (pct)...........     8.60    12.23     10.62
  Gold and Foreign Exchange Reserves........     24.0     20.9      14.6
  Aid from U.S..............................        0        0         0
  Aid from All Other Sources................        0        0         0
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data in   
  October 1997.                                                         
\2\ Decrease due to depreciation of currency                            
\3\ Percentage changes calculated in local currency                     
\4\ Source: The central bank. M3 is the measurement used in Sweden, very
  close to a potential Sweden, very close to a potential Swedish M2-    
  figure.                                                               
\5\ Merchandise trade                                                   
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports 
  FAS, imports customs basis; 1997 figures are estimates based on data  
  available through October 1997.                                       
\7\ Source: Swedish National Debt Office                                

1. General Policy Framework

    Sweden is an advanced, industrialized country with a high standard 
of living, extensive social services, a modern distribution system, 
excellent transport and communications links with the world, and a 
skilled and educated work force. Sweden exports a third of its Gross 
Domestic Product (GDP) and is a strong supporter of liberal trading 
practices. Sweden became a member of the European Union (EU) on January 
1, 1995, (and had already harmonized much of its legislation and 
regulation with the EU's as a member of the European Economic Area).

    Sweden uses both monetary and fiscal policy to achieve economic 
goals. Active labor market practices are particularly important. The 
Central Bank enjoys significant autonomy in pursuit of its avowed goal 
of price stability. Fiscal policy decisions in the late 1980's to lower 
tax rates while maintaining extensive social welfare programs swelled 
the government budget deficit and public debt, most of which is 
financed domestically. Since the beginning of 1995, however, Sweden has 
made impressive strides with its economic convergence program, having 
restored macroeconomic stability and created the conditions for 
moderate, low-inflation economic growth.

    During 1995 and 1996, Sweden has pulled out of its worst and 
longest recession since the 1930s. (GDP declined by six percent from 
1991 to 1993). Unemployment has recently averaged 12 to 14 percent. 
(Swedes quote two unemployment figures, open and ``hidden.'' ``Hidden'' 
unemployment, those in government training and work programs, accounts 
for some 5 percentage points of total unemployment.) In 1992 the 
Swedish krona came under pressure and was floated late that year; 
Swedish interest rates soared but have come down rapidly during 1996-
1997 and are now about one percentage point above German rates.

    Sweden's export sector is strong, resulting in large trade balance 
surplus and increasing current account surplus since 1994. Domestic 
demand has only recently started to pick up, and it is expected to 
contribute to the growth in 1997. Structural changes in recent years 
have prepared the way for future economic growth. The Social Democratic 
government at the end of the 1980's and the conservative coalition 
government at the beginning of the 1990's deregulated the credit 
market; removed foreign exchange controls; reformed taxes; lifted 
foreign investment barriers; and began to privatize government-owned 
corporations.
2. Exchange Rate Policies

    Sweden floated the currency in November 1992 after briefly 
defending the krona during the turbulence in European financial 
markets. From 1977 to 1991 the krona was pegged to a trade weighted 
basket of foreign currencies in which the dollar was double weighted. 
From mid-1991 the krona was pegged to the ECU.

    Sweden dismantled a battery of foreign exchange controls in the 
latter half of the 1980's. No capital or exchange controls remain. (The 
Central Bank does track transfers for statistical purposes).
3. Structural Policies

    Sweden's tax burden exceeds 50 percent of GDP (53.8 percent for 
1997). Central government expenditure during the recent severe 
recession was nearly 75 percent of GDP. The maximum marginal income tax 
rate on individuals is 55 percent. Effective corporate taxes are 
comparatively low at 28 percent, though social security contributions 
add ABOUT 40 percent to employers' gross wage bills. The value added 
tax is two-tiered, with a general rate of 25 percent and a lower rate 
of 12 percent for food, domestic transportation, and many tourist-
related services.

    Trade in industrial products between Sweden, other EU countries, 
and EFTA countries is not subject to customs duty, nor are a 
significant proportion of Sweden's imports from developing countries. 
When Sweden joined the EU, its import duties were among the lowest in 
the world, averaging less than five percent ad valorem on finished 
goods and around three percent on semi-manufactures. Duties were raised 
slightly on average to meet the common EU tariff structure. Most raw 
materials are imported duty free. There is very little regulation of 
exports other than military exports and some dual use products that 
have potential military or non-proliferation application.

    Sweden began abolishing a complicated system of agricultural price 
regulation in 1991. Sweden's EU membership and consequent adherence to 
the EU's common agricultural policy has brought some re-regulation of 
agriculture.
4. Debt Management Policies

    Central government borrowing guidelines require: that most of the 
national debt be in Swedish crowns; that the borrowing be predictable 
in the short term and flexible in the medium term; that the 
government(that is, the Cabinet) direct the extent of the borrowing; 
and that the government report yearly to the Parliament.

    Sweden's Central Bank and National Debt Office have borrowed 
heavily in foreign currencies since the fall of 1992, increasing the 
central government's foreign debt five-fold to about a third of the 
public debt. Management of the increased debt level so far poses no 
problems to the country, but interest payments on the large national 
debt grew rapidly in the early 1990's. Total debt in late 1997 is about 
76 percent of GDP.
5. Significant Barriers to U.S. Exports and Investment

    Sweden is open to imports and foreign investments and campaigns 
vigorously for free trade in the World Trade Organization (WTO) and 
other fora. Import licenses are not required except for items such as 
military material, hazardous substances, certain agricultural 
commodities, fiberboard, ferro alloys, some semi-manufactures of iron 
and steel. Sweden enjoys licensing benefits under section 5(k) of the 
U.S. Export Administration Act. Sweden makes wide use of EU and 
international standards, labeling, and customs documents in order to 
facilitate exports.

    Sweden has harmonized laws and regulations with the EU's. Sweden is 
now open to virtually all foreign investment and allows 100 percent 
foreign ownership of businesses and commercial real estate, except in 
air and maritime transportation and the manufacture of military 
materiel. Foreigners may buy and sell any corporate share listed on the 
Stockholm Stock Exchange. Corporate shares may have different voting 
strengths.

    Sweden does not offer special tax or other inducements to attract 
foreign capital. Foreign-owned companies enjoy the same access as 
Swedish-owned enterprises to the country's credit market and government 
incentives to business such as regional development or worker training 
grants.

    Public procurement regulations have been harmonized with EU 
directives and apply to central and local government purchases in 
excess of ECU 400,000. Sweden is required to publish all government 
procurement opportunities in the European Community Official Journal. 
Sweden participates in all relevant WTO codes concerned with government 
procurement, standards, etc. There are no official counter-trade 
requirements.
6. Export Subsidies Policies

    The Swedish government provides basic export promotion support 
through the Swedish Trade Council, which it and industry fund jointly. 
The government and industry also fund jointly the Swedish Export Credit 
Corporation, which grants medium and long-term credits to finance 
exports of capital goods and large-scale service projects.

    Sweden's agricultural support policies have been adjusted to the 
EU's common agricultural policy, including intervention buying, 
production quotas, and increased export subsidies.

    There are no tax or duty exemptions on imported inputs; no resource 
discounts to producers; and no preferential exchange rate schemes. 
Sweden is a signatory to the GATT subsidies code.
7. Protection of U.S. Intellectual Property

    Swedish law strongly protects intellectual property rights having 
to do with patents, trademarks, copyrights, and new technologies. The 
laws are adequate and clear. However, enforcement is not as strong as 
it should be, especially in the area of copyright protection for 
software. The police and prosecutors need additional resources, some 
specialized training to help with acquiring and preserving evidence, 
and clear signals from the top of the government that copyright 
protection is a real priority, especially within Swedish public sector 
organizations.

    The courts are efficient and honest. Sweden supports efforts to 
strengthen international protection of intellectual property rights, 
often sharing U.S. positions on these questions. Sweden is a member of 
the World Intellectual Property Organization and is a party to the 
Berne Copyright and Universal Copyright Conventions and to the Paris 
Convention for the Protection of Industrial Property, as well as to the 
Patent Cooperation Treaty. As an EU member, Sweden has undertaken to 
adhere to a series of other multilateral conventions dealing with 
intellectual property rights.
8. Worker Rights

    a. The Right of Association.--Laws protect the freedom of workers 
to associate and to strike, as well as the freedom of employers to 
organize and to conduct lock-outs. These laws are fully respected. Some 
83 percent of Sweden's work force belongs to trade unions. Unions 
operate independently of the government and political parties, though 
the largest federation of unions has always been linked with the 
largest political party, the Social Democrats.

    b. The Right to Organize and Bargain Collectively.--Labor and 
management, each represented by a national organization by sector, 
negotiate framework agreements every two to three years. More detailed 
company agreements are reached locally. The law provides both workers 
and employers effective mechanisms, both informal and judicial, for 
resolving complaints.

    c. Prohibition of Forced or Compulsory Labor.--The law prohibits 
forced or compulsory labor, and the authorities effectively enforce 
this ban.

    d. Minimum Age of Employment of Children.--Compulsory nine-year 
education ends at age 16, and the law permits full-time employment at 
that age under supervision of local authorities. Employees under age 18 
may work only during daytime and under supervision. Union 
representatives, police, and public prosecutors effectively enforce 
this restriction.

    e. Acceptable Conditions of Work.--Sweden has no national minimum 
wage law. Wages are set by collective bargaining contracts, which non-
union establishments usually observe. The standard legal work week is 
40 hours or less. Both overtime and rest periods are regulated. All 
employees are guaranteed by law a minimum of five weeks a year of paid 
vacation; many labor contracts provide more. Government occupational 
health and safety rules are very high and are monitored by trained 
union stewards, safety ombudsmen, and, occasionally, government 
inspectors.

    f. Rights in Sectors with U.S. Investment.--The five worker-right 
conditions addressed above pertain in all firms, Swedish or foreign, 
throughout all sectors of the Swedish economy.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      \1\ 
Total Manufacturing...........................                     5554 
  Food & Kindred Products.....................         \1\              
  Chemicals & Allied Products.................         \1\              
  Metals, Primary & Fabricated................          10              
  Machinery, except Electrical................         778              
  Electric & Electronic Equipment.............          33              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................         \1\              
Wholesale Trade...............................                      378 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                      961 
Services......................................                      635 
Other Industries..............................                      -19 
TOTAL ALL INDUSTRIES..........................                     7629 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                              SWITZERLAND

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                 1995    1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP.................................   302.6   292.6     246.8
  Real GDP Growth (pct) \2\...................     0.8    -0.7      -0.4
  GDP By Sector \2\                                                     
     Agriculture..............................     5.8     N/A       N/A
    Manufacturing.............................    94.3     N/A       N/A
    Services..................................   204.9     N/A       N/A
    Government \3\............................    46.4    44.7      37.6
  Per Capita GDP (000s).......................    43.7    41.7      34.7
  Labor Force (000s) \4\......................   2,677   2,649     2,609
  Unemployment Rate (pct).....................     3.5     3.9       4.5
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply (M3)...........................     2.2     7.1       6.7
  Consumer Price Inflation (pct)..............     1.8     0.8       0.6
  Exchange Rate(SFr/US$)......................    1.18    1.21      1.48
                                                                        
Balance of Payments and Trade:                                          
  Total Exports \5\...........................    77.5    76.2      69.5
    Exports to U.S............................     6.6     6.8       6.7
  Total Imports \5\...........................    76.8    74.5      69.2
    Imports from U.S..........................     4.5     4.9       4.9
  Trade Balance \5\...........................     0.7     1.8       0.3
    Balance with U.S..........................     2.1     1.9       1.8
  External Public Debt.\6\....................    69.6    71.6      64.3
  Fiscal Deficit/GDP (pct)....................     2.2     2.8       3.2
  Current Account Surplus/GDP (pct)...........     7.0     6.9       7.9
  Debt Service Payments/GDP (pct).............     0.9     0.8       0.9
  Gold & Foreign Exchange Reserves \7\........    44.4    40.6      40.3
  Aid from the U.S............................       0       0         0
  Aid from All Other Sources..................       0       0         0
------------------------------------------------------------------------
\1\ All 1997 figures are estimated.                                     
\2\ Estimates for 1996                                                  
\3\ Including Social welfare expenditures                               
\4\ Full-time workers only                                              
\5\ Merchandise trade excluding gold and other precious metals, jewels, 
  artwork antiques; Source: Swiss CustomsAdministration; 1997 figures   
  are estimates based on data available through August 1997.            
\6\ Federal government only, excluding cantons and communities          
\7\ As of 8/97                                                          

1. General Economic Framework

    Switzerland is a small, highly developed, internationally oriented, 
and open multilingual market, characterized by a developed 
manufacturing sector, a highly skilled workforce, a large services 
sector and a high savings rate. Per capita GDP is the highest in 
Europe. When Swiss voters decided in December, 1992 to reject the 
European Economic Area (EEA) Treaty, Switzerland found itself in the 
awkward position of being located in the heart of Europe, without being 
part of the EEA or a member of the EU. With over 60 percent of its 
exports going to Europe, the Swiss government is making every effort to 
maintain its competitiveness in Europe while diversifying its export 
markets. Currently, Switzerland is in bilateral negotiations with the 
EU covering a number of sectors, but talks have been stalled for months 
over the thorny issue of fees for EU trucks transiting Switzerland.

    After economic prosperity in the eighties, the Swiss economy has 
been Western Europe's weakest since 1990, with growth averaging less 
than one percent per year. As a result, Switzerland has run large 
deficits causing a corresponding increase in public debt. The federal 
government is seeking to reduce the deficit to less than one billion 
Swiss Francs in 2001 by strictly controlling expenditures. No 
systematic use is made of fiscal policy to stimulate the economy. In 
April 1997, however, the Swiss Parliament voted to spend USD 379 
million on an investment program to help the Swiss economy pull out of 
recession. Most of the funds will be spent in the construction sector 
to renovate public infrastructure. USD 41 million will be provided to 
maintain the apprenticeship program and USD 14 million will be spent 
for the promotion of technology and innovation.
    The Swiss National Bank (SNB) is independent from the Finance 
Ministry. The main objective of the SNB's policy is price stability. 
Monetary policy is conducted through open market operations. The 
discount rate is used by the SNB as a signal to the public.
2. Exchange Rate Policies
    Since the extremely weak domestic economic outlook became clear, 
the SNB has prevented further appreciation of the Swiss franc by 
accelerating growth of the money supply. The high Swiss franc had been 
seen as one of the main reasons for the weak performance of exports. In 
the mid and long term, the SNB does not follow any exchange rate 
policy, and the Swiss franc is not pegged to any foreign currency.
3. Structural Policies
    Few structural policies have a significant effect on U. S. exports. 
One exception is telecommunications. In 1997, the Swiss Parliament 
decided to liberalize and privatize the Swiss telecommunications 
sector, opening a market to investment and competition from U.S. firms. 
The liberalization is scheduled for implementation by January 1, 1998.
    Agriculture is heavily regulated and supported by the federal 
government. Farmers' revenues are pegged to those of blue collar 
workers in industry through guaranteed prices or direct payments. As a 
result of the Uruguay Round, Switzerland converted all non-tariff 
barriers into tariffs and must reduce them by an average of 30 percent 
by the year 2000. In June 1996, Swiss voters supported a revision of 
the agriculture article in the Federal Constitution. The new article 
establishes the basis for decoupling agricultural subsidies from 
production to promote more market-based and environmentally friendly 
production. The Swiss parliament is currently (fall 1997 and winter 
1998) debating the government's proposal for agricultural reform.
    In early 1996, the new cartel law came into effect, introducing the 
presumption that horizontal agreements setting prices, production 
volume, or territorial distribution diminish effective competition and 
are therefore unlawful. As part of its Uruguay Round commitments, 
Switzerland enacted legislation on January 1, 1996, providing for 
nondiscrimination and national treatment in public procurement at the 
federal level. A separate law makes less extensive guarantees at the 
cantonal and community levels.
4. Debt Management Policies
    As a net international creditor, debt management policies are not 
relevant to Switzerland.
5. Aid

    Switzerland does not receive any aid payments.
6. Significant Barriers to U.S. Exports

    Import Licenses: Import licenses for many agricultural products are 
subject to tariff-rate quotas and tied to an obligation for importers 
to take a certain percentage of domestic production. Tariffs remain 
quite high for most agricultural products that are also produced in 
Switzerland.

    Services Barriers: The Swiss services sector features no 
significant barriers to U.S exports. Foreign insurers wishing to do 
business in Switzerland are required to establish a subsidiary or a 
branch here. Foreign insurers may offer only those types of insurance 
for which they are licensed in their home countries. The most serious 
barriers to U.S. exports existed in

    the area of telecommunications. In 1997 however, parliament 
approved a legislative package which will liberalize and privatize the 
Swiss telecommunications sector by January 1, 1998, opening this market 
to foreign competitors.

    Standards, Testing, Labeling, and Certification: By adopting EU 
automobile standards in 1995, Switzerland allowed cars made in the EU 
(including EU-made products of U.S. manufacturers) to enter the Swiss 
market without further testing. This development threatened to put 
automobiles manufactured in the United States at a competitive 
disadvantage. As a result of action by the United States, Switzerland 
agreed that U.S.-made cars imported directly by individuals can be 
registered with only minimal modification and testing. However, the 
United States is still seeking complete parity with the favorable 
access now enjoyed by EU models and encouraging the Swiss government to 
recognize U.S. auto standards and test results. Certification of pet 
food continues to be a problem for U.S. exports. While the problem for 
pet food containing poultry was resolved in 1997, the problem with pet 
food containing beef continues. The Swiss government passed a new law 
at the end of 1996 stipulating that products containing genetically 
modified organisms must be labeled as such. This administrative 
requirement threatens to make even worse the difficulties in importing 
packaged, consumer ready food products. The slow process for approving 
genetically modified products also presents problems for imports from 
the U.S. Switzerland approved imports of genetically modified soybeans 
well after the EU and as of October, 1997 still had not approved 
imports of any genetically modified corn. Other standards and technical 
regulations in force in Switzerland are based on international norms. 
Labels are required to be in German, French and Italian.

    Investment Barriers: In most cases, foreign investment in 
Switzerland is granted national treatment. Some restrictions on foreign 
investment apply to the following areas: ownership of real estate by 
foreigners; aviation services; limits on the number of foreign workers; 
and restrictions concerning the number of foreign directors on the 
boards of corporations registered in Switzerland. For reasons of 
national security, foreign participation in the hydroelectric and 
nuclear power sectors, operation of oil pipelines, transportation of 
explosive materials, television and radio broadcasting, ownership of 
Swiss-based airlines, and maritime navigation, are restricted by law.

    The board of directors of a joint stock company must consist of a 
majority of members permanently residing in Switzerland and having 
Swiss nationality. Government Procurement Practices: Switzerland is a 
signatory of the WTO Government Procurement Agreement and fully 
complies with WTO rules concerning public procurement. On the cantonal 
and local levels, a new law passed by the Parliament in October 1995 
provides for nondiscriminatory access to public procurement. The U. S. 
and Switzerland reached a bilateral agreement in mid-1996 on a text 
which expands the scope of public procurement.

    Customs Procedures: Customs procedures in Switzerland are 
straightforward and not burdensome. All countries are afforded WTO 
most-favored-nation treatment.
7. Export Subsidies Policies

    Switzerland's only subsidized exports are in the agricultural 
sector, where exports of dairy products (primarily cheese) and 
processed food products (chocolate products, grain-based bakery 
products, etc.) benefit from state subsidies. On rare occasions, 
exports of domestic products such as beef, experiencing temporary 
surpluses, are also subsidized. The United States and other WTO members 
raised in the WTO the issue of Swiss beef export subsidies, which 
violated WTO rules. The implementation of the Uruguay Round agreement 
requires a gradual reduction of export subsidies and prohibits the 
introduction of subsidies for new products, such as beef.
8. Protection of U.S. Intellectual Property

    Switzerland has one of the best regimes in the world for the 
protection of intellectual property, and protection is afforded equally 
to foreign and domestic rights holders. Switzerland is a member of all 
major international intellectual property rights conventions and was an 
active supporter of a strong IPR text on the GATT Uruguay Round 
negotiations. Enforcement is generally very good. It is expected that 
by mid-1998 the Swiss will be in full compliance with their obligation 
under TRIPS to protect company test data required by national 
authorities in order to obtain approval to market pharmaceuticals. New 
directives by the Swiss Intercantonal Office for the Control of 
Medicines will mandate a ten-year protection period for such data. The 
lack of protection in this area has caused a problem recently for one 
U.S. company. However, if the new protection period is implemented on 
schedule, it is very unlikely that any further problems would arise for 
U.S. firms.

    Patent protection is very broad, and Swiss law provides rights to 
inventors that are comparable to those available in the United States. 
Switzerland is a member of both the European Patent Convention and the 
Patent Cooperation Treaty (PCT), making it possible for inventors to 
file a single patent application in the United States (or other PCT 
country, or any member of the European Patent Convention, once it 
enters into force) and receive protection in Switzerland. If filed in 
Switzerland, a patent application must be made in one of the country's 
three official languages (German, French, Italian) and must be 
accompanied by detailed specifications and, if necessary, by technical 
drawings. The duration of a patent is 20 years. Renewal fees are 
payable annually on an ascending scale. Patents are not renewable 
beyond the original 20-year term, with the exception of 
pharmaceuticals, where the Swiss adopted a patent term restoration 
procedure in 1995.

    According to the Swiss Patent Law of 1954, as amended, the 
following items cannot be covered by patent protection: surgical, 
therapy and diagnostic processes for application on humans and animals; 
inventions liable to disturb law and order and offend ``good morals''; 
and animals and biological processes for their breeding. In virtually 
all other areas, coverage is identical to that in the United States.

    Trademarks are well protected. Switzerland recognizes well known 
trademarks and has established simple procedures to register and renew 
all marks. The initial period of protection is 20 years. Service marks 
also enjoy full protection. Trademark infringement is very rare in 
Switzerland--street vendors are relatively scarce here, and even they 
tend to shy away from illegitimate or gray market products.

    A new copyright law in 1993 improved a regime that was already 
quite good. The new law explicitly recognizes computer software as a 
literary work and establishes a remuneration scheme for private copying 
of audio and video works which distributes proceeds on the basis of 
national treatment. According to industry sources, software piracy is 
on the rise, however. The problem appears to be largely due to illegal 
copying by individuals and perhaps some retail establishments. It is 
highly unlikely that there are any exports. Owners of television 
programming are fully protected and remunerated for rebroadcast and 
satellite retransmission of their works, and rights holders have 
exclusive rental rights. Collecting societies are well established. 
Infringement is considered a criminal offense. The term of protection 
is life plus 70 years.

    The Swiss also protect layout designs of semiconductor integrated 
circuits, trade secrets, and industrial designs. Protection for 
integrated circuits and trade secrets is very similar to that available 
in the U.S., and protection for designs is somewhat broader.

    Industry sources estimate lost sales due to software piracy at $121 
million in 1996. Trade losses and denied opportunities for sales and 
investment in all other IPR sectors are minor in comparison.
9. Workers Rights

    a. The Right of Association.--All workers, including foreign 
workers, have freedom to associate freely, to join unions of their 
choice, and to select their own representatives.

    b. The Right to Organize and Bargain Collectively.--Swiss law gives 
workers the right to organize and bargain collectively and protects 
them from acts of anti-union discrimination. The right to strike is 
legally recognized, but a unique informal agreement between unions and 
employers has meant fewer than 10 strikes per year since 1975. There 
were no significant strikes in 1997.

    c. Prohibition of Forced or Compulsory Labor.--There is no forced 
or compulsory labor, although there is no legal prohibition of it.

    d. Minimum Age for Employment of Children.--The minimum age for 
employment of children is 15 years. Children under 13 may be employed 
in light duties for not more than 9 hours a week during the school year 
and 15 hours otherwise. Employment between ages 15 and 20 is strictly 
regulated.

    e. Acceptable Conditions of Work.--There is no national minimum 
wage. Industrial wages are negotiated during the collective bargaining 
process. Such wage agreements are also widely observed by non-union 
establishments. The Labor Act establishes a maximum 45-hour work week 
for blue and white collar workers in industry, services, and retail 
trades, and a 50-hour work week for all other workers. The law 
prescribes a rest period during the work week. Overtime is limited by 
law to 260 hours annually for these working 45 hours per week and to 
220 hours annually for those working 50 hours per week.

    The Labor Act and the Federal Code of Obligations contain extensive 
regulations to protect worker health and safety. The regulations are 
rigorously enforced by the Federal Office of Industry, Trades, and 
Labor. There were no allegations of worker rights abuses from domestic 
or foreign sources.

    f. Rights in Sectors with U.S. Investments.--Except for special 
situations (e.g. employment in dangerous activities regulated for 
occupational, health and safety or environmental reasons), legislation 
concerning workers rights does not distinguish among workers by sector, 
by nationality, by employer, or in any other manner which would result 
in different treatment of workers employed by U.S. firms from those 
employed by Swiss or other foreign firms.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      703 
Total Manufacturing...........................                     4426 
  Food & Kindred Products.....................         \1\              
  Chemicals & Allied Products.................         937              
  Metals, Primary & Fabricated................         190              
  Machinery, except Electrical................         789              
  Electric & Electronic Equipment.............         494              
  Transportation Equipment....................         \1\              
  Other Manufacturing.........................         633              
Wholesale Trade...............................                   10,341 
Banking.......................................                     2083 
Finance/Insurance/Real Estate.................                   16,826 
Services......................................                     1241 
Other Industries..............................                      131 
TOTAL ALL INDUSTRIES..........................                   35,751 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                 TURKEY

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                1995     1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP...............................    169.8    182.3       194
  Real GDP Growth (pct).....................      7.2      7.0       6.0
  GDP by Sector:                                                        
    Agriculture.............................     26.7     30.7       N/A
    Manufacturing...........................     44.7     38.5       N/A
    Services................................     84.9     91.8       N/A
    Government..............................     13.6     15.3       N/A
  Per Capita GDP (US$)......................    2,755    2,962     3,000
  Labor Force (000s)........................   22,446   23,030  \2\ 22,5
                                                                      37
  Unemployment Rate (pct)...................      6.6      5.8   \2\ 5.9
                                                                        
Money and Prices (annual percent growth):                               
  Money Supply Growth (M2)..................     93.4    130.3        96
  Consumer Price Inflation..................     89.1     80.4        85
  Exchange Rate (TL/US$, avg)...............   45,705   81,137   152,000
                                                                        
Balance of Payments and Trade:                                          
  Total Exports FOB.........................     21.6     23.1        26
    Exports to U.S..........................      1.5      1.6       1.9
  Total Imports CIF.........................     35.7     42.9        46
    Imports from U.S........................      3.7      3.2       3.5
  Trade Balance.............................    -14.1    -19.9       -20
    Balance with U.S........................     -2.2     -1.6      -1.6
  External Public Debt......................     73.3     79.8  \3\ 81.2
  Fiscal Deficit/GDP (pct)..................     -4.0     -8.1        -9
  Current Account Deficit/GDP (pct).........     -1.3     -2.4      -2.4
  Debt Service Payments/GDP (pct)...........      6.9      6.4       7.0
  Gold and For Exchange Reserves \4\........     24.4     27.8      31.1
  Aid from U.S..............................     0.41     0.36      0.31
  Aid from other sources....................      N/A      N/A       N/A
------------------------------------------------------------------------
\1\ Unless otherwise indicated, 1997 figures are estimates based on     
  available monthly data in November 1997.                              
\2\ As of April 1997.                                                   
\3\ As of end-June 1997                                                 
\4\ Includes reserves held by Central Bank and commercial banks. 1997   
  figure is as of 10/10/97.                                             

1. General Policy Framework

    From the establishment of the Republic in 1923 until 1981, Turkey 
was an insulated, state-directed economy. In 1981 the country embarked 
on a new course. The government abandoned protectionist policies and 
opened the economy to trade and investment. The state gave up much of 
its role in directing the economy and abolished many outdated 
restrictions on private business. These reforms unleashed the country's 
private sector and have brought impressive benefits. Since 1981, 
Turkey's average 4.8 percent real GNP growth rate has been the highest 
of any OECD country. In terms of market opening, Turkey's efforts 
reached a new stage in 1996 with the finalization of a customs union 
with the European Union. Turkey has now harmonized nearly all of its 
trade and industrial policies with those of the EU. Over the coming 
years, Turkey is likely to reap substantial benefits from the customs 
union, both in terms of trade creation and improved economy efficiency. 
This should have an overall positive impact on U.S. exports.

    Despite the impressive reforms introduced since 1981, Turkey 
continues to suffer from an inefficient public sector (including 
substantial state ownership in the industrial sector) and weak, often 
populist, political leadership. These remain the source of the 
country's perennial problems--large budget deficits and high 
inflation--and are a bottleneck to sustainable growth. Inflation has 
averaged about 75 percent since 1988, and is likely to exceed 90 
percent in 1997. In 1994, mismanagement of these economic imbalances 
triggered a financial crisis and forced the government to introduce a 
tough austerity program. The 1994 recession was Turkey's worst since 
World War II. The economy has bounced back strongly, however, growing 
by over 6 percent each year since 1995, indicating that Turkey's 
cyclical boom-bust growth pattern remains unbroken. Strong domestic 
demand has sparked a surge in imports, as has the reduction of import 
duties and surcharges which accompanied the introduction of the customs 
union on January 1, 1996.

    After declining in 1994 and 1995, the budget deficit and public 
sector borrowing requirement (PSBR) both rose significantly in 1996 and 
1997, reflecting in part the cost of the 1995 elections and populist 
economic measures introduced by the governments which have followed. 
The budget deficit is likely to reach 10 percent of GNP in 1997. To 
finance the deficit in the face of political uncertainty, the 
government is forced to offer very high interest rates on short term 
domestic bonds, further exacerbating the deficit. Turkey's recent 
coalition governments have had little success implementing the 
structural reform elements of the 1994 program. Public sector reform--
including privatization, social security and tax reforms, and trimming 
of agricultural and other subsidy programs--is widely acknowledged as 
the key to resolving the economy's problems and setting the stage for 
stable, private sector led growth. Turkey and the IMF concluded a 
standby arrangement in 1994, which lapsed in 1995; they are discussing 
the possibility of a new agreement.

    Building on significant liberalization of the economy in the mid-
1980s, Turkey's private sector has become less dependent on the 
government. As a result, it has grown at an even faster pace than the 
overall economy, while it also expanded its share of Turkey's GDP. 
Turkey's most successful companies are foreign oriented and very 
competitive. U.S. companies have experienced a boom in exports to 
Turkey, expanding both their market share and their overall value of 
trade. The United States maintains a large and growing trade surplus 
with Turkey.
2. Exchange Rate Policy

    The Turkish lira (TL) is fully convertible and the exchange rate is 
market determined, although the Central Bank sets a daily reference 
rate. The Central Bank intervenes in money markets to dampen short term 
exchange rate fluctuations and manage the TL's rate of depreciation.

    Overvaluation of the TL from 1989-93 was a significant factor in 
the 1994 financial crisis. As a result, the TL depreciated against the 
dollar in real terms in 1994. Since then, the government's stated 
policy has been to maintain a stable real TL exchange rate, measured 
against a trade-weighed dollar/German mark basket. Since 1994, however, 
the TL has again appreciated in real terms, with the process 
accelerating somewhat during 1997.
3. Structural Policies

    Since 1980, Turkey has made substantial progress implementing 
certain structural reforms and liberalizing its trade, investment, and 
foreign exchange regimes. The resulting high growth rate and high rate 
of creation of private businesses has generated tremendous demand for 
imported goods, particularly capital goods and raw materials, which 
together account for over 85 percent of total imports.

    The government's failure to pursue unfinished structural reform 
measures has constrained private sector growth and prevented the 
economy from functioning at full efficiency. State-owned enterprises 
still account for some 35 percent of manufacturing value added; 
although many of these firms are profitable, transfers to state firms 
constitute a substantial drain on the economy. Government control of 
key retail prices (especially in the energy and utilities sectors) also 
contributes to market distortion, as prices are sometimes manipulated 
to meet political objectives. The government actively supports the 
agricultural sector through both subsidized inputs and crop support 
payments.

    Turkey and the European Union entered into a customs union on 
January 1, 1996. Turkey has adopted the EU's common external tariff for 
third countries, which has resulted in lower tariffs for U.S. products. 
Nearly all industrial goods from EU and EFTA countries, however, now 
enter Turkey duty free. The government has also abolished various 
import surcharges. As part of the customs union agreement, Turkey has 
revised its trade, competition, and incentive policies to meet EU 
standards.
4. Debt Management Policies

    As of June 1997, Turkey's gross outstanding external debt was $81 
billion, 75 percent of which is government debt. Debt service payments 
in 1997 will amount to an estimated 6.9 percent of GNP (and 51 percent 
of exports). Turkey has had no difficulty servicing its foreign debt in 
recent years.

    Turkey's relatively low credit rating since 1994 has limited its 
access to foreign borrowing, although in late 1997, Turkey successfully 
floated large ten-year Eurodollar and Euromark issues. As a result, 
Turkey's domestic debt stock has increased significantly. With the 
government forced to offer high real interest rates for short periods 
to attract capital, interest payments have become a large budget 
burden. In 1997 they account for nearly 30 percent of total budget 
expenditures; they are forecast to be 40 percent of 1998 expenditures.
5. Aid

    In 1997, the United States provided Turkey with $22 million in 
Economic Support Funds (grant assistance), $175 million in Foreign 
Military Financing (market-rate loans), $4.4 million in assistance 
under a USAID-funded family planning program, $1.4 million in 
International Military Education and Training funding, and $400,000 in 
counter-narcotics assistance. Turkey receives significant grant and 
loan aid from the European Union, but much of this is on hold as the 
result of political disputes.
6. Significant Barriers to U.S. Exports

    The introduction of Turkey's customs union with the EU in 1996 
resulted in reduced import duties for U.S. industrial exports. The 
weighted rate of protection for non-EU/EFTA industrial products dropped 
from 11 percent to 6 percent. By comparison, the rate of protection for 
industrial exports from EU and EFTA countries in 1995 had been 6 
percent; nearly all these goods now enter Turkey duty free. There have 
been very few complaints from U.S. exporters that the realignment of 
duty rates under the customs union has disrupted their trade with 
Turkey. The customs union does not cover agricultural trade. U.S. 
exporters have voiced increasing frustration over barriers to 
agricultural trade, most notably a ban on the import of livestock due 
to an outbreak of foot and mouth disease in 1996. Although the disease 
was brought under control by December 1996, and despite government 
promises to lift the ban, it remained in effect as of November 1997.

    Import Licenses: Import licenses are generally not required for 
industrial products. The exception is products which need after-sales 
service (e.g. photocopiers, ADP equipment, diesel generators). Licenses 
are required for agricultural commodities. In addition, the government 
requires certification that quality standards are met for importation 
of human and veterinary drugs and certain foodstuffs. This has posed 
problems for U.S. exporters. In 1996 the government tightened standards 
for levels of various toxins found in grain, effectively halting U.S. 
grain exports. Discussions with the Ministry of Agriculture 
successfully resolved the issue on an interim basis. As of November 
1997, imports of paddy rice were similarly banned because of concerns 
about a possible nematode in imported rice; a U.S. government survey of 
rice stocks should permit this trade to resume.

    Government Procurement Practices: Turkey is not a signatory of the 
WTO Government Procurement Agreement. It normally follows competitive 
bid procedures for domestic, international and multilateral development 
bank assigned tenders. U.S. companies sometimes become frustrated over 
lengthy and often complicated bidding and negotiating processes. Some 
tenders, especially large projects involving coproduction, are 
frequently opened, closed, revised, and opened again. There are often 
numerous requests for ``best offers''; in some cases, years have passed 
without the selection of a contractor.

    U.S. bidders for Turkish government contracts were subject to a 15 
percent withholding tax. A bilateral tax treaty between the U.S. and 
Turkey was signed in March 1996 and ratified by the U.S. Senate in 
October 1997. The Turkish parliament approved the treaty in December 
1997.before the end of the year, it will enter into force in 1998. The 
treat will eliminate this withholding tax for U.S. bidders.

    Investment Barriers: The United States-Turkish bilateral investment 
treaty entered into force in May 1990. Turkey has an open investment 
regime. There is a screening process for foreign investments, which the 
government applies on an MFN basis; once approved, firms with foreign 
capital are treated as local companies. There are, however, 
restrictions on the level of foreign capital in firms established in a 
number of sectors including banking, insurance, petroleum, 
broadcasting, aviation and maritime transportation. The right to third 
party arbitration, a condition for the BIT, has not been upheld by 
Turkish courts, a source of major concern to many investors.
7. Export Subsidies Policies

    Turkey employs a number of incentives to promote exports, although 
programs have been scaled back in recent years to comply with EU 
directives and GATT/WTO standards. Turkish Eximbank provides exporters 
with credits, guarantees, and insurance programs. Certain tax credits 
are also available to exporters.
8. Protection of U.S. Intellectual Property

    Turkey's intellectual property has improved in certain respects 
since 1995. After years of complaints from western businesses and 
governments about weak intellectual property laws and lax enforcement, 
the Turkish Parliament approved a number of new laws in mid-1995 as 
part of Turkey's harmonization with the EU in advance of the customs 
union. The new patent, trademark, copyright and other laws, as well as 
Turkish acceptance of a number of multilateral intellectual property 
conventions, have given Turkey a comprehensive legal framework for 
protecting intellectual property rights. Efforts are underway to 
educate businesses, consumers, judges, prosecutors and others on the 
implications of the new laws. However enforcement efforts remain lax 
and as a result copyright and patent piracy is widespread. The Turkish 
judicial system remains overburdened and it will likely be some time 
before the necessary elements for a smoothly functioning system are in 
place.

    Copyrights: In June 1995 Parliament passed a bill amending Turkey's 
1951 copyright law. The bill:

    --extends the term of copyrights from 20 to 70 years,
    --extends coverage to computer software,
    --increases fines for violators, and
    --removes many previous exemptions to full copyright protection.


    Turkey also acceded to a number of international copyright 
conventions during 1995, including the Paris Act (1971) of the Berne 
Convention and the 1961 Rome Convention.

    While a significant improvement, the amended copyright law still 
has deficiencies. The government has acknowledged the need for further 
amendments to bring Turkey's laws fully into compliance with Uruguay 
Round standards, but its ability to pass legislation in 1996 and 1997 
has been hampered by multiple changes of government.

    Patents: A new patent law came into effect in June 1995 replacing 
Turkey's 19th century patent law. The new law was subsequently amended 
in August and November of 1995. Turkish officials insist the law is 
fully compatible with the Uruguay Round's TRIPs agreement, although 
U.S. officials have questioned the law's broad compulsory licensing 
provisions.

    The United States has pressed for further improvements, including 
coverage for pharmaceutical products which will not begin until 1999 in 
accordance with Turkey's Customs Union commitments to the EU. The 
legislation does not contain ``pipeline'' protection for pharmaceutical 
products. The Turkish Patent Institute is now accepting applications 
for pharmaceutical patents in accordance with the TRIPs agreement's 
``mailbox'' provisions.

    Trademarks: Along with the patent law, Turkey replaced its 
trademark law in 1995. Here, too, it remains to be seen how effective 
the Turkish bureaucracy and legal system will be in controlling the 
current widespread counterfeiting of foreign trademarked products.

    Turkey acceded to a number of international patent and trademark 
conventions in 1995, including:

    --the Stockholm Act (1979) of the Paris Convention for Protection 
            of Industrial Property,
    --the Patent Cooperation Treaty (1984),
    --the Strasbourg Agreement on International Patent Classifications,
    --the Geneva Act (1979) of the Nice Agreement on International 
            Classification of Goods and Services, and
    --the Vienna Agreement establishing an international classification 
            of figurative elements of marks.
9. Worker Rights

    a. The Right of Association.--All workers except police and 
military personnel have the right to associate freely and form 
representative unions. Most workers also have the right to strike, but 
the Constitution does not permit strikes among workers employed in the 
public utilities, petroleum, sanitation, education and national defense 
sectors, or by workers responsible for protection of life and property. 
Turkish law requires collective bargaining before a strike. Solidarity, 
wildcat, and general strikes are illegal. The law on free trade zones 
forbids strikes for ten years following their establishment, although 
union organizing and collective bargaining are permitted. The high 
arbitration board settles disputes in all areas where strikes are 
forbidden.

    b. The Right to Organize and Bargain Collectively.--Apart from the 
categories of public employees noted above, Turkish workers have the 
right to organize and bargain collectively. The law requires that in 
order to become a bargaining agent, a union must represent not only 
``50 percent plus one'' of the employees at a given work site, but also 
10 percent of all workers in that particular branch of industry 
nationwide. After the Ministry of Labor certifies the union as the 
bargaining agent, the employer must enter good faith negotiations with 
it.

    c. Prohibition of Forced or Compulsory Labor.--The Constitution 
prohibits forced or compulsory labor, and it is not practiced.

    d. Minimum Age for Employment of Children.--The Constitution 
prohibits work unsuitable for children, and current legislation forbids 
full time employment of children under 15. The law requires that school 
children of age 13 and 14 who work part time must have their working 
hours adjusted to accommodate school requirements. The Constitution 
prohibits children from engaging in physically demanding labor, such as 
underground mining, and from working at night. The laws are effectively 
enforced only in organized industrial and service sectors. Unionized 
industry and services do not employ underage children. In the informal 
sector, many children under 13 work as street vendors, in home 
handicrafts, on family farms, and in other enterprises.

    e. Acceptable Conditions of Work.--The Ministry of Labor is legally 
obliged, through a tripartite government-union-industry board, to 
adjust the minimum wage at least every two years and does so regularly. 
Labor law provides for a nominal 45 hour work week and limits the 
overtime that an employer may request. Most workers in Turkey receive 
nonwage benefits such as transportation and meal allowances, and some 
also receive housing or subsidized vacations. In recent years, fringe 
benefits have accounted for as much as two-thirds of total remuneration 
in the industrial sector. Occupational safety and health regulations 
and procedures are mandated by law, but limited resources and lack of 
safety awareness often result in inadequate enforcement.

    f. Rights in Sectors with U.S. Investment.--Conditions do not 
differ in sectors with U.S. investment.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                       87 
Total Manufacturing...........................                      594 
  Food & Kindred Products.....................         186              
  Chemicals & Allied Products.................         103              
  Metals, Primary & Fabricated................         \1\              
  Machinery, except Electrical................         \1\              
  Electric & Electronic Equipment.............         \1\              
  Transportation Equipment....................          87              
  Other Manufacturing.........................         117              
Wholesale Trade...............................                       75 
Banking.......................................                      \1\ 
Finance/Insurance/Real Estate.................                       -1 
Services......................................                      \1\ 
Other Industries..............................                        2 
TOTAL ALL INDUSTRIES..........................                     1025 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                                UKRAINE

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                 1995    1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
Nominal GDP...................................    36.0    40.6     48.75
Real GDP Growth (pct) \2\.....................   -11.8   -10.0      -3.4
  GDP by Sector:                                                        
    Agriculture...............................     4.9   14.50     15.29
    Manufacturing.............................    12.7     N/A       N/A
    Services (annual pct change)..............   -11.7   -12.7       N/A
    Government................................     N/A     N/A       N/A
  Per Capita GDP (US$)........................     680     854       863
  Labor Force (millions)......................    21.2    21.2      21.2
  Unemployment Rate (pct).....................     0.6     1.1       3.1
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply Growth (M2)....................     117      40       N/A
  Consumer Price Inflation....................     181      40      12.6
  Exchange Rate (hryvnia/US$ - annual average)                          
    Official..................................    1.47    1.84      1.85
                                                                        
Balance of Payments and Trade:                                          
  Total Exports, FOB \3\......................    13.6   18.46     18.38
    Exports to U.S. (US$ mlns) \4\............     406     507       500
  Total Imports, CIF\3\.......................    16.0   19.35     19.78
    Imports from U.S. (US$ mlns) \4\..........     223     395     450.7
    Trade Balance \3\.........................    -2.3    -.89      -1.4
    Balance with U.S. (US$ mlns) \4\..........     183     122       267
  Current Account Deficit/GDP (pct)...........    -4.3    -3.1       N/A
  External Public Debt/GDP (pct)..............     8.1     9.9       N/A
  Debt Service Payments/GDP (pct).............     3.7     3.5       N/A
  Fiscal Deficit/GDP (pct)....................     6.7     6.0       N/A
  Gold and Foreign Exchange Reserves..........     1.1     1.7       N/A
  Aid from U.S. (US$ millions) \5\............    44.8   545.8    369.07
  Aid from All Other Sources..................     N/A     N/A       N/A
------------------------------------------------------------------------
\1\ 1997 figures are all estimates based on available monthly data      
  through August 1997, or are 1997 forecast. Source: Government of      
  Ukraine                                                               
\2\ Percentage changes calculated in local currency                     
\3\ Merchandise trade                                                   
\4\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports 
  FAS, imports customs basis; 1996 figures are estimates based on data  
  available through November 1996.                                      
\5\ Figures are actual FY expenditures. Cumulative budgeted assistance  
  (credits and grants)for FY 92-96 totals $2.09 billion.                

1. General Policy Framework

    Ukraine, a country which celebrated its sixth anniversary of 
independence in August 1997, has followed a course of democratic 
development, social stability, and economic reform. Since independence, 
Ukraine has changed governments, held parliamentary elections, drafted 
and passed a Constitution, eliminated its inherited nuclear weapons, 
created new governmental institutions, curbed inflation, introduced a 
new currency (the ``hryvnia''), and assumed an active foreign policy. A 
tremendous amount of work still lies ahead--particularly in the area of 
economic development and the creation of an economic environment 
conducive to true market forces. Progress has been relatively slow--but 
the movement is in a forward direction.

    Ukraine's economic inheritance from the Soviet Union of a large 
defense sector and energy-intensive heavy industry has made transition 
to a market economy particularly difficult. The move to market pricing, 
the interruption of relationships with producers and suppliers in other 
parts of the former Soviet Union, and the delay in undertaking serious 
economic reforms have led to steep declines in production and 
widespread hardship among the population. Ukraine's principal resources 
and economic strengths include rich agricultural land, significant coal 
and more modest gas and oil reserves, a well developed infrastructure, 
a strong scientific establishment, and an educated, skilled workforce. 
Ukraine is an important emerging market at the crossroads of Eastern 
Europe, Russia, Central Asia, and the Middle East, and holds great 
potential for becoming an important new market for U.S. trade and 
investment. A significant number of both large multinationals and 
smaller foreign investors are present in this challenging market. 
Ukraine's ultimate trade and investment potential will depend largely 
on the success of its attempts to accelerate the movement toward a 
market economy.

    Economic reform in Ukraine began in earnest in October 1994, when 
President Leonid Kuchma laid out his economic credo in a speech to the 
Ukrainian parliament and set the country's course on a definitive 
direction toward a free market. Ukraine still has much progress to make 
in the areas of privatization, tax reform, and contract enforcement. 
The government has had its greatest success in achieving macroeconomic 
stability. Inflation, for example, was reduced from a rate of over 400 
percent in 1994 to 40 percent in 1996; the rate in 1997 is likely to be 
lower than 15 percent. The exchange rate (vis-a-vis the U.S.) dollar 
has been steady within a narrow band in 1996 and 1997.

    Ukraine entered 1997 with a comprehensive macroeconomic reform 
plan--Ukraine Economic reform 1997--that held great promise. The 
package consisted primarily of tax reforms and deregulation measures 
designed to stimulate economic developments, coax business out of the 
shadow economy, improve government revenues and strengthen the pension 
system. Economic Reform 1997 was heralded as a breakthrough in the 
government's commitment to long-term, sustainable economic reform. 
However, due to a lack of cohesion within the government and a failure 
by the Kuchma administration and the cabinet of Ministers to fully 
embrace Economic Reform 1997, the package was unable to overcome 
entrenched interests in the parliament, where it was dissected and 
scrutinized in its many parts rather than considered as a package of 
interdependent reforms. Although many important components such as the 
Value Added Tax (VAT) and Enterprise Profit Tax Reform were eventually 
passed, the bulk of the program has not been enacted.

    The 1997 Budget was sent back to the cabinet several times for 
revision based on only those provisions in the package that were 
enacted. The 1997 budget was finally passed in July, and even those who 
voted for it conceded that it was ``unrealistic.'' This was a primary 
factor in the postponement of the International Monetary Fund's (IMF) 
Extended Fund Facility in favor of a less demanding and shorter-term 
stand-by loan. Disagreement over the government's failure to get the 
budget through the parliament, as well as to deal with a host of other 
pressing issues such as official corruption and mounting wage arrears, 
were factors in President Kuchma's dismissal of Prime Minister 
Lazarenko and therefore, under the Constitution, the entire cabinet. 
This change in government further delayed implementation of measures 
that were crucial to reform and international financial institution 
(IFI) conditionalities.

    Ukraine's budget deficit, which in the early years of independence 
was very large and financed through highly inflationary borrowing from 
the National Bank of Ukraine (NBU), is now largely under control, 
although continued shortfalls in expected revenue have meant that the 
government normally operates on a ``cash management'' basis and wage 
arrears are common. The main sources of deficit financing are limited 
government borrowing from the NBU, increasing issuance of domestic 
government securities, and inflows of international financing through 
grants and credits. The latter are largely from official sources. The 
role of IFIs, in particular the IMF and the World Bank, has been very 
important in Ukraine.

    The NBU considers fighting inflation a top priority, and is aware 
that Ukraine's thin monetary base, a legacy of previous hyperinflation, 
means that even small changes in the money supply can be potentially 
inflationary. Weak control over government spending also presents 
challenges, as do Ukraine's relatively large inflows of international 
assistance and its substantial debt repayment obligations, which are 
spread unevenly throughout the year. Ukraine has cut back on credits to 
industry and agriculture, which previously had led to high inflation.
2. Exchange Rate Policy

    Ukraine has had a single unified exchange rate since October 1994. 
The exchange rate is determined by daily auctions of the Ukrainian 
Interbank Currency Exchange (UICE). A large number of currency exchange 
points also exists. The difference between the UICE-set rate and the 
average rates at the currency exchange points is normally 
insignificant. The National Bank of Ukraine intervenes in the currency 
market to prevent rapid changes in the exchange rate and normally tries 
to keep the hryvnia inside an informally set trading band against the 
dollar. Ukraine's policy of requiring the mandatory exchange into 
hryvnia of 50 percent of foreign currency earnings remains unchanged. 
Despite significant progress in other areas, Ukraine still maintains a 
number of restrictions on current account and capital account payments. 
Tough restrictions are also maintained for capital account 
transactions. Any borrowing abroad has to be approved by the National 
Bank of Ukraine (NBU). All these regulations do not seem to stem the 
excessive flow of foreign currency within the economy.
3. Structural Policies

    Ukraine's burdensome and nontransparent tax structure remains a 
major hindrance to foreign investment and business development. In 
addition, the regulatory environment is chaotic and taxes excessively 
high, forcing much business activity underground and providing fertile 
ground for corruption. The Ministry of Finance has moved to adopt new 
budget procedures for 1998, including spending ceilings by ministry and 
budget justifications by program and spending priorities. The 
government is in the process of establishing a one-stop business 
registration process designed to have businesses registered within five 
days, reduce licensing requirements to the minimum deemed necessary for 
health and safety, and centralize issuance in the new Licensing 
Chamber. A draft Customs Code is advancing, and import and export 
tariffs and restrictions on most products have been reduced.

    Progress on mass privatization has been promising, with sufficient 
numbers of enterprises entering the privatization pipeline to make the 
goal of privatizing 8,000 large and medium enterprises by the end of 
1997 achievable. The July passage of the 1997 Privatization program by 
the parliament and other recent measures have helped accelerate the 
process and expedite the sale of large ``blue chip'' enterprises. About 
34,000 small scale enterprises out of a total of 40-45,000 have been 
privatized. The State Property Fund, Ukraine's privatization authority, 
streamlined its procedures for attracting strategic investors and has 
begun holding commercial and noncommercial tenders for enterprises that 
are being privatized according to individual plans.
4. Debt Management Policies

    Ukraine's foreign debt stood at about $11-12 billion in late 1996. 
The largest amount is owed to Russia and Turkmenistan, primarily for 
past trade credits for deliveries of gas, which have been rescheduled 
into long-term state credits. Ukraine owes another $2.5 billion to 
international financial institutions and bilateral export credit 
agencies. The proportion of debt to Russia and Turkmenistan is 
continuing to decline, since Ukraine is no longer building up 
significant arrearages for fuel deliveries. Debt service as a percent 
of GDP, approximately three percent in 1996, is expected to climb in 
1997 as larger portions of previously rescheduled debt to Russia and 
Turkmenistan become due.

    Ukraine has begun to borrow from commercial markets, placing a loan 
with a Japanese bank in August. Ukraine had planned to issue formal 
Eurobonds and Samuraibonds in 1997, but world financial turmoil and 
Ukraine's fiscal problems have put them on hold. Ukraine has made 
extensive use of IMF resources, starting with a Systemic Transformation 
Facility in fall 1994, a standby loan in spring 1995, and a second 
standby loan in spring 1996. Ukraine failed to negotiate a three year 
Extended Fund Facility agreement with the IMF in 1997 and instead has 
negotiated another stand-by agreement. Ukraine also has made extensive 
use of World Bank structural adjustment lending.
5. Significant Barriers to U.S. Exports

    The daunting menu of a VAT (20 %), import duties (ranging from 5-
200%) and excise taxes (10-300%) present a major obstacle to trade with 
Ukraine. A limited number of goods, including raw materials, component 
parts, equipment, machinery, and energy supplies imported by commercial 
enterprises for ``production purposes and their own needs'' are 
exempted from VAT. Many agricultural enterprises are also exempt from 
the VAT.

    Import duties differ and largely depend upon whether a similar item 
to that being imported is produced in Ukraine; if so, the rate may be 
higher. A list of goods subject to excise taxes includes alcohol, 
tobacco, cars, tires, jewelry, and other luxury items. Excise duty 
rates are expressed as a percentage of the declared customs value, plus 
customs duties and customs fees paid for importing products.

    The significant progress made in the last few years on economic 
stabilization and the reduction in inflation have greatly improved 
conditions for U.S. companies in Ukraine. However, foreign firms need 
to develop cautious and long term strategies which take full account of 
the problematic commercial environment. The underdeveloped banking 
system, poor communications networks, difficult tax and regulatory 
climate, increasing occurrences of crime and corruption, limited 
opportunities to participate in privatization, and lack of a well 
functioning legal system impede U.S. exports and investment to Ukraine.

    Ukraine's domestic production standards and certification 
requirements apply equally to domestically produced and imported 
products. Product testing and certification generally relate to 
technical, safety and environmental standards as well as efficacy 
standards with regard to pharmaceutical and veterinary products. At a 
minimum, imports to Ukraine are required to meet the certification 
standards of their country of origin. In cases where Ukrainian 
standards are not established, country of origin standards may prevail.

    U.S. exports to Ukraine receive preferential custom rates if the 
following three criteria are met: (1) the company is registered in the 
United States; (2) the goods have a certificate to prove U.S. origin; 
and (3) the goods are imported directly from the United States. There 
are no special registration or other requirements, according to the 
State Customs Committee. Duties on goods imported for resale are 
subject to varying ad valorem rates. Imported goods are not considered 
legal imports until they have been processed though the port of entry 
and cleared by Ukrainian customs officials. Import licenses are 
required for very few goods, primarily medicines, pesticides, and some 
industrial chemical products.
6. Export Subsidies Policies

    As part of its efforts to cut the budget deficit, the government 
has significantly reduced the amount of subsidies it provides to state-
owned industry over the last two years. Nonetheless, subsidies remain 
an important part of Ukraine's economy, particularly in the coal and 
agriculture sectors. These subsidies, however, appear not to be 
specifically designed to provide direct or indirect support for 
exports, but rather to maintain full employment and production during 
the transition to a market-based economy. The government does not 
target export subsidies specifically to small business. Ukraine's 
subsidy policy may change in the context of its negotiations to join 
the World Trade Organization (WTO). The country's fifth WTO Working 
Party meeting was held in November 1997. Ukraine has tabled WTO marke 
access offers for both goods and services.
7. Protection of U.S. Intellectual Property

    Ukraine is committed legislatively to the protection of 
intellectual property, but enforcement remains inadequate. Ukraine is a 
successor state to many of the conventions and agreements signed by the 
former Soviet Union and is a member of the World Intellectual Property 
Organization (WIPO). It is a member of the Paris Convention on 
industrial property and the Universal Copyright Convention, and in 1995 
joined the Berne Convention. Ukraine is also a member of the 
International Copyright Convention, the Madrid Agreement on 
registration of marks, and the Patent Cooperation Treaty.

    Ukraine has established a comprehensive legislative system for the 
protection of intellectual property rights. Since 1993 Ukraine has 
enacted five IPR laws covering inventions, industrial designs, 
trademarks, plant varieties, and copyrights. Computer programs and 
sound recordings can be copyrighted according to Articles 18 and 19 of 
the Ukrainian copyright law. There are no data on infringement or 
counterfeiting of trademarks. According to the Ukrainian Patent Agency, 
there are also no statistics on the extent of piracy of books, music 
recordings, videos, or computer software, although pirated movie 
videos, software music cassettes and CDs are widely and openly 
available in stores and street kiosks in Kiev and other major cities. 
Piracy and counterfeits clearly affect U.S. exports.
8. Worker Rights

    a. The Right of Association.--The new constitution guarantees the 
right to join trade unions to defend ``professional, social and 
economic interests.'' Under the constitution all trade unions have 
equal status, and no government permission is required to establish a 
trade union. The 1992 law on citizens' organizations stipulates 
noninterference by authorities in the activities of these organizations 
and their right to establish and join federations and to affiliate with 
international organizations on a voluntary basis. In negotiating wages 
with the government, all unions are permitted to participate. In 
principle, all workers and civil servants including members of the 
armed forces are free to form unions, but in practice the government 
discourages certain categories of workers (e.g., nuclear power plant 
workers) from doing so.

    There are no official restrictions on the right of unions to 
affiliate with international trade union bodies. The independent 
miners' union and independent trade unions have not been pressured to 
limit their contacts with international nongovernmental organizations. 
The AFL/CIO has a permanent representative in Kiev who interacts freely 
with the consultative council of independent trade unions.

    b. The Right to Organize and Bargain Collectively.--The law on 
labor conflict resolution guarantees the right to strike to all but 
members of the armed forces, civil and security services, and employees 
of ``continuing process plants'' (e.g., metallurgical factories). This 
law prohibits strikes that ``may infringe on the basic needs of the 
population'' (e.g., rail and air transportation). Strikes based on 
political demands are illegal. However, this has not stopped miners and 
other workers from striking and making political as well as economic 
demands.

    The law on enterprises states that joint worker-management 
commissions should resolve issues concerning wages, working conditions, 
and the rights and duties of management at the enterprise level. 
Overlapping spheres of responsibility frequently impede the collective 
bargaining process. The government, in agreement with trade unions, 
establishes wages in each industrial sector and invites unions to 
participate in the negotiations. Under current law, disputes are to be 
resolved by the courts. There have been cases in which such disputes 
have not been settled in a fair and equitable manner.

    c. Prohibition of Forced or Compulsory Labor.--The Constitution 
prohibits compulsory labor, and it is not known to exist.

    d. Minimum Age for Employment of Children.--The minimum employment 
age is 17. In certain nonhazardous industries, however, enterprises may 
negotiate with the government to hire employees between 14 and 17 years 
of age, with the consent of one parent. School attendance is compulsory 
to the age of 15, a regulation vigorously enforced by the Ministry of 
Education.

    e. Acceptable Conditions of Work.--The labor code provides for a 
maximum 40-hour work week, a 24-hour day of rest per week, and at least 
15 days of paid vacation per year. Stagnation in some industries (e.g., 
defense industry) significantly reduced the work week for some 
categories of workers. The Constitution and other laws contain 
occupational safety and health standards, but these are frequently 
ignored in practice. Lax safety standards caused many serious mine 
accidents, resulting in 243 deaths over 8 months of 1996 (358 in all of 
1995), which represents a considerable increase in the ratio of 
fatalities per ton of coal extracted amid decreasing coal output. In 
theory workers have a legal right to remove themselves from dangerous 
work situations without jeopardizing continued employment. In reality, 
however, independent trade unionists report that asserting this right 
would result in retaliation or perhaps dismissal by management.

    f. Rights in Sectors with U.S. Investment.--Enterprises with U.S. 
investment frequently offer higher salaries and are more observant of 
regulations than their domestic counterparts. Otherwise, conditions do 
not differ significantly in sectors with U.S. investment from those in 
the economy in general.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                        0 
Total Manufacturing...........................                        1 
  Food & Kindred Products.....................           0              
  Chemicals & Allied Products.................           0              
  Metals, Primary & Fabricated................           0              
  Machinery, except Electrical................           0              
  Electric & Electronic Equipment.............           0              
  Transportation Equipment....................           0              
  Other Manufacturing.........................           1              
Wholesale Trade...............................                        2 
Banking.......................................                        0 
Finance/Insurance/Real Estate.................                        0 
Services......................................                        0 
Other.........................................                      \1\ 
TOTAL ALL INDUSTRIES..........................                      \1\ 
------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.        
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                             UNITED KINGDOM

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise noted] \1\         
------------------------------------------------------------------------
                                                1995     1996   1997 \2\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  Nominal GDP...............................    960.8   1002.9    1091.9
  Real GDP Growth...........................      2.5      2.7       2.6
  GDP by Sector:\3\                                                     
    Agriculture.............................     18.2     18.4       N/A
    Industry................................    290.9    301.7       N/A
    Services................................    465.5    485.8       N/A
    Government..............................    180.6    187.4       N/A
  Per Capita GDP (US$)).....................   16,430   17,100    18,600
  Labor Force (millions)....................     28.1     28.2      28.1
  Unemployment Rate (pct)...................      8.6      8.3       7.9
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply (M4).........................      9.8      9.6      11.8
  Consumer Price Inflation..................      3.5      2.4       2.7
  Exchange Rate (US$/BPS)...................     1.58     1.56      1.63
                                                                        
Balance of Payments and Trade:\4\                                       
  Total Exports FOB.........................    244.8    262.1     274.4
    Exports to U.S.\5\......................     28.4     31.0      34.8
  Total Imports FOB.........................    268.0    287.5     295.2
    Imports from U.S.\5\....................     32.0     35.6      40.5
  Trade Balance.............................    -23.1    -25.4     -20.8
    Balance with U.S.\5\....................     -3.7     -4.7      -5.7
  Current Account Deficit/GDP...............      1.5      1.5       .75
  External Public Debt......................      N/A      N/A       N/A
  Debt Service Payments/GDP (pct)...........      N/A      N/A       N/A
  Fiscal Deficit/GDP (pct)..................      5.4      4.0       1.5
  Gold and Foreign Exchange Reserves........     47.0     46.3      41.1
  Aid from U.S..............................        0        0         0
  Aid from All Other Sources................        0        0         0
------------------------------------------------------------------------
\1\ Converted from British pound sterling (BPS) at the average exchange 
  rate for each year.                                                   
\2\ 1997 figures estimated from data available through September.       
\3\ No sectoral data is available for 1997. For 1995 and 1996, sectors  
  do not add to total due to treatment of net exports and construction. 
\4\ Merchandise trade (does not include services)                       
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports 
  FAS, imports customs basis; 1997 figures are estimates based on data  
  available through September 1997.                                     
                                                                        
Sources: U. K. Office for National Statistics, Bank of England          

1. General Policy Framework

    The United Kingdom (UK) has a free market economy and a liberal 
financial services environment.

    In May, 1997, the Labour Party won an overwhelming Parliamentary 
majority, ending 17 years of Conservative government. The new Prime 
Minister, Tony Blair, inherited a strong economy, with the recovery 
from the 1990-92 recession in its fifth year. Gross Domestic Product 
(GDP) expanded 2.3 percent in 1996 and at a 3.0 percent annual rate 
during the first half of 1997. Most analysts expect growth to slow in 
the second half of 1997 and in 1998 as tighter monetary and fiscal 
policy combine with a stronger sterling to put a brake on the economy. 
Underlying inflation averaged 3.0 percent in 1996, and is now slightly 
above the 2.5 percent target range. Unemployment has fallen 
significantly, reaching 7.1 percent in summer 1997, well below that of 
many continental European nations.

    Fiscal Policy: The sharp recession of 1990-92 led to a record 
budget deficit in 1993, encouraging the previous government to launch a 
deficit reduction program in 1994. This and the economic recovery has 
helped begin to unwind the deficit. The new government's determination 
to live within spending limits set by the previous government, along 
with the introduction of additional revenue measures in July 1997, has 
put the UK on a clear course to achieve fiscal balance by the year 
2000. The General Government Financial Deficit was 4.0% of GDP in 
fiscal year 1996 (April 1996-March 1997) and is expected to fall to 
1.5% in fiscal year 1997 and 0.25% in fiscal year 1998.

    Tax Policy: The new government promised during the campaign not to 
raise the personal income tax rate or broaden the Value Added Tax 
(VAT). The bottom and top personal tax rates thus remain at 20 and 40 
percent. The government intends, however, to strengthen incentives for 
work and savings, and will review the tax (and benefit) system to that 
end. This may produce tax reform in the medium-term. The capital gains 
tax is being reviewed; findings will be reported in March 1998. The 
main corporate tax rate was reduced in July 1997 to 31 percent from 33 
percent; the small companies' rate was reduced to 21 from 23 percent. 
Labour also undertook a controversial measure to tax the windfall gains 
of privatized utilities; this tax is expected to yield 5.2 billion 
pounds sterling over three years, which will be used to help finance 
the government's new Welfare-to-Work program. Other domestic tax 
revenue sources include the VAT (currently 17.5 percent) and excise 
taxes on alcohol, tobacco, retail motor fuels and North Sea oil 
production.

    Monetary Policy: After the UK was effectively forced from the 
Exchange Rate Mechanism (ERM) at the beginning of 1993, the Tory 
government established an inflation target as the guiding objective for 
monetary policy. The new Labour government has reiterated the 
importance of a low inflation policy. It quickly granted the Bank of 
England independence to set interest rates, with the aim of achieving 
an inflation target of 2.5 percent. The UK manages monetary policy 
through open market operations by buying and selling overnight funds 
and commercial paper. There are no explicit reserve requirements in the 
banking system.
2. Exchange Rate Policy

    Since the UK's withdrawal from the ERM in January 1993, the pound 
sterling has floated freely. Sterling's trade weighted exchange rate 
(1990=100) averaged 86.3 in 1996. In the first nine months of 1997, it 
averaged 99.6. This appreciation reflects a variety of factors, 
including higher interest rates in the UK than in continental Europe 
and possibly concerns in the market about European Economic and 
Monetary Union (EMU).

    The new Labour government has indicated it views EMU favorably, 
although it has also declared it ``unlikely'' that the UK will join EMU 
when it is launched on January 1, 1999. Should the government decide to 
pursue EMU membership, it has promised to seek approval from Parliament 
and from the public (either through a referendum or general election) 
before proceeding.
3. Structural Policies

    The UK economy is characterized by free markets and open 
competition, and the government promotes these policies within the EU 
and in international trade fora. The UK's low labor costs and labor 
market flexibility are often credited as major factors influencing the 
UK's success in attracting foreign investment.

    Prices for virtually all goods and services are established by 
market forces. Prices are set by the government in those few sectors 
where the government still provides services directly, such as urban 
transportation fares, and government regulatory bodies monitor the 
prices charged by telecommunications, electric, natural gas and water 
utilities. The UK's participation in the EU Common Agricultural Policy 
significantly affects the prices for raw and processed food items, but 
prices are not fixed for any of these items.

    Over the past 17 years, Conservative governments pursued growth and 
increased economic efficiency through structural reform, principally 
privatization and deregulation. The financial services and 
transportation industries were deregulated. The government sold its 
interests in the automotive, steel, coal mining, aircraft and air 
transportation sectors. Electric power (except nuclear), rail 
transportation and water supply utilities were also privatized. Local 
bus transportation is in the process of privatization. Subsidies were 
cut substantially, and capital controls lifted. Employment legislation 
significantly increased labor market flexibility, democratized unions, 
and increased union accountability for the industrial acts of their 
members. The Labour government in general is expected to continue this 
approach, and has launched further reviews of the regulatory systems 
governing utilities and transportation.

    Although these structural policies have achieved substantial 
economic results, some segments of the economy have still not adjusted. 
Social welfare programs and the business community are still adjusting 
to job losses and changes in the business climate resulting from 
deregulation and privatization.
4. Debt Management Policies

    The UK has no meaningful external public debt. London is one of the 
foremost international financial centers of the world, and British 
financial institutions are major intermediaries of credit flows to the 
developing countries. The British government is an active participant 
in the Paris Club and other multilateral debt negotiations.
5. Significant Barriers to U.S. Exports

     Structural reforms and open market policies make it relatively 
easy for U.S. firms to enter UK markets. The UK does not maintain any 
barriers to U.S. exports other than those implemented as a result of EU 
policies.
6. Export Subsidies Policies

    The government opposes export subsidies as a general principle, and 
UK trade-financing mechanisms do not significantly distort trade. The 
Export Credits Guarantee Department (ECGD), an institution similar to 
the Export-Import Bank of the United States, was partially privatized 
in 1991.

    Although much of ECGD's business is conducted at market rates of 
interest, it does provide some concessional lending in cooperation with 
the Department for International Development (DFID, akin to the U.S. 
Agency for International Development) for projects in developing 
countries. Occasionally the United States objects to financing offered 
for specific projects.

    The UK's development assistance program also has certain ``tied 
aid'' characteristics. The UK adheres to the OECD ``Arrangement on 
Officially-Supported Export Credits'' to minimize the distortive 
effects of such programs.
7. Protection of U. S. Intellectual Property

    UK intellectual property laws are strict, comprehensive and 
rigorously enforced. The UK is a signatory to all relevant 
international conventions, including the Convention Establishing the 
World Intellectual Property Organization (WIPO), the Paris Convention 
for the Protection of Industrial Property, the Berne Convention for the 
Protection of Literary and Artistic Works, the Patent Cooperation 
Treaty, the Geneva Phonograms Convention and the Universal Copyright 
Convention.

    New copyright legislation simplified the British process and 
permitted the UK to join the most recent text of the Berne Convention. 
The United Kingdom's positions in international fora are very similar 
to the U.S. positions.
8. Worker Rights

    a. The Right of Association.--Unionization of the work force in 
Britain is prohibited only in the armed forces, public sector security 
services, and police force.

    b. The Right to Organize and Bargain Collectively.--Nearly 9 
million workers, about a third of the work force, are organized. 
Employers are not legally required to bargain with union 
representatives, but are barred from discriminating based on union 
membership. Employers are allowed to pay workers who don't join a union 
higher wages than union members doing the same work. The 1993 Trade 
Union Reform and Employment Rights Act limited that prohibition under 
certain special circumstances in matters short of dismissal. The new 
Labor Government has promised it will require union recognition where 
at least half the workers belong to a trade union. A white paper 
outlining this proposal is due early in 1998.

    The 1990 Employment Act made unions responsible for members' 
industrial actions, including unofficial strikes, unless union 
officials repudiate the action in writing. Unofficial strikers can be 
legally dismissed, and voluntary work stoppage is considered a breach 
of contract.

    During the 1980s, Parliament eliminated immunity from prosecution 
in secondary strikes and in actions with suspected political 
motivations. Actions against subsidiaries of companies engaged in 
bargaining disputes are banned if the subsidiary is not the employer of 
record. Unions encouraging such actions are subject to fines and 
seizure of their assets. Many unions claim that workers are not 
protected from employer secondary action such as work transfers within 
the corporate structure.

    c. Prohibition of Forced or Compulsory Labor.--Forced or compulsory 
labor is unknown in the UK.

    d. Minimum Age for Employment of Children.--Children under the age 
of 16 may work in an industrial enterprise only as part of an 
educational course. Local education authorities can limit employment of 
children under 16 years old if working will interfere with a child's 
education.

    e. Acceptable Conditions of Work.--The new government has promised 
to establish a minimum wage, which was abolished by the Trade Union 
Reform and Employment Rights Act of 1993. A Tri-partite Commission is 
expected to make a specific recommendation in 1998 regarding the level. 
Daily and weekly working hours are not now limited by law, although the 
EU directive outlawing mandatory work weeks longer than 48 hours will 
be implemented soon.

    Hazardous working conditions are banned by the Health and Safety at 
Work Act of 1974. A health and safety commission submits regulatory 
proposals, appoints investigatory committees, does research and trains 
workers. The Health and Safety Executive (HSE) enforces health and 
safety regulations and may initiate criminal proceedings. This system 
is efficient and fully involves workers' representatives.

    f. Rights in Sectors with U.S. Investment.--U.S. firms in the UK 
are obliged to obey legislation relating to worker rights.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                   14,889 
Total Manufacturing...........................                   32,341 
  Food & Kindred Products.....................        4202              
  Chemicals & Allied Products.................        8846              
  Metals, Primary & Fabricated................        1771              
  Machinery, except Electrical................        6756              
  Electric & Electronic Equipment.............        2705              
  Transportation Equipment....................        1384              
  Other Manufacturing.........................        6677              
Wholesale Trade...............................                     7365 
Banking.......................................                     5260 
Finance/Insurance/Real Estate.................                   68,339 
Services......................................                     8521 
Other Industries..............................                     5846 
TOTAL ALL INDUSTRIES..........................                  146,560 
------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


 
                                AMERICAS

                              ----------                              


                               ARGENTINA

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                                 1995    1996   1997 \1\
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  GDP (at current prices) \2\.................     276     291       310
  Real GDP growth (pct).......................    -4.4     4.3       6.0
  GDP by Sector (pct):                                                  
    Agriculture...............................     8.3     8.5       8.5
    Maufacturing..............................    29.7    29.2        30
    Mining....................................     1.9     1.9       2.5
    Services..................................     N/A     N/A       N/A
    Government................................    15.5    15.8      15.5
  Per Capita GDP (US$)........................   8,100   8,300     8,900
  Labor Force (millions)......................    13.9    14.0      14.0
  Unemployment Rate (pct).....................    16.4      17      13.7
                                                                        
Money and Prices (annual percentage growth):                            
  Money Supply (M2) \3\.......................   -10.0     4.0       1.4
  Consumer Price Inflation \3\................     1.6     0.5       1.0
  Exchange Rate (Peso/US$)....................     1.0     1.0       1.0
                                                                        
Balance of Payments and Trade:                                          
  Total Exports (FOB).........................    20.8    23.7        26
    Exports to the U.S. \4\...................     1.8     2.3       2.5
  Total Imports (CIF).........................    19.8    23.7        30
    Imports from the U.S.\4\..................     4.2     4.5         5
  Trade Balance...............................     1.0     0.6      -4.0
    Balance with the U.S.\4\..................    -2.4    -2.2      -2.5
  External Public Debt........................    80.1    87.0       100
  Fiscal Deficit/GDP (pct)....................    -3.0    -1.8      -1.4
  Current Account Deficit/GDP (pct)...........    -1.3    -1.6      -2.8
  Debt Service Payments/GDP (pct)5.5 6.55.4...                          
  Gold and Foreign Exchange Reserves..........    15.9    16.0      20.0
  Aid from United States......................       0       0         0
  Aid from All Other Sources..................     N/A     N/A       N/A
------------------------------------------------------------------------
\1\ Figures for 1997 are Embassy estimates.                             
\2\ Nominal GDP is virtually the same in dollars or pesos. In April     
  1991, when the convertibility plan took effect, the peso was tied to  
  the U.S. dollar at the rate of one to one.                            
\3\ End of period.                                                      
\4\ Source: U.S. Department of Commerce and U.S Census Bureau; exports  
  FAS, imports customs basis; 1996 figures are estimates based on data  
  available through November 1996.                                      

1. General Policy Framework

    President Carlos Menem's far-reaching reform program, which began 
in earnest in 1991, has revitalized Argentina's economy. From 1991 to 
1994, real GDP growth averaged nearly eight percent annually. However, 
due principally to the Mexican peso crisis, real GDP fell 4.4 percent 
in 1995. The economy rebounded in 1996 with a GDP growth of 4.3 
percent. In 1997, GDP growth will exceed six percent. Inflation remains 
low with the annual rate of increase for consumer prices in 1997 
expected to be below 1.0 percent--a major accomplishment given 
Argentina's bouts with hyperinflation within the last decade. A stable 
exchange rate and reductions in trade barriers resulted in a boom in 
imports, particularly from the United States, during 1991-94. In 1997, 
Argentina's trade deficit with the United States is projected to be 
about 2.5 billion dollars. Argentina is expected to incur a four 
billion dollar overall trade deficit in 1997, reflecting strong demand 
for imports generated by rapid economic growth.

    The number of financial institutions in Argentina dropped from over 
200 in December 1994 to about 120 by the end of 1997. In many respects, 
Argentina's macroeconomic perspectives are better than at any time 
since December 1994. Argentina remains one of the hemisphere's most 
promising emerging markets.

    The public sector budget is expected to run a deficit in 1997 of 
about 4.5 billion dollars--less than 1.5 percent of GDP. Tax collection 
has improved, but evasion is a major problem for the government. Still, 
impressive economic growth and increases in consumption generated 
better tax receipts in 1997 than in 1996.

    The Central Bank of Argentina controls the money supply through the 
buying and selling of dollars. Under the Convertibility Law of 1991, 
the exchange rate of the Argentine peso is fixed to the dollar at the 
rate of one to one. This rate is expected to remain unchanged in the 
medium term.
2. Exchange Rate Policy

    Argentina has no exchange controls. Customers may freely buy and 
sell currency from banks and brokers at market prices. The Central Bank 
buys and sells dollars at the rate of one peso per dollar.
3. Structural Policies

    The Menem administration's reform program has made significant 
progress in transforming Argentina from a closed, highly regulated 
economy to one based on market forces and international trade. The 
government's role in the economy has diminished markedly through the 
privatization of most state firms, including the large oil firm YPF in 
1993. The authorities have also eliminated price controls on almost all 
goods and services. Still, recurrent trade deficits from 1992 to 1994 
and high unemployment led the government to take some ad hoc 
protectionist measures. For example, in 1994 the authorities imposed 
increased ``specific'' duties on almost all textile and footwear 
imports, followed in 1995 by increased duties on apparel imports. 
Subsequently, the government put in place burdensome certificate-of-
origin and labeling requirements on imports of these, and other 
unrelated products. In February 1997, Argentina repealed the existing 
``specific'' duties on footwear--only to immediately reinstate them 
under a safeguard investigation. At the same time, the United States 
requested formation of a WTO panel to review Argentina's footwear and 
textile regimes, as well as the three-percent statistical tax. In a 
preliminary ruling in September 1997, the WTO panel found that the 
textile regime and statistical tax violate Argentina's WTO commitments. 
Further, in November 1997, the Government of Argentina put in place 
pre-shipment inspection requirements for imports of most consumer goods 
and vehicle products.

    Argentina, Brazil, Paraguay and Uruguay established the Southern 
Cone Common Market (Mercosur) in 1991, and on January 1, 1995, formed a 
partial customs union with a common external tariff (cet) covering 
approximately 85 percent of trade. The CET ranges from zero to 23 
percent. Initially, the government exempted some products from the cet, 
such as capital goods, informatics and telecommunications, to help 
support the modernization of the industrial infrastructure. However, in 
August 1996 tariffs on these items were increased to the Mercosur 
level. As a result, many non-Mercosur products entering Argentina now 
face higher tariffs. Chile signed a free trade agreement with Mercosur, 
effective October 1, 1996, but will not participate in the cet. Bolivia 
also entered into a similar pact on April 30, 1997. Mercosur is also 
discussing the prospect of a free trade agreement with the Andean 
community. In January 1998, the Government of Argentina put in place a 
three percent increase in its CET allowing for exceptions in capital 
goods, informatics, telecommunications and other items.

    Argentina signed the Uruguay Round agreements in April 1994, its 
congress ratified the agreements at the end of 1994, and Argentina 
became a founding member of the WTO on January 1, 1995.
4. Debt Management Policies

    Argentina's public debt maturities are mostly concentrated in the 
longer term. Debt increased in 1997 and approached $100 billion--
slightly less than 30 percent of gdp. Argentina is expected to make 
total debt service (principal and interest) payments of about $15 
billion per year through 1999. Interest payments on public debt in 1998 
will represent only about two percent of gdp. There is no indication 
that Argentina will face debt financing difficulties in the medium 
term.
5. Significant Barriers to U.S. Exports

    One of the key reforms of the Menem administration has been to open 
the Argentine economy to international trade. The government abolished 
the import licensing system in 1989, and in 1990 cut the average tariff 
from nearly 29 percent to less than 10 percent. However, Mercosur 
common external tariff rates are slightly higher, so that Argentina's 
average tariff is now closer to 17 percent. In August 1996, to increase 
revenue in the aftermath of the Tequila crisis, the Government of 
Argentina raised the tariff on capital goods--from ten to fourteen 
percent--to boost revenues. Capital goods account for over 40 percent 
of U.S. exports.

    Barriers to U.S. Exports: despite the generally open market for 
imports, the authorities occasionally erect protectionist barriers, 
such as the increase in ``specific'' duties applied to textiles and 
footwear in January 1994. Restrictions apply to imports of a broad 
range of used and manufactured equipment as well. In May 1996 the 
government issued a resolution requiring local generation of a majority 
of cable TV channels carried by cable and pay television operators in 
Argentina. The resolution also obliges all operators to register their 
programming with a government regulatory body. U.S. companies fear the 
measure will limit the entrance of new foreign channels and 
programming, but it has had little impact to date on their operations.

    Argentina also protects the automobile assembly industry through a 
combination of quotas and heavy tariffs. Nevertheless, the number of 
foreign-manufactured vehicles on the roads is increasing because of 
heavy demand that outstrips local production. The government plans to 
dismantle the present auto protection scheme by 2000, when a common 
Mercosur auto policy is scheduled to take effect.

    Standards: Argentina generally recognizes U.S. and European 
standards. However, as the government and its Mercosur partners 
gradually establish a more structured and defined standards system, the 
standards requirements are becoming progressively more complex, 
particularly for medical products. Under the WTO Agreement on Technical 
Barriers to Trade, Argentina established an ``enquiry point'' to 
address standards-related enquiries. While this enquiry point exists 
formally at the Direccion General de Industria, it is not fully 
functional at present.

    Service Barriers: in January 1994, the authorities abolished the 
distinction between foreign and domestic banks. U.S. banks are well 
represented in Argentina and are some of the more dynamic players in 
the financial market. U.S. insurance companies are active in providing 
life, property and casualty, and workers compensation insurance. The 
privatization of pension funds has also attracted U.S. firms.

    Investment Barriers: There are very few barriers to foreign 
investment. Firms need not obtain permission to invest in Argentina. 
Foreign investors may wholly own a local company, and investment in 
shares on the local stock exchange requires no government approval. 
There are no restrictions on repatriation of funds.

    A United States-Argintina bilateral investment treaty came into 
force on October 20, 1994. Under the treaty, U.S. investors enjoy 
national treatment in all sectors except shipbuilding, fishing and 
nuclear power generation. An amendment to the treaty removed mining, 
except uranium production, from the list of exceptions. The treaty 
allows arbitration of disputes by the International Center for the 
Settlement of Investment Disputes or any other arbitration institution 
mutually agreed by the parties.

    Government Procurement Practices: Argentina is not a signatory to 
the WTO Government Procurement Agreement, and the ``Buy Argentina'' 
program was permanently eliminated in October 1991. Government 
procurement in Argentina is subject to articles 55 through 64 of the 
Accounting Law (Ley de Contabilidad del Estado). Government purchases 
of less than $100, 000 are affected by direct invitation to bid; no 
tender is published. Purchases of between $100,000 and $1,000,000 
require published tenders and an open bidding process. When required, 
tenders are published in the Official Gazette. Tenders for purchases of 
less than $5,000,000 are published for a period of two to four days; 
for purchases of more than $5,000,000 tenders are published for a 
period of eight days.

    Customs Procedures: Customs procedures are cumbersome and time-
consuming, thus raising the cost for importers. Installation of an 
automated system in 1994 has eased the burden somewhat. The government 
is resorting more frequently to certificate-of-origin requirements and 
reference prices to counter under invoicing and ``social'' dumping, 
primarily from the Far East. In 1997, the government merged the customs 
and tax authorities to boost revenue collection and improve efficiency. 
It instituted a preshipment inspection system in late 1997 to verify 
the price, quality and quantity of imports. The system will be 
implemented by six private firms.
6. Export Subsidies Policies

    As a WTO member, Argentina adheres to WTO subsidies obligations. It 
also has a bilateral agreement with the United States to eliminate 
remaining subsidies provided to industrial exports and ports located in 
the Patagonia region. Nevertheless, the government retains minimal 
supports, such as reimbursement of indirect tax payments to exporters. 
The government also maintains an industrial specialization program 
which allows certain industries that boost their exports to report a 
comparable amount of imports at a reduced tariff. The program will end 
in the year 2000.
7. Protection of U.S. Intellectual Property

    Argentina is a member to most treaties and international agreements 
on intellectual property, including the Paris Convention on Industrial 
Property (Lisbon revision and nonsubstantive portions of the Stockholm 
revision), the Brussels and Paris revisions of the Berne Convention, 
the Universal Copyright Convention, the Geneva Phonogram Convention, 
the Treaty of Rome and the Treaty on the International Registration of 
Audiovisual Works. In addition, Argentina is a member of the World 
Intellectual Property Organization (WIPO). However, reform of 
Argentina's patent system has in recent years been a contentious 
bilateral issue. The United States suspended fifty percent of 
Argentina's GSP benefits in May 1997, because of its failure to enact 
adequate patent protection for pharmaceuticals, and Argentina remains 
on the Special 301 Priority Watch List. U.S. industries have cited 
enforcement of existing intellectual property protection as problematic 
in several instances.

    Patents: after a three-year conflict between the Argentine 
executive and congress over the issue of patent protection for 
pharmaceutical products, the executive issued a March 1996 decree 
consolidating previous patent legislation. Under the decree, Argentina 
will issue patents for pharmaceuticals starting in November 2000. The 
decree does not provide patent protection for products under 
development, and contains ambiguous language on parallel imports and 
compulsory licenses. For example, the decree bans parallel imports but 
allows the import of products which have been licitly placed in 
commerce in a third country. Compulsory licenses can be awarded in 
cases of anti competitive practices or for failure to work a patent.

    The March 1996 decree improves earlier Argentine patent 
legislation, but provides less protection than that originally proposed 
by the executive. The decree also does not meet the concerns of the 
U.S. Pharmaceutical industry. In December 1996, the Argentine congress 
passed a data confidentiality law that fails to provide effective 
protection for test data submitted to Argentine health authorities by 
companies seeking marketing approval for pharmaceutical and 
agrochemical products. Despite these flaws, the Argentine executive 
does not plan to seek further changes in the patent regime or data law 
before the year 2000.

    Copyrights: Argentina's Copyright Law, enacted in 1933, is adequate 
by international standards. Recent decrees provided protection to 
computer software and extended the term of protection for motion 
pictures from 30 to 50 years after the death of the copyright holder. 
As in many countries, video piracy is a serious problem. Efforts are 
underway to combat this, including arrests, seizure of pirated 
material, and introduction of security stickers for cassettes. However, 
a recent lower court decision, currently on appeal to the supreme 
court, put in question the application of criminal sanctions in cases 
involving unauthorized use of computer software. A bill making criminal 
sanctions clearly applicable in software piracy cases is pending in the 
Chamber of Deputies.

    Trademarks: Trademark laws and regulations in Argentina are 
generally good. The key problem is a slow registration process, which 
the government has striven to improve.

    Trade Secrets: Argentina has no trade secrets law as such, but the 
concept is recognized and encompassed by laws on contract, labor and 
property. Penalties exist under these statutes for unauthorized 
revelation of trade secrets.

    Semiconductor Chip Layout Design: Argentina has no law dealing 
specifically with the protection of layout designs and semiconductors. 
This technology conceivably could be covered by existing legislation on 
patents or copyrights, but this has not been verified in practice. 
Nevertheless, Argentina has signed the wipo treaty on integrated 
circuits.
8. Worker Rights

    a. The Right of Association.--All Argentine workers except military 
personnel are free to form unions. Union membership is estimated at 30-
40 percent of the work force. Unions are independent of the government 
and political parties, although most union leaders are affiliated with 
President Menem's Justicialist Party. Unions have the right to strike, 
and strikers are protected by law. Argentine unions are members of 
international labor associations and secretariats and participate 
actively in their programs.

    b. The Right to Organize and Bargain Collectively.--Argentine law 
prohibits anti-union practices. The trend continues towards bargaining 
on a company level, in contrast to negotiating at the national level on 
a sectoral basis, but the adjustment has not been easy for either 
management or labor. Both the federal government and a few highly 
industrialized provinces are working to create mediation services to 
promote more effective collective bargaining and dispute resolution.

    c. Prohibition of Forced or Compulsory Labor.--The constitution 
prohibits forced labor, and there were no reports of such incidents 
during 1995.

    d. Minimum Age for the Employment of Children.--The law prohibits 
employment of children under 14, except in rare cases where the 
Ministry of Education may authorize a child to work as part of a family 
unit. Minors aged 14 to 18 may work in a limited number of job 
categories, but not more than six hours a day or 35 hours a week. The 
law is effectively enforced except in some isolated rural areas where 
government monitoring capabilities are thin.

    e. Acceptable Conditions of Work.--The national monthly minimum 
wage is $200. Federal labor law mandates acceptable working conditions 
in the areas of health, safety and hours. The maximum workday is eight 
hours, and the work week is limited to 48 hours. The government has 
enacted reforms aimed at giving small and medium enterprises greater 
flexibility in the management of their personnel. The government is 
also striving to modernize the system of workers compensation. 
Argentina has well-developed health and safety standards, but the 
government often lacks sufficient resources to enforce them.

    f. Rights in Sectors with U.S. Investment.--Argentine law does not 
distinguish between worker rights in nationally-owned enterprises and 
those in sectors with U.S. investment. The rights enjoyed by Argentine 
employees of U.S.-owned firms in Argentina equal or surpass Argentine 
legal requirements.

Extent of U.S. Investment in Selected Industries--U.S. Direct Investment
            Position Abroad on an Historical Cost Basis--1996           
                       [Millions of U.S. dollars]                       
------------------------------------------------------------------------
                   Category                                     Amount  
------------------------------------------------------------------------
Petroleum.....................................                      851 
Total Manufacturing...........................                     3703 
  Food & Kindred Products.....................        1013              
  Chemicals & Allied Products.................        1690              
  Metals, Primary & Fabricated................         195              
  Machinery, except Electrical................         \2\              
  Electric & Electronic Equipment.............          57              
  Transportation Equipment....................         195              
  Other Manufacturing.........................         554              
Wholesale Trade...............................                      773 
Banking.......................................                      957 
Finance/Insurance/Real Estate.................                     1097 
Services......................................                      206 
Other Industries..............................                      512 
TOTAL ALL INDUSTRIES..........................                     8060 
------------------------------------------------------------------------
\1\ Indicates a value between $-500,000 and $500,000.                   
                                                                        
Source: U.S. Department of Commerce, Bureau of Economic Analysis        


                                 ______
                                 

                              THE BAHAMAS

                         Key Economic Indicators                        
          [Billions of U.S. Dollars unless otherwise indicated]         
------------------------------------------------------------------------
                                              1995      1996      1997  
------------------------------------------------------------------------
                                                                        
Income, Production and Employment:                                      
  GDP (at current prices).................     3,500     3,750       N/A
  Real GDP Growth.........................       1.3       3.7       4.0
  GDP by Sector (percent of total):                                     
    Tourism...............................        50        50        60
    Finance...............................        12        12        12
    Manufacturing.........................         4         4         3
    Agriculture/Fisheries.................         4         4         3
    Government............................        12        12        12
    Other.................................        18        18        10
  Per Capita GDP (US$) \1\................    11,059    11,115       N/A
  Labor Force (000s)......................     143.0     146.6       N/A
  Unemployment Rate (percent).............      11.1      11.5       N/A
                                                                        
Money and Prices (annual percent change):                               
  Money Supply Growth (M2)................       7.2       6.0   \3\ 6.9
  Retail Price Inflation..................       2.1       1.4       0.4
  Exchange Rate (B$/US$$).................      1.00      1.00      1.00
                                                                        
Balance of Payments and Trade:                                          
  Total Exports (FOB).....................     175.9     201.7       N/A
  Exports to U.S.\2\......................     156.0     165.4       N/A
  Total Imports (CIF).....................    1155.5    1261.6       N/A
    Imports from U.S.\2\..................     660.5     725.0       N/A
  Trade Balance...........................    -979.6   -1059.9       N/A
    Balance with U.S.\2\..................    -504.5    -652.0       N/A
  Current Account Deficit/GDP (pct).......       5.6       7.9       N/A
  External Public Debt....................      90.9      77.0       N/A
  Debt Service Payments/GDP (pct).........       2.5       2.6       N/A
  Fiscal Deficit/GDP......................       0.6       1.2       N/A
  Foreign Exchange Reserves...............     170.6     163.0  \3\ 298.
                                                                       2
  Aid from U.S............................         0         0         0
  Aid from Other Countries................       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Source: Interamerican Development Bank                              
\2\ Source: U.S. Department of Commerce                                 
\3\ At June 1997                                                        
                                                                        
Source: Central Bank of The Bahamas and the Department of Statistics    

1. General Policy Framework

    The Bahamas is a politically stable, middle-income developing 
country. The economy is based primarily on tourism and financial 
services, which account for approximately 60 percent and 12 percent of 
GDP respectively. The agricultural and industrial sectors, while small, 
continue to be the focus of government efforts to produce new jobs and 
diversify the economy.

    The United States remains the Bahamas' major trading partner. U.S. 
exports to The Bahamas increased from $660.5 million in 1995 to $725 
million in 1996 and account for approximately 55 percent of all 
imports. Although certain areas of economic activity are reserved for 
Bahamian citizens, The Bahamian government actively encourages foreign 
investment in unreserved areas and promotes the free trade zone on 
Grand Bahama. Capital and profits are freely repatriated, and personal 
and corporate income is not taxed by the Bahamian government. 
Designation under the Caribbean Basin Initiative (CBI) trade program 
allows qualified Bahamian goods to enter the United States duty free.

    The Bahamian government enacted a policy in the 1995-1996 budget in 
which the annual amount of new borrowings would be no greater than the 
amount of debt redemption. The 1997-1998 budget totaling $968 million 
provides for recurring expenditures of $846 million, an increase of 
$256.6 million including $26 million from the 1995/96 budget. A total 
of $68.4 million has been allocated for repayment of government debt. 
Overall, the budget concentrates on improving health care services, 
education and training programs, and reducing crime. Although the 
budget again
held no new taxes and did not raise existing taxes, the GCOB expects 
sustained economic expansion and improvements in revenue collection to 
support revenue growth. The government instituted new customs duty 
exemptions to stimulate Family Island development and encourage growth 
in small scale tourist resorts in the Bahamas.

    Recurrent revenue for 1997-1998 is projected at $766.3 million, 
representing an increase of seven percent over the 1996-1997 fiscal 
year. This figure also reflects an additional $40 million in 
anticipated savings, not yet identified at the time of the budget 
process. The commercial banks' prime lending rate remained at 6.75 
percent.
2. Exchange Rate Policy

    The Bahamian dollar is pegged to the U.S. dollar at an exchange 
rate of 1:1, and the Bahamian government recently repeated its long-
standing commitment to maintain parity.
3. Structural Policy

    Price controls exist on 13 bread basket items, as well as gasoline, 
utility rates, public transportation, automobiles, and auto parts. The 
rate of inflation is estimated at 0.4 percent.

    The Bahamas is recognized internationally as a tax haven. The 
government does not impose income, inheritance or sales taxes. In the 
1995-1996 budget, the government lowered taxes and reduced the stamp 
duty on various tourism related items including: liqueurs and spirits, 
jewelry and watches, perfumes, toilet water, table linens, and non-
leather designer handbags. The government hopes this measure will 
increase the country's competitive edge in the tourism sector and 
expects merchants to pass these savings on to tourists. These 
concessions were also instituted to safeguard employment in retail 
trade catering to tourists and promote the price competitiveness of 
goods in the Bahamian market. The rate of stamp duty on cigarettes was 
also lowered.

    Certain goods may be imported conditionally on a temporary basis 
against a security bond or deposit which is refundable upon re-
exportation. These include: fine jewelry, goods for business meetings 
or conventions, traveling salesman samples, automobiles or motorcycles, 
photographic and cinematographic equipment, and equipment or tools for 
repair work.

    In 1993 the Bahamian government repealed the Immovable Property 
(Acquisition by Foreign Persons) Act, which required foreigners to 
obtain approval from the Foreign Investment Board before purchasing 
real property in the country, and replaced it with the Foreign Persons 
(Landholding) Act. Under the new law, approval is automatically granted 
for non-Bahamians to purchase residential property of less than five 
acres on any single island in the Bahamas, except where the property 
constitutes over fifty percent of the land area of a cay (small island) 
or involves ownership of an airport or marina.

    The new law also provides for a two-year real property tax 
exemption for foreign persons acquiring undeveloped land in Th